Assura Group Results Presentation year ended 31 March 2013 Investing - - PowerPoint PPT Presentation

Assura Group Results Presentation year ended 31 March 2013

Investing in the future of primary care property

Assura Group Introduction Graham Roberts

Investing in the future of primary care property

Assura Group Presentation

• Headlines
• Financial results
• Property update
• Market update
• Q & A

Investing in the future of primary care property 3

Headlines

• Management has delivered

– Strong results – Focused asset management generating rental growth – Managing developments profitably – Selling non‐core assets – REIT conversion achieved

• Primary care sector is an extremely attractive market
• Assura is best placed to take advantage of the opportunity

– Trusted brand amongst GP community – Scalable internal management structure – Development profits retained – Transparency of reporting – Strong PLC Board

Investing in the future of primary care property 4

Strong results

• 44% increase in underlying profits to £10.2m
• 6.3% increase in net asset value to 38.6p per share
• 18.6% total shareholder return

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Assura Group Financial results Jonathan Murphy

Investing in the future of primary care property

Financial highlights

• 7.2% Property return

– 6.1% income return

• 8.7% Accounting returns1

– 2.4% dividend paid – 0.855p – 6.3% increase in adjusted net asset value to 38.6p

• 44% increase in underlying profits to £10.2m
• 27% increase in underlying EPS to 1.9p
• 2% reduction in LTV to 62%

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1 Increase in EPRA NAV and dividends

Solid income growth

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• 118 rent reviews completed:

– 2.4% weighted average annual uplift – Last 2 years 3.4% and 3.8% annual uplift

• Backrents of £0.9m
• £0.9m new annual rent roll,

developments

• 2.9% increase in annualised

rent roll to £35.9m

Rent Reviews Settled in the Year

36 reviews 46 reviews 15 reviews 21 reviews £3.7m £4.2m £1.8m £2.8m 0.0 1.0 2.0 3.0 4.0 5.0 Q1 Q2 Q3 Q4

Rent £m

Previous Rent Rental Increase

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Underlying profit growth

£7.1m £10.2m £2.8m £0.2m £0.7m £0.4m £0.2m

£6.0 £6.5 £7.0 £7.5 £8.0 £8.5 £9.0 £9.5 £10.0 £10.5 £11.0

Year to Mar12 Net rental income Finance revenue Finance costs Admin expenses Associates Year to Mar13

£m

Lowest cost operator

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• 7% new property income
• 4.5% long‐term interest rates
• Can manage £100m additional property for only 0.08% cost
• Further growth significantly earnings enhancing

Core investment portfolio

• 162 primary care centres

valued £524m

• 0.5% valuation uplift
• Rent review basis

– 80% open market – 11% RPI – 9% stepped & fixed

• £34.1m core annualised rent

roll

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Mar 2013 Mar 2012 Initial yield 5.95% 5.89% Equivalent yield 6.15% 6.11%

Transparent balance sheet

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31 Mar 2013) 31 Mar 2012) £m) £m) Properties1 569.3) 549.2) LIFT 11.2) 10.5) Cash and deferred consideration2 41.7) 31.0) Debt (392.1) (375.6) Deferred revenue (14.8) (13.3) Other net working capital (14.8) (12.9) Derivatives at fair value (3.6) (2.5) Deferred tax 1.1) 1.3) Property plant & equipment 0.1) 0.2) Net assets 198.1) 187.9) Own shares held 1.9) 1.9) EPRA adjustments (slide appendix) 4.4) 2.4) EPRA NAV 204.4) 192.2) EPRA NAV per share 38.6p 36.3p Movement +2.3p (6.3%)

1 Includes available for sale £12.0m, Mar 2012 £11.4m 2 Deferred consideration £6.0m, Mar 2012 £9.6m

EPRA net asset value movement

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* Based on 529,548,924 shares in issue

£m)

Pence per) share*)

EPRA net asset value at 31 March 2012 192.2) 36.3) Income (underlying profit) 10.2) 1.9) Capital (revaluations and capital gains) 5.9) 1.1) Dividends (4.5) (0.9) Other 0.6) 0.2) EPRA net asset value at 31 March 2013 204.4) 38.6) Growth 2.3) 6.3%)

Robust cash flow

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• Government backs

88.9% core portfolio leases

• 15.1 years weighted

average remaining lease length

• 11.3 years average

maturity of debt

Cash £21.4m £12.6m £15.9m £3.6m £13.3m £4.5m Cash £35.7m Undrawn Facility £4.8m

£0.0 £10.0 £20.0 £30.0 £40.0 £50.0 £60.0

£m

Dividend

• Underlying EPS of 1.9p per share
• 6% growth in quarterly dividend to 1.21p per share equivalent on

an annual basis

• 1.6x covered by 2013 underlying profit
• Progressive dividend policy

Investing in the future of primary care property 15

Assura Group Property update Andrew Darke

Investing in the future of primary care property

Developments deliver shareholder value

• £3.5m development gains, profit on cost of 15.3%
• 7.1% yield on total cost of completed developments
• £70m value of 28 additional identified schemes

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Completed Fully funded on site Immediate prospects Development cost £12.4m £33.0m £30.6m Development cost to come n/a £19.2m £30.4m ERV £0.9m £2.3m £2.0m Number of schemes 5 9 11

Development – significant opportunity

• Continuing latent demand for new premises
• Care Quality Commission (“CQC”) is starting to impact – 20% of

premises failed registration and many will need new premises

• No change expected under new regime
• In house expert team very end‐user focused and knowledgeable
• Outlook remains strong

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Bespoke development – completions

Manchester Square Health Centre, Milford Haven St Hilary Group Practice, Wallasey

Sudbury – current healthcare

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Three existing facilities, all non‐ compliant with current NHS standards

Sudbury Community Health Facility

• Example of integrated primary care centre services co‐located in
• ne facility

– GP Practice – Diagnostics – Outpatients – Physiotherapy – Podiatry – Audiology – Counselling – Midwifery – Pharmacy

21 Investing in the future of primary care property

Sudbury

• 3,300m2 Gross Internal Area
• 20 year leases with 5 yearly RPI index linked rent reviews
• £547,000pa rent roll
• Fixed price build cost
• £8.6m approximate valuation on completion

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Sudbury

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Non‐core disposal success

• 14 of 19 non‐income earning properties sold
• Former Head Office sold for £5.5m
• Land at Scarborough (book value: £6.3m), nearing completion
• Non‐core no longer material

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Assura Group Market update Graham Roberts

Investing in the future of primary care property

Significant market opportunity

• Sector offers excellent risk adjusted returns
• UK health infrastructure requires major investment
• Scale of opportunity could dwarf investment to date:

– Over £10Bn required for investment in the sector

• Assura is a trusted brand in the sector
• Internal management and REIT status will deliver the benefits of

this growth to shareholders

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Partner of choice

• Assura working with new clinical bodies
• Dr James Kingsland appointed as strategic medical adviser
• Engaging with NHS

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Conclusions

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• Management has delivered:

– Strong results – Asset management disciplines delivering results – Disposal of non‐core assets – Continued profitable developments and pipeline

• Primary care sector is extremely attractive market
• Assura best placed to take advantage of the opportunity as

internally managed REIT

Investing in the future of primary care property 29

Q&A

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Supplementary information

1. Market 1.1 Growing demand / inadequate supply 1.2 Market: policy direction supportive 1.3 Yield outlook stable 1.4 Sector attractiveness 1.5 Asset class has proven its relative value 1.6 Strong and predictable cash flow 1.7 Assura well placed to outperform 1.8 Core portfolio v IPD Healthcare 2. Net assets 2.1 EPRA – net asset value 3. Portfolio 3.1 Total property assets 3.2 Non‐core portfolio 3.3 Capital value – core portfolio 3.4 Sensitivity analysis on core portfolio 3.5 Core portfolio lease length 4. Rents 4.1 Portfolio rental income growth over 5 years 4.2 ERV evolution and reversion 4.3 Core portfolio rental growth 4.4 Open market rents still increasing 4.5 Basis of rent reviews 5. REITs 5.1 REITs 6. Dividends 6.1 Dividends 7. Borrowings 7.1 Bank and Bond Facilities 7.2 Covenants

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 31

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

Appendix 1.1

Market: policy direction supportive

• Government policy to shift from expensive acute / secondary sector

into primary care setting

• Health & Social Care Act brings GPs into commissioning role
• From 2013 GPs regulated by Care Quality Commission
• Pressures mounting from changing demands
• Ageing population
• Different expectations of service
• Growing range of medical solutions increasing demand
• Changing career and practice profile
• Efficiency will be essential

Investing in the future of primary care property 32

Appendix 1.2

Yield outlook stable

• Primary care property yields have been less volatile
• Yield spread over long‐dated gilts up 50 bps since 31 March 2012

– 355 bps on core portfolio

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0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% Jun 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Assura Net Initial Yield IPD UK Property Quarterly Index Net Initial Yield 15 Year Gilt

Appendix 1.3

Sector attractiveness

• Market Features

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

• Tenant Features

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

• 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

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£34.1m Rental Profile for Core Portfolio

67% 22% 7% 4% GPs ‐ Reimbursed by NHS NHS Body Pharmacy Other (Retail, Charities, Local Authorities, Dentists)

Appendix 1.4

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

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Source: IPD

Appendix 1.5

60 70 80 90 100 110 120 130 140

Commercial Primary healthcare Residential

Total Return index from

• Government reimbursement of 88.9% of core portfolio leases
• Remaining lease length 15.1 years average on core portfolio

– Tenant breaks are uncommon – 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 £34.1m, non‐core £1.8m
• 90% of rents received within 7 days of quarter day

Strong and predictable cash flow

Investing in the future of primary care property 36

Appendix 1.6

Assura well placed to outperform

• Scale benefits

– £569m total property assets – 14.8 years lease length

• n portfolio
• 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 37 IPD 6 Year Return to December 2012

Source: IPD

Appendix 1.7

6.1% 1.1% 7.3% 6.2% 0.6% 6.8%

0% 2% 4% 6% 8%

Income Return Capital Growth Total Return Assura Primary Healthcare Benchmark

Core portfolio v IPD Healthcare

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Appendix 1.8

6.1 6.7 1.1 ‐1.5

7.3 5.2

‐4.0 ‐2.0 0.0 2.0 4.0 6.0 8.0 10.0

Assura All Healthcare Property Benchmark

%

Income Return Capital Growth Total Return

Source: IPD

IPD 6 Year Return to December 2012

EPRA – net asset value

Investing in the future of primary care property 39

Adjusted basic) & diluted NAV) per ordinary) share) Adjusted basic) & diluted NAV) per ordinary) share) Mar 13) Mar 12) £m) £m)

Net assets

198.1) 187.9)

Own shares held

1.9) 1.9)

Derivative financial instruments

3.6) 2.5)

Derivative financial instruments of associates

1.9) 1.2)

Deferred tax

(1.1) (1.3)

EPRA NAV

204.4) 192.2)

Number of shares in issue

529,548,924) 529,548,924)

EPRA net asset value per share

38.6p) 36.3p)

Appendix 2.1

Total property assets

Mar 13 Mar 12 £m £m Core 523.6 505.7 Non‐core 9.3 14.9 Investment portfolio 532.9 520.6 Investment property under construction 14.3 8.4 Properties held for sale 12.0 11.4 Pharmacy lease premiums 7.0 5.7 Finance leases 3.1 3.1 Total 569.3 549.2 Balance sheet classification Investment property 557.3 537.8 Property assets held for sale 12.0 11.4 Total 569.3 549.2

Investing in the future of primary care property 40

Appendix 3.1

Non‐core portfolio

• Non‐core valued at £20.5m

(March 2012: £26.3m)

• Income generating assets of

£10.6m, net initial yield of 13.62%

• £1.8m disposals of non‐

income earning buildings and £5.5m Daresbury

• Addition of £1.2m retail

parade adjoining a medical centre

• Letting success offsets

valuation decline from short leases

Investing in the future of primary care property 41

Appendix 3.2

Non‐core £14.9m Non‐core £9.3m Held for sale £11.4m £1.2m £1.5m £0.4m £8.1m Held for sale £11.2m £26.3m £20.5m £0 £5 £10 £15 £20 £25 £30 £35 Mar‐12 Additions Revaluation gains Revaluation losses Disposals Mar‐13

£m

Capital value – core portfolio

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

Appendix 3.3

Capital Number of Total Capital Value Properties Value £m <£1m 32 £21.5m £1‐5m 105 £261.6m £5‐10m 18 £131.5m >£10m 7 £109.9m

50%

Sensitivity analysis on core portfolio

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NIY ERV +1% +2% +3% p/share p/share p/share p/share 6.50%

• 8.38p
• 7.47p
• 6.57p
• 5.66p

6.25%

• 4.75p
• 3.81p
• 2.87p
• 1.93p

6.00%

• 0.83p

0.16p 1.14p 2.12p 5.75% 3.45p 4.47p 5.50p 6.52p 5.50% 8.10p 9.18p 10.25p 11.32p

Appendix 3.4

Core portfolio lease lengths

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Appendix 3.5

32 leases 53 leases 67 leases 101 leases 36 leases 10 leases 10 leases 28 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 15.1 years

Portfolio rental income growth over 5 years

Investing in the future of primary care property 45 2011/12 includes 12 months of AHMP income

Appendix 4.1

5 10 15 20 25 30 35 40 2008/09 2009/10 2010/11 2011/12 2012/13 Actual Property Income £m H2 Mar H1 Sept

ERV evolution and reversion

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Appendix 4.2

£19.3m £19.5m £28.8m £32.5m £34.1m £1.8m £2.2m £1.6m £1.5m £1.8m £m £5m £10m £15m £20m £25m £30m £35m £40m Mar‐09 Mar‐10 Mar‐11 Mar‐12 Mar‐13 Core Portfolio Rent Roll Estimated Rental Value less passing rent Passing rent

Vacant Space Total ERV at March 2013 £0.8m

Core portfolio rental growth

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Annualised Increase

Year ended 31 March 2012 Year ended 31 March 2013

Rent reviews settled 3.12% 2.32% Rent reviews settled excluding RPI/fixed uplift 2.50% 2.03%

OMR rent reviews by calendar year of review

Annual growth

Appendix 4.3

0% 1% 1% 2% 2% 3% 3% 4% 4% 5% 5% 2009 2010 2011 2012 Year to Match 2012 Year to March 2013

Open market rents still increasing

• Underlying rental trajectory masked by delayed rent review

settlements

• 80% Open market reviews

– 20% RPIs, stepped and fixed uplifts

Investing in the future of primary care property 48

Annualised Open market including RPI % on Core Open market

• nly

% on Core Reviews to be settled

• n Core (passing rent)

Rent reviews settled in period to 31 March 2.32 2.03 Relating to review dates from calendar years: 2009 (1 review) 4.00 4.00 1 (£0.1m) 2010 (5 reviews) 1.75 1.75 3 (£0.4m) 2011 (21 reviews) 2.66 2.66 9 (£1.1m) 2012 (68 reviews) 2.24 1.69 29 (£3.4m) 2013 (5 reviews) 1.87 0.00 86 (£8.9m)

Appendix 4.4

Basis of rent reviews

Investing in the future of primary care property 49

Appendix 4.5

£27.4m £3.6m £2.2m £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 7% (£2.3m) Upward/Downward Review Basis ‐ Landlord Only Trigger 17% (£5.9m) Upward Only Review Basis 76% (£25.9m)

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

• Other dividends are not subject to withholding tax
• 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 50

Appendix 5.1

Dividends

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Appendix 6.1

• Quarterly dividends reflecting underlying rental receipt pattern and

high degree of income certainty

• Normally reviewed annually to reflect cash flow progression
• Quarterly dividend increased to 0.3025p per share from April 2013
• Run rate equivalent to 1.21p per annum

Bank and bond facilities

Investing in the future of primary care property 52

Loan/Bond Fixed/ Floating Maturity Effective Interest Rate Secured Properties Rental Income Outstanding 30 September £m £m £m 10 year secured Bond Fixed 10 year, bullet repayment 2021 4.75%1 157.3 11.1 110.0 Aviva amortising secured loans Fixed Amortising to 2041 5.68%1 288.4 18.9 230.5 £50m Santander investment facility Floating Amortising from 2014, repayable 2016 4.53%1 77.1 5.0 50.0 £10m Santander development facility Floating Development phase

• nly

3.75%2 10.0 0.6 5.2 532.8 35.6 395.7

1 2.575% interest rate swap of matching amount plus 195 bps 2 2.75% above LIBOR

Appendix 7.1

Covenants

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All covenant conditions complied with Bond Aviva Santander Investment Facility Required Actual Required Actual Required Actual Interest v income cover 1, 2 > 1.50 > 2.0 ≥ 1.03 > 1.27 ≥ 1.70 > 2.1 Loan to Value > 1.35 > 1.42 n/a n/a < 75% LTV < 65% LTV Debt Service Coverage Ratio n/a n/a n/a n/a > 1.05 > 2.1

1 Some Aviva loans require only 0.9 times 2 All individually comply

In addition, bond requires NHS backed income to exceed 75% (31 March 2013: 78%) and the weighted average lease length must exceed 10 years (31 March 2013: 14.1 years) Appendix 7.2