Primary
Health Properties PLC
Preliminary results for the year ended 31 December
2023
Organic
rental growth continuing to underpin performance and increased
dividend remains fully covered at 101%
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 2023.
Harry Hyman, Chief Executive, commented:
"We are encouraged by the organic rental growth achieved in
2023, resulting in another record year with an additional £4.3
million generated from our rent review and asset management
activities. The strong rental growth in the year has been reflected
in the positive total property return, significantly ahead of the
wider property market.
"Furthermore, with over 97% of PHP's debt either fixed or
hedged, a strong control on costs, significant liquidity headroom
and just one development on site we have limited exposure to
further cost increases and development risk.
"The high quality of PHP's portfolio reflects the security and
longevity of our income with 89% government funded, near full
occupancy and continued rental growth which are key drivers of our
predictable cash-flows and underpin our progressive dividend policy
with 28 years of continued growth. With a market leading portfolio
across the UK, and increasingly in Ireland, we are well positioned
for long-term success."
FINANCIAL AND OPERATIONAL
HIGHLIGHTS
Income statement
metrics
|
Year to
31 December
2023
|
Year to
31 December
2022
|
Change
|
Net rental
income1
|
£149.3m
|
£141.5m
|
+5.5%
|
Adjusted
earnings1,2
|
£90.7m
|
£88.7m
|
+2.3%
|
Adjusted earnings per
share1,2
|
6.8p
|
6.6p
|
+3.0%
|
IFRS profit for the year
|
£27.3m
|
£56.3m
|
-51.5%
|
IFRS earnings per
share2
|
2.0p
|
4.2p
|
-52.4%
|
Dividends
|
|
|
|
Dividend per
share5
|
6.7p
|
6.5p
|
+3.1%
|
Dividends
paid5
|
£89.5m
|
£86.7m
|
+3.2%
|
Dividend
cover1
|
101%
|
102%
|
|
Balance sheet and operational
metrics
|
31 December
2023
|
31
December
2022
|
Change
|
Adjusted NTA (NAV) per
share1,3
|
108.0p
|
112.6p
|
-4.1%
|
IFRS NTA per
share1,3
|
106.5p
|
110.9p
|
-4.0%
|
Property portfolio
|
|
|
|
Investment portfolio
valuation4
|
£2.779bn
|
£2.796bn
|
-1.9%
|
Net initial yield
("NIY")1
|
5.05%
|
4.82%
|
+23
bps
|
Contracted rent roll
(annualised)1,7
|
£150.8m
|
£145.3m
|
+3.8%
|
Weighted average unexpired lease
term ("WAULT")1
|
10.2 years
|
11.0
years
|
-0.8
years
|
Occupancy1
|
99.3%
|
99.7%
|
-40
bps
|
Rent-roll funded by government
bodies1
|
89%
|
89%
|
|
Debt
|
|
|
|
Average cost of
debt1
|
3.3%
|
3.2%
|
+10
bps
|
Loan to value
ratio1
|
47.0%
|
45.1%
|
+190
bps
|
Weighted average debt maturity -
drawn facilities
|
6.6 years
|
7.3
years
|
-0.7
years
|
Total undrawn loan facilities and
cash6
|
£321.2m
|
£325.9m
|
|
|
|
|
|
|
|
| |
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 8, earnings per share, to the financial statements.
Per share figures are presented on a basic basis.
3 See note 8, 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 9, 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 DIVIDENDS
· Adjusted earnings per share increased by 3.0% to 6.8p (2022:
6.6p) marginally ahead of analyst
consensus
· IFRS
earnings per share decreased by 52.4% to 2.0p (2022: 4.2p)
reflecting non-cashflow losses arising on the valuation of the
Group's property portfolio, convertible bond and interest rate
derivatives
· Contracted annualised rent roll increased by 3.8% to £150.8 million (31 December 2022: £145.3
million)
· Additional annualised rental income on a like-for-like basis
of £4.3 million or 3.0% from rent reviews
and asset management projects (2022: £3.3 million or
2.4%)
· EPRA cost ratio
10.7% (2022: 9.9%), representing one of the
lowest in the UK REIT sector
· Quarterly dividends totalling 6.7 pence (2022: 6.5 pence) per
share distributed in the year, a 3.1% increase
· First
quarterly dividend of 1.725 pence per share declared and paid on 23
February 2024, equivalent to 6.9 pence on an annualised basis and a
3.0% increase over the 2023 dividend per share, marking the
Company's 28th consecutive year of dividend
growth
· The
Company intends to maintain its strategy of paying a progressive,
fully covered dividend
NET
ASSET VALUE AND PORTFOLIO MANAGEMENT
· Adjusted Net Tangible Assets ("NTA") per share decreased by
4.1% to 108.0 pence (31 December 2022:
112.6 pence)
· IFRS
NTA per share decreased by 4.0% to
106.5 pence (31 December 2022: 110.9
pence)
· Property portfolio valued at £2.779 billion at 31 December
2023 (31 December 2022: £2.796 billion) reflecting a net
initial yield of 5.05% (31 December 2022:
4.82%)
· Revaluation deficit in the year of £53.0 million (2022:
deficit £61.5 million net of profit on sales), representing a
decline of -1.9% (2022: -2.4%)
driven by NIY widening of 23 bps equivalent to around £128 million
partially offset by gains of £75 million arising from rental growth
and asset management projects
· The
portfolio's metrics continue to reflect the Group's secure,
long-term and predictable income stream with occupancy
at 99.3% (31 December 2022: 99.7%), WAULT of 10.2 years (31
December 2022: 11.0 years) and 89% (31 December 2022: 89%) of
income funded by government bodies
· Portfolio in Ireland comprises 21 assets, valued at £245
million / €282 million (31 December 2022: £231
million / €261 million) following the
acquisition of one of Ireland's first Enhanced Community Care
facilities at Ballincollig, near Cork. The portfolio in Ireland
represents 9% (2022: 8%) of the total portfolio and Ireland
continues to represent a core part of PHP's strategy and preferred
area of future growth
· The acquisition
of Axis Technical Services Limited, in January 2023, continues to
provide a critical strategic advantage with a permanent presence in
Ireland, an important move as we seek new investment, development
and asset management opportunities
· Disciplined
approach to future investment with pipeline of accretive
opportunities totalling £22.6 million focused on asset management
projects and one on site development
· Pipeline of 23 asset management projects and lease regears
planned over next two years, investing £19.3 million, creating
additional rental income of £0.8 million per annum and extending
the weighted average unexpired lease term (WAULT) back to over 20
years on these projects
·
Winner of MSCI's UK Highest 10-Year Risk Adjusted Total
Return Award for the second consecutive year in 2022 and 2021,
reflecting PHP's market leading property performance
FINANCIAL MANAGEMENT
· LTV
ratio 47.0% (31 December 2022: 45.1%) within the Group's targeted
range of between 40% to 50%
· 97%
(31 December 2022: 94%) of net debt fixed or hedged for a weighted
average period of just under seven years
· Weighted average debt maturity 6.6 years (31 December 2022:
7.3 years)
· Significant liquidity headroom with cash and collateralised
undrawn loan facilities totaling £321.2 million (31 December 2022:
£325.9 million) after capital commitments, providing the business
with flexibility to execute its strategy
· In
October 2023, completed a secondary listing of PHP on the
Johannesburg Stock Exchange ("JSE") to further
improve liquidity in the Group's shares
· €47.8
million private placement loan note issued in December 2023 for a
10-year term at a fixed rate of 4.195% to finance continued
expansion in Ireland with the current portfolio valued at a NIY of
5.4% (31 December 2022: 5.2%). The proceeds have been used to repay
more expensive variable rate debt drawn on the Group's revolving
credit facilities which are available to be redrawn in the
future
RELATIVE TOTAL RETURNS
|
Year ended
31 December 2023
|
Year ended
31 December
2022
|
Increase in Adjusted NTA plus dividends
paid
|
1.9%
|
2.1%
|
Total income return
|
5.3%
|
5.0%
|
Total capital return
|
(1.8%)
|
(2.2%)
|
Total property return1
|
3.5%
|
2.8%
|
|
|
|
MSCI UK Monthly Property Index
|
(0.5%)
|
(10.4%)
|
1 The definition for income, capital and
total property return is set out in the Glossary of
Terms.
RESPONSIBLE
BUSINESS AND ESG
· As previously
announced, PHP's Net Zero Carbon ("NZC") Framework was published
with the five key steps the Group is looking to achieve the
ambitious target of being NZC by 2030 for all of the Group's
operational, development and asset management activities
· Progress continues on
construction of PHP's first NZC development in West Sussex which is
expected to achieve practical completion in Q3 2024
· Continued
improvement in portfolio EPC ratings with 42% and 85% (2022: 35%
and 81%) rated A-B and A-C respectively driven by the asset
management programme
Presentation
and webcast:
An in-person presentation for
analysts will be held today, 28 February 2024 at 10.30am (12.30am
SAST) at the offices of Buchanan Communications, 107
Cheapside, London EC2V 6DN, and for those
who cannot attend in person, via a live webcast and conference call
facility. Following the presentation there will be a managed
questions and answers session.
The presentation will be accessible
via live video webcast and a live conference call
facility:
Webcast:
https://stream.brrmedia.co.uk/broadcast/659e72fc277c2248ee137e83
Telephone: UK-wide: +44 (0) 33
0551 0200
Telephone: South Africa toll
free: 0 800 980 512
Password: Quote "PHP full
year results" when prompted
If you would like to register your
interest in attending the meeting, please contact Buchanan
at php@buchanan.uk.com.
A recording of the webcast will be
made available from c.12.00pm UK time (2.00pm SAST) on
28 February 2024 on the PHP
website, https://www.phpgroup.co.uk/.
For further information
contact:
Harry Hyman
Chief Executive Officer
Primary Health Properties
PLC
T: +44 (0) 7973 344768
E: harry.hyman@phpgroup.co.uk
|
Richard Howell
Chief Financial Officer
Primary Health Properties
PLC
T: +44 (0) 7766 072272
E: richard.howell@phpgroup.co.uk
|
|
|
David Rydell / Stephanie Whitmore /
Verity Parker
Buchanan Communications
T: +44 (0) 20 7466 5066
E: php@buchanan.uk.com
|
|
Chairman's statement
In my final report as Chairman
before I retire from the Board at the conclusion of the Company's
Annual General Meeting to be held on 24 April 2024 ("2024 AGM"), I
am pleased to report PHP continued to deliver another year of
robust operational and financial performance despite the ongoing
volatility in the economic and interest rate outlook caused by both
global and domestic events. The volatile interest rate outlook has
continued to weigh heavily on the real estate sector during 2023
and early part of 2024. Against this backdrop, the performance in
the year was a testament to the quality of PHP's business model,
portfolio, management team and people.
The Group's strong 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 which is now in
its 28th year of continued growth.
We maintain our strong operational
property metrics, with a long weighted average unexpired lease term
("WAULT") of 10.2 years (31 December 2022: 11.0 years), high
occupancy at 99.3% (31 December 2022: 99.7%) and 89% (31 December
2022: 89%) of our rent being securely funded directly or indirectly
by the UK and Irish Governments. Notwithstanding the fall in values
in the year the portfolio's average lot size remains at £5.4
million (31 December 2022: £5.4 million).
We have continued to see rental
growth improving with rent reviews in 2023 generating an extra £4.0
million (2022: £3.0 million) an uplift of 8.9% (2022: 6.8%) over
the previous passing rent equivalent to 4.0% (2022: 3.4%) on an
annualised basis.
We are encouraged by the
increasingly firmer tone of rental growth and believe PHP in the
medium term will be a beneficiary of the recent 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 improving outlook on open
market value ("OMV") reviews is expected to offset the impact of
declining inflation on indexed rent reviews and it should be noted
that most of the growth on OMV rent reviews in 2023 came from the
period 2019 to 2021 and therefore does not yet reflect the impact
of significantly higher construction costs experienced in the last
two years. This continues to be a critical focus of the Group's
business model and underpins the rental growth outlook.
The value of the property portfolio
currently stands at £2.779 billion (31 December 2022: £2.796
billion) across 514 assets (31 December 2022: 513 assets),
including 21 in Ireland, with a rent roll of £150.8 million (31
December 2022: £145.3 million). As previously reported, the
deteriorating interest rate environment and economic outlook during
2023 caused us to reconsider our acquisition pipeline and pause
investment activity until the economic and interest rate outlook
becomes clearer. Our prudent strategy means that 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 since the COVID-19 pandemic and the
increasing pressures being placed on the healthcare systems in both
the UK and Ireland. We continue to maintain close relationships
with our key stakeholders and GP partners to ensure we are best
placed to help the NHS and Health Service Executive ("HSE"),
Ireland's national health service provider, 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 ("Axis"), 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 currently manages a portfolio
of 30 properties, including all 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 HSE. The acquired company also provides fit-out, property
and facilities management services to the HSE and other businesses
located across Ireland.
Following completion of the
acquisition of Axis it has continued to perform in line with
expectations in 2023 generating a profit before tax of £1.1 million
(€1.3 million).
As part of the acquisition, PHP
signed a development pipeline agreement with Axis Health Care
Assets Limited, a related company, which gives the Group the option
to acquire their development pipeline over the next five years from
completion. Axis Health Care Assets Limited 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, and has a strong pipeline of near-term projects
with an estimated gross development value of approximately €50
million with further potential schemes beyond that.
Overview of results
PHP's Adjusted earnings increased
by £2.0 million or +2.3% (2022: £5.5 million or +6.6%) to £90.7
million (2022: £88.7 million) in the year, primarily driven by
strong organic rental growth from rent reviews and asset management
projects, plus income arising from the acquisition of Axis
partially offset by higher interest costs on the Group's variable
rate debt. Using the weighted average number of shares in issue in
the year the adjusted earnings per share increased to 6.8 pence
(2022: 6.6 pence), an increase of 3.0% (2022: +6.5%).
A revaluation deficit of £53.0
million (2022: deficit of £61.5 million net of profit on sales) was
generated in the year from the portfolio, equivalent to -4.0 pence
(2022: -4.6 pence) per share. The valuation deficit was driven by
net initial yield ("NIY") widening of 23 bps (2022: 18 bps) in the
year, equivalent to a valuation reduction of around £128 million
(2022: deficit of £134 million), albeit this was partially offset
by gains equivalent to £75 million (2022: gain of £70 million)
arising from rental growth and asset management
projects.
A combined loss of £11.6 million
(2022: gain of £29.7 million) on the fair value of interest rate
derivatives and convertible bonds, the amortisation of the fair
value adjustment on the MedicX fixed rate debt at acquisition and
write-off of costs arising from the acquisition of Axis and listing
on the Johannesburg Stock Exchange ("JSE") resulted in a profit
before tax as reported under IFRS of £26.1 million (2022: £56.9
million).
The Group's balance sheet remains
robust with a loan to value ratio of 47.0% (2022: 45.1%), which is
in line with 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 £321.2
million (2022: £325.9 million). The Group also has significant
valuation headroom across the various loan facilities with values
needing to fall further by around £1.1 billion or 39% before the
loan to value covenants are impacted. This headroom means the Group
is well placed to continue to execute on its strategy and adapt to
market conditions accordingly.
Dividends
The Company distributed a total of
6.7 pence per share in 2023, an increase of 3.1% over the 2022
dividend of 6.5 pence per share. The total value of dividends
distributed in the year increased by 3.2% to £89.5 million (2022:
£86.7 million), which were fully covered by adjusted earnings.
During 2023, the scrip dividend scheme continued to be suspended in
light of the ongoing weakness in the share price and a dividend
re-investment plan is being offered in its place.
The first interim dividend of 1.725
pence per share was declared on 4 January 2024, equivalent to 6.9
pence on an annualised basis, which represents an increase of 3.0%
over the dividend distributed per share in 2023. The dividend was
paid to shareholders on 23 February 2024 who were on the register
at the close of business on 12 January 2024. The dividend will be
paid by way of a property income distribution of 1.45 pence and
normal dividend of 0.275 pence.
The Company intends to maintain its
strategy of paying a progressive dividend, paid 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 2024 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 110.8 pence per share and closed on 31 December 2023 at
103.8 pence, a decrease of 6.3%. Including dividends, those
shareholders who held the Company's shares throughout the year
achieved a Total Shareholder Return of -0.3% (2022:
-22.5%).
During the year PHP was announced
as the winner of MSCI's Highest 10-Year Risk Adjusted Total Return
Award for the UK in 2022 having previously won the award in 2021
and 2017.
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 in the third quarter of 2024 and
published, at the start of 2022, a NZC Framework setting out 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 in the 2023 Annual Report and on our website.
Board succession and changes
The past year has been a
significant one in the Company's history regarding the successful
execution of its succession plan and the composition of the
Board.
The first step in the plan in 2023
was to recruit a new Chief Executive Officer ("CEO") to succeed
Harry Hyman, Founder and CEO who had previously indicated his
intention to retire as CEO at the 2024 AGM.
The Company announced on 4
September 2023, after a thorough and
extensive search process, the appointment
of Mark Davies as CEO with effect from the conclusion of the 2024
AGM. In January 2024, as part of the handover process, he
commenced working alongside Harry and the wider
team in order to ensure a smooth transition.
Mark is a highly experienced FTSE
250 Executive having held CEO and Chief Financial Officer ("CFO")
roles in listed companies and private equity. He was a Co-founder Director of NewRiver REIT plc ("NewRiver")
in 2009 and played an important role in taking NewRiver from IPO
into the FTSE 250 index in seven years. He was CFO of NewRiver for
over twelve years and, alongside his role as CFO, was also
CEO/Executive Chairman of Hawthorn Leisure Limited ("Hawthorn") for
five years. Mark stood down from the Board of NewRiver following
the successful sale of Hawthorn in July 2021 to private equity at a
premium price. Mark has considerable capital markets experience and
over the last fourteen years has raised over £3
billion of equity and debt in public and private
markets.
The second step in the succession
plan was to find a successor to myself as Chairman and on 2
November 2023 the Company announced, after consultation with a
number of its major shareholders, the appointment of Harry Hyman as
Non-executive Chairman subject to shareholder approval at, and with
effect from the conclusion of, the Company's 2024 AGM. I will
remain as Chairman until I retire at the conclusion of the 2024
AGM.
The Board believes that Harry's
appointment is in the best interests of the Group and its
stakeholders, particularly as Harry's knowledge and expertise
gained over nearly 30 years in the primary care property sector,
which is a niche sub-sector of the real estate market, will
continue to be invaluable and highly relevant to the Group's future
success. Harry founded PHP in 1996 and has served on the Board as
Managing Director/CEO since that time. His track record in the
listed real estate sector is outstanding and he has been the key
driver in PHP's success since its inception. Further details
regarding the selection of Harry as Chair can be found in the 2023
Annual Report.
The Board considers that the
combination of Mark Davies as CEO and Harry Hyman as Chairman,
together with Richard Howell as CFO and David Bateman as Chief
Investment Officer ("CIO"), makes a formidable, highly respected
leadership team that will continue to build on the success of the
business.
The Board has determined that
Harry's term as Chairman will be for a maximum of three
years.
The final step in the plan was to
recruit an additional Non-Executive Director in order to ensure
that the Board consists of a majority of independent Non-executive
Directors and therefore be compliant with the Corporate Governance
Code from the date of appointment. As a result, Dr Bandhana (Bina)
Rawal was appointed as a fourth independent Non-executive Director
of the Company with effect from 27 February 2024 and the Board has
increased in size from six to seven.
Toby Newman was appointed Company
Secretary and Chief Legal Officer on 28 February 2023 following the
retirement of Paul Wright.
Secondary Listing
On the 24 October 2023 the Company
completed a secondary listing of PHP shares on the JSE. The Board
of PHP believes that the secondary listing will contribute to
liquidity in the Group's shares as a result of the growing interest
in the Company and its increased profile in the South African
market, where a number of investors have already shown strong
interest in the unique healthcare property investment
opportunity. Since listing on the JSE approximately one
million shares have been traded to date and we continue to help
potential South African investors acquire PHP shares and provide
further liquidity on the JSE.
Market update and outlook
The primary care market continues
to face challenges in meeting the growing demand for healthcare
services. The capacity of existing facilities remains a significant
obstacle to implementing government policies aimed at expanding
service delivery within general practice, including social
prescribing, clinical pharmacists, physiotherapists, mental health,
minor operations and other activities. The need for additional
space is driven by a population that is growing, ageing and
suffering from increased chronic illnesses, which is placing a
greater burden on healthcare systems in both the UK and Ireland.
The extent of the NHS England backlog remains a significant
concern, with hospitals struggling to meet objectives for cancer
care and routine treatments. The number of patients waiting for
treatment has reached record highs, exacerbating the need for
improved and increased primary healthcare infrastructure with
approximately one-third of the UK's current primary care estate in
need of replacement.
There is a growing expectation that
many services in the medium term will progressively move from
hospitals to primary care settings, necessitating substantial
investment in facilities to accommodate these changes and alleviate
the pressure on secondary care in the years to come. The UK
government's vision for primary care premises, advocating the
establishment of hubs or "super hubs", is a step in this direction.
The UK government's vision is that these hubs promote collaboration
among primary care staff and provide a wider range of services in a
single location. Larger GP practices with more staff and facilities
are shown to produce better patient outcomes. This is in line with
larger purpose-built medical centres typical of PHP's portfolio and
our own ongoing engagement with occupiers
where many surgeries require more space.
Declining rents in real terms have
made investing in the transformation of GP facilities less
appealing. Construction costs have risen significantly over the
past decade, surpassing the growth in primary care rents, driven by
material and labour costs and increasing sustainability
requirements, all of which has been compounded by Brexit, the
COVID-19 pandemic and the fiscal policy outlook.
Future developments will now need a
significant shift of between 20% to 30% in rental values to make
them economically viable and we continue to actively engage with
both the NHS, Integrated Care Boards ("ICB") and District Valuer
("DV") for higher rent settlements. However, despite these
negotiations typically becoming protracted, we are starting to see
positive movement in some locations where the NHS need for
investments in new buildings is strongest. We are aware of
instances where the ICB have stepped in and
overruled the DV's proposals when those have prevented much needed
schemes from progressing. This along with the use of "top-up" rents
and capital contributions is starting to allow certain schemes to
progress viably and we anticipate this will accelerate.
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
The commercial property market
continues to be impacted by economic turbulence but primary care
asset values have continued to perform well relative to mainstream
commercial property due to recognition of the security of their
government backed income, crucial role in providing sustainable
healthcare infrastructure and more importantly a stronger rental
growth outlook enabling attractive reversion over the course of
long leases.
The continued lack of recent
transactions in the year has resulted in valuers continuing to
place reliance on sentiment to arrive at fair values. Yields
adopted by the Group's valuers have moved out by 23bps to 5.05% as
at 31 December 2023 (2022: 4.82%) to reflect perceived market
sentiment for the sector.
We continue to see that for both
the primary care and indeed the wider commercial property markets,
the high level of financial market volatility and economic
uncertainty has resulted in a 'wait-and-see' attitude amongst
investors, which is expected to continue until the UK interest rate
outlook moderates and becomes more certain. However,
notwithstanding the significant increases and volatility in
interest rates seen in 2023, we continue to believe further
significant reductions in primary care values are likely to be
limited with a stronger rental growth outlook offsetting the impact
of any further yield expansion.
Additionally, the market for
primary care assets is relatively small with most assets tightly
held by the main specialists in the sector and consequently we
anticipate most investors will likely 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 all having
strong balance sheets so there are likely to be limited "forced
sales"; and
·
a desire from investors to seek a "safe haven"
with some shifting from other property sectors.
PHP Outlook
Growth in the immediate future will
continue to be focused on increasing income from our existing
portfolio and we are encouraged by the firmer tone of rental growth
experienced in 2022 and 2023. As already noted, we believe the
favourable dynamics of inflation over the last two years 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.
We are currently on site with just
one development which is due to complete in Q3 2024 and
consequently have very limited exposure to higher construction cost
pressures and supply chain delays. In our immediate pipeline we
have just one development and 23 asset management projects with a
total expected cost of £22.6 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 2023: 9%). The
acquisition of Axis, in January 2023, 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 one of the lowest
EPRA cost ratios in the sector and the vast majority of PHP's debt
either fixed or hedged for a weighted average period of just under
seven years, we look forward to 2024 with confidence.
We believe that our activities
benefit not only our shareholders but also our wider stakeholders,
including occupiers, patients, the NHS and HSE, suppliers, lenders,
and the wider communities in both the UK and Ireland.
On a personal level, I would like
to place on record how much I have enjoyed working with Harry and
the Board, both past and present, over the last ten years. The
Company has achieved so much during this time including the merger
with MedicX, internalisation of the management structure and is now
a key member of the FTSE 250 Index.
I wish the new Board and the
Company every success for the future.
Steven Owen
Chairman
27 February 2024
BUSINESS REVIEW
Investment and pipeline
In 2023 the Group selectively
acquired just one asset in Ireland, our preferred area of
investment due to higher net initial yields, larger lot sizes and
cheaper cost of finance for euro denominated debt with acquisitions
and developments only being progressed if accretive to
earnings.
In December 2023, the Group
completed the acquisition of Ireland's first dedicated
Enhanced Community Care facility at Ballincollig, near Cork,
Ireland, for a total consideration of £25.7 million (€29.6
million). The property is fully let to the HSE on a 25-year
lease and benefits from five yearly, compounded annually, Irish CPI
indexed rent reviews. The property is managed by Axis.
We continue to monitor a number of
potential standing investments, direct and forward funded
developments and asset management projects with an advanced
pipeline of opportunities across a number of opportunities in both
the UK and Ireland.
However, the immediate pipeline of
opportunities in legal due diligence continues to be focused
predominantly on PHP's existing portfolio through asset management
projects.
Pipeline
|
In legal
due diligence
|
Advanced
pipeline
|
|
Number
|
Cost
|
Number
|
Cost
|
Ireland - forward funded
development
|
-
|
-
|
2
|
£43.3m
(c.€50m)
|
UK - direct development
|
1
|
£3.3m
|
2
|
£11.5m
|
UK - asset management
|
23
|
£19.3m
|
20
|
£16.3m
|
UK - investment
|
-
|
-
|
-
|
-
|
Total pipeline
|
24
|
£22.6m
|
24
|
£71.1m
|
Developments
At 31 December 2023, the Group had limited
development exposure with just one project on site at Croft Primary
Care Centre, West Sussex which is due to achieve practical
completion towards the end of Q3 2024 with £5.4 million of
expenditure required to complete the project. The development is
also being built to NZC standards.
The Group is currently progressing one future
development scheme in London where we have managed to work with
both the local council and ICB to make the scheme economically
viable.
The Group has currently paused any new direct
development activity whilst negotiations with the NHS, ICBs and
District Valuers continue to increase rental levels to make schemes
economically viable with rental values needing to increase by
around 20%-30%.
We currently do not have any forward funded
developments on site in Ireland although continue to progress a
near-term pipeline with an estimated gross development value of
approximately €50m.
PHP expects that all future direct
developments will be constructed to NZC standards.
Asset management
PHP's sector-leading metrics remain
robust 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 regears) which provide an
important opportunity to increase income, extend lease terms and
avoid obsolescence whilst ensuring that our properties continue to
meet the communities' healthcare needs and improve their ESG
credentials.
2023 was another record year for
organic rental growth from our existing portfolio with income
increasing by £4.3 million (2022: £3.3 million) or 3.0% (2022:
2.4%) 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 2019 to 2021, 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 2.5% in 2023 (2022: 2.2%; 2021:
1.9%).
Rent review performance
In the UK, the Group completed 313
(2022: 318) rent reviews with a combined rental value of £42.4
million (2022: £42.2 million), adding £3.6 million (2022: £2.8
million) and delivering an average uplift of 8.5% (2022: 6.7%)
against the previous passing rent.
67% 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 (27%) 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 6% to 12%
over a three-year review cycle.
In Ireland, we concluded 18 (2022:
13) index-based reviews, adding a further £0.4 million/ €0.4
million (2022: £0.2 million/€0.2 million), an uplift of 15.2%
(2022: 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 78% of the income
in Ireland, have increases and decreases capped and collared at 25%
over a five-year review cycle.
The growth from reviews completed
in the year, noted above, is summarised below:
Review type
|
Number
|
Previous
rent
(per
annum)
£
million
|
Rent
increase
(per
annum)
£
million
|
%
increase total
%
|
%
increase annualised
%
|
UK - open
market1
|
184
|
24.2
|
1.3
|
5.4
|
1.8
|
UK - indexed
|
114
|
14.1
|
2.0
|
14.2
|
8.4
|
UK - fixed
|
15
|
4.1
|
0.3
|
7.3
|
2.7
|
UK - total
|
313
|
42.4
|
3.6
|
8.5
|
4.0
|
Ireland - indexed
|
18
|
2.6
|
0.4
|
15.2
|
3.3
|
Total - all reviews
|
331
|
45.0
|
4.0
|
8.9
|
4.0
|
1 - includes 49 reviews where no uplift was achieved.
At 31 December 2023, 585 (2022:
656) open market rent reviews representing £84.9 million (2022:
£90.2 million) of passing rent, were outstanding out of which 334
(2022: 286) have been triggered to date and are expected to add
another £2.2 million (2022: £1.7 million) to the contracted rent
roll when concluded and represents an uplift of 4.5% (2022: 4.1%)
against the previous passing rent. The balance of the outstanding
reviews will be actioned when there is further comparative evidence
to support the estimated rental values.
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 albeit previously agreed rental values are having to be
renegotiated to make a number of these viable in the current
economic environment.
Asset Management
Projects
During 2023, we exchanged on five
new asset management projects, eight lease regears and four new
lettings. These initiatives will increase rental income by £0.3
million investing £5.2 million and extending the leases back to 15
years.
PHP continues to work closely with
its occupiers and has a pipeline of 23 similar asset management
projects which are currently in legal due diligence and are being
progressed to further increase rental income and extend unexpired
occupational lease terms. The immediate asset management pipeline
will require the investment of approximately £19.3 million,
generating an additional £0.8 million of rental income and
extending the WAULT on those premises back to an average of 20
years. Additionally, we continue to
progress an advanced pipeline of further asset management
initiatives across 20 projects.
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 which 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.
Robust portfolio metrics
The portfolio's annualised
contracted rent roll at 31 December 2023 was £150.8 million (2022:
£145.3 million), an increase of £5.5 million or +3.8% (2022: £4.6
million or +3.3%) in the year driven predominantly by organic rent
reviews and asset management projects of £4.3 million (2022: £3.3
million). Acquisitions added a further £1.6 million (2022: £1.1
million, net of disposals) partially offset by £0.4 million loss of
income arising mainly from three lease surrenders, several lease
expiries and foreign exchange movements on our portfolio in
Ireland. The leases surrendered during the year are part of future
asset management initiatives and we expect to complete the
reletting of the space during 2024.
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% (2022: 89%) 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 99.3% (2022: 99.7%).
Rental collections: These
continue to remain robust and as at 26 February 2024 97% had been
collected in both the UK and Ireland for the first quarter of 2024.
This is in line with collection rates experienced in both 2023 and
2022 which now stand at over 99% for both countries. The balance of
rent due for the first quarter of 2024 is expected to be received
shortly.
Longevity: The portfolio's
WAULT at 31 December 2023 was 10.2 years (31 December 2022: 11.0
years). £17.1 million or 11.3% of our income is currently holding
over or expires over the next three years, of which c. 70% is
either subject to a planned asset management initiative or terms
have been agreed to renew the lease. £64.3 million or 42.7% expires
in over ten years. The table below sets out the current lease
expiry profile of our income:
Income subject to expiry
|
£
million
|
%
|
Holding over
|
4.1
|
2.7
|
< 3 years
|
13.0
|
8.6
|
4 - 5 years
|
17.0
|
11.3
|
5 - 10 years
|
52.4
|
34.7
|
10 - 15 years
|
30.1
|
20.0
|
15 - 20 years
|
22.5
|
14.9
|
> 20 years
|
11.7
|
7.8
|
Total
|
150.8
|
100.0
|
As the 31 December 2023, 45 leases
or £4.1 million of income (2022: 17 leases / £0.9 million) was
holding over. All these leases are expected to renew but are
subject to NHS approval which continues to suffer from delays as
ICBs finalise their future estate strategies together with the
requirement for new rents to be approved by the DV. We continue to
maintain a close relationship with all parties concerned and
receive NHS rent reimbursement in a timely manner. If all the
currently agreed transactions completed, then the WAULT on the
portfolio would increase to 10.6 years (31 December 2023: 10.2
years).
Valuation and returns
At 31 December 2023, the Group's
portfolio comprised 514 (31 December 2022: 513) assets
independently valued at £2.779 billion (31 December 2022: £2.796
billion). After allowing for acquisition costs and capital
expenditure on developments and asset management projects, the
portfolio generated a valuation deficit of £53.0 million or -1.9%
(2022: deficit of £61.5 million net of profit on sales).
The valuation deficit of £53.0
million in the year was driven primarily by a loss arising from
yield expansion of approximately £128 million partially offset by
gains of approximately £75 million arising from an improving rental
growth outlook and asset management projects.
During the year the Group's
portfolio NIY has expanded by 23 bps to 5.05% (31 December 2022:
4.82%) and the reversionary yield increased to 5.4% at 31 December
2023 (31 December 2022: 5.2%)
At 31 December 2023, the portfolio
in Ireland comprised 21 standing and fully let properties with no
developments currently on site, valued at £244.6 million or €282.2
million (31 December 2022: 20 assets/£230.9 million or €260.8
million). At 31 December 2023, the portfolio in Ireland has been
valued at a NIY of 5.4% (31 December 2022: 5.2%).
Despite the fall in values during
the year the portfolio's average lot size remained unchanged at
£5.4 million (31 December 2022: £5.4 million) and 87.1% of the
portfolio is valued at over £3.0 million. The Group only has five
assets valued at less than £1.0 million.
|
Number
of
|
Valuation
|
|
Average
|
|
properties
|
£
million
|
%
|
lot size
(£ million)
|
> £10m
|
58
|
892.1
|
32.1
|
15.4
|
£5m - £10m
|
128
|
875.7
|
31.5
|
6.8
|
£3m - £5m
|
163
|
650.9
|
23.5
|
4.0
|
£1m - £3m
|
160
|
353.0
|
12.7
|
2.2
|
< £1m (including land
£1.3m)
|
5
|
4.6
|
0.2
|
0.7
|
Total1
|
514
|
2,776.3
|
100.0
|
5.4
|
1 Excludes the £3.0 million impact of IFRS 16 Leases with ground rents recognised as
finance leases.
The valuation deficit combined with
the portfolio's growing income, resulted in a total property return
of +3.5% for the year (2022: +2.8%). The total property return in
the year compares with the MSCI UK Monthly Property Index of -0.5%
for 2023 (2022: -10.4%).
|
|
Year ended
31 December
2023
|
Year
ended
31
December 2022
|
Income return
|
|
5.3%
|
5.0%
|
Capital return
|
|
(1.8%)
|
(2.2%)
|
Total return
|
|
3.5%
|
2.8%
|
FINANCIAL REVIEW
PHP's adjusted earnings increased
by £2.0 million or 2.3% to £90.7 million in 2023 (2022: £88.7
million). The increase in the year reflects the continued positive
organic rental growth from rent reviews and asset management
projects in both 2023 and 2022 together with the contribution from
Axis, partially offset by increased interest costs on the Group's
variable rate debt and additional administrative costs.
On 20 January 2023, the Group
completed the acquisition of Axis which contributed £1.1 million
net of overheads, trading in line with expectations during the
year.
Using the weighted average number
of shares in issue in the year the adjusted earnings per share
increased to 6.8 pence (2022: 6.6 pence), an increase of 3.0%
(2022: +6.5%).
The financial results for the Group
are summarised as follows:
Summarised results
|
Year ended
31 December
2023
|
Year
ended
31
December 2022
|
|
£ million
|
£
million
|
Net rental income
|
149.3
|
141.5
|
Axis contribution net of
overheads
|
1.1
|
-
|
Administrative expenses
|
(11.6)
|
(9.6)
|
Operating profit before revaluation and net financing
costs
|
138.8
|
131.9
|
Net financing costs
|
(48.1)
|
(43.2)
|
Adjusted earnings
|
90.7
|
88.7
|
Revaluation deficit on property
portfolio and profit on sales
|
(53.0)
|
(61.5)
|
Fair value (loss)/gain on interest
rate derivatives and convertible bond
|
(13.2)
|
26.8
|
Amortisation of MedicX debt MtM at
acquisition
|
3.0
|
2.9
|
Axis amortisation of intangible
asset
|
(0.9)
|
-
|
Axis acquisition and JSE listing
costs
|
(0.5)
|
-
|
IFRS profit before tax
|
26.1
|
56.9
|
Corporation tax
|
(0.1)
|
0.2
|
Deferred tax provision
|
1.3
|
(0.8)
|
IFRS profit after tax
|
27.3
|
56.3
|
Adjusted earnings increased by £2.0
million or 2.3% (2022: £5.5 million / 6.6%) in 2023 to £90.7
million (2022: £88.7 million) and the movement in the year can be
summarised as follows:
|
Year ended
31 December
2023
|
Year
ended
31
December 2022
|
|
£ million
|
£
million
|
Year ended 31 December
|
88.7
|
83.2
|
Net rental income
|
7.8
|
4.8
|
Axis contribution net of
overheads
|
1.1
|
-
|
Administrative expenses
|
(2.0)
|
0.9
|
Net financing costs
|
(4.9)
|
(0.2)
|
Year ended 31 December
|
90.7
|
88.7
|
Net rental income received in 2023
increased by 5.5% or £7.8 million to £149.3 million (2022: £141.5
million) reflecting £4.6 million of additional income from
completed rent reviews and asset management projects including the
impact of rent reviews back dated to the original date of review,
£2.5 million from the impact of acquisitions, disposals and
developments completed in 2023 and 2022 and a £0.7 million
reduction in non-recoverable property costs.
Notwithstanding the acquisition of
Axis at the start of the year administration expenses continue to
be tightly controlled and the Group's EPRA cost ratio remains one
of the lowest in the sector at 10.7% (2022: 9.9%).
The £2.0 million increase in
administration costs in the year is due mainly to a £1.1 million
increase in the provision for performance-related pay and the cost
of a voluntary redundancy programme completed in the year, together
with the impact of a one-off benefit in 2022 arising from end of
the historic performance incentive fee arrangements of £0.6
million.
EPRA cost ratio
|
Year ended
31 December
2023
|
Year
ended
31
December 2022
|
|
£ million
|
£
million
|
Gross rent less ground rent, service charge and other
income
|
155.8
|
147.0
|
Direct property expense
|
18.2
|
12.6
|
Less: service charge costs
recovered
|
(13.3)
|
(7.0)
|
Non-recoverable property
costs
|
4.9
|
5.6
|
Administrative expenses
|
11.6
|
9.6
|
Axis overheads and costs
|
0.8
|
-
|
Less: ground rent
|
(0.2)
|
(0.2)
|
Less: other operating
income
|
(0.5)
|
(0.4)
|
EPRA costs (including direct vacancy costs)
|
16.6
|
14.6
|
EPRA cost ratio
|
10.7%
|
9.9%
|
EPRA cost ratio excluding Axis overheads and direct vacancy
costs
|
10.1%
|
9.9%
|
Total expense ratio (administrative expenses as a percentage of gross asset
value)
|
0.4%
|
0.3%
|
|
|
| |
Net finance costs in the year
increased by £4.9 million to £48.1 million (2022: £43.2 million)
because of a £45.4 million increase in the Group's net debt during
2023, the impact of increased interest rates on the Group's
unhedged debt and the loss of interest receivable on forward funded
developments which completed in 2022, now income producing and
accounted for as rent.
Shareholder value and total accounting
return
The Adjusted Net Tangible Assets
("NTA") per share declined by 4.6 pence or -4.1% to 108.0 pence (31
December 2022: 112.6 pence per share) during the year with the
revaluation deficit of £53.0 million or -4.0 pence per share and
cost of the Axis acquisition of £7.3 million (€8.2 million) or 0.5
pence per share being the main reason for the decrease.
The total adjusted NTA (NAV) return
per share, including dividends distributed, in the year was 2.1
pence or 1.9% (2022: 2.4 pence or 2.1%).
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 NTA per share
|
|
31 December 2023
pence per share
|
31
December 2022 pence per share
|
Opening Adjusted NTA per
share
|
|
112.6
|
116.7
|
Adjusted earnings for the
year
|
|
6.8
|
6.6
|
Dividends paid
|
|
(6.7)
|
(6.5)
|
Revaluation of property portfolio
and profit on sales
|
|
(4.0)
|
(4.6)
|
Axis acquisition cost
|
|
(0.5)
|
-
|
Shares issued
|
|
-
|
0.1
|
Foreign exchange and other
movements
|
|
(0.2)
|
0.3
|
Closing Adjusted NTA per
share
|
|
108.0
|
112.6
|
Fixed rate debt and derivative
mark-to-market value
|
|
8.2
|
8.7
|
Convertible bond fair value
adjustment
|
|
(0.4)
|
2.1
|
Deferred tax
|
|
0.1
|
(0.1)
|
Intangible assets
|
|
0.5
|
-
|
Closing EPRA NDV per
share
|
|
116.4
|
123.3
|
|
|
|
| |
Financing
In December 2023, the Group added
to its existing euro private placement loan notes by issuing a
further €47.8 million (£41.4 million) secured on a portfolio of six
Irish assets for a ten-year term at a fixed rate of 4.195%. The new
loan notes further increase the headroom on the Group's undrawn
loan facilities with the proceeds used to repay more expensive
variable rate debt drawn on the Group's revolving credit facilities
which are available to be redrawn in the future.
During the year the Group also
exercised options to extend the maturities by one year to 2026 on a
number of its shorter dated revolving credit facilities with
Barclays (£100 million), NatWest (£100 million) and HSBC (£100
million).
As at 31 December 2023, total
available loan facilities were £1,642.5 million (31 December 2022:
£1,607.0 million) of which £1,309.9 million (31 December 2022:
£1,290.4 million) had been drawn. Cash balances of £3.2 million (31
December 2022: £29.1 million) resulted in Group net debt of
£1,306.7 million (31 December 2022: £1,261.3 million). Contracted
capital commitments at the balance sheet date totalled £14.6
million (31 December 2022: £19.8 million) and resulted in headroom
available to the Group of £321.2 million (31 December 2022: £325.9
million).
Capital commitments at the year-end
comprise costs to complete development and asset management
projects on site of £5.4 million and £7.1 million respectively
together with the deferred consideration on the acquisition of Axis
of £2.1 million (€2.5 million).
The Group's key debt metrics are
summarised in the table below:
|
Debt metrics
|
|
31 December
2023
|
31
December 2022
|
|
Average cost of debt -
drawn
|
|
3.3%
|
3.2%
|
|
Average cost of debt - fully
drawn
|
|
4.1%
|
3.5%
|
|
Loan to value
|
|
47.0%
|
45.1%
|
|
Loan to value - excluding
convertible bond
|
|
41.6%
|
39.7%
|
|
Total net debt fixed or
hedged
|
|
97.2%
|
93.7%
|
|
Net rental income to net interest
cover
|
|
3.1 times
|
3.3
times
|
|
Net debt / EBITDA
|
|
9.4 times
|
9.6
times
|
Weighted average debt
maturity - drawn facilities
|
|
6.6 years
|
7.3
years
|
|
Weighted average debt maturity -
all facilities
|
|
5.7 years
|
6.4
years
|
|
Total drawn secured debt
|
|
£1,159.9m
|
£1,140.4m
|
|
Total drawn unsecured
debt
|
|
£150.0m
|
£150.0m
|
|
Total undrawn facilities and
available to the Group1
|
|
£321.2m
|
£325.9m
|
|
Unfettered assets
|
|
£37.0m
|
£86.7m
|
|
|
|
| |
1 - After deducting capital commitments.
Average cost of debt
The Group's average cost of debt
has only increased by 10 bps to 3.3% (31 December 2022: 3.2%)
notwithstanding the rapid increases in 3-month SONIA and Euribor
interest rates experienced during 2023 reflecting the protection
from the additional hedging and euro denominated debt issued in the
year.
Interest rate exposure
The analysis of the Group's
exposure to interest rate risk in its debt portfolio as at 31
December 2023 is as follows:
|
Facilities
|
Net debt drawn
|
|
£
million
|
%
|
£
million
|
%
|
Fixed rate debt
|
1,117.5
|
68.0
|
1,117.5
|
85.5
|
Hedged by fixed rate interest rate
swaps
|
100.0
|
6.1
|
100.0
|
7.7
|
Hedged by fixed to floating rate
interest rate swaps
|
(200.0)
|
(12.2)
|
(200.0)
|
(15.3)
|
Total fixed rate debt
|
1,017.5
|
61.9
|
1,017.5
|
77.9
|
Hedged by interest rate
caps
|
252.0
|
15.4
|
252.0
|
19.3
|
Floating rate debt -
unhedged
|
373.0
|
22.7
|
37.2
|
2.8
|
Total
|
1,642.5
|
100.0
|
1,306.7
|
100.0
|
Interest rate swap contracts
In April 2023, the Group converted
€60.0 million (£52.0 million) of sterling equivalent denominated
debt into euros across its various revolving credit facilities to
cover a small unhedged euro denominated balance sheet exposure
which had arisen primarily because of historic valuation gains and
retained earnings arising from our portfolio in Ireland. As part of
the transaction the Group took advantage of cheaper euro
denominated interest rates and purchased 2.0% caps on €60 million
nominal value for a period of 2.5 years for an all-in premium of
£1.9 million (€2.2 million). This transaction along with the euro
private placement loan notes issued in December 2023 increased the
proportion of net debt that is fixed or hedged to 97.2% (31
December 2022: 93.7%).
Accounting standards require PHP to
mark its interest rate swaps to market at each balance sheet date.
During the year there was a loss of £4.3 million (2022: gain of
£2.7 million) on the fair value movement of the Group's interest
rate derivatives due primarily to decreases in interest rates
assumed in the forward yield curves used to value the interest rate
swaps and the impact of the passage of time, offset by €60
million (£52.0 million) caps purchased in the year for £1.9 million
(€2.2 million). The net
mark-to-market ("MtM") of the swap portfolio is an asset value of
£4.7 million (31 December 2022: net MtM asset £7.1
million).
Currency exposure
The Group owns €282.2 million or
£244.6 million (31 December 2022: €260.8 million / £230.9 million)
of euro denominated assets in Ireland as at 31 December 2023 and
the value of these assets and rental income represented 9% (31
December 2022: 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 2023 the Group had €281.0million (31 December 2022:
€196.0 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 a
nil-cost FX collar hedge (between €1.1675 and €1.1022: £1) for a
two-year period to cover the approximate euro denominated net
annual income of €10 million per annum, minimising the downside
risk of the euro gaining in value above €1.1675: £1.
Fixed rate debt mark-to-market ("MtM")
The MtM of the Group's fixed rate
debt as at 31 December 2023 was an asset of £106.2 million (31
December 2022: asset £141.3 million) equivalent to 7.9 pence per
share (31 December 2022: asset of 10.6 pence). The movement in the
year is due primarily to the significant increases in interest
rates assumed in the forward yield curves used to value the debt at
the year-end. 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, unsecured convertible bonds with a nominal value
of £150 million and a fixed coupon of 2.875% per annum. Subject to
certain conditions, the bonds are 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 is
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. In accordance with those provisions the
exchange price has been adjusted to 131.72 pence per Ordinary Share
as at 31 December 2023.
The conversion of the £150 million
convertible bonds into new Ordinary Shares would reduce the Group's
loan to value ratio by 5.4% from 47.0% to 41.6% and result in the
issue of 113.9 million new Ordinary Shares.
Risk management and principal
risks
Our risk management processes
enable us to be flexible and responsive to the impact of risks on
the business
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 small (£1.4 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
comprises the Chair of the Audit Committee and 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, along with independent standing invitees
attending throughout the year.
The Board has delegated to the
Audit Committee the process of reviewing the Group's systems of
risk management and their effectiveness. 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 every six months 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
Board retains ultimate responsibility for determining and reviewing
the effectiveness of risk management but has delegated the process
to the Audit Committee which is assisted by the Risk Committee. The
Audit Committee agrees which risks are managed by management in
fulfilling its duties which is reviewed by the Risk
Committee.
The Board recognises that it has
limited ability to control a number of the external risks that the
Group faces, such as the macroeconomic environment and government
policy, but keeps the possible impact of such risks under review
and considers them as part of its decision-making
process.
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
· Need
for an internal audit function
|
Risk Committee
|
Reports to and assists the Audit
Committee, monitoring and reviewing:
· Attitude to and appetite for risk and future risk
strategy
· Company's systems of internal controls and risk
management
· How
risk is reported internally and externally
· Processes for compliance with law, regulators and ethical
codes of practice
· Prevention of fraud
|
Senior management
|
Implements and monitors risk
mitigation processes:
· Policies and procedures
· Risk
management and compliance
· Key
performance indicators
· Specialist third-party reviews
|
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 few 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 2022
full-year results, global economic uncertainty has remained
volatile and uncertain. Within the UK, the main challenges facing
the economy have been high inflation and the rapid rise in interest
rates that are still widely expected to remain at elevated levels
for longer than originally anticipated. The continued wars in
Ukraine and the Middle East have also impacted, what was already
sensitive, political and macroeconomic environments.
The potential adverse impact of
these factors on our business includes reduced demand for our
assets impacting property values in the investment market,
increased financing costs and our ability to continue to execute
our acquisition and development strategy 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 this 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
that 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 impact 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.
The Board dealt with the risk of
RAAC (Reinforced Autoclaved Aerated Concrete) during the year,
reviewing the portfolio, and where necessary surveyed, for its
presence. None was identified but we continue to monitor the
situation.
The Board continues to consider the
impact of Brexit and COVID-19 on the business and again concluded,
that these did not constitute a significant risk to the
business.
Mapping our key risks and residual
risk movement
We use a risk-scoring matrix to
ensure we take a consistent approach when assessing their overall
impact. Overall, there has been an increase in the likelihood and
potential impact of a number of the principal risks over the year,
which has been reached considering wider economic uncertainty and
other external factors, balanced against PHP's robust business
model. The residual risk exposures of the Company's principal risks
are shown in the heat map to the left, being the risk after
mitigating actions have been taken to reduce the initial inherent
risks.
Grow property portfolio
1. Property
pricing and competition
2.
Financing
Manage effectively and
efficiently
3. Lease
expiry management
4.
People
5.
Responsible business
Diversified, long term
funding
6. Debt
financing
7. Interest
rates
Deliver progressive
returns
8.
Potential over-reliance on the NHS and HSE
9. Foreign
exchange risk
® Indicates risk movement from last
year
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, we have amended risk ratings
accordingly. These are set out below, presented within the
strategic objective that they impact:
Grow property portfolio
|
1. Property pricing and
competition
↑ A C D KPIs
impacted
The primary care property market
continues to be attractive to investors attracted by the secure,
government backed income, low void rates and long lease.
The emergence of new purchasers in
the sector and the recent slowing in the level of approvals of new
centres in the UK may restrict the ability of the Group to secure
new investments.
|
Commentary on risk in the
year
In terms of values, the Group has
previously benefited from a flight to income as a consequence of
the wider economic uncertainty seen in previous years, with demand
increasing from investors seeking its long term, secure, government
backed cash flows against a backdrop of limited supply.
A revaluation deficit of £53 million
was generated in the year, driven by NIY widening of 23 bps in the
year.
Increased interest rates, including
volatility, in particular, for gilts and bonds, have had a negative
impact on the property yields in the sector, despite gilt rates
stabilising in Q4. This reduces investor sentiment, competition and
attractiveness of PHP's assets and consequently impacted
valuations.
|
Mitigation
The reputation and track record of
the Group in the sector mean it is able to source forward funded
developments and existing standing investments from developers,
investors and owner-occupiers.
As a result, the Group has several
formal pipeline agreements and long-standing development
relationships that provide an increased opportunity to secure
developments that come to market in the UK and Ireland.
Despite the unprecedented market
conditions faced, the Group continues to have a strong, identified
pipeline of investment opportunities in the UK and
Ireland.
|
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
↑
High
Likelihood is high and impact of
occurrence could be major.
|
Residual risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
The Group's position 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
←→ G H KPIs
impacted
The Group uses a mix of shareholder
equity and external debt to fund its operations. A restriction on
the availability of funds would limit the Group's ability to fund
investment and development opportunities and implement
strategy.
Furthermore, a more general lack of
equity or debt available to the sector could reduce demand for
healthcare assets and therefore impact values.
|
Commentary on risk in the
year
The Company successfully completed
one debt financing during the year, tapping the existing euro
private placement loan notes by issuing a further €47.8
million.
The credit margin agreed on this new
facility remains in line with previous euro denominated facilities,
reiterating the confidence in PHP's business model shown by
lenders.
The Group's undrawn facilities mean
it currently has headroom of £321 million.
All covenants have been met with
regard to the Group's debt facilities and these all remain
available for their contracted term.
|
Mitigation
Existing and new debt providers are
keen to provide funds to the sector and specifically to the Group,
attracted by the strength of its cash flows.
The Board monitors its capital
structure and maintains regular contact with existing and potential
equity investors and debt funders. Management also closely monitors
debt markets to formulate its most appropriate funding
structure.
The euro private placement was
executed for a ten-year term, further increasing PHP's average debt
maturity of drawn facilities to 6.6 years.
|
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
↑
High
Likelihood is high and impact of
occurrence could be major.
|
Residual risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
The Group takes positive action to
ensure continued availability of resource, maintains a prudent
ratio of debt and equity funding and refinances debt facilities in
advance of their maturity.
|
Manage effectively and
efficiently
|
3. Lease expiry
management
←→ E F KPIs
impacted
The bespoke nature of the Group's
assets can lead to limited alternative use. Their continued use as
fit-for-purpose medical centres is key to delivering the Group's
strategic objectives.
|
Commentary on risk in the
year
Lease terms for all property assets
will erode and the importance of active management to extend the
use of a building remains unchanged.
|
Mitigation
The asset and property management
teams meet with occupiers on a regular basis to discuss the
specific property and the tenant's aspirations and needs for its
future occupation.
Eight asset management projects
physically completed in the year, with a further six projects
onsite, enhancing income and extending occupational lease
terms.
In addition, there is a strong
pipeline of over 43 projects that will be progressed in 2024 and
the coming years.
Only 11.3% of the Group's income is
currently holding over or expires over the next three years, of
which c.70% is either subject to a planned asset management
initiative or terms have been agreed to renew the lease.
|
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
Likelihood of limited alternative
use value is moderate but the impact of such values could be
serious.
|
Residual risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
Management employs an active asset
and property management programme and has a successful track record
of securing enhancement projects and securing new long term
leases.
|
4. People
←→ F KPI impacted
The inability to attract, retain and
develop our people to ensure we have the appropriate skill base in
place in order for us to implement our strategy.
|
Commentary on risk in the
year
The cost-of-living crisis has
remained during the year and expected to continue into 2024 as
interest rates remain higher for longer, continuing the risk of
losing a highly skilled and specialist staff.
|
Mitigation
Succession planning is in place for
all key positions and will be reviewed regularly by the Nomination
Committee.
Remuneration incentives are in place
such as bonuses and an LTIP for Executive Directors and senior
management to incentivise and motivate the team and are renewed
annually and benchmarked to the market.
Notice periods are in place for key
employees.
|
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
Likelihood and potential impact
could be medium.
|
Residual risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
The Remuneration Committee has
benchmarked remuneration with the help of remuneration consultants,
and reviewed and updated policies to ensure retention and
motivation of the Management team.
|
5. Responsible business
←→ D E H KPIs
impacted
Risk of non-compliance with
Responsible Business practices, including climate mitigation and
ethical business consideration, not meeting stakeholders'
expectations, leading to possible reduced access to debt and
capital markets, weakened stakeholder relationships and
reputational damage.
|
Commentary on risk in the
year
Properties no longer meet occupiers'
expected environmental requirements.
Stakeholders including investors and
debt providers see ESG as a key issue and want to see a
sufficiently developed plan to decarbonise the property portfolio
and to operate to the highest standards of business ethics and due
diligence.
There is a risk that we may not meet
the hurdles sought by stakeholders including equity and debt
investors should PHP not focus enough on ESG matters, potentially
impacting the funding of the business significantly.
Additionally, political and
regulatory changes to corporate governance and disclosure, energy
efficiency and net zero carbon requirements are expected to be
mandated in the short to medium term. The introduction of Corporate
Sustainability Reporting Directive (CSRD) and International
Sustainability Standards Board (ISSB) in the year is a key example
of increasing requirements, although PHP is not legally required to
comply at present.
|
Mitigation
PHP's ESG credentials remain at the
forefront of its strategic planning and it has established an ESG
Committee to review and drive the Group's ESG agenda forward.
During the year PHP has:
· worked
with Achilles to provide limited third party assurance of our
disclosures and achieved certification to Toitu Carbon Reduce and
ISO 14064;
· provided staff training covering individual personal
development and ESG;
· commissioned third party audits for development and
refurbishment projects to guard against the risks of modern slavery
and unethical supply chain standards;
· engaged with external experts to assess and inform our net
zero carbon approach for developments and
refurbishments;
· set,
monitored and reported sustainability targets and hurdles to 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;
· achieved 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; 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 sustainable development and refurbishment
requirements.
|
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
↑
High
Likelihood is high and impact of
occurrence could be major.
|
Residual risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
The Group is committed to meeting
its obligations in line with its Responsible Business Framework and
feels it has introduced sufficient mitigants to continue to deliver
its objectives.
|
Diversified, long term
funding
|
6. Debt financing
←→ G H KPIs
impacted
Without appropriate confirmed debt
facilities, PHP may be unable to meet current and future
commitments or repay or refinance debt facilities as they become
due.
|
Commentary on risk in the
year
Negotiations with lenders have
confirmed that the Group enjoys the confidence of the lending
markets both in terms of the traditional high street lenders and
the bond markets.
The Company successfully completed
one debt financing during the year, tapping its existing euro
private placement loan notes by issuing a further €47.8
million.
|
Mitigation
Existing lenders remain keen to
finance PHP and new entrants to debt capital markets have increased
available resource. Credit margins agreed on the new facility and
RCF plus one extensions in the year, remained in line with what has
been achieved in previous years, reiterating the confidence in
PHP's business model shown by the lending banks.
Management regularly monitors the
composition of the Group's debt portfolio to ensure compliance with
covenants and continued availability of funds.
Management regularly reports to the
Board on current debt positions and provides projections of future
covenant compliance to ensure early warning of any possible
issues.
|
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
The likelihood of insufficient
facilities is moderate but the impact of such an event would be
serious.
|
Residual risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
The Board regularly monitors the
facilities available to the Group and looks to refinance in advance
of any maturity. The Group is subject to the changing conditions of
debt capital markets.
|
7. Interest rates
↑ A B F G H KPIs
impacted
Adverse movement in underlying
interest rates could adversely affect the Group's earnings and cash
flows and could impact property valuations.
|
Commentary on risk in the
year
Interest rates continued to increase
significantly during the year because of the stubbornly high
inflation and the uncertain macroeconomic/political environment in
the UK.
These elevated interest rates, that
are widely forecast to remain at these elevated levels over the
coming year, have forced us to critically re-evaluate investment
yields on acquisitions and developments. These have the potential
to limit the Group's ability to profitably acquire investment and
development opportunities and implement it's strategy. This in turn
is likely to continue to weigh on property yields and consequently
valuations in the future. However, notwithstanding these
significant increases and volatility in interest rates seen in
2023, we continue to believe further significant reductions in
primary care values are likely to be limited with a stronger rental
growth outlook offsetting the impact of any further yield
expansion.
Whilst no immediate refinances are
required until 2025, any additional drawn debt in 2024 will be
subject to variable interest rates, and would increase the current
3%, of unhedged variable debt as at 31 December 2023.
|
Mitigation
The Group holds the majority of its
debt in long term, fixed rate loans and mitigates its exposure to
interest rate movements on floating rate facilities through the use
of interest rate swaps.
As at the balance sheet date 97% of
net debt is fixed or hedged.
MtM valuation on debt and derivative
movements do not impact the Group's cash flows and are not included
in any covenant test in the Group's debt facilities.
The Group continues to monitor and
consider further hedging opportunities in order to manage exposure
to rising interest rates.
|
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
↑
High
The likelihood of volatility in
interest rate markets is high and the potential impact if not
managed adequately could be major.
|
Residual risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
The Group is currently well
protected against the risk of interest rate rises but, due to its
continued investment in new properties and the need to maintain
available facilities, is increasingly exposed to rising interest
rate levels.
Property values are still subject to
market conditions which will continue to be impacted by the
interest rate environment.
|
Deliver progressive
returns
|
8. Potential over-reliance on the
NHS and HSE
←→ D C KPIs
impacted
PHP invests in a niche asset sector
where changes in healthcare policy, the funding of primary care,
economic conditions and the availability of finance may adversely
affect the Group's portfolio valuation and performance.
|
Commentary on risk in the
year
The UK and Irish Governments
continue to be committed to the development of primary care
services and initiatives to develop new models of care increasingly
focusing on greater utilisation of primary care.
Despite the UK's economic outlook
and the continued backlog of treatments created by the COVID-19
pandemic, staff shortages and recruitment issues that the NHS
faces, we expect the demand for health services to continue to
grow, driven by demographics. Despite future government funding
levels in the UK and Ireland likely being impacted by economic
performance and political elections, primary care remains a
critical infrastructure with no indications it is an area being
considered for cuts.
A fundamental change in government
policy could impact how the private sector regards its investment
in this asset class and its willingness to further deploy private
sector resources to improve the quality of primary care facilities.
The NHS, HSE and District Valuer need to acknowledge that higher
build costs and inflation will need to be reflected in future rent
settlements for new schemes to be economically viable.
|
Mitigation
The commitment to primary care is a
stated objective of both the UK and Irish Governments and on a
cross-party basis. Never has the modernisation of the primary care
estate been more important in order to reduce the huge backlog of
treatments, and to avoid patients being directed to understaffed
and over-burdened hospitals.
Management engages directly with
government and healthcare providers in both the UK and Ireland to
promote the need for continued investment in modern
premises.
This continued investment provides
attractive long term, secure income streams that characterises the
sector,
leading to stability of values.
PHP continues to appraise and invest
in other adjacent, government funded healthcare related real estate
assets.
|
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
Likelihood is low but impact of
occurrence may be major.
|
Residual risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
Policy risk and general economic
conditions are out of the control of the Board, but proactive
measures are taken to monitor developments and to consider their
possible implications for the Group.
|
9. Foreign exchange risk
←→ A B C D KPIs
impacted
Income and expenditure that will be
derived from PHP's investments in Ireland will be denominated in
Euros and may be affected unfavourably by fluctuations in currency
rates, impacting the Group's earnings and portfolio
valuation.
|
Commentary on risk in the
year
The Group now has 21 investments in
Ireland. Asset values, funding and net income are denominated in
Euros.
The wider macroeconomic and
political environment across the world continues to cause exchange
rate volatility.
|
Mitigation
The Board has funded and will
continue to fund its investments in Ireland with Euros to create a
natural hedge between asset values and liabilities in
Ireland.
To hedge out the Euro denominated
income exposure PHP has a zero cost Euro foreign exchange cap and
collar to rates between a range of €1.1675: £1 and €1.1022: £1, to
cover net annual income of €10 million per annum, which expires in
July 2024.
Management closely monitors the Euro
to GBP currency rates with its banks to formulate a formal hedging
strategy against Irish net cash flow.
|
Inherent risk rating
2 4 6 8 10 12 14 16 18
20
↑
Medium
Likelihood of volatility is high but
the potential impact at present is low due to the quantum of
investment in Ireland, albeit this is increasing.
|
Residual risk rating
2 4 6 8 10 12 14 16 18
20
↑
Low
PHP has implemented a 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 2026.
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 used for the 31 December 2022 year end audit
which included a 10% decline in valuations, and 15% tenant default
rate. We believe these remain realistic reasonable worst-case
scenarios, having seen an absolute valuation decline of 1.9% in
2023.
Across our various loan facilities,
valuations will need to fall by a further £1.1 billion or 39%
before the loan to value covenants are impacted. Acknowledging the
further 175bps increase in the Bank of England base rate during
2023, in light of governmental targets to reduce inflation being
met in the year, many economists and market consensus is that rates
have potentially peaked at 5.25%. We therefore feel the increase in
variable interest rates should remain a sensitivity but have
reduced the sensitivity from 2% to 1%.
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%/£279 million
fall in June 2024;
•
15% tenant default rate;
•
rental growth assumptions amended to see nil uplifts on open market
reviews;
•
variable rate interest rates rise by an immediate 1% effective from
1 January 2024; 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 covenant compliance, profitability, net
debt, loan to value ratios and available financial headroom which
are as follows:
Key metrics at 31 December
2026
|
|
|
Loan to value ratio
|
47.0%
|
54.2%
|
Net debt
|
£1,307m
|
£1,408m
|
Interest cover ratio
|
3.08x
|
2.59x
|
Adjusted net assets
|
£1,443m
|
£1,164m
|
Available financial
headroom
|
|
|
All covenants have been monitored
throughout the viability period that has been assessed and any
breaches were minor and could be remedied with cash or property
collateral.
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 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 14 to
the financial statements for a profile of the Group's debt
maturity.
Harry Hyman
Chief Executive Officer
27 February 2024
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 Accounting Standards in
conformity with the requirements of the Companies Act 2006 and
UK-adopted International Accounting Standards ("IFRS"). The
Directors have also 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 is 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 27 February 2024 and is
signed on its behalf by:
Steven Owen
Chair
27 February 2024
Group statement of comprehensive
income
for the year ended 31 December
2023
|
|
|
|
Rental and related income
|
|
169.8
|
154.1
|
|
|
|
|
Net rental and related
income
|
|
|
|
Administrative expenses
|
|
(12.3)
|
(9.6)
|
Amortisation of intangible
assets
|
|
(0.9)
|
-
|
Axis acquisition costs and JSE
listing fees
|
|
|
|
Total administrative
expenses
|
4
|
(13.7)
|
(9.6)
|
|
|
|
|
Revaluation deficit on property
portfolio
|
10
|
(53.0)
|
(64.4)
|
Profit on sale of land and
property
|
|
|
|
Total revaluation deficit
|
|
|
|
Operating profit
|
4
|
84.3
|
70.4
|
Finance income
|
5
|
0.2
|
0.9
|
Finance costs
|
6a
|
(45.2)
|
(41.2)
|
Fair value loss on derivative
interest rate swaps and amortisation of hedging reserve
|
6b
|
(8.4)
|
(1.9)
|
Fair value (loss)/gain on
convertible bond
|
|
|
|
Profit before taxation
|
|
26.1
|
56.9
|
|
|
|
|
|
|
|
|
Other comprehensive
income:
|
|
|
|
Items that may be reclassified
subsequently to profit and loss
|
|
|
|
Amortisation of hedging
reserve
|
21
|
4.1
|
4.5
|
Exchange (loss)/gain on translation
of foreign balances
|
|
|
|
Other comprehensive income net of
tax1
|
|
|
|
Total comprehensive income net of
tax1
|
|
|
|
IFRS earnings per share
|
|
|
|
Basic
|
8
|
2.0p
|
4.2p
|
|
|
|
|
Adjusted earnings per
share2
|
|
|
|
Basic
|
8
|
6.8p
|
6.6p
|
|
|
|
|
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 2023
|
|
|
|
Non-current assets
|
|
|
|
Investment properties
|
10
|
2,779.3
|
2,796.3
|
Derivative interest rate
swaps
|
16
|
0.9
|
19.6
|
Intangible assets
|
|
6.2
|
-
|
Property, plant and
equipment
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
Trade and other
receivables
|
11
|
24.9
|
17.8
|
Cash and cash equivalents
|
12
|
3.2
|
29.1
|
Derivative interest rate
swaps
|
16
|
10.5
|
-
|
Developments work in
progress
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
Deferred rental income
|
|
(30.4)
|
(29.2)
|
Trade and other payables
|
13
|
(31.7)
|
(32.6)
|
Borrowings: term loans and
overdraft
|
14a
|
(2.4)
|
(2.3)
|
Derivative interest rate
swaps
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
Borrowings: term loans and
overdraft
|
14a
|
(664.5)
|
(682.5)
|
Borrowings: bonds
|
14b
|
(656.4)
|
(614.6)
|
Derivative interest rate
swaps
|
16
|
-
|
(12.5)
|
Head lease liabilities
|
15
|
(3.0)
|
(3.2)
|
Trade and other payables
|
13
|
(4.1)
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
Share capital
|
18
|
167.1
|
167.1
|
Share premium account
|
19
|
479.4
|
479.4
|
Merger and other reserves
|
20
|
415.3
|
416.7
|
Hedging reserve
|
21
|
(7.0)
|
(11.1)
|
|
|
|
|
|
|
|
|
Net asset value per
share
|
|
|
|
IFRS net assets - basic and
diluted
|
8
|
106.5p
|
110.9p
|
Adjusted net tangible
assets2 - basic
|
8
|
108.0p
|
112.6p
|
Adjusted net tangible
assets2 - diluted
|
|
|
|
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 27 February 2024 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
2023
|
|
|
|
Operating activities
|
|
|
|
Profit on ordinary activities after
tax
|
|
27.3
|
56.3
|
Adjustments to reconcile to
operating profit before financing costs:
|
|
|
|
Taxation (credit)/charge
|
7
|
(1.2)
|
0.6
|
Finance income
|
5
|
(0.2)
|
(0.9)
|
Finance costs
|
6a
|
45.2
|
41.2
|
Fair value loss on derivative
interest rate swaps and amortisation of hedging reserve
|
6b
|
8.4
|
1.9
|
Fair value loss/(gain) on
convertible bond
|
|
|
|
Operating profit before financing
costs
|
|
84.3
|
70.4
|
Adjustments to reconcile Group
operating profit before financing costs to net cash flows from
operating activities:
|
|
|
|
Revaluation loss on property
portfolio
|
10
|
53.0
|
64.4
|
Profit on sale of land and
property
|
10
|
-
|
(2.9)
|
Axis acquisition costs and JSE
listings fees
|
|
0.5
|
-
|
Amortisation of intangible
assets
|
|
0.9
|
-
|
Fixed rent uplift
|
|
(0.7)
|
(0.9)
|
Tax paid/(received)
|
|
(0.3)
|
0.2
|
(Increase)/decrease in trade and
other receivables
|
|
(7.1)
|
(0.7)
|
Increase/(decrease) in trade and
other payables
|
|
|
|
Net cash flow from operating
activities
|
|
|
|
Investing activities
|
|
|
|
Payments to acquire and improve
investment properties
|
|
(39.5)
|
(74.8)
|
Receipts from disposal of
properties
|
|
-
|
27.5
|
Cash paid for acquisition of
Axis
|
|
(5.1)
|
-
|
Interest received on development
loans
|
|
|
|
Net cash flow used in investing
activities
|
|
|
|
Financing activities
|
|
|
|
Cost of share issues
|
|
-
|
(0.1)
|
Term bank loan drawdowns
|
14
|
282.4
|
161.6
|
Term bank loan repayments
|
14
|
(300.0)
|
(175.7)
|
Proceeds from bond issues
|
14
|
41.2
|
62.9
|
Loan arrangement fees
|
|
(1.8)
|
(3.5)
|
Purchase of derivative financial
instruments
|
|
(1.9)
|
-
|
Swap interest received
|
|
3.9
|
1.4
|
Non-utilisation fees
|
|
(2.2)
|
(2.0)
|
Interest paid
|
|
(47.0)
|
(39.8)
|
Equity dividends paid net of scrip
dividend
|
|
|
|
Net cash flow from financing
activities
|
|
|
|
Decrease in cash and cash
equivalents for the year
|
|
(25.9)
|
(5.0)
|
Effect of exchange rate fluctuations
on Euro-denominated cash and cash equivalents
|
|
-
|
0.7
|
Cash and cash equivalents at start
of year
|
|
|
|
Cash and cash equivalents at end of
year
|
|
|
|
Group statement of changes in
equity
for the year ended 31 December
2023
|
|
|
Merger
and
other
reserve
£m
|
|
|
|
1 January 2023
|
167.1
|
479.4
|
416.7
|
(11.1)
|
430.1
|
1,482.2
|
Profit for the year
|
-
|
-
|
-
|
-
|
27.3
|
27.3
|
Other comprehensive
income
|
|
|
|
|
|
|
Amortisation of hedging
reserve
|
-
|
-
|
-
|
4.1
|
-
|
4.1
|
Exchange (loss)/gain on translation
of foreign balances
|
|
|
|
|
|
|
Total comprehensive
income
|
-
|
-
|
(1.4)
|
4.1
|
28.4
|
31.1
|
Share-based awards
("LTIP")
|
-
|
-
|
-
|
-
|
0.1
|
0.1
|
Dividends paid
|
-
|
-
|
-
|
-
|
(89.5)
|
(89.5)
|
Scrip dividend in lieu of
cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger
and
other
reserve
£m
|
|
|
|
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
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to the financial
statements
2. Corporate
information
The Group's financial statements
for the year ended 31 December 2023 were approved by the Board of
Directors on 27 February 2024 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, the convertible bond 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 121 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. The preliminary results for
the year ended 31 December 2023 have been extracted from audited
accounts which have not yet been delivered to the Registrar of
Companies. The Financial Statements set out in this announcement do
not constitute statutory accounts for the year ended 31 December
2023 or 31 December 2022. The financial information for the year
ended 31 December 2022 is derived from the statutory accounts from
that year. The report of the auditors on the statutory accounts for
the year ended 31 December 2023 was unqualified and did not contain
a statement under Section 498 of the Companies Act 2006.
2.2 Standards adopted during the
year
The accounting policies adopted are
consistent with those of the previous financial year except for the
following new and amended IFRSs effective for the Group as of 1
January 2023.
Amendments to IAS 1 Classification
of liabilities as current or non-current
On 23 January 2020, the IASB issued
Amendments to IAS 1 Classification of liabilities as current
providing a more general approach to the classification of
liabilities under IAS 1 based on the contractual arrangements in
place at the reporting date.
Amendments to IAS 12 Deferred tax
related to assets and liabilities arising from a single
transaction
On 7 May 2021, the IASB issued
amendments to IAS 12 Deferred Tax related to assets and liabilities
arising from a single transaction clarifying how companies account
for deferred tax on transactions such as leases.
Amendments to IAS 8 Definition of
accounting estimates
On 12 February 2021, the IASB
issued amendments to IAS 8 Definition of accounting estimates to
help entities to distinguish between accounting policies and
accounting estimates.
None of the above have a
significant effect on the consolidated financial statements of the
Group.
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 Axis Real Estate Group their
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 2023 are as
follows:
•
Group Balance Sheet: £1 = €1.15355 (2022: €1.1295).
•
Group Statement of Comprehensive Income: £1 = €1.15977 (2022:
€1.1490).
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.
Where properties are acquired
through the purchase of a corporate entity but the transaction does
not meet the definition of a business combination under IFRS 3, the
purchase is treated as an asset acquisition. Where the acquisition
is considered a business combination, the excess of the
consideration transferred over the fair value of assets and
liabilities acquired is held as goodwill, initially recognised at
cost with subsequent impairment assessments completed at least
annually. Where the initial calculation of goodwill arising is
negative, this is recognised immediately in the income statement.
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 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% (2022: 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
Interest income 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 at
their transaction price and carried at amortised cost as the
Group's business model is to collect the contractual cash flows due
from tenants which are solely the payment of principal and
interest. A loss allowance 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, with an original maturity
of three months or less, measured at amortised cost.
Trade and other payables
Trade payables are initially
recognised at fair value and subsequently measured at amortised
cost 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 14b 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.
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".
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.
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, the Group's convertible
bond 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.
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 the 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.
Contract-based intangible assets
comprise the value of customer contracts arising on business
combinations. Intangible assets arising on business combinations
are initially recognised at fair value. Intangible assets arising
on business combinations are amortised on a straight line basis to
the income statement over their expected useful lives, and are
carried at depreciated historical cost.
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. Investment properties under construction are not material
and therefore there is no estimation uncertainty.
The fair market value of a property
is deemed by the independent property valuer appointed by the Group
to be the estimated amount for which a property should exchange, on
the date of valuation, in an arm's length transaction. Properties
have been valued on an individual basis, assuming that they will be
sold individually over time. Allowances are made to reflect the
purchaser's costs of professional fees and stamp duty and
tax.
In accordance with RICS Appraisal
and Valuation Standards, factors taken into account are current
market conditions, annual rentals, state of repair, ground
stability, contamination issues and fire and health and safety
legislation. Refer to Note 10 of the financial statements which
includes further information on the fair value assumptions and
sensitivities.
In determining the fair value of
investment properties under construction the valuer is required to
consider the significant risks which are relevant to the
development process including, but not limited to, construction and
letting risks. The valuer takes into account any pre-lets and
whether construction risk remains with the respective developer or
contractor.
Fair value of
derivatives
In accordance with IFRS 9, the
Group values its derivative financial instruments at fair value.
Fair value is estimated by 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 2023. 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 16 of the
financial statements.
b) Judgements
In the process of applying the
Group's accounting policies. which are described above, the
Directors do not consider there to be significant judgements
applied with regard to the policies adopted.
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 Non-current liabilities with
covenants;
•
amendments to IFRS 16 Lease liability in a sale and
leaseback;
•
amendments to IAS 21 Lack of exchangeability; 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 2024, 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, plus facilities and properties management income.
Revenue is derived from one reportable operating segment, with
£136.0 million and £14.8 million of rent roll 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:
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
Operating profit is stated after
charging administrative expense of £12.3 million, amortisation of
intangible assets of £0.9 million, Axis acquisition costs of £0.3
million and one off set up costs associated with the JSE listing of
£0.2 million (31 December 2022: £9.6 million). Administrative
expenses as a proportion of rental and related income were 7.2% (31
December 2022: 6.5%). The Group's EPRA cost ratio has increased to
10.7%, compared to 9.9% for the same period in 2022.
Administrative expenses include
staff costs of £7.1 million (31 December 2022: £5.4
million).
In the year PHP acquired Axis, an
Irish property management business. In the period Axis contributed
£5.7 million of related income and incurred direct property
expenses of £3.9 million, contributing £1.8 million of net related
income. After the deduction of £0.7 million administrative expenses
Axis generated an operating profit of £1.1 million.
Group operating profit is stated
after charging:
|
|
|
Administrative expenses
including:
|
|
|
Advisory fees (Note 4a)
|
-
|
0.1
|
Staff costs (Note 4b)
|
7.5
|
5.4
|
Performance Incentive Fees (Note
4c)
|
-
|
-
|
|
|
|
Audit fees
|
|
|
Fees payable to the Company's
auditor and its associates for the audit of the Company's annual
accounts
|
0.5
|
0.5
|
Fees payable to the Company's
auditor and its associates for the audit of the Company's
subsidiaries
|
|
|
|
|
|
Total audit and assurance
services
|
|
|
Non-audit fees
|
|
|
Fees payable to the Company's
auditor and its associates for the interim review
|
0.1
|
0.1
|
|
|
|
|
|
|
|
|
|
Please refer to page 93 of the
Annual Report for analysis of non-audit fees.
a) Advisory fees
The Group shares certain operational
services with Nexus. Amounts paid during the year in relation to
these shared services totalled £nil million (2022:
£nil).
b) Staff costs
|
|
|
Wages and salaries
|
7.9
|
6.0
|
Less staff costs capitalised in
respect of development and asset management projects
|
(1.5)
|
(1.4)
|
Social security costs
|
0.7
|
0.6
|
Pension costs
|
0.3
|
0.2
|
Equity-settled share-based
payments
|
|
|
|
|
|
In addition to the above, there
were £0.9 million of direct salaries recognised within property
costs for Axis employees. The Group operates a defined contribution
pension scheme for all employees. The Group contribution to the
scheme during the year was £0.3 million (2022: £0.2 million),
which represents the total expense recognised through the income
statement. As at 31 December 2023, there were no
contributions (2022: £nil) 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 62 which included 60 full time and 2
part time employees (2022: 67 which included 64 full time and 3
part time), and as at 31 December 2023 was 58 (2022: 65). In
addition to this, the average employees in the Axis team during the
year was 27, with 28 employees as at 31 December 2023.
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 of the Annual
Report.
The Group's equity-settled
share-based payments comprise the following:
|
|
Long Term Incentive Plan
("LTIP")
|
Face value at grant date
|
Save As You Earn
("SAYE")
|
|
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 PIF is
provided in the Corporate Governance section in the Annual
Report.
The internalisation of management
in 2021 resulted in the unwinding of the PIF, with 2022 being the
last year of its operation. The necessary hurdle rate was not met
in 2022, with no payment due and no balance on the notional
cumulative PIF account.
5. Finance income
|
|
|
Interest income on financial
assets
|
|
|
Development loan interest
|
|
|
|
|
|
6. Finance costs
|
|
|
Interest expense and similar
charges on financial liabilities
|
|
|
a) Interest
|
|
|
Bank loan interest
|
27.4
|
23.0
|
Swap interest
|
(4.6)
|
(1.4)
|
Bond interest
|
20.0
|
17.5
|
Bank facility non-utilisation
fees
|
2.2
|
2.0
|
Bank charges and loan arrangement
fees
|
|
|
|
48.3
|
44.1
|
|
|
|
|
|
|
Amortisation of MedicX debt MtM on
acquisition
|
|
|
|
|
|
|
|
|
b) Derivatives
|
|
|
Net fair value loss/(gain) on
interest rate swaps
|
4.3
|
(2.6)
|
Amortisation of cash flow hedging
reserve
|
|
|
|
|
|
The fair value movement 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 (2022: £nil). An amount
of £4.1 million (2022: £4.5 million) has been amortised from the
cash flow hedging reserve in the year resulting from early
termination of effective swap contracts (see Note 21).
|
|
|
c) Convertible bond
|
|
|
Fair value loss/(gain) on existing
convertible bond
|
|
|
|
|
|
The fair value movement in the
convertible bond 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. Refer to Note
14 for further details about the convertible bonds.
|
|
|
Net finance costs
|
|
|
Finance income (Note 5)
|
0.2
|
0.9
|
Finance costs (as per
above)
|
|
|
|
(48.1)
|
(43.2)
|
|
|
|
|
|
|
Amortisation of MedicX debt MtM on
acquisition
|
|
|
|
|
|
7. Taxation
a) Taxation charge in the Group
Statement of Comprehensive Income
The taxation charge is made up as
follows:
|
|
|
Current tax
|
|
|
UK corporation tax
|
-
|
-
|
Irish corporation tax
|
0.1
|
(0.2)
|
Deferred tax on Irish
activities
|
|
|
Total tax
(credit)/charge
|
|
|
The UK corporation tax rate of 25%
(2022: 19%) and the Irish corporation tax rate of 19% (2022: 19%)
have been applied in the measurement of the Group's UK and Ireland
related activities tax liability at 31 December 2023. The UK
corporation tax rate was increased to 25% effective 1 April 2023
and has been pro rated for the purposes of the UK corporation tax
rate applied in the year.
b) Factors affecting the tax charge
for the year
The tax assessed for the year is
lower than (2022: lower than) the standard rate of corporation tax
in the UK. The differences are explained below:
|
|
|
Profit on ordinary activities before
taxation
|
|
|
Theoretical tax at UK corporation
tax rate of 23.5% (2022: 19%)
|
6.1
|
10.8
|
REIT exempt income
|
(16.5)
|
(11.2)
|
Transfer pricing
adjustment
|
8.5
|
7.1
|
Fair value loss/(gain) on
convertible bond
|
0.5
|
(5.4)
|
Non-taxable items
|
0.8
|
-
|
Losses brought forward
utilised
|
0.1
|
(0.6)
|
Difference in Irish tax
rates
|
|
|
Taxation (credit)/charge (Note
7a)
|
|
|
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 25% (2022: 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
2023.
The Group's activities in Ireland
are conducted via Irish companies, a Guernsey company and an Irish
Collective Asset Vehicle ("ICAV"). The Irish companies pay Irish
corporation tax on trading activities and deferred tax is
calculated on the increase in capital values. The Guernsey company
pays tax on its net rental income. The ICAV does not pay any Irish
corporation tax on its profits but a 20% withholding tax is paid on
distributions to owners.
8. Earnings per share
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
|
|
|
|
|
|
|
|
|
|
|
|
Profit after taxation
|
27.3
|
27.3
|
27.3
|
|
56.3
|
56.3
|
56.3
|
Adjustments to remove:
|
|
|
|
|
|
|
|
Revaluation deficit on property
portfolio
|
-
|
53.0
|
53.0
|
|
-
|
64.4
|
64.4
|
Profit on sale of land and
property
|
-
|
-
|
-
|
|
-
|
(2.9)
|
(2.9)
|
Fair value movement on
derivatives
|
-
|
8.4
|
8.4
|
|
-
|
1.9
|
1.9
|
Fair value movement and issue costs
on convertible bond
|
-
|
4.8
|
4.8
|
|
-
|
(28.7)
|
(28.7)
|
Taxation charge/(credit)
|
-
|
(1.2)
|
(1.2)
|
|
-
|
0.6
|
0.6
|
JSE listing fees
|
-
|
0.2
|
0.2
|
|
-
|
-
|
-
|
Amortisation of intangible
assets
|
-
|
0.9
|
0.9
|
|
-
|
-
|
-
|
Axis acquisition costs
|
-
|
0.3
|
0.3
|
|
-
|
-
|
-
|
Amortisation of MtM loss on debt
acquired
|
|
|
|
|
|
|
|
Basic earnings
|
27.3
|
90.7
|
93.7
|
|
56.3
|
88.7
|
91.6
|
Dilutive effect of convertible
bond
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary Shares
|
1,336.5
|
1,336.5
|
1,336.5
|
|
1,334.8
|
1,334.8
|
1,334.8
|
Dilutive effect of convertible
bond
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) per share attributable
to shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
2.0
|
6.8
|
7.0
|
|
4.2
|
6.6
|
6.9
|
|
|
|
|
|
|
|
|
In the year ended 31 December 2023
the effect of the convertible bond has been excluded from the
diluted profit and weighted average diluted number of shares when
calculating IFRS diluted profit per share because they are
anti-dilutive.
Net assets per share
|
|
|
|
|
|
|
|
|
|
|
|
Net assets attributable to
shareholders
|
1,423.9
|
1,423.9
|
1,423.9
|
|
1,482.2
|
1,482.2
|
1,482.2
|
Derivative interest rate swaps
liability
|
-
|
(4.7)
|
(4.7)
|
|
-
|
(7.1)
|
(7.1)
|
Deferred tax
|
-
|
3.8
|
3.8
|
|
-
|
5.4
|
5.4
|
Intangible assets
|
-
|
(6.2)
|
(6.2)
|
|
-
|
-
|
-
|
Cumulative convertible bond fair
value movement
|
-
|
(2.3)
|
(2.3)
|
|
-
|
(7.1)
|
(7.1)
|
MtM on MedicX debt net of
amortisation
|
|
|
|
|
|
|
|
Net tangible assets
("NTA")
|
1,423.9
|
1,443.0
|
1,414.5
|
|
1,482.2
|
1,504.8
|
1,473.4
|
Intangible assets
|
-
|
-
|
6.2
|
|
-
|
-
|
-
|
Real estate transfer
taxes
|
|
|
|
|
|
|
|
Net reinstatement value
("NRV")
|
1,423.9
|
1,443.0
|
1,605.1
|
|
-
|
-
|
1,662.5
|
Fixed rate debt and swap MtM
value
|
-
|
-
|
137.0
|
|
-
|
-
|
172.7
|
Deferred tax
|
-
|
-
|
(3.8)
|
|
-
|
-
|
(5.4)
|
Cumulative convertible bond fair
value movement
|
-
|
-
|
2.3
|
|
-
|
-
|
7.1
|
Real estate transfer
taxes
|
|
|
|
|
|
|
|
Net disposal value
("NDV")
|
|
|
|
|
|
|
|
Ordinary Shares
Basic net asset value per
share1
|
|
|
|
|
|
|
|
|
|
|
|
Net tangible assets
("NTA")
|
106.5
|
108.0
|
105.8
|
|
110.9
|
112.6
|
110.2
|
Net reinstatement value
("NRV")
|
-
|
-
|
120.1
|
|
-
|
-
|
124.4
|
Net disposal value
("NDV")
|
|
|
|
|
|
|
|
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
share2
|
|
|
|
|
|
|
|
|
|
|
|
Net tangible assets
("NTA")
|
108.5
|
109.8
|
105.8
|
|
112.9
|
114.5
|
112.3
|
Net reinstatement value
("NRV")
|
-
|
-
|
120.1
|
|
-
|
-
|
125.4
|
Net disposal value
("NDV")
|
|
|
|
|
|
|
|
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 131.72 pence (31 December 2022: 137.69
pence).
Conversion of the convertible bond would result in the issue of
113.9 million (31 December 2022: 108.9 million) new Ordinary
Shares. The IFRS net asset value and EPRA NDV would increase by
£147.7 million (31 December 2022: £142.9 million) and the EPRA NTA,
adjusted NTA and EPRA NRV would increase by £150.0 million (31
December 2022: £150.0 million). The resulting diluted net asset
values per share are anti-dilutive to all measures and are set out
in the table above.
In accordance with IAS 33 Earnings
per share the Company is required to assess and disclose the
dilutive impact of the contingently issuable shares within the
convertible bond. The impact is not recognised where it is
anti-dilutive.
Headline earnings per
share
The JSE listing conditions require
the calculation of headline earnings (calculated in accordance with
Circular 1/2021 - Headline Earnings as issued by the South African
Institute of Chartered Accountants) and disclosure of a detailed
reconciliation of headline earnings to the earnings numbers used in
the calculation of basic earnings per share in accordance with the
requirements of IAS 33 Earnings per share. Disclosure of headline
earnings is not a requirement of IFRS.
Reconciliation of profit for the
period to headline earnings
|
|
|
Basic earnings
|
27.3
|
56.3
|
Adjustments to calculate headline earnings:
|
|
|
JSE listing fees & Axis
acquisition costs
|
0.5
|
-
|
Amortisation of intangible
assets
|
0.9
|
-
|
Revaluation deficit
|
53.0
|
64.4
|
Profit on sale on
properties
|
-
|
(2.9)
|
Deferred tax on Irish
activities
|
|
|
Headline earnings
|
80.4
|
118.6
|
Corporation tax
|
0.1
|
(0.2)
|
Fair value gain on derivative
financial instruments and convertible bond
|
13.2
|
(26.8)
|
|
|
|
Adjusted earnings
|
90.7
|
88.7
|
Diluted basic earnings
|
36.4
|
32.0
|
Diluted headline earnings
|
|
|
Basic earnings per share
|
2.0
|
4.2
|
Headline earnings per
share
|
6.0
|
8.9
|
Adjusted earnings per
share
|
6.8
|
6.6
|
Diluted basic earnings per
share
|
2.0
|
2.2
|
Diluted headline earnings per
share
|
|
|
Number of shares
|
1,336.5
|
1,336.5
|
Weighted average number of Ordinary
Shares for headline, basic and adjusted earnings per
share
|
1,336.5
|
1,334.8
|
Weighted average number of Ordinary
Shares for diluted basic and headline earnings per share
|
|
|
9. Dividends
Amounts recognised as distributions
to equity holders in the year:
|
|
|
Quarterly interim dividend paid 23
February 2023
|
22.4
|
-
|
Quarterly interim dividend paid 19
May 2023
|
22.4
|
-
|
Quarterly interim dividend paid 18
August 2023
|
22.3
|
-
|
Quarterly interim dividend paid 24
November 2023
|
22.4
|
-
|
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
|
|
|
Total dividends distributed in the
year
|
|
|
|
|
|
On 3 January 2024, the Board
declared an interim dividend of 1.725 pence per Ordinary Share with
regard to the year ended 31 December 2023, payable on 22 February
2024. This dividend will comprise wholly of an ordinary dividend of
0.275 pence and Property Income Distribution ("PID") of 1.45
pence.
10. 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 99.3% let (2022:
99.7%). The valuations reflected a 5.05% (2022: 4.82%) net initial
yield and a 5.06% (2022: 4.89%) 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
valuers are 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 valuers have 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 £5.4 million (2022: £2.8 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 £7.1 million (2022:
£9.9 million) which have not been provided for in the financial
statements.
A fair value decrease of £4.2
million (2022: increase of £0.6 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 £53.0
million (2022: £64.4 million loss).
Of the £2,776.3 million (2022:
£2,793.1 million) valuation, £2,531.7 million (91%) (2022: £2,562.2
million) relates to investment properties in the UK and £244.6
million (9%) (2022: £230.9 million) relates to investment
properties in Ireland.
In line with accounting policies,
the Group assessed whether the acquisitions during the year were
asset purchases or business combinations.
|
Investment
properties -
freehold 1
£m
|
Investment
properties -
long
leasehold
£m
|
Investment
properties -
under
construction
£m
|
|
As at 1 January 2023
|
2,214.5
|
577.3
|
4.5
|
2,796.3
|
Property additions
|
10.3
|
28.3
|
1.4
|
40.0
|
Reclassification of freehold and
leasehold and land
|
2.1
|
(1.4)
|
(0.7)
|
-
|
Transfer from properties under
construction
|
-
|
-
|
-
|
-
|
Impact of lease incentive
adjustment
|
0.4
|
0.5
|
-
|
0.9
|
Foreign exchange
movements
|
(3.8)
|
(0.9)
|
-
|
(4.7)
|
Lease ground rent
adjustment
|
-
|
(0.2)
|
-
|
(0.2)
|
|
2,223.5
|
603.6
|
5.2
|
2,832.3
|
Revaluations for the year
|
|
|
|
|
|
|
|
|
|
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
|
0.8
|
0.3
|
-
|
1.1
|
Impact of lease incentive
adjustment
|
26.4
|
-
|
(26.4)
|
-
|
Foreign exchange
movements
|
8.9
|
2.1
|
0.5
|
11.5
|
Lease ground rent
adjustment
|
|
|
|
|
|
2,259.1
|
597.7
|
3.9
|
2,860.7
|
Revaluations for the year
|
|
|
|
|
|
|
|
|
|
1 Includes development
land held at £0.7 million (31 December 2022: £0.7
million).
Bank borrowings, bonds and interest
rate swaps are secured on investment properties with a value of
£2,739.3 million (2022: £2,706.5 million).
Right of use assets
In accordance with IFRS 16 Leases,
the Group has recognised a £3.0 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 2023 and 31 December 2022. There were no transfers
between levels during the year or during 2022. 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
(non-quoted 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
Under the market comparable
approach, a property's fair value is estimated based on comparable
transactions on an arm's length basis, 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.
|
|
|
ERV - range of the
portfolio
|
£27,500-£1,515,482
per
annum
|
£26,500-£1,515,482
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.
|
|
|
True equivalent yield - range of the
portfolio
|
|
|
Unobservable input: physical
condition of the property
The properties are physically
inspected by the valuers on a three-year rotating basis.
Unobservable input: net initial
yield
The NIY 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: rental
growth
The estimated average increase in
rent based on both market estimations and contractual
situations.
Sensitivity of measurement of
significant unobservable inputs
During 2023 the Group experienced
an 23bps increase in the portfolio net initial yield, reducing
investment property by £128 million (4.6% 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 5% decrease/increase in annual rent would result in an
approximately £139 million decrease/increase in the investment
property valuation.
•
A decrease in the equivalent yield will increase the fair value. A
25bps shift of equivalent yield would have an approximately £145
million impact on the investment property valuation, either an
increase or decrease.
•
A deterioration in the physical condition of the property will
decrease the fair value.
•
An increase in the net initial yield will decrease fair value. A
further 25bps shift in the net initial yield would have an
approximately £131 million impact on the investment property
valuation, either an increase or decrease.
•
An increase in the rental growth will increase the fair
value.
11. Trade and other
receivables
|
|
|
Trade receivables (net of loss
allowance)
|
16.3
|
11.6
|
Prepayments and accrued
income
|
7.9
|
6.0
|
|
|
|
|
|
|
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 significant loss allowance because historical experience has
indicated that the risk profile of trade receivables is deemed low,
and any loss allowance would therefore be insignificant.
The Group's principal customers are
invoiced and pay quarterly in advance, usually on English, Scottish
and Gale quarter days. There is no significant concentration of
credit risk with respect to trade receivables, as the Group has a
large number of tenants.
12. Cash and cash
equivalents
Bank interest is earned at floating
rates depending upon the bank deposit rate. Short term deposits may
be made for varying periods of between one day and three months,
dependent on available cash and forthcoming cash requirements of
the Group. These deposits earn interest at various short term
deposit rates.
13. Trade and other
payables
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
4.1
|
-
|
Current liabilities
|
|
|
Trade payables
|
2.5
|
3.3
|
Bank and bond loan interest
accrual
|
6.5
|
6.8
|
Other payables
|
8.6
|
9.1
|
VAT
|
6.7
|
5.9
|
|
|
|
|
|
|
14. Borrowings
a) Term loans and
overdrafts
The table indicates amounts drawn
and undrawn from each individual facility as at 31
December:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
RBS overdraft
|
Jun
2024
|
5.0
|
5.0
|
|
-
|
-
|
|
5.0
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
Aviva 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
2026
|
100.0
|
100.0
|
|
-
|
-
|
|
100.0
|
100.0
|
HSBC loan
|
Dec
2026
|
100.0
|
100.0
|
|
64.4
|
25.5
|
|
35.6
|
74.5
|
Lloyds loan
|
Oct
2025
|
100.0
|
100.0
|
|
1.8
|
32.5
|
|
98.2
|
67.5
|
NatWest loan
|
Oct
2026
|
100.0
|
100.0
|
|
31.8
|
41.8
|
|
68.2
|
58.2
|
Santander loan
|
Jan
2025
|
50.0
|
50.0
|
|
24.4
|
38.6
|
|
25.6
|
11.4
|
Aviva MXF loan
|
Sep
2033
|
220.5
|
222.9
|
|
220.5
|
222.9
|
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2023, total
facilities of £1,642.5 million (2022: £1,607.0 million) were
available to the Group. This included a £70.0 million secured bond,
a £100.0 million secured bond, a £150.0 million nominal value
convertible bond, £44.2 million, £60.7 million, £65.0 million and
£41.4 million Euro-denominated bonds, a £50.0 million Ignis loan
note, a £77.5 million Standard Life loan note and a £5.0 million
overdraft facility. Of these facilities, as at 31 December 2023,
£1,309.9 million was drawn (2022: £1,290.4 million).
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:
|
|
|
Term loans drawn: due within one
year
|
2.4
|
2.3
|
Term loans drawn: due in greater
than one year
|
|
|
Total terms loans drawn
|
651.1
|
669.4
|
Plus: MtM on loans net of
amortisation
|
24.9
|
27.1
|
Less: unamortised borrowing
costs
|
|
|
Total term loans per the Group
Balance Sheet
|
|
|
The Group has been in compliance
with all of the financial covenants of the above facilities as
applicable through the year. Further details are shown in Note
17e.
The Group has entered into interest
rate swaps to manage its exposure to interest rate fluctuations.
These are set out in Note 16.
b) Bonds
|
|
|
Unsecured:
|
|
|
Convertible bond July 2025 at fair
value
|
147.7
|
142.9
|
|
|
|
|
|
|
Secured:
|
|
|
Secured bond December
2025
|
70.0
|
70.0
|
Secured bond March 2027
|
100.0
|
100.0
|
€51 million secured bond (Euro
private placement) December 2028-30
|
44.2
|
45.1
|
€70 million secured bond (Euro
private placement) September 2031
|
60.7
|
62.0
|
€75 million secured bond (Euro
private placement) February 2034
|
65.0
|
66.4
|
€47.8 million secured bond (Euro
private placement) December 2033
|
41.4
|
-
|
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)
|
(3.6)
|
Plus: MtM on loans net of
amortisation
|
|
|
|
|
|
|
|
|
There were no bond conversions
during the year (2022: £nil).
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 £70.0 million
and mature on 30 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 £100.0 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 €51.0 million (£44.2 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:
•
€40.0 million 2.46% senior notes due December 2028; and
•
€11.0 million 2.633% senior notes due December 2030.
On 16 September 2019, new senior
secured notes for a total of €70.0 million (£60.7 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 €75.0 million (£65.0 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 €75 million to €150 million over the next three years at
MetLife's discretion.
On 19 December 2023, new senior
secured notes for a total of €47.8 million (£41.4 million) were
issued at a fixed rate of 4.195% and a maturity of ten-years.
Interest is paid semi-annually in arrears. The secured notes are
guaranteed by the Company and were placed with UK and Canadian
institutional investors.
Ignis and Standard Life loan
notes
On 14 March 2019, the loan notes
were added to the portfolio as a part of the MedicX acquisition.
The Ignis loan note of £50.0 million incurs a fixed coupon of 3.99%
payable semi-annually in arrears and matures on 7 December
2028.
The Standard Life loan note matures
on 30 September 2028 and is split into two tranches, £50.0 million
and £27.5 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 £150.0 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 £75.0 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 131.72 pence as at 31
December 2023 (2022: 137.69 pence).
|
|
|
Opening balance - fair
value
|
142.9
|
171.6
|
Issued in the year
|
-
|
-
|
Fair value movement in convertible
bond
|
|
|
Closing balance - fair
value
|
|
|
The fair value of the Bonds at 31
December 2023 and 31 December 2022 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
|
|
|
Current liabilities:
|
|
|
Term loans and overdrafts
|
2.4
|
2.3
|
|
|
|
Total current liabilities
|
|
|
Non-current liabilities:
|
|
|
Term loans
|
648.7
|
667.1
|
MtM on loans net of
amortisation
|
24.9
|
27.1
|
Less: unamortised loan issue
costs
|
|
|
Total non-current
liabilities
|
|
|
Bonds
|
658.8
|
621.0
|
MtM on bonds net of
amortisation
|
3.5
|
4.3
|
MtM on convertible bond
|
(2.3)
|
(7.1)
|
Less: unamortised bond issue
costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes from financing
activities
|
|
|
Proceeds from bond issues
|
41.2
|
62.9
|
|
|
|
|
|
|
Repayments of mortgage
principal
|
(2.3)
|
(2.2)
|
Repayments of term bank
loans
|
|
|
Repayments of term loan
borrowings
|
|
|
Loan and bond interest
paid
|
(47.0)
|
(39.8)
|
Swap interest paid
|
3.9
|
1.4
|
Swap premium paid
|
(1.9)
|
-
|
Loan/bond issue costs for new
facilities/refinancing
|
|
|
|
|
|
Total changes from financing cash
flows
|
|
|
Other non-cash changes
|
|
|
Loan and bond interest
expense
|
47.4
|
40.5
|
Swap interest expense
|
(4.6)
|
(1.4)
|
Fair value movement on derivatives
interest rate swaps
|
4.3
|
(2.6)
|
Fair value movement on Convertible
Bond
|
4.8
|
(28.7)
|
MtM on loans net of
amortisation
|
(3.0)
|
(3.0)
|
Amortisation of loan issue
costs
|
4.4
|
1.8
|
Exchange gain on translation of
foreign balances
|
|
|
|
|
|
Balance as at 31
December
|
|
|
15. 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.
|
|
|
Due within one year
|
0.1
|
0.1
|
|
|
|
Closing balance - fair
value
|
|
|
16. 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.
|
|
|
Fair value of interest rate swaps
not qualifying as cash flow hedges under IAS 39:
|
|
|
Current assets
|
10.5
|
-
|
Non-current assets
|
0.9
|
19.6
|
Current liabilities
|
(6.7)
|
-
|
|
|
|
Total fair value of interest rate
swaps
|
|
|
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 relates to the amortisation of the cash
flow hedging reserve of £4.1 million (2022: £4.5
million).
Interest rate swaps and caps with a
contract value of £152.0 million (2022: £100.0 million) were in
effect at 31 December 2023. Details of all floating to fixed rate
interest rate swap contracts held are as follows:
|
|
|
|
Fixed
interest
per annum
%
|
2023
|
|
|
|
|
€20.0 million (£17.3
million)
|
Euro
cap
|
April
2023
|
October
2025
|
2.0000
|
€20.0 million (£17.3
million)
|
Euro
cap
|
April
2023
|
October
2025
|
2.0000
|
€20.0 million (£17.4
million)
|
Euro
cap
|
April
2023
|
October
2025
|
2.0000
|
£100.0 million
|
Swap
|
October
2021
|
November
2024
|
0.0699
|
£(66.0) million
|
Reverse
swap
|
October
2021
|
November
2024
|
2.5200
|
£66.0 million
|
Cap
|
October
2021
|
November
2024
|
1.2500
|
£(67.0) million
|
Reverse
swap
|
October
2021
|
November
2024
|
2.5200
|
£67.0 million
|
Cap
|
October
2021
|
November
2024
|
1.2500
|
£(67.0) million
|
Reverse
swap
|
October
2021
|
November
2024
|
2.5200
|
|
|
|
|
|
|
|
|
|
|
2022
|
|
|
|
|
£100.0 million
|
Swap
|
October
2021
|
November
2024
|
0.0699
|
£(66.0) million
|
Reverse
swap
|
October
2021
|
November
2024
|
2.5200
|
£66.0 million
|
Cap
|
October
2021
|
November
2024
|
1.2500
|
£(67.0) million
|
Reverse
swap
|
October
2021
|
November
2024
|
2.5200
|
£67.0 million
|
Cap
|
October
2021
|
November
2024
|
1.2500
|
£(67.0) million
|
Reverse
swap
|
October
2021
|
November
2024
|
2.5200
|
|
|
|
|
|
|
|
|
|
|
On 28 October 2021 the HSBC £100.0
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 £200.0 million. All are
effective until 29 November 2024 and receive a fixed rate of 2.52%,
with variable rates payable. These included a £66.0 million swap
agreement with HSBC paying a variable of SONIA + 1.6275%, a £67.0
million swap agreement with Barclays paying a variable of SONIA +
1.575% and a £67.0 million swap agreement with NatWest paying a
variable of SONIA + 1.5849%. A one-off payment of £1.8 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.
On 18 April 2023, the Group
converted €60.0 million (£51.6 million) of Sterling equivalent
denominated debt into Euros across its various revolving credit
facilities. The Group purchased 2.0% caps on €60 million nominal
value for a period of 2.5 years until October 2025 for an all-in
premium of €2.2 million (£1.9 million).
17. Financial risk
management
In pursuing its investment
objectives, the Group is exposed to a variety of risks that could
impact net assets or distributable profits.
The Group's principal financial
liabilities, other than interest rate swaps, are loans and
borrowings hedged by these swaps. The main purpose of the Group's
loans and borrowings is to finance the acquisition and development
of the Group's property portfolio. The Group has trade and other
receivables, trade and other payables and cash and short term
deposits that arise directly from its operations.
A review of the Group's objectives,
policies and processes for managing and monitoring risk is set out
in the Strategic Report. This Note provides further detail on
financial risk management and includes quantitative information on
specific financial risks.
Financial risk factors
a) Interest rate risk
Interest rate risk is the risk that
future cash flows of a financial instrument will fluctuate because
of changes in market interest rates. The Group's exposure to the
risk of changes in market interest rates relates primarily to the
Group's long term debt obligations with floating rates as the
Group, generally, does not hold significant cash balances, with
short term borrowings being used when required. To manage its
interest rate risk, the Group enters into interest rate swaps, in
which the Group agrees to exchange, at specified intervals, the
difference between fixed and variable rate interest amounts
calculated by reference to an agreed-upon principal amount. Note 16
provides details of interest swap contracts in effect at the year
end.
Interest rate exposure
The analysis of the Group's exposure
to interest rate risk in its debt portfolio as at 31 December 2023
is as follows:
|
|
|
|
|
|
|
|
|
|
Fixed rate debt
|
1,117.5
|
68.0
|
|
1,117.5
|
85.5
|
Hedged by fixed rate interest rate
swaps
|
100.0
|
6.1
|
|
100.0
|
7.7
|
Hedged by fixed to floating rate
interest rate swaps
|
|
|
|
|
|
Total fixed rate debt
|
1,017.5
|
61.9
|
|
1,017.5
|
77.9
|
Hedged by interest rate
caps
|
252.0
|
15.4
|
|
252.0
|
19.3
|
Floating rate debt -
unhedged
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
Impact
on
income
statement
£m
|
Total
impact
on
equity
£m
|
2023
|
|
|
|
Sterling Overnight Index Average
Rate
|
Increase
of 50 basis points
|
(1.0)
|
(1.0)
|
Sterling Overnight Index Average
Rate
|
Decrease
of 50 basis points
|
|
|
2022
|
|
|
|
Sterling Overnight Index Average
Rate
|
Increase
of 50 basis points
|
(2.0)
|
(2.0)
|
Sterling Overnight Index Average
Rate
|
Decrease
of 50 basis points
|
|
|
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, cash and cash equivalents, and trade and other receivables
(see Notes 11 and 12).
Trade receivables
Trade receivables, primarily tenant
rentals, are recognised and carried at amortised cost and presented
in the balance sheet net of loss allowances 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.
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 reputable
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
months
£m
|
Three
to
twelve
months
£m
|
|
|
|
2023
|
|
|
|
|
|
|
Interest-bearing loans and
borrowings
|
-
|
12.7
|
38.6
|
848.9
|
688.3
|
1,588.5
|
Interest rate swaps (net)
|
-
|
(0.8)
|
(2.2)
|
(0.8)
|
-
|
(3.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022
|
|
|
|
|
|
|
Interest-bearing loans and
borrowings
|
-
|
11.3
|
34.4
|
500.0
|
1,037.9
|
1,583.6
|
Interest rate swaps (net)
|
-
|
(0.2)
|
(0.6)
|
(0.8)
|
-
|
(1.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
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 (e) Capital risk management and are disclosed to
the facility providers on a quarterly basis. There have been no
breaches during the year (2022: 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 16), as it does
not hold any equity securities or commodities.
Fair values
Set out below is a comparison by
class of the carrying amount and fair values of the Group's
financial instruments that are carried in the financial
statements.
|
|
|
|
|
Financial assets
|
|
|
|
|
Trade and other
receivables
|
18.4
|
18.4
|
12.6
|
12.6
|
Ineffective interest rate
swaps
|
11.4
|
11.4
|
19.6
|
19.6
|
Cash and short term
deposits
|
|
|
|
|
Financial liabilities
|
|
|
|
|
Interest-bearing loans and
borrowings
|
(1,323.3)
|
(1,203.8)
|
(1,299.4)
|
(1,149.1)
|
Ineffective interest rate
swaps
|
(6.7)
|
(6.7)
|
(12.5)
|
(12.5)
|
|
|
|
|
|
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 2023 were as follows:
Recurring fair value
measurements
|
|
|
|
|
Financial assets
|
|
|
|
|
Derivative interest rate
swaps
|
|
|
|
|
Financial liabilities
|
|
|
|
|
Derivative interest rate
swaps
|
-
|
(6.7)
|
-
|
(6.7)
|
Convertible bond
|
(147.7)
|
-
|
-
|
(147.7)
|
|
|
|
|
|
Fair value measurements at 31
December 2022 were as follows:
Recurring fair value
measurements
|
|
|
|
|
Financial assets
|
|
|
|
|
Derivative interest rate
swaps
|
|
|
|
|
Financial liabilities
|
|
|
|
|
Derivative interest rate
swaps
|
-
|
(12.5)
|
-
|
(12.5)
|
Convertible bond
|
(142.9)
|
-
|
-
|
(142.9)
|
|
|
|
|
|
The interest rate swaps whose fair
values include the use of level 2 inputs are valued by discounting
expected future cash flows using market interest rates and yield
curves over the remaining term of the instrument. The following
inputs are used in arriving at the valuation:
•
interest rates;
•
yield curves;
•
swaption volatility;
•
observable credit spreads;
•
credit default swap curve; and
•
observable market data.
e) Capital risk
management
The primary objectives of the
Group's capital management are to ensure that it remains a going
concern, operates within its quantitative banking covenants and
meets the criteria so as to continue to qualify for UK REIT
status.
The capital structure of the Group
consists of shareholders' equity and net borrowings. The type and
maturity of the Group's borrowings are analysed further in Notes 14
and 16 and the Group's equity is analysed into its various
components in the Group Statement of Changes in Equity. The Board
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 (2022: 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 (2022: 1.15
to 2.25); and
•
loan to value1: 55% to 75% (2022: 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.
Group loan to value ratio
|
|
|
Fair value of completed investment
properties
|
2,775.3
|
2,788.6
|
Fair value of development
properties
|
1.0
|
4.5
|
Ground rent recognised as finance
leases
|
|
|
|
|
|
Interest-bearing loans and
borrowings (with convertible bond at nominal value)
|
1,309.9
|
1,290.4
|
|
|
|
Nominal amount of interest-bearing
loans and borrowings
|
|
|
Group loan to value ratio
|
|
|
18. Share capital
Ordinary Shares issued, authorised
and fully paid at 12.5 pence each
|
|
|
|
|
|
|
|
|
|
Balance at 1 January
|
1,336.5
|
167.1
|
|
1,332.9
|
166.6
|
Scrip issues in lieu of cash
dividends
|
-
|
-
|
|
3.6
|
0.5
|
Share issues
|
-
|
-
|
|
-
|
-
|
Share issues on other
acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
19. Share premium
|
|
|
Balance at 1 January
|
479.4
|
474.9
|
Scrip issues in lieu of cash
dividends
|
-
|
4.6
|
Share issues on other
acquisitions
|
-
|
-
|
|
|
|
|
|
|
20. Merger and other
reserves
The merger and other reserves are
made up of the capital reserve which is held to finance any
proposed repurchases of Ordinary Shares, following approval of the
High Court in 1998, the foreign exchange translation reserve and
the premium on shares issued for the MedicX Fund Limited merger and
the Nexus merger.
|
|
|
Capital reserve
|
|
|
Balance at 1 January and 31
December
|
|
|
Foreign exchange translation
reserve
|
|
|
Balance at 1 January
|
1.0
|
(2.2)
|
Exchange differences on translation
of foreign balances
|
|
|
|
|
|
Merger reserve
|
|
|
Balance at 1 January and 31
December
|
|
|
Balance of merger and other
reserves at 31 December
|
|
|
21. Hedging reserve
Information on the Group's hedging
policy and interest rate swaps is provided in Note 16.
The transfer to the Group Statement
of Comprehensive Income can be analysed as follows:
|
|
|
Balance at 1 January
|
(11.1)
|
(15.6)
|
Amortisation of cash flow hedging
reserve
|
|
|
|
|
|
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).
22. Retained earnings
|
|
|
Balance at 1 January
|
430.1
|
460.5
|
Retained profit for the
year
|
27.3
|
56.3
|
Dividends paid
|
(89.5)
|
(81.6)
|
Scrip dividend in lieu of
cash
|
-
|
(5.1)
|
Exchange differences on translation
of foreign balances
|
1.1
|
-
|
Share-based awards
("LTIP")
|
|
|
|
|
|
23. Capital commitments
As at 31 December 2023, 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 £5.4 million (2022: £2.8 million) remains to be
funded with regard to these properties.
As at 31 December 2023, the Group
has capital commitments totalling £7.1 million (2022: £9.9
million), being the cost to complete asset management projects on
site, together with deferred consideration on the acquisition of
Axis of £2.1 million (€2.5 million).
24. 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 £nil million (31 December
2022: £0.1 million).
As at 31 December 2023, outstanding
fees payable to Nexus totalled £nil (31 December 2022:
£nil).
25. Subsequent events
There have been no significant
events affecting the Group since the period ended 31 December
2023.
26. 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.
|
Companies
House registration number
|
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 Tradeco Holdings
Limited
|
09642987
|
PHP Health Solutions
Limited
|
06949900
|
PHP Tradeco Limited
|
07685933
|
PHP Property Management Services
Limited
|
02877191
|
PHP Primary Care Developments
Limited
|
11862233
|
PHP Croft Limited
|
13938144
|
|
|
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.
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.
Axis is Axis Technical Services
Limited.
Building Research Establishment Environmental Assessment
Method ("BREEAM") assesses the
sustainability of buildings against a range of criteria.
Clinical Commissioning Groups ("CCGs")
are the groups of GPs and other healthcare
professionals that are responsible for designing local health
services in England with effect from 1 April 2013.
Company and/or Parent is Primary Health Properties PLC
("PHP").
CSRD is Corporate
Sustainability Reporting Directive.
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.
EBITDA is operating profit
excluding amortisation of intangibles, Axis acquisition costs and
investment property revaluations.
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 and amortisation of non-monetary items such as
intangible assets.
EPRA earnings per share is EPRA
earnings divided by the weighted average number of shares in issue
during the year.
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 and intangible assets.
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 and intangible assets, 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 8.
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 8.
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
8.
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 8.
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 8.
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.
Headline earnings is the profit
after taxation excluding investment and development property
revaluations, gains/losses on disposals and their related
taxation.
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.
IASs 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.
JSE is Johannesburg Stock
Exchange, the largest stock exchange in Africa.
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 debt is total drawn debt,
less cash and cash equivalents
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 related income is the
related income after the payment of direct property costs, which
include service charge payments.
Net rental and related income is the sum of net rental income and net related
income.
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.
Related income is the property
and service charge income generated from the Axis
business.
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.
|
|
Net rental and related income
(A)
|
151.1
|
Revaluation deficit and profit on
sales (B)
|
|
Total return (C)
|
98.1
|
Opening property assets
|
2,796.3
|
Weighted additions in the
period
|
|
Total weighted average closing
property assets (D)
|
|
|
|
|
|
Total property return
(C/D)
|
|
Total adjusted 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.
|
|
|
|
|
|
Increase/(decrease)
|
(4.6)p
|
Add: dividends paid
|
|
Q1 interim
|
1.675p
|
Q2 interim
|
1.675p
|
Q3 interim
|
1.675p
|
|
|
|
|
Total adjusted NTA
return
|
|
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.