Primary health properties PLC- Preliminary Results 2020

Harry Hyman , Chief Executive, commented:

“We have continued to support the NHS in the UK, HSE in Ireland and our GP occupiers throughout the COVID-19 pandemic which has highlighted the demands on health systems around the world. Many of our primary care facilities and occupiers are now in the front-line of delivering Covid-19 vaccines. We continue to see demand for extra space to help enable the redirection of activities out of hospitals. The need for modern, integrated, local primary healthcare facilities is becoming ever more pressing in order to relieve the pressures being placed on hospitals and A&E departments.

“In early 2021, we successfully completed the internalisation of the Group's management structure which will immediately deliver material financial and operational benefits driving further earnings and dividend growth, enhancing shareholder returns, whilst simultaneously broadening our appeal to a wider investment community and underpinning the next stage of the Company's growth.”

FINANCIAL AND OPERATIONAL HIGHLIGHTS

Income statement metrics			Year to 31 December 2020			Year to 31 December 2019	Change
Net rental income1				£131.2m		£115.7m	+13.4%
Adjusted earnings1,2				£73.1m		£59.7m	+22.4%
Adjusted earnings per share1,2				5.8p		5.5p	+5.5%
IFRS profit before tax excluding MedicX exceptional adjustments1,5					£109.3m	£75.9m	+44.0%
IFRS profit/(loss) for the year (2019 includes £123.9m of non-cash losses)9					£112.0m	(£71.3m)
IFRS earnings/(loss) per share2				8.8p		(6.5p)
Dividends
Dividend per share6				5.9p		5.6p	+5.4%
Dividends paid6				£73.3m		£59.4m
Dividend cover1				100%		101%
Balance sheet and operational metrics			31 December 2020			31 December 2019	Change
Adjusted NTA (NAV) per share1,3			112.9p			107.9p	+4.6%
IFRS NAV per share1,3			107.5p			101.0p	+6.4%
Property portfolio
Investment portfolio valuation4			£2.576bn			£2.413bn	+2.0%
Net initial yield (“NIY”) 1			4.81%			4.86%
Contracted rent roll (annualised)1,8		£135.2m				£127.7m	+1.6%
Weighted average unexpired lease term (“WAULT”)1		12.1 years				12.8 years
Occupancy		99.6%				99.5%
Rent-roll funded by government bodies1		90%				90%
Debt
Average cost of debt		3.5%				3.5%
Loan to value ratio1	41.0%					44.2%
Weighted average debt maturity – drawn facilities		6.5 years				7.2 years
Total undrawn loan facilities and cash7		£361.5m				£356.6m

 

 

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 exceptional 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. From 1 January 2020 Adjusted EPRA NAV, EPRA NAV and EPRA NNNAV have been replaced with four new metrics: adjusted net tangible assets, EPRA net tangible assets (“NTA”), EPRA net disposal value (“NDV”) and EPRA net reinstatement value (“NRV”) which are considered to be alternative performance measures. The Group has determined that adjusted net tangible assets is the most relevant measure and hence is now reported in place of adjusted EPRA NAV.

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 The IFRS profit before tax excluding MedicX exceptional adjustments is set-out in detail in the summarised results table on page 14.

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.

⁹ £123.9m of non-cash losses are composed of £138.4m exceptional revaluation loss arising on the merger with MedicX less the £14.5m exceptional transactions costs.

 

 

DELIVERING EARNINGS AND DIVIDEND GROWTH

· Adjusted earnings per share increased by 5.5% to 5.8p (2019: 5.5p)

· Notwithstanding the impact of Covid-19, average uplift of 1.8% per annum on rent reviews completed in the year, continuing the trend in rental growth (FY 2019: 1.9%; FY 2018: 1.4%)

· Additional annualised rental income on a like-for-like basis of £2.0 million or 1.6%, from rent reviews and asset management projects (FY 2019: £1.9 million or 1.5%; FY 2018: £1.3 million or 1.8%)

· Contracted annualised rent roll increased by 5.9% to £135.2 million (31 December 2019: £127.7 million)

· 23 purpose-built medical centres acquired in the year for £58.8 million with good asset management opportunities

· Four forward funded developments acquired in the year with a net development cost of £34.2 million at Arklow and Enniscorthy in Ireland, Epsom, Surrey and Llanbradach, Wales

· Post period end, successful completion of the internalisation of the Group's management structure, at a cost including fees of £35.7m, with shareholders representing 99.95% of the votes cast voting in favour of the internalisation which is anticipated to deliver annual cost savings of approximately £4.0 million.

· Quarterly dividends totalling 5.9p per share distributed in the year, a 5.4% increase over 2019 (5.6p per share)

· First quarterly dividend of 1.55p per share declared, payable on 26 February 2021, equivalent to 6.2p on an annualised basis. This represents a further 5.1% increase over the 2020 dividend per share and marks the start of the Company's 25^th consecutive year of dividend growth

· The Company intends to make further dividend payments in May, August and 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 4.6% to 112.9 pence (31 December 2019: 107.9 pence)

· Property portfolio at 31 December 2020 valued at £2.576 billion (31 December 2019: £2.413 billion) reflecting a net initial yield of 4.81% (31 December 2019: 4.86%). A revaluation surplus was generated in the year of £51.4 million (2019: £49.8 million), representing growth of 2.0% (2019: 2.1%)

· Portfolio in Ireland now comprises 18 assets, valued at £198 million (€221 million), including two forward funded developments currently under construction which, if valued as complete, will increase the total asset value to approximately £220 million (€246 million)

· The Group completed the forward funded developments at Athy, Bray, Rialto and Banagher in Ireland during the year and has six developments currently on site with a net development cost of £47.4 million. All sites in the UK and Ireland remain open and construction continues to progress

· Strong pipeline of targeted acquisitions and asset management projects with a value of approximately £129 million, of which £59 million is currently under offer, together with additional pipeline from Nexus Developments

· Post period end the development expertise of Nexus Developments acquired as part of the internalisation transaction together with control of an £80 million pipeline of direct development opportunities of which two projects are at an advanced stage. This is the first time that the Company will be developing through utilising its own balance sheet

· Progression of asset management projects with 24 either completed or currently on-site, investing £8.1 million, creating additional rental income of £0.3 million per annum and extending the weighted average unexpired lease term (WAULT) for those leases back to 20 years

· The Group has a strong pipeline of over 80 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 £34 million in 2021 and 2022 generating £1.1 million of additional income and extending the WAULT on those leases back to 21 years

· The portfolio's metrics continue to reflect the secure, long-term and predictable income stream with occupancy at 99.6% (31 December 2019: 99.5%) and a WAULT of 12.1 years (31 December 2019: 12.8 years)

 

 

DELIVERING FINANCIAL MANAGEMENT

· £140.0m (£136.9m net of expenses) over-subscribed equity placing in July 2020 at 145p per share or 32.9% premium to reported Adjusted NTA of 109.1p as at 30 June 2020

· Following the equity placing the Company lowered the upper range for the Group's loan to value (“LTV”) ratio from 55% to 50%

· At 31 December 2020 the Group's net debt stood at £1,055.7 million (31 December 2019: £1,067.3 million) and the LTV ratio was 41.0% (31 December 2019: 44.2%)

· The Group has undrawn loan facilities and cash on deposit post capital commitments totalling £361.5 million (31 December 2019: £356.6 million) providing significant liquidity headroom. Cash on deposit totals £103.6 million

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

· Low, average marginal cost of debt of 1.7% following refinancing of revolving credit facilities with Barclays and Lloyds

 

 

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 17 February 2021 99% and 94% had been collected in both the UK and Ireland respectively for the first quarter of 2021 and in-line with collection rates experienced for 2020 which now stand at over 99% for both countries. The balance of rent due for the first quarter of 2021 is expected to be received shortly

· The Group has allowed £4.8 million of annualised rents, predominantly pharmacies, to be paid by monthly instalments, given short-term rent deferrals of £1.2 million and concessions of £0.5 million

 

 

DELIVERING STRONG TOTAL RETURNS

			Year ended 31 December 2020	Year ended 31 December 2019
Increase in Adjusted NTA plus dividends paid			10.1%	8.0%
Income return			5.2%	5.2%
Capital return			2.2%	2.5%
Total property return1			7.4%	7.7%
MSCI UK Monthly Property Index			(0.8%)	2.2%
Out performance over MSCI			8.2%	5.5%