Primary Health Properties: Strong Earnings Growth In 2014
Edison | Mar 03, 2015 01:11AM ET
Profit growth delivering dividend cover progress
Primary Health Properties (LONDON:PHP) provides growing dividends and an attractive 5.2% prospective yield. Cash flows are generated from a broad portfolio of government-backed healthcare facilities on long leases. Strong earnings growth in 2014, resulting from portfolio growth, lower funding costs and a lower expense ratio restored dividend cover to 84%. We expect a full contribution from funding and expense benefits in 2015. While portfolio growth is ongoing, it is currently subdued by the slow pace of new development approvals and competition for assets in this class. We have tempered our forecast asset growth, but still see full dividend cover by the end of FY16.
Primary care growth prospects remain strong
We believe PHP operates in a very attractive market with good growth prospects over the medium term. Tenant quality is excellent, being largely government risk or pharmacies with a natural flow of business as a result of co-location with GP practices. Leases are long and with upward-only rent revisions. Demand is set to grow over the long term even though the process of approval by the NHS for new development projects remains frustratingly slow at present. Ahead of the general election, the NHS is centre stage with all main parties agreed on the central role of the GP. The NHS five-year plan acknowledges the need for significant change and seeks to deliver additional and more integrated services in the community.
Key messages from the FY14 results
Acquisitions and new commitments (including the PPP acquisition in December 2013) drove asset growth and rental income. Refinancing and improved financing conditions drove down funding costs, supported by PHP’s growing scale. A renegotiated management fee structure reduced costs from 1 May 2014 and increases ongoing operational gearing. Competition for available properties is strong, evidenced by the marginal lowering of yields that contributed to £29.2m of net valuation gains. Management intends to maintain a disciplined approach to asset selection, but still expects near-term asset growth. As new development activity picks up (our estimates imply this should become apparent during FY16), PHP is very well placed to be a major participant.
Valuation: Growing dividends and cover
PHP’s assets deliver secure cash flows from mainly government-backed revenues, supporting a high payout and growing dividends. Healthcare property values (and PHP NAV) are also benefiting from mild yield compression, but historical performance has shown much less volatility than the broad commercial sector.
Get The News You Want
To Read the Entire Report Please Click on the pdf File Below
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.