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Primary Health Properties delivers 22.7% total shareholder return

Primary Health Properties

Primary Health Properties delivers 22.7% total shareholder return – Primary Health Properties has posted its first set of results following its merger with MedicX earlier this year, delivering a 22.7% total shareholder return in the first six months of the year.

The company said it had delivered the operating synergies of £4m a year that it outlined at the time the merger was announced in January 2019, as well as further finance cost savings.

Adjusted EPRA earnings per share increased by 12% to 2.8p (30 June 2018: 2.5p). The merger with MedicX contributed £7.6m to adjusted EPRA earnings. Excluding the impact of the MedicX merger, PHP’s recurring adjusted EPRA earnings increased by £3.2m or 18.7% (30 June 2018: £1.7m or 11% increase).

Net asset value growth

PHP’s underlying property valuation notched up slightly by 0.8%, producing a net initial yield of 4.85%. Rental growth also lifted 0.8%, or £1m.

During the first half of the year PHP acquired five properties for a combined £31.3m, with a large average lot size of £6.3m. Its portfolio in Ireland now comprises 15 assets, valued at €174m, and including four forward funded developments currently under construction which if valued as complete increases the value to approximately €204m.

It has identified a pipeline of acquisitions of approximately £150m of which £70m are currently in legal due diligence.

Financials

The merger with MedicX crystallised a number of operating and finance cost saving synergies including a post period end 25bp reduction in the average cost of debt following the successful issue of a new £150m/2.875% unsecured convertible bond and repayment of the £75m/5.375% retail bond in July 2019.

PHP : Primary Health Properties delivers 22.7% total shareholder return

[QD comment: We attended PHP’s interim results presentation, the first  since its merger with MedicX, and it made for pretty good viewing. The combined company is reaping the rewards of cost synergies and has quickly realised cost savings of £4m, broken down into £3m in a revised fee structure and £1m in bringing the two head offices under one roof. Its EPRA cost ratio as a result has reduced to 12.2% – the lowest of all REITs. In a static yield environment, PHP has grown earnings through rental growth, increasing its rental income by £0.9m in the period through rent reviews. It is set to carry on this hands-on asset management approach going forward and is currently on-site with 22 asset management projects where it hopes to increase rent as well as lease lengths. The characteristics of the portfolio – 90% government-backed rent and a 99.5% occupancy rate – coupled with demographic changes such as an ageing population, means the company is largely sheltered from any headwinds that may come from Brexit.]

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