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

Welcome to the Primary Health Properties preliminary results. [Operator Instructions]. And just to remind you, this conference call is being recorded. I'm now pleased to present Harry Hyman, Chief Executive Officer. Please begin your meeting.

Good morning. It's Harry Hyman here. I'm sorry not to be able to see you in person but very pleased that so many people have joined us on this webcast for us to talk about our resilience and good results for 2020. Let me just say how the presentation is going to move forward. And then I will dive straight into it. We'll allow plenty of time for questions at the end. So I'm going to give the overview of the result as a whole and talk about the benefits of internalization, which we carried out to completion on the 5th of January. I'm then going to turn it over to Richard Howell, the Chief Financial Officer, who will delve into the financials. We're then going to have David Bateman, who's our Investment Director, talk about investment and development and the all-important pipeline. Chris Santer, who is our Chief Investment Officer, will talk about the portfolio and the increasing emphasis that we're giving to ESG into '21 and beyond. Richard Howell will return to talk about debt finance and our dividend track record, and I'll wind up with some concluding remarks before we open the floor to questions. Thanks once again for joining. And if you haven't got the slides in front of you, they are available on our website www.phpgroup.co.uk. So let's move now to Slide 2, please. I'm pleased to say that our results for 2020 showed just how resilient performance of PHP has been during the pandemic. And of course, this is not that surprising given that 90% of our total income, as usual, comes directly or indirectly from either the NHS in the U.K. or the Irish equivalent, the HSE, in Ireland. Our return for 2020 was very strong with a 10% accounting return. We saw a 4.6% increase in the carrying value of our portfolio. And we also had a strong income return, which meant that we could deliver our 24th straight successive year of dividend growth paying 5.9p during the period in 4 quarterly installments. I'm also pleased to say that we have declared a first interim dividend for '21 of 1.55p. If you were to multiply that by 4, you come out at 6.2p for the current year, which will be a dividend yield on a share price of about 4% and would be a 5% increase and mark our 25th year of successive dividend growth. It's not just about income. We've also driven out additional performance from rent reviews and asset management projects, which Chris will talk about later in the presentation. And of course, we've seen the full year benefits of the excellent merger that we did with MedicX, which completed in March 2019. We raised GBP 140 million with a well-supported equity issue in July. And as a result of that, our loan-to-value at the end of the year was at 41%, at the bottom end of the range within which we hope to operate. We begin to see the benefits of scale and the MedicX merger come through. We also completed GBP 93 million worth of acquisitions during the period. Let's have a look at Slide 3. Many of these points will be dealt with in the detail as we move through it. But just to highlight that because of this resilience and the 90% of the income that comes from the government, our robust -- our rental collections have been very robust with over 99% collected in respect of 2020. And we are seeing a more important and more -- a wider role for primary care as we move forward. And Matt Hancock has announced moves which are designed to give a more integrated health care system in the U.K. and no doubt, we can return to that during the questions at the end of the presentation. One of the big highlights of the year, an important move for the company, a sort of coming of age, was the completion of the internalization of the management contract so that now, all the people engaged in delivering the PHP contract are in fact employed by PHP. This ensures continuity of services. It broadens the universe of potential investors for the company, and it makes the decision-making and operations clearer and gives a more directly accountable management structure. PHP got such a scale in the top half of FTSE 250 that the Board and I agreed that it was more appropriate to have it managed on an internally basis. And as a result of that, there will be some savings, which will get passed through to shareholders, and these have been estimated to be at least GBP 4 million on an annual basis, which is equivalent to 0.3p per share on an earnings basis. This delinks the ongoing cost of the company from the gross asset value of the business. And it's more importantly than that, I think, also widens the gene pool of investors that we can look to invest in the company. And over time, this should lead to a substantial reduction in the cost of capital for the business. So having concluded my introductory remarks, I'm now going to hand over to Richard Howell. And we now move to Slide 5 of the presentation.

Good morning, everybody. Thanks, Harry. Hopefully, none of these numbers come as a huge surprise to you. I think they're pretty much all in line with analyst forecast. But I'll take you through some of the detail. Net rental income was up just under GBP 16 million or 13%. Most of that increase, just under GBP 10 million, came from a full year's contribution from MedicX. Acquisitions and developments that have been completed added a further GBP 4 million in the period and rental growth, which Chris will touch on in a bit more detail a bit later added a further GBP 2 million to net rental income. After interest and admin costs, adjusted earnings were up just over GBP 13 million or 22%. GBP 5 million of that came from a full year's contribution of MedicX. Acquisitions and developments added just GBP 3.5 million. The rental growth, as already touched on, GBP 2 million, but also just as importantly, a number of refinancings we completed in 2019 and 2020 saved around GBP 3 million in the interest cost. So adjusted earnings, GBP 73 million, which resulted in adjusted earnings per share of 5.8p. To compare that, total earnings, just dividends paid GBP 73.3 million, we were pretty much covered in terms of the dividend cover. Dividend per share, 5.9p, up 5.4% over 2019. Turning to balance sheet. Investment property portfolio now valued just under GBP 2.6 billion -- I'm sorry, revaluation surplus of around 2%. And most of that increase, GBP 51 million, driven by yield compression on government income. We did see some rental declines on the pharmacy portfolio but that was pretty much offset by rental growth in the rest of the portfolio. Adjusted net tangible assets, just under 113p, up 5p in the year. And as Harry has already mentioned, that led to an accounting return we had on the dividends of just over 10%. Loan to value, down to 41%, reflecting the equity raise in July. Growth from rent reviews, 1.8%. As already touched on, we had GBP 2 million of additional income from rent reviews and asset management projects. Weighted average lease length, just over 12 years, a decline of 0.7 years. So despite a fall for the year declining, the projects we did complete managed to arrest that decline. EPRA cost ratio down ever so slightly, just below 12%, reflecting full year's savings from the MedicX portfolio. That will fall further to probably sub-10% in 2021 as the GBP 4 million cost savings synergies from the internalization flow through to the income statement. No change in the average cost of debt, although we've been carrying out a number of refinancings. The marginal cost of debt has fallen to 1.7%. So if all of our undrawn facilities were drawn at -- average cost could fall to 3.1% today. Okay. So turning to Slide 6. I won't go into too much of the detail here, but just to point out a few other highlights. So obviously, adjusted earnings, GBP 73 million; revaluation surplus is just over GBP 51 million, which we just talked about, was slightly offset by a loss on derivatives and the convertible bond of GBP 15 million obviously reflected the decrease in interest rates following the COVID-19 outbreak the start of last year. So adjusted profit before the MedicX adjustments, just over GBP 109 million compared to GBP 76 million in 2019. So that resulted in adjusted earnings per share of 5.8p and on an IFRS basis, 8.8p. So turning to Slide 7. Just looking at the increase in the adjusted net asset value. So the adjusted earnings and the dividends paid pretty much netted each other off. The revaluation surplus of GBP 51 million, equivalent to 3.9p. We have used some of the premium from the share issue in July, GBP 32 million or 2.7p per share to recoupon some interest rate derivatives because we were in a slightly overhedged position, put on an equity raise and that cost just under GBP 22 million or 1.5p per share. So adjusted net assets, just under GBP 1.5 billion today, up 13%, reflecting the equity rate and also the revaluation surplus. So I'm now going to hand over to David Bateman, and we're now on Slide 8.

Thank you, Richard. Starting, as you say, on Slide 8. I'm pleased to report that during the period, we've grown the portfolio to 513 assets valued at GBP 2.6 billion via 27 targeted acquisitions for the combined value of GBP 93 million. Of the 27 acquisitions, 23 were via standing investment representing GBP 58.4 million and 4 were forward-funded developments representing GBP 34.6 million. Overall, the acquisitions were accretive to the portfolio, providing a weighted average unexpired lease term of 14.7 years versus the portfolio average of 12.1 years and a blended net initial yield of 5% versus the portfolio average of 4.8%. Turning to Slide 9, please. We currently have 6 forward-funded schemes on site with a combined value of GBP 47.4 million. New schemes contracted this year include Llanbradach in Wales; Epsom in Surrey; Arklow, County Whitlow in Ireland; and Enniscorthy, County Wexford in Ireland. Also, during the period, we reached practical completion on 4 schemes, all in Ireland, with a combined value of GBP 46.3 million, which substantially derisked the development pipeline. These included Athy in County Kildare, Banagher in County Offlay, Bray in County Wicklow and Rialto in Dublin. I'm pleased to say the Irish portfolio now stands at 18 assets valued at GBP 223 million and is approaching 10% of the total PHP portfolio by value. Turning to Slide 10, please. Internalizing Nexus has brought development capabilities on balance sheet with a pipeline of 12 schemes and an approximate value of GBP 80 million. Near-term schemes include Lincolnshire and West Sussex with a GDV of approximately GBP 10 million. The development function will provide a new source of schemes for the business, together with development profit or enhanced cash yields. Turning to Slide 11, please. I think this slide largely speaks for itself. I won't go into too much detail on it. But as demonstrated, we have a strong pipeline of new assets to bring forward, representing in advance of GBP 200 million split between the U.K., Ireland and our development pipeline. Of this, positively, GBP 59 million is under offer and GBP 80 million is development-led pipeline. With this pipeline to progress, I have no doubt 2021 will be an exciting and busy year. And I look forward to providing our next update in due course. Thank you. I'll hand over to Chris, and you're now moving to Slide 12.

Great. Thank you, David. So the PHP portfolio continues to grow. It now extends to 513 properties in the U.K. and in Ireland, which at the year-end were valued at GBP 2.58 billion, reflecting a net -- GBP 2.58 billion, apologies, which are reflecting a net initial yield of 4.81%. And this represents, really, some ongoing incremental yield compression in the U.K., where there was a flight to quality generally over 2020, particularly for the longer-leased asset, underpinned by our strong credit with stable yields in Ireland and partially offset by some gentle softening in the value of some of the shorter-lease income and some of the ancillary other income in the portfolio. So 90% of our portfolio is -- the income is still directly or indirectly secured to the U.K. and Irish government with an average contract duration of 12.1 year, occupancy of 99.6% and an average lot size of GBP 5 million, which represents the larger, more integrated medical centers. And we give a table at the bottom of Slide 12 setting out the range across the portfolio. Moving on to Slide 13. We can see that aside from the acquisitions, the new acquisitions and developments that David has referred to, the increase in the value of the portfolio was driven by like-for-like income growth of GBP 2 million over the year. This represents a 1.6% uplift on 2019 and as a result of rent reviews and asset management in the U.K. In the rental wheel on the right-hand side, on the bottom right-hand side of the slide, you can see the range of income spreads and lease durations in our portfolio, with nearly 13% having over 20 years left on the lease and just under 4%, only 4% having less than 3 years, of which we're already in advanced discussions with 80% of this income. If we skip on to Slide 14, we can see how rental growth has performed over the year. We completed 309 rent reviews, which added GBP 1.7 million to the annual rent roll and equated to an annual rental growth of 1.8% on the rents reviewed. Again, this was a mixture of open-market rent reviews, which showed an average increase of 1.3%, including 48 reviews with 0 uplift, and the remainder linked to indexation or predetermined fixed uplift. As ever, our rental growth prospects, we think, are largely linked to building cost inflation. And on Slide 15, we talk about some of the asset management projects, which we have active in the portfolio at the moment. We completed or have on-site 24 project during 2020, which required GBP 8 million of CapEx, will generate an extra GBP 0.3 million of rent and will extend the weighted average unexpired lease terms on those properties back out to 20 years. And really, we see no letup in demand from our occupiers for additional space. We have a strong pipeline of 80 further asset management projects, which are either Board-approved or in advanced negotiation with our occupier, requiring a GBP 34 million of CapEx, generating a potential of a further GBP 1 million of rental income and again, extending those leases back out to an average of 20 years. And these projects are very important to us and to our occupiers. They refurbish existing accommodation, bringing them up to the latest standards as well as extending these buildings, and this contributes to their ongoing sustainability, both operationally, clinically and environmentally. And on this final point on Slide 16, you can see that we have increased our communication on ESG this year, emphasizing our philosophy of PHP, of premises, health and people. This highlights what's important to us and is really our ongoing rationale to invest in the health and well-being of our community, as it has been for the last 24 years. We support the UN Sustainable Development Goals, promoting health and well-being as well as sustainable towns and cities and have set a number of targets to achieve this, focusing on our 3 pillars of a sustainable build environment, positive community impact and conducting business in a responsible manner. For example, we have set target to support the NHS in their goals, too, to reduce our CO2 emissions from properties where we procure the energy supply, also adopting green energy tariffs and green lease clauses and setting minimum targets for our new development being BREEAM excellent in the U.K. and asset management projects, such as an EPC rating of B. In addition to our efforts with our physical portfolio, we've also committed to making up to GBP 250,000 per annum available for local community initiatives that will support the patients of our occupiers, something which we think is very important in the current climate. And we continue to ensure appropriate governance of it and focus on our responsible business activity, for example, having elevated our ESG committee to a full committee of the Board of PHP. So these are just some of the ESG initiatives and targets we've put in place at PHP in 2020 and will be focusing on going forward. Further details will be set out in our annual report. And I'll hand back to Richard Howell from Slide 17.

Thanks, Chris. Following the equity raise in July, we also have a lot of undrawn firepower and headroom in our loan facilities, totaling just over GBP 360 million after all outstanding capital commitments to build out the development pipeline and asset management projects, and David and Chris have touched on earlier. So the group LTV now stands at 41%. If we strip out the convertible bonds, which we do expect to convert in a couple of years' time, that goes down to 35%. So we're in a good financial position. We have completed a number of refinancings in the second half of 2020, a number of revolving credit facilities. So our marginal cost of debt is now down at 1.7%. When you look at the debt maturity profile, we have a number of facilities coming up in 2021, '22 and 23, and we'll be working hard to refinance those facilities over the course of the current year and, hopefully, bring down that average cost of debt even further. I won't go on too much. There are other things there but I don't think anything is particularly new to people in terms of most of our debt is very long-dated, 7.6 is average maturity and 100% is currently fixed or hedged out at the moment. So just turning to Slide 18. The dividend track record. This is something we're extremely proud of, 25 years now of dividend growth. As Harry already mentioned, we declared a first quarterly dividend of 1.5p, which is getting paid at the end of February, and that's equivalent to 6.2p on an annual basis and represents a 5.1% increase over 2020. So that dividend is equivalent to a 4.2% dividend yield on share price last night of around 147p. As already mentioned, our dividend continues to be covered, and we will continue our progressive dividend policy into the future, fully covered by earnings. So on that note, I'm going to hand back to Harry, who's going to wrap up, and we are now on Slide 19.

Thanks very much, Richard, David and Chris. Really just some concluding remarks. I think we're very lucky to have Primary Health Properties and its amazing, resilient, strong cash flow, which starts with the top line, 90% of total income coming from British and Irish governments. We've been very happy and pleased to play our part in facilitating the health services in both countries play their part in tackling this awful pandemic. We're seeing now the incredibly important role that primary care has to play, not least in the amazing efforts going on with the vaccination program, where even if our centers are not necessarily being used as vaccination centers, the GPs and staff from those centers are putting in hours and shifts to make sure that we get the number of people vaccinated up the curve as quickly as possible to facilitate a release of lockdown. We're looking forward to deploying the benefits of internalization, which I think will be many, not simply the cost saving but also making us more directly comparable to other internally managed REITs but with our better cost structure and a wider gene pool of investors to appeal to moving forward. The period ahead will not be without its challenges. Clearly, the NHS and the HSE are both principally concerned with fighting the fight against COVID. But we do have a strong program of asset management opportunities, we do have a strong pipeline of deals, and we do have some good prospects of rental growth in the months ahead. Important to realize that all acquisitions we make are earnings accretive because of our low marginal cost of finance at 1.7%. We've heard a lot about the prospects for more integrated care, both in the U.K. and across the world. And what that does is emphasize and reemphasize the incredibly important role that primary care has to play in that delivery of integrated care, keeping people away and out of expensive and inflexible hospitals so they can cope with surges and intensive care and relocating a lot of less-intense activity in modern primary care centers. We're committed to delivering our 25th year of dividend growth. We've seen all the benefits of the wonderful merger that we undertook with MedicX come through, and the 2020 results reflect that in full. I'd like to pay tribute to my team, both on the call and the wider team who really had to adapt to remote working and have done so very successfully during the period. So that's our very brief overview of our results. Delighted to hand over for questions now.

[Operator Instructions] Our first question comes from the line of Tom Horne from Berenberg.

Tom from Berenberg. And congratulations on some good results. The question is really just what impact COVID-19 and sort of the related lockdowns have had on the portfolio in terms of sort of GP occupancy utilization. And also, with the kind of idea that many GPs moving to video sort of screening and sort of telephone appointments throughout the pandemic, how has this really kind of impacted sort of occupancy and utilization of the assets?

Well, thank you. I'll give a brief overview and then hand over to Chris, who's been examining this topic with our NHS advisers quite closely. So I think the simple answer that is now, when we're in a lockdown when people can attend medical centers, which is different from lockdown one where they couldn't, the answer is not very much at all. And medical centers are busy on a socially distanced way. Although Zoom calls are probably the first port of call for consultations now, it's important to remember that, that is the initial triage of the patient. And in many other cases, there has to be a follow-up visit to the surgery. So the short answer is that for the GP parts of our portfolio, we're seeing a balance between more consultations being done on Zoom, but with increasing use primary care for other services that are being moved out of hospital into primary care. On the more peripheral parts of our portfolio, the 1% that is not pharmacy or GPs, clearly, some of those have been adversely affected. And we've cut some deals to give them time to pay, and we're looking forward to them coming back to be paying once lockdown and COVID is a distant memory. Pharmacy has been a little bit affected. No doubt there'll be some other questions about that. But it's important to remember that our pharmacy units are not High Street retail units. They're small community pharmacies adjacent to the medical centers. But I'd like Chris to speak a little bit more about that because he's done a lot of very interesting work with some of our NHS-related advisers and can answer more fully. Chris, over to you.

Great. Thank you, Harry. So yes, we have seen no letup in demand for our centers or occupancy or use. I mean if anything, the demand for health care right now is significantly higher, not only in dealing with COVID and its vaccination, but once we're out the other side of this, there will be non-COVID. There are estimated to be 10 million appointments and procedures that have not been carried out during COVID and there's enormous backlog. And I think I read the other day as well that the number of people waiting more than 12 months for a procedure has skyrocketed from 1,500 people to over 200,000 people across the country. And I read a very distressing article the other day about actually there's something like 100,000 people at the moment waiting for speech therapy to learn to talk again after spending months on incubators and ventilators. So there's an enormous demand. We see it in our asset management projects. We have a constant demand for new space, additional space. We have to remember, we have an aging population that is going to live for longer with more instance of chronic illness. We have to remember also, we have a system that, 2 years ago, gave an award or more money for primary care and for recruiting. There are more GPs coming out of college than ever. And in our recent tenant survey, we found that 80% of our tenants expected to be employing more people in the medical centers in the foreseeable future, not less. And we will have the recent white paper, where the system is again looking to evolve, moving towards collaboration rather than competition. And that is something where we think primary care is extremely well positioned and where also, we think the technology is facilitating this because that's how we mentioned the technology it's triaging people. It's across the acute sectors, across the GP sector and it's making sure people go to the right place. It's not necessarily dealing with everything on -- remotely. There are certain things which can be dealt with remotely and closed out remotely. But then a lot of instances, people need to have a follow-on consultation. But at the moment, it's really getting them to have that follow-on consultations in the right place and no longer present, for example, in 1 of the 26 million people that present to A&E every year and that they can be redirected to the right place. And there remains a strong story in terms of upgrading existing stock. A lot of the premises in the country do remain below standard. And a lot of this as well is upgrading existing stock.

Thanks, Chris.

Next question comes from the line of James Carswell from Peel Hunt.

Just a quick question on the swap portfolio, and you touched on the fact that you canceled a few of the swaps at the time of the equity raise. You've got some refinancings coming up. Is that potentially another good opportunity to have a look at the swap portfolio, maybe cancel some more of those swaps? And I guess, linked to that, I mean, can you give any indication of where you'd like -- I appreciate interest rates are obviously moving, but as we sit here today at current rates, the kind of potential saving on the refinancing that you're potentially kind of hoping for?

I'll let -- thank you. I'll let Richard delve into the detail, but our swaps are pretty much at the market. The big areas of portfolio is the fixed-rate debt, which is largely with insurance companies. But Richard will talk to you in a bit more detail about that, James. Thanks for the question. Richard?

Yes, thanks. Thanks, James. And yes, so the cancellations were really to try and take advantage of the current historically low rates. So we refixed GBP 188 million at pretty much 0% until the duration of the facilities with RBS in 2022 and HSBC in 2024. So I don't think there's anything else to do on the swap portfolio. The challenge for us is to try and look at some of the fixed-rate debt that Harry mentioned, in particular, people like Aviva. And we're already in discussions with them around some initiatives to try and refinance those various facilities over the next year. So some of that might be a blending, extending of those facilities. But some of those maturities are coming a bit closer in 2022 and 2023. So there's some opportunity sort of coming on over the horizon without necessarily having to write out a huge check, bearing in mind we're mark-to-markets on some fixed-rate debtors at the moment.

[Operator Instructions] Our next question comes from the line of Kanad Mitra from Barclays.

So I have a couple of questions, especially regarding your standing portfolio, standing property acquisition. You have completed about GBP 59 million of standing properties. It seems a bit low, especially even compared to your peers. On the other hand, the pipeline looks healthy. Any particular reasons for the delay? And is that purely a timing thing?

No. I said -- yes, sorry. That was question one, yes. Carry on.

Yes, the second question is can you highlight some of the characteristics of the internalization and how we would think about the organizational structures, maybe in-house development, et cetera.

Sorry, I didn't quite catch the second question. Would you mind saying that again? The line cut out while you were talking.

Yes. Can you just highlight some of the characteristics of the Nexus internalization vis-à-vis about organizational structure, the developments, I mean, any in-house development that are possible now versus not possible earlier?

Yes, sure, sure. So I'll deal with the first bit and then start on the second bit and hand over to Chris and maybe David who'll comment. So we're very conscious of the fact that we don't want to overpay for acquisitions, particularly given the competitive nature of the market for larger assets in the U.K. We've seen some crazy prices paid for very large lot sizes on an index-linked, not directly in our sector, but there was a deal done with the NH -- with an NHS covenant around the turn of the year that was -- is reported at sub-3%, and we think that's probably quite a lot to pay for units, particularly when we have the more attractive aspect of investing in Ireland. So for us, it's a question of buying the right investments. And if that means that we have a slightly slower pace of deployment, well, kind of so be it. I mean don't take it that we don't want to buy anything. But equally, we see -- we don't want to overpay in a head-to-head slug-out where the only determinant of whether you're successful is price. Moving on to the second question. It's really a question of, I suppose, the difference between cost and the revenue on the internalization, which in simple terms, gives you the GBP 4 million worth of profit or savings that will no longer be paid to my company, Nexus. So that is pretty much bolted into the transaction. And as you rightly say, it does bring the benefits of being able to do our own developments on balance sheet. And maybe Chris and David can say a few words about that and how that pipeline, which we hope to get 1 or 2 deals over the line and financially closed by the end of the year, how that is going to pan out and what the benefits might be. Chris and David, do you want to say a few words about that?

Sure. No problem.

Sure. Chris, so as not to stand on each other, would you like to go first? Or shall I?

You go first, David.

Kanad, just a couple of reactions to your comments, which are onboarded. You mentioned that there's a relatively low level of acquisitions at only GBP 59 million, which is an accurate number, but don't lose sight of the fact that we are committing to forward-funded developments, whereby, although the money hasn't been deployed, it is committed. As I mentioned, we have committed to 4 news -- or we did commit during the course of last year to 4 new schemes with a global value of GBP 34.6 million. On the development side, we feel this is a very positive inclusion. And this is a pipeline that we are working to build up. And as Harry referred to, we have 2 relatively near-term schemes which, whether it's during the course of this year or early next year, we hope to be on-site and building out. And these schemes will obviously provide enhanced cash yields or development profit, whichever one -- whichever way one wants to look at it. Chris, do you have anything to add?

The only thing I would add is that in the direct development pipeline, these will be something that appears we can undertake directly. It remains prelet development. But because we are taking the risk of putting the project together in the first place and speculating a small amount of costs to do that, we get to benefit from the valuation uplift on completion.

I think the last comment I'd say is that from an ESG standpoint, improving buildings and dealing with the stock you've already got actually has a much lower carbon footprint than building new ones. So please also remember that we are deploying quite a lot of additional capital into our existing portfolio, which has fantastic returns actually from a return on capital and NPV standpoint and shows the enduring long life of the buildings because they're all located where population need access to primary care. So okay. I hope that deals with your question comprehensively.

The next question comes from the line of Andrew Gill from Jefferies.

I've just got a question on pharmacies and then on yields. I think you highlighted some issues there. Do you expect from a pharmacy perspective, is this short term with lower footfall or access to the sites and assume lower sales from nonprescription products that this will largely wash through? And then just on the yield. I see your exposure to shorter leases has increased. Could you give a flavor of the difference in yields between the leases on shorter duration, say, sub-5 compared to those with more than 10-year left on the lease? And then maybe just adding to that with obviously PHP, you have to take a bit more risk here on shorter duration. Do you see significantly less competition in the market for shorter-duration assets?

Good questions, Andrew. Thank you. So on the first point, time will tell. I think there's also a distinction to be drawn between the major pharmacy groups and independents. We would think that pharmacy will largely recover post-COVID, but no doubt, there have been some changes to people's purchasing habits caused by disruption and accessing things online. You can't get away from that. How much of this is a sort of a try on by tenants is a good question, but we'll have to wait and see. My own view is that I think community pharmacy, the sort of units we've got, will recover, but we'll have to wait and see. And we've adopted a prudent line with regard to reversionary rent assumptions on our pharmacy portfolio. The question about competition and shorter-life assets is something that is -- where we think we can deploy our skill base very well. And that's one of the reasons why we bought the shorter -- the smaller, shorter-lease-length assets because we feel that nearly all of those, maybe 1 or 2 exceptions, could be subject to an asset management project over the next 2 or 3 years. And sorry, could you repeat what the third question was?

It was just kind of related to that. I mean what sort of difference in...

So the difference in -- yes, the difference in yield, yes. So Chris, why don't you have a go at the difference on yields and how valuers -- put your thoughts to bear, how valuers do that?

Indeed. So they probably -- between the shorter-leased and longer-leased is probably 100 to 150 basis points spread in terms of the valuation yield. So a majority of our tenants have, maybe all of our tenants, have renewed over time. So -- but on occasions, we have a couple of properties where we suspect the tenants may move on to new premises, and they get written down to a low tenanted use value. But I'd say that's a very small handful. And the difference between, as I said, stabilized yield and, say, 5 years left on the lease or 3 years left on the lease is typically about 150 basis points in year 2.

As there are no further questions, I'll hand it back for closing remarks.

Okay. Well, thank you. First of all, again, thanks to the -- for so many of you attending this webcast. Looking forward and hoping that the next time we present in July or August, it will be to you in person, as per usual. PHP has a very robust and resilient business model. It's got through the pandemic in a very strong way. We're delighted to be playing our part, and we've reached out to the NHS and the HSE to make sure that we can continue to help them in this battle against COVID. We have got plenty of firepower to continue with our acquisition program. We have a full hopper of deals on the asset management side. We're working assiduously on rent reviews. We have a good, strong pipeline. We have the added benefits of being on the ground and possibly the largest owner of primary care accommodation in Ireland, which we see as a very attractive market. We're looking forward to telling the PHP story to a wider gene pool of investors as we move forward. And the announcement about integrated care only play to show the real continued importance of primary care in delivering health care. And the pandemic has shown and thrown into sharp focus how important having a resilient and strong primary care system is for the countries that we operate in. So thank you very much. We look forward to speaking to you all, either individually or in the future and keep well and safe. Thank you very much.

This concludes our conference call. Thank you all for attending. You may now disconnect your lines.