20 April 2017
Primary Health Properties PLC
Revised Advisory Agreement terms
Primary Health Properties PLC ("PHP" or the "Company"), the UK's leading investor in modern primary healthcare facilities, is pleased to announce that it has agreed revised terms with Nexus Tradeco Limited ("Nexus" or the "Adviser") with respect to the fees payable for the management of its property portfolio with effect from 1 January 2017.
Nexus has delivered advisory services to the Company for over 20 years under the terms of an advisory agreement, identifying suitable properties and negotiating the terms of purchase of those properties and providing property management services on behalf of the Company. During this time, it has generated consistently strong returns for shareholders and PHP's property portfolio has grown to comprise nearly 300 primary healthcare facilities in the UK and two in the Republic of Ireland, both completed and committed, which are let primarily to GP surgeries, NHS bodies and pharmacy operators. The gross assets of the Company over this period have also grown substantially to over £1.2 billion.
As PHP continues to deliver its strategy of growing its high quality property portfolio whilst maintaining a covered dividend, PHP and Nexus have deemed it appropriate to vary the terms of the advisory agreement in order to further reduce the incremental cost of advisory services, as the assets under management continue to grow. Additionally, the independent directors of PHP wish to provide an appropriate incentive for the Adviser and its key employees to deliver superior returns going forward and to assist with staff retention and recruitment.
Summary of revised terms
Under the revised terms, the fee payable for the management of the Company's property portfolio will be amended to incorporate additional lower fee increments as PHP continues to add scale, as follows:
· Gross asset value between £1,500m and £1,750m: 0.275%
· Gross asset value between £1,750m and £2,000m: 0.25%
In addition to agreeing a reduction from 0.3% for fee rates as the gross assets in the Company's portfolio increases above £1.5 billion, PHP has agreed a revised basis of calculating the performance incentive fee ("PIF") payable to Nexus, and to eliminate the currently carried forward deficit in respect of calculation of the PIF.
Currently, the Adviser is entitled to a PIF calculated as a percentage of total return, defined as change in IFRS net asset value plus dividends paid ("Total Return"), delivered above a hurdle rate of 8% Total Return. If the hurdle is met then Nexus is entitled to a PIF of 11.25% of the Total Return above the hurdle rate. Performance against the hurdle rate is carried forward in a notional cumulative account, with any payment of the PIF in future years being subject to the account being in a surplus position ("PIF Surplus or Deficit").
The revised method of calculating the PIF will be based on the change in EPRA NAV rather than IFRS NAV - which the Board consider to be a more accurate reflection of the performance of the underlying property portfolio, unaffected by changes in accounting practice and non-cash adjustments in relation to mark-to-market of PHP's swap and convertible debt instruments, that under the current methodology have resulted in a PIF Deficit despite strong underlying shareholder returns.
In addition, it has been agreed that half of any PIF due to the Adviser will be deferred to the following year and will be capped at the lower of 20% of the Management Fee payable to Nexus in that year or £2.0m. Furthermore, for the three years commencing on 1 January 2017, payment of PIF cannot cause PHP's dividend cover to fall below 98%. The current PIF Deficit of £12.1m will be eliminated.
Nexus has agreed that a minimum of 25% of any PIF payment will be paid to key executives of the Adviser, excluding Harry Hyman, the managing director, of which 50% will be satisfied in PHP shares, subject to a three year holding period.
All other key terms of the advisory agreement will remain unchanged.
For the purposes of the Listing Rules, Nexus is a related party of the Company and the change to the advisory agreement falls within Listing Rule 11.1.10 R, thus not requiring a shareholder vote.
Alun Jones, Chairman of PHP, commented:
"We have benefitted from the Nexus team's wealth of knowledge and expertise for over 20 years, and its performance to date has been exemplary. The revised agreement announced today ensures that, as we continue to grow the portfolio, the adviser and shareholders remain aligned and focused on the long term performance of the Company, with tight control of costs and an appropriate incentive for the Nexus team."
More information on Primary Health Properties PLC can be found on www.phpgroup.co.uk
Tel: +44 (0) 20 7451 7050
Tel: +44 (0) 20 7451 7050
David Rydell / Elizabeth Snow /
T +44 (0) 20 3772 2582