Risk Management

The Board regularly reviews and monitors the risks facing the Group. Effective risk management is a key element of the Board’s operational processes, impacting on decision making so as to ensure that risks that are accepted are appropriate to the returns they may generate and within the overall risk appetite of the Board. The Group aims to operate in a relatively low risk environment, appropriate for its strategic objective of generating progressive returns for shareholders.

The Board has overall responsibility for effective risk management across the Group. The Audit Committee is delegated responsibility for reviewing the Group’s systems of risk management on behalf of the Board. The Adviser is delegated responsibility for assessing and monitoring operational and financial risks and has in place robust systems and procedures to ensure this is embedded in its approach to managing the Group’s portfolio and business.

The Adviser has established a wide ranging system of internal controls and operational procedures that are designed to manage risk as effectively as possible, but it is recognised that risk cannot be totally eliminated.

The Adviser has established a Risk Committee that is formed of members of its senior management team. The chairman of the Adviser’s Risk Committee is independent of both the Adviser and the Group and experienced in the operation and oversight of risk management processes. The Adviser’s Risk Committee reports on its processes of risk management and the rating of risks it identifies to the Audit Committee, who agrees those risks that will be managed by the Adviser and those where the Board will assume direct responsibility for management and monitoring.

Key risks are recorded in a Risk Register and owned by the Board which is responsible for overseeing the monitoring and mitigation of that risk.

The Board recognises that it has limited ability to control a number of the external risks that the Group faces, such as Government policy, but keeps the possible impact of such risks under review and considers them as part of its decision making process.

DELIVER

DELIVER PROGRESSIVE RETURNS

Risk

PHP invests in a niche asset sector where a change of Government policy with regard to primary care may adversely affect the Group’s portfolio and performance.

Change to risk rating in 2014

Unchanged

Factors affecting risk in the year

NHS budgets have been ring fenced by the Government. The major political parties have confirmed their commitment to the NHS, increasing primary care provision and moving services into the local community.

Mitigation

The Board includes members experienced and active in primary care provision. Management regularly engages with the NHS and government directly to promote the continued investment in primary care and modern premises.

Negatively changing economic conditions could lead to a decline in the attractiveness of the Group’s assets compared to other investment classes.

Reduced

The UK economy has performed well in 2014, boosting confidence and leading to valuation growth in property sectors. The attractiveness of the long term, growing income streams of our sector leads to stability of values.

The Board and Adviser focus on keeping lease terms as long as possible, identifying opportunities to generate additional income and valuation stability.

GROW

GROW PROPERTY PORTFOLIO

Risk

The development of new properties is tightly controlled by the NHS. Recent structural changes have slowed the level of approvals and may be further impacted by the upcoming General Election, so restricting the ability of the Group to secure new investments.

Change to risk rating in 2014

Increased

Factors affecting risk in the year

The sector has seen a limited number of new development approvals through 2014. This has limited the number of investment opportunities for the Group.

Mitigation

The Group has a number of formal pipeline agreements and long standing development relationships that provide an increased opportunity to secure those developments that come to market. The reputation and track record of the Group in the sector means it is able to source investment in existing standing investments from investors and owner occupiers.

The Group uses a mix of shareholder equity and external debt to fund its operations. A restriction on the availability of funds would limit the Group’s ability to invest.

Reduced

There has continued to be a healthy appetite from both equity investors and debt providers to fund the sector through 2014. There has been a number of new providers to the sector in the year.

The Board monitors its capital structure and maintains regular with contact funders. A programme of meetings with existing and potential equity investors is supported by regular discussions with debt providers.

MANAGE

MANAGE EFFECTIVELY AND EFFICIENTLY

Risk

The bespoke nature of the Group’s assets can lead to limited alternative use. Their continued use as fit for purpose medical centres is key to delivering on the Group’s strategic objectives.

Change to risk rating in 2014

Unchanged

Factors affecting risk in the year

As the Group’s portfolio grows in the number of assets that it owns and initial lease terms erode, the importance of active management to extend the use of a building is increased.

Mitigation

The Adviser meets with all of the Group’s occupiers on at least an annual basis to discuss the building and the tenant’s aspirations and needs for their future occupation. The Group is experienced in identifying and implementing asset management projects that enhance income and values at properties and extend occupational lease terms.

The Group has no employees. The continuance of the Adviser contract is a key for the efficient operation and management of the Group.

Unchanged

The provision of administrative and company secretarial services was consolidated with the Adviser in the year, significantly reducing the costs of these services. The consolidation removed execution risk arising from the previous split responsibilities of joint advisers.

The Advisory Agreement with and performance of Nexus is regularly reviewed. Nexus remuneration is linked to the performance of the Group to incentivise long term levels of performance.

Nexus can be required to serve all or any part of its notice period should the Group decide to terminate providing protection for an efficient handover.

FUND

DIVERSIFIED, LONG TERM FUNDING

Risk

Without appropriate confirmed debt facilities, PHP may be unable to meet current and future commitments or repay or refinance debt facilities as they become due.

Change to risk rating in 2014

Unchanged

Factors affecting risk in the year

The Group has been successful in extending the availability and widening the sources from which it obtains debt funds in the year. New entrants to the debt capital markets have increased available resource.

The Group has increased to proportion of its facilities advanced on an unsecured basis.

Mitigation

Management constantly monitors the composition of the Group’s debt portfolio to ensure compliance with covenants and continued availability of funds.

The Adviser regularly reports to the Board on current debt positions and provides projections of future covenant compliance to ensure early warning of any possible issues.

Adverse movement in underlying interest rates could adversely affect the Group’s earnings and cash flows.

Reduced

Competition in debt markets has increased during the year lowering the cost of new facilities.

The Group has continued to apply its defined policy as regards mitigating interest rate risk.

The Group retains a proportion of its debt on a long term, fixed rate basis. It also mitigates its exposure to interest rate movements on floating rate facilities through the use of a series of interest rate swaps and other derivative instruments.