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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 FinancialDisclosures
59 Section 172 statement
60 Risk management and
principal risks
67 Viability statement
Governance
68 Chairman’s introduction
togovernance
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
inflexible, modern
primary healthcare
accommodation across
the UK andIreland
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
taxpershare*
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 EastAnglia
£605m 22%
North East, Yorkshire
andHumberside
£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 BYVALUATION
38
89
40
32
83
51
119
41
21
Who we are
We invest in flexible, modern properties for local primary
healthcare, leton long term leases with a property portfolio
of514assets in the UKand 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
Strategic report Governance Financial statements Shareholder information
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, modernprimary
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
Strategic report Governance Financial statements Shareholder information
Our portfolio
Building on our strengths
&maintaining resilience
The majority of our healthcare facilities are GPsurgeries,
with otherproperties let to NHS organisations, the HSE
inIreland, pharmacies anddentists.
RENTAL GROWTH OUTLOOK
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 fixedgenerating £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
Strategic report Governance Financial statements Shareholder information
KEY FACTORS AFFECTING OUR MARKET
PHP’s mission is to support the NHS, the HSE and other
healthcare providers, by being a leading investor in
modern, primary care premises. 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,
theNHS, 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
onhealthcare 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
careinfrastructure.
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 theGroup’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
VALUEANALYSIS*
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
Strategic report Governance Financial statements Shareholder information
Investment case
Investing in PHP
PHP is a strong business creating progressive* returns
forshareholders by investing in healthcare real estate
letonlong term leases, backed by asecure underlying
covenantwhere the majority ofrental income is funded
directlyor indirectly byagovernment body.
Rent roll funded by government bodies
89%
(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
remainattractively priced
• Majority of rents in both jurisdictions
funded bygovernment for long
leaseterms
• 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
rentreviews
• Positiverental growthoutlook
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 fundingcosts remains
• Efficient cost structure
enhancesearnings
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.
6 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
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,
ageingand suffering from more
instances of chronic illness
• Capacity of existing facilities remains
a significant obstacle to implementing
government policies
• Unwavering political support in
theUKand Ireland and promotion
ofintegrated primary care and NHS
Long Term Plans to effectively manage
patient needs
Dividend per share
6.7p
(2022: 6.5p)
STABLE, INCREASING
INCOMERETURNS
• Growing shareholder
returnthroughdividend
andcapitalappreciation
• Dividend fully covered by
adjusted earnings
• Strong yield characteristics
continues supported by Government
backed income
• 27 consecutive years
ofdividendgrowth
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
Strategic report Governance Financial statements Shareholder information
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
atthe 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
along weighted average unexpired lease term (“WAULT”) of
10.2years (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
Strategic report Governance Financial statements Shareholder information
The value of the property portfolio currently stands at
£2.779billion (31 December 2022: £2.796 billion) across
514assets (31December 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:
6.6pence), 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
Strategic report Governance Financial statements Shareholder information
Chairman’s statement continued
Environmental, Social and Governance (“ESG”)
PHP has a strong commitment to responsible business.
ESGmatters are at the forefront of the Board’s and our various
stakeholders’ considerations and the Group has committed
to transitioning to net zero carbon (“NZC”). We commenced
construction of PHP’s first NZC development which is due to
achieve practical completion 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
asCEO at the 2024 AGM.
The Company announced on 4 September 2023, after a
thorough and extensive search process, the appointment
ofMark 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
inorder 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
ofthe 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,
adecrease 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
in2022 having previously won the award in 2021 and 2017.
Read more about our culture onpage 76.
Read more about our stakeholders onpages 49 to 51.
Read more about our Responsible
Business Report at phpgroup.co.uk.
10 Primary Health Properties PLC Annual Report 2023
Strategic report Governance Financial statements Shareholder information
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
£3billion 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
asCFO 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
fora 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
longleases.
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
thecountry.
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
thefuture.
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 togenerate
progressive returns to shareholders
through investment in the primary
healthcare real estate sector,
whichis less cyclical than other
realestate sectors.
Long term focus:
By providing additional
spacefacilitating the provision
ofadditional services or extending
the term of underlying leases, PHP
can increase and lengthen its income
streams andcreate theopportunity
to add capitalvalue.
Experienced and
innovativemanagement:
PHP’s portfolio is managed
byanexperienced team
withinanefficient management
structure, where operating costs
aretightly controlled.
Appropriate capital structure:
PHP funds its portfolio with a
diversified mix of equityand debt,
in order tooptimise risk-adjusted
returns to shareholders.
Strong tenant covenant
– 89% of rent roll paid
directly/indirectly by
Government bodies
33% of portfolio on
fixed or indexed
uplifts. 67% OMV
review, typically
every threeyears
Occupancy rate
of99.3%
Weighted average
unexpired lease length
of 10.2 years
UK leases have
effectively upward only
rent reviews
Irish leases linked
toIrish CPI
highly visible
cash flows
andstable
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.
Theoverall objective of the Group is to create progressive returns
to shareholders through a combination of earnings growth and
capital appreciation. To achieve this, PHP has invested in healthcare
real estatelet on long term leases, backed by a secure underlying
covenantwhere the majority of rental income is funded directly
orindirectly by a government body.
OUR STRATEGY
1
GROW
The Group looks to selectively
grow its property portfolio
by funding and acquiring
high quality developments,
newly developed facilities
and investing in already
completed, let properties.
3
FUND
The Group funds its
portfolio with a diversified
mix of equity and debt on
a secured and unsecured
basis, in order to optimise
risk-adjusted returns
toshareholders.
2
MANAGE
PHP manages its portfolio
effectively andefficiently,
managing the risks faced
by its business inorder
to achieve its strategic
objectives.
4
DELIVER
Positive yield gap between
acquisition andfunding with
continued improvements in
rental growth.
WIDER OUTCOMES
Social impact
PHP aims to provide modern premises located within residential
communities toenable better access to an increasing rangeofservices
being delivered locally with greater accessibility than fromhospitals.
Environmental impact
Environmental impact is an integral consideration in the development,
design and construction of new PHP properties. Developing new
premises, PHP and its development partners seek toachieve
thehighest BREEAMstandards in the UKor nearly zero energy building
(“nZEB”) rating inIreland, 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
andgrowing 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 onpages 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 andefficiently,
managingthe risks faced by its business inorder to achieve
itsstrategic objectives.
Activity in 2023
• £4.3 million, or 3.0% additional income from rent reviews
andasset 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 beingprogressed 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 toshareholders.
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 £321million (2022: £326million)
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 andfunding 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 by3.0%
(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 debtis fixed or hedged protecting
underlying earnings from potential future economicchanges
Link to KPIs
A B C D E F G H
Link to Risks
8 9
KPIs
A
Adjusted earnings per share
B
Dividend cover
C
Total property portfolio
D
Total property return
E
Capital invested in asset management projects
F
EPRA cost ratio
G
Loan to value
H
Average cost ofdebt
Risks
1
Property 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 onpages 20 and 21. Read more about our Risks onpages 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 thatprovide the opportunity forincreased
returns through acombination of rental and capitalgrowth.
Performance
Income return of 5.3% inthe 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 itsportfolio in order to secure
the yield gap between income returns and the cost offunds.
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 shareisa key measure of the Group’s operational
performance as it excludes all elements not relevant to the underlying net
income performance of the properties.
Performance
Adjusted earnings per share increased in the year reflecting the 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 aprogressive dividend policy whichitaims
tocover from itsoperational performance. Dividend cover looks at the
proportion of dividends paid inthe year that are funded byAdjusted earnings.
Performance
Dividends paid in 2023 were covered by Adjusted earnings andwe intend
to maintain a strategy of paying a progressive dividend that is covered by
Adjusted earnings in each financial year.
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 ofdebt
∆
3.3%
+10bps
Rationale
The combination of a range ofmaturities and tenors of debt iskeyto the
Group achieving the lowest blended cost of debt.
Performance
The Company successfully 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 anappropriate balance between theuse
ofexternal debt facilities and shareholder equity in order to enhance
shareholder returns whilst managing the risks associated with debt funding.
Performance
Additional debt to fund acquisitions in the year, along with valuations
declining have resulted intheGroup’sLTV 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 keepingitsassets fit for purpose anddeveloping
them to meet the needsof 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 thisobjective.
EPRA cost ratio
∆
10.7%
+80bps
Rationale
The EPRA cost ratio is used toprovide anindicator of the efficiency
of the management ofthe Group looking attotal administrative costs
as a proportion of net rental income.
Performance
The slightly higher EPRA cost ratio reflects an increase in 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 onpages 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
27years 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
onsite 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
ESGcredentials.
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
witha 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
theIrish Consumer Price Index, upwards and downwards,
withreviews typically every five years. Leases to the HSE and
other government bodies, which comprise 78% of the income
inIreland, have increases and decreases capped and collared
at25% 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 tobothearnings and capitalvalues.
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.
Allthese leases are expected to renew but are subject
to NHSapproval 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.
Wecontinue 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,
thenthe WAULT on the portfolio would increase to 10.6 years
(31 December 2023: 10.2years).
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(31December 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 £61.5million 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 23bps to 5.05% (31 December 2022: 4.82%) and the
reversionary yield increased to 5.4% at 31 December 2023
(31December 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
(31December 2022: 20 assets/£230.9 million or €260.8 million).
At 31 December 2023, the portfolio in Ireland has beenvalued
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
impactofaone-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
£7.3million (€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
or2.1%).
The table below sets out the movements in the Adjusted NTA and EPRA Net Disposal Value (“NDV”) per share over the year
underreview.
Adjusted Net Tangible Assets (“NTA”) per share
31 December
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
theGroup’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
£1,309.9million (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 (31December 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
€60million 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
andthe impact of the passage of time, offset by €60 million
(£52.0 million) caps purchased in the year for £1.9 million
(€2.2million). 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 (31December 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
£141.3million) 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
pershare 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
newOrdinary 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
Strategic report Governance Financial statements Shareholder information
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
withMedicX in 2019, divided by the weighted average number
of shares in issue during the year.
Purpose
A key measure of a company’s underlying operating results and
an indication of the extent to which current dividend payments
are supported by earnings.
Calculation
See Note 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
sheetdate.
Purpose
Makes adjustments to IFRS net assets to provide stakeholders
with themost relevant information on thefair value of the
assets and liabilities within a true real estate investment
company with a long term investment strategy.
Calculation
See Note 8 to the financial statements.
Adjusted Net Tangible Assets (“NTA”) per share
∆
108.0 pence, down 4.1% (2022:112.6pence).
Definition
Adjusted net tangible assets are the EPRA net tangible assets
excluding the MtM adjustment of the fixed rate debt, net of
amortisation, acquired on the merger with MedicX, divided by
the number of shares in issue at the balance sheet date.
Purpose
Makes adjustments to IFRS net assets to provide stakeholders
with the most relevant information on thefairvalue of the
assets and liabilities within a true realestate investment
company with a long term investment strategy.
Calculation
See Note 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
andcorporate governance and toprovide 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 againstother property investment
companies. Setoutbelow is a description of each measure and
how PHPperformed.
EPRA net initial yield
∆
5.05%, increase of 23bps (2022: 4.82%).
Definition
Annualised rental income based on the cash rents passing
atthe balance sheet date, less non-recoverable property
operating expenses, divided by the market value of the
property, increased with (estimated) purchaser’s costs.
Purpose
A comparable measure for portfolio valuations. This measure
should make it easier for investors to judge for themselves how
the valuation of the Group’s portfolio compares with others.
Calculation
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 isvacant, 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 orother 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
ofthechanges 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
weprocure 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
andensure they can operate with net zero emissions
• Measure, minimise, benchmark and improve embodied carbon
performance for all new developments, setting incrementally
more challenging targets for reduction
• Offset residual embodied carbon emissions via high
quality projects
By 2030 – net zero asset management and EPC B
• Across the portfolio all properties to have an EPC rating
ofBorbetter, where economically feasible
• Achieve reductions in energy use intensity (kWh/m
2
)
throughasset management projects and electrify buildings
where feasible, 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
andrefurbishment
• Remove fossil fuel heating systems from all properties
• Increase proportion of renewable energy generation on our sites
• Reduce the carbon intensity of buildings compared to 2021
portfolio baseline
By 2040 – enabling a net zero portfolio
• Help occupiers to lease and operate our buildings with net zero
carbon emissions
• Offset any remaining occupier residual carbon from 2040 for all
properties where the lease was signed or renewed after 2035
• NZC achieved five years ahead of the NHS’s target of 2045 and
ten years ahead of the UK and Irish Governments’ targets of 2050
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
areunderway
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
ofthePHP Environmental, Social and Governance (“ESG”)
Committee. The Board agreed to create the Committee as
a full Board Committee in October 2020 to drive forward
the Group’s ESG agenda. These are important topics
and it is believed that having a Committee dedicated to
considering these matters will give greater impetus to
our initiatives in this area, which are described on the
followingpages ofthisreport.
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 thefuture.
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
themimprove 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
toour 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
orcomments 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 thelong term.
Reducing risk by building purpose-built new developments and making qualityacquisitions.
Working with occupiers to improve the energy efficiency of our properties andintegrate more
sustainable features.
Having a preference for reusing existing buildings, upgrading them in an energy and resource
efficient way, reducing reliance on new resources.
Sourcing responsibly and designing for future reuse of assets and materials.
All new developments to be NZC by 2025.
Delivering BREEAM and nZEB
certifiedbuildings.
Improving portfolio EPC ratings.
Increasing visibility of energy
performance across the portfolio.
Delivering on our net zero
carboncommitments.
Our NZC development at Croft is making good progress
and we are due to start our second project at South Kilburn
inLondon.
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
viaour asset management programme.
Measure embodied carbon from our asset
management projects to understand our
performance and set targets as part of our
NZCcommitments.
Work with expert partners to carry out net zero
audits for buildings to inform our approach
and align with the NHS Net Zero Carbon
Buildingsstandard.
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
Targetsinitiative.
Reducing our
carbon footprint.
Working with our stakeholders to improve the energy efficiency of our properties and integrate
more sustainable features with a long term ambition of the whole portfolio, including occupiers’
operations, being NZC by 2040.
Policies
Sustainability; Sustainable Development and Refurbishment; Net Zero CarbonFramework.
2. Health – Community impact
Engaging and
enhancing
the right
stakeholders to
drive effective
decision making.
To support
initiatives
that further
the health,
wellbeing and
education
of our local
communities.
Meeting the
healthcare needs
of communities.
Engaging in effective communications and collaborative practices with ouroccupiers. Investing, via our Community Impact
Fund, up to £0.25 million per year
in causes which enhance health and
deliver social value.
Demonstrating the positive impact
investment in primary healthcare
cangenerate.
We concluded a 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
managementprojects 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
socialvalue.
Working with partners to enhance wellbeing and inclusivity through initiatives that contribute
to the creation of healthy, supportive and thriving communities.
Policies
Sustainability.
3. People – Responsible business
Conducting our
business with
integrity and
investing in
human capital.
To create
opportunities
and maximise
the potential
of the
stakeholders we
work with.
Providing agood
place towork.
Ensuring effective investment in the professional development of the Group’semployees.
Maintaining a culture of empowerment, inclusion, development, openness andteamwork
forourpeople.
Continuing to promote PHP’s
cultureand commitment to high levels
of ethics and a workplace culture of
inclusion, diversity andequal opportunity.
Conducting an independent annual
staff survey to inform and monitor
continued improvement.
We 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
oursolar 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
theoption, 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
anyinstances of unethical treatment identified.
Continue to support staff with individual training
and development plans.
Work towards achieving Investors in
Peopleaccreditation.
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 thelong term.
Reducing risk by building purpose-built new developments and making qualityacquisitions.
Working with occupiers to improve the energy efficiency of our properties andintegrate more
sustainable features.
Having a preference for reusing existing buildings, upgrading them in an energy and resource
efficient way, reducing reliance on new resources.
Sourcing responsibly and designing for future reuse of assets and materials.
All new developments to be NZC by 2025.
Delivering BREEAM and nZEB
certifiedbuildings.
Improving portfolio EPC ratings.
Increasing visibility of energy
performance across the portfolio.
Delivering on our net zero
carboncommitments.
Our NZC development at Croft is making good progress
and we are due to start our second project at South Kilburn
inLondon.
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
viaour asset management programme.
Measure embodied carbon from our asset
management projects to understand our
performance and set targets as part of our
NZCcommitments.
Work with expert partners to carry out net zero
audits for buildings to inform our approach
and align with the NHS Net Zero Carbon
Buildingsstandard.
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
Targetsinitiative.
Reducing our
carbon footprint.
Working with our stakeholders to improve the energy efficiency of our properties and integrate
more sustainable features with a long term ambition of the whole portfolio, including occupiers’
operations, being NZC by 2040.
Policies
Sustainability; Sustainable Development and Refurbishment; Net Zero CarbonFramework.
2. Health – Community impact
Engaging and
enhancing
the right
stakeholders to
drive effective
decision making.
To support
initiatives
that further
the health,
wellbeing and
education
of our local
communities.
Meeting the
healthcare needs
of communities.
Engaging in effective communications and collaborative practices with ouroccupiers. Investing, via our Community Impact
Fund, up to £0.25 million per year
in causes which enhance health and
deliver social value.
Demonstrating the positive impact
investment in primary healthcare
cangenerate.
We concluded a 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
managementprojects 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
socialvalue.
Working with partners to enhance wellbeing and inclusivity through initiatives that contribute
to the creation of healthy, supportive and thriving communities.
Policies
Sustainability.
3. People – Responsible business
Conducting our
business with
integrity and
investing in
human capital.
To create
opportunities
and maximise
the potential
of the
stakeholders we
work with.
Providing agood
place towork.
Ensuring effective investment in the professional development of the Group’semployees.
Maintaining a culture of empowerment, inclusion, development, openness andteamwork
forourpeople.
Continuing to promote PHP’s
cultureand commitment to high levels
of ethics and a workplace culture of
inclusion, diversity andequal opportunity.
Conducting an independent annual
staff survey to inform and monitor
continued improvement.
We 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
oursolar 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
theoption, 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
anyinstances of unethical treatment identified.
Continue to support staff with individual training
and development plans.
Work towards achieving Investors in
Peopleaccreditation.
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 514properties
valued at £2.8 billion which are located across the UK
andIreland.
Responsible business reflects PHP’s strong commitment to
ESG matters and addresses the key areas of 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
ESGcommitments 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
orbetter.
RESPONSIBLE DEVELOPMENT
Key commitments: All new developments to be NZC
by2025, BREEAM Excellent and Very Good for fit-outs
inthe UK, and nearly 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,
WestSussex, 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
offuture projects in our pipeline, we are continuing to work
ona 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
PROPERTYMANAGEMENT
Key commitments: Improve EPC ratings to B, procure
100% renewable energy, achieve BREEAM Very Good for
refurbishments and engage tenants on, and improve, the
visibility of energy and carbon performance.
We are committed to creating best-in-class primary care
centres, focusing on the future needs of our occupiers and
thereby ensuring we are creating sustainable buildings for
the long term. We invest in the portfolio of properties to
generate enduring occupier and patient appeal, which provides
opportunities to improve rental values, the security and
longevity of income, and the quality of assets. This is a key
route for PHP to deliver energy efficiency improvements and to
introduce low or zero carbon measures for our occupiers and
their patients.
Asset and property management will play a key role in
achieving our NZC target of having a NZC portfolio by 2040,
with interim commitments for all properties to have an EPC
rating of at least B and NZC asset management by 2030 and
an 80% reduction in portfolio emissions by 2035 via targeted
improvements to buildings and occupier engagement.
During 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
2030commitment.
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
CARBONPERFORMANCE
As outlined above, during 2023 our investment, development,
asset and property management activities continued
to deliver against targets and to support our net zero
carboncommitments.
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
smartcontrols.
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
CARBONPERFORMANCE 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 reportingyear.