Primary Health Properties PLC · LSE:PHP
Primary Health Properties — MedicX Fund — FY2018 Earnings Presentation
40 slides from Primary Health Properties's earnings presentation, December 2018
Slide 1: Annual Results Presentation 2018
ANNUAL RESULTS PRESENTATION 2018 BUILDING A BRIGHTER FUTURE FOR PRIMARY HEALTHCARE INVESTMENT ANALYST AND INVESTOR PRESENTATION
Slide 2: Agenda
01 MedicX Fund Limited 1. OVERVIEW 2. KEY FINANCIALS 3. ACQUISITIONS, DISPOSALS AND PORTFOLIO REVIEW 4. OUTLOOK AND STRATEGY 5. APPENDICES
Slide 3: Chairman's Introduction
02 MedicX Fund Limited CHAIRMAN’S INTRODUCTION • Another year of strong performance – continuing our transformation: − Entered into UK REIT regime − Continued investment and growth − Move to fully covered dividend policy − Agreed reduced Investment Adviser fee and performance fee removed Helen Mahy
Slide 4: 1. Overview
1. OVERVIEW Annual results presentation 2018
Slide 5: A Strong Year
04 MedicX Fund Limited A STRONG YEAR Committed investment Earnings per share EPRA NAV per share £80.3m 3.9p (+11.4%) 81.8p (+6.9%) Total return on EPRA Rent roll NAV 2018 Debt refinance £44.0m (+10.0%) 14.8% (+210bps) £265m refinance
Slide 6: Strategic Objectives Met
05 MedicX Fund Limited STRATEGIC OBJECTIVES MET Sector leading average Dividend rebased Investment Adviser Fee EPRA cost ratio1 lot size New tiers saving £0.5 Move to covered million per annum 7% year on year £4.8m dividend Performance fee reduction removed to 18.4% 1 EPRA cost ratio both excludes/i
Slide 7: 2. Key Financials
2. KEY FINANCIALS Annual results presentation 2018
Slide 8: Key Performance Indicators
07 MedicX Fund Limited A LEADING INVESTOR IN MODERN PURPOSE-BUILT PRIMARY HEALTHCARE PROPERTIES IN THE UK AND REPUBLIC OF IRELAND Key Performance Indicators 30-Sep-18 30-Sep-17 Change % Portfolio valuation £806.7m £680.4m 18.6% UK Net Initial Yield 4.85% 5.08% (4.5)% EPRA NAV / share 81.8p 76.5p 6.9
Slide 9: 11.4% Growth in EPRA Earnings Per Share
08 MedicX Fund Limited 11.4% GROWTH IN EPRA EARNINGS PER SHARE
Slide 10: Income Statement
09 MedicX Fund Limited INCOME STATEMENT 12 months to 12 months to Change 30-Sep-18 30-Sep-17 £’000 £’000 % Rent receivable 40,285 37,108 8.6% Other income1 455 141 222.7% Direct property expenses (1,471) (1,354) 8.6% Net rental income 39,269 35,895 9.4% Valuation movements 32,250 18,654 72.9% Invest
Slide 11: Continued Reduction in Ongoing Charges Ratio
010 MedicX Fund Limited CONTINUED REDUCTION IN ONGOING CHARGES RATIO1 2.05% 1.87% 1.73% 1.58% Sept 2016 Sept 2017 Sept 2018 Sept 2018 with new adviser fee 1 Ongoing charges excluding direct property costs v EPRA NAV
Slide 12: Financial Position
011 MedicX Fund Limited FINANCIAL POSITION 30-Sep-18 30-Sep-17 Change % £’000 Pence per share £’000 Pence per share Pence per share Investment properties 807,797 182.4 681,390 159.0 14.7% Debt 448,875 101.3 372,796 87.0 16.5% Cash 18,888 4.3 32,145 7.5 (43.1)% Net debt 429,987 97.1 340,651 79.5 22.1
Slide 13: £265m Refinance of Aviva Debt
012 MedicX Fund Limited £265M REFINANCE OF AVIVA DEBT TO FURTHER HEDGE OUR LONG TERM POSITION • Combined 46 legacy tranches into 2 new tranches • Released £25 million of property from charge • £30.8m of new 10 year interest only debt at low interest rate of 3.05% • No early repayment fee paid, prote
Slide 14: Reduction in Investment Adviser Fees
013 MedicX Fund Limited REDUCTION IN INVESTMENT ADVISER FEES • Effective from 1 Oct 2018 • Performance fee removed • New fee tiers result in immediate annual savings of £0.5 million • OCR saving of 15 bps and EPS increase of 3%1 INVESTMENT ADVISER FEE Previous tiers New tiers Investment Adviser fee
Slide 15: Fully Covered Dividend Policy
014 MedicX Fund Limited FULLY COVERED DIVIDEND POLICY1 • Rebase communicated to market with interim results in May 2018 • Dividend now targeted to be 95% of EPRA EPS • First covered dividend payable in March 2019 Period Status Payable Amount Q4’18 (Sep 18) Declared 31 Dec 18 1.51p Q1’19 (Dec 18) Int
Slide 16: 3. Acquisitions, Disposals and Portfolio Review
3. ACQUISITIONS, DISPOSALS AND PORTFOLIO REVIEW Annual results presentation 2018
Slide 17: Portfolio Update
016 MedicX Fund Limited PORTFOLIO UPDATE 10% 10% • Property portfolio 166 Portfolio • Average lot size £4.8m 7% fundamentals • Average property age 9.3yrs • Average WAULT 14.2yrs 73% Low risk • Average unexpired debt 12.3yrs investment • Government backed 89.4% London Ireland Rest of England Wales &
Slide 18: Continued Investment
017 MedicX Fund Limited CONTINUED INVESTMENT Site Cost Scheme Developer Under Forward HPC Vale of Neath £4.8 million construction funding Framework UK Under Forward Peterborough £3.4 million PCP construction funding Portfolio Income One Medical £65.3 million Private vendor acquisition producing £73.
Slide 19: One Medical Portfolio Acquisition
018 MedicX Fund Limited ONE MEDICAL PORTFOLIO ACQUISITION CLEETHORPES • Off-market corporate acquisition in June 2018 • High quality portfolio, 10 out of 12 modern purpose-built properties with: ─ Average lot size £5.3m ─ Average age of 5.5 years HARROGATE ─ Average WAULT of 14.2 years • 25% of the
Slide 20: Properties Under Construction
019 MedicX Fund Limited PROPERTIES UNDER CONSTRUCTION VALE OF NEATH • 4 properties completed in the year, Cromer, Brynmawr, Crumlin and Tallaght with rent roll of £1.9 million and blended yield of 6.5% • 3 properties under construction 2016: £0.2m ─ Peterborough and Vale of Neath in the UK (Q2 FY19)
Slide 21: Attractive Pipeline of Opportunities
020 MedicX Fund Limited ATTRACTIVE PIPELINE OF OPPORTUNITIES1 • Opportunities in solicitors’ hands of £46 million in UK and EASTBOURNE £23 million prime asset in the Republic of Ireland • Mixture of standing and forward funding opportunities (mainly with framework developers) • A further £75 million
Slide 22: Disposals – Improving the Portfolio Metrics
021 MedicX Fund Limited DISPOSALS – IMPROVING THE PORTFOLIO METRICS HARPENDEN • Total sales during the year of £5.6 million plus £0.6 million post year end (above book value) • Ongoing active management strategic plan for further asset sales that do not meet MedicX’s current investment criteria LEIC
Slide 23: Rent Reviews Profile
022 MedicX Fund Limited RENT REVIEWS PROFILE1 • Total rent roll £44.0 million2 4% ─ £43.2 million completed £44.0m 26% ─ £0.8 million under construction Sep 2017: £40.7m • £25.0 million passing rents under negotiation • £11.5 million rent reviews agreed during the period • Clapham Independent expert
Slide 24: Competitive Landscape
023 MedicX Fund Limited COMPETITIVE LANDSCAPE Consistent attractive returns driving yield compression 10.00% 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Cash yield - UK & Ireland Cash yield - UK Cash yield - Ireland 10 yr Gilt
Slide 25: Asset Management
024 MedicX Fund Limited ASSET MANAGEMENT • 425 leases across portfolio • 80% of leases >10 years remaining, with 92% >5 years ✓ New 21 year lease ✓ Property valuation • Key focus for asset management team uplift £0.7 million • Strong relationships built up with commissioners Completion May 2019 • St
Slide 26: 4. Outlook and Strategy
4. OUTLOOK AND STRATEGY Annual results presentation 2018
Slide 27: Conclusion
026 MedicX Fund Limited CONCLUSION • Continued selective acquisitions of high quality assets • Ongoing active management disposal strategy of non-core properties to further differentiate MedicX • Continual focus to enhance fundamental portfolio metrics • Increased earnings and capital appreciation t
Slide 28: 5. Appendices
5. APPENDICES Annual results presentation 2018
Slide 29: NHS and Primary Care Update
NHS AND PRIMARY CARE UPDATE Annual results presentation 2018
Slide 30: NHS and Primary Care Update
029 MedicX Fund Limited NHS AND PRIMARY CARE UPDATE • 2018 Autumn Budget - extra £20.5bn for the NHS over the next five years • The 44 Sustainability and Transformation Partnership (STP) areas continue to be the focus of the £2.4bn Department of Health’s transformation agenda in England. • Latest £9
Slide 31: Demand Drivers Increasing
030 MedicX Fund Limited DEMAND DRIVERS INCREASING Macro/Demographic NHS PRIMARY CARE FUNDING 250 • Demand for GP services continues to rise as population ages with multiple long term £2.4bn GP PRACTICE conditions CLOSURES AND Extra per year MERGERS IN LAST by 2021 12 MONTHS Government Funding • Prim
Slide 32: Other Information
OTHER INFORMATION Annual results presentation 2018
Slide 33: DCF NAV
032 MedicX Fund Limited DCF NAV DCF NAV sensitivity1 DCF Share price Pence per share 101.0p 82.0p Weighted discount rate 7.0% 9.8%2 Risk premium to 20 year gilt rate 5.3% n/a Rental growth per annum 2.0% (1.8)%2 Capital appreciation per annum 1.0% (1.1)%2 DCF reconciliation EPRA NAV 81.8p Purchasers
Slide 34: DCF NAV Sensitivities
033 MedicX Fund Limited DCF NAV Sensitivities1 DISCOUNT RATE RENTAL AND CAPITAL VALUE INCREASES NAV pence NAV pence per Completed Rental growth per share share % 6.0 6.5 7.0 7.5 8.0 % pa 1.0 1.5 2.0 2.5 3.0 6.0 111 106 102 97 93 -1.0 77 80 83 86 89 Under construction Capital growth 7.0 111 106 101 9
Slide 35: Debt Portfolio
034 MedicX Fund Limited DEBT PORTFOLIO1 Private Private Bank of Private Aviva – One Santander – Aviva £264.5m facility placement placement Ireland placement Medical One Medical Facility size £193.7 million £40 million £30.8 million £50.0 million £50.0 million €34.0 million £27.5 million £26.2 millio
Slide 36: Protection from Fixed Rate Long Term Debt
035 MedicX Fund Limited PROTECTION FROM FIXED RATE LONG TERM DEBT September 2018 March 2018 September 2017 Debt £446.1 million £380.1 million £373.5 million Weighted average maturity 12.3 years 12.1 years 12.7 years Weighted average cost of debt 4.26% 4.27% 4.29% 250 Aviva Santander Private placemen
Slide 37: Portfolio of Modern Purpose-Built Assets
036 MedicX Fund Limited PORTFOLIO OF MODERN PURPOSE-BUILT ASSETS1 SECURITY OF INCOME BY LEASE PORTFOLIO VALUATION PROFILE PROPERTY AGE SECURITY OF INCOME BY TENANT EXPIRY 9% 12% 10% 20% 25% 43% 5% 1% 28% 26% 59% 40% 32% 90% Over 20 years More than £5m Less than 5 yrs GPs 15 - 20 years £3m - £5m Phar
Slide 38: The Market
037 MedicX Fund Limited THE MARKET • Modern purpose-built primary healthcare premises remains a priority for the UK and the Irish health systems to support ageing populations with increasingly complex care needs • GPs and other health providers are encouraged to work together at scale, in delivering
Slide 39: Disclaimer
038 MedicX Fund Limited DISCLAIMER This document has not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000, as amended. Reliance on this document for the purpose of engaging in any investment activity may expose an individual to a significant ris
Slide 40: Disclaimer
039 MedicX Fund Limited DISCLAIMER Certain statements in this document are forward looking statements. All forward looking statements involve risks and uncertainties and are based on current expectations. Forward looking statements and forecasts contained herein are subject to risks, uncertainties a