TIDMPHP
RNS Number : 6406G
Primary Health Properties PLC
25 July 2019
Primary Health Properties PLC
Interim results for the six months ended 30 June 2019
Transformational merger and improving rental growth drive strong
performance
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
2019.
Harry Hyman, Managing Director of PHP, commented:
"The first six months of 2019 have been a transformational
period in the Company's history following the completion of the all
share merger with MedicX in March 2019, bringing together two
highly complementary portfolios in the UK and Ireland. The combined
business provides a much stronger platform for the future and has
already created significant value delivering a 22.7% total
shareholder return in the period. We have also delivered the
operating synergies of GBP4.0m per annum outlined at the time the
merger was announced in January 2019 as well as further finance
cost savings.
We have continued to selectively grow the portfolio,
particularly in Ireland, and further strengthened the balance sheet
with a new GBP150m unsecured convertible bond issue which closed on
15 July 2019. PHP's high-quality portfolio and capital base has
helped to deliver another period of strong earnings performance and
we are on course to deliver our 23rd consecutive year of dividend
growth. Continuing improvements to the rental growth outlook and
further reductions in the cost of finance will help to maintain our
strategy of paying a progressive dividend to our shareholders which
is fully covered by earnings."
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Six months Six months
to to
Income statement metrics 30 June 2019 30 June 2018 Change
------------- -------------
Net rental income(1) GBP53.8m GBP37.4m +43.9%
Adjusted EPRA earnings(2) GBP27.9m GBP17.1m +63.2%
Adjusted EPRA earnings per share(2) 2.8p 2.5p +12.0%
IFRS profit before tax excluding MedicX GBP41.5m GBP38.7m
exceptional adjustments(5)
IFRS (loss)/profit for the period (includes (GBP106.5m) GBP38.7m
GBP123.9m of non-cash losses)
IFRS (loss)/earnings per share(2) (10.7p) 5.7p
Dividends
Dividend per share(6) 2.8p 2.7p +3.7%
Dividends paid(6) GBP26.7m GBP16.8m +58.9%
Dividend cover(1) 104% 102%
-------------------------------------------- ------------- ------------- --------
30 June 31 December
Balance sheet and operational metrics 2019 2018 Change
-------------------------------------------- ------------- ------------- --------
Adjusted EPRA NAV per share(1,3) 105.2p 105.1p +0.1%
IFRS NAV per share(1,3) 99.1p 102.5p -3.3%
EPRA NNNAV per share(3) 94.5p 99.2p -4.7%
Property portfolio
Investment portfolio valuation(4) GBP2.352bn GBP1.503bn +0.8%
Net initial yield ("NIY") 4.85% 4.85%
Contracted rent roll (annualised)(9) GBP125.6m GBP79.4m +0.8%
Weighted average unexpired lease term 13.0 years 13.1 years
("WAULT")
Occupancy 99.5% 99.8%
Rent-roll funded by government bodies 90% 91%
Debt
Average cost of debt(8) 3.75% 3.90%
Loan to value ratio(1) 47.9% 44.8%
Weighted average debt maturity(8) 7.6 years 5.4 years
Total undrawn loan facilities(7,8) GBP207.7m GBP190.6m
-------------------------------------------- ------------- ------------- --------
(1) Definitions for net rental income, earnings per share
("EPS"), dividend cover, 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 16, net asset value per share, to the financial
statements.
(4) Percentage valuation movement during the period based on the
difference between opening and closing valuations of properties
after allowing for acquisition costs, capital expenditure and the
exceptional revaluation loss arising on merger with MedicX.
(5) The IFRS profit before tax excluding MedicX exceptional
adjustments is set-out in detail in the summarised results table on
page 13.
(6) See note 8, dividends, to the financial statements.
(7) After deducting the remaining cost to complete contracted
acquisitions, properties under development and asset management
projects.
(8) Including the impact of GBP150m/2.875% convertible bond
issue and repayment of GBP75m/5.375% retail bond; both completed
post period end.
(9) Percentage contracted rent roll increase during the period
is based on the annualised uplift achieved from all completed rent
reviews and asset management projects.
DELIVERING EARNINGS AND DIVID GROWTH
-- Adjusted EPRA earnings per share increased by 12.0% to 2.8p (30 June 2018: 2.5p)
-- Completion of all share merger with MedicX contributing
GBP7.6m to Adjusted EPRA earnings in the 3.5 months since
completion
-- Excluding the impact of the MedicX merger PHP's recurring
Adjusted EPRA earnings increased by GBP3.2m or 18.7% (30 June 2018:
GBP1.7m or 11.0% increase)
-- Average uplift of 1.9% per annum on rent reviews agreed in
the period, resulting in an uplift in rent of GBP0.9m p.a. (FY
2018: 1.4% with an uplift of GBP1.1m)
-- Two quarterly dividends totalling 2.8p per share distributed
in the period and third quarterly dividend of 1.4p per share
declared, payable on 23 August 2019, equivalent to 5.6p on an
annualised basis and a 3.7% increase over the 2018 dividend per
share and will represent the Company's 23(rd) consecutive year of
dividend growth
-- Five income accretive properties selectively acquired in the
period for GBP31.3m, with a large average lot size of GBP6.3m
DELIVERING FINANCIAL MANAGEMENT
-- Average cost of debt has been reduced by 25bp to 3.75% from
4.0% applicable at completion of the merger with MedicX (31
December 2018: 3.9%) including post period end transactions
-- Post period end GBP150m/2.875% unsecured convertible bond
issued for a six-year term expiring in July 2025
-- Post period end GBP75m/5.375% retail bond repaid in July 2019
DELIVERING NET ASSET VALUE GROWTH
-- Underlying property valuation surplus of GBP17.7m (30 June
2018: GBP21.3m), growth of 0.8% (30 June 2018: 1.5%); portfolio's
net initial yield unchanged at 4.85% (31 December 2018: 4.85%)
-- Rental growth of GBP1.0m or 0.8% (FY 2018: GBP1.3m or 1.8%)
accounting for the majority of the revaluation surplus created in
the period
-- Portfolio in Ireland now comprises 15 assets, valued at
EUR174m, and including four forward funded developments currently
under construction which if valued as complete increases the value
to approximately EUR204m
-- Strong pipeline of targeted acquisitions of approximately
GBP150m of which GBP70m currently in legal due diligence
-- 22 asset management projects either completed, on-site or
about to commence investing GBP4.9m (FY 2018: GBP4.4m), creating an
additional GBP0.3m p.a. (FY 2018: GBP0.2m p.a.) of rental income,
and strong pipeline of over 60 future projects being progressed
-- Only GBP2.0m or 1.6% of annualised rent roll expiring in the
next three years of which GBP1.2m is subject to either a planned
asset management initiative or terms having been agreed to renew
the lease
DELIVERING STRONG TOTAL RETURNS
Six months Six months Year ended
ended ended 31 December
30 June 2019 30 June 2018 2018
-------------------------------- -------------- -------------- -------------
Increase in Adjusted EPRA NAV
plus dividends paid 2.8% 6.2% 9.7%
Income return 2.7% 2.7% 5.3%
Capital return 0.9% 1.6% 2.7%
-------------------------------- -------------- -------------- -------------
Total property return(1) 3.6% 4.3% 8.0%
MSCI UK Monthly Property Index 1.2% 4.4% 7.3%
-------------------------------- -------------- -------------- -------------
Out/(under) performance over
MSCI 2.4% (0.1%) 0.7%
-------------------------------- -------------- -------------- -------------
(1) The definitions for total property return is set out in the
Glossary of Terms.
Presentation and webcast:
A presentation for analysts will be held on 25 July 2019 at
11.00am at the offices of Buchanan, 107 Cheapside, London EC2V
6DN.
The presentation will be accessible via a live conference
call:
UK Toll Free: 0800 358 9473
International dial in numbers:
http://events.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf
Participant PIN code: 32034040#
There will be a replay available for 90 days following the
presentation:
UK Toll-Free Number: 0800 358 2049
Conference Number: 301292203#
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
--------------------------------------- --------------------------------
EXECUTIVE REVIEW
The first half of 2019 has been both a transformational and
successful period in the Company's history following the completion
of the all share merger with MedicX Fund Limited ("MedicX") on 14
March 2019. The merger with MedicX represented a rare opportunity
to bring together two highly complementary portfolios in the UK and
Ireland. Historically, both businesses have adopted a very similar
investment strategy and consequently the two portfolios were
ideally placed to be brought together.
The enlarged Group now has a market capitalisation in excess of
GBP1.5 billion and we have seen a significant improvement in share
liquidity since the completion of the merger. The property
portfolio now stands at over GBP2.35 billion across 484 assets,
including post period end acquisitions.
The merger with MedicX crystallised a number of operating and
finance cost saving synergies and we have already delivered a
GBP4.0m p.a. reduction in the enlarged Group's operating costs and
post period end a 25bp reduction in the average cost of debt
following the successful issue of a new GBP150m/2.875% unsecured
convertible bond and repayment of the GBP75m/5.375% retail bond in
July 2019.
The enlarged Group has continued to invest in and selectively
grow the portfolio, particularly in Ireland, investing GBP31.3m in
let standing investments and forward funded developments including
post period end acquisitions.
We have increased the dividend paid to shareholders in the
period by 3.7% to 2.8 pence per share (30 June 2018: 2.7 pence per
share) which is fully covered by increased earnings and represents
the Group's 23(rd) successive year of dividend growth.
Overview of results
Excluding the impact of the MedicX merger PHP's recurring
Adjusted EPRA earnings increased by GBP3.2m or 18.7% to GBP20.3m in
the six months to 30 June 2019 driven by the acquisitions in 2018
and the first half of 2019 and rental growth from our asset
management activities. The merger with MedicX contributed a further
GBP7.6m taking the adjusted EPRA earnings for the enlarged Group to
GBP27.9m or a 63.2% increase. Using the weighted average number of
shares in issue in the period the Adjusted EPRA earnings per share
increased to 2.8p (30 June 2018: 2.5p), an increase of 12.0%.
A revaluation surplus of GBP17.7m (excluding the exceptional
revaluation loss of GBP138.4m discussed below) was generated in the
period from the portfolio including a GBP3.2m surplus on the MedicX
assets held for only three and a half months.
The merger with MedicX created a number of exceptional non-cash
adjustments reflecting both the premium in the Company's share
price and the resulting premium paid for MedicX net assets at
completion. The merger was completed by way of a share for share
exchange with the Company issuing 341.0m shares at a price of
129.2p which together with the GBP14.5m of transaction costs
resulted in a total consideration of GBP455.1m. The fair value of
the net assets acquired was GBP316.7m resulting in an exceptional
revaluation loss of GBP138.4m but it is important to note that the
GBP14.5m of transaction costs were the only cash cost. A further
exceptional expense of GBP10.2m was incurred to terminate the
contract with the previous manager of MedicX, Octopus Healthcare
Adviser Ltd as indicated at the time of the merger.
A loss on the fair value of interest rate derivatives and
convertible bonds together with the amortisation of the fair value
adjustment on the MedicX fixed rate debt at acquisition of GBP3.1m
(30 June 2018: gain of GBP0.3m) further contributed to the loss
before tax as reported under IFRS of GBP106.1m (30 June 2018:
profit GBP38.7m).
The Group has continued to selectively grow its portfolio in the
period, adding four assets and exchanging contracts to acquire its
15(th) property in Ireland which completed post period end. We
continue to have a strong pipeline of further potential
acquisitions both in the UK and Ireland including GBP70m of
properties currently in solicitors' hands and subject to
contract.
Rent reviews and asset management projects completed in the
period added GBP1.0m or 0.8% (FY 2018: GBP1.3m or 1.8%) to the
contracted rent roll and the continued positive momentum on rent
reviews has seen annualised rental growth improve to 1.9% compared
to 1.4% and 1.1% achieved in 2018 and 2017 respectively. Rent
reviews and asset management projects accounted for the majority of
the revaluation surplus generated in the period.
The portfolio's average lot size continues to grow and is now
GBP4.9m (31 December 2018: GBP4.8m) and we are maintaining our very
strong metrics, with a long weighted average unexpired lease term
("WAULT") of 13.0 years, high occupancy at 99.5% and only 1.6% of
our rent due to expire in the next three years.
Dividends
The Company distributed a total of 2.8p per share in the six
months to 30 June 2019, an increase of 3.7% over that distributed
in the first half of 2018 of 2.7p per share. The total value of
dividends distributed in the period increased by 58.9% to GBP26.7m
(30 June 2018: GBP16.8m) reflecting the additional shares issued on
the merger with MedicX and conversion of the remaining convertible
bonds which were fully covered by EPRA earnings. Dividends
totalling GBP2.4m were satisfied through the issuance of shares via
the scrip dividend scheme.
Quarterly dividends of 1.4p per share were paid in February and
May 2019 and the Company is to pay its third quarterly dividend,
also of 1.4p per share, on 23 August 2019 to shareholders on the
register as at 12 July 2019. The dividend will comprise a Property
Income Distribution ("PID") of 0.65p and an ordinary dividend of
0.75p per share. The dividends are equivalent to 5.6p on an
annualised basis and represent the Company's 23(rd) successive year
of dividend growth. A further dividend payment is planned to be
made in November 2019.
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 111.0p per share
and closed on 30 June 2019 at 133.4p, an increase of 20.2%.
Including dividends, those shareholders who held the Company's
shares throughout the period achieved a Total Shareholder Return of
22.7% (30 June 2018: 2.0%).
Market update and outlook
The final outcome and consequences of Brexit for the UK are
unlikely to have a direct impact on the primary health centres we
invest in, which perform a vital role in the provision of
healthcare across the UK and Ireland. Demand for our properties is
driven by demographics and in particular populations that are
growing, ageing and suffering from more instances of chronic
illness.
Despite the continued volatility in the economic and political
environment and the 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 during 2019
although at a much slower rate than that witnessed in both 2018 and
2017.
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 underinvestment 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 confirmed 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 announcements made in 2018 by the Government to
increase funding for the NHS and how the GBP20.5bn budget
settlement, announced on its 70th anniversary, will be spent over
the next five years. The new NHS Long Term Plan, announced in
January 2019, sets out how the NHS plans to improve the quality of
patient care and health outcomes. The plan also includes measures
to improve out-of-hospital care, supporting primary medical and
community health services, and investment in these services will
grow faster than the overall NHS budget, worth an extra GBP4.5bn a
year in real terms by 2023/24 with the aim of reducing pressure on
emergency hospital services.
In June 2019 the NHS set out plans for Integrated Care Systems
in England encouraging organisations to join forces in order to be
better able to improve the health of their populations. The plans
include the establishment of Primary Care Networks that bring
practices together, to work in networks serving 30,000 to 50,000
patients, extending access to GPs and reducing the need for
unnecessary hospital admission.
These additional resources and initiatives may in time lead to
increased activity in the building of new facilities and the
modernisation of existing primary care premises and 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.
We believe that our activities benefit not only our shareholders
but also our other stakeholders, including our occupiers, patients,
the NHS and HSE, suppliers, lenders and the wider communities in
both the UK and Ireland.
Following completion of the merger with MedicX the Group is now
in a strong position to continue to deliver long term value to
shareholders and wider stakeholders and the Board looks forward
with confidence to the future.
Board changes
Following completion of the merger with MedicX in March 2019,
Helen Mahy joined the Board as Deputy Chairman and Senior
Independent Director and Laure Duhot joined the Board as a
Non-executive Director and Chairman of the Adviser Engagement
Committee. At the same time Nick Wiles and Geraldine Kennell
stepped down from the Board in order to maintain an appropriate
size and balance between the Company and MedicX directors, post the
merger.
The new Board has only been in position for a few months but it
has settled in well and made a positive contribution to the future
of the Company. We are also very grateful to our colleagues Nick
and Geraldine for their commitment and dedication to the Company
during their three years of service, and their contribution to and
support for the merger with MedicX.
Steven Owen Harry Hyman
Chairman Managing Director
24 July 2019
BUSINESS REVIEW
Investment and development activity
The majority of the investment activity in the period came from
the merger with MedicX, which brought a highly complementary
portfolio of 167 properties valued at GBP804.3m (excluding the
premium and transaction costs) at completion in March 2019. The
enlarged Group has also continued to selectively acquire standing
investment and forward funded development opportunities acquiring
five assets for GBP31.3m including one that completed post
period-end.
Investment pipeline
Contracts for the acquisition of The Meath Primary Healthcare
Centre, Dublin, Ireland for GBP9.8m (EUR10.9m) were exchanged in
March 2019 and completion took place on 19 July 2019. The purchase
represents PHP's 15(th) acquisition in Ireland and will be
accounted for in the second half of 2019 because the Group's
accounting policy is to recognise acquisitions upon completion.
PHP continues to have a strong active pipeline of potential
acquisitions both in the UK and Ireland totalling approximately
GBP150m including GBP70m in legal due diligence.
Developments
Following the merger with MedicX the enlarged group has eight
forward funded developments currently on site with a net
development cost of GBP59.5m:
Anticipated Area Net development Costs to
Asset PC date (Sq. m) cost complete
----------------------------- ------------ --------- ------------------ --------------------
Ireland
Mullingar Ph III, County Q3 2019 1,165 GBP3.2m (EUR3.6m) GBP2.2m (EUR2.5m)
Westmeath
Bray, County Wicklow Q4 2019 4,822 GBP20.1m GBP12.0m (EUR13.4m)
(EUR22.4m)
Athy, County Kildare Q4 2019 3,486 GBP11.6m GBP8.1m (EUR9.0m)
(EUR12.9m)
Rialto, Dublin Q4 2019 3,232 GBP10.2m GBP4.9m (EUR5.5m)
(EUR11.4m)
UK
Vale of Neath, Wales Q3 2019 1,355 GBP4.8m GBP0.7m
Langwith, Derbyshire Q3 2019 412 GBP1.8m GBP1.7m
Peterborough, Cambridgeshire Q3 2019 918 GBP3.5m GBP1.0m
Kew, London Q4 2019 845 GBP4.3m GBP2.1m
----------------------------- ------------ --------- ------------------ --------------------
Total 16,235 GBP59.5m GBP32.7m
----------------------------- ------------ --------- ------------------ --------------------
The enlarged Group will continue to adopt a policy of not
undertaking 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' healthcare
needs.
Rent reviews
During the six months to 30 June 2019, the enlarged group
concluded and documented 182 rent reviews with a combined rental
value of GBP22.4m resulting in an uplift of GBP0.9m per annum or
3.9% which equates to 1.9% per annum. This continues the positive
trend in rental growth over the last two years (year ended 31
December 2018: 1.4% per annum with an uplift of GBP1.1m; year ended
31 December 2017: 1.1% per annum with an uplift of GBP0.5m).
In the period, 0.9% per annum was achieved on 94 open market
reviews including 30 reviews where no uplift was achieved. Uplifts
of 3.0% per annum were achieved on RPI-based reviews and 3.1% per
annum on fixed uplift reviews. In addition, a further 32 open
market reviews were agreed in principle, which will add another
GBP0.2m to the contracted rent roll when concluded and represent an
uplift of 1.2% per annum.
68% 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 to result in further rental growth
in the future. The balance of the PHP portfolio has either
indexed/RPI (25%) or fixed uplift (7%) based reviews which also
provide an element of certainty to future rental growth within the
portfolio.
At 30 June 2019, the rent at 197 tenancies, representing
GBP30.8m 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 and we have started to see positive
momentum in the demand, commencement and delivery for new,
purpose-built premises which are being supported by NHS initiatives
to modernise the primary care estate.
Whilst underlying land and construction costs have increased in
recent years, the lower number of new schemes approved by the NHS
has historically restricted the ability to capture the growth in
new rental values.
Asset Management Projects
We have continued to make good progress in the six months to 30
June 2019 to enhance and extend existing assets within the
portfolio with eight projects completed, three currently on-site
and a further 11 approved and due to commence shortly. The projects
require the investment of GBP4.9m and will generate GBP0.3m of
additional rental income but, just as importantly, will extend the
WAULT on those premises back to an average 17 years.
PHP continues to work closely with its tenants and has a strong
pipeline of over 60 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 2019
was GBP125.6m, an increase of GBP46.2m or 58.2% in the period (31
December 2018: GBP79.4m) driven predominantly by the merger with
MedicX which contributed GBP44.4m. 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 99.5%.
Longevity: The portfolio's WAULT at 30 June 2019 was 13.0 years
(31 December 2018: 13.1 years). Only GBP2.0m or 1.6% of our income
expires over the next three years and GBP84.0m or 66.9% 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 2.0 1.6%
4 - 5 years 7.5 6.0%
5 - 10 years 32.1 25.5%
10 - 15 years 43.9 34.9%
15 - 20 years 23.7 18.9%
> 20 years 16.4 13.1%
------------------- ------ -------
Total 125.6 100.0%
------------------- ------ -------
Valuation and returns
At 30 June 2019, the portfolio comprised 483 assets
independently valued at GBP2.347bn (31 December 2018: GBP1.503bn)
reflecting the addition of the MedicX portfolio adding 167 high
quality assets, fair valued in March 2019 at GBP804.3m (excluding
the premium and acquisition costs). The strong investment market
together with our sector leading portfolio metrics and asset
management initiatives resulted in a valuation surplus of GBP17.7m
or 0.8%, including a GBP3.2m surplus on the MedicX portfolio held
for only 3.5 months, in the period to 30 June 2019 (six months to
30 June 2018: GBP21.3m or 1.5%).
We continued to see a 1-2bp contraction in net initial yields
("NIY") in the period but the combination of the MedicX and PHP's
portfolios resulted in the blended net initial and true equivalent
yields remaining unchanged at 4.85% (31 December 2018: 4.85%) and
4.99% (31 December 2018: 4.99%) respectively. Encouragingly, the
improving rental growth environment accounted for the majority of
the surplus whilst yield compression accounted for the balance.
At 30 June 2019, the portfolio in Ireland comprised 14 assets,
including four assets currently under development, valued at
GBP145.6m or EUR162.6m (31 December 2018: 8 assets/GBP83.0m or
EUR92.3m). The costs to complete the developments are GBP27.2m
(EUR30.4m) and once complete the assets in Ireland will be valued
at approximately GBP173m (EUR193m). A further asset in Ireland was
acquired post period end for GBP9.8m (EUR10.9m).
The portfolio's average lot size has grown to GBP4.9m (31
December 2018: GBP4.8m) and 83.5% of the portfolio is valued at
over GBP3.0m. We only have eight assets valued at less than
GBP1.0m.
Number of Valuation Average
Properties GBPm lot size
% (GBPm)
-------------------- ----------- ---------- ------ ---------
> GBP10m 43 625.2 26.6 14.5
GBP5m - GBP10m 107 739.7 31.5 6.9
GBP3m - GBP5m 154 596.7 25.4 3.9
GBP1m - GBP3m 171 375.2 16.0 2.2
< GBP1m (including
land GBP4.1m) 8 10.2 0.5 0.8
-------------------- ----------- ---------- ------ ---------
Total(1) 483 2,347.0 100.0 4.9
-------------------- ----------- ---------- ------ ---------
(1) Excludes the GBP4.5m impact of IFRS 16 Leases with ground
rents recognised as finance leases.
The underlying valuation uplift of GBP17.7m, combined with the
portfolio's growing income, helped to deliver a total property
return of 3.6% in the six months to 30 June 2019 (30 June 2018:
4.3%) out-performing the MSCI UK Monthly Property Index by
240bps.
Six months ended Six months ended Year ended 31
30 June 2019 30 June 2018 December 2018
---------------- ----------------- ----------------- ---------------
Income return 2.7% 2.7% 5.3%
Capital return 0.9% 1.6% 2.7%
---------------- ----------------- ----------------- ---------------
Total return 3.6% 4.3% 8.0%
---------------- ----------------- ----------------- ---------------
FINANCIAL REVIEW
The merger with MedicX together with strong underlying asset
management activity in the period and the acquisitions made in 2018
and the first six months of 2019 have enabled us to continue to
deliver earnings growth.
The merger with MedicX completed on 14 March 2019 contributing
around three and a half months of income to the performance of the
Group during the period. The merger was completed by way of an all
share exchange, with MedicX shareholders receiving 0.77 shares in
PHP for every share held and resulted in 341.0m new shares in the
Company being issued.
PHP's share price reacted positively to the merger announcement
in January 2019, rising to 129.2p per share at completion,
representing a 22.9% (GBP82.2m) premium to the previously reported
EPRA NAV at December 2018 of 105.1p. The share price at completion
is used to calculate the fair value of the consideration paid for
MedicX and has resulted in the recognition of an exceptional
non-cash revaluation loss during the period reflecting the premium
paid on completion. It is important to note that the only cash paid
to complete the merger were GBP14.5m of transaction costs and a
GBP10.2m termination fee paid to Octopus Healthcare Adviser Ltd,
the previous manager of MedicX.
The table below summarises the consideration paid for MedicX
along with the fair values of the net assets acquired and the
resulting exceptional revaluation adjustment arising at
completion:
Adjusted Debt MtM IFRS
EPRA & fair value
fair value deferred
tax
Consideration paid GBPm GBPm GBPm
341.0m PHP shares issued @ 129.2p 440.6 - 440.6
Transaction costs 14.5 - 14.5
---------------------------------------- ------------ ---------- ------------
Total consideration paid 455.1 - 455.1
---------------------------------------- ------------ ---------- ------------
MedicX fair values
Property portfolio 804.3 - 804.3
Cash 5.8 - 5.8
Debt (441.5) (48.0) (489.5)
Other net current assets/(liabilities) (1.9) (2.0) (3.9)
Net assets acquired 366.7 (50.0) 316.7
---------------------------------------- ------------ ---------- ------------
Exceptional revaluation loss
arising on merger with MedicX (88.4) (50.0) (138.4)
---------------------------------------- ------------ ---------- ------------
Excluding the impact of the MedicX merger PHP's Adjusted EPRA
earnings increased by GBP3.2m or 18.7% to GBP20.3m in the six
months to 30 June 2019 (30 June 2018: GBP17.1m). The merger with
MedicX contributed a further GBP7.6m taking adjusted EPRA earnings
for the enlarged Group to GBP27.9m or a 63.2% increase. Using the
weighted average number of shares in issue in the period the
Adjusted EPRA earnings per share increased to 2.8p (30 June 2018:
2.5p), an increase of 12.0%.
A revaluation surplus of GBP17.7m was generated in the period
from the portfolio including a GBP3.2m surplus on the MedicX assets
held for only three and a half months. As noted above the
acquisition of MedicX created an exceptional revaluation loss and
exceptional contract termination fee of GBP138.4m and GBP10.2m
respectively. The exceptional losses have been offset by a GBP82.2m
premium (based on Adjusted EPRA NAV) on the issue of 341.0m shares
which were issued on completion but are accounted for as a reserve
movement.
A loss on the fair value of interest rate derivatives and
convertible bonds together with the amortisation of the fair value
adjustment on the MedicX fixed rate debt at acquisition of GBP3.1m
(30 June 2018: gain of GBP0.3m) contributed to the loss before tax
as reported under IFRS of GBP106.1m (30 June 2018: profit
GBP38.7m).
The financial results for the Group are summarised as
follows:
Summarised results
PHP MedicX Six months Six months Year ended
6 months 3.5 months ended 30 ended 31 December
to to June June 2019 30 June 2018
June 2019 2019 2018
GBPm GBPm GBPm GBPm GBPm
------------------------------------- ----------- ------------ ----------- ----------- -------------
Net rental income 40.3 13.5 53.8 37.4 76.4
Administrative expenses (4.5) (0.5) (5.0) (4.2) (8.6)
Performance incentive fee
("PIF") (0.9) - (0.9) (0.6) (1.3)
------------------------------------- ----------- ------------ ----------- ----------- -------------
Operating profit before revaluation
gain and
net financing costs 34.9 13.0 47.9 32.6 66.5
Net financing costs (14.6) (5.4) (20.0) (15.5) (29.7)
------------------------------------- ----------- ------------ ----------- ----------- -------------
Adjusted EPRA earnings 20.3 7.6 27.9 17.1 36.8
Revaluation surplus on property
portfolio and profit on sales 14.5 3.2 17.7 21.3 36.1
Fair value (loss)/gain on
interest rate derivatives
and convertible bond (4.1) - (4.1) 0.3 1.4
------------------------------------- ----------- ------------ ----------- ----------- -------------
Adjusted IFRS Profit excluding
MedicX merger adjustments 30.7 10.8 41.5 38.7 74.3
Exceptional revaluation loss
arising on merger with MedicX - (138.4) (138.4) - -
Exceptional item - contract
termination fee arising on
merger with MedicX - (10.2) (10.2) - -
Amortisation of MedicX debt
MtM at acquisition - 1.0 1.0 - -
IFRS (loss)/profit before
tax 30.7 (136.8) (106.1) 38.7 74.3
Deferred tax provision (0.4) - (0.4) - -
------------------------------------- ----------- ------------ ----------- ----------- -------------
IFRS (loss)/profit after tax 30.3 (136.8) (106.5) 38.7 74.3
------------------------------------- ----------- ------------ ----------- ----------- -------------
Net rental income receivable in the six months to 30 June 2019
increased by 43.9% or GBP16.4m to GBP53.8m (30 June 2018:
GBP37.4m). The merger with MedicX contributed GBP13.5m to net
rental income, the majority of the increase, with acquisitions in
2018 and the first six months of 2019 contributing GBP2.0m and
completed rent reviews contributing a further GBP0.9m.
Operational costs have continued to be managed closely and
effectively. Overall administrative costs, excluding the
Performance Incentive Fee ("PIF"), have risen by 19.0% to GBP5.0m
(30 June 2018: GBP4.2m) reflecting the increased size of the Group
following the merger with MedicX and additional regulatory costs.
The Group's EPRA cost ratio continues to be amongst the lowest in
the sector at 12.2% for the period, a decrease over the 14.3%
incurred during the 2018 financial year. This reflects the cost
saving synergies arising from the merger with MedicX albeit only
reflecting three and a half months of savings.
EPRA cost ratio Six months Six months Year ended
ended 30 ended 30 31 December
June 2019 June 2018 2018
GBPm GBPm GBPm
----------------------------------- ------------ ----------- -------------
Gross rent less ground rent and
service charge income 55.0 38.0 77.6
------------------------------------ ----------- ----------- -------------
Direct property expense 2.6 1.5 3.2
Administrative expenses 5.0 4.2 8.6
Performance incentive fee ("PIF") 0.9 0.6 1.3
Less: service charge costs (1.3) (0.7) (1.7)
Less: ground rent (0.1) (0.1) (0.1)
Less: other operating income (0.4) (0.1) (0.2)
EPRA costs (including direct
vacancy costs) 6.7 5.4 11.1
------------------------------------ ----------- ----------- -------------
EPRA cost ratio 12.2% 14.2% 14.3%
------------------------------------ ----------- ----------- -------------
EPRA cost ratio excluding PIF 10.5% 12.6% 12.6%
------------------------------------ ----------- ----------- -------------
Administrative expenses as a
percentage of gross asset value
(annualised) 0.5% 0.6% 0.6%
------------------------------------ ----------- ----------- -------------
Net finance costs in the period increased to GBP20.0m (30 June
2017: GBP15.5m) reflecting the debt acquired with the merger with
MedicX offset by the reductions in the average cost of debt
achieved in 2018 from various refinancing initiatives and
conversion of the convertible bond during both 2018 and the first
six months of 2019.
Performance incentive fee ("PIF")
Another period of strong performance in both 2018 and the first
half of 2019 is likely to result in a PIF being earned by the
Adviser for the year as a whole and consequently a GBP0.9m
provision has been provided in the period (six months ended 30 June
2018: GBP0.6m; year ended 31 December 2018: GBP1.3m).
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, net of non-cash
adjustments, 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 GBP1.1m was paid to Nexus in the period in respect of
2018 and at 30 June 2019 the balance on the notional cumulative PIF
account was GBP4.4m (31 December 2018: GBP6.9m) of which GBP1.1m
(31 December 2018: GBP1.3m) 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
2019 will be made until the audited financial results and total
returns for the year have been agreed in 2020.
Shareholder value
The Adjusted EPRA NAV per share was broadly unchanged at 105.2p
(31 December 2018: 105.1p per share) during the period with the
revaluation surplus of GBP17.7m, 1.6p per share, offsetting the
impact of the MedicX merger equivalent to 1.4p per share. Dividends
distributed in the period were fully covered by recurring EPRA
earnings with no material impact on EPRA NAV.
The total NAV return per share, including dividends distributed,
in the six months ended 30 June 2019 was 2.9p or 2.8% (30 June
2018: 6.2p or 6.2%).
The table below sets out the movements in the Adjusted EPRA and
EPRA NNN asset value per share over the period under review.
Adjusted EPRA Net Asset Value 30 June 2019 30 June 2018 31 December
per share pence per pence per 2018 pence
share share per share
----------------------------------------- ------------- ------------- ------------
Opening Adjusted EPRA NAV per
share 105.1 100.7 100.7
Adjusted EPRA earnings for
the period 2.8 2.5 5.2
Dividends paid (2.8) (2.5) (5.2)
Revaluation of property portfolio 1.6 2.9 4.7
Net impact of MedicX merger (1.4) - -
(see analysis below)
Shares issued (0.1) 0.6 0.4
Interest rate derivative cancellation - - (0.7)
Closing Adjusted EPRA NAV per
share 105.2 104.2 105.1
Fixed rate debt and swap mark-to-market
value (10.7) (7.7) (5.9)
----------------------------------------- ------------- ------------- ------------
Closing EPRA NNNAV per share 94.5 96.5 99.2
----------------------------------------- ------------- ------------- ------------
The impact of the merger with MedicX on NAV is summarised in the
table below:
Adjusted Debt MtM
EPRA & deferred Total
fair value tax
MedicX NAV adjustments GBPm GBPm GBPm
341.0m PHP shares issued @ 24.1p
premium to EPRA NAV (129.2p -
105.1p) 82.2 - 82.2
Premium on MedicX NAV acquired (73.9) (50.0) (123.9)
Exceptional transaction costs (14.5) - (14.5)
-------------------------------------- ------- ------------ --------
Exceptional revaluation loss (88.4) (50.0) (138.4)
Exceptional administration expenses (10.2) - (10.2)
-------------------------------------- ------- ------------ --------
Net impact of MedicX merger (16.4) (50.0) (66.4)
-------------------------------------- ------- ------------ --------
Net impact of MedicX merger (pence
per share) (1.4p) (4.4p) (5.8p)
-------------------------------------- ------- ------------ --------
Financing
As at 30 June 2019, total available loan facilities were
GBP1,376.3m (31 December 2018: GBP879.9m) of which GBP1,138.0m (31
December 2018: GBP679.1m) had been drawn. Cash balances of GBP13.8m
(31 December 2018: GBP5.9m) resulted in Group net debt of
GBP1,124.2m (31 December 2018: GBP673.2m). Contracted capital
commitments at the balance sheet date totalled GBP42.2m (31
December 2018: GBP16.1m) and result in headroom available to the
Group of GBP209.9m (31 December 2018: GBP190.6m).
Capital commitments comprise forward funded development
expenditure of GBP32.7m, acquisitions of GBP8.4m and asset
management projects on site of GBP1.1m.
In July 2019, the Group issued a new unsecured GBP150m/2.875%
convertible bond and cancelled GBP73.4m of unrequired loan
facilities, of which only GBP3.4m was drawn, and acquired as part
of the merger with MedicX. The net proceeds from the new
convertible bonds will also be used to repay the GBP75m/5.375%
retail bond which matures at the end of July 2019.
Debt metrics Pro-forma
31 July 2019(1) 30 June 2019 31 December
2018
------------------------------------ ----------------- --------------- --------------
Average cost of debt 3.75% 4.00% 3.90%
Loan to Value n/a 47.9% 44.8%
Interest cover n/a 2.7 times 2.6 times
Weighted average debt maturity 7.6 years 7.0 years 5.4 years
Total drawn secured debt GBP1,059.6m GBP1,063.0m GBP580.9m
Total drawn unsecured debt GBP150.0m GBP75.0m GBP98.2m
Total undrawn facilities available GBP207.7m GBP209.9m GBP190.6m
to the Group(2)
Unfettered assets GBP152.7m GBP144.9m GBP64.9m
------------------------------------ ----------------- --------------- --------------
(1) - Includes the impact of GBP150m/2.875% convertible bond
issued 15 July 2019, repayment of GBP75m/5.375% retail bond due
July 2019 and cancellation of GBP73.4m of unrequired loan
facilities completed post period end.
(2) - After deducting capital commitments.
Convertible bonds
The convertible bonds, originally issued in 2014, matured in May
2019, and consequently during the period bonds with a nominal value
of GBP23.1m (year ended 31 December 2018: GBP40.0m) were, at the
holders' option, converted at a conversion price of 96.16p,
resulting in 24.0m (year ended 31 December 2018: 41.5m) of new
ordinary shares being issued. At maturity, one convertible bond
with a nominal value of GBP0.1m remained outstanding and was repaid
with all the other bonds successfully converting to ordinary shares
over the term of the bond.
In June 2019, the Group announced the issue of new unsecured
convertible bonds with a nominal value of GBP150m and a coupon of
2.875% per annum. The new bonds were issued post period end on the
15 July 2019 for a six-year term and if not previously converted,
redeemed or purchased and cancelled, the Bonds will be redeemed at
par on maturity in July 2025. The net proceeds will be used to
repay the Company's GBP75m, 5.375% senior unsecured retail bonds at
maturity and otherwise for general corporate purposes.
Subject to certain conditions, the Bonds will be convertible
into fully paid ordinary shares of the Company and the initial
exchange price has been set at 153.25 pence, a premium of 15% above
the volume weighted average price of the Company's shares on 18
June 2019 being 133.26 pence. Under the terms of the Bonds, the
Company will have the right to elect to settle exercise of any
conversion rights entirely in shares or cash, or with a combination
of shares and cash. The exchange price will be subject to
adjustment if dividends paid per share exceed 2.8 pence per annum
and other certain circumstances.
Average cost of debt
Following the issue of the new GBP150m 2.875% convertible bond
and repayment of the 5.375% GBP75m retail bond in July 2019, as
noted above, the Group's average cost of debt will fall to 3.75%, a
25bp reduction from the 4.0% applicable when we completed the
merger with MedicX in March 2019. We continue to look at other
opportunities to reduce the Group's average cost of debt and
deliver further finance cost saving synergies arising from the
merger with MedicX.
Interest rate swap contracts
Accounting standards require PHP to mark its interest rate swaps
to market at each balance sheet date. During the six months to 30
June 2019 there was a loss of GBP3.2m (30 June 2018: gain GBP3.4m)
on the fair value movement of the Group's interest rate derivatives
due primarily to reductions in interest rates assumed in the
forward yield curves used to value the interest rate swaps. This
increased the mark-to-market ("MtM") liability of the swap
portfolio to GBP20.5m (31 December 2018: GBP17.3m) equivalent to
1.8p per share.
The analysis of the Group's exposure to interest rate risk in
its debt portfolio as at 30 June 2019 is as follows:
Facilities Drawn
GBPm % GBPm %
---------------------- -------------- ------------ ---------- --------
Fixed rate debt 871.9 63.3 871.9 76.6
Hedged by fixed rate
interest rate swaps 188.0 13.7 188.0 16.5
Floating rate debt -
unhedged 316.4 23.0 78.1 6.9
---------------------- -------------- ------------ ---------- --------
Total 1,376.3 100.0 1,138.0 100.0
---------------------- -------------- ------------ ---------- --------
The above analysis excludes the impact of GBP70m forward
starting swaps commencing in June and July 2020.
Fixed rate debt mark-to-market ("MtM")
The MtM of the enlarged Group's fixed rate debt as at 30 June
2019 was GBP98.9m (31 December 2018: GBP28.1m) equivalent to 8.7p
per share (31 December 2018: 3.7p). The large increase in the MtM
during the period is due primarily to the merger with MedicX, and
the fixed rate debt acquired with a fair value adjustment of
GBP48.0m at completion. In addition, reductions in interest rates
assumed in the forward yield curves used to value the debt in the
period has increased the MtM. The Group has no intention of
cancelling and repaying any of its fixed rate loan facilities and
the MtM valuation is sensitive to movements in interest rates
assumed in forward yield curves.
Alternative Performance Measures ("APMs")
PHP uses Adjusted EPRA earnings, Adjusted EPRA net asset value
and IFRS profit before tax excluding MedicX exceptional adjustments
as APMs to highlight the recurring performance of the property
portfolio and business. 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 16 and on
page 13. The Company has used EPRA earnings and EPRA net asset
values to measure performance and continue to do so. However, in
the current period these APMs have also been adjusted to remove the
impact of the adjustments arising from the MtM on fixed debt
acquired on completion of the merger with MedicX. The reasons for
the Company's use of these APMs are set out in the 2018 Annual
Report.
Related party transactions
Related party transactions are disclosed in note 17 to the
condensed financial statements. There have been no material changes
in the related party transactions described in the 2018 Annual
Report.
Harry Hyman Richard Howell
Managing Director Finance Director
24 July 2019
Principal risks and uncertainties
Effective risk management is a key element of the Board's
operational processes. Risk is inherent in any business, and the
Board has determined the Group's risk appetite, which is reviewed
on an annual basis. Group operations have been structured in order
to accept risks within the Group's overall risk appetite, and to
ensure that these risks are managed to minimise exposure and ensure
that appropriate returns are generated for the accepted risk. The
Group aims to operate in a low risk environment, appropriate for
its strategic objective of generating progressive returns for
shareholders. Key elements of maintaining this low risk approach
are:
-- investment focuses on the primary health real estate sector
which is traditionally much less cyclical than other real estate
sectors;
-- the majority of the Group's rental income is received
directly or indirectly from government bodies in the UK and
Ireland;
-- the Group benefits from long initial lease terms, largely
with upwards-only review terms, providing clear visibility of
income;
-- the Group is not a direct developer of real estate, which
means that the Group is not exposed to risks that are inherent in
property development;
-- the Board funds its operations so as to maintain an appropriate mix of debt and equity; and
-- debt funding is procured from a range of providers,
maintaining a spread of maturities and a mix of terms so as to fix
or hedge the majority of interest costs.
The structure of the Group's operations includes rigorous,
regular review of risks and how these are mitigated and managed
across all areas of the Group's activities. The Group faces a
variety of risks that have the potential to impact on its
performance, position and its longer-term viability. These include
external factors that may arise from the markets in which the Group
operates, government and fiscal policy, general economic conditions
and internal risks that arise from how the Group is managed and
chooses to structure its operations.
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 2019. Full disclosure of risks
and uncertainties faced by the Company are set out within the 2018
Annual Report.
Brexit
The external environment remains difficult, and the Board is
continuing to monitor the potential risks associated with the UK
leaving the European Union ('Brexit'). As exit negotiations are
ongoing, the final outcome remains unclear and it is too early to
understand fully the impact Brexit will have on our business and
our sector. The main impact of Brexit is the potential negative
impact on the macro-economic environment, potentially leading to
political uncertainty and volatility in interest and exchange
rates, but it could also impact our investment and occupier market,
our ability to execute our investment strategy and our income
sustainability in the long term.
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 2019 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 21. 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 2019 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 2019
Condensed Group Statement of Comprehensive Income
For the six months ended 30 June 2019
Six months Six months Year
ended ended ended 31
30 June 30 June December
2019 2018 2018
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
--------------------------------------------------- ------------ ------------ ----------
Rental income 2 56.4 38.9 79.6
Direct property expenses (2.6) (1.5) (3.2)
---------------------------------------------- ---- ------------ ------------ ----------
Net rental income 53.8 37.4 76.4
Administrative expenses 3 (5.9) (4.8) (9.9)
Exceptional item - contract termination (10.2) - -
fee
------------ ------------ ----------
Revaluation gain on property portfolio 9 17.7 21.2 36.0
Profit on sale of land - 0.1 0.1
Exceptional revaluation loss arising
on merger with
MedicX 9 (138.4) - -
------------ ------------ ----------
Total revaluation (loss)/gain (120.7) 21.3 36.1
------------ ------------ ----------
Operating (loss)/profit (83.0) 53.9 102.6
Finance income 4 0.6 0.1 0.1
Finance costs 5 (19.6) (15.6) (29.8)
Fair value (loss)/gain on derivative
interest rate swaps and
amortisation of cash flow hedging
reserve 5 (2.3) 0.2 (1.8)
Fair value (loss)/gain on convertible
bond 5 (1.8) 0.1 3.2
---------------------------------------------- ---- ------------ ------------ ----------
(Loss)/profit before taxation (106.1) 38.7 74.3
Taxation charge 6 (0.4) - -
---------------------------------------------- ---- ------------ ------------ ----------
(Loss)/profit for the period(1) (106.5) 38.7 74.3
Other comprehensive income:
Items that may be reclassified subsequently
to profit and loss:
Fair value (loss)/gain on interest
rate swaps treated as cash
flow hedges and amortisation of
hedging reserve (0.9) 3.2 4.1
Exchange gain on translation of
foreign balances - 0.1 -
Other comprehensive income for the
period net of tax (0.9) 3.3 4.1
---------------------------------------------- ---- ------------ ------------ ----------
Total comprehensive income for the
period net of tax (107.4) 42.0 78.4
---------------------------------------------- ---- ------------ ------------ ----------
(Loss)/earnings per share
Basic 7 (10.7)p 5.7p 10.5p
Diluted 7 (10.7)p 5.4p 9.8p
EPRA earnings per share (basic and
diluted) 7 1.9p 2.5p 5.2p
Adjusted EPRA(2) earnings per share
(basic and diluted) 7 2.8p 2.5p 5.2p
(1) Wholly attributable to equity shareholders of Primary Health
Properties PLC
(2) See Glossary of Terms on pages 48-50.
The above relates wholly to continuing operations.
Condensed Group Balance Sheet
As at 30 June 2019
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
-------------------------------------- ------ ------------ ------------ ------------
Non-current assets
Investment properties 9 2,351.5 1,415.2 1,502.9
Derivative interest rate swaps 14,15 - 0.7 0.6
2,351.5 1,415.9 1,503.5
Current assets
Trade and other receivables 13.5 4.5 4.6
Cash and cash equivalents 10 13.8 12.1 5.9
-------------------------------------- ------ ------------ ------------ ------------
27.3 16.6 10.5
-------------------------------------- ------ ------------ ------------ ------------
Total assets 2,378.8 1,432.5 1,514.0
-------------------------------------- ------ ------------ ------------ ------------
Current liabilities
Deferred rental income (25.8) (15.7) (16.0)
Trade and other payables (30.1) (15.6) (16.1)
Borrowings: term loans and overdraft 11 (3.9) (0.9) (0.9)
Borrowings: bonds 12 (75.0) (69.0) (101.5)
(134.8) (101.2) (134.5)
-------------------------------------- ------ ------------ ------------ ------------
Non-current liabilities
Borrowings: term loans and overdraft 11 (751.7) (336.1) (360.5)
Borrowings: bonds 12 (339.6) (242.8) (213.2)
Head lease liabilities 13 (4.4) - -
14,
Derivative interest rate swaps 15 (20.5) (21.8) (17.8)
Deferred tax liability (2.4) - -
-------------------------------------- ------ ------------ ------------ ------------
(1,118.6) (600.7) (591.5)
-------------------------------------- ------ ------------ ------------ ------------
Total liabilities (1,253.4) (701.9) (726.0)
-------------------------------------- ------ ------------ ------------ ------------
Net assets 1,125.4 730.6 788.0
-------------------------------------- ------ ------------ ------------ ------------
Equity
Share capital 18 142.0 91.6 96.1
Share premium account 247.9 185.2 220.6
Merger and other reserves 19 400.8 1.6 2.5
Special reserve 20 98.1 144.6 124.8
Hedging reserve (26.7) (26.7) (25.8)
Retained earnings 263.3 334.3 369.8
Total equity(1) 1,125.4 730.6 788.0
-------------------------------------- ------ ------------ ------------ ------------
Net asset value per share
Basic and diluted 16 99.1p 99.8p 102.5p
EPRA net asset value per share 16 101.1p 104.2p 105.1p
Adjusted EPRA(2) net asset value
per share 16 105.2p 104.2p 105.1p
-------------------------------------- ------ ------------ ------------ ------------
(1) Wholly attributable to equity shareholders of Primary Health
Properties PLC.
(2) See Glossary of Terms on pages 48-50.
Condensed Group Cash Flow Statement
For the six months ended 30 June 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
--------------------------------------- ------ ------------ ------------ -------------
Operating activities
Profit on ordinary activities
after tax (106.5) 38.7 74.3
Taxation charge 0.4 - -
Finance income (0.6) (0.1) (0.1)
Finance costs 19.6 15.6 29.8
Profit on sale of land - (0.1) (0.1)
Fair value loss/(gain) on derivatives 2.3 (0.2) 1.8
Fair value loss/(gain) on convertible
bond 1.8 (0.1) (3.2)
--------------------------------------- ------ ------------ ------------ -------------
Operating (loss)/profit before
financing costs (83.0) 53.8 102.5
Adjustments to reconcile Group
operating profit to
net cash flows from operating
activities:
Revaluation gain on property
portfolio (17.7) (21.2) (36.0)
Exceptional revaluation loss
arising on merger with 138.4 - -
MedicX
Fixed rent uplift (1.0) (0.8) (1.6)
(Increase)/decrease in trade
and other receivables (3.8) 2.0 2.2
Increase in trade and other
payables 14.6 0.6 1.4
Cash generated from operations 47.5 34.4 68.5
--------------------------------------- ------ ------------ ------------ -------------
Net cash flow from operating
activities 47.5 34.4 68.5
--------------------------------------- ------ ------------ ------------ -------------
Investing activities
Payments to acquire and improve
properties (20.0) (31.1) (101.9)
MedicX merger transaction costs (14.5) - -
Cash acquired as a part of MedicX 5.8 - -
merger
Interest received on development
loans 0.4 0.1 -
Net cash flow used in investing
activities (28.3) (31.0) (101.9)
--------------------------------------- ------ ------------ ------------ -------------
Financing activities
Proceeds from issue of shares 18 - 115.0 115.0
Costs of share issues (0.3) (3.9) (4.0)
Term bank loan drawdowns 113.8 30.6 123.0
Term bank loan repayments (83.2) (105.6) (174.0)
(Repayment of)/proceeds from
bond issue (0.1) - 45.4
Bond issue costs - - (0.8)
Termination of derivative financial
instruments - - (5.0)
Swap interest paid (0.5) (1.7) (2.4)
Non-utilisation fees (0.9) (0.5) (1.2)
Loan arrangement fees (0.4) (0.6) (1.3)
Interest paid (16.2) (12.5) (25.2)
Equity dividends paid net of
scrip dividend 8 (24.3) (15.8) (34.7)
--------------------------------------- ------ ------------ ------------ -------------
Net cash flow (used in)/from
financing activities (12.1) 5.0 34.8
--------------------------------------- ------ ------------ ------------ -------------
Increase in cash and cash equivalents 7.1 8.4 1.4
Effect of exchange rate fluctuations
on Euro denominated loans and
cash equivalents 0.8 (0.1) 0.7
--------------------------------------- ------ ------------ ------------ -------------
Cash and cash equivalents at
start of period 5.9 3.8 3.8
--------------------------------------- ------ ------------ ------------ -------------
Cash and cash equivalents at
end of period 10 13.8 12.1 5.9
--------------------------------------- ------ ------------ ------------ -------------
Condensed Group Statement of Changes in Equity
For the six months ended 30 June 2019 (unaudited)
Six months ended 30 June 2019 (unaudited)
Merger
Share Share & other Special Hedging Retained
capital premium reserves reserve reserve earnings Total
----------------------------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ---------- ---------- ---------- ---------- ---------- ----------- --------
1 January 2019 96.1 220.6 2.5 124.8 (25.8) 369.8 788.0
Loss for the period - - - - - (106.5) (106.5)
Other comprehensive
income
Fair value movement
on interest rate
swaps - - - - (1.2) - (1.2)
Amortisation of hedging
reserve - - - - 0.3 - 0.3
Total comprehensive
income - - - - (0.9) (106.5) (107.4)
Shares issued on
conversion of convertible
bonds 3.0 25.4 - - - - 28.4
Shares issued as
part of MedicX merger 42.6 - 398.0 - - - 440.6
Share issue expenses - (0.2) - - - - (0.2)
Dividends paid - - - (24.3) - - (24.3)
Scrip dividend in
lieu of cash 0.3 2.1 - (2.4) - - -
Exchange gain on
translation of foreign
balances - - 0.3 - - 0.3
---------------------------- ---------- ---------- ---------- ---------- ---------- ----------- --------
30 June 2019 142.0 247.9 400.8 98.1 (26.7) 263.3 1,125.4
---------------------------- ---------- ---------- ---------- ---------- ---------- ----------- --------
Six months ended 30 June 2018
(unaudited)
---------------------------------------------------- --------- -------------------- ---------- --------
Share Share Other 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
------------------------------ --------- --------- --------- --------- --------- ---------- --------
Condensed Group Statement of Changes in Equity (continued)
Year ended 31 December 2018 (audited)
Share Share Other 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 year - - - - - 74.3 74.3
Other comprehensive income
Fair value movement
on interest rate swaps - - - - 2.6 - 2.6
Amortisation of hedging
reserve - - - - 1.5 - 1.5
Total comprehensive
income - - - - 4.1 74.3 78.4
Shares issued on
conversion of convertible
bonds 5.1 40.5 - - - - 45.6
Shares issued as
part of capital raise 13.3 101.7 - - - - 115.0
Share issue expenses - (4.0) - - - - (4.0)
Dividends paid - - - (34.7) - - (34.7)
Scrip dividend in
lieu of cash 0.2 1.7 - (1.9) - - -
Exchange gain on
translation of foreign
balances - - 0.9 - - - 0.9
---------------------------- --------- --------- --------- --------- --------- ---------- --------
31 December 2018 96.1 220.6 2.5 124.8 (25.8) 369.8 788.0
---------------------------- --------- --------- --------- --------- --------- ---------- --------
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 2018 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 20-21. These
condensed consolidated interim financial statements of the Group
for the six months ended 30 June 2019 were approved and authorised
for issue by the Board on 24 July 2019.
Basis of preparation/Statement of compliance
The condensed consolidated interim financial statements for the
six months ended 30 June 2019 have been prepared in accordance with
IAS 34 'Interim Financial Reporting' and, except for the adoption
of IFRS 16 Leases, reflect consistent accounting policies as set
out in the Group's financial statements at 31 December 2018 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 2018.
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 at 30 June 2019 was
47.9% and the Group's interest cover for the period under review
was 2.7 times, well above the minimum Group banking covenant of 1.3
times. In July 2019, the Group issued a new unsecured
GBP150m/2.875% convertible bond and cancelled GBP73.4m of
unrequired loan facilities, of which only GBP3.4m was drawn, and
acquired as part of the merger with MedicX. The net proceeds from
the new convertible bonds will also be used to repay the
GBP75m/5.375% retail bond which matures at the end of July 2019.
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 standard noted below:
IFRS 16 Leases establishes principles for the recognition,
measurement, presentation and disclosure of leases, with the
objective of ensuring that lessees and lessors provide relevant
information that faithfully represents those transactions. The
standard specifies how entities reporting in accordance with IFRSs
will recognise, measure, present and disclose leases. The standard
provides a single lessee accounting model, requiring lessees to
recognise assets and liabilities for all leases unless the lease
term is twelve months or less or the underlying asset has a low
value. IFRS 16's approach to lessor accounting is substantially
unchanged from its predecessor, IAS 17 Leases. The standard is
effective for annual periods beginning on or after 1 January 2019.
As IFRS 16 does not significantly impact lessors, the impact on the
Group is not material. For long leasehold properties where PHP is
the lessee, the impact has been to recognise a GBP4.5m head lease
liability and an equal and opposite right of use asset which is
included in non-current assets. The Group has not restated
comparatives.
MedicX merger
The Group has considered the merger with MedicX during the
period as an asset purchase rather than a business combination. The
key judgements related to the consideration of whether processes
had been acquired by the Group. The limited nature of the processes
acquired resulted in the transaction being treated as an asset
acquisition. The fair value of the consideration for the assets and
liabilities acquired was judged to be represented by the issuance
to the shareholders of MedicX Fund Limited of 341.0m Ordinary
Shares in the Company at a price of 129.2 pence per share (the fair
value at the date of completion). For more information on the
acquisition refer to pages 12-15 of the Financial Review.
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
10.5% (30 June 2018: 12.6%). The Group's EPRA cost ratio has
decreased to 12.2%, compared to 14.2% for the same period in
2018.
Details of the Performance Incentive Fee ("PIF") payable to the
Adviser for the period ended 30 June 2019 are contained in the
Financial Review on pages 12-18 and in note 17.
4. Finance income
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2018
2019 2018
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------- ------------ ------------ -------------
Interest income on financial assets
Development loan interest 0.6 0.1 0.1
0.6 0.1 0.1
------------------------------------- ------------ ------------ -------------
5. Finance costs
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2018
2019 2018
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
--------------------------------------------------- ------------ ------------ -------------
Interest expense and similar charges on financial
liabilities
(i) Interest
Bank loan interest 12.8 6.9 13.8
Amortisation of MedicX debt MtM (1.0) - -
at acquisition
Swap interest 0.7 1.6 1.9
Bond interest 5.0 5.6 11.0
Bank facility non utilisation fees 1.0 0.6 1.3
Bank charges and loan arrangement
fees 1.1 0.9 1.8
19.6 15.6 29.8
--------------------------------------------------- ------------ ------------ -------------
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 2018
2019 2018
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
---------------------------------------- ------------ ------------ -------------
(ii) Derivatives
Net fair value (loss)/gain on interest
rate swaps (2.1) 0.5 (0.3)
Amortisation of cash flow hedging
reserve (0.2) (0.3) (1.5)
---------------------------------------- ------------ ------------ -------------
(2.3) 0.2 (1.8)
---------------------------------------- ------------ ------------ -------------
The fair value loss on derivatives recognised in the Condensed
Group Statement of Comprehensive Income has arisen from the
interest rate swaps for which hedge accounting does not apply. A
fair value loss on derivatives which meet the hedge effectiveness
criteria under IAS 39 of GBP1.2m (30 June 2018: gain of GBP2.9m),
(31 December 2018: gain of GBP2.6m) is accounted for directly in
equity.
An amount of GBP0.2m (30 June 2018: GBP0.3m), (31 December 2018:
GBP1.5m) 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 2018
2019 2018
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
--------------------------------------- ------------ ------------ -------------
(iii) Convertible Bond
Fair value (loss)/gain on Convertible
Bond (1.8) 0.1 3.2
--------------------------------------- ------------ ------------ -------------
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 basic and adjusted
EPRA earnings and basic and adjusted 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 2018
2019 2018
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
---------------------------- ------------ ------------ -------------
Finance income (Note 4) (0.6) (0.1) (0.1)
Finance costs (Note 5 (i)) 19.6 15.6 29.8
---------------------------- ------------ ------------ -------------
Net finance costs 19.0 15.5 29.7
---------------------------- ------------ ------------ -------------
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% (2018:
19%).
Acquired companies are effectively converted to UK-REIT status
from the date on which they become a member of the Group. The
merger with MedicX has not impacted the Group's REIT status.
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 2019.
The Group's activities in Ireland are conducted via Irish
companies or an Irish Collective Asset Vehicle ("ICAV"). The Irish
companies pay Irish Corporation Tax on trading activities and
deferred tax is calculated on the increase in capital values. The
ICAV does not pay any Irish Corporation Tax on its trading or
capital profits but a 20% withholding tax is paid on distributions
to owners.
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2018
2019 2018
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
Irish corporation tax charge - - -
Deferred tax on Irish activities 0.4 - -
Taxation charge in the Condensed 0.4 - -
Group Statement of Comprehensive
Income
------------------------------------------ ------------ ------------ -------------
Notes to the condensed financial statements (continued)
7. Earnings per share
The calculation of 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 2019
(unaudited)
Earnings per share (106.5) 993.7 (10.7)
-------------------------------------------- -------- ---------------- ----------
EPRA and Adjusted EPRA earnings
Basic and diluted earnings (106.5)
Adjustments to remove:
Revaluation gain on property portfolio
(Note 9) (17.7)
Exceptional revaluation loss arising
on acquisition of
MedicX 138.4
Fair value movement on derivatives 2.3
Fair value movement on Convertible
Bond 1.8
Taxation charge 0.4
-------------------------------------------- -------- ---------------- ----------
Basic and diluted EPRA earnings per
share 18.7 993.7 1.9
Exceptional item - contract termination
fee 10.2
Amortisation of MtM loss on debt
acquired (1.0)
-------------------------------------------- -------- ---------------- ----------
Basic and diluted adjusted EPRA earnings
per share 27.9 993.7 2.8
-------------------------------------------- -------- ---------------- ----------
(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 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 and diluted earnings 38.7
Adjustments to remove:
Profit on sale of land (0.1)
Revaluation gain on property portfolio (21.2)
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
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 2018
(audited)
Basic and diluted earnings
Basic earnings 74.3 708.6 10.5
Dilutive effect of Convertible Bond (2.2) 24.1
----------------------------------------- ------------------------ ---------------- ----------
Diluted earnings 72.1 732.7 9.8
EPRA basic and diluted earnings
Basic and diluted earnings 74.3
Adjustments to remove:
Revaluation gain on property portfolio (36.0)
Profit on sale of land (0.1)
Fair value movement on derivatives 1.8
Fair value movement on Convertible
Bond (3.2)
----------------------------------------- ------------------------ ---------------- ----------
EPRA basic earnings per share 36.8 708.6 5.2
Dilutive effect of Convertible Bond 1.0 24.1
----------------------------------------- ------------------------ ---------------- ----------
EPRA diluted earnings per share 37.8 732.7 5.2
----------------------------------------- ------------------------ ---------------- ----------
(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.
The bonds were fully converted or repaid during the period and
consequently, there were no dilutive effects of the Convertible
Bond in the 6 months to 30 June 2019.
Notes to the condensed financial statements (continued)
8. Dividends
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2018
2019 2018
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------- ------------ ------------ -------------
Quarterly interim dividend paid
22 February 2019 9.9 - -
Scrip dividend in lieu of quarterly
cash dividend 22 February 2019 0.9 - -
Quarterly interim dividend paid
24 May 2019 14.4 - -
Scrip dividend in lieu of quarterly
cash dividend 24 May 2019 1.5 - -
Quarterly interim dividend paid
23 February 2018 - 8.1 8.1
Scrip dividend in lieu of quarterly
cash dividend 23 February 2018 - 0.3 0.3
Quarterly interim dividend paid
25 May 2018 - 7.7 7.7
Scrip dividend in lieu of quarterly
cash dividend 25 May 2018 - 0.7 0.7
Quarterly interim dividend paid
24 August 2018 - - 9.6
Scrip dividend in lieu of quarterly
cash dividend 24 August 2018 - - 0.3
Quarterly interim dividend paid
23 November 2018 - - 9.3
Scrip dividend in lieu of quarterly
cash dividend 23 November 2018 - - 0.6
Total dividends distributed 26.7 16.8 36.6
------------------------------------- ------------ ------------ -------------
Per share 2.8p 2.7p 5.4p
------------------------------------- ------------ ------------ -------------
The Company will pay a third interim dividend of 1.4 pence per
Ordinary Share for the year ending 31 December 2019, payable on 23
August 2019. This dividend will comprise a Property Income
Distribution ("PID") of 0.65p and ordinary dividend of 0.75p per
share.
Notes to the condensed financial statements (continued)
9. Investment properties and investment properties under construction
Investment
Investment Investment properties
properties long leasehold under construction
freehold(1) Total
GBPm GBPm GBPm GBPm
As at 1 January 2019 (audited) 1,212.5 284.4 6.0 1,502.9
Acquisition of MedicX
portfolio
-------------------------------- -------------- ----------------- -------------------- --------
Consideration (including
transaction costs) 728.3 197.2 17.2 942.7
Less: exceptional revaluation
loss arising on
acquisition (107.0) (28.9) (2.5) (138.4)
-------------------------------- -------------- ----------------- -------------------- --------
Fair value of MedicX portfolio
acquired 621.3 168.3 14.7 804.3
Property additions 6.5 - 12.8 19.3
Adoption of IFRS 16 -
ground rents
recognised as finance
leases - 4.5 - 4.5
Impact of lease incentive
adjustment (1.4) 2.1 - 0.7
Foreign exchange movements 1.8 - 0.3 2.1
-------------------------------- -------------- ----------------- -------------------- --------
1,840.7 459.3 33.8 2,333.8
Revaluations for the period 15.0 2.5 0.2 17.7
-------------------------------- -------------- ----------------- -------------------- --------
As at 30 June 2019 (unaudited) 1,855.7 461.8 34.0 2,351.5
-------------------------------- -------------- ----------------- -------------------- --------
(1) Includes development land held at GBP4.1m (31 December 2018:
GBP1.0m)
Total
GBPm
Fair value per LSH UK valuation
report 1,441.3
Fair value of JLL UK valuation 760.1
Fair value of LSH Ireland valuation 92.5
Fair value of Cushman & Wakefield Ireland
valuation 53.1
--------------------------------------------- --------
2,347.0
Ground rents recognised as finance leases 4.5
--------------------------------------------- --------
Fair value 30 June 2019
(unaudited) 2,351.5
---------------------------------------------- --------
In line with the Company's accounting policies, the Group has
treated the merger with MedicX during the period as an asset
purchase rather than a business combination because it was judged
to be an acquisition of assets rather than a business and no
processes or workforce were acquired by the Group. Included in
additions for the period, are GBP804.3m of property assets in
respect of the MedicX merger which was settled through issuance to
the shareholders of MedicX Fund Limited of 341.0m Ordinary Shares
in the Company at a price of 129.2 pence per share. For more
information on the acquisition refer to pages 12-15 of the
Financial Review.
9. Investment properties and investment properties under construction (continued)
The investment properties have been independently valued at fair
value by Lambert Smith Hampton, Jones Lang LaSalle and Cushman and
Wakefield Chartered Surveyors and Valuers, as at the balance sheet
date in accordance with accounting standards. The valuers have
confirmed that they have valued the properties in accordance with
the Practice Statements in the RICS Valuation Global Standards 2017
("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 99.5% let (31 December 2018: 99.8%). The
valuations reflected a 4.85% net initial yield (31 December 2018:
4.85%). 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.
In accordance with IAS 40, investment properties under
construction have also been valued at fair value by the independent
valuers. 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, the valuers have deducted the outstanding
cost to the Group through to the completion of construction of
GBP28.4m (31 December 2018: GBP16.0m) in arriving at the fair value
to be included in the financial statements.
In addition to the above, capital commitments have been entered
into amounting to GBP1.1m (30 June 2018: GBP6.4m; 31 December 2018:
GBPnil) which have not been provided for in the financial
statements.
Right-of-use-assets
In accordance with IFRS 16 Leases, the Group has recognised a
GBP4.5m head lease liability and an equal and opposite ground rents
recognised as finance leases asset which is included in non-current
assets.
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 2019 and 31 December
2018. There were no transfers between levels during the period or
during 2018. 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 2019 31 December 2018
GBPm GBPm
(unaudited) (audited)
------------------- ------------- -----------------
Cash held at bank 13.8 5.9
------------------- ------------- -----------------
11. Borrowings: term loans and overdrafts
The table indicates amounts drawn and undrawn from each
individual facility:
Expiry Facility Amounts drawn Undrawn
date
-------------------- ----------- ---------------------- ---------------------- ----------------------
30 June 31 December 30 June 31 December 30 June 31 December
2019 2018 2019 2018 2019 2018
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ----------- -------- ------------ -------- ------------ -------- ------------
Current
RBS Overdraft Jun 2020 5.0 5.0 - - 5.0 5.0
Aviva HIL
loan Jan 2032 0.9 0.9 0.9 0.9 - -
Aviva loan(1) Sep 2033 2.0 - 2.0 - - -
Aviva loan(1) Jun 2040 0.6 - 0.6 - - -
Santander
loan(1) Jul 2021 0.4 - 0.4 - - -
8.9 5.9 3.9 0.9 5.0 5.0
Non-current
Aviva HIL
loan Jan 2032 20.9 21.4 20.9 21.4 - -
Aviva loan Dec 2022 25.0 25.0 25.0 25.0 - -
Aviva loan Nov 2028 75.0 75.0 75.0 75.0 - -
Aviva loan Aug 2024 50.0 50.0 50.0 50.0 - -
Aviva loan Aug 2029 63.0 63.0 63.0 63.0 - -
Barclays/AIB
loan Jan 2021 115.0 115.0 55.0 55.0 60.0 60.0
HSBC loan Jul 2020 50.0 50.0 - - 50.0 50.0
HSBC standby
loan Oct 2020 50.0 - - - 50.0 -
Lloyds loan Dec 2020 30.0 30.0 30.0 - - 30.0
RBS loan Mar 2021 100.0 100.0 76.0 65.9 24.0 34.1
Santander
loan Jul 2021 30.6 30.6 8.3 8.9 22.3 21.7
Aviva loan(1) Sep 2033 230.4 - 230.4 - - -
Aviva loan(1) Sep 2028 30.8 - 30.8 - - -
Aviva loan(1) Jun 2040 25.1 - 25.1 - - -
Bank of Ireland(1) Sep 2024 30.4 - 23.5 - 6.9 -
RBS loan(1) Jul 2019 20.0 - - - 20.0 -
Santander
loan(1) Jul 2021 3.0 - 3.0 - - -
949.2 560.0 716.0 364.2 233.2 195.8
----------- -------- ------------ -------- ------------ -------- ------------
Total 958.1 565.9 719.9 365.1 238.2 200.8
MtM on MedicX loans(2) 48.0
Amortisation of MtM on loans acquired
in the period (1.0)
--------------------------------------------------------- -------- ------------ -------- ------------
Total 766.9
--------------------- ---------- -------- ------------ -------- ------------ -------- ------------
(1) Acquired as part of the merger with MedicX.
(2) Difference between book value and fair value of loans
acquired as part of the MedicX merger.
Notes to the condensed financial statements (continued)
11. Borrowings: term loans and overdrafts (continued)
At 30 June 2019, total facilities of GBP1,376.3m (31 December
2018: GBP879.9m) were available to the Group. This included term
loan facilities and the bonds in note 12. Of these facilities, as
at 30 June 2019, GBP1,138.0m was drawn (31 December 2018:
GBP679.1m).
On 23 January 2019, a new GBP50m facility was successfully
completed with HSBC. The new loan can draw in Sterling, and has a
variable interest rate of LIBOR plus 175bps. The new loan expires
in October 2020.
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 31 December
2019 2018
GBPm GBPm
(unaudited) (audited)
------------------------------------------ ------------ ------------
Term loans drawn: due within one year 3.9 0.9
Term loans drawn: due in greater than
one year 716.0 364.2
------------------------------------------ ------------ ------------
Total term loans drawn 719.9 365.1
Plus: MtM on loans added in the period 47.0 -
net of amortisation
Less: unamortised borrowing costs (11.3) (3.7)
Total term loans per the Condensed Group
Balance Sheet 755.6 361.4
------------------------------------------ ------------ ------------
The Group has been in compliance with all the applicable
financial covenants of the above facilities through the period.
12. Borrowings: Bonds
30 June 31 December
2019 2018
GBPm GBPm
(unaudited) (audited)
---------------------------------------------- ------------ ------------
Secured
Secured Bond December 2025 70.0 70.0
Secured Bond March 2027 100.0 100.0
EUR51m Secured Bond (Euro private placement) 45.7 45.8
Ignis loan note December 2028 50.0 -
Standard Life loan note September 2028 77.5 -
Unsecured
Retail Bond July 2019 75.0 75.0
Convertible Bond May 2019 at fair value - 26.6
Less: unamortised issue costs (3.6) (2.7)
---------------------------------------------- ------------ ------------
414.6 314.7
---------------------------------------------- ------------ ------------
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.
On 21 March 2017, a 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.
Ignis and Standard Life loan notes
On 14 March 2019, the loan notes were added to the portfolio as
a part of the MedicX acquisition. The Ignis loan note incurs a
fixed coupon of 3.99% payable semi-annually in arrears and matures
on 1 December 2028.
The Standard Life loan note matures on 30 September 2028 and is
split into two tranches, GBP50m and GBP27.5m at fixed coupon rates
of 3.84% and 3.00% respectively. Interest is payable semi-annually
in arrears.
Retail Bond
On 23 July 2012, PHP announced that it had become the first UK
REIT to issue a Retail Bond following the issue of a 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 using the effective interest
rate method. The Retail Bond matures on 31 July 2019.
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
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 were convertible into
preference shares of the Issuer which were 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 was subsequently
revised to 97.5 pence following the Company's four-for-one Share
sub-division undertaken in November 2015 and to 96.16p in October
2018. Under the terms of the Bonds, the Company had the right to
settle any conversion rights entirely in Shares, in cash or with a
combination of Shares and cash.
During the period, 24m new Ordinary Shares of 12.5 pence were
issued on the conversion of GBP23.1m nominal of convertible bonds.
Following the conversion of the Bonds and repayment of the
remaining liability of GBP0.1m there were GBPNIL (31 December 2018:
GBP23.2m) nominal of convertible bonds outstanding.
Notes to the condensed financial statements (continued)
12. Borrowings: Bonds (continued)
Convertible Bond
30 June 31 December
2019 2018
GBPm GBPm
----------------------------------------------- -------- ------------
Opening balance - fair value 26.6 75.5
Bond conversions (28.3) (45.7)
Bond repaid (0.1) -
Cumulative fair value movement in Convertible
Bond 1.8 (3.2)
----------------------------------------------- -------- ------------
Closing balance - fair value - 26.6
----------------------------------------------- -------- ------------
The fair value of the Convertible Bond at 31 December 2018 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. Head lease liabilities
The Company has adopted IFRS 16 Leases from 1 January 2019 but
comparatives have not been restated. The Group holds certain long
leasehold properties which are classified as investment properties.
The head leases are accounted for as finance leases. These leases
typically have lease terms between 32 years and perpetuity and
fixed rentals.
30 June 31 December
2019 2018
GBPm GBPm
----------------------------- -------- ------------
Due within one year 0.1 -
Due after one year 4.4 -
Closing balance - fair value 4.5 -
----------------------------- -------- ------------
Notes to the condensed financial statements (continued)
14. 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 2019 - 0.6 0.6
Fair value movement in the
period - (0.6) (0.6)
------------------------------ ------------ ------------ --------
As at 30 June 2019 - - -
------------------------------ ------------ ------------ --------
Liabilities
As at 1 January 2019 (6.2) (11.6) (17.8)
Fair value movement in the
period (1.2) (1.5) (2.7)
------------------------------ ------------ ------------ --------
As at 30 June 2019 (7.4) (13.1) (20.5)
------------------------------ ------------ ------------ --------
Total - derivative financial
instruments
As at 1 January 2019 (6.2) (11.0) (17.2)
Fair value movement in the
period (1.2) (2.1) (3.3)
------------------------------ ------------ ------------ --------
As at 30 June 2019 (7.4) (13.1) (20.5)
------------------------------ ------------ ------------ --------
Notes to the condensed financial statements (continued)
15. 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
2019 2019 2018 2018
GBPm GBPm GBPm GBPm
------------------------------ ----------- ----------- ------------ ------------
Financial assets
Trade and other receivables 13.5 13.5 4.3 4.3
Ineffective interest rate
swaps - - 0.6 0.6
Cash and short-term deposits 13.8 13.8 5.9 5.9
------------------------------ ----------- ----------- ------------ ------------
Financial liabilities
Interest-bearing loans
and borrowings (1,165.0) (1,263.9) (679.1) (707.2)
Effective interest rate
swaps (7.4) (7.4) (6.2) (6.2)
Ineffective interest rate
swaps (13.1) (13.1) (11.6) (11.6)
Trade and other payables (30.1) (30.1) (16.1) (16.1)
------------------------------ ----------- ----------- ------------ ------------
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 2019. 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)
15. Financial risk management (continued)
Fair value measurements at 30 June 2019 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
----------------------- ------------ ----------- ----------- --------
Financial liabilities
Derivative interest
rate swaps - (20.5) - (20.5)
Convertible Bond - - - -
Fixed rate debt - (970.8) - (970.8)
----------------------- ------------ ----------- ----------- --------
Fair value measurements at 31 December 2018 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 - 0.6 - 0.6
----------------------- ----------- ----------- ----------- --------
Financial liabilities
Derivative interest
rate swaps - (17.8) - (17.8)
Convertible Bond (26.6) - - (26.6)
Fixed rate debt - (480.8) - (480.8)
----------------------- ----------- ----------- ----------- --------
(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)
16. Net asset value per share
Net asset values have been calculated as follows:
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
----------------------------------------- ------------ ------------ ------------
Net assets
Basic net assets 1,125.4 730.6 788.0
Derivative interest rate swaps
liability (net) 20.5 21.1 17.2
Deferred tax 2.4 - -
Cumulative Convertible Bond fair
value movement - 11.2 3.4
----------------------------------------- ------------ ------------ ------------
EPRA net asset value 1,148.3 762.9 808.6
MtM on MedicX loans net of amortisation 47.0 - -
Adjusted EPRA net asset value 1,195.3 762.9 808.6
Fixed rate debt and swap mark-to-market
value (119.4) (56.3) (45.3)
Deferred tax (2.4) - -
----------------------------------------- ------------ ------------ ------------
EPRA NNNAV 1,073.5 706.6 763.3
----------------------------------------- ------------ ------------ ------------
Number Number Number of
of shares of shares shares
Millions Millions Millions
----------------------------------------- ------------ ------------ ------------
Ordinary Shares:
Issued share capital 1,136.2 732.4 769.1
----------------------------------------- ------------ ------------ ------------
Net asset value per share
Basic net asset value per share 99.1 p 99.8p 102.5p
----------------------------------------- ------------ ------------ ------------
EPRA net asset value per share 101.1 p 104.2p 105.1p
----------------------------------------- ------------ ------------ ------------
Adjusted EPRA net asset value
per share 105.2 p 104.2p 105.1p
----------------------------------------- ------------ ------------ ------------
EPRA NNNAV per share 94.5p 96.5p 99.2p
----------------------------------------- ------------ ------------ ------------
17. 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
2019 2018 2018
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
----------------------- ------------ ------------ -------------
Nexus TradeCo Limited 4.8 3.3 6.6
----------------------- ------------ ------------ -------------
Notes to the condensed financial statements (continued)
17. Related party transactions (continued)
As at 30 June 2019, outstanding advisory fees payable to Nexus
totalled GBP0.7m (30 June 2018: GBP0.5m).
Further fees paid to Nexus in accordance with the Advisory
Agreement for the period to 30 June 2019 of GBP0.2m (30 June 2018:
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 GBP0.1m (30 June
2018: GBP0.2m).
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 GBP1.1m was paid to Nexus in the period in respect of
2018. A provision of GBP0.9m has been provided in the period (six
months ended 30 June 2018: GBP0.6m; year ended 31 December 2018:
GBP1.3m). No payment in respect of 2019 will be made until the
audited financial results and total returns for the year have been
agreed in 2020.
18. Share capital
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
---------------------------------------- ------------ ------------ ------------
Issued and fully paid Ordinary
Shares at 12.5p each 142.0 91.6 96.1
---------------------------------------- ------------ ------------ ------------
At beginning of year 96.1 77.5 77.5
Scrip issues in lieu of cash dividends 0.3 0.1 0.2
Shares issued on bond conversions
in the period 3.0 0.7 5.1
Shares issued on acquisition of 42.6 - -
MedicX Fund Limited
Shares issued 19 April 2018 - 13.3 13.3
---------------------------------------- ------------ ------------ ------------
142.0 91.6 96.1
---------------------------------------- ------------ ------------ ------------
On 14 March 2019, the Company issued 341,045,427 new Ordinary
Shares at a price of 129.2p in consideration for the acquisition of
the entire issued share capital of MedicX Fund Limited. The premium
on the shares issued for the MedicX merger was transferred to the
merger reserve (see note 19).
19. Merger and other reserves
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------- ------------ ------------ ------------
At beginning of year 2.5 1.6 1.6
Premium on shares issued for MedicX 398.0 - -
merger
Exchange gain on translation of
foreign balances 0.3 - 0.9
400.8 1.6 2.5
------------------------------------- ------------ ------------ ------------
Notes to the condensed financial statements (continued)
20. Special reserve
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------ ------------ ------------ ------------
At beginning of year 124.8 161.4 161.4
Dividends paid (24.3) (15.8) (34.7)
Scrip issues in lieu of cash
dividends (2.4) (1.0) (1.9)
98.1 144.6 124.8
------------------------------ ------------ ------------ ------------
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.
21. Subsequent events
In June 2019, the Group announced the issue of new unsecured
convertible bonds with a nominal value of GBP150m and a coupon of
2.875% per annum. The new bonds were issued post period end on the
15 July 2019 for a six-year term and if not previously converted,
redeemed or purchased and cancelled, the Bonds will be redeemed at
par on maturity in July 2025. The net proceeds will be used to
repay the Company's GBP75m, 5.375% senior unsecured retail bonds at
maturity and otherwise for general corporate purposes.
Subject to certain conditions, the Bonds will be convertible
into fully paid ordinary shares of the Company and the initial
exchange price has been set at 153.25 pence, a premium of 15% above
the volume weighted average price of the Company's shares on 18
June 2019 being 133.26 pence. Under the terms of the Bonds, the
Company will have the right to elect to settle exercise of any
conversion rights entirely in shares or cash, or with a combination
of shares and cash. The exchange price will be subject to
adjustment if dividends paid per share exceed 2.8 pence per annum
and other certain circumstances.
On 19 July 2019, the Group acquired a primary care centre in
Meath, Dublin, Ireland, for a total consideration of GBP9.8m
(EUR10.9m).
On 19 July 2019, the Group's GBP3.4m Santander loan facility was
repaid and cancelled.
On 10 July 2019, the Group cancelled its GBP50m HSBC standby
loan facility.
On 12 July the Group cancelled the GBP20m RBS loan facility.
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 2019
Glossary of terms
Adjusted EPRA earnings is EPRA earnings excluding the
exceptional contract termination fee and amortisation of MtM
adjustments for fixed rate debt acquired on the merger with
MedicX.
Adjusted EPRA NAV is EPRA NAV excluding MtM adjustment of the
fixed rate debt, net of amortisation, acquired on the merger with
MedicX.
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 Adjusted EPRA earnings.
Earnings per Ordinary Share from continuing operations ("EPS")
is the profit attributable to equity holders of the Parent divided
by the weighted average number of shares in issue during the
period.
European Public Real Estate Association ("EPRA") is a real
estate industry body, which has issued Best 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 and 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 the MtM value of derivative financial instruments,
deferred tax and the convertible bond fair value movement.
EPRA NAV per share are the balance sheet net assets excluding
the MtM value of derivative financial instruments, deferred tax and
the convertible bond fair value movement, divided by the number of
shares in issue at the balance sheet date.
EPRA NNNAV is Adjusted EPRA NAV including the MtM value of fixed
rate debt and derivatives.
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.
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.
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.
MedicX is MedicX Fund Limited ("MedicX") and its
subsidiaries.
MSCI (IPD) provides performance analysis for most types of real
estate and produces an independent benchmark of property
returns.
MSCI (IPD) Healthcare is the UK Annual Healthcare Property
Index.
MSCI (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.
Net asset value ("NAV") is the value of the Group's assets minus
the value of its liabilities.
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.
GBPm
------------------------ -------
Net rental income 53.8
Revaluation surplus 17.7
------------------------ -------
71.5
------------------------ -------
Opening property assets 1,502.9
Weighted additions in
the period 490.9
======================== =======
1,993.8
------------------------ -------
Total property return 3.6%
------------------------ -------
Total NAV return is calculated as the movement in Adjusted EPRA
net assets for the period plus the dividends paid, divided by
opening EPRA net assets.
Adjusted EPRA
NAV
(pence per
share)
------------------------- -------------
At 31 December 2018 105.10
At 30 June 2019 105.20
------------------------- -------------
Increase/(decrease) 0.10
Add: Dividends paid
22/02/2019 Q1 interim 1.40
24/05/2019 Q2 interim 1.40
Total shareholder return 2.90
------------------------- -------------
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
IR MMGZNLDDGLZM
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July 25, 2019 02:01 ET (06:01 GMT)
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