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

Primary Health Properties recently reported full year 2020 results that were in line with expectations and continued to show strong progress for the company. Adjusted earnings per share (EPS) rose by 5.5% and the dividend by 5.4%, while balance sheet gearing decreased to 41.0%. These results do not yet reflect the impact of internalizing the Nexus management function, which will save 0.3p per share in costs.

The company has decided to pay a dividend of 1.55p for the first quarter (Q1) 2021e, which is 6.2p on an annual basis. This is the 25th year of consecutive dividend increases (back to the company’s original listing). PHP’s dependable dividend growth is supported by:

  • Government agencies (NHS and Irish HSE) support 90% of rental income.
  • Long rental period with an average weighted average unexpired rental period of 12.1 years
  • The lowest real estate investment trust (REIT) cost structure in the UK market, so rental income can be based on net income and dividend payments.

Outlook for organic growth:

We argue that demand drivers for primary health facilities in the UK and Ireland remain cheap despite the emergence of video consultation. In the post-COVID environment, we believe that health authorities will continue to focus on moving more activities out of the A&E (Accident & Emergency) environment and back to GPs, as well as working on cleaning up large residues, that have built up during the pandemic as routine procedures have been postponed.

As part of the results release, PHP outlined a pipeline of investment projects totaling £ 243 million, including standing properties, developments and upgrades to existing properties. The company has many years of experience in realizing an immediate increase in shareholder value in new investments. We view this pipeline as a potential upward move in the stock price.