TIDMPHP
RNS Number : 6305Q
Primary Health Properties PLC
22 February 2023
Primary Health Properties PLC
Preliminary results for the year ended 31 December 2022
Record year for rental growth driving 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 2022.
Harry Hyman , Chief Executive, commented:
" The Group's continued operational and financial resilience
throughout the year reflects the security and longevity of our
income which are important drivers of our predictable cash-flows
and underpin our progressive dividend policy as we enter the 27(th)
year of continued dividend growth.
"We are encouraged by the rental growth experienced in the year
from rent reviews and asset management projects and believe PHP
will be a beneficiary of the significant rise in construction costs
seen in recent years. Furthermore, with the majority of PHP's debt
either fixed or hedged for a weighted average period of just over
seven years, a strong control on costs and just one development on
site we have limited exposure to further cost increases and
development risk.
"In the longer term, the ageing and growing demographic of the
UK and Irish populations means that the health services in both
countries will be called upon to address more long-term, complex
and chronic co-morbidities. Consequently, the Government needs to
respond and invest in new structures to deliver more healthcare in
primary care and community settings and away from over-burdened
hospitals. PHP stands ready to play its part in delivering and
modernising the real estate infrastructure required to meet this
need."
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Year to Year to
31 December 31 December
Income statement metrics 2022 2021 Change
-------------- ------------
Net rental income(1) GBP141.5m GBP136.7m +3.5%
Adjusted earnings(1,2) GBP88.7m GBP83.2m +6.6%
Adjusted earnings per share(1,2) 6.6p 6.2p +6.5%
IFRS profit for the year GBP56.3m GBP140.1m -59.8%
IFRS earnings per share(2) 4.2p 10.5p -60.0%
Dividends
Dividend per share(5) 6.5p 6.2p +4.8%
Dividends paid(5) GBP86.7m GBP82.4m +5.2%
Dividend cover(1) 102% 101%
--------------------------------------------------- ---------- ------------ ----------
31 December 31 December
Balance sheet and operational metrics 2022 2021 Change
----------------------------------------------- -------------- ------------ ----------
Adjusted NTA (NAV) per share(1,3) 112.6p 116.7p -3.5%
IFRS NTA per share(1,3) 110.4p 112.5p -1.9%
Property portfolio
Investment portfolio valuation(4) GBP2.796bn GBP2.796bn -2.2%
Net initial yield ("NIY")(1) 4.82% 4.64% +18 bps
Contracted rent roll (annualised)(1,7) GBP145.3m GBP140.7m +3.3%
Weighted average unexpired lease 11.0 years 11.6 years
term ("WAULT")(1)
Occupancy(1) 99.7% 99.7%
Rent-roll funded by government bodies(1) 89% 90%
Debt
Average cost of debt(1) 3.2% 2.9% +30 bps
Loan to value ratio(1) 45.1% 42.9%
Weighted average debt maturity - 7.3 years 8.2 years -0.9 years
drawn facilities
Total undrawn loan facilities and GBP325.9m GBP321.2m
cash(6)
------------------------------------------- ------------------ ------------ ----------
(1) Items marked with this footnote are alternative performance
measures. Refer to the Glossary of Terms for a description of these
measures and a reconciliation to the nearest statutory metric where
appropriate.
(2) See note 9, earnings per share, to the financial statements.
Per share figures are presented on a basic basis.
(3) See note 9, net asset value per share, to the financial
statements. Adjusted net tangible assets, EPRA net tangible assets
("NTA"), EPRA net disposal value ("NDV") and EPRA net reinstatement
value ("NRV") are considered to be alternative performance
measures. The Group has determined that adjusted net tangible
assets is the most relevant measure.
(4) Percentage valuation movement during the year based on the
difference between opening and closing valuations of properties
after allowing for acquisition costs and capital expenditure.
(5) See note 10, dividends, to the financial statements.
(6) After deducting the remaining cost to complete contracted
acquisitions, properties under development and committed asset
management projects.
(7) Percentage contracted rent roll increase during the year is
based on the annualised uplift achieved from all completed rent
reviews and asset management projects.
EARNINGS AND DIVID GROWTH
-- Adjusted earnings per share increased by 6.5% to 6.6p (2021: 6.2p)
-- IFRS earnings per share decreased by 60.0% to 4.2p (2021: 10.5p)
-- Contracted annualised rent roll increased by 3.3% to GBP145.3
million (31 December 2021: GBP140.7 million)
-- Additional annualised rental income on a like-for-like basis
of GBP3.3 million or 2.4% from rent reviews and asset management
projects (2021: GBP2.4 million or 1.8%)
-- EPRA cost ratio 9.9% (2021: 9.3%), representing the lowest in the UK REIT sector
-- Quarterly dividends totalling 6.5 pence (2021: 6.2 pence) per
share distributed in the year, a 4.8% increase
-- First quarterly dividend of 1.675 pence per share declared,
payable on 23 February 2023, equivalent to 6.7 pence on an
annualised basis and a 3.1% increase over the 2022 dividend per
share, marking the Company's 27(th) consecutive year of dividend
growth
-- Dividends paid increased by 5.2% to GBP86.7 million (2021:
GBP82.4 million); 102% covered by Adjusted earnings
NET ASSET VALUE AND PORTFOLIO MANAGEMENT
-- Adjusted Net Tangible Assets ("NTA") per share decreased by
3.5% to 112.6 pence (31 December 2021: 116.7 pence)
-- Property portfolio valued at GBP2.8 billion at 31 December
2022 (31 December 2021: GBP2.8 billion) reflecting a net initial
yield of 4.82% (31 December 2021: 4.64%)
-- Revaluation deficit in the year of GBP64.4 million (2021:
surplus GBP110.2 million), representing a decline of -2.4% (2021:
+4.1%) driven by NIY widening of 18bps equivalent to around GBP134
million partially offset by gains of GBP70 million arising from
rental growth and asset management projects
-- Active asset management driving disposal of 13 smaller assets
for GBP27.7 million, 13% above 31 December 2021 book values and
represented 60 bps of yield compression, generating a profit on
sale of GBP2.9 million (2021: GBP0.3 million / one property)
-- The portfolio's metrics continue to reflect the Group's
secure, long-term and predictable income stream with occupancy at
99.7% (31 December 2021: 99.7%), WAULT of 11.0 years (31 December
2021: 11.6 years) and 89% (31 December 2021: 90%) of income funded
by government bodies
-- Portfolio in Ireland comprises 20 assets, valued at GBP231
million (EUR261 million) (31 December 2021: GBP213 million / EUR253
million)
-- The acquisition of Axis Technical Services Limited, in
January 2023, gives the Group a permanent presence in Ireland and
is an important strategic move as we seek out new investment,
development and asset management opportunities
-- Strong progression of asset management projects with ten
completed in the year and ten currently on-site, investing GBP17.2
million, creating additional rental income of GBP0.5 million per
annum and extending the weighted average unexpired lease term
(WAULT) back to over 19 years. Additional 23 lease regears
completed in the year
-- Disciplined approach to future investment with pipeline of
accretive opportunities totalling GBP85.7 million focused on
Ireland, direct developments and asset management projects our
preferred areas of future investment
-- Winner of MSCI's Highest 10-Year Risk Adjusted Total Return Award for the UK in 2021
FINANCIAL MANAGEMENT
-- LTV ratio 45.1% (31 December 2021: 42.9%) in the middle of
the Group's targeted range of between 40% to 50%
-- 94% of net debt fixed or hedged for a weighted average period of just over seven years
-- Weighted average debt maturity 7.3 years (31 December 2021: 8.2 years)
-- Significant liquidity headroom with cash and collateralised
undrawn loan facilities totaling GBP325.9 million (31 December
2021: GBP321.2 million) after capital commitments
-- EUR75 million private placement loan note issued in the
period for a 12-year term at a fixed rate of 1.64% to finance
continued expansion in Ireland
-- Refinanced the Group's revolving credit facilities due to
mature in 2023 and 2024, totaling GBP350 million, with no increase
in credit margins
RELATIVE TOTAL RETURNS
Year ended Year ended
31 December 31 December
2022 2021
----------------------------------------- ------------- -------------
Increase in Adjusted NTA plus dividends
paid 2.1% 8.9%
Total income return 5.0% 5.2%
Total capital return (2.2%) 4.3%
----------------------------------------- ------------- -------------
Total property return(1) 2.8% 9.5%
----------------------------------------- ------------- -------------
MSCI UK Monthly Property Index (10.4%) +20.0%
----------------------------------------- ------------- -------------
(1) The de finition for income, capital and total property
return is set out in the Glossary of Terms.
RESPONSIBLE BUSINESS AND ESG
-- As previously announced, Net Zero Carbon ("NZC") Framework
published with the five key steps the Group is looking to achieve
the ambitious target of being NZC by 2030 for all of PHP's
operational, development and asset management activities
-- Commenced construction of PHP's first NZC development in West
Sussex expected to achieve practical completion in Q3 2023
-- All developments completed in the period achieved BREEAM
rating of Excellent or Very Good and all asset management projects
completed met EPC target of B or above
-- Published PHP's Levelling- Up Impact Report, as part of the
Purpose Coalition, detailing the work PHP is doing to level-up both
locally and nationally, and its strategy going forward
Presentation and webcast:
A virtual briefing for analysts will be held today, 22 February
2023 at 9.30am, via a live webcast and conference call
facility.
The presentation will be accessible via live video webcast and a
live conference call facility:
Webcast:
https://stream.brrmedia.co.uk/broadcast/63c1667fddbb3277238eaa71
Tel : +44 (0)33 0551 0200
Password: Quote "PHP results" when prompted
If you would like to join the briefing, please contact Buchanan
via php@buchanan.uk.com to confirm your place.
For further information contact:
Harry Hyman Richard Howell
Chief Executive Officer Chief Financial Officer
Primary Health Properties PLC Primary Health Properties PLC
T: +44 (0) 7973 344768 T: +44 (0) 7766 072272
E: harry.hyman@phpgroup.co.uk E: richard.howell@phpgroup.co.uk
David Rydell/Jamie Hooper/Hannah Ratcliff/Verity
Parker
Buchanan Communications
T: +44 (0) 20 7466 5066
E: php@buchanan.uk.com
------------------------------------------------ ---------------------------------
Chairman's statement
I am pleased to report that PHP delivered a robust operational
and financial performance in 2022 despite the ongoing volatility in
the economic and interest rate outlook caused by both global and
domestic events. For the property sector the UK Government's
"mini-budget" in September 2022 amplified the turmoil caused by the
war in Ukraine and rising inflationary pressures and, despite the
UK returning to some form of political stability in November 2022,
the interest rate outlook has continued to weigh negatively on most
REITs, companies and funds within the sector.
The Group's continued operational resilience throughout the year
reflects the security and longevity of our income which are
important drivers of our predictable income stream and underpin our
progressive dividend policy as we enter the 27(th) year of
continued dividend growth.
We continue to maintain our strong operational property metrics,
with a long weighted average unexpired lease term ("WAULT") of 11.0
years (2021: 11.6 years), high occupancy at 99.7% (2021: 99.7%) and
89% (2021: 90%) of our rent which is securely funded directly or
indirectly by the UK and Irish Governments. Notwithstanding the
fall in values and disposal of 13 smaller assets in the second half
of the year, the portfolio's average lot size remains at GBP5.4
million (2021: GBP5.4 million).
On a like-for-like basis, 2022 was a record year for absolute
rental growth with GBP3.3 million or +2.4% (2021: GBP2.4 million or
+1.8%) of additional annualised income created from rent reviews
and asset management projects, continuing the positive trend in
growth seen over the last couple of years. It should be noted that
most of this growth came from rent reviews arising in the period
2018 to 2020 and therefore does not reflect the impact of
significantly higher construction costs experienced in the last few
years.
We are encouraged by the increasingly firmer tone of rental
growth and believe PHP in the medium term will be a beneficiary of
the current inflationary environment both through open market and
index-linked reviews. In particular, the significant increases in
construction costs, together with historically suppressed levels of
open market rental growth in the sector, will be significant pull
factors to future growth especially as the NHS seeks to deliver new
larger primary care facilities and modernise the existing
estate.
The property portfolio currently stands at just under GBP2.8
billion (2021: GBP2.8 billion) across 513 assets (2021: 521
assets), including 20 in Ireland, with a rent roll of GBP145.3
million (2021: GBP140.7 million). The Group selectively added just
four assets in the year for GBP52.9 million (2021: GBP86.6 million
across nine assets) and took advantage of the strong market
conditions seen in the first half of 2022 to dispose of a portfolio
of 13 assets which comprised smaller facilities significantly below
our average lot size for GBP27.7 million (2021: GBP2.3 million),
13% above book value. As previously reported with PHP's interim
results, in July 2022, the deteriorating interest rate and economic
outlook caused us to reconsider our acquisition pipeline and pause
investment activity in the second half of the year until the
economic and interest rate outlook becomes clearer. We currently
have just one development on site and consequently very limited
exposure to further build cost inflation and development risk.
Many of our primary care facilities and occupiers will need to
deal with the backlog of procedures and demand which has built up
over the last three years and will be required to deliver COVID-19
vaccines for many years to come. We continue to maintain close
relationships with our key stakeholders and GP partners to ensure
we are best placed to help the NHS and HSE, particularly in primary
care, evolve and deal with the increased pressures placed on
them.
We recognise that the success of the Group depends on our people
and I would again like to warmly thank the Board and all of our
employees for their continued commitment, dedication and
professionalism in ongoing difficult and uncertain times.
Acquisition of Axis Technical Services Limited
In January 2023, the Group successfully completed the
acquisition of Axis Technical Services Limited, an Irish property
management business, and signed a long term development pipeline
agreement providing access to a strong pipeline of future primary
care projects in Ireland.
Axis Technical Services Limited currently manages a portfolio of
over 30 properties, including the majority of PHP's Irish
portfolio, and the acquisition gives the Group a permanent presence
on the ground, further strengthening its position in the country
and relationship with the Health Service Executive ("HSE"),
Ireland's national health service provider. The acquired company
also provides fit-out, property and facilities management services
to the HSE and other businesses located across Ireland.
As part of the acquisition, PHP signed a development pipeline
agreement with Axis Health Care Assets Limited ("Axis"), a related
company, which gives the Group the option to acquire Axis'
development pipeline over the next five years. Axis is one of
Ireland's leading developers of primary care properties, having
developed five properties over the last five years, all of which
have been acquired by PHP. Axis also has a strong pipeline of
near-term projects with an estimated gross development value of
EUR50 million with further potential schemes beyond that.
Overview of results
PHP's Adjusted earnings increased by GBP5.5 million or +6.6%
(2021: GBP10.1 million or +13.8%) to GBP88.7 million (2021: GBP83.2
million) in the year, primarily driven by strong organic rental
growth from rent reviews and asset management projects together
with interest cost savings arising from various refinancings
completed in 2021 and the first half of 2022. Using the weighted
average number of shares in issue in the year the adjusted earnings
per share increased to 6.6 pence (2021: 6.2 pence), an increase of
6.5%.
A revaluation deficit, partially offset by profit on sales, of
GBP61.5 million (2021: surplus of GBP110.5 million) was generated
in the year from the portfolio, equivalent to -4.6 pence (2021:
+8.3 pence) per share. The valuation deficit was driven by net
initial yield ("NIY") widening of 18 bps in the year, equivalent to
a valuation reduction of around GBP134 million, albeit this was
partially offset by gains equivalent to GBP70 million arising from
rental growth and asset management projects.
A gain 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 GBP29.7
million (2021: gain of GBP9.5 million) resulted in a profit before
tax as reported under IFRS of GBP56.9 million (2021: GBP141.6
million).
The Group's balance sheet remains robust with a loan to value
ratio of 45.1% (2021: 42.9%), which is in the middle of the
targeted range of between 40% and 50%, and we have significant
liquidity headroom with cash and collateralised undrawn loan
facilities, after capital commitments, totalling GBP325.9 million
(2021: GBP321.2 million). The Group also has significant valuation
headroom across the various loan facilities with values needing to
fall further by around GBP1.2 billion or 42% before the loan to
value covenants are impacted.
Dividends
The Company distributed a total of 6.5 pence per share in 2022,
an increase of 4.8% over 2021 of 6.2 pence per share. The total
value of dividends distributed in the year increased by 5.2% to
GBP86.7 million (2021: GBP82.4 million), which were fully covered
by adjusted earnings. Dividends totalling GBP5.1 million were
satisfied through the issuance of shares via the scrip dividend
scheme. We have suspended the scrip dividend scheme in light of the
fall in the share price during the year and are offering a dividend
re-investment plan in its place.
A dividend of 1.675 pence per share was declared on 5 January
2023, equivalent to 6.7 pence on an annualised basis, which
represents an increase of 3.1% over the dividend distributed per
share in 2022. The dividend will be paid to shareholders on 23
February 2023 who were on the register at the close of business on
13 January 2023. The dividend will be paid by way of a property
income distribution of 1.34 pence and normal dividend of 0.335
pence.
The Company intends to maintain its strategy of paying a
progressive dividend, which the Company pays in equal quarterly
instalments, that is covered by adjusted earnings in each financial
year. Further dividend payments are planned to be made on a
quarterly basis in May, August and November 2023 which are expected
to comprise a mixture of both property income distribution and
normal dividend.
Total shareholder returns
The Company's share price started the year at 151.4 pence per
share and closed on 31 December 2022 at 110.8 pence, a decrease of
26.8%. Including dividends, those shareholders who held the
Company's shares throughout the year achieved a Total Shareholder
Return of -22.5% (2021: +3.1%).
Over the last five years and including the impact of the merger
with MedicX in 2019 we have delivered a total shareholder return of
+20.0%. This compares favourably to the total return delivered by
UK real estate equities (FTSE EPRA Nareit UK Index) of -16.1% and
the wider UK equity sector (FTSE All-Share Index) of +15.5% over
the same period. During the year PHP was also announced as the
winner of MSCI's Highest 10-Year Risk Adjusted Total Return Award
for the UK in 2021.
Environmental, Social and Governance ("ESG")
PHP has a strong commitment to responsible business. ESG matters
are at the forefront of the Board's and our various stakeholders'
considerations and the Group has committed to transitioning to net
zero carbon ("NZC"). We commenced construction of PHP's first NZC
development which is due to achieve practical completion later in
2023 and published, at the start of 2022, a NZC Framework with the
five key steps we are taking to achieve an ambitious target of
being NZC by 2030 for all of PHP's operational, development and
asset management activities. The NZC Framework also sets out our
ambition to help our occupiers achieve NZC by 2040, five years
ahead of the NHS's target of becoming the world's first net zero
carbon national health system by 2045 for the emissions it can
influence and ten years ahead of the UK and Irish Governments'
target of 2050. Further details on our progress in the year,
objectives for the future and approach to responsible business can
be found on pages 32 to 53 of the 2022 Annual Report and on our
website.
Board succession and changes
In December 2022, Harry Hyman, Chief Executive Officer ("CEO"),
expressed his intention to retire from his role at the Company's
Annual General Meeting ("AGM") in 2024. This intention is
consistent with the commitment made at the time of the MedicX
merger, announced in January 2019, that he would commit to managing
PHP for a further five years. The Company will be commencing the
search for a new CEO during 2023 with a view to making an
appointment later in the year and expected to take effect from the
2024 AGM.
The search for Harry Hyman's successor will be led by me as
Chairman, and after consultation with a number of the Group's major
shareholders and with the agreement of the Board, I intend to
remain as Chairman, subject to re-election at the 2023 AGM, until
the conclusion of the 2024 AGM in order to lead the process to deal
with the appointment of the new CEO and to ensure an orderly
succession.
Having been appointed to the Board in January 2014, I have now
served more than nine years and am currently not considered to be
independent under the provisions of the UK Corporate Governance
Code. After a review by the independent Non-executive Directors
they have concluded that I continue to act independently and that
the Company will benefit significantly from me leading the CEO
succession process. Accordingly, I will continue to be Chairman of
the Company and the Nomination Committee and a member of the ESG
Committee until my proposed retirement at the 2024 AGM but ceased
to be a member of the Remuneration Committee from 31 December 2022.
The search for my successor as Chairman will be led by Ian Krieger,
Senior Independent Non-executive Director.
Following a review of the composition of the Board in 2021,
Ivonne Cantú was appointed as an independent Non-executive Director
of the Company with effect from 1 January 2022.
Peter Cole, Non-executive Director and Chair of the Remuneration
Committee, retired from the Board at the Company's AGM in April
2022 and Ivonne Cantú took over as Chair of the Remuneration
Committee following the AGM.
The Board is grateful to Peter for his commitment and dedication
to the Company and for chairing the Remuneration Committee,
particularly during the process of internalising the management
function in 2020 and the transition period in 2021.
Paul Wright, who has acted as Company Secretary and Chief Legal
Officer since 2016 will be retiring on 28 February 2023. The Board
wish him well in his retirement and is grateful for his support,
commitment and dedication during a transformational period of
growth for the Group. The Board expects to appoint Toby Newman,
currently Company Secretary and Chief Legal Officer designate and
formerly Company Secretary and General Counsel at Nuffield Health,
as his successor on the same date.
Market update and outlook
The modernisation of the primary care estate been is becoming
increasingly important as the NHS seeks to work through the backlog
of treatments created by the COVID-19 pandemic, address staff
shortages and recruitment issues and deal with the inadequate
provision of both primary and social care in the UK, which is
directing patients, who could be treated in the community, to
hospitals where many then remain longer than clinically necessary
because appropriate provision does not exist in the community or
care sector where it is needed.
In the longer term, the ageing and growing demographic of
western populations means that health services will be called upon
to address more long-term, complex and chronic co-morbidities.
Consequently, the Government needs to respond and invest in new
structures to deliver more healthcare in primary care and community
settings and away from over-burdened hospitals. PHP stands ready to
play its part in delivering and modernising the real estate
infrastructure required to meet this need in the community.
In July 2021, the UK Government published a draft Health and
Social Care Bill setting out several reforms in order to implement
the commitments of the NHS England Long Term Plan. This included
the introduction of regional Integrated Care Boards and
Partnerships tasked with co-ordination between NHS partners and
local government services and their budgets such as those for
social care and mental health, in a geographic area, for the first
time - the idea being that services are then pushed to the most
efficient, cost-effective part of the system (whether primary care,
hospital or care home) for the best patient outcomes. We welcome
these reforms and are hopeful they will lead to better outcomes for
patients and to further development opportunities in primary care
in the medium to long term.
PHP's mission is to support the NHS, the HSE and other
healthcare providers, by being a leading investor in modern,
primary care premises. We will continue to actively engage with
government bodies, the NHS, the HSE in Ireland and other key
stakeholders to establish, enact (where we can), support and help
alleviate increased pressures and burdens currently being placed on
healthcare networks.
Primary health and investment market update
For both the primary care and indeed most commercial property
markets, the high levels of financial and interest rate volatility
seen in the last quarter of 2022 and resulting economic uncertainty
have encouraged a "wait and see" attitude amongst investors until
the outlook settles down. The market has been in a state of flux
including the wider investment property sector, and we expect prime
assets which have experienced greater yield compression over the
last couple of years to show an adjustment aligned more closely to
gilt rate movements. However, in the longer term, we anticipate the
market may improve as the outlook for interest rates becomes more
certain, particularly for those assets with the strong social and
sustainability credentials which are fast becoming a fundamental
requirement for investors and occupiers looking to meet their ESG
commitments.
Interest rate volatility will undoubtedly continue to impact the
property investment market in 2023, but some hope can be drawn from
the likes of 10-year gilt rates which have fallen from their peak
of around 4.5% at the end of September 2022 to levels closer to
3.7% as at 31 December 2022 and 3.6% at the time of reporting.
Consequently, the impact on valuations may not be as severe as
first anticipated.
The current low levels of investment activity in the primary
care investment market make it difficult for valuers to value based
upon specific investment transactions and therefore valuations are
to an extent based upon sentiment but also reflect investment sales
that transacted earlier this year and which demonstrate the level
at which the primary care investment market has been operating.
Consequently, we expect that further reductions in primary care
values via trading evidence are likely to be muted, with most
investors likely to continue to hold their existing assets in the
current market primarily because of:
-- Limited supplies of stock;
-- Very secure, rising income streams with an improving rental growth outlook;
-- The main specialists in the sector (PHP, Assura and
BlackRock) all having strong balance sheets so there are unlikely
to be any "forced sales"; and
-- A desire from investors to seek "safe haven" assets with some
shifting from other property sectors.
PHP Outlook
Growth in the immediate future will be focused on increasing
income from our existing portfolio and we are encouraged by the
firmer tone of rental growth experienced in 2022. As already noted,
we believe the favourable dynamics of higher inflation and
increased build costs combined with a demand for new primary care
facilities and the need to modernise the estate will continue to
increase future rental settlements.
As previously reported with PHP's interim results in July 2022,
the deteriorating interest rate and economic outlook caused us to
reconsider our acquisition pipeline and pause investment activity
in the second half of the year until the economic outlook becomes
clearer. In the short term, we expect further investment activity
will continue to be muted and future acquisitions and developments
will only take place if accretive to earnings.
We are currently on site with just one development and
consequently have very limited risk to higher construction cost
pressures and supply chain delays. In our immediate development
pipeline we have three projects with a total expected cost of
GBP14.5 million and will continue to evaluate these, together with
a wider medium term pipeline at various stages of progress, and
seek to negotiate rents with the NHS at the level required to
deliver an acceptable return.
In the current environment, Ireland continues to be the Group's
preferred area of future investment activity and we have ambitions
to continue to grow the portfolio there to around 15% of the total
(31 December 2022: 8%). The acquisition of Axis Technical Services
Limited, in January 2023, now gives the Group a permanent presence
in Ireland, an important strategic move as we seek out new
investment, development and asset management opportunities and try
to strengthen our relationship with the HSE as the leading provider
of modern primary care infrastructure in the country.
With an improving rental growth outlook, a strong control on
costs resulting in the lowest EPRA cost ratio in the sector and the
majority of PHP's debt either fixed or hedged for a weighted
average period of just over seven years, we look forward to 2023
with confidence.
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.
Steven Owen
Chairman
21 February 2023
BUSINESS REVIEW
Investment and pipeline
In the first half of 2022 the primary care investment market
continued to remain robust despite the deteriorating economic
outlook. Consequently, we invested selectively in four acquisitions
totalling GBP52.9 million and took advantage of these favourable
market conditions to dispose of a portfolio of 13 smaller assets
for GBP27.7 million.
The key acquisitions in the year were a large, state-of-the-art
diagnostic centre in Chiswick let to HCA Healthcare for GBP34.5
million, a newly refurbished drug and alcohol rehabilitation
facility in Chertsey for GBP7.0 million and a medical centre in
Newbury for GBP7.3 million.
In the short term, we expect further investment activity will
continue to be muted and future acquisitions and developments will
only take place if accretive to earnings. The Group currently has
only two developments in legal due diligence, one in Ireland for
GBP13.1 million (EUR14.8 million) and one in the UK GBP3.5 million
together with 15 asset management projects in the UK at a cost of
GBP12.7 million.
However, we continue to monitor a number of potential standing
investments, direct and forward funded developments and asset
management projects with a pipeline of opportunities totalling
GBP16.3 million in the UK and GBP40.1 million (EUR45.3 million) in
Ireland.
Pipeline In legal due diligence Advanced pipeline
Number Cost Number Cost
-------------------------------------- --------- -------------- ------- ------------
GBP13.1m GBP40.1m
Ireland - forward funded development 1 (EUR14.8m) 2 (EUR45.3m)
UK - direct development 1 GBP3.5m 2 GBP11.0m
UK - asset management 15 GBP12.7m 7 GBP5.3m
UK - investment - - - -
-------------------------------------- --------- -------------- ------- ------------
Total pipeline 17 GBP29.3m 11 GBP56.4m
-------------------------------------- --------- -------------- ------- ------------
NZC direct developments
Over the course of 2022 the Group has continued to make good
progress with the construction of its first NZC development at
Croft Primary Care Centre, West Sussex, with a total development
cost of GBP6.2 million with costs remaining to complete the project
of GBP2.8 million.
In addition, the Group has a significantly advanced pipeline
across three development projects with an estimated cost of
approximately GBP14.5 million which we expect to be on-site with in
2023, together with a wider medium term pipeline at various stages
of progress across a further 2 projects with an estimated cost of
approximately GBP20 million (31 December 2021: six projects/GBP46
million).
PHP expects that all future direct developments will be
constructed to NZC standards.
Forward funded developments
During the year, the two forward funded developments in Ireland
at Enniscorthy, County Wexford, and Arklow, County Wicklow achieved
practical completion in March and August 2022 respectively. Both
schemes have been built to nearly Zero Energy Buildings ("nZEB")
standards in Ireland.
We currently do not have any forward funded developments
on-site.
Rental growth
PHP's sector-leading metrics remain good and we continue to
focus on delivering the organic rental growth that can be derived
from our existing assets. This growth arises mainly from rent
reviews and asset management projects (extensions, refurbishments
and lease re-gears) which provide an important opportunity to
increase income, extend lease terms and avoid obsolescence whilst
ensuring that they continue to meet the communities' healthcare
needs and improve the properties' ESG credentials.
2022 was a record year for organic rental growth from our
existing portfolio with income increasing by GBP3.3 million (2021:
GBP2.4 million) or 2.4% (2021: 1.8%) on a like-for-like basis. The
progress continues the improving outlook seen over the last couple
of years and it should be noted that most of the increase comes
from rent reviews arising in the period 2018 to 2020, a period when
rental growth was muted and not reflecting the higher levels of
construction cost and general inflation experienced in recent
years. We have also seen the improving rental growth outlook
reflected in the valuation of the portfolio with the independent
valuers' assessment of estimated rental values ("ERV") increasing
by 2.2% in 2022 (2021: 1.9%).
We believe the significant increases in construction costs
together with suppressed levels of rental growth in the sector,
seen in recent years, will be a significant pull factor to future
growth especially as the NHS seeks to deliver new larger,
purpose-built primary care facilities and modernise the existing
estate.
Rent review performance
In the UK, the Group completed 318 (2021: 375) rent reviews with
a combined rental value of GBP42.2 million (2021: GBP49.5 million),
adding GBP2.8 million (2021: GBP2.0 million) and delivering an
average uplift of 6.7% (2021: 4.0%) against the previous passing
rent. In addition, a further 286 (2021: 236) open market reviews
have been agreed in principle, which will add another GBP1.7
million (2021: GBP1.7 million) to the contracted rent roll when
concluded and represents an uplift of 4.1% (2021: 4.9%) against the
previous passing rent.
69% of our rents are reviewed on an open market basis which
typically takes place every three years. The balance of the PHP
portfolio has either indexed (25%) or fixed uplift (6%) based
reviews which also provide an element of certainty to future rental
growth within the portfolio. Approximately one-third of indexed
linked reviews in the UK are subject to caps and collars which
typically range from 2% to 4%.
In Ireland, we concluded 13 index-based reviews, adding a
further GBP0.2 million (EUR0.2 million), an uplift of 9.2% against
the previous passing rent. In Ireland, all reviews are linked to
the Irish Consumer Price Index, upwards and downwards, with reviews
typically every five years. Leases to the HSE and other government
bodies, which comprise 74% of the income in Ireland, have increases
and decreases capped and collared at 25% over a five-year
period.
The growth from reviews completed in the year, noted above, is
summarised below:
Previous
rent Rent increase % increase % increase
(per annum) (per annum) total annualized
Review type Number GBP million GBP million % %
--------------------- ------- ------------- -------------- ----------- ------------
UK - open market(1) 186 26.2 1.2 4.6 1.5
UK - indexed 118 13.2 1.4 11.0 7.4
UK - fixed 14 2.8 0.2 6.2 3.1
--------------------- ------- ------------- -------------- ----------- ------------
UK - total 318 42.2 2.8 6.7 3.4
Ireland - indexed 13 1.8 0.2 9.2 2.6
--------------------- ------- ------------- -------------- ----------- ------------
Total - all
reviews 331 44.0 3.0 6.8 3.4
--------------------- ------- ------------- -------------- ----------- ------------
(1) - includes 33 reviews where no uplift was achieved.
At 31 December 2022 the rent at 656 (2021: 635) tenancies,
representing GBP90.2 million (2021: GBP84.9 million) 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 completion of historical rent
reviews, and the rents set on delivery of new properties into the
sector. We continue 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.
Asset Management Projects
During 2022, we completed ten asset management projects and 23
lease re-gears and have a further ten projects currently on site to
enhance and extend existing assets within PHP's portfolio. These
initiatives will increase rental income by GBP0.5 million (2021:
GBP0.4 million) investing GBP17.5 million (2021: GBP15.0 million)
and extending the leases back to 19 years.
PHP continues to work closely with its occupiers and has a
strong pipeline of 22 similar projects which are at are an advanced
stage and being progressed to further increase rental income and
extend unexpired occupational lease terms. The asset management
pipeline will require the investment of approximately GBP18.0
million, generating an additional GBP0.9 million of rental income
and extending the WAULT on those premises back to an average of 20
years.
The Company will continue to invest capital in a range of
physical extensions or refurbishments through asset management
projects which help avoid obsolescence, including improving energy
efficiency, and are key to maintaining the longevity and security
of our income through long term occupier 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
2022 was GBP145.3 million (2021: GBP140.7 million), an increase of
GBP4.6 million or +3.3% (2021: GBP5.5 million or +4.1%) in the year
driven predominantly by organic rent reviews and asset management
projects of GBP3.3 million (2021: GBP2.4 million). Acquisitions and
developments in the year added a further GBP2.5 million (2021:
GBP4.1 million) although this increase was offset by the sale of 13
smaller properties in the year which resulted in the loss of GBP1.4
million (2021: GBP0.1 million) of income.
The security and longevity of our income are important drivers
of our predictable cash-flows and underpin our progressive dividend
policy.
Security: PHP continues to benefit from secure, long term cash
flows with 89% (2021: 90%) of its rent roll funded directly or
indirectly by the NHS in the UK or the HSE in Ireland. The
portfolio also continues to benefit from an occupancy rate of 99.7%
(2021: 99.7%).
Rental collections : These continue to remain robust and as at
20 February 2023 98% had been collected in both the UK and Ireland
for the first quarter of 2023. This is in line with collection
rates experienced in both 2022 and 2021 which now stand at over 99%
for both countries. The balance of rent due for the first quarter
of 2023 is expected to be received shortly.
Longevity: The portfolio's WAULT at 31 December 2022 was 11.0
years (31 December 2021: 11.6 years). Only GBP11.0 million or 7.6%
of our income expires over the next three years, of which c. 75% is
either subject to a planned asset management initiative or terms
have been agreed to renew the lease. GBP66.5 million or 45.8%
expires in over ten years. The table below sets out the current
lease expiry profile of our income:
Income subject to GBP million %
expiry
------------------- ------------ ------
< 3 years 11.0 7.6
4 - 5 years 13.7 9.4
5 - 10 years 54.1 37.2
10 - 15 years 31.4 21.6
15 - 20 years 22.4 15.4
> 20 years 12.7 8.8
------------------- ------------ ------
Total 145.3 100.0
------------------- ------------ ------
Valuation and returns
At 31 December 2022, the Group's portfolio comprised 513 (31
December 2021: 521) assets independently valued at GBP2.796 billion
(31 December 2021: GBP2.796 billion). After allowing for
acquisition costs and capital expenditure on forward funded
developments and asset management projects, the portfolio generated
a valuation deficit of GBP64.4 million or -2.4% (2021: surplus of
GBP110.2 million or +4.1%).
The valuation deficit of GBP64.4 million in the year was driven
primarily by a loss arising from yield expansion of approximately
GBP134 million partially offset by gains of approximately GBP70
million arising from an improving rental growth outlook and asset
management projects.
During the year the Group's portfolio NIY has expanded by 18bps
to 4.82% (31 December 2021: 4.64%) and the true equivalent yield
increased to 4.89% at 31 December 2022 (31 December 2021:
4.74%).
In July 2022, the Group disposed of 13 smaller medical centres,
located across England and Wales, generating a profit of GBP2.9
million (2021: GBP0.3 million) net of sales costs. The sale price
was 13% above 31 December 2021 book values and represented 60bps of
yield compression.
At 31 December 2022, the portfolio in Ireland comprised 20
standing and fully let properties with no developments currently on
site, valued at GBP230.9 million or EUR260.8 million (31 December
2021: 20 assets/GBP213.0 million or EUR253.4 million). At 31
December 2022, the portfolio in Ireland has been valued at a NIY of
5.2% (31 December 2021: 5.1%).
Despite the fall in values during the year the portfolio's
average lot size remained unchanged at GBP5.4 million (31 December
2021: GBP5.4 million) and 87.6% of the portfolio is valued at over
GBP3.0 million. The Group only has five assets valued at less than
GBP1.0 million.
Number of Valuation Average
properties GBP million lot size
% (GBP million)
-------------------- ----------- ------------ ------ ---------------
> GBP10m 55 869.5 31.1 15.8
GBP5m - GBP10m 138 948.9 34.0 6.9
GBP3m - GBP5m 158 628.5 22.5 4.0
GBP1m - GBP3m 157 341.5 12.2 2.2
< GBP1m (including
land GBP1.3m) 5 4.7 0.2 0.7
-------------------- ----------- ------------ ------ ---------------
Total(1) 513 2,793.1 100.0 5.4
-------------------- ----------- ------------ ------ ---------------
(1) Excludes the GBP3.2 million impact of IFRS 16 Leases with
ground rents recognised as finance leases.
The valuation deficit and profit on sales, combined with the
portfolio's growing income, resulted in a total property return of
2.8% for the year (2021: 9.5%). The total property return in the
year compares with the MSCI UK Monthly Property Index of -10.4% for
2022 (2021: +20.0%).
Year ended Year ended
31 December 31 December 2021
2022
---------------- ------------- ------------------
Income return 5.0% 5.2%
Capital return (2.2%) 4.3%
----------------- ------------- ------------------
Total return 2.8% 9.5%
----------------- ------------- ------------------
FINANCIAL REVIEW
PHP's adjusted earnings increased by GBP5.5 million or 6.6% to
GBP88.7 million in 2022 (2021: GBP83.2 million). The increase
reflects the continued positive rental growth from organic rent
reviews and asset management projects together with interest cost
savings arising from various refinancing and hedging initiatives
put in place in 2021 and the early part of 2022.
Using the weighted average number of shares in issue in the year
the adjusted earnings per share increased to 6.6 pence (2021: 6.2
pence), an increase of 6.5%.
A revaluation deficit of GBP64.4 million (2021: surplus of
GBP110.2 million) was partially offset by a profit on sales of
GBP2.9 million (2021: GBP0.3 million).
A gain 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 GBP29.7
million (2021: gain of GBP9.5 million) contributed to the profit
before tax as reported under IFRS of GBP56.9 million (2021:
GBP141.6 million).
The financial results for the Group are summarised as
follows:
Summarised results Year ended Year ended
31 December 31 December
2022 2021
GBP million GBP million
------------------------------------------------ ------------- -------------
Net rental income 141.5 136.7
Administrative expenses (9.6) (10.5)
Operating profit before revaluation and
net financing costs 131.9 126.2
Net financing costs (43.2) (43.0)
------------------------------------------------ ------------- -------------
Adjusted earnings 88.7 83.2
Revaluation (deficit) / surplus on property
portfolio (64.4) 110.2
Profit on sales 2.9 0.3
Fair value gain on interest rate derivatives
and convertible bond 26.8 1.6
Amortisation of MedicX debt MtM at acquisition 2.9 7.9
Termination payment and impairment of goodwill
on acquisition of Nexus - (35.3)
Nexus acquisition costs - (1.7)
Early termination cost on refinancing of
Aviva debt - (24.6)
IFRS profit before tax 56.9 141.6
Corporation tax 0.2 (0.1)
Deferred tax provision (0.8) (1.4)
------------------------------------------------ ------------- -------------
IFRS profit after tax 56.3 140.1
------------------------------------------------ ------------- -------------
Net rental income receivable in the year increased by 3.5% or
GBP4.8 million to GBP141.5 million (2021: GBP136.7 million).
Excluding service charge costs recoverable, property and
administrative costs increased by GBP1.6 million or 11.8% to
GBP15.2 million (2021: GBP13.6 million). The increase in costs
arose as a result of additional rent review fees payable to agents
arising from the improving rental growth, ESG costs, additional
staff recruited, inflationary pressures and utility costs, together
with GBP0.7 million of one-off property repairs and development
abortive costs; partially offset by lower performance related pay
as a result of the decreased total returns in the year.
Notwithstanding the increase in costs in the year they continue to
be closely controlled and monitored and the Group's EPRA cost ratio
continues to be the lowest in the sector at 9.9%, a slight increase
over 9.3% in 2021.
EPRA cost ratio Year ended Year ended
31 December 31 December
2022 2021
GBP million GBP million
--------------------------------------------- --------------- -------------
Gross rent less ground rent, service charge
and other income 147.0 139.6
--------------------------------------------- --------------- -------------
Direct property expense 12.6 8.9
Less: service charge costs recovered (7.0) (5.8)
--------------------------------------------- --------------- -------------
Non-recoverable property costs 5.6 3.1
Administrative expenses 9.6 10.5
Less: ground rent (0.2) (0.2)
Less: other operating income (0.4) (0.4)
EPRA costs (including direct vacancy costs) 14.6 13.0
--------------------------------------------- --------------- -------------
EPRA cost ratio 9.9% 9.3%
--------------------------------------------- --------------- -------------
Total expense ratio (administrative expenses
as a percentage of gross asset value) 0.3% 0.4%
------------------------------------------------------- ----- -------------
Despite net debt increasing in the year by GBP61.8 million as a
result of continued investment, net finance costs in the year
increased by just GBP0.2 million to GBP43.2 million (2021: GBP43.0
million), reflecting the reductions in the average cost of debt
achieved from various refinancing and hedging initiatives in both
2021 and the early part of 2022.
Shareholder value and total accounting return
The Adjusted Net Tangible Assets ("NTA") per share declined by
4.1 pence or -3.5% to 112.6 pence (31 December 2021: 116.7 pence
per share) during the year with the revaluation deficit, partially
offset by profit on sales, of GBP61.5 million or -4.6 pence per
share being the main reason for the decrease. Dividends distributed
in the year were 102% covered by recurring adjusted earnings
resulting in a further 0.1 pence accretion to NTA. The impact of
foreign exchange movements and shares issued via the scrip dividend
scheme added a further 0.4 pence to NTA.
The total adjusted NTA (NAV) return per share, including
dividends distributed, in the year was 2.4 pence or 2.1% (2021:
10.0 pence or 8.9%). Over the last five years, including the impact
of our merger with MedicX in 2019, we have delivered a total NAV
return of 41.2%.
The table below sets out the movements in the Adjusted NTA and
EPRA Net Disposal Value ("NDV") per share over the year under
review.
Adjusted Net Tangible Assets 31 December 31 December
("NTA") per share 2022 pence 2021 pence
per share per share
--------------------------------------- ------------ ------------ ------------
Opening Adjusted NTA per share 116.7 112.9
Adjusted earnings for the year 6.6 6.2
Dividends paid (6.5) (6.2)
Revaluation of property portfolio
and profit on sales (4.6) 8.3
Shares issued 0.1 0.2
Foreign exchange movements 0.3 (0.3)
Net impact of Nexus acquisition - (2.4)
Net impact of Aviva refinancing - (1.9)
Interest rate derivative transactions - (0.1)
Closing Adjusted NTA per share 112.6 116.7
Fixed rate debt and swap mark-to-market
value 8.7 (4.1)
Convertible bond fair value adjustment 2. 1 (1.6)
Deferred tax (0.1) (0.3)
-------------------------------------------- ------- ------------ ------------
Closing EPRA NDV per share 123.3 110.7
-------------------------------------------- ------- ------------ ------------
Financing
During the year the Group renewed all of its shorter dated
revolving credit facilities, maturing in 2023 and 2024, for a
further three-year term with options to extend by a further year at
both the first and second anniversaries of each facility, including
Santander (GBP50 million), Barclays (GBP100 million) and HSBC
(GBP100 million). The Lloyds revolving credit facility was also
increased by GBP50 million to GBP100 million and renewed for a
further three-year term. There were no increases in existing credit
margins on renewal of the above facilities and the new HSBC
facilities margin will potentially benefit from a sustainability
linked discount.
Considering the volatile interest rate and economic outlook the
above addresses any short term refinancing risk faced by the Group
in the next two years.
In February 2022, the Group issued a new EUR75 million (GBP64.6
million) secured private placement loan note to MetLife for a
twelve-year term at a fixed rate of 1.64%. The loan notes have the
option to be increased by a further EUR75 million to EUR150 million
over the next three years at the lender's discretion. The proceeds
will be used to finance the Group's continued investment in
Ireland.
As at 31 December 2022, total available loan facilities were
GBP1,607.0 million (31 December 2021: GBP1,550.5 million) of which
GBP1,290.4 million (31 December 2021: GBP1,232.9 million) had been
drawn. Cash balances of GBP29.1 million (31 December 2021: GBP33.4
million) resulted in Group net debt of GBP1,261.3 million (31
December 2021: GBP1,199.5 million). Contracted capital commitments
at the balance sheet date and post period end transactions totalled
GBP19.8 million (31 December 2021: GBP29.8 million) and resulted in
headroom available to the Group of GBP325.9 million (31 December
2021: GBP321.2 million).
Capital commitments and post period end transactions comprise
costs to complete development and asset management projects on site
of GBP2.8 million and GBP9.9 million respectively together with the
acquisition of Axis Technical Services Limited, in January 2023,
for a maximum cost of GBP7.1 million (EUR8.0 million).
The Group's key debt metrics are summarised in the table
below:
Debt metrics 31 December 31 December
2022 2021
---------------------------------------- ------------ ------------
Average cost of debt - drawn 3.2% 2.9%
Average cost of debt - fully drawn 3.5% 2.7%
Loan to value 45.1% 42.9%
Loan to value - excluding convertible
bond 39.7% 37.5%
Total net debt fixed or hedged 93.7% 100.0%
Net rental income to net interest 3.3 times 3.2 times
cover
Weighted average debt maturity 6.4 years 7.3 years
- all facilities
Weighted average debt maturity 7.3 years 8.2 years
- drawn facilities
Total drawn secured debt GBP1,140.4m GBP1,082.9m
Total drawn unsecured debt GBP150.0m GBP150.0m
Total undrawn facilities and available GBP325.9m GBP321.2m
to the Group(1)
Unfettered assets GBP86.7m GBP104.9m
----------------------------------------- ------------ ------------
(1) - After deducting capital commitments.
Average cost of debt
The Group's average cost of debt rose as at 31 December 2022 to
3.2% (31 December 2021: 2.9%) following the recent and rapid
increases in 3-month SONIA interest rates during 2022 which are
used to calculate interest on the unhedged element the Group's
revolving credit facilities.
Interest rate exposure
The analysis of the Group's exposure to interest rate risk in
its debt portfolio as at 31 December 2022 is as follows:
Facilities Net debt drawn
GBP million % GBP million %
---------------------------------- ----------------- --------- ----------------- ---------
Fixed rate debt 1,082.0 67.3 1,082.0 85.8
Hedged by fixed rate interest
rate swaps 100.0 6.2 100.0 7.9
Hedged by fixed to floating rate
interest rate swaps (200.0) (12.4) (200.0) (15.8)
---------------------------------- ----------------- --------- ----------------- ---------
Total fixed rate debt 982.0 61.1 982.0 77.9
Hedged by interest rate caps 200.0 12.4 200.0 15.8
Floating rate debt - unhedged 425.0 26.5 79.3 6.3
---------------------------------- ----------------- --------- ----------------- ---------
Total 1,607.0 100.0 1,261.3 100.0
---------------------------------- ----------------- --------- ----------------- ---------
Interest rate swap contracts
The Group did not enter into any new interest rate hedging
arrangements during the year.
Accounting standards require PHP to mark its interest rate swaps
to market at each balance sheet date. During the year there was a
gain of GBP2.7 million (2021: gain of GBP2.7million) on the fair
value movement of the Group's interest rate derivatives due
primarily to increases in interest rates assumed in the forward
yield curves used to value the interest rate swaps. As at 31
December 2022 the mark-to-market ("MtM") value of the swap and cap
portfolio was an asset of GBP7.1 million (31 December 2021: asset
of GBP4.4 million).
Currency exposure
The Group owns EUR260.8 million or GBP230.9 million (31 December
2021: EUR253.4 million or GBP213.0 million) of Euro denominated
assets in Ireland as at 31 December 2022 and the value of these
assets and rental income represented 8% 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. At 31 December 2022 the Group had EUR196.0
million (31 December 2021: EUR186.5 million) of drawn Euro
denominated debt.
Euro rental receipts are used to first finance Euro interest and
administrative costs and surpluses are used to fund further
portfolio expansion. Given the large Euro to Sterling fluctuations
seen in recent years and continued uncertainty in the interest rate
market the Group entered into a nil-cost FX collar hedge (between
EUR1.1675 and EUR1.1022: GBP1) for a two-year period to cover the
approximate Euro denominated net annual income of EUR10 million per
annum, minimising the downside risk of the Euro gaining in value
above EUR1.1675: GBP1.
Fixed rate debt mark-to-market ("MtM")
The MtM of the Group's fixed rate debt as at 31 December 2022
was an asset of GBP141.3 million (31 December 2021: liability of
GBP58.9 million) equivalent to 10.6 pence per share (31 December
2021: liability of 4.4 pence). The elimination of the MtM liability
and creation of an asset during the year is due primarily to the
significant increases in interest rates assumed in the forward
yield curves used to value the debt in the year. The MtM valuation
is sensitive to movements in interest rates assumed in forward
yield curves.
Convertible bonds
In July 2019, the Group issued for a six-year term new unsecured
convertible bonds with a nominal value of
GBP150 million 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 153.25 pence per Ordinary Share. The exchange price will
be subject to adjustment, in accordance with the dividend
protection provisions in the terms of issue, if dividends paid per
share exceed 2.8 pence per annum and in accordance with those
provisions the exchange price has been adjusted to 137.69 pence per
Ordinary Share.
The conversion of the GBP150 million convertible bonds into new
Ordinary Shares would reduce the Group's loan to value ratio by
5.4% from 45.1% to 39.7% and result in the issue of 108.9 million
new Ordinary Shares.
Risk management and principal risks
How PHP assesses its prospects
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 healthcare 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 has a very small (GBP1.5 million) exposure as a
direct developer of real estate, which means that the Group is not
exposed to risks that are inherent in property development;
-- the Board funds its operations so as to maintain an
appropriate mix of debt and equity; and
-- debt funding is procured from a range of providers,
maintaining a spread of maturities and a mix of terms so as to fix
or hedge the majority of interest costs.
The structure of the Group's operations includes rigorous,
regular review of risks and how these are mitigated and managed
across all areas of the Group's activities. The Group faces a
variety of risks that have the potential to impact on its
performance, position and 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 and
the Management 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 Management team assists the Board in its assessment and
monitoring of operational and financial risks and PHP has in place
robust systems and procedures to ensure risk management is embedded
in its approach to managing the Group's portfolio and operations.
PHP has established a Risk Committee that is formed of members of
its senior management team and chaired by the Chief Financial
Officer, who is experienced in the operation and oversight of risk
management processes, with independent standing invitees attending
throughout the year.
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.
PHP 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 PHP 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 Risk Committee reports its processes of risk management and
rating of identified and emerging risks to the Audit Committee. The
risk register is reviewed and updated twice annually by the
Director: Commercial Finance and Financial Reporting assisted by
members of the Risk Committee, and assesses inherent and emerging
risks the business faces, as well as the residual risk after
specific safeguards, mitigation and/or management actions have been
overlaid.
The risk register forms an appendix to the report which details
risks that have (i) an initial high inherent risk rating, and (ii)
higher residual risk ratings. The Audit Committee in turn agrees
those risks that will be managed by management 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.
Monitoring of identified and emerging risks
In completing this assessment the Board continues to monitor
recently identified and emerging risks and their potential impact
on the Group. The manner in which we have addressed the challenges
of the last two years has demonstrated the resilience of our
business model, and our robust risk management approach, to protect
our business through periods of uncertainty and adapt to a rapidly
changing environment.
Since the release of our 2021 full-year results, there is
greater global economic uncertainty. Within the UK, the main
challenges facing the economy are rising interest rates and
heightened inflation, compounded by the impact of the ongoing war
in Ukraine and the increasing risk of recession. The potential
adverse impact of these factors on our business includes reduced
demand for our assets impacting property values in the investment
market, the ability for us to continue to execute our acquisition
and development strategy and increased financing costs, which could
impact our rental income and earnings. The Board and key Committees
have overseen the Group's response to the impact of these
challenges on our business and the wider economic influences
throughout the year.
The Board has considered the principal risks and uncertainties
as set out in the Annual Report, in light of the challenging
macroeconomic environment, and do not consider that the fundamental
principal risks and uncertainties facing the Group have changed.
However, our current assessment is the interest rate and property
market principal risks have increased. Whilst there is still much
uncertainty around the future trajectory of the economy over the
coming years, we have set out in our principal risk tables on the
following pages, an update on the changes to our principal risks
and expected impacts on our business of the macroeconomic
uncertainty, and the mitigating actions and controls we have in
place. The Group's continued ability to be flexible to adjust and
respond to these external risks as they evolve will be fundamental
to the future performance of our business.
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.
With respect to Brexit and COVID-19, the Board continues to
monitor the situation but does not consider Brexit or COVID-19, in
themselves, to constitute a significant risk to the business.
Our risk management structure
Structure Responsibility
----------------- ----------------------------------------------------
Board Sets strategic objectives and considers risk as part
of this process.
Determines appropriate risk appetite levels.
----------------- ----------------------------------------------------
Audit Committee Reports to the Board on the effectiveness of risk
management processes and controls:
External audit
Risk surveys
Health and safety
Insurance
Internal audit
----------------- ----------------------------------------------------
Senior management Implements and monitors risk mitigation processes:
Policies and procedures
Risk management and compliance
Key performance indicators
Specialist third-party reviews
----------------- ----------------------------------------------------
Principal risks and uncertainties
The Board has undertaken a robust assessment of the emerging and
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. As a result of this assessment there have
been no changes to the number of principal risks faced by the
business in the year which are all still deemed appropriate;
however, as a result of the current macroeconomic uncertainty noted
above, we have amended risk ratings accordingly. These are set out
below and are rated out of twenty, and presented within the
strategic objective that they impact:
Grow property portfolio Commentary on risk in Mitigation
1. Property markets and the year The reputation and track
competition In terms of values, the record of the Group in
Inherent risk movement Group has previously the sector mean it is
in the year: Increased benefited from a flight able to source forward
The primary care property to income as a consequence funded developments and
market continues to be of the wider economic existing standing investments
attractive to investors uncertainty seen in previous from developers, investors
attracted by the secure, years, with demand increasing and owner-occupiers.
government backed income, from investors seeking As a result, the Group
low void rates and long its long term, secure, has several formal pipeline
lease. government backed cash agreements and long-standing
The emergence of new flows against a backdrop development relationships
purchasers in the sector of limited supply. that provide an increased
and the recent slowing A revaluation deficit opportunity to secure
in the level of approvals of -GBP64.4 million was developments that come
of new centres in the generated in the year, to market in the UK and
UK may restrict the ability driven by NIY widening Ireland.
of the Group to secure of 18 bps in the year. Despite the unprecedented
new investments. Interest rate volatility, market conditions faced,
Inherent risk rating: in particular gilts and the Group continues to
15 bonds, have had a negative have a strong, identified
High impact on the property pipeline of investment
Likelihood is high and yields in the sector, opportunities in the
impact of occurrence despite gilt rates stabilising UK and Ireland.
could be major. in Q4. This reduces investor
Residual risk rating: sentiment, competition
6 and attractiveness of
Medium PHP's assets and consequently
The Group's position impacted valuations.
within the sector and
commitment to and understanding
of the asset class mean
PHP is aware of a high
proportion of transactions
in the market and potential
opportunities coming
to market.
Active management of
the property portfolio
generates regular opportunities
to increase income and
lease terms and enhance
value.
------------------------------------ -------------------------------- ----------------------------------
2. Financing Commentary on risk in Mitigation
Inherent risk movement the year Existing and new debt
in the year: Increased The Company successfully providers are keen to
The Group uses a mix completed five debt refinances provide funds to the
of shareholder equity during the year, entering sector and specifically
and external debt to into a EUR75 million to the Group, attracted
fund its operations. Euro private placement, by the strength of its
A restriction on the refinancing two RCFs cash flows.
availability of funds of GBP100 million each The Board monitors its
would limit the Group's with both Barclays and capital structure and
ability to fund investment HSBC, a GBP50 million maintains regular contact
and development opportunities RCF with Santander, as with existing and potential
and implement strategy. well as extending the equity investors and
Furthermore, a more general RCF facility with Lloyds debt funders. Management
lack of equity or debt from GBP50 million to also closely monitors
available to the sector GBP100 million. debt markets to formulate
could reduce demand for Additionally, credit its most appropriate
healthcare assets and margins agreed on these funding structure.
therefore impact values. new facilities remain The terms of the completed
Inherent risk rating: in line with previous revolving credit facilities
15 facilities, at a weighted are three years with
High average margin of 1.6% the option to extend
Likelihood is high and across these five refinances, for a further two years
impact of occurrence reiterating the confidence at the lender's discretion.
could be major. in PHP's business model The Euro private placement
Residual risk rating: shown by the lending was executed for a twelve-year
8 banks. term, further increasing
Medium The Group's undrawn facilities PHP's average debt maturity
The Group takes positive mean it currently has of drawn facilities to
action to ensure continued headroom of GBP326 million. 7.3 years.
availability of resource, All covenants have been
maintains a prudent ratio met with regard to the
of debt and equity funding Group's debt facilities
and refinances debt facilities and these all remain
in advance of their maturity. available for their contracted
term.
------------------------------------ -------------------------------- ----------------------------------
Manage effectively and Commentary on risk in Mitigation
efficiently the year The Asset and Property
Lease expiry management Lease terms for all property Management teams meet
Inherent risk movement assets will erode and with occupiers on a regular
in the year: Unchanged the importance of active basis to discuss the
The bespoke nature of management to extend specific property and
the Group's assets can the use of a building the tenant's aspirations
lead to limited alternative remains unchanged. and needs for its future
use. Their continued occupation.
use as fit-for-purpose Twenty projects either
medical centres is key completed or started
to delivering the Group's on site in the period,
strategic objectives. enhancing income and
Inherent risk rating: extending occupational
12 lease terms.
Medium In addition, there is
Likelihood of limited a strong pipeline of
alternative use value over 22 projects that
is moderate but the impact will be progressed in
of such values could 2023 and the coming years.
be serious. Only 7.6% of the Group's
Residual risk rating: income expires in the
8 next three years and
Medium management is actively
Management employs an managing these lease
active asset and property expiries.
management programme
and has a successful
track record of securing
enhancement projects
and securing new long
term leases.
------------------------------------ -------------------------------- ----------------------------------
4. People Commentary on risk in Mitigation
Inherent risk movement the year Succession planning is
in the year: Increased With higher inflation in place for all key
The inability to attract, forecast to continue positions and will be
retain and develop our into 2023 together with reviewed regularly by
people to ensure we have the cost-of-living crisis the Nomination Committee.
the appropriate skill the risk of losing a Remuneration incentives
base in place in order highly skilled and specialist are in place such as
for us to implement our staff remains at an elevated bonuses and an LTIP for
strategy. state. Executive Directors and
Inherent risk rating: Despite business confidence senior management to
12 subsiding in the latter incentivise and motivate
Medium half of 2022, the recruitment the team and are renewed
Likelihood and potential market remains competitive. annually and benchmarked
impact could be medium. Notwithstanding the robust to the market.
Residual risk rating: financial and operational Notice periods are in
9 results in the year, place for key employees.
Medium current LTIP awards are
The Remuneration Committee not expected to meet
has benchmarked remuneration threshold vesting conditions
with the help of remuneration set on inception.
consultants, and reviewed
and updated policies
to ensure retention and
motivation of the Management
team.
------------------------------------ -------------------------------- ----------------------------------
5. Responsible business Commentary on risk in Mitigation
Inherent risk movement the year PHP's ESG credentials
in the year: Unchanged Properties no longer remain at the forefront
Risk of non-compliance meet occupiers' expected of its strategic planning
with Responsible Business environmental requirements. and it has established
practices and meeting Stakeholders including an ESG Committee to review
stakeholders' expectations, investors and debt providers and drive the Group's
leading to possible reduced see ESG as a key issue ESG agenda forward. During
access to debt and capital and want to see a sufficiently the year PHP has:
markets, weakened stakeholder developed plan to decarbonise -- reviewed the ESG risk
relationships and reputational the property portfolio. and opportunities register;
damage. There is a risk that -- completed the climate
Inherent risk rating: we may not meet the hurdles transition risk assessment
16 sought by stakeholders as part of TCFD recommendations,
High including equity and quantifying the business
Likelihood is high and debt investors should impact;
impact of occurrence PHP not focus enough -- provided staff training
could be major. on ESG matters, potentially covering individual personal
Residual risk rating: impacting the funding development and ESG;
8 of the business significantly. -- continued to engage
Medium Additionally, political external experts WTW
The Group is committed and regulatory changes and Carbon Trust to review
to meeting its obligations to the energy efficiency our current ESG agenda
in line with its Responsible and net carbon neutral and appropriateness for
Business Framework and targets of corporates a listed REIT;
feels it has introduced are expected to be mandated -- set, monitored and
sufficient mitigants in the short to medium reported sustainability
to continue to deliver term, notably minimum targets and hurdles to
its objectives. EPC ratings. ensure acquired assets
or asset management schemes
meet specific ESG criteria,
with these same criteria
aligned to investors
and debt providers;
-- implemented Community
Impact Fund to support
social prescribing activities
at the Group's properties;
-- set EPC rating benchmarks
to ensure compliance
with the Minimum Energy
Efficiency Standard ("MEES")
that could otherwise
impact the quality and
desirability of our assets
leading to higher voids,
lost income and reduced
liquidity; we consider
environmental and climate
change risk relating
to our assets and commission
reports; and
-- worked with our occupiers
to improve the resilience
of our assets to climate
change as well as with
contractors which are
required to conform to
our responsible development
requirements.
------------------------------------ -------------------------------- ----------------------------------
Diversified, long term funding
6. Debt financing Commentary on risk in Mitigation
Inherent risk movement the year Existing lenders remain
in the year: Unchanged Negotiations with lenders keen to finance PHP and
Without appropriate confirmed have confirmed that the new entrants to debt
debt facilities, PHP Group enjoys the confidence capital markets have
may be unable to meet of the lending markets increased available resource.
current and future commitments both in terms of the Credit margins agreed
or repay or refinance traditional high street on new facilities in
debt facilities as they lenders and the bond the year remain in line
become due. markets. with what has been achieved
Inherent risk rating: The Company successfully in previous years, at
15 completed five debt refinances a weighted average of
Medium during the year, entering 1.6% across these five
The likelihood of insufficient into a EUR75 million refinances, reiterating
facilities is moderate Euro private placement, the confidence in PHP's
but the impact of such refinancing two RCFs business model shown
an event would be serious. of GBP100 million each by the lending banks.
Residual risk rating: with both Barclays and Management regularly
8 HSBC, a GBP50 million monitors the composition
Medium RCF with Santander, as of the Group's debt portfolio
The Board regularly monitors well as extending the to ensure compliance
the facilities available RCF facility with Lloyds with covenants and continued
to the Group and looks from GBP50 million to availability of funds.
to refinance in advance GBP100 million. Management regularly
of any maturity. The reports to the Board
Group is subject to the on current debt positions
changing conditions of and provides projections
debt capital markets. of future covenant compliance
to ensure early warning
of any possible issues.
----------------------------------- ------------------------------------------- -------------------------------
7. Interest rates Commentary on risk in Mitigation
Inherent risk movement the year The Group holds the majority
in the year: Increased Interest rates have increased of its debt in long term,
Adverse movement in underlying significantly and been fixed rate loans and
interest rates could volatile in the second mitigates its exposure
adversely affect the half of the year because to interest rate movements
Group's earnings and of greater global uncertainty on floating rate facilities
cash flows and could and the uncertain macroeconomic/political through the use of interest
impact property valuations. environment in the UK. rate swaps.
Inherent risk rating: Interest rates are widely As at the balance sheet
16 forecast to remain at date 94% of drawn debt
High higher levels for the is fixed or hedged.
The likelihood of volatility foreseeable future, forcing MtM valuation on debt
in interest rate markets us to critically re-evaluate and derivative movements
is high and the potential investment yields on do not impact on the
impact if not managed acquisitions and developments, Group's cash flows and
adequately could be major. potentially limiting are not included in any
Residual risk rating: the Group's ability to covenant test in the
6 profitably acquire investment Group's debt facilities.
Medium and development opportunities The Group continues to
The Group is currently and implement strategy. monitor and consider
well protected against Higher interest rates, further hedging opportunities
the risk of interest in particular gilts and in order to manage exposure
rate rises but, due to bonds, are likely to to rising interest rates.
its continued investment continue having a negative
in new properties and impact on property yields
the need to maintain and consequently valuations
available facilities, in 2023, despite some
is increasingly exposed hope being drawn from
to rising interest rate the fact that the Ten-year
levels. gilt has fallen from
Property values are still the peak of 4.5% in Sept
subject to market conditions 2022 to 3.6% at the time
which will continue to of reporting.
be impacted by the interest Any new variable debt
rate environment. funding needs in 2023
will be subject to variable
interest rates, in addition
to the 6%, of unhedged
variable debt as at 31
December 2022.
----------------------------------- ------------------------------------------- -------------------------------
Deliver progressive returns
8. Potential over-reliance Commentary on risk in Mitigation
on the NHS and HSE the year The commitment to primary
Inherent risk movement The UK and Irish Governments care is a stated objective
in the year: Unchanged continue to be committed of both the UK and Irish
PHP invests in a niche to the development of Governments and on a
asset sector where changes primary care services cross-party basis. Never
in healthcare policy, and initiatives to develop has the modernisation
the funding of primary new models of care increasingly of the primary care estate
care, economic conditions focusing on greater utilisation been more important in
and the availability of primary care. order to reduce the huge
of finance may adversely Despite the UK's economic backlog of treatments,
affect the Group's portfolio outlook and the continued and to avoid patients
valuation and performance. backlog of treatments being directed to understaffed
Inherent risk rating: created by the COVID-19 and over-burdened hospitals.
12 pandemic, staff shortages Management engages directly
Medium and recruitment issues with government and healthcare
Likelihood is low but that the NHS faces, we providers in both the
impact of occurrence expect the demand for UK and Ireland to promote
may be major. health services to continue the need for continued
Residual risk rating: to grow, driven by demographics. investment in modern
8 Despite future government premises.
Medium funding levels in the This continued investment
Policy risk and general UK and Ireland likely provides attractive long
economic conditions are being impacted by any term, secure income streams
out of the control of long term, material change that characterises the
the Board, but proactive to economic performance, sector,
measures are taken to primary care remains leading to stability
monitor developments a critical infrastructure of values.
and to consider their with no indications of PHP continues to appraise
possible implications an area being considered and invest in other adjacent,
for the Group. for cuts. government funded healthcare
A fundamental change related real estate assets.
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.
----------------------------------- ---------------------------------- --------------------------------
9. Foreign exchange risk Commentary on risk in Mitigation
Inherent risk movement the year The Board has funded
in the year: Unchanged The Group now has 20 and will continue to
Income and expenditure investments in Ireland. fund its investments
that will be derived Asset values, funding in Ireland with Euros
from PHP's investments and net income are denominated to create a natural hedge
in Ireland will be denominated in Euros. between asset values
in Euros and may be affected The wider macroeconomic and liabilities in Ireland.
unfavourably by fluctuations and political environment To hedge out the Euro
in currency rates, impacting across the world continues denominated income exposure
the Group's earnings to cause exchange rate PHP has executed a zero
and portfolio valuation. volatility. cost Euro foreign exchange
Inherent risk rating: cap and collar hedging
12 during 2022 to rates
Medium between a range of EUR1.1675
Likelihood of volatility : GBP1 and EUR1.1022
is high but the potential : GBP1, for a two-year
impact at present is period to cover net annual
relatively low due to income of EUR10 million
the quantum of investment per annum.
in Ireland, albeit this Management closely monitors
is increasing. the Euro to GBP currency
Residual risk rating: rates with its banks
4 to formulate a formal
Low hedging strategy against
PHP has implemented a Irish net cash flow.
natural hedging strategy
to cover balance sheet
exposure and has hedged
out the income exposure
for the period until
July 2024.
----------------------------------- ---------------------------------- --------------------------------
Viability statement
In accordance with the 2018 UK Corporate Governance Code, the
Board has assessed the prospects of the Group over the longer term,
taking account of the Group's current position, business strategy,
principal risks and outlook.
The Board believes the Company has strong long term prospects,
being well positioned to address the need for better primary care
health centres in the UK and Ireland.
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 2025. 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 and 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.
The sensitivities applied are generally the same as was used for
the 31 December 2021 year-end audit which included a 10% decline in
valuations, and 2% increase in variable interest rates. We believe
these remain realistic reasonable worst case scenarios, having seen
an absolute valuation decline of 4% in H2 2022. Across our various
loan facilities valuations would need to fall by a further GBP1.2
billion or 42% before the loan to value covenants are impacted.
Despite a 375bp increase in the BOE rate during 2022 and up to the
time of this report, many economists and market consensus is
pricing in a further 50-150bp increase during 2023, before
inflation starts decreasing to a more manageable level. We
therefore feel the further 200bp increase in variable interest
rates should remain a sensitivity.
The sensitivities applied are as follows:
-- declining attractiveness of the Group's assets or extenuating
economic circumstances impact investment values - valuation
parameter stress tested to provide for a one-off 10%/GBP282 million
fall in June 2023;
-- 15% 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 2023; and
-- tightly controlled NHS scheme approval restricts investment
opportunity - investment quantum flexed to remove non-committed
transactions.
We have assessed the impact of these assumptions on the Group's
key financial metrics over the assessment period including
profitability, net debt, loan to value ratios and available
financial headroom which are as follows:
Key metrics at 31 31 December Viability
December 2025 2022 scenario
--------------------- ----------- ---------
Loan to value ratio 45.1% 53.8%
Net debt GBP1,261m GBP1,443m
Interest cover ratio 3.45x 2.48x
Adjusted net assets GBP1,505m GBP1,209m
Available financial
headroom GBP326m GBP158m
--------------------- ----------- ---------
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 management will
actively manage each of the individual loans within covenant limits
and 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. See note 15 to the
financial statements for a profile of the Group's debt
maturity.
Harry Hyman
Chief Executive Officer
21 February 2023
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,
is fair, balanced and understandable and provides 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 21 February 2023 and is signed on its behalf by:
For and on behalf of the Board
Steven Owen
Chairman
21 February 2023
Group statement of comprehensive income
for the year ended 31 December 2022
2022 2021
Notes GBPm GBPm
------------------------------------------------- ----- ------ ------
Rental income 154.1 145.6
Direct property expenses (12.6) (8.9)
------------------------------------------------- ----- ------ ------
Net rental income 3 141.5 136.7
Administrative expenses 4 (9.6) (10.5)
------ ------
Revaluation (deficit)/gain on property portfolio 11 (64.4) 110.2
Profit on sale of land and property 11 2.9 0.3
------ ------
Total revaluation (deficit)/gain (61.5) 110.5
------------------------------------------------- ----- ------ ------
Operating profit 70.4 236.7
Finance income 5 0.9 0.8
Finance costs 6a (41.2) (35.9)
Early loan redemption finance cost 6a - (24.6)
Termination payment and goodwill impairment
on acquisition of Nexus 7 - (35.3)
Nexus acquisition costs 7 - (1.7)
Fair value loss on derivative interest rate
swaps and amortisation of hedging reserve 6b (1.9) (1.8)
Fair value gain on convertible bond 6c 28.7 3.4
------------------------------------------------- ----- ------ ------
Profit before taxation 56.9 141.6
Taxation charge 8 (0.6) (1.5)
------------------------------------------------- ----- ------ ------
Profit after taxation 1 56.3 140.1
------------------------------------------------- ----- ------ ------
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 4.5 4.5
Exchange gain/(loss) on translation of foreign
balances 3.2 (3.4)
------------------------------------------------- ----- ------ ------
Other comprehensive income net of tax 1 7.7 1.1
------------------------------------------------- ----- ------ ------
Total comprehensive income net of tax 1 64.0 141.2
------------------------------------------------- ----- ------ ------
IFRS earnings per share
Basic 9 4.2p 10.5p
Diluted 9 2.2p 9.8p
------------------------------------------------- ----- ------ ------
Adjusted earnings per share 2
Basic 9 6.6p 6.2p
Diluted 9 6.4p 6.1p
------------------------------------------------- ----- ------ ------
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 2022
2022 2021
Notes GBPm GBPm
---------------------------------------- ----- --------- ---------
Non-current assets
Investment properties 11 2,796.3 2,795.9
Derivative interest rate swaps 17 19.6 5.2
Fixed assets 0.4 0.3
---------------------------------------- ----- --------- ---------
2,816.3 2,801.4
---------------------------------------- ----- --------- ---------
Current assets
Trade and other receivables 12 17.8 17.6
Cash and cash equivalents 13 29.1 33.4
Developments work in progress 1.3 0.7
---------------------------------------- ----- --------- ---------
48.2 51.7
---------------------------------------- ----- --------- ---------
Total assets 2,864.5 2,853.1
---------------------------------------- ----- --------- ---------
Current liabilities
Deferred rental income (29.2) (28.3)
Trade and other payables 14 (32.6) (40.0)
Borrowings: term loans and overdraft 15a (2.3) (2.2)
---------------------------------------- ----- --------- ---------
(64.1) (70.5)
---------------------------------------- ----- --------- ---------
Non-current liabilities
Borrowings: term loans and overdraft 15a (682.5) (700.2)
Borrowings: bonds 15b (614.6) (572.8)
Derivative interest rate swaps 17 (12.5) (0.8)
Head lease liabilities 16 (3.2) (4.5)
Deferred tax liability (5.4) (4.4)
---------------------------------------- ----- --------- ---------
(1,318.2) (1,282.7)
---------------------------------------- ----- --------- ---------
Total liabilities (1,382.3) (1,353.2)
---------------------------------------- ----- --------- ---------
Net assets 1,482.2 1,499.9
---------------------------------------- ----- --------- ---------
Equity
Share capital 19 167.1 166.6
Share premium account 20 479.4 474.9
Merger and other reserves 21 416.7 413.5
Hedging reserve 22 (11.1) (15.6)
Retained earnings 23 430.1 460.5
---------------------------------------- ----- --------- ---------
Total equity 1 1,482.2 1,499.9
---------------------------------------- ----- --------- ---------
Net asset value per share
IFRS net assets - basic and diluted 9 110.9p 112.5p
Adjusted net tangible assets2 - basic 9 112.6p 116.7p
Adjusted net tangible assets2 - diluted 9 114.5p 118.6p
---------------------------------------- ----- --------- ---------
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 21 February 2023 and signed on its behalf by:
Richard Howell
Chief Financial Officer
Registered in England Number: 3033634
Group cash flow statement
for the year ended 31 December 2022
2022 2021
Notes GBPm GBPm
--------------------------------------------------------- ----- ------- -------
Operating activities
Profit on ordinary activities after tax 56.3 140.1
Taxation charge 8 0.6 1.5
Finance income 5 (0.9) (0.8)
Finance costs 6a 41.2 35.9
Early loan redemption finance cost 6a - 24.6
Termination payment and goodwill impairment
on acquisition of Nexus 7 - 35.3
Nexus acquisition costs 7 - 1.7
Fair value loss on derivatives 6b 1.9 1.8
Fair value loss on convertible bond 6c (28.7) (3.4)
--------------------------------------------------------- ----- ------- -------
Operating profit before financing costs 70.4 236.7
Adjustments to reconcile Group operating profit
before financing to net cash flows from operating
activities:
Revaluation loss/(gain) on property portfolio 11 64.4 (110.2)
Profit on sale of land and property 11 (2.9) (0.3)
Long Term Incentive Plan ("LTIP") - 0.2
Effect of exchange rate fluctuations on operations - -
Fixed rent uplift (0.9) (1.2)
Tax paid 0.2 (0.4)
(Increase) in trade and other receivables (0.7) (0.3)
(Decrease)/increase in trade and other payables (12.9) 15.9
--------------------------------------------------------- ----- ------- -------
Cash generated from operations 117.6 140.4
--------------------------------------------------------- ----- ------- -------
Net cash flow from operating activities 117.6 140.4
--------------------------------------------------------- ----- ------- -------
Investing activities
Payments to acquire and improve investment properties (74.8) (129.6)
Receipts from disposal of properties 27.5 0.3
Cash paid for acquisition of Nexus, including
fees - (18.2)
--------------------------------------------------------- ----- ------- -------
Cash acquired as part of merger - 0.4
--------------------------------------------------------- ----- ------- -------
Interest received on development loans 1.5 0.7
--------------------------------------------------------- ----- ------- -------
Net cash flow used in investing activities (45.8) (146.4)
--------------------------------------------------------- ----- ------- -------
Financing activities
Proceeds from issue of shares - -
Cost of share issues (0.1) (0.1)
Term bank loan drawdowns 15 161.6 335.6
Term bank loan repayments 15 (175.7) (252.8)
Proceeds from bond issues 62.9 -
Loan arrangement fees (3.5) (2.7)
Purchase of derivative financial instruments - (1.9)
Early loan redemption finance cost 6a - (24.6)
Swap interest received 1.4 -
Non-utilisation fees (2.0) (1.8)
Interest paid (39.8) (40.9)
Bank interest received - -
Equity dividends paid net of scrip dividend 10 (81.6) (74.4)
--------------------------------------------------------- ----- ------- -------
Net cash flow from financing activities (76.9) (63.6)
--------------------------------------------------------- ----- ------- -------
Decrease in cash and cash equivalents for the
year (5.0) (69.6)
Effect of exchange rate fluctuations on Euro-denominated
loans and cash equivalents 0.7 (0.6)
Cash and cash equivalents at start of year 33.4 103.6
--------------------------------------------------------- ----- ------- -------
Cash and cash equivalents at end of year 13 29.1 33.4
--------------------------------------------------------- ----- ------- -------
Group statement of changes in equity
for the year ended 31 December 2022
Merger
Share Share and other Hedging Retained
capital premium reserve reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ------- ------- --------- ------- -------- -------
1 January 2022 166.6 474.9 413.5 (15.6) 460.5 1,499.9
Profit for the year - - - - 56.3 56.3
Other comprehensive income
Amortisation of hedging
reserve - - - 4.5 - 4.5
Exchange gain on translation
of foreign balances - - 3.2 - - 3.2
----------------------------- ------- ------- --------- ------- -------- -------
Total comprehensive income - - 3.2 4.5 56.3 64.0
Share issue expenses - (0.1) - - - (0.1)
Share-based awards ("LTIP") - - - - - -
Dividends paid - - - - (81.6) (81.6)
Scrip dividend in lieu
of cash 0.5 4.6 - - (5.1) -
----------------------------- ------- ------- --------- ------- -------- -------
31 December 2022 167.1 479.4 416.7 (11.1) 430.1 1482.2
----------------------------- ------- ------- --------- ------- -------- -------
Merger
Share Share and other Hedging Retained
capital premium reserve reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ------- ------- --------- ------- -------- -------
1 January 2021 164.4 466.7 400.8 (20.1) 402.6 1,414.4
Profit for the year - - - - 140.1 140.1
Other comprehensive income
Amortisation of hedging
reserve - - - 4.5 - 4.5
Exchange gain on translation
of foreign balances - - (3.4) - - (3.4)
----------------------------- ------- ------- --------- ------- -------- -------
Total comprehensive income - - (3.4) 4.5 140.1 141.2
Shares issued on acquisition
of Nexus 1.5 - 16.1 - - 17.6
Shares issued for other
acquisitions 0.1 0.9 - - - 1.0
Share issue expenses - (0.1) - - - (0.1)
Share-based awards ("LTIP") - - - - 0.2 0.2
Dividends paid - - - - (74.4) (74.4)
Scrip dividend in lieu
of cash 0.6 7.4 - - (8.0) -
----------------------------- ------- ------- --------- ------- -------- -------
31 December 2021 166.6 474.9 413.5 (15.6) 460.5 1,499.9
----------------------------- ------- ------- --------- ------- -------- -------
Notes to the financial statements
1. Corporate information
The Group's financial statements for the year ended 31 December
2022 were approved by the Board of Directors on 21 February 2023
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, limited by shares. 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 (see page 109 of the Annual Report for further details) and
presented in Sterling rounded to the nearest million.
Statement of compliance
The consolidated financial statements for the Group have been
prepared in accordance with United Kingdom adopted International
Accounting Standards 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.
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 is exercised if and only if an
investor has all the following: power over an investee; exposure,
or rights, to variable returns from its involvement with the
investee; and the ability to use its power over the investee to
affect the amount of the investor's returns. 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
FRS 101. The use of IFRSs 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
2022 are as follows:
-- Group Balance Sheet: GBP1 = EUR1.1295 (2021: EUR1.1893).
-- Group Statement of Comprehensive Income: GBP1 = EUR1.1490 (2021: EUR1.1778).
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.
All costs associated with the purchase and construction of
investment properties under construction are capitalised including
attributable interest and staff costs. Interest is calculated on
the expenditure by reference to the average rate of interest on the
Group's borrowings. When properties under construction are
completed the capitalisation of costs ceases and they are
reclassified as investment properties.
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. Where any excess
of the purchase price of business combinations over the fair value
of the assets, liabilities and contingent liabilities is acquired,
goodwill is recognised. This is recognised as an asset and is
reviewed for impairment immediately, and then at least annually.
Any impairment is recognised immediately in the income
statement.
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% (2021: 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 15b 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; or
-- 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;
or
-- 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
-- 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.
For cash flow hedging, the Group monitors the hedging instrument
to check it continues to meet the criteria of IAS 39, having
applied the practical expedient on transition, for being described
as "highly effective" in offsetting changes in the fair values or
cash flows of hedged items.
For net investment hedge relationships, the Group monitors the
hedging instrument to check it continues to meet the criteria of
IAS 39 for being described as "highly effective".
i) Derivative financial instruments (the "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 Chatham (formally
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.
-- 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.
Employee costs
Defined contribution pension plans
Obligations for contributions to defined contribution pension
plans are charged to the income statement as incurred.
Share-based employee remuneration
The fair value of equity-settled share-based payments to
employees is determined with reference to the fair value of the
equity instruments at the date of grant and is expensed on a
straight line basis over the vesting period, based on the Group's
estimate of shares or options that will eventually vest. The fair
value of awards is equal to the market value at grant date.
Capitalised salaries
Certain internal staff and associated costs directly
attributable to the management of major projects are capitalised.
Internal staff costs are capitalised from the start of the project
until the date of practical completion.
Properties held for sale
Investment property (and disposal groups) classified as held for
sale are measured at fair value consistent with other investment
properties.
Investment property and disposal groups are classified as held
for sale if their carrying amount will be recovered through a sale
transaction rather than through continuing use. This condition is
regarded as met only when the sale is highly probable, and the
asset (or disposal group) is available for immediate sale in its
present condition. Management must be committed to the sale which
should be expected to qualify for recognition as a completed sale
within one year from the date of classification.
Capitalised costs
A capitalised cost is an expense added to the cost basis of a
fixed asset on the Balance Sheet. Capitalised costs are incurred
when purchasing fixed assets following matching principle of
accounting to record expenses in the same period as related
revenues or useful life of an asset. The historical costs are
recorded on the Balance Sheet and depreciated over the useful life
of an asset.
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 11 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
Chatham (formerly 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 2022. 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.
The Group is exposed to foreign exchange rate movements due to
operations in Ireland. In accordance with IAS 39, in order to apply
hedge accounting with the Euro-denominated cash flows, the Group
has determined that it is highly probable that there will be
corresponding Euro bank drawdowns and that these will be
renegotiated on or before expiry.
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). Where corporate entities were acquired through special
purpose vehicles for holding properties rather than separate
business entities, these were accounted for as asset acquisitions.
Where business processes inherent in the entities were acquired,
these were accounted for as a business combination.
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 UK:
-- amendments to IAS 1 Classification of liabilities as current or non-current;
-- amendments to IAS 1 Non-current liabilities with covenants;
-- amendments to IFRS 16 Lease Liability in a Sale and Leaseback;
-- amendments to IAS 12 Deferred Tax related to Assets and
Liabilities arising from a Single Transaction;
-- IAS 8 Definition of accounting estimates; and
-- annual improvements to IFRS standards 2018-2020.
A number of new standards and amendments to standards and
interpretations are effective for annual periods beginning on or
after 1 January 2023, 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
GBP132.0 million and GBP13.0 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 Two to Three to Four to More than
one year two years three years four years five years five years Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----- --------- ---------- ------------ ----------- ----------- ----------- -------
2022 142.9 138.1 133.9 129.6 122.7 910.2 1,577.4
----- --------- ---------- ------------ ----------- ----------- ----------- -------
2021 138.6 136.1 130.8 126.3 121.0 859.1 1,511.9
----- --------- ---------- ------------ ----------- ----------- ----------- -------
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
2022 2021
GBPm GBPm
--------------------------------------------------------- ----- -----
Administrative expenses including:
Advisory fees (Note 4a) - 0.1
Staff costs (Note 4b) 5.4 5.2
Performance Incentive Fees (Note 4c) - 1.0
Directors' fees 0.4 0.4
--------------------------------------------------------- ----- -----
Audit fees
Fees payable to the Company's auditor and its associates
for the audit of the Company's annual accounts 0.5 0.4
Fees payable to the Company's auditor and its associates
for the audit of the Company's subsidiaries 0.1 0.1
--------------------------------------------------------- ----- -----
Total audit fees 0.6 0.5
--------------------------------------------------------- ----- -----
Total audit and assurance services 0.6 0.5
--------------------------------------------------------- ----- -----
Non-audit fees
Fees payable to the Company's auditor and its associates
for the interim review 0.1 0.1
--------------------------------------------------------- ----- -----
Advisory services - -
--------------------------------------------------------- ----- -----
Total non-audit fees 0.1 0.1
--------------------------------------------------------- ----- -----
Total fees 0.7 0.6
--------------------------------------------------------- ----- -----
a) Advisory fees
On 5 January 2021 the Group completed the acquisition of Nexus
and internalised the management arrangements and consequently
payments ceased at this date with no further amounts payable in
relation to advisory fees to Nexus.
The advisory fees calculated and payable in the year of
acquisition to 31 December 2021 were GBP0.1 million.
The Group shares certain operational services with Nexus.
Amounts paid during the year in relation to these shared services
totalled GBP0.1 million (2021: GBP0.1 million).
Refer to Note 7 for further information on the Nexus
acquisition.
b) Staff costs
2022 2021
GBPm GBPm
------------------------------------------------------- ----- -----
Wages and salaries 6.0 5.6
Less staff costs capitalised in respect of development
and asset management projects (1.4) (1.3)
Social security costs 0.6 0.5
Pension costs 0.2 0.1
Equity-settled share-based payments - 0.3
------------------------------------------------------- ----- -----
5.4 5.2
------------------------------------------------------- ----- -----
The Group operates a defined contribution pension scheme for all
employees. The Group contribution to the scheme during the year was
GBP0.2 million (2021: GBP0.1 million), which represents the total
expense recognised through the income statement. As at 31 December
2022, there were no contributions (2021: GBPnil) due in respect of
the reporting period that had not been paid over to the plan.
The average monthly number of Group employees during the year
was 67 which included 64 full time and 3 part time employees (2021:
59 which included 56 full time and 3 part time), and as at 31
December 2022 was 65 (2021: 62).
The Executive Directors and Non-executive Directors are the key
management personnel. Full disclosure of Directors' emoluments, as
required by the Companies Act 2006, can be found in the
Remuneration Report in the Annual Report.
The Group's equity-settled share-based payments comprise the
following:
Scheme Fair value measure
--------------------------------- ------------------------
Long Term Incentive Plan ("LTIP") Face value at grant date
Save As You Earn ("SAYE") Face value at grant date
--------------------------------- ------------------------
The Group expenses an estimate of how many shares are likely to
vest based on the market price at the date of grant, taking account
of expected performance against the relevant performance targets
and service periods, which are discussed in further detail in the
Remuneration Report.
c) Performance Incentive Fee ("PIF")
Information about the Performance Incentive Fee is provided in
the Corporate Governance section in the Annual Report.
A PIF of GBP1.2 million was paid in the period in respect of
2021 and at 31 December 2022 the balance on the notional cumulative
PIF account was GBPnil (2021: GBP9.2 million), of which GBPnil
(2021: GBP1.3 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 on pages 24 to 28 of the Annual Report.
5. Finance income
2022 2021
GBPm GBPm
------------------------------------ ----- -----
Interest income on financial assets
Bank interest - -
Development loan interest 0.9 0.8
------------------------------------ ----- -----
0.9 0.8
------------------------------------ ----- -----
6. Finance costs
2022 2021
GBPm GBPm
-------------------------------------------------------------- ----- -----
Interest expense and similar charges on financial liabilities
a) Interest
Bank loan interest 23.0 24.0
Swap interest (1.4) (0.3)
Bond interest 17.5 15.5
Bank facility non-utilisation fees 2.0 1.9
Early loan redemption finance cost - 24.6
Bank charges and loan arrangement fees 3.0 2.7
-------------------------------------------------------------- ----- -----
44.1 68.4
Interest capitalised - -
-------------------------------------------------------------- ----- -----
44.1 68.4
-------------------------------------------------------------- ----- -----
Amortisation of MedicX debt MtM on acquisition (2.9) (7.9)
-------------------------------------------------------------- ----- -----
41.2 60.5
-------------------------------------------------------------- ----- -----
2022 2021
GBPm GBPm
------------------------------------------- ----- -----
b) Derivatives
Net fair value gain on interest rate swaps 2.6 2.7
Amortisation of cash flow hedging reserve (4.5) (4.5)
------------------------------------------- ----- -----
(1.9) (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. There was no fair
value gain or loss accounted for directly in equity on derivatives
which do meet the hedge effectiveness criteria under IAS 39 (2021:
GBPnil). An amount of GBP4.5 million (2021: GBP4.5 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.
2022 2021
GBPm GBPm
------------------------------------------------------- ----- -----
c) Convertible bond
Fair value loss on convertible bond fully redeemed
in the year - -
Fair value loss on convertible bond issued in the year - -
Fair value gain on existing convertible bond 28.7 3.4
Convertible bond issue costs - -
------------------------------------------------------- ----- -----
28.7 3.4
------------------------------------------------------- ----- -----
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 NTA (replacing EPRA NAV). Refer to Note 15 for further details
about the convertible bonds.
2022 2021
GBPm GBPm
----------------------------------------------- ------ ------
Net finance costs
Finance income (Note 5) 0.9 0.8
Finance costs (as per above) (41.2) (68.4)
----------------------------------------------- ------ ------
(40.3) (67.6)
Interest capitalised - -
----------------------------------------------- ------ ------
(40.3) (67.6)
----------------------------------------------- ------ ------
Amortisation of MedicX debt MtM on acquisition (2.9) 7.9
----------------------------------------------- ------ ------
(43.2) (59.7)
----------------------------------------------- ------ ------
7. Business combination
On 5 January 2021 the Group's management function was
internalised by acquiring PHP Tradeco Holdings Limited (formerly
Nexus Tradeco Holdings Limited), which is the holding company of
its long-standing external property adviser, PHP Tradeco Limited
(formerly Nexus Tradeco Limited), and certain subsidiaries,
including the primary care development business ("Nexus"). Primary
Health Properties PLC acquired the entire issued ordinary share
capital of PHP Tradeco Holdings Limited at a total cost of GBP34.1
million, including a termination payment of GBP29.0 million.
The total cost was met by GBP16.5 million payment in cash, and
GBP17.6 million satisfied by the issue of 11,485,080 new Ordinary
Shares of 12.5 pence each in the share capital of PHP at the quoted
market price on completion of 152.8 pence per share.
The acquisition of PHP Tradeco Holdings Limited for a total fair
value of consideration of GBP5.1 million resulted in the transfer
of certain assets and liabilities and the fair value of the net
liabilities acquired was GBP1.2 million, resulting in a goodwill on
acquisition of GBP6.3 million.
The acquisition resulted in the termination of the advisory
agreement. The total cost of terminating the Nexus agreement and
goodwill on acquisition was calculated to be GBP35.3 million (fair
value of consideration paid GBP34.1 million plus fair value of net
liabilities acquired GBP1.2 million) when taking into account the
consideration and the net assets with fair value adjustments. The
goodwill on acquisition of GBP35.3 million was to effect the
termination of the management agreement with Nexus and reflects the
termination notice period, approximately 2 years and 2.5 months
under the management agreement totalling GBP29.0 million. The
remaining GBP6.3 million represents a discretionary payment on
account of the acquisition of principally the management team,
assembled workforce, systems, operational platform and know-how
which were "re-branded" from Nexus to PHP.
Adjustments
Book to fair Total
value value fair value
GBPm GBPm GBPm
------------------------------------------------- ------ ----------- -----------
Cash consideration 16.5 - 16.5
Equity instruments 17.6 - 17.6
------------------------------------------------- ------ ----------- -----------
Total cost 34.1 - 34.1
------------------------------------------------- ------ ----------- -----------
Less: termination payment - - (29.0)
------------------------------------------------- ------ ----------- -----------
Fair value of consideration paid - - 5.1
------------------------------------------------- ------ ----------- -----------
Fair value of net assets acquired
Tangible fixed assets 0.1 - 0.1
Cash and cash equivalents 0.4 - 0.4
Trade and other debtors 1.2 - 1.2
------------------------------------------------- ------ ----------- -----------
Total assets 1.7 - 1.7
------------------------------------------------- ------ ----------- -----------
Trade creditors and other creditors (1.4) (1.1) (2.5)
Amounts due to HMRC (0.4) - (0.4)
------------------------------------------------- ------ ----------- -----------
Total liabilities (1.8) (1.1) (2.9)
------------------------------------------------- ------ ----------- -----------
Fair value of net assets acquired (0.1) (1.1) (1.2)
------------------------------------------------- ------ ----------- -----------
Termination payment and goodwill arising on
acquisition 35.3
------------------------------------------------- ------ ----------- -----------
Net cash flow arising on acquisition
Cash consideration 16.5
Acquisition costs 1.7
------------------------------------------------- ------ ----------- -----------
Less: cash and cash equivalent balances acquired (0.4)
------------------------------------------------- ------ ----------- -----------
17.8
------------------------------------------------- ------ ----------- -----------
Acquisition of the Nexus entities contributed GBPnil revenue and
a cost saving of approximately GBP3.9 million to the Group's profit
for the period between the date of acquisition and 31 December
2021. If the acquisition had completed on the first day of the
prior financial year, the impact on Group revenues for that year
would have been GBPnil and the impact on Group profit would have
been a cost saving of approximately GBP4.0 million.
8. Taxation
a) Taxation charge in the Group Statement of Comprehensive
Income
The taxation charge is made up as follows:
2022 2021
GBPm GBPm
--------------------------------- ----- -----
Current tax
UK corporation tax - -
Irish corporation tax (0.2) 0.1
Deferred tax on Irish activities 0.8 1.4
--------------------------------- ----- -----
Total tax 0.6 1.5
--------------------------------- ----- -----
The UK corporation tax rate of 19% (2021: 19%) and the Irish
corporation tax rate of 19% (2021: 20%) have been applied in the
measurement of the Group's UK and Ireland related activities tax
liability at 31 December 2022.
b) Factors affecting the tax charge for the year
The tax assessed for the year is lower than (2021: lower than)
the standard rate of corporation tax in the UK. The differences are
explained below:
2022 2021
GBPm GBPm
----------------------------------------------------------- ------ ------
Profit on ordinary activities before taxation 56.9 141.6
----------------------------------------------------------- ------ ------
Theoretical tax at UK corporation tax rate of 19% (2021:
19%) 10.8 26.9
REIT exempt income (11.2) (36.4)
Transfer pricing adjustment 7.1 4.7
Termination payment and goodwill impairment on acquisition
of Nexus - 7.0
Fair value loss on convertible bond (5.4) (0.6)
Non-taxable items - (0.6)
Losses brought forward utilised (0.6) (0.2)
Difference in Irish tax rates (0.1) 0.7
Taxation charge (Note 8a) 0.6 1.5
----------------------------------------------------------- ------ ------
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% (2021:
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 2022.
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.
9. Earnings per share
Performance measures
In the tables below, we present earnings per share and net
assets per share calculated in accordance with IFRSs, together with
our own adjusted measure and certain measures defined by the
European Public Real Estate Association ("EPRA"), which have been
included to assist comparison between European property companies.
Two of the Group's key financial performance measures are adjusted
earnings per share and adjusted net tangible assets per share.
Adjusted earnings, which is a tax adjusted measure of revenue
profit, is the basis for the calculation of adjusted earnings per
share. We believe adjusted earnings and adjusted earnings per share
provide further insight into the results of the Group's operational
performance to stakeholders as they focus on the net rental income
performance of the business and exclude capital and other items
which can vary significantly from year to year.
Earnings per share
2022 2021
------------------------------ ------------------------------
IFRS Adjusted EPRA IFRS Adjusted EPRA
earnings earnings earnings earnings earnings earnings
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- -------- --------- --------- -------- --------- ---------
Profit after taxation 56.3 56.3 56.3 140.1 140.1 140.1
Adjustments to remove:
Revaluation gain on property
portfolio - 64.4 64.4 - (110.2) (110.2)
Profit on sale of land
and property - (2.9) (2.9) - (0.3) (0.3)
Fair value movement on
derivatives - 1.9 1.9 - 1.8 1.8
Fair value movement and
issue costs on convertible
bond - (28.7) (28.7) - (3.4) (3.4)
Taxation charge - 0.6 0.6 - 1.5 1.5
Termination payment and
goodwill impairment on
acquisition of Nexus - - - - 35.3 6.3
Nexus acquisition costs - - - - 1.7 1.7
Early termination fees
on bank debt - - - - 24.6 24.6
MtM write-off on early
termination of bank debt - - - -- (4.7) -
Amortisation of MtM loss
on debt acquired - (2.9) - - (3.2) -
------------------------------- -------- --------- --------- -------- --------- ---------
Basic earnings 56.3 88.7 91.6 140.1 83.2 62.1
Dilutive effect of convertible
bond (24.3) 4.3 4.3 0.9 4.3 4.3
------------------------------- -------- --------- --------- -------- --------- ---------
Diluted earnings 32.0 93.0 95.9 141.0 87.5 66.4
------------------------------- -------- --------- --------- -------- --------- ---------
Number of shares
2022 weighted average 2021 weighted average
------------------------- -------------------------
million million million million million million
------------------------------- ------- ------- ------- ------- ------- -------
Ordinary Shares 1,334.8 1,334.8 1,334.8 1,330.4 1,330.4 1,330.4
Dilutive effect of convertible
bond 108.9 108.9 108.9 105.4 105.4 105.4
------------------------------- ------- ------- ------- ------- ------- -------
Diluted Ordinary Shares 1,443.7 1,443.7 1,443.7 1,435.8 1,435.8 1,435.8
------------------------------- ------- ------- ------- ------- ------- -------
Profit/(loss) per share attributable to shareholders:
2022 2021
------------------------ ------------------------
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
-------- ------ -------- ------ ------ -------- ------
Basic 4.2 6.6 6.9 10.5 6.2 4.7
Diluted 2.2 6.4 6.6 9.8 6.1 4.6
-------- ------ -------- ------ ------ -------- ------
Net assets per share
31 December 2022 31 December 2021
-------------------------- --------------------------
IFRS Adjusted EPRA IFRS Adjusted EPRA
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ------- -------- ------- ------- -------- -------
Net assets attributable
to shareholders 1,482.2 1,482.2 1,482.2 1,499.9 1,499.9 1,499.9
Derivative interest
rate swaps liability - (7.1) (7.1) - (4.4) (4.4)
Deferred tax - 5.4 5.4 - 4.4 4.4
Cumulative convertible
bond fair value movement - (7.1) (7.1) - 21.6 21.6
MtM on MedicX loans
net of amortisation - 31.4 - - 34.4 -
--------------------------- ------- -------- ------- ------- -------- -------
Net tangible assets
("NTA") 1,482.2 1,504.8 1,473.4 1,499.9 1,555.9 1,521.5
Real estate transfer
taxes - - 189.1 - - 189.0
--------------------------- ------- -------- ------- ------- -------- -------
Net reinstatement value
("NRV") - - 1,662.5 - - 1,710.5
Fixed rate debt and
swap MtM value - - 172.7 - - (20.1)
Deferred tax - - (5.4) - - (4.4)
Cumulative convertible
bond fair value movement - - 7.1 - - (21.6)
Real estate transfer
taxes - - (189.1) - - (189.0)
--------------------------- ------- -------- ------- ------- -------- -------
Net disposal value ("NDV") 1,482.2 1,504.8 1,647.8 1,499.9 1,555.9 1,475.4
--------------------------- ------- -------- ------- ------- -------- -------
Ordinary Shares
31 December 2022 31 December 2021
------------------------- -------------------------
million million million million million million
--------------------- ------- ------- ------- ------- ------- -------
Issued share capital 1,336.5 1,336.5 1,336.5 1,332.9 1,332.9 1,332.9
--------------------- ------- ------- ------- ------- ------- -------
Basic net asset value per share 1
31 December 2022 31 December 2021
---------------------- ----------------------
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
--------------------------- ----- -------- ----- ----- -------- -----
Net tangible assets
("NTA") 110.9 112.6 110.2 112.5 116.7 114.1
Net reinstatement value
("NRV") - - 124.4 - - 128.3
Net disposal value ("NDV") - - 123.3 - - 110.7
--------------------------- ----- -------- ----- ----- -------- -----
1 The above are calculated on a "basic" basis without the
adjustment for the impact of the convertible bond which is shown in
the diluted basis table below.
Diluted net asset value per share 2
31 December 2022 31 December 2021
---------------------- ----------------------
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
--------------------------- ----- -------- ----- ----- -------- -----
Net tangible assets
("NTA") 112.9 114.5 112.3 114.7 118.6 116.2
Net reinstatement value
("NRV") - - 125.4 - - 129.4
Net disposal value ("NDV") 124.4 113.0
--------------------------- ----- -------- ----- ----- -------- -----
2 The Company assesses the dilutive impact of the unsecured
convertible bond, issued by the Group on 15 July 2019, on its net
asset value per share with a current exchange price of 137.69 pence
(31 December 2021: 142.29 pence).
Conversion of the convertible bond would result in the issue of
108.9 million (31 December 2021: 105.4 million) new Ordinary
Shares. The IFRS net asset value and EPRA NDV would increase by
GBP142.9 million (31 December 2021: GBP171.6 million) and the EPRA
NTA, adjusted NTA and EPRA NRV would increase by GBP150.0 million
(31 December 2021: GBP150.0 million). The resulting diluted net
asset values per share are anti-dilutive to all measures and are
set out in the table above.
10. Dividends
Amounts recognised as distributions to equity holders in the
year:
2022 2021
GBPm GBPm
------------------------------------------------------- ----- -----
Quarterly interim dividend paid 25 February 2022 21.0 -
Scrip dividend in lieu of quarterly cash dividend paid
25 February 2022 0.6 -
Quarterly interim dividend paid 20 May 2022 20.6 -
Scrip dividend in lieu of quarterly cash dividend paid
20 May 2022 1.1 -
Quarterly interim dividend paid 19 August 2022 18.1 -
Scrip dividend in lieu of quarterly cash dividend paid
19 August 2022 3.4 -
Quarterly interim dividend paid 25 November 2022 21.9 -
Scrip dividend in lieu of quarterly cash dividend paid
25 November 2022 - -
Quarterly interim dividend paid 26 February 2021 - 18.7
Scrip dividend in lieu of quarterly cash dividend paid
26 February 2021 - 1.8
Quarterly interim dividend paid 21 May 2021 - 17.7
Scrip dividend in lieu of quarterly cash dividend paid
21 May 2021 - 2.9
Quarterly interim dividend paid 20 August 2021 - 18.3
Scrip dividend in lieu of quarterly cash dividend paid
20 August 2021 - 2.4
Quarterly interim dividend paid 26 November 2021 - 19.7
Scrip dividend in lieu of quarterly cash dividend paid
26 November 2021 - 0.9
------------------------------------------------------- ----- -----
Total dividends distributed in the year 86.7 82.4
------------------------------------------------------- ----- -----
Per share 6.5p 6.2p
------------------------------------------------------- ----- -----
On 5 January 2023, the Board declared an interim dividend of
1.675 pence per Ordinary Share with regard to the year ended 31
December 2022, payable on 23 February 2023. This dividend will
comprise wholly of a ordinary dividend of 0.335 pence and Property
Income Dividend ("PID") of 1.340 pence.
11. Investment properties and investment properties under
construction
Properties have been independently valued at fair value by
Avison Young (UK) Limited, 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 2022 (the
"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 99.7% let (2021: 99.7%). The valuations
reflected a 4.82% (2021: 4.64%) net initial yield and a 4.89%
(2021: 4.74%) 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 GBP2.8 million (2021: GBP9.0
million) in arriving at the fair value to be included in the
financial statements.
In addition to the above, capital commitments have been entered
into amounting to GBP9.9 million (2021: GBP19.0 million) which have
not been provided for in the financial statements.
A fair value increase of GBP0.6 million (2021: GBP0.4 million)
in respect of investment property under construction has been
recognised in the Group Statement of Comprehensive Income, as part
of the overall total net valuation loss on the property portfolio
in the year of GBP64.4 million (2021: GBP110.2 million gain).
Of the GBP2,793.1 million (2021: GBP2,791.4 million) valuation,
GBP2,562.2 million (91.7%) (2021: GBP2,578.4 million) relates to
investment properties in the UK and GBP230.9 million (8.3%) (2021:
GBP213.0 million) relates to investment properties in Ireland.
In line with accounting policies, the Group has assessed whether
the acquisitions during the year were asset purchases or business
combinations.
Investment
properties
Investment Investment -
properties properties
- - under
freehold
1 long leasehold construction Total
GBPm GBPm GBPm GBPm
-------------------------------------------- ---------- -------------- ------------ -------
As at 1 January 2022 2,208.4 568.3 19.2 2,795.9
Property additions 66.8 0.7 10.6 78.1
Property disposals (23.4) (1.2) - (24.6)
Reclassification of freehold and leasehold (27.5) 27.5 - -
Transfer from properties under construction 26.4 - (26.4) -
Impact of lease incentive adjustment 0.8 0.3 - 1.1
Foreign exchange movements 8.9 2.1 0.5 11.5
Lease ground rent adjustment (1.3) - - (1.3)
-------------------------------------------- ---------- -------------- ------------ -------
2,259.1 597.7 3.9 2,860.7
Revaluations for the year (44.6) (20.4) 0.6 (64.4)
-------------------------------------------- ---------- -------------- ------------ -------
As at 31 December 2022 2,214.5 577.3 4.5 2,796.3
-------------------------------------------- ---------- -------------- ------------ -------
As at 1 January 2021 2,061.3 491.4 23.4 2,576.1
Property additions 52.4 48.1 22.4 122.9
Property disposals (2.0) - - (2.0)
Impact of lease incentive adjustment 0.7 0.4 - 1.1
Transfer from properties under construction 23.4 2.9 (26.3) -
Foreign exchange movements (9.7) (2.0) (0.7) (12.4)
-------------------------------------------- ---------- -------------- ------------ -------
2,126.1 540.8 18.8 2,685.7
Revaluations for the year 82.3 27.5 0.4 110.2
-------------------------------------------- ---------- -------------- ------------ -------
As at 31 December 2021 2,208.4 568.3 19.2 2,795.9
-------------------------------------------- ---------- -------------- ------------ -------
1 Includes development land held at GBP0.7 million (31 December 2021: GBP0.9 million).
Bank borrowings, bonds and interest rate swaps are secured on
investment properties with a value of GBP2,706.5 million (2021:
GBP2,515.4 million).
Right of use assets
In accordance with IFRS 16 Leases, the Group has recognised a
GBP3.2 million head lease liability and an equal and opposite
finance lease 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 2022 and
31 December 2021. There were no transfers between levels during
the year or during 2021. 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. ERV is also used in
determining expected rental uplift on outstanding rent reviews.
2022 2021
----------------------------- ---------------------- ----------------------
GBP26,500-GBP1,515,482 GBP30,000-GBP1,433,486
ERV - range of the portfolio 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.
2022 2021
------------------------------------- ------------ ------------
True equivalent yield - range of the
portfolio 2.52%-17.50% 3.23%-19.58%
------------------------------------- ------------ ------------
Unobservable input: net initial yield
The Net Initial Yield is the annualised rental income based on
the cash rents passing at the balance sheet date, less
non-recoverable property operating expenses, divided by the market
value of the property, increased with (estimated) purchaser's
costs.
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
During 2022 the Group experiences an 18bps increase in the
portfolio Net initial yield, reducing investment property by GBP134
million (4.7% reduction), before reflecting gains as a result of
rental growth and asset management projects. We have therefore
applied the following sensitivities:
-- A decrease in the estimated annual rent will decrease the
fair value. A 1% decrease/increase in annual rent would have an
approximately GBP28 million decrease/increase in the investment
property valuation.
-- A decrease in the equivalent yield will increase the fair
value. A 0.10% shift of equivalent yield would have an
approximately GBP59 million impact on the investment property
valuation.
-- An increase in the Net initial yield will decrease fair
value. A further 10bp shift in the Net initial yield would have
approximately GBP57 million impact on the investment property
valuation.
-- 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.
12. Trade and other receivables
2022 2021
GBPm GBPm
-------------------------------------------------------- ----- -----
Trade receivables (net of provision for doubtful debts) 11.6 11.6
Prepayments and accrued income 6.0 5.4
Other debtors 0.2 0.6
-------------------------------------------------------- ----- -----
17.8 17.6
-------------------------------------------------------- ----- -----
The expected credit losses are estimated using a provision
matrix by reference to past experience and an analysis of the
debtor's current financial position, adjusted for factors that are
specific to the debtor on the recoverability, general economic
conditions of the industry and an assessment of both the current
and the forecast direction of conditions at the reporting date.
Payment default is where PHP assesses there could be a probable
failure of a tenant making a contractual payment of rent. 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.
13. Cash and cash equivalents
2022 2021
GBPm GBPm
------------------ ----- -----
Cash held at bank 29.1 33.4
------------------ ----- -----
29.1 33.4
------------------ ----- -----
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.
14. Trade and other payables
2022 2021
GBPm GBPm
------------------------------------ ----- -----
Trade payables 3.3 0.6
Bank and bond loan interest accrual 6.8 6.3
Other payables 9.1 9.1
VAT 5.9 6.6
Accruals 7.5 17.4
------------------------------------ ----- -----
32.6 40.0
------------------------------------ ----- -----
15. 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
-------- ----- -------- ----- ------- -----
2022 2021 2022 2021 2022 2021
Expiry
date GBPm GBPm GBPm GBPm GBPm GBPm
--------------- --------- -------- ----- -------- ----- ------- -----
Current
RBS overdraft Jun 2023 5.0 5.0 - - 5.0 5.0
Aviva MXF loan Sep 2033 2.3 2.2 2.3 2.2 - -
--------------- --------- -------- ----- -------- ----- ------- -----
7.3 7.2 2.3 2.2 5.0 5.0
------------------------- -------- ----- -------- ----- ------- -----
Non-current
Aviva AV loan Oct 2036 200.0 200.0 200.0 200.0 - -
Aviva loan Nov 2028 75.0 75.0 75.0 75.0 - -
Barclays loan Sep 2025 100.0 100.0 - - 100.0 100.0
HSBC loan Nov 2025 100.0 100.0 25.5 25.5 74.5 74.5
Lloyds loan Dec 2025 100.0 50.0 32.5 38.7 67.5 11.3
NatWest loan Oct 2025 100.0 100.0 41.8 86.3 58.2 13.7
Santander Jan 2025 50.0 - 38.6 - 11.4 -
Aviva MXF loan Sep 2033 222.9 225.2 222.9 225.2 - -
Aviva MXF loan Sep 2028 30.8 30.8 30.8 30.8 - -
--------------- --------- -------- ----- -------- ----- ------- -----
978.7 881.0 667.1 681.5 311.6 199.5
------------------------- -------- ----- -------- ----- ------- -----
Total 986.0 888.2 669.4 683.7 316.6 204.5
-------------------------- -------- ----- -------- ----- ------- -----
2022 2021
GBPm GBPm
--------------------------------------------------- ------- -------
Balance as at 1 January 702.4 630.0
--------------------------------------------------- ------- -------
Changes from financing activities
Term bank loan drawdowns 161.6 335.6
--------------------------------------------------- ------- -------
New loan facilities drawn 161.6 335.6
--------------------------------------------------- ------- -------
Repayments of mortgage principal (2.2) (20.4)
Repayments of term bank loans (173.5) (232.4)
--------------------------------------------------- ------- -------
Repayments of term loan borrowings (175.7) (252.8)
--------------------------------------------------- ------- -------
Loan issue costs for new facilities/refinancing (3.4) (2.7)
--------------------------------------------------- ------- -------
Total changes from financing cash flows (17.5) 80.1
--------------------------------------------------- ------- -------
Other non-cash changes
MtM on loans net of amortisation (2.3) (7.2)
Amortisation of loan issue costs 2.5 2.2
Exchange (gain) on translation of foreign balances (0.3) (2.7)
--------------------------------------------------- ------- -------
Total other changes (0.1) (7.7)
--------------------------------------------------- ------- -------
Balance as at 31 December 684.8 702.4
--------------------------------------------------- ------- -------
At 31 December 2022, total facilities of GBP1,607.0 million
(2021: GBP1,437.4 million) were available to the Group. This
included a GBP70.0 million secured bond, a GBP100.0 million secured
bond, a GBP150.0 million nominal value convertible bond, GBP44.5
million, GBP62.5 million and GBP66.4 million Euro-denominated
bonds, a GBP50.0 million Ignis loan note, a GBP77.5 million
Standard Life loan note and a GBP5.0 million overdraft facility. Of
these facilities, as at 31 December 2022, GBP1,290.4 million was
drawn (2021: GBP1,232.9 million).
On 6 January 2022, the Group refinanced a GBP50.0 million
revolving credit facility with Santander. The facility can be drawn
in Sterling and Euros and has an interest rate of 1.65% plus SONIA
or EURIBOR.
On 10 October 2022, the Group has renewed its existing GBP100.0
million revolving credit facility with Barclays for a further three
-- year term with options to extend by a further year on the first
and second anniversaries of the new facility.
On 3 November 2022, the existing NatWest facility was extended
for another year to October 2025.
On 16 December 2022, the Group has renewed its existing GBP100.0
million revolving credit facility with HSBC for a further
three-year term with options to extend by a further year on the
first and second anniversaries of the new facility.
On 22 December 2022, the Group exercised an increase in facility
size to the existing Lloyds facility, increasing the revolving
credit facility to GBP100.0 million, and extending the facility for
a further three-year term to December 2025.
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:
2022 2021
GBPm GBPm
----------------------------------------------- ------ ------
Term loans drawn: due within one year 2.3 2.2
Term loans drawn: due in greater than one year 667.1 681.5
----------------------------------------------- ------ ------
Total terms loans drawn 669.4 683.7
Plus: MtM on loans net of amortisation 27.1 29.3
Less: unamortised borrowing costs (11.7) (10.6)
----------------------------------------------- ------ ------
Total term loans per the Group Balance Sheet 684.8 702.4
----------------------------------------------- ------ ------
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 18e.
The Group has entered into interest rate swaps to manage its
exposure to interest rate fluctuations. These are set out in Note
17.
b) Bonds
2022 2021
GBPm GBPm
---------------------------------------------------- ----- -----
Unsecured:
Convertible bond July 2025 at fair value 142.9 171.6
Less: unamortised costs - -
---------------------------------------------------- ----- -----
Total unsecured bonds 142.9 171.6
---------------------------------------------------- ----- -----
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 45.1 42.9
EUR70 million secured bond (Euro private placement)
September 2031 62.0 58.8
EUR75 million secured bond (Euro private placement)
February 2034 66.4 -
Ignis loan note December 2028 50.0 50.0
Standard Life loan note September 2028 77.5 77.5
Less: unamortised bond issue costs (3.6) (3.1)
Plus: MtM on loans net of amortisation 4.3 5.1
---------------------------------------------------- ----- -----
Total secured bonds 471.7 401.2
---------------------------------------------------- ----- -----
Total bonds 614.6 572.8
---------------------------------------------------- ----- -----
There were no bond conversions during the year (2021:
GBPnil).
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 GBP70.0 million and mature on 3 December 2025. The
Secured Bonds incur interest at an annualised rate of 220bps plus a
credit spread adjustment of 28bps, above six-month SONIA, payable
semi -- annually in arrears.
On 21 March 2017, a GBP100.0 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 EUR51.0
million (GBP42.9 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:
-- EUR40.0 million 2.46% senior notes due December 2028; and
-- EUR11.0 million 2.633% senior notes due December 2030.
On 16 September 2019, new senior secured notes for a total of
EUR70.0 million (GBP58.8 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.
On 11 February 2022, the Group issued a new EUR75.0 million
(GBP66.4 million) secured private placement loan note to MetLife
for a twelve-year term at a fixed rate of 1.64%. The loan notes
have the option to be increased by a further EUR75 million to
EUR150 million over the next three years at MetLife's
discretion.
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, GBP50.0 million and GBP27.5 million at
fixed coupon rates of 3.84% and 3.00% respectively. Interest is
payable semi-annually in arrears.
Convertible bond
On 15 July 2019, PHP Finance (Jersey No.2) Limited (the
"Issuer"), a wholly owned subsidiary of the Group, issued GBP150.0
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
GBP75.0 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 137.69 pence as at 31 December 2022 (2021: 142.29 pence).
2022 2021
GBPm GBPm
--------------------------------------------------- ------ -----
Opening balance - fair value 171.6 175.0
Issued in the year - -
Cumulative fair value movement in convertible bond (28.7) (3.4)
--------------------------------------------------- ------ -----
Closing balance - fair value 142.9 171.6
--------------------------------------------------- ------ -----
The fair value of the Bonds at 31 December 2022 and 31 December
2021 was established by obtaining quoted market prices. The fair
value movement is recognised in the Group Statement of
Comprehensive Income within profit before taxation and is excluded
from the calculation of EPRA earnings and EPRA NTA (replacing EPRA
NAV).
c) Total borrowings
2022 2021
GBPm GBPm
----------------------------------- ------- -------
Current liabilities:
Term loans and overdrafts 2.3 2.2
Bonds - -
----------------------------------- ------- -------
Total current liabilities 2.3 2.2
----------------------------------- ------- -------
Non-current liabilities:
Term loan and overdrafts 667.1 681.5
MtM on loans net of amortisation 27.1 29.3
Less: unamortised loan issue costs (11.7) (10.6)
----------------------------------- ------- -------
Total non-current liabilities 682.5 700.2
----------------------------------- ------- -------
Bonds 621.0 549.2
MtM on bonds net of amortisation 4.3 5.1
MtM on convertible bond (7.1) 21.6
Less: unamortised bond issue costs (3.6) (3.1)
----------------------------------- ------- -------
Total non-current bonds 614.6 572.8
----------------------------------- ------- -------
Total borrowings 1,299.4 1,275.2
----------------------------------- ------- -------
16. Head lease liabilities
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.
2022 2021
GBPm GBPm
----------------------------- ----- -----
Due within one year 0.1 0.1
Due after one year 3.1 4.4
----------------------------- ----- -----
Closing balance - fair value 3.2 4.5
----------------------------- ----- -----
17. Derivatives and other financial instruments
It is Group policy to maintain the proportion of floating rate
interest exposure at between 20% and 40% of total debt 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.
2022 2021
GBPm GBPm
------------------------------------------------------- ------ -----
Fair value of interest rate swaps treated as cash flow
hedges under IAS 39 ("effective swaps"):
Non-current liabilities - -
------------------------------------------------------- ------ -----
- -
------------------------------------------------------- ------ -----
Fair value of interest rate swaps not qualifying as
cash flow hedges under IAS 39 ("ineffective swaps"):
Non-current assets 19.6 5.2
Non-current liabilities (12.5) (0.8)
------------------------------------------------------- ------ -----
7.1 4.4
------------------------------------------------------- ------ -----
Total fair value of interest rate swaps 7.1 4.4
------------------------------------------------------- ------ -----
Shown in the balance sheet as:
Total non-current assets 19.6 5.2
Total non-current liabilities (12.5) (0.8)
------------------------------------------------------- ------ -----
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 2022 was a GBP4.5 million gain
(2021: GBP4.5 million gain), including the amortisation of the cash
flow hedging reserve of GBP4.5 million (2021: GBP4.5 million).
Interest rate swaps and caps with a contract value of GBP100.0
million (2021: GBP188.0 million) were in effect at 31 December
2022. Details of all floating to fixed rate interest rate swap
contracts held are as follows:
Fixed interest
Contract value Product Start date Maturity per annum %
------------------ ------------- --------------- -------------- --------------
2022
GBP100.0 million Swap October 2021 November 2024 0.0699
GBP(66.0) million Reverse swap October 2021 November 2024 2.5200
GBP66.0 million Cap October 2021 November 2024 1.2500
GBP(67.0) million Reverse swap October 2021 November 2024 2.5200
GBP67.0 million Cap October 2021 November 2024 1.2500
GBP(67.0) million Reverse swap October 2021 November 2024 2.5200
GBP67.0 million Cap October 2021 November 2024 1.2500
------------------ ------------- --------------- -------------- --------------
GBP100.0 million
------------------ ------------- --------------- -------------- --------------
2021
GBP88.0 million Swap September 2020 March 2022 0.0397
GBP100.0 million Swap October 2021 November 2024 0.0699
GBP(66.0) million Reverse swap October 2021 November 2024 2.5200
GBP66.0 million Cap October 2021 November 2024 1.2500
GBP(67.0) million Reverse swap October 2021 November 2024 2.5200
GBP67.0 million Cap October 2021 November 2024 1.2500
GBP(67.0) million Reverse swap October 2021 November 2024 2.5200
GBP67.0 million Cap October 2021 November 2024 1.2500
------------------ ------------- --------------- -------------- --------------
GBP188.0 million
------------------------------------------------------------------ --------------
On 28 October 2021 the HSBC GBP100.0 million variable leg of the
LIBOR swap was converted to SONIA. The term and fixed rate were
unchanged at November 2024 expiry and 0.0699%.
On 27 October 2021 three new swap agreements were entered into
totalling GBP200.0 million. All are effective until 29 November
2024 and receive a fixed rate of 2.52%, with variable rates
payable. These included a GBP66.0 million swap agreement with HSBC
paying a variable of SONIA + 1.6275%, a GBP67.0 million swap
agreement with Barclays paying a variable of SONIA + 1.575% and a
GBP67.0 million swap agreement with NatWest paying a variable of
SONIA + 1.5849%. A one-off payment of GBP1.8 million across all
three new swap agreements was made to cap SONIA at 1.25% for the
length of the agreement, equivalent to 0.1 pence per share on an
adjusted net tangible asset value basis.
18. 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
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 17 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
------------------------- ---------------------------- ----------- -------- ------
2022
Sterling Overnight Index
Average Rate Increase of 50 basis points 120.1 5.0 125.1
Sterling Overnight Index
Average Rate Decrease of 50 basis points 120.1 (5.0) 125.1
------------------------- ---------------------------- ----------- -------- ------
2021
London Interbank Offered
Rate Increase of 50 basis points 5.5 6.0 11.5
London Interbank Offered
Rate Decrease of 50 basis points (5.5) (6.0) (11.5)
------------------------- ---------------------------- ----------- -------- ------
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 12).
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 is 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
-------------------------- --------- ------------ -------- ---------- ---------- -------
2022
Interest-bearing loans
and borrowings - 11.3 34.4 489.7 1,017.4 1,552.8
Interest rate swaps (net) - - - - - -
Trade and other payables 2.7 22.5 3.5 1.8 2.1 32.6
-------------------------- --------- ------------ -------- ---------- ---------- -------
2.7 33.8 37.9 491.5 1,019.5 1,585.4
-------------------------- --------- ------------ -------- ---------- ---------- -------
2021
Interest-bearing loans
and borrowings - 9.8 29.7 514.6 1,001.4 1,555.5
Interest rate swaps (net) - - - - - -
Trade and other payables 1.6 29.6 3.2 2.9 2.0 39.3
-------------------------- --------- ------------ -------- ---------- ---------- -------
1.6 39.4 32.9 517.5 1,003.4 1,594.8
-------------------------- --------- ------------ -------- ---------- ---------- -------
The Group's borrowings have financial covenants which, if
breached, could result in the borrowings becoming repayable
immediately. Details of the covenants are given under I Capital
risk management and are disclosed to the facility providers on a
quarterly basis. There have been no breaches during the year (2021:
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 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 17), 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
2022 2022 2021 2021
GBPm GBPm GBPm GBPm
-------------------------------------- ---------- ---------- ---------- ----------
Financial assets
Trade and other receivables 17.8 17.8 17.6 17.6
Effective interest rate swaps - - - -
Ineffective interest rate swaps 19.6 19.6 5.2 5.2
Cash and short term deposits 29.1 29.1 33.4 33.4
-------------------------------------- ---------- ---------- ---------- ----------
Financial liabilities
Interest-bearing loans and borrowings (1,290.4) (1,149.1) (1,232.9) (1,313.4)
Effective interest rate swaps - - - -
Ineffective interest rate swaps (net) (12.5) (12.5) (0.8) (0.8)
Trade and other payables (32.6) (32.6) (40.0) (40.0)
-------------------------------------- ---------- ---------- ---------- ----------
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 excludes 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 2022 were 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 -- 19.6 - 19.6
---------------------------------- ------- ------- ------- -------
Financial liabilities
Derivative interest rate swaps - (12.5) - (12.5)
Convertible bond (142.9) - - (142.9)
Fixed rate debt - (797.8) - (797.8)
---------------------------------- ------- ------- ------- -------
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.
Fair value measurements at 31 December 2021 were 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 - 5.2 - 5.2
---------------------------------- ------- ------- ------- -------
Financial liabilities
Derivative interest rate swaps - (0.8) - (0.8)
Convertible bond (171.6) - - (171.6)
Fixed rate debt - (921.3) - (921.3)
---------------------------------- ------- ------- ------- -------
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 15 and 17 and the Group's
equity is analysed into its various components in the Group
Statement of Changes in Equity. The Board 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 (2021: 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 cover1: 1.15 to 2.25 (2021: 1.05 to 2.25); and
-- loan to value1: 55% to 75% (2021: 55% to 75%).
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 year the Group has complied with all of the
requirements set out above.
1 See Glossary of Terms.
2022 2021
Group loan to value ratio GBPm GBPm
-------------------------------------------------------- ------- -------
Fair value of completed investment properties 2,788.6 2,772.2
Fair value of development properties 4.5 19.2
Ground rent recognised as finance leases 3.2 4.5
-------------------------------------------------------- ------- -------
2,796.3 2,795.9
-------------------------------------------------------- ------- -------
Interest-bearing loans and borrowings (with convertible
bond at nominal value) 1,290.4 1,232.9
Less cash held (29.1) (33.4)
-------------------------------------------------------- ------- -------
Nominal amount of interest-bearing loans and borrowings 1,261.3 1,199.5
-------------------------------------------------------- ------- -------
Group loan to value ratio 45.1% 42.9%
-------------------------------------------------------- ------- -------
19. Share capital
Ordinary Shares issued, authorised and fully paid at 12.5 pence
each
2022 2021
-------------- --------------
Number Number
- -
million GBPm million GBPm
--------------------------------------- ------- ----- ------- -----
Balance at 1 January 1,332.9 166.6 1,315.6 164.4
Scrip issues in lieu of cash dividends 3.6 0.5 5.2 0.7
Share issues 5 January 2021 - - 11.5 1.4
Share issues on other acquisitions - - 0.6 0.1
--------------------------------------- ------- ----- ------- -----
Balance at 31 December 1,336.5 167.1 1,332.9 166.6
--------------------------------------- ------- ----- ------- -----
Issue of shares in 2022
Number
of shares
- Issue
Date of issue million price
------------------------------------- ----------------- --------- -------
Scrip issue in lieu of cash dividend 25 February 2022 0.4 146.72p
Scrip issue in lieu of cash dividend 20 May 2022 0.7 149.58p
Scrip issue in lieu of cash dividend 19 August 2022 2.5 138.14p
Scrip issue in lieu of cash dividend 25 November 2022 - -
------------------------------------- ----------------- --------- -------
20. Share premium
2022 2021
GBPm GBPm
--------------------------------------- ----- -----
Balance at 1 January 474.9 466.7
Scrip issues in lieu of cash dividends 4.6 7.4
Share issues 5 January 2021 - -
Share issues on other acquisitions - 0.9
Share issue expense (0.1) (0.1)
--------------------------------------- ----- -----
Balance at 31 December 479.4 474.9
--------------------------------------- ----- -----
21. 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 and the Nexus merger.
2022 2021
GBPm GBPm
---------------------------------------------------- ----- -----
Capital reserve
Balance at 1 January and 31 December 1.6 1.6
---------------------------------------------------- ----- -----
Foreign exchange translation reserve
Balance at 1 January (2.2) 1.2
Exchange differences on translating the net assets
of foreign operations 3.2 (3.4)
---------------------------------------------------- ----- -----
Balance at 31 December 1.0 (2.2)
---------------------------------------------------- ----- -----
Merger reserve
Balance at 1 January 414.1 398.0
Premium on shares issued for Nexus merger - 16.1
---------------------------------------------------- ----- -----
Balance at 31 December 414.1 414.1
---------------------------------------------------- ----- -----
Balance of merger and other reserves at 31 December 416.7 413.5
---------------------------------------------------- ----- -----
22. Cash flow hedging reserve
Information on the Group's hedging policy and interest rate
swaps is provided in Note 17.
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:
2022 2021
GBPm GBPm
----------------------------------------------------- ------ ------
Balance at 1 January (15.6) (20.1)
Fair value movement on cash flow hedges - -
Amortisation of cash flow hedging reserve 4.5 4.5
----------------------------------------------------- ------ ------
Net movement on cash flow hedges ("effective swaps")
and amortisation of cash flow hedging reserve 4.5 4.5
----------------------------------------------------- ------ ------
Balance at 31 December (11.1) (15.6)
----------------------------------------------------- ------ ------
The balance within the cash flow hedge reserve relating to
cancelled swaps will be amortised through the Group Statement of
Comprehensive Income over the remainder of the original contract
period (see Note 6b).
23. Retained earnings
2022 2021
GBPm GBPm
------------------------------- ------ ------
Balance at 1 January 460.5 402.6
Retained profit for the year 56.3 140.1
Dividends paid (81.6) (74.4)
Scrip dividend in lieu of cash (5.1) (8.0)
Share-based awards ("LTIP") - 0.2
------------------------------- ------ ------
Balance at 31 December 430.1 460.5
------------------------------- ------ ------
24. Capital commitments
As at 31 December 2022, 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
GBP2.8 million (2021: GBP9.0 million) remains to be funded with
regard to these properties.
As at 31 December 2022, the Group has capital commitments
totalling GBP9.9 million (2021: GBP10.0 million) being the cost to
complete asset management projects on site, and GBP2.8 million
(2021: GBP10.7 million) being the cost to complete investments. In
addition to this we recognised a capital commitment in relation to
the acquisition of Axis Technical Services Limited of GBP7.1
million (EUR8.0 million) that was subsequently acquired in January
2023.
25. Related party transactions
Harry Hyman, Chief Executive Officer, is a Director and the
ultimate beneficial owner of a number of Nexus entities and is
considered to be a related party. Following the acquisition of
certain Nexus entities on the internalisation of management
structure on 5 January 2021, the Group has continued to share
certain operational services with a Nexus entity, Nexus Central
Management Services Limited. Harry Hyman is a current Director and
ultimate controlling party of Nexus Central Management Services
Limited.
Amounts paid during the period in relation to shared services
totalled GBP0.1 million (31 December 2021: net receipt GBP0.1
million). Amounts paid in relation to prior periods include an
element of advisory fees up to the date of internalisation.
As at 31 December 2022, outstanding fees payable to Nexus
totalled GBPnil (31 December 2021: GBPnil).
26. Subsequent events
On 23 January 2023, the Group acquired the Irish property
management business, Axis Technical Services Limited ("Axis"). PHP
acquired the entire issued ordinary share capital of Axis for an
initial completion consideration of EUR5.5 million plus working
capital estimated at EUR0.5 million, payable in cash. A further
deferred cash consideration of up to EUR2.5 million may become
payable in 2024 subject to the profit before tax for the year ended
31 December 2023 being greater than EUR1.3 million. If the profit
before tax for 2023 is below the EUR1.3 million threshold then the
deferred cash consideration will be reduced by EUR8 for every EUR1
the profit before tax is below EUR1.3 million. The EUR2.5 million
deferred cash consideration of is the maximum sum that could be
payable.
27. Audit exemptions taken for subsidiaries
The following subsidiaries are exempt from the requirements of
the Companies Act 2006 relating to the audit of individual accounts
by virtue of Section 479A of the Act.
Name Companies House registration number
-------------------------------------- -----------------------------------
Primary Health Investment Properties
(No. 9) Limited 11328330
PHP Euro Private Placement ML Limited 11714222
PHP Epsom Limited 12004850
GP Property One Limited 10801028
PHP SPV Limited 12256431
PHP Primary Properties (Haymarket)
Limited 08304612
MXF Properties Bridlington Limited 07763871
PHP Liverpool Holding Company Limited 07342781
PHP Tradeco Holdings Limited 09642987
PHP Cardiff Group Limited 10253987
PHP (Spilsby) Limited 13735391
PHP Health Solutions Limited 06949900
PHP Tradeco Limited 07685933
PHP Property Management Services
Limited 02877191
PHP Primary Care Developments Limited 11862233
PHP Cardiff Limited 10254492
PHP Developments (Cardiff) Limited 04856121
PHP (Croft) Limited 13938144
PHP Chiswick Limited OE001635
-------------------------------------- -----------------------------------
Glossary of terms
Adjusted earnings is EPRA earnings excluding the contract
termination fee and amortisation of MtM adjustments for fixed rate
debt acquired on the merger with MedicX.
Adjusted earnings per share is adjusted earnings divided by the
weighted average number of shares in issue during the year.
Adjusted net tangible assets ("adjusted NTA") (which has
replaced the former adjusted EPRA net asset value alternative
performance measure) is EPRA net tangible asset value excluding the
MtM adjustment of the fixed rate debt, net of amortisation,
acquired on the merger with MedicX. The objective of the adjusted
NTA measure is to highlight the value of net assets on a long term
basis and excludes assets and liabilities that are not expected to
crystallise in normal circumstances and continues to be used as a
measure to determine the PIF payment.
Adjusted NTA per share is adjusted NTA divided by the number of
shares in issue at the balance sheet date.
Adviser is PHP Tradeco Limited.
Annualised rental income on a like-for-like basis is the
contracted rent on a per annum basis assuming a consistent number
of properties between each year.
Average cost of debt is the total interest cost of drawn debt
and swaps, divided by the amount of drawn debt.
Building Research Establishment Environmental Assessment Method
("BREEAM") assesses the sustainability of buildings against a range
of criteria.
Clinical Commissioning Groups ("CCGs") are the groups of GPs and
other healthcare professionals that are responsible for designing
local health services in England with effect from 1 April 2013.
Company and/or Parent is Primary Health Properties PLC
("PHP").
Direct property costs comprise ground rents payable under head
leases, void costs, other direct irrecoverable property expenses,
rent review fees and valuation fees.
District Valuer ("DV") is the District Valuer Service, being the
commercial arm of the Valuation Office Agency ("VOA"). It provides
professional property advice across the public sector and in
respect of primary healthcare represents NHS bodies on matters of
valuation, rent reviews and initial rents on new developments.
Dividend cover is the number of times the dividend payable (on
an annual basis) is covered by Adjusted 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.
EPC is an Energy Performance Certificate.
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") is 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 net reinstatement value ("EPRA NRV") is the balance sheet
net assets including real estate transfer taxes but excluding the
MtM value of derivative financial instruments, deferred tax and the
convertible bond fair value movement. The aim of the metric is to
reflect the value that would be required to recreate the Company
through the investment markets based on its current capital and
financing structure. Refer to Note 9.
EPRA NRV per share is the EPRA net reinstatement value divided
by the number of shares in issue at the balance sheet date. Refer
to Note 9.
EPRA net disposal value ("EPRA NDV") (replacing EPRA NNNAV) is
adjusted EPRA NRV including deferred tax and the MtM value of fixed
rate debt and derivatives. The aim of the metric is to reflect the
value that would be realised under a disposal scenario. Refer to
Note 9.
EPRA net tangible assets ("NTA") (which has replaced the former
EPRA net asset value alternative performance measure) is the
balance sheet net assets but excluding the MtM value of derivative
financial instruments, deferred tax and the convertible bond fair
value movement. The aim of the metric is to reflect the fair value
of the assets and liabilities of the Group that it intends to hold
and does not intend in the long run to sell. Refer to Note 9.
EPRA NTA per share is the EPRA net tangible assets divided by
the number of shares in issue at the balance sheet date. Refer to
Note 9.
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 valuers' 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.
IAS are International Accounting Standards as adopted by the
United Kingdom.
IFRSs are International Financial Reporting Standards as adopted
by the United Kingdom.
IFRS or Basic net asset value per share ("IFRS NAV") is 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.
Like-for-like compares prior year to current year excluding
acquisitions, disposals and developments
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 properties.
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 and its subsidiaries.
MSCI (IPD) provides performance analysis for most types of real
estate and produces an independent benchmark of property
returns.
MSCI (IPD) Healthcare is the UK Annual Healthcare Property
Index.
MSCI (IPD) total return is calculated as the change in capital
value, less any capital expenditure incurred, plus net income,
expressed as a percentage of capital employed over the period, as
calculated by MSCI (IPD).
Net asset value ("NAV") is the value of the Group's assets minus
the value of its liabilities.
Net initial yield ("NIY") 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.
Net zero carbon refers to the point at which a process, activity
or system, etc. produces net zero carbon emissions, through
emissions reduction, use of low or zero carbon energy and removal
or offsetting of residual emissions. In the context of buildings
and activities associated with the construction, refurbishment,
maintenance and operation of buildings, PHP refers to the UK Green
Building Council's "Net zero carbon, a framework definition".
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.
Occupancy is the level of units occupied, after deducting the
ERV vacancy rate
Parity value is calculated based on dividing the convertible
bond value by the exchange price.
Progressive returns is where it is expected to continue to rise
each year.
Progressive dividends is where it is expected to continue to
rise each year on a per share basis.
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.
Sterling Overnight Interbank Average Rate ("SONIA") is the
effective overnight interest rate paid by banks for unsecured
transactions in the British Sterling market.
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 (A) 141.5
Revaluation deficit and profit
on sales (B) (61.6)
------------------------------- -------
Total return (C) 80.0
Opening property assets 2,795.9
Weighted additions in the
period 45.3
------------------------------- -------
Total weighted average closing
property assets (D) 2,841.2
Income return (A/D) 5.0%
------------------------------- -------
Property return (B/D) (2.2)%
------------------------------- -------
Total property return (C/D) 2.8%
------------------------------- -------
Total NTA return is calculated as the movement in adjusted net
tangible asset value for the period plus the dividends paid,
divided by opening EPRA net tangible asset value.
Adjusted
NTA per
share
-------------------- --------
At 31 December 2021 116.7p
-------------------- --------
At 31 December 2022 112.6p
-------------------- --------
Increase/(decrease) (4.1)
Add: dividends paid
Q1 interim 1.625
Q2 interim 1.625
Q3 interim 1.625
Q4 interim 1.625
-------------------- --------
Total NTA return 2.1%
-------------------- --------
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.
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END
FR EAEAFADXDEAA
(END) Dow Jones Newswires
February 22, 2023 02:00 ET (07:00 GMT)
Grafico Azioni Primary Health Prop (AQSE:PHP.GB)
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Da Mag 2024 a Giu 2024
Grafico Azioni Primary Health Prop (AQSE:PHP.GB)
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