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

Welcome to the Primary Health Properties Interim Results call. [Operator Instructions] I’m now pleased to present Harry Hyman, Chief Executive Officer. Please begin your meeting.

Good morning, everyone, and thanks for joining us today for our interim results. I'm pleased to say that the Company and Group has had a very resilient first half in which we've laid the foundations of future growth. Our pipeline moving into the second half of the year is GBP 195 million, of which EUR 126 million is in the Republic of Ireland. As you all know, we're a leading investor in flexible modern primary health care, with 514 properties valued now at just over GBP 2.7 billion. I'll be returning to the excellent revaluation surplus of just under GBP 67 million that we recorded for the first half of the year. As you all also know, 90% of our total rent roll comes from the British or Irish governments through the NHS and the NHSE. Our rent roll has grown to GBP 136 million, and the average lease length across our portfolio remains at just under 12 years. I'm delighted to say that we're continuing with our 25th year of unbroken successive dividend growth, and we're on track to meet the brokers estimates of 6.2p for the year as a whole in 4 installments of 1.55p. We've been doing a lot of good work within the portfolio, which I'll come on to later, generating an extra GBP 1.3 million of rental growth and a large number of asset management projects, which keep our properties fit for purpose, renew leases and keep the estates up to modern purpose -- modern standards. We also completed the internalization of the group's management structure, which will yield some GBP 4 million of cost savings on an annual basis, and I'll return to that in a few moments. Our capital base remains very strong, with closing LTV at the 30th of June of just under 41% and with over GBP 300 million worth of headroom for future portfolio development. And of course, this is a business with huge social impact, what could be better than investing in a robust and resilient health care system in both the U.K. and Ireland. And at this point, I guess, I would like to salute the enormously beneficial work that both health care systems have done in the fight against the pandemic. We've all seen the enormous success of the vaccination program, particularly here in the U.K. and there will be a continued need for primary care, with much of the emphasis in western health care systems focused on keeping patients and consumers out of hospitals and dealing with the enormous backlog of cases and increasingly locating diagnostics within the primary care setting. Next slide, please. As I mentioned, we've seen the very successful completion of the internalization of the group's management structure. And as I said, we've laid the foundations of future growth. Our direct development pipeline, which is also a new feature of our business model following internalization has now grown from the GBP 10 million that we had at the turn of the year up to now GBP 21 million across 4 projects, and we expect to announce further progress on at least 2 of those around the time of the end of the calendar year. Our rental collections, as you might expect, have been robust, with over 99% of the rent roll continuing to be collected. And as we go through each quarter, that collection becomes faster and faster and is almost back to pre-pandemic experience. Rental growth has been very good, as I described earlier, and that's a very important part in driving future dividend growth together with the expansion of the underlying portfolio and progressive reductions in our debt charges, which Richard will deal with a little bit later in the presentation. The digital challenge is something that we've seen, but the impact of that has not led to any reduction in the amount of space that's needed for primary care. And in fact, is more than offset by the decentralization, the moving out of procedures out-of-hospital and in particular, in the diagnostic area, where we see scope for continued relocation of those into the primary care setting. There's been some changes in the U.K. market that have been announced in the creation of integrated care systems and a more holistic and collaborative approach to health care and the removal of silos with a division between primary and secondary care, hopefully, disappearing. And with the changes in social care coming mean that it's likely to see a very big increase in the demand for primary care in both countries. This is all set out in the health Bill, which was published in July '21, and we look forward to playing our part with the new structures in the U.K. and delivering against the enormous requirement for further stock. We estimate that GBP 3 billion to GBP 4 billion worth of its investment is needed in the U.K. and around about EUR 1 billion is needed in Ireland, and we really look forward to playing our part in the delivery of that agenda in the years to come. We now look at the slide on internalization. This really confirms the message that we put out at the time of the internalization and our full year results. It's made the management structure of the group much simpler. It's removed some theoretical and actual conflicts. And it has also led to a great reduction in our operating costs of some GBP 4 million per annum, which means that our EPRA cost ratio, as Richard will detail later on in the presentation is now, by some way, the lowest in the real estate REIT sector. We also have got now the opportunity of doing on balance sheet development, which I talked about earlier. And we now move forward as a conventional internally managed REIT. And that's all been achieved with continuity of personnel, continuity of systems, and it's gone without any hitches whatsoever. So thank you to all my colleagues for making sure that, that happened. If we now move to the next slide, which details our pipeline. To give you some headlines here. We have a strong pipeline, and this is notwithstanding the fact that we've seen extreme competitive pressure in the U.K. and we take a long-term view with regard to this, and we're very keen to make sure that we deliver value for money for our shareholders and other stakeholders and will not be put in a position of overpaying for assets in order just to maintain momentum within the portfolio. And in connection with that, our activities in Ireland are extremely important. We have 6 further projects in Ireland, totaling GBP 126 million, one of which is a left standing investment and the balance of our forward-funded projects. So these will be brand-new state-of-the-art primary care centers, and these will be delivered over the next 18 to 24 months. Direct developments, I've talked about already at GBP 21 million, and our U.K. pipeline is satisfactory at just under GBP 90 million. I mentioned in my opening remarks that deploying capital on our existing portfolio is equally as important to us, not only with regards to continuing health care but also improving these buildings in order to improve their environmental ratings. And we're looking forward to deploying some GBP 46 million in a large number of projects, as you can see on the slide, over 80 in advanced pipeline negotiations and 26 that have been approved by the Board. So we'll be spending some GBP 46 million on the existing estate. Next slide, Richard, please. Thank you. Looking at our forward funders, we continue on-site at Arklow, where we have a EUR 18 million state-of-the-art primary care center that is on track to be delivered in early 22. At Enniscorthy, we have another large building, EUR 13 million, again, on track to come in, in the first half of next year. And at Eastbourne, we have a primary care center that is just a few days away from being signed off as complete, an GBP 8.5 million building to deliver a wide range of services alongside the GPs, including muscular skeletal, for the slightly older than average population that live on the South Coast, a lot of retired people there, showing the emphasis and the need to continue with those services outside of the hospital environment. The direct developments that I talked about, you can see set out on Slide 7. There are 4 projects with a combined development value of GBP 21 million. These are at very different stages of advancement, but we're hoping that the first 2 on the left will come in and will actually be at financial close, if not on-site by the end of this year. A large project on the South Coast in West Sussex, slightly smaller project, but a good one, alongside a large new house development project; and then 2 in London, one in the south of London and one in the north, again, around reprovision of primary care, one in connection with a large housing estate project. And we've got a big portfolio behind that of some GBP 125 million, which is coming up on the rails, as they say, in racing parlance, and we hope to have further news of that later on in the year. So those are my introductory remarks and talk about the pipeline. I'm now going to hand over to our Chief Financial Officer, Richard Howell, who'll take you through the financials in more detail. Richard, over to you.

Thank you, Harry. Good morning, everybody. And if you're following on the telephone, I'm currently on Slide 8 of the presentation. So just looking at the key financial highlights for the first 6 months of 2021. Net rental income was up just under GBP 3 million to GBP 67.7 million, an increase of 4.5%. That was driven predominantly by GBP 1.5 million of additional income from developments and acquisitions, which we completed in 2020. So we've got a full year's worth of income in the first 6 months of the year. But more importantly, we had an extra GBP 1.3 million of income from rent reviews and asset management projects completed in the first 6 months of this year and last year. We've had a further reduction in property costs following the internalization of Nexus that saved a further GBP 100,000 in the period. So looking at adjusted earnings, they are up just under GBP 5 million to GBP 40.7 million, an increase of just over 13%, GBP 1.5 million came from the income from acquisitions and developments, GBP 1.3 million from rental growth, but perhaps more importantly, we had GBP 1.5 million of savings from our ongoing administrative costs following the internalization of Nexus. Finance costs also fell by around GBP 300,000. That follows a number of refinancings we completed in 2020. So overall, we had total earnings pretty much covered -- covered the dividends paid in the period, GBP 41.1 million and a dividend per share, 3.1p, an increase of 5.1% over 2020, similar comparative period. Looking at the investment portfolio, valued at just under GBP 2.7 billion at 30th of June. So we had a very strong revaluation surplus, just under GBP 67 million. That was driven predominantly about 85% by 11 bps compression in the net initial yield, but the GBP 1.3 million of rental growth also added to that surplus in the period. So overall, the adjusted net asset value per share increased by 2.5p, 5p of that came from the revaluation surplus, offsetting the cost of the internalization of Nexus costing 2.4p per share. So loan-to-value, as Harry has already mentioned, still around the lower end of our target range of just under 41%, a slight reduction from the year-end position. Looking at the portfolio management, growth from rent reviews, 1.5% compared to 1.8% in 2020, and I'll come back and talk about that a bit later in the presentation. So despite a further half year progressing, the portfolio WAULT has just fallen by around 0.3 years to 11.8%, again, reflecting the excellent efforts from our asset management team in regearing legacies, and we'll talk about that a bit further in the presentation. Occupancy up slightly to 99.7%, so pretty much a fully occupied portfolio, again, reflecting a number of lettings on some vacant space we had in the period. EPRA cost ratio, down 9%, a reduction of nearly 3% compared to 2020. And we are, by far and away, the lowest EPRA cost ratio and the whole of the U.K. REIT sector. Average cost of debt, down 10 basis points to 3.4% in the period. Looking at the detailed income statement. I won't dwell too much on the adjusted earnings, we just covered that. But again, just a reminder, these have gone up just under GBP 5 million to GBP 40.7 million. The revaluation surplus, just under GBP 70 million reflects the strong market at the moment. And a fair value loss on some derivatives, just under GBP 0.2 million. So we had a sort of fairly big saving there, reflecting increase in interest rates in the first 6 months of this year. That took us down to an adjusted profit before exceptional items of just over GBP 107 million, an increase of 182% on the same period last year, obviously driven by that revaluation surplus. Let me come on to a few exceptional items. We have the ongoing amortization of the MedicX mark-to-market debt, which we acquired at acquisition of GBP 1.6 million. Then we have the exceptional costs of the Nexus internalization, which totaled GBP 37 million in total. So IFRS profit before tax, GBP 72 million, up just under 82% on the same period last year. Looking at the balance sheet, start off the year at opening NAV of 113p. The adjusted earnings were pretty much all paid out as dividends in the period. The revaluation surplus, equivalent to 5P offsets the 2.4p cost of the Nexus internalization. So we ended up with a net asset value at the end of the period, 115p, up 2.2% over the period. The total adjusted net asset value just over GBP 1.5 billion. Turning to the debt summary. We continue to look at the debt portfolio and look at refinancing opportunities, and we hope to make further announcements on that in the second half of the year. We still have a large amount of undrawn cash and undrawn loan facilities, totaling GBP 335 million after remaining capital commitments. Total net debt drawn just over GBP 1.1 billion, resulting in a loan-to-value ratio of 40.9%. That does include our convertible bond that is still in the money, and we do hope that will convert in due course. So if that does convert the look-through LTV ratio is down at 35%. We have a very low marginal cost of debt, 1.7%, and we're looking to reduce that further into the future. Looking at the debt maturity profile. We have a couple of loans maturing in 2021 and 2022. We've already pretty much agreed terms to renew those facilities. And again, we hope to make further announcements in the second half of the year. Just turning to look at the property portfolio in a bit more detail. 514 assets at the period end, valued at just under GBP 2.7 billion, which 19 are in Ireland, valued around GBP 200 million. That's around 7% of our total portfolio, and our ambition is to grow that to around 15% or around GBP 400 million over the next couple of years. Net initial yield down at 4.7%. That's fallen by 11 basis points in the period, reflecting the very strong market, particularly in the U.K., we haven't seen much yield compression in Ireland. But the market in the U.K., as Harry has already mentioned, remains extremely strong, but we will be very disciplined in our approach to future acquisitions. Average lot size has grown slightly from GBP 5 million to GBP 5.2 million in the period. As already mentioned, occupancy very strong at 99.7% and 90% of our income is government-backed by the U.K. or Irish governments. Looking at the capital value spread of our portfolio. Over 86% of the portfolio is now valued at over GBP 3 million, and that average lot size continues to grow, and we now only have 5 assets valued at less than GBP 1 million. If you’re following this on the telephone, I'm now on Slide 13. So looking at some of the key fundamentals of our high-quality income, long average leasing, 11.8 years, 99.7% occupancy, strong covenants and very strong future growth prospects with around 31% of the portfolio linked to fixed or index-linked uplifts, 69% linked to open market reviews. It looks at face value like our open market rental growth has fallen slightly from 1.8% in 2020 to 1.5% in the first 6 months of this year. That's due to a number of factors. We've pushed through a number of nil uplifts in the first 6 months of the year. And we haven't had many rent reviews in London and Southeast, which we've seen quite a bit of growth from in the last couple of years. We hope to see a bit more growth come through in the second half of the year, and we do see that long-term rate trickling back up towards, closer to 2% over the next couple of years ago. We only have just under 5% of our rent roll expiring in the next 3 years, and around 75% of that is already subject to a planned asset management project or terms have already been agreed. So we don't have any particular concerns about any property expiring or getting the properties back at the end of the tenancy. Looking in a bit more detail of our rental growth potential, as already mentioned, rental growth down at 1.5% for the first 6 months, but we do see that growing back towards the 2% long-term trend that we are forecasting across the portfolio. Obviously, rental growth in our sector is driven by, in particular by our build cost inflation, and that has gone up quite a bit in the first 6 months of this year, but obviously, it takes time to flow through to the rental growth numbers in the sector. But we also have seen a big increase in number of new developments coming online and that will also be a very strong push factor to future rental growth, along with specification creep and ESG credentials as well. ESG requirements are growing all the time as NHS has a net carbon 0 target of being 0 by 2040. Just looking at some of our asset management projects that we completed in the first 6 months of the year. We have either 17 projects completed in the year, investing just under GBP 11 million, and that creates an additional GBP 300,000 of income. But more importantly, we extended the leases on those properties back to 21 years. We've got a very strong pipeline of future projects, over 100 that have been worked on by the team. It's going to invest around GBP 46 million, as Harry has already mentioned, we're going to get an extra GBP 1.4 million of income on those assets. But again, those leases are all being extended back to 22 years, very long-term leases with a very secure covenant. So we've got a couple of examples on the slide. We've got 2 extensions. The first one at Leamington Spa. So we've invested GBP 1.8 million. We've got an extra GBP 76,000 of income, so a 4.2% income return. But we're getting a brand-new 24 year lease on that property. But just important for us and NHS has got a very high ESG credentials, and we expect the EPC target to be increased to a rating of B. And so that's great for us and the NHS as we try and achieve their targets. Next to our 2 refurbishments. So again, relatively small amount of expenditure, GBP 0.5 million, an extra GBP 15,000 of income of light tax refurbishment across the property, bringing up to modern standards within important part of London. So Stephen Green's Gate in Norwich, again, investing around GBP 600,000, an additional GBP 20,000 of income to around a 3% income return. Again, we're getting a 21-year lease on this property for relatively small amounts of capital expenditure. And lastly, another extension at Millwood Surgery in Bradwell. We're extending the property by around 234 square meters, building a 2 story extension on the property. So we're getting an extra GBP 55,000 of income for GBP 1.2 million of CapEx. So again, about just under a 5% income return on our money. And again, all of the improving the ESG credentials all the time. Lastly, just we've got a slide in here on our ESG policy. Premises, health and people, all about how we're trying to deliver and make the portfolio greener. And as Harry has already mentioned, achieve our social targets as well. We do aim to produce a stand-alone ESG report in the second half of this year, and we will give further details of our achievements in the first 6 months of this year and our future targets. So in that stage, I'm going to hand you back to Harry, and we are on Slide 17. If you're following on the telephone.

Thank you very much, Richard. This is our track record of which we're extremely proud, and our intention is to carry on with paying a progressive dividend. As we've mentioned during the presentation, the resilience of our rent roll is very strong indeed. And as you can see, we've now -- and we're well on the way to delivering our 25th year of successive dividend growth. And the yield remains attractive for investors at 160p, it's a 3.9%, so yield based on the brokers' projections. And we will, I think, be fully covered for the year as a whole. So just turning to the last slide before we go on to take questions. Pleased to say -- so for me -- move to the last slide. Thank you. We can definitely say that the demographic tailwinds for the business in which we operate are extremely attractive. In both Ireland and the U.K., we have a growing population. We have an aging population, and we have a population with an ever higher incidence of chronic disease. We're delighted to have been playing our part in the NHS and the HSE in Ireland, helping against the fight with COVID, and we salute the brilliant efforts of both of the health care systems in getting to where we are now. There's a bright future ahead for primary care because so much of care in the future, both through technological developments and policy improvements can be delivered outside of the hospital environment in a more localized way for the population and so much more of minor operations and diagnostics can be done that way. We're very proud of our position as the U.K.'s largest provider or owner of independent buildings, and our property portfolio is now at GBP 2.7 billion. We're firmly in the top half of the U.K. 250, and our market capitalization is now over GBP 2 billion and has seen a marked improvement since we internalized the structure and made us more conventionally based. As I said, we've got a very strong, resilient cash flow. We've got a great pipeline that over the next 2 years will help us in our task of growing that dividend. And in maintaining the commitment that we have towards the substantial capital sums that are needed for the improvement of the primary care environment. We recently did a freedom of information request and amazingly enough, some urban areas of the country in the U.K. still have over 50% of their primary care provision being delivered out of very old residential accommodation. The changes that we've talked about and that we're seeing in terms of moving care out of hospitals can't happen in that old, dilapidated stock, and there is a big requirement for capital formation, which we look forward to playing our part in delivering in the future. So having said that, I'm now going to head back to the webcaster, and we're going to take questions from those of you on the call. Thank you very much.

And the first question is from James Carswell from Peel Hunt. On the refinancing opportunity, could you talk a little more about what that might involve and the potential impact it would have on the average cost of debt?

Yes. So we are looking at some of the legacy pieces of debt we have in the portfolio, especially the high coupon debt and looking at opportunities to refinance that. Over the course of the second half of the year, we're hoping it's going to have a sort of fairly material impact on the average cost of debt, which we are very keen to bring down and try and take advantage of current historically low interest rates.

Our second question is from Miranda Cockburn from Panmure Gordon, and they're asking, please, can you split the 2.6% valuation uplift between the U.K. and Ireland and give a current valuation yields for both.

So Ireland was flat in the period, and we're typically seeing a net initial yield there around 5%. There is a slide in the pack that sort of reflects that. And all of the yield compression came through the U.K. portfolio, where we are saw an 11 basis points of compression.

We have our next question is from Stuart Bell from IDCM. And he's asking, has a move to video conferencing/virtual meetings between doctor and patient caused a requirement for a higher building spec with dedicated video rooms or enhanced wiring delivered to each room, if so, who is responsible for that cost.

Well, I'll take that. Yes, I think the answer to that is very much so in much the same way as you have dark supermarkets that are providing internet shopping fulfillment. So a lot of medical centers are now providing doctors with dedicated Zoom rooms properly equipped with more electrical points and with soundproofing in order to enhance soundproofing in order to maintain patient confidentiality. We're very happy to make a contribution to those capital costs in exchange for an extension of lease term and as part of an overall refurbishment. And of course, in the new developments that we're talking about, these will be coming in as standard. So we are very keen to maintain our stock in the highest possible condition. And happy to talk to our tenants at any time about improvements that they require. But I think the key point here is that the Zoom consultation has not brought about any move at all to say that medical centers are redundant or a reduction in the amount of space. And indeed, in my view, our view, there's going to be an increase in the requirement for space as many procedures, more patient consultations are carried out in primary care settings rather than in the hospitals, so that they are free to deal with more critical and urgent cases.

Our next question is from Tom Horne from Berenberg. And he's asking, could you please outline the yield on costs achieved on developments and whether this differs between forward funded and direct developments? And is it the same in Ireland?

I'll have a stab at that. So in Ireland, most of our projects, they are forward funded. Let standing investments do command a small premium. Not a substantial one. And in the U.K., the same is true because of the competitive nature of the market, there's been a sort of almost elimination of the expected gap between forward funding, where we're providing funding to a third-party developer and the price that you might pay for a let standing investment. And indeed, curiously, that standing investments because they're so much in demand for income are, as I said during my earlier remarks, very keenly priced, and we're certainly keen not to overpay for assets on a short-term basis. And in terms of our own development pipeline, the margin that we look at very much depends on the cost of the land and many other factors, including what future inflation is. But I think the sector would expect there to be a 10% to 12% development margin in the projects, which is very low by development standards generally. But of course, these are not speculative developments. They're all developments let on a pre-agreed basis with an agreement for lease in place with the health care tenants following construction.

Next question from Shayan from Liontrust. And they are asking, there's been a notable takeover bid in the REIT sector from private equity. Has there been any noticeable change in interest/demand or transactions for health care assets from private equity?

Not that I'm aware of because the sector has a number of issues for it. It requires an extremely skilled and large management team to cover the countries. The average lot size is relatively low, but we're not sitting back in a blaze fashion. Private equity might be attracted by ready assembled portfolios, but that's a question for the future. And we're focusing on our day-to-day task of improving the portfolio through proper management of it, adding assets judiciously in England and in the U.K. and in Ireland and focusing on asset management projects. I would expect that maybe, yes, in the future, demand for health care assets is something that is attracting the interest of people around the world because as we've seen through the pandemic, health care is a very important component to the economy, and you can't function as an economy without a resilient and robust health care system.

That concludes our webcast questions for now. So I'll hand over to the operator for any questions from the conference call.

[Operator Instructions] And we have a couple of questions coming through. The first is from the line are Andrew Gill at Jefferies.

I’ve just got 2 questions. With obviously the NHS looking [indiscernible], was there necessary curve? And other investment or development opportunities do you consider outside of primary care?

I think we're always keen to look at adjacencies. Historically, we've owned some ambulance trust properties. We don't, at the moment. Historically, we've looked at some diagnostic centers, but not actually committed to them. But yes, you're right, that is an area that we will look at, particularly where the revenue continues to be derived from government sources. Was there a third question, Andrew?

No, that was it.

We currently have one further question on the phones. That's from the line of Mike Prew also at Jefferies.

In terms of the Irish assets, the Irish business, where you obviously got a very welcome sort of yield premium over the U.K. assets. You've got 19 assets for the moment. But can you give us some idea as to the scope, how big the Irish market is and whether this is going to be our expansion to Ireland is going to be driven through a balance of development and acquisition. And then perhaps a comment on the internalization of the management, GBP 4 million cost savings. But are you seeing out of the benefits in terms of opening up the shareholder register equity liquidity? Are the tangential benefits, which have been a byproduct of the internalization, please?

Ireland, we've sort of internally estimated that there is a requirement for at least EUR 1 billion worth of new capital formation. And as I've mentioned or as we mentioned, we have an aspiration to grow our portfolio from the current GBP 200 million towards GBP 500 million, which would be around 15% of the portfolio. But who knows where that could go? I mean the only thing I would say is that Ireland is a much smaller population than Britain at 4.5 million compared to our 65 million. So it will be wrong, it would be very, very difficult, it would be impossible, frankly, for us to move to a completely Irish dominated portfolio, but we're very happy with it at that level that I've indicated. And of course, if we got to ‘capacity’ there, then there is the possibility that we could look at other markets in other parts of Europe, but we've got no current plans to do that right now. And you're exactly right, Mike -- Michael, that internalization has widened the number of shareholders who will look an investment in PHP. And there have been a number of intangible benefits like that, which should lead to us having a higher rating. And indeed, we've already seen that in relative terms, a little bit. Maybe there's more to come, who knows. But you're quite right, there are some other benefits to come. Richard, do you want to add on that last point?

I think the number of shareholders and meetings we've had with has changed, and we're definitely seeing a number of investors who wouldn’t have previously invested in externally managed vehicles. So hopefully, the shareholder base will continue to diversify into the future.

[Operator Instructions] The next question is from the line of Kanad Mitra from Barclays.

So while the pipeline -- acquisition pipeline has grown about 1.5x we don't see a lot of acquisitions that were actually done in H1. Do you want to elaborate on any reasons behind that?

I think it's just the way the way the cookies crumbled. And we're looking forward to actually delivering a lot more in the second half of this year and also into '22, and it's about the medium-term rather than the very short term. So as I mentioned in my remarks, we're extremely keen not to overpay and pay ridiculous prices in terms of where some assets have traded. We're keen to maintain appropriately priced acquisitions, but not to overpay and things take a long time to do in the forward funding market, particularly in Ireland. But I'm very confident that following internalization, our own development pipeline will take shape. As we've indicated, it's already doubled in the 5 and a half months since internalization completed at the beginning of January, and we're looking forward to announcing more progress on that at the time of our full year results in early ‘22.

Okay. So by medium term, we can think about a time line of about a couple of years?

I would say, 18 months to 2 years. Yes.

And we have one further question in the queue that's from the line of Matt Saperia at Peel Hunt.

A very quick one from me. Just looking at the slides Richard presented, 15 and 16 on asset management initiatives. And thinking about the NHS' target to be carbon neutral by 2045. And obviously, your focus on Britain and the Irish equivalent when you are undertaking these asset management initiatives. Does the desire of the counterparties and your own ESG, does that mean that there's an opportunity to do more asset management and create additional value across the estate?

Yes. In shorthand, it does. But of course, we're very keen to make sure that there's a fair payment for that. A current -- is kind of a technical point, the rent reimbursement mechanism doesn't distinguish between properties that have a better ESG scores and those that don't. And as an industry, we are going to take up the cutties there and try to make sure that if the building is more highly specified, that there's a higher rent that comes with it. So at the moment, we're doing this, but not probably getting an appropriately higher rent. But nonetheless, it's worth doing because of the lease -- the length extension on the leases. But we're hoping that in due course, that there will be an increase in the rent reimbursement levels that come with better quality, environmentally higher rent, better EPC ratings than the Irish equivalent, for sure, Matt. You raised a very good point.

And just to add to Harry's comments, I mean the fact that we cannot do developments direction on our own balance sheet means we can perhaps drive the specification of some of these buildings to a higher ESG standard than dealing with the developer who would be -- have a slightly different agenda.

As there are no further questions at this time I'll hand it to Harry for closing comments.

Well, thank you very much, and thank you for those very interesting and excellent questions. We remain poised. As I said -- we've said, we've laid the foundation for future growth, and we're looking forward to helping the HSE in Ireland and the NHS in the U.K. to modernize, improve the infrastructure through which primary care is developed, and we look forward to reporting further progress in early '22 as we move through our acquisition and refinance program. Thank you all very much for attending today. Thank you.