Primary Health Properties (PHP) continues its impressive run of dividend growth and values have hit an “inflexion point”. In annual results for 2024 the company said that adjusted earnings were up 2.9% to 7.0p per share, fully covering its dividend in the year of 6.9p.
It intends to up its 2025 dividend to 7.1p – marking the 29th consecutive year of dividend growth for the company.
Adjusted net tangible assets (NTA) per share decreased by 2.8% to 105.0p (Dec 2023: 108.0p), following a 1.4% decline in the value of its portfolio over the year to £2.75bn.
Valuations stabilised in the second half of the year with a small uplift, but over the year yields moved out 17 basis points to 5.22%.
Chairman Harry Hyman said: “We believe further significant reductions in primary care values are likely to be limited and we have now reached an inflexion point with a stronger rental growth outlook offsetting the impact of any further yield expansion.”
The group has an LTV of 48.1% (Dec 2023: 47.0%) within its targeted range of between 40% to 50%, with an average cost of debt of 3.4% (2023: 3.3%) following completion of new arrangements. The refinancing of its £420m revolving credit facilities took care of refinancing risk of debt maturities falling due in 2025 and 2026.
The refinancing took the group’s net debt to 100% fixed or hedged. There remains significant liquidity headroom with cash and collateralised undrawn loan facilities totaling £270.9m (after capital commitments), providing the business with the capacity to repay a £150m convertible bond due in July 2025.
Acquisition
The company also announced today the acquisition of a health & wellbeing clinic with urgent care and diagnostic facilities in Cork, Ireland, for €22m, at an attractive and accretive earnings yield of 7.1%.
The property is fully occupied and leased to Laya Healthcare, part of AXA. The fully repairing and insuring lease has an unexpired term of just over 12 years and benefits from fixed rental uplifts in 2027 and 2032.
The company’s portfolio in Ireland represents 9% of the total portfolio, with the country being a preferred area of future growth for PHP.
Operational highlights
- Contracted annualised rent roll increased by 2.1% to £153.9m (Dec 2023: £150.8m)
- EPRA cost ratio of 10.1% (2023: 10.1%), representing one of the lowest in the UK REIT sector
- Occupancy at 99.1% (Dec 2023: 99.3%)
- 89% of income funded by government bodies, and
- WAULT of 9.4 years (Dec 2023: 10.2 years) increasing to 10.2 years including agreed transactions
Mark Davies, chief executive, commented:
“This is my first year-end since taking over as CEO last year and its pleasing to report a solid set of results that are slightly ahead of market consensus. I am very pleased to report such a positive financial performance, particularly in the second half of the year, with good momentum in rental and earnings growth. Encouragingly, we have also seen positive valuation growth in the second half of the year, the first time since 2021, which has led to stability in our Adjusted NTA per share. The dividend per share has continued to grow by 3% and remains fully covered.
“Now that valuations have stabilised and look set to improve as rental growth accelerates we are seeing more opportunities to acquire earnings accretive acquisitions and this was demonstrated by our acquisition in Ireland of the Laya Healthcare urgent care and diagnostic facility at a yield of 7.1%.
“I have been impressed by the hard work and dedication of my colleagues along with the depth of knowledge and our relationships in both the UK and Irish healthcare markets. This gives us great confidence about the future of our business and that we can continue to deliver strong financial results and sector leading performance, especially with the demographic tailwinds and political support for primary care in both countries.
“We are approaching PHP’s 30-year anniversary with a dedicated determination to continue growing our dividend on a fully covered basis.”
