Primary Health Properties: Asset And Rental Growth Drive Strong Performance
Edison | Aug 02, 2018 05:16AM ET
Primary Health Properties (LON:PHP) had a strong first half year with EPRA earnings growth benefiting from acquisitions made in 2017 and H118, supported by continued and increasing organic rental growth. Our forecasts for further growth are underpinned by a full period contribution from recent acquisitions, continued deployment of the proceeds of April’s equity issue into a strong pipeline of opportunities, an increasingly positive outlook for rental growth, and further opportunities to lower average borrowing costs.
6.2% NAV total return in H118; estimates lifted
H118 EPRA earnings grew 11% compared with H117. Net rental income grew 7.5%, benefiting from acquisitions, asset management initiatives and an increasing contribution from completed rent reviews. Administrative costs also increased but net finance costs were flat. The post-period end cancellation of relatively expensive swaps reduces the average cost of debt to 3.86% (end-FY17: 4.09%), and other refinancing opportunities point to a further reduction. Net revaluation gains added £21.2m, with EPRA NAV increasing to 104.2p (FY17: 100.7p). Including dividends paid, NAV total return was 6.2%. Around £53m of the c £111m net proceeds of the April equity raise has been committed year to date, and a strong pipeline of potential acquisitions remains, including £37m in solicitors’ hands and a further more than £175m at various stages of negotiation. Our forecasts for EPRA EPS, NAV and dividend cover all increase slightly.
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