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Delivering
long term
sustainable
income
Primary Health Properties PLC
Annual Report 2022
Primary Health Properties PLC Annual Report 2022
Strategic report
1 Highlights
2 At a glance
4 Our portfolio
6 Investment case
8 Chairman’s statement
14 Business model
16 Our strategy
18 Key performance indicators
20 Business review
24 Financial review
30 EPRA performance measures
32 Responsible business
48 Task Force on Climate-related
FinancialDisclosures
54 Section 172(1) statement
56 Risk management and
principal risks
63 Viability statement
Governance
64 Chairman’s introduction
togovernance
66 Board of Directors
68 Senior Leadership Team
70 Corporate governance report
82 Audit Committee report
88 Nomination Committee
report
90 Remuneration Committee
report
93 Directors’ remuneration
report
107 Directors’ report
111 Directors’ responsibility
statement
Financial statements
112 Independent auditor’s report
121 Group statement of
comprehensive income
122 Group balance sheet
123 Group cash flow statement
124 Group statement of changes
in equity
125 Notes to the financial
statements
153 Company balance sheet
154 Company statement of
changes in equity
155 Notes to the Company
financial statements
Shareholder information
163 Notice of Annual General
Meeting 2023
176 Shareholder information
177 Advisers and bankers
178 Glossary of terms
Discover more at phpgroup.co.uk
Leading investor
inflexible, modern
primary healthcare
accommodation across
the UK andIreland
Delivering
long term
sustainable
income
Primary Health Properties PLC
Responsible Business Report 2022
Read more about our Responsible
Business Report at phpgroup.co.uk
Strategic report Governance Financial statements
1Primary Health Properties PLC Annual Report 2022
Shareholder information
* The IFRS profit after tax per share as set out in the summarised results table on page 25.
∆ Alternative performance measures (“APMs”): Measures with this symbol ∆ are APMs defined in the Glossary section on pages 178 to 180, and presented throughout
this Annual Report. All measures reported on a continuing operations and 52-week comparable basis.
2022
2020 £112.0m
IFRS profit/(loss) after tax
£56.3m
-59.8%
2019
IFRS profit/(loss) after
taxpershare*
4.2p
-60.0%
2022 112.6p
2021 116.7p
2019 107.9p
2020 112.9p
2018 105.1p
Adjusted NTA per share
∆
112.6p
-3.5%
2022 6.6p
2021 6.2p
2019 5.5p
2020 5.8p
2018 5.2p
Adjusted earnings per share
∆
6.6p
+6.5%
2022 £141.5m
2020 £131.2m
2018 £76.4m
2019 £115.7m
Net rental income
∆
£141.5m
+3.5%
2022 £2.8bn
2021 £2.8bn
2019 £2.4bn
2020 £2.6bn
2018 £1.5bn
Total property portfolio
£2.8bn
-2.2%
2022 £88.7m
2021 £83.2m
2019 £59.7m
2018 £36.8m
2020 £73.1m
Adjusted earnings
∆
£88.7m
+6.6%
Dividend per share
6.5p
+4.8%
2022 6.5p
2021 6.2p
2019 5.6p
2020 5.9p
2018 5.4p
2022 110.9p
2020 107.5p
2018 102.5p
2019 101.0p
IFRS NTA per share
110.9p
-1.4%
2022 3.2%
2020 3.5%
2018 3.9%
2019 3.5%
Average cost of debt
∆
3.2%
+30bps
2022
2021 9.5%
2018 8.0%
2020 7.4%
2019 7.7%
Total property return
∆
2.8%
-670bps
2022
2021 8.9%
2018 9.7%
2020 10.1%
2019 8.0%
Total NTA return
∆
2.1%
-680bps
2021 £136.7m
2018 £74.3m
(£71.3m) 2019
2021 £140.1m
2022
2020 8.8p
2018 10.5p
(6.5p)
2021 10.5p
2021 112.5p 2021 2.9%
4.2p£56.3m
2.8%2.1%
Highlights
Strategic report Governance Financial statements
2 Primary Health Properties PLC Annual Report 2022
Shareholder information
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513assets in the UKand Ireland valued at £2.8 billion.
OUR PORTFOLIO IN 2022
A 140% increase in Adjusted Earnings, with dividend per share paid out to
investors increasing by over 20% in the five year period.
Contracted rent roll
£145.3m
Adjusted Earnings
£88.7m
Number of properties
513
Number of tenants
1,215
Property portfolio
513
(2021: 521)
Property value
£2.8bn
(2021: £2.8bn)
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
ENTERING 27 YEARS OF CONSECUTIVE DIVIDEND GROWTH
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
0.80p
2.75p
1.40p
3.00p
4.50p
1.50p
3.38p
4.63p
1.75p
3.75p
4.75p
5.40p
2.00p
4.13p
4.88p
5.60p
2.25p
4.25p
5.00p
5.90p
2.50p
4.38p
5.25p
6.50p
6.70p*
5.125p
6.20p
* 6.70p is an annualised amount, based on the first quarterly dividend, declared 5 January 2023.
Strategic report Governance Financial statements
3Primary Health Properties PLC Annual Report 2022
Shareholder information
OUR PORTFOLIO IN 2018
A 140% increase in Adjusted Earnings, with dividend per share paid out to
investors increasing by over 20% in the five-year period.
Contracted rent roll
£79.4m
Adjusted Earnings
£36.8m
Number of properties
313
Number of tenants
709
Locations Value % Value
Midlands and EastAnglia
£604m 22%
North East, Yorkshire
andHumberside
£407m 15%
North West
£380m 13%
South East
£382m 13%
Wales
£206m 7%
Scotland
£208m 8%
Republic of Ireland
£231m 8%
London
£243m 9%
South West
£132m 5%
£2,793m 100%
GEOGRAPHICAL SPREAD BYVALUATION
38
89
40
32
83
51
119
41
20
“ Having successfully delivered 26 years
of consecutive dividend growth for our
shareholders, we have firmly established
ourselves as a leading investor in flexible,
modernprimary healthcare accommodation
across the UK and Ireland.”
Strategic report Governance Financial statements
4 Primary Health Properties PLC Annual Report 2022
Shareholder information
Our portfolio
Building on our strengths
&maintaining resilience
The majority of our healthcare facilities are GPsurgeries,
with otherproperties let to NHS organisations, the HSE in
Ireland, pharmacies anddentists.
RENTAL GROWTH OUTLOOK
2022 was a record year for rental growth, with rent review
completions generating £3.0 million of additional annualised
income, an increase of 50% over 2021 with open market
generating £1.2 million (1.5%growth) and inflationary and
fixedgenerating £1.8 million (6.6% growth).
This was largely generated from rent reviews between
2018 – 2020 outstanding, so does not reflect the impact
ofsignificantly higher inflation seen in recent years.
Asset management projects completed in the year delivered
£0.3 million of additional rental growth.
RENT REVIEW RENTAL GROWTH HISTORY*
ADDITIONAL INCOME FROM RENT
REVIEWS – GROWING MOMENTUM
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Like-for-like rental growth
£3.3m
(2021: £2.4m)
Occupancy rate
99.7%
(2021: 99.7%)
£3.0m
£2.5m
£2.0m
£1.5m
£1.0m
£0.5m
£0.0m
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
0.6 0.6
0.4
0.3
0.5
1.1
1.6
1.7
2.0
3.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
3.9
3.4
3.4
4.0
3.1
3.2
3.0
2.4
2.2
1.8
0.9 0.9
1.1
1.4
1.9
1.8
1.7
3.4
* Annualised percentage increase.
Strategic report Governance Financial statements
5Primary Health Properties PLC Annual Report 2022
Shareholder information
KEY FACTORS AFFECTING OUR MARKET
PHP’s mission is to support the NHS, the HSE and other
healthcare providers, by being a leading investor in modern,
primary care, premises. Never has the modernisation of the
primary care estate been more important as the NHS seeks
to work through the backlog of treatments created by the
COVID-19 pandemic, address staff shortages and recruitment
issues and deal with the inadequate provision of both primary
and social care in theUK.
Demographics
In the longer term, the ageing and growing demographic
ofwestern populations means that health services will
becalled upon to address more long-term, complex and
chronicco-morbidities.
Ageing stock
Around 40% of the primary care estate are notfit for modern
healthcare and require substantial investment.
Evolution of healthsystem
As a result of the ageing population and above demographic
issues, the Government need to respond and invest in new
structures to deliver more healthcare in primary care and
community settings and away from over-burdened hospitals.
PHP stands ready to play its part in delivering and modernising
the real estate infrastructure required to meet this need.
PORTFOLIO DISTRIBUTION BY CAPITAL
VALUEANALYSIS*
2022 2021
* Excluding land and residential units valued at £1.3 million (2021: £1.5 million).
55 £870m
59 £893m
£10m+
138 £949m
131 £910m
£5–10m
158 £629m
155 £615m
£3–5m
157 £342m
171 £369m
£1–3m
£0–1m
5 £3m
5 £3m
GPs 63%
NHS/HSE/Govt bodies 26%
Pharmacy 8%
Other 3%
COVENANT ANALYSIS
ANALYSIS OF LEASES UNEXPIRED –
WAULT 11.0 YEARS
<3 years 8%
3-5 years 9%
5-10 years 37%
10-15 years 22%
15-20 years 15%
20+ years 9%
BUILDING NET ZERO CARBON
DEVELOPMENTS
PHP’s first NZC development at Croft, West Sussex,
expected to be completed in Q3 2023.
All developments completed in the period achieved
BREEAM rating of Excellent or Very Good, and all asset
management projects completed met EPC of B or above.
PHP has advanced pipeline of three development projects
with cost of £14.5 million, expected to be on-site in 2023.


Strategic report Governance Financial statements
6 Primary Health Properties PLC Annual Report 2022
Shareholder information
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.
Rent roll funded by government bodies
89%
(2021: 90%)
LOW RISK, LONG TERM AND
NON-CYCLICAL MARKET
• Development opportunities on-site
and in immediate pipeline, with
further emerging intheUK
• Opportunities in Ireland,
pricedattractively
• Majority of rents in both jurisdictions
funded bygovernment for long
leaseterms
• WAULT of 11.0 years (2021: 11.6 years)
Rental growth
+£3.3m or 2.4%
(2021: +£2.4m or 1.8%)
STRONG, HIGH QUALITY AND
GROWING CASH FLOW
• Effectively upward-only or indexed
rentreviews
• Positiverental growthoutlook
following a record year in 2022.
• Rental growth expected to be
beneficiary of current inflationary
environment
• Continued focus on Ireland where a
positive yield gap between acquisition
yield and fundingcosts remains
• Efficient cost structure
enhancesearnings
EPRA cost ratio
9.9%
(2021: 9.3%)
EFFICIENT FINANCIAL
MANAGEMENT
• EPRA cost ratio continues to be the
lowest in the sector
• The slightly higher EPRA cost ratio
reflects an increase in rent review
fees payable to agents as a result of
improving rental growth, ESG costs,
inflationary pressures and higher
property costs. Notwithstanding this
increase in costs they continue to be
closely controlled and monitored
* Progressive is where it is expected to continue to rise each year, as defined in the Glossary section on pages 178 to 180.
Strategic report Governance Financial statements
7Primary Health Properties PLC Annual Report 2022
Shareholder information
PHP’s portfolio serves
6.0m patients
or 8.9% of UK population
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
Dividend per share
6.5p
(2021: 6.2p)
STABLE, INCREASING INCOME
RETURNS
• Growing shareholder
returnthroughdividend
andcapitalappreciation
• Dividend fully covered by
adjusted earnings
• Strong yield characteristics
andlowvolatility
• 26 consecutive years
ofdividendgrowth
Portfolio EPC ratings A-C
81%
(2021: 81%)
INVESTING IN ESG
• Commenced PHP’s first Net Zero
Carbon (“NZC”) development
• NZC Framework published with the
five key steps the Group is taking
to achieve the ambitious target of
being NZC by 2030 for all of PHP’s
operational, development and asset
management activities
• All operational activities NZC one year
ahead of our 2023 target
• Community Impact Fund implemented
to support social prescribing activities
at the Group’s properties, donating
£0.3 million in the year
Strategic report Governance Financial statements
8 Primary Health Properties PLC Annual Report 2022
Shareholder information
Chairman’s statement
Growth in the immediate future
will be focused on growing
income from our existing portfolio
“ The Group’s continued operational and
financial resilience throughout the year
reflects the security and longevity of
our income which are important drivers
of our predictable cash-flows and
underpin our progressive dividend
policy as we enter the 27th year
ofcontinued
dividend
growth.
”
Steven Owen
Chairman
I am pleased to report that PHP delivered a robust operational
and financial performance in 2022 despite the ongoing volatility
in the economic and interest rate outlook caused by both
global and domestic events. For the property sector the UK
Government’s “mini-budget” in September 2022 amplified the
turmoil caused by the war in Ukraine and rising inflationary
pressures and, despite the UK returning to some form of
political stability in November 2022, the interest rate outlook
has continued to weigh negatively on most REITs, companies
and funds within the sector.
The Group’s continued operational resilience throughout the
year reflects the security and longevity of our income which
are important drivers of our predictable income stream and
underpin our progressive dividend policy as we enter the
27thyear of continued dividend growth.
We continue to maintain our strong operational property
metrics, with a long weighted average unexpired lease term
(“WAULT”) of 11.0 years (2021: 11.6 years), high occupancy at
99.7% (2021: 99.7%) and 89% (2021: 90%) of our rent which
is securely funded directly or indirectly by the UK and Irish
Governments. Notwithstanding the fall in values and disposal
of 13 smaller assets in the second half of the year, the portfolio’s
average lot size remains at £5.4 million (2021: £5.4 million).
On a like-for-like basis, 2022 was a record year for absolute
rental growth with £3.3 million or +2.4% (2021: £2.4 million
or +1.8%) of additional annualised income created from rent
reviews and asset management projects, continuing the positive
trend in growth seen over the last couple of years. It should be
noted that most of this growth came from rent reviews arising
in the period 2018 to 2020 and therefore does not reflect the
impact of significantly higher construction costs experienced
inthe last few years.
We are encouraged by the increasingly firmer tone of rental
growth and believe PHP in the medium term will be a beneficiary
of the current inflationary environment both through open
market and index-linked reviews. In particular, the significant
increases in construction costs, together with historically
suppressed levels of open market rental growth in the sector,
will be significant pull factors to future growth especially as
the NHS seeks to deliver new larger primary care facilities
andmodernise the existing estate.
Strategic report Governance Financial statements
9Primary Health Properties PLC Annual Report 2022
Shareholder information
The property portfolio currently stands at just under £2.8 billion
(2021: £2.8 billion) across 513 assets (2021: 521 assets), including
20 in Ireland, with a rent roll of £145.3 million (2021: £140.7 million).
The Group selectively added just four assets in the year for
£52.9million (2021: £86.6 million across nine assets) and took
advantage of the strong market conditions seen in the first half
of 2022 to dispose of a portfolio of 13 assets which comprised
smaller facilities significantly below our average lot size for
£27.7million (2021: £2.3 million), 13% above book value. As
previously reported with PHP’s interim results, in July 2022, the
deteriorating interest rate and economic outlook caused us to
reconsider our acquisition pipeline and pause investment activity
in the second half of the year until the economic and interest rate
outlook becomes clearer. We currently have just one development
on site and consequently very limited exposure to further build
cost inflation and development risk.
Many of our primary care facilities and occupiers will need to
deal with the backlog of procedures and demand which has
built up over the last three years and will be required to deliver
COVID-19 vaccines for many years to come. We continue to
maintain close relationships with our key stakeholders and
GP partners to ensure we are best placed to help the NHS
and HSE, particularly in primary care, evolve and deal with
theincreased pressures placed on them.
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 and uncertain times.
Acquisition of Axis Technical Services Limited
In January 2023, the Group successfully completed the
acquisition of Axis Technical Services Limited, an Irish property
management business, and signed a long term development
pipeline agreement providing access to a strong pipeline of
future primary care projects in Ireland.
Axis Technical Services Limited currently manages a portfolio of
over 30 properties, including the majority of PHP’s Irish portfolio,
and the acquisition gives the Group a permanent presence on
the ground, further strengthening its position in the country
and relationship with the Health Service Executive (“HSE”),
Ireland’s national health service provider. The acquired company
also provides fit-out, property and facilities management
services to the HSE and other businesses located across Ireland.
Adjusted earnings growth
+6.6%
Dividend per share growth
+4.8%
Continued investment in the UK and Ireland
+£52.9m
Sector leading EPRA cost ratio
9.9%
As part of the acquisition, PHP signed a development pipeline
agreement with Axis Health Care Assets Limited (“Axis”),
a related company, which gives the Group the option to
acquire Axis’ development pipeline over the next five years.
Axis is one of Ireland’s leading developers of primary care
properties, having developed five properties over the last
five years, all of which have been acquired by PHP. Axis also
has a strong pipeline of near-term projects with an estimated
gross development value of €50 million with further potential
schemes beyond that.
Overview of results
PHP’s Adjusted earnings increased by £5.5 million or
+6.6%(2021: £10.1 million or +13.8%) to £88.7 million
(2021:£83.2 million) in the year, primarily driven by strong
organic rental growth from rent reviews and asset management
projects
together with interest cost savings arising from various
refinancings
completed in 2021 and the first half of 2022.
Usingthe weighted average number of shares in issue in the
year the adjusted earnings per share increased to 6.6 pence
(2021: 6.2 pence), anincrease of 6.5%.
A revaluation deficit, partially offset by profit on sales, of
£61.5 million (2021: surplus of £110.5 million) was generated
in the year from the portfolio, equivalent to -4.6 pence (2021:
+8.3 pence) per share. The valuation deficit was driven by net
initial yield (“NIY”) widening of 18 bps in the year, equivalent
to a valuation reduction of around £134 million, albeit this was
partially offset by gains equivalent to £70 million arising from
rental growth and asset management projects.
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 £29.7 million
(2021: gain of £9.5 million) resulted in a profit before tax as
reported under IFRS of £56.9 million (2021: £141.6 million).
The Group’s balance sheet remains robust with a loan to
value ratio of 45.1% (2021: 42.9%), which is in the middle of
the targeted range of between 40% and 50%, and we have
significant liquidity headroom with cash and collateralised
undrawn loan facilities, after capital commitments, totalling
£325.9 million (2021: £321.2 million). The Group also has
significant valuation headroom across the various loan facilities
with values needing to fall further by around £1.2 billion or 42%
before the loan to value covenants are impacted.
Strategic report Governance Financial statements
10 Primary Health Properties PLC Annual Report 2022
Shareholder information
Chairman’s statement continued
Environmental, Social and Governance (“ESG”)
PHP has a strong commitment to responsible business. ESG
matters 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 commenced
construction of PHP’s first NZC development which is due to
achieve practical completion later in 2023 and published, at
the start of 2022, 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. The NZC Framework also sets out
our ambition 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 for the
emissions it can influence and ten years ahead of the UK and
Irish Governments’ target of 2050. Further details on our
progress inthe year, objectives for the future and approach
toresponsible business can be found on pages 32 to 47 of the
2022 Annual Report and on our website.
Board succession and changes
In December 2022, Harry Hyman, Chief Executive Officer
(“CEO”), expressed his intention to retire from his role at the
Company’s Annual General Meeting (“AGM”) in 2024. This intention
is consistent with the commitment made at the time of the
MedicX merger, announced in January 2019, that he would
commit to managing PHP for a further five years. The Company
will be commencing the search for a new CEO during 2023
with a view to making an appointment later in the year and
expected to take effect from the 2024 AGM.
The search for Harry Hyman’s successor will be led by me as
Chairman, and after consultation with a number of the Group’s
major shareholders and with the agreement of the Board,
Iintend to remain as Chairman, subject to re-election at the
2023 AGM, until the conclusion of the 2024 AGM in order to
lead the process to deal with the appointment of the new
CEOand to ensure an orderly succession.
Dividends
The Company distributed a total of 6.5 pence per share in
2022, an increase of 4.8% over 2021 of 6.2 pence per share.
Thetotal value of dividends distributed in the year increased
by 5.2% to £86.7 million (2021: £82.4 million), which were fully
covered by adjusted earnings. Dividends totalling £5.1 million were
satisfied through the issuance of shares via the scrip dividend
scheme. We have suspended the scrip dividend scheme in light
of the fall in the share price during the year and are offering a
dividend re-investment plan in its place.
A dividend of 1.675 pence per share was declared on 5 January
2023, equivalent to 6.7 pence on an annualised basis, which
represents an increase of 3.1% over the dividend distributed
per share in 2022. The dividend will be paid to shareholders
on 23 February 2023 who were on the register at the close
of business on 13 January 2023. The dividend will be paid by
way of a property income distribution of 1.34 pence and normal
dividend of 0.335 pence.
The Company intends to maintain its strategy of paying
a progressive dividend, which the Company pays in equal
quarterly instalments, that is covered by adjusted earnings in
each financial year. Further dividend payments are planned to
be made on a quarterly basis in May, August and November
2023 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 151.4 pence per
share and closed on 31 December 2022 at 110.8 pence, a
decrease of 26.8%. Including dividends, those shareholders
who held the Company’s shares throughout the year achieved
a Total Shareholder Return of -22.5% (2021: +3.1%).
Over the last five years and including the impact of the merger
with MedicX in 2019 we have delivered a total shareholder
return of +20.0%. This compares favourably to the total return
delivered by UK real estate equities (FTSE EPRA Nareit UK
Index) of -16.1% and the wider UK equity sector (FTSE All-Share
Index) of +15.5% over the same period. During the year PHP
was also announced as the winner of MSCI’s Highest 10-Year
Risk Adjusted Total Return Award for the UK in 2021.
Read more about our culture onpage 70.
Read more about our stakeholders onpage 46.
Read more about our Responsible
Business Report at phpgroup.co.uk
Strategic report Governance Financial statements Shareholder information
11Primary Health Properties PLC Annual Report 2022
Board succession and changes continued
Having been appointed to the Board in January 2014,
Ihave now served more than nine years and am currently
not considered to be independent under the provisions of
the UK Corporate Governance Code. After a review by the
independent Non-executive Directors they have concluded
that I continue to act independently and that the Company
will benefit significantly from me leading the CEO succession
process. Accordingly, I will continue to be Chairman of the
Company and the Nomination Committee and a member of the
ESG Committee until my proposed retirement at the 2024 AGM
but ceased to be a member of the Remuneration Committee
from 31 December 2022.
The search for my successor as
Chairman will be led by Ian Krieger,
Senior Independent
Non-executive Director.
Following a review of the composition of the Board in 2021,
Ivonne Cantú was appointed as an independent Non-executive
Director of the Company with effect from 1 January 2022.
Peter Cole, Non-executive Director and Chair of the
Remuneration Committee, retired from the Board at the
Company’s AGM in April 2022 and Ivonne Cantú took 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 function in 2020 and the transition period in 2021.
Paul Wright, who has acted as Company Secretary and Chief
Legal Officer since 2016 will be retiring on 28 February 2023.
The Board wish him well in his retirement and is grateful for his
support, commitment and dedication during a transformational
period of growth for the Group. The Board expects to appoint
Toby Newman, currently Company Secretary and Chief Legal
Officer designate and formerly Company Secretary and General
Counsel at Nuffield Health, as his successor on the same date.
Primary health and investment market update
For both the primary care and indeed most commercial
property markets, the high levels of financial and interest
rate volatility seen in the last quarter of 2022 and resulting
economic uncertainty have encouraged a “wait and see”
attitude amongst investors until the outlook settles down.
The market has been in a state of flux including the wider
investment property sector, and we expect prime assets which
have experienced greater yield compression over the last
couple of years to show an adjustment aligned more closely
to gilt rate movements. However, in the longer term, we
anticipate the market may improve as the outlook for interest
rates becomes more certain, particularly for those assets
with the strong social and sustainability credentials which are
fast becoming a fundamental requirement for investors and
occupiers looking to meet their ESG commitments.
Interest rate volatility will undoubtedly continue to impact the
property investment market in 2023, but some hope can be
drawn from the likes of 10-year gilt rates which have fallen from
their peak of around 4.5% at the end of September 2022 to
levels closer to 3.7% as at 31 December 2022 and 3.6% at the
time of reporting. Consequently, the impact on valuations may
not be as severe as first anticipated.
MARKET UPDATE AND OUTLOOK
The modernisation of the primary care estate been is
becoming increasingly important as the NHS seeks to work
through the backlog of treatments created by the COVID-19
pandemic, address staff shortages and recruitment issues
and deal with the inadequate provision of both primary and
social care in the UK, which is directing patients, who could
be treated in the community, to hospitals where many then
remain longer than clinically necessary because appropriate
provision does not exist in the community or care sector
where it is needed.
In the longer term, the ageing and growing demographic of
western populations means that health services will be called
upon to address more long-term, complex and chronic co-
morbidities. Consequently, the Government needs to respond
and invest in new structures to deliver more healthcare in
primary care and community settings and away from over-
burdened hospitals. PHP stands ready to play its part in
delivering and modernising the real estate infrastructure
required to meet this need in the community.
In July 2021, the UK Government published a draft Health
and Social Care Bill setting out several 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-ordination
between NHS partners and local government services and
their budgets such as those for 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.
PHP’s mission is to support the NHS, the HSE and other
healthcare providers, by being a leading investor in modern,
primary care premises. We will continue to actively engage
with government bodies, the NHS, the 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.
Read more about our strategy on pages 16 to 17.
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12 Primary Health Properties PLC Annual Report 2022
Shareholder information
Chairman’s statement continued
Primary health and investment market update continued
The current low levels of investment activity in the primary care
investment market make it difficult for valuers to value based
upon specific investment transactions and therefore valuations
are to an extent based upon sentiment but also reflect
investment sales that transacted earlier this year and which
demonstrate the level at which the primary care investment
market has been operating. Consequently, we expect that
further reductions in primary care values via trading evidence
are likely to be muted, with most investors likely to continue
to hold their existing assets in the current market primarily
because of:
• limited supplies of stock;
• very secure, rising income streams with an improving rental
growth outlook;
• the main specialists in the sector (PHP, Assura and
BlackRock) all having strong balance sheets so there are
unlikely to be any “forced sales”; and
• a desire from investors to seek “safe haven” assets with
some shifting from other property sectors.
PHP Outlook
Growth in the immediate future will be focused on increasing
income from our existing portfolio and we are encouraged
by the firmer tone of rental growth experienced in 2022. As
already noted, we believe the favourable dynamics of higher
inflation and increased build costs combined with a demand
for new primary care facilities and the need to modernise the
estate will continue to increase future rental settlements.
As previously reported with PHP’s interim results in July 2022,
the deteriorating interest rate and economic outlook caused
us to reconsider our acquisition pipeline and pause investment
activity in the second half of the year until the economic outlook
becomes clearer. In the short term, we expect further investment
activity will continue to be muted and future acquisitions and
developments will only take place if accretive to earnings.
We are currently on site with just one development and
consequently have very limited risk to higher construction
cost pressures and supply chain delays. In our immediate
development pipeline we have three projects with a total
expected cost of £14.5 million and will continue to evaluate
these, together with a wider medium term pipeline at various
stages of progress, and seek to negotiate rents with the NHS
at the level required to deliver an acceptable return.
In the current environment, Ireland continues to be the Group’s
preferred area of future investment activity and we have
ambitions to continue to grow the portfolio there to around
15% of the total (31 December 2022: 8%). The acquisition of
Axis Technical Services Limited, in January 2023, now gives
the Group a permanent presence in Ireland, an important
strategic move as we seek out new investment, development
and asset management opportunities and try to strengthen our
relationship with the HSE as the leading provider of modern
primary care infrastructure in the country.
With an improving rental growth outlook, a strong control on
costs resulting in the lowest EPRA cost ratio in the sector
and the majority of PHP’s debt either fixed or hedged for a
weighted average period of just over seven years, we look
forward to 2023 with confidence.
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.
Steven Owen
Chairman
21 February 2023
Strategic report Governance Financial statements Shareholder information
13Primary Health Properties PLC Annual Report 2022
A FOCUS ON IRELAND
• 20 assets in Ireland valued at €261 million,
or £231 million.
• Irish property investment market
remains attractive and accretive to
earnings, being less affected than the
UK by the deteriorating interest rate and
economic outlook
• Acquisition of Axis Technical Services
Limited post year end now gives the
Group a permanent prescence in Ireland,
an important strategic move
• Exclusive development pipeline agreement
signed with Axis Health Care Assets
Limited, with GDV of €50 million
Read more about our strategy on pages 15 and 17.
Rent roll
€14.8 million
(2021: €14.6 million)
Completed properties
20
(2021: 18)
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14 Primary Health Properties PLC Annual Report 2022
Shareholder information
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.
Strong tenant covenant
– 89% of rent roll paid
directly/indirectly by
Government bodies
31% of portfolio on
fixed or indexed
uplifts. 69% OMV
review, typically
every threeyears
Occupancy rate
of99.7%
Weighted average
unexpired lease length
of 11.0 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 Governance Financial statements
15Primary Health Properties PLC Annual Report 2022
Shareholder information
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.
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.
WIDER OUTCOMES
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 inIreland, as well as
highest energy ratings.
100%
of 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
£100 million
of sustainability linked loan facilities with HSBC raised in the year
£0.3 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.
Investors
Over the last five years, including the impact of our merger with
MedicX in 2019, we have delivered a total NAV return of 41.2%.
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 to assist with
overstretched Accident & Emergency (A&E), 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 65 employed, investing and supporting
nine employees in their professional development studies.
Read more about our stakeholders onpages 46.
Strategic report Governance Financial statements
16 Primary Health Properties PLC Annual Report 2022
Shareholder information
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 2022
• Selectively acquired four standing assets in the year
investing £52.9 million all within the UK
• Portfolio stands at 513, including 20 in Ireland, following
some strategic disposals during the year that generated
profits of £2.9 million (13% above book cost)
• Total property return in the year of 2.8%, with income
growth remaining strong at 5.0% offset by unfavourable
movements in valuation as a result of the increased
uncertainty and higher interest environment faced
Looking forward
• Sector fundamentals of long leases and government backed
income continue to drive demand in sector
• In the short term, we expect investment activity will
continue to be muted and will only take place if accretive
to earnings
• The Group has two developments in legal due diligence, one
in Ireland for £13.1 million and one in the UK for £3.5 million
Link to KPIs
A B C D E F G H
Link to Risks
1 2
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 2022
• £3.3 million, or 2.4% additional income from rent reviews and
asset management projects
• Ten asset management projects completed in the year, with
a further ten on-site, investing £17.3 million and generating
£0.5million of additional income. All asset management
projects increased EPC rating to B or above
• EPRA cost ratio of 9.9% continues to be the lowest in
the sector
• Twenty three lease regears completed in the year
Looking forward
• Strong pipeline of over 22 advanced asset management
projects beingprogressed
• Continued discussions with occupiers to discuss
requirements and identify new opportunities
Link to KPIs
A D E F
Link to Risks
3 4 5
Strategic report Governance Financial statements
17Primary Health Properties PLC Annual Report 2022
Shareholder information
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 2022
• Extended all debt that was due for expiry in 2023 and 2024
• £350 million of revolving credit facilities renewed in the
year, all for three-year terms, which included increasing the
£50 million Lloyds facility to £100 million
• €75 million private placement for twelve years at an all-in
rate of 1.64% completed in February 2022
• £100 million sustainability linked loan facility renewed with HSBC
• Significant liquidity headroom with cash and collateralised
undrawn loan facilities totalling £326million (2020: £362million)
after capital commitments
Looking forward
• All short-term refinancing risk faced by the Group in
the next two years eliminated in the current volatile
economicenvironment
Link to KPIs
A B F G H
Link to Risks
6 7
4
DELIVER
Positive yield gap between acquisition andfunding remains for
selective investments, despite the macroeconomic environment
along with continued improvements in rental growth, delivering
progressive shareholder returns.
Activity in 2022
• Adjusted earnings per share 6.6 pence increased by6.5%
(2021:6.2 pence)
• Dividend per share increased by 4.8%to 6.5 pence
• Total Adjusted NTA return of 2.1%
• Strong organic rental growth from rent reviews and asset
management projects together with interest cost savings
from the various refinancings completed in 2021 and the
first half of 2022, offset the selectively muted investment
in the year
Looking forward
• New loan facilities provide significant firepower to secure
new investment opportunities
• 94% of the Group’s net 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 C D E F G H
Link to Risks
8 9
KPIs
A
Adjusted earnings per share
B
Dividend cover
C
Total property portfolio
D
Total property return
E
Capital invested in asset management projects
F
EPRA cost ratio
G
Loan to value
H
Average cost ofdebt
Risks
1
Property markets and competition
2
Financing
3
Lease expiry management
4
People
5
Responsible business
6
Debt financing
7
Interest rates
8
Potential over-reliance on the NHS and HSE
9
Foreign exchange risk
Read more about our Key Performance Indicators onpages 18 and 19. Read more about our Risks onpages 56 to 62.
Strategic report Governance Financial statements
18 Primary Health Properties PLC Annual Report 2022
Shareholder information
Key performance indicators
Our performance is measured
against KPIs across each of
our four strategic pillars
Adjusted earnings per share
∆
6.6p
+6.5%
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
-2.2%
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
Invested selectively in four acquistions totalling £52.9 million, and took
advantage of favourable market conditions to dispose of a portfolio of
thirteen smaller assets for £27.7 million.
Total property return
∆
2.8%
-670bp
Rationale
The Group invests in properties thatprovide the opportunity forincreased
returns through acombination of rental and capitalgrowth.
Performance
Income growth of 5.0% inthe year was offset by unfavourable valuation
movements that delivered -2.2% capital deficit, delivering a total property
return of 2.8%.
2021 6.2p
2020 5.8p
2022 6.6p
Link to strategy
1
2
3
4
Dividend cover
∆
102 %
+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 2022 were covered by Adjusted earnings andwe intend
to maintain a strategy of paying a progressive dividend that is covered by
Adjusted earnings in each financial year.
2021 101%
2020 100%
2022 102%
2021 £2.8bn
2020 £2.6bn
2022 £2.8bn
2021 9.5%
2020 7.4%
2022 2.8%
A
C
B D
Link to strategy
1
3
4
Link to strategy
1
4
Link to strategy
1
2
4
Strategic report Governance Financial statements
19Primary Health Properties PLC Annual Report 2022
Shareholder information
Capital invested in asset
management projects
£17.5m
+16.7%
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 completed ten asset management projects in the year, and is
on-site with a further ten 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.
2021 £15.0m
2020 £8.1m
2022 £17.5m
EPRA cost ratio
∆
9.9%
+60bp
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 slightly higher EPRA cost ratio reflects an increase in rent review fees
payable to agents as a result of improving rental growth, ESG costs,
inflationary pressures and higher property costs. Notwithstanding this
increase in costs they continue to be closely controlled and monitored.
2021 9.3%
2020 11.9%
2022 9.9%
∆ Alternative performance measures (“APMs”): Measures with this symbol ∆ are APMs defined in the Glossary section on pages 178 to 180, and presented throughout
this Annual Report. All measures reported on a continuing operations and 52-week comparable basis.
Loan to value
∆
45.1%
+220bp
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 to fund acquisitions in the year have resulted
intheGroup’sLTV increasing to 45.1%, in the middle of the Group’s targeted
range of between 40% to 50%.
2021 42.9%
2020 41.0%
2022 45.1%
Average cost ofdebt
∆
3.2%
+30bp
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 Company successfully completed five debt refinances during the year,
at a weighted average margin of 1.6%. Along with 94% of our debt being
either fixed or hedged, this meant our average cost of debt increased by
only 30bp vs over 300bp increase seen in Sonia during the year.
2021 2.9%
2020 3.5%
2022 3.2%
E
F H
G
Link to strategy
1
2
4
Link to strategy
1
2
3
4
Link to strategy
1
3
4
Link to strategy
1
3
4
Strategy
1
Grow
2
Manage
3
Fund
4
Deliver
Read more about our Strategy onpages 16 to 17.
Strategic report Governance Financial statements
20 Primary Health Properties PLC Annual Report 2022
Shareholder information
Business review
Record year for
rental growth
driving performance
Investment and pipeline
In the first half of 2022 the primary care investment market
continued to remain robust despite the deteriorating
economic outlook. Consequently, we invested selectively in
four acquisitions totalling £52.9 million and took advantage of
thesefavourable market conditions to dispose of a portfolio
of13 smaller assets for £27.7 million.
The key acquisitions in the year were a large, state-of-the- art
diagnostic centre in Chiswick let to HCA Healthcare for
£34.5million, a newly refurbished drug and alcohol rehabilitation
facility in Chertsey for £7.0 million and a medical centre in
Newbury for £7.3 million.
In the short term, we expect further investment activity
will continue to be muted and future acquisitions and
developments will only take place if accretive to earnings.
The Group currently has only two developments in legal due
diligence, one in Ireland for £13.1 million (€14.8 million) and
one in the UK £3.5 million together with 15 asset management
projects in the UK at a cost of £12.7 million.
However, we continue to monitor a number of potential standing
investments, direct and forward funded developments and
asset management projects with a pipeline of opportunities
totalling £16.3 million in the UK and £40.1 million (€45.3 million)
in Ireland.
“ We are encouraged by the rentalgrowth
experienced in the year fromrentreviews
and asset management projects and
believe PHP will be a beneficiary of
thesignificant rise in construction
costs seen in recent years. Furthermore,
with the majority of PHP’s debt either
fixed or hedged for a weighted average
period of just over seven years, a
strong control on costs and just
onedevelopment on site we have
limited exposure to further cost
increases and development risk.”
Harry Hyman
Chief Executive Officer
In legal due diligence Advanced pipeline
Pipeline Number Estimated cost Number Estimated cost
Ireland – forward funded development 1 £13.1m
(€14.8m)
2 £40.1m
(€45.3m)
UK – direct development 1 £3.5m 2 £11.0m
UK – asset management 15 £12.7m 7 £5.3m
UK – investment — — — —
Total pipeline 17 £29.3m 11 £56.4m
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21Primary Health Properties PLC Annual Report 2022
Shareholder information
NZC direct developments
Over the course of 2022 the Group has continued to make good
progress with the construction of its first NZC development at
Croft Primary Care Centre, West Sussex, with a total development
cost of £6.2 million with costs remaining to complete the project
of £2.8 million.
In addition, the Group has a significantly advanced pipeline
across three development projects with an estimated cost
of approximately £14.5 million which we expect to be on-site
with in 2023, together with a wider medium term pipeline at
various stages of progress across a further two projects with an
estimated cost of approximately £20 million (31 December 2021:
six projects/£46 million).
PHP expects that all future direct developments will be
constructed to NZC standards.
Forward funded developments
During the year, the two forward funded developments in
Ireland at Enniscorthy, County Wexford, and Arklow, County
Wicklow achieved practical completion in March and August
2022 respectively. Both schemes have been built to nearly
ZeroEnergy Buildings (“nZEB”) standards in Ireland.
We currently do not have any forward funded developments
on-site.
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 and avoid
obsolescence whilst ensuring that they continue to meet the
communities’ healthcare needs and improve the properties’
ESGcredentials.
2022 was a record year for organic rental growth from our
existing portfolio with income increasing by £3.3 million
(2021:£2.4 million) or 2.4% (2021: 1.8%) on a like-for-like basis.
The improvement continues the improving outlook seen over
the last couple of years and it should be noted that most of
the increase comes from rent reviews arising in the period
2018 to 2020, a period when rental growth was muted and not
reflecting the higher levels of construction cost and general
inflation experienced in recent years. We have also seen the
improving rental growth outlook reflected in the valuation of
the portfolio with the independent valuers’ assessment of
estimated rental values (“ERV”) increasing by 2.2% in 2022
(2021: 1.9%).
We believe the significant increases in construction costs together
with suppressed levels of rental growth in the sector, seen in
recent years, will be a significant pull factor to future growth
especially as the NHS seeks to deliver new larger, purpose-built
primary care facilities and modernise the existing estate.
Selective investment in the UK and Ireland
£52.9 million
Sector leading EPRA cost ratio
9.9%
Strategic report Governance Financial statements
22 Primary Health Properties PLC Annual Report 2022
Shareholder information
Business review continued
Rent review performance
In the UK, the Group completed 318 (2021: 375) rent reviews with a combined rental value of £42.2 million (2021: £49.5 million),
adding £2.8 million (2021: £2.0 million) and delivering an average uplift of 6.7% (2021: 4.0%) against the previous passing rent.
Inaddition, a further 286 (2021: 236) open market reviews have been agreed in principle, which will add another £1.7 million
(2021:£1.7 million) to the contracted rent roll when concluded and represents an uplift of 4.1% (2021: 4.9%) against the previous
passing rent.
69% of our rents are reviewed on an open market basis which typically takes place every three years. The balance of the PHP
portfolio has either indexed (25%) or fixed uplift (6%) based reviews which also provide an element of certainty to future rental
growth within the portfolio. Approximately one-third of indexed linked reviews in the UK are subject to caps and collars which
typically range from 2% to 4%.
In Ireland, we concluded 13 index-based reviews adding a further £0.2 million (€0.2 million), an uplift of 9.2% against the previous
passing rent. In Ireland, all reviews are linked to the Irish Consumer Price Index, upwards and downwards, with reviews typically
every five years. Leases to the HSE and other government bodies, which comprise 74% of the income in Ireland, have increases
and decreases capped and collared at25% over a five-year period.
The growth from reviews completed in the year, noted above, is summarised below:
Review type Number
Previous rent
(per annum)
£m
Rent increase
(per annum)
£m
% increase
total
%
% increase
annualised
%
UK – open market
1
186 26.2 1.2 4.6 1.5
UK – indexed 118 13.2 1.4 11.0 7.4
UK – fixed 14 2.8 0.2 6.2 3.1
UK – total 318 42.2 2.8 6.7 3.4
Ireland – indexed 13 1.8 0.2 9.2 2.6
Total – all reviews 331 44.0 3.0 6.8 3.4
1 Includes 33 reviews where no uplift was achieved.
At 31 December 2022 the rent at 656 (2021: 635) tenancies,
representing £90.2 million (2021: £84.9 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 historical
rent reviews, and the rents set on delivery of new properties
into the sector. 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.
Asset Management Projects
During 2022, we completed ten asset management projects
and 23 lease re-gears and have a further ten projects currently
on site to enhance and extend existing assets within PHP’s
portfolio. These initiatives will increase rental income by
£0.5million (2021: £0.4 million) investing £17.5 million
(2021:£15.0 million) and extending the leases back to 19 years.
PHP continues to work closely with its occupiers and has
astrong pipeline of 22 similar projects which are at are an
advanced stage and being progressed to further increase
rentalincome and extend unexpired occupational lease terms.
The asset management pipeline will require the investment
ofapproximately £18.0 million, generating an additional
£0.9million of rental income and extending the WAULT
onthose premises back to an average of 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, including improving
energy efficiency, 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.
Strategic report Governance Financial statements
23Primary Health Properties PLC Annual Report 2022
Shareholder information
Sector-leading portfolio metrics
The portfolio’s annualised contracted rent roll at 31 December
2022 was £145.3 million (2021: £140.7 million), an increase
of £4.6million or +2.4% (2021: £5.5 million or +4.1%) in the
year driven predominantly by organic rent reviews and asset
management projects of £3.3 million (2021: £2.4 million).
Acquisitions and developments in the year added a further
£2.5million (2021: £4.1million) although this increase was
offset by the sale of 13 smaller properties in the year which
resulted in the loss of £1.4million (2021: £0.1 million) of income.
The security and longevity of our income are important drivers
of our predictable cash-flows and underpin our progressive
dividend policy.
Security: PHP continues to benefit from secure, long term
cash flows with 89% (2021: 90%) of its rent roll funded directly
or indirectly by the NHS in the UK or the HSE in Ireland. The
portfolio also continues to benefit from an occupancy rate of
99.7% (2021: 99.7%).
Rental collections: These continue to remain robust and as
at 20 February 2023 98% had been collected in both the UK
and Ireland for the first quarter of 2023. This is in line with
collection rates experienced in both 2022 and 2021 which now
stand at over 99% for both countries. The balance of rent due
for the first quarter of 2023 is expected to be received shortly.
Longevity: The portfolio’s WAULT at 31 December 2022 was
11.0 years (31 December 2021: 11.6 years). Only £11.0 million
or 7.6% of our income expires over the next three years, of
which.75% is either subject to a planned asset management
initiative or terms have been agreed to renew the lease.
£66.5million or 45.8% 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 11.0 7.6
4 – 5 years 13.7 9.4
5 – 10 years 54.1 37.2
10 – 15 years 31.4 21.6
15 – 20 years 22.4 15.4
> 20 years 12.7 8.8
Total 145.3 100.0
Valuation and returns
At 31 December 2022, the Group’s portfolio comprised
513 (31December 2021: 521) assets independently valued
at £2.796 billion (31 December 2021: £2.796 billion). After
allowingfor acquisition costs and capital expenditure on
forward funded developments and asset management projects,
the portfolio generated a valuation deficit of £64.4 million or
-2.4% (2021: surplus of £110.2 million or +4.1%).
The valuation deficit of £64.4 million in the year was driven
primarily by a loss arising from yield expansion of approximately
£134 million partially offset by gains of approximately £70 million
arising from an improving rental growth outlook and asset
management projects.
During the year the Group’s portfolio NIY has expanded by
18bps to 4.82% (31 December 2021: 4.64%) and the true
equivalent yield increased to 4.89% at 31 December 2022
(31December 2021: 4.74%).
In July 2022, the Group disposed of 13 smaller medical centres,
located across England and Wales, generating a profit of
£2.9million (2021: £0.3 million) net of sales costs. The sale
price was 13% above 31 December 2021 book values and
represented 60bps of yield compression.
At 31 December 2022, the portfolio in Ireland comprised
20 standing and fully let properties with no developments
currently on site, valued at £230.9 million or €260.8 million
(31December 2021: 20 assets/£213.0 million or €253.4 million).
At 31 December 2022, the portfolio in Ireland has been valued
at a NIY of 5.2% (31 December 2021: 5.1%).
Despite the fall in values during the year the portfolio’s average
lot size remained unchanged at £5.4 million (31 December 2021:
£5.4 million) and 87.6% 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 55 869.5 31.1 15.8
£5m – £10m 138 948.9 34.0 6.9
£3m – £5m 158 628.5 22.5 4.0
£1m – £3m 157 341.5 12.2 2.2
< £1m
(including
land £1.3m) 5 4.7 0.2 0.7
Total
1
513 2,793.1 100.0 5.4
1 Excludes the £3.2 million impact of IFRS 16 Leases with ground rents
recognised as finance leases.
The valuation deficit and profit on sales, combined with the
portfolio’s growing income, resulted in a total property return
of +2.8% for the year (2021: +9.5%). The total property return in
the year compares with the MSCI UK Monthly Property Index of
-10.4% for 2022 (2021: +20.0%).
Year ended
31 December 2022
Year ended
31 December 2021
Income return 5.0% 5.2%
Capital return (2.2%) 4.3%
Total return 2.8% 9.5%
Harry Hyman
Chief Executive Officer
21 February 2023
Strategic report Governance Financial statements
24 Primary Health Properties PLC Annual Report 2022
Shareholder information
Financial review
Organic rental growth and
effective cost management
drive earnings
PHP’s Adjusted earnings increased by £5.5 million or 6.6% to
£88.7 million in 2022 (2021: £83.2 million). The increase reflects
the continued positive rental growth from organic rent reviews
and asset management projects together with interest cost
savings arising from various refinancing and hedging initiatives
put in place in 2021 and the early part of 2022.
Using the weighted average number of shares in issue in the
year the adjusted earnings per share increased to 6.6 pence
(2021: 6.2 pence), an increase of 6.5%.
A revaluation deficit of £64.4 million (2021: surplus of
£110.2million) was partially offset by a profit on sales of
£2.9million (2021: £0.3 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 £29.7 million (2021: gain of £9.5 million) contributed to
the profit before tax as reported under IFRS of £56.9 million
(2021:£141.6 million).
“ PHP’s Adjusted earnings increased by
£5.5million or 6.6% to £88.7million in
2022(2021:£83.2million).”
Richard Howell
Chief Financial Officer
Strategic report Governance Financial statements
25Primary Health Properties PLC Annual Report 2022
Shareholder information
Summarised results
The financial results for the Group are summarised as follows:
Year ended
31 December
2022
£m
Year ended
31 December
2021
£m
Net rental income 141.5 136.7
Administrative expenses (9.6) (10.5)
Operating profit before revaluation and net financing costs 131.9 126.2
Net financing costs (43.2) (43.0)
Adjusted earnings 88.7 83.2
Revaluation (deficit)/surplus on property portfolio (64.4) 110.2
Profit on sales 2.9 0.3
Fair value gain on interest rate derivatives and convertible bond 26.8 1.6
Amortisation of MedicX debt MtM at acquisition 2.9 7.9
Termination payment and impairment of goodwill on acquisition of Nexus — (35.3)
Nexus acquisition costs — (1.7)
Early termination cost on refinancing of Aviva debt — (24.6)
IFRS profit before tax 56.9 141.6
Corporation tax 0.2 (0.1)
Deferred tax provision (0.8) (1.4)
IFRS profit after tax 56.3 140.1
Net rental income receivable in the year increased by 3.5% or £4.8 million to £141.5 million (2021: £136.7 million).
Excluding service charge costs recoverable, property and administrative costs increased by £1.6 million or 11.8% to £15.2 million
(2021: £13.6 million). The increase in costs arose as a result of additional rent review fees payable to agents arising from the
improving rental growth, ESG costs, additional staff recruited, inflationary pressures and utility costs, together with £0.7 million
of one-off property repairs and development abortive costs; partially offset by lower performance related pay as a result of the
decreased total returns in the year. Notwithstanding the increase in costs in the year they continue to be closely controlled and
monitored and the Group’s EPRA cost ratio continues to be the lowest in the sector at 9.9%, a slight increase over 9.3% in 2021.
EPRA cost ratio
Year ended
31 December
2022
£m
Year ended
31 December
2021
£m
Gross rent less ground rent, service charge and other income 147.0 139.6
Direct property expense 12.6 8.9
Less: service charge costs recovered (7.0) (5.8)
Non-recoverable property costs 5.6 3.1
Administrative expenses 9.6 10.5
Less: ground rent (0.2) (0.2)
Less: other operating income (0.4) (0.4)
EPRA costs (including direct vacancy costs) 14.6 13.0
EPRA cost ratio 9.9% 9.3%
Total expense ratio (administrative expenses as a percentage of gross asset value) 0.3% 0.4%
Despite net debt increasing in the year by £61.8 million as a result of continued investment, net finance costs in the year increased
by just £0.2 million to £43.2 million (2021: £43.0 million), reflecting the reductions in the average cost of debt achieved from
various refinancing and hedging initiatives in both 2021 and the early part of 2022.
Strategic report Governance Financial statements
26 Primary Health Properties PLC Annual Report 2022
Shareholder information
Financial review continued
Shareholder value and total accounting return
The Adjusted Net Tangible Assets (“NTA”) per share declined by 4.1 pence or -3.5% to 112.6 pence (31 December 2021: 116.7 pence
per share) during the year with the revaluation deficit, partially offset by profit on sales, of £61.5 million or -4.6 pence per share
being the main reason for the decrease. Dividends distributed in the year were 102% covered by recurring adjusted earnings
resulting in a further 0.1 pence accretion to NTA. The impact of foreign exchange movements and shares issued via the scrip
dividend scheme added a further 0.4 pence to NTA.
The total adjusted NTA (NAV) return per share, including dividends distributed, in the year was 2.4 pence or 2.1% (2021: 10.0 pence
or8.9%). Over the last five years, including the impact of our merger with MedicX in 2019, we have delivered a total NAV return
of41.2%.
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 Assets (“NTA”) per share
31 December
2022 pence
per share
31 December
2021 pence
per share
Opening Adjusted NTA per share 116.7 112.9
Adjusted earnings for the year 6.6 6.2
Dividends paid (6.5) (6.2)
Revaluation of property portfolio and profit on sales (4.6) 8.3
Shares issued 0.1 0.2
Foreign exchange movements 0.3 (0.3)
Net impact of Nexus acquisition — (2.4)
Net impact of Aviva refinancing — (1.9)
Interest rate derivative transactions — (0.1)
Closing Adjusted NTA per share 112.6 116.7
Fixed rate debt and swap mark-to-market value 8.7 (4.1)
Convertible bond fair value adjustment 2.1 (1.6)
Deferred tax (0.1) (0.3)
Closing EPRA NDV per share 123.3 110.7
Financing
During the year the Group renewed all of its shorter dated revolving credit facilities, maturing in 2023 and 2024, for a further
three-year term with options to extend by a further year at both the first and second anniversaries of each facility, including
Santander (£50 million), Barclays (£100 million) and HSBC (£100 million). The Lloyds revolving credit facility was also increased
by £50 million to £100 million and renewed for a further three-year term. There were no increases in existing credit margins on
renewal of the above facilities and the new HSBC facilities margin will potentially benefit from a sustainability linked discount.
Considering the volatile interest rate and economic outlook the above addresses any short term refinancing risk faced by the
Group in the next two years.
In February 2022, the Group issued a new €75 million (£64.6 million) secured private placement loan note to MetLife for a
twelve-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.
As at 31 December 2022, total available loan facilities were £1,607.0 million (31 December 2021: £1,550.5 million) of which
£1,290.4 million (31 December 2021: £1,232.9 million) had been drawn. Cash balances of £29.1 million (31 December 2021:
£33.4million) resulted in Group net debt of £1,261.3 million (31 December 2021: £1,199.5 million). Contracted capital commitments
at the balance sheet date and post period end transactions totalled £19.8 million (31 December 2021: £29.8 million) and resulted
in headroom available to the Group of £325.9 million (31 December 2021: £321.2 million).
Capital commitments and post period end transactions comprise costs to complete development and asset management projects
on site of £2.8 million and £9.9 million respectively together with the acquisition of Axis Technical Services Limited, in January 2023,
for a maximum cost of £7.1 million (€8.0 million).
Strategic report Governance Financial statements
27Primary Health Properties PLC Annual Report 2022
Shareholder information
Financing continued
The Group’s key debt metrics are summarised in the table below:
Debt metrics
31 December
2022
31 December
2021
Average cost of debt – drawn 3.2% 2.9%
Average cost of debt – fully drawn 3.5% 2.7%
Loan to value 45.1% 42.9%
Loan to value – excluding convertible bond 39.7% 37.5%
Total net debt fixed or hedged 93.7% 100.0%
Net rental income to net interest cover 3.3 times 3.2 times
Weighted average debt maturity – all facilities 6.4 years 7.3 years
Weighted average debt maturity – drawn facilities 7.3 years 8.2 years
Total drawn secured debt £1,140.4m £1,082.9m
Total drawn unsecured debt £150.0m £150.0m
Total undrawn facilities and available to the Group
1
£325.9m £321.2m
Unfettered assets £86.7m £104.9m
1 After deducting capital commitments.
Average cost of debt
The Group’s average cost of debt rose as at 31 December 2022 to 3.2% (31 December 2021: 2.9%) following the recent and rapid
increases in three-month SONIA interest rates during 2022 which are used to calculate interest on the unhedged element the
Group’s revolving credit facilities.
Interest rate exposure
The analysis of the Group’s exposure to interest rate risk in its debt portfolio as at 31 December 2022 is as follows:
Facilities Net debt drawn
£m % £m %
Fixed rate debt 1,082.0 67.3 1,082.0 85.8
Hedged by fixed rate interest rate swaps 100.0 6.2 100.0 7.9
Hedged by fixed to floating rate interest rate swaps (200.0) (12.4) (200.0) (15.8)
Total fixed rate debt 982.0 61.1 982.0 77.9
Hedged by interest rate caps 200.0 12.4 200.0 15.8
Floating rate debt – unhedged 425.0 26.5 79.3 6.3
Total 1,607.0 100.0 1,261.3 100.0
Interest rate swap contracts
The Group did not enter into any new interest rate hedging arrangements during the year.
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 (2021: gain of £2.7 million) 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 2022 the
mark-to-market (“MtM”) value of the swap and cap portfolio was an asset of £7.1 million (31 December 2021: asset of £4.4 million).
Strategic report Governance Financial statements
28 Primary Health Properties PLC Annual Report 2022
Shareholder information
Financial review continued
Currency exposure
The Group owns €260.8 million or £230.9 million (31 December
2021: €253.4 million or £213.0 million) of Euro denominated
assets in Ireland as at 31 December 2022 and the value of these
assets and rental income represented 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 2022 the
Group had €196.0 million (31 December 2021: €186.5 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. Given the large Euro to Sterling
fluctuations seen in recent years and continued uncertainty in
the interest rate market the Group entered into a nil-cost FX
collar hedge (between €1.1675 and €1.1022: £1) for a two-year
period to cover the approximate Euro denominated net annual
income of €10 million per annum, minimising the downside risk
of the Euro gaining in value above €1.1675: £1.
Fixed rate debt mark-to-market (“MtM”)
The MtM of the Group’s fixed rate debt as at 31 December 2022
was an asset of £141.3 million (31 December 2021: liability of
£58.9million) equivalent to 10.6 pence per share (31December
2021: liability of 4.4 pence). The elimination of the MtM liability
and creation of an asset during the year is due primarily to the
significant increases in interest rates assumed in the forward
yield curves used to value the debt in 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 will be subject to adjustment, in
accordance with the dividend protection provisions in the
terms of issue, if dividends paid per share exceed 2.8pence
perannum and in accordance with those provisions the
exchange price has been adjusted to 137.69 pence per
Ordinary Share.
The conversion of the £150 million convertible bonds into
newOrdinary Shares would reduce the Group’s loan to value
ratio by 5.4% from 45.1% to 39.7% and result in the issue of
108.9 million new Ordinary Shares.
Richard Howell
Chief Financial Officer
21 February 2023
Strategic report Governance Financial statements
29Primary Health Properties PLC Annual Report 2022
Shareholder information
Strategic report Governance Financial statements Shareholder information
EPRA performance measures
Providing transparent
information
Adjusted earnings per share ∆
6.6 pence, up 6.5% (2021: 6.2 pence).
Definition
Adjusted earnings is EPRA earnings excluding the 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 ∆
6.9 pence, up 46.8% (2021: 4.7 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 one-off
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 ∆
110.2 pence, down 3.4% (2021: 114.1 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 ∆
112.6 pence, down 3.5% (2021:116.7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.
30 Primary Health Properties PLC Annual Report 2022
Strategic report Governance Financial statements Shareholder information
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.
EPRA net initial yield ∆
4.82%, increase of 18bp (2021: 4.64%).
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
2022 2021
£m £m
Investment property (excluding
those under construction) 2,793.9 2,777.5
Estimated purchaser’s costs and
capital commitments 198.9 197.4
Grossed-up completed property
portfolio valuation (B) 2,992.8 2,974.9
Annualised passing rental income 145.0 139.2
Property outgoings (0.8) (1.1)
Annualised net rents (A) 144.2 138.1
EPRA net initial yield (A/B)* 4.82% 4.64%
EPRA vacancy rate ∆
0.3%, flat (2021: 0.3%).
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
2022 2021
£m £m
ERV of vacant space 0.4 0.5
ERV of completed property
portfolio 145.3 140.7
EPRA vacancy rate 0.3% 0.3%
EPRA cost ratio ∆
9.9%, increase of 60bp (2021:9.3%).
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. The Group
does not have any direct vacancy costs and therefore the EPRA
cost ratio (excluding vacancy costs) is the same as the EPRA
cost ratio.
Purpose
A key measure to enable meaningful measurement
ofthechanges in a company’s operating costs.
Calculation
See page 25, Financial Review.
∆ Alternative performance measures (“APMs”): Measures with this symbol ∆ are
APMs defined in the Glossary section on pages 178 to 180, and presented
throughout this Annual Report. All measures reported on a continuing
operations and 52-week comparable basis.
* 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 LTV ∆
45.9%, increase of 300bp (2021: 42.9%).
Definition
Net debt at nominal value, including all borrowings and net
payables, divided by the fair value of properties and net receivables.
Purpose
A comparable measure to assess gearing.
Calculation
2022 2021
£m £m
Net debt 1,283.2 1,200.3
Total property value 2,796.3 2,795.9
EPRA LTV 45.9% 42.9%
31Primary Health Properties PLC Annual Report 2022
Strategic report Governance Financial statements Shareholder information
Responsible business
HIGHLIGHTS 2022
NET ZERO CARBON FRAMEWORK
By 2023 – operations net zero
• Reduce emissions from offices, transport and assets where
weprocure energy for tenants
• Procure 100% renewable energy where PHP controls supplies
• Offset residual emissions via high quality projects
By 2025 – all new developments net zero
• Continually reduce energy use intensity of new buildings and
ensure they can operate with net zero emissions
• Measure, minimise, benchmark and improve embodied carbon
performance for all new developments, setting incrementally
more challenging targets for reduction
• Offset residual embodied carbon emissions via high
quality projects
By 2030 – EPC B and lower energy use intensity
• Across the portfolio all properties to have an EPC rating of B
orbetter where economically feasible
• Achieve reductions in energy use intensity (kWh/m
2
) through
asset management projects and electrify buildings
where feasible
• Measure, minimise and offset residual embodied carbon
emissions from our asset management activities
• Collect and communicate energy performance data for all our
occupiers and support them to transition to lower energy and
carbon operations
By 2035 – 80% carbon reduction of the portfolio
• Continued energy demand reduction through upgrade and
refurbishment
• Remove fossil fuel heating systems from all properties
• Increase proportion of renewable energy generation on our sites
• Reduce the carbon intensity of buildings compared to 2021
portfolio baseline
By 2040 – enabling a net zero portfolio
• Help occupiers to lease and operate our buildings with net zero
carbon emissions
• 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
32 Primary Health Properties PLC Annual Report 2022
Development
On site with our first
NZC development
building (operational
and embodied carbon)
Investment
All-electric net zero
ready refurbishment
Benton House acquired
in Newcastle
Asset management
EPC A and B
refurbishments and
agreement for first net
zero ready project
Tenants and
operations
100% renewable energy
and 300% increase in
portfolio energy data
Projects
Assessed six sites for
solar PV roll-out with
potential for 400 MWh
of generation
Towards net zero
PHP is committed to transitioning to Net Zero Carbon (“NZC”) across
itsoperations and property portfolio. Last year we set out the five key
steps to achieve thisacross our operational, development and asset
management activities by 2030 and to help our occupiers achieve
NZC by 2040.
2022 2023 2025 2035 2040
Strategic report Governance Financial statements Shareholder information
Responsible business
and ESG review
Premises, Health and People: investing in the health and
wellbeing of our communities
Since publishing our Net Zero Carbon Framework last year
we have continued to make good progress against this and
our wider ESG commitments including the commencement
of construction of PHP’s first NZC development at Croft,
West Sussex and our second NZC development at Spilsby,
Lincolnshire, is expected to start on site in 2023. We have
also continued to invest capital, via our asset management
programme, to improve our existing portfolio, including its
energy and carbon performance, and create a more sustainable
healthcare infrastructure for the future.
The ESG Committee has overseen the further development
ofour work on energy and carbon reduction and I am pleased
that we are increasing the visibility, including the sharing of
information, of energy performance data for the wider portfolio,
beyond just the buildings we procure energy for.
We also worked with expert advisers Willis Towers Watson
to perform quantitative climate scenario analysis to help
improve our understanding of climate risks and opportunities
and to enhance our TCFD disclosures, which are set out on
pages 48 to 53.
During the year we joined other industry peers as members of
the UK Green Building Council to help improve the sustainability
of the built environment.
PHP’s social impact initiative is now in its second year and
we have continued to work with our partner UK Community
Foundations to support social prescribing activities linked
to our portfolio and to review the impact this is having.
Oursecond round of grant award was oversubscribed and
weare very pleased with the quality of applications and the
broadspectrum of initiatives proposed.
We have also increased our engagement with employees,
focusing on professional and personal development, including
working with Investors in People and specific ESG training
across the Company.
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
21 February 2023
Laure Duhot
Chair of the ESG Committee
Dear shareholder,
I am pleased to present my third 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
considering these matters will give greater impetus to our
initiatives in this area, which are described on the following
pages ofthis report.
MEMBERS OF THE ESG COMMITTEE
(THE “COMMITTEE”) DURING THE YEAR
Member
Number of meetings
and attendance
Laure Duhot (Chair) 3 (3)
Ivonne Cantú 3 (3)
Richard Howell 3 (3)
Harry Hyman 3 (3)
Ian Krieger 3 (3)
Steven Owen 3 (3)
Jesse Putzel 3 (3)
David Bateman (appointed 22 June 2022) 1 (1)
Peter Cole (resigned 27 April 2022) 1 (1)
Chris Santer (resigned 31 March 2022) 1 (1)
Bracketed numbers indicate the number of meetings the member
was eligible to attend in 2022. 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 & Social, David Austin – Director: Asset Management,
TonyCoke – Director: Developments, and James Young – Director:
Property Management are invited to attend meetings as appropriate.
33Primary Health Properties PLC Annual Report 2022
Strategic report Governance Financial statements Shareholder information
Our approach
PHP’s approach is based around our core activities of
investment,asset and property management, development
andour corporateactivities.
PHP supports and links its strategy to the UN Sustainable Development Goals (“SDGs”), focusing on the most relevant
SDGs where can have a positive impact. Our strategy is based around three core pillars that run through our activities
focused on Premises, Health and People and is supported by our ESG policies. These are:
OUR APPROACH PERFORMANCE AGAINST OUR COMMITMENTS
Approach Purpose Aims Focus Commitments and targets Progress 2022 Focus areas 2023
1. 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
Having a preference for reusing existing buildings, upgrading them in an energy
and resource efficient way, reducing reliance on new resources
Sourcing responsibly and designing for future reuse of assets and materials
All new developments to be NZC by 2025
Delivering BREEAM and nZEB
certifiedbuildings.
Improving portfolio EPC ratings.
Increasing visibility of energy
performanceacross the portfolio.
Delivering on our net zero
carboncommitments.
Construction commenced on our NZC
development at Croft where embodied
carbonisalso being minimised and offset.
Development and asset management projects all
achieved/are achieving BREEAM Excellent or Very
Good in the UK or nZEB and BER A3 in Ireland.
The overall portfolio now has 35% A–B ratings
and 81% A-C, by value.
We introduced an energy monitoring and
management platform, engaged tenants to share
data and now have energy data for 60%offloor
area (improved from 20% in 2021).
76% of PHP procured electricity is now from
renewable sources and we have entered into
partnership with the Woodland Trust to offset
residual emissions and enhance UKbiodiversity.
Continue to focus on improving EPC ratings to B
and deliver net zero ready refurbished buildings via
our asset management programme.
Measure embodied carbon from our asset
management projects to understand our
performance and set targets as part of our
NZCcommitments.
Roll out our energy monitoring and management
platform, including remote metering, to buildings
and tenants, supporting them to use energy
efficiently.
Put a programme in place to roll out solar
toexisting buildings.
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 occupiers’ operations, being NZC by 2040
Policies Sustainability; Sustainable development and refurbishment; Net Zero
Carbon Framework
2. 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 and collaborative practices with
our occupiers
Investing, via our community impact fund,
up to £0.25 million per year, incauses which
enhance health and deliver social value.
Demonstrating the positive impact
investment in primary healthcare
cangenerate.
We concluded a second programme ofgrant
giving with a total of £0.2million awarded
to organisations delivering innovative social
prescribing services for communities surrounding
our buildings.
We conducted research with King’sCollege
London which demonstrated a positive
impact of our healthcare buildings on reduced
A&Eattendances.
Continue to expand our social prescribing
programme focusing on the most deprived
communities where PHP has a strong presence and
link some funding to asset management projects.
Capture the positive social outcomes of our
community impact fund and business activities.
Creating
social value
Working with partners to enhance wellbeing andinclusivity through initiatives
that contribute to the creation of healthy, supportive and thrivingcommunities
Policies Sustainability
3. 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
Continuing to promote PHP’s culture and
commitment to high levels of ethics and a
workplace culture of inclusion, diversity and
equalopportunity.
Conducting an independent annual
staffsurvey to inform and monitor
continuedimprovement.
We updated our Equality, Diversity and Inclusion
policy and conducted training for all staff on
inclusive behaviours, mentoring, appraisals and
environmental sustainability.
We conducted a confidential staff survey and
worked with Investors in People with a view to
future accreditation.
We updated our staff benefits, including
providing up to five days ofvolunteering
leaveand private medical insurance.
Continue to support staff with individual
training and development plans and introduce a
mentoring programme.
Work towards achieving Investors
inPeopleaccreditation.
Continue to survey staff to ascertain
levelsof employee satisfaction and areas
forimprovement.
Governing an
ethical business
Being transparent and compliant in all our operations
Policies Business ethics; Equality, diversity and inclusion; Anti-bribery and corruption
Responsible business continued
34 Primary Health Properties PLC Annual Report 2022
Strategic report Governance Financial statements Shareholder information
OUR APPROACH PERFORMANCE AGAINST OUR COMMITMENTS
Approach Purpose Aims Focus Commitments and targets Progress 2022 Focus areas 2023
1. 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
Having a preference for reusing existing buildings, upgrading them in an energy
and resource efficient way, reducing reliance on new resources
Sourcing responsibly and designing for future reuse of assets and materials
All new developments to be NZC by 2025
Delivering BREEAM and nZEB
certifiedbuildings.
Improving portfolio EPC ratings.
Increasing visibility of energy
performanceacross the portfolio.
Delivering on our net zero
carboncommitments.
Construction commenced on our NZC
development at Croft where embodied
carbonisalso being minimised and offset.
Development and asset management projects all
achieved/are achieving BREEAM Excellent or Very
Good in the UK or nZEB and BER A3 in Ireland.
The overall portfolio now has 35% A–B ratings
and 81% A-C, by value.
We introduced an energy monitoring and
management platform, engaged tenants to share
data and now have energy data for 60%offloor
area (improved from 20% in 2021).
76% of PHP procured electricity is now from
renewable sources and we have entered into
partnership with the Woodland Trust to offset
residual emissions and enhance UKbiodiversity.
Continue to focus on improving EPC ratings to B
and deliver net zero ready refurbished buildings via
our asset management programme.
Measure embodied carbon from our asset
management projects to understand our
performance and set targets as part of our
NZCcommitments.
Roll out our energy monitoring and management
platform, including remote metering, to buildings
and tenants, supporting them to use energy
efficiently.
Put a programme in place to roll out solar
toexisting buildings.
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 occupiers’ operations, being NZC by 2040
Policies Sustainability; Sustainable development and refurbishment; Net Zero
Carbon Framework
2. 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 and collaborative practices with
our occupiers
Investing, via our community impact fund,
up to £0.25 million per year, incauses which
enhance health and deliver social value.
Demonstrating the positive impact
investment in primary healthcare
cangenerate.
We concluded a second programme ofgrant
giving with a total of £0.2million awarded
to organisations delivering innovative social
prescribing services for communities surrounding
our buildings.
We conducted research with King’sCollege
London which demonstrated a positive
impact of our healthcare buildings on reduced
A&Eattendances.
Continue to expand our social prescribing
programme focusing on the most deprived
communities where PHP has a strong presence and
link some funding to asset management projects.
Capture the positive social outcomes of our
community impact fund and business activities.
Creating
social value
Working with partners to enhance wellbeing andinclusivity through initiatives
that contribute to the creation of healthy, supportive and thrivingcommunities
Policies Sustainability
3. 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
Continuing to promote PHP’s culture and
commitment to high levels of ethics and a
workplace culture of inclusion, diversity and
equalopportunity.
Conducting an independent annual
staffsurvey to inform and monitor
continuedimprovement.
We updated our Equality, Diversity and Inclusion
policy and conducted training for all staff on
inclusive behaviours, mentoring, appraisals and
environmental sustainability.
We conducted a confidential staff survey and
worked with Investors in People with a view to
future accreditation.
We updated our staff benefits, including
providing up to five days ofvolunteering
leaveand private medical insurance.
Continue to support staff with individual
training and development plans and introduce a
mentoring programme.
Work towards achieving Investors
inPeopleaccreditation.
Continue to survey staff to ascertain
levelsof employee satisfaction and areas
forimprovement.
Governing an
ethical business
Being transparent and compliant in all our operations
Policies Business ethics; Equality, diversity and inclusion; Anti-bribery and corruption
35Primary Health Properties PLC Annual Report 2022
Strategic report Governance Financial statements Shareholder information
Responsible business continued
ARKLOW, CO. WICKLOW, IRELAND CASE STUDY:
• Achieved BER of A3 and current nZEB standards
• Able to operate with net zero carbon emissions
• 30-year lease to government bodies
The property reached practical completion in November 2022
and is a state-of-the-art primary care centre serving the local
and wider community south of Dublin. It is primarily let to the
HSE and government bodies on a 30-year lease providing GP
suites, dental surgeries, public health nursing, Caredoc
services, mental health and network disability services.
The building has been completed to current nZEB standards,
achieving a BER of A3 and incorporates energy efficient
electric heating through an air source heat pump.
The building also benefits from natural ventilation and high
levels of thermal insulation and allows the occupiers to
operate the building with net zero carbon emissions.
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, the
HSE, GPs and other healthcare operators are our principal
occupiers. As at 31 December 2022, the Group owned 513
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 and property
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.
PHP is committed to helping the NHS achieve its target to
become the world’s first net zero carbon national health system
by 2045. PHP’s Net Zero Carbon Framework sets out our plan
to transition the Company’s portfolio to net zero ahead of this
deadline and ahead of the UK and Irish Government’s net zero
target date of 2050. PHP will continue to proactively engage
and work with our various healthcare occupiers to also help
them achieve this.
This Responsible Business Report sets out our commitment
and approach to environmental and social sustainability. It is
reviewed annually and approved by the Board and sets the
framework for establishing objectives and targets against
which we monitor and report publicly on our performance.
36 Primary Health Properties PLC Annual Report 2022
Strategic report Governance Financial statements Shareholder information
RESPONSIBLE INVESTMENT
Key commitments: Minimum EPC rating of C and capable
of being improved to a B or better.
Environmental and sustainability performance are integral
elements of PHP’s approach to the acquisition of existing and
funding of new primary healthcare buildings. We use detailed
assessments of each location, looking at building efficiency and
performance, enhanced service provision for the community
and support for wider healthcare infrastructure.
We undertake detailed environmental and building surveys
to assess physical environmental risks for each investment,
including flooding, to ensure the risk is avoided or appropriate
prevention measures are developed (see our TCFD disclosures
on page 48).
During 2022 we began applying our net zero and ESG
commitments to our investment activities, in particular
engaging with developers and asset owners to challenge
current standards and leverage our influence. We have engaged
with developers to raise awareness of net zero standards and
included net zero or energy related conditions in our offers.
Energy efficiency is also considered through the due diligence
process and all acquisitions are required to have an EPC of
C or better, or be capable of remedial action to achieve the
required rating, and associated costs are now integrated into
our appraisals. We also seek to include green lease clauses at
acquisition where feasible.
All acquisitions completed in the year had a minimum EPC
rating of C and are capable of achieving an EPC rating of at
least a B when next refurbished.
BENTON HOUSE, NEWCASTLE CASE STUDY:
Net zero ready refurbishment
• 82% reduction in the carbon intensity of
the building
• Able to operate with net zero carbon emissions
The building was originally acquired by PHP in 2021 and
following extensive refurbishment is now let on a new 30 year
lease to the Cumbria, Northumberland, Tyne and Wear NHS
Foundation Trust providing mental health services, office and
staff facilities.
The building was originally constructed in the late 1970’s
and has undergone an extensive refurbishment with existing
systems removed, including old inefficient air conditioning
and gas heating.
A new high efficiency, all-electric system has been installed
and significant fabric improvements made, including added
insulation, new windows and roof. The improvements have
reduced the carbon intensity of the building by 82% and will
be able to be operated with net zero carbon emissions in
the future.
The EPC rating has also been improved from a D to a B.
In addition, facilities for cyclists and EV charging have been
added, encouraging sustainable and healthy travel choices.
1. Premises – Built environment
37Primary Health Properties PLC Annual Report 2022
Strategic report Governance Financial statements Shareholder information
Responsible business continued
RESPONSIBLE ASSET AND
PROPERTYMANAGEMENT
Key commitments: Improve EPC ratings to B; procure
100% renewable energy; achieve BREEAM Very Good for
refurbishments; and engage tenants on and improve the
visibility of energy and carbon performance.
We are committed to creating best-in-class primary care
centres, focusing on the future needs of our occupiers and
thereby ensuring we are creating sustainable buildings for
the long term. We invest in the portfolio of properties to
generate enduring occupier and patient appeal, which provides
opportunities to improve rental values, the security and
longevity of income, and the quality of assets. This is a key
route for PHP to deliver energy efficiency improvements and
tointroduce low or zero carbon measures for our occupiers
andtheir patients.
Asset and property management will play a key role in
achieving our NZC target of having a NZC portfolio by 2040
with interim commitments for all properties to have an EPC
rating of at least B and NZC asset management by 2030 and
an 80% reduction in portfolio emissions by 2035 via targeted
improvements to buildings and occupier engagement.
During 2022 we completed ten asset management refurbishment
projects, improving EPC ratings to B for all except two which
achieved A ratings. We have a further ten refurbishment projects
on site or committed, which include energy efficiency upgrades,
installation of roof-mounted solar, air source heat pumps and
thermal efficiency upgrades. All these projects have either
achieved or are on track to achieve BREEAM Very Good
certification for refurbishment and fit-out. We also agreed 33
new leases during the year, with all including Green Lease clauses.
During the year, we also completed design and planning work
for two net zero ready refurbishments which we expect to
be on site during 2023 and we will also begin to address
embodied carbon in asset management projects.
Working with our occupiers is essential to improving the
performance of buildings and during 2022 our property
management team engaged with all of our tenants, carrying
out over 1,000 site visits at which issues, including energy
andutilities, are discussed.
With rising energy costs, energy security concerns and the
need to reduce building emissions, we began analysing
the portfolio for the potential roll-out of larger scale onsite
solar power, for buildings where PHP procures energy and to
enable tenants to make use of solar where they procure their
own energy.
LEAMINGTON SPA CASE STUDY:
Delivering above target performance
• The project achieved BREEAM Very Good
andanEPCrating of A (improved from C)
• Building can be operated with net zero
carbon emissions
• 80% reduction in the carbon intensity
ofthe building
• Solar PV provides up to 5,000 kWh of free, zero
carbon energy generated annually
PHP completed an extension and full refurbishment of the
centre in 2022, increasing its size by 345m
2
to over 1,000m
2
.
The existing space was too limited to accommodate a rising
local population. Working with the practice and CCG, PHP
designed a solution to extend and reconfigure the existing
building, avoiding the need for a new development and
significantly improving its energy performance.
The reuse of existing buildings in this way is essential to avoid
carbon intensive new builds and minimise embodied carbon.
The new building incorporates energy efficient electric
heating, LED lighting throughout, a new energy efficient
lift, improved insulation levels and solar panels and
allows the occupier to operate the building with net zero
carbonemissions.
The project was also designed and delivered in a sustainable
way. Materials were from certified responsible sources and
low carbon products were specified and used, such as for
flooring and plaster board. All waste created during the
project was re-cycled and diverted from landfill.
Benefits of the project on health are significant, including
allowing the centre to develop local diagnostic-hub functions,
increased clinical capacity in terms of new rooms and
better-quality facilities, offering enhanced primary and
community care services.
38 Primary Health Properties PLC Annual Report 2022
Strategic report Governance Financial statements Shareholder information
PROGRESS ON ENERGY AND
CARBONPERFORMANCE
As outlined above, during 2022 our investment, asset
and property management and development activities
continued to deliver against targets and support our net
zerocarboncommitments.
During 2022 we transitioned all but seven building electricity
supplies procured by PHP to renewable energy and are
progressing asset management projects for some of these
sites to improve their energy efficiency. In line with our Net
Zero Carbon commitments, in 2023 we will offset the residual
emissions from these buildings and our own head office operations.
Our operational Scope 1, 2 and 3 emissions are provided on
page 40 in our SECR disclosure.
A key target for 2022 was to improve the visibility of the
energy and carbon performance of our portfolio, where tenants
control their own energy supplies. We have made good
progress, including:
• implementation of a rolling programme of data collection
from Display Energy Certificates (“DECs”) and engaged with
tenants where DECs had expired or were not in place;
• successful agreement and sharing of data with our largest
lease holder, covering the ongoing sharing of data from an
additional 50 properties;
• ongoing engagement with other tenants to agree direct
sharing of data; and
• implementation of an energy measurement and management
platform and initial roll-out of smart metering for some sites
with the aim of connecting more tenant controlled buildings.
This programme has resulted in PHP having data for over
350 sites or 60% of the portfolio by floor area (from under
20% previously). Using the energy data collected we have
determined an estimated baseline of the entire portfolio’s
carbon emissions (for 2021 and 2022) as well as energy and
carbon intensity. This will improve as we obtain more data
fromour tenants.
These fall under the Scope 3 category, Downstream Leased
Assets and represent the most Significant and consistent
source of Scope 3 emissions for PHP. During 2022 this equated
to 24,980 tCO
2
e. This compares to 30,494 tCO
2
e in 2021
(which contained a greater number of estimates). We estimate
these emissions to represent 80% of annual Scope 3 emissions.
The detailed data is presented in our EPRA sustainability
disclosures on our website.
SECR disclosures
PHP measures its emissions in line with the Greenhouse 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 with a small proportion
of 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
energy supplied to tenants.
CROFT, WEST SUSSEX CASE STUDY:
• PHP’s first net zero carbon development on site
• On-track to achieve BREEAM Excellent
The new development at Croft, West Sussex, represents
the future of sustainable primary care in the UK. PHP was
appointed to develop the highly sustainable premises to
consolidate and expand services locally and cater for an
expected significant growth in patient numbers over the
next few years.
The premises supports the national and local NHS
strategies to move services away from over-stretched
hospitals, providing a greater range of primary and
community care services.
Currently under construction on brown field land, practical
completion is scheduled later in 2023. The premises
will be let for 25-years to the local GP partnership and
pharmacy, allowing patients and the wider primary care
network to access a range of services, including general
practice, mental health assessments, occupational and
physiotherapy, social prescribing and training for GPs,
nurses and paramedics.
The building is targeting an EPC A rating and will be PHP’s
first net zero carbon development. The building is being
delivered in a sustainable way, with materials from certified
responsible sources, low carbon products, low waste and
water and enhanced ecology on site.
RESPONSIBLE DEVELOPMENT
Key commitments: All new developments to be NZC by 2025,
BREEAM Excellent and Very Good for fit-outs in the UK, and
nearly Zero Energy Buildings (“nZEB”) and BER A3 standards
in Ireland.
PHP, together with its development partners, are committed
to promoting the highest possible standards of environmental
and social sustainability when designing and constructing new
assets. Requirements are also in place for our development
partners and contractors to ensure the implementation of
responsible property development practices.
Construction has now commenced on PHP’s first NZC
development at Croft, West Sussex. We also continue to
workon our pipeline of carefully selected new developments
which are being designed, built and capable of being operated
as net zero carbon buildings.
We also started to work with our development partners in Ireland
to integrate embodied carbon as a key requirement in the future.
39Primary Health Properties PLC Annual Report 2022
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Responsible business continued
PROGRESS ON ENERGY AND
CARBONPERFORMANCE CONTINUED
SECR disclosures continued
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. Below we report Scope 3 emissions from Down
Stream Leased Assets for the properties where PHP supplies
energy tooccupiers, which they hold operational control over.
Emissions from tenant procured energy are reported in our
EPRA sustainability disclosures on our website.
100% of reported Scope 1, 2 and 3 emissions in the year were
based in the UK and Ireland.
2022 2021
Source tCO
2
e kWh tCO
2
e kWh
Scope 1
Business travel (car) 55.7 225,668 28.4 115,568
Gas 1.3 7,335 3.9 21,099
Scope 2
Electricity 9.9 50,947 5.4 25,528
Market based
1
0.9 46,150 — —
Total Scope 1 and 2 67.8 330,101 37.7 162,195
Market based
1
58.0 — — —
Scope 3
Landlord supplied electricity 1,024 5,296,562 1,058 4,984,324
Market based
1
243 922
Landlord supplied gas 1,138 6,236,864 1,153 6,294,698
Total Scope 3 2,163 11,533,426 2,211 11,279,022
Market based
1
1,381 — 2,075 —
Total Scope 1, 2 and 3 2,231 11,863,527 2,154 10,920,985
Market based
1
1,439 — 2,112 —
Woodland carbon code credits purchased (1,439) — — —
Net tCO
2
e — — — —
Scope 1 and 2 per full time employee 1.0 — 0.6 —
Scope 1 and 2 per £m revenue 0.4 — 0.3 —
Scope 3 kgCO₂ per m² 13.8 73.7 15.6 79.8
Market based
1
8.8 — 14.7 —
1 Market-based reporting reflects the emissions from the electricity being purchased, whereas location based uses national grid average emissions for the reporting year.
During 2022 absolute Scope 1 and 2 emissions have increased
by 80% and intensity by 70% primarily because of the move
tonew head office and increased business travel following
theend of COVID-19 restrictions in 2021.
Gas consumption has decreased due to the move to a new
head office while electricity has increased due in part to
operating two offices for part of the year and the new office
being airconditioned. While using more energy, this provides
a much more suitable environment for employees throughout
the year. During 2022, we also returned to more normal office
working following easing of COVID-19 restrictions in 2021. All
office electricity is now sourced from 100% renewable sources.
Business mileage has increased during 2022, reflecting a return
to normal operating practices and the high level of tenant
engagement and site visits taking place across all teams.
Employees are encouraged to use public transport where
possible and a new employee benefit has been introduced to
support take-up and use of electric and hybrid vehicles, with
five members of staff already taking up the option during 2022.
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.
As shown in the table above, Scope 3 emissions from landlord
supplied energy have decreased on an absolute and normalised
basis. Electricity consumption has increased, while gas use
has decreased. In 2022 we have procured energy for more
properties than in 2023 and have restated our 2021 gas
consumption following updated data becoming available.
During 2022, 76% of electricity consumed was from renewable
sources, meaning on a market reporting basis, there has been
a 33% reduction in absolute and 40% reduction in normalised
emissions. We intend to build on this going forward, through
tenant engagement and asset management activities.
We have offset all residual 2022 emissions, including the
energy we procure on behalf of our tenants, by purchasing
£36,000 of Woodland Carbon Code Credits in partnership
with the Woodland Trust and achieved the objective of our
operations being net zero carbon one-year ahead of our
2023 target.
40 Primary Health Properties PLC Annual Report 2022
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2. Health – Community impact
SOCIAL – HEALTH AND WELLBEING
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 Programme.
PHP is committed to supporting both the NHS and HSE in
tackling the major underinvestment 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, the 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
healthcare facilities, have a significant positive social impact,
whether through enhancement of experience for people using
our facilities, expansion of healthcare provision locally or
making healthcare more accessible to those that need it most.
Modern high quality primary healthcare facilities also help to
reduce pressure and costs for the secondary care system.
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.
Occupier engagement
PHP is committed to ensuring that the properties it develops
and owns continue to meet its GP, NHS and HSE occupiers’
requirements and 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.
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
healthcare systems.
The ongoing backlog of missed procedures and appointments
continues to highlight the need for purpose-built, primary
care premises to provide modern healthcare to the UK and
Irish populations which are growing, ageing and suffering from
more instances of chronic illness. This further reinforces our
objectives to continue to invest in existing and new premises
for the benefit of all our stakeholders.
KING’S COLLEGE LONDON RESEARCH ON THE
SOCIAL AND ECONOMIC BENEFITS OF PRIMARY
CARE CASE STUDY:
During 2022, PHP conducted research with King’s College
London (“KCL”) into the wider economic and social impact
of modern primary care centres. Analysing circa 150 PHP
medical centres built or refurbished since 2009 across
England, KCL compared their A&E attendance rates against
national averages before and after building completions.
The results identified reductions in secondary healthcare
utilisation after a purpose-built medical centre is opened
following development completion or refurbishment and the
reductions are particularly prominent in areas of deprivation.
The cost to visit A&E is £180 per visit compared to £39 for
a GP appointment and represent savings of around 75%.
One in four GP practices in England work out of old houses,
which are not fit for purpose. Moving doctors and nurses
into purpose-built medical centres would save NHS England
£39million a year and support those in the most deprived
parts of the UK.
A copy of the detailed report is available on our website.
Having completed a tenant engagement survey for the previous
three years a new approach was trialled, starting in 2022 and
spanning into 2023 to survey tenants directly as part of site
visits. During 2023 over 1,000 site visits were carried out and
this is seen as a more effective means to engage tenants than
a digital survey. Statistics from this exercise are expected to be
available during 2023.
41Primary Health Properties PLC Annual Report 2022
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Responsible business continued
SOCIAL – HEALTH AND WELLBEING CONTINUED
Community Impact Fund
PHP has committed £0.25 million per annum to support social
and charitable activities and services linked to the patients
and communities of our occupiers, which cannot be readily
accessed elsewhere. In total, PHP provided £0.2 million
during 2022.
Impact during 2022
Through UKCF, £0.15 million was distributed to Lincolnshire
Community Foundation and Foundation Scotland, providing
grants to 20 organisations. This funded a range of initiatives
including counselling, social prescribing awareness,
wellbeing workshops, friendship and cinema groups and
funding core costs of services. Over 2,000 people have
benefited and been supported bythese initiatives to
date and several of the organisations have been able
toleverage PHP’s funding to secure other support.
Our partnership with UK Community Foundations (“UKCF”) has
continued to offer grants to charities and community groups
focused on social prescribing and community wellbeing that
serve our properties. During 2022, we targeted funding to the
North-West and North-East of England, representing some of
the most deprived areas within our portfolio.
Working with two new regional community foundations,
CountyDurham and Lancashire & Merseyside, the 2022 awards
totalled £0.15 million and have been made to organisations
that deliver a wide range of support for people, including on
isolation and loneliness, family and parenting, addiction and
mental health and living with and caring for autism.
We continue to monitor the positive impact of previous awards.
Our experience and that of our award recipients, continues to
demonstrate the important role social prescribing has to play in
addressing direct and indirect health impacts.
PHP has also continued to support a number of charities from
the Community Impact Fund during the year. This includes
donations to Variety and the Children’s Charity; ENO Breathe
(which has been very successful in helping sufferers of long
covid through classical music-based programs), Levelling Up
Goals; Macmillan Cancer Support; Cancer Research; Bookmark,
Stem 4, a teenage mental health charity; and the Disasters
Emergency Committee in aid of the Ukraine Humanitarian
Appeal. PHP also supported and became a member of The
Academy of Real Assets, which engages with schools to
promote and enable access for students from all backgrounds
into the real estate sector.
STRATHEARN ARTSPACE CASE STUDY:
With funding received from PHP’s Community Impact
Program, Strathearn Artspace has provided twoweekly
“Art for Wellbeing” classes for people who, foravariety
of reasons, need support for their mental healthand
well-being. This project is one of a series of initiatives
to engage more directly with the community. As of
1December 2022, classes had been delivered to over
223 people. The classes will continue until the end of
theproject in February 2023.
Volunteering
PHP staff benefit from five paid days per annum for
volunteering activities that are personal and meaningful
to them, delivering support to their local communities and
benefiting from the personal development that these activities
provide. Two members of staff have taken up the opportunity
to volunteer and more have expressed interest in team
volunteering and linking with initiatives supported by PHP’s
Community Impact Fund during 2023.
42 Primary Health Properties PLC Annual Report 2022
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3. People – Responsible business
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 are essential to the delivery of our business strategy and ESG commitments.
During 2022 we have undertaken an independent staff survey and received positive feedback following the London office
relocation. We have also undertaken the first diagnostic assessment, also involving an independent staff survey, with Investors
inPeople, with a view to pursuing accreditation during 2023.
The Group is highly focused with 65 employees and four Non-executive Directors which allows for a flexible and individual
approach. During 2022, we continued to successfully retain a loyal team with a staff turnover rate of 11%, which we believe
reflects PHP’s Board’s commitment to maintaining, improving and promoting the highest levels of ethics and conduct and
promoting aworkplace culture of:
Inclusion and communication We have a flat management structure with clear responsibilities. We strongly encourage input on
decision making from all staff and wide participation in Committee and team meetings. There is
strong collaboration across teams which enables good sharing of information and ideas. Regular
strategy and performance updates are provided to employees from the Executive Directors and
senior management team.
Modern, flexible
working practices
We have implemented more flexible working arrangements covering improved systems to enable
home working and flexible dress code.
Fair remuneration Employee remuneration is aligned to personal, Company and ESG performance with longer
term incentive plans in place that replicate arrangements for Executive Directors. All employees
receive a variety of benefits which are noted later in this section.
Diversity and
equalopportunity
We promote diversity across knowledge, experience, gender, age and ethnicity with a published
Equality, Diversity and Inclusion policy in place. Whilst overall female employee representation
is good, we recognised that we needed to specifically promote greater gender diversity. Our
female Board representation is now 33% and, in the year, we continued to support the training
and professional development of several female members of the property and finance teams.
Recognising the significant diversity imbalance in the real estate sector, we continue to support
the promotion of diversity both internally and externally.
Employee development
and training
An appraisal process is undertaken twice a year where career progression, training needs and
performance are discussed. We actively encourage training and we continue to monitor our staff
training each year focusing on professional, including ESG, and personal development. During
2023 we will launch a mentoring programme to provide further support.
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. See page 45 for further details on health and safety.
Wellbeing and
employeesatisfaction
At the start of 2022 we moved to new, significantly improved office space in London as well as
carrying out an anonymous survey of our employees. The results of our 2022 employee survey
are shown later in this section and reflect continued high levels of employee satisfaction.
LaureDuhot, the Company’s designated workforce Non-executive Director, continues to be
closely involved in monitoring employee satisfaction.
Laure Duhot is the designated workforce Non-executive Director. In the year she considered the results of the staff survey and
held meetings in the London and Stratford-upon-Avon offices, which were open to all employees. The sessions aimed to gather
feedback and ideas from different areas of the Company, to discuss how people feel and their experiences of working at PHP,
withfeedback reported back to the Board.
43Primary Health Properties PLC Annual Report 2022
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PEOPLE CONTINUED
Employee satisfaction survey
In May 2022, we undertook an annual employee survey (managed
by an independent third party) to track staff satisfaction. In total,
we asked 34 questions receiving responses from employees on an
anonymous basis. The survey focused on a number of key areas
and in total we had 64 responses across the organisation with
engagement from 96% of employees.
Overall, the results of the survey were positive with employees
responding that they consider:
• overall employees were satisfied and enjoyed
working for PHP;
• the Company’s image is of a high quality organisation;
• the Company performs its business operations to a
high standard;
• the relationship between management and
employees is good;
• employees understood the link between their personal and
the Company’s objectives;
• employees felt they had job security, there was a friendly
and supportive culture with a good working environment
and that the Company cared about its employees; and
• the Company acts as a responsible business contributing
to reduce its environmental impact, is committed to equal
opportunities and supports its local communities.
The main areas for further improvement were career progression
opportunities and the desire to be more involved in decisions
which impact day-to-day work.
The Company has been successful in getting everyone back
into the office and has enjoyed the benefits this brings.
Overall, we believe there are significant benefits from working
collaboratively and we are stronger together, but people are
empowered to work from home for two days per week.
Employee benefits
In addition to fair remuneration which is aligned to personal
and Company performance, including ESG related targets, and
as part of our ongoing commitment to supporting employees
and attracting and retaining talent, the Company offers the
following benefits to all staff:
• enhanced Company pension contributions of 6% of salary;
• private medical insurance, health cash benefit, income
protection and critical illnessinsurance;
• 25 days of annual leave plus an 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;
• life assurance given to all employees at four times salary;
• cycle to work and season ticket loan schemes; and
• all employees are eligible to participate in the PHP
Sharesave plan.
Employee development
PHP’s human capital is essential to the 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.
PHP has undertaken the first step to achieving Investors in
People accreditation by undergoing the diagnostic process and
survey in May 2022 to gauge our existing performance against
the Investors in People indicator framework. Initial feedback
has been positive and we have taken positive steps to improve
our scores to enable us to achieve accreditation during 2023.
The training programme for 2022 has continued to focus
on professional along with personal development, including
training on diversity and inclusion, introduction to mentoring
(ahead of launching a programme in 2023) and enhancing
environmental sustainability knowledge. The training focus has
been evolved in response to the Investors in People framework,
encouraging performance based on high levels of engagement,
collaboration, self-awareness and vision.
PHP also supported funding and facilitation of professional
qualifications for nine employees and recruited two graduates.
The supportive culture of PHP means those training for
qualifications are mentored and assisted by more experienced
colleagues. During 2022, three graduate employees completed
their qualifications successfully.
PHP worked with its partners Bisarto and The Inclusive Group
to deliver sessions to all staff on personal development including:
MBTI self-awareness, time management, communications, inclusive
behaviour, hybrid inclusion, appraisal training and mentoring.
Responsible business continued
“ From the top down, the business has supported
me with my professional qualifications, providing
funding and importantly time and insights. I
was blown away by how willing people are to
help, from colleagues providing technical and
industry knowledge, to reviewing and critiquing
my work against their own experience and APC
requirements. The fact people at all levels of
seniority are able and encouraged to spend this
time supporting is agreat benefit.”
Will Spencer
Qualified Surveyor, Asset Management
44 Primary Health Properties PLC Annual Report 2022
Strategic report Governance Financial statements Shareholder information
PEOPLE CONTINUED
Employee development continued
PHP also signed up to the Supply Chain Sustainability School
and became a member of the UK Green Building Council.
Through both, staff have access to a range of learning and
development resources, including e-learning. Training has
beenpromoted to all employees, on subjects including
sustainable development, business ethics, modern slavery,
climate change and net zero, social value, circular economy
andsustainable procurement.
A total of 620 personal development training hours have been
delivered across the Group during 2022 and the Company
invested a total of £73,000 or an average £1,200 per employee
on professional and personal development.
All employees received ESG related training during the year,
including face to face and e-learning modules.
Diversity and equal opportunity
We promote diversity across knowledge, experience, gender,
age and ethnicity with a published Equality, 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 and promote diversity
both internally and externally.
Employee gender diversity as at 31 December 2022
Number of employees Male Female Total
Board of Directors 4/67% 2/33% 6
Executive
Committee 2/100% —/— 2
Directors 6/86% 1/14% 7
Associate Directors 2/22% 7/78% 9
Associates &
Senior Surveyors 10/62% 6/38% 16
Other 12/41% 17/59% 29
Total 36/52% 33/48% 69
Employee ethnicity as at 31 December 2022
2022
Ethnic origin No. % ONS
1
White – British,
English, Welsh,
Irish, Other 59 86% 82%
Asian – Indian,
Pakistani, Other 4 6% 9%
Black – African,
Caribbean, Other 1 1% 4%
Mixed heritage 3 4% 3%
Other 2 3% 2%
Total 69 100% 100%
1 Office for National Statistics: Census 2021 data for England and Wales
published June 2022.
Gender pay gap as at 31 December 2022
PHP pays employees equally for doing equivalent jobs across
the business and any pay gaps are the result of our employee
profile and do not represent pay discrimination. PHP is not
required to publish details of gender pay gap; however, we view
this as an important metric to ensure equal and fair treatment
regardless of gender.
Gender pay gap Bonus pay gap
Male Female Pay gap Male Female Pay gap
Board – NEDs 65% 35% 47% — — —
Board –
Executive 100% — 100% 100% — 100%
Executive
Committee 100% — 100% 100% — 100%
Directors 58% 42% 27% 72% 28% 61%
Associate
Directors 54% 46% 14% 46% 54% (19)%
Associate &
Senior
surveyors 48% 52% (9)% 60% 40% 34%
Other 49% 51% (5)% 49% 51% (6)%
Total 69% 31% 54% 83% 17% 79%
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 2022 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 actions are implemented on a priority basis. 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 advisers
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 2022 there were no reported major accidents nor any
health and safety prosecutions or enforcements (2021: no incidents).
During 2022, 12 property managers completed Institute of
Occupational Safety and Health (“IOSH”) training, adding to
the five who already hold the qualification. Our Board approved
Health and Safety policy is available on the Company’s website.
45Primary Health Properties PLC Annual Report 2022
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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; and
• we engage with stakeholders to ensure we are aware of,
and are able to respond to, their expectations.
Lenders
Future generations
Investors
NHS
Suppliers
HMRC
Occupiers
People Patients
suppliers, which 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 2022 the Group has directly
paid £27.7million (2021: £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 did not 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.
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 and we continue to enjoy
strong relationships with these partners.
During 2022 we have successfully continued to value existing
and potential relationships with our investors with over 85
meetings during the course of the year. 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 and strategy.
Governance and business ethics
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.
Responsibility for business ethics lies with the PHP Board and
Chief Executive Officer and is overseen by the ESG Committee.
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;
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 and 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 1,000 suppliers across the Group
ranging from small local businesses to large multi-national
companies. We also acknowledge the importance of our
Responsible business continued
46 Primary Health Properties PLC Annual Report 2022
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OTHER STAKEHOLDERS CONTINUED
Governance and business ethics continued
• 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, business ethics, equality, diversity
and inclusion, sustainability, sustainable development and
refurbishment, whistleblowing, money laundering, prompt
payment and management of the supply chain which are
available on our website.
We provide training to staff on these key issues and
communicate our policies to key stakeholders and our supply
chain and expect them to uphold the same standards in their
operations and with their own supply chains.
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 2022
(2021:noincidents).
Enhanced disclosure and benchmarking
We have published our second disclosure against the guidance
and requirements of the Task Force on Climate-related Financial
Disclosures (“TCFD”) which are provided on pages 48 to 53.
GRESB – During 2022, PHP completed its third submission
to the Global ESG Benchmark for Real Assets (“GRESB”). Our
development benchmark score improved from 55% to 80% and
to a two-star rating. Our standing asset score improved from
52% to 58% although we remained at a one-star rating. We
aim for continual improvement in GRESB and view it as a useful
tool. However, circa 30% of the available score is very difficult
to achieve for a portfolio like PHP’s, made up of a large number
of smaller buildings which are largely tenant controlled.
MSCI – In February 2023, MSCI rated PHP as A, an improvement
on the previous rating of BB. The MSCI assessments currently
reflect the disclosures made in the 2021 Annual Report and
does not reflect the improvements made in this report, and
therefore we expect to further improve our rating in the future
and we will continue to engage with MSCI to ensure our rating
best reflects the actions we are taking.
CDP – We responded in full for the first time to the CDP
climate questionnaire. We see CDP as a key tool to disclose our
performance and approach and to help us improve over time.
Our first-time rating of B demonstrates we have a high quality
approach to managing climate related risks and being transparent
in our disclosures. As we expand our measurement of Scope 3
(wider portfolio) emissions and build up year-on-year reduction
programmes, we will aim to improve our performance further.
PHP has completed for the first time and made available
disclosures in accordance with EPRA Sustainability Best
Practices Recommendations (“sBPR”). A copy is available on
the website.
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 14 and 15.
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 32 to 40;
• social matters on pages 41 to 42;
• health and safety matters on page 45;
• respect for human rights on page 46; and
• anti-corruption and anti-bribery matters on page 47.
Responsible Business and ESG matters have been identified
as a principal risk and further details can be found on pages
56 to 62.
All key performance indicators of the Group are on pages
18 to 19.
The Business Review section on pages 20 to 23 includes, where
appropriate, references to, and additional explanations of,
amounts included in the entity’s annual accounts.
Laure Duhot
Chair of the ESG Committee
21 February 2023
47Primary Health Properties PLC Annual Report 2022
Strategic report Governance Financial statements Shareholder information
Task Force on Climate-related FinancialDisclosures
Task Force on Climate-related
FinancialDisclosures
PHP TCFD disclosure for 2022 Annual Report
and Accounts
This year, we are making our second disclosure against TCFD
guidelines and reporting in line with the TCFD reporting
requirements for UK premium listed companies. We have
outlined how climate change is incorporated into our governance
processes, its impact on our business strategy and planning,
our approach to risk management and climate related metrics,
targets and commitments we use.
GOVERNANCE
Board oversight
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. The Board reviews climate related risks
and opportunities within our existing reporting and governance
structure (as detailed on page 49) and has established a
specific ESG Committee, which is made up of allmembers
of the Board and relevant members of the Executive team to
review, plan, approve and action on climate related issues.
The Board and ESG Committee’s review of key issues typically
happens through relevant update papers presented 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 Board and members of the Executive team consider
climate-related issues when setting objectives, in budget
setting and through the Board’s annual strategic review of the
business. The ESG Committee monitors progress against the
business’s Responsible Business objectives and key strategic
climate-related workstreams, including progress towards
PHP’s Net Zero Carbon “NZC” commitment, see page 32, at all
meetings of the ESG Committee (which meets at least three
times a year). Climate-related issues are also considered by
the Board and Executive team in key investment, development,
asset and property management decision-making.
At the start of 2022 the ESG committee oversaw and approved
PHP’s Net Zero Carbon Framework. During 2022 they also
approved a new ESG budget for 2023, with specific allowances
made for climate related work, including energy performance
measurement of the portfolio and delivering net zero carbon
projects in direct and forward funded developments and
asset management projects. The Board regularly reviews
and approves acquisitions made by the Group and takes
into consideration ESG and climate related commitments,
specifically minimum EPC ratings.
Management team’s role
The ESG committee monitors progress on Responsible
Business matters, including climate risks. Implementation and
management of Responsible Business is delegated to the
Executive team with its members leading the ESG working
group; other members consist of Director of ESG along with
a representative from each of the investment, development,
asset management and property management teams. The
ESG working group met periodically during 2022 and will
meet bi-monthly going forward, to consider progress and next
steps. The Executive team ensures that Responsible Business
and ESG targets are delivered or re-evaluated where not
achieved. The Executive and management teams make it clear
to relevant employees what is expected and required. Where
relevant, specific actions or targets form part of both team
and individual personal objectives for each year, for example
improvement of EPC ratings. The Executive team also lead
engagement and training across the Group on Responsible
Business and ESG matters, including climate related risks.
The Executive and management teams have specific ESG
and climate related performance objectives relevant to their
roles and area of the business along with other personal
performance objectives which are linked to bonuses to
incentivise performance.
Audit Committee
Risk Committee
ESG Committee
ESG working
group
Executive team
Management
team
Board
48 Primary Health Properties PLC Annual Report 2022
Strategic report Governance Financial statements Shareholder information
STRATEGY
At the start of 2022 we set out a NZC Framework, see page 32, 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. The Responsible Business Report on
pages 32 to 47 provides further detail on our strategy, actions taken and progress made in 2022 and objectives for future years
toaddress climate risks, such as improving EPC ratings within the portfolio.
Climate related risks and opportunities
During the year, PHP updated its own analysis of climate risks and opportunities, continuing to build on and refine our Climate
Risk and Opportunity Register. To increase our understanding of and response to potential risks, PHP worked with Willis Towers
Watson (“WTW”) to assess 28 physical and transition risks and undertake quantitative physical and transition scenario analysis.
The analysis included engagement and input from across PHP’s operational teams.
Transition Risks and scenario analysis have been assessed over the short (to 2025) and medium (to 2030) term. Physical risks
and scenario analysis are assessed under short, medium and long term (2050–2100). We have not assessed beyond 2030 for
transition risks given the high level of uncertainty in determining impacts of transition risks over the longer term.
To assess the potential impact of transition risks, an initial risk screening was carried out, based on PHPs existing identified risks
and with input from WTW and in relation to relevant risks for other real estate companies. The impact of transition risks was
assessed via workshops with key disciplines within PHP and analysis carried out by WTW, based on the findings. The potential
annualised estimated financial impact associated with risks and opportunities has been quantified where possible and categorised
using PHP’s risk impact scales, which consider impacts to revenue and or the balance sheet. Risks are scored 1 (very low) to 5
(very high) with financial impact bands for each level.
Very
unlikely (1)
(<20%)
Unlikely
(2)
(20 – 40%)
Possible
(3)
(40 – 60%)
Highly
probable (4)
(60 – 80%)
Almost
certain (5)
(>80%)
Very high (5)
(>£30m)
High (4)
(£10m – £30m)
Medium (3)
(£3m – £10m)
Low (2)
(£1m – £3m)
Very low (1)
(<£1m)
Impact
Likelihood
1e
1a 3a
3b
3c
3d 1f 3e
1d
3f
4a
4c
3b 1b 1c
Assessed range of annual impact and likelihood ofTransition risks
Residual risk on medium term time horizon (2030) under a NZC 2050 1.5°C scenario
Policy
1a. Pricing of GHG emissions (PHP)
1b. Pricing of GHG
emissions (Tenant)
1c. EPC requirements
1d. Enhanced emissions reporting
obligations
1e. Climate change litigation
1f. Increasingly stringent planning
requirements
Technology
2a. Substitution of existing technologies to lower
emissions options (unquantified)
Market
3a. Increased cost ofraw materials
3b. Increased cost and availability of
electricity (PHP)
3c. Increased cost and availability of
electricity (tenant)
3d. Cost of capital
3e. Change in tenant demands
3f. Emissions offsets
Reputation
4a. Investment risk/opportunities
4b. Stakeholder risk/opportunities (unquantified)
4c. Employee risk/opportunities
49Primary Health Properties PLC Annual Report 2022
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The potential climate-related risks and opportunities we have identified that could have a material financial impact are:
Category Risk/opportunity Time frame Potential £ impact Business response/mitigation
Transition risks
EPC
requirements
and change
in customer
demands
NHS, and the HSE, accounts
for 89% of revenue and is
targeting to be NZC by
2045.
Costs related to meeting
proposed Minimum
Energy Efficiency (“MEES”)
regulations and fines
associated with
non-compliance.
Medium term Medium
(P&L and BS)
• Commitment to get all properties to a minimum of EPC
B by 2030.
• Group’s asset management program actively targeting
reductions in carbon emissions and improving energy/
EPC performance.
• Assets are being extended and refurbished with
improvements made to the environmental performance
including installation of LED lights, move away from gas
heating and integration of renewable energy generation
resulting in improved EPC ratings.
• The additional costs are reflected in appraisals and
typically supported by increased lease terms and
increases in rent.
Increasing
cost of energy
& GHG
emissions
The cost of energy has
increased significantly and
in the 1.5°C low carbon
world scenario GHG
emissions pricing will need
to be implemented from
2025-2030.
Short-medium
term
PHP – Low (P&L),
Tenants – Medium
• PHP procures energy for a limited number of properties
in the portfolio and has operational control over none
ofthe buildings GHG emissions.
• Consequently, the risk of energy and GHG pricing is
minimal to PHP.
• Tenants are responsible for their own energy bills and
large increases in pricing have a significant impact on
them, which could adversely impact the desirability of
our assets.
• Improving the energy efficiency and reducing the
carbon emissions from buildings, we mitigate these
risks, helping tenants to save money in the long term.
Restricted
access to
capital
Investors and debt
providers only willing to
invest in climate resilient
businesses.
Medium-long
term
Low (P&L)
• PHP has a strong and clearly articulated NZC
Framework and strategy developed with clear targets
for reduction of direct and indirect emissions and to
reach NZC in the future.
• Strong stewards of underinvested, key social
infrastructure assets delivering healthcare and
wellbeing to the UK and Irish populations.
• Green loan framework developed for several existing
and future loan facilities.
Physical risks
Flood risk
(current
and future
climates)
Losses from assets located
in high flood risk zones,
primarily the costs of repair,
business interruption and
reflected in increased
insurance costs.
Long term Low (Medium
for potential
un-insured losses
under high
emission scenario)
(P&L)
• PHP has flood alleviation and response plans in place,
isappropriately insured and assesses these risks for
anynew developments and acquisitions.
• Under current climate conditions, 11 sites have a
moderate risk and 15 sites have a very high risk from
flood. This equates to under 5% of total asset value.
• Our remaining assets have a very low exposure. In a
future high emission climate scenario, the number of
sites does not increase, but the potential frequency
andseverity of floods increases.
Task Force on Climate-related FinancialDisclosures continued
STRATEGY CONTINUED
Climate related risks and opportunities continued
50 Primary Health Properties PLC Annual Report 2022
Strategic report Governance Financial statements Shareholder information
Category Risk/opportunity Time frame Potential £ impact Business response/mitigation
Physical risks continued
Increased
severity and
frequency
of extreme
weather
events and
windstorm
Increased costs to develop
climate-resilient properties
and physical damage
requiring repair.
Costs of business
interruption and reflected in
increased insurance costs.
Medium term Low (Medium
for potential
un-insured losses)
(P&L)
• All assets in the portfolio are insured for physical
damage and loss of rent with cost of insurance
predominantly recovered from occupiers.
• Mitigation strategies in operation at assets with
identified potential risk.
• Comprehensive business continuity plan in place.
Heat stress
(future
climates)
The UK has very low
exposure to heat stress
today, increasing beyond
2050 under the 4°C
scenario. Costs associated
with retrofitting buildings
to mitigate overheating and
tenant discomfort.
Long term Low
(P&L)
• Sensitivity analysis for heat stress has determined that
the overall risk is low.
• Approximately 10% of PHP’s buildings have air-
conditioning and therefore additional cooling may be
necessary in the future.
• PHP also monitors instances of overheating and works
with tenants to mitigate this.
Opportunity
Change
in tenant
demand
NHS is aiming for net zero
and primary health care
tenants will increasingly
covet or insist on low
carbon sustainable buildings.
Short–medium
term
Medium
(P&L and BS)
• PHP’s strategy to improve the performance of buildings
via asset management and NZC developments will
maximise rental income in the future.
• Existing buildings brought up to modern, low carbon
standards, will be best placed to achieve occupier
contentment, lease renewals and attract the highest
rents, performing closer to newly built properties.
Substitution
of existing
technologies
Potential to help tenants
reduce their carbon
footprint and their energy
costs via introduction of
new low carbon technology
to buildings.
Medium PHP – Low (P&L)
Tenants – Medium
• Introducing renewable energy as part of lease regears
will help PHP to secure high quality, long-term income
from tenants.
• Supporting and enabling tenants to make use of on
site renewable energy, in particular solar, can reduce
tenant costs.
Scenario analysis
In 2022, WTW undertook a physical climate risk assessment of the Company’s portfolio on an asset-by-asset basis, assessing
asset exposure to a range of acute and chronic climate risks and a transition risk assessment based on PHPs current corporate
strategy and action planning. The Scenario analysis is based on the Representative Concentration Pathways (“RCP”) designed
by the IPCC in their Fifth Assessment Report (“AR5”), which are mapped to the latest IPPC AR6 report’s Shared Social Economic
Pathway (“SSPs”) scenarios. The methodology evaluates risks and opportunities for PHP’s business under three plausible climate
scenarios: a ‘low carbon world’ 1.5°C scenario (for physical and transition risks), 2-3°C scenario and a 4°C scenario (for physical risks only)
1
.
Resilience of the business to scenarios
By delivering on the strategy put in place by PHP, commitments and actions outlined in our Net Zero Carbon Framework and given
the low exposure to physical climate risks and relatively low potential financial impact, the business is resilient to the assessed scenarios.
Based on our asset specific assessment of physical hazard exposure, our portfolio’s exposure to all physical climate impacts is low.
Our exposure to material levels of flood risk is limited to 5% of properties (by value). We regularly review flood risks of standing
assets, have plans and appropriate levels of insurance in place for them and consider resilience to long term flood risk for any new
acquisitions or developments.
In the post 2030 scenarios assessed, only flood and windstorm risk were assessed as somewhat ‘material’ and under the 4°C
scenario. We view heat stress as a potential risk given the nature of our buildings and the desire to offer optimum comfort levels
for our health care related buildings. PHP is already addressing instances of overheating in today’s climate by working with our
tenants and taking remedial action where necessary. When refurbishing buildings we consider over heating through addition of
solar shading, insulation and where needed, addition of energy efficient cooling.
1 This is in line with the Intergovernmental Panel On Climate Change (“IPCC”) representative concentration and shared social economic pathways (‘RCPs’ mapped to
‘SSPs’) RCP 2.6 (“SSP1”), RCP4.5 (“SSP2”) and RCP 8.5 (“SSP5”) respectively.
STRATEGY CONTINUED
Climate related risks and opportunities continued
51Primary Health Properties PLC Annual Report 2022
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STRATEGY CONTINUED
Resilience of the business to scenarios continued
Through our Net Zero Framework and commitments and our
asset management activities, we have a robust approach
to meeting energy efficiency, EPC and carbon performance
requirements that are expected as part of the low carbon
world 1.5°C scenario. Our strategy also supports PHP’s ability
to meet or surpass the NHS’s net zero commitments.
Under a high emissions scenario from the 2050’s, drought
stress and heat stress increase and become a moderate risk
which could impact water scarcity and tenant wellbeing,
however in the short term or under a low emissions scenario,
these risks are relatively low. We will continue to assess
potential risks in due diligence for future acquisitions and to
make appropriate adaptations where required.
Impact on business strategy and financial planning
Climate related risks and opportunities impact and inform PHPs
business strategy for asset management and refurbishment,
property management, development and acquisition of buildings.
The Group’s continued focus on flexible, modern primary care
properties, that generally have low energy consumption, means
the overall carbon footprint of the portfolio is minimised.
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 standards achievable
for these buildings.
We are 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 the energy and
carbon performance of our developments including measuring,
minimising and offsetting residual embodied carbon impacts.
We have commenced construction on the Group’s first net zero
carbon development and are aiming for all new 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.
RISK MANAGEMENT
Approach to identifying and assessing climate risks
PHP assesses climate risks alongside other business risks
but also specifically as part of a dedicated climate risk
management process. A climate risks and opportunities register
is reviewed and updated by the ESG working group and the
ESG Committee along with the Risk Committee reporting to
the Audit Committee.
The most material (highest scoring) risks are pulled out and
action plans put in place, which are reviewed by the Risk and
ESG committees. The long list of risks is revisited annually to
ensure changes, such as to regulation, market or customer
demand, have not altered the likelihood or potential impact
ofthe less material risks.
In identifying and assessing the impact of risks, we consider
impacts to PHPs direct operations and stakeholders, including
our supply chain, partners and tenants. The size and scope
of risks is assessed using internal expertise of our teams
supplemented by data relating to impact where available.
For example spend data, GHG emissions and energy and any
associated future projections. The potential financial impact is
estimated and quantified against defined impact scales and
value bandings.
To supplement our approach, PHP engages with expert advisers
such as WTW to further assess and understand potential risks,
quantify potential impacts and consider planned and potential
actions to address risks posed by climate change.
Approach to managing climate risks
The Company’s overall approach to risk management, including
management of climate related risks, is set out on pages
56 to 62.
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 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 the Executive and management
and those where the Board will retain direct ownership and
responsibility for managing and monitoring.
The Board has also 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.
TheGroup has identified ‘Responsible Business’ as a principal
risk which includes environmental issues but a specific climate
change risk is still considered to be emerging within the risk
management process.
Task Force on Climate-related FinancialDisclosures continued
52 Primary Health Properties PLC Annual Report 2022
Strategic report Governance Financial statements Shareholder information
RISK MANAGEMENT CONTINUED
Approach to managing climate risks continued
As a response to these risks, PHP developed and launched the NZC framework, which reduces the overall inherent risk to a much
smaller residual risk, should the framework be implemented successfully over time. Business planning and strategy now takes
into account the commitments set out in the framework and key decisions are made with these commitments in mind primarily
decisions related to investment, development and asset management activities.
Integration with wider corporate risk management process
Responsible Business, including climate change, is one of the principal risks faced by the Group as set out on pages 56 to 62.
Climate-related risks and opportunities are identified and assessed as part of our risk management framework which are considered
by the Board who recognise that this is an increasingly important area.
The Executive and management teams assist the Board in its assessment and monitoring of operational and financial risks. A Risk
Committee is formed of members of the senior management team and chaired by the Chief Financial Officer 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.
METRICS AND TARGETS
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 is set out on page 32.
Relevant material energy and carbon metrics include EPC ratings for our standing assets which are tracked and reported below
along with revenue from BREEAM certified buildings and rental increase from energy efficient refurbishments. These directly link
to our targets to achieve NZC, and minimum EPC and BREEAM ratings, set out in our Responsible Business Report on page 32.
We measure and disclose Scope 1, 2 and 3 emissions (for Downstream Leased Assets) on page 40 and in our EPRA Sustainability
disclosures within the Responsible Business Report on our website. We believe these are the most material and consistent Scope
3 emissions, accounting for an estimated 80% of total emissions. We also measure and track flood risk across the portfolio based
on asset value. These metrics are consistent with cross industry climate related metrics for GHG emissions, transition and physical
risks and opportunities.
We also report our GRESB benchmark performance score and responded for the first time in 2022 to the CDP climate program with
results set out in our Responsible Business Report. We will review our metrics and targets annually and update for future TCFD disclosures.
Financial category Climate category Metric Unit 2022 2021
Revenues Products & Services Revenue BREEAM Very Good & Excellent properties % Revenue 15% 14%
Products & Services Revenue DEC A-C rated properties % Revenue 44% 27%
Products & Services Rent increase from completed AM projects with energy
improvement measures
£ (k) 289 86
Assets Energy source Portfolio energy data coverage (by m
2
) % 60% 20%
Energy source Energy procured by PHP from renewable sources % 76% 13%
Policy & Legal EPC A % Asset value 9% 9%
EPC B % Asset value 26% 26%
EPC C % Asset value 46% 45%
EPC D % Asset value 15% 15%
EPC E-F % Asset value 4% 5%
Extreme weather % Portfolio value assessed as at material exposure to flood risk % 5% 5%
COMPLIANCE STATEMENT
PHP confirms that:
1. We believe our climate related financial disclosures for the year ended 31 December 2022 are consistent with the Task Force
on Climate-related Financial Disclosures (“TCFD”) Recommendations and Recommended Disclosures (as defined in Appendix
1 of the Financial Conduct Authority Listing Rules), with the exception of 4b relating to our Scope 3 emissions where only
Downstream Leased Assets are disclosed currently but which are seen as the most material and consistent source of Scope 3
emissions for the Group. Other categories of Scope 3 emissions will be disclosed in future.
2. Our annual disclosures are contained in the pages above and in the Responsible Business Report on pages 32 to 47, including
commentary on data gaps and performance improvement measures. Further detail on our policies and approach to Responsible
Business are also available on our website.
3. We believe that the detail of these climate related financial disclosures is conveyed in a decision-useful format to the users of
this report.
53Primary Health Properties PLC Annual Report 2022
Strategic report Governance Financial statements Shareholder information
Section 172 statement
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 14)
Financial Review (page24)
Responsible Business
(page 32)
Corporate Governance
Report (page 70)
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.
Staff turnover remains low and 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 three staff meetings during the year.
Stakeholders and people
(pages 43 and 47)
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 46)
Directors’ Report
(page107)
Corporate Governance
Report (page 70)
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 continued our ESG focus to enable the Group’s operational, development
and asset management activities to transition to NZC by 2030 and help our occupiers
achieve NZC by2040.
Responsible Business
(page 32)
Corporate Governance
Report (page 70)
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 32)
Corporate Governance
(page 70)
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 46)
Corporate Governance
Report (page 70)
Examples of how we have exercised our Section 172 duties in practice are set out in the case studies on pages 36, 37, 38 and 39.
54 Primary Health Properties PLC Annual Report 2022
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55Primary Health Properties PLC Annual Report 2022
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Risk management and principal risks
How PHP assesses
itsprospects
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 healthcare 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 (£1.5 million) exposure as a direct
developer of real estate, which means that the Group is not
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; and
• debt funding is procured from a range of providers,
maintaining a spread of maturities and a mix of terms so as
to fix or hedge the majority of interest costs.
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, 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 Chief Financial Officer,
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.
56 Primary Health Properties PLC Annual Report 2022
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OUR RISK MANAGEMENT STRUCTURE
Structure Responsibility
BOARD
Sets strategic objectives
and considers risk as part of
this process.
Determines appropriate risk
appetite levels.
AUDIT COMMITTEE
Reports to the Board on
the effectiveness of risk
management processes
and controls:
• External audit
• Risk surveys
• Health and safety
• Insurance
• Internal audit
SENIOR
MANAGEMENT
Implements and monitors
risk mitigation processes:
• Policies and procedures
• Risk management
andcompliance
• Key performance indicators
• Specialist
third-party reviews
Approach to risk management continued
The Risk Committee reports its processes of risk management
and rating of identified and emerging risks to the Audit
Committee. The risk register is reviewed and updated twice
annually by the Director: Commercial Finance and Financial
Reporting assisted by members of the Risk Committee, and
assesses inherent and emerging 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 management 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.
Monitoring of identified and emerging risks
In completing this assessment the Board continues to
monitor recently identified and emerging risks and their
potential impact on the Group. The manner in which we
have addressed the challenges of the last two years has
demonstrated the resilience of our business model, and our
robust risk management approach, to protect our business
through periods of uncertainty and adapt to a rapidly
changingenvironment.
Since the release of our 2021 full-year results, there is
greater global economic uncertainty. Within the UK, the
main challenges facing the economy are rising interest rates
and heightened inflation, compounded by the impact of the
ongoing war in Ukraine and the increasing risk of recession.
The potential adverse impact of these factors on our business
includes reduced demand for our assets impacting property
values in the investment market, the ability for us to continue
to execute our acquisition and development strategy and
increased financing costs, which could impact our rental income
and earnings. The Board and key Committees have overseen
the Group’s response to the impact of these challenges on
our business and the wider economic influences throughout
the year.
The Board has considered the principal risks and uncertainties
as set out in this Annual Report, in light of the challenging
macroeconomic environment, and do not consider that the
fundamental principal risks and uncertainties facing the Group
have changed. However, our current assessment is the interest
rate and property market principal risks have increased. Whilst
there is still much uncertainty around the future trajectory
of the economy over the coming years, we have set out in
our principal risk tables on the following pages, an update
on the changes to our principal risks and expected impacts
on our business of the macroeconomic uncertainty, and the
mitigating actions and controls we have in place. The Group’s
continued ability to be flexible to adjust and respond to these
external risks as they evolve will be fundamental to the future
performance of our business.
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.
With respect to Brexit and COVID-19, the Board continues to
monitor the situation but does not consider Brexit or COVID-19,
in themselves, to constitute a significant risk to the business.
57Primary Health Properties PLC Annual Report 2022
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Mapping our key risks and residiual risk movement
We use a risk-scoring matrix to ensure we take a consistent
approach when assessing their overall impact. Overall, there
has been an increase in the likelihood and potential impact of
a number of the principal risks over the year, which has been
reached considering wider economic uncertainty and other
external factors, balanced against PHP’s robust business model.
The residual risk exposures of the Company’s principal risks are
shown in the heat map to the left, being the risk after mitigating
actions have been taken to reduce the initial inherent risks.
Grow property portfolio
1. Property markets
andcompetition
2. Financing
Manage effectively
andefficiently
3. Lease expiry management
4. People
5. Responsible business
Diversified, long term
funding
6. Debt financing
7. Interest rates
Deliver progressive
returns
8. Potential over-reliance on
the NHS and HSE
9. Foreign exchange risk
Indicates risk movement
from last year
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. As a result of this
assessment there have been no changes to the number of principal risks faced by the business in the year which are all still
deemed appropriate; however, as a result of the current macroeconomic uncertainty, we have amended risk ratings accordingly.
These are set out below, presented within the strategic objective that they impact:
Grow property portfolio Manage effectively andefficiently Diversified, long term funding Deliver progressive returns
GROW PROPERTY PORTFOLIO
1. Property markets and competition
A C D
KPIs impacted
The primary care property market continues to be attractive to investors
attracted by the secure, government backed income, low void rates and
long lease.
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.
Commentary on risk in
theyear
In terms of values, the Group has
previously benefited from a flight
to income as a consequence of the
wider economic uncertainty seen
in previous years, with demand
increasing from investors seeking
its long term, secure, government
backed cash flows against a
backdrop of limited supply.
A revaluation deficit of -£64.4
million was generated in the year,
driven by NIY widening of 18 bps
in the year.
Interest rate volatility, in particular
gilts and bonds, have had a
negative impact on the property
yields in the sector, despite
gilt rates stabilising in Q4. This
reduces investor sentiment,
competition and attractiveness
of PHP’s assets and consequently
impacted valuations.
Mitigation
The reputation and track record
of the Group in the sector mean it
is able to source forward funded
developments and existing standing
investments from developers,
investors and owner-occupiers.
As a result, the Group has several
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.
Despite the unprecedented
market conditions faced, the
Group continues to have a
strong, identified pipeline of
investment opportunities in the
UKandIreland.
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
High
Likelihood is high and impact of occurrence could be major.
Residual risk rating
2 4 6 8 10 12 14 16 18 20
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.
Likelihood
Impact
8
9
1
2
3
4
5
6
7
Low – 0-5 Medium – 6-14 High – 15-20
Increased Unchanged Decreased
Inherent risk movement in the year
Risk management and principal risks continued
58 Primary Health Properties PLC Annual Report 2022
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GROW PROPERTY PORTFOLIO CONTINUED
2. Financing
G H
KPIs impacted
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 fund investment and development opportunities and implement strategy.
Furthermore, a more general lack of equity or debt available to the sector
could reduce demand for healthcare assets and therefore impact values.
Commentary on risk in
theyear
The Company successfully
completed five debt refinances
during the year, entering into a
€75 million Euro private placement,
refinancing two RCFs of £100
million each with both Barclays
and HSBC, a £50 million RCF with
Santander, as well as extending
the RCF facility with Lloyds from
£50 million to £100 million.
Additionally, credit margins agreed
on these new facilities remain
in line with previous facilities, at
a weighted average margin of
1.6% across these five refinances,
reiterating the confidence in PHP’s
business model shown by the
lending banks.
The Group’s undrawn facilities
mean it currently has headroom of
£326 million.
All covenants have been met
with regard to the Group’s debt
facilities and these all remain
available for their contracted term.
Mitigation
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 Euro
private placement was executed
for a twelve-year term, further
increasing PHP’s average debt
maturity of drawn facilities to
7.3years.
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
High
Likelihood is high and impact of occurrence could be major.
Residual risk rating
2 4 6 8 10 12 14 16 18 20
Medium
The Group takes positive action to ensure continued availability of resource,
maintains a prudent ratio of debt and equity funding and refinances debt
facilities in advance of their maturity.
MANAGE EFFECTIVELY AND EFFICIENTLY
3. Lease expiry management
E F
KPIs impacted
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.
Commentary on risk in
theyear
Lease terms for all property assets
will erode and the importance of
active management to extend the
use of a building remains unchanged.
Mitigation
The Asset and Property
Management teams meet with
occupiers on a regular basis to
discuss the specific property and
the tenant’s aspirations and needs
for its future occupation.
Twenty 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 26 projects that
will be progressed in 2023 and the
coming years.
Only 7.6% of the Group’s income
expires in the next three years and
management is actively managing
these lease expiries.
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
Medium
Likelihood of limited alternative use value is moderate but theimpact of
such values could be serious.
Residual risk rating
2 4 6 8 10 12 14 16 18 20
Medium
Management employs an active asset and property management
programme and has a successful track recordofsecuring enhancement
projects and securing newlong term leases.
Principal risks and uncertainties continued
59Primary Health Properties PLC Annual Report 2022
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MANAGE EFFECTIVELY AND EFFICIENTLY CONTINUED
4. People
F
KPI impacted
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.
Commentary on risk in
theyear
With higher inflation forecast
to continue into 2023 together
with the cost-of-living crisis the
risk of losing a highly skilled and
specialist staff remains at an
elevated state.
Despite business confidence
subsiding in the latter half of
2022, the recruitment market
remains competitive.
Notwithstanding the robust
financial and operational results
in the year, current LTIP awards
are not expected to meet
threshold vesting conditions set
on inception.
Mitigation
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 an LTIP for Executive
Directors and senior management to
incentivise and motivate the team and are
renewed annually and benchmarked to
themarket.
Notice periods are in place for key employees.
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
Medium
Likelihood and potential impact could be medium.
Residual risk rating
2 4 6 8 10 12 14 16 18 20
Medium
The Remuneration Committee has benchmarked remuneration with
the help of remuneration consultants, and reviewed and updated
policies to ensure retention and motivation of the Management team.
5. Responsible business
D E H
KPIs impacted
Risk of non-compliance with Responsible Business practices and
meeting stakeholders’ expectations, leading to possible reduced
access to debtand capital markets, weakened stakeholder
relationships and reputational damage.
Commentary on risk in
theyear
Properties no longer
meet occupiers’ expected
environmentalrequirements.
Stakeholders including investors
and debt providers see ESG as
a key issue and want to see a
sufficiently developed plan to
decarbonise the property portfolio.
There is a risk that we may not
meet the hurdles sought by
stakeholders including equity and
debt investors should PHP not
focus enough on ESG matters,
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 to medium term, notably
minimum EPC ratings.
Mitigation
PHP’s ESG credentials remain at the
forefront of its strategic planning and it has
established an ESG Committee to review
and drive the Group’s ESG agenda forward.
During the year PHP has:
• reviewed the ESG risk and
opportunities register;
• completed the climate transition
risk assessment as part of TCFD
recommendations, quantifying the
business impact;
• provided staff training covering individual
personal development and ESG;
• continued to engage external experts
WTW and Carbon Trust to review our
current ESG agenda and appropriateness
for a listed REIT;
• set, monitored and reported
sustainability targets and hurdles
to ensure acquired assets or asset
management schemes meet specific ESG
criteria, with these same criteria aligned
to investors and debt providers;
• implemented Community Impact Fund
to support social prescribing activities at
the Group’s properties;
• set EPC rating benchmarks to ensure
compliance with the Minimum Energy
Efficiency Standard (‘‘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; and
• worked with our occupiers to improve
the resilience of our assets to climate
change as well as with contractors
which are required to conform to our
responsible development requirements.
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
High
Likelihood is high and impact of occurrence could be major.
Residual risk rating
2 4 6 8 10 12 14 16 18 20
Medium
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.
Principal risks and uncertainties continued
Risk management and principal risks continued
60 Primary Health Properties PLC Annual Report 2022
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DIVERSIFIED, LONG TERM FUNDING
6. Debt financing
G H
KPIs impacted
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.
Commentary on risk in
theyear
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 five debt refinances
during the year, entering into a
€75 million Euro private
placement, refinancing two RCFs
of £100 million each with both
Barclays and HSBC, a £50 million
RCF with Santander, as well as
extending the RCF facility with
Lloyds from £50 million to
£100million.
Mitigation
Existing lenders remain keen to finance PHP
and new entrants to debt capital markets
have increased available resource. Credit
margins agreed on new facilities in the year
remain in line with what has been achieved
in previous years, at a weighted average
of 1.6% across these five refinances,
reiterating the confidence in PHP’s business
model shown by the lending banks.
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.
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
Medium
The likelihood of insufficient facilities is moderate but the impact
of such an event would be serious.
Residual risk rating
2 4 6 8 10 12 14 16 18 20
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.
7. Interest rates
A B F G H
KPIs impacted
Adverse movement in underlying interest rates could adversely affect
the Group’s earnings and cash flows and could impact property
valuations.
Commentary on risk in
theyear
Interest rates have increased
significantly and been volatile
in the second half of the year
because of greater global
uncertainty and the uncertain
macroeconomic/political
environment in the UK.
Interest rates are widely forecast
to remain at higher levels for
the foreseeable future, forcing
us to critically re-evaluate
investment yields on acquisitions
and developments, potentially
limiting the Group’s ability to
profitably acquire investment and
development opportunities and
implement strategy.
Higher interest rates, in particular
gilts and bonds, are likely to
continue having a negative
impact on property yields and
consequently valuations in 2023,
despite some hope being drawn
from the fact that the ten-year gilt
has fallen from the peak of 4.5%
in Sept 2022 to 3.6% at the time
ofreporting.
Any new variable debt funding
needs in 2023 will be subject to
variable interest rates, in addition
to the 6%, of unhedged variable
debt as at 31 December 2022.
Mitigation
The Group holds the majority 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 94% of net
debt is fixed or hedged.
MtM valuation on debt and derivative
movements do not impact on the Group’s
cash flows and are not included in any
covenant test in the Group’s debt facilities.
The Group continues to monitor and
consider further hedging opportunities
inorder to manage exposure to rising
interest rates.
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
High
The likelihood of volatility in interest rate markets is high and the
potential impact if not managed adequately could be major.
Residual risk rating
2 4 6 8 10 12 14 16 18 20
Medium
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, is increasingly
exposed to rising interest rate levels.
Property values are still subject to market conditions which will
continue to be impacted by the interest rate environment.
Principal risks and uncertainties continued
61Primary Health Properties PLC Annual Report 2022
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DELIVER PROGRESSIVE RETURNS
8. Potential over-reliance on the NHS and HSE
D C
KPIs impacted
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.
Commentary on risk in
theyear
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 economic
outlook and the continued
backlog of treatments created
by the COVID-19 pandemic, staff
shortages and recruitment issues
that the NHS faces, we expect
the demand for health services
to continue to grow, driven by
demographics. Despite future
government funding levels in
the UK and Ireland likely being
impacted by any long term,
material change to economic
performance, primary care remains
a critical infrastructure with
no indications of an area being
considered for cuts.
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.
Mitigation
The commitment to primary care is a
stated objective of both the UK and Irish
Governments and on a cross-party basis.
Never has the modernisation of the primary
care estate been more important in order
to reduce the huge backlog of treatments,
and to avoid patients being directed to
understaffed and over-burdened hospitals.
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 characterises the sector,
leading to stability of values.
PHP continues to appraise and invest
in other adjacent, government funded
healthcare related real estate assets.
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
Medium
Likelihood is low but impact of occurrence may be major.
Residual risk rating
2 4 6 8 10 12 14 16 18 20
Medium
Policy risk and general economic conditions are out of the control
of the Board, but proactive measures are taken to monitor
developments and to consider their possible implications for
theGroup.
9. Foreign exchange risk
A B C D
KPIs impacted
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.
Commentary on risk in
theyear
The Group now has 20
investments in Ireland. Asset
values, funding and net income are
denominated in Euros.
The wider macroeconomic and
political environment across
the world continues to cause
exchange rate volatility.
Mitigation
The Board has funded and will continue to
fund its investments in Ireland with Euros
to create a natural hedge between asset
values and liabilities in Ireland.
To hedge out the Euro denominated
income exposure PHP has executed a zero
cost Euro foreign exchange cap and collar
hedging during 2022 to rates between
a range of €1.1675 : £1 and €1.1022 : £1,
for a two-year period to cover net annual
income of €10 million per annum.
Management closely monitors the Euro
to GBP currency rates with its banks
to formulate a formal hedging strategy
against Irish net cash flow.
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
Medium
Likelihood of volatility is high but the potential impact at present
is relatively low due to the quantum of investment in Ireland, albeit
this is increasing.
Residual risk rating
2 4 6 8 10 12 14 16 18 20
Low
PHP has implemented a natural hedging strategy to cover balance
sheet exposure and has hedged out the income exposure for the
period until July 2024.
Principal risks and uncertainties continued
Risk management and principal risks continued
62 Primary Health Properties PLC Annual Report 2022
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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.
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 2025.
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.
The sensitivities applied are generally the same as those used
for the 31 December 2021 assessment which included a 10%
decline in valuations, and 2% increase in variable interest
rates. We believe these remain realistic reasonable worst case
scenarios, having seen an absolute valuation decline of 4% in
H2 2022. Across our various loan facilities, valuations would
need to fall by a further £1.2 billion or 42% before the loan to
value covenants are impacted. Despite a 375bp increase in the
Bank of England base rate during 2022 and up to the time of
this report, many economists and market consensus is pricing
in a further 50-150bp increase during 2023, before inflation
starts decreasing to a more manageable level. We therefore
feel the further 200bp increase in variable interest rates should
remain a sensitivity.
The sensitivities applied 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%/£282 million fall in June 2023;
• 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 2023; 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 at 31 December 2025
31 December
2022
Viability
scenario
Loan to value ratio 45.1% 53.8%
Net debt £1,261m £1,443m
Interest cover ratio 3.45x 2.48x
Adjusted net assets £1,505m £1,209m
Available financial headroom £326m £158m
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
management will actively manage each of the individual loans
within covenant limits and 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. See Note 15 to the financial statements for
aprofile of the Group’s debt maturity.
Harry Hyman
Chief Executive Officer
21 February 2023
63Primary Health Properties PLC Annual Report 2022
Strategic report Governance Financial statements
64 Primary Health Properties PLC Annual Report 2022
Shareholder information
Chairman’s introduction to governance
Maintaining a high level
ofcorporate governance
“ Our clear and strong governance framework
remains of critical importance, and the Board
continues to play a vital role in the way we
do business”
Steven Owen
Non-executive Chairman
STATEMENT OF COMPLIANCE WITH THE CODE
This report sets out the Company’s governance structures and
practices and explains how the Board discharges its duties and
applies the principles and complies with the provisions of the
July 2018 UK Corporate Governance Code (the “Code”), issued
by the Financial Reporting Council (“FRC”) and available at
www.frc.org.uk.
The Board has considered the Company’s compliance with
theprovisions of the Code during the year ended 31 December
2022. The Board confirms that throughout the year ended
31December 2022 and to the date of this report, the Company
was compliant with all the relevant provisions as set out in the
Code, other than Provision 41 as our workforce engagement
this year did not cover an explanation of how executive
remuneration aligns with wider company pay policy and, with
effect from 1 January 2023 to the date of this report, Provision
19 relating to the tenure of the Chair which is fully explained
below and in the Nomination Committee report.
DEAR SHAREHOLDER
Introduction
I am pleased to introduce the governance section of this year’s
Annual Report which gives more detail on the governance
structures we have in place and 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.
As stewards of the Company, the Board is responsible to our
shareholders, customers, employees and other stakeholders
for its long term success. Our long term success in delivering
excellent returns for its shareholders, many of whom are also
employees, was recognised by PHP being judged the winner
ofMSCI’s Highest Ten-Year Risk Adjusted Total Return Award.
This accolade is down to the sound governance framework we
have in place and the excellent work, investment discipline
and dedication of our highly experienced management team,
led by the CEO and founder, Harry Hyman, in delivering high
quality, modern medical centres for GPs and other primary care
professionals in the UK and Ireland.
Board evolution
As announced in December last year, Harry Hyman has
expressed his intention to retire as CEO at the Company’s
Annual General Meeting in 2024.
I was appointed as Chairman of PHP in April 2018, having joined
the Board as a Non-executive Director in January 2014, so that
I have now served as a Director for nine years. In the normal
course of events under the Code, I would retire as Chairman
at the AGM this year. However, the Board has requested that,
following consultation with several of our largest shareholders,
I should stay on as Chairman until the 2024 Annual General
Meeting to lead the process of recruiting and appointing the
new CEO and to ensure an orderly succession on the Board.
Ian Krieger, our Senior Independent Director will be leading
the process for the appointment of my successor at the
2024 Annual General Meeting. In reviewing the composition
of our Board, we will be cognisant of forthcoming targets for
representation on boards of listed companies that will apply
toour next reporting period.
Strategic report Governance Financial statements
65Primary Health Properties PLC Annual Report 2022
Shareholder information
Board evolution continued
Although I was considered to be independent on my
appointment as Chairman, as stated when we made the
announcement about our succession plans, I am no longer
considered to be independent under the Code and so have
stood down as amember of the Remuneration Committee, but
will continue tochair the Nomination Committee.
The appointment of a new CEO to replace Harry, who founded
PHP and has led it with distinction since then, is an extremely
important appointment. The Board will appoint independent
recruitment consultants with no connections with PHP or any
of its directors, to assist in running a thorough and rigorous
search process to identify a diverse pool of candidates from
whom we hope to identify an individual with the skills and
vision necessary to continue the enviable growth record of
the Company. We will report on the result of the process in
due course.
Culture and strategy
Strategy and culture need to be aligned for us to achieve our
corporate purpose and governance has a key role to play in
establishing the culture that we want to create. We aim to be
a key partner to the health services in the United Kingdom and
Ireland in delivering much needed investment into primary care
facilities, which have been demonstrated to improve health
outcomes and reduce referral rates to over-stretched hospitals.
Accordingly, the Board culture seeks to foster an environment
where we conduct our operations with honesty, integrity and
respect for the many people, organisations and localities that
our business touches. In addition, the Board environment
encourages openness, respect, trust and fairness.
Stakeholders and sustainability
The nature of our business, from investing in and developing
properties to managing and improving our spaces for the
delivery of primary care, means we have a continuous
dialogue with a wide group of stakeholders and we consider
our environmental and social impacts in all that we do. This
approach is central to our purpose and our stakeholders’ views
are a key consideration when making decisions which may
affect them. More detail on the Board’s engagement with
shareholders, employees and other stakeholders can be found
on page 46.
On the social side, we are in the second year of our Community
Impact Fund in partnership with UK Community Foundations
to offer grants to charities and community groups that are
focused on social prescribing and community wellbeing. In 2022
we have focused on charities and groups serving our properties
in the North West and North East of England. I am delighted
that several of our employees have also taken advantage of our
volunteering scheme and taken paid time off work to support
a number of worthwhile charities which will benefit both the
charities concerned and the individual volunteers in their
personal and career development.
Our ESG Committee continued to drive forward our
environmental, social and governance agenda. We provide
further details on our initiatives in this important area on pages
46 to 47 and how we discharge our duties under Section 172 of
the Companies Act 2006 on page 54.
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 consider
areas for further improvement. Details of the evaluation and
the main findings of the process are set out on page 79. I am
pleased that the feedback confirms my view that the Board
works effectively, and the Board is working in a collaborative
and open way.
I am therefore able 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 19 April 2023 has been recommended by
the Board for re-election.
AGM
We will be holding our Annual General Meeting on 19 April 2023
and the notice of the meeting, a covering letter from me about
the meeting, explanatory notes for the resolutions to be put to
the meeting and details of your vote are set out on pages 163
to 175 of this document.
I hope that you will be able to join us at the meeting which is
a key forum for shareholders to meet with and discuss matters
with the Board. If you are not able to attend, please either
use the form of proxy that you should find with the Annual
Report or cast your vote electronically as explained on pages
163 and 175.
Looking ahead
I would like to conclude by thanking members of the Board for
their continued support and wholehearted commitment over
the past year. We have all appreciated being able to hold Board
meetings in person once again and have enjoyed the benefits
of more informal engagement in face-to-face meetings both at
Board level and with our employees.
I hope that you find the remaining pages of this Governance
Report informative and useful.
Steven Owen
Chairman
21 February 2023
Strategic report Governance Financial statements
66 Primary Health Properties PLC Annual Report 2022
Shareholder information
Board of Directors
A proven leadership team
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.
1 Steven Owen
Non-executive Chairman
Election to the Board
Steven Owen was appointed to the Board in January 2014,
and following his election at the Annual General Meeting
in April 2014 he took up the position of Chairman of
the Audit Committee and Senior Independent Director.
Steven was appointed Chairman in April 2018 and 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 Interim 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
Interim Executive Chairman of Palace Capital plc.
Independent Non-executive
As Steven has now served on the Board for over
nine years he is no longer regarded as independent
under the Code.
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. 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 (“Nexus”),
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
externally managed 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. In May 2022 he was appointed as a
Non-executive Director at Life Science REIT plc, an
AIM-listed externally managed real estate trust.
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
Non-executive Director of Life Science REIT plc.
Independent Non-executive
Not applicable
N
R SE
S
E
S
E
Strategic report Governance Financial statements
67Primary Health Properties PLC Annual Report 2022
Shareholder information
4 Laure Duhot
Independent 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, where she had also been a Non-executive
Director. She is Chair of the 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, NB Global Monthly Income Fund
Limited and of Orpea S.A., a Paris-listed operator of
retirement homes.
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,
OrpeaS.A. and NB Global Monthly Income Fund Limited.
Independent Non-executive
Yes
5 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. He is
currently Senior Independent Non-executive Director and
Chairman of the audit committee at Safestore Holdings
plc and 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
Non-executive Director of Safestore Holdings plc and
Capital & Regional plc.
Independent Non-executive
Yes
6 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.
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
Non-executive Director of Creo Medical Group plc.
Independent Non-executive
Yes
N RE
A
A
N R SE
N RE
A
Key to Committee membership
A
Audit Committee
N
Nomination Committee
R
Remuneration Committee
E
ESG Committee
S
Standing Committee
Indicates Chair of Committee
BALANCE OF THE BOARD GENDER COMPOSITION OF
THE BOARD
Board skills andexperience
14%
57%
29%
Audit and risk
Finance and banking
Property
1 Chairman
2 Executive
3 Non-executive
4 Male
2 Female
Strategic report Governance Financial statements
68 Primary Health Properties PLC Annual Report 2022
Shareholder information
Senior Leadership Team
David Bateman
Chief Investment Officer
David was appointed Investment Director in
December 2016 and subsequently promoted
to the Executive team in 2021 and became
Chief Investment Officer in 2022. 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 and Chief
Legal Officer (Outgoing)
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.
Paul will be retiring from his role on the
Executive Committee at PHP on 28 February
2023, and will be replaced by Toby Newman.
Toby Newman
Company Secretary and Chief
Legal Officer (Incoming)
Toby joined PHP at the start of 2023, having,
since 2017, been General Counsel & Company
Secretary at national independent hospital,
gym and healthcare services provider Nuffield
Health, where he led a multi-disciplinary team
responsible for all legal matters across its
businesses. Toby is a solicitor with 20 years’
experience, gained in private practice in the
City specialising in M&A, capital markets and
corporate governance, then focusing on the
healthcare sector before moving in house.
Harry Hyman
Chief Executive Officer
Full biography on page 66.
Richard Howell
Chief Financial Officer
Full biography on page 66.
The team are listed opposite, along with
the dates they joined the business.
EXECUTIVE COMMITTEE
MANAGEMENT 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page 69.
The Executive team operates under the direction
and leadership of the Chief Executive and meets
weekly to oversee the day-to-day running ofthe
business and progress in delivering the Board’s
approvedstrategic objectives.
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.
Toby Newman will replace Paul Wright as Company
Secretary on 28February 2023, with Paul retiring
having worked for PHP as Company Secretary and
Chief Legal Officer for the last seven years.
Richard Howell
Chief Financial
Officer
Harry Hyman
Chief Executive Officer
David
Bateman
Chief
Investment
Officer
Toby
Newman
Company
Secretary
David
Austin
Director:
Asset
Management
James
Young
Director:
Property
Management
Oliver
Goodman
Director:
Rent
Reviews
and
Valuation
Michelle
Whitfield
Director:
Operations
andSocial
Liam
Cleary
Director:
Commercial
Finance and
Financial
Reporting
Jesse
Putzel
Director:
ESG
Tony
Coke
Director:
Development
Strategic report Governance Financial statements
69Primary Health Properties PLC Annual Report 2022
Shareholder information
SENIOR MANAGEMENT
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 MedicX.
David is a Chartered Surveyor with over
20years’ post qualification experience with
Jones Lang LaSalle, Axa, LandSec and MWB.
Oliver Goodman
Director: Rent Reviews
andValuation
Oliver joined following the merger with
MedicX 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 complex process of
agreeing rent reviews with District Valuers
in accordance with the detailed regulations
that govern the reimbursement of rents on
GPsurgeries.
Michelle Whitfield
Director: Operations andSocial
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 our 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.
James Young
Director: Property Management
James joined PHP from MedicX 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 over
20years’ experience having worked as a
Property and Asset Manager for the likes of
CBRE, GVA Grimley and Herring Baker Harris.
Tony Coke
Director: Development
Tony is a Chartered Surveyor with over 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.
Liam Cleary
Director: Commercial Finance
andFinancial Reporting
Liam joined following the merger with MedicX
in 2019, and is now responsible for commercial
finance and financial reporting. Liam is a
Chartered Accountant who has over 13 years’
experience working in private and public
companies. Before working at MedicX, Liam
worked at both PwC and Deloitte Touche
Tohmatsu in the UK and in Australia on a
variety of capital market and merger and
acquisition transactions.
Jesse Putzel
Director: ESG
Jesse joined PHP in January 2022 and has
over 18 years’ experience in the 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 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 the Royal Society of
Arts and Cambridge Sustainable Finance
course assessor.
Strategic report Governance Financial statements
70 Primary Health Properties PLC Annual Report 2022
Shareholder information
Corporate governance report
PART A: BOARD LEADERSHIP AND COMPANY PURPOSE
Purpose, strategy, values and culture
The Board has determined that the Company’s purpose is to support the NHS in the United Kingdom and the HSE in Ireland in
tackling the under investment in primary care facilities in both countries. We exist to facilitate the NHS, the HSE, GPs and our
other customers in delivering health services for the communities that they serve. We are proud that our buildings serve a total
patient list of over 6.0 million people in the UK, or 8.9% of the UK population. We also continually invest in our estate through
asset management projects designed toimprove the quality of the buildings, making them more energy efficient and increasing
the number of consulting rooms and other facilities available for treatments.
As described in more detail on pages 15 to 17 of the Strategic Report, our strategy is built around four pillars: Grow, Manage,
Fund and Deliver. Set out in the table below is how the decisions taken by the Board have supported the delivery of this strategy
during the year.
How governance supports our strategy
Strategic
objective Board discussions, decisions and actions in the year Links
Grow
The Board scrutinised proposals for the acquisition of four properties for a total of £52.9 million as
standing let investments and for the investment in the development of two projects in the UK and Ireland
spending £10.6 million in the year.
In addition, the strategic disposal of thirteen assets, generating profits of £2.9 million, was approved by
the Board.
The Board also supported an expanded range of training programmes and mentoring opportunities for
staff at all levels across the business to support their career development and personal growth.
Page 16
Manage
To enhance the capital value of the portfolio, re-gear leases and improve the energy efficiency of
properties, the Board agreed capital expenditure totalling £17.5 million on asset management projects in
the year and an expansion of the asset management team to undertake more projects.
The Board agreed proposals to invest in new facilities’ software systems to improve the maintenance of the
portfolio and deliver facilities management services where PHP is required to under the terms of its leases.
Page 16
Fund
In order to secure committed facilities at historically low interest rates, the Board approved the issue a
new €75 million (£64.6 million) secured private placement loan note to MetLife for a twelve-year term at
a fixed rate of 1.64% to support continued investment in Ireland and renewed facilities with Santander,
HSBC, Barclays and Lloyds Bank.
In order to take advantage of favourable market conditions in the first half of the year, the Board agreed
to dispose of a portfolio of 13 smaller assets for £27.7 million, which capital can be re-deployed in projects
delivering superior anticipated returns.
In light of increased volatility in the exchange rate of the £ and €, the Board took the decision to enter
into a FX hedge to protect excessive fluctuation in the income derived from Ireland.
The Board considered the reports of the ESG Committee after each of its meetings and approved
investment required to meet the ESG targets proposed by the ESG Committee to drive forward our
sustainability initiatives, details of which are set out in the Responsible Business Report, and decided to
launch the PHP Community Impact Fund as part of PHP’s wider ESG initiatives.
Page 17
Deliver
The Board critically reviewed the level of quarterly interim dividends for the year in light of a likely
reduction in the level of revaluation reserves and increased income from rent reviews to ensure a fully
covered dividend. The Board approved the payment of dividends totalling 6.5 pence per share in 2022,
anincrease of 4.8% over 2021 of 6.2 pence per share.
The Board took the decision not to continue to offer a scrip dividend but to introduce a Dividend
Re-Investment Plan for shareholders in light of the fall in the premium over net asset value in the Group’s
share price as a means for shareholders to increase their shareholding in a cost-effective manner.
Page 17
At the same time our strategy has delivered strong and secure returns to shareholders which has been recognised by PHP being
judged the winner of MSCI’s Highest Ten-Year Risk Adjusted Total Return Award. The Board believes that the Group’s portfolio of
properties offer long term and sustainable sources of rental income to underpin the steadily growing returns we offer to shareholders.
Culture and values
The Company’s purpose is core to every decision taken by the Board. As detailed on pages 70 to 71, the Company has a framework
of values and strategic measures that underpin our purpose to ensure that the strategy and culture of the Company are aligned.
Strategic report Governance Financial statements
71Primary Health Properties PLC Annual Report 2022
Shareholder information
PART A: BOARD LEADERSHIP AND COMPANY
PURPOSE CONTINUED
Purpose, strategy, values and culture continued
Culture and values continued
Werecognise that, as guardian of our culture, the Board plays
a vital role in defining the way in which we do business and
the Board sets the tone for the Company. An appropriate
governance structure for decision making, together with
promoting an environment of trust, respect and accountability,
is fundamental to our culture. This attitude and mindset to do
what is right shapes the environment within which the Executive
team and wider workforce works and the way PHP behaves
towards its stakeholders.
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.
The Board continued to monitor the culture of the Company
as the business emerged from the restrictions imposed by the
COVID-19 pandemic and moved into new open-plan offices
near Charing Cross in Central London. The Board approved
theadoption of a hybrid working model with all staff working
inthe office for at least three days per week.
Our size, being only 65 employees, and the regular interaction
of the management committee members and senior leadership
team with the remainder of the workforce, facilitates the
monitoring of culture, which we do in a number of ways
as follows:
• inclusion of culture and value-led questions within our
employee surveys as detailed below;
• regular reporting and feedback from the Executive
Directors and the designated workforce NED following staff
engagement meetings, highlighting what we do well and
where improvements can be made;
• regular face-to-face engagement with employees through
Board site visits and exposure to the senior management
team at the annual strategy session; and
• monitoring of staff turnover rates, whistleblowing and health
and safety incidents.
Going forward, we will look to learn from the changes made to
our business operations as a result of the COVID-19 pandemic,
including the ability to successfully work remotely, as a result
of improvements to the IT infrastructure and widespread use of
virtual meeting platforms.
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. The Company is
led by the Board in its entrepreneurial approach and continues
to innovate to produce sector-leading healthcare facilities in
both the United Kingdom and Ireland. Further details of the
results of the survey can be found on page 44.
Our stakeholders and the Board’s engagement
withthem
Our tenants
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 in our facilities, to understand
their evolving requirements. We are looking to develop strong
relationships with the newly formed integrated care boards in
the NHS in England to understand their key priorities for the
improvement of care in their regions and create an effective
partnership with them to deliver their vision for improved
primary care delivery.
The Board reviewed the results of the tenant survey conducted
in November 2021 and supported proposals from the management
team to revise the method of carrying out the tenant survey
going forward to move away from an online questionnaire
issued to all tenants, to a face-to-face interview as part of a
site visit, so as to better understand the views of tenants and
ensure that we are engaging with the right individuals to gain
feedback on our property and facilities management.
Our communities
Our Community Impact Fund, which was launched in
partnership with the UK Community Foundation during 2021,
was continued in 2022 with grants being made to charities
and community groups focused on delivering social prescribing
and community wellbeing in the North West and North East
of England. At the strategy day, the Board received an
initial report on the work being carried out under the 2021
programme, which was oversubscribed, in both Lincolnshire
and Scotland by 20 organisations funding a range of activities
including counselling, social prescribing awareness and wellbeing
workshops, in areas covered by our medical centres and to
which the GP practices can refer patients. Further information
on this initiative is available on page 42.
The Board also received detailed feedback from PHP’s
participation in the Purpose Coalition’s Levelling Up Goals
focused around good health and wellbeing.
Our employees
PHP undertook its annual staff engagement survey (managed
by an independent third party) in May 2022 to gauge the
current level of staff satisfaction following the London office
relocation in February 2022. Responses were received from
96% of staff (69% in 2020) with nearly 80% of respondents
happy with PHP as an employer.
This was closely followed by an Investors in People (“IIP”)
diagnostic survey, a first step on the route to our goal of IIP
accreditation. The Board considers this would support and
enhance our people strategy, future recruitment and ESG
performance. The IIP survey also allows us to benchmark our
performance against other organisations both within the real
estate sector and more widely. The initial score from the survey
was extremely encouraging for a company newly embarked
on the journey to achieve IIP accreditation, with only a small
margin between the score achieved and the average for all
companies participating in the IIP survey.
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72 Primary Health Properties PLC Annual Report 2022
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Corporate governance report continued
PART A: BOARD LEADERSHIP AND COMPANY
PURPOSE CONTINUED
Our stakeholders and the Board’s engagement
withthem continued
Our employees continued
Laure Duhot, as the designated NED for workforce
engagement, held two face-to-face meetings during the
year with staff. The first was in the London office in July and
the second at our Stratford-upon-Avon office in November.
These sessions ranged openly across a wide number of areas,
including the feedback from the staff surveys, the move to the
new offices in London and management communication in a
hybrid/flexible working practice environment. Laure reported
back her detailed feedback from these sessions, on a non-
attributable basis, to the Board which debated proposals to
address matters raised in these sessions.
In response to feedback received from the designated
workforce NED’s meetings and the staff surveys referred
to above, the Board will focus on the following key action
points in order to drive the right behaviours and support the
development of employees:
• provide training and development opportunities for staff
andlaunch a PHP mentoring programme;
• deliver an amended appraisal framework with greater focus
on career pathway support and development;
• maintain and enhance current staff forum to ensure good
communication and invite engagement, idea generation,
involvement and feedback; and
• review and update the PHP mission and vision statements
and Company values.
Our investors
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.
Ahead of our announcement regarding the succession plan
for the role of the CEO, Steven Owen, in his capacity as the
Chairman of the Nomination Committee, and Ian Krieger,
our Senior Independent Director, presented the proposed
succession and remuneration plans to ten large institutional
shareholders, representing 37% of PHP’s register, none of whom
highlighted any major concerns with the proposals. Ivonne
Cantú, the Chair of our Remuneration Committee, separately
engaged with approximately 20 of our largest shareholders to
discuss changes to the remuneration of the CEO and CFO.
Any shareholders wishing to raise any governance issues may
contact the Chairman, or the Chair of the relevant Committee,
at any time. The Senior Independent Director is also available
to respond to shareholder concerns, when contact through the
normal channels is not appropriate.
We want to create sustainable value for all three types of
investors in our business: institutional, private and debt. It is
important to us that our investors understand our strategy
andequity story, so that they can support the execution of
ourstrategy and our capital recycling.
The Board received detailed feedback from management and
PHP’s brokers following shareholder meetings, roadshows
and results presentations and noted a generally high level
ofsatisfaction with the performance.
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73Primary Health Properties PLC Annual Report 2022
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PART A: BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED
Our stakeholders and the Board’s engagement withthem continued
Our investors continued
Institutional investors Private investors Debt investors
Our Executive Directors once again held
a series of meetings with institutional
investors as part of road shows following
on our full-year and interim results. The
results presentation was conducted in
a hybrid format, with a physical briefing
being held at Buchanan’s office for the
first time since the outbreak of COVID-19
and live conference call and web-cast
facilities were available which were
well attended.
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. During the year, JP Morgan
Cazenove, were also appointed as brokers
to increase our reach, particularly to
overseas investors.
The CEO and CFO undertook an investor
roadshow in the Benelux region to visit
a number of existing and potential
investors and also participated in a
regional roadshow arranged by Capital
Access inBirmingham.
These meetings are an important method
of keeping investors informed of the
Company’s performance and plans,
answering questions they may have
and understanding their views. Topics
discussed 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.
Private investors are an important part
of our shareholder base for whom we
aim to deliver progressive dividend
growth and steady capital appreciation.
Our private investors are encouraged to
give feedback and communicate with
the Board via the Company Secretary
throughout the year.
We were able to hold a physical meeting
for our Annual General Meeting in 2022 for
the first time since 2019. The whole Board
attended and were available to answer
shareholder questions.
All the resolutions put to the meeting
received the overwhelming support of
investors. The results of the voting at
all general meetings are published on
our website.
We work closely with our registrars,
Equiniti, to maintain an efficient share
register and limited paper distributions
and to address all queries that we
receive from our private shareholders
throughout the year.
Our treasury team engaged with US
Bank Trustees Limited, the trustee under
the £70,000,000 Floating Rate secured
bonds due 2025 (the “Bonds”) issued by
PHP Bond Finance PLC and guaranteed
by PHP in order to transition away from
LIBOR to SONIA on the Bonds, and
secured agreement to an amendment
tothe terms of the Bonds.
Regular dialogue is maintained with
all our relationship banks, including
meetings and or conference calls.
Asnoted elsewhere agreement was
reached with Barclays, Lloyds and
HSBC banks with regard to extension
ofexisting credit facilities.
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74 Primary Health Properties PLC Annual Report 2022
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Corporate governance report continued
PART B: DIVISION OF RESPONSIBILITIES
There is a clear written division of responsibilities between
the Chairman (who is responsible for the leadership and
effectiveness of the Board) and the Chief Executive Officer
(who is responsible for the day-to-day operations of the
business) and Senior Independent Director (who is responsible
for supporting the Chair on all governance issues).
The Chairman has regular meetings with the Chief Executive
Officer between scheduled Board meetings to keep abreast of
important developments within the business and to ensure that
these developments are considered by the Board.
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.
Five Committees of the Board have been operating
throughoutthe year: the Audit, Remuneration, Nomination,
ESGand Standing Committees, to which certain powers
havebeen delegated as set out in their terms of
referencewhich can be viewed on our website at
www.phpgroup.co.uk/about-us/corporate-governance.
Thereports of each of the Audit, Remuneration and
NominationCommittees are set out in the following pages and
the report of the ESG Committee can be found on page 33.
This governance structure set out on page 75 ensures that
the Board is able to focus on strategic proposals, property
acquisitions and major transactions and governance matters
which affect the long term success of the business.
The Board has delegated authority for the day-to-day
management of the business to the Chief Executive Officer,
who is supported in discharging these duties by two standing
executive committees as shown on page 75.
There is a written framework of delegated authorities setting
out the financial parameters within which the Executive
Directors and senior management team may act without
reference to the Board, although any proposal could still be
taken to the fullBoard for consideration and approval where
this is considered appropriate.
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75Primary Health Properties PLC Annual Report 2022
Shareholder information
OUR GOVERNANCE STRUCTURE
Board of Directors
Chair: Steven Owen
• The Board 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
Audit Committee
Chair: Ian Krieger
• Oversees the quality of financial and
narrativereporting
• Scrutinises significant judgements made
bymanagement
• Provides assurance on internal controls,
riskmanagement and audit processes
• Evaluates the performance of the
externalauditor
• Obtains assurance regarding the objectivity
ofthe valuers
Members: Ian Krieger, Ivonne Cantú and
LaureDuhot
Standing Committee
Chair: Steven Owen
• Approves dividend announcements and
implementation
• Approves the allotment and issue of new shares in
connection with the Company’s share plans or
dividend plans
• Approves other formal matters that require the
approval of the Board or a duly authorised
committee between scheduled meetings of the
Board and also acts as the disclosure committee
Members: Steven Owen, Richard Howell, Ian Krieger
and Harry Hyman
ESG Committee
Chair: Laure Duhot
• Assists in the development of ESG strategy
• Develop and monitors policies on ESG matters
• Develops and monitors social impact initiatives
• Considers opportunities for environmental initiatives
in portfolio
Members: Laure Duhot, Ivonne Cantú, Steven Owen,
IanKrieger, Harry Hyman, Richard Howell, David Bateman
and Jesse Putzel
Remuneration Committee
Chair: Ivonne Cantú
• Determines and implements Remuneration Policy
• Sets remuneration packages and incentives for
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
Members: Ivonne Cantú, Steven Owen (stepped
down 2023), Laure Duhot and Ian Krieger
Nomination Committee
Chair: 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
Members: Steven Owen, Ian Krieger, Ivonne Cantú
and Laure Duhot
Risk Committee
• 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
Members: Richard Howell (Chair), Ian Krieger,
HarryHyman, James Young, Liam Cleary and
CompanySecretary
Management Committee
• Reviews investment opportunities for consideration
by the Board and approves any investment decisions
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
Members: Harry Hyman (Chair), Richard Howell, David
Bateman and Company Secretary
OTHER NON-BOARD COMMITTEES
PART B: DIVISION OF RESPONSIBILITIES CONTINUED
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76 Primary Health Properties PLC Annual Report 2022
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Corporate governance report continued
PART B: DIVISION OF RESPONSIBILITIES CONTINUED
How the Board functions
Regular Board and Committee meetings are scheduled throughout the year with five scheduled meetings held in 2022. The Board
has a formal schedule of matters specifically reserved for its decisions, which includes (amongst other things) various strategic,
financial and operational responsibilities. A summary of the key activities of the Board during the year can be found on page 77.
The Standing Committee has certain matters delegated to it as noted above. In addition, if the Board needs to meet to make a
decision on significant investment opportunities and other matters outside of the authority of the Executive Directors that arise
between scheduled meetings the Board can do so by meeting by video-conference or give unanimous approval by email, but
will only do so in such situations where a detailed investment proposal has been circulated to the Board or the matter has been
discussed at a previous meeting so that all the Directors are fully apprised, have had the opportunity to ask questions and are in a
position to make a fully informed decision on the matter.
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.
There is also regular informal contact between the Executive and Non-executive Directors between scheduled Board meetings.
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.
Role Responsibilities
Chair
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 about developments between Board meetings
• Monitors progress against strategy and performance
• Ensures all stakeholders’ views are considered
Senior
Independent
Director
Ian Krieger
• Provides a sounding board for the Chair
• Leads performance evaluation of the Chair
• Is available to respond to shareholders’ concerns when contact through the normal channels is not appropriate
Non-executive
Directors
Ivonne Cantú
Laure Duhot
• 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 Chair 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
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77Primary Health Properties PLC Annual Report 2022
Shareholder information
Meetings in the year
Details of the attendance of each of the Directors who served during the year are set out below:
Director
Board
(total in year – 5)
Audit
Committee
(total in year – 4)
Nomination
Committee
(total in year – 2)
ESG
Committee
(total in year – 3)
Remuneration
Committee
(total in year – 5)
Steven Owen 5 — 2 3 5
Harry Hyman 5 — — — —
Richard Howell 5 — — — —
Ivonne Cantú 5 4 2 3 5
Peter Cole
1
1 1 1 1 2
Laure Duhot 5 — 2 3 5
Ian Krieger 5 4 2 3 5
1 Peter Cole retired from the Board following the conclusion of the Company’s Annual General Meeting in 2022.
The table below set outs out a summary of the key issues considered by the Board at its meetings during the year:
February
• Financing growth in Ireland via issue of €75 million senior secured guaranteed notes
• Investment into a large private diagnostics centre in Chiswick
• Critical examination of the year-end property valuations
• Approval of the preliminary announcement of results and the 2021 Annual Report
• Changes to the terms of reference of the Board’s Standing Committee
• Consideration of an updated statement under the Modern Slavery Act
April
• Examined the additional due diligence process to ensure the quality of the overall covenant strength in the portfolio is not diluted by a
strategy of diversification in health-related assets
• Consideration of the voting at the Annual General Meeting and the reasons for any votes against resolutions
• Reviewed bids submitted for the sale of a portfolio of 13 properties and agreed to sell for over £27 million on the basis that the sale was
above the carrying valuation of those assets and would provide capital to redeploy more effectively
July
• Careful consideration of the results of the interim valuation in the context of rising interest rates
• Approval of the interim results for release
• Consideration of proposals to acquire the Strawberry Hill Medical Centre, a standing let investment in Newbury
• Secured extensions to facilities of £100 million each with Barclays and Lloyds banks
• Approval of hedging of revenue FX risks
• Discussion of the results of staff engagement and Investors in People surveys
October
• Reviewed the forecast outcome for 2022 and considered the 2023 budget in the light of strategy discussions
• Agreed to pause acquisition activity given the economic headwinds and proceed cautiously with existing development projects
• Considered our tactical responses to the economic uncertainties caused by the mini-budget and affecting the property markets
December
• Continued to review the Group’s strategic response to the increase in interest rates and the impact on investment activity in the UK primary
care market. Reviewed and approved proposals to acquire Axis in Ireland and to enter into an agreement with Axis Healthcare Assets
Limited granting the Group an option toacquire a development pipeline in Ireland
• Agreed the succession plan for the positions of the CEO and Chairman and the announcement made on 12 December 2022 via RNS
• Approved the budget for 2023 and three-year business plan for the period to the end of 2025
PART B: DIVISION OF RESPONSIBILITIES CONTINUED
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78 Primary Health Properties PLC Annual Report 2022
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Corporate governance report continued
PART B: DIVISION OF RESPONSIBILITIES
CONTINUED
Strategy meeting
The strategy meeting is held as a separate meeting outside the
regular Board schedule and attended by all the Directors and
the senior management team, and allows the members of the
Board to meet and discuss issues relating to the business with
members of the senior management team who do not attend
Board meetings on a regular basis.
The 2022 strategy meeting was held in Manchester. The
location of the meeting allowed the Board to visit a total of
four of the Group’s larger medical centres, two of which are
located in Bury (Moorgate Primary Care Centre and Townside
Primary Care Centre) and two in Bolton (Levers Chambers
Centre for Health and Waters Meeting Health Centre). the
visits gave an insight into the range of community services
delivered from these properties in areas of relative deprivation.
The visits also gave an opportunity to meet with and discuss
with some of the healthcare workers at these facilities their
requirements from the properties.
The Board had been provided in advance of the strategy
day with the results of the research project undertaken with
King’s College London on the positive impact of investment
into primary care facilities on reducing the level of patient
referrals to Accident and Emergency departments. The Lever
Chambers Centre for Health, which was the subject of a large
refurbishment project in 2019, has shown a 22% reduction in
referral rates since that investment.
These site visits reinforced the Board’s view of the importance
of investment in modern primary care facilities and 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 at one location, is the
correct response to the evolving requirements for the delivery
of primary care. The session also provided the Board with a
valuable understanding of the challenges facing GPs and other
healthcare workers, particularly following the pandemic, and
how innovative practices have responded.
In preparation for the strategy meeting, the Board received a
background reading pack that included a detailed review of
the primary care property market, noting the increased investor
interest in the sector with several new investors 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 preceded the strategy day 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 Chair, three Independent Non-executive Directors and
two Executive Directors. During the year the majority of the
Board consisted of Independent Non-executive Directors, as
the Chairman continued to be independent until the ninth
anniversary of his appointment to the Board on 1 January 2023.
The Board continues to comply with the Code, in that at least
half of the Board are Independent Non-executive Directors.
Details of the composition of the Board by gender are set out
on page 67.
Biographical information on each of our Directors can be found
on pages 66 and 67, which shows the breadth of strategic and
financial management insight brought to our Board and that,
Ivonne Cantú, Laure Duhot, 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 mix of experienced individuals
on the Board. The Non-executive Directors 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.
We believe that a Board of six Directors is the right number for
a company of the size of PHP with a clear and focused business
strategy. This size of Board facilitates all members of the Board
to develop a close understanding and allows the development
of open debate.
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 an induction
programme to enable them to integrate into the Board as
quickly as possible and feel able to contribute to business and
strategy discussions with enough background knowledge.
On joining the Board, Ivonne Cantú received a tailored
induction programme delivered by the Company Secretary.
Theinduction process included the following elements:
• meetings with the Chairman and other Board members;
• full supporting pack of relevant materials to give insight into
strategy, structure and operations, as well as the Group’s
governance framework, policies and procedures;
• meeting with the Company’s advisers, including with Korn
Ferry, PHP’s remuneration advisers, to understand the design
and implementation of the Group’s remuneration policies; and
• meetings with senior members of the management team
atBurdett House.
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79Primary Health Properties PLC Annual Report 2022
Shareholder information
The Directors receive regular updates in their Board papers, facilitating greater awareness and understanding of the Group’s
business. In July, Deloitte provided the Board with a presentation on the UK Government’s proposals on restoring trust in audit
and corporate governance and their implications for the Board and the Audit Committee. The session covered the potential
impact of the proposals, including the proposed publication of a resilience statement and audit and assurance policy and the
proposed requirement for the Directors to attest to the efficacy of internal controls.
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.
Board evaluation
Last year the Board evaluation was conducted by an external firm, Gould Consulting, who had no connection with PHP or
its Board, 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.
This year the evaluation was conducted by the Company Secretary using a paper based questionnaire that sought to build on
the prior year’s survey and probe areas highlighted in the work undertaken by Gould Consulting. The results were collated by
him anonymously and reviewed together with the Chair to consider any themes that had been identified ahead of discussion
of these issues by the Directors at the Nomination Committee meeting held in December which also considered next steps
and recommendations which are set out below. The Chair will continue his practice of having regular discussions with each of
the Non-executive Directors and will base some of these discussions around the feedback and progress against the actions
identified below.
The Chair conducted an evaluation of the performance of each of the individual Directors as a separate exercise. Ian Krieger,
Senior Independent Non-executive Director, led an evaluation of the performance of the Chair with the individualDirectors.
Overall, the results of the evaluation process reflected well on the Board and the tone set by the Chair and the Chief Executive
and that they 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 2021 evaluation and the 2022 evaluation, as well as the actions taken in response to the 2021
evaluation, are set out below:
2021 evaluation outcomes Actions in 2022 2022 evaluation outcomes
It was agreed to increase the
opportunities for the Board to engage with
the workforce to assess and develop the
Group’s culture.
The members of the Board met with
a range of employees at an event to
celebrate the move to new offices at
Burdett House. Laure Duhot also met
with staff at both the London and
Stratford-upon-Avon offices as part
of her work on staff engagement and
reported her findings to the Board.
There was a desire to undertake a review
of the internal control processes of
management to ensure that these are
robust, well-documented and understood
ahead of any proposed legislative or
regulatory changes.
There was a desire to undertake a deeper
and detailed review of key areas of the
business at Board meetings.
The Board undertook a deeper review of
the risks and opportunities represented
by the Group’s development activity at
the strategy meeting in October.
It was agreed to continue the practice of
having a detailed examination of further key
areas within the business being brought to
the Board for in-depth discussion.
Further work will be undertaken to
continue strengthening risk management
processes, in light of climate change.
The Board commissioned a project on
climate related risks from Willis Towers
Watson which was presented to the
ESG Committee and integrated into the
Company’s risk register.
Further work will be undertaken on the
implication of potential changes to the
NHS and the structure of primary care to
ensure that the Group is well-positioned
to respond strategically.
The Board intends to review the implementation of these recommendations as part of its evaluation process in 2023 and will
report on progress in next year’s Annual Report.
PART C: COMPOSITION, SUCCESSION ANDEVALUATION CONTINUED
Board induction and training continued
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80 Primary Health Properties PLC Annual Report 2022
Shareholder information
Corporate governance report continued
PART C: COMPOSITION, SUCCESSION
ANDEVALUATION CONTINUED
Conflicts and commitment
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. Any conflicts of interest are recorded and reviewed
by the Board at each meeting. Directors have a duty to keep
the Board updated about any changes to these conflicts.
The Company Secretary maintains the register of approved
conflicts of interest through this process. 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). Anyconflicts
or potential conflicts considered by the Board and any
authorisations given are recorded in the Board minutes
andinthe register referred to above.
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.
The Board has delegated to the Nomination Committee
the review of the external commitments of the Directors
and further detail on how the Nomination Committee have
undertaken this work are set out in its report on pages 88 to 89.
The Company provides the Non-executive Directors with
appropriate support and facilities for the consideration of the
Company’s strategy and performance, and dialogue with the
Chair is encouraged so that any issues regarding time pressures
or conflicting commitments are addressed appropriately.
Information and support
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 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 and 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.
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.
After each Board meeting, the Company Secretary operates a
comprehensive follow-up procedure to ensure that actions are
completed as agreed by the Board.
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81Primary Health Properties PLC Annual Report 2022
Shareholder information
PART D: AUDIT, RISK MANAGEMENT AND
INTERNAL CONTROL
The Board is responsible for:
• the company’s risk management and internal control
systems and for reviewing their effectiveness:
• the on-going processes for identifying, evaluating and
managing the principal risks faced by the company;
• ensuring that the systems have been in place for the year
under review and up to the date of approval of the annual
report and accounts; and
• regularly reviewing these systems.
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 Report of
the Audit Committee is on pages 82 to 87.
Financial and business reporting
The Board is responsible for preparing the Annual Report
and confirms in the Directors’ Responsibilities Statement
set out on page 111 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 Report of
the Audit Committee to whom the Board has delegated the
consideration of the Annual Report. The basis on which the
Company creates and preserves value over the long term is
described in the Strategic Report.
Risk management
The Risk Committee is tasked with reviewing the Group’s
risk horizon and preparing a detailed risk register which it
presents for consideration by the Audit Committee. The Audit
Committee subsequently makes recommendations in respect
of the Group’s principal and emerging risks, risk appetite and
key risk indicators to the Board which determines the extent
and nature of the risks it is prepared to take in order to achieve
the Company’s strategic objectives. 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 56 to 62.
During the course of its review for the year ended 31 December
2022, 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 Chair
and accordingly he was a member of the Remuneration
Committee throughout the year to 31 December 2022.
AsSteven Owen has now served as a Non-executive Director
for
over nine years, he has, in accordance with the recommendation
of the Code, stood down as a member of the Remuneration
Committee with effect from the start of 2023.
This year has been a busy one for the Remuneration
Committee. Details of this and the work of the Remuneration
Committee are set out in its report on pages 90 to 92.
Strategic report Governance Financial statements
82 Primary Health Properties PLC Annual Report 2022
Shareholder information
Audit Committee report
Dear shareholder,
I am delighted to present my report as Chair of the Audit
Committee and over the coming pages you will see how the
Committee has discharged its responsibilities during the year.
Composition
Membership of the Committee is restricted solely to
Independent Non-executive Directors. Ivonne Cantú joined the
Committee on her appointment to the Board on 2 January 2022
and Peter Cole stepped down from the Committee after the
2022 Annual General Meeting on 27 April 2022. All the
members of the Committee have considerable commercial
knowledge and industry experience necessary to fulfil the
Committee’s duties and responsibilities and receive regular
updates on business, regulatory, financial reporting and
accounting matters. I am the Committee’s designated financial
expert for the purposes of the Code.
In addition to the members of the Committee, the following
individuals attended by invitation: the Chief Financial Officer
and the Group Financial Controller; the Chief Executive Officer
and the Chair; the audit partner and senior managers from the
auditor; and representatives from PHP’s valuers.
As Chair, 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 recent and relevant financial experience. The members
of the Committee also evaluate the performance of the
Committee during the year.
Meetings
During the year the Committee met four times: three of these
meetings followed our annual programme which is aligned to
the Company’s financial reporting timetable and agreed at
the start of the year. The additional meeting in October was
to consider the results of the audit tender which we carried
out in the year when the members of the Committee met with
representatives of both firms which put in tenders for our audit.
At the December meeting, the Committee reviewed the risk
management and internal control processes and considered
the year-end audit plan and agreed that going forward we
would hold four meetings each year to ensure that sufficient
time can be devoted to the topic of internal controls and risk
management, given the increased regulatory focus in this area.
Time is allocated for the Committee to challenge the
external auditor 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 an Audit Committee meeting, the
Committee meets separately with Deloitte without any other
member of management being present.
The Committee has formal, agreed terms of reference which
are available for viewing on the Company’s website at
www.phpgroup.co.uk/about-us/corporate-governance.
Ian Krieger
Chair of the Audit Committee
MEMBERS OF THE AUDIT COMMITTEE
(THE“COMMITTEE”)
Member
Number of meetings
and attendance
while in post
Ian Krieger (Chair) 4 (4)
Ivonne Cantú 4 (4)
Laure Duhot 4 (4)
Peter Cole 1 ( 1) *
* Peter Cole stood down as a Director at the 2022 Annual General Meeting
inApril 2022.
Bracketed numbers indicate the number of meetings the member was eligible
toattend.
Key responsibilities
Financial reporting
• Monitors the integrity of the financial reporting process.
• Scrutinises the full and half-year financial statements.
• Considers and challenges the key financial judgements.
For further
information
see page 83
Risk management and internal control
• Oversees the internal control processes.
• Assesses the need for an internal audit function.
• Reviews the risk management framework.
• Ensures risks are carefully identified, assessed and mitigated.
For further
information
see page 83
External auditor
• Reviews the performance, independence and effectiveness
ofthe external auditor and audit process.
For further
information
see page 83
Regulatory compliance
• Reviews the viability statement and going concern basis
ofpreparation of the financial statements.
• Considers whether the Annual Report is “fair, balanced
andunderstandable”.
• Monitors compliance with applicable laws and regulations.
For further
information
see page 84
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83Primary Health Properties PLC Annual Report 2022
Shareholder information
Our work in 2022
Our remit is unchanged from previous years, that is,
independently to oversee and 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 valuation of the Group’s portfolio at both the half year and
at the year end and require the valuers to attend our meetings
so that we can interrogate them on the assumptions and
methodologies used in reaching their valuations.
The other important aspect of our work is that the Committee
reviews the Company’s risk management framework and internal
control procedures in place to ensure they remain robust and are
implemented effectively. There are currently proposals from the
Government to reform financial reporting that are likely to place
greater focus on the effectiveness of internal controls and the
Committee has reviewed the plan of work being undertaken by
management in preparation for these anticipated changes.
Special projects
In the year, the Committee was involved in two issues outside
the usual cycle of matters for its consideration.
In the first half of the year, we considered the composition
ofthe team of valuers which undertakes the valuation of the
portfolio. Last year the Company engaged three firms to
conduct its portfolio valuation: Lambert Smith Hampton and
Jones Lang LaSalle in the UK; and CBRE in Ireland. As the lead
partner at Lambert Smith Hampton, who had worked on the
PHP portfolio for many years, announced he was retiring, it
wasconsidered an appropriate moment to seek a tender for
thevaluation. Four firms, Lambert Smith Hampton, CBRE,
Avison Young and Knight Frank, were invited to tender for
thatportion of the UK valuation work currently conducted
byLambert Smith Hampton.
As Chairman of the Committee, I met with the preferred firm,
Avison Young, and the members of the Committee all received
a copy of its presentation. After consideration, the Committee
agreed to recommend the appointment of Avison Young to
conduct the valuation in the UK at the year end alongside
Jones Lang LaSalle to the Board. Lambert Smith Hampton
conducted the valuation at the half year with Avison Young
receiving all the information provided to it by management in
order for the new firm to be familiar with the portfolio and be
well placed to conduct the valuation at the year end.
As reported in the report of the Committee in the 2021 Annual
Report, Deloitte LLP (“Deloitte”) has been in office for nine years
now and during the year we conducted a process to retender the
audit. the tender process complied with the requirements of the
Statutory Audit Services for Large Companies Order 2014. A
number of firms were approached to tender for theaudit although
only one other firm, MazarsLLP, a challenger firm, submitted a
tender alongside ourexisting auditor.
The Committee held a special meeting to receive impressive
presentations from both tendering firms and concluded that
both of these firms had the necessary resources and capabilities to
deliver a good audit. Following the review, the Committee
decided that in a period ofparticular economic and market
uncertainty and change, therewere merits in having continuity
of auditors. Accordingly, we have recommended to the Board the
re-appointment of Deloitte at the AGM in April 2023 and a
resolution to appoint them is included in the Notice of Annual
General Meeting on page 165.
Regular tasks
The work undertaken this year has included the consideration,
review and approval of 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;
• reviewing any feedback received from shareholders,
following engagement with them around the announcement
of results, and from the FRC in relation to the Group’s
financial statements; 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 climate change, and 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 and its
objectivity, effectiveness and independence, as well as the
terms of its engagement and scope of its audit and
challenging 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;
• reviewing and approving the plan for the conduct of an audit
tender process; and
• recommending the re-appointment of Deloitte LLP as external
auditor following the tender process described above.
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84 Primary Health Properties PLC Annual Report 2022
Shareholder information
Audit Committee report continued
Our work in 2022 continued
Regular tasks continued
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 the
Company Secretary or with the lead auditor;
• reviewing the Company’s REIT compliance and tax strategy;
• considering 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.
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 increased costs
of capital and the smaller volume of
comparator transactions in the healthcare
sector, in contrast with more mainstream
property sectors, such as offices.
The portfolio is independently valued by Avison Young and Jones Lang LaSalle
in the UK and by CBRE in Ireland (the “Valuers”), in accordance with IAS 40
Investment property. As described on page 83 above, Avison Young replaced
Lambert Smith Hampton after the 30 June 2022 valuation following a tender
process. 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, challenge, debate and consider the valuation process; understand any
particular issues encountered in the valuation; and discuss the processes and
methodologies used.
This dialogue allowed the Committee to scrutinise the valuation process, and
ensure the Valuers remained independent, objective and effective.
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. It reports 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, and
financing and leasing transactions is
arecurring risk for the Group with
non-standard accounting entries
required, and in some cases management
judgement applied.
During the year the Group made a number of acquisitions, and disposed of a
portfolio of 13 smaller properties at above their carrying valuation. The Committee
reviewed management papers on key judgements, 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 the 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 acquisitions
wasappropriate.
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85Primary Health Properties PLC Annual Report 2022
Shareholder information
Significant issue Actions taken
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 four debt facilities, the
Barclays £100 million RCF, HSBC £100 million RCF, Santander £50 million RCF and
Lloyds £50 million RCF that was also extended to £100 million.
The Committee considered the finance team’s paper on the proposed treatment
of these transactions under IFRS 9 and agreed that they had been appropriately
accounted for.
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 Audit Committee and
the Board. In undertaking its review, the Committee considered:
• the suitability of the accounting policies adopted and
whether management had made appropriate estimates
andjudgements;
• 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.
The Committee reviewed accounting papers prepared by
management which provided details on the main financial
reporting judgements. The Committee also reviewed reports
bythe external auditor on the full-year and half-year results
which highlighted any issues with respect to the work
undertaken on the year-end audit and half-year review.
The Committee paid particular attention to matters it considered
important by virtue of their impact on the Group’s results and
remuneration, and particularly those which involved a high level
of complexity, judgement or estimation by management, as
noted above.
Developments in accounting regulations and best practice
in financial reporting are monitored by the Company and,
where appropriate, reflect 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 Audit 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 including ensuring that
there was consistency between the financial results and the
narrative provided. The Committee is satisfied that alternative
performance measures used, not defined under IFRS, are
consistent with how management measures and judges the
Group’s financial performance.
After reviewing the contents of this year’s Annual Report and
Financial Statements and 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. In forming this view, the
Committee considered the overall review and confirmation
process around the Annual Report and Financial Statements
and going concern and viability statements.
The Audit Committee also challenged the assumptions and
processes underlying the financial forecasts produced in
support of the going concern and viability statements in the
Annual Report and satisfied itself that the assumption were
robust and the forecasts properly prepared and reasonable.
Significant issues considered in relation to the financial statements continued
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86 Primary Health Properties PLC Annual Report 2022
Shareholder information
Audit Committee report continued
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 preparation
of a detailed risk register is the responsibility of the Risk
Committee, which reports to the Committee at least twice
a year on risk matters, following which the principal risks
identified are brought to the Board. 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 56 to 62.
The Board as a whole, including the Audit Committee
members, considered whether the nature and extent of PHP’s
risk management framework were 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 Group has worked with Willis Towers Watson to develop
a separate environmental risk register to seek to identify
the main emerging physical and transition risks associated
with climate change and the associated governmental policy
responses; in particular, increasing legislative standards for
operational building energy efficiency standards and the stated
ambition of the NHS to achieve a net zero 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 Audit Committee as part of its monitoring of the 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 systems of internal control, which were reviewed
and updated following completion of the internalisation
transaction in 2021, 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
whistleblowing issues.
In reviewing the periodic financial reports of the Group,
theCommittee is reliant on the policies and procedures
followed by management 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 Audit Committee also receives a report from the
CFO to assist the Board in assessing the adoption of policies
and procedures and making the disclosures. No significant
deficiencies in internal control have been identified.
The Government have published a White Paper in response
to proposals from BEIS for reforms to restore trust in audit
and corporate governance. We welcome the reforms as a
positive change to the regulatory environment. In anticipation
of significant changes, we have conducted preliminary
internal readiness assessments and will review the plans
ofmanagement during the coming year.
Effectiveness of external auditor
One of the key responsibilities of the Audit 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 2022 financial statements, the primary risks
identified were in relation to the valuation of the property
portfolio, given the general decline in the value of real estate
assets and the shortage of comparable transactional evidence
as activity in the property market reduced significantly towards
the end of the year, and management override of controls. It is
also standard practice for the Audit Committee to also meet
privately with the external auditor to gauge the effectiveness
ofits 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 Deloitte during the audit tender
process, the Committee is satisfied with the effectiveness
ofthe auditor and therefore recommended the appointment
ofDeloitte as external auditor for 2023.
It is the Committee’s policy to ensure that there is audit partner
rotation every five years to safeguard the external auditor’s
independence and objectivity. Sarah Tubridy was appointed
as lead audit partner following the 2017 audit and has now
completed her fifth year in office. Following the successful
tender for the audit by Deloitte, Daryl Winstone will take over
as lead audit partner for the next audit in 2023.
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87Primary Health Properties PLC Annual Report 2022
Shareholder information
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 Adviser 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 an 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 2022, fees for audit services amounted to £0.6 million and
the non-audit fees amounted to £0.1 million.
The non-audit fee for 2022 equates to 14% of the average audit
fees of the last three years.
The table below sets out the ratio of audit to non-audit fees
foreach of the past three years.
2022 2021 2020
Audit fee £603,000 £510,000 £500,000
Non-audit fee £77,000 £100,000 £35,000
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
As a consequence of the tender process administered by
the Audit Committee which is described on page 86, the
Committee made a recommendation to the Board to re-appoint
Deloitte as its preferred appointee.
Resolutions to re-appoint Deloitte as auditor and to authorise
the Committee to agree its remuneration will be put to
shareholders at the Annual General Meeting on 19 April 2023.
Internal audit
The Group does not have a separate internal audit function
and the Board, 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 Committee did not feel an internal audit
function was either appropriate or necessary.
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
atBurdett House, 15-16 Buckingham Street, London WC2 6DU.
Ian Krieger
Chair of the Audit Committee
21 February 2023
Strategic report Governance Financial statements
88 Primary Health Properties PLC Annual Report 2022
Shareholder information
Nomination Committee report
Dear shareholder,
I am pleased to present the Nomination Committee Report to
shareholders for the year to 31 December 2022.
Last year’s Nomination Committee Report reported the Committee’s
activity in seeking to appoint a new Non-executive Director to ensure
that the Board achieved its stated intention to target compliance
with the Hampton-Alexander and Parker recommendations on Board
diversity by the time the Company held its AGM in 2022.
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 robust succession plans in place to ensure continuity,
promote diversity for Board and senior management positions
and implement a robust evaluation process to ensure the Board
and Committees are working effectively.
Activities of the Committee during the year
Succession planning
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. In 2022, the
Nomination Committee under my leadership produced a plan
for the succession to the role of Chief Executive Officer, as
Harry Hyman indicated that he intended to step down from
this role at the Annual General Meeting in 2024, in line with the
commitment he made at the time of the merger with MedicX in
March 2019 to continue for a period of five years.
Accordingly, Ian Krieger and I met with a number of our largest
shareholders to present and discuss our succession plans in
September and October. I am pleased that this consultation
indicated support for the plan which will involve me staying on
as Chairman post reaching my nine-year anniversary of
appointment until the AGM in 2024 in order to lead this
important search. Once wehave identified a suitable candidate
to take over from HarryHyman, the Committee, under Ian
Krieger, will lead a search for my replacement. The Committee
will use an independent external search firm to help with both
these engagements, and we will report on the outcome of this
process in due course.
The Committee has also widened its remit to oversee succession
plans across the senior management team and hasworked with the
Executive Directors to develop succession plans for every member
of the senior management team as a part of the annual appraisal
process. This will ensure that the execution of the Company’s
strategy is not dependent on any one individual and improve our
processes for identifying and developing our internal talent.
Appointments
It is the responsibility of the Nomination Committee to maintain
an appropriate combination of skills and capabilities among our
Directors. The Nomination 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 skill throughout the business.
Ivonne Cantú was appointed to the Board with effect from
1 January 2022 as we recognised the rationalisation of the
overall size of our Board had resulted in a reduction in our
female representation on the Board. Peter Cole, who had
served as a Non-executive Director since 2018, stood down
from the Board at the Annual General Meeting in 2022.
Steven Owen
Chair of the Nomination Committee
MEMBERS OF THE NOMINATION COMMITTEE
(THE “COMMITTEE”) DURING THE YEAR
Member
Number of meetings
and attendance
while in post
Steven Owen (Chair) 2 (2)
Ivonne Cantú 2 (2)
Peter Cole 1 (1)
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.
• Ensures the Board comprises individuals with the necessary
skills, knowledge and experience to be effective in discharging
its responsibilities.
• 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.
For further
information
see page 88
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.
For further
information
see page 89
Performance evaluation
• Leads the annual Board and Committee evaluation exercise.
For further
information
see page 89
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.
For further
information
see page 89
Strategic report Governance Financial statements
89Primary Health Properties PLC Annual Report 2022
Shareholder information
Activities of the Committee during the year continued
Diversity
The Board’s policy on equality, diversity and inclusion recognises
the importance of diversity in the broadest sense 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.
During the year, the existing policy was reviewed and it was
agreed to revise this to ensure that it extended explicitly to all
appointments across our organisation. In addition, the Board
supported the roll-out of diversity training for employees across
the Group. I am pleased that following the Annual General
Meeting, our Board now consists of six members, two of whom
are female and oneis from a Hispanic ethnic background, and
that across our workforce more generally, 48% of our workforce
are female and 20% are from a non-white background. While
we have some way to achieving a more equal gender balance
at senior management level, we are pleased with the progress
to date. Further information on the diversity of our workforce,
the implementation of our policy and its linkage to our strategy
is set out on page 15.
The PHP Equality, Diversity and Inclusion policy
is available on the Company’s website at:
www.phpgroup.co.uk/responsible-business/
Independence
The Nomination Committee ensures that at appointment each
Non-executive Director is independent and that they have formally
declared to the Company any actual or potential conflicts of
interest that may exist at the time of their appointment. Annually,
the Nomination Committee reviews the formal register of Directors’
interests tabled at each meeting of the Board to assess whether
any circumstances or relationships exist which could affect the
judgement or independence of each of the Non-executive Directors.
In addition, the Nomination Committee considers their independence
of character and judgement.
The Board has delegated to the Nomination Committee the
review of the external commitments of the Directors. During the
year, the Nomination Committee formally reviewed requests from
the Directors for approval of new Board appointments andalso
annually reviews each of the Directors’ external commitments,
onboth a quantitative and qualitative basis, to assess whether
these commitments impact negatively on their commitment
orperformance. In carrying out its review, the Nomination
Committee has regard to the ISS guidance on the number of
external appointments that are considered appropriate, but
overlays this quantitative criteria with its qualitative assessment
of the demands of the external commitment.
During the year approval was given to Mr Howell taking up a
position as a Non-executive Director at Life Science REIT plc after
determining that there was no current conflict of interest and little
risk of future conflict of interest. It was considered that as the
company was externally managed, the number of meetings that
he would be required to attend would not affect his ability to
discharge his duties to PHP and that both PHP and he would
benefit from the additional experience he would obtain.
Consideration was also given to the proposed appointment of
Laure Duhot as a Non-executive Director of Orpea SA, which
was also approved, as it was considered that she would
continue to have sufficient time to meet her commitments to
the Company.
Ian Krieger, as Senior Independent Non-executive Director
ledthe Nomination Committee in consideration of the appointment
of Steven Owen as Interim Executive Chairman of Palace
Capital PLC, which was approved on the basis that the
appointment was not anticipated to be a long term measure.
The Nomination Committee considered that the continuing
commitment of Harry Hyman as the Non-executive Chairman
of TMT Acquisition plc which was not considered to be material
as TMT remains a cash shell formed to pursue opportunities to
acquire businesses in the technology, media and telecom sector.
It was considered that his role as Non-executive Chairman of
BioPharma Credit PLC, an externally managed investment trust
involving only four scheduled meetings a year, did not affect his
time commitment to the Company or his ability to continue to
contribute effectively.
It was also considered that the continued commitments of
Ian Krieger as Chairman of the audit committees at Safestore
Holdings plc and Capital & Counties plc did not affect his
time commitment and brought valuable insight from other
listed REIT’s whose property portfolios did not compete with
that of PHP. Ivonne Cantú’s other commitments were also not
considered to detract from the time commitment expected of
her or to create any conflicts of interest.
The Nomination Committee is confident that each of the
Non-executive Directors remain independent and will be in a
position to discharge their duties and responsibilities in the
coming year.
Directors standing for election and re-election
The appointment of Ivonne Cantú was ratified by shareholders
at the Company’s 2022 AGM. All the Directors will stand for
re-election at the 2023 AGM. Following the annual reviews of
individual Directors, it is considered that:
• each Director subject to re-election continues to operate as
an effective member of the Board; and
• 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 66 and 67.
Evaluation
In accordance with its terms of reference, the Nomination
Committee’s performance was reviewed in the context of
the results of the 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 page 78.
Steven Owen
Chair of the Nomination Committee
21 February 2023
Strategic report Governance Financial statements
90 Primary Health Properties PLC Annual Report 2022
Shareholder information
Remuneration Committee report
Dear shareholder,
On behalf of the Remuneration Committee (the “Committee”),
I am pleased to provide an overview of our work for the year
ended 31 December 2022, including the key decisions we
have taken. I took over chairing the Committee following the
retirement of Peter Cole from the Board at the 2022 AGM.
Peter led the Committee during the important transition to an
internally managed structure and the Committee is grateful for
his contribution over this period.
We were encouraged by the very high level of support (99.3%
of votes cast) for the Directors’ Remuneration Report at the
Annual General Meeting held in April 2022 and I would like to
thank all our shareholders for their continued engagement and
support on remuneration matters throughout the year.
This report is divided into three parts:
1. this Annual Statement on pages 90 to 92 in which I provide
an overview of the work of the Committee during the year
and the key decisions taken in relation to both Executive
Director remuneration and wider workforce remuneration
for the year ended 31 December 2022;
2. a summary of the Directors’ Remuneration Policy (the ”Policy”)
approved by shareholders at the Annual General Meeting
on 5January 2021 and applicable throughout the year,
which details the link between Company performance and
remuneration, is set out on pages 93 to 98; and
3. the Annual Report on Remuneration, which provides
information on how the policy adopted at the General
Meeting has been applied during the year, is set out on
pages 98 to 106.
The Companies Act 2006 requires the auditor to report to the
shareholders on certain parts of the Remuneration Report and
to state whether, in its opinion, those parts of the report have
been properly prepared in accordance with the Regulations.
The parts of the Annual Report on Remuneration that are
subject to audit are indicated in the report.
Company performance
As you will have read earlier in this Annual Report, the
Company once again delivered increased income, entering
a 27th consecutive year of dividend growth. The strong
continuous growth of the business was highlighted by the
award of MSCI’s Highest Ten-Year Risk Adjusted Total Return
Award. An investment of £100 in PHP shares in January 2012
would be worth £240 as at 31 December 2022, taking account
of share price growth and reinvested dividends, and represents
significant outperformance against the FTSE EPRA Nareit
UK Index.
These excellent outcomes are, to a large extent, the result of
the expertise and hard work of the Executive Directors and the
senior management team.
Ivonne Cantú
Chair of the Remuneration Committee
MEMBERS OF THE REMUNERATION COMMITTEE
(THE “COMMITTEE”) DURING THE YEAR
Member
Number of meetings
and attendance
while in post
Ivonne Cantú (Chair) 4 (4)
Steven Owen 4 (4)
Laure Duhot 4 (4)
Ian Krieger 4 (4)
Peter Cole 2 (2)
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.
Additional attendees invited to attend meetings and provide assistance to the
Committee 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
Policy
• 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.
For further
information
see page 91
Remuneration
• 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 recovery by the Directors of expenses
incurred inperformance of their duties.
For further
information
see page 93
Reporting
• 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.
For further
information
see page 96
Strategic report Governance Financial statements
91Primary Health Properties PLC Annual Report 2022
Shareholder information
The Remuneration Committee’s activities
duringtheyear
The Committee met four times, in February, March, July
and December.
In the second year since the internalisation of the management
of the Company’s portfolio, the Committee’s activities were
mostly focused on ensuring that the new remuneration structures
put in place at the start of 2021 were bedded in effectively
and with the unwinding of the Performance Incentive Fee (“PIF”)
arrangement, inherited at the time of internalisation. This
included a review of the remuneration of our Executive Directors
and senior management, followed by remuneration adjustments
where appropriate. I am pleased to report that the Policy has
been implemented effectively and is now well embedded.
In December I wrote to our major shareholders, on behalf of the
Committee in 2022, to consult with them ahead of proposed
changes to the remuneration of the CEO and CFO for 2023
and the introduction of an ESG target in the LTIP for 2024.
Iam pleased to say that those shareholders who responded
were supportive of the changes and a number of constructive
suggestions were received around the introduction of an
ESG component into the LTIP targets, which will assist the
Committee this year as itlooks to implement this change.
We consulted on changes to the CFO’s remuneration to bring
it up to the lower quartile level following a year of further
development in his role and taking into consideration his
contribution and responsibilities. We agreed to increase his bonus
opportunity from 125% of salary to 150% of salary, increase his
basic salary by 7% in line with the average rate of increase for
the workforce to £360,000. The CEO’s pension contribution, as
well as other higher earners in the Company, had been capped
at £10,000 and it was agreed to remove this for all employees
affected by the cap, including the CFO, so that he will now
receive a pension allowance of 6% of his full salary, which remains
in line with the wider workforce. These changes would bring his
total target package to the lower quartile of the property peer
group. This group comprised CLS, Workspace, Great Portland
Estates, Assura, Grainger, London Metric Property, Safestore and
Big Yellow with a lower quartile level of total target remuneration
of £882k. This compares with the CFO’s total target remuneration
of £778k, before these changes, and afterwards of £898k.
This followed a separate consultation process in the autumn
with our leading shareholders regarding the CEO transition
arrangements. As part of these arrangements, the CEO agreed
to increase his time commitment from at least 10 days a month
to at least 15 days a month, which was considered necessary
to ensure continuity during the succession period. Reflecting
this increased commitment, and the fact that the CEO has
taken on an increased number of direct reports it was proposed
his annual salary will increase pro rata from £262,500 to
£393,750 and that he would receive a 5% annual inflationary
increase from 1January 2023. In addition, it was proposed that
he participate in the Annual Bonus Plan in 2023, following the
ending of the PIF, but he will not participate in the LTIP.
Following the year end, as part of our annual processes, we
reviewed the targets for the LTIP planned for 2023. In the
light of signficant changes in the market environment and
recognising the outlook for the sector, the Company’s forecasts
and market expectations, while seeking to ensure shareholder
alignment and management incentivisation we decided to set
slightly lower growth targets than operated in 2022. In order
to address these factors, the Committee agreed to set the
range for the TAR target at 4% to 8% and for EPRA EPS growth
at 3% to 8%.
The other areas of focus for the Committee in 2022 were:
• approving the salary increase for Executive Directors
and senior managers alongside the wider workforce
salary budget;
• agreeing annual bonus targets for 2022 for the Executive
Directors and senior management team;
• reviewing and approving the 2022 LTIP grant and the
associated performance conditions;
• discussing and approving Executive Director and senior
manager remuneration outcomes for 2022;
• considering and approving the Directors’ Remuneration
Report set out in the Annual Report for 2022;
• reviewing the remuneration of the Chair; and
• reviewing pay, pensions and benefits across the workforce
to ensure that they continue to be aligned with executive
pay and are 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.
Meetings are generally attended by a representative of
KornFerry, the remuneration advisers to the Committee.
KornFerry is a signatory of the Remuneration Consultants
Codeof Conduct and has no connection with the Company
other than in the provision of advice on remuneration.
Remuneration in 2022
Base salaries
The base salaries set by the Committee (CEO: £262,500 and
CFO: £336,000) applied for the whole year.
Annual bonus outcome
Targets for the 2022 annual bonus for the CFO set by the
Committee were based on 70% of the total opportunity for
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 £88.7 million
against a threshold target of £85.5 million and maximum of
£88.3 million and the total property return in the year was
2.8% against a threshold target of 6% and maximum of 9%.
TheCommittee assessed that 90% of the personal targets
should be paid out. Full details of how this assessment was
carried out are set out on page 100.
In total, the overall bonus pay-out was 62% of maximum,
representing 78% of salary of which 30%, net of tax, is 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 in 2022,
but will in 2023.
Strategic report Governance Financial statements
92 Primary Health Properties PLC Annual Report 2022
Shareholder information
Remuneration Committee report continued
Remuneration in 2022 continued
Performance Incentive fee (“PIF”)
There has been 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. This transition included the payment of amounts
earned under arrangements with Nexus in relation to 2020
andearlier years. These are commitments that PHP inherited
and has honoured following internalisation as we transitioned
to more standard long term incentive arrangements.
The financial year ended 31 December 2021 was the last year
that the CFO was entitled to any payment under the PIF. The
CFO received the initial element of the amount due to him in
2021 of £120,000.
It was determined that, as the growth in EPRA net asset value
in the year ended 31 December 2022 did not trigger a payment
of the deferred element of the 2021 PIF and that the CEO had
not earned an award in respect of 2022. The CEO now has no
further entitlement to an award under the PIF.
Long Term Incentive Plan (“LTIP”)
On 21 February 2022, Richard Howell was awarded a nil-cost
option over 313,745 Ordinary Shares in PHP. In line with the
Policy the award 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.
Full details of the performance conditions attaching to the
award can be seen on page 95. No award was made to the
CEO under the LTIP.
Going forward, it was agreed that for LTIP grants in 2023 a
quarter of the awards would pay out on achievement of the
threshold target, rather than 10%. This change aligns the LTIP
to standard market practice and is in line with the Policy.
In making this change the Committee was satisfied that
the targets attached to the LTIP awards in 2023 were more
demanding in the context of the economic environment than
they were for 2022.
Planned activities for 2023
We set out below the activities which the Committee expects
to undertake next year:
• our normal oversight of the annual remuneration cycle
including approving Company-wide salary increases,
approving the annual bonus and LTIP targets for 2023 and
measuring performance against the bonus targets;
• consideration of the metrics for the inclusion of an ESG
element in LTIP awards in 2024;
• review of Executive Director and senior manager salaries;
• review of wider workforce pay policies and practices and
feedback from workforce engagement; and
• review of the Directors’ Remuneration Policy to enable
the Committee to design a new Policy, engage with
investors and present it for approval by shareholders
atthe 2024 AGM.
Committee composition
As noted earlier in this section, Peter Cole did not stand
for re-election as a Director of PHP at the Annual General
Meeting in 2022 and I took over from him as the Chair of
theCommittee.
As he has now served for more than nine years as a Non-
executive Director, the Chairman, Steven Owen, has stood
down as a member of the Committee from the start of 2023
in line with best practice. He will attend by invitation as
appropriate during the year.
Conclusion
I trust you find this report helpful and informative and thank
you for your support and engagement during the year.
Overall, the Company has performed robustly against
increasingly challenging market and economic conditions.
TheCommittee believes that the 2022 remuneration outcomes
are appropriate and reflective of the business performance and
the wider economic and market context.
I believe that we have put in place appropriate remuneration
structures to reward and retain the Executive Directors and
senior management team during the year ahead. 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 2023 AGM.
Ivonne Cantú
Chair of the Remuneration Committee
21 February 2023
Strategic report Governance Financial statements
93Primary Health Properties PLC Annual Report 2022
Shareholder information
Directors’ remuneration report
PART 1: SUMMARY OF THE DIRECTORS’ REMUNERATION POLICY (THE “POLICY”)
The current Policy was approved by shareholders on 4 January 2021 and became effective from that date.
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.
Executive salaries
effective from
1January 2023:
• CEO – £413,438; and
• CFO – £360,000.
None.
Strategic report Governance Financial statements
94 Primary Health Properties PLC Annual Report 2022
Shareholder information
Directors’ remuneration report continued
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 6%
of salary).
The current CEO will
not receive a pension.
None.
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Key elements of the Policy continued
Strategic report Governance Financial statements
95Primary Health Properties PLC Annual Report 2022
Shareholder information
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.
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).
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 in 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.
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Strategic report Governance Financial statements
96 Primary Health Properties PLC Annual Report 2022
Shareholder information
Directors’ remuneration report 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 Directors’ 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 2023 to the current CEO. However,
the CFO will be granted awards.
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.
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.
PART 1: SUMMARY OF THE DIRECTORS’ REMUNERATION POLICY CONTINUED
Key elements of the Policy continued
Strategic report Governance Financial statements
97Primary Health Properties PLC Annual Report 2022
Shareholder information
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 and is clearly articulated to
shareholders and the workforce through engagement exercises
during the year.
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 risk 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. Reward packages for the wider workforce consist of a combination of fixed and variable
elements, including base pay, pension and bonus.
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. The
Committee receives remuneration information from across the Group regarding annual salary reviews, bonus, gender pay gap and
CEO pay ratios, together with the principles that are applied in relation to broader incentive schemes operated, and how these
align with culture. We recognise that it is critical for our colleagues to feel valued as well as to be paid fairly.
To provide context to our Executive Director remuneration in light of wider workforce considerations:
• average workforce salary increased at the start of the 2022 by 7%, well above inflation at that time, and has further benefited
from an average increase of 7% from January 2023;
• the Executive Director and general workforce pension contributions are aligned;
• colleagues received a total of £1.1 million in bonus payments (excluding bonus payments to the Executive Directors); and
• all our colleagues can participate in our Sharesave plan oto foster the culture of ownership, reflecting our remuneration
principles by rewarding colleagues for the successful execution of strategy over a multi-year horizon. We are delighted that
58% of UK colleagues are enrolled in our Sharesave plan.
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. The Company did not formerly consult with employees in formulating the Policy.
PART 1: SUMMARY OF THE DIRECTORS’ REMUNERATION POLICY CONTINUED
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98 Primary Health Properties PLC Annual Report 2022
Shareholder information
Directors’ remuneration report continued
Consideration of shareholders’ views
The Company is committed to engagement with shareholders and has undertaken an engagement exercise in relation to the
proposed changes to the remuneration of the CEO and CFO this year. 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.
As disclosed on page 64 no formal consultation with the workforce on executive pay was undertaken in the year as required
byProvision 41 of the Code, but are confident that executive remuneration is aligned with the wider company pay policy.
The Chair of the Committee will attend the Annual General Meeting to hear the views of shareholders on implementation of 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 2022 which provides
details of how the Policy was applied during the year and the remuneration received by each of the Directors.
This part of the report has been prepared in accordance with the Companies Act, various company regulations, and relevant
sections of the Listing Rules. The Annual Report on Remuneration will be put to an advisory shareholder vote at the 2023 AGM.
Implementation of the Policy for 2023
On the basis that the Committee feels that the approved Policy remains fit for purpose, it is not intended that there would be any change
from it during 2023. 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 2023 are set out below:
Summary of Policy Implementation in the year to 31 December 2023
Base salary
An Executive Director’s basic 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 was increased from 1 January 2023 to
£413,438 in the light of his greater responsibilities and time commitment,
and the salary of the CFO was increased from 1 January 2023 by 7% to
£360,000 which is in line with the average increases awarded generally
to employees across the Group with effect from 1 January 2023.
Pension
Pension funding as an employer contribution to a
defined contribution pension plan or as a salary
supplement. Any pension payments are not considered
“salary” when determining the extent of participation in
the Company’s incentive arrangements.
With effect from 1 January 2023, the annual cap of £10,000 which had
applied to the employer pension contribution for Richard Howell will be
removed and he will receive an employer pension contribution of 6% of
pensionable salary, in line with all other employees of the Group. The CEO
will continue not to receive a pension contribution.
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 cover.
In addition, in line with the rest of the workforce, the CFO receives private
health cover, income protection cover and critical illness cover. TheCEO
does not receive these benefits.
Annual bonus
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.
The maximum opportunity of Richard Howell under the bonus plan has been
increased to 150% from 125% of salary, subject to a cap of £750,000.
Harry Hyman will also participate in the annual bonus plan in 2023 and
will have the opportunity to earn a bonus of up to 150% of salary. He did
not do so in 2022.
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; and
(ii) strategy and personal measures: 30% of opportunity split between key
goals of the business for the year ahead, which included ESG goals
that will be cascaded through the Company.
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.
PART 1: SUMMARY OF THE DIRECTORS’ REMUNERATION POLICY CONTINUED
Strategic report Governance Financial statements
99Primary Health Properties PLC Annual Report 2022
Shareholder information
Summary of Policy Implementation in the year to 31 December 2023
Long Term Incentive Plan
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 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).
Richard Howell will be granted an LTIP award of shares with a value at
grant of 125% of his salary.
Harry Hyman will not be granted an LTIP award in 2023.
Other senior executives will also be granted LTIP awards.
The performance conditions of the awards have been changed from 2022.
LTIP awards will vest as follows calculating the growth from the 2022
base level to the level for 2025.
Performance measure Weighting
Threshold vesting
(25%)
Stretch vesting
(100%)
Total accounting return 50% 4% p.a. CAGR 8% p.a. CAGR
EPRA earnings per share 50% 3% p.a. CAGR 8% p.a. CAGR
Awards vest on a progressive 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.
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
To provide a competitive fee for the performance
of NED duties, sufficient to attract high calibre
individuals to the role.
The fees payable to the NEDs and Chairman have been increased with
effect from 1January 2023 by 5%. Details of the fees payable to the
NED’s and the Chairman are set out on page 102.
Wider workforce pay
The performance of the Company during the year would not have been possible without a skilled and motivated workforce.
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.
Following the merger with the MedicX Fund a number of employees who transferred to Nexus, which was the property adviser to
PHP, enjoyed a more generous benefits package than that available to the Nexus employees at that time. Following a review of
the benefits package available to staff, it was decided to harmonise the benefits package with effect from the start of 2023, so
that all staff have access to private healthcare, critical illness cover and income protection, as well as death-in-service life cover.
In addition to the changes noted above, during the year we launched a salary sacrifice electric car plan operated by Octopus
under which employees could enter into a lease for an electric car with the monthly lease payments being taken from salary.
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 again
offer participation to our UK colleagues under our PHP Sharesave plan in July and plan to do so again in April 2023.
Read more about our CEO pay ratio on page 105.
PART 2: ANNUAL REPORT ON REMUNERATION CONTINUED
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Strategic report Governance Financial statements
100 Primary Health Properties PLC Annual Report 2022
Shareholder information
Directors’ remuneration report continued
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 2022 and show the comparative figures for the year ended 31 December 2021 in a separate table below.
Salary Benefits
3
Pension
4
Total
fixed
Annual
bonus LTIP
5
PIF
7
SAYE
6
Other
Total
variable Total
2022
£000
2022
£000
2022
£000
2022
£000
2022
£000
2022
£000
2022
£000
2022
£000
2022
£000
2022
£000
2022
£000
Harry Hyman
1
263 — — 263 — — — — — — 263
Richard Howell
2
336 — 10 346 260 — N/A — — 260 606
1 The CEO is not paid a pension and he did not participate in the Annual Bonus Plan for 2022 as under the provisions of his PHP service contract he is entitled to up
to 40% of the PIF payable under the advisory agreement. 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 not exceeded the hurdle rate of 8%, and so no PIF
payment is due to the CEO in respect of 2022.
2 The CFO earned an annual bonus of (£260,400); the annual bonus is set by the Committee and is discretionary, of which 30% (net of tax) is deferred into Ordinary
Shares which have to be held for three years and are subject to malus and clawback.
3 The CEO and CFO both receive life cover. From 1 January 2023, the CFO also receives private health cover, income protection cover and critical illness cover in line
with the remainder of the workforce.
4 During the year the CFO received an employer pension contribution subject to a limit of £10,000 per annum. Following a review of remuneration and benefits across
the workforce, it was agreed to remove the cap of £10,000 on employer pension contributions effective from 1 January 2023. TheCFOreceives the same employer
contribution as other members of the PHP pension plan.
5 No LTIP’s vested in the year as the three-year performance period has not finished.
6 Neither the CEO nor CFO applied for or were granted options to acquire Ordinary Shares in PHP under the Sharesave plan in 2022.
7 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 not exceeded the hurdle rate of 8%, no PIF payment had been earned.
Salary Benefits Pension
3
Total
fixed
Annual
bonus LTIP PIF
4
SAYE
5
Other
Total
variable Total
2021
£000
2021
£000
2021
£000
2021
£000
2021
£000
2021
£000
2021
£000
2021
£000
2021
£000
2021
£000
2021
£000
Harry Hyman
1
247 — — 247 — — 589 — — 589 836
Richard Howell
2
320 — 1 321 216 — 240 — — 456 777
1 Under the terms on Harry Hyman’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 was paid to him in cash net of employer’s National
Insurance, half following the approval of the financial statements for the year and half in the next year. He was not paid a pension, or an annual bonus and was not
made an award under the LTIP. He did not participate in the annual bonus scheme.
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 and 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; and (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 105.
5 The CEO and CFO were each granted an option to acquire up to 14,635 Ordinary Shares in the Company at a price of £1.23 per share under the PHP Sharesave plan.
2022 annual bonus outcome
The CEO did not participate in the annual bonus scheme in 2022 as he retained the right to receive a payment from the PIF.
The bonus scheme for the CFO in 2022 was based on a mixture of financial targets and personal targets. The maximum potential
bonus award was 125% 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 70%
Adjusted earnings £85.5m £88.3m £88.7m 100%
Total property return 6% 9% 2.8% 0%
Personal targets 30%
Individual targets See below See below See below See below
PART 2: ANNUAL REPORT ON REMUNERATION CONTINUED
Strategic report Governance Financial statements
101Primary Health Properties PLC Annual Report 2022
Shareholder information
Personal objectives (30% of total bonus)
The personal objectives were set based on Richard Howell’s individual areas of responsibility and the main objectives are set out below:
Objective Achievement Committee assessment
Maintenance of an
efficient capital structure
and control on costs
During the year the CFO secured a €7 5 million 12 year private
placement note with MetLife at a fixed rate of 1.64% and refinanced
all of the Group’s shorter dated facilities totalling £350 million on
favourable terms. The Group’s EPRA cost ratio remains the lowest
in the sector at 9.9% despite inflationary pressures
The Committee assessed that the performance of
the CFO had been very strong in this area, with
the Euro financing providing a platform for
accretive investment in the Irish market
90%
Deliver an enhanced risk
management framework
The CFO led on work with Willis Towers Watson to develop and
refine the Group’s climate risk and opportunities register and
further updated and improved the risk management framework
The CFO led on work with Willis Towers Watson
to develop and refine the Group’s climate risk and
opportunities register and further updated and
improved the risk management framework
100%
Deliver a plan showing
the pathway to deliver
our sustainability targets
During the year the Group commenced its first NZC development
at Croft, West Sussex and our second NZC development at
Spilsby, Lincolnshire, is expected to start on site in 2023.
Significant investment has been made to improve the carbon and
energy efficiency of our estate through asset management
projects and initiatives developed to assist occupiers to reduce
their energy consumption
The Committee noted the work undertaken on
several initiatives and the good progress made
during the year and concluded that this objective
had been significantly met
80%
Deliver an effective
investor relations
strategy to position the
Company as the leading
investor in
primaryhealthcare
The CFO oversaw the implementation of our investor relations
strategy that included successfully holding over 85 meetings with
our investors and potential investors during the course of the year
as well as a series of meetings with analysts resulting in favourable
reports to position PHP as the leading investor in the sector
The Committee considered that the delivery of
the investor and analysts meetings and
roadshows were a key strategic benefit for PHP in
maintaining investor confidence in the stock
during a turbulent period for the sector in general
90%
Through personal
leadership, develop
strong teams working
collaboratively across the
organisation
The CFO has organised and led regular all-employee virtual
meetings to include staff at both the London and Stratford-upon-
Avon offices to foster a collaborative work culture and team
working and taken a leadership role in the implementation of
improved staff training initiatives and the staff surveys during the
year
The Committee considered that the CFO has
demonstrated strong leadership both within the
finance team, where the team ethic is strong and
staff turnover was very low, as well as across the
workforce as whole
100%
The Committee assessed Richard’s performance against his personal targets after the year end and agreed that a bonus of 62%
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
almost all of the targets set for him.
In total, the bonus payable to the CFO in light of his performance against both the financial targets and personal objectives was
equivalent to 62% of the maximum payable. This resulted in a bonus award of £260,400 of which, in line with the Policy, £41,404
representing 30% of the award, after tax, will be deferred into shares to be held for three years. The deferred shares are not
subject to any further conditions.
In light of the financial performance of the Company in the year in an increasingly challenging economic environment, the
Committee is satisfied that the bonus pay-out is appropriate given the shareholders and other stakeholders’ experience.
Specifically, the Committee took account of the following factors:
• the Company achieved a strong set of financial results with solid year-on-year growth in Adjusted earnings and in Adjusted
earnings per share despite a challenging environment for the property sector;
• the Company paid £86.7 million in dividends for 2022 to shareholders. The full-year dividend for the year ended 31 December 2022,
which was over 100% covered, increased by 4.8% from 6.2 pence to 6.5 pence;
• the Company maintained a strong control over costs, continuing to have the lowest EPRA cost ratio in the sector; and
• the Company has significantly advanced its progress in achieving its NZC commitments.
On this basis, the Committee felt comfortable that the formulaic bonus outcome reflected the CFO’s and Company performance
and, as a result, the Committee determined that no overriding discretion will be applied to the bonus outcome. Accordingly, the
Committee is comfortable that an overall bonus pay-out of 62% of maximum is reasonable. The Committee is comfortable that the
current Policy operated as intended and that the overall 2022 remuneration paid to Executive Directors was appropriate.
The 2023 bonuses for Executive Directors will be 150% of salary and will be paid 70% in cash, with the remainder of the bonus
held in shares on a net of tax basis, via an agreement with the Executives, until 2026 with malus applying for this period and
clawback for three years thereafter.
PART 2: ANNUAL REPORT ON REMUNERATION CONTINUED
2022 annual bonus outcome continued
Strategic report Governance Financial statements
102 Primary Health Properties PLC Annual Report 2022
Shareholder information
Directors’ remuneration report continued
Share scheme interests awarded during the year
Only Richard Howell participated in the LTIP during the year.
On 21 February 2022, Richard Howell was granted a nil-cost option over 313,745 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 £1.34, being the average
closing price in the three dealing days prior to the date of grant) and will vest over three years subject to 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 2024:
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. Any fractional result shall be rounded to the nearest whole number of shares.
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 (NAV per share growth plus dividends) 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. 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 proposed in the table below. They are absolute, rather than relative, because there is not felt to be
a suitably large list of 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.
On 3 March 2022, Richard Howell also received a beneficial interest in 42,263 Ordinary Shares under the PIF and 24,897 Ordinary
Shares acquired with a portion of his annual bonus in accordance with the terms of the Annual Bonus plan. Both blocks of
Ordinary Shares are held for him in the PHP Employee Benefit Trust and will be released to him after three years.
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% applied to discretionary plans.
Non-executive
Single total figure of remuneration (audited information)
Fees Taxable benefits Total
2022
£000
2021
£000
2022
£000
2021
£000
2022
£000
2021
£000
Steven Owen (Chair) 173 165 — — 173 165
Ian Krieger 73 70 — — 73 70
Ivonne Cantú 65 — — — 65 —
Peter Cole
1
22 65 — — 22 65
Laure Duhot 63 60 — — 63 60
1 P eter Cole retired from the Board at the 2022 AGM and the figure shown above are the fees paid to him up to his retirement. Peter Cole is a majority shareholder
and director of Beaumont Real Estate Partners Limited who received a fee of £30,000 for consultancy services provided to the Company in relation to its
development activity following his retirement.
The Committee agreed to increase the fee paid to the Chairman by 5% with effect from 1 January 2023 at its meeting
inDecember 2022 and the Board agreed to increase the fees payable to the remaining Non-executive Directors for 2023
bythesame amount.
PART 2: ANNUAL REPORT ON REMUNERATION CONTINUED
Strategic report Governance Financial statements
103Primary Health Properties PLC Annual Report 2022
Shareholder information
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 contract of employment with the Company on 5 January 2021 and Richard Howell entered into a
revised contract of employment with PHP Tradeco Limited on 15 April 2021 to reflect the terms of the Policy. Harry Hyman’s
contract was for an initial fixed period of twelve months and can be terminated by either party on giving twelve months’ notice.
Harry Hyman has informed the Company of his intention to retire as CEO with effect from the Annual General Meeting in 2024.
Richard Howell’s service contract is a rolling contract that can be terminated by either party on giving six months’ notice.
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 9
Ivonne Cantú 1 January 2022 14 December 2021 1
Laure Duhot 14 March 2019 14 March 2019 3
Ian Krieger 15 February 2018 15 February 2018 4
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 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.
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 2022, the highest and lowest mid-market prices of the Company’s Ordinary Shares were
151.75pence and 98.75pence respectively.
Total Shareholder Return Performance %
PART 2: ANNUAL REPORT ON REMUNERATION CONTINUED
PHP
FTSE UK REIT
350
300
250
200
150
100
50
0
31/12/2012 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 31/12/2022
Strategic report Governance Financial statements
104 Primary Health Properties PLC Annual Report 2022
Shareholder information
Directors’ remuneration report continued
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.
2022
£000
2021
£000
2020
£000
Incumbent Harry Hyman Harry Hyman Harry Hyman
Single figure of remuneration 263 836 574
% of max. bonus earned* n/a n/a n/a
% of max. LTIP awards vesting* n/a n/a n/a
* Harry Hyman has not participated in the LTIP or the Annual Bonus Plan in any of these periods. He received £nil, £589k and £524k in 2022, 2021 and 2020 under
thePIF.
Remuneration adviser
The Remuneration Committee’s appointed adviser is Korn Ferry, which provides advice on Directors’ remuneration and governance.
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 £31,218.
Relative importance of spend on pay
The following table shows the total remuneration paid to Directors and total management fees paid compared to the dividends
paid to shareholders:
2022
£
2021
£ Difference
Directors’ fees 2,236,417 1,888,538 18%
Pay overall (including Executive Directors) 6,136,166 5,004,906 23%
Dividends 86,722,491 82,425,791 5%
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 and up to the date of signing 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) are shown below:
Director
Number of shares
owned beneficially
and by PCA’s % of salary held
Total interest subject
to service and
performance targets
conditions
(LTIP nil-cost awards)
Total interests subject
to continued service
condition only
Outstanding
Sharesave options
Total interests as at
31 December 2022
Harry Hyman 24,404,410 10,301 n/a n/a 14,634 24,419,044
Richard Howell 335,424 115 580,649 nil 14,634 930,707
Steven Owen 146,265 n/a n/a n/a n/a 146,265
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
Ivonne Cantú nil n/a n/a n/a n/a nil
Laure Duhot 23,169 n/a n/a n/a n/a 23,169
Note: Peter Cole retired from the board following the 2022 AGM on 27 April 2022
PART 2: ANNUAL REPORT ON REMUNERATION CONTINUED
Strategic report Governance Financial statements
105Primary Health Properties PLC Annual Report 2022
Shareholder information
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, the shares that count at
that point in time) for the two years following their departure.
The guideline shareholdings for the year ended 31 December 2022 are shown below:
Executive Director Requirement
Guideline
holding
Qualifying
holding % of salary held
Harry Hyman 200% 331,126 24,404,410 over 200%
Richard Howell 200% 423,841 335,424 79%
The shareholding definition includes shares beneficially owned by the Executive Directors and their connected persons, and
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 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, any shares beneficially
owned by the Executive Director and persons connected with him will not be subject to this restriction.
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.
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
2022 Option A 3.8:1 2.2:1 1.4:1
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 had 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. It is also recommended by the UK Government and the Investment Association.
2022
CEO 25th 50th 75th
Basic salary 262,500 51,316 78,400 105,000
Benefits 1,458 570 2,160 6,007
Pension — 3,000 4,740 6,000
Annual Bonus Plan — 15,000 35,000 68,250
Total pay 263,958 69,887 120,300 185,257
CEO pay for 2022 has been calculated for the period 1 January 2022 to 31 December 2022 based on the single figure remuneration.
The calculation for the pay of employees at the different levels has been calculated as at 31 December 2022. 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 2022:
• annual basic salary;
• bonus earned in the year;
• employer pension contributions;
• Sharesave; and
• life cover.
PART 2: ANNUAL REPORT ON REMUNERATION CONTINUED
Strategic report Governance Financial statements
106 Primary Health Properties PLC Annual Report 2022
Shareholder information
Directors’ remuneration report continued
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 against PHP
employees as a whole.
% change 2021 to 2022 % change 2020 to 2021
Base salary/fees Benefits Bonus Base salary/fees Benefits Bonus
Harry Hyman
2
6% 0% (100)% 400% 0% 12%
Richard Howell
2
5% 309% (43)% 7% 0% (24)%
Steven Owen
3
5% n/a n/a 32% n/a n/a
Ian Krieger
3
4% n/a n/a 11% n/a n/a
Ivonne Cantú
3
n/a n/a n/a n/a n/a n/a
Laure Duhot
3
5% n/a n/a 9% n/a n/a
PHP employees
1
7% 135% (2)% n/a n/a n/a
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 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.
Statement of shareholder voting
At the 2022 AGM, shareholder voting on the Directors’ Remuneration Report was as follows:
Number
of votes
% of
votes cast
Votes cast in favour 928,995,763 99.27
Votes cast against 6,846,372 0.73
Total votes cast 935,842,135 —
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 which shareholder voting was as follows:
Number
of votes
% of
votes cast
Votes cast in favour 759,002,089 99.95
Votes cast against 416,356 0.05
Total votes cast 781,849,853 —
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.
Approval
The Directors’ Remuneration Report has been approved by the Board of Directors.
Signed on behalf of the Board of Directors
Ivonne Cantú
Chair of the Remuneration Committee
21 February 2023
PART 2: ANNUAL REPORT ON REMUNERATION CONTINUED
Strategic report Governance Financial statements
107Primary Health Properties PLC Annual Report 2022
Shareholder information
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 2022 and up to the
date if signing 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, which has
no branches. 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.
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 responsible
business, an indication of future likely developments in the
Company and details of important events since the year ended
31 December 2022 are contained in the Group’s Strategic Report
on pages 1 to 63 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 66 and 67. Details of the
Directors who served during the year and at the date of this
report 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 104.
The Company’s Articles (“Articles”) require that Directors
should submit themselves for election at the first Annual
General Meeting following their appointment and thereafter
for re-election at least every three years. The Company has,
however, adopted the requirements of the UK Corporate
Governance Code (the “Code”) in requiring the annual
re-election of all Directors.
A proposal to re-elect such Directors is to be included within
the Notice calling the 2023 AGM. The Chair 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 121.
The Company has paid four interim dividends each of
1.625pence per Ordinary Share of 12.5 pence (“Ordinary Shares”)
for the year totalling 6.5 pence per share on the datesshown
below, split as a property income distribution (“PID”) and
ordinary dividend, as follows:
Date PID
Ordinary
dividend Total
25 February 2022 – 1.625 pence 1.625 pence
20 May 2022 – 1.625 pence 1.625 pence
19 August 2022 0.8 pence 0.825 pence 1.625 pence
25 November 2022 0.8 pence 0.825 pence 1.625 pence
On 5 January 2023, the Board declared an interim dividend of
1.675 pence per Ordinary Share, payable on 23 February 2023,
to shareholders on the register at the close of business on
13 January 2023, being the first quarterly dividend in 2023
payable as to 1.34 pence as a PID and 0.335 pence as an
ordinary dividend. Shareholders may elect to re-invest their
cash dividend in the purchase of additional Ordinary Shares
under the dividend re-investment plan offered by Equiniti
Financial Services Limited.
Powers of Directors
Subject to the provisions of the Companies Act 2006 (the “Act”),
the memorandum and the Articles and to any directions given
by special resolution of shareholders, 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.
Strategic report Governance Financial statements
108 Primary Health Properties PLC Annual Report 2022
Shareholder information
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 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.
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 2023 AGM. No indemnity
was provided and no payments were made pursuant to these
provisions during the year.
Substantial interests
As at 17 February 2023, 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:
Name Shares %
BlackRock 95,299,736 7.13
Vanguard Group 66,108,680 4.85
SSGA 59,648,056 4.46
Investec 59,023,875 4.42
Legal & General 40,183,942 3.00
Share capital
At the date of this report, the Company has one class of share
in issue, being 1,336,493,786 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.
During the financial year, 3,605,601 Ordinary Shares were
issued to satisfy elections for the scrip dividend alternative
during the year.
At the 2022 AGM 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 2023 AGM and
it is proposed to seek renewal of these authorities at the
forthcoming 2023 AGM.
At the Annual General Meeting in 2022, the Directors were
granted authority to allot shares up to a maximum amount
of£55,537,008, representing approximately one-third of the
Company’s issued ordinary share capital and to allot shares
upto a maximum nominal value of £8,330,551 (representing
approximately 5% of the Company’s issued sharecapital) without
having to first offer those shares to existing shareholders.
The Directors were also granted authority to allot further
shares up to a maximum nominal value of £8,330,551
(representing approximately 5% of the Company’s issued share
capital) without having to first offer those shares to existing
shareholders, where such authority is used in connection
with the financing (or refinancing, if the authority is to be
used within six months after the original transaction) of an
acquisition or specified capital investment (the “Additional
Authority”). The Directors made no use of this power
during the year.
Details of changes in share capital are set out in Note 19 ofthe
financial statements.
Rights attaching to shares under the Articles
The 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 Articles may be made in accordance
with the provisions of the Act by special resolution. There were
no amendments made to the Articles in the year.
Directors’ report continued
Strategic report Governance Financial statements
109Primary Health Properties PLC Annual Report 2022
Shareholder information
Change of control
Under the Group’s financing agreements, including the terms
of the £150 million 2.875% convertible bonds due 2025,
the lenders or bondholders may require repayment of the
outstanding amounts on a change of control. 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.
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
2022 was ten days (2021: ten days, 2020: two days).
Annual General Meeting
The Annual General Meeting of PHP (“AGM”) will be held on
19April 2023 at 10.30 a.m. The notice convening the AGM and
explanatory notes for the resolutions sought are set out on
pages 163 to 175.
Auditors
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 AGM.
Employees
As at 31 December 2022, the Group had 65 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 52 employees (80% of staff) have taken up the
offer to participate in the plan.
The Group is committed to the promotion of equal opportunities,
supported by the Board and workforce diversity group. 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.
There are no agreements between the Company and its
Directors providing for compensation for loss of office
or employment whether through resignation, proposed
redundancy, a takeover bid or otherwise.
Donations
The Group does not make any political or charitable donations.
Share service
The Shareholder Information section on page 176 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26 on page 152.
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.
As at 31 December 2022, the Group’s property portfolio
is 99.7% occupied with approximately 89% of its income
funded directly or indirectly from government sources and
the average WAULT across the Group’s portfolio is 11.0 years.
As at that date, the Group had £326 million of headroom on
its debt facilities, after commitments to fund on properties
under construction through the course of 2023 with a further
£29million of cash. The Group’s weighted average unexpired
loan term of drawn debt was 7.3 years.
The Group’s consolidated loan to value ratio, including drawn,
unsecured debt, is 45.1% 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 60% 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 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.
Strategic report Governance Financial statements
110 Primary Health Properties PLC Annual Report 2022
Shareholder information
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 63
Principal risks
Risk Management section of the Strategic Report See pages 56 to 62
Viability statement See page 63
Directors’ details
Directors’ biographies See pages 66 and 67
Directors’ share interests
Remuneration Committee Report See page 90
Section 172 statement
Responsible Business section of the Strategic Report See page 54
Greenhouse gas emissions
Responsible Business section of the Strategic Report See pages 32 and 47
Financial instruments
Note 17 See pages 145 and 146
Financial risk management policies
Risk Management section of the Strategic Report See pages 56 to 62
Related party transactions
Note 25 See page 152
Post balance sheet events
Note 26 See page 152
All other sub-sections of LR9.8.4 are not applicable. Information that fulfils the requirements of LR9.8.6(5) and 9.8.6(6) can be
found in the Corporate Governance Report on pages 70 to 81 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 66 and 67.
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 21 February 2023.
By order of the Board
Paul Wright
Company Secretary
Primary Health Properties PLC
Registered office: 5th Floor, Burdett House, 15-16 Buckingham Street, London WC2N 6DU
Registered in England Number: 3033634
Directors’ report continued
Strategic report Governance Financial statements
111Primary Health Properties PLC Annual Report 2022
Shareholder information
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, is fair, balanced and understandable and provides
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 21 February 2023.
For and on behalf of the Board
Steven Owen
Chairman
21 February 2023
Strategic report Governance Financial statements Shareholder information
112 Primary Health Properties PLC Annual Report 2022
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 2022 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 27; and
• the related notes to the company financial statements 1 to 19.
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 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
Independent auditor’s report
to the members of Primary Health Properties PLC
Shareholder informationStrategic report Governance Financial statements
113Primary Health Properties PLC Annual Report 2022
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS CONTINUED
3. Summary of our audit approach continued
Materiality The materiality that we used for the group financial statements was £29.0 million which was
determined on the basis 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 £4.4 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 over management’s process for evaluating the group’s ability to continue as
a going concern, including the identification and evaluation of the financial impact of relevant business risks and the method,
model and assumptions applied by management;
• obtaining an understanding of the financing facilities available to the group and company, including maturity dates, interest
costs and financial covenants such as loan to value and interest cover ratios;
• testing the mathematical accuracy of management’s approved going concern model, including the recalculation of current
andforecast covenant compliance, together with the impact of sensitivities applied;
• performing a retrospective review of management’s historical accuracy of forecast;
• challenging the key assumptions applied in management’s going concern model including forecast valuation movements, rental
income cash flows and capital expenditure with reference to analyst reports, market data and other external information and
challenging consistency with related assumptions applied in other areas;
• evaluating management’s assessment of the impact of climate change;
• challenging the appropriateness of the sensitivity analysis, including the ‘additional stress-testing’ performed by management
with reference to analyst reports and forecasts, historical performance and other external data;
• assessing the level of headroom in the forecast with reference to both liquidity and financial covenants such as loan to value
and interest cover ratios;
• assessing the outcome of the sensitivity analysis performed by management;
• assessing whether any additional facts or information have become available since the date management made their
assessment; and
• evaluating the appropriateness of management’s going concern disclosures.
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.
Strategic report Governance Financial statements Shareholder information
114 Primary Health Properties PLC Annual Report 2022
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS CONTINUED
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 estimated rental values 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 £2,796.3 million as at 31 December 2022
(2021: £2,795.9 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.
In determining the value of a property, the valuers consider property specific factors, most notably the
Weighted Average Unexpired Lease Term (“WAULT”), together with the age and specification of the
asset, including its EPC rating. These factors, in combination with prevailing market yields, comparable
transactional evidence and market sentiment are then considered in determining property specific
assumptions for yields and estimated rental values.
The estimation of property yields and estimated rental values is inherently subjective and together
with significance of the financial impact of changes in these inputs, we consider them to be a key
audit matter. Furthermore, given the high level of estimation involved, we have determined that there
is potential for fraud through possible manipulation of these key inputs to the valuation. Whilst the
primary healthcare market has demonstrated resilience and the group’s portfolio is regarded as critical
infrastructure, there is a more limited volume of transactional evidence in the sector as well as increasing
uncertainty caused by macro-economic conditions, increasing the risk associated with the valuations.
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 84.
Independent auditor’s report continued
to the members of Primary Health Properties PLC
Shareholder informationStrategic report Governance Financial statements
115Primary Health Properties PLC Annual Report 2022
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS CONTINUED
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:
Understanding the market and relevant controls:
We obtained an understanding of relevant controls related to the management’s processes together
with their oversight and review of the work performed by the external valuers.
We obtained an understanding of the market, based on meetings with management, transactional
evidence, publicly available research and with the support of our internal real estate specialists, and
formed a view on expected movements in the key assumptions.
Assessing the valuers’ expertise and objectivity:
We 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.
Assumptions and estimates used by the valuers
We reviewed the external valuation reports for all properties and evaluated whether the valuation
approach is in accordance with RICS guidelines and therefore suitable for use in determining the
carrying value in the group balance sheet.
We challenged the external valuers of the portfolio with the assistance of our internal real estate
specialists. We discussed and challenged the valuation process, the market overview and the
significant assumptions and critical judgements over yields and estimated rental values 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, we corroborated the valuers’ explanations
to the lease agreements or rent reviews agreed in the year. In challenging the estimated rental values,
the following procedures were undertaken:
• we tested the accuracy of any rent reviews completed in 2022 to determine an expectation for
unsettled rent reviews;
• we tested the accuracy of management’s forecasting as regards the outcome of rent reviews with
reference to these completed rent reviews; and
• we compared management’s forecast of rent reviews to the estimated rental values adopted by
the valuers.
We tested the integrity of the data provided to external valuers. This included tracing a sample of
information provided to the external valuers to underlying lease agreements.
We also 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. We involved our internal real estate specialists to obtain an overall
understanding of the primary healthcare property markets in the UK and Ireland and to support with
our challenge of the work of the group’s external valuers.
Disclosures:
We assessed the appropriateness of the disclosures included in the Financial Statements and
considered whether the disclosures in relation to the key estimates are reasonable.
Key observations We concluded that the assumptions applied in relation to yields and estimated rental values in arriving
at the fair value of the group’s property portfolio were appropriate.
Strategic report Governance Financial statements Shareholder information
116 Primary Health Properties PLC Annual Report 2022
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS CONTINUED
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 million (2021: £29.7 million) and a lower materiality
of of £4.4 million (2021: £4.1 million) for balances
impacting EPRA earnings.
Materiality for the company has been determined
as £26.9 million (2021: £27.3 million).
Basis for determining
materiality
2% of net assets (2021: 2% of net assets)
The lower materiality used for balances impacting
EPRA earnings was determined using 5% (2021: 5%)
ofEPRA Earnings.
2% of net assets (2021: 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 £4.4 million
(2021: £4.1 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 £1,482.2m
n NAV
n Group materiality
Materiality for
itemsimpacting
EPRAEarnings £4.4m
Audit Committee
reporting threshold £1.5m
Company materiality £26.9m
Independent auditor’s report continued
to the members of Primary Health Properties PLC
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% (2021: 70%) of group materiality. 70% (2021: 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.
Group materiality £29.0m
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117Primary Health Properties PLC Annual Report 2022
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS CONTINUED
6. Our application of materiality continued
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £1,450,000
(2021:£1,500,000), 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
7.1. Identification and scoping of components
Our group audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls
including the financial reporting process, 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 registered office.
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.
7.2. Our consideration of the control environment
We have obtained an understanding of the processes and controls operated in relation to certain key business cycles including
the property valuations, revenue, and expenditure processes.
We evaluated the design effectiveness of relevant controls across those business cycles. We did not test the operating effectiveness
of controls and note the Audit Committee’s discussion of the control environment in their report commencing page 82.
7.3. Our consideration of climate-related risks
The group continues to develop its assessment of the potential impacts of climate change and set targets. In the current year,
management have engaged with expert advisors to assess and understand potential risks, quantify potential impacts and consider
planned and potential actions to address risks posed by climate change. Management have identified a target of net zero carbon
emissions by 2030 for all of group’s operational, development and asset management activities and to help the group’s occupiers
achieve a target of net zero carbon emissions 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’ target of 2050.
As a part of our audit procedures, we have obtained management’s climate-related risk assessment, including the physical climate risk
assessment and transition risk assessment performed by their expert advisors; and held discussions with management to understand the
process of identifying climate-related risks, the determination of mitigating actions and the impact on the group’s financial statements.
With the assistance of our climate-change specialists, we assessed the group’s climate related financial disclosures against the Task
Force on Climate-related Financial Disclosures (“TCFD”) Recommendations including management’s risk assessment of the potential
impact of climate change on the group’s account balances and classes of transaction and did not identify any reasonably possible risks
of material misstatement. Our procedures were performed with the involvement of our climate-change specialists and included reviewing
the disclosures included in the Strategic Report to consider whether they are materially consistent with the financial statements and
our knowledge obtained in the audit. We concur that they appropriately disclose the current risk that management has identified. We
have not been engaged to provide assurance over the accuracy of these disclosures.
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.
Strategic report Governance Financial statements Shareholder information
118 Primary Health Properties PLC Annual Report 2022
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS CONTINUED
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 estimated rental values
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, Listing Rules, REIT
legislation 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.
Independent auditor’s report continued
to the members of Primary Health Properties PLC
Shareholder informationStrategic report Governance Financial statements
119Primary Health Properties PLC Annual Report 2022
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS CONTINUED
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 estimated rental values 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 matters in more detail and also describes the specific procedures we performed in response to that key audit matters.
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 109;
• 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 63;
• the directors’ statement on fair, balanced and understandable set out on page 85;
• the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on
pages 56 to 63;
• the section of the annual report that describes the review of effectiveness of risk management and internal control
systems set out on page 86; and
• the section describing the work of the audit committee set out on pages 83 to 87.
Strategic report Governance Financial statements Shareholder information
120 Primary Health Properties PLC Annual Report 2022
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS CONTINUED
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 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 10 years, covering the years ending 31 December 2013 to 31 December 2022.
Following a competitive tender process, the audit committee has recommended to the Board that we be reappointed as auditors
for the financial period ending 31 December 2023.
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
21 February 2023
Independent auditor’s report continued
to the members of Primary Health Properties PLC
Shareholder informationStrategic report Governance Financial statements
121Primary Health Properties PLC Annual Report 2022
Group statement of comprehensive income
for the year ended 31 December 2022
Notes
2022
£m
2021
£m
Rental income 154.1 145.6
Direct property expenses (12.6) (8.9)
Net rental income 3 141.5 136.7
Administrative expenses 4 (9 .6) (10.5)
Revaluation (deficit)/gain on property portfolio 11 (64.4) 110.2
Profit on sale of land and property 11 2.9 0.3
Total revaluation (deficit)/gain (61.5) 110.5
Operating profit 70.4 236.7
Finance income 5 0.9 0.8
Finance costs 6a (41.2) (35.9)
Early loan redemption finance cost 6a — (24.6)
Termination payment and goodwill impairment on acquisition of Nexus 7 — (35.3)
Nexus acquisition costs 7 — (1.7)
Fair value loss on derivative interest rate swaps and amortisation of hedging reserve 6b (1.9) (1.8)
Fair value gain on convertible bond 6c 28.7 3.4
Profit before taxation 56.9 141.6
Taxation charge 8 (0.6) (1.5)
Profit after taxation
1
56.3 140.1
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 22 4.5 4.5
Exchange gain/(loss) on translation of foreign balances 3.2 (3.4)
Other comprehensive income net of tax
1
7. 7 1.1
Total comprehensive income net of tax
1
64.0 141.2
IFRS earnings per share
Basic 9 4.2p 10.5p
Diluted 9 2.2p 9 .8p
Adjusted earnings per share
2
Basic 9 6.6p 6.2p
Diluted 9 6.4p 6.1p
1 Wholly attributable to equity shareholders of Primary Health Properties PLC.
2 See Glossary of Terms on pages 178 to 180.
The above relates wholly to continuing operations.
Strategic report Governance Financial statements Shareholder information
122 Primary Health Properties PLC Annual Report 2022
Group balance sheet
at 31 December 2022
Notes
2022
£m
2021
£m
Non-current assets
Investment properties 11 2,796.3 2,795.9
Derivative interest rate swaps 17 19 .6 5.2
Fixed assets 0.4 0.3
2,816.3 2,801.4
Current assets
Trade and other receivables 12 17 .8 17 .6
Cash and cash equivalents 13 29 .1 33.4
Developments work in progress 1.3 0.7
48.2 51.7
Total assets 2,864.5 2,853.1
Current liabilities
Deferred rental income (29 .2) (28.3)
Trade and other payables 14 (32.6) (40.0)
Borrowings: term loans and overdraft 15a (2.3) (2.2)
(64.1) (70.5)
Non-current liabilities
Borrowings: term loans and overdraft 15a (682.5) (700.2)
Borrowings: bonds 15b (614.6) (572.8)
Derivative interest rate swaps 17 (12.5) (0.8)
Head lease liabilities 16 (3.2) (4.5)
Deferred tax liability (5.4) (4.4)
(1,318.2) (1,282.7)
Total liabilities (1,382.3) (1,353.2)
Net assets 1,482.2 1,499 .9
Equity
Share capital 19 167 .1 166.6
Share premium account 20 479 .4 474.9
Merger and other reserves 21 416.7 413.5
Hedging reserve 22 (11.1) (15.6)
Retained earnings 23 430.1 460.5
Total equity
1
1,482.2 1,499 .9
Net asset value per share
IFRS net assets – basic and diluted 9 110.9p 112.5p
Adjusted net tangible assets
2
– basic 9 112.6p 116.7p
Adjusted net tangible assets
2
– diluted 9 114.5p 118.6p
1 Wholly attributable to equity shareholders of Primary Health Properties PLC.
2 See Glossary of Terms on pages 178 to 180.
These financial statements were approved by the Board of Directors on 21 February 2023 and signed on its behalf by:
Richard Howell
Chief Financial Officer
Registered in England Number: 3033634
Shareholder informationStrategic report Governance Financial statements
123Primary Health Properties PLC Annual Report 2022
Notes
2022
£m
2021
£m
Operating activities
Profit on ordinary activities after tax 56.3 140.1
Taxation charge 8 0.6 1.5
Finance income 5 (0.9) (0.8)
Finance costs 6a 41.2 35.9
Early loan redemption finance cost 6a — 24.6
Termination payment and goodwill impairment on acquisition of Nexus 7 — 35.3
Nexus acquisition costs 7 — 1.7
Fair value loss on derivatives 6b 1.9 1.8
Fair value gain on convertible bond 6c (28.7) (3.4)
Operating profit before financing costs 70.4 236.7
Adjustments to reconcile Group operating profit before financing to net cash flows
from operating activities:
Revaluation loss/(gain) on property portfolio 11 64.4 (110.2)
Profit on sale of land and property 11 (2.9) (0.3)
Long Term Incentive Plan (“LTIP”) — 0.2
Effect of exchange rate fluctuations on operations — —
Fixed rent uplift (0.9) (1.2)
Tax paid 0.2 (0.4)
(Increase) in trade and other receivables (0.7) (0.3)
(Decrease)/increase in trade and other payables (12.9) 15.9
Cash generated from operations 117 .6 140.4
Net cash flow from operating activities 117 .6 140.4
Investing activities
Payments to acquire and improve investment properties (74.8) (129 .6)
Receipts from disposal of properties 27 .5 0.3
Cash paid for acquisition of Nexus, including fees — (18.2)
Cash acquired as part of merger — 0.4
Interest received on development loans 1.5 0.7
Net cash flow used in investing activities (45.8) (146.4)
Financing activities
Proceeds from issue of shares — —
Cost of share issues (0.1) (0.1)
Term bank loan drawdowns 15 161.6 335.6
Term bank loan repayments 15 (175.7) (252.8)
Proceeds from bond issues 62.9 —
Loan arrangement fees (3.5) (2.7)
Purchase of derivative financial instruments — (1.9)
Early loan redemption finance cost 6a — (24.6)
Swap interest received 1.4 —
Non-utilisation fees (2.0) (1.8)
Interest paid (39 .8) (40.9)
Bank interest received — —
Equity dividends paid net of scrip dividend 10 (81.6) (74.4)
Net cash flow from financing activities (76.8) (63.6)
Decrease in cash and cash equivalents for the year (5.0) (69 .6)
Effect of exchange rate fluctuations on Euro-denominated loans and cash equivalents 0.7 (0.6)
Cash and cash equivalents at start of year 33.4 103.6
Cash and cash equivalents at end of year 13 29 .1 33.4
Group cash flow statement
for the year ended 31 December 2022
Strategic report Governance Financial statements Shareholder information
124 Primary Health Properties PLC Annual Report 2022
Group statement of changes in equity
for the year ended 31 December 2022
Share
capital
£m
Share
premium
£m
Merger
and other
reserve
£m
Hedging
reserve
£m
Retained
earnings
£m
Total
£m
1 January 2022 166.6 474.9 413.5 (15.6) 460.5 1,499 .9
Profit for the year — — — — 56.3 56.3
Other comprehensive income
Amortisation of hedging reserve — — — 4.5 — 4.5
Exchange gain on translation
offoreignbalances — — 3.2 — — 3.2
Total comprehensive income — — 3.2 4.5 56.3 64.0
Share issue expenses — (0.1) — — — (0.1)
Share-based awards (“LTIP”) — — — — — —
Dividends paid — — — — (81.6) (81.6)
Scrip dividend in lieu of cash 0.5 4.6 — — (5.1) —
31 December 2022 167 .1 479 .4 416.7 (11.1) 430.1 1,482.2
Share
capital
£m
Share
premium
£m
Merger
and other
reserve
£m
Hedging
reserve
£m
Retained
earnings
£m
Total
£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 loss 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
Shareholder informationStrategic report Governance Financial statements
125Primary Health Properties PLC Annual Report 2022
Notes to the financial statements
1. Corporate information
The Group’s financial statements for the year ended 31 December 2022 were approved by the Board of Directors on 21 February
2023 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, limited by shares.
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 preparThe Group’s financial statements are prepared on the going concern basis (see page 109 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 in accordance with United Kingdom adopted
International Accounting Standards and applied in accordance with the Companies Act 2006 and Article 4 of the IASRegulation.dance 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.
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 is exercised if and only if
an investor has all the following: power over an investee; exposure, or rights, to variable returns from its involvement with the
investee; and the ability to use its power over the investee to affect the amount of the investor’s returns. 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.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 Pris 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.
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.
Strategic report Governance Financial statements
126 Primary Health Properties PLC Annual Report 2022
Shareholder information
Notes to the financial statements continued
2. Accounting policies continued
2.3 Summary of significant accounting policies continued
Foreign operations continued
The exchange rates used to translate foreign currency amounts in 2022 are as follows:
• Group Balance Sheet: £1 = €1.1295 (2021: €1.1893).
• Group Statement of Comprehensive Income: £1 = €1.1490 (2021: €1.1778).
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 rthe 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.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 yof 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. 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% (2021: 100%) of the additional rSuch adjustments are accrued at 100% (2021: 100%) of the additional rental income that is expected to result from the review.
Forleases which contain fixed or minimum deemed uplifts, the rFor 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.
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).
Strategic report Governance Financial statements
127Primary Health Properties PLC Annual Report 2022
Shareholder information
2. Accounting policies continued
2.3 Summary of significant accounting policies continued
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, measurof 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 borrall 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 measur“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; or
• 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; or
• 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
• 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.
Strategic report Governance Financial statements
128 Primary Health Properties PLC Annual Report 2022
Shareholder information
Notes to the financial statements continued
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.
Strategic report Governance Financial statements
129Primary Health Properties PLC Annual Report 2022
Shareholder information
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 (the “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.
Strategic report Governance Financial statements
130 Primary Health Properties PLC Annual Report 2022
Shareholder information
Notes to the financial statements continued
2. Accounting policies continued
2.3 Summary of significant accounting policies continued
Properties held for sale
Investment property (and disposal groups) classified as held for sale are measured at fair value consistent with other investment properties.
Investment property and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale
transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable, and the
asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale
which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
Capitalised costs
A capitalised cost is an expense added to the cost basis of a fixed asset on the Balance Sheet. Capitalised costs are incurred
when purchasing fixed assets following matching principle of accounting to record expenses in the same period as related
revenues or useful life of an asset. The historical costs are recorded on the Balance Sheet and depreciated over the useful life
ofan asset.of an asset.
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 2022. 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 17 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 probable 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.
Strategic report Governance Financial statements
131Primary Health Properties PLC Annual Report 2022
Shareholder information
2. Accounting policies continued
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;
• amendments to IAS 1 Non-current liabilities with covenants;
• amendments to IFRS 16 Lease Liability in a Sale and Leaseback;
• amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction;
• IAS 8 Definition of accounting estimates; and
• 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 2023, 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.
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 £132.0 million and £13.0 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
2022 142.9 138.1 133.9 129.6 122.7 910.2 1,577.4
2021 138.6 136.1 130.8 126.3 121.0 859.1 1,511.9
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
2022
£m
2021
£ m
Administrative expenses including:
Advisory fees (Note 4a) — 0.1
Staff costs (Note 4b) 5.4 5. 2
Performance Incentive Fees (Note 4c) — 1.0
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 0.5 0.4
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 0.6 0.5
Total audit and assurance services 0.6 0.5
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 0.7 0.6
Please refer to page 87 of the Audit Committee Report for analysis of non-audit fees.
Strategic report Governance Financial statements
132 Primary Health Properties PLC Annual Report 2022
Shareholder information
Notes to the financial statements continued
4. Group operating profit is stated after charging continued
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 in the year of acquisition to 31 December 2021 were £0.1 million.
The Group shares certain operational services with Nexus. Amounts paid during the year in relation to these shared services
totalled £0.1 million (2021: £0.1 million).
Refer to Note 7 for further information on the Nexus acquisition.
b) Staff costs
2022
£m
2021
£m
Wages and salaries 6.0 5.6
Less staff costs capitalised in respect of development and asset management projects (1.4) (1.3)
Social security costs 0.6 0.5
Pension costs 0.2 0.1
Equity-settled share-based payments — 0.3
5.4 5.2
The Group operates a defined contribution pension scheme for all employees. The Group contribution to the scheme during the
year was £0.2 million (2021: £0.1 million), which represents the total expense recognised through the income statement. As at
31 December 2022, there were no contributions (2021: £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 67 which included 64 full time and 3 part time employees
(2021: 59 which included 56 full time and 3 part time), and as at 31 December 2022 was 65 (2021: 62).
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 93 to 96.
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 in the Annual Report.
A PIF of £1.2 million was paid in the period in respect of 2021 and at 31 December 2022 the balance on the notional cumulative
PIF account was £nil (2021: £9.2 million), of which £nil (2021: £1.3 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 24 to 28.
5. Finance income
2022
£m
2021
£m
Interest income on financial assets
Bank interest — —
Development loan interest 0.9 0.8
0.9 0.8
Strategic report Governance Financial statements
133Primary Health Properties PLC Annual Report 2022
Shareholder information
6. Finance costs
2022
£m
2021
£m
Interest expense and similar charges on financial liabilities
a) Interest
Bank loan interest 23.0 24.0
Swap interest (1.4) (0.3)
Bond interest 17.5 15.5
Bank facility non-utilisation fees 2.0 1.9
Early loan redemption finance cost — 24.6
Bank charges and loan arrangement fees 3.0 2.7
44.1 68.4
Interest capitalised — —
44.1 68.4
Amortisation of MedicX debt MtM on acquisition (2.9) (7.9)
41.2 60.5
2022
£m
2021
£m
b) Derivatives
Net fair value gain on interest rate swaps 2.6 2.7
Amortisation of cash flow hedging reserve (4.5) (4.5)
(1.9) (1.8)
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 (2021: £nil). An amount of £4.5 million (2021: £4.5 million)
has been amortised from the cash flow hedging reserve in the year resulting from early termination of effective swap contracts
(see Note 22).
Details of the fair value loss on hedges which meet the effectiveness criteria for hedge accounting under IAS 39 are set out
in Note 22.
2022
£m
2021
£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 on existing convertible bond 28.7 3.4
Convertible bond issue costs — —
28.7 3.4
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.
2022
£m
2021
£m
Net finance costs
Finance income (Note 5) 0.9 0.8
Finance costs (as per above) (41.2) (68.4)
(40.3) (67.6)
Interest capitalised — —
(40.3) (67.6)
Amortisation of MedicX debt MtM on acquisition (2.9) 7.9
(43.2) (59.7)
Strategic report Governance Financial statements
134 Primary Health Properties PLC Annual Report 2022
Shareholder information
Notes to the financial statements continued
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£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 was 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 rThe 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 31 December 2021. If the acquisition had completed on the first day of the prior
financial year, the impact on Group revenues for that year would have been £nil and the impact on Group profit would have been
a cost saving of approximately £4.0 million.
Strategic report Governance Financial statements
135Primary Health Properties PLC Annual Report 2022
Shareholder information
8. Taxation
a) Taxation charge in the Group Statement of Comprehensive Income
The taxation charge is made up as follows:
2022
£m
2021
£m
Current tax
UK corporation tax — —
Irish corporation tax (0.2) 0.1
Deferred tax on Irish activities 0.8 1.4
Total tax 0.6 1.5
The UK corporation tax rate of 19% (2021: 19%) and the Irish corporation tax rate of 19% (2021: 20%) have been applied in the
measurement of the Group’s UK and Ireland related activities tax liability at 31 December 2022.
b) Factors affecting the tax charge for the year
The tax assessed for the year is lower than (2021: lower than) the standard rate of corporation tax in the UK. The differences are
explained below:
2022
£m
2021
£m
Profit on ordinary activities before taxation 56.9 141.6
Theoretical tax at UK corporation tax rate of 19% (2021: 19%) 10.8 26.9
REIT exempt income (11.2) (36.4)
Transfer pricing adjustment 7.1 4.7
Termination payment and goodwill impairment on acquisition of Nexus — 7.0
Fair value loss on convertible bond (5.4) (0.6)
Non-taxable items — (0.6)
Losses brought forward utilised (0.6) (0.2)
Difference in Irish tax rates (0.1) 0.7
Taxation charge (Note 8a) 0.6 1.5
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% (2021: 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 2022.
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.
Strategic report Governance Financial statements
136 Primary Health Properties PLC Annual Report 2022
Shareholder information
Notes to the financial statements continued
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.
Earnings per share
2022 2021
IFRS
earnings
£m
Adjusted
earnings
£m
EPRA
earnings
£m
IFRS
earnings
£m
Adjusted
earnings
£m
EPRA
earnings
£m
Profit after taxation 56.3 56.3 56.3 140.1 140.1 140.1
Adjustments to remove:
Revaluation gain on property portfolio — 64.4 64.4 — (110.2) (110.2)
Profit on sale of land and property — (2.9) (2.9) — (0.3) (0.3)
Fair value movement on derivatives — 1.9 1.9 — 1.8 1.8
Fair value movement and issue costs on
convertible bond — (28.7) (28.7) — (3.4) (3.4)
Taxation charge — 0.6 0.6 — 1.5 1.5
Termination payment and goodwill
impairment on acquisition of Nexus — — — — 35.3 6.3
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acquireddebt acquired — (2.9) — — (3.2) —
Basic earnings 56.3 88.7 91.6 140.1 83.2 62.1
Dilutive effect of convertible bond (24.3) 4.3 4.3 0.9 4.3 4.3
Diluted earnings 32.0 93.0 95.9 141.0 87.5 66.4
Number of shares
2022 weighted average 2021 weighted average
million million million million million million
Ordinary Shares 1,334.8 1,334.8 1,334.8 1,330.4 1,330.4 1,330.4
Dilutive effect of convertible bond 108.9 108.9 108.9
105.4 105.4 105.4
Diluted Ordinary Shares 1,443.7 1,443.7 1,443.7
1,435.8 1,435.8 1,435.8
Profit/(loss) per share attributable to shareholders:
2022 2021
IFRS
pence
Adjusted
pence
EPRA
pence
IFRS
pence
Adjusted
pence
EPRA
pence
Basic
4.2 6.6 6.9 10.5 6.2 4.7
Diluted 2.2 6.4 6.6 9.8 6.1 4.6
Strategic report Governance Financial statements
137Primary Health Properties PLC Annual Report 2022
Shareholder information
9. Earnings per share continued
Net assets per share
31 December 2022 31 December 2021
IFRS
pence
Adjusted
pence
EPRA
pence
IFRS
pence
Adjusted
pence
EPRA
pence
Net assets attributable to shareholders 1,482.2 1,482.2 1,482.2 1,499.9 1,499.9 1,499.9
Derivative interest rate swaps liability — (7.1) (7.1) — (4.4) (4.4)
Deferred tax — 5.4 5.4 — 4.4 4.4
Cumulative convertible bond fair value
movement — (7.1) (7.1) — 21.6 21.6
MtM on MedicX loans net of
amortisation — 31.4 — — 34.4 —
Net tangible assets (“NTA”) 1,482.2 1,504.8 1,473.4 1,499.9 1,555.9 1,521.5
Real estate transfer taxes — — 189.1 — — 189.0
Net reinstatement value (“NRV”) — — 1,662.5 — — 1,710.5
Fixed rate debt and swap MtM value — — 172.7 — — (20.1)
Deferred tax — — (5.4) — — (4.4)
Cumulative convertible bond fair value
movement — — 7.1 — — (21.6)
Real estate transfer taxes — — (189.1) — — (189.0)
Net disposal value (“NDV”) 1,482.2 1,504.8 1,647.8 1,499.9 1,555.9 1,475.4
Ordinary Shares
31 December 2022 31 December 2021
million million million million million million
Issued share capital 1,336.5 1,336.5 1,336.5 1,332.9 1,332.9 1,332.9
Basic net asset value per share
1
31 December 2022 31 December 2021
IFRS
pence
Adjusted
pence
EPRA
pence
IFRS
pence
Adjusted
pence
EPRA
pence
Net tangible assets (“NTA”) 110.9 112.6 110.2 112.5 116.7 114.1
Net reinstatement value (“NRV”) — — 124.4 — — 128.3
Net disposal value (“NDV”) — — 123.3 — — 110.7
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 share
2
31 December 2022 31 December 2021
IFRS
pence
Adjusted
pence
EPRA
pence
IFRS
pence
Adjusted
pence
EPRA
pence
Net tangible assets (“NTA”) 112.9 114.5 112.3 114.7 118.6 116.2
Net reinstatement value (“NRV”) — — 125.4 — — 129.4
Net disposal value (“NDV”) — — 124.4 — — 113.0
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 137.69 pence (31 December 2021: 142.29 pence).
Conversion of the convertible bond would result in the issue of 108.9 million (31 December 2021: 105.4 million) new Ordinary Shares.
The IFRS net asset value and EPRA NDV would increase by £142.9 million (31 December 2021: £171.6 million) and the EPRA NTA,
adjusted NTA and EPRA NRV would increase by £150.0 million (31 December 2021: £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.
Strategic report Governance Financial statements
138 Primary Health Properties PLC Annual Report 2022
Shareholder information
Notes to the financial statements continued
10. Dividends
Amounts recognised as distributions to equity holders in the year:
2022
£m
2021
£m
Quarterly interim dividend paid 25 February 2022 21.0 —
Scrip dividend in lieu of quarterly cash dividend paid 25 February 2022 0.6 —
Quarterly interim dividend paid 20 May 2022 20.6 —
Scrip dividend in lieu of quarterly cash dividend paid 20 May 2022 1.1 —
Quarterly interim dividend paid 19 August 2022 18.1 —
Scrip dividend in lieu of quarterly cash dividend paid 19 August 2022 3.4 —
Quarterly interim dividend paid 25 November 2022 21.9 —
Scrip dividend in lieu of quarterly cash dividend paid 25 November 2022 — —
Quarterly interim dividend paid 26 February 2021 — 18.7
Scrip dividend in lieu of quarterly cash dividend paid 26 February 2021 — 1.8
Quarterly interim dividend paid 21 May 2021 — 17.7
Scrip dividend in lieu of quarterly cash dividend paid 21 May 2021 — 2.9
Quarterly interim dividend paid 20 August 2021 — 18.3
Scrip dividend in lieu of quarterly cash dividend paid 20 August 2021 — 2.4
Quarterly interim dividend paid 26 November 2021 — 19.7
Scrip dividend in lieu of quarterly cash dividend paid 26 November 2021 — 0.9
Total dividends distributed in the year 86.7 82.4
Per share 6.5p 6.2p
On 5 January 2023, the Board declared an interim dividend of 1.675 pence per Ordinary Share with regard to the year ended
31 December 2022, payable on 23 February 2023. This dividend will comprise wholly of a ordinary dividend of 0.335 pence and
Property Income Dividend (“PID”) of 1.340 pence.
11. Investment properties and investment properties under construction
Properties have been independently valued at fair value by Avison Young (UK) Limited, 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 2022
(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 properties are 99.7% let (2021: 99.7%). The valuations reflected a 4.82% (2021: 4.64%) net initial yield and a 4.89% (2021:
4.74%) 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 £2.8 million (2021: £9.0 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 £9.9 million (2021: £19.0 million) which have
not been provided for in the financial statements.
A fair value increase of £0.6 million (2021: £0.4 million) in respect of investment property under construction has been recognised
in the Group Statement of Comprehensive Income, as part of the overall total net valuation loss on the property portfolio in the
year of £64.4 million (2021: £110.2 million gain).
Of the £2,793.1 million (2021: £2,791.4 million) valuation, £2,562.2 million (91.7%) (2021: £2,578.4 million) relates to investment
properties in the UK and £230.9 million (8.3%) (2021: £213.0 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.
Strategic report Governance Financial statements
139Primary Health Properties PLC Annual Report 2022
Shareholder information
11. Investment properties and investment properties under construction continued
Investment
properties –
freehold
1
£m
Investment
properties –
long leasehold
£m
Investment
properties –
under
construction
£m
Total
£m
As at 1 January 2022 2,208.4 568.3 19.2 2,795.9
Property additions 66.8 0.7 10.6 78.1
Property disposals (23.4) (1.2) — (24.6 )
Reclassification of freehold and leasehold (27.5) 27.5 — —
Transfer from properties under construction 26.4 — (26.4) —
Impact of lease incentive adjustment 0.8 0.3 — 1.1
Foreign exchange movements 8.9 2.1 0.5 11.5
Lease ground rent adjustment (1.3) — — (1.3 )
2,259.1 597.7 3.9 2,860.7
Revaluations for the year (44.6) (20.4) 0.6 (64.4)
As at 31 December 2022 2,214.5 577.3 4.5 2,796.3
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
1 Includes development land held at £0.7 million (31 December 2021: £0.9 million).
Bank borrowings, bonds and interest rate swaps are secured on investment properties with a value of £2,706.5 million
(2021:£2,515.4 million).(2021: £2,515.4 million).
Right of use assets
In accordance with IFRS 16 Leases, the Group has recognised a £3.2 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 2022 and
31 December 2021. There were no transfers between levels during the year or during 2021. 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 markseller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and
without compulsion.”
Strategic report Governance Financial statements
140 Primary Health Properties PLC Annual Report 2022
Shareholder information
Notes to the financial statements continued
11. Investment properties and investment properties under construction continued
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.
2022 2021
ERV – range of the portfolio £26,500–£1,515,482
per annum
£30,000–£1,433,486
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.
2022 2021
True equivalent yield – range of the portfolio 2.52%–17.50% 3.23%–19.58%
Unobservable input: physical condition of the property
The properties are physically inspected by the valuer on a three-year rotating basis.
Unobservable input: net initial yield
The NIY is the annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable propert y
operating expenses, divided by the market value of the property, increased with (estimated) purchaser’s costs.
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
During 2022 the Group experiences an 18bps increase in the portfolio Net initial yield, reducing investment property by £134
million (4.7% reduction), before reflecting gains as a result of rental growth and asset management projects. We have therefore
applied the following sensitivities:
• 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
£59 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 Net initial yield will decrease fair value. A further 10bp shift in the Net initial yield would have approximately
£57 million impact on the investment property valuation.
• An increase in the rental growth will increase the fair value.
12. Trade and other receivables
2022
£m
2021
£m
Trade receivables (net of provision for doubtful debts) 11.6 11.6
Prepayments and accrued income 6.0 5.4
Other debtors 0.2 0.6
17.8 17.6
The expected credit losses are estimated using a provision matrix by reference to past 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. Payment
default is where PHP assesses there could be a probable failure of a tenant making a contractual payment of rent. 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.
Strategic report Governance Financial statements
141Primary Health Properties PLC Annual Report 2022
Shareholder information
13. Cash and cash equivalents
2022
£m
2021
£m
Cash held at bank 29.1 33.4
29.1 33.4
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
2022
£m
2021
£m
Trade payables 3.3 0.6
Bank and bond loan interest accrual 6.8 6.3
Other payables 9.1 9.1
VAT 5.9 6.6
Accruals 7.5 17.4
32.6 40.0
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
Expiry date
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
Current
RBS overdraft Jun 2023 5.0 5.0 — — 5.0 5.0
Aviva MXF loan Sep 2033 2.3 2.2 2.3 2.2 — —
7.3 7.2 2.3 2.2 5.0 5.0
Non-current
Aviva AV loan Oct 2036 200.0 200.0 200.0 200.0 — —
Aviva loan Nov 2028 75.0 75.0 75.0 75.0 — —
Barclays loan Sep 2025 100.0 100.0 — — 100.0 100.0
HSBC loan Nov 2025 100.0 100.0 25.5 25.5 74.5 74.5
Lloyds loan Dec 2025 100.0 50.0 32.5 38.7 67.5 11.3
NatWest loan Oct 2025 100.0 100.0 41.8 86.3 58.2 13.7
Santander Jan 2025 50.0 — 38.6 — 11.4 —
Aviva MXF loan Sep 2033 222.9 225.2 222.9 225.2 — —
Aviva MXF loan Sep 2028 30.8 30.8 30.8 30.8 — —
978.7 881.0 667.1 681.5 311.6 199.5
Total 986.0 888.2 669.4 683.7 316.6 204.5
Strategic report Governance Financial statements
142 Primary Health Properties PLC Annual Report 2022
Shareholder information
Notes to the financial statements continued
15. Borrowings continued
a) Term loans and overdrafts continued
2022
£m
2021
£m
Balance as at 1 January 702.4 630.0
Changes from financing activities
Term bank loan drawdowns 161.6 335.6
New loan facilities drawn 161.6 335.6
Repayments of mortgage principal (2.2) (20.4)
Repayments of term bank loans (173.5) (232.4)
Repayments of term loan borrowings (175.7) (252.8)
Loan issue costs for new facilities/refinancing (3.4) (2.7)
Total changes from financing cash flows (17.5) 80.1
Other non-cash changes
MtM on loans net of amortisation (2.3) (7.2)
Amortisation of loan issue costs 2.5 2.2
Exchange (gain) on translation of foreign balances (0.3) (2.7)
Total other changes (0.1) (7.7)
Balance as at 31 December 684.8 702.4
At 31 December 2022, total facilities of £1,607.0 million (2021: £1,437.4 million) were available to the Group. This included a £70.0million e 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, £44.5 million, £62.5 million and
£66.4 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 2022, £1,290.4 million was drawn (2021: £1,232.9 million).
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.
On 10 October 2022, the Group has renewed its existing £100.0 million revolving credit facility with Barclays for a further
three-year term with options to extend by a further year on the first and second anniversaries of the new facility.
On 3 November 2022, the existing NatWest facility was extended for another year to October 2025.
On 16 December 2022, the Group has renewed its existing £100.0 million revolving credit facility with HSBC for a further three-
year term with options to extend by a further year on the first and second anniversaries of the new facility.
On 22 December 2022, the Group exercised an increase in facility size to the existing Lloyds facility, increasing the revolving
credit facility to £100.0 million, and extending the facility for a further three-year term to December 2025.
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:
2022
£m
2021
£m
Term loans drawn: due within one year 2.3 2.2
Term loans drawn: due in greater than one year 667.1 681.5
Total terms loans drawn 669.4 683.7
Plus: MtM on loans net of amortisation 27.1 29.3
Less: unamortised borrowing costs (11.7) (10.6)
Total term loans per the Group Balance Sheet 684.8 702.4
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.
Strategic report Governance Financial statements
143Primary Health Properties PLC Annual Report 2022
Shareholder information
15. Borrowings continued
b) Bonds
2022
£m
2021
£m
Unsecured:
Convertible bond July 2025 at fair value 142.9 171.6
Less: unamortised costs — —
Total unsecured bonds 142.9 171.6
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 45.1 42.9
€70 million secured bond (Euro private placement) September 2031 62.0 58.8
€75 million secured bond (Euro private placement) February 2034 66.4 —
Ignis loan note December 2028 50.0 50.0
Standard Life loan note September 2028 77.5 77.5
Less: unamortised bond issue costs (3.6) (3.1)
Plus: MtM on loans net of amortisation 4.3 5.1
Total secured bonds 471.7 401.2
Total bonds 614.6 572.8
There were no bond conversions during the year (2021: £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 inter3 December 2025. The Secured Bonds incur interest at an annualised rate of 220bps plus a credit spread adjustment of 28bps
above six-month SONIA, 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 202721 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; and
• €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.
On 11 February 2022, the Group issued a new €75.0 million (£66.4 million) secured private placement loan note to MetLife for a
twelve-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 MetLife’s discretion.
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 arrear£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.
Strategic report Governance Financial statements
144 Primary Health Properties PLC Annual Report 2022
Shareholder information
Notes to the financial statements continued
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 r£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 137.69 pence as at 31 December 2022 (2021: 142.29 pence).
2022
£m
2021
£m
Opening balance – fair value 171.6 175.0
Issued in the year — —
Cumulative fair value movement in convertible bond (28.7) (3.4)
Closing balance – fair value 142.9 171.6
The fair value of the Bonds at 31 December 2022 and 31 December 2021 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
2022
£m
2021
£m
Current liabilities:
Term loans and overdrafts 2.3 2.2
Bonds — —
Total current liabilities 2.3 2.2
Non-current liabilities:
Term loan and overdrafts 667.1 681.5
MtM on loans net of amortisation 27.1 29.3
Less: unamortised loan issue costs (11.7) (10.6)
Total non-current liabilities 682.5 700.2
Bonds 621.0 549.2
MtM on bonds net of amortisation 4.3 5.1
MtM on convertible bond (7.1) 21.6
Less: unamortised bond issue costs (3.6) (3.1)
Total non-current bonds 614.6 572.8
Total borrowings 1,299.4 1,275.2
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.
2022
£m
2021
£m
Due within one year 0.1 0.1
Due after one year 3.1 4.4
Closing balance – fair value 3.2 4.5
Strategic report Governance Financial statements
145Primary Health Properties PLC Annual Report 2022
Shareholder information
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.
2022
£m
2021
£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 19.6 5.2
Non-current liabilities (12.5) (0.8)
7.1 4.4
Total fair value of interest rate swaps 7.1 4.4
Shown in the balance sheet as:
Total non-current assets 19.6 5.2
Total non-current liabilities (12.5) (0.8)
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 2022 was a £4.5 million gain (2021: £4.5 million gain), including the amortisation of the cash
flow hedging reserve of £4.5 million (2021: £4.5 million).
Interest rate swaps and caps with a contract value of £100.0 million (2021: £188.0 million) were in effect at 31 December 2022.
Details of all floating to fixed rate interest rate swap contracts held are as follows:
Contract value Product Start date Maturity
Fixed interest
per annum %
2022
£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
£100.0 million
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
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%.
Strategic report Governance Financial statements
146 Primary Health Properties PLC Annual Report 2022
Shareholder information
Notes to the financial statements continued
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operade 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 proThis 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
financial
instruments
£m
Effect on
profit before
taxation
£m
Effect on
equity
£m
2022
Sterling Overnight Index Average Rate Increase of 50 basis points 120.1 5.0 125.1
Sterling Overnight Index Average Rate Decrease of 50 basis points 120.1 (5.0) 125.1
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)
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.
Strategic report Governance Financial statements
147Primary Health Properties PLC Annual Report 2022
Shareholder information
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.
On demand
£m
Less than
three months
£m
Three to
twelve months
£m
One to
five years
£m
More than
five years
£m
Total
£m
2022
Interest-bearing loans and borrowings — 11.3 34.4 489.7 1,017.4 1,552.8
Interest rate swaps (net) — — — — — —
Trade and other payables 2.7 22.5 3.5 1.8 2.1 32.6
2.7 33.8 37.9 491.5 1,019.5 1,585.4
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
The Group’s borrowings have financial covenants which, if breached, could result in the borrowings becoming repayable immediately.
Details of the covenants are given under (e) Capital risk management and are disclosed to the facility providers on a quarterly
basis. There have been no breaches during the year (2021: 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.
Strategic report Governance Financial statements
148 Primary Health Properties PLC Annual Report 2022
Shareholder information
Notes to the financial statements continued
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
2022
£m
Fair value
2022
£m
Book value
2021
£m
Fair value
2021
£m
Financial assets
Trade and other receivables 17.8 17.8 17.6 17.6
Effective interest rate swaps — — — —
Ineffective interest rate swaps 19.6 19.6 5.2 5.2
Cash and short term deposits 29.1 29.1 33.4 33.4
Financial liabilities
Interest-bearing loans and borrowings (1,290.4) (1,149.1) (1,232.9) (1,313.4)
Effective interest rate swaps — — — —
Ineffective interest rate swaps (net) (12.5) (12.5) (0.8) (0.8)
Trade and other payables (32.6) (32.6) (40.0) (40.0)
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 excludes accrued interest from the previous settlement date to the reporting date; and
• 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 2022 were as follows:
Recurring fair value measurements
Level 1
1
£m
Level 2
2
£m
Level 3
3
£m
Total
£m
Financial assets
Derivative interest rate swaps — 19.6 — 19.6
Financial liabilities
Derivative interest rate swaps — (12.5) — (12.5 )
Convertible bond (142.9) — — (142.9)
Fixed rate debt — (797.8) — (797.8)
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.
Strategic report Governance Financial statements
149Primary Health Properties PLC Annual Report 2022
Shareholder information
18. Financial risk management continued
Financial risk factors continued
d) Market risk continued
Fair value hierarchy continued
Fair value measurements at 31 December 2021 were as follows:
Recurring fair value measurements
Level 1
1
£m
Level 2
2
£m
Level 3
3
£m
Total
£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) — — (171.6)
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.
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 (2021: 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 cover
1
: 1.15 to 2.25 (2021: 1.05 to 2.25); and
• loan to value
1
: 55% to 75% (2021: 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.
During the year the Group has complied with all of the requirements set out above.
1 See Glossary of Terms.
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150 Primary Health Properties PLC Annual Report 2022
Shareholder information
Notes to the financial statements continued
18. Financial risk management continued
Financial risk factors continued
e) Capital risk management continued
Group loan to value ratio
2022
£m
2021
£m
Fair value of completed investment properties 2,788.6 2,772.2
Fair value of development properties 4.5 19.2
Ground rent recognised as finance leases 3.2 4.5
2,796.3 2,795.9
Interest-bearing loans and borrowings (with convertible bond at nominal value) 1,290.4 1,232.9
Less cash held (29.1) (33.4)
Nominal amount of interest-bearing loans and borrowings 1,261.3 1,199.5
Group loan to value ratio 45.1% 42.9%
19. Share capital
Ordinary Shares issued, authorised and fully paid at 12.5 pence each
2022 2021
Number –
million £m
Number –
million £m
Balance at 1 January 1,332.9 166.6 1,315.6 164.4
Scrip issues in lieu of cash dividends 3.6 0.5 5.2 0.7
Share issues 5 January 2021 — — 11.5 1.4
Share issues on other acquisitions — — 0.6 0.1
Balance at 31 December 1,336.5 167.1 1,332.9 166.6
Issue of shares in 2022
Date of issue
Number
of shares –
million
Issu e
price
Scrip issue in lieu of cash dividend 25 February 2022 0.4 146.72 p
Scrip issue in lieu of cash dividend 20 May 2022 0.7 149.58p
Scrip issue in lieu of cash dividend 19 August 2022 2.5 138.14p
Scrip issue in lieu of cash dividend 25 November 2022 — —
20. Share premium
2022
£m
2021
£m
Balance at 1 January 474.9 466.7
Scrip issues in lieu of cash dividends 4.6 7.4
Share issues 5 January 2021 — —
Share issues on other acquisitions — 0.9
Share issue expense (0.1) (0.1)
Balance at 31 December 479.4 474.9
Strategic report Governance Financial statements
151Primary Health Properties PLC Annual Report 2022
Shareholder information
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.
2022
£m
2021
£m
Capital reserve
Balance at 1 January and 31 December 1.6 1.6
Foreign exchange translation reserve
Balance at 1 January (2.2) 1.2
Exchange differences on translating the net assets of foreign operations 3.2 (3.4)
Balance at 31 December 1.0 (2.2)
Merger reserve
Balance at 1 January 414.1 398.0
Premium on shares issued for Nexus merger — 16.1
Balance at 31 December 414.1 414.1
Balance of merger and other reserves at 31 December 416.7 413.5
22. 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:
2022
£m
2021
£m
Balance at 1 January (15.6) (20.1)
Fair value movement on cash flow hedges — —
Amortisation of cash flow hedging reserve 4.5 4.5
Net movement on cash flow hedges (“effective swaps”) and amortisation of cash flow hedging reserve 4.5 4.5
Balance at 31 December (11.1) (15.6)
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).
23. Retained earnings
2022
£m
2021
£m
Balance at 1 January 460.5 402.6
Retained profit for the year 56.3 140.1
Dividends paid (81.6) (74.4)
Scrip dividend in lieu of cash (5.1) (8.0)
Share-based awards (“LTIP”) — 0.2
Balance at 31 December 430.1 460.5
24. Capital commitments
As at 31 December 2022, 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 £2.8 million (2021: £9.0 million) remains to be funded with
regard to these properties.
As at 31 December 2022, the Group has capital commitments totalling £9.9 million (2021: £10.0 million) being the cost to complete
asset management projects on site, and £2.8 million (2021: £10.7 million) being the cost to complete investments. In addition to
this we recognised a capital commitment in relation to the acquisition of Axis Technical Services Limited of £7.1 million (€8.0 million)
that was subsequently acquired in January 2023.
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152 Primary Health Properties PLC Annual Report 2022
Shareholder information
Notes to the financial statements continued
25. Related party transactions
Harry Hyman, Chief Executive Officer, is a Director and the ultimate beneficial owner of a number of Nexus entities and is
considered to be a related party. Following the acquisition of certain Nexus entities on the internalisation of management
structure on 5 January 2021, the Group has continued to share certain operational services with a Nexus entity, Nexus Central
Management Services Limited. Harry Hyman is a current Director and ultimate controlling party of Nexus Central Management
Services Limited.
Amounts paid during the period in relation to shared services totalled £0.1 million (31 December 2021: net receipt £0.1 million).
Amounts paid inrelation to prior periods include an element of advisory fees up to the date of internalisation.Amounts paid in relation to prior periods include an element of advisory fees up to the date of internalisation.
As at 31 December 2022, outstanding fees payable to Nexus totalled £nil (31 December 2021: £nil).
26. Subsequent events
On 23 January 2023, the Group acquired the Irish property management business, Axis Technical Services Limited (“Axis”).
PHPacquired the entirPHP acquired the entire issued ordinary share capital of Axis for an initial completion consideration of €5.5 million plus working
capital estimated at €0.5 million, payable in cash. A further deferred cash consideration of up to €2.5 million may become payable
in 2024 subject to the profit before tax for the year ended 31 December 2023 being greater than €1.3 million. If the profit before
tax for 2023 is below the €1.3 million threshold then the deferred cash consideration will be reduced by €8 for every €1 the profit
before tax is below €1.3 million. The €2.5 million deferred cash consideration is the maximum sum that could be payable.
27. 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. 9) Limited 11328330
PHP Epsom Limited 12004850
GP Property One Limited 10801028
PHP SPV Limited 12256431
PHP Primary Properties (Haymarket) Limited 08304612
MXF Properties Bridlington Limited 07763871
PHP Tradeco Holdings Limited 09642987
PHP Cardiff Group Limited 10253987
PHP (Spilsby) Limited 13735391
PHP Health Solutions Limited 06949900
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
PHP (Croft) Limited 13938144
PHP Chiswick Limited OE001635
Shareholder informationStrategic report Governance Financial statements
153Primary Health Properties PLC Annual Report 2022
Company balance sheet
at 31 December 2022
Notes
2022
£m
2021
(Restated)
£m
Non-current assets
Investment in subsidiaries 8 870.9 857.2
Fixed assets 0.4 0.2
Debtors: amounts falling due after more than one year 9 844.9 849.9
1,716.2 1,707.2
Current assets
Trade and other receivables 9 0.1 0.5
Cash at bank and in hand 10 11.2 5.2
11.3 5.7
Total assets 1,727.5 1,712.9
Current liabilities
Trade and other payables 11 (229.5) (188.4)
Borrowings: bonds 12 — —
(229.5) (188.4)
Non-current liabilities
Borrowings: bonds 12 (150.2) (166.6)
(150.2) (166.6)
Total liabilities (379.7) (355.0)
Net assets 1,347.8 1,357.9
Equity
Share capital 14 167.1 166.6
Share premium 479.4 474.9
Merger and other reserves 415.6 416.1
Retained earnings 15 285.7 300.3
Total equity 1,347.8 1,357.9
Net asset value per share – basic 16 101p 102p
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 profit for the year was £1.0 million (2021: loss of £62.5 million).
These financial statements were approved by the Board of Directors on 21 February 2023 and signed on its behalf by:
Richard Howell
Chief Financial Officer
Registered in England Number: 3033634
Strategic report Governance Financial statements Shareholder information
154 Primary Health Properties PLC Annual Report 2022
Company statement of changes in equity
for the year ended 31 December 2022
Share
capital
£m
Share
premium
£m
Merger and other
reserves
£m
Retained
earnings
£m
Total
equity
£m
1 January 2022 166.6 474.9 416.1 300.3 1,357.9
Profit for the year — — — 0.3 0.3
Dividends received — — — 71.8 71.8
Exchange gain on translation of foreign balances — — (0.5) — (0.5)
Total comprehensive income — — (0.5) 72.1 71.6
Share issue expenses — (0.1) — — (0.1)
Share-based awards (“LTIP”) — — — — —
Dividends paid — — — (81.6) (81.6)
Scrip dividend in lieu of cash 0.5 4.6 — (5.1) —
31 December 2022 167.1 479.4 415.6 285.7 1,347.8
Share
capital
£m
Share
premium
£m
Merger and other
reserves
£m
Retained
earnings
£m
Total
equity
£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
Shareholder informationStrategic report Governance Financial statements
155Primary Health Properties PLC Annual Report 2022
Notes to the Company financial statements
1. Accounting policies
The Company is a public limited company incorporated in England and Wales in accordance with the Companies Act 2006, limited
by shares. 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.
Strategic report Governance Financial statements Shareholder information
156 Primary Health Properties PLC Annual Report 2022
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
2022
£m
2021
£m
Wages and salaries, pension and bonus 1.8 1.3
Social security costs (0.1) —
Equity-settled share-based payments — 0.3
1.7 1.6
The Company operates a defined contribution pension scheme for all employees. The Company contribution to the scheme during
the year was £nil (2021: £nil), which represents the total expense recognised through the income statement. As at 31 December
2022, there were no contributions (2021: £nil) due in respect of the reporting period that had not been paid over to the plan.
The average monthly number of Company employees was two (2021: two).
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 93 to 96.
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.
6. Taxation
a) Taxation charge in the Group Statement of Comprehensive Income
The taxation charge is made up as follows:
2022
£m
2021
£m
Deferred tax 0.7 0.6
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.
Notes to the Company financial statements continued
Shareholder informationStrategic report Governance Financial statements
157Primary Health Properties PLC Annual Report 2022
6. Taxation continued
b) Factors affecting the tax credit for the year
The tax assessed for the year is higher than (2021: higher than) the standard rate of corporation tax in the UK. The differences are
explained below:
2022
£m
2021
£m
Loss on ordinary activities before taxation 1.0 (61.9)
Theoretical tax at UK corporation tax rate of 19% (2021: 19%) 0.2 (11.8)
REIT exempt income (0.3) —
Transfer pricing adjustments 1.9 1.1
Fair value loss on convertible bond (3.3) 1.2
Non-taxable items 1.6 9.2
Impact of taxes in the Republic of Ireland 0.7 0.6
Loss relief (0.1) 0.3
Losses generated in the year — —
Taxation charge (Note 6a) 0.7 0.6
7. Dividends
Amounts recognised as distributions to equity holders in the year:
2022
£m
2021
£m
Quarterly interim dividend paid 25 February 2022 21.0 —
Scrip dividend in lieu of quarterly cash dividend paid 25 February 2022 0.6 —
Quarterly interim dividend paid 20 May 2022 20.6 —
Scrip dividend in lieu of quarterly cash dividend paid 20 May 2022 1.1 —
Quarterly interim dividend paid 19 August 2022 18.1 —
Scrip dividend in lieu of quarterly cash dividend paid 19 August 2022 3.4 —
Quarterly interim dividend paid 19 November 2022 21.9 —
Scrip dividend in lieu of quarterly cash dividend paid 25 November 2022 — —
Quarterly interim dividend paid 26 February 2021 — 18.7
Scrip dividend in lieu of quarterly cash dividend paid 26 February 2021 — 1.8
Quarterly interim dividend paid 21 May 2021 — 17.7
Scrip dividend in lieu of quarterly cash dividend paid 21 May 2021 — 2.9
Quarterly interim dividend paid 20 August 2021 — 18.3
Scrip dividend in lieu of quarterly cash dividend paid 20 August 2021 — 2.4
Quarterly interim dividend paid 26 November 2021 — 19.7
Scrip dividend in lieu of quarterly cash dividend paid 26 November 2021 — 0.9
Total dividends distributed in the year 86.7 82.4
Per share 6.5p 6.2p
Strategic report Governance Financial statements Shareholder information
158 Primary Health Properties PLC Annual Report 2022
8. Investment in subsidiaries
£m
As at 1 January 2022 857.2
Acquisition of PHP Chiswick Limited 9.9
Acquisition of PHP (Croft) Limited —
Acquisition of PHP (Spilsby) Limited —
Disposal of Primary Health Investment Properties (No.8) Limited —
Acquisition of additional shares in PHP ICAV Limited 4.6
Impairment of subsidiary undertakings (0.8)
As at 31 December 2022 870.9
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
All subsidiaries of the Company are 100% owned and listed opposite. All are incorporated in the UK and their registered office is
Burdett House, 15-16 Buckingham Street, London WC2N 6DU, 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
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 ICAV
2
Property investment/
investment holding
PHIP (5) Limited Property investment/
financing company
Carden Medical Investments Limited
4
Property investment
Primary Health Investment Properties
(No. 9) Limited
Property investment Chelmsley Associates Limited Property investment
PHP Finance (Jersey No.2) Limited
1
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 Limited
5
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 Chiswick Limited Property investment MXF Bridlington Limited Property investment
PHP (Croft) Limited Property investment PHPI Navan Road Limited
3
Property investment
Notes to the Company financial statements continued
Shareholder informationStrategic report Governance Financial statements
159Primary Health Properties PLC Annual Report 2022
8. Investment in subsidiaries continued
Subsidiaries held indirectly by the Company
Name Principal activity Name Principal activity
PHP (Bingham) Limited Property investment PHP Investments No.2 Limited Property investment
Anchor Meadow Limited Property investment Leighton Health Limited Property investment
PHP (Ipswich) Limited Property investment PHP Healthcare Investments Limited Property investment
PHPAV Lending 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 Limited
4
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 Limited
3
Investment holding
PatientFirst (Burnley) Limited Property investment PHPI Newbridge Limited
3
Property investment
PHP Investments (2011) Limited Property investment
PHPI Celbridge Limited
3
Property investment GP Property One Limited Property investment
MXF Properties I Limited
5
Property investment MXF Properties II Limited
5
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 Limited
5
Property investment/
issuer of bonds
MXF Properties VII Limited
5
Property investment/
investment holding
MXF Properties VIII Limited
5
Property investment/
issuer of bonds
Primary Medical Property Investments Ltd Property investment MXF GPG Holdings Limited
5
Property investment/
issuer of bonds
MXF Properties Ireland Limited
5
Property investment MXF (Fakenham) Limited Property investment
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.
Strategic report Governance Financial statements Shareholder information
160 Primary Health Properties PLC Annual Report 2022
9. Trade and other receivables
2022
£m
2021
£m
Non-current
Amounts due from Group undertakings 844.9 849.9
Current
Amounts due from Group undertakings — —
Other receivables 0.1 0.5
850.0 850.4
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
2022
£m
2021
£m
Cash at bank and in hand 11.2 5.2
11. Trade and other payables
2022
£m
2021
£m
Current
Amounts owed to Group undertakings 221.9 181.7
Trade and other payables 7.6 1.7
Accruals and deferred income — 5.0
229.5 188.4
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
2022
£m
2021
£m
Intra-group loan with PHP Finance (Jersey No.2) Limited (Note 13) 147.5 146.6
Option to convert (Note 13) 2.7 20.0
150.2 166.6
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.
Notes to the Company financial statements continued
Shareholder informationStrategic report Governance Financial statements
161Primary Health Properties PLC Annual Report 2022
14. Share capital
Issued and fully paid at 12.5 pence each
2022 2021
Number –
million £m
Number –
million £m
As at 1 January 1,332.9 166.6 1,315.6 164.4
Scrip issues in lieu of cash dividends 3.6 0.5 5.2 0.6
Share issues for Nexus acquisition — — 11.5 1.5
Share issues for other acquisitions — — 0.6 0.1
As at 31 December 1,336.5 167.1 1,332.9 166.6
Issue of shares in 2022
Date of issue
Number
of shares –
million
Issue
price
Scrip issue in lieu of first quarterly cash dividend 25 February 2022 0.4 146.72p
Scrip issue in lieu of second quarterly cash dividend 20 May 2022 0.7 149.58p
Scrip issue in lieu of third quarterly cash dividend 19 August 2022 2.5 138.14p
Scrip issue in lieu of fourth quarterly cash dividend 25 November 2022 — —
15. Retained earnings
2022
£m
2021
£m
As at 1 January 300.3 297.0
Profit/(loss) for the year 0.3 (62.5)
Dividends received 71.8 148.0
Dividends paid (81.6) (74.4)
Scrip issues in lieu of cash dividends (5.1) (8.0)
Long Term Incentive Plan — 0.2
As at 31 December 285.7 300.3
16. Net asset value per Ordinary Share
2022
pence
2021
pence
Basic and diluted 101 102
The basic net asset value per Ordinary Share is based on net assets attributable to Ordinary Shareholders of £1,347.8 million
(2021: £1,357.9 million) and on 1,336.5 million shares (2021: 1,332.9 million shares), being the number of shares in issue at
the year end.
17. Contingent liabilities
The Company has guaranteed the performance of its subsidiaries in respect of development agreements totalling £nil (2021: £nil).
18. Related party transactions
Details of related party transactions are provided in the Directors’ Report, the Directors’ Remuneration Report and Note 25 to the
Group financial statements on page 152. 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.
19. Subsequent events
On 23 January 2023, the Group acquired the Irish property management business, Axis Technical Services Limited (“Axis”).
PHPacquired the entire issued ordinary share capital of Axis for an initial completion consideration of €5.5 million plus working
capital estimated at €0.5 million, payable in cash. A further deferred cash consideration of up to €2.5 million may become payable
in 2024 subject to the profit before tax for the year ended 31 December 2023 being greater than €1.3 million. If the profit before
tax for 2023 is below the €1.3 million threshold then the deferred cash consideration will be reduced by €8 for every €1 the profit
before tax is below €1.3 million. The €2.5 million deferred cash consideration is the maximum sum that could be payable.
Strategic report Governance Financial statements
162 Primary Health Properties PLC Annual Report 2022
Shareholder information
THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
Strategic report Governance Financial statements
163Primary Health Properties PLC Annual Report 2022
Shareholder information
Wednesday 19 April 2023 at 10:30 a.m.
To be held at the offices of CMS Cameron
McKenna Nabarro Olswang LLP at Cannon
Place, 78 Cannon Street, London EC4N 6AF
THIS DOCUMENT AND THE ENCLOSED
FORM OF PROXY ARE IMPORTANT AND
REQUIRE YOUR IMMEDIATE ATTENTION.
If you are in any doubt about the contents of this document
or about what action you should take, you should seek
your own financial advice from your stockbroker or other
independent adviser authorised under the Financial Services
and Markets Act 2000.
If you have sold or otherwise transferred all of your Ordinary
Shares, please forward this document, together with the
accompanying documents, as soon as possible either to the
purchaser or transferee or to the person who arranged the sale
or transfer so they can pass these documents to the person
who now holds the Ordinary Shares.
Whether or not you propose to attend the Annual General
Meeting, please complete and submit a Form of Proxy in
accordance with the instructions printed on the enclosed form.
The Form of Proxy must be received by the Registrar, Equiniti,
by no later than 10:30 a.m. on 17 April 2023.
Primary Health Properties PLC
(incorporated and registered in England and Wales
under number 03033634)
A map showing the location of the venue and how to get there
is set out opposite.
Venue
The offices of CMS Cameron McKenna Nabarro Olswang LLP,
Cannon Place, 78 Cannon Street, London EC4N 6AF.
Travel information
Underground and rail
By train: Cannon Street station is serviced by the
Southeastern train line.
By London Underground (tube)/Docklands Light Railway
(“DLR”): It is approximately a three-minute walk from Bank
Station underground (tube) station on the Central,
Waterloo & City and Northern lines. Bank is also a DLR
station. It is above Cannon Street underground (tube)
station on the Circle and District lines.
Notice of Annual General Meeting 2023
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Bank
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St Paul’s
CANNON
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Mansion
House
THAMES
STREET
STREET
SOUTHWARK BR.
Cannon St
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78
QUEEN
STREET
CHEAPSIDE
V
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POULTRY
THAMES
STREET
LONDON BR.
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KING WILLIAM ST
Strategic report Governance Financial statements
164 Primary Health Properties PLC Annual Report 2022
Shareholder information
LETTER FROM THE CHAIRMAN
To all shareholders
15 March 2023
Notice of Annual General Meeting
Dear shareholder,
I am pleased to invite you to our 2023 Annual General Meeting (“AGM”) which will be held on Wednesday, 19 April at 10:30 a.m.
at the offices of CMS Cameron McKenna Nabarro Olswang LLP, Cannon Place, 78 Cannon Street, London EC4N 6AF.
The formal Notice of AGM, which sets out the resolutions to be proposed, can be found on pages 165 to 167. An explanation of
the resolutions can be found on pages 168 to 172. A copy of our 2022 Annual Report which includes this Notice of AGM can also
be found on our website (www.phpgroup.co.uk/investors).
Your vote and participation in the AGM are important to us. We strongly encourage you to vote on all resolutions either
electronically, in advance of the meeting, or by appointing the Chairman as your proxy. If you cast your vote by proxy in advance
this will not prevent you from voting on the day. (A proxy form for your use (“Form of Proxy”) is enclosed with this document or
can be downloaded from our website www.phpgroup.co.uk/investors).
Actions to be taken in respect of the AGM
If you are unable to attend the AGM and vote on the day, the ways to vote are as follows:
1. Register your vote electronically by logging into Equiniti Limited’s (“Equiniti”) website www.sharevote.co.uk. If you have
already registered with Equiniti’s online portfolio service, Shareview, you can submit your proxy by logging on to your portfolio
at www.shareview.co.uk and following the instructions. Please note that votes submitted electronically in this manner should
be submitted by no later than 10:30 a.m. on 17 April 2023.
2. Appoint a proxy to vote on your behalf. Fill in the Proxy Form and return it to Equiniti as detailed in Note 4 on page 173, or
appoint your proxy electronically as detailed in Note 4 on page 173, or if you are a CREST member, appoint your proxy through
the CREST proxy appointment service as detailed in Note 5 on page 173. Shareholders who wish to appoint a proxy are
recommended to appoint the Chairman of the meeting as their proxy.
3. If you are an institutional investor you may be able to appoint a proxy electronically via the Proxymity platform, a process
which has been agreed by the Company and approved by Equiniti. For further information regarding Proxymity, please go
to www.proxymity.io. Before you can appoint a proxy via this process you will need to have agreed to Proxymity’s terms and
conditions. It is important that you read these carefully as you will be bound by them and they will govern the electronic
appointment of your proxy.
Proxy appointments should be completed as soon as possible and must be received by 10:30 a.m. on 17 April 2023, whether this is
via Proxymity or otherwise.
Voting electronically or the completion and return of the Form of Proxy will not prevent you from attending and voting at the
AGM, or any adjournment of the AGM, in person, should you wish to do so. As all our resolutions at the AGM will be taken on a
poll vote, so as to accurately record all votes made either at the meeting or via proxy, shareholders attending the meeting will be
asked to vote their shares by poll. Full guidance will be given on the day. The results of the AGM will be notified to the London
Stock Exchange and posted on our website as soon as possible after the AGM.
Recommendation
The Directors consider that the resolutions are in the best interests of the Company and are most likely to promote the success
of the Company for the benefit of shareholders as a whole. Accordingly, the Directors unanimously recommend that you vote
in favour of all the resolutions, as they intend to do so in respect of their own beneficial holdings (and the beneficial holdings
which are under their control and those of their close relations), which, as at 14 March 2023 (being the last practicable date prior
to publication of this document), amount in aggregate to 25,010,851 Ordinary Shares, representing approximately 1.87%. of the
Ordinary Shares currently in issue.
On behalf of the Board, I thank you for your continued support.
Yours sincerely,
Steven Owen
Chairman
Notice of Annual General Meeting 2023 continued
Strategic report Governance Financial statements
165Primary Health Properties PLC Annual Report 2022
Shareholder information
NOTICE OF ANNUAL GENERAL MEETING
PRIMARY HEALTH PROPERTIES PLC
(incorporated and registered in England and Wales with
registered number 03033634)
NOTICE IS HEREBY GIVEN that the Annual General Meeting
of Primary Health Properties PLC (the “Company”) will be held
at the offices of CMS Cameron McKenna Nabarro Olswang LLP,
Cannon Place, 78 Cannon Street, London EC4N 6AF on 19 April
2023 at 10:30 a.m. (the “AGM”). Shareholders will be asked
to consider and, if thought fit, pass the resolutions as set out
below (the “Resolutions”). Resolutions 14 to 17 (inclusive) will
be proposed as special resolutions. All other Resolutions will be
proposed as ordinary resolutions. Voting on the Resolutions will
be by way of a poll.
Ordinary Resolutions
Resolution 1: Annual report and accounts
To receive the Company’s Annual Accounts and the Reports of
the Directors of the Company (“Directors”) and of the auditors
to the Company for the financial year ended 31December 2022.
Resolution 2: Directors’ Remuneration Report
To approve the Directors’ Remuneration Report (excluding the
Directors’ remuneration policy) as contained in the Company’s
annual accounts and reports for the financial year ended
31December 2022.
Resolution 3: Dividend policy
To approve the Company’s dividend policy, as set out in the
explanatory notes that accompany this Notice of AGM.
Resolution 4: Re-appointment of the auditors
To re-appoint Deloitte LLP as auditors of the Company to hold
office from the conclusion of this meeting until the conclusion
of the next general meeting of the Company at which accounts
are laid before the Company.
Resolution 5: Auditor’s remuneration
To authorise the Audit Committee of the Company, for and
on behalf of the Directors, to determine the remuneration of
the auditors.
Resolution 6: Re-election of Steven Owen
To re-elect Steven Owen as a Director of the Company.
Resolution 7: Re-election of Harry Hyman
To re-elect Harry Hyman as a Director of the Company.
Resolution 8: Re-election of Richard Howell
To re-elect Richard Howell as a Director of the Company.
Resolution 9: Re-election of Laure Duhot
To re-elect Laure Duhot as a Director of the Company.
Resolution 10: Re-election of Ian Krieger
To re-elect Ian Krieger as a Director of the Company.
Resolution 11: Election of Ivonne Cantú
To re-elect Ivonne Cantú as a Director of the Company.
Resolution 12: Political expenditure or donations
To authorise the Company and all companies that are its
subsidiaries at any time during the period for which this
Resolution 12 has effect for the purposes of Sections 366
and367 of the Companies Act 2006 (“2006 Act”) to:
(A) make political donations to political parties or independent
election candidates (as such terms are defined in the
2006Act), not exceeding £40,000 in aggregate;
(B) make political donations to political organisations other
than political parties (as such terms are defined in the
2006Act), notexceeding £40,000 in aggregate; and
(C) incur political expenditure (as such term is defined in the
2006 Act), not exceeding £40,000 in aggregate,
during the period beginning with the date of the passing of this
Resolution 12 and ending with the conclusion of the next annual
general meeting of the Company (or, if earlier, on the date which
is 15 months after the date of the AGM), provided that the
maximum amounts referred to in (A), (B) and (C) may comprise one
or more sums in different currencies which shall be converted at
such rate as the Board of Directors of the Company (“Board”) may
in its absolute discretion determine to be appropriate.
Resolution 13: Authority to allot shares
That the Directors be and are hereby generally and unconditionally
authorised in accordance with Section 551 of the 2006 Act, in
substitution for all existing authorities:
(A) to exercise all the powers of the Company to allot shares and
to make offers or agreements to allot shares in the Company
or grant rights to subscribe for or to convert any security into
shares in the Company (together “Relevant Securities”) up
to an aggregate nominal amount of £55,687,241; and
(B) to exercise all the powers of the Company to allot equity
securities (as defined in Section 560(1) of the 2006 Act) up
to an additional aggregate nominal amount of £55,687,241
provided that this authority may only be used in connection
with a rights issue in favour of holders of Ordinary Shares of
12.5 pence each in the capital of the Company (“Ordinary
Shares”) and other persons entitled to participate therein,
where the equity securities respectively attributable to the
interests of all those persons at such record dates as the
Directors may determine are proportionate (as nearly as
may be) to the respective numbers of equity securities held
or deemed to be held by them or are otherwise allotted in
accordance with the rights attaching to such equity securities,
subject to such exclusions or other arrangements as the
Directors may consider necessary or expedient to deal with
fractional entitlements or legal difficulties under the laws
of any territory or the requirements of a regulatory body
orstock exchange by virtue of shares being represented
bydepositary receipts or any other matter whatsoever.
Strategic report Governance Financial statements
166 Primary Health Properties PLC Annual Report 2022
Shareholder information
Notice of Annual General Meeting 2023 continued
NOTICE OF ANNUAL GENERAL MEETING
CONTINUED
Ordinary Resolutions continued
Resolution 13: Authority to allot shares continued
PROVIDED that such authorities shall expire (unless renewed,
varied or revoked by the Company in a general meeting) at the
conclusion of the next annual general meeting of the Company
after the passing of this Resolution or, if earlier, on the date
which is 15 months after the date of the AGM, but in each case,
prior to its expiry, the Company may make offers and enter into
agreements which would, or might, require Relevant Securities
or equity securities as the case may be to be allotted (and
treasury shares to be sold) after the authority expires and the
Directors may allot Relevant Securities or equity securities (and
sell treasury shares) in pursuance of any such offer or agreement
as if the authority in question had not expired.
Special Resolutions
Resolution 14: Disapplication of pre-emption rights
That, subject to the passing of Resolution 13, the Directors be
and are hereby authorised, to allot equity securities (as defined
in Section 560(1) of the 2006 Act) for cash under the authority
given by Resolution 13 and/or to sell Ordinary Shares held
by the Company as treasury shares for cash as if Section 561
of the 2006 Act did not apply to any such allotment or sale,
provided that this power shall be limited to:
(A) the allotment of equity securities and/or sale of treasury
shares for cash in connection with an offer of, or invitation
to apply for, equity securities made to (but in the case of
the authority conferred by Resolution 13(B), by way of a
rights issue only) to holders of Ordinary Shares at such
record dates as the Directors may determine in proportion
(as nearly as may be practicable) to their existing holdings
and to holders of other equity securities as required by
the rights of those securities or, if the Directors otherwise
consider necessary, as permitted by the rights of those
securities, and so that the Directors may impose any
limits or restrictions and make any arrangements which
they consider necessary or appropriate to deal with any
treasury shares, fractional entitlements, record dates, legal,
regulatory or practical problems in, or under the laws of,
any territory or any other matter;
(B) the allotment of equity securities or sale of treasury shares
(otherwise than under paragraph (A) above) up to an
aggregate nominal amount of £16,706,172 and
(C) the allotment of equity securities or sale of treasury
shares (otherwise than under paragraph (A) or paragraph
(B) above) up to a nominal amount equal to 20%. of any
allotment of equity securities or sale of treasury shares
from time to time under paragraph (B) above, such authority
to be used only for the purposes of making a follow-on offer
which the Board determines to be of a kind contemplated
by paragraph 3 of Section 2B of the Statement of Principles
on Disapplying Pre-Emption Rights most recently published
by the Pre-Emption Group prior to the date of this notice,
and shall expire at the conclusion of the next annual general
meeting of the Company after the passing of this Resolution
or, if earlier, on the date which is 15 months after the date of
the AGM but in each case, prior to its expiry, the Company may
make offers and enter into agreements, which would, or might,
require Relevant Securities or equity securities as the case may
be to be allotted (and treasury shares to be sold) after the
authority expires and the Directors may allot equity securities
(and sell treasury shares) in pursuance of any such offer or
agreement as if the authority in question had not expired.
Resolution 15: Further Disapplication
That subject to the passing of Resolution 13, the Directors be
and are hereby authorised, in addition to any authority granted
under Resolution 14, to allot equity securities (as defined in
Section 560(1) of the 2006 Act) for cash under the authority
given by Resolution 13 and/or to sell Ordinary Shares held
by the Company as treasury shares for cash as if Section 561
of the 2006 Act did not apply to any such allotment or sale,
provided that this power shall be limited to:
(A) the allotment of equity securities or sale of treasury shares
up to an aggregate nominal amount of £16,706,172 and
used only for the purposes of financing (or refinancing, if the
authority is to be used within twelve months after the original
transaction) a transaction which the Board determines to be
either an acquisition or a specified capital investment of a kind
contemplated by the Statement of Principles on Disapplying
Pre-Emption Rights most recently published by the Pre-
Emption Group prior to the date of this notice; and
(B) the allotment of equity securities or sale of treasury shares
(otherwise than under paragraph (A) above) up to a nominal
amount equal to 20%. of any allotment of equity securities
or sale of treasury shares from time to time under paragraph
(A) above, such authority to be used only for the purposes
of making a follow-on offer which the Board determines to
be of a kind contemplated by paragraph 3 ofSection 2B
of the Statement of Principles on Disapplying Pre-Emption
Rights most recently published by the Pre-Emption Group
prior to the date of this notice,
and shall expire at the conclusion of the next annual general
meeting of the Company after the passing of this Resolution
or, if earlier, on the date which is 15 months after the date of
the AGM but in each case, prior to its expiry, the Company may
make offers and enter into agreements, which would, or might,
require equity securities to be allotted (and treasury shares
to be sold) after the authority expires and the Directors may
allot equity securities (and sell treasury shares) in pursuance of
any such offer or agreement as if the authority in question had
not expired.
Resolution 16: Notice of general meetings
That the Company is authorised to call any general meeting
of the Company, other than an annual general meeting, on not
less than 14 clear days’ notice during the period beginning on
the date of the passing of this Resolution and ending on the
conclusion of the next annual general meeting of the Company.
Strategic report Governance Financial statements
167Primary Health Properties PLC Annual Report 2022
Shareholder information
NOTICE OF ANNUAL GENERAL MEETING
CONTINUED
Special Resolutions continued
Resolution 17: Purchase of own shares
That the Company be generally and unconditionally authorised
to make one or more market purchases (within the meaning of
Section 693(4) of the 2006 Act) of Ordinary Shares on such
terms and in such manner as the Directors may from time to
time determine, provided that:
(A) the maximum aggregate number of Ordinary Shares
that may be purchased is 133,649,378 (representing
approximately 10% of the issued ordinary share capital
of the Company as at the latest practicable date prior to
publication of this document);
(B) the minimum price (excluding expenses payable by the
Company) which may be paid for each Ordinary Share is
12.5 pence;
(C) the maximum price (excluding expenses payable by
the Company) which may be paid for each Ordinary
Share is the higher of: i) an amount equal to 105%
of the average of the middle market quotations for
an Ordinary Share, as derived from the London Stock
Exchange Daily Official List, for the five business days
immediately prior to the day the purchase is made; and
ii) an amount equal to the higher of the price of the last
independent trade of an Ordinary Share and the highest
current independent bid for an Ordinary Share as derived
from the London Stock Exchange Trading System; and
(D) this authority shall expire at the conclusion of the Company’s
next annual general meeting after the passing of this
Resolution or, if earlier, on the date which is 15months
after the date of the AGM, save that the Company may,
before the expiry of this authority, enter into a contract to
purchase Ordinary Shares which will or may be executed
wholly or partly after the expiry of such authority, and may
make a purchase of Ordinary Shares in pursuance of any
such contract.
By order of the Board
Toby Newman
Company Secretary
15 March 2023
Primary Health Properties PLC
Registered office: 5th Floor, Burdett House, 15-16 Buckingham
Street, London WC2N 6DU
Registered in England & Wales No: 03033634
Important notes regarding your general right to appoint a proxy
and voting can be found on pages 173 to 175.
Strategic report Governance Financial statements
168 Primary Health Properties PLC Annual Report 2022
Shareholder information
Notice of Annual General Meeting 2023 continued
EXPLANATORY NOTES TO THE RESOLUTIONS
These notes are intended to explain the business to be
transacted at the AGM to be held at 10:30 a.m. on 19 April
2023 at the offices of CMS Cameron McKenna Nabarro
Olswang LLP, Cannon Place, 78 Cannon Street, London EC4N
6AF(the “AGM”). Resolutions 14 to 17 (inclusive) are proposed
as special resolutions. This means that for each of those
Resolutions to be passed, at least three-quarters of the votes
cast must be in favour of the Resolution. All other Resolutions
are proposed as ordinary resolutions, so that for each of those
Resolutions to be passed, more than half of the votes cast
must be in favour of the Resolution.
Accounts (Resolution 1)
By company law the Directors must present to the AGM the
Annual Report 2022 for adoption. The Board will welcome any
questions and discussion on the Annual Report 2022 at the AGM.
Directors’ Remuneration Report (Resolution 2)
Resolution 2 seeks shareholders’ approval for the Directors’
Remuneration Report as contained on pages 93 to 106 of
the Annual Report 2022 which gives details of Directors’
remuneration paid for the year ended 31 December 2022
in accordance with the remuneration policy approved by
shareholders. The Auditor has audited those parts of the
Directors’ Remuneration Report that are required to be audited.
This Resolution is proposed as an ordinary resolution. The
vote is advisory in nature which means that the Directors’
entitlement to remuneration is not conditional on it.
Dividend policy (Resolution 3)
Resolution 3 is proposed to seek shareholders’ approval of
the Company’s dividend policy. Despite the uncertainty and
volatility in the economic environment caused by the war
in Ukraine and rising levels of inflation, we have continued
to deliver a strong and robust operational and financial
performance over the course of 2022. This has allowed the
Company to continue to pay an increasing level of dividend
toits shareholders over the last 26 years.
The Company’s policy is to make all of its dividend payments
(currently four per annum) as interim dividends. This enables the
fourth dividend payment to be made approximately two months
earlier than would be the case if that dividend were categorised
as a ‘final dividend’ and therefore have to await shareholder
approval at the Annual General Meeting. This arrangement is made
in the interests of shareholders, enabling them to benefit from the
earlier receipt of the fourth dividend. As we believe it is important
for shareholders to have an opportunity to consider this policy
annually, and in accordance with the principles of good corporate
governance, a resolution to approve the Company’s dividend policy
is included as Resolution 3 in the accompanying Notice of AGM.
Re-appointment and remuneration of auditors
(Resolutions 4 and 5)
Resolution 4 proposes to re-appoint Deloitte LLP as auditors
of the Company to hold office from the conclusion of the
AGM until the conclusion of the next general meeting of the
Company at which accounts are laid.
Resolution 5 proposes to authorise the Audit Committee, for
and on behalf of the Directors, to determine the remuneration
of the auditors.
Re-election of Directors (Resolutions 6 to 11)
In accordance with the recommendations of the UK Corporate
Governance Code, all the Directors have resolved that they will
offer themselves for re-election by shareholders at the AGM.
Separate Resolutions are being proposed to re-elect each of
the Directors standing for re-election. Resolutions 6 to 11 are
being proposed as ordinary resolutions.
Re-election of Steven Owen (Resolution 6)
Chairman: Appointed as a Non-executive Director on 1 January
2014 and as Chairman on 18 April 2018.
Biography
Details of Steven’s background and experience are set out on
page 66 of the Annual Report.
Other external relationships
Palace Capital plc and Wye Valley Partners LLP.
Contribution and reasons for re-election
Steven brings to the Board strong leadership skills combined
with in-depth financial skills as a Chartered Accountant and
former Finance Director and extensive expertise of investment
and development in commercial property, in a listed company
environment. This combination of skills, knowledge and
experience makes Steven a very effective Chairman.
Although Steven has now served for nine years as a Director
and is no longer considered independent, after consultation
with several of the Company’s largest shareholders, the Board
considers that, because of his position and understanding of the
Company, he should remain as Chairman until the next annual
general meeting and lead the process over the coming months
for recruitment of a new Chief Executive Officer. More details
of the succession process are set out on pages 10 to 11 of the
Annual Report.
Independent No
Re-election of Harry Hyman (Resolution 7)
Chief Executive Officer: Founder of the Company and Director
since 1996.
Biography
Details of Harry’s background and experience are set out on
page 66 of the Annual Report.
Other external relationships
Harry is the Non-executive Chairman of Biopharma Credit PLC,
an externally managed investment trust and TMT Acquisition
plc a shell acquisition company.
Contribution and reasons for re-election
Harry has extensive experience in investing in the primary
healthcare sector, and the value of his contribution to the
Company is demonstrated by his having developed the
Company’s business from inception 25 years ago to its current
position in the FTSE 250, with an investment portfolio of over
£2.5 billion. Harry brings to the Board a unique combination
ofexperience in the primary healthcare sector, a background
infinance and entrepreneurial flair having established a number
ofsuccessful private companies.
Independent
No
Strategic report Governance Financial statements
169Primary Health Properties PLC Annual Report 2022
Shareholder information
EXPLANATORY NOTES TO THE RESOLUTIONS
CONTINUED
Re-election of Richard Howell (Resolution 8)
Chief Financial Officer: Appointed as a Director from 1 April 2017.
Biography
Details of Richard’s background and experience are set out on
page 66 of the Annual Report.
Other external relationships
Non-executive Director of Life Science REIT plc.
Contribution and reasons for re-election.
Richard has been Chief Financial Officer during a time of
significant change for the Company’s corporate Group and
has played a key role in effectively managing the Company’s
corporate Group’s capital raising activities from both financial
institutions and the public markets. Richard’s extensive finance
experience, and deep understanding of the markets in which
the Company operates, having previously held senior accounting
positions within listed property companies operating across the
UK, means he continues to contribute greatly to the long-term
success of the Company.
Independent
No
Re-election of Laure Duhot (Resolution 9)
Non-executive Director: Appointed as a Director on 14March 2019.
Biography
Details of Laure’s background and experience are set out on
page 67 of the Annual Report.
Other external relationships
Non-executive Director at Safestore Holdings plc, Orpea S.A.
and NB Global Monthly Income Fund Limited.
Contribution and reasons for re-election
Laure brings over 30 years of property and finance experience
to the Board: in particular, she brings insights from her
international property investment experience. Laure has
specialised in investment in alternative real estate assets
and was a Non-executive Director at MedicX Fund Limited.
Laure makes an effective and valuable contribution to the
Board, including through her role as the Chair of the former
Adviser Engagement Committee and now as Chair of the ESG
Committee. Laure has demonstrated commitment, including
devoting an appropriate amount of time, to the role.
Independent Yes
Re-election of Ian Krieger (Resolution 10)
Senior Independent Non-executive Director: Appointed as a
Director on 15 February 2018.
Biography
Details of Ian’s background and experience are set out on page
67 of the Annual Report.
Other external relationships
Senior Independent Non-executive Director and Chairman of
the Audit Committee at Safestore Holdings plc.
Non-executive Director at Capital & Regional plc, and Chairman
of the Audit Committee.
Contribution and reasons for re-election
Ian brings to the Board a wealth of specialised financial and
accounting skills and expertise from his experience in the audit
profession and in chairing the Audit Committees of two other listed
companies in the property sector. His extensive financial expertise,
coupled with his insight and governance experience on other listed
companies, make him ideally placed to serve as Chairman of the
Audit Committee. Ian makes an effective and valuable contribution
to the Board, including through his role of Chairman of the Audit
Committee, and demonstrates a high degree of commitment,
including devoting an appropriate amount of time, to the role.
Independent Yes
Re-election of Ivonne Cantú (Resolution 11)
Independent Non-executive Director: Appointed as a Director
on 1 January 2022.
Biography
Details of Ivonne’s background and experience are set out on
page 67 of the Annual Report.
Other external relationships
Creo Medical Group plc.
Contribution and reasons for election
Ivonne has significant public company and corporate finance
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.
Ivonne makes an effective contribution to the Board, including
as Chair of the Remuneration Committee, and demonstrates
commitment and devotes sufficient time to discharging
her duties.
Independent
Yes
Political donations and expenditure (Resolution 12)
Under the 2006 Act, political donations made by a company and
its subsidiaries to political parties, to other political organisations
or to an independent election candidate, or political expenditure
incurred by a company of more than £5,000 in any twelve-month
period, is prohibited unless they have been authorised in
advance to make donations by the Company’s shareholders.
It is the policy of the Company not to make donations to
political parties, other political organisations or independent
election candidates and the Directors have no intention of
changing that policy.
However, as a result of the wide definition of political organisations
under the 2006 Act, normal expenditure (such as expenditure on
organisations concerned with matters of public policy, law reform
and representation of the business community) and business
activities (such as communicating with the Government and political
parties at local, national and European level) might be construed as
political expenditure or as a donation to a political party or other
political organisation and therefore fall within the restrictions of
the 2006 Act.
Strategic report Governance Financial statements
170 Primary Health Properties PLC Annual Report 2022
Shareholder information
Notice of Annual General Meeting 2023 continued
EXPLANATORY NOTES TO THE RESOLUTIONS
CONTINUED
Political donations and expenditure (Resolution 12)
continued
Consequently, the Directors have concluded that, in common
with many other listed companies, it would be prudent to seek
authority from shareholders to allow them to make political
donations and incur political expenditure (up to £40,000 in
the specified period) to ensure that the Group does not
inadvertently breach the Companies Act 2006. Any political
donation made or political expenditure incurred which is in
excess of £200 will be disclosed in the Company’s annual
report and accounts for next year, as required by the 2006 Act.
Resolution 12 will not be used to make political donations
within the normal meaning of that expression.
Directors’ authority to allot securities (Resolution 13)
Further to the Articles of Association of the Company (the
“Articles”) and the provisions of the 2006 Act, the Directors
may only allot Ordinary Shares or grant rights over Ordinary
Shares if authorised to do so by the shareholders.
Accordingly, the authority in Resolution 13, paragraph (A) will
allow the Directors to allot shares or grant rights to subscribe
for, or convert any security into, shares in the Company, up
to a maximum nominal amount of £55,687,241, representing
approximately one-third of the Company’s issued ordinary
share capital calculated as at 14 March 2023 (being the latest
practicable date prior to publication of this document). The
authority in Resolution 13, paragraph (B) will allow the Directors,
only in connection with a pre-emptive rights issue, to allot shares
or grant rights to subscribe for, or convert any securities into,
shares in the Company, up to a maximum nominal amount of
£55,687,241 in addition to the nominal amount of any shares
allotted or rights granted to subscribe for, or to convert any
security into, shares under paragraph (A), together representing
approximately two-thirds of the Company’s issued ordinary
share capital calculated as at 14 March 2023 (being the latest
practicable date prior to publication of this document). This is
inline with corporate governance guidelines.
This authority will last until the conclusion of the next annual
general meeting of the Company or, if earlier, on the date which
is 15 months after the date of the AGM. The Directors intend
torenew this authority annually at each annual general meeting
of the Company. The Directors have no present intention
of exercising this authority other than pursuant to legally
binding obligations to do so, or, if applicable, on conversion
of the 2.875% Guaranteed convertible bonds due 2025 (the
“Convertible Bonds”) issued by the Company’s subsidiary
PHP Finance (Jersey No 2) Limited. However, it is considered
prudent to maintain the flexibility that this authority provides.
As at 14 March 2023 (being the latest practicable date prior
to the publication of this document), the Company held no
Ordinary Shares in treasury and there were £150,000,000
Convertible Bonds outstanding, which at the current exercise
price would require the issue of 108,940,373 Ordinary Shares
if all the outstanding Convertible Bonds exercised the right
to convert.
Directors’ authority to dis-apply pre-emption rights
(Resolutions 14 and 15)
Under the 2006 Act, when new shares are proposed to be issued
for cash, other than in connection with a company share option
plan, they must first be offered to existing shareholders pro-rata
to their percentage holdings at such time, unless shareholders
have waived this right either generally or in respect of a particular
issue. The Directors consider it desirable to have the maximum
flexibility permitted by corporate governance guidelines to
respond to market developments and to enable allotments to take
place to finance business opportunities without making a pre-emptive
offer to existing shareholders. The purpose of Resolution 14
therefore is to enable shareholders to waive their pre-emption
rights and allow the Directors to allot shares for cash without such
shares being first offered to existing shareholders.
The Pre-emption Group revised its Statement of Principles in
November 2022. The updated Statement of Principles follows
the report of the UK Secondary Capital Raising Review, which
recommended (among other things) that the allowance for non-pre-
emptive issues set out in the Statement of Principles be increased
from 5% to 10% for non-pre-emptive issues for an unrestricted
purpose, and from an additional 5% to 10% for non-pre-emptive
issues to be used only in connection with an acquisition or
specified capital investment. In addition, the updated Statement
of Principles allows companies to seek a further disapplication of
up to 2% in each case for the purposes of a “follow-on offer”, as
defined in paragraph 3 of Section 2B of the Statement of Principles.
This disapplication is designed to facilitate participation by retail
investors in secondary issuances. In summary, this constitutes an
offer announced at the same time as, or as soon as reasonably
practicable after, the non-pre-emptive placing, of shares not
exceeding 20% of those issued in the non-pre-emptive placing,
made only to existing shareholders as at a record date prior to
announcement of the non-pre-emptive placing (excluding any
shareholder allocated shares in that placing), entitling them to
subscribe for shares up to a monetary cap of £30,000 per ultimate
beneficial owner, at a price which is equal to, or less than, the offer
price in the non-pre-emptive placing.
Accordingly, Resolution 14 will, if passed by special resolution, give
the Directors authority to allot shares pursuant to the authority
granted in Resolution 13 for cash on a non-pre-emptive basis. This
authority will permit the Directors to allot shares for cash: (A)
in connection with a rights issue or any other pre-emptive offer
concerning equity securities, or (B) otherwise than in connection
with a rights issue or any other pre-emptive offer for shares in
the Company up to a maximum nominal value of £16,706,172,
representing approximately 10% of the Company’s issued ordinary
share capital as at 14 March 2023 (being the latest practicable
date prior to the publication of this document).
Strategic report Governance Financial statements
171Primary Health Properties PLC Annual Report 2022
Shareholder information
EXPLANATORY NOTES TO THE RESOLUTIONS
CONTINUED
Directors’ authority to dis-apply pre-emption rights
(Resolutions 14 and 15) continued
Resolution 14(C) will, if passed by special resolution, facilitate
participation by retail investors in secondary issuances and give
the Directors authority to allot shares (or sell treasury shares)
pursuant to the authority granted in Resolution 13 for cash
on a non-pre-emptive basis up to a maximum nominal value
representing approximately 20%. of any allotment of equity
securities (or sale of treasury shares) made from time to time
pursuant to the authority granted in Resolution 14(B) to be used
only for a follow-on offer which the Board determines to be of a
kind contemplated by paragraph 3 of Section 2B of the Statement
of Principles on Disapplying Pre-Emption Rights most recently
published by the Pre-Emption Group.
For the purposes of Resolution 14, the nominal amount of any
securities shall be taken to be, in the case of rights to subscribe
for or convert any securities into shares of the Company, the
nominal amount of such shares which may be allotted pursuant
tosuch rights.
Resolution 15 additionally authorises the Directors to allot new
shares (or sell treasury shares) for cash, without the shares
being offered first to existing shareholders, in connection with
the financing (or refinancing, if the authority is to be used
within twelve months after the original transaction) of an
acquisition or specified capital investment which is announced
contemporaneously with the allotment or which has taken
place in the preceding twelve-month period and is disclosed
in the announcement of the allotment. The authority under
Resolution 15 is limited to a nominal value of £16,706,172,
representing approximately 10% of the Company’s issued ordinary
share capital as at 14 March 2023 (being the latest practicable
date prior to the publication of this document).
Resolution 15(B) also will, if passed by special resolution, give the
Directors authority to allot shares (or sell treasury shares) pursuant
to the authority granted in Resolution 13 for cash on a non-pre-
emptive basis, provided that such allotment or sale is up to a
maximum nominal value representing approximately 20% of any
allotment of equity securities (or sale of treasury shares) made
from time to time pursuant to the authority granted in Resolution
15(A) to be used only for a follow-on offer which the Board
determines to be of a kind contemplated by paragraph 3 of Section
2B of the Statement of Principles on Disapplying Pre-Emption
Rights most recently published by the Pre-Emption Group.
The Board intends to adhere to the provisions in the Pre-Emption
Group’s Statement of Principles, as updated in November 2022,
and will seek to limit the discount applied to any non-pre-emptive
issue to 5%, including expenses. Notwithstanding the above,
the Directors consider it desirable and believe it appropriate to
have the maximum flexibility permitted by corporate governance
guidelines to enable non-pre-emptive allotments to take place to
finance business opportunities.
The provisions of Resolutions 14 and 15 comply with the Share
Capital Management Guidelines issued by the Investment
Association and the disapplication of pre-emption rights
Resolutions follow the resolution templates issued by the Pre-
Emption Group in November 2022.
If Resolutions 14 and 15 are passed, the authorities will expire
at the conclusion of the next annual general meeting of the
Company or, if earlier, on the date which is 15 months after the
date of the AGM. The Directors intend to renew this authority
annually at each AGM of the Company. The Directors have no
immediate plans to make use of this authority, other than in
connection with the issue of Ordinary Shares, if applicable, on
conversion of the Convertible Bonds.
As at 14 March 2023 (being the latest practicable date prior to
the publication of this document), the Company did not hold any
treasury shares. If the Company were to create treasury shares,
for example through the market purchase of its own shares,
the subsequent sale of any treasury shares would be counted
as equivalent to the issue of new shares for the purpose of the
limitations on the issue of new shares included in Resolution 13.
Notice of General Meetings, other than Annual
General Meetings (Resolution 16)
Under the 2006 Act, the minimum notice period for publicly listed
company general meetings is 21 clear days, but with an ability for
companies to reduce this period to 14 clear days (other than for
annual general meetings) provided that two conditions are met: (i)
the Company offers a facility for shareholders to vote by electronic
means (which is met if the Company offers a facility, accessible to
all shareholders, to appoint a proxy by means of a website); and
(ii) there is an annual resolution of shareholders approving the
reduction of the minimum notice period from 21 days to 14 days.
The Board is therefore proposing, in common with many other
listed companies, Resolution 16 as a special resolution to approve
14 days as the minimum period of notice for all general meetings
other than annual general meetings. The approval will be effective
until the Company’s next annual general meeting, when it is
intended that the approval be renewed. The Board will consider
on a case-by-case basis whether the use of the flexibility offered
by the shorter notice period is merited. The shorter notice period
will be used in accordance with all relevant corporate governance
guidelines applicable at the time. In particular, it will only be used
where flexibility is merited by the business of the meeting and is
thought to be to the advantage of shareholders as a whole.
Strategic report Governance Financial statements
172 Primary Health Properties PLC Annual Report 2022
Shareholder information
EXPLANATORY NOTES TO THE RESOLUTIONS
CONTINUED
Purchase of own shares (Resolution 17)
Resolution 17 seeks authority for the Company to makemarket
purchases of its own Ordinary Shares as permitted by the2006Act
and is proposed as a special resolution. If passed, the Resolution
gives authority for the Company to purchase up to 133,649,378
of its Ordinary Shares, representing approximately 10% of the
Company’s issued ordinary share capital as at 14 March 2023
(being the latest practicable date prior to the publication of
this document).
This authority is commonly sought by listed companies and the
Board considers it prudent to obtain the flexibility this Resolution
provides. In considering whether to use this authority, the Board
will take into account factors including the financial resources
of the Company, the Company’s share price and future funding
opportunities. It will be exercised only if the Board believes that
to do so would result in an increase in earnings per share and
would in the best interests of shareholders generally and that
the purchase can be expected to result in an increase in earnings
per Ordinary Share.
The Directors have no present intention of exercising the
authority granted by Resolution 17.
The Resolution specifies the minimum and maximum prices
which may be paid for any Ordinary Shares purchased under
this authority. The authority will expire at the conclusion of the
next annual general meeting of the Company or, if earlier, on
the date which is 15 months after the date of the AGM.
The Company may either cancel any Ordinary Shares it
purchases under this authority or transfer them into treasury
(and subsequently sell or transfer them out of treasury or cancel
them). No dividends are paid on shares in treasury and no voting
rights attach to treasury shares. If the Ordinary Shares that the
Company buys back under this authority are held in treasury,
this would give the Company the ability to re-issue treasury
shares quickly and cost-effectively, providing the Company with
additional flexibility in the management of its capital.
As at 14 March 2023 (being the latest practicable date prior
to the publication of this document), save for the options
over 225,728 Ordinary Shares under the 2021 Sharesave Plan
and £150,000,000 Convertible Bonds outstanding, there are
no warrants or options to subscribe for Ordinary Shares that
areoutstanding.
Notice of Annual General Meeting 2023 continued
Strategic report Governance Financial statements
173Primary Health Properties PLC Annual Report 2022
Shareholder information
GUIDANCE NOTES FOR THE AGM AND ON
APPOINTMENT OF PROXIES
1. General
A copy of this Notice of AGM and other information regarding
the AGM, required by Section 311A of the 2006 Act (including
a copy of the Annual Report 2022 posted to shareholders
with this notice) is available from the Company’s website at
www.phpgroup.co.uk. Shareholders who have not elected to
receive these documents in printed form may obtain copies by
writing to the Company Secretary at the Company’s registered
office. Shareholders who wish to receive the printed annual
report and accounts for future years should write to the
Company’s registrars, Equiniti Limited, Aspect House, Spencer
Road, Lancing BN99 6DA.
2. Entitlement to vote
Under the Articles the holders of Ordinary Shares are entitled to
attend the AGM and to speak and vote at the AGM. Duly appointed
proxies are entitled also to attend, speak and vote at the AGM.
Only those holders of Ordinary Shares registered in the
register of members of the Company as at 6:30 p.m. on
Monday 17 April 2023 (or, if the AGM is adjourned, 6:30 p.m.
on the day that is 48 hours before any adjourned meeting)
(excluding any part of any day that is not a working day) shall
be entitled to attend (either in person or by proxy) and vote at
the AGM, or any adjourned meeting, in respect of the number
of shares registered in their names at that time. Any changes
to the register of members after the relevant deadline shall be
disregarded in determining the right of any person to attend
and vote at the AGM or an adjourned meeting.
3. Entitlement to appoint proxies
Shareholders are entitled to appoint a proxy to exercise all
or any of their rights to attend and to speak and vote on
their behalf at the AGM. A shareholder may appoint more
than one proxy in relation to the AGM provided that each
proxy is appointed to exercise the rights attached to a
different share or shares held by that shareholder. If a proxy
is submitted without indicating how the proxy should vote on
any Resolution, the proxy will exercise his or her discretion as
to whether and, if so, how to vote. To appoint more than one
proxy you may photocopy the Form of Proxy. A proxy need not
be a shareholder of the Company.
The Form of Proxy which may be used to make such
appointment and give proxy instructions accompanies this
Notice of AGM. If you do not have a Form of Proxy and believe
that you should have one, or if you require additional forms,
please contact Equiniti Limited, Aspect House, Spencer Road,
Lancing BN99 6DA.
The return of a completed Form of Proxy, or other such
instrument or any CREST Proxy Instruction (as described in
Note 5 below) will not prevent a shareholder attending the
AGM and voting.
In the case of joint holders, the signature of any one holder will
be sufficient but the names of all the joint holders should be
stated and the vote of the senior who tenders a vote, whether
in person or by proxy, will be accepted to the exclusion of the
votes of the other joint holders. For this purpose, seniority will
be determined by the order in which the names stand in the
register of members in respect of the shares.
4. Validity of proxies
To be valid a Form of Proxy or other instrument appointing a
proxy must be received by one of the following methods:
a. by posting the reply-paid proxy or otherwise by post (in
which case postage will be payable) or (during normal
business hours only) by hand at Equiniti Limited, Aspect
House, Spencer Road, Lancing BN99 6DA; or
b. in the case of CREST members, by utilising the CREST
electronic proxy appointment services in accordance with
the procedures set out in paragraph 5 below; or
c. as an alternative to completing and returning the printed
Form of Proxy, you may submit your proxy electronically
by accessing the Sharevote website provided by Equiniti.
Shareholders may submit an electronic proxy online, using
the reference numbers printed on the Form of Proxy,
at www.sharevote.co.uk where details of the voting
procedures are shown.
IMPORTANT: in any case, the Form of Proxy must be received
by 10:30 a.m. on Monday 17 April 2023 (or, if the AGM is
adjourned, not later than 48 hours before the time fixed
for the adjourned meeting) (excluding any part of any day
that is not a working day).
5. Electronic proxy appointment
CREST members who wish to appoint a proxy or proxies
through the CREST electronic proxy appointment service may
do so by using the procedures described in the CREST Manual
(available via www.euroclear.com). CREST Personal Members or
other CREST sponsored members, and those CREST members
who have appointed a voting service provider, should refer to
their CREST sponsor or voting service provider(s), who will be
able to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made using the
CREST service to be valid, the appropriate CREST message (a
“CREST Proxy Instruction”) must be properly authenticated
in accordance with Euroclear UK & Ireland Limited’s
specifications, and must contain the information required for
such instruction, as described in the CREST Manual (available
via www.euroclear.com). The message, regardless of whether
it constitutes the appointment of a proxy or is an amendment
to the instruction given to a previously appointed proxy must,
in order to be valid, be transmitted so as to be received by the
issuer’s agent (ID number RA19) not later than 10:30 a.m. on
Monday 17 April 2023 (or, if the AGM is adjourned, not later
than 48 hours before the time fixed for the adjourned meeting)
(excluding any part of any day that is not a working day). For
this purpose, the time of receipt will be taken to be the time
(as determined by the time stamp applied to the message by
the CREST Applications Host) from which the issuer’s agent
is able to retrieve the message by enquiry to CREST in the
manner prescribed by CREST. After this time any change of
instructions to proxies appointed through CREST should be
communicated to the appointee through other means.
Strategic report Governance Financial statements
174 Primary Health Properties PLC Annual Report 2022
Shareholder information
GUIDANCE NOTES FOR THE AGM AND ON
APPOINTMENT OF PROXIES continued
5. Electronic proxy appointment continued
CREST members and, where applicable, their CREST sponsors,
or voting service provider(s) should note that Euroclear UK &
Ireland Limited does not make available special procedures
in CREST for any particular message. Normal system timings
and limitations will, therefore, apply in relation to the input of
CREST Proxy Instructions. It is the responsibility of the CREST
member concerned to take (or, if the CREST member is a CREST
personal member, or sponsored member, or has appointed
a voting service provider(s)), to procure that his/her CREST
sponsor or voting service provider(s) take(s), such action as
shall be necessary to ensure that a message is transmitted
by means of the CREST system by any particular time. In this
connection, CREST members and, where applicable, their
CREST sponsors or voting system provider(s) are referred, in
particular, to those sections of the CREST Manual concerning
practical limitations of the CREST system and timings.
The Company may treat as invalid a CREST Proxy Instruction
inthe circumstances set out in Regulation 35(5)(a) of the
CREST Regulations.
If you are an institutional investor you may also be able to
appoint a proxy electronically via the Proxymity platform, a
process which has been agreed by the Company and approved
by Equiniti. For further information regarding Proxymity, please
go to www.proxymity.io. Your proxy must be lodged by not
later than 10:30 a.m. on Monday 17 April 2023 (or, if the AGM
is adjourned, not later than 48 hours before the time fixed for
the adjourned meeting) in order to be considered valid. Before
you can appoint a proxy via this process you will need to have
agreed to Proxymity’s associated terms and conditions. It is
important that you read these carefully as you will be bound
by them and they will govern the electronic appointment of
your proxy.
6. Corporate representatives
Any corporation which is a member may by resolution of
its directors or other governing body authorise one or more
person(s) to act as its representative who may exercise, on its
behalf, all its powers as a member, provided that they do not
do so in relation to the same shares. A certified copy of any
such resolution must be deposited at the registered office of
the Company not less than 48 hours before the time appointed
for the AGM to be valid (excluding any part of any day that is
not a working day).
7. Nominated persons
Any person to whom this document is sent who is a person
nominated under Section 146 of the 2006 Act to enjoy
information rights (a “Nominated Person”) may, under an
agreement between him/her and the shareholder by whom
he/she was nominated, have a right to be appointed (or to
have someone else appointed) as a proxy for the AGM. If a
Nominated Person has no such proxy appointment right or
does not wish to exercise it, he/she may, under any such
agreement, have a right to give instructions to the shareholder
as to the exercise of voting rights.
The statement of the rights of shareholders in relation to the
appointment of proxies at Notes 2, 3, 4, and 5 above does
not apply to Nominated Persons. The rights described in
those paragraphs can only be exercised by shareholders of
the Company. If you have been nominated to receive general
shareholder communications directly from the Company, it is
important to remember that your main contact in terms of your
investment remains the registered shareholder or custodian or
broker who administers the investment on your behalf. Therefore,
any changes or queries relating to your personal details and
holding (including any administration) must continue to be
directed to your existing contact at your investment manager or
custodian. The Company cannot guarantee to deal with matters
that are directed to them in error. The only exception to this is
where the Company, in exercising one of its powers under the
2006 Act, writes to you directly for a response.
8. Electronic communication
Please note that the Company takes all reasonable precautions
to ensure no viruses are present in any electronic communication
it sends out but the Company cannot accept responsibility for
loss or damage arising from the opening or use of any email
or attachments from the Company and recommends that the
shareholders subject all messages to virus checking procedures
prior to use. Any electronic communication received by the
Company, including the lodgement of an electronic proxy form,
that is found to contain any virus, will not be accepted.
9. Voting and voting rights
As at 5:00 p.m. on 14 March 2023 (being the latest business
day prior to the publication of this document), the Company’s
issued share capital consists of 1,336,493,786 Ordinary
Shares, carrying one vote each. Therefore, the total number
of voting rights in the Company as at 5:00 p.m. on 14 March
2023 is 1,336,493,786. The website referred to in Note 1 will
include information on the number of Ordinary Shares and
voting rights.
Voting on the Resolutions will be conducted by way of a poll
rather than on a show of hands as this is considered by the
Board to reflect the views of shareholders more accurately. As
soon as practicable, following the AGM the results of voting at
the AGM and the numbers of proxy votes cast for and against
and the number of votes actively withheld in respect of each
Resolution will be announced via a Regulatory Information
Service and also placed on the Company’s website referred to
in Note 1 above.
10. Right to ask questions
Any shareholder attending the AGM has the right to ask
questions. The Company must cause to be answered any such
question relating to the business being dealt with at the AGM
but no such answer need be given if:
• to do so would interfere unduly with the preparation for the
AGM or involve the disclosure of confidential information; or
• the answer has already been given on a website in the form
of an answer to a question; or
• it is undesirable in the interests of the Company or the good
order of the AGM that the question be answered.
Notice of Annual General Meeting 2023 continued
Strategic report Governance Financial statements
175Primary Health Properties PLC Annual Report 2022
Shareholder information
GUIDANCE NOTES FOR THE AGM AND ON
APPOINTMENT OF PROXIES continued
11. Audit concerns
Under Section 527 of the 2006 Act a shareholder or
shareholders meeting the threshold requirements set out in
that Section have the right to require the Company to publish
on a website a statement setting out any matter relating to: (i)
the audit of the Company’s accounts (including the auditor’s
report and the conduct of the audit) that are to be laid before
the meeting; or (ii) any circumstance connected with an auditor
of the Company ceasing to hold office since the previous
meeting at which annual accounts and reports were laid in
accordance with Section 437 of the 2006 Act. The Company
cannot require the shareholders requesting any such website
publication to pay its expenses in complying with Sections
527 or 528 of the 2006 Act. Where the Company is required
to place a statement on a website under Section 527 of the
2006 Act, it must forward the statement to the Company’s
auditor not later than the time when it makes the statement
available on the website. The business which may be dealt with
at the AGM includes any statement that the Company has
been required under Section 527 of the 2006 Act to publish on
a website.
The request may be in hard copy form or in electronic form
(stating your name and address and in the case of an electronic
communication stating Annual General Meeting in the subject
line of the e-mail); either setting out the statement in full or,
if supporting a statement sent by another shareholder, clearly
identifying the statement which is being supported; must be
authenticated by the person or persons making it; and be
received by the Company at least one week before the AGM.
12. Communication with the Company
You may not use any electronic address provided either in this
Notice of AGM or any related documents (including the Form
of Proxy accompanying this document) to communicate with
the Company for any purposes other than those expressly
stated. All communication with the Company in relation to the
AGM should be by writing to Equiniti Limited, Aspect House,
Spencer Road, Lancing BN99 6DA or to the Company Secretary
at the registered office of the Company set out at the foot of
the Notice of AGM.
13. Inspection of documents
The following documents, which are available for inspection at
an agreed time during normal business hours at the registered
office of the Company on any weekday (Saturdays, Sundays and
public holidays excluded), will also be available for inspection at
the place of the AGM from 9:30 a.m. on the day of the AGM
until the end of the meeting:
i. copies of the service contracts of the Executive Directors
under which they are employed by the Company and the
letters of appointment (and other related documents) of
the Non-executive Directors; and
ii. the Articles of Association of the Company.
Strategic report Governance Financial statements
176 Primary Health Properties PLC Annual Report 2022
Shareholder information
Corporate calendar 2023
Annual General Meeting 19 April 2023
AGM 19 April 2023
Announcement of half year results 27 July 2023
Dividends
The Company intends to make quarterly dividend payments to
shareholders in February, May, August and November. Thefirst
quarterly dividend in 2023 (for which the record date was
13January 2023) was paid on 24 February 2023.
Further distributions are expected to be paid in May, August
and November 2023.
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.
Dividend Re-Investment Plan (“DRIP”)
The Company offers a DRIP, provided by Equiniti Financial
Services Limited, enabling shareholders to use their cash
dividend to buy further Ordinary Shares. For information on
how to apply for the DRIP, as well as its terms and conditions,
please visit www.shareview.co.uk.
Scrip dividend scheme
The optional scrip dividend scheme previously offered to
shareholders has been suspended.
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. Details 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 (8.30 a.m. to 5.30 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
Strategic report Governance Financial statements
177Primary Health Properties PLC Annual Report 2022
Shareholder information
Stockbrokers
Numis Securities Limited
45 Gresham Street
London EC2V 7BF
Peel Hunt LLP
7th Floor
100 Liverpool Street
London EC2M 2AT
JP Morgan Cazenove
25 Bank Street
London EC3M 7AU
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
TLT LLP
20 Gresham Street
London EC2V 7JE
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
Avison Young (UK) Limited
65 Gresham Street
London EC2V 7NQ
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
Strategic report Governance Financial statements
178 Primary Health Properties PLC Annual Report 2022
Shareholder information
Glossary of terms
Adjusted earnings is EPRA earnings excluding the 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.
Adjusted NTA per share is adjusted NTA divided by the
number of shares in issue at the balance sheet date.
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.
Average cost of debt is the total interest cost of drawn debt
and swaps, divided by the amount of drawn debt.
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 Adjusted 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”) is 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.
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)
is 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.
Strategic report Governance Financial statements
179Primary Health Properties PLC Annual Report 2022
Shareholder information
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 valuers’ 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.
IASs are International Accounting Standards as adopted by
theUnited Kingdom.
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.
Like-for-like compares prior year to current year excluding
acquisitions, disposals and developments
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 properties.
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 or 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’s “Net zero carbon, a
framework definition”.
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.
Occupancy is the level of units occupied, after deducting the
ERV vacancy rate
Parity value is calculated based on dividing the convertible
bond value by the exchange price.
Progressive returns is where it is expected to continue to rise
each year.
Progressive dividends is where it is expected to continue to
rise each year on a per share basis.
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.
Strategic report Governance Financial statements
180 Primary Health Properties PLC Annual Report 2022
Shareholder information
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 (A) 141.5
Revaluation deficit and profit on sales (B) (61.5)
Total return (C) 80.0
Opening property assets 2,795.9
Weighted additions in the period 45.3
Total weighted average closing property assets (D) 2,841.2
Income return (A/D) 5.0%
Property return (B/D) (2.2)%
Total property return (C/D) 2.8%
Total NTA 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.
Adjusted NTA per
share
At 31 December 2021 116.7p
At 31 December 2022 112.6p
Increase/(decrease) (4.1)
Add: dividends paid
Q1 interim 1.625
Q2 interim 1.625
Q3 interim 1.625
Q4 interim 1.625
Total NTA return 2.1%
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 PLC’s commitment to environmental issues is
reflected in this Annual Report, which has been printed on UPM Finesse
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.
Primary Health Properties PLC
Registered office:
5th Floor, Burdett House
15–16 Buckingham Street
London WC2N 6DU
Website:
www.phpgroup.co.uk
Registered in England Number:
3033634
Primary Health Properties PLC Annual Report 2022