PHP and MedicX set for £2.3bn portfolio in merger deal

Primary Health Properties (PHP) and MedicX have announced plans to merge in a deal that will create a business with a £2.3bn property portfolio.

Terms of the all-share merger announced today have been agreed by the Boards of both businesses and will see existing PHP shareholders control a majority stake with 69.4% of the enlarged group. The remaining 30.6% will be held by existing MedicX shareholders, who will receive 0.77 new PHP shares for each MedicX Scheme share – representing a 14.3% premium on yesterday’s closing share price.

The enlarged group will be a major force in the UK primary care property market, with 479 properties in the UK and the Republic of Ireland. Its size will rival Assura, which has 553 medical centres valued at around £1.9bn.

Both PHP and MedicX have focused on development of high value properties and leading assets in their localities, with an average lot size £4.8m. They have also both entered the Irish primary care property market in recent years and will have a total of 13 properties in the Republic following the merger.

The two companies said their portfolios were ‘highly complementary’ and represented a stronger platform with increased scale and financial resources for further investment.

The enlarged business will have a contracted rent roll of £121m, with 99.5% occupancy and an average WAULT of 13.4 years.

The deal, which has been recommended by both Boards, is expected to create significant value for MedicX and PHP shareholders through operational and investment management synergies, leading to anticipated cost savings of £4m a year and an EPRA cost ratio of 12% – the lowest in the UK-REIT sector.

Under the terms of the agreement, MedicX’s investment management agreement with Octopus Healthcare will be terminated and PHP advisor Nexus will provide services to the enlarged group, resulting in lower external management fees as a percentage of portfolio value. Finance savings are also expected, and the Boards said broader access to capital at a reduced cost would lead to material cost savings through optimisation of the enlarged Group’s financing arrangements.

PHP chairman Steven Owen said: ‘The merger represents a major step forward in PHP’s strategy which significantly extends the scale of our business and asset value. The highly complementary nature of the two portfolios will allow the combined business to continue to maximise shareholder value through delivering synergies across the businesses and accelerate the enlarged group’s role in the modernisation of the primary care estate in the UK and Ireland.’

MedicX chairman Helen Mahy CBE, who is expected to join the PHP Board as deputy chairman and senior independent non-executive director following the merger, added: ‘I am delighted to announce this all-share merger of MedicX and PHP, a transaction that will create a strong, new healthcare group which can deliver real benefits to doctors, the NHS, and the HSE in the Republic of Ireland as well as our shareholders. Both businesses share a similar focus on high quality, purpose-built primary healthcare assets and have complementary portfolios. The strategic fit of the two businesses is excellent and shareholders in the enlarged group will have the opportunity to participate in further growth and share in the significant benefits of scale and operational efficiencies. Financially, the Merger offers MedicX shareholders a premium to NAV as well as attractive accretion to earnings and dividends per share. Therefore, the MedicX Board unanimously recommends the merger to its shareholders.’

The merger is expected to complete in March, after which Laure Duhot will join the PHP Board as non-executive director and chairman of the adviser engagement Committee.  In order to maintain an appropriately sized board and balance between PHP and MedicX directors post the Merger, Nick Wiles and Geraldine Kennell will step down from the PHP Board.