Primary Health Properties Plc – Latest Interim results

Primary Health Properties PLC

Interim results for the six months ended 30 June 2022

Organic rental growth continuing to drive strong property returns in a turbulent market Uplift in NAV per share and dividend fully covered at 103%

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 2022 (the “period”).

Harry Hyman, Chief Executive of PHP, commented:

“We are encouraged by the firmer tone of rental growth experienced in the period from the ongoing rent reviews and asset management projects successfully completed. Furthermore, with the majority of PHP's debt either fixed or hedged for a weighted average period of just under eight years the Board remains confident that PHP can continue to deliver further earnings and dividend growth.

“Notwithstanding the outlook for longer-dated interest rates the investment market has remained robust in the first half of the year and we have continued to see further net initial yield compression in both the UK and Ireland.

“NHS initiatives to modernise and invest in the primary care estate support the important role that primary healthcare as a first line of defence must play to re-focus services away from over-burdened hospital settings, and to satisfy increased demand, driven by 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.”

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”), 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.

⁸ Pro-forma including asset acquisitions and disposals completed post period end.

DELIVERING EARNINGS AND DIVIDEND GROWTH

· Adjusted earnings per share increased by 9.7% to 3.4p (30 June 2021: 3.1p)

· Contracted annualised rent roll increased by 2.5% to £144.2 million (31 December 2021: £140.7 million)

· Additional annualised rental income on a like-for-like basis of £1.8 million or 1.3% from rent reviews and asset management projects (H1 2021: £1.3 million or 1.0%; FY 2021: £2.4 million or 1.8%)

· EPRA cost ratio 10.5% (FY 2021: 9.3%), representing the lowest in the UK REIT sector

· Three quarterly dividends totalling 4.875 pence per share distributed or declared in the year-to-date equivalent to 6.5 pence per share on an annualised basis, a 4.8% increase over 2021 (6.2 pence per share) and marking the Company's 26^th consecutive year of dividend growth

DELIVERING NET ASSET VALUE GROWTH

· Adjusted Net Tangible Assets (“NTA”) per share increased by 3.5% to 120.8 pence (31 December 2021: 116.7 pence)

· Property portfolio valued at £2.9 billion at 30 June 2022 (31 December 2021: £2.8 billion) reflecting a net initial yield of 4.57% (31 December 2021: 4.64%)

· Revaluation surplus in the period of £51.2 million (30 June 2021: £66.9 million), representing growth of 1.8% (30 June 2021: 2.6%) with approximately half of the valuation surplus coming from rental growth driven by rent reviews and asset management projects

· Post period end disposal of 13 smaller assets for £27.7 million, sale price was 13% above 31 December 2021 book values and represented 60 bps of yield compression

· Strong pipeline of targeted acquisitions, developments and asset management projects with a value of approximately £187 million in the UK and £98 million (€114 million) in Ireland of which £123 million and £43 million (€50 million) is in legal due diligence in both countries

· Portfolio in Ireland now comprises 20 assets, valued at £228 million (€265 million) (31 December 2021: £213 million / €253 million)

· The portfolio's metrics continue to reflect the Group's secure, long-term and predictable income stream with occupancy at 99.7% (31 December 2021: 99.7%) and a WAULT of 11.4 years (31 December 2021: 11.6 years)

· Strong progression of asset management projects with 14 completed in the period and a further 8 currently on-site, investing £14.9 million, creating additional rental income of £0.3 million per annum and extending the weighted average unexpired lease term (WAULT) back to over 20 years

DELIVERING FINANCIAL MANAGEMENT

· LTV ratio 43.1% (31 December 2021: 42.9%), towards the lower end of the Group's targeted range of between 40% to 50%

· Including post period end transactions 95% of net debt fixed or hedged for a weighted average period of just under eight years

· Weighted average debt maturity 7.8 years (31 December 2021: 8.2 years)

· Significant liquidity headroom with cash and collateralised undrawn loan facilities totalling £290.6 million (31 December 2021: £321.2 million) after capital commitments and including post-period end transactions

· €75 million private placement loan note issued in the period for a 12-year term at a fixed rate of 1.64% to finance continued expansion in Ireland

DELIVERING STRONG TOTAL RETURNS

1   The de finition for total property return is set out in the Glossary of Terms.

DELIVERING RESPONSIBLE BUSINESS AND ESG

· As previously announced, Net Zero Carbon (“NZC”) Framework published with the five key steps the Group is taking to achieve the ambitious target of being NZC by 2030 for all of PHP's operational, development and asset management activities

· Commenced construction of PHP's first NZC development in West Sussex

· All developments completed in the period achieved BREEAM rating of Excellent or Very Good and all asset management projects completed met EPC target of B or above

· Published PHP's Levelling- Up Impact Report, as part of the Purpose Coalition, detailing of the work PHP is doing to level-up both locally and nationally, and its strategy going forward