With 90% of contracted rental income paid directly or indirectly by the UK or Irish governments and the balance primarily coming from co-located pharmacies, rent collection remained robust through H120, contributing to a strong H120 financial performance. Primary Health Properties (PHP) is well on track to meet its fully covered 5.9p (+5.4%) FY20e DPS target, which will mark the 24th year of uninterrupted growth.
As may be expected with 90% of rental income funded by government bodies, PHP delivered a strong and robust operational and financial performance in H120 despite the COVID-19 pandemic. Compared with H119, adjusted EPRA earnings increased by £8.1m or 29% to £36.0m, driven by accelerating rental growth, a lower average cost of debt, and a full period contribution from MedicX. With a positive property valuation result, EPRA net tangible assets (NTA) per share increased to 109.1p and including DPS paid the NTA total return in the period was 3.1%. Despite the pandemic, we have made no material changes to our forecasts struck earlier in the year other than to adjust for the recent £140m (gross) oversubscribed share placing at 145p, the proceeds of which will be used to support further accretive portfolio investment.
The COVID-19 pandemic has highlighted the pressures on health systems around the world and will likely lead to increased healthcare spending. It also reinforces the existing consensus that exists in the UK and Ireland to place more emphasis on primary care and away from expensive and inflexible hospitals in an effort to meet the increasing healthcare needs of growing and ageing populations. This requires larger, more flexible, higher-quality premises, providing PHP with significant investment opportunities in the coming years. PHP has more than £400m of available funding headroom and a strong pipeline of targeted acquisitions and asset management projects with a value of c £128m.
Income visibility is strong, with long leases and substantially upwards-only rents, 90% backed directly or indirectly by government bodies, with little exposure to the economic cycle, or fluctuations in occupancy. The increased FY20 DPS, fully covered by earnings, represents a yield of 3.8%, with good prospects for further growth, and supports the continuing premium to NAV.