Primary Health Properties (LON:PHP) – income investing with growth

Primary Health Properties recently reported full-year (FY) 2020 results, in line with expectations and showing continued strong progress for the business. Adjusted earnings per share (EPS) increased by 5.5% and the dividend by 5.4%, while balance sheet gearing reduced to 41.0%. These results do not yet reflect the impact of the internalisation of the Nexus management function, which releases cost savings of an addition 0.3p per share.

The company has declared a first-quarter (Q1) 2021e dividend of 1.55p, the equivalent of 6.2p annualised, which is the 25^th year of successive dividend increases (going back to the original listing of the company). PHP’s dependable dividend growth is underpinned by:

• 90% of rental income backed by government bodies (NHS and Irish HSE)
• Long lease durations, with an average weighted average unexpired lease term of 12.1 years
• The lowest cost structure of any real estate investment trust (REIT) in the UK market, allowing rental income to flow down to net profit and dividend payments.

Organic growth outlook:

We argue that demand drivers remain favourable for primary health facilities in the UK and Ireland despite the advent of video consultations. In the post-COVID environment, we believe that health authorities will remain focussed on moving more activity out of the A&E (accident & emergency) environment and back to general practitioners (GPs), as well as working to clear large backlogs that have built up during the pandemic as routine procedures have been deferred.

Within the release of the results, PHP outlined a pipeline of investment projects totalling £243mln including standing properties, developments, and upgrades to existing properties. The company has a strong track record of realising immediate shareholder value enhancement on new investments, and we regard this pipeline as a potential upside to the share price.