Primary Health Properties Preliminary Results

Primary Health Properties PLC

Preliminary results for the year ended 31 December 2022

Record year for rental growth driving performance

Primary Health Properties PLC (“PHP”, the “Group” or the “Company”), a leading investor in modern primary health facilities, announces its audited preliminary results for the year ended 31 December 2022.

Harry Hyman , Chief Executive, commented:

” The Group’s continued operational and financial resilience throughout the year reflects the security and longevity of our income which are important drivers of our predictable cash-flows and underpin our progressive dividend policy as we enter the 27^th year of continued dividend growth.

“We are encouraged by the rental growth experienced in the year from rent reviews and asset management projects and believe PHP will be a beneficiary of the significant rise in construction costs seen in recent years. Furthermore, with the majority of PHP’s debt either fixed or hedged for a weighted average period of just over seven years, a strong control on costs and just one development on site we have limited exposure to further cost increases and development risk.

“In the longer term, the ageing and growing demographic of the UK and Irish populations means that the health services in both countries will be called upon to address more long-term, complex and chronic co-morbidities. Consequently, the Government needs to respond and invest in new structures to deliver more healthcare in primary care and community settings and away from over-burdened hospitals. PHP stands ready to play its part in delivering and modernising the real estate infrastructure required to meet this need.”

FINANCIAL AND OPERATIONAL HIGHLIGHTS

Income statement metrics	Year to31 December2022	Year to31 December2021	Change
Net rental income1	£141.5m	£136.7m	+3.5%
Adjusted earnings1,2	£88.7m	£83.2m	+6.6%
Adjusted earnings per share1,2	6.6p	6.2p	+6.5%
IFRS profit for the year	£56.3m	£140.1m	-59.8%
IFRS earnings per share2	4.2p	10.5p	-60.0%
Dividends
Dividend per share5	6.5p	6.2p	+4.8%
Dividends paid5	£86.7m	£82.4m	+5.2%
Dividend cover1	102%	101%
Balance sheet and operational metrics	31 December2022	31 December2021	Change
Adjusted NTA (NAV) per share1,3	112.6p	116.7p	-3.5%
IFRS NTA per share1,3	110.4p	112.5p	-1.9%
Property portfolio
Investment portfolio valuation4	£2.796bn	£2.796bn	-2.2%
Net initial yield (“NIY”)1	4.82%	4.64%	+18 bps
Contracted rent roll (annualised)1,7	£145.3m	£140.7m	+3.3%
Weighted average unexpired lease term (“WAULT”)1	11.0 years	11.6 years
Occupancy1	99.7%	99.7%
Rent-roll funded by government bodies1	89%	90%
Debt
Average cost of debt1	3.2%	2.9%	+30 bps
Loan to value ratio1	45.1%	42.9%
Weighted average debt maturity – drawn facilities	7.3 years	8.2 years	-0.9 years
Total undrawn loan facilities and cash6	£325.9m	£321.2m

¹ Items marked with this footnote are alternative performance measures. Refer to the Glossary of Terms for a description of these measures and a reconciliation to the nearest statutory metric where appropriate.

² See note 9, earnings per share, to the financial statements. Per share figures are presented on a basic basis.

³ See note 9, net asset value per share, to the financial statements. Adjusted net tangible assets, EPRA net tangible assets (“NTA”), EPRA net disposal value (“NDV”) and EPRA net reinstatement value (“NRV”) are considered to be alternative performance measures. The Group has determined that adjusted net tangible assets is the most relevant measure.

⁴ Percentage valuation movement during the year based on the difference between opening and closing valuations of properties after allowing for acquisition costs and capital expenditure.

⁵ See note 10, dividends, to the financial statements.

⁶ After deducting the remaining cost to complete contracted acquisitions, properties under development and committed asset management projects.

⁷ Percentage contracted rent roll increase during the year is based on the annualised uplift achieved from all completed rent reviews and asset management projects.

EARNINGS AND DIVIDEND GROWTH

· Adjusted earnings per share increased by 6.5% to 6.6p (2021: 6.2p)

· IFRS earnings per share decreased by 60.0% to 4.2p (2021: 10.5p)

· Contracted annualised rent roll increased by 3.3% to £145.3 million (31 December 2021: £140.7 million)

· Additional annualised rental income on a like-for-like basis of £3.3 million or 2.4% from rent reviews and asset management projects (2021: £2.4 million or 1.8%)

· EPRA cost ratio 9.9% (2021: 9.3%), representing the lowest in the UK REIT sector

· Quarterly dividends totalling 6.5 pence (2021: 6.2 pence) per share distributed in the year, a 4.8% increase

· First quarterly dividend of 1.675 pence per share declared, payable on 23 February 2023, equivalent to 6.7 pence on an annualised basis and a 3.1% increase over the 2022 dividend per share, marking the Company’s 27^th consecutive year of dividend growth

· Dividends paid increased by 5.2% to £86.7 million (2021: £82.4 million); 102% covered by Adjusted earnings

NET ASSET VALUE AND PORTFOLIO MANAGEMENT

· Adjusted Net Tangible Assets (“NTA”) per share decreased by 3.5% to 112.6 pence (31 December 2021: 116.7 pence)

· Property portfolio valued at £2.8 billion at 31 December 2022 (31 December 2021: £2.8 billion) reflecting a net initial yield of 4.82% (31 December 2021: 4.64%)

· Revaluation deficit in the year of £64.4 million (2021: surplus £110.2 million), representing a decline of -2.4% (2021: +4.1%) driven by NIY widening of 18bps equivalent to around £134 million partially offset by gains of £70 million arising from rental growth and asset management projects

· Active asset management driving disposal of 13 smaller assets for £27.7 million, 13% above 31 December 2021 book values and represented 60 bps of yield compression, generating a profit on sale of £2.9 million (2021: £0.3 million / one property)

· The portfolio’s metrics continue to reflect the Group’s secure, long-term and predictable income stream with occupancy at 99.7% (31 December 2021: 99.7%), WAULT of 11.0 years (31 December 2021: 11.6 years) and 89% (31 December 2021: 90%) of income funded by government bodies

· Portfolio in Ireland comprises 20 assets, valued at £231 million (€261 million) (31 December 2021: £213 million / €253 million)  

· The acquisition of Axis Technical Services Limited, in January 2023, gives the Group a permanent presence in Ireland and is an important strategic move as we seek out new investment, development and asset management opportunities

· Strong progression of asset management projects with ten completed in the year and ten currently on-site, investing £17.2 million, creating additional rental income of £0.5 million per annum and extending the weighted average unexpired lease term (WAULT) back to over 19 years. Additional 23 lease regears completed in the year

· Disciplined approach to future investment with pipeline of accretive opportunities totalling £85.7 million focused on Ireland, direct developments and asset management projects our preferred areas of future investment

· Winner of MSCI’s Highest 10-Year Risk Adjusted Total Return Award for the UK in 2021

FINANCIAL MANAGEMENT

· LTV ratio 45.1% (31 December 2021: 42.9%) in the middle of the Group’s targeted range of between 40% to 50%

· 94% of net debt fixed or hedged for a weighted average period of just over seven years

· Weighted average debt maturity 7.3 years (31 December 2021: 8.2 years)

· Significant liquidity headroom with cash and collateralised undrawn loan facilities totaling £325.9 million (31 December 2021: £321.2 million) after capital commitments

· €75 million private placement loan note issued in the period for a 12-year term at a fixed rate of 1.64% to finance continued expansion in Ireland

· Refinanced the Group’s revolving credit facilities due to mature in 2023 and 2024, totaling £350 million, with no increase in credit margins

RELATIVE TOTAL RETURNS

	Year ended31 December 2022	Year ended31 December 2021
Increase in Adjusted NTA plus dividends paid	2.1%	8.9%
Total income return	5.0%	5.2%
Total capital return	(2.2%)	4.3%
Total property return1	2.8%	9.5%
MSCI UK Monthly Property Index	(10.4%)	+20.0%

¹ The de finition for income, capital and total property return is set out in the Glossary of Terms.

RESPONSIBLE BUSINESS AND ESG

· As previously announced, Net Zero Carbon (“NZC”) Framework published with the five key steps the Group is looking to achieve the ambitious target of being NZC by 2030 for all of PHP’s operational, development and asset management activities

· Commenced construction of PHP’s first NZC development in West Sussex expected to achieve practical completion in Q3 2023

· All developments completed in the period achieved BREEAM rating of Excellent or Very Good and all asset management projects completed met EPC target of B or above

· Published PHP’s Levelling- Up Impact Report, as part of the Purpose Coalition, detailing the work PHP is doing to level-up both locally and nationally, and its strategy going forward

Presentation and webcast:

A virtual briefing for analysts will be held today, 22 February 2023 at 9.30am, via a live webcast and conference call facility.

The presentation will be accessible via live video webcast and a live conference call facility:

Webcast: https://stream.brrmedia.co.uk/broadcast/63c1667fddbb3277238eaa71

Tel : +44 (0)33 0551 0200

Password: Quote “PHP results” when prompted

If you would like to join the briefing, please contact Buchanan via php@buchanan.uk.com to confirm your place.

For further information contact:

Harry HymanChief Executive OfficerPrimary Health Properties PLCT: +44 (0) 7973 344768E: harry.hyman@phpgroup.co.uk	Richard HowellChief Financial OfficerPrimary Health Properties PLCT: +44 (0) 7766 072272E: richard.howell@phpgroup.co.uk
David Rydell/Jamie Hooper/Hannah Ratcliff/Verity ParkerBuchanan CommunicationsT: +44 (0) 20 7466 5066E: php@buchanan.uk.com