Annual Financial Report

RNS Number : 2973F

Primary Health Properties PLC

19 February 2015

 



Primary Health Properties PLC

Audited results for the year ended 31 December 2014

Primary Health Properties PLC ("PHP", the "Group" or the "Company"), the UK's leading investor in modern primary healthcare facilities, is pleased to announce its audited results for the year ended 31 December 2014.

FINANCIAL HIGHLIGHTS

·      IFRS profit before taxation increased by 83% to £36.9 million (2013: £20.2 million)

·      EPRA earnings increased by 168% to £18.2 million (2013: £6.8million)

·      EPRA earnings per share increased by 116% to 16.4 pence (2013: 7.6 pence)

·      EPRA net asset value per share increased by 6.3% to 319 pence (2013: 300 pence)

·      Dividend cover increased to 84% (2013: 57%¹)

·      Payment of 19.5p per share of dividends during the year (2013: 19.0p), the 18th successive year of dividend growth

·      Increased second interim dividend of 10.0p per share for 2014 declared (2013: 9.75p), payable on 1 April 2015

·      Debt totalling £178 million acquired with Prime Public Partnerships Limited ("PPP") portfolio in December 2013, fully refinanced in the year as planned

·      Lending margins reduced by an average of 55 basis points on £235 million of bank facilities

·      £82.5 million, five year unsecured Convertible Bond issued in May 2014 with a 4.25% coupon and a conversion price of 390 pence per share

·      24% of drawn debt now on an unsecured basis (2013: 13%)

OPERATIONAL HIGHLIGHTS

·      Net rental income increased by 42.5% to £59.3 million (2013: £41.6 million)

·      Average annualised uplift of 1.8% on reviews completed in the year (2013: 2.2%)

·      Investment property as at 31 December 2014 £1.03 billion (31 December 2013: £0.94 billion)

·      Valuation surplus of £29.2 million for the year, reflecting underlying like-for-like growth of 3.2%; net portfolio initial valuation yield of 5.52% (2013: 5.65%)

·      Annualised rent roll, including commitments, increased by 5.7% to £60.9 million (2013: £57.6 million)

·      Portfolio 99.8% let with 15.3 years weighted average unexpired lease term (including commitments) (2013: 15.7 years)

·      Provision of property advisory and administrative services consolidated; Total Expense Ratio reduced to 69bps (2013: 88bps)

¹ - Includes add back of non-recurring contractual administrative services termination fee

Harry Hyman, Managing Director of Primary Health Properties, commented:

"This has been another very successful year for PHP as we continue to deliver value to shareholders both through earnings and valuation growth, significantly increasing dividend cover. This year was a landmark year as the portfolio value surpassed £1 billion and we expect this to continue to grow as we invest in more, modern, high quality properties. 

"We anticipate that, having slowed since 2013, the rate of approval of new premises will increase. Following the General Election the integration of healthcare and social services will become more pronounced and increase the demand for new facilities. We are in an excellent position from which to further expand the portfolio and continue to deliver progressive returns to shareholders."

For further information contact:

Harry Hyman Primary Health Properties PLC T [phone] [e-mail]	Phil Holland Primary Health Properties PLC T [phone] [e-mail]
David Rydell / Victoria Geoghegan / Elizabeth Snow Bell Pottinger T [phone]
Joshua Cryer / Robert Irvin Broker Profile T [phone]

This document may contain certain forward-looking statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Actual outcomes and results may differ materially from any outcomes or results expressed or implied by such forward-looking statements.

Any forward-looking statements made by or on behalf of the Company speak only as of the date they are made and no representation or warranty is given in relation to them, including as to their completeness or accuracy or on the basis upon which they were prepared.  The Company does not undertake to update forward-looking statements to reflect any changes in the Company's expectations with regard thereto or any changes in events, conditions or circumstances upon which any such statement is based.

Information contained in this presentation relating to the Company or Group should not be relied upon as a guide to future performance.

Chairman's Statement

I am pleased to present the Group's Annual Report for 2014, another busy and successful year.  We have grown the Group's property portfolio, passing the £1 billion milestone in the year and have delivered on our key objective for the period of significantly increasing dividend cover, from 57%¹ in 2013 to 84% in 2014.

Our proven strategy of investing in modern, purpose built primary care premises is evident in the results and activity of the year.  Underpinned by long term, secure income streams, the Group's portfolio has delivered growth in both income and capital value which has been translated into increased earnings and shareholder value. Total NAV return for the year, being the increase in EPRA net asset value per share and dividends per share paid, was 12.8% (2013: 4.6%).

Performance highlights

All aspects of our business have contributed to the strong financial performance in the year.  The acquisitions of the PPP portfolio in December 2013 and further assets totalling £43 million in 2014 were the major contributors to a 42.5% increase in net rental income in the year to £59.3 million (2013: £41.6 million). 

The consolidation of advisory services to the Group, effective from May 2014, has reduced administrative costs as a proportion of assets with the Group's total expense ratio falling to 69 basis points (2013: 88 basis points).  Fresh debt issuance, most notably the issue of the Group's 4.25% 2019 Convertible Bond in May 2014, and the restructuring or refinancing of other existing facilities during the year, has resulted in lower marginal borrowing costs, a wider spread of debt providers to the Group and an increase in the average maturity of facilities.

The combined effect of these actions is a 116% increase in EPRA earnings per share to 16.4 pence (2013: 7.6 pence).  IFRS profit before tax increased 82.7% to £36.9 million (2013: £20.2 million). The Board continued to grow the dividend paid to shareholders with a total of 19.5 pence per share paid in 2014, an increase of 2.6% (2013: 19.0 pence per share).  This is the eighteenth year of successive dividend growth.  Notwithstanding the increase in both dividend paid and the number of shares in issue, the Group made significant progress in rebuilding dividend cover, improving to 84% for the year from 57% in 2013.

At 31 December 2014, our property portfolio, including commitments as complete, was valued at £1.04 billion. Allowing for costs associated with acquisitions in the year, the net surplus on revaluation was £29.2 million.  Overall, EPRA net asset value per share increased by 6.3% to 319 pence (2013: 300 pence). 

Dividends

The Board has approved the payment of an interim dividend of 10.0 pence per share, payable on 1 April 2015 to shareholders on the register on 27 February 2015.  The Board is committed to maintaining its progressive dividend policy whilst growing dividend cover.

The NHS backdrop

As we enter 2015, the upcoming General Election dominates the political and fiscal landscape but the unwavering cross party support for the NHS is already evident.  Each of the major political parties made specific statements in the autumn of 2014 on their commitment to the future of the NHS, its funding and its importance to British society.  These included continued ring-fencing of the NHS budget with annual increases in expenditure in real terms, targeting increases in GP numbers and improved access to GP services.

This was boosted in the Chancellor's Autumn Statement with the provision of an additional £2 billion of funding for front-line NHS services in 2015/2016 and a further pool of more than £1 billion to be provided over a four year period to directly enhance GP premises.

¹ - Includes add back of non-recurring contractual administrative services termination fee

In October 2014, NHS England published its Five Year Forward View of the Health Service in England.  This reinforced "list-based primary care" as the foundation of the NHS and outlined planned changes to better integrate health and social care, working closer with others such as Local Government to promote health and wellbeing.  It is also planned that a greater number of services will be located within local communities to provide economic efficiencies and meet the objectives of giving patients "far greater control of their own care". 

The modern premises provided by the Group will help the NHS achieve these objectives, providing flexible accommodation that can be used for GP services, to house specialist equipment and services and facilitate greater integration and collaboration between providers of health and social care.

Outlook

The structural changes to the NHS in 2013 have slowed the rate of approval of new medical centre developments and the inception of new projects for future schemes.  As we move beyond the Election, the need to upgrade many existing GP premises and the integration of both primary and secondary care and of health and social services will increase the demand for new facilities and we anticipate the rate of approvals to improve. We have an identified pipeline of investment properties that will secure further portfolio and earnings growth.  

PHPs track record as one of the leading investors in healthcare real estate will position us at the forefront of providing new, modern premises and support the NHS in its development. 

We will continue to work with the NHS and our existing GP tenants to invest in our portfolio to enhance our facilities and adapt and extend them to meet their changing needs.  Using our depth of knowledge of the sector we will deliver more asset management projects that will generate increased and lengthened income streams and growth in capital values.

Through these activities, together with efficient administrative management and appropriate financing of the Group, we expect to further our objectives of increasing earnings and dividend cover.

Appointment

I am delighted to announce the appointment of Phil Holland as a Director of the Company.  Phil has been a key contributor to the Group's growth since joining Nexus in 2010.  Phil is a Chartered Accountant and experienced listed property company director who will serve as Finance Director and Deputy Managing Director of PHP.  I wish him every success in his new role.

I would like to thank my fellow Board members and all of those who work with us to ensure the continued success of the Group.  I look forward to 2015 and the expected growth and progression of the Group with confidence.

Alun Jones

Chairman

18 February 2015

STRATEGIC REVIEW

Strategic Objectives

The overall objective of the Group is to create progressive returns to shareholders through a combination of earnings growth and capital appreciation.  To achieve this, PHP invests in health care real estate across the United Kingdom let on long term leases, backed by a secure underlying covenant where the majority of rental income is funded directly or indirectly by the UK government.

Business model

The Group works in partnership with its stakeholders to create and maintain a portfolio of fit for purpose facilities that provide a long term home for local healthcare provision and that are easily adapted to meet the changing needs of a community.  Initial lease terms are typically of 21 years or more, at effectively upward only rentals and the large majority of income is received either directly from the NHS or from NHS funded GP tenants providing a secure, transparent income stream.

By achieving each of the strategic objectives outlined below, PHP is able to meet its overriding aim of delivering progressive shareholder returns through a combination of income and long term value growth. 

(i)    The Group looks to grow its property portfolio by funding and acquiring high quality, newly developed facilities and investing in already completed, let properties.  PHP concentrates on assets with strong underlying fundamentals that it can acquire for a fair price and secure an acceptable gap between the income yield an asset generates and the cost of managing and funding that investment.

(ii)    Each potential investment is evaluated for its income and asset value growth potential.  PHP seeks to manage its portfolio effectively and efficiently, looking to identify opportunities to add income and value by providing additional space, facilitating the provision of additional services or extending the term of underlying leases.  This is undertaken within an efficient management structure where operating costs are tightly controlled and structured to gain economies of scale as the Group continues to grow.

(iii)   The Group finances its portfolio with a diversified mix of equity and debt, in order to optimise risk adjusted returns to shareholders.  Debt facilities are arranged on both a secured and unsecured basis, provided by traditional bank lenders and debt capital markets, with a spread of maturities that ensures flexibility and availability over the longer term to match the longevity of income streams.

(iv)   PHP recognises that effective management of risks faced by its business is key to its ability to achieve its strategic objectives.  PHP takes a long term view of its business, in keeping with the strategic horizons of its tenants and length of its income streams.  The portfolio is managed by an experienced and innovative management team and funded within an appropriate capital structure.  Through a well-defined system of robust risk management, the Board monitors internal and external risks and actively manages the potential impact and possible opportunities they create.

Our Market

PHP is a long term investor in modern purpose-built healthcare properties located within the UK.  Tenants comprise of general practitioners, NHS organisations and other associated healthcare users, including on-site pharmacies.

The opportunity

Primary care is the foundation of the NHS in the UK and the GP continues to be the first point of access to healthcare services for UK residents, other than acute emergency care.  More than 1.3 million patients visit their GP practice each day¹, representing 90% of all NHS patient contacts.  The recent five year plan published by the NHS reiterated that "the foundation of NHS care will remain list-based primary care" and the provision of more GPs is a stated objective of each of the main political parties.

The latest available data² shows that, across the UK, there are more than 43,000 GPs, operating within 9,700 partnerships.  Alongside mostly GP occupied premises, there are a growing number of directly NHS tenanted primary care facilities that house outpatient departments, provide urgent care centres and other such services that are being relocated into the community which they serve.

The NHS England Five Year Plan commits to invest more in primary care and provide more services within the local community.  Here, these services can be delivered more cost effectively and provide greater choice to the patient.

This change in delivery requires modern, purpose built flexible premises from which these services can be provided, whereas a large part of the primary care estate is comprised of ageing, converted residential properties with 40% of GPs seeing their properties as being inadequate for the provision of general practice services3.  In December 2014, the Government announced £1.1 billion in funding over the next four years specifically to improve GP premises, but in order to fund the large scale investment that is required to properly modernise the primary care estate, investment capital from private sector investors such as PHP will be in demand.

The fundamentals

Patient driven demand

The UK's population is growing and ageing.  In 2013, the UK's population was 64.1 million, with 7.6 million people aged 70 or over4.  The total population is projected to grow by 10% in the next 15 years, but the number over the age of 70 will grow by more than 45%.  This will bring with it ever increasing and changing demands both in terms of providing the range of services needed by the population, but also in order to generate delivery efficiencies for the continued viability of the NHS.

The policy of  integrating local authority social care and health and wellbeing services with primary care will only increase the need for further flexible, but community based premises.

Strong property characteristics

The primary care premises market is tightly controlled by the NHS, meaning there is no speculative development of new facilities.  Structural changes in the NHS in 2013 have led to a significant reduction in the number of approvals since that time.  Now that new management systems and processes have been put in place and with the announcement of additional funding, we anticipate an increase in new approvals in the near future.

Buildings are often located within residential areas which can lead to restricted alternative use potential.  Against this, initial lease terms are longer than in general commercial markets, more than 20 years on average, have no break terms and benefit from a shorter rent review cycle, typically three yearly and in general on an upwards only basis. 

¹ - Royal College of General Practitioners January 2015

² - Health and Social Care Information Centre, General practice trends in the UK, 23 January 2013

³ - British Medical Association GP Committee Premises Survey

⁴ - ONS

A key feature of the sector is that GPs receive reimbursement for costs associated with their premises from the NHS, a practice that is set out in legislation.  Where properties are leased from landlords such as PHP, a GP's rent and costs of maintaining and insuring the property are funded by the NHS.  Together with leases direct to the NHS, the sector benefits from a very strong underlying rental covenant.

These factors combine to create a long term, low risk income environment where over the medium term, through a mix of indexed linked and open market review characteristics, rental growth has broadly tracked inflation.

Returns

IPD established its Healthcare Property Index in 2007 which is published in March each year.  The table below shows how the primary healthcare real estate sector has produced superior returns over the life of the Index, compared to all sectors other than the highly fragmented residential market.  This reflects the low risk nature of its tenants and lower volatility in capital values underpinned by the long term nature of the income streams, generating a very compelling investment case.

Sector	Total Return
Residential property	7.8%
Primary healthcare	6.5%
Gilts	6.4%
All healthcare	5.5%
Equities	4.9%
Office property	2.3%
All Property	1.5%
Industrial property	1.3%
Retail property	0.7%

Source: IPD

Business Review

Delivering progressive returns

EPRA earnings per share 16.4 pence + 116%

Dividend per share 19.5 pence + 2.6%

EPRA NAV per share 319 pence + 6.3%

Total NAV return 38.5 pence + 12.8%

In 2014, PHP continued to deliver on its overarching strategic aim of delivering progressive returns to shareholders.  It has met its operating objectives of:

(i)    acquiring modern healthcare premises,

(ii)    investing in its existing property assets to generate additional income and enhance value,

(iii)   managing operating costs to make the Group more efficient, and

(iv)   securing capital resource to provide a strong longer term base from which to invest, whilst ensuring that the average cost of debt is effectively managed.

We have achieved our objective of increasing earnings and as a result dividend cover.  This was whilst paying a modestly increased dividend, but on a much larger number of shares in issue compared to that of 2013.

Earnings

The Group's earnings were significantly increased by the impact of the transactions completed in late 2013 and through 2014.  The PPP portfolio produced a total of £11.8 million of rental income in the year, helping to increase rents received by 42.5% to £59.3 million (2013: £41.6 million).  Reductions in advisory and management fee rates and the average cost of the Group's debt finance further improved earnings performance.  Group profit before tax rose by 82.7% to £36.9 million (2013: £20.2 million).

Summarised results	2014	2013
	£m	£m
Net rental income	59.3	41.6
Administrative expenses	(6.8)	(6.1)
Operating profit before revaluation gain and financing	52.5	35.5
Net financing costs	(34.3)	(26.0)
Non-recurring operating costs1	-	(2.7)
EPRA earnings	18.2	6.8
Net result on property portfolio	29.2	2.3
Profit on sale of finance lease	-	0.6
Early loan repayment fee	(1.2)	(0.9)
Fair value (loss)/gain on interest rate swaps	(2.4)	11.4
Fair value loss on convertible bond	(4.5)	-
Non-recurring: convertible bond issue costs	(2.4)	-
IFRS profit before tax	36.9	20.2
EPRA earnings per share	16.4p	7.6p

¹ - JOHCM contractual termination fee

Total dividends paid in the year increased by 2.6% to 19.5 pence per share (2013: 19.0 pence), but the increase in Group earnings saw dividend cover rise to 84%.  This is a significant increase over that of 2013 of 57% and a critical step forward towards reaching 100% cover.

Shareholder Value

The characteristics of the Group's property portfolio with its longevity and security of income have made healthcare real estate more attractive to real estate investors, particularly those looking for consistent yield.  The revaluation of the Group's property portfolio at 31 December 2014 produced a net surplus of £29.2 million.

As is required by accounting standards, the total issue costs of the convertible bond issued in the year, £2.45 million, have been fully expensed and the Group incurred other early repayment charges related to the refinance of the PPP debt of £1.2 million.

The net effect of the above has been an overall increase in EPRA Net Asset Value per share of 19.0 pence.  Including the dividend paid in 2014, Total NAV Return for the period was 38.5 pence per share or 12.8% (2013: 4.6%).

EPRA Net asset value per share	2014	2013
	pence per share	pence per share
Opening EPRA NAV per share	300.0	305.0
Profit for the year1	16.4	9.7
Net result on property portfolio	26.3	2.4
Dividend paid	(19.5)	(19.0)
Early repayment charges	(1.1)	(1.2)
Share issue	0.3	3.1
Convertible Bond issue costs	(2.2)	-
Interest rate derivative fair value adjustment	(1.2)	-
Closing EPRA NAV per share	319.0	300.0

¹ Excluding result on property portfolio, early repayment charges and non-recurring charges

Growing PHP's property portfolio

Total property assets £1.04 billion + 8.2%

Revaluation surplus £29.2 million 26.3 pence per share

Contracted rent roll £60.9 million + 5.7%

WAULT 15.3 years - 0.4 years

As at 31 December 2014, the Group held a total of 265 property assets, with 260 completed and 5 on-site, under construction.  The entire portfolio was independently valued by Lambert Smith Hampton ("LSH"), at market value in accordance with RICS rules. This totalled £1.04 billion including commitments, generating a surplus of £29.2 million, after the effect of the total costs of assets purchased and asset management projects undertaken in the period. This surplus, equivalent to 26.3 pence per share, is an increase of 8.8% on opening EPRA NAV per share of 300 pence per share at the start of 2014.

	2014	2013
	£m	£m
Investment properties	1,002.4	929.9
Properties in the course of development	23.9	11.7
Total properties owned and leased	1,026.3	941.6
Cost to complete development commitments	11.2	17.1
Total completed and committed	1,037.5	958.7

Yields in the property sector in general have tightened considerably through 2014.  Prime real estate markets have seen heightened investor appetite as confidence has returned with the improved performance of the UK economy and the emergence of rental growth in some sectors.  Institutional investors have also looked more closely at alternative real estate classes and we have seen increased competition for assets that have longer lease terms with fixed or index linked rent review terms, particularly those that are larger lot sizes. 

With the underlying characteristics of our sector and our largest income source, the NHS (directly or indirectly) being unchanged, a movement in yields in the primary care real estate sector has occurred but has been less pronounced than for commercial property generally.  This highlights the historic stability of the sector with PHP's portfolio reflecting an average net initial yield of 5.52% (2013: 5.65%) and a true equivalent yield of 5.75% (2013: 5.92%).

The table below shows the total property return ("TPR") for periods ended 31 December 2014.  TPR represents the sum of net rental income and valuation movement for the respective periods. 

	One year	Three years	Five years
Primary Health Properties	8.9%	7.1%	8.3%
IPD All Property Index	18.6%	7.3%	8.0%

As in prior years, IPD will also prepare a Healthcare Property Index enabling a more bespoke benchmarking of PHP's performance to its direct peers.  This will next be published in March 2015 and we will report our relative performance with our interim statement.
 

Following an exceptional period of activity in 2013, the Group added seven properties to its portfolio in the year, comprising three standing let investments and four development assets.  These added £2.4 million of additional rent and an average of 24 years of unexpired lease term.

Asset	Acquisition basis	Acquisition cost	Size	WAULT at acquisition/on completion
Pharmacy unit, Albany Surgery, Newton Abbot	Completed investment	£1.6 million	753 sqm	18 years
Hume Street Medical Centre, Kidderminster	Completed investment	£11.0 million	2,387 sqm	28 years
South Petherton Medical Centre, Somerset	Completed investment	£2.6 million	916 sqm	18 years
Gorse Stacks, Chester	Development asset	£18.5 million	5,754 sqm	25 years
Caia Park, Wrexham	Development asset	£2.2 million	850 sqm	20 years
Hope Primary Care Resource Centre, Wrexham	Development asset	£3.4 million	1,793 sqm	20 years
Crown Medical Centre, Clipstone	Development asset	£3.7 million	1,016 sqm	25 years

We took delivery of five previously contracted and let assets in the year, following completion of their construction.  We work closely with a number of specialist healthcare developers where our combined reputation, knowledge and experience of the sector plays a key role in securing new projects.  We provide support to other developers who may be undertaking a primary care development for the first time or as part of a larger regeneration or development scheme.

In all instances, we work with our development partners, the GPs and the NHS who will be our longer term customers to ensure that we are delivering a property that meets their needs and provides flexibility for reconfiguration or expansion at any time in their occupation. 

Property Portfolio

	London	South West	South East	East Anglia	East Mids	West Mids	North West	Yorks & H'side	North	Scotland	Wales
Number of completed properties	10	14	61	7	19	29	28	20	22	29	21
Number of tenancies	15	23	124	11	39	72	56	42	42	53	74
Rent roll (£m)	£2.3	£2.3	£11.7	£1.0	£3.9	£7.8	£7.6	£4.9	£3.9	£7.9	£5.6
Capital value (£m)	£44.8	£42.6	£187.2	£16.9	£78.7	£134.2	£124.0	£82.1	£66.9	£131.9	£93.8

At 31 December 2014, the Group's contracted rent roll had increased by 5.7% to £60.9 million (31 December 2013: £57.6 million).  More than 90% of rental income is funded directly or indirectly by the NHS and the portfolio has an average unexpired lease term of 15.3 years (2013: 15.7 years). 

Managing effectively and efficiently

Rental growth on review 1.8% per annum £0.6 m per annum of additional rent

Capital projects £4.4 million invested £0.3 million of additional rent Average 15.7 years additional WAULT

Total expense ratio 69 basis points for the year Reduced by 19 basis points

Once an asset is completed and rent producing, we implement our property and asset management strategies.  These relate to both a high standard of ongoing maintenance and the longer term configuration and suitability of the premises in order that they continue to meet the needs of our tenants.

The Adviser, Nexus, is responsible for ensuring that PHP meets its obligations as Landlord at each of its assets.  In addition, Nexus provides a service to tenants that offers advice and assistance where the tenant itself maintains a building.  This includes regular meetings with our tenants in addition to an online resource with repairs and maintenance advice.

Each occupational lease includes a periodic review of rental levels. 10% are performed annually, 76% on a three yearly basis and 13% are reviewed every five years.  Most leases in the PHP portfolio have either explicit or effectively upwards only review terms (i.e. where the review is triggered by the landlord only).  Just over a fifth (23%) of leases have fixed periodic rental uplifts or increases that are formally indexed linked, mostly in line with RPI.  The most common review is undertaken to "open market".

We have continued to secure satisfactory rental growth on review, with the weighted average uplift on 135 reviews completed in 2014 being 1.8% per annum.  This is slightly reduced from that achieved in 2013 of 2.2% and reflects both the recent economic conditions and fewer new centre approvals by the NHS which normally provide more immediate support for current rental levels.  We expect to see rental growth at similar levels for the immediate future, but to increase as the rate of new development approvals increases.

We work closely with each of our tenants to ensure that, over the longer term, the property continues to be fit for purpose and offers the flexibility to be adapted and/or extended to meet the aspirations and changing demands put upon primary care providers.

This ensures that we retain our tenants and enables us to increase contracted rental income and lengthen occupational lease durations which add to both earnings and capital value.  Projects take a number of forms that include:

·      capital expenditure, ranging from small extensions to major construction projects; and

·      managing existing leases through re-gearing or refurbishment and planned or specific maintenance programmes.

In 2014, PHP completed eight projects, investing a total of £4.4 million.  These generated total additional rental income of £0.3 million, adding an average 15.7 additional years to the unexpired lease term and producing an aggregated 42% valuation gain on capital spent.

Two further projects are currently in progress, which will cost a total of £2.1 million.  These will generate £0.2 million of additional rent for an average additional term of 20 years and a valuation surplus of 35% over the capital invested.

The Board continues to employ Nexus to source new investment opportunities and manage the Group's property portfolio.  Nexus receives a fee based on a proportion of the gross value of the Group's property assets with the incremental rate reducing as the portfolio grows.  Further reductions were made to fee rates with effect from May 2014 in anticipation of the portfolio moving beyond £1 billion in value.

On 1 May 2014, Nexus assumed responsibility for the administration of the Group and provision of company secretarial services.  Fees that had been paid to the previous administrator were contractually calculated as a proportion of gross property asset value, but Nexus receives a greatly reduced fixed annual fee that may be varied upwards or downwards in line with RPI. 

The net impact of these changes was to lower the fees paid by the Group to its Advisers (Nexus and JOHCM¹) to an average of 55 basis points of gross assets, a 22.5% reduction on 2013 when this average was 71 basis points.  Including other overhead costs, the Group's total expense ratio reduced to 69 bps (2013: 88 bps).

¹ JOHCM provided administrative and company secretarial services for periods to 30 April 2014.

Diversified, long term funding

Net debt £658.1 million (2013: £579.7 million)

Weighted average facility maturity 6.2 years (2013: 5.8 years)

Loan to value 64.1% (2013: 61.6%)

The Board seeks to fund the Group with an appropriate combination of shareholder equity and external debt to enhance the returns that are generated.  A key objective is to ensure that facilities continue to be available to the Group to enable continued growth, for a range of maturities at an appropriate blended cost and from a range of sources.

As part of the acquisition of the PPP portfolio in December 2013, the Group assumed £178 million of existing Aviva debt secured on those assets.  It was the Board's intention to refinance the debt and an allowance of £13.7 million toward the cost of this was made in the acquisition pricing.  This debt was fully refinanced during 2014 by the completion of a number of transactions as set out below.

In February, the purchase price allowance was used to re-set the interest rate on the PPP Aviva loans to 5.04% from the average upon purchase of 5.9%.  This interest rate was applied from 1 January 2014.  A capital repayment of £15 million was also made at this time, funded from the Group's available headroom on existing facilities.

In April, a new £50 million, five year revolving debt facility was completed with HSBC Bank plc at an initial margin of 200 basis points over LIBOR.  The first drawing from the HSBC facility upon its completion was used to repay £25 million of the outstanding PPP Aviva debt.  A further £25 million of the PPP Aviva debt was repaid in April following the transfer of applicable collateral from Aviva to existing Group facilities.

The Group successfully issued an £82.5 million unsecured convertible bond on 20 May 2014, which it listed on the Channel Islands Stock Exchange.  The unsecured bond is for a five year term with a coupon of 4.25% per annum payable semi-annually.  The initial conversion price applicable to the bond is 390 pence per share, a premium of 16% to the volume weighted share price on the day of pricing.  The unsecured nature of this funding will increase the flexibility of the Group in structuring more traditional secured debt and allowed overall costs to be reduced as highlighted below.

The remaining £113 million of PPP debt was refinanced with Aviva in August with the creation of two facilities.  These comprised a £50 million, 10 year interest only, bullet repayment facility and a £63 million 15 year loan, interest only for five years with an element of amortisation from year six onwards and a final bullet repayment.  Both loans carry a fixed interest rate of 4.91% for their duration, further reducing the cost to the Group.

Two further amendments to the Group's debt portfolio were completed in August 2014:

·      the loan with Barclays Bank PLC was increased by £30 million to an overall £100 million facility, consisting of a £40 million term loan and a £60 million revolving facility.  This was agreed for a new five year term and the interest margin reduced from 220 basis points to an initial 170 basis points, and

·      the Group's £165 million Club facility with Royal Bank of Scotland and Santander was re-advanced for a new three year term, an additional 18 months on the remaining original term.  PHP used an element of the proceeds of the unsecured Convertible Bond, to lower the LTV within this facility and secure a reduction in the lending margin for this debt of 65 basis points to 185 basis points.

The principal value of debt drawn as at 31 December 2014 totalled £670.1 million.  After Group cash balances of £12.0 million, Group net debt stood at £658.0 million.  Allowing for funding the cost to complete development commitments at the year end of £11.2 million, headroom on existing facilities of £116.7 million was available to the Group (2013: £67.2 million).

Group loan to value ("LTV") was 64.1% (31 December 2013: 61.6%) with interest cover for the year being 1.73 times (2013: 1.60 times).  Certain debt facilities include a covenant requiring Group interest cover not to be less than 1.3 times, which has been met throughout 2014.

The average maturity of the Group's debt facilities as at 31 December 2013, excluding the PPP loans was 5.8 years.  The transactions set out above have increased the weighted average facility maturity to 6.2 years at the balance sheet date.

Unsecured debt facilities now represent 24% of the Group's debt portfolio.  Total debt comprises a mix of fixed and variable rate facilities and in order to mitigate the risk of increases in market interest rates, the Group holds a portfolio of interest rate derivative contracts (see note 18).

An analysis of the Group's exposure to interest rate risk is as follows:

	Facilities		Drawn
	£'m	%	£'m	%
Fixed rate debt	395.9	50.4	395.9	59.1
Debt hedged by interest rate swaps/caps	221.0	28.1	221.0	33.0
Floating rate debt	169.0	21.5	53.2	7.9
Total	785.9	100.0	670.1	100.0

Outlook

We have delivered greatly improved performance in 2014, through earnings and valuation growth, significantly rebuilding dividend cover.  As we move into 2015, we have continued to grow the Group's property portfolio through prudent acquisitions and development funding and to secure further enhancement and extension projects, driving additional income and asset value from existing owned properties.

Property markets have thrived in the last 12 months with a weight of capital seeking quality assets and in particular longer dated income streams.  We will seek to add further assets but will do so where the underlying fundamentals meet our exacting criteria and where properties offer the potential for both income and capital growth.  Our acquisition pipeline includes a mix of investment and development opportunities which will generate rental surpluses that will increase Group earnings.

A full year's impact of restructuring the basis of, and fee rates for, the provision of property management and administration services to the Group will be seen in 2015, helping to further improve earnings from effective cost management.

PHP is well placed to continue to be a major contributor to the ongoing development and modernisation of the primary care estate.  The General Election will shift the focus of government in the periods immediately before and following 7 May 2015 and will further slow the pace of change within the NHS.  We take comfort, however, from the statements from all of the political parties that underline that the GP will remain the gatekeeper to the NHS and that increased GP numbers and integration of care will see the demand for the modern premises that PHP provides continue to grow.

APPROACH TO RISK MANAGEMENT

The Board regularly reviews and monitors the risks facing the Group. Effective risk management is a key element of the Board's operational processes, impacting on decision making so as to ensure that risks that accepted are appropriate to the returns they may generate and within the overall risk appetite of the Board. The Group aims to operate in a relatively low risk environment, appropriate for its strategic objective of generating progressive returns for shareholders.

The Board has overall responsibility for effective risk management across the Group. The Audit Committee is delegated responsibility for reviewing the Group's systems of risk management on behalf of the Board. The Adviser is delegated responsibility for assessing and monitoring operational and financial risks and has in place robust systems and procedures to ensure this is embedded in its approach to managing the Group's portfolio and business.

The Adviser has established a wide ranging system of internal controls and operational procedures that are designed to manage risk as effectively as possible, but it is recognised that risk cannot be totally eliminated.

The Adviser has established a Risk Committee that is formed of members of its senior management team. The chairman of the Adviser's Risk Committee is independent of both the Adviser and the Group and experienced in the operation and oversight of risk management processes. The Adviser's Risk Committee reports on its processes of risk management and the rating of risks it identifies to the Audit Committee, who agrees those risks that will be managed by the Adviser and those where the Board will assume direct responsibility for management and monitoring.

Key risks are recorded in a Risk Register and owned by the Board which is responsible for overseeing the monitoring and mitigation of that risk.

The Board recognises that it has limited ability to control a number of the external risks that the Group faces, such as Government policy, but keeps the possible impact of such risks under review and considers them as part of its decision making process.

Key risks

Risk	Change to risk in 2014	Factors affecting risk in the year	Mitigation
PHP invests in a niche asset sector where a change of Government policy with regard to primary care may adversely affect the Group's portfolio and performance	Unchanged	NHS budgets have been ring fenced by the Government. The major political parties have confirmed their commitment to the NHS, increasing primary care provision and moving services into the local community.	The Board includes members experienced and active in primary care provision. Management regularly engages with the NHS and government directly to promote the continued investment in primary care and modern premises.
Negatively changing economic conditions could lead to a decline in the attractiveness of the Group's assets compared to other investment classes	Reduced	The UK economy has performed well in 2014, boosting confidence and leading to valuation growth in property sectors. The attractiveness of the long term, growing income streams of our sector leads to stability of values.	The Board and Adviser focus on keeping lease terms as long as possible, identifying opportunities to generate additional income and valuation stability.

Risk	Change to risk in 2014	Factors affecting risk in the year	Mitigation
The development of new properties is tightly controlled by the NHS. Recent structural changes have slowed the level of approvals and may be further impacted by the upcoming General Election, so restricting the ability of the Group to secure new investments.	Increased	The sector has seen a limited number of new development approvals through 2014. This has limited the number of investment opportunities for the Group.	The Group has a number of formal pipeline agreements and long standing development relationships that provide an increased opportunity to secure those developments that come to market. The reputation and track record of the Group in the sector means it is able to source investment in existing standing investments from investors and owner occupiers.
The Group uses a mix of shareholder equity and external debt to fund its operations. A restriction on the availability of funds would limit the Group's ability to invest.	Reduced	There has continued to be a healthy appetite from both equity investors and debt providers to fund the sector through 2014. There has been a number of new providers to the sector in the year.	The Board monitors its capital structure and maintains regular contact with funders. A programme of meetings with existing and potential equity investors is supported by regular discussions with debt providers.
The bespoke nature of the Group's assets can lead to limited alternative use. Their continued use as fit for purpose medical centres is key to delivering on the Group's strategic objectives.	Unchanged	As the Group's portfolio grows in the number of assets that it owns and initial lease terms erode, the importance of active management to extend the use of a building is increased.	The Adviser meets with all of the Group's occupiers on at least an annual basis to discuss the building and the tenant's aspirations and needs for their future occupation. The Group is experienced in identifying and implementing asset management projects that enhance income and values at properties and extend occupational lease terms.
The Group has no employees. The continuance of the Adviser contract is a key for the efficient operation and management of the Group.	Unchanged	The provision of administrative and company secretarial services was consolidated with the Adviser in the year, significantly reducing the costs of these services. The consolidation removed execution risk arising from the previous split responsibilities of joint advisers.	The Advisory Agreement with and performance of Nexus is regularly reviewed. Nexus remuneration is linked to the performance of the Group to incentivise long term levels of performance. Nexus can be required to serve all or any part of its notice period should the Group decide to terminate providing protection for an efficient handover.
Without appropriate confirmed debt facilities, PHP may be unable to meet current and future commitments or repay or refinance debt facilities as they become due.	Unchanged	The Group has been successful in extending the availability and widening the sources from which it obtains debt funds in the year. New entrants to the debt capital markets have increased available resource. The Group has increased to proportion of its facilities advanced on an unsecured basis.	Management constantly monitors the composition of the Group's debt portfolio to ensure compliance with covenants and continued availability of funds. The Adviser regularly reports to the Board on current debt positions and provides projections of future covenant compliance to ensure early warning of any possible issues.

Risk	Change to risk in 2014	Factors affecting risk in the year	Mitigation
Adverse movement in underlying interest rates could adversely affect the Group's earnings and cash flows.	Reduced	Competition in debt markets has increased during the year lowering the cost of new facilities. The Group has continued to apply its defined policy as regards mitigating interest rate risk.	The Group retains a proportion of its debt on a long term, fixed rate basis. It also mitigates its exposure to interest rate movements on floating rate facilities through the use of a series of interest rate swaps and other derivative instruments.

Harry Hyman

Managing Director

18 February 2015

Group Statement of Comprehensive Income

for the year ended 31 December 2014

			2014	2013
		Notes	£000	£000
Rental income			59,985	41,895
Finance lease income			-	87
Direct property expenses			(723)	(398)
Net rental income		3	59,262	41,584
Administrative expenses		4	(6,782)	(6,080)
Non-recurring expenses: Convertible bond expenses			(2,426)	-
Non-recurring expenses: Termination Fee		4d	-	(2,485)
Non-recurring expenses: Costs associated with PPP acquisition			-	(217)
Profit on termination of finance lease		5	-	638
Net result on property portfolio		11	29,204	2,313
Operating profit			79,258	35,753
Finance income		6	977	434
Finance costs		7a	(35,252)	(26,450)
Early loan repayment fees		7b	(1,187)	(950)
Fair value (loss)/gain on derivative interest rate swaps and amortisation of cash flow hedging reserve		7c	(2,454)	11,432
Fair value loss on convertible bond		7d	(4,462)	-
Profit before taxation			36,880	20,219
Taxation charge		8	-	1
Profit for the year (1)			36,880	20,220
Other comprehensive (loss)/income:
Items that may be reclassified subsequently to profit and loss
Fair value (loss)/gain on interest rate swaps treated as cash flow hedges		24	(9,980)	12,840
Other comprehensive (loss)/income for the year net of tax (1)			(9,980)	12,840
Total comprehensive income for the year net of tax 1			26,900	33,060
Earnings per share	Basic	9	33.2p	22.7p
	Diluted		31.5p
EPRA earnings per share	Basic	9	16.4p	7.6p
	Diluted		16.4p

The above relates wholly to continuing operations.

¹ - Wholly attributable to equity shareholders of Primary Health Properties PLC.

Group Balance Sheet

at 31 December 2014

		2014	2013
	Notes	£000	£000
Non-current assets
Investment properties	11	1,026,207	941,548
Derivative interest rate swaps	18	25	472
		1,026,232	942,020
Current assets
Trade and other receivables	13	5,668	4,764
Cash and cash equivalents	14	12,072	9,288
		17,740	14,052
Total assets		1,043,972	956,072
Current liabilities
Derivative interest rate swaps	18	(5,802)	(7,566)
Corporation tax payable		-	(23)
Deferred rental income		(12,308)	(11,934)
Trade and other payables	15	(14,244)	(16,269)
Borrowings: Term loans and overdraft	16	(711)	(3,843)
		(33,065)	(39,635)
Non-current liabilities
Borrowings: Term loans and overdraft	16	(437,022)	(460,185)
Borrowings: Bonds	17	(229,543)	(132,408)
Derivative interest rate swaps	18	(35,212)	(21,459)
		(701,777)	(614,052)
Total liabilities		(734,842)	(653,687)
Net assets		309,130	302,385
Equity
Share capital	20	55,638	55,237
Share premium account	21	56,416	55,611
Capital reserve	22	1,618	1,618
Special reserve	23	115,438	135,483
Cash flow hedging reserve	24	(23,847)	(14,337)
Retained earnings	25	103,867	68,773
Total equity (1)		309,130	302,385
Net asset value per share - basic	26	278p	274p
EPRA net asset value per share	26	319p	300p

These financial statements were approved by the Board of Directors on 18 February 2015 and signed on its behalf by:

Alun Jones

Chairman

¹ - Wholly attributable to equity shareholders of Primary Health Properties PLC.

Group Cash Flow Statement

for the year ended 31 December 2014

		2014	2013
	Notes	£000	£000
Operating activities
Profit on ordinary activities before tax		36,880	20,219
Finance income	6	(977)	(434)
Finance costs	7a	35,252	26,450
Provision for early loan repayment fee	7b	1,187	950
Amortisation of cash flow hedge reserve	7c	-	571
Fair value loss/(gain) on derivatives	7c	2,454	(12,003)
Fair value loss on convertible bond	7d	4,462	-
Operating profit before financing costs		79,258	35,753
Adjustments to reconcile Group operating profit to net cash flows from operating activities:
Revaluation gain on property portfolio	11	(29,204)	(2,313)
Profit on termination of finance lease	5	-	(638)
Fixed rent uplift		(1,025)	(905)
Convertible bond issue costs		2,426
(Increase)/decrease in trade and other receivables		(447)	4,402
(Decrease)/increase in trade and other payables		(1,985)	383
Cash generated from operations		49,023	36,682
Taxation paid		(23)	(89)
Net cash flow from operating activities		49,000	36,593
Investing activities
Payments to acquire investment properties		(54,921)	(44,560)
Proceeds from disposal of investments properties		525	-
Proceeds from disposal of finance lease	5	-	3,768
Subsidiaries acquired		-	(13,939)
Interest received on development loans		478	188
Bank interest received		40	48
Net cash flow used in investing activities		(53,878)	(54,495)
Financing activities
Proceeds from issue of shares		-	68,500
Cost of share issue		(15)	(2,728)
Cost of share issue - PPP		-	(540)
Term bank loan drawdowns		164,922	120,718
Term bank loan repayments		(176,343)	(195,740)
Proceeds of bond issues		92,500	60,000
Bond issue costs		(2,560)	(1,320)
Swap interest paid		(7,667)	(7,661)
Non utilisation fees		(990)	(1,023)
Loan arrangement fees		(3,092)	(1,274)
Interest paid		(24,078)	(18,328)
Breakage fee on Aviva debt		(14,327)	(2,380)
Equity dividends paid net of scrip dividend	10	(20,688)	(16,130)
Net cash flow from financing activities		7,662	2,094
Increase/(decrease) in cash and cash equivalents for the year		2,784	(15,808)
Cash and cash equivalents at start of year		9,288	25,096
Cash and cash equivalents at end of year	14	12,072	9,288

Group Statement of Changes in Equity

for the year ended 31 December 2014

	Share capital	Share premium	Capital reserve	Special reserve	Cash flow hedging reserve	Retained earnings	Total
	£000	£000	£000	£000	£000	£000	£000
1 January 2014	55,237	55,611	1,618	135,483	(14,337)	68,773	302,385
Profit for the year	-	-	-	-	-	36,880	36,880
Other comprehensive income
Fair value movement on interest rate swaps	-	-	-	-	(9,980)	-	(9,980)
Total comprehensive income	-	-	-	-	(9,980)	36,880	26,900
Reclassification of swap from ineffective to effective	-	-	-	-	470	(470)	-
Interest rate derivative fair value adjustment1	-	-	-	-	-	(1,316)	(1,316)
Share issue as part of consideration for PPP	259	-	-	1,605	-	-	1,864
Share issue expenses	-	(15)	-	-	-	-	(15)
Dividends paid:
Second interim dividend for the year ended 31 December 2013 (9.75p)	-	-	-	(10,542)	-	-	(10,542)
Scrip dividends in lieu of second interim cash dividend (net of expenses)	41	238	-	(279)	-	-	-
First interim dividend for the year ended 31 December 2014 (9.75p)	-	-	-	(10,146)	-	-	(10,146)
Scrip dividend in lieu of first interim cash dividend (net of expenses)	101	582	-	(683)	-	-	-
31 December 2014	55,638	56,416	1,618	115,438	(23,847)	103,867	309,130

¹ - This relates to fair value changes in prior periods incorrectly recognised within the cash flow hedge reserve movement.

	Share capital	Share premium	Capital reserve	Special reserve (1)	Cash flow hedging reserve	Retained earnings	Total
	£000	£000	£000	£000	£000	£000	£000
1 January 2013	38,017	58,606	1,618	59,473	(27,177)	48,553	179,090
Profit for the year	-	-	-	-	-	20,220	20,220
Other comprehensive income
Fair value movement on interest rate swaps	-	-	-	-	12,269	-	12,269
Amortisation of cash flow hedging reserve					571		571
Total comprehensive income	-	-	-	-	12,840	20,220	33,060
Proceeds from equity issue	10,873	-	-	57,627	-	-	68,500
Expenses of equity issue	-	-	-	(2,728)	-	-	(2,728)
Share issue as part of consideration for PPP	6,289	-	-	35,344	-	-	41,633
Share issue expenses (PPP)	-	-	-	(1,040)	-	-	(1,040)
Reserves transfer (1)	-	(3,325)	-	3,325	-	-	-
Dividends paid:
Second interim dividend for the year ended 31 December 2012 (9.50p)	-	-	-	(7,006)	-	-	(7,006)
Scrip dividends in lieu of second interim cash dividend (net of expenses)	32	185	-	(217)	-	-	-
First interim dividend for the year ended 31 December 2013 (9.50p)	-	-	-	(9,124)	-	-	(9,124)
Scrip dividend in lieu of first interim cash dividend (net of expenses)	26	145	-	(171)	-	-	-
31 December 2013	55,237	55,611	1,618	135,483	(14,337)	68,773	302,385

¹ - £3.3 million has been transferred from Share Premium to the Special Reserve with regards to the Apollo transaction under the merger relief provision of the Companies Act 2006. Refer to Note 22 for further details.

Notes to the Financial Statements

1. Corporate information

The Group's financial statements for the year ended 31 December 2014 were approved by the Board of Directors on 18 February 2015 and the Balance Sheets were signed on the Board's behalf by the Chairman, Alun Jones. 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 Conduct Authority, and traded on the London Stock Exchange.

2. Accounting policies

2.1 Basis of preparation

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 prepared on the going concern basis and presented in Sterling rounded to the nearest thousand.

Statement of compliance

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.

2.2 Summary of significant accounting policies

Basis of consolidation

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 individual 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.

Segmental reporting

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.

Investment properties and investment properties under construction

The Group's investment properties are held for long-term investment. Investment properties and those under construction are initially 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.

Development loans

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.

Property acquisitions and business combinations

Where a property is acquired through the acquisition of corporate interests, the Board considers the substance of the assets and activities of the acquired entity 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.

Impairment of assets

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 units, 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. 

Net rental income

Rental income arising from operating leases on investment properties is accounted for on a straight line basis over the lease term. An adjustment to rental income is recognised from the rent review date of each lease in relation to unsettled rent reviews.  Such adjustments are accrued at 90% of the additional rental income that is expected to result from the review. For leases which contain fixed or minimum deemed uplifts, the rental income is recognised on a straight line basis over the lease term. 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. Rental income is measured at the fair value of the consideration receivable, excluding discounts, rebates, VAT and other sales taxes or duty.

Interest income

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 and other receivables

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

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 and other payables

Trade payables are recognised and carried at their invoiced value inclusive of any VAT that may be applicable.

Bank loans and borrowings

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

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.

Convertible bond

The convertible bond is designated as "at fair value through profit or loss" and so is presented on the Group Balance Sheet at fair value with all gains and losses, including the write-off of issuance costs, recognised in the Group Statement of Comprehensive Income. The interest charge in respect of the coupon rate on the bond has been recognised within the underlying component of net financing costs on an accruals basis.  Refer to Note 17 for further details.

Conversion to UK-REIT

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 are effectively converted to UK-REIT status from the date on which they become a member of the Group. There were no charges payable upon the acquisition of companies by the Group following the abolition of the REIT conversion charge.

Taxation

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 instruments

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 Group 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

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.

De-recognition of financial assets and liabilities

Financial assets

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:

•    the rights to receive cash flows from the asset have expired;

•    the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a 'pass-through' arrangement; or

•    the Group has transferred its right to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

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.

Financial liabilities

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. 

When the exchange or modification of an existing financial liability is not accounted for as an extinguishment, any costs or fees incurred adjust the liability's carrying amount and are amortised over the modified liability's remaining term.

Fair value measurements

The Group measures certain financial instruments such as derivatives, and non-financial assets such as investment property, at fair value at the end of each reporting period. Also, fair values of financial instruments measured at amortised cost are disclosed in the financial statements.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

•    In the principal market for the asset or liability; or

•    In the absence of a principal market, in the most advantageous market for the asset or liability.

The Group must be able to access the principal or the most advantageous market at the measurement date.

The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques at three levels that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs significant to the fair value measurement as a whole:

Level 1    Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2    Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3    Valuation techniques for which the lowest input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation at the end of each reporting period.

 

Derivative financial instruments (derivatives) and hedge accounting

The Group uses interest rate swaps to help manage its interest rate risk.

At the inception of the transaction the Group documents 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 of IAS 39 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 re-measured 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.

The method of recognising the resulting gain or loss depends on whether the derivative is designated as an effective hedging instrument.

•    where a derivative is designated as a hedge of the variability of a highly probable forecast transaction, such as an interest payment, the element of the gain or loss on the derivative that is an "effective" hedge is recognised directly in equity. When the forecast transaction subsequently results in the recognition of a financial asset or a financial liability, the associated gains or losses that were recognised directly in the cash flow hedging reserve are reclassified into the Group Statement of Comprehensive Income in the same period or periods during which the asset acquired or liability assumed affects the Group Statement of Comprehensive Income i.e. when interest income or expense is recognised;

•    the gain or loss on derivatives that do not meet the strict criteria for being "effective" and so do not qualify for hedge accounting and the non-qualifying element of derivatives that do qualify for hedge accounting, are recognised in the Group Statement of Comprehensive Income immediately. The treatment does not alter the fact that the derivatives are economic hedges of the underlying transaction.

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 Group Statement of Comprehensive Income on a straight line basis from the date of cancellation to the original swap expiry date.

Dividends payable to Shareholders

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.

Leases - Group as a lessor

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.

2.3 Significant accounting estimates and judgements

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:

a) Estimates

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.

The fair 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.

Fair value of derivatives

In accordance with IAS 39, 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 mid-price of the yield curve prevailing on 31 December 2014. Fair value represents the net present value of the difference between the cash flows produced by the contracted rate and the valuation rate.

Rent reviews

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 Adviser 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.

b) Judgements

Leases

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. 

Hedge effectiveness

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.

Property acquisitions during the year

The Directors have reviewed the acquisitions during the year on an individual basis in accordance with the requirements of IFRS 3(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 absence of business processes inherent in the entities acquired.

2.4 Standards adopted during the year

The accounting policies adopted are consistent with those of the previous financial year, except for the following new and amended IFRSs effective for this Group as of 1 January 2014. The nature and the impact of each of the new standards and amendments are described below.

·    IFRS 10, 'Consolidated financial statements' - Under IFRS 10, subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group has power over an entity, is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect these returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The Group has applied IFRS 10 retrospectively in accordance with the transition provisions of IFRS 10 and there has been no material impact to the financial statements as a result.

Other new standards and amendments to certain standards apply for the first time in 2014. However, they do not impact the annual consolidated financial statements of the Group.  They are as follows:

·    IFRS 11 'Joint arrangements'

·    IFRS 12 'Disclosure of interests in other entities'

·    IAS 27 'Separate Financial Statements'

·    IAS 28 'Investments in Associates and Joint Ventures'

·    Amendments to IAS 32 'Financial Instruments: Presentation'

·    IAS 36 'Recoverable Amount Disclosures for Non-Financial Assets'

·    Amendments to IAS 39 'Financial instruments: Recognition and measurement'

2.5 Standards issued but not yet effective

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2014, but are not yet applicable to the Group and have not been applied in preparing these consolidated financial statements. None of these are expected to have a significant effect on the consolidated financial statements of the Group, except for the following set out below:

IFRS 9, 'Financial instruments', addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through Other Comprehensive Income and fair value through profit or loss.

The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in Other Comprehensive Income. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities, there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the 'hedged ratio' to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted, subject to EU endorsement. The Group is assessing the impact of IFRS 9.

IFRS 15, 'Revenue from contracts with customers' deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 'Revenue' and IAS 11 'Construction contracts' and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2017 and earlier application is permitted, subject to EU adoption. The Group is assessing the impact of IFRS 15.

3. Rental and related income

Revenue comprises rental income and finance lease income receivable on property investments in the UK, which is exclusive of VAT. Revenue is derived from one reportable operating segment. Details of the lease income are given below.

Group as a lessor

a) The future minimum lease payments under non-cancellable operating leases receivable by the Group are as follows:

	Less than one year	1 to 5 years	More than 5 years	Total
	£000	£000	£000	£000
2014	58,811	234,577	591,842	885,230
2013	56,188	224,122	587,088	867,398

The future minimum lease payments include amounts due in future years from investment properties under development at the year end.

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.

4. Group operating profit is stated after charging

	2014	2013
	£000	£000
Administrative expenses include:
Advisory fees (note 4a)	5,345	4,887
Directors' fees (note 4c)	243	219
Audit fees
Fees payable to the Company's auditor and their associates for the audit of the Company's annual accounts	105	100
Fees payable to the Company's auditor and their associates for other services to the audit of the Company's subsidiaries	101	92
Total audit fees	206	192
Non-audit fees
Audit-related assurance services	41	40
Other assurance services	50	8
Total non-audit fees	91	48

The Group's policy on non-audit fees is discussed in the Audit Committee Report.

a) Advisory fees

The advisory fee calculated and payable for the period to 31 December was as follows:

	2014	2013
	£000	£000
Nexus	4,697	3,154
JO Hambro Capital Management ("JOHCM")	648	1,733
	5,345	4,887

Further details on the Advisory Agreement can be found in the Corporate Governance section of the Strategic Review.  

As at 31 December 2014 nil advisory fees payable to JOHCM were outstanding (2013: £0.2 million) and £0.4 million was payable to Nexus (2013: £0.4 million). Refer to the Corporate Governance section of the Strategic Review for further information on the termination of the JOHCM services on 30 April 2014.

Further fees paid to Nexus in accordance with the Advisory Agreement of £0.1 million (2013: £0.07 million) in respect of capital projects were capitalised in the year.

b) Performance Incentive Fee ("PIF")

Information about the Performance Incentive Fee ("PIF") is provided in the Corporate Governance section of the Strategic Review in the Annual Report.

c) Remuneration of Directors

Information about the remuneration of individual Directors is provided in the Directors' Remuneration Report in the Annual Report.

d) Termination Fee: non-recurring

	2014	2013
	£000	£000
JOHCM	-	2,485

On 26 September 2013 the Board of PHP announced that it had served notice to terminate the contract under which JOHCM provided services to the Group (the "Joint Advisory Agreement"). A contractual termination fee of £2.5m became payable to JOHCM upon completion of their notice period on 30 April 2014. This sum was provided for in the Group Statement of Comprehensive Income for the year ended 31 December 2013 and settled on 13 May 2014.

5. Profit on termination of finance lease

	2014	2013
	£000	£000
Profit on termination of finance lease	-	638

On 27 March 2013, the Group recognised a profit on disposal of a property held under a finance lease. Disposal proceeds of £3.8m were received and the carrying value of the asset at the date of disposal was £3.1m. A small amount of disposal costs were incurred.

6. Finance income

	2014	2013
	£000	£000
Interest income on financial assets
Bank interest	37	41
Development loan interest	937	388
Other interest	3	5
	977	434

7. Finance costs

	2014		2013
	£000		£000
Interest expense and similar charges on financial liabilities
a)  Interest
Bank loan interest	16,959		12,021
Swap interest	7,609		7,699
Bond interest	8,058		4,314
Bank facility non-utilisation fees	926		976
Bank charges and loan commitment fees	1,700		1,440
	35,252		26,450
b)  Early loan repayment fees
Fee on breakage of Apollo debt		-		824
Fee on breakage of PHCC debt		-		126
Fee on breakage of PPP debt		1,187		-
		1,187		950

Following the Apollo transaction in December 2012, the debt assumed as part of the transaction was fully repaid in March 2013. A charge of £0.8 million was made to the Group Statement of Comprehensive Income in 2013 with regard to this repayment.

Following the PHCC transaction in July 2013, the debt assumed as part of the transaction was fully repaid in October 2013. An additional charge to the Group Statement of Comprehensive Income in 2013 was made of £0.1 million.

As part of the acquisition of the companies that held the PPP portfolio in December 2013, the Group assumed £178 million of loan obligations funded by Aviva.  The transaction pricing included a provision of £13.7 million that estimated the cost of re-setting those loans to current market rates. An additional charge of £1.2 million was made to the Group Statement of Comprehensive Income with regard to costs associated with the early repayment and restructuring of these loans during the year.

	2014	2013
	£000	£000
c)   Derivatives
Net fair value (loss)/gain on interest rate swaps	(2,454)	12,003
Amortisation of cash flow hedging reserve	-	(571)
	(2,454)	11,432

The fair value gain on derivatives recognised in the Group Statement of Comprehensive Income has arisen from the interest rate swaps for which hedge accounting does not apply. A fair value loss on derivatives which meet the hedge effectiveness criteria under IAS 39 of £9.9 million (2013 gain: £12.0 million) is accounted for directly in equity, together with amortisation of the hedging reserve of nil (2013: £0.5 million).

Details of the fair value loss on hedges which meet the effectiveness criteria for hedge accounting under IAS 39 are set out in note 24.

	2014	2013
	£000	£000
d)  Convertible bond
Fair value loss) on convertible bond	(4,462)	-

The fair value movement in the convertible bond is recognised in the Group Statement of Comprehensive Income within profit before taxation and is excluded from the calculation of EPRA earnings and EPRA NAV.  Refer to Note 17 for further details about the convertible bond.

	2014	2013
	£000	£000
Net finance costs
Finance income (note 6)	(977)	(434)
Finance costs (as per above)	35,252	26,450
	34,275	26,016

8. Taxation

a) Tax credit in the Group Statement of Comprehensive Income

The tax credit is made up as follows:

	2014	2013
	£000	£000
Current tax
UK corporation tax (note 8b)	-	(1)

The 2013 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 23% to 21% was effective from 1 April 2014.  Accordingly, these rates have been applied in the measurement of the Group's tax liability at 31 December 2014.

b) Factors affecting the tax credit for the year

The tax assessed for the year is lower than (2013: lower than) the standard rate of corporation tax in the UK.  The differences are explained below:

	2014	2013
	£000	£000
Profit on ordinary activities before taxation	36,880	20,219
Theoretical tax at UK corporation tax rate of 21.5% (2013: 23.3%)	7,929	4,711
REIT exempt income	(5,935)	(3,280)
Transfer pricing adjustments	2,886	1,870
Non-taxable items	(4,270)	(3,302)
Finance lease adjustment	-	1
Losses brought forward utilised	(610)	-
Movement in tax provision relating to prior years	-	(1)
Current tax credit (note 8a)	-	(1)

 

9. Earnings per share

The calculation of basic and diluted earnings per share is based on the following:

	Net profit attributable to Ordinary Shareholders	Ordinary Shares	Per Share
	£000	(number) (1)	(pence)
2014
Basic and diluted earnings
Basic earnings	36,880	111,044,085	33.2p
Dilutive effect of convertible bond	2,170	13,097,998
Diluted earnings	39,050	124,142,083	31.5p
EPRA earnings
Basic earnings	36,880
Adjustments to remove:
Net result on property (Note 11)	(29,204)
Fair value loss on derivatives	2,454
Fair value movement on convertible bond	4,462
Early loan repayment fee charges(2)	1,187
Issue costs of convertible bond	2,426
EPRA earnings per share	18,205	111,044,085	16.4p
2013
Basic and diluted earnings
Basic and diluted earnings	20,220	89,121,611	22.7p
EPRA basic and diluted earnings
Basic and diluted earnings	20,220
Adjustments to remove:
Net result on property (Note 11)	(2,313)
Fair value loss on derivatives	(11,432)
Profit on termination of finance lease	(637)
Early loan repayment fee charges(2)	950
EPRA basic and diluted earnings per share	6,788	89,121,611	7.6p

¹     Weighted average number of Ordinary Shares in issue during the year.

²     Revised EPRA best practice guidance was issued in January 2014 which advised that early repayment fees associated with the close out of debt instruments should be excluded from EPRA earnings. This has been reflected in the calculation of EPRA earnings for both 2013 and 2014. As a result of these changes the Group no longer calculates an "adjusted" earnings figure.

On 20 May 2014, the Group issued £82.5 million of unsecured convertible bonds, refer to Note 17 for further details.  In accordance with IAS 33 (Earnings per Share) the Company is required to assess and disclose the dilutive impact of the contingently issuable shares within the convertible bond.  The impact is not recognised where it is anti-dilutive.  The convertible bonds are dilutive for basic earnings per share but not EPRA earnings per share.

The dilutive impact to basic EPS of convertible bonds is represented by the accrued bond coupon which has been included in the results of the year ended 31 December 2014.  The number of dilutive shares is calculated as if the contingently issuable shares within the convertible bond had been in issue for the period from issuance of the bonds to 31 December 2014. 

10. Dividends

Amounts recognised as distributions to equity holders in the year:

	2014	2013
	£000	£000
Second interim dividend for the year ended 31 December 2013 (9.75p) paid 22 April 2014 (2013: 9.50p)	10,542	7,006
Scrip dividend in lieu of second interim cash dividend	279	217
First interim dividend for the year ended 31 December 2014 (9.75p) paid 7 November 2014 (2013: 9.50p)	10,146	9,124
Scrip dividend in lieu of first interim cash dividend	683	171
Total dividends distributed in the year	21,650	16,518
Per share	19.5p	19.0p

The Board proposes to pay a second interim dividend of 10.0p per Ordinary Share for the year to 31 December 2014, payable on 1 April 2015. This dividend will not be a Property Income Distribution ("PID").

11. Investment properties, investment properties under construction

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").  There were no changes to the valuation techniques during the year.  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 99.8% let (2013: 99.7%). The valuations reflected a 5.52% initial yield (2013: 5.65%) and a 5.75% (2013: 5.92%) true equivalent yield. 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 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 increase of £2.8 million (2013: increase of £0.5 million) in respect of investment property under construction has been recognised in the Group Statement of Comprehensive Income, as part of the total net valuation gain on property portfolio in the year of £29.2 million (2013: gain of £2.3 million).

In line with Accounting Policies, 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	Investment properties long leasehold	Investment properties under construction	Total
	£000	£000	£000	£000
As at 1st January 2014	759,871	169,998	11,679	941,548
Property additions	22,835	2,050	30,070	54,955
Property disposals	(525)	-	-	(525)
Impact of lease incentive adjustment	857	168	-	1,025
Transfer from properties in the course of development	20,698	-	(20,698)	-
	803,736	172,216	21,051	997,003
Revaluations for the year	21,944	4,454	2,806	29,204
As at 31 December 2014	825,680	176,670	23,857	1,026,207
As at 1 January 2013	510,295	96,421	15,731	622,447
Property additions	11,351	18,326	18,447	48,124
Acquisition of PHCC (1)	23,711	5,171	-	28,882
Acquisition of PPP (1)	199,188	38,168	-	237,356
Impact of lease incentive adjustment	1,262	228	-	1,490
Transfer from properties in the course of development	14,702	8,275	(22,977)	-
	760,509	166,589	11,201	938,299
Revaluations for the year (see below)	(638)	3,409	478	3,249
As at 31 December 2013	759,871	169,998	11,679	941,548

¹ - Figures include a fair value adjustment made on acquisition as well as acquisition related costs.

Additional consideration payable in 2013

	Investment properties freehold	Investment properties long leasehold	Investment properties under construction	Total
	£000	£000	£000	£000
Reconciliation of net result on property portfolio in 2013
Additional consideration on property transactions	(17)	(919)	-	(936)
Revaluations for the year	(638)	3,409	478	3,249
Revaluation for the year ending 31 December 2013	(655)	2,490	478	2,313

Additional consideration on property transactions relate to payments made following the letting of various areas of expansion space on certain properties acquired as part of the Apollo portfolio.  Each letting has created additional rental income for the Group leading to an additional capital payment being made to the vendors.  There was no additional consideration on property transactions related to the Apollo portfolio in 2014.

Bank borrowings, bonds and interest rate swaps are secured on investment properties with a value of £997.3 million (2013: £929.1 million).

Fair value hierarchy

All of the Group's properties are level 3, as defined by IFRS 13, in the fair value hierarchy as at 31 December 2014 and31 December 2013. There were no transfers between levels during the year or: 31 December 2013.  Level 3 inputs used in valuing the properties, are those which are unobservable, as opposed to level 1 (inputs from quoted prices) and level 2 (observable inputs either directly, i.e. as prices, or indirectly, i.e. derived from prices).

Valuation techniques used to derive Level 3 fair values

The valuations have been prepared on the basis of Fair Market Value (FMV) which is defined in the RICS Valuation Standards as:

"The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion."

Valuation techniques: market comparable method

Under the market comparable method (or market comparable approach), a property's fair value is estimated based on comparable transactions and using certain unobservable inputs.  These inputs are detailed below.

Unobservable input: estimated rental value (ERV)

The rent at which space could be let in the market conditions prevailing at the date of valuation.

ERV - Range of the Portfolio
2014	2013
£55,436-£1,158,011 per annum	£30,000-£1,157,725 per annum

Unobservable input: equivalent yield

The equivalent yield is defined as the internal rate of return of the cash flow from the property, assuming a rise to ERV at the next review date, but with no further rental growth.

TRUE EQUIVALENT YIELD - Range of the Portfolio
2014	2013
4.83%-6.76%	4.88%-6.85%

Unobservable input: physical condition of the property

The properties are physically inspected by the Valuer on a three year rotating basis.

Unobservable input: rental growth

The estimated average increase in rent based on both market estimations and contractual situations.

Special assumptions

With regards to properties in the course of development and in various stages of construction, the following assumptions have been applied:    

•    That all works to construct the proposed developments have been completed fully and to an acceptable standard in accordance with plans and specifications;

•    The leases to the various occupiers have been completed in accordance with the agreed lease terms provided to the Valuer; and

•    The rent and other tenant and landlord obligations under the leases commence at the valuation date.

Sensitivity of measurement of significant unobservable inputs

•    A decrease in the estimated annual rent will decrease the fair value.

•    A decrease in the equivalent yield will increase the fair value.

•    An increase in the remaining lease term will increase fair value.

12. Group entities

Those subsidiaries listed below are considered to be the only principal subsidiaries of the Company:

Subsidiary

Primary Health Investment Properties Limited (PHIP) ⁽¹⁾

Primary Health Investment Properties (No. 2) Limited ⁽¹⁾

Primary Health Investment Properties (No. 3) Limited ⁽¹⁾

Primary Health Investment Properties (No. 4) 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 No. 1 Limited ⁽²⁾

PHP Investments No. 2 Limited ⁽²⁾

PHP Investments (2011) Limited ⁽¹⁾

PHIP (Gorse Stacks) Limited ⁽¹⁾

Anchor Meadow Limited ⁽¹⁾

PHP Bond Finance PLC ⁽¹⁾

PHP Healthcare Investments Limited ⁽²⁾

PHIP (Stourbridge) Limited ⁽²⁾

PHP Clinics Limited ⁽²⁾

PHP St. Johns Limited ⁽²⁾

PHP (Project Finance) Limited ⁽²⁾

PHP Empire Holdings Limited ⁽¹⁾

PHP AssetCo (2011) Limited ⁽²⁾

PHP Glen Spean Limited ⁽²⁾

PHP Medical Properties Limited ⁽²⁾

Gracemount Medical Centre Limited ^{(2) (3) (4)}

PHP Primary Properties (Haymarket) Limited ^{(1) (5)}

PHP Primary Properties Limited ^{(2) (5)}

PHP Medical Investments Limited ⁽¹⁾

PHP Finance (Jersey) Limited ⁽¹⁾⁽⁶⁾

With the exception of PHP Bond Finance PLC, Primary Health Investment Properties (No. 4) Limited and PHP Finance (Jersey) Limited the principal activity of all of the above is property investment.  PHP Bond Finance PLC and Primary Health Investment Properties (No. 4) Limited both act as intermediary financing companies within the Group. 100% of all voting rights and shares held directly or indirectly by the Company. 

⁽¹⁾ Subsidiary directly held by the Company.

⁽²⁾ Subsidiary indirectly held by the Company.

⁽³⁾ Subsidiary acquired during the year.

⁽⁴⁾ Subsidiary company registered in Scotland.

⁽⁵⁾ Subsidiary acquired during 2013 (name changed from Prime Public Partnerships Limited post acquisition).

⁽⁶⁾ Subsidiary company registered in Jersey.

13. Trade and other receivables 

	2014	2013
	£000	£000
Trade receivables	1,916	2,318
Prepayments and accrued income	2,527	1,370
Other debtors	459	768
Development loan interest	766	308
	5,668	4,764

As at 31 December, the analysis of trade receivables, some of which were past due but not impaired, is set out below:

	2014	2013
	£000	£000
Neither past due nor impaired:
<30 days	1,260	1,998
Past due but not impaired:
30-60 days	99	15
60-90 days	2	-
90-120 days	257	62
>120 days	298	243
	1,916	2,318

The Group's principal customers are invoiced and pay quarterly in advance, usually on the English quarter days. No bad debt provision was required (2013: £nil) and no receivables were considered impaired or overdue. There is no significant concentration of credit risk with respect to trade receivables, as the Group has a large number of tenants.

14. Cash and cash equivalents

	2014	2013
	£000	£000
Cash held at bank	8,472	8,788
Restricted cash	3,600	500
	12,072	9,288

Restricted cash at 31 December 2014 is an amount held as security in relation to debt service and repayment of bank borrowings.

Restricted cash as at 31 December 2013 represents a deposit held by the Trustee of the Secured Bond issued by the Group.  The deposit was held as temporary collateral until the completion of property assets that are charged as security to the Trustee.  The cash deposit was released on 30 June 2014. 

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. These deposits earn interest at various short term deposit rates.

15. Trade and other payables 

	2014	2013
	£000	£000
Trade payables	954	906
Bank and bond loan interest accrual	4,287	3,313
Other payables	6,752	7,671
VAT	1,237	2,302
Accruals	1,014	2,077
	14,244	16,269

An additional 282,768 shares were issued on 31 January 2014 upon agreement of the final completion accounts in respect of the acquisition of PPP in 2013, and a further 235,475 shares were also issued on that date upon a Deed of Variation being entered into regarding the St Catherine's property. Provision was made for these sums at the market price for a PHP share as at 31 December 2013 of 353 pence per share giving a total provision of £1.8 million included in other payables.

16. Borrowings: Term loans and overdrafts

The table indicates amounts drawn and undrawn from each individual facility as at 31 December:

	Facility		Amounts drawn		Undrawn
	2014	2013	2014	2013	2014	2013
	£000	£000	£000	£000	£000	£000
Current
Overdraft facility (1)	5,000	5,000	-	-	5,000	5,000
Fixed rate term loan (3)	711	1,857	711	1,857	-	-
Fixed rate term loan (8)	-	1,986	-	1,986	-	-
	5,711	8,843	711	3,843	5,000	5,000
Non Current
Term loan to August 2018 (2)	165,000	140,000	123,500	100,500	41,500	39,500
Fixed Rate term loan (3)	24,702	25,511	24,702	25,511	-	-
Fixed Rate term loan to December 2022 (4)	25,000	25,000	25,000	25,000	-	-
Term loan to April 2019 (5)	50,000	-	21,513	-	28,487	-
Term loan to November 2018 (6)	75,000	75,000	75,000	75,000	-	-
Term loan to August 2019 (7)	100,000	70,000	59,160	49,470	40,840	20,530
Fixed rate term loan 24 - 29 year (8)	113,000	188,271	113,000	188,271	-	-
	552,702	523,782	441,875	463,752	110,827	60,030
	558,413	532,625	442,586	467,595	115,827	65,030

Providers:

⁽¹⁾    The Royal Bank of Scotland plc

⁽²⁾    The Royal Bank of Scotland plc ("RBS") and Abbey National Treasury Services plc (branded Santander from January 2010) ("The Club Facility")

⁽³⁾    Aviva facility (acquired as part of HIL acquisition) repayable in tranches to 31 January 2032

⁽⁴⁾    Aviva GPFC facility

⁽⁵⁾    HSBC Bank facility

⁽⁶⁾    Aviva facility

⁽⁷⁾    Barclays facility

⁽⁸⁾    Aviva facility (acquired with PPP) - The nominal value of this debt was £177.9 million but the table above includes an adjustment of £13.6 million to reflect the fair value of the debt on acquisition of PPP.   

At 31 December 2014, total facilities of £785.9 million (2013: £677.6 million) were available to the Group.  This included a £75 million Unsecured Retail Bond, a £70 million Secured Bond, a £82.5 million Convertible Bond and a £5 million overdraft facility. Of these facilities, as at 31 December 2014, £670.1 million was drawn (2013: £602.6 million). 

As part of the acquisition in December 2013 of the companies that held the PPP portfolio, the Group assumed £178 million of loan obligations funded by Aviva.  The transaction pricing included a provision of £13.7 million that estimated the cost of re-setting those loans to current market rates.  This amount was paid to Aviva in full in February 2014, reducing the average interest rate on these loans to 5.04% from an inherited average of 5.9%, but with the reduction being effective from 1 January 2014.  The Group took the opportunity to make a capital repayment of £15 million at this time also. 

On 15 April 2014, a further £50 million of the Aviva loan was repaid following the completion of a new £50 million revolving debt facility with HSBC Bank PLC.  This facility was secured at an initial margin of 200 basis points over LIBOR for a five year term and includes an element that can be utilised to match the stage payments that the Group makes on its development of new properties.

On 19 August 2014, the Group entered into a revised and extended loan facility agreement with Barclays Bank PLC.  This extended the total facility from £70 million to £100 million for a new four year term and reduced the initial margin chargeable on the debt to 190 basis points over LIBOR.

On 20 August 2014, the Group concluded the final stage of the refinance of the Aviva PPP debt.  Two new facilities have been created to split the balance of £113 million of assumed debt.  A £50 million, 10 year facility has been completed on an interest only basis and a £63 million 15 year facility has been established with an initial 5 year interest only period and partial amortisation thereafter.  This resulted in a further reduction of the interest rate applicable to both facilities to 4.91%. The refinancing is recognised as an extinguishment of an existing financial liability and the inception of a new facility.  As a result, the unamortised costs associated with the original assumed loan facilities have been written off together with other early repayment fees in the Statement of Comprehensive Income.

On 21 August 2014, the Group extended its current Club Facility with RBS and Santander for a new three year term with the option to extend for one additional year and reduced the initial margin chargeable on the debt to 185 basis points over LIBOR.

Costs associated with the arrangement and extension of the facilities, including legal advice and loan arrangement fees, 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:

	2014	2013
	£000	£000
Term loans drawn: due within one year	711	3,843
Term loans drawn: due in greater than one year	441,875	463,752
Total terms loans drawn	442,586	467,595
Less: Unamortised borrowing costs	(4,853)	(3,567)
Total term loans per the Group Balance Sheet	437,733	464,028

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 19e.

The Group has entered into interest rate swaps to manage its exposure to interest rate fluctuations. These are set out in note 18.

17. Borrowings: Bonds

	2014	2013
	£000	£000
Secured
Secured Bond December 2025	70,000	60,000
Unsecured
Retail Bond July 2019	75,000	75,000
Convertible Bond May 2019	86,962	-
Unamortised issue costs	(2,419)	(2,592)
	229,543	132,408

Secured Bond

On 18 December 2013, PHP successfully listed the floating rate guaranteed secured bonds issued on 4 November 2013 (the "Secured Bonds") on the London Stock Exchange.  The Secured Bonds have a nominal value of £70 million and mature on or about 30 December 2025.  £60 million was paid up on the issue of the Secured Bonds with the remaining £10 million being received on 30 June 2014 following the completion of the construction of four further secured assets. The Secured Bonds incur interest on the paid up amount at an annualised rate of 220 basis points above six month LIBOR, payable semi-annually in arrears.

Retail Bond

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 Retail Bond issue costs will be amortised on a straight line basis over seven years.

Convertible Bond

On 20 May 2014, PHP Finance (Jersey) Limited ("the Issuer"), a wholly owned subsidiary of the Group issued a £82.5 million 4.25% convertible bonds due 2019 (the "Bonds") at par.  The Company has guaranteed the due and punctual performance by the Issuer of all of its obligations (including payments) in respect of the Bonds. 

Subject to certain conditions, the Bonds are convertible into preference shares of the Issuer which will be automatically and mandatorily exchangeable into fully paid ordinary shares of the Company (the "Shares"). The initial conversion price has been set at 390 pence per Share (the "Exchange Price"). Under the terms of the Bonds, the Company will have the right to settle any conversion rights entirely in Shares, in cash or with a combination of Shares and cash.

The bondholders have the right to convert the Bonds up until 20 May 2017 only where the Parity Value (as defined in the Bond's terms) is greater than the Exchange Price.

On or after 20 May 2017, the Bonds may be redeemed at par at the Company's option subject to the Parity Value equalling or exceeding £130,000.  If not previously converted, redeemed or purchased and cancelled, the Bonds will be redeemed at par on the maturity date.

Convertible bond

	2014
	£000
Nominal value on issue on 20 May 2014	82,500
Fair value movement in convertible bond	4,262
Balance at 31 December 2014	86,762

The fair value of the convertible bond at 31 December 2014 was established by obtaining quoted market prices.  The fair value movement is recognised in the Group Statement of Comprehensive Income within Profit before Taxation and is excluded from the calculation of EPRA earnings and EPRA NAV.

18. Derivatives and other financial instruments

It is Group policy to maintain the proportion of floating rate interest exposure at between 20%-40% of total interest rate cost.  The Group uses interest rate swaps to mitigate its remaining 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.

	2014	2013
	£000	£000
Fair value of interest rate swaps treated as cash flow hedges under IAS39 ("effective swaps")
Non-current assets	-	472
Current liabilities	(2,825)	(3,772)
Non-current liabilities	(20,956)	(10,499)
	(23,781)	(13,799)
Fair value of interest rate swaps not qualifying as cash flow hedges under IAS39 ("ineffective swaps")
Non-current assets	25	-
Current liabilities	(2,977)	(3,794)
Non-current liabilities	(14,256)	(10,960)
	(17,208)	(14,754)
Total fair value of interest rate swaps	(40,989)	(28,553)
Shown in the Balance Sheet as:
Total non-current assets	25	472
Total current liabilities	(5,802)	(7,566)
Total non-current liabilities	(35,212)	(21,459)

Changes in the fair value of the contracts that do not meet the strict IAS 39 criteria to be designated as effective hedging instruments are taken to the Group Statement of Comprehensive Income.  For contracts that meet the IAS 39 criteria and are designated as 'effective' cash flow hedges, the change in fair value of the contract is recognised in the Group 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 2014 was a £2.5 million loss (2013: £11.4 million profit).

Floating to fixed interest rate swaps with a contract value of £206.0 million (2013: £206.0 million) were in effect at 31 December 2014.  Details of all floating to fixed rate interest rate swaps contracts held are as follows:

Contract value	Start date	Maturity	Fixed interest per annum %
2014
£70.0 million	July 2013	July 2015	4.805
£28.0 million	March 2013	March 2017	0.900
£50.0 million1	August 2007	August 2021	4.835
£38.0 million1	August 2007	August 2021	4.740
£10.0 million	August 2005	August 2015	4.530
£10.0 million	June 2006	June 2026	4.810
£206.0 million
2013
£70.0 million	July 2013	July 2015	4.805
£28.0 million	March 2013	March 2017	0.900
£50.0 million1	August 2007	August 2021	4.835
£38.0 million1	August 2007	August 2021	4.740
£10.0 million	August 2005	August 2015	4.530
£10.0 million	June 2006	June 2026	4.810
£206.0 million

Contracts not yet in effect	Start date	Maturity	Fixed interest per annum %
£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	4.479
£20.0 million	July 2017	July 2027	4.760
£160.0 million

⁽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.

Details of the single interest rate cap held by the Group is as follows:

Contract value	Start date	Maturity date	Premium paid	Floating rate cap per % annum
£15.0 million	April 2014	April 2017	£176,000	2.000

19. Financial risk management

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 hedged by these swaps. 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 Strategic Review. This note provides further detail on financial risk management and includes quantitative information on specific financial risks.

Financial risk factors

a) Interest rate risk

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 18 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 fair 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 fair value also decreases.

		Effect on fair value of financial instruments	Effect on profit before taxation	Effect on equity
		£000	£000	£000
2014
London InterBank Offered Rate	Increase of 50 basis points	9,089	4,549	13,638
London InterBank Offered Rate	Decrease of 50 basis points	(9,089)	(4,549)	(13,638)
2013
London InterBank Offered Rate	Increase of 50 basis points	8,615	2,916	11,531
London InterBank Offered Rate	Decrease of 50 basis points	(8,615)	(2,916)	(11,531)

b) Credit risk

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.

Trade 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.

The Group has policies in place to ensure that rental contracts are entered into only with lessees with an appropriate credit history, but the Group does not monitor the credit quality of receivables on an ongoing basis.  An analysis of trade receivables past due is shown in note 13.

Bank and financial institutions

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.

c) Liquidity risk

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 Adviser.

The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments including interest.

	On demand	Less than 3 months	3 to 12 months	1 to 5 years	> 5 years	Total
	£000	£000	£000	£000	£000	£000
2014
Interest-bearing loans and borrowings	-	6,186	20,038	528,325	295,132	849,681
Interest rate swaps (net)	-	1,910	5,597	31,030	27,772	66,309
Trade and other payables	2,166	7,333	2,909	1,312	92	13,812
	2,166	15,429	28,544	560,667	322,996	929,802
2013
Interest-bearing loans and borrowings	-	8,219	20,617	339,849	456,039	824,724
Interest rate swaps (net)	-	1,914	5,741	28,782	37,672	74,109
Trade and other payables	119	7,890	4,595	1,130	48	13,782
	119	18,023	30,953	369,761	493,759	912,615

The Group's borrowings have financial covenants which, if breached, could result in the borrowings becoming repayable immediately. Details of the covenants are given below in under (e) capital risk management and are disclosed to the facility providers on a quarterly basis. There have been no breaches during the year (2013: nil).

d) Market risk

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 price risk.

Interest rate risk

Interest rate risk is outlined above. The Advisor assesses the exposure to other price risks when making each investment decision and monitors 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 in the Strategic Review in the Annual Report.

Price risk

The Group is exposed to price risk in respect of property price risk including property rentals risk. Refer to Note 2.3. The Group has no significant exposure to price risk in respect of financial instruments other than the convertible bond and interest rate derivatives (see Notes 17 and 18), as it does not hold any equity securities or commodities.

Fair values

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
	2014	2014	2013	2013
	£000	£000	£000	£000
Financial assets
Trade and other receivables	2,682	2,682	2,626	2,626
Effective interest rate swaps	-	-	472	472
Ineffective interest rate swaps	25	25	-	-
Cash and short-term deposits	12,072	12,072	9,288	9,288
Financial liabilities
Interest-bearing loans and borrowings	(662,814)	(771,727)	(596,436)	(769,794)
Effective interest rate swaps	(23,782)	(23,782)	(14,271)	(14,271)
Ineffective interest rate swaps (net)	(17,233)	(17,233)	(13,812)	(13,812)
Trade and other payables	(14,244)	(14,244)	(13,782)	(13,782)

The fair value of the financial assets and liabilities is 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 fair values of the Group's cash and cash equivalents and trade payables and receivables are not materially different from those at which they are carried in the financial statements due to the short-term nature of these instruments.

•    The fair value of floating rate borrowings is estimated by discounting future cash flows using rates currently available for instruments with similar terms and remaining maturities. The fair value approximates their carrying values, gross of unamortised transaction costs.

•    The fair values of the derivative interest rate swap contracts are estimated by discounting expected future cash flows using market interest rates and yield curves over the remaining term of the instrument.

Fair value hierarchy

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

Fair value measurements at 31 December 2014 are as follows:

	Level 11	Level 22	Level 33	Total
Recurring fair value measurements	£'000	£'000	£'000	£'000
Financial assets
Derivative interest rate swaps	-	25	-	25
Financial liabilities
Derivative interest rate swaps	-	(41,014)	-	(41,014)
Convertible bond	(86,962)	-	-	(86,962)

Fair value measurements at 31 December 2013 are as follows:

	Level 11	Level 22	Level 33	Total
Recurring fair value measurements	£'000	£'000	£'000	£'000
Financial assets
Derivative interest rate swaps	-	472	-	472
Financial liabilities
Derivative interest rate swaps	-	(29,025)	-	(29,025)

¹     Valuation is based on unadjusted quoted prices in active markets for identical financial assets and liabilities.

²     Valuation is based on inputs (other than quoted prices included in Level 1) that are observable for the financial asset or liability, either directly (i.e. as unquoted prices) or indirectly (i.e. derived from prices).

³     Valuation is based on inputs that are not based on observable market data.

The interest rate swaps whose fair values include the use of level 2 inputs are valued by discounting expected future cash flows using market interest rates and yield curves over the remaining term of the instrument. The following inputs are used in arriving at the valuation:

•    Interest rates

•    Yield curves

•    Swaption volatility

•    Observable credit spreads

•    Credit default swap curve

•    Observable market data

e) Capital risk management

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 shareholders' equity and net borrowings. The type and maturity of the Group's borrowings are analysed further in notes 16 and 17 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 Adviser, 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:

•    Rental income must exceed borrowing costs by the ratio 1.3: 1 (2013: 1.3: 1).

•    UK-REIT compliance tests. These include loan to property and gearing tests. The Group must satisfy these tests in order to continue trading as a UK-REIT. This is also an internal requirement imposed by the Articles of Association.

Facility level covenants also operate with regard to specific pools of property assets provided to lenders to secure individual loan facilities. These range as follows:

Interest cover: 1:0 to 1.5:1 (2013: 1:1 to 1.5:1)

Loan to value: 50% to 75% (2013: 60% to 100%)

During the period the Group has complied with all of the requirements set out above.

	2014	2013
	£000	£000
Fair value of completed investment properties	1,002,350	929,869
Fair value of development properties	23,857	11,679
	1,026,207	941,548
Carrying value of interest-bearing loans and borrowings	662,814	596,436
Unamortised borrowing costs	7,272	6,159
Less PPP fair value adjustment (see note 16)	-	(13,589)
Less cash held	(12,072)	(9,288)
Nominal amount of interest-bearing loans and borrowings	658,014	579,718
Group loan to value ratio	64.1%	61.6%

20. Called up share capital

	2014	2014	2013	2013
	Number	£000	Number	£000
Issued and fully paid at 50p each	111,276,662	55,638	110,474,230	55,237
Balance at beginning of year	110,474,230	55,237	76,034,208	38,017
Scrip issues in lieu of second interim cash dividend	81,554	41	64,036	32
Scrip issues in lieu of first interim cash dividend	202,635	101	52,183	26
Proceeds from capital raisings	-	-	21,746,032	10,873
Shares issued as consideration for PPP	518,243	259	12,577,771	6,289
Balance at end of year	111,276,662	55,638	110,474,230	55,237

On 3 December 2013, the Group issued 12,577,771 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 Prime Public Partnerships Holdings Limited and its subsidiary Prime Public Partnerships Limited ("PPP").  The market price of a PHP share on the issue date was 331 pence. A further 518,243 Ordinary Shares of 50 pence each were issued on 31 January 2014 on agreement of the completion accounts of PPP. The market price of a PHP share on 31 January 2014 was 360 pence.

On 13 June 2013, the Group completed a share placing at a price of 315 pence per share. 21,746,032 shares were issued generating net cash proceeds of £65.8 million.

21. Share premium 

	2014	2013
	£000	£000
Balance at beginning of year	55,611	58,606
Reserves transfer	-	(3,325)
Share issue expense	(15)	-
Scrip issues in lieu of interim cash dividends	820	330
Balance at end of year	56,416	55,611

During 2013, an amount of £3.3 million was transferred from Share Premium to the Special Reserve with regards to the acquisition of Apollo Medical Properties Limited in December 2012. This is in accordance with the merger relief provision of the Companies Act 2006.

22. Capital reserve

The capital reserve is held to finance any proposed repurchases of Ordinary Shares, following approval of the High Court in 1998.

	2014	2013
	£000	£000
Balance at beginning and end of year	1,618	1,618

23. Special reserve

The special reserve arose on the Firm Placing and Placing and Open Offer on 7 October 2009, the Firm Placing on 12 April 2011 and 23 May 2012 and the Firm Placing, Placing, Open Offer and Offer for Subscription on 12 June 2013. It represents the share premium on the issue of the shares net of expenses.

	2014	2013
	£000	£000
Balance at beginning of year	135,483	59,473
Placing: 13 June 2013 (2012: 23 May 2012)	-	57,627
Associated costs	-	(2,728)
Second interim dividend for the year ended 31 December 2013 (2013: 31 December 2012)	(10,542)	(7,006)
Scrip issue in lieu of second interim cash dividend	(279)	(217)
First interim dividend for the year ended 31 December 2014 (2013: 31 December 2013)	(10,146)	(9,124)
Scrip issue in lieu of first interim cash dividend	(683)	(171)
Shares issued in consideration for PPP (note 20)	1,605	35,344
Share issue expenses	-	(1,040)
Reserves transfer from share premium	-	3,325
Balance at end of year	115,438	135,483

As the special reserve is a distributable reserve, the dividends declared in the year have been distributed from this reserve.

The issue of shares on 13 June 2013, referred to in note 20, was effected by way of a cash box mechanism. A cash box raising is a mechanism for structuring a capital raising whereby the cash proceeds from investors are invested in a subsidiary company of the parent instead of the parent itself. Use of a cash box mechanism has enabled the share premium arising from the issue of shares to be deemed to be a distributable reserve and has therefore been shown as a special reserve in these financial statements. Any issue costs are also deducted from the special reserve.

In 2013, £35.3 million was included within the Special Reserve which comprises the premium on the share placing for the acquisition of PPP through the operation of the merger relief provisions of the Companies Act 2006.  A further £1.6 million of shares were issued in January 2014 upon agreement of the completion accounts of PPP and the premium amount has been included within the Special Reserve.

Also in 2013, £3.3 million was transferred from Share Premium to the Special Reserve with regards to the Apollo transaction under the same merger relief provisions (see note 21).

24. Cash flow hedging reserve

Information on the Group's hedging policy and interest rate swaps is provided in note 18.

The transfer to Group Statement of Comprehensive Income and the fair value movement on cash flow hedges which meet the effectiveness criteria under IAS 39, taken to equity, can be analysed as follows:

	2014	2013
	£000	£000
Balance at beginning of year	(14,337)	(27,177)
Fair value movement on cash flow hedges	(9,980)	12,269
Amortisation of cash flow hedge reserve	-	571
Reclassification of swap from ineffective to effective	470	-
Net movement on cash flow hedges ("effective swaps") and amortisation of cash flow hedging reserve	(9,510)	12,840
Balance at end of year	(23,847)	(14,337)

25. Retained earnings  

	2014	2013
	£000	£000
Balance at beginning of year	68,773	48,553
Reclassification of swap from ineffective to effective	(470)	-
Interest rate derivative fair value adjustment	(1,316)	-
Retained profit for the year	36,880	20,220
Balance at end of year	103,867	68,773

26. Net asset value per share

Net asset values have been calculated as follows:

	2014	2013
	£000	£000
Net assets per Group Balance Sheet	309,130	302,385
Derivative interest rate swaps (net liability)	40,989	28,553
Convertible bond fair value movement	4,462	-
EPRA net asset value	354,581	330,938
	No. of shares	No. of shares
Ordinary Shares:
Issued share capital	111,276,662	110,474,230
Net asset value per share:
Basic net asset value per Share	278p	274p
EPRA NAV per Share	319p	300p

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 detailed in note 9, the Company is required to assess the dilutive impact of the unsecured convertible bond on its net asset value per share, but only report any impact if it is dilutive.  With an initial conversion price of 390 pence, the unsecured convertible bond issued by the Group on 20 May 2014 is anti-dilutive to all measures of net asset value per share. 

27. Capital commitments

As at 31 December 2014, 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 £11.2 million plus VAT (2013: £17.1 million plus VAT).

28. Related party transactions

The terms and conditions of the Advisory Agreement are described in the Directors' Report and the Directors' Remuneration Report in the Annual Report. Details of the amounts paid in relation to related party transactions are provided in note 4.

29. Contingent liabilities

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.

A number of the properties acquired with Apollo include small areas of vacant space to which no value was 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 £0.2 million as at 31 December 2014 (2013: £0.6 million), but there is no certainty that such lettings will be achieved within the agreed time frame. The new lettings will add value to the investment portfolio.

30. Subsequent events

On 18 December 2014, the Group entered into a conditional contract to fund the development of and acquire a new, modern, purpose built medical centre to be constructed in Colwyn Bay, North Wales. The conditions attached to the contract were fully satisfied on 2 January 2015 and the contract completed.  The total consideration will be £4.53 million and construction is expected to complete in January 2016.

31. Annual report

The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 December 2014 or 2013 but is derived from those accounts.  Statutory accounts for 2013 have been delivered to the Registrar of Companies and those for 2014 will be delivered in due course.  The Auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

Full financial statements for the year ended 31 December 2014 will be published on the Group's website at www.phpgroup.co.uk and will be posted to Shareholders on 27 February 2015.

Copies of this announcement can be obtained from the Company Secretary of Primary Health Properties PLC, 5^th Floor, Greener House, 66-68 Haymarket, London SW1Y 4RF.

Directors' Responsibility Statement

The responsibility statement below has been prepared in connection with the Company's full annual report for the year ending 31 December 2014. Certain parts thereof are not included within this announcement.

Each of the current Directors confirms that, to the best of their knowledge:

•      the Group financial statements, prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole;

•      the Strategic Review above includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that it faces; and

•      the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's performance, business model and strategy.

Going Concern

The Group's business activities together with the factors likely to affect its future development, performance and position, together with the financial position of the Group, its cash flows, liquidity position and borrowing facilities are set out in the Strategic Review. 

The Group's property portfolio is 99.8% occupied with 91% of its income funded directly or indirectly by the UK Government.

During 2014, the Group refinanced the debt assumed with the PPP portfolio, procuring a new £50 million, five year facility with HSBC Bank PLC and restructuring £113 million of the facilities assumed with the acquisition with Aviva over ten and fifteen year tranches.  In addition, the Group extended the term of its £165 million Club facility with Royal Bank of Scotland plc and Santander Banking Group plc and enlarged its facility with Barclays Bank plc to £100 million and extended its term also.

On 20 May 2014 the Group issued an unsecured £82.5 million, five year, convertible bond.

As at 31 December 2014, the Group had £116.7 million of headroom, with a further £12.1 million of cash. The Group's current loan to value ratio is 64.1%, with all banking covenants being met during the year and subsequent to the year end.

The Directors believe that the Group is well placed to manage its business risks successfully. 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.

For and on behalf of the Board

Alun Jones

Chairman

18 February 2015

Glossary of Terms

Adviser is Nexus Tradeco Limited.

Building Research Establishment Environmental Assessment Method ("BREEAM") assesses the sustainability of buildings against a range of criteria.

Clinical Commissioning Groups ("CCGs") are the groups of GPs and other healthcare professionals that are responsible for designing local health services in England with effect 1 April 2013.

Company and or Parent is Primary Health Properties PLC.

Direct Property Costs comprise ground rents payable under head leases, void costs, other direct irrecoverable property expenses, rent review fees and valuation fees.

District Valuer ("DV") is the District Valuer Service being the commercial arm of the Valuation Office Agency ("VOA"). It provides professional property advice across the public sector and in respect of Primary Healthcare represents NHS bodies on matters of valuation, rent reviews and initial rents on new developments.

Dividend Cover is the number of times the dividend payable (on an annual basis) is covered by EPRA earnings (2013 after add back of non-recurring contractual administrative services termination fee).

Earnings per Ordinary Share from Continuing Operations ("EPS") is the profit attributable to equity holders of the parent divided by the weighted average number of shares in issue during the period.

European Public Real Estate Association ("EPRA") is a real estate industry body, who have issued Best Practices Recommendations in order to provide consistency and transparency in real estate reporting across Europe.

EPRA net assets ("EPRA NAV") are the balance sheet net assets excluding own shares held and mark-to-market derivative financial instruments.

Equivalent Yield (true and nominal) is a weighted average of the Net Initial Yield and Reversionary Yield and represents the return a property will produce based upon the timing of the income received. The true equivalent yield assumes rents are received quarterly in advance. The nominal equivalent assumes rents are received annually in arrears.

Estimated Rental Value ("ERV") is the external valuers' opinion as to the open market rent which, on the date of valuation, could reasonably be expected to be obtained on a new letting or rent review of a property.

Exchange Price is 116% of the share price at the date of issue.

Gross Rental Income is the gross accounting rent receivable.

Group is Primary Health Properties PLC and its subsidiaries.

IFRS is International Financial Reporting Standards as adopted by the European Union.

Interest Cover is the number of times net interest payable is covered by net rental income.

Interest Rate Swap is a contract to exchange fixed payments for floating payments linked to an interest rate, and is generally used to manage exposure to fluctuations in interest rates.

IPD is the Investment Property Databank Limited which provides performance analysis for most types of real estate and produces an independent benchmark of property returns.

IPD Healthcare is the Investment Property Databank's UK Annual Healthcare Property Index.

IPD Total Return is calculated as the change in capital value, less any capital expenditure incurred, plus net income, expressed as a percentage of capital employed over the period, as calculated by IPD.

London Interbank Offered Rate ("LIBOR") is the interest rate charged by one bank to another for lending money.

Local Improvement Finance Trusts ("LIFT") are public-private consortia that develop primary care and community based facilities and services.

Loan to Value ("LTV") is the ratio of net debt to the total value of property and LIFT assets.

Mark to Market ("MtM") is the difference between the book value of an asset or liability and its market value.

Net Initial Yield is the annualised rents generated by an asset, after the deduction of an estimate of annual recurring irrecoverable property outgoings, expressed as a percentage of the asset valuation (after notional purchaser's costs).

Net Rental Income is the rental income receivable in the period after payment of direct property costs. Net rental income is quoted on an accounting basis.

NHSPS is NHS Property Services Limited is the company, wholly owned and funded by the Department of Health, which, as of 1 April 2013, has taken on all property obligations formerly borne by Primary Care Trusts.

Parity Value is calculated based on the dividing the convertible bond value by the Exchange Price.

Property Income Distribution ("PID") is the required distribution of income as dividends under the REIT regime. It is calculated as 90% of exempted net income.

Real Estate Investment Trust ("REIT") is a listed property company which qualifies for and has elected into a tax regime, which exempts qualifying UK profits, arising from property rental income and gains on investment property disposals, from corporation tax, but which has a number of specific requirements.

Rent Reviews take place at intervals agreed in the lease and their purpose is usually to adjust the rent to the current market level at the review date.

Rent Roll is the passing rent being the total of all the contracted rents reserved under the leases.

Reversionary Yield is the anticipated yield, which the initial yield will rise to once the rent reaches the ERV and when the property is fully let. It is calculated by dividing the ERV by the valuation.

Retail Price Index ("RPI") is the official measure of the general level of inflation as reflected in the retail price of a basket of goods and services such as energy, food, petrol, housing, household goods, travelling fare, etc. RPI is commonly computed on a monthly and annual basis.

RICS is the Royal Institution of Chartered Surveyors.

RPI Linked Leases are those leases which have rent reviews which are linked to changes in the RPI.

Special Reserve is a distributable reserve.

Total Expense Ratio ("TER") is calculated as total administrative costs for the year divided by the average total asset value during the year.

Total Property Return is the overall return generated by properties on a debt free basis. It is calculated as the net rental income generated by the portfolio plus the change in market values, divided by opening property assets plus additions.

Total NAV Return is calculated as the movement in the share price for the period plus the dividends paid, divided by the opening share price.

Weighted Average Facility Maturity is calculated by multiplying each tranche of Group debt by the remaining period to its maturity and dividing the result by total Group debt in issue at the year end.

Weighted Average Unexpired Lease Term ("WAULT") is the average lease term remaining to first break, or expiry, across the portfolio weighted by contracted rental income.

Yield on cost is the estimated annual rent of a completed development divided by the total cost of development including site value and finance costs expressed as a percentage return.

Yield shift is a movement (usually expressed in basis points) in the yield of a property asset, or like-for-like portfolio over a given period. Yield compression is a commonly-used term for a reduction in yields.

 

END

 

 

FR SFSFUAFISEDE