TIDMPHP
RNS Number : 6760P
Primary Health Properties PLC
21 August 2014
Primary Health Properties PLC
Interim results for the six months ended 30 June 2014
Primary Health Properties PLC ("PHP", the "Group" or the
"Company"), the UK's leading investor in modern primary healthcare
facilities, is pleased to announce its interim results for the six
months ended 30 June 2014.
OPERATIONAL HIGHLIGHTS
-- Total portfolio including development properties reaches GBP1
billion including commitments; an increase of 4.3% in the period
(31 December 2013: GBP958.7 million)
-- Surplus on property valuation of GBP16.1 million, an increase
of 1.7% for the period(30 June 2013: GBP0.2 million)
-- Rental income receivable increased by 50% to GBP29.4 million (30 June 2013: GBP19.7 million)
-- Average annualised uplift of 1.9% on reviews completed in the period
-- Portfolio 99.7% let with 16 years weighted average lease length (including commitments)
-- Revised terms for provision of property advisory and administrative services
FINANCIAL HIGHLIGHTS
-- Operating profit before result on property portfolio rose 52%
to GBP25.4 million (30 June 2013: GBP16.7 million)
-- Profit before tax increased to GBP22.1 million (30 June 2013: GBP13.6 million)
-- Adjusted profit increased by 91% to GBP8.2 million (30 June 2013: GBP4.3 million)
-- Adjusted earnings per share increased by 54% to 7.4 pence (30 June 2013: 4.8 pence)
-- Interim dividend of 9.75 pence per share paid in April 2014 (30 June 2013: 9.5 pence)
-- Dividend cover increased to 76% (30 June 2013: 52%)
-- Further interim dividend of 9.75 pence per share declared, payable on 7 November 2014
-- EPRA net asset value per share increased by 2.7% to 308 pence (31 December 2013: 300 pence)
-- GBP82.5 million Convertible Bond 2019 issued on 20 May 2014
-- Average cost of debt reduced to 4.6% (year to 31 December 2013: 5.5%)
OUTLOOK
-- Strengthened debt structure enhances PHP's ability to continue to expand its portfolio
-- Further progress toward short term priority of returning to
full dividend cover as debt terms revised and acquisition activity
continues through second half of 2014
-- Strong sector fundamentals with long term secure income
streams funded by the National Health Service
-- Strong pipeline of acquisition opportunities to build on success of first six months
Harry Hyman, Managing Director of Primary Health Properties,
commented:
"PHP continues to perform strongly and deliver value for
shareholders. For the first time the portfolio of high quality
modern healthcare facilities has reached GBP1 billion with the
strength of the portfolio reflected in a healthy valuation
surplus.
We have made significant progress in increasing dividend cover,
which has been a key focus for the Group and have maintained our
progressive dividend policy with a 2.6% increase over the same
period in 2013.
The sector continues to demand new purpose built premises as
primary care now becomes more integrated with other aspects of care
historically delivered by NHS Trusts and Local Authorities. The
increasing demand for healthcare services and continued drive to
deliver more care from modern local facilities will maintain the
need for the types of new premises that PHP provides. "
For further information contact:
Harry Hyman Phil Holland
Primary Health Properties PLC Primary Health Properties PLC
T +44 (0) 20 7451 7050 T +44 (0) 20 7451 7050
harry.hyman@nexusgroup.co.uk phil.holland@nexusgroup.co.uk
---------------------------------- -------------------------------
David Rydell / Victoria Geoghegan
/
Elizabeth Snow
Bell Pottinger
T +44 (0) 20 3772 2562
---------------------------------- -------------------------------
Joshua Cryer / Robert Irvin
Broker Profile
T +44 (0) 207 448 3244
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Interim Review
The first six months of 2014 has been a busy period for the
Group with significant activity across all areas of its business.
The Group has increased its property portfolio to over GBP1
billion, completed over GBP157 million of debt capital market
transactions and consolidated the provision of advisory services to
the Group.
These are in line with our strategic objectives of continuing to
acquire modern, purpose built premises that provide secure long
term income streams and the potential for rental and capital
growth, funding this investment with an appropriate mix of equity
and debt, with our debt provided by a diversified range of funding
partners at a competitive cost. The combination of these will
generate increased earnings that will enable us to deliver a return
to shareholders through dividend and share price growth.
We have made strong progress during the period toward achieving
our key, short term priority of returning to full dividend cover
whilst maintaining a progressive dividend policy. The properties
acquired in late 2013 and the refinancing of the debt that was
assumed with the Prime Public Partnerships (Holdings) Limited
("PPP") acquisition have both been reflected in improved earnings
for the period, which has been further enhanced by restructuring
the cost of managing the Group.
Notwithstanding the increase in the interim dividend, dividend
cover rose to 76% in the first half of 2014 compared with 52% for
the same period in 2013.
Key performance indicators
Six months Year to Year to Year to Year to Year to
to 31 December 31 December 31 December 31 December 31 December
30 June 2013 2012 2011 2010 2009
2014
------------------------ ------------ ------------- ------------- ------------- ------------- -------------
Total Investment GBP1,000.4m GBP958.7m GBP645.4m GBP539.7m GBP503.6m GBP371.0m
Property(1)
Total property
return 4.75% 8.23% 6.99% 8.25% 10.21% 2.93%
Rent roll (annualised) GBP59.4m GBP57.6m GBP38.9m GBP31.4m GBP28.0m GBP21.3m
Adjusted earnings
per share 7.4p 10.6p 10.2p 14.5p 14.7p 18.4p
Dividend per
share 9.75p 19.0p 18.5p 18.0p 17.5p 17.0p
Dividend cover 76% 56% 56% 82% 84% 128%
Net asset value GBP341.9m GBP330.9m GBP231.9m GBP217.6m GBP195.6m GBP172.0m
(EPRA(2) )
Net asset value
per share (EPRA(2)
) 308 p 300 p 305 p 319 p 311 p 280 p
------------------------ ------------ ------------- ------------- ------------- ------------- -------------
(1) Includes developments properties committed to at period end
as if completed
(2) European Public Real Estate Association ("EPRA")
Operations
We have achieved 91% growth in adjusted profit in the period to
GBP8.2 million (30 June 2013: GBP4.3 million), which equates to a
54% increase in adjusted earnings per share of 7.4 pence (30 June
2013: 4.8 pence per share). We have paid an interim dividend of
9.75 pence per share, an increase of 2.6% over that for the same
period in 2013 but at the same time have increased dividend cover
to 76% for the period, compared to 52% for the first half of 2013
and 56% for 2013 as a whole.
Six months Six months Year to
to 30 June to 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
------------------------------------- ------------ ------------ -------------
Rental and related income 29.4 19.7 42.0
Property related and administrative
expenses (4.0) (3.0) (6.5)
------------------------------------- ------------ ------------ -------------
Operating profit before revaluation
gain and financing 25.4 16.7 35.5
Net financing costs (17.2) (12.4) (26.0)
------------------------------------- ------------ ------------ -------------
Adjusted profit 8.2 4.3 9.5
Profit on sale of asset held
as a finance lease - 0.6 0.6
Early loan repayment fee (0.9) (0.8) (0.9)
Convertible Bond issue costs (2.4) - -
Fair value gain on interest
rate swaps 1.1 9.5 11.4
Net result on property portfolio 16.1 0.2 2.3
Non-recurring expenses - (0.2) (2.7)
------------------------------------- ------------ ------------ -------------
Profit before tax 22.1 13.6 20.2
------------------------------------- ------------ ------------ -------------
Rental income receivable by the Group in the period to 30 June
2014 increased by 50% to GBP29.4 million (30 June 13: GBP19.7
million) reflecting a full six month contribution from the PPP
portfolio acquired in December 2013.
The additional income from rent reviews completed in the period
is also reflected in this growth. Reviews on a total of GBP6.5
million of rent were finalised on a mix of open market reviews,
fixed rental uplifts and rents formally linked to the Retail Prices
Index. An average increase of 1.9% per annum has been achieved,
down marginally from that for the whole of 2013 of 2.2%. We expect
to see growth continue on review at these lower levels in the
immediate future but increasing as more new developments are
approved and new rental levels established.
As previously reported, on 1 May 2014 we consolidated the
provision of accounting and company secretarial services to Nexus,
our long term real estate adviser, to enhance service quality and
information management. The change breaks the previous link to
gross asset value and reduces considerably the Group's overhead
costs. Based on gross assets as they were at 1 May 2014 an
annualised saving of GBP1.2 million per annum is made on fees that
would otherwise have been payable. The new fixed fee basis will
provide additional benefit as the Group continues to grow its asset
portfolio allowing more of the rental surplus to flow through to
earnings.
The total advisory fee for the period compared to the first six
months of 2013 increased overall to GBP2.8 million (30 June 2013:
GBP2.3 million) due to the substantial increase in the value of the
Group's property portfolio. This does, however, represent an
annualised cost of just 0.59% of gross assets in the period, a
significant reduction when compared to a cost of 0.71% for 2013 as
a whole.
Net finance costs increased to GBP17.2 million (30 June 2013:
GBP12.4 million), similarly reflecting the increase in the overall
property portfolio, but the average cost of debt fell to 4.6% (31
December 2013: 5.5%) as the benefits of the financing activity of
2013 took full effect.
The underlying growth in the value of the Group's asset
portfolio is reviewed in more detail below but a slight tightening
in the equivalent valuation yield at the balance sheet date has
generated a valuation surplus of GBP16.1 million for the period (30
June 2013: GBP0.2 million), after absorbing the costs of property
acquisitions.
Changes to term interest rates through the period have led to an
overall increase of GBP0.3 million in the Mark to Market ("MtM")
liability on revaluation of interest rate swaps. The composition of
the Group's swap portfolio means that a surplus of GBP1.1 million
is recognised in profit for the period, with a deficit of GBP1.4
million taken directly to reserves.
After recognising a residual early repayment fee of GBP0.9
million on the refinancing of the Aviva loans acquired with the PPP
portfolio, the profit before tax of the Group for the period to 30
June 2014 was GBP22.1 million (30 June 2013: GBP13.6 million).
Property portfolio
Three new property transactions were completed in the six month
period, committing a total of GBP23.0 million.
Asset Acquisition Acquisition Size sqm Target completion
basis cost date
------------------- --------------------- --------------- ---------- ------------------
Gorse Stacks, Forward commitment GBP19.0 5,754 sqm December 2014
Chester million
------------------- --------------------- --------------- ---------- ------------------
Caia Park, Wrexham Forward commitment GBP2.3 million 850 sqm December 2014
------------------- --------------------- --------------- ---------- ------------------
Newton Abbot, Completed investment GBP1.7 million 753 sqm Rent producing
Devon
(Pharmacy unit)
------------------- --------------------- --------------- ---------- ------------------
The property portfolio comprised of 262 assets as at 30 June
2014, 257 of which were completed and rent producing and five that
were on site being built with completion dates through the second
half of 2014 and the first half of 2015. One asset in Bradford has
since reached completion and became rent producing from 4 July
2014.
The wider property sector has seen a strong improvement in
values as confidence returns to investment and occupier markets and
the UK economy in general. Primary care real estate has
traditionally not seen large swings in values due to the long term,
secure nature of its income underpinned by the NHS covenant. In the
first half of 2014, the sector has, however, experienced an
increase in investor demand for these characteristics, particularly
from institutional investors looking for larger lot sizes with
indexed linked or fixed rental uplifts.
The interim property valuation has reflected the tone of the
underlying market. Value growth has been seen across the portfolio
but has been more pronounced for larger lot sizes and assets with
indexed linked or fixed uplift rent review characteristics.
The value of the Group's portfolio as at 30 June 2014, including
purchases committed, totalled a landmark GBP1.0 billion (31
December 2013: GBP958.7 million). The independent valuation
undertaken by Lambert Smith Hampton, Chartered Surveyors and
Valuers, generated an overall surplus on revaluation of GBP16.1
million an increase of 1.7% in the six month period, that equates
to 14.0 pence per ordinary share. This reflects an equivalent yield
of 5.64% (31 December 2013: 5.71%) and an initial yield of 5.58%
(31 December 2013: 5.64%).
Number At At
of properties 30 June 31 December
at 30 June 2014 2013
2014
GBPm GBPm
----------------------------------------- --------------- --------- -------------
Investment properties 257 965.3 929.5
Properties in the course of development 5 17.5 11.7
----------------------------------------- --------------- --------- -------------
Total properties 262 982.8 941.2
Expansion land - 0.5 0.4
----------------------------------------- --------------- --------- -------------
Total owned and leased 262 983.3 941.6
Balance of purchases committed
at the period end - 17.1 17.1
----------------------------------------- --------------- --------- -------------
Total owned, leased and committed 262 1,000.4 958.7
----------------------------------------- --------------- --------- -------------
The annualised contracted rent roll of the portfolio, including
development commitments, stood at GBP59.4 million, an increase of
3.1% in the period generated by acquisitions, increases from asset
management projects and growth from rent reviews. The Weighted
Average Unexpired Lease Term ("WAULT") of the portfolio as at 30
June 2014 was 16 years (31 December 2013: 16 years).
The 2013 acquisitions and those in 2014 have changed the overall
profile of the portfolio with a larger proportion now having rent
reviews formally linked to RPI or with fixed increases, 22% by
rental value as at 30 June 2014 compared to 15% as at 30 June 2013.
We have also continued to increase the average lot size of assets
within the portfolio.
Capital value 30 June 30 June 30 June 31 December
2014 2014 2014 2013
Number GBPm % %
--------------------- -------- -------- -------- ------------
Above GBP9 million 14 202.8 20.3% 16.6%
GBP3 million - GBP9
million 108 503.8 50.4% 53.0%
GBP1 million - GBP3
million 136 290.3 29.0% 30.1%
GBP0 - GBP1 million 4 3.5 0.3% 0.3%
262 1,000.4 100.0% 100.0%
--------------------- -------- -------- -------- ------------
On 28 July 2014 we announced PHPs commitment to fund and acquire
a new medical centre in North Wales, as detailed in the table
below, for a cost of GBP3.5 million.
Asset Acquisition Size WAULT/ Tenants
basis sqm Lease term
------------------ ------------ ------ ------------ --------------
Hope Primary Care Development 1,793 20 years GP practices
Resource Centre, asset and Local
Flintshire Health Board
------------------ ------------ ------ ------------ --------------
We have a strong pipeline totalling GBP85 million of further
investment and development acquisitions either in solicitors' hands
or at advanced stages of negotiation. We are working on additional
opportunities that will add to this and are optimistic that the
second half of 2014 will see further assets purchased and or
committed.
Asset Management
As set out in the 2013 Annual Report, a key strategic focus of
the Group is the active management of its existing portfolio. This
takes a number of forms that seek to realise enhanced capital value
through extending buildings and leases and so increasing rental
income and capital value.
Projects range from small refurbishment and reconfigurations of
existing accommodation, for example, bringing complementary
pharmacy and dentistry facilities to sites, up to large scale
extensions to enable general practice amalgamations and the
provision of additional health and community related services.
To date three projects have been completed in 2014, investing
GBP1.0 million into the assets and generating additional rent of
GBP0.1 million for an average additional term of 15 years.
We are currently on site with six projects of varying scale that
are set out in the table below. These commit the Group to a total
capital spend of GBP5.6 million and generate an additional GBP0.5
million or 9% cash yield on investment. Leases will be completed or
extended that add an average of 18 years to their current term.
Project Project Additional lease
term
----------- ------------------------------------ -----------------
Aylesbury A 743 square metre extension 16 years
Corbridge Conversion of under croft space to 18 years
medical space
Cowbridge New pharmacy unit 17 years
Eastleigh Centre refurbishment 20 years
Hornchurch New pharmacy and building extension 13 years
Willesden Refurbishment of whole building 21 years
There are a number of further schemes that are being pursued
where discussions continue with tenants and NHS bodies. These are
at various stages of formation and approval and will provide a
steady flow of additional revenue and valuation growth for the
Group.
Portfolio performance
The IPD Healthcare Property Index for 2013 (the "Index") was
published on 28 February 2014. PHP, its listed peers and other
healthcare real estate investors contribute data with regard to
assets totalling over GBP2.3 billion in value.
For the calendar year to 31 December 2013, PHP outperformed the
Index once again. Total return from the Group's property portfolio
was 8.2% compared to the Index return of 7.2%. The table below sets
out the full range of comparable data which illustrates the
continued strong performance of the Group's real estate
portfolio.
One year Three years Five years
--------------------------- --------- ------------ -----------
Primary Health Properties 8.2% 8.3% 14.0%
IPD Healthcare Property
Index(1) 7.2% 7.9% 8.7%
(1) Source: Investment Property Databank
Capital resources and debt issuance
The first six months of 2014 have seen further work on debt
management and issuance, starting with the reinstatement of GBP25
million of the Club facility that had been repaid in November
2013.
As part of the acquisition of the companies that held the PPP
portfolio, the Group assumed GBP178 million of loan obligations
funded by Aviva. The transaction pricing included a provision of
GBP13.7 million that estimated the cost of re-setting those loans
to current market rates. This provision was utilised in full in
February reducing the average interest rate on these loans to 5.04%
from an inherited average of 5.9%, but with the reduction being
effective from 1 January 2014 resulting in an annualised saving of
GBP1.4 million. The Group took the opportunity to make a capital
repayment of GBP15 million at this time also.
In April, the second stage of the refinance of the PPP loans was
completed. A further GBP50 million of Aviva loan was repaid
following the completion of a new GBP50 million revolving debt
facility with HSBC Bank plc. This facility was secured at an
initial margin of 200 basis points over LIBOR, further reducing the
cost to the Group of this debt. The facility is for a five year
term and includes an element that can be utilised to match the
stage payments that the Group makes on its development of new
properties.
We have now concluded the final element of this refinance with
Aviva, creating two debt tranches utilising the existing security
pool and reducing the overall cost by a further 13 basis points. A
GBP50 million, 10 year interest only tranche and a GBP63 million 15
year loan that will start to amortise slowly from year six onwards
have been established.
Having entered the institutional bond market with a secured
issue in November 2013, the Group successfully issued a GBP82.5
million unsecured convertible bond on 20 May 2014. The bond matures
in May 2019 and carries a coupon of 4.25% per annum, payable in two
instalments in May and November of each year. The bond has an
initial conversion price of 390 pence per share which represented a
premium of 16% to the volume weighted share price on the day of
pricing. The bond was successfully listed on the Channel Islands
Stock Exchange on 14 August 2014.
Importantly, the terms of the bond provide that no adjustment
will be made to the conversion price with regard to dividend
payments of up to 19.5 pence per share in any calendar year. This
was a key condition that management felt balanced the commercial
terms of the bond with the interests of the equity shareholder.
Dividends may be paid above this value which may result in an
adjustment to the conversion price but with an allowable dividend
at 19.5 pence, any adjustment is expected to be relatively
small.
On 30 June 2014, the final instalment of GBP10 million from the
proceeds of the Secured Bond that the Group issued in November 2013
was received as planned. This followed the successful delivery of
four assets that were under construction when the bond was
issued.
As already reported to shareholders, on 28 January 2014 as part
of the PPP transaction, a further 282,768 shares were issued to the
vendors following the finalisation of the completion accounts of
PPP, along with 235,475 shares issued following the completion of a
Deed of Variation with regard to the St Catherine's property.
A further 81,554 shares were issued in the period to satisfy the
scrip alternative to the cash dividend paid in April 2014.
Debt facilities
As at 30 June 2014, total debt facilities (including all issued
bonds) available to the Group were GBP756.1 million (31 December
2013: GBP677.6 million). These debt sources have an average
remaining term of 7.1 years. Debt drawn at the balance sheet date,
net of cash balances, totalled GBP625.4 million, with Group LTV
standing at 63.6% (31 December 2013: 61.6%). Most notably, the
composition of the Group's debt structure has been significantly
changed with unsecured debt now representing 25% of debt drawn as
at 30 June 2014 (31 December 2013: 12 %).
Provider Maturity Facility Drawn at Headroom
Maximum 30 June 30 June
2014 2014
GBP'm GBPm GBPm
----------------------------- ------------ --------- --------- ---------
Secured
Royal Bank of Scotland
(overdraft) Mar 2015 5.0 - 5.0
Royal Bank of Scotland/
Santander Mar 2016 165.0 115.0 50.0
Barclays Mar 2017 70.0 29.1 40.9
Aviva Nov 2018 75.0 75.0 -
HSBC April 2019 50.0 21.5 28.5
Aviva Dec 2022 25.0 25.0 -
Aviva Dec 2030* 112.8 112.8 -
Aviva Jan 2032 25.8 25.8 -
Floating Rate Bond Dec 2025 70.0 70.0
----------------------------- ------------ --------- --------- ---------
598.6 474.2 124.4
Unsecured
Retail Bond July 2019 75.0 75.0 -
Convertible Bond May 2019 82.5 82.5 -
----------------------------- ------------ --------- --------- ---------
157.5 157.5 -
------------------------------------------ --------- ---------
Total 756.1 631.7 124.4
------------------------------------------- --------- ---------
Average maturity* 7.1 years
Cash on deposit (6.3) 6.3
------------------------------------------- --------- ---------
Group Net Debt 625.4
Costs to complete
Forward funded developments (14.0)
Asset management projects (3.1)
------------------------------------------- --------- --------- ---------
Net headroom 113.6
------------------------------------------- --------- --------- ---------
* This is a weighted average maturity
The underlying economy has improved and positive trends in key
data have continued to emerge. Interest rate markets have reacted
to news flow with a degree of volatility being seen in the first
six months of the year. Overall there been a flattening of the
interest rate curve, with short term rates (three years)
increasing, medium term rates (five years) remaining unchanged and
longer term rates (ten years) seeing a 25 basis point fall. The MtM
valuation of the Group's interest rate hedging portfolio net
liability has increased marginally to stand at GBP28.9 million as
at 30 June 2014 (31 December 2013: GBP28.6 million).
Facilities Drawn
------------------------- -------------- --------------
GBP'm % GBP'm %
------------------------- ------ ------ ------ ------
Fixed rate debt 396.1 52.4 396.1 62.7
Debt hedged by interest
rate swaps/caps 241.0 31.9 235.6 37.3
Floating rate debt 119.0 15.7 - -
------------------------- ------ ------ ------ ------
756.1 100.0 631.7 100.0
------------------------- ------ ------ ------ ------
Since the half year, further activity has seen extensions and
amendments agreed with a number of our major lenders, lengthening
the duration of existing facilities and more importantly reducing
lending margins by an average of 55 basis points. This will be
effective for the second half of 2014, reducing the Group's
weighted average cost of debt and enhancing earnings.
On 20 August 2014, we signed agreements to extend the loan
facility with Barclays Bank PLC to an overall GBP100 million. This
will consist of a GBP40 million term loan and a GBP60 million
revolving debt facility and will be for a new five year term from
this date.
On 20 August 2014 credit approved terms were agreed with Royal
Bank of Scotland and Santander to extend the GBP165 million
facility that they jointly provide to a new three year term, an
additional 18 months on the original term. This extension will see
the lending margin reduced by 65 basis points and be completed in
the coming weeks.
Dividends
The Company paid an interim dividend of 9.75 pence per share in
April 2014, an increase of 2.6% over that of the same period in
2013 (30 June 2013: 9.5 pence) which, as we detail above is covered
76% by the increased earnings of the period. The Board has approved
the payment of a further interim dividend for 2014 of 9.75 pence
per share, payable on 7 November 2014 to shareholders on the
register on 19 September 2014. No part of this dividend will be a
PID under the UKI REIT rules. There will continue to be a scrip
alternative.
Net asset value
EPRA net asset value per share has increased by 2.7% in the
period to reach 308 pence per share as at as 30 June 2014 (31
December 2013: 300 pence). The growth has come from positive
movement on revaluation of the real estate portfolio, reflecting
the increased attractiveness of primary care properties to the
wider investment community. This growth was partially offset by the
payment of an uncovered dividend, but the amount of cover has been
increased substantially in the period, to 76% from 52% for the
first six months of 2013. The activity in the property and debt
portfolios that are detailed above will lead to further increases
in cover through the remainder of 2014.
Social responsibility
On 6 June 2013, the Company was admitted as an initial member of
the Social Stock Exchange ("SSE"). The SSE is a unique platform,
which gives investors access to publicly listed businesses with
strong social and environmental purpose and guarantees full and
transparent disclosure on the impact of those businesses. During
2014, we have continued to identify ways in which the Company can
further increase its social and environmental impact. We will
submit our next Impact Report to the SSE in September 2014.
Going concern
Set out above and in the financial statements are details of the
Group's business activities, financial 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. 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. This is discussed further in
note 1 to the financial statements.
Outlook
The underlying demands put upon primary care continue to
increase but there remains an all-party political commitment to the
NHS. This includes increasing patient choice, transferring services
into local settings and looking to integrate primary care with
other care services, which is designed to generate cost savings
that will help to safeguard the future of the NHS as the world's
leading "free at the point of delivery" health service.
Primary care is now becoming more integrated with other aspects
of care historically delivered by NHS Trusts and Local Authorities.
We are working hard in conjunction with our strategic development
partners, the NHS and NHS Property Services to progress the
development of new healthcare facilities to meet the changing needs
of the Health Service. PHP remains committed to investing in large
integrated facilities which will best meet these needs and offer
investors long term income streams from excellent covenants and is
well placed to facilitate and fund the necessary investment as
opportunities crystallise.
We have successfully continued to grow the Group's portfolio in
the first six months of 2014 and combine this with raising further
funds for investment. The incremental cost of managing the Group
together with the average cost of debt have both been reduced,
enabling PHP to maintain a satisfactory yield gap as values have
increased in investment markets. The attractiveness of the Group's
property assets has been highlighted once again as capital growth
has been achieved and we continue to generate additional value from
the active management of our properties.
We are confident that the increasing demand for health care
services and the drive to deliver more of this care from primary
care facilities will maintain the need for new, purpose built
premises. The work of the first six months of 2014 has further
strengthened the Company's balance sheet and we will continue to
implement our acquisition and asset management strategies to
generate further earnings and value enhancing opportunities
increasing not only dividend cover, but total return to our
shareholders. We look forward to reporting further progress through
the second half of 2014 and beyond.
Finally, the Board would like to thank Graeme Elliot for his
substantial contribution to the Company as Chairman since its
flotation in 1996. Our new director, Steven Owen, is already
providing very valuable input.
Alun Jones Harry Hyman
Chairman Managing Director
21 August 2014
Principal Risks
The 2013 Annual Report includes details of the Group's principal
financial risks which the Audit Committee sees as unchanged for the
remaining six months of 2014. These may be summarised as
follows:
Funding and available finance
-- 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.
-- After interest rate derivatives, 18% of the Group's debt
facilities would be exposed to movements in underlying interest
rates if fully drawn.
-- The mark to market valuation of the Group's interest rate
derivative portfolio is based on underlying market interest rates.
Changes to market rates give rise to volatility in mark to market
values.
Property market and sector risks
-- The valuation of property and property-related assets is
inherently subjective and is subject to uncertainty. There are no
assurances that the valuations of the properties reflect the actual
sale prices that may be achievable.
-- 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 cost
reimbursement under the National Health Service (General Medical
Services - Premises Costs) Direction 2013. Cuts in the funding
available for the renting of medical centres may reduce funds
available to meet the costs of accommodation provided by the Group
or impact on the underlying covenant strength in the future.
Taxation risks
-- A breach of the REIT requirements may lead to the Group
losing its REIT status and the taxation benefits that this
affords.
Operational risks
-- The Group is managed by the Board of Directors, but has no
other employees. The Board appoints specialist third party advisers
to assist it with the day to day management of the Group. The
termination of the advisory contract with Nexus could adversely
affect the Board's ability to effectively manage ongoing Group
operations.
Further details of how the Audit Committee monitors risks and
how these are mitigated can be found in the Group's 2013 Annual
Report.
Independent review report to Primary Health Properties PLC
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 2014 which comprises the Condensed Group
Statement of Comprehensive Income, the Condensed Group Balance
Sheet, the Condensed Group Cash Flow Statement, the Condensed Group
Statement of Changes in Equity and related notes 1 to 16. 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
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. Our work has been undertaken so that we might state to the
company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our review 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 Conduct Authority.
As disclosed in note 1, the annual financial statements of the
company are prepared in accordance with IFRSs 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
financial 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 inquiries, 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 2014 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 Conduct Authority.
Deloitte LLP - Chartered Accountants and Statutory Auditor
London
21 August 2014
Condensed Group Statement of Comprehensive Income
for the six months ended 30 June 2014
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2013
2014 2013
GBP000 GBP000 GBP000
Notes (unaudited) (unaudited) (audited)
--------------------------------------------------------- ------ ------------ ------------ -------------
Rental income 29,428 19,606 41,895
Finance lease income - 87 87
--------------------------------------------------------- ------ ------------ ------------ -------------
Rental and related income 29,428 19,693 41,982
Direct property expenses (298) (153) (398)
Administrative expenses 8 (3,683) (2,890) (6,080)
Non-recurring expenses: Termination
fee - - (2,485)
Non-recurring expenses: Project
costs - (200) (217)
--------------------------------------------------------- ------ ------------ ------------ -------------
Operating profit before result
on property portfolio 25,447 16,450 32,802
Profit on sale of finance lease - 641 638
Net valuation gain on property
portfolio 2 16,055 240 2,313
--------------------------------------------------------- ------ ------------ ------------ -------------
Profit before financing costs 41,502 17,331 35,753
Finance income 4 410 172 434
Finance costs 5 (17,645) (12,545) (26,450)
Non-recurring expenses: Convertible (2,435) - -
bond costs
Early loan repayment fee (903) (825) (950)
Fair value gain on interest rate
swaps and amortisation of cash
flow hedging reserve 5 1,115 9,446 11,432
--------------------------------------------------------- ------ ------------ ------------ -------------
Profit before tax 22,044 13,579 20,219
Taxation charge 6 - 1 1
--------------------------------------------------------- ------ ------------ ------------ -------------
Profit for the period(1) 22,044 13,580 20,220
Items that may be reclassified
subsequently to profit and loss:
Fair value movement on interest
rate swaps treated as cash flow
hedges (1,444) 8,707 12,840
--------------------------------------------------------- ------ ------------ ------------ -------------
Other comprehensive (loss)/income (1,444) 8,707 12,840
--------------------------------------------------------- ------ ------------ ------------ -------------
Total comprehensive income for
the period net of tax 20,600 22,287 33,060
--------------------------------------------------------- ------ ------------ ------------ -------------
Earnings per share - basic 3 19.9p 17.4p 22.7p
- diluted 3 19.4p 17.4p 22.7p
EPRA earnings per share - basic 3 6.6p 4.2p 6.6p
Adjusted earnings per share(2)
- basic 3 7.4p 4.8p 10.6p
The above relates wholly to continuing operations.
(1) Wholly attributable to equity shareholders of Primary Health Properties PLC.
(2) Adjusted for large one-off items and movements in fair value
of properties and derivatives and provision for early loan
repayment fee. See note 3.
Condensed Group Balance Sheet
at 30 June 2014
30 June 30 June 31 December
2014 2013 2013
GBP000 GBP000 GBP000
Notes (unaudited) (unaudited) (audited)
-------------------------------------- ------ ------------ ------------ ------------
Non-current assets
Investment properties 2 983,335 646,728 941,548
Derivative interest rate swaps 374 203 472
-------------------------------------- ------ ------------ ------------ ------------
983,709 646,931 942,020
Current assets
Trade and other receivables 3,981 3,033 4,764
Cash and cash equivalents 6,280 14,624 9,288
-------------------------------------- ------ ------------ ------------ ------------
10,261 17,657 14,052
-------------------------------------- ------ ------------ ------------ ------------
Total assets 993,970 664,588 956,072
-------------------------------------- ------ ------------ ------------ ------------
Current liabilities
Derivative interest rate swaps (7,095) (7,482) (7,566)
Corporation tax payable (23) - (23)
Deferred rental income (12,448) (8,166) (11,934)
Trade and other payables (14,225) (10,275) (16,269)
Borrowings: Term loans and overdraft 9 (3,513) (617) (3,843)
(37,304) (26,540) (39,635)
-------------------------------------- ------ ------------ ------------ ------------
Non-current liabilities
Borrowings: Term loans and overdraft 9 (396,611) (276,704) (460,185)
Borrowings: Bonds 10 (224,914) (73,849) (132,408)
Derivative interest rate swaps (22,161) (27,315) (21,459)
-------------------------------------- ------ ------------ ------------ ------------
(643,686) (377,868) (614,052)
-------------------------------------- ------ ------------ ------------ ------------
Total liabilities (680,990) (404,408) (653,687)
-------------------------------------- ------ ------------ ------------ ------------
Net assets 312,980 260,180 302,385
-------------------------------------- ------ ------------ ------------ ------------
Equity
Share capital 14 55,537 48,922 55,237
Share premium account 55,838 58,786 55,611
Capital reserve 1,618 1,618 1,618
Special reserve 126,267 107,191 135,483
Cash flow hedging reserve (17,097) (18,470) (14,337)
Retained earnings 90,817 62,133 68,773
-------------------------------------- ------ ------------ ------------ ------------
Total equity(1) 312,980 260,180 302,385
-------------------------------------- ------ ------------ ------------ ------------
Net asset value per share
Basic and diluted 11 282p 266p 274p
EPRA(2) net asset value per share 11 308p 301p 300p
(1) Wholly attributable to equity shareholders of Primary Health
Properties PLC.
(2) See definition of 'EPRA' as contained within the Interim
Review.
Condensed Group Cash Flow Statement
for the six months ended 30 June 2014
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2013
2014 2013
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
-------------------------------------------- ------------ ------------ -------------
Operating activities
Profit before tax 22,044 13,579 20,219
Less: Finance income (410) (172) (434)
Plus: Finance costs 17,645 12,545 26,450
Plus: Provision for early loan repayment
fee 903 825 950
Plus: Amortisation of cash flow hedging
reserve - 571
Less: Fair value gain on derivatives (1,115) (9,446) (12,003)
-------------------------------------------- ------------ ------------ -------------
Operating profit before financing 39,067 17,331 35,753
Adjustments to reconcile Group operating
profit to net cash flows from operating
activities:
Net result on property portfolio (16,055) (240) (2,313)
Profit on termination of finance
lease - (641) (638)
Fixed rent uplift adjustment (545) (692) (905)
Convertible bond issue costs 2,435 - -
Decrease/(increase) in trade and
other receivables 765 (693) 4,402
(Decrease)/increase in trade and
other payables (1,380) (34) 383
-------------------------------------------- ------------ ------------ -------------
Cash generated from operations 24,287 15,031 36,682
Taxation paid - - (89)
-------------------------------------------- ------------ ------------ -------------
Net cash flow from operating activities 24,287 15,031 36,593
-------------------------------------------- ------------ ------------ -------------
Investing activities
Payments for investment properties (25,155) (22,720) (44,560)
Proceeds from disposal of asset held
on a finance lease - 3,768 3,768
Payments to acquire PHCC (net of
cash acquired) - - (9,738)
Payments to acquire PPP (cash acquired) - - 1,954
Payments to acquire Gracemount Medical
Centre Limited (net of cash acquired) - - (6,155)
Interest received on development
funding 412 82 188
Bank interest received 15 38 48
-------------------------------------------- ------------ ------------ -------------
Net cash flow used in investing activities (24,728) (18,832) (54,495)
-------------------------------------------- ------------ ------------ -------------
Financing activities
Proceeds from issue of shares (net
of expenses) - 65,814 65,772
Cost of share issue PPP - - (540)
Term bank loan drawdowns 126,112 80,063 120,718
Term bank loan repayments (175,976) (79,614) (195,740)
Proceeds of bond issues (net of issue
costs) 89,965 - 58,680
Temporary offset of proceeds of share - (50,250) -
issue against revolving bank loan
Swap interest payable (3,835) (3,875) (7,661)
Non utilisation fees (293) (417) (1,023)
Loan arrangement fees paid (1,315) (1,273) (1,274)
Interest paid (12,343) (7,834) (18,328)
Loan breakage costs (14,328) (2,279) (2,380)
Equity dividends paid (net of scrip
dividend) (10,554) (7,006) (16,130)
-------------------------------------------- ------------ ------------ -------------
Net cash flow (used in)/from financing
activities (2,567) (6,671) 2,094
-------------------------------------------- ------------ ------------ -------------
Movement in cash and cash equivalents
for the period (3,008) (10,472) (15,808)
Cash and cash equivalents at start
of period 9,288 25,096 25,096
-------------------------------------------- ------------ ------------ -------------
Cash and cash equivalents at end
of period 6,280 14,624 9,288
-------------------------------------------- ------------ ------------ -------------
Condensed Group Statement of Changes in Equity
Share Share Capital Special Cash flow Retained Total
capital premium reserve reserve(1) hedging earnings
reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------ ------------- ------------- ------------- ------------ ------------- ------------- ---------
Six months ended 30 June 2014 (unaudited)
1 January 2014 55,237 55,611 1,618 135,483 (14,337) 68,773 302,385
------------------ ------------- ------------- ------------- ------------ ------------- ------------- ---------
Profit for the
period - - - - - 22,044 22,044
Income and expense recognised directly in equity:
Fair value
movement on
interest rate
swaps - - - - (1,444) - (1,444)
Total
comprehensive
income - - - - (1,444) 22,044 20,600
Reclassification
of swap interest
accrual from
cash flow hedge
reserve (1,316) (1,316)
Share issue as
part of
consideration
for PPP 259 - - 1,605 - - 1,864
Dividends paid:
Second interim
dividend for
period ended 31
December 2013
(9.75p) - - - (10,542) - - (10,542)
Scrip dividends
in lieu of
interim cash
dividends 41 238 - (279) - - -
Share issue
expenses - (11) - - - - (11)
30 June 2014 55,537 55,838 1,618 126,267 (17,097) 90,817 312,980
------------------ ------------- ------------- ------------- ------------ ------------- ------------- ---------
Six months ended 30 June 2013 (unaudited)
1 January 2013 38,017 58,606 1,618 59,473 (27,177) 48,553 179,090
------------------ ------------- ------------- ------------- ------------ ------------- ------------- ---------
Profit for the
period - - - - - 13,580 13,580
Income and expense recognised directly in equity:
Fair value
movement on
interest rate
swaps - - - - 8,257 - 8,257
Amortisation of
cash flow
hedging reserve 450 450
------------------ ------------- ------------- ------------- ------------ ------------- ------------- ---------
Total
comprehensive
income - - - - 8,707 13,580 22,287
Proceeds from
capital raising 10,873 - - 57,627 - - 68,500
Expenses of
capital raising - - - (2,686) - - (2,686)
Dividends paid:
Second interim
dividend for
period ended 31
December 2012
(9.50p) - - - (7,006) - - (7,006)
Scrip dividends
in lieu of
interim cash
dividends 32 185 - (217) - - -
Share issue
expenses - (5) - - - - (5)
------------------ ------------- ------------- ------------- ------------ ------------- ------------- ---------
30 June 2013 48,922 58,786 1,618 107,191 (18,470) 62,133 260,180
------------------ ------------- ------------- ------------- ------------ ------------- ------------- ---------
Condensed Group Statement of Changes in Equity (continued)
Share Share Capital Special Cash flow Retained Total
capital premium reserve Reserve(1) hedging earnings
reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------- ------------- ------------- ------------- ------------ ------------- ------------- --------
Year ended 31 December 2013 (audited)
1 January 2013 38,017 58,606 1,618 59,473 (27,177) 48,553 179,090
------------------- ------------- ------------- ------------- ------------ ------------- ------------- --------
Profit for the
year - - - - - 20,220 20,220
Income and expense recognised directly in equity:
Fair value
movement on
interest rate
swaps - - - - 12,269 - 12,269
Amortisation of
cash flow hedging
reserve - - - - 571 - 571
------------------- ------------- ------------- ------------- ------------ ------------- ------------- --------
Total
comprehensive
income - - - - 12,840 20,220 33,060
Proceeds from
capital raising 10,873 - - 57,627 - - 68,500
Expenses of
capital raising - - - (2,728) - - (2,728)
Share issue as
part of
consideration for
PPP 6,289 - - 35,344 - - 41,633
Share issue
expenses - - - (1,040) - - (1,040)
Reserves
transfer((2) - (3,325) - 3,325 - - -
Dividends paid:
Second interim
dividend for the
year ended 31
December 2012
(9.50p) - - - (7,006) - - (7,006)
Scrip dividends in
lieu of second
interim cash
dividend (net of
expenses) 32 185 - (217) - - -
First interim
dividend for the
year ended 31
December 2013
(9.50p) - - - (9,124) - - (9,124)
Scrip dividends in
lieu of interim
cash dividends
(net of expenses) 26 145 - (171) - - -
31 December 2013 55,237 55,611 1,618 135,483 (14,337) 68,773 302,385
------------------- ------------- ------------- ------------- ------------ ------------- ------------- --------
(1) The special reserve is a distributable reserve.
(2) GBP3.3 million has been transferred from Share Premium to
the Special Reserve with regard to the Apollo transaction under the
merger relief provision of the Companies Act 2006.
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 2013 have been filed with the Registrar
of Companies. The auditor's 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 auditor
and their report to the Company is included on page 11.
These condensed interim financial statements of the Group for
the six months ended 30 June 2014 were approved and authorised for
issue by the Board on 21 August 2014.
Basis of preparation/Statement of compliance
The half year report for the six months ended 30 June 2014 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 2013 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 2013.
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 the acquisition and
development of 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 positive. In the period
the Group has completed the issue of an GBP82.5 million unsecured
Convertible Bond and completed the refinance of a proportion of the
debt it assumed with the acquisition of Prime Public Partnerships
(Holdings) Limited ("PPP") in December 2013.The refinance of the
PPP loans saw the completion of a new GBP50 million revolving debt
facility with HSBC Bank plc which also provides a loan tranche to
match the funding profile of the Group's forward funded development
commitments. The Group's average maturity of its banking facilities
stands at 7.1 years. The Group's loan to value ratio is currently
63.6% and the Group's interest cover for the period under review
was 1.75 times, well above the minimum Group banking covenant of
1.3 times. The Directors are therefore satisfied that the Group has
sufficient resources to continue in operation for the foreseeable
future, a period of not less than 12 months from the date of this
report. Accordingly, they continue to adopt the going concern basis
in preparing the condensed financial statements.
Accounting policies
On 20 May 2014, the Group issued a convertible bond that may be
settled in shares, cash or a combination of both. In accordance
with IAS 32, upon initial recognition the bonds have been
designated at fair value through profit and loss with any gains or
losses arising at subsequent re-measurement recognised in the
income statement. All arrangement fees associated with the issuance
of the convertible bond have been expensed as incurred.
The accounting policies adopted are consistent with those of the
previous financial year except as described below.
IFRS 10, 'Consolidated financial statements'. Under IFRS 10,
subsidiaries are all entities (including structured entities) over
which the Group has control. The Group controls an entity when the
Group has power over an entity, is exposed to, or has rights to,
variable returns from its involvement with the entity and has the
ability to affect these returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which control
is transferred to the Group. They are deconsolidated from the date
that control ceases. The Group has applied IFRS 10 retrospectively
in accordance with the transition provisions of IFRS 10 and there
has been no material impact to the financial statements as a
result.
Other amendments to IFRSs effective for the financial year
ending 31 December 2014 are not expected to have a material impact
on the Group.
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 2014 in accordance with IAS 40: Investment Property.
The revaluation gain for the six months ended 30 June 2014
amounted to GBP16.1 million. The revaluation gain for the year
ended 31 December 2013 amounted to GBP2.3 million and the gain for
the six months ended 30 June 2013 amounted to GBP0.2 million.
Property additions, including acquisitions, for the six months
ended 30 June 2014 amounted to GBP25.2 million. No properties were
disposed of in the six months to 30 June 2014. Commitments
outstanding at 30 June 2014 amounted to GBP17.1 million (31
December 2013: GBP17.1 million).
Property additions for the 12 months ended 31 December 2013 and
the six months ended 30 June 2013 amounted to GBP314.4 million and
GBP22.7 million respectively. There were no property disposals in
the 12 months ended 31 December 2013.
Investment Investment Investment Total
properties long leasehold properties
freehold under construction
GBP000 GBP000 GBP000 GBP000
(unaudited) (unaudited) (unaudited) (unaudited)
------------------------------- ------------ ---------------- -------------------- ------------
As at 1 January 2014 759,871 169,998 11,679 941,548
Property additions 4,336 1,025 19,826 25,187
Impact of lease incentive
adjustment 445 100 - 545
Transfer from properties
in the course of development 15,218 - (15,218) -
------------------------------- ------------ ---------------- -------------------- ------------
779,870 171,123 16,287 967,280
Revaluations for the period 12,393 1,945 1,717 16,055
------------------------------- ------------ ---------------- -------------------- ------------
As at 30 June 2014 792,263 173,068 18,004 983,335
------------------------------- ------------ ---------------- -------------------- ------------
3. Earnings per share
The calculation of basic and diluted earnings per share is based
on the following:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
------------------------------------ ------------ ------------ ------------
Basic and diluted earnings
Basic earnings 22,044 13,580 20,220
Dilutive effect of convertible 403 - -
bond
------------------------------------ ------------ ------------ ------------
Diluted earnings 22,447 13,580 20,220
------------------------------------ ------------ ------------ ------------
EPRA basic earnings
Basic earnings 22,044 13,580 20,220
Adjustments to remove:
Net result on property (16,055) (240) (2,313)
Fair value gain on derivatives
(1) (1,115) (9,446) (11,432)
Pro t on termination of nance
lease - (641) (637)
Issue costs of convertible bond 2,435 - -
------------------------------------ ------------ ------------ ------------
EPRA basic earnings 7,309 3,253 5,838
Adjusted basic earnings
EPRA basic earnings
Adjustments to remove:
Early loan repayment fee charges 903 825 950
Non-recurring expenses:
Costs associated with corporate
purchase (2) - 200 217
JOHCM Termination Fee - - 2,485
UK corporation tax credit - (1) (1)
------------------------------------ ------------ ------------ ------------
Adjusted basic earnings 8,212 4,277 9,489
Average number of shares((3)
Basic 110,945,347 78,221,562 89,121,611
Dilutive effect of convertible 4,908,627 - -
bond
------------------------------------ ------------ ------------ ------------
Diluted number of shares 115,853,974 78,221,562 89,121,611
------------------------------------ ------------ ------------ ------------
Earnings per share
Basic
Basic 19.9p 17.4p 22.7p
EPRA 6.6p 4.2p 6.6p
Adjusted 7.4p 4.8p 10.6p
Diluted
Basic 19.4p 17.4p 22.7p
(1) In view of the continuing volatility in the mark-to-market
adjustment of derivatives in respect of the period end valuation of
derivatives that ows through the Group Statement of Comprehensive
Income, the Directors believe that it is appropriate to remove the
gain or loss in the calculation of adjusted earnings. This is in
line with EPRA guidance.
(2) Costs related to the PPP acquisition that were expensed as
incurred in accordance with Accounting Standards.
(3) Weighted average number of Ordinary Shares in issue during the year.
On 20 May 2014, the Group issued GBP82.5 million of unsecured
convertible bonds. The bonds carry a coupon of 4.25% per annum and
were issued with an initial conversion price of 390 pence per
share. In accordance with IAS 33 (Earnings per Share) the Company
is required to assess and disclose the dilutive impact of the
contingently issuable shares within the convertible bond. The
impact is not recognised where it is anti-dilutive. The convertible
bonds are dilutive for basic earnings per share but not EPRA or
Adjusted earnings per share.
The dilutive impact to basic EPS of convertible bonds is
represented by the accrued bond coupon which has been included in
the results of the period to 30 June 2014. The number of dilutive
shares is calculated as if the contingently issuable shares within
the convertible bond had been in issue for the period to 30 June
2014.
4. Finance income
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2013
2014 2013
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
------------------------------------- ------------ ------------ -------------
Interest income on financial assets
not at fair value through profit
or loss
Bank interest 13 32 41
Development loan interest 396 132 388
Other interest 1 8 5
------------------------------------- ------------ ------------ -------------
410 172 434
------------------------------------- ------------ ------------ -------------
5. Finance costs
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2013
2014 2013
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
------------------------------------------- ------------ ------------ -------------
Interest expense on financial liabilities
(i) Interest paid
Bank loan interest payable 9,617 5,737 12,021
Swap interest payable 3,764 3,788 7,699
Bond interest payable 3,230 1,990 4,314
Bank facility non utilisation fees 220 395 976
Bank charges and loan commitment
fees 814 635 1,440
------------------------------------------- ------------ ------------ -------------
17,645 12,545 26,450
------------------------------------------- ------------ ------------ -------------
(ii) Early repayment fees
Fee on breakage of Apollo debt - 825 714
Fee on breakage of PHCC debt - - 236
Fee on breakage of PPP debt 903 - -
903 825 950
(iii) Fair value movements through
profit and loss
Net fair value loss on interest rate
swaps (1,115) (9,896) (12,003)
Amortisation of cash flow hedging
reserve - 450 571
(1,115) (9,446) (11,432)
------------------------------------------- ------------ ------------ -------------
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
fair value loss on derivatives which meet the hedge effectiveness
criteria under IAS39 of GBP1.4 million (30 June 2013: gain of
GBP8.7 million) is accounted for directly in equity, together with
amortisation of the hedging reserve of nil (30 June 2013: GBP0.5
million).
Net finance costs excluding fair value movements on derivatives
and early repayment fees can be summarised as follows:
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2013
2014 2013
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
------------------------- ------------ ------------ -------------
Finance income (note 4) (410) (172) (434)
Finance costs 17,645 12,545 26,450
------------------------- ------------ ------------ -------------
Net finance costs 17,235 12,373 26,016
------------------------- ------------ ------------ -------------
6. Taxation
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2013
2014 2013
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 - (1) (1)
------------------------------------------- ------------- ------------ -------------
Taxation credit in the Condensed
Group Statement of Comprehensive
Income - (1) (1)
------------------------------------------- ------------- ------------ -------------
The tax credit relates to the release of tax provisions from
prior years and variances in the amount of corporation tax paid in
acquired companies against the agreed provision at acquisition.
7. Dividends paid
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2013
2014 2013
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
----------------------------------------- ------------ ------------ -------------
Second interim dividend for the period 10,542 - -
ended 31 December 2013 (9.75p) paid
25 April 2014
Scrip dividend in lieu of second 279 - -
interim cash dividend
First interim dividend for the period
ended 31 December 2013: (9.50p) paid
1 November 2013 - - 9,124
Scrip dividend in lieu of first interim
cash dividend - - 171
Second interim dividend for the period
ended 31 December 2012 (9.50p) paid
22 April 2013 - 7,006 7,006
Scrip dividend in lieu of second
interim cash dividend - 217 217
----------------------------------------- ------------ ------------ -------------
10,821 7,223 16,518
----------------------------------------- ------------ ------------ -------------
Per share 9.75p 9.50p 19.00p
----------------------------------------- ------------ ------------ -------------
The Board proposes to pay an interim cash dividend of 9.75p per
Ordinary Share for the six months to 30 June 2014, payable on 7
November 2014. This dividend will not be a Property Income
Distribution ("PID").
8. Administrative expenses
As the portfolio has grown, administrative expenses as a
proportion of rental and related income fell to 12.5% (30 June
2013: 14.7%). This equates to an annualised rate of 0.7% of gross
real estate assets (30 June 2013: 0.9%).
Of the total GBP3.7million of administrative expenses (30 June
2013: GBP2.9 million), fees of GBP2.8 million were payable to the
Advisors (30 June 2013: GBP2.3 million), as shown in note 12. As
reported in the Annual Report, the Joint Advisory appointment of JO
Hambro Capital Management Limited ("JOHCM") was terminated with
effect from 30 April 2014. A contractual termination fee of GBP2.5
million was accounted for in the year ended 31 December 2013 and
settled on 13 May 2014.
No performance incentive fee is payable to the Advisors for the
period ended 30 June 2014 (six months to 30 June 2013 and year
ended 31 December 2013: GBPnil). Under the terms of the advisory
agreement there is a deficit of some GBP41.2 million to be made up
in the net asset value before any further performance incentive fee
becomes payable.
9. Bank and other borrowings reconciliation
Facility Amounts drawn Undrawn
30 June 31 December 30 June 31 December 30 June 31 December
2014 2013 2014 2013 2014 2013
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Current
Overdraft facility
(1) 5,000 5,000 - - 5,000 5,000
Fixed Rate term
loan (3) 1,891 1,857 1,891 1,857 - -
Fixed Rate term
Loan (8) 1,622 1,986* 1,622 1,986* - -
-------------------- -------- ------------ -------- ------------ -------- ------------
8,513 8,843 3,513 3,843 5,000 5,000
Non-Current
Term to March
2016 (2) 165,000 140,000 115,000 100,500 50,000 39,500
Fixed Rate term
loan (3) 23,893 25,511 23,893 25,511 - -
Fixed Rate term
to December 2022
(4) 25,000 25,000 25,000 25,000 - -
Fixed Rate term
to November 2018
(5) 75,000 75,000 75,000 75,000 - -
Term to March
2017 (6) 70,000 70,000 29,060 49,470 40,940 20,530
Term to April
2019 (7) 50,000 - 21,513 - 28,487 -
Fixed Rate term
to December 2032
(8) 111,163 188,271* 111,163 188,271* - -
-------------------- -------- ------------ -------- ------------ -------- ------------
520,056 523,782 400,629 463,752 119,427 60,030
-------------------- -------- ------------ -------- ------------ -------- ------------
Total 528,569 532,625 404,142 467,595 124,427 65,030
-------------------- -------- ------------ -------- ------------ -------- ------------
Providers:
(1) The Royal Bank of Scotland PLC
(2) The Royal Bank of Scotland PLC and Abbey National Treasury
Services plc (branded Santander from January 2010)
(3) Aviva facility repayable in tranches to 31 January 2032
(4) Aviva GPFC facility
(5) Aviva facility
(6) Barclays Bank plc
(7) HSBC Bank plc
(8) Aviva facility (acquired with PPP)
* The nominal value of this debt equalled GBP177.9 million but
included an adjustment of GBP13.7 million to reflect the fair value
of the debt on acquisition of PPP. This was repaid and re-set to
nominal value in February 2014.
As part of the acquisition of the companies that held the PPP
portfolio, the Group assumed GBP178 million of loan obligations
funded by Aviva. The transaction pricing included a provision of
GBP13.7 million that estimated the cost of re-setting those loans
to current market rates. This provision was utilised in full in
February reducing the average interest rate on these loans to 5.04%
from an inherited average of 5.9%, but with the reduction being
effective from 1 January 2014. The Group took the opportunity to
make a capital repayment of GBP15 million at this time also.
On 15 April 2014, a further GBP50 million of the Aviva loan was
repaid following the completion of a new GBP50 million revolving
debt facility with HSBC Bank plc. This facility was secured at an
initial margin of 200 basis points over LIBOR for a five year term
and includes an element that can be utilised to match the stage
payments that the Group makes on its development of new
properties.
Any bank facility arrangement fee amounts unamortised as at the
period end are offset against amounts drawn on the facilities as
shown in the table below:
30 June 31 December
2014 2013
GBP000 GBP000
(unaudited) (audited)
------------------------------------------- ------------ ------------
Term loans drawn: due within one year 3,513 3,843
Term loans drawn: due in greater than one
year 400,629 463,752
------------------------------------------- ------------ ------------
Total term loans drawn 404,142 467,595
Less: Unamortised borrowing costs (4,018) (3,567)
------------------------------------------- ------------ ------------
Total term loans per the Condensed Group
Balance Sheet 400,124 464,028
------------------------------------------- ------------ ------------
10. Borrowings: Bonds
30 June 31 December
2014 2013
GBP'000 GBP000
(unaudited) (audited)
------------------------------- ------------ ------------
Secured
Secured Bond November 2015 70,000 60,000
Unsecured
Retail Bond July 2019 75,000 75,000
Convertible Bond May 2019 82,500 -
Less: unamortised Issue costs (2,586) (2,592)
224,914 132,408
------------------------------- ------------ ------------
On 20 May 2014, PHP successfully issued GBP82.5 million of
senior, unsecured Convertible Bonds due 2019. The Bonds have a
fixed coupon of 4.25% and an initial conversion price of 390 pence
per share, representing a premium of 16% above the volume weighted
average price of the Company's shares from launch to pricing.
On 18 December 2013, PHP listed floating rate guaranteed secured
bonds issued on 4 November 2013 (the "Bonds") on the London Stock
Exchange. The Bonds have a nominal value of GBP70 million and
mature on or about 30 November 2025. An amount of GBP60 million was
paid up on issue with the remaining GBP10 million being received on
30 June 2014 following the completion of four development assets
acting as security. The Bonds incur interest at an annualised rate
of 220 basis points above six month LIBOR, payable semi-annually in
arrears.
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,
unsecured, seven year bond, to retail investors with an annual
interest rate of 5.375% paid semi-annually in arrears. The bond
issue costs are being amortised on a straight line basis over seven
years.
11. Net asset value calculations
Net asset values have been calculated as follows:
30 June 30 June 31 December
2014 2013 2013
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
--------------------------------- ------------ ------------ ------------
Net assets
Basic net assets 312,980 260,180 302,385
Derivative interest rate swaps
liability (net) 28,882 34,594 28,553
--------------------------------- ------------ ------------ ------------
EPRA net asset value 341,862 294,774 330,938
--------------------------------- ------------ ------------ ------------
Number of Number of Number of
shares shares shares
--------------------------------- ------------ ------------ ------------
Ordinary Shares:
Issued share capital 111,074,018 97,844,276 110,474,230
Net asset value per share
Basic net asset value per share 282p 266p 274p
--------------------------------- ------------ ------------ ------------
EPRA net asset value per share 308p 301p 300p
--------------------------------- ------------ ------------ ------------
As detailed in note 3, the Company is required to assess the
dilutive impact of the unsecured convertible bond on its net asset
value per share, but only report any impact if it is dilutive. With
an initial conversion price of 390 pence, the unsecured convertible
bond issued by the Group on 20 May 2014 is anti-dilutive to all
measures of net asset value per share.
12. Related party transactions
The fees calculated and payable for the period to the Advisors
were as follows:
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2013
2014 2013
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
------------------------------- ------------ ------------ -------------
Nexus TradeCo Limited 2,112 1,439 3,114
J O Hambro Capital Management
Limited 648 842 1,733
------------------------------- ------------ ------------ -------------
2,760 2,281 4,847
------------------------------- ------------ ------------ -------------
Following the announcement on 26 September 2013 by the Board of
PHP to terminate the Joint Advisory Agreement, a contractual
termination fee of GBP2.5m became payable to JO Hambro Capital
Management upon termination of their services on 30 April 2014.
This sum was provided for in the Group Statement of Comprehensive
Income for the year ended 31 December 2013 and settled on 13 May
2014.
13. Financial Instruments' fair value disclosure
The Group held the following financial instruments at fair value
at 30 June 2014. The Group has no financial instruments with fair
values that are determined by reference to significant unobservable
inputs i.e. those that would be classified as level 3 in the fair
value hierarchy, nor have there been any transfers of assets or
liabilities between levels of the fair value hierarchy. There are
no non-recurring fair value measurements.
Fair value measurements at 30 June 2014 are as follows:
Level 1(1) Level 2(2) Level 3(3) Total
Recurring fair value GBP'000 GBP'000 GBP'000 GBP'000
measurements
----------------------- ------------ ----------- ----------- ---------
Financial assets
Derivative interest
rate swaps - 374 - 374
----------------------- ------------ ----------- ----------- ---------
Financial liabilities
Derivative interest
rate swaps - (29,256) - (29,256)
Convertible bond - (82,500) - (82,500)
----------------------- ------------ ----------- ----------- ---------
Fair value measurements at 31 December 2013 are as follows:
Level 1(1) Level 2(2) Level 3(3) Total
Recurring fair value GBP'000 GBP'000 GBP'000 GBP'000
measurements
----------------------- ------------ ----------- ----------- ---------
Financial assets
Derivative interest
rate swaps - 472 - 472
----------------------- ------------ ----------- ----------- ---------
Financial liabilities
Derivative interest
rate swaps - (29,025) - (29,025)
----------------------- ------------ ----------- ----------- ---------
(1) Valuation is based on unadjusted quoted prices in active
markets for identical financial assets and liabilities.
(2) Valuation is based on inputs (other than quoted prices
included in Level 1) that are observable for the financial asset or
liability, either directly (i.e. as unquoted prices) or indirectly
(i.e. derived from prices).
(3) Valuation is based on inputs that are not based on observable market data.
The interest rate swaps whose fair values include the use of
level 2 inputs are valued by discounting expected future cash flows
using market interest rates and yield curves over the remaining
term of the instrument. The following inputs are used in arriving
at the valuation:
-- Interest rates
-- Yield curves
-- Swaption volatility
-- Observable credit spreads
-- Credit default swap curve
-- Observable market data
14. Called up share capital
30 June 30 June 31 December
2014 2013 2013
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
----------------------------------- ------------ ------------ ------------
Issued and fully paid at 50p each 55,537 48,922 55,237
----------------------------------- ------------ ------------ ------------
At beginning of year 55,237 38,017 38,017
Scrip issues in lieu of second
interim cash dividends 41 32 32
Scrip issues in lieu of first
interim cash dividends - - 26
Proceeds from capital raisings - 10,873 10,873
Shares issued as consideration
for PPP acquisition 259 - 6,289
----------------------------------- ------------ ------------ ------------
55,537 48,922 55,237
----------------------------------- ------------ ------------ ------------
A further 518,243 Ordinary Shares of 50 pence each were issued
on 31 January 2014 in accordance with the terms and conditions of
the purchase agreement for PPP. The market price of a PHP share on
31 January 2014 was 360 pence.
15. Contingent liabilities
The terms and conditions agreed on acquiring Apollo Medical
Partners Limited ("Apollo") in 2012 may oblige the Group to pay a
number of potential additional elements of consideration
conditional upon events that may be achieved by the vendor in an
agreed period after acquisition.
In particular, a number of properties acquired with Apollo
include small areas of vacant lettable space to which no value has
been ascribed on acquisition. PHP has agreed a three year period
from completion of the Apollo acquisition within which the vendor
is engaged to let this space and should they be successful,
additional consideration may become payable. The Group estimates
the maximum potential payment for these events at GBP0.58 million
at the interim balance sheet date (31 December 2013: GBP0.58
million). The new lettings would add value to the property
portfolio.
16. Post balance sheet events
On 28 July 2014, PHP announced that a wholly owned subsidiary
has contracted to fund the development and acquire a new modern,
purposed built medical centre to be constructed in Flintshire,
North Wales. The completed property will cost GBP3.5 million. The
centre is expected to be completed by the end of 2015.
On 19 August 2014, the Group entered into a revised and extended
loan facility agreement with Barclays Bank PLC. This extends the
previous facility to a total of GBP100 million for a new five year
term and reduces the initial margin chargeable on the debt.
On 20 August 2014, the Group concluded the final stage of the
refinance of the debt assumed together with the PPP portfolio
acquisition. Two new facilities have been created to split the
balance of GBP112.8 million of assumed debt. A GBP50 million, 10
year facility has been completed on an interest only basis and a
GBP62.8 million 15 year facility has been established with an
initial 5 year interest only period and partial amortisation
thereafter.
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.
Alun Jones
Chairman
21 August 2014
This information is provided by RNS
The company news service from the London Stock Exchange
END
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