Primary Health Properties: Market Growth Becoming Clearer
Edison | Aug 30, 2015 06:01AM ET
Accelerated dividend cover
Primary Health Properties' (LONDON:PHP) interim results showed strong profit growth with good operational gearing as a result of ongoing cost and funding efficiencies. Cover of the progressive dividend lifted to 89%. Our revised forecasts now show full cover in H2 of the current year, with a prospective yield of 4.9%. Following a conclusive election result, there is continuity of policy towards the NHS, providing political and financial support for its five-year plan. In this context, the prospects for continuing asset growth look good. Property yields have contracted but funding conditions remain strong, maintaining a healthy spread and opportunity for ongoing accretive growth.
Key messages from the interim results
Rental income grew 5% yoy, underlying EPRA earnings by 20%, and IFRS earnings by 46%. The operational gearing reflects the renegotiation of the management fee in May 2014 (which contributed to an 8% reduction in administration costs) and debt cost efficiencies resulting from active liability management. IFRS profits benefited from further significant revaluation gains, which also saw NAV per share grow despite the high payout of underlying earnings. A debt and swap restructuring completed in July will see the average cost of debt fall further and accelerate the move to full dividend cover; we now estimate this will occur in H215 (102%), one year earlier than previously forecast.
Market growth becoming clearer
PHP operates in an attractive market with good growth prospects. Tenant quality is excellent, being largely government risk or pharmacies with a natural flow of business as a result of colocation with GP practices. Leases are long and with upward-only rent revisions. We believe the medium- to long-term growth outlook remains strong, driven by an ageing population with growing healthcare needs, an underinvested primary healthcare estate and a general acceptance of the need for more integrated primary care services in the community. The new government has committed to the NHS five-year plan, providing £8bn pa in additional funding, while looking for the NHS to deliver significant operational efficiencies of £22bn pa. The anticipated changes in healthcare delivery to achieve these will require modern, purpose-built, flexible premises of the type in which PHP invests.
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.