Primary Health Properties Share Discussion Threads

[scburbs] 17/4/2009 08:27

I have closed the rest of my positions and taken my profits off the table. Property market sentiment has perked up (particularly for prime with strong covenants like PHP have) and with the potential to raise more equity the chances of a covenant breach are much reduced.

Was hoping to make a larger profit, but a profit is a profit and important to realise regularly in this market.

[whiterussians] 15/4/2009 11:59

Up it goes

[topvest] 24/3/2009 20:58

Yes, I agree.

[scburbs] 24/3/2009 07:48

Good work by the board. However, you have to question the accuracy of their statements! They have previously said that debt isn't a problem and they claim the placing is for working capital purposes, come on guys who are you kidding (at best it could be for working capital purposes because they have virtually maxed out on all their bank facilities)!! Nonetheless, the more equity they can raise the more they derisk the business, not sure whether £3.7m is enough, but it is a good start.

[westcountryboy] 24/3/2009 07:29

£3.7m raised in placing at 220p. Moving quickly to address the concerns expressed here!

[topvest] 12/3/2009 21:21

Yes, I would steer clear of any leveraged property play at the moment. They may have great properties with security of income, buy yields are very low and could easily move out further leading to.... BREACH!

[scburbs] 12/3/2009 13:51

Looks like a good deal to me. The only thing it lacks is clarity on whether AIB has done this out of the goodness of their heart or whether any fees or margin amendments have been offered in consideration for this amendment.

One thing this does prove though is that they are under significant pressure on LTV's and, therefore, comments just a couple of weeks ago like the one below [no squeeze on loan to value rations!] look rather misleading!

"Primary Health Properties PLC, one of the UK's largest providers of modern primary healthcare facilities, is pleased to announce that it has today (12 March 2009) agreed with the Allied Irish Banks, p.l.c. ('AIB') to defer the planned reduction for the agreed covenanted loan to value ('LTV') ratio, from 75 per cent. to 70 per cent, from October 2009 to March 2010, thereby matching the LTV covenants of its other existing facilities with RBS and Abbey Santander."



"The Group has manageable debt with ample headroom and there is no squeeze on loan to value ratios."

[scburbs] 07/3/2009 16:24

Bisiboy,

Thanks. I hadn't noticed that the PCT were using it as an office rather than a surgery. That would explain the higher pricing and I agree the 5 year break isn't as strong when you are using it for office space, whereas for a surgery with a client base the incentive to stay put would be strong.

[bisiboy] 07/3/2009 11:01

yes i can
it is an office block not a clinic and there is every chance in a weak market
the 5 year break will be exercised.
clincs/surgerys are completly different

[scburbs] 04/3/2009 20:58

Having look at PHP's acquisitions across the country since 2007 (where the rent is published) they have all been acquired at a very consistent yield in the 5.5-6% range. There seems to be very little geographical or other factors causing variation in the yield. The company has stopped publishing rents for the 2008 acquisitions so it is not possible to calculate the yields for the most recent acquisitions.

Given the lack of variation the 7.49% yield on offer for the Bristol PCT is worrying for PHP. A yield shift to this level would be a 21% fall in valuation and would smash PHP covenants and massacre the NAV to 38p!

Does anyone have any views on why Bristol PCT yield (link in post 388) should be above market? I am sure it can't be a market yield given the recent valuation at 31 December, but I am struggling to find out why it is so high for what looks a similar property. The only thing I can see is the 5 year break on the lease, but that shouldn't account for such a large variation.

[scburbs] 04/3/2009 08:57

Average prime properties yields at 7% as of December 2008. Is an average of 5.9% sustainable for PHP?

"Since the correction started in June 2007, prime industrial yields have moved out by 220 basis points (bps) to 7.5 per cent by the end of December 2008, and all property prime yields have increased by 240 bps to 7.0 per cent by the end of the same period (source: IPD)."

[topvest] 03/3/2009 21:05

Yes, but for how long?

[scburbs] 03/3/2009 12:47

A haven of calm amongst the bloodbath that is the UK REIT sector.

[topvest] 02/3/2009 22:10

I think PHP have lost their marbles buying property with such little headroom on their debt covenants. This is a disaster waiting to happen imho.

[scburbs] 02/3/2009 15:13

Illustrative of the interesting opportunities available in the market at the moment. Based in Bristol with yield at 7.49%.

[scburbs] 02/3/2009 10:40

Great effort in devying gravity, but surely a covenant breach waiting to happen? Rights issue in the pipeline? Can they get it away whilst share price is so high?

I have gone short today.

[westcountryboy] 01/3/2009 17:57

Hi topvest

You make a valid point but:

1) The total loss on market valuation in 2008 was £17.7m and the yields only softened from 5.5% to 5.9%. I.e. a fall of well under 10%. It's difficult to believe that the falls will be greater in 2009 in this solid area of the market.

2) A fall of say £20m in value in 2009 will be appreciably less than the increase of value that will be possible through acquisition, assuming that they can find new borrowing.

3) They seem confident of being able to secure further borrowing. Late in the statement they say they have been offered a further 20 year facility of £50m and are in discussions with other lenders.

4) These new arrangements will obviously be at higher margins, but as they also say: 'The higher available yields on new purchases and the much reduced levels of LIBOR interest rates should offset the higher margins that will be associated with new borrowings.'

5) so I can't see why they shouldn't succeed in their stated policy of restricting the LTV to 70%, which was in fact a condition of the AIB borrowing facility, with which the other borrowers will come into line in 2010. With the currently committed properties and before any new borrowing they are at 67.7%.

6) in practice, what bank is going to pull the plug on a company with 99.9% rental occupancy which is still achieving upward rent increases in this climate? I think banks will go elsewhere first. The fact is that banks have to lend somewhere and it is difficult to believe that lending will be harder in the second half of 2009 than in the second half of 2008. I suspect that all PHP's arrangements are with trusted financial partners, and I'm comforted that the most recent deals have been with Abbey National.

7) I imagine that they have some older properties that it wouldn't be too bad to have to sell, if necessary.

I thought the results pretty fair. The divi this year looks like only rising to 17p instead of all the way to 18p but that's prudent. Yield of about 6.4%. As for the NAV, well, you can now take your pick among three!

[topvest] 01/3/2009 12:08

Maybe, maybe not. Happy to watch on the sidelines at the moment....

"Total borrowings at 31 December 2008 were GBP206m. The Group had GBP193m of
fixed rate cover including GBP88m of callable swaps. The loan to value ratio at
the period end was 65% compared to a covenant level of 75% (open market value
divided by gross borrowings). This gives a fall to breach percentage margin of
approximately 14% at 31 December 2008."

[mctmct] 27/2/2009 09:47

Topvest - it seems you can put aside your concerns about the covenants.

This is from today's results:

"PHP operates in the most resilient of commercial property sectors where we
benefit from long lease lengths, nil voids, growing tenant demand and
government-backed covenant strength. The Group has manageable debt with ample
headroom and there is no squeeze on loan to value ratios. We have ambitions to
grow the business and believe there are buying opportunities in today's market
at historically low valuations. We look forward to the future with confidence."

[topvest] 26/1/2009 21:18

If it weren't for the NAV covenants this would be a stonking buy. Real estate has got silly now. Highly profitable real estate companies are breaking their nav covenants because of temporary valuation issues despite improved NPV valuations. It's all a nonsense. Anyway, this is still quite high risk imo until valuations stop falling.

[nil desperandum] 26/1/2009 13:26

happy with the trading statement, but wouldn't be surprised to see it get hit a little when the headline loss is announced...

[mctmct] 26/1/2009 12:52

Kinda quiet round here.

Decent trading statement with reassurance about the covenants and cash flow.

[stupidboypike] 17/11/2008 08:59

topvest,

Thanks for that post. I keep watching PHP with a view to putting a far bit of retirement money in. I had not realised that they were that close to the covenants. Of course the bullish case is that a 10% fall is unlikely for properties with such good rental income but in these markets who can say for sure. Once again thanks for the input. Any bulls want to argue the opposite?


Best regards

SBP

[topvest] 17/11/2008 08:15

With regret, I have sold out of PHP. Good returns over 10 years. I was getting jumpy about their debt levels, even with excellent income cover. If you do the maths, a 10% reduction in values slams them close to their 75% LTV covenants.

[kibes] 30/8/2008 12:40

nickcduk - you are right there will not be a lot of polyclinics. In fact according to my GP there will only be two in my area - one in Banbury and one in Reading (ie covering the whole of Oxfordshire and Berkshire). All other current GP surgeries will be closed and all doctors relocated. Sounds crazy? Its what the government is planning and my GP is extremely worried. How will people who can't travel get to see a doctor? They won't. This is why I wonder about PHP properties.