Interim Management Statement

RNS Number : 1748S

Primary Health Properties PLC

05 November 2013

 



PRIMARY HEALTH PROPERTIES PLC

("PHP", the "Group" or the "Company")

A specialist REIT providing Primary Care Accommodation for the NHS

Interim Management Statement

Primary Health Properties PLC, the UK's leading investor in modern primary healthcare facilities, today issues its Interim Management Statement for the period from 1st July to 4 November 2013.

Highlights

·      Successful completion on 4 November 2013 of a floating rate bond issue raising £70 million on a secured basis at a margin of 220 basis points over LIBOR for a 12 year term

·      Acquisitions and commitments in period totalling £48.7 million; year to date £64.6 million

·      Annualised passing rent roll, including commitments, of £42.9 million at 4 November 2013 (£39.7 million at 30 June 2013)

·      Portfolio continues to be substantially fully let with occupancy at 99.7%

·      Continued pipeline of property acquisition opportunities at attractive yields with long term NAV growth potential

·      Interim dividend of 9.5p per share paid to shareholders on 1 November 2013; total of 19.0p per share paid in 2013 (2012: 18.5p)

Borrowings and Banking facilities

PHP today announces the successful issue by the Group of a new twelve year, £70 million secured bond ("the Bond") to an institutional grade bond investor.  The Bond is issued on a floating rate basis and will pay interest at a margin of 220 basis points over six month LIBOR.  The issue again demonstrates the Company's ability to source innovative funding from a broad range of alternative providers and extends the average maturity of PHPs debt facilities to more than 6.1 years (30 June 2013: 5.2 years). 

The proceeds of the Bond will be received in two tranches.  The first tranche of £60 million will be received immediately and will be used to refinance:

(i)     a facility with Clydesdale Bank plc that was to expire in early 2014,

(ii)    the Aviva loans acquired with the PHCC acquisition announced on 1 July 2013, for which provision for early repayment fees was allowed by the vendor in the purchase price, and

(iii)  a tranche of the Group's Club facility with Royal Bank of Scotland Plc and Santander Banking Group where the margin was to step up in March 2014, but where no arrangement fee had been incurred.

A second tranche of £10 million will become available on 30 June 2014 as a committed development is completed.  The Bond issue does not impact on the Group's existing interest rate hedging portfolio.

Following the Bond issue and associated repayments, total facilities available to the Group amount to £486.2 million with drawn borrowings currently totalling £402.4 million.  Group loan to value as at 4 November stands at 57.8% (30 June 2013: 52.8%, as the proceeds of the June equity issue have been invested in further property assets as detailed below. Contracted commitments to forward fund and acquire future assets are £13.8 million, giving the Group head room of £70.0 million to fund further acquisitions. 

Interest rate hedging

None of the above transactions has resulted in any change to the Group's interest rate hedging portfolio.  The total mark to model liability of the derivative portfolio was estimated at £32.8 million as at 30 September 2013, a decrease from its value of £34.8 million at 30 June 2013.  This movement has been caused by slight increases in longer term interest rates as global economic markets show initial signs of recovery and growth.

Property portfolio

The Group has completed five new acquisitions since 30 June 2013, comprising 17 separate assets:

·      On 2 July 2013, the Company announced that it had agreed to acquire the entire issued share capital of Primary Health Care Centres Limited, for approximately £10.5m. The acquisition has added 11 fully let properties across the UK, generating a total annual rent roll of £1.7 million

·      On 1 August 2013, the Company announced that it had acquired a single purpose company whose sole asset is The Gracemount Medical Centre, Edinburgh for £6.35 million. On the same day, the Company announced that a wholly-owned subsidiary had entered into a forward commitment to develop a new primary care centre to be built in Bradford.  The completed property will cost £2.2 million with completion anticipated in mid-2014

·      On 7 August 2013, the Company announced that a wholly-owned subsidiary had completed the acquisition of three modern, purpose built medical centres for a total consideration of £9.55 million located in Surrey, West Sussex and Ayrshire.  Construction of the Ayrshire property reached completion on 23 October 2013

·      Today the Company announces that a wholly-owned subsidiary has contracted to fund and acquire a new medical centre to be developed in Bristol.  The centre will comprise 1,000 square metres of lettable space and will be fully let upon completion to five GP practice for an initial 21 year term.  The development will cost £3.1 million and is anticipated to complete in December 2014.

In addition, two development properties already owned by PHP have achieved practical completion and become income producing in the period.  Assets at Rumney, Cardiff and Splott, Cardiff, are now fully rent producing and generate annual rent of £0.6 million.

The Group continues to appraise a strong pipeline of attractive acquisition opportunities, a mix of further forward funding commitments to acquire newly developed assets and standing let investments, all of which has the potential to be accretive to overall rent roll and Group profitability.

The Directors believe that property yields in the Group's portfolio have remained stable at approximately 5.71% in the period under review, as demand continues from property investors in all sectors for quality assets let to strong covenants.  The next valuation of the freehold, leasehold and development properties of the Group will be carried out as at 31 December 2013.

The Group is committed to an active asset management programme to ensure maximum value is extracted from the owned estate.  As part of this, work has commenced on site at the Group's Aylesbury property to double the size of the existing asset.  The enlarged building will allow the merger of the existing practice with another local partnership and also allow the relocation of its branch practice onto one site.  Upon completion, a new 24 year lease on the whole of the enlarged asset will crystallise with an increase in rent of circa. £145,000 per annum.  Rent will continue to be received from the existing property throughout the construction period.

A number of further asset management projects have been approved and agreed with the GP tenants and NHS bodies and are nearing completion as planning approvals and contract terms are finalised.

Rent roll and rental growth

Annualised passing rent roll of the Group's completed portfolio as at 4 November 2013 was £41.4 million (30 June 2013: £31.4 million), the increase being due to delivery of new assets, the letting of expansion space areas within the previously acquired Apollo portfolio and rent increases from reviews completed in the period.  This total increases to £42.9m (30 June 2013: £39.7 million) when assets under development are considered.

Average rental growth achieved on rent reviews completed to 31 October 2013 showed an annualised rate of 2.4%, matching that achieved for 2012.

Outlook

The number one priority for the Board is to return the Company to full dividend cover at the earliest opportunity. A combination of continuing to purchase assets that yield a satisfactory surplus over the Group's marginal cost of debt, managing the existing portfolio to create added value and income, and agreeing rental increases at review will serve to facilitate this primary objective.

The operating and financial environment remains very positive and the Group is, in the Board's opinion, ideally placed to provide the new modern specialist premises demanded by the healthcare professionals who are strong covenant tenants.

For further information contact
Harry Hyman/Phil Holland	David Rydell/Victoria Geoghegan/Elizabeth Snow
Primary Health Properties PLC	Bell Pottinger
T:  [phone]	T: [phone]

This interim management statement may contain forward looking statements. By their nature forward looking statements involve risk and uncertainty because they relate to future events and circumstances.

These statements reflect the knowledge and information at the time of the release of this interim management statement. Nothing in this Interim Management Statement should be construed as a profit forecast or estimate

Apart from the information contained in this Interim Management statement there have been no material events or transactions affecting the Group during the period.

 

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