Primary Health Properties (PHP)

[richfool]

As a existing holder of PHP, whose holding is well in the red, I took the opportunity to top up this week before the notification of the first (increased) dividend for the new year, - this morning/below. The SP has been creeping up. I now have to watch to see how the NAV changes.

You have noticed that there has been very little increase over the 2022 dividends? It had me fooled.

TJH

As Dod says its dividend yield is close to 6%, so I'm not complaining.

[richfool]

As a holder of PHP, who has recently topped up, a concern cropped up about the possible affects of a Labour Government on PHP and it's business model. I had envisaged its income as a reliable and steady ongoing source, but then started to wonder. Any views?


Thought provoked here:
https://uk.finance.yahoo.com/news/bette ... 00083.html

[Dod101]

As a holder of PHP, who has recently topped up, a concern cropped up about the possible affects of a Labour Government on PHP and it's business model. I had envisaged its income as a reliable and steady ongoing source, but then started to wonder. Any views?


Thought provoked here:
https://uk.finance.yahoo.com/news/bette ... 00083.html

I understand your point but I think that a Labour Government will have more important things to worry about so like the author of the article I am not concerned, at least at this stage. It is one of these situations that appears to be working smoothly and so I cannot see an ever so sensible Starmer having PHP in his sights.

Dod

[tjh290633]

As a holder of PHP, who has recently topped up, a concern cropped up about the possible affects of a Labour Government on PHP and it's business model. I had envisaged its income as a reliable and steady ongoing source, but then started to wonder. Any views?


Thought provoked here:
https://uk.finance.yahoo.com/news/bette ... 00083.html

Back in the days of the Brown Government, I invested in Mapely, because much of their property was let to Government in the form of tax offices, etc. It struck me as being particularly secure but I hadn't allowed for the rapacious acts of Fortress, which led Mapely eventually to delist in 2009. One hopes that something similar does not happen to PHP.

TJH

[BullDog]

As a holder of PHP, who has recently topped up, a concern cropped up about the possible affects of a Labour Government on PHP and it's business model. I had envisaged its income as a reliable and steady ongoing source, but then started to wonder. Any views?


Thought provoked here:
https://uk.finance.yahoo.com/news/bette ... 00083.html

I understand your point but I think that a Labour Government will have more important things to worry about so like the author of the article I am not concerned, at least at this stage. It is one of these situations that appears to be working smoothly and so I cannot see an ever so sensible Starmer having PHP in his sights.

Dod

Far too small an issue for Starmer who's going to have a very full in tray indeed.

[richfool]

I understand your point but I think that a Labour Government will have more important things to worry about so like the author of the article I am not concerned, at least at this stage. It is one of these situations that appears to be working smoothly and so I cannot see an ever so sensible Starmer having PHP in his sights.

Dod

Far too small an issue for Starmer who's going to have a very full in tray indeed.

I do remember just before the last general election McDonald and Corbin putting the skids under certain types of infrastructure companies by talking of their plans to cut subsidies.

[BullDog]

Far too small an issue for Starmer who's going to have a very full in tray indeed.

I do remember just before the last general election McDonald and Corbin putting the skids under certain types of infrastructure companies by talking of their plans to cut subsidies.

Indeed they did. Starmer and his mates appear to be taking a different approach which may or may not be a good thing. In time, we'll know for certain.

[BullDog]

I guess it's the interest rate environment influencing the price, bought a few PHP at 99 something pence.

[monabri]

These have really fallen out of favour! I topped up at 105p but the price continues to fall - currently 91.4p, approaching the price they were ~10 years ago.

source https://www.londonstockexchange.com/sto ... mpany-page

[Dod101]

These have really fallen out of favour! I topped up at 105p but the price continues to fall - currently 91.4p, approaching the price they were ~10 years ago.

source https://www.londonstockexchange.com/sto ... mpany-page

Yes they have but so has the NAV/share price of many other REITS. This I assume is the result of the valuation of the properties which uses a DCF calculation. See the same effect unfortunately with the likes of 3i Infrastructure and plenty of others.

Dod

[BullDog]

It seems odds on that a risk free interest rate of 6% or higher will be available on the High Street by the end of the year. That's going to keep the pressure on PHP and good many other income investments for the foreseeable future. I believe. I don't think anyone, including myself, anticipated such an outcome even a few weeks ago.

I thought 4.5% would be the top of this cycle. Dead wrong, it seems.

[Dod101]

It seems odds on that a risk free interest rate of 6% or higher will be available on the High Street by the end of the year. That's going to keep the pressure on PHP and good many other income investments for the foreseeable future. I believe. I don't think anyone, including myself, anticipated such an outcome even a few weeks ago.

I thought 4.5% would be the top of this cycle. Dead wrong, it seems.

You mean that the dividend from PHP will be seen as an alternative to a savings account, or maybe vice versa? There will come a time though when PHP and the like will look cheap. The question is when of course but as long as they can keep increasing their dividend that should put a floor under the share price.

Dod

[simoan]

It seems odds on that a risk free interest rate of 6% or higher will be available on the High Street by the end of the year. That's going to keep the pressure on PHP and good many other income investments for the foreseeable future. I believe. I don't think anyone, including myself, anticipated such an outcome even a few weeks ago.

I thought 4.5% would be the top of this cycle. Dead wrong, it seems.

You mean that the dividend from PHP will be seen as an alternative to a savings account, or maybe vice versa? There will come a time though when PHP and the like will look cheap. The question is when of course but as long as they can keep increasing their dividend that should put a floor under the share price.

Dod

You’re missing the fact that rising interest rates are a double edged sword for property companies. Firstly, it increases the discount rate for DCF calculation of the NAV, lowering it. But secondly, and even more importantly, when they roll over debt in future, they will be doing so at much higher rates than the existing debt. This will increase interest payments, reducing profitability. So you have a falling NAV and a decrease in the ability to increase or even maintain dividends. Whether this can be entirely offset by rent increases is debatable given they’ll be dealing with a Labour government by then.

[Dod101]

You mean that the dividend from PHP will be seen as an alternative to a savings account, or maybe vice versa? There will come a time though when PHP and the like will look cheap. The question is when of course but as long as they can keep increasing their dividend that should put a floor under the share price.

Dod

You’re missing the fact that rising interest rates are a double edged sword for property companies. Firstly, it increases the discount rate for DCF calculation of the NAV, lowering it. But secondly, and even more importantly, when they roll over debt in future, they will be doing so at much higher rates than the existing debt. This will increase interest payments, reducing profitability. So you have a falling NAV and a decrease in the ability to increase or even maintain dividends. Whether this can be entirely offset by rent increases is debatable given they’ll be dealing with a Labour government by then.

Quite right although I have mentioned debt in the past and PHP's is quite high. It takes time to show in the accounts of course because much of it will be fixed for at least a couple of years out. By the same token so is much of the income on its leases, and PHP's properties cannot be easily 'repurposed'.

The NHS will be in no mood to accept big increases in rent either, which ever party is in power.

Dod

[BobGe]

Do people earn brownie points for repeated unnecessary reply "quoting"? Just wondering...

[richfool]

24 October 2023

Primary Health Properties PLC

("PHP" or the "Company" or "Group")

Q3 2023 Trading Update and Completion of Secondary Listing

Rental growth continuing to drive performance and dividend growth

Primary Health Properties PLC, one of the UK's leading investors in modern primary healthcare facilities, today publishes a trading update for the third quarter of the year to 30 September 2023 ("Q3 2023") and announces the completion of its secondary Listing on the Johannesburg Stock Exchange ("JSE").

Secondary Listing

The Company is pleased to announce that the listing of PHP on the JSE is effective as of 8.00am today. The Board of PHP believes that the secondary listing will contribute to liquidity in the Group's shares as a result of the growing interest in the Company and its increased profile in the South African market, where a number of investors have already shown strong interest in the unique healthcare property investment opportunity.

Rental growth

In the nine months to 30 September 2023 the Company generated an additional £3.3 million (Q3 2022: £2.4 million) of extra rental income from its rent review and asset management activities, both in the UK and in Ireland.

The Company continues to see an improving rental growth outlook, in particular from rent reviews. An extra £3.1 million (Q3 2022: £2.3 million) of income was generated in the nine months from 243 reviews that have been settled, representing a 9.6% increase over the previous passing rent, equivalent to 4.4% (2022: 3.4%) on an annualised basis.

PHP remains on course to generate in excess of £4.0 million (2022: £3.0 million) of extra income from rent reviews in 2023 driven by the impact of inflation on both indexed-linked and open market value ("OMV") reviews.

A further £0.2 million (Q3 2022: £0.1 million) has been generated from asset management activities where the Company has exchanged on five new projects, completed six lease regears and three new lettings. There is a strong pipeline of a further 26 asset management projects which, in addition to extending lease lengths and increasing rents, will improve the environmental performance of the buildings.
Investment and development

As previously announced, the Group has agreed to acquire one of Ireland's first Enhanced Community Care ("ECC") facilities at Ballincollig, near Cork, Ireland, for a total consideration of €29.6 million with completion expected imminently. The property is fully let to the Health Service Executive ("HSE") on a 25-year lease and benefits from five yearly, compounded annually, Irish CPI indexed rent reviews.

The property will be managed by Axis Technical Services, PHP's recently acquired Irish property management business, and the acquisition will increase PHP's portfolio to 514 assets, of which 21 are in Ireland, with a contracted rent roll of just under £150 million.

The Group continues to adopt a very disciplined approach to further investment and development activity, which will only take place if accretive to earnings. The future pipeline of opportunities continues to be focused predominantly in Ireland and PHP's existing portfolio through asset management projects.

Currently there is limited exposure to development risk with just one scheme on-site. The Group is in the process of renegotiating rental values with several Integrated Care Boards across the UK to maximise the financial viability of schemes in our pipeline, given the current economic and interest rate environment.

Financing

As at 30 September 2023 the Group's net debt stood at £1,277.1 million (30 June 2023: £1,269.8 million) and on a pro-forma basis the Loan to Value ("LTV") ratio was 45.8% (30 June 2023: 45.6%). The Group has £282 million (30 June 2023: £314 million) of undrawn loan facilities available, net of capital commitments. 97% of the Group's debt is fixed or hedged at a weighted average cost of 3.3%.

Dividend

On 5 October 2023, the Company declared its fourth quarterly interim dividend of 1.675p per Ordinary Share which will be paid on 24 November 2023 to shareholders who were on the share register at the close of business on 13 October 2023. The dividend will be paid by way of a property income distribution of 1.34 pence and a normal dividend of 0.335 pence. The dividend is equivalent to 6.7p on an annualised basis and represents a 3.1% increase over the 6.5p paid in 2022.

https://www.investegate.co.uk/announcem ... ng/7835243

I hold PHP and have (boldly!) topped up twice this year. The results look good. Cost of Debt 3.3%

[simoan]

I hold PHP and have (boldly!) topped up twice this year. The results look good. Cost of Debt 3.3%

This is worth noting but the issue is what the cost will be as the current debt matures and they roll it over at a higher interest rate. I keep meaning to look at the debt maturity profile but there’s no doubt interest costs will be higher in the future. The hope is that any increase in interest will be offset by inflationary rent reviews.

[simoan]

I hold PHP and have (boldly!) topped up twice this year. The results look good. Cost of Debt 3.3%

This is worth noting but the issue is what the cost will be as the current debt matures and they roll it over at a higher interest rate. I keep meaning to look at the debt maturity profile but there’s no doubt interest costs will be higher in the future. The hope is that any increase in interest will be offset by inflationary rent reviews.

So... I just re-read the borrowing section of last years Annual Report to remind myself of the debt profile here. It's so complicated though with debt being a combination of multi-provider term loans and bonds (roughly 50/50) which are hedged to SONIA using interest rate swaps. None of the term loans expire for two years. As for bonds, it's worth remembering there is a £150m convertible that currently will lead to slightly less than 10% dilution to equity due in July 2025. There's also a £70m floating rate bond due in December 2025 and after that a £100m bond due in March 2027. I have no idea what interest rates will be by then but the coupons look manageable to me in the meantime, particularly if rent reviews continue to rise with inflation.

All the best, Si

[Dod101]

Yes,hedging interest rates is all very well but they unwind eventually. I think we can only look at the LTV and it seems fairly stable.
Dod

[simoan]

Yes,hedging interest rates is all very well but they unwind eventually. I think we can only look at the LTV and it seems fairly stable.
Dod

The interest rate swaps are matched to the duration of the loans and floating rate bond, from what I can tell. Some of the swaps are capped, and if you look at the FY22 results, they actually made an IAS39 profit from these instruments. Also interesting to note that 94% of the outstanding debt was fixed or hedged at end of FY22. Today they reported that figure to be 97%.