Primary Health Properties plc (LON:PHP) was the topic of conversation when DirectorsTalk interviewed Gervais Williams, Co-Fund Manager of Diverse Income Trust plc (LON:DIVI)
DirectorsTalk asked: Primary Health Properties continues to benefit from long-dated inflation-linked leases and resilient rental income. What gives you confidence in the trust’s ability to grow earnings and dividends while maintaining its balance sheet strength?
Gervais noted: Property companies have quite a lot of debt often and as a result of that, if long-term interest rates are higher than usual, we’ve seen bond rates moving up recently. Effectively, that is something which worries people but actually, of course, many of these property companies have fixed that for a long period.
In the case of Primary Health Properties, they fought off private equity to get hold of a company called Assura. In the combination of that business with the synergies, not only are they able to generate extra cash, but actually they’re able to fund not just the current dividend but grow the dividends over time. So, it has a good and generous dividend yield.
We think that actually it is the kind of company which gives us diversification away from some of the other companies, like some of the mining and energy companies. It is that combination of capital-intensive properties which may get more costly to build in future with high interest rates, and specifically, the advantages of it generating surplus cash at the moment. It’s a recent purchase, it came into the portfolio in October and we think it has got terrific prospects as a result of that.
