Final Results

RNS Number : 4958A

Primary Health Properties PLC

20 February 2014

Primary Health Properties PLC

A dedicated healthcare REIT

Audited Results for the year ended 31 December 2013

- increased rental income and capital growth -

- portfolio significantly grown through strategic acquisitions -

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 2013.

GROUP OPERATIONAL HIGHLIGHTS

· Group rental income received increased by 27% to £42.0 million (2012: £33.2 million)

· Acquisition of Prime Public Partnerships ("PPP") portfolio of 54 high quality properties for a gross consideration of some £233 million, adding £14.4 million to annual rent roll

· Further 23 properties acquired or committed to fund at a total cost of £70 million; contracted rent of £4.3 million, including Primary Health Care Centres Limited

· Investment property as at 31 December 2013 £941.6 million (31 December 2012: £622.4)

· Including cost to complete development commitments, total portfolio value has increased by 48% to £959 million (2012: £645 million) at a net initial valuation yield of 5.65% (2012: 5.72%)

· Average annualised uplift of 2.2% on reviews completed in the year (2012: 2.4%), combined with acquisitions and commitments, annualised rent roll increased by over 48% to £57.6 million (2012: £38.9 million)

· Portfolio 99.7% let with 16 years weighted average lease length (including commitments)

· Revised terms for provision of property advisory and administrative services to generate annualised savings in excess of £0.8 million

· Appointment of Alun Jones as Chairman and Steven Owen as a non-executive director

GROUP FINANCIAL HIGHLIGHTS

· Operating profit before result on property portfolio rose 18.7% to £32.8 million (2012: £27.6 million)

· Adjusted earnings increased by 28% to £9.5 million (2012: £7.4 million)

· Total of £140 million of new debt facilities completed:

o new, four year £70 million revolving debt facility with Barclays Bank plc

o a £70 million, secured, twelve year floating rate corporate bond

· Equity raising (net of costs) of £65.8 million in June 2013

· PPP portfolio acquisition funded by assumption of £178 million of fixed rate debt, with allowance for refinance cost and issue of £42.6 million in shares to vendors

· First stage of restructuring of PPP debt undertaken with effect from 1 January 2014, reducing running interest rate by 80 basis points, an annual saving of £1.4 million

· Payment of 19.0p per share of dividends during the year (2012: 18.5p), the 17th successive year of dividend growth

· 9.75p per share second interim dividend for 2013 declared, payable on 25 April 2014

· EPRA net asset value of £330.9 million (2012: £231.9 million)

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

"I am delighted to announce the results of another busy and successful year for PHP. We have made significant investment in high quality properties in the year that has been funded by shareholder equity and accessing new sources of finance at attractive rates.

"The Company has taken steps to progress its stated intention to return to full dividend cover, including changing advisory fee structures which will generate savings for the Group which when added to the increased earnings from the portfolio will see dividend cover grow materially in 2014. This growth has been achieved whilst maintaining a progressive dividend policy with 2013 being the 17th consecutive year of increased dividend for the Group.

"The acquisitions in the year have increased the Group's rent roll and provide opportunity for growth on review and additional income and capital value from asset management opportunities. Since the year end, we have successfully refinanced the £178 million of debt finance that we assumed with the acquisition of the PPP portfolio which has a further positive impact on earnings.

"Across the UK there are an estimated 10,000 GP premises, housing nearly 35,000 GPs, however a large part these are ageing, converted residential premises where considerable investment is needed in order to provide efficient, hygienic, modern premises. The Group remains ideally placed to provide the services being demanded from new, modern specialist premises and we look forward to the future with confidence."

For further information contact

Harry Hyman

Primary Health Properties PLC

T +44 (0) 20 7451 7050

harry.hyman@nexusgroup.co.uk

Phil Holland

Primary Health Properties PLC

T +44 (0) 20 7451 7050

phil.holland@nexusgroup.co.uk

David Rydell / Victoria Geoghegan / Elizabeth Snow

Pelham Bell Pottinger

T +44 (0) 20 7861 3232

Joshua Cryer / Robert Irvin

Broker Profile

T +44 (0) 207 448 3244

Chairman's Statement

In my final report to shareholders as Chairman of PHP, I am delighted to be commenting on such an acquisitive and successful year as 2013 was for the Group.

The attractiveness of the Group's property portfolio and long term, transparent income stream was a key factor as we raised fresh equity finance and diversified and lengthened the Group's lending sources, accessing low interest rates that prevailed throughout the year. With this resource secured we demonstrated our ability to invest successfully increasing rental income and earnings to make progress toward meeting a key Board objective of restoring dividend cover.

Performance

Rental income received in the year grew 27% to £42.0 million (31 December 2012: £33.2 million) as the impact of prior acquisitions was realised, rent commenced upon the delivery of new stock and rent review increases were achieved. The rate of rental growth for the year at 2.2% was lower than that of 2.4% achieved in 2012, but the return of growth to the UK economy and the increased proportion of our portfolio with RPI linked or fixed reviews (21% compared to 17%), should counteract lower open market reviews being achieved.

Operating profit grew to £32.8 million (2012: £27.6 million) and advisory fees for the year fell to an average rate of 0.71% of gross assets (2012: 0.75%). Net debt costs increased to £26.0 million (2012: £20.2 million) reflecting the higher average debt outstanding through the year as the property portfolio grew and also a full year impact of the higher borrowing margins imposed on the Group in April 2012.

Property portfolio

Over £300 million of assets were added to the Group's portfolio in 2013. At the balance sheet date, Investment properties stood at £941.6 million (31 December 2012: £622.4 million). The portfolio comprised of 259 primary care centres which included 7 properties under construction at the year-end that are all due to complete in 2014. The total cost to complete these developments is £17.1 million taking the value of the portfolio when complete to £958.7 million (31 December 2012: £645.4 million).

The portfolio saw a valuation uplift of 3.5%, an equivalent yield of 5.92% (31 December 2012: 6.05%). The valuation and tightening of yield in 2013 reflects the prime nature of the assets, underpinned by a weighted average lease term remaining ("WAULT") of 16 years (31 December 2012: 16 years) and strong Government covenant.

We have a good pipeline of further acquisition opportunities which is enhanced by an agreement entered into with Prime plc in December, a highly regarded developer in our sector, with regard to future primary care developments they may undertake.

We expect the new fiscal year to see an increased number of approvals of new primary care developments as the demand for modern premises continues and operations normalise following the changes to NHS management in England in 2013.

A number of opportunities have been identified to add value to our properties through physical extensions and lease extensions and renewals that will generate additional rental income and provide capital growth.

Prime Public Partnerships ("PPP")

The acquisition of the PPP portfolio was the largest transaction completed in 2013. 54 completed assets were acquired for an aggregate of £233 million in December 2013. PHP assumed existing debt of £178 million and issued 12.86 million ordinary shares to the vendors, materially adding to PHP's property portfolio and capital base. This material addition to PHP's portfolio enhances the Group's WAULT and average lot size and increases the proportion of total rent roll that is subject to increases linked to RPI.

Share capital

In June 2013, we raised £65.8 million of equity, net of costs, issuing 21.7 million shares at 315 pence each. A total of 12.86 million shares were issued at an agreed value of 320 pence to the vendors as consideration for the PPP portfolio. An initial 12.58 million were issued on completion and 0.28 million were issued in January 2014 as the completion accounts were finalised.

Funding

In March 2013 we completed the refinance of the debt that we assumed with our acquisition of the Apollo portfolio in December 2012. This saw a new £70 million four year facility arranged with Barclays Bank PLC.

In November, the Group issued a 12 year £70 million secured variable rate bond that is traded on the Main Market of the London Stock Exchange. An initial sum of £60 million was funded with the final £10 million to be received in June 2014, when a tranche of forward funded assets are scheduled to be complete.

Net debt outstanding as at 31 December 2013 totalled £580 million (31 December 2012: £381 million) including the £178 million acquired with the PPP portfolio.

Headroom on debt facilities was £75 million. Adding cash balances of £9.3 million and allocating headroom to fund the cost to complete development commitments of £17.1 million reduces net headroom to £67.2 million. Group loan to value was 61.6% (31 December 2012: 60.9%).

Additional headroom has been added in February 2014 with the signing of an amendment to the Club facility, reinstating £25 million of resource that was repaid and cancelled upon the issue of the secured bonds. Discussions are ongoing with other debt providers that provide evidence that lending margins are softening.

I can also announce that we have now completed the first stage of the refinance of the debt assumed with PPP. With effect from 1 January 2014, the average interest rate charged on this debt has been reduced by 80 basis points, saving the Group an estimated £1.4m per annum.

Dividends

PHP paid a total of 19.0 pence per share in dividends to shareholders in the year, the 17th successive year of dividend growth. The strength of the Group's income and the positive outlook for growth underpinned the increase for 2013. The Board has now approved the payment of a second interim dividend of 9.75p per share in respect of 2013. This will be payable on 25 April 2014 to shareholders on the register on

14 March 2014, with an ex-dividend date of 12 March 2014.

Dividend cover improved marginally to 57% (2012: 56%) and is set to improve further in 2014 as the activity of 2013 impacts earnings together with reduced fee rates for advisory services and debt costs for the PPP loans.

Changes to Advisory Services

The Board has taken action to restructure the costs of advisory services provided to the Group. From 30 April 2014 advisory services will be provided solely by Nexus, the existing joint adviser, as they take on responsibility for delivering the administrative and company secretarial services. In accordance with the terms of their contract, the cost of compensating J O Hambro Capital Management Limited for its early termination is £2.5 million. This is payable on 30 April 2014 but has been expensed in 2013.

New fixed compensation rates for these services have been agreed with Nexus, effective from April 2014. No longer linked to the value of gross assets, the saving is estimated to be in excess of £800,000 per annum, representing a short payback period. The saving will be more pronounced as the Group's portfolio continues to grow.

In February 2014, we announced changes to the basis on which property advisory fees are paid to Nexus. New, lower incremental fee rates were introduced for gross assets above £1 billion, between

£1 billion and £1.25 billion and then above £1.25 billion.

These changes are designed to reflect the fact that growth in gross assets should not lead to a proportionate increase in management costs as economies of scale are able to be secured.

Auditors

Following best governance practice, the Company tendered its audit services during the first half of 2013. After detailed deliberation following a thorough tender process, the Directors appointed Deloitte LLP as auditors to the Group and look forward to working with Deloitte through their term of office.

Board changes

As announced on 19 December 2013, I will not be seeking re-election as Chairman. Alun Jones, who is the Chairman of the Audit Committee, will assume the role of Chairman from the end of the 2014 Annual General Meeting. The Board has appointed Steven Owen as a non-executive director with effect from 1 January 2014 and he will chair the Audit Committee when Alun becomes Group Chair.

Change to the NHS in England

2013 saw the implementation of major changes in the structure of the NHS in England. Clinical Commissioning Groups ("CCGs") replaced Primary Care Trusts ("PCTs") and responsibility for rent reimbursement to GPs moved to the newly formed NHS England. PCT lease liabilities were taken over by NHS Property Services ("NHSPS"), a company wholly owned by the Secretary of State for Health. Although these changes have delayed the approval of new projects, our rent collection performance has remained strong.

The changing demographic backdrop is placing increasing demands on the primary care sector as technological advances provide the opportunity for more services to be delivered from within the community. This reinforces the importance of primary care in delivering health services through General Practitioners with the need for modern purpose built accommodation remaining strong.

We continue to develop relationships with the management of both NHS England and NHSPS to ensure that the Group remains in the strongest position to fund future development of primary care centres in the UK.

Outlook

During 2013, we have taken a number of significant steps in accordance with our strategic objectives and towards achieving the Group's short term priority of returning to a fully covered dividend, all whilst maintaining a progressive dividend policy.

The reduction in fee rates for advisory services will enhance earnings as will the recent refinance of the PPP portfolio debt. Our advisory team will secure value add opportunities within the portfolio and continue to secure rental growth from reviews in the portfolio.

We have entered into a number of key strategic pipeline agreements that will deliver future opportunities to secure additional modern primary care properties. PHP is in a good position to deliver its business strategy of generating high quality income and asset improvement in the medium term as the demand for new, modern bespoke premises continues.

I would like to thank my colleagues for their hard work and support and am confident that 2014 will be a further successful year.

Graeme Elliot

Chairman

19 February 2014

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 primary health care properties across the United Kingdom let on long term leases, backed by a secure underlying covenant where rents are funded directly or indirectly by the UK government.

PHP's strategy is to:

(1) acquire modern, purpose built primary care premises that provide secure long term income streams with the potential for rental growth;

(2) manage its portfolio through ongoing discussion and cooperation with its tenants and the NHS in order to increase its rental potential, maintain the longevity of underlying income streams and secure capital growth;

(3) fund its investment through a prudent mix of shareholder equity and debt in order to generate a leveraged return to its investors within an established range of risk parameters;

(4) secure a diversified range of debt funding sources and maturities; and

(5) maintain a progressive dividend policy where dividends are covered by adjusted profits; and

(6) deliver returns to shareholders through a combination of dividend and share price growth.

Business model and strategy

PHP's business model is to invest solely in the freehold or long leasehold of modern purpose-built primary healthcare facilities leased to general practitioners, NHS organisations and other associated healthcare users, including on-site pharmacies. Usually having original lease terms of 21 years or more, at effectively upward only rentals, the large majority of income is received either directly from the NHS or funded by the NHS by way of reimbursing property costs to GP tenants.

The Group engages in development activity in partnership with a number of specialist developers in the sector, committing to fund and acquire new assets as they are constructed, but contracting to do so only once the major areas of risk such as agreements to let to GP occupiers have been entered into.

The Group also invests in completed, let properties acquired from a range of investors, provided the underlying occupational leases and other property fundamentals meet its investment criteria.

Each potential investment is evaluated for its income and asset value growth potential. In particular PHP seeks possibilities for extending the term of the underlying leases and scope to add to the income and value from providing additional space and facilities in the future.

The Group finances its portfolio with a mix of equity and debt, the proportions of which are kept under regular review to optimise risk adjusted returns to shareholders over the long term. Debt facilities are varied, accessing both traditional bank lenders and debt capital markets in the form of unsecured retail bonds and secured corporate bonds. Facilities are closely monitored to target a spread of providers and range of maturities to ensure continuity and availability that match the longevity of income streams.

Following the successful refinance of the Group's core banking facilities in 2012, key strategic objectives for 2013 were:

• increasing earnings in order to rebuild dividend cover, aiming to return to full cover at the earliest opportunity; and

• widening the sources of debt funding accessed by the Group, with the aim of extending the average maturity of facilities to better match the average duration of the Group's occupational leases.

The Board aimed to achieve these objectives whilst maintaining the core fundamentals of the property portfolio and the longer term objectives of the Group, being;

• to secure long term income;

• maintain and enhance the WAULT within the portfolio;

• increase the average lot size of its property assets;

• lower its total expense ratio ("TER"); and

• reduce its average cost of borrowing.

The Primary Care Property sector

The sector in which PHP chooses to invest has a number of key characteristics that differentiate it from other property sectors and underpin its attractiveness and growth potential.

Primary care is the foundation of the healthcare services provided by the National Health Service ("NHS") in the UK. The GP continues to be the first point of access to the NHS for UK residents other than acute emergency care. Across the UK there are an estimated 10,000 GP premises, housing nearly 35,000 GPs. A large part of this primary care estate is comprised of ageing, converted residential premises where considerable investment is needed in order to provide efficient, hygienic, modern premises. The NHS requires buildings that are capable of coping with the increasing demands placed upon primary care and also of housing new and improved equipment that has resulted from technological advances and a widening array of services that are being provided locally in their communities by GPs and their practices.

It is a long standing feature of the sector that GPs receive reimbursement for costs associated with their premises from the NHS. Where their premises take the form of properties leased from PHP or others, the reimbursement is for the rent paid to the landlord and for the costs of maintaining and insuring the property. These principles are set out in legislation in the constitution of the NHS and currently governed by the National Health Service (General Medical Services - Premises Costs) Directions 2013, which came into force on 1 April 2013 (the "Directions").

The political drive to move health care services into the local community, where they can be delivered more cost effectively and provide greater choice to the patient, requires modern, purpose built properties from which these services can be provided. There is still a long way to go in modernising the primary care estate and that development will require the investment capital that private sector investors such as PHP can provide. PHP has an 18 year track record of investing in the primary care sector, working with specialist developers, GP groups and the NHS to develop high quality premises and adapt both the physical volume and configuration of space to meet the changing needs of the sector.

Summary

The Business Review brings together an overview of our business model and strategy. We look at how we performed in the year and progress made in the business and the Group's financial position, and we assess the key risks and performance indicators.

These pages illustrate the progress made in recent years. Our strategic priorities have not changed and we will continue to aim to source attractive acquisitions through portfolio purchases and individual property transactions in order to enhance returns to shareholders and increase dividend cover.

The Chairman's Statement should be read together with the Strategic Review of which it is deemed to be a part.

Business Review

Our key measurements of success

	2013	2012	2011	2010	2009
Total Investment Property¹	£958.7m	£645.4m	£539.7m	£503.6m	£371.0
Average lot size	£3.7m	£3.5m	£3.4m	£3.1m	£3.2m
Total property return (ungeared)	8.23%	6.99%	8.25%	10.21%	2.93%
Rent roll	£57.6m	£38.9m	£31.4m	£28.0m	£21.3m
Dividend per share	19.0p	18.5p	18.0p	17.5p	17.0p
Dividend cover	57%	56%	82%	84%	128%
Net asset value (EPRA)	£330.9m	£231.9m	£217.6m	£195.6m	£172.0m
Net asset value per share (EPRA)	300 p	305 p	319 p	311 p	280 p

¹ Includes value of ongoing developments as completed

Property portfolio

The Group's property portfolio as at 31 December comprised of a total of 259 assets, 252 of which are completed, let investments and 7 that were on site under construction.

(31 December 2012: total 183, 176 completed, 6 under construction, one deferred completion).

Portfolio valuation and performance

	2013	2012
	£m	£m
Investment properties	929.9	606.7
Properties in the course of development	11.7	15.7
Total properties	941.6	622.4
Finance leases	-	3.1
Total owned and leased	941.6	625.5
Cost to complete development commitments	17.1	19.9
Total owned, leased and committed	958.7	645.4

Lambert Smith Hampton ("LSH"), Chartered Surveyors and Valuers, independently valued the portfolio as at the balance sheet date at market value as defined by the Royal Institution of Chartered Surveyors ("RICS"). The valuation, undertaken on the basis that all committed development properties and the deferred contract had completed, totalled £958.7 million. This generated a net surplus on revaluation of £2.3 million for the year.

The wider UK economic recovery has had a positive impact on the property sector as a whole. Confidence is returning to most commercial sectors resulting in "all-property" investment yields tightening in the second half of 2013. The long term, secure nature of primary care properties has traditionally resulted in a more stable valuation environment with much less volatility in valuation yields when compared to traditional commercial property sectors.

The general improvement in property sentiment combined with continued demand and increased competition for primary care assets, as investors are attracted by the secure, long term nature of the underlying income, has led to some minor yield tightening through 2013. The portfolio valuation as at 31 December 2013 reflected an average net initial yield of 5.65% (31 December 2012: 5.72%) with a true equivalent yield of 5.92% (31 December 2012: 6.05%).

The Group's property portfolio showed a total return of +8.2% in 2013, +5.6% per annum over the three years to the balance sheet date and +8.1% per annum over the five year period to 31 December 2013. This compares to the IPD All Property Index that showed +10.9%, +6.9% and +7.8% respectively.

IPD compile a specialist Healthcare Property Index which provides for a more direct benchmark of PHP's performance against its specific sector of focus. The index will be published on 28 February 2014 and an update will be given on PHP's relative performance in our next public statement.

Were the Group's assets to be valued using a discounted cash flow ("DCF") basis, the portfolio would show a value of £1,015.0 million as compared to £958.7 million using a traditional yield based approach. This would represent an additional 51 pence per share in net asset value terms. This DCF valuation has been prepared by the Joint Advisers on a basis consistent with previous years, discounting the rental cash flows at 7% per annum.

Property Portfolio Details

	Lon-don	South West	South East	East Anglia	East Mid-lands	West Mid-lands	North West	York-shire & Humb-erside	North	Scot-land	Wales
No. of properties	10	10	62	7	19	26	28	19	22	28	21
No. of tenancies	14	16	123	11	39	62	56	39	41	52	72
Floor area (m2)	28,212	11,157	58,491	5,897	22,377	36,041	39,056	26,144	22,999	42,303	30,280
No. of patients	86,877	89,762	651,676	82,713	211,709	298,718	288,898	196,399	217,452	262,647	232,035
Rent roll (£'m)	2.3	1.8	11.6	1.0	3.9	6.5	7.5	4.7	3.9	7.4	5. 6
Capital value (£'m)	40.5	30.0	190.7	16.6	65.1	104.9	127.3	77.8	62.3	125.9	91.9
No.of pharmacies	2	4	34	2	15	20	20	15	12	7	14

The portfolio statistics and values above represent only completed assets as at the balance sheet date. PHP has also committed to fund seven properties that were under construction as at 31 December 2013. The total cost of these assets is £24.7 million and all are scheduled to complete in 2014 and will generate a total of £1.5 million of rent when completed.

Acquisitions

During 2013 the Group acquired or committed to develop and acquire a total of 77 properties in transactions representing a gross acquisition value of more than £300 million. The table below provides an analysis of the assets acquired in 2013:

	Lon-don	South West	South East	East Anglia	East Mid-lands	West Mid-lands	North West	York-shire & Humb-erside	North	Scot-land	Wales
No. of properties	4	4	8	2	1	8	13	5	14	15	3
Floor area (m2)	3,677	3,660	8,803	1,551	952	12,956	19,388	4,495	13,968	23,345	3,099
Rent roll (£'m)	1.0	0.6	1.9	0.3	0.2	2.7	4.2	0.8	2.4	4.2	0.4
WAULT	20.2	18.1	13.4	19.8	21.0	15.1	20.6	16.8	13.3	17.1	18.0
Percentage rent funded by UK Government	100%	100%	92%	93%	83%	92%	92%	84%	93%	98%	92%
Acquisition cost (£'m)	16.8	10.4	29.7	4.4	3.0	43.3	70.2	13.0	39.6	68.5	7.1

On 1 July 2013, PHP acquired the entire share capital of Primary Health Care Centres Limited ("PHCC") for cash. The PHCC portfolio comprised of 11 fully occupied, standing let investment properties. The assets were acquired for a total cost of £29 million, with a contracted rent roll of £1.7 million and a WAULT of 19.3 years. PHCC was acquired at its net asset value with PHP assuming net debt facilities totalling £16.3 million. This acquisition was accounted for as an asset purchase.

On 3 December 2013, PHP completed the acquisition of Prime Public Partnerships (Holdings) Limited ("PPP"). The acquisition of the entire share capital of PPP was undertaken for a consideration of £42.6 million being met wholly by the issue of a total of 12.86 million PHP ordinary shares to the vendors, (see note 22). These shares, subject to limited exemptions, will be locked up for a period of 18 months from the completion date. This acquisition was also accounted for as an asset purchase.

The PPP portfolio comprised 54 fully let primary care assets with an acquisition value of £233 million. The portfolio had a contracted rent roll of £14.4 million with a WAULT of 17 years. A total of £178.4 million of fixed rate debt was acquired with the transaction, secured by the PPP assets. A provision of £13.7 million was allowed by the vendor for the estimated cost of repaying the debt early, reducing net asset value in arriving at the purchase consideration. In addition to the acquisition of PPP, a five year development pipeline agreement was entered into with Prime plc, a sister company owned by the vendors of PPP. Prime plc is a successful, long term developer of primary care assets and the agreement will provide a valuable source of future investment opportunities for PHP.

A further 12 assets were acquired in the period for a total of £41 million with a contracted rent roll of £2.6 million.

Portfolio management

A key strategic focus of the Group is the active management of its owned portfolio. This takes a number of forms that seek to increase rental income and capture enhanced capital value:

• capital expenditure that ranges from small extensions to more major construction projects, increasing contracted rental income and extending existing lease terms;

• managing existing leases through re-gearing or refurbishment and maintenance programmes in exchange for increased rents and extended lease terms.

In 2013, three projects were completed with a total cost of £0.4 million adding an average of 17 years to the lease terms of these properties.

A further three projects were contracted during 2013, committing £4.1 million of capital expenditure. An average of 21 years will be added to the existing lease durations at these assets while securing additional rent of £0.32 million per annum on completion.

The largest of these projects is the development of PHP's centre in Aylesbury. The existing medical centre comprises 725 square metres that is fully let to the occupying GPs for a remaining term of 10 years. Working with the practice to crystallise a transaction that benefits all parties, PHP has acquired an adjoining land plot and will develop a further 743 square metres of clinical space. The entire enlarged building will, upon completion planned for October 2014, be let on a new 24 year lease. The transaction secures an additional £0.15 million of income for PHP which is a yield on cost of 6.5%, but as importantly extends the term of the lease at this property by over 14 years.

A total of £3.0 million was committed and unpaid as at 31 December 2013 with regard to asset management projects.

The contracted rent roll from the portfolio as at 31 December 2013 totalled £57.6 million, an increase of more than 48% over that as at 31 December 2012 of £38.9 million. A large proportion of this increase results from the acquisitions detailed above, but growth achieved from rent reviews also contributed a satisfactory level in what are still difficult economic conditions. A total of 79 reviews were completed in the year, adding £0.57 million to contracted rent roll, an average annual rate of growth of 2.2%, down from 2.4% in 2012.

Acquisitions, development and project deliveries and rent reviews have driven a 27.0% increase in gross rental income received during 2013 to £42.0 million (2012: £33.2 million). As detailed above, the addition of the PPP portfolio, completed in December 2013, will significantly increase rents receivable in 2014 before any further property transactions in the current period.

Expenses are largely represented by advisory fees paid to the Joint Advisers. In 2013, the fees for all advisory services were calculated on the basis of the gross asset value of the Group. With the fee rate applied reducing as gross assets increase, the average fee rate paid to the Joint Advisors for 2013 fell to 0.71% (2012: 0.75%). The impact of the reducing advisory fee can also be seen in overall operating costs which represented 0.88% of average gross assets in 2013, a reduction from 0.93% in 2012.

At present, Nexus Tradeco Limited ("Nexus") provides property advisory and management services to the PHP group with J O Hambro Capital Management Limited ("JOHCM") providing administrative and accounting services, as well as acting as the Company Secretary.

On 26 September 2013, PHP announced the termination of the JOHCM contract with effect from 30 April 2014, when Nexus will assume responsibility for the administrative services JOHCM currently provide. The change also removes the link to gross assets for the cost of administrative services. Nexus will instead receive an agreed fixed annual fee in relation to these services which may be increased or decreased by up to 5% per annum, subject to movements in the Retail Price Index (or such other appropriate independent index agreed by Nexus and the Company).

JOHCM will continue to provide its services for the period up to 30 April 2014, being remunerated in accordance with its service agreement. JOHCM will then receive a contractual termination payment of £2.5 million in lieu of the remainder of its two year notice period. As required by accounting standards, the termination fee has been charged to the income statement in 2013.

In making these changes, the Board has broken the link between gross assets and administrative costs and will secure estimated annualised savings (based on gross assets at 31 December 2013) in excess of £0.8 million per annum. The real underlying saving will be greater than this as gross assets continue to grow.

Operations

	2013	2012
	£m	£m
Rental and related income	42.0	33.2
Property related and administrative expenses	(6.5)	(5.6)
Operating profit before revaluation gain and financing	35.5	27.6
Net financing costs	(26.0)	(20.2)
Adjusted profit	9.5	7.4
Profit on sale of asset held as a finance lease	0.6	-
Early loan repayment fee	(0.9)	(1.6)
Fair value gain/(loss) on interest rate swaps	11.4	(2.9)
Net result on property portfolio	2.3	(1.8)
Non-recurring expenses	(2.7)	-
Profit before tax	20.2	1.1

On 28 January 2014, the Company announced changes to the fee rate structure for the property advisory services provided by Nexus, introducing a reduced fee rate of 32.5 basis points for gross assets between £1 billion and £1.25 billion and 30 basis points for gross assets above £1.25 billion.

Gross Assets	Fee
First £250 million	0.500%
Between £250 million and £500 million	0.475%
Between £500 million and £750 million	0.400%
Between £750 million and £1 billion	0.375%
Between £1 billion and £1.25 billion	0.325%
Above £1.25 billion	0.300%

The Group's overall debt costs rose in 2013 as the property portfolio grew, including the Apollo assets acquired in December 2012 and as a full year's impact of the increased cost of borrowing was felt following the significant debt refinance in 2012. Net interest costs rose by 28% in 2013 to £26.0 million (2012: £20.2 million). Significant work has been undertaken in 2013 to provide additional and replacement debt facilities as the portfolio increases, but secured at rates that take advantage of the continued low interest rates that were seen through most of 2013.

Operating profit increased by 19% to £32.8 million (2012: £27.6 million) and adjusted profit increased to £9.5 million (2012: £7.4 million).

Dividends

2013 was the 17th consecutive year of dividend growth for PHP shareholders with a total of 19.0 pence per share being paid in the year (2012: 18.5 pence). No portion of this dividend represents a Property Income Distribution ("PID").

A major strategic objective of the Board is to restore the Company to full dividend cover at the earliest opportunity whilst maintaining a progressive dividend policy. Adjusted profit increased in 2013 to £9.5 million (2012: £7.4 million) with dividend cover increasing from 56% to 57%. This small improvement in dividend cover demonstrates that despite a sizeable equity raise in 2013 and a small increase in the rate of dividends paid, property transactions in the period and the successful refinancing of associated debt have enhanced earnings to establish improved dividend cover.

The acquisitions completed in 2013 and revised advisory fee structures together with the completion of the first stage of the refinance of the debt assumed with the PPP acquisition on 13 February 2014, but effective from 1 January 2014, will have a major impact on dividend cover into 2014.

Total shareholder return

An important performance indicator monitored by the Board is total return to shareholders. This is measured as a combination of the dividend paid in a calendar year and the movement in share price in the same period. Total return to PHP shareholders in 2013 was 7.6% as compared to the total return of the FTSE All Share Index of 20.8%.

The table below compares PHP's total return performance with that of general real estate equities and the FTSE over the longer term.

	One year	Three years	Five years
	%	%	%
Primary Health Properties	7.6	8.3	14.0
FTSE All-Share Real Estate Index	19.6	14.1	14.4
FTSE All-Share Index	20.8	10.3	19.0

Source: Investment Property Databank ("IPD")

Capital resources and debt finance

Matching the considerable success in acquiring earnings enhancing property assets in the year, significant activity has been undertaken with regard to the funding base of the Group.

Share issues

A total of 21.7 million new shares were issued in June at 315 pence each, realising proceeds of £65.8 million, net of issue costs. This saw the conclusion of a multi structure offer that allowed existing shareholders to participate in the issue and also saw a number of new institutional shareholders join the register, widening and strengthening the Company's share-holder base. The issue price reflected a small discount of 6.3% to the share price immediately before announcing the issue, but was 3.3% ahead of the European Public Real Estate Association net asset value per share ("EPRA NAV") as at 31 December 2012 of 305 pence.

At a General Meeting on 2 December 2013, the acquisition of PPP was approved with the entire consideration being settled by the issue of PHP shares to the vendors. The final consideration for PPP was a total of £42.6 million, representing the agreed net asset value of PPP with 12,577,771 shares being issued upon completion on 3 December (see note 22) and a further 282,768 shares issued on 28 January 2014 (see note 16) following agreement of the completion accounts of PPP as well as a further 235,475 shares being issued, following a Deed of Variation being entered into regarding the St Catherine's property on the same date. All shares were issued to the vendor at an agreed value of 320 pence per share, a premium of 6.2% over EPRA NAV per share as at 30 June 2013 and a discount of just 1.2% on the share price at close on 14 November 2013, the day immediately before the announcement of the transaction.

On 28 January 2014, a revision to an occupational lease agreement at a property within

the PPP portfolio was completed. This crystallised an additional amount of consideration in the sum of £0.75 million which was settled by the issue of 235,475 shares PHP shares (see note 16).

Debt facilities

In March 2013, the Group completed the refinance of the debt that was assumed with the acquisition of the Apollo portfolio in December 2012. A new £70 million, four year revolving debt facility was entered into with Barclays Bank PLC, establishing a new lending relationship for the Group with a major lender to the property sector. 50% of the sums drawn under this facility were locked into historically low interest rates for the duration of the facility through an interest rate swap that generated an all-in cost of funding at below 3.5%.

In November 2013, a wholly owned subsidiary of PHP issued a twelve year secured, corporate bond to a single institutional bond investor. The issue was for a total of £70 million with a maturity of 30 December 2025. An initial tranche of the proceeds, totalling £59,999,800 was received on issue and the remaining £10,000,200 will be received on 30 June 2014 as a number of development commitments complete. The underlying bonds incur interest on the paid up amount at an annualised rate of 220 basis points above six month LIBOR, payable semi-annually. This transaction demonstrates PHP's ability to access a wide range of debt capital markets, underlining the attraction of the long term, high covenant quality income characteristics of the property portfolio.

The proceeds of the bond were used to refinance the expensive debt assumed with the PHCC acquisition in July, utilising the allowance agreed with the vendors of PHCC for the cost of terminating the incumbent Aviva debt. A further tranche of the proceeds repaid a facility advanced by Clydesdale Bank that was due to expire in mid 2014 with the balance being used to pay down elements of the Group's Club facility with RBS and Santander where the borrowing cost would otherwise have increased in 2014 and 2015.

Since the year end, the Group completed the reinstatement of an amount of £25 million to the Club facility that will be advanced on the same terms as the existing Club debt.

The PPP acquisition saw the Group assume debt facilities totalling £178.4 million secured upon the PPP assets. The debt is provided by Aviva in their traditional, longer term amortising form. A provision of £13.7 million was agreed with the vendors as a reduction to the net asset value of PPP to allow for the estimated costs of repaying the debt taken on. The average term of these facilities was 17 years at acquisition and the debt carried a weighted average coupon of 5.9%. Detailed discussions have been ongoing with Aviva since completion of the PPP acquisition to agree terms for the refinance and re-setting of the revised terms of Aviva loans partly with Aviva and partly with other lenders to the Group.

On 13 February 2014, the Group completed the first stage of the restructuring and refinance of the Aviva loans assumed with the acquisition of PPP. Stage 1 saw the payment of £13.7 million as allowed by the vendor in the acquisition pricing, to re-set the interest rates to current levels for the existing loans. Effective from 1 January 2014, the rates have been reduced by an average of 80 basis points. A capital repayment of £15 million was also made as part of Stage 2 that will see the re-tranching of the debt and a further reduction in applicable rates.

The principal value of debt drawn as at 31 December 2013 totalled £589.0 million. The Group held cash balances of £9.3 million resulting in Group net debt of £579.7 million. The Group's loan to value ratio ("LTV") was 61.6% (31 December 2012: 60.9%) and interest cover for the year was 1.55 times (2012: 1.57 times) with a Group covenant minimum requirement of 1.3 times.

Debt facilities available to the Group at 31 December 2013, including the secured and retail bonds, totalled £677.6 million. Deducting net debt and allowing for funding the cost to complete development commitments of £17.1 million as at the balance sheet date, results in net headroom of £67.2 million.

Summary of financing

		Facility	Drawn at	Headroom
Provider	Maturity	maximum	31 Dec 2013	31 Dec 2013
		£m	£m	£m
RBS (overdraft)	Mar 2015	5.0	-	5.0
Royal Bank of Scotland/ Santander	Mar 2016	140.0	100.5	39.5
Barclays	Mar 2017	70.0	49.5	20.5
Aviva	Nov 2018	75.0	75.0	-
Aviva	Dec 2022	25.0	25.0	-
Aviva	Jan 2032	26.1	26.1	-
Aviva	Dec 2030*	177.9**	177.9	-
Retail Bond	July 2019	75.0	75.0	-
Secured Bond	Dec 2025	70.0	60.0	10.0
Total		664.0	589.0	75.0

Average maturity	8.8 years

Cash on deposit			(9.3)	9.3
Group Net Debt			579.7
Costs to complete
Forward funded developments				(14.1)
Asset management projects				(3.0)
Net headroom				67.2

* This is a weighted average maturity

** Figure represents the nominal value of debt as at 31 December 2013. Debt within the balance sheet is fair valued as at acquisition to include an estimate of the cost to refinance the facility.

Interest rate hedging

On inception of the Barclays bank facility, the Group entered into a four year interest rate swap for a nominal value of debt of £28.0 million, for a four year term expiring in March 2017 at a fixed rate of 0.9%.

There have been no other changes to the Group's hedging portfolio. The table below analyses the debt facilities available to the Group in accordance with their interest rate bases.

	Facilities	Facilities	Drawn	Drawn
	£'m	%	£'m	%
Fixed rate debt	379.0	57.1	379.0	64.3
Debt hedged by interest rate swaps	206.0	31.0	206.0	35.0
Floating rate debt	79.0	11.9	4.0	0.7
	664.0	100.0	589.0	100.0

The incremental rate of debt from secured facilities is 3 month LIBOR plus an average margin of 235 basis points.

Swap rates for the periods covered by the Group's hedging portfolio increased toward the end of 2013 reflecting improved economic data both in the UK and wider global economies. This has resulted in a decrease in the net fair value liability of the Groups derivative portfolio to £28.6 million as at 31 December 2013, down from £52.8 million as at 31 December 2012. £11.4 million of this is recognised in the Statement of Comprehensive Income, but there is no cash flow impact of any element of the fair value adjustment in 2013.

Net asset value

Balance Sheet net asset value has increased through 2013, assisted by the share issues undertaken in the year and also the reduction in the derivative portfolio fair value adjustment.

EPRA net assets have also increased in absolute terms driven primarily by the share issue undertaken in June 2013 and the shares issued with the acquisition of PPP. EPRA net assets per share have fallen across 2013 by 1.6% to 300 pence per share (31 December 2012: 305 pence per share).

Environmental and social issues

Due to the nature of the external management arrangements, PHP's direct greenhouse gas emissions are negligible. PHP places high importance on the impact of such gases and is still working with its tenants to develop ways in which to monitor and reduce emissions.

Environmental matters are considered as part of the assessment of the suitability of purchasing new medical centres to expand the portfolio, whether through forward purchase development agreements or open market purchases. PHP undertakes an assessment of environmental risk as an important element of its due diligence process, obtaining an environmental desktop study and energy performance certificates ("EPC"). 75% of the newly completed assets delivered in 2013 held an EPC with a rating of C or better.

PHP has engaged an Environmental Consultant, Collier & Madge, to help in this process. PHP's ability to influence the energy efficiency of buildings is limited where completed properties are acquired and let on FRI terms. Where possible and as a norm for newly built premises, environmental issues are included in the leases entered into by the medical practitioners. More generally, new buildings acquired are usually specified to meet the NHS's exacting standards with regard to environmental considerations.

PHP is committed to the principles of continuous improvement in managing environmental issues, including the proper management and monitoring of waste, the reduction of pollution and emissions, and compliance with environmental legislation and codes of practice.

PHP provides purpose built healthcare properties for use by GPs, NHS organisations, pharmacies and healthcare users, thus indirectly benefiting the communities in which they are based.

PHP is a founder member of the Social Stock Exchange ("SSE") The SSE gives investors access to publicly listed businesses with strong social and environmental purpose.

The Group has no employees and Directors do not have service contracts. No disclosure has therefore been included in relation to policies on employees and human rights as required by Section 414C of the Companies Act.

Relationships

Other than shareholders, PHP's performance and value are influenced by other stakeholders, principally its lessees (the GPs, NHS organisations and healthcare users), the property developers, the District Valuers, lenders and bondholders and the Joint Advisers. PHP's approach to these relationships is based on the principle of mutual understanding of aims and objectives and the highest standards of ethics and business practice.

Outlook

PHP's business grew substantially during 2013. The acquisition of PPP in December increased the portfolio by some 33%, securing a portfolio of high quality, purpose built primary care centres that enhanced the overall composition of the Group's real estate portfolio. The positive contribution of these assets will be seen in 2014 and will be further enhanced by the refinancing achieved in early 2014 of the debt assumed with the portfolio, as was planned at acquisition. The refinance provides a very large step toward regaining full dividend cover, which remains the prime short term objective of the Board, whilst retaining a progressive dividend policy. The transaction secures a five year pipeline arrangement for new developments with Prime plc, one of the leading developers of primary care assets, and also provides PHP with the opportunity to generate additional income and capital value afforded by the asset management possibilities within this portfolio.

Actions taken by the Board in the last six months have also paved the way for ongoing operating costs to be further contained. Annual savings will be realised on the administrative services procured by the Company and as the portfolio continues to grow, as a proportion of gross assets, the incremental cost of property advisory and management services will also reduce.

Primary Care and the GP remain the gatekeepers to the NHS. The consensus is that more health care services should be moved into the primary care setting and in order to do this further modern, purpose built premises will be required. The demand and competition for the good quality, long term, secure income streams that characterise the Group's portfolio are strengthening, but the Board see the Company as being well placed to lead the provision of private capital and skilled management to secure future investment opportunities.

The Board continues to prioritise the return to full dividend cover as its main short term objective and will take further steps toward this with its prudent acquisition policies, securing assets that make an immediate contribution to profitability but also demonstrate the potential for future growth in 2014 and beyond.

Principal Risks and Uncertainties

In common with most businesses, the Group is affected by a number of risks and uncertainties, not all of which are wholly within its control. Note 21 provides further detail and quantitative information on the financial risks faced by the Group. The Group aims to operate in a low risk environment, focusing on a single sector of the real estate market. The Board has reviewed and agreed policies for managing each of the risks and uncertainties which are summarised below. The Board sees items 1, 2 and 5 as its principal risks at the present time:

Funding and available finance

Risk	1. Exposure to interest rate movements
Impact	Movement in underlying interest rates could adversely affect the Group's profits and cash flows.
Mitigation	• The Group retains a proportion of its debt on a long term, fixed rate basis. It also 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.

Risk

2. Limited debt market capacity restricts ability to continue to fund operations

Impact

Without confirmed debt facilities, PHP may be unable to meet current and future commitments or repay or refinance debt facilities as they become due.

Mitigation

• PHP funds its operations through a mixture of income from its operations, equity and debt finance. PHP regularly monitors its cash flow and debt funding requirements in order to ensure that it can meet its liabilities and looks to retain a spread of providers and maturities so that its refinance risk is less concentrated.

• PHP secured £140 million of new debt facilities in 2013. This included a £70 million, twelve year secured bond accessing the corporate debt market for the first time. PHP widened its spread of maturities and lenders with facilities secured and assumed in 2013.

• Activity since the year end has added further capacity, increased the variety of funders and maintained the broad spread of maturities.

Risk

3. Lack of capital resources to support the Group's activities

Impact

Without sufficient capital, PHP may become unable to progress investment opportunities as they arise or to counteract the impact of potential falling property values on the Group's balance sheet and finance commitments should property values fall in the future.

Mitigation

• Liquidity and gearing are kept under review by the Joint Advisers and the Board. Forward funding commitments are only entered into if supported by committed, available funds.

• Historically, the Company has been able to access the equity markets to raise additional capital when required. The Company undertook a share placing during 2013, raising an amount of £65.8 million net of costs.

• PHP issued a £70 million twelve year, secured corporate bond in 2013 at a margin of 220 basis points over six month LIBOR.

Risk	4. Banking facilities include various covenant requirements
Impact	Should the Group be unable to meet these covenants it could result in possible default or penalties being levied.
Mitigation	• PHP monitors its covenant compliance on an ongoing basis to ensure compliance or early warning of any issues that may arise. The Group maintains its borrowings at levels below its maximum covenant requirements and retains the flexibility of substituting security or refinancing loans should it need to. Covenants are set on a facility by facility basis and by reference to the pool of assets used to secure facilities (where appropriate).

Property market risks

Risk

5. PHP invests in a niche asset sector affected by Government decisions

Impact

A change of Government policy or a downturn in demand for primary care premises may adversely affect the Group's portfolio and performance.

Mitigation

• The Group monitors Government policy with regard to Primary Care so as to be able to anticipate any changes. The use of GPs within the NHS and the long term, established use of third party owned premises has not changed for some time and is not an area changed by the Health & Social Care Act. The Group has received written confirmation of the continued funding of its tenants by the NHS.

• The long term nature of the Group's occupational leases provides security of income and protection should a policy change need to be catered for.

Risk

6. Property valuations may fall

Impact

Property valuations may fall to such a level that leads PHP to breach its borrowing covenants.

Mitigation

• Whilst the specialist nature of the Group's assets can itself be a risk (see below), the inherent characteristics have historically demonstrated low volatility in terms of valuation movements.

• The Group manages its activities so as to always operate within its banking covenant limits and constantly monitors the margins (i.e. fall to breach) that would have to be experienced in order to cause any default.

• The portfolio is effectively 100% let, on long lease terms with more than 90% of rent being funded by the NHS. Rental growth is achieved on review, all of which helps in maintaining asset values.

Risk

7. Lack of available properties or the inability to invest on acceptable terms

Impact

The Group may be unable to secure additional investment properties so as to enable PHP to continue to grow.

Mitigation

• The Group maintains close relationships with a number of developers of, and other investors in, primary health care properties so as to afford the best possible opportunity to secure future acquisitions.

• The Group is not exclusively reliant on acquisitions to grow as it secures leases with effectively upwards only rent review mechanisms and is able to generate income and value from the management and development of its existing portfolio.

• Pipeline agreements have been entered into with recognised developers in the sector (Apollo Capital Projects Developments Limited and Prime plc).

Taxation risks

Risk	8. Failure to comply with REIT legislation
Impact	A breach of REIT requirements may lead to the Group losing its REIT status and the taxation benefits that affords.
Mitigation	• Management monitor the activities and performance of the Group to ensure that all requirements of the REIT legislation are met at all times. New transactions are structured when undertaken so as to continue to meet these statutory requirements.

Risk

9. A change in Government legislation

Impact

Should the UK-REIT regime cease to apply the Group may become chargeable to taxation with a significant impact on performance and strategy.

Mitigation

• The Group monitors communication from HMRC with regard to the ongoing maintenance of the REIT regime. The Group participates in a number of industry bodies and groups that engage in continuous dialogue with HMRC over proposed changes to legislation and their impact on PHP.

• The changes to the REIT regime introduced in 2012 are designed to encourage further REITs and confirm the continuance of the regime for the foreseeable future.

Operational risks

Risk

10. Continuance of Adviser contracts

Impact

PHP has no employees and depends on services supplied by third parties for the efficient operation and management of the Group. Following the concentration of the provision of advisory services with Nexus from 30 April 2014, the termination of the Advisory Agreement with Nexus could adversely affect the Group's ability to effectively manage its operations.

Mitigation

• The Advisory Agreement with Nexus includes provisions requiring Nexus to serve all or any part of its notice period should the Company decide to terminate providing protection for an efficient handover.

• The Advisory Agreement with the Nexus includes remuneration linked to the performance of the Group in order to incentivise long term levels of performance.

• The Management Engagement Committee regularly reviews the performance of the Joint Advisers.

Risk

11. Breach of Health and Safety and Environmental requirements

Impact

A breach of such requirements could have reputational, criminal or financial implications on the Group which could be significant.

Mitigation

• The Board views the assessment of Health and Safety and environmental risk as an important element of its due diligence process when acquiring properties and employs specialist advisers to undertake risk assessments.

• Properties are modern and specifically designed for purpose including best practice with regards to environmental requirements thereby mitigating risks.

• Owned properties are inspected regularly in rotation and well maintained.

Key Performance Indicators ("KPIs")

The Board monitors KPIs as set out below to review the Group's performance in meeting its Strategic Objectives.

Objective: To grow property assets under management (Strategic Objective: 1)

Metric

• Acquisitions achieved

• Positive movement in asset values

• Future commitments made

Performance

• 77 additional assets acquired or committed to in the year

• Portfolio revaluation uplift of £2.3 million for the year

• Balance of commitments outstanding as at the year-end of £17.1 million

Objectives: To maximise portfolio rent roll and maintain security of income (Strategic Objectives: 1 and 2)

Metric

• Continue to grow annualised rent roll

• Maintain core NHS tenant covenant

• Maintain weighted average remaining lease term

Performance

• Contracted committed rent roll grew from an annualised £38.9 million to £57.6 million

• Over 90% of income effectively funded by the NHS

• Weighted average lease length (including commitments) of 16 years (2012: 16 years)

• Three asset management projects contracted in 2013 will add an average of 21 years to the unexpired lease term for those properties

Objective: To manage our balance sheet effectively (Strategic Objectives: 3 and 4)

Metric

• Maintain longevity of debt facilities

• Maintain appropriate balance between debt and equity within covenanted levels

Performance

• £140 million of debt facilities secured in 2013, including the secured bond

• LTV at 61.6%, well within current and future covenant limits

• Equity issue in the year raised net proceeds of £65.8 million

• Average maturity of debt facilities extended to 8.8 years (2012: 6.6 years)

Objective: To deliver sustainable long-term shareholder value and returns (Strategic Objective: 5)

Metric

• Sustained growth in Adjusted EPS

• Sustained dividend growth

• Growth in EPRA NAV per share

Performance

• Adjusted EPS increased from 10.2p to 10.6p

• 17th successive year of dividend growth, 3% to 19.0 per share

• EPRA NAV per share 300 pence (31 December 2012: 305 pence)

Objective: To maximise the returns from the investment portfolio (Strategic Objective: 6)

Metric

• Out-performance versus IPD benchmark

• Continued rental growth

Performance

• One, three and five year portfolio performance underperformed the IPD all property benchmark, but PHP continued outperformance of the IPD Healthcare Real Estate Index

• Rental growth of 2.2% p.a. on reviews completed in the year

Harry Hyman

Managing Director

19 February 2014

Group Statement of Comprehensive Income

for the year ended 31 December 2013

		2013	2012
	Notes	£000	£000
Rental income		41,895	32,806
Finance lease income		87	345
Rental and related income	3	41,982	33,151
Direct property expenses		(398)	(402)
Administrative expenses	4	(6,080)	(5,124)
Non-recurring expenses: Termination Fee	4d	(2,485)	-
Non-recurring expenses: Costs associated with PPP acquisition		(217)	-
Operating profit before result on property portfolio		32,802	27,625
Profit on termination of finance lease	5	638	-
Net result on property portfolio	11	2,313	(1,768)
Profit before financing costs		35,753	25,857
Finance income	6	434	518
Finance costs	7a	(26,450)	(20,760)
Early loan repayment fees	7b	(950)	(1,564)
Fair value gain/(loss) on derivative interest rate swaps and amortisation of Cash flow hedging reserve	7c	11,432	(2,922)
Profit on ordinary activities before taxation		20,219	1,129
Taxation charge	8	1	1
Profit for the year (1)		20,220	1,130
Items that may be reclassified subsequently to profit and loss:
Fair value movement on interest rate swaps treated as cash flow hedges	26	12,840	(285)
Other comprehensive income/(loss) for the year net of tax (1)		12,840	(285)
Total comprehensive income for the year net of tax (1)		33,060	845
Earnings per share (2)	9	22.7p	1.6p
EPRA earnings per share (2)	9	6.6p	8.0p
Adjusted earnings per share (2) (3)	9	10.6p	10.2p

The above relates wholly to continuing operations.

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

(2) There is no difference between basic and fully diluted EPS.

(3) Adjusted for large one-off items and movements in fair value of properties and derivatives (see note 9).

Group Balance Sheet

at 31 December 2013

		2013	2012
	Notes	£000	£000
Non current assets
Investment properties	11	941,548	622,447
Net investment in finance leases	13	-	3,100
Derivative interest rate swaps	20	472	-
		942,020	625,547
Current assets
Trade and other receivables	14	4,764	2,916
Net investment in finance leases	13	-	21
Cash and cash equivalents	15	9,288	25,096
		14,052	28,033
Total assets		956,072	653,580
Current liabilities
Derivative interest rate swaps	20	(7,566)	(7,523)
Corporation tax payable		(23)	-
Deferred rental income		(11,934)	(7,811)
Trade and other payables	16	(16,269)	(10,687)
Provision for liabilities and charges	17	-	(1,564)
Borrowings: Term loans and overdraft	18	(1,857)	(79,934)
		(37,649)	(107,519)
Non-current liabilities
Borrowings: Term loans and overdraft	18	(462,171)	(247,905)
Borrowings: Bonds	19	(132,408)	(73,755)
Derivative interest rate swaps	20	(21,459)	(45,311)
		(616,038)	(366,971)
Total liabilities		(653,687)	(474,490)
Net assets		302,385	179,090
Equity
Share capital	22	55,237	38,017
Share premium account	23	55,611	58,606
Capital reserve	24	1,618	1,618
Special reserve	25	135,483	59,473
Cashflow hedging reserve	26	(14,337)	(27,177)
Retained earnings	27	68,773	48,553
Total equity (1)		302,385	179,090
Net asset value per share - basic	28	274p	236p
EPRA net asset value per share (2)	28	300p	305p

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

(2) See definition in note 28.

These financial statements were approved by the Board of Directors on 19 February 2014 and signed on its behalf by:

Graeme Elliot

Chairman

Group Cash Flow Statement

for the year ended 31 December 2013

		2013	2012
	Notes	£000	£000
Operating activities
Profit on ordinary activities before tax		20,219	1,129
Less: Finance income	6	(434)	(518)
Plus: Finance costs	7	26,450	20,760
Plus: Provision for early loan repayment fee		950	1,564
Plus: Amortisation of cash flow hedge reserve		571	1,345
(Less/plus): Fair value (gain)/loss on derivatives	7	(12,003)	1,577
Operating profit before financing costs		35,753	25,857
Adjustments to reconcile Group operating profit to net cash flows from operating activities:
Revaluation (gain)/deficit on property portfolio	11	(2,313)	1,768
Profit on termination of finance lease	5	(638)	-
Fixed rent uplift		(905)	-
Increase/(decrease) in trade and other receivables (1)		4,402	(133)
Increase in trade and other payables (1)		383	7,940
Cash generated from operations		36,682	35,432
Taxation paid (2)	8	(89)	-
Net cash flow from operating activities		36,593	35,432
Investing activities
Payments to acquire investment properties		(44,560)	(42,221)
Proceeds from disposal of finance lease	5	3,768	-
Payments to acquire Apollo Medical Partners Limited		-	(3,298)
Payments to acquire PHCC (net of cash acquired)		(9,738)	-
Payments to acquire PPP (net of cash acquired)		1,954	-
Payment to acquire Gracemount Medical Centre Limited (net of cash acquired)		(6,155)	-
Interest received on developments		188	237
Bank interest received		48	199
Net cash flow used in investing activities		(54,495)	(45,083)
Financing activities
Proceeds from issue of shares (net of expenses)		65,772	18,399
Cost of share issue - PPP		(540)	-
Term bank loan drawdowns		120,718	75,685
Term bank loan repayments		(195,740)	(100,101)
Proceeds of bond issue (net of issue costs)		58,680	73,671
Swap interest paid		(7,661)	(6,736)
Non utilisation fee		(1,023)	(714)
Loan arrangement fees		(1,274)	(2,655)
Interest paid		(18,328)	(10,670)
Breakage fee on Aviva debt	7	(2,380)	-
Equity dividends paid net of scrip dividend	10	(16,130)	(12,209)
Net cash flow from financing activities		2,094	34,670
(Decrease)/increase in cash and cash equivalents for the year		(15,808)	25,019
Cash and cash equivalents at start of year		25,096	77
Cash and cash equivalents at end of year	15	9,288	25,096

(1) Asset movements include movements relating to acquisitions

(2) Taxation was paid in the period in order to settle the outstanding liabilities in the acquired companies. All amounts payable were included in the consideration calculation.

Group Statement of Changes in Equity

for the year ended 31 December 2013

	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
Income and expense recognised directly in equity:
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 capital raisings	10,873	-	-	57,627	-	-	68,500
Expenses of capital raisings	-	-	-	(2,728)	-	-	(2,728)
Share issue as part of consideration for PPP	6,289	-	-	35,344	-	-	41,633
Share issue expenses	-	-	-	(1,040)	-	-	(1,040)
Reserves transfer (2)	-	(3,325)	-	3,325	-	-	-
Dividends paid:
Second interim dividend for the year ended 31 December 2012 (9.5p)	-	-	-	(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 (9.5p)	-	-	-	(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 January 2012	34,136	54,430	1,618	57,405	(26,892)	47,423	168,120
Profit for the year	-	-	-	-	-	1,130	1,130
Income and expense recognised directly in equity:
Fair value movement on interest rate swaps	-	-	-	-	(1,630)	-	(1,630)
Amortisation of cash flow hedging reserve	-	-	-	-	1,345	-	1,345
Total comprehensive income	-	-	-	-	(285)	1,130	845
Proceeds from capital raisings	3,115	-	-	15,885	-	-	19,000
Expenses of capital raisings	-	-	-	(601)	-	-	(601)
Share issue as part of consideration for Apollo	616	3,325	-	-	-	-	3,941
Share issue expenses	-	(6)	-	-	-	-	(6)
Dividends paid:
Second interim dividend for the year ended 31 December 2011 (9.25p)	-	-	-	(5,969)	-	-	(5,969)
Scrip dividends in lieu of second interim cash dividend (net of expenses)	54	292	-	(346)	-	-	-
First interim dividend for the year ended 31 December 2012 (9.25p)	-	-	-	(6,240)	-	-	(6,240)
Scrip dividend in lieu of first interim cash dividend (net of expenses)	96	565	-	(661)	-	-	-
31 December 2012	38,017	58,606	1,618	59,473	(27,177)	48,553	179,090

(1) The Special Reserve is a distributable reserve

(2) £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.

Notes to the Financial Statements

1. Corporate information

The Group's financial statements for the year ended 31 December 2013 were approved by the Board of Directors on 19 February 2014 and the Balance Sheets were signed on the Board's behalf by the Chairman, G A Elliot. Primary Health Properties PLC is a public limited company incorporated and domiciled in England & Wales. The Company's Ordinary shares are admitted to the Official List of the UK Listing Authority, a division of the Financial 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 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 Parent Company financial statements of Primary Health Properties PLC and each of its subsidiary undertakings will continue to be prepared under UK GAAP for the current year. The use of IFRS at Group level does not affect the distributable reserves available to the Group.

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. Initially, investment properties are measured at cost including transaction costs. Subsequent to initial recognition, investment properties and investment properties under construction are stated at fair value based on market data and a professional valuation made as of each reporting date. The fair value of investment property does not reflect future capital expenditure that will improve or enhance the property and does not reflect future benefits from this future expenditure.

Gains or losses arising from changes in the fair value of investment properties and investment properties under construction are included in the Group Statement of Comprehensive Income in the year in which they arise.

Investment properties are recognised for accounting purposes upon completion of contract, unless a specific completion date is noted in the contract, in which case the property will be recognised on the date specified. Investment properties cease to be recognised when they have been disposed of. Any gains and losses arising are recognised in the Group Statement of Comprehensive Income in the year of disposal.

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 entities in determining whether the acquisition represents the acquisition of a business. The basis of the judgement is set out in note 2.3(b).

Where such acquisitions are not judged to be an acquisition of a business, they are not treated as business combinations. Rather, the cost to acquire the corporate entity is allocated between the identifiable assets and liabilities of the entity based on their relative fair values on the acquisition date. Accordingly, no goodwill or additional deferred taxation arises. Otherwise, corporate acquisitions are accounted for as business combinations.

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 unit's, fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognised in the Group Statement of Comprehensive Income.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated.

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the Group Statement of Comprehensive Income.

Income

Revenue is recognised to the extent that performance has been provided and it is probable that economic benefits will flow to the Group which can be reliably measured. Revenue is measured at the fair value of the consideration receivable, excluding discounts, rebates, VAT and other sales taxes or duty.

Rental income

Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease term. A rent adjustment is recognised from the rent review date in relation to unsettled rent reviews, which are accrued at 90% of the estimated rental income. 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.

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.

Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that an outflow or resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

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 were converted to a UK-REIT status; there were no charges payable 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 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;

• 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.

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 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.

The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions meet the strict criteria for being described as "effective" in offsetting changes in cash flows of hedged items.

All derivatives are initially recognised at fair value at the date the derivative is entered into and are subsequently 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.

For swaps that have been cancelled which previously qualified for hedge accounting, the remaining value within the cash flow hedging reserve at the date of cancellation is recycled to the Statement of Comprehensive Income on a straight line basis from the date of cancellation to the original swap expiry date.

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

• 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 equity 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.

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 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 IAS39, the Group values its derivative financial instruments at fair value. Fair value is estimated by J.C. Rathbone Associates Limited on behalf of the Group, using a number of assumptions based upon market rates and discounted future cash flows. The derivative financial instruments have been valued by reference to the mid-price of the yield curve prevailing on 31 December 2013. 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 Joint Advisers 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 IFRS3(R). They consider that they all meet the criteria of asset acquisitions rather than business combinations and have accounted for them as such. Although corporate entities were acquired, they were special purpose vehicles for holding properties rather than separate business entities. This judgement was made due to the 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 2013. The nature and the impact of each of the new standards and amendments are described below.

Other amendments to certain standards apply for the first time in 2013. However, they do not impact the annual consolidated financial statements of the Group.

• IFRS 13 Fair Value Measurement - IFRS 13 establishes a single source of guidance for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The Group has considered the specific requirements relating to highest and best use, valuation premise, and principal (or most advantageous) market. The methods, assumptions, processes and procedures for determining fair value were revisited and adjusted where applicable. The resulting calculations under IFRS 13 affected the principles that the Group uses to assess the fair value, but the assessment of the fair value under IFRS 13 has not materially changed the fair values recognised or disclosed.

IFRS 13 mainly impacts the disclosures of the Group. It requires specific disclosures about the fair value measurements and disclosures of fair values, some of which replace existing disclosure requirements in other standards, including IFRS 7 Financial Instruments: Disclosures.

The disclosure requirements of IFRS 13 apply prospectively and need not be provided for comparative periods before initial application. Consequently, comparatives of these disclosures have not been provided.

• IAS 1 Presentation of Other Items of Other Comprehensive Income - Amendments to IAS 1: The amendments to IAS 1 became effective 1 July 2012 and were first applied to the Group on 1 January 2013. The amendments introduce a grouping of items presented in Other Comprehensive Income (OCI). Items that will be reclassified ('recycled') to profit or loss at a future point in time have to be presented separately from items that will not be reclassified. The amendment affected presentation only and had no impact on the Group's financial position or performance.

2.5 Standards issued but not yet effective

Standards issued but not yet effective as of the date of issuance of the Group's financial statements are listed below. This listing of standards and interpretations issued are those that the Group reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Group intends to adopt these standards when they become effective.

• IFRS 9 Financial Instruments: Will impact both the management and disclosures of Financial Instruments.

• IFRS 12 will impact the disclosure of interests the Group has in other entities.

• IFRS 10 Consolidated Financial Statements

• IAS 27 Separate Financial Statements

• IAS 28 (revised) Investments in Associate and Joint Ventures

The Directors do not expect the adoption of the Standards listed above to have a significant impact on the financial statements of the Group in future periods, other than IFRS 9 which will impact both the measurement and disclosure of financial instruments. Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these new amended standards until a detailed review has been completed.

3. Rental and related income

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

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	1-5 years	More than 5 years	Total
	£000s	£000s	£000s	£000s
2013	56,188	224,122	587,088	807,398
2012	38,208	152,536	421,031	611,775

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

b) There were no contingent rents recognised as income in the year.

The rental income earned on operating leases is recognised on a straight line basis over the lease term.

The Group leases medical centres to GPs, NHS organisations and other healthcare users, typically on long term occupational leases which provide for regular reviews of rent on an effectively upwards only basis.

4. Group operating profit is stated after charging

	2013	2012
	£000	£000
Administrative expenses: recurring
Advisory fees (note 4a)	4,847	4,166
Directors' fees (note 4c)	219	188
Property advisory fees and other services payable to Nexus	40	50
Other professional fees	315	139
Taxation Fees payable to corporate tax advisers
Fees payable for compliance work	110	30
Fees payable for advisory work	88	52
Other expenses	186	284
Fees payable to the Company's auditor and their associates for the audit of the Company's annual accounts	100	120
Fees payable to the Company's auditor and their associates for other services to the audit of the Company's subsidiaries	92	95
Total audit fees	192	215
Audit-related assurance services	40	-
Other assurance services	8	-
Corporate finance services	35	-
Total non-audit fees	83	-
Total	6,080	5,124

a) Advisory fees

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

	2013	2012
	£000	£000
Nexus	3,114	2,497
JOHCM	1,733	1,669
	4,847	4,166

Further details on the Advisory Agreement can be found in the Directors' Report on page 31.

As at 31 December 2013, £162,000 of advisory fees payable to JOHCM were outstanding (2012: £143,000) and £352,000 was payable to Nexus (2012: £242,000).

Further fees payable to Nexus in accordance with the Advisory Agreement of £65,000 (2012: £55,000) 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 Directors' Report 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

Fee payment on termination of the Joint Advisory Agreement:

	2013	2012
	£000	£000
JOHCM	2,485	-

Following the announcement on 26 September 2013 by the Board of PHP to terminate the Joint Advisory Agreement, it has been agreed that a termination fee of £2.485m will be payable to JOHCM upon termination of their services on 30 April 2014. Accordingly, an appropriate provision has been recognised in the Group Statement of Comprehensive Income.

5. Profit on termination of finance lease

	2013	2012
	£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 £3.77m were received and the carrying value of the asset at the date of disposal was £3.13m. A small amount of disposal costs were incurred.

6. Finance income

	2013	2012
	£000	£000
Interest income on financial assets
Bank interest	41	206
Development loan interest	388	257
Other interest	5	55
	434	518

7. Finance costs

	2013	2012
	£000	£000
Interest expense and similar charges on financial liabilities
a) Interest paid
Swap interest paid	7,699	6,860
Bank loan interest paid	12,021	10,296
Bond interest paid	4,314	1,789
Bank facility non-utilisation fees	976	733
Bank charges and loan commitment fees	1,440	1,082
	26,450	20,760

b) Early loan repayment fees
Fee on breakage of Apollo debt	824	1,564
Fee on breakage of PHCC debt	126	-
	950	1,564

Following the Apollo transaction in December 2012, the debt assumed as part of the transaction was fully repaid in March 2013. An additional charge to the Group Statement of Comprehensive Income was made of £0.7 million in addition to an amount of £1.6 million provided for at December 2012. A contribution of £2.6 million was made by the vendors and factored into the acquisition price.

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 was made of £0.3 million.

	2013	2012
	£000	£000
c) Derivatives
Net fair value (gain)/loss on interest rate swaps	(12,003)	1,577
Amortisation of cash flow hedging reserve	571	1,345
	(11,432)	2,922

The fair value gain of £12.0 million (2012 loss: £1.6million) on derivatives recognised in the Group Statement of Comprehensive Income for the year has arisen from the interest rate swaps for which hedge accounting does not apply.

Details of the fair value loss on hedges which meet the effectiveness criteria for hedge accounting under IAS 39 are set out in note 26.

	2013	2012
	£000	£000
Net finance costs
Finance income (note 6)	(434)	(518)
Finance costs (as per above)	26,450	20,760
	26,016	20,242

8. Taxation

a) Tax credit in the Group Statement of Comprehensive Income

The tax credit is made up as follows:

	2013	2012
	£000	£000
Current tax
UK corporation tax (note 8b)	(1)	(1)

The tax credit relates to the release of tax provisions from prior years and variances in the amount of corporation tax paid in acquired companies against the agreed provision at acquisition.

A reduction in the UK corporation tax rate from 24% to 23% was effective from 1 April 2013. In addition, the Government announced its intention to further reduce the UK corporation tax rates from 23% to 21% from 1 April 2014 and 21% to 20% from 1 April 2015. Accordingly, these rates have been applied in the measurement of the Group's tax liability at 31 December 2013.

b) Factors affecting the tax credit for the year

The tax assessed for the year is lower than (2012: lower than) the standard rate of corporation tax in the UK. The differences are explained below:

	2013	2012
	£000	£000
Profit on ordinary activities before taxation	20,219	1,129
Theoretical tax at UK corporation tax rate of 23.3% (2012: 24.5%)	4,711	277
REIT exempt income	(3,280)	(1,857)
Transfer pricing adjustments	1,863	797
Non taxable items	(3,302)	819
Finance lease adjustment	1	1
Losses carried forward	-	(37)
Movement in tax provision relating to prior years	(1)	(1)
Current tax credit (note 8a)	(1)	(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)
2013
Basic earnings per share	20,220	89,121,611	22.7p
Adjustments to remove:
Net result on property (Note 11)	(2,313)
Fair value gain on derivatives (2)	(11,432)
Profit on termination of finance lease	(637)
EPRA basic and diluted earnings per share	5,837	89,121,611	6.6p
Early loan repayment fee charges	950
Non-recurring expenses:
Costs associated with corporate purchase (3)	217
Non-recurring expenses:
JOHCM Termination Fee	2,485
UK corporation tax credit	(1)
Adjusted basic and diluted earnings per share	9,487	89,121,611	10.6p
2012
Basic earnings per share	1,130	72,675,900	1.6p
Adjustments to remove:
Net result on property (Note 11)	1,768
Fair value loss on derivatives (2)	2,922
EPRA basic and diluted earnings per share	5,820	72,675,900	8.0p
Provision for early repayment fees	1,564
UK corporation tax credit	(1)
Adjusted basic and diluted earnings per share	7,383	72,675,900	10.2p

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

(2) In view of the continuing volatility in the fair value adjustment of derivatives in respect of the period end valuation of derivatives that flows through the Group Statement of Comprehensive Income, the Directors believe that it is appropriate to remove the gain or loss in the calculation of adjusted earnings.

(3) Costs related to the PPP acquisition that were expensed as incurred in accordance with Accounting Standards.

10. Dividends

Amounts recognised as distributions to equity holders in the year:

	2013	2012
	£000	£000
Second interim dividend for the year ended 31 December 2012 (9.50p) paid 22 April 2013 (2012: 9.25p)	7,006	5,969
Scrip dividend in lieu of second interim cash dividend	217	346
First interim dividend for the year ended 31 December 2013 (9.50p) paid 1 November 2013 (2012: 9.25p)	9,124	6,240
Scrip dividend in lieu of first interim cash dividend	171	661
Total dividends	16,518	13,216
Per share	19.0p	18.5p

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"). The Valuers are appropriately qualified and have sufficient market knowledge and relevant experience of the location and category of investment property and have had full regard to market evidence when determining the values.

The properties are 99.7% let. The valuations reflected a 5.65% initial yield (2012: 5.72%) and a 5.92% (2012: 6.05%) 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 addition to the market value exercise performed by LSH, the Joint Advisers monitor the value of the Group's investment portfolio based on DCF analysis. Full details can be found in the Strategic Report on page 6.

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 £478,000 (2012: decrease of £764,000) in respect of investment property under construction has been recognised in the Group Statement of Comprehensive Income, as part of the total net valuation gain on property portfolio in the year of £2.31 million (2012: loss of £1.77 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 2013	513,345	93,371	15,731	622,447
Property Additions	19,927	9,750	18,447	48,124
Acquisition of PHCC (2)	23,711	5,171	-	28,882
Acquisition of PPP (2)	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)	-
Revaluations for the year	(1,101)	3,872	478	3,249
As at 31 December 2013	771,034	158,835	11,679	941,548
As at 1 January 2012	433,245	87,966	4,375	525,586
Property additions	30,111	1,021	10,234	41,366
Properties acquired during the year following
Acquisition of Apollo Medical Partners Limited	41,966	4,247	11,550	57,763
Disposal (1)	-	-	(500)	(500)
Transfer from properties in the course of development	9,164	-	(9,164)	-
Revaluations for the year	(1,141)	137	(764)	(1,768)
As at 31 December 2012	513,345	93,371	15,731	622,447

(1) Disposal of long leasehold interest as part of acquisition of newly developed property at Pelton, County Durham.

(2) Figures include a fair value adjustment made on acquisition as well as acquisition related costs.

	Investment properties freehold	Investment properties long leasehold	Investment properties under construction	Total
	£000	£000	£000	£000
Reconciliation of net result on property portfolio
Additional consideration on property transactions	(17)	(919)	-	(936)
Revaluations for the year	(1,101)	3,872	478	3,249
Year ending 31 December 2013	(1,118)	2,953	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.

Bank borrowings and bonds are secured on investment properties for the value of £929.14 million.

Fair value hierarchy

The following table provides the fair value measurement hierarchy for Investment property and investment property under construction as at 31 December 2013:

	Date of valuation	Total	Quoted prices in active markets (Level 1)	Significant observable inputs (Level 2)	Significant unobservable inputs (Level 3)
	£000	£000	£000	£000
Assets measured at fair value:
Investment properties (Note 11)	31-Dec-13	941,548	-	-	941,548

The following table provides the fair value measurement hierarchy for Investment property and investment property under construction as at 31 December 2012:

	Date of valuation	Total	Quoted prices in active markets (Level 1)	Significant observable inputs (Level 2)	Significant unobservable inputs (Level 3)
	£000	£000	£000	£000
Assets measured at fair value:
Investment properties (Note 11)	31-Dec-12	622,446	-	-	622,446

There have been no transfers between Level 1 and Level 2 during the year, nor have there been any transfers between Level 2 and Level 3 during the year.

Valuation techniques used to derive Level 3 fair values
The information in this note presents the following for each class of investment property:

• The fair value measurements at the end of the reporting period

• The level of the fair value hierarchy (e.g. Level 2 or Level 3) within which the fair value measurements are categorised in their entirety

• A description of the valuation techniques applied

• A summary of the inputs used in the fair value measurement

• For Level 3 fair value measurements, quantitative information about the significant unobservable inputs used in the fair value measurement

The valuations have been prepared on the basis of Market Value (MV) 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."

The following descriptions and definitions relating to valuation techniques and key unobservable inputs made in determining fair values are as follows:

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.

Unobservable input: estimated rental value (ERV)

The rent at which space could be let in the market conditions prevailing at the date of valuation. (Range: £30,000-£1,157,725 per annum).

Unobservable input: rental growth

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

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. (Range: 4.74%-6.58%)

Unobservable input: physical condition of the property

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

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 you have provided to us; 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. Investments

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 No1 Limited (2)

PHP Investments No2 Limited (2)

PHP Investments (2011) Limited (1)

PHP Bond Finance PLC (1)

PHP Healthcare Investments Limited (2)

PHP (Stourbridge) Limited (2)

PHP Clinics Limited (2)

PHP St. Johns Limited (2)

PHIP (Project Finance) Limited (2)

PHP Empire Holdings Limited (1)

PHP AssetCo (2011) Limited (2)

PHP Glen Spean Limited (2)

Gracemount Medical Centre Limited (2) (3) (4)

PHP Primary Properties Limited (2) (5)

With the exception of PHP Bond Finance PLC and Primary Health Investment Properties (No. 4) 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 the year (name changed from Prime Public Partnerships Limited post acquisition).

13. Net investment in finance leases

	2013	2012
	£000	£000
Amounts due in more than five years	-	3,086
Amounts due between one and five years	-	14
	-	3,100
Amounts due in less than one year	-	21
	-	3,121

The asset held under a finance lease was disposed of on 27 March 2013 (see note 5)

	2013	2012
	£000	£000
Gross investment in finance leases	-	8,781
Less: unearned financial revenues	-	(5,660)
Present value of future minimum lease payment receivables	-	3,121

14. Trade and other receivables

	2013	2012
	£000	£000
Trade receivables	2,626	689
Prepayments and accrued income	1,370	1,275
Other debtors	768	775
VAT	-	177
	4,764	2,916

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

	2013	2012
	£000	£000
Neither past due nor impaired:
<30 days	1,998	425
Past due but not impaired:
30-60 days	55	69
60-90 days	187	-
90-120 days	62	15
>120 days	324	180
	2,626	689

15. Cash and cash equivalents

	2013	2012
	£000	£000
Cash held at bank	8,788	19,086
Restricted cash	500	6,010
	9,288	25,096

Restricted cash as at 31 December 2013 represents a deposit held by the Trustee of the Secured Bond issued by the Group. The deposit is held as temporary collateral awaiting the completion of a property asset that will be charged as security to the Trustee and the cash deposit released.

In the prior year, there were three separate cash deposits held with Aviva totalling £6.0m at the year end. The deposits were restricted and released upon a certified valuation certificate being issued against the three Apollo development properties. When the Apollo Aviva loan facilities were repaid on 25 March 2013, the cash deposits were set off against the loan facilities and formed part of the repayment.

Bank interest is earned at floating rates depending upon the bank deposit rate. Short term deposits may be made for varying periods of between one day and six months, dependent on available cash and forthcoming cash requirements of the Group. Theses deposits earn interest at various short term deposit rates.

16. Trade and other payables

	2013	2012
	£000	£000
Trade payables	906	951
Bank and bond loan interest accrual	3,313	3,313
Other payables	7,671	5,545
VAT	2,302	-
Accruals	2,077	878
	16,269	10,687

An additional 283,720 shares were issued on 31 January 2014 upon agreement of the final completion accounts, 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 has been 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.

On 26 September 2013 the Company announced the termination of Joint Advisors Agreement with JOHCM. A contractual termination fee of £2.485 million will be payable to JOHCM upon termination of their services on 30 April 2014. Accordingly, an appropriate liability has been recognised in the Group Balance Sheet within other payables.

17. Provisions for liabilities and charges

	2013	2012
	£000	£000
As at 1 January 2013	-	-
Provision for early loan repayment fee	-	1,564
As at 31 December 2013	-	1,564

As part of the acquisition of Apollo Medical Partners Limited and its subsidiary, Apollo Capital Projects Limited ("ACPL"), on 13 December 2012, PHP assumed fixed rate bank finance provided by Aviva with a total principal amount of £49.8 million. The Group has determined the fair value of the debt as at the date of acquisition to be £52.3 million, which has been recognised in the Group Balance Sheet.

On 19 December 2012, ACPL issued a repayment notice to Aviva giving the required three months' notice of its intention to repay the ACPL loans in full on expiry of the notice period.

As at the 2012 balance sheet date, PHP had recognised a provision based on the difference between the carrying value of the debt and the estimated sum required to settle the debt and meet the estimated early repayment charges that will crystallise on the repayment date. The Group's best estimate of the provision, based on applicable referenced gilt yields as at this date was £1.56 million, which had been recognised in the Group Statement of Comprehensive Income. In practice, the amount payable was £2.29 million as a result of subsequent movement in reference gilt yields.

18. Borrowings: Term loans and overdrafts

The table indicates amounts drawn and undrawn from each individual facility:

	Facility	Facility	Amounts drawn	Amounts drawn	Undrawn	Undrawn
	2013	2012	2013	2012	2013	2012
	£000	£000	£000	£000	£000	£000
Current
Overdraft facility (1)	5,000	5,000	-	-	5,000	5,000
Fixed term loan (4) (10)	1,857	629	1,857	629	-	-
Term to January 2013 (3)	-	27,000	-	27,000	-	-
Fixed Rate term loan (8)	-	52,305	-	52,305	-	-
	6,857	84,934	1,857	79,934	5,000	5,000
Non Current
Term to March 2016 (2)	140,000	175,000	100,500	125,000	39,500	50,000
Fixed Rate term loan (4)	25,511	26,082	25,511	26,082	-	-
Fixed Rate term loan to December 2022 (5)	25,000	25,000	25,000	25,000	-	-
Term to July 2014 (6)	-	50,000	-	-	-	50,000
Term to November 2018 (7)	75,000	75,000	75,000	75,000	-	-
Term to March 2017 (9)	70,000	-	49,470	-	20,530	-
Fixed rate term 22 - 30 year (10)	190,257*	-	190,257*	-	-	-
	525,768	351,082	465,738	251,082	60,030	100,000
	532,625	436,016	467,595	331,016	65,030	105,000

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) Allied Irish Banks, p.l.c

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

(5) Aviva GPFC facility

(6) Clydesdale Bank facility

(7) Aviva facility

(8) Aviva facility (acquired as part of the Glen Spean acquisition in December 2012) repayable in tranches to 2037 - refinanced by Barclays loan

(9) Barclays facility

(10) Aviva facility (acquired with PPP)

* The nominal value of this debt equals £177.9 million but includes an adjustment of £13.6 million to reflect the fair value of the debt on acquisition of PPP.

At 31 December 2013, total facilities of £677.6 million (2012: £511.0 million) including the £75 million Unsecured Retail Bond, £70 million Secured Bond and £5 million revolving overdraft facility were available. Of these facilities, as at 31 December 2013, £602.6 million was drawn (2012: £406.0 million) and secured by an unlimited guarantee from each respective subsidiary and a first fixed charge over the ownership of the assigned properties. The Group has entered into interest rate swaps to manage its exposure to interest rate fluctuations. These are set out in note 20.

On 31 January 2013, the AIB £27 million loan facility was repaid without any requirement to redeem the pre-existing interest rate swaps and incur any related breakage fees.

On 25 March 2013, PHP successfully completed the refinancing of the Aviva facility assumed on acquisition of Apollo, with a new £50 million, four year, interest only, revolving loan facility provided by Barclays Bank Plc. On 29 April 2013 the Group subsequently increased the facility by £20 million to take total available borrowings under this facility to £70 million.

Total early repayment fees of £4.9 million were paid to Aviva, as compared to a provision of £4.2 million that was made in the 2012 full year accounts. The movement was due to fall in underlying gilt yields mirrored in a reduction in swap rates. PHP had received a contribution of £2.6 million toward this cost from the vendor upon the acquisition of Apollo.

On 18 October 2013, the Clydesdale Facility, which was due to expire in July 2014, was terminated early. The outstanding loan balance of £10 million was repaid in full on the same date.

On 2 December 2013, as a part of the PPP acquisition, PHP assumed £178.4 million in long term, fixed rate debt facilities with Aviva Public Private Finance Limited. As part of the fair value exercise performed at acquisition, the Group attributed the fair value of these loans to be £192.1 million, which has been recognised in the Group Balance Sheet. The loans have terms ranging from 22 years to 30 years from inception of the loan and they have current contracted interest rates of 5.33 per cent to 6.09 per cent. Facility covenants include minimum levels of debt service cover by rental income (DSCR), with a range of 91.7 per cent to 104 per cent. See also note 32.

Since the term loan facilities have been in existence, the Group has suffered costs in association with the arrangement of the facilities including legal advice and loan arrangement fees. These costs are amortised over the remaining life of the related facility.

Any amounts unamortised as at the period end are offset against amounts drawn on the facilities as shown in the table below:

	2013	2012
	£000	£000
Term loans drawn: due within one year	1,857	79,934
Term loans drawn: due in greater than one year	465,738	251,082
Less: Unamortised borrowing costs	(3,567)	(3,177)
Total terms loan: due in greater than one year	462,171	247,905
Term loans in total per Group Balance Sheet	464,028	327,839

The Group has been in compliance with all of the financial covenants of the above facilities as applicable through the year. Further details are shown in note 21e.

19. Borrowings: Bonds

	2013	2012
Retail Bond July 2019	75,000	75,000
Bond November 2025	60,000	-
Issue Costs	(2,592)	(1,245)
	132,408	73,755

On 23 July 2012, PHP announced that it had become the first UK REIT to issue a Retail Bond following the issue of a £75 million, unsecured, seven year bond, to retail investors with an annual interest rate of 5.375% paid semi-annually in arrears. The bond issue costs will be amortised on a straight line basis over seven years.

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

20. Derivatives and other financial instruments

The Group uses interest rate swaps to mitigate exposure to interest-rate risk. The fair value of these contracts is recorded in the balance sheet and is determined by discounting future cash flows at the prevailing market rates at the balance sheet date.

	2013	2012
	£000	£000
Fair value of interest rate swaps treated as cash flow hedges under IAS39 ("effective swaps")
Current liabilities	(3,772)	(3,778)
Non-current liabilities	(10,499)	(23,637)
	(14,271)	(27,415)
Fair value of interest rate swaps not qualifying as cash flow hedges ("ineffective swaps")
Non-current assets	472	-
Current liabilities	(3,794)	(3,745)
Non-Current liabilities	(10,960)	(21,674)
	(14,282)	(25,419)
Total fair value of interest rate swaps	(28,553)	(52,834)
Total non-current assets	472	-
Total current liabilities	(7,566)	(7,523)
Total non-current liabilities	(21,459)	(45,311)

It is Group policy to maintain the proportion of floating rate interest exposure at between 20%-40% of total interest rate cost. Changes in the fair value of the contracts that do not meet the strict 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 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 2013 was a £12.8 million profit (2012: £0.3 million loss).

Floating to fixed interest rate swaps with a contract value of £178.0 million (2012: £181.3 million) were in effect at the year-end. Details of all floating to fixed rate interest rate swaps contracts held are as follows:

Contract value	Start date	Maturity	Fixed interest per annum %
2013
£70.0 million	October 2013	January 2014	4.805
£50.0 million	August 2007	August 2021	4.835
£38.0 million	August 2007	August 2021	4.740
£10.0 million	August 2005	August 2015	4.530
£10.0 million	June 2006	June 2026	4.810
£178.0 million
2012
£50.0 million	August 2007	August 2021¹	4.835
£38.0 million	August 2007	August 2021¹	4.740
£73.3 million	July 2012	April 2013	4.805
£10.0 million	August 2005	August 2015	4.530
£10.0 million	June 2006	June 2026	4.810
£181.3 million
Contracts not yet in effect
£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

(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 two interest rate caps held by the Group are as follows:

Contract value	Start date	Maturity date	Premium paid (1)	Floating rate cap per % annum (2)
£10.0 million	Oct 2011	Oct 2014	£31,000	3.00%
£10.0 million	Jan 2012	Jul 2014	£26,000	3.00%

(1) One-off fixed amount paid by PHP Group

(2) Payable by Clydesdale Bank PLC

21. 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. 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 on pages 4 to 25. 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 20 provides details of interest swap contracts in effect at the year end.

The sensitivity analysis below shows the impact on profit before tax and equity of reasonably possible movements in interest rates with all other variables held constant. It should be noted that the impact of movement in the interest rate variable is not necessarily linear.

The 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
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)
2012
London InterBank Offered Rate	Increase of 50 basis points	9,720	3,206	12,926
London InterBank Offered Rate	Decrease of 50 basis points	(9,720)	(3,206)	(12,926)

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. An analysis of trade receivables past due is shown in note 14. No trade receivables were impaired at the year end.

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 joint managers.

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
2013
Interest-bearing loans and borrowings	-	7,209	21,627	268,525	534,200	831,561
Interest rate swaps (net)	-	2,042	6,127	46,013	66,581	120,763
Trade and other payables	119	7,890	4,080	1,182	511	13,782
	119	17,141	31,834	315,720	601,292	966,106
2012
Interest-bearing loans and borrowings	-	80,667	10,534	173,116	217,633	481,950
Interest rate swaps (net)	-	1,925	5,771	25,170	48,962	81,828
Trade and other payables	88	6,196	2,292	1,619	492	10,687
	88	88,788	18,597	199,905	267,087	574,465

The Group's borrowings have financial covenants which, if breached, could result in the borrowings becoming repayable immediately. Details of the covenants are given in the Borrowings section of the Business Review on page 18 and are disclosed to the facility providers on a quarterly basis. There have been no breaches during the year (2012: 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 other price risk.

Interest rate risk is outlined above. The Joint Advisers assess the exposure to other price risks when making each investment decision and monitor the overall level of market risk on the investment portfolio on an ongoing basis through a discounted cash flow analysis. Details of this analysis can be found on page 13 of the Strategic Report in the Annual Report.

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
	2013	2013	2012	2012
	£000	£000	£000	£000
Financial assets
Finance leases - due within one year	-	-	21	287
Finance leases - due in more than one year	-	-	3,100	4,516
Trade and other receivables	2,626	2,626	689	689
Cash and short-term deposits	9,288	9,288	25,096	25,096
Financial liabilities
Interest-bearing loans and borrowings	596,436	602,595	(401,594)	(406,016)
Effective interest rate swaps (net)	(14,271)	(14,271)	(27,415)	(27,415)
Ineffective interest rate swaps	(14,282)	(14,282)	(25,419)	(25,419)
Trade and other payables	(13,784)	(13,784)	(10,687)	(10,687)

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 and finance leases 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

		Level 1	Level 2	Level 3	Total
		£000	£000	£000	£000
Assets	2013 derivative interest rate swaps	-	472	-	472
	2012 derivative interest rate swaps	-	-	-	-
Liabilities	2013 derivative interest rate swaps	-	(29,025)	-	(29,025)
	2012 derivative interest rate swaps	-	(52,834)	-	(52,834)

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 note 18 and the Group's equity is analysed into its various components in the Statement of Changes in Equity. The Board, with the assistance of the Joint Advisers, 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.

• 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: 1:1 to 1.5:1

Loan to value: 60% to 100%

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

	2013	2012
	£000	£000
Fair value of completed investment properties	929,869	606,716
Fair value of development properties	11,679	15,731
Net investment in finance leases	-	3,121
	941,548	625,568
Carrying value of interest-bearing loans and borrowings	596,436	401,594
Unamortised borrowing costs	6,159	4,422
Less PPP fair value adjustment (see note 18)	(13,589)
Less cash held	(9,288)	(25,096)
Nominal amount of interest-bearing loans and borrowings	579,718	380,920
Group loan to value ratio	61.6%	60.9%

22. Called up share capital

	2013	2013	2012	2012
	Number	£000	Number	£000
Issued and fully paid at 50p each	110,474,230	55,237	76,034,208	38,017
At beginning of year	76,034,208	38,017	68,272,229	34,136
Scrip issues in lieu of second interim cash dividends	64,036	32	107,332	54
Scrip issues in lieu of first interim cash dividends	52,183	26	193,743	96
Proceeds from capital raisings	21,746,032	10,873	6,229,509	3,115
Shares issued as consideration for PPP (December 2013)	12,577,771	6,289	-	-
Shares issued as consideration for Apollo Medical Partners (December 2012)	-	-	1,231,395	616
At end of year	110,474,230	55,237	76,034,208	38,017

On 3 December 13, 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 283,720 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 2013 was 357 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.

On 20 December 2012, the Company issued 1,231,395 new Ordinary Shares of 50 pence each at an agreed price of 320 pence per share as part of the consideration for the acquisition of Apollo Medical Properties Ltd and it subsidiary Apollo Capital Projects Limited.

On 24 May 2012, the Group completed a small share placing at a price of 305 pence per share. 6,229,509 shares were issued generating net cash proceeds of £18.4 million.

23. Share premium

	2013	2013
	£000	£000
Balance at beginning of year	58,606	54,430
Reserves transfer	(3,325)	-
Share issue expenses	-	(6)
Shares issued as consideration for Apollo Medical Partners Limited	-	3,325
Scrip issues in lieu of interim cash dividends	330	857
Balance at end of year	55,611	58,606

During the year, an amount of £3.3 million has been transferred from Share Premium to the Special Reserve in regards to the Apollo transaction. This is in accordance with the merger relief provision of the Companies Act 2006 (see note 25). Company law restricts the applicability of the Share Premium account and in respect of the Company it may only be applied in paying unissued shares of the Company in respect of capitalisation issues and in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the Company.

24. Capital reserve

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

	2013	2013
	£000	£000
Balance at end of year	1,618	1,618

25. 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.

	2013	2012
	£000	£000
Balance at start of year	59,473	57,405
Placing: 13 June 2013 (2012: 23 May 2012)	57,627	15,885
Associated costs	(2,728)	(601)
Second interim dividend for the year ended 31 December 2012 (2012: 31 December 2011)	(7,006)	(5,969)
Scrip issue in lieu of second interim cash dividend	(217)	(346)
First interim dividend for the year ended 31 December 2013 (2012: 31 December 2012)	(9,124)	(6,240)
Scrip issue in lieu of interim cash dividends	(171)	(661)
Shares issued in consideration for PPP (note 22)	35,344	-
Share issue expenses	(1,040)	-
Reserves transfer	3,325	-
Balance at end of year	135,483	59,473

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 (2012: 24 May 2012), referred to in note 22, 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 the year, £35.3 million has been 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.

Also during the year, £3.3 million has been transferred from Share Premium to the Special Reserve in regards to the Apollo transaction under the same merger relief provisions (see note 23).

26. Cash flow hedging reserve

Information on the Group's hedging policy and interest rate swaps is provided in note 20.

The transfer to Group Statement of Comprehen--sive 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:

	2013	2012
	£000	£000
Balance at beginning of year	(27,177)	(26,892)
Fair value movement on cash flow hedges	8,457	(5,090)
Amortisation of cash flow hedge reserve	571	1,345
Reclassification adjustment for interest included in the Statement of Comprehensive Income (1)	3,812	3,460
Net movement on cash flow hedges ("effective swaps") and amortisation of cash flow hedging reserve	12,840	(285)
Balance at end of year	(14,337)	(27,177)

(1) Included with finance costs in Group Statement of Comprehensive Income

The net movement on cash flow hedges is made up of the movement in the valuation of the effective swaps - gain £13,144,000 (2012: loss £1,776,000), less net accrued interest of £9,000 (2012: plus accrued interest of £146,000), add amortisation of cash flow hedge reserve £571,000 (2012: £1,345,000), less an amount posted to the Statement of Comprehensive Income reflecting the credit value adjustment of effective swaps £866,000 (2012: £nil).

27. Retained earnings

	2013	2012
	£000	£000
Balance at beginning of year	48,553	47,423
Retained profit for the year	20,220	1,130
Balance at end of year	68,773	48,553

28. Net asset value per share

Net asset values have been calculated as follows:

	2013	2012
	£000	£000
Net assets per Group Balance Sheet	302,385	179,090
Derivative interest rate swaps (net liability)	28,553	52,834
EPRA NAV	330,938	231,924

	No. of shares	No. of shares
Ordinary Shares:
Issued share capital	110,474,230	76,034,208
Basic net asset value per Share	274p	236p
EPRA NAV per Share	300p	305p

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.

29. Capital commitments

As at 31 December 2013, 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 £17.1 million plus VAT

(2012: £16.3 million plus VAT).

In 2012, the Group had entered into an agreement to purchase an investment property at a future date at a consideration of £3.6 million plus VAT. This purchase was completed on

1 February 2013.

30. Related party transactions

The terms and conditions of the Joint Advisers' Agreement are described in the Directors' Report on page 28 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.

31. 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 £0.58 million as at 31 December 2013, 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.

32. Subsequent events

On 16 January 2014, PHP announced that it had contracted to fund the development of and acquire a new, modern, purpose built medical centre to be constructed in Wrexham. The total consideration will be £2.25 million.

On 28 January 2014, PHP announced that it had issued 518,243 new Ordinary Shares of 50 pence each in relation to the acquisition of PPP. The issued shares have been issued to the vendors of PPP in accordance with the terms of the Acquisition Agreement.

Since the year end, the Group has received credit approved confirmation from RBS that an amount of £25 million has been re-instated to the Club Facility. This will be advanced on the same terms as the existing Club Facility.

33. Annual report

The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 December 2013 or 2012 but is derived from those accounts. Statutory accounts for 2012 have been delivered to the Registrar of Companies and those for 2013 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 2013 will be published on the Group's website at www.phpgroup.co.uk and will be posted to Shareholders on 5 March 2014.

Copies of this announcement are available from the Company Secretary of Primary Health Properties PLC, Ground Floor, Ryder Court, 14 Ryder Street, London SW1Y 6QB.

Responsibility Statements under the Disclosure and Transparency Rules

The responsibility statement below has been prepared in connection with the Company's full annual report for the year ending 31 December 2013. 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; and

• the Management report incorporated into the Managing Director's Review on pages 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.

For and on behalf of the Board

Graeme Elliot

Chairman

19 February 2014

This information is provided by RNS

The company news service from the London Stock Exchange

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