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Primary Health Properties encouraged by continued improvement in rental growth

The group continues to focus its activities on large hub primary care facilities both in the UK and Ireland
Care worker and patient
The demand for new, purpose built premises continues and is now being supported by NHS initiatives to modernise the primary care estate

Primary Health Properties PLC (LON:PHP) is seeing a continuing improvement in rental growth in the healthcare facilities sector.

In its interim results statement, the investment company said its earnings on an EPRA (European Public Real Estate) basis rose by 11% in the first half of 2018 to £17.1mln from £15.4mln in the first half of last year.

EPRA earnings per share eased 3.8% to 2.5p from 2.6p as a result of the shares issued in April when the company raised £115mln.

Net rental income in the period rose by 7.5% to £37.4mln from £34.8mln the year before with the net initial yield on the company’s portfolio contracting to 4.85% at the end of June from 4.91% at the end of 2017.

Profit before tax declined to £38.7mln from £44.3mln as the value of Primary Health’s property portfolio was only marked up by £21.2mln this time around (which inflates profit) compared to a £29.9mln the year before.

The property portfolio currently holds 308 assets valued at £1.42bn, up from £1.36bn at the end of 2017, with a contracted rent roll of £74.4mln, up from £72.3mln at the end of 2017.

The company has a strong pipeline of acquisitions totalling over £175mln in the UK and Ireland that are being progressed.

Primary Health (PHP) said 99.7% of its portfolio has been let with a weighted average unexpired lease term of 12.9 years, down from 13.2 years at the beginning of the reporting period.

READ: Primary Health Properties expands Irish portfolio with construction funding contract

"The successful, over-subscribed equity raise has strengthened the balance sheet and provides significant headroom for future investment in a strong, disciplined and selective pipeline. As we have already demonstrated, we are actively engaged in expanding our portfolio, with particular growth in the number of significant Irish assets. PHP continues to benefit from the strong fundamental characteristics and government-backed income which position primary health care as a highly attractive investment opportunity,” said Harry Hyman, the managing director of PHP.

The company revealed that of the £115mln raised in new capital in April, £53mln has been committed while a further £37mln of transactions have been agreed but not yet completed.

“We are also encouraged by the continuing improvement in rental growth in the sector which will help to maintain our strategy of paying a progressive dividend to our shareholders which are covered by earnings," he added.

“PHP delivered a good first half with NAV [net asset value] +3.5% to 104.2p, 2% ahead of our expectation due to stronger than expected yield compression and rental growth. EPRA EPS +4% and the DPS +3% were in line with our expectation,” said Liberum Capital Markets.

“Positively, rent reviews have shown further improvement with annualised growth of 1.7% and continue to be enhanced by acquisitions with associated scale benefits. We expect PHP’s portfolio to continue to benefit from long-term structural growth, driven by a growing and ageing UK population, coupled with efforts to improve the efficiency and cost effectiveness of the NHS by expanding the scope of services provided by GPs,” the broker said.

Liberum rates the shares a ‘buy’ and has a target price of 125p.

PHP’s shares were unchanged at 116.4p.

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