viewPrimary Health Properties PLC

Primary Health Properties to raise cash to fund new developments

The proceeds will be used to fund continued portfolio growth through acquisition and forward funded developments and to finance asset management projects totalling around £128mln

Primary Health Properties PLC -

Primary Health Properties PLC (LON:PHP) proposes to raise around £120mln through a share placing, with the funds to be used on the company’s pipeline of acquisitions and to improve its existing portfolio of medical centres.

During the current year, the company said it has continued to see opportunities for funding new developments, both in Ireland and in the United Kingdom, and has a short-term pipeline of 11 new developments to be forward funded, totalling £92mln, of which £44mln are in Ireland.

Also, the board has approved funding for extensions and/or improvements at 21 existing sites, involving occupational lease term extensions and rent enhancements, at an anticipated capital cost of £11mln, with a further £25mln of potential projects identified.

The new shares to be placed will not be eligible for the third quarter interim dividend of 1.475p per share declared on June 25.

Following the placing, the company intends to maintain its strategy of paying a progressive dividend that is covered by earnings in each financial year. Following the placing, the company will have lowered the upper range for its loan to value (LTV) ratio from 55% to 50%.

The LTV ratio at the end of June was 45.8% and should drop to around 41% on a pro forma basis once the funds from the placing have been banked.

In a separate announcement, the company said its operational and financial performance so far this year continued to demonstrate good resilience.

Adjusted earnings per share in the first half of 2020 rose by 7.1% to 3.0p from 2.8p in the first half of last year.

The group has seen an average uplift of 2.2% a year on rent reviews completed in the first half of the year, compared to increases of 1.9% in the whole of 2019.

Rental collections continue to remain robust and as at July 8, 2020, 91% and 88% had been collected in the UK and Ireland respectively for the third quarter of 2020, while collection rates for the second quarter of the year have now risen to more than 99% for both countries. The balance of rent due for the third quarter of 2020 is expected to be received within the coming fortnight.

Adjusted net asset value per share at the end of June was 109.1p, up 1.1% from 107.9p at the end of 2019.

"The COVID-19 pandemic has highlighted the demands on health systems around the world, not least the NHS in the UK and HSE in Ireland, where the underlying demand for healthcare is increasingly driven by growing and ageing populations. The need for modern, integrated, local primary healthcare facilities is becoming ever more acute in order to relieve the pressures being placed on hospitals and A&E departments,” Harry Hyman, the managing director of PHP said in the update.

"As a result of the COVID-19 pandemic, we see strong demand for extra space to help alleviate the backlog of consultations that has arisen as a result of the coronavirus, while facilitating the movement of activity out of hospitals and the continued care of patients that have suffered from COVID-19.

"Technology will continue to drive digital consulting and triage in the future and the crisis has highlighted the important role primary healthcare must play in the future provision of health services and continued re-focusing of services away from over-burdened hospital settings. PHP looks forward to contributing to this effort and remains very confident of its future outlook," he added.

In morning trading, Primary Health Properties shares were 3.5% lower at 147.60p.

Nicholas Hyett, equity analyst at Hargreaves Lansdown commented: “Primary Health Property’s purpose-built doctors surgeries have a long track record of delivering results for shareholders – now in its 24th consecutive year of dividend increases. The current crisis probably increases the importance of top-quality primary care facilities going forwards and Primary Health Properties is raising £120m to deliver on that demand. That means enhancing the existing estate and building new facilities from scratch, and a healthy pipeline of opportunities should secure income and dividend growth for years to come.

"Secure revenues, largely underwritten by the UK and Irish health services, mean the group should be relatively low risk, and a 3.9% yield will be attractive. However, our concern in the past has been PHP’s relatively high level of debt. Plans to reduce the maximum from 55% LTV to 50% LTV are very welcome, and with plenty of headroom over covenants the outlook for the group looks stable – something of a rarity in the current environment.”

 -- Adds share price, analyst comment --

Quick facts: Primary Health Properties PLC


Price: 161.6 GBX

Market Cap: £2.15 billion

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