Final Results
Primary Health Properties PLC
17 September 2004
Primary Health Properties PLC
17 September 2004
Embargoed for release at 7am on 17 September 2004
PRIMARY HEALTH PROPERTIES PLC ('PHP')
Modern accommodation for the Provision of Primary Health
Care Services
Preliminary Results for the year ended
30 June 2004
Group Financial Highlights
*Pre tax profits increased by 13% to £2,472,000 (2003: £2,179,000)
*Basic earnings per share increased by 18% to 13.9p (2003: 11.8p)
*Diluted earnings per share increased by 19% to 12.8p (2003: 10.8p)
*Dividend increased 10% to 11.00p (2003: 10.0p)
*Basic NAV per share increased 21% to 274.7p (2003: 226.8p)
*Fully diluted NAV per share increased 21% to 243.7p (2003: 200.6p)
*Portfolio (including finance leases) increased to £131.1m (2003: £96.3m)
*Total return per share increased to 59.0p (2003: 55.5p)
Harry Hyman, Managing Director, commented:
"All of our key performance indicators have increased during the period, and I
am delighted to report a 21% increase in our NAV per share, along with a 10%
increase on our total dividend.
Primary Health Properties operates in a fast growing property sector. Demand
continues across the country for new medical centres and combined with the
increased resources being made available by the Government to the NHS we will
see the modernisation of the Primary Care Estate. We are optimistic that this
will result in an increased flow of deals for Primary Health Properties."
Enquiries:
Bell Pottinger Financial
David Rydell/Zoe Sanders
Tel: 020 7861 3232
Primary Health Properties PLC
Harry Hyman
Managing Director
Tel: 01483 306912
Mobile: 07973 344768
Chairman's Statement
This was another good year for Primary Health Properties. The Group produced a
further year of profit growth with Group profit before taxation for the year
ended 30 June 2004 totalling £2,472,000, (2003: £2,179,000), an increase of
13.4%.
Diluted earnings per share increased by 19% to 12.8p (2003: 10.8p). This
higher increase resulted primarily from the fact that no UK corporation tax was
charged to profits during the year (2003: £226,000).
In addition the Group posted its highest ever fully diluted net asset value of
243.7p per share, a rise of 21.5%. The diluted total return for the year was
54.0p (2003: 41.6p).
The Board has recommended a final dividend of 5.5p per Ordinary share that with
the interim dividend makes a total of 11.0p per share for the year, an increase
of 10% over the total dividend of 10.0p per share paid in respect of the
previous year.
The Board has the authority to offer Ordinary shares instead of cash in respect
of dividends. A circular offering Shareholders on the register on 24 September
2004 the opportunity to receive new Ordinary shares instead of the cash dividend
in respect of the final dividend together with a form of election and/or Notice
of Entitlement will be posted to Shareholders with the Annual Report. The latest
date for receipt of the Forms of Election is 28 October 2004.
The year end valuation carried out on behalf of the Board by Lambert Smith
Hampton has resulted in a revaluation surplus of some £10.1m for the year. Of
this £4.0m was accounted for at the interim stage. The undiluted net asset value
per share has risen from 226.8.p per share to 274.7p and the diluted net asset
value from 200.6p to 243.7p, reflecting both rental increases and current yields
in the market. In addition, the calculation of the net asset value was affected
by the exercise of options resulting in the issue of 1,386,667 Ordinary shares
at £1 each and the issue of 43,489 Ordinary shares pursuant to the scrip
dividend scheme.
On 19 August 2004 the Royal Bank of Scotland converted its £4.0m Convertible
Unsecured Loan Stock 2016. This has resulted in the issue of a further
3,478,260 Ordinary shares of 50p each. The number of Ordinary shares in issue is
now 21,625,393.
Rent reviews during the year have again performed well and at the year end our
rent roll had increased from £6.9m to £8.4m, an increase of 22%.
During January 2004, we agreed a further increase of £20m in our banking
facilities, which total £95m. As announced in the interim report, the Board has
decided to recommend to shareholders at the Annual General Meeting an increase
in the Group's permitted gearing level to 75% of Gross Assets. This would enable
the Group to expand its portfolio to £215m based on existing equity and quasi
equity resources.
Purchase of properties amounted to £24.9m during the year and our commitments at
the year end totalled £18.2m. Our portfolio, including commitments, was £149.3m
at 30 June 2004, an increase from £109.6m at the previous year end.
Expansion during the year has in part been financed by the share issues noted
above and further drawings on our committed medium term finance facilities. We
have continued to monitor our exposure to interest rates and have entered into a
new £10m swap arrangement for six years from 2007 to 2013 and a new £10m swap
arrangement for ten years from 2004 to 2014. For the year to 30 June 2005 we
have covered approximately 64.3% of our exposure to interest rates at an
average rate before margin of 5.24% falling to approximately 31.5% in five years
time with an average rate before margin of 5.55%
The share save scheme has 33 members holding 37,937 shares.
The portfolio at the date of this report has 59 properties with a further 9
contracted for delivery during the next 12 months. The portfolio has performed
well in both capital and income terms and we believe that although there is
increased competition in the market place, the prospects for investment in the
sector with its long lease lengths and good quality covenants make the portfolio
highly attractive.
G A Elliot
Chairman 16 September 2004
Managing Director's Report
The table below sets out the development of our portfolio during the year under
review. We took delivery of ten new developments (2003: six new developments)
and entered into a further nine development commitments (2003: eight development
commitments). At the year end the portfolio, when commitments are included,
reached £149.3m (2003 £109.6m) as set out below.
Portfolio Movements
30 June 2004 30 June 2003
£m £m
Investment properties 122.6 92.3
Properties in course of development* 6.0 1.4
Finance leases 2.5 2.6
Total owned and leased 131.1 96.3
Deposits paid - 0.2
Committed 18.2 13.1
Total owned, leased and committed 149.3 109.6
*Properties in the course of development include development loans.
Portfolio Purchases During the Year
The Group completed the purchases of a number of properties during the year,
details of which are set out below:
Property Acquisition Cost Occupational Tenants
£m
Skegness, Lincolnshire 2.0 Doctors Practice, PCT and Pharmacy
Aspley , Nottingham 1.1 Doctors Practice
Boston, Lincolnshire 2.2 Doctors Practice, PCT and Pharmacy
Amwell Street, London 4.4 Doctors Practice
Lenton, Nottingham 1.8 Doctors Practice and Pharmacy
Oldbury, West Midlands 2.8 Doctors Practice and Pharmacy
Pengam Green, Cardiff 1.4 Doctors Practice
Gatley, Cheshire 1.7 Doctors Practice
Winchcombe, Gloucestershire 1.0 Doctors Practice
Gosport, Hampshire 1.6 Doctors Practice and Pharmacy
TOTAL 20.0
Revaluation
As reported in the Chairman's Statement, the portfolio valuations have resulted
in an uplift of some £10m which has been incorporated into the balance sheet,
giving a closing property investment valuation (including finance leases) of
£131.1m. This increase amounted to 55.1p per share on an undiluted basis and
43.3p per share on a fully diluted basis.
Portfolio Rental Levels
The average rent across the whole portfolio is around £155 per square metre
(£14.40 per square foot) (2003: £150 per square metre, £14 per square foot).
The average rent on accommodation let to the NHS (either directly or through the
Doctors Rent and Rates Scheme) is approximately £149 per square metre (£13.85
per square foot) (2003: £148 per square metre, £13.75 per square foot) and the
average pharmacy rent is around £190 per square metre (£17.70 per square foot)
(2003: £200 per square metre, £18.50 per square foot).
Rent Reviews
The Group completed a number of rent reviews during the year and there are a
number of reviews outstanding that we expect to see resolved during the coming
year. The results of the reviews completed during the year added some £74,000 to
our rent roll. There are further reviews due from the past year which amount to
some £1.64m of rent passing. The table below shows the timing of reviews across
our portfolio. The pace of reviews is now picking up as more evidence is
presented through the market and more premises go through the review process.
The weighted average length of time to the next review is 1.66 years across the
portfolio.
Future Accounting Standards
For accounting periods starting after 1 January 2005, all listed companies in
the UK which present consolidated financial statements, have to comply with
International Accounting Standards. These standards are different from UK GAAP
in a number of areas, including IAS40 with regard to the definition of
Investment properties and IAS12 in connection with Deferred Tax.
The Directors are currently assessing the impact that this will have on the
Group. The extent to which the change to IAS will have on UK Company Law is
currently the subject of consultation by the DTI. The Directors will address
these proposals in due course.
Finance and Interest Rate Hedging
Bank borrowings increased from £50.2m to £72.2m during the year. Including the
convertible loan stock of £4.0m year end borrowings totalled £76.2m of which
£49.0m has been hedged as follows:
Convertible 2016 fixed rate of 7.75% £4.0m
Swaps at average rate of 5.303% £45.0m
Total fixed rate and hedged debt £49.0m
The average weighted cost of finance for the fixed element of the debt is 5.50%
(2003: 5.60%) (excluding the lender's margin).
During the period a number of swaps have been entered into extending the
maturity of the Group's cover under hedging arrangements as shown below.
Fixed Rate Funding
Year Swaps (£m) Convertible Loan Total (£m)
Stock (£m)
2004/2005 45.0 4.0 49.0
2005/2006 45.0 4.0 49.0
2006/2007 40.0 4.0 44.0
2007/2008 30.0 4.0 34.0
2008/2009 20.0 4.0 24.0
2009/2010 20.0 4.0 24.0
The table above shows the level of fixed rate financing for each of the next 6
financial years from swaps and the convertible loan stock.
The Group has facilities of £95m and is discussing the possibility of adding
further bank lines. £10m is on a 364 day facility basis while the balance of
£85m is a 7 year bullet facility repayable in 2008. The Company has negotiated
an option to extend its ability to convert all of its term facilities of £95m
into longer term finance that would mature in 2022, whilst retaining the
flexibility to refinance if considered attractive.
Convertible Loan Stock March 2016
On 19 August 2004, the Royal Bank of Scotland converted its £4.0m Convertible
Unsecured Loan Stock 2016. This has resulted in the issue of a further 3,478,260
Ordinary shares of 50p each.
Portfolio characteristics
Users
The table below shows the percentage of our portfolio by rent roll derived from
each of our major tenant classes, GPs, Primary Care Trusts ('PCTs'), Health
Authorities, pharmacy operators and others. Some 99% (2003: 99%) of our rent
roll comes directly or indirectly from the NHS and pharmacy operators.
Covenant Analysis by Annual Rent
GP's 74%
Health Authorities 4%
PCTs 14%
Pharmacy 7%
Other 1%
TOTAL 100%
Length of Leases
Two tables below show the length of lease by lease expiry and percentage of
today's passing rent. A third table below, sets out the security of income by
term certain. The first table indicates that some 90% (2003: 91%) of the lease
income has more than 15 years unexpired, whilst the security of the income table
shows the contracted cash flow as a percentage of the year end rent roll,
ignoring any increases and any lease renewals during the subsequent periods.
This shows that by year 20 the Group would still be receiving 63% of its current
income while at year 18 the figure is 83%.
Analysis of Annual Rent by Term Unexpired
Less than 5 years 1%
6 - 15 years 9%
15 - 20 years 37%
More than 20 years 53%
TOTAL 100%
Security of Income by Lease Expiry
Year % of Passing
Rent
1 100%
5 99%
10 94%
15 92%
20 63%
Security of Income by Term Certain
Year % of Passing
Rent
1 100%
5 99%
10 94%
15 90%
20 63%
Geographical Spread
The table below shows the percentage of the portfolio by rent roll derived from
each of the NHS regions.
Anglia and Oxford 14%
North Thames 18%
North West 12%
Northern and Yorkshire 12%
South Thames 4%
South and West 9%
Trent 9%
West Midlands 15%
Scotland 3%
Wales 4%
TOTAL 100%
Forthcoming Reviews
The table below shows the annual amount of rent falling due for review in each
of the next 3 years.
Year Rent (£m)
2004/2005 2.581
2005/2006 2.875
2006/2007 2.515
The Primary Care Market
Over the last year we have seen the Government's much heralded NHS LIFT (Local
Improvement Finance Trust) programme set up across many deprived areas in
England. Although 42 schemes are currently being developed across the country,
only 5 LIFT schemes have established the LIFTCo - the joint venture partnership
company between the public and private sectors - and only 28 have completed the
bidding process. We continue to watch the developments with interest.
Outside of the NHS LIFT remit, we are encouraged to see that Third Party
Developer schemes are occurring within LIFT areas and we completed the purchase
of a new medical centre in Oldbury during the past year. This proves that the
market is still strong, working alongside LIFT, and we look forward to
purchasing future projects in these areas.
Throughout the rest of the country, demand for new medical centres continues
apace. There is more cohesion within PCTs to see the primary care framework
evolve and to see the improvement of patient services, whether delivered direct
from PCT community services or from General Practitioners.
The investment market for new primary care facilities has expanded over the last
year with new investors coming into the market. Whilst this will help to
develop the primary care premises market, we must continue to invest prudently
and take full advantage of the position we hold in the marketplace.
We have continued to add value to properties in the portfolio by negotiating new
lease terms and refurbishing premises. For example, we successfully negotiated
a lease extension on Lever Chambers in Bolton, to extend the term certain to 20
years from 7 years, adding significant value to the investment.
Future Prospects
We are optimistic that the increased resources made available by the Government
to the NHS will assist in the modernisation of the Primary Care Estate and that
this will translate into an increased flow of deals for PHP.
In the mean time our existing portfolio continues to perform well and we are
working hard to add value from rent reviews and lease re-gearing.
Harry Hyman
Managing Director 16 September 2004
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 30 June 2004
30 June 2004 30 June 2003
£'000 £'000
Turnover 7,661 6,711
Administrative expenses (1,738) (1,399)
Operating profit 5,923 5,312
Share of operating profit/(loss) in joint venture 4 (178)
5,927 5,134
Interest receivable 183 55
Interest payable (3,638) (3,010)
Profit on ordinary activities before taxation 2,472 2,179
Taxation - (226)
Profit on ordinary activities after taxation 2,472 1,953
Interim dividend of 5.50p per share (2003: 5.00p) (997) (835)
Final dividend proposed of 5.50p per share (2003: 5.00p) (998) (836)
Additional final dividend 2003 * (69) -
(2,064) (1,671)
Profit retained for the year 408 282
Net profit after tax and dividends for the year retained by:
The Company 398 450
Subsidiary undertakings (after declaring dividends of £7,515,000 (2003: 6 10
£6,340,000))
Joint venture 4 (178)
408 282
Earnings per share - basic 13.9p 11.8p
- diluted 12.8p 10.8p
Dividends per share (net) 11.0p 10.0p
Increase in net asset value per share - basic 48.0p 45.5p
- fully diluted 43.0p 36.0p
Total return per share - basic 59.0p 55.5p
- diluted 54.0p 46.0p
All activities are continuing.
* Additional Final dividend 2003 - as result of the Joint Managers exercise of
options to purchase 1,386,667 Ordinary shares on 17 September 2003, they were
entitled as shareholders of these new shares on the registrar at 26 September
2003 to receive the final dividend in respect of the year ended 30 June 2003.
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 30 June 2004
30 June 2004 30 June 2003
£'000 £'000
Profit for the financial year excluding share of profit/(loss) in joint 2,468 2,131
venture
Share of joint venture's profit/(loss) for the year 4 (178)
Profit for the financial year attributable to members of the Parent Company 2,472 1,953
Unrealised surplus on revaluation of properties 10,050 7,497
Total gains and losses relating to the year 12,522 9,450
All activities are continuing.
CONSOLIDATED BALANCE SHEET
as at 30 June 2004
At 30 June At 30 June
2004 2003
£'000 £'000
Fixed Assets
Tangible assets 128,612 93,710
Investment in joint venture:
Share of gross assets 4 75
Share of gross liabilities (4) (106)
- (31)
128,612 93,679
Current assets
Debtors 1,104 658
Net investment in finance leases (due within one year: 2004: £27,000, 2003: 2,549 2,573
£28,000)
Cash at bank 709 418
4,362 3,649
Creditors: amounts falling due within one year (6,911) (5,219)
Net current liabilities (2,549) (1,570)
Total assets less current liabilities 126,063 92,109
Creditors: amounts falling due after more than one year
Bank loans (72,210) (50,200)
Convertible loan stock 2016 (4,000) (4,000)
(76,210) (54,200)
49,853 37,909
Capital and reserves
Called up share capital 9,074 8,358
Share premium account 7,459 6,689
Capital reserve 1,618 1,618
Revaluation reserve 30,303 20,253
Profit and loss account 1,399 991
Equity shareholders' funds 49,853 37,909
Net asset value per share - basic 274.72p 226.77p
- diluted 243.65p 200.61p
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 June 2004
30 June 2004 30 June 2003
£'000 £'000
Net cash inflow from operating activities 6,167 5,916
Returns on investments and servicing of finance
Interest received 16 10
Interest paid (3,157) (2,351)
(3,141) (2,341)
Taxation
UK corporation tax recovered - 3
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (21,077) (8,536)
Development loans advanced (3,223) -
Loan to joint venture (27) (100)
(24,327) (8,636)
Equity dividends paid (1,804) (1,544)
Net cash outflow before financing (23,105) (6,602)
Financing
Ordinary share issue (net of expenses) 1,386 209
Term bank loan 2008 22,010 10,200
Revolving 364 day facility - (3,750)
Net cash inflow from financing 23,396 6,659
Increase in cash 291 57
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
30 June 30 June
2004 2003
£'000 £'000
Increase in cash in the period 291 57
Cash inflow from loans (22,010) (6,450)
Movement in net debt in the period (21,719) (6,393)
At the beginning of the period (53,782) (47,389)
At the end of the period (75,501) (53,782)
Net debt comprises:
Cash at bank and in hand 709 418
Term loan (72,210) (50,200)
Convertible Loan Stock 2016 (4,000) (4,000)
(75,501) (53,782)
NOTES:
The above results for the year to 30 June 2004 are audited.
1. Earnings per share
The calculation of earnings per share is based on the following:
As at 30 June 2004 As at 30 June 2003
Net profit attributable Ordinary Net profit attributable Ordinary
to ordinary shareholders shares to ordinary shareholders shares
£'000 number £'000 number
Basic earnings 2,472 17,824,559 * 1,953 16,612,427 *
per share
Option - 439,074 - 603,528
conversion**
Convertible 310 3,478,260 279 3,478,260
Loan stock
conversion***
Diluted 2,782 21,741,893 2,232 20,694,215
earnings per
share
* Weighted average number of Ordinary shares in issue during the year.
** Excess of the total number of potential shares on option exercise over the
number that could be issued at fair value as calculated in accordance with
Financial Reporting Standard No. 14: Earnings per share.
*** The total number of potential shares on conversion of the convertible loan
stock.
2. Notes to the statement of cash flow
Reconciliation of operating profit to net cash inflow from operating activities
30 June 30 June
2004 2003
£'000 £'000
Operating profit 5,923 5,312
(Increase)/decrease in operating debtors and prepayments (289) 272
Increase in operating creditors and accruals 533 332
Net cash inflow from operating activities 6,167 5,916
3. The freehold properties are included at valuation as at 30 June 2004. Fixed
assets consist of:
30 June 30 June
2004 2003
£'000 £'000
Tangible assets:
Investment properties 125,266 93,699
Development Loans 3,346 11
128,612 93,710
Investments:
Investment in joint venture
Share of gross assets 4 75
Share of gross liabilities (4) (106)
- (31)
128,612 93,679
JOINT VENTURE
Primary Health Properties plc owns 50% of the issued Ordinary share capital of
Primary Health Solutions Limited, a company created for the purpose of
developing properties for sale and leaseback and to tender for contracts under
the Government's LIFT (Local Improvement Finance Trust) initiative. The
remaining 50% of the issued Ordinary share capital is owned by Brackley
Investments Limited.
4. At the Annual General Meeting, a resolution to declare a final dividend of
5.5p per share will be put to the members and will be paid on 25 November 2004
to holders registered at close of business on 24 September 2004.
5. Fully diluted net asset value has been calculated as follows:
30 June 30 June
2004 2003
£'000 £'000
(audited) (audited)
Net assets:
Per Consolidated Balance Sheet 49,853 37,909
Add - Loan Stock conversion 4,000 4,000
- Receipts from the exercise of
Options 2,736 1,387
56,589 43,296
No. of shares No. of shares
Ordinary shares:
Issued share capital 18,147,133 16,716,977
Add - Loan Stock conversion into shares 3,478,260 3,478,260
New shares issued on exercise of options 1,600,000 1,386,667
23,225,393 21,581,904
Calculations assume that the dilution takes place on the respective balance
sheet dates.
6. On 19 August 2004, 3,478,260 Ordinary shares of 50 pence each were issued
arising on the conversion of £4.0m Convertible Loan Stock 2016. The new
Ordinary shares do not rank for the final dividend for the year ended
30 June 2004.
7. The statutory accounts for the year ended 30 June 2004 will be finalised on
the basis of the financial information presented by the Directors in this
preliminary announcement and will be delivered to Registrar of Companies
following the Company's Annual General Meeting. The Annual Report will be sent
to shareholders shortly and will also be available on request from the Company
Secretary, J O Hambro Capital Management Limited, Ground Floor, on
18 November 2004 at 2.30pm at Ground Floor, Ryder Court, 14 Ryder Street,
London, SW1Y 6QB.
8. At the Extraordinary General Meeting held on 21 November 2002, the Directors
were granted authority to offer Ordinary shares instead of cash in respect of
dividends. A Circular, Form of Election and Notice of Entitlement will be
posted to Shareholders on 6 October 2004 offering Shareholders on the Register
of Members on 24 September 2004 the opportunity to elect to receive new Ordinary
shares instead of cash in respect of the final dividend. The latest date for
receipt of the Forms of Election is 28 October 2004.
9. The financial information set out above does not constitute the Company's
statutory financial statements for the years ended 30 June 2004 or 2003 (but is
derived from and has been prepared on the same basis as those financial
statements). Statutory financial statements for 2003 have been delivered to the
Registrar of Companies, and those for 2004 will be delivered following the
Company's Annual General Meeting. The auditors have reported on those
financial statements; their reports were unqualified and did not contain
statements under section 237 (2) or (3) of the Companies Act 1985.
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