Primary Health Properties PLC (LSE:PHP) announced an increase in the target size of its existing joint venture with Universities Superannuation Scheme (USS) to £400 million from £250 million, alongside an agreement to transfer approximately £67 million of primary healthcare properties into the partnership.
The joint venture, in which PHP holds a 20% equity interest and USS owns the remaining 80%, could expand to £800 million over time, subject to additional approval.
PHP has exchanged contracts for the disposal of nine primary care assets to the joint venture at book value, with the net proceeds intended to reduce the company’s net debt.
The company also reported that Fitch Ratings has reaffirmed Assura Limited’s BBB+ credit rating and revised its outlook to Stable from Negative.
Joint Venture Investment Target Increases to £400 Million
PHP and USS have agreed to raise the target size of their existing healthcare property joint venture from £250 million to £400 million.
The partnership has also identified the potential to increase its investment portfolio to £800 million over time, although this would require further approval.
The joint venture focuses on UK community healthcare properties leased directly to NHS organisations or general practitioner tenants.
Its investment criteria require rental agreements with inflation-linked increases or fixed contractual uplifts.
The enlarged investment target is intended to support additional investment in primary care infrastructure, including new Neighbourhood Health Centres and other healthcare facilities.
According to PHP, these investments are aligned with the NHS’s strategy of providing more healthcare services in community settings.
The partnership will consider further transfers of existing properties alongside new investment opportunities, including developments with controlled risk exposure.
PHP Agrees £67 Million Transfer of Nine Healthcare Properties
PHP has exchanged contracts to dispose of nine primary care properties to the joint venture for gross consideration of approximately £67 million.
The agreed consideration is in line with the assets’ book value.
Following completion of the transfer, the joint venture’s property portfolio is expected to exceed £250 million, surpassing its original investment target.
PHP said the portfolio is approaching £300 million as the partnership progresses its expansion.
The company will retain its 20% equity interest in the joint venture, while USS will continue to hold 80%.
PHP intends to use the net proceeds from the property disposals to reduce net debt.
The announcement did not specify the expected completion date for the transfer or the precise amount of net proceeds after transaction costs and the effects of its retained joint venture interest.
Partnership Targets Further NHS Healthcare Investment
The enlarged joint venture is expected to continue investing in healthcare properties occupied by NHS organisations and GP practices.
PHP identified Neighbourhood Health Centres as a potential area for future investment, alongside other facilities supporting the delivery of healthcare services outside hospitals.
The company said the investment strategy reflects demand for healthcare infrastructure associated with the UK’s ageing population and the increasing prevalence of chronic medical conditions.
The joint venture’s focus on properties with inflation-linked rents or fixed rental increases forms part of its investment criteria.
Future portfolio growth is expected to come from additional transfers of existing properties, property acquisitions and selected development opportunities.
USS has indicated its intention to increase its investment in the partnership as further opportunities are identified.
Joint Venture Provides Additional Capital for PHP
The expansion of the USS partnership provides PHP with an additional source of capital for healthcare property investment.
Under the existing ownership structure, USS supplies the majority of the joint venture’s equity capital, while PHP maintains a minority investment interest.
The transfer of properties into the vehicle allows PHP to realise proceeds from existing assets while retaining exposure to the joint venture’s portfolio through its 20% holding.
PHP intends to apply the net proceeds from the latest disposals towards reducing its debt.
The company has not disclosed a revised group net debt figure or quantified the expected effect of the transaction on its leverage ratios.
The partnership’s potential expansion to £800 million remains subject to future approvals and investment decisions.
Fitch Reaffirms Assura BBB+ Rating and Improves Outlook
PHP also announced that Fitch Ratings has reaffirmed the credit rating of Assura Limited at BBB+.
The rating agency revised its outlook on Assura to Stable from Negative.
According to PHP, the change follows progress made in establishing and developing its private hospital and primary care joint ventures.
The announcement did not provide additional details of Fitch’s assessment or specify any further changes to Assura’s credit profile.
The rating reaffirmation and outlook revision were disclosed alongside the expansion of PHP’s partnership with USS.
Chief Executive Comments on Joint Venture Expansion
Mark Davies, chief executive officer of Primary Health Properties, commented on the increased investment target and the partnership’s future plans:
“We are delighted to be extending our successful joint venture with USS, which will enable significant further investment into critical healthcare infrastructure in the UK.
“With a portfolio approaching £300 million, the JV will focus on funding new Neighbourhood Health Centres and other healthcare assets let to the NHS that help deliver the NHS 10-year plan. Future growth in the JV will come from further transfers of existing assets and new investment opportunities, including risk-controlled developments.
“We value the partnership that we have with USS, who are expressing their confidence in primary care by committing additional equity to the joint venture.”
Alex Turner, head of property at USS Investment Management, also commented:
“We are happy to announce the expansion of our established joint venture with PHP”.
“As the UK’s demographics evolve, we continue to believe in the robustness of the healthcare sector, and we’re delighted to invest further into primary care.”
The partnership will continue evaluating additional healthcare property investments as it works towards its revised £400 million target.
More About Primary Health Properties
Primary Health Properties PLC (LSE:PHP) is a healthcare property investment company focused on infrastructure in the United Kingdom and Ireland.
Its investment activities include properties used to deliver primary and community healthcare services.
The company participates in a joint venture with Universities Superannuation Scheme, structured with 20% ownership by PHP and 80% by USS.
The partnership invests in healthcare buildings leased directly to NHS organisations and GP tenants, with rental agreements incorporating inflation-linked increases or fixed uplifts.
Following the latest announcement, the joint venture’s investment target has increased to £400 million, with potential longer-term expansion to £800 million subject to additional approval.
PHP has also agreed to transfer nine primary healthcare properties into the partnership for approximately £67 million, with net proceeds intended to reduce group debt.
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