Assura Plc · OTC:ARSSF
Assura — FY2013 Earnings Presentation
53 slides from Assura's earnings presentation, Apr 10, 2013
Slide 1: Results Presentation year ended 31 March 2013
Assura Group Results Presentation year ended 31 March 2013 Investing in the future of primary care property
Slide 2: Introduction
Assura Group Introduction Graham Roberts Investing in the future of primary care property
Slide 3: Assura Group Presentation
Assura Group Presentation • Headlines • Financial results • Property update • Market update • Q&A Investing in the future of primary care property 3
Slide 4: Headlines
Headlines • Management has delivered – Strong results – Focused asset management generating rental growth – Managing developments profitably – Selling non‐core assets – REIT conversion achieved • Primary care sector is an extremely attractive market • Assura is best placed to take advantage of the o
Slide 5: Strong results
Strong results • 44% increase in underlying profits to £10.2m • 6.3% increase in net asset value to 38.6p per share • 18.6% total shareholder return Investing in the future of primary care property 5
Slide 6: Financial results
Assura Group Financial results Jonathan Murphy Investing in the future of primary care property
Slide 7: Financial highlights
Financial highlights • 7.2% Property return – 6.1% income return • 8.7% Accounting returns1 – 2.4% dividend paid – 0.855p – 6.3% increase in adjusted net asset value to 38.6p • 44% increase in underlying profits to £10.2m • 27% increase in underlying EPS to 1.9p • 2% reduction in LTV to 62% 1 Increa
Slide 8: Solid income growth
Solid income growth • 118 rent reviews completed: 5.0 Rent Reviews Settled in the Year – 2.4% weighted average £4.2m annual uplift 4.0 £3.7m – Last 2 years 3.4% and 3.8% annual uplift 3.0 £2.8m Rent £m • Backrents of £0.9m 46 • £0.9m new annual rent roll, 2.0 36 reviews £1.8m reviews developments 21
Slide 9: Underlying profit growth
Underlying profit growth £m £11.0 £0.4m £10.5 £0.7m £0.2m £10.0 £0.2m £9.5 £9.0 £8.5 £2.8m £8.0 £10.2m £7.5 £7.0 £6.5 £7.1m £6.0 Year to Mar12 Net rental income Finance revenue Finance costs Admin expenses Associates Year to Mar13 Investing in the future of primary care property 9
Slide 10: Lowest cost operator
Lowest cost operator • 7% new property income • 4.5% long‐term interest rates • Can manage £100m additional property for only 0.08% cost • Further growth significantly earnings enhancing Investing in the future of primary care property 10
Slide 11: Core investment portfolio
Core investment portfolio • 162 primary care centres valued £524m • 0.5% valuation uplift • Rent review basis – 80% open market – 11% RPI – 9% stepped & fixed • £34.1m core annualised rent Mar 2013 Mar 2012 Initial yield 5.95% 5.89% roll Equivalent yield 6.15% 6.11% Investing in the future of primar
Slide 12: Transparent balance sheet
Transparent balance sheet 31 Mar 2013) 31 Mar 2012) £m) £m) Properties1 569.3) 549.2) LIFT 11.2) 10.5) Cash and deferred consideration2 41.7) 31.0) Debt (392.1) (375.6) Deferred revenue (14.8) (13.3) Other net working capital (14.8) (12.9) Derivatives at fair value (3.6) (2.5) Deferred tax 1.1) 1.3)
Slide 13: EPRA net asset value movement
EPRA net asset value movement Pence per) £m) share*) EPRA net asset value at 31 March 2012 192.2) 36.3) Income (underlying profit) 10.2) 1.9) Capital (revaluations and capital gains) 5.9) 1.1) Dividends (4.5) (0.9) Other 0.6) 0.2) EPRA net asset value at 31 March 2013 204.4) 38.6) Growth 2.3) 6.3%)
Slide 14: Robust cash flow
Robust cash flow £m • Government backs £60.0 88.9% core portfolio £15.9m £3.6m leases £50.0 Undrawn Facility • 15.1 years weighted £40.0 £4.8m £13.3m average remaining lease £12.6m £4.5m Cash length £30.0 £35.7m • 11.3 years average £20.0 Cash maturity of debt £21.4m £10.0 £0.0 Investing in the futu
Slide 15: Dividend
Dividend • Underlying EPS of 1.9p per share • 6% growth in quarterly dividend to 1.21p per share equivalent on an annual basis • 1.6x covered by 2013 underlying profit • Progressive dividend policy Investing in the future of primary care property 15
Slide 16: Property update
Assura Group Property update Andrew Darke Investing in the future of primary care property
Slide 17: Developments deliver shareholder value
Developments deliver shareholder value • £3.5m development gains, profit on cost of 15.3% • 7.1% yield on total cost of completed developments • £70m value of 28 additional identified schemes Completed Fully funded on site Immediate prospects Development cost £12.4m £33.0m £30.6m Development cost to
Slide 18: Development – significant opportunity
Development – significant opportunity • Continuing latent demand for new premises • Care Quality Commission (“CQC”) is starting to impact – 20% of premises failed registration and many will need new premises • No change expected under new regime • In house expert team very end‐user focused and knowl
Slide 19: Bespoke development – completions
Bespoke development – completions Manchester Square Health Centre, Milford Haven St Hilary Group Practice, Wallasey Investing in the future of primary care property 19
Slide 20: Sudbury – current healthcare
Sudbury – current healthcare Three existing facilities, all non‐ compliant with current NHS standards Investing in the future of primary care property 20
Slide 21: Sudbury Community Health Facility
Sudbury Community Health Facility • Example of integrated primary care centre services co‐located in one facility – GP Practice – Diagnostics – Outpatients – Physiotherapy – Podiatry – Audiology – Counselling – Midwifery – Pharmacy Investing in the future of primary care property 21
Slide 22: Sudbury
Sudbury • 3,300m2 Gross Internal Area • 20 year leases with 5 yearly RPI index linked rent reviews • £547,000pa rent roll • Fixed price build cost • £8.6m approximate valuation on completion Investing in the future of primary care property 22
Slide 23: Sudbury
Sudbury Investing in the future of primary care property 23
Slide 24: Non-core disposal success
Non‐core disposal success • 14 of 19 non‐income earning properties sold • Former Head Office sold for £5.5m • Land at Scarborough (book value: £6.3m), nearing completion • Non‐core no longer material Investing in the future of primary care property 24
Slide 25: Market update
Assura Group Market update Graham Roberts Investing in the future of primary care property
Slide 26: Significant market opportunity
Significant market opportunity • Sector offers excellent risk adjusted returns • UK health infrastructure requires major investment • Scale of opportunity could dwarf investment to date: – Over £10Bn required for investment in the sector • Assura is a trusted brand in the sector • Internal managemen
Slide 27: Partner of choice
Partner of choice • Assura working with new clinical bodies • Dr James Kingsland appointed as strategic medical adviser • Engaging with NHS Investing in the future of primary care property 27
Slide 28: Conclusions
Conclusions • Management has delivered: – Strong results – Asset management disciplines delivering results – Disposal of non‐core assets – Continued profitable developments and pipeline • Primary care sector is extremely attractive market • Assura best placed to take advantage of the opportunity as
Slide 29: Q&A
Q&A Investing in the future of primary care property 29
Slide 30: Supplementary information
Supplementary information 1. Market 1.1 Growing demand / inadequate supply 1.2 Market: policy direction supportive 1.3 Yield outlook stable 1.4 Sector attractiveness 1.5 Asset class has proven its relative value 1.6 Strong and predictable cash flow 1.7 Assura well placed to outperform 1.8 Core portf
Slide 31: Growing demand / Inadequate supply
Growing demand / Inadequate supply Appendix 1.1 Demand Supply • 10 year track record of cross‐ • Most recent survey of GP practices party support for: – ¾ of GPs stated premises not – More services delivered locally suitable for future needs – Greater patient choice – ⅓ said not capable of complying
Slide 32: Market: policy direction supportive
Market: policy direction supportive Appendix 1.2 • Government policy to shift from expensive acute / secondary sector into primary care setting • Health & Social Care Act brings GPs into commissioning role • From 2013 GPs regulated by Care Quality Commission • Pressures mounting from changing demand
Slide 33: Yield outlook stable
Yield outlook stable Appendix 1.3 • Primary care property yields have been less volatile • Yield spread over long‐dated gilts up 50 bps since 31 March 2012 – 355 bps on core portfolio 8.00% 7.00% 6.00% 5.00% Assura Net Initial Yield 4.00% IPD UK Property Quarterly Index Net Initial Yield 3.00% 15 Ye
Slide 34: Sector attractiveness
Sector attractiveness Appendix 1.4 • Market Features £34.1m Rental Profile for Core Portfolio – Health non‐discretionary – Planning environment ‘benign’ – District Valuer determines rent reviews 22% • Tenant Features – Private businesses underwritten by Government 7% – Premises are bespoke 4% – GPs
Slide 35: Asset class has proven its relative value
Asset class has proven its relative value Appendix 1.5 Income certainty delivers Commercial Primary healthcare Residential 140 impressive returns 130 – Yield stability – Low cyclicality 120 Total Return index from Attributable to 110 – Long leases 100 – Negligible default 90 – No oversupply 80 – Acc
Slide 36: Strong and predictable cash flow
Strong and predictable cash flow Appendix 1.6 • Government reimbursement of 88.9% of core portfolio leases • Remaining lease length 15.1 years average on core portfolio – Tenant breaks are uncommon – New leases for 21 years or more • Zero loss from defaults • Regearing opportunities arise as change
Slide 37: Assura well placed to outperform
Assura well placed to outperform Appendix 1.7 • Scale benefits IPD 6 Year Return to December 2012 – £569m total property 8% assets 7.3% 6.8% – 14.8 years lease length 6% 6.1% 6.2% on portfolio • Good reputation and 4% relationships with GP community 2% • Development capability and 1.1% 0.6% strong p
Slide 38: Core portfolio v IPD Healthcare
Core portfolio v IPD Healthcare Appendix 1.8 % IPD 6 Year Return to December 2012 10.0 Income Return Capital Growth Total Return 8.0 7.3 1.1 6.0 5.2 4.0 6.7 6.1 2.0 0.0 ‐1.5 ‐2.0 ‐4.0 Source: IPD Assura All Healthcare Property Benchmark Investing in the future of primary care property 38
Slide 39: EPRA – net asset value
EPRA – net asset value Appendix 2.1 Adjusted basic) Adjusted basic) & diluted NAV) & diluted NAV) per ordinary) per ordinary) share) share) Mar 13) Mar 12) £m) £m) Net assets 198.1) 187.9) Own shares held 1.9) 1.9) Derivative financial instruments 3.6) 2.5) Derivative financial instruments of associ
Slide 40: Total property assets
Total property assets Appendix 3.1 Mar 13 Mar 12 £m £m Core 523.6 505.7 Non‐core 9.3 14.9 Investment portfolio 532.9 520.6 Investment property under construction 14.3 8.4 Properties held for sale 12.0 11.4 Pharmacy lease premiums 7.0 5.7 Finance leases 3.1 3.1 Total 569.3 549.2 Balance sheet classif
Slide 41: Non-core portfolio
Non‐core portfolio Appendix 3.2 £m • Non‐core valued at £20.5m £35 (March 2012: £26.3m) • Income generating assets of £30 £1.2m £1.5m £0.4m £10.6m, net initial yield of £25 £26.3m 13.62% Held for £20.5m • £1.8m disposals of non‐ £20 sale £11.4m £8.1m income earning buildings Held for sale and £5.5m
Slide 42: Capital value – core portfolio
Capital value – core portfolio Appendix 3.3 • Size is not an indication of performance ‐ location is key • Smaller units affordable to private investors Capital Number of Total Capital Value Properties Value £m <£1m 32 £21.5m £1‐5m 105 £261.6m 50% £5‐10m 18 £131.5m >£10m 7 £109.9m Investing in the f
Slide 43: Sensitivity analysis on core portfolio
Sensitivity analysis on core portfolio Appendix 3.4 NIY ERV +1% +2% +3% p/share p/share p/share p/share 6.50% -8.38p -7.47p -6.57p -5.66p 6.25% -4.75p -3.81p -2.87p -1.93p 6.00% -0.83p 0.16p 1.14p 2.12p 5.75% 3.45p 4.47p 5.50p 6.52p 5.50% 8.10p 9.18p 10.25p 11.32p Investing in the future of primary
Slide 44: Core portfolio lease lengths
Core portfolio lease lengths Appendix 3.5 12 Average income weighted unexpired lease term 15.1 years 10 67 leases 101 8 leases Rental Value £m 6 53 leases 4 36 28 leases leases 2 32 10 10 leases leases leases 0 21+ 18‐20 15‐17 12‐14 9‐11 6‐8 3‐5 0‐2 Years Remaining Investing in the future of primary
Slide 45: Portfolio rental income growth over 5 years
Portfolio rental income growth over 5 years Appendix 4.1 40 2011/12 includes 12 months of 35 AHMP income 30 Actual Property Income £m 25 H2 Mar 20 H1 Sept 15 10 5 0 2008/09 2009/10 2010/11 2011/12 2012/13 Investing in the future of primary care property 45
Slide 46: ERV evolution and reversion
ERV evolution and reversion Appendix 4.2 Vacant Space Total ERV £40m at March 2013 £0.8m £35m £1.8m £1.5m Estimated Rental Value £30m £1.6m less passing rent Core Portfolio Rent Roll Passing rent £25m £20m £1.8m £2.2m £32.5m £34.1m £15m £28.8m £10m £19.3m £19.5m £5m £m Mar‐09 Mar‐10 Mar‐11 Mar‐12 Ma
Slide 47: Core portfolio rental growth
Core portfolio rental growth Appendix 4.3 Annualised Increase Year ended 31 Year ended 31 March 2012 March 2013 Rent reviews settled 3.12% 2.32% Rent reviews settled excluding RPI/fixed uplift 2.50% 2.03% 5% OMR rent reviews by calendar year of review Year to Match 2012 5% Year to March 2013 4% 4% A
Slide 48: Open market rents still increasing
Open market rents still increasing Appendix 4.4 • Underlying rental trajectory masked by delayed rent review settlements • 80% Open market reviews – 20% RPIs, stepped and fixed uplifts Open market Open market Reviews to be settled Annualised including RPI only on Core (passing rent) % on Core % on C
Slide 49: Basis of rent reviews
Basis of rent reviews Appendix 4.5 90% £27.4m 80% Upward/Downward Review Basis ‐ Tenant Can Instigate 7% (£2.3m) Upward/Downward Review Basis ‐ Landlord Only Trigger 17% (£5.9m) 70% Upward Only Review Basis 76% (£25.9m) % Portfolio by rental value 60% 50% 40% 30% 20% £3.6m 10% £2.2m £0.9m 0% OMR RPI
Slide 50: REITs
REITs Appendix 5.1 • 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 dividends (Property Income Distributions) ― 90% of taxable property rental profits
Slide 51: Dividends
Dividends Appendix 6.1 • Quarterly dividends reflecting underlying rental receipt pattern and high degree of income certainty • Normally reviewed annually to reflect cash flow progression • Quarterly dividend increased to 0.3025p per share from April 2013 • Run rate equivalent to 1.21p per annum Inv
Slide 52: Bank and bond facilities
Bank and bond facilities Appendix 7.1 Fixed/ Effective Secured Rental Outstanding Loan/Bond Floating Maturity Interest Rate Properties Income 30 September £m £m £m 10 year secured 10 year, bullet Bond Fixed repayment 2021 4.75%1 157.3 11.1 110.0 Aviva amortising secured loans Fixed Amortising to 204
Slide 53: Covenants
Covenants Appendix 7.2 All covenant conditions complied with Santander Bond Aviva Investment Facility Required Actual Required Actual Required Actual Interest v income cover 1, 2 > 1.50 > 2.0 ≥ 1.03 > 1.27 ≥ 1.70 > 2.1 Loan to Value > 1.35 > 1.42 n/a n/a < 75% LTV < 65% LTV Debt Service Coverage Rat