Assura PLC · OTC:ARSSF
Assura — H1 2018/19 Earnings Presentation
59 slides from Assura's earnings presentation, November 2018
Slide 1: Results for the six months ended 30 September 2018
RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018
Slide 2: Overview
Overview 1 Jonathan Murphy – CEO Results for the six months ended 30 September 2018 2
Slide 3: Successful delivery of our plan
SUCCESSFUL DELIVERY OF OUR PLAN Investment plans achieved with significant future opportunities Growing portfolio Refreshed pipeline £108m additions in 6 months Acquisitions £107m Further £50m post interim Developments £82m Financial strength Dividend progression Fitch Rating A- 5% increase from Jan
Slide 4: Financial performance
Financial performance 2 Jayne Cottam – CFO Results for the six months ended 30 September 2018 4
Slide 5: Financial highlights
FINANCIAL HIGHLIGHTS Earnings growth driven by acquisitions and financing strategy Income statement – six months ended Sep 2018 Sep 2017 Change Net rental income (£m) 46.2 38.3 up 21% EPRA earnings (£m) 31.7 23.3 up 36% EPRA EPS (p) 1.3 1.3 - Dividend per share (p) 1.3 1.2 up 8% Balance sheet Sep 20
Slide 6: Financing strategy
FINANCING STRATEGY Investment grade rating enabling diversified funding structure ▪ Diversified funding structure ▪ A- (stable outlook) investment grade rating received from Fitch ▪ £300m unsecured bond raised ▪ Finance accessed from a variety of lenders ▪ Unsecured structure ▪ 89% of portfolio unen
Slide 7: 7% growth in annualised rent roll
7% GROWTH IN ANNUALISED RENT ROLL Acquisitions & development completions driving continued rental growth £m 100 5.0 95 0.5 0.5 90 97.0 85 91.0 80 75 Mar-18 Rent reviews Development completions Acquisitions Sep-18 Results for the six months ended 30 September 2018 7
Slide 8: 36% growth in EPRA earnings
36% GROWTH IN EPRA EARNINGS Continued growth through acquisitions and reduced debt costs £m 35 7.9 30 25 1.0 0.1 (0.6) 20 15 31.7 23.3 10 5 0 Sep-17 Admin expenses Tax & other Net finance costs Net rental income Sep-18 Results for the six months ended 30 September 2018 8
Slide 9: EPRA cost ratio reduced to 12%
EPRA COST RATIO REDUCED TO 12% Careful cost management driving further economies of scale £m 22% 20% 18% 16% 14% 20% 18% 17% 12% 14% 13% 10% 12% 8% Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Sep-18 Results for the six months ended 30 September 2018 9
Slide 10: 1% growth in diluted EPRA NAV per share
1% GROWTH IN DILUTED EPRA NAV PER SHARE Stable EPRA NAV with income distributed as dividend £m 56 54 1.3 52 0.2 0.1 (1.3) 50 48 52.4 52.7 46 44 Mar-18 Dividends Other Capital Income Sep-18 (revaluations) (EPRA EPS) Results for the six months ended 30 September 2018 10
Slide 11: 6% increase in investment property
6% INCREASE IN INVESTMENT PROPERTY Plus further £50m invested immediately post period end £m 1,860 96 1,840 1,820 1,800 1,780 1,760 7 1,843 1 6 1,740 1,720 1,700 1,733 1,680 1,660 Mar-18 Other Revaluation gain Development costs Acquisitions Sep-18 Results for the six months ended 30 September 2018 1
Slide 12: Strength of financial position
STRENGTH OF FINANCIAL POSITION Capital discipline in financing strategy ▪ A- (stable outlook) rating from Fitch LTV & interest rate history ▪ £300m unsecured bond raised in July LTV 70% Interest rate 7% ▪ 10 year tenor 60% 6% ▪ 3% coupon ▪ £300m RCF currently undrawn and available to 50% 5% fund pip
Slide 13: Property update
Property update 3 Patrick Lowther – Head of Investment Results for the six months ended 30 September 2018 13
Slide 14: Continued strong growth
CONTINUED STRONG GROWTH Pipeline delivered and replenished ▪ £110m increase in portfolio value Sep Mar ▪ £96m acquisitions of which £67m were 2018 2018 portfolio deals Investment property (£m) 1,843 1,733 ▪ 5.1% average yield on cost Rent roll (£m) 97.0 91.0 ▪ 13.3 year WAULT WAULT (years) 12.2 12.6
Slide 15: Stratford Healthcare
STRATFORD HEALTHCARE Recent acquisition ▪ 18,000 patient GP practice ▪ Other services at the facility include: ▪ Renal unit ▪ Pharmacy ▪ Dentist ▪ Physiotherapy centre ▪ Rehabilitation centre ▪ Mental & sexual health services ▪ 88% GP or NHS tenant, 71% of rent index linked Results for the six month
Slide 16: Park Surgery, Horsham
PARK SURGERY, HORSHAM Recent acquisition ▪ 24,000 patient GP practice ▪ Other services at the facility include: ▪ Acute assessment unit ▪ Antenatal care & ultrasound services ▪ Mental and sexual health services ▪ Teen clinic ▪ A wide range of practice nurse services Results for the six months ended
Slide 17: Developments and pipeline
DEVELOPMENTS AND PIPELINE Strong immediate pipeline ▪ 2 schemes completed Completed On site Immediate ▪ 4 schemes currently on site pipeline ▪ Appointed on 14 schemes, with a Number of schemes 2 4 14 Cost incurred £10.1m move to more in-house Cost to complete £8.3m ▪ Approximate end cost of £64m Tot
Slide 18: Two completions during period: Durham Treatment Centre
TWO COMPLETIONS DURING PERIOD Durham Treatment Centre Results for the six months ended 30 September 2018 18
Slide 19: Two completions during period: Brixworth Surgery
TWO COMPLETIONS DURING PERIOD Brixworth Surgery Results for the six months ended 30 September 2018 19
Slide 20: On site: Porthcawl Medical Centre
ON SITE Porthcawl Medical Centre Results for the six months ended 30 September 2018 20
Slide 21: Development pipeline growth
DEVELOPMENT PIPELINE GROWTH Strongest pipeline in the last five years £m 180 160 140 120 100 Extended pipeline 80 60 Immediate pipeline 40 20 On site - Results for the six months ended 30 September 2018 21
Slide 22: Pipeline beyond those in legal hands
PIPELINE Beyond those in legal hands Results for the six months ended 30 September 2018 22
Slide 23: Rent reviews
RENT REVIEWS Prospective growth driven by developments ▪ Annualised uplifts Rent review settlements ▪ Average 1.79% 6% ▪ RPI/fixed/other 2.72% 5% ▪ Open market 0.97% 4% ▪ Linkage to cost inflation on new developments creates evidence for rental growth 3% ▪ Slight lag awaiting evidence flowing throug
Slide 24: Enhancing existing portfolio
ENHANCING EXISTING PORTFOLIO Pro-active portfolio management ▪ New leases, lease re-gears and extensions remain a priority ▪ Investment and Portfolio Management teams work together to identify opportunities pre-acquisition ▪ Recent portfolio acquisition includes 5 extension opportunities ▪ 8 new lea
Slide 25: Outlook
Outlook 4 Jonathan Murphy – CEO Results for the six months ended 30 September 2018 25
Slide 26: Market overview
MARKET OVERVIEW Strong underlying demand and robust fundamentals; NIY 4.79% Yield progression 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 15 year Gilt Assura Net Initial Yield IPD monthly UK index initial yield Results for the six months ended 30 September 2018 26
Slide 27: Political backdrop remains supportive
POLITICAL BACKDROP REMAINS SUPPORTIVE Positive recent announcements ▪ Chancellor commits to additional NHS funding – rising to an extra £20bn per year ▪ New Secretary of State for Health has outlined three priorities of prevention, technology and workforce ▪ Prevention vision launched this month wit
Slide 28: Conclusion
CONCLUSION Continued profitable growth reflected in 5% dividend uplift Growing portfolio Refreshed pipeline Financial strength Dividend progression Results for the six months ended 30 September 2018 28
Slide 29: Q&A
5 Q&A Results for the six months ended 30 September 2018 29
Slide 30: Additional information
6 Additional information Results for the six months ended 30 September 2018 30
Slide 31: Additional information
ADDITIONAL INFORMATION 1. Intro to Assura 1.1 Assura summary 3. Rents 3.1 Open market review results 1.2 Business model 3.2 Basis of rent reviews 1.3 Primary care model 3.3 Developments drive rental growth 1.4 GP funding structure 3.4 Rent review timing 1.5 Rent reimbursement mechanism 3.5 Lease len
Slide 32: 1.1 Assura summary
1.1 ASSURA SUMMARY Strategic focus on a highly attractive market 1 A leading owner of primary care property with a resilient income profile supported by strong NHS covenants 84% ▪ GP leases funded through NHS reimbursement mechanism 12.2 years 98% NHS-backed WAULT occupancy ▪ 84% of income funded di
Slide 33: 1.2 Business model
1.2 BUSINESS MODEL A business model designed to deliver resilient and predictable income 1 Develop ▪ Supporting the evolving requirements of GPs ▪ Investment managers identify opportunities to build lasting relationships with GPs, helping them realise their long-term ambitions for their practice and
Slide 34: 1.3 Primary care model and growing healthcare demand
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 demands 1 Primary healthcare sector Market outlook – key statistics A visit to a primary care centre costs on average £45
Slide 35: 1.4 GP funding structure
1.4 GP FUNDING STRUCTURE How the funding mechanism works 1 2 Lease Agreement GMS Contract (typically 20-25 years) (lifetime contract) Rental income GMS Payments (4.75-5% NIY) GP (Partnership) (inc. Premises Payment) Notes 1 GP Partnerships lease premises from Assura, typically for a period of 20-25
Slide 36: 1.5 Rent reimbursement mechanism
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 founded in 1948 ▪ There have been 19 governments s
Slide 37: 1.6 Positive political backdrop
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 ▪ Number of consultations with GPs grew by a total
Slide 38: 1.7 Risk reward spectrum
1.7 RISK REWARD SPECTRUM Total return vs standard deviation – eleven years (since inception of index) to December 2017 9% Residential index Primary Healthcare 8% TOTAL RETURN (PER ANNUM) All Healthcare 7% Industrial Bonds 6% Equities Office All property 5% 4% Retail 3% 2% 1% 0% 18 16 14 12 10 8 6 4
Slide 39: 2.1 Completed investment property
2.1 COMPLETED INVESTMENT PROPERTY Properties Value (£m) Value (%) >£10m 32 476.3 26 £5-10m 68 445.4 24 £1-5m 342 834.2 46 <£1m 114 70.0 4 556 1,825.91 100 Properties Value (£m) Value (%) North 176 694.2 38 South 209 631.6 35 Midlands 86 318.6 17 Scotland 27 56.0 3 Wales 58 125.5 7 556 1,825.91 100 R
Slide 40: 2.2 Property & net debt
2.2 PROPERTY & NET DEBT Sep 2018 Mar 2018 Property and debt Total property assets £m £m £m 2,000 Completed investment property 1,818.6 1,702.2 1,800 1,843 Investment property under construction 16.5 22.2 1,733 1,600 Pharmacy lease premium / rent adjustments 4.8 5.5 1,400 Finance leases 2.8 2.8 1,345
Slide 41: 2.3 Sensitivity analysis
2.3 SENSITIVITY ANALYSIS ERV +1% +2% +3% NIY per share per share per share per share 5.50% (9.85p) (9.19p) (8.52p) (7.86p) 5.25% (6.69p) (5.99p) (5.30p) (4.60p) 5.00% (3.21p) (2.47p) (1.74p) (1.01p) 4.75% 0.64p) 1.41p) 2.18p) 2.95p) 4.50% 4.92p) 5.73p) 6.54p) 7.36p) Results for the six months ended
Slide 42: 2.4 Acquisition and development strategy
2.4 ACQUISITION AND DEVELOPMENT STRATEGY Attractive sector characteristics 1 Strong leases ▪ Long tenure ▪ No rent-free periods 84% NHS- £1.2bn backed contracted ▪ NHS funded income means very low default risk income ▪ 3 yearly rent review cycle with linkage to cost of new developments ▪ Low volatil
Slide 43: 2.5 Acquisition process
2.5 ACQUISITION PROCESS Disciplined approach to acquisitions c.9,000 GP buildings in the market ▪ Database provides crucial market information For example: ▪ Referrals, direct marketing, conferences Focus on core due • Patient list diligence • Service provision and events key to sourcing opportuniti
Slide 44: 2.6 Development process
2.6 DEVELOPMENT PROCESS 1 HOW WE SOURCE DEVELOPMENTS 2 MANAGING DEVELOPMENT RISK 3 STRENGTHENED DEVELOPMENT TEAM ▪ New opportunities are secured by: ▪ Agreement for Lease before commencing ▪ Increased team in response to growing pipeline ▪ Direct approach from the GPs and referral scheme and enquiri
Slide 45: 3.1 Open market review results
3.1 OPEN MARKET REVIEW RESULTS ▪ 1.79% annualised increase from rent Open Number of reviews settled in the period Annualised market outstanding reviews reviews ▪ 0.97% from open market rent only % (passing rent) reviews Rent reviews settled in six months to 0.97% ▪ 2.72% from RPI and fixed uplift 30
Slide 46: 3.2 Basis of rent reviews & timing
3.2 BASIS OF RENT REVIEWS & TIMING 80% Split of current rent roll by rent review basis and Upward/downward review basis - tenant can instigate (5%) frequency of review: 70% Upward/downward review basis - landlord only trigger (20%) Annually 3 Year 5 Year Other Total 60% Upward only review basis (75%
Slide 47: 3.3 Developments drive rental growth
3.3 DEVELOPMENTS DRIVE RENTAL GROWTH ▪ New developments capture increased Relationship of increased costs and rent land and construction costs resulting in increased rents Scheme Year Size Initial rent Build costs (m2) (£/m2) (£/m2) ▪ Higher rental tone linked to increasing construction costs Woodvi
Slide 48: 3.4 Lease lengths
3.4 LEASE LENGTHS 25 WAULT 12.2 years 1,113 leases 223 68% of rent roll 9+ years unexpired term 193 20 leases leases Rental value (£m) 15 152 142 leases 10 leases 100 95 leases leases 5 86 112 leases leases 0 21+ 18-20 15-17 12-14 9-11 6-8 3-5 0-2 Years remaining Results for the six months ended 30
Slide 49: 4.1 Key historical KPIs
4.1 KEY HISTORICAL KPIs Number of properties Rent roll (£m) Investment property (£m) 91.0 1,733 518 74.4 26.2% 398 1,345 63.8 321 55.6 1,109 265 925 41.8 202 35.9 657 162 557 FY13A FY14A FY15A FY16A FY17A FY18A FY13A FY14A FY15A FY16A FY17A FY18A FY13A FY14A FY15A FY16A FY17A FY18A WAULT (years) Occ
Slide 50: 4.2 Key historical KPIs
4.2 KEY HISTORICAL KPIs LTV Gross rental income (£m) EPRA EPS (pence per share) 83.5 2.4 2.5 62% 62% 26.2% 71.1 2.1 2.0 48% 60.2 1.7 50.1 1.5 37% 30% 36.3 39.0 26% FY13A FY14A FY15A FY16A FY17A FY18A FY13A FY14A FY15A FY16A FY17A FY18A FY13A FY14A FY15A FY16A FY17A FY18A EBITDA (£m) EBITDA net inter
Slide 51: 4.3 EPRA NAV
4.3 EPRA NAV EPRA NAV) EPRA NAV) Pence per £m) Sep 2018) Mar 2018) share) £m) £m) Net assets 1,261.8) 1,250.4) Diluted EPRA NAV at 31 Mar 2018 1,249.9) 52.4) Deferred tax (0.5) (0.5) Income (EPRA earnings) 31.7) 1.3) EPRA NAV 1,261.3) 1,249.9) Capital (revaluations and capital gains) 5.7) 0.2) Divid
Slide 52: 4.4 EPRA EPS
4.4 EPRA EPS Sep 2018 Sep 2017 Six months ended £m £m Profit for the period 37.4 73.4 EPRA earnings 31.7 23.3 Weighted average number of shares in issue – basic 2,387,909,796 1,748,149,201 Basic EPS – net profit 1.6p 4.2p – EPRA 1.3p 1.3p Weighted average number of shares in issue – diluted 2,388,29
Slide 53: 4.5 Cash flow summary
4.5 CASH FLOW SUMMARY Six months to) Year to) Sep 2018) Mar)2018) £m) £m) Opening cash 28.7) 23.5) Net cash from operations 32.8) 49.9) Cash flows from investing activities: Property and business acquisitions (96.6) (282.3) Development expenditure (6.8) (31.7) Sale of properties 0.1) 0.9) Other -) -
Slide 54: 4.6 Contracted rental income
4.6 CONTRACTED RENTAL INCOME £1,219m total contracted cash flow, 68% of rent roll still contracted in 2028 100 Contracted at Sep-18 90 80 70 60 50 40 30 20 10 0 Results for the six months ended 30 September 2018 54
Slide 55: 5.1 Facilities & maturity profile
5.1 FACILITIES & MATURITY PROFILE £m Secured bond Weighted Weighted Gross debt 400 Private placements average maturity average interest Unsecured bond £660m 350 RCF (if drawn) 8.0 years 3.28% 300 Effective Outstanding Fixed / Secured/ Facility description Maturity interest 31 September 2018 Floating
Slide 56: 5.2 Covenants
5.2 COVENANTS All covenant conditions complied RCF / PPs Unsecured bond 2028 Secured bond 2021 with Covenant Sep-18 Covenant Sep-18 Covenant Sep-18 Interest cover ≥1.75 5.84 ≥150% 447% >1.5 2.20 LTV / leverage <60% 33% <60% 30% >1.35 1.82 WAULT >7 yrs 14.2 yrs - - - - NHS - - - - >75% 77% Gearing <1
Slide 57: 6.1 REIT overview
6.1 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 (PIDs) ▪ 90% of taxable property rental profits ▪ sub
Slide 58: 6.2 Dividend calendar
6.2 DIVIDEND CALENDAR 2017/18 Payment date Ex-div date Record date PID Non PID Total2 Q1 19 Apr 2017 16 Mar 2017 17 Mar 2017 – 0.60p 0.60p2 Q2 19 Jul 2017 15 Jun 2017 16 Jun 2017 – 0.60p 0.60p2 Q3 18 Oct 2017 14 Sep 2017 15 Sep 2017 0.60p – 0.60p2 Q4 17 Jan 2018 14 Dec 2017 15 Dec 2017 – 0.655p 0.65
Slide 59: 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