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Primary Health Properties - Healthy REITing

Primary Health Properties - Healthy REITing

Primary Health Properties (LON:PHP) is a real estate investment trust (REIT) that holds a portfolio of 484 primary health facilities in the UK (94% of the portfolio) and Ireland (6%). The business model is to manage the properties for rental income and to grow the portfolio over time. The asset base has some attractive characteristics for yield-focused investors:

  • 90% government-backed rent
  • 99.5% occupancy rate
  • Weighted average unexpired lease time: 13.4 years

This stable rental income base has allowed PHP to pay a steadily growing dividend, with increases every year since listing in 1997.

We would normally expect a 'safety' play like PHP to offer commensurately lower returns to shareholders; however, PHP has achieved a 14.1% annual total shareholder return over the last five years, versus 4.6% for the UK REIT sector. In this report we examine PHP's strong financial returns in terms of:

  • Solid rental income yield on property
  • Low-cost ratio

We also examine PHP relative to sector peers on other characteristics such as lease terms and rental escalations.

We believe that the conditions remain in place for PHP to continue generating strong returns in the next few years, and to continue its unbroken run of dividend increases. Furthermore, in March 2019 PHP completed its transformational merger with MedicX, providing an enlarged portfolio, further improved cost ratio, and likely reduced the cost of financing over time. We include these factors in our detailed forecasts (pages 9-11) which support continued outperformance for the shares.

Full report is available via Capital Network website
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Primary Health Properties PLC Timeline

Related Researches

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March 06 2019

GRIT Real Estate Income Group (LON:GR1T) is a pan-African (excluding South Africa) real estate company, generating high levels of US dollar and euro-denominated rental yield underpinned by a blue-chip tenant base.

The company has achieved good progress since its London Stock Exchange (LSE) listing in July 2018. Results for the half-year ended 31 December (released 14 February) showed gross rental income +25.9% year-on-year and group loan-to-value down to 43.4% (full-year to June 2018: 51.4%). Furthermore, the ratio of administration costs to asset value was reduced to 1.3% from 1.4%. We believe this can go below 1% as the portfolio continues to grow.

Performance has been achieved in spite of pockets of significant weakness in the African retail sector, highlighting the value of GRIT's diversification strategy. We provide some outlines of the strategy on page 2 (p2).

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October 03 2018

Grit Real Estate Income Group (LON:GR1T) is a multi-listed (LSE, JSE, SEM) property company with a focus on selected African countries with a combination of economic growth, investment friendly policies and political stability. Rental income is underpinned by a blue-chip multinational tenant base, hard currency leases, and high occupancy rates.

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January 29 2019

Custodian REIT (LON:CREI) released its quarterly net asset value (NAV) updated on 29 January. This was in line with our expectations.

NAV Total Return +1.0% in the quarter. Portfolio net initial yield (a measure of property income yield) of 6.6%. Balance sheet gearing remains low at LTV (loan-to-value) ratio of 24.7%.

We believe that all of the key dynamics remain intact to sustain continuing strong shareholder returns.

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