What PHP does

Primary Health Properties PLC (LON:PHP) invests solely in the freehold or long leasehold of modern purpose-built healthcare facilities in the UK and the Republic of Ireland.

The group holds the properties for long-term investment and leases them to general practitioners (GPs), government healthcare bodies, pharmacies and other associated healthcare agencies.

The company floated on AIM in 1996 before graduating to the full market in 1996, and in 2018 it reached a significant milestone, joining the FTSE 250 index.

As of June 2020, PHP’s portfolio to 490 properties was worth north of £2.5bn as it drummed up an expanded £140mln from investors to take advantage of an expanded pipeline of investment opportunities now seen at £128mln.


How it is doing

A merger with MedicX fund last year gave a big boost to the company’s portfolio and PHP has continued to acquire medical centres on a regular basis, expanding in both the United Kingdom and Ireland.

In an update for the first six months of 2020, the healthcare property group said adjusted net asset value per share stood at 109.1p at the end of June, up 1.1% since the start of the year.

Adjusted earnings per share in the first half of 2020 rose by 7.1% to 3.0p as the group saw average uplift of 2.2% a year on rent reviews completed in the first half of the year, with rental collections continuing to remain robust unlike property companies in other sectors.

The £140mln fundraising lowers the loan-to-value ratio from 45.8% to rougly 41%, which is well below the recently revised upper limit of 50%.

A third-quarter interim dividend of 1.475p per share was declared and, though this will not be available for investors in the fundraising, the company said it intends to maintain its strategy of paying a progressive dividend that is covered by earnings in each financial year.


What the boss says

“Operational and financial performance to date remains strong, and our portfolio continues to demonstrate resilience, and the additional funds raised will help further accelerate our growth by funding near-term portfolio expansion, forward funded developments and asset management projects,” said managing director Harry Hyman alongside July’s capital raise.

He added: “Now more so than ever, there is a significant need for modern, purpose-built primary healthcare facilities and the Group has a strong pipeline of opportunities ahead, which together with our strategic capital management, will deliver further earnings growth with reliable dividends to our shareholders as we move forwards with confidence.”




What the broker says 

PHP’s upsized £140mln placing highlights the strength of its primary healthcare model versus other UK real estate sectors, analysts at Berenberg said after July’s placing.

Berenberg, which has a ‘hold’ rating on the shares, forecasts full-year 2020 earnings of 5.4p and net asset value of 109.1p. 

The capital raise “indicates the strength of the investment case in more uncertain times”, the Berenberg analysts said, following some “admirable portfolio growth” in the first half of the year, including the completion of two developments in Ireland.

“Against the current economic backdrop, we think PHP’s investment pipeline is achievable.”

Peel Hunt, PHP’s house broker, said: “Once again, the power and simplicity of the model is clearly demonstrated, with a pipeline of opportunities that will assist in driving further earnings accretion as well as a reduction in financial leverage.”

Peel Hunt’s 2022 estimates imply a p/e ratio of circa 23 times and a dividend yield of 4.2%, with the broker retaining its ‘add’ recommendation and target price of 175p.


Inflexion points

  • Rental growth from the portfolio
  • Acquisitions of more healthcare properties
  • Asset management expansion opportunities
  • Deals to reduce debt costs