TIDMPHP
RNS Number : 6892C
Primary Health Properties PLC
12 February 2020
Primary Health Properties PLC
Preliminary results for the year ended 31 December 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 audited preliminary results for the year ended 31
December 2019.
Harry Hyman, Managing Director of PHP, commented:
"2019 has been a transformational year in PHP's history
following the completion of the all share merger with MedicX in
March 2019, bringing together two high quality and complementary
portfolios in the UK and Ireland. The business provides a much
stronger platform for the future and has already created
significant value delivering a total shareholder return of 49.2% in
the year. We have also delivered the operating synergies of GBP4.0m
per annum outlined at the time of the merger, as well as a 50bp
reduction in the average cost of debt.
We have continued to selectively grow the enlarged portfolio,
particularly in Ireland where we believe there is a significant
opportunity, and further strengthened the balance sheet with a
successful, over-subscribed GBP100m equity issue, GBP150m unsecured
convertible bond issue and EUR70m Euro-denominated private
placement loan note. PHP's high-quality portfolio and capital base
have helped to deliver another year of strong earnings performance
and 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 shareholders which is fully covered by
earnings, as we look forward to the future with confidence."
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Year to Year to
31 December 31 December
Income statement metrics 2019 2018 Change
------------- ------------
Net rental income(1) GBP115.7m GBP76.4m +51.4%
Adjusted EPRA earnings(1,2) GBP59.7m GBP36.8m +62.2%
Adjusted EPRA earnings per share(2) 5.5p 5.2p +5.8%
IFRS profit before tax excluding MedicX
exceptional adjustments(5) GBP75.9m GBP74.3m +2.2%
IFRS (loss)/profit for the year (includes (GBP71.3m) GBP74.3m
GBP123.9m of non-cash losses)(10)
IFRS (loss)/earnings per share(1,2) (6.5p) 10.5p
Dividends
Dividend per share(6) 5.6p 5.4p +3.7%
Dividends paid(6) GBP59.4m GBP36.6m +62.3%
Dividend cover(1) 101% 101%
------------------------------------------- ------------ ------------ --------
31 December 31 December
Balance sheet and operational metrics 2019 2018 Change
------------------------------------------- ------------ ------------ --------
Adjusted EPRA NAV per share(1,3) 107.9p 105.1p +2.7%
IFRS NAV per share(1,3) 101.0p 102.5p -1.5%
EPRA NNNAV per share(3) 98.8p 99.2p -0.4%
Property portfolio
Investment portfolio valuation(4) GBP2.413bn GBP1.503bn +2.1%
Net initial yield ("NIY") 4.86% 4.85%
Contracted rent roll (annualised)(8) GBP127.7m GBP79.4m +1.5%
Weighted average unexpired lease term 12.8 years 13.1 years
("WAULT")
Occupancy 99.5% 99.8%
Rent-roll funded by government bodies 90% 91%
Debt
Average cost of debt 3.5% 4.0%(9)
Loan to value ratio(1) 44.2% 47.8%(9)
Weighted average debt maturity 7.2 years 5.4 years
Total undrawn loan facilities(7,9) GBP356.6m 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 8, earnings per share, to the financial
statements.
(3) See note 24, net asset value per share, to the financial
statements.
(4) Percentage valuation movement during the year 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.
(6) See note 9, dividends, to the financial statements.
(7) After deducting the remaining cost to complete contracted
properties under development and asset management projects.
(8) Percentage contracted rent roll increase during the year is
based on the annualised uplift achieved from all completed rent
reviews and asset management projects.
(9) Including impact of debt acquired with MedicX on completion
of merger on 14 March 2019.
(10) GBP123.9m of non-cash losses are composed of GBP138.4m
exceptional revaluation loss arising on the merger with MedicX less
the GBP14.5m exceptional transactions costs.
DELIVERING EARNINGS AND DIVID GROWTH
-- Adjusted EPRA earnings per share increased by 5.8% to 5.5p (FY 2018: 5.2p)
-- Completion of all share merger with MedicX contributing
GBP15.6m to Adjusted EPRA earnings in the 9.5 months since
completion
-- Excluding the impact of the MedicX merger PHP's recurring
Adjusted EPRA earnings increased by GBP7.3m or 19.8% (FY 2018:
GBP5.8m or 18.7% increase)
-- Average uplift of 1.9% p.a. on rent reviews agreed in the
year, resulting in an uplift in rent of GBP1.6m p.a. (FY 2018: 1.4%
with an uplift of GBP1.1m p.a.)
-- Quarterly dividends totalling 5.6p per share distributed in
the year, a 3.7% increase over 2018 and representing the Company's
23(rd) consecutive year of dividend growth
-- 9 income accretive properties, including six forward funded
developments selectively acquired for GBP57.1m, with a large
average lot size of GBP6.3m
-- EPRA cost ratio reduced to 12.0% (FY 2018: 14.3%) and
administrative expense ratio reduced to 0.4% (FY 2018: 0.6%) driven
by GBP4.0m p.a. of cost saving synergies arising from the merger
with MedicX
DELIVERING FINANCIAL MANAGEMENT
-- GBP100.0m (GBP97.7m net of expenses) over-subscribed equity
issue at 128.0p per share or 21.7% premium to previously reported
Adjusted EPRA NAV per share of 105.2p as at 30 June 2019
-- Average cost of debt reduced by 50bp to 3.5% from 4.0% as at
completion of the merger with MedicX (31 December 2018: 3.9%)
-- GBP150m/2.875% unsecured convertible bond issued for a six-year term expiring in July 2025
-- EUR70m/1.509% Euro-denominated senior secured loan notes
issued for a 12-year term expiring September 2031
-- GBP100m secured, multi-currency revolving credit facility
refinanced with HSBC for an initial three-year term with options to
extend by a further year at the first and second anniversaries of
the facility
-- GBP75m/5.375% retail bond repaid in July 2019
DELIVERING NET ASSET VALUE GROWTH
-- Underlying property valuation surplus and profit on sales of
GBP49.8m (FY 2018: GBP36.0m), showing growth of 2.1% (FY 2018:
2.5%); portfolio's net initial yield increased slightly to 4.86%
(31 December 2018: 4.85%) reflecting additional investment in
Ireland; no change in the UK
-- Rental growth of GBP1.9m or 1.5% (FY 2018: GBP1.3m or 1.8%)
accounting for the majority of the revaluation surplus created in
the year
-- Portfolio in Ireland now comprises 16 assets, valued at
EUR189m, and including four forward funded developments currently
under construction which if valued as complete increases the value
to approximately EUR207m
-- Strong pipeline of targeted acquisitions of approximately
GBP160m of which GBP44m currently in legal due diligence
-- 36 asset management projects either completed, on-site or
about to commence investing GBP13.4m (FY 2018: GBP4.4m), creating
an additional GBP0.64m p.a. (FY 2018: GBP0.2m p.a.) of rental
income, and strong pipeline of over 100 future projects being
progressed
-- Only GBP1.9m or 1.5% of annualised rent roll expiring in the
next three years of which 65% is subject to a planned asset
management initiative and terms have been agreed to renew the
lease.
DELIVERING STRONG TOTAL RETURNS
Year ended Year ended
31 December 31 December
2019 2018
-------------------------------- ---- ------------- -------------
Increase in Adjusted EPRA NAV
plus dividends paid 8.0% 9.7%
Income return 5.2% 5.3%
Capital return 2.5% 2.7%
--------------------------------- --- ------------- -------------
Total property return(1) 7.7% 8.0%
MSCI UK Monthly Property Index 2.2% 7.3%
--------------------------------- --- ------------- -------------
Out performance over MSCI 5.5% 0.7%
-------------------------------------- ------------- -------------
(1) The definition for total property return is set out in the
Glossary of Terms.
Presentation and webcast:
A presentation for analysts will be held on 12 February 2020 at
9.30am 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: 51899533#
There will be a replay available for 90 days following the
presentation:
UK Toll-Free Number: 0800 358 2049
Conference Number: 301307952#
A live webcast of the presentation will also be available via
this link.
For further information contact:
Harry Hyman Richard Howell Chris Santer
Primary Health Properties Primary Health Properties Primary Health Properties
PLC PLC PLC
T +44 (0) 20 7451 7050 T +44 (0) 20 7104 2004 T +44 (0) 20 7104 5591
harry.hyman@nexusgroup.co.uk richard.howell@nexusgroup.co.uk chris.santer@nexusgroup.co.uk
David Rydell/Steph Watson/Tilly Abraham
Buchanan
T +44 (0) 20 7466 5066
Chairman's statement
I am delighted to present my second annual results as Chairman
of PHP, for what has been a transformational year of growth for the
Company 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 high
quality and complementary portfolios in the UK and Ireland and the
combined property portfolio now stands at over GBP2.4 billion
across 488 assets. Historically, both businesses had adopted a very
similar investment strategy and consequently the two portfolios
were ideally placed to be brought together.
The positive reaction to the merger also allowed us to further
strengthen the balance sheet and we successfully completed an
oversubscribed GBP100.0m equity issue in September 2019 reducing
the Group's loan to value ratio back to pre-merger levels of around
44% at the end of 2019. The enlarged Group now has a market
capitalisation in excess of GBP1.9 billion and we have seen a
significant improvement in share liquidity as a result of the
completion of the merger. The Group is also a member of the FTSE
250 on the London Stock Exchange.
The merger with MedicX crystallised a number of operating and
finance cost saving synergies and we have delivered the targeted
GBP4.0m per annum reduction in the enlarged Group's operating costs
and a 50bp 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. We
also issued our second Euro-denominated secured loan notes for
EUR70m (GBP59.2m) at a fixed rate of 1.509% with a maturity of 12
years.
In 2019, we increased the dividend paid to shareholders in the
year by 3.7% to 5.6p per share (FY 2018: 5.4p per share) which is
fully covered by increased earnings and represents the Group's
23(rd) successive year of dividend growth. In January 2020, we
declared our first quarterly dividend for 2020 of 1.475p per share,
equivalent to 5.9p on an annualised basis, which represents a
further increase of 5.4% on the first quarterly dividend for
2019.
Results highlights
Excluding the impact of the MedicX merger, PHP's recurring
Adjusted EPRA earnings increased by GBP7.3m or 19.8% to GBP44.1m in
the year to 31 December 2019, driven by property acquisitions in
2018 and 2019 together with rental growth from our asset management
activities and reductions in the cost of finance. The merger with
MedicX contributed a further GBP15.6m taking the adjusted EPRA
earnings for the enlarged Group to GBP59.7m, a 62.2% increase.
Using the weighted average number of shares in issue in the year
the Adjusted EPRA earnings per share increased to 5.5p (2018:
5.2p), an increase of 5.8%.
A revaluation surplus and profit on sales of GBP49.8m (excluding
the exceptional revaluation loss of GBP138.4m discussed below) was
generated from the portfolio in the year including a GBP21.3m
surplus on the MedicX assets held for nine and a half months.
The merger with MedicX created a number of exceptional non-cash
adjustments reflecting 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 GBP31.1m
(FY 2018: gain of GBP1.4m) further contributed to the loss before
tax as reported under IFRS of GBP70.2m (FY 2018: profit
GBP74.3m).
During the year, the Group has continued to selectively grow its
portfolio adding 9 assets and a further property has been acquired
post year end. Activities have been focused predominantly in
Ireland where the portfolio has now grown to 16 assets, including 4
assets currently under development, valued at GBP160.0m or
EUR189.2m (2018: GBP83.0m or EUR92.3m). We continue to have a
strong pipeline of further potential acquisitions both in the UK
and Ireland including GBP44m of properties currently in solicitors'
hands and subject to contract.
Rent reviews and asset management projects completed in the year
added GBP1.9m or 1.5% (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 year.
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 12.8 years, high occupancy at 99.5% and only 1.5% of
our rent due to expire in the next three years, of this 65% is
subject to a future planned asset management project with 40% in
advanced negotiations or in solicitors' hands.
Dividends
The Company distributed a total of 5.6p per share in the year to
31 December 2019, an increase of 3.7% above the 2018 total of 5.4p
per share, and marked the Company's 23rd successive year of
dividend growth. The total value of dividends distributed in the
year increased by 62.3% to GBP59.4m (2018: GBP36.6m) which was
fully covered by EPRA earnings. Dividends totalling GBP5.0m were
satisfied through the issuance of shares via the scrip dividend
scheme.
A dividend of 1.475p per share was declared on 2 January 2020,
equivalent to 5.9p on an annualised basis, which represents an
increase of 5.4% over the dividend distributed per share in 2019.
The dividend will be paid to shareholders on 21 February 2020 who
were on the register at the close of business on 10 January 2020.
The dividend will comprise a Property Income Distribution ("PID")
of 1.275p and an ordinary dividend of 0.20p per share. Further
dividend payments are planned to be made on a quarterly basis.
The Company intends to maintain its strategy of paying a
progressive dividend, which the Company intends to pay in equal
quarterly instalments, that is covered by underlying earnings in
each financial year.
The Company's share price started the year at 111.0p per share
and closed on 31 December 2019 at 160.0p, an increase of 44.1%.
Including dividends, those shareholders who held the Company's
shares throughout the year achieved a total shareholder return
("TSR") of 49.2% (2018: -0.5%). This compares to the total return
delivered by UK real estate equities (FTSE EPRA Nareit UK Index) of
30.6% and the wider UK equity sector (FTSE All-Share Index) of
19.2% in the year.
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 PHP and MedicX Directors for the combined
Board.
In November 2019 it was announced that, following the successful
merger and integration of the MedicX portfolio and team, Helen Mahy
had informed the Board that she would retire from the Board at the
Company's Annual General Meeting ("AGM") scheduled for April
2020.
In January 2020 it was announced that, following a review of the
skills, experience and knowledge of the Board and the consideration
of its size and composition as part of the Nomination Committee's
annual evaluation process, a Board of six, consisting of four
independent non-executive directors and two executive directors is
the appropriate size for the Group going forward, given the
relative simplicity of the business model. Accordingly, a
replacement for Helen Mahy will not be made and Dr Stephen Kell
will not be standing for re-election at the AGM.
Following the completion of the AGM Ian Krieger will become the
Senior Independent Director and Peter Cole will become Chairman of
the Remuneration Committee.
I am grateful to our colleagues Helen, Stephen, Nick and
Geraldine for their commitment and dedication to the Company during
their service, and for their contribution to and support for the
merger with MedicX.
Market update and outlook
The primary health centres we invest in perform a vital role in
the provision of healthcare across the UK and Ireland, and are
unlikely to be directly impacted by the final outcome and
consequences of Brexit for the UK. Demand for our properties is
driven by demographics and in particular populations in our markets
that are growing, ageing and suffering from more instances of
chronic illness.
Despite the continued volatility in the economic 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 attractive yields and prices being paid
by investors for assets in the sector and we have continued to see
yields compress during 2019 although at a much slower rate than
that witnessed in both 2018 and 2017.
Primary healthcare performs a critical function in the UK,
providing a key part of the NHS's Five-Year Forward View ("FYFV")
and operating as most patients' first point of call when accessing
the healthcare system. 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 plans for 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. 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. 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 focused around our key strategy of
investing in larger hub/core primary care centres.
We believe that our activities benefit not only our shareholders
but also our wider 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 further dividend
growth, fully covered by earnings, together with long term value to
shareholders and wider stakeholders and the Board looks forward
with confidence to the future.
Steven Owen
Chairman
11 February 2020
BUSINESS REVIEW
Investment and development activity
The majority of investment activity in the year came from the
merger with MedicX, which brought a high quality and 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 9
assets for GBP57.1m in the year.
Investment pipeline
Post year end, contracts for the acquisition of a forward funded
development at Llanbradach, Wales, for GBP2.8m were exchanged in
February 2020.
PHP continues to have a strong active pipeline of potential
acquisitions both in the UK and Ireland totalling approximately
GBP160m including GBP44m in legal due diligence.
Developments
The enlarged Group completed five forward funded developments in
the year, including one in Ireland, with a net development cost of
GBP17.6m and has a further six currently on site with a net
development cost of GBP57.0m.
Completed developments:
Net development
Asset PC date Area (sqm) cost
----------------------------- -------- ----------- ------------------
Ireland
Mullingar Ph III, County Q3 2019 1,165 GBP3.2m (EUR3.6m)
Westmeath
UK
Vale of Neath, Wales Q3 2019 1,355 GBP4.8m
Langwith, Derbyshire Q3 2019 412 GBP1.8m
Peterborough, Cambridgeshire Q4 2019 918 GBP3.5m
Kew, London Q4 2019 845 GBP4.3m
----------------------------- -------- ----------- ------------------
Total 4,695 GBP17.6m
----------------------------- -------- ----------- ------------------
Developments on site:
Anticipated Area Net development Costs to
Asset PC date (sqm) cost complete
------------------------ ------------ ------- ------------------- ------------------
Ireland
Bray, County Wicklow Q1 2020 4,822 GBP18.9m GBP5.5m (EUR6.5m)
(EUR22.4m)
Athy, County Kildare Q1 2020 3,486 GBP10.9m GBP4.6m (EUR5.5m)
(EUR12.9m)
Rialto, Dublin Q2 2020 3,232 GBP9.6m (EUR11.4m) GBP0.7m (EUR0.8m)
Banagher, County Offaly Q4 2020 1,628 GBP4.3m (EUR5.1m) GBP4.0m (EUR4.7m)
UK
Mountain Ash, Wales Q4 2020 1,253 GBP4.9m GBP4.4m
Eastbourne, East Sussex Q1 2021 1,976 GBP8.4m GBP6.2m
Total 16,397 GBP57.0m GBP25.4m
------------------------ ------------ ------- ------------------- ------------------
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 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
regears) 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 2019, the enlarged Group concluded and documented 312
rent reviews with a combined rental value of GBP37.7m resulting in
an uplift of GBP1.6m per annum or 4.2%, which equates to 1.9% on an
annualised basis. 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 year, 1.1% per annum was achieved on 165 open market
reviews including 52 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 86 open
market reviews were agreed in principle, which will add another
GBP0.7m to the contracted rent roll when concluded and represent an
uplift of 1.6% per annum.
69% 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 are expected to result in further rental
growth in the future. The balance of the PHP portfolio has either
indexed/RPI (24%) or fixed uplift (7%) based reviews which also
provide an element of certainty to future rental growth within the
portfolio. In Ireland, the rents are all linked to the Irish
Consumer Price Index.
At 31 December 2019 the rent on 415 tenancies, representing
GBP56.9m 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. We are seeing signs of more new properties being
approved.
Asset management projects
We continued to make good progress during 2019 to enhance and
extend existing assets within the portfolio with 17 projects
completed, 3 currently on site and a further 16 approved and due to
commence shortly. The projects require the investment of GBP13.4m
and will generate GBP0.64m of additional rental income but, just as
importantly, will extend the WAULT on those premises back to an
average of 19 years.
PHP continues to work closely with its tenants and has a strong
pipeline of over 100 potential projects and will continue to invest
capital in a range of physical extensions or refurbishments over
the next three years.
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 31 December
2019 was GBP127.7m, an increase of GBP48.3m or 60.8% in the year
(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 31 December 2019 was 12.8
years (31 December 2018: 13.1 years). Only GBP1.9m or 1.5% of our
income expires over the next three years and GBP81.0m or 63.4%
expires in over 10 years. The table below sets out the current
lease expiry profile of our income:
Income subject to GBPm %
expiry
------------------- ------ -------
< 3 years 1.9 1.5%
4 - 5 years 7.8 6.1%
5 - 10 years 37.0 29.0%
10 - 15 years 43.4 34.0%
15 - 20 years 21.5 16.8%
> 20 years 16.1 12.6%
------------------- ------ -------
Total 127.7 100.0%
------------------- ------ -------
Valuation and returns
At 31 December 2019, the portfolio comprised 488 assets
independently valued at GBP2.413bn (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 and profit
on sales of GBP49.8m or 2.1%, including a GBP21.3m surplus on the
MedicX portfolio held for 9.5 months, in the year to 31 December
2019 (FY 2018: GBP36.1m or 2.5%).
During the year, we have not seen any change in net initial
yields ("NIY") across the UK portfolio but have seen around 15bp of
yield compression in Ireland. The portfolio's blended net initial
and true equivalent yields increased slightly to 4.86% (31 December
2018: 4.85%) and 5.04% (31 December 2018: 4.99%) respectively
reflecting the increased size of our investment in Ireland.
Encouragingly, the improving rental growth environment and our
asset management activities accounted for the whole of the
revaluation surplus in the UK whilst some modest yield compression
in Ireland accounted for the growth in that country. Consequently,
a GBP49.8m revaluation surplus, including a GBP1.4m profit on
sales, arose during the year with a surplus of GBP17.7m and
GBP32.1m in the first and second halves of 2019 respectively.
At 31 December 2019, the portfolio in Ireland comprised 16
assets, including 4 assets currently under development, valued at
GBP160.0m or EUR189.2m (31 December 2018: 8 assets/GBP83.0m or
EUR92.3m). The costs to complete the developments are GBP14.8m
(EUR17.5m) and once complete the assets in Ireland are expected to
be valued at approximately GBP175m (EUR207m).
The portfolio's average lot size has grown to GBP4.9m (31
December 2018: GBP4.8m) and 84.9% of the portfolio is valued at
over GBP3.0m. We only have 7 assets valued at less than
GBP1.0m.
Number of Valuation Average
Properties GBPm lot size
% (GBPm)
-------------------- ----------- ---------- ------ ---------
> GBP10m 47 658.8 27.4 14.0
GBP5m - GBP10m 108 756.2 31.4 7.0
GBP3m - GBP5m 164 629.6 26.1 3.8
GBP1m - GBP3m 162 356.4 14.8 2.2
< GBP1m (including
land GBP1.6m) 7 7.6 0.3 0.9
-------------------- ----------- ---------- ------ ---------
Total(1) 488 2,408.6 100.0 4.9
-------------------- ----------- ---------- ------ ---------
(1) Excludes the GBP4.5m impact of IFRS 16 Leases with ground
rents recognised as finance leases.
The underlying valuation uplift and profit on sales of GBP49.8m,
combined with the portfolio's growing income, helped to deliver a
total property return of 7.7% in 2019 (FY 2018: 8.0%),
outperforming the MSCI UK Monthly Property Index, which delivered a
total return of 2.2% (FY 2018: 7.3%), by 5.5%.
Year ended Year ended
31 December 2019 31 December 2018
---------------- ------------------ ------------------
Income return 5.2% 5.3%
Capital return 2.5% 2.7%
----------------- ------------------ ------------------
Total return 7.7% 8.0%
----------------- ------------------ ------------------
FINANCIAL REVIEW
The merger with MedicX together with strong underlying asset
management activity in the year and the acquisitions made in 2018
and 2019 have enabled us to continue to deliver earnings
growth.
The merger with MedicX completed on 14 March 2019 contributed
around nine and a half months of income to the performance of the
Group during the year. 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 per share 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 year reflecting
the premium paid on completion. It is important to note that the
only cash paid to complete the merger was 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 and fair value
fair value deferred
tax
Consideration paid GBPm GBPm GBPm
341.0m PHP shares issued at
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 GBP7.3m or 19.8% to GBP44.1m in 2019 (2018:
GBP36.8m). The merger with MedicX contributed a further GBP15.6m
taking adjusted EPRA earnings for the enlarged Group to GBP59.7m or
a 62.2% increase. Using the weighted average number of shares in
issue in the year the Adjusted EPRA earnings per share increased to
5.5p (FY 2018: 5.2p), an increase of 5.8%.
A revaluation surplus and profit on sales of GBP49.8m was
generated in the year (H1 2019: GBP17.7m; H2 2019: GBP32.1m) from
the portfolio including a GBP21.3m surplus on the MedicX assets
held for nine 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 GBP31.1m
(FY 2018: gain of GBP1.4m) contributed to the loss before tax as
reported under IFRS of GBP70.2m (FY 2018: profit GBP74.3m).
The financial results for the Group are summarised as
follows:
Summarised results
PHP MedicX
12 months 9.5 months Year ended
to to 31 December Year ended
December December 2019 31 December
2019 2019 2018
GBPm GBPm GBPm GBPm
------------------------------------- ----------- ------------ -------------- -------------
Net rental income 81.1 34.6 115.7 76.4
Administrative expenses (9.2) (1.3) (10.5) (8.6)
Performance incentive fee
("PIF") (1.8) - (1.8) (1.3)
------------------------------------- ----------- ------------ -------------- -------------
Operating profit before revaluation
gain and
net financing costs 70.1 33.3 103.4 66.5
Net financing costs (26.0) (17.7) (43.7) (29.7)
------------------------------------- ----------- ------------ -------------- -------------
Adjusted EPRA earnings 44.1 15.6 59.7 36.8
Revaluation surplus on property
portfolio and profit on sales 28.5 21.3 49.8 36.1
Fair value loss on interest
rate derivatives (5.4) - (5.4) (1.8)
Fair value (loss)/gain on
convertible bond (28.2) - (28.2) 3.2
------------------------------------- ----------- ------------ -------------- -------------
Adjusted IFRS profit excluding
MedicX merger adjustments 39.0 36.9 75.9 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 - 2.5 2.5 -
IFRS profit/(loss) before
tax 39.0 (109.2) (70.2) 74.3
Deferred tax provision (0.6) (0.5) (1.1) -
------------------------------------- ----------- ------------ -------------- -------------
IFRS profit/(loss) after tax 38.4 (109.7) (71.3) 74.3
------------------------------------- ----------- ------------ -------------- -------------
Net rental income receivable in 2019 increased by 51.4% or
GBP39.3m to GBP115.7m (FY 2018: GBP76.4m). The merger with MedicX
contributed GBP34.6m to net rental income, the majority of the
increase, with acquisitions in 2018 and 2019 contributing GBP2.9m
and completed rent reviews and asset management projects
contributing a further GBP1.8m.
Operational costs have continued to be managed closely and
effectively. Overall administrative costs, excluding the
Performance Incentive Fee ("PIF"), have risen by 22.1% to GBP10.5m
(FY 2018: GBP8.6m) 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 12.0% for the year, a significant decrease over
the 14.3% incurred during the 2018 financial year. The
administrative expense ratio also fell to 0.4% (FY 2018: 0.6%) in
the year. Both of these ratios reflect the cost-saving synergies
arising from the merger with MedicX albeit only reflecting nine and
a half months of savings.
EPRA cost ratio Year ended Year ended
31 December 31 December
2019 2018
GBPm GBPm
----------------------------------------- ------------- -------------
Gross rent less ground rent and
service charge income 118.3 77.6
----------------------------------------- ------------- -------------
Direct property expense 5.6 3.2
Administrative expenses 10.5 8.6
Performance incentive fee ("PIF") 1.8 1.3
Less: service charge costs (2.8) (1.7)
Less: ground rent (0.2) (0.1)
Less: other operating income (0.7) (0.2)
EPRA costs (including direct vacancy
costs) 14.2 11.1
----------------------------------------- ------------- -------------
EPRA cost ratio 12.0% 14.3%
----------------------------------------- ------------- -------------
EPRA cost ratio excluding PIF 10.5% 12.6%
----------------------------------------- ------------- -------------
Administrative expenses as a percentage
of gross asset value 0.4% 0.6%
----------------------------------------- ------------- -------------
Net finance costs in the year increased to GBP43.7m (FY 2018:
GBP29.7m) reflecting the debt acquired with the merger with MedicX
offset by the reductions in the average cost of debt achieved in
2018 and 2019 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 2019
resulted in a PIF being earned by Nexus as the Adviser for the year
as a whole and consequently a GBP1.8m provision has been provided
for (FY 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.
A PIF of GBP1.1m was paid to Nexus in the year in respect of
2018 and at 31 December 2019 the balance on the notional cumulative
PIF account was GBP7.0m (31 December 2018: GBP6.9m) of which
GBP1.3m (31 December 2018: GBP1.1m) will become payable on approval
of the Annual Report by the Board. The balance is conditional on
performance in future years and the restrictions noted above.
Equity raise
In September 2019, the Company completed an over-subscribed
equity issue successfully raising GBP100.0m of new share capital
(GBP97.7m net of expenses). New shares were issued at 128p each, a
premium to the Adjusted EPRA NAV as at 30 June 2019 of 21.7% or
GBP15.7m net of issue expenses.
The net proceeds from the equity issue are being used to finance
the Group's investment, forward funded developments and asset
management project pipeline.
Shareholder value
The Adjusted EPRA NAV per share increased by 2.8p or 2.7% to
107.9p (31 December 2018: 105.1p per share) during the year with
the revaluation surplus and profit on sales of GBP49.8m or 4.1p per
share being the main reason for the increase although this was
partially offset by the impact of the MedicX merger equivalent to
1.4p per share. Dividends distributed in the year were fully
covered by recurring EPRA earnings with no material impact on EPRA
NAV.
The total NAV return per share, including dividends distributed,
in 2019 was 8.4p or 8.0% (2018: 9.8p or 9.7%).
The table below sets out the movements in the Adjusted EPRA and
EPRA NNNAV per share over the year under review.
Adjusted EPRA Net Asset Value per 31 December
share 2019 31 December 2018
pence per share pence per share
--------------------------------------- ----------------- -----------------
Opening Adjusted EPRA NAV per share 105.1 100.7
Adjusted EPRA earnings for the year 5.5 5.2
Dividends paid (5.5) (5.2)
Revaluation of property portfolio
and profit on sales 4.1 4.7
Net impact of MedicX merger (see (1.4) -
analysis below)
Shares issued 0.8 0.4
Interest rate derivative cancellation (0.7) (0.7)
Closing Adjusted EPRA NAV per share 107.9 105.1
Fixed rate debt, swap mark-to-market
value and deferred tax (9.1) (5.9)
--------------------------------------- ----------------- -----------------
Closing EPRA NNNAV per share 98.8 99.2
--------------------------------------- ----------------- -----------------
The impact of the merger with MedicX on NAV is summarised in the
table below:
Adjusted Debt MtM
EPRA and deferred Total
fair value tax
MedicX NAV adjustments GBPm GBPm GBPm
341.0m PHP shares issued at 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)
-------------------------------------- ------- -------------- --------
In October 2019, we selectively used the premium over Adjusted
EPRA NAV on the equity raise to re-coupon and extend until November
2024 fixed rate swaps with a nominal value of GBP100m from a
blended rate of 2.605% to 0.6875%, for a one-off payment of GBP8.0m
equivalent to 0.7p per share on an Adjusted EPRA net asset value
basis. The re-couponing results in total interest saving of GBP8.2m
over the period to November 2024. The mark to market ("MTM") of the
cancelled derivatives were reflected in the financial statements as
at 31 December 2018.
Financing
As at 31 December 2019, total available loan facilities were
GBP1,452.0m (31 December 2018: GBP879.9m) of which GBP1,210.4m (31
December 2018: GBP679.1m) had been drawn. Cash balances of
GBP143.1m (31 December 2018: GBP5.9m) resulted in Group net debt of
GBP1,067.3m (31 December 2018: GBP673.2m). Contracted capital
commitments at the balance sheet date totalled GBP28.1m (31
December 2018: GBP16.1m) and result in headroom available to the
Group of GBP356.6m (31 December 2018: GBP190.6m).
Capital commitments comprise forward funded development
expenditure of GBP25.4m and asset management projects on site of
GBP2.7m.
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, that were acquired as
part of the merger with MedicX. The net proceeds from the new
convertible bonds were used partially to repay the GBP75m/5.375%
retail bond which matured at the end of July 2019.
In September 2019, the Group issued its second Euro-denominated
senior secured loan notes for EUR70m (GBP59.2m) at a fixed rate of
1.509% with a maturity of 12 years. The proceeds of the issue have
been partially applied to repay and cancel a EUR32.6m facility with
the Bank of Ireland, of which EUR26.2m was drawn at a 3.0% margin,
that was acquired as part of the merger with MedicX. The balance
has been used to finance the developments currently on site in
Ireland and to repay Euro-denominated tranches of PHP's existing
revolving credit facilities which are available to be redrawn in
either Sterling or Euros in the future.
In December 2019, a GBP100m secured revolving credit facility
was entered into with HSBC for an initial three-year period with
options to extend by a further year at the first and second
anniversaries of the facility.
Debt metrics
31 December 2019 31 December
2018
----------------------------------- ------------------- --------------
Average cost of debt 3.5% 4.0%(2)
Loan to value 44.2% 47.8%(2)
Interest cover 2.7 times 2.6 times
Weighted average debt maturity 7.2 years 5.4 years
Total drawn secured debt GBP1,060.4m GBP580.9m
Total drawn unsecured debt GBP150.0m GBP98.2m
Total undrawn facilities and cash GBP356.6m GBP190.6m
available to the Group(1)
Unfettered assets GBP32.3m GBP64.9m
----------------------------------- ------------------- --------------
(1) - After deducting capital commitments.
(2) - Including debt acquired on completion of merger with
MedicX in March 2019.
Convertible bonds
The convertible bonds, originally issued in 2014, matured in May
2019 and consequently during the year 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 July 2019, the Group issued for a six-year term new unsecured
convertible bonds with a nominal value of GBP150m and a coupon of
2.875% per annum. Subject to certain conditions, the new bonds will
be convertible into fully paid Ordinary Shares of the Company and
the initial exchange price was set at 153.25p per Ordinary Share, a
premium of 15% above the volume weighted average price of the
Company's shares on 18 June 2019 of 133.26p. Under the terms of the
Bonds, the Company will have the right to elect to settle the
exercise of any conversion rights entirely in shares or cash, or
with a combination of both. The exchange price will be subject to
adjustment if dividends paid per share exceed 2.8p per annum and in
accordance with the dividend protection provisions the conversion
price was adjusted to 149.39p per Ordinary Share during the
year.
The conversion of the GBP150m convertible bond into new Ordinary
Shares would reduce the Group's loan to value ratio by 6.2% from
44.2% to 38.0% on a pro-forma basis as at 31 December 2019 and
result in the issue of 100.4 million new Ordinary Shares.
Average cost of debt
Following the various refinancing initiatives as noted above,
the Group's average cost of debt has fallen to 3.5%, a 50bp
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 and currency exposure
The analysis of the Group's exposure to interest rate risk in
its debt portfolio as at 31 December 2019 is as follows:
Facilities Drawn
GBPm % GBPm %
---------------------- -------------- ------------ ---------- --------
Fixed rate debt 1,001.4 69.0 1,001.4 82.8
Hedged by fixed rate
interest rate swaps 188.0 12.9 188.0 15.5
Floating rate debt -
unhedged 262.6 18.1 21.0 1.7
---------------------- -------------- ------------ ---------- --------
Total 1,452.0 100.0 1,210.4 100.0
---------------------- -------------- ------------ ---------- --------
The above analysis excludes the impact of GBP70m forward
starting swaps commencing in June and July 2020.
The Group's drawn loan facilities are over 98% fixed or hedged
and there is little exposure to future possible increases in
interest rates.
The Group now owns EUR189.2m or GBP160.0m (2018:
EUR92.3m/GBP83.0m) of Euro denominated assets in Ireland as at 31
December 2019 and the value of these assets and rental income
represented just 7% of the Group's total portfolio. In order to
hedge the risk associated with exchange rates, the Group has chosen
to fund its investment in Irish assets through the use of Euro
denominated debt, providing a natural asset to liability hedge,
within the overall Group loan to value limits set by the Board.
Euro rental receipts are used to first finance Euro interest and
administrative costs and surpluses are used to fund further
portfolio expansion.
Interest rate swap mark to market ("MtM")
Accounting standards require PHP to mark its interest rate swaps
to market at each balance sheet date. During 2019 there was a loss
of GBP3.7m (2018: gain GBP2.2m) 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. As at 31 December 2019 the mark to market
("MtM") liability of the swap portfolio was GBP13.0m (31 December
2018: GBP17.3m) equivalent to 1.0p per share.
Fixed rate debt mark-to-market ("MtM")
The MtM of the enlarged Group's fixed rate debt as at 31
December 2019 was GBP94.5m (31 December 2018: GBP28.1m) equivalent
to 7.8p per share (31 December 2018: 3.7p). The large increase in
the MtM during the year 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
year 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. In accordance with accounting
standards the MtM of the Group's fixed rate debt is not reflected
in the financial statements.
Risk management and principal risks
Risk management overview
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
oversee the management of these risks to minimise exposure and
optimise the returns 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 such as securing planning permission;
-- 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 reviews 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 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.
Approach to risk management
Risk is considered at every level of the Group's operations and
is reflected in the controls and processes that have been put in
place across the Group. The Group's risk management process is
underpinned by strong working relationships between the Board, the
Adviser and members of the Adviser's team which enables the prompt
assessment and response to risk issues that may be identified at
any level of the Group's business.
The Board is responsible for effective risk management across
the Group and retains ownership of the significant risks that are
faced by the Group. This includes ultimate responsibility for
determining and reviewing the nature and extent of the principal
risks faced by the Group and assessing the Group's risk management
processes and controls. These systems and controls are designed to
identify, manage and mitigate risks that the Group faces but will
not eliminate such risks and can provide reasonable but not
absolute assurance.
The Adviser assists the Board in its assessment and monitoring
of operational and financial risks and the Adviser has in place
robust systems and procedures to ensure risk management is embedded
in its approach to managing the Group's portfolio and operations.
The Adviser has established a Risk Committee that is formed of
members of its senior management team. The Chairman of the
Adviser's Risk Committee is independent of both the Adviser and the
Group and experienced in the operation and oversight of risk
management processes.
The Audit Committee reviews the Group's systems of risk
management and their effectiveness on behalf of the Board. These
systems and processes have been in place for the year under review
and remained in place up to the date of approval of the Annual
Report and Accounts.
The Adviser has implemented a wide-ranging system of internal
controls and operational procedures that are designed to manage
risk as effectively as possible, but it is recognised that risk
cannot be totally eliminated. Staff employed by the Adviser are
intrinsically involved in the identification and management of
risk. Strategic risks are recorded in a Risk Register and are
assessed and rated within a defined scoring system.
The Adviser's Risk Committee reports its processes of risk
management and rating of identified risks to the Audit Committee.
The Risk Register forms an appendix to the report which details
risks that have (i) an initial high rating, and (ii) higher
residual ratings once the effectiveness of mitigation and/or
management actions have been overlaid. The Audit Committee in turn
agrees those risks that will be managed by the Adviser and those
where the Board will retain direct ownership and responsibility for
management and monitoring those risks.
The Board recognises that it has limited ability to control a
number of the external risks that the Group faces, such as
government policy, but keeps the possible impact of such risks
under review and considers them as part of its decision-making
process.
Principal risks and uncertainties
The Board has undertaken a robust assessment of the principal
risks faced by the Group that may threaten its business model,
future performance, solvency or liquidity and its ability to meet
the overall objective of the Group of delivering progressive
returns to shareholders through a combination of earnings growth
and capital appreciation. These are set out below:
Inherent risk Change to Commentary on
Risk rating risk in 2019 risk Mitigation Residual risk rating
------------------- ------------------ ------------- ----------------- --------------------- --------------------
Deliver progressive returns
----------------------------------------------------------------------------------------------------------------------
Potential Medium Unchanged The UK and Irish The commitment to Medium
over-reliance on Likelihood is low governments primary care is a Policy risk and
the NHS and HSE but impact of continue to be stated objective of general economic
PHP invests in a occurrence may be committed to the both the UK and Irish conditions are out
niche asset sector major. development of governments of the control of
where changes in primary care and on a cross-party the Board, but
healthcare policy, services basis. proactive
the funding of and initiatives Management engages measures are taken
primary to develop new directly with to monitor
care, economic models of care government and developments and to
conditions and the increasingly healthcare providers consider their
availability of focus on greater in both the UK and in possible
finance may utilisation of Ireland to promote implications for
adversely affect primary care. the need for the Group.
the Group's Despite the UK's continued investment
portfolio valuation exit from the in modern premises.
and performance. European Union The attractiveness of
the demand for long term, secure
health services income streams that
will continue characterise the
to grow sector leads
regardless, to stability of
driven by values.
demographics.
Whilst the
uncertainty
surrounding the
exit may
lead to
fluctuations in
the value of the
Group's assets,
there is no
evidence of this
at present.
Future government
funding levels in
the UK may be
impacted by any
long term,
material change
to economic
performance as a
consequence of
Brexit.
A fundamental
change in
government policy
could impact how
the private
sector regards
its
investment in
this asset class
and its
willingness to
further deploy
private sector
resources
to improve the
quality of
primary care
facilities.
------------------- ------------------ ------------- ----------------- --------------------- --------------------
Foreign exchange Medium Unchanged The Group now has The Board has and Low
risk Likelihood of 16 investments in will continue to fund PHP has implemented
Income and volatility is high Ireland. Asset its investments in a hedging strategy
expenditure that but the potential values, funding Euros so as to create in the form of a
will be derived impact at present and net income is a natural natural hedge so as
from PHP's is relatively low denominated hedge between asset to manage exchange
investments in due in Euros. values and rate risk.
Ireland will be to the quantum of The UK's decision liabilities in
denominated investment in to leave the Ireland.
in Euros and may be Ireland, albeit European Union
affected this quantum is continues to
unfavourably by increasing. cause exchange
fluctuations in rate volatility
currency rates, whilst the exit
impacting the process is
Group's earnings ongoing.
and portfolio
valuation.
------------------- ------------------ ------------- ----------------- --------------------- --------------------
Grow property portfolio
----------------------------------------------------------------------------------------------------------------------
Competition High Unchanged In terms of The reputation and Medium
The emergence of Likelihood is high values, the Group track record of the The Group's position
new purchasers in and impact of has benefited Group in the sector within the sector
the sector and the occurrence could from a flight to means it is able to and commitment to
continuing low be major. income as a source forward and understanding of
level of approvals consequence of funded developments the asset class
of the and existing standing mean PHP is aware of
new centres in the current wider investments from a high proportion of
UK may restrict the economic developers, investors transactions in the
ability of the uncertainty - and owner-occupiers. market and potential
Group to secure new investors have The Group has a opportunities
investments. been attracted to number of formal coming to market.
the sector due to pipeline agreements Active management of
its and long-standing the property
long term, development portfolio generates
secure, relationships regular
government-backed that provide an opportunities to
cash flows. Lack increased opportunity increase income
of supply, as a to secure and lease terms and
consequence of developments that enhance value.
the low come to market in the
number of new UK
development and Ireland.
approvals in the The Group has a
UK, has also strong, identified
contributed to pipeline of
the increase in investment
values. opportunities in the
However, the same UK and Ireland.
increase in
demand and lack
of supply has
meant that the
Group is facing
increased
competition for
viable
opportunities.
------------------- ------------------ ------------- ----------------- --------------------- --------------------
Financing High Unchanged The Group Existing and new Medium
The Group uses a Likelihood of a successfully equity and debt The Group takes
mix of shareholder restricted supply issued a new providers are keen to positive action to
equity and external is moderate but GBP150.0 million provide funds to the ensure continued
debt to fund its the potential unsecured sector and availability of
operations. A impact of such a convertible bond specifically resource, maintain a
restriction restriction in July 2019. to the Group, prudent
on the availability could be major. The Company attracted by the ratio of debt and
of funds would completed an strength of its cash equity funding and
limit the Group's equity issue in flows. refinance debt
ability to invest. September 2019, The Board monitors facilities in
Furthermore, a more raising gross its capital structure advance of their
general lack of proceeds of and maintains regular maturity.
equity or debt GBP100.0 contact with existing
available to the million. and potential
sector could reduce In addition, and equity investors and
demand also in September debt funders.
for healthcare 2019, the Group
assets and issued new senior
therefore impact secured notes for
values. a total
of EUR70 million
at a fixed rate
of 1.509% with a
maturity of
twelve years and
in December
2019 the Group
entered into a
new GBP100
million revolving
credit facility
with HSBC.
The Group's
undrawn
facilities and
cash mean it
currently has
headroom of
GBP356.6 million.
All covenants
have been met
with regard to
the Group's debt
facilities and
these all remain
available for
their contracted
term.
------------------- ------------------ ------------- ----------------- --------------------- --------------------
Manage effectively and efficiently
----------------------------------------------------------------------------------------------------------------------
Lease expiry Medium Unchanged Lease terms for The Adviser meets Medium
management Likelihood of all property with occupiers to The Adviser employs
The bespoke nature limited assets will erode discuss the specific an active asset
of the Group's alternative use and the property and the management programme
assets can lead to value is moderate importance of tenant's aspirations and has a successful
limited alternative but the impact of active management and needs for their track record
use. Their such values could to future occupation. of securing
continued be serious. extend the use of 36 projects either enhancement projects
use as a building completed on site or and securing new
fit-for-purpose remains about to commence, long term leases.
medical centres is unchanged. enhancing income and
key to delivering extending
the Group's occupational lease
strategic terms.
objectives. In addition, there is
a strong pipeline of
over 100 projects
that will be
progressed in over
the next three years.
Only 1.5% of the
Group's income
expires in the next
five years and
management is
actively
managing these lease
expiries.
------------------- ------------------ ------------- ----------------- --------------------- --------------------
PHP and Nexus Medium Unchanged As well as The Advisory Medium
relationship The likelihood of management fees, Agreement with The interests of the
The Group has no any unexpected the Adviser has and performance Adviser are aligned
employees. The change is low but, earned a of the Adviser is with the objectives
continuance of if that occurred, performance regularly of the Group and the
the Adviser the impact could be incentive fee reviewed. Nexus' composition
contract is key significant. during the remuneration of its team is
for the efficient period, some of is linked to the monitored by the
operation and which is only performance of Board.
management of the payable in future the Group to
Group. periods and is incentivise long
dependent on term levels of
continued performance.
outperformance Nexus can be
of hurdle rates. required to serve
all or any part
of its notice
period should the
Group decide
to terminate
providing
protection for an
efficient
handover.
----------------- -------------------- ------------- ------------------- ----------------- --------------------
Diversified, long term funding
--------------------------------------------------------------------------------------------------------------------
Debt financing Medium Unchanged Negotiations with Existing lenders Medium
Without The likelihood of lenders have remain keen to The Board regularly
appropriate insufficient confirmed that the finance PHP and monitors the
confirmed debt facilities is Group enjoys the new entrants to facilities available
facilities, PHP moderate but the confidence of the debt capital to the Group and
may be unable to impact of such an lending markets have looks to refinance
meet current and event would markets both in increased in advance of any
future be serious. terms of the available maturity. The Group
commitments or traditional high resource. is subject to the
repay or street lenders, as Management changing conditions
refinance debt well as the bond regularly of debt capital
facilities as markets. monitors the markets.
they become due. The Group composition of
successfully issued the Group's debt
a new GBP150.0 portfolio to
million unsecured ensure compliance
convertible bond in with covenants
July 2019. and continued
In September 2019, availability of
the Group issued funds.
new senior secured The Adviser
notes for a total regularly reports
of EUR70 million to the Board on
at a fixed rate of current debt
1.509% with a positions and
maturity of twelve provides
years and in projections
December 2019 the of future
Group entered covenant
into a new GBP100 compliance to
million revolving ensure early
credit facility warning of any
with HSBC. possible issues.
----------------- -------------------- ------------- ------------------- ----------------- --------------------
Interest rates Medium Unchanged Term interest rate The Group holds a Low
Adverse movement The likelihood of markets remained proportion of its The Group is
in underlying volatility in volatile during the debt in long currently well
interest rates interest rate period and this term, fixed rate protected against
could adversely markets is high and volatility is loans and the risk of interest
affect the the potential impact likely mitigates its rate rises but, due
Group's earnings if to continue in the exposure to to
and cash flows not managed near future. interest rate its continued
and could impact adequately could be Over the year, term movements on investment in new
property major. interest rates have floating rate properties and the
valuations. reduced which has facilities need to maintain
impacted the through the use available
mark-to-market of interest facilities,
("MtM") rate swaps. will be exposed to
valuations of the As at the balance future interest rate
Group's interest sheet date 98% of levels.
rate derivative drawn debt is
portfolio, fixed or hedged.
increasing its "out MtM valuation
of the money" movements do not
status. impact on the
Group's cash
flows and are not
included in any
covenant test in
the Group's debt
facilities.
----------------- -------------------- ------------- ------------------- ----------------- --------------------
Brexit
On 31 January 2020, the United Kingdom left the European Union
("EU") but a substantial amount of uncertainty still remains
regarding any future trade deal with the EU ("Brexit"). The Board
continues to monitor the negotiations which will set out the UK's
future relationship with the EU and until these negotiations are
finalised it is too early to fully understand 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.
Emerging risks
The Board has also considered emerging risks and their potential
impact on the Group. During the year, development delivery risk has
been added to the Group's Risk Register. The Group enters into
forward funding arrangements with developers who then engage
contractors to build out the scheme. There is a risk that the
developer or the contractor or both could become insolvent causing
delays and losses. However, the likelihood, impact and mitigation
factors mean that, despite the Group's increasing exposure to this
risk, it is not yet considered a principal risk and therefore is
not included in the table above.
The Board also considered, at its annual strategy day, emerging
risks affecting the current primary care delivery model, in
particular, the impact of digital technologies. As part of the
outcome of the Board's evaluation process it was agreed to include
a formal emerging risk review in conjunction with the annual
strategy review.
Climate change and environmental risk
In 2018, the Board added climate change and environmental issues
to the Risk Register. Whilst it is not yet regarded as a principal
risk and uncertainty and therefore is not included in the table
above, the Group's approach to the subject matter is considered in
more detail in the Responsible Business section of the Annual
Report.
Coronavirus
The Board has considered and will continue to monitor the threat
and implications of the Coronavirus but it is too early to fully
understand the impact that the virus will have on our business
sector and the wider macro-economic environment.
Viability statement
The Directors confirm that, as part of their strategic planning
and risk management processes, they have undertaken an assessment
of the viability of the Group, considering the current position and
the potential impact of the principal risks and prospects over a
three-year time horizon. Based on this assessment, the Directors
have a reasonable expectation that the Group will be able to
continue in operation and meet its liabilities as they fall due
over the period to 31 December 2022. Although individually the
Group's assets may have relatively long unexpired lease terms and
will all have a defined asset management strategy, the Board has
undertaken its detailed financial review over a three-year period
because:
-- the Group's financial review and budgetary processes cover a
three-year look forward period; and
-- occupational leases within the Group's property portfolio
typically have a three-yearly rent review pattern and so modelling
over this period allows the Group's financial projections to
include a full cycle of reversion, arising from open market, fixed
and index-linked rent reviews.
The Group's financial review and budgetary processes are based
on an integrated model that projects performance, cash flows,
position and other key performance indicators including earnings
per share, leverage rates, net asset values per share and REIT
compliance over the review period. In addition, the forecast model
looks at the funding of the Group's activities and its compliance
with the financial covenant requirements of its debt facilities.
The model uses a number of key parameters in generating its
forecasts that reflect the Group's strategy, operating processes
and the Board's expectation of market developments in the review
period. In undertaking its financial review, these parameters have
been flexed to reflect severe, but realistic, scenarios both
individually and collectively. Sensitivities applied are derived
from the principal risks faced by the Group that could affect
solvency or liquidity and are as follows:
-- declining attractiveness of the Group's assets or extenuating
economic circumstances impacts investment values - valuation
parameter stress tested to provide for a one-off 10%/GBP240m fall
in June 2020;
-- 10% tenant default rate;
-- rental growth assumptions amended to see nil uplifts on open market reviews;
-- variable rate interest rates rise by an immediate 2% effective from 1 January 2020; and
-- tightly controlled NHS scheme approval restricts investment
opportunity - investment quantum flexed to remove non-committed
transactions.
In making its assessment, the Board has made a number of
specific assumptions that overlay the financial parameters used in
the Group's models. The Board has assumed that, in addition to the
specific impact of new debt facilities, the Group will be able to
refinance or replace other debt facilities that mature within the
review period in advance of their maturity and on terms similar to
those at present. The Board also assumes that the services of the
Adviser are available throughout the period.
Harry Hyman
Managing Director
11 February 2020
Group statement of comprehensive income
for the year ended 31 December 2019
2019 2018
Notes GBPm GBPm
------------------------------------------------------ ----- ------- ------
Rental income 121.3 79.6
Direct property expenses (5.6) (3.2)
------------------------------------------------------ ----- ------- ------
Net rental income 3 115.7 76.4
Administrative expenses 4 (12.3) (9.9)
Exceptional item - contract termination fee (10.2) -
------- ------
Revaluation gain on property portfolio 10 48.4 36.0
Profit on sale of land 1.4 0.1
Exceptional revaluation loss arising on merger
with MedicX 10 (138.4) -
------- ------
Total revaluation (loss)/gain (88.6) 36.1
------------------------------------------------------ ----- ------- ------
Operating profit 4.6 102.6
Finance income 5 1.4 0.1
Finance costs 6a (42.6) (29.8)
Fair value loss on derivative interest rate
swaps and amortisation of hedging reserve 6b (5.4) (1.8)
Fair value (loss)/gain and issue costs on convertible
bond 6c (28.2) 3.2
------------------------------------------------------ ----- ------- ------
(Loss)/profit before taxation (70.2) 74.3
Taxation charge 7 (1.1) -
------------------------------------------------------ ----- ------- ------
(Loss)/profit for the year after taxation1 (71.3) 74.3
Other comprehensive income:
Items that may be reclassified subsequently
to profit and loss
Fair value gain on interest rate swaps treated
as cash flow hedges and amortisation of hedging
reserve 22 1.7 4.1
Exchange loss on translation of foreign balances (1.9) -
------------------------------------------------------ ----- ------- ------
Other comprehensive (loss)/income for the year
net of tax1 (0.2) 4.1
------------------------------------------------------ ----- ------- ------
Total comprehensive (loss)/income for the year
net of tax1 (71.5) 78.4
------------------------------------------------------ ----- ------- ------
(Loss)/earnings per share
Basic 8 (6.5)p 10.5p
Diluted 8 (6.5)p 9.8p
------------------------------------------------------ ----- ------- ------
EPRA earnings per share
Basic 8 4.8p 5.2p
Diluted 8 4.7p 5.2p
------------------------------------------------------ ----- ------- ------
Adjusted EPRA2 earnings per share
Basic 8 5.5p 5.2p
Diluted 8 5.4p 5.2p
------------------------------------------------------ ----- ------- ------
1 Wholly attributable to equity shareholders of Primary Health Properties PLC.
2 See Glossary of Terms.
The above relates wholly to continuing operations.
Group balance sheet
at 31 December 2019
2019 2018
Notes GBPm GBPm
----------------------------------------- ----- --------- -------
Non-current assets
Investment properties 10 2,413.1 1,502.9
Derivative interest rate swaps 16 0.5 0.6
----------------------------------------- ----- --------- -------
2,413.6 1,503.5
----------------------------------------- ----- --------- -------
Current assets
Trade and other receivables 11 16.7 4.6
Cash and cash equivalents 12 143.1 5.9
----------------------------------------- ----- --------- -------
159.8 10.5
----------------------------------------- ----- --------- -------
Total assets 2,573.4 1,514.0
----------------------------------------- ----- --------- -------
Current liabilities
Deferred rental income (25.2) (16.0)
Trade and other payables 13 (34.7) (16.1)
Borrowings: term loans and overdraft 14a (6.1) (0.9)
Borrowings: bonds 14b - (101.5)
----------------------------------------- ----- --------- -------
(66.0) (134.5)
----------------------------------------- ----- --------- -------
Non-current liabilities
Borrowings: term loans and overdraft 14a (682.7) (360.5)
Borrowings: bonds 14b (575.1) (213.2)
Derivative interest rate swaps 16 (13.5) (17.8)
Headlease liabilities 15 (4.5) -
Deferred tax liability (3.1) -
----------------------------------------- ----- --------- -------
(1,278.9) (591.5)
----------------------------------------- ----- --------- -------
Total liabilities (1,344.9) (726.0)
----------------------------------------- ----- --------- -------
Net assets 1,228.5 788.0
----------------------------------------- ----- --------- -------
Equity
Share capital 18 152.0 96.1
Share premium 19 338.1 220.6
Merger and other reserve 20 398.6 2.5
Special reserve 21 65.4 124.8
Hedging reserve 22 (24.1) (25.8)
Retained earnings 23 298.5 369.8
----------------------------------------- ----- --------- -------
Total equity1 1,228.5 788.0
----------------------------------------- ----- --------- -------
Net asset value per share
Basic 24 101.0p 102.5p
EPRA net asset value per share 24 104.2p 105.1p
Adjusted EPRA2 net asset value per share 24 107.9p 105.1p
EPRA NNNAV per share 24 98.8p 99.2p
----------------------------------------- ----- --------- -------
1 Wholly attributable to equity shareholders of Primary Health Properties PLC.
2 See Glossary of Terms.
These financial statements were approved by the Board of
Directors on 11 February 2020 and signed on its behalf by:
Steven Owen
Chairman
Registered in England Number: 3033634
Group cash flow statement
for the year ended 31 December 2019
2019 2018
Notes GBPm GBPm
--------------------------------------------------------- ----- ------- -------
Operating activities
(Loss)/profit on ordinary activities after tax (71.3) 74.3
Taxation charge 7 1.1 -
Finance income 5 (1.4) (0.1)
Finance costs 6a 42.6 29.8
Fair value loss on derivatives 6b 5.4 1.8
Fair value loss and issue costs on convertible
bond 6c 28.2 (3.2)
--------------------------------------------------------- ----- ------- -------
Operating profit before financing costs 4.6 102.5
Adjustments to reconcile Group operating profit
before financing to net cash flows from operating
activities:
Revaluation gain on property portfolio 10 (48.4) (36.0)
Profit on sale of land and property (1.4) (0.1)
Exceptional revaluation loss arising on merger
with MedicX 10 138.4 -
Fixed rent uplift (1.7) (1.6)
Tax paid (0.1) -
(Increase)/decrease in trade and other receivables (5.2) 2.2
Increase in trade and other payables 7.8 1.4
--------------------------------------------------------- ----- ------- -------
Cash generated from operations 94.0 68.5
--------------------------------------------------------- ----- ------- -------
Net cash flow from operating activities 94.0 68.5
--------------------------------------------------------- ----- ------- -------
Investing activities
Payments to acquire and improve investment properties (49.9) (102.9)
Receipts from disposal of properties 2.5 1.0
MedicX merger transaction costs (14.5) -
Cash acquired as part of MedicX merger 5.8 -
Interest received on development loans 0.3 -
--------------------------------------------------------- ----- ------- -------
Net cash flow used in investing activities (55.8) (101.9)
--------------------------------------------------------- ----- ------- -------
Financing activities
Proceeds from issue of shares 100.0 115.0
Cost of share issues (2.4) (4.0)
Term bank loan drawdowns 14 132.8 123.0
Term bank loan repayments 14 (160.5) (174.0)
Proceeds from bond issue 213.2 45.4
Bond repayment (75.0) -
Bond issue and loan arrangement fees (5.7) (2.1)
Termination of derivative financial instruments (8.0) (5.0)
Swap interest paid (0.9) (2.4)
Non-utilisation fees (1.7) (1.2)
Interest paid (36.9) (25.2)
Bank interest received 0.2 -
Equity dividends paid net of scrip dividend 9 (54.4) (34.7)
--------------------------------------------------------- ----- ------- -------
Net cash flow from financing activities 100.7 34.8
--------------------------------------------------------- ----- ------- -------
Increase in cash and cash equivalents for the
year 138.9 1.4
Effect of exchange rate fluctuations on Euro-denominated
loans and cash equivalents (1.7) 0.7
Cash and cash equivalents at start of year 5.9 3.8
--------------------------------------------------------- ----- ------- -------
Cash and cash equivalents at end of year 12 143.1 5.9
--------------------------------------------------------- ----- ------- -------
Group statement of changes in equity
for the year ended 31 December 2019
Merger
Share Share and other Special Hedging Retained
capital premium reserve 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
Profit for the year - - - - - (71.3) (71.3)
Other comprehensive income
Fair value movement on interest
rate swaps - - - - (1.3) - (1.3)
Reclassification to profit
and loss - amortisation
of hedging reserve - - - - 3.0 - 3.0
Exchange loss on translation
of foreign balances - - (1.9) - - - (1.9)
-------------------------------- ------- ------- --------- ------- ------- -------- -------
Total comprehensive income - - (1.9) - 1.7 (71.3) (71.5)
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
Shares issued as part of
capital raise 9.8 90.2 - - - - 100.0
Share issue expenses - (2.6) - - - - (2.6)
Dividends paid - - - (54.4) - - (54.4)
Scrip dividend in lieu of
cash 0.5 4.5 - (5.0) - - -
-------------------------------- ------- ------- --------- ------- ------- -------- -------
31 December 2019 152.0 338.1 398.6 65.4 (24.1) 298.5 1,228.5
-------------------------------- ------- ------- --------- ------- ------- -------- -------
Merger
Share Share and 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
Reclassification to profit
and loss - 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 financial statements
1. Corporate information
The Group's financial statements for the year ended 31 December
2019 were approved by the Board of Directors on 11 February 2020
and the Group Balance Sheet was signed on the Board's behalf by the
Chairman, Steven Owen. Primary Health Properties PLC is a public
limited company incorporated in England and Wales and domiciled in
the United Kingdom. The Company's Ordinary Shares are admitted to
the Official List of the UK Listing Authority, a division of the
Financial Conduct Authority, and traded on the London Stock
Exchange.
2. Accounting policies
2.1 Basis of preparation
The Group's financial statements have been prepared on the
historical cost basis, except for investment properties, including
investment properties under construction and land and derivative
financial instruments that have been measured at fair value. The
Group's financial statements are prepared on the going concern
basis and presented in Sterling rounded to the nearest million.
Statement of compliance
The consolidated financial statements for the Group have been
prepared under International Financial Reporting Standards
("IFRSs") as adopted by the European Union and applied in
accordance with the Companies Act 2006 and Article 4 of the IAS
Regulation.
2.2 Standards adopted during the year
The accounting policies adopted are consistent with those of the
previous financial year, except for the following new and amended
IFRSs effective for the Group as of 1 January 2019. Their adoption
has not had any material impact on the disclosures or on the
amounts reported in these financial statements:
IFRS 16 Leases
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 GBP4.5 million 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.
Amendments to IFRS 9, IAS 39 and IFRS 7
In September 2019, the IASB issued Interest Rate Benchmark
Reform - Amendments to IFRS 9, IAS 39 and IFRS 7. These amendments
modify specific hedge accounting requirements to allow hedge
accounting to continue for effective hedges during the period of
uncertainty before the hedged items or hedging instrument affected
by the current interest rate benchmarks are amended as a result of
the ongoing interest rate benchmark reforms.
The Group has chosen to early apply the amendments for the
reporting period ended 31 December 2019. The amendments are
relevant to the Group because it applied hedge accounting to swaps
which were cancelled. The remaining value within the cashflow
hedging reserve at the date of cancellation is recycled to the
Group Statement of Comprehensive Income on a straight line basis
from the date of cancellation to the original swap expiry date.
Adopting the amendments permits the Group to continue this
treatment.
IFRS 3 Business combinations
IFRS 3 Business combinations establishes different accounting
requirements for a business combination as opposed to the
acquisition of an asset or a group of assets that does not
constitute a business. The amendments to IFRS 3 are effective for
annual reporting periods beginning on or after 1 January 2020 and
apply prospectively but the Group has chosen to early apply the
amendments for the reporting period ended 31 December 2019.
2.3 Summary of significant accounting policies
Basis of consolidation
The Group's financial statements consolidate the financial
statements of Primary Health Properties PLC and its wholly owned
subsidiary undertakings. Subsidiaries are consolidated from the
date of their acquisition, being the date on which the Group
obtained control, and continue to be consolidated until the date
that such control ceases. Control comprises the power to govern the
financial and operating policies of the investee so as to obtain
benefit from its activities and is achieved through direct or
indirect ownership of voting rights; currently exercisable or
convertible potential voting rights; or by way of contractual
agreement. The financial statements of the subsidiary undertakings
are prepared for the accounting reference period ending 31 December
each year using consistent accounting policies. All intercompany
balances and transactions, including unrealised profits arising
from them, are eliminated on consolidation.
The individual financial statements of Primary Health Properties
PLC and each of its subsidiary undertakings will be prepared under
UK GAAP. The use of IFRS at Group level does not affect the
distributable reserves available to the Group.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a
single segment of business, being investment property in the United
Kingdom and Ireland leased principally to GPs, government
healthcare organisations and other associated healthcare users.
Foreign currency transactions
Each Group company presents its individual financial statements
in its functional currency. The functional currency of all UK
subsidiaries (with the exception of PHP Euro Private Placement
Limited and MXF Properties Ireland Limited which are Euro) is
Sterling and the functional currency of Primary Health Properties
ICAV and its Irish domiciled subsidiaries is Euro.
Transactions in currencies other than an individual entity's
functional currency (foreign currencies) are recognised at the
applicable exchange rate ruling on the transaction date. Exchange
differences resulting from settling these transactions, or from
retranslating monetary assets and liabilities denominated in
foreign currencies, are included in the Group Statement of
Comprehensive Income.
Foreign operations
In preparing the Group's consolidated financial statements, the
assets and liabilities of foreign entities are translated into
Sterling at exchange rates prevailing on the balance sheet date.
The income, expenses and cash flows of a foreign entity are
translated at the average exchange rate for the period, unless
exchange rates fluctuate significantly during the period, in which
case the exchange rates at the date of transactions are used.
The exchange rates used to translate foreign currency amounts in
2019 are as follows:
Group Balance Sheet: GBP1 = EUR1.1825 (2018: EUR1.1126). Group
Statement of Comprehensive Income: GBP1 = EUR1.1787 (2018:
EUR1.1301).
Investment properties and investment properties under
construction
The Group's investment properties are held for long term
investment. Investment properties and those under construction are
initially measured at cost, including transaction costs. Subsequent
to initial recognition, investment properties and investment
properties under construction are stated at fair value based on
market data and a professional valuation made as of each reporting
date. The fair value of investment property does not reflect future
capital expenditure that will improve or enhance the property and
does not reflect future benefits from this future expenditure.
Gains or losses arising from changes in the fair value of
investment properties and investment properties under construction
are included in the Group Statement of Comprehensive Income in the
year in which they arise.
Investment properties are recognised on acquisition upon
completion of contract, which is when control of the asset passes
to the Group. Investment properties cease to be recognised when
control of the property passes to the purchaser, which is upon
completion of the sales contract. Any gains and losses arising are
recognised in the Group Statement of Comprehensive Income in the
year of disposal.
The Group may enter into a forward funding agreement with
third-party developers in respect of certain properties under
development. In accordance with these agreements, the Group will
make monthly stage payments to the developer based on certified
works on site at that time. Interest is charged to the developer on
all stage payments made during the construction period and on the
cost of the land acquired by the Group at the outset of the
development and taken to the Group Statement of Comprehensive
Income in the year in which it accrues.
Property acquisitions and business combinations
Where a property is acquired through the acquisition of
corporate interests, the Board considers the substance of the
assets and activities of the acquired entity in determining whether
the acquisition represents the acquisition of a business. The basis
of the judgement is set out in Note 2.4(b).
Where such acquisitions are not judged to be an acquisition of a
business, they are not treated as business combinations. Rather,
the cost to acquire the corporate entity is allocated between the
identifiable assets and liabilities of the entity based on their
relative fair values on the acquisition date. Accordingly, no
goodwill or additional deferred taxation arises.
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 341.0 million
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 the Financial Review.
Gains on sale of properties
Gains on sale of properties are recognised on the completion of
the contract, and are calculated by reference to the carrying value
at the end of the previous reporting period, adjusted for
subsequent capital expenditure and sale costs.
Net rental income
Rental income arising from operating leases on investment
properties is accounted for on a straight line basis over the lease
term. An adjustment to rental income is recognised from the rent
review date of each lease in relation to unsettled rent reviews.
Such adjustments are accrued at 100% (2018: 100%) of the additional
rental income that is expected to result from the review. For
leases which contain fixed or minimum deemed uplifts, the rental
income is recognised on a straight line basis over the lease term.
Incentives for lessees to enter into lease agreements are spread
evenly over the lease terms, even if the payments are not made on
such a basis. Rental income is measured at the fair value of the
consideration receivable, excluding discounts, rebates, VAT and
other sales taxes or duty.
Net rental income is the rental income receivable in the period
after payment of direct property costs.
Interest income
Revenue is recognised as interest accrues, using the effective
interest method (that is, the rate that exactly discounts estimated
future cash receipts through the expected life of the financial
instrument to the net carrying amount of the financial asset).
Financial instruments under IFRS 9
Trade receivables
Trade receivables are recognised and carried at amortised cost
as the Group's business model is to collect the contractual cash
flows due from tenants. Provision is made based on the expected
credit loss model which reflects the Group's historical credit loss
experience over the past three years but also reflects the lifetime
expected credit loss.
Cash and cash equivalents
Cash and cash equivalents are defined as cash and short term
deposits, including any bank overdrafts, with an original maturity
of three months or less, measured at amortised cost.
Trade and other payables
Trade payables are recognised and carried at their invoiced
value inclusive of any VAT that may be applicable.
Bank loans and borrowings
All loans and borrowings are initially measured at fair value
less directly attributable transaction costs. After initial
recognition, all interest-bearing loans and borrowings are
subsequently measured at amortised cost, using the effective
interest method.
The interest due within the next twelve months is accrued at the
end of the year and presented as a current liability within trade
and other payables.
Borrowing costs
Borrowing costs that are separately identifiable and directly
attributable to the acquisition or construction of an asset that
necessarily takes a substantial period of time to get ready for its
intended use or sale are capitalised as part of the cost of the
respective assets. All other borrowing costs are expensed in the
period in which they occur. Borrowing costs consist of interest and
other costs the Group incurs in connection with the borrowing of
funds.
Convertible bond
The convertible bond is designated as "at fair value through
profit or loss" and so is presented on the Group Balance Sheet at
fair value with all gains and losses, including the write-off of
issuance costs, recognised in the Group Statement of Comprehensive
Income. The fair value of the convertible bond is assessed in
accordance with level 1 valuation techniques as set out within
"Fair value measurements" within these accounting policies. The
interest charge in respect of the coupon rate on the bond has been
recognised within the underlying component of net financing costs
on an accruals basis. Refer to Note 17 for further details. The
amount of the change in fair value of the financial liability
designated at fair value through profit or loss that is
attributable to changes in credit risk will be recognised in other
comprehensive income.
De-recognition of financial assets and liabilities
Financial assets
A financial asset (or where applicable a part of a financial
asset or part of a group of similar financial assets) is
de-recognised where:
-- the rights to receive cash flows from the asset have expired;
-- the Group retains the right to receive cash flows from the
asset, but has assumed an obligation to pay them in full without
material delay to a third party under a "pass-through"
arrangement;
-- the Group has transferred its right to receive cash flows
from the asset and either (a) has transferred substantially all the
risks and rewards of the asset; or (b) has neither transferred nor
retained substantially all the risks and rewards of the asset, but
has transferred control of the asset; or
-- when the cash flows are significantly modified.
Where the Group has transferred its rights to receive cash flows
from an asset and has neither transferred nor retained
substantially all the risks and rewards of the asset nor
transferred control of the asset, the asset is recognised to the
extent of the Group's continuing involvement in the asset.
Continuing involvement that takes the form of a guarantee over the
transferred asset is measured at the lower of the original carrying
amount of the asset and the maximum amount of consideration that
the Group could be required to repay.
Financial liabilities
A financial liability is de-recognised when the obligation under
the liability is discharged or cancelled or expires.
Where an existing financial liability is replaced by another
from the same lender on substantially different terms, or the terms
of an existing liability are substantially modified, such an
exchange or modification is treated as a de-recognition of the
original liability and the recognition of a new liability, and the
difference in the respective carrying amounts is recognised in
profit or loss.
When the exchange or modification of an existing financial
liability is not accounted for as an extinguishment, any costs or
fees incurred adjust the liability's carrying amount and are
amortised over the modified liability's remaining term and any
difference in the carrying amount after modification is recognised
as a modification gain or loss.
Tax
Taxation on the profit or loss for the period not exempt under
UK REIT regulations comprises current and deferred tax. Taxation is
recognised in the Group Statement of Comprehensive Income except to
the extent that it relates to items recognised as direct movements
in equity, in which case it is also recognised as a direct movement
in equity.
Current tax is the expected tax payable on any non-REIT taxable
income for the period, using tax rates enacted or substantively
enacted at the balance sheet date, and any adjustment to tax
payable in respect of previous years.
Fair value measurements
The Group measures certain financial instruments such as
derivatives, and non-financial assets such as investment property,
at fair value at the end of each reporting period. Also, fair
values of financial instruments measured at amortised cost are
disclosed in the financial statements.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to
sell the asset or transfer the liability takes place either:
-- in the principal market for the asset or liability; or
-- in the absence of a principal market, in the most
advantageous market for the asset or liability.
The Group must be able to access the principal or the most
advantageous market at the measurement date.
The fair value of an asset or liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest.
A fair value measurement of a non-financial asset takes into
account a market participant's ability to generate economic
benefits using the asset in its highest and best use or by selling
it to another market participant that would use the asset in its
highest and best use.
The Group uses valuation techniques at three levels that are
appropriate in the circumstances and for which sufficient data is
available to measure fair value, maximising the use of relevant
observable inputs and minimising the use of unobservable inputs
significant to the fair value measurement as a whole:
Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable.
Level 3: Valuation techniques for which the lowest input that is
significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial
statements on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by
reassessing categorisation at the end of each reporting period.
Hedge accounting
At the inception of a transaction the Group documents the
relationship between hedging instruments and hedged items, as well
as its risk management objectives and strategy for undertaking
various hedging transactions. The Group also documents its
assessment, both at inception and on an ongoing basis, of whether
the hedging instrument meets the criteria of IAS 39 for being
described as "highly effective" in offsetting changes in the fair
values or cash flows of hedged items.
i) Derivative financial instruments ("derivatives")
The Group uses interest rate swaps to help manage its interest
rate risk.
All interest rate derivatives are initially recognised at fair
value at the date the derivative is entered into and are
subsequently remeasured at fair value. The fair values of the
Group's interest rate swaps are calculated by JCRA, an independent
specialist which provides treasury management services to the
Group.
The method of recognising the resulting gain or loss depends on
whether the derivative is designated as an effective hedging
instrument:
-- where a derivative is designated as a hedge of the
variability of a highly probable forecast transaction, such as an
interest payment, the element of the gain or loss on the derivative
that is an "effective" hedge is recognised directly in equity. When
the forecast transaction subsequently results in the recognition of
a financial asset or a financial liability, the associated gains or
losses that were recognised directly in the cash flow hedging
reserve are reclassified into the Group Statement of Comprehensive
Income in the same period or periods during which the asset
acquired or liability assumed affects the Group Statement of
Comprehensive Income, i.e. when interest income or expense is
recognised; and
-- the gain or loss on derivatives that do not meet the strict
criteria for being "effective" and so do not qualify for hedge
accounting and the non-qualifying element of derivatives that do
qualify for hedge accounting are recognised in the Group Statement
of Comprehensive Income immediately. The treatment does not alter
the fact that the derivatives are economic hedges of the underlying
transaction.
For swaps that have been cancelled which previously qualified
for hedge accounting, the remaining value within the cash flow
hedging reserve at the date of cancellation is recycled to the
Group Statement of Comprehensive Income on a straight line basis
from the date of cancellation to the original swap expiry date
where the hedged transaction is still expected to occur. If the
swaps have been cancelled and the hedged transaction is no longer
expected to occur, the amount accumulated in the hedging reserve is
reclassified to profit and loss immediately.
Leases - Group as a lessor
The vast majority of the Group's properties are leased out under
operating leases and are included within investment properties.
Rental income, including the effect of lease incentives, is
recognised on a straight line basis over the lease term.
Where the Group transfers substantially all the risks and
benefits of ownership of the asset, the arrangement is classified
as a finance lease and a receivable is recognised for the initial
direct costs of the lease and the present value of the minimum
lease payments. Finance income is recognised in the Group Statement
of Comprehensive Income so as to achieve a constant rate of return
on the remaining net investment in the lease. Interest income on
finance leases is restricted to the amount of interest actually
received.
2.4 Significant accounting estimates and judgements
The preparation of the Group financial statements requires
management to make a number of estimates and judgements that affect
the reported amounts of assets and liabilities and may differ from
future actual results. The estimates and judgements that are
considered most critical and that have a significant inherent risk
of causing a material adjustment to the carrying amounts of assets
and liabilities are:
a) Estimates
Fair value of investment properties
Investment properties include (i) completed investment
properties, and (ii) investment properties under construction.
Completed investment properties comprise real estate held by the
Group or leased by the Group under a finance lease in order to earn
rental income or for capital appreciation, or both.
The fair market value of a property is deemed by the independent
property valuer appointed by the Group to be the estimated amount
for which a property should exchange, on the date of valuation, in
an arm's length transaction. Properties have been valued on an
individual basis, assuming that they will be sold individually over
time. Allowances are made to reflect the purchaser's costs of
professional fees and stamp duty and tax.
In accordance with RICS Appraisal and Valuation Standards,
factors taken into account are current market conditions, annual
rentals, state of repair, ground stability, contamination issues
and fire and health and safety legislation. Refer to Note 10 of the
financial statements which includes further information on the fair
value assumptions and sensitivities.
In determining the fair value of investment properties under
construction the valuer is required to consider the significant
risks which are relevant to the development process including, but
not limited to, construction and letting risks. The valuer takes
into account any pre-lets and whether construction risk remains
with the respective developer or contractor.
Fair value of derivatives
In accordance with IFRS 9, the Group values its derivative
financial instruments at fair value. Fair value is estimated by
JCRA on behalf of the Group, using a number of assumptions based
upon market rates and discounted future cash flows. The derivative
financial instruments have been valued by reference to the
mid-price of the yield curve prevailing on 31 December 2019. Fair
value represents the net present value of the difference between
the cash flows produced by the contracted rate and the valuation
rate. Refer to Note 17 of the financial statements.
b) Judgements
Hedge effectiveness
The Group has a number of interest rate swaps that mature after
the Group's bank facilities, to which they relate, are due to
expire. In accordance with IAS 39, in order to apply hedge
accounting in relation to these interest rate swaps, the Group has
determined that it is highly probable that these bank facilities
will be renegotiated on or before expiry and that variable interest
rate debt finance will be in place until the expiry date of the
swaps.
Property acquisitions during the year
The Directors have reviewed the acquisitions during the year on
an individual basis in accordance with the requirements of IFRS
3(R). They consider that they all meet the criteria of asset
acquisitions rather than business combinations and have accounted
for them as such. Although corporate entities were acquired, they
were special purpose vehicles for holding properties rather than
separate business entities. This judgement was made due to the
absence of business processes inherent in the entities
acquired.
MedicX merger
The Group has treated the merger with MedicX during the period
as an asset purchase rather than a business combination because
substantially all of the fair value was represented by investment
properties. Included in additions for the period, are GBP804.3
million of property assets in respect of the MedicX merger which
was settled through issuance to the shareholders of MedicX Fund
Limited of 341.0 million Ordinary Shares in the Company at a price
of 129.2 pence per share. For more information on the acquisition
refer to the Financial Review.
2.5 Standards issued but not yet effective
At the date of authorisation of these financial statements, the
Group has not applied the following new and revised IFRSs that have
been issued but are not yet effective and in some cases have not
yet been adopted by the EU:
-- Amendments to IAS 1 and IAS 8 - definition of material
-- Conceptual Framework - Amendment to References to the Conceptual Framework in IFRS
A number of new standards and amendments to standards and
interpretations are effective for annual periods beginning on or
after 1 January 2020, but are not yet applicable to the Group and
have not been applied in preparing these consolidated financial
statements. None of these are expected to have a significant effect
on the consolidated financial statements of the Group.
3. 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 and
GBP114.0 million and GBP7.3 million of rental income is derived
from the UK and Ireland respectively. Details of the lease income
are given below.
Group as a lessor
a) The future minimum lease payments under non-cancellable
operating leases receivable by the Group are as follows:
Less than One to More than
one year five years five years Total
GBPm GBPm GBPm GBPm
----- --------- ---------- ---------- -------
2019 126.9 496.3 992.1 1,615.3
----- --------- ---------- ---------- -------
2018 78.1 307.1 627.6 1,012.8
----- --------- ---------- ---------- -------
b) The rental income earned on operating leases is recognised on
a straight line basis over the lease term.
The Group leases medical centres to GPs, NHS organisations, the
HSE in Ireland, and other healthcare users, typically on long term
occupational leases which provide for regular reviews of rent on an
effectively upwards-only basis.
4. Group operating profit is stated after charging:
2019 2018
GBPm GBPm
--------------------------------------------------------- ---- ----
Administrative expenses including:
Advisory fees (Note 4a) 8.3 6.6
Performance Incentive Fees (Note 4b) 1.8 1.3
Directors' fees (Note 4c) 0.5 0.4
--------------------------------------------------------- ---- ----
Audit fees
Fees payable to the Company's auditor and its associates
for the audit of the Company's annual accounts 0.2 0.1
Fees payable to the Company's auditor and its associates
for the audit of the Company's subsidiaries 0.2 0.2
--------------------------------------------------------- ---- ----
Total audit fees 0.4 0.3
--------------------------------------------------------- ---- ----
Total audit and assurance services 0.4 0.3
--------------------------------------------------------- ---- ----
Non-audit fees
Advisory services 0.2 0.2
--------------------------------------------------------- ---- ----
Total non-audit fees 0.2 0.2
--------------------------------------------------------- ---- ----
Total fees 0.6 0.5
--------------------------------------------------------- ---- ----
Please refer to the Audit Committee Report for analysis of
non-audit fees.
a) Advisory fees
The advisory fees calculated and payable for the period to 31
December were as follows:
2019 2018
GBPm GBPm
-------------------------------- ---- ----
Nexus Tradeco Limited ("Nexus") 8.3 6.6
-------------------------------- ---- ----
Further details on the Advisory Agreement can be found in the
Corporate Governance section of the Annual Report.
As at 31 December 2019 GBP0.7 million was payable to Nexus
(2018: GBP0.6 million).
Further fees paid to Nexus in accordance with the Advisory
Agreement of GBP0.1 million (2018: GBP0.2 million) in respect of
capital projects were capitalised in the year.
Service charge management fees paid to Nexus in the year in
connection with the Group's properties totalled GBP0.3 million
(2018: GBP0.2 million).
b) Performance Incentive Fee ("PIF")
Information about the Performance Incentive Fee is provided in
the Corporate Governance section of the Strategic Review in the
Annual Report.
A PIF of GBP1.1 million was paid to Nexus in the period in
respect of 2018 and at 31 December 2019 the balance on the notional
cumulative PIF account was GBP7.0 million (2018: GBP6.9 million),
of which GBP1.3 million (2018: GBP1.1 million) will become payable
on approval of the Annual Report by the Board. The balance is
conditional on performance in future years and the restrictions
noted in the Financial Review.
c) Remuneration of Directors
Further information about the remuneration of individual
Directors is provided in the Directors' Remuneration Report in the
Annual Report.
5. Finance income
2019 2018
GBPm GBPm
------------------------------------ ---- ----
Interest income on financial assets
Bank interest 0.2 -
Development loan interest 1.2 0.1
------------------------------------ ---- ----
1.4 0.1
------------------------------------ ---- ----
6. Finance costs
2019 2018
GBPm GBPm
-------------------------------------------------------------- ----- ----
Interest expense and similar charges on financial liabilities
a) Interest
Bank loan interest 27.0 13.8
Swap interest 0.8 1.9
Bond interest 12.1 11.0
Bank facility non-utilisation fees 1.8 1.3
Bank charges and loan commitment fees 3.4 1.8
-------------------------------------------------------------- ----- ----
45.1 29.8
Amortisation of MedicX debt MtM on acquisition (2.5) -
-------------------------------------------------------------- ----- ----
42.6 29.8
-------------------------------------------------------------- ----- ----
2019 2018
GBPm GBPm
------------------------------------------- ----- -----
b) Derivatives
Net fair value loss on interest rate swaps (2.4) (0.3)
Amortisation of cash flow hedging reserve (3.0) (1.5)
------------------------------------------- ----- -----
(5.4) (1.8)
------------------------------------------- ----- -----
The fair value loss on derivatives recognised in the 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 do meet the hedge effectiveness criteria under
IAS 39 of GBP1.3 million (2018: gain of GBP2.6 million) is
accounted for directly in equity. An amount of GBP3.0 million
(2018: GBP1.5 million) has been amortised from the cash flow
hedging reserve in the year resulting from early termination of
effective swap contracts (see Note 22).
Details of the fair value loss on hedges which meet the
effectiveness criteria for hedge accounting under IAS 39 are set
out in Note 22.
2019 2018
GBPm GBPm
---------------------------------------------------------- ------ ----
c) Convertible bond
Fair value (loss)/gain on convertible bond fully redeemed
in the year (1.8) 3.2
Fair value loss on convertible bond issued in the year (22.7) -
Convertible bond issue costs (3.7) -
---------------------------------------------------------- ------ ----
(28.2) 3.2
---------------------------------------------------------- ------ ----
During the year, 24,022,454 (2018: 41,457,272) new Ordinary
Shares of 12.5 pence were issued on the conversion of GBP23.1
million (2018: GBP40.0 million) nominal of the 2014 convertible
bonds. Following the conversion of the bonds there were GBPnil
(2018: GBP23.2 million) nominal of convertible bonds
outstanding.
On 15 July 2019, PHP Finance (Jersey No.2) Limited (the
"Issuer"), a wholly owned subsidiary of the Group, issued GBP150
million of 2.875% convertible bonds (the "Bonds") 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 fair value movement in the convertible bonds 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. Refer to Note 14 for further details about the
convertible bonds.
2019 2018
GBPm GBPm
------------------------------------------------ ------ ------
Net finance costs
Finance income (Note 5) 1.4 0.1
Finance costs (as per above) (45.1) (29.8)
------------------------------------------------ ------ ------
(43.7) (29.7)
Amoritisation of MedicX debt MtM on acquisition 2.5 -
------------------------------------------------ ------ ------
(41.2) (29.7)
------------------------------------------------ ------ ------
7. Taxation
a) Taxation charge in the Group Statement of Comprehensive
Income
The taxation charge is made up as follows:
2019 2018
GBPm GBPm
--------------------------------- ---- ----
Current tax
UK corporation tax - -
Deferred tax on Irish activities 1.1 -
--------------------------------- ---- ----
Total tax 1.1 -
--------------------------------- ---- ----
The UK corporation tax rate of 19% (2018: 19%) has been applied
in the measurement of the Group's UK related activities tax
liability at 31 December 2019.
b) Factors affecting the tax charge for the year
The tax assessed for the year is lower than (2018: lower than)
the standard rate of corporation tax in the UK. The differences are
explained below:
2019 2018
GBPm GBPm
--------------------------------------------------------- ------ ------
(Loss)/profit on ordinary activities before taxation (70.2) 74.3
--------------------------------------------------------- ------ ------
Theoretical tax at UK corporation tax rate of 19% (2018:
19%) (13.3) 14.1
REIT exempt income (23.0) (13.3)
Non-taxable items 36.3 (0.8)
Deferred tax on Irish activities 1.1 -
--------------------------------------------------------- ------ ------
Taxation charge (Note 7a) 1.1 -
--------------------------------------------------------- ------ ------
The UK REIT rules exempt the profits of the Group's property
rental business from corporation tax.
c) Basis of 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.
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 31 December 2019.
The Group's activities in Ireland are conducted via Irish
companies, a Guernsey company and 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 Guernsey company pays tax on its net rental
income. The ICAV does not pay any Irish Corporation Tax on its
profits but a 20% withholding tax is paid on distributions to
owners.
8. Earnings per share
The calculation of basic and diluted earnings per share is based
on the following:
Net profit Weighted
attributable average
Ordinary
to Ordinary Shares
(number
Shareholders - Per share
GBPm million) (pence)
---------------------------------------------------- ------------ -------- ---------
2019
Basic and diluted loss
Basic and diluted loss (71.3) 1,092.0 (6.5)
---------------------------------------------------- ------------ -------- ---------
EPRA basic and diluted earnings
Basic and diluted loss (71.3)
Adjustments to remove:
Net result on property (Note 10) (48.4)
Profit on sale of properties (1.4)
Exceptional revaluation loss arising on acquisition
of MedicX 138.4
Fair value loss on derivatives 5.4
Fair value movement and issue costs on convertible
bond 28.2
Taxation charge 1.1
---------------------------------------------------- ------------ -------- ---------
EPRA basic earnings 52.0 1,092.0 4.8
Dilutive effect of convertible bond 2.0 46.5
---------------------------------------------------- ------------ -------- ---------
EPRA diluted earnings per share 54.0 1,138.5 4.7
---------------------------------------------------- ------------ -------- ---------
Adjusted EPRA and diluted earnings1
EPRA basic earnings 52.0
Exceptional items - contract termination fee 10.2
Amortisation of MtM loss on debt acquired (2.5)
---------------------------------------------------- ------------ -------- ---------
Adjusted EPRA earnings per share 59.7 1,092.0 5.5
Dilutive effect of convertible bond 2.0 46.5
---------------------------------------------------- ------------ -------- ---------
Diluted adjusted EPRA earnings per share 61.7 1,138.5 5.4
---------------------------------------------------- ------------ -------- ---------
2018
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 earnings 74.3
Adjustments to remove:
Net result on property (Note 10) (36.0)
Profit on sale of land (0.1)
Fair value loss on derivatives 1.8
Fair value movement on convertible bond (3.2)
---------------------------------------------------- ------------ -------- ---------
EPRA basic earnings 36.8 708.6 5.2
Dilutive effect of convertible bond 1.0 24.1
---------------------------------------------------- ------------ -------- ---------
EPRA diluted earnings 37.8 732.7 5.2
---------------------------------------------------- ------------ -------- ---------
1 See Glossary of Terms.
On 15 July 2019, the Group issued GBP150 million of unsecured
convertible bonds; refer to Note 14 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 EPRA and Adjusted EPRA EPS of convertible
bonds is represented by the accrued bond coupon which has been
included in the results of the year ended 31 December 2019. 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 31 December 2019.
9. Dividends
Amounts recognised as distributions to equity holders in the
year:
2019 2018
GBPm GBPm
----------------------------------------------------- ---- ----
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 August 2019 15.8 -
Scrip dividend in lieu of quarterly cash dividend 23
August 2019 0.1 -
Quarterly interim dividend paid 22 November 2019 14.3 -
Scrip dividend in lieu of quarterly cash dividend 22
November 2019 2.5 -
Quarterly interim dividend paid 23 February 2018 - 8.1
Scrip dividend in lieu of quarterly cash dividend 23
February 2018 - 0.3
Quarterly interim dividend paid 25 May 2018 - 7.7
Scrip dividend in lieu of quarterly cash dividend 25
May 2018 - 0.7
Quarterly interim dividend paid 24 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 in the year 59.4 36.6
----------------------------------------------------- ---- ----
Per share 5.6p 5.4p
----------------------------------------------------- ---- ----
On 2 January 2020, the Board declared an interim dividend of
1.475 pence per Ordinary Share with regard to the year ended 31
December 2020, payable on 21 February 2020. This dividend will
comprise a Property Income Distribution ("PID") of 1.275 pence and
ordinary dividend of 0.2 pence per share.
10. Investment properties and investment properties under
construction
Properties have been independently valued at fair value by
Lambert Smith Hampton UK, Jones Lang LaSalle and CBRE 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 Appraisal and Valuation Standards 2017 ("Red
Book"). There were no changes to the valuation techniques during
the year. 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 (2018: 99.8%). The valuations
reflected a 4.86% net initial yield (2018: 4.85%) and a 5.04%
(2018: 4.99%) true equivalent yield. Where properties have
outstanding rent reviews, an estimate is made of the likely rent on
review in line with market expectations and the knowledge of the
valuers.
In accordance with IAS 40, investment properties under
construction have also been valued at fair value by the 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 GBP25.4 million (2018: GBP16.0
million) in arriving at the fair value to be included in the
financial statements.
A fair value increase of GBP0.9 million (2018: GBPnil) in
respect of investment property under construction has been
recognised in the Group Statement of Comprehensive Income, as part
of the total net valuation gain on property portfolio in the year
of GBP48.4 million (2018: GBP36.0 million).
Of the GBP2,408.6 million valuation, GBP2,248.6 million (93.4%)
relates to investment properties in the UK and GBP160.0 million
(6.6%) relates to investment properties in Ireland.
In line with the Company's accounting policies, the Group has
treated the merger with MedicX during the year 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 GBP804.3 million of property assets in respect of the
MedicX merger which was settled through issuance to the
shareholders of MedicX Fund Limited of 341.0 million Ordinary
Shares in the Company at a price of 129.2 pence per share. For more
information on the acquisition refer to the Financial Review.
In line with accounting policies, the Group has treated the
acquisitions during the year as asset purchases rather than
business combinations as they were judged to be acquisitions of
properties rather than businesses.
Investment Investment Investment
properties properties
properties long under
freehold
1 leasehold construction Total
GBPm GBPm GBPm GBPm
---------------------------------------------- ---------- ---------- ------------ -------
As at 1 January 2019 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 26.3 - 31.2 57.5
Property disposals (1.1) - - (1.1)
Adoption of IFRS 16 - ground rents recognised
as finance leases - 4.5 - 4.5
Impact of lease incentive adjustment 1.0 2.5 - 3.5
Transfer from properties under construction 7.1 7.9 (15.0) -
Foreign exchange movements (3.1) - (3.8) (6.9)
---------------------------------------------- ---------- ---------- ------------ -------
1,864.0 467.6 33.1 2,364.7
Revaluations for the year 38.2 9.3 0.9 48.4
---------------------------------------------- ---------- ---------- ------------ -------
As at 31 December 2019 1,902.2 476.9 34.0 2,413.1
---------------------------------------------- ---------- ---------- ------------ -------
As at 1 January 2018 1,104.9 255.9 1.1 1,361.9
Property additions 81.4 12.9 10.1 104.4
Property disposals (1.0) - - (1.0)
Impact of lease incentive adjustment 0.9 0.7 - 1.6
Transfer from properties under construction - 5.2 (5.2) -
---------------------------------------------- ---------- ---------- ------------ -------
1,186.2 274.7 6.0 1,466.9
Revaluations for the year 26.3 9.7 - 36.0
---------------------------------------------- ---------- ---------- ------------ -------
As at 31 December 2018 1,212.5 284.4 6.0 1,502.9
---------------------------------------------- ---------- ---------- ------------ -------
1 Includes development land held at GBP1.6 million (31 December 2018: GBP1.0 million).
Bank borrowings, bonds and interest rate swaps are secured on
investment properties with a value of GBP2,376 million
(2018: GBP1,434 million).
Right-of-use-assets
In accordance with IFRS 16 Leases, the Group has recognised a
GBP4.5 million head lease liability and an equal and opposite
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 31 December 2019 and 31
December 2018. There were no transfers between levels during the
year 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).
Valuation techniques used to derive level 3 fair values
The valuations have been prepared on the basis of fair market
value ("FMV") which is defined in the RICS Valuation Standards
as:
"The estimated amount for which a property should exchange on
the date of valuation between a willing buyer and a willing seller
in an arm's length transaction after proper marketing wherein the
parties had each acted knowledgeably, prudently and without
compulsion."
Valuation techniques: market comparable method
Under the market comparable method (or market comparable
approach), a property's fair value is estimated based on comparable
transactions and using certain unobservable inputs. These inputs
are detailed below.
Unobservable input: estimated rental value ("ERV")
The rent at which space could be let in the market conditions
prevailing at the date of valuation.
2019 2018
---------------------------- ---------------------- ----------------------
ERV - range of the portfolio GBP27,400-GBP1,286,558 GBP32,307-GBP1,273,630
per annum per annum
---------------------------- ---------------------- ----------------------
Unobservable input: equivalent yield
The equivalent yield is defined as the internal rate of return
of the cash flow from the property, assuming a rise to ERV at the
next review date, but with no further rental growth.
2019 2018
------------------------------------ ----------- -----------
True equivalent yield - range of the
portfolio 4.00%-7.87% 3.84%-7.54%
------------------------------------ ----------- -----------
Unobservable input: physical condition of the property
The properties are physically inspected by the valuer on a
three-year rotating basis.
Unobservable input: rental growth
The estimated average increase in rent based on both market
estimations and contractual situations.
Sensitivity of measurement of significant unobservable
inputs
-- A decrease in the estimated annual rent will decrease the fair value.
-- A decrease in the equivalent yield will increase the fair value.
-- A deterioration in the physical condition of the property will decrease the fair value.
-- An increase in the rental growth will increase the fair value.
11. Trade and other receivables
2019 2018
GBPm GBPm
-------------------------------------------------------- ---- ----
Trade receivables (net of provision for doubtful debts) 10.0 3.0
Prepayments and accrued income 5.9 1.6
Other debtors 0.8 -
-------------------------------------------------------- ---- ----
16.7 4.6
-------------------------------------------------------- ---- ----
The expected credit losses are estimated using a provision
matrix by reference to past default experience and an analysis of
the debtor's current financial position, adjusted for factors that
are specific to the debtor, general economic conditions of the
industry and an assessment of both the current as well as the
forecast direction of conditions at the reporting date. The Group
has therefore not recognised a loss allowance because historical
experience has indicated that the risk profile of trade receivables
is deemed low.
The Group's principal customers are invoiced and pay quarterly
in advance, usually on English, Scottish and Gale quarter days.
There is no significant concentration of credit risk with respect
to trade receivables, as the Group has a large number of
tenants.
12. Cash and cash equivalents
2019 2018
GBPm GBPm
------------------ ----- ----
Cash held at bank 143.1 5.9
------------------ ----- ----
143.1 5.9
------------------ ----- ----
Bank interest is earned at floating rates depending upon the
bank deposit rate. Short term deposits may be made for varying
periods of between one day and three months, dependent on available
cash and forthcoming cash requirements of the Group. These deposits
earn interest at various short term deposit rates.
13. Trade and other payables
2019 2018
GBPm GBPm
------------------------------------ ---- ----
Trade payables 0.2 1.6
Bank and bond loan interest accrual 8.0 4.6
Other payables 10.0 4.7
VAT 5.5 3.3
Accruals 11.0 1.9
------------------------------------ ---- ----
34.7 16.1
------------------------------------ ---- ----
14. Borrowings
a) Term loans and overdrafts
The table indicates amounts drawn and undrawn from each
individual facility as at 31 December:
Amounts
Facility drawn Undrawn
-------- ----- ------- ----- ------- -----
2019 2018 2019 2018 2019 2018
Expiry
date 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 loan1 Sep 2033 2.0 n/a 2.0 n/a - n/a
Aviva loan1 Jun 2040 0.6 n/a 0.6 n/a - n/a
Aviva loan Aug 2029 2.6 - 2.6 - - -
--------------- --------- -------- ----- ------- ----- ------- -----
11.1 5.9 6.1 0.9 5.0 5.0
------------------------- -------- ----- ------- ----- ------- -----
Non-current
Aviva HIL loan Jan 2032 20.4 21.4 20.4 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 60.0 63.0 60.0 63.0 - -
Barclays/AIB
loan Jan 2021 115.0 115.0 55.0 55.0 60.0 60.0
HSBC loan Nov 2022 100.0 n/a - n/a 100.0 n/a
HSBC loan Jul 2020 n/a 50.0 n/a - n/a 50.0
Lloyds loan Dec 2021 30.0 30.0 28.3 - 1.7 30.0
RBS loan Mar 2021 100.0 100.0 55.7 65.9 44.3 34.1
Santander loan Jul 2021 30.6 30.6 - 8.9 30.6 21.7
--------------- --------- -------- ----- ------- ----- ------- -----
Aviva loan1 Sep 2033 229.4 n/a 229.4 n/a - n/a
Aviva loan1 Sep 2028 30.8 n/a 30.8 n/a - n/a
Aviva loan1 Jun 2040 24.8 n/a 24.8 n/a - n/a
--------------- --------- -------- ----- ------- ----- ------- -----
891.0 560.0 654.4 364.2 236.6 195.8
------------------------- -------- ----- ------- ----- ------- -----
Total 902.1 565.9 660.5 365.1 241.6 200.8
-------------------------- -------- ----- ------- ----- ------- -----
1 Acquired as part of the merger with MedicX.
2019 2018
GBPm GBPm
----------------------------------------------------- ------- -------
Balance as at 1 January 361.4 412.3
Changes from financing cash flows
Acquired as part of the merger with MedicX (net of
amortisation fees) 315.3 -
Term bank loan drawdowns 132.8 123.0
----------------------------------------------------- ------- -------
New loan facilities drawn 448.1 123.0
----------------------------------------------------- ------- -------
Repayments of mortgages principal (2.8) (0.9)
Repayments of term bank loans (157.7) (173.1)
----------------------------------------------------- ------- -------
Repayments of term loan borrowings (160.5) (174.0)
----------------------------------------------------- ------- -------
Loan issue costs for new facilities/refinancing (1.0) 1.3
----------------------------------------------------- ------- -------
Total changes from financing cash flows 286.6 (49.7)
----------------------------------------------------- ------- -------
Other non-cash changes
MtM on loans added in the period net of amortisation 38.9 -
Amortisation of loan issue costs 2.4 (1.2)
Exchange gain on translation of foreign balances (0.5) -
----------------------------------------------------- ------- -------
Total other changes 40.8 (1.2)
----------------------------------------------------- ------- -------
Balance as at 31 December 688.8 361.4
----------------------------------------------------- ------- -------
At 31 December 2019, total facilities of GBP1,452.0 million
(2018: GBP879.9 million) were available to the Group. This included
a GBP70 million secured bond, a GBP100 million secured bond, a
GBP150.0 million nominal value convertible bond, GBP43.1 million
and GBP59.2 million Euro-denominated bonds, a GBP50 million Ignis
loan note, a GBP77.5 million Standard Life loan note and a GBP5
million overdraft facility. Of these facilities, as at 31 December
2019, GBP1,210.4 million was drawn (2018: GBP679.1 million).
On 23 January 2019, a new GBP50 million facility was
successfully completed with HSBC. The new loan could be drawn in
Sterling, and had a variable interest rate of LIBOR plus 175bps and
the expiry date in October 2020. The new facility was cancelled on
10 July 2019.
On 4 December 2019, the HSBC facility was refinanced and
increased to GBP100.0 million. The new facility can be drawn in
Sterling or Euros subject to a maximum drawdown of GBP60.0 million
equivalent of Euros. It has a variable interest rate of LIBOR plus
165bps and an expiry date of 30 November 2022.
Costs associated with the arrangement and extension of the
facilities, including legal advice and loan arrangement fees, are
amortised using the effective interest rate.
Any amounts unamortised as at the period end are offset against
amounts drawn on the facilities as shown in the table below:
2019 2018
GBPm GBPm
----------------------------------------------------------- ------ -----
Term loans drawn: due within one year 6.1 0.9
Term loans drawn: due in greater than one year 654.4 364.2
----------------------------------------------------------- ------ -----
Total terms loans drawn 660.5 365.1
Plus: MtM on loans added in the period net of amortisation 38.9 -
Less: unamortised borrowing costs (10.6) (3.7)
----------------------------------------------------------- ------ -----
Total term loans per the Group Balance Sheet 688.8 361.4
----------------------------------------------------------- ------ -----
The Group has been in compliance with all of the financial
covenants of the above facilities as applicable through the year.
Further details are shown in Note 17e.
The Group has entered into interest rate swaps to manage its
exposure to interest rate fluctuations. These are set out in Note
16.
b) Bonds
2019 2018
GBPm GBPm
--------------------------------------------------------- ----- -----
Unsecured:
Retail bond July 2019 - 75.0
Convertible bond May 2019 at fair value - 26.6
Convertible bond July 2025 at fair value 172.7 -
Less: unamortised costs - (0.1)
--------------------------------------------------------- ----- -----
Total unsecured bonds 172.7 101.5
--------------------------------------------------------- ----- -----
Secured:
Secured bond December 2025 70.0 70.0
Secured bond March 2027 100.0 100.0
EUR51 million secured bond (Euro private placement)
December 2028/30 43.2 45.8
EUR70 million secured bond (Euro private placement)
September 2031 59.2 -
Ignis loan note December 2028 50.0 -
Standard Life loan note September 2028 77.5 -
Less: unamortised issue costs (4.0) (2.6)
Plus: MtM on loans added in the year net of amortisation 6.5
--------------------------------------------------------- ----- -----
Total secured bonds 402.4 213.2
--------------------------------------------------------- ----- -----
Total bonds 575.1 314.7
--------------------------------------------------------- ----- -----
The fair value of the bonds that converted during the year was
GBP28.3 million (2018: GBP45.7 million).
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 GBP70 million and mature on or about 30 December
2025. The Secured Bonds incur interest at an annualised rate of
220bps above six-month LIBOR, payable semi-annually in arrears.
On 21 March 2017, a GBP100 million Secured Bond was issued for a
ten-year term at a fixed coupon of 2.83% that matures on 21 March
2027. Interest is paid semi-annually in arrears.
On 20 December 2018, senior secured notes for a total of EUR51
million (GBP43.1 million) were issued at a blended fixed rate of
2.4793% and a weighted average maturity of 10.4 years. Interest is
paid semi-annually in arrears. The notes represent PHP's first
Euro-denominated transaction in the private placement market. The
secured notes were placed with UK and Irish institutional investors
in two tranches:
EUR40 million 2.46% senior notes due December 2028.
EUR11 million 2.633% senior notes due December 2030.
On 16 September 2019, new senior secured notes for a total of
EUR70 million (GBP59.2 million) were issued at a fixed rate of
1.509% and a maturity of twelve years. Interest is paid
semi-annually in arrears. The secured notes are guaranteed by the
Company and were placed with UK and Irish institutional
investors.
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 of GBP50.0
million 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, GBP50 million and GBP27.5 million 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 GBP75 million,
unsecured, seven-year bond to retail investors with an annual
interest rate of 5.375% paid semi-annually in arrears. The retail
bond issue costs are amortised using the effective interest rate
method. The retail bond matured on 31 July 2019 and was repaid in
full.
Convertible bonds
On 20 May 2014, PHP Finance (Jersey) Limited (the "Issuer"), a
wholly owned subsidiary of the Group, issued GBP82.5 million of
4.25% convertible bonds due 2019 (the "Bonds") at par. The Company
has guaranteed the due and punctual performance by the Issuer of
all of its obligations (including payments) in respect of the
Bonds.
Subject to certain conditions, the Bonds were convertible into
preference shares of the Issuer which was 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. In October 2018, the
conversion price was adjusted to 96.16 pence. The adjustment is in
accordance with the dividend protection provisions set out in
condition 6(b)(iii)(B) of the conditions of the Bonds and is
triggered by the Ordinary Shares trading ex-dividend. The adjusted
exchange price was applied in respect of all conversion notices in
respect of the Bonds from 11 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 year, 24.0 million (2018: 41.4 million) new Ordinary
Shares of 12.5 pence were issued on the conversion of GBP23.1
million (2018: GBP40.0 million) nominal of convertible bonds.
Following the conversion of the Bonds and repayment of the
remaining liability of GBP0.1 million there were GBPnil (2018:
GBP23.2 million) nominal of convertible bonds outstanding.
2019 2018
GBPm GBPm
---------------------------------------- ------ ------
Balance at 1 January 26.6 75.5
Bond conversions (28.3) (45.7)
Bond repaid (0.1) -
Fair value movement in convertible bond 1.8 (3.2)
---------------------------------------- ------ ------
Balance at 31 December - 26.6
---------------------------------------- ------ ------
On 15 July 2019, PHP Finance (Jersey No.2) Limited (the
"Issuer"), a wholly owned subsidiary of the Group, issued GBP150
million of 2.875% convertible bonds (the "Bonds") 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 were partially used to repay the Company's
GBP75 million, 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 was 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 is subject to adjustment if dividends
paid per share exceed 2.8 pence per annum and other certain
circumstances and consequently the exchange price has been adjusted
to 149.39 pence as at 31 December 2019.
2019 2018
GBPm GBPm
---------------------------------------- ----- ----
Issued in the year 150.0 -
Fair value movement in convertible bond 22.7 -
---------------------------------------- ----- ----
Balance at 31 December 172.7 -
---------------------------------------- ----- ----
The fair value of the convertible bonds at 31 December 2019 and
31 December 2018 were 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 Adjusted EPRA earnings and
Adjusted EPRA NAV.
c) Total borrowings
2019 2018
GBPm GBPm
----------------------------------------------------- ------- -----
Current liabilities:
Term loans and overdrafts 6.1 0.9
Bonds - 101.5
----------------------------------------------------- ------- -----
Total current liabilities 6.1 102.4
Non-current liabilities:
Term loan and overdrafts 654.4 364.2
MtM on loans added in the period net of amortisation 38.9 -
Less: unamortised loan issue costs (10.6) (3.7)
----------------------------------------------------- ------- -----
682.7 360.5
Bonds 549.9 212.7
MtM on loans added in the period net of amortisation 6.5 -
MtM on convertible bond 22.7 3.2
Less: unamortised bond issue costs (4.0) (2.7)
----------------------------------------------------- ------- -----
Total non-current bonds 575.1 213.2
----------------------------------------------------- ------- -----
Total borrowings 1,263.9 676.1
----------------------------------------------------- ------- -----
15. 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 25 years and perpetuity and
fixed rentals.
2019 2018
GBPm GBPm
----------------------------- ---- ----
Due within one year 0.1 -
Due after one year 4.4 -
----------------------------- ---- ----
Closing balance - fair value 4.5 -
----------------------------- ---- ----
16. Derivatives and other financial instruments
It is Group policy to maintain the proportion of floating rate
interest exposure at between 20%-40% of total debt facilities. 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.
2019 2018
GBPm GBPm
------------------------------------------------------- ------ ------
Fair value of interest rate swaps treated as cash flow
hedges under IAS 39 ("effective swaps")
Non-current liabilities - (6.2)
------------------------------------------------------- ------ ------
- (6.2)
------------------------------------------------------- ------ ------
Fair value of interest rate swaps not qualifying as
cash flow hedges under IAS 39 ("ineffective swaps")
Non-current assets 0.5 0.6
Non-current liabilities (13.5) (11.6)
------------------------------------------------------- ------ ------
(13.0) (11.0)
------------------------------------------------------- ------ ------
Total fair value of interest rate swaps (13.0) (17.2)
------------------------------------------------------- ------ ------
Shown in the balance sheet as:
Total non-current assets 0.5 0.6
Total non-current liabilities (13.5) (17.8)
------------------------------------------------------- ------ ------
Changes in the fair value of the contracts that do not meet the
strict IAS 39 criteria to be designated as effective hedging
instruments are taken to the Group Statement of Comprehensive
Income. For contracts that meet the IAS 39 criteria and are
designated as "effective" cash flow hedges, the change in fair
value of the contract is recognised in the Group Statement of
Changes in Equity through the cash flow hedging reserve. The result
recognised in the Group Statement of Comprehensive Income on
"effective" cash flow hedges in 2019 was a GBP1.7 million gain
(2018: GBP4.1 million gain), including the amortisation of the cash
flow hedging reserve of GBP3 million (2018: GBP1.5 million).
Floating to fixed interest rate swaps with a contract value of
GBP258 million (2018: GBP183 million) were in effect at 31 December
2019. Details of all floating to fixed rate interest rate swap
contracts held are as follows:
Fixed interest
per annum
Contract value Start date Maturity %
----------------- ------------- ------------- --------------
2019
GBP50.0 million August 2007 August 2021 0.870
GBP38.0 million August 2007 August 2021 0.870
GBP10.0 million June 2020 June 2026 4.810
GBP10.0 million June 2020 June 2026 4.510
GBP10.0 million July 2020 July 2026 4.400
GBP10.0 million July 2020 July 2026 4.475
GBP10.0 million July 2020 July 2026 4.455
GBP20.0 million July 2020 July 2026 4.479
November
GBP100.0 million October 2019 2024 0.688
----------------- ------------- ------------- --------------
GBP258.0 million
----------------- ------------- ------------- --------------
2018
GBP50.0 million August 2007 August 2021 0.870
GBP38.0 million August 2007 August 2021 0.870
GBP10.0 million June 2020 June 2026 4.810
GBP10.0 million June 2020 June 2026 4.510
GBP10.0 million July 2020 July 2026 4.400
GBP10.0 million July 2020 July 2026 4.475
GBP10.0 million July 2020 July 2026 4.455
GBP20.0 million July 2020 July 2026 4.479
GBP25.0 million January 2018 January 2023 2.470
----------------- ------------- ------------- --------------
GBP183.0 million
----------------------------------------------- --------------
On 17 July 2018, six 4.52% (blended) fixed rate swaps with a
total nominal value of GBP70.0 million, effective until July 2026,
were cancelled for the next two years for a one-off payment of
GBP5.0 million equivalent to 0.7 pence per share on an EPRA net
asset value basis. The balance within the cash flow hedge reserve
relating to these swaps has been amortised through the Group
Statement of Comprehensive Income over the remainder of the
original contract period to July 2026 (see Note 6b).
On 15 October 2019, two HSBC swaps, GBP25.0 million with a fixed
interest rate of 2.47% effective until January 2023 and GBP75.0
million with a fixed interest rate of 2.65% effective until January
2024, were cancelled for a one-off payment of GBP8.0 million
equivalent to 0.7 pence per share on an EPRA net asset value basis.
A new swap agreement was entered into with HSBC for a contract
value of GBP100.0 million with a fixed rate of 0.6875% effective
until November 2024. The balance within the cash flow hedge reserve
relating to the two cancelled swaps will be amortised through the
Group Statement of Comprehensive Income over the remainder of the
original contract period to January 2024 (see Note 6b).
17. Financial risk management
In pursuing its investment objectives, the Group is exposed to a
variety of risks that could impact net assets or distributable
profits.
The Group's principal financial liabilities, other than interest
rate swaps, are loans and borrowings hedged by these swaps. The
main purpose of the Group's loans and borrowings is to finance the
acquisition and development of the Group's property portfolio. The
Group has trade and other receivables, trade and other payables and
cash and short term deposits that arise directly from its
operations.
A review of the Group's objectives, policies and processes for
managing and monitoring risk is set out in the Strategic Report.
This note provides further detail on financial risk management and
includes quantitative information on specific financial risks.
Financial risk factors
a) Interest rate risk
Interest rate risk is the risk that future cash flows of a
financial instrument will fluctuate because of changes in market
interest rates. The Group's exposure to the risk of changes in
market interest rates relates primarily to the Group's long term
debt obligations with floating rates as the Group, generally, does
not hold significant cash balances, with short term borrowings
being used when required. To manage its interest rate risk, the
Group enters into interest rate swaps, in which the Group agrees to
exchange, at specified intervals, the difference between fixed and
variable rate interest amounts calculated by reference to an
agreed-upon principal amount. Note 16 provides details of interest
swap contracts in effect at the year end.
The sensitivity analysis below shows the impact on profit before
tax and equity of reasonably possible movements in interest rates
with all other variables held constant. It should be noted that the
impact of movement in the interest rate variable is not necessarily
linear.
The fair value is arrived at with reference to the difference
between the contracted rate of a swap and the market rate for the
remaining duration at the time the valuation is performed. As
market rates increase and this difference reduces, the associated
fair value also decreases.
Effect
on fair
Effect
value of on
profit Effect
financial before on
instruments taxation equity
GBPm GBPm GBPm
------------------------- ---------------------------- ----------- -------- ------
2019
London Interbank Offered
Rate Increase of 50 basis points 7.5 9.0 16.5
London Interbank Offered
Rate Decrease of 50 basis points (7.5) (9.0) (16.5)
------------------------- ---------------------------- ----------- -------- ------
2018
London Interbank Offered
Rate Increase of 50 basis points 5.5 3.0 8.5
London Interbank Offered
Rate Decrease of 50 basis points (5.5) (3.0) (8.5)
------------------------- ---------------------------- ----------- -------- ------
b) Credit risk
Credit risk is the risk that a counterparty will not meet its
obligations under financial instruments or customer contracts,
leading to a financial loss. The Group is exposed to credit risk
from its principal financial assets being cash and cash
equivalents, and trade and other receivables (see Note 11).
Trade receivables
Trade receivables, primarily tenant rentals, are recognised and
carried at amortised cost and presented in the balance sheet net of
allowances for doubtful receivables and are monitored on a
case-by-case basis. Impairment losses are recognised through the
expected credit loss model. Credit risk is primarily managed by
requiring tenants to pay rentals in advance.
The Group has policies in place to ensure that rental contracts
are entered into only with lessees with an appropriate credit
history, but the Group does not monitor the credit quality of
receivables on an ongoing basis.
Banks and financial institutions
One of the principal credit risks of the Group arises from
financial derivative instruments and deposits with banks and
financial institutions. The Board of Directors believes that the
credit risk on short term deposits and interest rate swaps is
limited because the counterparties are banks, which are committed
lenders to the Group, with high credit ratings assigned by
international credit rating agencies.
c) Liquidity risk
The liquidity risk is that the Group will encounter difficulty
in meeting obligations associated with its financial liabilities as
the majority of the Group's assets are property investments and are
therefore not readily realisable. The Group's objective is to
maintain a mixture of available cash and committed bank facilities
that are designed to ensure that the Group has sufficient available
funds for its operations and to fund its committed capital
expenditure. This is achieved by continuous monitoring of forecast
and actual cash flows.
The table below summarises the maturity profile of the Group's
financial liabilities based on contractual undiscounted payments
including interest.
Less than Three to One to More than
twelve
On demand three months months five years five years Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- --------- ------------ -------- ---------- ---------- -------
2019
Interest-bearing loans
and borrowings - 11.4 34.5 304.2 1,136.2 1,486.3
Interest rate swaps (net) - 0.4 2.9 20.9 1.0 25.2
Trade and other payables 2.1 23.6 4.0 2.6 3.4 35.7
-------------------------- --------- ------------ -------- ---------- ---------- -------
2.1 35.4 41.4 327.7 1,140.6 1,547.2
-------------------------- --------- ------------ -------- ---------- ---------- -------
2018
Interest-bearing loans
and borrowings - 5.5 18.7 311.6 425.9 761.7
Interest rate swaps (net) - 0.4 1.3 18.1 7.6 27.4
Trade and other payables 0.8 13.9 0.4 0.4 0.1 15.6
-------------------------- --------- ------------ -------- ---------- ---------- -------
0.8 19.8 20.4 330.1 433.6 804.7
-------------------------- --------- ------------ -------- ---------- ---------- -------
The Group's borrowings have financial covenants which, if
breached, could result in the borrowings becoming repayable
immediately. Details of the covenants are given below under (e)
Capital risk management and are disclosed to the facility providers
on a quarterly basis. There have been no breaches during the year
(2018: none).
d) Market risk
Market risk is the risk that fair values of financial
instruments will fluctuate because of changes in market prices. The
Board of Directors has identified two elements of market risk that
principally affect the Group - interest rate risk and price
risk.
Interest rate risk
Interest rate risk is outlined above. The Board, with the
assistance of the Adviser, assesses the exposure to other price
risks when making each investment decision and monitors the overall
level of market risk on the investment portfolio on an ongoing
basis through a discounted cash flow analysis. Details of this
analysis can be found in the Strategic Report in the Annual
Report.
Price risk
The Group is exposed to price risk in respect of property price
risk including property rentals risk. Refer to Note 2.3. The Group
has no significant exposure to price risk in respect of financial
instruments other than the convertible bond and interest rate
derivatives (see also Note 16), as it does not hold any equity
securities or commodities.
Fair values
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
2019 2019 2018 2018
GBPm GBPm GBPm GBPm
-------------------------------------- ---------- ---------- ---------- ----------
Financial assets
Trade and other receivables 16.7 16.7 4.6 4.6
Effective interest rate swaps - - - -
Ineffective interest rate swaps 0.5 0.5 0.6 0.6
Cash and short term deposits 143.1 143.1 5.9 5.9
-------------------------------------- ---------- ---------- ---------- ----------
Financial liabilities
Interest-bearing loans and borrowings (1,210.4) (1,327.5) 679.1 707.2
Effective interest rate swaps - - (6.2) (6.2)
Ineffective interest rate swaps (net) (13.5) (13.5) (11.6) (11.6)
Trade and other payables (34.7) (34.7) (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 exchanged 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 value of fixed rate debt is estimated using the mid
yield to maturity on the reporting date. The valuations are on a
clean basis, which exclude accrued interest from the previous
settlement date to the reporting date; and
-- 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.
Fair value hierarchy
The table below analyses financial instruments carried at fair
value, by valuation method. The different levels are defined as
follows:
Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: Other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly.
Level 3: Techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data.
Fair value measurements at 31 December 2019 are as follows:
Level 1 Level 2 Level 3
1 2 3 Total
Recurring fair value measurements GBPm GBPm GBPm GBPm
---------------------------------- ------- ------- ------- -------
Financial assets
Derivative interest rate swaps - 0.5 - 0.5
---------------------------------- ------- ------- ------- -------
Financial liabilities
Derivative interest rate swaps - (13.5) - (13.5)
Convertible bond (172.7) - - (172.7)
Fixed rate debt - (945.9) - (945.9)
---------------------------------- ------- ------- ------- -------
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.
Fair value measurements at 31 December 2018 are as follows:
Level 1 Level 2 Level 3
1 2 3 Total
Recurring fair value 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.
e) Capital risk management
The primary objectives of the Group's capital management are to
ensure that it remains a going concern, operates within its
quantitative banking covenants and meets the criteria so as to
continue to qualify for UK REIT status.
The capital structure of the Group consists of shareholders'
equity and net borrowings. The type and maturity of the Group's
borrowings are analysed further in Notes 14 and 16 and the Group's
equity is analysed into its various components in the Group
Statement of Changes in Equity. The Board, with the assistance of
the Adviser, monitors and reviews the Group's capital so as to
promote the long term success of the business, to facilitate
expansion and to maintain sustainable returns for shareholders.
Under several of its debt facilities, the Group is subject to a
covenant whereby consolidated Group rental income must exceed Group
borrowing costs by the ratio 1.3:1 (2018: 1.3:1). No debt facility
has a Group loan to value covenant.
Facility-level covenants also operate with regard to specific
pools of property assets provided to lenders to secure individual
loan facilities. These range as follows:
-- interest cover: 1.15 to 1.75:1 (2018: 1.0 to 1.15:1); and
-- loan to value: 55% to 75% (2018: 55% to 74%).
UK REIT compliance tests include loan to property value and
gearing tests. The Group must satisfy these tests in order to
continue trading as a UK REIT. This is also an internal requirement
imposed by the Articles of Association.
During the period the Group has complied with all of the
requirements set out above.
2019 2018
Group loan to value ratio GBPm GBPm
-------------------------------------------------------- ------- -------
Fair value of completed investment properties 2,374.6 1,496.9
Fair value of development properties 34.0 6.0
Ground rent recognised as finance leases 4.5 -
-------------------------------------------------------- ------- -------
2,413.1 1,502.9
-------------------------------------------------------- ------- -------
Interest-bearing loans and borrowings (with convertible
bond at nominal value) 1,210.4 679.1
Less cash held (143.1) (5.9)
-------------------------------------------------------- ------- -------
Nominal amount of interest-bearing loans and borrowings 1067.3 673.2
-------------------------------------------------------- ------- -------
Group loan to value ratio 44.2% 44.8%
-------------------------------------------------------- ------- -------
18. Share capital
Ordinary Shares issued and fully paid at 12.5 pence each
2019 2018
-------- ----- -------- ----
Number Number
- 2019 - 2018
millions GBPm millions GBPm
--------------------------------------- -------- ----- -------- ----
Balance at 1 January 769.1 96.1 619.4 77.5
Scrip issues in lieu of cash dividends 4.0 0.5 1.7 0.2
Shares issued on merger with MedicX
Fund Limited 341.0 42.6 - -
Share issue 24 September 2019 78.1 9.8 106.5 13.3
Shares issued on bond conversions 24.1 3.0 41.5 5.1
--------------------------------------- -------- ----- -------- ----
Balance at 31 December 1,216.3 152.0 769.1 96.1
--------------------------------------- -------- ----- -------- ----
Issue of shares in 2019
Number
of shares
- Issue
Date of issue millions price
------------------------------------- ------------------ --------- -------
Scrip issue in lieu of cash dividend 22 February 2019 0.8 114.16p
Share issue on merger with MedicX
Fund Limited 14 March 2019 341.0 129.20p
Scrip issue in lieu of cash dividend 24 May 2019 1.2 129.80p
Scrip issue in lieu of cash dividend 23 August 2019 0.1 136.72p
Share issue 24 September 2019 78.1 128.00p
Scrip issue in lieu of cash dividend 22 November 2019 1.9 136.76p
------------------------------------- ------------------ --------- -------
19. Share premium
2019 2018
GBPm GBPm
------------------------------------- ----- -----
Balance at 1 January 220.6 80.7
Scrip issue in lieu of cash dividend 4.5 1.7
Share issue 24 September 2019 90.2 101.7
Shares issued on bond conversions 25.4 40.5
Share issue expense (2.6) (4.0)
------------------------------------- ----- -----
Balance at 31 December 338.1 220.6
------------------------------------- ----- -----
20. Merger and other reserves
The merger and other reserves are made up of the capital reserve
which is held to finance any proposed repurchases of Ordinary
Shares, following approval of the High Court in 1998, the foreign
exchange translation reserve and the premium on shares issued for
the MedicX Fund Limited merger.
2019 2018
GBPm GBPm
---------------------------------------------------- ----- ----
Capital reserve
Balance at 1 January and 31 December 1.6 1.6
---------------------------------------------------- ----- ----
Foreign exchange translation reserve
Balance at 1 January 0.9 -
Exchange differences on translating the net assets
of foreign operations (1.9) 0.9
---------------------------------------------------- ----- ----
Balance at 31 December (1.0) 0.9
---------------------------------------------------- ----- ----
Merger reserve
Balance at 1 January - -
Premium on shares issued for MedicX merger 398.0 -
---------------------------------------------------- ----- ----
Balance at 31 December 398.0 -
---------------------------------------------------- ----- ----
Balance of merger and other reserves at 31 December 398.6 2.5
---------------------------------------------------- ----- ----
21. Special reserve
2019 2018
GBPm GBPm
------------------------------------- ------ ------
Balance at 1 January 124.8 161.4
Dividends paid (54.4) (34.7)
Scrip issue in lieu of cash dividend (5.0) (1.9)
------------------------------------- ------ ------
Balance at 31 December 65.4 124.8
------------------------------------- ------ ------
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
distributed in the period have been distributed from this
reserve.
22. Cash flow hedging reserve
Information on the Group's hedging policy and interest rate
swaps is provided in Note 16.
The transfer to the Group Statement of Comprehensive Income and
the fair value movement on cash flow hedges which meet the
effectiveness criteria under IAS 39, taken to equity, can be
analysed as follows:
2019 2018
GBPm GBPm
----------------------------------------------------------- ------ ------
Balance at 1 January (25.8) (29.9)
Fair value movement on cash flow hedges (1.3) 0.8
Amortisation of cash flow hedging reserve 3.0 1.5
Reclassification of swap between ineffective and effective - 1.8
----------------------------------------------------------- ------ ------
Net movement on cash flow hedges ("effective swaps")
and amortisation of cash flow hedging reserve 1.7 4.1
----------------------------------------------------------- ------ ------
Balance at 31 December (24.1) (25.8)
----------------------------------------------------------- ------ ------
On 4 July 2017, an interest rate swap for a notional amount of
GBP20 million was terminated early. The termination cost totalled
GBP6.2 million, and the cash flow hedge reserve has been amortised
through the Group Statement of Comprehensive Income over the
remainder of what was its contract period through to 24 July
2027.
On 17 July 2018, six 4.52% (blended) fixed rate swaps with a
total nominal value of GBP70.0 million, effective until July 2026,
were cancelled for the next two years for a one-off payment of
GBP5.0 million equivalent to 0.7 pence per share on an EPRA net
asset value basis (see Note 6b).
On 15 October 2019, two HSBC swaps, GBP25.0 million with a fixed
interest rate of 2.47% effective until January 2023 and GBP75.0
million with a fixed interest rate of 2.65% effective until January
2024, were cancelled for a one-off payment of GBP8.0 million
equivalent to 0.7 pence per share. A new swap agreement was entered
into with HSBC for a contract value of GBP100.0 million with a
fixed rate of 0.6875% effective until November 2024. The balance
within the cash flow hedge reserve relating to the two cancelled
swaps has been amortised through the Group Statement of
Comprehensive Income over the remainder of the original contract
period to January 2024 (see Note 6b).
23. Retained earnings
2019 2018
GBPm GBPm
----------------------------- ------ -----
Balance at 1 January 369.8 295.5
Retained profit for the year (71.3) 74.3
----------------------------- ------ -----
Balance at 31 December 298.5 369.8
----------------------------- ------ -----
24. Net asset value per share
Net asset values have been calculated as follows:
2019 2018
GBPm GBPm
----------------------------------------------- ------- ------
Net assets per Group Balance Sheet 1,228.5 788.0
Derivative interest rate swaps (net liability) 13.0 17.2
Deferred tax 3.1 -
Convertible bond fair value movement 22.7 3.4
----------------------------------------------- ------- ------
EPRA net asset value 1,267.3 808.6
MtM on MedicX loans net of amortisation 45.5 -
----------------------------------------------- ------- ------
Adjusted EPRA net asset value 1,312.8 808.6
Fixed rate debt and swap MtM value (107.5) (45.3)
Deferred tax (3.1) -
----------------------------------------------- ------- ------
EPRA NNNAV 1,202.2 763.3
----------------------------------------------- ------- ------
Number Number
of shares of shares
- -
million million
---------------------------------------- --------- ---------
Ordinary Shares
Issued share capital 1,216.3 769.1
Net asset value per share
Basic net asset value per share 101.0p 102.5p
EPRA net asset value per share 104.2p 105.1p
Adjusted EPRA net asset value per share 107.9p 105.1p
EPRA NNNAV per share 98.8p 99.2p
---------------------------------------- --------- ---------
EPRA NAV is calculated as balance sheet net assets including the
valuation result on trading properties but excluding fair value
adjustments for debt and related derivatives.
As detailed in Note 8, the Company assesses the dilutive impact
of the unsecured convertible bond on its net asset value per share
with an initial exchange price of 153.25 pence (adjusted to 149.39
pence as at 31 December 2019), the unsecured convertible bond
issued by the Group on 15 July 2019 is anti-dilutive to all
measures of net asset value per share.
25. Capital commitments
As at 31 December 2019, the Group has entered into forward
funding development agreements with third parties for the
development of primary healthcare properties in the UK and Ireland.
The Group has acquired the land and advances funds to the
developers as the construction progresses. Total consideration of
GBP25.4 million (2018: GBP16.0 million) remains to be funded with
regard to these properties.
As at 31 December 2019, the Group has capital commitments
totalling GBP2.7 million (2018: GBPnil) being the cost to complete
asset management projects on site.
26. Related party transactions
The terms and conditions of the Advisory Agreement are described
in the Directors' Report and the Directors' Remuneration
Report.
Nexus, the Adviser, is a related party due to the Managing
Director being a shareholder and Director of Nexus.
Details of the amounts paid in relation to related party
transactions are provided in Note 4.
27. Subsequent events
On 4 February 2020, the Group contracted with a developer to
fund the development and acquisition of a purpose-built primary
care centre in Llanbradach, near Caerphilly in Wales for a total
cost of GBP2.8 million.
Note on the annual report
Annual Report
The financial information set out above does not constitute the
Group's statutory accounts for the years ended 31 December 2019 or
2018 but is derived from those accounts. Statutory accounts for
2018 have been delivered to the Registrar of Companies and those
for 2019 will be delivered in due course. The Auditor has reported
on those accounts and their reports were (i) unqualified, (ii) did
not include a reference to any matters to which the Auditor drew
attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under Section 498(2) or (3) of
the Companies Act 2006.
Full financial statements for the year ended 31 December 2019
will be published on the Group's website at www.phpgroup.co.uk and
will be posted to shareholders in February 2020.
Copies of this announcement can be obtained from the Company
Secretary of Primary Health Properties PLC, 5th Floor, Greener
House, 66-68 Haymarket, London SW1Y 4RF.
Note on Going concern
Going concern
A review of the Group's business activities and the factors that
may impact its future development, performance and position,
together with a summary and review of the nancial position of the
Group, its cash ows, liquidity position and borrowing facilities
are set out in the Risk Management section.
The Group's property portfolio is 99.5% occupied with 90% of its
income funded directly or indirectly by the Government bodies in
the UK and Republic of Ireland. The nature of the Group's tenant
base and long term lease agreements, provides secure, transparent
cash flows that are collected promptly. A strategy of maintaining a
prudent level of hedging combined with stable and predictable
administrative costs enables the Board to have great visibility on
the Group's liquidity.
In September 2019, the Company completed an over-subscribed
equity issue successfully raising GBP100.0m of new share capital
(GBP97.7m net of expenses). New shares were issued at 128p each, a
premium to the Adjusted EPRA NAV as at 30 June 2019 of 21.7% or
GBP15.7m net of issue expenses.
In July 2019, the Group issued for a six-year term new unsecured
convertible bonds with a nominal value of GBP150m and a coupon of
2.875% per annum. Subject to certain conditions, the new bonds will
be convertible into fully paid Ordinary Shares of the Company and
the initial exchange price was set at 153.25p per Ordinary Share, a
premium of 15% above the volume weighted average price of the
Company's shares on 18 June 2019 of 133.26p. Under the terms of the
Bonds, the Company will have the right to elect to settle the
exercise of any conversion rights entirely in shares or cash, or
with a combination of both. The exchange price will be subject to
adjustment if dividends paid per share exceed 2.8p per annum and in
accordance with the dividend protection provisions the conversion
price was adjusted to 149.39p per Ordinary Share during the year.
The net proceeds from the new convertible bonds were used partially
to repay the GBP75m/5.375% retail bond which matured at the end of
July 2019.
In September 2019, the Group issued its second Euro-denominated
senior secured loan notes for EUR70m (GBP59.2m) at a fixed rate of
1.509% with a maturity of 12 years. The proceeds of the issue have
been partially applied to repay and cancel a EUR32.6m facility with
the Bank of Ireland, of which EUR26.2m was drawn at a 3.0% margin,
that was acquired as part of the merger with MedicX. The balance
has been used to finance the developments currently on site in
Ireland and to repay Euro-denominated tranches of PHP's existing
revolving credit facilities which are available to be redrawn in
either Sterling or Euros in the future.
In December 2019, a GBP100m secured revolving credit facility
was entered into with HSBC for an initial three-year period with
options to extend by a further year at the first and second
anniversaries of the facility.
Further opportunities are being pursued by the Group in wider
debt capital markets which may result in additional term debt
facilities being secured during the course of 2019.
The Directors believe that the Group is well placed to manage
its business risks successfully. Having reviewed the Group's
business activities, financial development, performance and
position including its cash flows, liquidity position, borrowing
facilities and covenant cover, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence and meet its liabilities as they fall due for
a period of at least twelve months from the date of this report.
For this reason, the Directors continue to adopt the going concern
basis of accounting in preparing the nancial statements.
Alternative performance measures note
Alternative Performance Measures ("APMs")
PHP uses EPRA earnings and Adjusted EPRA earnings and EPRA net
assets and Adjusted EPRA net assets as APMs which are widely used
by public real estate companies to highlight the underlying and
recurring performance of the property portfolio. The APMs are in
addition to the statutory measures from the condensed financial
statements. The measures are defined and reconciled to amounts
presented in the financial statements within this annual results
statement at notes 8 and 24. The APMs used by the Company are
consistent with those used in the 2018 Annual Report and the
reasons for the Company's use of these APMs are set out
therein.
Directors' responsibility statement
Statement of Directors' responsibilities in respect of the Group
and Company financial statements
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
are required to prepare the Group financial statements in
accordance with International Financial Reporting Standards
("IFRSs") as adopted by the European Union and Article 4 of the IAS
Regulation and have elected to prepare the Parent Company financial
statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and
applicable law), including FRS 101 "Reduced Disclosure Framework".
Under company law, the Directors must not approve the accounts
unless they are satisfied that they give a true and fair view of
the state of affairs of the Company and of the profit or loss of
the Company for that period.
In preparing the Parent Company financial statements, the
Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
In preparing the Group financial statements, International
Accounting Standard 1 requires that the Directors:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view
of the assets, liabilities, financial position and profit of the
Company and the undertakings included in the consolidation taken as
a whole;
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face; and
-- the Annual Report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's position,
performance, business model and strategy.
This responsibility statement was approved by the Board of
Directors on 11 February 2020 and is signed on its behalf by:
For and on behalf of the Board
Steven Owen
Chairman
11 February 2020
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 EPRA earnings.
Earnings per Ordinary Share from continuing operations ("EPS")
is the profit attributable to equity holders of the Parent divided
by the weighted average number of shares in issue during the
year.
European Public Real Estate Association ("EPRA") is a real
estate industry body, which has issued Best Practice
Recommendations in order to provide consistency and transparency in
real estate reporting across Europe.
EPRA cost ratio is the ratio of net overheads and operating
expenses against gross rental income (with both amounts excluding
ground rents payable). Net overheads and operating expenses relate
to all administrative and operating expenses, net of any service
fees, recharges or other income specifically intended to cover
overhead and property expenses.
EPRA earnings is the profit after taxation excluding investment
and development property revaluations, gains/losses on disposals,
changes in the fair value of financial instruments and associated
close-out costs and their related taxation.
EPRA net assets ("EPRA NAV") are the balance sheet net assets
excluding own shares held, the MtM value of derivative financial
instruments and the convertible bond fair value movement.
EPRA NAV per share is the balance sheet net assets excluding own
shares held, the MtM value of derivative financial instruments and
the convertible bond fair value movement, divided by the number of
shares in issue at the balance sheet date.
EPRA 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.
JCRA is J.C. Rathbone Associates Limited (now part of
Chatham).
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.
MSCI (IPD) provides performance analysis for most types of real
estate and produces an independent benchmark of property
returns.
MSCI (IPD) Healthcare is 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 MSCI (IPD).
Mark to Market ("MTM") is the difference between the book value
of an asset or liability and its market value.
MedicX is MXF Fund Limited ("MedicX") and its subsidiaries.
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 purchasers' 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 115.7
Revaluation surplus and profit
on sales 49.8
------------------------------- -------
165.5
Opening property assets 1,502.9
Weighted additions in the
period 654.6
------------------------------- -------
2,157.5
Total property return 7.7%
------------------------------- -------
Total NAV return is calculated as the movement in EPRA net
assets for the period plus the dividends paid, divided by opening
EPRA net assets.
NAV
------------------------- -----
At 31 December 2018 105.1
------------------------- -----
At 31 December 2019 107.9
------------------------- -----
Increase/(decrease) 2.8
Add: Dividends paid
Q1 interim 1.4
Q2 interim 1.4
Q3 interim 1.4
Q4 interim 1.4
------------------------- -----
Total shareholder return 8.4
------------------------- -----
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
FR TBMLTMTABBIM
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February 12, 2020 02:00 ET (07:00 GMT)
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