Primary Health Properties — Sustaining dividend growth

Primary Health Properties (LSE: PHP)

Last close As at 20/04/2024

GBP0.92

1.30 (1.44%)

Market capitalisation

GBP1,224m

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Research: Real Estate

Primary Health Properties — Sustaining dividend growth

Interim results showed Primary Health Properties (PHP) to be well on track to meet its fully covered 6.7p DPS target, the 27th consecutive year of growth. Organic rent growth continues to increase, borrowing costs are nearly all fixed/hedged and the cost ratio is among the lowest in the sector. Despite this, the prospective dividend yield is now c 7%.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Primary Health Properties

Sustaining dividend growth

H123 interim results

Real estate

10 August 2023

Price

96p

Market cap

£1,277m

Net debt (£m) at 30 June 2023

1,270

Net LTV at 30 June 2023

45.6%

Shares in issue

1,336.5m

Free float

98.1%

Code

PHP

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.1

(9.9)

(34.0)

Rel (local)

0.3

(6.9)

(33.6)

52-week high/low

148p

91p

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 let on long leases 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

Q323 DPS paid

18 August 2023

Analysts

Martyn King

+44 (0)20 3077 5700

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

Interim results showed Primary Health Properties (PHP) to be well on track to meet its fully covered 6.7p DPS target, the 27th consecutive year of growth. Organic rent growth continues to increase, borrowing costs are nearly all fixed/hedged and the cost ratio is among the lowest in the sector. Despite this, the prospective dividend yield is now c 7%.

Year end

Net rental income (£m)

Adjusted earnings* (£m)

Adjusted EPS** (p)

NAV per share*** (p)

DPS
(p)

P/NAV
(x)

Yield
(%)

12/21

136.7

83.2

6.2

116.7

6.20

0.82

6.5

12/22

141.5

88.7

6.6

112.6

6.50

0.85

6.8

12/23e

149.9

90.1

6.7

111.5

6.70

0.86

7.0

12/24e

154.4

91.9

6.9

111.6

6.90

0.86

7.2

Note: *Excludes valuation movements, amortisation of fair value adjustment to acquired debt and other exceptional items. **Non-diluted. ***Defined as adjusted EPRA net tangible assets (NTA) excluding fair value of derivative interest rate contracts and convertible bond, deferred tax and fair value adjustment on acquired debt.

Organic rent growth is the driver for now

Rent reviews concluded in H123 generated an average annual uplift of 4.4%. Indexed uplifts remain strong as inflation works its way through the three-year UK review cycle. Crucially, open market rent reviews, 69% of total rents, continue to accelerate and PHP expects this firmer tone to continue. For the new developments needed to modernise healthcare estates to be viable, rents will need to reflect increased build and funding costs. Strong sector fundamentals have prevented acquisition yields from rising in tandem with capital costs (PHP net initial yield of 4.9%), requiring a highly selective approach to investment. Most immediately, PHP is focused on driving portfolio rental growth, including through low risk, value-creating asset management schemes, and Ireland, where yields remain higher and it continues to identify accretive opportunities.

Well-placed to meet health service investment needs

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. It is clear increased use of online and telephone appointments, particularly for frontline triage, has done nothing to reduce the need for modern, integrated, local primary healthcare facilities. Not only will these better serve patients with an extended range of procedures, available locally, they will reduce pressures on the hospitals and support the NHS to reduce the treatment backlog. PHP is well- placed to help meet this need for investment and to grow further.

Valuation: Securely growing income

Visible, secure and growing income is the core of the PHP investment case. Leases are long and substantially upward-only, 89% backed directly or indirectly by government bodies, with little exposure to the economic cycle or fluctuations in occupancy. The rise in interest rates has driven up the prospective dividend yield to c 7% despite accelerating rent growth underpinning the prospects for further growth in income and dividends.

Investment summary

Organic rental uplifts have reached the highest level in the past 10 years but have the potential to increase much further.

Exhibit 1: Rental growth is continuing to accelerate

Source: PHP data

UK rent reviews are typically on a three-year revolving basis and effectively upward only, at the option of the landlord. Irish rents (c 8% of the total) are linked to Irish CPI and are reviewed every five years. The recent acceleration in uplifts has been led by inflation-linked reviews, accounting for 25% of rent roll. Although inflation shows signs of moderating, recent high levels are yet to fully feed through the UK three-year review cycle. From a medium-term perspective, the firmer tone in open market rent reviews, 69% of rent roll, is the key development. Open market reviews have shown very modest uplifts for many years, in stark contrast to land and building cost inflation. To justify the new development that is needed to support modernisation of the primary healthcare estate, this cost inflation needs to be reflected in rent levels, in turn creating benchmarks for the review of rents on existing assets.

Exhibit 2: Annualised rental uplifts on completed rent reviews in the period

H123

2022

2021

2020

UK - open market

2.0%

1.5%

1.5%

1.3%

UK - indexed

8.1%

7.4%

2.8%

2.3%

UK - fixed

2.5%

3.1%

2.9%

2.7%

Total UK

4.5%

3.4%

1.7%

1.8%

Ireland - indexed

3.4%

2.6%

0.8%

1.1%

Total annualised increase

4.4%

3.4%

1.7%

1.8%

Source: PHP

Rent reviews added £2.2m to annualised contracted rent roll in H123 which, allowing for asset management schemes and FX movements on the Irish portfolio, increased 1.4% to £147.4m. Management expects rent reviews will add more than £4m in FY23 as a whole.

We forecast rent review settlements will continue to grow rent roll and generate additional passing rent in future years.

Highly selective investment stance

With inflation remaining stubbornly high and interest rates volatile, PHP made no new acquisitions or development commitments during H123. Although we expect it to maintain a highly selective approach to investment, PHP nonetheless identifies accretive opportunities in Ireland, UK developments and asset management schemes. The existing pipeline has a potential funding requirement of c £80m over a two-year period, although most immediately there is one Irish forward-funding scheme and a number of asset management projects in legals.

Exhibit 3: Summary of the investment pipeline

In legals

Advanced pipeline

Total cost

Number

Est cost

Number

Est cost

Ireland - forward funding

1

£12.8m/€14.8m

2

£27.4m/€31.8m

£40.2m/€46.6m

UK direct developments

3

£15.2m

£15.2m

UK investments

Total external investment

1

£12.8m

5

£42.6m

£55.4m

Asset management projects

20

£16.8m

12

£6.9m

£23.7m

Source: PHP

In the current environment, Ireland continues to be PHP’s preferred area of future investment activity. The dynamics of the healthcare system and market are very similar to those of the UK, while benefiting from a lower cost of capital and higher property yields. PHP’s existing assets are valued at £219m or c €255m (c 8% of the portfolio total) and the company has set a target of increasing this to c €500m or c 15% of the portfolio, for which the January 2023 acquisition of Axis will provide meaningful support.

PHP has one UK development on site currently and has, for now, paused an advanced pipeline of three projects with a total expected cost of £15.2m. In each case, negotiations with the NHS, integrated care boards and the district valuer continue with the aim of increasing rents to a level at which it is economically viable to proceed. The company is hopeful that previously agreed rents will be increased by around 20–30%.

Asset management projects such as physical extensions or refurbishments help to avoid obsolescence, including by improving energy efficiency, and are key to maintaining the longevity and security of income through long-term occupier retention, increased rental income and extended occupational lease terms, adding to both earnings and capital value. PHP estimates c £24m of asset management capex over the next one to two years.

Our forecasts include the asset management projects, about which there is the greatest visibility. Given the time to completion, additional forward-funding and/or development projects would have a modest impact on near-term earnings or leverage.

Axis acquisition supports strategic expansion in Ireland

Alongside the acquisition of Axis, an Irish property management business, PHP signed a long-term agreement providing access to a pipeline of future primary care development projects in Ireland. While the acquisition was modestly valued1 and we expect it to be accretive to earnings, of greater significance is the support that Axis and the pipeline agreement provide for the further growth of PHP’s Irish business.

The initial consideration paid for Axis in H123 was £5.2m, including £0.4m of working capital. Deferred consideration of up to £2.2m is payable in FY24, but reduced on a sliding scale if Axis’ FY23 PBT is less than £1.3m.

Axis provides a permanent local platform from which to manage PHP’s 20 existing Irish assets2, strengthens its position in the market and deepens its relationship with the HSE3. For the HSE, Axis provides fit-out, property and facilities management.

Axis manages 30 properties in total including the PHP assets.

The Health Service Executive, Ireland equivalent of the National Health Service (NHS) in England.

Rental growth drove the increase in earnings and supported a stabilisation in property values

Adjusted earnings increased by £1.2m or 2.7% versus H122. This included £4.4m growth in net rental income and a £0.5m first contribution from January’s Axis acquisition, partly offset by a £3.1m increase in financing costs and an increase in administrative costs. Compared with H222, adjusted earnings increased by c £1.9m or 4.3%.

In addition to the £3.4m uplift from reviews settled in the period, net rental income included £0.8m from acquisitions, disposals and development completions, and benefited from a reduction in property costs.

The EPRA cost ratio was 10.1% (H122: 10.5%) and remains one of the lowest in the sector despite an increase in staff costs and costs assumed on the Axis acquisition.

Increased net financing expense primarily reflects increased average debt and the impact of higher interest rates on the small amount of floating rate debt.

H123 DPS of 3.35p (+6.9%) covered 1.02x by adjusted EPS of 3.4p. A third quarter dividend has been paid and the company is well on track to pay a fully covered 6.7p aggregate DPS for the year. We forecast further growth in DPS in FY24, again driven by rental growth, substantially fixed/hedged borrowing costs (97% at end-H123) and well controlled costs.

Exhibit 4: H123 financial summary

£m unless stated otherwise

H123

H122

H123 vs H122

2022

Net rental income

75.5

71.1

6.2%

141.5

Axis contribution

0.5

Administrative expenses

(6.1)

(5.5)

10.9%

(9.6)

Net finance expense

(24.0)

(20.9)

14.8%

(43.2)

Adjusted earnings

45.9

44.7

2.7%

88.7

Amortisation of fair value adjustment on acquired debt

1.5

1.4

2.9

EPRA earnings

47.4

46.1

2.8%

91.6

Property revaluation

(11.9)

51.2

(64.4)

Profit on sale of properties

0.0

0.0

2.9

Fair value gain/(loss) on interest rate derivative & convertible bond

3.9

10.4

26.8

Amortisation of Axis intangible

(0.4)

Axis acquisition costs

(0.2)

Deferred tax charge

0.7

(0.6)

(0.6)

IFRS earnings

39.5

107.1

56.3

Basic IFRS EPS (p)

3.0

8.0

4.2

Basic EPRA EPS (p)

3.5

3.5

6.9

Basic adjusted EPS (p)

3.4

3.4

2.5%

6.6

DPS (p)

3.35

3.25

3.1%

6.50

Dividend cover (x)

1.02

1.03

1.02

Source: PHP data, Edison Investment Research

Portfolio valuations stabilised considerably compared with H222, and although the net initial yield (NIY) expanded to 4.90% from 4.82%, the negative c £45m impact was significantly offset by £33m benefit from rental growth. The net revaluation loss was £11.9m or c 0.9p per share and including a 0.5p reduction from the acquisition of Axis4, adjusted NAV per share was 111.1p compared with 112.6p at end-FY22. Including DPS paid, the NAV total return was 1.6%. Our forecasts assume no net revaluation movements, which implies a further c 25bp widening of the NIY by end-FY24.

The value of the Axis acquisition is primarily intangible and this is excluded from adjusted NAV (and EPRA net tangible assets).

Exhibit 5: Movement in adjusted NAV per share (p)

Source: PHP data, Edison Investment Research

Strong and liquid balance sheet with substantial interest rate protection

PHP has a long average debt maturity (6.9 years at end-H123) and with the cost of 97% of drawn debt either fixed or hedged, it is very well protected from interest rate volatility. The end-H123 net loan to value ratio (LTV) of 45.6% (end-FY22: 45.1%) was in the middle of the company’s target range of 40–50%. The higher leverage than is customary for many quoted investors in mainstream commercial property sectors reflects the highly resilient nature of primary healthcare property cash flows. The average cost of drawn debt is 3.2% and at end-H123 net rental income covered interest costs 3.2x. PHP guides that every 50bp increase in the SONIA benchmark borrowing rate would increase this by just 2bp. LTV covenant headroom on the lending facilities was £1.2bn at end-H123, equivalent to a 42% reduction in portfolio values, a valuation that would imply a NIY of 8.6%.

Total debt facilities amount to c £1.6bn, of which c £1.3bn was drawn at end-H122. Allowing for cash and capital commitments, PHP has c £0.3bn of borrowing headroom. Its fixed cost debt is mostly long term and its floating rate debt is shorter term. The interest rate hedging matures at the end of 2024 and there are debt maturities amounting to c £670m in 2025, including a £150m unsecured convertible bond with a coupon of 2.88%. Of the unsecured debt maturities, PHP has options to extend c £350m, subject to lender approval.

While access to funding is not an issue for PHP, at current market interest rates, the average cost of borrowing will increase in 2025 although management is confident that rental growth in the intervening period will provide an offset.

Sustained rental growth yet valuation approaching 10-year low

Historical returns on primary healthcare assets have been higher than other sectors of the UK commercial property market, with a lower level of volatility. This has been a function of the strong fundamental backing for healthcare property, in turn generating secure and more resilient income, and less pronounced yield shifts through the property cycle. PHP is well into its 27th year of unbroken dividend growth and is on track towards its targeted FY23 aggregate DPS of 6.7p, which we expect to again be fully covered by adjusted earnings.

Exhibit 6: 27th year of unbroken dividend growth

Source: PHP data

Despite the dividend performance, the trailing yield of c 7% and trailing P/NAV of c 0.8x are approaching levels not seen since the global financial crisis (c 7.5% and c 0.6x, respectively). The scope for a re-rating as and when interest rates can be seen to approach a peak is clear.

Exhibit 7: Trailing yield

Exhibit 8: Trailing P/NAV

Source: PHP DPS data, Refinitiv prices, Edison Investment Research

Source: PHP NAV data, Refinitiv prices, Edison Investment Research

Exhibit 7: Trailing yield

Source: PHP DPS data, Refinitiv prices, Edison Investment Research

Exhibit 8: Trailing P/NAV

Source: PHP NAV data, Refinitiv prices, Edison Investment Research

In Exhibit 9 we show a comparison of PHP with close peer Assura and other companies invested in healthcare and supported social housing assets. While PHP (and its primary healthcare peer Assura) trade at a lower yield and higher P/NAV than the peer group average, the gap has narrowed considerably over the past 18 months. This is despite the exceptional security and visibility of income that PHP enjoys and the fact that its achieved rent growth compares increasingly favourably with those peers where indexed rent uplifts are typically capped at c 4%.

Exhibit 9: Summary of peer group valuation and performance

Price
(p)

Market cap (£m)

P/NAV* (x)

Yield** (%)

Share price performance (%)

1 month

3 months

12 months

3 years

Assura

46

1,366.0

0.86

6.9

(3)

(9)

(31)

(40)

Impact Healthcare

89

367.0

0.79

7.4

(6)

(9)

(24)

(14)

Residential Secure Income

64

119.0

0.72

8.0

(1)

(3)

(37)

(31)

Target Healthcare

75

464.0

0.72

7.5

3

(3)

(34)

(29)

Triple Point Social Housing

56

219.0

0.50

9.8

7

7

(40)

(47)

Average

0.72

7.9

0

(3)

(33)

(32)

Primary Health Properties

1,238.0

0.83

7.1

(8)

(12)

(33)

(38)

UK property sector index

1,199

(4)

(9)

(27)

(18)

UK equity market index

4,038

(3)

(6)

2

16

Source: Refinitiv prices at 4 August 2023, company EPS and DPS data, Edison Investment Research. Note: *Last reported NAV/NTA. **Trailing 12-month DPS declared.

Exhibit 10: Financial summary

Year end 31 December (£m)

2019

2020

2021

2022

2023e

2024e

PROFIT & LOSS

Net rental income

115.7

131.2

136.7

141.5

149.9

154.4

Contribution from Axis

0.0

0.0

0.0

0.0

1.1

1.3

Administrative expenses

(12.3)

(13.2)

(10.5)

(9.6)

(12.3)

(12.2)

Operating profit before revaluation movements and non-recurring items

103.4

118.0

126.2

131.9

138.7

143.5

Net realised and unrealised portfolio gains/(losses)

49.8

51.4

110.5

(61.5)

(11.9)

0.0

Exceptional items related to corporate acquisition

(148.6)

0.0

(37.0)

0.0

0.0

0.0

Operating profit before financing costs

4.6

169.4

199.7

70.4

126.8

143.5

Finance income

1.4

1.2

0.8

0.9

0.0

0.0

Finance expense

(42.6)

(43.0)

(60.5)

(41.2)

(45.5)

(48.1)

Fair value movement on swaps and convertible bond

(33.6)

(15.2)

1.6

26.8

3.9

0.0

Profit Before Tax

(70.2)

112.4

141.6

56.9

85.2

95.4

Tax

(1.1)

(0.4)

(1.5)

(0.6)

0.7

0.0

Profit After Tax

(71.3)

112.0

140.1

56.3

85.9

95.4

Adjusted for the following:

Net realised/unrealised gain/(loss) on investment property

(49.8)

(51.4)

(110.5)

61.5

11.9

0.0

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

33.6

15.2

(1.6)

(26.8)

(3.9)

0.0

Other adjustments

1.1

0.4

26.1

0.6

(0.7)

0.0

EPRA earnings

52.0

76.2

62.1

91.6

93.1

94.9

Other non-recurring charges

10.2

0.0

29.0

0.0

0.0

0.0

Amortisation of fair value adjustment to acquired debt

(2.5)

(3.1)

(3.2)

(2.9)

(3.0)

(3.0)

Other adjustments

0.0

0.0

(4.7)

0.0

0.0

0.0

Adjusted earnings

59.7

73.1

83.2

88.7

90.1

91.9

Period end number of shares (m)

1,216.3

1,315.6

1,332.9

1,336.5

1,336.5

1,334.8

Average Number of Shares Outstanding (m)

1,092.0

1,266.4

1,330.4

1,334.8

1,335.7

1,334.8

Fully diluted average number of shares outstanding (m)

1,138.5

1,368.4

1,435.8

1,443.7

1,444.6

1,443.7

Basic IFRS EPS (p)

(6.5)

8.8

10.5

4.2

6.4

7.0

Adjusted EPS (p)

5.5

5.8

6.2

6.6

6.7

6.9

Adjusted EPS, fully diluted (p)

5.4

5.7

6.1

6.4

6.5

6.7

Dividend per share (p)

5.60

5.90

6.20

6.50

6.70

6.90

Dividend cover (Adjusted earnings/dividends paid)

101%

100%

101%

102%

101%

100%

Adjusted EPRA NTA total return

8.0%

10.1%

8.9%

2.0%

5.0%

6.2%

EPRA cost ratio

12.0%

11.9%

9.3%

9.9%

9.9%

9.7%

BALANCE SHEET

Non-current assets

2,413.6

2,576.1

2,801.4

2,816.3

2,812.8

2,814.2

Investment properties

2,413.1

2,576.1

2,795.9

2,796.3

2,783.4

2,783.4

Other non-current assets

0.5

0.0

5.5

20.0

29.4

30.8

Current Assets

159.8

121.0

51.7

48.2

42.2

72.4

Cash & equivalents

143.1

103.6

33.4

29.1

18.2

48.4

Other current assets

16.7

17.4

18.3

19.1

24.0

24.0

Current Liabilities

(66.0)

(68.1)

(70.5)

(64.1)

(64.4)

(64.4)

Current borrowing

(6.1)

(6.4)

(2.2)

(2.3)

0.0

0.0

Other current liabilities

(59.9)

(61.7)

(68.3)

(61.8)

(64.4)

(64.4)

Non-current liabilities

(1,278.9)

(1,214.6)

(1,282.7)

(1,318.2)

(1,311.3)

(1,340.9)

Non-current borrowings

(1,257.8)

(1,206.5)

(1,273.0)

(1,297.1)

(1,290.4)

(1,320.0)

Other non-current liabilities

(21.1)

(8.1)

(9.7)

(21.1)

(20.9)

(20.9)

Net Assets

1,228.5

1,414.4

1,499.9

1,482.2

1,479.3

1,481.3

Derivative interest rate swaps

13.0

0.1

(4.4)

(7.1)

(9.2)

(9.2)

Change in fair value of convertible bond

22.7

25.0

21.6

(7.1)

(12.7)

(12.7)

Other EPRA adjustments

48.6

45.8

38.8

36.8

33.0

30.0

Adjusted EPRA net tangible assets (NTA)

1,312.8

1,485.3

1,555.9

1,504.8

1,490.4

1,489.4

IFRS NAV per share (p)

101.0

107.5

112.5

110.9

110.7

111.0

Adjusted EPRA NTA per share (p)

107.9

112.9

116.7

112.6

111.5

111.6

CASH FLOW

Operating Cash Flow

94.0

118.9

140.4

117.6

135.0

143.0

Net Interest & other financing charges

(52.9)

(65.9)

(46.6)

(42.4)

(46.6)

(48.5)

Tax

0.0

0.0

0.0

0.0

0.0

0.0

Acquisitions/disposals

(47.4)

(102.8)

(129.3)

(74.8)

(5.6)

0.0

Net proceeds from issue of shares

97.6

136.8

(0.1)

(0.1)

0.0

0.0

Debt drawn/(repaid)

110.5

(58.4)

82.8

48.8

3.1

30.0

Equity dividends paid (net of scrip)

(54.4)

(69.1)

(74.4)

(81.6)

(89.5)

(92.1)

Other cash movements and FX

(11.9)

1.6

(43.6)

28.9

(7.5)

(2.2)

Net change in cash

137.2

(39.5)

(70.2)

(4.3)

(10.9)

30.2

Opening cash & equivalents

5.9

143.1

103.6

33.4

29.1

18.2

Closing net cash & equivalents

143.1

103.6

33.4

29.1

18.2

48.4

Debt as per balance sheet

(1,263.9)

(1,212.9)

(1,275.2)

(1,299.4)

(1,290.4)

(1,320.0)

Convertible bond fair value adjustment

22.7

25.0

21.6

(7.1)

(12.7)

(12.7)

Unamortised borrowing costs

(14.6)

(13.8)

(13.7)

(15.3)

(12.5)

(9.9)

Acquired debt fair value a

45.4

42.4

34.4

31.4

28.5

25.5

Closing net debt/(cash)

(1,067.3)

(1,055.7)

(1,199.5)

(1,261.3)

(1,268.9)

(1,268.7)

Net LTV

44.2%

41.0%

42.9%

45.1%

45.6%

45.6%

Source: PHP historical data, Edison Investment Research forecasts


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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 £60,000 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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom


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 £60,000 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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Actinogen Medical — Funding the next stage of Xanamem development

Actinogen recently provided a Q423 quarterly update summarising that its two development programmes for lead candidate Xanamem remain on track, with the Phase IIb XanaMIA study portion assessing the drug in lead indication Alzheimer’s disease (AD) still scheduled to start in H2 CY23, with results still expected in H2 CY25. For the company’s XanaCIDD study in patients with cognitive impairment (CI) associated with major depressive disorder (MDD), enrolment is approaching 25% and the company continues to expect results in H1 CY24 as it is opening new US-based study sites to compensate for regulatory delays in the UK. The company reported a 30 June cash position A$8.46m and has announced a A$10m rights offering allowing existing shareholders to purchase up to 400m shares at A$0.025 per share. After rolling forward our estimates, our pre-financing valuation adjusts slightly to A$645m, or A$0.36/share, versus A$640m (A$0.35/share) previously. Overall, we view the financing as a positive and necessary step to continue Xanamem development.

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