Dividend cover is the primary issue for Primary Health Properties (PHP), which owns doctors' surgeries across the country. The company has increased dividends for 17 consecutive years, but profits have not kept up. Higher debt costs, slowing rental growth and a £68.5m equity raise in May all took their toll on adjusted earnings per share, which fell 21 per cent to 4.8p in the half - 52 per cent of the payout.
Chief executive Harry Hyman reckons the final six months of 2012, when cover was 45 per cent, marked the trough. Acquisitions totalling £61m so far this year will boost the second-half numbers, replacing low-yielding cash with properties returning about 5 per cent after management fees. Because of the fund-raising, the company's loan-to-value (LTV) ratio was 52.8 per cent in June - low for PHP and the primary-care sector. Mr Hyman says the LTV will now move back towards the 65 per cent mark, and with new debt costing 3 per cent this will automatically boost earnings - although he will not be pinned down on when full cover will finally be restored.
With the NHS in a state of chaotic reorganisation, the market has remained robust but not supportive. Rent reviews in the period showed an average uplift of 2.3 per cent - down from 2.4 per cent last year and a historical norm of 3-4 per cent.
Broker Investec Securities has downgraded its adjusted EPS forecast to 10.9p for the full year, and does not expect full dividend cover before 2016.
PRIMARY HEALTH PROPERTIES (PHP) | ||||
|---|---|---|---|---|
| ORD PRICE: | 335p | MARKET VALUE: | £328m | |
| TOUCH: | 334.5-335.25p | 12-MONTH HIGH: | 364p | LOW: 313p |
| DIVIDEND YIELD: | 5.7% | TRADING PROPERTIES: | nil | |
| PREMIUM TO NAV: | 26% | NET DEBT: | 131% | |
| INVESTMENT PROPERTIES: | £647m | |||
| Half-year to 30 Jun | Net asset value (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 249 | 4.2 | 5.9 | 9.25 |
| 2013 | 266 | 13.6 | 17.4 | 9.50 |
| % change | +7 | +227 | +195 | +3 |
Ex-div: 18 Sep Payment: 1 Nov | ||||
