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Research: Real Estate
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.
Primary Health Properties |
AGM statement shows progress as expected |
Q121 trading update |
Real estate |
13 May 2021 |
Share price performance
Business description
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Primary Health Properties is a research client of Edison Investment Research Limited |
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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/NTA |
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
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