Dear reader,
Primary Health Properties (LON: PHP) has reported for the first half of 2026, and this is the half I said would decide it. When I wrote the company up back in April, the case was that the merger with Assura had done the strategic work but left the balance sheet stretched, and that 2026 would be the year that either vindicated the deal or complicated it. Here is the first six months of the answer.
So far it is going roughly to plan. Adjusted earnings per share rose 9% to 3.8p, the Assura cost savings are nearly all banked, and the deleveraging the whole case depends on has moved from intention to something firmer. The market has taken note. The shares changed hands at around 0.85 times the value of the underlying assets when I covered them in April; that discount has narrowed, and property has been leading my portfolio’s gains in the months since.
The caveats have not gone away. The borrowing is still above where PHP wants it, and the dividend, while covered, is covered with less to spare than usual. Progress on the balance sheet is real, but it is partial, and the bill for Assura is not fully settled. Which leaves the question this article has to answer: is year 31 of the dividend record as safe as 3.8p of earnings is made to look?
Reading The Accounts
Two statements tell you what is really going on. The income statement shows how the half traded, money in and money out. The balance sheet is a snapshot of what PHP owns and owes. Between them they explain why the profit looks strong and the shares still look nervous.
The Income Statement: Rent In, Interest Out
Start with the money coming in. After running costs, PHP collected £176m of net rent, more than double the £79m a year earlier. Almost all of that jump is Assura, but it is real cash from real tenants.
Then the money going out, where two costs matter. Overheads came to about £13m, one of the leanest cost bases in the UK property sector, which for an income investor means more of the rent reaching your dividend. The other cost is the one that changed everything: interest. PHP paid £78m to service its debt, up from £24m a year ago, more than triple. That is the price of the borrowing it took on to buy Assura, and it now swallows a good slice of the rent. The interest is still comfortably covered, but the cushion is thinner than before the deal.
What is left is £98m of profit, or 3.8p a share, on the “adjusted” measure, the everyday rental profit that pays your dividend. That rose 9%. Hold the applause, though. This half had six months of Assura against none a year earlier, so even the per-share figure is riding the deal. Strip the acquisition out and the buildings PHP already owned grew their rent by about £4m. On £345m of annual rent, that is the underlying business ticking over while the merger does the shouting.
Chief executive Mark Davies credited the half to “the integration of Assura and the robust underlying operational performance of the portfolio.” Fair, but the phrase blends two very different things: a one-off lift from buying scale, and the slow, home-grown growth that has to carry the company once the merger stops being new. The first is nearly done. The second is what year 31 of the dividend rests on.
Encouragingly, the second is moving. PHP’s leases are reviewed only every few years, and those settled in the half were reset 5.7% higher than before, about 3.2% a year once spread across the gap between reviews. Not dramatic. But with almost every building occupied, 3% compounding year after year is worth far more to an income investor than a one-off percentage from a deal that happens once.
One figure will spook anyone reading only the top line. On the official accounting (”IFRS”) measure, earnings per share fell, from 4.4p to 3.8p. Ignore it. The share count doubled to pay for Assura, and last year’s number was flattered by paper gains on property and hedging that did not repeat. Those are valuations on paper, not rent in the bank. Adjusted earnings are the honest read.
The Balance Sheet: What You Own, And What You Owe
The balance sheet answers a simpler question: if PHP sold up and paid everyone off, what would be left for you?
On one side, the buildings, valued at £6bn and, reassuringly, unchanged since December. In a market that has marked plenty of property down, GP surgeries holding their value tells you something. On the other side, £3.4bn of debt. Net it off and shareholders are left with about £2.6bn, or 99p a share, rising to 104p on PHP’s adjusted measure. That 5p difference is real: PHP locked in cheap fixed-rate debt years ago, and with rates now higher those loans are worth more than the accounts admit.
The number to watch is not what the assets are worth, but how much of them is borrowed. PHP’s loans equal 57% of the value of its buildings, against a target of 40% to 50%. More than half the portfolio is currently funded by the bank rather than by shareholders.
This is uncomfortable, not dangerous. The buildings are full, the income is secure, and the lenders’ limit only bites at 65%; values would have to fall by roughly a third to get there. Every covenant was met. The debt weighs on the share price, not on the business.
What matters is the direction, and it is downward. The centrepiece is a joint venture over the private hospitals: PHP sells half of its £0.7bn hospital portfolio to a long-term institutional investor, banks the cash against its debt, and stays on as manager for a fee, cutting its borrowing without giving up control or the upside. Terms are agreed, with completion targeted for the coming weeks. Alongside it, £103m of GP surgeries move into PHP’s existing venture with the pension fund USS, raising about £82m more. And the £1.2bn loan that funded the Assura deal is already down to £260m, refinanced into cheaper, longer borrowing that should pull PHP’s average interest rate from 3.8% toward 3.5%.
Together these take the borrowing from 57% of the portfolio to about 53%, better but still above target. Management sounds confident, citing more buyers for healthcare property and “confidence in our ability to complete our deleveraging objectives in the short term.” I would temper that. The refinancing is done and verifiable; the two deals that do the real work are agreed, not completed. At 95.55p you are buying a pound of PHP’s property for about 92p, and that discount is simply the market waiting for those deals to close.
The Dividend
This is what most of you own the stock for, so plainly: PHP has raised its dividend for 30 years straight, funded by long, government-backed rent that does not wobble in a downturn. The 2026 payout runs at 7.3p a share annualised, up 2.8%, and management calls it fully covered.
“Covered” is doing some work, though. Cover is around 103%, meaning PHP earns only a little more than it pays out and hands nearly all of it back. That is thin, though it edged up on last year’s first half, and it sits alongside the stretched balance sheet.
The two are really one problem. Until the deleveraging completes and the interest bill falls, both cover and leverage stay tight. Complete it, and earnings rise as interest drops, loosening both. The 30-year streak is safe this year. Year 31 leans on the same plan as everything else here.
The Verdict: Bull And Bear
The bull case
A 30-year unbroken record of dividend growth, still rising, paid from government-backed rent.
99% occupancy on long leases, with organic rental growth of around 3.2% finally compounding again.
A structural tailwind: the NHS 10-year plan and its neighbourhood health centres point to rising demand for exactly the buildings PHP owns and develops.
One of the leanest cost bases in the sector, with refinancing already lowering the interest bill.
Shares below the value of the assets on a yield north of 7%, with the deleveraging set to close the gap.
The bear case
The re-rating hangs on two deals that have not completed, in a property market that can turn. If they slip, the discount persists.
Even after those deals land, borrowing stays above target, at around 53% against a 40% to 50% goal.
Dividend cover is thin at roughly 103% until earnings rise and interest falls.
The private hospitals are larger, more cyclical and not government-backed, leaving 13% of the portfolio outside the model that has defined PHP for three decades.
The sector remains sensitive to interest rates. If they stay higher for longer, property valuations and the discount could linger or widen.
My read. A good half that did what April said it would need to. The earnings are real even if the merger flatters them, the rent beneath is growing, and the unglamorous refinancing is done well. What is left is closing the two deals that finish the job on debt, and until they land, the balance sheet, the dividend cover and the share-price discount all stay put. For a patient income investor, little here to put you off and a fair bit to like. For everyone else, the second-half completions are the thing to watch.
Thanks for reading.
Ollz.
This article is provided for information and general interest only. It does not constitute investment advice or a recommendation to buy, hold or sell any security, and nothing here should be relied upon as such. Figures are drawn from publicly available sources believed reliable at the time of writing and are subject to change. Readers should carry out their own research and, where appropriate, seek independent professional advice. The value of investments can fall as well as rise.