Primary Health Properties Plc - Interim Results

Primary Health Properties PLC

Interim results for the six months ended 30 June 2019

Transformational merger and improving rental growth drive strong performance

Primary Health Properties PLC ("PHP", the "Group" or the "Company"), a leading investor in modern primary health facilities, announces its interim results for the six months ended 30 June 2019.

Harry HymanManaging Director of PHP, commented:

"The first six months of 2019 have been a transformational period in the Company's history following the completion of the all share merger with MedicX in March 2019, bringing together two highly complementary portfolios in the UK and Ireland. The combined business provides a much stronger platform for the future and has already created significant value delivering a 22.7% total shareholder return in the period. We have also delivered the operating synergies of £4.0m per annum outlined at the time the merger was announced in January 2019 as well as further finance cost savings.

We have continued to selectively grow the portfolio, particularly in Ireland, and further strengthened the balance sheet with a new £150m unsecured convertible bond issue which closed on 15 July 2019. PHP's high-quality portfolio and capital base has helped to deliver another period of strong earnings performance and we are on course to deliver our 23rd consecutive year of dividend growth. Continuing improvements to the rental growth outlook and further reductions in the cost of finance will help to maintain our strategy of paying a progressive dividend to our shareholders which is fully covered by earnings."

FINANCIAL AND OPERATIONAL HIGHLIGHTS

Income statement metrics

Six months to

30 June 2019

Six months to

30 June 2018

 

Change

Net rental income1

£53.8m

£37.4m

+43.9%

Adjusted EPRA earnings2

£27.9m

£17.1m

+63.2%

Adjusted EPRA earnings per share2

2.8p

2.5p

+12.0%

IFRS profit before tax excluding MedicX exceptional adjustments5

£41.5m

£38.7m

 

IFRS (loss)/profit for the period (includes £123.9m of non-cash losses)

(£106.5m)

£38.7m

 

IFRS (loss)/earnings per share2

(10.7p)

5.7p

 

Dividends

 

 

 

Dividend per share6

2.8p

2.7p

+3.7%

Dividends paid6

£26.7m

£16.8m

+58.9%

Dividend cover1

104%

102%

 

Balance sheet and operational metrics

30 June

2019

31 December

2018

 

Change

Adjusted EPRA NAV per share1,3

105.2p

105.1p

+0.1%

IFRS NAV per share1,3

99.1p

102.5p

-3.3%

EPRA NNNAV per share3

94.5p

99.2p

-4.7%

Property portfolio

 

 

 

Investment portfolio valuation4

£2.352bn

£1.503bn

+0.8%

Net initial yield ("NIY")

4.85%

4.85%

 

Contracted rent roll (annualised)9

£125.6m

£79.4m

+0.8%

Weighted average unexpired lease term ("WAULT")

13.0 years

13.1 years

 

Occupancy

99.5%

99.8%

 

Rent-roll funded by government bodies

90%

91%

 

Debt

 

 

 

Average cost of debt8

3.75%

3.90%

 

Loan to value ratio1

47.9%

44.8%

 

Weighted average debt maturity8

7.6 years

5.4 years

 

Total undrawn loan facilities7,8

£207.7m

£190.6m

 

           

 

 

1 Definitions for net rental income, earnings per share ("EPS"), dividend cover, loan to value ("LTV") and net asset value ("NAV") are set out in the Glossary of Terms.

2 See note 7, earnings per share, to the financial statements.

3 See note 16, net asset value per share, to the financial statements.

4 Percentage valuation movement during the period based on the difference between opening and closing valuations of properties after allowing for acquisition costs, capital expenditure and the exceptional revaluation loss arising on merger with MedicX.

5 The IFRS profit before tax excluding MedicX exceptional adjustments is set-out in detail in the summarised results table on page 13.

6 See note 8, dividends, to the financial statements.

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

8 Including the impact of £150m/2.875% convertible bond issue and repayment of £75m/5.375% retail bond; both completed post period end.

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

DELIVERING EARNINGS AND DIVIDEND GROWTH

·   Adjusted EPRA earnings per share increased by 12.0% to 2.8p (30 June 2018: 2.5p)

·   Completion of all share merger with MedicX contributing £7.6m to Adjusted EPRA earnings in the 3.5 months since completion

·   Excluding the impact of the MedicX merger PHP's recurring Adjusted EPRA earnings increased by £3.2m or 18.7% (30 June 2018: £1.7m or 11.0% increase)

·   Average uplift of 1.9% per annum on rent reviews agreed in the period, resulting in an uplift in rent of £0.9m p.a. (FY 2018: 1.4% with an uplift of £1.1m)

·   Two quarterly dividends totalling 2.8p per share distributed in the period and third quarterly dividend of 1.4p per share declared, payable on 23 August 2019, equivalent to 5.6p on an annualised basis and a 3.7% increase over the 2018 dividend per share and will represent the Company's 23rd consecutive year of dividend growth

·   Five income accretive properties selectively acquired in the period for £31.3m, with a large average lot size of £6.3m

DELIVERING FINANCIAL MANAGEMENT

·   Average cost of debt has been reduced by 25bp to 3.75% from 4.0% applicable at completion of the merger with MedicX (31 December 2018: 3.9%) including post period end transactions

·   Post period end £150m/2.875% unsecured convertible bond issued for a six-year term expiring in July 2025

·   Post period end £75m/5.375% retail bond repaid in July 2019

DELIVERING NET ASSET VALUE GROWTH

·   Underlying property valuation surplus of £17.7m (30 June 2018: £21.3m), growth of 0.8% (30 June 2018: 1.5%); portfolio's net initial yield unchanged at 4.85% (31 December 2018: 4.85%)

·   Rental growth of £1.0m or 0.8% (FY 2018: £1.3m or 1.8%) accounting for the majority of the revaluation surplus created in the period

·   Portfolio in Ireland now comprises 15 assets, valued at €174m, and including four forward funded developments currently under construction which if valued as complete increases the value to approximately €204m

·   Strong pipeline of targeted acquisitions of approximately £150m of which £70m currently in legal due diligence

·   22 asset management projects either completed, on-site or about to commence investing £4.9m (FY 2018: £4.4m), creating an additional £0.3m p.a. (FY 2018: £0.2m p.a.) of rental income, and strong pipeline of over 60 future projects being progressed

·   Only £2.0m or 1.6% of annualised rent roll expiring in the next three years of which £1.2m is subject to either a planned asset management initiative or terms having been agreed to renew the lease

 

 

DELIVERING STRONG TOTAL RETURNS

 

Six months ended

30 June 2019

Six months ended

30 June 2018

Year ended

31 December 2018

Increase in Adjusted EPRA NAV plus dividends paid

2.8%

6.2%

9.7%

Income return

2.7%

2.7%

5.3%

Capital return

0.9%

1.6%

2.7%

Total property return1

3.6%

4.3%

8.0%

MSCI UK Monthly Property Index

1.2%

4.4%

7.3%

Out/(under) performance over MSCI

2.4%

(0.1%)

0.7%