# Primary Health Properties: Results demonstrate growth as well as security

- Link: https://www.directorstalkinterviews.com/primary-health-properties-results-demonstrate-growth-as-well-as-security/412966707
- Published: 2021-03-08T07:23:23+00:00
- Author: Amilia Stone

**Primary Health Properties plc** (LON:PHP) 17 February’s strong results for 2020
have prompted us to raise 2021E dividend to 6.25p, from 6.125p. Expansion of the
market for modern primary medical assets accelerates and PHP’s confidence in its
repeated ability to deploy the fresh equity raised in 2020 (and previous years) 
has had a direct positive effect on shareholder returns. We think this REIT has 
significant per-share value growth potential, through capital deployment prudently
raising LTV, through measured but accelerating rent rises, prospective reductions
in cost of debt and overhead cost efficiencies from the recent internalising of 
the management structure.

 * **A stand-out performer:** Adjusted NTA rose by 5% and EPRA EPS rose 6%, with
   adjusted earnings rising 22%. PHP deployed equity raises promptly. COVID-19 financial
   resilience has amply illustrated PHP’s index-linked, gilt-style character, with
   earnings-accretive execution of its expansion strategy, which is ongoing.
 * **Investment summary:** 25% of leases being index-linked and 6% on fixed uplifts
   enhance even further the attractions of the AAA covenant, we believe. Equity 
   deployment on the £200m pipeline added to scope for reduction in the 3.5% debt
   cost point to growth. The latest (quarterly) dividend was up 5.4% YoY.
 * **Efficiency:** We estimate the group’s EPRA cost ratio to be at the lowest in
   the sector 2021E. 2020 was 11.9%, a fall vs. the 12.0% incurred during 2019. 
   There has previously been a £4.0m p.a. cost saving from the merger with MedicX
   and a further £4.0m accrues post the January 2021 taking in-house of management.
 * **Valuation:** Real assets and upwards-only long leases back progressive dividends.
   2019’s rating reacted positively to strategic growth execution and we expect 
   growth in financial ratios to come. For 2022E, we see scope for ca.6% EPRA EPS
   increase and dividends growing well as a result.
 * **Risks:** The Primary Health Properties 2020 placing helped to maintain an appropriate
   loan to value (LTV) in the short term towards 40%. Interest cover is set to remain
   above 2.5x. The assets are modern and overwhelmingly EPC C or better. Development
   risk taken is minimal, and the long leases are upwards-only rents.

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