Primary Health Properties (PHP) is to release £500m of cash for debt repayment after forging a joint venture (JV) with Singaporean sovereign wealth fund GIC.
The 50-50 strategic partnership will invest in private hospital infrastructure with PHP serving as property and asset manager.
PHP will seed the JV with its portfolio of 27 private hospitals which it is transferring at a price 5% below their book value last December.
The seed portfolio has a gross asset value of £700m with PHP receiving immediate cash proceeds of £500m net of retained equity interest and deferred payment of £47.5m.
It will use the money to reduce debts taken on for last year’s acquisition of rival Assura, repaying and cancelling a bridging loan and £266m term loan.
PHP, which has a market value of £2.3bn, will see net debt fall to around £2.9bn on which it pays a weighted average interest rate of 3.6%. Net debt to earnings will fall below 10 times and loan to value to under 55%, while the proportion of government-backed income will return above 80%.
Chief executive Mark Davies said the JV was a “milestone”. “In addition to generating proceeds to reduce our borrowing, the transaction enhances returns on invested equity for our shareholders and brings a highly aligned capital partner to support investment in essential UK hospital infrastructure.”
PHP said the seed portfolio had on average 22 years of leases left to run with income supported by inflation-linked rents and strong operating performance. Rothschild and Co acted as PHP’s sole financial adviser and as debt adviser to the JV.
PHP confirmed reports in June it was in advanced talks with an investor, having previously stated at its annual results in March its interest in improving the long-term value of its private hospital portfolio.
Formerly known as Government of Singapore Investment Corporation, GIC is one of three sovereign wealth funds used by Singapore. While GIC focuses on long-term multi-asset overseas investments to preserve and grow capital, Temasek Holdings is an active investor holding concentrated stakes in Singaporean and Asian enterprises. The Monetary Authority of Singapore (MAS) manages the foreign reserves.
PHP shares softened 0.7p to 90.3p, taking their decline to 8% this year.
Our view
QuotedData senior analyst Matthew Read said: “The transaction helps PHP to reduce its leverage, which has been a concern following its acquisition of Assura, while allowing PHP to retain meaningful exposure to the long-term growth prospects of private healthcare. GIC is a well-resourced and experienced institutional investor, which gives credence to the quality of the hospital portfolio and creates a platform for further expansion without PHP having to fund all of that growth itself. The 5% discount to book value is a bit of a disappointment but is probably a price worth paying for the improvement in the balance sheet and the benefits of the partnership. PHP also retains a 50% stake in the portfolio, along with a new management fee income stream and the potential to earn performance fees. Importantly, the transaction should see government-backed income return to more than 80% of the portfolio, reinforcing PHP’s defensive characteristics.”
