A trip to the GP used to follow a simple formula: a list of symptoms, a prescription from the doctor and instructions to take a pill twice a day. Community practices, often in a poky terraced house, were dark and unwelcoming.
You may have noticed in recent years, however, that your neighbourhood surgery has disappeared. In its place, a large, modern health centre — often with a pharmacy attached — may have sprung up. Patients can have a blood test, see a dietician and get their teeth checked with a dentist. They may even be offered minor surgery.
This shift towards larger facilities, allowing more patients to avoid a visit to overstretched hospitals, has spawned a new market for real estate investors.
Developers are attracted to the long leases and secure rent, which is guaranteed by the NHS. Rent reviews are upward only. And by agreeing to refurbish properties, investors are able to extend the already long leases.
Primary Healthcare Properties (PHP), a real estate investment trust, owns 308 centres in the UK and Ireland. Founded 23 years ago by Harry Hyman, a chartered accountant, it has grown into one of the largest providers, floating on AIM in 1996 and graduating to the main market in 1998. It joined the FTSE 250 last April.
PHP is hardly going to set the world alight. Its shares have barely moved since this time last year. The stock closed at 110.2p on Friday, just 1.4% above where it was 12 months ago — making it one to avoid for investors in search of a quick buck. However, for predictable, steady returns — an investment to be “tucked away in the bottom draw” — it might be worth a look.
PHP is expected to pay total dividends of 5.4p this year, marking the 22nd consecutive year of increases and giving it a yield of 4.9%. Total returns, including the increase in share price, have been well over 10% for the past five years. Earnings on an Epra (European Public Real Estate Association) basis rose by 11% in the first half to £17.1m, from £15.4m in the same period last year.
Epra earnings per share fell by 3.8% to 2.5p from 2.6p, however, due to a share issue in April, when the company raised £115m to pay down debt and fund growth.
PHP is unlikely to deliver lucrative returns in the short term — it operates in a low-risk, non-cyclical market, likely to turn off hungrier investors. Broker Peel Hunt has a 125p target on the stock, while Jefferies predicts 126p.
Yet for a safe place to store cash with a decent return, PHP could be just what the doctor ordered. Buy.
