results for the six months ended 30 september 2014/media/files/a/assura/... · results for the six...

Results for the six months ended 30 September 2014

Investing in the future of primary care property

IntroductionGraham Roberts


Substantive progress

Progress over six months

• Continued momentum in earnings

– 16.7% underlying profit growth

• Capital growth over six months

– 13.2% increase in adjusted net assets

• Accretive acquisitions and developments

– MP Realty, 28 medical centres (£107m)

– One Life (£12.3m)

Investing in the future of primary care property 3

Step change since 30 September

• Equity Raise of £175m (net)

• 15 further medical centres added

– Metro, 11 medical centres (£63.1m)

– Wellington (£1.8m)

– 3 developments (£11.0m)

• Quarterly dividend increased by 11% to 0.5 pence per share

Assura


• Long-term cash flows underpin balance sheet

– annualised rent of 6.1% on £874m of property

– 14.6 years weighted average unexpired lease length

– 12.3 years average debt maturity, 100% fixed rate

• Positioned well

– strong brand and track record

– development capability

– scalable, fully internal management model

• Strengthened with LTV reduced from 64% to 47%

• Property additions of £202m since March 2014


Financial ResultsJonathan Murphy

Financial highlights for the six months

• 4.2% Total Property Return

– 2.9% income return

• 6.5% Total Accounting Return1

– 2.1% dividend paid

– 4.4% increase in adjusted net asset value to 45.3 pence per share

• 16.7% increase in underlying profit from continuing operations to £6.3m


1 Increase in EPRA NAV per share and dividends

17.2% growth in annualised rent roll


£41.8m

(£0.2m)

£0.1m £0.3m

£7.0m

£49.0m

30

32

34

36

38

40

42

44

46

48

50

Mar-14 Disposals Lease events Completeddevelopments &

extensions

Acquisitions Sep-14

£m

• Government backs 87% portfolio leases


16.7% growth in six month underlying profit

£5.4m

£6.3m

(£3.0m)

(£0.4m)

£4.3m

0

1

2

3

4

5

6

7

Sep-13 Net finance costs Admin expenses Net rental income Sep-14

£m

8

£626.8m

£766.4m

£4.2m

£11.5m

£123.9m

580

600

620

640

660

680

700

720

740

760

780

Mar-14 Completed developments Revaluation gain Additions Sep-14

£m

22.3% increase in core investment portfolio


Sep-14 Mar-14

Net Initial Yield 5.71% 5.88%

Equivalent Yield 5.87% 6.04%

Contracted rental income


• £745m of contracted rental cash flow at 30 September

• 95% of current rent roll still contracted in 2024

• £53m added since 30 September

.0

10.0

20.0

30.0

40.0

50.0

Nov-15 Nov-16 Nov-17 Nov-18 Nov-19 Nov-20 Nov-21 Nov-22 Nov-23 Nov-24 Nov-25 Nov-26 Nov-27 Nov-28 Nov-29

£m

12 months ended

Added since 30-Sep-14

Contracted Rent Roll at 30-Sep-14

Strong and growing balance sheet


• Continued progress in reducing non-core to £11.8m (March 2014: £16.4m)

• Initial £57m of debt redeemed

• Discussions ongoing with lenders on reducing debt

• Positioned strongly for future growth

LTV2: 62% 64% 47%

1 Reflecting net proceeds of Equity Raise (£175m), acquisition of Metro and single medical centre announced 3 November 2014

2 Net of cash balance

£414.8m

£521.3m

£411.2m

100

200

300

400

500

600

700

800

900

1,000

31/03/2014 30/09/2014 Pro-forma

£m Property and debt

Net debt

Total property £874.2m

£809.3m

£668.3m

1


Property updateAndrew Darke

Substantial growth since March

• Over £200m of growth in completed investment property

• 5.6% average yield on cost

• Weighted average unexpired lease term of 17.1 years

• Acquisitions have refinancing and asset enhancement opportunities

• A further £51m of acquisitions in legal hands including the 4 forward purchases recently announced


Consideration Timing

MP Realty £107m Jun 2014

One Life £12m Jul 2014

Metro £63m Nov 2014

Other £5m Various

Developments £15m Various

Property additions £202m

Current March 2014

Total property £874.2m £668.3m

Rent roll £52.9m £41.8m

WAULT 14.6 years 14.4 years

Developments to date

• Achieved c.100bps margin over revaluation yield on completed developments

• Long term requirement for country to invest in new medical centres

• Following NHS reorganisation in April 2013, indications are that NHS England are now starting to approve developments

• Further pipeline of £55m –preferred developer status


Completed On siteImmediate

pipeline

Number of schemes 4 3 2

Development cost £13.0m £15.6m £7.6m

ERV £0.9m £1.0m £0.5m

Completion timing 2014 2014/15 2015/16

Blaenavon

One Life, Middlesbrough

• NHS future – reduce pressure on secondary service providers

• Plurality of providers

• Extended range of enhanced services over and above GP and pharmacy services

– Diagnostics and x-ray

– Mammography

– Musculoskeletal services

– Podiatry

– Physiotherapy

– Dermatology

– General anaesthetic day case theatre


1.87% annual rental growth from settled rent reviews

• RPI and fixed are currently the main drivers of rental growth

– RPI and fixed +3.72%

– Open market +0.34%

• Recent District Valuer awards reflect:

– post financial crash land values

– lower construction costs during recession

• Less rental evidence for rent reviews due to recent hiatus in NHS approval process

• Land and construction cost inflation returning


5.09%

2.49%

3.23%

1.99%

4.52%

0.35%

3.72%

0.34%

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

RPI/fixed (22% of rent roll) OMR (78% of rent roll)

Ab

solu

te r

ent

roll

incr

eas

e £

m

2011/12

2012/13

2013/14

Half Yr 14/15

3 Year Rent Review Settlements


Market and OutlookGraham Roberts

Assura’s growth plan

• Growth through development and acquisition

• Translate income into dividends

– investing in secure income streams

– maintaining cost efficiency

– passing growth in income through to investors

• Acquisition through portfolios and of individual assets e.g. MP Realty / Metro / One Life

• Early signs that recent slowdown in developments should reverse


Development outlook

• 1st approval under new regime

• GP premises issues now have high visibility in Government and among DH/NHS leadership

• Pace of acceleration in development approvals hinges on CCGs engagement

• There will remain a time lag between approval and delivery, typically 18 months to 2 years


Recent encouraging statements

Five Year Forward View

• Simon Stevens, NHS Chief Executive

• Published 23 October 2014

• Radical upgrade in prevention and public health

• We need a ‘new deal’ for GPs

• [A future that] no longer sees expertise locked into often out-dated buildings

• Out-of-hospital care needs to become a much larger part of what the NHS does

• The NHS will invest more in primary care


Better Health for London

• Commission for London (Lord Darzi)

• Published 15 October 2014

• Professionals deserve modern GP practices; patients deserve to be seen in them

• The quality of facilities impacts the quality of care, and London is letting both its patients and its health professionals down

• Many of these new or refurbished facilities should be co-located with other services, including diagnostics, specialist care, and social care, perhaps through a ‘hub and spoke’ model

Assura priorities

• Maintain pressure on unblocking development process

• Be well positioned to win new projects

• Implement/create improvement plans for our recent acquisitions

• Finalise and execute refinancing

• Look for further value accretive acquisitions



Q&A


Supplementary information

1. Market 1.1 Growing demand / inadequate supply1.2 Market: policy direction supportive1.3 Sector attractiveness1.4 Assura well placed to outperform

2. Net assets 2.1 Adjusted net asset value2.2 Adjusted net asset value movement

3. Portfolio 3.1 Total property assets3.2 Capital value – core portfolio3.3 Sensitivity analysis on core portfolio3.4 Core portfolio lease lengths3.5 MP Realty portfolio - £107m3.6 One Life - £12.3m3.7 Metro portfolio - £63.1m3.8 Non-core portfolio

4. Rents 4.1 Portfolio rental income growth over five years4.2 ERV evolution and reversion4.3 Rent reviews settled4.4 Core portfolio rental growth4.5 Core open market rents still increasing4.6 Basis of rent reviews4.7 Rent review timing

5. REITs 5.1 REITs6. Borrowings 6.1 Bank and bond facilities

6.2 Covenants6.3 Well spread repayment profiles

7. Dividends 7.1 Dividend calendar

Growing demand / inadequate supply

Demand

• 10 year track record of cross-party support for:

– more services delivered locally

– greater patient choice

– more community based facilities (medical centres, polyclinics)

• Unaffordable healthcare budget

– doubled in 10 years to £120bn

• Number of consultations with GPs has been increasing at 2.5% per annum

– over 340 million visits per year


Supply

• 2014 BMA survey of GP practices

– 40% of GPs stated premises inadequate for provision of general practice services

– 70% said premises not suitable for offering a full range of services

– 80% said premises prevented them hosting a full primary/community healthcare

– 40% said existing premises could not be extended or developed to meet current or future needs

• GP premises regulated for first time from April 2013 by CQC

• Implementation of 2012 Act resulted in slow down of new premises approvals and has added to under provision of new premises

Appendix 1.1

Market: policy direction supportive

• Government policy to shift health provision from expensive acute / secondary sector into primary care setting

• 2014 NHS England Five Year Forward view reinforces this shift

• Health & Social Care Act brings GPs into commissioning role

• Pressures mounting from changing demands

– ageing population

– different expectations of service

– growing range of medical solutions increasing demand

– changing career and practice profile

• Efficiency will be essential


Appendix 1.2

Sector attractiveness

• Market Features– health spend is non-discretionary– planning environment ‘benign’– District Valuer determines rent reviews

• Tenant Features– private businesses underwritten by

Government– premises are bespoke– GPs are not mobile – “stickiness”

offsetting Residual Value (RV)

• Typical Lease Features– 21 years, no breaks– upward and downward not less than

initial– landlord triggers the review (3 years)– often internal repairing and insuring


Appendix 1.3

Core Rent RollTenant £47.6m

GPs – Reimbursed by NHS £33.7m

NHS Body £8.7m

Pharmacy £3.6mOther (Retail, Charities, Local Authorities, Dentists) £1.6m

71%

18%

8%

3%

Assura well placed to outperform

• Good reputation and relationships with GP community

• Development capability and strong pipeline

• Internally managed

• Knowledgeable and focused team


IPD Annual Return to December 2013 since inception of index in 2006

Source: IPD

Appendix 1.4

6.1%

1.0%

7.2%

6.2%

0.4%

6.6%

0%

2%

4%

6%

8%

IncomeReturn

CapitalGrowth

TotalReturn

Assura

Primary Healthcare Benchmark

27

Adjusted net asset value


Adjusted basic)& diluted NAV)

per ordinary)share)

Adjusted basic)& diluted NAV)

per ordinary)share)

Sep 14) Mar 14)£m) £m)

Net assets 257.0) 226.6)

Own shares held 1.9) 1.9)

Derivative financial instruments 1.5) 1.8)

Deferred tax (0.5) (0.7)

Adjusted (EPRA) NAV 259.9) 229.6)

Number of shares in issue 573,813,120) 529,548,924)

Adjusted net asset value per share 43.5p 43.4p)

Appendix 2.1

Adjusted net asset value movement


* Based on shares in issue (529,548,924 at Mar-14, 573,813,120 at Sep-14) or weighted average in issue over the six months to Sep-14 (556,155,818)

£m)Pence per)

share*)

Adjusted net asset value at 31 March 2014 229.6) 43.4)

Income (underlying profit) 6.3) 1.1)

Capital (revaluations and capital gains) 10.3) 1.9)

Dividends (5.0) (0.9)

Share issue 18.7) (0.2)

Adjusted net asset value at 30 September 2014 259.9) 45.3)

Growth 1.9p)

4.4%

Appendix 2.2

Total property assets

Sep 14 Mar 14

£m £m

Core 766.4 626.8

Non-core 4.6 4.8

Investment portfolio 771.0 631.6

Investment property under construction 20.9 14.8

Properties held for sale 7.2 11.6

Pharmacy lease premiums 7.1 7.2

Finance leases 3.1 3.1

Total 809.3 668.3

Balance sheet classification

Investment property 802.1 656.7

Property assets held for sale 7.2 11.6

Total 809.3 668.3


Appendix 3.1

Capital value – core portfolio


Appendix 3.2

Capital Number of Total Capital

Value Properties £766.4m

<£1m 37 £24.9m

£1-5m 160 £400.1m

£5-10m 27 £190.2m

>£10m 10 £151.2m

3%

52%

25%

20%

Sensitivity analysis on core portfolio


NIY ERV +1% +2% +3%

p/share p/share p/share p/share

6.25% -11.54p -10.32p -9.10p -7.88p

6.00% -6.46p -5.18p -3.91p -2.64p

5.75% -0.93p 0.40p 1.72p 3.05p

5.50% 5.10p 6.49p 7.87p 9.26p

5.25% 11.70p 13.16p 14.61p 16.06p

Appendix 3.3

51leases

39leases

112leases

142leases

90leases

17leases

16leases

38leases

0

2

4

6

8

10

12

14

16

21+ 18-20 15-17 12-14 9-11 6-8 3-5 0-2

Re

nta

l Val

ue

£m

Years Remaining

Core portfolio lease lengths


Appendix 3.4

Weighted average unexpired lease term 14.3 years

MP Realty portfolio – £107m


• £107m portfolio of 28 medical centres acquired in June 2014– 5.8% yield on cost1

– off-market transaction– 15 years’ WAULT– 90% of income from GPs / NHS bodies

• Potential ERV of £6.6m– £0.1m of additional rent is achievable if rents brought up

to current market levels– £0.3m would arise on letting expansion space – incremental annual overhead of £0.1m

• Further asset enhancement opportunities in portfolio

• Consideration – £10m in cash– £18.9m of new shares issued at 43.15 pence per share– £77.7m of net debt assumed (average fixed interest of

5.5% and average maturity of 13.5 years)– provision of £2.1m for potential re-financing costs

1 Once historical rent reviews settled

Worcester

Birmingham

Appendix 3.5

One Life – £12.3m


• £12.3m One Life Building acquired in July 2014– 6.5% yield on cost– off-market transaction– 14 years’ WAULT– 92% of income from GPs / NHS bodies

• Rent roll £0.8m

• Multi-discipline care providers– GP practice– pharmacy– day-case theatre– x-ray and diagnostic services– out-patient and community service providers

• Consideration – £2.7m in cash– £8.7m of net debt assumed (fixed interest of

6.23% and maturity of 11.6 years)– provision of £0.9m for potential re-financing costs

Appendix 3.6

Metro portfolio – £63.1m


• £63.1m portfolio of 11 medical centres acquired in November 2014– 5.4% yield on cost– off-market transaction– 20 years’ WAULT– 89% of income from GPs / NHS bodies

• Potential ERV of £4.1m– £0.1m of additional rent is achievable if rents brought

up to current market levels– £0.6m would arise on letting expansion space – incremental annual overhead of £0.1m

• Consideration – £9.1m in cash– £9.4m of new shares issued at 48.8 pence per share– £44.3m of net debt assumed (average fixed interest of

5.4% and average maturity of 15.1 years)– provision of £3.4m for potential re-financing costs

1 Once historical rent reviews settled

Appendix 3.7

West Quay, Barry

North Gloucester

Non-core portfolio

• Non-core valued at £11.8m (March 2014: £16.4m)

• Income generating assets of £4.6m, net initial yield of 17.5%

• £12.5m disposals of non-income earning assets

• Letting success offsets valuation decline from short leases

• Held for sale includes land of £7.2m, of which Scarborough is £3m


Appendix 3.8

Non core£14.9m

Non core£4.6m

Held for sale

£11.4m

(£12.5m)

(£3.9m) (£1.2m)

£0.6m

£2.5m

Held for sale

£7.2m

-

5

10

15

20

25

30

£m

Portfolio rental income growth over five years


Appendix 4.1

0

5

10

15

20

25

30

35

40

45

2010/11 2011/12 2012/13 2013/14 2014/15

Gro

ss r

enta

l an

d r

elat

ed

inco

me

£m

H2 Mar

H1 Sept

ERV evolution and reversion


Appendix 4.2

£19.3m £19.5m

£28.8m£32.5m £34.1m

£40.3m

£47.6m

£1.8m £2.2m

£1.6m

£1.5m£1.8m

£1.3m

£1.7m

£

£10

£20

£30

£40

£50

£60

Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Sep-14

Co

re P

ort

folio

Re

nt

Ro

ll

Estimated rental value less passing rent

Passing Rent

£1.7m ERV• Vacant space ERV £0.9m • Valuers rental ERV £0.8m

Rent reviews settled


Appendix 4.3

Weighted average annualised increaseSix months ended

30 September 2014Year ended

31 March 2014

Whole portfolio

OMR 0.34% 0.35%

RPI / Fixed 3.72% 4.52%

Total 1.87% 1.89%

Core portfolio

OMR 0.33% 0.35%

RPI / Fixed 4.46% 2.07%

Total 1.72% 0.83%

Core portfolio rental growth


Annualised increase Six months ended 30 September 2014

Year ended 31 March 2014

Rent reviews settled 1.72% 0.83%

Rent reviews settled excluding RPI/fixed uplift 0.33% 0.35%

Appendix 4.4

43 reviews51 reviews

66 reviews

61 reviews41 reviews

9 reviews

£4.1m

£6.6m

£8.9m

£7.0m

£5.5m

£1.0m1

2

3

4

5

6

7

8

9

2009 2010 2011 2012 2013 2014

Re

nt

£m

Previous Rent

Rental Increase

Core open market rents still increasing

• 1.72% annualised increase from rent reviews settled in the period– 0.33% from open market rent reviews


AnnualisedOpen market reviews only % on Core

Number of outstandingreviews on Core (passing rent)

Rent reviews settled in six months to 30 September 2014 0.33%

Relating to review dates from calendar years:

2009 1 (£0.1m)

2010 (1 reviews) 1.62% 2 (£0.1m)

2011 (4 reviews) 0.38% 10 (£1.2m)

2012 (5 reviews) n/a% 26 (£3.5m)

2013 (8 reviews) 0.10% 42 (£3.8m)

2014 (7 reviews) 0.59% 123 (£12.6m)

Appendix 4.5

Basis of rent reviews


Appendix 4.6

£38.3m

£5.1m

£2.9m

£1.3m

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

OMR RPI Fixed Other

% C

ore

Po

rtfo

lio b

y re

nta

l val

ue

Upward/Downward Review Basis - Tenant Can Instigate 5% (£2.6m)

Upward/Downward Review Basis - Landlord Only Trigger 26% (£12.2m)

Upward Only Review Basis 69% (£32.8m)

Rent review timing

Split of current rent roll by rent review basis and frequency of review:


Appendix 4.7

Annually 3 year 5 year Other

OMR - 71% 7% - 78%

RPI 6% 5% 2% - 13%

Fixed - 3% 1% - 4%

Other - 4% - 1% 5%

6% 83% 10% 1% 100%

REITs

• 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

― subject to 20% withholding tax (unless investor is a qualifying institution)

• Other dividends are not subject to withholding tax

• Assura currently pays dividends not PIDs as the minimum PID is £nil

• REITs are a recognised global investment class, attractive to specialist investors

• REITs are required to meet rules ensuring they remain focused on real estate investment activity

• Development activity is permitted but taxable if developments are sold within 3 years of practical completion


Appendix 5.1

Bank and bond facilities


Loan/BondFixed/Floating Maturity

Effective Interest Rate

Secured Properties

Rental Income

Outstanding)30 September)

£m £m £m)

10 year secured Bond Fixed

10 year, bullet repayment 2021 4.75%1 165.5 11.3 110.0)

Aviva amortising secured loans Fixed Amortising to 2041 5.65%1 503.7 31.2 366.8)

£57.4m Santander investment facility Floating

Repaid in November 2014 4.53%1 92.0 5.7 57.4)

£30m revolving credit facility Floating Five year, 2019 2.39%2 - - -)

Principal 761.2 48.2 534.2)

Fair value adjustment for acquired debt 4.5)

FRS 4 adjustment (3.4)

Book value 535.3)

1 2.575% interest rate swap of matching amount plus 195 bps2 1.85% above LIBOR, subject to LTV and interest rate swaps

Appendix 6.1

Covenants


All covenant conditions complied with

Bond Aviva

SantanderInvestment

Facility RCF

Req. Act. Req. Act. Req. Act. Req. Act.

Interest v income cover > 1.50 2.08 ≥ 1.05 1.30 ≥ 1.70 2.37 ≥1.75 n/a

Loan to Value > 1.35 1.48 n/a n/a < 75% 62% <65%1 n/a

Debt Service Coverage Ratio n/a n/a n/a n/a > 1.05 2.37 n/a n/a

1 Reduces to 60% in year 4 and 55% in year 5

In addition, bond requires NHS backed income to exceed 75% (30 September 2014: 78%) and the weighted average lease length must exceed 10 years (30 September 2014: 13.1 years)

Appendix 6.2

The RCF requires weighted average lease length to not at any time be less than nine years (30 September 2014: n/a)

0

20

40

60

80

100

120

140

£m

12 months ended

Aviva Santander Bond

Well spread repayment profiles


Sep-14 Mar-14

Gross debt £534.2m £451.9m

Weighted average maturity 10.9 years 10.9 years

Weighted average cost of debt 5.31% 5.28%

Appendix 6.3

Santander repaid in full November 2014

Dividend calendar


2014/15 Ex-Div Date Record Date Payment Date Non-PID PID Total

Q4 9 Apr 20151 10 Apr 20151 22 Apr 20151 0.5p2 -2 0.5p2

Q3 8 Jan 20151 9 Jan 20151 21 Jan 20151 0.5p2 -2 0.5p2

Q2 23 Oct 2014 24 Oct 2014 5 Nov 2014 0.45p - 0.45p

Q1 9 Jul 2014 11 Jul 2014 23 Jul 2014 0.45p - 0.45p

2013/14 Ex-Div Date Record Date Payment Date Non-PID PID Total

Q4 9 Apr 2014 11 Apr 2014 23 Apr 2014 0.45p - 0.45p

Q3 8 Jan 2014 10 Jan 2014 22 Jan 2014 0.45p - 0.45p

Q2 9 Oct 2013 11 Oct 2013 23 Oct 2013 0.3025p - 0.3025p

Q1 10 Jul 2013 12 Jul 2013 24 Jul 2013 0.3025p - 0.3025p

1 Provisional date

Appendix 7.1

2 Provisional amount

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 these statements.

Many of these risks and uncertainties relate to factors that are beyond Assura’s ability to control or estimate precisely, such as future market conditions, the behaviour of other market participants, the actions of governmental regulators and other risk factors such as the Company’s ability to continue to obtain financing to meet its liquidity needs, changes in the political, social and regulatory framework in which the Company operates or in economic or technological trends or conditions, including inflation and consumer confidence, on a global, regional or national basis.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. Assura does not undertake any obligation to publicly release any revision to these forward-looking statements to reflect events or circumstances after the date of these materials. Information contained in this presentation relating to the company or its share price, or the yield on its shares, should not be relied upon as a guide to future performance.

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