Primary Health Properties: Succession planning

Primary Health Properties: Succession planning

Primary Health Properties, the FTSE 250 healthcare real estate investment company, has announced that Harry Hyman will officially step down as the company's chief executive officer (CEO) at the company's 2024 annual general meeting (AGM), which we estimate will take place between 1st April 2024 and 11th June 2024. The company previously indicated that Mr Hyman will step down around that time, so the announcement is in line with the market expectations. Accordingly, we have maintained our forecasts, continue to note that the degree of risk associated with an investment in Primary Health Properties is relatively low, and remain of the view that the valuation of the company is attractive, which is supported by a prospective yield of 6%.

Summary

Forecasts

In light of the announcement, we have maintained our forecasts, which can be found by clicking here.

Risks

As with any investment, investing in Primary Health Properties carries a level of risk. Overall, based on the company's market beta (i.e. 0.531), the degree of risk associated with an investment in Primary Health Properties remains relatively low.

Valuation

The key things that we continue to be impressed by the stock are as follows: 1) dividend growth every year since inception (i.e. for 26 years); 2) 89% of rents are covered by government national health bodies of the UK and Ireland, supporting 99.7% occupancy rates and minimal tenant defaults or similar unplanned costs; 3) the lowest cost ratio (costs / rental income) in the whole of the UK REIT (real estate investment trust) space, with an EPRA (European Real Estate Association) cost ratio at 10.5%; 4) 95% of group debt is hedged for almost eight years; 5) a quarter of rent roll is explicitly linked to inflation, and management argues that the balance is effectively linked to inflation through replacement cost; 6) headroom to continue growing the portfolio of health centres; and 7) an improving rental growth outlook, with rent reviews and asset management projects completed in the first half of this year adding £1.8m or 1.3% on a like-for-like basis.

Year end Dec 31 · 2020 · 2021 · 2022 · 2023

Portfolio value (£mln) · 2,576.1 · 2,795.9 · 2,934.1 · 3,079.3

Net rental income (£mln) · 131.2 · 136.7 · 141.8 · 146.6

Adj. Earnings (£mln) · 73.1 · 83.2 · 86.7 · 88.8

Adj. EPS (GBp) · 5.8 · 6.2 · 6.5 · 6.7

DPS (GBp) · 5.9 · 6.2 · 6.5 · 6.7

Adj. NAV/Share (GBp) · 112.8 · 116.7 · 120.6 · 123.2

Gearing (LTV%) · 41.0 · 42.9 · 43.6 · 45.1