PHP reports jump in earnings as it prepares for MedicX merger

PHP reports jump in earnings as it prepares for MedicX merger

Primary Health Properties (PHP) has reported an 18.7% jump in EPRA earnings to £36.8m and said it remains confident in its ability to deliver growth despite the volatile political and economic environment.

The primary care property specialist, which last week announced plans to merge with fellow healthcare REIT MedicX, downplayed the potential impact of Brexit, saying it is ‘unlikely to have a direct impact’ on its investment properties. However, it acknowledged that political uncertainty and turbulence in the financial markets could affect its ability to execute its investment strategy and income sustainability in the long term.

Net rental income increased by 7.2% to £76.4m in 2018, including £3.7m from acquisitions and £0.7m from rent reviews and asset management projects. Administrative expenses were up 4.9% to £8.6m, reflecting the company’s expanding portfolio, while the performance incentive fee paid to Nexus almost trebled to £1.3m.

Net finance costs reduced by £1.9m to £29.7m on the back of lower cost debt secured from various refinancing initiatives. A reduced revaluation surplus of £36.1m (2017: £64.5m) pushed IFRS profit before tax down 19% on the previous year to £74.3m but helped boost EPRA NAV per share 4.4% to 105.1p.

Total dividends of 5.40p per share were distributed in the period (2017: 5.25p) – an increase of 2.9%. The first 2019 quarterly dividend of 1.40p per share, payable on 22 February, is equivalent to 5.6p on an annualised basis and will represent the company’s 23rd consecutive year of dividend growth.

Managing director Harry Hyman said: ‘We have selectively and successfully invested the proceeds from the over-subscribed equity raise in April 2018 and further strengthened the balance sheet. PHP’s high-quality portfolio and capital base has helped to deliver another year of strong performance and our 22nd year of unabated dividend growth. Continuing improvements to the rental growth outlook and further reductions in the cost of finance will help to maintain our strategy of paying a progressive dividend to our shareholders which is fully covered by earnings.’

Despite the uncertain political and economic backdrop, PHP said it said it was encouraged by the additional resources being allocated to the NHS and the continued focus on strengthening primary and community healthcare services in the new NHS Long Term Plan.

Looking ahead, chairman Steve Owen said: ‘These additional resources may in time lead to increased activity in the building of new facilities and the modernisation of existing primary care premises and we look forward to helping deliver the modernisation of the estate by actively pursuing attractive investment opportunities of both existing assets and developments.’

At the year end, the company’s portfolio was worth £1.5bn and it reported a strong pipeline of targeted acquisitions of approximately £190m, of which £30m is currently in legal due diligence.

‘We have recently announced the proposed all share merger with MedicX bringing together two highly complementary portfolios in the UK and Ireland and the combined business will represent a stronger platform for the future,’ said Hyman. ‘Combining the two businesses in this transformational deal is expected to create significant value for the shareholders of the enlarged group and importantly, the potential to deliver significant operating and financial savings. We are excited by the opportunities that will be created. The merger represents another significant and important step in our strategy of selectively growing the portfolio, focusing on large hub primary care centres which are reducing pressures on the NHS, and it significantly extends the scale of the business and asset value.’