Primary Health Properties — AGM statement shows progress as expected

Primary Health Properties (LSE: PHP)

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Research: Real Estate

Primary Health Properties — AGM statement shows progress as expected

Primary Health Properties (PHP) has issued a trading update covering the three months to 31 March 2021 (Q121). The existing portfolio continues to perform well, as expected, and while acquisition activity has been light amid a highly competitive investment market, progress continues with rent reviews and asset management projects, forward-funded developments and the recently acquired direct development pipeline.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Primary Health Properties

AGM statement shows progress as expected

Q121 trading update

Real estate

13 May 2021

Price

149p

Market cap

£2,107m

Net debt (£m) at 31 March 2021

1,081

Net LTV as at 31 March 2021 (pro-forma basis)

41.9%

Shares in issue

1,414.4m

Free float

97%

Code

PHP

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.8

1.9

(5.0)

Rel (local)

(0.5)

(4.0)

(21.5)

52-week high/low

163.2p

138.8p

Business description

Primary Health Properties is a long-term investor in primary healthcare property in the UK and the Republic of Ireland. Assets are mainly long-let to GPs and the NHS or HSE, organisations backed by the UK and Irish governments, respectively. The tenant profile and long average lease duration provide an exceptionally secure rental income stream.

Next events

H121 period end

30 June 2021

Analyst

Martyn King

+44 (0)20 3077 5745

Primary Health Properties is a research client of Edison Investment Research Limited

Primary Health Properties (PHP) has issued a trading update covering the three months to 31 March 2021 (Q121). The existing portfolio continues to perform well, as expected, and while acquisition activity has been light amid a highly competitive investment market, progress continues with rent reviews and asset management projects, forward-funded developments and the recently acquired direct development pipeline.

Year end

Net rental income (£m)

Adj earnings* (£m)

Adj EPS** (p)

Adj EPRA*** NTA/share (p)

DPS
(p)

P/NTA
(x)

Yield
(%)

12/19

115.7

59.7

5.5

107.9

5.60

1.38

3.8

12/20

131.2

73.1

5.8

112.9

5.90

1.32

4.0

12/21e

137.4

82.8

6.3

113.8

6.20

1.31

4.2

12/22e

142.4

86.6

6.5

117.3

6.40

1.27

4.3

Note: *Excludes valuation movements, amortisation of fair value adjustment to acquired debt and other exceptional items. **Non-diluted. ***Net tangible assets; adjusts for fair value of derivative interest rate contracts and convertible bond, deferred tax and fair value adjustment on acquired debt.

Quarterly focus on asset management

Robust (more than 99%) rent collection continues, supporting quarterly DPS payments of 1.55p per share with an annual target of a fully covered 6.2p (+5.1% versus FY20). PHP has exercised discipline over acquisitions in a very competitive market, acquiring just one asset in the quarter, in Ireland, for €3.8m, although we expect this to pick up. Meanwhile, completed rent reviews at an average 1.7% pa increase added £0.5m pa to rent roll, while 13 live asset management projects (seven completed in Q121) will add £0.3m pa to rent roll and extending lease terms. The six forward funding projects progressed, to schedule and on budget, with one completed in Q1 and three due to complete in Q2. More of the £80m of development projects acquired as part of the management internalisation have gone live (now four with a value of £21m) and the medium-term pipeline has increased to £127m.

Well placed to support health service investment

The long-term need for primary healthcare facilities is driven by demographic trends and is relatively unaffected by economic conditions. In both the UK and Ireland, populations are growing and ageing, with more complex healthcare needs. In the nearer term there is no sign that the pandemic is reducing the need for primary care facilities, despite the use of online and telephone appointments, particularly for front-line triage. Indeed, the need for modern, integrated, local primary healthcare facilities is becoming yet more pressing in order to relieve the pressure being placed on hospitals. PHP is well-placed to help meet this need for investment and grow further; it has c £335m of available funding headroom and a strong off-market pipeline of potential acquisitions amounting to c £230m.

Valuation: Secure and growing income

Income visibility is strong, with long leases and substantially upward-only rents, 90% backed directly or indirectly by government bodies, with little exposure to the economic cycle or fluctuations in occupancy. We expect an FY21e DPS of 6.2p, fully covered by earnings, representing a yield of 4.2%.

Exhibit 1: Financial summary

Year end 31 December (£m)

2018

2019

2020

2021e

2022e

PROFIT & LOSS

Net rental income

76.4

115.7

131.2

137.4

142.4

Administrative expenses

(9.9)

(12.3)

(13.2)

(9.6)

(9.7)

EBITDA

66.5

103.4

118.0

127.8

132.7

Net result on property portfolio

36.1

49.8

51.4

42.2

45.0

Exceptional items related to corporate acquisition

0.0

(148.6)

0.0

(35.7)

0.0

Operating profit before financing costs

102.6

4.6

169.4

134.4

177.7

Finance income

0.1

1.4

1.2

1.0

1.6

Finance expense

(29.8)

(42.6)

(43.0)

(42.8)

(44.4)

Net finance expense

(29.7)

(41.2)

(41.8)

(41.8)

(42.9)

Net other income/expense

1.4

(33.6)

(15.2)

0.0

0.0

Profit Before Tax

74.3

(70.2)

112.4

92.5

134.9

Tax

0.0

(1.1)

(0.4)

0.0

0.0

Profit After Tax (FRS 3)

74.3

(71.3)

112.0

92.5

134.9

Adjusted for the following:

Net gain/(loss) on revaluation

(36.0)

(48.4)

(51.3)

(42.2)

(45.0)

Profit on disposal

(0.1)

(1.4)

(0.1)

0.0

0.0

Fair value gain/(loss) on derivatives & convertible bond

(1.4)

33.6

15.2

0.0

0.0

Exceptional items related to corporate acquisition

0.0

138.4

0.0

35.7

0.0

Deferred tax

0.0

1.1

0.4

0.0

0.0

EPRA earnings

36.8

52.0

76.2

86.0

89.8

Exceptional item

10.2

0.0

0.0

0.0

Amortisation of fair value adjustment to acquired debt

(2.5)

(3.1)

(3.2)

(3.2)

Adjusted EPRA earnings

36.8

59.7

73.1

82.8

86.6

Period end number of shares (m)

769.1

1,216.3

1,315.6

1,327.0

1,327.0

Average Number of Shares Outstanding (m)

708.6

1,092.0

1,266.4

1,324.2

1,327.0

Fully diluted average number of shares outstanding (m)

732.7

1,138.5

1,368.4

1,426.1

1,429.0

Basic IFRS EPS (p)

10.5

(6.53)

8.8

7.0

10.2

Basic adjusted EPRA EPS (p)

5.2

5.5

5.8

6.3

6.5

Diluted adjusted EPRA EPS (p)

5.2

5.4

5.7

6.1

6.4

Dividend per share (p)

5.400

5.600

5.900

6.200

6.400

Dividend cover (Adj. EPRA earnings/dividends paid)

101%

101%

100%

101%

102%

EPRA cost ratio

14.3%

12.0%

11.9%

8.7%

8.5%

BALANCE SHEET

Non-current assets

1,503.5

2,413.6

2,576.1

2,727.1

2,893.7

Investment properties

1,502.9

2,413.1

2,576.1

2,727.1

2,893.7

Other non-current assets

0.6

0.5

0.0

0.0

0.0

Current Assets

10.5

159.8

121.0

32.5

25.5

Cash & equivalents

5.9

143.1

103.6

15.1

8.1

Other current assets

4.6

16.7

17.4

17.4

17.4

Current Liabilities

(134.5)

(66.0)

(68.1)

(61.7)

(61.7)

Current borrowing

(102.4)

(6.1)

(6.4)

0.0

0.0

Other current liabilities

(32.1)

(59.9)

(61.7)

(61.7)

(61.7)

Non-current liabilities

(591.5)

(1,278.9)

(1,214.6)

(1,255.6)

(1,365.2)

Non-current borrowings

(573.7)

(1,257.8)

(1,206.5)

(1,247.5)

(1,357.1)

Other non-current liabilities

(17.8)

(21.1)

(8.1)

(8.1)

(8.1)

Net Assets

788.0

1,228.5

1,414.4

1,442.3

1,492.3

Derivative interest rate swaps

17.2

13.0

0.1

0.1

0.1

Change in fair value of convertible bond

3.4

22.7

25.0

25.0

25.0

Other EPRA adjustments

0.0

48.6

45.8

42.6

39.4

Adjusted EPRA net tangible assets (NTA)

808.6

1,312.8

1,485.3

1,510.0

1,556.8

IFRS NAV per share (p)

102.5

101.0

107.5

108.7

112.5

Adjusted EPRA NTA per share (p)

105.1

107.9

112.9

113.8

117.3

CASH FLOW

Operating Cash Flow

68.5

94.0

118.9

126.2

131.1

Net Interest & other financing charges

(35.1)

(52.9)

(65.9)

(42.2)

(43.3)

Tax

0.0

0.0

0.0

0.0

0.0

Acquisitions/disposals

(101.9)

(47.4)

(102.8)

(107.2)

(119.9)

Net proceeds from issue of shares

111.0

97.6

136.8

0.0

0.0

Debt drawn/(repaid)

(5.6)

110.5

(58.4)

35.0

110.0

Equity dividends paid (net of scrip)

(34.7)

(54.4)

(69.1)

(82.1)

(84.9)

Other cash movements and FX

0.6

(11.9)

1.6

(18.2)

0.0

Net change in cash

2.1

137.2

(39.5)

(88.5)

(7.0)

Opening cash & equivalents

3.8

5.9

143.1

103.6

15.1

Closing net cash & equivalents

5.9

143.1

103.6

15.1

8.1

Debt as per balance sheet

(676.1)

(1,263.9)

(1,212.9)

(1,247.5)

(1,357.1)

Convertible bond fair value adjustment

3.4

22.7

25.0

25.0

25.0

Unamortised borrowing costs

(6.4)

(14.6)

(13.8)

(11.0)

(8.2)

Acquired debt fair value a

0.0

45.4

42.4

39.2

36.0

Net debt

(673.2)

(1,067.3)

(1,055.7)

(1,179.2)

(1,296.2)

Net LTV

44.8%

44.2%

41.0%

43.2%

44.8%

Source: PHP historical data, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Primary Health Properties and prepared and issued by Edison, in consideration of a fee payable by Primary Health Properties. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Primary Health Properties and prepared and issued by Edison, in consideration of a fee payable by Primary Health Properties. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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