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Primary Health Properties Plc - Preliminary results

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Primary Health Properties PLC

Preliminary results for the year ended 31 December 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 audited preliminary results for the year ended 31 December 2019.

Harry HymanManaging Director of PHP, commented:

"2019 has been a transformational year in PHP's history following the completion of the all share merger with MedicX in March 2019, bringing together two high quality and complementary portfolios in the UK and Ireland. The business provides a much stronger platform for the future and has already created significant value delivering a total shareholder return of 49.2% in the year. We have also delivered the operating synergies of £4.0m per annum outlined at the time of the merger, as well as a 50bp reduction in the average cost of debt.

We have continued to selectively grow the enlarged portfolio, particularly in Ireland where we believe there is a significant opportunity, and further strengthened the balance sheet with a successful, over-subscribed £100m equity issue, £150m unsecured convertible bond issue and €70m Euro-denominated private placement loan note. PHP's high-quality portfolio and capital base have helped to deliver another year of strong earnings performance and 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 shareholders which is fully covered by earnings, as we look forward to the future with confidence.

DELIVERING EARNINGS AND DIVIDEND GROWTH

  • Adjusted EPRA earnings per share increased by 5.8% to 5.5p (FY 2018: 5.2p)
  • Completion of all share merger with MedicX contributing £15.6m to Adjusted EPRA earnings in the 9.5 months since completion
  • Excluding the impact of the MedicX merger PHP's recurring Adjusted EPRA earnings increased by £7.3m or 19.8% (FY 2018: £5.8m or 18.7% increase)
  • Average uplift of 1.9% p.a. on rent reviews agreed in the year, resulting in an uplift in rent of £1.6m p.a. (FY 2018: 1.4% with an uplift of £1.1m p.a.)
  • Quarterly dividends totalling 5.6p per share distributed in the year, a 3.7% increase over 2018 and representing the Company's 23rd consecutive year of dividend growth
  • 9 income accretive properties, including six forward funded developments selectively acquired for £57.1m, with a large average lot size of £6.3m
  • EPRA cost ratio reduced to 12.0% (FY 2018: 14.3%) and administrative expense ratio reduced to 0.4% (FY 2018: 0.6%) driven by £4.0m p.a. of cost saving synergies arising from the merger with MedicX

DELIVERING FINANCIAL MANAGEMENT

  • £100.0m (£97.7m net of expenses) over-subscribed equity issue at 128.0p per share or 21.7% premium to previously reported Adjusted EPRA NAV per share of 105.2p as at 30 June 2019
  • Average cost of debt reduced by 50bp to 3.5% from 4.0% as at completion of the merger with MedicX (31 December 2018: 3.9%)
  • £150m/2.875% unsecured convertible bond issued for a six-year term expiring in July 2025
  • €70m/1.509% Euro-denominated senior secured loan notes issued for a 12-year term expiring September 2031
  • £100m secured, multi-currency revolving credit facility refinanced with HSBC for an initial three-year term with options to extend by a further year at the first and second anniversaries of the facility
  • £75m/5.375% retail bond repaid in July 2019

DELIVERING NET ASSET VALUE GROWTH

  • Underlying property valuation surplus and profit on sales of £49.8m (FY 2018: £36.0m), showing growth of 2.1% (FY 2018: 2.5%); portfolio's net initial yield increased slightly to 4.86% (31 December 2018: 4.85%) reflecting additional investment in Ireland; no change in the UK
  • Rental growth of £1.9m or 1.5% (FY 2018: £1.3m or 1.8%) accounting for the majority of the revaluation surplus created in the year
  • Portfolio in Ireland now comprises 16 assets, valued at €189m, and including four forward funded developments currently under construction which if valued as complete increases the value to approximately €207m
  • Strong pipeline of targeted acquisitions of approximately £160m of which £44m currently in legal due diligence
  • 36 asset management projects either completed, on-site or about to commence investing £13.4m (FY 2018: £4.4m), creating an additional £0.64m p.a. (FY 2018: £0.2m p.a.) of rental income, and strong pipeline of over 100 future projects being progressed
  • Only £1.9m or 1.5% of annualised rent roll expiring in the next three years of which 65% is subject to a planned asset management initiative and terms have been agreed to renew the lease.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

Income statement metrics

Year to

31 December

2019

Year to

31 December

2018

 

Change

Net rental income1

£115.7m

£76.4m

+51.4%

Adjusted EPRA earnings1,2

£59.7m

£36.8m

+62.2%

Adjusted EPRA earnings per share2

5.5p

5.2p

+5.8%

IFRS profit before tax excluding MedicX exceptional adjustments5

£75.9m

£74.3m

+2.2%

IFRS (loss)/profit for the year (includes £123.9m of non-cash losses)10

(£71.3m)

£74.3m

 

IFRS (loss)/earnings per share1,2

(6.5p)

10.5p

 

Dividends

 

 

 

Dividend per share6

5.6p

5.4p

+3.7%

Dividends paid6

£59.4m

£36.6m

+62.3%

Dividend cover1

101%

101%

 

Balance sheet and operational metrics

31 December

2019

31 December

2018

 

Change

Adjusted EPRA NAV per share1,3

107.9p

105.1p

+2.7%

IFRS NAV per share1,3

101.0p

102.5p

-1.5%

EPRA NNNAV per share3

98.8p

99.2p

-0.4%

Property portfolio

 

 

 

Investment portfolio valuation4

£2.413bn

£1.503bn

+2.1%

Net initial yield ("NIY")

4.86%

4.85%

 

Contracted rent roll (annualised)8

£127.7m

£79.4m

+1.5%

Weighted average unexpired lease term ("WAULT")

12.8 years

13.1 years

 

Occupancy

99.5%

99.8%

 

Rent-roll funded by government bodies

90%

91%

 

Debt

 

 

 

Average cost of debt

3.5%

4.0%9

 

Loan to value ratio1

44.2%

47.8%9

 

Weighted average debt maturity

7.2 years

5.4 years

 

Total undrawn loan facilities7,9

£356.6m

£190.6m