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Primary Health Properties - Healthy REITing

Primary Health Properties - Healthy REITing

Primary Health Properties (LON:PHP) is a real estate investment trust (REIT) that holds a portfolio of 484 primary health facilities in the UK (94% of the portfolio) and Ireland (6%). The business model is to manage the properties for rental income and to grow the portfolio over time. The asset base has some attractive characteristics for yield-focused investors:

  • 90% government-backed rent
  • 99.5% occupancy rate
  • Weighted average unexpired lease time: 13.4 years

This stable rental income base has allowed PHP to pay a steadily growing dividend, with increases every year since listing in 1997.

We would normally expect a 'safety' play like PHP to offer commensurately lower returns to shareholders; however, PHP has achieved a 14.1% annual total shareholder return over the last five years, versus 4.6% for the UK REIT sector. In this report we examine PHP's strong financial returns in terms of:

  • Solid rental income yield on property
  • Low-cost ratio

We also examine PHP relative to sector peers on other characteristics such as lease terms and rental escalations.

We believe that the conditions remain in place for PHP to continue generating strong returns in the next few years, and to continue its unbroken run of dividend increases. Furthermore, in March 2019 PHP completed its transformational merger with MedicX, providing an enlarged portfolio, further improved cost ratio, and likely reduced the cost of financing over time. We include these factors in our detailed forecasts (pages 9-11) which support continued outperformance for the shares.

Full report is available via Capital Network website
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Primary Health Properties PLC Timeline

Related Researches

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October 03 2018

Grit Real Estate Income Group (LON:GR1T) is a multi-listed (LSE, JSE, SEM) property company with a focus on selected African countries with a combination of economic growth, investment friendly policies and political stability. Rental income is underpinned by a blue-chip multinational tenant base, hard currency leases, and high occupancy rates.

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June 27 2019

GRIT Real Estate Income Group (LON:GR1T), the leading pan-African real estate company, has released a trading update for its financial year ending June 2019. The company is on track to deliver its targeted 12% total shareholder return for FY June 2019, and an increased dividend. Furthermore, the occupancy rate stands at 97.2%, and 95% of expiring Gross Lettable Area has been renewed or replaced.

Against a mixed backdrop, with headwinds from EUR/USD translation effect and some weakness in the African retail sector, this performance fully delivers on the expectations set out at the time of the London listing in August 2018.

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January 29 2019

Custodian REIT (LON:CREI) released its quarterly net asset value (NAV) updated on 29 January. This was in line with our expectations.

NAV Total Return +1.0% in the quarter. Portfolio net initial yield (a measure of property income yield) of 6.6%. Balance sheet gearing remains low at LTV (loan-to-value) ratio of 24.7%.

We believe that all of the key dynamics remain intact to sustain continuing strong shareholder returns.

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