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Why invest in PHP?
Primary Health Properties PLC: DEEP DIVE
OVERVIEW

Primary Health Properties now a Top 15 UK REIT following MedicX Fund merger completion

Analysts at Peel Hunt said: “The enlarged vehicle now delivers a very durable income proposition underpinned by a Government covenant and sector-leading income efficiency”
Doctors
OVERVIEW: PHP The Big Picture
PHP increased the size of its portfolio to 479 properties via its merger with MedicX
  • FTSE 250-listed firm with £1.5bn valuation

  • £2.3bn portfolio of primary care assets

  • Dividend yield of over 4%

 

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.

In January 2019, PHP increased the size of its portfolio to 479 properties worth £2.3bn through a merger with MedicX Fund.

The merger valued MedicX at £393mln in total and created a company worth nearly £1.5bn in total, with PHP shareholders owning 69% of the enlarged company.

How they do it:

While the MedicX merger gives a big boost to the company’s portfolio, PHP has continued to acquire medical centres on a regular basis, expanding in both the United Kingdom and Ireland.

With the merger having completed on 15 March, the group swiftly announced on 18 March that it had contracted to acquire a new primary healthcare medical centre in Kew, London which is due to be completed in October 2019 and will have a net internal area of approximately 845 square metres for a total cost of £4.6mln.

On March 12, PHP revealed it had increased its estate in the Republic of Ireland to 10 properties with the acquisition of The Meath Primary Healthcare Centre, a primary care centre located in Dublin, for a total cost of €10.9mln.

The company posted its full-year 2018 results on 31 January which saw it raise its dividend for a 22nd year.

PHP said the value of the portfolio rose by 2.5% to £1.5bn in the 12 months to 31 December 2018, with underlying net asset value (NAV) up 4.4% to 105.1p.

The group’s full-year rental income rose by 7% to £76.4mln, with 91% of that total underwritten by either the UK or Irish governments.

The firm hiked its annual dividend by 2.9% to 5.4p, giving a yield of 4.6% based on it's then share price of 117p.

PHP said strong demand for healthcare properties was continuing to push asset prices higher, and it played down Brexit uncertainties.

Harry Hyman, PHP’s managing director commented: “Whatever the final outcome and consequences of Brexit for the UK it is unlikely to have a direct impact on the primary health centres we invest in,”

What the boss says:

“We see significant opportunities to grow our portfolio and support the modernisation of the primary care infrastructure and widening of the provision of healthcare services.

“We have a strong pipeline of acquisitions in the UK and Ireland and are well positioned to continue growing the portfolio in both jurisdictions," said Harry Hyman, PHP’s managing director.

Blue Sky:

Analysts at Peel Hunt have a 140p price target on PHP shares, offering around 10% upside potential to the current 128p share price.

Reiterating a ‘buy’ rating, in a note to clients published following the completion of the all-share merger with MedicX, they said: “The enlarged vehicle now delivers a very durable income proposition underpinned by a Government covenant and sector-leading income efficiency.”

They highlighted three key points, noting that both sets of shareholders benefit from the merger; market rental growth opportunity is growing, having been somewhat muted for a number of years; and further upside is set to come from a combination of liability management and scale economies, as well as growth opportunities in both the UK and Republic of Ireland.

The analysts pointed out that PHP shares have performed well since the deal announcement in January, rising by 13% and sit at around a 21% premium to NAV.

“But,” they added, “a well-underpinned yield of 4.3%, forecast growth of over 4% per annum, and prospective PE of 21x means this stock should now be on the radar screen of any investor looking for secure and growing income-led returns.”

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Primary Health Properties PLC Timeline

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