Primary Health Properties PLC
Interim results for the six months ended 30 June 2023
Organic rental growth continuing to drive performance and dividend fully covered at 102%
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 2023 (the “period”).
Harry Hyman, Chief Executive of PHP, commented:
“We are encouraged by the improvement in rental growth experienced in the first half of the year and expect to deliver over £4 million of extra income during 2023, another record and continuing the trend seen in recent years. We believe PHP will be a beneficiary of both the current inflationary environment and the significant rise in construction costs seen in recent years both through open market and index-linked reviews. Furthermore, with 97% of PHP’s debt either fixed or hedged for a weighted average period of just under seven years, a strong control on costs and just one development on site we have limited exposure to further cost increases and development risk.
“The security and longevity of our income, near full occupancy together with stronger rental growth are the key drivers of our predictable cash-flows and underpin our progressive dividend policy with 27 years of continued growth.”
FINANCIAL AND OPERATIONAL HIGHLIGHTS
| Income statement and financial metrics | Six months to 30 June 2023 | Six months to 30 June 2022 | Change |
| Net rental income1 | £75.5m | £71.1m | +6.2% |
| Adjusted earnings1,2 | £45.9m | £44.7m | +2.7% |
| Adjusted earnings per share1,2 | 3.4p | 3.4p | – |
| IFRS profit for the period | £39.5m | £107.1m | |
| IFRS earnings per share2 | 3.0p | 8.0p | |
| Dividends | |||
| Dividend per share5 | 3.35p | 3.25p | +3.1% |
| Dividends paid5 | £44.8m | £43.3m | +3.5% |
| Dividend cover1 | 102% | 103% | |
| Balance sheet and operational metrics | 30 June2023 | 31 December2022 | Change |
| Adjusted NTA per share1,3 | 111.1p | 112.6p | -1.3% |
| IFRS NTA per share1,3 | 110.6p | 110.9p | -0.3% |
| Property portfolio | |||
| Investment portfolio valuation4 | £2.783bn | £2.796bn | -0.4% |
| Net initial yield (“NIY”) 1 | 4.90% | 4.82% | |
| Contracted rent roll (annualised)1,7 | £147.4m | £145.3m | +1.4% |
| Weighted average unexpired lease term (“WAULT”)1 | 10.6 years | 11.0 years | |
| Occupancy | 99.6% | 99.7% | |
| Rent-roll funded by government bodies1 | 89% | 89% | |
| Debt | |||
| Average cost of debt | 3.2% | 3.2% | |
| Loan to value ratio (“LTV”)1 | 45.6% | 45.1% | |
| Weighted average debt maturity | 6.9 years | 7.3 years | |
| Total undrawn loan facilities and cash6 | £314.4m | £325.9m |
1 Definitions for net rental income, Adjusted earnings, Adjusted earnings per share, earnings per share (“EPS”), dividend cover, loan to value (“LTV”), net tangible assets (“NTA”), rent roll, NIY, WAULT, total adjusted NTA return 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 7, 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. Includes assets held for sale.
5 See note 8, dividends, to the financial statements.
6 After deducting the remaining cost to complete contracted acquisitions, properties under development and asset management projects.
7 Percentage contracted rent roll increase during the period is based on the annualised uplift achieved from all completed rent reviews and asset management projects.
EARNINGS AND DIVID GROWTH
· Adjusted earnings per share unchanged at 3.4p (30 June 2022: 3.4p)
· IFRS earnings per share decreased by 62.5% to 3.0p (30 June 2022: 8.0p)
· Contracted annualised rent roll increased by 1.4% to £147.4 million (31 December 2022: £145.3 million)
· Additional annualised rental income on a like-for-like basis of £2.2 million or 1.5% from rent reviews and asset management projects (H1 2022: £1.8 million or 1.3%; FY 2022: £3.3 million or 2.4%)
· EPRA cost ratio 10.1% (FY 2022: 9.9%), representing one of the lowest in the UK REIT sector
· First three quarterly dividends totalling 5.025 pence per share distributed or declared in the year-to-date, equivalent to 6.7 pence per share on an annualised basis, a 3.1% increase over 2022 (6.5 pence per share) and marking the Company’s 27th consecutive year of dividend growth
· The Company intends to maintain its strategy of paying a progressive dividend fully covered by Adjusted earnings
NET ASSET VALUE AND PORTFOLIO MANAGEMENT
· Adjusted Net Tangible Assets (“NTA”) per share decreased by 1.3% to 111.1 pence (31 December 2022: 112.6 pence)
· Property portfolio valued at £2.783 billion at 30 June 2023 (31 December 2022: £2.796 billion) reflecting a net initial yield of 4.90% (31 December 2022: 4.82%)
· Revaluation deficit in the period of £11.9 million (30 June 2022: surplus £51.2 million), representing a decline of -0.4% (30 June 2022: +1.8%), comprising a £45 million decline driven by NIY widening of 8bps partially offset by gains of £33 million arising from rental growth and asset management projects
· The portfolio’s metrics continue to reflect the Group’s secure, long-term and predictable income stream with occupancy at 99.6% (31 December 2022: 99.7%), WAULT of 10.6 years (31 December 2022: 11.0 years) and 89% (31 December 2022: 89%) of income funded by government bodies
· Portfolio in Ireland comprises 20 assets, valued at £219 million (€255 million) (31 December 2022: £231 million / €261 million) and continues to be the Group’s preferred area of future investment activity with a target to grow to around 15% of the total portfolio
· The acquisition of Axis Technical Services Limited, an Irish property management business, 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
· Pipeline of 32 asset management projects and lease regears planned over next two years, investing £23.7 million, creating additional rental income of £1.2 million per annum and extending the weighted average unexpired lease term (WAULT) back to over 20 years
· Disciplined approach to future investment focused on Ireland, direct developments and asset management projects are our preferred areas of future investment
FINANCIAL MANAGEMENT
· LTV ratio 45.6% (31 December 2022: 45.1%) in the middle of the Group’s targeted range of between 40% to 50%
· 97% (31 December 2022: 94%) of net debt fixed or hedged for a weighted average period of just under seven years
· Weighted average debt maturity 6.9 years (31 December 2022: 7.3 years)
· Significant liquidity headroom with cash and collateralised undrawn loan facilities totaling £314.4 million (31 December 2022: £325.9 million) after capital commitments
DELIVERING STRONG TOTAL RETURNS
| Six months ended30 June 2023 | Six months ended30 June 2022 | Year ended31 December 2022 | |
| Adjusted NTA return | 1.6% | 6.3% | 2.1% |
| Income return | 2.7% | 2.5% | 5.0% |
| Capital return | (0.4%) | 1.8% | (2.2%) |
| Total property return1 | 2.3% | 4.3% | 2.8% |
1 The definition for 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 to achieve the Group’s ambitious target of being NZC by 2030 for all of PHP’s operational, development and asset management activities
· Ongoing construction of PHP’s first NZC development in West Sussex expected to achieve practical completion in Q1 2024
Presentation and webcast:
An in-person presentation for analysts will be held today, 26 July 2023 at 9.30am at the offices of Numis Securities: 45 Gresham Street, London EC2V 7BF. For those who cannot attend in person, the meeting will be accessible via live video webcast and a live conference call facility. Following the presentation, there will be a managed Q&A session. To access the briefing, please log on or dial in shortly before 9.30am via the details below:
Webcast: https://stream.brrmedia.co.uk/broadcast/648c7d6ee1ace244e084c4b0
Conference call details:
UK: +44 (0) 33 0551 0200;
USA Local: +1 786 697 3501
Password (if prompted): Quote PHP Interim Results when prompted by the operator.
If you would like to join the briefing, please contact Buchanan via php@buchanan.uk.com to confirm your place. A recording of the webcast will be made available from c.12.00pm on the PHP website, https://www.phpgroup.co.uk/