Primary Health Properties : Preliminary Announcement

Primary Health Properties PLC

Preliminary results for the year ended 31 December 2021

Successful management internalisation, refinancing and operational performance drive earnings growth

Primary Health Properties PLC ("PHP", the "Group" or the "Company"), a leading investor in modern primary health facilities, announces its audited preliminary results for the year ended 31 December 2021.

Harry Hyman, Chief Executive, commented:

"2021 has been another strong year of progress for PHP, having successfully completed the internalisation of our management structure and refinanced a number of legacy loan facilities which have delivered substantial annual cost savings. In addition, we have a strong targeted pipeline and continue to see good organic rental growth from rent reviews and asset management projects with record levels of activity during the year.

"Throughout 2021 PHP has successfully worked with the NHS, HSE and the Group's GP tenants to help them utilise our properties for deployment in the front line of the COVID-19 pandemic, delivering vaccines and boosters across the UK and Ireland. The need for modern, integrated, local primary healthcare facilities is becoming ever more pressing in order to relieve the pressures being placed on hospitals and A&E departments and to catch up on the back-log of missed procedures.

"Having successfully delivered 25 years of secure and reliable growth for our shareholders, we have firmly established ourselves as a sector leader and the Board looks forward to delivering further earnings and dividend growth in 2022 and remains confident in PHP's future outlook."

FINANCIAL AND OPERATIONAL HIGHLIGHTS

	Year to	Year to
Income statement metrics	31 December	31 December
2021	2020	Change
Net rental income1	£136.7m	£131.2m	+4.2%
Adjusted earnings1,2	£83.2m	£73.1m	+13.8%
Adjusted earnings per share1,2	6.2p	5.8p	+6.9%
IFRS profit for the year	£140.1m	£112.0m	+25.1%
IFRS earnings per share2	10.5p	8.8p
EPRA cost ratio	9.3%	11.9%	-260 bps
Dividends
Dividend per share5	6.2p	5.9p	+5.1%
Dividends paid5	£82.4m	£73.3m	+12.4%
Dividend cover1	101%	100%
Balance sheet and operational metrics	31 December	31 December
2021	2020	Change
Adjusted NTA (NAV) per share1,3	116.7p	112.9p	+3.4%
IFRS NTA per share1,3	112.5p	107.5p	+4.7%
Total adjusted NTA return1	8.9%	10.1%	-120 bps
Property portfolio
Investment portfolio valuation4	£2.796bn	£2.576bn	+4.1%
Net initial yield ("NIY")1	4.64%	4.81%
Total property return	9.5%	7.4%	+210 bps
Contracted rent roll (annualised)1,7	£140.7m	£135.2m	+4.1%
Weighted average unexpired lease term ("WAULT")1	11.6 years	12.1 years
Occupancy	99.7%	99.6%
Rent-roll funded by government bodies1	90%	90%
Debt
Average cost of debt	2.9%	3.5%	-60 bps
Loan to value ratio1	42.9%	41.0%
Weighted average debt maturity - drawn facilities8	8.2 years	6.5 years	+1.7 years
Total undrawn loan facilities and cash6,8	£321.2m	£361.5m
Primary Health Properties PLC			1
Preliminary results for the year ended 31 December 2021

1. Definitions for net rental income, adjusted earnings, adjusted earnings per share, earnings per share ("EPS"), dividend cover, loan to value ("LTV"), net tangible assets ("NTA"), rent roll, NIY, WAULT, Total Adjusted NTA return and net asset value ("NAV") are set out in the Glossary of Terms.
2. See note 9, earnings per share, to the financial statements.
3. See note 9, net asset value per share, to the financial statements. Adjusted net tangible assets, EPRA net tangible assets ("NTA"), EPRA net disposal value ("NDV") and EPRA net reinstatement value ("NRV") are considered to be alternative performance measures. The Group has determined that adjusted net tangible assets is the most relevant measure.
4. Percentage valuation movement during the year based on the difference between opening and closing valuations of properties after allowing for acquisition costs and capital expenditure.
5. See note 10, dividends, to the financial statements.
6. After deducting the remaining cost to complete contracted acquisitions, properties under development and asset management projects.
7. Percentage contracted rent roll increase during the year is based on the annualised uplift achieved from all completed rent reviews and asset management projects.
8. Pro-formaincluding debt facilities secured post year-end.

DELIVERING EARNINGS AND DIVIDEND GROWTH

• Adjusted earnings per share increased by 6.9% to 6.2p (2020: 5.8p)
• Contracted annualised rent roll increased by 4.1% to £140.7 million (31 December 2020: £135.2 million)
• Additional annualised rental income on a like-for-like basis of £2.4 million or 1.8% from rent reviews and asset management projects (FY 2020: £2.0 million or 1.6%; FY 2019: £1.9 million or 1.5%)
• Successful refinancing of a number of legacy loan facilities with Aviva Investors reducing average cost of debt to 2.9% (31 December 2020: 3.5%) resulting in annualised interest cost savings of approximately £5.0 million
• Successfully completed the internalisation of the Group's management structure which resulted in annual cost savings of approximately £4.0 million, equivalent to 0.3 pence per share
• EPRA cost ratio reduced to 9.3% (FY 2020: 11.9%) the lowest in the UK REIT sector
• Quarterly dividends totalling 6.2 pence per share distributed in the year, a 5.1% increase over 2020 (5.9 pence per share)
• First quarterly dividend of 1.625 pence per share declared, payable on 25 February 2022, equivalent to 6.5 pence on an annualised basis and a 4.8% increase over the 2021 dividend per share, marking the Company's 26th consecutive year of dividend growth

DELIVERING NET ASSET VALUE GROWTH

• Adjusted Net Tangible Assets ("NTA") per share increased by 3.4% to 116.7 pence (31 December 2020: 112.9 pence)
• Property portfolio at 31 December 2021 valued at £2.8 billion (31 December 2020: £2.6 billion) reflecting a net
  initial yield of 4.64% (31 December 2020: 4.81%)
• Revaluation surplus, including profit on sales, was generated in the year of £110.5 million (31 December 2020: £51.4 million), representing growth of 4.1% (2020: 2.0%)
• Strong pipeline of targeted acquisitions, developments and asset management projects with a value of approximately £337 million in the UK and £107 million (€127 million) in Ireland of which £72 million and £80 million (€95 million) is in legal due diligence in both countries
• Portfolio in Ireland now comprises 20 assets, valued at £213 million (€253 million)
• The portfolio's metrics continue to reflect the secure, long-term and predictable income stream with occupancy at 99.7% (31 December 2020: 99.6%) and a WAULT of 11.6 years (31 December 2020: 12.1 years)
• Strong progression of asset management projects with 30 completed in the year and a further nine currently on- site, investing £15.0 million, creating additional rental income of £0.4 million per annum and extending the weighted average unexpired lease term (WAULT) back to over 20 years

Primary Health Properties PLC	2
Preliminary results for the year ended 31 December 2021

DELIVERING FINANCIAL MANAGEMENT

• LTV ratio 42.9% (31 December 2020: 41.0%), towards the lower end of the Group's targeted range of between 40% to 50%
• Weighted average debt maturity extended to 8.2 years (31 December 2020: 6.5 years)
• Post period end €75 million private placement loan note issued for a 12-year term at a fixed rate of 1.64% to finance continued expansion in Ireland
• Refinanced a number of legacy loan facilities with Aviva Investors, with a new sustainability linked £200 million facility for a 15-year term at a fixed rate of 2.52% and renewed existing facilities with NatWest and Santander
• Significant liquidity headroom with cash and collateralised undrawn loan facilities totalling £321.2 million (2020: £361.5 million) after capital commitments

DELIVERING STRONG TOTAL RETURNS

	Year ended	Year ended
	31 December 2021	31 December 2020
Increase in Adjusted NTA plus dividends paid	8.9%	10.1%
Income return	5.2%	5.2%
Capital return	4.3%	2.2%
Total property return1	9.5%	7.4%

1 The definition for total property return is set out in the Glossary of Terms.

DELIVERING RESPONSIBLE BUSINESS AND ESG

• Net Zero Carbon ("NZC") Framework published with the five key steps the Group is taking to achieve the ambitious target of being NZC by 2030 for all of PHP's operational, development and asset management activities
• Construction of PHP's first two NZC developments in Lincolnshire and West Sussex about to commence in the first quarter of 2022
• All developments completed in the year achieved BREEAM rating of Excellent or Very Good and all asset management projects completed met EPC target of B or above
• £300 million of sustainability linked loan facilities with Aviva and NatWest raised in the year
• £0.2 million distributed from the Community Impact Program to charities and groups focused on social prescribing and wellbeing linked to the patients and communities served by PHP's properties

Primary Health Properties PLC	3
Preliminary results for the year ended 31 December 2021

Presentation and webcast:

A virtual briefing for analysts will be held today, 16 February 2022 at 9.30am, via a live webcast and conference call facility.

The presentation will be accessible via live video webcast and a live conference call facility:

Webcast:https://webcasting.brrmedia.co.uk/broadcast/61e13c18e3976b4d1b2d6e85

Tel: [phone]

Participant PIN code: 3760982

If you would like to join the briefing, please contact Buchanan via [e-mail] confirm your place.

For further information contact:

Harry Hyman	Richard Howell
Chief Executive Officer	Chief Financial Officer
Primary Health Properties PLC	Primary Health Properties PLC
T: [phone]	T: [phone]
E: [e-mail]	E: [e-mail]

David Rydell/Steph Whitmore/Tilly Abraham/Verity Parker

Buchanan

1. [phone]

1. [e-mail]

Primary Health Properties PLC	4
Preliminary results for the year ended 31 December 2021

Chairman's statement

Despite the uncertainty and volatility in the economic environment over the last two years we have continued to deliver a strong and robust operational and financial performance and the Group's portfolio has continued to demonstrate strong resilience throughout this period. The security and longevity of our income are important drivers of our predictable income stream and underpin our progressive dividend policy and we have now entered our 26th year of continued dividend growth.

Thankfully, the speed and effectiveness of the COVID-19 vaccine rollout has allowed us to return to some semblance of normality after the latest lockdown and we must offer our heartfelt thanks to the brilliant people who devised, mass produced and administered vast numbers of vaccines and boosters.

Since the start of the COVID-19 pandemic, we have seen a significant increase in the digitalisation and adaptation of triage in both the UK and Ireland with many initial consultations being carried out online. However, we have not seen and do not expect to see, any reduction in space requirements across our portfolio. This is because of the increasing burden being placed on healthcare systems in both the UK and Ireland as a consequence of the ongoing COVID-19 pandemic, along with the long-term demographic trends of populations that are growing, ageing and suffering from more instances of chronic illness. Many services are now expected to move away from hospitals and into primary care facilities which will undoubtedly require substantial investment in the future to enable non-urgent and periphery procedures to be dealt with in such facilities.

PHP has continued to actively work with the NHS in the UK, HSE in Ireland, and its GP partners in both markets to help them better utilise the Group's properties for deployment in the ongoing global health crisis. Many of our primary care facilities and occupiers have been and will be required to deliver COVID-19 vaccines and boosters for many years to come and to deal with the backlog of procedures missed over the last two years. We continue to maintain close relationships with our key stakeholders and GP partners to ensure we are best placed to help the NHS, HSE, and in particular primary care, evolve and deal with the pressures placed on them as the 'new normal' is established.

We recognise that the success of the Group depends on our people and I would again like to warmly thank the Board and all of our employees for their continued commitment, dedication and professionalism in ongoing difficult circumstances.

Acquisition of Nexus and management internalisation

On 5 January 2021, the Group successfully completed the internalisation of its management structure with shareholders representing 99.95% of the votes cast voting in favour of the internalisation which resulted in annual cost savings of approximately £4.0 million, equivalent to 0.3 pence per share, compared to the position if the business were still externally managed. The assumption of Nexus's existing management and overhead costs has resulted in lower ongoing administrative costs to the Group and the EPRA cost ratio has fallen further to 9.3% (2020: 11.9%) in the year and is now the lowest in the UK REIT sector by some margin.

Overview of results

PHP's recurring Adjusted earnings increased by £10.1 million or 13.8% to £83.2m (2020: £73.1 million) and the increase in the year was driven by cost savings arising from the internalisation of the management

Primary Health Properties PLC	5
Preliminary results for the year ended 31 December 2021