Primary Health Properties (PHP)

[BullDog]

Thank you Dod. Yes, the share price is at a year low it seems. Some of the froth might have have blown off the premium to NAV. But if looks to me like it's still around 25%-ish or thereabouts. Whilst the yield is at a level that interests me, I would have to sell something to invest in PHP. I think I will sit and wait awhile. Thanks again.

I am grateful it has been flagged up though

I think the price is at its lowest point since December 2020 and of course the yield is now better than 4% where it has not been for some time. This could be a good time to buy. As a long term holder though I am not too impressed.

Dod

Thanks Dod, we have all been there.

Yes, I am torn to some extent over PHP. I generally do not pay over NAV for anything. PHP is very high quality income, without a doubt. Whether it's worth selling something else in my portfolio to buy it, well that's a tough question.

I feel there may be a bit more froth to blow off PHP just yet. In an increasing interest rate environment, the bond like income quality of PHP may come under some pressure yet. Let's wait and see a while.

[simoan]

Thank you Dod. Yes, the share price is at a year low it seems. Some of the froth might have have blown off the premium to NAV. But if looks to me like it's still around 25%-ish or thereabouts. Whilst the yield is at a level that interests me, I would have to sell something to invest in PHP. I think I will sit and wait awhile. Thanks again.

I am grateful it has been flagged up though

I think the price is at its lowest point since December 2020 and of course the yield is now better than 4% where it has not been for some time. This could be a good time to buy. As a long term holder though I am not too impressed.

Dod

Thanks Dod, we have all been there.

Yes, I am torn to some extent over PHP. I generally do not pay over NAV for anything. PHP is very high quality income, without a doubt. Whether it's worth selling something else in my portfolio to buy it, well that's a tough question.

I feel there may be a bit more froth to blow off PHP just yet. In an increasing interest rate environment, the bond like income quality of PHP may come under some pressure yet. Let's wait and see a while.

Surely the fall in the share price is simply a function of increasing UK interest rates? I think we established not long ago that the NAV of REITs is based on a standard Discounted Cash Flow (DCF) model specified by RICS. If the discount rate increases the value of future cashflows decreases. Under these circumstances the present share price should decrease to reflect this. It's all very well having ultra reliable cashflows leading to a high share price in a low interest rate environment, however we are now seeing the other side of the coin.

[BullDog]

Thank you Dod. Yes, the share price is at a year low it seems. Some of the froth might have have blown off the premium to NAV. But if looks to me like it's still around 25%-ish or thereabouts. Whilst the yield is at a level that interests me, I would have to sell something to invest in PHP. I think I will sit and wait awhile. Thanks again.

I am grateful it has been flagged up though

I think the price is at its lowest point since December 2020 and of course the yield is now better than 4% where it has not been for some time. This could be a good time to buy. As a long term holder though I am not too impressed.

Dod

Thanks Dod, we have all been there.

Yes, I am torn to some extent over PHP. I generally do not pay over NAV for anything. PHP is very high quality income, without a doubt. Whether it's worth selling something else in my portfolio to buy it, well that's a tough question.

I feel there may be a bit more froth to blow off PHP just yet. In an increasing interest rate environment, the bond like income quality of PHP may come under some pressure yet. Let's wait and see a while.

Surely the fall in the share price is simply a function of increasing UK interest rates? I think we established not long ago that the NAV of REITs is based on a standard Discounted Cash Flow (DCF) model specified by RICS. If the discount rate increases the value of future cashflows decreases. Under these circumstances the present share price should decrease to reflect this. It's all very well having ultra reliable cashflows leading to a high share price in a low interest rate environment, however we are now seeing the other side of the coin.

That's what I said, though not so eloquently. That's why I suspect waiting to buy PHP might be a good idea. Interest rates are going up a way yet.

[Dod101]

Thank you Dod. Yes, the share price is at a year low it seems. Some of the froth might have have blown off the premium to NAV. But if looks to me like it's still around 25%-ish or thereabouts. Whilst the yield is at a level that interests me, I would have to sell something to invest in PHP. I think I will sit and wait awhile. Thanks again.

I am grateful it has been flagged up though

I think the price is at its lowest point since December 2020 and of course the yield is now better than 4% where it has not been for some time. This could be a good time to buy. As a long term holder though I am not too impressed.

Dod

Thanks Dod, we have all been there.

Yes, I am torn to some extent over PHP. I generally do not pay over NAV for anything. PHP is very high quality income, without a doubt. Whether it's worth selling something else in my portfolio to buy it, well that's a tough question.

I feel there may be a bit more froth to blow off PHP just yet. In an increasing interest rate environment, the bond like income quality of PHP may come under some pressure yet. Let's wait and see a while.

Surely the fall in the share price is simply a function of increasing UK interest rates? I think we established not long ago that the NAV of REITs is based on a standard Discounted Cash Flow (DCF) model specified by RICS. If the discount rate increases the value of future cashflows decreases. Under these circumstances the present share price should decrease to reflect this. It's all very well having ultra reliable cashflows leading to a high share price in a low interest rate environment, however we are now seeing the other side of the coin.

Maybe so but the fall or at least stalling of the share price has been in place for well over the last 12 months. How far ahead does the average stock investor anticipate increased interest rates? That may be a factor but I also think they are/were particularly vulnerable because of the premium in the share price.

Dod

[simoan]

Maybe so but the fall or at least stalling of the share price has been in place for well over the last 12 months. How far ahead does the average stock investor anticipate increased interest rates? That may be a factor but I also think they are/were particularly vulnerable because of the premium in the share price.

Dod

Who knows why share prices move as they do? That way only madness lies. There have been a couple of institutional sellers (Blackrock and a Dutch pension fund). Some of the acquisitions they made also included part payment in shares, so perhaps the property seller just sold in the market? As BullDog mentioned this is basically a bond i.e. interest rates go up -> bond yield goes up -> bond price goes down.

The point to bear in mind is that the NAV per share should roughly decrease in line with the share price, so the premium to NAV will not necessarily disappear. Anyone waiting for it to do so may be very disappointed. You also have to take into account that when they come to rollover the debt in future, they will have to do so at higher rates, so interest costs will increase which will stunt the dividend growth. We'll find out what they say on the NAV at FY results on 16th February.

Oh I forgot to mention, there's also £150m of convertible bonds due in 2025.

[BullDog]

Maybe so but the fall or at least stalling of the share price has been in place for well over the last 12 months. How far ahead does the average stock investor anticipate increased interest rates? That may be a factor but I also think they are/were particularly vulnerable because of the premium in the share price.

Dod

Who knows why share prices move as they do? That way only madness lies. There have been a couple of institutional sellers (Blackrock and a Dutch pension fund). Some of the acquisitions they made also included part payment in shares, so perhaps the property seller just sold in the market? As BullDog mentioned this is basically a bond i.e. interest rates go up -> bond yield goes up -> bond price goes down.

The point to bear in mind is that the NAV per share should roughly decrease in line with the share price, so the premium to NAV will not necessarily disappear. Anyone waiting for it to do so may be very disappointed. You also have to take into account that when they come to rollover the debt in future, they will have to do so at higher rates, so interest costs will increase which will stunt the dividend growth. We'll find out what they say on the NAV at FY results on 16th February.

Oh I forgot to mention, there's also £150m of convertible bonds due in 2025.

Hmmm. I think at a ~25% premium, those folks fishing for yield are going to increasingly find paying 125p for 100p of assets yielding ~4.5% quite a bit less attractive. Myself, I think the premium may well unwind here quite a bit more, even if NAV stays level. Of course, I may well be completely wrong about that. I won't pay a premium, that may be colouring my judgment.

Good call on the convertibles, that's going to cost a lot more to refinance in 2025 if it's not repaid. Having said that, how many folks look three years down the road?

[CryptoPlankton]

Thanks for the comments everyone. I have held PHP for a number of years, as I have WHR (Warehouse REIT), - OK very different type of properties, but stick with me for a minute..

My holding of WHR Warehouse REIT is up over 60%, and at a premium of +11.6%(though recently its performance perhaps understandably has gone flat), but my holding of PHP is only up 6%, having fallen back significantly over the last year, from a much higher position. None of my other REIT's has fallen back to the extent that PHP has. Thus my pondering about debt levels and interest rate rises, or some other scenario that Mr Market might be aware of.

Not sure what a "number of years" means for you, but I have held for about 8 years and the value of the holding is currently up about 57%. With a healthy yield and fairly consistent dividend CAGR (over different periods) of around 4%, I am not too concerned about the recent SP performance. After a good run, it had got ahead of the steady uptrend it has been on for pretty much all of this century and this could just be a "reversion to the mean" - much like around the time of the GFC.

Whatever the reason(s) for it, I don't consider this "correction" sufficiently alarming yet to consider it more than short term noise in the serene long term progress of a holding that is providing a very satisfactory total return. I certainly have other investments that are having a greater impact on my sleep!

[Arborbridge]

Surely the fall in the share price is simply a function of increasing UK interest rates? I think we established not long ago that the NAV of REITs is based on a standard Discounted Cash Flow (DCF) model specified by RICS. If the discount rate increases the value of future cashflows decreases. Under these circumstances the present share price should decrease to reflect this. It's all very well having ultra reliable cashflows leading to a high share price in a low interest rate environment, however we are now seeing the other side of the coin.

In which case, how does one reconcile Richfool's point about WHR not suffering in the same way?

More rates rises to come, so standbye for further declines if your theory is correct.


Arb.

[richfool]

Surely the fall in the share price is simply a function of increasing UK interest rates? I think we established not long ago that the NAV of REITs is based on a standard Discounted Cash Flow (DCF) model specified by RICS. If the discount rate increases the value of future cashflows decreases. Under these circumstances the present share price should decrease to reflect this. It's all very well having ultra reliable cashflows leading to a high share price in a low interest rate environment, however we are now seeing the other side of the coin.

In which case, how does one reconcile Richfool's point about WHR not suffering in the same way?

More rates rises to come, so standbye for further declines if your theory is correct.


Arb.

Yes, exactly. None of my other Prop Coys or REIT's have fallen back to any significant extent, and that includes: WHR, EPIC, SLI, SUPR, and BREI.

[BullDog]

Surely the fall in the share price is simply a function of increasing UK interest rates? I think we established not long ago that the NAV of REITs is based on a standard Discounted Cash Flow (DCF) model specified by RICS. If the discount rate increases the value of future cashflows decreases. Under these circumstances the present share price should decrease to reflect this. It's all very well having ultra reliable cashflows leading to a high share price in a low interest rate environment, however we are now seeing the other side of the coin.

In which case, how does one reconcile Richfool's point about WHR not suffering in the same way?

More rates rises to come, so standbye for further declines if your theory is correct.


Arb.

Yes, exactly. None of my other Prop Coys or REIT's have fallen back to any significant extent, and that includes: WHR, EPIC, SLI, SUPR, and BREI.

I haven't looked, but is the premium to NAV so large on those REITs compared to PHP? It seems to me on the face of it that unwinding a too large premium is what's hurt PHP relative to other REITs?

[richfool]

WHR Premium: +11.6%
PHP P/E: 24.3%
(The other REITs I hold are at a discount.)

[Dod101]

Surely the fall in the share price is simply a function of increasing UK interest rates? I think we established not long ago that the NAV of REITs is based on a standard Discounted Cash Flow (DCF) model specified by RICS. If the discount rate increases the value of future cashflows decreases. Under these circumstances the present share price should decrease to reflect this. It's all very well having ultra reliable cashflows leading to a high share price in a low interest rate environment, however we are now seeing the other side of the coin.

In which case, how does one reconcile Richfool's point about WHR not suffering in the same way?

More rates rises to come, so standbye for further declines if your theory is correct.


Arb.

WHR and most other property REITS are in the fashionable 'big box' sector where there is high demand for assets on the back of seemingly insatiable demand. We even have B Land buying in to assets that are not even 'big box' yet in anticipation of redeveloping them in a couple or so years down the road. That demand is not there with the properties of PHP and as I said, the property use is very restricted. However the rent is as secure as we are ever going to get it.

On the subject of the convertible bond, it is in the books at £175 million, being the current 'fair value', at least it was current at 31 December 2020. That £25 million premium can be expected to unwind if it is kept to maturity, so as simoan has not quite said trying to anticipate nearly four years ahead is the way that madness lies.

I suspect the real answer to the share price's modest decline is partly cyclical, and partly investors seeing what they regard as more exciting prospects with big box shares. For investors, I am sure that holding a spread of such assets and expecting some to rise others to fall over time is the way to go if one is reasonably conservative.

Dod

[Dod101]

WHR Premium: +11.6%
PHP P/E: 24.3%
(The other REITs I hold are at a discount.)

If these numbers are correct, they are an example of the classic apples and oranges comparisons, but even if the PHP number refers to the premium, then if the OP does not like PHP he always has the option of selling it.

Dod

[BullDog]

WHR Premium: +11.6%
PHP P/E: 24.3%
(The other REITs I hold are at a discount.)

Thanks. Perhaps as I thought then. Premium to NAV at (bond like) PHP is unwinding as interest rate environment changes to one where several interest rate rises over the next couple of years are likely. I like PHP and will keep an eye on it with a view to buying if the premium unwinds further. Thanks again for flagging it up.

[richfool]

Yes I do like and hold PHP., and topped up recently at the lower prices whilst also noting the increased dividend. I also realise/appreciate that it invests in a very different type of property to WHR. It is simply a case of me making sure my investments work for their money, noting the stark comparison of PHP slowly falling when the others are all rising, and I was also considering if there were any factors I am missing.

The value of a spread of different types of investments understood.

[richfool]

Note that WHR is a REIT, at a premium of c 10.92%, whereas PHP is a property company trading at, according to HL, a PE of 24.33%

[tjh290633]

Note that WHR is a REIT, at a premium of c 10.92%, whereas PHP is a property company trading at, according to HL, a PE of 24.33%

From https://www.phpgroup.co.uk/about-us/glance/

Primary Health Properties PLC (“PHP”) is a UK Real Estate Investment Trust (“REIT”) and leading investor in modern primary healthcare premises.

Why do you think it is not a REIT?

TJH

[richfool]

Note that WHR is a REIT, at a premium of c 10.92%, whereas PHP is a property company trading at, according to HL, a PE of 24.33%

From https://www.phpgroup.co.uk/about-us/glance/

Primary Health Properties PLC (“PHP”) is a UK Real Estate Investment Trust (“REIT”) and leading investor in modern primary healthcare premises.

Why do you think it is not a REIT?

TJH

Because of what HL say here:
https://www.hl.co.uk/shares/shares-sear ... ary-shares

They don't mention REIT, only "property company". They refer to PE rather than premium/discount and they show no KID. However as your link says they are a REIT. Hmm puzzled. I don't know why HL showed a PE then.

[monabri]

WHR Premium: +11.6%
PHP P/E: 24.3%
(The other REITs I hold are at a discount.)

If these numbers are correct, they are an example of the classic apples and oranges comparisons, but even if the PHP number refers to the premium, then if the OP does not like PHP he always has the option of selling it.

Dod

I'm not following the comparison of a NAV premium to a P/E ratio.

I had a look through the last PHP annual report and it reports NAV figures applicable at the point when the report was compiled...the issue for me (and I stress, "for me") is making sense of what the report was saying as it stated basic NAV, adjusted NAV, diluted NAV... Hence, I'm no wiser.

However, for me, the attraction of investing in PHP might lie in the yield and the dividend growth rate. However, I didn't invest there because, when funds were available, I placed them instead in an Investment Trust (Law Deb) which had a similar (slightly higher) yield and I deemed was unlikely to undergo a Covid dividend cull/cut. At the time, LWDB was "on offer" in HYP P parlance (..it's usually on offer Mon-Fri 0800 to 4:30pm ).

[richfool]

WHR Premium: +11.6%
PHP P/E: 24.3%
(The other REITs I hold are at a discount.)

If these numbers are correct, they are an example of the classic apples and oranges comparisons, but even if the PHP number refers to the premium, then if the OP does not like PHP he always has the option of selling it.

Dod

I'm not following the comparison of a NAV premium to a P/E ratio.

I had a look through the last PHP annual report and it reports NAV figures applicable at the point when the report was compiled...the issue for me (and I stress, "for me") is making sense of what the report was saying as it stated basic NAV, adjusted NAV, diluted NAV... Hence, I'm no wiser.

However, for me, the attraction of investing in PHP might lie in the yield and the dividend growth rate. However, I didn't invest there because, when funds were available, I placed them instead in an Investment Trust (Law Deb) which had a similar (slightly higher) yield and I deemed was unlikely to undergo a Covid dividend cull/cut. At the time, LWDB was "on offer" in HYP P parlance (..it's usually on offer Mon-Fri 0800 to 4:30pm ).

Well, thank TJH for clarifying that PHP is a REIT.

I can only assume then that the PE figure that HL quote equates to a premium, in which case I can well understand the SP falling back, if PHP is trading at a premium of some 24%. - (much higher than the premium on the very in vogue Warehouse REIT (WHR)).

When I topped up PHP, though I did so at a 4%+ dividend yield, which had just been increased, so will sit tight on that.