Primary Health Properties PLC · LSE:PHP
Primary Health Properties — FY2011 Earnings Presentation
48 slides from Primary Health Properties's earnings presentation, Feb 21, 2012
Slide 1: Primary Health Properties PLC – Full Year Results 2011
PRIMARY HEALTH PROPERTIES PLC “A Dedicated Healthcare REIT” “The objective of the Group is to generate rental income and capital growth through investment in primary health property in the United Kingdom leased principally to GPs, NHS organisations and other associated health users.” Harry A Hyman P
Slide 2: Highlights
Highlights Group agrees refinancing of bi-lateral loans Total of £300 million of debt secured or with credit approved terms Weighted average term of new loans of 4.6 years Refinance achieved without need to impact swap portfolio 15th successive year of dividend growth – total of 18.0 pence
Slide 3: Operational Highlights
Operational Highlights Portfolio 100% let Rents received in year increased by 14% to £30.7 million (31 Dec 10: £26.9 million) Rental growth of 3.0% p.a. on completed reviews (2010: 3.22%) Profit before revaluation result and fair value gain/loss on derivatives rose from £9.1 million to £10.0
Slide 4: Shareholder Value
Shareholder Value 161 healthcare centres – 156 completed and owned, 5 committed to acquire Portfolio including commitments valued at £539.7 million (31 Dec 2010: £507.8 million) - an initial yield of 5.74% (31 Dec 2010: 5.79%) Strong pipeline of investment and development acquisitions to provi
Slide 5: Results in Brief
Results in Brief 2011 2010 £m £m Revenue 30.7 26.9 Net Financing Costs (15.4) (12.7) Profit before revaluation result and fair value gain/loss on 10.0 9.1 derivatives Fair value loss on derivatives (8.0) (4.7) Property revaluation gain 10.6 22.8 Profit before tax 12.6 27.2 Dividends Paid 11.8 10.8 R
Slide 6: Balance Sheet Highlights
Balance Sheet Highlights 31/12/11 31/12/10 Net Assets £168m £165m Net asset value per share 246.3p 262.3p EPRA net asset value per share 318.7p 311.5p Investment portfolio including finance leases £528.7m £472.3m Debt £303.0m £268.3m LTV 57.8% 57.6% Future minimum lease payments receivable £526m £46
Slide 7: Relative Performance
Relative Performance PHP annualised total return out performs equities benchmarks over 1,3 and 5 years 1 year 3 years 5 years Primary Health Properties 0.45% 27.71% -0.37% FTSE All-Share Real Estate Index -8.80% 5.00% -17.10% FTSE All-Share Index -3.50% 12.90% 1.20% Source: IPD PHP annualised re
Slide 8: Completed Development
Completed Development Oswestry, Shropshire Tenants: GP Practice (4 GPs), Local PCT Completed: August 2011 NIA: 4,909 sqm Cost: £8.8million Patient numbers: 6,000 Results Announcement: 31/12/11 8
Slide 9: Completed Development
Completed Development Blackpool, Lancashire Tenants: GP Practice (5 GPs), Local PCT and a Pharmacy Delivery Date: August 2011 NIA: 1,613 sqm Cost: £4.1million Patient numbers: 7,500 Results Announcement: 31/12/11 9
Slide 10: Completed Development
Completed Development Chesham, Buckinghamshire Tenants: 2 GP Practices (11 GPS, Local PCT and Pharmacy) Delivery Date: December 2011 NIA: 1,613 sqm Cost: £4.1million Patient numbers: 15,900 Results Announcement: 31/12/11 10
Slide 11: Investment Acquisition
Investment Acquisition Grimsby, Humberside Tenants: 5 GP Practices (12 GPs), PCT, Local Authority and Pharmacy Acquisition Date: November 2011 NIA: 3,294 sqm Cost: £8.0million Patient numbers: 16,200 Results Announcement: 31/12/11 11
Slide 12: Asset Management Projects
Asset Management Projects 8 projects completed in 2011, additional rent of £82,000, generating a 35% valuation uplift on cost Killick Street, N1 – Completed June 2011 A physical extension of the practice of 80 sqm and the commencement of a new 25 year lease – an increase in term of 13 years 10 GPs ,
Slide 13: Portfolio Strength
Portfolio Strength Key characteristics Average lease length of 16.3 years Strong tenant covenant – 90% of rent roll paid for directly/indirectly by the Government 86.6% of leases subject to triennial rent reviews All leases effectively upward only rent reviews These characteristics resul
Slide 14: Portfolio Rental Levels at 31 December 2011
Portfolio Rental Levels at 31 December 2011 Area Rent Tenant Area (sqm) (sq ft) Rent (£psm) (£ psf) NHS 160,842 1,721,009 175 16.17 Pharmacy 9,685 104,211 278 25.84 Other 3,910 42,072 110 10.22 Total 174,438 1,867,292 178 16.54 Note: 1. Conversion factor – 1 square metre equals 10.76 square feet Res
Slide 15: Rental Increases Achieved
Rental Increases Achieved 2011 increase in rents received 3.0% per annum (2010: 3.2%) % of rent roll on fixed uplift – 1.89% % of rent roll index linked – 11.53% Balance open market effectively upwards only Historically rental increases have broadly tracked RPI increases – see below PHP Re
Slide 16: Forthcoming Rent Reviews by Annual Rent
Forthcoming Rent Reviews by Annual Rent at 31/12/11 £12 Millions £10.88 £9.77 £10 £9.27 £8 £6 £4 £1.45 £2 £0 2012 2013 2014 Longer Pattern Annual contracted rent on completed assets - £31.37 million Results Announcement: 31/12/11 16
Slide 17: Cumulative Cash Flow from Rent Reviews
Cumulative Cash Flow from Rent Reviews Impact of average return on rent reviews over three years £3.50 Millions £3.14 £3.00 £2.50 £2.24 £2.00 £2.00 £1.50 £1.43 £1.03 £1.00 £0.73 £0.50 £0.00 2012 2013 2014 7.5% over three years (2.5%p.a.) 10.5% over three years (3.5%p.a.) Results Announcement: 31/12/
Slide 18: How Rents Are Assessed
How Rents Are Assessed Because of the reimbursement to the practice the NHS generally uses the District Valuer Values market rents for new developments Assesses Value for Money in new schemes Works with the NHS to approve the development of new primary care schemes Undertakes rent reviews
Slide 19: Types of Leases – Full Repairing and Insuring (FRI)
Types of Leases – Full Repairing and Insuring (FRI) Approximately 75% by rent roll of PHP’s leases are FRI and the residue are TIR Full Repairing and Insuring (FRI) US “Triple Net” style Tenants demise includes all building, car park and landscaping Tenant accepts responsibility for all repair
Slide 20: Types of Leases – Tenants Internal Repairing (TIR)
Types of Leases – Tenants Internal Repairing (TIR) TIR style leases account for 25% of rent roll Several small differences in division of responsibilities from property to property Tenant demised internal surfaces of building Landlord retains structure, foundations and external hard landscap
Slide 21: Conventional Independent Valuation
Conventional Independent Valuation Portfolio valued every 6 months using Lambert Smith Hampton valuations Basis is aggregation of INDIVIDUAL values No “lotting premium” (“portfolio effect”) effect taken account of Length of leases 16.3 years + covenant defensive characteristics Rental in
Slide 22: Portfolio analysis
Portfolio analysis • 66% of assets are greater than £3 million in value • Average lot size in portfolio - £3.35 million (2010: £3.14 million) No. of Value Cumulative Capital value assets %’age (£’m) %’age £9 million + 4 46.42 8.6% 8.6% £3 - £9 million 69 310.63 57.6% 66.2% £1 - £3 million 84 179.81
Slide 23: DCF Valuation – as at December 2011
DCF Valuation – as at 31 December 2011 The length of leases produces robust DCF valuations to underpin valuation of PHP Additional valuation based on discounted cash flow1 £589million vs £539million £50million increase Equates to 73 pence per share of additional NAV Discounted using 7% p
Slide 24: Yield on Cost and Value
Yield on Cost and Value 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% 5 Year Gilt Yield on Cost Valuation Yield Index-linked Gilt Yield GBP 10 year swap rate Results Announcement: 31/12/11 24
Slide 25: Security of Income by Lease Expiry
Security of Income by Lease Expiry 100% Percentage total income as at 31 December 2011 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 10 Years from 31 December 2011 Receiving over 90% of current passing rent in 10 years time assumi
Slide 26: Analysis of Annual Rent by Term Unexpired
Analysis of Annual Rent by Term Unexpired 15-20 years More than 20 54% years 13% Less than 5 years 2% 6-15 years 31% 67% > 15 years income unexpired 31 December 2011 Results Announcement: 31/12/11 26
Slide 27: Annual Rent by Region
Annual Rent by Region Wales London South West Scotland 10% 4% 3% 7% North South East 4% 29% Yorkshire & Humberside 8% North West 10% East Anglia 1% West Midlands East Midlands 12% 12% 31 December 2011 Results Announcement: 31/12/11 27
Slide 28: Covenant Analysis of Annual Rent
Covenant Analysis of Annual Rent Pharmacy Other 9% 1% NHS 16% HM Govt 1% GPs 73% 90% directly or indirectly from the Government 31 December 2011 Results Announcement: 31/12/11 28
Slide 29: Pharmacy Tenant Split By Rent
Pharmacy Tenant Split By Rent Small Independent (5 units or less) 21% Lloyds 44% Large Independent (6 units or more) 14% Co-op 5% Boots Rowlands 8% 8% 65% National Covenants 31 December 2011 Results Announcement: 31/12/11 29
Slide 30: Headroom and principal covenants
Headroom and principal covenants Borrowings at 31/12/11 £303million vs facilities of £392million LTV at 31/12/11 57.8% (2010: 57.6%) Covenants maximum of to 70% LTV Interest cover at 31/12/11 – 2.0x (2010: 2.2x) Covenant of 1.3x At 31/12/11 commitments of £11million Headroom available to
Slide 31: Substantial Re-finance of Banking Facilities
Substantial Re-finance of Banking Facilities Total of £300m of banking facilities secured in last 12 months New facilities have weighted maturity of 4.6 years Terms agreed and approved to re-finance £175m facilities with RBS and Santander New 4 year, interest only term to commence March 2012
Slide 32: Extended Headroom and Average Maturity
Extended Headroom and Average Maturity Provider Maturity Facility Drawn Headroom Royal Bank of Scotland Jan 2013 5.0 - 5.0 Allied Irish banks Jan 2013 30.0 30.0 - Clydesdale Bank July 2014 50.0 14.2 35.8 Royal Bank of Mar 2016 175.0 156.5 18.5 Scotland/Santander Aviva Nov 2018 75.0 75.0 - Aviva Dec
Slide 33: Bank Debt Hedged - callable not called
Bank Debt Hedged - callable not called Results Announcement: 31/12/11 33
Slide 34: Bank Debt Hedged – callable called
Bank Debt Hedged – callable called Results Announcement: 31/12/11 34
Slide 35: Dividend policy
Dividend policy 15 year track record of progressive dividend policy Commitment to pay out substantially all available profits as dividends REIT status Dividend for 2011 of 18.0p (9.00p paid March 2011, 9.0p paid in October 2011) Historic dividend yield of 5.63% at share price of 3.20p Fi
Slide 36: Progressive Annual Dividend
Progressive Annual Dividend Pence 20 18.0 18.5 17.0 17.5 18 16.5 16 15.0 13.5 14 12.0 12 11.0 10.0 10 9.0 8.0 8 7.0 5.6 6.0 6 3.2 4 2 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Brokers estimate Total dividend paid - 169.3p to 28/10/11 + 9.25p April 2012 = 178.5
Slide 37: Other Matters
Other Matters Share Save Scheme Repurchase Authority in place Scrip dividend Corporate video (www.phpgroup.co.uk) Results Announcement: 31/12/11 37
Slide 38: Conclusion
Conclusion Low risk business model with 90% of rental income underpinned by Government funding Substantial number of acquisition opportunities at historic attractive valuations Positive yield gap between acquisition yield and funding costs Well funded following refinance of significant major
Slide 39: Appendices
Appendices Results Announcement: 31/12/11 39
Slide 40: PHP History
PHP History Founded in 1994 by Harry Hyman Moved to AIM in 1996. Raised £16million equity and £4m from Convertible Loan Stock Moved to Main Market in 1998 Placed 5% in 2001 at 146p per share 1.6 million shares issued 2002/3 at 100p per share as options exercised August 2004 loan stock co
Slide 41: PHP Board
PHP Board Graeme Elliot (66) Non Executive Chairman Harry Hyman (55) Managing Director Mark Creedy Non Executive Director – former Managing Director of L&G Property fund management division Martin Gilbert (53) Non Executive Director (alternate William Hemmings (43)) Jamie Hambro (61) Non E
Slide 42: Major shareholders
Major shareholders Number of Shareholder % Shares Nexus Group Holdings 3,711,940 5.44% Blackrock 3,035,591 4.45% Legal & General 2,492,675 3.65% Aberdeen Asset Management 2,150,350 3.15% Issued share capital at 31 Dec 2011 - 68,272,229 ordinary shares Results Announcement: 31/12/11 42
Slide 43: Joint Managers and Fee Base
Joint Managers and Fee Base Nexus TradeCo Limited and J O Hambro Capital Management Limited act as joint managers to the Company Management fees restructured with effect from 1 January 2011 to reduce fees on assets over £500 million (previously 0.75%) Gross asset value NPM JOHCML Total Up to £50
Slide 44: Nexus TradeCo Limited
Nexus TradeCo Limited Nexus offers financial and management services focusing on property and the healthcare and educational sectors. Nexus offers a full range of property management services including rent collection, insurance, alterations, and day to day management. Nexus also adds value to
Slide 45: Nexus TradeCo Limited Personnel
Nexus TradeCo Limited Personnel Harry Hyman Managing Director (55) is a PW Qualified Chartered Accountant and member of the Association of Corporate Treasurers 1984-1994 worked for a listed asset finance group, involved in extensive property development and structuring mezzanine property funding
Slide 46: J O Hambro Capital Management
J O Hambro Capital Management JOHCM provides administrative and accounting services to the Company and is the Company Secretary. JOHCM provides investment management services to a number of listed investment trusts, venture capital trusts, open ended investment companies and other funds. JOHCM
Slide 47: What is the NHS Currently?
What is the NHS Currently? NHS created in 1948 A national service across the UK population of 60m Employs 1.4m people Budget this fiscal year £110billion Rent reimbursed to GP practices – effectively paid by Government 34,000 GPs in the UK, 10,400 surgeries At least £6billion of capita
Slide 48: Disclaimer
Disclaimer IMPORTANT NOTICE This document has been prepared by Primary Health Properties PLC (the “Company”) and is the sole responsibility of the Company. The information in this document is accurate as at the date of this document and its contents are therefore subject to updating and revision. Th
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