TIDMPHP
RNS Number : 6503V
Primary Health Properties PLC
25 July 2018
Primary Health Properties PLC
Interim results
Strengthened balance sheet and rental growth delivering
continued shareholder value
Primary Health Properties PLC ("PHP", the "Group" or the
"Company"), a leading investor in modern primary health facilities,
announces its interim results for the six months ended 30 June
2018.
FINANCIAL HIGHLIGHTS
-- EPRA Earnings(1, 4) increased by 11.0% to GBP17.1m (30 June 2017: GBP15.4m)
-- EPRA Earnings(1, 4) per share decreased by 3.8% to 2.5p (30
June 2017: 2.6p) reflecting the dilution from the successful,
over-subscribed GBP115.0m equity raise in April 2018
-- Net rental income(3) increased by 7.5% to GBP37.4m (30 June 2017: GBP34.8m)
-- IFRS profit before tax decreased by 12.6% to GBP38.7m (30
June 2017: GBP44.3m) due to a lower revaluation surplus in the
period of GBP21.2m (30 June 2017: GBP29.9m)
-- IFRS earnings(1) per share decreased by 23.0% to 5.7p (30 June 2017: 7.4p)
-- EPRA Net Asset Value per share(2, 3, 4) increased by 3.5% to
104.2p (31 December 2017: 100.7p)
-- IFRS Net Asset Value per share(2, 3) increased by 5.4% to 99.8p (31 December 2017: 94.7p)
-- Total dividends paid increased by 7.0% to GBP16.8m (30 June
2017: GBP15.7m) fully covered by EPRA earnings
-- Total dividends of 2.7p per share distributed in the period
(30 June 2017: 2.62p), the 22(nd) successive year of dividend
growth. Third quarterly dividend of 1.35p per share payable on 24
August 2018
-- Increase in EPRA net assets and dividends paid in the period
equivalent to 6.2p per share, an increase of 6.2% (30 June 2017:
7.6p up 8.4%)
OPERATIONAL HIGHLIGHTS
-- Total portfolio of 308 assets valued at GBP1.415bn as at 30
June 2018 (31 December 2017: GBP1.362bn) with a contracted rent
roll of GBP74.4m (31 December 2017: GBP72.3m)
-- Surplus on property valuation of GBP21.2m (30 June 2017:
GBP29.9m), growth of 1.5%; portfolio net initial valuation yield of
4.85% (31 December 2017: 4.91%)
-- Successful, over-subscribed equity issue completed in April
2018, raising GBP115.0m (GBP111.2m net of expenses) at a 7% premium
to EPRA NAV as at 31 December 2017
-- Proceeds from the equity issue being invested in a
disciplined manner with four properties acquired for GBP48.6m,
including post period end transactions, GBP4.8m invested in asset
management projects and a further four properties in solicitors'
hands, subject to due diligence, for GBP37m
-- Strong pipeline of acquisitions totalling over GBP175m in the
UK and Ireland being progressed
-- Average annualised uplift of 1.7% on rent reviews agreed in
the period resulting in an uplift in rent of GBP0.6m continuing the
positive trend in rental growth over the last two years (year ended
31 December 2017: 1.1% p.a. with an uplift of GBP0.5m; year ended
31 December 2016: 0.9% p.a. with an uplift of GBP0.3m)
-- 99.7% of portfolio let with 12.9 years weighted average
unexpired lease term (31 December 2017: 13.2 years) and only 1.3%
of rent due to expire in the next three years
-- Loan to Value(3) reduced to 44.6% (31 December 2017: 52.9%)
falling to 40.5% on a pro-forma basis excluding the convertible
bond
-- Group's average cost of debt reduced by 23bp to 3.86% (31
December 2017: 4.09%) including the impact of GBP70.0m/4.52% fixed
rate swaps cancelled for two years, post period end, for a one-off
payment of GBP5.0m. Total interest savings of GBP2.5m p.a.
-- PHP shares were elevated to the FTSE 250 and FTSE All-Share
indices on the London Stock Exchange in April 2018
(1) See note 7, earnings per share, to the financial statements.
(2) See note 15, net asset value per share, to the financial statements.
(3) Definitions for net rental income, loan to value ("LTV") and
net asset value ("NAV") are set out in the Glossary of Terms.
(4) The Company uses a number of alternative performance
measures in this interim statement. See page 16, Business
Review.
Harry Hyman, Managing Director of PHP, commented:
"The successful, over-subscribed equity raise has strengthened
the balance sheet and provides significant headroom for future
investment in a strong, disciplined and selective pipeline. As we
have already demonstrated, we are actively engaged in expanding our
portfolio, with particular growth in the number of significant
Irish assets. PHP continues to benefit from the strong fundamental
characteristics and government-backed income which position primary
healthcare as a highly attractive investment opportunity.
We are also encouraged by the continuing improvement in rental
growth in the sector which will help to maintain our strategy of
paying a progressive dividend to our shareholders which is covered
by earnings."
Presentation and webcast:
A presentation for analysts will be held on 25 July 2018 at
10.30am at the offices of Numis, 10 Paternoster Square, London EC4M
7LT.
The presentation will be accessible via a live conference
call:
UK Toll Free: +44 (0) 808 237 0040
International dial in numbers:
http://events.arkadin.com/ev/docs/FEL_Events_International_Access_List.pdf
Participant PIN code: 20993790#
There will be a replay available for one month following the
presentation:
UK Toll-Free Number: 0808 237 0026
Conference Number: 697622#
A live webcast of the presentation will also be available via
this link.
For further information contact:
Harry Hyman Richard Howell
Primary Health Properties PLC Primary Health Properties PLC
T +44 (0) 20 7451 7050 T +44 (0) 20 7104 2004
harry.hyman@nexusgroup.co.uk richard.howell@nexusgroup.co.uk
David Rydell/ Steph Watson/
Tilly Abraham Buchanan
T +44 (0) 20 7466 5066
---------------------------------
FINANCIAL HIGHLIGHTS
Six months Six months Year ended
ended ended
30 June 2018 30 June 2017 31 December
2017
(unaudited) (unaudited) (audited)
----------------------------------- -------------- -------------- -------------
Investment portfolio GBP1.415bn GBP1.266bn GBP1.362bn
Net rental income(1) GBP37.4m GBP34.8m GBP71.3m
Weighted average unexpired
lease term (WAULT) 12.9 years 13.3 years 13.2 years
Contracted rent roll (annualised) GBP74.4m GBP69.3m GBP72.3m
EPRA results
EPRA Earnings(2, 4) GBP17.1m GBP15.4m GBP31.0m
EPRA Earnings per share(2,
4) 2.5p 2.6p 5.2p
EPRA NAV(1, 3, 4) GBP762.9m GBP575.4m GBP623.6m
EPRA NAV per share(1,
3, 4) 104.2p 96.1p 100.7p
Dividends
Dividend per share(5) 2.70p 2.62p 5.25p
Dividends paid GBP16.8m GBP15.7m GBP31.4m
Dividend cover 102% 98% 99%
Debt
Average cost of debt(6) 3.86% 4.65% 4.09%
Weighted average debt 5.9 years 5.1 years 6.3 years
maturity
Loan to value ratio(1) 44.6% 53.7% 52.9%
Total undrawn loan facilities(7) GBP200.7m GBP90.5m GBP101.0m
Reported results
IFRS profit for the period GBP38.7m GBP44.3m GBP91.9m
IFRS earnings per share(2) 5.7p 7.4p 15.3p
Total equity GBP730.6m GBP530.6m GBP586.8m
IFRS NAV per share(1,
3) 99.8p 88.6p 94.7p
----------------------------------- -------------- -------------- -------------
(1) Definitions for net rental income, loan to value ("LTV") and
net asset value ("NAV") are set out in the Glossary of Terms.
(2) See note 7, earnings per share, to the financial
statements.
(3) See note 15, net asset value per share, to the financial
statements.
(4) The Company uses a number of alternative performance
measures in this interim statement. See page 16, Business
Review.
(5) See note 8, dividends, to the financial statements.
(6) Including the impact of GBP70m fixed rate swaps re-couponed
post period end.
(7) After deducting the remaining cost to complete contracted
acquisitions, properties under development and asset management
projects.
Performance
Six months Six months Year ended
ended ended 31 December
30 June 2018 30 June 2017 2017
---------------------------- -------------- -------------- -------------
Increase in EPRA NAV plus
dividends paid 6.2% 8.4% 16.4%
Income return 2.7% 2.8% 5.5%
Capital return 1.6% 2.5% 5.3%
---------------------------- -------------- -------------- -------------
Total property return 4.3% 5.3% 10.8%
IPD All Property return(1) 4.4% 4.7% 10.3%
(Under)/outperformance
over IPD (0.1%) 0.6% 0.5%
---------------------------- -------------- -------------- -------------
(1) IPD Monthly All Property, All Assets index to June 2018.
EXECUTIVE REVIEW
The Group has completed a successful start to the year
strengthening the balance sheet and securing additional resource
for future investment by raising GBP115.0m of new equity capital
(GBP111.2m net of expenses). Including post period end
transactions, we have committed GBP53m, or 46% of the equity
raised, in acquiring four properties including a forward funded
development and invested in 19 asset management projects to create
additional value. A further GBP37m of transactions have been agreed
and are in advanced stages of legal due diligence which, if they
complete, will result in the investment of approximately 80% of the
equity raised.
The Group passed another significant milestone following the
equity raise and entered the FTSE 250 index on the London Stock
Exchange in April 2018.
We have increased the dividend paid to shareholders in the
period by 7.0% to GBP16.8m (30 June 2017: GBP15.7m) which is fully
covered by increased earnings and represents the Group's 22(nd)
successive year of dividend growth.
PHP was also announced as the winner of the "Highest 10 Year
Risk Adjusted Absolute Return" award by MSCI Investment Property
Forum in March 2018.
Overview of results
The acquisitions in both 2017 and 2018, together with continued
and increasing organic rental growth, helped to deliver another set
of strong results in the first six months of the year with EPRA
earnings up 11.0% to GBP17.1m (30 June 2017: GBP15.4m) and EPRA
earnings per share down 3.8% to 2.5p (30 June 2017: 2.6p)
reflecting the dilution from the successful equity raise in April
2018. The Group's portfolio was valued at just over GBP1.4bn which
generated a revaluation surplus of GBP21.2m (30 June 2017:
GBP29.9m) after allowing for costs associated with acquisitions and
capital expenditure.
The Group has continued to selectively grow its portfolio in the
period, adding two assets and exchanging contracts to acquire our
fourth property in Ireland. Post period end, a forward funded
development in Ireland has been acquired, for a total cost of
GBP19.7m (EUR22.3m). We continue to have a strong pipeline of
further potential acquisitions both in the UK and Ireland including
GBP37m of properties currently in solicitors' hands and subject to
contract.
The EPRA earnings, revaluation surplus, profit on land sale of
GBP0.1m and a gain on the mark to market valuation of our
derivative portfolio and convertible bond of GBP0.3m resulted in an
IFRS profit of GBP38.7m (30 June 2017: GBP44.3m), a decrease of
12.6%.
We have continued to see further yield compression in the sector
which resulted in the portfolio's net initial yield contracting by
6bp to 4.85% (31 December 2017: 4.91%) which accounted for
approximately half of the revaluation surplus. Rent reviews and
asset management projects accounted for the balance, adding GBP0.7m
to the contracted rent roll. Positive momentum on rent reviews has
seen annualised rental growth continue to improve with 1.7%
achieved on rent reviews completed, compared to 1.1% and 0.9%
achieved in the whole of 2017 and 2016 respectively.
The portfolio's average lot size continues to grow and is now
GBP4.6m (31 December 2017: GBP4.5m) and we have only two assets
valued at less than GBP1.0m; one of which will be sold post period
end at book value. We continue to maintain our very strong metrics,
with a long average lease length of 12.9 years, high occupancy at
99.7% and with only 1.3% of our rent due to expire in the next
three years.
Dividends
The Company distributed a total of 2.7p per share in the six
months to 30 June 2018, an increase of 3.1% over that distributed
in the first half of 2017 of 2.62p per share. The total value of
dividends distributed in the period increased by 7.0% to GBP16.8m
(30 June 2017: GBP15.7m) and were fully covered by EPRA earnings.
Dividends totalling GBP1.0m were satisfied through the issuance of
shares via the scrip dividend scheme.
Interim dividends of 1.35p per share were paid in February and
May 2018 and the Company is to pay its third quarterly dividend,
also of 1.35p per share, on 24 August 2018 to shareholders on the
register as at 13 July 2018. The dividend will comprise a Property
Income Distribution ("PID") of 0.85p and an ordinary dividend of
0.50p per share. The dividends are equivalent to 5.4p on an
annualised basis and represent the Company's 22(nd) successive year
of dividend growth. A further dividend payment is planned to be
made in November 2018.
The Company intends to maintain its strategy of paying a
progressive dividend that is covered by earnings in each financial
year.
The Company's share price started the year at 117.0p per share
and closed on 30 June 2018 at 116.6p, a slight decrease of 0.3%.
Including dividends, those shareholders who held the Company's
shares throughout the period achieved a Total Shareholder Return of
2.0% (30 June 2017: 4.4%).
Market update and outlook
Despite the continued volatility within the economic and
political environment and prolonged era of low interest rates,
there continues to be an unrelenting search for income yield across
most sectors. Primary healthcare, with its strong fundamental
characteristics and government-backed income, has been a
significant beneficiary. The UK market for primary healthcare
property investment continues to be highly competitive with strong
yields and prices being paid by investors for assets in the sector
and we have continued to see yields compress further in the first
half of 2018.
Primary healthcare performs a critical function, providing a key
part of the NHS's Five Year Forward View ("FYFV"), operating as
most patients' first point of call when unwell. The primary care
estate has faced under investment over the last decade, with
approximately 50% of the 8,000 GP surgeries in England and Wales
now considered by medical professionals to be unfit for purpose.
Building on the FYFV, the follow-up "Next Steps on the Five Year
Forward View", published in March 2017, reiterated that shift,
setting out targets for growth in the primary care workforce,
expansion of access to general practice and the need for improved
primary care premises.
In January 2018, the Government published a response to the
Naylor Review which acknowledged the importance of land and
property to the transformation of the health system and how the NHS
will be able to supplement public capital with other sources of
finance from the private sector. The response also confirms that
the use of private finance has been particularly effective as a
source of investment and innovation in primary and community care
in the past and will still be used in the future where it
represents good value for money. Demand for healthcare is driven by
demographics and the NHS is supported on a cross party basis in the
UK. We welcome the recent announcement by the Government to
increase funding for the NHS, on its 70(th) anniversary, and these
additional resources may in time lead to increased activity in the
building of new and the modernisation of existing primary care
premises which is essential if they are to reduce the increasing
pressures on hospitals by improving access to primary care. We look
forward to helping deliver the modernisation of the primary care
estate by actively pursuing attractive investment opportunities of
both existing assets and developments.
The equity raise in April 2018 has strengthened our balance
sheet and provides significant headroom to invest selectively in
both the UK and Ireland and we are encouraged to see rental growth
continuing to improve, albeit at a modest rate. The Company is now
in a strong position to continue to deliver long-term value to
shareholders.
Board changes
As previously reported, Alun Jones retired as Chairman at the
Annual General Meeting ("AGM") on 18 April 2018 and was replaced by
Steven Owen, who was the Senior Independent Director and the
Chairman of the Audit Committee. Non-Executive Directors Dr Ian
Rutter and Mark Creedy also retired at the AGM.
Three new Non-Executive Directors, Ian Krieger, Dr Stephen Kell,
OBE and Peter Cole have been appointed.
Nick Wiles took over as Chairman of the Adviser Engagement
Committee from Mark Creedy at the end of January 2018 and replaced
Steven Owen as the Senior Independent Director at the AGM. Ian
Krieger was appointed as Chairman of the Audit Committee, replacing
Steven Owen at the AGM.
The new Board has only been in position for a few months but has
settled in well and made a positive contribution to the future of
the Company.
Steven Owen Harry Hyman
Chairman Managing Director
24 July 2018
BUSINESS REVIEW
The Group continues to focus its activities on large hub primary
care facilities both in the UK and Ireland and has continued to
increase the portfolio's average lot size to GBP4.6m (31 December
2017: GBP4.5m) from both investment and asset management
activity.
Investment activity
PHP continues to remain selective and disciplined in its
approach to acquisitions; maintaining a strict selection criteria
and pricing approach to ensure additions are high quality,
accretive to net earnings and offer the opportunity for future
growth. This has resulted in the acquisition of just two assets for
GBP23.8m in the six months to 30 June 2018 (six months to 30 June
2017: four assets for GBP18.6m; six months to 31 December 2017: six
assets for GBP53.3m).
Area
(Sq. Acquisition WAULT GP patient list
Asset m) price (years) and key tenants
------------------ ------------ ------ ------------ --------- ---------------------
30,000 + HSE
+ pharmacy +
Mallow, County GBP17.7m dentist + optician+
Cork, Ireland Investment 6,500 (EUR20.0m) 21.9 physiotherapist
Moredon, Swindon Investment 1,446 GBP6.1m 27.5 11,500 + pharmacy
Total 7,946 GBP23.8m 22.2
-------------------------------- ------ ------------ --------- ---------------------
Mallow Primary Health Centre, Mallow, County Cork, Ireland is
one of Ireland's largest primary healthcare facilities and
comprises 6,500m(2) . The property was acquired in February 2018
and represents PHP's third acquisition in the country. The Irish
Government's Health Service Executive ("HSE") has signed a new
25-year lease, accounting for 65% of the rent roll, with the
remainder derived from four separate GP practices, a dentist, an
optician and a physiotherapist. The property also benefits from a
pharmacy and has considerable unused land for future expansion.
Moredon Medical Centre, Swindon was acquired in June 2018 and
comprises 1,446m(2) and is fully let to a GP practice and pharmacy
with a patient list of over 11,500 and a long WAULT of 27.5
years.
Investment pipeline
Contracts for the acquisition of Mountmellick Primary Healthcare
Centre, County Laois, Ireland for GBP5.1m (EUR5.8m) were exchanged
in May 2018 and completion is expected to occur shortly. The
purchase represents PHP's fourth acquisition in Ireland and will be
accounted for in the second half of 2018 because the Group's
accounting policy is to recognise acquisitions upon completion. The
property comprises 1,850m(2) , a long WAULT of 25 years and is
fully let to the HSE, a GP practice and a pharmacy.
PHP continues to have a strong pipeline of potential
acquisitions both in the UK and Ireland totalling over GBP175m.
Developments
The development at Churchdown, Gloucestershire, acquired in
2017, successfully completed on time and within budget, opening to
patients in March 2018. The asset is a purpose built health care
centre and comprises 1,184m(2) of space fully let to a GP practice
and pharmacy for 20 years.
Post period end a forward funded development was acquired in
Ireland with a net development cost of GBP19.7m (EUR22.3m) and
construction is due to commence shortly:
Anticipated Area Net development
Asset PC date (Sq. m) cost
---------------------- ------------ --------- --------------------
Bray, County Wicklow, Q4 2019 4,805 GBP19.7m (EUR22.3m)
Ireland
---------------------- ------------ --------- --------------------
In a competitive investment market, development opportunities
present an attractive alternative to acquiring new, long weighted
average unexpired lease term ("WAULT"), purpose built primary care
facilities. PHP will continue to work with experienced development
partners, healthcare bodies and professionals to procure assets
that meet our strict criteria of pre-let, de-risked and short cycle
developments. PHP will not undertake any developments on a
speculative basis.
Asset management
PHP's sector leading metrics continue to remain strong and we
continue to focus on the organic rental growth that can be derived
from our existing assets. This growth arises mainly from rent
reviews and asset management projects (extensions, refurbishments
and lease re-gears) which provide an important opportunity to
increase income, extend lease terms and avoid obsolescence whilst
ensuring that our premises meet the communities' needs.
Rent reviews
During the six months to 30 June 2018, PHP concluded and
documented 143 rent reviews with a combined rental value of
GBP19.8m resulting in an uplift of GBP0.6m or 3.0% which equates to
1.7% per annum continuing the positive trend in rental growth over
the last two years (year ended 31 December 2017: 1.1% per annum
with an uplift of GBP0.5m; year ended 31 December 2016: 0.9% per
annum with an uplift of GBP0.3m).
In the period, 0.5% per annum was achieved on open market
reviews (1.6% per annum excluding nil increases), 2.7% per annum on
RPI-based reviews and 2.8% per annum on fixed uplift reviews. In
addition, a further 25 open market reviews were agreed in
principle, which will add another GBP0.1m to the contracted rent
roll when concluded and represent an uplift of 1.0% per annum.
73% of our rents are reviewed on an open market basis, typically
every three years and are impacted by land and construction
inflation. Over recent years, there have been significant increases
in these costs which is expected eventually to result in further
rental growth in the future. The balance of the PHP portfolio has
either RPI (20%) or fixed uplift (7%) based reviews which also
provide an element of certainty to future rental growth within the
portfolio.
At 30 June 2018, the rent at 267 tenancies, representing
GBP35.2m of passing rent, was under negotiation and the large
number of outstanding reviews reflects the requirement for all
awards to be agreed with the District Valuer. A great deal of
evidence to support open market reviews comes from the delivery of
new properties into the sector. Whilst underlying land and
construction 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. However, the demand for
new, purpose built premises continues and is now being supported by
NHS initiatives to modernise the primary care estate.
Asset Management Projects
We have continued to make strong progress in the six months to
30 June 2018 to enhance and extend existing assets within the
portfolio with nine projects completed, three currently on-site and
a further seven approved and due to commence shortly. The projects
require the investment of GBP4.8m and will generate GBP0.2m of
additional rental income but, just as importantly, will extend the
WAULT on those premises back to an average 20 years.
PHP continues to work closely with its tenants and has a strong
pipeline of over 17 potential projects and will continue to invest
capital in a range of physical extensions or refurbishments.
Asset management projects help avoid obsolescence and are key to
maintaining the longevity and security of our income through
long-term tenant retention, increased rental income and extended
occupational lease terms, adding to both earnings and capital
values.
Sector leading portfolio metrics
The portfolio's annualised contracted rent roll at 30 June 2018
was GBP74.4m, an increase of 2.9% in the period (31 December 2017:
GBP72.3m). The security and longevity of our income are important
drivers of our secure, long term predictable income stream and
enable our progressive dividend policy.
Security: PHP continues to benefit from secure, long term cash
flows with 90% of its rent roll funded directly or indirectly by
the NHS in the UK or HSE in Ireland. The portfolio also benefits
from an occupancy rate of 99.7%.
Longevity: The portfolio's WAULT at 30 June 2018 was 12.9 years
(31 December 2017: 13.2 years). Only GBP1.0m or 1.3% of our income
expires over the next three years and GBP50.7m or 68.1% expires in
over 10 years. The table below sets out the current lease expiry
profile of our income:
Income subject to GBPm %
expiry
------------------- ----- -------
< 3 years 1.0 1.3%
4 - 5 years 2.2 3.0%
5 - 10 years 20.5 27.6%
10 - 15 years 28.3 38.0%
15 - 20 years 13.7 18.4%
> 20 years 8.7 11.7%
------------------- ----- -------
Total 74.4 100.0%
------------------- ----- -------
Valuation and returns
At 30 June 2018, the portfolio comprised 308 assets
independently valued at GBP1.415bn (31 December 2017: GBP1.362bn).
The strong investment market together with our sector leading
portfolio metrics and asset management initiatives resulted in a
valuation surplus of GBP21.2m or 1.5%, after allowing for capital
expenditure, in the six months to 30 June 2018 (six months to 30
June 2017: GBP29.9m or 2.4%). The net initial yield ("NIY")
contracted by 6bps in the period to 4.85% (31 December 2017: 4.91%)
with the true equivalent yield reducing to 5.02% (31 December 2017:
5.09%). The contraction in the NIY accounted for approximately half
of the surplus whilst rent reviews and asset management projects
accounted for the balance.
The portfolio at 30 June 2018 includes three assets in Ireland
valued at GBP33.4m (31 December 2017: 2 assets/GBP13.7m).
The portfolio's average lot size continues to grow at GBP4.6m
(31 December 2017: GBP4.5m) and just under 80% of the portfolio is
valued at over GBP3.0m. We only have two assets valued at less than
GBP1.0m; one of which will be sold post period end at book
value.
Number of Valuation % Average
Properties GBPm lot size
(GBPm)
-------------------- ----------- ---------- ------ ---------
> GBP10m 22 356.6 25.2 16.2
GBP5m - GBP10m 56 387.4 27.4 6.9
GBP3m - GBP5m 99 386.9 27.3 3.9
GBP1m - GBP3m 129 281.1 19.9 2.2
< GBP1m (including
land GBP1.6m) 2 3.2 0.2 0.8
-------------------- ----------- ---------- ------ ---------
Total 308 1,415.2 100.0 4.6
-------------------- ----------- ---------- ------ ---------
The valuation uplift, combined with the portfolio's growing
income, helped to deliver a total property return of 4.3% in the
six months to 30 June 2018 (30 June 2017: 5.3%) slightly
under-performing the IPD Monthly All Property, All Asset Index by
10bps.
Six months ended Six months ended Year ended 31
30 June 2018 30 June 2017 December 2017
---------------- ----------------- ----------------- ---------------
Income return 2.7% 2.8% 5.5%
Capital return 1.6% 2.5% 5.3%
---------------- ----------------- ----------------- ---------------
Total return 4.3% 5.3% 10.8%
---------------- ----------------- ----------------- ---------------
FINANCIAL REVIEW
The equity raise in April 2018, raising GBP115.0m of new capital
(GBP111.2m net of expenses), has enabled us to strengthen the
balance sheet significantly, reduce the level of gearing and
provide additional resource for future investment. The strong asset
management activity in the period along with the acquisitions made
in 2017 and the first six months of 2018 have enabled us to
continue to deliver earnings growth.
Recurring EPRA earnings increased by GBP1.7m or 11.0% to
GBP17.1m in the six months to 30 June 2018 (30 June 2017: GBP15.4m)
which using the weighted average number of shares in issue in the
period, equates to EPRA earnings per share of 2.5p (30 June 2017:
2.6p), a decrease of 3.8% reflecting the dilution from the
successful equity raise in April 2018.
A revaluation surplus of GBP21.2m, profit on a land sale of
GBP0.1m and a gain on the fair value of interest rate derivatives
and convertible bond of GBP0.3m (30 June 2017: loss of GBP1.0m)
contributed to the profit as reported under IFRS of GBP38.7m (30
June 2017: GBP44.3m).
The financial results for the Group are summarised as
follows:
Summarised results
Six months Six months Year ended
ended 30 ended 30 31 December
June 2018 June 2017 2017
GBPm GBPm GBPm
------------------------------------- ----------- ----------- -------------
Net rental income 37.4 34.8 71.3
Administrative expenses (4.2) (3.9) (8.2)
Performance incentive fee
("PIF") (0.6) - (0.5)
------------------------------------- ----------- ----------- -------------
Operating profit before revaluation
gain and net financing costs 32.6 30.9 62.6
Net financing costs (15.5) (15.5) (31.6)
------------------------------------- ----------- ----------- -------------
EPRA earnings 17.1 15.4 31.0
Revaluation surplus on property
portfolio 21.2 29.9 64.5
Profit on sale of land 0.1 - -
Fair value gain/(loss) on
interest rate derivatives 0.2 0.4 (0.3)
Fair value gain/(loss) on
convertible bond 0.1 (1.4) (3.3)
------------------------------------- ----------- ----------- -------------
IFRS profit before tax 38.7 44.3 91.9
------------------------------------- ----------- ----------- -------------
Net rental income receivable in the six months to 30 June 2018
increased by 7.5% or GBP2.6m to GBP37.4m (30 June 2017: GBP34.8m).
Acquisitions in 2017 and the first six months of 2018 contributed
GBP1.7m to this increase, with developments completed in 2017 and
2018 adding a further GBP0.4m. Completed rent reviews contributed a
further GBP0.5m.
Operational costs have continued to be managed closely and
effectively. Overall administrative costs, excluding the PIF, have
risen by 7.7% to GBP4.2m (30 June 2017: GBP3.9m) reflecting the
increased size of the portfolio and additional regulatory costs.
The Group's EPRA cost ratio continues to be amongst the lowest in
the sector at 14.2% for the period, a slight increase over the
13.2% incurred during the 2017 financial year.
EPRA cost ratio Six months Six months Year ended
ended 30 ended 30 31 December
June 2018 June 2017 2017
GBPm GBPm GBPm
----------------------------------- ------------ ----------- -------------
Gross rent less ground rent and
service charge income 38.0 35.2 72.1
------------------------------------ ----------- ----------- -------------
Direct property expense 1.5 0.5 1.2
Administrative expenses 4.2 3.9 8.2
Performance incentive fee ("PIF") 0.6 - 0.5
Less: service charge costs (0.7) - -
Less: ground rent (0.1) (0.1) (0.1)
Less: other operating income (0.1) (0.1) (0.3)
EPRA costs (including direct
vacancy costs) 5.4 4.2 9.5
------------------------------------ ----------- ----------- -------------
EPRA cost ratio 14.2% 11.9% 13.2%
------------------------------------ ----------- ----------- -------------
EPRA cost ratio excluding PIF 12.6% 11.9% 12.5%
------------------------------------ ----------- ----------- -------------
Administrative expenses as a
percentage of gross asset value
(annualised) 0.6% 0.6% 0.6%
------------------------------------ ----------- ----------- -------------
There was no change in net finance costs in the period at
GBP15.5m (30 June 2017: GBP15.5m) despite the level of debt funded
acquisitions in both 2017 and first half of 2018. This was due to
the lower cost of debt secured in 2017 from various refinancing
initiatives, conversion of some of the convertible bond during both
2017 and the first six months of 2018 and the application of the
equity issue proceeds received in April to repay the Group's
revolving credit facilities.
Performance incentive fee ("PIF")
The strong performance in both 2017 and first half of 2018 is
likely to result in a PIF being earned by the Adviser for the year
as a whole and consequently a GBP0.6m provision has been provided
in the period (six months ended 30 June 2017: GBPnil; year ended 31
December 2017: GBP0.5m).
Nexus is entitled to 11.25% of the "total return" above a hurdle
rate of 8.0%, based on the change in EPRA Net Asset Value ("NAV")
plus dividends paid less equity raised which is credited to a
notional cumulative account. If the hurdle is not achieved a sum
equal to 11.25% of the underperformance is deducted from the
notional cumulative account.
Controls are in place so that the PIF eligible for payment in
respect of any year is restricted to the lower of:
-- Half of the fee earned in respect of that year, unless it is
a shortfall in which case the full amount is applied, together with
the notional cumulative account balance (both positive and
negative) on the earned but unpaid PIF brought forward from
previous years;
-- 20% of the property management fee paid to Nexus in the year; and
-- GBP2.0m.
Half of any PIF payable is deferred to the following year in the
notional cumulative account, with performance against the hurdle
rate calculated each year and any payment subject to the account
being in a surplus position.
Furthermore, for the three years from 1 January 2017, the PIF is
restricted if it would otherwise cause PHP's dividend cover to fall
below 98%.
A PIF of GBP0.5m was paid to Nexus in the period in respect of
2017 and at 30 June 2018 the balance on the notional cumulative PIF
account was GBP5.7m (31 December 2017: GBP5.2m) of which GBP0.6m
(31 December 2017: GBP0.5m) has been provided for in the financial
statements with the balance conditional on performance in future
years and the restrictions noted above. No payment in respect of
2018 will be made until the audited financial results and total
returns for the year have been agreed in 2019.
Equity raise
In April 2018, the Company completed an over-subscribed equity
issue, successfully raising GBP115.0m of new share capital
(GBP111.2m net of expenses). New shares were issued to existing and
new shareholders at 108p each, a premium of 7.2% to EPRA NAV as at
31 December 2017.
The net proceeds from the equity raise have been used to repay
the Group's revolving credit facilities which are available to be
redrawn to fund capital commitments and future investment
opportunities.
Shareholder value
The table below sets out the movements in EPRA net asset value
per share over the period under review.
EPRA Net Asset Value per share 30 June 2018 30 June 2017 31 December
pence per pence per 2017 pence
share share per share
--------------------------------------- -------------- ------------- ------------
Opening EPRA NAV per share 100.7 91.1 91.1
EPRA earnings for the period 2.5 2.6 5.2
Dividends paid (2.5) (2.6) (5.2)
Net result on property portfolio 2.9 5.0 10.4
Shares issued 0.6 - 0.2
Interest rate derivative cancellation - - (1.0)
Closing EPRA NAV per share 104.2 96.1 100.7
---------------------------------------- ------------- ------------- ------------
The revaluation surplus of GBP21.2m in the six months to 30 June
2018 is the main reason for the increase in EPRA NAV per share.
Dividends distributed in the period were fully covered by recurring
EPRA earnings with no material impact on EPRA NAV. The GBP4.0m
premium over EPRA NAV, net of expenses, from the equity raise added
a further 0.6p.
The 3.5p or 3.5% increase in EPRA NAV per share to 104.2p (31
December 2017: 100.7p per share) together with the dividends
distributed in the period resulted in a total NAV return per share
of 6.2p per share or 6.2% in the six months ended 30 June 2018 (30
June 2017: 7.62p or 8.4%).
Financing
As at 30 June 2018, total available loan facilities were
GBP838.5m (31 December 2017: GBP844.3m) of which GBP643.5m (31
December 2017: GBP724.2m) had been drawn. Cash balances of GBP12.1m
(31 December 2017: GBP3.8m) resulted in Group net debt of GBP631.4m
(31 December 2017: GBP720.3m). Contracted capital commitments at
the balance sheet date totalled GBP6.4m (31 December 2017:
GBP23.0m) and result in headroom available to the Group of
GBP200.7m (31 December 2017: GBP101.0m).
Capital commitments comprise acquisitions of GBP5.5m and asset
management projects on site of GBP0.9m.
Debt metrics 30 June 2018 31 December 2017
----------------------------------------- ------------- -----------------
Average cost of debt(1) 3.86% 4.09%
Loan to Value 44.6% 52.9%
Loan to value excluding the convertible
bond 40.5% 48.2%
Interest cover 2.4 times 2.25 times
Weighted average debt maturity 5.9 years 6.3 years
Total drawn secured debt GBP510.7m GBP585.9m
Total drawn unsecured debt GBP132.8m GBP138.2m
Total undrawn facilities available GBP200.7m GBP101.0m
to the Group(2)
----------------------------------------- ------------- -----------------
(1) - Including the impact of GBP70m fixed rate swaps
re-couponed post period end.
(2) - After deducting the remaining cost to complete properties
under development and asset management projects.
Convertible bonds
In the six months to 30 June 2018, convertible bonds with a
nominal value of GBP5.4m (year ended 31 December 2017: GBP19.3m)
were, at the holders' option, converted at a conversion price of
97.5p, resulting in 5.5m (year ended 31 December 2017: 19.8m) of
new ordinary shares being issued. The nominal value of the
convertible bonds outstanding at 30 June 2018 were GBP57.8m (31
December 2017: GBP63.2m).
The impact of dividends paid in the period was within the
maximum dilution parameters and so no adjustment to the conversion
price was required in the period and it remains at 97.5p.
The conversion of the remaining GBP57.8m convertible bonds into
ordinary shares would reduce the Group's loan to value ratio by
4.1%, from 44.6% to 40.5%, on a pro-forma basis as at 30 June 2018,
and result in the issue of 59.3m new ordinary shares.
Interest rate swap contracts
Post period end, we have selectively used the premium over NAV
on the equity issue in April 2018 to cancel, 4.52% fixed rate swaps
with a nominal value of GBP70.0m, effective until July 2026, for
the next two years for a one-off payment of GBP5.0m equivalent to
0.7p per share on an EPRA net asset value basis. The cancellation
results in total interest savings of GBP2.5m p.a. over the next two
years and reduces the Group's average cost of debt by 41bps to
3.86% (30 June 2016: 4.26%; 31 December 2017: 4.09%). The
mark-to-market ("MtM") of the cancelled derivative was reflected in
the financial statements as at 30 June 2018.
We expect the average cost of debt will continue to fall over
the remainder of 2018 and 2019 following the conversion and/or
repayment of the convertible and retail bonds which mature in May
and July 2019 respectively.
Accounting standards require PHP to mark its interest rate swaps
to market at each balance sheet date. During the six months to 30
June 2018 there was a gain of GBP3.4m (30 June 2017: gain GBP2.4m)
on the fair value movement of the Group's interest rate derivatives
due primarily to increases in interest rates assumed in the forward
yield curves used to value the interest rate swaps. This reduced
the MtM liability of the swap portfolio to GBP21.1m (31 December
2017: GBP24.5m).
The analysis of the Group's exposure to interest rate risk in
its debt portfolio as at 30 June 2018 is as follows:
Facilities Drawn
GBPm % GBPm %
---------------------- -------------- ------------ ---------- --------
Fixed rate debt 468.5 55.9 468.5 72.8
Hedged by fixed rate
interest rate swaps 183.0 21.8 175.0 27.2
Floating rate debt -
unhedged 187.0 22.3 - -
---------------------- -------------- ------------ ---------- --------
Total 838.5 100.0 643.5 100.0
---------------------- -------------- ------------ ---------- --------
Alternative Performance Measures ("APMs")
PHP uses EPRA earnings and EPRA net assets as APMs which are
widely used by public real estate companies to highlight the
underlying and recurring performance of the property portfolio. The
APMs are 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 at notes 7 and 15. The APMs used by the Company are
consistent with those used in the 2017 Annual Report and the
reasons for the Company's use of these APMs are set out
therein.
Related party transactions
Related party transactions are disclosed in note 16 to the
condensed financial statements. There have been no material changes
in the related party transactions described in the 2017 Annual
Report.
Harry Hyman Richard Howell
Managing Director Finance Director
24 July 2018
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.
The principal risks and uncertainties include:
-- The Group's investment in a niche asset sector, where changes
in healthcare policy may adversely affect the portfolio;
-- The bespoke nature of the Group's assets could lead to limited alternative use; and
-- Currency risk in respect of the Group's assets in Ireland,
where investments are denominated in Euros and may be unfavourably
affected by currency fluctuations.
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.
The Board has concluded that there have been no significant
changes to the principal risks and uncertainties faced by the
Group, nor do they anticipate any significant changes during the
remaining six months to 31 December 2018. Full disclosure of risks
and uncertainties faced by the Company are set out within the 2017
Annual Report.
INDEPENT REVIEW REPORT TO PRIMARY HEALTH PROPERTIES PLC
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2018 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 19. We have
read the other information contained in the half-yearly financial
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council 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 consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2018 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
Statutory Auditor
London, United Kingdom
24 July 2018
Condensed Group Statement of Comprehensive Income
For the six months ended 30 June 2018
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
----------------------------------------------------------------------------- ------------ ------------ -------------
Rental income 2 38.9 35.3 72.5
Direct property expenses (1.5) (0.5) (1.2)
------------------------------------------------------------------------ ---- ------------ ------------ -------------
Net rental income 37.4 34.8 71.3
Administrative expenses 3 (4.8) (3.9) (8.7)
Revaluation gain on property portfolio 9 21.2 29.9 64.5
Operating profit 53.8 60.8 127.1
Finance income 4 0.1 0.3 0.3
Finance costs 5 (15.6) (15.8) (31.9)
Profit on sale of land 0.1 - -
Fair value gain/(loss) on derivative
interest rate swaps and amortisation
of cash flow hedging reserve 5 0.2 0.4 (0.3)
Fair value gain/(loss) on convertible
bond 5 0.1 (1.4) (3.3)
------------------------------------------------------------------------ ---- ------------ ------------ -------------
Profit before taxation 38.7 44.3 91.9
Taxation charge 6 - - -
------------------------------------------------------------------------ ---- ------------ ------------ -------------
Profit for the period(1) 38.7 44.3 91.9
Other comprehensive income:
Items that may be reclassified subsequently
to profit and loss:
Fair value gain on interest rate
swaps treated as cash flow hedges
and amortisation of hedging reserve 3.2 2.0 2.8
Exchange gain on translation of
foreign balances 0.1 - -
Other comprehensive income for the
period net of tax 3.3 2.0 2.8
------------------------------------------------------------------------ ---- ------------ ------------ -------------
Total comprehensive income for the
period net of tax 42.0 46.3 94.7
------------------------------------------------------------------------ ---- ------------ ------------ -------------
Earnings per share - basic 7 5.7p 7.4p 15.3p
- diluted 7 5.4p 6.7p 14.7p
EPRA earnings per share - basic 7 2.5p 2.6p 5.2p
- diluted 7 2.5p 2.5p 5.1p
(1) Wholly attributable to equity shareholders of Primary Health
Properties PLC.
The above relates wholly to continuing operations.
Condensed Group Balance Sheet
As at 30 June 2018
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
-------------------------------------- ------ ------------ ------------ ------------
Non-current assets
Investment properties 9 1,415.2 1,265.9 1,361.9
Derivative interest rate swaps 13,14 0.7 - -
1,415.9 1,265.9 1,361.9
Current assets
13,
Derivative interest rate swaps 14 - 0.2 0.3
Trade and other receivables 4.5 4.3 6.4
Cash and cash equivalents 10 12.1 8.1 3.8
-------------------------------------- ------ ------------ ------------ ------------
16.6 12.6 10.5
-------------------------------------- ------ ------------ ------------ ------------
Total assets 1,432.5 1,278.5 1,372.4
-------------------------------------- ------ ------------ ------------ ------------
Current liabilities
13,
Derivative interest rate swaps 14 - (4.1) (2.7)
Deferred rental income (15.7) (14.6) (15.0)
Trade and other payables (15.6) (14.8) (15.4)
Borrowings: term loans and overdraft 11 (0.9) (0.8) (0.8)
Borrowings: bonds 12 (69.0) - -
(101.2) (34.3) (33.9)
-------------------------------------- ------ ------------ ------------ ------------
Non-current liabilities
Borrowings: term loans and overdraft 11 (336.1) (348.0) (411.5)
Borrowings: bonds 12 (242.8) (338.6) (318.1)
13,
Derivative interest rate swaps 14 (21.8) (27.0) (22.1)
-------------------------------------- ------ ------------ ------------ ------------
(600.7) (713.6) (751.7)
-------------------------------------- ------ ------------ ------------ ------------
Total liabilities (701.9) (747.9) (785.6)
-------------------------------------- ------ ------------ ------------ ------------
Net assets 730.6 530.6 586.8
-------------------------------------- ------ ------------ ------------ ------------
Equity
Share capital 17 91.6 74.9 77.5
Share premium account 185.2 59.8 80.7
Capital reserve 1.6 1.6 1.6
Special reserve 18 144.6 177.1 161.4
Hedging reserve (26.7) (30.7) (29.9)
Retained earnings 334.3 247.9 295.5
Total equity(1) 730.6 530.6 586.8
-------------------------------------- ------ ------------ ------------ ------------
Net asset value per share
Basic and diluted 15 99.8p 88.6p 94.7p
EPRA net asset value per share 15 104.2p 96.1p 100.7p
-------------------------------------- ------ ------------ ------------ ------------
(1) Wholly attributable to equity shareholders of Primary Health
Properties PLC.
Condensed Group Cash Flow Statement
For the six months ended 30 June 2018
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
--------------------------------------- ------ ------------ ------------ -------------
Operating activities
Profit on ordinary activities
before tax 38.7 44.3 91.9
Finance income (0.1) (0.3) (0.3)
Finance costs 15.6 15.8 31.9
Profit on sale of land (0.1) - -
Fair value (gain)/loss on derivatives (0.2) (0.4) 0.3
Fair value (gain)/loss on convertible
bond (0.1) 1.4 3.3
--------------------------------------- ------ ------------ ------------ -------------
Operating profit before financing
costs 53.8 60.8 127.1
Adjustments to reconcile Group
operating profit to net cash
flows from operating activities:
Revaluation gain on property
portfolio (21.2) (29.9) (64.5)
Fixed rent uplift (0.8) (0.6) (1.4)
Decrease/(Increase) in trade
and other receivables 2.0 (0.9) (3.1)
Increase in trade and other
payables 0.6 1.2 2.0
--------------------------------------- ------ ------------ ------------ -------------
Cash generated from operations 34.4 30.6 60.1
Investing activities
Payments to acquire and improve
investment properties (31.1) (15.2) (75.4)
Interest received on development
loans 0.1 0.3 0.3
Net cash flow used in investing
activities (31.0) (14.9) (75.1)
--------------------------------------- ------ ------------ ------------ -------------
Financing activities
Proceeds from issue of shares 17 115.0 - -
Costs of share issues (3.9) - (0.1)
Term bank loan drawdowns 30.6 58.5 137.8
Term bank loan repayments (105.6) (140.6) (155.5)
Proceeds from bond issue - 100.0 100.0
Bond issue costs - (1.0) (1.1)
Termination of derivative financial
instruments - - (6.2)
Swap interest paid (1.7) (1.7) (3.5)
Non-utilisation fees (0.5) (0.4) (0.5)
Loan arrangement fees (0.6) (1.3) (1.8)
Interest paid (12.5) (11.3) (26.1)
Equity dividends paid net of
scrip dividend 8 (15.8) (14.9) (29.8)
--------------------------------------- ------ ------------ ------------ -------------
Net cash flow from/(used in)
financing activities 5.0 (12.7) 13.2
--------------------------------------- ------ ------------ ------------ -------------
Increase/(decrease) in cash
and cash equivalents for the
period 8.4 3.0 (1.8)
--------------------------------------- ------ ------------ ------------ -------------
Effect of exchange rate fluctuations
on Euro denominated loans and
cash equivalents (0.1) - 0.5
--------------------------------------- ------ ------------ ------------ -------------
Cash and cash equivalents at
start of period 3.8 5.1 5.1
--------------------------------------- ------ ------------ ------------ -------------
Cash and cash equivalents at
end of period 10 12.1 8.1 3.8
--------------------------------------- ------ ------------ ------------ -------------
Condensed Group Statement of Changes in Equity
For the six months ended 30 June 2018 (unaudited)
Six months ended 30 June 2018 (unaudited)
Share Share Capital Special Hedging Retained
capital premium reserve reserve reserve earnings Total
------------------------------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- --------- --------- --------- --------- ---------- --------
1 January 2018 77.5 80.7 1.6 161.4 (29.9) 295.5 586.8
Profit for the period - - - - - 38.7 38.7
Other comprehensive income
Exchange gain on translation
of foreign balances - - - - - 0.1 0.1
Fair value movement
on interest rate swaps - - - - 2.9 - 2.9
Amortisation of hedging
reserve - - - - 0.3 - 0.3
Total comprehensive
income - - - - 3.2 38.8 42.0
Shares issued as part
of capital raise 13.3 101.7 - - - - 115.0
Shares issued on conversion
of convertible bonds 0.7 5.8 - - - - 6.5
Share issue expenses - (3.9) - - - - (3.9)
Dividends paid - - - (15.8) - - (15.8)
Scrip dividend in
lieu of cash 0.1 0.9 - (1.0) - - -
------------------------------ --------- --------- --------- --------- --------- ---------- --------
30 June 2018 91.6 185.2 1.6 144.6 (26.7) 334.3 730.6
------------------------------ --------- --------- --------- --------- --------- ---------- --------
Six months ended 30 June 2017
(unaudited)
---------------------------------------------------- --------- -------------------- ---------- --------
Share Share Capital Special Hedging Retained
capital premium reserve reserve reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- --------- --------- --------- --------- ----------
1 January 2017 74.8 59.1 1.6 192.8 (32.7) 203.6 499.2
Profit for the period - - - - - 44.3 44.3
Other comprehensive income
Fair value movement
on interest rate swaps - - - - 2.0 - 2.0
Total comprehensive
income - - - - 2.0 44.3 46.3
Dividends paid - - - (14.9) - - (14.9)
Scrip dividend in
lieu of cash 0.1 0.7 - (0.8) - - -
30 June 2017 74.9 59.8 1.6 177.1 (30.7) 247.9 530.6
------------------------------ --------- --------- --------- --------- --------- ---------- --------
Condensed Group Statement of Changes in Equity (continued)
Year ended 31 December 2017 (audited)
Share Share Capital Special Hedging Retained
capital premium reserve Reserve reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- --------- --------- --------- --------- --------- ---------- --------
1 January 2017 74.8 59.1 1.6 192.8 (32.7) 203.6 499.2
Profit for the year - - - - - 91.9 91.9
Other comprehensive income
Fair value movement
on interest rate swaps - - - - 2.6 - 2.6
Amortisation of hedging
reserve - - - - 0.2 - 0.2
Total comprehensive
income - - - - 2.8 91.9 94.7
Shares issued on
conversion of convertible
bonds 2.5 20.3 - - - - 22.8
Share issue expenses - (0.1) - - - - (0.1)
Dividends paid - - - (29.8) - - (29.8)
Scrip dividend in
lieu of cash 0.2 1.4 - (1.6) - - -
---------------------------- --------- --------- --------- --------- --------- ---------- --------
31 December 2017 77.5 80.7 1.6 161.4 (29.9) 295.5 586.8
---------------------------- --------- --------- --------- --------- --------- ---------- --------
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 2017 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 pages 18-19. These
condensed consolidated interim financial statements of the Group
for the six months ended 30 June 2018 were approved and authorised
for issue by the Board on 24 July 2018.
Basis of preparation/Statement of compliance
The condensed consolidated interim financial statements for the
six months ended 30 June 2018 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 2017 which were prepared in accordance with IFRS as
adopted by the European Union (see Accounting policies section
below).
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 2017.
Convention
The condensed interim financial statements are presented in
Sterling, rounded to the nearest million.
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 and Ireland leased
principally to GPs, Government and Healthcare organisations and
other associated healthcare users.
Notes to the condensed financial statements (continued)
1. Accounting policies (continued)
Going concern
The Group's property portfolio is let on long leases to tenants
with strong covenants and the business is substantially cash
generative. The Group's loan to-value ratio is currently 44.6% and
the Group's interest cover for the period under review was 2.4
times, well above the minimum Group banking covenant of 1.3 times.
Taking these and others factors into account, 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 as set out in the Annual Report with the
exception of the standards noted below:
IFRS 15 Revenue from Contracts with Customers:
IFRS 15 is based on the principle that revenue is recognised
when control passes to a customer. The majority of the Group's
income is from tenant leases and is outside the scope of the new
standard. The main impact of IFRS 15 has been to show service
charge income gross within rental income and service charge expense
gross within direct property expenses. The comparatives have not
been restated as the transitional provisions within the standard
have been used to retrospectively apply the standard with the
cumulative effect before initial application of the standard being
recognised at the date of initial application. This cumulative
effect is GBPnil.
IFRS 9 Financial Instruments:
IFRS 9 "Financial Instruments" contains the guidance on the
recognition, derecognition, classification and measurement of
financial instruments, including impairment and hedge accounting.
IFRS 9 is effective for the accounting period starting on 1 January
2018. The Group has elected to apply IFRS 9 without restating
comparatives and furthermore, the Group has elected to continue to
apply the provisions of IAS 39 "Financial Instruments: Recognition
and Measurement" in relation to hedge accounting.
The application of IFRS 9 has not had a significant impact on
the financial statements presented. The impact of non-substantial
debt modifications has been reviewed and there is no material
impact on the financial statements at transition. We have performed
an assessment of the impact of impairment losses recognised for
trade receivables under IFRS 9 at 30 June 2018 through estimating
the expected credit losses based on actual credit loss experienced
over the past three years. Based on this assessment, the impact of
impairment losses recognised under IFRS 9 is estimated to be
immaterial.
Notes to the condensed financial statements (continued)
2. Rental and related income
Revenue comprises rental income receivable on property
investments in the UK and Ireland, which is exclusive of VAT.
Revenue is derived from one reportable operating segment.
3. Administrative expenses
Administrative expenses as a proportion of rental income were
12.6% (30 June 2017: 11.0%). The Group's EPRA cost ratio has
increased to 14.2%, compared to 11.9% for the same period in
2017.
Details of the PIF payable to the Adviser for the period ended
30 June 2018 are contained the Financial Review on pages 12-16 and
in note 16.
4. Finance income
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2017
2018 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------- ------------ ------------ -------------
Interest income on financial assets
Development loan interest 0.1 0.3 0.3
0.1 0.3 0.3
------------------------------------- ------------ ------------ -------------
5. Finance costs
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2017
2018 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
--------------------------------------------------- ------------ ------------ -------------
Interest expense and similar charges on financial
liabilities
(i) Interest
Bank loan interest 6.9 7.2 14.6
Swap interest 1.6 1.7 3.4
Bond interest 5.6 5.5 11.6
Bank facility non utilisation fees 0.6 0.5 0.5
Bank charges and loan arrangement
fees 0.9 0.9 1.8
--------------------------------------------------- ------------ ------------ -------------
15.6 15.8 31.9
--------------------------------------------------- ------------ ------------ -------------
Notes to the condensed financial statements (continued)
5. Finance costs (continued)
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2017
2018 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
----------------------------------- ------------ ------------ -------------
(ii) Derivatives
Net fair value gain on interest
rate swaps 0.5 0.4 0.7
Amortisation of cash flow hedging
reserve (0.3) - (1.0)
----------------------------------- ------------ ------------ -------------
0.2 0.4 (0.3)
----------------------------------- ------------ ------------ -------------
The fair value gain on derivatives recognised in the Condensed
Group Statement of Comprehensive Income has arisen from the
interest rate swaps for which hedge accounting does not apply. A
fair value gain on derivatives which meet the hedge effectiveness
criteria under IAS 39 of GBP2.9m (30 June 2017: gain of GBP2.0m),
(31 December 2017: gain of GBP2.6m) is accounted for directly in
equity.
An amount of GBP0.3m (30 June 2017: GBPnil), (31 December 2017:
GBP0.2m) has been amortised from the cash flow hedging reserve in
the period.
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2017
2018 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
----------------------------------------- ------------ ------------ -------------
(iii) Convertible Bond
Fair value gain / (loss) on Convertible
Bond 0.1 (1.4) (3.3)
----------------------------------------- ------------ ------------ -------------
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 12 for further details about the
Convertible Bond.
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2017
2018 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
---------------------------- ------------ ------------ -------------
Finance income (Note 4) (0.1) (0.3) (0.3)
Finance costs (Note 5 (i)) 15.6 15.8 31.9
---------------------------- ------------ ------------ -------------
Net finance costs 15.5 15.5 31.6
---------------------------- ------------ ------------ -------------
Notes to the condensed financial statements (continued)
6. Taxation
The Group elected to be treated as a UK-REIT with effect from 1
January 2007. The UK-REIT rules exempt the profits of the Group's
property rental business from corporation tax. Gains on properties
are also exempt from tax, provided they are not held for trading or
sold in the three years post completion of development. The Group
will otherwise be subject to corporation tax at 19% (2017:
19%).
Acquired companies are effectively converted to UK-REIT status
from the date on which they become a member of the Group.
As a UK-REIT, the Company is required to pay Property Income
Distributions ("PIDs") equal to at least 90% of the Group's rental
profit calculated by reference to tax rules rather than accounting
standards.
To remain as a UK-REIT there are a number of conditions to be
met in respect of the principal company of the Group, the Group's
qualifying activities and the balance of its business. The Group
remains compliant as at 30 June 2018.
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2017
2018 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------------ ------------ ------------ -------------
Taxation in the Condensed Group Statement
of Comprehensive Income:
Current tax
UK corporation tax charge on non-property - - -
income
------------------------------------------ ------------ ------------ -------------
Taxation credit in the Condensed - - -
Group Statement of Comprehensive
Income
------------------------------------------ ------------ ------------ -------------
Notes to the condensed financial statements (continued)
7. Earnings per share
The calculation of basic and diluted earnings per share is based
on the following:
Ordinary
Net profit attributable Shares
to Ordinary Shareholders (number Per share
GBPm - millions)(1) (pence)
Six months ended 30 June 2018
(unaudited)
Basic and diluted earnings
Basic earnings 38.7 676.8 5.7
Dilutive effect of Convertible Bond 1.1 59.3
--------------------------------------- ------- ---------------- ----------
Diluted earnings 39.8 736.1 5.4
--------------------------------------- ------- ---------------- ----------
EPRA basic and diluted earnings
Basic earnings 38.7
Adjustments to remove:
Net result on property (Note 9) (21.2)
Profit on sale of land (0.1)
Fair value movement on derivatives (0.2)
Fair value movement on Convertible
Bond (0.1)
EPRA basic earnings per share 17.1 676.8 2.5
--------------------------------------- ------- ---------------- ----------
Dilutive effect of Convertible Bond 1.2 59.3
--------------------------------------- ------- ---------------- ----------
EPRA diluted earnings per share 18.3 736.1 2.5
--------------------------------------- ------- ---------------- ----------
(1) Weighted average number of shares in issue during the
period
Net profit attributable Ordinary
to Ordinary Shares
Shareholders (number Per share
GBPm - millions)(1) (pence)
Six months ended 30 June 2017 (unaudited)
Basic and diluted earnings
Basic earnings 44.3 598.5 7.4
Dilutive effect of Convertible Bond 1.8 84.6
-------------------------------------------- ------- ---------------- ----------
Diluted earnings 46.1 683.1 6.7
EPRA basic and diluted earnings
Basic and diluted earnings 44.3
Adjustments to remove:
Net result on property (29.9)
Fair value movement on derivatives (0.4)
Fair value movement on Convertible
Bond 1.4
EPRA basic earnings per share 15.4 598.5 2.6
-------------------------------------------- ------- ---------------- ----------
Dilutive effect of Convertible Bond 1.8 84.6
-------------------------------------------- ------- ---------------- ----------
EPRA diluted earnings per share 17.2 683.1 2.5
-------------------------------------------- ------- ---------------- ----------
(1) Weighted average number of shares in issue during the
period
Notes to the condensed financial statements (continued)
7. Earnings per share (continued)
Net profit attributable Ordinary
to Ordinary Shares
Shareholders (number Per share
GBPm - millions)(1) (pence)
Year ended 31 December 2017
(audited)
Basic and diluted earnings
Basic earnings 91.9 600.7 15.3
Dilutive effect of Convertible Bond 5.9 64.8
-------------------------------------- ------------------------ ---------------- ----------
Diluted earnings 97.8 665.5 14.7
EPRA basic and diluted earnings
Basic and diluted earnings 91.9
Adjustments to remove:
Net result on property (64.5)
Fair value movement on derivatives 0.3
Fair value movement on Convertible
Bond 3.3
EPRA basic earnings per share 31.0 600.7 5.2
-------------------------------------- ------------------------ ---------------- ----------
Dilutive effect of Convertible Bond 2.7 64.8
-------------------------------------- ------------------------ ---------------- ----------
EPRA diluted earnings per share 33.7 665.5 5.1
-------------------------------------- ------------------------ ---------------- ----------
(1) Weighted average number of shares in issue during the
period
On 20 May 2014, the Group issued GBP82.5m of unsecured
Convertible Bonds (refer to note 12 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 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.
Notes to the condensed financial statements (continued)
8. Dividends
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2017
2018 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------- -------------- -------------
Quarterly interim dividend paid
23 February 2018 8.1 - -
Scrip dividend in lieu of quarterly
cash dividend 23 February 2018 0.3 - -
Quarterly interim dividend paid
25 May 2018 7.7 - -
Scrip dividend in lieu of quarterly
cash dividend 25 May 2018 0.7 - -
Quarterly interim dividend paid
24 February 2017 - 7.7 7.7
Scrip dividend in lieu of quarterly
cash dividend 24 February 2017 - 0.1 0.1
Quarterly interim dividend paid
26 May 2017 - 7.2 7.2
Scrip dividend in lieu of quarterly
cash dividend 26 May 2017 - 0.7 0.7
Quarterly interim dividend paid
25 August 2017 - - 7.1
Scrip dividend in lieu of quarterly
cash dividend 25 August 2017 - - 0.7
Quarterly interim dividend paid
24 November 2017 - - 7.8
Scrip dividend in lieu of quarterly
cash dividend 24 November 2017 - - 0.1
Total dividends distributed 16.8 15.7 31.4
-------------------------------------- ------ ------ -------------
Per share 2.70p 2.62p 5.25p
-------------------------------------- ------ ------ -------------
The Company will pay a third interim dividend of 1.35 pence per
Ordinary Share for the year ending 31 December 2018, payable on 24
August 2018, to shareholders on the register as at 13 July 2018.
This dividend will comprise a Property Income Distribution ("PID")
of 0.85p and ordinary dividend of 0.50p per share.
9. Investment properties and investment properties under construction
Properties have been independently valued at fair value by
Lambert Smith Hampton UK ("LSH"), and CBRE Ireland ("CBRE")
Chartered Surveyors and Valuers, as at the balance sheet date in
accordance with IAS 40 'Investment property'. LSH and CBRE confirm
that they have valued the properties in accordance with the
Practice Statements in the RICS Appraisal and Valuation Standards
("Red Book"). There were no changes to the valuation techniques
during the period. The valuers are appropriately qualified and have
sufficient market knowledge and relevant experience of the location
and category of investment property and have had full regard to
market evidence when determining the values.
The properties are 99.7% let (31 December 2017: 99.7%). The
valuations reflected a 4.85% net initial yield (31 December 2017:
4.91%) and a 5.02% (31 December 2017: 5.09%) true equivalent yield.
Where properties have outstanding rent reviews, an estimate is made
of the likely rent on review in line with market expectations and
the knowledge of the valuer.
Notes to the condensed financial statements (continued)
9. Investment properties and investment properties under construction (continued)
In accordance with IAS 40, investment properties under
construction have also been valued at fair value by LSH. In
determining the fair value, the valuer is required to value
development property as if complete, deduct the costs remaining to
be paid to complete the development and consider the significant
risks which are relevant to the development process including, but
not limited to, construction and letting risks and the impact they
may have on fair value. In the case of the Group's portfolio under
construction, where the sites are pre-let and construction risk
remains with the builder/developer, the valuer has deemed that the
residual risk to the Group is minimal. As required by the Red Book,
LSH has deducted the outstanding cost to the Group through to the
completion of construction of GBP0.8m (31 December 2017: GBP5.7m)
in arriving at the fair value to be included in the financial
statements.
In line with accounting policies, the Group has treated the
acquisitions during the period as asset purchases rather than
business combinations as they were judged to be acquisitions of
properties rather than businesses.
Investment
Investment Investment properties
properties long leasehold under construction
freehold(1) Total
GBPm GBPm GBPm GBPm
(unaudited) (unaudited) (unaudited) (unaudited)
------------------------------- -------------- ----------------- -------------------- ------------
As at 1 January 2018 1,104.9 255.9 1.1 1,361.9
Property additions 26.2 1.0 4.1 31.3
Impact of lease incentive
adjustment 0.4 0.4 - 0.8
Transfer from properties
in the course of development - 5.2 (5.2) -
------------------------------- -------------- ----------------- -------------------- ------------
1,131.5 262.5 - 1,394.0
Revaluations for the
period 13.1 8.1 - 21.2
------------------------------- -------------- ----------------- -------------------- ------------
As at 30 June 2018 1,144.6 270.6 - 1,415.2
------------------------------- -------------- ----------------- -------------------- ------------
(1) Includes development land held at GBP0.9m (31 December 2017:
GBP0.9m)
Capital commitments have been entered into amounting to GBP6.4m
(30 June 2017: GBP8.8m; 31 December 2017: GBP23.0m) which have not
been provided for in the financial statements.
Fair value hierarchy
All of the Group's properties are level 3, as defined by IFRS
13, in the fair value hierarchy as at 30 June 2018 and 31 December
2017. There were no transfers between levels during the year or
during 2016. Level 3 inputs used in valuing the properties are
those which are unobservable, as opposed to level 1 (inputs from
quoted prices) and level 2 (observable inputs either directly, i.e.
as prices, or indirectly, i.e. derived from prices).
Notes to the condensed financial statements (continued)
10. Cash and cash equivalents
30 June 2018 31 December 2017
GBPm GBPm
(unaudited) (audited)
------------------- ------------- -----------------
Cash held at bank 5.1 3.3
Restricted cash 7.0 0.5
------------------- ------------- -----------------
12.1 3.8
------------------- ------------- -----------------
Cash and cash equivalents include GBP7.0m (2017: GBP0.5m)
retained in rent and restricted accounts which are not readily
available to the Group for day to day commercial purposes.
11. Borrowings: term loans and overdrafts
The table indicates amounts drawn and undrawn from each
individual facility:
Facility Amounts drawn Undrawn
-------------------- -------------------------------- -------------------------------- ----------------------
30 June 2018 31 December 2017 30 June 2018 31 December 2017 30 June 31 December
2018 2017
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ------------- ----------------- ------------- ----------------- -------- ------------
Current
Overdraft facility
(1) 5.0 5.0 - - 5.0 5.0
Fixed rate term
loan (2) 0.9 0.8 0.9 0.8 - -
5.9 5.8 0.9 0.8 5.0 5.0
Non-current
Fixed rate term
loan (2) 21.8 22.3 21.8 22.3 - -
Term loan to
March 2021 (3) 100.0 100.0 50.0 52.5 50.0 47.5
Fixed rate term
to December
2022 (4) 25.0 25.0 25.0 25.0 - -
Term to July
2020 (5) 50.0 50.0 - 21.5 50.0 28.5
Fixed rate term
loan to November
2028 (6) 75.0 75.0 75.0 75.0 - -
Term to January
2021 (7) 115.0 115.0 55.0 105.9 60.0 9.1
Fixed rate term
loan to August
2024 (8) 50.0 50.0 50.0 50.0 - -
Fixed rate term
loan to August
2029(8) 63.0 63.0 63.0 63.0 - -
Term loan to
December 2020(9) 30.0 30.0 - - 30.0 30.0
529.8 530.3 339.8 415.2 190.0 115.1
-------------------- ------------- ----------------- ------------- ----------------- -------- ------------
Total 535.7 536.1 340.7 416.0 195.0 120.1
-------------------- ------------- ----------------- ------------- ----------------- -------- ------------
Providers:
(1) The Royal Bank of Scotland PLC.
(2) Aviva facility (acquired as part of HIL acquisition)
repayable in tranches to 31 January 2032.
(3) The Royal Bank of Scotland plc ("RBS").
(4) Aviva GPFC facility.
(5) HSBC Bank facility.
(6) Aviva facility.
(7) Barclays/AIB facility.
(8) Aviva facility.
(9) Lloyds facility.
Notes to the condensed financial statements (continued)
11. Borrowings: term loans and overdrafts (continued)
At 30 June 2018, total facilities of GBP838.5m (31 December
2017: GBP844.3m) were available to the Group. This included a
GBP75m unsecured retail bond, a GBP70m secured bond, a GBP100m
secured bond, a GBP57.8m convertible bond (GBP69.0m fair value) and
a GBP5m overdraft facility. Of these facilities, as at 30 June
2018, GBP643.5m was drawn (31 December 2017: GBP724.1m).
On 8 May 2018, the Aviva HIL (GBP22.7m) and Aviva GPFC
(GBP25.0m) loan facilities were amended with the amendments having
no material impact on the terms of the facilities.
Costs associated with the arrangement of the facilities,
including legal advice and loan arrangement fees, are amortised
over the 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 2018 31 December
2017
GBPm GBPm
(unaudited) (audited)
------------------------------------------ ------------- ------------
Term loans drawn: due within one year 0.9 0.8
Term loans drawn: due in greater than
one year 339.8 415.2
------------------------------------------ ------------- ------------
Total term loans drawn 340.7 416.0
Less: unamortised borrowing costs (3.7) (3.7)
------------------------------------------ ------------- ------------
Total term loans per the Condensed Group
Balance Sheet 337.0 412.3
------------------------------------------ ------------- ------------
The Group has been in compliance with all the financial
covenants of the above facilities applicable through the
period.
12. Borrowings: Bonds
30 June 31 December
2018 2017
GBPm GBPm
(unaudited) (audited)
----------------------------------------- ------------ ------------
Secured
Secured Bond December 2025 70.0 70.0
Secured Bond March 2027 100.0 100.0
Unsecured
Retail Bond July 2019 75.0 75.0
Convertible Bond May 2019 at fair value 69.0 75.5
Less: unamortised issue costs (2.2) (2.4)
----------------------------------------- ------------ ------------
311.8 318.1
----------------------------------------- ------------ ------------
Notes to the condensed financial statements (continued)
12. Borrowings: Bonds (continued)
Secured Bonds
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 GBP70m and mature on or about 30 December 2025.
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.
Borrowings: bonds (continued)
On 21 March 2017, a new GBP100m Secured Bond was issued for a
10-year term at a fixed coupon of 2.83% that matures on 21 March
2027. Interest is paid 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 GBP75m,
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 GBP82.5m 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 was 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.
During the period 5.5m new Ordinary Shares of 12.5 pence were
issued on the conversion of GBP5.4m nominal of convertible bonds.
Following the conversion of the Bonds there were GBP57.8m (31
December 2017: GBP63.2m) nominal of convertible bonds
outstanding.
Notes to the condensed financial statements (continued)
12. Borrowings: Bonds (continued)
Convertible Bond
30 June 31 December
2018 2017
GBPm GBPm
----------------------------------------- -------- ------------
Opening balance - fair value 75.5 95.0
Bond conversions (6.4) (22.8)
Fair value movement in Convertible Bond (0.1) 3.3
----------------------------------------- -------- ------------
Closing balance - fair value 69.0 75.5
----------------------------------------- -------- ------------
The fair value of the Convertible Bond at 30 June 2018 and 31
December 2017 was established by obtaining quoted market prices.
The fair value movement is recognised in the Group Statement of
Comprehensive Income within profit before taxation and is excluded
from the calculation of EPRA earnings and EPRA NAV.
13. 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
interest interest
rate swaps rate swaps Total
GBPm GBPm GBPm
------------------------------ ------------ ------------ --------
Assets
As at 1 January 2018 - 0.3 0.3
Fair value movement in the
period - 0.4 0.4
------------------------------ ------------ ------------ --------
As at 30 June 2018 - 0.7 0.7
------------------------------ ------------ ------------ --------
Liabilities
As at 1 January 2018 (24.6) (0.2) (24.8)
Fair value movement in the
period 2.9 0.1 3.0
------------------------------ ------------ ------------ --------
As at 30 June 2018 (21.7) (0.1) (21.8)
------------------------------ ------------ ------------ --------
Total - derivative financial
instruments
As at 1 January 2018 (24.6) 0.1 (24.5)
Fair value movement in the
period 2.9 0.5 3.4
------------------------------ ------------ ------------ --------
As at 30 June 2018 (21.7) 0.6 (21.1)
------------------------------ ------------ ------------ --------
Notes to the condensed financial statements (continued)
14. 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 value Fair value Book value Fair value
30 June 30 June 31 December 31 December
2018 2018 2017 2017
GBPm GBPm GBPm GBPm
------------------------------ ----------- ----------- ------------ ------------
Financial assets
Trade and other receivables 2.7 2.7 4.8 4.8
Effective interest rate
swaps 0.7 0.7 0.3 0.3
Cash and short-term deposits 12.1 12.1 3.8 3.8
------------------------------ ----------- ----------- ------------ ------------
Financial liabilities
Interest-bearing loans
and borrowings (643.5) (678.7) (724.2) (772.0)
Effective interest rate
swaps (21.7) (21.7) (24.6) (24.6)
Ineffective interest rate
swaps (0.1) (0.1) (0.2) (0.2)
Trade and other payables (15.0) (15.0) (15.0) (15.0)
------------------------------ ----------- ----------- ------------ ------------
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 2018. 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.
Notes to the condensed financial statements (continued)
14. Financial risk management (continued)
Fair value measurements at 30 June 2018 are as follows:
Level 1(1) Level 2(2) Level 3(3) Total
Recurring fair value GBPm GBPm GBPm GBPm
measurements
----------------------- ----------- ----------- ----------- -------
Financial assets
Derivative interest
rate swaps - 0.7 - 0.7
----------------------- ----------- ----------- ----------- -------
Financial liabilities
Derivative interest
rate swaps - (21.8) - (21.8)
Convertible bond (69.0) - - (69.0)
----------------------- ----------- ----------- ----------- -------
Fair value measurements at 31 December 2017 were as follows:
Recurring fair value Level 1(1) Level 2(2) Level 3(3) Total
measurements
GBPm GBPm GBPm GBPm
----------------------- ----------- ----------- ----------- -------
Financial assets
Derivative interest
rate swaps - 0.3 - 0.3
----------------------- ----------- ----------- ----------- -------
Financial liabilities
Derivative interest
rate swaps - (24.8) - (24.8)
Convertible Bond (75.5) - - (75.5)
----------------------- ----------- ----------- ----------- -------
(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.
Notes to the condensed financial statements (continued)
15. Net asset value per share
Net asset values have been calculated as follows:
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
---------------------------------- ------------ ------------ ------------
Net assets
Basic net assets 730.6 530.6 586.8
Derivative interest rate swaps
liability (net) 21.1 30.9 24.5
Cumulative Convertible Bond fair
value movement 11.2 13.9 12.3
---------------------------------- ------------ ------------ ------------
EPRA net asset value 762.9 575.4 623.6
---------------------------------- ------------ ------------ ------------
Number Number Number of
of shares of shares shares
Millions Millions Millions
---------------------------------- ------------ ------------ ------------
Ordinary Shares:
Issued share capital 732.4 598.9 619.4
Net asset value per share
Basic net asset value per share 99.8p 88.6p 94.7p
---------------------------------- ------------ ------------ ------------
EPRA net asset value per share 104.2p 96.1p 100.7p
---------------------------------- ------------ ------------ ------------
EPRA NAV is calculated as balance sheet net assets including the
valuation result on trading properties but excluding fair value
adjustments for debt and related derivatives.
16. 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
2018 2017 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
----------------------- ------------ ------------ -------------
Nexus TradeCo Limited 3.3 3.0 6.2
----------------------- ------------ ------------ -------------
Notes to the condensed financial statements (continued)
16. Related party transactions (continued)
As at 30 June 2018, outstanding advisory fees payable to Nexus
totalled GBP0.5m (30 June 2017: GBP0.5m).
Further fees paid to Nexus in accordance with the Advisory
Agreement for the period to 30 June 2018 of GBP0.1m (30 June 2017:
GBP0.1m) in respect of capital projects were capitalised in the
period.
Service charge management fees paid to Nexus in the period, in
connection with the Group's properties, totalled GBP0.2m (30 June
2017: GBP0.1m).
Nexus is entitled to a PIF equivalent to 11.25% of the "total
return" above a hurdle rate of 8.0%, based on the change in EPRA
Net Asset Value ("NAV") plus dividends paid less equity raised
which is credited to a notional cumulative account. If the hurdle
is not achieved a sum equal to 11.25% of the underperformance is
deducted from the notional cumulative account.
A PIF of GBP0.5m was paid to Nexus in the period in respect of
2017. A provision of GBP0.6m has been provided in the period (six
months ended 30 June 2017: GBPnil; year ended 31 December 2017:
GBP0.5m). No payment in respect of 2018 will be made until the
audited financial results and total returns for the year have been
agreed in 2019.
17. Share capital
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
----------------------------------- ------------ ------------ ------------
Issued and fully paid Ordinary
Shares at 12.5p each 91.6 74.9 77.5
----------------------------------- ------------ ------------ ------------
At beginning of year 77.5 74.8 74.8
Scrip issues in lieu of cash
dividends 0.1 0.1 0.2
Shares issued on bond conversions
in the period 0.7 - 2.5
Shares issued in the period 13.3 - -
----------------------------------- ------------ ------------ ------------
91.6 74.9 77.5
----------------------------------- ------------ ------------ ------------
On 18 April 2018, a general meeting of the Company approved the
issue of 106,481,482 new Ordinary Shares at a price of 108p each in
connection with a Firm Placing, Placing, Open Offer and Offer for
subscription. The shares were admitted to trading on the Main
Market of the London Stock Exchange on 19 April 2018.
Notes to the condensed financial statements (continued)
18. Special reserve
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------ ------------ ------------ ------------
At beginning of year 161.4 192.8 192.8
Dividends paid (15.8) (14.9) (29.8)
Scrip issues in lieu of cash
dividends (1.0) (0.8) (1.6)
144.6 177.1 161.4
------------------------------ ------------ ------------ ------------
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.
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.
19. Subsequent events
On 11 July 2018, the Group contracted to provide development
funding for the construction of a new primary care centre in Bray,
County Wicklow, Ireland, for a total consideration of GBP19.7m
(EUR22.3m).
On 17 July 2018, six 4.52% fixed rate swaps with a total nominal
value of GBP70.0m, effective until July 2026, were cancelled for
the next two years for a one-off payment of GBP5.0m equivalent to
0.7p per share on an EPRA net asset value basis.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge this
condensed consolidated 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 consolidated 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
Steven Owen
Chairman
24 July 2018
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
("PHP").
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 dividend payable (on
an annual basis) 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
year.
European Public Real Estate Association ("EPRA") is a real
estate industry body, which has issued Best Practice
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, gains/losses on disposals,
changes in the fair value of financial instruments and associated
close-out costs and their related taxation.
EPRA net assets ("EPRA NAV") are the balance sheet net assets
excluding own shares held, the MtM value of derivative financial
instruments and the convertible bond fair value movement.
EPRA NAV per share are the balance sheet net assets excluding
own shares held, the MtM value of derivative financial instruments
and the convertible bond fair value movement, divided by the number
of shares in issue at the balance sheet date.
EPRA vacancy rate is, as a percentage, the ERV of vacant space
in the Group's property portfolio divided by 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 ("PHP") and its
subsidiaries.
HSE or the Health Service Executive is the executive agency of
the Irish government responsible for health and social services for
people living in Ireland.
IFRS is International Financial Reporting Standards as adopted
by the European Union.
IFRS or Basic net asset value per share ("IFRS NAV") are the
balance sheet net assets, excluding own shares held, divided by the
number of shares in issue at the balance sheet date.
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 and 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, 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 additions.
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 news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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