Assura Plc · OTC:ARSSF
Assura — FY2014 Earnings Presentation
60 slides from Assura's earnings presentation, March 2014
Slide 1: Results for the year ended 31 March 2014
Results for the year ended 31 March 2014 Investing in the future of primary care property
Slide 2: Introduction
Introduction Graham Roberts Investing in the future of primary care property
Slide 3: A year of significant achievement
A year of significant achievement • Major transaction completed – Trinity adding 10% to rents and profit • Sale of LIFT assets, crystallising 5% gain to NAV • 8 successful development completions – adding £1.5m of rent, 6.7% yield on cost, 21 years lease length Investing in the future of primary car
Slide 4: Delivering strong financial results
Delivering strong financial results • 24% uplift in underlying EPS 30.0% to 2.1 pence per share 25.0% 24.2% • 12% uplift in adjusted NAV per share to 43.4 pence 20.0% 18.6% • £10.5m gain on LIFT disposal 15.9% 15.0% • Portfolio valuation uplift £12.4m 10.0% 8.7% – 2.2% on a like‐for‐like basis on co
Slide 5: In a sector with outstanding investment characteristics
In a sector with outstanding investment characteristics • Low default risk • Long leases – new leases typically > 21 years – no tenant breaks – no rent‐free periods – minimal vacancy • Linkage to cost inflation • Substantial ongoing development need – bespoke development does not create rental cycle
Slide 6: In a sector with outstanding investment characteristics
In a sector with outstanding investment characteristics Seven‐year total returns vs standard deviation 2007‐2013 (since the inception of the healthcare index) Higher Return 8 Residential market lets Primary healthcare Gilts 6 7 year Total Return (%) All healthcare Equities 4 Office 2 All Property In
Slide 7: Assura: a compelling investment case
Assura: a compelling investment case • 4.1% dividend yield on adjusted net assets – up 49% on previous rate, paid quarterly – fully covered and progressive • Long‐term cash flows underpin balance sheet – annualised rent of 6.4% on £657m of property – 95% of today’s rent roll still receivable in 2024
Slide 8: Financial Results
Financial Results Jonathan Murphy Investing in the future of primary care property
Slide 9: Financial highlights for the year
Financial highlights for the year • 7.9% Total Property Return – 6.0% income return • 15.9% Total Accounting Return1 – 3.5% dividend paid – 12.4% increase in adjusted net asset value • 24% increase in underlying profit from continuing operations to £10.9m 1 Increase in EPRA NAV and dividends Investi
Slide 10: 16.4% growth in annualised rent roll
16.4% growth in annualised rent roll £m 45.0 £4.0m 40.0 £1.7m £0.4m 35.0 (£0.2m) £41.8m 30.0 £35.9m 25.0 20.0 Mar‐13 Disposals Lease events Completed Trinity acquisition Mar‐14 developments & extensions Investing in the future of primary care property 10
Slide 11: 24% growth in underlying profit
24% growth in underlying profit £m 12.0 11.0 £4.1m 10.0 9.0 8.0 £10.9m 7.0 £8.8m (£1.9m) (£0.1m) 6.0 5.0 Mar 13 Net finance costs Admin expenses Net rental income Mar 14 Investing in the future of primary care property 11
Slide 12: 19.7% increase in core investment portfolio
19.7% increase in core investment portfolio £m 640 £63.5m 620 600 580 £24.5m 560 540 £12.0m £3.2m 520 £626.8m 500 480 460 £523.6m Mar‐14 Mar‐13 440 Net Initial Yield 5.88% 5.95% 420 Equivalent Yield 6.04% 6.15% 400 Mar‐13 Capex, disposals & Revaluation gain Completed Additions Mar‐14 transfers devel
Slide 13: Contracted rental income
Contracted rental income £m 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 .0 Mar‐15 Mar‐16 Mar‐17 Mar‐18 Mar‐19 Mar‐20 Mar‐21 Mar‐22 Mar‐23 Mar‐24 Mar‐25 Mar‐26 Mar‐27 Mar‐28 Mar‐29 12 months ended Trinity Existing • £663m of contracted rental cash flow • 95% of current rent roll still contracted in 2024 I
Slide 14: Well spread repayment profiles
Well spread repayment profiles £m Mar‐14 Mar‐13 140.0 Gross debt £451.9m £395.7m Weighted average maturity 10.9 years 11.3 years 120.0 Weighted average cost of debt 5.28% 5.25% 100.0 80.0 60.0 40.0 20.0 .0 12 months ended Aviva Santander Bond Investing in the future of primary care property 14
Slide 15: Robust cash flow
Robust cash flow £m • Government backs 80.0 £27.7m 88.8% core 70.0 portfolio leases • 14.7 years weighted 60.0 average unexpired 50.0 £4.1m (£22.7m) Undrawn lease term (core £7.6m (£6.6m) facility £2.6m 40.0 only) (£7.2m) 30.0 • 10.9 years average maturity of debt 20.0 Cash £38.6m Cash £35.7m 10.0 0
Slide 16: Flexible funding secured
Flexible funding secured £m • £30m five‐year RCF from 80.0 Barclays and RBS £71.2m 70.0 • Initial all‐in cost of just 60.0 over 3.5% £30.0m 50.0 • Flexible facilities £41.2m 40.0 £2.6m £2.6m • Capacity to fund future growth 30.0 20.0 £38.6m £38.6m 10.0 0.0 Mar‐14 Mar‐14 + RCF Mar‐14 cash Undrawn com
Slide 17: Strong and growing balance sheet
Strong and growing balance sheet £m Gross assets • Over last 12 months 750 – non‐core assets £713.7m 700 successfully recycled £57.0m and no longer 650 £627.0m significant £596.4m 600 £69.7m – £99m added to £58.6m investment properties 550 £656.7m – 62% LTV with 500 £557.3m longevity and security 45
Slide 18: Dividends
Dividends • Dividend capacity enhanced by Trinity acquisition and LIFT disposal • 49% increase in quarterly dividend to 0.45 pence per share • Fully covered • Progressive policy Investing in the future of primary care property 18
Slide 19: Property update
Property update Andrew Darke Investing in the future of primary care property
Slide 20: Trinity acquisition – 32 medical centres, £63m, 6.4% yield
Trinity acquisition – 32 medical centres, £63m, 6.4% yield Preston Lytham St Annes Leyburn Investing in the future of primary care property 20
Slide 21: Trinity – initiatives since acquisition
Freckleton Trinity – initiatives since acquisition • Rapidly integrated • No additional head‐count to manage enlarged portfolio • Housekeeping completed regarding tenants and leases – built personal relationship with all tenants • Asset enhancement of newly acquired portfolio – pharmacy extension an
Slide 22: Completed developments – 8 medical centres, £25m value
Completed developments – 8 medical centres, £25m value Y Felinheli Maidstone Willington Harlech Investing in the future of primary care property 22
Slide 23: Asset enhancements – 3 extensions, £3m value
Asset enhancements – 3 extensions, £3m value Queens Park Medical Centre, Stockton Investing in the future of primary care property 23
Slide 24: Continuous capital recycling
Freckleton Continuous capital recycling • Sold – LIFT assets for £22.4m – non‐core retail parade £1.2m – 4 ex growth smaller surgeries £1.7m – vacant site £0.5m • Exchanged − 3 vacant sites £0.7m • Under offer Leyburn – non‐core retail parade £2.0m • Being reviewed and marketed – final £13.7m of non
Slide 25: Specialist team
Specialist team • In‐house experienced team of chartered surveyors • Clearly defined roles to deliver objectives and strategy • Alignment of skills meeting needs of GPs and NHS • Results outcome – tenant satisfaction – maximising returns for shareholders and value adding – increased brand strength a
Slide 26: The people
The people • Head of Property • 5 Portfolio Managers – National coverage – sole personal responsibility for a part of the portfolio – day to day aspects and relationship building, tenant and occupier satisfaction • 2 Investment Managers – East & West – asset enhancement and extensions and lease re‐g
Slide 27: Before and after
Before and after Investing in the future of primary care property 27
Slide 28: Market and Outlook
Market and Outlook Graham Roberts Investing in the future of primary care property
Slide 29: 1.9% annual rental growth from settled rent reviews
1.9% annual rental growth from settled rent reviews 1.4 • Rent reviews added £2m to rent roll over last 3 years 1.2 £1.2m 0.35% • RPI and fixed are currently the main drivers of rental growth 1.0 Absolute rent roll increase £m • District Valuer awards 0.8 £0.8m 1.99% currently reflect: 4.52% 0.6 – p
Slide 30: Outlook improving for rental growth
Outlook improving for rental growth • Direction of travel favourable for key inputs: land and construction costs 7% Land/construction index + 30 months v OMR reviews 6% Assura OMR (medical space) Index: 3 years (annual basis) 5% 4% 3% 2% 1% 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 ‐1% Source:
Slide 31: Yield advantage sustained over other lower risk assets
Yield advantage sustained over other lower risk assets • Since financial crash, yields 7% Yield development in long‐dated cash flows have recovered in other sectors 6% • Premium over fixed return 5% gilts of > 265bps 4% • Outlook for hardening of 3% yields in primary care 2% – Consistent with other
Slide 32: Positioned for growth
Positioned for growth • Delivered transforming deals • Substantially enhanced income and dividends • Focused team • Well positioned in an attractive market Investing in the future of primary care property 32
Slide 33: Q&A
Q&A Investing in the future of primary care property 33
Slide 34: Supplementary information
Supplementary information 1. Market 1.1 Growing demand / inadequate supply 1.2 Market: policy direction supportive 1.3 Sector attractiveness 1.4 Market outlook – rents 1.5 Market outlook – yields 1.6 Core portfolio v IPD Healthcare 1.7 Assura well placed to outperform 2. Net assets 2.1 Adjusted net
Slide 35: 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 36: Market: policy direction supportive
Market: policy direction supportive Appendix 1.2 • Government policy to shift health provision 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 fro
Slide 37: Sector attractiveness
Sector attractiveness Appendix 1.3 • Market Features – Health spend is non‐discretionary – Planning environment ‘benign’ 20% – District Valuer determines rent reviews • Tenant Features 7% – Private businesses underwritten by 4% Government – Premises are bespoke 69% – GPs are not mobile – “stickiness
Slide 38: Market outlook – rents
Market outlook – rents Appendix 1.4 Construction and land indices 7% Construction/land index + 30 months v OMR 180 reviews 160 6% Index is 3 year trailing average 140 movement on an annual basis of 5% the contribution and land index blended 80:20. This has been 120 shifted forward by 30 months for 4
Slide 39: Market outlook – yields
Market outlook – yields Appendix 1.5 6.5% Prime equivalent yields since Mar‐11 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% ASSURA ‐ CORE ‐ Equivalent Shopping Centres Foodstores West End Offices Provincial Offices Yield Mar‐11 Mar‐12 Mar‐13 Mar‐14 Source: Savills Investing in the future of primary
Slide 40: Core portfolio v IPD Healthcare
Core portfolio v IPD Healthcare Appendix 1.6 IPD Return to December 2013 since inception of index in 2006 % 10.0 Income Return Capital Growth Total Return 8.0 7.2 1.0 6.0 5.4 4.0 6.8 6.1 2.0 0.0 ‐1.3 ‐2.0 ‐4.0 Assura All Healthcare Property Benchmark Source: IPD Investing in the future of primary ca
Slide 41: Assura well placed to outperform
Assura well placed to outperform Appendix 1.7 • Scale benefits IPD Annual Return to December 2013 since inception of index in 2006 – £668m total property assets 8% – 14.4 years weighted average 7.2% unexpired lease term 6% 6.2% 6.6% 6.1% • Good reputation and relationships with GP 4% community • Dev
Slide 42: Adjusted net asset value
Adjusted net asset value Appendix 2.1 Adjusted basic) Adjusted basic) & diluted NAV) & diluted NAV) per ordinary) per ordinary) share) share) Mar 14) Mar 13) £m) £m) Net assets 226.6) 198.1) Own shares held 1.9) 1.9) Derivative financial instruments 1.8) 3.6) Derivative financial instruments of asso
Slide 43: Adjusted net asset value movement
Adjusted net asset value movement Appendix 2.2 Pence per) £m) share*) Adjusted net asset value at 31 March 2013 204.4) 38.6) Income (underlying profit) 10.9) 2.1) Capital (revaluations and capital gains) 12.6) 2.4) Dividends (7.2) (1.4) LIFT disposal 10.5) 2.0) Other (1.6) (0.3) Adjusted net asset v
Slide 44: Total property assets
Total property assets Appendix 3.1 Mar 14 Mar 13 £m £m Core 626.8 523.6 Non‐core 4.8 9.3 Investment portfolio 631.6 532.9 Investment property under construction 14.8 14.3 Properties held for sale 11.6 12.0 Pharmacy lease premiums 7.2 7.0 Finance leases 3.1 3.1 Total 668.3 569.3 Balance sheet classif
Slide 45: Capital value – core portfolio
Capital value – core portfolio Appendix 3.2 • Size is not an indication of performance • Smaller units affordable to private investors 4% Capital Number of Total Capital 18% Value Properties £626.8m <£1m 37 £25.1m £1‐5m 139 £350.4m £5‐10m 19 £139.4m 56% >£10m 7 £111.9m 22% Investing in the future of
Slide 46: Sensitivity analysis on core portfolio
Sensitivity analysis on core portfolio Appendix 3.3 NIY ERV +1% +2% +3% p/share p/share p/share p/share 6.50% -11.29p -10.22p -9.15p -8.08p 6.25% -7.01p -5.89p -4.78p -3.67p 6.00% -2.37p -1.21p -0.05p 1.11p 5.75% 2.68p 3.89p 5.10p 6.31p 5.50% 8.18p 9.45p 10.71p 11.98p Investing in the future of prim
Slide 47: Core portfolio lease lengths
Core portfolio lease lengths Appendix 3.4 14 Average income weighted unexpired lease term 14.7 years 12 113 leases 10 86 leases Rental Value £m 8 6 73 leases 50 4 leases 50 2 leases 17 30 leases leases 9 leases 0 21+ 18‐20 15‐17 12‐14 9‐11 6‐8 3‐5 0‐2 Years Remaining Investing in the future of prima
Slide 48: Non-core portfolio
Non‐core portfolio Appendix 3.5 • Non‐core valued at £16.4m £m 30.0 (March 2013: £20.5m) • Income generating assets of 25.0 £6.8m, net initial yield of Held for 20.0 sale 16.4% £11.4m £2.3m • £0.5m disposals of non‐ 15.0 (£9.9m) (£1.9m) £0.6m income earning assets (£1.0m) Held for 10.0 sale £11.6m •
Slide 49: Developments
Developments Appendix 3.6 • £2.3m development gains in period • 100bps margin over revaluation yield on completed developments Completed On site Immediate pipeline Number of schemes 8 5 5 Development cost £22.8m £21.5m £17.0m ERV £1.5m £1.5m £1.2m Completion timing 2013/14 2014/15 2015/16 • Pipeline
Slide 50: Portfolio rental income growth over five years
Portfolio rental income growth over five years Appendix 4.1 45 H2 Mar H1 Sept 40 35 Gross rental and related income £m 30 25 20 15 10 5 0 2009/10 2010/11 2011/12 2012/13 2013/14 Investing in the future of primary care property 50
Slide 51: ERV evolution and reversion
ERV evolution and reversion Appendix 4.2 £45m £1.3m ERV • Vacant space ERV £0.63m £1.3m £40m • Valuers rental ERV £0.67m £35m £1.8m £1.5m Estimated Core Portfolio Rent Roll £30m £1.6m rental value less passing rent £25m £20m £1.8m £2.2m £40.3m Passing Rent £2.1m £34.1m £32.5m £15m £28.8m £10m £19.3m
Slide 52: Rent reviews settled
Rent reviews settled Appendix 4.3 Year ended Year ended Weighted average annualised increase 31 March 2014 31 March 2013 Whole portfolio OMR 0.35% 2.02% RPI / Fixed 4.52% 3.23% Total 1.89% 2.42% Core portfolio OMR 0.35% 2.03% RPI / Fixed 2.07% 3.17% Total 0.83% 2.32% Investing in the future of prima
Slide 53: Core portfolio rental growth
Core portfolio rental growth Appendix 4.4 Annualised increase Year ended Year ended 31 March 2014 31 March 2013 Rent reviews settled 0.83% 2.32% Rent reviews settled excluding RPI/fixed uplift 0.35% 2.03% 9.0 4.00% £8.2m 8.0 3.50% 7.0 £6.4m £6.4m 3.00% 6.0 2.50% Rent £m 5.0 £4.6m £4.1m 2.00% 4.0 62
Slide 54: Core open market rents still increasing
Core open market rents still increasing Appendix 4.5 • 0.83% annualised increase from rent reviews settled in the year – 0.35% from open market rent reviews • Underlying rental trajectory masked by delayed rent review settlements Open market Number of outstanding Annualised reviews only reviews on C
Slide 55: Basis of rent reviews
Basis of rent reviews Appendix 4.6 90% Upward/Downward Review Basis ‐ Tenant Can Instigate 6% (£2.3m) £32.0m Upward/Downward Review Basis ‐ Landlord Only Trigger 21% (£8.6m) 80% Upward Only Review Basis 73% (£29.4m) 70% % Core Portfolio by rental value 60% 50% 40% 30% 20% £4.5m 10% £2.8m £1.0m 0% OM
Slide 56: 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 Property Income Distributions (PIDs) ― 90% of taxable property rental profits ― su
Slide 57: Bank and bond facilities
Bank and bond facilities Appendix 6.1 Fixed/ Effective Secured Rental Outstanding) Loan/Bond Floating Maturity Interest Rate Properties Income 31 March) £m £m £m) 10 year secured 10 year, bullet Bond Fixed repayment 2021 4.75%1 161.6 11.3 110.0) Aviva amortising secured loans Fixed Amortising to 204
Slide 58: Covenants
Covenants Appendix 6.2 All covenant conditions complied with Santander Bond Aviva Investment Facility Required Actual Required Actual Required Actual Interest v income cover 1, 2 > 1.50 2.08 ≥ 1.03 1.23 ≥ 1.70 2.29 Loan to Value > 1.35 1.46 n/a n/a < 75% LTV 64% LTV Debt Service Coverage Ratio n/a n
Slide 59: Dividend calendar
Dividend calendar Appendix 7.1 2014/15 Ex‐Div Date Record Date Payment Date Non‐PID PID Total Q4 8 Apr 20151 10 Apr 20151 22 Apr 20151 0.45p2 ‐2 0.45p2 Q3 7 Jan 20151 9 Jan 20151 21 Jan 20151 0.45p2 ‐2 0.45p2 Q2 8 Oct 20141 10 Oct 20141 22 Oct 20141 0.45p2 ‐2 0.45p2 Q1 9 Jul 20141 11 Jul 20141 23 Ju
Slide 60: Disclaimer
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 materially from those expressed in or implied by t