I like a good investment trust, and some of the real estate variety (REITs) seem especially good value to me. Possibly my top pick, Primary Health Properties (LSE: PHP), looks even better after first-half results on 24 July.
The share price has been through a weak spell, down 36% over the past five years, as property values weighed on investor concerns. But in the first six months of this year, the trust’s net asset value per share (NAV) reached 106.2p. That’s only 1.1% ahead of a year ago, but it’s still welcome.
It puts the shares on a 10% discount to NAV. And in this case, I don’t think that’s the best way to value the stock anyway.
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Rising income
Primary Health invests in healthcare facilities. And it rents them out on long-term leases, with the NHS one of its key clients. If the rents keep coming in at a steady pace, why would anyone really care about the value of the buildings? I don’t.
The half saw net rental income rise 3.1% year on year, leading to a 2.3% gain in adjusted earnings per share. That allowed the company to raise the interim dividend 2.9% to 3.55p per share.
For those who do care about the underlying property market, CEO Mark Davies had some welcome words. He said: “The improving rental growth outlook and a stabilisation of our property yields at 5.25% signal that we’ve moved through a key inflexion point in the property cycle.”
The CEO also spoke of the new government ’10-year Health Plan.’ He said: “We welcome the government’s commitment to strengthening the NHS, particularly its emphasis on shifting more services to modern primary care facilities embedded in local communities. This plays directly to our strengths and our long-standing partnerships across the NHS.“
Merger
One key thing is overshadowing quarter-by-quarter earnings right now. It’s the planned acquisition of fellow healthcare REIT Assura. The deal, valued at £1.79bn, was recommended by the Assura board. And at the Primary Health AGM on 1 July, over 99% of shareholder voted to approve.
It throws a pretty big unknown into the ring. Forecasts for the two independent companies are scrap paper now. And the latest report talks of potential third-party joint ventures.
I suspect that’s partly why the Primary Health share price has been slipping since the AGM resolution, while Assura is up 31% year to date.
It can take some time for a merger like this to shake out. And for us to get a clear picture of the combined entity and its potential valuation. I do think investors buying now could risk share price falls in the short-ish term.
Very tempting
I don’t know what the forward valuation and dividend prospects are going to look like. But what I do know is that both REITs were already among my favourites. I reckon those who share my thought that two should be better than one might want to consider it.
