Primary Health Properties Plc – Interim results 2021

Primary Health Properties PLC

Interim results for the six months ended 30 June 2021

Successful management internalisation and strong operational performance drive continued earnings growth

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 2021.

Harry Hyman, Chief Executive of PHP, commented:

“As lockdowns and restrictions in the UK and Ireland are lifted, the COVID-19 pandemic continues to highlight the need for modern, integrated, local primary healthcare facilities to help in the provision of COVID-19 vaccines for many years to come while addressing the backlog of procedures missed over the last two years.

“NHS initiatives to modernise the primary care estate supports the important role primary healthcare must play to re-focus services away from over-burdened hospital settings, and to satisfy the long-term demographic trends of populations that are growing, ageing and suffering from more instances of chronic illness. We continue to maintain close relationships with our key stakeholders, working closely with the NHS in the UK, HSE in Ireland, and our GP partners in both markets to help them evolve and adapt as the 'new normal' is established.

“Having successfully completed the internalisation of our management structure in the period and with our sector leading metrics and strong pipeline of acquisition and asset management opportunities, we remain well placed to meet these demands. 

“The Board looks forward to delivering further earnings and dividend growth and remains confident in PHP's future outlook.”

FINANCIAL AND OPERATIONAL HIGHLIGHTS

¹   Definitions for net rental income, adjusted earnings, adjusted earnings per share, earnings per share (“EPS”), dividend cover, loan to value (“LTV”), IFRS profit before tax excluding MedicX merger adjustments, net tangible assets (“NTA”), rent roll, NIY, WAULT and net asset value (“NAV”) are set out in the Glossary of Terms.

² See note 8, earnings per share, to the financial statements.

³ See note 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 period based on the difference between opening and closing valuations of properties after allowing for acquisition costs and capital expenditure.

⁵ The IFRS profit before tax excluding MedicX merger adjustments is set-out in detail in the summarised results table on page 11.

⁶ See note 9, dividends, to the financial statements.

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

⁸ Percentage contracted rent roll increase during the year is based on the annualised uplift achieved from all completed rent reviews and asset management projects.

DELIVERING EARNINGS AND DIVIDEND GROWTH

· Adjusted earnings per share increased by 3.3% to 3.1p (30 June 2020: 3.0p)

· Additional annualised rental income on a like-for-like basis of £1.3 million or 1.0%, from rent reviews and asset management projects (FY 2020: £2.0 million or 1.6%; FY 2019: £1.9 million or 1.5%)

· Average uplift of 1.5% per annum on rent reviews completed in the period, continuing the positive trend in rental growth (FY 2020: 1.8%; FY 2019: 1.9%)

· Contracted annualised rent roll increased to £136.1 million (31 December 2020: £135.2 million)

· Successfully completed the internalisation of the Group's management structure which is anticipated to result in immediate annual cost savings of approximately £4.0 million, equivalent to 0.3 pence per share

· Four forward funded developments completed in the period with a net development cost of £20.1 million at Mountain Ash, Wales, Llanbradach, Wales, Epsom, Surrey and Eastbourne, East Sussex

· Two quarterly dividends totalling 3.1p per share distributed in the period and third quarterly dividend of 1.55p per share declared, payable on 20 August 2021, equivalent to 6.2p on an annualised basis. This represents a 5.1% increase over the 2020 dividend per share and will mark the Company's 25^th consecutive year of dividend growth

· The Company intends to make a further dividend payment in November 2021 and maintain its strategy of paying a progressive dividend, in equal quarterly instalments, covered by underlying earnings in each financial year

DELIVERING NET ASSET VALUE GROWTH

· Adjusted Net Tangible Assets (NTA) per share increased by 2.2% to 115.4 pence (31 December 2020: 112.9 pence)

· Property portfolio at 30 June 2021 valued at £2.655 billion (31 December 2020: £2.576 billion) reflecting a net initial yield of 4.70% (31 December 2020: 4.81%). A revaluation surplus was generated in the period of £66.9 million (30 June 2020: £10.5 million), representing growth of 2.6% (30 June 2020: 0.4%)

· Portfolio in Ireland now comprises 19 assets, valued at £200 million (€234 million), including two forward funded developments currently under construction which, if valued as complete, increases the total asset value to approximately £217 million (€253 million)

· The Group is currently on site with two developments in Ireland with a net development cost of £26.2 million (€30.6 million). All sites in Ireland remain open and construction continues to progress

· Strong pipeline of targeted acquisitions and asset management projects with a value of approximately £195 million, of which £155 million is currently under offer and in legal due diligence; together with additional direct development pipeline of £146 million of which £21 million is at an advance stage

· Progression of asset management projects with 17 either completed or currently on-site, investing £10.8 million, creating additional rental income of £0.3 million per annum and extending the weighted average unexpired lease term (WAULT) back to 21 years

· The Group has a strong pipeline of over 100 incremental asset management projects which have either been approved by the Board or are in advanced negotiations. The pipeline of projects equates to investing approximately £46 million over the next two years generating £1.4 million of additional income and extending the WAULT on those leases back to 22 years

· Only £6.7 million or 4.9% of annualised rent roll expiring in the next three years of which c. 75% is subject to either a planned asset management initiative or terms having been agreed to renew the lease

· The portfolio's metrics continue to reflect the secure, long-term and predictable income stream with occupancy at 99.7% (31 December 2020: 99.6%) and a WAULT of 11.8 years (31 December 2020: 12.1 years)

DELIVERING FINANCIAL MANAGEMENT

· At 30 June 2021 the Group's net debt stood at £1,085.2 million (31 December 2020: £1,055.7 million) and the LTV ratio was 40.9% (31 December 2020: 41.0%), the lower end of the Group's targeted range of between 40% to 50%

· After capital commitments the Group has undrawn loan facilities and cash on deposit totalling £335.0 million (31 December 2020: £361.5 million) providing significant liquidity headroom. Cash on deposit totals £72.5 million

· Significant headroom in LTV and interest cover covenants across the Group's various borrowing facilities

· Low, average marginal cost of debt of 1.7%

DELIVERING ROBUST RENTAL COLLECTION

· Of PHP's contracted rental income, 90% is paid either directly or indirectly by the UK and Irish governments, with the balance mainly coming from pharmacies co-located at our properties

· Rental collections continue to remain robust and as at 26 July 2021 97% had been collected in both the UK and Ireland for the third quarter of 2021 and in-line with collection rates experienced in 2020 and the first half of 2021 which now stand at over 99% for both countries. The balance of rent due for the third quarter of 2021 is expected to be received shortly