PHP offers investors calm in a storm

Primary Health Properties’ (PHP) share price has suffered since the mini-Budget. Part of this has been down to high interest rates, which hit the healthcare landlord’s property values just as it hit other property companies.

However, a low property yield – rental income as a percentage of its property’s value – has also plagued PHP. At 4.9 per cent, it is not far above the 10-year government bond yield, which is essentially risk-free. PHP isn't too risky itself, with the bulk of its rent coming from either the NHS or the Irish state healthcare system HSE, but investors should consider whether they want greater returns for their money.

The company's dividend yield is more attractive, and the business has increased its shareholder payouts every year for nearly three decades. These payments are fully covered and are likely to continue rising steadily because its government partners have already agreed to long leases with modest rent increases. Moreover, its buildings are nearly fully-occupied, so there is little chance of surprise there.

In short, PHP is a low-excitement, low-growth, but safe investment. Its returns are predictable, which is a plus in the current environment. The dividend yield makes the business look cheap but, relative to net asset value, it’s priced about right. There is demand for its assets from a government push in both the UK and Ireland towards primary care centres as opposed to hospitals or GPs, but PHP’s high leverage makes development at speed difficult. Private equity players with a greater appetite for risk could well swoop in and grab its market share. Hold.

Last IC view: Hold, 107p, 22 Feb 2023