Primary Health Properties confident as earnings remain stable

Healthcare facilities investor Primary Health Properties (PHP) said in its interim results on Wednesday that its adjusted earnings per share remained unchanged year-on-year, at 3.4p.

The FTSE 250 company said there was, however, a 62.5% decrease in IFRS earnings per share, which amounted to 3p for the six months ended 30 June.

Its contracted annualised rent roll still increased, by 1.4%, to £147.4m by the end of the period.

PHP said it saw additional annualised rental income growth of £2.2m, or 1.5% on a like-for-like basis, driven by successful rent reviews and asset management projects.

That compared favourably to the figures from the first half of 2022, when it reported £1.8m, or 1.3%, additional income.

PHP said it maintained a strong focus on cost management in the period, reflected in its EPRA cost ratio of 10.1% - one of the lowest in the UK real estate investment trust sector.

Moreover, the firm had distributed or declared three quarterly dividends totalling 5.025p per share in the year-to-date, equivalent to 6.7p per share on an annualised basis, marking a 3.1% increase over 2022 and making for a 27th consecutive year of dividend growth.

The company said it intended to continue its strategy of paying a progressive dividend, fully covered by adjusted earnings.

Its adjusted net tangible assets per share experienced a slight decline of 1.3% to 111.1p compared to the end of December.

The firm said its property portfolio, valued at £2.78bn at the end of June, reflected a net initial yield of 4.9% - slightly higher than the 4.82% reported at the close of 2022.

Despite a revaluation deficit of £11.9m during the first half, the portfolio metrics remained robust, with a 99.6% occupancy rate and a weighted average unexpired lease term (WAULT) of 10.6 years.

Additionally, 89% of income was funded by government bodies, suggesting a secure, long-term, and predictable income stream.

PHP continued to emphasise Ireland as its preferred area for future investment activity, with the portfolio there, comprising 20 assets valued at £219m (€255m), targeted to grow to around 15% of the total portfolio.

The recent acquisition of Axis Technical Services - an Irish property management business - in January would allow PHP to establish a permanent presence in Ireland, enabling it to explore new investment, development, and asset management opportunities.

PHP's loan-to-value ratio stood at 45.6%, within its targeted range of 40% to 50%.

The firm said it was taking a prudent approach to managing its debt, with 97% of net debt fixed or hedged for an average period of almost seven years.

With a weighted average debt maturity of 6.9 years, PHP said it had secured a strong financial position and significant liquidity headroom, boasting cash and collateralised undrawn loan facilities totalling £314.4m after capital commitments.

“We are encouraged by the improvement in rental growth experienced in the first half of the year and expect to deliver over £4m of extra income during 2023, another record and continuing the trend seen in recent years,” said chief executive officer Harry Hyman.

“We believe PHP will be a beneficiary of both the current inflationary environment and the significant rise in construction costs seen in recent years both through open market and index-linked reviews.”

Hyman said that furthermore, with 97% of the company’s debt either fixed or hedged for a weighted average period of just under seven years, a strong control on costs and one development on site, it had limited exposure to further cost increases and development risk.

“The security and longevity of our income, near full occupancy together with stronger rental growth are the key drivers of our predictable cash-flows and underpin our progressive dividend policy with 27 years of continued growth.”

At 0825 BST, shares in Primary Health Properties were up 0.8% at 95.36p.

Reporting by Josh White for Sharecast.com.