Primary Health Properties 12 March 2019
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Disclosure – Independent Investment Research
This is independent research issued by Kepler Partners LLP. The analyst who has prepared this research is not aware of Kepler Partners LLP having a relationship with the company covered in this research report and/or a conflict of interest which is likely to impair the objectivity of the research and this report should accordingly be viewed as independent.
Primary Health Properties (PHP) is a FTSE 250 REIT, aiming to deliver progressive returns for shareholders through a mixture of income and capital appreciation. It has recently announced an all-share merger with smaller rival fund MedicX.
The company invests in modern, purpose-built doctor’s surgery facilities that are let out on long leases across the UK and Ireland. Nexus, the managers of the trust, look for large scale projects, and as at the end of 2018, the average lot size across both the PHP and MedicX portfolios was £4.8m. The trust boasts strong fundamental attributes, including a weighted average unexpired lease term (WAULT) of 13.1 years and an occupancy rate of 99.8%. 90% of rents are government backed.
Over the past five years, we have seen PHP deliver strong returns, generating NAV returns of 111.7%. This is quadruple the IA open-ended direct property sector (27.8%), twenty times the FTSE All Share REIT index (5%), as well as double the Morningstar IT Property sector average (50%). The primary focus of the trust is the yield, and it aims to offer a growing level of income over time. Currently, the trust is yielding 4.8% and last year saw the trust deliver its 22nd year of dividend growth - now fully covered by earnings.
The merger with MedicX creates a portfolio of around 480 properties, worth a total of £2.3bn. As we explain in more detail in the portfolio section, the merger benefits both sets of shareholders, mainly due to the increase in scale of the combined business, and is expected to complete in late March.
PHP has largely traded at a consistent and significant premium to the published NAV. This reflects the strong and secure dividend yield, as well as the strong investor following that it has built up. It is worth noting that PHP employs significant gearing of 45%, based on a loan to value basis.
Fund History
