Borrowings rise at Primary Health

9th Nov 2010 16:15

Healthcare property investor Primary Health Properties (PHP) has seen an improvement in rental growth in the second half of the year.The achieved increase in rent on those leases reviewed in the third quarter was a portfolio weighted average rate of 3.23% per annum, up from 3.1% for the first half of 2010.Group borrowings at the end of October stood at £271.4m, as against available aggregate facilities of £296.7m, including term facilities of £258.4m which are not due for renewal or replacement until 2013.The group has agreed heads of terms for a new 10-year interest only £25m facility with Aviva Commercial Finance. The group is also examining other options to refinance both its existing facilities and provide expansionary capital.PHP's fixed rate cover of £198m as at 8 November 2010 included £88m of callable swaps which are reviewed on a quarterly basis. The next possible call date is on 11 November 2010. At 30 September 2010 (the latest practicable date), the valuation of the swaps was a net liability of £40m, reflecting the continued downward revision of long-term swap rates.Broker KBC Peel Hunt welcomed the new facility, saying it will give PHP £50m or more to extend its acquisition strategy. "However, longer term the company will have to look to other funding solutions, as acknowledged in today's statement," the broker observed. "One option is a long-term bond; this would be a welcome diversification from term facilities, extend weighted average debt maturity and enable the company to take advantage of the historically low cost of money," Peel Hunt said.The broker has a "buy" recommendation for PHP and has set a new target price of 345p. "We believe yields will continue to hold steady, but expect rental growth to continue at 2.5-3% pa. Consequently we maintain our 2010 forecast NAV [net asset value per share] at 317p, rising to 345p for 2011," the broker said.