Primary Health Properties maintains dividend policy as it works on pipeline

Primary Health Properties updated the market on Wednesday, reporting that rental collection remained “robust”, with 79% of the first quarter rent received by 1 March.

The FTSE 250 company said that was up from 73% year-on-year, and said the balance was expected to be received over the next two weeks.

As at 31 March, the firm’s net debt stood at £1.09bn, widening from £1.07bn as at 31 December, and on a proforma basis its loan-to-value ratio was 44.8%.

After capital commitments, PHP said it had undrawn loan facilities and cash on deposit totalling £341.1m, down from £356.6m at the end of December, which it said provided “significant” liquidity headroom.

Cash on deposit totalled £137m, and in addition, on a proforma basis the group's portfolio would need to fall in value by around £1.0bn, or 42%, for the loan-to-value covenants in its borrowing arrangements to come under risk of being breached.

On 24 March, PHP declared its second quarterly interim dividend of 1.475p per ordinary share, which would be paid on 22 May to shareholders on the register at close on 3 April.

The board said the dividend would comprise a property income distribution of 1.275p, and an ordinary dividend of 0.20p per share.

It said the dividend was equivalent to 5.9p on an annualised basis, and represents a 5.4% increase over dividends per share paid in 2019.

“The company intends to maintain its strategy of paying a progressive dividend, in equal quarterly instalments, covered by underlying earnings in each financial year,” the directors said in their statement.

“Further dividend payments are planned to be made in August and November 2020.”

On the development front, the company said contracts for the acquisition of two forward-funded developments at Llanbradach in South Wales for £2.8m, and at Epsom in Surrey for £4.1m, were exchanged in February and March, respectively.

“PHP continues to have a strong active pipeline of potential acquisitions both in the UK and Ireland totalling approximately £124.0m, including £58.0m in legal due diligence, but we will continue to have regard to the current market before committing to these.”

PHP noted that it completed the forward-funded development at Athy, County Kildare, Ireland in the period, on time and within budget, at a net development cost of £11.4m.

It said it had a further seven developments currently on site, with a net development cost of £56.0m.

With the exception of Banagher, which was closed due to Ireland government guidelines, and Epsom, which had not yet started, all development sites in the UK and Ireland remained open with construction progressing.

The Ireland Health Service Executive (HSE) was reportedly keen for the sites at Bray and Rialto to be completed “as soon as possible”, with a dispensation provided to allow them to remain open with completion due imminently.

“The group will continue to adopt a policy of not undertaking any developments on a speculative basis.”

PHP said it had continued to “enhance and grow” the rental income of its existing portfolio, with 56 rent reviews settled in the first quarter, increasing rent by £0.4m, with a weighted average annualised increase of 2.4%.

In addition, it said a further five asset management projects had been completed, investing £0.9m to “enhance and extend” existing assets within its portfolio, while a “strong” pipeline of similar projects was being progressed to further increase rental income and extend unexpired occupational lease terms.

“The Covid-19 pandemic has highlighted the demands on health systems around the world, not least the NHS in the UK and HSE in Ireland, where the underlying demand for healthcare is increasingly driven by growing and ageing populations,” the board said of the outlook.

“The need for modern, integrated, local primary healthcare facilities is becoming more acute in order to relieve the pressures being placed on hospitals and accident and emergency departments.

“We anticipate that the crisis will highlight the important role primary healthcare will play in the future provision of health services and the continuing movement of services away from over-burdened hospital settings.”

At 1028 BST, shares in Primary Health Properties were down 0.36% at 160.02p.