Assura (OTC:ARSSF) — Post AGM Investor Q&A

0:01 Good afternoon, ladies and gentlemen, and welcome to the ASSURA PLC Post AGM Investor Q and A session. Throughout this session, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Please just simply type in your question and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. Will be available via your investment company dashboard, and we'll send you an email to notify you when

0:31 they're ready for your review. I'd also like to remind you that this presentation meeting is being recorded. I'd now like to hand over to Ed Smith, Chairman from ASSURA. Good afternoon to you, sir. Thank and and a very warm welcome to everybody, and thank you for joining us. Just a reminder that this is not the formal AGM. The AGM was conducted earlier in the day, and no attendance in person was permitted due to the COVID restrictions. I'm pleased to report that all resolutions were passed with the required majorities, and we're grateful for the shareholder support in in those resolutions.

1:09 This session is to give shareholders the opportunity to ask questions of management. Jonathan and Jane will give a quick overview of the trading update published this morning before we invite questions. Questions can be submitted online, has been said within the web browser on which you're watching the video. So with that, over to Jonathan. Great. Thanks, Ed. So I'd just like to start off this afternoon's conversation with a brief update from our first quarter trading. So we released our trading update first thing this morning. Delighted to say that we've started the year very strongly. So we had a very strong year in the last financial year, you know, delivering over £300,000,000 worth of deals to the end of March. You know, and we've continued as we start the new year in a very active vein.

1:58 So we've secured 12 further additions to the portfolio for 53,000,000, but we've also been active in terms of recycling capital and moving assets on where we no longer feel they meet our investment criteria. And 11 assets have been sold in the last quarter for a proceeds of of 15,000,000. We've also had a very successful bond launch, which Jane will come on and talk to you about in a moment. And we continue to see opportunities in our adjacent areas. So we referenced at the full year that we were looking at a number of emerging areas. So these were primary care at scale, increasing use of direct leasing to to the NHS,

2:37 working with private providers, and also looking at opportunities within mental health. All of these areas continue to be of interest to us, and we've made good progress in the quarter in terms of reviewing potential opportunities and bringing further forward. So in summary, really pleased with the start of the financial year. Your first quarter has proceeded in accordance with our plans. We've had a very busy first quarter, and we continue to make good progress. So now I'd just like to hand over to Jane to talk to you about probably the highlight of the first quarter, which is the sustainability bond. Jane? Thanks, Jonathan. So building upon the social bond which we raised, last year, we decided to add a green element to our financing, and this aligns with our social impact and sustainability strategy.

3:27 So we went out to bond investors using the strength of our credit as a business with an a minus rating, but links that with the six by six social impact strategy that we have and managed to raise a single bond of

3:43 £300,000,000. It's worth noting this transaction was heavily oversubscribed. We are delighted with the outcome of an all in rate of 1.625%. However, it's also worth noting that the strength of the business and how the bond investors see our strategy in this area enabled us to price at a record debt margin for ourselves of 85 basis points. So what that means is we have the 300,000,000

4:13 to deploy, but we also have 205,000,000 undrawn banking facilities in order for us to continue with the very strong pipelines that we announced in the training update, but also at our year end. Thank you very much. Opportunity for questions, and I and I we have one kicking off from Andy. You mentioned in your last set of results that you were exploring exciting opportunities in new areas, all supporting delivery of community based services away from hospital. Could you expand on some of those, Jonathan?

4:51 Thanks, Ed. Yes. So so so as I mentioned briefly in my in my update on on the first quarter, we continue to see lots of opportunity in what we describe as as adjacent areas. So essentially, what we're seeing is the need to create capacity within the hospital sector by moving services away from hospitals and delivering them in a community based setting. So so for example,

5:16 community diagnostics is something that the NHS has specifically talked about and, in fact, published a detailed proposal only last week about the potential for this opportunity. This is essentially routine tests and screens, screening that you would go to hospital for at the moment. Is there an opportunity for some of those services to be delivered at community sites? That could be in some of our existing medical centers. It could be in empty retail units on the high street, or it could be in new purpose built facilities within communities. So this is definitely an area that we see as one that we have great potential to support. We've got the development capability. We've got the relationships with the NHS. So expect to hear more about that over over the coming weeks and months. Thank you.

6:02 And and then we have a question from from Ryan. What is the criteria when adding new assets, selling the mature assets? Yeah. It's a good question. So in terms if I take that second part first, so in terms of disposals, what we'll look to do is we'll we'll analyze the potential returns from the assets on, you know, over over a longer term period. And what we're looking at is that asset essential for its local health economy? So will it remain an essential piece of infrastructure in that community? Is it therefore likely to have a renewal of the lease at the end of the expiry? So say there's five years left to run on a lease, we're trying to assess in five years' time, do we think that asset will continue to be essential for that community? If it is, then it's very likely that it will receive a a lease renewal and it's unlikely that it would move on to our disposals list. If we had some concerns around the likelihood for lease renewal, then we might well consider looking to sell that on to to another party. Now just to be clear,

7:07 these are these are all good quality assets. It's really about a a sort of risk profiling. So if we feel there's heightened risk around a lease renewal, then we're happy happy to pass that on. But just to put that in context, the last set of assets that we disposed of still had a very good lease length just under ten years. So this isn't about selling off short term leased assets. This is about us taking a a risk approach to the long term viability of our portfolio and making selective

7:35 disposals where we see necessary. Now the first half of your question was about how we screen for acquisitions. Well, really, this is very much the same process but in reverse. So, you know, is is that asset going to have a long term role in the community? What are the what are the patient numbers at that site? How many clinicians are there? What range of services are provided? Do we think they've got sufficient space? Might they need more space in that location? And therefore, could this be a good asset to acquire and invest in over over the longer term? So we're we're looking for screening for opportunities where we see a positive impact for the local community in terms of health delivery. We also apply a screen around our ESG criteria. So we'll make sure that that building meets our sustainability criteria or can be improved. So it can be one or the other.

8:24 And we'll also look to see whether we feel that asset plays an important role in

8:29 supporting health and wellness in that local community as well. So we'll we'll also apply that screen. As well as, of course, we apply a full financial analysis and assessment of the likely returns. So it's very much a a hybrid approach looking at all these various factors. And and we've got two or three more questions popped up and and and one from Ryan. I'll come back to that in a minute. But but, firstly, John, in from from John, in your results presentation at the year end, you highlighted a number of emerging opportunities for the business. Do these change the risk profile of the income stream at all? Do want to take that, Jonathan? Perhaps Jane, can you handle it?

9:08 Yeah. Absolutely. So, yes, it's a good question. So so I've already talked about the criteria that we apply and how this this these assets can provide essential services in the community, but that that return profile is is absolutely absolutely crucial. So if I if I talk about return profile, and then perhaps I'll ask James sort of cover off on some of the risk profile. So if we just take two examples, we'll talk about those first of all. So the first one would be direct letting to NHS hospital trust rather than GPs. So in this scenario, you're actually talking about an asset that's direct led to an NHS

9:40 covenant. And on those return profiles, because it's direct to the government, it's probably going to be at the lower end in terms of return profile because of the nature of that of that asset. And in terms of and it will be a long lease with a sort of twenty five year plus income profile on on that asset. And then if I take the private sector assets, I referenced Ramsey Healthcare. So these are assets which are delivering essential services to their local communities supporting essentially usually choose and book opportunities within the NHS. And this is a private sector provision, so it has it doesn't have the private sector involvement. And so the returns on these assets are a little bit higher, and you'll be looking at probably indexation, so guaranteed uplifts on the leases. So perhaps I'll just pass over Jane. She can maybe talk about the risk profile about that direct hospital tenant and the private sector. Thanks, Jonathan. So I think, in short, does does it change the risk profile of the income stream at all? Largely, no. So if we take the direct tenants, as Jonathan said, we've got a direct covenant with the NHS. So arguably, it's a stronger covenant than that from a GP premises, which obviously we know that there's already a a very strong covenant.

10:58 And therefore, the prices are a little bit keener, but we have that additional strength. On the private side, whilst the prices may be a little bit wider because it's not a direct covenant, a, it's not a large part of our portfolio. In fact, it's less than 5%. But b, we, take very, very careful and we carefully look at what their income is. We're assessing the counterparty risk. But also, as Jonathan mentioned, they also do a lot of work largely for the NHS. So we are comfortable that those income streams are going to be there in the future. Thank you, Jane. And from Asia, how how does the board respond to and address emerging risks associated with climate change?

11:46 So so an excellent question. So, obviously, we have we have a a risk committee that reports into the into the audit committee, and this is a group of people represented from right across the business. And this committee analyzes and reviews all of the all of the risks in the business. And clearly, within that, one of the specific areas for focus is around climate change. So we've already set out we've set out our our goals as a business in our six by six strategy, which takes sustainability very seriously, and we've got two key elements to this. One is about improving the EPC, so the performance of all our of all our existing buildings, and the other one is about improving the carbon density of of of new construction. And clearly, both of those are looking to reduce the overall carbon footprint of our portfolio.

12:33 And that's just an example of how we consider the risks that there could be for our for our assets from the potential impact of of climate change. Clearly, there are other elements that we look at as well. So, you know, we're constantly reviewing the the likely impact of extreme weather events on our portfolio,

12:49 liaising closely with our insurers to make sure that we've got appropriate defense mechanisms in place, and we're making appropriate decisions about where to site new buildings. So that's just one example of how you take a specific climate risk factor and you feed it into your business decision making. So hopefully, that's helpful. Thank you. And I I mean, I would add that that that I think, you know, our our focus on environmental is not only good for our business, it's good for our investors, for our shareholders. It's good for our NHS, and it's good for today's citizens and the citizens that that follow in future generations. And it's something we are all very committed to doing, and we see growing in in the future. Let me come back to Ryan's second question.

13:38 Do you see m and a playing a part in your growth moving forward? It's a good question. So most of our acquisitions are are individual acquisitions that we're buying from individual owners of the assets, and that's because the market is predominantly owned by individual players. It's a very fragmented market with people owning one asset or perhaps a small group of assets. There's only a handful of players that would be possible for us to acquire through m and a activity. So there's probably two or three players at most who have significant portfolios that potentially we could acquire. So I my answer would be probably it's unlikely just because of the the the opportunity set is much more skewed towards the smaller individually owned assets that we're either acquiring from existing owners or developing and and delivering on brand new builds. So very much more towards those types of assets, I would suggest.

14:32 Thank you. Well, that's all of the questions that that we've been asked by attendees, and I'm grateful and thank you very much for your attendance today and for the continued support you give to ASSURA. So thank you very much, and that concludes this session. Thank you. Thank you very, very much indeed to both Ed, Jane, and Jonathan for updating investors today. Could I please ask attendees not to close this session? It should now be automatically redirected for the opportunity to provide feedback in order that management can better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of ASSURA PLC, we'd like to thank you very much for attending today's presentation. That now concludes today's session, and good afternoon to you all.