Asset and rental growth drive strong performance

Primary Health Properties 2 August 2018 Update
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Primary Health Properties

Asset and rental growth drive strong performance

Interim results

Real estate

2 August 2018

Price

113.8p

Market cap

£835m

Net debt (£m) as at 30 June 2018

631.4

Net LTV as at 30 June 2018

44.6%

Shares in issue

733.4m

Free float

98%

Code

PHP

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.1)

0.7

(1.4)

Rel (local)

(3.3)

(1.1)

(4.6)

52-week high/low

123.1p

108.8p

Business description

Primary Health Properties is a long-term investor in primary healthcare property in the UK and, more recently, 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

Q318 DPS paid

24 August 2018

Analysts

Martyn King

+44 (0)20 3077 5745

Andrew Mitchell

+44 (0)20 3681 2500

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

Primary Health Properties (PHP) had a strong first half year with EPRA earnings growth benefiting from acquisitions made in 2017 and H118, supported by continued and increasing organic rental growth. Our forecasts for further growth are underpinned by a full period contribution from recent acquisitions, continued deployment of the proceeds of April’s equity issue into a strong pipeline of opportunities, an increasingly positive outlook for rental growth, and further opportunities to lower average borrowing costs.

Year end

Net rental income (£m)

EPRA
earnings* (£m)

EPS*
(p)

DPS
(p)

EPRA** NAV/share (p)

P/NAV
(x)

Yield
(%)

12/16

66.6

26.7

4.7

5.125

91.1

1.25

4.5

12/17

71.3

31.0

5.1

5.250

100.7

1.13

4.6

12/18e

75.9

36.9

5.2

5.400

105.4

1.08

4.7

12/19e

81.4

43.3

5.5

5.500

109.2

1.04

4.8

Note: *Diluted EPRA basis, excludes valuation movements and other exceptional items. **EPRA basis adjusts for fair value of derivative interest rate contracts and convertible bond.

6.2% NAV total return in H118; estimates lifted

H118 EPRA earnings grew 11% compared with H117. Net rental income grew 7.5%, benefiting from acquisitions, asset management initiatives and an increasing contribution from completed rent reviews. Administrative costs also increased but net finance costs were flat. The post-period end cancellation of relatively expensive swaps reduces the average cost of debt to 3.86% (end-FY17: 4.09%), and other refinancing opportunities point to a further reduction. Net revaluation gains added £21.2m, with EPRA NAV increasing to 104.2p (FY17: 100.7p). Including dividends paid, NAV total return was 6.2%. Around £53m of the c £111m net proceeds of the April equity raise has been committed year to date, and a strong pipeline of potential acquisitions remains, including £37m in solicitors’ hands and a further more than £175m at various stages of negotiation. Our forecasts for EPRA EPS, NAV and dividend cover all increase slightly.

Strong growth prospects in the UK and RoI

In both the UK and RoI, there is broad political will to reform healthcare provision, placing more emphasis on primary care to meet the increasing healthcare needs of growing and ageing populations. The requirement for larger, more flexible, higher-quality premises will provide significant investment opportunities for PHP and others in coming years, and there are signs in the UK that NHS new build commissioning is finally beginning to accelerate as new structures and strategies bed down, providing further support for an acceleration in market rents.

Valuation: Secure, dividend growth underpinned

Our revised estimates show DPS, in the 22nd year of unbroken growth, to be fully covered for a yield of 4.7%, while asset management and rental growth provide capital appreciation potential even if yield tightening slows. Revenues are supported by secure, long-term income, substantially subject to upward-only review, with little exposure to the economic cycle, or fluctuations in occupancy.

Strong first half results with 6.2% total return

The contribution from acquisitions made in 2017 and during H118, supported by continued and increasing organic rental growth, was the main factor driving a strong performance in the half year to 30 June 2018. Dividends per share are in the 22nd year of unbroken growth and grew 3.1% year-on-year. Reflecting the positive impact on property valuations of further tightening in market valuation yields, positive rent reviews and asset management initiatives, EPRA NAV per share grew 3.5% from the end of FY17. EPRA NAV total return during the six-month period was 6.2%. Good progress has been made in deploying the £111.2m (net of expenses) proceeds of the April equity issue, with £48.6m already invested in acquisitions, including post H118 transactions, and a further £4.8m invested in asset management projects. Four further properties are in solicitors’ hands, subject to due diligence, for an aggregate £37m, and a wider pipeline of acquisition opportunities, at earlier stages of negotiation, amounts to more than £175m.

Exhibit 1: Summary of H118 results

£m unless otherwise stated

H118

H117

H118/H117

2017

Net rental income

37.4

34.8

7.5%

71.3

Administrative expenses

(4.2)

(3.9)

7.7%

(8.2)

Performance incentive fee

(0.6)

0.0

(0.5)

Operating profit before revaluation gain & financing

32.6

30.9

5.5%

62.6

Net financing costs

(15.5)

(15.5)

0.0%

(31.6)

EPRA basic earnings

17.1

15.4

11.0%

31.0

Net result from property portfolio

21.2

29.9

64.5

Fair value loss on derivatives & convertible bond

0.3

(1.0)

(3.6)

Gain on disposal of land

0.1

0.0

IFRS PBT

38.7

44.3

-12.6%

91.9

EPRA EPS, diluted for convertible bond (p)

2.5

2.5

-1.3%

5.2

EPRA NAV (p)

104.2

96.1

8.4%

100.7

DPS (p)

2.700

2.620

3.1%

5.250

Investment properties

1,415

1,266

1,362

Net LTV

44.6%

53.0%

52.9%

Source: PHP

The key highlights of the interim results were:

The portfolio value increased to £1.415bn (FY17: £1.362bn), with a rent roll of £74.4m (FY17: £72.3m). The increase included a £21.2m revaluation surplus, driven by a further tightening in the valuation yields reflected in the external valuation, rent reviews, and asset management. The net initial yield on UK assets reduced by 6bp to 4.85% during the period, and accounted for c 50% of the valuation surplus.

Net rental income in the period increased by 7.5% or £2.6m to £37.4m. Acquisitions made since the beginning of FY17 contributed £1.7m of increase, developments completed over the same period £0.4m, and completed rent reviews £0.5m. Completed rent reviews showed a blended increase of 1.7% pa (FY17: 1.1%), driven by RPI-linked and fixed reviews. Open-market reviews achieved 0.5% pa, but there are positive indicators for acceleration.

Administrative costs, excluding the accrual of investment adviser performance incentive fees (PIF), increased 7.7%, reflecting the increased size of the portfolio and additional regulatory costs. The EPRA cost ratio, excluding PIF, increased slightly to 12.6% (FY17: 12.5%, H117: 11.9%), but remains low in a sector context. A PIF of £0.6m was accrued, reflecting the strong EPRA NAV total return performance that has been generated in both 2017 and year to date.

Net finance costs were unchanged with a lower cost of secured debt, ongoing conversion of some of the convertible bonds, and the near-term repayment of revolving debt from some of the proceeds of the April equity issue all offsetting the impact of debt-funded acquisitions. Post period end, 4.52% fixed interest rate swaps with a nominal value of £70m, effective until 2026, have been cancelled. This will reduce interest expense by an annualised c £2.5m over the next two years, for a one-off payment of c £5.0m (0.7p per share), and reduces the average cost of debt to 3.86% (end-FY17: 4.09%).

Basic EPRA earnings (ie before adjustment for the potential impact of bond conversion) increased 11% to £17.1m while basic EPRA EPS declined by 3.8% as a result of the temporary dilutive impact of the equity raising. On a diluted basis (ie adjusting for the potential impact of bond conversion) the reduction was lower (1.3%) with diluted EPRA EPS, rounded to one decimal place, unchanged at 2.5p.

Diluted EPRA NAV per share increased to 104.2p compared with 100.7p at end-FY17, benefiting from the valuation surplus.

Reflecting the repayment of revolving debt as well as ongoing bond conversion, outstanding debt reduced to £648.8m from £730.4m at end-FY17, and allowing for cash balances, net loan to value (LTV) reduced to 44.6%.

Asset and rental growth & refinancing opportunities

Looking forward, PHP has the financial flexibility to benefit from further selective asset growth, while the indicators for an acceleration in open-market rent reviews (73% of the total) are positive. Liability management also provides further opportunities to lower the average cost of debt further. The main drivers of growth should thus be:

a full period contribution from acquisitions already made;

continuing acquisitions from a strong investment pipeline;

accelerating rental growth; and

continuing refinancing benefits.

Year to date investment activity

With strong investor competition for assets, a disciplined approach to selecting investments that have the potential to create long-term returns and not just immediate income is required. It is not easy for investors to assess the quality of the assets in the portfolio, but we would suggest that larger, more modern assets, and assets with the flexibility to adapt and change over time, are more likely to provide superior long-term rental growth. During H118, PHP acquired two large, modern assets for an aggregate £23.8m, contributing to growth in the average portfolio lot size to £4.6m from £4.5m at end-FY17. One of the two assets was the Mallow Primary Healthcare Centre in County Cork, Ireland, one of the country’s largest healthcare facilities. In May 2018, PHP also exchanged contracts on the £5.1m (€5.8m) Mountmellick Primary Healthcare Centre, County Laois, which is due to complete imminently and will be accounted for in H218. Also, post the period end, a forward-funded development at Bray, County Wicklow, Ireland was acquired with a net development cost of £19.7m (€22.3m).

Exhibit 2: Year to date acquisition activity

Asset

Type

Area (sqm)

Acquisition price

WAULT

GP patients

Other services

Mallow, County Cork, Ireland

Investment

6,500

£17.7m (€20.0m)

21.9

30,000

HSE, pharmacy, dentist, optician, physiotherapist

Moredon, Swindon

Investment

1,446

£6.1m

27.5

11,500

Pharmacy

Total H118

£23.8m

Bray, County Wicklow, Ireland

Development

4,805

£19.7m (€22.3m)

25

Mountmellick Primary Healthcare Centre, County Laois, Ireland*

Investment

1,850

£5.1m (€5.8m)

25

HSE, pharmacy

Total year to date

£48.6m

Source: PHP. Note: *Contracts exchanged.

In addition to acquisitions, asset management initiatives that enhance and extend the existing assets are a useful way to continue to meet the evolving needs of tenants, increase rents, extend/re-gear leases and increase the property valuation. In H118, nine projects were completed, three are currently on site, and a further seven are approved and are due to commence shortly. The projects require investment of £4.8m, will generate additional rental income of £0.2m, and, crucially, will extend the weighted average unexpired lease term (WAULT) on those assets back to an average of 20 years.

Strong investment pipeline

The pipeline of further acquisition opportunities comprises properties with a value of £37m that are in solicitors’ hands, subject to due diligence and more than £175m at various stages of negotiation.

Of the £37m “in legals”, £35m (€39m) is in the Republic of Ireland (RoI). A further £20m (€24m) of properties in the RoI is under negotiation. The increasing pace of PHP’s investment in the RoI reflects the strong relationships it has built with owners and developers, providing it with access to a broad pool of potential transactions.

In the UK, there is £2m in legals but a very significant £155m broader pipeline at an earlier stage of negotiation, supported by PHP’s pipeline agreements with developers and well established links to GP owner-occupiers. The pipeline of asset management opportunities also remains strong with 17 potential projects.

Rental growth is accelerating

The increase in the blended uplift achieved on completed rent reviews, from 1.1% pa in FY17 to 1.7% pa in H118, continues to be driven by RPI-linked uplifts (20% of the total and an average uplift of 2.7% pa) and fixed rent uplifts (7% of the total and an average 2.8% pa uplift). The average uplift on completed open-market reviews was 0.5% pa or 1.6 %pa excluding reviews that concluded with no increase. Encouragingly, this marks an acceleration from recent growth (FY17: 0.3% pa average uplift or 1.3% excluding zero increases) although the absolute level remains modest.

Although open-market reviews aim to set the rent at current market level, defined as what would be paid by a free and willing tenant to a landlord in that area, as a result of the NHS rent reimbursement mechanism, the decision on the appropriate level is that of the district surveyor. Across the market there is evidence that open-market rent reviews have failed to capture the strong rise in land and build costs sufficiently in recent years, in part the result of financial pressures and reorganisation within the NHS that has slowed decision-making on the commissioning of the development of new primary healthcare facilities. This dearth of new developments has restricted the opportunities for increased land and building costs to be adequately reflected in rents on new developments, limiting the evidence to support rent reviews for existing assets, and threatening to restrict the flow of much-needed private investment to support modernisation of the primary healthcare estate. There is a growing optimism that this is beginning to change, with developers reporting that they expect increased levels of activity. MedicX Fund recently reported on the outcome of an independent expert determination of an outstanding disputed rent review for one of its assets, in Clapham, London. The determination was that the contractual rent should increase by 35% from the March 2015 date of the review, equating to a compound 10.5% pa increase over the three-year period. The read-across to other assets in other locations, and to the wider market, is not clear, but the determination does provide tangible evidence of the extent to which rents may have lagged, particularly in high inflation areas such as London.

Refinancing opportunities to further reduce debt costs

Given the continued tightening in market valuation yields, reflecting the higher prices that an increasing range of investors are prepared to pay for the secure, long-term income provided by primary healthcare property, active liability management as well as selectivity in acquisitions is required to maintain long-term value creation. As noted above, post the swap cancellation, the weighted average cost of debt falls to 3.86%, having fallen by 56bp to 4.09% in FY17.

There are no debt maturities during 2018, but in 2019 the £75m retail bond issue and the outstanding convertible bonds will mature. The unsecured retail bonds pay a coupon of 5.375%, which appears high in current market conditions, providing an opportunity for refinancing at lower cost. The 4.25% convertible bonds may be converted at 97.5p per share, below the EPRA NAV per share and well below the current share price, at any time up to May 2019. Convertible bonds with a nominal value of £60.5m were outstanding at end-H118, since reduced to £57.8m by further conversion, and we assume full conversion in our forecasts.

Market developments

The demographic backdrop in both the UK and RoI is similar and, in combination with strategies for meeting growing healthcare needs, indicates a growing demand for modern, purpose-built primary healthcare facilities. In both countries the populations are growing, are ageing, and present increasingly complicated healthcare needs with a growing incidence of chronic illness. In both countries, there is wide political support for healthcare planning that will see primary healthcare continue to play a critical role in meeting these growing demands while supporting increasing integration of a wider range of healthcare services in local communities, to both improve levels of care and increase efficiencies. To make this happen, the under-invested healthcare estate needs significant resources and requires modern, purpose-built, flexible premises of the type in which PHP invests. The direction of travel has been clear for some time now, but progress in getting needed developments underway has been painfully slow in the UK. Signs of acceleration are apparent, however, and PHP notes that every one of the developers with which it works expects to have more developments on site this year than next.

In January 2018, the government published a response to the Naylor Review that acknowledges the importance of land and property to the transformation of NHS health services and how the NHS will be able to supplement public capital with finance from the private sector, which has provided a source of valuable investment and innovation in primary and community care in the past.

PHP, like all of the main investors, continues to work closely with GPs, stakeholders and key influencers in the NHS, HSE and governments in both the UK and Ireland, to demonstrate the benefits of the third-party development model and its differences to private finance initiatives.

Swap cancellation lifts earnings forecasts

The main change to our recurring earnings estimates is to incorporate the c £2.5m pa interest saving that will be generated by the post-H118 interest rate swap cancellation, which is partly offset by the assumption of higher administration costs to reflect the increased size of the company. The net effect is to lift FY19e EPRA EPS by 3.6% and improve dividend cover to 105%. The further market-driven yield tightening seen in H118 generated higher net revaluation gains than we had allowed for (we include only the increases that we expect to be generated by rent growth, with no assumption of yield changes). Along with higher retained earnings, this offsets the £5.0m one-off impact on EPRA NAV from the swap cancellation (crystallising a cash payment of the outstanding mark-to-market liability) and lifts our forecasts for EPRA NAV for both FY18 and FY19.

Exhibit 3: Estimate revisions

Net rental income (£m)

EPRA earnings (£m)

Diluted EPRA EPS (p)

DPS (p)

Dividend cover

EPRA NAVPS (p)

Old

New

% diff

Old

New

% diff

Old

New

% diff

Old

New

% diff

Old

New

% diff

Old

New

% diff

12/18e

75.9

75.9

0.0%

36.4

36.9

1.3%

5.1

5.2

1.5%

5.400

5.400

0.0%

99%

101%

2.6%

105.0

105.4

0.4%

12/19e

81.4

81.4

0.0%

42.2

43.3

2.6%

5.4

5.5

3.6%

5.500

5.500

0.0%

101%

105%

4.1%

108.4

109.2

0.8%

Source: Edison Investment Research

They key forecasting assumptions that we make relate to assets growth and funding:

New investment commitments of c £70m in H218, making an FY18 total of c £94m, and c £100m in FY19, a mix of fully let completed assets and forward funding commitments. Some of the acquisitions that we had allowed for in H118 have been pushed into H218, with a slight reduction in the annual total (from £100m).

We assume a blended cash yield on investment of 5.2-5.4%, with c 50% of the total commitment through to end FY19 in the Republic of Ireland, a mix of completed assets and forward funding commitments, at cash yields c 75bp above the UK equivalents.

Given that cash is deployed to forward funding agreements over time, the cash investment reflected in our estimates to end-FY19 is lower than the committed investment, at £151m. This is assumed to be funded by £140m of net new debt (at a marginal cost of c 3.0%) and cash resources. We allow for repayment of the outstanding 5.375% retail bonds in 2019, refinanced by new secured bank debt.

We also allow for the full conversion of the outstanding convertible bonds by end of H119, given the conversion price of 97.5p. This lifts our forecast share count by almost 60m shares by end FY19, and we also assume scrip dividends at 5% of dividends paid. Otherwise, we assume no equity issuance, such that the assumed debt funding lifts end-FY19 LTV to 45.0%.

In addition, our forecasts suggest that PIF payments to the investment adviser will continue through FY19 and we have allowed for total PIF expenses of £1.2m in both FY18 and FY19.

Valuation

In an environment of continuing low interest rates and in a sector where income returns represent a substantial share of long-term total return, the security and length of PHP’s lease portfolio are attractive to investors. Our forecast FY18 dividend of 5.40p represents a 4.7% dividend yield on the current share price, with growth potential, and is covered by forecast cash earnings off a secure, long-term income stream. With c 90% of the rent roll funded directly or indirectly by the NHS in the UK or HSE in Ireland, it is tempting to draw comparison with the generic yield on 10-year gilts at little more than 1.3%. This secure and growing dividend return on PHP shares provides support for a continuing valuation premium to EPRA NAV.

In Exhibit 4 we show the key valuation and performance metrics for PHP and a group of peers with similarly long lease exposure to primary healthcare property and, in the case of Target, care homes. As a whole, the group has de-rated slightly over the past 12 months, with historical P/NAVs reducing slightly and prospective dividend yields increasing slightly. One possible trigger for this is the increase in long-term interest rate expectations in late 2017/early 2018 (the generic 10-year UK gilt yield was close to 1.7% in February 2018) although the positive share price reaction to yields subsequently declining has been relatively modest. Other factors may include equity issuance (including significant cash calls from Assura, PHP and Target) and the continuing increase in the valuation of (and cost to acquire) assets. We note that PHP has outperformed the peer group median over the past 12 months, yet has a valuation that is similar.

Exhibit 4: Peer comparison

Price
(p)

Market cap (£m)

P/NAV
(x)

Yield
(%)

Share price performance

1 month

3 months

12 months

From 12M high

Assura

57

1354

1.08

4.7

-3%

-7%

-12%

-17%

PHP

113

829

1.09

4.7

-3%

0%

-2%

-8%

MedicX Fund

80

348

1.00

4.9

-1%

0%

-11%

-13%

Target Healthcare

111

377

1.05

5.8

1%

1%

-6%

-9%

Median

1.07

4.8

-2%

0%

-8%

-11%

UK property index

1,824

3.9

-1%

-2%

3%

-3%

FTSE All-Share Index

4,253

4.0

1%

2%

4%

-3%

Source: Company data, Edison Investment Research, Bloomberg data as at 31 July 2018

Between the end of 2012 and the end of 2017, PHP generated an EPRA NAV total return of 64.8% or a compound 13.3% pa. Dividends paid have accounted for 50% of the return, with capital values benefiting from yield tightening and modest rental growth.

Exhibit 5: Five-year NAV total return of 13.3% pa compound

(p)

2013

2014

2015

2016

2017

2013-17

Opening EPRA NAV

76.3

74.9

79.7

87.7

91.1

76.3

Closing EPRA NAV

74.9

79.7

87.7

91.1

100.7

100.7

Dividends paid in period

4.75

4.88

5.00

5.13

5.25

25.00

NAV total return (%)

4.4

12.9

16.4

9.7

16.4

64.8

Source: Edison Investment Research

At some point we are likely to enter a market environment in which valuation yields stop tightening, and may even increase again, although this is only likely in the context of a broad property market yield shift. This would have no impact on the rental income from existing assets and would have no material impact on existing debt costs. It would increase the cash yield available on acquisitions, but whether this would be a net benefit would depend on marginal funding costs at the time. However, with the prospects for rental growth improving, it seems likely that in such an environment, the balance of total return contribution would shift further in favour of income returns and away from capital returns. In our near-term estimates, by assuming capital value growth in line with 2.0% assumed rent growth over the next two years, our forecast EPRA NAV total returns are 10.1% and 8.8% respectively, with dividends contributing 5.1% and 5.0% respectively, or c 55%.

Exhibit 6: Financial summary

£m

2015

2016

2017

2018e

2019e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Net rental income

 

 

62.3

66.6

71.3

75.9

81.4

Administrative expenses

(6.8)

(7.3)

(8.7)

(9.8)

(10.2)

EBITDA

 

 

55.5

59.2

62.6

66.0

71.2

Other income and expenses

0.0

0.0

0.0

0.0

0.0

Non-recurring items

0.0

0.0

0.0

0.0

0.0

Net valuation gain on property portfolio

39.8

20.7

64.5

31.2

24.1

Operating profit before financing costs

 

 

95.2

79.9

127.1

97.2

95.3

Net Interest

(33.7)

(32.5)

(31.6)

(29.2)

(27.8)

Non-recurring finance income/expense

0.0

0.0

0.0

0.0

0.0

Early loan repayment fees

0.0

(0.0)

0.0

0.0

0.0

Fair value gain/(loss) on interest rate derivatives and convertible bond, and swap amortisation

(5.5)

(3.7)

(3.6)

0.3

0.0

Profit Before Tax

 

 

56.0

43.7

91.9

68.3

67.4

Tax

0.0

0.0

0.0

0.0

0.0

Profit After Tax (FRS 3)

 

 

56.0

43.7

91.9

68.3

67.4

Adjusted for the following:

Net gain/(loss) on revaluation

(39.8)

(20.7)

(64.5)

(31.2)

(24.1)

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

5.5

3.7

3.6

(0.3)

0.0

Profit on termination of finance lease

0.0

0.0

0.0

0.0

0.0

Early loan repayment fees

0.0

0.0

0.0

0.0

0.0

Issue costs of convertible bond

0.0

0.0

0.0

0.0

0.0

EPRA basic earnings

 

 

21.7

26.7

31.0

36.9

43.3

Period end number of shares (m)

446.3

598.2

619.4

762.9

794.4

Average Number of Shares Outstanding (m)

445.6

560.0

600.7

707.2

781.0

Fully diluted average number of shares outstanding (m)

530.2

644.6

665.5

759.1

793.4

EPS - fully diluted (p)

 

 

11.2

7.3

14.7

9.3

8.7

EPRA EPS (p)

 

 

4.9

4.8

5.2

5.2

5.5

Diluted EPRA EPS (p)

 

 

4.8

4.7

5.1

5.2

5.5

Dividend per share (p)

5.000

5.125

5.250

5.400

5.500

Dividend cover

97.6%

100.0%

98.7%

101.3%

105.3%

BALANCE SHEET

Non-current assets

 

 

1,100.6

1,220.2

1,361.9

1,473.5

1,600.9

Investment properties

1,100.6

1,220.2

1,361.9

1,472.8

1,600.2

Other non-current assets

0.0

0.0

0.0

0.7

0.7

Current Assets

 

 

7.0

8.4

10.5

6.5

10.8

Cash & equivalents

2.9

5.1

3.8

1.7

5.7

Other current assets

4.2

3.3

6.7

4.8

5.2

Current Liabilities

 

 

(34.9)

(32.3)

(33.9)

(67.1)

(33.9)

Current borrowing

(0.9)

(0.8)

(0.8)

(0.9)

(0.9)

Other current liabilities

(34.0)

(31.5)

(33.1)

(66.2)

(33.0)

Non-current liabilities

 

 

(727.4)

(697.1)

(751.7)

(636.8)

(739.0)

Non-current borrowings

(696.9)

(667.6)

(729.6)

(620.0)

(722.2)

Other non-current liabilities

(30.6)

(29.5)

(22.1)

(16.8)

(16.8)

Net Assets

 

 

345.4

499.2

586.8

776.0

838.9

Derivative interest rate swaps

35.3

33.3

24.5

16.1

16.1

Change in fair value of convertible bond

10.9

12.5

12.3

12.3

12.3

EPRA net assets

 

 

391.6

545.0

623.6

804.4

867.3

IFRS NAV per share (p)

77.4

83.5

94.7

101.7

105.6

EPRA NAV per share (p)

87.7

91.1

100.7

105.4

109.2

CASH FLOW

Operating Cash Flow

 

 

57.1

56.8

60.1

68.1

72.0

Net Interest & other financing charges

(35.6)

(45.9)

(37.8)

(32.8)

(25.6)

Tax

0.0

(0.1)

0.0

0.0

0.0

Acquisitions/disposals

(29.5)

(97.4)

(75.4)

(78.7)

(103.4)

Net proceeds from issue of shares

(0.1)

145.2

(0.1)

111.1

0.0

Debt drawn/(repaid)

20.0

(31.8)

82.3

(35.0)

100.0

Equity dividends paid (net of scrip)

(21.1)

(24.7)

(29.8)

(34.6)

(39.1)

Other

0.0

0.0

(0.6)

(0.1)

0.0

Net change in cash

(9.2)

2.2

(1.3)

(2.0)

3.9

Opening cash & equivalents

 

 

12.1

2.9

5.1

3.8

1.8

Closing net cash & equivalents

 

 

2.9

5.1

3.8

1.8

5.8

Debt as per balance sheet

(697.7)

(668.4)

(730.4)

(620.9)

(723.1)

Unamortised borrowing costs

(5.8)

(4.8)

(5.5)

(4.2)

(2.0)

Net debt

(700.7)

(668.2)

(732.1)

(623.3)

(719.3)

Net LTV

62.7%

53.7%

52.9%

44.3%

45.0%

Source: PHP, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Primary Health Properties and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

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Germany

London +44 (0)20 3077 5700

280 High Holborn

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United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Primary Health Properties and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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