Introductions It is a pleasure to take you through my first reporting period at Assura. The 6 month results speak for themselves. The stability of our valuations, our secure and growing income stream, and our progressive dividend policy are a compelling combination and have together led to a 3.6% increase in NAV, off a 3.4% property return. This is despite the tough economic environment and falling property values elsewhere and demonstrates the robust characteristicsof the primary care sector together with the quality of this business. 1
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The last 6 months have been intensive for the whole team. Clearly I wanted some short period of introspection to make sure we were all heading in the right direction and indeed the same direction. The list here gives you some insight into the range of activities. That investment of time though means we are now well set up to pursue our business objectives effectively. Just to comment on a few: • We are just focused on primary care because we are good at it. • We are committed to development where returns are good. • We have rectified the obvious financial control gap with a strengthened team to be led from January by Jonathan Murphy. • We have validated the REIT model for our business and are ready to go from the first of April. • We have improved our disclosures and set about a broader communication effort with investors and have so far met with an encouraging response. 3
Now to the results. You will see that we achieved at the property level a six month return of 3.4%. Unfortunately the IPD Healthcare index is currently only published annually. We were though well ahead of the IPD monthly index, where valuation falls for a range of commercial property offset income to only deliver 0.9% return for the same six month period. Our underlying profits increased by 46% in the period. I will come back to the drivers shortly. We had a revaluation gain of £2.2m and so our adjusted EPS was 1.5 pence per share. After dividends paid, NAV is up 3.6% to 37.6 pence per share, a return of 4.2% on opening net assets. 4
That 4.2 % total return per share can be reduced to its component parts as you can see on the right with 1.1 pence per share coming from income and 0.4 pence from capital. The income is very predictable due to low risk profile of the portfolio with 15 and a half years under contract, a high level of expected renewal and government backing for the vast majority, 89% in fact. The capital growth is less predictable as it depends on investment markets and rental growth. Compared to other investments though, includinggilts, this sector has recorded less volatilityover the recent crisis. You should note though that the premium our leases command over the equivalent gilt is now 370 basis points. 5
We reported a year ago £3.9m of underlying profit for the six months to September 2011. This has risen by some 46% to £5.7m as you can see and the drivers for that growth are shown in green. Rent reviews added £0.4m. Capital investment added £0.4m because our marginal cost of funds is below the yield on developed or acquired investments. The other major item is reduced finance costs as a result of closing out the swap a year ago, so reducing interest costs. In red are some influences in the other direction. We received fewer back rents by £0.1m, a reflection of slowing growth in rents. There were also some small changes in LIFT profitabilityand overheads. We are in the process of building our platform back to the right level of resource after a period of understandable contraction. The second half will see a rise in overheads reflecting this. The business though is extremely scalable and I would expect to maintain our position as the most cost efficient of the listed companies in our sector on a like for like basis. 6
We completed 82 rent reviews in the six months. The weighted average annualised uplift on rent reviews settled in the period was 2.35%, adding £0.5m to the annual rent roll. The graph on the right shows the split by quarter. This is quite a high volume of activity. The 82 settlements compares with 99 for the whole of the previous year, which is a credit to the team. The 2.35% annual rental growth compares with the mid 3% annualised growth rate reported in the previous two years. All these figures reflect reviews settled so can relate to old review dates. I will come back to more current information later. We regularly receive settlement by GPs of backdated rental uplifts when reviews are settled late. Those backdated receipts amounted to £500,000 in the period, a fall of £100,000 on the prior year. If the time taken to settle reviews shortens, or if the pace of rental growth is lower than in the past, then back rents reduce. Capital investment has increased the rent roll by £0.8m on an annualised basis, of which £0.6m from developments. This takes out rent roll to £36.2m. 7
Despite paying a dividend of £1.5m, we have grown the NAV by £6.7m or 3.6% to 37.6 pence. I have identified here the component parts of that total return, split between income, expressed as underlying profit, and capital being the revaluationmovements and disposal gains. 8
Our core investment portfolio now comprises 161 primary care centres valued at £517m. The increase is due to developments, acquisitions and a small positive uplift since March of point 1 %. The makeup of lease types remains broadly the same as at March, as you would expect, with 80% open market and a good 20% comprisingRPI or contracted uplifts. Our core rent roll is now £33.5m. By September our initial yields had moved out ever so slightly to 5.92%, offset by income from rent reviews. The equivalent yield remained stable too at around 6.1%. 9
Our non-core portfolio went up in value by £1m to £27m. Non-core comprises a number of different assets which are mainly legacy. Some give us a good return and it would be suboptimal to sell these in these market conditions. We have three retail malls that fit this description. Others are easier to sell such as low value former GP premises which are suitable for residential conversion. Others are tougher to sell such as non-income earning land or buildings with short leases such as our former head office. The income earning assets are valued at £16.8m, with associated head lease liabilities totalling £2.1m. These have an average initialyield of 13.03%. We added to non-core by completing a small retail development, built opportunistically on land adjoining a previous medical centre development. The valuation performance for non-core was flat with a letting of some vacant space to NHS Solent creating a useful uplift to offset valuation declines elsewhere. On the disposal front we have made inroads into the list of empty former GP surgeries, raising over a £1.0m. 10
The balance sheet is transparent. Our book value of property is now £563m, up from £549m. You will find a table setting out the component parts in the appendices. LIFT remains a solid investment, yielding a cash return of £0.6m in the period and recorded £0.3m of equity accounted profits. Cash and deferred consideration is slightly lower than at March due to timing differences in rent collection. Since the end of September we received further payments for deferred consideration and now only the repayment of two £3m loan notes remains outstanding from the pharmacy division sale. Debt increased as part of our investment funding. Other figures are very much like they were at March. Our loan to value ratio has reduced from 64% to 63.5%. EPRA NAV is £198.9m or 37.6 pence per share, 1.3 pence up on March. 11
The movement in cash is shown in the chart. Our cash flow is now one of the strongest and longest in the property sector. Our core portfolio involves nearly 90% government reimbursement. 15.5 years average remain on the leases. As we regear or add to the core portfolio, we typically contract for over 20 years without break. We have regearing opportunities regularly as GP practices change shape. These helped us mitigate the passing of time and so our weighted average lease length reduced from 15.8 to only 15.5 years. Our debt maturity remains long at 11.8 years on average. 12
I said in June that we were looking to convert to REIT status. I can confirm we are on track to achieve this. A lot of technical work has been completed primarily looking at subsidiary company financing and tax considerations. We are in the process of agreeing with HMRC a pool of capital allowance claims. Once agreed these are available to allow the payment of dividends post REIT conversion without withholding tax and with the usual tax credit. When that pool is used up, then withholding tax would apply for those investors not entitled to receive Property Income Distributions on a gross basis. The targeted conversion date is our financialyear end. I set out on the slide some of the key and compelling reasons for conversion. I don ’ t propose to cover these now although by all means come back to this in the Q and A. 13
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