Annual Report • Dec 31, 2012
Annual Report
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Annual Report for the year ended 31 December 2012
| Group | |
|---|---|
| Chairman's Statement | 2 |
| Managing Director's Review | 4 |
| Summary of Group Financial Performance | 22 |
| Joint Managers | 23 |
| The Board | 24 |
| Directors' Report | 26 |
| Directors' Responsibility Statements | 30 |
| Corporate Governance | 31 |
| Directors' Remuneration Report | 35 |
| Independent Auditor's Report | 37 |
| Group Statement of Comprehensive Income | 38 |
| Group Balance Sheet | 39 |
| Group Cash Flow Statement | 40 |
| Group Statement of Changes in Equity | 41 |
| Notes to the Financial Statements | 42 |
| Independent Auditor's Report | 59 |
|---|---|
| Company Balance Sheet | 60 |
| Company Reconciliation of Movements in | |
| Shareholders' Funds | 61 |
| Notes to the Company Financial Statements | 62 |
| Shareholder Information | 66 |
|---|---|
| Corporate Profile and Advisers | 68 |
Primary Health Properties PLC ("PHP") is a UK Real Estate Investment Trust ("REIT").
The objective of the Group is to generate increased rental income and capital growth through investment in primary health property in the United Kingdom leased principally to GPs, NHS organisations and other associated healthcare users.
PHP has 176 completed properties and 7 that it has committed to acquire
Investment properties Properties in the process of development Contracted with
deferred completion
10
11
11
A new, purpose built, medical centre rated BREEAM 'Excellent' was completed in October 2012 and purchased by PHP in December 2012. It provides spacious and flexible accommodation over two floors and is let to a four GP practice serving 6,000 patients in the community just to the north west of Bradford city centre and has a Lloyds Pharmacy.
| size: | 700 sq m |
|---|---|
| built: | October 2012 |
| cost: | £1.9 million |
| patient numbers: | 6,000 |
| tenants: | GP practice and pharmacy |
| Increase | |||
|---|---|---|---|
| Year ended 31 December | 2012 | 2011 | % |
| Rental and related income | £33.2m | £30.7m | 8% |
| Operating profit before revaluation result on property portfolio |
£27.6m | £25.1m | 10% |
| Total dividend paid to shareholders |
18.5p | 18.0p | 3% |
| Total investment property | £622.4m | £525.6m | 18% |
| Loan to value ratio | 60.9% | 57.8% | - |
| EPRA net asset value | £231.9m | £217.6m | 7% |
16th consecutive year of dividend growth with 18.5p per share paid in the year (2011: 18.0p)
We have positioned the Group and created the structure and resources to be a leading participant in satisfying the strong demand for third party investment into primary care properties.
I am delighted to present my review and report to the shareholders of Primary Health Properties PLC ("PHP") together with its subsidiaries (the "Group") for the financial year ended 31 December 2012. This has been an extremely busy year and one where the Group has achieved success in all of the major areas of its business.
In March 2012, the Health and Social Care Act (the "Act") passed into statute, paving the way for significant changes to the delivery of healthcare in England. The Act transfers responsibility for the commissioning of care to local Clinical Commissioning Groups ("CCGs") which will have a strong General Practitioner ("GP") representation in their management. CCGs will be overseen by the National Commissioning Board and will lead the continued drive to transfer the delivery of health services closer to the patient and create what we believe will be an increased demand for localised, primary care facilities. There is no change to the NHS structures in Scotland, Wales or Northern Ireland.
Alongside the replacement of Primary Care Trusts ("PCTs") with CCGs, is the establishment of the NHS Property Services company ("NHS PropCo"). The ownership of real estate assets held by PCTs will be transferred to NHS PropCo who we also expect to be responsible for the management of other PCT occupied space such as that provided by the Group. Whilst the full impact of this organisational change on things such as the procurement of new premises is yet to be known, we have seen continued demand for primary health facilities and the sanctioning of further development projects both by outgoing PCTs and some of the newly established local management structures.
There is nothing in the Act, however, that fundamentally changes the current GP premises cost reimbursement scheme and the strength of the Group's income base, where 90% of rental income is funded by
the NHS. The Group has acquired a large number of assets in 2012 which increases the quantum and extends the longevity of our income stream and provides opportunities to create additional value. I believe that this, combined with the major funding transactions completed in 2012, has created the structure and resources that position the Group to be a leading participant in satisfying the strong demand for third party investment into primary care properties.
Transactions in both debt and equity markets have illustrated stakeholders' confidence in the Group's strategy of investing solely in primary health property assets with their secure cash flows and stability of capital values.
A total of £250 million of new debt facilities were completed during the year, refinancing the Group's core banking facilities and providing new sources of finance to support PHP's expansion plans.
As detailed in my interim report to shareholders in 2012, the Group completed a new, four year facility with our long standing core bankers, Royal Bank of Scotland plc and Santander Banking Group to refinance the entirety of their expiring commitment to the PHP Group. Whilst the cost of this debt has increased, the belief of the banks in the underlying asset portfolio and strength of covenant of PHP's tenants meant that the facility was provided with no change required to the underlying swap portfolio.
In July, PHP demonstrated its attraction to a wider range of investors when leading the property investment sector in accessing the Retail Bond market to issue a £75 million, unsecured, seven year bond. This was PHP's first venture away from traditional bank lenders, but the transparency and strength of PHP's underlying income resulted in significant demand from fixed
income investors, such that the offer period for the issue was closed early.
PHP has also proven to be of continued attraction to equity investors with the Company raising fresh equity (net of costs) of £18.4 million in May 2012. This was from a mix of new and existing investors and has been used to invest in additional property assets. In December, the Group completed the acquisition of Apollo Medical Partners Limited ("Apollo") and, as part of the consideration, issued a further 1,231,395 shares to the vendors, demonstrating their confidence in PHP's portfolio and business model.
The Group has continued to invest in primary care assets, committing a mix of debt and equity to generate growing returns to shareholders. In the year under review, the Group added 23 new properties to its portfolio for a total consideration of some £110 million and took delivery of 3 previously committed assets.
At the balance sheet date, the Group held a total of 183 primary care centres that included 6 assets under construction, all due for delivery in 2013 and one standing let investment where completion of its acquisition was deferred to 1 February 2013.
The largest single transaction was the acquisition of Apollo in December with its portfolio of 14 assets. This transaction also included the establishment of a five year pipeline agreement with the vendors, where they and PHP will work together to create new, high quality premises for the primary care sector.
Group rental income increased by 8.1% for the year to £33.2 million (2011: £30.7 million). In addition to contributions from new and extended assets, growth has continued to be secured on rent reviews across the portfolio.
The primary care property sector has not escaped the tougher economic conditions and whilst rental growth has continued, the average annualised rate of growth has slowed to 2.4% (2011: 3.0%). At the year end, contracted rent roll had increased by over 20% in the year to £38.9 million (2011: £32.3 million).
Group profits before revaluation and the change in fair value of derivatives ("Profit from trading activities") and before the provision for early loan repayment fees were £7.4 million (2011: £9.7 million). This reflects the increased margins payable on the Group's debt, but with the gap between investment yields and the Group's incremental cost of debt being wider than for some time, acquisitions completed in 2012 and to be secured in 2013 will recover this and more.
The Group's property portfolio, including commitments, now totals over £645 million (2011: £540 million) in value. The underlying assets, once again demonstrated its attractiveness to the investment market with the average net initial yield remaining broadly unchanged at 5.72% (2011: 5.74%).
PHP paid a total of 18.5 pence per share in dividends to shareholders in the year, the 16th successive year of dividend growth. The strength of the Group's income and the positive outlook for portfolio growth underpinned the increased dividend in 2012. The Board has now approved the payment of a second interim dividend of 9.5 pence per share in respect of 2012. This will be payable on 22 April 2013 to shareholders on the register on 8 March 2013, with an ex-dividend date of 6 March 2013.
The demands placed upon the NHS and the structural changes targeted by the Act are all strengthening the move to deliver more healthcare services in the local community.
The creation of local CCGs alongside this delivery change has seen continued demand for modern, purpose built facilities, the capital for which will continue to be provided by specialist investors such as PHP.
The abolition of PCTs in April 2013, being replaced by CCGs, will be the final action needed to bring about the changes envisaged by the Act. Whilst this will result in the inevitable period of administrative flux, the underlying funding of the NHS and GP premises costs will be unaffected. The strength of the Group's tenant covenant will remain, as will the longevity of its income. As new and enhanced premises are required to deliver the increasing care demands of the growing UK population the Board is confident of the opportunities for the Group to add to its investment portfolio and generate increasing returns from its assets.
In 2013, the Group has so far secured a further £6.3 million of new properties. PHP will continue to acquire high quality assets with secure rental streams as evidenced by a strong pipeline currently being documented by our advisors. The additional operating surpluses that these will generate will enable the Board to meet its prime objective of returning the Group to full dividend cover as quickly as possible.
The ability of PHP to access both debt and equity markets, due to its track record and portfolio quality, will enable the Group to take advantage of further opportunities to expand its portfolio through 2013. The Board has confidence in the current portfolio and its ability to deliver secure and growing returns which will be enhanced by the strong pipeline of additional acquisition opportunities available to the Group.
27 February 2013
Shareholders saw a sixteenth consecutive year of dividend growth whilst solid rental growth will increase operating profits to re-establish full dividend cover.
£110m of new asset acquisitions or commitments
£6.4m added to annual rent roll
year ended 31 December 2012
The completion of £110 million of acquisitions in 2012, investing a large proportion of the additional capital secured in the year has put the Group well on its way to returning to full dividend cover. Shareholders saw a sixteenth consecutive year of dividend growth as revenues were grown to offset the increased margins charged on new debt. Further acquisitions and continued growth from rent reviews will grow operating profits to re-establish dividend cover.
In March 2012, the Health and Social Care Act (the "Act") entered into statute bringing about the start of the biggest structural change to the provision of healthcare by the NHS in modern times. From April 2013, responsibility for the commissioning of care will be transferred to local Clinical Commissioning Groups ("CCGs") in which GPs will have a major management involvement. The existing Primary Care Trusts ("PCTs") will be abolished and oversight will be provided by a National Commissioning Board. Throughout the period before and since the Act became legislation, we have engaged with senior executives within government and the NHS and have been advised that the Act will not change the current premises costs reimbursement provisions whereby GPs rent, rates and other property costs are funded by the NHS.
NHS Property Services Limited ("NHS PropCo"), a company wholly owned and funded by the Government, was created in the year. The abolition of PCTs will see the transfer of all PCT real estate interests to NHS PropCo which will also provide advisory services to the CCGs with regard to premises both old and new. The strategy of NHS PropCo and how it will interact with private sector investors such as PHP is not yet clear, but management is engaging with NHS PropCo so that PHP is involved and informed as NHS PropCo assumes its responsibilities and develops its operating agenda.
What remains unaltered by all of this structural change is the role of primary care in the delivery of healthcare in the UK and the continued drive to deliver more and more services from within the local community. To achieve this, specialist primary care facilities are and will continue to be required and we see a sustained demand for new premises across the UK that will require investment from third party investors such as PHP.
There has been a continuous supply of new investment and funding opportunities for the Group throughout the year. In total, PHP has completed £110 million of new transactions in 2012, adding 23 assets to the portfolio and securing an additional £6.4 million of rental income. These include a mix of standing let investments and new forward funding commitments. PHP also took delivery of 3 assets where construction was completed in the year.
As at 31 December 2012, the value of PHP's gross assets under management, including commitments, was £645.4 million, representing 183 properties. Of these, 176 were completed and rent producing, six were funding commitments, one of which has been delivered since the year end and the final asset was a contract to acquire a standing let investment, that was completed on 1 February 2013.
The total rent roll from these 183 assets is £38.9 million, an increase of 20% over the rent roll at the end of 2011. The portfolio holds a number of value add opportunities which are secured by management's regular dialogue and discussion with our tenants and close monitoring of the portfolio and developments in the locality of our existing assets. Rental growth has been lower in 2012 than in the previous year, but growth of 2.4% per annum (2011: 3.0%) has contributed to the increased rent roll and the profitability of the Group.
PHP's business model is to invest solely in the freehold or long leasehold of modern purpose-built primary healthcare facilities in the United Kingdom which the Group hold for long term investment. The properties are leased to general practitioners, NHS organisations and other associated healthcare users, including on-site pharmacies, usually with original lease terms of 21 years or more, at effectively upward only rentals. 90% of the Group's rent roll is funded directly or indirectly by the government, with the balance almost entirely coming from established pharmacies. The Group does not develop new assets on its own behalf but works closely with a number of specialist developers in the sector, committing to fund and acquire new assets as they are constructed, but contracting to do so only once the major areas of risk such as agreements to let to GP occupiers have been entered into. The Group also invests in standing, let properties with primary care tenants in place, provided the underlying occupational leases and other property fundamentals meet its stringent criteria.
The Group finances its portfolio with a mix of equity and debt, the proportions of which are kept under constant review to optimise risk adjusted returns to shareholders over the long term. The Group's portfolio currently comprises over one hundred and eighty primary healthcare facilities, both completed and committed, with an average unexpired lease term of 16 years. Debt facilities are closely monitored to ensure a spread of providers and range of maturities to ensure continuity and availability that match the longevity of income streams.
The Group's strategy is to take advantage of its predictable cost base, the security of its cash flows, the talents of its joint managers and the availability of finance for the quality of the assets it invests in to continue to grow the portfolio and returns to shareholders. Each potential investment is evaluated for its income and asset value growth potential, and in particular PHP seeks possibilities for extending the term of the underlying leases and scope to add to the income and value from providing additional space and facilities in the future.
PHP will look to secure, wherever possible, larger individual unit sizes where typically there are more practicing GPs and greater patient lists, helping to meet the demands for the highest quality of primary care.
Other 1% Pharmacy 9% NHS 17% HM Govt 1% GPs 72%
Government.
Pharmacy rents represent 9% of total income. 64% of this is derived from national covenants.
57% of occupational leases have a remaining life of 15 years or longer. The weighted average lease length (including commitments) is 16 years.
| 2012 £m |
2011 £m |
|
|---|---|---|
| As at 31 December | ||
| Gross contracted rent roll |
36.8 | 31.4 |
| Total portfolio value |
622.4 | 525.6 |
| Including purchase commitments |
||
| Gross contracted rent roll |
38.9 | 32.3 |
| Total portfolio value |
645.4 | 539.7 |
| 2012 | 2011 | |
|---|---|---|
| £m | £m | |
| Investment properties | 606.7 | 521.2 |
| Properties in the course of development | 15.7 | 4.4 |
| Total properties | 622.4 | 525.6 |
| Finance leases | 3.1 | 3.1 |
| Total owned and leased | 625.5 | 528.7 |
| Balance of commitments at the year end | 19.9 | 11.0 |
| Total owned, leased and committed | 645.4 | 539.7 |
At the balance sheet date, the Group's real estate portfolio, including committed development properties, was independently valued at the balance sheet date by Lambert Smith Hampton ("LSH"), Chartered Surveyors and Valuers, at open market value, as defined by the Royal Institution of Chartered Surveyors ("RICS"). On the basis that all development commitments are completed, the total value was £642.3 million which together with an asset held on a finance lease and some land plots adjoining existing assets saw the Group's property portfolio valued at an aggregate £645.4 million. The average lot size of the Group's portfolio stood at £3.52 million, an increase of 5.1% over the year (2011 - £3.35 million).
Overall, investment yields in the portfolio have remained broadly unchanged, but there is increased competition emerging for new, larger premises in the market as investors are attracted by the secure, long term nature of the underlying income. The Group's portfolio shows an average net initial yield of 5.72%, a small improvement on that of 31 December 2011 at 5.74%. The true equivalent yield is 6.05% as compared to 6.06% at the end of 2011.
In December 2012, PHP announced the acquisition of Apollo Medical Properties Limited ("Apollo") for a total consideration of £10.2 million, including transaction costs of £0.6 million. The consideration was settled with the issue of 1,231,395 PHP shares to the vendors, the payment of £4.2 million of cash upon completion (including costs) and the deferral of £1.8 million against the completion of three assets under construction and due to complete in 2013.
The value of the assets acquired, using a traditional valuation methodology, applying standard purchaser's costs, was £62.3 million. This resulted in a revaluation deficit of £2.3 million when compared to the purchase values agreed with the vendor that reflected the overall savings from undertaking a corporate transaction rather than acquiring the assets directly, that were shared with the vendors.
In addition to the net consideration payable, PHP assumed Apollo's fixed cost debt, which had a fair value on acquisition of £52.4 million. Net negative working capital of £2.2 million, including restricted cash deposits of £6.6 million and accrued costs to complete the assets under construction was also taken on.
Excluding the valuation deficit arising from the Apollo acquisition, the stability of and growth secured in the remainder of the PHP portfolio realised a net valuation uplift of £0.5 million, which is after the write off of £1.4 million of acquisition costs on non-Apollo assets acquired in the year. The overall revaluation deficit for the year was £1.8 million (2011 surplus - £10.6 million).
West Rhyl Primary Care Centre, Rhyl
A purpose built medical centre located close to the retail and commercial centre of Rhyl, extending to 1,705 sq m arranged over three floors. The main occupant is The Clarence Medical Centre, a seven strong GP practice serving over 16,250 patients; other users include the Betsi Cadwaladr University Health Board, Denbighshire County Council (Adult Social Services) and Rhyl City Strategy. There is a separate pharmacy let to Lloyds. The property was completed in May 2010 and acquired by PHP in December 2012.
| size: | 1,705 sq m |
|---|---|
| built: | May 2010 |
| cost: | £4.98 million |
| patient numbers: | 16,250 |
| tenants: | GP practice, local health board, local |
health board, local authority, community interest company and pharmacy
In 2012 PHP acquired Apollo Medical Partners Limited and its subsidiary, comprising a portfolio of 14 new properties across the UK, including the West Rhyl Primary Care Centre.
The Group's property portfolio showed a total return of +6.99% in 2012, +10.07% per annum over the three years to the balance sheet date and +5.61% per annum over the five year period to 31 December 2012. This compares to the IPD All Property Index that showed +2.7%, +8.4% and +0.5% respectively. This illustrates the outperformance of the Group's assets due to their stability and the security of the underlying income.
PHP is also a member of the IPD Healthcare Property Index and benchmarks its performance against the portfolios held by other investors in the sector. The index is published on an annual basis, and the results for 2012 are not yet available. The Group once again outperformed the Index in 2011 delivering a total return of 10.1% against the Index of 9.4%. The 2012 index will be published in May 2013 following which we will report our 2012 comparative performance.
As in previous years, the Joint Managers have prepared an alternative valuation of the real estate portfolio on a discounted cash flow ("DCF") basis. The Joint Managers feel that this better reflects the quasi infrastructure nature of the underlying assets, looking at the long term, secure and growing cash flows of the Group. The DCF methodology produces a value of £720.4 million for the assets as compared to £645.4 million using a traditional yield based approach. This represents an additional 98.8 pence per share in net asset value terms. In the DCF valuation, we have been consistent year on year in discounting the cash flows at 7%.
The Group acquired or took delivery of 20 standing let investments in the year, 11 of which formed part of the Apollo acquisition. The majority of these assets include growth opportunities, either through the letting of vacant areas not valued upon purchase, or through physical or lease extensions from discussions with our tenants.
| Sq m | Occupational tenants | |
|---|---|---|
| Conan Doyle Medical Centre, Edinburgh | 1,144 | 7 GP practice |
| Wepre Pharmacy, Connah's Quay | 145 | A pharmacy adjacent to an existing Group asset |
| Watton Medical Centre, Watton, Norfolk | 924 | 6 GP practice |
| Nantgarw Medical Centre, Caerphilly | 1,250 | 3 GP practice, Health Board and pharmacy |
| Kingsway Health Centre, Luton | 1,281 | Wholly let to local PCT |
| Rotherham Community Health Centre, Rotherham | 4,636 | Wholly let to local PCT |
| Springhill Medical Centre, Old Arley, Warwickshire* | 744 | 4 GP practice |
| Allesley Park Medical Centre, Coventry* | 1,170 | 5 GP practice and pharmacy |
| Pelton Primary Care Centre, County Durham* | 1,613 | 5 GP practice, PCT and pharmacy |
| Clydach Primary Care Centre, Clydach, South Wales** | 1,549 | 8 GP practice, local Health Board and pharmacy |
| Fort William Health Centre, Fort William** | 3,468 | 15 GPs in three practices, local Health Board and pharmacy |
| Rutland Surgery, Govan, Glasgow** | 510 | 3 GP practice |
| Heckmondwicke Primary Care Centre, Heckmondwicke** | 1,600 | 11 GPs in two practices and a pharmacy |
| The Glanrafon Medical Centre, Mold** | 986 | 6 GPs in two practices |
| Old Kilpatrick Medical Centre, Old Kilpatrick** | 571 | 3 GP practice |
| West Rhyl Primary Care Centre, Rhyl** | 1,706 | 7 GP practice, local Health Board, Local Authority and pharmacy |
| Brig Royd Surgery, Rippendon** | 1,090 | 6 GP practice and pharmacy |
| Shipley Health Centre, Shipley** | 2,394 | 8 GP practice, local PCT, dentistry and pharmacy |
| The Surgery, Sudbury ** | 1,063 | 4 GP practice |
| The Girlington Health Centre, Bradford** | 705 | 3 GP practice and pharmacy |
* previous forward commitments completed in the year
** assets acquired with Apollo Medical Properties Limited
In addition to these, PHP has secured five forward funded purchases during the year, three of which formed part of the Apollo transaction. A sixth funding commitment at Ramsgate was secured in 2011 and was delivered in January 2013. The purchase of a standing let investment at Poole, Dorset was contracted as at 31 December 2012 but completion deferred at the request of the the vendor. This completed on 1 February 2013.
Ramsgate
Rumney
| Contracted | Total commitment |
Out standing |
|
|---|---|---|---|
| in 2012 | £m | £m | Description |
| Stourbridge | 8.6 | 7.0 | 2,600 sq m medical centre (10 GP practice and pharmacy) |
| Newton Abbot | 3.0 | 2.2 | 1,373 sq m medical centre (6 GP practice) |
| SA1, Swansea* | 8.2 | 1.4 | 2,901 sq m medical centre (2 GP practices, local Health Board, University space and pharmacy) |
| Rumney, Cardiff* | 6.5 | 3.8 | 2,210 sq m medical centre (4 GP practice, local Health Board and pharmacy) |
| Cloughmore, Cardiff* | 2.9 | 1.7 | 1,042 sq m medical centre (5 GP practice) |
| 29.2 | 16.1 | ||
| Pre-existing commitments | |||
| Ramsgate | 2.4 | 0.2 | 773 sq m medical centre (2 GP practice and pharmacy) |
| Total commitment to assets under development |
31.6 | 16.3 | |
| Investment property acquired with delayed completion |
|||
| Poole | 3.6 | 3.6 | 1,312 sq m medical centre (6 GP practice, pharmacy and retail unit) |
| Total commitments as at 31 December 2012 |
35.2 | 19.9 |
* assets acquired with Apollo Medical Properties Limited
Commitments
The outlook for further additions to the PHP portfolio is very positive. As set out above, since the year end we have completed two contracted commitments and the assets under development are progressing well toward their target completion dates. Earlier this month we announced that PHP has contracted to fund two assets currently under development, a commitment of £6.3 million as set out below.
| Chard, Somerset Total |
1.8 6.3 |
Dec 2013 | 653 sq m let to a 5 GP practice |
|---|---|---|---|
| 5 GP practice and pharmacy | |||
| St John's, Worcester | 4.5 | Dec 2013 | 1,205 sq m medical centre let to a |
| Total commitment £m |
Target delivery date |
Description |
The Group has a strong pipeline of potential investment purchases and opportunities to forward fund the development of new centres. Terms for £81.7 million of transactions are agreed with vendors, subject to contract and are currently being documented by our solicitors. Negotiations for a number of other opportunities are also well progressed with vendors.
Retail bond £75m
Seven year, unsecured retail bond
issued at an annual coupon of 5.375%
year ended 31 December 2012
The Joint Managers place a strong focus on the active management of the Group's portfolio, managing existing leases and seeking out opportunities to generate additional value from capital projects where possible. In 2012, five projects were completed, being a mix of physical extensions, refurbishment work and lease extensions. These cost a total of £0.36 million and produce additional rent of £0.03 million per annum and extended leases at these locations by an average of 12.5 years, producing a capital value uplift of 52% over cost.
Two projects are currently on site and a further six projects have been agreed with the respective tenants and approved by the Board for 2013. The total cost of these will be in the region of £4.4 million and they will add an average of over 17 years to the respective leases and generate additional rental income of £0.31 million per annum.
In order to grow the portfolio as described above, the Group continues to combine the use of shareholder equity and debt facilities secured from a range of sources.
In May 2012, PHP issued 6.23 million shares, raising a net sum of £18.4 million and issued a further 1.23 million shares to the vendors of Apollo in December 2012. The take up of the Scrip Dividend Scheme resulted in an aggregate 0.3 million shares being issued through the year, resulting in a total of 76.03 million shares being in issue at 31 December 2012.
Alongside the equity issues, PHP completed the refinance of its core banking facilities, entering into a new £175 million, four year interest only "Club" facility with Royal Bank of Scotland plc and Santander Banking Group, to replace their expiring bi-lateral loans. As a result of the increased cost of funds in lending markets, following the completion of this loan, the average margin on PHPs debt facilities rose to 230 basis points from a previous 80 basis points.
In July, PHP became the first UK REIT to enter the Retail Bond market, issuing a £75 million, seven year, unsecured bond with an annual coupon of 5.375%. The flexibility offered by this unsecured source of funds has already proven advantageous to the Group allowing PHP to move quickly to secure a number of the transactions that I have detailed without the delays normally caused by banking agreements. The first bond coupon was paid on 31 January 2013.
The final elements of the refinancing of the Group's long standing bi-lateral loans were completed in December 2012 and January 2013. On 17 December, PHP drew down on a £25 million term loan facility provided by Aviva. This is a 10 year, interest only facility and the interest rate was fixed at 3.63% for the term of the loan. These proceeds were then used in the repayment of the £27 million loan from Allied Irish Banks plc ("AIB") upon its expiry on 31 January 2013. AIB also provide a number of interest rate swaps to the Group, but these were unaffected by the loan repayment and remain in place.
As part of the Apollo transaction, PHP assumed long term, fixed rate debt that Apollo held with Aviva. In agreeing the transaction pricing, an allowance of £2.6 million was agreed with the vendors in its valuation of this debt against the estimated cost of re-setting or breaking the loans. This fair valued the loans at £52.4 million at acquisition with an underlying principle amount outstanding of £49.8 million. PHP subsequently served the required three months' notice upon Aviva on 19 December 2012, to re-set or repay this debt.
Average lot size within the portfolio grew to £3.52 million (2011: £3.35 million)
| Capital Value | Number of Properties1 | Value (£'m)2 | %'age 2012 |
%'age 2011 |
|---|---|---|---|---|
| £0 - £1 million | 4 | 3.42 | 0.5% | 0.5% |
| £1 million - £3 million | 90 | 191.62 | 29.7% | 33.3% |
| £3 million - £9 million | 83 | 378.43 | 58.6% | 57.6% |
| Above £9 million | 6 | 71.90 | 11.2% | 8.6% |
| Total | 183 | 645.37 | 100% | 100% |
| Average lot size 2012 | 3.52 |
(1) Including purchase commitments
(2) Including values of land plots
60% of the Group's properties have an age of 9 years or less. The average age of the portfolio is 9 years 1 month. (completed assets only)
At the end of 5 years the Group would still be receiving 98% of its current income. By year 10 this is still 94%.
A sum of £4.2 million has been provided for in the 2012 results as the estimated cost as at the year end of breaking these loans. This is partly offset by the purchase allowance, resulting in a net impact on the 2012 Income Statement of £1.6 million. The breakage or re-set cost is calculated with reference to underlying gilt rates which have risen since 31 December 2012 which is favourable to PHP. The final cost of this transaction will not be known until 19 March, but resetting the interest rate of the Aviva debt or replacing it with a new facility, will result in a greatly reduced interest cost to the Group, a saving of circa 200 basis points based on current options and market rates.
Terms have been agreed for a new, four year, £50 million, interest only facility with a leading real estate lending bank. This is a revolving facility that will cost the Group 220 basis points over LIBOR. PHP will protect the all in cost of this loan by procuring appropriate interest rate derivatives and locking in a historically low all-in-cost of debt. This facility is being documented and is planned to be closed in the coming weeks.
As at 31 December 2012, the Group held a total of £511.0 million of bank facilities and including the bond. Debt drawn totalled £406.0 million with £6.0 million of cash held on deposits with Aviva to fund the three Apollo development assets and £19.1 million of cash held in readiness for the AIB repayment. Net debt, therefore, stood at £380.9 million, with the Group's loan to value ratio ("LTV") being 60.9% (31 December 2011 - 57.8%). Interest cover for the year was 1.57 times (2011 - 2.0 times) with a Group covenant minimum requirement of 1.3 times.
| Provider | Maturity | Facility | Drawn at | Headroom |
|---|---|---|---|---|
| maximum | 31 Dec 2012 | 31 Dec 2012 | ||
| £'m | £'m | £'m | ||
| RBS (overdraft) | March 2013 | 5.0 | - | 5.0 |
| Allied Irish Banks | Jan 2013 | 27.0 | 27.0 | - |
| Clydesdale Bank | July 2014 | 50.0 | - | 50.0 |
| Royal Bank of Scotland/ Santander | Mar 2016 | 175.0 | 125.0 | 50.0 |
| Aviva | Nov 2018 | 75.0 | 75.0 | - |
| Aviva | Dec 2022 | 25.0 | 25.0 | - |
| Aviva | Jan 2032 | 26.7 | 26.7 | - |
| Aviva | Sept 2036* | 52.3** | 52.3 | - |
| Retail Bond | July 2019 | 75.0 | 75.0 | - |
| Total facilities | 511.0 | 406.0 | 105.0 | |
| Average maturity | 6.9 years | |||
| Cash on deposit | (19.1) | 19.1 | ||
| Restricted deposits with Aviva | (6.0) | 6.0 | ||
| 380.9 | 130.1 | |||
| Commitments to be funded | (19.9) | |||
| Facility of 31 January 2013 | (27.0) | |||
| Net headroom | 83.2 |
* A repayment notice has been served to Aviva for the full quota of loans, PHP intends to repay the loans on 19 March 2013
** Figure represents fair value of debt following Apollo acquisition. Underlying loan principal is £49.8 million.
There has been no change to the nominal value of Group debt that is hedged by interest rate swaps during the year. The refinance of the Club facility was achieved without the requirement to break any swap contracts and it has been confirmed that the swaps held with AIB will continue undisturbed beyond the repayment of the associated loan. As a result, all refinancing has been achieved without crystallising any breakage costs.
Forward interest rates were particularly changeable through 2012, increasing at longer maturities (5 to 10 years) in the first quarter of the year, falling through the middle two quarters and then rising again in the quarter ending at the balance sheet date. Shorter term rates (3 year maturity) generally fell until the end of the summer and have marginally increased since then. Overall, rates across all maturities are lower at 31 December 2012 than they were at the beginning of the year. This has resulted in an increase in the Mark-to-Model valuation deficit of the interest rate swap portfolio of some £3.3 million to £52.8 million (2011: £49.5 million). There is no cash flow impact of this Mark-to-Model adjustment.
Finance and interest rate hedging (assuming callable swaps are not called) Bank borrowings economically hedged by interest rate swaps for each financial year to 31 December 2027. Shown in £million.1
Finance and interest rate hedging (assuming callable
Bank borrowings covered by effective hedges for each financial year to 31 December 2027. Shown in £million.1
swaps are called)
(1) The charts assume that the term loans held by the group will be renewed through the chart period
99.7% occupancy within the completed property portfolio 90% of rent roll
effectively funded by the Government
as at 31 December 2012
| 2012 £m |
2011 £m |
|
|---|---|---|
| Rental and related income | 33.2 | 30.7 |
| Expenses | (5.6) | (5.6) |
| 27.6 | 25.1 | |
| Net financing costs | (20.2) | (15.4) |
| Profit before revaluation result and change in fair value | ||
| of derivatives and non-recurring items | 7.4 | 9.7 |
| Profit on sale of AHMP shares | - | 0.3 |
| Provision for loan repayment cost | (1.6) | - |
| Change in fair values of derivatives | (2.9) | (8.0) |
| Revaluation result on property portfolio | (1.8) | 10.6 |
| Profit before tax | 1.1 | 12.6 |
Gross rental income received during 2012 increased by 8.1% to £33.2 million (2011: £30.7 million) as acquisitions, capital projects and rent reviews have added to the contracted rent roll. This growth in top line income will continue into 2013 as the impact of the Apollo acquisition is realised, evidenced by the 20% increase in contracted annual rent roll to £38.9 million as at 31 December 2012 (2011: £32.3 million).
We have continued to achieve growth from rent reviews, achieving average annualised growth of 2.4% on those reviews completed in 2012, a lower rate than that achieved in 2011 of 3% per annum. This has provided an increase of £374,000 on £5.9 million of rent reviewed and completed in the period. The Group's underlying rent roll is subject to effective upwards only reviews with 16% having fixed uplifts or reviewed with reference to RPI and the balance of 84% being reviewed to open market values. The majority of reviews operate on a three yearly cycle and so with an average remaining lease term of 16 years (2011: 16 years) we are confident of securing significant additional income from reviews.
The Joint Managers maintain tight control over both the non-recoverable costs associated with the portfolio and the administrative costs of the Group. Fees are paid to the Joint Managers on the basis of the gross asset value of the Group. This is levied on a sliding scale such that as gross assets increase, the incremental fee rate reduces. The average fee rate paid to the Joint Managers for 2012 fell to 0.75% (2011: 0.77%). Overall, total operating costs have fallen during 2012 and represent 0.93% of gross assets (2011: 1.07%).
Net interest costs rose overall in 2012 by £4.8 million, due to both the increased levels of debt drawn to facilitate the growth in the portfolio and the impact of the increased margins on core funding. A slight delay in investing the proceeds of the bond issue contributed to the increased interest costs with no associated increase in revenue.
Portfolio operating surpluses increased by 10.0% to £27.6 million (2011: £25.1 million) with profit from trading activities, i.e. after finance costs, but before revaluation result and change in fair value of derivatives, falling to £7.4 million (2011: £9.7 million). The fall is due to the increased margins payable on the core bank debt refinanced in the period.
A large, modern, purpose built, 3-storey health centre, located in Port Talbot, purchased by PHP in September 2009. The building provides multiple services in one location and caters for in excess of 50,000 patients.
4 GP Practices, Local Health Board, Local Authority, Community and Private Dentists, Pharmacy
| Constructed | September 2009 |
|---|---|
| Size | 5,500 sq m |
| Patient numbers | 50,000 |
| Passing rent | £973,000 |
A substantial modern, purpose built health facility located in Rotherham town centre and providing GP services, a walk in centre and a range of NHS services. This urban health centre extends to 4,635 sq m with 118 car parking spaces. The property was acquired by PHP in November 2012 and is fully let to the Rotherham Primary Care Trust.
A purpose built, 4-storey primary care centre, located in Kettering, acquired by PHP in March 2007. The building provides a range of primary care services and caters for over 15,000 patients.
| Principal occupiers | PCT |
|---|---|
| Constructed | November 2008 |
| Size | 4,635 sq m |
| Patient numbers | 13,500 (GP practice only) |
| Passing rent | £776,000 |
| 2 GP Practices, dentistry, PCT and Pharmacy | |
|---|---|
| Constructed | March 2007 |
| Size | 3,700 sq m |
| Patient numbers | 15,400 |
| Passing rent | £640,000 |
A purpose built modern 3,470 sq m medical centre serving a suburban and rural population of approximately 14,000 in the Scottish Highlands. The property is let to three GP practices, the Highland NHS Trust and Lloyds Pharmacy and was completed in May 2007. Acquired by PHP in December 2012.
| 3 GP Practices, NHS Trust and Pharmacy | |
|---|---|
| Constructed | May 2007 |
| Size | 3,470 sq m |
| Patient numbers | 14,000 |
| Passing rent | £683,000 |
an increase of £11.0m (6.5%)
over 2011
as at 31 December 2012
The acquisitions completed later in 2012 and into 2013 which include £81.7 million currently in solicitor's hands, will be financed at the Groups' incremental cost of debt at rates of 180 to 250 basis points over LIBOR. This will result in a healthy gap to average acquisition yields of 5.5% to 6.25%, to boost the bottom line and take the Group back toward its aim of full dividend cover.
2012 was the 16th consecutive year of dividend growth for PHP shareholders with a total of 18.5 pence per share being paid in the year (2011 – 18.0 pence). No portion of this dividend represents a Property Income Distribution ("PID"). As a result of the reduced trading surplus resulting from the increased debt costs in the year, dividend cover stood at 63% (2011 - 89%), excluding the revaluation result, the movement in the fair value of derivatives, the provision for loan breakage costs and the value of dividends met by the issue of scrip shares.
The total return to shareholders in 2012, measured as a combination of the dividend paid and movement in share price across the year, was 15.4% as compared to the total return of the FTSE All Share Index of 12.3%. As shown below, PHP has consistently outperformed real estate and general equities over the longer term.
| One year % |
Three years % |
Five years % |
|
|---|---|---|---|
| Primary Health Properties | 15.4 | 14.1 | 14.3 |
| FTSE All-Share Real Estate Index | 30.6 | 9.1 | (6.4) |
| FTSE All-Share Index | 12.3 | 8.1 | 4.4 |
Source: Investment Property Databank ("IPD")
PHP specialises in the ownership of freehold or long leasehold interests in modern purposebuilt healthcare facilities, the majority of which are leased to GP's and other associated healthcare providers. Environmental matters are considered as part of the assessment of the suitability of purchasing new medical centres to expand the portfolio, whether through forward purchase development agreements or open market purchases. PHP undertakes an assessment of environmental risk as an important element of its due diligence process, obtaining an environmental desktop study and energy efficiency certificates. PHP has engaged an Environmental Consultant, Collier & Madge, to help in this process. PHP's ability to influence the energy efficiency of buildings is limited where completed properties are acquired and let on FRI terms. Where possible and as a norm for newly built premises, environmental issues are included in the leases entered into by the medical practitioners. More generally, new buildings acquired are usually specified to meet the NHS's exacting standards with regard to environmental considerations.
PHP is committed to the principles of continuous improvement in managing environmental issues, including the proper management and monitoring of waste, the reduction of pollution and emissions, and compliance with environmental legislation and codes of practice.
A modern, purpose built primary care centre fully let to two GP practices and a Rowland's Pharmacy. The centre is located in Heckmondwicke town centre in West Yorkshire. The building was completed in July 2010 and purchased by PHP in December 2012. The building extends to 1,600 sq m with each GP practice operating from an independent floor, with the second floor comprising shared staff and administration space.
| size | 1,600 sq m |
|---|---|
| built | July 2010 |
| cost | £5.13 million |
| patient numbers |
10,000 |
| tenants | 2 GP practices and Pharmacy |
Other than shareholders, PHP's performance and value are influenced by other stakeholders, principally its lessees (the GPs, NHS organisations and healthcare users), the property developers, the District Valuers, lenders and bondholders and the Joint Managers. PHP's approach to these relationships is based on the principle of mutual understanding of aims and objectives and the highest standards of ethics and business practice.
PHP provides purpose built healthcare properties for use by GPs, NHS organisations, pharmacies and healthcare users, thus indirectly benefiting the communities in which they are based.
The 2012 financial year was one of significant activity for the Group establishing a secure funding base and completing a collection of high quality acquisitions that have invested a large proportion of the additional funds that were raised. PHP continues to grow its assets under management, completing £6.3 million of transactions since the year end and working to close a further £81.7 million of acquisitions agreed with vendors.
The Board grew the Company's distribution to shareholders, but the impact of the increased cost of debt from refinancing in 2012 reduced dividend cover for the year. The acquisitions detailed in my report both in 2012 and 2013 to date have been funded at the Group's incremental cost of debt that leaves a healthy surplus from the rental yield on these assets, that will increase PHPs operating surplus and return the Group as quickly as possible back to full dividend cover.
The demand for good quality, purpose built primary care assets will remain as the new NHS management and delivery structures are established as the Act is implemented and the need for private capital provided by PHP shareholders to facilitate the development of these facilities will not abate.
The Board views the return to dividend cover as its main priority and will achieve this with acquisitions transacted in line with the Group's prudent acquisition policies, with all assets making an immediate contribution to profitability but also demonstrating the potential for future growth.
In common with most businesses, the Group is affected by a number of risks and uncertainties, not all of which are wholly within its control. Note 21 on page 54 provides further detail and quantitative information on the financial risks faced by the Group. The Board has reviewed and agreed policies for managing each of the risks and uncertainties which are summarised below, but regards the first four items as its principal risks at the present time:
| Risk | Limited debt market capacity restricts ability to continue to fund operations | |||
|---|---|---|---|---|
| Impact | Without confirmed debt facilities, PHP may be unable to meet current and future commitments or repay or refinance debt facilities as they become due. |
|||
| Mitigation | • PHP funds its operations through a mixture of income from its operations, equity and debt finance. PHP constantly monitors its cash flow and debt funding requirements in order to ensure that it can meet its liabilities. PHP keeps its debt facilities under review to ensure a spread of providers and maturities so that its refinance risk can be minimised. • PHP secured £250 million of debt facilities in 2012, with a spread of maturities and from a variety of lenders to refinance its short term loan facilities and provide further resource for forthcoming commitments and acquisitions. |
|||
| Risk | Banking facilities include various covenant requirements | |||
| Impact | Should the Group be unable to meet these covenants it could result in possible default or penalties being levied. | |||
| Mitigation | • PHP monitors its covenant compliance on a continuing basis to ensure compliance or early warning of any issues that may arise. The Group maintains its borrowings at levels well below its maximum covenant requirements and retains the flexibility of substituting security or refinancing loans should it need to. |
|||
| Risk | Exposure to interest rate movements | |||
| Impact | Movement in underlying interest rates could adversely affect the Group's profits and cash flows. | |||
| Mitigation | • The Group retains a proportion of its debt on a long term, fixed rate basis. It also looks to mitigate its exposure to interest rate movements through the use of a series of interest rate swaps and other derivative instruments. |
|||
| Risk | Lack of capital resources to support the Group's activities | |||
| Impact | Without sufficient capital, PHP may become unable to progress investment opportunities as they arise or to counteract the impact of falling property values on the Group's balance sheet and finance commitments. |
|||
| Mitigation | • Liquidity and gearing are kept under constant review by the Joint Managers and the Board. Forward funding commitments are only entered into if supported by committed, available funds. • Historically, the Company has been able to access the equity markets to raise additional capital when required. The Company undertook a share placing during 2012, raising an amount of £18.4 million net of costs. • PHP became the first REIT to enter the Retail Bond market in July 2012, when it issued a £75 million, seven year, unsecured bond, with an annual coupon of 5.375%. |
size: 2,395 sq m built: November 2007 cost: £7.07 million
numbers: 8,100
tenants GP practice, local PCT,
dentistry and pharmacy
patient
The medical centre was acquired in December 2012 by PHP. It extends to 2,395 sq m with 35 car parking spaces and was completed in 2007. The property is situated in a prominent location, providing services to local patients as well as the wider North Bradford community. The medical centre provides integrated health services and has an 8 GP practice, a Rowland's Pharmacy as well as clinical and operational accommodation for the Bradford & Airedale Teaching PCT and a dentistry suite.
| Risk | Lack of available properties or the inability to invest on acceptable terms | ||
|---|---|---|---|
| Impact | The Group may be unable to secure additional investment properties so as to enable PHP to continue to grow. | ||
| Mitigation | • The Group maintains close relationships with a number of developers of, and other investors in, primary health care properties so as to afford the best possible opportunity to secure future acquisitions. • The Group is not exclusively reliant on acquisitions to grow as it secures leases with effectively upwards only rent review mechanisms and is able to generate income and value from the management and development of its existing portfolio. |
||
| Risk | Property valuations may fall | ||
| Impact | Property valuations may fall to such a level that leads PHP to breach its borrowing covenants. | ||
| Mitigation | • Whilst the specialist nature of the Group's assets can itself be a risk (see below) the inherent characteristics have historically demonstrated low volatility in terms of valuation movements. • The Group manages its activities so as to always operate well within its banking covenant limits and constantly monitors the margins (i.e. fall to breach) that would have to be experienced in order to cause any default. • The portfolio is effectively 100% let, on long lease terms with approximately 90% of rent being funded by the NHS. Rental growth is achieved on review, all of which helps in maintaining asset values. |
||
| Risk | PHP invests in a niche asset sector affected by Government decisions | ||
| Impact | A change of Government policy or a downturn in demand for primary care premises may adversely affect the Group's portfolio and performance. |
||
| Mitigation | • The Group constantly monitors Government policy with regard to Primary Care so as to be able to anticipate any changes. The use of GPs within the NHS and the long term, established use of third party owned premises has not changed for some time and is not an area changed by the Health & Social Care Act. The Group has received written confirmation of the continued funding of its tenants by the NHS. • The long term nature of the Group's occupational leases provides security of income and protection should a policy change need to be catered for. |
| Risk | Failure to comply with REIT legislation |
|---|---|
| Impact | A breach of REIT requirements may lead to the Group losing its REIT status and the taxation benefits that affords. |
| Mitigation | • Management monitor the activities and performance of the Group to ensure that all requirements of the REIT legislation are met at all times. New transactions are structured when undertaken so as to continue to meet these statutory requirements. |
| Risk | A change in Government legislation |
| Impact | Should the UK-REIT regime cease to apply the Group may become chargeable to taxation with a significant impact on performance and strategy. |
| Mitigation | • The Group monitors communication from HMRC with regard to the ongoing maintenance of the REIT regime. The Group participates in a number of industry bodies and groups that engage in continuous dialogue with HMRC over proposed changes to legislation and their impact on PHP. • The changes to the REIT regime introduced in 2012 are designed to encourage further REITs and confirm the continuance of the regime for the foreseeable future. |
| Operational risks | |
| Risk | Continuance of Joint Manager contract |
| Impact | PHP has no employees and depends on services supplied by third parties for the efficient operation and management of the Group. The termination of the Joint Manager contract could adversely affect the Group's ability to effectively manage its operations. |
| Mitigation | • The management agreement with the Joint Managers includes incentivisation linked to the performance of the Group and protection for efficient handover should the managers change. • The Management Engagement Committee regularly reviews the performance of the Joint Managers. |
| Risk | Breach of Health and Safety and Environmental requirements |
| Impact | A breach of such requirements could have reputational, criminal or financial implications on the Group which could be significant. |
| Mitigation | • The Board views the assessment of Health and Safety and environmental risk as an important element of its due diligence process when acquiring properties and employs specialist advisers to undertake risk assessments. • Properties are modern and specifically designed for purpose including best practice with regards to environmental requirements thereby mitigating risks. • Owned properties are inspected regularly in rotation and well maintained. |
| Objective: | Metric | Sustained real growth in EPS |
|---|---|---|
| To deliver sustainable long-term | Sustained dividend growth | |
| shareholder value and returns | Growth in NAV | |
| Performance | Adjusted EPS fell from 14.5p to 10.2p | |
| 16th successive year of dividend growth, 3% to 18.5p per share | ||
| Net assets grew from £168.1 million to £179.1 million | ||
| Objective: | Metric | Out-performance versus IPD benchmark |
| To maximise the returns from the | Continued rental growth | |
| investment portfolio | Performance | One, three and five year portfolio performance better than the IPD benchmark |
| Rental growth of 2.4% p.a. on reviews completed in the year | ||
| Metric | Maintain longevity of debt facilities | |
| Objective: To manage our balance sheet effectively |
Maintain appropriate balance between debt and equity within covenanted levels |
|
| Performance | £250 million of debt facilities secured in 2012, including the retail bond | |
| LTV at 60.9%, well within current and future covenant limits | ||
| Equity issue in the year raised net proceeds of £18.4 million | ||
| Objective: | Metric | Acquisitions achieved |
| To grow property assets | Positive movement in asset values | |
| under management | Future commitments made | |
| Performance | 23 additional assets acquired or committed to in the year | |
| Portfolio revaluation uplift of £0.5 million for the year (excluding newly acquired Apollo assets) |
||
| Balance of commitments outstanding as at the year end of £19.9 million | ||
| Objectives: | Metric | Continue to grow annualised rent roll |
| To maximise portfolio rent roll and | Maintain core NHS tenant covenant | |
| maintain security of income | Maintain weighted average remaining lease term | |
| Performance | Contracted committed rent roll grew from £32.3 million to £38.9 million | |
| 90% of income effectively funded by the NHS | ||
| Weighted average lease length (including commitments) of 16 years (2011: 16 years) |
A five year summary of the Group's Financial Performance is provided on page 22.
Managing Director
27 February 2013
| 20081 2 | 2009 | IFRS 2010 |
2011 | 2012 | |
|---|---|---|---|---|---|
| Net assets (£m) | 78.3 | 151.9 | 164.7 | 168.1 | 179.1 |
| Net asset value per share (p) | |||||
| • basic and diluted | 226.7 | 247.2 | 262.3 | 246.2 | 235.5 |
| EPRA net asset value per share (p) | |||||
| • basic and diluted | 272.9 | 279.9 | 311.5 | 318.7 | 305.0 |
| Closing portfolio including development | |||||
| loans and finance leases (£m)3 | 320.2 | 344.9 | 472.4 | 528.7 | 625.5 |
| Annualised rent roll (£m) | 19.6 | 21.3 | 28.0 | 31.4 | 36.8 |
| Profit/(loss) before taxation (£m) | (23.7) | 10.8 | 25.7 | 12.7 | 1.1 |
| Earnings per share (p) | |||||
| • basic | (62.0) | 26.6 | 41.3 | 19.0 | 1.6 |
| • adjusted | 14.0 | 18.4 | 14.7 | 14.5 | 10.2 |
| Total dividend per share (p) | 16.5 | 17.0 | 17.5 | 18.0 | 18.5 |
| Market price per share at 31 December (p) | 290.5 | 289.0 | 335.0 | 318.5 | 340.0 |
| Total return (%) | |||||
| • PHP Ordinary Share | (9.6) | 11.0 | 22.8 | 0.5 | 15.4 |
| • FTSE All Share | 29.9 | 30.1 | 14.5 | 3.5 | 12.3 |
| • FTSE All Share Real Estate Investment Trust | 43.9 | 12.9 | 6.9 | 8.8 | 30.6 |
(1)Restated - see 2009 Annual Report for details.
(2)The net asset value per share and EPS as at 31 December 2008 have been adjusted to illustrate the capital raisings which occurred in 2009, as if these events had been completed on 31 December 2008.
(3)Completed assets only.
Nexus identifies suitable properties, negotiates the terms of purchase of those properties and provides property management services on behalf of the Group. It also provides the services of the Managing Director. Nexus is a member of a wider group of companies that is engaged in the provision of independent advice and financial services to organisations operating in the public and private sectors, with particular emphasis on health, education and property.
JOHCM provides administrative and accounting services to the Group and is Company Secretary.
JOHCM has offices in London, Prague and Singapore and provides investment management services to open ended investment companies, segregated mandates and other public funds. JOHCM is authorised and regulated by the Financial Services Authority in the conduct of its investment business. Mr James Hambro is chairman of J O Hambro Capital Management Holdings Limited, the holding company for JOHCM.
Brig Royd Surgery is located in West Yorkshire with views over the Ryburn Valley. The building was completed in September 2009 and is opposite the former surgery premises which the practice had occupied for 30 years. It extends to 1,090 sq m and is fully let to a 6 partner GP practice with integrated pharmacy.
| 1,090 sq m |
|---|
| September 2009 |
| £3.24 million |
| 9,700 |
| GP practice and pharmacy |
Our diverse and experienced Board is an essential component of the success of Primary Health Properties PLC
Graeme Elliot, Chairman
Non-Executive Chairman. Appointed February 1996. Mr Elliot was formerly executive vice chairman of Slough Estates PLC, prior to which he held senior positions at Rio Tinto Plc.
Non-Executive Director. Appointed February 1996. Mr Hambro is Chairman of James Hambro & Partners LLP and Chairman of J O Hambro Capital Management Holdings Limited, parent company of J O Hambro Capital Management Limited, the Joint Manager and Company Secretary of Primary Health Properties PLC. He is also Non-Executive Chairman of Hansteen Holdings PLC.
Non-Executive Director and Senior Independent Director. Appointed 1 May 2007. Chairman of the Audit Committee and a member of the Remuneration, Management Engagement and Nomination Committees. A Chartered Accountant, Mr Jones retired from PricewaterhouseCoopers LLP in 2006, having been a previous member of PwC's UK and Global Supervisory Boards. He was a member of the Financial Reporting Review Panel from 2006 to 2011.
Managing Director. Appointed February 1996. A Chartered Accountant and Managing Director of the Nexus Group. Nexus has three operating divisions, property fund management, publishing and corporate finance. The group specialises in health, education and property. He is also a Non-Executive Director of a number of other companies and a director of the
Quoted Companies Alliance. PHP has been a member of the Quoted Companies Alliance since 2002.
Non-Executive Director. Appointed 18 June 2012. Mr Hemmings is Head of Closed End Funds at Aberdeen Asset Managers Limited, a director of a number of subsidiary companies of Aberdeen Asset Management PLC and an alternate director of the Irish listed Select International Funds PLC. On 24 January 2013, Mr Hemmings was appointed as a director of the Association of Investment Companies.
Non-Executive Director. Appointed 1 November 2008. Chairman of the Management Engagement Committee and a member of the Audit, Remuneration and Nomination Committees. Mr Creedy is currently Director of Fund Management at UNITE Group plc overseeing the fund management of the UNITE UK Student Accommodation Fund and UNITE's other joint ventures.
He was managing director of the property fund management subsidiary of Legal and General Investment Management from September 2002 until the end of 2007 and was previously managing director of Chartwell Land plc, a wholly owned subsidiary of Kingfisher plc from 1994 onwards. He was also a non-executive director of B&Q from 1998 until 2002. Mr Creedy has extensive experience in the UK property industry and was responsible for the creation and management of a number of sector specialist funds during his time at Legal & General.
Non Executive Director. Appointed 22 September 2005. Chairman of the Remuneration and Nomination Committees and a member of the Audit and Management Engagement Committees. He has worked as a GP since 1980 in Shipley, Yorkshire. He is a former CEO of North Bradford and Airedale PCTs. He has worked at the Department of Health as Clinical Lead in the Policy and Strategy Unit and as a Deputy National Director of Primary Care. He is a member of the International Faculty at IHI in Boston USA.
(1)Member of the Audit Committee (2)Independent
9.5pinterim dividend declared to be paid on 22 April 2013
year ended 31 December 2012
The Directors present their Annual Report to Shareholders for the year ended 31 December 2012. Certain information that is required to be disclosed in this report has been provided in other sections of this Annual Report and accordingly, these are incorporated into this report by reference.
The profit after tax for the year ended 31 December 2012 amounted to £1.1 million (year ended 31 December 2011: £12.7 million).
Interim dividends totalling 18.5p per Ordinary share were paid during the year (year ended 31 December 2011: 18.0p).
The Board proposes to pay an interim dividend of 9.5p per Ordinary shares on 22 April 2013. Further information on dividends can be found in the Shareholder Information section on page 66.
The principal activity of the Group (of which Primary Health Properties PLC is the parent company) continues to be the generation of rental income and capital growth through investment in primary health care property throughout the United Kingdom. As at the year end, the Group had invested in 183 properties (176 completed and 7 that it had committed to acquire) with a gross asset value of £645.4 million, generating an annualised rent roll of £38.9 million.
The Group became a Real Estate Investment Trust ('UK REIT') on 1 January 2007. It is the opinion of the Directors that the Group has conducted its affairs so as to be able to continue as a UK REIT.
A review of the business, the Group's activities during the year, a description of the principal risks and uncertainties facing the Group and the Key Performance Indicators can be found in the Managing Director's Review, which starts on page 4.
Biographical information for the current Directors can be found on pages 24 and 25.
The Company's Articles of Association require that Directors should submit themselves for election at the first Annual General Meeting following their appointment and thereafter for re-election at least every three years. However, the Company has adopted the requirements of the UK Corporate Governance Code in relation to the annual re-election of Directors. As detailed in the notice of the Annual General Meeting ("AGM") all Directors, except Martin Gilbert who resigned on 14 June 2012, will again this year stand for re-election. Mr Hemmings was appointed by the Board with effect from 18 June 2012 and will therefore stand for election at the AGM.
The Chairman has confirmed that, following formal performance evaluation, he is satisfied that the performance of all of the Directors remains effective and that each has demonstrated commitment to their roles and he therefore recommends their re-election at the forthcoming Annual General Meeting. Information on the performance evaluation of the Board and its Directors can be found in the Corporate Governance section on page 33. Details of Directors' remuneration are in the Directors' Remuneration Report on pages 35 to 36. The Senior Independent Director has evaluated the performance of the Chairman and has confirmed that he is satisfied that his performance remains effective and that he has demonstrated commitment to his role and he therefore recommends his re-election at the forthcoming Annual General Meeting.
The interests of the Directors in the share capital of the Company (all of which are direct and beneficial unless otherwise stated) and any interests of a person connected with a Director (indicated as indirect) within the meaning of the Disclosure and Transparency Rules, are shown below:
| 31 Dec 2012 |
31 Dec 2011 |
|
|---|---|---|
| Ordinary shares of 50p | ||
| G A Elliot | 15,000 | 13,365 |
| W J C Hemmings | 4,241 | 3,833 |
| J D Hambro | 44,416 | 44,416 |
| J D Hambro (non-beneficial) | 501,464 | 501,464 |
| H A Hyman | 66,084 | 63,378 |
| H A Hyman (non-beneficial) | 4,011,086 | 3,648,562 |
| I P Rutter | 8,699 | 7,282 |
| A R Jones | 19,177 | 16,027 |
| M Creedy | 12,000 | 10,000 |
| M Creedy (non-beneficial) | 635 | 635 |
Save as disclosed below, no changes occurred between 31 December 2012 and the date of this Report.
Mr Hyman and Mr Hemmings are participants in the Company's monthly investment account that is administered by Equiniti on the Company's behalf. As a consequence of this participation, at the date of this Report Mr Hemmings' beneficial interest had increased to 4,295 shares and Mr Hyman's to 66,194 shares.
The Directors have been authorised to allot and issue Ordinary shares and to make market purchases of the Company's Ordinary shares. These powers are pursuant to the passing of resolutions at the Company's Annual General Meeting. Details of the resolutions regarding the allotment, issue and purchase of the Company's shares are set out in the explanatory notes to the Notice of Annual General Meeting which can be found in the separate document posted to shareholders with this Annual Report.
As at 31 December 2012, the Company had been notified, in accordance with the Companies Act, of the following holdings of 3% or more of the voting rights in the Company's issued share capital:
| Voting rights | % | |
|---|---|---|
| Nexus Group Holdings Limited (direct) | 3,989,680 | 5.25 |
| Blackrock Inc. (indirect) | 3,035,591 | 3.99 |
3,989,680 of the Ordinary Shares held by Nexus Group Holdings Limited ("Nexus Group") are subject to a debenture and fixed charge over all of Nexus Group assets. As at the date of this report, Nexus Group has confirmed that it is not in default of any of its banking commitments and that it has no current intention to sell any of its holding. Mr Hyman is a director of Nexus Group.
The Company has one class of share in issue, being Ordinary Shares of 50 pence each. At the date of this report, the Company had 76,034,208 Ordinary Shares of 50 pence each in issue, each carrying the right to one vote.
The following changes to the issued share capital have occurred during the year:
• 107,332 new Ordinary shares of 50 pence were issued on 5 April 2012, in respect of the Company's Scrip Dividend Scheme;
There are no specific restrictions on the transfer of securities in the Company, which is governed by its Articles of Association and prevailing legislation, nor is the Company aware of any arrangements between shareholders that may result in restrictions on the transfer of Ordinary shares and on voting rights.
Subject to the Companies Act 2006, rights attached to any class of shares may be varied with the consent of holders of at least three quarters in nominal value of the issued shares of that class by way of a special resolution passed in General Meeting.
On 23 July 2012, the Company issued a £75 million, seven year, unsecured retail bond with an annual coupon of 5.375% payable semi-annually.
The Company's Articles of Association (adopted by special resolution on 6 October 2009) may only be amended by special resolution at a General Meeting of the shareholders.
The Company is required to disclose details of any agreements that it considers to be essential to the business. The Board do not consider the banking facility agreements with the Group's lenders to fall into this category as if any one of these arrangements ended, the Group would seek alternative funding and the loss or disruption caused should only be temporary.
The Management Agreement with the Joint Managers (further details of which can be found in the Related Party Transactions section below) is considered essential to the business as the Group has no employees. The agreement is reviewed at least annually by the Management Engagement Committee.
The share and purchase agreement ("SPA") in respect of the acquisition of Apollo Medical Partners Limited contained a number of sub-agreements. The Board considers the following agreements to be material to the Group:
During the financial year and as at the date of this report, none of the Directors other than those referred to below was materially interested in any significant agreements relating to the Group's business nor in any proposed transactions.
Mr Hyman is a director of Nexus Tradeco Limited ("Nexus") and Nexus Group. Mr Hambro is a director of J O Hambro Capital Management Holdings Limited, the parent company of JOHCM. Nexus and JOHCM are Joint Managers to the Group and Messrs Hyman and Hambro are therefore deemed to have an interest in the Management Agreement referred to above and are thus related parties.
Pursuant to the Management Agreement dated 14 March 1996 (as amended from time to time and last amended and restated on 28 February 2011) ("the Agreement") between the Company and the Joint Managers (Nexus and JOHCM), the Company appointed:
Each Joint Manager has the continuing right to appoint and remove one person as a Director of the Company and to receive the Director's fee (currently £25,000 per annum).
The base fee payable to the Joint Managers is calculated as a percentage of the gross asset value of the Group as follows:
| Gross Assets | Total Fee |
|---|---|
| First £50 million | 1.00% |
| Between £50 million and £500 million | 0.75% |
| Between £500 million and £750 million | 0.525% |
| Between £750 million and £1 billion | 0.4375% |
The Agreement contains a provision giving the Company the ability to pay Nexus and JOHCM a payment in lieu of notice in the event that the Company terminates the agreement. Such payment will be calculated by reference to the unexpired notice period and the gross asset value at the time of the termination and cannot be greater than the fees that they are contractually entitled to receive. The Agreement is terminable by not less than two years' written notice.
Additional payments that may be made to Nexus for non standard real estate related services are capped at 10% of the total annual fees payable to Nexus.
The Agreement contains no provisions to amend, alter or terminate the Agreement upon a change of control of the Group following a takeover bid.
Nexus and JOHCM are entitled to a PIF equal to 15% of any performance in excess of an 8% per annum increase in the Group's "Total Return" (as derived from the audited accounts for the immediately preceding financial period prior to the date of payment) provided that if the Total Return is less than 8% in any one year, the deficit must be made up in subsequent years before any subsequent PIF is paid. No performance fee was payable in 2012 or 2011 and there is a deficit of some £66.7 million (2011: £57.5 million) to be made up in the net asset value before any further PIF becomes payable under the terms of the Agreement.
Using the relevant audited accounts, the Total Return for the purpose of PIF is determined by calculating the change in the net asset value per ordinary share, on a fully diluted basis, after any adjustment for any increase or reduction in the issued share capital and adding back gross dividends paid per ordinary share.
The Group has no employees, no employee share scheme and there are no agreements between the Company and its Directors providing for compensation for loss of office or employment (whether through resignation, proposed redundancy or otherwise) that may occur because of a takeover bid.
For all trade creditors, the Group's policy is to agree the terms of payment at the start of business with the service provider, ensure that parties are aware of the terms of payment and pay in accordance with contractual and legal obligations. Payment in respect of 10 days' average purchases from trade creditors of the Group was outstanding at the year end.
The Group does not make any political or charitable donations.
The Shareholder Information section on pages 66 to 67 provides details of the share services available.
The Group's financial risk management objectives and policies are discussed in notes 20 and 21.
Details of events occurring since the year end are given in note 32 on page 58.
The Group's business activities together with the factors likely to affect its future development, performance and position are set out in the Managing Director's Review on pages 4 to 21. The financial result of the Group, its position, its cash flows, liquidity position and borrowing facilities are described on pages 38 to 40 and note 18 on page 52. In addition, notes 19, 20 and 21 to the financial statements include the Group's financial risk objectives, capital position, details of financial instruments and hedging activities and its exposure to credit risk and liquidity risk.
The Group's property portfolio is 99.7% let to tenants with strong covenants and the property acquisition pipeline is currently strong. During 2012, the Group refinanced its core debt facilities with a £175 million four year loan facility. The Group also entered the Retail Bond market, issuing a £75 million, unsecured, seven year bond. This has extended the weighted average maturity of the Group's debt facilities to nearly seven years. The Group has £130 million of headroom as at 31 December 2012, including cash on deposit, although headroom has reduced post year end following full repayment of the AIB £27 million facility. The Group's current loan to value ratio 60.9% with all banking covenants being met.
The Directors believe that the Group is well placed to manage its business risks successfully, despite the continuing uncertain economic outlook. Having reviewed the Group's current position and cash flow projections, actual and prospective loan facilities and covenant cover, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the Directors continue to adopt the going concern basis of accounting in preparing the financial statements.
The Directors who were members of the Board at the time of approving the Directors' report are listed on page 68. Having made enquiries of fellow Directors and of the Company's Auditors, each of the Directors confirms that:
The Annual General Meeting will be held on 15 April 2013 at 10.30am. The Notice convening the Annual General Meeting and explanatory notes for the resolutions sought are set out in the separate document enclosed.
The Directors consider that all of the resolutions proposed are in the best interests of the Company and it is their recommendation that shareholders support these proposals as they intend to do so in respect of their own shareholdings.
A resolution to reappoint Ernst & Young LLP as the Group's auditor and to authorise the Board to determine their remuneration will be put to Shareholders at the forthcoming Anual General Meeting.
In recognition of best governance practice, the Company proposes to conduct a tender process for the audit during 2013. Ernst & Young LLP, who have been Group auditors without retendering since the Company's initial flotation in 1996, will be invited to tender, together with other audit firms. Shareholders will be invited to comment on this proposal at the forthcoming Annual General Meeting.
By order of the Board
J O Hambro Capital Management Limited, Company Secretary 27 February 2013
Primary Health Properties PLC Registered office: Ground Floor, Ryder Court, 14 Ryder Street, London SW1Y 6QB
Registered in England No: 3033634
The Directors are responsible for preparing the Annual Report, the Directors' Remuneration report and the Group and Company financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period.
In preparing the Group financial statements, the Directors are required to:
The Directors are responsible for keeping adequate accounting records that are sufficient to disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulations. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the current Directors confirms that, to the best of their knowledge:
For and on behalf of the Board
Graeme Elliot Chairman
27 February 2013
The Group's policy is to achieve best practice in its standards of business integrity in all of its activities. This includes a commitment to follow the highest standards of corporate governance throughout the Group where possible. This section of the Annual Report describes how the Group has complied with the applicable provisions of the UK Corporate Governance Code published by the Financial Reporting Council ("FRC") in June 2010 (the "Code"). The Board considers that it has complied with the provisions of the Code throughout the year with the exception that there is no internal audit function, non-executive directors are not appointed for a specific term and certain Directors have served on the Board for more than three terms of three years. However, all Directors have been subject to rigorous review, performance evaluation and annual election. Their biographies show that they have a wide range of experience directly relevant to the Group's activities.
The Board is aware of the revised UK Corporate Governance Code issued in September 2012, which will apply for the financial year ending 31 December 2013. The new recommendations from the revised Code will be carefully considered by the Board and will be reported on in future years.
The Board comprises the Chairman, Managing Director and five non-executive Directors, three of whom are considered by the Board to be independent under the Code. Details of the Chairman, the Directors and their individual roles are shown on pages 24 and 25. Their biographical details demonstrate a range of corporate, financial, property, investment and NHS experience relevant to the Group's business and demonstrate sufficient calibre to bring independent judgement on issues of strategy and performance of the Group.
The roles of the Chairman and the Managing Director are distinct and have been agreed by the Board. The Chairman chairs the Board and general meetings of the Company, sets the agenda of such meetings and promotes the highest standards of integrity, probity and corporate governance throughout the Group, particularly at Board level. He ensures that the Board receives accurate, timely and clear information, communicates effectively with Shareholders, facilitates the effective contribution of non-executive Directors and constructive relations between executive and non-executive Directors. He also ensures that any new Directors participate in a full, formal and tailored induction programme and that the performance of the Board, its committees and individual Directors is evaluated at least once a year. There is a clear structure for, and the effective running of, Board committees. The Managing Director is accountable for the management of the Group with the Joint Managers as set out in the Management Agreement.
Mr Jones has been appointed as Senior Independent Director by the Company. He is available to Shareholders if they have any concerns that cannot be resolved through the normal channels. His role is to support the Chairman and act as his sounding board when required and if necessary, to act as an intermediary for the other Directors.
As part of its annual self assessment, the Board critically evaluates the independence of individual Directors and has concluded that all of the Directors continue to act independently in both character and judgement, taking account of the interest of all Shareholders. Alun Jones, Ian Rutter and Mark Creedy meet the independence criteria set out in the Code, whilst Graeme Elliot and James Hambro have been on the Board longer than nine years and, as such, do not meet these criteria. Having acted as an alternate Director since March 2000, the Board is of the opinion that William Hemmings also does not meet the independence criteria.
The Board is responsible for leading and steering the Group within a framework of prudent and effective controls which enable risk to be assessed and managed. It also sets the Group's strategic aims, ensuring that the necessary resources are available for the Group to meet its objectives, reviews the performance of management through its Management Engagement Committee and sets the Group's values and standards, ensuring that its obligations to its Shareholders and other stakeholders are satisfied.
The Board has a schedule of matters formally reserved to it for its decision such as strategic, major financial and key operational issues. Matters not requiring debate or necessary for the implementation of urgent decisions, on matters previously discussed at Board Meetings, are delegated to a Standing Committee.
The Board has delegated certain activities to the Joint Managers as described in the Management Agreement section of the Directors' Report on page 28.
The Management Agreement also provides for the appointment of JOHCM as Company Secretary, meaning that it is responsible for ensuring that Board procedures are followed, that applicable rules and regulations are complied with and for advising the Board (through the Chairman) on governance matters. The appointment and removal of the Company Secretary is a matter for the Board as a whole.
The training needs of each Director are regularly reviewed by the Chairman. Directors are able to receive training or additional information on any specific subject pertinent to their role as a
Director that they request or require. During the year, the Board has reviewed and discussed the Financial Reporting Council Revisions to the UK Corporate Governance Code and associated Guidance on Audit Committees. All Directors have access to independent professional advice at the Company's expense, if deemed necessary and subject to clearance by the Chairman.
The Group maintains appropriate insurance cover in respect of legal action against the Company's Directors.
In addition to the Board meetings held during the year, the Board met for an off site strategy meeting and for the AGM. There were also 11 Committee meetings held during the year. Directors were sometimes unable to attend meetings due to unavoidable business interests and, in the case of Mr Hambro, jury service. On these occasions full Board packs were distributed to all Board members and separate discussions were held with, or comments were sought by, the Chairman on all matters of relevance.
There are opportunities throughout the year for the Chairman and Independent Directors to discuss matters without the other Directors being present.
| Director | Board Meetings (Total in year 8) |
Audit Committee (Total in year 2) |
|---|---|---|
| Graeme Elliot | 8 | 2 |
| Mark Creedy | 7 | 2 |
| Martin Gilbert | 4 | n/a |
| James Hambro | 5 | n/a |
| William Hemmings | 3 | n/a |
| Harry Hyman | 8 | n/a |
| Alun Jones | 8 | 2 |
| Dr Ian Rutter | 7 | 1 |
The following Committees have been established by the Board and have been granted specific delegated authority to consider certain aspects of the Group's affairs. The Chairmen of the Committees report back to the Board as and when appropriate.
The Audit Committee consists of four non-executive directors. These are Alun Jones (Chairman), Dr Ian Rutter and Mark Creedy (all of whom are independent under the Code) and Graeme Elliot. At least one member of the Committee possesses what the Code describes as 'recent and relevant financial experience' as Mr Jones, a Chartered Accountant, was a partner of PricewaterhouseCoopers LLP between 1981 and 2006 and recently sat on the Financial
Reporting Review Panel. There are no employees of the Joint Managers on the Committee. The Committee may invite the Managing Director, representatives of the Joint Managers and non independent directors to attend the meetings if they wish.
The Committee has reviewed the Financial Reporting Council Guidance on Audit Committees issued in September 2012 and considers that it has acted in accordance with the recommendations contained therin.
The main roles and responsibilities of the Audit Committee are set out in written terms of reference which are available from the Company's website and include:
These responsibilities are primarily discharged as follows:
There are arrangements in place whereby employees of the Joint Managers may, in confidence, raise concerns about possible improprieties in matters of financial reporting amongst other things. The Committee ensures that the Joint Managers have in place arrangements for the proportionate and independent investigation of such matters.
The Company has a policy governing the conduct of non-audit work by the auditors. Under that policy, the auditors are prohibited from performing services where the auditors may be required to audit their own work, participate in activities that would normally be undertaken by management, are remunerated through a 'success fee' structure where the success of a project is dependent upon the accounting treatment, or act in an advocacy role for the Company. Other than the above, there is not an automatic ban in place on the auditors undertaking non-audit work. However, each possible appointment is reviewed on a case by case basis. Activities that may be perceived to be in conflict with the role of the external auditor must be submitted to the Committee for approval prior to engagement, regardless of the fee involved. Details of the amounts paid to the external auditors during the year for audit and other services are set out in note 4 to the financial statements on page 47.
The Remuneration Committee normally meets once per year and comprises three Independent Directors being Dr Rutter (Chairman), Mr Jones and Mr Creedy. The terms of reference, role and composition of the Committee can be found in the Directors' Remuneration Report on page 35. The Committee met once during the year to review Directors' remuneration with all members in attendance.
The Nominations Committee is chaired by Dr Rutter and its other members are Mr Jones and Mr Creedy, all three of whom are Independent and non-executive. The Committee is charged with the responsibility of nominating any new Directors to the Board and considering succession planning. It reviews from time to time the composition of the Board, having regard to its balance and structure.
Following the resignation of Martin Gilbert, the Committee identified knowledge of financial markets as being a core competency required for a new Non-Executive Director. William Hemmings, having acted as Martin Gilbert's alternate director since 13 March 2000 has a wealth of experience in financial markets and a comprehensive knowledge of the Group and, after thorough deliberation, was selected and recommended to the Board.
The Committee views this appointment as appropriate in this particular circumstance, however is committed to complying with the Code requirement that appointments should be made on merit, against objective criteria and with due regard for the benefits of diversity on the Board, including gender.
Non-executive Directors are appointed subject to re-election by Shareholders and to three months' notice from the Company or the Director. Each Director, on appointment, is provided with a letter setting out the terms of appointment, the fees to be paid and the time commitment expected. Non-executive Directors are not appointed for specific time periods, but are subject to annual re-election.
The Management Engagement Committee comprises Mr Creedy (Chairman), Dr Rutter and Mr Jones and meets at least annually to review the terms of the Management Agreement and the performance of the Joint Managers. The non-independent, non- executive Directors may attend the meetings if invited to do so by the Chairman.
During the year, the Management Engagement Committee reviewed the terms of the Management Agreement and approved changes to the fee structure under that agreement as described previously on page 28. The Committee also reviewed the remuneration, engagement and performance of the Joint Managers. Further details of the remuneration paid to the Joint Managers is detailed on page 28.
The Group has provided the information required concerning share capital structure in the Directors' Report on page 27.
The Chairman is responsible for ensuring the annual evaluation of the Board's performance and that of its Committees and individual Directors. During the year, this was done by the circulation of a questionnaire based on the process and questions outlined in the Code concerning Board and Committee performance and meetings. The Chairman discussed with the Board broad themes and outcomes for 2012 and highlighted strengths and any areas of weakness. The outcome of the evaluation process was that the Board and its Committees were judged to be operating effectively. The other Directors, led by the Senior Independent Director, evaluated the performance of the Chairman.
The Managing Director's Review on page 16 contains a statement on environmental, social and governance matters as they impact the Group.
The Board is accountable to the Company's Shareholders and therefore considers its communication with Shareholders to be very important. The Board uses the annual and half yearly financial reports and interim management statements to report to the Shareholders on its stewardship of the Company and on any significant changes or matters of interest.
The Annual General Meeting provides an opportunity for communication with private and institutional investors and the Board welcomes their participation. All Directors attend the Annual General Meeting and the Chairman, the Chairman of the Audit Committee, the Senior Independent Director and the Managing Director are all available to answer any questions.
The Board is responsible for the Group's system of internal control, which has been in operation throughout the year and to the date of this Report, and for reviewing its effectiveness. It believes that the key risks facing the business have been identified and it has implemented an ongoing system to identify, evaluate and manage these risks that is based upon, and relevant to, the Group's business as a UK REIT.
Following the Financial Reporting Council's publication of "Internal Control: Revised Guidance for the Directors on the Combined Code", the Board believes key features of the system of internal control include a comprehensive system of budgeting, financial reporting and business planning, formal documentation procedures and the close involvement of the Managing Director and the Joint Managers in all aspects of the day-to-day operations. The scope and quality of the Joint Managers' systems of internal controls are monitored and reviewed and regular monitoring reports are provided to the Board. Any incidence of significant control failings or weaknesses that have been identified and the extent to which
they have impacted on the Group are reported to the Board and the Board ensure that the Joint Managers take the necessary actions to remedy those failings or weaknesses immediately.
Nevertheless, the Board believes that, although robust, the Group's system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve the Group's business objectives. Therefore the system can provide only reasonable and not absolute assurance against material misstatement or loss. The Audit Committee and the Board consider annually the requirement for an internal audit department and the Board, on the recommendation of the Audit Committee, has concluded that one is not currently required.
In preparing the periodic financial reports of the Group, the Board is reliant on the policies and procedures followed by the Joint Managers to ensure that the records accurately reflect transactions so as to facilitate the production of consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") and other applicable reporting standards. In addition, the integrity of the financial reporting and consolidation processes and the completeness and accuracy of financial information are subject to review by the Audit Committee and the Board. At the time of reviewing the half yearly and annual financial reports, the Audit Committee also receives comfort letters from each of the Joint Managers to assist the Board in making the disclosures.
By order of the Board
27 February 2013
This Report has been prepared in accordance with section 420 of the Companies Act 2006 and in accordance with the information required by company law and the Listing Rules. The Notice of Annual General Meeting includes an ordinary resolution to approve the Directors' Remuneration Report. No payment of remuneration is conditional upon this vote being passed and it is an advisory vote only.
The Remuneration Committee is chaired by Dr Rutter and its other members are Mr Jones and Mr Creedy. Its role is to seek and retain the appropriate calibre of people on the Board and recommend fee levels to the Board consistent with prevailing market conditions, peer group companies and Directors' roles and responsibilities. The Company has no employees and therefore pay and employment considerations are not taken into account in determining Directors' fees, nor does it determine executive pay.
The Committee determines appropriate levels of remuneration for all Directors' fees as set out in the Articles of Association which is a maximum aggregate of £250,000 per annum. The Committee makes recommendations to the Board as a whole and no Director is involved in any decision regarding his own remuneration. Directors' fees were last reviewed on 1 January 2011. The set fee for each Director is currently £25,000 per annum and £32,500 per annum for the Chairman. Mr Jones receives an additional £5,000 per annum in respect of his role as Chairman of the Audit Committee. The Committee has agreed that, with effect from 1 January 2013, and reflecting the growth in the portfolio and the increasing amount of time spent on the Company's business, these fees will increase to £27,500 per annum for each Director, £36,000 per annum for the Chairman and an additional £5,500 per annum for the Chairman of the Audit Committee. In reaching these figures, the Committee obtained external advice from Stuart Wilson Associates, executive search consultants, and compared the fees with those paid by the Company's peers.
| Year ended 31 Dec 2012 |
Year ended 31 Dec 2011 |
|
|---|---|---|
| Graeme Elliot (Chairman) | £32,500 | £32,500 |
| Harry Hyman (Managing Director) | £25,000 | £25,000 |
| Alun Jones (SID and Chairman of Audit Committee) |
£30,000 | £30,000 |
| James Hambro | £25,000 | £25,000 |
| Martin Gilbert | £11,575 | £25,000 |
| William Hemmings | £13,425 | - |
| Ian Rutter (Chairman of Remuneration | ||
| and Nomination Committees) | £25,000 | £25,000 |
| Mark Creedy (Chairman of Management | ||
| Engagement Committee) | £25,000 | £25,000 |
| Total | £187,500 | £187,500 |
Mr Hyman is a Director of Nexus, Mr Hambro is a Director of J O Hambro Capital Management Holdings Limited, the holding company for JOHCM. Nexus and JOHCM are the joint managers of the Company.
Messrs Hyman's and Hambro's entitlement to Directors' fees (which is the same as other Directors) is contained in the Management Agreement. The fees in respect of the services of Mr Hyman are paid to Nexus. The Management Agreement provides for the first £100,000 of the management fee to be payable to Nexus each year in respect of the services of the Managing Director. The fees in respect of Mr Hambro's services are paid to JOHCM. The fee in respect of Mr Hemming's services as a Director is paid to Aberdeen Asset Management PLC. The Company has not complied with Code provision D.1.2 and has not disclosed the amount of fees received by the Managing Director in respect of his other non-executive Director appointments. Since he is committed to working a certain number of days a month for this Company, this amount is not deemed relevant and the Remuneration Committee is satisfied that the Company received the appropriate time commitment from the Managing Director. Further details of the Management Agreement are given in the Related Parties section of the Directors' Report on pages 28 and details of the amounts paid to each of the Joint Managers in note 4 on pages 47 to the financial statements.
Non-executive Directors are not eligible for bonuses, pension benefits, share options, long-term incentive schemes or other benefits. Directors may be reimbursed for travel and accommodation expenses in connection with Board Meetings and in line with the Group's expense policy.
No director has a service contract nor are they appointed for a specific term of office. The contracts for the services of Messrs Hyman and Hambro are with Nexus and JOHCM respectively, pursuant to the Management Agreement. There are letters of appointment in place for the five other Directors including the Chairman. These provide, subject to the appointment and any re-appointment being in accordance with the terms of the Articles of Association and to retirement by rotation, that such appointment can be terminated upon either party giving not less than three months' prior written notice, with no compensation for loss of office. These letters of appointment are available for inspection at the Registered Office and at the Annual General Meeting.
All Directors are subject to re-appointment by Shareholders at the first Annual General Meeting held after their appointment and annual re-election thereafter in accordance with Code Provision B.7.1.
The following graph compares, over a five year period, the total Shareholder return (as required by Company Law) of the Company's Ordinary shares relative to a return on a hypothetical holding over the same period in the FTSE All-Share Real Estate Investment and Services Total Return Index. This Index has been chosen by the Board as the most appropriate in the circumstances. Total Shareholder return is the measure of returns provided by a company to Shareholders reflecting share price movements and assuming reinvestment of dividends.
For the year ended 31 December 2012, the highest and lowest mid-market price of the Company's Ordinary shares was 350p and 311p respectively.
In accordance with Section 422 of Companies Act 2006, this Report was approved by the Board on 27 February 2013 and signed by Dr Rutter, Director and Chairman of the Remuneration Committee.
For and on behalf of the Board
27 February 2013
We have audited the Group financial statements of Primary Health Properties PLC for the year ended 31 December 2012 which comprise the Group Statement of Comprehensive Income, the Group Balance Sheet, the Group Cash Flow Statement, the Group Statement of Changes in Equity and the related notes 1 to 32. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
As explained more fully in the Directors' Responsibilities Statement set out on page 30 the Directors are responsible for the preparation of the Group Financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
In our opinion the Group financial statements:
• Give a true and fair view of the state of the Group's affairs as at 31 December 2012 and of its profit for the year then ended;
In our opinion:
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
Under the Listing Rules we are required to review:
We have reported separately on the Parent Company financial statements of Primary Health Properties PLC for the year ended 31 December 2012.
David Wilkinson (Senior Statutory Auditor) for and on behalf of Ernst & Young LLP Statutory Auditor London 27 February 2013
| Notes | 2012 £000 |
2011 £000 |
|---|---|---|
| Rental income | 32,806 | 30,333 |
| Finance lease income | 345 | 343 |
| Rental and related income 3 |
33,151 | 30,676 |
| Direct property expenses | (402) | (436) |
| Administrative expenses 4 |
(5,124) | (5,123) |
| Operating profit before revaluation result on property portfolio | 27,625 | 25,117 |
| Profit on sale of Available For Sale ("AFS") investments 13 |
- | 312 |
| Net revaluation result on property portfolio 10 |
(1,768) | 10,584 |
| Operating profit before financing costs | 25,857 | 36,013 |
| Finance income 5 |
518 | 414 |
| Finance costs 6 |
(20,760) | (15,831) |
| Provision for early loan repayment fee 17 |
(1.564) | - |
| Fair value loss on interest rate swaps and amortisation of cash flow hedging reserve 6 |
(2,922) | (7,947) |
| Profit on ordinary activities before taxation | 1,129 | 12,649 |
| Taxation credit 7 |
1 | 5 |
| Profit for the year 1 | 1,130 | 12,654 |
| Other comprehensive income/(loss) being: | ||
| Fair value movement on interest rate swaps treated as cash flow hedges 26 |
(285) | (13,613) |
| Recycling of previously unrealised gain on current asset investment 13 |
- | (73) |
| Other comprehensive loss for the year net of tax 1 | (285) | (13,686) |
| Total comprehensive income/(loss) for the year net of tax 1 | 845 | (1,032) |
| Earnings per share 2 8 |
1.56p | 18.97p |
| Adjusted earnings per share 2 3 8 |
10.16p | 14.54p |
The above relates wholly to continuing operations.
(1)Wholly attributable to equity shareholders of Primary Health Properties PLC.
(2)There is no difference between basic and fully diluted EPS.
(3)Adjusted for large one-off items and movements in fair value of properties and derivatives (see note 8).
| Notes | 2012 £000 |
2011 £000 |
|---|---|---|
| Non current assets | ||
| Investment properties 10 |
622,447 | 525,586 |
| Net investment in finance leases 12 |
3,100 | 3,069 |
| Derivative interest rate swaps 20 |
- | 24 |
| 625,547 | 528,679 | |
| Current assets | ||
| Trade and other receivables 14 |
2,916 | 2,633 |
| Net investment in finance leases 12 |
21 | 30 |
| Cash and cash equivalents 15 |
25,096 | 77 |
| 28,033 | 2,740 | |
| Total assets | 653,580 | 531,419 |
| Current liabilities | ||
| Term loans and overdrafts 18 |
(79,934) | (592) |
| Derivative interest rate swaps 20 |
(7,523) | (23,866) |
| Trade and other payables 16 |
(10,687) | (5,831) |
| Deferred rental income | (7,811) | (6,624) |
| Provisions for liabilities and charges 17 |
(1,564) | - |
| (107,519) | (36,913) | |
| Non-current liabilities | ||
| Term loans and overdrafts 18 |
(247,905) | (300,747) |
| Retail Bond 19 |
(73,755) | - |
| Derivative interest rate swaps 20 |
(45,311) | (25,639) |
| (366,971) | (326,386) | |
| Total liabilities | (474,490) | (363,299) |
| Net assets | 179,090 | 168,120 |
| Equity | ||
| Share capital 22 |
38,017 | 34,136 |
| Share premium account 23 |
58,606 | 54,430 |
| Capital reserve 24 |
1,618 | 1,618 |
| Special reserve 25 |
59,473 | 57,405 |
| Cashflow hedging reserve 26 |
(27,177) | (26,892) |
| Retained earnings 27 |
48,553 | 47,423 |
| Total equity 1 | 179,090 | 168,120 |
| Net asset value per share - basic 28 |
235.54p | 246.25p |
| EPRA net asset value per share 2 28 |
305.03p | 318.73p |
(1)Wholly attributable to equity shareholders of Primary Health Properties PLC. (2)See definition in note 28.
These financial statements were approved by the Board of Directors on 27 February 2013 and signed on its behalf by:
Graeme Elliot Chairman
| Notes | 2012 £000 |
2011 £000 |
|---|---|---|
| Operating activities Profit on ordinary activities before tax Less: Finance income 5 |
1,129 (518) |
12,649 (414) |
| Plus: Finance costs 6 Plus: Provision for early loan repayment fee Plus: Amortisation of cash flow hedge reserve |
20,760 1,564 1,345 |
15,831 - 56 |
| Plus: Fair value loss on derivatives 6 Operating profit before financing costs |
1,577 25,857 |
7,891 36,013 |
| Adjustments to reconcile Group operating profit to net cash flows from operating activities: | ||
| Revaluation deficit/(gain) on property portfolio 10 Profit on sale of AFS investment 13 Increase in trade and other receivables 1 |
1,768 - (133) |
(10,584) (312) (146) |
| Increase in trade and other payables 1 | 7,940 | 1,095 |
| Cash generated from operations UK-REIT conversion charge instalments Taxation paid 2 |
35,432 - - |
26,066 (1,998) (43) |
| Net cash flow from operating activities | 35,432 | 24,025 |
| Investing activities Payments to acquire investment properties Disposal of AFS investment 13 Payments to acquire Apollo Medical Partners Limited Interest received on developments Bank interest received Other interest |
(42,221) - (3,298) 237 199 - |
(45,712) 788 - 296 35 4 |
| Net cash flow used in investing activities | (45,083) | (44,589) |
| Financing activities Proceeds from issue of shares (net of expenses) Term bank loan drawdowns Term bank loan repayments Proceeds of Retail bond issue (net of issue costs) Swap interest paid Non utilisation fee Loan arrangement fees Interest paid Swap buy back costs 20 Equity dividends paid net of scrip dividend 9 Net cash flow from financing activities Increase/(decrease) in cash and cash equivalents for the year Cash and cash equivalents at start of year |
18,399 75,685 (100,101) 73,671 (6,736) (714) (2,655) (10,670) - (12,209) 34,670 25,019 77 |
15,605 145,953 (111,007) - (8,833) (224) (1,690) (5,454) (2,880) (11,199) 20,271 (293) 370 |
| Cash and cash equivalents at end of year 15 |
25,096 | 77 |
(1) Asset movements include movements relating to acquisitions
(2) Taxation was paid in the period in order to settle the outstanding liabilities in the acquired companies. All amounts payable were included in the consideration calculation.
| Cash flow | |||||||
|---|---|---|---|---|---|---|---|
| Share capital |
Share premium |
Capital reserve |
Special reserve1 |
hedging reserve |
Retained earnings |
Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| 1 January 2012 | 34,136 | 54,430 | 1,618 | 57,405 | (26,892) | 47,423 | 168,120 |
| Profit for the year | - | - | - | - | - | 1,130 | 1,130 |
| Income and expense recognised directly in equity: | |||||||
| Fair value movement on interest rate swaps | - | - | - | - | (1,630) | - | (1,630) |
| Amortisation of cash flow hedging reserve | - | - | - | - | 1,345 | - | 1,345 |
| Total comprehensive income | - | - | - | - | (285) | 1,130 | 845 |
| Proceeds from capital raisings | 3,115 | - | - | 15,885 | - | - | 19,000 |
| Expenses of capital raisings | - | - | - | (601) | - | - | (601) |
| Share issue as part of consideration for | |||||||
| Apollo Medical Partners Limited | 616 | 3,325 | - | - | - | - | 3,941 |
| Share issue expenses | - | (6) | - | - | - | - | (6) |
| Dividends paid: Second interim dividend for the year ended |
|||||||
| 31 December 2011 (9.25p) | - | - | - | (5,969) | - | - | (5,969) |
| Scrip dividends in lieu of second interim cash | |||||||
| dividend (net of expenses) | 54 | 292 | - | (346) | - | - | - |
| First interim dividend for the year ended | |||||||
| 31 December 2012 (9.25p) | - | - | - | (6,240) | - | - | (6,240) |
| Scrip dividend in lieu of first interim cash | |||||||
| dividend (net of expenses) | 96 | 565 | - | (661) | - | - | - |
| 31 December 2012 | 38,017 | 58,606 | 1,618 | 59,473 | (27,177) | 48,553 | 179,090 |
| 1 January 2011 | 31,401 | 53,934 | 1,618 | 44,442 | (13,279) | 46,630 | 164,746 |
| Profit for the year | - | - | - | - | - | 12,654 | 12,654 |
| Income and expense recognised directly in equity: | |||||||
| Fair value movement on interest rate swaps | - | - | - | - | (13,669) | - | (13,669) |
| Amortisation of cash flow hedging reserve | - | - | - | - | 56 | - | 56 |
| Recycling of previously unrealised gain | - | - | - | - | - | (73) | (73) |
| Total comprehensive income | - | - | - | - | (13,613) | 12,581 | (1,032) |
| Proceeds from capital raisings | 2,642 | - | - | 13,474 | - | - | 16,116 |
| Expenses of capital raisings | - | - | - | (511) | - | - | (511) |
| Dividends paid: | |||||||
| Second interim dividend for the year ended | |||||||
| 31 December 2010 (9.00p) | - | - | - | - | - | (5,363) | (5,363) |
| Scrip dividends in lieu of second interim cash | |||||||
| dividend (net of expenses) | 45 | 244 | - | - | - | (289) | - |
| First interim dividend for the year ended | |||||||
| 31 December 2011 (9.00p) | - | - | - | - | - | (5,836) | (5,836) |
| Scrip dividend in lieu of first interim cash | |||||||
| dividend (net of expenses) | 48 | 252 | - | - | - | (300) | - |
| 31 December 2011 | 34,136 | 54,430 | 1,618 | 57,405 | (26,892) | 47,423 | 168,120 |
(1) The Special Reserve is a distributable reserve
The Group's financial statements for the year ended 31 December 2012 were approved by the Board of Directors on 27 February 2013 and the Balance Sheets were signed on the Board's behalf by the Chairman, G A Elliot. Primary Health Properties PLC is a public limited company incorporated and domiciled in England & Wales. The Company's Ordinary shares are admitted to the Official List of the UK Listing Authority, a division of the Financial Services Authority and traded on the London Stock Exchange.
The Group's financial statements have been prepared on the historical cost basis, except for investment properties and derivative financial instruments that have been measured at fair value.
The Group's financial statements are presented in Sterling rounded to the nearest thousand.
The Group prepares consolidated financial statements under International Financial Reporting Standards ("IFRS") as adopted by the European Union and applied in accordance with the Companies Act 2006 and Article 4 of the IAS Regulations.
The Group's financial statements consolidate the financial statements of Primary Health Properties PLC and its wholly owned subsidiary undertakings. Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtained control and continue to be consolidated until the date that such control ceases. Control comprises the power to govern the financial and operating policies of the investee so as to obtain benefit from its activities and is achieved through direct or indirect ownership of voting rights; currently exercisable or convertible potential voting rights; or by way of contractual agreement. The financial statements of the subsidiary undertakings are prepared for the accounting reference period ending 31 December each year using consistent accounting policies. All intercompany balances and transactions, including unrealised profits arising from them, are eliminated on consolidation.
The Parent Company financial statements of Primary Health Properties PLC and each of its subsidiary undertakings will continue to be prepared under UK GAAP for the current year. The use of IFRS at Group level does not affect the distributable reserves available to the Group.
The Directors are of the opinion that the Group is engaged in a single segment of business, being investment in property in the United Kingdom leased principally to GPs, NHS Organisations and other associated health care users.
The Group's investment properties are held for long-term investment. Initially, investment properties are measured at cost including transaction costs. Subsequent to initial recognition, investment properties and investment properties under construction are stated at fair value based on market data and a professional valuation made as of each reporting date. The fair value of investment property does not reflect future capital expenditure that will improve or enhance the property and does not reflect future benefits from this future expenditure.
Gains or losses arising from changes in the fair value of investment properties and investment properties under construction are included in the Group Statement of Comprehensive Income in the year in which they arise.
Investment properties are recognised for accounting purposes upon completion of contract, unless a specific completion date is noted in the contract, in which case the property will be recognised on the date specified. Investment properties cease to be recognised when they have been disposed of. Any gains and losses arising are recognised in the Group Statement of Comprehensive Income in the year of disposal.
The Group has entered into development loan agreements with third party developers in respect of certain properties under development. These loans are repayable at the option of the developer at any time. The Group has entered into contracts to purchase the properties under development when they are completed in accordance with the terms of the contracts. The loans are repayable by the developers in the event that the building work is not completed in accordance with the purchase contracts. Interest is charged under the terms detailed in the respective development agreements and taken to the Group Statement of Comprehensive Income in the year in which it accrues.
Where a property is acquired through the acquisition of corporate interests, the Board considers the substance of the assets and activities of the acquired entities in determining whether the acquisition represents the acquisition of a business. The basis of the judgement is set out in note 2.3(b).
Where such acquisitions are not judged to be an acquisition of a business, they are not treated as business combinations. Rather, the cost to acquire the corporate entity is allocated between the identifiable assets and liabilities of the entity based on their relative fair values on the acquisition date. Accordingly, no goodwill or additional deferred taxation arises. Otherwise, corporate acquisitions are accounted for as business combinations.
The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's, or cash-generating unit's, fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognised in the Group Statement of Comprehensive Income.
An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the Group Statement of Comprehensive Income.
Revenue is recognised to the extent that performance has been provided and it is probable that economic benefits will flow to the Group which can be reliably measured. Revenue is measured at the fair value of the consideration receivable, excluding discounts, rebates, VAT and other sales taxes or duty.
Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease term. A rent adjustment is recognised from the rent review date in relation to unsettled rent reviews. Incentives for lessees to enter into lease agreements are spread evenly over the lease terms, even if the payments are not made on such a basis.
Revenue is recognised as interest accrues, using the effective interest method (that is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset).
Trade receivables are recognised and carried at the lower of their original invoiced value and recoverable amount. Where the time value of money is material, receivables are carried at amortised cost. Provision is made when there is objective evidence that the Group will not be able to recover balances in full. Balances are written off when the probability of recovery is assessed as being remote.
Cash and cash equivalents are defined as cash and short term deposits, including any bank overdrafts, with an original maturity of three months or less.
Trade payables are recognised and carried at their invoiced value inclusive of any VAT that may be applicable.
All loans and borrowings are initially measured at fair value less directly attributable transaction costs. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost, using the effective interest method.
Borrowing costs that are separately identifiable and directly attributable to the acquisition or construction of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs the Group incurs in connection with the borrowing of funds.
Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that an outflow or resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
The Group's conversion to UK-REIT status was effective from 1 January 2007. Conversion to a UK-REIT results in, subject to continuing relevant UK-REIT criteria being met, the Group's property profits, both income and gains, being exempt from UK taxation from 1 January 2007. Acquired companies were converted to a UK-REIT status; there were no charges payable following the abolition of the REIT conversion charge.
Taxation on the profit or loss for the period not exempt under UK-REIT regulations comprises current and deferred tax. Taxation is recognised in the Group Statement of Comprehensive Income except to the extent that it relates to items recognised as direct movements in equity, in which case it is also recognised as a direct movement in equity.
Current tax is the expected tax payable on any non-REIT taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets designated upon initial recognition as fair value through profit and loss. This category includes derivative financial instruments entered into by the Group that do not meet the hedge accounting criteria as defined by IAS39. Financial assets at fair value through profit and loss are carried in the Balance Sheet at fair value with gains or losses recognised in the Group Statement of Comprehensive Income.
Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition at fair value through profit or loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedging relationships as defined by IAS 39. Gains or losses on liabilities held for trading are recognised in the Group Statement of Comprehensive Income.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in the Group Statement of Comprehensive Income when the loans and receivables are de-recognised or impaired, as well as through the amortisation process.
A financial asset (or where applicable a part of a financial asset or part of a Group of similar financial assets) is de-recognised where:
Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group's continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
A financial liability is de-recognised when the obligation under the liability is discharged or cancelled or expires.
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in income.
The Group uses interest rate swaps to help manage its interest rate risk.
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions meet the strict criteria for being described as "effective" in offsetting changes in cash flows of hedged items. All derivatives are initially recognised at fair value at the date the derivative is entered into and are subsequently remeasured at fair value. The fair values of the Group's interest rate swaps are calculated by J.C. Rathbone Associates Limited, an independent specialist which provides treasury management services to the Group.
For swaps that have been cancelled which previously qualified for hedge accounting, the remaining value within the cash flow hedging reserve at the date of cancellation is recycled to the Statement of Comprehensive Income on a straight line basis from the date of cancellation to the original swap expiry date.
The method of recognising the resulting gain or loss depends on whether the derivative is designated as an effective hedging instrument.
Dividends proposed by the Board of Directors and unpaid at the year end are not recognised in the financial statements as they are appropriations of income. Furthermore, any final dividends would not be recognised until they have been approved by Shareholders at an Annual General Meeting.
The vast majority of the Group's properties are leased out under operating leases and are included within investment properties. Rental income, including the effect of lease incentives, is recognised on a straight line basis over the lease term.
Where the Group transfers substantially all the risks and benefits of ownership of the asset, the arrangement is classified as a finance lease and a receivable is recognised for the initial direct costs of the lease and the present value of the minimum lease payments. Finance income is recognised in the Group Statement of Comprehensive Income so as to achieve a constant rate of return on the remaining net investment in the lease. Interest income on finance leases is restricted to the amount of interest actually received.
The preparation of the Group financial statements requires management to make a number of estimates and judgements that affect the reported amounts of assets and liabilities and may differ from future actual results. The estimates and judgements that are considered most critical and that have a significant inherent risk of causing a material adjustment to the carrying amounts of assets and liabilities are:
Fair value of investment properties
Investment property includes (i) completed investment property, and (ii) investment property under construction. Completed investment property comprises real estate held by the Group or leased by the Group under a finance lease in order to earn rentals or for capital appreciation, or both.
Investment property under construction is valued at fair value if it can be reliably determined. If a fair value cannot be reliably determined, the investment property under construction is measured at cost.
The market value of a property is deemed, by the independent property valuers appointed by the Group, to be the estimated amount for which a property should exchange, on the date of valuation, in an arm's length transaction. Properties have been valued on an individual basis, assuming that they will be sold individually over time. Allowances are made to reflect the purchaser's costs of professional fees and stamp duty.
In accordance with RICS Appraisal and Valuation Standards, factors taken into account are current market conditions; annual rentals; state of repair, ground stability, contamination issues and fire, health and safety legislations.
In determining the fair value of investment properties under construction the valuer is required to consider the significant risks which are relevant to the development process including, but not limited to, construction and letting risks. Where assets under construction are pre-let and construction risk remains with the respective developer or contractor, these facts are taken into account in estimating fair values.
In accordance with IAS39, the Group values its derivative financial instruments at fair value. Fair value is estimated by J.C. Rathbone Associates Limited on behalf of the Group, using a number of assumptions based upon market rates and discounted future cash flows. The derivative financial instruments have been valued by reference to the bid price of the yield curve prevailing on 31 December 2012. Fair value represents the net present value of the difference between the cash flows produced by the contracted rate and the valuation rate.
The Group's occupational leases include periodic rent review provisions. All reviews are effectively upwards only and
either reviewed to Open Market Rent, linked to RPI or subject to a fixed uplift at the review date. The Group accrues for the potential uplift in rent from the date of the review. Estimated rents are established by the Joint Managers using their own data from previous reviews supported by estimates from third party advisers. The Group then accrues 90% of the estimated rental increase. Any additional rent receivable is booked on receipt when the rent review is agreed.
In accordance with IAS 37, the Group has recognised a provision for the early loan repayment fee of the Apollo Aviva mortgages. Following the Group's submission of the early repayment notice on 19 December 2012, a best estimate of the fee has been made based on reference gilt redemption yields as at 31 December 2012.
In accordance with IAS 39, the Group has considered its financial liability in respect of the Apollo transaction based on the estimated fair values of future consideration payable, discounted to its present value. Future consideration may become payable based on lettings achieved at various vacant areas, the completion of a Deed of Variation with respect to a specific lease as set out in accordance with Schedule 9 of the Sale and Purchase Agreement. The probability of these events has been factored into the fair value calculation.
The Group has entered into commercial property leases on its investment property portfolio. The Group has determined that it retains all the significant risks and rewards of ownership of the vast majority of the properties, which are leased out on operating leases. The Group has entered into a small number of finance lease arrangements where it has determined that it has transferred substantially all the risks and rewards incidental to ownership to the occupier.
The Group has a number of interest rate swaps that mature after the Group's bank facilities, to which they relate, are due to expire. In accordance with IAS39, in order to apply hedge accounting in relation to these interest rate swaps, the Group has determined that it is highly probable that these bank facilities will be re-negotiated on or before expiry and that variable interest rate debt finance will be in place until the expiry date of the swaps.
The Directors have reviewed the acquisitions during the year on an individual basis in accordance with the requirements of IFRS3(R). They consider that they all meet the criteria of asset acquisitions rather than business combinations and have accounted for them as such. Although corporate entities were acquired, they were special purpose vehicles for holding properties rather than separate business entities. This judgement was made due to the lack of processes inherent in the entities acquired.
• IFRS 7 Financial Instruments: Disclosures – Enhanced Derecognition Disclosure Requirements. The amendment requires additional disclosure about financial assets that have been transferred but not derecognised to enable the user of the Group's financial statements to understand the relationship with those assets that have not been derecognised and their associated liabilities. In addition, the amendment requires disclosures about the entity's continuing involvement in derecognised assets to enable the users to evaluate the nature of, and risks associated with, such involvement. The amendment is effective for annual periods beginning on or after 1 July 2011. The Group does not have any assets with these characteristics so there has been no effect on the presentation of its financial statements.
The IASB and IFRIC have issued a number of standards and interpretations with an effective date after the date of these financial statements. The Directors have set out below only those which may have a material impact on the financial statements in future periods. The Group plans to adopt the policies below as and when they become effective.
IFRS 9 Financial Instruments: Classification and Measurement. IFRS 9, as issued, reflects the first phase of the IASB's work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard was initially effective for annual periods beginning on or after 1 January 2013, but Amendments to IFRS 9 Mandatory Date of IFRS 9 and Transition Disclosures, issued in December 2011, moved the effective date to 1 January 2015. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the Group's financial assets, but will not have an impact on classification and measurements of financial liabilities. The Group will quantify the effect in conjunction with other phases, when the final standard including all phases is issued.
IFRS 10 Consolidated Financial Statements. IFRS 10 replaces the portion of IAS 27; Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also addresses the issues raised in ISC-12 Consolidation – Special Purpose Entities. IFRS 10 establishes a single control model that applies to all entities including special entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled and therefore are required to be consolidated by a parent, compared with the requirements that were in IAS 27. Based on the preliminary analyses performed, IFRS 10 is not expected to have any impact on the scope of the consolidation. This standard becomes effective for annual periods beginning on or after 1 January 2013.
Turnover comprises rental income and finance lease income receivable on property investments in the UK, which is exclusive of VAT. Turnover is derived from one reportable operating segment. Details of the lease income are given below.
a) The future minimum lease payments under non-cancellable operating leases receivable by the Group are as follows:
| Less than one year £000s |
1-5 years £000s |
More than 5 years £000s |
Total £000s |
|
|---|---|---|---|---|
| 2012 | 38,208 | 152,536 | 421,031 | 611,775 |
| 2011 | 32,146 | 127,953 | 366,156 | 526,255 |
The future minimum lease payments includes amounts due in future years from investment properties under development at the year end.
b) There were no contingent rents recognised as income in the year.
The rental income earned on operating leases is recognised on a straight line basis over the lease term.
The Group leases medical centres to GPs, NHS organisations and other healthcare users, typically on long term occupational leases which provide for regular reviews of rent on an effectively upwards only basis.
| 2012 | 2011 | |
|---|---|---|
| £000 | £000 | |
| Administrative expenses: recurring | ||
| Management fees (note 4a) | 4,166 | 3,886 |
| Directors' fees (note 4c) | 188 | 188 |
| Property management fees and | ||
| other services payable to Nexus | 50 | 71 |
| Auditors' remuneration for: | ||
| • audit of the Financial Statements | 120 | 139 |
| • audit of accounts of subsidiaries | 95 | 24 |
| • taxation services - compliance |
30 | 82 |
| - advisory | 52 | 50 |
| Other professional fees | 139 | 360 |
| Other expenses | 284 | 323 |
| Total | 5,124 | 5,123 |
The management fee calculated and payable for the period to 31 December was as follows:
| 2012 | 2011 | |
|---|---|---|
| £000 | £000 | |
| Nexus | 2,497 | 2,295 |
| JOHCM | 1,669 | 1,591 |
| 4,166 | 3,886 |
Further details on the Management Agreement can be found in the Directors' Report on page 28.
As at 31 December 2012, £143,000 of management fees payable to JOHCM were outstanding (2011: £137,000) and £242,000 was payable to Nexus (2011: £206,000).
Further fees payable to Nexus in accordance with the Management Agreement of £55,000 (2011: £56,000) in respect of capital projects were capitalised in the year.
Information about the Performance Incentive Fee ("PIF") is provided in the Directors' Report on page 28.
Information about the remuneration of individual directors is provided in the Directors' Remuneration Report on page 35.
| 518 | 414 | |
|---|---|---|
| Other interest | 55 | 95 |
| Development loan interest | 257 | 249 |
| Bank interest | 206 | 70 |
| Interest income on financial assets | ||
| £000 | £000 | |
| 2012 | 2011 |
| 2012 | 2011 | |
|---|---|---|
| £000 | £000 | |
| Interest expense and similar | ||
| charges on financial liabilities | ||
| (i) Interest payable | ||
| Swap interest payable | 6,860 | 8,768 |
| Bank loan interest payable | 10,296 | 5,792 |
| Bond interest payable | 1,789 | - |
| Notional UK-REIT interest | - | 5 |
| Bank facility non utilisation fees | 733 | 288 |
| Bank charges and loan commitment fees | 1,082 | 978 |
| 20,760 | 15,831 |
The above analysis excludes the one-off provision for early repayment of the Aviva loan acquired as part of the Apollo transaction of £1.564 million.
| (ii) Derivatives | ||
|---|---|---|
| Net fair value loss on interest | ||
| rate swaps | 1,577 | 7,891 |
| Amortisation of cash flow | ||
| hedging reserve | 1,345 | 56 |
| 2,922 | 7,947 |
The fair value loss of £1.6million (2011: £7.9million) on derivatives recognised in the Group Statement of Comprehensive Income for the year has arisen from the interest rate swaps for which the hedge accounting concept does not apply.
Details of the fair value loss on hedges which meet the effectiveness criteria under IAS 39 are set out in note 26.
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Net finance costs | ||
| Finance income (note 5) | (518) | (414) |
| Finance costs | 20,760 | 15,831 |
| 20,242 | 15,417 |
The tax credit is made up as follows:
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Current tax UK corporation tax (note 7b) |
(1) | (5) |
The tax credit relates to the release of tax provisions from prior years and variances in the amount of corporation tax paid in acquired companies against the agreed provision at acquisition.
A reduction in the UK corporation tax rate from 26% to 24% was effective from 1 April 2012. A further reduction from 24% to 23% has been substantively enacted and will be effective from 1 April 2013. Accordingly, these rates have been applied in the measurement of the Group's tax liability at 31 December 2012.
In addition, the Government announced its intention to further reduce the UK corporation tax rate to 21% from 1 April 2014.
The tax assessed for the year is lower than (2011: lower) the standard rate of corporation tax in the UK. The differences are explained below:
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Profit on ordinary activities | ||
| before taxation | 1,129 | 12,649 |
| Theoretical tax at UK corporation tax | ||
| rate of 24.5% (2011: 26.5%) | 277 | 3,352 |
| REIT exempt income | (1,857) | (2,651) |
| Transfer pricing adjustments | 797 | - |
| Non taxable items | 819 | (697) |
| Indexation allowance on capital gains | - | (7) |
| Finance lease adjustment | 1 | 4 |
| Other differences | - | (7) |
| Losses carried forward | (37) | 6 |
| Movement in tax provision | ||
| relating to prior years | (1) | (5) |
| Current tax credit (note 7a) | (1) | (5) |
The calculation of basic and diluted earnings per share is based on the following:
| Adjusted earnings per share |
Net profit attributable to Ordinary Shareholders £000 |
Ordinary Shares (number)1 |
Per Share (pence) |
|---|---|---|---|
| 2012 | |||
| Basic and diluted earnings | |||
| per share | 1,130 | 72,675,900 | 1.56p |
| Adjustments to remove: | |||
| Net property valuation | |||
| deficit (Note 10) | 1,768 | ||
| Fair value loss on derivatives 2 | 2,922 | ||
| Provision for early loan | |||
| repayment fees 3 | 1,564 | ||
| UK corporation tax credit | (1) | ||
| Adjusted basic and diluted | |||
| earnings per share | 7,383 | 72,675,900 | 10.16p |
| 2011 | |||
| Basic and diluted earnings | |||
| per share | 12,654 | 66,696,096 | 18.97p |
| Adjustments to remove: | |||
| Net property valuation | |||
| gains (Note 10) | (10,584) | ||
| Fair value loss on derivatives 2 | 7,947 | ||
| Profit on sale of AFS investment | (312) | ||
| UK corporation tax credit | (5) | ||
| Adjusted basic and diluted | |||
| earnings per share | 9,700 | 66,696,096 | 14.54p |
(1) Weighted average number of Ordinary Shares in issue during the year. (2) In view of the continuing volatility in the mark-to-model adjustment in respect of the period end valuation of derivatives that flows through the Group Statement of Comprehensive Income, the Directors believe that it is appropriate to remove the gain or loss in the calculation of adjusted earnings. (3) The provision for early loan repayment fees is considered a one-off exceptional item following the acquisition of Apollo Medical Partners Limited and
its subsidiary. Directors believe that it is appropriate to remove the charge in the calculation of adjusted earnings.
Amounts recognised as distributions to equity holders in the year:
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Second interim dividend for the year | ||
| ended 31 December 2011 (9.25p) paid | ||
| 2nd April 2012 (2011: 9.00p) | 5,969 | 5,363 |
| Scrip dividend in lieu of second interim | ||
| cash dividend | 346 | 289 |
| First interim dividend for the year | ||
| ended 31 December 2012 (9.25p) paid | ||
| 26 October 2012 (2011: 9.00p) | 6,240 | 5,836 |
| Scrip dividend in lieu of first interim | ||
| cash dividend | 661 | 300 |
| Total dividends | 13,216 | 11,788 |
| Per share | 18.5p | 18.0p |
Properties have been independently valued at fair value by Lambert Smith Hampton ("LSH"), Chartered Surveyors and Valuers, as at the balance sheet date in accordance with IAS 40: Investment Property. LSH confirm that they have valued the properties in accordance with the Practice Statements in the RICS Appraisal and Valuation Standards ("Red Book"). The Valuers are appropriately qualified and have sufficient market knowledge and relevant experience of the location and category of investment property and have had full regard to market evidence when determining the values.
The properties are 99.7% let. The valuations reflected a 5.72% initial yield (2011: 5.74%) and a 6.05% (2011: 6.06%) true equivalent yield as detailed on page 6. Where properties have outstanding rent reviews, an estimate is made of the likely rent on review in line with market expectations and the knowledge of the valuer.
In addition to the market value exercise performed by LSH, the Joint Managers monitor the value of the Group's investment portfolio based on DCF analysis. Full details can be found in the Managing Directors' Review, on page 8.
In accordance with IAS 40, investment properties under construction have also been valued at fair value by LSH. In determining the fair value, the valuer is required to consider the significant risks which are relevant to the development process including, but not limited to, construction and letting risks. In the case of the Group's portfolio under construction, where the sites are pre-let and construction risk remains with the builder/developer, the valuers have used the special assumptions that, as at the valuation date, the developments, have been completed satisfactorily, the agreements of leases have been completed and the rents and other tenants lease obligations have commenced. A fair value decrease of £764,000 (2011: increase of £401,000) in respect of investment property under construction has been recognised in the Group Statement of Comprehensive Income, as part of the total net valuation loss on property portfolio in the year of £1.77 million (2011: gain of £10.58 million).
In line with Accounting Policies (page 42), the Group has treated the acquisitions during the year as asset purchases rather than business combinations as they were judged to be acquisitions of properties rather than businesses.
| Investment properties freehold £000 |
Investment properties long leasehold £000 |
Investment properties under construction £000 |
Total £000 |
|
|---|---|---|---|---|
| As at 1 January 2012 | 433,245 | 87,966 | 4,375 | 525,586 |
| Property additions | 30,111 | 1,021 | 10,234 | 41,366 |
| Properties acquired during the year following | ||||
| Acquisition of Apollo Medical Partners Limited | 41,966 | 4,247 | 11,550 | 57,763 |
| Disposal 1 | - | - | (500) | (500) |
| Transfer from properties in the course of development | 9,164 | - | (9,164) | - |
| Revaluations for the year | (1,141) | 137 | (764) | (1,768) |
| As at 31 December 2012 | 513,345 | 93,371 | 15,731 | 622,447 |
| As at 1 January 2011 | 383,223 | 78,860 | 7,207 | 469,290 |
| Property additions | 13,366 | 4,258 | 28,088 | 45,712 |
| Transfer from properties in the course of development | 27,077 | 4,244 | (31,321) | - |
| Revaluations for the year | 9,579 | 604 | 401 | 10,584 |
| As at 31 December 2011 | 433,245 | 87,966 | 4,375 | 525,586 |
(1) Disposal of long leasehold interest as part of acquisition of newly developed property at Pelton, County Durham.
Those subsidiaries listed below are considered to be the principal subsidiaries only of the Company:
Primary Health Investment Properties Limited (PHIP) 1 Primary Health Investment Properties (No. 2) Limited 1 Primary Health Investment Properties (No. 3) Limited 1 PHIP (5) Limited 2 Patientfirst Partnerships Limited 2 Patientfirst (Hinckley) Limited 2 Patientfirst (Burnley) Limited 2 Health Investments Limited 1 Motorstep Limited 2 PHP Investments No1 Limited 2 PHP Investments No2 Limited 2 PHP Investments (2011) Limited 1 PHP AssetCo (2011) Limited 2 PHP Healthcare Investments Limited 2 PHP Empire Holdings Limited 1 PHP (Stourbridge) Limited 1 PHP Clinics Limited 1 Apollo Capital Projects Limited 2 3 Apollo Medical Partners Limited 2 4
(1) Subsidiaries directly held by the Company.
(2) Subsidiaries held indirectly by the Company.
(3) Subsidiary acquired during the year (name changed to PHP Glen Spean
Limited post acquisition)
(4) Subsidiary acquired during the year (name changed to PHP Medical Properties Limited post acquisition)
| 2012 | 2011 | |
|---|---|---|
| £000 | £000 | |
| Amounts due in more than five years | 3,086 | 3,026 |
| Amounts due between one and five years | 14 | 43 |
| 3,100 | 3,069 | |
| Amounts due in less than one year | 21 | 30 |
| 3,121 | 3,099 | |
There were no additions to finance leases during the year ended 31 December 2012 or the year ended 31 December 2011.
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Gross investment in finance leases Less: unearned financial revenues |
8,781 (5,660) |
9,104 (6,005) |
| Present value of future minimum lease payment receivables |
3,121 | 3,099 |
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| As at 1 January | - | 555 |
| Disposals in the year | - | (555) |
| - | - |
The current asset investment of 1,970,500 ordinary shares in AH Medical Properties PLC ("AHMP"), held as an Available For Sale ("AFS"), was disposed of on 19 January 2011 for £788,000. The Group accepted the cash alternative offer for the shares from Assura Group Limited, resulting in a realised gain of £312,000 and an unrealised gain of £73,000 was recycled to Other Comprehensive Income.
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Trade receivables | 689 | 793 |
| Other debtors | 775 | 687 |
| Prepayments and accrued income | 1,275 | 1,153 |
| VAT | 177 | - |
| 2,916 | 2,633 |
As at 31 December, the analysis of trade receivables, some of which were past due but not impaired, is set out below:
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Neither past due nor impaired: | ||
| <30 days | 425 | 533 |
| Past due but not impaired: | ||
| 30-60 days | 69 | 72 |
| 60-90 days | - | 13 |
| 90-120 days | 15 | 12 |
| >120 days | 180 | 163 |
| 689 | 793 |
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Cash held at bank Restricted cash: Aviva deposits |
19,086 6,010 |
77 - |
| 25,096 | 77 |
Restricted cash: Three cash deposits, totalling £6.0 million at the year end, were purchased as part of the Apollo Medical Partners Limited acquisition. The deposits are restricted and released to a PHP subsidiary upon presentation of an approved valuation certificate relating to the staged payment of development costs with regard to three properties under construction that were acquired as part of the Apollo portfolio.
Bank interest is earned at floating rates depending upon the bank deposit rate. Short term deposits may be made for varying periods of between one day and six months dependent on available cash and forthcoming cash requirements of the Group. Theses deposits earn interest at various short term deposit rates.
Included in the above balance at 31 December 2012 the Group had £16 million held on a one month term deposit accruing an interest rate of 1.5% (2011: £nil).
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Trade payables | 951 | 1,286 |
| Other payables | 5,545 | 2,494 |
| Bank loan and bond interest accrual | 3,313 | 1,555 |
| VAT | - | 154 |
| Accruals | 878 | 342 |
| 10,687 | 5,831 |
Trade payables included an amount of £250,000 for works on the development at Swansea. In 2011, trade payables included amounts of £731,000, £141,000 and £20,000 for works at the developments at Pelton, Ramsgate and Luton respectively. Other payables include an amount of £1.8 million of deferred consideration that is payable upon completion of the construction of three assets under development that were acquired with the acquisition of Apollo Medical Partners Limited and its subsidiary.
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Provision for early loan repayment fee | 1,564 | - |
| 1,564 | - |
As part of the acquisition of Apollo Medical Partners Limited and its subsidiary, Apollo Capital Projects Limited ("ACPL"), on 13 December 2012, PHP assumed fixed rate bank finance provided by Aviva with a total principal amount of £49.8 million. The Group has determined the fair value of the debt as at the date of acquisition to be £52.3 million, which has been recognised in the Group Balance Sheet.
On 19 December 2012, ACPL issued a repayment notice to Aviva giving the required three months notice of its intention to repay the ACPL loans in full on expiry of the notice period.
As at the balance sheet date, PHP has recognised a provision based on the difference between the carrying value of the debt and the estimated sum required to settle the debt and meet the early repayment charges that will crystallise on the repayment date. The Group's best estimate of the provision, based on applicable referenced gilt yields as at this date is £1.56 million, which has been recognised in the Group Statement of Comprehensive Income.
The table indicates amounts drawn and undrawn from each individual facility:
| Facility | Amounts drawn | Undrawn | |||
|---|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | 2012 | 2011 |
| £000 | £000 | £000 | £000 | £000 | £000 |
| Current | |||||
| Overdraft facility ¹ 5,000 |
10,000 | - | - | 5,000 | 10,000 |
| Fixed term loan 4 | 629 592 |
629 | 592 | - | - |
| Term to January 2013 3 27,000 |
- | 27,000 | - | - | - |
| Fixed Rate term loan 8 52,305 |
- | 52,305 | - | - | - |
| 84,934 | 10,592 | 79,934 | 592 | 5,000 | 10,000 |
| Non Current | |||||
| Term to March 2016 2 175,000 |
175,000 | 125,000 | 156,500 | 50,000 | 18,500 |
| Term to January 2013 3 | - 30,000 |
- | 30,000 | - | - |
| Fixed Rate term loan 4 26,082 |
26,710 | 26,082 | 26,710 | - | - |
| Fixed Rate term loan to December 2022 5 25,000 |
25,000 | 25,000 | - | - | 25,000 |
| Term to July 2014 6 50,000 |
50,000 | - | 14,203 | 50,000 | 35,797 |
| Fixed Rate term loan to November 2018 7 75,000 |
75,000 | 75,000 | 75,000 | - | - |
| 351,082 | 381,710 | 251,082 | 302,413 | 100,000 | 79,297 |
| 436,016 | 392,302 | 331,016 | 303,005 | 105,000 | 89,297 |
Providers:
(1) The Royal Bank of Scotland PLC expires 16 March 2013
(2) The Royal Bank of Scotland PLC ("RBS") and Abbey National Treasury Services plc (branded Santander from January 2010) ("The Club Facility") (5) Aviva GPFC facility
(6) Clydesdale Bank facility
(7) Aviva facility
(3) Allied Irish Banks, PLC
(4) Aviva facility repayable in tranches to 31 January 2032
(8) Aviva facility (acquired as part of the Glen Spean acquisition in December 2012) repayable in tranches to September 2036
At 31 December 2012, total borrowings of £511.0 million (2011: £392.3 million) including the £75 million Retail Bond and £5 million revolving overdraft facility were available. Of these borrowings, as at 31 December 2012, £406.0million was drawn (2011: £303.0 million) and secured by an unlimited guarantee from each respective subsidiary and a first fixed charge over the ownership of the assigned properties. The Group has entered into interest rate swaps to manage its exposure to interest rate fluctuations. These are set out in note 20.
On 2 April 2012, PHP entered into a new £175 million club debt facility (the "Club Facility") with RBS and Santander. This facility is for a four year term and comprises of a term loan of £125 million and a revolving debt facility of £50 million. The key covenants for the facility are an overall Loan to Value maximum of 65% and a minimum Interest Cover requirement of 1.3 times.
There is a £5 million overdraft facility in place, unutilised as at 31 December 2012 (2011: £10 million).
As part of the completion of the Club Facility detailed above, the existing bilateral loan with AIB was separated and secured upon a specific security pool. A sum of £3 million was repaid from the loan as part of this process leaving a balance of £27 million. All terms and conditions of the AIB loan remained unchanged.
On 13 December 2012, as part of the Apollo Medical Partners Limited acquisition, PHP assumed a portfolio of Aviva fixed debt with a fair value of £52.4 million secured against the property portfolio. Interest is payable at rates of between 4.57% - 6.10% with the principle repayable between 14 years - 25 years.
On 19 December 2012, PHP issued Aviva with a repayment notice for the full list of loans acquired as part of the Apollo Medical Partners Limited acquisition. It is PHP's intention to repay the loans on 19 March 2013, being three months from the date of the repayment notice. A provision for the difference between the estimated sum required to settle the loan repayment and early redemption fees and the carrying value of the loan of £1.56 million has been recognised in the year.
On 14 December 2012, PHP completed the draw down of a £25 million, 10 year, interest only debt facility with Aviva Public Private Finance Limited , locking into a fixed interest rate for the entire term of the facility of 3.63%.
On 31 January 2013, the AIB loan was repaid in full, without any requirement to redeem the pre-existing interest rate swaps or incur any related breakage fees.
Since the term loan facilities have been in existence, the Group has incurred costs in association with the arrangement of the facilities including legal advice and loan arrangement fees. These costs are amortised over the remaining life of the related facility.
Any amounts unamortised as at the period end are offset against amounts drawn on the facilities as shown in the table below:
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Term loans drawn: due within one year Term loans drawn: due in greater than |
79,934 | 592 |
| one year | 251,082 | 302,413 |
| Less: Unamortised borrowing costs | (3,177) | (1,666) |
| Total terms loan: due in greater | ||
| than one year | 247,905 | 300,747 |
| Term loans in total | ||
| per Group Balance Sheet | 327,839 | 301,339 |
The Group has been in compliance with all of the financial covenants of the above facilities as applicable through the year. Further details are shown in note 21e.
| 2012 | 2011 | |
|---|---|---|
| Retail Bond July 2019 | 75,000 | - |
| Issue costs | (1,245) | - |
| 73,755 | - |
On 23 July 2012, PHP announced that it had become the first UK REIT to issue a Retail Bond following the issue of a £75 million, unsecured, seven year bond, to retail investors with an annual interest rate of 5.375% paid semi-annually in arrears. The bond issue costs will be amortised on a straight line basis over seven years.
The Group uses interest rate swaps to mitigate exposure to interest-rate risk. The fair value of these contracts is recorded in the balance sheet and is determined by discounting future cash flows at the prevailing market rates at the balance sheet date.
| 2012 | 2011 | |
|---|---|---|
| £000 | £000 | |
| Fair value of interest rate swaps treated as | ||
| cash flow hedges under IAS39 ("effective swaps") | ||
| Current liabilities | (3,778) | - |
| Non current liabilities | (23,637) | (25,639) |
| (27,415) | (25,639) | |
| Fair value of interest rate swaps not | ||
| qualifying as cash flow hedges ("ineffective swaps") | ||
| Non current assets | - | 24 |
| Current liabilities | (3,745) | (23,866) |
| Non Current liabilities | (21,674) | - |
| (25,419) | (23,842) | |
| Total fair value of interest rate swaps | (52,834) | (49,481) |
It is Group policy to maintain the proportion of floating rate interest exposure at between 20%-40% of total interest rate cost. Changes in the fair value of the contracts that do not meet the strict IFRS 39 criteria to be designated as effective hedging instruments are taken to the Group Statement of Comprehensive Income. For contracts that meet the IFRS 39 criteria and are designated as 'effective' cash flow hedges, the change in the fair value of the contract is recognised in the Statement of Changes in Equity through the cash flow hedging reserve. The result recognised in the Group Statement of Comprehensive Income on 'ineffective' cash flow hedges in 2012 was a £1.6 million loss (2011: £7.9 million loss).
Floating to fixed rate interest rate swaps with a contract value of £181.3 million (2011: £173.0 million) were in effect at the year-end. Details of all floating to fixed rate interest rate swaps contracts held are as follows:
| Fixed | |||
|---|---|---|---|
| Contract value | Start date | Maturity | interest per annum % |
| 2012 | |||
| £50.0 million | August 2007 | August 20211 | 4.835 |
| £38.0 million | August 2007 | August 20211 | 4.740 |
| £73.3 million | July 2012 | April 2013 | 4.805 |
| £10.0 million | August 2005 | August 2015 | 4.530 |
| £10.0 million | June 2006 | June 2026 | 4.810 |
| £181.3 million | |||
| 2011 | |||
| £50.0 million | August 2007 | August 2021 | 4.835 |
| £38.0 million | August 2007 | August 2021 | 4.740 |
| £65.0 million | July 2010 | July 2012 | 4.805 |
| £10.0 million | August 2005 | August 2015 | 4.530 |
| £10.0 million | June 2006 | June 2026 | 4.810 |
| £173.0 million | |||
| Contracts not yet in effect | |||
| £63.3 million | April 2013 | July 2013 | 4.805 |
| £70.0 million | July 2013 | July 2015 | 4.805 |
| £80.0 million | July 2015 | July 2016 | 4.805 |
| £10.0 million | June 2016 | June 2026 | 4.510 |
| £10.0 million | July 2016 | July 2026 | 4.400 |
| £10.0 million | July 2016 | July 2026 | 4.475 |
| £10.0 million | July 2016 | July 2026 | 4.455 |
| £20.0 million | July 2016 | July 2026 | 4.47875 |
| £20.0 million | July 2017 | July 2027 | 4.76 |
(1) On 27 February 2012 PHP signed an agreement to cancel the callability option held by the counter party on the £50.0 million and the £38.0 million swaps in place. The callability option has been cancelled for four years until 11 February 2016 at which time it will be reinstated.
| Contract value | Start date |
Maturity date |
Premium paid 1 |
Floating rate cap per % annum2 |
|---|---|---|---|---|
| £10.0 million | Oct 2011 | Oct 2014 | £31,000 | 3.00% |
| £10.0 million | Jan 2012 | Jul 2014 | £26,000 | 3.00% |
(1) One-off fixed amount paid by PHP Group
(2) Payable by Clydesdale Bank PLC
In pursuing its investment objectives, the Group is exposed to a variety of risks that could impact net assets or distributable profits.
The Group's principal financial liabilities, other than interest rates swaps, are loans and borrowings. The main purpose of the Group's loans and borrowings is to finance the acquisition and development of the Group's property portfolio. The Group has trade and other receivables, trade and other payables and cash and short-term deposits that arise directly from its operations.
A review of the Group's objectives, policies and processes for managing and monitoring risk is set out in the Managing Directors' Review on pages 4 to 21. This note provides further detail on financial risk management and includes quantitative information on specific financial risks.
Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group's exposure to the risk of changes in market interest rates relates primarily to the Group's long-term debt obligations with floating rates as the Group, generally, does not hold significant cash balances, with short term borrowings being used when required. To manage its interest rate risk, the Group enters into interest rate swaps, in which the Group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon principal amount. Note 20 provides details of interest swap contracts in effect at the year end.
The sensitivity analysis below shows the impact on profit before tax and equity of reasonably possible movements in interest rates with all other variables held constant. It should be noted that the impact of movement in the interest rate variable is not necessarily linear.
The mark to model value is arrived at with reference to the difference between the contracted rate of a swap and the market rate for the remaining duration at the time the valuation is performed. As market rates increase and this difference reduces, the associated mark to model value also decreases.
| Effect on fair value of financial instruments £000 |
Effect on profit before taxation £000 |
Effect on equity £000 |
||
|---|---|---|---|---|
| 2012 | ||||
| London InterBank Offered Rate | Increase of 50 basis points | 9,720 | 3,206 | 12,926 |
| London InterBank Offered Rate | Decrease of 50 basis points | (9,720) | (3,206) | (12,926) |
| 2011 | ||||
| London InterBank Offered Rate | Increase of 50 basis points | 9,552 | 3,530 | 13,082 |
| London InterBank Offered Rate | Decrease of 50 basis points | (9,552) | (3,530) | (13,082) |
Credit risk is the risk that a counterparty will not meet its obligations under financial instruments or customer contract, leading to a financial loss. The Group is exposed to credit risk from its principal financial assets being cash and cash equivalents, trade and other receivables, and finance lease receivables.
Trade receivables, primarily tenant rentals, are presented in the balance sheet net of allowances for doubtful receivables and are monitored on a case-by-case basis. Impairment allowance is recorded where there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable concerned. Credit risk is primarily managed by requiring tenants to pay rentals in advance. An analysis of trade receivables past due is shown in note 14. No trade receivables were impaired at the year end.
One of the principal credit risks of the Group arises from financial derivative instruments and deposits with banks and financial institutions. The Board of Directors believes that the credit risk on short-term deposits and interest rate swaps is limited because the counterparties are banks, who are committed lenders to the Group, with high credit ratings assigned by international credit-rating agencies.
Finance lease receivables are not considered a significant credit risk as the tenants are of good financial standing.
The liquidity risk is that the Group will encounter difficulty in meeting obligations associated with its financial liabilities as the majority of the Group's assets are property investments and are therefore not readily realisable. The Group's objective is to maintain a mixture of available cash and committed bank facilities that are designed to ensure that the Group has sufficient available funds for its operations and to fund its committed capital expenditure. This is achieved by continuous monitoring of forecast and actual cash flows by the joint managers.
The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments including interest.
| Less than | 3 to 12 | 1 to 5 | ||||
|---|---|---|---|---|---|---|
| On demand | 3 months | months | years | > 5 years | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| 2012 | ||||||
| Interest-bearing loans and borrowings | - | 80,667 | 10,534 | 173,116 | 217,633 | 481,950 |
| Interest rate swaps (net) | - | 1,925 | 5,771 | 25,170 | 48,962 | 81,828 |
| Trade and other payables | 88 | 6,196 | 2,292 | 1,619 | 492 | 10,687 |
| 88 | 88,788 | 18,597 | 199,905 | 267,087 | 574,465 | |
| 2011 | ||||||
| Interest-bearing loans and borrowings | - | 2,223 | 6,671 | 223,826 | 111,675 | 344,395 |
| Interest rate swaps (net) | - | 1,638 | 4,916 | 24,515 | 44,201 | 75,270 |
| Trade and other payables | 60 | 4,419 | 10 | 822 | 520 | 5,831 |
| 60 | 8,280 | 11,597 | 249,163 | 156,396 | 425,496 |
The Group's borrowings have financial covenants which, if breached, could result in the borrowings becoming repayable immediately. Details of the covenants are given in the Borrowings section of the Managing Director's Review on page 12 and are disclosed to the facility providers on a quarterly basis. There have been no breaches during the year (2011: nil).
Market risk is the risk that fair values of financial instruments will fluctuate because of changes in market prices. The Board of Directors has identified two elements of market risk that principally affect the Group - interest rate risk and other price risk.
Interest rate risk is outlined above. The Joint Managers assess the exposure to other price risks when making each investment decision and monitor the overall level of market risk on the investment portfolio on an ongoing basis through a discounted cash flow analysis. Details of this analysis can be found on page 13 of the Managing Director's Review.
Set out below is a comparison by class of the carrying amount and fair values of the Group's financial instruments that are carried in the financial statements.
| Book value | Fair value | Book value | Fair value | |
|---|---|---|---|---|
| 2012 | 2012 | 2011 | 2011 | |
| £000 | £000 | £000 | £000 | |
| Financial assets | ||||
| Finance leases - due within one year | 21 | 287 | 30 | 310 |
| Finance leases - due in more than one year | 3,100 | 4,516 | 3,068 | 4,493 |
| Trade and other receivables | 689 | 689 | 793 | 793 |
| Cash and short-term deposits | 25,096 | 25,096 | 77 | 77 |
| Financial liabilities | ||||
| Interest-bearing loans and borrowings | (401,594) | (406,016) | (301,339) | (303,005) |
| Effective interest rate swaps (net) | (27,415) | (27,415) | (25,615) | (25,615) |
| Ineffective interest rate swaps | (25,419) | (25,419) | (23,866) | (23,866) |
| Trade and other payables | (10,687) | (10,687) | (5,677) | (5,677) |
The fair value of the financial assets and liabilities are included as an estimate of the amount at which the instruments could be exchanged in a current transaction between willing parties, other than a forced sale. The following methods and assumptions were used to estimate fair values:
The table below analyses financial instruments carried at fair value, by valuation method. The different levels are defined as follows: Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly
Level 3: Techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data
| Level 1 £000 |
Level 2 £000 |
Level 3 £000 |
Total £000 |
||
|---|---|---|---|---|---|
| Assets | 2012 derivative interest rate swaps | - | - | - | - |
| 2011 derivative interest rate swaps | - | 24 | - | 24 | |
| Liabilities 2012 derivative interest rate swaps | - | (52,834) | - | (52,834) | |
| 2011 derivative interest rate swaps | - | (49,505) | - | (49,505) |
The primary objectives of the Group's capital management is to ensure that it remains a going concern, operates within its quantitative banking covenants and meets the criteria so as to continue to qualify for UK-REIT status.
The capital structure of the Group consists of shareholder's equity and net borrowings. The type and maturity of the Group's borrowings are analysed further in note 18 and the Group's equity is analysed into its various components in the Statement of Changes in Equity. The Board, with the assistance of the Joint Managers, monitors and reviews the Group's capital so as to promote the long-term success of the business, facilitate expansion and to maintain sustainable returns for Shareholders.
Under its banking facilities, the Group is subject to the following capital and covenant requirements:
During the period the Group has complied with all of the requirements set out above.
| 2012 | 2011 |
|---|---|
| £000 | £000 |
| Fair value of completed investment properties 606,716 |
521,212 |
| Fair value of development properties 15,731 |
4,375 |
| Net investment in finance leases 3,121 |
3,069 |
| 625,568 | 528,656 |
| Carrying value of interest-bearing loans and borrowings 401,594 |
301,339 |
| Unamortised borrowing costs 4,422 |
1,666 |
| Less cash held (25,096) |
(77) |
| Principal amount of interest-bearing loans and borrowings 380,920 |
302,928 |
| Loan to value ratio 60.9% |
57.8% |
| 2012 Number |
2012 £000 |
2011 Number |
2011 £000 |
|
|---|---|---|---|---|
| Authorised: Ordinary Shares of 50p each | 100,000,000 | 50,000 100,000,000 | 50,000 | |
| Issued and fully paid at 50p each | 76,034,208 | 38,017 | 68,272,229 | 34,136 |
| At beginning of year | 68,272,229 | 34,136 | 62,802,333 | 31,401 |
| Scrip issues in lieu of second interim cash dividends | 107,332 | 54 | 89,617 | 45 |
| Scrip issues in lieu of first interim cash dividends | 193,743 | 96 | 96,238 | 48 |
| Proceeds from capital raisings | 6,229,509 | 3,115 | 5,284,041 | 2,642 |
| Shares issued in consideration for Apollo Medical Partners Limited (December 2012) | 1,231,395 | 616 | - | - |
| At end of year | 76,034,208 | 38,017 | 68,272,229 | 34,136 |
There has been one capital raising during the year (2011: one).
On 24 May 2012, the Group completed a small share placing at a price of 305 pence per share that represented a discount of 4.3% to 2011 year end EPRA NAV and 6.2% to the closing share price on the day prior to issue. 6,229,509 shares were issued generating net cash proceeds of £18.4 million, the cash to be used to finance future acquisitions.
On 20 December 2012, the Company issued 1,231,395 new Ordinary Shares of 50 pence each at an agreed price of 320 pence per share as part of the consideration for the acquisition of Apollo Medical Partners Limited and its subsidiary Apollo Capital Projects Limited. The Group has since changed the names of the acquired companies to PHP Medical Properties Limited and PHP Glen Spean Limited respectively.
On 12 April 2011, the Group completed a small share placing at a price of 305 pence per share that represented a discount of 2.5% to 2010 year end EPRA NAV and 5.3% to the closing share price on the day prior to the issue. 5,284,041 shares were issued generating net cash proceeds of £15.6 million. The cash has been used to finance acquisitions.
| 2012 | 2011 | |
|---|---|---|
| £000 | £000 | |
| Balance at beginning of year | 54,430 | 53,934 |
| Issue expenses | (6) | - |
| Shares issued in consideration for Apollo | ||
| Medical Partners Limited acquisition | 3,325 | - |
| Scrip issues in lieu of interim cash | ||
| dividends | 857 | 496 |
| Balance at end of year | 58,606 | 54,430 |
Company law restricts the applicability of the Share Premium account and in respect of the Company it may only be applied in paying unissued shares of the Company in respect of capitalisation issues and in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the Company.
The capital reserve is held to finance any proposed repurchases of Ordinary Shares, following approval of the High Court in 1998.
| £000 | 2011 £000 |
|---|---|
| 2012 |
The special reserve arose on the Firm Placing and Placing and Open Offer on 7 October 2009 and the Firm Placings on 12 April 2011 and 23 May 2012. It represents the share premium on the issue of the shares net of expenses.
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Balance at start of year | 57,405 | 44,442 |
| Placing: 23 May 2012 | ||
| (2011: 12 April 2011) | 15,885 | 13,474 |
| Associated costs | (601) | (511) |
| Second interim dividend for the year ended | ||
| 31 December 2011 (2011: 31 December 2010) (5,969) | - | |
| Scrip issue in lieu of second interim | ||
| cash dividend | (346) | - |
| First interim dividend for the year ended | ||
| 31 December 2012 | (6,240) | - |
| Scrip issue in lieu of interim cash dividends | (661) | - |
| Balance at end of year | 59,473 | 57,405 |
As the special reserve is a distributable reserve, the dividends declared in the year have been distributed from this reserve.
Information on the Group's hedging policy and interest rate swaps is provided in note 20 on page 53.
The transfer to Group Statement of Comprehen sive Income and fair value movement on cash flow hedges taken to equity can be analysed as follows:
| 2012 | 2011 | |
|---|---|---|
| £000 | £000 | |
| Balance at beginning of year | (26,892) | (13,279) |
| Fair value movement on cash flow | ||
| hedges | (5,090) | (18,389) |
| Amortisation of cash flow hedge reserve | 1,345 | 56 |
| Reclassification adjustment for | ||
| interest included in the Statement | ||
| of Comprehensive Income1 | 3,460 | 4,720 |
| Net movement on cash flow hedges | ||
| ("effective swaps") and amortisation | ||
| of cash flow hedging reserve | (285) | (13,613) |
| Balance at end of year | (27,177) | (26,892) |
(1) Included with finance costs in Group Statement of Comprehensive Income
The net movement on cash flow hedges is made up of the movement in the valuation of the effective swaps, a loss of £1,776,000 (2011: loss £13,605,000), less net accrued interest of £146,000 (2011: plus accrued interest of £64,000), less amortisation of cash flow hedge reserve £1,345,000 (2011: £56,000).
| Balance at end of year | 48,553 | 47,423 |
|---|---|---|
| Scrip issue in lieu of interim cash dividends | - | (300) |
| 31 December 2012 (2011: 31 December 2011) | - | (5,836) |
| First interim dividend for the year ended | ||
| cash dividend | - | (289) |
| Scrip issue in lieu of second interim | ||
| 31 December 2011 (2011: 31 December 2010) | - | (5,363) |
| Second interim dividend for the year ended | ||
| Unrealised gain on fixed asset investment | - | (73) |
| Retained profit for the year | 1,130 | 12,654 |
| Balance at beginning of year | 47,423 | 46,630 |
| 2012 £000 |
2011 £000 |
|
Net asset values have been calculated as follows:
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Net assets per Group Balance Sheet | 179,090 | 168,120 |
| Derivative interest rate swaps (net liability) | 52,834 | 49,481 |
| EPRA NAV | 231,924 | 217,601 |
| No. of shares | No. of shares | |
| Ordinary Shares: | ||
| Issued share capital | 76,034,208 | 68,272,229 |
| Basic net asset value per Share | 235.54p | 246.25p |
| EPRA NAV per Share | 305.03p | 318.73p |
EPRA NAV is calculated as Balance Sheet net assets including the valuation result on trading properties but excluding fair value adjustments for debt and related derivatives.
As at 31 December, the Group has entered into separate development agreements with third parties for the purchase of primary health developments; these agreements are conditional on the completion of certain building development work at a consideration of £16.3 million plus VAT (2011: £7.4 million plus VAT). The Group has also entered into an agreement to purchase an investment property at a future date at a consideration of £3.6 million plus VAT (2011: £nil).
The terms and conditions of the Management Agreement are described in the Directors' Report on page 28 and the Directors' Remuneration Report on page 35. Details of the amounts paid in relation to related party transactions are provided in note 4 on page 47.
The terms and conditions agreed on acquiring Apollo Medical Partners Limited ("Apollo"), may oblige the Group to pay a number of potential additional elements of consideration conditional upon events that may be achieved by the vendor in an agreed period after the acquisition.
Deferred consideration – included within Other Payables is an amount of £1.81 million that represents deferred consideration for three assets acquired with Apollo. These assets, at Swansea, Rumney, Cardiff and Cloughmore, Cardiff are currently under construction and the applicable proportion of the deferred consideration will be released as each asset reaches practical completion.
A number of the properties acquired with Apollo include small areas of vacant space to which no value has been ascribed on acquisition. PHP has agreed a three year period within which the vendor is engaged to let this space and should they be successful additional consideration may become payable, with the sums due being valued based on the underlying terms of each letting achieved, type of the tenant and the area of space let. The Group estimates the maximum potential payment for these events at £1.78 million. The new lettings will add value to the investment portfolio.
The AIB loan facility was fully repaid on the loan termination date of 31 January 2013.
On 1 February 2013, PHP completed the acquisition of a newly developed modern, purpose built medical centre in Bearwood, Poole, for approximately £3.6 million that was contracted at the balance sheet date with a deferred completion.
On 5 February 2013, PHP acquired a newly incorporated single purpose company that has entered into a purchase and funding agreement for a purpose built medical centre under construction in Worcester for approximately £4.475 million.
On 5 February 2013, PHP entered into a purchase and funding agreement for the acquisition of a purpose built medical centre to be constructed in Chard, Somerset. PHP will pay approximately £1.8 million.
We have audited the Parent Company financial statements of Primary Health Properties PLC for the year ended 31 December 2012 which comprise the Company Balance Sheet, Company Reconciliation of Movements in Shareholders' Funds and the related notes 1 to 16. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors As explained more fully in the Directors' Responsibilities Statement set on page 30, the Directors are responsible for the preparation of the Parent Company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Parent Company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Parent Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
In our opinion the Parent Company financial statements:
In our opinion:
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
• We have reported separately on the Group financial statements of Primary Health Properties PLC for the year ended 31 December 2012.
David Wilkinson (Senior Statutory Auditor) for and on behalf of Ernst & Young LLP Statutory Auditor London 27 February 2013
| Notes | 2012 £000 |
2011 £000 |
|---|---|---|
| Fixed assets | ||
| Investment in subsidiaries 5 |
150,276 | 106,538 |
| 150,276 | 106,538 | |
| Current assets | ||
| Current asset investment 6 |
- | - |
| Debtors 7 |
3,620 | 3,541 |
| Cash at bank 8 |
68 | - |
| 3,688 | 3,541 | |
| Debtors due in more than one year | ||
| Intercompany debtors | 80,335 | 42,826 |
| Total assets | 234,299 | 152,905 |
| Creditors: amounts falling due within one year | ||
| Bank overdrafts 8 |
- | (2) |
| Other creditors and accruals 9 |
(1,871) | (16) |
| Current liabilities | (1,871) | (18) |
| Net current assets | 1,817 | 3,523 |
| Creditors: amounts falling due after more than one year | ||
| Intercompany creditors | (10) | (5,275) |
| Retail bond 10 |
(73,755) | - |
| Net assets | 158,663 | 147,612 |
| Capital and reserves | ||
| Share capital 11 |
38,017 | 34,136 |
| Share premium 12 |
58,606 | 54,430 |
| Capital reserve | 1,618 | 1,618 |
| Special reserve 13 |
59,473 | 57,405 |
| Retained earnings | 949 | 23 |
| Equity Shareholders' funds | 158,663 | 147,612 |
| Net asset value per share | ||
| • basic 14 |
208.67p | 216.21p |
These financial statements were approved by the Board of Directors on 27 February 2013 and signed on its behalf by:
Graeme Elliot Chairman
| Share capital £000 |
Share premium £000 |
Capital reserve £000 |
Special reserve2 £000 |
Retained earnings £000 |
Total £000 |
|
|---|---|---|---|---|---|---|
| 1 January 2012 | 34,136 | 54,430 | 1,618 | 57,405 | 23 | 147,612 |
| Profit for the year | - | - | - | - | 926 | 926 |
| Proceeds from capital raisings | 3,115 | - | - | 15,885 | - | 19,000 |
| Expenses of capital raisings | - | - | - | (601) | - | (601) |
| Share issue as part of consideration for PHP Medical | ||||||
| Properties Limited | 616 | 3,325 | - | - | - | 3,941 |
| Less: Share issue expenses | - | (6) | - | - | - | (6) |
| Dividends paid: | ||||||
| Second interim dividend for the year ended | ||||||
| 31 December 2011 paid 2 April 2012 (2011: 9.00p) | - | - | - | (5,969) | - | (5,969) |
| Scrip dividends in lieu of interim cash dividends | 54 | 292 | - | (346) | - | - |
| First interim dividend for the year ended | ||||||
| 31 December 2012 paid 26 October 2012 (2011: 9.00p) | - | - | - | (6,240) | - | (6,240) |
| Scrip dividend in lieu of final cash dividend | 96 | 565 | - | (661) | - | - |
| 31 December 2012 | 38,017 | 58,606 | 1,618 | 59,473 | 949 | 158,663 |
| 1 January 2011 | 31,401 | 53,934 | 1,618 | 44,442 | 8,310 | 139,705 |
| Profit for the year | - | - | - | - | 3,580 | 3,580 |
| Recycling of previously unrealised gain on | ||||||
| current asset investment | (79) | (79) | ||||
| Proceeds from capital raisings | 2,642 | - | - | 13,474 | - | 16,116 |
| Expenses of capital raisings | - | - | - | (511) | - | (511) |
| Dividends paid: | ||||||
| Second interim dividend for the year ended | ||||||
| 31 December 2010 (9.00p) | - | - | - | - | (5,363) | (5,363) |
| Scrip dividends in lieu of interim cash dividends | 45 | 244 | - | - | (289) | - |
| First interim dividend for the year ended | ||||||
| 31 December 2011 (9.00p) | - | - | - | - | (5,836) | (5,836) |
| Scrip dividend in lieu of final cash dividend | 48 | 252 | - | - | (300) | - |
| 31 December 2011 | 34,136 | 54,430 | 1,618 | 57,405 | 23 | 147,612 |
(1)Attributable to the equity holders of Primary Health Properties PLC.
(2)The Special reserve is a distributable reserve.
These financial statements have been presented as required by the Companies Act 2006 and have been prepared under the historical cost convention and have been prepared in accordance with applicable Accounting Standards and policies in the United Kingdom ("UK GAAP").
The Company has taken advantage of the Companies Act 2006 exemption from presenting a Company Profit and Loss Account together with related profit and loss notes. The Company has also taken advantage of the exemption from preparing a cash flow statement, under the terms of FRS 1 (Revised 1996) 'Cash Flow Statements'.
The profit attributable to the Parent Company for the financial year amounted to £0.9 million (2011: profit of £3.6 million).
The financial statements are presented in Sterling rounded to the nearest thousand.
The Group, of which the Company is parent, converted to a UK-REIT effective 1 January 2007 and consequently, the Company's profit is exempt from tax under UK-REIT regulations.
Revenue is recognised in the financial statements as follows.
Revenue is recognised as interest accrues using the effective interest method: that is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset.
Dividend income is recognised in the period in which it received Board approval and hence, when the Company's right to receive payment is established.
The carrying value of investments in subsidiaries is reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable.
The current asset investment sold in 2011 was held as an Available For Sale ("AFS") asset with the realised gain recognised in the profit for the year. The Company has taken advantage of the exemption from presenting financial instrument disclosures under the terms of FRS29 Financial Instrument Disclosures.
The Company operates under one business segment and one geographical segment being the holding Company of subsidiaries that invest in primary health care property within the United Kingdom.
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| UK Corporation tax | - | - |
Amounts recognised as distributions to equity holders in the year:
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Second interim dividend for the year ended 31 December 2011 (9.25p) paid 2nd April 2012 (2011: 9.00p) | 5,969 | 5,363 |
| Scrip dividend in lieu of second interim cash dividend | 346 | 289 |
| First interim dividend for the year ended 31 December 2012 (9.25p) paid 26 October 2012 (2011: 9.00p) | 6,240 | 5,836 |
| Scrip dividend in lieu of first interim cash dividend | 661 | 300 |
| Total dividends | 13,216 | 11,788 |
| Per share | 18.5p | 18.0p |
| Shares £000 |
Loans £000 |
Total £000 |
|
|---|---|---|---|
| At 1 January 2012 (restated)* | 76,220 | 30,318 | 106,538 |
| Transfer from other group company | 4,695 | - | 4,695 |
| Impairment of investment | (684) | - | (684) |
| Increase in loans to subsidiaries during the year | - | 39,727 | 39,727 |
| At 31 December 2012 | 80,231 | 70,045 | 150,276 |
| At 1 January 2011 | 70,062 | 65,506 | 135,568 |
| Reduction in loans to subsidiary during the year | - | (29,030) | (29,030) |
| Reclassification | 6,158 | (6,158) | - |
| At 31 December 2011 (restated)* | 76,220 | 30,318 | 106,538 |
* The opening balance has been restated in order to accurately reflect the split of investments between shares and loans. This had no effect on the total opening investment balance.
The principal subsidiaries of the Company are stated below:
| Subsidiary | Principal activity | Proportion of voting rights and ordinary shares held |
|---|---|---|
| Primary Health Investment Properties Limited (PHIP) 1 | Property investment | 100% |
| Primary Health Investment Properties (No. 2) Limited 1 | Property investment | 100% |
| Primary Health Investment Properties (No. 3) Limited 1 | Property investment | 100% |
| PHIP (5) Limited 2 | Property investment | 100% |
| Patientfirst Partnerships Limited 2 | Property investment | 100% |
| Patientfirst (Hinckley) Limited 2 | Property investment | 100% |
| Patientfirst (Burnley) Limited 2 | Property investment | 100% |
| Health Investments Limited 1 | Property investment | 100% |
| Motorstep Limited 2 | Property investment | 100% |
| PHP Investments No1 Limited 2 | Property investment | 100% |
| PHP Investments No2 Limited 2 | Property investment | 100% |
| PHP Investments (2011) Limited 1 | Property investment | 100% |
| PHP AssetCo (2011) Limited 2 | Property investment | 100% |
| PHP Healthcare Investments Limited 2 | Property investment | 100% |
| PHP Empire Holdings Limited ¹ | Property investment | 100% |
| PHP (Stourbridge) Limited 1 | Property investment | 100% |
| PHP Clinics Limited 1 | Property investment | 100% |
| Apollo Capital Projects Limited 2 3 | Property investment | 100% |
| Apollo Medical Partners Limited 2 4 | Property investment | 100% |
The principal activity of all of the above is Property Investment and the Company has a 100% proportion of voting rights and shares held.
(1) Subsidiaries directly held by the Company. (2) Subsidiaries indirectly held by the Company. (3) Subsidiary acquired during the year (name changed to PHP Glen Spean Limited post acquisition). (4) Subsidiary acquired during the year (name changed to PHP Medical Properties Limited post acquisition).
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| As at beginning of period | - | 555 |
| Disposals | - | (555) |
| - | - |
The current asset investment disposed of was held as an Available For Sale ("AFS") asset in accordance with FRS 26. 1,970,500 ordinary shares in AH Medical Properties PLC ("AHMP"), were disposed of on 19 January 2011 for £788,000, resulting in a realised gain of £312,000.
7. Debtors
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| VAT | 74 | - |
| Other debtors and prepayments | 6 | 1 |
| 6% Preference dividend due from subsidiary | 3,540 | 3,540 |
| 3,620 | 3,541 |
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Cash/(overdraft) held at bank | 68 | (2) |
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Other creditors and accruals | 1,871 | 16 |
| 2012 | 2011 | |
|---|---|---|
| Retail Bond July 2019 | 75,000 | - |
| Issue costs | (1,245) | - |
| 73,755 | - |
On 23 July 2012, PHP announced that it had become the first UK REIT to issue a Retail Bond following the issue of a £75 million, unsecured, seven year bond, to retail investors with an interest rate of 5.375% paid semi-annually in arrears. The bond issue costs will be amortised on a straight line basis over seven years.
| 2012 Number |
2012 £000 |
2011 Number |
2011 £000 |
|
|---|---|---|---|---|
| Authorised: | ||||
| Ordinary Shares of 50p each | 100,000,000 | 50,000 | 100,000,000 | 50,000 |
| Issued and fully paid at 50p each | 76,034,208 | 38,017 | 68,272,229 | 34,136 |
| At beginning of year | 68,272,229 | 34,136 | 62,802,332 | 31,401 |
| Scrip issue in lieu of second interim cash dividends | 107,332 | 54 | 89,617 | 45 |
| Scrip issue in lieu of first interim cash dividend | 193,743 | 96 | 96,239 | 48 |
| Proceeds from capital raisings | 6,229,509 | 3,115 | 5,284,041 | 2,642 |
| Shares issued in consideration for Apollo Medical Partners Limited (December 2012) | 1,231,395 | 616 | - | - |
| At end of year | 76,034,208 | 38,017 | 68,272,229 | 34,136 |
There has been one capital raising during the year (2011: one).
On 24 May 2012, the Company completed a small share placing at a price of 305 pence per share that represented a discount of 4.3% to 2011 year end EPRA NAV and 6.2% to the closing share price on the day prior to issue. 6,229,509 shares were issued generating net cash proceeds of £18.4 million, the cash to be used to finance future acquisitions.
On 20 December 2012, the Company issued 1,231,395 new Ordinary Shares of 50 pence each at an agreed price of 320 pence per share as part of the consideration for the acquisition of Apollo Medical Partners Limited and its subsidiary Apollo Capital Projects Limited. The Group has since changed the names of the acquired companies to PHP Medical Properties Limited and PHP Glen Spean Limited respectively.
On 12 April 2011, the Company completed a small share placing at a price of 305 pence per share that represented a discount of 2.5% to 2010 year end EPRA NAV and 5.3% to the closing share price on the day prior to the issue. 5,284,041 shares were issued generating net cash proceeds of £15.7 million. The cash has been used to finance acquisitions.
| 2012 | 2011 | |
|---|---|---|
| £000 | £000 | |
| Balance at beginning of year | 54,430 | 53,934 |
| Issue expenses | (6) | - |
| Shares issued in consideration for Apollo Medical Partners Limited | 3,325 | - |
| Scrip issue in lieu of interim cash dividends | 857 | 496 |
| Balance at end of year | 58,606 | 54,430 |
Company law restricts the applicability of the Share Premium account and in respect of the Company it may only be applied in paying unissued shares of the Company in respect of capitalisation issues and in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the Company.
13. Special reserve
The special reserve arose on the Firm Placing and Placing and Open Offer on 7 October 2009 and the Firm Placings on 12 April 2011 and 23 May 2012. It represents the share premium on the issue of the shares net of expenses.
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Balance at start of year | 57,405 | 44,442 |
| Placing: 23 May 2012 (2011: 12 April 2011) | 15,885 | 13,474 |
| Associated costs | (601) | (511) |
| Second interim dividend for the year ended 31 December 2011 (2011: 31 December 2010) | (5,969) | - |
| Scrip issue in lieu of second interim cash dividend | (346) | - |
| First interim dividend for the year ended 31 December 2012 | (6,240) | - |
| Scrip issue in lieu of interim cash dividends | (661) | - |
| Balance at end of year | 59,473 | 57,405 |
As the special reserve is a distributable reserve, the dividends declared in the year have been distributed from this reserve.
| 2012 | 2011 |
|---|---|
| pence | pence |
| Basic and diluted 208.67 |
216.21 |
The basic net asset value per Ordinary Share is based on net assets attributable to Ordinary Shareholders of £158.7 million (2011: £147.6 million) and on 76,034,208 (2011: 68,272,229) shares, being the number of shares in issue at the year end.
15. Contingent liabilities
The Company has guaranteed the performance of its subsidiaries in respect of development agreements totalling £16.3 million (2011: £11.8 million).
16. Related party transactions
Details of related party transactions are provided in the Directors' Report on page 28, Directors' Remuneration Report on page 35 and notes 4 to the Group Financial Statements on page 47. There are no employees other than the Directors, listed on pages 34 and 35.
The Company has taken advantage of the exemption available in FRS8 "Related Party Disclosures" not to disclose transactions with other members of the Group as the Company's own financial statements are presented together with its consolidated financial statements.
| Announcement of 2012 Annual Results | 28 February |
|---|---|
| 2012 Annual Report posted | 12 March |
| Second interim cash dividend payment (2012) | 22 April |
| Annual General Meeting | 15 April |
| Interim Management Statement for the quarter ended 31 March 2013 | 15 April |
| Half year end | 30 June |
| Announcement of Half Year Results | August |
| Expected first interim cash dividend payment (2013) | October |
| Interim Management Statement for the quarter ended 30 September 2013 | November |
| Financial year end | 31 December |
| 2012 2nd Interim |
2012 1st Interim |
2011 2nd Interim |
2011 1st Interim |
|
|---|---|---|---|---|
| Rate per share | 9.50p | 9.25p | 9.25p | 9.00p |
| Ex-dividend date | 6.03.13 | 26.09.12 | 7.03.12 | 5.10.11 |
| Record date | 8.03.13 | 28.09.12 | 9.03.12 | 7.10.11 |
| Payment date | 22.04.13 | 26.10.12 | 5.04.12 | 28.10.11 |
As described in the Directors' Report, the Company has made arrangements for an Investment Account to be made available to allow investors to purchase the Company's Ordinary Shares. The Investment Account Service is provided by Equiniti Financial Services Limited and is designed to allow lump sum and regular savings to facilitate the purchase of the Company's shares. The URL link accessing the detail and forms for the this Service can be accessed from the Company website or alternatively at: www.shareview.co.uk/dealing.
For details of the service please contact: Equiniti, PO Box 4605, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA Shareholder helpline: 0845 300 0430
Equiniti Financial Services Limited is authorised and regulated by the Financial Services Authority.
As with all stock market investments, the price of shares can go down as well as up and on sale investors may not get back the full amount they invested.
The Company's mid market share price is quoted daily in the Financial Times appearing under "Real Estate".
If you would like your dividend/interest paid directly into your bank or building society account you should write to Equiniti Registrars including details of your nominated account. Although this will enable your dividend/interest to be paid directly into your account, your tax voucher will be sent to your registered address.
The optional Scrip Dividend Scheme enables Shareholders to receive new Ordinary Shares in PHP instead of cash dividends without incurring dealing costs, stamp duty or stamp duty reserve tax by electing to take a scrip dividend instead of a cash dividend. A circular describing the scrip dividend offer will be posted to Shareholders at the appropriate time.
The REIT Regulations in force require that a REIT is obliged to pay distributions equal to 90% of its exempt rental income (as calculated for tax purposes). Distributions from the Company may
comprise PIDs, ordinary cash dividends or a combination of the two. No PIDs have been paid by the Group since 1 January 2007. A PID will be taxed as property letting income for Shareholders who pay tax, but this is separate from any other property letting business they may carry on. PIDs are paid out under deduction of tax at the basic rate (currently 22% withholding tax). The Regulations provide that tax is not deducted if the PID is paid to certain classes of Shareholders, in particular UK Companies, charities, local authorities and UK Pension schemes.
In order to pay a PID without withholding tax, the Company has to be satisfied that the shareholder concerned is entitled to that treatment. For that purpose the Company requires Shareholders to submit a valid form. Shareholders who wish to apply for a Tax Exemption Form should contact the registrars on 0871 384 2030* or apply in writing to: Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA.
* Calls to this number are charged at 8p per minute plus network extras. Lines are open 8.30am to 5.30pm Monday to Friday.
Her Majesty's Revenue and Customs ("HMRC") has produced guidance on Real Estate Investment Trusts paying PIDs to non residents and this can be found at the following web address: http://www.hmrc.gov.uk/cnr/dt-guide-note-9.htm.
The above is a general guide only and Shareholders who have any doubt about their tax position should consult their own appropriate independent professional adviser.
General information about the Company can be found on the PHP web site at www.phpgroup.co.uk. Alternatively you may contact Harry Hyman, Phil Holland or Tim Walker-Arnott on 020 7451 7050.
Registered No. 3033634
Investors wishing to purchase more Ordinary Shares or dispose of all or part of their holding may do so through a stockbroker. Many banks also offer this service.
The Company's registrars are Equiniti. In the event of any queries regarding your holding of shares, please contact the registrars on 0871 384 2030*.
Changes of name or address must be notified to the registrars in writing.
A quick and easy share dealing service is available to either sell or buy more PHP shares. An online and telephone dealing facility is available providing Shareholders with an easy to access and simple to use service.
The table below provides you with details of the associated charges.
There is no need to pre-register and there are no complicated forms to fill in. The online and telephone dealing service allows you to trade 'real time' at a known price which will be given to you at the time you give your instruction.
To deal online or by telephone all you need is your shareholder reference number, full postcode and your date of birth. Your shareholder reference number can be found on your latest dividend statement. Please have the appropriate documents to hand when you log on or call, as this information will be needed before you can buy or sell shares.
For further information on this service, or to buy and sell shares, please contact:
• Equiniti customer services 0845 300 0430 (8.00am – 6.00pm Monday to Friday) www.shareview.co.uk/dealing
| Trade | Percentage | Minimum | |
|---|---|---|---|
| value | of trade value | charge | |
| Telephone | £0-£50,000 | 1.50% | £45 |
| £50,001+ | 1.50% | on first £50,000 | |
| 0.20% | on remainder | ||
| Internet | 1.50% | £40 |
Graeme Elliot (Chairman) Alun Jones (Chairman of Audit Committee and Senior Independent Director) Harry Hyman (Managing Director) Mark Creedy Martin Gilbert (resigned 14 June 2012) William Hemmings (appointed 18 June 2012) James Hambro Dr Ian Rutter OBE
J O Hambro Capital Management Limited Ground Floor, Ryder Court 14 Ryder Street, London SW1Y 6QB Tel: 020 7747 5678 Fax: 020 7747 5612
Nexus Tradeco Limited 5th Floor, Greener House 66-68 Haymarket, London SW1Y 4RP Tel: 020 7451 7050
J O Hambro Capital Management Limited Ground Floor, Ryder Court 14 Ryder Street, London SW1Y 6QB Tel: 020 7747 5678
Equiniti Aspect House, Spencer Road, Lancing West Sussex BN99 6DA General enquiries: 0871 384 2030* Telephone dealing: 0845 300 0430 Online dealing: www.shareview.co.uk/dealing
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Tods Murray LLP Edinburgh Quay, 133 Fountainbridge Edinburgh EH3 9AG
Ernst & Young LLP 1 More London Place, London SE1 2AF
The Royal Bank of Scotland Plc 280 Bishopsgate, London EC2M 3UR
Allied Irish Banks, p.l.c. St Helen's, 1 Undershaft London EC3A 8AB
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Clydesdale Bank PLC 5th floor, 33 Gracechurch Street Surrey Street, London EC3V 0BT
Aviva Commercial Finance Limited Surrey Street, Norwich NR1 3NJ
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Lambert Smith Hampton Group Limited Interchange Place, Edmund Street Birmingham B3 2TA
The paper in this report is a FSC certified product, produced with an FSC mixed sources pulp which is fully recyclable, biodegradable & Chlorine free. It is manufactured within a mill which complies with the international environmental ISO 14001 standard.
It has been printed using environmentally friendly vegetable based inks, formulated on the basis of renewable raw materials, vegetable oils are non-hazardous from renewable sources. Over 90% of solvents and developers are recycled for further use and recycling initiatives are in place for all other waste associated with this production. The printers are FSC and ISO 14001 certified with strict procedures in place to safeguard the environment through all their processes and are working on initiatives to reduce their Carbon Footprint.
For further information contact: Harry Hyman, Phil Holland or Tim Walker-Arnott
Telephone: 020 7451 7050 www.phpgroup.co.uk
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