TIDMPHP
RNS Number : 3171F
Primary Health Properties PLC
27 July 2016
Primary Health Properties PLC
Interim statement for the six months ended 30 June 2016
Primary Health Properties PLC ("PHP", the "Group" or the
"Company"), the UK's leading investor in modern primary healthcare
facilities, announces its interim results for the six months ended
30 June 2016.
FINANCIAL HIGHLIGHTS
-- Net rental income increased by 5.2% to GBP32.2 million (30 June 2015: GBP30.6 million)
-- EPRA Earnings(1, 5) increased by 27.3% to GBP12.6 million (30 June 2015: GBP9.9 million)
-- EPRA Earnings(1, 5) per share increased by 9.1% to 2.4 pence (30 June 2015: 2.2 pence(2) )
-- IFRS profit before tax reduced to GBP25.4 million (30 June 2015: GBP32.4 million)
-- EPRA Net Asset Value per share(2, 5) increased by 3.1% to
90.4 pence (31 December 2015: 87.7 pence)
-- Total dividends of 2.5625 pence per share paid in the period
(30 June 2015: 2.5 pence(3) ), the 20th successive year of dividend
growth
-- Dividend fully covered (year ended 31 December 2015: 98%; six
months ended 30 June 2015: 89%)
-- Third quarterly dividend of 1.28125 pence per share payable on 26 August 2016
OPERATIONAL HIGHLIGHTS
-- 19 properties acquired for a total consideration of GBP54 million
-- Total portfolio, including development properties, valued at
GBP1.2 billion as at 30 June 2016 (31 December 2015: GBP1.1
billion)
-- Surplus on property valuation of GBP15.5 million (30 June
2015: GBP23.9 million), underlying like-for-like growth of 1.85%;
portfolio net initial valuation yield of 5.21% (31 December 2015:
5.32%)
-- Average annualised uplift of 1.0% on rent reviews completed
or closed in the period (31 December 2015: 0.9%)
-- Portfolio 99.7% let with 14.1 years weighted average
unexpired lease term (including commitments) (31 December 2015:
14.7 years)
-- Successful, oversubscribed equity issue completed in April
2016, raising GBP150 million (GBP145.3 million net of costs) at a
14% premium to EPRA NAV as at 31 December 2015
-- Loan to Value reduced to 53.0% (31 December 2015: 62.7%)
-- Interest rate on GBP88 million of swap contracts reduced from
4.79% to 0.87% at a one-off cash outlay of GBP14.5 million(4) ,
saving interest of GBP16.4 million for the period November 2016 to
August 2021
OUTLOOK
-- Fundamentals of the sector remain strong, despite wider
market uncertainty caused by EU Referendum. Demands upon health
services continue to increase but the supply of modern, flexible
premises remains restricted
-- Strong pipeline of high quality acquisition opportunities to
capture yield spread on lower debt costs in both UK and Republic of
Ireland
-- Conditional contract exchanged on 8 July 2016 to acquire
PHP's first primary care centre in Republic of Ireland for EUR6.7
million
Harry Hyman, Managing Director of Primary Health Properties,
commented:
"We have had an active start to the year, including an
over-subscribed GBP150 million fund raising. We have invested a
proportion of these funds in growing the portfolio with
earnings-accretive assets, signed our first contract in the
Republic of Ireland and lowered our average cost of debt.
"We look forward to continuing our expansion both in the UK and
the Republic of Ireland where the increasing demands upon
healthcare systems are creating a need for further, modern primary
care. We will continue to play a role in the much-needed
modernisation of primary care provision and the creation of a
primary care infrastructure suitable for 21st Century
healthcare.
"Despite wider market uncertainty due to the result of the EU
referendum, the fundamentals of our market remain favourable and
our high quality portfolio with stable, long term income means we
are well placed to maintain our strong record of growth and
progressive dividend policy."
For further information contact:
Harry Hyman Phil Holland
Primary Health Properties Primary Health Properties
PLC PLC
T +44 (0) 20 7451 7050 T +44 (0) 20 7104 5599
harry.hyman@nexusgroup.co.uk phil.holland@nexusgroup.co.uk
------------------------------ -------------------------------
David Rydell / Elizabeth
Snow / Eve Kirmatzis
Bell Pottinger
T +44 (0) 20 3772 2582
------------------------------ -------------------------------
(1) See Note 6 to the financial statements.
(2) See Note 14 to the financial statements.
(3) Restated to reflect the Company's four-for-one share
sub-division undertaken in November 2015.
(4) See Note 12 to the financial statements
(5) The Company uses a number of Alternative Performance
Measures in this Interim Statement. See page 9, Business
Review.
Financial highlights
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2015
2016 2015
----------------------- ----------- ----------- -------------
Investment portfolio GBP1.19bn GBP1.07bn GBP1.10bn
Net rental income GBP32.2m GBP30.6m GBP62.3m
Weighted average
unexpired lease
term 14.1 years 15.1 years 14.7 years
Contracted rent
roll (annualised) GBP66.9m GBP62.9m GBP63.7m
EPRA results
EPRA Earnings per
share 2.4p 2.2p(1) 4.9p
EPRA Net Asset
Value GBP539.9m GBP377.5m GBP391.6m
EPRA NAV per share 90.4p 84.8p(1) 87.7p
EPRA Cost Ratio 11.5% 11.6% 11.5%
Dividends
Dividend per share(2) 2.5625p 2.5p(1) 5.0p
Dividend cover(3) 110% 89% 98%
Reported results
IFRS profit for
the period GBP25.4m GBP32.4m GBP56.0m
Total equity GBP492.4m GBP334.3m GBP345.4m
Diluted earnings
per share 4.5p 6.4p(1) 11.2p
----------------------- ----------- ----------- -------------
(1) Restated to reflect the Company's four-for-one share
sub-division undertaken in November 2015.
(2) See note 7 to the financial statements.
(3) See page 11, Business Review.
Performance
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2015
2016 2015
------------------ ----------- ----------- -------------
Total property
return 4.2% 5.2% 9.7%
Total NAV return 6.0% 9.4% 16.3%
------------------ ----------- ----------- -------------
Executive review
The Group has completed a very successful six months to 30 June
2016, strengthening the balance sheet and securing additional
resource for future investment by raising GBP150 million of new
capital (before transaction costs). We have acquired additional
modern, purpose-built medical centres that meet the Group's strict
investment criteria and reset rates within our interest rate swap
portfolio to current low market levels. We have once again
increased the dividend paid to shareholders, which is fully covered
by increased earnings in the period.
Overview of results
Net rental income has increased by 5.2% to GBP32.2 million (30
June 2015: GBP30.6 million) as the Group added to its investment
property portfolio through acquisitions and the delivery of PHP's
forward funded, newly developed properties.
The Group's EPRA Cost Ratio has stayed constant at 11.5%,
although administrative costs have risen by 2.9% to GBP3.5 million
(30 June 2015: GBP3.4 million). The tiered structure of the
property advisory fee provides benefits as the portfolio grows and
attracts a lower management charge rate. This has led to no overall
change in the EPRA Cost Ratio, which continues to be the lowest in
the quoted property sector.
In absolute terms, net financing costs have fallen by 6.9% to
GBP16.1 million, as overall sums drawn were reduced following the
equity raise in April 2016, even after the deployment of capital
into new properties acquired in the period. The average cost of the
Group's debt in the first six months of the year was 4.49%, down
from 4.67% for the 2015 financial year.
In summary, EPRA earnings have increased by 27.3% to GBP12.6
million (30 June 2015: GBP9.9 million).
Portfolio valuation
PHP acquired 19 properties in the first six months of the year
for a total consideration of GBP54 million. The Group looked at a
number of other transactions where it was either unsuccessful or
chose to withdraw from the process where it was felt that pricing
levels did not represent fair value to PHP. A total of 292
properties are now owned by the Group, 99.7% let with 91% of the
rent roll paid for, directly or indirectly, by the National Health
Service and a weighted unexpired lease term of over 14 years.
The Group's property portfolio was valued at GBP1.2 billion as
at 30 June 2016 (31 December 2015: GBP1.1 billion), generating a
surplus, after the costs associated with acquisitions in the
period, of GBP15.5 million (30 June 2015: GBP23.9 million).
Yields in the primary care sector have tightened a little
further thanks to the attractive fundamentals and the continued low
levels of new development approval by the NHS. Transactions in the
primary care real estate sector continued through the period of
market uncertainty in the lead up to the EU referendum. Post-vote
activity in the primary care market has not suggested any immediate
change to trading conditions or valuations. We will closely monitor
the market and assess any impact on the Group of the UK's pending
exit from the EU.
Dividends
In February and May 2016, PHP paid its first two quarterly
dividends to shareholders, both of 1.28125 pence per share to
eligible shareholders, which were fully covered by earnings in the
period. This represents an increase of 2.5% over dividends paid in
the first half of 2015 of 2.5 pence per share, the Company's 20th
successive year of dividend growth.
The Company is to pay its third quarterly dividend, also of
1.28125 pence per share, on 26 August 2016 to shareholders on the
register as at 15 July 2016. A further dividend payment is planned
to be made in November 2016. The Company intends to maintain its
strategy of paying a progressive dividend that is fully covered by
earnings in each financial year.
Capital resources and funding
On 13 April 2016, the Company successfully completed the issue
of GBP150 million of new capital (GBP145.3 million, net of
expenses) via an oversubscribed offering to new and existing
shareholders.
We have invested GBP54 million of the proceeds in
earnings-enhancing acquisitions in the UK and we are delighted to
report that on 8 July 2016, PHP entered into its first, conditional
contract to acquire a primary care centre under development in the
Republic of Ireland for a consideration of EUR6.7 million.
In May 2016, PHP completed the re-couponing of two interest rate
swaps with a total nominal value of GBP88 million, reducing the
contracted rates from an average of 4.79% per annum to 0.87% per
annum. The reduction will be effective from November 2016 to their
maturity in August 2021 and will save GBP16.4 million in interest
in that period. A one-off payment of GBP14.5 million was made by
the Group, representing a discount to the Mark to Market valuation
at the time of the transaction.
The balance of the equity proceeds was used to repay revolving
credit facilities but these remain available to PHP to be re-drawn
to fund ongoing development and management projects and investment
in new acquisition opportunities.
Shareholder value
The combination of the above transactions and the operating
performance of the Group over the six-month period has seen EPRA
NAV increase to GBP539.9 million (31 December 2015: GBP391.6
million). EPRA NAV per share has increased by 3.1% to 90.4 pence
per share (31 December 2015: 87.7 pence per share). Total
shareholder NAV return for the period was 5.2625 pence per share or
6.0%, including dividends paid in the period.
Developing market backdrop
We have seen continued progress within the NHS toward the
objectives of the Five Year Forward View, with the plan for primary
care being strengthened in April 2016 by the publication of the
General Practice Forward View ("GPFV"). In his introduction to this
document, Simon Stevens, Chief Executive of NHS England, repeated
that "...personal and population-orientated primary care is central
to any country's health system".
The GPFV sets out targets for all aspects of GP services,
including recruiting 5,000 more GPs over the next five years,
together with further healthcare professionals and support staff.
Specific commitments are made to providing out of hours access,
developing clinical hubs and reforming urgent care.
To do this, a further GBP2.4 billion per annum will be invested
into general practice, an increase of 25% over the 2015/16 GP
budget. A sustainability and transformation package of over GBP500
million will help to develop the workforce and fund care redesign.
Capital investment in GP estate and infrastructure will be
facilitated by a GBP900 million funding pool, the Estates and
Technology Transformation Fund ("ETTF"). The NHS will provide
support to move schemes quickly through design and documentation to
start on site.
All Clinical Commissioning Groups ("CCGs") were required by
December 2015 to develop a Strategic Estates Plan aimed at long
term estates planning to meet the care objectives of a local area.
These will feed into a Sustainability and Transformation Plan
("STP") to be prepared for all local health and care organisations
across England. STPs are currently being completed and will show
how local services will evolve over the next five years to create
long term, sustainable and fundable integrated care systems for an
area. It is anticipated that implementation will start in autumn
2016.
PHP will play a key role in the implementation of these
initiatives providing new premises and enhancing and enlarging
existing properties. There is a very clear movement toward the
formation of larger practices and local alliances, and demand for
larger, hub-style medical centres to replace out-dated, smaller
converted residential properties. PHP is working with GP practices,
federations (groups of GPs that join together to provide and
develop services collaboratively), emerging "super-practices"
(practices merging to create larger patient lists and benefit from
economies of scale) and other NHS bodies to feed into estates
planning and STPs as well as the procurement of new premises across
the UK.
We continue to work closely with our occupier base as they seek
to widen the scope of their activities and grow their practices to
provide an increased range of services to their patients in an
efficient manner. PHP has supported its GP tenants in making 23
applications for ETTF funding for schemes at PHP properties which,
together with ten projects completed or approved in the period,
would see a total investment by PHP of GBP15.4 million. Additional
income of GBP1.02 million per annum would be secured for an average
additional lease term of 13.4 years.
Outlook
PHP operates in a sector that is ultimately driven by
demographics and demands on healthcare systems across western
society are increasing due to growing, ageing populations with
higher numbers of multiple long term conditions.
The fundamentals of the primary care real estate sector remain
strong and cross-party commitment to the NHS continues. The
importance attached to primary care in modernising the NHS,
improving access to services and the efficiency with which they are
delivered will not change, despite the vote to leave the EU.
The Group continues to benefit from secure, long term cash
flows. 91% of its rent roll in the UK is funded directly or
indirectly by the NHS, for an average unexpired term of 14.1 years.
A substantial proportion of cash flows from properties the Group
will acquire in the Republic of Ireland will come from the Irish
government. PHP intends to hedge its Euro currency exposure
regarding asset values and from an income standpoint.
PHP has a strong pipeline in both the UK and Republic of Ireland
and is well positioned to expand its portfolio and support the
modernisation of healthcare services in both territories. PHP is
well funded and has resources available to selectively acquire
modern primary care premises that will continue to be appraised in
detail to ensure they meet the Group's exacting investment
requirements.
We are confident in our ability to grow the portfolio and
increase earnings and returns to shareholders and we look forward
to reporting further progress at the year end.
Alun Jones Harry Hyman
Chairman Managing Director
26 July 2016
Business review
The first six months of 2016 has been a busy and successful
period for the Group. The highlight of the period was the
completion of a GBP150 million share issue, raising fresh funds to
facilitate ongoing investment into modern, purpose-built healthcare
assets in the UK and the Republic of Ireland.
The primary care real estate sector remains an attractive asset
class due to its strong, long term, government-backed cash flows.
More investors have looked to the sector and pressure on pricing
has resulted from increased competition for assets.
PHP has maintained its selective acquisition strategy, investing
in assets that were well priced and provide an immediate
earnings-enhancing return, but also with the scope for future
income and capital growth.
Following on from 2015, when a number of debt facilities were
expanded or extended, work through the period has focused on
interest rate swaps and those facilities that mature in the year
ahead.
These activities combined to generate increased rental income in
the period and a lower average cost of borrowing. Administrative
costs have remained stable, resulting in increased earnings, which
has been translated into an increased, fully covered dividend paid
to shareholders, the 20th successive year of dividend growth.
Summarised results
Six months Six months Year ended
ended 30 ended 31 December
June 2016 30 June 2015
2015
GBPm GBPm GBPm
------------------------------- ----------- ----------- -------------
Net rental income 32.2 30.6 62.3
Administrative expenses (3.5) (3.4) (6.8)
------------------------------- ----------- ----------- -------------
Operating profit before
revaluation gain and
net financing costs 28.7 27.2 55.5
Net financing costs (16.1) (17.3) (33.8)
------------------------------- ----------- ----------- -------------
EPRA earnings 12.6 9.9 21.7
Net result on property
portfolio 15.5 23.9 39.8
Fair value (loss)/gain
on interest rate derivatives (4.5) 2.2 1.0
Fair value gain/(loss)
on Convertible Bond 1.8 (3.6) (6.5)
------------------------------- ----------- ----------- -------------
IFRS profit before
tax 25.4 32.4 56.0
------------------------------- ----------- ----------- -------------
Related party transactions
Related party transactions are disclosed in note 15 to the
condensed financial statements. There have been no material changes
in the related party transactions described in the 2015 Annual
Report.
Alternative Performance Measures ("APMs")
This interim statement contains a number of alternative
performance measures in addition to the statutory measures from the
condensed financial statements. The measures are defined and
reconciled to amounts presented in the financial statements within
this interim statement. The APMs used by the Company are consistent
with those used in the 2015 Annual Report and the reasons for the
Company's use of these APMs are set out therein.
Operational performance
Net rental income received in the six months to 30 June 2016
increased by 5.2% to GBP32.2 million (30 June 2015: GBP30.6
million). Acquisitions in the period contributed GBP0.4 million to
this increase with development properties that were delivered in
the period contributing GBP0.1 million. The balance of the
increased rental income came from a full period's contribution from
those properties acquired or completed in 2015 and from rent
reviews undertaken in the period.
A total of 82 rent reviews have been concluded in the period,
resulting in average annualised growth of 1.0% (30 June 2015: 1.1%
p.a.). The rate of growth is down slightly on that for the
corresponding period in 2015, but slightly above growth rates
achieved for 2015 as a whole of 0.9% per annum.
Reviews follow three basic patterns with 6% of rent roll having
fixed uplifts within its lease terms, 18% of income being reviewed
upwards only in line with the Retail Price Index and the remaining
76% having open market rental value reviews ("OMRV"). A great deal
of evidence to support OMRV reviews comes from the delivery of new
properties into the sector. Whilst underlying build costs have
increased in recent years, the lower number of new schemes approved
by the NHS has restricted the ability to capture the growth in new
rental values. The demand for new, purpose built premises continues
and is now being supported by NHS initiatives to modernise the
primary care estate. PHP is confident in the outlook for rental
growth as a growing number of new properties are delivered in the
medium term.
Operational costs have continued to be managed closely and
effectively. Overall administrative costs have risen by 2.9% to
GBP3.5 million (30 June 2015: GBP3.4 million). On 30 April 2016,
the initial pricing period for the provision of administrative
services by Nexus Tradeco Limited to the Group ended. The fixed
price for these services increased from 1 May 2016 from GBP749,000
per annum to GBP904,000 per annum, in line with the 2014 Advisory
Agreement. The property advisory fee continues to be governed by a
reducing scale formula with assets added to the portfolio between
GBP1 billion and GBP1.25 billion incurring fees at 32.5 basis
points. This rate will fall to 30 basis points for assets added to
the portfolio beyond GBP1.25 billion.
The Group's EPRA cost ratio continues to be the lowest in the
sector at 11.5% for the period, in line with that for the 2015
financial year (30 June 2015: 11.6%).
EPRA cost ratio Six months
Six months ended Year ended
ended 30 30 June 31 December
June 2016 2015 2015
GBPm GBPm GBPm
------------------------- ----------- ----------- -------------
Gross rent less ground
rent 32.4 30.8 62.7
------------------------- ----------- ----------- -------------
Direct property expense 0.4 0.4 0.8
Administrative expenses 3.5 3.4 6.8
Less: ground rent - - (0.1)
Less: other operating
income (0.2) (0.2) (0.3)
EPRA costs (including
direct vacancy costs) 3.7 3.6 7.2
------------------------- ----------- ----------- -------------
EPRA cost ratio 11.5% 11.6% 11.5%
------------------------- ----------- ----------- -------------
Net finance costs fell in the period by 6.9% to GBP16.1 million
(30 June 2015: GBP17.3 million). This is primarily as a result of
the application of the proceeds of the equity issue to pay down
revolving debt facilities, but also due to the lower cost of debt
secured in 2015 by swap restructuring and margin reductions. The
average cost of debt fell further in the period to 4.49% from 4.67%
for 2015 as a whole.
EPRA earnings have increased by 27.3% to GBP12.6 million (30
June 2015: GBP9.9 million) which, on an accounting basis, using the
weighted average number of shares in issue in the period, equates
to EPRA earnings per share of 2.4 pence (30 June 2015: 2.2
pence).
A charge of GBP4.5 million is recognised in the Income Statement
in respect of the Mark to Market ("MtM") of the Group's
"ineffective" interest rate swaps and a credit of GBP1.8 million is
recognised with regard to the MtM of the Company's Convertible Bond
due to the movement in the Company's share price in the period and
increased volatility in bond and interest rate markets. These are
all non-cash, accounting adjustments and do not impact on the
Group's cash flows.
The Group's property portfolio was independently valued as at 30
June 2016, including properties acquired to that date and valuation
growth achieved from asset management projects contracted in the
period. The net surplus, after deducting the Group's transaction
costs on acquisitions and capital spend on management projects,
totalled GBP15.5 million (30 June 2015: GBP23.9 million). This
equates to 2.6 pence per share (30 June 2015: 5.4 pence per
share).
IFRS profit before tax totalled GBP25.4 million, a decrease of
21.6% compared to that of the first six months of 2015 of GBP32.4
million due primarily to the lower surplus on revaluation of the
property portfolio.
Dividends
The Company paid a total of 2.5625 pence per share in the six
months to 30 June 2016, an increase of 2.5% over that paid in the
first half of 2015 of 2.5 pence per share.
Dividend cover Six months Six months Year ended
ended ended 31 December
30 June 30 June 2015
2016 2015
GBP'm GBP'm GBP'm
---------------------- ----------- ----------- -------------
EPRA earnings 12.6 9.9 21.7
Total dividends paid 11.4 11.1 22.2
Dividend cover for
the period 110% 89% 98%
---------------------- ----------- ----------- -------------
Total dividend cover by EPRA earnings rose to 110% from the 98%
achieved for the 2015 financial year (30 June 2015: 89%). The
significant increase is in part due to the timing differences
relating to the Company's April 2016 equity issue, where the new
shares will receive their first dividend only in August 2016. This
temporary distortion will be reversed in the second half of the
year but the Company expects to maintain full cover of its total
dividend payment for the year as a whole.
The Company has declared that quarterly dividend, paying 1.28125
pence on 26 August 2016 to shareholders on the register as at 15
July 2016.
Shareholder value
EPRA Net Asset Value 30 June 2016 31 December
per share 2015
pence per pence per
share share
-------------------------- ------------- ------------
Opening EPRA NAV per
share 87.7 79.7
EPRA earnings for the
period 2.8 4.9
Net result on property
portfolio 2.6 8.9
Dividend paid (2.6) (5.0)
Share issue 2.3 -
Interest rate derivative
rate re-coupon (2.4) -
Interest rate derivative
rate termination - (0.8)
-------------------------- ------------- ------------
Closing EPRA NAV per
share 90.4 87.7
-------------------------- ------------- ------------
The table above sets out the movements in EPRA net asset value
per share over the period under review. Key features are:
-- the Company issued new Ordinary Shares in April 2016 at a
price of 100 pence per new share, raising GBP145.3 million after
costs;
-- yields in the healthcare property sector have continued to
tighten leading to a revaluation surplus of GBP15.5 million as at
30 June 2016; and
-- the Group re-set two interest swaps in May 2016 paying a
one-off cash outlay of GBP14.5 million, saving interest over the
term to August 2021 of GBP16.4 million.
These individual items combined with increased EPRA Earnings saw
EPRA Net Asset Value per share increase by 3.1% to 90.4 pence (31
December 2015: 87.7 pence per share).
Adding back dividends, total NAV return per share was 5.2625
pence per share (30 June 2015: 7.6 pence) or 6.0% (twelve months to
30 June 2015: 9.5%).
The Company's share price started the year at 108.75 pence per
share. With the impact from the equity issue and also the
volatility created by the result of the EU referendum, the share
price at 30 June 2016 stood at 106.75 pence. Including dividends,
those who held the Company's shares throughout the period achieved
a Total Shareholder Return of 0.5% (30 June 2015: 8.5%).
Property portfolio
The fundamentals of the sector remain strong as demands upon the
health service in the UK continue to increase but the supply of
modern, flexible premises remains restricted. Similar
characteristics are evident in the Republic of Ireland, where PHP
has taken its first steps to create a similar high quality
portfolio to that which it holds in the UK.
PHP acquired a total of 19 modern, purpose-built primary care
properties in the six months to 30 June 2016, all located in the UK
with ten of the assets in London or the South East. The total
aggregate consideration for these assets was GBP53.8 million and
they add GBP3.0 million to total contracted rent roll for a
weighted unexpired lease term of 12.1 years. In addition to their
immediate income return, a number of these assets provide the
opportunity to add income and capital value through active
management.
Property valuation
The Group owned a total of 292 properties as at 30 June 2016.
All assets were located in the UK, with 289 completed and rent
producing and three on site, under development. The development at
Ipswich was subsequently completed on 4 July 2016, with the project
at Colwyn Bay due to complete in the coming weeks and the
development at Swindon targeted for delivery in March 2017.
Including development commitments as complete, the annualised
contracted rent roll of the portfolio at 30 June 2016 was GBP66.9
million, an increase of 5.0% in the period (31 December 2015:
GBP63.7 million). Portfolio WAULT at 30 June 2016 was 14.1 years
(31 December 2015: 14.7 years).
The Group's entire property portfolio was independently valued
by Lambert Smith Hampton, Chartered Surveyors and Valuers, as at 30
June 2016. Including development commitments, the aggregate of the
individual property values totalled GBP1.2 billion (31 December
2015: GBP1.1 billion). Allowing for the costs associated with
properties acquired in the six month period and to complete asset
management projects, an overall surplus resulted on revaluation of
GBP15.5 million (six months to 30 June 2015: GBP23.9 million). This
surplus equates to 2.6 pence per share.
30 June 31 December
2016 2015
GBPm GBPm
------------------------------- -------- ------------
Investment properties 1,174.9 1,091.9
Properties in the course of
development 12.1 8.7
------------------------------- -------- ------------
Total properties 1,187.0 1,100.6
Cost to complete development
and purchase commitments 11.2 21.8
------------------------------- -------- ------------
Total completed and committed 1,198.2 1,122.4
------------------------------- -------- ------------
The primary care real estate sector offers different investment
characteristics to the main commercial sectors. The long term
income streams and high quality tenant covenant offered by such
healthcare assets make them attractive to investors. Limited new
development approvals by the NHS leads to existing assets being
increasingly sought after by alternative sector investors.
The sector saw steady trading of completed assets through the
first six months of 2016 with some yield tightening evident in
pricing. Many opportunities were openly marketed, with bids invited
from longstanding market participants and an increasing number of
new entrants. Despite more competition for assets, PHP kept to its
focused strategy of acquiring assets where there is strong income
and potential for growth.
PHP's portfolio reflected an average net initial yield of 5.21%
(31 December 2015: 5.32%) with the true equivalent yield reducing
to 5.41% (31 December 2015: 5.53%).
The immediate aftermath of the EU referendum vote has seen a lot
of publicity concerning the liquidity of open-ended property funds
and much commentary on the future of property valuations. Much of
this concerns properties that are located in London, particularly
office properties that service the financial services sector. The
future value of such assets and the business of the occupiers of
these properties may vary greatly depending on the eventual impact
of Britain leaving the EU.
The Group's property assets serve a specific purpose within the
social infrastructure of the UK. PHP's properties are 99.7%
occupied with an average unexpired lease term of 14.1 years. Over
90% of the income from the Group's UK assets is funded by the UK
government through the NHS. There is no speculative development of
premises in the primary care sector and supply of new premises is
restricted at present due to low numbers of NHS approvals. The
Board is confident in the strength of the Group's property values
and its ability to continue to invest in earnings enhancing assets
and to grow the portfolio.
Asset management
Work has continued with tenants to identify situations where
existing assets owned by the Group may be expanded or enhanced to
facilitate the development of their business and allow for the
provision of a wider range of services by them or other users of
the properties. Projects range from simple upgrade projects to
major construction and extension works and generate additional
rental income and extended occupational lease durations for PHP. In
the six months to 30 June 2016:
-- four projects were completed, investing capital of GBP0.7
million, generating additional rent of GBP0.1 million and an
average additional lease term of 13 years for each project;
-- one project is currently on site where PHP has committed
GBP0.8 million of capital, adding GBP0.05 million of rental income
for an additional eleven year lease term; and
-- five projects are NHS approved and being documented or in the
midst of the planning approval process. PHP will invest GBP1.9
million into these schemes to generate GBP0.2 million of additional
rent for an average additional lease term of 18.6 years.
PHP has supported its tenants to develop and submit 23
applications for funding from the Estates and Technology
Transformation Fund ("ETTF"). If all were successful, a total of
GBP25.2 million of capital would be invested, GBP10.7 million of
which would be funded by PHP, yielding additional rent of GBP0.6
million per annum for an average additional lease term of 13.6
years.
Financing
Capital raise
PHP successfully raised GBP150 million of new share capital in
April 2016 (GBP145.3 million, net of expenses). The offering to new
and existing shareholders was over-subscribed with new shares
issued at 100 pence each, a premium of 14% to EPRA NAV as at 31
December 2015 and a discount of 9.5% to the closing share price on
21 March 2016, the day before the offer was announced.
The proceeds of the issue were initially used to pay down
revolving credit facilities where the funds remain available to PHP
to be redrawn as needed to fund investment in new and existing
properties. The share issue immediately reduced the overall Group
Loan to Value ratio and enables the Group to work to a short to
medium term target limit on LTV of no higher than 60%.
Debt facilities
As reported with the 2015 results, on 7 January 2016, the Group
completed the extension of its existing GBP100 million loan
facility with Barclays plc. The total facility was extended by
GBP15 million, with Allied Irish Banks plc ("AIB") providing these
additional funds, and the enlarged facility was completed for a new
five-year term.
Following the pay down of revolving credit facilities from the
equity proceeds, the GBP50 million revolving element of the overall
GBP165 million Club facility provided by RBS and Santander was
cancelled as it allowed the Group to save on non-utilisation costs.
The overall facility matures in August 2017 and discussions have
already commenced with the banks to renew this loan in full.
Interest rate swap contracts
On 11 May 2016, PHP re-couponed two active interest rate swap
contracts to prevailing market rates. The swaps hedge a total
nominal value of debt of GBP88 million and both have August 2021
maturities. The swaps carried an average fixed interest rate of
4.79% for their remaining duration and PHP made a one-off payment
of GBP14.5 million to re-set the contracted rate for both swaps to
0.87% with effect from November 2016, for the remaining term of the
contract from that date. This saves a total of GBP16.4 million in
interest costs in that period.
The swaps were classified as "ineffective" swaps by the Group
with previous Mark to Market ("MtM") valuations being recorded in
the Income Statement in each financial period. The cash payment
crystallised a significant proportion of the MtM liability held for
these swaps in the balance sheet. The movement in the fair value of
these contracts resulting from their re-couponing was recognised in
the Income Statement in the current period. See Note 12 to the
financial statements.
Term interest rates have fallen sharply following the EU
referendum result. This creates an opportunity for PHP to secure
historically low debt costs when acquiring new assets and locking
in a wider spread between this and rental yields. Accounting
standards require PHP to mark its interest rate swaps to market at
each balance sheet date. The movement in rates has sharply
increased the MtM liability, with an overall increase of GBP17.6
million in the period to 30 June 2016. Of this, GBP2.9 million
relates to "ineffective" swaps and is recognised in the Income
Statement and GBP14.7 million relates to "effective" swaps and so
is recognised directly in reserves.
These movements are accounting entries only and do not represent
cash flows. Additionally, the MtM of the Group's interest rate
swaps is not included in any debt facility covenant test and no
debt facility held by the Group has a net asset value covenant. The
Group's debt is 94% fixed or hedged as at 30 June 2016, limiting
any exposure to movements in market interest rates.
Convertible Bond
The terms of the Convertible Bond require the Company to review
the price at which new shares are issued in connection with an
equity raise such as that detailed above. The issue price of 100
pence per share was within the allowable pricing parameters such
that no adjustment was made to the conversion price of the
Convertible Bond which remains unchanged at 97.5 pence. There has
been no conversion of any Bonds during the period.
Total debt
The principal value of debt drawn as at 30 June 2016 totalled
GBP634.8 million (31 December 2015: GBP692.7 million). Cash
balances were GBP6.0 million (31 December 2015: GBP2.9 million)
resulting in Group net debt of GBP628.8 million (31 December 2015:
GBP689.8 million). The total remaining cost of development work on
site at the balance sheet date was GBP11.2 million (31 December
2015: GBP21.8 million), resulting in headroom of GBP109.8 million
(31 December 2015: GBP91.1 million) from existing facilities being
available to the Group.
Debt metrics 30 June 2016 31 December
2015
---------------------------- ------------- ------------
Loan to Value 53.0% 62.7%
Interest cover 2.0 times 1.9 times
Weighted average debt 5.6 years 5.9 years
maturity
Total drawn secured debt GBP477.3m GBP535.2m
Total drawn unsecured GBP157.5m GBP157.5m
debt
Total undrawn facilities GBP109.8m GBP91.1m
available to the Group(1)
---------------------------- ------------- ------------
(1) - After deducting the remaining cost to complete properties
under development as at 30 June 2016
Republic of Ireland
On 8 July 2016, the Group signed its first contract to acquire a
primary care centre in the Republic of Ireland. The asset is
located in the south and is currently nearing completion which is
scheduled for August 2016. The property will cost PHP EUR6.7
million and will be fully let for a term of 25 years from
completion, with 75% of income received from the Health Service
Executive in Ireland ("HSE"), 22% from a major Irish pharmacy chain
and 3% from local GPs. Completion of the contract is conditional
upon the HSE executing certain transaction documents.
The Irish government remains committed to modernising its
primary care infrastructure and providing many new, purpose built
primary care centres to facilitate this. PHP has built strong
relationships with vendors, agents and developers and has a strong
pipeline of opportunities in the Republic of Ireland.
The Group plans to mitigate the risk of movements in currency
markets creating a direct hedge for its capital investment by
funding acquisitions from Euro denominated resources. Net revenue
streams will be hedged on a shorter term basis to reduce exposure
to currency markets.
Harry Hyman Phil Holland
Managing Director Finance Director
26 July 2016
Principal risks and uncertainties
Effective risk management is a key element of the Board's
operational processes. The Group faces a variety of risks, both
within its business and external factors that have the potential to
impact on its performance, position and longer term viability.
Operations are structured to allow the Group to operate in a low
risk environment and in order to minimise the Group's residual
exposure to risks that it may face, but also to ensure that risks
that are accepted are appropriate to the returns they may generate
and within the overall risk appetite of the Board. The Board
regularly conducts a rigorous review of risks and how these are
mitigated and managed across all areas of the Group's
activities.
Risk and uncertainty created by the UK's vote to leave the EU in
June 2016 has been considered by the Board as being the single
event that would cause any change in the principal risks and
uncertainties faced by the Group since the publication of the
Annual Report for the year ended 31 December 2015. A detailed
explanation of the risks facing the Group and how the Group seeks
to mitigate them is summarised below:
Risk Change Factors affecting Mitigation
to risk risk in the
in six period
months
to
30 June
2016
---------------------- ---------- ---------------------- ------------------------
Delivering progressive
returns
---------------------------------- ---------------------- ------------------------
PHP invests Unchanged The eventual The commitment
in a niche outcome of EU to primary care
asset sector exit negotiations is a stated
where changes is not able objective of
in healthcare to be predicted both the UK
policy, the at present. and Irish governments.
funding of The demand for Additional funding
primary care, and investment has been committed
economic conditions in NHS services to the NHS with
and the availability will continue a resulting
of finance regardless. increase in
may adversely Future funding funding for
affect the levels could primary care
Group's portfolio be impacted underpinned
valuation by any long-term, by publication
and performance. material change of the GP Forward
to economic View.
performance. The attractiveness
The uncertainty of the long
caused by the term, secure
referendum may and growing
lead to fluctuations income streams
in the value that characterise
of the Group's the sector leads
assets, but to stability
no evidence of values.
of this can The Group has
be seen at present. reduced its
borrowing levels
following its
capital raise
in April 2016,
maintains headroom
in its covenant
tests and holds
a pool of unfettered
assets.
---------------------- ---------- ---------------------- ------------------------
Risk Change Factors affecting Mitigation
to risk risk in the
in six period
months
to 30
June
2016
--------------------- ---------- ----------------------- --------------------------
Income and Increased The Group has The Board will
expenditure signed its first fund its investments
that will conditional so as to create
be derived contract to a natural hedge
from PHP's acquire a primary between asset
investment care centre values and liabilities
in the Republic in Ireland completion in Ireland.
of Ireland of which will Operating cash
will be denominated crystallise flows will be
in Euros and Euro denominated hedged wherever
may be affected cash flows. possible to
unfavourably The most noticeable limit exposure
by fluctuations impact of the to exchange
in currency referendum vote rate fluctuations.
rates impacting has been the This will include
the Group's fall in Sterling the use of currency
earnings and exchange rates. derivatives
portfolio Volatility will and matching
valuation. continue whilst Euro-denominated
the exit process assets with
is ongoing. Euro debt facilities.
--------------------- ---------- ----------------------- --------------------------
Grow property portfolio
--------------------------------- ----------------------- --------------------------
The emergence Unchanged A flight to The reputation
of new purchasers income is emerging and track record
to the sector post-referendum of the Group
and the recent which will attract in the sector
slowing in property investors means it is
the level to the sector able to source
of approvals due to its long investment in
of new centres term, secure, existing standing
in the UK government cash investments
may restrict flows. from developers,
the ability The sector continues investors and
of the Group to experience owner-occupiers.
to secure a low number The Group has
new investments. of new development a number of
approvals in formal pipeline
the UK. agreements and
long standing
development
relationships
that provide
an increased
opportunity
to secure developments
that come to
market in the
UK.
The Estates
and Technology
Transformation
Fund ("ETTF")
provides an
opportunity
to secure projects
to enhance or
extend existing
properties.
The Group has
a strong, identified
pipeline of
investment opportunities
in the UK and
Ireland.
--------------------- ---------- ----------------------- --------------------------
Risk Change Factors affecting Mitigation
to risk risk in the
in six period
months
to 30
June
2016
--------------------- ---------- ----------------------- ----------------------
The Group Reduced The Company Overall debt
uses a mix successfully levels have
of shareholder raised GBP145.3 been reduced
equity and million (after in the period
external debt costs) of equity and the quantum
to fund its capital in April of unfettered
operations. 2016. Proceeds assets increased.
A restriction were initially Existing and
on the availability used to pay new debt providers
of funds would down revolving are keen to
limit the credit facilities, provide funds
Group's ability but these funds to the sector,
to invest. remain available attracted by
to be redrawn the strength
as needed by of its cash
the Group. flows.
All covenants The Board monitors
have been met its capital
with regard structure and
to the Group's maintains regular
debt facilities contact with
and these all existing and
remain available potential equity
for their contracted investors and
term with significant debt funders.
overall headroom.
--------------------- ---------- ----------------------- ----------------------
Manage effectively
and efficiently
--------------------------------- ----------------------- ----------------------
The bespoke Unchanged The Group's The Adviser
nature of property portfolio meets with occupiers
the Group's has grown by to discuss the
assets can 19 assets in specific property
lead to limited the period. and the tenant's
alternative Lease terms aspirations
use. Their for all property and needs for
continued assets will their future
use as fit erode and the occupation.
for purpose importance of Ten projects
medical centres active management procured in
is key to to extend the the period and
delivering use of a building 23 bids submitted
on the Group's remains unchanged. for approval
strategic and funding
objectives. to the ETTF.
These all enhance
income and extend
occupational
lease terms.
--------------------- ---------- ----------------------- ----------------------
The Group Unchanged None. The Advisory
has no employees. Agreement with
The continuance and performance
of the Adviser of Nexus is
contract is regularly reviewed.
a key for Nexus' remuneration
the efficient is linked to
operation the performance
and management of the Group
of the Group. to incentivise
long term levels
of performance.
Nexus can be
required to
serve all or
any part of
its notice period
should the Group
decide to terminate
providing protection
for an efficient
handover.
--------------------- ---------- ----------------------- ----------------------
Risk Change Factors affecting Mitigation
to risk risk in the
in six period
months
to 30
June
2016
-------------------- ---------- ----------------------- -----------------------
Diversified, long
term funding
-------------------------------- ----------------------- -----------------------
Without appropriate Unchanged Total Group Existing lenders
confirmed borrowing has remain keen
debt facilities, been decreased to finance PHP
PHP may be in the period and new entrants
unable to and a short to debt capital
meet current term (twelve markets have
and future months remaining) increased available
commitments revolving credit resource.
or repay or facility has Management constantly
refinance been cancelled. monitors the
debt facilities The Group was composition
as they become successful in of the Group's
due. extending the debt portfolio
quantum and to ensure compliance
term of a facility with covenants
with Barclays and continued
Bank plc and availability
Allied Irish of funds.
Banks plc in The Adviser
January 2016. regularly reports
The facility to the Board
is for a total on current debt
of GBP115 million positions and
for a new five provides projections
year term. of future covenant
compliance to
ensure early
warning of any
possible issues.
-------------------- ---------- ----------------------- -----------------------
Adverse movement Increased Term interest The Group holds
in underlying rate markets a proportion
interest rates experienced of its debt
could adversely significant in long term,
affect the volatility in fixed rate loans
Group's earnings the lead up and mitigates
and cash flows. to the referendum. its exposure
Rates fell sharply to interest
on the result rate movements
of the vote on floating
but will continue rate facilities
to see fluctuations mainly through
as markets react the use of interest
to exit negotiations. rate swaps.
Lower term interest As at the balance
rates have led sheet date 94%
to an increase of drawn debt
in the Mark is fixed or
to Market ("MtM") hedged.
valuations of MtM valuation
the Group's movements do
interest rate not impact on
derivative portfolio. the Group's
cash flows and
are not included
in any covenant
test in the
Group's debt
facilities.
-------------------- ---------- ----------------------- -----------------------
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 interim financial report for the six
months ended 30 June 2016 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 18. We have
read the other information contained in the interim 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 interim financial report is the responsibility of, and has
been approved by, the Directors. The Directors are responsible for
preparing the interim 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
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this interim 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 interim 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 interim financial report for the six months ended 30 June
2016 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, United Kingdom
26 July 2016
Condensed Group Statement of Comprehensive Income
for the six months ended 30 June 2016
Six Six months Year
months ended ended
ended 30 June 31
30 June 2015 December
2016 2015
GBP000 GBP000 GBP000
Notes (unaudited) (unaudited) (audited)
----------------------------------------------------------------------- ------ ------------ ------------ ----------
Rental income 32,564 30,975 63,115
Direct property expense (410) (422) (852)
----------------------------------------------------------------------- ------ ------------ ------------ ----------
Net rental income 32,154 30,553 62,263
Administrative expenses 2 (3,532) (3,392) (6,807)
Net result on property portfolio 15,530 23,890 39,767
Operating profit 44,152 51,051 95,223
Finance income 3 308 535 737
Finance costs 4 (16,375) (17,846) (34,464)
Non recurring: early loan (24) - -
repayment fee
Fair value (loss)/gain on
derivative interest rate
swaps and amortisation of
cash flow hedging reserve 4 (4,504) 2,287 1,005
Fair value gain/(loss) on
Convertible Bond 4 1,854 (3,612) (6,469)
----------------------------------------------------------------------- ------ ------------ ------------ ----------
Profit before taxation 25,411 32,415 56,032
Taxation charge 5 - - -
----------------------------------------------------------------------- ------ ------------ ------------ ----------
Profit for the period(1) 25,411 32,415 56,032
Other comprehensive (loss)/income:
Items that may be reclassified
subsequently to profit and
loss:
Fair value movement on interest
rate swaps treated as cash
flow hedges (13,116) 3,524 1,420
----------------------------------------------------------------------- ------ ------------ ------------ ----------
Other comprehensive (loss)/income
for the period net of tax (13,116) 3,524 1,420
----------------------------------------------------------------------- ------ ------------ ------------ ----------
Total comprehensive income
for the period net of tax 12,295 35,939 57,452
----------------------------------------------------------------------- ------ ------------ ------------ ----------
Earnings per share - basic 6 4.9p 7.3p(2) 12.6p
-
diluted 6 4.5p 6.4p(2) 11.2p
EPRA earnings per share
- basic 6 2.4p 2.2p(2) 4.9p
-
diluted 6 2.4p 2.2p(2) 4.8p
The above relates wholly to continuing operations.
(1) Wholly attributable to equity shareholders of Primary Health
Properties PLC.
(2) Restated to reflect the Company's four-for-one share
sub-division undertaken in November 2015.
Condensed Group Balance Sheet
as at 30 June 2016
30 June 30 June 31 December
2016 2015 2015
GBP000 GBP000 GBP000
Notes (unaudited) (unaudited) (audited)
----------------------------- ------ ------------ ------------ ------------
Non-current assets
Investment properties 8 1,187,041 1,074,757 1,100,612
Derivative interest rate
swaps 12 - 21 9
----------------------------- ------ ------------ ------------ ------------
1,187,041 1,074,778 1,100,621
Current assets
Trade and other receivables 4,038 4,656 4,153
Cash and cash equivalents 9 6,057 1,516 2,881
----------------------------- ------ ------------ ------------ ------------
10,095 6,172 7,034
----------------------------- ------ ------------ ------------ ------------
Total assets 1,197,136 1,080,950 1,107,655
----------------------------- ------ ------------ ------------ ------------
Current liabilities
Derivative interest rate 12,
swaps 13 (4,369) (7,340) (4,734)
Corporation tax payable - - -
Deferred rental income (14,032) (12,985) (13,169)
Trade and other payables (14,068) (15,892) (16,099)
Borrowings: Term loans
and overdraft 10 (779) (840) (862)
(33,248) (37,057) (34,864)
----------------------------- ------ ------------ ------------ ------------
Non-current liabilities
Borrowings: Term loans
and overdraft 10 (402,799) (448,459) (460,550)
Borrowings: Bonds 11 (234,656) (233,300) (236,328)
Derivative interest rate 12,
swaps 13 (34,017) (27,859) (30,553)
----------------------------- ------ ------------ ------------ ------------
(671,472) (709,618) (727,431)
----------------------------- ------ ------------ ------------ ------------
Total liabilities (704,720) (746,675) (762,295)
----------------------------- ------ ------------ ------------ ------------
Net assets 492,416 334,275 345,360
----------------------------- ------ ------------ ------------ ------------
Equity
Share capital 16 74,646 55,689 55,785
Share premium account 58,185 56,699 57,422
Capital reserve 1,618 1,618 1,618
Special reserve 17 208,216 104,310 93,063
Cash flow hedging reserve (35,534) (20,298) (22,402)
Retained earnings 185,285 136,257 159,874
----------------------------- ------ ------------ ------------ ------------
Total equity(1) 492,416 334,275 345,360
----------------------------- ------ ------------ ------------ ------------
Net asset value per share
Basic and diluted 14 82.5p 75.0p(2) 77.4p
EPRA net asset value
per share 14 90.4p 84.7p(2) 87.7p
(1) Wholly attributable to equity shareholders of Primary Health
Properties PLC.
(2) Restated to reflect the Company's four-for-one share
sub-division undertaken in November 2015.
Condensed Group Cash Flow Statement
for the six months ended 30 June 2016
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2015
2016 2015
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
---------------------------------- ------------ ------------ -------------
Operating activities
Profit on ordinary activities
before tax 25,411 32,415 56,032
Finance income (308) (535) (737)
Finance costs 16,375 17,846 34,464
Provision for early loan 24 - -
repayment fee
Fair value loss/(gain) on
derivatives 4,504 (2,287) (1,005)
Fair value (gain)/loss on
convertible bond (1,854) 3,612 6,469
---------------------------------- ------------ ------------ -------------
Operating profit before
financing costs 44,152 51,051 95,223
Adjustments to reconcile
Group operating profit to
net cash flows from operating
activities:
Net result on property portfolio (15,530) (23,890) (39,767)
Fixed rent uplift (779) (726) (1,480)
Decrease in trade and other
receivables 167 343 999
(Decrease)/increase in trade
and other payables (805) 2,369 2,170
---------------------------------- ------------ ------------ -------------
Cash generated from operations 27,205 29,147 57,145
Taxation paid (51) - -
---------------------------------- ------------ ------------ -------------
Net cash flow from operating
activities 27,154 29,147 57,145
---------------------------------- ------------ ------------ -------------
Investing activities
Payments to acquire investment
properties (70,120) (16,139) (17,863)
Payment to acquire Crestdown
Limited(1) - - (3,869)
Payment to acquire White
Horse Centre Limited(2) - (7,745) (7,745)
Interest received on development
loans 170 1,139 1,311
Bank interest received 56 12 12
---------------------------------- ------------ ------------ -------------
Net cash flow used in investing
activities (69,894) (22,733) (28,154)
---------------------------------- ------------ ------------ -------------
Financing activities
Gross proceeds of share 150,000 - -
issue
Costs of share issue (4,695) - -
Costs of share issue - PPP(3) - - (139)
Term bank loan drawdowns 31,690 24,342 45,750
Term bank loan repayments (89,507) (13,350) (25,764)
Termination of derivative
financial instruments - - (3,286)
Payment to re-set derivative (14,512) - -
contract rates
Swap interest paid (2,103) (3,784) (6,724)
Non-utilisation fees (533) (489) (875)
Loan arrangement fees (738) (111) (270)
Interest paid (13,134) (12,784) (25,791)
Loan breakage costs (24) - -
Group structuring costs - (61) -
Equity dividends paid (net
of scrip dividend) (10,528) (10,733) (21,083)
---------------------------------- ------------ ------------ -------------
Net cash flow from/(used
in) financing activities 45,916 (16,970) (38,182)
---------------------------------- ------------ ------------ -------------
Movement in cash and cash
equivalents for the period 3,176 (10,556) (9,191)
Cash and cash equivalents
at start of period 2,881 12,072 12,072
---------------------------------- ------------ ------------ -------------
Cash and cash equivalents
at end of period 6,057 1,516 2,881
---------------------------------- ------------ ------------ -------------
(1) Acquisition of Thornaby Property.
(2) Acquisition of White Horse, Westbury Property.
(3) Prime Public Partnerships Limited, acquired in December
2013.
Condensed Group Statement of Changes in Equity
for the six months ended 30 June 2016
Share Share Capital Special Cash Retained Total
capital premium reserve reserve flow earnings
hedging
reserve
---------------------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------- --------- --------- --------- --------- --------- ---------- ---------
Six months ended 30
June 2016 (unaudited)
1 January
2015 55,785 57,422 1,618 93,063 (22,402) 159,874 345,360
Profit for
the period - - - - - 25,411 25,411
Other comprehensive income:
Fair value
movement on
interest rate
swaps - - - - (14,676) - (14,676)
Amortisation
of cash flow
hedging reserve - - - - 1,560 - 1,560
--------- --------- --------- --------- --------- ---------- ---------
Total comprehensive
income - - - - (13,116) 25,411 12,295
Reclassification
of swap interest
accrual from
cash flow
hedge reserve - - - - (16) - (16)
Shares issued
as part of
capital raise 18,750 - - 131,250 - - 150,000
Share issue
expenses - (38) - (4,657) - - (4,695)
Dividends
paid - - - (10,528) - - (10,528)
Scrip dividend
in lieu of
cash 111 801 - (912) - - -
--------------------- --------- --------- --------- --------- --------- ---------- ---------
30 June 2016 74,646 58,185 1,618 208,216 (35,534) 185,285 492,416
--------------------- --------- --------- --------- --------- --------- ---------- ---------
Six months ended 30
June 2015 (unaudited)
1 January
2015 55,638 56,416 1,618 115,438 (23,847) 103,867 309,130
--------------------- --------- --------- --------- --------- --------- ---------- ---------
Profit for
the period - - - - - 32,415 32,415
Other comprehensive income:
Fair value
movement on
interest rate
swaps - - - - 3,524 - 3,524
Total comprehensive
income - - - - 3,524 32,415 35,939
Reclassification
of swap interest
accrual from
cash flow
hedge reserve - - - - 25 (25) -
Dividends
paid:
Dividends
paid - - - (10,733) - - (10,733)
Scrip dividends
in lieu of
cash (net
of expenses) 51 344 - (395) - - -
Group structuring
costs - (61) - - - - (61)
--------------------- --------- --------- --------- --------- --------- ---------- ---------
30 June 2015 55,689 56,699 1,618 104,310 (20,298) 136,257 334,275
--------------------- --------- --------- --------- --------- --------- ---------- ---------
Condensed Group Statement of Changes in Equity (continued)
Share capital Share premium Capital Special Cash flow Retained Total
reserve Reserve hedging earnings
reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------- -------------- -------------- ------------- --------- ------------- ------------- ---------
Year ended 31 December 2015 (audited)
1 January 2015 55,638 56,416 1,618 115,438 (23,847) 103,867 309,130
------------------- -------------- -------------- ------------- --------- ------------- ------------- ---------
Profit for the
year - - - - - 56,032 56,032
Other comprehensive income:
Fair value
movement on
interest rate
swaps - - - - (132) - (132)
Amortisation of
cash flow hedging
reserve - - - - 1,552 - 1,552
Total
comprehensive
income - - - - 1,420 56,032 57,452
Reclassification
of swap interest
accrual from
hedging
reserve(1) - - - - 25 (25) -
Share issue
expenses - (30) - (109) - - (139)
Dividends paid:
Dividends paid - - - (21,083) - - (21,083)
Scrip dividends in
lieu of cash (net
of expenses) 147 1,036 - (1,183) - - -
------------------- -------------- -------------- ------------- --------- ------------- ------------- ---------
31 December 2015 55,785 57,422 1,618 93,063 (22,402) 159,874 345,360
------------------- -------------- -------------- ------------- --------- ------------- ------------- ---------
(1) This relates to fair value changes in prior periods
incorrectly recognised within the cash flow hedge reserve
movements.
(2) Restated to reflect the Company's four-for-one share
sub-division undertaken in November 2015.
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 2015 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 Sections
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 its report to the Company is included on page 21.
These condensed consolidated interim financial statements of the
Group for the six months ended 30 June 2016 were approved and
authorised for issue by the Board on 26 July 2016.
Basis of preparation/Statement of compliance
The condensed consolidated interim financial statements for the
six months ended 30 June 2016 have been prepared in accordance with
IAS 34 'Interim Financial Reporting' and reflect consistent
accounting policies as set out in the Group's financial statements
at 31 December 2015 which were prepared in accordance with IFRS as
adopted by the European Union.
The condensed consolidated interim financial statements do 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 2015.
Convention
The condensed interim financial statements are presented in
Sterling, rounded to the nearest thousand.
Segmental reporting
The Directors are of the opinion that the Group currently 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 healthcare users.
Going concern
The Group's property portfolio is let to tenants with strong
covenants and the acquisition pipeline is positive. The Group's
loan to-value ratio is currently 53.0% and the Group's interest
cover for the period under review was 2.0 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 a period of not less than twelve months
from the date of this report. Accordingly, they continue to adopt
the going concern basis in preparing the condensed consolidated
interim financial statements.
Accounting policies
The accounting policies adopted are consistent with those of the
previous financial year. Amendments to IFRSs effective for the
financial year ending 31 December 2016 are not expected to have a
material impact on the Group.
2. Administrative expenses
As the Group's portfolio has grown, administrative expenses as a
proportion of rental income were 10.8% (30 June 2015: 10.9%). The
Group's EPRA cost ratio has fallen to 11.5%, compared to 11.6% for
the same period in 2015.
No performance incentive fee is payable to the Adviser for the
period ended 30 June 2016 (six months to 30 June 2015: GBPnil; year
ended 31 December 2015: GBPnil).
3. Finance income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2016 2015 2015
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
------------------------------ ------------ ------------ -------------
Interest income on financial
assets
Bank interest 54 9 9
Development loan interest 252 523 725
Other interest 2 3 3
------------------------------ ------------ ------------ -------------
308 535 737
------------------------------ ------------ ------------ -------------
4. Finance costs
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2016 2015 2015
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
---------------------------------- ------------ ------------ -------------
Interest expense and similar charges
on financial liabilities
(i) Interest
Bank loan interest 8,049 8,031 16,287
Swap interest 2,100 3,746 5,954
Bond interest 4,790 4,737 9,567
Bank facility non utilisation
fees 512 485 922
Bank charges and loan commitment
fees 924 847 1,734
---------------------------------- ------------ ------------ -------------
16,375 17,846 34,464
---------------------------------- ------------ ------------ -------------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2016 2015 2015
---------------------------- ------------ ------------ -------------
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
(ii) Derivatives
Net fair value (loss)/gain
on interest rate swaps (2,944) 2,287 2,557
Amortisation of cash flow
hedging reserve (1,560) - (1,552)
---------------------------- ------------ ------------ -------------
(4,504) 2,287 1,005
---------------------------- ------------ ------------ -------------
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 loss on derivatives which meet the hedge effectiveness
criteria under IAS 39 of GBP14.7 million (30 June 2015: gain of
GBP3.5 million) is accounted for directly in equity.
An amount of GBP1.6 million has been amortised from the cash
flow hedging reserve in the period resulting from the early
termination of an effective swap contract in July 2015 that would
otherwise have matured on 2 July 2016.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2016 2015 2015
--------------------------- ------------ ------------ -------------
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
(iii) Convertible Bond
Fair value gain/(loss) on
Convertible Bond 1,854 (3,612) (6,469)
--------------------------- ------------ ------------ -------------
The fair value movement in the Convertible Bond is recognised in
the Group Statement of Comprehensive Income within profit before
taxation but is excluded from the calculation of EPRA earnings and
EPRA NAV. Refer to Note 11 for further details about the
Convertible Bond.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2016 2015 2015
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
------------------------- ------------ ------------ -------------
Finance income (Note 3) (308) (535) (737)
Finance costs 16,375 17,846 34,464
------------------------- ------------ ------------ -------------
Net finance costs 16,067 17,311 33,727
------------------------- ------------ ------------ -------------
5. Taxation
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2016 2015 2015
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
---------------------------------- ------------ ------------ -------------
Taxation credit in the Condensed - - -
Group Statement of Comprehensive
Income
---------------------------------- ------------ ------------ -------------
6. Earnings per share
The calculation of basic and diluted earnings per share is based
on the following:
Net profit
attributable
to Ordinary Ordinary Per
Shareholders Shares share
GBP000 (number)(1) (pence)
------------------------------------ -------------- --------------- --------
Six months ended 30 June
2016
Basic and diluted earnings
Basic earnings 25,411 521,750,643 4.9
Dilutive effect of Convertible
Bond 1,744 84,615,385
------------------------------------ -------------- --------------- --------
Diluted earnings 27,155 606,366,028 4.5
------------------------------------ -------------- --------------- --------
EPRA basic and diluted earnings
Basic earnings 25,411
Adjustments to remove:
Net result on property (Note
8) (15,530)
Early repayment penalty 24
Fair value movement on derivatives 4,504
Fair value movement on Convertible
Bond (1,854)
EPRA basic earnings per share 12,555 521,750,643 2.4
------------------------------------ -------------- --------------- --------
Dilutive effect of Convertible
Bond 1,744 84,615,385
------------------------------------ -------------- --------------- --------
EPRA diluted earnings per
share 14,299 606,366,028 2.4
------------------------------------ -------------- --------------- --------
Six months ended 30 June
2015
Basic and diluted earnings
Basic earnings 32,415 445,310,968(2) 7.3(2)
Dilutive effect of Convertible
Bond 1,728 84,615,384(2)
------------------------------------ -------------- --------------- --------
Diluted earnings 34,143 529,926,352(2) 6.4(2)
EPRA basic and diluted earnings
Basic and diluted earnings 32,415
Adjustments to remove:
Net result on property (23,890)
Fair value movement on derivatives (2,287)
Fair value movement on Convertible
Bond 3,612
EPRA basic earnings per share 9,850 445,310,968(2) 2.2(2)
------------------------------------ -------------- --------------- --------
Dilutive effect of Convertible
Bond 1,728 84,615,384(2)
------------------------------------ -------------- --------------- --------
EPRA diluted earnings per
share 11,578 529,926,352 2.2(2)
------------------------------------ -------------- --------------- --------
(1) Weighted average number of shares in issue during the
period
(2) Restated to reflect the Company's four-for-one share
sub-division undertaken in November 2015.
Year ended 31 December 2015
(audited)
Basic and diluted earnings
Basic earnings 56,032 445,606,491 12.6
Dilutive effect of Convertible
Bond 3,506 84,615,385
------------------------------------ --------- ------------ -----
Diluted earnings 59,538 530,221,876 11.2
EPRA basic and diluted earnings
Basic and diluted earnings 56,032
Adjustments to remove:
Net result on property (39,767)
Fair value movement on derivatives (1,005)
Fair value movement on Convertible
Bond 6,469
EPRA basic earnings per share 21,279 445,606,491 4.9
------------------------------------ --------- ------------ -----
Dilutive effect of Convertible
Bond 3,506 84,615,385
------------------------------------ --------- ------------ -----
EPRA diluted earnings per
share 25,235 530,221,876 4.8
------------------------------------ --------- ------------ -----
(1) Weighted average number of Ordinary Shares in issue during the year
(2) Restated to reflect the Company's four-for-one share
sub-division undertaken in November 2015.
On 20 May 2014, the Group issued GBP82.5 million of unsecured
Convertible Bonds (refer to Note 11 for further details). 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 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 each period. The number of dilutive shares is
calculated as if the contingently issuable shares within the
Convertible Bond had been in issue for the period from issuance of
the bonds to the end of each reporting period.
7. Dividends
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2016 2015 2015
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
----------------------------- ------------ ------------ -------------
Quarterly interim dividend 5,358 - -
paid 26 February 2016
Scrip dividend in lieu of 360 - -
quarterly cash dividend
26 February 2016
Quarterly interim dividend 5,170 - -
paid 27 May 2016
Scrip dividend in lieu of 552 - -
quarterly cash dividend
27 May 2016
Interim dividend 2.50p paid
1 April 2015 - 10,733 10,733
Scrip dividend in lieu of
cash dividend 1 April 2015 - 395 395
Interim dividend 2.5p paid
30 October 2015 - - 10,350
Scrip dividend in lieu of
cash dividend 30 October
2015 - - 788
----------------------------- ------------ ------------ -------------
Total dividends distributed 11,440 11,128 22,266
----------------------------- ------------ ------------ -------------
2.50p
Per share 2.5625p (1) 5.00p(1)
----------------------------- ------------ ------------ -------------
(1) Restated to reflect the Company's four for one share
sub-division undertaken in November 2015.
The Company will pay a third interim dividend of 1.28125 pence
per Ordinary Share for the year ending 31 December 2016, payable on
26 August 2016, to shareholders on the register as at 15 July 2016.
This dividend will not be a Property Income Distribution
("PID").
8. 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 2016 in accordance with IAS 40: Investment Property.
The revaluation surplus for the six months ended 30 June 2016
amounted to GBP15.5 million (30 June 2015: GBP23.9 million; 31
December 2015: GBP39.8 million).
Property additions, including acquisitions, for the six months
ended 30 June 2016 amounted to GBP70.1 million (30 June 2015:
GBP23.9 million; 31 December 2015: GBP33.1 million). There were no
property disposals in the six months ended 30 June 2016 (30 June
2015: GBPnil; 31 December 2015: GBPnil).
Investment Investment Investment
properties long leasehold properties
freehold under
construction Total
GBP000 GBP000 GBP000 GBP000
(unaudited) (unaudited) (unaudited) (unaudited)
-------------------------- ------------ ---------------- -------------- ------------
As at 1 January
2016 882,016 209,861 8,735 1,100,612
Property additions 51,955 8,204 9,961 70,120
Impact of lease
incentive adjustment 356 423 - 779
Transfer from properties
in the course of
development 7,245 - (7,245) -
-------------------------- ------------ ---------------- -------------- ------------
941,572 218,488 11,451 1,171,511
Revaluations for
the period 10,695 4,135 700 15,530
-------------------------- ------------ ---------------- -------------- ------------
As at 30 June 2016 952,267 222,623 12,151 1,187,041
-------------------------- ------------ ---------------- -------------- ------------
In their Interim Valuation Report, Lambert Smith Hampton ("LSH")
commented on the referendum decision to exit the EU. LSH referred
to the period of uncertainty post the referendum vote and that many
factors may affect the property market as a whole.
LSH point to the lower level of property occupational and
investment transactions in the wider property sector that may
continue for the foreseeable future due to the Brexit scenario.
They state that "in "thin" transactional markets, by their nature,
there is less certainty to be attached to valuation. With fewer
transactions, there is less market evidence to provide definitive
price guidance at any time, and this coupled to volatility in
financial markets, creates additional risk".
9. Cash and cash equivalents
30 June 2016 31 December 2015
GBP000 GBP000
(unaudited) (audited)
------------------- ------------- -----------------
Cash held at bank 6,057 2,881
------------------- ------------- -----------------
10. Bank and other borrowings reconciliation
The table indicates amounts drawn and undrawn from each
individual facility:
Facility Amounts drawn Undrawn
-------------------------- -------------------------------- -------------------------------- ----------------------
30 June 2016 31 December 2015 30 June 2016 31 December 2015 30 June 31 December
2016 2015
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Current
Overdraft facility (1) 5,000 5,000 - - 5,000 5,000
Fixed rate term loan (2) 779 755 779 755 - -
Term loan to November
2028(9) - 107 - 107 - -
5,779 5,862 779 862 5,000 5,000
Non-current
Term loan to August 2017
(3) 115,000 165,000 115,000 146,250 - 18,750
Fixed rate term loan (2) 23,552 23,948 23,552 23,948 - -
Fixed rate term to
December 2022 (4) 25,000 25,000 25,000 25,000 - -
Term to July 2020 (5) 50,000 50,000 - 21,513 50,000 28,487
Fixed rate term to
November 2018 (6) 75,000 75,000 75,000 75,000 - -
Term to August 2019 (7) - 100,000 - 57,160 - 42,840
Term to August 2021 (7) 115,000 - 55,000 - 44,841 -
Fixed rate term to August
2024 (8) 50,000 50,000 50,000 50,000 - -
Fixed rate term to August
2029(8) 63,000 63,000 63,000 63,000 - -
Term to November 2028 (9) - 2,415 - 2,415 - -
-------------------------- ------------- ----------------- ------------- ----------------- -------- ------------
516,552 554,363 406,552 464,286 94,841 90,077
-------------------------- ------------- ----------------- ------------- ----------------- -------- ------------
Total 522,331 560,225 407,331 465,148 99,841 95,077
-------------------------- ------------- ----------------- ------------- ----------------- -------- ------------
Providers:
(1) The Royal Bank of Scotland PLC.
(2) Aviva facility repayable in tranches to 31 January 2032.
(3) The Royal Bank of Scotland plc ("RBS") and Abbey National
Treasury Services plc (branded Santander from January 2010) ("The
Club facility").
(4) Aviva GPFC facility.
(5) HSBC Bank facility.
(6) Aviva facility.
(7) Barclays Bank facility.
(8) Aviva facility.
(9) RBS facility (acquired with Crestdown Limited).
At 30 June 2016, total facilities of GBP749.8 million (31
December 2015: GBP787.7 million) were available to the Group. This
included a GBP75 million Unsecured Retail Bond, a GBP70 million
Secured Bond, a GBP82.5 million Convertible Bond and a GBP5 million
overdraft facility. Of these facilities, as at 30 June 2016,
GBP634.8 million was drawn (31 December 2015: GBP692.8
million).
On 10 June 2016, a GBP50 million revolving credit tranche of the
Club facility which would have matured in August 2017, was
voluntarily cancelled by the Group. The remaining tranche of the
loan is fully drawn by the Group. Its terms remain unchanged.
On 7 January 2016, the GBP100 million loan facility provided by
Barclays Bank plc was successfully extended by GBP15 million. The
enlarged facility will be made available for a new five-year term
from January 2016. All other terms of the facility remain
unchanged.
On 16 July 2015, the GBP50 million revolving credit facility
with HSBC Bank plc was extended for a new five-year term. All other
terms of the loan remain unaltered.
As part of the acquisition of Crestdown Limited on 29 June 2015,
the Group acquired an existing loan with the Royal Bank of Scotland
PLC in the sum of GBP2.5 million. The loan was fully repaid on 22
April 2015, incurring a GBP24,000 early repayment fee.
Costs associated with the arrangement and extension of the
facilities, including legal advice and loan arrangement fees, are
amortised over the remaining life of the related facility.
Any 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
2016 2015
GBP000 GBP000
(unaudited) (audited)
------------------------------------ ------------ ------------
Term loans drawn: due within
one year 779 862
Term loans drawn: due in greater
than one year 406,552 464,286
------------------------------------ ------------ ------------
Total term loans drawn 407,331 465,148
Less: unamortised borrowing
costs (3,753) (3,736)
------------------------------------ ------------ ------------
Total term loans per the Condensed
Group Balance Sheet 403,578 461,412
------------------------------------ ------------ ------------
11. Borrowings: Bonds
30 June 31 December
2016 2015
GBP'000 GBP000
(unaudited) (audited)
------------------------------- ------------ ------------
Secured
Secured Bond November 2015 70,000 70,000
Unsecured
Retail Bond July 2019 75,000 75,000
Convertible Bond May 2019 at
fair value 91,577 93,431
Less: unamortised issue costs (1,921) (2,103)
------------------------------- ------------ ------------
234,656 236,328
------------------------------- ------------ ------------
Secured Bond
On 18 December 2013, PHP successfully listed the floating rate
guaranteed secured bonds issued on 4 November 2013 (the "Secured
Bonds") on the London Stock Exchange. The Secured Bonds have a
nominal value of GBP70 million and mature on or about 30 December
2025. GBP60 million was paid up on the issue of the Secured Bonds
with the remaining GBP10 million being received on 30 June 2014
following the completion of the construction of four further
secured assets. The Secured Bonds incur interest on the paid-up
amount at an annualised rate of 220 basis points above six month
LIBOR, payable semi-annually in arrears.
Retail Bond
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 Retail
Bond issue costs are being amortised on a straight line basis over
seven years.
Convertible Bond
On 20 May 2014, PHP Finance (Jersey) Limited (the "Issuer"), a
wholly owned subsidiary of the Group, issued GBP82.5 million of
4.25% Convertible Bonds due 2019 (the "Bonds") at par. The Company
has guaranteed the due and punctual performance by the Issuer of
all of its obligations (including payments) in respect of the
Bonds.
Subject to certain conditions, the Bonds are convertible into
preference shares of the Issuer which will be automatically and
mandatorily exchangeable into fully paid Ordinary Shares of the
Company (the "Shares"). The initial conversion price has been set
at 390 pence per Share (the "Exchange Price") which has
subsequently been revised to 97.5 pence following the Company's
four-for-one Share sub-division undertaken in November 2015. Under
the terms of the Bonds, the Company will have the right to settle
any conversion rights entirely in Shares, in cash or with a
combination of Shares and cash.
The bondholders have the right to convert the Bonds up until 20
May 2017 only where the Parity Value (as defined in the Bond's
terms) is greater than the Exchange Price.
On or after 20 May 2017, the Bonds may be redeemed at par at the
Company's option subject to the Parity Value equalling or exceeding
GBP130,000, for Bonds with a nominal value of GBP100,000. If not
previously converted, redeemed or purchased and cancelled, the
Bonds will be redeemed at par on the maturity date.
Convertible Bond
30 June 31 December
2016 2015
GBP000 GBP000
------------------------------------ -------- ------------
Opening balance - fair value 93,431 86,962
Fair value movement in Convertible
Bond (1,854) 6,469
------------------------------------ -------- ------------
Closing balance - fair value 91,577 93,431
------------------------------------ -------- ------------
The fair value of the Convertible Bond at 30 June 2016 and 31
December 2015 was established by obtaining quoted market prices.
The fair value movement is recognised in the Group Statement of
Comprehensive Income within profit before taxation but is excluded
from the calculation of EPRA earnings and EPRA NAV.
12. Derivatives and other financial instruments
It is Group policy to maintain the proportion of floating rate
interest exposure at between 20% and 40% of total debt. The Group
uses interest rate swaps to mitigate its remaining exposure to
interest-rate risk in line with this policy. The fair value of
these contracts is recorded in the balance sheet and is determined
by discounting future cash flows at the prevailing market rates at
the balance sheet date.
The table below sets out the movements in the value of the
Group's interest rate swaps during the period:
Effective Ineffective Total
interest interest
rate swaps rate swaps
GBP000 GBP000 GBP000
------------------------------ ------------ ------------ ---------
Assets
As at 1 January 2016 9 - 9
Fair value movement
in the period (9) - (9)
------------------------------ ------------ ------------ ---------
As at 30 June 2016 - - -
------------------------------ ------------ ------------ ---------
Liabilities
As at 1 January 2016 (20,784) (14,503) (35,287)
Cash paid to re-set
interest rates - 14,512 14,512
Fair value movement
in the period (14,667) (2,944) (17,611)
------------------------------ ------------ ------------ ---------
As at 30 June 2016 (35,451) (2,935) (38,386)
------------------------------ ------------ ------------ ---------
Total - derivative financial
instruments
As at 1 January 2016 (20,775) (14,503) (35,278)
Cash paid to re-set
interest rates - 14,512 14,512
Fair value movement
in the period (14,676) (2,944) (17,620)
------------------------------ ------------ ------------ ---------
As at 30 June 2016 (35,451) (2,935) (38,386)
------------------------------ ------------ ------------ ---------
On 11 May 2016, PHP paid a one-off cash sum of GBP14.5 million
to re-set the contracted rates on two interest rate swaps. The
contracts were as follows:
-- for a nominal value of GBP50.0 million, at a rate of 4.835%,
maturing on 11 August 2021; and
-- for a nominal value of GBP38.0 million, at a rate of 4.74%, maturing on 11 August 2021.
The contracted rate on both swaps was bought down to the
prevailing market rate of 0.87% for the period of the contract
between 11 November 2016 and maturity. The swaps are no longer
callable at the option of the bank. All other terms remain
unchanged.
These swap contracts are classified as ineffective swaps. As
such, Mark to Market valuation movements have been recognised in
the Income Statement in the period they arose. The payment made to
re-set the rates on these contracts crystallised part of the value
held in the balance sheet at that time. Further fair value
movements resulting from the re-coupon of these swaps are
recognised in the Income Statement (see above).
13. Financial risk management
Set out below is a comparison by class of the carrying amount
and fair values of the Group's financial instruments that are
carried in the financial statements.
Book Fair Book value Fair value
value value
30 June 30 June 31 December 31 December
2016 2016 2015 2015
GBP000 GBP000 GBP000 GBP000
----------------------------- ---------- ---------- ------------ ------------
Financial assets
Trade and other receivables 2,545 2,545 2,364 2,364
Effective interest
rate swaps - - 9 9
Cash and short-term
deposits 6,057 6,057 2,881 2,881
----------------------------- ---------- ---------- ------------ ------------
Financial liabilities
Interest-bearing
loans and borrowings (629,158) (685,387) (692,648) (731,532)
Effective interest
rate swaps (35,451) (35,451) (20,776) (20,776)
Ineffective interest
rate swaps (2,935) (2,935) (14,502) (14,502)
Trade and other payables (11,537) (11,537) (14,424) (14,424)
----------------------------- ---------- ---------- ------------ ------------
The fair value of the financial assets and liabilities is
included as an estimate of the amount at which the instruments
could be transferred in a current transaction between willing
parties, other than a forced sale. The following methods and
assumptions were used to estimate fair values:
-- The fair values of the Group's cash and cash equivalents and
trade payables and receivables are not materially different from
those at which they are carried in the financial statements due to
the short term nature of these instruments.
-- The fair value of floating rate borrowings is estimated by
discounting future cash flows using rates currently available for
instruments with similar terms and remaining maturities. The fair
value approximates their carrying values, gross of unamortised
transaction costs.
-- The fair values of the derivative interest rate swap
contracts are estimated by discounting expected future cash flows
using market interest rates and yield curves over the remaining
term of the instrument.
The Group held the following financial instruments at fair value
at 30 June 2016. 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 2016 are as follows:
Level Level Level Total
1(1) 2(2) 3(3)
Recurring fair GBP000 GBP000 GBP000 GBP000
value measurements
----------------------- --------- --------- ------- ---------
Financial assets
Derivative interest - - - -
rate swaps
----------------------- --------- --------- ------- ---------
Financial liabilities
Derivative interest
rate swaps - (38,386) - (38,386)
Convertible bond (91,577) - - (91,577)
----------------------- --------- --------- ------- ---------
Fair value measurements at 31 December 2015 were as follows:
Recurring fair Level Level Level Total
value measurements 1(1) 2(2) 3(3)
GBP000 GBP000 GBP000 GBP000
----------------------- --------- --------- ------- ---------
Financial assets
Derivative interest
rate swaps - 9 - 9
----------------------- --------- --------- ------- ---------
Financial liabilities
Derivative interest
rate swaps - (35,287) - (35,287)
Convertible Bond (93,431) - - (93,431)
----------------------- --------- --------- ------- ---------
(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; and
-- observable market data.
14. Net asset value calculations
Net asset values have been calculated as follows:
30 June 30 June 31 December
2016 2015 2015
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
--------------------------- ------------ --------------- ------------
Net assets
Basic net assets 492,416 334,275 345,360
Derivative interest rate
swaps liability (net) 38,386 35,178 35,278
Cumulative Convertible
Bond fair value movement 9,077 8,074 10,931
--------------------------- ------------ --------------- ------------
EPRA net asset value 539,879 377,527 391,569
--------------------------- ------------ --------------- ------------
Number Number Number
of shares of shares of shares
--------------------------- ------------ --------------- ------------
Ordinary Shares:
Issued share capital 597,171,537 445,513,044(1) 446,281,348
Net asset value per share
Basic net asset value
per share 82.5p 75.0p(1) 77.4p
--------------------------- ------------ --------------- ------------
EPRA net asset value per
share 90.4p 84.7p(1) 87.7p
--------------------------- ------------ --------------- ------------
(1) Restated to reflect the Company's four for one share
sub-division undertaken in November 2015.
EPRA NAV is calculated as balance sheet net assets including the
valuation result on investment properties but excluding fair value
adjustments for debt and related derivatives.
As detailed in Note 6, 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 97.5 pence (390 pence upon issue,
restated to reflect the Company's four-for-one share sub-division
undertaken in November 2015), the unsecured Convertible Bond issued
by the Group on 20 May 2014 is anti-dilutive to all measures of net
asset value per share.
15. Related party transactions
The fees calculated and payable for the period to the Adviser,
included in administrative expenses, were as follows:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2016 2015 2015
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
----------------------- ------------ ------------ -------------
Nexus TradeCo Limited 2,801 2,606 5,296
----------------------- ------------ ------------ -------------
As at 30 June 2016, outstanding advisory fees payable to Nexus
totalled GBP0.5 million (31 December 2015: GBP0.5 million).
Further fees paid to Nexus in accordance with the Advisory
Agreement for the period to 30 June 2016 of GBP0.02 million (31
December 2015: GBP0.1 million) in respect of capital projects were
capitalised in the year.
16. Called up share capital
30 June 30 June 31 December
2016 2015 2015
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
----------------------------- ------------ ------------ ------------
Issued and fully paid
Ordinary Shares at 12.5p
each 74,646 55,689 55,785
----------------------------- ------------ ------------ ------------
At beginning of year 55,785 55,638 55,638
Scrip issues in lieu of
cash dividends 111 51 147
Shares issued in the period 18,750 - -
----------------------------- ------------ ------------ ------------
74,646 55,689 55,785
----------------------------- ------------ ------------ ------------
On 13 April 2016, a general meeting of the Company approved the
issue of 150,000,000 new Ordinary Shares at a price of 100 pence
each. The shares were admitted to trading on the Main Market of the
London Stock Exchange on 14 April 2016.
At a general meeting of the Company on 11 November 2015,
shareholders approved the resolution to sub-divide each issued
Ordinary Share of 50.0 pence each into four Ordinary Shares of 12.5
pence. The sub-division of the Ordinary Shares became effective on
12 November 2015.
17. Special reserve
30 June 30 June 31 December
2016 2015 2015
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
------------------------- ------------ ------------ ------------
At beginning of year 93,063 115,438 115,438
Share issue: 14 April 131,250 - -
2016
Dividends paid (10,528) (10,733) (21,083)
Scrip issues in lieu of
cash dividends (912) (395) (1,183)
Share issue expenses (4,657) - (109)
------------------------- ------------ ------------ ------------
208,216 104,310 93,063
------------------------- ------------ ------------ ------------
The special reserve has arisen on previous issues of the
Company's shares. It represents the share premium on the issue of
the shares, net of expenses, from issues effected by way of a cash
box mechanism. The issue of shares on 14 April 2016, referred to in
note 16, was effected by way of a cash box.
A cash box raising is a mechanism for structuring a capital
raising whereby the cash proceeds from investors are invested in a
subsidiary company of the parent instead of the parent itself. Use
of a cash box mechanism has enabled the share premium arising from
the issue of shares to be deemed to be a distributable reserve and
has therefore been shown as a special reserve in these financial
statements. Any issue costs are also deducted from the special
reserve.
As the special reserve is a distributable reserve, the dividends
declared in the period have been distributed from this reserve.
18. Subsequent events
On 8 July 2016, the Group signed a conditional contract to
acquire a primary care centre in the Republic of Ireland for a
consideration of EUR6.7 million. Completion is scheduled for August
2016 conditional upon the completion of certain transaction
documents.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge this
condensed set of interim 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 interim 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 Report.
Shareholder information is as disclosed in the Annual Report and
is also available on the PHP website, www.phpgroup.co.uk.
By order of the Board
Alun Jones
Chairman
26 July 2016
Glossary of terms
Adviser is Nexus Tradeco Limited.
Building Research Establishment Environmental Assessment Method
("BREEAM") assesses the sustainability of buildings against a range
of criteria.
Clinical Commissioning Groups ("CCGs") are the groups of GPs and
other healthcare professionals that are responsible for designing
local health services in England with effect from 1 April 2013.
Company and/or Parent is Primary Health Properties PLC.
Direct property costs comprise ground rents payable under head
leases, void costs, other direct irrecoverable property expenses,
rent review fees and valuation fees.
District Valuer ("DV") is the District Valuer Service being the
commercial arm of the Valuation Office Agency ("VOA"). It provides
professional property advice across the public sector and in
respect of primary healthcare represents NHS bodies on matters of
valuation, rent reviews and initial rents on new developments.
Dividend cover is the number of times the total dividend paid in
the period (in cash or shares under the Scrip Dividend Scheme) is
covered by EPRA earnings.
Earnings per Ordinary Share from continuing operations ("EPS")
is the profit attributable to equity holders of the Parent divided
by the weighted average number of shares in issue during the
period.
European Public Real Estate Association ("EPRA") is a real
estate industry body, which has issued Best Practices
Recommendations in order to provide consistency and transparency in
real estate reporting across Europe.
EPRA Cost Ratio is the ratio of net overheads and operating
expenses against gross rental income (with both amounts excluding
ground rents payable). Net overheads and operating expenses relate
to all administrative and operating expenses, net of any service
fees, recharges or other income specifically intended to cover
overhead and property expenses.
EPRA Earnings is the profit after taxation excluding investment
and development property revaluations and gains/losses on
disposals, changes in the fair value of financial instruments and
associated close-out costs and their related taxation.
EPRA Net Asset Value ("EPRA NAV") is the balance sheet net
assets excluding own shares held and Mark to Market derivative
financial instruments.
EPRA Vacancy Rate is, as a percentage, the ERV of vacant space
in the Group's property portfolio divided by the ERV of the whole
portfolio.
Equivalent yield (true and nominal) is a weighted average of the
Net initial yield and Reversionary yield and represents the return
a property will produce based upon the timing of the income
received. The true equivalent yield assumes rents are received
quarterly in advance. The nominal equivalent assumes rents are
received annually in arrears.
Estimated rental value ("ERV") is the external valuer's opinion
as to the open market rent which, on the date of valuation, could
reasonably be expected to be obtained on a new letting or rent
review of a property.
Exchange Price is 116% of the share price at the date of
issue.
Gross rental income is the gross accounting rent receivable.
Group is Primary Health Properties PLC and its subsidiaries.
IFRS is International Financial Reporting Standards as adopted
by the European Union.
Interest cover is the number of times net interest payable is
covered by net rental income.
Interest rate swap is a contract to exchange fixed payments for
floating payments linked to an interest rate, and is generally used
to manage exposure to fluctuations in interest rates.
IPD is the Investment Property Databank Limited which provides
performance analysis for most types of real estate and produces an
independent benchmark of property returns.
IPD Healthcare is the Investment Property Databank's UK Annual
Healthcare Property Index.
IPD Total Return is calculated as the change in capital value,
less any capital expenditure incurred, plus net income, expressed
as a percentage of capital employed over the period, as calculated
by IPD.
London Interbank Offered Rate ("LIBOR") is the interest rate
charged by one bank to another for lending money.
Loan to Value ("LTV") is the ratio of net debt to the total
value of property assets.
Mark to Market ("MtM") is the difference between the book value
of an asset or liability and its market value.
Net initial yield is the annualised rents generated by an asset,
after the deduction of an estimate of annual recurring
irrecoverable property outgoings, expressed as a percentage of the
asset valuation (after notional purchaser's costs).
Net rental income is the rental income receivable in the period
after payment of direct property costs. Net rental income is quoted
on an accounting basis.
NHSPS is NHS Property Services Limited and the company wholly
owned and funded by the Department of Health, which, as of 1 April
2013, has taken on all property obligations formerly borne by
Primary Care Trusts.
Parity Value is calculated based on dividing the Convertible
Bond value by the Exchange Price.
Property Income Distribution ("PID") is the required
distribution of income as dividends under the REIT regime. It is
calculated as 90% of exempted net income.
Real Estate Investment Trust ("REIT") is a listed property
company which qualifies for and has elected into a tax regime,
which exempts qualifying UK profits, arising from property rental
income and gains on investment property disposals, from corporation
tax, but which has a number of specific requirements.
Rent reviews take place at intervals agreed in the lease and
their purpose is usually to adjust the rent to the current market
level at the review date.
Rent roll is the passing rent being the total of all the
contracted rents reserved under the leases.
Reversionary yield is the anticipated yield which the initial
yield will rise to once the rent reaches the ERV and when the
property is fully let. It is calculated by dividing the ERV by the
valuation.
Retail Price Index ("RPI") is the official measure of the
general level of inflation as reflected in the retail price of a
basket of goods and services such as energy, food, petrol, housing,
household goods, travelling fare, etc. RPI is commonly computed on
a monthly and annual basis.
RICS is the Royal Institution of Chartered Surveyors.
RPI linked leases are those leases which have rent reviews which
are linked to changes in the RPI.
Special reserve is a distributable reserve.
Total expense ratio ("TER") is calculated as total
administrative costs for the year divided by the average total
asset value during the year.
Total property return is the overall return generated by
properties on a debt-free basis. It is calculated as the net rental
income generated by the portfolio plus the change in market values,
divided by opening property assets plus capital expenditure, less
disposals.
Total NAV return is calculated as the movement in EPRA net
assets for the period plus the dividends paid, divided by opening
EPRA net assets.
Total Shareholder Return is calculated as the movement in the
share price for the period plus the dividends paid, divided by the
opening share price.
Weighted average facility maturity is calculated by multiplying
each tranche of Group debt by the remaining period to its maturity
and dividing the result by total Group debt in issue at the year
end.
Weighted average unexpired lease term ("WAULT") is the average
lease term remaining to first break, or expiry, across the
portfolio weighted by contracted rental income.
Yield on cost is the estimated annual rent of a completed
development divided by the total cost of development including site
value and finance costs expressed as a percentage return.
Yield shift is a movement (usually expressed in basis points) in
the yield of a property asset, or like-for-like portfolio over a
given period. Yield compression is a commonly used term for a
reduction in yields.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BRGDRBBDBGLL
(END) Dow Jones Newswires
July 27, 2016 02:01 ET (06:01 GMT)
Primary Health Properties (LSE:PHP)
과거 데이터 주식 차트
부터 6월(6) 2024 으로 7월(7) 2024
Primary Health Properties (LSE:PHP)
과거 데이터 주식 차트
부터 7월(7) 2023 으로 7월(7) 2024
