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Primary Health Properties - Healthy REITing

Written by Ed Stacey

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 CONTINUES…

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