Primary Health Properties has refinanced a £50m, long-term, fixed-rate loan it acquired through a corporate acquisition last December, with cheaper four-year finance from Barclays. PHP’s £64.6m acquisition of Apollo Medical Partners included the assumption of £50m of 18-year debt, priced at 5.61% and provided by Aviva.
The new revolving, interest-only loan from Barclays was swapped for four years and the total cost is around 3.7%, as PHP said it locks in a surplus of 220 basis points over the 5.9% cash yield on the properties. Aviva will receive £4.9m of early repayment fees, with Apollo contributing £2.6m towards the cost.
PHP used proceeds from the £75m retail bond it issued last July to make the Apollo acquisition, paying a small premium to net asset value for the portfolio, partly because it yields 5.9% and is reversionary to 6.2%, compared to PHP’s average 5.7% yield. The 11 let assets are modern and require no capital spending, plus there are three on-site developments, and the 18-year average leases are longer than PHP’s 16-year average.
Apollo is taking part of the price in PHP shares, which is tax efficient for selling to REITs. PHP owns 183 primary care properties valued at £643.3m. With drawn debt of £400m the group’s leverage is now 62%. It said last week that it has another £82m of acquisitions in solicitors’ hands. By increasing PHP’s recurring income surplus, the Apollo deal will reduce the proportion of the dividend uncovered by earnings from its current 47%.