Interim Management Statement

RNS Number : 1905C

Primary Health Properties PLC

15 April 2013

 



PRIMARY HEALTH PROPERTIES PLC

A specialist REIT providing Primary Care accommodation to the NHS

Interim Management Statement

Primary Health Properties PLC ("PHP", the "Group" or the "Company") one of the largest providers of modern primary healthcare facilities, today issues its Interim Management Statement for the period from 1 January 2013 to 15 April 2013, the date of the Company's Annual General Meeting.

Highlights

·     Successful completion of the refinance of the Apollo debt with new Barclays Bank facility

·     Acquisition of a further £6.3 million of property assets

·     Sale of an asset for £3.8 million generating a £0.7 million surplus

·     Portfolio continues to be 99.7% let

·     Annualised contracted rent roll, including commitments, of £39.0 million at 31 March 2013

·     Attractive pipeline of acquisition opportunities

·     Second interim dividend of 9.25p per share payable to shareholders on 22 April 2013

·     Implementation of NHS reforms in England on 1^st of April

Borrowings and banking facilities

The Group continues to operate with significant headroom on existing facilities and is developing new relationships with potential debt providers. In December 2012, PHP acquired Apollo Medical Partners Limited ("Apollo") comprising a portfolio of 14 assets valued at £62.3 million and representing a cash yield to PHP of 5.9% after all costs. The acquisition also saw PHP assume amortising debt provided by Aviva totalling £49.8 million, which had a fixed interest rate averaging some 5.61%. As announced on 27^th March 2013, PHP has successfully completed the refinancing of the Aviva facility with a new £50 million, four year, interest only, revolving loan facility provided by Barclays Bank plc. With the Barclays facility secured at an attractive margin and the underlying interest rate swapped for the duration of the loan at current rates, this transaction secures a surplus for PHP between its cash yield on the property acquired and associated cost of debt and management fees in excess of 200 basis points.

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

Interest rate hedging

The total mark to model liability of the derivative portfolio was estimated at £50.7 million as at 31 March 2013, a decrease from £52.8 million as at 31 December 2012. This reduction has occurred notwithstanding the recent downturn in longer-term swap rates.

Property portfolio

The Group has secured two new acquisitions in the period:

Asset	Acquisition basis	Acquisition cost	Size sqm	Target completion date
St Johns, Worcester	Forward commitment	£4.5 million	1,205 sqm	November 2013
Chard	Forward commitment	£1.8 million	653 sqm	December 2013

In addition, transactions totalling £82 million are in solicitors' hands.

The Group continues to appraise a strong pipeline of attractive acquisition opportunities, a mix of further forward commitments to acquire newly developed assets and standing let investment acquisitions, all of which would be accretive to Group profitability and enhance dividend cover.

The Directors believe that initial property yields in the Group's portfolio have remained stable at approximately 5.72% 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 at the interim date of 30 June 2013.

As previously announced, PHP has also disposed of an asset in Withernsea, Yorkshire for a consideration of £3.8 million, which was £0.7 million ahead of PHPs carrying value.

Rent roll and rental growth

Annualised passing rent roll from the completed property portfolio as at 31 March 2013 was £36.9 million (31 December 2012 £36.8 million), reflecting a net increase due from deliveries since the year-end and uplifts from rent reviews concluded in the period, offset by the rent forgone on the asset disposed of. Adding in rent expected on assets being funded by PHP through their development but not yet complete, the total rent roll reaches some £39.0 million (31 December 2012: £38.9 million).

Average rental growth achieved on rent reviews completed to 31 March 2013 showed an annualised rate of 1.64%. This is lower than the 2.4% achieved for 2012, but has been delivered from a relatively small number of reviews in the period with underlying rent reviewed totalling only £1.7 million per annum. There is a further £19.3 million of rent reviews that are currently underway but yet to be completed.

Health and Social Care Act 2012

The large number of structural changes featuring in the Health and Social Care Act 2012 took effect from 1 April 2013. Under the new regime responsibility for rent reimbursement for GP surgeries falls to the National Commissioning Board. PCT lease liabilities have been transferred to NHS Property Services. The strength of the Group's tenant covenant remains, as does the longevity of its income.

The Secretary of State has issued a form of comfort letter to all interested parties and new Premises Directions were issued on 4 April 2013 empowering the NHS National Commissioning Board to operate the Rent and Rates Scheme.

It is hoped that with these changes finally implemented, the NHS will move forward with the modernisation of the primary care estate, which should provide attractive opportunities for PHP.

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 PHP'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 ideally placed to provide the new modern specialist premises demanded by the healthcare professionals who are our tenants. We continue to look forward to the future with confidence.

For further information contact

Harry Hyman/Phil Holland
Primary Health Properties PLC
T:  [phone]
[e-mail]/[e-mail]

David Rydell/Victoria Geoghegan/Elizabeth Snow
Pelham Bell Pottinger
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.

 

END

 

 

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