Assura (OTC:ARSSF) — Investor Presentation

0:02 Good afternoon, ladies and gentlemen, and welcome to the ASSURA PLC investor presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Simply type in your question and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your investor me company dashboard, and you'll receive notification once they're ready for your review. I'd also like to remind you this presentation

0:33 is being recorded. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Jonathan Murphy, CEO, and Jane Cotton, CFO of ASSURA PLC. Good afternoon. Good afternoon. Good welcome to ASSURA's investor presentation. Delighted that you've taken the time to join us join us today. So my name is Jonathan Murphy. I'm the CEO of ASSURA. So I'm going to start today's presentation with a brief overview about the business and the market that we operate in. I'll then pass over to Jane Cotton, the CFO, to take you through some of the financials and our recent performance in detail. And then I'll come back to wrap up the presentation with a with a view on the forward looking view as to where the market is, trends that we're seeing in the market, and and future impact on the business.

1:28 So starting with position of ASSURA, I think there are a few elements about our business model which which really sets us apart from from the competition, and and this is where I'd like to start the discussion. So first of all, we are obviously a property business. We are an investor developer, but we pride ourselves very much on taking a partnership approach. So we work with our customers to help them in terms of designing the property solutions that they need and then looking to deliver those for them in the most efficient way possible. Your key part of that is our wider commitment, not just to profit, but also to what we describe as social impact. We have a major program which we launched last year called our six by six initiative, and I will come on and explain that in a little bit more detail later. But that's a core part of our of our business is the fact that we offer both profit but also a broader social impact on top of that.

2:24 Another element that is quite distinctive is the fact that we act as developer in many of our, instances. So I e, we design and we build and then we manage thereafter. So we are involved in all the stages, and we've got an in house team that is able to deliver these new schemes for the NHS and the, the local health economy. The final point here is we maintain a conservative financing structure with a very strong balance sheet, and Jane will talk you through that in more detail later. In terms of our market, there are a couple of key areas that just need to pull out. The first one is the nature of the leases. So they're very long term with twenty one years being the average. We have a predominantly NHS occupier base, so 84% of our rents is linked to the NHS.

3:12 So you have a long lease. You have a very secure tenant. And as a result of that, you also have a very low default risk because the NHS is an excellent payer. You have a a rent review cycle, which is every three years, which means that you capture any rental reversion in a relatively quick way, and there is an indirect linkage to, construction costs, which I'm happy to explain later. So very strong leases, but you also have very strong demand. So we've got an aging population. We've got a growing population. You know, over 80 are predicted to double, by 2040. This will inevitably place strains and demands upon our health system. Part of that to meet that demand is a need for more services delivered in communities and out of hospital. That requires significant investment into the primary care infrastructure in The UK.

4:03 So as a result of this, what we're seeing is the need for new developments is increasing, and ASSURA is very well placed to meet that. The final point is that these two factors together, so very strong underlying leases, very strong demand, and no speculative supply, means that we have a very strong risk adjusted returns in the business. We are a specialist and we are, an expert in our area, and that provides us with a barrier to entry to new players. So the combination of all these factors is what enables us to deliver very stable and very predictable returns in the ordinary course. So if you look at our track record over the last ten years, the dataset from MSCI, which looks at all different types of asset classes, records primary health care as having the second highest level of return, that's eight percent over the last ten years, but the lowest level of volatility.

4:55 And that's why we talk about strong risk adjusted returns.

5:01 In terms of ASSURA's position, we have a nationwide portfolio of assets just under 600 with a rent, rent roll of a 118,000,000 and a value of 2,300,000,000. Very resilient income profile with 84% linked to the NHS and a long lease profile just under twelve years and 98% let. That's built on our very strong relationships that we have with the GPs and the NHS. That commitment to social impact that I mentioned aligns us with the values and culture of the NHS, and our capability of development, management, and investment means that we've got the right skills as a property partner to support our customers. This very strong capability is what has enabled us to grow the business so successfully over the last decade.

5:50 And it also means that we're ideally placed to support the future requirements as we look forward. The financial strength is also crucial, so we've got a loan to value ratio in our most recently published numbers of 33 with an interest cover of three and a half times and an investment grade rating from Fitch of a minus, which sets us apart and provides us access to very well priced financing, which Jane will come on to later.

6:18 Just to give you an idea of the type of assets that that that we develop and manage, On the screen here, you can see quite a range. I think there's often a misconception that there's the only future for medical centers is very large hubs in in urban locations. Actually, different things are required in different locations. So on the far left here in Stone The Wold, it's a relatively small development, which is ideal for that community in that location. If you go to the far right, that's a so almost like a hospital replacement type facility that provides a massive range of services to a large number of patients. So it's about having the right asset in the right location.

7:04 I'd just like now to cover briefly our response to the COVID pandemic and what we have done as a business over the last year. Literally, in the last day, we've just gone just gone past the anniversary of when we closed the office. So the team reacted and responded to working remotely, and we looked to support our customers wherever we could. So that could involve things like separate entrances and exits for for the GPs, installing intercoms to control access to buildings, you know, helping them with improved infection control and and creating separate spaces within their buildings, for those patients who are being treated for COVID and those patients who are not. Our customers continue to pay their rents all the way through. We had very little disruption to our rent collection, and rental concessions have been agreed at less than 100,000.

7:56 In terms of developments, we had to modify the way we work. We had to install new, safety measures in our sites, make sure that we were maintaining social distancing, and, obviously, we had to reduce the number of people able to work on-site at any one time. Inevitably, that involved minor delays, and also minor design adaptations where necessary. So, for example, those creation of those separate hot and cold zones, if you like, for COVID and non COVID patients. This was very much so in line with our our general response and our general attitude, which is to constantly look for new ways of delivering medical centers and looking at ways of innovating, creating a more friendly patient supportive environment.

8:41 And that's something that you'll see if you look on our website, we've got a surgery of the future concept, which encapsulates many of these ideas about the future delivery of primary care.

8:53 I referenced earlier the importance for us of social impact, and for us, this is encapsulated in what we describe as our six by six pledge. This is broadly, you can broadly group this into two areas. The first one is our commitment to our communities. So we created the ASSURA community fund last year, and we invested we donated rather £2,500,000 to that fund to support health and wellness initiatives in those communities close to our buildings. We also have a second commitment, which is around sustainability, and that involves us committing to developing a zero carbon building for developing and building a zero carbon building within the next six years. Clearly, a lot of work still to be done, but a significant commitment.

9:40 We also focus on improving the sustainability of our current estate. And so we have set ourselves a target of an EPC rating of b across our portfolio. To give you an idea of a few of the things we've already been able to achieve this year, as I've already mentioned, we made our initial £2,500,000 donations to the community fund, and that's been able to support those groups most affected by the pandemic. So in particular, people suffering from mental illness issues and loneliness, and we've also redoubled our efforts in terms of our sustainability by signing up to the the World Green Building Council net zero carbon pledge to be achieved by 2013.

10:24 So, hopefully, that gives you an indication of our our commitment to social impact. I'd now like to pass over to Jane to take you through some of the financials of the business. Jane? Thank you, Jonathan. Good afternoon, everyone. It's, it's good to welcome all welcome you all here today. I'm Jane Cottom. I'm the CFO. I'm gonna take you through a brief overview of our of our financial performance over the last few years and also just highlight our pipelines and the strength of our of our balance sheet.

10:56 So, if you as you can see from the graphs on here, we've got a very strong record, track record over the last five years. The graph on the top left looks at our portfolio, and you can see the portfolio has grown from 1,100,000,000 to 2,300,000,000. So it's doubled of more than doubled in that time and a compound annual growth rate of 17% since 2016. But whilst growing that, we've also managed to maintain our costs and get some economies of scale. So if we look at the bottom left and we have our EPRA cost ratio, we are industry leading in this area. So our EPRA cost ratio, prior to, March 17 was over 20%. It came down to 13.7%, and now it sits at 12 and a half percent. And as we continue to grow the business, we do, continue expect to maintain that EPRA cost ratio.

11:50 There are two bars on that on that chart there, and, one is excluding our development team. And just to give you a little bit more detail, we don't capitalize on development team costs. We're very prudent in terms of how we recognize our costs, and therefore, other developers do capitalize their costs, so we have excluded that. And on that basis, our cost ratio would be down at 11%, which again is industry leading. And so if we take the chart on our top right, you can see that our EPRA net tangible value per share has grown, on a compound growth rate of 5% over the last five years from 45.8 to 56.2p. And what that does is that drives our growth, our earnings, driving our dividend growth. And on the bottom right there, you can see that our EPRA earnings per share and our dividend per share since 2015 has grown by 8% for the dividends and 6% for earnings.

12:51 Now we have a dividend policy to provide progressive and growing dividends for our shareholders, and we expect, to pass on our earnings growth in the form of dividends growth dividend growth to, to our shareholders. So if we go back to April 2020 and the beginning of our financial year, we raised equity of £185,000,000. And what these charts are are showing you is how we said we would deploy that capital, and I'm really pleased to say that actually we are deploying that equity ahead of our expectations. So if we take the developments at the equity placing, we have 15 developments on-site with for £81,000,000, and we had a pipeline of, £77,000,000.

13:40 If we fast forward for the first nine months, we've actually completed nine developments and we've moved a further nine developments onto sites, leaving us still with 15 developments at £71,000,000 on-site as of the end of December. However, from December to March, we do expect to increase these numbers and this will be our strongest year for developments that the business has ever had and is a fantastic outcome which which we're delighted with.

14:06 Looking at our acquisitions, this is where we buy standalone existing assets. So we had an immediate pipeline of £67,000,000 at the time of the equity placing. So what does that mean? Those assets have to be in legal hands where the terms are agreed and we're pretty certain of those acquisitions going ahead, and they would complete within three to six months. If we look at the nine month period, we actually acquired 36 assets for a total of a £169,000,000, and we had an £80,000,000 immediate pipeline. Again, meaning that we would expect to, deploy that capital and acquire those assets within three to six months. And indeed, some of that £80,000,000 we have already completed before our year end. And then the final part on there are our asset enhancement initiatives.

14:55 So we have 22 projects for £17,000,000 projected to spend over two years. Now these projects are mainly, physical extensions to existing buildings, so not all surgeries require a brand new building. Some will absolutely be brought up to date, and fit for purpose with a few extra consulting rooms, and this is where, we are experts and we can absolutely drive those projects forward. We've completed four projects in the year, and we still have 19 projects in our pipeline for the next, two years.

15:31 So we're all about long term income and we are always looking at long term cash flows. Therefore, if you look at our total contracted rental income, we have just under £1,500,000,000 contracted to us as I stand here today. What does that mean? That means, if we did nothing else, then the business is due to receive £1,500,000,000 in rent in the next ten years or so. And, the chart on the right shows our weighted average unexpired lease term history. So basically, we started at thirteen point two years in March 17, and had we not doing anything else, that number would come down by a year every year. However, with the work that we're doing on our asset enhancement initiatives, with our acquisition program, and our development pipeline, we have managed to stop the, reduction in that number, and it's actually only reduced by, just over a year in a three and a half year period. And indeed, at the year end for March 20, our unexpired lease term was eleven point seven years. And in the first half, we actually managed to increase that to eleven point nine years.

16:42 And that's a fantastic result for the business, and it's something that we're aiming to do going forward as we continue with those long, strong cash flows, for the future. Just taking a look at our balance sheet. So, we pride ourselves on having a very strong financial position. So if you look at the chart there, you can see over the last five years how our loan to value has fallen from just under 50% to, 33%, as of the last reporting period in September. And indeed, our weighted average interest rate has fallen from in excess of 5% to 2.68%. The business started on a journey about five years ago to move from a secured to an unsecured funding structure.

17:29 So that's where every asset was secured by way of a mortgage, and that led to it being very inflexible, very difficult to do anything with those assets. So now we have this fully unsecured funding structure. It gives us the flexibility. We have been able to secure an A minus rating from Fitch. What that does is that enables us to access different pools of capital. So we have private placements, we have public bonds, one of which I'll come onto in a moment, And we also have a revolving credit facility of £225,000,000 from our four partner banks. So you can see we are very well capitalized and we have access to various different pools of capital as the business continues to grow. Our loan to value at 33% is below our guidance. So we have guidance which allows us to go up to 50%.

18:22 However, we prefer to move in and around 40%. The 50% gives us the flexibility should we require it. However, we have been operating in and around 40% for a number of years now. So just to give you some context, that gives you gives us 275,000,000 pounds of headroom before we reach that 40% loan to value. So back in September, we launched our first social bond. So what is a social bond? This is where we created a social finance framework and we committed to, use the proceeds in alignment with the UN Sustainable Development Goals. Goal number three, which is access to essential services, I. Healthcare.

19:07 So we have to use the proceeds and they're eligible for our acquisition developments and some of our refurbishment activity of our primary care and community healthcare buildings. So this aligns with our six by six pledge, But going out to the public bond markets, this was very new and a first for real estate business. However, we, experienced incredibly strong demand from the debt markets. The transaction was heavily oversubscribed with an order book almost at £2,000,000,000, and we managed to fix the £300,000,000 bond at a fixed coupon for ten years of one and a half percent, which for us is fantastic business, and we definitely believe that we had a funding, a pricing advantage upon this transaction by taking this approach.

19:56 And this is going to be our approach going forward. We expect to, when we raise our future debts, to be in line with social and sustainable goals.

20:07 So this slide is just looking at our development pipeline. You heard me talk earlier about what was on-site and about our immediate pipeline. To be in our immediate pipeline, so the £65,000,000 that you can see there, means that we expect to be on-site with a spade in the ground within the next twelve months. And the extended pipeline of £207,000,000 means we are the preferred contractor. We are working with the NHS and the GPs, and we're going through the relevant planning and approval processes, but it we expect to be on-site after the twelve month period. So therefore, you can see that we have a pipeline of 349,000,000, which is a a great pipeline. And then back in February, just we acquired Apollo. Apollo are a leading developer of primary care assets in our space, and they bring along a further £50,000,000 pipeline, which isn't included in the chart there, but we will update everything along in May.

21:07 And if we look along the bottom, you can see the cost of our development completions and just looking at September 20 there on the right, we have £38,000,000 of completions in the first half and that is the strongest year we've we've ever had.

21:24 This slide just looks at some of the innovative design features that we like to bring out within our buildings. It's not just about sustainability, it's about that social impact. So if we take the property on the top left there at Synderford, we designed this to be the first dementia friendly medical centre in The UK. So we worked with Dementia UK looking at the signage, looking at the way finding in the business, in building apologies, and that has been a huge success and we hope to roll that out to further buildings within our estate and is very much seen as a flagship asset.

22:02 And the asset on the right at Netherfield, again, this was looking at some innovative designs to provide an interactive child learning centre, some diagnostic pods, and also to provide the space for local social prescribing groups to make that building a real asset to its community. And then looking at the bottom two at Stone Of The World and Tonbridge, there's very much a focus here on the sustainability elements. So they're both brilliant excellent buildings. And on the left, it was a focus on a low ecological impact because it's in a rural community and, it's only a small asset. And on the right, it was looking at bringing an all electric energy solution to the building and looking at how we could save that practice, costs in use for the building going forward, very much setting it up for the future and highly sustainable building.

22:53 And with that, I'll hand you back over to Jonathan.

23:00 Thanks, Jane. So I'd now like to turn to another key part of the business, which is we've talked about new developments, which is obviously creating brand new facilities for patients and for the NHS. But also one of our key areas is looking after the existing, just under 600 buildings and making sure those are fit for purpose for their future requirements. And often, an improvement or an enhancement to an existing building is exactly the right solution in that location rather than necessarily developing and building a brand new facility. So if we look at the two examples you've got on the screen here, Eastfield Medical Center in Scarborough and three way surgery in Stoke Pogies, Both of these were, very, very well, well supported practices that were encountering, overcrowding and restrictions on the facilities that they were, services they were able to provide.

23:54 And so in both cases, we provided them with a physical extension and enhancement to their existing facility to enable them to increase the range of services and to continue to grow the number of patients that they look after. So we funded all of those elements and in return for the new space, we would have received additional rent. For the refurbished areas, we were say received an extension on the lease. So in this way, we benefit from increased rent on the new space and an extension to the lease on on that that we've refurbished. So a clear example of where we benefit from more secure long term income and the practices benefit from an improved facility to help them serving serving their patients. Another key area, which Jane has already talked about, is the need for us to focus on long term income streams. And so to maintain our lease length and to continue to provide that return for investors, we're constantly talking to our customers about the potential for lease regears. So that means taking the lease and extending it back to its original term. So the classic example here is you've got a lease, where you've just you've just dropped below ten years, and we approach the practice. We propose some modest improvements to the buildings, and in return, we extend the lease back out to twenty one years. So within that, you you obviously as an investor benefit from future and secure income streams, and the practice benefits from an from a modest improvement to their facility.

25:23 So we've got 13 lease free gears completed year to date and a really strong really strong pipeline of activity with 42 lease gears in in the planning. And as well as these three gears, though, the physical extension and that's enhancements that I've that I've already mentioned and and given you the example of Eastfield and three way surgery. So it's not just about building the new buildings, it's also about improving the existing portfolio, and this remains a key focus for us. And just to give you an idea, at the bottom there, you can see we made a £10,000,000 valuation gain as a result of this type of activity in the first half.

26:02 In terms of what we're seeing in the market, it's very useful just to touch on some of the trends that are that are affecting the sector and also to highlight that really, like many sectors, COVID has has greatly impacted and disrupted the business, but it's also accelerated a lot of trends that actually were already there, but perhaps moving at a little slower pace. So for example, if we focus on on

26:26 on the sort of requirement requirement for services, you've got a backlog of of treatments in hospitals, which means that that that is going to result in an increased demand for services outside of hospital. And the most obvious location for those treatments to take place is in one of our modern medical centers with a wide range of consulting rooms and potentially even extended services like minor surgery or diagnostics and testing. So those sort of trends that you'll be reading about about delay potential delays to some hospital treatments, if some of those could be brought out of the hospital and delivered in a community setting, then that could be beneficial to the system and all clearly would provide an underpin for and demand for our for our real estate. The other key thing that's happened across the board is the increased use of technology. We're having this conversation now on a screen a year ago. This wouldn't have even been something that we would have we would have considered as a model for for delivering this type of this type of presentation.

27:25 Well, it's exactly the same in the clinical environment. So we've moved, very quickly to adopting, digital consultations. You know, at one point, in the early first lockdown, it was a very high percentage of of consultations. And the BMA is suggesting that maybe this might stabilize around about the half and half area. So you could have 50% of your consultation would be a video or telephone call triage. And then where it's necessary for you to come in and have a physical consultation, that will continue to be done in the ordinary course in our type of facility.

27:58 Crucially, when you do come in, we also then need to make sure that we're able to then provide a broad range of services and testing to make sure that we minimize the the follow on treatment that you might need in a hospital. So if we can make the community facilities even more relevant, then that will provide a further range of services and treatments for the patients in the community rather than in the hospitals. That's another key trend that we're seeing. The last point here on the slide is just the the remaining underspend in in our facilities. I mean, there's lots of people on the call. You'll have a completely different range of of access to medical centers. Some of you will have fantastic modern facilities, but many of you, I'm afraid to say statistically, are likely to be having treatment out of outdated unsuitable premises.

28:45 You know, 25% of all medical centers in The UK predate the existence of the NHS. That's pre 1948. So that's clearly not fit and suitable estate for a modern health system.

28:58 And you can see here the BMA in the most recent submission to the treasury recommended a billion pound investment, not to future proof, not to make the the system the best in the world, but just to bring us up to scratch in terms of essential repairs and maintenance that's required. In terms of ASSURA's offer, just wanted to highlight another trend that we're seeing. So we traditionally have provided our services, our our property partner services exclusively to GPs. Now what we're finding is increasingly there's greater cooperation between GPs and the NHS trusts and hospitals. And as a result, we are providing extending our range of services to also provide property partnering services to those those groups as well. So you can see on the slide there on the left, the Durham Diagnostics and Treatment Centre. This is a facility that we delivered in 2018.

29:53 This provides outpatient services, day case surgery, and also a dialysis center that's open twenty four seven. It's located not on a hospital site, but on on an industrial park just on the outskirts of of Durham. So a convenient location for patients to access. That type of cooperation, that type of services coming out of out of hospitals and into the community is exactly the sort of thing that we expect to do more of as we go forward. So hopefully, that's given you an introduction to the range of services that that ASSURA offers, the the attractive long term income profile that we offer to investors, and also some of that potential for future growth. So very strong and stable platform, but also a lot of opportunity for further innovation, for further investment in in new types of facilities and improving existing ones.

30:48 And our long term relationships with doctors and our our long track record means we're ideally placed to provide that support and to provide those services and deliver the assets that the system requires. A key part of that is our development capability, the fact that we have a very strong in house development team with an excellent track record means that we'll be able to continue to promote that offering to the NHS and ensure that we continue to grow our pipeline, which is already the strongest that it's ever been in our history, but we actually think there's still significant potential for growth there. A key part of our ethos is not just about pursuing profit, but also about being very mindful of the potential for positive impact on the communities we serve. So we will continue to make that make that commitment, looking for sustainability improvements wherever we can, continuing to support our community fund and supporting the health systems through the quality of the of the offer that we can provide.

31:44 And finally, all of these things have to be built on a strong financial position, on solid financials, on on consistent and secure growth for our investors, and that's built off a very strong platform, our a minus rating, which means that we are ideally positioned to take advantage of of those opportunities going forward. So thank you very much for listening. That concludes our run through of the presentation, and we'll now move to, some questions. Jonathan, Jane, thank you very much indeed for your presentation. I'd to turn via your investor dashboard on the investor meet company platform. Over over call I'd also like to remind you that your feedback is important to the company.

32:37 And immediately after the presentation has ended, you will be redirected for the opportunity to provide feedback, and all of the company can better understand your views and expectations. Jonathan, James, perhaps before we just go on to the live q and a that we've had in, we did have a presubmitted question from an investor. If I could just address this one to you. It reads as follows. What threat do Livvy, and the acquisition of GP practices by corporate pose to the ASSURA business model?

33:04 Great. Thank you. So so Livvy is one of the online health care providers. So there's a number of players in that space. There's Livvy. You might have heard of GP at hand. There's also another one called Pushdoctor. So they're effectively the the delivery mechanism for you to have online consultations with your GPs. So that really talks to the the point about the the the digital mix going forward that I referenced in the slides to the fact that we we swung during the pandemic to an almost exclusively remote and digital delivery model, and then we swung back to sort of a hybrid. And we absolutely think that hybrid is is is where we'll land. So what does that mean for us as a business? Well, it means that we need to make sure that the the premises that we're offering have the capability to support that digital offer. So that could be, you know, greater greater facilities for the doctors, so they've got access to video conferencing. It's not video conferencing, really. It's just somewhere quiet to to do video calls, but they've got access to that type of of facility.

34:04 They've got the right technology in the building to make sure they can share records and and share information and share best practice, which is crucial. And also to make sure that the the facilities have got the latest access to sharing information with hospitals to make sure that they can deliver more of those services that I referenced. So so that would be my overall response to to the point about the the potential impact potential impact of of Livvy and that whole kind of digital digital online world. So just turning as quite a lot of questions coming through, so we can't promise to get through all of them, but I I will we will get through through as many as many as we can. So first one is from Matthew, and he's asking about the EPCs. How long it will take to get the portfolio up to that that level of b that I referenced and and how much how much that would cost? So so excellent question.

34:55 The short answer is we don't have that full information right now. So the the issue being that we have 600 assets in the portfolio, and traditionally, we didn't have the PC information for all of them. We've undertake undertook a survey of every single one of the buildings. We have got 85 80% of those complete. We'll have the full 100% done by the year end, and then there's a process to go through to then to then aggregate all those and look at the cost. So it's an excellent question. It's one we're very keen to answer. We're just not in a position to answer right now. If you come back and have a look at our full year results, we'll be give you able to give you an update, and we'll be able to announce the full details shortly thereafter. So we've set ourselves quite an ambitious target without full visibility, but we're confident based on what we already know that we should be able to deliver that.

35:50 So the next one is about is from Simon and he's asking about the competitive landscape and what we see as the biggest challenge moving forward. So in terms of competitive landscape, I guess, probably the thing there to highlight is those secure long term cash flows that that Jane has referenced are obviously really attractive right now. You know, it's a very challenged economic backdrop. Other other property sectors have come under pressure, and this type of asset has become more popular. So we've definitely seen increased competition. That's a fair observation. More people looking to buy assets, so prices have have increased a little bit over the last twelve months, and we are now finding whereas previously, there was only a handful of bidders on assets. There's now maybe four or five on each building. So it's not a it's not a an avalanche of new new entrants, but there's definitely an increased an increased competitive pressure.

36:43 That's a a very good observation. And in terms of the biggest challenge, I guess, really, it's it's it's probably that digital challenge, making sure that we we remain up to date, make sure that we're helping our customers remain on top of the of the of the digital offer to make sure they're staying relevant to their patients. And that's something we're absolutely standing ready to support going forward. What I would say there is, you know, there has been this acceleration over the last twelve months, but the NHS generally moves incredibly slowly. So I think this will be a even though we've had this sort of one off boost to to the acceleration of digital take up, it will be more gradual from here. So it's absolutely coming, but it's not gonna be overnight, and we'll continue to support wherever we can.

37:30 So just moving on to the next question is from Nick, and he's asking about how much of the current portfolio can you develop and expand, and does this offer better returns? So there is a difference between development returns and portfolio returns. I might ask Jane just to cover that in more detail. So that's looking at how much we make from our developments and how much we make from our asset enhancements. Is that alright, Jane? Yeah. Absolutely. No problem. Thanks, Jonathan. So if we take our developments, we talk about, developing an asset, which typically if it's an in house development, we get a 100 basis points on average betterment, on the yield for that asset. So it's very good business for us. If that asset were to be acquired as brand new, the yield would be, in the low 4%, and therefore, we would develop that at at just over 5%.

38:17 Now when it comes to the actual extensions, the physical extensions, the returns on those can actually be a lot higher. You'll see from their notes earlier that the returns on those, the valuation uplift was quite significant on some of those assets. So on an asset by asset basis, it does offer better returns. However, the number of assets, within the portfolio, that can be developed and the size of that development. They're very small schemes, maybe anything from £500,000. Some of the larger ones may be a few million few million pounds, but on the asset, it drives a much a very strong return. And in in some cases, we can get anywhere between a 100 and a 175 ish basis points betterment on the yield on those assets. So again, very good business because we own the land already, and then obviously, we can rentalize that space, it does drive a very strong return for us.

39:13 And in terms of how much within the portfolio, can we do, well, we're constantly looking at this. So we do have a number of assets, but it's whether there is a need within that community. It's not whether there's a space with the asset or whether we think we could do it. It's actually we need to actually go further than that, a little bit more granular detail with the practice to see if there's actually a need for that physical extension. And that's we've got 22 schemes that we started with. We completed four. We've got 19 schemes in the pipeline, and I know that our team are working on many more schemes going forward. Great. Thanks, Jane. So next question is from Colin and it's about build cost inflation, and do we expect it be reflected in district value as judgments? And are we satisfied that this has been the case in the past? So so this reflects, what I talked about in the presentation about this indirect linkage between construction cost inflation and rental growth. So when we build a brand new medical center, we negotiate with the NHS about the the opening rent for that facility, and we do so on an open book basis.

40:18 And so in a rising cost environment, you would expect year on year if if inflation, is rising, that, therefore, the rents would rise as well. So this is this is the model that we work towards. Now there is the we have there are a couple of challenges here. One is you need to have a new build in your location to be able to demonstrate that evidence to the to the local district value who sets the rents or who you negotiate the rents with. And the other thing is the delay. So sometimes there can be a gap between between the the rising costs and actually capturing that in in rental growth. So if you look at our most recent published numbers, we generated an open market rental uplift of 1.2%. So that is a little bit behind construction cost inflation over the over the last over the last year or so. It's actually been running quite a bit ahead of that. So there are there are there are a couple of factors at play here.

41:12 One is I talked about the open book basis. So you share the costs, and then what you do is you then apply yield to those costs to generate the opening rent. So in a rising price environment where the cut the where the values of medical centers are rising, then the yields will be will be reducing. So you get that sort of counter punch if you like. So you've got rising inflation, which should push rents up, but actually rising values actually push rents down because that initial yield is is a is a lower yield. So but overall, we're still seeing still seeing modest growth. The other factor that's probably slowed us down a little bit is we have seen a bit of a delay due to COVID. So inevitably, you understand that all of these conversations have to go through the NHS.

41:59 And clearly, the NHS bureaucracy has had other things to worry about in in the last twelve months. And and quite rightly, they have deprioritized dealing with things like our rent review query. So there's been a little bit of a bureaucratic delay as well. But overall, that whole system, the linkage of construction cost inflation to rental growth, you know, do we still believe that holds? Absolutely. Is it really is it a really clean linear correlation? No. And that's because of the lack of data points you need. You need a good cross section around the country, and there's always that bit of delay. So it's it's a frustrating picture, but the overall trend remains a positive one. So we still absolutely still are confident about the future outlook for rental growth. So moving on to a question from Abby.

42:46 How do you see the mix of growth moving forward? Is it mainly through organic growth, or is there any opportunity for growth through m and a? And do you see mental health as a particular area of growth? An excellent set of questions. So first one is organic growth. So we've spoken about the fact that the rental growth I've just referenced, Jane spoke, very clearly about the asset enhancement opportunity, which are very substantial on a, percentage uplift basis, but relatively insubstantial in terms of quantum because they're quite small schemes. So it's a really important area, but it's not that material to the portfolio. So you've got your rental growth. You've got your gas enhancement. You've got all lease regears. So we're constantly working to improve as many of our 600 buildings as we can, and that provides you with a very solid underpinned to your return. And then the thing that has really probably driven the growth most over the last five years has been our ability to buy assets in the market, to secure assets. You know, we don't have to add proportionately to our cost base so we can collect the rents more efficiently. We've we don't have to we don't we won't lose the you know, proportionately, lose less from our overhead cost because a lot of it is fixed. And so we've been able to drive quite significant earnings growth from from that combination over the last five years.

44:01 We've got a very strong year this year on acquisitions and and we see a competitive environment, but there's still plenty of potential for us to continue to do that. In terms of large scale deals, this is much harder. So five years ago, there were probably 20 large portfolios of of medical center assets in in The UK. Right now, there's we're down to three or four. So there's already been quite a bit of consolidation. So large scale n and a, m and a rather challenging, continued expansion through acquisitions. Absolutely. Mental health, that's a really interesting question. So I think with what we're going to see, there's gonna be some real challenges for the country for mental health as we come out of the pandemic.

44:48 We're talking the NHS is talking about trying to break down some of the barriers to people that receiving help for mental health. And one of the ways of doing that is to integrate mental health into our normal medical centers. So we have a handful of sites at the moment where there is counseling services on-site in a GP surgery. And I think this is a fantastic model. So I think it's very likely that mental health and primary care will become much more, involved and much more integrated in the future. And if that is the case, then absolutely that that is something we'd we'd be very supportive of. I'm I'm very happy to to look at those those types of extensions or new assets to support that. We have also seen some standalone mental health assets. So we do have one century Wakefield.

45:39 You look at the building, it just looks like a GP surgery. It's not. It's actually a counseling center for for a local mental health trust. That type of facility is absolutely the type of thing we might we might look at in the future. So expect to hear a lot more about the role of mental health going forward. So the next question is, Colin, what I might do is I might ask Jane to take this one. So this is at what lot size would you expect to see increased competition and acquisitions from institutional investors? You want to take that, Jane? Yep. No problem at all. So I would say in the past, we very much saw the institutional investors at at the large end of the scale, so assets of $30.40, £50,000,000 plus. But as Jonathan mentioned, particularly in the last twelve months, we've seen, this increase in competition as they're looking to drive those returns on long term stable cash flows that we've talked about. We've definitely seen institutional investors come down the lot size scale, if you will. So we are seeing them in and around the kind of £20,000,000 area.

46:47 I think the lowest is probably around 15 to 20,000,000 where they would go. Once you start to get to our average lot size, which is around $44,500,000, it actually becomes very difficult for them to manage. And obviously, we're experts in this field. We have a very, long standing platform to manage all 600 of our assets, and we have a whole range of asset sizes, our largest being around 30,000,000, all the way down to, you know, £1,000,000. And so that's kind of the area where we would see them. We definitely see them in the kind of £20,000,000 space plus. It's it's unlikely we would see them much lower than that for for the reasons that I've mentioned. Great. Thanks, Jim. So next question is is, from Mark and it's about, changes to long term care and locating care homes near to our properties or even within our buildings.

47:38 So this is something we have seen instances of in the past. So we have got, care campuses, if you like, where you've got GP surgery next to a care home. That makes a lot of sense, because, you know, clearly, care homes are big users of of of, medical services too. So to be co located actually makes a lot of sense from a clinical perspective. In practice, the problem we've had is is it's just the diff completely different income streams. So the NHS signs off and approves the GP surgery, and the care home is either privately funded by a private care home operator or is local authority funded. And when you're trying to pull a scheme together to get those two parties to agree precisely what they want at the same time is often quite challenging. So what we tend to find is the schemes end up going forward as separate separate schemes. So colocation doesn't happen as often as you would expect, actually. But it's a really good question, and it's the sort of thing you absolutely would would expect.

48:37 So the next two questions, what I might do is ask Jane to cover these two. So this is about what we do to manage risk in our developments and also what are your thoughts on where our EPRA cost ratio could go. So I'll take the first question around how do we take risks out of our out of our developments. So as Jonathan mentioned at the beginning, none of the buildings are are built speculatively, so that obviously reduces reduces the risk from the start. We don't buy any land prior to having a signed lease in place. We have a fully signed twenty one year lease from the NHS and the GPs, and we also operate on fixed price contracts with the contractors. So if you take all of that together, we have a twenty one year lease, no breaks, no rent freeze, signed with the NHS, backing and the GPs.

49:31 We, don't acquire the land until we have that signed lease. We have options on land, but we don't acquire any, and also we operate on fixed, price contracts. So therefore, this is probably one of the lowest risk, developments, projects that that you could, you would expect. However, we're still very positive in terms of the margins we can make on those developments with the yields I I referenced earlier. So so yeah. So that's that's how we manage that that risk on those developments. And could the EPRA cost ratio go any lower and on what time frame? Well, that's the million dollar question. So from our point of view, we don't give forecast just to be clear. However, as the business continues to expand, we also invest in our people. So we have invested and we're investing in technology and we're investing in our sustainability skills.

50:22 So, do I see it going, much lower than it is? Well, it's already industry leading at 12 and a half percent, and we're picking up the development team in in that as well. So there is probably a little bit of room over time, but I wouldn't sit here and say that the, EPRA cost ratio is going to go racing further south. However, we manage our costs very carefully and it's something we're very cognizant of. But obviously, as we continue to grow and we're looking at all of these different things, we're also continuing to invest. Great. Thanks, Jen. And then just in terms of growth, we then got another question, which is, you know, is there a limit to the size of the property portfolio and sort of what sort of ballpark could that be? So if I think about that one, and I guess the the short answer is no. There is no limit. So so we have at the moment a portfolio of 2,300,000,000,600 assets. There are 9,000 medical centers in The UK.

51:13 Our market share is, if on a value basis, probably less than 10%. So if we if we continue to only invest in medical centers and we were to say, let's just make an abrupt double the size of the portfolio and we're almost at 5,000,000,000, you're starting to get to a 20% market share. Is that material? That's starting to get quite large. But is that manageable? Yes. Could we do we have the infrastructure to support that? Absolutely. And could you continue to grow from there? Yes. You could. So there's still lots of scope. That's within the just the straightforward GP medical center. Then you think about some of those other things that we reference. So the fact that you've got potential for other markets, you've got that trust working more closely with primary care. You know, I referenced that diagnostic and treatment center. So clearly diagnostics is a is a hot topic at the moment, and that could be an area of growth.

52:05 You also then have specialist areas as well. So dialysis is is one that that I mentioned. So there's plenty of potential for further expansion outside of the core area. So really, know, we're not really restrained by by, you know, by by any parameters on our on our growth potential. We we we are constrained by by the the rates of NHS approvals on new schemes and our ability to identify those opportunities. So we'll continue to work as hard as we can to expand and and develop the business and really identifying the right opportunities to support the local health economy. That's the that's the barrier, if you like. That's that's the thing that constraints us is finding the right deals, and that will continue to be. So I don't really see sort of an absolute size as any kind of barrier to growth from on it. So I think that's a it's a relatively low risk one.

52:58 So the next question is is in relation to the recent acquisition. So can you provide further insight in relation to the acquisition of Apollo and how its pipeline compares in terms of yields and costs, locations, and completion timeline versus GPI? So Apollo is a deal that we announced a few weeks ago. It's a development business. It's it's a it's been actually been operating longer than ASSURA. And in fact, the seed portfolio that launched ASSURA's listing on the stock exchange eighteen years ago came from Apollo. So it's a it's a very long standing and well established development business with a very strong team. The team have all transferred across together with their pipeline of of £50,000,000. In terms of how that how that compares, we'll give more information at the the full year results, but just headlines are a very similar very similar type of type of projects.

53:54 And, actually, if anything, the time frame on those projects is probably slightly shorter than the GPI ones, but not materially. It's a very similar mix. And then if you overlay it on top of our existing pipeline of it's, again, it's a very similar mix of opportunities. In terms of costs, it's, you know, given the relatively small sample size, you know, any kind of outliers or a bit of a make a big make a a big distinction. And one of the schemes in there is actually a a refurb and extension rather than a development, and that has a much higher cost base. So if you strip that out, then it's very much in line. So overall, it it's it's a great addition to the team. We're delighted to have them in, but the parameters and the financials are are very much in line with our existing our existing projects and and the GPR scheme.

54:45 So the final question is from Cheyenne, and it's do you have an idea of how many GP assets need to be developed or upgraded a year to meet NHS capacity requirements? And what is what percentage of this can can assure a capture? And what's the barrier to this? Is it is it planning permission? So so trying to pick those. It's really interesting. So so the NHS did a survey, and this is now three years ago called the Naylor Review. And in that, they they surveyed the current estate, they said, well, what what needs to change? What would you need to do to to improve the estate? And they identified a third of the current assets that they said needed to be replaced. That's 3,000 assets. Now Jane's already told you that we've got the strongest development pipeline in our history, and we're on-site with 16, schemes at the moment. So if we really do need to replace 3,000 assets and let's say they're not done like for like because they wouldn't be, so maybe you need a thousand to 1,500 new schemes, and we're doing 16 this year, you can see there's many, many years of development left to to bring bring the NHS up up to scratch. Now those are those are their numbers, not ours. So just to be clear.

55:57 Is that is that likely a thousand? No. It's not. But could you could you could you reasonably see sort of 500 schemes required? Absolutely, you could. And and, you know, we we see a real growth in in the development requirement, though the barrier to that probably is more to do with to do with the funding. So that's your last part of your question. The next part was what would we capture? So given the Apollo transaction, we are definitely the dominant player. I would say our market share is is is well above 50%, and and Apollo only only, you know, solidifies our our our dominant position there. So we would be disappointed not to not to to maintain that level of market share going forward, and that's one of the reasons why we're so confident about our future prospects.

56:43 And then the last one, the barrier. Well, the barrier really not planning permission. No. People generally generally don't complain about people building new medical centers. Sometimes they don't like the traffic, but generally, it's not an issue. So the barrier really is the NHS approval process, and that's really the key thing. That takes that's business plan approval, that's funding, and that's making sure the clinical requirements there. That takes two to three years in practice. So that's the biggest barrier and not planning. So I think that brings us to the end of today's questions right just, as we come to the end. Jonathan, thank you very much, and thank you for gently answering every question that you were sent through. Really, really kind of you. And if any other further questions do come through, the company, of of course, can review all of those questions submitted today.

57:32 And just as we do go into the final couple of minutes, Jonathan, if I just may ask you just for a couple of final words just to wrap up before I redirect investors to give you some feedback, please. Fantastic. Thank you. So so thank you very much for your time today. Really appreciate you taking the time to hear more about ASSURA and our business, and some some some really high quality questions really getting to the heart of our challenges looking forward. So always always grateful for the for those to to give us an opportunity to, to address. I'm really grateful for you for your time and your interest. So so thank you very much for listening. Jonathan, James, thank you very much again for updating investors today. Could I please ask investors not to close the sessions? You're now automatically be redirected for the opportunity to provide your feedback. If you've accessed the meeting from our website, the feedback page will appear directly in front of you. If you've accessed the meeting via the link sent in the email, you'll just be asked to simply log in and, provide your feedback. Please do take a couple of minutes to do so. It's just greatly valued by the company. On behalf of the management team of ASSURA PLC, we'd like to thank you for attending today's presentation. Thank you, and good afternoon.