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Primary Health Properties PLC
Annual Report 2021
Primary Health Properties PLC Annual Report 2021
INVESTING
FOR THE
FUTURE
Strategic report
1 Highlights
2 At a glance
4 Our portfolio
6 Investment case
8 Chairman’s statement
12 Business model
14 Our strategy
16 Key performance indicators
18 Business review
23 Financial review
28 EPRA performance measures
30 Responsible business
50 Risk management and
principal risks
56 Viability statement
Governance
58 Chairman’s introduction
togovernance
60 Board of Directors
64 Senior leadership team
66 Corporate governance report
74 Audit Committee report
79 Nomination Committee
report
81 Remuneration Committee
report
86 Directors’ remuneration
report
100 Directors’ report
104 Directors’ responsibility
statement
Financial statements
105 Independent auditor’s report
114 Group statement of
comprehensive income
115 Group balance sheet
116 Group cash flow statement
117 Group statement of changes
in equity
118 Notes to the financial
statements
146 Company balance sheet
147 Company statement of
changes in equity
148 Notes to the Company
financial statements
Further information
156 Shareholder information
157 Advisers and bankers
158 Glossary of terms
LEADING INVESTOR
INFLEXIBLE, MODERN
PRIMARY HEALTHCARE
ACCOMMODATION
ACROSS THE UK
ANDIRELAND
Discover more at phpgroup.co.uk
Read more about our
responsible business report
at phpgroup.co.uk
Primary Health Properties PLC
Responsible Business Report 2021
Primary Health Properties PLC Annual Report 2021
INVESTING
FOR THE
FUTURE
STRATEGIC REPORT
1Primary Health Properties PLC Annual Report 2021
HIGHLIGHTS
* The IFRS profit after tax per share as set out in the summarised results table on page 24.
∆ Alternative performance measures (“APMs”): Measures with this symbol ∆ are APMs defined in the Glossary section on pages 158 to 160, and presented throughout
this Annual Report. All measures reported on a continuing operations and 52-week comparable basis.
2021 £140.1m
2020 £112.0m
2018 £74.3m
2017 £91.9m
(£71.3m) 2019
IFRS profit/(loss) after tax
£140.1m
+25.1%
2021 10.5p
2020 8.8p
2018 10.5p
2017 15.3p
(6.5p) 2019
IFRS profit/(loss) after
taxpershare*
10.5p
+19.3%
2021 116.7p
2020 112.9p
2018 105.1p
2019 107.9p
2017 100.7p
Adjusted NTA per share
∆
116.7p
+3.4%
2021 6.2p
2020 5.8p
2018 5.2p
2019 5.5p
2017 5.2p
Adjusted earnings per share
∆
6.2p
+6.9%
2021 £136.7m
2020 £131.2m
2018 £76.4m
2019 £115.7m
2017 £71.3m
Net rental income
∆
£136.7m
+4.2%
2021 £2.8bn
2020 £2.6bn
2018 £1.5bn
2019 £2.4bn
2017 £1.4bn
Total property portfolio
£2.8bn
+4.1%
2021 £83.2m
2020 £73.1m
2018 £36.8m
2017 £31.0m
2019 £59.7m
Adjusted earnings
∆
£83.2m
+13.8%
Dividend per share
6.2p
+5.1%
2021 6.2p
2020 5.9p
2018 5.4p
2019 5.6p
2017 5.25p
2021 112.5p
2020 107.5p
2018 102.5p
2019 101.0p
2017 94.7p
IFRS NTA per share
112.5p
+4.7%
2021 2.9%
2020 3.5%
2018 3.9%
2019 3.5%
2017 4.1%
Average cost of debt
2.9%
-60bp
2021 9.5%
2020 7.4%
2017 10.8%
2019 7.7%
2018 8.0%
Total property return
∆
9.5%
+210bp
2021 8.9%
2020 10.1%
2017 16.4%
2019 8.0%
2018 9.7%
Total NTA return
∆
8.9%
-120bp
2 Primary Health Properties PLC Annual Report 2021
AT A GLANCE
WHO WE ARE
We invest in flexible, modern properties for local primary healthcare, let
on long term leases with a property portfolio of 521 assets in the UK and
Ireland valued at £2.8 billion.
Property portfolio
521
(2020: 513)
Property value
£2.8bn
(2020: £2.6bn)
STRATEGIC REPORT
38
89
42
32
86
52
121
41
20
3Primary Health Properties PLC Annual Report 2021
COMPLETED DEVELOPMENTS
The Group completed four forward funded developments
intheyear, all located in the UK, with a development cost
of £20.1 million.
DEVELOPMENTS ONSITE
The Group currently has two forward funded developments
on site in Ireland with a developmentcost
of£25.7 million.
Development cost
£20.1m
Development cost
£25.7m
GEOGRAPHICAL SPREAD BYVALUATION
Locations Value % Value
Midlands and
EastAnglia
£619m 22%
North East, Yorkshire
and Humberside
£419m 15%
North West
£391m 13%
South East
£375m 13%
Wales
£216m 8%
Scotland
£215m 8%
Republic of Ireland
£213m 8%
London
£211m 8%
South West
£132m 5%
£2,791m 100%
4 Primary Health Properties PLC Annual Report 2021
OUR PORTFOLIO
A GROWING PORTFOLIO
The majority of our healthcare facilities are GPsurgeries,
with other properties let to NHS organisations, HSE in Ireland,
pharmacies and dentists. PHP endeavours to provide high
quality buildings for its tenants and high quality assets for
itsshareholders.
KEY FACTORS AFFECTING OUR MARKET
PHP’s mission is to support the NHS, HSE and other healthcare
providers, by being a leading investor in modern, primary care,
premises. Never has this been more important as the NHS seeks
to work through the backlog of procedures created by the COVID-19
pandemic and as the Government delivers its Levelling Up agenda.
Demographics
As part of the ageing demographics, our asset management and
investment teams actively engage with tenants to further enhance
assets in response to the NHS Long Term Plan.
Ageing stock
The majority of existing primary care assets in theUK and Ireland are
notfit for modern healthcare, requiring substantial investment.
Evolution of healthsystem
Primary care will continue to take on non-urgent and periphery
procedures in order to alleviate pressures on the NHS.
Ireland
The Irish Department ofHealth identified over 300 locations that
require dedicated primary care centres, compared with less than
100existingcentres.
FOUNDATIONS FOR FUTURE GROWTH
Total funding requirement of c. £444 million over the next 2-3 years to fund a mix of future acquisition pipeline, developments and
asset management projects.
Further medium term pipeline opportunities
Estimated capital expenditure
onprojects over next 3 years of
c.£67 million
Funding requirement for UK and
Ireland of £377 million (of which
£152million isin legals)
Pipeline
Asset management
projects
Pipeline of active
opportunities,
include:
Active
management
of existing
assets to create
additional value
Acquisition/Development cost Number UK Ireland
Standing investments 11 £87m £18m
Direct developments 21 £163m —
Forward funding developments 12 £20m £89m
Total £270m £107m
Property Number Asset management
cost
Board approved 24 £17m
Advanced pipeline 88 £50m
Total 100+ £67m
STRATEGIC REPORT
5Primary Health Properties PLC Annual Report 2021
PORTFOLIO DISTRIBUTION BY CAPITAL
VALUEANALYSIS*
2021 2020
* Excluding land and residential units valued at £1.5 million (2020: £1.5 million).
59 £893m
48 £709m
£10m+
131 £910m
124 £856m
£5–10m
155 £615m
154 £602m
£3–5m
171 £369m
182 £398m
£1–3m
BUSINESS ACTIVITY IN 2021
Investment activity
£86.6m
Across 9 properties
Like-for-like rental growth
£2.4m or 1.8% growth
Additional annualised rental incomefromrentreviews
andasset management projects completed in theyear
Asset management projects
£15.0m
Invested in 39 projects either completed or on site
90%
of income funded by government bodies (GPs, NHS orHSE)
99.7%
Occupancy rate
42.9%
Loan to value (“LTV”) ratio at the lower end of target rangeof
40% to 50%
GPs 64%
NHS/HSE/Govt bodies 26%
Pharmacy 8%
Other 2%
COVENANT ANALYSIS
ANALYSIS OF LEASES UNEXPIRED – WAULT
11.6YEARS
<3 years 6%
3-5 years 7%
5-10 years 35%
10-15 years 28%
15-20 years 12%
20+ years 12%
NET ZERO CARBON (“NZC”) DIRECT
DEVELOPMENTS
PHP’s first two NZC developments scheduled to commence
construction in the first quarter of 2022, in Lincolnshire and
West Sussex.
£10.7m development cost
£0–1m
5 £3m
5 £5m
6 Primary Health Properties PLC Annual Report 2021
INVESTMENT CASE
INVESTING IN PHP
PHP is a strong business creating progressive*
returns forshareholders by investing in healthcare
real estate letonlong term leases, backed by
asecure underlying covenantwhere the majority
ofrental income is funded directlyor indirectly
byagovernment body.
LOW RISK, LONG TERM
ANDNON-CYCLICAL MARKET
• Development opportunities emerging intheUK
• Opportunities in Ireland, pricedattractively
• Majority of rents in both jurisdictions funded
bygovernment for long leaseterms
• WAULT of 11.6 years (2020: 12.1 years)
Rent roll funded by governmentbodies
90%
(2020: 90%)
* Progressive is where it is expected to continue to rise each year,
asdefined in the Glossary section on pages 158 to 160.
STRATEGIC REPORT
7Primary Health Properties PLC Annual Report 2021
STRONG, HIGH QUALITY AND GROWING
CASH FLOW
• Effectively upward-only or indexed rentreviews
• Positiverental growthoutlook
• Positive yield gap between acquisition yield and
fundingcosts
• Efficient cost structure enhancesearnings
STABLE, INCREASING RETURNS
• Growing shareholder returnthroughdividend
andcapitalappreciation
• Dividend fully covered by earnings
• Strong yield characteristics andlowvolatility
• 25 consecutive years ofdividendgrowth
EFFICIENT FINANCIAL MANAGEMENT
• EPRA cost ratio now the lowest in the sector
• Internalisation of Group’s management structure
in2021, saving approximately £4.0 million p.a.
• Refinancing in 2021, saving approximately £5.0 million
of interest p.a.
• Low, average marginal cost of debt of 1.8%
SECTOR DEMAND FACTORS DICTATE
CONTINUED DEVELOPMENT
OFHEALTHCARE PREMISES
• Demand from population growth, ageingand suffering
from more instances of chronic illness
• Unwavering political support in theUKand Ireland and
promotion ofintegrated primary care and NHS Long
Term Plans to effectively manage patient needs
• COVID-19 increasing the burden being placed on
healthcare systems
Rental growth
+£2.4m or 1.8%
(2020: +£2.0m or 1.6%)
EPRA cost ratio
9.3%
(2020: 11.9%)
Dividend per share
6.2p
(2020: 5.9p)
PHP’s portfolio serves
6.0m patients
or 8.9% of UK population
8 Primary Health Properties PLC Annual Report 2021
CHAIRMAN’S STATEMENT
A CLEAR FOCUS FOR
THE YEAR AHEAD
“ 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.”
Steven Owen
Independent Non-executive Chairman
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.
STRATEGIC REPORT
9Primary Health Properties PLC Annual Report 2021
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 structure, the refinancing of a number of
legacy loans with Aviva together with rental growth from our
investment, rent review and asset management activities.
A revaluation surplus and profit on sales of £110.5 million
(2020: £51.4 million) was generated in the year from the
portfolio, equivalent to 8.3 pence per share. The valuation
surplus was driven by net initial yield (“NIY”) compression in the
UK together with rental growth from rent reviews and asset
management projects.
The acquisition of Nexus and the refinancing of a number
of legacy loans with Aviva resulted in exceptional costs of
£37.0 million and £24.6 million respectively being expensed
in the year.
A gain on the fair value of interest rate derivatives and convertible
bonds together with the amortisation of the fair value adjustment
on the MedicX fixed rate debt at acquisition of £9.5 million
(2020: loss of £12.1 million) resulted in a profit before tax as
reported under IFRS of £141.6 million (2020: £112.4 million).
The Group has continued to selectively grow its portfolio in
the year, adding nine assets for £86.6 million and selling one
for £2.3 million. Rent reviews and asset management projects
completed in the year, or currently on-site, added £2.4 million
or 1.8% (2020: £2.0 million or 1.6%) to the contracted rent.
The Group’s balance sheet remains robust with a loan to value
ratio of 42.9% (2020: 41.0%), which is at the lower end of the
targeted range of 40% to 50%, and has significant liquidity
headroom with cash and collateralised undrawn loan facilities
totalling £321.2 million (2020: £361.5 million).
Continued investment in UK and Ireland
+£86.6 million
Annualised cost savings achieved in the year
-£9.0 million
Adjusted earnings growth
+13.8%
Dividend per share growth
+5.1%
10 Primary Health Properties PLC Annual Report 2021
CHAIRMAN’S STATEMENT CONTINUED
Environmental, Social and Governance (“ESG”)
PHP has a strong commitment to responsible business and
ESG matters which are at the forefront of the Board’s and
our various stakeholders’ considerations and the Group
has committed to transitioning to net zero carbon (“NZC”).
We are about to start construction of PHP’s first two NZC
developments in the first quarter of 2022 and have published
with these results, for the first time, a NZC Framework with the
five key steps we are taking to achieve an ambitious target of
being NZC by 2030 for all of PHP’s operational, development
and asset management activities and to help our occupiers
achieve NZC by 2040, five years ahead of the NHS’s target
of becoming the world’s first net zero carbon national health
system by 2045 and 10 years ahead of the UK and Irish
Governments’ targets of 2050. Further details on our approach
to responsible business can be found in the Annual Report
and website.
Board changes
In December 2021, following a review of the composition and
diversity of the Board, it was announced that Ivonne Cantú
would be appointed as an independent Non-executive director
of the Company with effect from 1 January 2022.
The Company also announced that Peter Cole, Non-executive
director and Chair of the Remuneration Committee, will
not stand for re-election at the Company’s Annual General
Meeting (“AGM”) scheduled for April 2022 and will accordingly
retire from the Board at that time. It is intended that Ivonne
Cantú will take over as Chair of the Remuneration Committee
following the AGM.
The Board is grateful to Peter for his commitment and
dedication to the Company and for chairing the Remuneration
Committee, particularly during the process of internalising the
management in 2020 and the transition period in 2021.
Dividends
The Company distributed a total of 6.2 pence per share in
2021, an increase of 5.1% over 2020 of 5.9 pence per share.
The total value of dividends distributed in the year increased
by 12.4% to £82.4 million (2020: £73.3 million), which were
covered by Adjusted earnings. Dividends totalling £8.0 million
were satisfied through the issuance of shares via the scrip
dividend scheme.
A dividend of 1.625 pence per share was declared on 6 January
2022, equivalent to 6.5 pence on an annualised basis, which
represents an increase of 4.8% over the dividend distributed
per share in 2021. The dividend will be paid to shareholders
on 25 February 2022 who were on the register at the close
of business on 13 January 2022. The dividend will comprise
entirely of a normal dividend of 1.625 pence.
The Company intends to maintain its strategy of paying
a progressive dividend, which the Company pays in equal
quarterly instalments, that is covered by underlying earnings
in each financial year. Further dividend payments are planned
to be made on a quarterly basis in May, August and November
2022 which are expected to comprise a mixture of both
property income distribution and normal dividend.
Total shareholder returns
The Company’s share price started the year at 152.8 pence
per share and closed on 31 December 2021 at 151.4 pence, a
decrease of 0.9%. Including dividends, those shareholders who
held the Company’s shares throughout the year achieved a
Total Shareholder Return of 3.1% (2020: -0.8%).
Over the three years since our merger with MedicX in 2019
we have delivered a total shareholder return of 50.2%. This
compares to the total return delivered by UK real estate
equities (FTSE EPRA Nareit UK Index) of 28.5% and the wider
UK equity sector (FTSE All-Share Index) of 13.2% over the
same period.
Read more about our
responsible business report
at phpgroup.co.uk
STRATEGIC REPORT
11Primary Health Properties PLC Annual Report 2021
Market update and outlook
PHP’s mission is to support the NHS, HSE and other healthcare
providers, by being a leading investor in modern, primary care
premises. Never has this been more important as the NHS
seeks to work through the backlog of procedures created
by the COVID-19 pandemic and the Government delivers
its Levelling Up agenda. In the longer term, the ageing
demographic of western populations means that health
services will also be called upon to address more ongoing,
complex, chronic co-morbidities. PHP stands ready to play its
part in delivering the real estate infrastructure required to meet
this need in the community.
We will continue to actively engage with government bodies,
the NHS, HSE in Ireland and other key stakeholders to
establish, enact (where we can), support and help alleviate
increased pressures and burdens currently being placed on
healthcare networks.
In July 2021, the UK Government published a draft Health and
Social Care Bill setting out a number of reforms in order to
implement the commitments of the NHS England Long Term
Plan. This included the introduction of regional Integrated
Care Boards and Partnerships tasked with co-ordinating NHS
partners with local government services and budgets such as
social care and mental health, in a geographic area, for the first
time; the idea being that services are then pushed to the most
efficient, cost-effective part of the system (whether primary
care, hospital or care home) for the best patient outcomes.
We welcome these reforms and are hopeful they will lead
to better outcomes for patients and to further development
opportunities in primary care in the medium to long-term.
Despite the continued volatility in the economic and political
environment and the prolonged era of low interest rates, there
continues to be an unrelenting search for secure, long and
reliable income. Primary healthcare, with its strong fundamental
characteristics and government-backed income, has been a
significant beneficiary of this trend. The UK and Irish markets
for primary healthcare property investment continues to be
highly competitive with strong yields and prices being paid by
investors for assets in the sector throughout 2021.
We believe that our activities benefit not only our shareholders
but also our wider stakeholders, including our occupiers,
patients, the NHS and HSE, suppliers, lenders and the wider
communities in both the UK and Ireland.
We look forward to 2022 with confidence in our ability to
create further stakeholder value.
Steven Owen
Chairman
15 February 2022
Eastbourne, East Sussex
The property provides modern facilities for three merged GP
practices delivering primary care and several ancillary services
for a patient list of over 18,000. The building achieved a BREEAM
‘Excellent’ rating, comprising an area of 1,976m
2
fully let for 25
years to the GP practice.
Read more about our strategy on pages 14 and 15.
Strong tenant covenant
– 90% of rent roll paid
directly/indirectly by
Government bodies
31% of portfolio on
fixed or indexed
uplifts. 69% OMV
review, typically
every threeyears
12 Primary Health Properties PLC Annual Report 2021
BUSINESS MODEL
CREATING LONG TERM
SUSTAINABLE VALUE
OUR KEY STRENGTHS KEY CHARACTERISTICS OF THE PORTFOLIO
Prudent risk management:
PHP aims to operate in a relatively
low risk environment togenerate
progressive returns to shareholders
through investment in the primary
healthcare real estate sector,
whichis less cyclical than other
realestate sectors.
Long term focus:
By providing additional
spacefacilitating the provision
ofadditional services or extending
the term of underlying leases, PHP
can increase and lengthen its income
streams andcreate theopportunity
to add capitalvalue.
Experienced and innovative
management:
PHP’s portfolio is managed
byanexperienced team
withinanefficient management
structure, where operating costs
aretightly controlled.
Appropriate capital
structure:
PHP funds its portfolio with a
diversified mix of equityand debt,
in order tooptimise risk-adjusted
returns to shareholders.
Occupancy
rate of99.7%
Weighted average
unexpired lease length
of 11.6 years
UK leases have
effectively upward only
rent reviews
Irish leases linked
toIrish CPI
highly visible cash
flows andstable
valuation yields
STRATEGIC REPORT
Read more about our strategy onpages 14 and 15
Investors
Over the three years since our merger with MedicX in 2019 we
have delivered a total shareholder return of 50.2%.
Values
We employ sustainable design to develop, refurbish and upgrade
our buildings to modern medical and environmental standards.
NHS/Primary healthcare
Our flexible, modern properties benefit not only our shareholders
but also our occupiers, patients, the NHS and HSE, suppliers and
the wider communities in both the UK and Ireland.
Patients
PHP’s portfolio serves 6.0 million patients, which is expected to
further increase as primary healthcare demands increase as a
result of the backlog caused by the COVID-19 pandemic, and with
the ageing and growing population.
Communities
We support initiatives that further the health, wellbeing and
education of our local communities.
People
Conducting our business with integrity and investing in
human capital. Full Time Employees (“FTEs”) of 62 employed,
investing and supporting 13 employees in their professional
development studies.
Social impact
PHP aims to provide modern premises located within residential
communities toenable better access to an increasing rangeofservices
being delivered locally with greater accessibility than fromhospitals.
Environmental impact
Environmental impact is an integral consideration in the
development, design and construction of new PHP properties.
Developing new premises, PHP and its development partners
seek toachieve thehighest BREEAMstandards in the UKor
nZEB (nearly zero energy buildings) inIreland, as well as highest
energy ratings.
100%
all developments completed in the year to BREEAM rating of Excellent or Very
Good and all asset management projects completed met EPC 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 Programme to charities and groups
focused on social prescribing and wellbeing linked to the patients and
communities served by PHP’s properties
Healthcare targets
The modern, flexible premises that PHP provides facilitate the
provision of more wide ranging and integrated care services
helping to realise the NHS target of 24/7 access to GP services
and the HSE’s expansion of primary care infrastructure.
13Primary Health Properties PLC Annual Report 2021
WIDER OUTCOMES
OUR STRATEGY
1
GROW
The Group looks to selectively
grow its property portfolio
by funding and acquiring
high quality developments,
newly developed facilities and
investing in already completed,
let properties.
3
FUND
The Group funds its portfolio
with a diversified mix of equity
and debt on a secured and
unsecured basis, in order to
optimise risk-adjusted returns
toshareholders.
2
MANAGE
PHP manages its portfolio
effectively andefficiently,
managing the risks faced
by its business inorder
to achieve its strategic
objectives.
4
DELIVER
Positive yield gap between
acquisition andfunding with
continued improvements in
rental growth.
We invest in flexible, modern properties for local primary healthcare.
Theoverall objective of the Group is to create progressive returns
to shareholders through a combination of earnings growth and
capital appreciation. To achieve this, PHP has invested in healthcare
real estate let on long term leases, backed by a secure underlying
covenant where the majority of rental income is funded directly
orindirectly by a government body.
14 Primary Health Properties PLC Annual Report 2021
OUR STRATEGY
DELIVERING OUR
STRATEGIC PRIORITIES
1
GROW
The Group looks to selectively grow its property portfolio
by funding and acquiring high quality developments, newly
developed facilities and investing in already completed, let
healthcare real estate.
Activity in 2021
• Selectively acquired nine standing assets in the year
investing £86.6 million, with £11.7 million in Ireland
• Portfolio increased to 521, including 20 in Ireland
• Total property return in the year of 9.5%
• Acquired in-house development expertise following
theinternalisation of management structure
Looking forward
• Sector fundamentals of long leases and government
backed income continue to drive demand in sector
• Strong pipeline of opportunities across the UK and
Ireland totalling £444 million, with £152 million in legals
• Development pipeline increased by £83 million to
£163million since internalisation, with two carbon
neutral developments scheduled to commence on sitein
the first quarter of 2022
Link to KPIs
2
MANAGE
PHP manages its portfolio effectively andefficiently,
managing the risks faced by its business inorder to
achieve its strategic objectives.
Activity in 2021
• £2.4 million, or 1.8% additional income from rent reviews
and asset management projects
• 39 asset management projects completed or on
site in the year, investing £15 million and generating
£0.4million of additional income. All asset management
projects completed met EPC target of B or above
• EPRA cost ratio reduced to 9.3% reflecting immediate
benefit of the internalisation
Looking forward
• Strong pipeline of over 100 potential asset management
projects beingprogressed
• Continued discussions with occupiers to discuss
requirements and identify new opportunities
Link to KPIs
A C D A D E F
STRATEGIC REPORT
15Primary Health Properties PLC Annual Report 2021
3
FUND
The Group funds its portfolio with a diversified mix of
equity and debt on a secured and unsecured basis, in order
to optimise risk-adjusted returns toshareholders.
Activity in 2021
• Successful refinancing of a number of legacy loan
facilities with Aviva Investors reducing average cost
of debt to 2.9% and saving annualised interest of
£5.0 million
• £100 million sustainability linked loan facility renewed
with NatWest
• Significant liquidity headroom with cash and collateralised
undrawn loan facilities totalling £321.2million (2020:
£361.5 million) after capital commitments
Looking forward
• £50 million three-year revolving credit facility renewed
with Santander in January 2022
• €75 million private placement for twelve years at an all
in rate of 1.64% completed in February 2022
• Constantly reviewing debt portfolio for any possible
effective cost reductions
Link to KPIs
4
DELIVER
Positive yield gap between acquisition andfunding with
continued improvements in rental growth, delivering
progressive shareholder returns.
Activity in 2021
• Adjusted earnings per share 6.2 pence increased
by6.9% (2020:5.8 pence)
• Dividend per share increased by 5.1%to 6.2 pence
• Total Adjusted NTA return of 8.9%
• £5.0 million per annum cost saving from refinancing
legacy debt and new interest rate swaps
• Internalisation of management structure saving
£4.0million per annum, equivalent to 0.3 pence per share
Looking forward
• New loan facilities and equity raise provide significant
firepower to secure new investment opportunities
• 100% of the Group’s drawn debtis fixed or hedged
protecting underlying earnings from potential interest
raterises that may result from recent and future
economicandpotential change
Link to KPIs
A B F G H A B D F H
Adjusted earnings
per share
∆
6.2p
+6.9%
Rationale
Adjusted earnings per shareisa
key measure of the Group’s
operational performance as it
excludes all elements not relevant
to the underlying net income
performance of the properties.
Performance
Adjusted earnings per share
increased in the year reflecting
the lower cost of finance, standing
investments and rental growth.
Total property
portfolio
£2.8bn
+4.1%
Rationale
The Group looks to selectively
grow itsportfolio in order to
secure the yield gap between
income returns and the cost
offunds.
Performance
The assets acquired in 2021 add
£4.1million to annual contracted
rent roll and are accretive
toearnings.
Total property
return
∆
9.5%
+210bp
Rationale
The Group invests in properties
thatprovide the opportunity
forincreased returns through
acombination of rental and
capitalgrowth.
Performance
Strong earnings and capital
growth inthe year delivered a
total property return of 9.5% split
5.2% income growth and 4.3%
capital growth.
Dividend cover
∆
101%
+100bp
Rationale
The Group looks to maintain
aprogressive dividend policy
whichitaims to cover from
itsoperational performance.
Dividend cover looks at the
proportion of dividends paid
inthe year that are funded
byAdjusted earnings.
Performance
Dividends paid in 2021 were
covered by Adjusted earnings
andwe intend to maintain a
strategy of paying a progressive
dividend that is covered by
earnings in each financial year.
A
C
B
D
16 Primary Health Properties PLC Annual Report 2021
KEY PERFORMANCE INDICATORS
OUR PERFORMANCE IS
MEASURED AGAINST KPIS
ACROSS EACH OF OUR
FOUR STRATEGIC PILLARS
2020 5.8p
2019 5.5p
2021 6.2p
2020 £2.6bn 2020 7.4%
2019 £2.4bn 2019 7.7%
2021 £2.8bn
2020 100%
2019 101%
2021 101%
Link to strategy
1
4
Link to strategy
2
3
Link to strategy
2
3
Link to strategy
1
4
2021 9.5%
STRATEGIC REPORT
Capital invested in
asset management
projects
£15.0m
+85%
Rationale
The Board is committed to
keepingitsassets fit for purpose
anddeveloping them to meet the
needsof the Group’s occupiers.
Performance
The Group has completed or on
site 39 asset management
projects that maintain the
longevity of the use of its
properties and generate
enhanced income and capital
growth. A strong pipeline will
continue to achieve
thisobjective.
Loan to value
∆
42.9%
+190bp
Rationale
The Board seeks to maintain
anappropriate balance between
theuse ofexternal debt facilities
and shareholder equity in order
to enhance shareholder returns
whilst managing the risks
associated with debt funding.
Performance
Additional low coupon debt and
acquisitions in the year have
resulted in theGroup’sLTV
increasing to 42.9%.
Average cost
ofdebt
2.9%
-60bp
Rationale
The combination of a range
ofmaturities and tenors of debt
iskeyto the Group achieving the
lowest blended cost of debt.
Performance
The £200 million refinancing with
Aviva, as well as various interest
rate swaps, helped reduce the
average cost of debt in the year.
Taking into account current
available debt financing, this
reduces to 2.7% assuming
fullydrawn.
EPRA cost ratio
∆
9.3%
-260bp
Rationale
The EPRA cost ratio is used
toprovide anindicator of the
efficiency of the management
ofthe Group looking attotal
administrative costs as a
proportion of net rental income.
Performance
The EPRA cost ratio reflects the
£4.0 million p.a. ofcost-saving
synergies arising from the
internalisation of management,
as well as the lower cost
offinance.
E
G
F
H
17Primary Health Properties PLC Annual Report 2021
2020 £8.1m
2020 41.0% 2020 3.5%
2020 11.9%
2019
2019 44.2% 2019 3.5%
2019 12.0%
2021 £15.0m
2021 42.9% 2021 2.9%
2021 9.3%
Link to strategy
1
3
Link to strategy
1
3
Link to strategy
2
4
Link to strategy
1
3
∆ Alternative performance measures (“APMs”): Measures with this symbol ∆ are APMs defined in the Glossary section on pages 158 to 160, and presented throughout
this Annual Report. All measures reported on a continuing operations and 52-week comparable basis.
Maximising shareholder returns
We continued to deliver progressive shareholder returns through
both earnings and valuation growth.
Read more about our strategy on pages 14 and 15
Post MedicX merger total shareholder return
+50.2%
£3.1m
18 Primary Health Properties PLC Annual Report 2021
BUSINESS REVIEW
FOUNDATIONS FOR
FUTURE GROWTH
“ 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.”
Harry Hyman
Chief Executive Officer
Investment and pipeline
During 2021, the market was characterised by a lack of
suitable product, strong pricing and a very competitive market.
However, we continued to make strong progress in the second
half of the year selectively acquiring nine assets in 2021 for
£86.6 million (2020: 27 assets, £93.0 million) and selling one
asset for £2.3 million.
Including standing investments, direct and forward funded
developments and asset management projects, we have
continued to generate and grow a strong pipeline totalling
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.
Pipeline Number UK Ireland
Investments 11 £87m £18m (€22m)
Direct development 21 £163m —
Forward funded
development 12 £20m £89m (€105m)
Asset management 100+ £67m —
Total pipeline 143+ £337m £107m (€127m)
Net Zero Carbon (“NZC”) direct developments
The acquisition of Nexus in January 2021, enabled PHP to
acquire the development expertise of Nexus Developments
which at the time of completion had a pipeline of approximately
£80 million of direct development opportunities at varying
stages of progression.
Over the course of 2021 the Group has continued to make
good progress, increase the number of live projects and is
on schedule to commence construction of PHP’s first NZC
developments in Lincolnshire and West Sussex in the first
quarter of 2022. The two projects have an estimated capital
value of £11 million and are expected to generate a profit on
cost of approximately 11%.
In addition to the above, the Group has a significantly
advanced pipeline of £42 million across five projects of direct
developments which will be progressed over the course of
2022 together with a wider medium-term pipeline at various
stages of progress across 14 projects with an estimated capital
value of £110 million.
PHP expects that all future direct developments will be
constructed to NZC standards.
STRATEGIC REPORT
19Primary Health Properties PLC Annual Report 2021
ST. STEPHEN’S GATE MEDICAL CENTRE,
NORWICH
Internal refurbishment and creation of new additional
level3treatment suite.
Completed February 2022
Eight GP doctors serving
18,766 patients
St Stephens Gate is a purpose-built 2 storey surgery located
in Norwich city centre a mile away from the station and
easily accessible by both public and private transport with
underground parking. The Practice operates a community
based surgical service, offering procedures including carpal
tunnel, cataract and hernia repair surgery for their patients
and other NHS patients in Norfolk. The practice is a training
practice for qualified doctors training to become GPs.
PHP designed, funded and delivered the refurbishment
with the doctors, input throughout, gaining NHS and other
approvals. After securing agreement of additional rent
reimbursement and a new long lease, LED lighting was
installed together with a new energy efficient boiler to
improve the building’s energy rating. The works significantly
modernised and enhanced the clinical capacity of the
building, reconfiguring the existing surgery at both ground
and first floor levels, which provided 2 new fully compliant
consulting rooms, a new enhanced treatment suite offering
the ability to host additional services, GP virtual consulting
accommodation and improved back-office facilities for staff.
• The building’s energy rating was improved to an EPC
rating of B.
• The GP’s committed to a new 20-year lease.
• Substantial increase in capacity offering enhanced
clinical services and ability to train medical students.
Read more about our strategy on pages 14 and 15
Forward funded developments
During the year, four UK forward funded developments at
Mountain Ash, Wales, Llanbradach, Wales, Epsom, Surrey
and at Eastbourne, East Sussex were completed on time and
onbudget with a net development cost of £20.1 million.
The Group now has two forward funded developments
currently on site at Arklow, County Wicklow
(£15.1million/€18.0million) and Enniscorthy, County Wexford
(£10.6 million/€12.6million) which continue to progress
on schedule, remain on site and are due to reach practical
completion in Q1 2022 as previously indicated.
Rental growth
PHP’s sector leading metrics remain good and we continue
to focus on delivering the organic rental growth that can be
derived from our existing assets. This growth arises mainly
from rent reviews and asset management projects (extensions,
refurbishments and lease re-gears) which provide an important
opportunity to increase income, extend lease terms, avoid
obsolescence and improve the environmental performance
of our assets whilst ensuring that they continue to meet the
communities’ healthcare needs.
Rent reviews
During 2021, the Group concluded and documented 375 rent
reviews, including 74 reviews where no uplift was achieved, in
the UK with a combined rental value of £49.5 million resulting
in an uplift of £2.0 million (2020: £1.7 million) per annum or
4.0% (2020: 4.3%) which equates to 1.7% (2020: 1.8%) per
annum. The positive rate of rental growth is broadly in line with
the rate of growth experienced in the last couple of years.
In the year, an aggregate 1.5% per annum uplift (2020: 1.3%)
was achieved on 159 open market reviews. Uplifts of 2.8%
(2020: 2.3%) per annum were achieved on RPI-based reviews
and 2.7% (2020: 2.9%) per annum on fixed uplift reviews.
In addition, a further 236 open market reviews have been
agreed in principle, which will add another £1.7 million to the
contracted rent roll when concluded and represents an uplift of
1.6% per annum.
Primary Health Properties PLC Annual Report 202120
BUSINESS REVIEW CONTINUED
WATERSIDE MEDICAL CENTRE,
LEAMINGTONSPA
345 sqm
building extension
Completion due June 2022
Six GP partners serving
13,000 patients
Waterside Medical Centre is a purpose-built hub surgery
located in the centre of Leamington Spa, 0.4 miles from the
train station and is fully let to the largest GP practice in the
locality. The CCG estate strategy had identified Waterside
Medical Centre as a key priority in expanding the services
provided in a primary care setting. Taking into account the
requirements of the wider community, PHP sympathetically
designed a two-storey extension to both the front and rear
of the building, with a thorough remodelling of the existing
surgery, creating an additional 10 clinical rooms, further
administration space and a new e-consult space for patient
self-assessment. This significantly enhances the flexibility of
the building, whilst also reducing staff workload. PHP also
worked with the practice to produce a travel plan which
promotes sustainable transport to the site, including the
provision of new staff showers and cycle storage, as well as
specific car parking bays for car sharing and EV charging points.
Other measures to improve the environmental performance
of the building have been taken into account, including the
installation of roof mounted photovoltaic (“PV”) panels and
installation of LED lighting throughout. Worksbegan after
securing additional rent reimbursement and a new long lease
and are due to complete in 2022.
Highlights
• On completion of the works, the buildings energy rating
is expected to improve to an EPC rating of B and we are
targeting BREEAM “very good”.
• The GPs committed to a new 24-year lease.
• PHP facilitated expansion of the largest GP practice in
SouthLeamington and provided better patient access to
amore diverse range of services in a town centre location.
• To reduce staff workload by creating more efficient and
flexible accommodation.
Read more about our strategy 14 and 15
STRATEGIC REPORT
21Primary Health Properties PLC Annual Report 2021
Rent reviews continued
69% of our rents are reviewed on an open market basis, typically
every three years and are impacted by land and construction
inflation. Over recent years, there have been significant increases
in these costs which is expected to result in further rental
growth in the future. The balance of the PHP portfolio has either
indexed/RPI (25%) or fixed uplift (6%) based reviews which also
provide an element of certainty to future rental growth within
the portfolio. In Ireland all rents are linked to the Irish Consumer
Price Index.
At 31 December 2021 the rent at 635 tenancies, representing
£84.9 million of passing rent (2020: 669 tenancies/£90.4 million
of passing rent), was under negotiation and the large number
of outstanding reviews reflects the requirement for all awards
to be agreed with the District Valuer. A great deal of evidence
to support open market reviews comes from the completion of
historic rent reviews, delivery of new properties into the sector
and we continue to see positive momentum in the demand,
commencement and delivery for new, purpose-built premises
which are being supported by NHS initiatives to modernise the
primary care estate.
In Ireland, we concluded 12 indexed based reviews adding a
further £0.1 million (€0.1 million) equivalent to 0.8% per annum to
the contracted rent roll.
Asset management projects
30 asset management projects have been completed in the
year and a further nine are currently on site which will increase
rental income by a further £0.4 million per annum, investing
£15.0 million to enhance and extend existing assets within
PHP’s portfolio.
PHP continues to work closely with its occupiers and has a
strong pipeline of over 100 similar projects which are being
progressed to further increase rental income and extend
unexpired occupational lease terms. The asset management
pipeline will require the investment of approximately £67
million, generating an additional £1.3 million of rental income
and extending the WAULT on those premises back to an
average of over 20 years.
The Company will continue to invest capital in a range
of physical extensions or refurbishments through asset
management projects which help avoid obsolescence and are
key to maintaining the longevity and security of our income
through long-term occupier retention, increased rental income
and extended occupational lease terms, adding to both
earnings and capital values.
Sector leading portfolio metrics
The portfolio’s annualised contracted rent roll at 31 December
2021 was £140.7 million, an increase of £5.5 million or 4.1% in the
year (31 December 2020: £135.2 million) driven predominantly by
acquisitions in the UK and Ireland that contributed £4.1 million.
Organic rental growth from rent reviews and asset management
projects added a further £2.4 million although these gains were
offset slightly by foreign exchange movements since the start of
the year.
The security and longevity of our income are important drivers
of our predictable income stream and underpin our progressive
dividend policy.
Security: PHP continues to benefit from secure, long term cash
flows with 90% of its rent roll funded directly or indirectly by
the NHS in the UK or HSE in Ireland. The portfolio also benefits
from an occupancy rate of 99.7% (2020: 99.6%).
Rental collections: continue to remain robust and as at
15 February 2022 97% had been collected in both the UK
and Ireland for the first quarter of 2022. This is in-line with
collection rates experienced in both 2021 and 2020 which now
stand at over 99% for both countries. The balance of rent due
for the first quarter of 2022 is expected to be received shortly.
“ 30 asset management projects
have been completed in the year
and a further nine are currently
on site which will increase rental
income by a further £0.4 million
per annum.”
22 Primary Health Properties PLC Annual Report 2021
Sector leading portfolio metrics continued
Longevity: The portfolio’s WAULT at 31 December 2021 was 11.6 years (31 December 2020: 12.1 years). Only £8.9 million or 6.3%
of our income expires over the next three years of which c. 70% is either subject to a planned asset management initiative or
terms have been agreed to renew the lease. £73.1 million or 52.0% expires in over ten years. The table below sets out the current
lease expiry profile of our income:
Income subject to expiry £m %
< 3 years 8.9 6.3
4 – 5 years 9.3 6.6
5 – 10 years 49.4 35.1
10 – 15 years 39.2 27.9
15 – 20 years 17.3 12.3
> 20 years 16.6 11.8
Total 140.7 100.0
Valuation and returns
At 31 December 2021, the Group’s portfolio comprised 521 assets independently valued at £2.796 billion (31 December 2020:
£2.576 billion). After allowing for acquisition costs and capital expenditure on forward funded developments and asset management
projects, the portfolio generated a valuation surplus of £110.2 million or 4.1% (2020: £51.4 million or 2.0%). One asset was sold in the
year generating a profit on sale of £0.3 million. The valuation surplus was driven mainly by NIY compression in the UK for government
backed, long-dated income together with rental growth from rent reviews and asset management projects.
During the year the Group’s portfolio NIY has contracted by 17bps to 4.64% (31 December 2020: 4.81%) and the true equivalent yield
reduced to 4.74% at 31 December 2021 (31 December 2020: 4.84%).
At 31 December 2021, the portfolio in Ireland comprised 20 assets, including two assets currently under development, valued
at £213.0 million or €253.4 million (31 December 2020: 18 assets/£197.7 million or €221.1 million). The costs to complete the
developments are £9.0 million (€10.7 million) and once complete the assets in Ireland will be valued at approximately £222.1 million
(€264.2 million).
The portfolio’s average lot size has increased to £5.4 million (31 December 2020: £5.0 million) and 86.6% of the portfolio is valued
at over £3.0 million. The Group only has five assets valued at less than £1.0 million.
Number of
properties
Valuation
£m %
Average
lot size (£m)
> £10m 59 892.6 32.0 15.1
£5m – £10m 131 909.7 32.6 6.9
£3m – £5m 155 615.3 22.0 4.0
£1m – £3m 171 368.9 13.2 2.2
< £1m (including land £1.5m) 5 4.9 0.2 0.7
Total
1
521 2,791.4 100.0 5.4
1 Excludes the £4.5 million impact of IFRS 16 Leases with ground rents recognised as finance leases.
The underlying valuation uplift and profit on sales of £110.5 million, combined with the portfolio’s growing income, helped to
deliver a total property return of 9.5% in the year (2020: 7.4%).
Year ended
31 December
2021
Year ended
31 December
2020
Income return 5.2% 5.2%
Capital return 4.3% 2.2%
Total return 9.5% 7.4%
BUSINESS REVIEW CONTINUED
STRATEGIC REPORT
23Primary Health Properties PLC Annual Report 2021
FINANCIAL REVIEW
FOUNDATIONS FOR
FUTURE GROWTH
“ PHP’s Adjusted earnings
increased by £10.1 million or
13.8% to £83.2million in 2021
(2020:£73.1million).”
Richard Howell
Chief Financial Officer
PHP’s Adjusted earnings increased by £10.1 million or 13.8%
to £83.2 million in 2021 (2020: £73.1 million). The increase
reflects twelve months of cost saving synergies arising from
the acquisition of Nexus and internalisation of the management
structure at the start of the year, good organic rental growth
from rent reviews and asset management projects together
with interest cost savings arising from the reduction in the
Group’s cost of finance following the refinancing of a number
oflegacy loan facilities with Aviva.
Using the weighted average number of shares in issue in the
year the Adjusted earnings per share increased to 6.2 pence
(2020: 5.8 pence), an increase of 6.9%.
A revaluation surplus and profit on sales of £110.5 million
(2020: £51.4 million) was generated in the year from the
portfolio driven by yield compression in the UK for government
backed income together with rental growth from rent reviews
and asset management projects.
The acquisition of Nexus at the start of the year resulted in an
exceptional termination payment and impairment of goodwill
totalling £35.3 million and represents the fair value of the
consideration paid of £34.1 million plus the fair value of the net
liabilities acquired of £1.2 million. In addition, acquisition costs
totalling £1.7 million have been expensed.
The refinancing of 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% resulted in
anexceptional early termination cost of £24.6 million.
A gain on the fair value of interest rate derivatives and
convertible bonds together with the amortisation of the fair
value adjustment on the MedicX fixed rate debt at acquisition
of £9.5 million (2020: loss £12.1 million) contributed to the
profit before tax as reported under IFRS of £141.6 million
(2020:£112.4 million).
24 Primary Health Properties PLC Annual Report 2021
The financial results for the Group are summarised as follows:
Summarised results
Year ended
31 December
2021
£m
Year ended
31 December
2020
£m
Net rental income 136.7 131.2
Administrative expenses (10.5) (13.2)
Operating profit before revaluation gain and net financing costs 126.2 118.0
Net financing costs (43.0) (44.9)
Adjusted earnings 83.2 73.1
Revaluation surplus on property portfolio and profit on sales 110.5 51.4
Termination payment and impairment of goodwill on acquisition of Nexus (35.3) —
Nexus acquisition costs (1.7) —
Exceptional item – early termination cost on refinancing of Aviva debt (24.6) —
Fair value gain/(loss) on interest rate derivatives and convertible bond 1.6 (15.2)
Amortisation of MedicX debt MtM at acquisition 7.9 3.1
IFRS profit before tax 141.6 112.4
Corporation tax (0.1) (0.1)
Deferred tax provision (1.4) (0.3)
IFRS profit after tax 140.1 112.0
Net rental income receivable in the year increased by 4.2% or £5.5 million to £136.7 million (2020: £131.2 million).
Following the internalisation of the management structure, operational costs have continued to be managed closely and
effectively. Overall property and administrative costs, excluding service charge costs recoverable, have fallen by £3.1 million
or 18.6% to £13.6 million (2020: £16.7 million). The Group’s EPRA cost ratio is now the lowest in the sector at 9.3%, a decrease
against the 11.9% incurred during the 2020 financial year reflecting the cost savings of approximately £4.0 million per annum,
arising from the internalisation of the management structure partially offset by larger performance related pay, due to the strong
performance in the year, additional staff and cost inflation on administrative costs.
EPRA cost ratio
Year ended
31 December
2021
£m
Year ended
31 December
2020
£m
Gross rent less ground rent, service charge and other income 139.6 134.6
Direct property expense 8.9 7.8
Less: service charge costs recovered (5.8) (4.3)
Non-recoverable property costs 3.1 3.5
Administrative expenses 10.5 13.2
Less: ground rent (0.2) (0.2)
Less: other operating income (0.4) (0.4)
EPRA costs (including direct vacancy costs) 13.0 16.1
EPRA cost ratio 9.3% 11.9%
Total expense ratio (administrative expenses as a percentage of gross asset value) 0.4% 0.5%
Despite net debt increasing in the year by £143.8 million as a result of continued investment, net finance costs in the year
decreased to £43.0 million (2020: £44.9 million) reflecting the reductions in the average cost of debt achieved from various
refinancing initiatives in both 2021 and 2020.
FINANCIAL REVIEW CONTINUED
STRATEGIC REPORT
25Primary Health Properties PLC Annual Report 2021
Shareholder value and total accounting return
The Adjusted Net Tangible Assets (“NTA”), per share increased by 3.8 pence or 3.4% to 116.7 pence (31 December 2020: 112.9 pence
per share) during the year with the revaluation surplus and profit on sales of £110.5 million or 8.3 pence per share being the main
reason for the increase although this was partially offset by the £37.0 million or 2.4 pence per share cost of the Nexus acquisition and
internalisation of the management structure and £24.6 million or 1.9 pence per share early termination cost on refinancing a number of
Aviva legacy loans. Dividends distributed in the year were covered by recurring Adjusted earnings with no impact on NTA.
The total adjusted NTA (NAV) return per share, including dividends distributed, in the year was 10.0 pence or 8.9% (2020: 10.9 pence or
10.1%). Over the three years since our merger with MedicX in 2019 we have delivered a total NAV return of 27.9%.
The table below sets out the movements in the Adjusted NTA and EPRA Net Disposal Value (NDV) per share over the year under review.
Adjusted Net Tangible Asset (“NTA”) per share
31 December
2021
pence
per share
31 December
2020
pence
per share
Opening Adjusted NTA per share 112.9 107.9
Adjusted earnings for the year 6.2 5.8
Dividends paid (6.2) (5.9)
Revaluation of property portfolio 8.3 3.9
Net impact of Nexus acquisition (2.4) —
Net impact of Aviva refinancing (1.9) —
Shares issued 0.2 2.7
Foreign exchange movements (0.3) —
Interest rate derivative transactions (0.1) (1.5)
Closing Adjusted NTA per share 116.7 112.9
Fixed rate debt and swap mark-to-market value (4.1) (9.9)
Convertible bond fair value adjustment (1.6) (1.9)
Deferred tax (0.3) (0.3)
Closing EPRA NDV per share 110.7 100.8
26 Primary Health Properties PLC Annual Report 2021
Financing
In October 2021, the Group refinanced a number of legacy loan facilities with Aviva Investors with a new £200 million facility
for a 15-year term at a fixed rate of 2.52% and renewed its existing £100 million facility with NatWest. Sustainability KPIs have
been incorporated into both facilities based around PHP’s existing environment targets and the Group will benefit from a margin
reduction, conditional on achieving these targets.
Post year-end, the Group issued a new €75 million (£63 million) secured private placement loan note to MetLife for a 12-year term
at a fixed rate of 1.64%. The loan notes have the option to be increased by a further €75 million to €150 million over the next
three years at the lender’s discretion. The proceeds will be used to finance the Group’s continued investment in Ireland.
Post year-end, the Group also renewed its existing revolving credit facility with Santander (£50 million) for an initial three-year
term with options to extend by a further year at both the first and second anniversaries of the facility.
Including the facilities secured post year-end, the Group has £1,550.5 million (31 December 2020: £1,456.8 million) of debt
facilities available to it, of which £1,232.9 million (31 December 2020: £1,159.3 million) had been drawn.
Cash balances of £33.4 million (31 December 2020: £103.6 million) resulted in Group net debt of £1,199.5 million (31 December
2020: £1,055.7 million). Contracted capital commitments at the balance sheet date totalled £29.8 million (31 December 2020:
£39.6 million) and result in headroom available to the Group of £321.2 million (31 December 2020: £361.5 million).
Capital commitments comprise investment expenditure of £10.7 million, forward funded development expenditure of £9.0 million
and asset management projects on site of £10.1 million.
The Group’s key debt metrics are summarised in the table below:
Debt metrics
1
31 December
2021
31 December
2020
Average cost of debt – fully drawn
1
2.7% 3.1%
Average cost of debt – drawn
1
2.9% 3.5%
Loan to value 42.9% 41.0%
Loan to value – excluding convertible bond 37.5% 35.2%
Net rental income to net interest cover 3.2 times 2.9 times
Weighted average debt maturity – all facilities
1
7.3 years 7.6 years
Weighted average debt maturity – drawn facilities
1
8.2 years 6.5 years
Total drawn secured debt £1,082.9m £1,009.3m
Total drawn unsecured debt £150.0m £150.0m
Total undrawn facilities and available to the Group
1,2
£321.2m £361.5m
Unfettered assets
1
£104.9m £88.4m
1 Pro-forma including debt facilities secured post year end.
2 After deducting capital commitments.
Average cost of debt
The Group’s marginal cost of debt on its revolving credit facilities is just 1.8% following the refinancing’s noted above. As
these facilities are drawn the Group’s average cost of drawn debt will continue to fall from the current 2.9% to 2.7%, assuming
fully drawn.
The Group still has £386 million of legacy loans, acquired with the merger of MedicX in 2019, at a blended fixed rate of 4.2% and
a weighted average maturity of 9.7 years. Excluding these facilities, the Group’s average cost of debt is 2.3% and we continue to
look at further opportunities to reduce the Group’s average cost of debt and deliver further finance cost-saving synergies.
FINANCIAL REVIEW CONTINUED
STRATEGIC REPORT
27Primary Health Properties PLC Annual Report 2021
Interest rate exposure
The analysis of the Group’s exposure to interest rate risk in its debt portfolio as at 31 December 2021 is as follows:
Facilities
1
Drawn
£m % £m %
Fixed rate debt
1
1,075.5 69.4 1,075.5 87.2
Hedged by fixed rate interest rate swaps 188.0 12.1 188.0 15.3
Hedged by fixed to floating rate interest rate swaps (200.0) (12.9) (200.0) (16.2)
Total fixed rate debt 1,063.5 68.6 1,063.5 86.3
Hedged by interest rate caps 200.0 12.9 200.0 16.2
Floating rate debt – unhedged 287.0 18.5 (30.6) (2.5)
Total 1,550.5 100.0 1,232.9 100.0
1 Pro-forma including debt facilities secured post year end.
Interest rate swap contracts
Following the refinancing of a number of legacy loan facilities with Aviva Investors with a new £200 million facility the Group
swapped the 2.52% fixed rate back to variable rate, 3-month SONIA plus a spread of 160bps, for a limited three-year period to
take advantage of the shorter dated variable interest rates and to offset the short-term over-hedged position regarding fixed rate
debt. To mitigate the risk of further interest rate rises we purchased 1.25% caps with a nominal value of £200 million to cover the
same period at a cost of £1.8 million or 0.1 pence per share.
Accounting standards require PHP to mark its interest rate swaps to market at each balance sheet date. During the year there
was a gain of £2.7 million (2020: loss £8.5million) on the fair value movement of the Group’s interest rate derivatives due primarily
to increases in interest rates assumed in the forward yield curves used to value the interest rate swaps. As at 31 December 2021
the mark-to-market (“MtM”) value of the swap and cap portfolio was an asset of £4.4 million (31 December 2020: liability of
£0.1 million).
Currency exposure
The Group now owns €253.4 million or £213.0 million (31 December 2020: €221.1 million / £197.7 million) of Euro denominated
assets in Ireland as at 31 December 2021 and the value of these assets and rental income represented just 8% of the Group’s
total portfolio. In order to hedge the risk associated with exchange rates, the Group has chosen to fund its investment in Irish
assets through the use of Euro denominated debt, providing a natural asset to liability hedge, within the overall Group loan to
value limits set by the Board. At 31 December 2021 the Group had €186.5 million (31 December 2020: €163.6 million) of drawn
euro denominated debt.
Euro rental receipts are used to first finance Euro interest and administrative costs and surpluses are used to fund further
portfolio expansion.
Fixed rate debt mark-to-market (“MtM”)
The MtM of the Group’s fixed rate debt as at 31 December 2021 was £58.9 million (31 December 2020: £130.3 million) equivalent
to 4.4 pence per share (31 December 2020: 9.9 pence). The large decrease in the MtM during the year is due to the refinancing
of various legacy loans with Aviva Investors and increases in interest rates assumed in the forward yield curves used to value the
debt during the year. The MtM valuation is sensitive to movements in interest rates assumed in forward yield curves.
Convertible bonds
In July 2019, the Group issued for a six-year term new unsecured convertible bonds with a nominal value of £150 million and a
coupon of 2.875% per annum. Subject to certain conditions, the new bonds will be convertible into fully paid Ordinary Shares
of the Company and the initial exchange price was set at 153.25 pence per Ordinary Share. The exchange price is subject to
adjustment if dividends paid per share exceed 2.8 pence per annum and in accordance with the dividend protection provisions the
conversion price has been adjusted to 142.29 pence per Ordinary Share.
The conversion of the £150 million convertible bond into new Ordinary Shares would reduce the Group’s loan to value ratio by
5.4% from 42.9% to 37.5% and result in the issue of 105.4 million new Ordinary Shares.
28 Primary Health Properties PLC Annual Report 2021
EPRA PERFORMANCE MEASURES
PROVIDING TRANSPARENT
INFORMATION
Adjusted earnings per share ∆
6.2 pence, up 6.9% (2020: 5.8 pence).
Definition
Adjusted earnings is EPRA earnings excluding the exceptional
MtM adjustments for fixed rate debt acquired with the
merger with MedicX in 2019, divided by the weighted
average number of shares inissue during the year.
Purpose
A key measure of a company’s underlying operating
results and an indication of the extent to which current
dividend payments are supported by earnings.
Calculation
See Note 9 to the financial statements.
EPRA earnings per share ∆
4.7 pence, down 21.7% (2020: 6.0 pence).
Definition
EPRA earnings is the profit after taxation excluding
investment and development property revaluations, gains/
losses on disposals, changes in the fair value of financial
instruments and associated close-out costs and their
related taxation and exceptional termination payments
divided by the weighted average number of shares in
issue during the year.
Purpose
A measure of a company’s underlying operating results
and an indication of the extent to which current dividend
payments are supported by earnings.
Calculation
See Note 9 to the financial statements.
EPRA NTA per share ∆
114.1 pence, up 4.0% (2020: 109.7 pence).
Definition
EPRA net tangible assets are the balance sheet net assets,
excluding the MtM value of derivative financial instruments
and the convertible bond fair value movement, and deferred
taxes divided by the number of shares in issue at the
balance sheet date.
Purpose
Makes adjustments to IFRS net assets to provide
stakeholders with themost relevant information on
thefair value of the assets and liabilities within a true
real estate investment company with a long term
investment strategy.
Calculation
See Note 9 to the financial statements.
Adjusted Net Tangible Assets (“NTA”) per share ∆
116.7 pence, up 3.4% (2020:112.9pence).
Definition
Adjusted net tangible assets are the EPRA net tangible
assets excluding the MtM adjustment of the fixed rate
debt, net of amortisation, acquired on the merger with
MedicX, divided by the number of shares in issue at the
balance sheet date.
Purpose
Makes adjustments to IFRS net assets to provide
stakeholders with the most relevant information on
thefairvalue of the assets and liabilities within a true
realestate investment company with a long term
investment strategy.
Calculation
See Note 9 to the financial statements.
STRATEGIC REPORT
29Primary Health Properties PLC Annual Report 2021
EPRA net initial yield ∆
4.64%, down 17bp (2020: 4.81%).
Definition
Annualised rental income based on the cash rents passing
at the balance sheet date, less non-recoverable property
operating expenses, divided by the market value of the
property, increased with (estimated) purchaser’s costs.
Purpose
A comparable measure for portfolio valuations. This
measure should make it easier for investors to judge for
themselves how the valuation of the Group’s portfolio
compares with others.
Calculation
2021 2020
£m £m
Investment property (excluding
those under construction) 2,777.5 2,557.3
Allowance for estimated purchaser’s
costs and capital commitments 197.4 180.7
Grossed-up completed property
portfolio valuation (B) 2,974.9 2,738.0
Annualised cash passing rental
income 139.2 132.9
Property outgoings (1.1) (1.0)
Annualised net rents (A) 138.1 131.9
EPRA net initial yield (A/B) 4.64% 4.81%
The Group does not have any rent free periods and
therefore the EPRA “Topped-up” NIY is the same as the
EPRA net initial yield.
EPRA vacancy rate ∆
0.3%, down 10bp (2020: 0.4%).
Definition
EPRA vacancy rate is, as a percentage, the Estimated
Rental Value (“ERV”) of vacant space in the Group’s
property portfolio divided by ERV of the whole portfolio.
Purpose
A “pure” (%) measure of investment property space that
isvacant, based on ERV.
Calculation
2021 2020
£m £m
ERV of vacant space 0.5 0.6
ERV of completed property
portfolio 140.7 135.2
EPRA vacancy rate 0.3% 0.4%
EPRA cost ratio ∆
9.3%, decrease of 260bp (2020:11.9%).
Definition
EPRA cost ratio is the ratio of net overheads and operating
expenses against gross rental income (with both amounts
excluding ground rents payable). Net overheads and
operating expenses relate to all administrative and
operating expenses, net of any service fees, recharges
orother income specifically intended to cover overhead
and property expenses.
Purpose
A key measure to enable meaningful measurement
ofthechanges in a company’s operating costs.
Calculation
See page 24, Financial Review.
The Company is a member of the European Public Real Estate
Association (“EPRA”). EPRA has developed a series of measures
that aim to establish best practices in accounting, reporting
andcorporate governance and toprovide transparent and
comparable information to investors.
We use EPRA measures to illustrate PHP’s underlying recurring
performance and to enable stakeholders to benchmark the
Group againstother property investment companies.
Setoutbelow is a description of each measure and how
PHPperformed.
RESPONSIBLE BUSINESS
PHP’S NET ZERO
CARBONFRAMEWORK
As one of the leading investors and developers of flexible, modern primary healthcare accommodation
across the UK and Ireland, PHP is committed to transitioning to NZC across its operations and property
portfolio. We have set out below the five key steps to achieve an ambitious target of being NZC by 2030
for all of PHP’s operational, development and asset management activities and to help our occupiers achieve
NZC by 2040 five years ahead of the NHS’s target of becoming the world’s first net zero carbon national
health system by 2045 and ten years ahead of the UK and Irish Governments’ targets of 2050.
2022 2023 2025 2030 2035 2040
Operations to be netzero by 2023
• Assets where we have control and management will be NZC
by 2023 with all residual carbon offset through carefully
selected projects which actively take carbon out of
theatmosphere.
• Procuring 100% renewable electricity where available and
PHP controls the supply.
• Continued reductions in the carbon footprint of all
management and head office activities with residual
emissions offset annually.
All properties to have an EPC rating of B or better and
target improved energy performance
• Across the portfolio all properties to have an EPC rating
ofBor better or are capable of achieving this when
nextrefurbished.
• Through our asset and property management activities,
review and continually reduce energy use intensity (kWh/
m
2
) of our buildings through upgrades to building fabric and
systems replacing and improving energy consuming features
with technologies exhibiting high energy performance credentials.
• Offset the remaining carbon from our asset management
activities including embodied carbon of materials and fossil
fuel energy consumed during construction.
• Collect and communicate energy performance data for all
our occupiers, including Display Energy Certificates (‘‘DEC’’),
and help them to transition to renewable electricity supplies
and operate our buildings in the most energy efficient way.
All new developments tobenet zero by 2025
• Reduce carbon emissions associated with our
developmentactivities.
• Benchmark embodied carbon and undertake whole life
carbon assessment for all new developments.
• Align developments to supply chains that target minimising
embodied carbon and provide low carbon materials.
• Offset the remaining carbon from our development activities
including embodied carbon of materials and fossil fuel
energy consumed during construction.
• Continually review and embed NZC aligned operational and
embodied carbon performance targets in future designs.
All buildings to have achieved an 80% reduction in
carbonfootprint
• Continued energy demand reduction through upgrade
andrefurbishment.
• Increase the amount of renewable electricity we generate
on our sites such as solar and other renewables.
• For existing properties that have gas heating we will
replacethese systems with electric, heat pumps or other
renewablealternatives.
All buildings to be netzeroby 2040
• Help occupiers to lease and operate our buildings to achieve a
NZC footprint in operation.
• Offset any remaining occupier residual carbon from 2040 for
all properties where the lease was signed or renewed
after2035.
• NZC achieved five years ahead of the NHS’s target of 2045
and ten years ahead of the UK and Irish Governments’
targets of 2050.
1
3
4
5
2
1 2 3 4 5
Primary Health Properties PLC Annual Report 202130
STRATEGIC REPORT
RESPONSIBLE BUSINESS AND
ESG REVIEW
PREMISES, HEALTH AND PEOPLE: INVESTING IN THE HEALTH AND WELLBEING OF
OUR COMMUNITIES
Laure Duhot
Chair of the Environmental, Social and Governance Committee
I am pleased that we have published for the first time our Net
Zero Carbon (“NZC”) Framework and the five key steps we are
taking to achieve this, which are set out in more detail on
page30.
As part of this important priority area Jesse Putzel has recently
joined the Company as Director, ESG to help lead the ESG
agenda, develop and implement a comprehensive strategy with
all our stakeholders in mind, and launch new initiatives. We also
engaged the Carbon Trust during the year to benchmark our
ESG activities, reporting and assist with our Task Force on
Climate-related Financial Disclosures, set out on page 46.
I am delighted that we have launched the pilot for PHP’s social
impact initiative which focusses on social prescribing, an area
where much can be achieved to improve health and wellbeing
in the community and compliment primary care provided in our
properties.
I trust you find this report of the Committee helpful and
informative. I would be delighted to receive any feedback or
comments you may have on our approach.
Laure Duhot
Chair of the ESG Committee
15 February 2022
Dear shareholder,
I am pleased to present my second report as Chair of the PHP
Environmental, Social and Governance (“ESG”) Committee. The
Board agreed to create the Committee as a full Board
Committee in October 2020 to drive forward the Group’s ESG
agenda. These are important topics and it is believed that
having a Committee dedicated to consider these matters will
give greater impetus to our initiatives in this area, some of
which are described on the following pages of this report.
Members of the ESG Committee during the year
(the “Committee”)
Member
Number of meetings
and attendance
while in post
Laure Duhot (Chair) 3 (3)
Peter Cole 3 (3)
Harry Hyman 3 (3)
Richard Howell 3 (3)
Ian Krieger 3 (3)
Steven Owen 3 (3)
Chris Santer 3 (3)
Bracketed numbers indicate the number of meetings the member was eligible to
attend in 2021.
The Company Secretary acts as the secretary to the Committee and attends all
the meetings.
Members of the senior leadership team, including Michelle Whitfield – Director:
Operations & Sustainability, David Austin – Director: Asset Management,
DavidBateman, Director: Investment, Tony Coke – Director: Developments, and
James Young – Director: Property Management are invited to attend meetings
asappropriate.
31
Primary Health Properties PLC Annual Report 2021
RESPONSIBLE BUSINESS CONTINUED
BEING RESPONSIBLE
“ PHP’s Net Zero Carbon (“NZC”)
Framework demonstrates the Group’s
commitment to ensuring Responsible
Business and sustainability are
atthe heart of our investment,
development, asset management
and corporate activities while
making it easier for GP, HS and HSE
occupiers to deliver effective
services and to meet their
ownNZC targets.”
32 Primary Health Properties PLC Annual Report 2021
INTRODUCTION
PHP invests in flexible, modern properties for the delivery of
primary healthcare to the communities they are located in. The
buildings are let on long term leases where the NHS, HSE, GPs
and other healthcare operators are our principal occupiers. As
at 31 December 2021, the Group owned 521 properties valued
at £2.8 billion which are located across the UK and Ireland.
Responsible Business reflects PHP’s strong commitment to ESG
matters and addresses the key areas of the ESG issues that are
embedded into our investment, asset management,
development and corporate activities. Weare committed to
acting responsibly, having a positive impact on our communities,
improving our Responsible Business disclosures, mitigating
sustainability risks and capturing environmental opportunities
for the benefit of our stakeholders.
We realise the importance of our assets for the local healthcare
community, making it easier for our GP, NHS and HSE occupiers
to deliver effective services. We are committed to creating
great primary care centres by focusing on the future needs of
our occupiers and thereby ensuring we are creating long term
sustainable buildings.
In October 2020, the NHS adopted a multi-year plan to become
the world’s first net zero carbon national health system by
2045 and with an ambition for an interim 80% reduction by
2036-2039. PHP is committed to helping the NHS achieve this
target and has now set out its own Net Zero Carbon Framework,
a five-stage plan that will transition the Company’s portfolio to
net zero on or before this deadline and ahead of the UK and
Irish Governments net zero target date of 2050. PHP will
continue to pro-actively engage and work with our various
healthcare occupiers to also help them achieve this.
This ESG Report sets out our commitment and approach to
Responsible Business, it is reviewed annually, approved by the
Board and sets the framework for establishing objectives and
targets against which we monitor and report publicly on
ourperformance.
STRATEGIC REPORT
33Primary Health Properties PLC Annual Report 2021
OUR APPROACH
PHP’s approach is based around our core activities of investment,
asset and property management and development supported by
our corporate activities.
PHP supports the 17 UN Sustainable Development Goals
(“SDGs”) adopted by all United Nation member states in 2015.
The SDGs constitute the most pressing ESG challenges that
the world needs to solve.
At PHP we focus our efforts on a number of main SDGs and
seek to align our overall ESG goals and policies with them.
To achieve this, PHP’s ESG Policies are based around three core
pillars that run through our activities focused on Premises,
Health and People. These are:
Premises, Health and People
Approach Purpose Aims Focus
Premises – Built Environment
Investing in and
developing
sustainablebuildings
To employ sustainable
design to develop,
refurbish and upgrade
our buildings to
modernmedical and
environmental standards
Building a more resilient
portfolio for the
longterm
Reducing risk by building purpose-built new
developments and making quality acquisitions
Working with occupiers to improve the energy
efficiency of our properties and integrate more
sustainable features
Have a preference for reusing existing buildings,
upgrading them in an energy and resource
efficient way, reducing reliance on new resources
Source responsibly and design for future re-use of
assets and materials
All new developments to be NZC by2025
Reducing our
carbonfootprint
Working with our stakeholders to improve the
energy efficiency of our properties and integrate
more sustainable features with a long term
ambition of the whole portfolio, including
occupier’s operations, being NZC by 2040
Governing an
ethicalbusiness
Being transparent and compliant in all our operations
Health – Community Impact
Engaging and enhancing
the right stakeholders
todriveeffective
decisionmaking
To support initiatives
that further the health,
wellbeing andeducation
of our local communities
Meeting the healthcare
needs ofcommunities
Engaging in effective communications with
ouroccupiers
Creating social value Working with partners to enhance wellbeing and
inclusivity through initiatives that contribute to
the creation of healthy, supportive and
thrivingcommunities
People – Responsible Business
Conducting our
businesswith
integrityand investing
inhuman capital
To create opportunities
and maximise the
potential of the
stakeholders we
workwith
Providing a good place
to work
Ensuring effective investment in the professional
development ofthe Group’s employees
Maintaining a culture of empowerment,
inclusion,development, openness and
teamworkfor our people
Governing an
ethicalbusiness
Being transparent and compliant in all
ouroperations
RESPONSIBLE BUSINESS CONTINUED
PREMISES – BUILT
ENVIRONMENT
RESPONSIBLE INVESTMENT
Environmental and sustainability performance are integral
elements of PHP’s approach to the acquisition and funding of
new medical centres. PHP undertakes a detailed assessment
of each location, looking at building efficiency and
performance, enhanced service provision for the community
and support for wider healthcare infrastructure.
As awareness of climate change risks increase, we are
continually reviewing our approach to environmental due
diligence and undertake detailed environmental and building
surveys to assess environmental risks for each investment,
including flooding, to ensure the risk is avoided or
appropriate prevention measures are developed and
deployed over time.
Energy efficiency is also considered through the due
diligence process and all new acquisitions are now required
to have an EPC of C or better, or be capable of remedial
action to achieve the required rating in due course in which
case costs involved are now integrated into the appraisal.
Primary Health Properties PLC Annual Report 202134
STRATEGIC REPORT
Responsible asset and property management
We are committed to creating best-in-class primary care
centres by focusing on the future needs of our occupiers and
thereby ensuring we are creating sustainable buildings for the
long term. Our asset and property management policy is to
invest in the portfolio of properties to generate enduring occupier
and patient appeal, which provide opportunities to improve
rental values, the security and longevity of income, including
limited risk short-cycle projects to improve the quality of
assets. Through these asset and property management initiatives,
we also aim to deliver energy efficiencies and source cleaner
energy for our occupiers and their patients.
Due to the wide range of lease arrangements across the
portfolio, PHP is responsible for energy supply to a limited
number of properties. Where PHP is responsible for energy
supply for use by occupiers, we are committed to procure only
100% renewable electricity by 2023.
Our newly launched Net Zero Carbon Framework (outlined on
page 30) builds on this commitment, setting out our pathway
to a net zero carbon portfolio by 2040. Asset and property
management will play a key role in achieving this, with interim
commitments for all properties to have an EPC rating of at least
B and net zero carbon asset management by 2030. An overall
80% reduction in carbon emissions by 2035 will then lead to all
assets operating with Net Zero emissions by 2040, ahead of
the NHS’s commitment of 2045.
This will be achieved through a policy of replacing existing
features with technology exhibiting high energy conservation
credentials and by assessing, minimising and offsetting residual
embodied carbon from asset management projects.
We will also increase the amount of renewable electricity we
generate on sites such as solar, heat pumps and other proven
technologies. For existing properties that have gas heating we
will replace these systems with electric or other renewable
alternatives by 2035.
As we work through the portfolio over the coming years,
refurbishing properties, it is our goal for every asset that is
refurbished to have an EPC of at least B or have been raised by
at least two grades and to achieve a BREEAM rating of Very
Good (for extensions, conversions and fit outs).
Finally, we will engage, encourage and work with the NHS, HSE
and our healthcare occupiers, collecting energy consumption
data, including Display Energy Certificates (“DEC”) to help
them transition to renewable electricity supplies and operate
our buildings in the most efficient way. During 2021, we started
this process and introduced a Green Memorandum of Understanding
to help identify and prioritise the reduction of GHG emissions
across the portfolio. We will continue to work with our occupiers
regarding their ongoing environmental responsibilities and aim
for all new leases entered into to include ESG requirements
asstandard.
Responsible development
PHP together with its development partners are committed to
promote the highest possible standards of environmental and
social sustainability when designing and constructing new
assets. As a minimum, it is our commitment that all new build
developments in the UK must have a BREEAM rating of at least
Excellent and Very Good for fit outs, refurbishments and rural
or remote areas.
In Ireland, all new developments are built to a Building Energy
Rating of A3, or better, and in accordance with nZEB (nearly
Zero Energy Buildings) standards. Requirements are also in
place for our development partners and contractors to ensure
the implementation of responsible property development practices.
We are about to commence construction of PHP’s first two NZC
developments in the first quarter of 2022.
As outlined in our new NZC Framework, we’re committed to
ensuring by 2025, all new developments are net zero carbon.
Operational energy and carbon will be minimised as far as
possible, alongside on and offsite renewable energy provision.
Embodied carbon will be assessed and minimised and we will
work with supply partners who are reducing their carbon
impacts and providing low carbon products and materials.
Residual carbon impacts will then be offset, via high quality
carbon offsets.
35Primary Health Properties PLC Annual Report 2021
RESPONSIBLE BUSINESS CONTINUED
BUILT ENVIRONMENT: TARGETS,
ACHIEVEMENTS AND KEY WORKSTREAMS
FOR 2022
2021 targets
Deliver the first net zero carbon PHP building within five
years in the UK and explore the possibility in Ireland.
Headline achievements from 2021
Designed and due to start on site in first quarter of 2022,
PHP’s first net zero developments at Lincolnshire and
WestSussex.
Key workstreams for 2022
Build on the experience of first two NZC developments to
improve our approach to net zero developments, targeting
a further project to commence during 2022.
Develop an action plan and roadmap to achieving the
commitments set out in our Net Zero Carbon Framework.
2021 targets
All UK forward funded developments to have a BREEAM
rating of Excellent.
In Ireland, all new developments to be built to a Building
Energy Rating of A3, or better, in accordance with
NZEBstandards.
Headline achievements from 2021
In the UK, 100% of developments completed toBREEAM
Excellent standards.
In Ireland, 100% of developments completed toa Building
Energy Rating of A3.
Key workstreams for 2022
Strong future pipeline of forward funded developments in
the UK and Ireland all being designed to BREEAM Excellent
in the UK and NZEB standards in Ireland.
2021 targets
Refurbished assets to have an EPC of at least B or have
been raised by at least two grades.
Headline achievements from 2021
In 2021, 8 asset management projects were live and on
siteall being delivered to a minimum standard of BREEAM
Very Good, EPC B and incorporating new LED lighting as
aminimum energy improvement requirement.
Key workstreams for 2022
Strong future pipeline of projects which will improve the
current proportion of A-B assets to 31% in 2022.
Spilsby Case Study
In common with most parts of the UK and Ireland, patient
demand in Spilsby is at an all-time high for both physical,
telephone and video appointments. Nationally and locally the
NHS is implementing a strategic move of transferring services
away from hospital settings to primary care. Combined
these drivers mean that NHS Commissioners’ and Clinicians’
requirement for modern purpose-built space is and will
remain very high.
PHP was commissioned to provide a new Primary Healthcare
Centre for Spilsby and surrounding the community in
Lincolnshire. The existing premises having been deemed as
inadequate for the current population which is expected to
grow by approximately one-third in the coming years, alongside
the increasing demand for services in the area which have
been affecting service provision, patient care and outcomes.
The new building will be PHPs first Net Zero Carbon
building and one of the first healthcare buildings to
achieve this in the UK. This has been achieved by
measuring, minimising and offsetting embodied carbon
from materials as well as enabling occupiers to operate the
building with net zero carbon emissions. The building will
also target BREEAM Excellent standards, with high levels
of health and wellbeing, low waste and water, responsibly
sourced and sustainable materials, bring enhanced
ecological features and it will be flexible over its lifetime.
The new centre is being constructed as part of a major
residential development and is being let for a 25-year term
to both the local NHS Trust and GP partnership allowing
patients and the wider Primary Care Network to access a
wide range of health and care services from the
buildingincluding:
• General practice.
• Physiotherapy.
• Mental health assessments and practitioners.
• Occupational therapy.
• Social prescribing.
• Care co-ordination.
• Clinical pharmacy.
• Training for GPs, nurses and paramedics.
36 Primary Health Properties PLC Annual Report 2021
STRATEGIC REPORT
2021 targets
Reduce Scope 1 and 2 GHG emissions by 25% in absolute
terms and 40% in intensity terms by 2030.
All buildings to have achieved an 80% reduction in carbon
footprint by 2035.
Launch green procurement programme on behalf of our
occupiers and set ESG standards for our suppliers
anddevelopers.
Headline achievements from 2021
The 2021 target has been replaced with a target to be net
zero carbon for our direct operations by the end of 2023.
This will include reducing carbon intensity and offsetting
residual emissions.
During 2021, emissions increased compared with 2020 due
to a return to travel and office working. However, the switch
to 100% renewable electricity supplies is well under way
and on course for all to be renewable by the end of 2023.
Green memorandum of understanding (‘‘MOU’’) issued to a
targeted set of tenants, representing 21% of occupiers.
TheMOU requested sharing of energy data and agreement
to ongoing collaboration to improve performance and
reducecarbon.
Improved data collection and visibility of energy and
carbon performance for the portfolio. Energy and carbon
are now reported for properties where PHP supplies energy
and a programme of collating and interrogating Display
Energy Certificate (‘‘DEC’’) data has been launched,
generating operational energy ratings for 61% of the
portfolio.
£300 million of new sustainability linked loan facilities put
in place rewarding the Group as we implement ESG
initiatives.
Key workstreams for 2022
Continue to switch electricity supply contracts to 100%
renewable energy.
Carbon footprint of assets where we control the supply,
management and head office activities to be offset.
Provide guidance and encourage behaviour change
amongst our occupiers, developers and suppliers.
Energy audits to be completed before asset management
projects are planned in order to identify and fully integrate in
each project energy saving opportunities and energy-efficient
technology.
Continue to develop our approach to green leases and
roll-out of our Green MOU, supported by ongoing
engagement by the property management team during
inspections andreviews.
Improve visibility of energy and carbon performance across
the portfolio, utilising analysis of DEC data and scoping a
portfolio wide solution to capture, track and analyse
building performance.
2021 targets
All acquisitions to have an EPC of no less than C or have a
visible route to achieving this when next refurbished.
Headline achievements from 2021
All acquisitions completed in the year had aminimum EPC
rating of C except one whichwill be capable of being
improved when next refurbished with costs involved
reflected in under writing.
Key workstreams for 2022
Target future acquisitions that have strong ESG credentials.
PHP will continue to work with its development partners,
occupiers and other stakeholders to develop ways in which to
monitor and improve the management of environmental and
sustainability issues.
The estate has a high occupancy rate and is largely let on long
leases, which means improving building energy performance
ratings, in an efficient and cost-effective way, is challenging. In
addition, the day-to-day control of energy usage, is the
responsibility of our occupiers. However, the portfolio is well
designed to mitigate its impact on the environment with 82%
of the buildings having an Energy Performance Certificate
(“EPC”) rating across the portfolio of C or better. In addition,
when we develop an asset or refurbish it, we do so to BREEAM
Excellent or Very good, further improving the sustainability of
the portfolio.
EPC ratings across the portfolio
EPC rating 2021 2020
A 7% 6%
B 22% 23%
C 53% 52%
D 15% 15%
E 3% 4%
F 0% 0%
G 0% 0%
During 2021 we continued to renew EPCs and to deliver asset
management and improvement projects. In some cases, EPC
renewals lead to a drop in ratings, due to the changes to the
assessment methodologies since the original assessments were
carried out. We expect to show continued improvement to EPC
ratings through 2022 and beyond.
Sustainable building certifications across the portfolio
2021
Proportion of portfolio relevant for BREEAM rating 13%
BREEAM Excellent & Very Good ratings 100%
nZEB standard (Ireland only) 100%
Proportion of portfolio with DEC rating 72%
DEC rating A-C (better than typical energy use)** 68%
** Ratings made up of annual and ten-year renewal DECs.
37Primary Health Properties PLC Annual Report 2021
SECR disclosures
PHP measures its emissions in line with the Green House Gas Protocol and takes an operational control approach. Emissions are
based on verified data currently reviewed by a third party, Inenco. Data is based on metered energy use and estimates and miles
driven by employees. Scope 1 and 2 emissions are normalised by revenue and full time employees as these relate to our direct
operations and by kWh/m² for tenant occupied buildings.
PHP’s direct operations result in very limited greenhouse gas emissions. The table below shows the Scope 1 and 2 emissions
directly within the operational control of the Group. Scope 1 relates to gas used in permanent offices and business travel bycar
and Scope 2 relates to grid electricity used at PHP’s offices. For the first time, we are also reporting Scope 3 emissions from the
properties where PHP supplies energy to occupiers, which they hold operational control over.
100% of total Scope 1, 2 and 3 kWh emissions in the year were based in the UK.
2021 2020
Source tCO
2
e kWh tCO
2
e kWh
Scope 1
Business travel (car) 28.4 115,568 15.9 64,408
Gas 3.9 21,099 2.7 14,484
Scope 2
Electricity (marketbased)¹ 5.4 25,528 5.3 20,775
Total Scope 1 & 2 37.7 162,195 23.9 99,667
Scope 3
Landlord supplied electricity 1,058 4,984,324 1,219 5,230,579
(marketbased)¹ (922) — n/a —
Landlord supplied gas 1,058 5,774,465 1,223 6,650,630
Total Scope 3 2,116 10,758,790 2,442 11,881,209
(market based)¹ (1,979) — n/a —
Total 2,154 10,920,985 2,466 11,980,876
Scope 1 & 2 per full time employee 0.6 — 0.4 —
Scope 1 & 2 per £m revenue 0.3 — 0.2 —
Scope 3 kg CO₂ perm² 16.4 92 20.1 98
(market based)¹ 15.3
1 Market based reporting reflects the emissions from the electricity being purchased, whereas location based uses national grid average emissions for the
reportingyear.
For 2021 we have updated our reporting and this has resulted in an update to our 2020 disclosure. Against the new baseline for
2020, absolute scope 1 & 2 emissions have increased by 69% and intensity by 61%.
Increases to Scope 1 and 2 emissions are due to increased business travel following previous COVID-19 restrictions being lifted
and a return to regular property visits and an increased use of offices following employees returning on a part-time basis.
Therefore this does not reflect the direction of travel to improve energy efficiency and reduce our direct operational emissions.
We have committed to our direct operations being net zero carbon by 2023. In 2020, we established an ESG committee and we
commenced work on identifying opportunities. In 2021, we secured a new head office which is a modern and more energy efficient
space. Employees are encouraged to use public transport in place of cars for business travel and a new employee benefit has
been introduced to support take up and use of electric and hybrid vehicles. We will continue to reduce energy demand from our
offices and emissions from transport, however our wider portfolio is where we aim to focus our attention going forward, as this is
where the largest source of emissions lies.
As shown in the table above, Scope 3 emissions from landlord supplied energy have reduced during 2021 and energy use intensity has
also reduced. We intend to build on this going forward, through tenant engagement and asset management activities.
Wider portfolio energy and carbon performance
For a small proportion of the portfolio, PHP procures the energy which is used by tenants, and we began transferring these to
100% renewable electricity supplies in 2021 with all energy being renewable by 2023. We are now working with these occupiers
to minimise their energy consumption over time.
We are also working to expand the coverage of energy and carbon reporting across the whole portfolio, including occupier
controlled supplies, and have started to collect energy consumption data from occupiers which will help us to engage with them
to meet ours and their net zero carbon commitments.
RESPONSIBLE BUSINESS CONTINUED
38 Primary Health Properties PLC Annual Report 2021
HEALTH – COMMUNITY
IMPACT
SOCIAL – HEALTH
PHP seeks to have a positive impact on the health and
wellbeing of the communities where its assets are located and
has set policies and targets to achieve this through a Community
Impact Program and further details are set out below.
PHP is committed to supporting both the NHS and HSE in
tackling the major under investment in primary care facilities in
both the UK and Ireland. PHP’s aim is to modernise and improve
the ability to provide efficient and effective healthcare through
the provision of modern, purpose-built properties, let to the
NHS, HSE, GPs and other healthcare operators. The facilities
are predominantly located within residential communities and
enable the UK and Irish population to access better health
services in their local area. This is central to the Group’s
purpose, strategic objectives and business planning processes.
PHP’s portfolio serves around 6.0 million patients or 8.9% of the
UK population and our portfolio is their first point of contact
with the NHS when they start their patient journey. Our
interventions, when we acquire, refurbish or develop new
health care facilities, have a significant positive social impact,
whether through enhancement of experience for people using
our facilities, expansion of health care provision locally or
making health care more accessible to those that need it most.
Our active management of the property portfolio seeks to
maintain the centres as fit for purpose and systems have been
established to ensure that PHP is properly monitoring its social
impact and identifying and managing opportunities and risks
associated with the provision of its properties. We conduct an
annual survey of our occupiers to review and consider awareness
and overall satisfaction with our activities including
socialinitiatives.
Occupier survey
In 2021, as with previous years, PHP conducted a survey of our
UK based GP tenants. We received 25% more responses than
2020 and there were a number of positive findings. The majority
of respondents believe that their building meets their current
needs, were satisfied with the level of communication and
interaction they have with us and nearly 80% were happy to
share energy usage data and support our overall ESG strategy.
Our overall Net Promoter Score declined in 2021 and while
there were no major negative findings, issues surrounding
maintenance and functionality of space were highlighted which
have been addressed through our proactive property and asset
management activities which are ongoing.
PHP is committed to ensuring that the properties it develops
and owns continue to meet our GP, NHS and HSE occupiers’
requirements in their local community and also provide
flexibility for future change, update and expansion. Our
dedicated teams of asset and property managers look after our
occupiers’ requirements, with a policy of regular communication
and a supportive approach to property management. It is
crucial that we continually update our understanding of what
issues matter to our occupiers and how the NHS and HSE are
changing to meet the increasing demands on the healthcare
system in both countries. We will continue to engage and
consider the views of our occupiers including an annual survey.
The COVID-19 pandemic highlighted the ongoing need for
purpose-built, primary care premises to provide modern
healthcare to an ageing population that will live for longer with
more incidence of chronic illness. This further reinforces our
objectives to continue to invest in our existing and new
premises for the benefit of all our stakeholders.
Our occupier survey also asked occupiers to name initiatives
that they felt would benefit the health and wellbeing of their
patients and communities they serve and are not currently
provided for them elsewhere. The responses received are
currently being reviewed with a view to helping to target the
Community Impact Program in 2022 and beyond.
STRATEGIC REPORT
39Primary Health Properties PLC Annual Report 2021
RESPONSIBLE BUSINESS CONTINUED
• PHP are delighted to be working with the UK Community
Foundations to offer grants to charities and community
groups that are focused on social prescribing and
community wellbeing that serve our properties.
• Grants totalling £150,000 were awarded to projects in
Scotland and Lincolnshire that cover a wide range of
innovative approaches to improving health and wellbeing
via social prescribing, including the use of art, sport,
outdoor, nature-based and specialist activities to
improve the physical and mental health of a wide
variety of groups and good causes addressing a number
of important areas, such as:
• Children with long term chronic conditions
• Equine therapy, assisted learning and outdoor activities
• Mental health and wellbeing
• Dementia
• Young family support
• Men’s health
• PHP is proud to be a supporter of ENO Breathe – a
breathing and wellbeing programme for people
recovering from the effects of COVID-19.
• ENO Breathe is a social prescribing programme
developed by the English National Opera to help tackle
the effects of LongCOVID.
• PHP has committed to play a key role in the UK’s
Levelling Up agenda by partnering on the work by the
Purpose Coalition around the development of a set
oflevelling up goals focused around good health
andwellbeing.
• As part of the Community Impact Programme PHP was
proud to support a number of charities during 2021 and
introduced a scheme to match funds raised by staff up
to a maximum amount of £2,000.
• During the year we made donations to a number of
charities including Variety, the Children’s Charity; RFU
Injured Players Foundation; Cancer Research; The Felix
Project; Bliss; and KidsOut.
Community Impact Fund
PHP has committed £0.25 million per annum to fund social and
charitable activities and services linked to the patients and
communities of our occupiers which cannot be readily accessed
elsewhere. In 2021, we distributed £0.2 million across a wide
range of projects supporting our GPs, understanding their
views with a view to implementing a further programme of
activities in 2022 and beyond.
Primary Health Properties PLC Annual Report 202140
PEOPLE – RESPONSIBLE
BUSINESS
STRATEGIC REPORT
PEOPLE
PHP recognises the importance of the welfare of the employees
who work on behalf of the Group and are critical to its success.
Their experience and contribution to the business is essential
to the delivery of our business strategy and ESG commitments.
During 2021, the management structure was internalised and
we successfully retained a loyal team with a low staff turnover
rate of 19% which we believe reflects PHP’s Board commitment
to maintaining and promoting the highest levels of ethics,
conduct and promoting a workplace culture of:
• inclusion;
• modern, flexible working practices;
• fair remuneration;
• diversity and equal opportunity;
• employee development and training; and
• health and safety.
Laure Duhot is the designated workforce Non-executive
Director. In the year she considered the results of the staff
survey and held one meeting with a select number of
employees from different areas of the Company to discuss
their feedback from the survey and thoughts in more depth
which were reported back to the Board. Overall morale was
considered to be good and that bi-weekly team meetings were
welcomed and further improved communications. However,
there appeared to be a good culture of openness.
In addition to fair remuneration which is aligned to personal
and Company performance and as part of our ongoing commitment
to supporting employees, attracting and retaining talent, the
Remuneration Committee undertook a full review of benefits
offered, and subsequently decided to implement the following
effective from 1 January 2022:
• Enhanced Company pension contributions of 6% of salary up
to a maximum contribution of £10,000.
• Additional day of annual leave for each year of continuous
service up to a maximum of five days.
• A green car salary sacrifice benefit to help individuals move
to low carbon electric and hybrid personal vehicles.
• Introduction of a share save plan.
• Enhancements to sick pay.
• Life assurance given to all employees at four times salary.
• Cycle to work and season ticket loan schemes.
A Long Term Incentive Plan (“LTIP”) was approved by shareholders
at the Annual General Meeting in May 2021 and awards were
granted to the senior leadership team that replicate arrangements
for the Executive Directors to maximise returns to shareholders
by successfully delivering the Company’s objectives over the
long term in a sustainable manner. Further details on the LTIP
can be found in the Directors’ Remuneration Report on pages
86 to 99. In addition, all employees are eligible to participate in
the PHP Sharesave plan that was approved by shareholders at
the 2021 AGM.
Primary Health Properties PLC Annual Report 2021 41
RESPONSIBLE BUSINESS CONTINUED
Diversity & equal opportunity
We promote diversity across knowledge, experience, gender,
age and ethnicity with a published diversity and inclusion policy in
place. Whilst overall female employee representation is good,
we recognised that we needed to specifically promote greater
gender diversity. Following the appointment of Ivonne Cantú,
effective from 1 January 2022, we have further increased
female and ethnic Board representation.
Recognising the significant diversity imbalance in the real
estate sector, we continue to support the Real Estate Balance
group to further promote diversity both internally and externally.
Employee gender diversity at 31 December 2021:
Male Female¹
Board of Directors 5 2
Senior management and direct
reports 18 17
Employees 12 13
All employees (including NEDs) 35 32
1 Includes Ivonne Cantú appointed effective 1 January 2022.
Health and safety
Health and safety remains central to the execution of PHP’s
business strategy and we take our responsibilities very seriously
and are committed to continued improvement but have an
excellent record. The Board is responsible for ensuring appropriate
health and safety procedures are in place and during 2021 we
maintained a regime of inspections utilising both third-party
agents, including two risk management solutions providers and
in-house resources to support the portfolio.
Where risks need to be assessed under a specific duty or
regulation, we ensure that an assessment is carried out and
that all necessary actions are implemented. The key health and
safety risk areas PHP faces are:
1. Managed properties – where there are multiple occupiers in
the same property, a combination of third-party agents and
internal resources are used to carry out a health and safety
assessment and audits relating to the common parts.
2. Developments and forward funded developments – all our
development partners are required to uphold our high
standards. Procedures and processes have been developed
to ensure compliance with current legislation and requirements.
A Project Monitor is also appointed to oversee, manage and
monitor health and safety.
3. Employees are required to uphold our high standards and
separate procedures and processes in place to ensure
compliance with current legislation and requirements.
During 2021 there were no reported major accidents nor any
health and safety prosecutions or enforcements (2020: no
incidents). Our Board approved Health and Safety policy is
available on the Company’s website.
COVID-19
During 2021, we have continued to support our people during
the ongoing pandemic through ongoing remote working during
lockdown and as we returned to the office more flexible working
arrangements, with employees allowed to spend up to half the
week working from home and half in the office or on site.
Following the easing of restrictions in April 2021, we undertook
a staff survey, to gauge the views of all employees on their
working practices and environment. Whilst many noted advantages
of more flexible working, many expressed a desire to return to
in person, collaborative working. Creating space and time for
social interactions and team working were seen as beneficial.
As the team in London has continued to grow over the last two
years it became clear the current office accommodation was no
longer sufficient for the Company’s purposes. Consequently,
more modern, open plan office accommodation has been
secured and the team moved in at the start of 2022, with
continued flexible working provision and infrastructure in the
new offices.
Employee development
PHP’s Human Capital is essential to success of the business
and delivery of outstanding services to our occupiers in the
healthcare sector. Attracting, retaining and developing
employees is therefore a key commitment for the business.
During 2021, we continued to focus on personal and professional
training and development. Appraisals are undertaken for all
employees twice a year including setting goals and targets as
well as considering performance against those previously set.
Personalised training plans were also delivered to target
leadership and management training for new managers. We ran
self-awareness workshops, based on MBTI personality types to
help colleagues to collaborate and enhance team effectiveness.
A range of additional personal development workshops were
held for all staff, to enhance performance in key areas including
communication, presentation skills, assertiveness and
timemanagement.
A total of 730 personal development training hours have been
delivered across the Group during 2021.
During 2021, PHP invested a total of £37,500 or an average
£680 per employee on professional development. This includes:
• Support, funding and facilitation of professional
qualifications for 13 employees and continued professional
development for all employees.
• Recruited seven graduates to grow talent for the future.
42 Primary Health Properties PLC Annual Report 2021
STRATEGIC REPORT
PEOPLE: TARGETS, ACHIEVEMENTS
AND KEY WORKSTREAMS FOR 2022
2021 targets
Publish the Chief Executive Officer’s commitment to Real
Estate Balance promoting employee diversity challenging
mindsets on bias and discrimination.
Headline achievements from 2021
Commitment published at the start of year and available
on the Group’s website.
Senior leadership team attended Inclusive Leadership
workshop to explore the significance of conduct, culture
and respect at work and to understand the tone from the
top and implications of unconscious bias.
All staff invited to attend regular seminars on a variety of
topics to promote diversity and inclusion across the business.
Key workstreams for 2022
Continue to promote PHP’s culture and commitment to
maintaining and promoting the highest levels of ethics and
a workplace culture of inclusion, diversity and equal opportunity.
2021 targets
Publish and report transparent information
regardingemployees.
Headline achievements from 2021
See page 68 for further details.
We have implemented a new HR self-reporting system to
capture and improve the accuracy of our workforce
diversity data.
We conducted a staff survey in order to inform working
practices following the year of tightening and easing
ofrestrictions.
All employees participated and offered their views.
Whilst many noted the advantages of time saved not
commuting to an office and a different work life balance,
many also noted despite the technology available, they
still felt isolated working from home, missing social
interactions and finding team working more challenging
than when meeting in person.
Key workstreams for 2022
Conduct an annual staff survey to ascertain levels of
employee satisfaction and help ascertain areas for
continued improvement.
Continue to review approaches to diversity and
inclusionperformance.
Invested in a new, modern office for employees in London.
OTHER STAKEHOLDERS
While our investment, asset management and development
activities focus on the sustainability risks and opportunities
that are most material to our business there are a number of
additional issues that are of lower material impact but are of
interest to specific stakeholder groups:
• We are transparent and all our policies are available on our
website and we expect our principal advisers, suppliers and
occupiers to follow them.
• We expect organisations we employ to meet the standards
we set ourselves.
• We engage with stakeholders to ensure we are aware of,
and are able to respond to, their expectations.
2021 targets
Set ESG targets as part of employees’ appraisal and
personal performance objectives.
Employee training plans to be developed to include at
least 10% ESG content.
Headline achievements from 2021
Personalised training plans delivered for all staff broken
down into four key areas to enhance self-awareness, gain
an understanding of leadership styles, motivation and
coaching skills.
13 people are currently studying for professional
qualifications across the team.
Key workstreams for 2022
We continue to support all staff with individual training plans,
semi-annual appraisals including and reviewing personal
performance objectives which include ESG content.
Lenders
Future generations
Investors
NHS
Suppliers
HMRC
Occupiers
People Patients
43Primary Health Properties PLC Annual Report 2021
RESPONSIBLE BUSINESS CONTINUED
Investors and lenders
The support of our shareholders, banking partners and lenders
is crucial to sustaining our investment in the health infrastructure
of the UK and Ireland. At the start of 2021 we successfully
completed the acquisition of Nexus with 99.95% of shareholders
voting in favour of the transaction. We continue to enjoy strong
relationships with our investor, banking and lending partners.
Despite the pandemic, we have successfully continued to value
existing and potential relationships with our investors with over
200 meetings during the course of 2021. Shareholders and
analysts are regularly updated about our performance and are
given the opportunity to meet management throughout the
year and attend presentations, physical and virtual, and site
visits to gain a better understanding of our business strategy.
Governance
We conduct our business with integrity and require that our
Directors, employees and other businesses engaged by us,
including developers, contractors, suppliers and agents, do
thesame.
We believe that good governance practices are essential to a
successful and sustainable business and therefore we ensure
that they are integral to us. We are compliant with the provisions
of the UK Corporate Governance Code 2018 insofar as it is
applicable to PHP. We believe in transparency of our business
to stakeholders ensuring we report comprehensively and fairly
in our Annual and Interim Reports and engage with our
stakeholders throughout the year.
We will:
• be honest, open, transparent, helpful and polite;
• obey all relevant laws and regulations;
• be prepared to admit and correct mistakes without delay
and facilitate ‘‘whistleblowing’’ by employees and
otherstakeholders;
• declare any potential conflicts of interest which may
compromise our business dealings;
• not give or receive illegal or inappropriate inducements in order
to retain or bestow business or financial advantages; and
• at all times promote the ethical conduct of business.
These principles are supported by policies which address
anti-bribery and corruption, whistleblowing, money laundering,
prompt payment and management of the supply chain.
Contractors and suppliers
Delivering developments, forward funded developments, asset
management projects and property services on time, on budget
and in adherence with our high standards is a key priority. Our
supply chain is checked (accredited by the SafeContractor
scheme) to ensure it is high quality, robust, has a proven track
record and applies appropriate standards on areas such as
labour and human rights, health and safety, modern slavery and
human trafficking. For developments, contractors are expected
to demonstrate adherence to these requirements and our
development monitoring surveyor stays close to our
contractors and monitors all elements of projects as they
progress. Our Modern Slavery Act Statement is available on our
website and no human rights concerns arose within the year.
We have approximately 1,200 suppliers across the Group
ranging from small local businesses to large multi-national
companies. We also acknowledge the importance of our
suppliers, who are often small businesses and sole traders,
especially those involved with the upkeep and maintenance
ofour assets. We aim to pay all invoices and amounts due
promptly and well within stated payment terms in an effort
topreserve the cash flows of these small businesses.
Tax
The Group is committed to complying with tax laws in a responsible
manner and has open and constructive relationships with the
UK and Irish tax authorities. Whilst the Group enjoys REIT
status and therefore is not directly assessable for corporation
or capital gains tax on property investments, the dividends that
the Group pays are assessed for income tax when they reach
investors. Moreover, during 2021 the Group has directly paid
£28.7 million (2020: £28.7million) of taxes in the form of VAT,
income tax, stamp duty land tax, stamp duty and national
insurance contributions to the UK and Irish Governments. The
Group has not and does not intend to take advantage of any
UK or Irish Government incentives, loans or tax deferrals made
available to it as a result of the COVID-19 pandemic.
The Company has also published a Tax Strategy which is
available on our website.
44 Primary Health Properties PLC Annual Report 2021
STRATEGIC REPORT
Enhanced disclosure and benchmarking
We have published for the first time the Task Force on
Climate-related Financial Disclosures (“TCFD”) which are set
out on page 46.
During 2021, PHP completed its second submission to The
Global ESG Benchmark for Real Assets (“GRESb”) and achieved
a score of 52%, ranking PHP 1st in the Healthcare comparator
group. The score is a significant improvement on the 39% score
in 2020, but below the GRESb average score of 72% and we
aim to make further improvements for future submissions.
Our MSCI rating improved on the previous year to BB and we
expect improvements made and reported for 2021 and planned
during 2022, to further improve our rating. We will engage with
MSCI to ensure our rating best reflects the actions we are
taking and to inform how we improve further.
Anti-corruption and anti-bribery
The Group’s policy is to conduct all of its business in an honest
and ethical manner. The Group takes a zero-tolerance approach
to bribery and corruption and is committed to acting professionally,
fairly and with integrity in all business dealings and relationships
wherever it operates and implements and enforces effective
systems to counter bribery. There were no reported incidents
of non-compliance during 2021 (2020: no incidents).
Non-financial information statement
The Group has complied with the requirements of s414CB of
the Companies Act 2006 by including certain non-financial
information within the Strategic Report. This can be found
asfollows:
The Group’s business model is on pages 12 and 13.
Information regarding the following matters, including policies,
the due diligence process implemented in pursuance of the
policies and outcomes of those policies, can be found on the
following pages:
• environmental matters on pages 34 to 38;
• social matters on page 40;
• health and safety matter on page 42;
• respect for human rights on page 43; and
• anti-corruption and anti-bribery matters on page 45.
Responsible Business and ESG matters have been identified as
a principal risk and further details can be found on pages 54 to 55.
All key performance indicators of the Group are on pages 16 to 17.
The Business Review section on pages 18 to 22 includes, where
appropriate, references to, and additional explanations of,
amounts included in the entity’s annual accounts.
Laure Duhot
Chair of the Environmental, Social and Governance Committee
Primary Health Properties PLC
15 February 2022
45Primary Health Properties PLC Annual Report 2021
Below, we have set out for the
firsttime disclosures against the
requirements of the Task Force
onClimate-related Financial
Disclosures (“TCFD”).
We are committed to implementing the relevant
recommendations of the TCFD, providing our stakeholders and
investors with insight into the key climate-related risks and
opportunities that are relevant to our business, and how these
are identified and managed. We report against the majority of
the eleven recommendations of the TCFD in this year’s
disclosures. Of the recommendations, we believe we meet the
recommended disclosure requirements in the Governance, Risk
Management and Metrics & Targets sections. However, like
many other organisations, we are evaluating how best to meet
the recommendations in the Strategy section, specifically
scenario analysis, and will conduct a review and commission
climate-related scenario analysis over the course of 2022.
Governance
The Board is responsible for the Group’s risk management
framework, including the consideration of climate related risks
and opportunities as part of its wider oversight for Responsible
Business including ESG matters. The Board reviews climate
related risks and opportunities within our existing reporting and
governance structure which are typically within relevant update
papers presented to the Board at each meeting from the
relevant members of the Executive Committee, through the
ESG Committee and the Risk Committee reporting into the
Audit Committee.
The monitoring of progress on Responsible Business matters is
delegated to the ESG Committee. Implementation of Responsible
Business is delegated to the Executive Committee with its
members leading the Responsible Business working group;
other members consist of Director, ESG along with a representative
from each of the investment, asset management, property
management and development teams. The Responsible
Business working group meet at least monthly to consider
progress and next steps and the Executive Committee ensures
that Responsible Business and ESG targets are delivered and
leads engagement and training across the Group on Responsible
Business and ESG matters, including climate related risks,
helped by our sustainability advisers Carbon Trust and
GEPEnvironmental.
Strategy
During the year we set out a Net Zero Carbon Framework,
seepage 30, which details the five key steps we are taking
toachieve an ambitious target of being NZC by 2030 for all
ofPHP’s operational, development and asset management
activities and to help our occupiers achieve NZC by 2040 five
years ahead of the NHS’s target of becoming the world’s first
net zero carbon national health system by 2045 and ten years
ahead of the UK and Irish Governments’ targets of 2050.
We have also completed a detailed review of climate related
risks and opportunities including the creation of an ESG risk
and opportunities register considering risks over the short
(<1-year), medium (1-5 years) and long term (>5-years)
timehorizons.
The Group has identified the following key climate related risks
that could impact the portfolio:
1. the desirability of its assets to occupiers such that buildings
are no longer fit for purpose from a location, design or
operational perspective;
2. its ability to sell assets as a result of a greater focus by
investors on climate related risks; and
3. its access to capital and impacting on reputation due to
concerns over how well its buildings are adapted for climate
change and how well the NHS and its GP occupiers are
positioned for a low carbon economy.
The Group has identified the following key climate related
opportunities that could impact the portfolio:
1. Pre-empting and satisfying future occupier requirements,
including legislation, enhances PHP’s reputation with our
occupiers ensuring they want to occupy the properties in
ourportfolio and results in further rental growth.
2. PHP’s pro-active approach to ESG matters means we
continue to be attractive to existing and potential
stakeholders including investors and lenders.
RESPONSIBLE BUSINESS CONTINUED
46 Primary Health Properties PLC Annual Report 2021
TASK FORCE ON
CLIMATE-RELATED
FINANCIALDISCLOSURES
STRATEGIC REPORT
The Group’s continued focus on flexible, modern primary care
properties that generally have low energy requirements means
that the overall carbon footprint of the portfolio is kept to a
minimum. In addition, the Group’s continued investment in
asset and property management initiatives means that its
typically slightly older and less energy efficient assets are
being upgraded to the latest energy efficient, environmental
performance standards achievable for these buildings.
We are also improving and adapting our assets to be more
resilient to climate change through maintenance, energy
efficiency upgrades and the provision of renewable energy
supplies for the Group’s occupiers. Furthermore, whilst
development is only a small part of our activities, we are
focusing on enhancing the sustainability features of our
development projects and work is about to commence on the
Group’s first net zero carbon developments and we are aiming
for all developments to be net zero by 2025.
During our investment process, we are careful to review the
locational and flood risks, the building fabric and the energy
efficiency of potential acquisitions and current assets to
understand the climate and carbon related risks and costs
involved in mitigating those risks.
These actions will help to future proof our buildings and allow
us to take advantage of opportunities with the NHS, and our
other occupiers, as they shift to a low carbon environment with
its multi-year plan to become the world’s first carbon net zero
national health system by 2045 and with an ambition for an
interim 80% reduction by 2036-2039.
By improving occupier contentment, we will enhance the
desirability and value of our assets together with our
reputation with the NHS and GP occupiers.
In line with the requirement for full reporting against TCFD for
the 2022 Annual Report, we will conduct a review and commission
climate related scenario analysis over the coming year to assess
the resilience of the Company’s portfolio and our strategy.
Risk management
Climate related risks are considered by the Board who
recognise that climate change is an increasingly important
priority. The Responsible Business working group update the
ESG Committee on climate related risks as well as opportunities.
The Group is increasing its understanding and assessing the
potential impact of physical changes, such as extreme weather
and longer term shifts in climate patterns. The transitional
changes are also being examined in terms of emissions pricing,
costs from adopting lower emission technology, regulation of
products, legislative, occupier and consumer behaviour.
During the year, we established a detailed climate related risks
and opportunities register which is reviewed by both the Risk
Committee reporting to the Audit Committee and ESG
Committee as detailed on pages 54 and 55. The register is
regularly updated to keep track of the changing nature of
these risks, quantify the estimated financial impact and further
progress our analysis of which acute and chronic physical
climate risks are most likely to affect our assets, specifically
onflooding which we see as the highest risk area.
Following the desktop flood analysis carried out across the
portfolio, by Locktons, we analysed the results of that study
and undertook more detailed site-specific analysis where
appropriate. This work has identified the number of assets
classified as high risk to just 34 out of a portfolio of 521 assets
and represent just 7% by value. We continue to extend this
analysis as we look to regularly monitor changes in flooding risk
in the future. Further work will be undertaken to consider the
impact of other climate change related risks and we will look at
how modelling of short, medium and long term horizons for
increases in global temperatures could help us in better
understanding the risks to our portfolio.
Over the year, we further increased our focus on the
transitional risks that impact our business with particular
scrutiny of potential Minimum Energy Efficiency Standards
(“MEES”) legislative changes, which would require a high level
of energy efficiency at each asset by the end of the decade.
We are about to start construction of our first Net Zero Carbon
developments at Lincolnshire and West Sussex which are due
to complete in 2023. In addition, we continued to refine and
improve the ESG targets set by the Group and pages 36 to 43
set out our approach more widely.
As the NHS looks to deliver its multi-year plan to become the
world’s first carbon net zero national health system by 2045
and with an ambition for an interim 80% reduction by 2036-2039,
we have set out PHP’s framework to help our occupiers achieve
the NHS’s targets and ahead of the UK and Irish Governments’
targets of being net zero by 2050.
For more details on the Company’s overall approach to risk
management, including management of climate related risks,
refer to principal risks and uncertainties on pages 50 to 55.
Targets and metrics
Details of PHP’s target to achieve NZC across operational,
development and asset management activities by 2030 and
tohelp our occupiers achieve NZC by 2040 are set out on
page30.
Relevant material energy and carbon metrics include EPC
ratings for our standing assets which are tracked and are
reported within the ‘‘Responsible Business and ESG Review’’
section of this report on page 37 along with BREEAM Excellent
certification on developments in the UK and Building Energy
Rating of A3, in accordance with nZEB (nearly Zero Energy
Buildings), in Ireland.
We report our GRESB benchmark performance score and aim
toreport against EPRA Best Practice Recommendations on
Sustainability Reporting over time and the results are included
in our Responsible Business and ESG Report 2021 which is
available on our website. We also disclose Scope 1, Scope 2 and
Scope 3 (which relate to landlord supplied electricity and gas)
greenhouse gas (‘‘GHG’’) emissions in our carbon reporting
table on page 38. Our absolute landlord-controlled carbon
footprint has decreased over the last few years as a result of
our initiatives particularly due to the continuing shift towards
100% renewable electricity supplies across our portfolio.
Performance against our historic Responsible Business annual
targets is provided in our full Responsible Business and ESG
Report which is also available on our website and updated annually.
47Primary Health Properties PLC Annual Report 2021
COMPANIES ACT 2006 SECTION 172 STATEMENT
How does the Board consider the interests of key stakeholders?
Our responsibility to stakeholders, together with consideration of the long term consequences of our decisions and maintaining
high standards of business conduct, is integral to the way the Boardoperates.
The Board of Directors, both individually and collectively, are required by law under Section 172 of the Companies Act 2006 to act
in the way that they consider, in their good faith judgement, would be most likely to promote the success of the Company for the
benefit of its shareholders as a whole and in doing so need to take into account a number of factors, including the views of the
Group’s key stakeholders and describe in the Annual Report how their interests have been considered in Board discussions and
decision making. The Board considers that throughout the year, it has acted in a way and made decisions that would most likely
promote the success of the Group for the benefit of its members as a whole, with particular regard to:
Section 172 matter How the matter is brought into Board decision making Read more
a) The likely consequences of
any decision in the
longterm
The very nature of our business model means that the Board has to have the long
term consequences of its investment decisions in mind.
The leases which we grant on primary care medical centres are generally over 20 years
in length as these facilities form a key component in the delivery of healthcare in a
locality. The practice(s) operating from these premises need modern, flexible
premises from which to operate and the security of a long term commitment from
the landlord to deliver their crucial front-line health services.
We seek to improve and enhance existing premises so they remain fit for purpose,
incorporate new technologies and meet the latest environmental standards.
We strive to build lasting relationships with our occupiers and build a partnership
with them.
The Board undertook a comprehensive review and update of the business’s long
term strategy during the year.
Our business model
(page 12)
Financial Review (page23)
Responsible Business
(page 30)
Corporate Governance
Report (page 66)
b) The interests of the
Company’s employees
The Group’s employees are at the heart of the business and our people strategy
focuses on delivering a culture of empowerment, inclusion, development, openness
and teamwork.
During 2021 the management structure was internalised and we successfully
retained a loyal team with a low staff turnover rate. The small number of staff
allows for a flexible and individual approach.
Laure Duhot is the Non-executive Director representative for workforce
engagement and attended a staff meeting during the year.
Stakeholders and people
(pages 41 and 42)
c) The need to foster the
Company’s business
relationships with suppliers,
customers and others
The relationships with our occupiers, suppliers and key partners are critical to our
ability to maintain our high quality, resilient rental income. Strong relationships
with occupiers supports retention and we treat our suppliers fairly ensuring prompt
settlement of their invoices.
Stakeholders (page 43)
Directors’ Report
(page100)
Corporate Governance
Report (page 66)
d) The impact of the
Company’s operations on
the community and the
environment
We have continued to support our tenants during the year in adapting their premises,
where necessary, to provide COVID-19 secure facilities to their local communities.
This year we have also further enhanced our ESG activities setting out a framework
to enable the Group’s operational, development and asset management activities
to transition to Net Zero Carbon by 2030 and help our occupiers achieve NZC
by2040.
Responsible Business
(page 30)
Corporate Governance
Report (page 66)
e) The desirability of the
Company maintaining
areputation for high
standards of
businessconduct
We have a clear purpose to create outstanding spaces for primary healthcare
services in our communities.
We adhere to the highest standards of good governance and business conduct in
interaction with all our stakeholders and seek to comply with all legal and
regulatory standards.
Responsible Business
(page 30)
Corporate Governance
(page 66)
f) The need to act fairly
asbetween members of
the Company
The Board embraces open dialogue with shareholders and engages with them through
a range of channels and has communicated with them on the most important
corporate events through the year, including the internalisation project, interim and
full year results to understand their views.
Stakeholders – Investors
and lenders (page 44)
Corporate Governance
Report (page 66)
Examples of how we have exercised our Section 172 duties in practice are set out in the case studies on pages 19, 20 and 36.
RESPONSIBLE BUSINESS CONTINUED
48 Primary Health Properties PLC Annual Report 2021
STRATEGIC REPORT
Primary Health Properties PLC Annual Report 2021 49
RISK MANAGEMENT AND PRINCIPAL RISKS
HOW PHP ASSESSES
ITS PROSPECTS
The Board believes the Group has
strong long term prospects, being
well positioned to address the
need for better primary healthcare
buildings in the UK and Ireland.
Risk management overview
Effective risk management is a key element of the Board’s
operational processes. Risk is inherent in any business, and
the Board has determined the Group’s risk appetite, which is
reviewed on an annual basis. Group operations have been
structured in order to accept risks within the Group’s overall
risk appetite, and to oversee the management of these risks
to minimise exposure and optimise the returns generated
for the accepted risk. The Group aims to operate in a low
risk environment, appropriate for its strategic objective of
generating progressive returns for shareholders. Key elements
of maintaining this low risk approach are:
• Investment focuses on the primary health real estate sector
which is traditionally much less cyclical than other real
estate sectors.
• The majority of the Group’s rental income is received directly
or indirectly from government bodies in the UK and Ireland.
• The Group benefits from long initial lease terms, largely with
upwards-only review terms, providing clear visibility of income.
• The Group has a very small (£0.7 million) exposure as a
direct developer of real estate, which means that the Group
is not materially exposed to risks that are inherent in
property development.
• The Board funds its operations so as to maintain an
appropriate mix of debt and equity.
• Debt funding is procured from a range of providers,
maintaining a spread of maturities, currencies and a mix of
terms so as to fix or hedge the majority of interest costs.
The achievement of our KPIs is
influenced by the identification
and management of risks which
might otherwise prevent our
strategic priorities.
50 Primary Health Properties PLC Annual Report 2021
STRATEGIC REPORT
• The structure of the Group’s operations includes rigorous,
regular review of risks and how these are mitigated and
managed across all areas of the Group’s activities. The Group
faces a variety of risks that have the potential to impact on
its performance, position and longer term viability. These
include external factors that may arise from the markets in
which the Group operates, government and fiscal policy and
general economic conditions and internal risks that arise
from how the Group is managed and chooses to structure
itsoperations.
Approach to risk management
Risk is considered at every level of the Group’s operations and
is reflected in the controls and processes that have been put in
place across the Group. The Group’s risk management process
is underpinned by strong working relationships between the
Board and the management team which enables the prompt
assessment and response to risk issues that may be identified
at any level of the Group’s business.
The Board is responsible for effective risk management across
the Group and retains ownership of the significant risks that
are faced by the Group. This includes ultimate responsibility
fordetermining and reviewing the nature and extent of the
principal risks faced by the Group and assessing the Group’s
risk management processes and controls. These systems and
controls are designed to identify, manage and mitigate risks
that the Group faces but will not eliminate such risks and can
provide reasonable but not absolute assurance.
The management team assists the Board in its assessment
andmonitoring of operational and financial risks and PHP
hasinplace robust systems and procedures to ensure risk
management is embedded in its approach to managing the
Group’s portfolio and operations. PHP has established a Risk
Committee that is formed of members of its senior management
team and chaired by the CFO who is experienced in the
operation and oversight of risk management processes, with
independent standing invitees attending throughout the year.
The Audit Committee reviews the Group’s systems of risk
management and their effectiveness on behalf of the Board.
These systems and processes have been in place for the year
under review and remained in place up to the date of approval
of the Annual Report and Accounts.
PHP has implemented a wide-ranging system of internal
controls and operational procedures that are designed to
manage risk as effectively as possible, but it is recognised that
risk cannot be totally eliminated. Staff employed by PHP are
intrinsically involved in the identification and management of
risk. Strategic risks are recorded in a risk register and are
assessed and rated within a defined scoring system.
The Risk Committee reports its processes of risk management
and rating of identified risks to the Audit Committee. The risk
register is reviewed and updated twice annually by the secretary
assisted by members of the Risk Committee, and assesses
inherent risks the business faces, as well as the residual risk after
specific safeguards, mitigation and/or management actions have
been overlaid. The risk register forms an appendix to the report
which details risks that have (i) an initial high inherent risk rating,
and (ii) higher residual risk ratings. The Audit Committee in turn
agrees those risks that will be managed by management and
those where the Board will retain direct ownership and
responsibility for managing and monitoring those risks.
The Board recognises that it has limited ability to control a
number of the external risks that the Group faces, such as
government policy, but keeps the possible impact of such
risks under review and considers them as part of its
decision-making process.
51Primary Health Properties PLC Annual Report 2021
RISK MANAGEMENT AND PRINCIPAL RISKS CONTINUED
Principal risks and uncertainties
The Board has undertaken a robust assessment of the emerging and principal risks faced by the Group that may
threaten its business model, future performance, solvency or liquidity and its ability to meet the overall objective of the
Group of delivering progressive returns to shareholders through a combination of earnings growth and capital
appreciation. A result of this assessment was to remove COVID-19 as a principal risk in the year as a result of the
impact being less material than envisaged, and to introduce a new principal risk, Responsible Business. The new
principal risk is a direct result of the greater scrutiny by both regulators and investors, as well as recent political
agendas that are expected to impose that further environmental initiatives be mandated. These are set out below:
Risk Inherent risk rating
Change to
risk in 2021 Commentary on risk in the year Mitigation Residual risk rating
Grow property portfolio
Competition
The emergence of new purchasers in the
sector and the recent slowing in the level of
approvals of new centres in the UK may
restrict the ability of the Group to secure
new investments.
High
Likelihood is high and
impact of occurrence
could be major.
Unchanged In terms of values, the Group has benefited from a flight to income
as a consequence of the current wider economic uncertainty –
investors have been attracted to the sector due to its long term,
secure, government-backed cash flows. Lack of supply, as a
consequence of the low number of new development approvals in
the UK, has also contributed to the increase in values.
However, the same increase in demand and lack of supply have
meant that the Group is facing increased competition for
viableopportunities.
The reputation and track record of the Group in the sector means it is able to source forward funded
developments and existing standing investments from developers, investors and owner-occupiers.
As a result, the Group has a number of formal pipeline agreements and long-standing development relationships
that provide an increased opportunity to secure developments that come to market in the UK and Ireland.
The Group has a strong, identified pipeline of investment opportunities in the UK and Ireland.
Medium
The Group’s position within the sector
and commitment to and understanding
of the asset class mean PHP is aware
of a high proportion of transactions in
the market and potential opportunities
coming to market.
Active management of the property
portfolio generates regular opportunities
to increase income and lease terms
and enhance value.
Financing
The Group uses a mix of shareholder equity
and external debt to fund its operations. A
restriction on the availability of funds would
limit the Group’s ability to invest.
Furthermore, a more general lack of equity or
debt available to the sector could reduce
demand for healthcare assets and therefore
impact values.
High
Likelihood of a
restricted supply is
moderate but the
potential impact of
such a restriction
could be major.
Unchanged The Company successfully completed two debt refinances
duringthe year, entering into one new revolving credit facility
of£100million with NatWest, as well as refinancing £200 million
oflegacy debt with Aviva. The Company entered into a new
£50million revolving credit facility with Santander and €75 million
Euro private placement immediately post year end.
The Group’s undrawn facilities mean it currently has headroom of
£321 million, after taking into account the debt financings
completed in the first quarter of 2022.
All covenants have been met with regard to the Group’s debt
facilities and these all remain available for their contracted term.
Existing and new debt providers are keen to provide funds to the sector and specifically to the Group, attracted
bythe strength of its cash flows.
The Board monitors its capital structure and maintains regular contact with existing and potential equity investors
and debt funders. Management also closely monitors debt markets to formulate its most appropriate
fundingstructure.
The terms of the completed revolving credit facilities are three years with the option to extend for a further two
years at the lender’s discretion. The Aviva refinance was completed for a 15-year term and Euro private placement
was executed for a 12-year term, further increasing PHP’s average debt profile to 7.3 years.
Medium
The Group takes positive action to
ensure continued availability of
resource, maintain a prudent ratio of
debt and equity funding and refinance
debt facilities in advance of their maturity.
Manage effectively and efficiently
Lease expiry management
The bespoke nature of the Group’s assets
can lead to limited alternative use. Their
continued use as fit-for-purpose medical
centres is key to delivering the Group’s
strategic objectives.
Medium
Likelihood of limited
alternative use value is
moderate but the
impact of such values
could be serious.
Unchanged
Lease terms for all property assets will erode and the importance of
active management to extend the use of a building remains unchanged.
Management meets with occupiers on an ongoing basis to discuss the specific property and the tenant’s
aspirations and needs for their future occupation.
39 projects either completed or started on site in the period, enhancing income and extending occupational
leaseterms.
In addition, there is a strong pipeline of over 100 projects that will be progressed in 2022 and coming years.
Only 12.9% of the Group’s income expires in the next five years and management is actively managing these
lease expiries.
Medium
Management employs an active asset
management programme and has a
successful track record of securing
enhancement projects and securing
new long term leases.
People
The inability to attract, retain and
develop our people to ensure we have
the appropriate skill base in place in
order for us to implement our strategy.
Medium
Likelihood and
potential impact could
be medium.
Unchanged As the country’s post COVID-19 economic recovery continues, and
with inflation of 5% in the year, the risk of staff retention has
increased in a very competitive market.
Succession planning is in place for all key positions, and will be reviewed regularly by the Nomination Committee.
Remuneration incentives are in place such as bonuses and the LTIP for Executive Directors and senior
management to incentivise and motivate the team.
Notice periods are in place for key employees.
PHP continues to outsource a PHP HR professional that has historically looked after the Nexus employees
andhas familiarity with contracts and procedures in place.
Medium
The Remuneration Committee has
reviewed and updated policies to
ensure retention and motivation of the
management team.
52 Primary Health Properties PLC Annual Report 2021
STRATEGIC REPORT
Principal risks and uncertainties
The Board has undertaken a robust assessment of the emerging and principal risks faced by the Group that may
threaten its business model, future performance, solvency or liquidity and its ability to meet the overall objective of the
Group of delivering progressive returns to shareholders through a combination of earnings growth and capital
appreciation. A result of this assessment was to remove COVID-19 as a principal risk in the year as a result of the
impact being less material than envisaged, and to introduce a new principal risk, Responsible Business. The new
principal risk is a direct result of the greater scrutiny by both regulators and investors, as well as recent political
agendas that are expected to impose that further environmental initiatives be mandated. These are set out below:
Risk Inherent risk rating
Change to
risk in 2021 Commentary on risk in the year Mitigation Residual risk rating
Grow property portfolio
Competition
The emergence of new purchasers in the
sector and the recent slowing in the level of
approvals of new centres in the UK may
restrict the ability of the Group to secure
new investments.
High
Likelihood is high and
impact of occurrence
could be major.
Unchanged In terms of values, the Group has benefited from a flight to income
as a consequence of the current wider economic uncertainty –
investors have been attracted to the sector due to its long term,
secure, government-backed cash flows. Lack of supply, as a
consequence of the low number of new development approvals in
the UK, has also contributed to the increase in values.
However, the same increase in demand and lack of supply have
meant that the Group is facing increased competition for
viableopportunities.
The reputation and track record of the Group in the sector means it is able to source forward funded
developments and existing standing investments from developers, investors and owner-occupiers.
As a result, the Group has a number of formal pipeline agreements and long-standing development relationships
that provide an increased opportunity to secure developments that come to market in the UK and Ireland.
The Group has a strong, identified pipeline of investment opportunities in the UK and Ireland.
Medium
The Group’s position within the sector
and commitment to and understanding
of the asset class mean PHP is aware
of a high proportion of transactions in
the market and potential opportunities
coming to market.
Active management of the property
portfolio generates regular opportunities
to increase income and lease terms
and enhance value.
Financing
The Group uses a mix of shareholder equity
and external debt to fund its operations. A
restriction on the availability of funds would
limit the Group’s ability to invest.
Furthermore, a more general lack of equity or
debt available to the sector could reduce
demand for healthcare assets and therefore
impact values.
High
Likelihood of a
restricted supply is
moderate but the
potential impact of
such a restriction
could be major.
Unchanged The Company successfully completed two debt refinances
duringthe year, entering into one new revolving credit facility
of£100million with NatWest, as well as refinancing £200 million
oflegacy debt with Aviva. The Company entered into a new
£50million revolving credit facility with Santander and €75 million
Euro private placement immediately post year end.
The Group’s undrawn facilities mean it currently has headroom of
£321 million, after taking into account the debt financings
completed in the first quarter of 2022.
All covenants have been met with regard to the Group’s debt
facilities and these all remain available for their contracted term.
Existing and new debt providers are keen to provide funds to the sector and specifically to the Group, attracted
bythe strength of its cash flows.
The Board monitors its capital structure and maintains regular contact with existing and potential equity investors
and debt funders. Management also closely monitors debt markets to formulate its most appropriate
fundingstructure.
The terms of the completed revolving credit facilities are three years with the option to extend for a further two
years at the lender’s discretion. The Aviva refinance was completed for a 15-year term and Euro private placement
was executed for a 12-year term, further increasing PHP’s average debt profile to 7.3 years.
Medium
The Group takes positive action to
ensure continued availability of
resource, maintain a prudent ratio of
debt and equity funding and refinance
debt facilities in advance of their maturity.
Manage effectively and efficiently
Lease expiry management
The bespoke nature of the Group’s assets
can lead to limited alternative use. Their
continued use as fit-for-purpose medical
centres is key to delivering the Group’s
strategic objectives.
Medium
Likelihood of limited
alternative use value is
moderate but the
impact of such values
could be serious.
Unchanged
Lease terms for all property assets will erode and the importance of
active management to extend the use of a building remains unchanged.
Management meets with occupiers on an ongoing basis to discuss the specific property and the tenant’s
aspirations and needs for their future occupation.
39 projects either completed or started on site in the period, enhancing income and extending occupational
leaseterms.
In addition, there is a strong pipeline of over 100 projects that will be progressed in 2022 and coming years.
Only 12.9% of the Group’s income expires in the next five years and management is actively managing these
lease expiries.
Medium
Management employs an active asset
management programme and has a
successful track record of securing
enhancement projects and securing
new long term leases.
People
The inability to attract, retain and
develop our people to ensure we have
the appropriate skill base in place in
order for us to implement our strategy.
Medium
Likelihood and
potential impact could
be medium.
Unchanged As the country’s post COVID-19 economic recovery continues, and
with inflation of 5% in the year, the risk of staff retention has
increased in a very competitive market.
Succession planning is in place for all key positions, and will be reviewed regularly by the Nomination Committee.
Remuneration incentives are in place such as bonuses and the LTIP for Executive Directors and senior
management to incentivise and motivate the team.
Notice periods are in place for key employees.
PHP continues to outsource a PHP HR professional that has historically looked after the Nexus employees
andhas familiarity with contracts and procedures in place.
Medium
The Remuneration Committee has
reviewed and updated policies to
ensure retention and motivation of the
management team.
53Primary Health Properties PLC Annual Report 2021
RISK MANAGEMENT AND PRINCIPAL RISKS CONTINUED
Risk Inherent risk rating
Change to
risk in 2021 Commentary on risk in the year Mitigation Residual risk rating
Responsible Business
Due to the far greater scrutiny by regulators,
debt providers and investors over the last
twelve months, should this rate continue
there is a risk we do not meet their criteria
in the short term.
High
Likelihood is high and
impact of occurrence
could be major.
New
2021
All debt and equity investors now prioritise ESG as a standard
agenda item, with a notable increase in its occurrence noted during
the year, and is expected to continue.
There is a risk that we may not meet the hurdles sought by debt
and equity investors should PHP not focus enough on these ESG
agenda items, potentially impacting the funding of the
businesssignificantly.
Additionally, political and regulatory changes to the energy efficiency
and net carbon neutral targets of corporates are expected to be
mandated in the short term, notably in light of COP26.
Over the last 18 months PHP has focused on its ESG credentials, implementing and putting in place the following
to ensure we continue to meet investor expectations:
• put in place an ESG policy, set up an ESG Committee that reviews the ESG Risk Dashboard, as well as
employed a new ESG Director as part of its management team.
• Engaged external experts GRESB and Carbon Trust to review our current ESG agenda and appropriateness for
a listed REIT.
• Sustainability targets and hurdles are monitored to ensure acquired assets or asset management schemes
meet specific ESG criteria, with these same criteria aligned to investors and debt providers.
• Constant communication with debt and equity providers, resulting in £300 million of sustainability linked
financing for the two debt refinances in the year.
• Community Impact Fund introduced in the year.
• EPC rating benchmarks are set to ensure compliance with Minimum Energy Efficiency Standards (‘‘MEES’’) that
could otherwise impact the quality and desirability of our assets leading to higher voids, lost income and
reduced liquidity; we consider environmental and climate change risk relating to our assets and
commissionreports.
We work with our occupiers to improve the resilience of our assets to climate change as well as with contractors
who are required to conform to our responsible development requirements.
Low
The Group is committed to meeting its
obligations in line with its Responsible
Business Framework and feels it has
introduced sufficient mitigants to
continue to deliver its objectives.
Diversified, long term funding
Debt financing
Without appropriate confirmed debt
facilities, PHP may be unable to meet current
and future commitments or repay or
refinance debt facilities as they become due.
Medium
The likelihood of
insufficient facilities is
moderate but the
impact of such an
event would
beserious.
Unchanged Negotiations with lenders have confirmed that the Group enjoys
the confidence of the lending markets both in terms of the
traditional high street lenders and the bond markets.
The Company successfully completed two debt refinances during
the year, entering into one new revolving credit facility of £100 million
with Natwest, as well as refinancing £200 million of legacy debt
with Aviva. The Company entered into a new £50million revolving
credit facility with Santander and €75million Euro private
placement immediately post year end.
Existing lenders remain keen to finance PHP and new entrants to debt capital markets have increased
availableresource.
Management regularly monitors the composition of the Group’s debt portfolio to ensure compliance with
covenants and continued availability of funds.
Management regularly reports to the Board on current debt positions and provides projections of future covenant
compliance to ensure early warning of any possible issues.
Medium
The Board regularly monitors the
facilities available to the Group and
looks to refinance in advance of any
maturity. The Group is subject to the
changing conditions of debt
capitalmarkets.
Interest rates
Adverse movement in underlying interest
rates could adversely affect the Group’s
earnings and cash flows and could impact
property valuations.
Medium
The likelihood of
volatility in interest
rate markets is high
and the potential
impact if not managed
adequately could
bemajor.
Unchanged Term interest rate markets remained volatile during the period and
this volatility is likely to continue in the near future.
Over the year, term interest rates have reduced which has impacted
the MtM valuations of the Group’s debt.
In October 2021 the Group entered into £200 million of interest
rate hedges, swapping fixed rate for three-month floating rate for a
three-year period, as well as mitigating downside risk by capping
variable exposure.
The Group holds a proportion of its debt in long term, fixed rate loans and mitigates its exposure to interest rate
movements on floating rate facilities through the use of interest rate swaps.
As at the balance sheet date 100% of drawn debt is fixed or hedged.
MtM valuation movements do not impact on the Group’s cash flows and are not included in any covenant test in
the Group’s debt facilities.
Low
The Group is currently well protected
against the risk of interest rate rises
but, due to its continued investment in
new properties and the need to
maintain available facilities, will be
exposed to future interest rate levels.
Deliver progressive returns
Potential over-reliance on
the NHS and HSE
PHP invests in a niche asset sector where
changes in healthcare policy, the funding of
primary care, economic conditions and the
availability of finance may adversely affect
the Group’s portfolio valuation
andperformance.
Medium
Likelihood is low but
impact of occurrence
may be major.
Unchanged
The UK and Irish Governments continue to be committed to the
development of primary care services and initiatives to develop new
models of care increasingly focusing on greater utilisation of
primarycare.
Despite the UK’s exit from the European Union and COVID-19
pandemic, we expect the demand for health services will continue
to grow, driven by demographics. However, future government
funding levels in the UK and Ireland may be impacted by any long
term, material change to economic performance.
A fundamental change in government policy could impact how the
private sector regards its investment in this asset class and its
willingness to further deploy private sector resources to improve
thequality of primary care facilities.
The commitment to primary care is a stated objective of both the UK and Irish Governments and on a
cross-partybasis.
Management engages directly with government and healthcare providers in both the UK and Ireland to promote
the need for continued investment in modern premises.
This continued investment provides attractive long term, secure income streams that characterise the sector
leads to stability of values.
Medium
Policy risk and general economic
conditions are out of the control of the
Board, but pro-active measures are taken
to monitor developments and to consider
their possible implications for the Group.
Foreign exchange risk
Income and expenditure that will be derived
from PHP’s investments in Ireland will be
denominated in Euros and may be affected
unfavourably by fluctuations in currency
rates, impacting the Group’s earnings and
portfolio valuation.
Medium
Likelihood of volatility
high but the potential
impact at present is
relatively low due to
quantum of investment
in Ireland, albeit this
isincreasing.
Unchanged The Group now has 20 investments in Ireland. Asset values, funding
and net income are denominated in Euros.
The continued impact of COVID-19 throughout the European Union
continues to cause exchange rate volatility.
The Board has funded and will continue to fund its investments in Ireland with Euros so as to create a natural
hedge between asset values and liabilities in Ireland.
Management closely monitors the Euro to GBP currency rates with its banks to formulate a formal hedging
strategy against Irish net cash flows.
Low
PHP has implemented a hedging
strategy in the form of a natural hedge
so as to manage exchange rate risk.
54 Primary Health Properties PLC Annual Report 2021
STRATEGIC REPORT
Risk Inherent risk rating
Change to
risk in 2021 Commentary on risk in the year Mitigation Residual risk rating
Responsible Business
Due to the far greater scrutiny by regulators,
debt providers and investors over the last
twelve months, should this rate continue
there is a risk we do not meet their criteria
in the short term.
High
Likelihood is high and
impact of occurrence
could be major.
New
2021
All debt and equity investors now prioritise ESG as a standard
agenda item, with a notable increase in its occurrence noted during
the year, and is expected to continue.
There is a risk that we may not meet the hurdles sought by debt
and equity investors should PHP not focus enough on these ESG
agenda items, potentially impacting the funding of the
businesssignificantly.
Additionally, political and regulatory changes to the energy efficiency
and net carbon neutral targets of corporates are expected to be
mandated in the short term, notably in light of COP26.
Over the last 18 months PHP has focused on its ESG credentials, implementing and putting in place the following
to ensure we continue to meet investor expectations:
• put in place an ESG policy, set up an ESG Committee that reviews the ESG Risk Dashboard, as well as
employed a new ESG Director as part of its management team.
• Engaged external experts GRESB and Carbon Trust to review our current ESG agenda and appropriateness for
a listed REIT.
• Sustainability targets and hurdles are monitored to ensure acquired assets or asset management schemes
meet specific ESG criteria, with these same criteria aligned to investors and debt providers.
• Constant communication with debt and equity providers, resulting in £300 million of sustainability linked
financing for the two debt refinances in the year.
• Community Impact Fund introduced in the year.
• EPC rating benchmarks are set to ensure compliance with Minimum Energy Efficiency Standards (‘‘MEES’’) that
could otherwise impact the quality and desirability of our assets leading to higher voids, lost income and
reduced liquidity; we consider environmental and climate change risk relating to our assets and
commissionreports.
We work with our occupiers to improve the resilience of our assets to climate change as well as with contractors
who are required to conform to our responsible development requirements.
Low
The Group is committed to meeting its
obligations in line with its Responsible
Business Framework and feels it has
introduced sufficient mitigants to
continue to deliver its objectives.
Diversified, long term funding
Debt financing
Without appropriate confirmed debt
facilities, PHP may be unable to meet current
and future commitments or repay or
refinance debt facilities as they become due.
Medium
The likelihood of
insufficient facilities is
moderate but the
impact of such an
event would
beserious.
Unchanged Negotiations with lenders have confirmed that the Group enjoys
the confidence of the lending markets both in terms of the
traditional high street lenders and the bond markets.
The Company successfully completed two debt refinances during
the year, entering into one new revolving credit facility of £100 million
with Natwest, as well as refinancing £200 million of legacy debt
with Aviva. The Company entered into a new £50million revolving
credit facility with Santander and €75million Euro private
placement immediately post year end.
Existing lenders remain keen to finance PHP and new entrants to debt capital markets have increased
availableresource.
Management regularly monitors the composition of the Group’s debt portfolio to ensure compliance with
covenants and continued availability of funds.
Management regularly reports to the Board on current debt positions and provides projections of future covenant
compliance to ensure early warning of any possible issues.
Medium
The Board regularly monitors the
facilities available to the Group and
looks to refinance in advance of any
maturity. The Group is subject to the
changing conditions of debt
capitalmarkets.
Interest rates
Adverse movement in underlying interest
rates could adversely affect the Group’s
earnings and cash flows and could impact
property valuations.
Medium
The likelihood of
volatility in interest
rate markets is high
and the potential
impact if not managed
adequately could
bemajor.
Unchanged Term interest rate markets remained volatile during the period and
this volatility is likely to continue in the near future.
Over the year, term interest rates have reduced which has impacted
the MtM valuations of the Group’s debt.
In October 2021 the Group entered into £200 million of interest
rate hedges, swapping fixed rate for three-month floating rate for a
three-year period, as well as mitigating downside risk by capping
variable exposure.
The Group holds a proportion of its debt in long term, fixed rate loans and mitigates its exposure to interest rate
movements on floating rate facilities through the use of interest rate swaps.
As at the balance sheet date 100% of drawn debt is fixed or hedged.
MtM valuation movements do not impact on the Group’s cash flows and are not included in any covenant test in
the Group’s debt facilities.
Low
The Group is currently well protected
against the risk of interest rate rises
but, due to its continued investment in
new properties and the need to
maintain available facilities, will be
exposed to future interest rate levels.
Deliver progressive returns
Potential over-reliance on
the NHS and HSE
PHP invests in a niche asset sector where
changes in healthcare policy, the funding of
primary care, economic conditions and the
availability of finance may adversely affect
the Group’s portfolio valuation
andperformance.
Medium
Likelihood is low but
impact of occurrence
may be major.
Unchanged
The UK and Irish Governments continue to be committed to the
development of primary care services and initiatives to develop new
models of care increasingly focusing on greater utilisation of
primarycare.
Despite the UK’s exit from the European Union and COVID-19
pandemic, we expect the demand for health services will continue
to grow, driven by demographics. However, future government
funding levels in the UK and Ireland may be impacted by any long
term, material change to economic performance.
A fundamental change in government policy could impact how the
private sector regards its investment in this asset class and its
willingness to further deploy private sector resources to improve
thequality of primary care facilities.
The commitment to primary care is a stated objective of both the UK and Irish Governments and on a
cross-partybasis.
Management engages directly with government and healthcare providers in both the UK and Ireland to promote
the need for continued investment in modern premises.
This continued investment provides attractive long term, secure income streams that characterise the sector
leads to stability of values.
Medium
Policy risk and general economic
conditions are out of the control of the
Board, but pro-active measures are taken
to monitor developments and to consider
their possible implications for the Group.
Foreign exchange risk
Income and expenditure that will be derived
from PHP’s investments in Ireland will be
denominated in Euros and may be affected
unfavourably by fluctuations in currency
rates, impacting the Group’s earnings and
portfolio valuation.
Medium
Likelihood of volatility
high but the potential
impact at present is
relatively low due to
quantum of investment
in Ireland, albeit this
isincreasing.
Unchanged The Group now has 20 investments in Ireland. Asset values, funding
and net income are denominated in Euros.
The continued impact of COVID-19 throughout the European Union
continues to cause exchange rate volatility.
The Board has funded and will continue to fund its investments in Ireland with Euros so as to create a natural
hedge between asset values and liabilities in Ireland.
Management closely monitors the Euro to GBP currency rates with its banks to formulate a formal hedging
strategy against Irish net cash flows.
Low
PHP has implemented a hedging
strategy in the form of a natural hedge
so as to manage exchange rate risk.
55Primary Health Properties PLC Annual Report 2021
VIABILITY STATEMENT
In accordance with the 2018 UK Corporate Governance Code,
the Board has assessed the prospects of the Group over the
longer term, taking account of the Group’s current position,
business strategy, principal risks and outlook.
The Board believes the Company has strong long term
prospects, being well positioned to address the need for better
primary care health centres in the UK and Ireland.
Emerging risks
In completing this assessment the Board continues to monitor
emerging risks and their potential impact on the Group.
Development delivery risk was added to the Risk Register
during 2020, and continues to be monitored, however the
Board still believe the current exposure to this risk is not yet
considered a principal risk and is therefore not included in the
table above.
The Board also considered, at its annual strategy day, emerging
risks affecting the current primary care delivery model, in
particular the impact of digital technologies. As part of the
outcome of the Board’s evaluation process it was agreed to
include a formal emerging risk review in conjunction with the
annual strategy review.
With respect to Brexit, the Board continues to monitor the situation
but, as disclosed in the Annual Report, does not consider
Brexit, in itself, to constitute a significant risk to the business.
With respect to COVID-19, whilst the Board also continues to
monitor the situation, it no longer feels that it in itself
constitutes a significant risk to the business, and so it has been
removed from the principal risks.
Viability statement
The Directors confirm that, as part of their strategic planning
and risk management processes, they have undertaken an
assessment of the viability of the Group, considering the
current position and the potential impact of the principal risks
and prospects over a three-year time horizon. Based on this
assessment, the Directors have a reasonable expectation that
the Group will be able to continue in operation and meet its
liabilities as they fall due over the period to 31 December 2024.
Although individually the Group’s assets may have relatively
long unexpired lease terms and will all have a defined asset
management strategy, the Board has undertaken its detailed
financial review over a three-year period because:
• the Group’s financial review and budgetary processes cover
a three-year look forward period; and
• occupational leases within the Group’s property portfolio
typically have a three-yearly rent review pattern and so
modelling over this period allows the Group’s financial
projections to include a full cycle of reversion, arising from
open market, fixed and index-linked rent reviews.
The Group’s financial review and budgetary processes are
based on an integrated model that projects performance, cash
flows, position and other key performance indicators including
earnings per share, leverage rates, net asset values per share
and REIT compliance over the review period. In addition, the
forecast model looks at the funding of the Group’s activities
and its compliance with the financial covenant requirements of
its debt facilities. The model uses a number of key parameters
in generating its forecasts that reflect the Group’s strategy and
operating processes and the Board’s expectation of market
developments in the review period. In undertaking its financial
review, these parameters have been flexed to reflect severe,
but realistic, scenarios both individually and collectively.
Sensitivities applied are derived from the principal risks faced
by the Group that could affect solvency or liquidity and are
asfollows:
• declining attractiveness of the Group’s assets or
extenuating economic circumstances impact investment
values – valuation parameter stress tested to provide for
aone-off 10% / £283 million fall in June 2022;
• 15% tenant default rate;
• rental growth assumptions amended to see nil uplifts on
open market reviews;
• variable rate interest rates rise by an immediate 2% effective
from 1 January 2022; and
• tightly controlled NHS scheme approval restricts investment
opportunity – investment quantum flexed to remove
non-committed transactions.
We have assessed the impact of these assumptions on the
Group’s key financial metrics over the assessment period
including profitability, net debt, loan to value ratios and
available financial headroom which are as follows:
Key metrics
31 December 2024
31 December
2021
Viability
scenario
Loan to value ratio 42.9% 49.2%
Net debt £1,200m £1,343m
Adjusted net assets £1,556m £1,337m
Available financial headroom* £321m £203m
*The above analysis takes into account the two debt facilities
completed immediately post year end.
In making its assessment, the Board has made a number of
specific assumptions that overlay the financial parameters used
in the Group’s models. The Board has assumed that, in addition
to the specific impact of new debt facilities, the Group will be
able to refinance or replace other debt facilities that mature
within the review period in advance of their maturity and on
terms similar to those at present.
Harry Hyman
Chief Executive Officer
15 February 2022
56 Primary Health Properties PLC Annual Report 2021
STRATEGIC REPORT
57Primary Health Properties PLC Annual Report 2021
“ Based on the results of their
assessment, the Directors have
a reasonable expectation that
the Company will be able to
continue in operation and
meet its liabilities as they fall
due over the three-year period
to 31 December 2024.”
58 Primary Health Properties PLC Annual Report 2021
CHAIRMAN’S INTRODUCTION TO GOVERNANCE
MAINTAINING A HIGH LEVEL
OF CORPORATE GOVERNANCE
DEAR SHAREHOLDER
Introduction
I am pleased to report to shareholders on how our governance
has developed in the first year following the acquisition of
Nexus Tradeco Holdings Limited on 5 January 2021. This
transaction has internalised the management functions of the
Group and ended a period, since the Company listed on AIM in
1996, during which the Company has been externally managed.
Implementing the 2018 Code (the “Code”)
In the Corporate Governance Report over the next few pages
we describe how the Board and its Committees worked on
behalf of shareholders and other stakeholders, driving the
culture necessary for PHP to achieve its strategic goals, and
how we discharged our statutory duties and oversight
functions. I hope this section of the report will help you gain a
better understanding of the effectiveness of our Board and
how we apply the main principles of the July 2018 UK
Corporate Governance Code (the “Code”), issued by the
Financial Reporting Council (“FRC”).
“ The Board plays a vital role in the
way we do business.”
Steven Owen
Independent Non-executive Chairman
In accordance with the Listing Rules, I am very pleased to
confirm that throughout the year ended 31 December 2021, the
Company was compliant with all the relevant provisions as set
out in the Code.
Operationally, the principal change for our governance focus
has been that the Board now has a more direct responsibility
for reward and retention of our senior employees and consideration
for our workforce, who previously were all employees of Nexus.
This has resulted in an expanded role for the Remuneration
Committee and the report of the Committee on pages 81 to 85
explains in more detail the work that they have undertaken in
the year under the chairmanship of Peter Cole. We also
appointed Laure Duhot as the Designated Non-executive
Director to act as the point of contact between the Board and
the wider employee base to ensure that we are able to engage
with the workforce and to incorporate any concerns or feedback
they provide into our discussions at the Board. You can read
more on their interactions on pages 41 and 68 to 69.
Your Board remains committed to leading by example and
upholding the highest standards of governance that we have set
in the past. The Board provides leadership and direction to the
business, establishes and fosters the culture, values and ethics,
and independently oversees the execution of strategy within
an acceptable risk management and internal control framework.
Culture
We recognise that, as guardian of our culture, the Board plays
avital role in defining the way in which we do business and
sets the tone for the Company. Its attitude and mindset to
dowhat is right shapes the environment within which the
executive team works and the way it behaves towards its
stakeholders. Itis my role to provide leadership to ensure the
operation of an effective Board, based on a culture of openness
and mutual respect. Such a culture allows the Board to provide
constructive scrutiny of proposed investments and help develop
proposals on strategy. The Board understands the importance
of its role in setting the tone for the culture of PHP and the
importance of boardroom diversity as providing a wide range
ofperspectives to avoid a narrow approach in thinking.
Our strong culture supports our strategic priority of partnering
with the NHS in the UK and the HSE in Ireland in the modernisation
of the primary care estate and promotes employee engagement,
retention and productivity. We are genuine and passionate
about what we do, working collaboratively and using our
expertise to find high quality solutions for our occupiers and
improve the experience of the people who use our buildings.
Stakeholders and sustainability
As stewards of the Company, we are responsible to our
shareholders, customers, employees and other stakeholders
forits long term success.
GOVERNANCE
59Primary Health Properties PLC Annual Report 2021
Stakeholders and sustainability continued
The Board is very conscious that our business model touches
on a number of stakeholders, and engagement with them
remains an important priority for PHP. Our stakeholders’ views
are a key consideration when making decisions which may
affect them.
Our ESG Committee continued to drive forward our environmental,
social and governance agenda. In addition to setting challenging
but realistic environmental goals for the business, the ESG
Committee oversaw the launch of the Community Impact Fund,
which has distributed funds to a wide range of charitable
activities linked to the patients and communities of our tenant
GP practices in Scotland and Lincolnshire on a pilot basis. The
fund forms part of the Group’s “Premises, Health and People”
strategy which has formalised its dedication to Responsible
Business and we hope to grow this initiative following its
successful launch over the coming years. We provide further
details on our initiatives to engage with all our stakeholders
onpages 68 to 70 and how we discharge our duties under
Section 172 of the Companies Act 2006 on page 48.
COVID-19
The first part of the year continued to be impacted by the
coronavirus pandemic, which placed huge demands on the
primary care sector and I am pleased that a number of our
buildings were able to host vaccination centres during the
successful roll-out of the immunisation programme in the year.
The pandemic also affected the work of the Board, whose
meetings until July had to all be held by video-conference.
Alsoaffected were our employees, who continued to have to
work remotely for part of the year while continuing to ensure
that maintenance issues did not affect the ability of our
buildings to deliver vital healthcare services in the pandemic.
Although both the Board and staff showed considerable
resilience and adaptability in making remote ways of meeting
work effectively, it was, nevertheless, better to be able to
resume face-to-face meetings during most of the second half
of the year and to allow the Board to engage fully with employees
who present Board papers and to accompany them on the site
visit we undertook on our strategy day in October.
Diversity
The Board is committed to having a balanced Board, recognising
the benefits of diversity in its broadest sense. We have in place
policies to ensure that the Group is free from discrimination
and rewards and promotes staff on the basis of merit and we
are a member of Real Estate Balance, which works to improve
diversity and inclusion in the real estate industry.
I have previously stated the Board’s support for the targets of
the Hampton-Alexander Review and the Parker Review for gender
and ethnic diversity, and committed in my letter to shareholders
at the time of the 2021 Annual General Meeting to ensuring
that this was delivered. I am therefore pleased to be able to
write that, following the appointment of Ivonne Cantú, our Board
now meets the recommendation of the Parker Review on ethnic
diversity and that, following the Annual General Meeting,
women will represent one-third of the Board.
The priority of the Board is to ensure that the Group continues
to have the most effective Board possible and all appointments
to the Board are made on merit against objective criteria.
Wewill continue to work to promote diversity, in all its forms,
including gender, ethnicity and religion. More information
ondiversity is given in the Nomination Committee Report on
pages 79 and 80.
Evaluation
The annual Board evaluation process is an important part of our
governance process as it provides an opportunity for reflection
on aspects of the Board’s work that went well and considers
areas for further improvement.
This year, Gould Consulting, which has no other involvement
with the Company or Board members, carried out an external
evaluation in line with the recommendations of the Code. I am
pleased that the feedback confirms my view that the Board
works effectively, is of an appropriate size and possesses an
excellent balance of skills and experience to challenge, motivate
and support the business. Details of the evaluation and the
main findings of the process are set out on page 72.
AGM
We will be holding our Annual General Meeting on 27 April 2022.
It is hoped that this year it will be possible to hold a physical
meeting at which shareholders can attend in person, but
following the adoption of new Articles of Association we have
more flexibility in how we hold meetings, should this be
required. The Board will keep the format of the meeting under
review and we will be communicating with shareholders if
circumstances alter. In whatever form the meeting takes, I hope
that as many as possible of our shareholders are able to
attend.
I am pleased to report that following an evaluation of the
performance of the Directors and their other commitments,
each of the Directors standing for re-election at the Annual
General Meeting on 27 April 2022 have been recommended by
the Board for re-election. As stated when we announced the
appointment of Ivonne Cantú to the Board, Peter Cole will not
stand for re-election at the Annual General Meeting. The Board
has benefited from his significant experience in corporate,
development and investment activities, and we are also grateful
for his chairing of the Remuneration Committee during the
process of internalising the management in 2020 and the
transition period in 2021.
Looking ahead
With the successful completion of the internalisation of
ourmanagement team we have secured the continuity of
awell-regarded and experienced team, led by Harry Hyman
andRichard Howell, to run the day-to-day management of
thebusiness. Competition is intensifying, the demands of our
stakeholders are increasing and the need to transition to a low
carbon economy is becoming more urgent. With a focused and
experienced Board, an energetic senior management team and
an enthusiastic workforce I am satisfied that our governance
structures remain effective to drive forward the development
ofour business and delivery of our successful strategy.
Steven Owen
Chairman
15 February 2022
60 Primary Health Properties PLC Annual Report 2021
BOARD OF DIRECTORS
1 Steven Owen
Independent Non-executive
Chairman
Election to the Board
Steven Owen was elected at the
Company’s Annual General Meeting in
2014 having been appointed to the Board
in January 2014, and following his election
to the Board he took up the position as
Chairman of the Audit Committee and
Senior Independent Director. Steven was
appointed Chairman in April 2018 and
also took over as Chairman of the
Nomination Committee.
Career
Steven embarked on his career with
KPMG before moving into property with
Brixton plc where he became Finance
Director and subsequently Deputy Chief
Executive. He is currently the Independent
Non-executive Chairman of Palace Capital
plc, a UK REIT that owns and manages a
diversified portfolio of UK regional
commercial property, and was CEO and
Founding Partner of Wye Valley Partners
LLP, a commercial real estate asset
management business.
Skills, competence and
experience
Steven combines his financial skills as
aChartered Accountant with extensive
experience of investment and development
in commercial property in a listed company
environment, having spent 24 years at
Brixton plc, then a listed FTSE 250
company. Steven is also a Fellow of the
Association of Corporate Treasurers.
Other listed directorships
Non-executive Chairman of Palace
Capitalplc.
Independent Non-executive
Yes
S
N
R SE
2 Harry Hyman
Chief Executive Officer
Election to the Board
Harry Hyman founded the Company in
1996 and has served on the Board as
Managing Director from that time and
represented the former Adviser to the
Company, Nexus Tradeco Limited
(“Nexus”), on the Board. On completion
ofthe internalisation on 5 January 2021,
Harry Hyman was appointed as Chief
ExecutiveOfficer.
Career
Harry graduated from Cambridge
University and trained as a Chartered
Accountant and Corporate Treasurer.
Heestablished the Company in 1996 and
was the Managing Director of Nexus
Tradeco Limited, which until 5 January 2021
was the Adviser to PHP.
He is a Fellow of the Institute of
Chartered Accountants in England and
Wales, a Fellow of the Association of
Corporate Treasurers and a Fellow of the
Royal Institute of Chartered Surveyors.
Skills, competence and
experience
Harry has extensive experience in
investing in the primary healthcare sector,
having developed the Company’s
business from inception over 20 years
ago to its current position with an
investment portfolio of over £2.6 billion.
He also brings entrepreneurial flair to the
Board having established a number of
successful private companies.
Other listed directorships
Non-executive Chairman of Biopharma
Credit Plc, an investment trust which
invests in the fast-growing science
industry, and of TMT Acquisition PLC, an
acquisition shell company, both of which
are listed on the London Stock Exchange.
Independent Non-executive
Not applicable
3 Richard Howell
Chief Financial Officer
Election to the Board
Richard Howell was appointed to the
Board from 31 March 2017, having joined
Nexus on 13 March 2017, and following
completion of the internalisation of the
advisory and management functions
previously carried out by Nexus, he was
appointed Chief Financial Officer.
Career
Richard is a Chartered Accountant and
has over 20years’ experience working
with London-listed commercial property
companies, gained principally with
LondonMetric Property plc and Brixton plc.
Richard was part of the senior management
team that led the merger ofMetric
Property Investments plc and London &
Stamford Property Plc in 2013 to create
LondonMetric Property plc with a
combined property portfolio of
£1.4billion.
Skills, competence and
experience
Richard has extensive finance experience,
having previously held senior accounting
positions within listed property
companies operating across the UK.
Whilst working for LondonMetric Property
plc and Brixton plc, he has been involved
in over £5 billion ofproperty transactions.
Other listed directorships
None.
Independent Non-executive
Not applicable
S
4 Peter Cole
Independent Non-executive
Director
Election to the Board
Peter Cole was appointed to the Board
on 1 May 2018 and is Chairman of the
Remuneration Committee.
Career
Peter is a Chartered Surveyor and was
the Chief Investment Officer of
Hammerson PLC, the FTSE-listed owner,
manager and developer of real estate in
the UK, Ireland and Continental Europe,
until his retirement in May 2019. He held
overall responsibility for developments,
acquisitions and joint ventures. He was a
main Board Director of Hammerson from
October 1999 to 31 December 2018, and
has subsequently been appointed as a
Director of Hermes CMK General Partner
and LabTech International.
Skills, competence and
experience
Peter has considerable experience of
property investment and a deep
understanding of the real estate market
and investor sentiment. He brings to the
Board a combination of skills in property
investment and development in the UK
and Europe and an understanding of the
regulatory environment and governance
for listed companies in the UK.
Other listed directorships
None.
Independent Non-executive
Yes
N RE
A
A PROVEN LEADERSHIP
The Board provides leadership and direction to the
business as a whole, having due regard to the views
and interests of its stakeholders and the environment
within which it operates.
EE
GOVERNANCE
61Primary Health Properties PLC Annual Report 2021
6 Ian Krieger
Senior Independent
Non-executive Director
Election to the Board
Ian Krieger was elected a Director at the
2018 Annual General Meeting, having
been appointed to the Board in February
2018, and is Chairman of the
AuditCommittee.
Career
Ian is a Chartered Accountant and was a
Partner and Vice-Chair at Deloitte until
his retirement in 2012. His is currently
Senior Independent Non-executive
Director and Chairman of the audit
committee at Safestore Holdings plc and
he is Senior Independent Non-executive
Director at Capital & Regional plc, where
he is also the Chairman of the audit
committee.
Skills, competence and
experience
Ian qualified as and practised as a
Chartered Accountant and brings a
wealth of recent financial experience to
the Board as well as his experience as
Chairman of the audit committees of
twoother UK-listed companies in the
propertysector.
Other listed directorships
Safestore Holdings plc and Capital &
Regional plc.
Independent Non-executive
Yes
7 Ivonne Cantú
Independent Non-executive
Director
Election to the Board
Ivonne was appointed to the Board from
1 January 2022.
Career
Ivonne has significant public company
experience having spent over 20 years
advising listed businesses. She is currently
the Director of Investor Relations,
Communications and Sustainability as
well as a member of the executive
management team and the sustainability
committee of Benchmark Holdings
Limited, a biotechnology aquaculture
company. She is also a Non-executive
Director and Chair of the remuneration
committee at Creo Medical Group plc and
a Trustee of two non-profit charitable
organisations, La Vida and Info Latinos
and TEH Advisory Board.
Skills, competence and
experience
Prior to taking up her position at
Benchmark Holdings Limited, Ivonne
spent 13 years as a Senior Corporate
Finance Adviser at Cenkos Securities plc,
and prior to that seven years as an
Investment Banker at Merrill Lynch. She
has a degree in Engineering from the
Universidad Panamericana in Mexico City
and an MBA from the Wharton School of
Business at the University of
Pennsylvania.
Other listed directorships
Creo Medical Group plc.
Independent Non-executive
Yes
A
N RE
N RE
5 Laure Duhot
Non-executive Director
Election to the Board
Laure Duhot was appointed to the Board
from 14 March 2019 following completion
of the merger with MedicX Fund Limited.
She is Chair of the recently formed
ESGCommittee.
Career
Laure started her career in the investment
banking sector and has developed a focus
on the property sector. She has held
senior roles at Lehman Brothers,
Macquarie Capital Partners, Sunrise
Senior Living Inc., Grainger plc and
Lendlease. She is a Non-executive
Director of Safestore Holdings plc and
was also a Non-executive Director of
InLand Homes plc until July2020.
Skills, competence and
experience
Laure brings over 30 years of senior
executive level experience in the
investment banking and property sectors,
specialising in alternative real estate
assets, and has been a Non-executive
Director at a number of funds and
property companies.
Other listed directorships
Non-executive Director of Safestore
Holdings plc and NB Global Monthly
Income Fund Limited.
Independent Non-executive
Yes
N RE
A
A
Key to Committee membership
A
Audit Committee
N
Nomination Committee
R
Remuneration Committee
E
ESG Committee
S
Standing Committee
Indicates Chair of Committee
S
62 Primary Health Properties PLC Annual Report 2021
71+29+V
BOARD OF DIRECTORS CONTINUED
COMPOSITION OF THE BOARD
Board skills andexperience
14%
57%
29%
Audit and risk
Finance and banking
Property
1 Chairman
2 Executive
4 Non-executive
5 Male
2 Female
BALANCE OF THE BOARD
GENDER
BOARD ACTIVITIES DURING THEYEAR
January
In January a duly constituted
committee consisting of Non-
executive Directors approved the
execution of the share purchase
agreement and other documentation
agreed to be entered into on
completion of the acquisition of
Nexus and the formal appointment
of Harry Hyman as Chief Executive
Officer, Richard Howell as Chief
Financial Officer and Paul Wright as
Company Secretary.
February
The Board reviewed the year-end
property valuations and preliminary
announcement of results and agreed
to establish a Community Impact
Fund to support health related
activities in the locality of PHP’s
properties. The Board approved the
2020 Annual Report and concluded
it was fair, reasonable and balanced.
The meeting also agreed that the
most appropriate approach for
workforce engagement would be to
appoint a Non-executive Director to
gather the views of the workforce so
that these views can be taken into
consideration in Board discussions
and decision making. It was also
agreed to propose the adoption of
along term incentive plan and an
all-employee share incentive plan
toenhance employee engagement
through the grant of options to
acquire new Ordinary Shares in PHP.
This proposal was approved by
shareholders at the AGM in 2021
and the opportunity to participate in
the all-employee share incentive taken
up by over half the eligible workforce,
which was a very pleasing result.
July
The meeting considered the results
of the interim valuation and approved
the interim results. The Board agreed
to investigate opportunities for
diversification of the portfolio into
adjacent health related areas and
asked for the management team to
undertake a detailed review of the
opportunities. The Board approved
the heads of terms for a new office
at Burdett House, 15-16 Buckingham
Street, London WC2 to provide
modern, flexible accommodation for
staff based in London suitable for
hybrid working.
December
The meeting undertook a top-down
consideration of the principal
risksfacing the business, including
environmental risks identified
through the work of the ESG
Committee. Following completion
ofthe annual Board evaluation
assessment the meeting agreed
enhancements of the Board’s
procedures due to recommendations
from the Nomination Committee.
May
The Board considered the potential
impact of the COVID-19 pandemic
on the delivery of primary care and
face-to-face patient consultations
and the consequent impact on the
Group’s strategy in general as well
as the effect of the pandemic on
employee matters. In particular, the
Board considered the results of a
staff survey on returning to work in
the Company’s offices and took the
decision to approve the adoption of
a hybrid working pattern as
restrictions on returning to office
working were relaxed.
October
The annual strategy meeting was
held, followed by the regular Board
meeting, to approve the 2022
Budget and the refinancing of
certain term loans from Aviva and a
new revolving credit facility from
NatWest to reduce the overall cost
of debt for the Group to below 3.0%.
Following presentations by the
management team at the strategy
meeting, it was agreed in principle
to undertake a small-scale
diversification of the portfolio by
limited investment into high quality
health related adjacencies, such as
diagnostics facilities, or mental
health rehabilitation centres, where
the tenant covenant was considered
to be strong.
GOVERNANCE
63Primary Health Properties PLC Annual Report 2021
EXECUTIVE TEAM AT PHP
Executive and senior leadership teams
Set out below is a chart showing the structure of the Executive
and senior leadership teams which managed the day-to-day
operations of the business, during the year. Further details of the
team are set out on pages 64 and 65.
The Executive team operates under the direction and leadership
of the Chief Executive to deliver the approved strategic
objectives and manage the day-to-day running of the business.
The senior leadership team comprises departmental heads from
all key business functions with a diverse range of skills and
experience and this team has been strengthened from the start
of 2022 by the recruitment of a Director dedicated to driving
forward PHP’s ESG agenda.
The Executive team meets weekly, which during the disruption
caused by the COVID-19 pandemic was on a remote basis in
the first half of the year.
When the lockdown restrictions were lifted in the summer,
theoffices in London and Stratford-upon-Avon were opened
following the completion of a risk assessment and the introduction
of revised working patterns to allow for social distancing, which
allowed teams from each department to work for a limited
number of days each week in the office.
Despite the disruption to operations caused by the pandemic in
the first half of the year, the team continued to operate effectively
while working from home for all or part of each week.
TONY
COKE
Director:
Development
DAVID
AUSTIN
Director:
Asset
Management
JAMES
YOUNG
Director:
Property
Management
OLIVER
GOODMAN
Director:
Rent Reviews
andValuation
JESSE
PUTZEL
Director:
ESG
MICHELLE
WHITFIELD
Director:
Property
Operations
and ESG
DAVID BATEMAN
Investment
Director
CHRIS SANTER
Chief Investment
Officer
RICHARD HOWELL
Chief Financial
Officer
LIAM CLEARY
Director:
Commercial
Finance and
Financial
Reporting
PAUL WRIGHT
Company
Secretary
HARRY HYMAN
CEO
64 Primary Health Properties PLC Annual Report 2021
The team are listed opposite, along with
the dates they joined the business.
HARRY HYMAN
Chief Executive Officer
Full biography on page 60.
RICHARD HOWELL
Chief Financial Officer
Full biography on page 60.
CHRIS SANTER
Chief Investment Officer
Chris joined the business in October 2017
from PGIM Real Estate, the asset management
arm of Prudential Financial Inc, and he has
over 20 years’ real estate investment and
development experience in the UK and
Continental Europe.
Chris has been responsible for a number of
funds investing in or managing real estate
assets with a value of over £2billion. Chris
has an MBA from Warwick Business School
and is a Member of the Royal Institute of
Chartered Surveyors.
DAVID BATEMAN
Investment Director
David was appointed Investment Director in
December 2016 and subsequently promoted
to the Executive team in 2021. David is
responsible for managing the investment
team with significant input across investor
presentations, strategy and development.
Over the last 20 years David has worked
across all property sectors but with an
increasing focus onoperational-led property
and with substantial expertise in sale and
leaseback, development-led transactions
andinvestments.
PAUL WRIGHT
Company Secretary
Paul joined the business in September 2016
and provided company secretary and Group
legal services through Nexus, until completion
of the internalisation when he was appointed
as Company Secretary. Paul is a solicitor with
over 30years’ experience gained in private
practice and in house. Paul has previously been
Company Secretary & General Counsel at
Taylor Nelson Sofres PLC (now part of WPP
PLC), Playtech PLC and Cambian Group PLC.
SENIOR LEADERSHIP TEAM
EXECUTIVE COMMITTEE
GOVERNANCE
65Primary Health Properties PLC Annual Report 2021
LIAM CLEARY
Director: Commercial Finance
andFinancial Reporting
Liam joined following the merger with the
MedicX Fund in 2019, and is now responsible
for commercial finance and financial reporting.
Liam is a Chartered Accountant who has over
twelve years’ experience working in private
and public companies. Before working on the
MedicX Fund he worked at both PwC and
Deloitte Touche Tohmatsu in the UK and
Australia on capital market and merger &
acquisition transactions.
MICHELLE WHITFIELD
Director: Operations and Sustainability
Michelle joined the business in February 2014
following the acquisition of the Prime portfolio.
She has previously worked in national property
and asset management for NFU Mutual
Insurance Society Ltd and Halfords. She
moved to specialist healthcare developer and
investor Prime PLC in 1999, managing its
portfolio of primary care centres. Michelle is
based in the Stratford-upon-Avon office and
oversees the delivery of the Group’s training
programme and manages the relationship
with the UK Community Foundations to offer
grants to charities and community groups
that are focused on social prescribing and
community wellbeing projects.
SENIOR MANAGEMENT
JESSE PUTZEL
Director: ESG
Jesse joined PHP in January 2022 and has
over 18 years’ experience in environment and
sustainability field within public and private
sector. Prior to joining PHP, Jesse was Head
of Sustainability at BAM, a large European
construction and property services enterprise.
At BAM, Jesse spearheaded industry leading
initiatives, helping the group to become one
of the leading sustainable construction and
property services businesses in Europe and
has worked with leading clients to help
deliver some of the most sustainable buildings
in the UK. Jesse is a member of the Institute
for Environmental Management and Assessment,
Fellow of Royal Society of Arts and Cambridge
Sustainable Finance course assessor.
DAVID AUSTIN
Director: Asset Management
David has worked in the PHP business since
August 2016 and was appointed to head up
the asset management team in 2019 following
the merger with the MedicX Fund. David is a
Chartered Surveyor with over 20 years’ post
qualified experience with Jones Lang LaSalle,
Axa, LandSec and MWB.
JAMES YOUNG
Director: Property Management
James joined PHP from the MedicX Fund in
2019, where he was Head of Asset and
Property Management. Following the merger,
James was appointed to be responsible for
property and facilities management across the
enlarged portfolio in the UK. James manages a
team of surveyors, who are primarily based in
the Stratford-upon-Avon office. James is a
Chartered Surveyor with some 20 years’
experience having worked as a Property and
Asset Manager for the likes of CBRE, GVA
Grimley and Herring Baker Harris.
OLIVER GOODMAN
Director: Rent Reviews andValuation
Oliver joined following the merger with the
MedicX Fund in 2019, and heads up the team
responsible across the portfolio for negotiating
and securing rent reviews, both when provided
for under the terms of the lease and on asset
management projects when the lease is
re-geared. Oliver is a Chartered Surveyor and
he has an in-depth understanding of the
process of agreeing rent reviews with District
Valuers in accordance with the detailed
regulations that govern the reimbursement of
rents on GP surgeries.
TONY COKE
Director: Development
Tony is a Chartered Surveyor with 15 years’
experience in primary care development.
Tony’s teams have delivered some 30 new
premises across the South of the UK, with a
particular focus on the South East and Greater
London. Tony is conversant with all aspects of
primary care premises development from the
initial project brief right through to achieving
practical completion on the premises.
66 Primary Health Properties PLC Annual Report 2021
OUR GOVERNANCE STRUCTURE
Board of Directors
Chairman: Steven Owen
• Collectively responsible for the long term success of the business taking into account the views of shareholders and other stakeholders. It sets the Group’s
strategic aims, ensuring that the necessary resources are available for the Group to meet its objectives, and oversees the execution of the strategy within an
acceptable risk management framework. The Board also established and fosters the Group’s values and standards
• Biographies – see pages 60 and 61
• Activities – see page 62
Audit Committee
Chairman: Ian Krieger
• Oversees the quality of financial and narrative
reporting
• Scrutinises significant judgements made by
management
• Reviews the robustness of internal controls, risk
management and audit processes
• Evaluates the performance of the external auditor
• Obtains assurance regarding the objectivity of
the valuers
Membership: Ian Krieger, Peter Cole, Ivonne Cantú
and Laure Duhot
Standing Committee
Chairman: Steven Owen
• Approves dividend announcements, the offering of a
scrip alternative and the allotment and issue of new
shares in connection with the scrip alternative
• Approves other formal matters that require the
approval of the Board or a duly authorised committee
between scheduled meetings of theBoard
Membership: Steven Owen, Ian Krieger, Richard
Howell and Harry Hyman
ESG Committee
Chair: Laure Duhot
• Assists in the development of ESG strategy
• Develops and monitors policies on ESG matters
• Develops and monitors social impact initiatives
• Considers opportunities for environmental initiatives
in the portfolio
Membership: Laure Duhot, Peter Cole, Ivonne Cantú,
Steven Owen, Ian Krieger, Harry Hyman,
Richard Howell and Chris Santer
Remuneration Committee
Chairman: Peter Cole
• Determines and implements Remuneration Policy
• Sets remuneration packages and incentives for
the Executive Directors and senior management team
• Approves annual bonus and LTIP targets and
outcomes for the senior management team
• Oversees the operation of the PHP Sharesave
plan and approves the grant of options under
the plan
• Has oversight of workforce remuneration
arrangements and alignment of these with the
Group’s strategy
Membership: Peter Cole, Steven Owen, Ivonne
Cantú, Laure Duhot and Ian Krieger
Nomination Committee
Chairman: Steven Owen
• Leads process for Board appointments
• Considers Board composition and succession
• Reviews balance of skills and diversity on the Board
• Oversees the annual Board evaluation process
Membership: Steven Owen, Ian Krieger, Peter Cole,
Ivonne Cantú and Laure Duhot
Executive Committee*
Chairman: Harry Hyman
• Reviews investment opportunities for consideration
by the Board and approves any investment decision
of less than £5 million
• Reviews operational performance of the business and
approves proposals for asset management projects
involving capital expenditure of less than £2 million
• Undertakes day-to-day management of the PHP portfolio
• Reports to the Board at each meeting through
formally reporting from the CEO, CFO and CIO
Membership: Harry Hyman, Richard Howell, Chris
Santer, David Bateman and Paul Wright
PHP Risk Committee*
Chairman: Richard Howell
• Reviews strategic and operational risks in achieving
delivery of PHP’s strategic goals
• Reviews operational risk management processes
• Recommends appropriate risk appetite levels and
monitors risk exposure
• Reports to the Audit Committee at each of
itsmeetings
Membership: Richard Howell, Ian Krieger, Harry
Hyman, Chris Santer, Paul Wright, Liam Cleary and
James Young
OTHER NON-BOARD COMMITTEES
* These PHP Committees were newly established post internalisation of management.
CORPORATE GOVERNANCE REPORT
GOVERNANCE
67Primary Health Properties PLC Annual Report 2021
Board’s
governancerole Board decisions and actions in the year Links
Setting strategy
The annual strategy discussion was held in October led by the Executive Directors and involving all the
members of the senior leadership team. There was debate as to whether any changes to strategy were
required in light of changes in the market and emerging risks. In particular, potential diversification of the
portfolio by investment into other health related markets was discussed and the risks and opportunities
afforded by this proposed strategy was debated in detail.
The debate also covered the Group’s financial strategy, including the appropriate balance between
secured and unsecured debt financing and the optimum level of gearing for the Group. The session also
discussed the outlook for the property and healthcare markets, the UK economic landscape, in particular
the potential impact of rising levels of inflation and supply chain issues.
Page 71
Investment
decisions
The Board reviewed and tested management’s assumptions supporting investment in the development of
four projects in the UK with a gross development value of over £20 million. Further, in line with the Board’s
delegated authority matrix, all decisions for acquisitions of over £5 million were subjected to similar scrutiny
by the Board before approval was given to proceed.
After detailed consideration of management’s investment appraisals, the Board agreed capital
expenditure totalling £15.0 million on over 39 asset management projects in the year, to enhance the
capital value of the existing portfolio.
Pages 19
and 21
Financial
performance
After scrutiny by the Audit Committee, and following its recommendation, the annual and interim financial
statements and results presentations were considered and approved.
The Board undertook an in-depth scrutiny of the annual and interim property valuations, with, at the
request of the Board, the valuers attending the relevant Board meetings.
The internal control framework and risk register were reviewed with specific consideration given to
COVID-19, IT and cyber security issues and environmental risks.
Following the strategy session in October, at a subsequent meeting the Board considered the three-year
rolling financial forecasts in the light of the Company’s strategic objectives. The Board undertook a review
of the assumptions underlying the going concern and viability statements for the Group and adopted
these statements following discussion with the CFO.
Pages 75
to 77
Income and
dividend
progression
The Group’s dividend policy for the year and the level of quarterly interim dividends was considered and,
following a review of the Group’s forecast income from existing properties, acquisitions and rent reviews,
was considered an appropriate return to shareholders in the light of longer term requirements of the business.
Page 100
Capital allocation
In order to retire some existing term loans from Aviva Investors, the Board approved a new £200 million
facility for a 15-year term at a fixed rate of 2.52% and the renewal of its existing £100 million facility with
NatWest, with the inclusion of sustainability KPIs based around PHP’s existing built environment targets
which will benefit the Group with a margin reduction, conditional on achieving these targets.
Pages 26
and 27
Stakeholder
engagement
Feedback was discussed following shareholder meetings, roadshows and results presentations.
The Board commissioned management to undertake a tenant survey and the results were considered and
proposals for continued improvement of our property management activity in the light of the results approved.
We continued to ensure that our suppliers received prompt payments for their services and further
information is available on page 102.
Pages 40
to 45
Workforce
engagement
The Board determined to understand the views of the workforce by asking Laure Duhot to act as the
Designated NED for workforce engagement. Details of how she has engaged with the workforce and the
Board have reflected on the results of her engagement to date are set out on pages 41 to 42 and 68 to 69.
Pages 41
and 68
ESG
The Board approved ESG targets proposed by the ESG Committee to drive forward our sustainability
initiatives, details of which are set out in the Responsible Business section on pages 30 to 45, and
decided to launch the PHP Community Impact Fund as part of PHP’s wider ESG initiatives.
Pages 30
to 45
HOW GOVERNANCE SUPPORTS OUR STRATEGY
68 Primary Health Properties PLC Annual Report 2021
PART A: BOARD LEADERSHIP AND
COMPANYPURPOSE
Purpose
The Board has determined that the Company’s purpose is to
improve the delivery of healthcare in the United Kingdom and
Ireland. It seeks to achieve this purpose by being a leading
investor in flexible, modern primary healthcare facilities in those
countries.
The Board has well-developed investment criteria to ensure we
invest in or develop modern, purpose-built health centres that
serve as key healthcare assets in the local community, where
they deliver a wide range of primary care and other services to
the local population. Our buildings now serve a total patient
list of over 6 million people. We also continually invest in our
estate through asset management projects designed to
improve the quality of the buildings better to serve the
evolving and expanding health needs of our communities by:
• increasing the number of consulting rooms;
• providing facilities for delivering wider healthcare services,
and
• making the buildings more energy efficient.
The Board believes that by rigorous focus on its purpose the
Group has grown a portfolio of properties that offers long term
and sustainable sources of rental income to underpin the over
25 years of continued dividend growth that we have delivered
to shareholders.
Leadership
The Board, supported by an expert management team, continues
to maximise the competitive advantage of the Company by
utilising the team’s deep knowledge of the primary care sector
to create sustainable value for shareholders.
Your Board is collectively responsible for assessing the basis on
which the Company generates and delivers long term, sustainable
returns to shareholders, having due regard to its purpose, and
the views and interests of its stakeholders and of the
communities within which it operates.
Culture and values
The Board establishes the culture, values and ethics of the
organisation, sets and implements strategy and provides
leadership and direction within a sound framework of risk
management and internal control.
The Board considers that the Company’s culture can be defined
by the following principles:
• we aim to make a positive impact in all our activities for
ourstakeholders;
• we conduct our operations with honesty, integrity and
respect for the many people, organisations and localities
that our business interacts with;
• we believe that a working environment characterised by
openness, respect, trust and fairness is an indispensable
requirement for excellent work results;
• we encourage our employees to assume responsibility and
to make decisions on their own within a trusted framework;
• we are close to our customers and/or tenants; we listen to
them, co-operate and work together with them; and
• the organisation is a meritocracy irrespective of gender,
race, religion and sexual orientation.
The Board continues to monitor the culture of the Company
through indicators which serve as a temperature check.
Itconsiders:
• staff survey results, particularly to monitor staff wellbeing
during periods of lockdown;
• the results of workforce engagement meetings with
LaureDuhot;
• feedback from office visits by the Board as a whole;
• data on employee turnover;
• health and safety incident statistics; and
• whistleblowing incidents.
The maintenance of the culture of the business was one of
themain challenges faced through periods when we were all
encouraged to work from home as much as possible. During
theyear, the senior management team continued the practice
of holding regular “town hall” meetings and the more informal
after work sessions with all staff by video-conference that had
begun during the lockdown in 2020, to ensure that the PHP
ethos was not diluted through lack of interaction.
We believe that the feedback from these meetings, together with
the results of the workforce engagement sessions and the results
of the staff survey, indicate that our culture remains strong and
was not materially affected by the disruption of the pandemic.
Stakeholders
Stakeholder engagement is integral to delivering modern,
state-of-the-art medical centres. In working on the development
of new facilities, or in planning asset management projects, we
engage deeply with the NHS in the UK and the HSE in Ireland,
as well as with local GPs and other healthcare professionals.
Opportunities for the Directors to engage with our tenants
were limited in the year, but as part of the Board strategy day,
the Directors were able to visit the recently opened Eastbourne
Medical Centre, that houses three merged GP practices delivering
primary care services for a patient list of over 18,000. The
learnings from the visit in terms of the evolving needs of our
stakeholders is more fully described on page 71.
Engagement with our tenants is particularly important and the
results of the tenant survey conducted at the end of 2020 were
reviewed by the Board and the structure of the survey conducted
in November 2021 approved. The survey is one of the key
mechanisms that ensure effective stakeholder engagement
shapes decisions in the boardroom. Further information on
stakeholder engagement can be found on page 41.
Our staff are a key stakeholder group and following completion
of the internalisation, in common with many listed companies,
we appointed Laure Duhot as the designated Non-executive
Director for workforce engagement. Her remit covers all
individuals working for PHP, whether they are engaged under
contracts of employment or otherwise.
In this capacity, she has held a number of informal discussion
sessions with groups of employees in the latter part of the year,
when COVID-19 restrictions permitted.
CORPORATE GOVERNANCE REPORT CONTINUED
GOVERNANCE
69Primary Health Properties PLC Annual Report 2021
Stakeholders continued
She reported to the Board that these sessions highlighted the
importance of the virtual bi-weekly workforce meetings that have
been held in the year in continuing to strengthen links between
our various teams.
She also reported that she had found a culture of openness and
that overall morale was strong and that the improved Company-
wide training programme introduced in the year was valued,
both in improving skills and in drawing members of various
teams together. Comments were made with regard to the level
of benefits available to staff, which reinforced the decision of
the Board, on the recommendation of the Remuneration
Committee, to approve the uplift in the Group’s benefit package
referred to on page
85.
Shareholders
Regular communication with investors continues to be a top
priority for the Board, which believes that understanding the
views of shareholders is an important contributor to the
Company’s strategic direction and success. We held meetings
with nearly 200 investors during the year. In addition, Peter
Cole, as Chairman of the Remuneration Committee sought the
views of major shareholders on the new Directors’ remuneration
policy ahead of the 2021 AGM.
PHP was unable to hold a physical Annual General Meeting
once again in 2021, but as we had adopted new Articles of
Association in January, we were able to host a hybrid meeting
that allowed shareholders the chance of engagement through
watching a live video-broadcast of the proceedings, an ability
to raise questions through a chat function and the opportunity
to vote on the resolutions.
The Board works with its brokers, Numis and Peel Hunt, to
ensure that an appropriate level of communication is facilitated
through a series of investor relations activities around the issue
of our full year and interim results. The feedback received by the
brokers from these meetings is fed back to the Board for its review.
Harry Hyman, the CEO, and Richard Howell, the CFO, are the
Company’s principal representatives at meetings with investors
and along with Chris Santer, the CIO, hold meetings throughout
the year to communicate the Company’s strategy and performance.
Topics discussed with shareholders include the development
and implementation of strategy, financial and operational
performance, ESG matters, the strength of the Company’s
income, the debt structure and the real estate market in general.
Shareholder communications
Shareholders are kept informed of the Company’s progress
through results statements and other announcements released
through the London Stock Exchange. Company announcements
are made available on the website affording all shareholders
full access to material information. The website is an
importantsource of information for shareholders and includes
acomprehensive investor relations section containing all RNS
announcements, share price information, investor presentations,
half year results and Annual Reports available for downloading.
Role Responsibilities
Chairman
Steven Owen
• Leads the Board and ensures it runs effectively
• Sets Board culture to promote boardroom debate
• Regularly meets with the CEO to stay informed
• Monitors progress against strategy and performance
• Ensures all stakeholders’ views are considered
Senior Independent
Director
Ian Krieger
• Provides a sounding board for the Chairman
• Leads performance evaluation of the Chairman
• Is available to respond to shareholders’ concerns when contact through the normal channels is
notappropriate
Non-executive
Directors
Peter Cole
Laure Duhot
Ivonne Cantú
• Scrutinise and constructively challenge the performance of executive management
• Bring independent judgement to investment decisions brought to the Board and approve decisions
reserved for the Board as a whole
• Contribute to developing strategy and monitor the delivery of the agreed strategy
• Contribute a broad range of skills and experience
Chief Executive
Officer
Harry Hyman
• Manages the day-to-day running of the business
• Manages dialogue with investors, shareholders and key stakeholders and relays views back to the Board
• Helps develop and formulate strategy for the Board and is responsible for its implementation
Chief Financial
Officer
Richard Howell
• Responsible for the preparation of accounts and integrity of financial reporting
• Implements decisions on financing and capital structure determined by the Board
• Responsible for day-to-day treasury management
• Ensures robust accounting systems and internal controls are implemented
Company Secretary
Paul Wright
• Advises the Board and is responsible to the Chairman on corporate governance matters
• Ensures good flow of information to the Board and its Committees
• Promotes compliance with statutory and regulatory requirements and Board procedures
70 Primary Health Properties PLC Annual Report 2021
PART A: BOARD LEADERSHIP AND
COMPANYPURPOSE CONTINUED
Shareholder communications continued
A live and on-demand webcast of results and an interview with
the CEO and CFO are posted twice a year. Individual shareholders
can raise questions directly with the Company at any time
through a facility on the website. Shareholders are encouraged
to participate in the Annual General Meeting of the Company,
which provides a forum for communication with both private
and institutional shareholders alike. The whole Board attends
and is available to answer shareholder questions. The Senior
Independent Director is also available to respond to shareholder
concerns when contact through the normal channels is
notappropriate.
Conflicts
The Board operates a policy to identify and, when appropriate,
manage actual or potential conflicts of interest affecting Directors.
Directors are required to submit any actual or potential conflicts
of interest they may have with the Company to the Board for
approval. The Company Secretary maintains the register of
approved conflicts of interest through this process, which is
tabled and considered at each Board meeting. Directors have
aduty to keep the Board updated about any changes to
theseconflicts.
In certain circumstances the conflicted Directors may be required
to absent themselves while such matters are being discussed.
No such situations arose in the year.
The Board has delegated to the Nomination Committee the
process of formally reviewing conflicts disclosed on an annual
basis and the authorisations given (including such conditions as
the Board may determine in each case) renewed periodically.
PART B: DIVISION OF RESPONSIBILITIES
The roles of the Chairman (who is responsible for the leadership
and effectiveness of the Board), the Chief Executive (who is
responsible for the day-to-day operations of the business)
andthe Senior Independent Director (who is responsible for
supporting the Chairman on all governance issues) have been
agreed by the Board and are clearly defined and quite distinct
from each other as described below.
Following completion of the internalisation, the Board agreed a
revised schedule of matters formally reserved to it for its decision,
such as strategic and major financial matters which include
acquisitions and capital expenditures on asset management
projects over an agreed value, dividend policy, equity raising, debt
issuance and treasury management and key operational issues.
This governance structure set out on page 63 ensures that the
Board is able to focus on strategic proposals, significant
property acquisitions and major transactions and governance
matters which affect the long term success of the business.
When running Board meetings, the Chairman maintains a
collaborative atmosphere and ensures that all Directors have
the opportunity to contribute to the debate. The Directors are
able to voice their opinions in a calm and respectful environment,
allowing coherent discussion. The Chairman meets with individual
Directors outside formal Board meetings to allow for open,
two-way discussion about the effectiveness of the Board, its
Committees and its members. The Chairman is therefore able
to remain mindful of the views of the individual Directors.
Harry Hyman as CEO is responsible for the day-to-day
management of the Group and the CFO is responsible for the
preparation of the financial statements and the provision of
quarterly management account information.
How the Board functions
Regular Board and Committee meetings are scheduled
throughout the year with five scheduled meetings held in 2021,
of which two were held remotely by video-conference due to
restrictions on physical meetings imposed by the government
in response to the COVID-19 pandemic. In addition, the Board
met by video-conference between scheduled meetings to
discuss significant investment opportunities and other matters
that arose. There is also regular informal contact between the
Executive and Non-executive Directors between scheduled
Board meetings.
At the start of the year, and in the light of the internalisation,
the Board reviewed its authorities matrix and the formal
schedule of matters specifically reserved for its decision, which
includes (amongst other things) various strategic, financial and
operational responsibilities. As PHP is no longer externally
managed, it was agreed to amend the schedule to reflect the
new structure: in particular, it was agreed to delegate approval
of acquisitions of medical centres with a capital value of below
CORPORATE GOVERNANCE REPORT CONTINUED
Board attendance
Details of the attendance of each of the Directors who served during the year are set out below:
Audit Nomination ESG Remuneration
Board Committee Committee Committee Committee
Director (total in year – 5) (total in year – 3) (total in year – 2) (total in year – 4) (total in year – 5)
Steven Owen 5 — 2 2* 5
Harry Hyman 5 — — 4 —
Richard Howell 5 — — 4 —
Peter Cole 5 3 2 4 5
Laure Duhot 5 3 2 4 5
Ian Krieger 5 3 2 2* 5
* Steven Owen and Ian Krieger were appointed to the ESG Committee in June 2021.
During the year, the Chairman and the other Non-executives met periodically in the absence of the Executive Directors.
GOVERNANCE
71Primary Health Properties PLC Annual Report 2021
DIRECTORS’ GENDER
DIRECTORS’ TENURE
Male
Female
1 year
2–3 years
4–6 years
7–9 years
10 years+
PART B: DIVISION OF RESPONSIBILITIES CONTINUED
How the Board functions continued
£5 million and of asset management projects involving a
commitment of capital below £2 million, to the Executive
Committee. A summary of the key activities of the Board during
the year, in accordance with the formal schedule of reserved
matters, can be found on page 62.
Care is taken to ensure that information is circulated in good
time before Board and Committee meetings and that papers
are presented clearly and with the appropriate level of detail
toassist the Board in discharging its duties. The Company
Secretary assists the Board and Committee Chairs in agreeing
the agenda in sufficient time before the meeting to allow input
from key stakeholders and senior executives.
Further, the members of the senior management team regularly
attend meetings of the Board and have developed a strong
understanding of the Board’s approach and culture.
Strategy meeting
The 2021 strategy meeting, which is held as a separate meeting
outside the regular Board schedule and attended by all the
Directors and the senior management team, was held in Eastbourne.
The Board took the opportunity to visit the recently completed
Eastbourne Medical Centre, which houses a progressive and
dynamic GP practice created from the merger of three formerly
distinct practices. The Board received presentations from and
had detailed discussions with both the Medical Director and
Practice Chief Executive who described how the new building
enabled them to deliver their vision for improved primary care
to the community. This visit provided the Board with a valuable
insight into the challenges facing GPs, particularly following the
pandemic, and how innovative and entrepreneurial practices
have responded to these. The meeting reinforced the Board’s
view that the Group’s strategy of focusing on hub primary care
centres, with a large lot size, flexible floor plans and the ability
to offer a variety of healthcare services, is the correct response
to the evolving requirements for the delivery of primary care in
the United Kingdom and Ireland.
In preparation for the strategy meeting the Board received a
background reading pack that included a review of the primary
care property market, noting the increased investor interest in
the sector, with several new investors entering into the sector
chasing the available opportunities. Papers considered the
opportunities in related healthcare sectors and markets to
diversify the portfolio and for the financing of the Group’s
capital needs. In particular, the papers included a presentation
on the organic expansion of the Group’s development
capabilities and the further development of the Group’s ESG
activities and ambitions. The meetings themselves and the
dinner that followed gave the Non-executive Directors an
opportunity to meet with and discuss issues with the wider
senior management team.
PART C: COMPOSITION, SUCCESSION
ANDEVALUATION
Board composition
The current Board of Directors of the Company consists of the
Chairman, four independent Non-executive Directors and two
Executive Directors. Biographical information on each of our
Directors can be found on pages 60 and 61, which shows the
breadth of strategic and financial management insight brought to
our Board and that the Chairman, Laure Duhot, Ivonne Cantú,
Peter Cole and Ian Krieger are all considered to be independent.
The composition of the Board is fundamental to its success. We
continue to have a strong and diverse mix of experienced individuals
on the Board. The majority are independent Non-executive Directors
who are not only able to offer an external perspective on the
business, but also constructively challenge the Executive
Directors, particularly when developing the Company’s strategy.
The high calibre of debate and the participation of all Directors,
Executive and Non-executive, in its meetings allows the Board
to utilise the experience and skills of the individual Directors to
their maximum potential and make decisions that are in the
best interests of the Company. The relatively small size of the
Board facilitates all members to develop a close understanding
and allows the development of open debate. This culture has
helped the Board remain positive, focused and cohesive during
the pandemic.
Board induction and training
The Code provides that all Directors should receive a full, formal
and tailored induction on joining the Board. On joining the Board
new Directors are provided with a tailored induction programme
delivered by the Company Secretary. Ivonne Cantú has started
her induction programme and received a detailed pack of
materials to read regarding the Company and its governance.
72 Primary Health Properties PLC Annual Report 2021
PART C: COMPOSITION, SUCCESSION
ANDEVALUATION CONTINUED
Board induction and training continued
She has undertaken a programme of site visits with members
ofour property management and asset management teams
that included a visit to our properties in Nottingham, an asset
management project at our medical centre in Leamington Spa,
as well as a visit to our office at Stratford-upon-Avon. Further
site visits will be arranged, as well as visits to our offices in
London to meet with colleagues.
Directors are able to receive training or additional information
on any specific subject pertinent to their role as a Director that
they request or require. The suitability of external courses is
kept under review by the Company Secretary, who is charged
with facilitating the induction of new Directors and with
assisting in the ongoing training and development of all
Directors. All Directors have access to the advice and services
of the Company Secretary and a procedure is in place for them
to take independent professional advice at the Company’s
expense should this be required.
Succession
As well as leading the procedures for appointments to the
Board and its Committees, the Nomination Committee
oversees succession planning for the Board and senior
management with reference to the Board Diversity and
Inclusion Policy. Further details on the work of the Nomination
Committee is set out on 79 and 80.
Board evaluation
The Code recommends that the Chairman should consider
having an externally facilitated Board evaluation every three
years. This year an external firm, Gould Consulting, were
appointed to assess the effectiveness of the Board and its
Committees. In light of continued uncertainty surrounding the
pandemic, it was decided to undertake this by means of an
online questionnaire that covered a combination of standard
items, such as Board dynamics and relationships, and individual
participation and contribution, along with more topical matters,
such as consideration of stakeholder issues. The Directors were
also asked to comment on the performance of the Board
Committees.
The results of the survey were collated by Gould Consulting
and reviewed together with the Chairman to consider any
themes that had been identified ahead of discussion of these
issues by the Directors at the Nomination Committee, which
also considered next steps and recommendations are set out
below.
The Chairman conducted an evaluation of the performance of
each of the individual Directors as a separate exercise. Ian
Krieger, Senior Independent Non-executive Director, had
private meetings with each of the individual Directors to take
their feedback on the performance of the Chairman.
Overall, the results of the evaluation process reflected well on
the Board and the tone set by the Chairman and the Chief
Executive Officer and concluded that each of the Committees
were operating effectively. The Chairman and Chief Executive
Officer continue to have a strong, supportive relationship
providing clear and effective leadership and focus that are
instrumental to the long term success of the Company. The
members of the Board and its Committees are seen as being
engaged and committed and able to raise challenges openly
while the culture remains open, respectful and constructive.
Details of the outcomes of the 2020 evaluation and the 2021
evaluation, as well as the actions taken in response to the
2020 evaluation, are set out below:
2020 evaluation outcomes Progress in 2021 2021 evaluation outcomes
Further develop the Board’s
consideration of longer term strategic
objectives and consideration of climate
related risks.
The membership of the ESG Committee was
extended to include all the Non-executive
Directors and a formal environmental risk
register was developed and agreed.
It was agreed to increase the
opportunities for the Board to engage
with the workforce to assess and
develop the Group’s culture, following
the internalisation.
Evaluate whether some of the revised
working procedures that the Board and
management were forced to adopt by
the COVID-19 pandemic may be adopted
going forward to improve our processes.
The consideration of investment decisions
between formal Board meetings was
facilitated by the use of video-conferencing
facilities, as was the holding of virtual
meetings of all staff.
There was a desire to undertake a
deeper and detailed review of key areas
of the business, such as development
projects, at Board meetings.
Continue to strengthen our
sustainability and community impact
agendas through the work of the new
ESG Committee.
The Board approved the establishment of the
PHP Community Impact Fund as well as other
charitable initiatives discussed in our
Responsible Business Report on page 40.
Further work will be undertaken to
continue strengthening our risk
management processes, inlight of
climate change and the current
environment.
The Board intends to review the implementation of these recommendations as part of its evaluation process in 2022 andwill
report on progress in next year’s Annual Report.
CORPORATE GOVERNANCE REPORT CONTINUED
GOVERNANCE
73Primary Health Properties PLC Annual Report 2021
PART C: COMPOSITION, SUCCESSION
ANDEVALUATION CONTINUED
Commitment
The letters of appointment for Non-executive Directors set out
thetime commitment expected to be necessary to perform their
duties. All Directors are aware of the need to allocate sufficient
time to the Company in order to discharge their responsibilities
effectively. Directors must obtain prior approval from the Board
when they take on any additional responsibilities or external
appointments and it is their responsibility to ensure that such
appointments will not prevent them meeting their time
commitments. Following her retirement from the board of
InLand Homes plc, the Board approved the appointment of
Laure Duhot to the board of Safestore plc, where Ian Krieger is
also a Non-executive Director, as it considered that she would
continue to have sufficient time to meet her commitments to
the Company.
The Board also agreed that Harry Hyman could take up the
position of Non-executive Chairman of TMT Acquisition plc, a
listed shell company formed to pursue opportunities to acquire
businesses in the technology, media and telecom sector and
which listed on the standard segment of the London Stock
Exchange in October 2021. In December, the Board, under the
leadership of Ian Krieger as Chairman, considered and approved
the appointment of Steven Owen as the Non-executive
Chairman of Palace Capital plc, a FTSE Small Cap UK-listed
REIT.
Information and support
The services of the Company Secretary are available to all
members of the Board. The Company Secretary is responsible
for ensuring good and timely information flows within the
Board and its Committees and between the senior
management and the Non-executive Directors.
The Board uses a web-based system which provides ready
access to Board papers and materials. Prior to each Board
meeting the Directors receive the agenda and supporting
papers through this system to ensure that they have all the
latest and relevant information in advance of the meeting.
During the year, the papers presented to the Board have been
revised to move away from detailed and lengthy reporting on
activity, which was appropriate when the Company was
externally managed, to more focused reporting on specific
issues related to strategy.
After each Board meeting, the Company Secretary operates a
comprehensive follow-up procedure to ensure that actions are
completed as agreed by the Board.
PART D: AUDIT, RISK MANAGEMENT
ANDINTERNAL CONTROL
Financial and business reporting
A comprehensive budgeting process is in place, with an annual
budget and three-year forecast prepared and considered and
approved by the Board. The Directors are provided with relevant
and timely information to monitor financial performance against
the budget. Defined authorisation levels regulate capital
expenditure. Investment decisions that require Board approval
in accordance with the authorisation matrices are governed by
defined appraisal criteria, which include anticipated financial
returns, the quality of the building and its environmental rating.
The Board is also provided with details of the healthcare
services to be delivered from the medical centre (including
details of the patient numbers and the local healthcare need)
and other stakeholder considerations. In this way, the Board
monitors that agreed upon approaches and processes are well
understood and adhered to.
The Board is responsible for preparing the Annual Report and
confirms in the Directors’ Responsibilities Statement set out on
page 104 that it believes that the Annual Report, taken as a
whole, is fair, balanced and understandable. The process for
reaching this decision is outlined in the Audit Committee
Report. The basis on which the Company creates and preserves
value over the long term is described in the Strategic Report.
Audit Committee
The Audit Committee is responsible for monitoring the integrity
of the financial statements and results announcements of the
Company as well as the appointment, remuneration and
effectiveness of the external auditor. The detailed Audit
Committee Report is on pages 74 to 78.
Risk management
The Board determines the extent and nature of the risks it is
prepared to take in order to achieve the Company’s strategic
objectives. The Board is assisted in this responsibility by the
Audit Committee which reviews and discusses a report from
the management’s Risk Committee on the risks facing
theGroup and the steps taken by management to mitigate
theimpact of these risks. The Audit Committee evaluates the
effectiveness of the risk framework and makes recommendations
to the Board in respect of the Group’s principal and emerging
risks, risk appetite and key risk indicators. Further information
on the Group’s principal risks and risk management processes
can be found in the Risk Management and Principal Risks
section of the Strategic Report on pages 50 to 55.
During the course of its review for the year ended 31 December
2021, and to the date of this report, the Audit Committee has
not identified, nor been advised of, a failing or weakness which
it has determined to be significant.
PART E: REMUNERATION
The UK Corporate Governance Code requires that a board
should establish a remuneration committee of at least three, or
in the case of smaller companies, two, independent non-executive
directors. In addition the company chair may also be a member
of, but not chair, the committee if he or she was considered
independent on appointment as chair. Steven Owen was
independent on his appointment as Chairman and remains so
and accordingly he is a member of the Remuneration Committee.
This year has been a busy one for the Remuneration Committee
following the approval of the new Remuneration Policy by
shareholders at our General Meeting on 4 January 2021 through
the devising and implementing of incentive arrangements
appropriate for the senior management team and wider
workforce. Details of this and the work of the Remuneration
Committee are set out in its report on pages 81 to 85.
74 Primary Health Properties PLC Annual Report 2021
AUDIT COMMITTEE REPORT
Ian Krieger
Chairman of the Audit Committee
Dear shareholder,
I am pleased to present my report as Chairman of the Audit
Committee and over the coming pages you will see how the
Committee has discharged its responsibilities during the year.
Composition
The members of the Committee in the year are set out in the
table on this page. The Committee has adopted the additional
requirements of the2018 Corporate Governance Code (the
“Code”) as regards audit committees. Membership of the
Committee is restricted solely to independent Non-executive
Directors and each Committee member has considerable
financial knowledge andindustry experience. In addition to the
members of the Committee, the following individuals attended
by invitation: the Chief Financial Officer; the Commercial
Financial Director; the Chief Executive Officer; the audit
partner and senior managers from the auditor; and
representatives from PHP’s valuers, Lambert Smith Hampton,
Jones Lang LaSalle and CBRE.
As Chairman, in conjunction with the Nomination Committee,
Ireview on an annual basis the composition of the Committee
toensure that it is comprised of members with skills and
competences relevant to the primary care real estate sector
and have recent and relevant financial experience, in order to
fulfil the Committee’s duties and responsibilities.
Meetings
During the year the Committee met three times following an
annual programme which is agreed at the start of the year.
Meetings are aligned to the Company’s financial reporting
timetable, with the February and July meetings scheduled
toprecede the approval and issue of the full and half year
financial reports. At the December meeting, the Committee
examined the risk management and internal control processes
and considered the year-end audit plan put forward by
theauditor.
One of the key areas of judgement that the Committee are
required to consider in reviewing the financial statements is
thevaluation of the portfolio. Meetings were held with the
Company’s property valuers to challenge the valuation process
and review their independence. This was an area of focus for
the Committee as explained below on page 76.
Time is allocated for the Committee to meet the external auditor
and property valuers independently of management. In addition
to formal Committee meetings, I have regular contact and
meetings with the Chief Financial Officer. This allows me to
gain a good understanding of key and emerging issues in
advance of Committee meetings, facilitating informed and
constructive debate.
The Committee is satisfied that it receives sufficient, reliable
and timely information and support from management and the
Company’s external auditor to allow it to fulfil its obligations.
At least once a year, during a Committee meeting, the members
of the Committee meet separately with Deloitte without any
other member of management being present.
MEMBERS OF THE AUDIT COMMITTEE
(THE“COMMITTEE”)
Member
Number of meetings
and attendance
while in post
Ian Krieger (Chairman) 3 (3)
Peter Cole 3 (3)
Laure Duhot 3 (3)
Bracketed numbers indicate the number of meetings the member was
eligible to attend.
Key responsibilities
Financial reporting
• Monitor the integrity of the financial reporting process
• Scrutinise the full and half year financial statements
• Consider and challenge the key financial judgements
For further
information
seepage 75
Risk management and internal control
• Oversee the internal control processes
• Assess the need for an internal audit function
• Review the risk management framework
• Ensure risks are carefully identified, assessed and mitigated
For further
information
seepage 75
External auditor
• Review the performance, independence and
effectiveness of the external auditor and audit process
For further
information
seepage 75
Regulatory compliance
• Review the viability statement and going concern basis
of preparation of the financial statements
• Consider whether the Annual Report is “fair, balanced
and understandable”
• Monitor compliance with applicable laws and regulations
For further
information
seepage 75
GOVERNANCE
75Primary Health Properties PLC Annual Report 2021
Our work in 2021
Our remit is unchanged from previous years, primarily to
oversee and independently challenge the integrity of the
financial reporting processes at PHP which support and ensure
the accuracy of the financial results. Alongside this, we review
the risk management framework and internal control
procedures in place to ensure they remain robust and are
implemented effectively.
In the first half of the year, the COVID-19 pandemic continued
to have the potential to disrupt operations and we undertook a
review to ensure the pandemic had no impact on the robustness
of the internal control and risk management systems. In this
regard we noted the implementation of an online invoice
authorisation system was deployed successfully during the
year to improve the control environment with staff working
from home.
Each year we also consider the independence and effectiveness
of the external audit team and the structure of their audit plan
to ensure they provide the appropriate level of challenge and
support to the Executive team.
Following our review, on page 78 , we have recommended the
re-appointment of Deloitte LLP (“Deloitte”) at the AGM in April.
Deloitte has been in office for nine years now and we will be
conducting a process to re-tender the audit during 2022.
The work undertaken this year has included the following:
Financial reporting
• Reviewing and monitoring the integrity of the financial
statements including reviewing significant financial reporting
judgements and estimates made by management, to ensure
that the quality of the Company’s financial reporting is
maintained, in the Company’s half and full year
financialstatements;
• reviewing and commenting on the alternative performance
measures, not defined under IFRS or “non-GAAP” measures
to ensure these were consistent with how management
measures and judges the Company’s performance;
• assessing the independence and objectivity of the Group’s
valuers and gaining assurance around the integrity of the
conduct of valuation processes at the year end and at the
half year;
• reviewing the process undertaken to ensure that the financial
statements are fair, balanced and understandable; and
• ensuring compliance with applicable accounting standards,
monitoring developments in accounting regulations as they
affect the Group and reviewing the appropriateness of
accounting policies and practices in place.
Risk management and internal control
• Reviewing the Group’s risk register, in particular with regard
to the potential impact of COVID-19, principal and emerging
risks including cyber security;
• challenging the effectiveness of the Group’s risk
management systems and considering the adequacy of the
process being undertaken to identify risks and mitigate the
exposure of the Group to them;
• considering the adequacy and effectiveness of the Group’s
internal controls and whether there was a need to establish
an internal audit function; and
• ensuring the process followed to support the making of the
going concern and viability statements remained robust and
was correctly followed.
External audit
• Examining the performance of the external auditor, its
objectivity, effectiveness and independence, as well as the
terms of engagement and scope of its audit and agreeing
the annual audit plan;
• monitoring the ratio and level of audit to non-audit fees paid
to the external auditor and agreeing its remuneration for the
year;
• recommending the re-appointment of Deloitte LLP as
external auditor; and
• reviewing and approving the plan for the conduct of an audit
tender process.
Regulatory compliance
• Reviewing the Committee’s composition, performance, terms
of reference and constitution;
• overseeing matters relating to tax and any potential impact
tax matters may have on the integrity of the financial statements;
• ensuring appropriate safeguards are in place for the detection
of fraud and bribery and reviewing the process by which
employees may raise concerns and ensuring that these were
communicated to and understood by the workforce, so that
concerns could be raised to me, or with the Company
Secretary, or the auditor;
• reviewing the Company’s REIT compliance and tax strategy;
• consideration to the robustness of the Group’s assessment
of viability over a period of three years, in particular the
assumptions underlying the assessment; and
• determining the appropriateness of adopting a going concern
basis for the preparation of the financial statements.
76 Primary Health Properties PLC Annual Report 2021
AUDIT COMMITTEE REPORT CONTINUED
Significant issues considered in relation to the financial statements
During the year, the Committee considered key accounting matters and judgements in respect of the financial statements as
detailed below:
Significant issue Actions taken
Valuation of the property portfolio
The Group has property assets of £2.8 billion as detailed in
the Group Balance Sheet and valuation is central to the
business performance. Accordingly, the key judgement in the
financial statements relates to the valuation of the property
portfolio which is driven by the yields and ERVs applied in
the valuation process. This is a recurring risk for the Group
as it is key to its IFRS profitability, balance sheet portfolio
value, net asset value, total property return, and employee
incentives. It also affects investment decisions. Further, the
judgemental nature of the yields and ERVs used in the
valuation is compounded by the uncertainty caused
byCOVID-19.
The portfolio of properties are independently valued by Lambert
Smith Hampton and Jones Lang LaSalle in the UK and by CBRE
in Ireland (the “Valuers”), in accordance with IAS 40 Investment
Property. The Committee ensured that there was a robust
process in place to satisfy itself that the valuation of the
property portfolio by the Valuers, all leading firms in the UK
andIrish property markets, was carried out appropriately and
independently. Given the significance, the Committee met twice
with the Valuers to review key judgements, challenge, debate
and consider the valuation process; understand any particular
issues encountered in the valuation; and discuss the processes
and methodologiesused and whether there were any significant
disagreements with management.
The auditor also meets with the Valuers, and it uses the services
of its own in-house property valuation expert to test the
assumptions made. The auditor reports separately to the Audit
Committee on its findings.
The Committee confirmed that it was satisfied that the
valuation had been carried out fairly and appropriately, and in
accordance with the industry valuation standards, and therefore
suitable for inclusion in the financial statements.
Accounting for significant acquisitions, disposals and transactions
The accounting treatment of significant property acquisitions,
disposals, financing and leasing transactions is a recurring
risk for the Group with non-standard accounting entries
required, and in some cases management judgement applied.
In particular, the Company determined that the total cost of
the acquisition reflected compensation for the termination of
the Advisory Agreement, together with consideration for the
acquisition of the Nexus entities. The consideration was
therefore split between termination of the Advisory Agreement
(£29.0 million) and consideration for the acquisition of the
Nexus entities (£5.1 million), resulting in goodwill of £6.3 million
which Management subsequently fully impaired.
During the year the Group made a number of acquisitions, the
most significant being the acquisition of Nexus at the beginning
of the year. The Committee reviewed management papers on
key judgements, including those for the treatment of the
acquisition of Nexus, by reviewing and challenging management’s
papers on accounting treatments and judgements.
Following a review of the accounting treatment for these
significant transactions, in particular the point at which each
transaction should be recognised, the Committee was satisfied
that all relevant matters had been fully and adequately
addressed and that the approach adopted by the Company was
appropriate in each case, and in accordance with IFRS.
The Committee challenged the application of accounting policy
and internal controls relating to revenue recognition and
reviewed reports from the external auditor and management.
The Committee concluded that the accounting treatment of the
Nexus acquisition was appropriate.
Financing
The Group uses a mixture of equity and debt finance
togrow its portfolio and has a number of debt finance
arrangements and swaps to hedge exposure to interest rate
risk. The accounting treatment of these transactions under
IFRS 9 is byits nature complex.
During the year, the Group refinanced and modified two debt
facilities, the NatWest £100 million revolving credit facility and
refinanced a number of legacy loan facilities with Aviva Investors,
with a new £200 million facility for a 15-year term at a fixed rate
of 2.52%.
The Committee considered the finance teams paper on the
proposed treatment of these transactions under IFRS 9 and
agreed that they had been appropriately accounted for.
GOVERNANCE
77Primary Health Properties PLC Annual Report 2021
Review of risk management
The Committee is responsible for reviewing the adequacy and
effectiveness of the Group’s risk management processes and
systems of internal controls.
Risk management is taken seriously at PHP. The Board as a
whole, including the Committee members, considered that
both the nature and the extent of PHP’s risk management
framework was satisfactory to achieve the Group’s strategic
objectives. There is a culture of risk awareness embedded into
the decision-making process and robust processes in place to
support the identification and management of risk.
The identification of risk and the preparation of a detailed risk
register is the responsibility of the Risk Committee. The Committee,
at the request of the Board, considers the principal risks
identified and whether appropriate action is being taken to
remove or reduce their likelihood and impact. This is discussed
in detail in the Risk Management section on pages 50 to 55.
The Group has developed a separate environmental risk
register to seek to identify the main emerging risks associated
with climate change and the associated governmental policy
responses; in particular, increasing legislative standards for
operational building energy efficiency and the stated ambition
of the NHS to achieve a net zero carbon health service for
direct emissions by 2040 have been identified as key risks as
well as opportunities for the Group. The register was tabled
and agreed by the ESG Committee, and subsequently reviewed
by the Committee as part of its monitoring of the overall risk
management process of the Group.
Review of internal control processes
The Committee is responsible for reviewing the adequacy and
effectiveness of internal control systems, (covering all material
controls, including financial, operational and compliance controls
and risk management systems) on behalf of the Board.
Key features of the system of internal control, which were
reviewed and updated following completion of the internalisation
transaction, include a comprehensive system of budgeting,
financial reporting and business planning, formal documentation
procedures and the close involvement of the Chief Executive
Officer, the Chief Financial Officer and the Chief Investment
Officer in all aspects of the day-to-day operations. The
Committee has reviewed the adequacy of these systems
through various activities including:
• reviewing the effectiveness of the risk management processes;
• reviewing and challenging management’s self-assessment of
the internal controls framework;
• reviewing the work undertaken by the auditor in relation to
internal controls; and
• reporting of any control or fraud related whistle-blowing issues.
In reviewing the periodic financial reports of the Group, the
Committee is reliant on the policies and procedures followed
by the finance team to ensure that the records accurately
reflect transactions so as to facilitate the production of
consolidated financial statements in accordance with
International Financial Reporting Standards (“IFRS”) and other
applicable reporting standards.
At the time of reviewing the half-yearly and annual financial
reports, the Committee also receives a report from Chief
Financial Officer to assist the Board in assessing the policies
and procedures and making the disclosures. No significant
deficiencies in internal control have been identified.
Financial reporting
The integrity of the financial reporting and consolidation
processes and the completeness and accuracy of financial
information are subject to review by the Committee and the
Board. In undertaking its review, the Committee considered:
• the systems and controls operated by management around
the preparation of the accounts;
• the procedures included in these to bring relevant information
to the attention of those who prepare the accounts;
• the consistency of the reports; and
• whether they are in accordance with the information
provided to the Board during the year.
Developments in accounting regulations and best practice in
financial reporting are monitored by the Company and, where
appropriate, reflected in the financial statements. The
Committee and the Board review the draft consolidated
financial statements and the Committee receives reports from
management and the auditor on significant judgements,
changes in accounting policies, and other relevant matters
relating to the consolidated financial statements.
Fair, balanced and understandable assessment
At the request of the Board, the Committee also reviewed the
Annual Report to consider whether it is fair, balanced and
understandable and provides the necessary information for
shareholders to assess the Group’s position, performance,
business model and strategy.
The Committee was provided with, and commented on, a draft
copy of the Annual Report and Financial Statements. In carrying
out the process, key considerations included ensuring that
there was consistency between the financial results and the
narrative provided.
After reviewing the contents of this year’s Annual Report and
Financial Statements, the Committee has confirmed to the
Board that, in its view, the report is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group’s position, performance,
business model and strategy. The Committee is also satisfied
that alternative performance measures used are consistent
with how management measures and judges the Group’s
financial performance.
In forming this view, the Committee considered the overall
review and confirmation process around the Annual Report and
Financial Statements, going concern and viability statements.
78 Primary Health Properties PLC Annual Report 2021
AUDIT COMMITTEE REPORT CONTINUED
Effectiveness of external auditor
One of the key responsibilities of the Committee was to assess
the effectiveness of the external audit process. In turn, the
effectiveness of the audit process is dependent on appropriate
audit risk identification at the start of the audit cycle. Ahead of
the commencement of the audit the Committee received from
Deloitte LLP a detailed audit plan, identifying its assessment of
these key risks. For the audit of the 31 December 2021 financial
statements, the primary risks identified were in relation to the
valuation of the property portfolio, the accounting for the
Nexus acquisition and management override of controls. It is
also standard practice for the Audit Committee tomeet
privately with the external auditor to gauge the effectiveness
of their processes. In addition, the Audit Committee seeks
feedback from management on the effectiveness of the audit
process.
Following its review of the effectiveness, independence,
objectivity and expertise of the external auditor, the
Committee is satisfied with the effectiveness of the auditor
and therefore recommended the re-appointment of Deloitte
LLP as external auditor for 2022. Resolutions to re-appoint
Deloitte LLP as auditor and to authorise the Committee to
agree its remuneration will be put to shareholders at the
Annual General Meeting on 27 April 2022.
Auditor independence
The Group’s policy on the use of its external auditor for
non-audit services precludes the external auditor from being
engaged to perform valuation, tax or accounting services work.
More broadly, the policy prohibits the external auditor from
performing services where there may be perceived to be a
conflict with its role as external auditor or which may
compromise its independence or objectivity.
Subject to the overriding requirement to ensure independence
and objectivity of the external auditor, the Company may
procure certain non-audit services from the external auditor up
to £25,000 in value. All other proposed engagements must be
submitted to the Committee for approval prior to engagement
and all non-audit fees are reported to the Committee.
The Committee considers the remuneration of the external
auditor at least on a semi-annual basis and approves its
remuneration. It also keeps under close review the ratio of audit
to non-audit fees to ensure that the independence and
objectivity of the external auditor are safeguarded.
In 2021, fees for audit services amounted to £0.5 million and
the non-audit fees amounted to £0.1 million.
The non-audit fee for 2021 equates to 14% of the average audit
fees of the last three years.
The chart below sets out the ratio of audit to non-audit fees
for each of the past three years.
2021 2020 2019
Audit fee £541,425 £500,000 £400,000
Non-audit fee £68,575 £35,000 £200,000
Evaluation of the performance of the Audit Committee
The performance of the Committee was assessed as part of
the externally facilitated Board review. The overall conclusion
was that the Committee remained effective at meeting its
objectives.
Audit tender
Deloitte LLP was appointed by shareholders in 2013 as the
Group’s statutory auditor for the 2013 financial year to replace
Ernst & Young, following a formal audit tender process. The
Company will therefore be conducting an audit tender process
during the course of 2022 in readiness for the audit of the
2023 financialstatements.
The tender process will be overseen by the Committee whom
will consider the audit firms to be invited to tender and
determine the success criteria used to assess participants.
Deloitte LLP as the incumbent auditor will be invited to
participate in the tender unless prohibited due to specific
factors such as independence.
The Audit Committee will make a recommendation to the Board
of its preferred appointee.
Internal audit
The Group currently does not have a separate internal audit
function and the Committee, at least annually, reviews the
requirement for establishing one. Due to the size of the
organisation, relatively simple nature of the Group’s business
and structure and close involvement of the senior management
team in day-to-day operations, the Audit Committee did not
feel an internal audit function was either appropriate or
necessary. It is not considered that the lack of an internal audit
function affects the work of the external auditor.
From time-to-time external advisers are engaged to carry out
reviews to supplement existing arrangements and provide
further assurance.
The Committee considers that this structure, with external
assurance sought for any complex, specialist or high-risk
matters, is appropriate for the Company at this stage.
I will be delighted to receive any written questions on the work
of the Committee. Please submit your questions by email to
cosec@phpgroup.co.uk, or by post, marked for my attention.
Ian Krieger
Chairman of the Audit Committee
15 February 2022
GOVERNANCE
79Primary Health Properties PLC Annual Report 2021
NOMINATION COMMITTEE REPORT
Dear shareholder,
I am delighted to present the Nomination Committee Report to
shareholders for the year to 31 December 2021. The Committee
continues to play a crucial role in supporting PHP’s strategy by
ensuring the Board and its Committees have an appropriate
balance of skills, experience and knowledge, with succession
plans in place, for Board and senior management positions and
that it implements a robust evaluation process to ensure the
Board and Committees are working effectively.
Activities of the Committee during the year
Appointments
It is the responsibility of the Committee to maintain an
appropriate combination of skills and capabilities among our
Directors. The Committee seeks to ensure that all Board
appointments are made on merit and measured against
objective criteria and with due regard for the benefits of
diversity on the Board. The Board is committed to ensuring a
broad mix of gender, age, nationality, experience and skills
throughout the business.
Following our Annual General Meeting in 2019, our Board was
reduced in size from eight to six members, which we believe is
the optimal size for our Board given the relative simplicity of
our business model. However, this resulted in a reduction in our
female representation on the Board, which we wished to
address during the year.
Accordingly, following a tender process, the Committee
engaged Granger Reis to undertake a search for an additional
Non-executive Director. Granger Reis have an extensive real
estate search practice and have no other connection to the
Group. The Committee prepared a job specification and agreed
a candidate profile for Granger Reis to undertake a search.
Adiverse range of candidates with a breadth of experience
and exposure were considered. A short-list of three candidates
was drawn up for further consideration by the Committee who
reviewed the short-listed candidates against their fit with the
agreed candidate profile. After a thorough interview process,
the members of the Committee unanimously recommended the
appointment of Ivonne Cantú to the Board and the Board
approved Ivonne’s appointment as a Non-executive Director
and as a member of all the Company’s Committees, with effect
from 1 January 2022. It was also agreed that Ivonne would be
appointed to chair the Remuneration Committee following
theconclusion of the Annual General Meeting in 2022,
whenPeter Cole will step down from the Board.
Succession planning
The Committee is responsible for reviewing the succession
plans for the Board, including the Chief Executive Officer.
Oneof the strategic benefits accruing from the internalisation
of the management function, is that it is anticipated to
enhance our succession planning and operational security. The
Committee also oversees succession planning for the senior
management positions in the Company going forward, which
itwill make within the context of our commitment to improving
diversity across the Company.
Steven Owen
Chairman of the Nomination Committee
MEMBERS OF THE NOMINATION
COMMITTEE DURING THE YEAR
(THE“COMMITTEE”)
Member
Number of meetings
and attendance
while in post
Steven Owen (Chairman) 2 (2)
Peter Cole 2 (2)
Laure Duhot 2 (2)
Ian Krieger 2 (2)
Bracketed numbers indicate the number of meetings the member was
eligible to attend.
Additional attendees invited to attend meetings as appropriate:
Harry Hyman – Chief Executive Officer
Richard Howell – Chief Financial Officer
Paul Wright – Company Secretary
Key responsibilities
Board composition and succession
• Reviews and evaluates the size, structure and composition of the Board
and its Committees.
• Considers the diversity of the appointments and balance of skills,
knowledge and experience of each Director.
• Considers succession planning for the Board and the senior management.
Board appointments
• Leads the process for new appointments to the Board and its Committees.
• Ensures that all new Directors receive an appropriate induction
programme and reviews the training requirements of the Board.
• Ensures that all potential conflicts of interest are declared on
appointment and that all disclosed potential conflicts of interest are
reviewed regularly.
Diversity
• Promotes the Company’s policy on diversity at Board level.
Performance evaluation
• Leads the annual Board and Committee evaluation exercise.
Re-appointment of Directors
• Reviews the time required from Non-executive Directors and their
external commitments.
• Considers the annual election and re-election of Directors to the Board
at the Annual General Meeting.
80 Primary Health Properties PLC Annual Report 2021
NOMINATION COMMITTEE REPORT CONTINUED
Activities of the Committee during the year continued
Succession planning continued
Although there are no immediate vacancies at Board or in the
senior management team and execution of the Company’s
strategy is not dependent on any one individual, we recognise
the need to develop our internal talent and to have robust
plans for unforeseen absences. Looking ahead, long term
succession planning at Board and executive level will remain
akey priority for the Committee going forward.
Induction
On appointment, the Company arranges a full, formal and
tailored induction on joining the Board to help new Directors
develop an understanding of the business, including its strategy,
portfolio, governance framework, stakeholders, finances, risks
and controls. This programme will usually involve a series of
meetings with other Executive and Non-executive Directors
and senior management team, and include visits to some of the
Group’s properties to better understand the nature of the
portfolio. To provide insight into the Group’s strategy, culture
and values, extensive information about the Group, including
access to previous Board papers and minutes, is provided.
Diversity
The Board recognises the importance of diversity and the
benefits it brings to the organisation in terms of skills and
experience, wider perspectives and fresh ideas. We are committed
to the creation of an inclusive culture where our colleagues
reflect the diverse communities we serve and where each
person can operate in a working environment which promotes
aculture of mutual respect and inclusion throughout
theorganisation.
The Board also recognises that diversity is not limited to just
gender and supports the Parker recommendation that FTSE
250 boards should have at least one director from an ethnic
minority background by 2024.
To this end the Committee reviewed and suggested updates
tothe Board Diversity & Inclusion Policy to ensure that it extended
to aspects such as age, ethnicity, disability and socio-economic
backgrounds in line. The revised policy was adopted by the
Board in December 2021. The Diversity & Inclusion Policy is
available on the Company’s website at www.phpgroup.co.uk.
Independence
The Committee ensures that at appointment each Director is
independent and that they have formally declared to the
Company any actual or potential conflicts of interest.
During the year, the Committee formally reviewed the register
of the Directors’ other directorships and interests, together
with those of their connected persons, to consider whether
anyof these gave rise to a conflict of interest or were likely
toimpair the ability of the Director to devote sufficient time
tothe business of the Company.
Following this review, the Committee assessed the independence
of each of the Non-executive Directors, and in particular,
consideration was given to the position of both the Chairman
and Laure Duhot (who became a NED at Safestore where Ian
Krieger is also a NED), in light of the additional responsibilities
that they had taken during the year. The Committee recommended
to the Board that each of them could be considered
independent and had sufficient time to meet their Board
responsibilities. In considering their independence the
Committee considered their independence of character and
judgement and whether any circumstances or relationships
exist which could affect their judgement.
Directors standing for election and re-election
Following Ivonne’s appointment, she will be subject to election
at the Company’s 2022 Annual General Meeting. The remaining
Directors will stand for re-election at the 2022 Annual General
Meeting. Following the annual Board performance reviews of
individual Directors, the Chairman considers:
• that each Director subject to re-election continues to
operate as an effective member of the Board; and
• that each Director subject to re-election has the skills,
knowledge and experience that enables them to discharge
their duties properly and contribute to the effective
operation of the Board.
The Board, on the advice of the Committee, recommends the
election or re-election of each Director and the skills and
experience of each Director are available on pages 60 and 61.
Evaluation
In accordance with its terms of reference, the Committee’s
performance was reviewed in the context of the results of the
externally-led Board annual evaluation, paying particular
attention to any issues raised with respect to the composition
of the Board, its skills, experience and diversity. The review
found that the Committee functions effectively and should
continue to develop and refresh its responsibilities.
Details of the evaluation process and its outcomes are set out
in more detail on pages 71 to 73.
Steven Owen
Chairman of the Nomination Committee
15 February 2022
GOVERNANCE
81Primary Health Properties PLC Annual Report 2021
REMUNERATION COMMITTEE REPORT
Dear shareholder,
On behalf of the Board, I am delighted to present the PHP
Directors’ Remuneration Report in what has been a very busy and
important year following the completion of the internalisation of
the Group’s management functions by the acquisition of Nexus
(the “internalisation”). This report has been prepared by the
Remuneration Committee and approved by the Board.
Both I and the fellow members of the Committee were encouraged
by the exceptionally high level of support (99.9% of votes cast)
for the new Directors’ Remuneration Policy (the ”Policy”) at the
General Meeting held in January 2021. Following publication of
the Directors’ Remuneration Report in our 2020 Annual Report
and Accounts, it was agreed that I would write to our largest
shareholders to explain the approach which we were taking
with our revised remuneration arrangements. I am grateful for
those shareholders who responded and I am pleased that we
received the support of over 88% of shareholders voting at the
AGM for the Directors’ Remuneration Report.
To provide shareholders with information on both the Policy
that applies following the internalisation and its implementation,
this report is divided into three parts:
1. This letter on pages 81 to 85, in which I provide an overview
of the work of the Committee during the year and the key
decisions which it took in relation to both Executive Director
remuneration and wider workforce remuneration for the
year ended 31 December 2021 and how the Policy will be
applied in 2022.
2. A summary of the Directors’ Remuneration Policy (the ”Policy”)
approved by shareholders on 4 January 2021 and applicable
throughout the year, which details the link between
Company performance and remuneration outcomes set out
on pages 86 to 91.
3. The Annual Report on Remuneration, which provides information
on how the Policy adopted at the General Meeting has
been applied during the year, set out on pages 92 to 94.
Company performance
You will have read earlier in this Annual Report that the
Company once again delivered strong results for 2021, and the
25th consecutive year of dividend growth. Highlights of the
performance include:
• Total property portfolio up 4.1%.
• Total property return up 210bp to 9.5%.
• Adjusted earnings up 13.8% to £83.2 million.
• Adjusted earnings per share up 6.9%.
• Dividend per share up 5.1%.
• Average cost of debt down 60bp.
This strong performance reflects well on our Executive and
senior management team, who have had to manage the business
and their teams through the continued disruption caused by
the COVID-19 pandemic. These good results have been
achieved without the need to put any staff on furlough or to
take advantage of any of the Government financing schemes to
help companies through this difficult time.
Peter Cole
Chairman of the Remuneration Committee
MEMBERS OF THE REMUNERATION
COMMITTEE DURING THE YEAR
(THE“COMMITTEE”)
Member
Number of meetings
and attendance
Peter Cole (Chairman) 4 (4)
Steven Owen 4 (4)
Laure Duhot 4 (4)
Ian Krieger 4 (4)
Bracketed numbers indicate the number of meetings the member was
eligible to attend.
In addition to the scheduled meetings two additional meetings were held
to discuss particular topics which all members of the Committee attended.
Additional attendees invited to attend meetings as appropriate:
Harry Hyman – CEO
Korn Ferry
Paul Wright – Company Secretary
The CEO did not attend or participate in any matters that involved his
own remuneration.
Key responsibilities
• Setting the remuneration framework or policy for the Directors and
ensuring it is aligned to the Company’s purpose and values and
linked to delivery of the Company’s long term strategy.
• Reviewing the continued appropriateness and relevance of the
Company’s Remuneration Policy.
• Within the terms of the approved policy, determining the
remuneration of the Directors, the Company Secretary and the
senior executives.
• Appointing and setting out the terms of reference for any
remuneration consultants to advise the Committee.
• Agreeing policy on the payment to the Directors of expenses
incurred in performance of their duties.
• Reviewing overall workforce remuneration and related policies.
• Drafting the Directors’ Remuneration Report and reporting to
shareholders on the implementation of the Company’s
Remuneration Policy in accordance with relevant statutory and
corporate governance requirements.
82 Primary Health Properties PLC Annual Report 2021
REMUNERATION COMMITTEE REPORT CONTINUED
Company performance continued
In addition, the acquired Nexus property management business
has been successfully integrated and the cost savings anticipated
at the time of the acquisition achieved. These good outcomes are,
to a large extent, the result of the expertise and hard work of
the Executive Directors and the senior management team.
Remuneration in 2021
Base salaries
The base salaries set by the Committee when the Executive
Directors became employees of the Group on 5 January 2021
(CEO: £250,000 and CFO: £320,000) applied for the whole year.
Annual bonus outcome
Targets for the 2021 annual bonus for the CFO set by the
Committee were based 70% on the achievement of financial
targets (adjusted earnings and total property return) and 30%
on the achievement of personal targets. The rationale for
selecting adjusted earnings and total property return (“TPR”) is
that these are the key indicators of value creation for shareholders,
capturing the income received, less expenses and property
valuation changes.
The adjusted earnings outcome for the year was £83.2 million
against a threshold target of £81.6 million and a maximum of
£84.0 million and the total property return in the year was 9.5%
against a threshold target of 6.5% and maximum of 9.5%,
resulting in 90% of the financial targets being met. The
Committee also assessed that 90% of the personal targets
should be paid out. Full details of how this assessment was
carried out are set out on pages 93 and 94.
In total, the overall bonus pay-out for the CFO represented
67.5% of salary (maximum 75% of salary for 2021) of which 30%
net of tax will be deferred into PHP shares to be held for
aperiod of three years in accordance with the Policy.
The CEO did not participate in the annual bonus plan.
Performance Incentive Fee (“PIF”)
There is a period of transition for the two Executive Directors
as arrangements that have operated in recent years with their
former employer are replaced by more standard market
practice. As agreed in connection with the internalisation, this
transition includes the payment of amounts earned under PIF
arrangements with Nexus in relation to 2020 and earlier years.
These are commitments that PHP inherited and is honouring
following internalisation as we transition to more standard long
term incentive arrangements.
The financial year ended 31 December 2021 was the last year
that the CFO was entitled to earn any payment under the PIF
and so no PIF payment will be made to him for 2022, however,
the cap on his annual bonus will be increased to 125% of salary
in line with the policy. The CEO will be entitled to a payment,
ifone is earned, under the PIF in respect of the financial year
ending 31 December 2022 after which his entitlement will cease.
The Group’s Adjusted EPRA Net Tangible Assets for the year
plus dividends (less equity raised, net of non-cash and other
necessary adjustments) increased by 9.5%, which is above the
hurdle rate of 8%, triggering a payment of the PIF. The Committee
scrutinised the calculation of the amount of the PIF and
determined that a PIF had been earned. A payment of
£589,000 was agreed to Harry Hyman and a payment of
£240,000 was agreed to Richard Howell, under the PIF in
respect of 2021 performance. Half of the amount paid to
Richard Howell will be paid in cash and shares in 2022, and the
other half in cash and shares in 2023.
Harry Hyman will receive half of his PIF payment in cash in
2022 and the remainder in cash in 2023.
Long Term Incentive Plan (“LTIP”)
Following approval of the terms of the LTIP by shareholders,
the CFO was granted a nil-cost option over 266,667 Ordinary
Shares in PHP. In line with the Policy the grant has a face value
of 125% of salary and will vest after three years subject to
achievement of performance targets (total accounting return:
50% and EPRA earnings per share: 50%). The award is also
subject to a two-year post vesting holding period and is
subject to clawback and malus provisions.
Full details of the performance conditions attaching to the
award can be found in the Annual Report on Remuneration on
pages 92 to 94.
No award was made to the CEO under the LTIP.
Given the Company’s strong performance and good returns to
shareholders, the Committee feel that the outcome for the
annual bonus and PIF reflected the performance of the Executive
Directors in the year and that the 2021 remuneration outcomes
are appropriate and indicate that the policy operated as
intended during the year.
GOVERNANCE
83Primary Health Properties PLC Annual Report 2021
Summary of Policy Implementation in the year to 31 December 2022
Base salary
An Executive Director’s base salary is set on
appointment and reviewed annually with
changes normally taking effect from the
beginning of the year or when there is a
change in position or responsibility.
The basic salary of the CEO and the CFO was increased by 5% in line with
the average increase awarded to employees across the Group, with effect
from 1 January 2022, to £262,500 and £336,000 respectively.
Pension
Pension funding as an employer contribution
to a defined contribution pension plan or as a
salary supplement.
With effect from 1 January 2022, it has been agreed that the CFO will
receive an employer pension contribution of 6% of salary (previously 3%,
capped on earnings to £50,270), subject to an annual cap of £10,000, which
is the same level of contribution that all employees receive.
Benefits
The Committee recognises the need to maintain
suitable flexibility in the benefits provided to
ensure it is able to support the objective of
attracting and retaining personnel in order to
deliver the Group strategy
.
In line with the Policy, each Executive Director receives:
• Life insurance
Annual Bonus Plan
Annual bonuses are paid in cash shortly after
the end of the financial year to which they
relate. However, Executive Directors who
participate in the annual bonus plan are
required to defer 30% of the bonus net of
taxinto shares which should be held for at
least three years. Dividend equivalents will
beadded on deferred shares.
Malus and clawback provisions will apply
totheaward, up to the date of the bonus
determination and for three years thereafter.
The CFO participates in the annual bonus plan but, after 2021 no longer
participates in the PIF. His maximum opportunity under the bonus plan will
be increased to 125% of salary from 75% as the annual bonus fully replaces
his PIF participation this year.
The CEO does not currently participate in the annual bonus plan.
The bonus will operate as follows:
(i) Financial measures: 70% of opportunity, split equally between (a) EPRA
earnings as adjusted by the Committee to ensure consistency with the
basis on which the targets are set; and (b) total property return.
(ii) Strategy and personal measures: 30% of opportunity split between key
goals of the business for the year ahead and personal measures.
Full disclosure of the targets set and performance achieved will be made in
next year’s report as due to the nature of the business these targets are felt
to be commercially sensitive at the current time.
Implementation of the Policy for 2022
On the basis that the Committee feels that the approved Policy remains fit for purpose, it is not intended that there will be any
change to it during 2022. The Committee is comfortable that the Policy and its overarching remuneration principles remain
relevant for PHP taking account of the challenges to the business and the sector in which it operates. Implementation details for
2022 are set out below:
Implementation of the Policy for 2022 continued
84 Primary Health Properties PLC Annual Report 2021
REMUNERATION COMMITTEE REPORT CONTINUED
Summary of Policy Implementation in the year to 31 December 2022
Long Term Incentive Plan (“LTIP”)
Awards are to be granted annually under the
LTIP in the form of nil-cost options or conditional
awards of shares. These awards will vest at the
end of a three-year period, normally subject to
both continued employment at the date of
vesting and achieving the performance conditions.
Dividend equivalents will be added to awards
to the extent that they vest.
The net of tax number of shares that vest after
the end of the three-year performance period
will be subject to an additional two-year holding
period, during which the shares cannot be sold
(irrespective of whether the individual
remainsemployed).
The award is also subject to a two-year post
vesting holding period and is subject to
clawback and malus provisions.
The CFO will be granted an LTIP award of shares with a value at grant of
125% of his salary.
The CEO will not be granted an LTIP award in 2022.
Other senior executives will also be granted LTIP awards.
The structure and performance conditions of the awards will remain
unchanged from 2021. LTIP awards will vest as follows calculating the growth
from the 2021 base level to the level for 2024.
Performance measure Weighting
Threshold vesting
(10%)
Stretch vesting
(100%)
Total accounting return 50% 5% p.a. CAGR 10% p.a. CAGR
EPRA earnings per share 50% 5% p.a. CAGR 10% p.a. CAGR
Awards vest on a straight line basis for performance between the threshold
and stretch targets and lapse if the threshold is not achieved. The Committee
will have a discretion to change the formulaic outcome (both downwards and
upwards) if it is out of line with the underlying performance of the Company.
Performance Incentive Fee (“PIF”)
The PIF is an existing arrangement for the
remuneration of the senior management team
including the Executive Directors.
Malus and clawback provisions apply to the
PIF, up to the date of any determination and
for three years thereafter.
Commitments under the PIF have been inherited following internalisation and
will be replaced by more standard long term incentive arrangements going
forward. 2022 is the last year of operation of the PIF for the CEO. The CFO
no longer has any entitlement under the PIF; however, as half of any PIF
earned is deferred, the CFO will receive the deferred element of his previous
entitlements delivered in 2022 and 2023 in cash, and shares released to him
in 2025 and 2026. Payment of the PIF is calculated as it has in prior years,
such that 11.25% of any performance in excess of an 8% per annum increase
in the Group’s EPRA net asset value, plus dividends (less equity raised, net of
non-cash and other necessary adjustments), is paid into the PIF pool. There
is an overall cap of £1.8 million on the payment. The deferred element is
subject to the account being in a surplus position in relation to 2022.
Deferred payments are also due to be made to the CEO in equal halves in
2022 and 2023 in cash.
Awards are subject to approval of the Committee and will be capped at
£1.08 million for the CEO (being 60% of the £1.8million cap).
Shareholding requirement
Executive Directors are required to build up
and hold a shareholding equivalent to a
percentage of base salary.
The requirements continue for two years after
an Executive Director ceases to be employed.
The shareholding requirement remains 200% of base salary.
Non-executive Directors
Provide a competitive fee for the performance
of NED duties, sufficient to attract high
calibreindividuals to the role.
The base fee payable to the NEDs has been increased with effect from
1January 2022 by 5% to £57,750, in line with the average increase awarded
to employees across the Group.
Wider workforce pay
The strong performance of the Company during the year despite the continued impact of the COVID-19 pandemic would not have
been possible without a skilled and motivated workforce. We have invested in formal training programmes for our people in areas
beyond professional development as described on page 42. We recognise that it is critical for our colleagues to feel valued as well
as to be paid fairly. To this end we undertook a formal review of pay and benefits across the Company at the end of the year and
have agreed to implement a number of significant improvements in the overall benefits package, as well as increasing basic salary
across the workforce.
GOVERNANCE
85Primary Health Properties PLC Annual Report 2021
Wider workforce pay continued
The benefits package was improved to increase the employer pension contribution for all staff to 6% (subject to a cap in
contributions of £10,000 per annum), provide for an additional day of holiday for each year of service up to a maximum of five
additional days, improve the Company’s sick pay scheme and introduce a green car scheme, to facilitate the purchase of electric
cars by colleagues, to sit alongside the existing cycle to work scheme. In addition, during the year we augmented the level of
payment under our life assurance scheme to 4x salary for all staff.
Following the internalisation we are now required to publish our CEO pay ratio for the first time which can be seen on page 98.
Widespread share ownership is an object of the Committee as it rewards our colleagues for the successful execution of our
strategy across several years and aligns their interests more closely with our shareholders. We were pleased to be able to grant
nil-cost options to the CFO and nine of the senior leadership team under our Long Term Incentive Plan and that 57% of UK
colleagues are enrolled in our 2021 PHP Sharesave plan, a figure well above the average for our industry. We plan to offer the LTIP
and the PHP Sharesave plan again in 2022.
The Remuneration Committee’s activities during the year
A significant part of the Committee‘s activities in the early part of the year was spent finalising and implementing the new annual
bonus plan and long term incentive arrangements provided for in the Policy for the Executive Directors and senior management
team. The Committee met five times, in February, March, April, May and December.
In summary, the key areas of focus for the Committee in 2021 were:
• consideration and approval of the Directors’ Remuneration Report set out in the Annual Report for 2020;
• consideration and approval of the terms of a Long Term Incentive Plan (“LTIP”) and the adoption of an all-employee share plan;
• the granting of awards under the LTIP and the setting of appropriate performance measures and targets for the awards;
• the design of a new annual bonus plan for the CFO and senior management team and the setting of suitably stretching
performance targets for 2021 aligned to the Group’s strategy;
• a review of the remuneration of the Chairman;
• a review of pay, pensions and benefits across the workforce to ensure that it continues to be aligned with market pay and
sufficient to retain and attract quality staff. We recognise that it is critical that our employees feel valued and this needs
to be reflected in fair pay and benefits; and
• receiving a governance update from Korn Ferry on emerging themes and best practices.
Meetings are generally attended by a representative of Korn Ferry, the Committee’s appointed remuneration advisers. Korn Ferry
isa signatory of the Remuneration Consultants Group Code of Conduct and has no connection with the Company other than the
provision of advice on remuneration.
Committee composition
There have been no changes to the composition of the Committee during the year. As announced by the Company on
14December 2021, I will not be standing for re-election as a Director of PHP at the forthcoming Annual General Meeting and
Ivonne Cantú, who was appointed to the Board with effect from 1 January 2022, will take over from me as the Chair of the
Committee. Ivonne is currently also the Chair of the remuneration committee of Creo Medical Group plc.
Conclusion
I trust you find this report helpful and informative and thank you for your support and engagement during the year. I believe that
we have put in place appropriate remuneration structures to reward and retain the Executive Directors, the senior management
team and wider workforce during the year since internalisation. We always welcome feedback and hearing the views of our
shareholders, so if you have any questions about this report or remuneration generally at PHP, do please contact me through our
Company Secretary at cosec@phpgroup.co.uk.
I look forward to your support for the advisory resolution to approve the Directors’ Remuneration Report at our forthcoming
2022AGM.
Peter Cole
Chairman of the Remuneration Committee
15 February 2022
86 Primary Health Properties PLC Annual Report 2021
DIRECTORS’ REMUNERATION REPORT
PART 1: SUMMARY OF THE DIRECTORS’ REMUNERATION POLICY
The current Policy was approved by shareholders on 4 January 2021 and became effective from 5 January 2021.
The following is a summary of the Policy. The full text of the Policy, as approved by shareholders, was included in the 2020 Annual
Report and is available at www.phpgroup.co.uk.
Key elements of the Policy
Pay element and purpose Operation Opportunity
Performance metrics, weighting
andassessment
Base salary
Provide a base level of
remuneration to support
recruitment and retention of
Executive Directors with the
necessary experience and
expertise to deliver the
Company’s strategy.
Salaries are reviewed annually
and any changes are normally
effective from the beginning
of the financial year, although
there is no obligation to
increase salary.
When determining an
appropriate level of salary,
the Committee considers:
• remuneration practices
within the Company;
• the performance of the
individual Executive
Director;
• the individual Executive
Director’s experience and
responsibilities;
• the general performance of
the Company;
• salaries within the ranges
paid by comparable
companies used for
remuneration
benchmarking; and
• the economic environment.
Base salaries will be set at an
appropriate level within a
comparator group(s) of
comparable companies and
will normally increase in line
with increases made to the
wider employee workforce
(save where a higher increase
is appropriate to reflect a
change in role/
responsibilities).
Individuals who are recruited
or promoted to the Board
may, on occasion, have their
salaries set below the
targeted Policy level until
they become established in
their role. In such cases
subsequent increases in
salary may be higher than
theaverage until the target
positioning is achieved.
None.
GOVERNANCE
87Primary Health Properties PLC Annual Report 2021
Pay element and purpose Operation Opportunity
Performance metrics, weighting
andassessment
Benefits
Provide a market competitive
level of benefits to support
recruitment and retention of
Executive Directors with the
necessary experience and
expertise to deliver the
Company’s strategy.
The Executive Directors may
receive benefits which
include, but are not limited to,
family private health cover,
critical illness cover, life
assurance cover, income
protection and accident/
sickness/business travel
insurance (including tax
payable if any).
The Committee recognises
the need to maintain suitable
flexibility in the determination
of benefits that ensure it is
able to support the objective
of attracting and retaining
key personnel. Accordingly,
the Committee would expect
to be able to adopt other
benefits including (but not
limited to) relocation
expenses, tax equalisation
and support in meeting
specific costs incurred
byDirectors.
Any reasonable business
related expenses can be
reimbursed in accordance
with the Company’s expenses
policy, including the tax
thereon if determined to be a
taxable benefit. The Executive
Directors may also participate
in any all-employee share
plans operated by the
Company.
The maximum will be set at
the cost of providing the
benefits described.
The current CEO will not
receive any additional
benefits, other than life
assurance cover of 4x
basesalary.
None.
Pensions
Provide appropriate levels of
pension benefits to support
recruitment and retention of
Executive Directors with the
necessary experience and
expertise to deliver the
Company’s strategy.
The Committee has the ability
to provide pension funding in
the form of a salary
supplement or as an employer
contribution to a defined
contribution pension plan.
Any pension payments would
not be considered “salary”
when determining the extent
of participation in the
Company’s incentive
arrangements.
For existing and any future
Executive Directors, the
maximum pension contribution
as a percentage of basic
salary will be in line with the
contribution level provided to
the majority of the workforce
(currently 3–6% of salary).
The current CEO will not
receive a pension.
None.
SUMMARY OF THE DIRECTORS’ REMUNERATION POLICY CONTINUED
Key elements of the Policy continued
88 Primary Health Properties PLC Annual Report 2021
DIRECTORS’ REMUNERATION REPORT CONTINUED
SUMMARY OF THE DIRECTORS’ REMUNERATION POLICY CONTINUED
Key elements of the Policy continued
Pay element and purpose Operation Opportunity
Performance metrics, weighting
andassessment
Annual Bonus Plan
The Annual Bonus Plan provides
an incentive to the Executive
Directors linked to achievement
in delivering goals in a
sustainable manner that are
closely aligned with the
Company’s strategy and the
creation of value for
shareholders.
The Committee will determine
the bonus payable after the
year end based on
performance against targets.
Annual bonuses are paid in
cash after the end of the
financial year to which they
relate. However, Executive
Directors who participate in
the Annual Bonus Plan will be
required to defer 30% of the
bonus for the 2021 and
subsequent financial years,
net of tax, into shares which
should be held for at least
three years. The Committee
may award dividend
equivalents on deferred
shares to the extent
theyvest.
Malus and clawback
provisions will apply to the
award, up to the date of the
bonus determination and for
three years thereafter.
Bonus payments are
notpensionable.
Until 31 December 2022 at
the latest, the current CEO
will not participate in the
Annual Bonus Plan but will be
remunerated through the
performance fee mechanism
previously operated through
the PIF in favour of Nexus, his
former employer. The CFO
participated in the Annual
Bonus Plan and, until
31December 2021, also
inthePIF.
The current PIF will operate
until no later than in relation
to the 2022 financial year.
After the operation of the PIF
has ceased, the maximum
bonus opportunity of the
current CEO as a % of base
salary will be the higher of
150% of salary and £750,000.
Including any awards under
the PIF, the maximum bonus
opportunity of the CFO is
150% of salary.
Discretionary bonus pay-outs
will be determined on the
satisfaction of a range of
keyfinancial and personal/
strategic objectives set
annually by the Committee.
No more than 30% of the
overall bonus opportunity can
be based on performance
against personal/strategic
targets.
The performance targets
applied will be disclosed in
the relevant Annual Report,
following the end of the
performance period.
Discretion will apply, enabling
the Committee to adjust the
bonus outcome upwards or
downwards, where the
formulaic outcome is, in the
view of the Committee, not a
fair and accurate reflection of
business performance.
No more than 25% of the
relevant portion of the bonus
is payable for delivering a
threshold level of performance,
and no more than 50% is
payable for delivering a target
level of performance (where
the nature of the performance
metric allows such an approach).
GOVERNANCE
89Primary Health Properties PLC Annual Report 2021
SUMMARY OF THE DIRECTORS’ REMUNERATION POLICY CONTINUED
Key elements of the Policy continued
Pay element and purpose Operation Opportunity
Performance metrics, weighting
andassessment
Performance Incentive Fee
(“PIF”)
The PIF is an existing
arrangement for the
remuneration of the senior
management team including
the Executive Directors.
The PIF’s last year of
operation was 2021 for the
CFO and will be 2022 for the
CEO. Awards made to the
CEO will be in cash whilst at
least half of the awards made
to the CFO will be deferred
into shares that should be
held for three years with the
remainder paid in cash. The
Committee may award
dividend equivalents on
deferred shares to the extent
they vest.
Malus and clawback
provisions will apply to the
PIF, up to the date of any
determination and for three
years thereafter.
The Company will honour its
pre-existing commitment in
respect of the awards under
the PIF for the 2021
financialyear.
Awards are capped at
£1.08million for the CEO in
any year (being 60% of the
£1.8million cap).
The PIF will be calculated as it
has in the recent past, as follows:
The PIF pool is equal to 11.25%
of any performance in excess
of an 8% per annum increase
in the Group’s EPRA net asset
value, plus dividends (less
equity raised, net of non-cash
and other necessary
adjustments) paid subject to
an overall cap of £1.8 million.
Half of any PIF payment is
deferred to the following year,
with performance against the
hurdle rate (both positive and
negative) carried forward in a
notional cumulative account
with any future payment
subject to the account being
in a surplus position.
Appropriate documentation
will be put in place to ensure
an adequate transition
structure is in place for the
period of transition from the
PIF to the Annual Bonus Plan
and the LTIP.
90 Primary Health Properties PLC Annual Report 2021
DIRECTORS’ REMUNERATION REPORT CONTINUED
SUMMARY OF THE DIRECTORS’ REMUNERATION POLICY CONTINUED
Key elements of the Policy continued
Pay element and purpose Operation Opportunity
Performance metrics, weighting
andassessment
Long Term Incentive Plan
(“LTIP”)
Awards are designed to
incentivise the Executive
Directors to maximise returns
to shareholders by successfully
delivering the Company’s
objectives over the long term
in a sustainable manner.
Awards can be granted
annually to Executive
Directors under the LTIP in
the form of nil-cost options or
conditional awards of shares.
These would vest at the end
of a three-year period,
normally subject to:
• the Executive Director’s
continued employment at
the date of vesting; and
• satisfaction of the
performance conditions.
The Committee may award
dividend equivalents on
awards to the extent that
they vest.
The net of tax number of
shares that vest after the end
of the three-year performance
period will be subject to an
additional two-year holding
period, during which the
shares cannot be sold
(irrespective of whether the
individual remains employed).
Malus and clawback
provisions will apply to the
award, up to the date of the
LTIP determination and for
three years thereafter.
Awards may be made up to
200% of base salary in normal
circumstances.
No more than 25% of the
award will vest for threshold
performance. 100% of the
award will vest for maximum
performance.
Awards vest subject to the
achievement of challenging
performance conditions set by
the Committee prior to
eachgrant.
Discretion will apply, enabling
the Committee to adjust the
outcome upwards or
downwards, where the
formulaic outcome is, in the
view of the Committee, not a
fair and accurate reflection of
business performance.
There is no intention to award
an LTIP in 2022 to the current
CEO, whilst the PIF operates.
However, the CFO will be
granted awards from 2021.
All-employee share plan
To encourage share ownership
.
The Company does not
currently operate an all-
employee share plan. To the
extent the Company operates
an all-employee share plan,
the Executive Directors will
be able to participate on the
same terms as other
employees.
Actual participation in these
plans will be disclosed in the
relevant Annual Report
following the implementation
and participation in
theseplans.
None.
Shareholding requirement
To support long term
commitment to the Company
and the alignment of
Executive Director interests
with those of shareholders.
The Committee has adopted
formal shareholding
guidelines that will encourage
the Executive Directors to
build up and then subsequently
hold a shareholding
equivalent to a multiple
oftheir base salary.
Requirements will continue for
two years after an Executive
Director ceases to be employed.
200% of salary. None.
GOVERNANCE
91Primary Health Properties PLC Annual Report 2021
Pay element and purpose Operation Opportunity
Performance metrics, weighting
andassessment
Non-executive Directors
To provide a competitive fee
for the performance of NED
duties, sufficient to attract
high calibre individuals to
therole.
Fees are set in conjunction
with the duties undertaken.
Normally only increased when
an individual takes on
additional duties or where
benchmarking indicated fees
require realignment to
remaincompetitive.
Overall fees will not exceed
the maximum in the Company’s
Articles of Association.
None.
The NEDs are not entitled to
receive any remuneration
which is performance related.
As a result, there are no
performance conditions.
The table below sets out how the current Policy addresses factors set out in provision 40 of the Code, the objective of which is
to ensure that the remuneration operated by the Company is aligned to all stakeholder interests, including those of shareholders.
Factor How this is addressed
Clarity
Remuneration arrangements should be transparent and
promote effective engagement with shareholders and
theworkforce.
The Policy is well understood by the management team and is
clearly articulated to shareholders.
Simplicity
Remuneration structures should avoid complexity and
theirrationale and operation should be easy to understand.
The Committee is very mindful of the need to avoid overly complex
remuneration structures which can be misunderstood and deliver
unintended outcomes. Therefore, one of the Committee’s
objectives is to ensure that the Executive remuneration policies
and practices are as simple to communicate and operate as
possible, while also supporting strategy.
Risk
Remuneration arrangements should ensure reputational
andother risks from excessive rewards, and behavioural
risks that can arise from target-based incentive plans are
identified and mitigated.
The Policy is designed to ensure that inappropriate risk taking is
not encouraged and will not be rewarded via: (i) the balanced use
of both short and long term incentive plans which employ a blend
of financial, non-financial and shareholder return targets; (ii) the
significant role played by equity in the incentive plans (together
with shareholding guidelines); and (iii) malus/clawback provisions.
Predictability
The range of possible values of rewards to individual
Directors and other limits or discretions should be
identified and explained.
The incentive plans are subject to individual caps, with the share
plans also subject to market standard dilution limits.
Proportionality
The link between individual awards, the delivery of strategy
and the long term performance of the Company should be
clear. Outcomes should not reward poorperformance.
There is a clear link between individual awards, delivery of strategy
and long term performance. In addition, the significant role played
by incentive/”at-risk” pay ensures that poor performance is
notrewarded.
Alignment to culture
Incentive schemes should drive behaviours consistent
withthe Company purpose, values and strategy.
The Executive pay policies are fully aligned to the Company’s
culture, purpose and values.
Statement of employment conditions elsewhere in the Company
The Committee considers pay and employment conditions across the Company when reviewing the remuneration of the Executive
Directors and other senior employees. In particular, the Committee considers the range of base pay increases across the Group as
well as wider workforce remuneration and related policies. The Policy for the Executive Directors is designed with regard to the
policy for the workforce as a whole.
Laure Duhot, who is a member of the Committee, held a series of meetings with staff at our offices in Stratford-upon-Avon and in
London to discuss a wide range of employee related matters, including pay and benefits in connection with the Board’s employee
engagement initiative. Through this engagement exercise the Committee is kept updated on general employment conditions and
it approves the budget for annual salary increases and ensures that the remuneration of the Executive Directors is aligned with
the wider PHP pay policy. The Company did not consult with employees in formulating the Policy.
SUMMARY OF THE DIRECTORS’ REMUNERATION POLICY CONTINUED
Key elements of the Policy continued
92 Primary Health Properties PLC Annual Report 2021
DIRECTORS’ REMUNERATION REPORT CONTINUED
SUMMARY OF THE DIRECTORS’ REMUNERATION POLICY CONTINUED
Consideration of shareholders’ views
The Company is committed to engagement with shareholders and in advance of recommending the Policy for approval by shareholders
at the 2021 Annual General Meeting, Peter Cole wrote to over 20 of the Company’s largest institutional shareholders and also to
the main proxy voting agencies to seek their views on the proposed Policy. If any significant changes to the Policy are proposed in
the future, the Company will seek to obtain major shareholders’ views in advance of implementation.
The Chair of the Committee will attend the Annual General Meeting to hear the views of shareholders on the Policy and to
answer any questions in relation to remuneration.
PART 2: ANNUAL REPORT ON REMUNERATION
On the following pages we set out the Annual Report on Remuneration for the year ended 31 December 2021 which provides
details of how the Policy was applied and the remuneration received by each of the Directors.
This part of the report has been prepared in accordance with the Companies Act, various companies regulations, and relevant
sections of the Listing Rules. The Annual Report on Remuneration will be put to an advisory shareholder vote at the 2022 AGM.
The information on pages 92 to 94 has been audited where required under the regulations and indicated as audited information
where applicable.
Executive Directors
Single total figure of remuneration (audited information)
The following tables detail all elements of remuneration receivable by the Executive Directors in respect of the year ended
31December 2021 and show the comparative figures for the year ended 31 December 2020 in a separate table below.
Salary
2021
£000
Benefits
2021
£000
Pension
3
2021
£000
Total fixed
2021
£000
Annual
Bonus
2021
£000
LTIP
2021
£000
PIF
4
2021
£000
Other
2021
£000
Total
variable
2021
£000
Total
2021
£000
Harry Hyman
1
247 — — 247 — — 589 — 589 836
Richard Howell
2
320 — 1 321 216 — 240 — 456 777
Notes:
1 Under the terms of the CEO’s contractual bonus provisions in his PHP service contract which was signed on 5 January 2021, he is entitled to up to 40% of the PIF.
The maximum PIF payable is capped at a maximum of £1.8 million. This is paid to him in cash net of employers national insurance, half following the approval of the
financial statements for the year and half in the next year. He is not paid a pension, or an annual bonus and has not been made any award under the LTIP.
2 The CFO earned the following elements of variable pay in relation to 2021, some of which will be paid in subsequent years, as follows: (i) Annual Bonus (£216,000),
the Annual Bonus is set by the Committee, is discretionary, of which 30% (net of tax) is deferred in to Ordinary Shares which have to be held for three years and are
subject to malus and clawback; (ii) PIF (£240,000), this was payable in relation to 2021 of which £120,000 is paid to him in 2022, half in cash and half in shares
which must be held for a three-year period and £120,000 paid in 2023 on the same basis. The CFO’s award from the PIF is made at the discretion of the Committee.
2021 was the last year the CFO participated in the PIF.
3 Following a review of remuneration and benefits across the workforce, it was agreed to increase the employer pension contribution from 1 January 2022 for the CFO
to 6%, subject to a limit of £10,000 per annum. The CFO receives the same employer contribution as employees in respect of pension.
4 Following the approval of the accounts, the Committee determined that as PHP’s Group EPRA Net Asset Value for the year (plus dividends paid, less equity raised,
net of non-cash and other necessary adjustments) had exceeded the hurdle rate of 8%, a PIF payment, had been earned and accordingly the payments to the CEO
and the CFO set out in the table above were approved. Full details of how the PIF is determined are set out in the Policy on page 89.
Salary
2020
£000
Benefits
2020
£000
Pension
2020
£000
Total fixed
2020
£000
Annual
Bonus
2020
£000
LTIP
2020
£000
PIF
2020
£000
Other
2020
£000
Total
variable
2020
£000
Total
2020
£000
Harry Hyman
1
50 — — 50 — — 524 — 524 574
Richard Howell
2
300 — 1 301 150 — 200 250 600 901
Notes:
1 The CEO received no salary in 2020 from PHP or any member of the PHP Group. The Adviser received a fee of £50,000 in 2020 under the advisory agreement for
the provision of Harry Hyman’s services as Managing Director. Under the terms of the CEO’s contractual bonus provisions in his PHP service contract which was
signed on 5 January 2021, he is entitled to up to 40% of the PIF payable under the advisory agreement. The maximum PIF payable is capped at a maximum of
£1.8million. This is paid to him in cash, half following the approval of the financial statements for the year and half in the next year.
2 The CFO earned the following elements of variable pay in relation to 2020, most of which will be paid in subsequent years, as follows: (i) Annual Bonus (£150,000),
the Annual Bonus is set by the Committee, is discretionary, and is payable to him on a phased basis conditional normally on remaining employed, as follows:
£75,000 payable in cash in 2021; £75,000 payable in cash in 2022; (ii) Transition bonus (£250,000), the bonus was set by the Committee, is discretionary and is in
relation to the internalisation. It is payable to him on a phased basis conditional on remaining employed, as follows: £125,000 payable in cash in 2022; and £125,000
payable in cash in 2023. (iii) PIF (£200,000), this was earned in 2020 of which £100,000 is paid to him in 2021, half in cash and half in shares which must be held for
a three-year period and £100,000 paid in 2022 on the same basis. The CFO’s award from the PIF is made at the discretion of the Committee.
GOVERNANCE
93Primary Health Properties PLC Annual Report 2021
2021 annual bonus outcome
The CEO did not participate in the annual bonus scheme in 2021 as he retains the right to receive a payment from the PIF.
The bonus scheme for the CFO in 2021 was based on a mixture of financial targets and personal targets. The maximum potential
bonus awards for 2021 were 75 % of salary. The table below includes details of the specific targets and the extent that they were met.
Metric Weight Threshold Maximum Outcome Bonus achieved
Financial targets
(equallyweighted)
70%
Adjusted earnings £81.6m £84m £83.2m 80%
Total property return 6.5% 9.5% 9.5% 100%
Personal targets 30%
Individual targets See below See below See below See below
Personal objectives (30% of total bonus)
The personal objectives were set based on Richard Howell’s individual areas of responsibility and the main objectives which were all
equally weighted are set out below:
Objective Achievement Committee assessment
Maintenance of a strong
and flexible capital
structure and maintain
dividend cover
During the year the CFO refinanced £350 million
ofloan facilities with Aviva Investors, with a new
£200million facility for a 15-year term at a fixed rate
of2.52%, and renewed its existing £100 million facility
with NatWest and renewed facilities with Lloyds Bank
PLC and Santander PLC. Average debt maturity was
extended to seven years.
The Committee assessed that the
performance of the CFO had been
strong in this area, with the refinancing
delivering a reduction in the overall cost
of debt for the Group to 2.9% and
increasing debt maturity.
Delivering on PHP’s ESG
initiatives, in particular
exploring green finance
The new debt facilities entered into include sustainability
KPIs based around PHP’s existing built environment
targets and the Group will benefit from amargin
reduction, conditional on achieving these targets.
The Company published a standalone Responsible
Business Report on its website and completed its first
TFCD Report in the year.
The Committee noted the achievements
in improved ESG reporting in the year,
and the early reporting under TFCD. It
also recognised Scope 1 & 2 energy
consumption outcomes to be amongst
the lowest in the REIT sector, and
concluded that this objective had been
met in full.
Ensuring a smooth
transition of IT systems,
andbanking and
accounting functions
The IT system was successfully transitioned off
theNexus infrastructure in the first quarter and
subsequently comprehensively reviewed and migrated
to a cloud-based platform without interruption.
The Committee noted the efficient
transition of the systems from Nexus
following the internalisation and concluded
that this objective had been successfully
achieved and that effective leadership
of the finance function during a continued
period of COVID-19 disruption meant
that reporting was unaffected.
Continued cost control
and maintenance of low
EPRA cost ratio
During the year the cost savings anticipated in
connection with the internalisation process were
achieved. The EPRA cost ratio was reduced from 11.9%
to 9.3% in the year.
The Committee considered that the
delivery of the anticipated cost savings
was a key strategic benefit of the
internalisation and that the CFO had
delivered on the requirement to
maintain cost controls to the benefit
ofshareholders.
Improve risk management
processes and
documentation following
internalisation
All risk procedures comprehensively reviewed and new
environmental risk reporting framework developed.
Authorisation matrix comprehensively updated
following internalisation.
Automated invoice approval system introduced minimising
risk of lost invoices and improved cost control.
The Committee noted the work
undertaken in the year and concluded
that this objective had been
significantly met.
94 Primary Health Properties PLC Annual Report 2021
DIRECTORS’ REMUNERATION REPORT CONTINUED
Personal objectives (30% of total bonus) continued
Objective Achievement Committee assessment
Deliver an effective
Investor Relations strategy
and receive positive
feedback from investors
Successful investor road-shows were held in the year
following full year and interim results, with positive
feedback received from the brokers and improved
analyst coverage with HSBC and Green Street
initiatingcoverage.
Over 200 investor meetings held during the year.
The Committee assessed that the
investor engagement had been
effective, particularly given the
challenges posed by the COVID-19
pandemic and concluded this objective
had been substantially met.
The Committee assessed Richard’s performance against his personal targets after the year end and agreed that a bonus of 27%
was payable in respect of this aspect of the annual bonus plan, in light of his performance against these objectives. In reaching
this conclusion the Committee determined that Richard had performed strongly during the year and had succeeded in meeting
the targets set for him.
In total, the bonus payable to Richard Howell in light of his performance against both the financial targets and personal objectives
was equivalent to 90% of the maximum payable. This resulted in a bonus award of £216,000 of which, in line with the Policy,
£64,800, representing 30% of the award after tax, will be deferred into shares to be held for three years.
In the light of the financial performance of the Company in the year and the successful delivery of the anticipated cost savings
from the internalisation, together with the smooth transitioning of the Nexus workforce, the Committee is satisfied that the
bonus pay-out is appropriate given the shareholder and wider stakeholder experience.
Share scheme interests awarded during the year
Only Richard Howell participated in the LTIP during the year.
Richard Howell was granted a nil-cost option over 266,904 Ordinary Shares in PHP (the “Award”). In line with the Policy the Award
has a face value of 125% of salary (calculated on the basis of a share price of £1.50, being the average closing price in the three
dealing days prior to the date of grant) and will vest over three years subject to the achievement of performance targets (total
accounting return: 50% and EPRA earnings per share: 50%).
The Award is subject to the following performance targets over a three-year period to 31 December 2023:
Performance measure Weighting Threshold vesting (10%) Stretch vesting (100%)
Total accounting return 50% 5% per annum CAGR 10% per annum CAGR
EPRA earnings per share 50% 5% per annum CAGR 10% per annum CAGR
The Award vests on a straight line basis for performance between the applicable threshold and stretch targets and lapses to the
extent the applicable threshold is not achieved.
50% of the Award is subject to the total accounting return performance measure (i.e. change in EPRA net tangible assets per
share plus dividends per share paid). 50% of the Award is subject to the EPRA earnings per share performance measure.
The rationale for selecting EPRA EPS and total accounting return is that these are also key indicators of value creation for
shareholders out of which the dividends are paid and the share values are driven. Total accounting return (“TAR”) provides
continuity with the way the PIF calculates value creation and reflects the impact of gearing as experienced by shareholders.
Targets for these measures are in the table above. They are absolute, rather than relative, because in originally setting the targets
there was not felt to be a suitably large list of quoted peer companies against which to make comparison. The inclusion of total
shareholder return was considered by the Committee but potential volatility that is outside of management control and a very
small peer group made the use of absolute and relative targets difficult to justify.
The Committee will determine whether and the extent to which the performance targets have been met, in accordance with the
rules of the plan.
Harry Hyman and Richard Howell also participated in the PHP Sharesave plan. Both Harry Hyman and Richard Howell entered into
a savings contract to save £500 per month (the maximum sum permitted under the plan rules). They were both granted an option
to acquire 14,634 Ordinary Shares of 12.5 pence at a price of £1.23 per share.
The Company may fund its share incentives through a combination of new issue and/or market purchase shares. The Company
monitors the level of share grants and the impact of these on the continuing requirements for shares. In accordance with
guidelines set out by the Investment Association the Company can issue a maximum of 10% of its issued share capital in a rolling
ten-year period to employees under all its share plans, with an inner limit of 5% applying to discretionary plans.
GOVERNANCE
95Primary Health Properties PLC Annual Report 2021
Non-executive Directors
Single total figure of remuneration (audited information)
Fees Taxable benefits Total
2021
£000
2020
£000
2021
£000
2020
£000
2021
£000
2020
£000
Steven Owen
(Chairman)
165 125 — — 165 125
Ian Krieger
70 63
— —
70
63
Peter Cole
65 50
— —
65
50
Laure Duhot
60 55
— —
60
55
Helen Mahy
1
— 15
— — — 15
Dr Stephen Kell
1
— 12
— — — 12
Note:
1 Helen Mahy and Dr Stephen Kell retired from the Board at the 2020 AGM and their remuneration figure represents Directors’ fees to April 2020.
The fee for the Non-executive Directors from 1 April 2020 was increased from £50,000 per annum to £55,000 in February 2021.
An additional fee of £10,000 per annum was agreed to be payable to the Chairman of the Remuneration Committee, reflecting
the substantially increased workload and responsibility following internalisation. Ian Krieger receives an additional payment of
£10,000 for chairing the Audit Committee and £5,000 for acting as Senior Independent Director. The Chair of the Environmental,
Social and Governance Committee received an additional payment of £5,000. The annual fee for the Chairman is £165,000.
Executive Directors: contracts
Name Date of appointment
Date of service
agreement or letter of
appointment
Harry Hyman
5 February 1996 5 January 2021
Richard Howell
1 April 2017 15 April 2021
Harry Hyman entered into a new contract of employment with the Company on 5 January 2021 and Richard Howell entered into
arevised contract of employment with Primary Health Properties PLC on 15 April 2021 to reflect the terms of the Policy.
Harry Hyman’s service contract does not permit notice to be given by either party until 4 January 2022; thereafter his service
contract has a twelve-month mutual notice period. Richard Howell’s service contract has a six-month mutual notice period.
Non-executive Directors: contracts
Name Date of appointment
Date of service
agreement or letter of
appointment
Length of appointment
years
Steven Owen
1 January 2014 9 December 2013 8
Peter Cole
1 May 2018 1 May 2018 3
Laure Duhot
14 March 2019 14 March 2019 2
Ivonne Cantú
1 January 2022 14 December 2021 —
Ian Krieger
15 February 2018 15 February 2018 3
The Non-executive Directors each have specific letters of appointment, rather than service contracts. Non-executive Directors are
appointed for an initial term of three years and, under normal circumstances, would be expected to serve for additional three-year
terms, up to a maximum of nine years, subject to satisfactory performance, which is reviewed annually by the Nomination
Committee. The Board shall have discretion to extend a term beyond nine years in order to retain specialist skills and experience
which are hard to replace and provided always that the individual is considered to remain independent.
The appointment of the Chair and any Non-executive Directors may be terminated immediately if they are not re-appointed by
shareholders or if they are removed by the Board under the Company’s Articles of Association or if they resign and do not offer
themselves for re-election. In addition, appointments may be terminated by either the individual or the Company giving three
months’ written notice of termination.
In accordance with the Code, the Company requires that all Directors are re-elected at each Annual General Meeting.
96 Primary Health Properties PLC Annual Report 2021
DIRECTORS’ REMUNERATION REPORT CONTINUED
The Company’s performance
The following graph compares the total shareholder return of the Company’s Ordinary Shares relative to a return on a hypothetical
holding over the same period in the FTSE All-Share Real Estate Investment Trust Index. This Index has been chosen by the Board
as the Company is a constituent member of that Index. Total shareholder return is the measure of returns provided by a company
to shareholders reflecting share price movements and assuming reinvestment of dividends.
For the year ended 31 December 2021, the highest and lowest mid-market prices of the Company’s Ordinary Shares were
170.2pence and 143.2 pence respectively.
Total Shareholder Return Performance %
CEO pay
This table shows how pay for the role of the CEO has changed in the last two years. This table will be expanded over future
periods until a ten-year history has been provided.
2021
£000
2020
£000
Incumbent
Harry Hyman Harry Hyman
Single figure of remuneration
836 574
% of max bonus earned
n/a n/a
% of max LTIP awards vesting
n/a n/a
Remuneration adviser
The Remuneration Committee’s appointed adviser is Korn Ferry, which provides advice on Directors’ remuneration and governance.
Korn Ferry were appointed by the Board based on their breadth of relevant experience in establishing executive pay structures,
and provide no other services to the Group. Korn Ferry has no other connection with the Company and is a signatory to the
voluntary code of conduct of the Remuneration Consultants Group in relation to Executive remuneration consulting. The
Committee is satisfied that its advice is independent and objective. The fees paid for its services calculated on a time and
materials basis during the calendar year were £71,112.
Relative importance of spend on pay
The following table shows the total remuneration paid to Directors and all employees, and total management fee paid compared
to the dividends paid to shareholders:
2021
£
2020
£ Difference
Directors’ fees
1
1,888,538 371,250 409%
Overall payroll, including Executive Directors
2
5,004,906 371,250 1248%
Management fee
3
102,796 9,777,830 -99%
Dividends
82,425,791 73,250,228 13%
Notes:
1 As the Company had no employees in 2020 the total spend on remuneration in that year comprises just the Directors’ fees.
2 The payroll costs show the costs from 5 January 2021 when the internalisation completed and the Company inherited the former Nexus workforce and includes the
costs of the Executive Directors.
3 The management fee is the amount paid in 2020 to Nexus under the Advisory Agreement between it and the Company. A reduced fee was payable for 2021
following the internalisation of the management and termination of the Advisory Agreement.
PHP
FTSE
UK
REIT
350
300
250
200
150
100
50
0
31/12/201231/12/2011 31/12/2013 31/12/2014 31/12/2015 31/12/2016 31/12/2017 31/12/2018 31/12/2019 31/12/2020 31/12/2021
GOVERNANCE
97Primary Health Properties PLC Annual Report 2021
Relative importance of spend on pay continued
Note: The items listed in the table are as required by the Large and Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013 Section 20 with the exception of the management fee payable to Nexus prior to internalisation,
which has been included because the Directors believe it will help shareholders’ understanding of the relative importance of the
spend on pay. The figures for this measure are as shown in note 4 to the financial statements.
There is no separate amount to be disclosed with regard to Harry Hyman’s remuneration during the year to 31 December 2020 as
throughout this period his services were provided in accordance with the Advisory Agreement.
Statement of Directors’ shareholding and share interests (audited)
The interests of each person who served as a Director at any time during the financial year in the share capital of the Company
(all of which are beneficial unless otherwise stated) and any interests of a person connected with such persons (within the
meaning of Section 96B(2) of the Financial Services and Markets Act 2000) together with their interests under the PHP Sharesave
scheme and LTIP as at 31 December 2021 are shown below:
Director
Number of shares
owned beneficially
or by connected
persons % of salary held
Total interest
subject to
conditions (LTIP
nil-cost awards)
Total interests
subject to
continued service
condition only
Outstanding
Sharesave options
Total interests as
at 31 December
2021
Harry Hyman
24,403,690 14,740 n/a n/a 14,634 24,408,178
Richard Howell
233,264 110 266,904 nil 14,634 514,802
Steven Owen
90,857 n/a n/a n/a n/a 90,857
Ian Krieger
101,481 n/a n/a n/a n/a 101,481
Peter
Cole
75,000 n/a n/a n/a n/a 75,000
Laure Duhot
23,169 n/a n/a n/a n/a 23,169
Notes:
1 Beneficial interests include shares held directly or indirectly by connected persons.
2 The percentage of salary held is based on salary as at 31 December 2021 and a share price at 31 December 2021 of £1.51.
Shareholding guidelines
In accordance with the Policy, in order to ensure that the Executive Directors’ interests are aligned with those of shareholders,
theshareholding guideline (as a percentage of salary) for the Executive Directors is 200%. In addition, the Executive Directors are
required to retain shares equal to the level of this guideline (or if they have not reached the guideline, those Ordinary shares that
they hold on departure that count towards the guidelines at that point in time) for the two years following their departure.
The guideline shareholdings for the year ended 31 December 2021 are shown below:
Executive Director Requirement Guideline holding Qualifying holding % of salary held
Harry Hyman 200% 331,126 24,393,544 14,771
Richard Howell 200% 423,841 233,264 110
Notes:
1 The percentage of salary held is based on salary as at 31 December 2021 and a share price at 31 December 2021 of £1.51.
The shareholding guidelines includes Ordinary Shares beneficially owned by the Executive Directors and their connected persons,
and Ordinary Shares subject to a holding period, but net of tax if not yet exercised (e.g. shares which have vested but are subject
to a sale restriction and vested but not exercised (net of tax)).
To the extent that there is a shortfall against the minimum holding at any time during an Executive Director’s employment, he/she will be
required to retain 50% of the deferred bonus and LTIP shares (net of taxes and exercise costs) until such time as the guideline is satisfied.
The shareholding guidelines will continue to apply for two years post cessation of employment; however, only Ordinary Shares
acquired from share awards made after 1 January 2021 will be subject to this restriction.
98 Primary Health Properties PLC Annual Report 2021
DIRECTORS’ REMUNERATION REPORT CONTINUED
CEO pay ratio
Although PHP does not have more than 250 employees, and is thus not formally required to publish the ratio of CEO’s pay to the
wider UK workforce, we have decided to include this figure as good practice now that, following the completion of the
internalisation transaction on 5 January 2021, PHP has employees.
Our CEO to colleague pay ratio is set out in the table below:
Financial year Method used 25th percentile pay ratio 50th percentile pay ratio 75th percentile pay ratio
2021 Option A 13.6:1 6.0:1 2.3:1
The Company has chosen to use Option A as the method for calculating the CEO pay ratio. This method has been selected
because PHP has a small number of employees, and this method is considered to be the most up to date and statistically
accurate method of calculation.
CEO pay for 2021 has been calculated for the period 1 January 2021 to 31 December 2021 based on the single figure of remuneration.
The calculation for the pay of employees at the different levels has been calculated as at 31 December 2021. Where relevant,
full-time equivalent pay was calculated by applying a proportionate increase to the pay and benefits of any part-time employees.
For the purpose of the calculations, the following elements of pay were included in the total pay figure for the employee at each
quartile in the year to 31 December 2021:
• annual basic salary;
• bonus earned in the year;
• employer pension contributions; and
• Sharesave.
Percentage change in remuneration of the Board of Directors
The table below shows the percentage change in remuneration of the Executive and Non-executive Directors compared with the
average of PHP employees as a whole between the years ended 31 December 2020 and 31 December 2021.
Averge employee
(%chnge)
1
Non-executive Directors (% change)
3
Executive Directors (% change)
2
Element of pay
Steven Owen Ian Krieger Peter Cole Laure Duhot Harry Hyman Richard Howell
Basic salary/fees n/a 32% 11% 30% 9% 400% 7%
Benefits n/a — — — — — —
Annual bonus, PIF and
transition bonus
n/a n/a n/a n/a n/a 12% -24%
Notes:
1 The Group had no employees in 2020. In 2021 the average increase for employees was therefore not applicable.
2 Whilst Harry Hyman and Richard Howell were not employed by any company in the PHP Group during 2020, the movement presented reflects payments made to
them under their PHP Plc contracts for 2021 and under letters of appointment for 2020.
3 The Non-executive Directors receive no benefits and do not participate in the annual bonus scheme.
Payments to past Directors or for loss of office
There have been no payments made to past Directors and no payments made for loss of office in the year.
GOVERNANCE
99Primary Health Properties PLC Annual Report 2021
Statement of shareholder voting
At the 2021 AGM, shareholder voting on the Directors’ Remuneration Report was as follows:
Number of votes % of total votes cast
Votes cast in favour
765,005,404 88.1
Votes cast against
103,205,973 11.9
Total votes cast
868,211,377
—
At the 2020 AGM, shareholder voting on the Directors’ Remuneration Policy was as follows:
Number of votes % of total votes cast
Votes cast in favour
742,902,709 99.29
Votes cast against
5,283,534 0.71
Total votes cast
748,186,243 —
A General Meeting was held on 4 January 2021, at which a composite resolution (inter-alia) to approve the internalisation and the
adoption of the Policy was proposed and at which shareholder voting was as follows:
Number of votes % of total votes cast
Votes cast in favour
759,002,089 99.95
Votes cast against
416,356 0.05
Total votes cast
781,849,853 —
Approval
The Directors’ Remuneration Report has been approved by the Board of Directors.
Signed on behalf of the Board of Directors
Peter Cole
Chairman of the Remuneration Committee
15 February 2022
100 Primary Health Properties PLC Annual Report 2021
DIRECTORS’ REPORT
The Directors present their Annual Report and Accounts,
together with the financial statements and the Auditor’s
Report, for the year ended 31 December 2021 to shareholders.
Company status
Primary Health Properties PLC is a public limited liability company
incorporated under the laws of England and Wales and is the
holding company of the Group. It has a premium listing on the
London Stock Exchange Main Market for listed securities
(LON:PHP) and is a constituent of the FTSE 250 Index. The
Company has no branch offices.
Principal activity
The principal activity of the Group remains investment in
primary healthcare property in the United Kingdom and Ireland.
The purpose of the Annual Report is to provide information to
the members of the Company as a body, that is a fair, balanced
and understandable assessment of the Group’s performance,
business model and strategy. A detailed review of the Group’s
business and performance during the year, the principal risks
and uncertainties facing the Group, its approach to sustainability,
an indication of future likely developments in the Company and
details of important events since the year ended 31 December
2021 are contained in the Group’s Strategic Report on pages 1
to 59 and should be read as part of this report.
The Company, its Directors, employees, agents or advisers do
not accept or assume responsibility to any other person to
whom this document is shown or into whose hands it may
come and any such responsibility or liability is expressly disclaimed.
The Annual Report contains certain forward-looking statements
with respect to the operations, performance and financial
condition of the Group. By their nature, these statements
involve uncertainty since future events and circumstances can
cause results and developments to differ from those anticipated.
The forward-looking statements reflect knowledge and information
available at the date of preparation of this Annual Report.
Nothing in this Annual Report should be construed as a
profitforecast.
Tax status
The Group became a Real Estate Investment Trust (“UK REIT”)
on 1 January 2007. It is the opinion of the Directors that the
Group has conducted its affairs so as to be able to continue as
a UK REIT.
Directors
The names and biographical information for the current Directors
can be found on pages 60 and 61. Details of the Directors who
served during the year and the interests of the Directors and
their connected persons in the Company’s Ordinary Shares can
be found in the Directors’ Remuneration Report on page 86.
A proposal to re-elect such Directors is to be included within
the Notice calling the 2022 Annual General Meeting (“2022
AGM”). The Chairman confirms to shareholders that, following
formal performance evaluation, all the Directors standing for
re-election continue to be effective and their contribution is
valuable and they demonstrate full commitment to and
independence in their roles.
Appointment and removal of Directors
Unless and until otherwise determined by the Company by
ordinary resolution, the number of Directors (other than any
alternate Directors) shall not be less than two and there shall
be no maximum number of Directors.
Dividends
The results for the year are shown in the Group Statement of
Comprehensive Income on page 114.
The Company has paid four interim dividends each of 1.55 pence
per Ordinary Share of 12.5 pence (“Ordinary Shares”) for the
year, totalling 6.2 pence per share, each of which has been paid
as Property Income Distribution.
On 6 January 2022, the Board declared an interim dividend of
1.625 pence per Ordinary Share, payable as an ordinary dividend
on 25 February 2022, to shareholders on the register at the
close of business on 14 January 2022, being the first quarterly
dividend in 2022.
Powers of Directors
Subject to the provisions of the Companies Act 2006 (the
“Act”), the memorandum and Articles of Association of the
Company (the “Articles”) and to any directions given by special
resolution, the business of the Company shall be managed by
the Board, which may exercise all the powers of the Company.
Appointment of Directors
Subject to the Articles, and without prejudice to the power of
the Company to appoint any person to be a Director, the Board
has power at any time to appoint any person who is willing
toact as a Director, either to fill a vacancy or as an addition
tothe existing Board, but the total number of Directors shall
not exceed any maximum number fixed in accordance with
theArticles.
Any Director so appointed shall hold office only until the next
Annual General Meeting of the Company following such
appointment and shall then be eligible for election.
Retirement of Directors
Under the Articles at each Annual General Meeting any
Director who shall have been a Director at each of the two
preceding Annual General Meetings is required to stand for
re-election as a Director. However, the Company has adopted
the requirements of the Code in requiring the annual re-election of
all Directors.
Removal of Directors
In addition to any powers of removal conferred by the
Companies Act, the Company may by special resolution remove
any Director before the expiration of his period of office and
may (subject to the Articles) by ordinary resolution appoint
another person to act in their place.
GOVERNANCE
101Primary Health Properties PLC Annual Report 2021
Indemnities
The Company has procured Directors’ and officers’ liability
insurance in respect of itself, the Directors and the Directors of
its subsidiaries. These indemnities are qualifying third-party
indemnity provisions as defined by Section 234 of the Act.
The Company has agreed to indemnify each Director against
any liability incurred in relation to acts or omissions arising in
the ordinary course of their duties. The indemnity only applies
to the extent permitted by law. A copy of the deed of indemnity
is available for inspection at PHP’s registered office and will be
available at the 2022 AGM. No indemnity was provided and no
payments were made pursuant to these provisions during the year.
Substantial interests
As at 31 January 2022 and 31 December 2021, the Company
had been notified under the Disclosure Rules or was otherwise
aware of the following shareholders who were directly or
indirectly interested in 3% or more of the voting rights in the
Company’s issued share capital:
Percentage
of existing
Ordinary issued share
As at 31January 2022 Shares capital
BlackRock Investment Management 94,474,378 7.1
Vanguard Group 65,593,296 4.9
Hargreaves Landsdown (EO) 53,154,626 3.9
SSGA 52,839,841 3.9
Investec Wealth & Investment
52,734,340 3.9
Legal & General Investment
Management 41,226,776 3.1
Percentage
of existing
Ordinary issued share
As at 31 December 2021 Shares capital
BlackRock Investment Management 95,011,318 7.1
Vanguard Group 65,114,034 4.9
Hargreaves Landsdown (EO) 52,656,085 3.9
Investec Wealth & Investment
52,392,592 3.9
SSGA 47,342,258 3.5
Legal & General Investment
Management 41,246,234 3.1
Share capital
At the date of this report, the Company has one class of share
in issue, being 1,332,888,185 million Ordinary Shares and each
carrying the right to one vote at general meetings of the
Company and to participate in any dividends declared in
accordance with the Articles. There are no Ordinary Shares
held in treasury. No person has any special rights of control
over the Company’s share capital.
At the Annual General Meeting held on 12 May 2021, the
shareholders authorised the Directors to allot equity securities
of the Company up to an aggregate value of £55,343,819.
During the financial year, 17,336,805 Ordinary Shares were
issued of which:
• 11,485,080 Ordinary Shares were issued to Harry Hyman as
part of the consideration for the acquisition of Nexus Tradeco
Holdings Limited on 5 January 2021;
• 5,256,558 Ordinary Shares were issued to satisfy election
for the scrip dividend alternative; and
• 595,167 Ordinary Shares were issued to certain of the former
shareholders of Sarak Developments Limited in exchange
fortheir shares on acquisition of that company and its
subsidiaries that owned the Crwys Medical Centre, Cardiff.
At the 2021 Annual General Meeting shareholders authorised
the Company to make market purchases of Ordinary Shares
representing up to 10% of its issued share capital at the time
toallot equity securities (as defined by the Act) for cash. The
Company did not purchase or acquire any of its Ordinary
Shares during the year, nor did any nominee or third party with
the Company’s assistance acquire any shares on behalf of the
Company. The authority will expire at the 2022 AGM and it is
proposed to seek renewal of these authorities at the
forthcoming 2022 AGM.
Details of changes in share capital are set out in note 19 of the
financial statements.
Rights attaching to shares under the Articles
The Company’s Articles do not contain any specific restrictions
on the size of a shareholder’s holding.
Voting rights
Subject to any special rights or restrictions as to voting
attached to any shares by or in accordance with the Articles,
on a show of hands every member who is present in person or
by proxy and entitled to vote has one vote and on a poll every
member who is present in person or by proxy and entitled to
vote has one vote for every share of which he is the holder.
Restrictions on voting
There are no restrictions on exercising voting rights save in
situations where the Company is legally entitled to impose
such restrictions, such as if having been served with a notice
under Section 793 of the Act, a shareholder fails to disclose
details of any past or present beneficial interest. The Company
is not aware of any arrangements between shareholders that
may result in restrictions on the transfer of securities or
votingrights.
Transfer
There are no restrictions on the transfer of Ordinary Shares,
other than certain restrictions imposed by laws and regulations
which restricts Directors and persons closely associated with
them from dealing in the Company’s securities without prior
approval under the share dealing code.
The rights and obligations attaching to the Ordinary Shares, in
addition to those conferred by law, are set out in the Articles.
Amendment of the Company’s Articles
Any amendments to the Company’s Articles may be made by
special resolution.
New Articles of Association were adopted by shareholders at
the general meeting held on 4 January 2021. A copy of the new
Articles can be obtained from the Company’s website
www.phpgroup.co.uk.
102 Primary Health Properties PLC Annual Report 2021
DIRECTORS’ REPORT CONTINUED
Change of control
Under certain of the Group’s financing agreements, including the
terms of the £150 million 2.875% convertible bonds due 2025,
repayment or termination of the outstanding amounts on a
change of control may be required by the lenders or bondholders.
There are no agreements between the Company and the
Directors providing compensation for loss of office or employment
or otherwise that occurs specifically because of a change
ofcontrol.
The Company’s share plans contain provisions that, as a result
of a change of control, options and awards may vest or become
exercisable, in accordance with the rules of the plans.
Suppliers
The Group has not signed up to any specific supplier payment
code; it is PHP’s policy to comply with the terms of payment
agreed with its suppliers. Where specific payment terms are
not agreed, the Group endeavours to adhere to the suppliers’
standard payment terms aims to settle supplier accounts
promptly in accordance with their individual terms of business.
The number of creditor days outstanding as at 31 December 2021
was 10 days (2020: 2 days, 2019: 2 days).
Annual General Meeting
The 2022 AGM will be held on 27 April 2022 at 10.30 a.m. The
notice convening the 2022 AGM and explanatory notes for the
resolutions sought will be sent to shareholders not less than
21clear days before the date of the meeting.
Full details will be set out in the notice of the meeting, but in
case of any further outbreaks of the COVID-19 virus, may need
to be altered at short notice and PHP will update shareholders,
as necessary, via a Regulatory Information Service and the
Company’s website at www.phpgroup.co.uk. Shareholders are
advised to check the Company’s website for updates.
Auditor
Deloitte LLP has expressed its willingness to continue in office
as auditor and a resolution to re-appoint it will be put to
shareholders at the 2022 AGM.
Employees
As at 31 December 2021, the Group had 62 employees.
Employees are encouraged to maximise their individual contribution
to the Group. In addition to competitive remuneration packages,
they participate in an annual bonus scheme which links
personal contribution to the goals of the business.
In addition, all employees are eligible to participate in the PHP
Sharesave plan 2021 that was approved by shareholders at the
2021 AGM and 57% of staff took up the offer to participate in
the plan.
The Group is committed to the promotion of equal opportunities,
supported by Board and Workforce Diversity Policy. The policy
reflects both current legislation and best practice. It highlights
the Group’s obligations to race, gender, socio-economic and
disability equality.
Full and fair consideration is given to applications for
employment from disabled persons and appropriate training
and career development are provided.
Donations
The Group does not make any political donations. Details of the
charitable donations made in the year are set out in the
Responsible Business section.
Share service
The Shareholder Information section on page 156 provides
details of the share services available.
Financial instruments
The Group’s financial risk management objectives and policies
are discussed in Note 18.
Post balance sheet events
Details of events occurring since the year end are given in note
27 on page 145.
Going concern
The Group’s business activities together with the factors likely
to affect its future development, performance and position,
along with the financial position of the Group, its cash flows,
liquidity position and borrowing facilities are set out in the
Strategic Report.
The Group’s property portfolio is 99.7% occupied with over 90%
of its income funded directly or indirectly from government
sources and the average WAULT across the Group’s portfolio
is11.6 years.
As at 31 December 2021, the Group had £321 million of headroom
on its debt facilities, after commitments to fund on properties
under construction through the course of 2022 with a further
£33 million of cash. The weighted Group average unexpired
loan term was 7.3 years.
The Group’s consolidated loan to value ratio, including drawn,
unsecured debt, is 42.9% with all banking covenants being met
during the year and subsequent to the year end. In summary, at
a Group level values would need to fall by 42% and Group income
fall by approximately 62% before the LTV ratio and income
covenants across the Group were at risk of being breached.
The Directors believe that the Group is well placed to manage
its business risks successfully. Having reviewed the Group’s
business activities, financial model and sensitised model,
financial development, performance and position including its
cash flows, liquidity position, borrowing facilities and covenant
cover, the Directors have a reasonable expectation that the
Group has adequate resources to continue in operational
existence and meet its liabilities as they fall due for a period of
at least twelve months from the date of this report. For this
reason, the Directors continue to adopt the going concern basis
of accounting in preparing the financial statements.
GOVERNANCE
103Primary Health Properties PLC Annual Report 2021
Regulatory disclosures
Additional information which is incorporated into this report by reference, including information required in accordance with the
Companies Act 2006, Listing Rule 9.8.4 and the Disclosure and Transparency Rules (“DTRs”) can be found on the following pages:
Review of business and future developments
Strategic Report
 See pages 1 to 59
Principal risks
Risk Management section of the Strategic Report
 See pages 50 to 55
Viability statement
 See page 56
Directors’ details
Directors’ biographies
 See pages 60 to 61
Directors’ share interests
Remuneration Committee Report
 See page 81
Section 172 statement
Responsible Business section of the Strategic Report
 See page 48
Greenhouse gas emissions
Responsible Business section of the Strategic Report
 See page 39
Financial instruments
Note 17
 See pages 138 to 139
Financial risk management policies
Risk Management section of the Strategic Report
 See pages 50 to 55
Related party transactions
Note 26
 See page 145
Post balance sheet events
Note 27
 See page 145
All other sub-sections of LR9.8.4 are not applicable. Information that fulfils the requirements of LR 9.8.6(5) and 9.8.6(6) can be
found in the Governance Report on pages 60 to 104 and is incorporated into this Directors’ Report by reference.
Directors’ statement as to disclosure of information to auditor
The Directors who were members of the Board at the time of approving the Directors’ Report are listed on pages 60 and 61.
Having made enquiries of fellow Directors and of the Company’s auditor, each of the Directors confirms that:
• so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and
• the Director has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of
any relevant audit information and to establish that the Company’s auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.
The Directors’ Report was approved by the Board on 15 February 2022.
By order of the Board
Paul Wright
Company Secretary
Primary Health Properties PLC
Registered office: 5th Floor, Greener House, 66–68 Haymarket, London SW1Y 4RF
Registered in England Number: 03033634
104 Primary Health Properties PLC Annual Report 2021
DIRECTORS’ RESPONSIBILITY STATEMENT
Statement of Directors’ responsibilities in respect of the
Group and Company financial statements
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law the Directors are required
to prepare the Group financial statements in accordance with
International Financial Reporting Standards (“IFRSs”) as adopted
by the European Union and Article 4 of the IAS Regulation and
have elected to prepare the Parent Company financial statements
in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards
and applicable law), including FRS 101 Reduced disclosure
framework. Under company law the Directors must not approve
the accounts unless they are satisfied that they give a true and
fair view of the state of affairs of the Company and of the
profit or loss of the Company for that period.
In preparing the Parent Company financial statements, the
Directors are required to:
• select suitable accounting policies and then apply
themconsistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• state whether applicable UK Accounting Standards have
been followed, subject to any material departures disclosed
and explained in the financial statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
In preparing the Group financial statements, International
Accounting Standard 1 requires that the Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users
to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and
financial performance; and
• make an assessment of the Company’s ability to continue as
a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and enable them to ensure
that the financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair
view of the assets, liabilities, financial position and profit of
the Company and the undertakings included in the
consolidation taken as a whole;
• the Strategic Report includes a fair review of the
development and performance of the business and the
position of the Company and the undertakings included in
the consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face; and
• the Annual Report and Financial Statements, taken as a
whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the
Company’s position, performance, business model
andstrategy.
This Responsibility Statement was approved by the Board of
Directors on 15 February 2022.
For and on behalf of the Board
Steven Owen
Chairman
15 February 2022
105Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PRIMARY HEALTH PROPERTIES PLC
Report on the audit of the financial statements
1. Opinion
In our opinion:
• the financial statements of Primary Health Properties Plc (the ‘company’) and its subsidiaries (the ‘group’) give a true and
fair view of the state of the group’s and of the company’s affairs as at 31 December 2021 and of the group’s profit for the
year then ended;
• the group financial statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards;
• the company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the group statement of comprehensive income;
• the group and company balance sheets;
• the group and company statements of changes in equity;
• the group cash flow statement;
• the related notes 1 to 28; and
• the related notes to the company financial statements 1 to 20.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and
United Kingdom adopted international accounting standards. The financial reporting framework that has been applied in the
preparation of the company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101
“Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our report.
We are independent of the group and the company in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed
public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The
non-audit services provided to the group and company for the year are disclosed in note 4 to the financial statements. We confirm
that we have not provided any non-audit services prohibited by the FRC’s Ethical Standard to the group or the company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters The key audit matter that we identified in the current year was:
• Estimation of property yields and Estimated Rental Values (“ERVs”) applied in the valuation of
investment property.
Within this report, key audit matters are identified as follows:
Increased level of risk
Similar level of risk
Decreased level of risk
106 Primary Health Properties PLC Annual Report 2021
INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF PRIMARY HEALTH PROPERTIES PLC
Basis for opinion continued
3. Summary of our audit approach continued
Materiality The materiality that we used for the group financial statements was £29.7m which was determined on
the basis of of 2% of Net Assets.
Further to net assets, we considered EPRA Earnings to be a critical financial performance measure for
the group and we applied a lower threshold of £4.1 million for items affecting EPRA Earnings on the
basis of 5% of EPRA Earnings.
Scoping The scope has remained consistent with the prior year. We performed full scope audit procedures
across the group.
Audit work to respond to the risks of material misstatement was performed directly by the group audit
engagement team.
Significant changes
inourapproach
There were no significant changes in our approach in the current year.
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the group’s and company’s ability to continue to adopt the going concern basis of
accounting included:
• obtaining an understanding of relevant controls related to management’s process for evaluating the group’s ability to continue
as a going concern, including the identification and evaluation of the relevant business risks and the method, model and
assumptions applied by management;
• obtaining management’s approved going concern model, including the sensitivities performed;
• performing a retrospective review of management’s historical accuracy of forecast;
• assessing management’s going concern model including the nature of the group’s income and the associated guarantees with
reference to analyst reports, market data and other external information;
• assessing the appropriateness of the scenario analysis, including the ‘additional stress-testing’ performed by management with
reference to analyst reports and forecasts, historical performance and other external data;
• considering the group’s position in relation to its debt facilities and respective covenants at the period end date and
throughout the going concern period using forecast performance with management’s going concern model; and
• evaluating management’s disclosures on going concern.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the group’s and company’s ability to continue as a going concern for a
period of at least twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the group has applied the UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections
of this report.
107Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
5.1. Estimation of property yields and ERVs applied in the valuation of investment property
Key audit matter
description
The group owns and manages a portfolio of primary healthcare properties that are carried at fair value
in the financial statements. The portfolio is valued at £2,795.9 million as at 31 December 2021
(2020:£2,576.1 million).
The group uses professionally qualified external valuers to fair value the group’s portfolio at six-monthly
intervals. The valuers are engaged by the directors and perform their work in accordance with the
Royal Institution of Chartered Surveyors (‘RICS’) Valuation – Professional Standards. The valuers used
by the group have considerable experience in the markets in which the group operates.
The portfolio is valued by the investment method of valuation, however with development properties a
deduction is made for all costs necessary to complete the development
The fair value of the group’s property portfolio is driven by the yields and ERVs applied in the valuation
process. The estimation of these key inputs reflect significant judgements based on factors such as
(but not limited to) the volume of transactional evidence in the sector together with the characteristics
of the individual property and lease. Further, the level of judgement in the yields and ERVs used in the
valuation process has increased in recent years because of uncertainty caused by Covid-19 and Brexit.
This in turn has resulted in fluctuations in the investment and occupier markets. Whilst the primary
healthcare market has demonstrated resilience and the group’s portfolio is regarded as critical
infrastructure, there is a potential for increased judgement in the estimations made.
The inherent subjectivity in relation to estimation of yields and ERVs, coupled with the fact that only
asmall percentage difference in individual property valuations, when aggregated, could result in a
material misstatement on the group’s statement of comprehensive income and the group’s balance
sheet, warrants specific audit focus in this area. Furthermore, given the high level of judgement
involved, we have determined that there is potential for fraud through possible manipulation of these
key inputs to the valuation.
Please see the accounting policy in note 2.3 to the financial statements. The consideration of this risk
by the Audit Committee is described at page 77.
108 Primary Health Properties PLC Annual Report 2021
INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF PRIMARY HEALTH PROPERTIES PLC
5. Key audit matters continued
5.1. Estimation of property yields and ERVs applied in the valuation of investment property continued
How the scope of our
audit responded to the
keyaudit matter
We carried out the following audit procedures in response to the identified key audit matter:
• obtained an understanding of relevant controls related to the management review and assessment
of the work performed by the external valuers;
• obtained an understanding of the investor and occupier market, based on transactional evidence
and publicly available research, to form a view on expected movements in the key assumptions;
• obtained and read the external valuation reports for all properties and evaluated whether the
valuation approach is in accordance with RICS guidelines and suitable for use in determining the
carrying value in the group balance sheet;
• assessed the competence, capabilities and objectivity of the external valuers and read their terms
of engagement with the group to determine whether there were any matters that might have
affected their objectivity or may have imposed scope limitations on their work;
• met with the external valuers of the portfolio to discuss the results of their work, challenge their
valuation processes and discuss significant assumptions and critical judgements over yields and
ERVs in the context of publicly available information, including average yields quoted by
competitors and comparable property transactions;
• where assumptions and critical judgements relate to ERVs, corroborated the valuers’ explanations
to the lease agreements or rent reviews agreed in the year. In challenging the ERVs, the following
procedures were undertaken:
• tested the accuracy of any rent reviews completed in 2021 to determine an expectation for
unsettled rent reviews;
• tested the accuracy of management’s forecasting as regards the outcome of rent reviews with
reference to these completed rent reviews; and
• compared management’s forecast of rent reviews to the ERVs adopted by the valuers;
• selected a sample of properties, where the yields applied in the valuation were outside our
expectations, and challenged the explanations provided with reference to transactional evidence or
other relevant information; and
• involved our real estate specialist to obtain an overall understanding of the primary healthcare
property markets in the UK and Ireland and meet with group’s property valuation specialists. We did
this to understand and challenge the assumptions the valuers used including any potential further
effects of Brexit and Covid-19 on the portfolio.
Key observations We concluded that the assumptions applied in relation to yields and ERVs in arriving at the fair value
of the group’s property portfolio were appropriate.
109Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements Company financial statements
Materiality £29.7 million (2020: £27.5 million) and a lower
materiality of of £4.1 million (2020: £3.6 million) for
balances impacting EPRA earnings.
Materiality for the company has been determined
as £27.3 million (2020: £26.9 million).
Basis for determining
materiality
2% of net assets (2020: 2% of net assets).
The lower materiality used for balances impacting EPRA
earnings was determined using 5% (2020: 5%) of
EPRAEarnings.
2% of net assets (2020: 2% of net assets).
The basis of net assets remains consistent with
the prior year.
Rationale for the
benchmark applied
The overall level of materiality was determined using
net assets because this is the primary focus of
investors in listed real estate businesses.
In addition to net assets, we considered EPRA Earnings
to be a critical financial performance measure for the
group and we applied a lower threshold of £4.1 million
(2020: £3.6 million) for EPRA Earnings items
The overall level of materiality was determined
using net assets as this is determined to be the
most stable base for calculation.
NAV £1,488m
n NAV
n Group materiality
Materiality for
itemsaffecting
EPRAearnings £4.1m
Audit Committee reporting
threshold £1.5m
Group materiality £29.7m
Company materiality £27.3m
110 Primary Health Properties PLC Annual Report 2021
INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF PRIMARY HEALTH PROPERTIES PLC
6. Our application of materiality continued
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial statements as a whole.
Group financial statements Company financial statements
Performance materiality 70% (2020: 70%) of group materiality. 70% (2020: 70%) of company materiality.
Basis and rationale
fordetermining
performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in
aggregate, uncorrected and undetected misstatements exceed the materiality for the financial
statements as a whole.
In determining performance materiality, we considered factors including:
• our risk assessment;
• our assessment of the group’s overall control environment; and
• our past experience of the audit, which has indicated a low number of uncorrected misstatements
identified in prior periods.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £1,500,000
(2020:£731,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We
also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the
financial statements.
7. An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls, and
assessing the risks of material misstatement at group level. The group is audited by one audit team, led by the Senior Statutory
Auditor. The audit is performed centrally as the books and records for each entity within the group are maintained at the offices
of the adviser.
We also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there were no
significant risks of material misstatement of the aggregated financial information.
We have also obtained an understanding of the processes and controls operated in relation to certain key business cycles
including the property valuations, revenue, and expenditure processes.
8. Other information
The other information comprises the information included in the annual report, other than the financial statements and our
auditor’s report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives
rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
111Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
9. Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue
as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting
unless the directors either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but
to do so.
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
ahigh level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
inthe aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the group’s
remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
• results of our enquiries of management, those charged with governance and the audit committee about their own identification
and assessment of the risks of irregularities;
• any matters we identified having obtained and reviewed the group’s documentation of their policies and procedures relating to:
• identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
• detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
• the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
• the matters discussed among the audit engagement team and relevant internal specialists, including real estate specialists
regarding how and where fraud might occur in the financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud
and identified the greatest potential for fraud in the following area: the estimation of property yields and ERVs applied in the
valuation of investment property . In common with all audits under ISAs (UK), we are also required to perform specific procedures
to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the group operates in, focusing on provisions of
those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this context included the UK Companies Act, REIT legislation, listing
rules and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements
but compliance with which may be fundamental to the group’s ability to operate or to avoid a material penalty.
112 Primary Health Properties PLC Annual Report 2021
INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF PRIMARY HEALTH PROPERTIES PLC
11. Extent to which the audit was considered capable of detecting irregularities, including fraud continued
11.2. Audit response to risks identified
As a result of performing the above, we identified the estimation of property yields and ERVs applied in the valuation of
investment property as a key audit matter related to the potential risk of fraud. The key audit matters section of our report
explains the matter in more detail and also describes the specific procedures we performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect on the financial statements;
• enquiring of management, the audit committee and in-house legal counsel concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance,; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias;
and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
including internal specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with
the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the company and their environment obtained in the
course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
13. Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of
the Corporate Governance Statement relating to the group’s compliance with the provisions of the UK Corporate Governance
Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any
material uncertainties identified set out on page 102;
• the directors’ explanation as to its assessment of the group’s prospects, the period this assessment covers and why the
period is appropriate set out on page 56;
• the directors’ statement on fair, balanced and understandable set out on page 104;
• the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages
50 to 56;
• the section of the annual report that describes the review of effectiveness of risk management and internal control
systems set out on page 77; and
• the section describing the work of the audit committee set out on pages 74 to 78.
113Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
14. Matters on which we are required to report by exception
14.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received
from branches not visited by us; or
• the company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
14.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have
not been made or the part of the directors’ remuneration report to be audited is not in agreement with the accounting records
and returns.
We have nothing to report in respect of these matters.
15. Other matters which we are required to address
15.1. Auditor tenure
Following the recommendation of the audit committee, we were appointed by the Board of Primary Health Properties Plc on
1June 2013 to audit the financial statements for the year ending 31 December 2013 and subsequent financial periods. The
periodof total uninterrupted engagement including previous renewals and reappointments of the firm is 9 years, covering the
years ending 31 December 2013 to 31 December 2021.
15.2. Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with
ISAs (UK).
16. Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these financial
statements form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National
Storage Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard ((‘ESEF RTS’). This auditor’s report
provides no assurance over whether the annual financial report has been prepared using the single electronic format specified
inthe ESEF RTS.
Sara Tubridy, FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
15 February 2022
114 Primary Health Properties PLC Annual Report 2021
2021 2020
Notes £m £m
Rental income 145.6 139 .0
Direct property expenses (8.9) (7 .8)
Net rental income 3 136.7 131.2
Administrative expenses 4 (10.5) (13.2)
Revaluation gain on property portfolio 11 110.2 51.3
Profit on sale of land and property 11 0.3 0.1
Total revaluation gain 110.5 51.4
Operating profit 236.7 169 .4
Finance income 5 0.8 1.2
Finance costs 6a (35.9) (43.0)
Exceptional early loan redemption finance cost 6a (24.6) —
Termination payment and goodwill impairment on acquisition of Nexus 7 (35.3) —
Exceptional Nexus acquisition costs 7 (1.7) —
Fair value loss on derivative interest rate swaps and amortisation of hedging reserve 6b (1.8) (12.9)
Fair value gain/(loss) on convertible bond 6c 3.4 (2.3)
Profit before taxation 141.6 112.4
Taxation charge 8 (1.5) (0.4)
Profit after taxation
1
140.1 112.0
Other comprehensive income:
Items that may be reclassified subsequently to profit and loss
Fair value gain on interest rate swaps treated as cash flow hedges and amortisation
of hedging reserve 23 4.5 4.0
Exchange (loss)/gain on translation of foreign balances (3.4) 2.2
Other comprehensive income net of tax
1
1.1 6.2
Total comprehensive income net of tax
1
141.2 118.2
IFRS earnings per share
Basic 9 10.5p 8.8p
Diluted 9 9 .8p 8.7p
Adjusted earnings per share
2
Basic 9 6.2p 5.8p
Diluted 9 6.1p 5.7p
1 Wholly attributable to equity shareholders of Primary Health Properties PLC.
2 See Glossary of Terms on pages 158 to 160.
The above relates wholly to continuing operations.
GROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2021
115Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
2021 2020
Notes £m £m
Non-current assets
Investment properties 11 2,795.9 2,576.1
Derivative interest rate swaps 17 5.2 —
Fixed assets 0.3 —
2,801.4 2,576.1
Current assets
Trade and other receivables 12 17 .6 17 .4
Cash and cash equivalents 13 33.4 103.6
Developments work in progress 0.7 —
51.7 121.0
Total assets 2,853.1 2,697 .1
Current liabilities
Deferred rental income (28.3) (27 .0)
Trade and other payables 14 (40.0) (34.7)
Borrowings: term loans and overdraft 15a (2.2) (6.4)
(70.5) (68.1)
Non-current liabilities
Borrowings: term loans and overdraft 15a (700.2) (623.6)
Borrowings: bonds 15b (572.8) (582.9)
Derivative interest rate swaps 17 (0.8) (0.1)
Head lease liabilities 16 (4.5) (4.5)
Deferred tax liability (4.4) (3.5)
(1,282.7) (1,214.6)
Total liabilities (1,353.2) (1,282.7)
Net assets 1,499 .9 1,414.4
Equity
Share capital 19 166.6 164.4
Share premium account 20 474.9 466.7
Merger and other reserves 21 413.5 400.8
Special reserve 22 — —
Hedging reserve 23 (15.6) (20.1)
Retained earnings 24 460.5 402.6
Total equity
1
1,499 .9 1,414.4
Net asset value per share
IFRS net assets – basic and diluted 9 112.5p 107 .5p
Adjusted net tangible assets² – basic 9 116.7p 112.9p
Adjusted net tangible assets² – diluted 9 118.6p 115.4p
1 Wholly attributable to equity shareholders of Primary Health Properties PLC.
2 See Glossary of Terms on pages 158 to 160.
These financial statements were approved by the Board of Directors on 15 February 2022 and signed on its behalf by:
Richard Howell
Chief Financial Officer
Registered in England Number: 3033634
GROUP BALANCE SHEET
AT 31 DECEMBER 2021
116 Primary Health Properties PLC Annual Report 2021
2021 2020
Notes £m £m
Operating activities
Profit on ordinary activities after tax 140.1 112.0
Taxation charge 8 1.5 0.4
Finance income 5 (0.8) (1.9)
Finance costs 6a 35.9 43.7
Exceptional early loan redemption finance cost 6a 24.6 —
Termination payment and goodwill impairment on acquisition of Nexus 7 35.3 —
Exceptional Nexus acquisition costs 7 1.7 —
Fair value loss on derivatives 6b 1.8 12.9
Fair value loss on convertible bond 6c (3.4) 2.3
Operating profit before financing costs 236.7 169 .4
Adjustments to reconcile Group operating profit before financing to net cash flows
from operating activities:
Revaluation gain on property portfolio 11 (110.2) (51.3)
Profit on sale of land and property 11 (0.3) (0.1)
Long term incentive plan (“LTIP”) 0.2 —
Effect of exchange rate fluctuations on operations — (0.3)
Fixed rent uplift (1.2) (1.5)
Tax paid (0.4) (0.2)
(Increase) in trade and other receivables (0.3) (1.3)
Increase in trade and other payables 15.9 4.2
Cash generated from operations 140.4 118.9
Net cash flow from operating activities 140.4 118.9
Investing activities
Payments to acquire and improve investment properties (129 .6) (102.9)
Receipts from disposal of properties 0.3 0.1
Cash paid for acquisition of Nexus, including fees (18.2) —
Cash acquired as part of merger 0.4 —
Interest received on development loans 0.7 1.9
Net cash flow used in investing activities (146.4) (100.9)
Financing activities
Proceeds from issue of shares — 140.0
Cost of share issues (0.1) (3.2)
Term bank loan drawdowns 15 335.6 17 .8
Term bank loan repayments 15 (252.8) (76.2)
Loan arrangement fees (2.7) (2.0)
Purchase of derivative financial instruments (1.9) (21.8)
Exceptional early loan redemption finance cost 6a (24.6) —
Swap interest paid — (0.1)
Non-utilisation fees (1.8) (1.9)
Interest paid (40.9) (42.0)
Bank interest received — 0.4
Equity dividends paid net of scrip dividend 10 (74.4) (69 .1)
Net cash flow from financing activities (63.6) (58.1)
(Decrease) in cash and cash equivalents for the year (69 .6) (40.1)
Effect of exchange rate fluctuations on Euro-denominated loans and cash equivalents (0.6) 0.6
Cash and cash equivalents at start of year 103.6 143.1
Cash and cash equivalents at end of year 13 33.4 103.6
GROUP CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2021
117Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
Merger
Share Share and other Special Hedging Retained
capital premium reserve reserve reserve earnings Total
£m £m £m £m £m £m £m
1 January 2021 164.4 466.7 400.8 — (20.1) 402.6 1,414.4
Profit for the year — — — — — 140.1 140.1
Other comprehensive income
Amortisation of hedging reserve — — — — 4.5 — 4.5
Exchange gain on translation
offoreignbalances — — (3.4) — — — (3.4)
Total comprehensive income — — (3.4) — 4.5 140.1 141.2
Shares issued on acquisition of Nexus 1.5 — 16.1 — — — 17 .6
Shares issued for other acquisitions 0.1 0.9 — — — — 1.0
Share issue expenses — (0.1) — — — — (0.1)
Share-based awards (“LTIP”) — — — — — 0.2 0.2
Dividends paid — — — — — (74.4) (74.4)
Scrip dividend in lieu of cash 0.6 7. 4 — — — (8.0) —
31 December 2021 166.6 474.9 413.5 — (15.6) 460.5 1,499 .9
Merger
Share Share and other Special Hedging Retained
capital premium reserve reserve reserve earnings Total
£m £m £m £m £m £m £m
1 January 2020 152.0 338.1 398.6 65.4 (24.1) 298.5 1,228.5
Profit for the year — — — — — 112.0 112.0
Other comprehensive income
Fair value movement on interest rate swaps — — — — — — —
Reclassification to profit and loss –
amortisation of hedging reserve — — — — 4.0 — 4.0
Exchange loss on translation
offoreignbalances — — 2.2 — — — 2.2
Total comprehensive income — — 2.2 — 4.0 112.0 118.2
Shares issued on conversion of convertible bonds — — — — — — —
Shares issued as part of capital raise 12.1 127 .9 — — — — 140.0
Share issue expenses — (3.2) — — — — (3.2)
Dividends paid — — — (61.2) — (7 .9) (69 .1)
Scrip dividend in lieu of cash 0.3 3.9 — (4.2) — — —
31 December 2020 164.4 466.7 400.8 — (20.1) 402.6 1,414.4
GROUP STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2021
118 Primary Health Properties PLC Annual Report 2021
1. Corporate information
The Group’s financial statements for the year ended 31 December 2021 were approved by the Board of Directors on 15 February 2022
and the Group Balance Sheet was signed on the Board’s behalf by the Chairman, Steven Owen. Primary Health Properties PLC is
apublic limited company incorporated in England and Wales and domiciled in the United Kingdom. The Company’s Ordinary
Shares are admitted to the Official List of the UK Listing Authority, a division of the Financial Conduct Authority, and traded on
the London Stock Exchange.
2. Accounting policies
2.1 Basis of preparation
The Group’s financial statements have been prepared on the historical cost basis, except for investment properties, including
investment properties under construction and land and derivative financial instruments that have been measured at fair value.
TheGroup’s financial statements are prepared on the going concern basis (see page 102 for further details) and presented in
Sterling rounded to the nearest million.
Statement of compliance
The consolidated financial statements for the Group have been prepared under International Financial Reporting Standards (“IFRSs”)
as adopted by the United Kingdom and applied in accordance with the Companies Act 2006 and Article 4 of the IAS Regulation.
2.2 Standards adopted during the year
The accounting policies adopted are consistent with those of the previous financial year, except for the following new and
amended IFRSs effective for the Group as of 1 January 2021.
First time application of IFRS 2 Share-based payments
The Group has applied IFRS 2, which had not been applicable in prior years, for the first time in the current year. The standard
requires an entity to recognise share-based payment transactions (such as granted shares, share options, or share appreciation
rights) in its financial statements, including transactions with employees or other parties to be settled in cash, other assets, or
equity instruments of the entity.
2.3 Summary of significant accounting policies
Basis of consolidation
The Group’s financial statements consolidate the financial statements of Primary Health Properties PLC and its wholly owned subsidiary
undertakings. Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtained control,
and continue to be consolidated until the date that such control ceases. Control comprises the power to govern the financial and
operating policies of the investee so as to obtain benefit from its activities and is achieved through direct or indirect ownership
ofvoting rights; through currently exercisable or convertible potential voting rights; or by way of contractual agreement. The
financial statements of the subsidiary undertakings are prepared for the accounting reference period ending 31December each
year using consistent accounting policies. All intercompany balances and transactions, including unrealised profits arising from
them, are eliminated on consolidation.
The individual financial statements of Primary Health Properties PLC and each of its subsidiary undertakings will be prepared
under FRS 101. The use of IFRSs at Group level does not affect the distributable reserves available to the Group.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment of business, being investment property in the
United Kingdom and Ireland leased principally to GPs, government healthcare organisations and other associated healthcare users.
Foreign currency transactions
Each Group company presents its individual financial statements in its functional currency. The functional currency of all UK
subsidiaries (with the exception of PHP Euro Private Placement Limited and MXF Properties Ireland Limited which are Euro) is
Sterling and the functional currency of Primary Health Properties ICAV and its Irish domiciled subsidiaries is Euro.
Transactions in currencies other than an individual entity’s functional currency (foreign currencies) are recognised at the applicable
exchange rate ruling on the transaction date. Exchange differences resulting from settling these transactions, or from retranslating
monetary assets and liabilities denominated in foreign currencies, are included in the Group Statement of Comprehensive Income.
NOTES TO THE FINANCIAL STATEMENTS
119Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
2. Accounting policies continued
2.3 Summary of significant accounting policies continued
Foreign operations
In preparing the Group’s consolidated financial statements, the assets and liabilities of foreign entities are translated into Sterling
at exchange rates prevailing on the balance sheet date. The income, expenses and cash flows of a foreign entity are translated
atthe average exchange rate for the period, unless exchange rates fluctuate significantly during the period, in which case the
exchange rates at the date of transactions are used.
The exchange rates used to translate foreign currency amounts in 2021 are as follows:
• Group Balance Sheet: £1 = €1.1893 (2020: €1.1185).
• Group Statement of Comprehensive Income: £1 = €1.1778 (2020: €1.105).
Investment properties and investment properties under construction
The Group’s investment properties are held for long term investment. Investment properties and those under construction are
initially measured at cost, including transaction costs. Subsequent to initial recognition, investment properties and investment
properties under construction are stated at fair value based on market data and a professional valuation made as of each
reporting date. The fair value of investment property does not reflect future capital expenditure that will improve or enhance
theproperty and does not reflect future benefits from this future expenditure.
Gains or losses arising from changes in the fair value of investment properties and investment properties under construction are
included in the Group Statement of Comprehensive Income in the year in which they arise.
Investment properties are recognised on acquisition upon completion of contract, which is when control of the asset passes to
the Group. Investment properties cease to be recognised when control of the property passes to the purchaser, which is upon
completion of the sales contract. Any gains and losses arising are recognised in the Group Statement of Comprehensive Income
inthe year of disposal.
All costs associated with the purchase and construction of investment properties under construction are capitalised including
attributable interest and staff costs. Interest is calculated on the expenditure by reference to the average rate of interest on
theGroup’s borrowings. When properties under construction are completed the capitalisation of costs ceases and they are
reclassified as investment properties.
The Group may enter into a forward funding agreement with third-party developers in respect of certain properties under
development. In accordance with these agreements, the Group will make monthly stage payments to the developer based on
certified works on site at that time. Interest is charged to the developer on all stage payments made during the construction
period and on the cost of the land acquired by the Group at the outset of the development and taken to the Group Statement
ofComprehensive Income in the year in which it accrues.
Property acquisitions and business combinations
Where a property is acquired through the acquisition of corporate interests, the Board considers the substance of the assets and
activities of the acquired entity in determining whether the acquisition represents the acquisition of a business. The basis of the
judgement is set out in Note 2.4(b).
Where such acquisitions are not judged to be an acquisition of a business, they are not treated as business combinations. Rather,
the cost to acquire the corporate entity is allocated between the identifiable assets and liabilities of the entity based on their
relative fair values on the acquisition date. Accordingly, no goodwill or additional deferred taxation arises. Where any excess of
the purchase price of business combinations overthe fair value of the assets, liabilities and contingent liabilities is acquired,
goodwill is recognised. This is recognised as an asset and is reviewed for impairment immediately, and then at least annually.
Anyimpairment isrecognised immediately in the income statement.
Gains on sale of properties
Gains on sale of properties are recognised on the completion of the contract, and are calculated by reference to the carrying
value at the end of the previous reporting period, adjusted for subsequent capital expenditure and sale costs.
Net rental income
Rental income arising from operating leases on investment properties is accounted for on a straight line basis over the lease term.
An adjustment to rental income is recognised from the rent review date of each lease in relation to unsettled rent reviews. Such
adjustments are accrued at 100% (2020: 100%) of the additional rental income that is expected to result from the review. For
leases which contain fixed or minimum deemed uplifts, the rental income is recognised on a straight line basis over the lease term.
Incentives for lessees to enter into lease agreements are spread evenly over the lease terms, even if the payments are not made
on such a basis. Rental income is measured at the fair value of the consideration receivable, excluding discounts, rebates, VAT and
other sales taxes or duty.
Net rental income is the rental income receivable in the period after payment of direct property costs.
120 Primary Health Properties PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2. Accounting policies continued
2.3 Summary of significant accounting policies continued
Interest income
Revenue is recognised as interest accrues, using the effective interest method (that is, the rate that exactly discounts estimated
future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset).
Financial instruments under IFRS 9
Trade receivables
Trade receivables are recognised and carried at amortised cost as the Group’s business model is to collect the contractual cash
flows due from tenants. Provision is made based on the expected credit loss model which reflects the Group’s historical credit
loss experience over the past three years but also reflects the lifetime expected credit loss.
Cash and cash equivalents
Cash and cash equivalents are defined as cash and short term deposits, including any bank overdrafts, with an original maturity
ofthree months or less, measured at amortised cost.
Trade and other payables
Trade payables are recognised and carried at their invoiced value inclusive of any VAT that may be applicable.
Bank loans and borrowings
All loans and borrowings are initially measured at fair value less directly attributable transaction costs. After initial recognition,
allinterest-bearing loans and borrowings are subsequently measured at amortised cost, using the effective interest method.
The interest due within the next twelve months is accrued at the end of the year and presented as a current liability within trade
and other payables.
Borrowing costs
Borrowing costs that are separately identifiable and directly attributable to the acquisition or construction of an asset that
necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the
respective assets. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest
and other costs the Group incurs in connection with the borrowing of funds.
Convertible bond
The convertible bond is designated as “at fair value through profit or loss” and so is presented on the Group Balance Sheet at fair
value with all gains and losses, including the write-off of issuance costs, recognised in the Group Statement of Comprehensive
Income. The fair value of the convertible bond is assessed in accordance with level 1 valuation techniques as set out within
“Fairvalue measurements” within these accounting policies. The interest charge in respect of the coupon rate on the bond has
been recognised within the underlying component of net financing costs on an accruals basis. Refer to Note 15b for further
details. Theamount of the change in fair value of the financial liability designated at fair value through profit or loss that is
attributable tochanges in credit risk will be recognised in other comprehensive income.
De-recognition of financial assets and liabilities
Financial assets
A financial asset (or where applicable a part of a financial asset or part of a group of similar financial assets) is de-recognised where:
• the rights to receive cash flows from the asset have expired;
• the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without
material delay to a third party under a “pass-through” arrangement;
• the Group has transferred its right to receive cash flows from the asset and either: (a) has transferred substantially all the risks
and rewards of the asset; or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has
transferred control of the asset; or
• when the cash flows are significantly modified.
Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained
substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of
the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred
asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the
Group could be required to repay.
121Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
2. Accounting policies continued
2.3 Summary of significant accounting policies continued
De-recognition of financial assets and liabilities continued
Financial liabilities
A financial liability is de-recognised when the obligation under the liability is discharged or cancelled or expires.
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms
ofan existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original
liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.
When the exchange or modification of an existing financial liability is not accounted for as an extinguishment, any costs or fees
incurred adjust the liability’s carrying amount and are amortised over the modified liability’s remaining term and any difference in
the carrying amount after modification is recognised as a modification gain or loss.
Tax
Taxation on the profit or loss for the period not exempt under UK REIT regulations comprises current and deferred tax. Taxation
isrecognised in the Group Statement of Comprehensive Income except to the extent that it relates to items recognised as direct
movements in equity, in which case it is also recognised as a direct movement in equity.
Current tax is the expected tax payable on any non-REIT taxable income for the period, using tax rates enacted or substantively
enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Fair value measurements
The Group measures certain financial instruments such as derivatives, and non-financial assets such as investment property, at
fairvalue at the end of each reporting period. Also, fair values of financial instruments measured at amortised cost are disclosed
in the financial statements.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value measurement is based on the presumption that the transaction
tosell the asset or transfer the liability takes place either:
• in the principal market for the asset or liability; or
• in the absence of a principal market, in the most advantageous market for the asset or liability.
The Group must be able to access the principal or the most advantageous market at the measurement date.
The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset
or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits
using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest
and best use.
The Group uses valuation techniques at three levels that are appropriate in the circumstances and for which sufficient data is
available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs
significant to the fair value measurement as a whole:
Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or
indirectly observable.
Level 3: Valuation techniques for which the lowest input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by reassessing categorisation at the end of each reporting period.
122 Primary Health Properties PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2. Accounting policies continued
2.3 Summary of significant accounting policies continued
Hedge accounting
At the inception of a transaction the Group documents the relationship between hedging instruments and hedged items, as well
as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its
assessment, both at inception and on an ongoing basis.
For cash flow hedging, the Group monitors the hedging instrument to check it continues to meet the criteria of IAS 39, having
applied the practical expedient on transition, for being described as “highly effective” in offsetting changes in the fair values
orcash flows of hedged items.
For net investment hedge relationships, the Group monitors the hedging instrument to check it continues to meet the criteria
ofIAS 39 for being described as “highly effective”.
i) Derivative financial instruments (“derivatives”)
The Group uses interest rate swaps to help manage its interest rate risk.
All interest rate derivatives are initially recognised at fair value at the date the derivative is entered into and are subsequently
remeasured at fair value. The fair values of the Group’s interest rate swaps are calculated by Chatham (formally JCRA), an
independent specialist which provides treasury management services to the Group.
The method of recognising the resulting gain or loss depends on whether the derivative is designated as an effective hedging instrument:
• Where a derivative is designated as a hedge of the variability of a highly probable forecast transaction, such as an interest
payment, the element of the gain or loss on the derivative that is an “effective” hedge is recognised directly in equity. When
the forecast transaction subsequently results in the recognition of a financial asset or a financial liability, the associated
gainsor losses that were recognised directly in the cash flow hedging reserve are reclassified into the Group Statement of
Comprehensive Income in the same period or periods during which the asset acquired or liability assumed affects the Group
Statement of Comprehensive Income, i.e. when interest income or expense is recognised.
• The gain or loss on derivatives that do not meet the strict criteria for being “effective” and so do not qualify for hedge
accounting and the non-qualifying element of derivatives that do qualify for hedge accounting are recognised in the Group
Statement of Comprehensive Income immediately. The treatment does not alter the fact that the derivatives are economic
hedges of the underlying transaction.
For swaps that have been cancelled which previously qualified for hedge accounting, the remaining value within the cash flow
hedging reserve at the date of cancellation is recycled to the Group Statement of Comprehensive Income on a straight line basis
from the date of cancellation to the original swap expiry date where the hedged transaction is still expected to occur. If the
swaps have been cancelled and the hedged transaction is no longer expected to occur, the amount accumulated in the hedging
reserve is reclassified to profit and loss immediately.
Leases – Group as a lessor
The vast majority of the Group’s properties are leased out under operating leases and are included within investment properties.
Rental income, including the effect of lease incentives, is recognised on a straight line basis over the lease term.
Where the Group transfers substantially all the risks and benefits of ownership of the asset, the arrangement is classified as a
finance lease and a receivable is recognised for the initial direct costs of the lease and the present value of the minimum lease
payments. Finance income is recognised in the Group Statement of Comprehensive Income so as to achieve a constant rate of
return on the remaining net investment in the lease. Interest income on finance leases is restricted to the amount of interest
actually received.
Employee costs
Defined contribution pension plans
Obligations for contributions to defined contribution pension plans are charged to the income statement as incurred.
Share-based employee remuneration
The fair value of equity-settled share-based payments to employees is determined with reference to the fair value of the equity
instruments at the date of grant and is expensed on a straight line basis over the vesting period, based on the Group’s estimate
of shares or options that will eventually vest. The fair value of awards is equal to the market value at grant date.
Capitalised salaries
Certain internal staff and associated costs directly attributable to the management of major projects are capitalised. Internal staff
costs are capitalised from the start of the project until the date of practical completion.
123Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
2. Accounting policies continued
2.4 Significant accounting estimates and judgements
The preparation of the Group financial statements requires management to make a number of estimates and judgements that
affect the reported amounts of assets and liabilities and may differ from future actual results. The estimates and judgements that
are considered most critical and that have a significant inherent risk of causing a material adjustment to the carrying amounts of
assets and liabilities are:
a) Estimates
Fair value of investment properties
Investment properties include: (i) completed investment properties; and (ii) investment properties under construction. Completed
investment properties comprise real estate held by the Group or leased by the Group under a finance lease in order to earn rental
income or for capital appreciation, or both.
The fair market value of a property is deemed by the independent property valuer appointed by the Group to be the estimated
amount for which a property should exchange, on the date of valuation, in an arm’s length transaction. Properties have been
valued on an individual basis, assuming that they will be sold individually over time. Allowances are made to reflect the
purchaser’s costs of professional fees and stamp duty and tax.
In accordance with RICS Appraisal and Valuation Standards, factors taken into account are current market conditions, annual
rentals, state of repair, ground stability, contamination issues and fire and health and safety legislation. Refer to Note 11 of the
financial statements which includes further information on the fair value assumptions and sensitivities.
In determining the fair value of investment properties under construction the valuer is required to consider the significant risks
which are relevant to the development process including, but not limited to, construction and letting risks. The valuer takes into
account any pre-lets and whether construction risk remains with the respective developer or contractor.
Fair value of derivatives
In accordance with IFRS 9, the Group values its derivative financial instruments at fair value. Fair value is estimated by Chatham
(formerly JCRA) on behalf of the Group, using a number of assumptions based upon market rates and discounted future
cashflows. The derivative financial instruments have been valued by reference to the mid-price of the yield curve prevailing
on31December 2021. Fair value represents the net present value of the difference between the cash flows produced by the
contracted rate and the valuation rate. Refer to Note 18 of the financial statements.
b) Judgements
Hedge effectiveness
The Group has a number of interest rate swaps that mature after the Group’s bank facilities, to which they relate, are due to
expire. In accordance with IAS 39, in order to apply hedge accounting in relation to these interest rate swaps, the Group has
determined that it is highly probable that these bank facilities will be renegotiated on or before expiry and that variable interest
rate debt finance will be in place until the expiry date of the swaps.
The Group is exposed to foreign exchange rate movements due to operations in Ireland. In accordance with IAS 39, in order to
apply hedge accounting with the Euro-denominated cash flows, the Group has determined that it is highly probably that there
willbe corresponding Euro bank drawdowns and that these will be renegotiated on or before expiry.
Property acquisitions during the year
The Directors have reviewed the acquisitions during the year on an individual basis in accordance with the requirements of IFRS
3(R). Where corporate entities were acquired through special purpose vehicles for holding properties rather than separate
business entities, these were accounted for as asset acquisitions. Where business processes inherent in the entities were
acquired, these were accounted for as a business combination.
2.5 Standards issued but not yet effective
At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRSs that
have been issued but are not yet effective and in some cases have not yet been adopted by the UK:
• Amendments to IAS 1 Classification of liabilities as current or non-current.
• IAS 8 Definition of accounting estimates.
• IFRS 3 Reference to the conceptual framework.
• Annual improvements to IFRS standards 2018–2020.
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning on or
after 1 January 2022, but are not yet applicable to the Group and have not been applied in preparing these consolidated financial
statements. None of these are expected to have a significant effect on the consolidated financial statements of the Group.
124 Primary Health Properties PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
3. Rental and related income
Revenue comprises rental income receivable on property investments in the UK and Ireland, which is exclusive of VAT. Revenue is
derived from one reportable operating segment and £134.7 million and £10.9 million of rental income is derived from the UK and
Ireland respectively. Details of the lease income are given below.
Group as a lessor
a) The future minimum lease payments under non-cancellable operating leases receivable by the Group are as follows:
Less than
one year
£m
One to
two years
£m
Two to
three years
£m
Three to
four years
£m
Four to
five years
£m
More than
five years
£m
Total
£m
2021 138.6 136.1 130.8 126.3 121.0 859.1 1,511.9
2020 134.4 133.6 131.2 126.0 121.3 935.5 1,582.0
b) The rental income earned on operating leases is recognised on a straight line basis over the lease term.
The Group leases medical centres to GPs, NHS organisations, the HSE in Ireland and other healthcare users, typically on long term
occupational leases which provide for regular reviews of rent on an effectively upwards-only basis.
4. Group operating profit is stated after charging:
2021 2020
£m £m
Administrative expenses including:
Advisory fees (Note 4a) 0.1 9.1
Staff costs (Note 4b) 5.2 —
Performance Incentive Fees (Note 4c) 1.0 1.6
Directors’ fees 0.4 0.4
Audit fees
Fees payable to the Company’s auditor and its associates for the audit of the Company’s annual accounts 0.4 0.3
Fees payable to the Company’s auditor and its associates for the audit of the Company’s subsidiaries 0.1 0.1
Total audit fees 0.5 0.4
Total audit and assurance services 0.5 0.4
Non-audit fees
Fees payable to the Company’s auditor and its associates for the interim review 0.1 0.1
Advisory services — —
Total non-audit fees 0.1 0.1
Total fees 0.6 0.5
Please refer to page 78 of the Audit Committee Report for analysis of non-audit fees.
a) Advisory fees
On 5 January 2021 the Group completed the acquisition of Nexus and internalised the management arrangements and
consequently payments ceased at this date with no further amounts payable in relation to advisory fees to Nexus.
The advisory fees calculated and payable for the period to 31 December are as follows:
2021 2020
£m £m
Nexus Tradeco Limited (“Nexus”) 0.1 9.1
As at 31 December 2021 £nil was payable to Nexus (2020: £0.8 million).
There were no other fees paid to Nexus during the year in respect of capital projects and service charge management fees
(2020:£0.4 million and £0.4 million respectively).
The Group shares certain operational services with Nexus. Amounts paid during the year in relation to these shared services
totalled £0.1 million, and amounts received during the year totalled £0.2 million.
Refer to Note 7 for further information on the Nexus acquisition.
125Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
4. Group operating profit is stated after charging: continued
b) Staff costs
2021 2020
£m £m
Wages and salaries 5.6 —
Less staff costs capitalised in respect of development and asset management projects (1.3) —
Social security costs 0.5 —
Pension costs 0.1 —
Equity-settled share-based payments 0.3 —
5.2 —
The Group operates a defined contribution pension scheme for all employees. The Group contribution to the scheme during the
year was £0.1 million (2020: £nil), which represents the total expense recognised through the income statement. As at 31 December
2021, there were no contributions (2020: £nil) due in respect of the reporting period that had not been paid over to the plan.
The average monthly number of Group employees during the year was 59 (2020: nil), and as at 31 December 2021 was 62 (2020: nil).
The Executive Directors and Non-executive Directors are the key management personnel. Full disclosure of Directors’ emoluments,
as required by the Companies Act 2006, can be found in the Remuneration Report on pages 86 to 89.
The Group’s equity-settled share-based payments comprise the following:
Scheme Fair value measure
Long Term Incentive Plan (“LTIP”) Face value at grant date
Save As You Earn (“SAYE”) Face value at grant date
The Group expenses an estimate of how many shares are likely to vest based on the market price at the date of grant, taking
account of expected performance against the relevant performance targets and service periods, which are discussed in further
detail in the Remuneration Report.
c) Performance Incentive Fee (“PIF”)
Information about the Performance Incentive Fee is provided in the Corporate Governance section of the Strategic Review in the
Annual Report.
A PIF of £1.4 million was paid in the period in respect of 2020 and at 31 December 2021 the balance on the notional cumulative
PIF account was £9.2 million (2020: £8.1 million), of which £1.3 million (2020: £1.5 million) will become payable on approval of the
Annual Report by the Board. The balance is conditional on performance in future years and the restrictions noted in the Financial
Review on pages 23 to 27.
5. Finance income
2021 2020
£m £m
Interest income on financial assets
Bank interest — 0.4
Development loan interest 0.8 0.8
0.8 1.2
126 Primary Health Properties PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
6. Finance costs
2021 2020
£m £m
Interest expense and similar charges on financial liabilities
a) Interest
Bank loan interest 24.0 26.1
Swap interest (0.3) 0.1
Bond interest 15.5 16.0
Bank facility non-utilisation fees 1.9 1.9
Exceptional early loan redemption finance cost 24.6 —
Bank charges and loan arrangement fees 2.7 2.7
68.4 46.8
Interest capitalised — (0.7)
68.4 46.1
Amortisation of MedicX debt MtM on acquisition (7.9) (3.1)
60.5 43.0
The exceptional early loan redemption finance cost was an amount paid in the year to terminate the Aviva facilities. The weighted
average interest rate on the loans redeemed was 4.99% with associated early repayment costs of £24.6 million.
2021 2020
£m £m
b) Derivatives
Net fair value gain/(loss) on interest rate swaps 2.7 (8.5)
Amortisation of cash flow hedging reserve (4.5) (4.4)
(1.8) (12.9)
The fair value loss on derivatives recognised in the Group Statement of Comprehensive Income has arisen from the interest
rateswaps for which hedge accounting does not apply. There was no fair value gain or loss accounted for directly in equity on
derivatives which do meet the hedge effectiveness criteria under IAS 39 (2020: loss of £0.4 million). An amount of £4.5 million
(2020: £4.4 million) has been amortised from the cash flow hedging reserve in the year resulting from early termination of
effective swap contracts (see Note 23).
Details of the fair value loss on hedges which meet the effectiveness criteria for hedge accounting under IAS 39 are set out in
Note 23.
2021 2020
£m £m
c) Convertible bond
Fair value loss on convertible bond fully redeemed in the year — —
Fair value loss on convertible bond issued in the year — —
Fair value gain/(loss) on existing convertible bond 3.4 (2.3)
Convertible bond issue costs — —
3.4 (2.3)
The fair value movement in the convertible bonds is recognised in the Group Statement of Comprehensive Income within profit
before taxation and is excluded from the calculation of EPRA earnings and EPRA NTA (replacing EPRA NAV). Refer to Note 15 for
further details about the convertible bonds.
2021 2020
£m £m
Net finance costs
Finance income (Note 5) 0.8 1.2
Finance costs (as per above) (68.4) (46.8)
(67.6) (45.6)
Interest capitalised — 0.7
(67.6) (44.9)
Amortisation of MedicX debt MtM on acquisition 7.9 3.1
(59.7) (41.8)
127Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
7. Business combination
On 5 January 2021 the Group’s management function was internalised by acquiring PHP Tradeco Holdings Limited (formerly Nexus
Tradeco Holdings Limited), which is the holding company of its long-standing external property adviser, PHP Tradeco Limited
(formerly Nexus Tradeco Limited), and certain subsidiaries, including the primary care development business (“Nexus”). Primary
Health Properties PLC acquired the entire issued ordinary share capital of PHP Tradeco Holdings Limited at a total cost of
£34.1million, including a termination payment of £29.0 million.
The total cost was met by £16.5 million payment in cash, and £17.6 million satisfied by the issue of 11,485,080 new Ordinary
Shares of 12.5 pence each in the share capital of PHP at the quoted market price on completion of 152.8 pence per share.
The acquisition of PHP Tradeco Holdings Limited for a total fair value of consideration of £5.1 million resulted in the transfer of certain
assets and liabilities and the fair value of the net liabilities acquired was £1.2 million, resulting in a goodwill on acquisition of £6.3 million.
The acquisition resulted in the termination of the advisory agreement. The total cost of terminating the Nexus agreement and
goodwill on acquisition has been calculated to be £35.3 million (fair value of consideration paid £34.1 million plus fair value of net
liabilities acquired £1.2 million) when taking into account the consideration and the net assets with fair value adjustments. The
goodwill on acquisition of £35.3 million was to effect the termination of the management agreement with Nexus and reflects the
termination notice period, approximately 2 years and 2.5 months under the management agreement totalling £29.0 million. The
remaining £6.3 million represents a discretionary payment on account of the acquisition of principally the management team,
assembled workforce, systems, operational platform and know-how which were “re-branded” from Nexus to PHP.
Book
value
£m
Adjustments
to fair value
£m
Total
fair value
£m
Cash consideration 16.5 — 16.5
Equity instruments 17.6 — 17.6
Total cost 34.1 — 34.1
Less: termination payment — — (29.0)
Fair value of consideration paid — — 5.1
Fair value of net assets acquired
Tangible fixed assets 0.1 — 0.1
Cash and cash equivalents 0.4 — 0.4
Trade and other debtors 1.2 — 1.2
Total assets 1.7 — 1.7
Trade creditors and other creditors (1.4) (1.1) (2.5)
Amounts due to HMRC (0.4) — (0.4)
Total liabilities (1.8) (1.1) (2.9)
Fair value of net assets acquired (0.1) (1.1) (1.2)
Termination payment and goodwill arising on acquisition 35.3
Net cash flow arising on acquisition
Cash consideration 16.5
Acquisition costs 1.7
Less: cash and cash equivalent balances acquired (0.4)
17.8
Acquisition of the Nexus entities contributed £nil revenue and a cost saving of approximately £3.9 million to the Group’s profit for
the period between the date of acquisition and the reporting date. If the acquisition had completed on the first day of the
financial year, the impact on Group revenues for the year would have been £nil and the impact on Group profit would have been a
cost saving of approximately £4.0 million.
8. Taxation
a) Taxation charge in the Group Statement of Comprehensive Income
The taxation charge is made up as follows:
2021 2020
£m £m
Current tax
UK corporation tax — —
Irish corporation tax 0.1 0.1
Deferred tax on Irish activities 1.4 0.3
Total tax 1.5 0.4
128 Primary Health Properties PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
8. Taxation continued
a) Taxation charge in the Group Statement of Comprehensive Income continued
The UK corporation tax rate of 19% (2020: 19%) and the Irish corporation tax rate of 20% (2020: 20%) have been applied in the
measurement of the Group’s UK and Ireland related activities tax liability at 31 December 2021.
b) Factors affecting the tax charge for the year
The tax assessed for the year is lower than (2020: lower than) the standard rate of corporation tax in the UK. The differences are
explained below:
2021 2020
£m £m
Profit on ordinary activities before taxation 141.6 112.4
Theoretical tax at UK corporation tax rate of 19% (2020: 19%) 26.9 21.4
REIT exempt income (36.4) (25.7)
Transfer pricing adjustment 4.7 4.1
Termination payment and goodwill
impairment on acquisition of Nexus 7.0 —
Fair value (gain)/loss on convertible bond (0.6) 0.4
Non-taxable items (0.6) 0.2
Losses brought forward utilised (0.2) —
Irish corporation tax 0.7 0.7
Deferred tax on Irish activities — (0.8)
Taxation charge (Note 8a) 1.5 0.4
The UK REIT rules exempt the profits of the Group’s property rental business from corporation tax.
c) Basis of taxation
The Group elected to be treated as a UK REIT with effect from 1 January 2007. The UK REIT rules exempt the profits of the
Group’s property rental business from corporation tax. Gains on properties are also exempt from tax, provided they are not held
for trading or sold in the three years post completion of development. The Group will otherwise be subject to corporation tax at
19% (2020: 19%).
Acquired companies are effectively converted to UK REIT status from the date on which they become a member of the Group.
As a UK REIT, the Company is required to pay Property Income Distributions (“PIDs”) equal to at least 90% of the Group’s rental
profit calculated by reference to tax rules rather than accounting standards.
To remain as a UK REIT there are a number of conditions to be met in respect of the principal company of the Group, the Group’s
qualifying activities and the balance of its business. The Group remains compliant as at 31 December 2021.
The Group’s activities in Ireland are conducted via Irish companies, a Guernsey company and an Irish Collective Asset Vehicle
(“ICAV”). The Irish companies pay Irish corporation tax on trading activities and deferred tax is calculated on the increase in
capital values. The Guernsey company pays tax on its net rental income. The ICAV does not pay any Irish corporation tax on its
profits but a 20% withholding tax is paid on distributions to owners.
9. Earnings per share
Performance measures
In the tables below, we present earnings per share and net assets per share calculated in accordance with IFRSs, together with
our own adjusted measure and certain measures defined by the European Public Real Estate Association (“EPRA”), which have
been included to assist comparison between European property companies. Two of the Group’s key financial performance
measures are adjusted earnings per share and adjusted net tangible assets per share.
Adjusted earnings, which is a tax adjusted measure of revenue profit, is the basis for the calculation of adjusted earnings per
share. We believe adjusted earnings and adjusted earnings per share provide further insight into the results of the Group’s
operational performance to stakeholders as they focus on the net rental income performance of the business and exclude capital
and other items which can vary significantly from year to year.
129Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
9. Earnings per share continued
Earnings per share
2021
2020
IFRS Adjusted EPRA IFRS Adjusted EPRA
earnings earnings earnings earnings earnings earnings
£m £m £m £m £m £m
Profit after taxation 140.1 140.1 140.1 112.0 112.0 112.0
Adjustments to remove:
Revaluation gain on property portfolio — (110.2) (110.2) — (51.3) (51.3)
Profit on sale of land and property — (0.3) (0.3) — (0.1) (0.1)
Fair value movement on derivatives — 1.8 1.8 — 12.9 12.9
Fair value movement and issue costs
onconvertible bond — (3.4) (3.4) — 2.3 2.3
Taxation charge — 1.5 1.5 — 0.4 0.4
Termination payment and goodwill
impairment on acquisition of Nexus — 35.3 6.3 — — —
Exceptional Nexus acquisition costs — 1.7 1.7 — — —
Early termination fees on bank debt 24.6 24.6 — — —
MtM write off on early termination of
bank debt (4.7) — — — —
Amortisation of MtM loss on debt acquired — (3.2) — — (3.1) —
Basic earnings 140.1 83.2 62.1 112.0 73.1 76.2
Dilutive effect of convertible bond 0.9 4.3 4.3 6.6 4.3 4.3
Diluted earnings 141.0 87.5 66.4 118.6 77.4 80.5
Number of shares
2021 weighted average
2020 weighted average
million million million million million million
Ordinary Shares 1,330.4 1,330.4 1,330.4 1,266.4 1,266.4 1,266.4
Dilutive effect of convertible bond 105.4 105.4 105.4 102.0 102.0 102.0
Diluted Ordinary Shares 1,435.8 1,435.8 1,435.8 1,368.4 1,368.4 1,368.4
Profit/(loss) per share attributable to shareholders:
IFRS
pence
Adjusted
pence
EPRA
pence
IFRS
pence
Adjusted
pence
EPRA
pence
Basic 10.5 6.2 4.7 8.8 5.8 6.0
Diluted 9.8 6.1 4.6 8.7 5.7 5.9
Net assets per share
31 December 2021
31 December 2020
IFRS Adjusted EPRA IFRS Adjusted EPRA
£m £m £m £m £m £m
Net assets attributable to shareholders 1,499.9 1,499.9 1,499.9 1,414.4 1,414.4 1,414.4
Derivative interest rate swaps liability (4.4) (4.4) 0.1 0.1
Deferred tax 4.4 4.4 3.5 3.5
Cumulative convertible bond
fairvaluemovement 21.6 21.6 25.0 25.0
MtM on MedicX loans net of amortisation 34.4 — 42.3 —
Net tangible assets (“NTA”) 1,555.9 1,521.5 1,485.3 1,443.0
Real estate transfer taxes 189.0 174.7
Net reinstatement value (“NRV”) 1,710.5 1,617.7
Fixed rate debt and swap MtM value (20.1) (88.0)
Deferred tax (4.4) (3.5)
Cumulative convertible bond
fairvaluemovement (21.6) (25.0)
Real estate transfer taxes (189.0) (174.7)
Net disposal value (“NDV”) 1,475.4 1,326.5
130 Primary Health Properties PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
9. Earnings per share continued
Ordinary Shares
million million million million million million
Issued share capital 1,332.9 1,332.9 1,332.9 1,315.6 1,315.6 1,315.6
Basic net asset value per share¹
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Net tangible assets (“NTA”) 112.5 116.7 114.1 107.5 112.9 109.7
Net reinstatement value (“NRV”) 128.3 123.0
Net disposal value (“NDV”) 110.7 100.8
1 The above are calculated on a “basic” basis without the adjustment for the impact of the convertible bond which is shown in the diluted basis table below.
Diluted net asset value per share²
31 December 2021
31 December 2020
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Net tangible assets (“NTA”) 114.7 118.6 116.2 110.4 115.4 112.4
Net reinstatement value (“NRV”) 129.4 124.7
Net disposal value (“NDV”) 113.0 104.2
2 The Company assesses the dilutive impact of the unsecured convertible bond, issued by the Group on 15 July 2019, on its net asset value per share with a current
exchange price of 142.29 pence (31 December 2020: 147.10 pence).
Conversion of the convertible bond would result in the issue of 105.4 million (31 December 2020: 102.0 million) new Ordinary
Shares. The IFRS net asset value and EPRA NDV would increase by £171.6 million (31 December 2020: £175.0 million) and the EPRA
NTA, adjusted NTA and EPRA NRV would increase by £150.0 million (31 December 2020: £150.0 million). The resulting diluted net
asset values per share are anti-dilutive to all measures and are set out in the table above.
10. Dividends
Amounts recognised as distributions to equity holders in the year:
2021 2020
£m £m
Quarterly interim dividend paid 26 February 2021 18.7 —
Scrip dividend in lieu of quarterly cash dividend 26 February 2021 1.8 —
Quarterly interim dividend paid 21 May 2021 17.7 —
Scrip dividend in lieu of quarterly cash dividend 21 May 2021 2.9 —
Quarterly interim dividend paid 20 August 2021 18.3 —
Scrip dividend in lieu of quarterly cash dividend 20 August 2021 2.4 —
Quarterly interim dividend paid 26 November 2021 19.7 —
Scrip dividend in lieu of quarterly cash dividend 26 November 2021 0.9 —
Quarterly interim dividend paid 21 February 2020 — 16.9
Scrip dividend in lieu of quarterly cash dividend 21 February 2020 — 1.0
Quarterly interim dividend paid 22 May 2020 — 16.9
Scrip dividend in lieu of quarterly cash dividend 22 May 2020 — 1.1
Quarterly interim dividend paid 21 August 2020 — 16.4
Scrip dividend in lieu of quarterly cash dividend 21 August 2020 — 1.5
Quarterly interim dividend paid 20 November 2020 — 18.9
Scrip dividend in lieu of quarterly cash dividend 20 November 2020 — 0.6
Total dividends distributed in the year 82.4 73.3
Per share 6.2p 5.9p
On 6 January 2022, the Board declared an interim dividend of 1.625 pence per Ordinary Share with regard to the year ended
31December 2021, payable on 25 February 2022. This dividend will comprise wholly of a ordinary dividend of 1.625 pence and no
Property Income Dividend (“PID”).
131Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
11. Investment properties and investment properties under construction
Properties have been independently valued at fair value by Lambert Smith Hampton UK, Jones Lang LaSalle and CBRE Chartered
Surveyors and Valuers, as at the balance sheet date in accordance with accounting standards. The valuers have confirmed that
they have valued the properties in accordance with the Practice Statements in the RICS Appraisal and Valuation Standards 2017
(the “Red Book”). There were no changes to the valuation techniques during the year. The valuers are appropriately qualified and
have sufficient market knowledge and relevant experience of the location and category of investment property and have had full
regard to market evidence when determining the values.
The COVID-19 pandemic continues to provide some degree of uncertainty surrounding the valuation of certain property sub-sectors;
however, the primary care real estate sector remains robust, and as a result neither UK nor Irish valuers have included a material
uncertainty clause in the valuation report at 31 December 2021.
The properties are 99.7% let (2020: 99.6%). The valuations reflected a 4.64% (2020: 4.81%) net initial yield and a 4.74% (2020:4.84%)
true equivalent yield. Where properties have outstanding rent reviews, an estimate is made of the likely rent on review in line with
market expectations and the knowledge of the valuers.
In accordance with IAS 40, investment properties under construction have also been valued at fair value by the valuers. In determining
the fair value, the valuer is required to value development property as if complete, deduct the costs remaining to be paid to complete
the development and consider the significant risks which are relevant to the development process including, but not limited to,
construction and letting risks and the impact they may have on fair value. In the case of the Group’s portfolio under construction,
where the sites are pre-let and construction risk remains with the builder/developer, the valuer has deemed that the residual risk
tothe Group is minimal. As required by the Red Book, the valuers have deducted the outstanding cost to the Group through to the
completion of construction of £9.0 million (2020: £32.1 million) in arriving at the fair value to be included in the financial statements.
In addition to the above, capital commitments have been entered into amounting to £19.0 million (2020: £7.5 million) which have
not been provided for in the financial statements.
A fair value increase of £0.4 million (2020: £0.2 million) in respect of investment property under construction has been recognised
in the Group Statement of Comprehensive Income, as part of the total net valuation gain on the property portfolio in the year of
£110.2million (2020: £51.3 million).
Of the £2,791.4 million (2020: £2,571.6 million) valuation, £2,578.4 million (92%) (2020: £2,373.9 million) relates to investment
properties inthe UK and £213.0 million (8%) (2020: £197.7 million) relates to investment properties in Ireland.
In line with accounting policies, the Group has assessed whether the acquisitions during the year were asset purchases or
business combinations.
Investment Investment Investment
properties properties long properties under
freehold ¹ leasehold construction Total
£m £m £m £m
As at 1 January 2021 2,061.3 491.4 23.4 2,576.1
Property additions 52.4 48.1 22.4 122.9
Property disposals (2.0) — — (2.0)
Impact of lease incentive adjustment 0.7 0.4 — 1.1
Transfer from properties under construction 23.4 2.9 (26.3) —
Foreign exchange movements (9.7) (2.0) (0.7) (12.4)
2,126.1 540.8 18.8 2,685.7
Revaluations for the year 82.3 27.5 0.4 110.2
As at 31 December 2021 2,208.4 568.3 19.2 2,795.9
As at 1 January 2020 1,902.2 476.9 34.0 2,413.1
Property additions 66.3 0.4 33.3 100.0
Property disposals 0.1 — — 0.1
Impact of lease incentive adjustment 0.9 0.6 — 1.5
Transfer from properties under construction 46.8 — (46.8) —
Interest capitalised — — 0.7 0.7
Foreign exchange movements 7.0 0.4 2.0 9.4
2,023.3 478.3 23.2 2,524.8
Revaluations for the year 38.0 13.1 0.2 51.3
As at 31 December 2020 2,061.3 491.4 23.4 2,576.1
1 Includes development land held at £0.9 million (31 December 2020: £0.9 million).
Bank borrowings, bonds and interest rate swaps are secured on investment properties with a value of £2,515.4 million (2020: £2,483.2 million).
132 Primary Health Properties PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
11. Investment properties and investment properties under construction continued
Right of use assets
In accordance with IFRS 16 Leases, the Group has recognised a £4.5 million head lease liability and an equal and opposite finance
lease asset which is included in non-current assets.
Fair value hierarchy
All of the Group’s properties are level 3, as defined by IFRS 13, in the fair value hierarchy as at 31 December 2021 and 31 December 2020.
There were no transfers between levels during the year or during 2020. Level 3 inputs used in valuing the properties are those
which are unobservable, as opposed to level 1 (inputs from quoted prices) and level 2 (observable inputs either directly, i.e. as
prices, or indirectly, i.e. derived from prices).
Valuation techniques used to derive level 3 fair values
The valuations have been prepared on the basis of fair market value (“FMV”) which is defined in the RICS Valuation Standards as:
‘ The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing
sellerin an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and
without compulsion.’
Valuation techniques: market comparable method
Under the market comparable method (or market comparable approach), a property’s fair value is estimated based on comparable
transactions and using certain unobservable inputs. These inputs are detailed below.
Unobservable input: estimated rental value (“ERV”)
The rent at which space could be let in the market conditions prevailing at the date of valuation. ERV is also used in determining
expected rental uplift on outstanding rent reviews.
2021 2020
ERV – range of the portfolio £30,000 – £1,433,486
per annum
£18,000 – £1,242,000
per annum
Unobservable input: equivalent yield
The equivalent yield is defined as the internal rate of return of the cash flow from the property, assuming a rise to ERV at the next
review date, but with no further rental growth.
2021 2020
True equivalent yield – range of the portfolio 3.23% – 19.58% 3.11% – 19.51%
Unobservable input: physical condition of the property
The properties are physically inspected by the valuer on a three-year rotating basis.
Unobservable input: rental growth
The estimated average increase in rent based on both market estimations and contractual situations.
Sensitivity of measurement of significant unobservable inputs
• A decrease in the estimated annual rent will decrease the fair value. A 1% decrease/increase in annual rent would have an
approximately £28 million decrease/increase in the investment property valuation.
• A decrease in the equivalent yield will increase the fair value. A 0.10% shift of equivalent yield would have an approximately
£60 million impact on the investment property valuation.
• A deterioration in the physical condition of the property will decrease the fair value.
• An increase in the rental growth will increase the fair value.
133Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
12. Trade and other receivables
2021 2020
£m £m
Trade receivables (net of provision for doubtful debts) 11.6 9.8
Prepayments and accrued income 5.4 7.1
Other debtors 0.6 0.5
17.6 17.4
The expected credit losses are estimated using a provision matrix by reference to past default experience and an analysis of the
debtor’s current financial position, adjusted for factors that are specific to the debtor on the recoverability, general economic
conditions of the industry and an assessment of both the current and the forecast direction of conditions at the reporting date.
The Group has therefore not recognised a loss allowance because historical experience has indicated that the risk profile of trade
receivables is deemed low.
The Group’s principal customers are invoiced and pay quarterly in advance, usually on English, Scottish and Gale quarter days.
There is no significant concentration of credit risk with respect to trade receivables, as the Group has a large number of tenants.
13. Cash and cash equivalents
2021 2020
£m £m
Cash held at bank 33.4 103.6
33.4 103.6
Bank interest is earned at floating rates depending upon the bank deposit rate. Short term deposits may be made for varying
periods of between one day and three months, dependent on available cash and forthcoming cash requirements of the Group.
These deposits earn interest at various short term deposit rates.
14. Trade and other payables
2021 2020
£m £m
Trade payables 0.6 0.7
Bank and bond loan interest accrual 6.3 8.0
Other payables 9.1 8.6
VAT 6.6 6.5
Accruals 17.4 10.9
40.0 34.7
134 Primary Health Properties PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
15. Borrowings
a) Term loans and overdrafts
The table indicates amounts drawn and undrawn from each individual facility as at 31 December:
Facility
Amounts drawn
Undrawn
2021 2020 2021 2020 2021 2020
Expiry date £m £m £m £m £m £m
Current
RBS overdraft Jun 2022 5.0 5.0 — — 5.0 5.0
Santander² Jul 2021 — 30.6 — — — 30.6
Aviva HIL loan ¹ Jan 2032 — 1.0 — 1.0 — —
Aviva MXF loan Sep 2033 2.2 2.0 2.2 2.0 — —
Aviva loan¹ Jun 2040 — 0.7 — 0.7 — —
Aviva loan¹ Aug 2029 — 2.7 — 2.7 — —
7.2 42.0 2.2 6.4 5.0 35.6
Non-current
Aviva HIL loan ¹ Jan 2032 — 19.4 — 19.4 — —
Aviva AV loan Oct 2036 200.0 — 200.0 — — —
Aviva loan¹ Dec 2022 — 25.0 — 25.0 — —
Aviva loan Nov 2028 75.0 75.0 75.0 75.0 — —
Aviva loan¹ Aug 2024 — 50.0 — 50.0 — —
Aviva loan¹ Aug 2029 — 57.3 — 57.3 — —
Barclays loan Dec 2023 100.0 100.0 — — 100.0 100.0
HSBC loan Nov 2024 100.0 100.0 25.5 — 74.5 100.0
Lloyds loan Dec 2024 50.0 50.0 38.7 28.8 11.3 21.2
RBS loan¹ Mar 2022 — 100.0 — 59.4 — 40.7
NatWest loan Oct 2024 100.0 — 86.3 — 13.7 —
Aviva MXF loan Sep 2033 225.2 227.4 225.2 227.4 — —
Aviva MXF loan Sep 2028 30.8 30.8 30.8 30.8 — —
Aviva loan¹ Jun 2040 — 24.1 — 24.1 — —
881.0 859.0 681.5 597.2 199.5 261.9
Total 888.2 901.0 683.7 603.6 204.5 297.5
1 Refinanced during 2021.
2 Facility has been renewed in January 2022. Refer to Note 27 for more details.
135Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
15. Borrowings continued
a) Term loans and overdrafts continued
2021 2020
£m £m
Balance as at 1 January 630.0 688.8
Changes from financing activities
Term bank loan drawdowns 335.6 17.8
New loan facilities drawn 335.6 17.8
Repayments of mortgages principal (20.4) (3.6)
Repayments of term bank loans (232.4) (72.6)
Repayments of term loan borrowings (252.8) (76.2)
Loan issue costs for new facilities/refinancing (2.7) (1.9)
Total changes from financing cash flows 80.1 (60.3)
Other non-cash changes
MtM on loans net of amortisation (7.2) (2.4)
Amortisation of loan issue costs 2.2 2.4
Exchange (gain)/loss on translation of foreign balances (2.7) 1.5
Total other changes (7.7) 1.5
Balance as at 31 December 702.4 630.0
At 31 December 2021, total facilities of £1,437.4 million (2020: £1,456.8 million) were available to the Group. This included a
£70.0million secured bond, a £100.0 million secured bond, a £150.0 million nominal value convertible bond, £42.9 million and
£58.8 million Euro-denominated bonds, a £50.0 million Ignis loan note, a £77.5 million Standard Life loan note and a £5.0 million
overdraft facility. Of these facilities, as at 31 December 2021, £1,232.9 million was drawn (2020: £1,159.3 million).
On 22 October 2021, the Group secured a new £200.0 million 15-year debt facility with Aviva Investors at a fixed rate of 2.52%.
The proceeds of the loan have been used to repay a number of legacy facilities with Aviva Investors totalling £177.0 million at a
blended fixed rate of 5.0% and weighted average term of just under six years. As part of the refinancing a termination cost of
£24.6 million has been paid.
On 27 October 2021, the Group has renewed its existing £100.0 million revolving credit facility with NatWest for a further
three-year term with options to extend by a further year on the first and second anniversaries of the new facility.
Costs associated with the arrangement and extension of the facilities, including legal advice and loan arrangement fees, are
amortised using the effective interest rate.
Any amounts unamortised as at the period end are offset against amounts drawn on the facilities as shown in the table below:
2021 2020
£m £m
Term loans drawn: due within one year 2.2 6.4
Term loans drawn: due in greater than one year 681.5 597.2
Total terms loans drawn 683.7 603.6
Plus: MtM on loans net of amortisation 29.3 36.6
Less: unamortised borrowing costs (10.6) (10.2)
Total term loans per the Group Balance Sheet 702.4 630.0
The Group has been in compliance with all of the financial covenants of the above facilities as applicable through the year. Further
details are shown in Note 18e.
The Group has entered into interest rate swaps to manage its exposure to interest rate fluctuations. These are set out in Note 17.
136 Primary Health Properties PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
15. Borrowings continued
b) Bonds
2021 2020
£m £m
Unsecured:
Convertible bond July 2025 at fair value 171.6 175.0
Less: unamortised costs — —
Total unsecured bonds 171.6 175.0
Secured:
Secured bond December 2025 70.0 70.0
Secured bond March 2027 100.0 100.0
€51 million secured bond (Euro private placement) December 2028-30 42.9 45.6
€70 million secured bond (Euro private placement) September 2031 58.8 62.6
Ignis loan note December 2028 50.0 50.0
Standard Life loan note September 2028 77.5 77.5
Less: unamortised bond issue costs (3.1) (3.6)
Plus: MtM on loans net of amortisation 5.1 5.8
Total secured bonds 401.2 407.9
Total bonds 572.8 582.9
There were no bond conversions during the year (2020: £nil).
Secured bonds
On 18 December 2013, PHP successfully listed the floating rate guaranteed secured bonds issued on 4 November 2013 (the
“Secured Bonds”) on the London Stock Exchange. The Secured Bonds have a nominal value of £70.0 million and mature on 3
December 2025. The Secured Bonds incur interest at an annualised rate of 220bps above six-month LIBOR, payable semi-annually
in arrears.
On 21 March 2017, a £100.0 million Secured Bond was issued for a ten-year term at a fixed coupon of 2.83% that matures on
21March 2027. Interest is paid semi-annually in arrears.
On 20 December 2018, senior secured notes for a total of €51.0 million (£42.9 million) were issued at a blended fixed rate of
2.4793% and a weighted average maturity of 10.4 years. Interest is paid semi-annually in arrears. The notes represent PHP’s first
Euro-denominated transaction in the private placement market. The secured notes were placed with UK and Irish institutional
investors in two tranches:
• €40.0 million 2.46% senior notes due December 2028.
• €11.0 million 2.633% senior notes due December 2030.
On 16 September 2019, new senior secured notes for a total of €70.0 million (£58.8 million) were issued at a fixed rate of 1.509%
and a maturity of twelve years. Interest is paid semi-annually in arrears. The secured notes are guaranteed by the Company and
were placed with UK and Irish institutional investors.
Ignis and Standard Life loan notes
On 14 March 2019, the loan notes were added to the portfolio as a part of the MedicX acquisition. The Ignis loan note of
£50.0million incurs a fixed coupon of 3.99% payable semi-annually in arrears and matures on 1 December 2028.
The Standard Life loan note matures on 30 September 2028 and is split into two tranches, £50.0 million and £27.5 million at fixed
coupon rates of 3.84% and 3.00% respectively. Interest is payable semi-annually in arrears.
137Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
15. Borrowings continued
b) Bonds continued
Convertible bond
On 15 July 2019, PHP Finance (Jersey No.2) Limited (the “Issuer”), a wholly owned subsidiary of the Group, issued £150.0 million of
2.875% convertible bonds (the “Bonds”) for a six-year term and if not previously converted, redeemed or purchased and cancelled,
the Bonds will be redeemed at par on maturity in July 2025. The net proceeds were partially used to repay the Company’s £75.0 million
5.375% senior unsecured retail bonds at maturity and otherwise for general corporate purposes.
Subject to certain conditions, the Bonds will be convertible into fully paid Ordinary Shares of the Company and the initial exchange
price was set at 153.25 pence, a premium of 15% above the volume weighted average price of the Company’s shares on 18 June 2019,
being 133.26 pence. Under the terms of the Bonds, the Company will have the right to elect to settle exercise of any conversion
rights entirely in shares or cash, or with a combination of shares and cash. The exchange price is subject to adjustment if dividends
paid per share exceed 2.8 pence per annum and other certain circumstances and consequently the exchange price has been
adjusted to 142.29 pence as at 31 December 2021 (2020: 147.10 pence).
2021 2020
£m £m
Opening balance – fair value 175.0 172.7
Issued in the year — —
Cumulative fair value movement in convertible bond (3.4) 2.3
Closing balance – fair value 171.6 175.0
The fair value of the Bonds at 31 December 2021 and 31 December 2020 was established by obtaining quoted market prices. The
fair value movement is recognised in the Group Statement of Comprehensive Income within profit before taxation and is excluded
from the calculation of EPRA earnings and EPRA NTA (replacing EPRA NAV).
c) Total borrowings
2021 2020
£m £m
Current liabilities:
Term loans and overdrafts 2.2 6.4
Bonds — —
Total current liabilities 2.2 6.4
Non-current liabilities:
Term loan and overdrafts 681.5 597.2
MtM on loans net of amortisation 29.3 36.6
Less: unamortised loan issue costs (10.6) (10.2)
700.2 623.6
Bonds 549.2 555.7
MtM on loans net of amortisation 5.1 5.8
MtM on convertible bond 21.6 25.0
Less: unamortised bond issue costs (3.1) (3.6)
Total non-current bonds 572.8 582.9
Total borrowings 1,275.2 1,212.9
16. Head lease liabilities
The Group holds certain long leasehold properties which are classified as investment properties. The head leases are accounted
for as finance leases. These leases typically have lease terms between 25 years and perpetuity and fixed rentals.
2021 2020
£m £m
Due within one year 0.1 0.1
Due after one year 4.4 4.4
Closing balance – fair value 4.5 4.5
138 Primary Health Properties PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
17. Derivatives and other financial instruments
It is Group policy to maintain the proportion of floating rate interest exposure at between 20% and 40% of total debt facilities.
The Group uses interest rate swaps to mitigate its remaining exposure to interest rate risk in line with this policy. The fair value of
these contracts is recorded in the balance sheet and is determined by discounting future cash flows at the prevailing market rates
at the balance sheet date.
2021 2020
£m £m
Fair value of interest rate swaps treated as cash flow hedges under IAS 39 (“effective swaps”)
Non-current liabilities — —
— —
Fair value of interest rate swaps not qualifying as cash flow hedges under IAS 39 (“ineffective swaps”)
Non-current assets 5.2 —
Non-current liabilities (0.8) (0.1)
4.4 (0.1)
Total fair value of interest rate swaps 4.4 (0.1)
Shown in the balance sheet as:
Total non-current assets 5.2 —
Total non-current liabilities (0.8) (0.1)
Changes in the fair value of the contracts that do not meet the strict IAS 39 criteria to be designated as effective hedging
instruments are taken to the Group Statement of Comprehensive Income. For contracts that meet the IAS 39 criteria and are
designated as “effective” cash flow hedges, the change in fair value of the contract is recognised in the Group Statement of
Changes in Equity through the cash flow hedging reserve. The result recognised in the Group Statement of Comprehensive
Income on “effective” cash flow hedges in 2021 was a £4.5 million gain (2020: £4.0 million gain), including the amortisation of the
cash flow hedging reserve of £4.5 million (2020: £4.4 million).
Interest rate swaps and caps with a contract value of £188.0 million (2020: £188.0 million) were in effect at 31 December 2021.
Details of all floating to fixed rate interest rate swap contracts held are as follows:
Fixed interest
Contract value Product Start date Maturity per annum %
2021
£88.0 million Swap September 2020 March 2022 0.0397
£100.0 million Swap October 2021 November 2024 0.0699
£(66.0) million Reverse swap October 2021 November 2024 2.5200
£66.0 million Cap October 2021 November 2024 1.2500
£(67.0) million Reverse swap October 2021 November 2024 2.5200
£67.0 million Cap October 2021 November 2024 1.2500
£(67.0) million Reverse swap October 2021 November 2024 2.5200
£67.0 million Cap October 2021 November 2024 1.2500
£188.0 million
2020
£88.0 million September 2020 March 2022 0.0397
£100.0 million September 2020 November 2024 0.0699
£188.0 million
On 28 October 2021 the HSBC £100.0 million variable leg of the LIBOR swap was converted to SONIA. The term and fixed rate
were unchanged at November 2024 expiry and 0.0699%.
139Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
17. Derivatives and other financial instruments continued
On 27 October 2021 three new swap agreements were entered into totalling £200.0 million. All are effective until 29 November
2024 and receive a fixed rate of 2.52%, with variable rates payable. These included a £66.0 million swap agreement with HSBC
paying a variable of SONIA + 1.6275%, a £67.0 million swap agreement with Barclays paying a variable of SONIA + 1.575% and a
£67.0 million swap agreement with NatWest paying a variable of SONIA + 1.5849%. A one-off payment of £1.8 million across all
three new swap agreements was made to cap SONIA at 1.25% for the length of the agreement, equivalent to 0.1 pence per share
on an adjusted net tangible asset value basis.
18. Financial risk management
In pursuing its investment objectives, the Group is exposed to a variety of risks that could impact net assets or distributable profits.
The Group’s principal financial liabilities, other than interest rate swaps, are loans and borrowings hedged by these swaps. The
main purpose of the Group’s loans and borrowings is to finance the acquisition and development of the Group’s property portfolio.
The Group has trade and other receivables, trade and other payables and cash and short term deposits that arise directly from its
operations.
A review of the Group’s objectives, policies and processes for managing and monitoring risk is set out in the Strategic Report. This
note provides further detail on financial risk management and includes quantitative information on specific financial risks.
Financial risk factors
a) Interest rate risk
Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in market interest
rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long term debt obligations
with floating rates as the Group, generally, does not hold significant cash balances, with short term borrowings being used when
required. To manage its interest rate risk, the Group enters into interest rate swaps, in which the Group agrees to exchange, at
specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon
principal amount. Note 17 provides details of interest swap contracts in effect at the year end.
The sensitivity analysis below shows the impact on profit before tax and equity of reasonably possible movements in interest
rates with all other variables held constant. It should be noted that the impact of movement in the interest rate variable is not
necessarily linear.
The fair value is arrived at with reference to the difference between the contracted rate of a swap and the market rate for the
remaining duration at the time the valuation is performed. As market rates increase and this difference reduces, the associated
fair value also decreases.
Effect on fair
value of Effect on
financial profit before Effect on
instruments taxation equity
£m £m £m
2021
London Interbank Offered Rate Increase of 50 basis points 5.5 6.0 11.5
London Interbank Offered Rate Decrease of 50 basis points (5.5) (6.0) (11.5)
2020
London Interbank Offered Rate Increase of 50 basis points 4.5 5.0 9.5
London Interbank Offered Rate Decrease of 50 basis points (4.5) (5.0) (9.5)
b) Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under financial instruments or customer contracts, leading
to a financial loss. The Group is exposed to credit risk from its principal financial assets being cash and cash equivalents, and
trade and other receivables (see Note 12).
Trade receivables
Trade receivables, primarily tenant rentals, are recognised and carried at amortised cost and presented in the balance sheet net of
allowances for doubtful receivables and are monitored on a case-by-case basis. Impairment losses are recognised through the
expected credit loss model. Credit risk is primarily managed by requiring tenants to pay rentals in advance.
The Group has policies in place to ensure that rental contracts are entered into only with lessees with an appropriate credit
history, but the Group does not monitor the credit quality of receivables on an ongoing basis.
140 Primary Health Properties PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
18. Financial risk management continued
Financial risk factors continued
b) Credit risk continued
Banks and financial institutions
One of the principal credit risks of the Group arises from financial derivative instruments and deposits with banks and financial
institutions. The Board of Directors believes that the credit risk on short term deposits and interest rate swaps is limited because
the counterparties are banks, which are committed lenders to the Group, with high credit ratings assigned by international credit
rating agencies.
c) Liquidity risk
The liquidity risk is that the Group will encounter difficulty in meeting obligations associated with its financial liabilities as the
majority of the Group’s assets are property investments and are therefore not readily realisable. The Group’s objective is to
maintain a mixture of available cash and committed bank facilities that is designed to ensure that the Group has sufficient
available funds for its operations and to fund its committed capital expenditure. This is achieved by continuous monitoring of
forecast and actual cash flows.
The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments
including interest.
Less than Three to One to More than
On demand three months twelve months five years five years Total
£m £m £m £m £m £m
2021
Interest-bearing loans and borrowings — 9.8 29.7 514.6 1,001.4 1,555.5
Interest rate swaps (net) — — — — — —
Trade and other payables 1.6 29.6 3.2 2.9 2.0 39.3
1.6 39.4 32.9 517.5 1,003.4 1,594.8
2020
Interest-bearing loans and borrowings — 10.8 32.7 543.5 885.5 1,472.5
Interest rate swaps (net) — 0.4 1.1 2.1 — 3.6
Trade and other payables 0.5 25.7 4.0 2.4 2.1 34.7
0.5 36.9 37.8 548.0 887.6 1,510.8
The Group’s borrowings have financial covenants which, if breached, could result in the borrowings becoming repayable
immediately. Details of the covenants are given below under (e) Capital risk management and are disclosed to the facility
providers on a quarterly basis. There have been no breaches during the year (2020: none).
d) Market risk
Market risk is the risk that fair values of financial instruments will fluctuate because of changes in market prices. The Board of
Directors has identified two elements of market risk that principally affect the Group – interest rate risk and price risk.
Interest rate risk
Interest rate risk is outlined above. The Board assesses the exposure to other price risks when making each investment decision
and monitors the overall level of market risk on the investment portfolio on an ongoing basis through a discounted cash flow
analysis. Details of this analysis can be found in the Strategic Report in the Annual Report.
Price risk
The Group is exposed to price risk in respect of property price risk including property rentals risk. Refer to Note 2.3. The Group
has no significant exposure to price risk in respect of financial instruments other than the convertible bond and interest rate
derivatives (see also Note 17), as it does not hold any equity securities or commodities.
141Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
18. Financial risk management continued
Financial risk factors continued
d) Market risk continued
Fair values
Set out below is a comparison by class of the carrying amount and fair values of the Group’s financial instruments that are carried
in the financial statements.
Book value Fair value Book value Fair value
2021 2021 2020 2020
£m £m £m £m
Financial assets
Trade and other receivables 17.6 17.6 17.4 17.4
Effective interest rate swaps — — — —
Ineffective interest rate swaps 5.2 5.2 — —
Cash and short term deposits 33.4 33.4 103.6 103.6
Financial liabilities
Interest-bearing loans and borrowings (1,232.9) (1,275.1) (1,159.3) (1,212.9)
Effective interest rate swaps — — — —
Ineffective interest rate swaps (net) (0.8) (0.8) (0.1) (0.1)
Trade and other payables (40.0) (40.0) (34.7) (34.7)
The fair value of the financial assets and liabilities is included as an estimate of the amount at which the instruments could be
exchanged in a current transaction between willing parties, other than a forced sale. The following methods and assumptions
were used to estimate fair values:
• The fair values of the Group’s cash and cash equivalents and trade payables and receivables are not materially different from
those at which they are carried in the financial statements due to the short term nature of these instruments.
• The fair value of floating rate borrowings is estimated by discounting future cash flows using rates currently available for
instruments with similar terms and remaining maturities. The fair value approximates their carrying values, gross of unamortised
transaction costs.
• The fair value of fixed rate debt is estimated using the mid yield to maturity on the reporting date. The valuations are on a
clean basis, which exclude accrued interest from the previous settlement date to the reporting date.
• The fair values of the derivative interest rate swap contracts are estimated by discounting expected future cash flows using
market interest rates and yield curves over the remaining term of the instrument.
Fair value hierarchy
The table below analyses financial instruments carried at fair value, by valuation method. The different levels are defined as follows:
Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either
directly or indirectly.
Level 3: Techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable
market data.
Fair value measurements at 31 December 2021 were as follows:
Level 1
1
Level 2
2
Level 3
3
Total
Recurring fair value measurements £m £m £m £m
Financial assets
Derivative interest rate swaps — 5.2 — 5.2
Financial liabilities
Derivative interest rate swaps — (0.8) — (0.8)
Convertible bond (171.6) — — (175.0)
Fixed rate debt — 921.3 — 921.3
1 Valuation is based on unadjusted quoted prices in active markets for identical financial assets and liabilities.
2 Valuation is based on inputs (other than quoted prices included in level 1) that are observable for the financial asset or liability, either directly (i.e. as unquoted
prices) or indirectly (i.e. derived from prices).
3 Valuation is based on inputs that are not based on observable market data.
142 Primary Health Properties PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
18. Financial risk management continued
Financial risk factors continued
d) Market risk continued
Fair value hierarchy continued
Fair value measurements at 31 December 2020 were as follows:
Level 1 ¹ Level 2 ² Level 3 ³ Total
Recurring fair value measurements £m £m £m £m
Financial assets
Derivative interest rate swaps — — — —
Financial liabilities
Derivative interest rate swaps — (0.1) — (0.1)
Convertible bond (175.0) — — (175.0)
Fixed rate debt — (981.5) — (981.5)
1 Valuation is based on unadjusted quoted prices in active markets for identical financial assets and liabilities.
2 Valuation is based on inputs (other than quoted prices included in level 1) that are observable for the financial asset or liability, either directly (i.e. as unquoted
prices) or indirectly (i.e. derived from prices).
3 Valuation is based on inputs that are not based on observable market data.
The interest rate swaps whose fair values include the use of level 2 inputs are valued by discounting expected future cash flows
using market interest rates and yield curves over the remaining term of the instrument. The following inputs are used in arriving
atthe valuation:
• interest rates;
• yield curves;
• swaption volatility;
• observable credit spreads;
• credit default swap curve; and
• observable market data.
e) Capital risk management
The primary objectives of the Group’s capital management are to ensure that it remains a going concern, operates within its
quantitative banking covenants and meets the criteria so as to continue to qualify for UK REIT status.
The capital structure of the Group consists of shareholders’ equity and net borrowings. The type and maturity of the Group’s
borrowings are analysed further in Notes 15 and 17 and the Group’s equity is analysed into its various components in the Group
Statement of Changes in Equity. The Board monitors and reviews the Group’s capital so as to promote the long term success of
the business, to facilitate expansion and to maintain sustainable returns for shareholders.
Under several of its debt facilities, the Group is subject to a covenant whereby consolidated Group rental income must exceed
Group borrowing costs by the ratio 1.3:1 (2020: 1.3:1). No debt facility has a Group loan to value covenant.
Facility-level covenants also operate with regard to specific pools of property assets provided to lenders to secure individual loan
facilities. These range as follows:
• interest cover¹: 1.05 to 2.25 (2020: 1.05 to 1.75); and
• loan to value¹: 55% to 75% (2020: 55% to 75%).
UK REIT compliance tests include loan to property value and gearing tests. The Group must satisfy these tests in order to
continue trading as a UK REIT. This is also an internal requirement imposed by the Articles of Association.
1 See Glossary of Terms.
143Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
18. Financial risk management continued
Financial risk factors continued
e) Capital risk management continued
During the period the Group has complied with all of the requirements set out above.
2021 2020
Group loan to value ratio £m £m
Fair value of completed investment properties 2,772.2 2,548.2
Fair value of development properties 19.2 23.4
Ground rent recognised as finance leases 4.5 4.5
2,795.9 2,576.1
Interest-bearing loans and borrowings (with convertible bond at nominal value) 1,232.9 1,159.3
Less cash held (33.4) (103.6)
Nominal amount of interest-bearing loans and borrowings 1,199.5 1,055.7
Group loan to value ratio 42.9% 41.0%
19. Share capital
Ordinary Shares issued and fully paid at 12.5 pence each
2021
2020
Number – 2021 Number – 2020
million £m million £m
Balance at 1 January 1,315.6 164.4 1,216.3 152.0
Scrip issues in lieu of cash dividends 5.2 0.7 2.7 0.3
Share issue 9 July 2020 and 5 January 2021 11.5 1.4 96.6 12.1
Share issues on other acquisitions 0.6 0.1 — —
Balance at 31 December 1,332.9 166.6 1,315.6 164.4
Issue of shares in 2021
Number
of shares – Issue
Date of issue million price
Share issue 5 January 2021 11.5 152.80p
Scrip issue in lieu of cash dividend 26 February 2021 1.2 148.52p
Scrip issue in lieu of cash dividend 21 May 2021 1.9 148.98p
Scrip issue in lieu of cash dividend 20 August 2021 1.5 159.50p
Share issue on other acquisition 9 September 2021 0.6 168.02p
Scrip issue in lieu of cash dividend 26 November 2021 0.6 154.90p
20. Share premium
2021 2020
£m £m
Balance at 1 January 466.7 338.1
Scrip issue in lieu of cash dividend 7.4 3.9
Share issue 9 July 2020 and 5 January 2021 — 127.9
Share issue on other acquisitions 0.9 —
Shares issued on bond conversions — —
Share issue expense (0.1) (3.2)
Balance at 31 December 474.9 466.7
144 Primary Health Properties PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21. Merger and other reserves
The merger and other reserves are made up of the capital reserve which is held to finance any proposed repurchases of Ordinary
Shares, following approval of the High Court in 1998, the foreign exchange translation reserve and the premium on shares issued
for the MedicX Fund Limited merger and the Nexus merger.
2021 2020
£m £m
Capital reserve
Balance at 1 January and 31 December 1.6 1.6
Foreign exchange translation reserve
Balance at 1 January 1.2 (1.0)
Exchange differences on translating the net assets of foreign operations (3.4) 2.2
Balance at 31 December (2.2) 1.2
Merger reserve
Balance at 1 January 398.0 398.0
Premium on shares issued for Nexus merger 16.1 —
Balance at 31 December 414.1 398.0
Balance of merger and other reserves at 31 December 413.5 400.8
22. Special reserve
2021 2020
£m £m
Balance at 1 January — 65.4
Dividends paid — (61.2)
Scrip issue in lieu of cash dividend — (4.2)
Balance at 31 December — —
The special reserve has arisen on previous issues of the Company’s shares. It represents the share premium on the issue of the
shares, net of expenses, from issues effected by way of a cash box mechanism.
A cash box raising is a mechanism for structuring a capital raising whereby the cash proceeds from investors are invested in
asubsidiary company of the Parent instead of the Parent itself. Use of a cash box mechanism has enabled the share premium
arising from the issue of shares to be deemed to be a distributable reserve and has therefore been shown as a special reserve
inthese financial statements. Any issue costs are also deducted from the special reserve.
As the special reserve is a distributable reserve, the dividends distributed in the previous periods have been distributed from this
reserve. The remaining dividends distributed in the period have been distributed from retained earnings.
23. Cash flow hedging reserve
Information on the Group’s hedging policy and interest rate swaps is provided in Note 17.
The transfer to the Group Statement of Comprehensive Income and the fair value movement on cash flow hedges which meet the
effectiveness criteria under IAS 39, taken to equity, can be analysed as follows:
2021 2020
£m £m
Balance at 1 January (20.1) (24.1)
Fair value movement on cash flow hedges — (0.4)
Amortisation of cash flow hedging reserve 4.5 4.4
Net movement on cash flow hedges (“effective swaps”) and amortisation of cash flow hedging reserve 4.5 4.0
Balance at 31 December (15.6) (20.1)
The balance within the cash flow hedge reserve relating to cancelled swaps will be amortised through the Group Statement
ofComprehensive Income over the remainder of the original contract period (see Note 6b).
145Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
24. Retained earnings
2021 2020
£m £m
Balance at 1 January 402.6 298.5
Retained profit for the year 140.1 112.0
Dividends paid (74.4) (7.9)
Scrip dividend in lieu of cash (8.0) —
Share-based awards (“LTIP”) 0.2 —
Balance at 31 December 460.5 402.6
25. Capital commitments
As at 31 December 2021, the Group has entered into forward funding development agreements with third parties for the development
of primary healthcare properties in the UK and Ireland. The Group has acquired the land and advances funds to the developers
asthe construction progresses. Total consideration of £9.0 million (2020: £32.1 million) remains to be funded with regard to
theseproperties.
As at 31 December 2021, the Group has capital commitments totalling £10.0 million (2020: £7.5 million) being the cost to
complete asset management projects on site, and £10.7 million (2020: £nil) being the cost to complete investments.
26. Related party transactions
On 5 January 2021 the Group completed the acquisition of Nexus and internalised the management arrangements. Refer to Note
4a for details on payments made and received in relation to shared services with Nexus, and on fees payable to Nexus in prior
periods. Refer to Note 7 for further information on the acquisition of Nexus.
27. Subsequent events
On 11 February 2022, the Group completed a €75.0 million private placement for a term of twelve years at 1.64%.
On 6 January 2022, the Group refinanced a £50.0 million revolving credit facility with Santander. The facility can be drawn in
Sterling and Euros and has an interest rate of 1.65% plus SONIA or EURIBOR.
28. Audit exemptions taken for subsidiaries
The following subsidiaries are exempt from the requirements of the Companies Act 2006 relating to the audit of individual accounts
by virtue of Section 479A of the Act.
Name Companies House registration number
Primary Health Investment Properties (No. 8) Limited 11274227
Primary Health Investment Properties (No. 9) Limited 11328330
PHP Euro Private Placement ML Limited 11714222
PHP Epsom Limited 12004850
GP Property One Limited 10801028
PHP SPV Limited 12256431
PHP Primary Properties (Haymarket) Limited 08304612
Motorstep Limited 04532029
MXF Properties OM Holdings Limited 10946803
MXF Properties OM Group Limited 07039742
MXF Properties Bridlington Limited 07763871
PHP Liverpool Holding Company Limited 07342781
PHP Tradeco Holdings Limited 09642987
PHP Cardiff Group Limited 10253987
PHP (Spilsby) Limited 13735391
PHP Health Solutions Limited 06949900
PHP Liverpool Limited 08872347
PHP Tradeco Limited 07685933
PHP Property Management Services Limited 02877191
PHP Primary Care Developments Limited 11862233
PHP Cardiff Limited 10254492
PHP Developments (Cardiff) Limited 04856121
146 Primary Health Properties PLC Annual Report 2021
2021
2020
(Restated)
Notes £m £m
Non-current assets
Investment in subsidiaries 8 857.2 739.2
Fixed assets 0.2 —
Debtors: amounts falling due after more than one year 849.9 707.9
1,707.2 1,447.1
Current assets
Trade and other receivables 9 0.5 24.5
Cash at bank and in hand 10 5.2 70.8
5.7 95.3
Total assets 1,712.9 1,542.4
Current liabilities
Trade and other payables 11 (188.4) (57.4)
Borrowings: bonds 12 — —
(188.4) (57.4)
Non-current liabilities
Borrowings: bonds 12 (166.6) (159.4)
(166.6) (159.4)
Total liabilities (355.0) (216.8)
Net assets 1,357.9 1,325.6
Equity
Share capital 14 166.6 164.4
Share premium 474.9 466.7
Merger and other reserves 416.1 397.5
Special reserve 15 — —
Retained earnings 300.3 297.0
Total equity 1,357.9 1,325.6
Net asset value per share – basic 17 102p 101p
In accordance with the exemption allowed by Section 408(3) of the Companies Act 2006, the Company has not presented its
own income statement or statement of comprehensive income.
The Company’s loss for the year was £62.5 million (2020: loss of £22.9 million).
These financial statements were approved by the Board of Directors on 15 February 2022 and signed on its behalf by:
Richard Howell
Chief Financial Officer
Registered in England Number: 3033634
COMPANY BALANCE SHEET
AT 31 DECEMBER 2021
147Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
Share Share Merger and other Special Retained Total
capital premium reserves reserve earnings equity
£m £m £m £m £m £m
1 January 2021 164.4 466.7 397.5 — 297.0 1,325.6
Loss for the year — — — — (62.5) (62.5)
Dividends received — — — — 148.0 148.0
Exchange gain on translation of foreign
balances — — 2.5 — — 2.5
Total comprehensive income — — 2.5 — 85.5 88.0
Shares issued on acquisition of Nexus 1.5 — 16.1 — — 17.6
Shares issued on other acquisitions 0.1 0.9 — — — 1.0
Share issue expenses — (0.1) — — — (0.1)
Share-based awards (“LTIP”) — — — — 0.2 0.2
Dividends paid — — — — (74.4) (74.4)
Scrip dividend in lieu of cash 0.6 7.4 — — (8.0) —
31 December 2021 166.6 474.9 416.1 — 300.3 1,357.9
Share Share Merger and other Special Retained Total
capital premium reserves reserve earnings equity
£m £m £m £m £m £m
1 January 2020 152.0 338.1 398.6 65.4 158.3 1,112.4
Loss for the year — — — — (22.9) (22.9)
Dividends received — — — — 169.5 169.5
Exchange gain on translation of foreign
balances — — (1.1) — — (1.1)
Total comprehensive income — — (1.1) — 146.6 145.5
Shares issued as part of capital raise 12.1 127.9 — — — 140.0
Share issue expenses — (3.2) — — — (3.2)
Dividends paid — — — (61.2) (7.9) (69.1)
Scrip dividend in lieu of cash 0.3 3.9 — (4.2) — —
31 December 2020 164.4 466.7 397.5 — 297.0 1,325.6
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2021
148 Primary Health Properties PLC Annual Report 2021
1. Accounting policies
The Company is a limited company incorporated in England and Wales in accordance with the Companies Act 2006. These
financial statements are presented in Sterling because that is the currency of the primary economic environment in which the
Company operates.
Basis of accounting/statement of compliance
The Company meets the definition of a qualifying entity under Financial Reporting Standard 100 (“FRS 100”) issued by the
Financial Reporting Council. The financial statements have therefore been prepared in accordance with FRS 101 Reduced
disclosure framework as issued by the Financial Reporting Council.
As permitted by FRS 101, exemptions from applying the following requirements have been adopted:
• IFRS 7 Financial instruments: disclosures;
• IFRS 13 Fair value measurement, paragraphs 91 to 99;
• IAS 1 Presentation of financial statements, paragraphs 10(d), 10(f), 38 to 40, 76, 79(d) and 134 to 136;
• IAS 7 Statement of cash flows;
• IAS 24 Related party disclosures, paragraphs 17 and 18A; and
• IAS 36 Impairment of assets, paragraphs 130(f)(ii), 130(f)(iii), 134(d) to (f) and 135(c) to (e).
The Company has also taken advantage of the exemption from the requirements in IAS 24 Related party disclosures to disclose
related party transactions entered into between two or more members of the Group where those party to the transaction are
wholly owned by a member of the Group.
The financial statements have been prepared under the historical cost convention.
Statement of comprehensive income
The Company has taken advantage of the exemption in the Companies Act from presenting a Company Statement of
Comprehensive Income together with related notes.
Cash flow statement
The Directors have taken advantage of the exemption in FRS 101 from including a cash flow statement in the financial statements
on the grounds that a Consolidated Cash Flow Statement is presented in the Group financial statements of PHP.
Income
Revenue is recognised in the financial statements as follows:
Interest income: Revenue is recognised as interest accrues using the effective interest method, which is the rate that exactly
discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the
financial asset.
Dividends: Dividend income is recognised in the period in which it received Board approval and, hence, when the Company’s right
to the payment is established.
Investment in subsidiaries
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue
to be consolidated until the date that such control ceases. Control comprises the power to govern the financial and operating
policies of the investee so as to obtain benefit from its activities.
Investments in subsidiary undertakings are stated at cost in the Company’s Statement of Financial Position less any provision
forpermanent impairment in value. The carrying values of investments are reviewed for impairment when events or changes in
circumstances indicate the carrying value may not be recoverable.
Taxation
Taxation on the profit or loss for the period not exempt under UK REIT regulations comprises current and deferred tax. Taxation
isrecognised in the Group Statement of Comprehensive Income except to the extent that it relates to items recognised as direct
movements in equity, in which case it is also recognised as a direct movement in equity.
Current tax is the expected tax payable on any non-REIT taxable income for the period, using tax rates enacted or substantively
enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Employee costs
The fair value of equity-settled share-based payments to employees is determined at the date of grant and is expensed on a straight
line basis over the vesting period, based on the Company’s estimate of shares or options that will eventually vest. The fair value of
awards is equal to the market value at grant date.
NOTES TO THE COMPANY FINANCIAL STATEMENTS
149Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
1. Accounting policies continued
Prior period restatement
Previously amounts owed by and receivable from other Group undertakings were presented on a gross basis. However, where
these are with the same counterparty these should have been presented net, reflecting the substance of the arrangements which
is such that settlement of these balances can occur only on a net basis with each individual counterparty. The impact on the
31December 2020 balance sheet is a decrease in amounts owed by Group undertakings by £227.8 million and an increase in
amounts owed to Group undertakings by £227.8 million. There is no impact on the income statement or net assets.
Amounts owed by Group undertakings have previously been presented within current assets as these amounts were repayable on
demand. However, there was no expectation that these amounts would be repaid within twelve months, being the Group’s normal
operating cycle, and therefore they did not meet the criteria to be classified as current assets. The impact on the 31 December 2020
balance sheet is an increase to non-current assets of £8.9 million and an equal decrease to current assets. There is no impact on the
income statement or net assets.
2. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Company’s accounting policies, which are described in Note 1, the Directors are required to make
judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from
other sources. The estimates and associated assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future
periods if the revision affects both current and future periods. No revisions were recognised in the period. There are no critical
accounting judgements or key sources of estimation uncertainty in the Company’s accounts.
3. Foreign currencies
The functional and presentation currency of the Company is Sterling. Transactions in currencies other than Sterling are recognised
at the applicable exchange rate ruling on the transaction date. Exchange differences resulting from settling these transactions, or
from retranslating monetary assets and liabilities denominated in foreign currencies, are included in the Group Statement of
Comprehensive Income.
4. Revenue
The Company operates under one business segment and one geographical segment, being the holding company of subsidiaries
that invest in primary healthcare property within the United Kingdom and the Republic of Ireland.
5. Staff costs
2021 2020
£m £m
Wages and salaries, pension and bonus 1.3 —
Social security costs — —
Equity-settled share-based payments 0.3 —
1.6 —
The Company operates a defined contribution pension scheme for all employees. The Company contribution to the scheme during
the year was £nil (2020: £nil), which represents the total expense recognised through the income statement. As at 31 December 2021,
there were no contributions (2020: £nil) due in respect of the reporting period had not been paid over to the plan.
The average monthly number of Company employees was two (2020: nil).
The Executive Directors and Non-executive Directors are the key management personnel. Full disclosure of Directors’ emoluments,
as required by the Companies Act 2006, can be found in the Remuneration Report on pages 81 to 85.
The Company’s equity-settled share-based payments comprise the following:
Scheme Fair value measure
Long Term Incentive Plan (“LTIP”) Face value at grant date
Save As You Earn (“SAYE”) Face value at grant date
The Company expenses an estimate of how many shares are likely to vest based on the market price at the date of grant, taking
account of expected performance against the relevant performance targets and service periods, which are discussed in further
detail in the Remuneration Report.
150 Primary Health Properties PLC Annual Report 2021
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
6. Taxation
a) Taxation charge in the Group Statement of Comprehensive Income
The taxation charge is made up as follows:
2021 2020
£m £m
Deferred tax 0.6 1.0
The Company holds an investment in an Irish Collective Asset Vehicle (“ICAV”). The ICAV does not pay any Irish corporation tax on
its profits but a 20% withholding tax is paid on distributions to owners.
b) Factors affecting the tax credit for the year
The tax assessed for the year is higher than (2020: higher than) the standard rate of corporation tax in the UK. The differences
are explained below:
2021 2020
£m £m
Loss on ordinary activities before taxation (61.9) (21.9)
Theoretical tax at UK corporation tax rate of 19% (2020: 19%) (11.8) (4.2)
REIT exempt income — 0.3
Transfer pricing adjustments 1.1 1.1
Fair value loss on convertible bond 1.2 —
Non-taxable items 9.2 2.0
Impact of taxes in the Republic of Ireland 0.6 1.0
Loss relief 0.3 0.7
Losses generated in the year — 0.1
Taxation charge (Note 6a) 0.6 1.0
7. Dividends
Amounts recognised as distributions to equity holders in the year:
2021 2020
£m £m
Quarterly interim dividend paid 26 February 2021 18.7 —
Scrip dividend in lieu of quarterly cash dividend 26 February 2021 1.8 —
Quarterly interim dividend paid 21 May 2021 17.7 —
Scrip dividend in lieu of quarterly cash dividend 21 May 2021 2.9 —
Quarterly interim dividend paid 20 August 2021 18.3 —
Scrip dividend in lieu of quarterly cash dividend 20 August 2021 2.4 —
Quarterly interim dividend paid 26 November 2021 19.7 —
Scrip dividend in lieu of quarterly cash dividend 26 November 2021 0.9 —
Quarterly interim dividend paid 21 February 2020 — 16.9
Scrip dividend in lieu of quarterly cash dividend 21 February 2020 — 1.0
Quarterly interim dividend paid 22 May 2020 — 16.9
Scrip dividend in lieu of quarterly cash dividend 22 May 2020 — 1.1
Quarterly interim dividend paid 21 August 2020 — 16.4
Scrip dividend in lieu of quarterly cash dividend 21 August 2020 — 1.5
Quarterly interim dividend paid 20 November 2020 — 18.9
Scrip dividend in lieu of quarterly cash dividend 20 November 2020 — 0.6
Total dividends distributed in the year 82.4 73.3
Per share 6.2p 5.9p
151Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
8. Investment in subsidiaries
£m
As at 1 January 2021 739.2
Acquisition of PHP Tradeco Limited —
Acquisition of PHP Cardiff Group Limited 2.7
Acquisition of PHP Health Solutions Limited 3.6
Acquisition of additional shares in PHP Healthcare (Holdings) Limited 110.8
Acquisition of additional shares in PHP ICAV Limited 12.0
Impairment of subsidiary undertakings (11.1)
As at 31 December 2021 857.2
As at 1 January 2020 689.7
Acquisition of PHP Liverpool Holding Company Limited 2.0
Disposal of Primary Health Investment Properties (No.7) Limited —
Disposal of Primary Health Investment Properties (Sutton) Limited —
Disposal of Wincanton Healthcare Limited (2.5)
Disposal of PHP Ashington Limited (5.6)
Disposal of Primary Health Investment Properties (No.11) Limited —
Disposal of Chapeloak Investments Limited (2.3)
Acquisition of additional shares in PHP ICAV Limited 60.0
Impairment of subsidiaries (2.1)
As at 31 December 2020 739.2
All subsidiaries of the Company are 100% owned and listed opposite. All are incorporated in the UK and their registered office is
5th Floor, Greener House, 66–68 Haymarket, London SW1Y 4RF, except as noted.
Subsidiaries held directly by the Company
Name Principal activity Name Principal activity
Primary Health Investment
Properties Limited
Property investment PHP Bond Finance PLC Property investment
Primary Health Investment
Properties (No. 2) Limited
Property investment PHP Medical Investments Limited Property investment/
financing company
Primary Health Investment
Properties (No. 3) Limited
Property investment PHP (Milton Keynes) Limited Property investment/
financing company
PHP Healthcare (Holdings) Limited Investment holding PHIP (Milton Keynes) Limited Dormant
Primary Health Investment Properties
(No. 4) Limited
Investment holding/
financing company
Primary Health Properties ICAV² Property investment/
investment holding
PHIP (5) Limited Property investment/
financing company
Carden Medical Investments Limited⁴ Property investment
Primary Health Investment
Properties (No. 8) Limited
Property investment PHP SB Limited Issuer of bonds/
investment holding
Primary Health Investment
Properties (No. 9) Limited
Property investment Chelmsley Associates Limited Property investment
PHP Finance (Jersey No.2) Limited¹ Issuer of bonds PHP STL Limited Investment holding/
financing company
PHP Euro Private Placement ML Ltd Property investment PHP Euro Private Placement Limited Issuer of bonds
PHP SPV Limited Property investment PHP Liverpool Holding Company Limited Investment holding
MXF Fund Limited⁵ Investment holding PHP Primary Properties
(Haymarket) Limited
Property investment
PHP Epsom Limited Property investment PHP Tradeco Holdings Limited Investment holding
PHP Cardiff Group Limited Investment holding PHP (Spilsby) Limited Property investment
PHP Health Solutions Limited Property Investment
152 Primary Health Properties PLC Annual Report 2021
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
8. Investment in subsidiaries continued
Subsidiaries held directly by the Company continued
Name Principal activity Name Principal activity
PHP (Bingham) Limited Property investment PHP Investments No.2 Limited Property investment
PHIP (Chester) Limited Property investment Motorstep Limited Property investment
Anchor Meadow Limited Property investment Leighton Health Limited Property investment
PHP (Ipswich) Limited Property investment PHP Healthcare Investments Limited Property investment
PHP Healthcare Investments
(Holdings)Limited
Investment holding PHP St. Johns Limited Property investment
PHP Investments No.1 Limited Property investment PHP Clinics Limited Property investment
PHP (Project Finance) Limited Property investment PHIP (Stourbridge) Limited Property investment
PHP Medical Properties Limited Property investment/
investment holding
Gracemount Medical Centre Limited⁴ Property investment
PHP Glen Spean Limited Property investment PHP AssetCo (2011) Limited Property investment
PHP Empire Holdings Limited Property investment PHP Primary Properties Limited Property investment
Health Investments Limited Property investment/
investment holding
Crestdown Limited Property investment
PatientFirst Partnerships Limited Property investment Primary Health Investment Properties
(No. 6) Limited
Property investment
PatientFirst (Hinckley) Limited Property investment Jellia Holdings Limited³ Investment holding
PatientFirst (Burnley) Limited Property investment PHPI Newbridge Limited³ Property investment
PHP Investments (2011) Limited Property investment PHPI Navan Road Limited³ Property investment
PHPI Celbridge Limited³ Property investment GP Property One Limited Property investment
MXF Properties I Limited⁵ Property investment MXF Properties II Limited⁵ Property investment
MXF Properties III Limited Property investment MXF Properties IV Limited Property investment
MXF Properties V Limited Property investment/
investment holding
MXF Properties VI Limited⁵ Property investment/
issuer of bonds
MXF Properties VII Limited⁵ Property investment/
investment holding
MXF Properties VIII Limited⁵ Property investment/
issuer of bonds
Primary Medical Property
InvestmentsLtd
Property investment MXF GPG Holdings Limited⁵ Property investment/
issuer of bonds
GPG No.5 Limited Property investment MXF Properties OM Holdings Limited Investment holding
MXF Properties Ireland Limited⁵ Property investment MXF (Fakenham) Limited Property investment
MXF Properties OM Group Limited Investment holding MXF Properties OM Limited Property investment
MXF Properties Bridlington Limited Property investment PHP Liverpool Limited Property investment
GP Property Limited⁵ Investment holding
MXF Properties IX Limited Holding and
finance company
PHP Tradeco Limited Operations
management
PHP Property Management
ServicesLimited
Operations
management
PHP Primary Care
Developments Limited
Property investment
PHP Cardiff Limited Property investment PHP Developments (Cardiff) Limited Property investment
1 Subsidiary company registered in Jersey. Registered office: 3rd Floor, 44 Esplanade, St Helier, Jersey JE4 9WG.
2 An Irish collective asset management vehicle established in Ireland.
3 Subsidiary company registered in Ireland. Registered office: Riverside 1, Sir John Rogerson’s Quay, Dublin 2, Ireland.
4 Subsidiary company registered in Scotland. Registered office: 3rd Floor, 1 West Regent Street, Glasgow, Scotland G2 1RW.
5 Subsidiary company registered in Guernsey. Registered office: Oak House, Hirzel Street, St Peter Port, Guernsey GY1 1NP.
100% of all voting rights and ordinary shares are held directly or indirectly by the Company.
153Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
9. Trade and other receivables
2021 2020 (Restated)
£m £m
Non-current
Amounts due from Group undertakings 849.9 707.9
Current
Amounts due from Group undertakings — 24.3
Other receivables 0.5 0.2
850.4 732.4
Based on the IFRS 9 expected credit loss model no impairment provision was recognised on amounts due from Group undertakings.
Amounts due from Group undertakings are unsecured, interest free and repayable on demand.
Restated balance breakdowns have been disclosed in Note 1 to the accounts.
10. Cash at bank and in hand
2021 2020
£m £m
Cash at bank and in hand 5.2 70.8
11. Trade and other payables
2021 2020 (restated)
£m £m
Current
Amounts owed to Group undertakings 181.7 50.7
Trade and other payables 1.7 3.4
Accruals and deferred income 5.0 3.3
188.4 57.4
Amounts owed to Group undertakings are unsecured, interest free and repayable on demand.
Restated balance breakdowns have been disclosed in Note 1 to the accounts.
12. Borrowings
2021 2020
£m £m
Intra-group loan with PHP Finance (Jersey No.2) Limited (Note 13) 146.6 145.7
Option to convert (Note 13) 20.0 13.7
166.6 159.4
13. Intra-group loan with PHP Finance (Jersey No.2) Limited
On 15 July 2019, PHP Finance (Jersey No.2) Limited (the “Issuer”), a wholly owned subsidiary of the Group, issued £150.0 million of
2.875% convertible bonds (the “Bonds”) for a six-year term and if not previously converted, redeemed or purchased and cancelled,
the Bonds will be redeemed at par on maturity in July 2025. The proceeds have been loaned to the Company and the Company
has unconditionally and irrevocably guaranteed the due and punctual performance by the Issuer of all of its obligations (including
payments) in respect of the Bonds.
Subject to their terms, the Bonds are/were convertible into preference shares of the Issuer which are/were automatically
transferred to the Company in exchange for Ordinary Shares in the Company or, at the Company’s election, any combination of
Ordinary Shares and cash.
The intra-group loan between the Issuer and the Company arising from the transfer of the loan proceeds was initially recognised
at fair value, net of capitalised issue costs, and is accounted for using the amortised cost method.
In addition to the intra-group loan, the Company has effectively entered into a derivative contract due to its guarantee of the
obligations of the Issuer in respect of the Bonds and the commitment to provide shares or a combination of shares and cash on
conversion of the Bonds. This derivative contract is included within the balance sheet as a liability carried at fair value through
profit and loss.
See Note 15 in the Group financial statements for further details about the convertible bond.
154 Primary Health Properties PLC Annual Report 2021
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
14. Share capital
Issued and fully paid at 12.5 pence each
2021
2020
Number – Number –
million £m million £m
As at 1 January 1,315.6 164.4 1,216.3 152.0
Scrip issues in lieu of cash dividend 5.2 0.7 2.7 0.3
Shares issued for Nexus acquisition 11.5 1.4 — —
Shares issued for other acquisitions 0.6 0.1 96.6 12.1
As at 31 December 1,332.9 166.6 1,315.6 164.4
Issue of shares in 2021
Number
of shares – Issue
Date of issue million price
Share issue 5 January 2021 11.5 158.20p
Scrip issue in lieu of first quarterly cash dividend 26 February 2021 1.2 148.52p
Scrip issue in lieu of second quarterly cash dividend 21 May 2021 1.9 148.98p
Scrip issue in lieu of third quarterly cash dividend 20 August 2021 1.5 159.50p
Share issue 9 September 2021 0.6 168.00p
Scrip issue in lieu of fourth quarterly cash dividend 26 November 2021 0.6 154.90p
15. Special reserve
2021 2020
£m £m
As at 1 January — 65.4
Dividends paid — (61.2)
Scrip issues in lieu of cash dividends — (4.2)
As at 31 December — —
As the special reserve is a distributable reserve, the dividends distributed in the prior period have been distributed from this
reserve until the balance reduced to £nil. The remaining dividends distributed in the prior and current periods have been
distributed from retained earnings.
16. Retained earnings
2021 2020
£m £m
As at 1 January 297.0 158.3
Loss for the year (62.5) (22.9)
Dividends received 148.0 169.5
Dividends paid (74.4) (7.9)
Scrip issues in lieu of cash dividends (8.0) —
Long term incentive plan 0.2 —
As at 31 December 300.3 297.0
17. Net asset value per Ordinary Share
2021 2020
pence pence
Basic and diluted 102 101
The basic net asset value per Ordinary Share is based on net assets attributable to Ordinary Shareholders of £1,357.9 million
(2020: £1,325.6 million) and on 1,332.9 million shares (2020: 1,315.6 million shares), being the number of shares in issue at the
yearend.
155Primary Health Properties PLC Annual Report 2021
FINANCIAL STATEMENTS
18. Contingent liabilities
The Company has guaranteed the performance of its subsidiaries in respect of development agreements totalling £nil (2020: £nil).
19. Related party transactions
Details of related party transactions are provided in the Directors’ Report, the Directors’ Remuneration Report and Note 26 to the
Group financial statements on page 145. The Directors are listed in the Board of Directors section.
The Company has also taken advantage of the exemption from the requirements in IAS 24 Related party disclosures to disclose
related party transactions entered into between two or more members of the Group where those party to the transaction are
wholly owned by a member of the Group.
20. Subsequent events
There have been no significant events affecting the Company since the period ended 31 December 2021.
156 Primary Health Properties PLC Annual Report 2021
Corporate calendar 2022
Annual General Meeting 27 April 2022
AGM statement 27 April 2022
Announcement of half year results 28 July 2022
Dividends
The Company intends to make quarterly dividend payments to
shareholders in February, May, August and November. The
proposed timetable for the first quarterly dividend in 2022 is:
Payment of quarterly dividend
(record date 6 January 2022) 25 February 2022
Distributions from the Company may comprise PIDs (see below),
ordinary cash dividends or a combination of the two. PIDs have
been paid by the Group since 1 January 2007.
Payment of dividends
If you would like your dividend/interest paid directly into your
bank or building society account, you should write to the registrar
including details of your nominated account. Although this will
enable your dividend/interest to be paid directly into your
account, your tax voucher will be sent to your registered address.
Scrip dividend scheme
The optional scrip dividend scheme enables shareholders to
receive new Ordinary Shares in PHP instead of cash dividends
without incurring dealing costs, stamp duty or stamp duty
reserve tax by electing to take a scrip dividend instead of a
cash dividend. Shareholders can obtain information about the
scrip dividend scheme from the Company or the registrar.
Investment account
The Company has made arrangements for Equiniti Financial
Services Limited to provide an investment account to allow
lump sum and regular savings to facilitate the purchase of the
Company’s Ordinary Shares. Detail and the forms required for
this service can be accessed from the Company’s website or
alternatively at: www.shareview.co.uk/dealing.
For details of the service please contact: Equiniti, Aspect
House, Spencer Road, Lancing, West Sussex BN99 6DA.
Shareholder helpline: 0371 384 2030.
Equiniti Financial Services Limited is authorised and regulated
by the Financial Conduct Authority. As with all stock market
investments, the price of shares can go down as well as up and
on sale investors may not get back the full amount they invested.
Taxation status
The REIT Regulations require an REIT to distribute at least 90%
of its exempt rental income (as calculated for tax purposes) as
a PID.
PIDs are paid out under deduction of withholding tax at the
basic rate, currently 20%. Certain classes of shareholders,
including UK companies, charities, local authorities and UK
pension schemes, may receive PIDs without deduction of
withholding tax, if a valid claim is lodged with the Company
bya qualifying shareholder. Shareholders who wish to apply
fora tax exemption form should contact the registrar.
The above is a general guide only and shareholders who have
any doubt about their tax position should consult their own
appropriate independent professional adviser.
Registrar
The Company’s registrar is Equiniti. In the event of any queries
regarding your holding of shares, please contact the registrar
free of charge on 0371 384 2030 (lines are open 8.30 a.m. to
5.30 p.m. Monday to Friday), or in writing to: Equiniti, Aspect
House, Spencer Road, Lancing, West Sussex BN99 6DA.
Changes of name or address must be notified to the registrar
in writing.
Equiniti Shareview dealing services
A quick and easy share dealing service is available to either sell
or buy PHP shares. To deal online or by telephone all you need
is your shareholder reference number, full postcode and date of
birth. Your shareholder reference number can be found on your
latest dividend statement. For further information on this
service, or to buy and sell shares, please contact Equiniti
customer services on 0371 384 2030 (8.00 a.m. to 6.00 p.m.
Monday to Friday) or access www.shareview.co.uk/dealing.
Forward-looking statements
This document contains certain statements that are neither
reported financial results nor other historical information. These
statements are forward-looking in nature and are subject to
risks and uncertainties. Actual future results may differ materially
from those expressed in or implied by these statements. Many
of these risks and uncertainties relate to factors that are
beyond PHP’s ability to control or estimate precisely, such as
future market conditions, the behaviour of other market
participants, the actions of governmental regulators and other
risk factors such as the Company’s ability to continue to obtain
financing to meet its liquidity needs, and changes in the political,
social and regulatory framework in which the Company
operates or in economic or technological trends or conditions,
including inflation and consumer confidence, on a global,
regional or national basis. Readers are cautioned not to place
undue reliance on these forward-looking statements, which
speak only as of the date of this document. PHP does not
undertake any obligation to publicly release any revisions to
these forward-looking statements to reflect events or
circumstances after the date of this document.
Information contained in this document relating to the Company
should not be relied upon as a guide to future performance.
SHAREHOLDER INFORMATION
157Primary Health Properties PLC Annual Report 2021
FURTHER INFORMATION
Stockbrokers
Numis Securities Limited
45 Gresham Street
London EC2V 7BF
Peel Hunt LLP
7th Floor
100 Liverpool Street
London EC2M 2AT
Solicitors
CMS Cameron McKenna Nabarro Olswang LLP
Cannon Place
78 Cannon Street
London EC4N 6AF
Shepherd and Wedderburn LLP
1 Exchange Crescent
Conference Square
Edinburgh, Lothian EH3 8UL
Gowling WLG (UK) LLP
4 More London Riverside
London SE1 2AU
McCann FitzGerald
Riverside One
Sir John Rogerson’s Quay
Dublin 2
D02 X576
Pinsent Masons
30 Crown Place
Earl Street
London
EC24 4ES
Eversheds Sutherland
One Earlsfort Centre
Earlsfort Terrace
Saint Kevin’s
Dublin 2
Ireland
Auditor
Deloitte LLP
1 New Street Square
London EC4A 3HQ
Bankers
Allied Irish Bank PLC
St Helens
1 Undershaft
London EC3A 8AB
Aviva Public Private Finance Limited
St Helens
1 Undershaft
London EC3P 3DQ
Barclays Bank PLC
1 Churchill Place
London E14 5HP
HSBC Bank PLC
8 Canada Square
London E14 5HQ
Lloyds Bank PLC
25 Gresham Street
London EC2V 7HN
Santander UK PLC
2 Triton Square
Regent’s Place
London NW1 3AN
The Royal Bank of Scotland PLC
250 Bishopsgate
London EC2M 4AA
Building and environmental consultant
Simpson Hilder Associates Limited
67a High Street, Lyndhurst
Hampshire SO43 7BE
Property valuers
Lambert Smith Hampton Group Limited
Interchange Place
Edmund Street
Birmingham B3 2TA
Jones Lang LaSalle Limited
30 Warwick Street
London W1B 5NH
CBRE
Connaught House
Number One Burlington Road
Dublin 4
Financial risk management consultant
Chatham
12 St James’s Square, St James’s
London SW1Y 4LB
ADVISERS AND BANKERS
158 Primary Health Properties PLC Annual Report 2021
GLOSSARY OF TERMS
Adjusted earnings is EPRA earnings excluding the exceptional
contract termination fee and amortisation of MtM adjustments
for fixed rate debt acquired on the merger with MedicX.
Adjusted earnings per share is adjusted earnings divided by
the weighted average number of shares in issue during the year.
Adjusted net tangible assets (“adjusted NTA”) (which has
replaced the former adjusted EPRA net asset value alternative
performance measure) is EPRA net tangible asset value
excluding the MtM adjustment of the fixed rate debt, net of
amortisation, acquired on the merger with MedicX. The
objective of the adjusted NTA measure is to highlight the value
of net assets on a long term basis and excludes assets and
liabilities that are not expected to crystallise in normal
circumstances and continues to be used as a measure to
determine the PIF payment.
Adviser is PHP Tradeco Limited.
Annualised rental income on a like-for-like basis is the
contracted rent on a per annum basis assuming a consistent
number of properties between each year.
Building Research Establishment Environmental
Assessment Method (“BREEAM”) assesses the sustainability
of buildings against a range of criteria.
Clinical Commissioning Groups (“CCGs”) are the groups of
GPs and other healthcare professionals that are responsible for
designing local health services in England with effect from 1
April 2013.
Company and/or Parent is Primary Health Properties PLC (“PHP”).
Direct property costs comprise ground rents payable under
head leases, void costs, other direct irrecoverable property
expenses, rent review fees and valuation fees.
District Valuer (“DV”) is the District Valuer Service, being the
commercial arm of the Valuation Office Agency (“VOA”). It
provides professional property advice across the public sector
and in respect of primary healthcare represents NHS bodies on
matters of valuation, rent reviews and initial rents on new
developments.
Dividend cover is the number of times the dividend payable
(on an annual basis) is covered by EPRA earnings.
Earnings per Ordinary Share from continuing operations
(“EPS”) is the profit attributable to equity holders of the Parent
divided by the weighted average number of shares in issue
during the year.
EPC is an Energy Performance certificate.
European Public Real Estate Association (“EPRA”) is a real
estate industry body, which has issued Best Practice
Recommendations in order to provide consistency and
transparency in real estate reporting across Europe.
EPRA cost ratio is the ratio of net overheads and operating
expenses against gross rental income (with both amounts
excluding ground rents payable). Net overheads and operating
expenses relate to all administrative and operating expenses,
net of any service fees, recharges or other income specifically
intended to cover overhead and property expenses.
EPRA earnings is the profit after taxation excluding investment
and development property revaluations, gains/losses on disposals,
changes in the fair value of financial instruments and associated
close-out costs and their related taxation.
EPRA net assets (“EPRA NAV”) are the balance sheet net
assets excluding own shares held, the MtM value of derivative
financial instruments and the convertible bond fair value
movement.
EPRA NAV per share is the balance sheet net assets excluding
own shares held, the MtM value of derivative financial instruments
and the convertible bond fair value movement, divided by the
number of shares in issue at the balance sheet date.
EPRA NNNAV is adjusted EPRA NAV including the MtM value
of fixed rate debt and derivatives.
EPRA net reinstatement value (“EPRA NRV”) is the balance
sheet net assets including real estate transfer taxes but excluding
the MtM value of derivative financial instruments, deferred tax
and the convertible bond fair value movement. The aim of the
metric is to reflect the value that would be required to recreate
the Company through the investment markets based on its
current capital and financing structure. Refer to Note 9.
EPRA NRV per share is the EPRA net reinstatement value
divided by the number of shares in issue at the balance sheet
date. Refer to Note 9.
159Primary Health Properties PLC Annual Report 2021
FURTHER INFORMATION
EPRA net disposal value (“EPRA NDV”) (replacing EPRA
NNNAV) is adjusted EPRA NRV including deferred tax and the
MtM value of fixed rate debt and derivatives. The aim of the
metric is to reflect the value that would be realised under a
disposal scenario. Refer to Note 9.
EPRA net tangible assets (“NTA”) (which has replaced the
former EPRA net asset value alternative performance measure)
are the balance sheet net assets but excluding the MtM value
of derivative financial instruments, deferred tax and the
convertible bond fair value movement. The aim of the metric is
to reflect the fair value of the assets and liabilities of the
Group that it intends to hold and does not intend in the long
run to sell. Refer to Note 9.
EPRA NTA per share is the EPRA net tangible assets divided
by the number of shares in issue at the balance sheet date.
Refer to Note 9.
EPRA vacancy rate is, as a percentage, the ERV of vacant
space in the Group’s property portfolio divided by ERV of the
whole portfolio.
Equivalent yield (true and nominal) is a weighted average of
the net initial yield and reversionary yield and represents the
return a property will produce based upon the timing of the
income received. The true equivalent yield assumes rents are
received quarterly in advance. The nominal equivalent assumes
rents are received annually in arrears.
Estimated rental value (“ERV”) is the external valuer’s opinion
as to the open market rent which, on the date of valuation,
could reasonably be expected to be obtained on a new letting
or rent review of a property.
Gross rental income is the gross accounting rent receivable.
Group is Primary Health Properties PLC (“PHP”) and its subsidiaries.
HSE or the Health Service Executive is the executive agency
of the Irish Government responsible for health and social
services for people living in Ireland.
IFRSs are International Financial Reporting Standards as
adopted by the United Kingdom.
IFRS or Basic net asset value per share (“IFRS NAV”) is the
balance sheet net assets, excluding own shares held, divided
by the number of shares in issue at the balance sheet date.
Interest cover is the number of times net interest payable is
covered by net rental income.
Interest rate swap is a contract to exchange fixed payments
for floating payments linked to an interest rate, and is generally
used to manage exposure to fluctuations in interest rates.
London Interbank Offered Rate (“LIBOR”) is the interest rate
charged by one bank to another for lending money.
Loan to value (“LTV”) is the ratio of net debt to the total value
of property and assets.
Mark to market (“MtM”) is the difference between the book
value of an asset or liability and its market value.
MedicX is MXF Fund Limited and its subsidiaries.
MSCI (IPD) provides performance analysis for most types of
real estate and produces an independent benchmark of
property returns.
MSCI (IPD) Healthcare is the UK Annual Healthcare
PropertyIndex.
MSCI (IPD) total return is calculated as the change in capital
value, less any capital expenditure incurred, plus net income,
expressed as a percentage of capital employed over the period,
as calculated by MSCI (IPD).
Net asset value (“NAV”) is the value of the Group’s assets
minus the value of its liabilities.
Net initial yield (“NIY”) is the annualised rents generated by
an asset, after the deduction of an estimate of annual recurring
irrecoverable property outgoings, expressed as a percentage of
the asset valuation (after notional purchasers’ costs).
Net rental income is the rental income receivable in the period
after payment of direct property costs. Net rental income is
quoted on an accounting basis.
Net zero carbon refers to the point at which a process,
activity, system etc… produces net zero carbon emissions,
through emissions reduction, use of low or zero carbon energy
and removal or offsetting of residual emissions. In the context
of buildings and activities associated with the construction,
refurbishment, maintenance and operation of buildings, PHP
refers to the UK Green Building Council “Net zero carbon, a
frame work definition” (https://www.ukgbc.org/ukgbc-work/
net-zero-carbon-buildings-a-framework-definition/). This sets
out the key requirements for buildings to achieve ‘net zero
carbon - construction’ and ‘net zero carbon – operational
energy’.
NHSPS is NHS Property Services Limited, the company wholly
owned and funded by the Department of Health, which, as of
1April 2013, has taken on all property obligations formerly
borne by Primary Care Trusts.
Parity value is calculated based on dividing the convertible
bond value by the exchange price.
160 Primary Health Properties PLC Annual Report 2021
Progressive returns / dividend is where it is expected to
continue to rise each year
Property Income Distribution (“PID”) is the required distribution
of income as dividends under the REIT regime. It is calculated
as 90% of exempted net income.
Real Estate Investment Trust (“REIT”) is a listed property
company which qualifies for and has elected into a tax regime,
which exempts qualifying UK profits, arising from property
rental income and gains on investment property disposals, from
corporation tax, but which has a number of specific requirements.
Rent reviews take place at intervals agreed in the lease and
their purpose is usually to adjust the rent to the current market
level at the review date.
Rent roll is the passing rent, being the total of all the
contracted rents reserved under the leases.
Reversionary yield is the anticipated yield which the initial
yield will rise to once the rent reaches the ERV and when the
property is fully let. It is calculated by dividing the ERV by
thevaluation.
Retail Price Index (“RPI”) is the official measure of the general
level of inflation as reflected in the retail price of a basket of
goods and services such as energy, food, petrol, housing,
household goods, travelling fare, etc. RPI is commonly
computed on a monthly and annual basis.
RICS is the Royal Institution of Chartered Surveyors.
RPI linked leases are those leases which have rent reviews
which are linked to changes in the RPI.
Special reserve is a distributable reserve.
Sterling Overnight Interbank Average Rate (“SONIA”) is the
effective overnight interest rate paid by banks for unsecured
transactions in the British Sterling market.
Total expense ratio (“TER”) is calculated as total
administrative costs for the year divided by the average total
asset value during the year.
Total property return is the overall return generated by
properties on a debt-free basis. It is calculated as the net rental
income generated by the portfolio plus the change in market
values, divided by opening property assets plus additions.
£m
Net rental income 136.7
Revaluation surplus and profit on sales 110.5
247.2
Opening property assets 2,576.1
Weighted additions in the period 33.1
2,609.2
Total property return 9.5%
Total NAV return is calculated as the movement in adjusted
net tangible asset value for the period plus the dividends paid,
divided by opening EPRA net tangible asset value.
NAV
At 31 December 2020 112.9
At 31 December 2021 116.7
Increase/(decrease) 3.8
Add: dividends paid
Q1 interim 1.550
Q2 interim 1.550
Q3 interim 1.550
Q4 interim 1.550
Total shareholder return 10.0
Total shareholder return is calculated as the movement in the
share price for the period plus the dividends paid, divided by
the opening share price.
Weighted average facility maturity is calculated by
multiplying each tranche of Group debt by the remaining
period to its maturity and dividing the result by total Group
debt in issue at the year end.
Weighted average unexpired lease term (“WAULT”) is the
average lease term remaining to first break, or expiry, across
the portfolio weighted by contracted rental income.
Yield on cost is the estimated annual rent of a completed
development divided by the total cost of development,
including site value and finance costs expressed as a
percentage return.
Yield shift is a movement (usually expressed in basis points)
inthe yield of a property asset, or like-for-like portfolio, over
agiven period. Yield compression is a commonly used term for
a reduction in yields.
GLOSSARY OF TERMS CONTINUED
Primary Health Properties’ commitment to environmental issues is
reflected in this Annual Report, which has been printed on Claro Silk,
anFSC® certified material. This document was printed by Opal X using
itsenvironmental print technology, which minimises the impact of
printing on the environment, with 99% of dry waste diverted from landfill.
Both the printer and the paper mill are registered to ISO 14001.
CBP011267
Primary Health Properties PLC Annual Report 2021
Primary Health Properties PLC
Registered office:
5th Floor, Greener House
66–68 Haymarket
London SW1Y 4RF
Website:
www.phpgroup.co.uk
Registered in England Number:
3033634
Primary Health Properties PLC Annual Report 2021