Primary Health Properties PLC Proposed Placing to raise £75 million

Primary Health Properties

Introduction

Primary Health Properties PLC (LON: PHP) today announced its intention to issue new ordinary shares of 12.5 pence each to raise in aggregate gross proceeds of £75 million with the ability to upscale to £100 million subject to demand.

The Placing will be conducted by way of an accelerated bookbuild which will open immediately following the release of this announcement. Numis Securities Limited and Peel Hunt LLP are acting as joint bookrunners in connection with the Placing. The Placing will only be made available to invited eligible institutional investors in certain specified jurisdictions. A further announcement confirming the number of new Placing Shares to be issued pursuant to the Placing and final details of the Bookbuild is expected to be made in due course.

Background to and reasons for the Placing

Since the Company’s last equity fundraising in March 2018 and latest convertible bond issue in June 2019, the Company has continued to execute successfully its strategy, delivering net asset growth through a combination of acquisitions and the enhancement of existing assets, and reducing PHP’s average cost of debt. Having successfully completed the integration of the MedicX portfolio and delivered the £4 million of operating synergies outlined at the time of the transformational merger with MedicX in March 2019, the Company has continued to acquire assets and commit to development funding in both the UK and Ireland.

During the current year, the Company has seen a rise in the number of opportunities for funding new developments both in Ireland and in the United Kingdom. The Directors believe these transactions to be very attractive for PHP as they typically involve the development of larger medical centres that house bigger GP practices providing a more integrated healthcare offering in line with PHP’s stated strategy of focusing on hub primary care centres. They also represent a source of supply of more modern buildings, built to high environmental standards and let on long leases, into the PHP portfolio.

The acquisition of MedicX has brought a number of opportunities to fund new developments through its range of relationships with developers, some of which it had not been able to take forward before the Merger. Currently, the Company has contracted to fund the development and acquisition of 8 medical centre properties in the United Kingdom and Ireland, which are at various stages of construction and involving a total capital commitment of approximately £60 million.

In addition, the Board has approved funding for the development of a further four sites in the United Kingdom, where PHP is in the advanced stage of finalising agreements to fund the development and acquisition and development funding agreements are anticipated to be signed in the coming weeks, at an estimated capital cost of £20 million. The Company has also agreed terms on 4 further developments of medical centres in Ireland involving a total capital commitment of approximately £50 million (€55 million).

As funding the development and acquisition of new medical centres involves committing to make capital available during the length of the development, typically 12-18 months, it is proposed to use equity to finance these investment commitments and accordingly the proceeds of the Placing will be ear-marked to fund the developments identified above. If funded by equity, these developments as they complete will increase the value of unfettered assets in the PHP portfolio and strengthen its balance sheet. The Placing is not conditional upon these developments proceeding and if any of them do not complete then the net proceeds will be retained for use in connection with PHP’s acquisition pipeline or for general commercial activities, or a combination thereof.

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The Company continues to have a pipeline of further acquisition opportunities for standing let investments which remains significant with the Company currently analysing or negotiating a number of potential transactions. The Company has access to a broad range of financing options, including committed but undrawn debt. In combination, the positive gap between rental yields and financing and management costs remains robust and provides opportunities for Primary Health Properties to make earnings enhancing and cash generative property investments. Accordingly, the Directors will continue to employ a selective and disciplined approach to acquisitions to support continued portfolio strength through funding selected investment opportunities.

Acquisitions will be supplemented by active management of existing assets, aiming to deliver further income and valuation growth. Capital expenditure of approximately £5 million is expected to be incurred or committed in the current year to generate additional income and secure the extension of unexpired occupational lease terms. By way of comparison, in 2018 sixteen asset management projects were completed at a cost of £4.4 million, which generated additional rental income of £0.2 million per annum.

Following the Placing, the Company intends to maintain its strategy of paying a progressive dividend that is covered by earnings in each financial year.

Details of the Placing

Numis Securities Limited and Peel Hunt LLP will commence a bookbuilding process in respect of the Placing. The book will open with immediate effect. The Banks have entered into an agreement with PHP under which, subject to the conditions set out therein, the Banks will agree to use their respective reasonable endeavours to procure subscribers for the Placing Shares at a price determined through the Bookbuild and as set out in the Placing Agreement. The Placing is subject to the terms and conditions set out in the appendix to the RNS Announcement. Members of the public are not entitled to participate in the Placing.

The Placing Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with the existing issued Ordinary Shares. This includes the right to receive all dividends and other distributions declared or paid in respect of such Ordinary Shares after the date of issue of the Placing Shares. The price per Ordinary Share at which the Placing Shares are to be placed will be determined at the close of the Placing. Details of the number of Placing Shares will be announced as soon as practicable after the closing of the Bookbuild.

Application will be made for the Placing Shares to be admitted to the premium listing segment of the Official List of the Financial Conduct Authority and to trading on the main market for listed securities of the London Stock Exchange plc. It is expected that Admission will take place at or around 8.00 a.m. (London time) on 26 September 2019 (or such later date as may be agreed between the Company and the Banks). The Placing is conditional upon, inter alia, Admission becoming effective. The Placing is also conditional upon the Placing Agreement not being terminated in accordance with its terms.

Certain of the Directors, or their connected persons as defined in sections 252-255 of the Companies Act 2006, being Steven Owen, Harry Hyman, Richard Howell, Peter Cole, Ian Krieger and Dr Stephen Kell have indicated their intention to subscribe for Placing Shares in the Placing. Further details of the Placing and the participation by the Directors in the Placing will be set out in the announcement to be made at the closing of the Placing.

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