Primary Health Properties plc (PHP) Ordinary Shares 12.5p

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PHP reported a 49% rise in net rental income to £230mn. This reflects last year’s £1.6bn acquisition of Assura, and an £8mn contribution from rent reviews.

Underlying profit rose at a slightly slower pace of 41% to £131mn, partly offset by higher admin and finance costs.

Occupancy remained flat at 99%. The loan-to-value (LTV) ratio rose from 48% to 57% (target: 40-50%) due to the Assura acquisition.

In 2026, the LTV ratio is expected to fall back to target levels, helped by asset sales and cost-savings from the acquisition.

Dividends over the year totalled 7.1p per share, up 3%. The first interim dividend of the new year was paid on 13 March, totalling 1.825p per share, up 2.8% on 2025’s level.

The shares fell 2.5% in early trading.

Our view

PHP’s full-year profits landed in line with market forecasts. Rent reviews helped boost the top line, and swift progress has been made following last year’s acquisition of Assura. But the deal structure involved issuing new shares, which diluted the group’s assets per share more than expected, denting sentiment on the day.

Both companies focus on primary healthcare sites across the UK and Ireland, where demand for high-quality facilities is expected to rise. PHP has historically been the stronger operator, suggesting scope for more cost savings and improvements to Assura’s portfolio.

The deal included a £1.2bn credit facility from a group of banks. The aim would be to repay this through asset disposals and joint ventures, bringing the loan-to-value ratio back into its target range of 40-50%, which is expected to be achieved this year.

PHP has tended to operate at the upper end of that range, which is also high by industry standards. If interest rates fall, there should be a mechanical improvement as property values increase. But if the recent spike in oil prices persists, it could bring inflationary pressures and push the chance of rate cuts further into the future. As a result, the balance sheet is something to keep an eye on.

A higher cost of capital in today’s market means attractive development sites are limited, and PHP is lobbying hard with bodies like the NHS to make projects more viable. There’s progress, but only in areas where the need for new buildings is strongest.

It’s a bit of a balancing act though, as performance over the past couple of years has been driven by rent hikes. Those same elevated costs that limit development opportunities are giving landlords like PHP more bargaining power at the negotiating table.

Looking ahead, we think PHP has several features that underpin long-term dividend potential. NHS backlogs mean improving access to primary care is a key component of the UK government’s latest plans. And, with 76% of PHP’s rent roll funded by the NHS or its Irish equivalent (targeting 80–90%), tenant risk remains low.

Ireland is also a key growth driver, with arguably better market dynamics than here in the UK. Leases tend to be longer term, with better yields, and it’s a key area of focus for future growth.

We continue to like PHP as a play on a resilient UK property segment and a potential beneficiary of interest rate cuts and the renewed political focus on the NHS. The valuation isn’t stretched, and the dividend yield is attractive, though not guaranteed. However, there remains a risk of falling property values if rates move higher.

Environmental, social and governance (ESG) risk

Real estate is relatively low risk in terms of ESG. One of the principal drivers of this risk is the capacity to integrate material ESG considerations into decision-making, risk management and public reporting; the most material ESG considerations are environmental, like carbon emissions reduction, energy efficiency and physical climate risk. The rise of hybrid working has also reduced demand for commercial property, making product governance and customer satisfaction a top priority. Other risks to monitor include labour relations, business ethics, and emissions & waste.

According to Sustainalytics, PHP’s overall management of material ESG issues is strong.

Responsibility for overseeing ESG issues is assigned to board level and there is an adequate environmental policy in place. Improvements could be made to ESG related disclosures and executive compensation does not appear to be linked to ESG performance. PHP has targets for increasing investment in sustainable buildings and deadlines to meet those targets, in line with industry best practice.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.

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