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Primary Health Properties

Primary Health Properties PLC Strengthened balance sheet and high-quality portfolio driving strong performance

Primary Health Properties PLC (LON:PHP), a leading investor in modern primary health facilities, announced its audited annual results for the year ended 31 December 2018.

Harry Hyman, Managing Director of PHP, commented:

“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.

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. 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.”

OPERATIONAL AND FINANCIAL HIGHLIGHTS

Year ended

31 December 2018

(audited)

Year ended

31 December 2017

(audited)

Change

Key highlights

EPRA earnings

£36.8m

£31.0m

+18.7%

EPRA earnings per share2

5.2p

5.2p

Unchanged

EPRA NAV per share1,3

105.1p

100.7p

+4.4%

Dividend per share6

5.40p

5.25p

+2.9%

Property portfolio

Investment portfolio valuation4

£1.503bn

£1.362bn

+2.5%

Net initial yield (“NIY”)

4.85%

4.91%

Contracted rent roll (annualised)

£79.4m

£72.3m

+9.8%

Weighted average unexpired lease term (“WAULT”)

13.1 years

13.2 years

Occupancy

99.8%

99.7%

.

Rent-roll funded by government bodies

91%

90%

Net rental income1

£76.4m

£71.3m

+7.2%

Reported IFRS results

IFRS profit for the year

£74.3m

£91.9m

-19.2%

IFRS earnings per share2

10.5p

15.3p

-31.4%

IFRS NAV per share1,3

102.5p

94.7p

+8.2%

Dividends

Dividends paid6

£36.6m

£31.4m

+16.6%

Dividend cover

101%

99%

Debt

Average cost of debt

3.90%

4.09%

Loan to value ratio1

44.8%

52.9%

Weighted average debt maturity

5.4 years

6.3 years

Total undrawn loan facilities7

£190.6m

£101.0m

 

1 Definitions for net rental income, loan to value (“LTV”) and net asset value (“NAV”) are set out in the Glossary of Terms.

2 See note 8, earnings per share, to the financial statements.

3 See note 25, net asset value per share, to the financial statements.

4 Percentage valuation movement during the year based on the difference between opening and closing valuations of properties after allowing for acquisition costs and capital expenditure

5 The Company uses a number of alternative performance measures in this annual results statement. See note 32.

6 See note 9, dividends, to the financial statements.

7 After deducting the remaining cost to complete contracted acquisitions, properties under development and asset management projects.

DELIVERING EARNINGS AND DIVIDEND GROWTH

· Eight income accretive properties selectively acquired in the year for £106.2m, with a large average lot size of £13.3m

· Average annualised uplift of 1.4% on rent reviews agreed in the period, resulting in an uplift in rent of £1.1m p.a. (2017: 1.1% with an uplift of £0.5m)

· First 2019 quarterly dividend of 1.40p per share, payable on 22 February 2019, equivalent to 5.6p on an annualised basis and a 3.7% increase over the 2018 dividend per share and will represent the Company’s 23rd consecutive year of dividend growth

DELIVERING FINANCIAL MANAGEMENT

· Successful, over-subscribed equity issue completed in April 2018, raising £115.0m (£111.2m net of expenses) at a 7% premium to EPRA NAV at 31 December 2017

· £45.8m (€51.0m) senior secured euro-denominated loan notes issued in the year with a blended rate of 2.4973% and weighted average maturity of 10.4 years

· £40.0m of convertible bond conversions in the year with a further £6.2m converted post period end leaving just £17.0m in issue

· LTV reduced to 44.8% (2017: 52.9%)

· Average cost of debt reduced by 19bp to 3.90% (2017: 4.09%)

DELIVERING NET ASSET VALUE GROWTH

· Property valuation surplus and profit on sales of £36.1m (2017: £64.5m), growth of 2.5% (2017: 5.0%); portfolio net initial valuation yield of 4.85% (2017: 4.91%)

· Like-for-like rental growth of £1.3m or 1.8% (2017: £0.5m or 0.7%) accounting for approximately 60% (2017: 10%) of the revaluation surplus created in the year with contraction of the net initial yield (“NIY”) accounting for the balance

· Portfolio in Ireland now comprises eight assets, valued at €92.3m, and including the forward funded development at Bray as complete, the value increases to around €110m

· Strong pipeline of targeted acquisitions of approximately £190m of which £30m currently in legal due diligence

· 16 asset management projects completed investing £4.4m (2017: £4.4m), creating an additional £0.2m p.a. (2017: £0.2m p.a.) of rental income, and strong pipeline of five approved projects due to commence imminently and a further 36 potential projects being progressed

· Only £1.2m or 1.5% of annualised rent roll expiring in the next three years of which £0.4m or 33% is subject to a planned asset management initiative or terms have been agreed to renew the lease

DELIVERING STRONG TOTAL RETURNS

Year ended

31 December 2018

Year ended

31 December 2017

Total EPRA NAV return

9.7%

16.4%

Income return

5.3%

5.5%

2.7%

5.3%

Total property return

8.0%

10.8%

MSCI All Property return1

7.3%

11.0%

0.7%

(0.2%)

1     MSCI UK Monthly Property Index.