Assura Group Results Presentation Year ended 31 March 2012 Investing - - PowerPoint PPT Presentation

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Assura Group Results Presentation Year ended 31 March 2012 Investing - - PowerPoint PPT Presentation

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Assura Group Results Presentation Year ended 31 March 2012 Investing in the future of primary care property Introducing Assura Experienced management & board Strategy Primary care property No diversification Shareholders

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SLIDE 1

Assura Group Results Presentation Year ended 31 March 2012

Investing in the future of primary care property

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SLIDE 2

Introducing Assura

  • Experienced management & board
  • Strategy

– Primary care property – No diversification

  • Shareholders

– REIT – Quarterly progressive dividend

Investing in the future of primary care property 2

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SLIDE 3

Investing in the future of primary care property 3

Assura well positioned within an attractive asset class

  • Asset class has proven its relative value
  • Economic and political pressures support continued outperformance
  • Assura well placed within sector
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SLIDE 4

Asset class has proven its relative value

Income certainty delivers impressive returns

– Yield stability – Low cyclicality

Attributable to

– Long leases – Negligible default – No oversupply – Access to finance

Rental outlook positive

– Growing demand – Inadequate supply

Investing in the future of primary care property 4

Source: IPD

66 91 98 128 88 115

60 70 80 90 100 110 120 130 Total Return index from

Commercial Primary healthcare Residential

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SLIDE 5

68% 21% 7% 4% £22.0m: GPs ‐Reimbursed by NHS £6.9m: NHS Body £2.2m: Pharmacy £1.1m: Other (Retail, Charities, Local Authorities, Dentists)

The appeal of primary care property lies in its distinct characteristics

  • Market Features

– Health is non‐discretionary spend – Planning environment ‘benign’ – District Valuer determines rent reviews

  • Tenant Features

– Private businesses underwritten by Government – Premises are bespoke – GPs are not mobile – “stickiness”

  • ffsetting Residual Value (RV)
  • Typical Lease Features

– 21 years, no breaks – Upward and downward not less than initial – Landlord triggers the review (3 years) – Internal repairing and insuring

Investing in the future of primary care property 5

£32.2m Rental Profile for Core Portfolio

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SLIDE 6

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 300 million visits per year

Investing in the future of primary care property 6

Supply

  • Most recent survey of GP practices

– ¾ of GPs stated premises not suitable for future needs – ⅓ said not capable of complying with Disability Discrimination Act – ¼ said premises posed a risk to staff/patients – Insufficient actually built

  • GP premises to be regulated for

first time from 2013

  • 2012 Act – GPs given £80bn of the

healthcare budget and told to lead NHS commissioning

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SLIDE 7

Assura well placed to outperform

  • Scale benefits

– £549m total property assets – 16 years lease length

  • Track record of out performance

and rental growth

  • Good reputation and

relationships with GP community

  • Development capability and

strong pipeline

  • Internally managed
  • Knowledgeable, motivated and

focused team

Investing in the future of primary care property 7

6.1% 1.2% 7.4% 2.4% 6.2% 0.4% 6.6% 2.1%

0% 2% 4% 6% 8%

Income Return Capital Growth Total Return Rental Value Growth Assura Primary Healthcare Benchmark IPD 5 Year Return to December 2011

Source: IPD

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SLIDE 8

Investing in the future of primary care property 8

Results reflect continuing progress

  • Core business progressing well
  • Disposals of non‐core activity and refinancing completed
  • Underlying results positive
  • Transparent balance sheet
  • Strong and predictable cash flow
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SLIDE 9

Core business progressing well

  • Continued rental progression in the

year

– 99 rent reviews completed in the year – Weighted average annualised uplift of 3.41% (29% of portfolio by rental value) – Follows rent reviews in year to March 2011 of 3.77%, 2010 2.55%

  • Continuing development activity

– 9 schemes completed for £37.4m at 7.3% yield on cost – 6 fully funded schemes in progress with committed costs to complete of £8.5m – 8 schemes in pipeline for total development cost of £26m

Investing in the future of primary care property 9

11 reviews 26 reviews 13 reviews 5 reviews £1.04m £3.77m £1.56m £0.48m 0.0 1.0 2.0 3.0 4.0 Q1 Q2 Q3 Q4

Rent £m

Previous Rent Rental Increase

Rent Reviews Settled in the Year

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SLIDE 10

Disposals of non‐core activity and refinancing completed

  • Sale of Pharmacy division and LIFT consultancy business for £36.3m

– £9m deferred consideration (including vendor loan)

  • Closure of NAB interest rate swap for a cash cost of £69.3m

– £52.7m exceptional swap loss in the year

  • Refinancing

– Rights Issue £33.5m net of expenses – Bond issue £110.0m

Investing in the future of primary care property 10

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SLIDE 11

Positive underlying results

  • Net rental income up 50%

helped by AHMP acquisition

  • LIFT earnings stable
  • Administration costs down

18%

  • Underlying profit £7.1m

(2011: £0.7m)

  • Underlying diluted EPS 1.5p

(2011: 0.2p)

Investing in the future of primary care property 11

2012) £m) 2011) £m) +/‐ % Net rental income 30.9) 20.6) +50% LIFT profit and interest 1.6) 1.6) Joint ventures (0.1) (0.4) Administrative costs (4.5) (5.5) ‐18% Share‐based incentives ‐ 0.2) Net finance costs1 (20.8) (15.8) +32% Underlying (EPRA) profit 7.1) 0.7)

1Excluding exceptional swap close out

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SLIDE 12

Net asset value movement

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£m) Net asset value at 31 March 2011 220.1) Profit from continuing operations 11.4) Profit from discontinued operations 1.6) Dividend (5.1) Rights issue proceeds 33.5) Swap cost (54.7) Deferred tax 1.0) Goodwill write off (20.0) Other 0.1) Net asset value 31 March 2012 187.9) EPRA adjustments (appendix) 4.3) EPRA net asset value at 31 March 2012 192.2) EPRA NAV per share (based on 529,548,924) 36.30p

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SLIDE 13

Transparent balance sheet

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2012) 2011) £m) £m) Properties1 549.2) 509.6) LIFT 10.5) 9.9) Cash and deferred consideration2 31.0) 38.9) Gross debt (375.6) (361.8) Deferred revenue (13.3) (10.4) Other net working capital (12.9) (8.4) 188.9 177.8 Goodwill/intangibles ‐ 44.6) SWAP (2.5) (17.3) Deferred tax 1.3) 1.8) Property plant & equipment 0.2) 13.2) Net assets 187.9) 220.1) EPRA adjustments (appendix) 4.3) 21.7) EPRA NAV 192.2) 241.8) EPRA NAV per share 36.30p 55.51p

1 Includes available for sale £11.4m for 2012 (2011: £9.8m) 2 Deferred consideration £9.6m for 2012 (including vendor loan) (2011:nil)

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SLIDE 14

Core investment portfolio

  • 158 primary care centres

valued at £506m (2011: £450m)

  • 1% valuation uplift1
  • 89.5% Government income

(2011: 91.5%)

  • 15.8 years weighted unexpired

lease length (2011: 15.9 years)

  • Rent review basis

– 80% Open market – 9% RPI – 11% Stepped & fixed

Investing in the future of primary care property 14

2012 2011 Initial yield 5.89% 5.87% Equivalent yield 6.11% 6.12%

1 Portfolio valued half yearly by Savills and DTZ

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SLIDE 15

Development activity

  • 9 sites completed adding 11,400m2

– £37.4m development cost – £2.7 ERV – 7.3% average yield on cost – 14% average profit on cost

  • 6 fully funded sites on‐going to add 4,900m2

– £8.4m book value – £8.5m cost to complete – £1.1m ERV

  • 8 immediate prospects for a further 9,000m2

– £1.8m ERV – £26m estimated development cost

  • Large number of further development schemes
  • No developments to commence without signed

lease and committed funding

Investing in the future of primary care property 15

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SLIDE 16

LIFT investments

  • Assura is an investor in 6 out of 49

LIFTCos

  • Look through investment in £100m of

modern primary care property

– £9m of Loan stock yielding 12% – Equity interest has inflation driven

  • ption value
  • Consultancy now sold (discontinued

activities)

Investing in the future of primary care property 16

  • Local Improvement Finance

Trusts are companies held by the public and private sector to develop and own medical centres predominantly let on long term leases with inflation linked leases.

  • The public sector tenant has a

buy‐back right at the end of the lease.

  • Control rests with the public

sector.

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SLIDE 17

Non‐core ‐ £26m portfolio, net rental income of £1.5m

Investing in the future of primary care property 17

Former Head Office 55,000 sqft freehold Daresbury Business Park Lease < 5 years £860K rents receivable 3 retail malls in hospitals Leasehold 18 years left on head lease £935K rents receivable £240K rents payable Land 60% by value under offer / exchanged Nil income 20 buildings £5.7m Retail parade / flats Residential conversions of

  • ld surgeries

Nominal income 3 sold since 31 March 7 in solicitors hands

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SLIDE 18

Strong and predictable cash flow

Investing in the future of primary care property 18

  • Government reimbursement of 89.5% of core portfolio leases
  • Remaining lease length 16 years average

– Breaks are unusual – New leases for 21 years or more

  • Zero loss from defaults
  • Regearing opportunities arise as change requirements arise, e.g.

extensions

  • Landlord triggers reviews in overwhelming majority of cases
  • Passing rents core £32m, non‐core £3m
  • 90% of rents received within 7 days of quarter day
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SLIDE 19

Investing in the future of primary care property 19

Building for the future

  • Development is one means of growing the portfolio
  • Key to success is GP relationships
  • NHS procurement process
  • Bespoke and demand led – no speculative development
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SLIDE 20

Moor Park, Blackpool – 2007

20 Investing in the future of primary care property

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SLIDE 21

Moor Park, Blackpool – 2010

21 Investing in the future of primary care property

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SLIDE 22

Moor Park, Blackpool – 2011

22 Investing in the future of primary care property

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SLIDE 23

Moor Park ‐ financial overview

  • 5,800m2 internal space
  • 21 year leases with 3 yearly open market rent reviews
  • £897,000pa rent roll
  • c£10.6m total build cost including

– professional fees and land – exit strategy on ex‐surgeries

  • £14.4m valuation on completion
  • £3.8m uplift on revaluation
  • 7.2% yield on cost – typical return
  • 5.65% Net Initial yield 5.8% Equivalent 5.95% Reversionary

23 Investing in the future of primary care property

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SLIDE 24

Rental outlook

  • Rent increasing, but primary care property not immune

– District Valuers sensitive to economy – Primary Care Trusts not incentivised to settle – New developments slowing as decision making delayed

  • Underlying direction of open market rental growth subdued
  • RPIs, stepped and fixed uplifts on 20% of the core portfolio

Investing in the future of primary care property 24

Annualised Open market including RPI % on Core Open market

  • nly

% on Core Reviews to be settled whole portfolio (passing rent) Rent reviews settled in year to 31 March 2012 3.12 2.50 Relating to review dates from calendar years: 2010 4.36 4.36 011 (£1.1m) 2011 2.74 1.49 025 (£2.6m) 2012 1.38 0.48 104 (£10.3m)

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SLIDE 25

Yield outlook

  • Primary care property yields have been less volatile than all‐property
  • Yield gap with long‐dated gilts now very significant

Investing in the future of primary care property 25

0% 1% 2% 3% 4% 5% 6% 7% 8% Jun 06 Jun 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Assura Net Initial Yield IPD UK Property Quarterly Index Net Initial Yield 20 Year Gilt

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SLIDE 26

Assura – the future

  • Focus on operational excellence
  • Create value from developments and acquisitions
  • Recycle capital: disciplined approach to core and non‐core

portfolios

  • Position company to benefit from NHS reconfiguration
  • Capture benefits of REIT Conversion
  • Deliver high quality fit for purpose buildings for healthcare
  • Deliver excellent risk adjusted returns for investors

Investing in the future of primary care property 26

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SLIDE 27

Investing in the future of primary care property 27

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SLIDE 28

Investing in the future of primary care property 28

Appendix

Appendix 1: Dividends Appendix 2: REITs Appendix 3: Property income 5 years Appendix 4: Core portfolio lease lengths Appendix 5: Basis of rent reviews Appendix 6: ERV Evolution Appendix 7: Net asset value movement H1 & H2 Appendix 8: EPRA – Net Asset Value Appendix 9: Capital value Appendix 10: Sensitivity analysis on core portfolio Appendix 11: Development summary Appendix 12: Bank and bond facilities Appendix 13: Covenants Appendix 14: Primary healthcare – Government direction of Travel Appendix 15: Total Property Assets

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SLIDE 29

Dividends

Investing in the future of primary care property 29

Appendix 1

  • Quarterly dividends reflecting underlying rental receipt pattern and

high degree of income certainty

  • Normally reviewed annually to reflect cash flow progression
  • Post REIT conversion may be subject to withholding tax at 20% for

some shareholders

  • Quarterly dividend 0.285p per share commencing July 2012
  • Run rate equivalent to 1.14p per annum
  • Changes to run rate normally made with results announcement in

June that can be made at any time

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SLIDE 30

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 dividends

― 90% of taxable property rental profits ― Subject to 20% withholding tax (unless qualifying institution)

  • 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

Investing in the future of primary care property 30

Appendix 2

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SLIDE 31

Portfolio rental income growth over 5 years

Investing in the future of primary care property 31

Appendix 3

2011/12 includes 12 months of AHMP income 5 10 15 20 25 30 35 2007/08 (9 Months 15 months) 2008/09 2009/10 2010/11 2011/12 Actual Property Income £m H2 Mar H1 Sept

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SLIDE 32

Core portfolio lease lengths

Investing in the future of primary care property 32

Appendix 4

39 leases 58 leases 86 leases 88 leases 21 leases 8 leases 7 leases 15 leases 2 4 6 8 10 12 21+ 18‐20 15‐17 12‐14 9‐11 6‐8 3‐5 0‐2 Rental Value £m Years Remaining Average income weighted unexpired lease term 15.8 years

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SLIDE 33

Basis of rent reviews

Investing in the future of primary care property 33

Appendix 5

£26.3m £3m £2.1m £0.9m 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% OMR RPI Fixed Other % Portfolio by rental value Upward/Downward Review Basis ‐ Tenant Can Instigate 6% (£2.1m) Upward/Downward Review Basis ‐ Landlord Only Trigger 18% (£5.8m) Upward Only Review Basis 76% (£24.5m)

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SLIDE 34

ERV evolution and reversion

Investing in the future of primary care property 34 £15.8m £19.3m £19.5m £28.8m £32.5m £2.1m £1.8m £2.2m £1.6m £1.5m £m £5m £10m £15m £20m £25m £30m £35m Mar‐08 Mar‐09 Mar‐10 Mar‐11 Mar‐12 Estimated Rental Value less Passing Rent Passing Rent Vacant Space Total ERV at March 2012 £777,650

Appendix 6

Portfolio Rent Roll

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SLIDE 35

Net asset value movement H1 & H2

Investing in the future of primary care property 35

H1) £m) H2) £m) At 1 April 2011 / 1 October 2011 220.1) 206.0) Profit from continuing operations 13.9) (2.5) Profit from discontinued operations 1.1) 0.5) Dividend (5.1) ‐ Rights Issue ‐ 33.5) Revaluation of swaps (37.1) (17.6) Deferred tax asset recognised / (derecognised) 13.0) (12.0) Goodwill write off ‐ (20.0) Other 0.1) At 30 September 2011 / 31 March 2012 206.0) 187.9)

Appendix 7

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SLIDE 36

EPRA – Net asset value

Investing in the future of primary care property 36

Appendix 8

Adjusted basic & diluted NAV per ordinary share Adjusted basic & diluted NAV per ordinary share

2012 2011 £m £m Net assets 187.9 220.1 Own shares held 1.9 2.0 Derivative financial instruments 2.5 17.3 Derivative financial instruments of associates 1.2 4.2 Deferred tax ‐1.3 ‐1.8 NAV in accordance with EPRA 192.2 241.8 Number of shares in issue 529,548,924 435,615,634 Net asset value per share 36.30p 55.51p Number of shares in issue at 31 March 2011 411,871,386 Adjustment for rights issue 23,744,248 Adjusted number of shares in issue at 31 March 2011 435,615,634

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SLIDE 37

Capital value – core portfolio

Investing in the future of primary care property 37

Appendix 9

  • Size is not an indication of performance ‐ location is key
  • Smaller units affordable to private investors

50%

Capital Value Number of Properties Total Capital Value £m <£1m 31 £20,000,000 £1‐5m 103 £252,115,000 £5‐10m 17 £125,310,000 >£10m 7 £108,065,000

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SLIDE 38

Sensitivity analysis on core portfolio

Investing in the future of primary care property 38

Appendix 10

NIY ERV +1% +2% +3% p/share p/share p/share p/share 6.25%

  • 5.50p
  • 4.60p
  • 3.70p
  • 2.80p

6.00%

  • 1.75p
  • 0.81p

0.12p 1.06p 5.75% 2.32p 3.30p 4.28p 5.26p 5.50% 6.77p 7.79p 8.81p 9.84p 5.25% 11.64p 12.71p 13.78p 14.85p

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SLIDE 39

Development summary

Investing in the future of primary care property 39

Appendix 11

Size m2 Total Development Cost £m Development Cost to Come (excl. Interest) £m Annual Rental Income £m Completed developments 11,400 37.4 2.7 Developments on site 4,900 16.2 9.2 1.1 Immediate pipeline 9,000 26.0 24.3 1.8

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SLIDE 40

Bank and bond facilities

Investing in the future of primary care property 40

Appendix 12

Loan/Bond Fixed/ Floating Maturity Effective Interest Rate Secured Properties Rental Income Outstanding 31 March £m £m £m 10 year secured Bond Fixed 10 year, bullet repayment 2021 4.75%1 157 11.0 110.0 Aviva amortising secured loans Fixed Amortising 2011 ‐ 2041 5.69%1 283 17.9 213.1 £50m Santander investment facility Floating Amortising from 2014, repayable 2016 4.53%1 77 4.9 50.0 £10m Santander development facility Floating Development phase only 3.75%1 4 ‐ 2.4 521 33.8 375.5 In addition a loan from RBS of £4m is secured on the Daresbury Head Office and will be repaid out of operating cash flow on or before 2013. The debt carries interest at 6.3%

1 2.575% interest rate swap of matching amount plus 195 bps

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SLIDE 41

Covenants

Investing in the future of primary care property 41

Appendix 13 All covenant conditions complied with Bond Aviva Santander Investment Facility Required Actual Required Actual Required Actual Interest v income cover 1, 2 > 1.50 > 2.00 ≥ 1.03 > 1.2 ≥ 1.70 > 2 LTV > 1.35 > 1.40 n/a n/a < 75% LTV < 65% LTV DSCR n/a n/a n/a n/a > 1.05 > 2

1 Some Aviva loans require only 1 times 2 All individually comply

In addition, bond requires NHS backed income to exceed 75% (31 March 2012: 79%) and the weighted average lease length must exceed 10 years (31 March 2012: 14.5 years)

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SLIDE 42

Primary healthcare – Government direction of travel

Government policy statements reflect unsustainable model of overprovision and expense of acute/ secondary care – 2000: NHS plan targeted 500 new one‐stop primary care costs (c. 100 built) – 2006: Our Health, Our Care, Our Say – provide services closer to where people need them most – 2007/8: Darzi reviews recommended 100 new GP ‘polyclinics’ in London, 150 GP led health centres – move outpatients and diagnostics closer to people’s homes – Health & Social Care Act 2012: Empowers GPs backed by Clinical Commissioning Groups

  • Level playing field for private providers, regulator led
  • Greater patient choice
  • Drive on ‘public health’
  • Removal of NHS management layers

The Act should accelerate shift in service provision for expensive acute / secondary sector into primary care setting

Investing in the future of primary care property 42

Appendix 14

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SLIDE 43

Total property assets

2012 2011 £m £m Core 505.7 449.8 Non‐core 14.9 20.0 Investment portfolio 520.6 469.8 Investment property under construction 8.4 35.0 Properties held for sale 11.4 9.8 Pharmacy lease premiums 5.7 3.2 Finance leases 3.1 1.0 Total 549.2 518.8 Balance sheet classification Investment property 537.8 499.8 Land and buildings held for sale 11.4 9.8 Fixed assets – pharmacy occupied premises ‐ 9.2 Total 549.2 518.8

Investing in the future of primary care property 43

Appendix 15