Primary Health Properties Plc (PHP) Earnings Call Transcript & Summary

So good morning, ladies and gentlemen, and welcome to the preliminary announcement of our results for 2019. Nice to see so many old friends and familiar faces in the room, and if we haven't met you before, you're very welcome. My name is Harry Hyman, I'm the Founder and Managing Director of the business; on my left is Richard Howell, who is the Finance Director; and on my right is Chris Santer, who's the Chief Investment Officer. We thought it's sort of difficult for those who are attending through the conference call. But on screen, you will be able to see some recent aerial footage taken by drone of the Bray Medical Centre. Those of you who came on our Capital Day, 15, 18 months ago, will have seen this when it was simply a hole in the ground. But here is the building approaching completion. And in the next week or so, we expect it to take delivery of this brand new EUR 22 million facility, which is located in Bray, just south of Dublin. So you can feast your eyes on that while I give you the overview of the year as a whole. Clearly, much of this, we reported in the first half of the year because the standout feature of 2019 was our agreed merger to takeover of MedicX. We had the once-in-a-lifetime opportunity to buy GBP 806 million or thereabouts, of very high-quality primary care accommodation across Britain and Ireland. We closed that deal on the 14th of March. We've now successfully completed the physical integration of the teams, the systems integration of the property portfolios, delivered the GBP 4 million of cost synergies that we promised at the time of the merger, and importantly, now reduced the overall cost of finance by 50 basis points to 3.5% moving forward. And Richard, later in the presentation, will talk more about that. We have the largest portfolio outside the government of primary care accommodation in Britain and in Ireland, with 488 properties valued at just a smidgen over GBP 2.4 billion. We'll come back to this later on. But without yield compression in Britain, we've shown a very, very good second half asset performance in terms of valuation, driven by rental growth. You have heard us in the set to talk about rental growth for some time. It is now beginning to happen. It's not a tsunami of rental growth, but it's a gradual firming of tone that we're experiencing, and that has very good prospects for our income account for the year to come. We are now delighted to be in the top half of the FTSE 250, with a GBP 1.9 billion market capitalization. And we've seen a rerating of the shares following the merger, and in part, a rerating of income shares within the property sector. Liquidity is stronger in the shares, which is great for those who wanted to buy, and they're rotating. But ultimately, what PHP remains is a cash flow-driven business, where 90% of our overall income comes from the National Health Service in Britain, which is backed by the British government and from the Irish government. And what is really driving the enormously good prospects for our business is the demographic winds have changed in both countries. The aging population, the growing population, the ever higher incidence of chronic disease, which means that there is a massive capital requirement formation, irrespective of who is in power, in either country to modernize for social infrastructure and primary care in a responsible way in the years ahead. The portfolio still has average WAULT of 12.8 years, and we're looking to maintain that through asset management opportunities, which you'll hear about, and by buying new properties. We're delighted that we've successfully delivered 23 years of consecutive dividend growth. And indeed, on an annualized basis, we started well in 2020, having declared a 1.475p dividends, which on an annualized basis, it's not a forecast, not a profit forecast, not a dividend forecast, would be 5.9p, which is a 5.4% increase on last year. Our dividend is fully covered by cash earnings. It's not a smoke and mirrors job. It's real money, which we pay out to our shareholders. We have a strong capital base. Richard and the team have done sterling work. We had a very successful GBP 100 million accelerated book build in September, which returned our LTV. And that is 44%, around the figure it was before we took over merged with MedicX. Rental growth, we'll talk further about, is only up. And we have delivered the cost savings. And we are in a very good place turning to the prospects for the current year. And I'll tell you more about that at the end. But now I'm going to hand over to Richard, who will take you through the numbers in more detail.

Thanks very much, Harry. 2019 has been a successful year for PHP. If you look at the relative performance of PHP compared to our pre-Assura and U.K. EPRA market, PHP delivered a 43% return over the last year, at the end of last week, compared to 41% in Assura and 16% in the EPRA UK REIT index compared to every other time periods, 3, 5, 10, 20 years we have delivered double-digit returns. Anybody investing a 25p investment in 1 share when it was first listed back in 1996 would have seen a 13.5% internal rate of return. So that share would be worth GBP 1.60 approximately today, and they would have received a tick end of 84p in dividends. If you look at the bottom right-hand chart, and compared to the MSCI U.K. Monthly Index, again, over 1, 3, 5 years, we have continued to outperform the market. I won't throw on this slide because Harry already mentioned it, but we have declared our first quarterly dividend for 2020 equivalent to 5.9p. As you can see, now on the historic dividend cover, we are fully covered, and we continue to look to maintain that ratio going forward. Looking at some of the key financial highlights, and I'll go into some of the detail a bit more. Net rental income was up 51% or GBP 39 million driven predominantly by the merger with MedicX, which added just under GBP 35 million. But importantly, acquisitions in 2018, '19 delivered a further GBP 3 million. And as Harry has already mentioned, rental growth from rent reviews and asset management projects had another GBP 1.8 million. So that led to a 62% increase in adjusted EPRA earnings just under GBP 60 million or GBP 23 million increase, with the MedicX portfolio adding GBP 15.6 million. But encouragingly, the underlying PHP portfolio delivered an increase of GBP 7 million, which was driven by those acquisitions and rent reviews, but also the lower cost of finance, reducing that to 3.5%, say GBP 3.7 million of interest. Dividends paid up 62% to GBP 59.4 million, dividend cover over 100% and the dividend per share of 5.6p in 2019, with an increase of 3.7%. The investment portfolio stand at GBP 2.4 billion with a revaluation surplus of 2.1%, just under GBP 50 million, and that was driven predominantly by rental growth in the U.K and we saw a smidgen of yield compression in Ireland. Adjusted EPRA NAV, just under 108p, an increase of 2.8p. So the revaluation surplus have been most of that, 4.1p, but the costs -- the cash cost of doing the MedicX transaction knocked off 1.4p. Loan-to-value ratio, down from 48% at the time of the merger with MedicX to pre-merger levels, just over 44%. And that was really driven by the revaluation surplus we just touched upon, plus the GBP 100 million share pricing in September. We also issued a convertible bond in the year, GBP 150 million, which is already in the money. And so that should convert in due course. So if you strip that out on a look-through basis with the LTV, it's down at 38%. Average cost of debt, 50 basis point reduction to 3.5%, reflecting the various refinancings we've carried out in the year, and I'll come and talk about it a bit later. Rental growth from rent reviews, 1.9% or GBP 1.9 million driven by increases from rent reviews, GBP 1.6 million and asset management projects, GBP 0.3 million. WAULT, 12.8 years. So despite a further year progressing, the asset management projects plus the acquisition of the MedicX portfolio has helped us to keep that up at just around 13 years. EPRA cost ratio down to 12%, a 2.3% reduction. We are now the lowest -- we now have the lowest EPRA cost ratio in the whole of the U.K. REIT sector. So just turning to some of the detail on the income statement. Net rental income up GBP 39 million to GBP 115.7 million. So the MedicX transaction added GBP 34.6 million, acquisitions, GBP 3 million and the increases from rent reviews and asset management projects to further GBP 1.8 million. Increases in admin expenses reflect the increased size of the portfolio. Skim over that, nothing to mention. Performance incentive fee up GBP 500,000. That really reflects the extremely strong performance that we have delivered for the both 2018 and 2019. Net financing costs up GBP 14 million, and that was driven predominantly by the take on of the MedicX debt portfolio, which added GBP 18 million to that number, but a GBP 4 million reduction on the underlying PHP debt portfolio driven by the various refinancings that we've completed in the year. So overall, adjusted EPRA earnings just under GBP 60 million or 62% increase. The revaluation surplus, just under GBP 50 million, driven all by rental growth with very strong performance in the second half of the year compared to the first half, just under GBP 18 million in H1 compared to GBP 32 million in H2. There are some bookkeeping accounting losses on the fair value of the convertible bond and derivatives, GBP 33.6 million, that is driven predominantly by the new convertible bond, which was GBP 28.2 million of that. So that bond is mark-to-market with the share price -- we feel the share prices performed so strongly at 160p at the year-end. We end up with a very large loss, but it's only a bookkeeping loss. So overall, adjusted IFRS profit before tax, GBP 76 million, or 2.2% increase over the previous year. We then come on to the exceptional adjustments relating to the MedicX merger. So GBP 138.4 million revaluation in loss. That really reflects the premium in the PHP share price when we completed the MedicX merger. It's important to note that of that loss, only GBP 14.5 million was a cash cost, being the transaction cost for doing the deal. The rest is all bookkeeping adjustments. The other side of the equation is in reserves. There's a GBP 10.2 million of cost to terminate the previous manager of the MedicX portfolio, Octopus, and then those are further adjustment on the mark-to-market of the MedicX debt acquired. Again, it is just a bookkeeping adjustment required under IFRS. So adjusted earnings per share, 5.5p, up 5.8% compared to the previous year. EPRA cost ratio, as already mentioned, 12% and the lowest in the whole of the U.K. REIT sector compared to 14.3% for PHP in 2018 and 18.4% in the previous year. So that really reflects the 9.5 months of cost savings synergies, GBP 4 million on an annualized basis. So we've only got about GBP 3.2 million in the income statement for 2019. So there's a bit more to come on that. Total administrative expense ratio down to 0.4% compared to 0.6% in the previous year. Just quickly turning to the NAV and the balance sheet. We started the year at 105p. The adjusted earnings, we paid out to our shareholders. So no impact there. The portfolio revaluation, GBP 50 million added 4.1p. The impact from the MedicX merger took off 1.4p. We then have re-coupons, some interest rate derivatives, in the second half of the year, cost us GBP 8 million. That's equivalent to 0.7p per share. And have also carried out a number of share issues in the year, issued at a premium to underlying NAV, which added 0.8p to the NAV. So overall, we closed the year just under 108p. I'm just going to hand you over to Chris, who's going to take you through the property portfolio.

Right. Thank you very much, Richard. So in terms of the property portfolio, the property now -- the portfolio now stands at 488 buildings across the U.K. and Ireland. We're starting to reach critical mass in Ireland, with 16 buildings in Ireland, which are currently valued at around GBP 160 million or when completed, GBP 180 million. You can see here some of the other metrics from our portfolio, which set out in terms of the size, the floor area and the capital values per square meter. The net initial yield on the portfolio now stands at 4.86%. Our average lot size still stands around GBP 5 million. Our average WAULT in the portfolio was 12.8 years, the average contract duration we have with our tenants. And 90% of our income is either directly or indirectly backed by the NHS or its Irish equivalent, the HSE. We have still very high occupancy across the portfolio, and you can see that 99.5% of the portfolio is occupied. We also use, as a crude proxy, the lot size of the individual assets to measure their obsolescence or their relevance for the future going forward. And you can see from this chart, we continue to have a portfolio which has more of the larger hub medical facilities, which we think, are suitable for the 21st century and for primary care, which the NHS wants to deliver. And we have just 7 buildings with a valuation of less than GBP 1 million, which are the very small, older, more classic doctor surgeries. Where are we in the U.K.? We are across the U.K. and the Republic of Ireland. We have approximately 7% of the portfolio is now in Ireland, 21% is in London and the Southeast; and then scattered through in regions of the U.K., really quite frankly, where there is the population and where there is the need. You can see on the map, on the right-hand side, some of the locations and spreads of the portfolio. During 2019, we completed 5 new developments in the U.K., totaling about GBP 18 million, started on-site with 3 new developments, and in 2020, are now on-site with 6 developments in the portfolio with a total value of GBP 57 million when complete, 75% of which is in the Republic of Ireland. So to confirm some of the sort of key metrics from the portfolio set out here in terms of the WAULT, the occupancy and the strong tenant covenants, but really one of the key drivers of performance as well through the year has been like-for-like rental growth. So the portfolio, we were able to drive an additional GBP 1.9 million of rental growth from rent reviews and asset management predominantly in the U.K., which accounts for 1.5% uplift on 2018. We're starting to see, as Harry mentioned, the shoots of rental growth coming through. It is starting to pick up. We are starting to see more settlements. We are starting to see slowly. It is very slow, but it is starting to happen, more new developments coming through the system. And this is a key driver of rental growth as, for example, building specifications increase overtime as well, that is a key driver of the rent. And so one of the key drivers of that rental growth has been rent reviews. We've set out here on the -- some details in terms of our rent reviews. Approximately 69% of the portfolio is reviewed to open market value on a 3-year lease cycle with the remainder being fixed or indexed. In 2019, we completed 315 rent reviews, driving GBP 1.6 million of additional rental income, which equates to an annual growth rate of 1.9%. At the bottom of the slide there, you can see the movement in rental income -- our contracted rental income over the year, as has been alluded to the MedicX merger, was a very key driver of that growth in rental income from where we were at the beginning or the end of 2018. We've also added an extra GBP 2 million of rental income through acquisitions through the year. In addition to the MedicX acquisition, there were 9 further acquisitions, totaling GBP 57 million across the U.K. and Ireland as well, which generated GBP 2 million of additional rent. And then we have the asset management and rent reviews that were completed in 2019. And again, for 2020, pro forma going forward, we will continue to add to portfolio with acquisitions, rent reviews and asset management. This gives you an example of some of the development pipeline we have on-site at the moment. I mentioned we have GBP 57 million of developments on-site at the moment through forward funding structures. These are split between the U.K. and Ireland. In the U.K., we have recently started on-site on South coast in Eastbourne, where we have started with a new 2,000 square meter integrated primary care center there. This is bringing together practices -- 3 or 4 different practices out of old, obsolete accommodation, which no longer work for them. And it brings them into a larger hub with consulting rooms, with additional services. This one, in particular, will specialize in additional musculoskeletal therapy, and that will be for an increasing part or give us an example of some of the additional services, which are coming into primary care and out of the traditional hospital setting. We've also recently announced that we're starting on-site with a development funding in South Wales, Mountain Ash. It's GBP 5 million center there, which is a very key part of that local community. And in Wales -- I'm sorry, in Ireland, you have the centers where we're building there. Bray, which is a town in Southern Ireland that has a WAULT of 21 years, and 70% of that building is left to the HSE. This is a direct contract with the HSE, which is the Irish equivalent of NHS, where rent reviews there are linked to CPI on a 5 yearly review cycle. We're also building these buildings to very high specification in line with what we see going on around us and our tenants requirement's at BER rating, it's the Irish equivalent of A3. In the U.K., we are building to BREEAM Excellent or more. Modeled to BREEAM Excellent, [ as we are building them ]. Athy is another example of something we have on-site in Ireland at the moment, and both of these are due to complete shortly. This gives you example of some of the investments that were made in 2019. As I mentioned, GBP 57 million in 9 different transactions. These are both new centers with long leases, but also in the instance of Bolton on the bottom left-hand side there. This is an existing building with 3 tenants: The NHS and 2 doctors, which had a WAULT of 9.5 years. And actually, we were able to pick that building up at slightly higher yield and get a discount on that price because the current owners have been unable to properly or fully asset manage the building to its potential. And therefore, we were able to take advantage of that, generate the higher income return and deal with the rent reviews and the asset management and the lease renewals in due course. And in terms of asset management, just to give a flavor of what's going on there. PHP has 36 asset management schemes, which were either completed on-site or Board-approved and due to [ bear ] on-site in 2019. GBP 13.5 million invested in CapEx or to be invested in CapEx, driving GBP 0.6 million of additional rent, and also more importantly, where these are existing buildings extending the lease length back out to close to 20 years. There are a number of different projects there I'll pick on, for example, just to give a little bit of big example, Central Milton Keynes, which is a project where we refurbished that building, brought it up to latest infection control standards, spent probably between a year and 2 years rent on CapEx, and in return, the lease was extended back out to 25 years. And we were also able to increase the EPC rating, a key measure of buildings, environmental performance, from C to B, through a number of the initiatives that we took there in terms of lighting and the specification. Raynes Park is a project that came across with the MedicX merger, which is in Southwest London. There was some vacant space in that building. And we've been able to do letting, totaling GBP 150,000 of additional rent through leasing up that space on the third and fourth floor, one is a dermatology clinic, which is doing minor dermatological procedures on-site and also to Babylon, who have a small consulting operation on the top floor. So I'll briefly touch on ESG as well. As PHP, we are already committed to delivering the infrastructure that the primary care sector needs to deliver modern primary care to the population. We think there is something like 300 million visits a year to primary care in the U.K., and that has just been marked underinvestment over a large number of years, with GPs continuing to cite a number of their premises as being unsuitable and the NHS continuing to want more and more services to be provided in the primary care setting. 80% of our portfolio has an EPC rating of C or better, and we continue to work to improve this through future asset management and property management initiatives. 100% of our projects in the U.K., in terms of new developments and the new forward funded that we're doing will have a BREEAM rating of very good or better. And in Ireland, as I've mentioned, we'll have a BER rating of A3 or better. The property adviser to PHP, Nexus, has established its ESG Committee. And we have also launched our -- or stated our ESG policy, which will be published live on our website shortly and set out our commitment and approach to our mission and responsible business process going forward. So on that note, I will hand back to Richard to talk a little bit more about the existing financing.

Thanks, Chris. And as I mentioned at the start, 2019, extremely active year on the financing front. At the time of the merger with MedicX, we weren't allowed to talk about the financial cost saving synergies. We thought they were going to be substantial. And carried out a number of refinancings in the year to deliver a 50 basis point reduction in the average cost of debt. Now the key highlights were the GBP 100 million equity raise in September of this year, really sort of leveraging off where the share price was at that stage, which basically has been giving us sort of firepower to deliver our investment pipeline. So we have GBP 160 million pipeline, of which GBP 44 million is in legals at the moment. And we also got all those various developments on-site that we need to pay for as well. We also issued GBP 150 million, 2.875% unsecured convertible bonds issued for 6 years. This is a very important piece of debt for us. It's all unsecured, and really gives us an extra -- better in our cap in terms of our financing structure, which is predominantly secured in nature. We also issued a GBP 70 million, 1.5% fixed for 12 years, euro denominated loan notes secured on our Irish assets. And this really compares to, say, an average net initial yield of around 5.5% -- 5.25% on those assets. So a great arbitrage between what we're buying in that and what we can finance in that. We also have recently seen -- recently refinanced a GBP 100 million rolling credit facility with HSBC for a further 3 years with opportunities to extend that on the first and second anniversaries of the [ facility ]. As already mentioned, we recouponed GBP 100 million of fixed rate swaps with HSBC as part of that transaction for GBP 8 million, equivalent to 0.7p per share. So importantly, that will save us GBP 1.6 million of interest going forward. If we look at all the sort of key metrics, cost of debt, interest cover ratio, loan-to-value ratio and debt maturity years, they've all been approved over the course of 2019. Debt summary. PHP likes to operates and sort of leverage ratio between 40% and 55%, really reflecting the very secure nature of our income stream. And we have a very broad and diverse range of lending partners, and that is deliberate to make sure we don't have a lot of eggs in one basket. And as we get from the pie chart, [ we've got ] a good number of different sources of finance. For the long weighted maturity, 7.2 years, but also, 98% of our debt is fixed or hedged out for long period of 8.2 years. And we have very little risk to increasing interest rates into the future. Just over GBP 1.5 billion of debt facilities, of which 90% is secured, 10% unsecured. And we have drawn debts of just under GBP 1.1 billion. So today, after capital commitments have been paid out, we have GBP 357 million of undrawn headroom from our various facilities and cash on the balance sheet. So we are in a very strong position to carry on, continuing to deliver pipeline into the future. LTV, 38%, if we strip out convertible bond, 44% if we include it. And a low marginal cost of debt, 2.5%. We don't have any particular maturity in 2020. They will be refinanced. And in '21, we're already in positive discussions with our various lending partners about refinancing those facilities, and hopefully, delivering further cost savings on the cost of debt. Just going to hand you back to Harry, who's going to take you through the outlook.

Well, thanks very much, Richard. Final slide before we open the floor to questions. As we've outlined, we were delighted with the outcome of our MedicX merger. It's given us real scale, quantum, and as we've delivered on the synergistic benefits and the lower cost of finance, what's really important, though, is that we've got fantastic strong pipeline, both here and in Ireland. We are targeting to grow our Irish portfolio to 15% of the total portfolio. So we're about halfway there right now. We have adequate firepower to deal with that, and what we hope will be an accelerating trend of new deals in Britain now that Brexit and the general election are out of the way. We've got fantastic big pipeline of asset management projects, which will enable us to improve the physical stock and, importantly, improve the environmental outputs for those buildings with we review to helping the NHS achieve its target of becoming carbon neutral. It's one hell of a target, they've said themselves, but we're all going to try to help them to do that. Rental growth is coming through. We've got a relatively low level of leverage, historically. And we continue to see very strong macro demand for our facilities. If you read Simon Stevens -- Sir Simon Stevens' long-term plan for the NHS, if you read the Irish equivalent, it's all about taking many more aspects of care out of expensive, inflexible [ brackets ] disease-ridden closed [ brackets ] hospitals and putting it into much larger modern primary care facilities, where a whole range of outpatient consultations, diagnostics, minor surgery can be delivered much closer to the patients with consequent savings in unnecessary travel, using the expertise of the doctor force, skilled nurse practitioners in many of these centers, and really, dealing with the whole raft of stuff that should be kept out of hospitals, to enable them to focus on trauma and serious cases. So we are determined to play our part in modernizing infrastructure in Britain and Ireland to make it fit-for-purpose into the 21st century. And MedicX was a great boost to us. But the underlying portfolio now is what we're going to concentrate on for 2020. So having said that, now I'm going to open the floor to questions. I'm not sure if I'm going to do the questions from the telephone first. Room first. Thank you. So who would like to ask any of us a question, please.

Could you just remind us with the current financing structure, what sort of sensitivity you have to interest rates in terms of -- because we're now looking maybe at longer -- lower for longer with the U.K. rates?

Well, our philosophy has always been to hedge that out. And on one of the slides Richard referred to, I think, you could see 98%. So I think it was hedged out for 8 years.

That's right.

So we have very little exposure to higher interest rates. Of course, one of the consequences of that is that people say our debt is very expensive. But that is what we choose to do to hedge out the portfolio that we've used so that we're not exposed to higher interest rates.

As we have facilities coming up for maturity over the next couple of years and as it gets refinanced there, we'll have the opportunity to refinance it at a lower margin, reflecting increased scale of the business.

Harry, just on the rental growth. Obviously, some positive trends there. Historically, the MedicX team would talk about their southeastern London assets, in particular, having some potential significant uplift. Has there been any skew in your rental review numbers this year? And is there anything that you think is going to see push on more this year also? Just general positive total tone will sort...

I think, to be fair, in the context of our portfolio now, things might have been different from MedicX. Clapham is a bit of an outlier. And we are still in discussion with the District Valuer about whether or not he will accept the independent experts' assessment of rent is considerably higher than where he or she is at right now. But that is just one review and that hasn't impacted the results for the current year. What I'm talking about, what we're talking about is a much firmer trend across the country. There are still plenty of zeros happening, which reflect the last 3 years. But as more deals get sanctioned, so we can see that the deals, those are -- sorry, the rates that those assumptions are, are higher than the rates pertaining across our portfolio. And this trend is likely to carry on. But I wouldn't overdo it. People say, what do you think it will be? Well, I think that with the current inflation outlook of something like 2% per annum in 2 to 3 years' time should be getting at least the 2% per annum across the portfolio.

On slide -- on Slide 31, there is the Appendices. There is a bit more color on the rent reviews and where they are by region and the vintage of the reviews as well.

John Cahill from Stifel. Two questions, please. The first one, on Slide 27, you've given a very helpful illustration of the difference between acquisitions made in the U.K. and the Irish market. If I'm reading that correctly, the yield difference between the 2 markets is about 50 basis points, say, about 2, 3 years ago. I assume to remember that, that was about 200 basis points in the sort of illustration. Is that a function of the Irish market becoming more liquid, more mature, some other moving parts? And I'll give you the second question as well. The outstanding rent reviews by region, and London and the Southeast is 44%, nothing wrong with that, of course. But that's about double your actual underlying exposure. Is that telling us something that maybe things take longer in London? Just educate us on that, please.

With the first point, the relative attractiveness of Ireland is driven by 2 things. The first is the higher initial yield, and you're right, the initial yields have come down. But also, this slide is a little bit misleading because if we're buying new stock, right, in Britain, the yield that's shown on the left-hand chart is the average across the portfolio at sort of like 12.8 years, right? If we're buying stuff at 20, it's more like this before in the quarter. And of course, the other part of Ireland is that the funding cost is dramatically lower. So you have a twin-pronged approach that makes Ireland still more attractive, okay? So that's the first question. The second question, I think, is skewed by Clapham because that is outstanding, and it's got a double outstanding because we haven't even addressed the 2018 review. It's the '15 review that's outstanding and the '18 review, and we're not dealing with '18. So we know where we are with '15. So would that be the only reason?

Yes. That has become a bit of a bottleneck in London, and that is the key focus for us going forward is -- and the key thing we're working on at the moment to unblock that bottleneck with the DVs, in particular.

We don't want to settle the London rent reviews until we know where we are with Clapham because it's such an important benchmark. It doesn't affect the figures because all of our leases, it doesn't matter when we do it, we get paid back. Time is not the essence and in theory, we get interest on it as well. So might as well just hold on until we know where we are with Clapham.

Very helpful and slightly amusing. I didn't realize that was the answer. That's actually my GP surgery.

It's slightly quite funky, isn't it? Yes, with a library at the front. Nice building. Yes. Okay. Anyone for anymore? We are going to be here afterwards for a cup of coffee or tea. So...

It's all right. It all vary interestingly. Obviously, this was a major deal during the year. Something can always go a little bit out of order with these things, and everything has gone through with improvement on all metrics. That is a major thing. And of course, the price of the shares, I think, it was around 116p before they deal last spring, it's now 160p. So that's quite nice, too. We're impressed. It's very nice. And I was just wondering, just to refresh on this matter of as the facilities come up, mainly wait for them to finalize and refinance, but the potential for the interest rate -- the interest cost for the company to fall even further from this level. 0.5% or 1%, is that the sort of thinking you have? Genuinely...

Well, I would have thought, as the new facilities come up maturity, you're looking rendered 25, 35 basis point reduction in margins. The other thing is as we draw on those facilities, GBP 357 million, the marginal cost of those is 2.5%. So that will just help to pull down the average over time.

In the U.K., the National Health Service is a bit like the 1917 film, it's permanent crisis, isn't it? It's hardly underfunded in some funny sort of way. I mean the latest thing's being doctors, nurses total terminal crisis in the recruitment. Is that itself affecting the commissioning? Is that a major bottleneck for deals?

Yes, I think there are shortages of nurses, and there are shortages of doctors. Boris is someone who's going to get things done. And so we believe. So -- but actually, recruiting people to work in state-of-the-art, modern, nice facilities like Clapham is a hell of a lot easier than asking people to work in a cut down semidetached house, where it's very difficult to move around as the staff. As a story, when I went to see a building we bought several years ago in Glasgow, and I asked the practice manager -- lovely lady. I said, "What is the thing you like most about the building?" She said, "Well, we have fewer injuries occurring on the property." I said, "Sorry?" She said, "Well, in the previous building, we had lot of trip injuries, with patients falling over boxes and notes that were left in the corridor." I said, "Are you serious?" And she was serious. So putting staff into modern [ accommodation ], incredibly important.

A stated ambition by the NHS to recruit 20,000 allied health professionals over the next 5 years. So these are additional workers, which we feel will be well placed for primary care. So that includes physiotherapies, clinical pharmacists, paramedics, physician associates and social prescribing link workers. And so that's a key part -- one of the -- part of the NHS long-term plan is for more and more of these workers to be recruited and sit alongside GPs and support GPs. And we think our properties are well placed to house.

The other question I want -- just want to ask is whether these authorities, the surveillance on the other side of this review and lease process, do they ever entertain regearing in the shorter part of the lease as the lease gets smaller, 5 years to 3? Or do they just wait and they sit there?

Well, that's a very good point. In particular parts of the country, they don't have an incentive to get on with it. So our ability to regear is limited. But if the building is a hub core-medical center, they're going to have precious little choice about where to put the facility. So to that extent, you can sort of form a view. Clearly, the earlier, the better because once the property goes below 10 years or 5 years, you get quite a lot of capital group on the valuation that gets reversed when the asset management project carries on. So we are keen to do it as quickly as possible. But sometimes, there is a reluctance on the part of the NHS to engage that early in the process, varies across the country.

Just a quick one on your EPC rating, sorry. 1/5 of the portfolio is in the lower band. Is that 1/5 by income? Or is that 1/5 for property?

No. So we have, just to be clear, the remaining properties that are...

21.

Thank you. That is by floor space, actually.

And an important part of our asset management activity is to move the seasoned Bs and the Ds into Cs or Bs and the Es to eliminate completely. And we're going to be coming out with some more specific targets on that later in the year, but that's an essential part of the asset management process.

Okay. So you're going to set targets for that later in the year?

Yes. Yes, very much, sir. I think there was a question at the back from Andrew Gill.

Andrew from Jefferies. I've just got a question on dividend cover. Obviously, hearing lots of asset management opportunities, which often get you a longer lease, but not always a significant uplift in rent. Is there any intention to increase kind of the cash cover of the dividend to absorb some of these costs in kind of the medium term?

Yes. I think in a perfect world, we'd be between 102.5 and 105 sort of thing. But last year, it was a difficult year from that standpoint because we put out a lot of new capital, buying MedicX, GBP 400 million worth of equity. So there is like 5 rights issues and 5 portfolio acquisitions in one go, right? And we also did the GBP 100 million accelerated book build, which also added, not pressure, but didn't help because we had to pay the dividend on those shares before that money necessarily got invested. So a key target for this year is to get on with it and deploy our capital not recklessly at all, but -- on a conservative and planned basis. And that's why the pipeline of GBP 160 million is very important. So the sooner we do that, the better and the higher the cover will be later on. And also getting margin reductions from our friendly stakeholder bank, some of whom are in the audience, will be most important for us during the year. Doesn't look like there are any more questions in the room. Have we got questions online on the conference call?

[Operator Instructions] We have one question from the line of Kanad Mitra from Barclays.

So I just wanted to ask a question on your financing. Are you currently standing at an LTV of 44% to 45%? And adjusted for the convertible, you are saying it is about 38%. So how do you look at that trajectory going forward? Also on the marginal cost of debt, you say, it's 2.5%. Is that a blend of the Irish and the British debt?

Yes. So the second question, yes, it's a blend. And the first question, our written guidance has always been 40% to 55%. So we're at the bottom end of that spectrum right now, which you'd expect following the GBP 100 million capital raise.

Okay. So another one, and this -- maybe I'm reading it wrong or something. Can you please explain your fee structures on Slide 33? So at the moment, what's your marginal fee? That's 0.2%? Or as stated in Slide 27, is it 0.275%?

It's 0.275% because when we did the MedicX deal, that part of the portfolio, that GBP 806 million has got a different fee structure. So you have to take that out from the total portfolio to work out what the marginal fee rate is that applies to non-MedicX acquisition, if you see what I mean.

And as there no further questions, I'll hand it back to the speakers.

Thank you very much. So thank you all very much for coming. We are going to be lingering to deal with any questions for those who are not brave enough to ask them in public. Thanks for coming, and thank you for all your support. Thank you.