Chairman's Statement

I am pleased to present the Group’s Annual Report for 2014, another busy and successful year. We have grown the Group’s property portfolio, passing the £1 billion milestone in the year and have delivered on our key objective for the period of significantly increasing dividend cover from 57%⁽¹⁾ in 2013 to 84% in 2014.

Our proven strategy of investing in modern, purpose built primary care premises is evident in the results and activity of the year. Underpinned by long term, secure income streams, the Group’s portfolio has delivered growth in both income and capital value which has been translated into increased earnings and shareholder value. Total NAV return for the year, being the increase in EPRA net asset value per share and dividends paid, was 12.8% (2013: 4.6%).

PERFORMANCE HIGHLIGHTS

All aspects of our business have contributed to the strong financial performance in the year. The acquisitions of the PPP portfolio in December 2013 and further assets totalling £43.0 million in 2014 were the major contributors to a 42.5% increase in net rental income in the year to £59.3 million (2013: £41.6 million).

The consolidation of advisory services to the Group, effective from May 2014, has reduced administrative costs as a proportion of assets with the Group’s total expense ratio falling to 69 basis points (2013: 88 basis points). Fresh debt issuance, most notably the issue of the Group’s 4.25% 2019 Convertible Bond in May 2014, and the restructuring or refinancing of other existing facilities during the year, has resulted in lower marginal borrowing costs, a wider spread of debt providers to the Group and an increase in the average maturity of facilities.

The combined effect of these actions is a 168% increase in EPRA earnings to £18.2 million (2013: £6.8 million) and a 116% increase in EPRA earnings per share of 16.4 pence (2013: 7.6 pence). IFRS profit before tax increased 82.7% to £36.9 million (2013: £20.2 million). The Board has continued to grow the dividend paid to shareholders with a total of 19.5 pence per share paid in 2014, an increase of 2.6% (2013: 19.0 pence per share). This is the eighteenth year of successive dividend growth. Notwithstanding the increase in both dividend paid and the number of shares in issue, the Group made significant progress in rebuilding dividend cover, improving to 84% for the year from 57%⁽¹⁾ in 2013.

At 31 December 2014, our property portfolio, including commitments as complete, was valued at £1.04 billion. Allowing for costs associated with acquisitions in the year, the net surplus on revaluation was £29.2 million. Overall, EPRA net asset value per share increased by 6.3% to 319 pence (2013: 300 pence).

DIVIDENDS

The Board has approved the payment of an interim dividend of 10.0 pence per share, payable on 1 April 2015 to shareholders on the register on 27 February 2015. The Board is committed to maintaining its progressive dividend policy whilst growing dividend cover.

THE NHS BACKDROP

As we enter 2015, the upcoming General Election dominates the political and fiscal landscape but the unwavering cross party support for the NHS is already evident. Each of the major political parties made specific statements in the autumn of 2014 on their commitment to the future of the NHS, its funding and its importance to British society. These included continued ring-fencing of the NHS budget with annual increases in expenditure in real terms targeting increases in GP numbers and improved access to GP services.

This was boosted in the Chancellor’s Autumn Statement with the provision of an additional £2 billion of funding for front-line NHS services in 2015/2016 and a further pool of more than £1 billion, to be provided over a four year period to directly enhance GP premises.

In October 2014, NHS England published its Five Year Forward View of the Health Service in England. This reinforced “list-based primary care” as the foundation of the NHS and outlined planned changes to better integrate health and social care, working closer with others such as Local Government to promote health and wellbeing. It is also planned that a greater number of services located within the local communities to provide economic efficiencies and meet the objectives of giving patients “far greater control of their own care”.

The modern premises provided by the Group will help the NHS achieve these objectives, providing flexible accom-modation that can be used for GP services, to house specialist equipment and services and facilitate greater integration and collaboration between providers of health and social care.

OUTLOOK

The structural changes to the NHS in 2013 have slowed the rate of approval of new medical centre developments and the inception of new projects for future schemes. As we move beyond the Election, the need to upgrade many existing GP premises and the integration of both primary and secondary care and of health and social services will increase the demand for new facilities and we anticipate the rate of approvals to improve. We have an identified pipeline of investment properties that will secure further portfolio and earnings growth.

PHP’s track record as one of the leading investors in healthcare real estate will position us at the forefront of providing new, modern premises and support the NHS in its development.

We will continue to work with our existing GP tenants to invest in our portfolio to enhance our facilities and adapt and extend them to meet their changing needs. Using our depth of knowledge of the sector we will deliver more asset management projects that will generate increased and lengthened income streams and growth in capital values.

Through these activities, together with efficient administrative management and appropriate financing of the Group, we expect to further our objectives of increasing earnings and dividend cover.

APPOINTMENT

I am delighted to announce the appointment of Phil Holland as a Director of the Company. Mr Holland has been a key contributor to the Group’s growth since joining Nexus in 2010. Mr Holland is a Chartered Accountant and experienced listed property company director who will serve as Finance Director and Deputy Managing Director of PHP. I wish him every success in his new role.

I would like to thank my fellow Board members and all of those who work with us to ensure the continued success of the Group. I look forward to 2015 and the expected growth and progression of the Group with confidence.

Alun Jones
Chairman
18 February 2015

(1) Includes add back of non-recurring contractural administrative services contract fee.