Public Service Properties Investments

Care homes landlord Public Service Properties (PSPI) looks set for strong profits growth on the back of continuing income generated from its extensive property portfolio.

PSPI owns a total of 40 properties in the UK, the majority run by care home operator European Care Group, with its total portfolio, including operations in Germany, valued at approximately £256.9m.

AIM-listed PSPI reported a healthy increase in rental yields for the year to December, up to £16.3m (2008: £14.1m), with earnings per share growing from 7.11p to 9.53p. Finance director Ralph Beney argues that PSPI is ‘a long-term growth story with stable cash flow’, highlighting the security of the group's long-term leases of around 35 years for properties in the UK and between 15-20 years for those in Germany.

'We are not immune to the effects', suggests Beney, with regard to the possible impact of coalition spending cuts on PSPI, 'however we are better protected than most companies’. He notes that at the ‘acute’ end of care, for patients with conditions such as dementia, spending cuts are 'unlikely', since there it is simply too risky for such individuals to be left on their own.

Regarding the future of the business, Beney says PSPI will look to expand both its UK portfolio and grow in Germany, which he argues provided a better capital expenditure/yield spread for prospective investors.

With total borrowings of £148.5m standing against adjusted non-current assets of £280.2m, the company has a loan to value ratio of approximately 53%, a respectable figure for a property company of this nature. And since the government is unlikely to make serious cuts to provisions for the elderly and with a property porfolio with no voids and lengthy leases, PSPI is an attractive proposition for investors looking for safety.

Based on forecast dividend progression from 6.35p to 7p for the current year to December, PSPI shares, selling for less than nine times earnings, offer investors an attractive yield of 10%. As such, they are well worth buying as a relatively low-risk investment.