19 April 2023

Primary Health Properties PLC

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

Q1 2023 Trading Update

Rent reviews driving performance, continued positive outlook

Primary Health Properties PLC, one of the UK's leading investors in modern primary healthcare facilities, today publishes a trading update for the period 1 January 2023 to 31 March 2023 ahead of its AGM later today.

Like-for-like rental growth

In the first quarter of 2023 the Company generated an additional £1.3 million or 0.9% (Q1 2022: £0.9 million or 0.6%) of extra rental income on a like-for-like basis from its rent review and asset management activities.

The Company continues to see an improving rental growth outlook, especially from rent reviews, with an extra £1.2 million (Q1 2022: £0.6 million) of income generated in the quarter from 101 reviews that have been settled, equivalent to 3.7% (2022: 3.4%) on an annualised basis.

Over the course of 2023, the Group anticipates rent reviews will generate around £4.0 million (2022: £3.0 million) of extra income driven by the impact of inflation on both indexed-linked and open market value ("OMV") reviews. In the quarter PHP settled 49 OMV reviews, including 20 nil increases, resulting in an additional £0.4 million (Q1 2022: £0.4 million on 67 OMV reviews) of income equivalent to 2.0% (2022: 1.5%) per annum with most of the OMV reviews still relating to periods when inflation was relatively muted.

A further £0.1 million (Q1 2022: £0.3 million) has been generated in the quarter from asset management activities where the Company exchanged three new projects which are due to start on site shortly. Currently there are ten projects on site which, in addition to extending lease lengths and increasing rents, will improve the environmental performance of the buildings.

Axis Technical Services Limited ("Axis")

As previously reported, in January 2023, the Group successfully completed the acquisition of Axis, an Irish property management business, and signed a long-term development pipeline agreement providing access to a pipeline of future primary care projects in Ireland.

Since the acquisition, Axis has performed in line with management's expectations and PHP has successfully migrated all asset and property management activities in Ireland to the Axis team, who have already identified several new potential asset management initiatives across the portfolio which are being actively progressed.

Investment and development

The Group continues to adopt a very disciplined approach to further investment and development activity, which will only take place if accretive to earnings. Future pipeline of opportunities continues to be focused predominantly on Ireland and PHP's existing portfolio through asset management projects. 

Currently there is limited exposure to development risk with just one scheme on-site presently. The Group is in the process of renegotiating rental values with several Integrated Care Boards across the UK to restore the financial viability of schemes in our pipeline, given the current economic and interest rate environment.

Financing

As at 31 March 2023 the Group's net debt stood at £1,273.3 million (31 December 2022: £1,261.3 million) and on a pro-forma basis the Loan to Value ("LTV") ratio was 45.5% (31 December 2022: 45.1%). The Group has £321 million (31 December 2022: £326 million) of undrawn loan facilities available, net of capital commitments.

On 18 April 2023, the Group converted €60.0 million (£52.9 million) of sterling equivalent denominated debt into euros across its various revolving credit facilities to cover a small unhedged euro denominated balance sheet exposure which had arisen primarily because of historic valuation gains and retained earnings arising on our portfolio in Ireland. As part of the transaction the Group took advantage of cheaper euro denominated interest rates and purchased 2.0% caps on €60m nominal value for a period of 2.5 years for an all-in premium of €2.2 million (£1.9 million). The above transaction is expected to reduce the Group's average cost of debt by around 9bps over the next 2.5 years and increase the proportion of net debt that is fixed or hedged to 97% (31 December 2022: 94%).

Dividend

On 23 March 2023, the Company declared its second quarterly interim dividend of 1.675p per Ordinary Share which will be paid on 19 May 2023 to shareholders who were on the share register at the close of business on 30 March 2023. The dividend will be paid by way of a property income distribution of 1.34 pence and normal dividend of 0.335 pence. The dividend is equivalent to 6.7p on an annualised basis and represents a 3.1% increase over 6.5p paid in 2022.

The Company intends to maintain its strategy of paying a progressive dividend, in equal quarterly instalments, covered by underlying earnings in each financial year. Further dividend payments are planned to be made in August and November 2023.

Annual General Meeting ("AGM")

The 2023 AGM of the Company is being held today at 10:30am at the offices of CMS Cameron McKenna Nabarro Olswang LLP, Cannon Place, 78 Cannon Street, London EC4 6AF. At the meeting shareholders will be able to interact with the Directors who will answer any questions and provide their thoughts on our performance and strategy. Further details of the AGM including the Notice of Annual General Meeting can be found on the Company's website www.phpgroup.co.uk.

More information on Primary Health Properties PLC can be found on www.phpgroup.co.uk.

Harry Hyman, Chief Executive Officer of Primary Health Properties, commented:

"The first quarter of 2023 has seen a good start to the year for PHP and as previously reported, we believe the favourable dynamics of higher inflation and increased build costs combined with a demand for new primary care facilities and the need to modernise the estate will continue to increase future rental settlements.

"We continue to focus on income growth from our existing portfolio and are encouraged by the growth seen in the first quarter of the year. Furthermore, with the majority of PHP's debt either fixed or hedged, a strong control on costs, a disciplined approach to capital deployment and just one development on site we have limited exposure to further cost increases and development risk."

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