Primary Health Properties raising at least £75m to fund slew of investments

Primary Health Properties (PHP) announced its intention to issue new ordinary shares in a placing on Tuesday, to raise gross proceeds of £75m, with the ability to upscale to £100m subject to demand.

The FTSE 250 company said the placing would be conducted by way of an accelerated bookbuild, which opened immediately following its announcement, with Numis Securities and Peel Hunt acting as joint bookrunners.

It said the placing would only be made available to invited eligible institutional investors in certain specified jurisdictions.

“Since the company's last equity fundraising in March 2018 and latest convertible bond issue in June 2019, the company has continued to execute successfully its strategy, delivering net asset growth through a combination of acquisitions and the enhancement of existing assets, and reducing PHP's average cost of debt,” the board explained in its statement.

“Having successfully completed the integration of the MedicX portfolio and delivered the £4m of operating synergies outlined at the time of the transformational merger with MedicX in March 2019, the company has continued to acquire assets and commit to development funding in both the UK and Ireland.”

PHP said that during the current year, it had seen a rise in the number of opportunities for funding new developments both in Ireland and in the United Kingdom.

The directors said they believed those transactions to be “very attractive” for the firm, as they typically involved the development of larger medical centres that house larger GP practices, providing a “more integrated” healthcare offering in line with PHP's stated strategy of focusing on hub primary care centres.

They also represented a source of supply of more modern buildings, built to high environmental standards and let on long leases, into the PHP portfolio, the directors said.

“The acquisition of MedicX has brought a number of opportunities to fund new developments through its range of relationships with developers, some of which it had not been able to take forward before the merger.

“Currently, the company has contracted to fund the development and acquisition of eight medical centre properties in the United Kingdom and Ireland, which are at various stages of construction and involving a total capital commitment of approximately £60m.”

In addition, PHP’s board had approved funding for the development of a further four sites in the United Kingdom, where it was in the advanced stage of finalising agreements to fund the development and acquisition, and development funding agreements were expected to be signed in the coming weeks at an estimated capital cost of £20m.

The company noted it had also agreed terms on four further developments of medical centres in Ireland, involving a total capital commitment of around £50m (€55m).

“As funding the development and acquisition of new medical centres involves committing to make capital available during the length of the development - typically 12-18 months - it is proposed to use equity to finance these investment commitments and accordingly the proceeds of the placing will be ear-marked to fund the developments identified above.

“If funded by equity, these developments as they complete will increase the value of unfettered assets in the PHP portfolio and strengthen its balance sheet.

“The placing is not conditional upon these developments proceeding and if any of them do not complete then the net proceeds will be retained for use in connection with PHP's acquisition pipeline or for general commercial activities, or a combination thereof.”

PHP said it continued to have a pipeline of further acquisition opportunities for standing let investments, which remained “significant” with it currently analysing or negotiating a number of potential transactions.

The firm had access to a broad range of financing options as well, the board added, including committed but undrawn debt.

“In combination, the positive gap between rental yields and financing and management costs remains robust and provides opportunities for PHP to make earnings enhancing and cash generative property investments.

“Accordingly, the directors will continue to employ a selective and disciplined approach to acquisitions to support continued portfolio strength through funding selected investment opportunities.”

It said acquisitions would be supplemented by active management of existing assets, aiming to deliver further income and valuation growth.

Capital expenditure of around £5m was expected to be incurred or committed in the current year, to generate additional income and secure the extension of unexpired occupational lease terms.

In comparison, in 2018 16 asset management projects were completed at a cost of £4.4m, which generated additional rental income of £0.2m per annum.

“Following the placing, the company intends to maintain its strategy of paying a progressive dividend that is covered by earnings in each financial year,” the board confirmed.