Amended Management Agreement
Primary Health Properties PLC ("PHP" or the "Company")
Reduction in fees payable under amended management agreement
The Board of PHP is pleased to announce that it has agreed more favourable terms for the management of its property portfolio and other services provided by Nexus PHP Management Limited ("Nexus") and J O Hambro Capital Management Limited ("JOHCM") together (the "Joint Managers") . These reductions in fees will be of material benefit to the shareholders of PHP as the assets under management increase.
PHP's portfolio currently comprises over one hundred and fifty primary healthcare facilities, both completed and committed, the majority of which are let to GP surgeries on long lease lengths, with other properties let to Primary Care Trusts, pharmacies and dentists.
Nexus and JOHCM have delivered management services to the Company for over 14 years under the terms of a management agreement and during this time have generated significant annual returns for shareholders.
Nexus identifies suitable properties, negotiates the terms of the purchase of those properties and provides property management services on behalf of the Group. Nexus also provides the services of the Company's Managing Director, Mr Harry Hyman and a team of property professionals.
JOHCM provides administrative and accounting services to the Group and is also the Company Secretary.
The gross assets of the Company have grown substantially and as at 30th June 2010 amounted to £468 million. Accordingly, the Company and the Joint Managers have deemed it appropriate to vary the terms of the management agreement in order to reduce the incremental costs to shareholders as the assets under management grow further in the future.
The fee arrangements under the original management agreement, based on gross asset values, were as follows:
· 1% p.a. of the first £50 million of property assets, and
· 0.75% p.a. thereafter.
At £500 million of gross property assets, this would comprise a management fee of approximately £3.875 million.
Summary of the changes to the management agreement
The revised management agreement, which is effective from 1st January 2011, will reduce the incremental fee payable to both JOHCM and Nexus as gross assets increase above £500m. The amended fee structure will continue to be calculated as a percentage of the gross asset value of the Company and is detailed below:
(The tables below refer to the aggregate fees payable to the Joint Managers).
|
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 illustrative impact of the change to the management fee structure, and associated savings are detailed below:
|
Assets under Management (£ Million) |
Old Fee |
New Fee |
Saving |
|
£500 |
£3.875 |
£3.875 |
£0 |
|
£625 |
£4.813 |
£4.531 |
£0.282 |
|
£750 |
£5.750 |
£5.188 |
£0.562 |
|
£875 |
£6.688 |
£5.734 |
£0.954 |
|
£1,000 |
£7.625 |
£6.281 |
£1.344 |
All the financial benefits arising from the changes to the charging structure based on gross assets will accrue only to the Company and therefore its shareholders.
The Company has always been able to terminate the agreement upon notice but previously did not have the ability to terminate and make payment to the Joint Managers in lieu of notice. A provision has been added to the management agreement, 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 Company considered it prudent to have such ability in the event it considered it to be in the best interests of the Company to replace one or both of the Joint Managers during the notice period. The agreement remains terminable by not less than two years' written notice.
The revised agreement also changes the terms of additional payments that may be made to Nexus only for non standard real estate related services. These have been capped at 10% of the total fees payable to Nexus.
Nexus is also pleased to announce that Phil Holland ACA has joined Nexus from 1st January 2011 to act as Deputy Managing Director of PHP (although this is not a PHP Board position) with special responsibility for financial oversight and strategic management. Phil was formerly CFO of Natixis Capital Partners Limited and previously CFO of Atlas Estates Limited and Estates & General PLC.
Graeme Elliot, Chairman said "The Board is pleased with the outcome of these negotiations which are of material benefit to shareholders. As the Company's gross assets increase, it is appropriate that a scaled fee arrangement is in place. Both Nexus and JOHCM have recognised this and we are grateful for their positive approach."
Further details:
Primary Health Properties PLC
Harry Hyman
Managing Director
Tel: 020 7451 7050
Mobile: 07973 344768
Pelham Bell Pottinger
David Rydell/ Victoria Geoghegan
Tel: 020 7861 3925
This information is provided by RNS