Primary Health Properties Plc · LSE:PHP
Primary Health Properties — Investor Day (October 2024)
61 slides from Primary Health Properties's investor day presentation, Oct 16, 2024
Slide 1: Capital Markets Day
16 October 2024 Capital Markets Day Capturing the significant opportunity in Primary Care Property
Slide 2: Welcome and Introductions
Welcome and Introductions Chiswick Medical Centre, London 2
Slide 3: Meet the Presentation Team
Meet the Presentation Team Mark Davies Richard Howell David Austin CEO, CFO, Head of Asset Management, PHP PHP PHP Tony Coke James Buckley Dr. Arvind Madan Development Director, Managing Director, Former National Director of Primary Care, PHP Axis PHP NHS Primary Health Properties PLC 3
Slide 4: Agenda
Agenda 12:30-13:00 Lunch 13:00-13:30 Welcome and Introductions: Mark Davies 13:30-14:00 New Government: 10 Year Plan for Primary Health: Dr. Arvind Madan 14:00-14:30 Primary Care Market in Ireland and Opportunities to Expand: James Buckley 14:30-15:00 Refreshment Break 15:00-15:20 Delivering Value T
Slide 5: PHP: An introduction
PHP: An introduction PHP today ▪ PHP is a healthcare sector focused REIT with a 30-year successful track record in Primary Care Resilience of the business model ▪ Earnings and rental growth backed by Government income ▪ High quality portfolio with high and growing demand for space ▪ High barriers to
Slide 6: Significant Opportunity Ahead as a Focused Primary Care Property Business
Significant Opportunity Ahead as a Focused Primary Care Property Business Strategic direction ▪ Our long-term goal remains to be the leading owner, manager and developer of Primary Care property ▪ Government-backed secure income will remain at the core of our business model ▪ We will increase the sc
Slide 7: Managing The Challenges
Managing The Challenges It will be at the heart of this Government’s plan to reimagine the NHS as much as a Neighbourhood Health Service as a National Health Service. In my first week as Health and Social Care Secretary, I pledged to increase the proportion of NHS resources going to Primary Care. An
Slide 8: Political Drivers of our Growth
Political Drivers of our Growth Strong political support for Primary Care referred to by the Government as the reformed NHS, the “Neighbourhood Health Scheme” Darzi report and 10-year plan: ▪ The NHS will deliver 3 big shifts in the focus of healthcare and Primary Care, they will have a key role in
Slide 9: Economic Drivers of our Growth
Economic Drivers of our Growth Cost v benefit: As per latest Government research cost per patient in Secondary care £400+ whereas in Primary Care this is £40+. Government plan is to invest more into Primary Care Workplace development: Policies aimed at increasing the number of GPs and other Primary
Slide 10: Social Drivers of our Growth
Social Drivers of our Growth Growing and ageing population: As populations age, there's an increasing demand for Primary Care services especially to manage chronic conditions and promote healthy aging Health awareness: Growing public awareness about preventive care and health encourages more people
Slide 11: Technological Drivers of our Growth
Technological Drivers of our Growth NHS of the future: Moving from analogue to digital and increase in diagnostics Investment in NHS technology: ▪ Innovations in health technology, including electronic health records and patient portals, make it easier for patients to access care and for providers t
Slide 12: New Government: 10-Year Plan for Health: Dr. Arvind Madan
New Government: 10-Year Plan for Health: Dr. Arvind Madan 12
Slide 13: New Government: 10-Year Plan - Introduction
New Government: 10-Year Plan Introduction: Dr. Arvind Madan My background: ▪ Former National Director of Primary Care and National Deputy Medical Director NHS England (2015 - 2018) ▪ GP for 28 years ▪ Hurley Group Partner ▪ Co-founder eConsult (Huma) ▪ Director Hurley Partners Consultancy ▪ Primary
Slide 14: Complexity of Need is Rising
Complexity of Need is Rising Relative Proportions of Each Population Segment (2017-2023) ▪ 86% of GPs feel that their workload is excessive, largely due to the complexity of 100% cases 90% ▪ 39% of GPs have reported experiencing 80% burnout, with the complexity of cases being Organ Failure a key fac
Slide 15: Mental Illnesses are Rising
Mental Illnesses are Rising Over a third of GP appointments involve a mental health issue Mental Health Prevalence in England, 2004-2023 25% Adult depression: 20.3% 2012 – 1 in 17 people 20% 2023 – 1 in 8 people 15% 12.5% 13.2% Mental health issues in children: 10% 2016 – 1 in 10 children 2023 – 1 i
Slide 16: Demand on Primary Care is Increasing
Demand on Primary Care is Increasing Changes in NHS Activities Over Time, 2018/19 to 2023/24, Indexed to 2018/19 GP practices handled over 367 140 million appointments in 2022, up from 309 million in 2019 130 120 Activity growth indexed to 2018/19 Despite 5% (2,000 WTE) fewer GPs 110 since 2015 100
Slide 17: New Government Focus
New Government Focus National NHS policy under a new Government is focused on four fundamental changes: 1. A shift from treatment to prevention 2. A shift from hospitals to primary and community care 3. A shift from analogue to digital, with a focus on innovation 4. A heavy focus on improving clinic
Slide 18: The Darzi Diagnosis – September 2024
The Darzi Diagnosis – September 2024 Primary Care will be a winner Rising Demand Reducing Supply Health Inequality Call for Reform of Gap Growing Funding Allocation No change to NHS Staff shortages Population growth Housing principle but reform will be required Reducing productivity in Ageing and mu
Slide 19: The 10-Year Plan for Health – Due Spring 2025
The 10-Year Plan for Health – Due Spring 2025 These are my top 10 predictions for what will change in Primary Care Topic Area Prediction Patient Experience Growth of personalisation and consumerism in healthcare. Global health and wellbeing brands to follow? Practice Entity Mixed model of GP partner
Slide 20: What Will the 10-Year Plan Mean for PHP?
What Will the 10-Year Plan Mean for PHP? The momentum is clearly towards a shift in the system, with greater emphasis on community-based care and increasing investment in Primary Care services and infrastructure. Talk now is of “hard-wiring in” preferential funding flows to Primary Care to achieve t
Slide 21: Primary Care Market in Ireland and Opportunities to Expand
Primary Care Market in Ireland and Opportunities to Expand: James Buckley Enniscorthy Primary Care Centre, Wexford 21
Slide 22: Primary Care Market in Ireland - Introduction
Primary Care Market in Ireland and Opportunities to Expand Introduction: James Buckley My background ▪ Former Civil Engineer ▪ MBA at London Business School ▪ Career in Property and Construction ▪ Axis Technical Services – PHP in 2023 ▪ Axis Health Care Assets – 5 assets to PHP James Buckley Managin
Slide 23: Axis and PHP in Ireland
Axis and PHP in Ireland ▪ Tipperary Town PCC in 2016 ▪ Further 20 assets purchased – 74,000 sqm ▪ Mix of forward fund and straight purchase ▪ Strong relationships with the HSE and developers ▪ Rent roll of c.€17.3m with CPI indexation ▪ Irish average values of £11.6m versus UK of £5.1m ▪ Longer WAUL
Slide 24: Structure of PCC Market in Ireland
Structure of PCC Market in Ireland ▪ 3-year period of inactivity – rents uneconomic ▪ HSE retender process – 50+ locations ▪ Public competition – market sets rents ▪ All HSE rent reviews - CPI including service charge ▪ 25 / 30-year leases from the HSE, 85%+ income ▪ Tenant structure - HSE, GP’s and
Slide 25: Next 5 Years – Public Space
Next 5 Years – Public Space ▪ HSE – 6 Health Regions, governing acute and community care ▪ Sláintecare – Cross party support in Government • One of the main aims….for people to stay healthy in their own homes and communities for longer • We’re doing this by developing and improving primary and commu
Slide 26: Ireland’s PCC Market
Ireland’s PCC Market What this means for us: ▪ 25+ year lease with the HSE ▪ Larger lot size, increased rent ▪ Euro Area interest rates ▪ CPI Rent reviews ▪ Modern building stock – “A” Energy rated ▪ Maintenance (SLA) payments increasing ▪ Solid pipeline of development opportunities ▪ Yield / valuat
Slide 27: Axis Technical Services
Axis Technical Services ▪ Axis, 2023 - 28 people, Healthcare ▪ Healthcare Experience expertise • Primary Care • Mechanical • Theatres • Electrical • Radiation Oncology • Civil / Structural • Diagnostics • Marine • Acute Hospital Wards • Mobile Technicians ▪ Property, Facilities & Asset management fo
Slide 28: Laya (part of AXA): Case Study
Laya (part of AXA): Case Study ▪ Rise of private healthcare providers ▪ Health and Wellness Clinics ▪ Private Health Insurance – 47% of population or 2.44m people ▪ Laya is 2nd largest in the market • 700,000 members • AXA is the largest health insurer in Europe ▪ Laya - €20m invested with €11m via
Slide 29: Drivers of Property Development: Pipeline Projects
Drivers of Property Development: Pipeline Projects ▪ Size – Economies of scale ▪ Rent – key variable, increasing ▪ Construction costs and Inflation ▪ Net Initial Yield / Interest Rates ▪ Selection Criteria • Scale – 2, 000 sqm+ • ECC’s – HSE as single occupier • Minimal reliance on non-core revenue
Slide 30: Youghal PCC
Youghal PCC ▪ Land acquired ▪ Planning permission underway ▪ Letter of intent from HSE ▪ Floor Area 3,834 sqm ▪ Indicative capital Value - €15m Primary Health Properties PLC 30
Slide 31: Enniscorthy ECC
Enniscorthy ECC ▪ Land acquired adjacent to the existing PCC ▪ Planning permission ▪ Floor area 4,641 sqm ▪ Procurement competition – Q4 2024 ▪ Indicative capital Value - €20m Primary Health Properties PLC 31
Slide 32: Donnybrook PCC
Donnybrook PCC ▪ Dublin 4 ▪ Planning permission, Fire Safety Certificate, etc ▪ Floor Area 7,088 sqm excluding basement ▪ Procurement competition - Q4 2024 ▪ Indicative capital Value - €40m+ Primary Health Properties PLC 32
Slide 33: Primary Care in Ireland – An Attractive Market with Long-Term Contracts
Primary Care in Ireland – An Attractive Market with Long-Term Contracts ▪ Opportunity to deploy significantly more capital ▪ HSE moving services to Primary Care - more private lease opportunities ▪ Very high-quality assets with significant maintenance revenue. ▪ The Private Health market continues t
Slide 34: Refreshment Break
Refreshment Break: 14:30 – 15:00 Westfield Integrated Primary Care Centre, 34 Ballincollig
Slide 35: Delivering Value Through Active Asset Management
Delivering Value Through Active Asset Management: David Austin St. Catherine’s Health Centre, Birkenhead 35
Slide 36: Delivering Value Through Active Asset Management
Delivering Value Through Active Asset Management Introduction: David Austin My background ▪ David Austin MRICS ▪ Lead the Asset Management business at PHP (incorporating the Property Management and Facilities Management functions) ▪ With over 30 years experience in real estate including JLL, AXA and
Slide 37: Asset Management Highlights
Asset Management Highlights Completed deals ▪ 23 deals completed YTD (17 in 2023) and well set to surpass 2023 activity ▪ Securing £0.8m of existing rent and £0.35m of new rent for a new WAULT at post completion of c.18 years ▪ FYF 2024 Investing capex of c.£10-12Mn to achieve on target 6% yield on
Slide 38: PHP is Well Positioned
PHP is Well Positioned Key drivers for NHS NHS England - Age Profile of All Assets ▪ Ageing stock 100% 2% ▪ Favorable change in Government Majority of 90% 19% PHP portfolio ▪ Integration of healthcare services sits within the ▪ Scarcity of suitable alternative sites 80% top 20% ▪ Changing demographi
Slide 39: The Opportunity and Key Objectives
The Opportunity and Key Objectives Main areas of opportunity ▪ UK assets (495 of 516 assets) ▪ Lease renewals, capex expenditure, leasing voids, surrenders and re-letting ▪ Refits - refurbishment, reconfiguration and building extensions Key objectives ▪ Target 6% yield on cost ▪ Manage WAULT ▪ Maint
Slide 40: How our Asset Management is Driving Rental Growth
How our Asset Management is Driving Rental Growth AM projects sets higher rental tone ▪ 4 completed/on-site projects increased rents on average by 10% ▪ 3 pipeline schemes at advanced stages, set to move rental tone on further ▪ This equates to on average +15% uplift in rent PSM These evidences sets
Slide 41: Delivering Value Through Asset Management for PHP
Delivering Value Through Asset Management for PHP Our in-house team delivering sector leading risk adjusted total returns consistently Growing Income Maintaining the Long- Sustainability and ESG Term Security of PHP’s income Developing Keeping Assets High Increasing Rental Tones Relationships qualit
Slide 42: Delivering Value Through the Development Pipeline
Delivering Value Through the Development Pipeline: Tony Coke Victoria Medical Centre, Eastbourne 42
Slide 43: Development: A Huge Unmet Need for New Primary Care Premises
Development: A Huge Unmet Need for New Primary Care Premises Introduction: Tony Coke My background ▪ MRICS ▪ 20 years in Primary Care development ▪ GPI, Medicx, Octopus Healthcare, PHP ▪ 30 completed projects across England and Wales, two on site now Tony Coke PHP is well positioned to meet that nee
Slide 44: 50% of Today’s Estate is Unfit for Purpose
50% of Today’s Estate is Unfit for Purpose ▪ Government will drive change through its “three pillars” ▪ Service demand is at an all time high and will only increase The NHS needs to accelerate the commissioning of new premises to enable service change Primary Health Properties PLC 44
Slide 45: Demand for New Estate
Demand for New Estate ▪ Medium term opportunity of £3-£5bn ▪ The few Estate Strategies that have been published indicate very substantial requirements for new Primary Care estate: • Lancashire and South Cumbria: £220m in Primary Care estate • South East London: £125m in Primary Care estate • North E
Slide 46: How Commissioning Works
How Commissioning Works ▪ GPs contract with the NHS through a contract for General Medical Services ▪ The cost of the space for GMS is reimbursed by the NHS ▪ The level of rent the NHS will now pay is significantly lower than the rent needed for new development ▪ Premises delivery has paused Rents n
Slide 47: Why Will Rents Increase?
Why Will Rents Increase? ▪ There will be more revenue. The Government and Darzi both say that Primary Care needs more of the NHS budget ▪ The Government’s strategy will require the NHS to invest in better premises ▪ There are multiple other demands on public capital ▪ 10-year plan spring 2025 PHP of
Slide 48: Disciplined Approach to Project Selection and Process
Disciplined Approach to Project Selection and Process Agreed capacity for ICB Priority GP Priority realisation Approval of Outline Business Case and recommendation of a rent that meets our KPIs: 10%+ profit on cost; 6%+ yield on cost PHP Board approved WIP to enable progress to legal close. WIP expe
Slide 49: What’s Next? The Opportunity
What’s Next? The Opportunity ▪ We will leverage our existing ICB relationships to ensure PHP has a significant share of the market ▪ Larger lot sizes with multiple occupiers such as diagnostics, local authorities, hospital Trusts and third sector ▪ Indicative output of six new schemes per year capit
Slide 50: Rental Growth and Financing Strategy
Rental Growth and Financing Strategy: Richard Howell SA1 Medical Centre, Swansea 50
Slide 51: Financing Strategy - Introduction
Financing Strategy Introduction: Richard Howell My background ▪ CFO at PHP since 2017 to date - a period of significant growth: • Portfolio grown from £1.2bn to £2.8bn today • Acquisition of MedicX in 2019 • Entered FTSE 250 • Internalisation of management structure ▪ 30+ years experience with FTSE
Slide 52: Disciplined Approach to Investment and Management
Disciplined Approach to Investment and Management ▪ Focus on income growth SONIA vs EURIBOR ▪ Transactions only undertaken if accretive to earnings 6.0% 170 bps to 130bps arbitrage in rates ▪ Ireland continues to be preferred area of investment with attractive returns forecast over next 5 years 5.0%
Slide 53: Rental Growth – Improving OMV Outlook Projected to Increase to 3.0% p.a.
Rental Growth – Improving OMV Outlook Projected to Increase to 3.0% p.a. ▪ £2.4m additional rent YTD from rent reviews - 7.9% increase over previous passing rent Additional Income From Rent Reviews 4.0 ▪ Total weighted average rental growth: 3.0% p.a. 4.0 2024 3.5 forecast ▪ Effectively upward only
Slide 54: Debt Summary – a Broad Range of Providers
Debt Summary – a Broad Range of Providers ▪ Total debt facilities of £1.64bn (91% secured / 9% unsecured) with £1.34bn drawn ▪ £301m undrawn headroom after capital commitments ▪ 95% of net debt fixed or hedged ▪ Group LTV 48.1% (target range 40% - 50%) ▪ Average cost of debt 3.3% (2023: 3.3%) ▪ Aver
Slide 55: Delivering Future Financial Management
Delivering Future Financial Management ▪ £301m undrawn headroom after capital commitments available to deal with future refinancings ▪ £170m term and RCF facility with Barclays used to refinance £70m variable bond with c.90 bps saving in margin ▪ £100m Lloyds RCF for a further three years with optio
Slide 56: Robust Business Model
Robust Business Model ▪ PHP has a clear and consistent strategy with a responsible approach to business integrated into everything we do ▪ Ultimate aim is to deliver attractive progressive returns to investors ▪ This approach has delivered results… 28 years of consecutive dividend growth and sector
Slide 57: Look to the Future and Concluding Remarks
Look to the Future and Concluding Remarks: Mark Davies: Celbridge Primary Care, Co. Kildare 57
Slide 58: Conclusions and Opportunities
Conclusions and Opportunities 4 key conclusions from todays presentations: 1. Dedicated to continued dividend growth 2. Earnings and rental growth backed by secure Government backed income 3. Resilience of the business model 4. Significant opportunity ahead in Primary Care Current opportunities: Ire
Slide 59: Appendices
Appendices Beacon Centre for Health, Swansea 59
Slide 60: Appendix – Rent Review Results
Appendix – Rent Review Results Drivers of rental growth Number of ▪ Typically 3-yearly review cycle Nine months to 30 September Open market outstanding reviews 2024 rent reviews completed (current rent) ▪ Building cost inflation Reviews relating to calendar years: No % No £m ▪ Completion of historic
Slide 61: Disclaimer
Disclaimer This document has been prepared by Primary Health Properties PLC (the “Company”) solely for use at the capital markets day held on 16 October 2024 (the “CMD”). For the purposes of this disclaimer, “Presentation” shall mean this document, the oral presentation of the slides by the Company,
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