Robust 1H results

PHP’s results, reported on 25 July, showed £1.42bn investment assets and a contracted rent roll of £74.4m (+7.4%). The 2018 £115m equity raise is being deployed, thus rebuilding EPS, albeit on greater shares in issue. PHP’s continuing stand-out dividend track record is excellent, as is its refusal to fall into the trap of overpaying for assets. The new supply of primary medical properties has been constrained but is starting to rise, so PHP’s development partners (PHP undertakes zero development risk) underpin the growing acquisition pipeline. This is stated at £175m, and our model assumes an acquisition rate of £100m p.a.

• 1H’18 results:  DPS rose 3.1%. Cost of debt fell again (3.86% p.a. vs. 4.09%). Acquisitions are proceeding well, with £48.6m since year-end. Importantly, these are of good ‘lot size’. EPRA EPS fell 3.8% as a result of the initial dilution from the oversubscribed £115m March equity raise (total earnings rose 11.0%)
• Capital deployment:  2018 to date, £53m of property has been acquired, with £37m in solicitors’ hands vs. 10 properties in 2017 for £71.9m. The pipeline is growing, with PHP investing the new equity raised in March. Our LTV end-2020 estimate is 47.2%, giving scope to acquire more, enhancing EPRA EPS.
• Republic of Ireland (RoI) is a growth driver:  RoI is a growing element for PHP, with its portfolio expansion weighted here. 2% of end-June 2018 assets are in RoI. In 2017, 28% of asset acquisitions were in RoI. 1H’18 saw a further €22.3m. Yields are still nearly 100bps higher in RoI vs. Britain, and with lower debt cost.
• Risks:  The debt maturity profile has lengthened YoY (5.9 years’ avg.), reducing refinance risk YoY, while still lowering cost of debt. Were rent growth to remain subdued, DPS growth should remain at ca.3%. Cover rebuilds to over 100% under any scenario. Indeed, 2018 dividends, cash paid, are fully covered: strong basis.
•  Investment summary:  PHP is in its 22nd year of stockmarket listing and its 22nd year of dividend rises. Investment, including the now fast-growing higher-yielding market in RoI, added to deployment of equity and ongoing cost optimisation, all underpin good support for dividend growth. On valuation grounds, based on asset and cash flow security, the dividend yield attracts.