Assura PLC · OTC:ARSSF
Assura — H1 2020 Earnings Presentation
66 slides from Assura's earnings presentation, November 2019
Slide 1: Results for the six months ended 30 September 2019
Results for the six months ended 30 September 2019
Slide 2: 1. Overview
Results for the six months ended 30 September 2019 1. Overview Jonathan Murphy – CEO
Slide 3: Strong progress in six months
Results for the six months ended 30 September 2019 Strong progress in six months Group well positioned to capitalise on market opportunity Strong progress on Growing asset developments enhancement pipeline Active tenant management and GPI acquisition completed capital projects Continuing focus on Co
Slide 4: GPI acquisition
Results for the six months ended 30 September 2019 GPI acquisition Strengthens our position as leading developer in our sector – Acquisition of one of longest standing 3rd Party Developers – Further bolsters our immediate and extended pipeline, with additional opportunities beyond – Greater developm
Slide 5: Managing development
Results for the six months ended 30 September 2019 Managing development Schemes not committed until tenants signed up and fixed price contract in place Experienced team Pre-let to GPs/NHS Fixed price JCT Substantial due Building Contract diligence 5
Slide 6: Our market
Results for the six months ended 30 September 2019 Our market Highly attractive sector characteristics 1. Strong leases – Long-term income with 21+ year leases – NHS backed tenant covenant and no rent-free periods – Low default risk – 3 yearly rent review cycle with linkage to cost of new developmen
Slide 7: Our position
Results for the six months ended 30 September 2019 Our position Our commanding position leaves us well placed to respond to the needs in our market 1. Diversified portfolio of scale – 560 assets across the UK with value of £2bn – Resilient income with 85% of leases NHS funded – WAULT of 11.6 years a
Slide 8: 2. Financial performance
Results for the six months ended 30 September 2019 2. Financial performance Jayne Cottam – CFO
Slide 9: Financial summary
Results for the six months ended 30 September 2019 Financial summary Earnings growth driven by acquisitions and developments Income statement Sep 2019 Sep 2018 Change Net rental income (£m) 50.6 46.2 up 10% EPRA earnings (£m) 32.9 31.7 up 4% EPRA EPS (p) 1.4 1.3 up 8% Dividend paid during period per
Slide 10: 2% growth in annualised rent roll
Results for the six months ended 30 September 2019 2% growth in annualised rent roll Acquisitions, rent reviews and development completions driving continued rental growth £m 1.7 104 0.7 0.4 102 (1.1) 100 104.4 98 102.7 96 94 92 90 Mar-19 Disposals Development Rent reviews Acquisitions Sep-19 comple
Slide 11: 4% growth in EPRA earnings
Results for the six months ended 30 September 2019 4% growth in EPRA earnings Growth in net rental income has flowed through to EPRA earnings £m 34.0 33.0 4.4 32.0 31.0 (0.7) 30.0 32.9 29.0 31.7 (2.5) 28.0 27.0 26.0 Sep-18 Admin expenses Net finance costs Net rental income Sep-19 11
Slide 12: EPRA cost ratio maintained at low level
Results for the six months ended 30 September 2019 EPRA cost ratio maintained at low level Investment in development team absorbed into overheads % Including development team Excluding development team 14% 13% 12% 11% 13.7% 13.0% 12.8% 12.5% 12.5% 10% 12.1% 11.4% 11.3% 9% 8% Mar-17 Mar-18 Mar-19 Sep
Slide 13: Diluted EPRA NAV per share
Results for the six months ended 30 September 2019 Diluted EPRA NAV per share Stable EPRA NAV with income distributed as dividend Pence 56 1.4 54 0.2 52 (1.4) 50 53.3 53.5 48 46 44 Mar-19 Dividends Capital Income Sep-19 (revaluations) (EPRA EPS) 13
Slide 14: 3% increase in investment property
Results for the six months ended 30 September 2019 3% increase in investment property Growth in portfolio through acquisitions and developments £m 2,050 34 2,040 2,030 2,020 2,010 21 2,000 1,990 2 2,039 3 1,980 1,970 1,960 1,979 1,950 1,940 Mar-19 IFRS 16 adjustment Revaluation gain Development cost
Slide 15: Strength of financial position
Results for the six months ended 30 September 2019 Strength of financial position Additional debt at attractive rates – £107m notes placed in July LTV & interest rate history – 2 tranches, 10 & 15-year tenor LTV Interest rate 70% 6% – 2.3% average fixed rate – £250m of RCF currently undrawn and 60%
Slide 16: Contracted rental income
Results for the six months ended 30 September 2019 Contracted rental income Focus on extending long term cash flows, despite passage of time £m Additions and asset enhancement Passage of time 1,400 1,200 1,000 800 1,351 1,346 600 1,215 1,053 945 400 200 - Mar-16 Mar-17 Mar-18 Mar-19 Sep-19 16
Slide 17: Proforma rent roll demonstrates positive impact of pipeline
Results for the six months ended 30 September 2019 Proforma rent roll demonstrates positive impact of pipeline Development and asset enhancement strategy key contributor to future growth – Opportunities in development pipeline £m 130 expected to flow through to rent roll – Positive outlook in respec
Slide 18: 3. Property update
Results for the six months ended 30 September 2019 3. Property update Patrick Lowther – Head of Investment
Slide 19: Positioning Assura to be NHS Partner of Choice
Results for the six months ended 30 September 2019 Positioning Assura to be NHS Partner of Choice Increasing focus on development and asset enhancement – Long term approach to investing – Collaboration across our investment, development and portfolio teams – Importance of relationships – Positions u
Slide 20: Investment pipeline delivered and replenished
Results for the six months ended 30 September 2019 Investment pipeline delivered and replenished High quality acquisitions and selective disposals – £60m increase in portfolio value Sep 2019 Mar 2019 – £43m additions Investment property (£m) 2,039 1,979 – 4.8% average yield on cost Rent roll (£m) 10
Slide 21: Additions and disposals
Results for the six months ended 30 September 2019 Additions and disposals Strong investment activity and recycling of capital where appropriate 9 acquisitions £34m 15 disposals £18.5m proceeds The New Queen Street Surgery, Whittlesey cc-by-sa/2.0 - © David P Howard - geograph.org.uk/p/4969450 21
Slide 22: Momentum in development activity
Results for the six months ended 30 September 2019 Momentum in development activity GPI acquisition further bolsters development pipeline £m 300 250 200 150 Extended pipeline 100 Immediate pipeline 50 On site - 22
Slide 23: Conversion of opportunities to live schemes
Results for the six months ended 30 September 2019 Conversion of opportunities to live schemes Immediate and extended pipelines reflect positive impact of GPI acquisition – 2 schemes completed Completed On site Immediate Extended pipeline pipeline – 14 schemes currently on site Number of schemes 2 1
Slide 24: Completions benefit the communities they serve
Results for the six months ended 30 September 2019 Completions benefit the communities they serve High quality development completions offer positive rent review evidence South Woodham Ferrers, Essex Darley Dale, Derbyshire 20,000 patients 7,000 patients 24
Slide 25: 14 schemes currently on site
Results for the six months ended 30 September 2019 14 schemes currently on site 5 moved to on site in 6 months, including first GPI scheme – Increasing momentum in new project approvals Bournville – Continue to drive innovation in development – Bournville is part of a wider retirement village scheme
Slide 26: Prospective growth driven by developments
Results for the six months ended 30 September 2019 Prospective growth driven by developments Rent reviews settled during the year – Annualised uplifts Rent review settlements – Average 2.04% 6% – RPI/fixed/other 2.56% 5% – Open market 1.15% – Linkage to cost inflation on new 4% developments creates
Slide 27: Emerging priority
Results for the six months ended 30 September 2019 Emerging priority Asset enhancement activity targeted on growing total contracted rental income – New leases, lease re-gears and extensions 6 months to Year to Regears – existing rent remain a priority Sep 2019 Mar 2019 – Investment and Portfolio Ma
Slide 28: 4. Outlook
Results for the six months ended 30 September 2019 4. Outlook Jonathan Murphy – CEO
Slide 29: Market overview
Results for the six months ended 30 September 2019 Market overview Strong underlying demand and robust fundamentals; NIY 4.72% Yield progression 8% 7% 6% 5% 4% 3% 2% 1% 0% 15 year Gilt Assura Net Initial Yield MSCI monthly UK index initial yield 29
Slide 30: Political backdrop
Results for the six months ended 30 September 2019 Political backdrop NHS capital challenges among the domestic issues continuing to cut through – Health Infrastructure Plan published October “To ensure the NHS stays at the cutting-edge of medicine, 2019 we must anticipate how healthcare is likely t
Slide 31: Social impact
Results for the six months ended 30 September 2019 Social impact Sustainability and social impact key business drivers – Assura has always led on innovation and technological advances – Sustainability is a priority for all new developments – Tonbridge built with all electric energy solution, with hi
Slide 32: Conclusion: Sustainable platform for growth
Results for the six months ended 30 September 2019 Conclusion Sustainable platform for growth Refocused on Sustainable, profitable development and asset growth enhancement Delivering earnings and Financial strength dividend growth 32
Slide 33: 5. Additional information
Results for the six months ended 30 September 2019 5. Additional information
Slide 34: Additional information
Results for the six months ended 30 September 2019 Additional information 1. Intro to Assura 1.1 Assura’s position and strengths 3. Portfolio additions 3.1 Acquisition process 1.2 Business model and strategy 3.2 Developments process 1.3 Primary care model 3.3 Our typical range of medical centres 1.4
Slide 35: 1.1 Assura's position and strengths
Results for the six months ended 30 September 2019 1.1 Assura’s position and strengths What sets us apart Our Market Assura More GP-led Significant Supported by Knowledge Best in class Financial services in investment demographics and expertise team strength communities required Secure long- Signifi
Slide 36: 1.2 Business model and strategy
Results for the six months ended 30 September 2019 1.2 Business model and strategy Business model designed to deliver resilient and predictable income 1. Develop – Providing bespoke, community-led property solutions for each of our healthcare partners – 100% pre-let with no speculative development –
Slide 37: 1.3 The primary care model is key to meeting growing healthcare demand
Results for the six months ended 30 September 2019 1.3 The primary care model is key to meeting growing healthcare demand in the UK Assura operates in primary care which is recognised as critical to NHS delivery and faces growing demand 1 Primary healthcare sector Market outlook – key statistics A v
Slide 38: 1.4 GP funding structure
Results for the six months ended 30 September 2019 1.4 GP funding structure How the funding mechanism works 1 2 Lease Agreement GMS Contract (typically 20-25 years) (lifetime contract) NHS England Rental income GMS Payments (4.75-5% NIY) (inc. Premises Payment) GP (Partnership) Notes 1 GP Partnershi
Slide 39: 1.5 Rent reimbursement mechanism
Results for the six months ended 30 September 2019 1.5 Rent reimbursement mechanism Changes to the rent reimbursement mechanism are considered unlikely 1 There is significant historical precedent for this arrangement – The rent reimbursement mechanism has been in place for 70 years since the NHS was
Slide 40: 1.6 Positive political backdrop
Results for the six months ended 30 September 2019 1.6 Positive political backdrop Assura operates in a sector benefitting from political and public support 1 Cross party support for primary care investment continues 2 Broad consensus on the NHS as a key enabler of transformation and sustainability
Slide 41: 1.7 Risk reward spectrum
Results for the six months ended 30 September 2019 1.7 Risk reward spectrum Total return vs standard deviation – 12 years (since inception of index) to December 2018 (Source: MSCI) 10% Residential index 9% Primary Healthcare 8% Total return (per annum) Industrial 7% All Healthcare 6% Office Bonds Al
Slide 42: 1.8 Social impact
Results for the six months ended 30 September 2019 1.8 Social impact Assura has doubled our support for Dementia UK, the team has chosen five local projects to fund and we have seen our 28 social prescribing projects in action – Supporting national charity Dimensions to gather views on primary care
Slide 43: 2.1 Portfolio statistics
Results for the six months ended 30 September 2019 2.1 Portfolio statistics Total floor area Number Value (£m) Rent (£m) WAULT (years) (m2) North East 122 438 23.8 12.2 125,200 Midlands 85 355 17.9 12.8 98,738 North West 56 323 15.8 12.2 82,331 South East 106 321 17.6 8.9 89,503 London 65 222 11.2 1
Slide 44: 2.2 Portfolio statistics
Results for the six months ended 30 September 2019 2.2 Portfolio statistics £m Total <£1m £1-5m £5-10m >£10m North East 438 9 212 94 123 Midlands 355 9 131 112 102 North West 323 8 64 38 213 South East 321 14 164 86 57 London 222 4 127 46 45 South West 146 8 59 26 53 Wales 133 8 76 49 - Scotland 55
Slide 45: 2.3 Security of tenant and lease length
Results for the six months ended 30 September 2019 2.3 Security of tenant and lease length Property value by WAULT Rent roll (£m) Value (%) GPs 70.3 68 £m NHS Body 18.1 17 1,000 Pharmacy 8.4 8 900 Other 7.6 7 104.4 100 800 700 Remaining lease term Value (£m) Value (%) 600 Up to 5 years 153 8 500 5 –
Slide 46: 2.4 Contracted rental income
Results for the six months ended 30 September 2019 2.4 Contracted rental income £1,346m total contracted cash flow WAULT history 65% of rent roll still contracted in 2029 £m Additions and asset enhancement Passage of time Contracted at Mar-19 14.5 100 14.0 80 13.5 0.2 13.0 1.0 0.4 60 12.5 1.0 0.4 12
Slide 47: 2.5 Lease lengths
Results for the six months ended 30 September 2019 2.5 Lease lengths 25 200 WAULT 11.6 years leases 1,138 leases 184 65% of rent roll 9+ years unexpired term 20 203 leases leases GMS/NHS Pharmacy/other Rental value (£m) 15 120 leases 126 leases 10 126 leases 79 leases 100 leases 5 0 0-2 3-5 6-8 9-11
Slide 48: 2.6 Property and net debt
Results for the six months ended 30 September 2019 2.6 Property and net debt Sep 2019 Mar 2019 Property and debt £m £m £m Completed investment property 1,993.2 1,943.3 2,500 Investment property under construction 36.1 23.1 Pharmacy lease premium / rent adjustments 3.8 9.6 2,000 2,039 1,979 Head leas
Slide 49: 2.7 Sensitivity analysis
Results for the six months ended 30 September 2019 2.7 Sensitivity analysis Equivalent yield ERV per share +1% per share +2% per share +3% per share Mar-19: 4.94% 5.50% (8.42p) (7.67p) (6.93p) (6.19p) 5.25% (4.88p) (4.10p) (3.32p) (2.55p) 5.00% (0.99p) (0.18p) 0.64p) 1.46p) 4.75% 3.31p) 4.17p) 5.03p
Slide 50: 3.1 Acquisition process
Results for the six months ended 30 September 2019 3.1 Acquisition process c.9,000 GP buildings in the market – Database provides crucial market information For example: – Referrals, direct marketing, Focus on core due • Patient list diligence • Service provision conferences and events key to • Prac
Slide 51: 3.2 Development process
Results for the six months ended 30 September 2019 3.2 Development process 1 HOW WE SOURCE DEVELOPMENTS 2 MANAGING DEVELOPMENT RISK 3 STRENGTHENED DEVELOPMENT TEAM ▪ New opportunities are secured by: c.9,000 ▪ Agreement for LeaseGP buildings before commencingin the market ▪ Increased team in respons
Slide 52: 3.3 Our typical range of medical centres
Results for the six months ended 30 September 2019 3.3 Our typical range of medical centres Small Medium Large – Serves neighbourhood or – Serves small town or district – Central ‘hub’ serving wide community rural town/village – 800m2 – 1,800m2 – 1,800m2 – 3,000m2 – Around 5,000 patients – Up to 15,
Slide 53: 3.4 Immediate development pipeline
Results for the six months ended 30 September 2019 3.4 Immediate development pipeline Strong immediate pipeline of 15 schemes we hope to commence in the next 12 months 15 schemes Cost n c.£72m 53
Slide 54: 3.5 Developments drive rental growth
Results for the six months ended 30 September 2019 3.5 Developments drive rental growth – New developments capture increased Relationship of increased costs and rent Cost (£/m2) Rent (£/m2) land and construction costs resulting in 3,000 300 increased rent 280 – Higher rental tone linked to increasin
Slide 55: 4.1 Open market review results
Results for the six months ended 30 September 2019 4.1 Open market review results – 2.04% annualised increase from rent Number of reviews settled in the period Open market Annualised outstanding reviews reviews only % (passing rent) – 1.15% from open market rent reviews Rent reviews settled in six m
Slide 56: 4.2 Basis of rent reviews and timing
Results for the six months ended 30 September 2019 4.2 Basis of rent reviews and timing 80% Split of current rent roll by rent review basis and Upward/downward review basis - tenant can instigate (4%) frequency of review: 70% Upward/downward review basis - landlord only trigger (19%) Upward only rev
Slide 57: 5.1 Financial performance history
Results for the six months ended 30 September 2019 5.1 Financial performance history Number of properties Rent roll (£m) Investment property (£m) 26.2% 563 1,979 518 102.7 1,733 91.0 398 1,345 74.4 321 63.8 1,109 265 55.6 925 202 41.8 657 FY14A FY15A FY16A FY17A FY18A FY19A FY14A FY15A FY16A FY17A F
Slide 58: 5.2 Financial performance history
Results for the six months ended 30 September 2019 5.2 Financial performance history Gross rental income (£m) EPRA EPS (pence per share) Dividends paid (pence per share) 26.2% 95.2 2.7 2.65 2.5 2.46 83.5 2.4 2.25 71.1 2.1 2.05 2.0 1.85 60.2 1.7 50.1 1.36 39.0 FY14A FY15A FY16A FY17A FY18A FY19A FY14
Slide 59: 5.3 EPRA NAV
Results for the six months ended 30 September 2019 5.3 EPRA NAV EPRA NAV) EPRA NAV) Pence per) Sep 2019) Mar 2019) £m) share) £m) £m) Net assets 1,287.8) 1,279.9) Diluted EPRA NAV at 31 March 2019 1,279.4) 53.3) Deferred tax (0.5) (0.5) Income (EPRA earnings) 32.9) 1.4) EPRA NAV 1,287.3) 1,279.4) Ca
Slide 60: 5.4 EPRA EPS
Results for the six months ended 30 September 2019 5.4 EPRA EPS Sep 2019 Sep 2018 £m £m Profit for the period 36.4 37.4 EPRA earnings 32.9 31.7 Weighted average number of shares in issue – basic 2,402,405,484 2,387,909,796 Basic EPS – net profit 1.5p 1.6p – EPRA 1.4p 1.3p Weighted average number of
Slide 61: 5.5 Cash flow summary
Results for the six months ended 30 September 2019 5.5 Cash flow summary Six months to) Year to) Sep 2019) Mar 2019) £m) £m) Opening cash 18.3) 28.7) Net cash from operations 24.2) 72.9) Cash flows from investing activities: Property and business acquisitions (45.4) (210.1) Development expenditure (
Slide 62: 6.1 Facilities and maturity profile
Results for the six months ended 30 September 2019 6.1 Facilities and maturity profile Weighted average Weighted average £m Secured bond Gross debt 450 Private placements maturity interest £757m Unsecured bond 6.9 years 3.16% 400 RCF (if drawn) Fixed / Effective Secured / Outstanding 350 Facility de
Slide 63: 6.2 Covenants
Results for the six months ended 30 September 2019 6.2 Covenants All covenant conditions RCF / PPs Unsecured bond 2028 Secured bond 2021 complied with Covenant Sep-19 Covenant Sep-19 Covenant Sep-19 Interest cover ≥1.75 4.39 ≥150% 428% >1.5 2.18 LTV / leverage <60% 36% <60% 36% >1.35 1.82 WAULT >7 y
Slide 64: 7.1 REIT overview
Results for the six months ended 30 September 2019 7.1 REIT overview – REIT status is a tax election available to listed real estate companies – REITs are tax exempt on property rental income and capital gains – Profits are passed through to investors through minimum Property Income Distributions (P
Slide 65: 7.2 Dividend calendar
Results for the six months ended 30 September 2019 7.2 Dividend calendar 2018/19 Payment date Ex-div date Record date PID Non PID2 Total2 Q1 18 Apr 2018 15 Mar 2018 16 Mar 2018 – 0.655p) 0.655p) Q2 18 Jul 2018 14 Jun 2018 15 Jun 2018 – 0.655p2 0.655p2 Q3 17 Oct 2018 13 Sep 2018 14 Sep 2018 0.655p –2
Slide 66: Disclaimer
Results for the six months ended 30 September 2019 DISCLAIMER This presentation contains certain statements that are neither financial results nor other historical information. These statements are forward-looking in nature and are subject to risks and uncertainties. Actual future results may differ