Primary Health Properties rent growth slows amid falling inflation

Healthcare facilities investor Primary Health Properties reported an additional £2.7m in rental income in a third quarter update on Wednesday - a slight decrease compared to £3.3 million for the same period in 2023.

The FTSE 250 company said rental income growth was driven by 241 rent reviews, representing a 7.9% increase in passing rent.

It said it expected to generate over £3m in extra rental income from rent reviews in 2024, although this is lower than the £4m achieved in 2023 due to declining inflation affecting indexed-linked reviews.

In asset management activities, PHP generated £0.3m from four new projects, seven lease regears, and six new lettings in the UK, along with six initiatives in Ireland.

The firm said it was capitalising on demand for space, with 39 projects in the pipeline aimed at extending leases, increasing rents, and improving the environmental performance of its properties.

On the investment side, PHP maintained a disciplined approach, only engaging in accretive opportunities.

The company said it had started construction on the South Kilburn Medical Centre in Brent, a project with a yield on cost of 6.2% and a profit on cost exceeding 10%.

PHP also secured new financing, including a £170m facility with Barclays and a three-year extension of its £100m facility with Lloyds.

As of 30 September, the group's net debt stood at £1.32bn, with a loan-to-value ratio of 48.1%.

PHP’s debt was 95% fixed or hedged, with a weighted average cost of 3.3%.

The company declared its fourth quarterly dividend of 1.725p per share, marking a 3% increase over the prior year.

“We welcome the new Government's commitment to reforming the NHS and specifically the need for increased investment in primary care which will add further resilience to the business model,” said chief executive officer Mark Davies.

“As highlighted in the Lord Darzi report, the current primary care estate in the UK is not fit for purpose and there is an urgent need to provide more high-quality, multidisciplinary care in the community in modern facilities with digital infrastructure and diagnostics.

“In the future this will result in a shift in resources from hospitals towards primary care and community led health services that PHP has been successfully delivering for nearly 30 years.”

At 0906 BST, shares in Primary Health Properties were up 1.36% at 98.42p.

Reporting by Josh White for Sharecast.com.