Security of rising income; accelerating dividend growth

90% of PHP’s income is backed by the UK or Republic of Ireland (RoI) governments. Occupancy consistently exceeds 99%. We are confident investors will continue to seek out REITs with a strong asset-class focus, particularly categories that provide security of rising income. PHP achieves all this, and its dividend per share growth rate is accelerating as a result. In total contrast to the wider real estate market, rent reviews on PHP assets are accelerating upwards. PHP’s growth avenues are expanding. The March 2019 merger with MedicX Fund – as well as a £4m p.a. synergy efficiency and additional investment assets of more than £800m – has added complementary routes to purchase new assets.

  • What PHP invests in: PHP purchases modern standing stock, and forward-funds repeat development partners. These assets are localised hubs, providing community-based GP surgeries and other closely-related medical services. The gross value is over £2.3bn, and the contracted rent roll now stands at £125.6m.
  • Growth in 2019 sees step-jump expansion: The 14 March 2019 merger with complementary MedicX Fund effectively adds well over £800m of investment assets of as high a quality as PHP’s, at nil stamp duty cost, bringing synergy efficiencies and taking PHP’s investor offering to a new level.
  • Valuation: The shares trade at a premium to EPRA NAV. Latest balance sheet assets were valued at a 4.85% (unchanged) net initial yield (NIY), but portfolios of this asset class consistently change hands at lower yields (higher prices). Investors in quoted real estate consistently favour focused investment strategies.
  • Risks: No development risk is taken. Average cost of debt is 3.68%, down from 4.0% at the merger date and falling further on refinancings. Undrawn facilities exceed £200m. PHP states a 2.7% marginal interest cost, vs. a 3.9% average cost in 2018 – so yield pick-up continues to trend upwards.
  • Investment summary: 23 years of unbroken dividend growth: expansion into higher cash-generating RoI assets and a falling debt cost support EPRA EPS and DPS growth. Incremental management fees are below existing averages. Given this, plus the enlargement through the merger and the asset yield, recent acquisitions have been EPS-accretive. The merger led to strong upgrades.
Download the full report

Request a meeting

If you'd like to be introduced to the team at Primary Health Properties, get in touch.

Request a meeting