Primary Health Properties PLC Annual Report 2023
Primary Health Properties PLC
Annual Report 2023
Sustainable
income performance
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 Our strategy in action
20 Key performance indicators
22 Business review
26 Financial review
32 EPRA performance measures
34 Responsible business
52 Task Force on Climate-
related FinancialDisclosures
59 Section 172 statement
60 Risk management and
principal risks
67 Viability statement
Governance
68 Chairman’s introduction
togovernance
72 Board of Directors
74 Senior leadership team
76 Corporate governance
statement
88 Audit Committee report
94 Nomination Committee
report
97 Remuneration Committee
report
100 Directors’ remuneration
report
119 Directors’ report
123 Directors’ responsibility
statement
Financial statements
124 Independent auditor’s report
133 Group statement of
comprehensive income
134 Group balance sheet
135 Group cash flow statement
136 Group statement of changes
in equity
137 Notes to the financial
statements
165 Company balance sheet
166 Company statement of
changes in equity
167 Notes to the Company
financial statements
Shareholder information
175 Notice of Annual General
Meeting 2024
188 Shareholder information
189 Advisers and bankers
190 Glossary of terms
Discover more at phpgroup.co.uk.
Leading investor
inflexible, modern
primary healthcare
accommodation across
the UK andIreland
Read more about our Responsible Business Report at phpgroup.co.uk.
2023
Highlights
* The IFRS profit after tax per share as set out in the summarised results table on page 27.
∆ Alternative performance measures (“APMs”): Measures with this symbol ∆ are APMs defined in the Glossary section on pages 190 to 192, and presented throughout
this Annual Report. All measures reported on a continuing operations and 52-week comparable basis.
2022
2023
2020 £112.0m
IFRS profit/(loss) after tax
£27.3m
-51.5%
2019
IFRS profit/(loss) after
taxpershare*
2.0p
-52.4%
2022 112.6p
2023 108.0p
2021 116.7p
2019 107.9p
2020 112.9p
Adjusted NTA per share
∆
108.0p
-4.1%
2022 6.6p
2023 6.8p
2021 6.2p
2019 5.5p
2020 5.8p
Adjusted earnings per share
∆
6.8p
+3.0%
2022 £141.5m
2023 £149.3m
2020 £131.2m
2019 £115.7m
Net rental income
∆
£149.3m
+5.5%
2022 £2.8bn
2023 £2.8bn
2021 £2.8bn
2019 £2.4bn
2020 £2.6bn
Total property portfolio
£2.8bn
-1.9%
2022 £88.7m
2023 £90.7m
2021 £83.2m
2019 £59.7m
2020 £73.1m
Adjusted earnings
∆
£90.7m
+2.3%
Dividend per share
6.7p
+3.1%
2022 6.5p
2023 6.7p
2021 6.2p
2019 5.6p
2020 5.9p
2022 110.9p
2023 106.5p
2020 107.5p
2019 101.0p
IFRS NTA per share
106.5p
-4.0%
2022 3.2%
2023 3.3%
2020 3.5%
2019 3.5%
Average cost of debt
∆
3.3%
+10bps
2022
2023
2021 9.5%
2020 7.4%
2019 7.7%
Total property return
∆
3.5%
+70bps
2022
2023
2021 8.9%
2020 10.1%
2019 8.0%
Total NTA return
∆
1.9%
-20bps
2021 £136.7m
(£71.3m) 2019
2021 £140.1m
2022
2020 8.8p
(6.5p)
2021 10.5p
2021 112.5p 2021 2.9%
4.2p
2.0p
£56.3m
£27.3m
2.8%
3.5%
2.1%
1.9%
1Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
At a glance
Locations Value % Value
Midlands and EastAnglia
£605m 22%
North East, Yorkshire
andHumberside
£406m 15%
North West
£374m 13%
South East
£374m 13%
Republic of Ireland
£245m 9%
London
£231m 9%
Scotland
£207m 7%
Wales
£205m 7%
South West
£129m 5%
£2,776m 100%
GEOGRAPHICAL SPREAD BYVALUATION
38
89
40
32
83
51
119
41
21
Who we are
We invest in flexible, modern properties for local primary
healthcare, leton long term leases with a property portfolio
of514assets in the UKand Ireland valued at £2.8 billion.
Property portfolio
514
(2022: 513)
Property value
£2.8bn
(2022: £2.8bn)
2 Primary Health Properties PLC Annual Report 2023
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OUR PORTFOLIO IN 2018
Contracted rent roll
£79.4m
Adjusted Earnings
£36.8m
Number of properties
313
Number of tenants
709
OUR PORTFOLIO IN 2023
Over a five year period we have increased Adjusted Earnings by around 150%,
with dividend per share paid out to investors increasing by over 24%.
Contracted rent roll
£150.8m
Adjusted Earnings
£90.7m
Number of properties
514
Number of tenants
1,213
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
ENTERING 28 YEARS OF CONSECUTIVE DIVIDEND GROWTH
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 2024
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
6.90p*
5.125p
6.20p
“ Having successfully delivered 27 years of consecutive dividend
growth for our shareholders, we have firmly established
ourselves as a leading investor in flexible, modernprimary
healthcare accommodation across the UK and Ireland.”
* 6.90p is an annualised amount, based on the first quarterly dividend, declared 4 January 2024.
3Primary Health Properties PLC Annual Report 2023
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Our portfolio
Building on our strengths
&maintaining resilience
The majority of our healthcare facilities are GPsurgeries,
with otherproperties let to NHS organisations, the HSE
inIreland, pharmacies anddentists.
RENTAL GROWTH OUTLOOK
2023 was another record year for rental growth, with rent
review completions generating £4.0 million of additional
annualised income, an increase of 33% over 2022 with open
market generating £1.3 million (1.8%growth) and inflationary
and fixedgenerating £2.7 million (7.1% growth).
This progress continues the improving outlook seen over the
last couple of years but was largely generated from rent reviews
arising between 2019-2021, a period when rental growth was
muted and not reflecting the higher levels of construction cost
and general inflation experienced in recent years.
Asset management projects completed in the year delivered a
further £0.3 million of rental growth.
ADDITIONAL INCOME FROM RENT
REVIEWS – GROWING MOMENTUM
Like-for-like rental growth
£4.3m
(2022: £3.3m)
Occupancy rate
99.3%
(2022: 99.7%)
£4.0m
£3.5m
£3.0m
£2.5m
£2.0m
£1.5m
£1.0m
£0.5m
£0.0m
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
0.6
0.4
0.3
0.5
1.1
1.6
1.7
2.0
3.0
4.0
RENT REVIEW RENTAL GROWTH HISTORY*
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
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
4.0
* Annualised percentage increase.
4 Primary Health Properties PLC Annual Report 2023
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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. The current capacity
of existing facilities remains a significant obstacle to
implementing government policies aimed at expanding
service delivery within general practice, including social
prescribing, clinical pharmacists, physiotherapists, mental
health, minor operations and other activities. We will
continue to actively engage with government bodies,
theNHS, the HSE in Ireland and other key stakeholders
to help alleviate increased pressures and burdens
currently being placed on healthcare networks.
Demographics
The need for additional space is driven by a population
that is growing, ageing and suffering from increased
chronic illnesses, which is placing a greater burden
onhealthcare systems in both the UK and Ireland.
Ageing stock
Approximately one-third of the UK’s current primary care
estate is in need of replacement and upgrade to meet
the growing demand.
Evolution of health system
The number of patients waiting for treatment has reached
record highs, exacerbating the need for improved and
increased primary healthcare infrastructure. Additionally
many services in the medium term will progressively move
from hospitals to primary care settings, necessitating
substantial investment in facilities to accommodate
these changes and alleviate the pressure on secondary
care in the years to come. PHP stands ready to play
its part in delivering and modernising this primary
careinfrastructure.
Responsible Business and ESG
PHP’s Net Zero Carbon (“NZC”) Framework sets out
the five key steps the Group is looking to achieve
the ambitious target of being NZC by 2030 for all
of theGroup’s operational, development and asset
management activities.
Continued improvement in portfolio EPC ratings with
42% and 85% (2022: 35% and 81%) rated A-B and A-C
respectively driven by the asset management programme.
Progress continues on construction of PHP’s first NZC
development in West Sussex which is expected to
achieve practical completion in Q3 2024.
PORTFOLIO DISTRIBUTION BY CAPITAL
VALUEANALYSIS*
2023 2022
* Excluding land and residential units valued at £1.3 million (2022: £1.3 million).
55 £870m
58 £892m
£10m+
138 £949m
128 £876m
£5–10m
158 £629m
163 £651m
£3–5m
157 £342m
160 £353m
£1–3m
£0–1m
5 £3m
5 £3m
Government bodies 89%
Pharmacy 8%
Other 3%
COVENANT ANALYSIS
ANALYSIS OF LEASES UNEXPIRED –
WAULT 10.2 YEARS
Holding over 3%
<3 years 8%
3-5 years 11%
5-10 years 35%
10-15 years 20%
15-20 years 15%
20+ years 8%
5Primary Health Properties PLC Annual Report 2023
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Investment case
Investing in PHP
PHP is a strong business creating progressive* returns
forshareholders by investing in healthcare real estate
letonlong term leases, backed by asecure underlying
covenantwhere the majority ofrental income is funded
directlyor indirectly byagovernment body.
Rent roll funded by government bodies
89%
(2022: 89%)
LOW RISK, LONG TERM AND
NON‑CYCLICAL MARKET
• One development opportunity on-site
and one further in immediate pipeline
in the UK
• Opportunities in Ireland that
remainattractively priced
• Majority of rents in both jurisdictions
funded bygovernment for long
leaseterms
• WAULT of 10.2 years (2022: 11.0 years)
Rental growth
+£4.3m or 3.0%
(2022: +£3.3m or 2.4%)
STRONG, HIGH QUALITY AND
GROWING CASH FLOW
• Effectively upward-only or indexed
rentreviews
• Positiverental growthoutlook
following a record year in 2023
• Rental growth expected to be
beneficiary of the high inflation
experienced in recent years
• Continued focus on Ireland where a
positive yield gap between acquisition
yield and fundingcosts remains
• Efficient cost structure
enhancesearnings
EPRA cost ratio
10.7%
(2022: 9.9%)
EFFICIENT FINANCIAL
MANAGEMENT
• EPRA cost ratio continues to be one
of the lowest in the sector
• The slightly higher EPRA cost ratio
reflects an increase in the provision of
performance-related pay and the cost
of a voluntary redundancy programme
completed in the year, together with
a one-off benefit in 2022 arising
from the historical performance
incentive fee. Notwithstanding the
increase in costs they continue to
be closely controlled and monitored,
representing 10.1% if vacancy and Axis
costs are excluded
* Progressive is where it is expected to continue to rise each year, as defined in the Glossary section on pages 190 to 192.
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PHP’s portfolio serves
6.0m patients
or 8.8% of UK population
SECTOR DEMAND FACTORS
DICTATE CONTINUED
DEVELOPMENT OF
HEALTHCARE PREMISES
• Demand from population growth,
ageingand suffering from more
instances of chronic illness
• Capacity of existing facilities remains
a significant obstacle to implementing
government policies
• Unwavering political support in
theUKand Ireland and promotion
ofintegrated primary care and NHS
Long Term Plans to effectively manage
patient needs
Dividend per share
6.7p
(2022: 6.5p)
STABLE, INCREASING
INCOMERETURNS
• Growing shareholder
returnthroughdividend
andcapitalappreciation
• Dividend fully covered by
adjusted earnings
• Strong yield characteristics
continues supported by Government
backed income
• 27 consecutive years
ofdividendgrowth
Portfolio EPC ratings A-C
85%
(2022: 81%)
INVESTING IN ESG
• Progress continues on construction of
PHP’s first NZC development in West
Sussex which is expected to achieve
practical completion in Q3 2024
• 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 in
2023 and 2022
• Community Impact Fund continues to
support social prescribing activities
donating £137,000 in the year
7Primary Health Properties PLC Annual Report 2023
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Chairman’s statement
“ We are encouraged by the organic
rental growth achieved in 2023,
resulting in another record year with
an additional £4.3 million generated
from our rent review and asset
management activities. The strong
rental growth in the year has been
reflected in the positive total property
return, significantly ahead of the wider
property market.
”
Steven Owen
Chairman
In my final report as Chairman before I retire from the Board
atthe conclusion of the Company’s Annual General Meeting to
be held on 24 April 2024 (“2024 AGM”), I am pleased to report
PHP continued to deliver another year of robust operational
and financial performance despite the ongoing volatility in
the economic and interest rate outlook caused by both global
and domestic events. The volatile interest rate outlook has
continued to weigh heavily on the real estate sector during
2023 and early part of 2024. Against this backdrop, the
performance in the year was a testament to the quality of
PHP’s business model, portfolio, management team and people.
The Group’s strong 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 which is now in its
28th year of continued growth.
We maintain our strong operational property metrics, with
along weighted average unexpired lease term (“WAULT”) of
10.2years (31 December 2022: 11.0 years), high occupancy at
99.3% (31 December 2022: 99.7%) and 89% (31 December 2022:
89%) of our rent being securely funded directly or indirectly
by the UK and Irish Governments. Notwithstanding the fall in
values in the year the portfolio’s average lot size remains at
£5.4 million (31 December 2022: £5.4 million).
We have continued to see rental growth improving with rent
reviews in 2023 generating an extra £4.0 million (2022: £3.0 million)
an uplift of 8.9% (2022: 6.8%) over the previous passing rent
equivalent to 4.0% (2022: 3.4%) on an annualised basis.
We are encouraged by the increasingly firmer tone of
rental growth and believe PHP in the medium term will be
a beneficiary of the recent 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.
The improving outlook on open market value (“OMV”) reviews is
expected to offset the impact of declining inflation on indexed
rent reviews and it should be noted that most of the growth on
OMV rent reviews in 2023 came from the period 2019 to 2021
and therefore does not yet reflect the impact of significantly
higher construction costs experienced in the last two years.
This continues to be a critical focus of the Group’s business
model and underpins the rental growth outlook.
Focused on growing
income from our
existing portfolio
8 Primary Health Properties PLC Annual Report 2023
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The value of the property portfolio currently stands at
£2.779billion (31 December 2022: £2.796 billion) across
514assets (31December 2022: 513 assets), including 21 in
Ireland, with a rent roll of £150.8 million (31 December 2022:
£145.3 million). As previously reported, the deteriorating
interest rate environment and economic outlook during 2023
caused us to reconsider our acquisition pipeline and pause
investment activity until the economic and interest rate
outlook becomes clearer. Our prudent strategy means that 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 since the COVID-19 pandemic and the increasing
pressures being placed on the healthcare systems in both the
UK and Ireland. We continue to maintain close relationships
with our key stakeholders and GP partners to ensure we are
best placed to help the NHS and Health Service Executive
(“HSE”), Ireland’s national health service provider, 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 (“Axis”), 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 currently manages a portfolio of 30 properties, including
all 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 HSE. The
acquired company also provides fit-out, property and facilities
management services to the HSE and other businesses located
across Ireland.
Following completion of the acquisition of Axis it has continued
to perform in line with expectations in 2023 generating a profit
before tax of £1.1 million (€1.3 million).
Adjusted earnings per share growth
+3.0%
Dividend per share growth
+3.1%
Continued selective investment in Ireland
+£25.7m
EPRA cost ratio
10.7%
As part of the acquisition, PHP signed a development pipeline
agreement with Axis Health Care Assets Limited, a related
company, which gives the Group the option to acquire their
development pipeline over the next five years from completion.
Axis Health Care Assets Limited 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, and has a strong pipeline of near-
term projects with an estimated gross development value
of approximately €50 million with further potential schemes
beyond that.
Overview of results
PHP’s Adjusted earnings increased by £2.0 million or +2.3%
(2022: £5.5 million or +6.6%) to £90.7 million (2022: £88.7 million)
in the year, primarily driven by strong organic rental growth
from rent reviews and asset management projects, plus income
arising from the acquisition of Axis partially offset by higher
interest costs on the Group’s variable rate debt. Using the
weighted average number of shares in issue in the year the
adjusted earnings per share increased to 6.8 pence (2022:
6.6pence), an increase of 3.0% (2022: +6.5%).
A revaluation deficit of £53.0 million (2022: deficit of £61.5 million
net of profit on sales) was generated in the year from the
portfolio, equivalent to -4.0 pence (2022: -4.6 pence) per share.
The valuation deficit was driven by net initial yield (“NIY”)
widening of 23 bps (2022: 18 bps) in the year, equivalent to
a valuation reduction of around £128 million (2022: deficit of
£134 million), albeit this was partially offset by gains equivalent
to £75 million (2022: gain of £70 million) arising from rental
growth and asset management projects.
A combined loss of £11.6 million (2022: gain of £29.7 million) on
the fair value of interest rate derivatives and convertible bonds,
the amortisation of the fair value adjustment on the MedicX
fixed rate debt at acquisition and write-off of costs arising from
the acquisition of Axis and listing on the Johannesburg Stock
Exchange (“JSE”) resulted in a profit before tax as reported
under IFRS of £26.1 million (2022: £56.9 million).
9Primary Health Properties PLC Annual Report 2023
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Chairman’s statement continued
Environmental, Social and Governance (“ESG”)
PHP has a strong commitment to responsible business.
ESGmatters 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 in the third quarter of 2024 and
published, at the start of 2022, a NZC Framework setting out
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 34 to 51 of this
Report and on our website.
Board succession and changes
The past year has been a significant one in the Company’s
history regarding the successful execution of its succession
plan and the composition of the Board.
The first step in the plan in 2023 was to recruit a new Chief
Executive Officer (“CEO”) to succeed Harry Hyman, Founder
and CEO who had previously indicated his intention to retire
asCEO at the 2024 AGM.
The Company announced on 4 September 2023, after a
thorough and extensive search process, the appointment
ofMark Davies as CEO with effect from the conclusion of the
2024 AGM. In January 2024, as part of the handover process,
he commenced working alongside Harry and the wider team
inorder to ensure a smooth transition.
Overview of results continued
The Group’s balance sheet remains robust with a loan to value
ratio of 47.0% (2022: 45.1%), which is in line with 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 £321.2 million
(2022: £325.9 million). The Group also has significant valuation
headroom across the various loan facilities with values needing
to fall further by around £1.1 billion or 39% before the loan to
value covenants are impacted. This headroom means the Group
is well placed to continue to execute on its strategy and adapt
to market conditions accordingly.
Dividends
The Company distributed a total of 6.7 pence per share in
2023, an increase of 3.1% over the 2022 dividend of 6.5 pence
per share. The total value of dividends distributed in the year
increased by 3.2% to £89.5 million (2022: £86.7 million), which
were fully covered by adjusted earnings. During 2023, the
scrip dividend scheme continued to be suspended in light
ofthe ongoing weakness in the share price and a dividend
re-investment plan is being offered in its place.
The first interim dividend of 1.725 pence per share was
declared on 4 January 2024, equivalent to 6.9 pence on an
annualised basis, which represents an increase of 3.0% over the
dividend distributed per share in 2023. The dividend was paid
to shareholders on 23 February 2024 who were on the register
at the close of business on 12 January 2024. The dividend will
be paid by way of a property income distribution of 1.45 pence
and normal dividend of 0.275 pence.
The Company intends to maintain its strategy of paying a
progressive dividend, paid 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 2024 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 110.8 pence
per share and closed on 31 December 2023 at 103.8 pence,
adecrease of 6.3%. Including dividends, those shareholders
who held the Company’s shares throughout the year achieved
a Total Shareholder Return of -0.3% (2022: -22.5%).
During the year PHP was announced as the winner of MSCI’s
Highest 10-Year Risk Adjusted Total Return Award for the UK
in2022 having previously won the award in 2021 and 2017.
Read more about our culture onpage 76.
Read more about our stakeholders onpages 49 to 51.
Read more about our Responsible
Business Report at phpgroup.co.uk.
10 Primary Health Properties PLC Annual Report 2023
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Mark is a highly experienced FTSE 250 Executive having
held CEO and Chief Financial Officer (“CFO”) roles in listed
companies and private equity. He was a Co-founder Director
of NewRiver REIT plc (“NewRiver”) in 2009 and played an
important role in taking NewRiver from IPO into the FTSE 250
index in seven years. He was CFO of NewRiver for over twelve
years and, alongside his role as CFO, was also CEO/Executive
Chairman of Hawthorn Leisure Limited (“Hawthorn”) for five
years. Mark stood down from the Board of NewRiver following
the successful sale of Hawthorn in July 2021 to private equity
at a premium price. Mark has considerable capital markets
experience and over the last fourteen years has raised over
£3billion of equity and debt in public and private markets.
The second step in the succession plan was to find a successor
to myself as Chairman and on 2 November 2023 the Company
announced, after consultation with a number of its major
shareholders, the appointment of Harry Hyman as Non-executive
Chairman subject to shareholder approval at, and with effect
from the conclusion of, the Company’s 2024 AGM. I will remain
as Chairman until I retire at the conclusion of the 2024 AGM.
The Board believes that Harry’s appointment is in the best
interests of the Group and its stakeholders, particularly as
Harry’s knowledge and expertise gained over nearly 30 years in
the primary care property sector, which is a niche sub-sector of
the real estate market, will continue to be invaluable and highly
relevant to the Group’s future success. Harry founded PHP in
1996 and has served on the Board as Managing Director/CEO
since that time. His track record in the listed real estate sector
is outstanding and he has been the key driver in PHP’s success
since its inception. Further details regarding the selection of
Harry as Chair can be found on page 68 of this Report.
The Board considers that the combination of Mark Davies as
CEO and Harry Hyman as Chairman, together with Richard Howell
asCFO and David Bateman as Chief Investment Officer
(“CIO”), makes a formidable, highly respected leadership team
that will continue to build on the success of the business. The
Board has determined that Harry’s term as Chairman will be
fora maximum of three years.
The final step in the plan was to recruit an additional Non-
Executive Director in order to ensure that the Board consists
of a majority of independent Non-executive Directors and
therefore be compliant with the Corporate Governance Code
from the date of appointment. As a result, Dr Bandhana (Bina)
Rawal was appointed as a fourth independent Non-executive
Director of the Company with effect from 27 February 2024
and the Board has increased in size from six to seven.
Toby Newman was appointed Company Secretary and Chief
Legal Officer on 28 February 2023 following the retirement of
Paul Wright.
Secondary Listing
On the 24 October 2023 the Company completed a secondary
listing of PHP shares on the JSE. The Board of PHP believes that
the secondary listing will contribute to liquidity in the Group’s
shares as a result of the growing interest in the Company and its
increased profile in the South African market, where a number
of investors have already shown strong interest in the unique
healthcare property investment opportunity. Since listing on
the JSE approximately one million shares have been traded to
date and we continue to help potential South African investors
acquire PHP shares and provide further liquidity on the JSE.
MARKET UPDATE AND OUTLOOK
The primary care market continues to face challenges in
meeting the growing demand for healthcare services. The
capacity of existing facilities remains a significant obstacle to
implementing government policies aimed at expanding service
delivery within general practice, including social prescribing,
clinical pharmacists, physiotherapists, mental health, minor
operations and other activities. The need for additional space
is driven by a population that is growing, ageing and suffering
from increased chronic illnesses, which is placing a greater
burden on healthcare systems in both the UK and Ireland.
The extent of the NHS England backlog remains a significant
concern, with hospitals struggling to meet objectives for
cancer care and routine treatments. The number of patients
waiting for treatment has reached record highs, exacerbating
the need for improved and increased primary healthcare
infrastructure with approximately one-third of the UK’s current
primary care estate in need of replacement.
There is a growing expectation that many services in the
medium term will progressively move from hospitals to
primary care settings, necessitating substantial investment
in facilities to accommodate these changes and alleviate the
pressure on secondary care in the years to come. The UK
government’s vision for primary care premises, advocating
the establishment of hubs or “super hubs”, is a step in this
direction. The UK government’s vision is that these hubs
promote collaboration among primary care staff and provide
a wider range of services in a single location. Larger GP
practices with more staff and facilities are shown to produce
better patient outcomes. This is in line with larger purpose-
built medical centres typical of PHP’s portfolio and our own
ongoing engagement with occupiers where many surgeries
require more space.
Declining rents in real terms have made investing in the
transformation of GP facilities less appealing. Construction
costs have risen significantly over the past decade, surpassing
the growth in primary care rents, driven by material and labour
costs and increasing sustainability requirements, all of which
has been compounded by Brexit, the COVID-19 pandemic and
the fiscal policy outlook.
Future developments will now need a significant shift
of between 20% to 30% in rental values to make them
economically viable and we continue to actively engage with
both the NHS, Integrated Care Boards (“ICB”) and District
Valuer (“DV”) for higher rent settlements. However, despite
these negotiations typically becoming protracted, we are
starting to see positive movement in some locations where
the NHS need for investments in new buildings is strongest.
We are aware of instances where the ICB have stepped in
and overruled the DV’s proposals when those have prevented
much needed schemes from progressing. This along with the
use of “top-up” rents and capital contributions is starting to
allow certain schemes to progress viably and we anticipate
this will accelerate.
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.
Strategic report Governance Financial statements Shareholder information
11Primary Health Properties PLC Annual Report 2023
Primary health and investment market update
The commercial property market continues to be impacted
by economic turbulence but primary care asset values have
continued to perform well relative to mainstream commercial
property due to recognition of the security of their government
backed income, crucial role in providing sustainable healthcare
infrastructure and more importantly a stronger rental growth
outlook enabling attractive reversion over the course of
longleases.
The continued lack of recent transactions in the year has
resulted in valuers continuing to place reliance on sentiment to
arrive at fair values. Yields adopted by the Group’s valuers have
moved out by 23bps to 5.05% as at 31 December 2023 (2022:
4.82%) to reflect perceived market sentiment for the sector.
We continue to see that for both the primary care and
indeed the wider commercial property markets, the high
level of financial market volatility and economic uncertainty
has resulted in a ‘wait-and-see’ attitude amongst investors,
which is expected to continue until the UK interest rate
outlook moderates and becomes more certain. However,
notwithstanding the significant increases and volatility in
interest rates seen in 2023, we continue to believe further
significant reductions in primary care values are likely to be
limited with a stronger rental growth outlook offsetting the
impact of any further yield expansion.
Additionally, the market for primary care assets is relatively
small with most assets tightly held by the main specialists in
the sector and consequently we anticipate most investors will
likely 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 all having strong balance
sheets so there are likely to be limited “forced sales”; and
• a desire from investors to seek a “safe haven” with some
shifting from other property sectors.
PHP Outlook
Growth in the immediate future will continue to be focused
on increasing income from our existing portfolio and we are
encouraged by the firmer tone of rental growth experienced in
2022 and 2023. As already noted, we believe the favourable
dynamics of inflation over the last two years and increased
build costs combined with a demand for new primary care
facilities and the need to modernise the estate will continue to
increase future rental settlements.
We are currently on site with just one development which
is due to complete in Q3 2024 and consequently have very
limited exposure to higher construction cost pressures and
supply chain delays. In our immediate pipeline we have just one
development and 23 asset management projects with a total
expected cost of £22.6 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 2023: 9%). The acquisition of
Axis, in January 2023, 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
thecountry.
With an improving rental growth outlook, a strong control on
costs resulting in one of the lowest EPRA cost ratios in the
sector and the vast majority of PHP’s debt either fixed or
hedged for a weighted average period of just under seven
years, we look forward to 2024 with confidence.
We believe that our activities benefit not only our shareholders
but also our wider stakeholders, including occupiers,
patients, the NHS and HSE, suppliers, lenders, and the wider
communities in both the UK and Ireland.
On a personal level, I would like to place on record how much I
have enjoyed working with Harry and the Board, both past and
present, over the last ten years. The Company has achieved
so much during this time including the merger with MedicX,
internalisation of the management structure and is now a key
member of the FTSE 250 Index.
I wish the new Board and the Company every success for
thefuture.
Steven Owen
Chairman
27 February 2024
“ In my final report as Chairman
before I retire from the Board,
I am pleased to report PHP
continued to deliver another
year of robust operational
and financial performance,
testament to the quality
of PHP’s business model,
portfolio and team.”
Steven Owen
Chairman
12 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
Chairman’s statement continued
Strategic report Governance Financial statements Shareholder information
13Primary Health Properties PLC Annual Report 2023
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 togenerate
progressive returns to shareholders
through investment in the primary
healthcare real estate sector,
whichis less cyclical than other
realestate sectors.
Long term focus:
By providing additional
spacefacilitating the provision
ofadditional services or extending
the term of underlying leases, PHP
can increase and lengthen its income
streams andcreate theopportunity
to add capitalvalue.
Experienced and
innovativemanagement:
PHP’s portfolio is managed
byanexperienced team
withinanefficient management
structure, where operating costs
aretightly controlled.
Appropriate capital structure:
PHP funds its portfolio with a
diversified mix of equityand debt,
in order tooptimise risk-adjusted
returns to shareholders.
Strong tenant covenant
– 89% of rent roll paid
directly/indirectly by
Government bodies
33% of portfolio on
fixed or indexed
uplifts. 67% OMV
review, typically
every threeyears
Occupancy rate
of99.3%
Weighted average
unexpired lease length
of 10.2 years
UK leases have
effectively upward only
rent reviews
Irish leases linked
toIrish CPI
highly visible
cash flows
andstable
valuation yields
14 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
We invest in flexible, modern properties for local primary healthcare.
Theoverall 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 estatelet on long term leases, backed by a secure underlying
covenantwhere the majority of rental income is funded directly
orindirectly 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
toshareholders.
2
MANAGE
PHP manages its portfolio
effectively andefficiently,
managing the risks faced
by its business inorder
to achieve its strategic
objectives.
4
DELIVER
Positive yield gap between
acquisition andfunding with
continued improvements in
rental growth.
WIDER OUTCOMES
Social impact
PHP aims to provide modern premises located within residential
communities toenable better access to an increasing rangeofservices
being delivered locally with greater accessibility than fromhospitals.
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 toachieve
thehighest BREEAMstandards in the UKor nearly zero energy building
(“nZEB”) rating inIreland, as well as highest energy ratings.
Continued improvement in portfolio EPC ratings with 42% and 85%
(2022: 35% and 81%) rated A-B and A-C respectively driven by the
asset management programme.
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 32%.
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
andgrowing populations.
Communities
We support initiatives that further the health, wellbeing and education
of our local communities.
£137,000 distributed from the Community Impact Fund to charities
and groups focused on social prescribing and wellbeing linked to the
patients and communities served by PHP’s properties.
People
Conducting our business with integrity and investing in human capital,
with 58 employees, investing and supporting eleven employees in their
professional development studies.
Read more about our stakeholders onpages 49 to 51.
15Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
Our strategy
Delivering our
strategic priorities
2
MANAGE
PHP manages its portfolio effectively andefficiently,
managingthe risks faced by its business inorder to achieve
itsstrategic objectives.
Activity in 2023
• £4.3 million, or 3.0% additional income from rent reviews
andasset management projects
• Five new asset management projects legally exchanged
during the year, one of which formed part of the eight asset
management projects physically completed in the year. A
further eight lease regears and four new lettings were delivered,
delivering £0.3 million of rental growth and investing £13.1 million
• EPRA cost ratio of 10.7% continues to be one of the lowest
in the sector
Looking forward
• Strong pipeline of over 23 advanced asset management
projects and lease regears beingprogressed over the next
two years, investing £19.3 million whilst extending the
WAULT on these premises back to 20 years
• Continued discussions with occupiers and the NHS to
discuss requirements and opportunities as well as continue
to negotiate rents in order to deliver an acceptable return
Link to KPIs
A D E F
Link to Risks
3 4 5
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 2023
• Selectively acquired one standing asset in the year investing
£25.7 million (€29.6 million) within Ireland
• Portfolio stands at 514, including 21 in Ireland
• Total property return in the year of 3.5%, with the income
return remaining strong at 5.3% 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 the 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 one development in legal due diligence, for
£3.3 million within the UK
Link to KPIs
A B C D E F G H
Link to Risks
1 2
16 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements 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 toshareholders.
Activity in 2023
• Exercised options to extend £300 million of revolving credit
facilities for an additional one year term out to 2026
• €47.8 million private placement for ten years at an all-in rate
of 4.20% completed in December 2023
• Significant liquidity headroom with cash and collateralised
undrawn loan facilities totalling £321million (2022: £326million)
after taking into account capital commitments of
£14.6 million
Looking forward
• No refinancing risk in 2024
• The Company completed a secondary listing of PHP shares
on the JSE, which the Board believe will contribute to
improve the liquidity in the Group’s shares
Link to KPIs
A B F G H
Link to Risks
6 7
4
DELIVER
Positive yield gap between acquisition andfunding remains for
selective investments, despite the macroeconomic environment
along with continued improvements in rental growth, delivering
progressive shareholder returns.
Activity in 2023
• Adjusted earnings per share 6.8 pence increased by3.0%
(2022:6.6 pence)
• Dividend per share increased by 3.1%to 6.7 pence
• Total Adjusted NTA return of 1.9% (2022: 2.1%)
• Strong organic rental growth from rent reviews and
asset management projects, offset the selectively muted
investment in the year
• Acquisition of Axis continues to provide a critical strategic
advantage in Ireland, the Group’s preferred area of future
investment activity
Looking forward
• Undrawn loan facilities continue to provide significant
firepower to secure new investment opportunities
• 97% of the Group’s net debtis fixed or hedged protecting
underlying earnings from potential future economicchanges
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 ofdebt
Risks
1
Property pricing 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 onpages 20 and 21. Read more about our Risks onpages 60 to 66.
17Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
Our strategy in action
Focus on Ireland
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 from 9% to
around 15% of the total.
PHP now has 21 investments in Ireland made up of all
completed income generating assets. Favourable metrics with a
large average lot size of €13.4 million and WAULT of 19.9 years.
In December 2023, the Group completed the acquisition of one
of Ireland’s first Enhanced Community Care (“ECC”) facilities
at Ballincollig, near Cork, Ireland, for a total consideration of
£25.7 million (€29.6 million). The property is fully let to the HSE
on a 25-year lease and benefits from five yearly, compounded
annually, Irish CPI indexed rent reviews.
Irish portfolio EPC ratings A-B
81%
Capital deployed in the year
€29.6 million
18 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
Axis currently manages a portfolio of
30 properties including all of PHP’s Irish
portfolio. The company also provides fit-out,
property and facilities management services
to the HSE and other businesses located
across Ireland.
AXIS CASE STUDIES
• Laya Healthcare €1.7m capital project.
Axis managed the design and construction
of a Laya Health and Wellness Clinic for
its members in Swords, North Dublin.
Axis were appointed in advance of the
initial site selection and planning process,
installing and commissioning specialist
diagnostic equipment. For 2024, Axis is
working with Laya on three other sites in
South Dublin, Limerick and Cork in 2024.
• Uisce Eireann. €0.3m capital project.
Formerly known as Irish Water the state-
owned water utility, Axis in partnership
with Conack Construction undertook
various project works in Ireland’s largest
water treatment plant in Leixlip Co.
Kildare. Servicing major parts of Dublin,
this plant is systematically being upgraded
to ensure that it can deliver drinking
water for decades to come. Work involved
various re-roofing, drainage, electrical and
mechanical works.
The acquisition of Axis, in January 2023,
continues to provide a critical strategic
advantage with a permanent presence
in Ireland, an important move as we seek
new investment, development and asset
management opportunities.
Strategic report Governance Financial statements Shareholder information
19Primary Health Properties PLC Annual Report 2023
Total property return
∆
3.5%
+70bps
Rationale
The Group invests in properties thatprovide the opportunity forincreased
returns through acombination of rental and capitalgrowth.
Performance
Income return of 5.3% inthe year was offset by unfavourable valuation
movements that delivered -1.8% capital deficit, delivering a total property
return of 3.5%.
2023
Total property portfolio
£2.8bn
-1.9%
Rationale
The Group looks to selectively grow itsportfolio in order to secure
the yield gap between income returns and the cost offunds.
Performance
Selectively acquired one asset in Ireland for £25.7 million (€29.6 million) with
Ireland continuing to remain attractive and accretive to earnings in the
current environment.
2023
2023 £2.8bn
Adjusted earnings per share
∆
6.8p
+3.0%
Rationale
Adjusted earnings per shareisa 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 strong
organic rental growth in the period, plus income from the acquisition of Axis
partially offset by higher interest costs.
2023
2023 6.8p
Dividend cover
∆
101%
-100bps
Rationale
The Group looks to maintain aprogressive dividend policy whichitaims
tocover from itsoperational performance. Dividend cover looks at the
proportion of dividends paid inthe year that are funded byAdjusted earnings.
Performance
Dividends paid in 2023 were covered by Adjusted earnings andwe intend
to maintain a strategy of paying a progressive dividend that is covered by
Adjusted earnings in each financial year.
Key performance indicators
Our performance is measured
against KPIs across each of
our four strategic pillars
2021 6.2p
2022 6.6p
Link to strategy
1
2
3
4
2021 101%
2022 102%
2023 101%
2021 £2.8bn
2022 £2.8bn
2021 9.5%
2022 2.8%
3.5%
A
C
B D
Link to strategy
1
3
4
Link to strategy
1
4
Link to strategy
1
2
4
20 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
Average cost ofdebt
∆
3.3%
+10bps
Rationale
The combination of a range ofmaturities and tenors of debt iskeyto the
Group achieving the lowest blended cost of debt.
Performance
The Company successfully exercised options to extend the maturities of
£300 million of RCFs by one year to 2026. Along with 97% of our debt being
either fixed or hedged, this meant our average cost of debt only increased
by 10bps in the year not withstanding the significant increases in interest
rates in 2023.
2023 3.3%
Loan to value
∆
47.0%
+190bps
Rationale
The Board seeks to maintain anappropriate balance between theuse
ofexternal debt facilities and shareholder equity in order to enhance
shareholder returns whilst managing the risks associated with debt funding.
Performance
Additional debt to fund acquisitions in the year, along with valuations
declining have resulted intheGroup’sLTV increasing to 47.0%, within the
Group’s targeted range of between 40% to 50%.
Capital invested in asset
management projects
£13.1m
-25%
Rationale
The Board is committed to keepingitsassets fit for purpose anddeveloping
them to meet the needsof the Group’s occupiers.
Performance
The Group exchanged five asset management projects, eight lease regears
and four lettings in the year, and is on-site with a further six projects, that
maintain the longevity of the use of its properties and generate enhanced
income and capital growth. A strong pipeline of 43 projects will continue to
achieve thisobjective.
EPRA cost ratio
∆
10.7%
+80bps
Rationale
The EPRA cost ratio is used toprovide anindicator of the efficiency
of the management ofthe Group looking attotal administrative costs
as a proportion of net rental income.
Performance
The slightly higher EPRA cost ratio reflects an increase in the provision of
performance-related pay and the cost of a voluntary redundancy programme
completed in the year, together with a one-off benefit in 2022 arising from
the historical performance incentive fee.
2021 £15.0m
2022 £17.5m
2023 £13.1m
2021 9.3%
2022 9.9%
2023 10.7%
∆ Alternative performance measures (“APMs”): Measures with this symbol ∆ are APMs defined in the Glossary section on pages 190 to 192, and presented throughout
this Annual Report. All measures reported on a continuing operations and 52-week comparable basis.
2021 42.9%
2022 45.1%
2023 47.0%
2021 2.9%
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 onpages 16 and 17.
21Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
Business review
Organic rental growth continuing
tounderpin performance and fully
covered dividend maintained at 101%
Investment and pipeline
In 2023 the Group selectively acquired just one asset in Ireland,
our preferred area of investment due to higher net initial
yields, larger lot sizes and cheaper cost of finance for euro
denominated debt with acquisitions and developments only
being progressed if accretive to earnings.
In December 2023, the Group completed the acquisition of
Ireland’s first dedicated Enhanced Community Care facility
at Ballincollig, near Cork, Ireland, for a total consideration of
£25.7 million (€29.6 million). The property is fully let to the HSE
on a 25-year lease and benefits from five yearly, compounded
annually, Irish CPI indexed rent reviews. The property is
managed by Axis.
We continue to monitor a number of potential standing
investments, direct and forward funded developments and
asset management projects with an advanced pipeline of
opportunities across a number of opportunities in both the UK
and Ireland.
However, the immediate pipeline of opportunities in legal due
diligence continues to be focused predominantly on PHP’s
existing portfolio through asset management projects.
Developments
At 31 December 2023, the Group had limited development
exposure with just one project on site at Croft Primary
Care Centre, West Sussex which is due to achieve practical
completion towards the end of Q3 2024 with £5.4 million of
expenditure required to complete the project. The development
is also being built to NZC standards.
The Group is currently progressing one future development
scheme in London where we have managed to work with both
the local council and ICB to make the scheme economically viable.
“ The security and longevity of our
income, near full occupancy together
with another strong year of rental
growth are the key drivers of our
predictable cash-flows and underpin
our progressive dividend policy with
27years of continued growth.”
Harry Hyman
Chief Executive Officer
In legal due diligence Advanced pipeline
Pipeline Number Estimated cost Number Estimated cost
Ireland – forward funded development — — 2 £43.3m (c.€50m)
UK – direct development 1 £3.3m 2 £11.5m
UK – asset management 23 £19.3m 20 £16.3m
UK – investment — — — —
Total pipeline 24 £22.6m 24 £71.1m
22 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
Selective investment in Ireland
£25.7 million
EPRA cost ratio
10.7%
The Group has currently paused any new direct development
activity whilst negotiations with the NHS, ICBs and District
Valuers continue to increase rental levels to make schemes
economically viable with rental values needing to increase by
around 20%-30%.
We currently do not have any forward funded developments
onsite in Ireland although continue to progress a near-term
pipeline with an estimated gross development value of
approximately €50m.
PHP expects that all future direct developments will be
constructed to NZC standards.
Asset management
PHP’s sector-leading metrics remain robust 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 regears) which provide an important
opportunity to increase income, extend lease terms and avoid
obsolescence whilst ensuring that our properties continue to
meet the communities’ healthcare needs and improve their
ESGcredentials.
2023 was another record year for organic rental growth from
our existing portfolio with income increasing by £4.3 million
(2022: £3.3 million) or 3.0% (2022: 2.4%) on a like-for-like basis.
The progress 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 2019
to 2021, 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 2.5% in 2023 (2022: 2.2%; 2021: 1.9%).
Rent review performance
In the UK, the Group completed 313 (2022: 318) rent reviews
witha combined rental value of £42.4 million (2022: £42.2 million),
adding £3.6 million (2022: £2.8 million) and delivering an average
uplift of 8.5% (2022: 6.7%) against the previous passing rent.
67% 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 (27%) 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 6% to 12% over a three-year review cycle.
In Ireland, we concluded 18 (2022: 13) index-based reviews,
adding a further £0.4 million/ €0.4 million (2022: £0.2 million/
€0.2 million), an uplift of 15.2% (2022: 9.2%) against the
previous passing rent. In Ireland, all reviews are linked to
theIrish Consumer Price Index, upwards and downwards,
withreviews typically every five years. Leases to the HSE and
other government bodies, which comprise 78% of the income
inIreland, have increases and decreases capped and collared
at25% over a five-year review cycle.
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
184 24.2 1.3 5.4 1.8
UK – indexed 114 14.1 2.0 14.2 8.4
UK – fixed 15 4.1 0.3 7.3 2.7
UK – total 313 42.4 3.6 8.5 4.0
Ireland – indexed 18 2.5 0.4 15.2 3.3
Total – all reviews 331 45.0 4.0 8.9 4.0
1 Includes 49 reviews where no uplift was achieved.
23Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
Business review continued
Rent review performance continued
At 31 December 2023, 585 (2022: 656) open market rent
reviews representing £84.9 million (2022: £90.2 million) of
passing rent, were outstanding out of which 334 (2022: 286)
have been triggered to date and are expected to add another
£2.2 million (2022: £1.7 million) to the contracted rent roll when
concluded and represents an uplift of 4.5% (2022: 4.1%) against
the previous passing rent. The balance of the outstanding
reviews will be actioned when there is further comparative
evidence to support the estimated rental values.
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 albeit previously agreed rental values are
having to be renegotiated to make a number of these viable in
the current economic environment.
Asset Management Projects
During 2023, we exchanged on five new asset management
projects, eight lease regears and four new lettings. These
initiatives will increase rental income by £0.3 million investing
£5.2 million and extending the leases back to 15 years.
PHP continues to work closely with its occupiers and has a
pipeline of 23 similar asset management projects which are
currently in legal due diligence and are being progressed to further
increase rental income and extend unexpired occupational lease
terms. The immediate asset management pipeline will require the
investment of approximately £19.3 million, generating an additional
£0.8 million of rental income and extending the WAULT on those
premises back to an average of 20 years. Additionally, we continue
to progress an advanced pipeline of further asset management
initiatives across 20 projects.
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 which 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 tobothearnings and capitalvalues.
Robust portfolio metrics
The portfolio’s annualised contracted rent roll at 31 December
2023 was £150.8 million (2022: £145.3 million), an increase
of £5.5 million or +3.8% (2022: £4.6 million or +3.3%) in the
year driven predominantly by organic rent reviews and asset
management projects of £4.3 million (2022: £3.3 million).
Acquisitions added a further £1.6 million (2022: £1.1 million,
net of disposals) partially offset by £0.4 million loss of income
arising mainly from three lease surrenders, several lease
expiries and foreign exchange movements on our portfolio
in Ireland. The leases surrendered during the year are part
of future asset management initiatives and we expect to
complete the reletting of the space during 2024.
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% (2022: 89%) 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
99.3% (2022: 99.7%).
Rental collections: These continue to remain robust and as
at 26 February 2024 97% had been collected in both the UK
and Ireland for the first quarter of 2024. This is in line with
collection rates experienced in both 2023 and 2022 which now
stand at over 99% for both countries. The balance of rent due
for the first quarter of 2024 is expected to be received shortly.
Longevity: The portfolio’s WAULT at 31 December 2023 was
10.2 years (31 December 2022: 11.0 years). £17.1 million or 11.3%
of our income is currently holding over or expires over the next
three years, of which c. 70% is either subject to a planned
asset management initiative or terms have been agreed to
renew the lease. £64.3 million or 42.7% expires in over ten
years. The table below sets out the current lease expiry profile
of our income:
Income subject to expiry £m %
Holding over 4.1 2.7
<3 years 13.0 8.6
4–5 years 17.0 11.3
5–10 years 52.4 34.7
10–15 years 30.1 20.0
15–20 years 22.5 14.9
>20 years 11.7 7.8
Total 150.8 100.0
As the 31 December 2023, 45 leases or £4.1 million of
income(2022: 17 leases / £0.9 million) was holding over.
Allthese leases are expected to renew but are subject
to NHSapproval which continues to suffer from delays as
ICBs finalise their future estate strategies together with
the requirement for new rents to be approved by the DV.
Wecontinue to maintain a close relationship with all parties
concerned and receive NHS rent reimbursement in a timely
manner. If all the currently agreed transactions completed,
thenthe WAULT on the portfolio would increase to 10.6 years
(31 December 2023: 10.2years).
24 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
Valuation and returns
At 31 December 2023, the Group’s portfolio comprised
514(31December 2022: 513) assets independently valued
at £2.779 billion (31 December 2022: £2.796 billion). After
allowing for acquisition costs and capital expenditure on
developments and asset management projects, the portfolio
generated a valuation deficit of £53.0 million or -1.9% (2022:
deficit of £61.5million net of profit on sales).
The valuation deficit of £53.0 million in the year was driven
primarily by a loss arising from yield expansion of approximately
£128 million partially offset by gains of approximately £75 million
arising from an improving rental growth outlook and asset
management projects.
During the year the Group’s portfolio NIY has expanded
by 23bps to 5.05% (31 December 2022: 4.82%) and the
reversionary yield increased to 5.4% at 31 December 2023
(31December 2022: 5.2%)
At 31 December 2023, the portfolio in Ireland comprised
21 standing and fully let properties with no developments
currently on site, valued at £244.6 million or €282.2 million
(31December 2022: 20 assets/£230.9 million or €260.8 million).
At 31 December 2023, the portfolio in Ireland has beenvalued
at a NIY of 5.4% (31 December 2022: 5.2%).
Despite the fall in values during the year the portfolio’s average
lot size remained unchanged at £5.4 million (31 December 2022:
£5.4 million) and 87.1% 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 58 892.1 32.1 15.4
£5m–£10m 128 875.7 31.5 6.8
£3m–£5m 163 650.9 23.5 4.0
£1m–£3m 160 353.0 12.7 2.2
<£1m
(including
land £1.3m) 5 4.6 0.2 0.7
Total
1
514 2,776.3 100.0 5.4
1 Excludes the £3.0 million impact of IFRS 16 Leases with ground rents
recognised as finance leases.
The valuation deficit combined with the portfolio’s growing
income, resulted in a total property return of +3.5% for the year
(2022: +2.8%). The total property return in the year compares
with the MSCI UK Monthly Property Index of -0.5% for 2023
(2022: -10.4%).
Year ended
31 December 2023
Year ended
31 December 2022
Income return 5.3% 5.0%
Capital return (1.8%) (2.2%)
Total return 3.5% 2.8%
Harry Hyman
Chief Executive Officer
27 February 2024
25Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
Financial review
Organic rental growth and effective
cost management drive earnings to
maintain a fully covered dividend
PHP’s adjusted earnings increased by £2.0 million or 2.3% to
£90.7 million in 2023 (2022: £88.7 million). The increase in the
year reflects the continued positive organic rental growth from
rent reviews and asset management projects in both 2023 and
2022 together with the contribution from Axis, partially offset
by increased interest costs on the Group’s variable rate debt
and additional administrative costs.
On 20 January 2023, the Group completed the acquisition of
Axis which contributed £1.1 million net of overheads, trading in
line with expectations during the year.
Using the weighted average number of shares in issue in the
year the adjusted earnings per share increased to 6.8 pence
(2022: 6.6 pence), an increase of 3.0% (2022: +6.5%).
“ PHP’s adjusted earnings increased by
£2.0 million or 2.3% to £90.7 million in
2023 (2022: £88.7 million), reflecting
the continued positive organic rental
growth together with the contribution
from Axis partially offset by increased
interest costs.“
Richard Howell
Chief Financial Officer
26 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
Summarised results
The financial results for the Group are summarised as follows:
Year ended
31 December
2023
£m
Year ended
31 December
2022
£m
Net rental income 149.3 141.5
Axis contribution net of overheads 1.1 —
Administrative expenses (11.6) (9.6)
Operating profit before revaluation and net financing costs 138.8 131.9
Net financing costs (48.1) (43.2)
Adjusted earnings 90.7 88.7
Revaluation deficit on property portfolio and profit on sales (53.0) (61.5)
Fair value (loss)/gain on interest rate derivatives and convertible bond (13.2) 26.8
Amortisation of MedicX debt MtM at acquisition 3.0 2.9
Axis amortisation of intangible asset (0.9) —
Axis acquisition and JSE listing costs (0.5) —
IFRS profit before tax 26.1 56.9
Corporation tax (0.1) 0.2
Deferred tax provision 1.3 (0.8)
IFRS profit after tax 27.3 56.3
Adjusted earnings increased by £2.0 million or 2.3% (2022: £5.5 million / 6.6%) in 2023 to £90.7 million (2022: £88.7 million) and
the movement in the year can be summarised as follows:
Year ended
31 December
2023
£m
Year ended
31 December
2022
£m
Year ended 31 December 88.7 83.2
Net rental income 7.8 4.8
Axis contribution net of overheads 1.1 —
Administrative expenses (2.0) 0.9
Net financing costs (4.9) (0.2)
Year ended 31 December 90.7 88.7
Net rental income received in 2023 increased by 5.5% or £7.8 million to £149.3 million (2022: £141.5 million) reflecting £4.6 million
of additional income from completed rent reviews and asset management projects including the impact of rent reviews back
dated to the original date of review, £2.5 million from the impact of acquisitions, disposals and developments completed in 2023
and 2022 and a £0.7 million reduction in non-recoverable property costs.
Notwithstanding the acquisition of Axis at the start of the year administration expenses continue to be tightly controlled and the
Group’s EPRA cost ratio remains one of the lowest in the sector at 10.7% (2022: 9.9%).
27Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
Financial review continued
Summarised results continued
The £2.0 million increase in administration costs in the year is due mainly to a £1.1 million increase in the provision for
performance-related pay and the cost of a voluntary redundancy programme completed in the year, together with the
impactofaone-off benefit in 2022 arising from end of the historic performance incentive fee arrangements of £0.6 million.
EPRA cost ratio
Year ended
31 December
2023
£m
Year ended
31 December
2022
£m
Gross rent less ground rent, service charge and other income 155.8 147.0
Direct property expense 18.2 12.6
Less: service charge costs recovered (13.3) (7.0)
Non-recoverable property costs 4.9 5.6
Administrative expenses 11.6 9.6
Axis overheads and costs 0.8 —
Less: ground rent (0.2) (0.2)
Less: other operating income (0.5) (0.4)
EPRA costs (including direct vacancy costs) 16.6 14.6
EPRA cost ratio 10.7% 9.9%
EPRA cost ratio excluding Axis overheads and direct vacancy costs 10.1% 9.9%
Total expense ratio (administrative expenses as a percentage of gross asset value) 0.4% 0.3%
Net finance costs in the year increased by £4.9 million to £48.1 million (2022: £43.2 million) because of a £45.4 million increase in
the Group’s net debt during 2023, the impact of increased interest rates on the Group’s unhedged debt and the loss of interest
receivable on forward funded developments which completed in 2022, now income producing and accounted for as rent.
Shareholder value and total accounting return
The Adjusted Net Tangible Assets (“NTA”) per share declined by 4.6 pence or -4.1% to 108.0 pence (31 December 2022: 112.6 pence
per share) during the year with the revaluation deficit of £53.0 million or -4.0 pence per share and cost of the Axis acquisition of
£7.3million (€8.2 million) or 0.5 pence per share being the main reason for the decrease.
The total adjusted NTA (NAV) return per share, including dividends distributed, in the year was 2.1 pence or 1.9% (2022: 2.4 pence
or2.1%).
The table below sets out the movements in the Adjusted NTA and EPRA Net Disposal Value (“NDV”) per share over the year
underreview.
Adjusted Net Tangible Assets (“NTA”) per share
31 December
2023 pence
per share
31 December
2022 pence
per share
Opening Adjusted NTA per share 112.6 116.7
Adjusted earnings for the year 6.8 6.6
Dividends paid (6.7) (6.5)
Revaluation of property portfolio and profit on sales (4.0) (4.6)
Axis acquisition cost (0.5) —
Shares issued — 0.1
Foreign exchange and other movements (0.2) 0.3
Closing Adjusted NTA per share 108.0 112.6
Fixed rate debt and derivative mark-to-market value 8.2 8.7
Convertible bond fair value adjustment (0.4) 2.1
Deferred tax 0.1 (0.1)
Intangible assets 0.5 —
Closing EPRA NDV per share 116.4 123.3
28 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
Financing
In December 2023, the Group added to its existing euro private placement loan notes by issuing a further €47.8 million (£41.4 million)
secured on a portfolio of six Irish assets for a ten-year term at a fixed rate of 4.195%. The new loan notes further increase the
headroom on the Group’s undrawn loan facilities with the proceeds used to repay more expensive variable rate debt drawn on
theGroup’s revolving credit facilities which are available to be redrawn in the future.
During the year the Group also exercised options to extend the maturities by one year to 2026 on a number of its shorter dated
revolving credit facilities with Barclays (£100 million), NatWest (£100 million) and HSBC (£100 million).
As at 31 December 2023, total available loan facilities were £1,642.5 million (31 December 2022: £1,607.0 million) of which
£1,309.9million (31 December 2022: £1,290.4 million) had been drawn. Cash balances of £3.2 million (31 December 2022: £29.1 million)
resulted in Group net debt of £1,306.7 million (31 December 2022: £1,261.3 million). Contracted capital commitments at the
balance sheet date totalled £14.6 million (31 December 2022: £19.8 million) and resulted in headroom available to the Group
of£321.2 million (31December 2022: £325.9 million).
Capital commitments at the year-end comprise costs to complete development and asset management projects on site of £5.4 million
and £7.1 million respectively together with the deferred consideration on the acquisition of Axis of £2.1 million (€2.5 million).
The Group’s key debt metrics are summarised in the table below:
Debt metrics
31 December
2023
31 December
2022
Average cost of debt – drawn 3.3% 3.2%
Average cost of debt – fully drawn 4.1% 3.5%
Loan to value 47.0% 45.1%
Loan to value – excluding convertible bond 41.6% 39.7%
Total net debt fixed or hedged 97.2% 93.7%
Net rental income to net interest cover 3.1 times 3.3 times
Net debt/EBITDA 9.4 times 9.6 times
Weighted average debt maturity – drawn facilities 6.6 years 7.3 years
Weighted average debt maturity – all facilities 5.7 years 6.4 years
Total drawn secured debt £1,159.9m £1,140.4m
Total drawn unsecured debt £150.0m £150.0m
Total undrawn facilities and available to the Group
1
£321.2m £325.9m
Unfettered assets £37.0m £86.7m
1 After deducting capital commitments.
Average cost of debt
The Group’s average cost of debt has only increased by 10 bps to 3.3% (31 December 2022: 3.2%) notwithstanding the rapid
increases in 3-month SONIA and Euribor interest rates experienced during 2023 reflecting the protection from the additional
hedging and euro denominated debt issued in the year.
Interest rate exposure
The analysis of the Group’s exposure to interest rate risk in its debt portfolio as at 31 December 2023 is as follows:
Facilities Net debt drawn
£m % £m %
Fixed rate debt 1,117.5 68.0 1,117.5 85.5
Hedged by fixed rate interest rate swaps 100.0 6.1 100.0 7.7
Hedged by fixed to floating rate interest rate swaps (200.0) (12.2) (200.0) (15.3)
Total fixed rate debt 1,017.5 61.9 1,017.5 77.9
Hedged by interest rate caps 252.0 15.4 252.0 19.3
Floating rate debt – unhedged 373.0 22.7 37.2 2.8
Total 1,642.5 100.0 1,306.7 100.0
29Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
Financial review continued
Interest rate swap contracts
In April 2023, the Group converted €60.0 million (£52.0 million)
of sterling equivalent denominated debt into euros across its
various revolving credit facilities to cover a small unhedged
euro denominated balance sheet exposure which had arisen
primarily because of historic valuation gains and retained
earnings arising from our portfolio in Ireland. As part of the
transaction the Group took advantage of cheaper euro
denominated interest rates and purchased 2.0% caps on
€60million nominal value for a period of 2.5 years for an all-in
premium of £1.9 million (€2.2 million). This transaction along
with the euro private placement loan notes issued in December
2023 increased the proportion of net debt that is fixed or
hedged to 97.2% (31 December 2022: 93.7%).
Accounting standards require PHP to mark its interest rate
swaps to market at each balance sheet date. During the year
there was a loss of £4.3 million (2022: gain of £2.7 million) on
the fair value movement of the Group’s interest rate derivatives
due primarily to decreases in interest rates assumed in the
forward yield curves used to value the interest rate swaps
andthe impact of the passage of time, offset by €60 million
(£52.0 million) caps purchased in the year for £1.9 million
(€2.2million). The net mark-to-market (“MtM”) of the swap
portfolio is an asset value of £4.7 million (31 December 2022:
net MtM asset £7.1 million).
Currency exposure
The Group owns €282.2 million or £244.6 million (31 December
2022: €260.8 million / £230.9 million) of euro denominated assets
in Ireland as at 31 December 2023 and the value of these assets
and rental income represented 9% (31 December 2022: 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 2023 the Group
had €281.0 million (31December 2022: €196.0 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 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
2023 was an asset of £106.2 million (31 December 2022: asset
£141.3million) equivalent to 7.9 pence per share (31 December
2022: asset of 10.6 pence). The movement in the year is due
primarily to the significant increases in interest rates assumed in
the forward yield curves used to value the debt at the year-end.
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, unsecured
convertible bonds with a nominal value of £150 million and
a fixed coupon of 2.875% per annum. Subject to certain
conditions, the bonds are convertible into fully paid Ordinary
Shares of the Company and the initial exchange price was
set at 153.25 pence per Ordinary Share. The exchange price
is subject to adjustment, in accordance with the dividend
protection provisions in the terms of issue if dividends paid
pershare exceed 2.8 pence per annum. In accordance with
those provisions the exchange price has been adjusted to
131.72 pence per Ordinary Share as at 31 December 2023.
The conversion of the £150 million convertible bonds into
newOrdinary Shares would reduce the Group’s loan to value
ratio by 5.4% from 47.0% to 41.6% and result in the issue of
113.9 million new Ordinary Shares
Richard Howell
Chief Financial Officer
27 February 2024
30 Primary Health Properties PLC Annual Report 2023
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Strategic report Governance Financial statements Shareholder information
31Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
32 Primary Health Properties PLC Annual Report 2023
EPRA performance measures
Providing transparent
information
Adjusted earnings per share
∆
6.8 pence, up 3.0% (2022: 6.6 pence).
Definition
Adjusted earnings is EPRA earnings excluding the MtM
adjustments for fixed rate debt acquired with the merger
withMedicX 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 8 to the financial statements.
EPRA earnings per share
∆
7.0 pence, up 1.4% (2022: 6.9 pence).
Definition
EPRA earnings is the profit after taxation excluding investment
and development property revaluations, gains or losses on
disposals, changes in the fair value of financial instruments
and associated close-out costs and their related taxation and
one-off exceptional 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 8 to the financial statements.
EPRA NTA per share
∆
105.8 pence, down 4.0% (2022: 110.2 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
sheetdate.
Purpose
Makes adjustments to IFRS net assets to provide stakeholders
with themost relevant information on thefair value of the
assets and liabilities within a true real estate investment
company with a long term investment strategy.
Calculation
See Note 8 to the financial statements.
Adjusted Net Tangible Assets (“NTA”) per share
∆
108.0 pence, down 4.1% (2022:112.6pence).
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 thefairvalue of the
assets and liabilities within a true realestate investment
company with a long term investment strategy.
Calculation
See Note 8 to the financial statements.
Strategic report Governance Financial statements Shareholder information
33Primary Health Properties PLC Annual Report 2023
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
andcorporate governance and toprovide transparent and
comparable information to investors.
We use EPRA and adjusted measures to illustrate PHP’s
underlying recurring performance and to enable stakeholders
to benchmark the Group againstother property investment
companies. Setoutbelow is a description of each measure and
how PHPperformed.
EPRA net initial yield
∆
5.05%, increase of 23bps (2022: 4.82%).
Definition
Annualised rental income based on the cash rents passing
atthe 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
2023 2022
£m £m
Investment property (excluding
those under construction) 2,778.4 2,793.9
Estimated purchaser’s costs and
capital commitments 190.2 198.9
Grossed-up completed property
portfolio valuation (B) 2,968.6 2,992.8
Annualised passing rental income 150.8 145.0
Property outgoings (1.0) (0.8)
Annualised net rents (A) 149.8 144.2
EPRA net initial yield (A/B)* 5.05% 4.82%
EPRA vacancy rate
∆
0.7%, increase of 40bp (2022: 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 measure of investment property space that isvacant, based
on ERV.
Calculation
2023 2022
£m £m
ERV of vacant space 1.1 0.4
ERV of completed property
portfolio 150.8 145.3
EPRA vacancy rate 0.7% 0.3%
EPRA cost ratio
∆
10.7%, up 80bps (2022:9.9%) (including direct vacancy cost).
10.5%, up 60bps (2022:9.9%) (excluding direct vacancy cost).
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 orother income specifically
intended to cover overhead and property expenses. The Group
has direct vacancy costs of £0.3 million that have been deducted.
Purpose
A key measure to enable meaningful measurement
ofthechanges in a company’s operating costs.
Calculation
See page 28, Financial Review.
∆ Alternative performance measures (“APMs”): Measures with this symbol ∆ are
APMs defined in the Glossary section on pages 190 to 192, 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
∆
47.0%, increase of 110bps (2022: 45.9%).
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
2023 2022
£m £m
Net debt (see page 29) 1,306.7 1,282.3
Total property value 2,779.3 2,796.3
EPRA LTV 47.0% 45.9%
Strategic report Governance Financial statements Shareholder information
34 Primary Health Properties PLC Annual Report 2023
Responsible business
HIGHLIGHTS 2023
NET ZERO CARBON FRAMEWORK
Our net zero targets relate to the emissions from our direct operations, embodied carbon from new build and refurbishment
projects and our tenants emissions from their use of our buildings. Purchased goods and services are not yet included in our
targets as this is a new source of emissions being measured for PHP. However, we will consider a suitable target over time.
By 2023 – operations net zero
• Reduce emissions from offices, transport and assets where
weprocure energy for tenants
• We are now procuring 97% renewable energy where PHP
controls supplies
• We are offsetting residual emissions using high quality nature
based carbon offset projects
By 2025 – all new developments net zero
• Continually reduce energy use intensity of new buildings
andensure 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 – net zero asset management and EPC B
• Across the portfolio all properties to have an EPC rating
ofBorbetter, where economically feasible
• Achieve reductions in energy use intensity (kWh/m
2
)
throughasset management projects and electrify buildings
where feasible, as part of net zero operational assets
• Measure, target reductions and offset residual embodied carbon
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
andrefurbishment
• 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
Development
Net zero project at
Croft on site, due to
complete in Q3 2024
Investment
Acquired Ballincollig,
Ireland, an all electric
enhanced community
care facility built to
nZEB and BER A3
Asset management
First all-electric heat
pump project on
site and embodied
carbon NZC projects
areunderway
Tenants and
operations
Achieved Toitu Carbon
Reduce certification
and purchased 100%
renewable energy
Projects
Solar PV roll-out
underway. Targeted
EPC reassessments
generate significant
improvements
Towards net zero
PHP is committed to transitioning to net zero carbon (“NZC”) across its
operations and property portfolio. Our framework focuses on 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.
Strategic report Governance Financial statements Shareholder information
35Primary Health Properties PLC Annual Report 2023
Responsible business
and ESG review
Premises, Health and People: investing in the health
and wellbeing of our communities.
Laure Duhot
Chair of the ESG Committee
Dear shareholder,
I am pleased to present my fourth report as Chair
ofthePHP 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
followingpages ofthisreport.
Despite the challenging economic climate, we have continued
to drive forward our ESG agenda, building on the work of
previous years. Our first net zero development at Croft,
West Sussex, is progressing well and due to complete in Q3
2024. We have made further progress to deliver our Net Zero
Carbon Framework, in particular with continued investment
into our portfolio via asset management, improving energy and
carbon performance, driving rental growth and creating more
sustainable healthcare infrastructure for thefuture.
The ESG Committee has overseen the further development
of our work on energy and carbon reduction and I am pleased
that in the first half of the year we achieved certification to
Toitu Carbon Reduce and ISO 14064, which demonstrates our
robust approach to carbon measurement and reduction. As
part of this we continue to improve our understanding of the
energy performance of the wider portfolio and have entered
into partnership with ARBNCO to move towards 100% data
coverage and to enable engagement with tenants to help
themimprove their performance.
Following our extensive work on climate risks and scenario
analysis in 2022, we have produced our third TCFD disclosure,
which is set out on pages 52 to 58.
PHP’s Community Impact Fund is now in its third year and
we have continued to work with our partner UK Community
Foundations to support social prescribing activities linked
toour portfolio and to review the impact these are having.
Our third round of grant award was again oversubscribed with
high quality applications and a broad spectrum of initiatives
proposed. We have also extended our programme to link with
our asset management projects, working with tenants to
provide support to their chosen local initiatives.
We continue to engage with and support our employees,
launching a mentoring scheme and focusing on professional
and personal development.
I trust you find this report of the Committee helpful and
informative. I would be delighted to receive any feedback
orcomments you may have on our approach.
Laure Duhot
Chair of the ESG Committee
27 February 2024
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 2 (3)
Jesse Putzel 3 (3)
David Bateman 3 (3)
David Austin (appointed 5 December 2023) 1 (1)
Bracketed numbers indicate the number of meetings the member
was eligible to attend in 2023. The Company Secretary acts as
the secretary to the Committee and attends all the meetings.
Strategic report Governance Financial statements Shareholder information
36 Primary Health Properties PLC Annual Report 2023
Our approach
PHP’s approach is based around its core activities of investment,asset
and property management, development as well it’s corporate activities.
PHP supports and links its strategy to the UN Sustainable Development Goals (“SDGs”), focusing on the most relevant SDGs
where it 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 (available on our website). These are:
OUR APPROACH PERFORMANCE AGAINST OUR COMMITMENTS
Approach Purpose Aims Focus Commitments and targets Progress 2023 Focus areas 2024
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 thelong term.
Reducing risk by building purpose-built new developments and making qualityacquisitions.
Working with occupiers to improve the energy efficiency of our properties andintegrate 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
certifiedbuildings.
Improving portfolio EPC ratings.
Increasing visibility of energy
performance across the portfolio.
Delivering on our net zero
carboncommitments.
Our NZC development at Croft is making good progress
and we are due to start our second project at South Kilburn
inLondon.
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 42% A–B ratings and 85%A–C,
by value.
We have energy data points for 75% of floor area (improved
from 60% in 2022). We are now partnering with ARBNCO to
get to 100% and improve data quality.
We have measured embodied carbon for two NZC asset
management trial projects, confirming good performance
already and reductions that can be targeted for new
projects. We also expanded our carbon measurement to
include our supply chain and gained Toitu Carbon Reduce
certification for our Scope 1, 2 and 3 emissions.
97% of PHP procured electricity is now from renewable
sources and we are moving forward with additional solar
roll-out in partnership with Atrato Onsite Energy.
Continue to focus on improving EPC ratings to B
and deliver net zero ready refurbished buildings
viaour asset management programme.
Measure embodied carbon from our asset
management projects to understand our
performance and set targets as part of our
NZCcommitments.
Work with expert partners to carry out net zero
audits for buildings to inform our approach
and align with the NHS Net Zero Carbon
Buildingsstandard.
Roll-out our partnership with ARBNCO to collect
100% of energy data, enabling tenant engagement
and performance improvement.
Continue to work on wider roll-out of solar to
existing buildings where PHP and tenants control
energy supplies.
Keep under review targets for energy use intensity
and embodied carbon and submit our corporate
targets for approval by the Science Based
Targetsinitiative.
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 CarbonFramework.
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 ouroccupiers. 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
cangenerate.
We concluded a third programme of grant giving with a total
of £137,000 awarded to organisations delivering innovative
social prescribing services for communities surrounding our
buildings and other charities and groups.
We trialled grant giving as part of asset
managementprojects awarding two grants totalling £20,000
to charitable organisations within the local community and
will continue in 2024.
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
socialvalue.
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 agood
place towork.
Ensuring effective investment in the professional development of the Group’semployees.
Maintaining a culture of empowerment, inclusion, development, openness andteamwork
forourpeople.
Continuing to promote PHP’s
cultureand commitment to high levels
of ethics and a workplace culture of
inclusion, diversity andequal opportunity.
Conducting an independent annual
staff survey to inform and monitor
continued improvement.
We increased our efforts to guard against modern slavery
in our supply chain, engaging with all our supply partners,
conducting third-party audits on two sites and evaluating
oursolar PV supply chain to ensure ethical products are
being procured.
We conducted a confidential staff survey and fed back to
employees on issues raised. General sentiment was positive.
We provided enhanced benefits to staff, implemented
a mentoring programme and continued to promote
volunteering opportunities, with 16% of staff taking up
theoption, totalling 19 days of volunteering.
Continue to engage our supply chain on ethical
labour and sourcing and make use of targeted
audits as part of our due diligence process.
Roll-out a response protocol to our development
and refurbishment projects to better deal with
anyinstances of unethical treatment identified.
Continue to support staff with individual training
and development plans.
Work towards achieving Investors in
Peopleaccreditation.
Continue to survey staff to ascertain levels of
employee satisfaction and implement targeted
action plan for identified 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
Strategic report Governance Financial statements Shareholder information
37Primary Health Properties PLC Annual Report 2023
OUR APPROACH PERFORMANCE AGAINST OUR COMMITMENTS
Approach Purpose Aims Focus Commitments and targets Progress 2023 Focus areas 2024
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 thelong term.
Reducing risk by building purpose-built new developments and making qualityacquisitions.
Working with occupiers to improve the energy efficiency of our properties andintegrate 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
certifiedbuildings.
Improving portfolio EPC ratings.
Increasing visibility of energy
performance across the portfolio.
Delivering on our net zero
carboncommitments.
Our NZC development at Croft is making good progress
and we are due to start our second project at South Kilburn
inLondon.
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 42% A–B ratings and 85%A–C,
by value.
We have energy data points for 75% of floor area (improved
from 60% in 2022). We are now partnering with ARBNCO to
get to 100% and improve data quality.
We have measured embodied carbon for two NZC asset
management trial projects, confirming good performance
already and reductions that can be targeted for new
projects. We also expanded our carbon measurement to
include our supply chain and gained Toitu Carbon Reduce
certification for our Scope 1, 2 and 3 emissions.
97% of PHP procured electricity is now from renewable
sources and we are moving forward with additional solar
roll-out in partnership with Atrato Onsite Energy.
Continue to focus on improving EPC ratings to B
and deliver net zero ready refurbished buildings
viaour asset management programme.
Measure embodied carbon from our asset
management projects to understand our
performance and set targets as part of our
NZCcommitments.
Work with expert partners to carry out net zero
audits for buildings to inform our approach
and align with the NHS Net Zero Carbon
Buildingsstandard.
Roll-out our partnership with ARBNCO to collect
100% of energy data, enabling tenant engagement
and performance improvement.
Continue to work on wider roll-out of solar to
existing buildings where PHP and tenants control
energy supplies.
Keep under review targets for energy use intensity
and embodied carbon and submit our corporate
targets for approval by the Science Based
Targetsinitiative.
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 CarbonFramework.
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 ouroccupiers. 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
cangenerate.
We concluded a third programme of grant giving with a total
of £137,000 awarded to organisations delivering innovative
social prescribing services for communities surrounding our
buildings and other charities and groups.
We trialled grant giving as part of asset
managementprojects awarding two grants totalling £20,000
to charitable organisations within the local community and
will continue in 2024.
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
socialvalue.
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 agood
place towork.
Ensuring effective investment in the professional development of the Group’semployees.
Maintaining a culture of empowerment, inclusion, development, openness andteamwork
forourpeople.
Continuing to promote PHP’s
cultureand commitment to high levels
of ethics and a workplace culture of
inclusion, diversity andequal opportunity.
Conducting an independent annual
staff survey to inform and monitor
continued improvement.
We increased our efforts to guard against modern slavery
in our supply chain, engaging with all our supply partners,
conducting third-party audits on two sites and evaluating
oursolar PV supply chain to ensure ethical products are
being procured.
We conducted a confidential staff survey and fed back to
employees on issues raised. General sentiment was positive.
We provided enhanced benefits to staff, implemented
a mentoring programme and continued to promote
volunteering opportunities, with 16% of staff taking up
theoption, totalling 19 days of volunteering.
Continue to engage our supply chain on ethical
labour and sourcing and make use of targeted
audits as part of our due diligence process.
Roll-out a response protocol to our development
and refurbishment projects to better deal with
anyinstances of unethical treatment identified.
Continue to support staff with individual training
and development plans.
Work towards achieving Investors in
Peopleaccreditation.
Continue to survey staff to ascertain levels of
employee satisfaction and implement targeted
action plan for identified 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.
Strategic report Governance Financial statements Shareholder information
38 Primary Health Properties PLC Annual Report 2023
Responsible business continued
BALLINCOLLIG ENHANCED COMMUNITY CARE
(“ECC”) FACILITY, CORK, IRELAND:
• BER A3 and nZEB standards
• BREEAM Very Good and resource efficient
• Net zero in operation ready, with air sourced
heating and solar PV
In 2023 PHP successfully acquired Ireland’s first Enhanced
Community Care (“ECC”) facility at Ballincollig, near Cork,
Ireland. This first of its kind facility is a result of the Irish
Governments drive to enhance and increase community-
based health services and reduce pressure on hospital
services in Ireland.
The building will provide a variety of services primarily to
support elderly care and those suffering from a variety
of chronic diseases including cardio, respiratory and
endocrine issues.
To deliver the new facility, an existing, disused commercial
office development was re-purposed and redesigned,
meaning far fewer new resources and materials were
required. The building is designed to nZEB, is all electric
with no fossil fuels on site and benefits from 30% of it’s
energy requirements being met from onsite renewable
energy (air source heat pumps and solar PV).
The building is also BREEAM Very Good certified. As part
of the development, some significant biodiversity and
ecological enhancements have been made, including the
creation of a new woodland and biodiversity corridor.
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 2023, the Group owned 514properties
valued at £2.8 billion which are located across the UK
andIreland.
Responsible business reflects PHP’s strong commitment to
ESG matters and addresses the key areas of ESG that are
embedded into our investment and development, asset
and property management 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 and to deliver against the aims of the NHS Net Zero
Carbon Buildings Standard published in February 2023. PHP’s
Net Zero Carbon Framework sets out our plan to transition
the Company’s portfolio to net zero by 2040, ahead of the
NHS and UK and Irish Governments’ net zero target dates. PHP
will continue to proactively engage and work with our various
healthcare occupiers to help them achieve this also.
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.
Strategic report Governance Financial statements Shareholder information
39Primary Health Properties PLC Annual Report 2023
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 pages 52 to 58).
During 2023 we continued applying our net zero and
ESGcommitments to investment activities, engaging with
developers and asset owners to challenge standards and
leverage our influence. Our acquisition of Ireland’s first
Enhanced Community Care facility demonstrates this. The
building is ready to operate with net zero emissions and
was created from a vacant office building, minimising use of
resources to deliver a first of its kind care facility for Ireland.
All acquisitions completed in the year had an EPC of B
orbetter.
RESPONSIBLE DEVELOPMENT
Key commitments: All new developments to be NZC
by2025, BREEAM Excellent and Very Good for fit-outs
inthe UK, and nearly nZEB and BER A3 in Ireland.
PHP, together with its development partners, is committed to
promoting the highest possible standards of environmental and
social sustainability when designing and constructing new assets.
Our Sustainable Development and Refurbishment policy
outlines our minimum requirements for BREEAM Excellent
and a range of environmental issues, including energy and
carbon, waste and resources, biodiversity, climate adaptation
and health and wellbeing. Our development partners are also
required to work to the same standards.
We aim to develop new buildings to be net zero carbon in
construction (minimising embodied carbon and offsetting
residual emissions) and ready to operate with net zero
emissions. All developments aim to be fossil fuel free and
we are working towards setting specific energy intensity
benchmarks and targets.
Construction of PHP’s first NZC development at Croft,
WestSussex, is progressing well and is due to reach practical
completion in Q3 2024. Embodied carbon is being measured to
practical completion with our contractor.
CROFT, WEST SUSSEX CASE STUDY:
• PHP’s first net zero carbon development on site
• On-track to achieve BREEAM Excellent
The 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 brownfield land and due
to achieve practical completion in Q3 2024. 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 highly sustainable way, with materials from
certified responsible sources, low carbon products, low
waste and water and enhanced ecology on site. During
construction, PHP has also carried out ethical labour audits
and engaged with the main contractor to raise awareness
of modern slavery risks.
1. Premises – Built environment
While the current economic climate has delayed a number
offuture projects in our pipeline, we are continuing to work
ona number of future net zero developments across the UK
and Ireland.
Strategic report Governance Financial statements Shareholder information
40 Primary Health Properties PLC Annual Report 2023
discussed. During 2023 we have continued to review ways
to improve the performance of the portfolio outside of our
asset management programme. This includes 330 facilities
management plant and equipment replacements and upgrades,
include LED lighting, more efficient heating systems and
building management systems. We also supported tenants
to make their own building improvements, including energy
efficiency upgrades and solar PV installations.
To build on this, we are planning to roll-out larger solar PV
installations to sites where PHP procures energy for tenants
and following this, where tenants procure their own energy.
This approach offers the potential to reduce costs for tenants
in the long term as well as reducing carbon emissions. The first
two projects are underway to install 190 kWp of solar to two
properties in the UK.
Responsible business continued
RESPONSIBLE ASSET AND
PROPERTYMANAGEMENT
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 2023 we completed eight (2022: ten) asset management
refurbishment projects, with all achieving an EPC B rating.
This includes three projects where a significant improvement
was achieved from D and E. We have a further six (2022: ten)
refurbishment projects on site or committed, which include
energy efficiency upgrades, installation of roof-mounted solar
panels, air source heat pumps and thermal efficiency upgrades.
We have continued to use BREEAM for refurbishments but
several projects during the year could not be certified due
to their scope and size. We agreed 12 (2022: 33) new leases
during the year, with all including Green Lease clauses.
In addition, we carried out targeted reassessment of building
EPC ratings, to better reflect their current performance.
Combined with annual renewals, we now have 42% of
properties by value at an EPC rating of B or better (2022: 35%)
and 85% at A–C (2022: 81%).
Our first two net zero ready refurbishment projects have
progressed during the year:
• Long Stratton in Norfolk is on site and has been designed to
move away from gas to an air source heat pump.
• Wakefield Trinity will also make the switch from gas to an
air source heat pump and benefit from a significant solar
PV array.
We are assessing embodied carbon for both projects, and
are tracking this to practical completion. This will provide
benchmarks for target setting on future projects.
This work along with net zero audits of buildings in operation
will pave the way for future NZC asset management projects
as we aim to accelerate progress ahead of our current
2030commitment.
Working with our occupiers is essential to improving the
performance of buildings and during 2023 our property
management and facilities management teams engaged with
all of our tenants, carrying out over 1,000 (2022: over 1,000)
site visits at which issues, including energy and utilities, were
WINDERMERE HEALTH CENTRE CASE STUDY:
• EPC A rating from previous E rating
• Removal of all fossil fuels
• Improved thermal efficiency
Windermere Health Centre, which serves 5,000 people
locally, was originally built in the late 1970s and became
outdated, in need of modernisation and energy efficiency
improvements. PHP designed a refurbishment to bring the
building up to date and enable our tenants to operate it
with net zero carbon emissions.
The thermal efficiency of the building has been
significantly improved, with all previously single glazed
windows and doors being replaced with high efficiency
double glazing, the roof has been fully insulated to modern
building regulation levels and there is cavity wall insulation
throughout. In addition, the 40-year-old gas heating
system has been replaced with air sourced heat pumps
and all the lighting upgraded to high efficiency LEDs.
The above has resulted is a significant improvement in
the EPC rating which has improved from E to A and seen
a 90% reduction in the carbon emissions intensity rating
of the building. Following the removal of gas, electricity is
the main source of energy for the property and PHP has
procured this from 100% renewable sources.
The above initiatives result in significant improvements
to the energy efficiency of the building, with the tenants
able to operate it with net zero emissions, with improved
comfort levels and reduced energy costs.
In addition to the energy and carbon improvements, the
entire interior has been updated including new healthy and
sustainable Tarkett flooring throughout, new decoration,
additional ventilation to comply with latest health
guidelines and several improvements to accessibility,
including a new compliant reception desk.
Strategic report Governance Financial statements Shareholder information
41Primary Health Properties PLC Annual Report 2023
PROGRESS ON ENERGY AND
CARBONPERFORMANCE
As outlined above, during 2023 our investment, development,
asset and property management activities continued
to deliver against targets and to support our net zero
carboncommitments.
During 2023 we completed the transition of all building
electricity supplies procured by PHP to renewable energy
for all but one building. We also continued to offset residual
emissions using high quality nature based carbon offset
projects.
Our operational Scope 1, 2 and 3 emissions are provided on
pages 42 and 43 in our SECR disclosure.
At the start of 2023, we acquired Axis in Ireland and as such
its operations now form part of our emissions impact. We
are working with the team in Ireland to adopt PHP processes
and intend for its operations to form part of our net zero
commitments. We have carried out an assessment of its carbon
emissions and have included these within PHP’s activities.
We have continued to improve our methodology for estimating
whole portfolio emissions, and now have data points for 75%
of the portfolio by area (2022: 60%). This is not all live data
however. To move towards 100% coverage, better data quality
and in order to enable engagement with tenants to help
improve their performance, we are partnering with ARBNCO.
This will provide a direct route to access tenant data and a
reporting platform.
As part of our ongoing efforts to improve our approach, during
2023 we successfully became certified to Toitu Carbon Reduce
and ISO 14064 for carbon measurement and management.
As part of this process, our Scope 1, 2 and 3 emissions for
2022 gained limited assurance. We also enhanced our Scope
3 measurement, carrying out a screening of all 15 Greenhouse
Gas Protocol (“GHGP”) Scope 3 categories. Further detail
is provided on page 43. We will undergo recertification and
assurance of 2023 disclosures in March 2024.
Our most significant and consistent source of Scope 3
emissions is downstream leased assets (tenants’ use of our
buildings), as reported in 2022, where we aim to achieve net
zero by 2040. We are now tracking this year-on-year against
our outline net zero trajectory.
In addition to our asset management projects, during 2023
we carried out further building-level net zero audits and
assessments for two large assets in our portfolio, identifying
routes to reduce energy use intensity and electrification of
buildings. We will continue to assess buildings in this way to
inform our transition plan and trajectory.
FALCON MEDICAL CENTRE CASE STUDY:
• EPC B rating from previous D rating
• Hybrid gas/electric heating system
• Enhanced clinical capacity
The Falcon Medical Centre, Battersea serves over 9,000
patients in and around the Clapham Junction area of
London. The purpose-built medical centre was in need of
modernisation and energy efficiency improvements.
PHP designed and delivered a refurbishment to modernise
and enhance clinical capacity including the creation of a new
enhanced treatment suite. To minimise costs, environmental
impact, waste and resource use, existing elements were
retained and upgraded where possible. The existing gas
boiler, installed by the tenants, was new and efficient so was
retained. However, several interventions have been made to
minimise the future use of gas and enable a transition away
from it at a later date.
The existing but unused mechanical ventilation with heat
recovery was recommissioned and upgraded and new heat
recovery ventilation installed to other areas of the building.
High efficiency comfort cooling units with air source heat
pumps also installed in larger rooms (waiting area, reception
and main administration office) providing a hybrid system
for heating and cooling. The existing radiators to all clinical
areas were replaced with low surface temperature models
with localised controls. All external windows and external
doors have been replaced with high efficiency double
glazed units, improving the thermal efficiency of the building
and the lighting replaced with high efficiency LED, with
smartcontrols.
The result was a new EPC rating of B improved from the
previous D, a reduction of 80% in the EPC emissions rate
(kgCO
2
/m
2
) and 74% reduction in primary energy use
intensity (kWh/m
2
).
In addition, all floor finishes were replaced with sustainable
and resilient flooring and all parts of the interior redecorated.
During construction, the contractor minimised waste and
diverted 100% of any waste generated away from landfill to
be recycled.
Strategic report Governance Financial statements Shareholder information
42 Primary Health Properties PLC Annual Report 2023
Responsible business continued
PROGRESS ON ENERGY AND
CARBONPERFORMANCE CONTINUED
SECR disclosures
PHP measures its emissions in line with the GHGP and takes
an operational control approach. Emissions are based on
verified data currently reviewed by a third party, Inenco, and
assured by Achilles via the Toitu Carbon Reduce certification
programme (2022 emissions limited assured, 2023 pending
limited assurance following audit in March 2024).
Our emissions are calculated using activity data, i.e. metered
energy use, with minimal estimates used, e.g. for 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 or procured
by tenants. In January 2023, PHP acquired Axis, an Irish
property and facilities management business. Consequently
we have now included emissions that relate to Axis’ operations
arising from its one office in Cork, as well as their delivery of
services to clients.
PHP’s direct operations result in very limited greenhouse gas
emissions. The table below shows our operational Scope 1, 2
and 3 emissions. Scope 1 relates to gas used in in our London
office, business travel by car and diesel used in vans by Axis.
Scope 2 relates to grid electricity used at PHP and Axis offices.
Scope 3 relates to partial emissions from downstream leased
assets, for properties where PHP supplies energy to occupiers,
which they hold operational control over. We view these as
“operational Scope 3 emissions”.
We have reported Scope 3 emissions from tenant procured
energy separately along with purchased goods and services.
A detailed breakdown of portfolio emissions is provided in
our EPRA sustainability disclosure which is available on our
website. 100% of reported Scope 1, 2 and 3 emissions in the
year were based in the UK and Ireland.
Operational Scope 1, 2 and 3 emissions
2023 2022
Source tCO
2
e MWh tCO
2
e MWh
Scope 1
Business travel (car) 62.7 283 55.7 226
Diesel (vans) 18.8 79 — —
Gas (offices) 10.7 59 10.0 54
Scope 2
Electricity (offices) 15.7 75 9.9 51
Market based
1
— — 0.9 —
Total Scope 1 and 2 107.9 496 75.6 331
Market based
1
92.2 — 66.6 —
Operational Scope 3
Landlord supplied electricity 1,188 5,737 1,025 5,296
Market based
1
35 — 243
Landlord supplied gas 1,240 6,780 1,138 6,237
Total operational Scope 3 2,428 12,517 2,163 11,533
Market based
1
1,276 — 1,381 —
Total operational Scope 1, 2 and 3 2,536 13,013 2,239 11,864
Market based
1
1,368 — 1,448 —
Nature based carbon credits purchased (1,368) — (1,448) —
Net tCO
2
e — — — —
Intensity metrics
Scope 1 and 2 tCO
2
e per full time employee 1.3 — 1.0 —
Scope 1 and 2 tCO
2
e per £m revenue 0.6 — 0.4 —
Scope 3 kg CO
2
/m
2
, and kWh/m
2
14.8 76.2 13.8 73.7
Market based
1
7.8 — 8.8 —
1 Market-based reporting reflects the emissions from the electricity being
purchased, whereas location based uses national grid average emissions for
the reportingyear.
Strategic report Governance Financial statements Shareholder information
43Primary Health Properties PLC Annual Report 2023
PROGRESS ON ENERGY AND
CARBONPERFORMANCE CONTINUED
Operational Scope 1, 2 and 3 emissions continued
During 2023 absolute Scope 1 and 2 emissions have increased
by 43% and intensity by 20%. This is primarily due to the
inclusion of Axis’ emissions for the first time. This has added
35 tCO
2
e from their office and transport related activities. This
includes the use of diesel in a small fleet of company vans. The
emission intensity of grid sourced electricity also increased by
7% in 2023.
Like for like business mileage has remained static but we have
improved the measurement of emissions from travel by rental
cars, better reflecting the lower carbon emissions of vehicles
being used. Employees are encouraged to use public transport
where possible and during the year employees continued to
use the Train Hugger platform, which supports UK reforestation
through every journey. Staff continue to take up our electric
and hybrid vehicle benefit, with 5 members of staff taking up
the option to date.
Our office energy use has remained static, although we have
restated gas consumption for 2022 following errors identified
by our landlord in London.
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 (down stream
leased assets) have increased on an absolute and normalised
basis. This is primarily due to the increase in electricity carbon
intensity described above.
Electricity and gas consumption have increased by 8% and 9%
respectively. We have continued to support tenants to reduce
their use of energy and resulting emissions, including through
our asset management programme. We expect to see results of
these and new initiatives over time.
We have now switched all but one electricity supply to 100%
renewable energy, with 97% (2022: 76%) of consumption being
from renewable sources. Therefore on a market-based reporting
basis, there has been a 8% reduction in absolute and 12%
reduction in normalised emissions.
We are offsetting all residual 2023 emissions, including
the energy we procure on behalf of our tenants, through
purchasing high quality nature based carbon credits from
independently certified projects.
Wider Scope 3 emissions
During 2023, we have expanded our measurement of
widerScope 3 emissions, against the 15categories of the
GHGP Scope 3 Standard. As part of our certification to Toitu
Carbon Reduce, we have determined the most material
categories. Categories 3, 8, 9, 10, 11, 12, 14 and 15 are not
relevant for PHP’s business. Categories 5, 6 and 7 have been
assessed and are deminimus at under 10 tCO
2
e. We will
continue to track emissions from business travel. Category 4,
upstream transportation, is included within the calculation for
Category 1, purchased goods and services. Embodied carbon
is relevant under Category 2, capitalgoods. This is being
measured for developments and some refurbishments and will
be reported when projects are completed (including associated
transport emissions).
2023 2022
Scope 3 source tCO
2
e MWh £m tCO
2
e MWh £m
Purchased goods and services 5,730 — 37 4,413 — 34
Downstream leased assets
Electricity 11,284 54,492 — 10,098 52,220 —
Gas 12,567 68,697 — 14,882 81,527 —
Total wider scope 3 29,581 123,189 37 29,393 133,746 34
Intensity metrics 36kgCO
2
e/m
2
151kWh/m
2
154tCO
2
e/£m 30kgCO
2
e/m
2
163kWh/m
2
131tCO
2
e/£m
Strategic report Governance Financial statements Shareholder information
44 Primary Health Properties PLC Annual Report 2023
Responsible business continued
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 the UK and Ireland. PHP’s aim is to provide modern,
purpose-built properties let to the NHS, the HSE, GPs and
other healthcare operators, which enable them to provide
thehighest standards of modern healthcare.
The facilities are predominantly located within residential
communities and enable the UK and Irish population to access
better health services locally. This is central to the Group’s
purpose, strategic objectives and business planning processes.
PHP’s portfolio serves around 6.0 million patients or 8.8% 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 enables PHP to identify and
manage opportunities and risks associated with the provision
of its properties.
Occupier engagement and support
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. Our
in-house Facilities Management (“FM”) Team engages with
and supports occupiers, carrying out reactive and planned
maintenance to optimise building performance.
Social trends of a growing and ageing population continue
to highlight the need for purpose-built primary care
premises to provide modern healthcare to the UK and Irish
populations. This further reinforces our objectives to continue
to invest in existing and new premises for the benefit of all
ourstakeholders.
It is crucial that we continually update our understanding
of what issues matter to our occupiers. To support this, we
regularly engage with them and carry out a tenant feedback
survey. At the end of 2022 and throughout 2023, we have
taken a new approach to gathering tenant feedback,
conducting surveys directly as part of site visits. This has
been successful, and we have increased the coverage of our
survey to 30% of the portfolio (by number of buildings) and
significantly improved our Net Promoter Score (“NPS”), from
a negative figure in 2021 to a strong positive for 2023. While
positive feedback is helpful, where tenants feel more negatively
about an issue, it allows us to work with them on solutions,
such as engagement by our asset management team to discuss
building refurbishment options. A summary of our engagement
with and support for tenants is provided below.
Feedback from our tenants…Engaging and supporting tenants…
1,200
property visits by PM, FM
and AM teams
94%
of the portfolio inspected
by PM and/or FM
330
FM plant upgrades
and replacements
14,690
help desk jobs
processed
100%
portfolio had independent
property risk assessments
carried out
45%
94%
94%
92%
78%
Net Promoter Score
are happy with PHP’s level
ofcommunication
would recommend PHP
as a landlord
feel net zero is important
or very important
feel their building meets
theirneeds
– +
Strategic report Governance Financial statements Shareholder information
45Primary Health Properties PLC Annual Report 2023
Impact during 2023
During 2023 the 2022 grant recipients have been delivering
successful initiatives, including counseling, transport, carer
support, support for women and ethnic minorities, art
and music and combating isolation. The grants, totaling
£150K, were distributed to 18 organisations working with
County Durham Community Foundation and Lancashire &
Merseyside Foundation. Over 1,300 people have benefited
and been supported by these initiatives to date, with
a wide range of positive personal and health outcomes
recorded. The feedback from both recipients and the users
of their services, funded by the grants, has been extremely
positive and heartwarming.
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 2023, we targeted funding to the
West Midlands, working with Heart of England Community
Foundation. PHP has 40 properties across the region, within
communities that have high levels of deprivation and which
face a range of social challenges.
The 2023 awards totalled £100,000. Grants have been
made to 10 organisations delivering a wide range of support.
Projects funded include specific health engagement for ethnic
minorities, anxiety management, counselling, fitness for the
less mobile, healthy eating for families and reducing loneliness
and isolation.
For the first time, we have also trialled grant awards via our
asset management projects, engaging with practices whose
buildings are at varying stages of refurbishment. As a result,
we provided £20,000 to two projects in Brighton which are
delivering much needed support through social prescribing and
plan to continue to offer grants in this way.
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, including ENO
Breathe, The Academy of Real Assets and charity matched
funding for employees chosen charities.
COPING WITH CANCER NORTH CASE STUDY:
PHP’s grant provided funding for a new service, providing
one-to-one counseling, coaching, therapies and peer group
sessions for cancer patients across Northumberland (linking
with five PHP GP practices). The project has helped over 250
people during the year, many sighting impacts such improved
resilience and physical health. Prior to the project Coping with
Cancer had no contacts in primary care and making this link will
have a wider impact in the future. Feedback from people using
the service has been very positive. “I enjoyed the sessions.
Listening to and talking with the therapist…took focus
from my illness. I felt more connected, rather than isolated
within my own headspace.”
Volunteering
PHP staff benefit from five paid days per annum for
volunteering activities that are personal and meaningful
tothem, delivering support to local communities and benefiting
from the personal development that these activities provide. 10
members of staff have taken up the opportunity to volunteer
during 2023 with causes including forest maintenance and
support for schools. Momentum is growing and we expect more
employees to take up the opportunity going forward.
SOCIAL – HEALTH AND WELLBEING CONTINUED
Community Impact Fund
PHP has committed up to £250,000 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 £137,000
during 2023 (2022: £250,000).
Strategic report Governance Financial statements Shareholder information
46 Primary Health Properties PLC Annual Report 2023
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.
The Group is highly focused with 58 employees at year end (2022: 65 employees), with a further 31 employees in the Axis team,
and four Non-executive Directors which allows for a flexible and individual approach. PHP’s Board has a strong 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
workingpractices
We have implemented more flexible working arrangements, covering improved systems to enable
home working and a flexible dress code.
Fair remuneration Employee remuneration is aligned to personal, Company and ESG performance with Long 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 in the
senior team. Our female Board representation is now 33% (2022: 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
andtraining
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 launched 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 49 for further details on health and safety.
Wellbeing and
employeesatisfaction
During 2023 we have assessed and designed improvements to our office in Stratford-upon-Avon
for delivery in 2024. The results of our 2023 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,
withfeedback reported back to the Board, resulting in ad-hoc recommendation or a priority improvement target being adopted.
In light of the ongoing volatile economic and interest rate environment and impact on both PHP and the wider real state sector,
resulting in a slowdown in activity, the Company decided to offer a voluntary redundancy programme to all employees with a view
to keeping a firm control on the Group’s administrative costs. In total five employees took up the option and left the business
inthe year. Excluding those who left through the voluntary redundancy programme only four further employees left the business
in the year reflecting a staff turnover rate of just 6% (2022: 11%).
Responsible business continued
Strategic report Governance Financial statements Shareholder information
47Primary Health Properties PLC Annual Report 2023
PEOPLE CONTINUED
Employee satisfaction survey
In October 2023, we undertook PHP’s second annual employee
engagement survey (managed by an independent third party)
to track staff satisfaction. In total, we asked 33 questions,
receiving responses anonymously. The survey focused on a
number of key areas and in total we had 50 responses across
the organisation with engagement from 86% (2022: 96%)
ofemployees.
Overall, the results of the survey showed continued strong
positive staff sentiment, including the following points:
• overall employees were satisfied and enjoyed
working for PHP;
• employees are strongly aligned with the Company’s purpose
and feel it’s image, policies and processes are that of a high
quality organisation;
• employees understood the link between their personal and
the Company’s objectives and received adequate feedback;
• employees felt there was a friendly and supportive culture
with a good working environment; and
• the Company acts as a responsible business contributing
to reduce its environmental impact and supporting its
localcommunities.
Some areas for further improvements were also identified:
• while employees felt comfortable they could have an open
dialogue with management and be listened to, top-down
corporate communication was identified as an area where
more could be done to keep staff informed and employees
also felt there should be more prior consultation on
decisions impacting their work;
• employees identified the need for on-going efforts to
promote equality and diversity; and
• employees also felt that continued encouragement of
collaborative working between teams would bring further
benefits to the company as a whole.
Results of the survey were communicated to staff and
identified improvement areas will be a priority objective for
theBoard and the senior team in the year ahead.
The Company now has a good balance of flexible working
while retaining the collaboration benefits of in office working.
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:
• 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 took the first step to achieving Investors in People (“IiP”)
accreditation by undergoing the diagnostic process and survey
in 2022, which had positive results. During 2023 we have taken
on the findings and recommendations and used the IiP model
to improve our approach towards future accreditation.
The training programme for 2023 has continued to focus on
needs identified through the appraisal process. We launched
a mentoring programme, working with our training partner
Bisarto, which has had positive feedback from employees
taking part.
We continued to roll-out sustainability e-learning pathways
that covered net zero and embodied carbon, and other range
of environmental and social impact issues specific to roles.
PHP also supported funding and facilitation of professional
qualifications for five employees. The supportive culture of PHP
means those training for qualifications are also mentored and
assisted by more experienced colleagues.
PHP continued its membership of the Supply Chain Sustainability
School and 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 sustainableprocurement.
A total of 460 personal development training hours have been
delivered across the Group during 2023 (2022: 620 hours) and
the Company invested a total of £60,500 (2022: £73,000)
oran average of £1,040 per employee on professional and
personal development (2022: £1,200).
All employees received ESG related training during the year,
including face-to-face and e-learning modules.
Strategic report Governance Financial statements Shareholder information
48 Primary Health Properties PLC Annual Report 2023
PEOPLE CONTINUED
Diversity and equal opportunity
We promote diversity across knowledge, experience, gender,
age and ethnicity. During the year, we have updated our
Equality, Diversity and Inclusion policy in response to a growing
need to work towards diverse representation and in support
of the Parker Review. As outlined on pages 95 and 96 in
our Nomination Committee report, we have also introduced
targets as part of this. Whilst overall female employee
representation is good, we recognised that we needed to
specifically promote greater gender diversity, particularly in
the senior team. Following the appointment of Dr Bandhana
(Bina) Rawal, effective from 27 February 2024, we have further
increased female and ethnic Board representation to 43% and
28%respectively.
Recognising the significant diversity imbalance in the real
estate sector, we continue to support and promote diversity,
both internally and externally. All tables presented for the
Board include Dr Bina Rawal who was appointed Non-executive
Director with effect 27 February 2024.
UK employee gender diversity at 31 December 2023
Number of employees Male Female Total
Board of Directors 4/57% 2/43% 7
Executive Committee 3/100% —/— 3
Directors 4/100% —/— 4
Associate Directors 5/42% 7/58% 12
Associates and
Senior Surveyors 5/38% 8/62% 13
Other 11/46% 13/54% 24
Total 32/52% 30/48% 63
The Irish employee gender diversity at 31 December 2023 for
the Axis team showed 21 of the 28 employees as male, with
seven female employees. All four Directors are male.
UK employee ethnicity at 31 December 2023
2023
Ethnic origin No. % ONS
1
White – British, English, Welsh, Irish,Other 46 79% 82%
Asian – Indian, Pakistani, Other 3 5% 9%
Black – African, Caribbean, Other 1 2% 4%
Mixed heritage 4 7% 3%
Other 4 7% 2%
Total 58 100% 100%
1 Office for National Statistics: Census 2021 data for England and Wales
published June 2022.
The Irish employee ethnicity at 31 December 2023 for the Axis
team showed 26 of the 28 employees identify as white, with
two employees from other backgrounds.
Board gender identity or sex as at 31 December 2023
Number
of Board
members
Percentage
of the
Board
Number
of senior
positions on
the Board
(CEO, CFO,
SID and Chair)
Number
in executive
management
Percentage
of executive
management
Men 4 57% 4 2 50%
Women 3
†
43% — — —
Not
specified/
prefer not
tosay
— — — — —
† Includes Dr Bina Rawal appointed effective 27 February.
Board ethnic background as at 31 December 2023
Number
of Board
members
Percentage
of the
Board
Number
of senior
positions on
the Board
(CEO, CFO,
SID and
Chair)
Number
in executive
management
Percentage
of executive
management
White British
or other
White
(including
minority-
white
groups)
5 71% 100% 2 40%
Mixed/
multiple
ethnic
groups
— — — — —
Asian/Asian
British
1 14% — — —
Black/
African/
Caribbean/
Black British
— — — — —
Other ethnic
group,
including
Arab
1 14% — — —
Not specified/
prefer not
tosay
— — — — —
The above data is drawn from internal information supplied by
our staff. Refer to page 84 for futher details on required Board
diversity disclosures and the Diversity Policy.
Responsible business continued
Strategic report Governance Financial statements Shareholder information
49Primary Health Properties PLC Annual Report 2023
PEOPLE CONTINUED
UK gender pay gap at 31 December 2023
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% 46% — — —
Board –
Executive 100% — 100% 100% — 100%
Executive
Committee 100% — 100% 100% — 100%
Directors 100% — 100% 100% — 100%
Associate
Directors 49% 51% (2)% 56% 44% 23%
Associate and
Senior
Surveyors 49% 51% (4)% 57% 43% 24%
Other 49% 51% (4)% 47% 53% (13)%
Total 76% 24% 69% 94% 6% 93%
The Irish gender pay gap at 31 December 2023 showed 58%
weighted to male, 42% to female, and overall pay gap of 43%.
Health and safety
Health and safety remains central to the execution of
PHP’sbusiness 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 2023 we maintained a regime of inspections utilising
both third-party agents, including two risk management
solutions providers, and in-house resources to support
theportfolio.
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. Asset management projects, developments and forward
funded developments – all our 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
andsafety.
3. Employees are required to uphold our high standards and
separate procedures and processes are in place to ensure
compliance with current legislation and requirements.
Lenders
Future generations
Investors
NHS
Suppliers
HMRC
Occupiers
People Patients
During 2023 there were no reported major accidents nor
any health and safety prosecutions or enforcements (2022:
noincidents).
All properties built before 1995 have been surveyed in the year
for the presence of reinforced autoclaved aerated concrete
(“RAAC”) and no evidence of this material was found across
theportfolio.
During 2023, twelve 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.
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.
Strategic report Governance Financial statements Shareholder information
50 Primary Health Properties PLC Annual Report 2023
OTHER STAKEHOLDERS CONTINUED
Contractors and suppliers
Delivering 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, has a proven track record and applies appropriate
standards on areas such as labour, human rights, modern
slavery, health and safety and environmental management.
During 2023 we have engaged with all our suppliers to make
them aware of our ESG policies (available on our website)
and in particular have focused on the issue of modern slavery.
We also commissioned independent third-party ethical labour
audits for two live projects, something we will continue to do
in future. Our Modern Slavery 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
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
ina 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 2023 the Group has directly paid £31.8 million (2022:
£27.7million) 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 Company has also
published aTaxStrategy 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 2023 we have successfully continued to value existing
and potential relationships with our investors with over 210
(2022: 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 attend
site visits to gain a better understanding of our business
andstrategy.
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
thesame.
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 except
in two instances where we have not met criteria, and we
have explained why on page 68 in our Corporate Governance
Statement. 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;
• 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 and 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 2023
(2022:noincidents).
Responsible business continued
Strategic report Governance Financial statements Shareholder information
51Primary Health Properties PLC Annual Report 2023
OTHER STAKEHOLDERS CONTINUED
Enhanced disclosure and benchmarking
We have published our third disclosure against the guidance
and requirements of the Task Force on Climate-related Financial
Disclosures (“TCFD”) which are provided on pages 52 to 58.
GRESB – During 2023, PHP completed its fourth submission to
the Global Real Estate Sustainability Benchmark (“GRESB”). We
received a sector leader award for development, with a score
of 92% (2022: 80%) and a four-star rating. Our standing asset
score improved to 72% (2022: 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 healthcare buildings which are
largely tenant controlled.
MSCI – In February 2024, MSCI rated PHP as A, retaining our
2022 rating, which was improved from a previous rating of BB.
We will continue to engage with MSCI to ensure our rating
best reflects the actions we are taking, although the current
methodology restricts us in some areas. For example, a large
proportion of our environmental score relies on having a high
proportion of BREEAM certified assets, which is not an area
that we can influence quickly.
CDP – We responded in full for the first time to the CDP
climate questionnaire in 2022, receiving a B rating. Our
second submission in 2023 significantly improved our
underlying scores, retaining a B rating and achieving A levels of
performance for several aspects. We see CDP as a key tool to
disclose our performance and approach and to help us improve
over time. Our rating of B demonstrates we have a high
quality approach to managing climate related risks and being
transparent in our disclosures and we believe we will achieve
an A rating as we deliver on our strategy in the coming years.
EPRA – PHP disclosures are in line with EPRA Sustainability
Best Practices Recommendations (“sBPR”). In 2023 PHP
achieved a Gold award and a most improved award in
recognition of our enhanced disclosures and performance.
Ourlatest disclosures are available in the standalone version
ofthis Responsible Business Report, on our website.
PHP also received an EPRA Best Practices Recommendations
Gold award for the 2022 Annual Report.
Non-financial information statement
Following best practice, the Group has included certain non-
financial information within the Strategic Report. This can be
found asfollows:
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 the outcomes of those policies, can be found on
the following pages:
• environmental matters on pages 34 to 43;
• social matters on pages 44 and 45;
• health and safety matters on page 49;
• respect for human rights on page 50; and
• anti-corruption and anti-bribery matters on page 50.
Responsible business and ESG matters have been identified as
a principal risk and further details can be found on page 64.
All key performance indicators of the Group are on pages 20
and21.
The Business Review section on pages 22 to 25 includes, where
appropriate, references to, and additional explanations of,
amounts included in the entity’s annual accounts.
Laure Duhot
Chair of the ESG Committee
27 February 2024
Strategic report Governance Financial statements Shareholder information
52 Primary Health Properties PLC Annual Report 2023
Task Force on Climate-related FinancialDisclosures
Task Force on Climate-related
FinancialDisclosures
PHP TCFD disclosure for 2023 Annual Report
andAccounts
This year, we are making our third disclosure against
TCFDguidelines 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 of
responsible business. The Board reviews climate related
risks and opportunities within our existing reporting and
governance structure (as detailed on page 64) and has
established a specific ESG Committee, which is made up
of all members of the Board and relevant members of the
Executive team toreview, plan, approve and act 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
RiskCommittee 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’ responsible business objectives and key strategic
climate related workstreams, including progress towards PHP’s
NZC commitment (see page 34) at all meetings of the ESG
Committee (which meets at least three times a year) and at
the annual strategy day, held in October. Climate related issues
are also considered by the Board and Executive team in key
investment, development, asset and property management
decision making.
The ESG Committee oversaw and approved PHP’s Net Zero
Carbon Framework in 2022 and subsequent plans and actions
to deliver against it. The Committee reviews and approves
the ESG budget each year, with specific allowances in 2023
and 2024 made for climate related work, including energy
performance measurement of the portfolio and delivering
net zero (operational and embodied) carbon projects for
developments and asset management. The Board regularly
reviews and approves acquisitions made by the Group and
takes into consideration ESG and climate related commitments,
specifically minimum EPC ratings and progress towards net
zero carbon ready buildings.
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 the ESG Director along with
a representative from each of the investment, development,
asset management and property management teams. The ESG
working group met five times during 2023, to consider progress
against commitments and proposals for improvement. Climate
related action points included embodied carbon measurement
for asset management projects, EPC improvement, operational
energy and carbon assessments of buildings and solar PV roll-
out. Outside of these meetings, the Executive team ensures
that responsible business and ESG targets are delivered or
re-evaluated where not achieved and engages throughout the
year regarding progress against planned actions. 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 the 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
Strategic report Governance Financial statements Shareholder information
53Primary Health Properties PLC Annual Report 2023
STRATEGY
PHP’s NZC Framework (see page 34) details the five key steps
we are taking to achieve an ambitious target of being NZC
by 2030for 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 34 to
51 provides further detail on our strategy, actions taken and
progress made in 2023 and objectives for future years to address
climate risks, such asimproving EPC ratings within the portfolio.
Climate related risks and opportunities
During the year, PHP reviewed its existing analysis of climate
risks and opportunities and identified no major changes from
its extensive analysis carried out during 2022. During 2023 we
have continued to operate in a turbulent economic and political
climate, particularly in relation to the UK climate and health
policy landscape causing significant uncertainty, including the
UK Government’s approach to future EPCs and Minimum Energy
Efficiency Standards (“MEES”). Despite this, our overarching
view on risk and opportunity and our business strategy in
relation to climate change has not changed.
PHP’s analysis has been carried out 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 operationalteams.
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 over the short, medium
and long term (2030–2100). 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 PHP’s 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 was carried out by WTW, based on the findings.
Thepotential 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. Risk 2a has not been quantified separately
as it is included within the impact of risk 1c.
The current potential climate related risks and opportunities we
have identified that could have the most material financial impact
are outlined below. We do not, however, believe these impacts are
currently material enough to impact ourfinancial statements.
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 3a3b
3c
3d 1f 3e
1d
3f
4a
4c 4b
1b 1c
Assessed range of annual impact and likelihood oftransition 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 reportingobligations
1e. Climate change litigation
1f. Increasingly stringent planningrequirements
Technology
2a. Substitution of existing technologies
withloweremissions options (Included in 1c)
Market
3a. Increased cost ofraw 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
4c. Employee risk/opportunities
Strategic report Governance Financial statements Shareholder information
54 Primary Health Properties PLC Annual Report 2023
Category Risk/opportunity Time frame Potential £ impact Business response/mitigation
Transition risks
EPC requirements
and change
incustomer
demands
1e
3e
Transition
risks impacted
The NHS, and the HSE,
accounts for 89% of
revenue and is targeting
tobe NZC by 2045.
Costs related to
meetingproposed
Minimum Energy Efficiency
Standards (“MEES”)
and fines associated
withnon-compliance.
Medium term Medium
(P&L and BS)
• Commitment to get all properties to a minimum
ofEPCB by 2030.
• Group’s asset management programme 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 the 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 and
GHG emissions
1a
1b
3b
3c
Transition
risks impacted
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 from
energy consumption is minimal to PHP. To mitigate
risk in PHP’s value chain, embodied and supply chain
carbon are being measured, and actions put in place to
minimise and reduce these over time.
• 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 mitigates these risks,
helping tenants to save money in the long term.
Restricted access
to capital
3d
Transition
risks impacted
Investors and debt
providers only willing
to invest in climate
resilientbusinesses.
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 and ongoing engagement with lenders.
Physical risks
Flood risk
(current and
future climates)
Losses from assets
located in high flood risk
zones, primarily the costs
of repair and business
interruption, reflected in
increased insurance costs.
Long term Low (medium
for potential
uninsured losses
under high
emissions
scenario)
(P&L)
• PHP has flood alleviation and response plans in place,
isappropriately insured and assesses these risks for any
new developments and acquisitions.
• Under current climate conditions, 9 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 emissions climate scenario, the number of
sites does not increase, but the potential frequency
andseverity of floods increase.
Task Force on Climate-related FinancialDisclosures continued
STRATEGY CONTINUED
Climate related risks and opportunities continued
Strategic report Governance Financial statements Shareholder information
55Primary Health Properties PLC Annual Report 2023
Category Risk/opportunity Time frame Potential £ impact Business response/mitigation
Physical risks continued
Increased severity
and frequency of
extreme weather
events and
windstorms
Increased costs to develop
climate-resilient properties
and physical damage
requiring repair.
Costs of business
interruption, reflected in
increased insurance costs.
Medium term Low (medium
for potential
uninsured 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 and
commitment to repeat physical risk impact and scenario
analysis periodically.
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
thatthe 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.
Opportunities
Change in
tenant demand
The NHS is aiming for
net zeroand primary
healthcare tenants will
increasingly covet or
insiston 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 and 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 re-gears
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. Review of entire portfolio for solar potential and
active targeting of installation to suitable properties via
different delivery models.
Scenario analysis
In 2022, WTW undertook a physical climate risk assessment of the Company’s portfolio on an asset-by-asset basis, assessing
exposure to a range of acute and chronic climate risks and a transition risk assessment based on PHP’s current corporate strategy
and action planning.
For Physical risks, each is assessed against different scenarios and potential impact is scored 1-5 with scoring for each different
physical risk based on Munich RE models and projections. For example, flood risk is scored 1-5 where 1 indicates a minimal flood
risk and 5 indicates an asset in a known flood zone with a 1 in 100-year return period.
Our Scenario analysis has been 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
.
These scenarios have been chosen as the best available at the time of assessment. In particular the ‘low carbon world’ scenario
represents the greatest potential transition risks for PHP and the ‘hot house world’ scenario the greatest physical risks to
PHP’sportfolio.
STRATEGY CONTINUED
Climate related risks and opportunities continued
Strategic report Governance Financial statements Shareholder information
56 Primary Health Properties PLC Annual Report 2023
STRATEGY CONTINUED
Scenario analysis continued
In the low carbon world scenario, limiting global warming
to 1.5°C will be achieved through stringent climate policies,
innovation and demand-led change, where global net zero CO
2
emissions will be reached around 2050. The scenario assumes
proactive and sustained action to reduce carbon emissions over
the next 30 years to build a low carbon economy. It assumes
a carbon price of $130/tCO
2
by 2030, low growth in material
consumption and increasing consumer pressure on businesses
to drive sustainability.
The Hot House World Scenario is aligned with RCP 8.5.
It envisions that, due to limited government policy and
international effort, emissions continue to grow and
consequently global warming exceeds 4°C temperature rise by
the end of the century. The scenario assumes current policies
promoting sustainability are removed, there is no carbon
pricing and there is increasing adoption of resource and energy
intensive lifestyles around the world. As a result, economies fail
to transition to a low carbon world and the physical impacts of
climate change become increasingly severe.
There is assumed to be longer and more severe heatwaves and
droughts and there is an increase in frequency and severity of
flooding and other natural catastrophic events.
We regularly review risks internally and will reassess risks and
perform scenario analysis on a periodic basis (currently every
three years, reflective of changes to real estate climate models,
policy, regulatory, market and technology advances).
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.
Resilience of the business to scenarios
By delivering on the strategy put in place by PHP and
commitments and actions outlined in its 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 under current conditions.
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 was assessed as somewhat “material” 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 healthcare 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
overheating through the addition of solar shading, insulation
and, where needed, energy efficient cooling.
Through our Net Zero Carbon 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.
During 2023, we have carried out an analysis of the newly
published NHS Net Zero Carbon Building Standard against
our current approach and requirements for new build and
refurbishment and intend to align our projects where relevant.
Under a high emissions scenario from the 2050s, 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 PHP’s
business strategy for asset management and refurbishment,
property management, development and acquisition
ofbuildings.
The Group’s continued focus on flexible, modern primary care
properties, which 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 being upgraded,
where feasible to the latest energy efficient standards.
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 2023 we have
financed and implemented a number of actions to deliver our
strategy, including bringing forward work towards net zero for
asset management, targeted reassessment of buildings’ EPC
ratings, committing further investment in energy data capture
from buildings, funding net zero audits of buildings, extending
our carbon measurement to include purchased goods and
services, and achieving certification via Toitu Carbon Reduce
and ISO14064.
During our investment process, we review the locational flood
risks, the building fabric and the energy efficiency of potential
acquisitions and current assets to understand the climate
related risks and costs involved in mitigating thoserisks.
These actions help to future-proof our buildings and allow us to
take advantage of opportunities with the NHS, and our other
occupiers, as it transitions towards net zero carbon with its
multi-year plan to become the world’s first NZC national health
system by 2045 and with an ambition for an interim 80%
reduction by 2036–2039.
By improving occupier contentment, we enhance the
desirability and value of our assets together with our
reputation with the NHS and GP occupiers.
Task Force on Climate-related FinancialDisclosures continued
Strategic report Governance Financial statements Shareholder information
57Primary Health Properties PLC Annual Report 2023
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 longlist 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 PHP’s direct operations and stakeholders, including
our supply chain, partners and tenants. The size and scope of
risks are assessed using the 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, Carbon Trust and MSCI, accessing the latest
climate science and transition data sets, 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 60
to66.
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
teams 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
orliquidity 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.
As a response to these risks, PHP developed and
launchedtheNZC Framework, which reduces the overall
inherent risk to a muchsmaller residual risk, should the
framework be implemented successfully over time. Business
planning and strategy now take 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 managementactivities.
Integration with wider corporate risk
managementprocess
Responsible business, including climate change, is one of
the principal risks faced by the Group as set out on page 64.
Climate related risks and opportunities are identified and
assessed as part of our risk management framework and are
considered by the Board which recognises 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 are set out on
page34.
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 pages 34 to 51. At present, PHP does not have an
internal carbon price. Under the Directors’ remuneration, for the
2024 LTIP, an environmental metric linked to improving portfolio
EPC ratings has been included with a weighting of 15%. Senior
management’s annual bonuses also have wider ESG objectives.
This is set out in more detail on page 98.
We measure and disclose Scope 1, 2 and 3 emissions on pages
42 and 43 and in our EPRA sustainability disclosures within the
Responsible Business Report on our website. Our most material
Scope 3 emissions are included, with the exception of capital
goods (embodied carbon), which will be reported for projects
in the future when they are completed. 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, and transition and physical risks
and opportunities.
We also report our GRESB benchmark performance score and
responded for the second time in 2023 to the CDP climate
programme with results set out in our Responsible Business
Report. We will review our metrics and targets annually and
update for future TCFD disclosures.
Strategic report Governance Financial statements Shareholder information
58 Primary Health Properties PLC Annual Report 2023
Task Force on Climate-related FinancialDisclosures continued
METRICS AND TARGETS CONTINUED
Financial category Climate category Metric Unit 2023 2022
Revenues Products and services Revenue from BREEAM Very Good and Excellent properties % revenue 15% 15%
Products and services Revenue from DEC A–C rated properties % revenue 47% 44%
Products and services Rent increase from completed AM projects with energy
improvement measures
£k 211 289
Assets Energy source Portfolio energy data coverage (by m
2
) % 75% 60%
Energy source Electricity procured by PHP from renewable sources % 97% 76%
Policy and legal EPC A % asset value 12% 9%
EPC B % asset value 30% 26%
EPC C % asset value 43% 46%
EPC D % asset value 13% 15%
EPC E–F % asset value 2% 4%
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 2023 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). Concerning 4b (relating to our Scope 3
emissions), we have assessed all 15 categories but only
disclose our material emissions, which are from downstream
leased assets and purchased goods and services.
2. Our annual disclosures are contained on the previous pages
and in the Responsible Business Report on pages 34 to
51, including commentary on data gaps and performance
improvement measures. Further details on our policies and
approach to responsible business are also available on
ourwebsite.
3. We believe that the details of these climate related
financial disclosures are conveyed in a decision-useful
format to the users of this report.
Strategic report Governance Financial statements Shareholder information
59Primary Health Properties PLC Annual Report 2023
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
ofany 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 practices 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’ long term
strategy during the year.
Our business model
(page14)
Financial Review (page26)
Responsible Business
Report (page 34)
Corporate Governance
Statement (page 76)
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 two staff meetings during the year.
Stakeholders and people
(pages 46 and 49)
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 49)
Directors’ Report
(page119)
Corporate Governance
Statement (page 76)
d) The impact of the
Company’s operations
onthe community and
theenvironment
We have continued to support our tenants during the year with dedicated property
and facilities management services and in adapting their premises to ensure they
provide modern, fit-for-purpose and energy efficient healthcare premises.
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
Report (page 34)
Corporate Governance
Statement (page 76)
e) The desirability of the
Company maintaining
areputation for
highstandards of
business conduct
We have a clear purpose to deliver progressive returns for shareholders through
creating 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
regulatorystandards.
Responsible Business
Report (page 34)
Corporate Governance
Statement (page 76)
f) The need to act fairly
asbetween members
ofthe Company
The Board embraces open dialogue with shareholders and engages with them through
arange of channels and has communicated with them on the most important corporate
events through the year, including the appointment of a new Chief Executive Officer
and Chairman in 2024 and the interim and full year results, to understand their views.
Stakeholders – investors
and lenders (page 50)
Corporate Governance
Statement (page 76)
Examples of how we have exercised our Section 172 duties in practice are set out in the case studies on pages 39, 40, 41 and 45.
Strategic report Governance Financial statements Shareholder information
60 Primary Health Properties PLC Annual Report 2023
Risk management and principal risks
Our risk management processes enable us to
beflexible and responsive to the impact of risks
onthebusiness
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 small (£1.4 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 comprises the Chair of the Audit Committee
and 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, along with
independent standing invitees attending throughout the year.
The Board has delegated to the Audit Committee the process
of reviewing the Group’s systems of risk management and their
effectiveness. These systems and processes have been in place
for the year under review and remained in place up to the date
of approval of the Annual Report and Accounts.
PHP has implemented a wide-ranging system of internal
controls and operational procedures that are designed to
manage risk as effectively as possible, but it is recognised
that risk cannot be totally eliminated. Staff employed by PHP
are intrinsically involved in the identification and management
of risk. Strategic risks are recorded in a risk register and are
assessed and rated within a defined scoring system.
The Risk Committee reports its processes of risk management
and rating of identified and emerging risks to the Audit
Committee. The risk register is reviewed and updated every
six months by the Director: Commercial Finance and Financial
Reporting assisted by members of the Risk Committee, and
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61Primary Health Properties PLC Annual Report 2023
OUR RISK MANAGEMENT STRUCTURE
Structure Responsibility
BOARD
Sets strategic objectives
andconsiders risk as part of
this process.
Determines appropriate risk
appetite levels.
AUDIT COMMITTEE
Reports to the Board on
the effectiveness of risk
management processes
andcontrols:
• External audit
• Risk surveys
• Health and safety
• Insurance
• Need for an internal
audit function
RISK COMMITTEE
Reports to and assists the
Audit Committee, monitoring
and reviewing:
• Attitude to and appetite for
risk and future risk strategy
• Company’s systems of
internal controls and risk
management
• How risk is reported
internally and externally
• Processes for compliance
with law, regulators and
ethical codes of practice
• Prevention of fraud
SENIOR
MANAGEMENT
Implements and monitors risk
mitigation processes:
• Policies and procedures
• Risk management
andcompliance
• Key performance indicators
• Specialist
third-party reviews
Approach to risk management continued
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 Board retains ultimate
responsibility for determining and reviewing the effectiveness
of risk management but has delegated the process to the Audit
Committee which is assisted by the Risk Committee. The Audit
Committee agrees which risks are managed by management in
fulfilling its duties which is reviewed by the Risk Committee.
The Board recognises that it has limited ability to control a
number of the external risks that the Group faces, such as the
macroeconomic environment and government policy, but keeps
the possible impact of such risks under review and considers
them as part of its decision-makingprocess.
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 few 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
changingenvironment.
Since the release of our 2022 full-year results, global economic
uncertainty has remained volatile and uncertain. Within the
UK, the main challenges facing the economy have been high
inflation and the rapid rise in interest rates that are still widely
expected to remain at elevated levels for longer than originally
anticipated. The continued wars in Ukraine and the Middle East
have also impacted, what was already sensitive, political and
macroeconomic environments.
The potential adverse impact of these factors on our business
includes reduced demand for our assets impacting property
values in the investment market, increased financing costs
and our ability to continue to execute our acquisition and
development strategy 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
that 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
impact 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.
The Board dealt with the risk of RAAC (Reinforced Autoclaved
Aerated Concrete) during the year, reviewing the portfolio,
and where necessary surveyed, for its presence. None was
identified but we continue to monitor the situation.
The Board continues to consider the impact of Brexit and
COVID-19 on the business and again concluded, that these did
not constitute a significant risk to the business.
Strategic report Governance Financial statements Shareholder information
62 Primary Health Properties PLC Annual Report 2023
Mapping our key risks and residual 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 pricing
andcompetition
2. Financing
Manage effectively
andefficiently
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 andefficiently Diversified, long term funding Deliver progressive returns
GROW PROPERTY PORTFOLIO
1. Property pricing 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
theyear
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 £53million
was generated in the year, driven
by NIY widening of 23 bps in
theyear.
Increased interest rates, including
volatility, in particular, for 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 theUKand Ireland.
Despite the unprecedented
market conditions faced, the
Group continues to have a
strong, identified pipeline of
investment opportunities in the
UKandIreland.
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
Residual risk movement in the year
Risk management and principal risks continued
Strategic report Governance Financial statements Shareholder information
63Primary Health Properties PLC Annual Report 2023
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
theyear
The Company successfully
completed one debt
financingduring the year,
tapping the existing euro private
placement loan notes by issuing a
further €47.8 million.
The credit margin agreed on
this new facility remains in line
with previous euro denominated
facilities, reiterating the
confidence in PHP’s business
model shown by lenders.
The Group’s undrawn facilities
mean it currently has headroom
of£321 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 euro private placement was
executed for a ten-year term,
further increasing PHP’s average
debt maturity of drawn facilities
to 6.6 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
theyear
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.
Eight asset management projects
physically completed in the year,
with a further six projects onsite,
enhancing income and extending
occupational lease terms.
In addition, there is a strong
pipeline of over 43 projects that
will be progressed in 2024 and the
coming years.
Only 11.3% of the Group’s income
is currently holding over or expires
over the next three years, of
which c.70% is either subject to
a planned asset management
initiative or terms have been
agreed to renew the lease.
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
Medium
Likelihood of limited alternative use value is moderate but theimpact 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 recordofsecuring enhancement
projects and securing newlong term leases.
Principal risks and uncertainties continued
Strategic report Governance Financial statements Shareholder information
64 Primary Health Properties PLC Annual Report 2023
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
theyear
The cost-of-living crisis has
remained during the year and
expected to continue into 2024
as interest rates remain higher for
longer, continuing the risk of losing
a highly skilled and specialist staff.
Mitigation
Succession planning is in place for allkey
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
themarket.
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, including
climate mitigation and ethical business consideration, not meeting
stakeholders’ expectations, leading to possible reduced access to
debt and capital markets, weakened stakeholder relationships and
reputational damage.
Commentary on risk in
theyear
Properties no longer
meet occupiers’ expected
environmentalrequirements.
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
and to operate to the highest
standards of business ethics and
due diligence.
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 corporate
governance and disclosure, energy
efficiency and net zero carbon
requirements are expected to
be mandated in the short to
medium term. The introduction
of Corporate Sustainability
Reporting Directive (“CSRD”)
and International Sustainability
Standards Board (“ISSB”) in the
year is a key example of increasing
requirements, although PHP is
not legally required to comply at
present.
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:
• worked with Achilles to provide limited
third party assurance of our disclosures
and achieved certification to Toitu
Carbon Reduce and ISO 14064;
• provided staff training covering individual
personal development and ESG;
• commissioned third party audits for
development and refurbishment projects to
guard against the risks of modern slavery
and unethical supply chain standards;
• engaged with external experts to assess
and inform our net zero carbon approach
for developments and refurbishments;
• 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;
• achieved 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; 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 sustainable development and
refurbishment 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
Strategic report Governance Financial statements Shareholder information
65Primary Health Properties PLC Annual Report 2023
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
theyear
Negotiations with lenders have
confirmed that the Group enjoys
the confidence of the lending
markets both in terms of the
traditional high street lenders
andthe bond markets.
The Company successfully
completed one debt financing
during the year, tapping its
existing euro private placement
loan notes by issuing a further
€47.8 million.
Mitigation
Existing lenders remain keen to finance PHP
and new entrants to debt capital markets
have increased available resource. Credit
margins agreed on the new facility and RCF
plus one extensions in the year, remained
in line with what has been achieved in
previous years, reiterating the confidence
inPHP’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
Boardon current debt positions and
provides projections of future covenant
compliance to ensure early warning of
anypossible 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
theyear
Interest rates continued to
increase significantly during the
year because of the stubbornly
high inflation and the uncertain
macroeconomic/political
environment in the UK.
These elevated interest rates,
that are widely forecast to remain
at these elevated levels over the
coming year, have forced us to
critically re-evaluate investment
yields on acquisitions and
developments. These have the
potential to limit the Group’s
ability to profitably acquire
investment and development
opportunities and implement
it’s strategy. This in turn is
likely to continue to weigh on
property yields and consequently
valuations in the future. However,
notwithstanding these significant
increases and volatility in interest
rates seen in 2023, we continue
to believe further significant
reductions in primary care values
are likely to be limited with a
stronger rental growth outlook
offsetting the impact of any
further yield expansion.
Whilst no immediate refinances
are required until 2025, any
additional drawn debt in 2024
will be subject to variable interest
rates, and would increase the
current 3%, of unhedged variable
debt as at 31 December 2023.
Mitigation
The Group holds the majority of its debt
inlong 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 97% of net
debt is fixed or hedged.
MtM valuation on debt and derivative
movements do not impact 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
inorder 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
Strategic report Governance Financial statements Shareholder information
66 Primary Health Properties PLC Annual Report 2023
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
theyear
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 economic
performance and political
elections, primary care remains
a critical infrastructure with no
indications it is 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. The NHS, HSE
and District Valuer need to
acknowledge that higher build
costs and inflation will need
to be reflected in future rent
settlements for new schemes to
be economically viable.
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
modernpremises.
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
theGroup.
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
theyear
The Group now has 21 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 a zero cost Euro foreign
exchange cap and collar to rates between
a range of €1.1675: £1 and €1.1022: £1, to
cover net annual income of €10 million per
annum, which expires in July 2024.
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 low due to the quantum of investment in Ireland, albeit this
isincreasing.
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
Strategic report Governance Financial statements Shareholder information
67Primary Health Properties PLC Annual Report 2023
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 2026.
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 used for the
31 December 2022 year end audit which included a 10% decline
in valuations, and 15% tenant default rate. We believe these
remain realistic reasonable worst-case scenarios, having seen
an absolute valuation decline of 1.9% in 2023.
Across our various loan facilities, valuations will need to
fall by a further £1.1 billion or 39% before the loan to value
covenants are impacted. Acknowledging the further 175bps
increase in the Bank of England base rate during 2023, in light
of governmental targets to reduce inflation being met in the
year, many economists and market consensus is that rates have
potentially peaked at 5.25%. We therefore feel the increase
in variable interest rates should remain a sensitivity but have
reduced the sensitivity from 2% to 1%.
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
aone-off 10%/£279 million fall in June 2024;
• 15% tenant default rate;
• rental growth assumptions amended to see nil uplifts on
open market reviews;
• variable rate interest rates rise by an immediate 1% effective
from 1 January 2024; 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 covenant compliance, profitability, net debt, loan
to value ratios and available financial headroom which are as
follows:
Key metrics at 31 December 2026
31 December
2023
Viability
scenario
Loan to value ratio 47.0% 54.2%
Net debt £1,307m £1,408m
Interest cover ratio 3.08x 2.59x
Adjusted net assets £1,443m £1,164m
Available financial headroom £321m £228m
All covenants have been monitored throughout the viability
period that has been assessed and any breaches were minor
and could be remedied with cash or property collateral.
In making its assessment, the Board has made a number
ofspecific assumptions that overlay the financial parameters
used in the Group’s models. The Board has assumed 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 14 to the financial
statements fora profile of the Group’s debt maturity.
Harry Hyman
Chief Executive Officer
27 February 2024
68 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
Chairman’s introduction to governance
Our strong governance
framework underpins the way
we manage the business
“ The quality of our governance
framework, which continues to evolve
by reference to developing standards,
underpins the crucial role which the
Board plays in continuing to steward the
business in the most effective way.”
Steven Owen
Independent 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 2023.
The Board confirms that, throughout the year ended 31 December 2023
and to the date of this report, the Company was compliant with all
the relevant provisions as set out in the Code, other than: (i) the sixth
bullet of Provision 41 as our workforce engagement this year did not
cover an explanation of how executive remuneration aligns with wider
Company pay policy. This is explained in the Remuneration Committee
Report on page 107; and (ii) with effect from 1 January 2023 to the
date of this report, Provision 19 relating to the tenure of the Chair.
Thisposition is fully explained in the letter from the Chair below
(seeBoard succession section).
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. The long term success of the Company 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 for the second year in succession in 2022, having
previously won the award in 2021 and 2017.
These accolades are down to the sound governance framework
we have in place and the excellent work and dedication of our
highly experienced team, led by the CEO and founder, Harry
Hyman, in delivering high quality, modern medical centres for
GPs and other primary care professionals inthe UK and Ireland.
Board succession
Having been appointed to the Board in January 2014, I had, at
the time of the Company’s 2023 AGM, served more than nine
years and therefore ceased to be considered independent under
the provisions of the Code. After a review by the independent
Non-executive Directors, which included consultation with
several of the Company’s largest shareholders, they concluded
that I continued to act independently and that the Company
would benefit significantly from me leading the CEO succession
process. Accordingly, and with strong support from shareholders,
I continued in 2023 as Chair of the Company and the Nomination
Committee and as a member of the ESG Committee but
ceased to be a member of the Remuneration Committee from
31December 2022. I will be retiring as planned at the 2024 AGM.
The past year has been a significant one in the Company’s
history regarding the successful execution of its succession
plan and the composition of the Board. The first step in the
plan in 2023 was to recruit a CEO to succeed Harry Hyman,
Founder and CEO who had previously indicated his intention
to retire as CEO at the Company’s Annual General Meeting
in 2024 (“2024 AGM”). I led a thorough and extensive search
process, supported by independent recruitment consultants
with no connections with PHP or any of its Directors, to recruit
and appoint a new CEO to succeed Harry.
69Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
Following that process, the Company was pleased to announce
on 4 September 2023 the appointment of Mark Davies as CEO
with effect from the conclusion of the 2024 AGM. Mark is a highly
experienced FTSE 250 executive who has held CEO and CFO
roles in listed companies and private equity. He was a Co-founder
Director of NewRiver REIT plc (“NewRiver”) in 2009 and played an
important role in taking the Company from IPO to the FTSE 250 in
seven years. He was CFO of NewRiver for over twelve years and,
alongside his role as CFO, was also CEO/Executive Chairman of
Hawthorn Leisure Limited (“Hawthorn”) for five years. Mark stood
down from the board of NewRiver following the successful sale of
Hawthorn in July 2021 to private equity at a premium price.
Mark has considerable capital markets experience and over
thelast 14 years has raised over £3 billion of equity and debt
inpublic and private markets.
Prior to co-founding NewRiver, Mark spent three years as an
Executive Director and CFO at Omega Land, a private equity
fund, with over £2 billion of London real estate owned by
Morgan Stanley Real Estate Funds.
As part of the handover process Mark has, since January,
beenworking alongside Harry, and will do so up to the 2024
AGM, under the terms of a consultancy agreement, and serve
as CEO from that point onwards.
Mark is currently the Senior Independent Director at Palace
Capital PLC, a London-listed REIT.
Following Mark’s appointment, the second step in the
succession plan was to find a successor to myself as Chairman.
As anticipated in the Company’s Annual Report 2022, Ian
Krieger, our Senior Independent Director, led that process.
TheCompany was pleased on 2 November 2023 to announce
the appointment of Harry Hyman as Non-executive Chair
subject to shareholder approval at, and with effect from the
conclusion of, its 2024 AGM. Harry would cease to be a Group
employee and be engaged and remunerated under a customary
non-executive letter of appointment from that point.
Harry, who has been pivotal in the success and focus of the
Company, has an extensive knowledge of the specialised
primary care property sector and its nuances and is well
known to many of the senior stakeholders within the NHS.
These relationships, as well as being particularly significant in
the Group’s niche area, will also be especially valuable as the
architecture of the public health system continues to evolve
following the introduction of integrated care systems and as
the NHS continues to navigate both system pressures and the
uncertainties which accompany the upcoming general election.
This period of evolution for the health system is likely to take
some time given the number of key stakeholders involved in a
complex landscape where developments are shaped by political
change and Mark has expressed his strong desire that Harry
remains involved as Chair so the Company can benefit from his
unique expertise and wide contact base in that role. The Board
is satisfied that Harry is ready to step back from running the
Company and will be a very effective Chair to support Mark in
his role as CEO.
Accordingly, the Board unanimously believes that Harry’s
appointment as Chair is in the best interests of the Group
andall of its stakeholders, with his knowledge and expertise
inthe primary care property sector, which is a niche sub-sector
of the real estate market, continuing to be invaluable and
highly relevant to the Group’s future success. The Company is
conscious this proposal is exceptional for the purposes of Code
Provision 9.
The Company, led by Senior Independent Director Ian Krieger,
has accordingly consulted and engaged with a number of the
Group’s major shareholders (representing approximately 60%
of the register) on this proposal and received largely positive
feedback from that process.
The Board is mindful that Harry will not, assuming approval of
his appointment by shareholders, be considered independent
on appointment under the provisions of the Code, given his
current role as Chief Executive Officer.
The Board, conscious of best practice and noting shareholder
feedback, has determined that Harry’s term as Chair will be for
a maximum of three years (which allows the Company to benefit
from Harry’s experience through the extended period of health
system evolution referred to above), subject to annual review by
an experienced and robust group of independent Non-executive
Directors and subject also to annual shareholder re-appointment
during that time in the usual way. In accordance with Code
requirements, Harry will not sit on the Remuneration or Audit
Committees, and the Company will otherwise continue toadhere
to corporate governance best practice.
The Board considers that the combination of Mark Davies as
CEO and Harry Hyman as Chair, together with Richard Howell
as CFO and David Bateman as CIO, makes a formidable, highly
respected leadership team that will continue to build on the
success of the business.
The final step in the Company’s plan was to recruit an
additional Non-executive Director in order to ensure that the
Board consists of a majority of independent Non-executive
Directors and therefore is compliant with the Code from the
date of appointment. As a result, the Company was pleased to
appoint Dr Bina Rawal as a fourth independent Non-executive
Director of the Company with effect from 27 February 2024.
The size of the Board has therefore increased from six to seven
and will be compliant with the Code from the date of the
above appointment. Whilst, as noted above, he would not be
considered independent under the Code, as a major long-term
shareholder Mr Hyman’s interests are fully aligned with those
of shareholders.
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 working in collaboration with the health
services in the United Kingdom and Ireland to deliver much
needed investment into primary care facilities which have been
demonstrated to improve health outcomes and reduce referral
rates to over-stretched hospitals.
70 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
Chairman’s introduction to governance continued
Culture and strategy continued
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 to monitoring and assessing
culture with this objective in mind (as further described on
page 77), the Board also seeks to maintain an environment
which 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 befoundon page 49.
On the social side, 2023 was the third year of our Community
Impact Fund in partnership with UK Community Foundations,
through which PHP offers grants to charities and community
groups that are focused on social prescribing and community
wellbeing serving our properties. This year, activity was focused
on the Midlands region of England. Several of our team have
also taken advantage of PHP’s volunteering scheme and taken
paid time off work to support a number of charities.
Our ESG Committee continued to drive forward our
environmental, social and governance agenda. We provide
further details on our initiatives to engage with all our
stakeholders on pages 49 to 51 and how we discharge our
duties under Section 172 of the Companies Act 2006 on
page59.
Evaluation
The annual Board evaluation process is an important part of our
governance process as it provides an opportunity for reflection
on aspects of the Board’s work that went well and considers
areas for further improvement. Details of the evaluation and
the main findings of the process are set out on pages 85 and
86. Iam pleased that the feedback confirms my view that the
Board works effectively, and in a collaborative and open way.
I am pleased to report that, following an evaluation of the
performance of the Directors and their other commitments,
each of the Directors standing for re-election at the Annual
General Meeting on 24 April 2024 have been recommended
bythe Board for re-election.
AGM
We will be holding our Annual General Meeting on 24 April
2024 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 how you vote are set out
on pages 175 to 187 of the Annual Report. I hope that you will
be able to join us at the meeting. If you are not able to do so,
please either use the form of proxy that you should find with
the Annual Report or cast your vote electronically as explained
on pages 185 and 186.
Looking ahead
I would like to conclude by thanking members of the Board
fortheir continued support and commitment over the past year.
Ithas been a privilege to serve as a Non-executive Director
and, for the past six years, as Chairman, during which time
PHPhas continued to grow to the benefit of its shareholders
and stakeholders. I should like to thank the Board and the
wider PHP team for their support and commitment over that
time, and wish the Company every success for the future –
success which I feel confident will be forthcoming given the
strength, values and vision of the PHP team.
I hope that you find the remaining pages of this Governance
Report informative and useful.
Steven Owen
Chairman
27 February 2024
71Primary Health Properties PLC Annual Report 2023
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72 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
Board of Directors
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.
Key to Committee membership
(including new appointments)
A
Audit Committee
E
ESG Committee
N
Nomination Committee
R
Remuneration Committee
S
Standing Committee
Indicates Chair of Committee
1 Steven Owen
Independent Non-executive
Chairman (retiring)
Election to the Board
Steven Owen was elected at the Company’s Annual
General Meeting in 2014, having been appointed to the
Board in January 2014, and following his election to the
Board he took up the position as Chairman of the Audit
Committee and Senior Independent Director. Steven
was appointed Chairman in April 2018 and 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 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
Executive Chairman of Palace Capital plc.
Independent Non-executive
No.
2 Harry Hyman
Chief Executive Officer (Non-
executive Chair following AGM,
subject to shareholder approval)
Election to the Board
Harry Hyman founded the Company in 1996 and served
on the Board as Managing Director from that time and
represented the former Adviser to the Company, Nexus
Tradeco Limited (“Nexus”), on the Board. On completion
of the internalisation on 5 January 2021, Harry was
appointed as Chief Executive Officer. As announced on
2November 2023, subject to shareholder approval Harry
will be appointed as Non-executive Chair with effect
from the end of the 2024 AGM. The Board believes that
Harry’s appointment is in the best interests of the Group
and all of its stakeholders, particularly as his knowledge
and expertise gained over nearly 30 years in the primary
care property sector will continue to be invaluable and
highly relevant to the Group’s future success. The Board
has determined that the term will be a maximum of
three years.
Career
Harry graduated from Cambridge University and trained
as a Chartered Accountant and Corporate Treasurer. He
established the Company in 1996 and was the Managing
Director of Nexus Tradeco Limited, which until 5 January
2021 was the Adviser to PHP.
He is a Fellow of the Institute of Chartered Accountants
in England and Wales, a Fellow of the Association of
Corporate Treasurers and a Fellow of the Royal Institute
of Chartered Surveyors.
Skills, competence and experience
Harry has extensive experience in investing in the primary
healthcare sector, having developed the Company’s
business from inception over 20 years ago to its current
position with an investment portfolio of over £2.7 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 is listed on the
London Stock Exchange.
3 Richard Howell
Chief Financial Officer
Election to the Board
Richard Howell was appointed to the Board from
31March 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
withLondonMetric 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
Senior Independent Non-Executive Director and Audit
Chair of Life Science REIT plc.
1
5
2
6
3
7
4
8
E
SN
SE E S
E
RNA
A E R SN E RNA E S A E RN
73Primary Health Properties PLC Annual Report 2023
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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. She is Chair of the ESGCommittee.
Career
Laure started her career in the investment banking
sector and has developed a focus on the property sector.
She has held senior roles at Lehman Brothers, Macquarie
Capital Partners, Sunrise Senior Living Inc., Grainger
plc and Lendlease. She is a Non-executive Director of
Safestore Holdings plc and (until December 2023) 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 and
NBGlobal 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 he is Senior Independent Non-executive Director
at Capital & Regional plc, where he is also the Chairman
of the audit committee.
Skills, competence and experience
Ian qualified as and practised as aChartered Accountant
and brings awealth of recent financial experience to
the Board as well as his experience as Chairman of the
audit committees oftwo other UK-listed companies in
theproperty sector.
Other listed directorships
Safestore Holdings plc and Capital & Regional plc.
Independent Non-executive
Yes.
6 Ivonne Cantú
Independent Non-executive
Director
Election to the Board
Ivonne Cantú was appointed to the Board from
1January 2022.
Career
Ivonne has significant public company experience
having spent over 20 years advising listed businesses.
She is currently the Director of Investor Relations,
Communications and Sustainability as well as a
member of the executive management team and the
sustainability committee of Benchmark Holdings Limited,
a biotechnology aquaculture company. She is also a
Non-executive Director and Chair of the remuneration
committee at Creo Medical Group plc and a Trustee of
two non-profit charitable organisations, La Vida and Info
Latinos and TEH Advisory Board.
Skills, competence and experience
Prior to taking up her position at Benchmark Holdings
Limited, Ivonne spent 13 years as a Senior Corporate
Finance Adviser at Cenkos Securities plc, and prior to
that seven years as an Investment Banker at Merrill
Lynch. She has a degree in Engineering from the
Universidad Panamericana in Mexico City and an MBA
from the Wharton School of Business at the University
ofPennsylvania.
Other listed directorships
Creo Medical Group plc.
Independent Non-executive
Yes.
7 Mark Davies
Chief Executive Office (Incoming)
Election to the Board
Mark Davies will succeed Harry Hyman as CEO of the
Group at the conclusion of the 2024 AGM.
Career
Mark was a Co-founder Director of NewRiver REIT
plc (“NewRiver”) in 2009 and played an important
role in taking NewRiver from IPO into the FTSE 250
index in seven years. He was CFO of NewRiver for
over twelve years and, alongside his role as CFO, was
also CEO/Executive Chairman of Hawthorn Leisure
Limited (“Hawthorn”) for five years. Mark stood down
from the Board of NewRiver following the successful
sale of Hawthorn in July 2021 to private equity at a
premium price.
Skills, competence and experience
Mark has considerable capital markets experience and
over the last fourteen years has raised over £3 billion of
equity and debt in public and private markets.
Other listed directorships
Senior Independent Director of Palace Capital plc
8 Dr Bandhana (Bina) Rawal
Independent Non-executive
Director
Election to the Board
Bina Rawal was appointed to the Board from
27February 2024.
Career
Bina is a medical professional with 25 years’ senior
executive experience in healthcare, including with blue
chip pharmaceutical companies such as Roche and global
research funding charity Wellcome Trust. She is currently
Senior Independent Director at Worldwide Healthcare
Trust plc, a FTSE 250-listed investment trust specialising
in healthcare and life sciences companies where she
is board lead for ESG and chairs the nominations
committee. She is also a non-executive director of
Central London Community Healthcare NHS Trust.
Skills, competence and experience
Bina has a wide breadth of experience spanning patient
care, digital and population health, ESG, strategy,
partnerships and EDI, alongside extensive networks in UK
healthcare through her senior level executive and non-
executive roles to date in large, complex organisations
within the public, private and not-for-profit sectors.
Other listed directorships
Worldwide Healthcare Trust plc.
Independent Non-executive
Yes.
Composition of the Board
Board skills andexperience
14%
43%
29%
14%
Audit and risk
Finance and banking
Property
Healthcare
Balance of the Board
Gender
1 Chairman
2 Executive
4 Non-executive
4 Male
3 Female
Includes Dr Bina Rawal appointed effective 27 February 2024.
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David Austin
Director: Asset, Property and
Facilities Management
David has worked in the PHP business since
August 2016 and was appointed to head up
the asset management team in 2019 following
the merger with the MedicX Fund. David now
leads the recently combined asset, property
and facilities management teams, driving
forward PHP’s rolling site investment and
management programmes, and was promoted
to the Executive Committee during 2023.
David is a Chartered Surveyor with over 20
years’ post qualified experience with Jones
Lang LaSalle, Axa, LandSec and MWB.
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. 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
andinvestments.
Toby Newman
Company Secretary and Chief
LegalOfficer
Toby joined PHP at the start of 2023,
having, since 2017, been General Counsel
and 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 more than 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 72.
Richard Howell
Chief Financial Officer
Full biography on page 72.
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 opposite 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 75.
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. To further enhance
efficient, joined-up working, Asset, Property and
Facilities Management were brought together
during 2023.
Richard
Howell
Chief
Financial
Officer
Harry Hyman
Chief Executive Officer
David
Bateman
Chief
Investment
Officer
Toby
Newman
Company
Secretary and
Legal Officer
David
Austin
Director:
Asset,
Property and
Facilities
Management
Oliver
Goodman
Director:
Rent
Reviews
and
Valuation
Liam
Cleary
Director:
Commercial
Finance and
Financial
Reporting
Jesse
Putzel
Director:
ESG
Tony
Coke
Director:
Development
75Primary Health Properties PLC Annual Report 2023
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SENIOR MANAGEMENT
Oliver Goodman
Director: Rent Reviews
andValuation
Oliver joined following the merger with the
MedicX Fund in 2019, and heads up the
team responsible across the portfolio for
negotiating and securing rent reviews, both
when provided for under the terms of the
lease and on asset management projects
when the lease is re-geared. Oliver is a
Chartered Surveyor and he has an in-depth
understanding of the process of agreeing rent
reviews with District Valuers in accordance
with the detailed regulations that govern the
reimbursement of rents on GP surgeries.
Tony Coke
Director: Development
Tony is a Chartered Surveyor with 20 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
andFinancial Reporting
Liam joined following the merger with the
MedicX Fund in 2019, and is now responsible
for commercial finance and financial reporting.
Liam is a Chartered Accountant who has
over 14 years’ experience working in private
and public companies. Before working on
the MedicX Fund he worked at both PwC
and Deloitte Touche Tohmatsu in the UK and
Australia on capital market and merger and
acquisition transactions.
Jesse Putzel
Director: ESG
Jesse joined PHP in January 2022 and has
over 19 years’ experience in the environment
and sustainability field within the public and
private sector. Prior to joining PHP, Jesse
was Head of Sustainability at BAM, a large
European construction and property services
enterprise. At BAM, Jesse spearheaded
industry leading initiatives, helping the group
to become one of the leading sustainable
construction and property services businesses
in Europe, and has worked with leading clients
to help deliver some of the most sustainable
buildings in the UK. Jesse is a member of
the Institute for Environmental Management
and Assessment, Fellow of the Royal Society
of Arts and Cambridge Sustainable Finance
course assessor.
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Corporate governance statement
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 underinvestment in primary care facilities in both countries. We exist to facilitate the NHS, 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. 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.
As described in more detail on pages 16 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
With development muted in a volatile economic environment, the Board scrutinised far fewer acquisition
and development proposals than it would ordinarily expect to, approving one standing let investments in
Ireland with a gross development value of £25.6 million (€29.6 million). PHP’s focus has accordingly been on
successfully delivering asset management projects (of which 2023 saw eight projects completed and five
legally exchanged, with an aggregate value of £13.1 million), together with rental improvements (with an
aggregate of £0.3 million in 2023).
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
In the economic conditions referred to above, a major area of focus for PHP has been successfully delivering
asset management projects. To enhance the capital value of the portfolio, re-gear leases and improve the
energy efficiency of properties, the Board agreed capital expenditure investment of £13.1 million on over
eight asset management projects completed and exchanged in the year and interim reallocation of staff
from the investment to asset management team to undertake more projects.
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 do under the terms of its leases were approved.
Page 16
Fund
The Board approved exercising the options to extend £300 million of revolving credit facilities for an
additional one year term out to 2026, and issuing a further €47.8 million euro private placement loan notes.
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 continue the
activities of 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.
Following its decision to introduce a Dividend Reinvestment Plan in light of the fall in the premium
over net asset value in the Group’s share price, the Board continued to make the plan available for
shareholders as a means for them 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 for the second year in succession. The Board
believes that the Group’s portfolio of properties offers long term and sustainable sources of rental income to underpin the steadily
growing returns we offer to shareholders.
77Primary Health Properties PLC Annual Report 2023
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Culture and values
The Company’s purpose is core to every decision taken by
the Board. As detailed on pages 76 to 77, 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. Werecognise 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 Committee and wider PHP team 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.
Our size, being only 58 employees, and the regular interaction
ofthe Executive Committee members and senior leadership
team with the wider workforce facilitate 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; and
• monitoring of staff turnover rates, whistleblowing and health
and safety incidents.
Going forward, we will continue to remain open minded to
efficient, tech-enabled ways of working, which can also assist us
as we continue to further drive down our environmental impact.
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.
Our stakeholders and the Board’s engagement
withthem
Our tenants
In working on the development of new facilities, or in planning
asset management projects to further improve our existing
sites, we engage deeply with the NHS in the UK and the
HSE in Ireland, as well as with local GPs and other healthcare
professionals at our facilities, to understand their evolving
requirements. We are seeking to develop our relationships with
NHS integrated care systems in England to understand their
key priorities for the improvement of care in their regions and
develop an effective partnership with them to deliver their
vision for improved primary care provision. We also continue to
find new ways to collaborate with NHS partner organisations
to continually progress the high compliance standards which
are central to PHP’s stakeholder offer.
The Board reviewed the results of the tenant survey conducted
in November 2023 based on a face-to-face interview format
with a sample of the tenant base to better understand the
tenant views and ensure that we are engaging with the right
individuals to gain feedback on, and continually improve, our
property management performance.
Our communities
Our Community Impact Fund, which was launched in
partnership with the UK Community Foundations during 2021,
was continued again in 2023 with grants being made to
charities and community groups focused on delivering social
prescribing and community wellbeing in the Midlands region.
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Corporate governance statement continued
PART A: BOARD LEADERSHIP AND COMPANY
PURPOSE CONTINUED
Our stakeholders and the Board’s engagement
withthem continued
Our employees
In 2023, following previous employee feedback, PHP:
• launched a PHP mentoring programme to support
itsexisting staff training and development programme.
Thelatter has also continued to evolve, to support members
of the team to develop and succeed professionally;
• continued to focus on staff career pathway support and
development, including through evolution of our objective
and appraisal approach; and
• continued to engage with our teams, including through
changes to internal structure.
PHP’s annual staff engagement survey took place in September
2023 to gauge the current level of staff satisfaction and seek
our people’s views on areas where we can do even better.
Responses were received from 86% of staff (96% in 2022),
with positive feedback on the team culture and ethic, together
with suggestions on areas for further improvement, which the
management team will take forward.
Following on from the survey, Laure Duhot, as the designated
NED to lead and support workforce engagement for the Board,
held two face-to-face meetings during November this year
with staff in both the London and Stratford-upon-Avon offices.
The sessions ranged openly across a wide number of areas,
including the feedback from the staff surveys and management
communication in a hybrid/flexible working environment. She
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, alongside continued evolution of the actions
above, will focus on the key action points of the employee
satisfaction survey presented on page 47 in order to drive the
right behaviours and support the development ofemployees.
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.
Following appointment of Mark Davies as CEO with effect
from April 2024, which was informed by the views of major
shareholders, the Senior Independent Director, together with
the Chair, also engaged with major shareholders, of whom
shareholders contacted represented more than 60% of PHP’s
register, positively received PHP’s Chair succession and Board
composition plans. These are further detailed on pages 94
and95.
Any shareholders wishing to raise any governance issues may
contact the Chairman 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
ourstrategy and our capital recycling.
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Institutional investors Private investors Debt investors
Our Executive Directors once again held
a series of meetings with institutional
investors as part of roadshows following
our full year and interim results. The results
presentation was conducted in a hybrid
format, with live conference call and
webcast facilities 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 relayed to the Board for
itsreview.
The CEO and CFO undertook an investor
roadshow in Benelux, the Nordics and
South Africa to visit a number of existing
and potential investors in those regions
and also participated in a number of
regional roadshows 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,
thestrength of the Company’s income,
thedebt 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
togive feedback and communicate with
the Board via the Company Secretary
throughout the year.
The whole Board attended the 2023
Annual General Meeting and was available
to answer shareholder questions.
All the resolutions put to the meeting
received overwhelming support from
investors. The results of the voting at
allgeneral meetings are published on
ourwebsite.
We work closely with our registrars,
Equiniti – and, following the secondary
listing of the Company’s shares on the
Johannesburg Stock Exchange, with
JSE Investor Services in South Africa
– to maintain an efficient share register,
make limited paper distributions and
to address all queries that we receive
fromour private shareholders throughout
the year.
In December 2023, the Group added to
its existing euro private placement loan
notes by issuing a further €47.8 million
(£41.4 million) secured on a portfolio of
six Irish assets for a ten-year term at a
fixed rate of 4.195%.
Additionally, during the year the Group
also exercised options to extend the
maturities by one year to 2026 on a
number of its shorter dated revolving
credit facilities with Barclays (£100
million), NatWest (£100 million) and
HSBC (£100 million).
Regular dialogue is maintained with
all our relationship banks, including
meetings and/or conference calls.
The Board received detailed feedback from management, PHP’s brokers and registrars following shareholder meetings, roadshows
and results presentations and noted a generally high level of satisfaction with the performance.
Refer to our Strategic Report and the Responsible business section of the Annual Report for further details on wider stakeholders
of the business.
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Corporate governance statement continued
PART B: DIVISION OF RESPONSIBILITIES
There is a clear written division of responsibilities between the
Chair (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 the Senior Independent Director (who is responsible for
supporting the Chair on all governance issues).
When running Board meetings, the Chair 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 Chair 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 Chair 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 ESG
Committees are set out in the following pages.
This governance structure, set out on page 81, 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 81.
There is a clear statement 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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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
narrativereporting
• Scrutinises significant judgements made
bymanagement
• Provides assurance on internal controls, risk
management and audit processes
• Evaluates the performance of the external
auditor, with responsibility for audit tender
• Obtains assurance regarding the objectivity of
the valuers
Members: Ian Krieger, Ivonne Cantú and
LaureDuhot
Standing Committee
Chair: Steven Owen
• Approves dividend announcements
andimplementation
• 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 acts as the disclosure committee
Members: Steven Owen, Ian Krieger, Harry Hyman
and Richard Howell
ESG Committee
Chair: Laure Duhot
• Assists in the development of ESG strategy
• Develops and monitors policies on ESG matters
• Develops and monitors social impact initiatives
• Considers opportunities for environmental initiatives
in the portfolio
Members: Laure Duhot, Ivonne Cantú, Steven Owen,
IanKrieger, Harry Hyman, Richard Howell 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, Laure Duhot and
IanKrieger
Nomination Committee
Chair: Steven Owen
• Leads process for Board appointments
• Considers Board composition and succession
• Reviews balance of skills and diversity on
theBoard
• 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
itsmeetings
Members: Richard Howell (Chair), Ian Krieger, Harry
Hyman, David Austin, Liam Cleary and Toby Newman
Executive 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
PHPportfolio
• Reports to the Board at each meeting through
formal reporting from the CEO, CFO, CIO and CLO
Members: Harry Hyman (Chair), Richard Howell,
David Bateman, David Austin and Toby Newman
Other non-Board committees
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Corporate governance statement 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 2023. 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 83.
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 or other matters outside the authority of the Executive Directors that arise
between scheduled meetings, the Board can do so by unanimous approval by email or meet by video-conference but will only
do so in such situations where a detailed investment proposal has been circulated to the Board or the matter discussed at a
previous meeting so that all the Directors are fully apprised, have the opportunity to ask questions and are in a position to make
a fully informed decision on the matter. There is also regular informal contact between the Executive and Non-executive Directors
between scheduled Board meetings.
Care is taken to ensure that information is circulated in good time before Board and Committee meetings and that papers are
presented clearly and with the appropriate level of detail to assist the Board in discharging its duties. The Company Secretary
assists the Board and Committee Chairs in agreeing the agenda in sufficient time before the relevant meeting to allow input from
key stakeholders and senior executives.
Further, the members of the senior management team regularly attend meetings of the Board and have developed a strong
understanding of the Board’s approach and culture.
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 and
Chief Legal
Officer
Toby Newman
• 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 across the business with statutory and regulatory requirements and Board procedures
83Primary Health Properties PLC Annual Report 2023
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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 – 4)
ESG
Committee
(total in year – 3)
Remuneration
Committee
(total in year – 3)
Steven Owen 5 — 4 2 —
Harry Hyman 5 — — — —
Richard Howell 5 — — — —
Ivonne Cantú 5 4 4 3 3
Laure Duhot 5 4 4 3 3
Ian Krieger 5 4 4 3 3
During the year, the Chair and the other Non-executives met periodically in the absence of the Executive Directors to discuss
succession planning.
The table below sets out a summary of the key issues considered by the Board at its meetings during the year.
February
• Strategic planning for the year ahead against the backdrop of economic headwinds
• Critical examination of the year-end property valuations
• Approval of the preliminary announcement of results and the 2022 Annual Report, incorporating the Notice of AGM
• Updates to the terms of reference of the Audit Committee
• Consideration of an updated statement under the Modern Slavery Act
April
• Consideration of the voting at the Annual General Meeting, the reasons for any votes against resolutions and any follow-up actions
• Consideration of strategy in continuing volatile economic conditions, including emphasis on asset management programme and
income growth
• Approved proposals to reduce the Group’s average cost of debt by c.9bps over the next 2.5 years and increase the proportion of net debt
that is fixed or hedged to 97% further to conversion of €60.0 million (£52.9 million) of Sterling equivalent denominated debt into Euros
• Discussed proposal to achieve wider investor exposure by pursuing a secondary listing on the Johannesburg Stock Exchange
July
• Careful consideration of the results of the interim valuation
• Approval of the interim results for release
• Consider acquisition of large community health asset at Ballincollig, Ireland (subsequently approved in August)
• Discussion of progress on ESG plans and commitments including carbon reduction initiatives, community impact partnerships, mentoring and
external ratings/benchmarks
• Received an update on regulatory matters, including Code consultation, together with technical questions on proposed JSE secondary listing
October
• Reflected on key themes from strategy discussions
• Considered proposals in relation to the Group’s financing arrangements, in particular the convertible bond and euro private placement
• Considered investment opportunity at Birr, Co. Offaly, Ireland
• Approved entry into new euro private placement arrangement
• Approved progression of preparations for convertible bond renewal
December
• Receive and consider updates in connection with 2023 audit process, including internal controls and risk register
• Review and approve budget for 2024
• Discuss and plan for strategic opportunities Approve the Company’s updated Equality, Diversity and Inclusion statement, informed by the
evolving requirements of the Parker Review
84 Primary Health Properties PLC Annual Report 2023
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Corporate governance statement 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. It provides an opportunity for
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 2023 strategy meeting was held near Birmingham. The
location of the meeting allowed the Board to visit three of the
Group’s medical centres: Orsborn House in Handsworth, let
to GPs and a local NHS trust which delivers specialist mental
health services; Cape Hill Medical Centre in Smethwick, from
which GPs deliver a wide range of services to a growing patient
list of more than 12,000, with the site also playing host to
a pharmacy; and The Lyng Centre for Health & Social Care
in West Bromwich, a substantial health and community hub
occupied by four GP practices and NHS Property Services,
which together offer patients a wide range of services from
GP consultations through to adult and child social care. These
visits provided an insight into the range of community services
delivered from these properties, including in areas of relative
deprivation. The visits also gave an opportunity to meet and
speak with some of the healthcare workers at these facilities
about their requirements for the properties.
These visits reinforced the Board’s conclusions about the
importance of investment in modern primary care facilities and
supported its view that the Group’s strategy of focusing on
hub primary care centres, with a large lot size, flexible floor
plans and the ability to offer a variety of healthcare services,
is the correct response to the evolving requirements for the
delivery of primary care. The session also provided the Board
with a valuable understanding of the challenges facing GPs and
other healthcare workers and how innovative practices have
continued to develop in response to these.
In preparation for the strategy meeting the Board received a
background reading pack that included a strategic overview of
the primary care property market, alongside papers considering
rent reviews; asset, property and facilities management;
funding strategy; investment and development opportunities;
development of the Company’s business in Ireland, following
the acquisition of Axis earlier in 2023; and ESG and
sustainability progress and ambitions.
The meeting also received valuable insights from an external
speaker with regard to the emerging impact of technology and
artificial intelligence on general practice, and their strategic
implications for PHP. The meetings themselves and the dinner
that followed the strategy day gave the Non-executive
Directors an opportunity to meet and discuss issues with the
wider senior management team, as well as an opportunity for
Mark Davies to spend time with the team.
PART C: COMPOSITION, SUCCESSION
ANDEVALUATION
Board composition
The current Board of Directors of the Company consists of the
Chair, three independent Non-executive Directors and two
Executive Directors and complies with the Code in that at least
half of the Board are independent Non-executive Directors. From
January 2023, I was no longer considered independent under the
Code. As noted in the Letter from the Chair, Harry Hyman, assuming
approval of his appointment as Chairman by shareholders at the
2024 AGM, will also not be independent under the Code and
accordingly a fourth Non-executive Director has been appointed
such that a majority (four out of seven) of the Board will comprise
independent Non-executive Directors. Details of the composition of
the Board by gender and ethnicity are set out below.
In 2023:
• 33% of the Board were women, such that the 40% target in
the Listing Rules was not met. Given the size of the Board
during the year, composition would necessarily be below
or above that target. Following appointment of Dr Bina
Rawal, in 2024, 43% of the Board are women, meeting the
applicable target;
• the target for at least one of the senior board positions
specified in the Listing Rules (being chair, chief executive,
senior independent director or chief financial officer) being
held by a woman was not met. The Company considers
that the experience and expertise in these positions best
positioned it for success in the year, and at the same time
will continue to approach Board recruitment having due
regard to its Listing Rules obligations aligned with the best
interests of the Company and its stakeholders; and
• the Listing Rules target that at least one individual on
acompany’s board of directors is from an ethnic minority
background was met.
ETHNICITY GENDER
Biographical information on each of our Directors can be found
on pages 72 and 73, which shows the breadth of strategic
and financial management insight brought to our Board and
that the Chair, Ms Cantú, Ms Duhot and Mr Krieger are all
considered to be independent.
5 White British/WhiteOther
1 Asian/Asian British
(with effect from
27 February 2024)
1 Hispanic
4 Male
3 Female
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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.
The Company has increased the Board to seven Directors
with Dr Bina Rawal’s appointment on 27 February 2024 as a
further independent Non-executive Director. We believe that
a Board of seven Directors will continue to be of a size that
is appropriate for an agile business with a clear and focused
strategy, at the same time as delivering on the evolving
corporate governance requirements to which the Company is
subject. We believe this size of Board will continue to facilitate
all members of the Board developing a close understanding
ofPHP’s business and foster opendebate.
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.
A tailored induction programme for Dr Rawal has been put in
place by the Company Secretary and Chief Legal Officer. The
induction process includes the following elements:
• meetings with the Chairman and other Board members;
• a 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.
Ahead of his tenure as Chief Executive Officer commencing
following the 2024 AGM, Mark Davies has been working at
the Company on a two days per week consultancy basis
fromJanuary 2024. This is intended to provide the insights
andunderstanding of the business to best support a
successfultransition.
The Directors receive regular updates in their Board papers,
facilitating greater awareness and understanding of the
Group’s business as well as legal and regulatory developments.
Whilst the Government in mid-October 2023 withdrew draft
new reporting regulations, and the FRC has subsequently
published a policy update in relation to its consultation on
revisions to the UK Corporate Governance Code (to which
the Company responded) indicating it will only be taking
forward a small number of the original proposals set out in its
consultation (published in January 2024), PHP’s preparatory
work for these changes is expected to continue to underpin
the Company’s adherence to best practice governance and
assurance practices.
All Directors have access to the advice and services of the
Company Secretary and Chief Legal Officer and a procedure
is in place for them to take independent professional advice at
the Company’s expense should this be required.
Board evaluation
As in 2022, in 2023 the Board evaluation was conducted
internally by means of an online questionnaire that covered a
combination of standard items, such as Board dynamics and
relationships, individual participation and contribution, along
with more topical matters, such as consideration of stakeholder
issues. The Directors were also asked to comment on the
performance of the Board Committees.
The results of the 2023 survey were collated by the Company
Secretary and Chief Legal Officer 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
had private meetings with each of the individual Directors to
take their feedback on the performance of the Chair.
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.
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Corporate governance statement continued
Details of the outcomes of the 2022 evaluation and the 2023 evaluation, as well as the actions taken in response to the 2022
evaluation, are set out below:
2022 evaluation outcomes Actions in 2023 2023 evaluation outcomes
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.
A significant amount of work has been
undertaken during 2023, through Risk
and Audit Committees and then the
Board, to achieve this objective. Whilst
the government has withdrawn or
modified approach on various proposals,
the work undertaken will add value in
supporting the Company’s application of
a clear and robust risk management and
internal control framework.
As the Company continues its journey
following internalisation in 2021 and
welcomes its new Chief Executive Officer,
to continue to develop its strategy and
culture and implement its values for the
benefit of all its stakeholders.
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-depthdiscussion.
Alongside updates on strategic matters
at each of its meetings, the Company
also introduced a new format of Board
report in 2023, designed to provide in
an accessible way the key information
the Board requires to support additive,
informed and insightful discussion
anddecision.
In the context of continuing geopolitical and
economic volatility, to maintain a strategic
view on the further horizon to best support
the Company’s long term success.
Further work will be undertaken on the
implications of potential changes to the
NHS and the structure of primary care to
ensure that the Group is well-positioned
to respond strategically.
The Company has continued to
engage with health system partners at
various levels to best understand the
estates priorities within the new NHS
architecture, including Integrated Care
Boards, Primary Care Networks, NHS
Property Services and at Government
level and thus to position PHP as a
trusted partner.
To continue to seek and benefit from
expert third party insights relating to
developments in medical practice, primary
care and policy that are relevant to the
Company’s business and delivery.
PART C: COMPOSITION, SUCCESSION ANDEVALUATION CONTINUED
Board evaluation continued
The Board intends to review the implementation of these
recommendations as part of its evaluation process in 2024 –
when it is planning to undertake an external review – and will
report on progress in next year’s Annual Report.
Ian Krieger, Senior Independent Non-executive Director,
led anevaluation of the performance of the Chair with the
individual Directors.
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 business
of 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 and Chief Legal Officer maintains
the register of approved conflicts of interest through this
process. Incertain circumstances any conflicted Director 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 are 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 has
undertaken this work are set out in its report on pages 94
to96.
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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 for consideration and
approval 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 approaches and processes are well
understood and adhered to.
The Company Secretary and Chief Legal Officer 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 in good time 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
and Chief Legal Officer operates a comprehensive follow-up
procedure to ensure that actions are completed as agreed by
the Board.
PART D: AUDIT, RISK MANAGEMENT AND
INTERNAL CONTROL
The Board is responsible for:
• the Company’s risk management and internal control
systems and for reviewing their effectiveness;
• the ongoing 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 it’s narrative reporting
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 88 to 93.
Financial and business reporting
The Board is responsible for preparing the Annual Report and
confirms in the Directors’ Responsibility Statement set out on
page 123 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.
Thebasis on which the Company creates and preserves value
overthe 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, mitigations, 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 60 to 66.
During the course of its review for the year ended 31 December
2023, 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.
As Steven Owen had served as a Non-executive Director for over
nine years, in accordance with the recommendation of the Code
he stood down as a member of the Remuneration Committee with
effect from 1 January 2023. Should Harry Hyman’s appointment as
Chair be approved by shareholders at the 2024 AGM, he would
not be independent for the purposes of the Code and accordingly
would not be a member of the Remuneration Committee (nor, as
Chair, of the Audit Committee).
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Audit Committee report
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)
Bracketed numbers indicate the number of meetings the member was eligible
toattend.
Key responsibilities
Financial and narrative reporting
• Monitor the integrity of the financial statements.
• Scrutinise the full and half year financial statements.
• Consider and challenge the key financial judgements.
For further
information
see page 89
Risk management and internal control
• Oversee the internal control processes.
• Assess the need for an internal audit function.
• Review the risk management framework.
• Ensure risks are carefully identified, assessed and mitigated.
For further
information
see page 89
External auditor
• Review the performance, independence and effectiveness
ofthe external auditor and audit process, including the
qualityofthe same.
For further
information
see page 89
Regulatory compliance
• Review the viability statement and going concern basis of
preparation of the financial statements.
• Consider whether the Annual Report is “fair, balanced and
understandable”.
• Monitor compliance with applicable laws and regulations.
For further
information
see page 89
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. 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 Director: Commercial Finance and Financial Reporting; the
Chief Executive Officer and the Chair; the Company Secretary
and Chief Legal Officer; 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 related to
regulatory developments with respect to corporate governance
and reporting, as well as audit planning for 2024. At the
December meeting, the Committee reviewed the Company’s
risk management and internal control processes and considered
the year-end audit plan.
Time is allocated for the Committee to meet the external
auditor and property valuers independently of management. In
addition to formal Committee meetings, I have regular contact
and meetings with the Chief Financial Officer. This allows me to
gain and maintain 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
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Our work in 2023
Our remit is unchanged from previous years, primarily to
independently oversee and challenge the integrity of the
financial reporting processes at PHP, which supports and
ensures 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 onthe assumptions
and methodologies used in reaching theirvaluations.
The other important aspect of our work is the Committee’s
review of the Company’s risk management framework and
internal control procedures to ensure they remain robust and
are implemented effectively. Whilst government proposals
to reform financial reporting remain under development, the
Committee has overseen work to prepare for likely changes
and continues to review the work being undertaken by
management in preparation for these anticipated changes.
Regular tasks
The work undertaken this year has included the consideration,
review and approval of the following:
Financial and narrative reporting
• reviewing and monitoring the integrity of the financial
statements including reviewing significant financial
reportingjudgements and estimates made by management,
to ensure that the quality of the Company’s financial
reporting is maintained, in the Company’s half and full year
financial statements;
• reviewing and commenting on the alternative performance
measures, not defined under IFRS or “non-GAAP” measures,
to ensure these were consistent with how management
measures and judges the Company’s performance;
• assessing the independence and objectivity of the Group’s
valuers and gaining assurance around the integrity of the
conduct of valuation processes at the year end and at the
half year;
• reviewing the process undertaken to ensure that the
financial statements are fair, balanced and
understandable; and
• ensuring compliance with applicable accounting standards,
monitoring developments in accounting regulations as they
affect the Group and reviewing the appropriateness of
accounting policies and practices in place.
Risk management and internal control
• reviewing the Group’s risk register, in particular with regard
to the potential impact of climate change and principal and
emerging risks including digital technology;
• challenging the effectiveness of the Group’s risk
management systems and considering the adequacy of the
process being undertaken to identify risks and mitigate the
exposure of the Group to them;
• considering the adequacy and effectiveness of the Group’s
internal controls and whether there was a need to establish
an internal audit function; and
• ensuring the process followed to support the making of the
going concern and viability statements remained robust and
was correctly followed.
External audit
• examining the performance of the external auditor, its
objectivity, effectiveness and independence, as well as the
terms of its engagement and scope of its audit, and
agreeing the annual audit plan;
• monitoring the ratio and level of audit to non-audit fees paid
to the external auditor and agreeing its remuneration for
the year; and
• recommending the re-appointment of Deloitte LLP as
external auditor following the tender process
described above.
Regulatory compliance
• reviewing the Committee’s composition, performance, terms
of reference and constitution;
• ensuring appropriate safeguards are in place for the
detection of bribery and fraud and reviewing the process
by which employees may raise concerns and ensuring
that these have been effectively communicated to and
understood by the workforce, so that concerns could be
raised with me, the Company Secretary or the auditor;
• reviewing the Company’s REIT compliance and tax strategy,
which may impact the integrity of the financial statements;
• 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.
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Audit Committee report continued
Significant issues considered in relation to the financial statements
During the year, the Committee considered key accounting matters and judgements in respect of the financial statements as
detailed below:
Significant issue Actions taken
Valuation of the property portfolio
The Group has property assets of £2.8
billion as detailed in the Group Balance
Sheet and valuation is central to 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
continued uncertain and volatile global
economic environment, high inflation and
the rapid rise of interest rates during
the year. Combined, these have led to
reduced transactional evidence of primary
care transactions during the year, which
is 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. The Committee ensured that there was a robust process in
place to satisfy itself that the valuation of the property portfolio, all leading firms
in the UK and Irish property markets, by the Valuers was carried out appropriately
and independently. Given the significance of the valuation, 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.
The Chair of the Audit Committee also met separately with the Valuers to discuss
such matters which allowed the Committee to scrutinise the valuation process
and ensure each of the Valuers remained independent, objective and effective.
The auditor also meets with the Valuers, and deployed the services of its own
in-house property valuation expert to test the assumptions made. It reported to
the Audit Committee on its findings.
The Committee confirmed that it was satisfied that the valuation was not
subject to undue influence and had been carried out fairly, appropriately and
in accordance with industry valuation standards, and therefore is 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
managementjudgement applied.
Whilst transactional activity was more muted during 2023 due to wider economic
conditions, the Group made one acquisition during the year. 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 of the 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 concluded that the accounting treatment of the acquisition
wasappropriate.
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. Theaccounting treatment of
these transactions under IFRS 9 is by its
naturecomplex.
During the year, the Group added to its existing euro private placement loan notes
by issuing a further €47.8 million (£41.4 million) secured on a portfolio of six Irish
assets for a ten-year term at a fixed rate of 4.195%. Additionally, the Group also
exercised options to extend the maturities by one year to 2026 on a number of
its shorter dated revolving credit facilities with Barclays (£100 million), NatWest
(£100 million) and HSBC (£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.
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Financial and narrative 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
andjudgements;
• 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
bymanagement, as noted above.
Developments in accounting regulations and best practice
in financial reporting are monitored by the Company and,
where appropriate, reflected in the financial statements.
The Committee and the Board review the draft consolidated
financial statements and the Committee receives reports
from management and the auditor on significant judgements,
changes in accounting policies, and other relevant matters
relating to the consolidated financial statements.
Fair, balanced and understandable assessment
At the request of the Board, the 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 included 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 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.
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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 60 to 66.
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 are 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 requirements
pertaining to 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
ofits 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 PHP’s internal control systems, which
were reviewed and updated following completion of the
internalisation transaction, include a comprehensive system
of budgeting, financial reporting and business planning,
formal documentation procedures and the close involvement
of the Executive Committee 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
ofthe internal controls framework;
• reviewing the work undertaken by the external auditor
inrelation to internal controls; and
• reporting of any control or fraud-related
whistleblowing issues.
In reviewing the periodic financial reports of the Group,
theCommittee 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
otherapplicable reporting standards.
At the time of reviewing the half-yearly and annual financial
reports, the Audit Committee also receives a report from
the Chief Financial Officer to assist the Board in assessing
the policies and procedures and making the disclosures. No
significant deficiencies in internal control have been identified.
We previously welcomed the BEIS corporate governance
reforms as a positive change to the regulatory environment.
In anticipation of significant changes, we conducted internal
readiness assessments and reviewed management plans during
the year. Whilst recent changes mean the detail of changes is
yet to settle, we are confident that the work already undertaken
will support PHP in preparing for and complying with the evolving
regulatory framework.
Effectiveness of external auditor and audit process
One of the key responsibilities of the Audit Committee was
to assess the effectiveness and quality of the external audit
process, making enquiries consistent with, and having regard to,
the FRC’s “Audit Committees and the External Audit: Minimum
Standard”. 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 2023 financial statements, the primary risks
identified were in relation to the valuation of the property
portfolio and subjective areas of ERV’s and the application of
yields, as well as management over-ride of controls. Itisalso
standard practice for the Audit Committee to 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.
The Committee is satisfied that the Company has complied
with the Statutory Audit Services for Large Companies Market
Investigation (Mandatory use of Competitive Tender Processes
and Audit Committee Responsibilities) Order 2014 published by
the CMA on 26 September 2014.
Following its review of the effectiveness, independence,
objectivity and expertise of the external auditor, the Committee
is satisfied with the effectiveness of the external auditor and
therefore recommends the re-appointment of Deloitte LLP as
external auditor for 2024.
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. Daryl Winstone led the 2023
audit, his first year as Deloitte LLP lead audit partner for PHP.
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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.
All proposed engagements must be submitted to the Committee
for approval prior to engagement and all non-audit fees are
reported to the Committee.
The Committee considers the remuneration of the external
auditor at least on a semi-annual basis and approves its
remuneration. It also keeps under close review the ratio of
audit to non-audit fees to ensure that the independence and
objectivity of the external auditor are safeguarded.
In 2023, fees for audit services amounted to £0.6 million and
the non-audit fees amounted to £0.1 million.
The non-audit fee for 2023 equates to 14% of the average audit
fees of the last three years. These relate to half year review
work, which the Committee considers appropriate and in the
Company’s interests in order to provide continuing assurance
with respect to its processes, procedures and published
information.
The chart below sets out the ratio of audit to non-audit fees
for each of the past three years.
2023 2022 2021
Audit fee £624,000 £603,000 £510,000
Non-audit fee £82,000 £77,000 £100,000
Evaluation of the performance of the Audit Committee
The performance of the Committee was assessed as part of
the annual Board evaluation. The overall conclusion was that
the Committee remained effective at meeting its objectives.
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 5th Floor, Burdett House, 15–16 Buckingham Street, London
WC2N 6DU.
Ian Krieger
Chair of the Audit Committee
27 February 2024
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Nomination Committee report
Dear shareholder,
I am pleased to present the Report of the Nomination
Committee to shareholders for the year to 31 December 2023.
Last year’s Nomination Committee report provided an update
on the Committee’s activity in relation to succession planning,
given Harry Hyman’s previously announced intention to step
down from his role as Chief Executive Officer at the Annual
General Meeting in 2024. The report also noted that, once a
suitable candidate had been identified to take over from Harry
Hyman, the Committee, under Ian Krieger as Senior Independent
Director, would lead a search for my replacement as Chair.
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 – implementation
The Committee engaged an independent search firm to help
with both engagements referred to above.
Following a thorough and extensive search process, on
4September 2023 the Company was delighted to announce
the appointment of Mark Davies as Chief Executive Officer
with effect from the conclusion of the 2024 AGM.
You can read more about Mark’s experience in my introduction
tocorporate governance on page 69.
As part of the handover process Mark has, since January, been
working alongside Harry, and will do so up to the 2024 AGM,
under the terms of a consultancy agreement, and serve as
CEOfrom that point onwards.
Mark is currently the Senior Independent Director at Palace
Capital plc, a London-listed REIT.
Following the above, the second step in the succession plan was
to identify my successor as Chair at the 2024 AGM. Mr Krieger
led that process. The Committee’s work on Chair succession
involved consultation with a number of the Group’s major
shareholders (representing just under two-thirds of the register).
Following this consultation the Committee determined that,
in view of his knowledge and expertise gained over nearly 30
years in the primary care property sector, which will continue
to be invaluable and highly relevant to the Group’s future
success, Harry Hyman’s appointment as Non-executive Chair in
succession to me would be in the best interests of the Company.
An announcement to this effect was made on 2 November 2023.
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) 4 (4)
Ivonne Cantú 4 (4)
Laure Duhot 4 (4)
Ian Krieger 4 (4)
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
Toby Newman – Company Secretary and Chief Legal Officer
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
seniormanagement.
For further
information
see pages 94
and 95
Board appointments
• Leads the process for new appointments to the Board and
itsCommittees.
• 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 and
to senior management.
For further
information
see page 95
Performance evaluation
• Leads the annual Board and Committee evaluation exercise.
For further
information
see page 96
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 96
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Harry, who has been pivotal in the success and focus of the
Company, has an extensive knowledge of the specialized primary
care property sector and its nuances and is well known to many
of the senior stakeholders within the NHS. These relationships,
as well as being particularly significant in the Group’s niche area,
will also be especially valuable as the architecture of the public
health system continues to evolve following the introduction of
integrated care systems and as the NHS continues to navigate
both system pressures and the uncertainties which accompany
the upcoming general election. This period of evolution for the
health system is likely to take some time given the number
of key stakeholders involved in a complex landscape where
developments are shaped by political change and Mark has
expressed his strong desire that Harry remains involved as Chair
so the Company can benefit from his unique expertise and wide
contact base in that role. The Board is satisfied that Harry is
ready to step back from running the Company and will be a very
effective Chair to support Mark in his role as CEO.
This appointment is subject to shareholder approval at, and,
assuming such approval, will be with effect from the conclusion
of, PHP’s Annual General Meeting to be held on 24 April 2024
(“2024 AGM”). Harry would cease to be a Group employee and
be engaged and remunerated under a customary non-executive
letter of appointment from that point.
It is proposed that the term of this appointment would be
for a maximum period of three years, subject to: (a) annual
review by the Company’s experienced and robust group of
independent Non-executive Directors; and (b) with the Board’s
recommendation following such review, re-appointment by
shareholders at the Company’s Annual General Meeting each
year for that period.
As Mr Hyman will not be considered to be independent under
the Code, he will not be a member of the Remuneration
Committee (nor, as Chair, of the Audit Committee, in
accordance with the Code’s requirements).
The Board considers that the combination of Mark Davies as
CEO and Harry Hyman as Chair, together with Richard Howell
as CFO and David Bateman as Chief Investment Officer,
makes a formidable, highly respected leadership team that
willcontinue to build on the success of the business.
The final step in the Company’s plan was to recruit an
additional Non-executive Director in order to ensure that the
Board consists of a majority of independent Non-executive
Directors and therefore is compliant with the Code from the
date of appointment. As a result, the Company was pleased to
appoint Dr Bina Rawal as a fourth independent Non-executive
Director of the Company with effect from 27 February 2024.
The Board has therefore increased in size from six to seven.
The Committee continues to oversee succession plans across
the senior management team and has continued to work 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 continually 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 skills
throughout the business.
During 2023, our Board comprised six Directors, two of whom are
female and one of whom is from a Hispanic ethnicbackground.
Assuming Mr Hyman is appointed a Non-executive Chair
andwith the appointment of Dr Bina Rawal as an additional
independent Non-executive Director, following Dr Bina Rawal’s
appointment the Board will comprise seven Directors, four of
whom will be independent andthree of whom are female.
Diversity
The Board’s policy on equality, diversity and inclusion policy
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. Senior
management’s annual objectives are linked to the diversity of the
business, and how they promote this within their teams.
In setting the tone on diversity, the Board applies PHP’s Equality,
Diversity and Inclusion policy, whose terms apply to and are
applied throughout PHP’s governance structure, including by and
in relation to every Board Committee. The policy’s overarching
objectives are:
• to remove barriers to entry and encourage people from
diverse backgrounds to join the Company and consider
acareer in real estate;
• to maintain a working environment where individual
differences and the contributions of our people are
recognised and valued equally and where direct or indirect
discrimination, bullying and harassment are not tolerated;
• to raise awareness of equality, diversity and inclusion among
all our people so that they can recognise and take an active
role in contributing towards our goals and objectives;
• to ensure that remuneration, benefits, terms and conditions
and recruitment and promotion procedures do not
discriminate, discourage or create barriers directly or indirectly;
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Nomination Committee report continued
Activities of the Committee during the year
continued
Diversity continued
• to help all employees through training and other
opportunities to develop to their full potential;
• to promote and uphold our commitment to equality,
diversity and inclusion amongst our stakeholders;
• to ensure that we review our policies and approach,
updating when needed, and that our people know how
toraise any thoughts, issues or concerns;
• to effectively measure and report on our progress on
diversity and inclusion; and
• to recognise and celebrate the power of diversity, creating
atruly inclusive environment where all our people can
always be the best they can be and feel treated as equals.
Our policy is kept under review to align with best practice and
expressly extends to all appointments across our organisation.
Specifically in 2023, the policy was refreshed and updated having
regard to the continuing work of the Parker Review.
In addition, the Board continues to support the roll-out of diversity
training for employees across the Group. 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 has responsibility for ensuring that
at appointment each 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
considered their independence of character and judgement.
During the year, the Nomination Committee formally reviews
requests from the Directors for approval of new Board
appointments they may wish to take up 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. Details of the results of this process are set out
on page 86 in the Corporate Governance Statement.
Ian Krieger, as Senior Independent Non-executive Director,
ledthe Nomination Committee in considering my appointment
as Executive Chairman of Palace Capital PLC, where I had
previously, with the Committee’s approval as noted in the
Annual Report 2022, been serving as Interim Executive
Chairman. This was approved having regard to the fact that
theevolution of this role did not affect my time commitment
tothe Company or create any conflicts of interest.
Harry Hyman resigned from his role as the Non-executive
Chairman of TMT Acquisition plc on 15 February 2024. 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. This assessment continues to apply in Mr
Hyman’s proposed future role as Chair.
It was also considered that the continued commitments of
Ian Krieger as Chairman of the audit committees at Safestore
Holdings plc and Capital & Regional plc did not affect his time
commitment and brought valuable insight from other listed
REITs whose property portfolios did not compete with that of
PHP. Ian expects to step down from each of these roles during
2024 as his term of office at each concludes. Ivonne Cantú’s
other commitments were also not considered to detract from
the time commitment expected ofher or to create any conflicts
of interest.
Acknowledging that Harry Hyman will not be independent
under the Code, the Nomination Committee is confident
that each of the other Non-executive Directors remains
independent and all will be in a position to discharge their
duties and responsibilities in the coming year.
Directors standing for election and re-election
With the exception of my retirement, all the Directors will
stand for re-election at the 2024 AGM, with two new Directors
– Mark Davies and Bina Rawal – also standing for election.
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 72 and 73.
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 pages 85 and 86.
Steven Owen
Chair of the Nomination Committee
27 February 2024
Ivonne Cantú
Chair of the Remuneration Committee
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Remuneration Committee report
Dear shareholder,
On behalf of the Remuneration Committee (the “Committee”),
I am pleased to provide an overview of our work in relation to
both Director and wider workforce remuneration for the year
ended 31 December 2023.
We were encouraged by the very high level of support (98.81%
of votes cast) for the Directors’ Remuneration Report at the
Annual General Meeting held in April 2023 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 97 to 99 in which I provide
an overview of the work of the Committee during the year
and the key decisions which it took in relation to both
Executive Director remuneration and wider workforce
remuneration for the year ended 31 December 2023;
2. the full text of the proposed Directors’ Remuneration Policy
(the ”Policy”) for which approval by shareholders will be
sought at the General Meeting on 24th April 2024 set out
on pages 100 to 107; and
3. the Annual Report on Remuneration, which provides
information on how the Policy adopted at the 2021 General
Meeting has been applied during the year and how we
intend to apply it for 2024, set out on pages 108 to 118.
The Companies Act 2006 requires the auditor to report to
the shareholders on certain parts of the Remuneration Report
and to state whether, in their 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, with a
twenty-seventh consecutive year of dividend growth. The
strong continuous growth of the business was highlighted by
the award of MSCI’s Highest 10-Year Risk Adjusted Total Return
Award.
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.
MEMBERS OF THE REMUNERATION COMMITTEE
(THE “COMMITTEE”) DURING THE YEAR
Member
Number of meetings
and attendance
while in post
Ivonne Cantú (Chair) 3 (3)
Laure Duhot 3 (3)
Ian Krieger 3 (3)
Bracketed numbers indicate the number of meetings the member was eligible
toattend.
Additional attendees invited to attend meetings as appropriate:
Harry Hyman – CEO
Steven Owen – Chair
Korn Ferry
Paul Wright/Toby Newman – Company Secretary & Chief Legal Officer
No individual participated in any matters that involved their own remuneration.
Key responsibilities
Policy
• Setting the remuneration policy for the Chair, Executive
Directors and senior executives (the“Remuneration Policy”)
and ensuring it is aligned to theCompany’s purpose and
values and linked to delivery oftheCompany’s long-term
strategy.
• Reviewing the continued appropriateness and relevance of the
Remuneration Policy.
For further
information
see page 98
Remuneration
• Within the terms of the approved Remuneration Policy and the
Company’s remuneration framework:
• setting the relevant performance objectives and targets for
short and long-term incentive pay; and
• determining the remuneration of the Directors, the Company
Secretary and the senior executives.
• Reviewing and considering remuneration across the Group to
ensure appropriate alignment between the remuneration of
the Directors, senior executives and the Group as a whole.
• 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 99
Reporting
• Preparing 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 108
98 Primary Health Properties PLC Annual Report 2023
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The Remuneration Committee’s activities during the year
The Committee met three times, in February, July and December.
Aside from the Committee’s normal annual programme of work,
in 2023 the Committee worked alongside the ESG committee
to introduce a new ESG metric in the long-term incentive plan
(”LTIP”) and, as part of the Board succession plan implemented
in the year, determined the remuneration related to the new
CEO and Chair appointments.
ESG metrics
The Committee worked alongside the ESG committee and its
external adviser in determining what ESG metrics and targets
were most suited to support our ESG strategy for inclusion in
the long-term incentive plan. In determining the metrics to be
included in the LTIP we had in mind the following core principles:
• measures should be aligned with the Company’s
business strategy;
• targets should be quantitative;
• targets should incentivise a stretch in
management’sperformance;
• performance against targets should be capable of being
externally assured/validated; and
• weighting should be meaningful, but not excessive in the
context of the other LTIP measures.
We concluded that it is most appropriate to include
environmental metrics in the LTIP measured over three years,
and that these should have up to 20% weighting in the LTIP.
For 2024, being the first year of operation, we plan to include a
single metric with a weighting of 15%.
The ESG metric that we believe is best suited for inclusion
in the LTIP at this time is the percentage of our property
portfolio which is rated A or B for EPC purposes. A core part
of our strategy is ensuring that our entire portfolio has an
A or B EPC rating (or equivalent in Ireland and Scotland) by
2030 where economically feasible. For the LTIP awards to be
granted in 2024, we have set a range of targets for increasing
the percentage of our portfolio being rated A or B by the end
of 2026. Other ESG objectives will continue to be considered
when determining the annual bonus for the Executive Directors
and senior executives. These include: executing on the
roadmap to Net Zero for our existing portfolio; continuing to
improve access to energy data for the portfolio; and ensuring
direct developments meet our ESG commitments.
CEO Appointment
As part of the managed Board succession process, the
Committee determined the package for our new CEO, Mark
Davies, and our company Chair, Harry Hyman, both of whom
will take up their roles following this year’s AGM.
Mark Davies’ remuneration is fully in line with our Policy and
there are no awards to be made to replace any incentives lost
on joining the Company. He will be paid a salary of £525,000,
a 6% pension allowance with an annual bonus opportunity of
150% of his salary and a long-term incentive award of 200% of
his salary.
Chair appointment
Harry will be paid an annual fee of £195,600 (being the same
fee level paid to Steven Owen in 2024).
Policy Review
The Committee reviewed the operation of the Directors’
Remuneration Policy during the period since it was approved
by shareholders to operate from January 2021 when the
management team was internalised. We considered feedback
received from our shareholders, proxy voting agencies and
our employees. We concluded that it did not require material
change and so we are proposing only fairly minor changes for
the next three years. These are set out on page 100.
At the December meeting the Committee agreed I would
write to key shareholders to explain the Company’s planned
approach to renewal of the Directors’ Remuneration Policy;
inclusion of ESG performance conditions in our LTIP plan; and
remuneration arrangements for the new CEO.
The other areas of focus for the Committee in 2023 were:
• approval of the salary increase for the CFO and senior
managers alongside the wider workforce salary budget;
• agreeing annual bonus targets for 2023 for the Executive
Directors and senior management team;
• review and approval of the 2023 LTIP grant and the
associated performance conditions;
• discussion and approval of Executive Director and senior
manager remuneration outcomes for 2022;
• consideration and approval of the Directors’ Remuneration
Report set out in the Annual Report for 2022; and
• a review of pay, pensions and benefits across the workforce
to ensure that it continues to be aligned with executive
pay and sufficient to retain and attract quality staff. We
recognise that it is critical that our employees feel valued
and this needs to be reflected in fair pay.
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 Committee report continued
99Primary Health Properties PLC Annual Report 2023
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Remuneration in 2023
Base salaries
The base salaries for the CEO of £413,438, and for the CFO of
£360,000 applied for the whole year.
Annual bonus outcome
Following the ending of the CEO’s participation in the legacy
PIF incentive plan, the CEO moved to participate in the annual
bonus plan alongside the CFO. Targets for the 2023 annual
bonus set by the Committee were based as to 70% of the
total opportunity on the achievement of financial targets
(adjusted earnings and total property return) and 30% on the
achievement of personal targets. The rationale for selecting
EPRA earnings and Total Property Return (TPR) is that these
arethe 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 £90.7 million
against a threshold target of £88.2 million and maximum of
£90.9 million and the total property return in the year was 3.5%
against a threshold target of 3.5% and maximum of 6.5%. The
Committee assessed that 95% of the personal targets should
be paid out for the CEO and 95% for the CFO. Full details of
how this assessment was carried out are set out on pages 110
to 112.
In total, the overall bonus pay-outs were 71% of maximum,
representing 106% of salary (maximum 150% ofsalary) of
which 30%, net of tax was deferred into PHP shares for the
CFO, to be held for a period of three years in accordance
withthePolicy.
LTIP
The CEO did not participate in the LTIP in 2023. Richard Howell
as CFO was awarded a nil-cost option over 414,874 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 claw back in the event of malus.
Full details of the performance conditions attaching to the
award can be found on page 103.
The LTIP award granted in 2021 (including to Richard Howell)
has partially met the performance targets set at the time of its
grant. As a result 7.7% of the award vests. Full details of the
performance against the targets are included on page 112.
The Committee did not feel that there were any circumstances
that warranted it to exercise discretion over the last twelvemonths.
Planned activities for 2024
We set out below the activities which the Committee expects
to undertake in 2024:
• our normal oversight of the annual remuneration cycle
including approving Company-wide salary increases,
approving the annual bonus and LTIP targets for 2024 and
measuring performance against the bonus targets;
• consideration of the merits for the inclusion of a second ESG
element in LTIP awards in 2025;
• review of Executive Director and senior manager salaries;
• review of wider workforce pay policies and practices and
feedback from workforce engagement; and
• finalising the wording our Directors’ Remuneration Policy and
presenting it for approval at the 2024 AGM.
Committee composition
There were no changes in the composition of the Committee
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
challenging market and economic conditions. TheCommittee
believes that the 2023 remuneration outcomes are appropriate
and reflective of the business performance andthe wider
economic and market context, and that the Remuneration
Policy operated as intended during the year.
I believe that we have put in place appropriate remuneration
structures to reward and retain the Executive Directors and
the senior management team. 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 resolutions to approve
the Directors’ Remuneration report and the Directors’
Remuneration Policy at our forthcoming 2024 AGM.
Ivonne Cantú
Chair of the Remuneration Committee
27 February 2024
100 Primary Health Properties PLC Annual Report 2023
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Directors’ remuneration report
PART 1: THE NEW POLICY
This new Directors’ Remuneration Policy (“Policy” or “new Policy”) will be put to a binding shareholder vote at the 2024 AGM and,
if approved, will be effective immediately thereafter (in place of the current Directors’ Remuneration Policy approved at the 2021
AGM (“current Policy”) which will continue to apply until such time). It is currently intended that the new Policy will remain in force
until the Company’s AGM in 2027.
The overall Remuneration Policy of the PHP Group (the “Company”) has been developed in compliance with the principles of the
2018 UK Corporate Governance Code, UK institutional investor guidance and the Listing Rules.
There are no significant changes being proposed in 2024 to the Policy approved in 2021, which is proposed to roll over for the
next three years, with only minor changes, either of a housekeeping nature (e.g. to remove legacy arrangements such as the PIF)
or intended to provide some additional minor flexibility or clarity for the next three years. The PIF has been removed from the
Policy as it is a legacy plan.
In determining the proposed new Policy the Committee reviewed the extent to which the current Policy was working in the
context of the current business strategy and therefore its alignment with the strategic direction of the Company. It also took into
account the alignment to the wider pay policy across the Group, the evolving expectations of our shareholders and stakeholders,
the appropriateness from a risk appetite perspective, and feedback from shareholders during the Policy period.
Key principles of the new Policy
The Company is committed to ensuring that its remuneration practices enable the Company to appropriately compensate
employees for the services they provide to the Company, attract and retain employees with skills required to effectively manage
the operations and growth of the business and motivate employees to perform in the best interests of the Company.
The Company’s remuneration principles ensure that:
• the Company offers a suitable package to attract, retain and motivate people with the skills and attributes needed to
deliver the Company’s business goals, while recognising the unique nature of the organisation and the requirements of
itsshareholders;
• the Company’s policy and practices aim to drive behaviours that support the Company strategy and business objectives; and
• the Company’s incentive plans are linked to Company and individual performance to encourage high performance from staff
both at an individual and team level.
These policy objectives will be achieved by ensuring remuneration is reflective of applicable market conditions, statutory
obligations and the level of accountability (responsibility, objectives, goals) assigned to the provision of incentives to deliver
outstanding performance, whilst providing organisational flexibility and operational efficiency.
In addition, the new Policy is tested against six factors listed inthe Corporate Governance Code:
• Clarity – the new Policy is well understood by the management team and is clearly articulated to shareholders;
• Simplicity – 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 – the new 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 incentive plans are subject to individual caps, with the share plans also subject to market standard
dilution limits;
• Proportionality – 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, together with the structure of the Executive Directors’ service contracts,
ensures that poor performance is not rewarded; and
• Alignment to culture – the executive pay policies are fully aligned to the Company’s culture.
101Primary Health Properties PLC Annual Report 2023
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PART 1: THE NEW POLICY CONTINUED
Key elements of the new Policy
Pay element and purpose Operation Opportunity
Performance metrics, weighting
andassessment
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 normally 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
theCompany;
• the performance of the individual
Executive Director;
• the individual Executive Director’s
experience and responsibilities;
• the general performance of
theCompany;
• 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 at a rate
no higher than 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
untilthe target positioning
isachieved.
None.
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 ifany).
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 byDirectors.
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.
None.
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Pay element and purpose Operation Opportunity
Performance metrics, weighting
andassessment
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/allowance as a
percentage of basic salary will
be in line with the contribution
level provided to the majority
of the workforce (currently 6%
ofsalary).
None.
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
forshareholders.
The Committee will determine the
bonus payable after the year end based
on performance againsttargets.
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, normally 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.
The maximum bonus
opportunity is 150% of salary.
Discretionary bonus payouts 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 to
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).
PART 1: THE NEW POLICY CONTINUED
Key elements of the Policy continued
Directors’ remuneration report continued
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Pay element and purpose Operation Opportunity
Performance metrics, weighting
andassessment
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 sustainablemanner.
Awards can be granted annually to
Executive Directors under the LTIP
inthe form of nil-cost options or
conditional awards of shares. These
would vest at the end of a three-year
period, normally subject to:
• the Executive Director’s
continuedemployment at
thedateofvesting; and
• satisfaction of the
performanceconditions.
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
anadditional 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
to200% of base salary in
normal circumstances.
No more than 25% of the
award will vest for threshold
performance. 100% of
theaward will vest for
maximumperformance.
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
theformulaic outcome is, in the
view ofthe Committee, not a
fairand accurate reflection
ofbusiness performance.
The performance measures for
awards to be granted in 2024 are
expected to be: earnings per share
(42.5% wieghting), total accounting
return (42.5% wieghting) and the
improvement in a specified
percentage of our properties that
are EPC rated A or B (15%
weighting). The Committee may
change the balance of the measures
and/or use different measures for
subsequent awards, as appropriate.
All-employee share plan
To encourage share ownership. The Company currently operates an
all-employee savings related share-
option plan. To the extent the Company
operates this or any future all-employee
share plan, the Executive Directors will
be able to participate on the same
terms as otheremployees.
Actual participation in these
plans will be disclosed in
therelevant Annual Report
following the implementation
and participation in
theseplans.
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
beemployed.
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
therole.
Fees are set in conjunction with
theduties undertaken.
Normally only increased when
anindividual takes on additional
dutiesor where benchmarking
indicatedfees require realignment
toremain competitive.
Overall fees will not
exceedthe maximum in
theCompany’s Articles
ofAssociation.
None. The NEDs are not entitled to
receive any remuneration which is
performance related. As a result,
there are no performance conditions.
PART 1: THE NEW POLICY CONTINUED
Key elements of the Policy continued
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PART 1: THE NEW POLICY CONTINUED
Choice of performance measures
Each year, the Committee will choose the appropriate
performance measures and targets to apply to the Annual
Bonus Plan and LTIP. The measures will be closely aligned with
the Company’s strategy and business priorities at the time and
will be consistent with a Board-approved level of business risk.
Malus and clawback
Malus and clawback provisions within the Annual Bonus Plan,
PIF(a legacy plan) and LTIP apply in the following circumstances:
• material misstatement of results;
• gross misconduct;
• error in calculating the number of shares subject to an
award or the amount of cash paid;
• corporate failure; or
• serious reputational damage.
Discretion
The Committee will operate the Annual Bonus Plan, PIF and
LTIP according to their respective rules and in accordance with
the Listing Rules where relevant. Consistent with market practice,
the Committee retains certain discretions in respect of the
operation and administration of these arrangements which
include, but are not limited to, the following:
• the participants;
• the timing of the grant of an award or payment;
• the size of an award;
• the determination of the extent to which performance
measures have been met and the corresponding vesting or
payment levels;
• discretion required when dealing with a change of control or
restructuring of the Group;
• determination of the treatment of leavers based on the
rules of the respective arrangement and the appropriate
treatment chosen, including the pro-rating of awards;
• adjustments required in certain circumstances (e.g. rights
issues, corporate restructuring events and special dividends);
• the annual review of performance measures, weighting and
targets from year to year; and
• the manner in which share awards can be satisfied (i.e.
through the use of new issue, market purchased or treasury
shares or by way of a cash payment).
In addition, the Committee retains the ability to adjust the
targets and/or set different measures if events or circumstances
occur (e.g. a material acquisition and/or divestment of a Group
business) which cause it to determine that the conditions are
no longer appropriate and the amendment is required so that
the conditions achieve their original purpose. Any use of the
above discretions would be explained in the Annual Report on
Remuneration for the relevant year and may, as appropriate, be
the subject of consultation with the Company’s major shareholders.
Furthermore, the Committee has the discretion to amend the
new Policy with regard to minor or administrative matters
where it would be, in the opinion of the Committee, in the best
interests of the Company, and disproportionate to seek or
await shareholder approval.
Dilution limits
Market standard dilution limits will apply to the operation of
the Company’s share plans (e.g. no more than 10% of share
capital can be issued in relation to any share plan operated by
the Company in any ten-year period, and no more than 5% can
be issued in relation to any discretionary share plan (such as
the LTIP) in the same ten-year period).
Differences in New Policy for the wider
employeepopulation
The Group aims to provide a remuneration package for all
employees that is market competitive and operates the same
reward and performance philosophy throughout the business.
The Group operates variable pay plans primarily focused on mid
to senior management level. In some cases, incentive structures
and performance conditions apply which are different to
those used for Executive Directors in order to ensure the
performance targets set can be influenced and controlled by
the participant. In addition, the Committee takes into account
workforce remuneration and related policies and the alignment
of incentives and rewards with culture when setting the policy
forExecutive Directors’ remuneration.
Directors’ remuneration report continued
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PART 1: THE NEW POLICY CONTINUED
Scenario charts
The chart below illustrates the annual remuneration opportunity provided to the CEO and CFO under the new Policy at different
levels of performance for the financial year.
In line with the Companies (Miscellaneous Reporting) Regulations 2018, the maximum scenario illustrates the potential remuneration
payable if the share price increased by 50% (i.e. the value of the LTIP award increased by 50% between grant and vesting).
1. Minimum performance: comprising the minimum remuneration receivable (i.e. fixed pay only, being base salary, pension
allowances and an estimate of other benefits based on those received in 2023).
2. On-target performance: comprising fixed pay or annual bonus of 50% of the maximum opportunity, being 150% of salary and
LTIP awards vesting at the threshold level of 25% of salary. The illustration is made using the maximum remuneration that can
be achieved.
3. Maximum performance (excluding and including sharepricegrowth): comprising fixed pay and annual bonus of 100% of the
maximum and 100% vesting of LTIP awards. The maximum performance scenario also illustrates potential payout under the
LTIP with a 50% share pricegrowth.
The illustrations do not take into account the value of dividends payable on LTIP awards.
Recruitment policy
The Company’s strategy is to attract and retain a talented and
diverse workforce.
The Company’s approach is that the remuneration of any newly
recruited Executive Directors will be assessed in line with the
same principles as apply to the existing Executive Directors.
The Committee is mindful that it wishes to avoid paying more
than it considers necessary to secure the preferred candidate
and will have regard to guidelines and shareholder sentiment
regarding enhanced short term or long term incentive
payments made on recruitment and the appropriateness
of any performance measures associated with an award.
Subject to the paragraph below, the incentive awards that
can be received in any one year will not exceed the maximum
individual limits as set out in the new Policy.
The Committee’s policy is not to provide sign-on compensation.
In addition, the Committee’s policy is not to provide buyouts as
a matter of course. However, should the Committee determine
that the individual circumstances of recruitment justified the
provision of a buyout, the equivalent value of any incentives
that will be forfeited on cessation of a Director’s previous
employment will be estimated. This will take into account,
among other things, the performance conditions attached to
the vesting of these incentives, the timing of vesting, the
likelihood of vesting and the nature of the awards (cash or
equity). The Committee may then grant a buyout of a value that
takes account of the value of the lapsed award, where possible,
under the Company’s incentive plans. To the extent that it is
not possible or practical to provide the buyout within the terms
of the Company’s existing incentive plans, the Committee may,
in exceptional circumstances, consider it appropriate to grant
an award under a different structure to facilitate a buyout of
outstanding awards held by an individual on recruitment.
Minimum Target Maximum Maximum (with
50% share price
appreciation)
Minimum Target Maximum Maximum (with
50% share price
appreciation)
100%
100%
50%
15%
35%
28%
24%
33%
39%
50%
15%
35%
28%
33%
39%
24%
42%
34%
42%
34%
£2,400k
£2,200k
£2,000k
£1,800k
£1,600k
£1,400k
£1,200k
£1,000k
£800k
£600k
£400k
£200k
£0k
£559k
£412k
£1,116k
£821k
£2,002k
£1,471k
£2,330k
£1,711k
Chief Executive Officer Chief Financial Officer
Fixed pay
LTIP LTIP value with 50% share price growth Annual bonus
106 Primary Health Properties PLC Annual Report 2023
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PART 1: THE NEW POLICY CONTINUED
Recruitment policy continued
Where an existing employee is promoted to the Board, or was
previously remunerated by a company that subsequently
becomes a Group company, the policy set out above would
apply from the date of promotion or that company becoming
part of the Group but there would be no retrospective
application of the policy in relation to subsisting incentive
awards or remuneration arrangements. Accordingly, prevailing
elements of the remuneration package would be honoured and
form part of the ongoing remuneration of the person concerned.
These would be disclosed to shareholders in the Annual Report
on Remuneration for the relevant financial year.
The Company’s approach is that the remuneration of any
newlyrecruited Non-executive Director will be assessed in
linewith the same principles as apply to the existing Non-
executive Directors.
The Company will not pay any introductory fee or incentive to
any person to encourage them to become a Director but may
pay fees to search and selection consultants in connection with
the appointment of any Non-executive Director.
Service agreements and letters of appointment
Executive Directors
Harry Hyman’s service contract has a twelve-month mutual
notice period. Richard Howell’s contract has a six-month mutual
notice period. The Company’s policy is for Executive Directors
to have service agreements with no fixed term, but which may
be terminated by the Company for breach by the Executive or
with no more than twelve months’ notice from the Company to
the Executive and twelve months’ notice from the Executive to
the Company.
If notice is served by either party, the Executive Director can
continue to receive base salary, contractual benefits and
pension for the duration of their notice period during which
time the Company may require the individual to continue to
fulfil their current duties or may assign a period of garden
leave. Service contracts do not contain liquidated
damagesclauses.
The Company may elect to make a payment in lieu of notice
equivalent in value to a maximum of twelve months’ base salary
and contractual benefits including pension contribution but
excluding variable pay, payable in equal monthly instalments.
Alternatively, the Committee retains the discretion to make
payments in lieu of notice as a lump sum.
In the event of termination for cause (e.g. gross misconduct)
neither notice nor payment in lieu of notice will be given and
the Executive Director will cease to perform their services immediately.
In addition, and consistent with market practice, the Company
may pay a contribution towards the Executive Director’s legal
fees for entering into a statutory agreement, may pay a contribution
towards fees for outplacement services as part ofa negotiated
settlement, or may make a payment to compromise claims the
Executive Director may have. There isno provision for additional
compensation on termination following a change of control.
Payment may also be made inrespect of accrued benefits,
including untaken holiday.
The contracts of the Executive Directors and the appointment
letters of the Non-executive Directors will be available for
inspection at the 2024 AGM and, at registered office during
business hours from the date of the notice convening the meeting.
Incentive awards – treatment on cessation
Remuneration element Treatment on exit
Salary, benefits
andpension
Salary, benefits and pension will be paid over the notice period. The Company has discretion to make
alump sum payment on termination equal to the salary, value of contractual benefits and value of
Company pension contributions payable during the notice period. In all cases the Company will seek
tomitigate any payments due.
Annual Bonus Plan
Good leaver reason (reasons outlined below) – normally pro-rated to time and performance for year
ofcessation, and payable at the year end. Deferred shares delivered in full at normal vesting date.
Other reason – no bonus payable for year of cessation and unless they are already owned by the Director,
deferred shares normally lapse.
LTIP
Good leaver reason – normally pro-rated to time and performance in respect of each subsisting LTIP
award, with awards vesting at the original date. The Company will have the discretion to allow awards to
vest early in exceptional circumstances.
Other reason – lapse of any unvested LTIP awards. Vested LTIP awards will be retained by Executive Directors.
The Committee has the following elements of discretion:
• to treat a leaver as a “good leaver”. It is the Committee’s intention to only use this discretion in
circumstances where there is an appropriate business case to do so;
• whether to measure performance over the original performance period or at the date of cessation; and
• the Committee’s policy is generally to pro-rate awards from the date of grant to the date of cessation.
The Committee has the discretion to adopt a different approach to pro-rating and the timing of vesting
where it is felt appropriate and there is an appropriate business case to do so.
Directors’ remuneration report continued
107Primary Health Properties PLC Annual Report 2023
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PART 1: THE NEW POLICY CONTINUED
Service agreements and letters of appointment continued
Incentive awards – treatment on cessation continued
A good leaver reason may include cessation in the following circumstances:
• death;
• ill health;
• injury or disability; or
• at the discretion of the Committee.
Incentive awards – treatment on a change in control
The Committee’s normal policy on the vesting of incentives on a change of control is summarised below:
Name of incentive plan Change of control Discretion
Annual Bonus
Plan
Pro-rated to time and performance to the
date of the change of control and paid at
that time. Deferred shares released at the
change ofcontrol.
The Committee has discretion to continue the operation of the
Plan to the end of the bonus year (subject to the agreement of
the acquiring company).
LTIP
The number of shares subject to
subsisting LTIP awards vesting on a
change of control will be pro-rated to
time and performance.
The Committee retains absolute discretion regarding the
proportion vesting, taking into account time and performance.
There is a presumption that the Committee will pro-rate for
time, although it may adopt a different approach if it considers
appropriate.
Non-executive Directors
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 Company
requires that all Directors are re-elected at each Annual
General Meeting.
In the event of loss of office, Non-executive Directors do not
have any entitlement of payment upon a loss of office over and
above payment for any notice period and any fees or expenses
due to them but unpaid at the time of termination.
There is no provision for the recovery of sums paid to a
Non-executive Director or the withholding of the payment
ofany sum due to a Non-executive Director.
External appointments
The Board recognises the benefit which the Company can obtain
if Executive Directors serve as non-executive directors of other
companies. Subject to review in each case, the Board’s general
policy is that an Executive Director can accept one non-executive
directorship of another listed company (but not the chairmanship)
and can retain the fees in respect of such appointment.
Such appointments require Board approval and the time
commitment the appointment will require is taken into consideration.
Statement of employment conditions
elsewhere in the Company
The Committee considers pay and employment conditions across
the Company when reviewing the remuneration of the Executive
Directors and other senior employees. In particular, the Committee
considers the range of base pay increases across the Group as
well as wider workforce remuneration and related policies. The
new Policy for the Executive Directors is designed with regard
to the policy for the workforce as a whole. The Committee is kept
updated through the year on general employment conditions and
it approves the budget for annual salary increases. The Company
did not consult with employees in formulating the new Policy.
Consideration of stakeholders’ views
The Company is committed to engagement with shareholders
and will seek major shareholders’ views in advance of making
significant changes to its New Policy and how it is implemented.
The Chair of the Committee will attend the Annual General
Meeting to hear the views of shareholders on the new Policy
and to answer any questions in relation to remuneration.
As disclosed on page 68 no formal consultation with the
workforce on Executive pay was undertaken in the year as
contemplated by Provision 41 of the Code. That said, we are
confident that Executive remuneration is aligned with the wider
Company pay policy, and – having regard to prior engagement,
the Company’s small number of staff, low level of staff turnover
and continuity of approach as regards Executive pay since the
previous consultation – that the workforce continues to be
appropriately appraised on these matters.
108 Primary Health Properties PLC Annual Report 2023
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PART 2: ANNUAL REPORT ON REMUNERATION
On the following pages we set out the Annual Report on Remuneration for the year ending 31 December 2023 which provides
details of how the Policy was applied during the year and the remuneration received by each of the Directors. It also sets out how
we intend to operate the Policy for 2024.
This part of the report has been prepared in accordance with the Companies Act, various companies regulations, and relevant
sections of the Listing Rules. The Annual Report on Remuneration will be put to an advisory shareholder vote at the 2024 AGM.
Implementation of the Policy for 2024
How the new Policy (which is broadly similar to the current Policy) will operate in 2024 is set out below:
Summary of Policy Implementation in the year to 31 December 2024
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 salary for our new CEO will be £525,000 from the date of the AGM
and the salary of the current CEO and the CFO were increased by 8% to
£445,000 and £387,000 respectively, slightly below the average rate of
increase for our workforce across the Group with effect from 1 January 2024.
Pension
Pension funding as an employer contribution
to a defined contribution pension plan or as
asalary supplement. Any pension payments are
not beconsidered ‘salary’ when determining
the extent of participation in the Company’s
incentivearrangements.
An employer pension contribution or cash allowance of 6% of pensionable
salary, in line all other employees of the Group, will be provided for the CFO
and new CEO. Our current CEO does not receive a pension benefit.
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.
In addition, in line with the rest of the workforce, the CFO and new
CEOreceive private health cover, income protection cover and critical
illnesscover.
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 under the bonus plan is 150% of salary for the
CFO and the new CEO.
Harry Hyman will also participate in the annual bonus plan in 2024 up to the
date he leaves.
The bonus will operate as follows:
(i) Financial measures: 70% of opportunity, split equally between (a) EPRA
earnings as adjusted by the Committee to ensure consistency with the basis
on which the targets are set; and (b) Total Property Return.
(ii) Strategy and personal measures: 30% of opportunity split between key
goals of the business for the year ahead, 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.
Directors’ remuneration report continued
109Primary Health Properties PLC Annual Report 2023
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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 and our new CEO will be granted an LTIP award of shares
with a value at grant of 125% and 160% of their salaries respectively.
Harry Hyman will not be granted an LTIP award in 2024.
Other senior executives will also be granted LTIP awards.
The structure and performance conditions of the awards will be changed to
include an Environmental metric with a weighting of 15%. This metric will be a
calculation of the percentage of the property portolio at 31 December 2026
that has at least a B EPC rating. LTIP Awards will vest as follows calculating
the growth from the 2023 base level to the level for 2026.
Performance measure Weighting
Threshold
vesting (25%)
Stretch
vesting (100%)
Total Accounting Return 42.5% 4% pa CAGR 8% pa CAGR
EPRA earnings Per Share 42.5% 3% pa CAGR 8% pa CAGR
% of portfolio with at least a
Brating 15% 46% 50%
Awards vest on a straight line basis for performance between the Threshold
and Stretch targets and lapse if the Threshold is not achieved. The
Committee will have a discretion to change the formulaic outcome of (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 have been increased with effect from
1January 2024 by 8% to the following levels:
Base fee £65,200, SID fee £11,300, Committee Chair fee £11,300. The Chair’s
fee has also been increased with effect from 1 January 2024 by 7.5% to
£195,600.
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 former employees of the manager of the fund, transferred to Nexus
which was the property adviser to PHP, with a more generous benefits package than that available to the Nexus employees at
that time and both groups of employees transferred to PHP following internalisation. Following a review of the benefits package
available to staff, it was decided to harmonise these 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
before payment to them, thereby allowing them to enjoy a saving on national insurance contributions.
Our CEO pay ratio can be seen on page 116.
Widespread share ownership is an objective 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
to offer nil-cost options to our UK colleagues under our PHP Sharesave plan in April, which we expect to offer annually.
PART 2: ANNUAL REPORT ON REMUNERATION CONTINUED
110 Primary Health Properties PLC Annual Report 2023
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PART 2: ANNUAL REPORT ON REMUNERATION 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
31December 2023 and show the comparative figures for the year ended 31 December 2022 in a separate table below:
Salary
2023
£000
Benefits
2
2023
£000
Pension
3
2023
£000
Total
Fixed
2023
£000
Annual
bonus
2023
£000
LTIP
4
2023
£000
SAYE
5
2023
£000
Total
variable
2023
£000
Total
2023
£000
Harry Hyman 413 4 — 417 437 — — 437 854
Richard
Howell
1
360 2 22 384 381 24 — 405 789
1. The CFO earned an annual bonus of (£380,700); the annual bonus is set by the Committee, 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.
2. The CEO and CFO both receive life cover, private health cover, income protection cover and critical illness cover in line with the remainder of the workforce.
3. The CFO receives a pension allowance of 6% of his full salary, the same employer contribution as other members of the PHP pension plan. The CEO does not receive
a pension.
4. The long-term incentive value for 2023 reflects the outturn for the 2021 LTIP scheme that vests in March 2024 at 7.7%. The vesting share price has been estimated
at 96.04 pence, based on the three-month average share price ended 31 December 2023. A total of 24,778 shares were awarded to CFO, and nil to the CEO who
did not participate in the LTIP scheme. None of the 2021 LTIP scheme was attributable to share price appreciation.
5. The CEO and CFO were each granted an option to acquire up to 22,233 Ordinary Shares in the Company at a price of 80.96 pence per share under the PHP
Sharesave plan.
Salary
2022
£000
Benefits
3
2022
£000
Pension
4
2022
£000
Total
Fixed
2022
£000
Annual
bonus
2022
£000
LTIP
5
2022
£000
SAYE
6
2022
£000
Total
variable
2022
£000
Total
2021
£000
Harry Hyman
1
263 — — 263 — — — — 263
Richard Howell
2
336 — 10 346 260 — — 260 606
Notes:
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, they also receive 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.
2023 annual bonus outcome
The bonus scheme for the CEO and CFO in 2023 were based on a mixture of financial targets and personal targets. The maximum potential bonus awards were 150%
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
Adjusted earnings 35% £88.2m £90.9m £90.7m 95%
Total property return 35% 3.5% 6.5% 3.5% 25%
Personal targets
Individual targets 30% See below See below See below See below
Directors’ remuneration report continued
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PART 2: ANNUAL REPORT ON REMUNERATION CONTINUED
2023 annual bonus outcome continued
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 €47.8million ten
year private placement loan note at a fixed rate of
4.195%, whilst exercising £300 million of RCF’s to
2026. Additional hedging was put in place, retaining
the group’s position of 97% of net debt as fixed
orhedged.
The Group’s EPRA cost ratio remains one of the lowest
in the sector at 10.7%, or 10.1% if Axis and direct
vacancy costs are stripped out.
The Committee assessed that the performance
of the CFO had been very strong in this area.
90%
Delivering an
enhanced risk
management
framework
The CFO helped ready the Group for the Corporate
Governance changes for internal controls. Despite
this regulation being amended again and postponed
further, the Group will benefit from improvements
made both operationally and in the external
auditprocess.
The CFO refined the Group’s risk management
framework during the year and positions PHP
well in future periods.
100%
Deliver a plan
showing the
pathwayto deliver our
sustainabilitytargets
Significant investment continues to be 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, with two NZC asset
management pilot schemes commenced. The Group
improved its number of properties rated with an EPC
of A-B from 35% to 42% in the year.
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.
90%
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 210 meetings with our investors and potential
investors during the course of the year.
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
ingeneral.
100%
Through personal
leadership, develop
strong teams working
collaboratively across
the organisation
The CFO has continued to organise and lead regular
all-employee virtual meetings to include staff at
both the London and Stratford-upon Avon offices
that foster a collaborative work culture. The CFO
continued to improve staff training initiatives and staff
survey during the year. The CFO also helped with
the transition of the new CEO and introductions to
keyinvestors.
The Committee considered that the CFO has
demonstrated strong leadership both within the
finance team, where the team ethic is strong
and staff turnover remains very low, as well as
across the workforce as whole.
95%
112 Primary Health Properties PLC Annual Report 2023
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PART 2: ANNUAL REPORT ON REMUNERATION CONTINUED
2023 annual bonus outcome continued
The Committee assessed Richard’s performance against his personal targets after the year end and agreed that a bonus of
71% was payable in respect of this aspect of the annual bonus plan, in the light of his performance against these objectives.
Inreaching this conclusion the Committee determined that Richard had performed strongly during the year and had succeeded
inmeeting many of the targets set for him.
In total, the bonus payable to the CFO in the light of his performance against both the financial targets and personal objectives
was equivalent to 71% of the maximum payable. This resulted in a bonus award of £380,700 of which, in line with the Policy,
£60,531 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 the 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 that stakeholder experience. Specifically, the Committee took
account of the following factors:
• The Company achieved a strong set of financial results with substantial year-on-year growth in EPRA earnings and in EPRA
earnings per share despite a challenging environment for the property sector.
• The Company paid £89.5m in dividends for 2023 to shareholders. The full year dividend for the year ended 31 December 2023,
which was over 100% covered, increased by 3.1% from 6.5 pence to 6.7 pence.
• The Company maintained a strong control over costs, continuing to have one of the lowest EPRA cost ratio in the sector.
On this basis, the Committee felt comfortable that the formulaic bonus outcome reflected the individual Executive Director 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 71% of maximum is reasonable.
LTIP vesting in 2024
The 2021 LTIP awards will vest in March 2024, subject to Total Accounting Return and EPRA earnings per share targets.
Richard Howell was granted a nil-cost option over 266,904 ordinary shares in PHP (the “Award”) which was subject to the
following Performance Targets over a three-year period to 31 December 2023:
Performance measure Weighting Threshold vesting (10%) Stretch vesting (100%)
Total Accounting Return 50% 5% per annum CAGR 10% per annum CAGR
EPRA earnings per share 50% 5% per annum CAGR 10% per annum CAGR
The Award vests on a straight-line basis for performance between the applicable threshold and stretch targets.
Performance achieved and the level of vesting of the Award are as follows:
Performance measure Performance achieved Level of vesting
Total Accounting Return 0% per annum CAGR 0% of the whole award
EPRA earnings per share 5.3% per annum CAGR 7.7% of the whole award
Total 7.7% of the award
The Committee is comfortable that the current Policy operated as intended and that the overall 2023 remuneration paid to
Executive Directors was appropriate.
Share scheme interests awarded during the year
Only Richard Howell participated in the LTIP during the year.
Richard Howell was granted a nil-cost option over 414,874 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 £1.08 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 2025:
Performance measure Weighting Threshold vesting (25%) Stretch vesting (100%)
Total Accounting Return 50% 4% per annum CAGR 8% per annum CAGR
EPRA earnings per share 50% 3% per annum CAGR 8% per annum CAGR
Directors’ remuneration report continued
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PART 2: ANNUAL REPORT ON REMUNERATION CONTINUED
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. TARprovides
continuity with the way the legacy PIF calculated 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.
Harry Hyman and Richard Howell also participate in the PHP Sharesave plan. Both Harry Hyman and Richard Howell entered into a
savings contract to save £500 per month (the maximum sum permitted under the plan rules) and hold options granted in 2023 to
acquire 22,223 ordinary shares of 12.5 pence at a price of 80.96 pence per share.
The Company may fund its share incentives through a combination of new issue and/or market purchase shares. The Company
monitors the level of share grants and the impact of these on the continuing requirements for shares. In accordance with
guidelines set out the Investment Association the Company can issue a maximum of 10% of its issued share capital in a rolling
10-year period to employees under all its share plans, with an inner limit of 5% apply to discretionary plans.
Non-executive
Single total figure of remuneration (audited information)
Fees Taxable benefits Total
2023
£000
2022
£000
2023
£000
2022
£000
2023
£000
2022
£000
Steven Owen (Chair) 182 173 — — 182 173
Ian Krieger 82 73 — — 82 73
Ivonne Cantú 71 65 — — 71 65
Laure Duhot 71 63 — — 71 63
The Committee agreed to increase the fee paid to the Chairman by 7.5% with effect from 1 January 2024 at its meeting in
December 2023 and the Board agreed to increase the fees payable to the remaining Non-executive Directors for 2024 by the
same amount.
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 1 April 2017
Mr Hyman entered into a contract of employment with the Company on 5 January 2021 and Mr Howell entered into a revised
contract of employment with PHP Tradeco Limited on 15 April 2021 to reflect the terms of the Policy. Mr Hyman’s contract was
for an initial fixed period of twelve months and can be terminated by either party on giving twelve months notice. Mr Hyman has
informed the Company of his intention to retire as CEO with effect from the annual general meeting in 2024.
Mr Howell’s service contract is a rolling contract that can be terminated by either party on giving six months’ notice.
114 Primary Health Properties PLC Annual Report 2023
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PART 2: ANNUAL REPORT ON REMUNERATION CONTINUED
Appointment of new CEO
The salary for the new CEO will be £525,000 from the date of the AGM, who will also receive an employer pension contribution
of 6% of pensionable salary and will participate in the private medical plan and receive life insurance cover, income protection
and critical illness cover under Group policies. The maximum opportunity under the bonus plan will be 150% of salary and he will
receive a long term incentive award of up to 160% of salary.
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 10
Ivonne Cantú 1 January 2022 14 December 2021 2
Laure Duhot 14 March 2019 14 March 2019 4
Ian Krieger 15 February 2018 15 February 2018 5
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.
Inaddition, 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 2023, the highest and lowest mid-market prices of the Company’s Ordinary Shares were 117.00
pence and 85.50 pence respectively.
Total Shareholder Return Performance %
Directors’ remuneration report continued
PHP
FTSE UK REIT
300
250
200
150
100
50
0
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 31/12/2023
115Primary Health Properties PLC Annual Report 2023
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PART 2: ANNUAL REPORT ON REMUNERATION CONTINUED
CEO Pay
This table shows how pay for the role of the CEO has changed in the last four years. This table will be expanded over future
periods until a 10 year history has been provided. Prior to 2020 the Group was externally managed.
Year
2023
£000
2022
£000
2021
£000
2020
£000
Incumbent Harry Hyman Harry Hyman Harry Hyman Harry Hyman
Single figure of remuneration 854 263 836 574
% of max bonus earned* 71% n/a n/a n/a
% of max LTIP awards vesting* n/a n/a n/a n/a
* Mr Hyman did not participate in the LTIP scheme in any period, nor the annual bonus plan in 2021 and 2022. He received £nil, £nil, £589k and £524k in 2023, 2022,
2021 and 2020 under the PIF.
Remuneration adviser
The Remuneration Committee’s appointed adviser is Korn Ferry who provide 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 £72,003.
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:
2023
£
2022
£ Difference
Directors’ fees
1,587,184
2,236,417
-29%
Pay overall (including Executive Directors)
7,249,565
6,136,166
18%
Dividends 89,545,084 86,722,491 3%
Note: The items listed in the table are as required by the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013
Section 20. The figures for this measure are as shown in Note 4 to the financial statements.
Statement of Directors’ shareholding and share interests (audited)
The interests of each person who served as a Director at any time during the financial year in the share capital of the Company
(all of which are beneficial unless otherwise stated) and any interests of a person connected with such persons (within the
meaning of Section 96B(2) of the Financial Services and Markets Act 2000) are shown below:
Director
Number of shares
owned
beneficially
Number of
shares owned
by connected
persons % of salary held
Total interest
subject to
conditions (LTIP
nil-cost awards)
Total interests
subject to
continued service
condition only
Outstanding
Sharesave
options
Total interests
as at
31 December
2023
Harry Hyman 12,036,674 12,381,736 5,690% n/a n/a 22,233 24,440,643
Richard Howell 431,483 nil 115% 995,523 nil 22,233 1,449,239
Steven Owen 124,358 70,923 n/a n/a n/a n/a 195,281
Ian Krieger 101,481 nil n/a n/a n/a n/a 101,481
Laure Duhot nil 23,169 n/a n/a n/a n/a 23,169
Ivonne Cantú 25,000 nil n/a n/a n/a n/a 25,000
116 Primary Health Properties PLC Annual Report 2023
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PART 2: ANNUAL REPORT ON REMUNERATION CONTINUED
Shareholding guidelines
In accordance with the Policy, in order to ensure that the Executive Directors’ interests are aligned with those of shareholders, the
shareholding guidelines (as a percentage of salary) for the Executive Directors is 200%. In addition, the Executive Directors are
required to retain shares equal 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 2023 are shown below:
Executive Director Requirement
Guideline
holding
Qualifying
holding
% of salary
held
Harry Hyman 200% 796,605 24,418,410 over 200%
Richard Howell 200% 693,642 431,483 120%
The shareholding definition includes shares beneficially owned by the Executive Directors and their connected persons, 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 colleagues 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
2023 Option A 11.5:1 6.8:1 4.4:1
2022 Option A 3.8:1 2.2:1 1.4:1
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. The CEO pay
ratio increased from 2022 to 2023 as a result of the CEO base pay increasing in the period by 57%, higher than the average rate
of increase for our workforce of 7%, reflecting an increased time commitment and a 5% inflationary salary increase (below the
average workforce increase). Additionally for the 2023 period, the CEO’s bonus was 71% of his base pay, compared to 34% for the
wider workforce. The CEO was not paid a bonus in 2022. The company believes that the median pay ratio is consistent with the
pay, reward and progression policies for the company’s UK employees taken as a whole.
2023
CEO 25th 50th 75th
Basic salary 413,438 50,000 80,000 105,000
Benefits 4,539 1,438 1,762 2,757
Pension — 3,000 4,800 7,680
Bonus Plan 437,210 20,000 39,375 79,341
Total Pay 855,187 74,438 125,937 194,778
Directors’ remuneration report continued
117Primary Health Properties PLC Annual Report 2023
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PART 2: ANNUAL REPORT ON REMUNERATION CONTINUED
CEO pay for 2023 has been calculated for the period 1 January 2023 to 31 December 2023 based on the single figure remuneration.
The calculation for the pay of employees at the different levels has been calculated as at 31 December 2023. 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 2023:
• annual basic salary;
• bonus earned in the year;
• employer pension contributions
• Sharesave; and
• life cover.
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 2022 to 2023 % change 2021 to 2022 % change 2020 to 2021
Base
salary/fees Benefits Bonus
Base salary/
fees Benefits Bonus
Base salary/
fees Benefits Bonus
Harry Hyman 57% 175% 0% 6% 0% (100)% 400% 0% 12%
Richard Howell 7% 116% 46% 5% 309% (43)% 7% 0% (24)%
Steven Owen
1
5% n/a n/a 5% n/a n/a 32% n/a n/a
Ian Krieger
1
12% n/a n/a 4% n/a n/a 11% n/a n/a
Ivonne Cantú
1
9% n/a n/a n/a n/a n/a n/a n/a n/a
Laure Duhot
1
13% n/a n/a 5% n/a n/a 9% n/a n/a
PHP employees 10% 18% 7% 7% 135% (2)% n/a n/a n/a
1 The Non-executive Directors receive no benefits and do not participate in the annual bonus scheme.
118 Primary Health Properties PLC Annual Report 2023
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PART 2: ANNUAL REPORT ON REMUNERATION CONTINUED
Statement of shareholder voting
At the 2023 AGM, shareholder voting on the Directors’ Remuneration Report was as follows:
Number
of votes
% of
votes cast
Votes cast in favour 830,500,907 98.81
Votes cast against 10,004,747 1.19
Total votes cast 840,505,654 —
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
27 February 2024
Directors’ remuneration report continued
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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 2023 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, as well as a secondary
listing on the Johannesburg Stock Exchange (JSE: PHP).
Principal activity
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 2023 are contained in the Group’s Strategic Report
on pages 1 to 67 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
asa UK REIT.
Directors
The names and biographical information for the current
Directors can be found on pages 72 and 73. Details of the
Directors who served during the year and the interests of
the Directors and their connected persons in the Company’s
Ordinary Shares can be found in the Directors’ Remuneration
Report on page 115.
The Company’s 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 2024 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 133.
The Company has paid four interim dividends each of 1.675 pence
per Ordinary Share of 12.5 pence (“Ordinary Shares”) for the year,
totalling 6.7 pence per share, each of which has been paid as to
1.34 pence by way of Property Income Distribution (“PID”) and the
remainder, being 0.335 pence, as an ordinary dividend.
Powers of Directors
Subject to the provisions of the Companies Act 2006 (the “Act”),
the memorandum and Articles of Association (the “Articles”) of
the Company and to any directions given by special resolution,
the business of the Company shall be managed by the Board,
which may exercise all the powers of the Company.
Appointment of Directors
Subject to the Articles, and without prejudice to the power of the
Company to appoint any person to be a Director, the Board has
power at any time to appoint any person who is willing to act as
a Director, either to fill a vacancy or as an addition to the existing
Board, but the total number of Directors shall not exceed any
maximum number fixed in accordance with the Articles.
Any Director so appointed shall hold office only until the
next Annual General Meeting of the Company following such
appointment and shall then be eligible for election.
Retirement of Directors
Under the Articles at each Annual General Meeting any Director
who shall have been a Director at each of the two preceding
Annual General Meetings is required to stand for re-election as a
Director. However, the Company has adopted the requirements
of the Code in requiring the annual re-election of all Directors.
Removal of Directors
In addition to any powers of removal conferred by the
Companies Act, the Company may by special resolution remove
any Director before the expiration of their period of office and
may (subject to the Articles) by ordinary resolution appoint
another person to act in their place.
120 Primary Health Properties PLC Annual Report 2023
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Directors’ report continued
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 2024 AGM. No indemnity
was provided and no payments were made pursuant to these
provisions during the year.
Substantial interests
As at 31 January 2024, 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 112,978,980 8.45
Hargreaves Lansdown 77,019,127 5.76
Vanguard Group 69,895,514 5.23
SLegal & General Investment
Management 67,095,993 5.02
SSGA 63,930,076 4.78
Investec Wealth & Investment 61,130,648 4.57
Interactive Investor 41,407,522 3.10
Share capital
At the date of this report, the Company has one class of share
in issue, being 1,336,493,786 million Ordinary Shares of 12.5
pence each, each carrying the right to one vote at general
meetings of the Company and to participate in any dividends
declared in accordance with the Articles. There are no Ordinary
Shares held in treasury. No person has any special rights of
control over the Company’s share capital.
At the 2023 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,
save that VG Corporate Trustee Limited (the “Trustee”), which
administers the Primary Health Properties PLC Employee
Benefit Trust (the “Trust”), made, on the Trust’s behalf, market
purchases (the “Market Purchases”) of 567,000 Ordinary Shares
of 12.5 pence each in the Company (the “Shares”) at a price of
£0.970. The Market Purchases were funded by the Company
by way of a loan. The Shares will be held in the Trust as
unallocated to employees and PDMRs and will be used to meet
future obligations arising under the Company’s share schemes
and share plans, including share awards made to PDMRs of the
Company. The authority to make market purchases referred to
above will expire at the 2024 AGM and it is proposed to seek
renewal of this authority at the 2024 AGM.
At the Annual General Meeting in 2023, the Directors were
granted authority: (i) to allot shares up to a maximum amount
of £55,687,241, representing approximately one-third of the
Company’s issued Ordinary Share capital; and (ii) to allot shares
up to a maximum nominal value of £16,706,172 (representing
approximately 10% of the Company’s issued share capital)
without having to first offer those shares to existing
shareholders ((ii) being referred to below as the “Authority”).
The Directors were also granted authority to allot further
shares up to a maximum nominal value of £16,706,172
(representing approximately 10% 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”).
In relation both to the Authority and the Additional Authority,
the Directors were also granted authority to allot shares up
to a nominal amount of 20% of any allotment pursuant to the
Authority and for the purposes of a “follow-on offer” as defined
in paragraph 3 of Section 2B of the Pre-Emption Group’s
Statement of Principles (November 2022), or a maximum of
2%of the Company’s issued share capital in each case.
The Directors made no use of these powers during the year.
Rights attaching to shares under the Articles
The Company’s Articles do not contain any specific restrictions
on the size of a shareholder’s holding.
Voting rights
Subject to any special rights or restrictions as to voting
attached to any shares by or in accordance with the Articles,
on a show of hands every member who is present in person or
by proxy and entitled to vote has one vote and on a poll every
member who is present in person or by proxy and entitled to
vote has one vote for every share of which he is the holder.
Restrictions on voting
There are no restrictions on exercising voting rights save in
situations where the Company is legally entitled to impose such
restrictions, such as if having been served with a notice under
Section 793 of the Act, a shareholder fails to disclose details
of any past or present beneficial interest. The Company is not
aware of any arrangements between shareholders that may
result in restrictions on the transfer of securities or voting rights.
Transfer
There are no restrictions on the transfer of Ordinary Shares,
other than certain restrictions imposed by laws and regulations
which restrict Directors and persons closely associated with
them from dealing in the Company’s securities without prior
approval under the Company’s share dealing code.
The rights and obligations attaching to the Ordinary Shares, in
addition to those conferred by law, are set out in the Articles.
Amendment of the Company’s Articles
Any amendments to the Company’s Articles may be made by
special resolution. There were no amendments made to the
Articles in the year.
121Primary Health Properties PLC Annual Report 2023
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Change of control
Under the Group’s financing agreements, including the terms of
the £150 million 2.875% convertible bonds due 2025, repayment
or termination of the outstanding amounts on a change of control
may be required by the lenders or bondholders. There are no
agreements between the Company and the Directors providing
compensation for loss of office or employment or otherwise that
occurs specifically because of a change of control.
The Company’s share plans contain provisions that, as a result
of a change of control, options and awards may vest or become
exercisable, in accordance with the rules of the plans.
Suppliers
The Group has not signed up to any specific supplier payment
code. It is PHP’s policy to comply with the terms of payment
agreed with its suppliers. Where specific payment terms are
not agreed, the Group endeavours to adhere to the supplier’s
standard payment terms and aims to settle supplier accounts
promptly in accordance with their individual terms of business.
The number of creditor days outstanding as at 31 December
2023 was eight days (2022: ten days; 2021: ten days).
Annual General Meeting
The Annual General Meeting of PHP (“AGM”) will be held on
24April 2024 at 10.30 a.m. The notice convening the AGM
andexplanatory notes for the resolutions sought will be sent
to shareholders not less than 21 clear days before the date
ofthe meeting.
Full details will be set out in the notice of AGM, but may need to
be altered at short notice, in which case the Company will update
shareholders, as necessary, via a Regulatory Information Service
and the Company’s website at www.phpgroup.co.uk. Shareholders
are advised to check the Company’s website for updates.
Auditor
Deloitte LLP has expressed its willingness to continue in office
as auditor and a resolution to re-appoint it will be put to
shareholders at the AGM.
Employees
As at 31 December 2023, the Group had 58 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 43% of staff took up the offer to
participate in the plan in 2023. Employees are provided
regularly with information regarding the business and other
matters of concern to them at bi-weekly video-conference
calls. In addition, all staff are eligible to participate in a defined
contribution pension scheme. The views of employees are
taken into account when making decisions that might affect
their interests. The Company encourages openness and
transparency, with staff having regular access to the senior
management and being given the opportunity to express views
and opinions.
Further details of how the Directors engage with employees
can be found on pages 46 to 49 and in the Corporate
Governance section on page 78.
The Group is committed to the promotion of equal
opportunities, supported by its Equality, Diversity and Inclusion
Policy which is informed by and aligned to the Listing Rules.
The policy reflects both current legislation and best practice.
It highlights the Group’s obligations to race, gender, socio-
economic and disability equality.
Full and fair consideration is given to applications for
employment from disabled persons and appropriate training
and career development are provided.
Donations
The Group does not make any political donations. Details of the
charitable donations made in the year are set out on pages 44
and 45 in the Responsible Business section.
Share service
The Shareholder Information section on page 188 provides
details of the share services available.
Financial instruments
The Group’s financial risk management objectives and policies
are discussed in Note 17.
Post balance sheet events
Details of events occurring since the year end are given in Note
25 on page 164.
Going concern
The Group’s business activities together with the factors likely to
affect its future development, performance and position, along with
the financial position of the Group, its cash flows, liquidity position
and borrowing facilities, are set out in the Strategic Report.
The Group’s property portfolio is 99.3% occupied with over 89%
of its income funded directly or indirectly from government
sources and the average WAULT across the Group’s portfolio is
10.2 years.
As at 31 December 2023, the Group had £321 million of
headroom on its debt facilities, after commitments to fund
on properties under construction through the course of 2023
with a further £3 million of cash. The weighted Group average
unexpired loan term was 6.6 years.
The Group’s consolidated loan to value ratio, including drawn,
unsecured debt, is 47.0% 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 57% and Group income
by approximately 39% before the LTV ratio and income covenants
across the Group are 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.
122 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements 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 67
Principal risks
Risk Management section of the Strategic Report See pages 60 to 66
Viability statement See page 67
Directors’ details
Directors’ biographies See pages 72 and 73
Directors’ share interests
Remuneration Committee Report See page 115
Section 172 statement
Responsible Business section of the Strategic Report See page 59
Greenhouse gas emissions
Responsible Business section of the Strategic Report See pages 34 to 51
Financial instruments
Note 16 See pages 156 and 157
Financial risk management policies
Risk Management section of the Strategic Report See pages 60 to 66
Related party transactions
Note 24 See page 164
Subsequent events
Note 25 See page 164
All other sub-sections of LR9 .8.4 are not applicable. Information that fulfils the requirements of LR 9.8.6(5) and 9.8.6(6) can be
found in the Corporate Governance Statement on pages 76 to 87 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 72 and 73.
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 27 February 2024.
By order of the Board
Toby Newman
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
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Directors’ responsibility statement
Statement of Directors’ responsibilities in respect
ofthe 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 Accounting Standards in
conformity with the requirements of the Companies Act
2006 and UK-adopted International Accounting Standards
(“IFRS”). The Directors have also 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
themconsistently;
• 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 is 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 27 February 2024 and is signed on its behalf by:
Steven Owen
Chair
27 February 2024
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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 2023 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 26 to the Group financial statements; and
• the related notes 1 to 18 to the Company financial statements.
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
ourreport.
We are independent of the Group and the Company in accordance with the ethical requirements that are relevant to our audit
ofthe financial statements in the UK, including the Financial Reporting Council’s (the “FRC’s”) Ethical Standard as applied to
listedpublic interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Thenon-audit services provided to the Group and Company for the year are disclosed in note 4 to the financial statements.
Weconfirm that we have not provided any non-audit services prohibited by the FRC’s Ethical Standard to the Group or
theCompany.
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 rental values applied in the valuation of investment property.
Materiality The materiality that we used for the Group financial statements was £28.5m which was determined
onthe basis of 2% of net assets.
Further to net assets, we considered EPRA Earnings to be a critical financial performance measure
forthe group and we applied a lower threshold of 5% (£4.7 million) for items affecting EPRA Earnings.
Scoping Our scope has remained consistent with the prior year. We performed full scope audit procedures
across the entire Group.
Audit work to respond to the risks of material misstatement was performed directly by the Group
audit engagement team.
Significant changes
inourapproach
There were no significant changes in our approach in the current year.
Independent auditor’s report
to the members of Primary Health Properties PLC
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REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS CONTINUED
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
ofaccounting included:
• obtaining an understanding of relevant controls over management’s process for evaluating the Group and Company’s ability
tocontinue as a going concern, including the identification and evaluation of the financial impact of relevant business risks
andthe method, model and assumptions applied by management in assessing going concern;
• obtaining an understanding of the financing facilities available to the Group and the 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 going concern model, including the recalculation of current and forecast
covenant compliance, together with the impact of the sensitivities applied;
• performing a retrospective review of management’s historical forecasting accuracy;
• challenging the key assumptions applied in management’s going concern model, including forecast valuation movements,
rentalincome cash flows and capital expenditure with reference to market data and other external information;
• challenging the appropriateness of the sensitivity analysis, including the ‘additional stress-testing’ performed by management
with reference to the forecasts, historical performance and other external data;
• assessing the level of headroom in the forecasts with reference to both liquidity and financial covenants such as loan to value
and interest cover ratios;
• 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
aperiod of at least twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the Group and Company 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.
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.
126 Primary Health Properties PLC Annual Report 2023
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REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS CONTINUED
5. Key audit matters continued
5.1. Estimation of property yields and 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
valuein the financial statements. The portfolio is valued at £2,779.3 million as at 31 December 2023
(2022: £2,796.3 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 portfolio is valued by the investment method of valuation, however with development properties
adeduction 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
theWeighted Average Unexpired Lease Term (“WAULT”), together with the age and specification
of the asset. These factors, in combination with prevailing market yields, comparable transactional
evidence and market sentiment are then considered in determining property specific assumptions
foryields and rental values.
The estimation of property yields and rental values is inherently subjective and a small change in
theseassumptions can materially impact the valuation of the property portfolio. We therefore consider
these assumptions to constitute 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
inputs and therefore the valuation. Whilst the primary healthcare market has demonstrated resilience
and the Group’s portfolio is regarded as critical infrastructure, there continues to be a limited volume
of transactions and therefore less transactional evidence as well as increasing uncertainty caused
by macro-economic conditions such as high interest rates, increasing the risk associated with these
assumptions and therefore the valuation of the property portfolio.
Please see the accounting policy in note 2.3 and investment property related disclosures including
sensitivity of significant unobservable inputs in note 10 to the financial statements. The consideration
of this risk by the Audit Committee is described at page 90.
Independent auditor’s report continued
to the members of Primary Health Properties PLC
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REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS CONTINUED
5. Key audit matters continued
5.1. Estimation of property yields and rental values applied in the valuation of investment property continued
How the scope of our
audit responded to the
keyaudit matter
We carried out the following audit procedures to address the risk associated with this key audit matter:
• We obtained an understanding of relevant controls established by management to ensure correct
information is provided to the external valuers, and to oversee and review the work performed by
theexternal valuers.
• We assessed the competence, capabilities and objectivity of the external valuers and read their
terms of engagement to determine whether there were any matters that might affect their
objectivity or may have imposed scope limitations on their work.
• We assessed the external valuation reports for all properties and evaluated whether the valuation
approach is consistent with the RICS guidelines and therefore suitable for use in determining the
fairvalue recorded within the Group’s balance sheet.
• With the assistance of our real estate specialists, we challenged the external valuers of the portfolio.
We discussed and challenged the valuation process and assumptions adopted with a principal
focus on the yields and rental values adopted. We compared these to publicly available information,
including average yields quoted by competitors, external evidence and (where applicable)
comparable property transactions.
• To challenge the rental values, we tested the accuracy of rent reviews completed in 2023 and
compared management’s forecast rent reviews to the rental values adopted by the external valuers.
• We tested the integrity of the data provided to the external valuers. This included tracing a sample
of information provided to the external valuers to underlying lease agreements.
• We 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 real estate specialists to obtain an overall understanding
of the primary healthcare property markets in the UK and Ireland and to support our challenge of the
work of the Group’s external valuers.
• 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 rental values in arriving at the fair
value of the Group’s property portfolio were appropriate.
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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 Parent company financial statements
Materiality £28.5 million (2022: £29 million) and a lower
materiality of £4.7 million (2022: £4.4 million) for
balances impacting EPRA earnings.
Materiality for the Company has been
determined as £24.8 million (2022: £26.9 million).
Basis for determining
materiality
2% of net assets (2022: 2% of net assets).
The lower materiality used for balances impacting
EPRA earnings was determined using 5% (2022: 5%) of
EPRA Earnings.
2% of net assets (2022: 2% of net assets).
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 £4.7 million
(2022: £4.4 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 setting materiality.
NAV £1,423.9m
n Net Asset Value (“NAV”)
n Group materiality
Materiality for
itemsimpacting
EPRAearnings £4.7m
Audit Committee reporting
threshold £1.4m
Company materiality £24.8m
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 Parent company financial statements
Performance materiality 70% (2022: 70%) of Group materiality. 70% (2022: 70%) of Company materiality.
Basis and rationale
fordetermining
performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that,
inaggregate, 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 £28.5m
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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 £1.4 million
(2022:£1.4 million), 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 a 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 within 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, cash, payroll, financial reporting and expenditure processes.
Whilst we have tested the relevant controls within the investment properties, revenue, cash, payroll and expenditure business
cycles, we did not place reliance on them. We note the Audit Committee’s discussion of the control environment in their report
onpage 92.
7.3. Our consideration of climate-related risks
The Group continues to develop its assessment of the potential impacts of climate change. Management have assessed and
quantified the potential risks of climate change and planned potential actions to address the 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
UKand Irish Governments’ target of 2050.
As a part of our audit procedures, we 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 requirements of the Task
Force on Climate-related Financial Disclosures (“TCFD”) Recommendations.
We also reviewed 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 on the financial statements.
With the involvement of our climate change specialists, we read the disclosures included within the Strategic Report to consider
whether they are materially consistent with the financial statements and our knowledge obtained during the audit.
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.
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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
dueto 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 ahigh 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, including those that are specific to the Group’s sector;
• 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
ofnon-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; and
• 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 area of the estimation of property yields and 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 framework 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
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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 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 matter in more detail and also describes the specific procedures we performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect on the financial statements;
• enquiring of management, the Audit Committee and 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
ofthe 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 121;
• 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 67;
• the Directors’ statement on fair, balanced and understandable set out on page 91;
• the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on
pages 62 to 66;
• the section of the Annual Report that describes the review of effectiveness of risk management and internal control
systems set out on page 92; and
• the section describing the work of the Audit Committee set out pages 88 to 93.
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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 re-appointed by the Board on 18 October 2022 to audit the
financial statements for the year ending 31 December 2023 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of the firm is eleven years, covering the years ending 31 December 2013
to31 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,
orforthe opinions we have formed.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.15R – DTR 4.1.18R,
these financial statements form part of the Electronic Format Annual Financial Report filed on the National Storage Mechanism
of the FCA in accordance with DTR 4.1.15R – DTR 4.1.18R. This auditor’s report provides no assurance over whether the Electronic
Format Annual Financial Report has been prepared in compliance with DTR 4.1.15R – DTR 4.1.18R.
Daryl Winstone, FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP,
Statutory Auditor
London,
United Kingdom
27 February 2024
Independent auditor’s report continued
to the members of Primary Health Properties PLC
133Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
Group statement of comprehensive income
for the year ended 31 December 2023
| 2023 | 2022 | ||
| Notes | £m | £m | |
Rental and related income | |||
Direct property expenses | ( | ( | |
Net rental and related income | 3 | ||
Administrative expenses | ( | ( | |
Amortisation of intangible assets | ( | ||
Axis acquisition costs and JSE listing fees | ( | ||
Total administrative expenses | 4 | ( | ( |
Revaluation deficit on property portfolio | 10 | ( | ( |
Profit on sale of land and property | 10 | ||
Total revaluation deficit | ( | ( | |
Operating profit | 4 | ||
Finance income | 5 | ||
Finance costs | 6a | ( | ( |
Fair value loss on derivative interest rate swaps and amortisation of hedging reserve | 6b | ( | ( |
Fair value (loss)/gain on convertible bond | 6c | ( | |
Profit before taxation | |||
Taxation credit/(charge) | 7 | ( | |
Profit after taxation 1 | |||
| Other comprehensive income: | |||
| Items that may be reclassified subsequently to profit and loss | |||
Amortisation of hedging reserve | 21 | ||
Exchange (loss)/gain on translation of foreign balances | ( | ||
| Other comprehensive income net of tax | |||
Total comprehensive income net of tax 1 | |||
| IFRS earnings per share | |||
Basic | 8 | ||
Diluted | 8 | ||
| Adjusted earnings per share | |||
Basic | 8 | ||
Diluted | 8 |
1
2
1 Wholly attributable to equity shareholders of Primary Health Properties PLC.
2 See Glossary of Terms on pages 190 to 192.
The above relates wholly to continuing operations.
134 Primary Health Properties PLC Annual Report 2023
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Group balance sheet
at 31 December 2023
| 2023 | 2022 | ||
| Notes | £m | £m | |
| Non-current assets | |||
Investment properties | 10 | ||
Derivative interest rate swaps | 16 | ||
Intangible assets | |||
Property, plant and equipment | |||
| Current assets | |||
Trade and other receivables | 11 | ||
Cash and cash equivalents | 12 | ||
Derivative interest rate swaps | 16 | ||
Developments work in progress | |||
Total assets | |||
| Current liabilities | |||
Deferred rental income | ( | ( | |
Trade and other payables | 13 | ( | ( |
Borrowings: term loans and overdraft | 14a | ( | ( |
Derivative interest rate swaps | 16 | ( | |
( | ( | ||
| Non-current liabilities | |||
Borrowings: term loans and overdraft | 14a | ( | ( |
Borrowings: bonds | 14b | ( | ( |
Derivative interest rate swaps | 16 | ( | |
Head lease liabilities | 15 | ( | ( |
Trade and other payables | 13 | ( | |
Deferred tax liability | ( | ( | |
( | ( | ||
Total liabilities | ( | ( | |
Net assets | |||
| Equity | |||
Share capital | 18 | ||
Share premium account | 19 | ||
Merger and other reserves | 20 | ||
Hedging reserve | 21 | ( | ( |
Retained earnings | 22 | ||
| Total equity | |||
| Net asset value per share | |||
IFRS net assets – basic and diluted | 8 | ||
Adjusted net tangible assets 2 – basic | 8 | ||
Adjusted net tangible assets 2 – diluted | 8 |
1
1 Wholly attributable to equity shareholders of Primary Health Properties PLC.
2 See Glossary of Terms on pages 190 to 192.
Registered in England Number: 3033634
135Primary Health Properties PLC Annual Report 2023
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| 2023 | 2022 | ||
| Notes | £m | £m | |
| Operating activities | |||
Profit on ordinary activities after tax | |||
| Adjustments to reconcile to operating profit before financing costs: | |||
Taxation (credit)/charge | 7 | ( | |
Finance income | 5 | ( | ( |
Finance costs | 6a | ||
Fair value loss on derivative interest rate swaps and amortisation of hedging reserve | 6b | ||
Fair value loss/(gain) on convertible bond | 6c | ( | |
Operating profit before financing costs | |||
| Adjustments to reconcile Group operating profit before financing costs to net cash | |||
| flows from operating activities: | |||
Revaluation loss on property portfolio | 10 | ||
Profit on sale of land and property | 10 | ( | |
Axis acquisition costs and JSE listings fees | |||
Amortisation of intangible assets | |||
Fixed rent uplift | ( | ( | |
Tax paid/(received) | ( | ||
(Increase)/decrease in trade and other receivables | ( | ( | |
Increase/(decrease) in trade and other payables | ( | ||
Net cash flow from operating activities | |||
| Investing activities | |||
Payments to acquire and improve investment properties | ( | ( | |
Receipts from disposal of properties | |||
Cash paid for acquisition of Axis | ( | ||
Interest received on development loans | |||
Net cash flow used in investing activities | ( | ( | |
| Financing activities | |||
Cost of share issues | ( | ||
Term bank loan drawdowns | 14 | ||
Term bank loan repayments | 14 | ( | ( |
Proceeds from bond issues | 14 | ||
Loan arrangement fees | ( | ( | |
Purchase of derivative financial instruments | ( | ||
Swap interest received | |||
Non-utilisation fees | ( | ( | |
Interest paid | ( | ( | |
Equity dividends paid net of scrip dividend | 9 | ( | ( |
Net cash flow from financing activities | ( | ( | |
Decrease in cash and cash equivalents for the year | ( | ( | |
Effect of exchange rate fluctuations on Euro-denominated cash and cash equivalents | |||
Cash and cash equivalents at start of year | |||
Cash and cash equivalents at end of year | 12 |
Group cash flow statement
for the year ended 31 December 2023
136 Primary Health Properties PLC Annual Report 2023
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Group statement of changes in equity
for the year ended 31 December 2023
| Merger | ||||||
| Share | Share | and other | Hedging | Retained | ||
| capital | premium | reserve | reserve | earnings | Total | |
| £m | £m | £m | £m | £m | £m | |
1 January 2023 | ( | |||||
Profit for the year | ||||||
| Other comprehensive income | ||||||
Amortisation of hedging reserve | ||||||
| Exchange (loss)/gain on translation | ||||||
offoreign balances | ( | ( | ||||
Total comprehensive income | ( | |||||
Share-based awards (“LTIP”) | ||||||
Dividends paid | ( | ( | ||||
Scrip dividend in lieu of cash | ||||||
31 December 2023 | ( | |||||
| Merger | ||||||
| Share | Share | and other | Hedging | Retained | ||
| capital | premium | reserve | reserve | earnings | Total | |
| £m | £m | £m | £m | £m | £m | |
1 January 2022 | ( | |||||
Profit for the year | ||||||
| Other comprehensive income | ||||||
Amortisation of hedging reserve | ||||||
| Exchange gain on translation offoreign | ||||||
balances | ||||||
Total comprehensive income | ||||||
Share issue expenses | ( | ( | ||||
Share-based awards (“LTIP”) | ||||||
Dividends paid | ( | ( | ||||
Scrip dividend in lieu of cash | ( | |||||
31 December 2022 | ( |
137Primary Health Properties PLC Annual Report 2023
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Notes to the financial statements
1. Corporate information
The Group’s financial statements for the year ended 31 December 2023 were approved by the Board of Directors on
27 February 2024 and the Group Balance Sheet was signed on the Board’s behalf by the Chairman, Steven Owen. Primary Health
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
2.3 Summary of significant accounting policies
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Notes to the financial statements continued
2. Accounting policies continued
2.3 Summary of significant accounting policies continued
139Primary Health Properties PLC Annual Report 2023
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2. Accounting policies continued
2.3 Summary of significant accounting policies continued
140 Primary Health Properties PLC Annual Report 2023
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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
141Primary Health Properties PLC Annual Report 2023
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2. Accounting policies continued
2.3 Summary of significant accounting policies continued
Fair value measurements continued
142 Primary Health Properties PLC Annual Report 2023
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Notes to the financial statements continued
2. Accounting policies continued
2.3 Summary of significant accounting policies continued
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| Less than | One to | Two to | Three to | Four to | More than | ||
| one year | two years | three years | four years | five years | five years | Total | |
| £m | £m | £m | £m | £m | £m | £m | |
2023 | 145.0 | 139.9 | 135.4 | 128.0 | 120.7 | 862.8 | 1,531.8 |
2022 | 142.9 | 138.1 | 133.9 | 129.6 | 122.7 | 910.2 | 1,577.4 |
| 2023 | 2022 | |
| £m | £m | |
| Administrative expenses including: | ||
Advisory fees (Note 4a) | — | 0.1 |
Staff costs (Note 4b) | 7.5 | 5.4 |
Performance Incentive Fees (Note 4c) | — | — |
Directors’ fees | 0.4 | 0.4 |
144 Primary Health Properties PLC Annual Report 2023
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Notes to the financial statements continued
4. Group operating profit continued
| 2023 | 2022 | |
| £m | £m | |
Wages and salaries | 7.9 | 6.0 |
Less staff costs capitalised in respect of development and asset management projects | (1.5) | (1.4) |
Social security costs | 0.7 | 0.6 |
Pension costs | 0.3 | 0.2 |
Equity-settled share-based payments | 0.1 | — |
7.5 | 5.4 |
Scheme | Fair value measure |
Long Term Incentive Plan (“LTIP”) | Face value at grant date |
Save As You Earn (“SAYE”) | Face value at grant date |
| 2023 | 2022 | |
| £m | £m | |
| Interest income on financial assets | ||
Development loan interest | 0.2 | 0.9 |
0.2 | 0.9 |
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| 2023 | 2022 | |
| £m | £m | |
| Interest expense and similar charges on financial liabilities | ||
| a) Interest | ||
Bank loan interest | 27.4 | 23.0 |
Swap interest | (4.6) | (1.4) |
Bond interest | 20.0 | 17.5 |
Bank facility non-utilisation fees | 2.2 | 2.0 |
Bank charges and loan arrangement fees | 3.3 | 3.0 |
48.3 | 44.1 | |
Interest capitalised | (0.1) | — |
48.2 | 44.1 | |
Amortisation of MedicX debt MtM on acquisition | (3.0) | (2.9) |
45.2 | 41.2 |
| 2023 | 2022 | |
| £m | £m | |
| b) Derivatives | ||
Net fair value loss/(gain) on interest rate swaps | 4.3 | (2.6) |
Amortisation of cash flow hedging reserve | 4.1 | 4.5 |
8.4 | 1.9 |
| 2023 | 2022 | |
| £m | £m | |
| c) Convertible bond | ||
Fair value loss/(gain) on existing convertible bond | 4.8 | (28.7) |
4.8 | (28.7) |
| 2023 | 2022 | |
| £m | £m | |
| Net finance costs | ||
Finance income (Note 5) | 0.2 | 0.9 |
Finance costs (as per above) | (48.3) | (44.1) |
(48.1) | (43.2) | |
Interest capitalised | 0.1 | — |
(48.0) | (43.2) | |
Amortisation of MedicX debt MtM on acquisition | 3.0 | 2.9 |
(45.0) | (40.3) |
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Notes to the financial statements continued
7. Taxation
a) Taxation charge in the Group Statement of Comprehensive Income
The taxation charge is made up as follows:
| 2023 | 2022 | |
| £m | £m | |
| Current tax | ||
UK corporation tax | — | — |
Irish corporation tax | 0.1 | (0.2) |
Deferred tax on Irish activities | (1.3) | 0.8 |
Total tax (credit)/charge | (1.2) | 0.6 |
The UK corporation tax rate of 25% (2022: 19%) and the Irish corporation tax rate of 19% (2022: 19%) have been applied in the
measurement of the Group’s UK and Ireland related activities tax liability at 31 December 2023. The UK corporation tax rate was
increased to 25% effective 1 April 2023 and has been pro rated for the purposes of the UK corporation tax rate applied in the
year.
b) Factors affecting the tax charge for the year
The tax assessed for the year is lower than (2022: lower than) the standard rate of corporation tax in the UK. The differences are
explained below:
| 2023 | 2022 | |
| £m | £m | |
Profit on ordinary activities before taxation | 26.1 | 56.9 |
Theoretical tax at UK corporation tax rate of 23.5% (2022: 19%) | 6.1 | 10.8 |
REIT exempt income | (16.5) | (11.2) |
Transfer pricing adjustment | 8.5 | 7.1 |
Fair value loss/(gain) on convertible bond | 0.5 | (5.4) |
Non-taxable items | 0.8 | — |
Losses brought forward utilised | 0.1 | (0.6) |
Difference in Irish tax rates | (0.7) | (0.1) |
Taxation (credit)/charge (Note 7a) | (1.2) | 0.6 |
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 25% (2022: 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 2023.
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.
147Primary Health Properties PLC Annual Report 2023
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8. 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
2023 | 2022 | |||||
| IFRS | Adjusted | EPRA | IFRS | Adjusted | EPRA | |
| earnings | earnings | earnings | earnings | earnings | earnings | |
| £m | £m | £m | £m | £m | £m | |
Profit after taxation | 27.3 | 27.3 | 27.3 | 56.3 | 56.3 | 56.3 |
| Adjustments to remove: | ||||||
Revaluation deficit on property portfolio | — | 53.0 | 53.0 | — | 64.4 | 64.4 |
Profit on sale of land and property | — | — | — | — | (2.9) | (2.9) |
Fair value movement on derivatives | — | 8.4 | 8.4 | — | 1.9 | 1.9 |
| Fair value movement and issue costs | ||||||
on convertible bond | — | 4.8 | 4.8 | — | (28.7) | (28.7) |
Taxation charge/(credit) | — | (1.2) | (1.2) | — | 0.6 | 0.6 |
JSE listing fees | — | 0.2 | 0.2 | — | — | — |
Amortisation of intangible assets | — | 0.9 | 0.9 | — | — | — |
Axis acquisition costs | — | 0.3 | 0.3 | — | — | — |
Amortisation of MtM loss on debt acquired | — | (3.0) | — | — | (2.9) | — |
Basic earnings | 27.3 | 90.7 | 93.7 | 56.3 | 88.7 | 91.6 |
Dilutive effect of convertible bond | — | 4.3 | 4.3 | (24.3) | 4.3 | 4.3 |
Diluted earnings | 27.3 | 95.0 | 98.0 | 32.0 | 93.0 | 95.9 |
Number of shares
2023 weighted average | 2022 weighted average | |||||
million | million | million | million | million | million | |
Ordinary Shares | 1,336.5 | 1,336.5 | 1,336.5 | 1,334.8 | 1,334.8 | 1,334.8 |
Dilutive effect of convertible bond | — | 113.9 | 113.9 | 108.9 | 108.9 | 108.9 |
Diluted Ordinary Shares | 1,336.5 | 1,450.4 | 1,450.4 | 1,443.7 | 1,443.7 | 1,443.7 |
Profit/(loss) per share attributable to shareholders:
2023 | 2022 | |||||
| IFRS | Adjusted | EPRA | IFRS | Adjusted | EPRA | |
| pence | pence | pence | pence | pence | pence | |
| Basic | 2.0 | 6.8 | 7.0 | 4.2 | 6.6 | 6.9 |
Diluted | 2.0 | 6.6 | 6.8 | 2.2 | 6.4 | 6.6 |
In the year ended 31 December 2023 the effect of the convertible bond has been excluded from the diluted profit and weighted
average diluted number of shares when calculating IFRS diluted profit per share because they are anti-dilutive.
148 Primary Health Properties PLC Annual Report 2023
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Notes to the financial statements continued
8. Earnings per share continued
31 December 2023 | 31 December 2022 | |||||
| IFRS | Adjusted | EPRA | IFRS | Adjusted | EPRA | |
| pence | pence | pence | pence | pence | pence | |
Net assets attributable to shareholders | 1,423.9 | 1,423.9 | 1,423.9 | 1,482.2 | 1,482.2 | 1,482.2 |
Derivative interest rate swaps liability | — | (4.7) | (4.7) | — | (7.1) | (7.1) |
Deferred tax | — | 3.8 | 3.8 | — | 5.4 | 5.4 |
Intangible assets | — | (6.2) | (6.2) | — | — | — |
Cumulative convertible bond fair value movement | — | (2.3) | (2.3) | — | (7.1) | (7.1) |
| MtM on MedicX debt net | ||||||
of amortisation | — | 28.5 | — | — | 31.4 | — |
Net tangible assets (“NTA”) | 1,423.9 | 1,443.0 | 1,414.5 | 1,482.2 | 1,504.8 | 1,473.4 |
Intangible assets | — | — | 6.2 | — | — | — |
Real estate transfer taxes | — | — | 184.4 | — | — | 189.1 |
Net reinstatement value (“NRV”) | 1,423.9 | 1,443.0 | 1,605.1 | — | — | 1,662.5 |
Fixed rate debt and swap MtM value | — | — | 137.0 | — | — | 172.7 |
Deferred tax | — | — | (3.8) | — | — | (5.4) |
Cumulative convertible bond fair value movement | — | — | 2.3 | — | — | 7.1 |
Real estate transfer taxes | — | — | (184.4) | — | — | (189.1) |
Net disposal value (“NDV”) | 1,423.9 | 1,443.0 | 1,556.2 | 1,482.2 | 1,504.8 | 1,647.8 |
31 December 2023 | 31 December 2022 | |||||
million | million | million | million | million | million | |
Issued share capital | 1,336.5 | 1,336.5 | 1,336.5 | 1,336.5 | 1,336.5 | 1,336.5 |
31 December 2023 | 31 December 2022 | |||||
| IFRS | Adjusted | EPRA | IFRS | Adjusted | EPRA | |
| pence | pence | pence | pence | pence | pence | |
Net tangible assets (“NTA”) | 106.5 | 108.0 | 105.8 | 110.9 | 112.6 | 110.2 |
Net reinstatement value (“NRV”) | — | — | 120.1 | — | — | 124.4 |
Net disposal value (“NDV”) | — | — | 116.4 | — | — | 123.3 |
31 December 2023 | 31 December 2022 | |||||
| IFRS | Adjusted | EPRA | IFRS | Adjusted | EPRA | |
| pence | pence | pence | pence | pence | pence | |
Net tangible assets (“NTA”) | 108.5 | 109.8 | 105.8 | 112.9 | 114.5 | 112.3 |
Net reinstatement value (“NRV”) | — | — | 120.1 | — | — | 125.4 |
Net disposal value (“NDV”) | — | — | 116.4 | — | — | 124.4 |
149Primary Health Properties PLC Annual Report 2023
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8. Earnings per share continued
Headline earnings per share
The JSE listing conditions require the calculation of headline earnings (calculated in accordance with Circular 1/2021 – Headline
Earnings as issued by the South African Institute of Chartered Accountants) and disclosure of a detailed reconciliation of headline
earnings to the earnings numbers used in the calculation of basic earnings per share in accordance with the requirements of
IAS 33 Earnings per share. Disclosure of headline earnings is not a requirement of IFRS.
| 2023 | 2022 | |
| Reconciliation of profit for the period to headline earnings | £m | £m |
Basic earnings | 27.3 | 56.3 |
| Adjustments to calculate headline earnings: | ||
JSE listing fees & Axis acquisition costs | 0.5 | — |
Amortisation of intangible assets | 0.9 | — |
Revaluation deficit | 53.0 | 64.4 |
Profit on sale on properties | — | (2.9) |
Deferred tax on Irish activities | (1.3) | 0.8 |
Headline earnings | 80.4 | 118.6 |
Corporation tax | 0.1 | (0.2) |
Fair value gain on derivative financial instruments and convertible bond | 13.2 | (26.8) |
Non-recurring items | (3.0) | (2.9) |
Adjusted earnings | 90.7 | 88.7 |
Diluted basic earnings | 36.4 | 32.0 |
Diluted headline earnings | 89.5 | 94.3 |
Basic earnings per share | 2.0 | 4.2 |
Headline earnings per share | 6.0 | 8.9 |
Adjusted earnings per share | 6.8 | 6.6 |
Diluted basic earnings per share | 2.0 | 2.2 |
Diluted headline earnings per share | 6.2 | 6.5 |
Number of shares | 1,336.5 | 1,336.5 |
Weighted average number of Ordinary Shares for headline, basic and adjusted earnings per share | 1,336.5 | 1,334.8 |
Weighted average number of Ordinary Shares for diluted basic and headline earnings per share | 1,450.4 | 1,443.7 |
9. Dividends
Amounts recognised as distributions to equity holders in the year:
| 2023 | 2022 | |
| £m | £m | |
Quarterly interim dividend paid 23 February 2023 | 22.4 | — |
Quarterly interim dividend paid 19 May 2023 | 22.4 | — |
Quarterly interim dividend paid 18 August 2023 | 22.3 | — |
Quarterly interim dividend paid 24 November 2023 | 22.4 | — |
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 |
Total dividends distributed in the year | 89.5 | 86.7 |
Per share |
On 3 January 2024, the Board declared an interim dividend of 1.725 pence per Ordinary Share with regard to the year ended
31 December 2023, payable on 22 February 2024. This dividend will comprise wholly of an ordinary dividend of 0.275 pence
and Property Income Distribution (“PID”) of 1.45 pence.
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Notes to the financial statements continued
10. 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 99.3% let (2022: 99.7%). The valuations reflected a 5.05% (2022: 4.82%) net initial yield and a 5.06% (2022:
4.89%) 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 valuers are 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 valuers have 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 £5.4 million (2022: £2.8 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 £7.1 million (2022: £9.9 million) which have
not been provided for in the financial statements.
A fair value decrease of £4.2 million (2022: increase of £0.6 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 £53.0 million (2022: £64.4 million loss).
Of the £2,776.3 million (2022: £2,793.1 million) valuation, £2,531.7 million (91%) (2022: £2,562.2 million) relates to investment
properties in the UK and £244.6 million (9%) (2022: £230.9 million) relates to investment properties in Ireland.
In line with accounting policies, the Group assessed whether the acquisitions during the year were asset purchases
or business combinations.
| Investment | ||||
| Investment | Investment | properties – | ||
| properties – | properties – | under | ||
freehold 1 | long leasehold | construction | Total | |
| £m | £m | £m | £m | |
As at 1 January 2023 | 2,214.5 | 577.3 | 4.5 | 2,796.3 |
Property additions | 10.3 | 28.3 | 1.4 | 40.0 |
Reclassification of freehold and leasehold and land | 2.1 | (1.4) | (0.7) | — |
Transfer from properties under construction | — | — | — | — |
Impact of lease incentive adjustment | 0.4 | 0.5 | — | 0.9 |
Foreign exchange movements | (3.8) | (0.9) | — | (4.7) |
Lease ground rent adjustment | — | (0.2) | — | (0.2) |
2223.5 | 603.6 | 5.2 | 2,832.3 | |
Revaluations for the year | (28.4) | (20.4) | (4.2) | (53.0) |
As at 31 December 2023 | 2,195.1 | 583.2 | 1.0 | 2,779.3 |
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 | 0.8 | 0.3 | — | 1.1 |
Impact of lease incentive adjustment | 26.4 | — | (26.4) | — |
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 |
1 Includes development land held at £0.7 million (31 December 2022: £0.7 million).
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10. Investment properties and investment properties under construction continued
Bank borrowings, bonds and interest rate swaps are secured on investment properties with a value of £2,739.3 million (2022: £2,706.5 million).
Right of use assets
In accordance with IFRS 16 Leases, the Group has recognised a £3.0 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 2023 and
31 December 2022. There were no transfers between levels during the year or during 2022. 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 (non-quoted
observable inputs either directly (i.e. as prices) or indirectly (i.e. derived from prices)).
Valuation techniques used to derive level 3 fair values
The valuations have been prepared on the basis of fair market value (“FMV”) which is defined in the RICS Valuation Standards as:
“The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing
seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and
without compulsion.”
Valuation techniques
Under the market comparable approach, a property’s fair value is estimated based on comparable transactions on an arm’s length
basis, 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.
2023 | 2022 | |
ERV – range of the portfolio | £27,500–£1,515,482 | £26,500–£1,515,482 |
| per annum | 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.
2023 | 2022 | |
True equivalent yield – range of the portfolio | 2.77%–16.10% | 2.52%–17.50% |
Unobservable input: physical condition of the property
The properties are physically inspected by the valuers 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 property
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 2023 the Group experienced an 23bps increase in the portfolio net initial yield, reducing investment property by
£128 million (4.6% 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 5% decrease/increase in annual rent would result in
an approximately £139 million decrease/increase in the investment property valuation.
• A decrease in the equivalent yield will increase the fair value. A 25bps shift of equivalent yield would have an approximately
£145 million impact on the investment property valuation, either an increase or decrease.
• 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 25bps shift in the net initial yield would have an
approximately £131 million impact on the investment property valuation, either an increase or decrease.
• An increase in the rental growth will increase the fair value.
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Notes to the financial statements continued
| 2023 | 2022 | |
| £m | £m | |
Trade receivables (net of loss allowance) | 16.3 | 11.6 |
Prepayments and accrued income | 7.9 | 6.0 |
Other debtors | 0.7 | 0.2 |
24.9 | 17.8 |
| 2023 | 2022 | |
| £m | £m | |
Cash held at bank | 3.2 | 29.1 |
3.2 | 29.1 |
| 2023 | 2022 | |
| £m | £m | |
| Non-current liabilities | ||
Other payables | 4.1 | — |
4.1 | — | |
| Current liabilities | ||
Trade payables | 2.5 | 3.3 |
Bank and bond loan interest accrual | 6.5 | 6.8 |
Other payables | 8.6 | 9.1 |
VAT | 6.7 | 5.9 |
Accruals | 7.4 | 7.5 |
31.7 | 32.6 |
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Facility | Amounts drawn | Undrawn | |||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||
| Expiry date | £m | £m | £m | £m | £m | £m | |
| Current | |||||||
RBS overdraft | Jun 2024 | 5.0 | 5.0 | — | — | 5.0 | 5.0 |
Aviva MXF loan | Sep 2033 | 2.4 | 2.3 | 2.4 | 2.3 | — | — |
7.4 | 7.3 | 2.4 | 2.3 | 5.0 | 5.0 | ||
| Non-current | |||||||
Aviva 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 2026 | 100.0 | 100.0 | — | — | 100.0 | 100.0 |
HSBC loan | Dec 2026 | 100.0 | 100.0 | 64.4 | 25.5 | 35.6 | 74.5 |
Lloyds loan | Oct 2025 | 100.0 | 100.0 | 1.8 | 32.5 | 98.2 | 67.5 |
NatWest loan | Oct 2026 | 100.0 | 100.0 | 31.8 | 41.8 | 68.2 | 58.2 |
Santander loan | Jan 2025 | 50.0 | 50.0 | 24.4 | 38.6 | 25.6 | 11.4 |
Aviva MXF loan | Sep 2033 | 220.5 | 222.9 | 220.5 | 222.9 | — | — |
Aviva MXF loan | Sep 2028 | 30.8 | 30.8 | 30.8 | 30.8 | — | — |
976.3 | 978.7 | 648.7 | 667.1 | 327.6 | 311.6 | ||
Total | 983.7 | 986.0 | 651.1 | 669.4 | 332.6 | 316.6 |
| 2023 | 2022 | |
| £m | £m | |
Term loans drawn: due within one year | 2.4 | 2.3 |
Term loans drawn: due in greater than one year | 648.7 | 667.1 |
Total terms loans drawn | 651.1 | 669.4 |
Plus: MtM on loans net of amortisation | 24.9 | 27.1 |
Less: unamortised borrowing costs | (9.1) | (11.7) |
Total term loans per the Group Balance Sheet | 666.9 | 684.8 |
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Notes to the financial statements continued
14. Borrowings continued
| 2023 | 2022 | |
| £m | £m | |
| Unsecured: | ||
Convertible bond July 2025 at fair value | 147.7 | 142.9 |
Less: unamortised costs | — | — |
Total unsecured bonds | 147.7 | 142.9 |
| 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 | 44.2 | 45.1 |
€70 million secured bond (Euro private placement) September 2031 | 60.7 | 62.0 |
€75 million secured bond (Euro private placement) February 2034 | 65.0 | 66.4 |
€47.8 million secured bond (Euro private placement) December 2033 | 41.4 | — |
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) | (3.6) |
Plus: MtM on loans net of amortisation | 3.5 | 4.3 |
Total secured bonds | 508.7 | 471.7 |
Total bonds | 656.4 | 614.6 |
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14. Borrowings continued
b) Bonds continued
| 2023 | 2022 | |
| £m | £m | |
Opening balance – fair value | 142.9 | 171.6 |
Issued in the year | — | — |
Fair value movement in convertible bond | 4.8 | (28.7) |
Closing balance – fair value | 147.7 | 142.9 |
| 2023 | 2022 | |
| £m | £m | |
| Current liabilities: | ||
Term loans and overdrafts | 2.4 | 2.3 |
Bonds | — | — |
Total current liabilities | 2.4 | 2.3 |
| Non-current liabilities: | ||
Term loans | 648.7 | 667.1 |
MtM on loans net of amortisation | 24.9 | 27.1 |
Less: unamortised loan issue costs | (9.1) | (11.7) |
Total non-current liabilities | 664.5 | 682.5 |
Bonds | 658.8 | 621.0 |
MtM on bonds net of amortisation | 3.5 | 4.3 |
MtM on convertible bond | (2.3) | (7.1) |
Less: unamortised bond issue costs | (3.6) | (3.6) |
Total non-current bonds | 656.4 | 614.6 |
Total borrowings | 1,323.3 | 1,299.4 |
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Notes to the financial statements continued
14. Borrowings continued
c) Total borrowings continued
| 2023 | 2022 | |
| £m | £m | |
Balance as at 1 January | 1,299.1 | 1,277.1 |
| Changes from financing activities | ||
Proceeds from bond issues | 41.2 | 62.9 |
Term bank loan drawdowns | 282.4 | 161.6 |
New facilities drawn | 323.6 | 224.5 |
Repayments of mortgage principal | (2.3) | (2.2) |
Repayments of term bank loans | (297.7) | (173.5) |
Repayments of term loan borrowings | (300.0) | (175.7) |
Loan and bond interest paid | (47.0) | (39.8) |
Swap interest received/(paid) | 3.9 | 1.4 |
Purchase of derivative financial instrument | (1.9) | — |
Loan arrangement fees | (1.8) | (3.5) |
(46.8) | (41.9) | |
Total changes from financing cash flows | (23.2) | 6.9 |
| Other non-cash changes | ||
Loan and bond interest expense | 47.4 | 40.5 |
Swap interest (income)/expense | (4.6) | (1.4) |
Fair value movement on derivatives interest rate swaps | 4.3 | (2.6) |
Fair value movement on Convertible Bond | 4.8 | (28.7) |
MtM on loans net of amortisation | (3.0) | (3.0) |
Amortisation of loan issue costs | 4.4 | 1.8 |
Exchange gain on translation of foreign balances | (4.1) | 8.5 |
Total other changes | 49.2 | 15.1 |
Balance as at 31 December | 1,325.1 | 1,299.1 |
| 2023 | 2022 | |
| £m | £m | |
Due within one year | 0.1 | 0.1 |
Due after one year | 2.9 | 3.1 |
Closing balance – fair value | 3.0 | 3.2 |
| 2023 | 2022 | |
| £m | £m | |
| Fair value of interest rate swaps not qualifying as cash flow hedges under IAS 39: | ||
Current assets | 10.5 | — |
Non-current assets | 0.9 | 19.6 |
Current liabilities | (6.7) | — |
Non-current liabilities | — | (12.5) |
Total fair value of interest rate swaps | 4.7 | 7.1 |
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16. Derivatives and other financial instruments continued
| Fixed interest | ||||
Contract value | Product | Start date | Maturity | per annum % |
| 2023 | ||||
€20.0 million (£17.3 million) | Euro cap | April 2023 | October 2025 | 2.0000 |
€20.0 million (£17.3 million) | Euro cap | April 2023 | October 2025 | 2.0000 |
€20.0 million (£17.4 million) | Euro cap | April 2023 | October 2025 | 2.0000 |
£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 |
| £152.0 million | ||||
| 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 |
17. Financial risk management
In pursuing its investment objectives, the Group is exposed to a variety of risks that could impact net assets or
distributable profits.
The Group’s principal financial liabilities, other than interest rate swaps, are loans and borrowings hedged by these swaps.
The main purpose of the Group’s loans and borrowings is to finance the acquisition and development of the Group’s property
portfolio. The Group has trade and other receivables, trade and other payables and cash and short term deposits that arise
directly from its operations.
A review of the Group’s objectives, policies and processes for managing and monitoring risk is set out in the Strategic Report.
This Note provides further detail on financial risk management and includes quantitative information on specific financial risks.
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Notes to the financial statements continued
17. Financial risk management continued
Financial risk factors
Facilities | Net debt drawn | |||
£m | % | £m | % | |
Fixed rate debt | 1,117.5 | 68.0 | 1,117.5 | 85.5 |
Hedged by fixed rate interest rate swaps | 100.0 | 6.1 | 100.0 | 7.7 |
Hedged by fixed to floating rate interest rate swaps | (200.0) | (12.2) | (200.0) | (15.3) |
Total fixed rate debt | 1,017.5 | 61.9 | 1,017.5 | 77.9 |
Hedged by interest rate caps | 252.0 | 15.4 | 252.0 | 19.3 |
Floating rate debt – unhedged | 373.0 | 22.7 | 37.2 | 2.8 |
Total | 1,642.5 | 100.0 | 1,306.7 | 100.0 |
| Impact on | Total impact | ||
| income statement | on equity | ||
| £m | £m | ||
| 2023 | |||
Sterling Overnight Index Average Rate | Increase of 50 basis points | (1.0) | (1.0) |
Sterling Overnight Index Average Rate | Decrease of 50 basis points | 1.0 | 1.0 |
| 2022 | |||
Sterling Overnight Index Average Rate | Increase of 50 basis points | (2.0) | (2.0) |
Sterling Overnight Index Average Rate | Decrease of 50 basis points | 2.0 | 2.0 |
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17. Financial risk management continued
Financial risk factors continued
| Less than | Three to | One to | More than | |||
| On demand | three months | twelve months | five years | five years | Total | |
| £m | £m | £m | £m | £m | £m | |
| 2023 | ||||||
Interest-bearing loans and borrowings | — | 12.7 | 38.6 | 848.9 | 688.3 | 1,588.5 |
Interest rate swaps (net) | — | (0.8) | (2.2) | (0.8) | — | (3.8) |
Trade and other payables | 2.0 | 18.6 | 4.5 | 1.4 | 2.6 | 29.1 |
2.0 | 30.5 | 40.9 | 849.5 | 690.9 | 1,613.8 | |
| 2022 | ||||||
Interest-bearing loans and borrowings | — | 11.3 | 34.4 | 500.0 | 1,037.9 | 1,583.6 |
Interest rate swaps (net) | — | (0.2) | (0.6) | (0.8) | — | (1.6) |
Trade and other payables | 2.7 | 16.4 | 3.5 | 1.8 | 2.1 | 26.5 |
2.7 | 27.5 | 37.3 | 501.0 | 1,040.0 | 1,608.5 |
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Notes to the financial statements continued
17. Financial risk management continued
Financial risk factors continued
d) Market risk continued
| Book value | Fair value | Book value | Fair value | |
| 2023 | 2023 | 2022 | 2022 | |
| £m | £m | £m | £m | |
| Financial assets | ||||
Trade and other receivables | 18.4 | 18.4 | 12.6 | 12.6 |
Ineffective interest rate swaps | 11.4 | 11.4 | 19.6 | 19.6 |
Cash and short term deposits | 3.2 | 3.2 | 29.1 | 29.1 |
| Financial liabilities | ||||
Interest-bearing loans and borrowings | (1,323.3) | (1,203.8) | (1,299.4) | (1,149.1) |
Ineffective interest rate swaps | (6.7) | (6.7) | (12.5) | (12.5) |
Trade and other payables | (27.8) | (27.8) | (24.9) | (24.9) |
| Level 1 | Level 2 | Level 3 | Total | |
| Recurring fair value measurements | £m | £m | £m | £m |
| Financial assets | ||||
Derivative interest rate swaps | — | 11.4 | — | 11.4 |
| Financial liabilities | ||||
Derivative interest rate swaps | — | (6.7) | — | (6.7) |
Convertible bond | (147.7) | -— | — | (147.7) |
Fixed rate debt | — | (1,011.4) | — | (1,011.4) |
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17. Financial risk management continued
Financial risk factors continued
d) Market risk continued
Fair value hierarchy continued
| Level 1 | Level 2 | Level 3 | Total | |
| Recurring fair value measurements | £m | £m | £m | £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) |
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Notes to the financial statements continued
17. Financial risk management continued
Financial risk factors continued
e) Capital risk management continued
| 2023 | 2022 | |
| Group loan to value ratio | £m | £m |
Fair value of completed investment properties | 2,775.3 | 2,788.6 |
Fair value of development properties | 1.0 | 4.5 |
Ground rent recognised as finance leases | 3.0 | 3.2 |
2,779.3 | 2,796.3 | |
Interest-bearing loans and borrowings (with convertible bond at nominal value) | 1,309.9 | 1,290.4 |
Less cash held | (3.2) | (29.1) |
Nominal amount of interest-bearing loans and borrowings | 1,306.7 | 1,261.3 |
Group loan to value ratio | 47.0% | 45.1% |
2023 | 2022 | |||
| Number – | Number – | |||
million | £m | million | £m | |
Balance at 1 January | 1,336.5 | 167.1 | 1,332.9 | 166.6 |
Scrip issues in lieu of cash dividends | — | — | 3.6 | 0.5 |
Share issues | — | — | — | — |
Share issues on other acquisitions | — | — | — | — |
Balance at 31 December | 1,336.5 | 167.1 | 1,336.5 | 167.1 |
| 2023 | 2022 | |
| £m | £m | |
Balance at 1 January | 479.4 | 474.9 |
Scrip issues in lieu of cash dividends | — | 4.6 |
Share issues on other acquisitions | — | — |
Share issue expense | — | (0.1) |
Balance at 31 December | 479.4 | 479.4 |
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| 2023 | 2022 | |
| £m | £m | |
| Capital reserve | ||
Balance at 1 January and 31 December | 1.6 | 1.6 |
| Foreign exchange translation reserve | ||
Balance at 1 January | 1.0 | (2.2) |
Exchange differences on translation of foreign balances | (1.4) | 3.2 |
Balance at 31 December | (0.4) | 1.0 |
| Merger reserve | ||
Balance at 1 January and 31 December | 414.1 | 414.1 |
Balance of merger and other reserves at 31 December | 415.3 | 416.7 |
| 2023 | 2022 | |
| £m | £m | |
Balance at 1 January | (11.1) | (15.6) |
Amortisation of cash flow hedging reserve | 4.1 | 4.5 |
Balance at 31 December | (7.0) | (11.1) |
| 2023 | 2022 | |
| £m | £m | |
Balance at 1 January | 430.1 | 460.5 |
Retained profit for the year | 27.3 | 56.3 |
Dividends paid | (89.5) | (81.6) |
Scrip dividend in lieu of cash | — | (5.1) |
Exchange differences on translation of foreign balances | 1.1 | — |
Share-based awards (“LTIP”) | 0.1 | — |
Balance at 31 December | 369.1 | 430.1 |
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Notes to the financial statements continued
25. Subsequent events
There have been no significant events affecting the Group since the period ended 31 December 2023.
Name | Companies House registration number |
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 Health Solutions Limited | 06949900 |
PHP Tradeco Limited | 07685933 |
PHP Property Management Services Limited | 02877191 |
PHP Primary Care Developments Limited | 11862233 |
PHP Croft Limited | 13938144 |
PHP (Spilsby) Limited | 13735391 |
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Company balance sheet
at 31 December 2023
Notes
2023
£m
2022
£m
Non-current assets
Investment in subsidiaries 8 866.3 870.9
Property, plant and equipment 0.4 0.4
Trade and other receivables 9 813.4 844.9
1,680.1 1,716.2
Current assets
Trade and other receivables 9 0.6 0.1
Cash and cash equivalents 10 0.3 11.2
0.9 11.3
Total assets 1,681.0 1,727.5
Current liabilities
Trade and other payables 11 (286.5) (229.5)
Borrowings: bonds 12 — —
(286.5) (229.5)
Non-current liabilities
Borrowings: bonds 12 (153.4) (150.2)
(153.4) (150.2)
Total liabilities (439.9) (379.7)
Net assets 1,241.1 1,347.8
Equity
Share capital 14 167.1 167.1
Share premium 479.4 479.4
Merger and other reserves 415.6 415.6
Retained earnings 15 179.0 285.7
Total equity 1,241.1 1,347.8
In accordance with the exemption allowed by Section 408(3) of the Companies Act 2006, the Company has not presented
itsown income statement or statement of comprehensive income.
The Company’s loss for the year was £15.6 million (2022: profit of £72.1 million).
These financial statements were approved by the Board of Directors on 27 February 2024 and signed on its behalf by:
Richard Howell
Chief Financial Officer
Registered in England Number: 3033634
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Strategic report Governance Financial statements Shareholder information
Company statement of changes in equity
for the year ended 31 December 2023
Share
capital
£m
Share
premium
£m
Merger
and other
reserves
£m
Retained
earnings
£m
Total
equity
£m
1 January 2023 167.1 479.4 415.6 285.7 1,347.8
Loss attributable to equity holders — — — (15.6) (15.6)
Exchange loss on translation of foreign balances — — — (1.7) (1.7)
Total comprehensive income — — — (17.3) (17.3)
Share issue expenses — — — — —
Share-based awards (“LTIP”) — — — 0.1 0.1
Dividends paid — — — (89.5) (89.5)
Scrip dividend in lieu of cash — — — — —
31 December 2023 167.1 479.4 415.6 179.0 1,241.1
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 attributable to equity holders — — — 72.1 72.1
Exchange loss 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
167Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
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.
Investments in subsidiary undertakings are stated at cost in the Company’s Statement of Financial Position less impairment. 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
astraight line basis over the vesting period, based on the Company’s estimate of shares or options that will eventually vest.
Thefair value of awards is equal to the market value at grant date.
168 Primary Health Properties PLC Annual Report 2023
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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
2023
£m
2022
£m
Wages and salaries, pension and bonus 2.8 1.8
Social security costs 0.1 (0.1)
Equity-settled share-based payments 0.2 —
3.1 1.7
The Company operates a defined contribution pension scheme for all employees. The Company contribution to the scheme during the
year was £nil (2022: £nil), which represents the total expense recognised through the income statement. As at 31December2023,
there were no contributions (2022: £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 (2022: 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 100 to 118.
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 (credit)/charge in the Group Statement of Comprehensive Income
The taxation charge is made up as follows:
2023
£m
2022
£m
Deferred tax (credit)/charge (0.6) 0.7
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
169Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
6. Taxation continued
b) Factors affecting the tax (credit)/charge for the year
The tax assessed for the year is higher than (2022: lower than) the standard rate of corporation tax in the UK. The differences are
explained below:
2023
£m
2022
£m
(Loss)/profit on ordinary activities before taxation (16.2) 72.8
Theoretical tax at UK corporation tax rate of 23.5% (2022: 19%) (3.8) 13.8
REIT exempt income — (0.3)
Transfer pricing adjustments 0.7 1.9
Fair value loss on convertible bond 0.5 (3.3)
Non-taxable items 1.3 (12.0)
Impact of taxes in the Republic of Ireland (0.6) 0.7
Loss relief 1.3 (0.1)
Taxation (credit)/charge (Note 6a) (0.6) 0.7
7. Dividends
Amounts recognised as distributions to equity holders in the year:
2023
£m
2022
£m
Quarterly interim dividend paid 23 February 2023 22.4 —
Quarterly interim dividend paid 19 May 2023 22.4 —
Quarterly interim dividend paid 18 August 2023 22.3 —
Quarterly interim dividend paid 24 November 2023 22.4 —
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
Total dividends distributed in the year 89.5 86.7
Per share 6.7p 6.5p
170 Primary Health Properties PLC Annual Report 2023
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8. Investment in subsidiaries
£m
As at 1 January 2023 870.9
Acquisition of Axis Real Estate Group Limited 7.7
Liquidation of PHP Liverpool Holding Company Limited (2.1)
Liquidation of PHP Chiswick Limited (9.9)
Liquidation of PHP Cardiff Limited (2.2)
ICAV Recapitalisation 2.1
Impairment of subsidiary undertakings (0.2)
As at 31 December 2023 866.3
As at 1 January 2022 857.2
Acquisition of PHP Chiswick Limited 9.9
Acquisition of PHP (Croft) Limited —
Acquisition of PHP (Spilsby) Limited —
Liquidation 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
All subsidiaries of the Company are 100% owned and listed below. All are incorporated in the UK and their registered office
isBurdett 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/
financing company
PHP Bond Finance PLC Issuer of bonds
Primary Health Investment Properties
(No. 2) Limited
Property investment PHP Medical Investments Limited Property investment/
financing company
Primary Health Investment Properties
(No. 3) Limited
Property investment PHP SB Limited Investment holding/
issuer of bonds
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
PHP Finance (Jersey No. 2) Limited
1
Issuer of bonds Chelmsley Associates Limited Property investment
PHP Euro Private Placement ML Ltd
Property investment/
financing company
PHP STL Limited Investment holding/
financing company
PHP SPV Limited Property investment PHP Euro Private Placement Limited Issuer of bonds
MXF Fund Limited
5
Investment holding PHP (Spilsby) Limited Property investment
PHP Epsom Limited Property investment PHP Primary Properties (Haymarket) Limited Property investment
PHP Development Holdings Limited Property investment PHP Tradeco Holdings Limited Investment holding
Axis Real Estate Group Limited
6
Investment holding PHP Health Solutions Limited Property investment
PHP Croft Limited Property investment MXF Properties Bridlington Limited Property investment
PHP Finance (Jersey No. 3) Limited
1
Issuer of bonds PHPI Navan Road Limited
3
Dormant
Notes to the Company financial statements continued
171Primary Health Properties PLC Annual Report 2023
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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 AV Lending Limited Financing company PHP Healthcare Investments Limited Property investment
PHP Investments No. 1 Limited Property investment PHP St. Johns Limited Property investment
PHP (Project Finance) Limited Property investment PHP Clinics Limited Property investment
PatientFirst Partnerships Limited Property investment PHIP (Stourbridge) Limited Property investment
PHP Glen Spean Limited Property investment Gracemount Medical Centre Limited
4
Property investment
PHP Empire Holdings Limited Property investment PHP AssetCo (2011) Limited Property investment
Health Investments Limited Property investment PHP Primary Properties Limited Property investment
PHP Medical Properties Limited Property investment/
investment holding
Crestdown Limited Property investment
PatientFirst (Hinckley) Limited Property investment Primary Health Investment Properties
(No. 6) Limited
Property investment
PatientFirst (Burnley) Limited Property investment GP Property Limited
5
Investment holding
PHP Investments (2011) Limited Property investment MXF Properties OM Limited Property investment
PHIP (Chester) Limited Property investment GPG No. 5 Limited Property investment
MXF Properties I Limited
5
Property investment GP Property One Limited Property investment
MXF Properties III Limited Property investment MXF Properties II Limited Property investment
MXF Properties V Limited
5
Property investment/
investment holding MXF Properties IV Limited Property investment
MXF Properties VII Limited
5
Property investment/
investment holding
MXF Properties VI Limited
5
Property investment/
issuer of bonds
Primary Medical Property
InvestmentsLimited
Property investment MXF Properties VIII Limited
5
Property investment/
issuer of bonds
MXF Properties Ireland Limited
5
Property investment MXF GPG Holdings Limited
5
Property investment
MXF Properties IX Limited Investment holding/
financing company MXF (Fakenham) Limited Property investment
PHP Property Management Services
Limited
Operations
management
PHP Tradeco Limited Operations
management
Axis Technical Services Limited
6
Property and facility
management
PHP Primary Care Developments 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: 4th Floor, 20 Castle Terrace, Edinburgh, Scotland EH1 2EN.
5 Subsidiary company registered in Guernsey. Registered office: Oak House, Hirzel Street, St Peter Port, Guernsey GY1 1NP.
6 Subsidiary company registered in Ireland. Registered office: 12 Eastgate Way, Little Island. Co. Cork.
100% of all voting rights and Ordinary Shares are held directly or indirectly by the Company.
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9. Trade and other receivables
2023
£m
2022
£m
Non-current
Amounts due from Group undertakings 813.4 844.9
Current
Amounts due from Group undertakings — —
Other receivables 0.6 0.1
814.0 845.0
Based on the IFRS 9 expected credit loss model, £12.8 million (2022: £4.5 million) impairment provision was recognised on amounts
due from Group undertakings. Expected credit loss is measured on a 12 month basis.
Amounts due from Group undertakings are unsecured, interest free and repayable on demand.
10. Cash at bank and in hand
2023
£m
2022
£m
Cash at bank and in hand 0.3 11.2
11. Trade and other payables
2023
£m
2022
£m
Current
Amounts owed to Group undertakings 276.4 221.9
Trade and other payables 10.1 7.6
286.5 229.5
Amounts owed to Group undertakings are unsecured, interest free and repayable on demand.
12. Borrowings
2023
£m
2022
£m
Intra-group loan with PHP Finance (Jersey No. 2) Limited (Note 13) 148.5 147.5
Option to convert (Note 13) 4.9 2.7
153.4 150.2
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
of2.875% 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
ofOrdinary 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 14 in the Group financial statements for further details about the convertible bond.
Notes to the Company financial statements continued
173Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
14. Share capital
Issued and fully paid at 12.5 pence each
2023 2022
Number –
million £m
Number –
million £m
As at 1 January 1,336.5 167.1 1,332.9 166.6
Scrip issues in lieu of cash dividends — — 3.6 0.5
Share issues for other acquisitions — — — —
As at 31 December 1,336.5 167.1 1,336.5 167.1
15. Retained earnings
2023
£m
2022
£m
As at 1 January 285.7 300.3
(Loss)/profit for the year (15.6) 72.1
Dividends paid (89.5) (81.6)
Scrip issues in lieu of cash dividends — (5.1)
Exchange differences on transaltion of foreign balances (1.7) —
Long Term Incentive Plan 0.1 —
As at 31 December 179.0 285.7
16. Contingent liabilities
The Company has guaranteed the performance of its subsidiaries in respect of development agreements totalling £nil (2022: £nil).
The Company is guarantor to several of its subsidiaries debt facilities totaling £1.1 billion.
17. Related party transactions
Details of related party transactions are provided in the Directors’ Report, the Directors’ Remuneration Report and Note 24 tothe
Group financial statements on page 164. 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.
18. Subsequent events
There have been no significant events affecting the Company since the period ended 31 December 2023.
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175Primary Health Properties PLC Annual Report 2023
Strategic report Governance Shareholder informationFinancial statements
Wednesday, 24 April 2024 at 10:30 a.m. (UK time)/12:30 p.m.
(South Africa time).
To be held at the offices of CMS Cameron McKenna Nabarro
Olswang LLP at Cannon Place, 78 Cannon Street, London
EC4N6AF.
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 (but not the accompanying
personalised Form of Proxy), 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. (UK time)/12:30 p.m. (South Africa
time) on 22 April 2024.
Primary Health Properties PLC
(incorporated and registered in England and Wales
under number03033634)
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 2024
¬Ê
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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
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THAMES
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LONDON BR.
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KING WILLIAM ST
176 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Shareholder informationFinancial statements
LETTER FROM THE CHAIRMAN
To all shareholders
13 March 2024
Notice of Annual General Meeting
Dear shareholder,
I am pleased to invite you to our 2024 Annual General Meeting (“AGM”), which will be held on Wednesday, 24 April at 10:30 a.m.
(UK time)/12:30 p.m. (South Africa time) as a hybrid meeting, with shareholders invited to join physically at the offices of CMS
Cameron McKenna Nabarro Olswang LLP at Cannon Place, 78 Cannon Street, London EC4N 6AF or listen remotely via secure
telephone line (please see further below).
The formal Notice of AGM, which sets out the resolutions to be proposed, can be found on pages 177 to 179 of our 2023 Annual
Report. An explanation of the resolutions can be found on pages 180 to 184. A copy of our 2023 Annual Report, which includes
the Notice of AGM, can also be found on our website (www.phpgroup.co.uk).
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.
Actions to be taken in respect of the AGM
There is a secure telephone line so that shareholders can listen to the AGM and also ask any questions relating to the business
of the meeting. Please note you will not be able to vote by telephone. If you would like to attend the meeting by telephone,
please contact the Company Secretary at cosec@phpgroup.co.uk. Requests must be received by no later than 10:30 a.m.
(UKtime)/12:30p.m. (South Africa time) on Monday, 22 April 2024.
The telephone line will open shortly before 10:30 a.m. (UK time)/12:30 p.m. (South Africa time) on the day of the meeting.
Inaddition to your secure dial-in details, you will need your Shareholder Reference Number, which can be found on your
FormofProxy/Voting Instruction Form, Dividend Confirmation Statement or Share Certificate in order to access the meeting.
Unfortunately, there will not be a facility to vote by telephone. We recommend that shareholders who would like to vote appoint
the Chair of the meeting as their proxy and register a voting instruction using their Form of Proxy/Voting Instruction Form ahead
of the meeting. Details about how to vote are included in the documents sent to you.
If you are unable to attend the AGM (whether in person or remotely) and vote (in person) on the day, the ways to vote are as follows:
1. Register your vote electronically by logging into the Equiniti Limited (“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. (UK time)/12:30 p.m. (South Africa time) on 22 April 2024.
2. Appoint a proxy to vote on your behalf. Fill in the proxy form enclosed with this document (“Form of Proxy”) and return it
toEquiniti as detailed in Note 4 on page 185, appoint your proxy electronically as detailed in Note 4 on page 185, or if you
are a CREST member, appoint your proxy through the CREST proxy appointment service as detailed in Note 5 on page 185.
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. (UK time)/12:30 p.m.
(SouthAfrica time) on 22 April 2024, 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 AGMwill 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
and Johannesburg Stock Exchanges 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, which, as at 12 March 2024 (being
the last practicable date prior to publication of this document), amount in aggregate to 25,194,824 Ordinary Shares, representing
approximately 1.89 per cent of the Ordinary Shares of the Company 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 2024 continued
177Primary Health Properties PLC Annual Report 2023
Strategic report Governance Shareholder informationFinancial statements
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 at Cannon Place, 78 Cannon Street, London EC4N 6AF, on
24 April 2024 at 10:30 a.m. (UK time)/12:30 p.m. (South Africa
time) (the “AGM”). Shareholders will be asked to consider
and, if thought fit, pass the resolutions as set out below
(the“Resolutions”). Resolutions 16 to 19 (inclusive) will be
proposed as special resolutions. All other Resolutions will be
proposed as ordinary resolutions. Voting on the Resolutions
willbe by way of a poll.
Ordinary Resolutions
Resolution 1: Annual Report and Accounts
To receive the Company’s Annual Report and Accounts of the
Directors of the Company (“Directors”) and of the auditors to
the Company for the financial year ended 31 December 2023.
Resolution 2: Directors’ remuneration policy
To approve the Directors’ remuneration policy, as set out
on pages 100 to 107 of the Directors’ remuneration report
contained in the Company’s Annual Report and Accounts for
the financial year ended 31 December 2023.
Resolution 3: Directors’ remuneration report
To approve the Directors’ remuneration report (excluding the
Directors’ remuneration policy) as contained in the Company’s
Annual Report and Accounts for the financial year ended
31December 2023.
Resolution 4: Dividend policy
To approve the Company’s dividend policy, as set out in the
explanatory notes that accompany this Notice of AGM.
Resolution 5: 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 6: Auditors’ remuneration
To authorise the Audit Committee of the Company, for and
onbehalf of the Directors, to determine the remuneration
ofthe auditors.
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: Re-election of Ivonne Cantú
To re-elect Ivonne Cantú as a Director of the Company.
Resolution 12: Election of Mark Davies
To elect Mark Davies as a Director of the Company.
Resolution 13: Election of Dr Bandhana (Bina) Rawal
To elect Dr Bandhana (Bina) Rawal as a Director of
theCompany.
Resolution 14: 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 14 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 14 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
tobe appropriate.
178 Primary Health Properties PLC Annual Report 2023
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Notice of Annual General Meeting 2024 continued
NOTICE OF ANNUAL GENERAL MEETING
CONTINUED
Ordinary Resolutions continued
Resolution 15: Authority to allot shares
That the Directors be and are hereby generally and
unconditionally authorised in accordance with Section 551
ofthe 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
aregulatory body or stock exchange by virtue of shares
being represented by depositary receipts or any other
matterwhatsoever,
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 15 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
anysuch offer or agreement as if the authority in question
hadnot expired.
Special Resolutions
Resolution 16: Disapplication of pre-emption rights
That, subject to the passing of Resolution 15, the Directors be
and are hereby authorised, pursuant to Sections 570 and 573
of the 2006 Act, to allot equity securities (as defined in Section
560(1) of the 2006 Act) for cash under the authority given
by Resolution 15 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 (but in the case of the
authority conferred by Resolution 15(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 per cent 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 16
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.
179Primary Health Properties PLC Annual Report 2023
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NOTICE OF ANNUAL GENERAL MEETING
CONTINUED
Special Resolutions continued
Resolution 17: Further disapplication
That subject to the passing of Resolution 15, the Directors be
and are hereby authorised, in addition to any authority granted
under Resolution 16, to allot equity securities (as defined in
Section 560(1) of the 2006 Act) for cash under the authority
given by Resolution 15 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 per cent 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 17
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
notexpired.
Resolution 18: 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 18 and ending on the
conclusion of the next annual general meeting of the Company.
Resolution 19: 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 per cent 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 per cent 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 19 or, if earlier, on the date which is
15months 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
13 March 2024
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 185 and 187.
180 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Shareholder informationFinancial statements
Notice of Annual General Meeting 2024 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.
(UKtime)/12:30 p.m. (South Africa time) on 24 April 2024
atthe offices of CMS Cameron McKenna Nabarro Olswang
LLPat Cannon Place, 78 Cannon Street, London EC4N 6AF
(the“AGM”). Resolutions 16 to 19 (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
theAnnual Report 2023 for adoption. The Board will welcome
any questions and discussion on the Annual Report 2023 at
theAGM.
Directors’ remuneration policy (Resolution 2)
Resolution 2 seeks shareholders’ approval for the Directors’
remuneration policy, as set out in the Directors’ remuneration
report on pages 100 to 107. The Directors’ remuneration policy
sets out the Company’s forward-looking policy on Directors’
remuneration (including the approach on exit payments
for Directors) and is subject to a binding shareholder vote
by ordinary resolution, as required by law. The Company is
required to put the Directors’ remuneration policy to a binding
vote of the shareholders: (i) at least once every three years;
or (ii) on a more frequent basis if changes to it are proposed.
As (i) the policy was last approved by shareholders at the
general meeting on 4 January 2021 and (ii) minor changes
are proposed, either of a housekeeping nature or intended
to provide some additional minor flexibility or clarity for the
next three years, it is proposed to seek approval for the policy,
details of which are set out on pages 100 to 107 in the Annual
Report 2023. Resolution 2 is proposed as an ordinary resolution.
If the Directors’ remuneration policy is approved, it will
become effective from the close of the AGM, following which
all payments by the Company to Directors and any former
Directors will be made in accordance with it, unless a payment
has been approved by a resolution of the shareholders at
a general meeting. If the Company wishes to amend the
Directors’ remuneration policy, it will first need to obtain the
approval of shareholders for that revised policy, before it can
implement any payments pursuant to an amended Directors’
remuneration policy. If the Directors’ remuneration policy is not
approved by shareholders, the Company will seek shareholder
approval for a revised policy as soon as practicable thereafter.
Directors’ remuneration report (Resolution 3)
Resolution 3 seeks shareholders’ approval for the Directors’
remuneration report as contained on pages 100 to 118 of
the Annual Report 2023, which gives details of Directors’
remuneration paid for the year ended 31 December 2023
in accordance with the remuneration policy approved by
shareholders in 2021. The auditors have audited those
partsofthe Directors’ remuneration report that are required
tobe 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 4)
Resolution 4 is proposed to seek shareholders’ approval of the
Company’s dividend policy. Despite the continuing uncertainty
and volatility in the economic environment, we have continued
to deliver a strong and robust operational and financial
performance over the course of 2023. This has allowed the
Company to continue to pay an increasing level of dividend to
its shareholders over the last 27 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 4 in the accompanying Notice of AGM.
Re-appointment and remuneration of auditors
(Resolutions 5 and 6)
Resolution 5 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 6 proposes to authorise the Audit Committee, for
and on behalf of the Directors, to determine the remuneration
of the auditors.
Election and re-election of Directors (Resolutions 7
to13)
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 elect or re-elect
each of the Directors standing for election. Resolutions 7 to 13
are being proposed as ordinary resolutions.
Re-election of Harry Hyman (Resolution 7)
Outgoing Chief Executive Officer: Founder of the Company
and Director since 1996, proposed for re-election as a Non-
executive Director, as further explained in the Annual Report
2023 at page 69.
Biography
Details of Harry’s background and experience are set out on
page 72 of the Annual Report 2023.
Other external relationships
Harry is the Non-Executive Chairman of Biopharma Credit PLC,
an externally managed investment trust.
181Primary Health Properties PLC Annual Report 2023
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EXPLANATORY NOTES TO THE RESOLUTIONS
CONTINUED
Re-election of Harry Hyman (Resolution 7) continued
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. The Board believes that Harry
Hyman’s appointment as Non-executive Chair is in the best
interests of the Group and all of its stakeholders, particularly as
Harry’s knowledge and expertise gained over nearly 30 years in
the primary care property sector will continue to be invaluable
and highly relevant to the Group’s future success. The Board
has determined that the term will be a maximum of three years,
subject to: (a) annual review by the Company’s experienced
and robust group of independent Non-executive Directors; and
(b) with the Board’s recommendation following such review,
re-appointment by shareholders at the Company’s Annual
General Meeting each year for that period.
Independent No
Re-election of Richard Howell (Resolution 8)
Chief Financial Officer: Appointed as a Director from
1April2017.
Biography
Details of Richard’s background and experience are set out
onpage 72 of the Annual Report 2023.
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, mean he continues to contribute greatly to the long-term
success of the Company’s corporate group.
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 73 of the Annual Report 2023.
Other external relationships
Non-executive Director at Safestore Holdings plc 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, including 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 Limited. Laure makes an effective and valuable
contribution to the Board, including 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 2017.
Biography
Details of Ian’s background and experience are set out on page
73 of the Annual Report 2023.
Other external relationships
Senior Independent Non-executive Director and Chairman of
the Audit Committee at Safestore Holdings plc.
Non-Executive Director and Chairman of the Audit Committee
at Capital & Regional plc.
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, makes 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 73 of the Annual Report 2023.
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.
Independent Yes
182 Primary Health Properties PLC Annual Report 2023
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Notice of Annual General Meeting 2024 continued
EXPLANATORY NOTES TO THE RESOLUTIONS
CONTINUED
Election of Mark Davies (Resolution 12)
Chief Executive Officer with effect from the conclusion of the
Company’s 2024 Annual General Meeting.
Biography
Details of Mark’s background and experience are set out on
page 73 of the Annual Report 2023.
Other external relationships
Non-Executive Director of Palace Capital plc.
Contribution and reasons for re-election.
Mark Davies is a highly experienced FTSE 250 Executive,
having held CEO and CFO roles in listed companies and private
equity. He was a Co-founder Director of NewRiver REIT plc
(“NewRiver”) in 2009 and played an important role in taking
the company from IPO to the FTSE 250 in seven years. He
was CFO of NewRiver for over twelve years and, alongside his
role as CFO, was also CEO/Executive Chairman of Hawthorn
Leisure Limited (“Hawthorn”) for five years. Mark stood down
from the Board of NewRiver following the successful sale of
Hawthorn in July 2021 to private equity at a premium price.
Mark has considerable capital markets experience and over the
last 14 years has raised over £3 billion of equity and debt in
public and private markets.
Independent No
Election of Dr Bandhana (Bina) Rawal (Resolution 13)
Independent Non-executive Director: Appointed as a Director
on 27 February 2024.
Biography
Details of Dr Bandhana (Bina) Rawal’s background and
experience are set out on page 73 of the Annual Report 2023.
Other external relationships
Senior Independent Director at Worldwide Healthcare Trust plc.
Contribution and reasons for election
Bina brings a wealth of experience spanning patient care,
digital and population health, ESG, strategy, partnerships and
EDI, alongside extensive networks in UK healthcare through her
senior level executive and non-executive roles to date in large,
complex organisations within the public, private and not-for-
profit sectors.
Independent Yes
Political donations and expenditure (Resolution 14)
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 12-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.
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 14 will not be used to make political donations
within the normal meaning of that expression.
Directors’ authority to allot securities (Resolution 15)
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 15, 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 12 March 2024 (being the
latest practicable date prior to publication of this document).
The authority in Resolution 15, 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
12 March 2024 (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 per cent 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 12 March 2024 (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 113,877,923 Ordinary Shares if all the
outstanding Convertible Bonds exercised the right toconvert.
183Primary Health Properties PLC Annual Report 2023
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EXPLANATORY NOTES TO THE RESOLUTIONS
CONTINUED
Directors’ authority to dis-apply pre-emption rights
(Resolutions 16 and 17)
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 16, therefore, is to
enable shareholders to waive their pre-emption rights and
allow the Directors to allot shares for cash without such
sharesbeing first offered to existing shareholders.
The Statement of Principles, as revised by the Pre-emption
Group in November 2022, allows non-pre-emptive issues capped
at ten per cent for an unrestricted purpose, and at ten per cent
for use only in connection with an acquisition or specified capital
investment. In addition, the Statement of Principles allows
companies to seek a further disapplication of up to two per cent
in each case for the purposes of a “follow-on offer”, as defined
in paragraph 3 of Section 2B of the Statement of Principles.
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 per cent 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. This is designed to facilitate participation
by retail investors in secondary issuances.
Accordingly, Resolution 16 will, if passed by special resolution,
give the Directors authority to allot shares pursuant to the
authority granted in Resolution 15 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
per cent of the Company’s issued Ordinary Share capital as at
12 March 2024 (being the latest practicable date prior to the
publication of this document).
Resolution 16(C) will, if passed by special resolution, also
give the Directors authority to allot shares (or sell treasury
shares) pursuant to the authority granted in Resolution 15
for cash on a non-pre-emptive basis. This disapplication will
permit the Directors to allot shares, or sell treasury shares,
for cash 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 representing approximately 20 per
cent of any allotment of equity securities (or sale of treasury
shares) made from time to time pursuant to the authority
granted inResolution 16(B) to be used only for a follow-on
offerwhich the Board determines to be of a kind contemplated
by paragraph 3 of Section 2B of the Statement of Principles on
DisapplyingPre-Emption Rights most recently published by the
Pre-Emption Group.
For the purposes of Resolution 16, 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 17 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 Resolution17 is limited to a nominal value of
£16,706,172, representing approximately ten per cent of the
Company’s issued Ordinary Share capital as at 12 March 2024
(being the latest practicable date prior to the publication of
thisdocument).
Resolution 17(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 15 for cash on
a non-pre-emptive basis, provided that such allotment or sale
is up to a maximum nominal value representing approximately
20 per cent of any allotment of equity securities (or sale of
treasury shares) made from time to time pursuant to the
authority granted in Resolution 17(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 five per cent, 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
businessopportunities.
The provisions of Resolutions 16 and 17 comply with the Share
Capital Management Guidelines issued by the Investment
Association in July 2016 and the disapplication of pre-emption
rights Resolutions follow the resolution templates issued by the
Pre-Emption Group in November 2022.
If Resolutions 16 and 17 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.
184 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Shareholder informationFinancial statements
EXPLANATORY NOTES TO THE RESOLUTIONS
CONTINUED
Directors’ authority to dis-apply pre-emption rights
(Resolutions 16 and 17) continued
As at 12 March 2024 (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 19.
Notice of general meetings, other than annual
general meetings (Resolution 18)
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 certain
conditions are met.
The minimum notice period for general meetings of listed
companies is 21 days. Companies may reduce this period to
14 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 18 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.
Purchase of own shares (Resolution 19)
Resolution 19 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
133,288,819 of its Ordinary Shares, representing approximately
10 per cent of the Company’s issued Ordinary Share capital as
at 12 March 2024 (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 be 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 19.
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 12 March 2024 (being the latest practicable date prior to
the publication of this document), save for the £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 2024 continued
185Primary Health Properties PLC Annual Report 2023
Strategic report Governance Shareholder informationFinancial statements
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 2023 posted to shareholders with
this notice), are 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 visit the website
of the Company’s registrar, Equiniti Limited, at
www.shareview.co.uk
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
registerof members of the Company as at 6:30 p.m.
(UKtime)/8:30 p.m. (South Africa time) on Monday 22 April
2024 (or, if the AGM is adjourned, 6:30 p.m. (UK time)/8:30
p.m. (South Africa time) 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, remotely or by proxy) and vote (in person) 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 on +44(0) 371 384 2030.
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 shareholders, the signature of only one of
the joint holders is required on the Form of Proxy but the vote
of the first named on the register of members will be accepted
to the exclusion of the other joint holders.
4. Validity of proxies:
To be valid a Form of Proxy or other instrument appointing
aproxy 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) to Equiniti Limited,
Aspect House, Spencer Road, Lancing BN99 6DA;
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
Limited. 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 or lodged with the Company by 10:30 a.m.
(UK time)/12:30 p.m. (South Africa time) on Monday
22April 2024 (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
theCREST service to be valid, the appropriate CREST message
(a “CREST Proxy Instruction”) must be properly authenticated
in accordance with Euroclear UK & International 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.
(UKtime)/12:30 p.m. (South Africa time) on Monday 22 April
2024 (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.
186 Primary Health Properties PLC Annual Report 2023
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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
& International 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
inthe 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 Limited. For further information regarding Proxymity,
please go to www.proxymity.io. Your proxy must be lodged by
not later than 10:30 a.m. (UK time)/12:30 p.m. (South Africa
time) on Monday 22 April 2024 (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 Form of Proxy, that is found to
contain any virus, will not be accepted.
Notice of Annual General Meeting 2024 continued
187Primary Health Properties PLC Annual Report 2023
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GUIDANCE NOTES FOR THE AGM AND ON
APPOINTMENT OF PROXIES CONTINUED
9. Voting and voting rights:
As at 5:00 p.m. on 12 March 2024 (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 12 March 2024 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.
Assoon 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
toin Note 1 above.
10. Right to ask questions:
Any shareholder attending the AGM has the right to ask
questions. The secure telephone line will enable shareholders
who attend the AGM remotely to ask questions during the
meeting. Further details on how to ask a question via the
phone line will be made available to shareholders who contact
the Company Secretary at cosec@phpgroup.co.uk to request
individual secure dial in details.
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.
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 auditors
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
auditors 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
awebsite.
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.
188 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Shareholder informationFinancial statements
Corporate calendar 2024
Annual General Meeting 24 April 2024
Announcement of half year results 24 July 2024
Dividends
The Company intends to make quarterly dividend payments to
shareholders in February, May, August and November. Thefirst
quarterly dividend in 2024 (for which the record date was 3
January 2024) was paid on 22 February 2024.
Further distributions are expected to be paid in May, August
and November 2024.
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
yourbank 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
yourregisteredaddress.
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 on +44 (0) 371
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
theyinvested.
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
thebasic 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
bya qualifying shareholder. Shareholders who wish to apply
fora 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 +44 (0) 371 384 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 +44 (0) 371 384 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 futureperformance.
Shareholder information
189Primary Health Properties PLC Annual Report 2023
Strategic report Governance Shareholder informationFinancial statements
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
Pinsent Masons
30 Crown Place
Earl Street
London EC24 4ES
Eversheds Sutherland
One Earlsfort Centre
Earlsfort Terrace
Saint Kevin’s
Dublin 2
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
190 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Shareholder informationFinancial statements
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
theyear.
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.
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.
Axis is Axis Technical Services Limited.
Building Research Establishment Environmental
Assessment Method (“BREEAM”) assesses the sustainability
of buildings against a range of criteria.
Clinical Commissioning Groups (“CCGs”) are the groups
ofGPs and other healthcare professionals that are responsible
for designing local health services in England with effect from
1April 2013.
Company and/or Parent is Primary Health Properties PLC (“PHP”) .
CSRD is Corporate Sustainability Reporting Directive.
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
onnewdevelopments.
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 theyear.
EBITDA is operating profit excluding amortisation of intangibles,
Axis acquisition costs and investment propertyrevaluations.
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 and amortisation of
non-monetary items such as intangible assets.
EPRA earnings per share is EPRA earnings divided by the
weighted average number of shares in issue during theyear.
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 and intangible assets.
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 and intangible
assets, 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.
Theaim 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 8.
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 8.
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
adisposal scenario. Refer to Note 8.
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 8.
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 8.
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.
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Equivalent yield (true and nominal) is a weighted average
ofthe net initial yield and reversionary yield and represents
thereturn 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
itssubsidiaries.
Headline earnings is the profit after taxation excluding
investment and development property revaluations, gains/
losses on disposals and their related taxation.
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.
JSE is Johannesburg Stock Exchange, the largest stock
exchange in Africa.
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
PropertyIndex.
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 debt is total drawn debt, less cash and cash equivalents
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
ofthe asset valuation (after notional purchasers’ costs).
Net related income is the related income after the payment of
direct property costs, which include service charge payments.
Net rental and related income is the sum of net rental income
and net related income.
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,
aframework definition”.
NHSPS is NHS Property Services Limited, the company wholly
owned and funded by the Department of Health, which, as
of 1April 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
torise each year on a per share basis.
Property Income Distribution (“PID”) is the required
distribution of income as dividends under the REIT regime.
Itiscalculated 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
ofspecificrequirements.
Related income is the property and service charge income
generated from the Axis business.
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
thevaluation.
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Retail Price Index (“RPI”) is the official measure of the
general level of inflation as reflected in the retail price of
abasket of goods and services such as energy, food, petrol,
housing, household goods, travelling fare, etc. RPI is commonly
computed on a monthly and annual basis.
RICS is the Royal Institution of Chartered Surveyors.
RPI linked leases are those leases which have rent reviews
which are linked to changes in the RPI.
Special reserve is a distributable reserve.
Sterling Overnight Interbank Average Rate (“SONIA”) is the
effective overnight interest rate paid by banks for unsecured
transactions in the British Sterling market.
Total expense ratio (“TER”) is calculated as total administrative
costs for the year divided by the average total asset value
during the year.
Total property return is the overall return generated by
properties on a debt-free basis. It is calculated as the net
rental income generated by the portfolio plus the change
in market values, divided by opening property assets
plusadditions.
£m
Net rental and related income (A) 151.1
Revaluation deficit and profit on sales (B) (53.0)
Total return (C) 98.1
Opening property assets 2,796.3
Weighted additions in the period 36.0
Total weighted average closing property assets (D) 2,832.3
Income return (A/D) 5.3%
Property return (B/D) (1.8)%
Total property return (C/D) 3.5%
Total adjusted 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 2022 112.6p
At 31 December 2023 108.0p
Increase/(decrease) (4.6)p
Add: dividends paid
Q1 interim 1.675p
Q2 interim 1.675p
Q3 interim 1.675p
Q4 interim 1.675p
Total 2.1p
Total adjusted NTA return 1.9%
Total shareholder return is calculated as the movement in
theshare 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
agiven period. Yield compression is a commonly used term
fora 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:
Website:
www.phpgroup.co.uk
Registered in England Number:
3033634
Primary Health Properties PLC Annual Report 2023