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Primary Health offers "long-term predictable returns with low relative risk"

It is not the only listed operator in the healthcare sector but it is one of the few property companies to offer exposure to what is a low-risk, non-cyclical market
Care room
PHP's EPRA cost ratio is among the lowest in the sector

Primary Health Properties PLC (LON:PHP) invests solely in the freehold or long leasehold of modern purpose-built healthcare facilities in the UK and Ireland.

The group holds the properties for long-erm investment and leases them to general practitioners (GPs), government healthcare bodies, pharmacies and other associated healthcare agencies.

READ Primary Health Properties makes eighth acquisition in Ireland

The company was incorporated in 1995 and floated on AIM in 1996 before graduating to the full market in 1996. In 2018, it reached a significant milestone, joining the FTSE 250 index.

READ Champagne moment—Primary Health Properties joins FTSE 250 index from today​

At the same time, the company was named by MSCI, a leading provider of research-based indices and analytics as the winner of the UK Property Investment Award for the highest 10-year risk-adjusted total return in the UK market. The company had an 8.0% total annualised return relative to the IPD benchmark over the measured period.

“With a market capitalisation now over £800million and a 21-year track record of unbroken dividend growth, PHP has proven itself as a leading long-term investment opportunity and delivered significant returns to its shareholders,” said Harry Hyman, the managing director of PHP.

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 company said it had a strong pipeline of acquisitions totalling over £175mln in the UK and Ireland that are being progressed, and sure enough, it was not long before the company had announced another acquisition in Ireland—its eighth.

READ Primary Health Properties makes eighth acquisition in Ireland​

The company acquired three modern, purpose-built primary care centres in and around Dublin for €38.6mln.

All three properties are fully let, Primary Health revealed. The HSE, the Irish government's executive agency, and other government bodies including TULSA & the Kildare Wicklow Education Training Board account for circa 63% of the total rent roll at the properties, which have a combined unexpired lease term of roughly 21 years. The balance is from Centric Health, a leading UK and Irish Primary healthcare provider, and pharmacies.

The acquisition increased its portfolio to 313 assets, with a gross value of more than £1.4bn and a contracted rent roll in excess of £75mln.

"We are delighted to acquire these assets which have significantly increased the size and value of our portfolio in Ireland, and where we anticipate continuing to expand, as our acquisition programme gathers momentum,” said Hyman.

“We are committed to the Irish market where we see significant potential due to the need to modernise the primary care infrastructure and widen the provision of health care services,” he added.

“The acquisition is in line with our target acquisition profile, as the majority of rental income is secured against a government-backed tenant with a long unexpired lease term. We have a strong pipeline of acquisitions in the UK and Ireland and are well positioned to continue growing the portfolio in both jurisdictions," Hyman said.

PHP said it concentrates on assets with strong underlying fundamentals that it can acquire for a fair price and secure an acceptable gap between the income yield an asset generates and the cost of managing and funding that investment.

According to the broker, Liberum Capital Markets, PHP offers long-term predictable returns with low relative risk.

The shares currently trade at around 113p, 7p below Liberum’s target price.

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Primary Health Properties PLC Timeline

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