Primary Health Properties adjusted earnings rise, asset value narrows

Primary Health Properties reported a 2.9% increase in adjusted earnings per share in its interim results on Wednesday, now at 3.5p, compared to 3.4p for the same period in 2023.

The FTSE 250 company said IFRS earnings per share, however, saw a significant decrease to 0.3p for the six months ended 30 June, from 3p a year earlier.

It put that decrease down to non-cash flow losses related to the valuation of its property portfolio, convertible bond, and interest rate derivatives.

The firm’s contracted annualised rent roll grew 1.2% to £152.6m, supported by an additional £1.8m in annualised rental income from rent reviews and asset management projects.

Despite that growth, the portfolio's net initial yield (NIY) widened slightly, resulting in a revaluation deficit of £40m for the period.

Nonetheless, the board said the portfolio remained robust with a 99.2% occupancy rate and 89% of income funded by government bodies.

The company had declared three quarterly dividends totaling 5.175p per share so far this year, equating to an annualised 6.9p per share, making for a 3% increase from 2023.

That marked PHP's 28th consecutive year of dividend growth, reinforcing its strategy of paying a progressive dividend fully covered by adjusted earnings.

PHP's property portfolio was valued at £2.75bn as of 30 June, down slightly from £2.78bn at the end of 2023.

The decline was due to a combination of a £73m decrease from net initial yield widening and gains of £33m from rental growth and asset management projects.

It was planning 23 asset management projects and lease regears over the next two years, which were expected to generate an additional £0.7m in annual rental income.

In terms of financial management, PHP said it maintained significant liquidity headroom with cash and undrawn loan facilities totaling £307.8m.

The group said it was also in advanced discussions to refinance £320m of revolving credit facilities to mitigate refinancing risks for debt maturing in 2025.

As of 30 June, 96% of PHP's net debt was fixed or hedged, with a weighted average period of six years, while the loan-to-value (LTV) ratio stood at 48.0%.

“This is another period of robust operational and financial performance and we are encouraged by the continued improvement in open market value rental growth, together with a strong control on costs resulting in one of the lowest EPRA cost ratios in the REIT sector and with the vast majority of PHP's debt either fixed or hedged for a weighted average period of six years,” said chief executive officer Mark Davies.

“It's clear that PHP's competitive advantage is built on these strong fundamentals and leading position in the UK, combined with our large exposure in Ireland.

“As PHP approaches its 30-year anniversary of continuous dividend growth in 2026, the management team appreciates the importance of driving further earnings growth in the future and this continues to be an important focus of the group's business model.”

Davies said the company welcomed the new government's commitment to the NHS and, specifically in the first few days of taking power, the Health Secretary's identification of increased investment in primary care.

“As reported in the media, there are commitments to reform GP services and wider community care in order to expand service delivery in these settings, relieving the pressures on the NHS.

“PHP is extremely well placed to facilitate and benefit from these objectives, creating new and modern facilities to deliver services with huge social impact.”

At 1004 BST, shares in Primary Health Properties were down 0.91% at 92.65p.

Reporting by Josh White for Sharecast.com.