ASSURA PLC ANNOUNCES ACQUISITION OF UK PRIVATE HOSPITAL PORTFOLIO FOR £500M FROM NORTHWEST HEALTHCARE PROPERTIES REIT
The Board of Assura plc (“Assura“, the “Company” or “Group“) (the “Board“) is pleased to announce it has agreed with Northwest Healthcare Properties (“Northwest“) to acquire its fully operational UK Private Hospital Portfolio (“Target Portfolio“) comprising 14 assets for a consideration of £500 million (the “Acquisition”). This will be fully funded through a mix of cash and shares including:
– 245,298,262 or c.£100 million of consideration shares (“Consideration Shares“) issued to Northwest on a 30-day VWAP basis, and subject to a six-month lock-in agreement;
– £266 million of debt, which has been refinanced through a new term loan; and
– £134 million using £54 million of cash and drawing down £80 million from the Group’s existing revolving credit facility.
Assura believes there is significant opportunity in the structurally-supported private hospital market with strong growth potential and attractive investment characteristics, as outlined at its Capital Markets Event in February. All three strands of private (PMI, self-pay and NHS-referred) are experiencing growing demand with the private market providing essential capacity to local healthcare infrastructure. Assura has the skills to capture these opportunities given its long-term relationships in healthcare, its development and asset enhancement capabilities and focus on social impact and sustainability.
The Acquisition significantly accelerates Assura’s strategy to diversify into new sectors at scale by adding high-quality, fully operational assets in the private market spread across the UK at an attractive price. It also brings with it a number of financial benefits including earnings enhancement, long-term, secure and growing income through index-linked reviews and supports a covered and progressive dividend policy. As a result of the Acquisition, Assura is uniquely positioned in the UK as a diversified healthcare REIT.
Target Portfolio overview
· The Target Portfolio comprises Northwest’s entire UK portfolio of 14 fully operational private hospitals with an average of 36 registered beds per hospital
· WAULT of 26 years, rent roll of £29.4 million, yield on cost of 5.9% and day one rent cover of 2.3 times[1]
· Assets located across the UK, with 64% London weighting based on latest current passing rent
· Estimated rental value of £30.2 million, 3% above passing rent based on latest estimated rental value as of December 2023
· All assets annual index-linked rent reviews (60% to RPI and 40% to CPI), capped and collared, typically at 4% and 1% respectively
· All acquired properties feature fully tenant repairing and insuring (“FRI“) leases resulting in limited incremental overheads
· Tenant base mostly comprising tier 1 private operators, including Nuffield Health, Circle and Spire, with 92% at ‘Good’ or ‘Outstanding’ Care Quality Commission (“CQC“) rating
Compelling strategic rationale
The Acquisition offers a number of strategic benefits including:
· Accelerating Assura’s ability to realise attractive investment characteristics of structurally supported private healthcare market:
o The addition of a private hospital portfolio valued at over £500 million represents a material expansion into the private health market in line with Assura’s strategy, cementing its position as the leading listed UK healthcare property investor and developer
o Assura aims to be the partner of choice for the NHS primary care estate and the Target Portfolio combined with its existing exposure to Ramsay Health Care UK and HCA International will enable the Company to access significant relationships with all Tier 1 healthcare providers operating at scale in the UK
o Socio-demographic drivers in the UK, and an NHS system that remains under considerable strain, are leading to growing demand across all three strands of private health (PMI, self-pay and NHS referred services)
o Private hospitals typically benefit from long lease lengths of 25-30 years with indexed rents let to long established operators
· Complementing Assura’s existing strategy and sector expertise to make it the ideal estates partner to the private health sector:
o The Target Portfolio is fully aligned with Assura’s aim to generate attractive financial and social returns for its shareholders and wider stakeholders by investing in, developing and managing high quality, sustainable healthcare buildings that provide crucial infrastructure for their local health economy
o Being a socially responsible owner remains at the core of what Assura does and the private hospital sector is an increasingly vital component in the UK’s healthcare landscape
o Development and asset enhancement capabilities: the Target Portfolio includes opportunities for asset enhancement including extensions, reconfigurations and upgrading the sustainability performance. Assura already has proven development capabilities in the private space having recently completed several new schemes for Ramsay as well as the cancer treatment centre in Guildford showcased at the capital markets event in February
· Acquiring an attractive portfolio of high-quality assets:
o Target Portfolio acquired at an attractive price relative to most recent valuation
o Long average lease length of 26 years – extends proforma WAULT from 10.8 years to 13.0 years
o Rent reviews 100% index-linked with all assets subject to annual reviews; 42% of pro forma portfolio subject to indexed or fixed-basis rent reviews
o Strong underlying tenant covenant complementary to the existing Assura private tenant mix, with 96% of Target Portfolio rent from Tier 1 private operators[2] and day one rent cover at 2.3 times[3]
o Excellent patient mix at each site reflective of local demands
o 64%[4] of Target Portfolio exposed to London market which has heavier PMI and self-pay weighting, supporting rental growth and asset values
o Remaining regional sites providing additional capacity for local NHS needs
· Improving short and long-term Group financial profile:
o Additive to existing net rental income profile with proforma Group rent roll growing from £149 million as to 30 June 2024 to £179 million (c.20% increase)
o Earnings accretive in the first full year and will enhance earnings in the medium term with rents efficiently flowing through to earnings
o Significant future growth potential from a supportive rental backdrop for private hospitals and incremental asset management and ESG opportunities
o Proforma LTV of 48%, within policy range of 40-50% with intention to reduce LTV to below 45% and target net debt to EBITDA below 9 times over the next 18-24 months
o Balance sheet strength has allowed refinancing of debt at attractive rate
o Assura will maintain a covered and progressive dividend policy
Balance sheet and disposals programme
Assura recently announced a joint venture with Universities Superannuation Scheme Limited (“USS“) to support investment in essential NHS infrastructure. This, along with the Acquisition, will see Group property value increase to £3.2 billion. In addition, the issuance of consideration shares will ensure Assura continues to maintain leverage within our stated LTV policy range of 40-50%, with proforma LTV of 48%. Over the following 18-24 months, Assura intends to strengthen the balance sheet by targeting LTV to below 45% and net debt to EBITDA below 9 times through the use of third party capital and a disposals programme which will include a mixture of portfolio and individual asset disposals.
Debt terms and financing intentions
Assura has refinanced the £266 million debt through a new term loan provided by Barclays Bank PLC (“Barclays“). Key terms of the loan include:
– 110bps margin above SONIA
– Matures August 2026
– Option to extend by 2 additional 1-year periods
– Interest rate swap to be taken out for full 2-year period with expected rate of c.4%
The loan is repayable at any point at Assura’s discretion, with no break costs. The proceeds from the aforementioned disposal programme will help to reduce net debt over the next 18-24 months.
As a result, Assura’s debt maturity profile is tightened from a weighted average maturity of 5.75 years as of 30 June 2024, to 5.3 years for the pro forma group, with weighted average cost of debt increasing from 2.30% to 2.99%.
Assura has been in full engagement with rating agencies with respect to the Acquisition.
Northwest Consideration Shares
As part of the consideration for the Acquisition, applications have been made to the Financial Conduct Authority (“FCA”) and to the London Stock Exchange plc (the “London Stock Exchange”) for 245,298,262 new ordinary shares of 10 pence each in the issued share capital of Assura to be admitted to the premium listing segment of the Official List of the FCA and to trading on the main market of the London Stock Exchange (“Admission“). It is expected that Admission will become effective and dealings will commence at 8.00am on Friday 9 August 2024.
Following Admission, the Company will have 3,236,951,244 ordinary shares of 10 pence each in issue. There are no shares held in treasury. Therefore, following Admission the total number of voting rights in the Company will be 3,236,951,244 (the “Voting Rights Figure”), and this Voting Rights Figure may be used by the Company’s shareholders as the denominator for the calculations by which they will determine if they are required to notify their voting rights interest, or a change to that interest, in the Company under the FCA’s Disclosure Guidance and Transparency Rules.
Jonathan Murphy, Assura CEO commented:
“The acquisition of Northwest’s high quality UK private hospital portfolio accelerates the delivery of our broader healthcare strategy, securing increased exposure to the structurally supported private healthcare market as we continue to diversify our offering in line with UK healthcare demands. The acquired portfolio – with long average lease length of 26 years and index-linked rent reviews – complements our existing assets and will benefit from our sector relationships, development and asset enhancement capabilities as the leading listed UK healthcare property investor and developer.
“Expected to be earnings accretive in the first full year, the transaction offers attractive financial benefits including sustainable long-term top line growth to underpin a covered and progressive dividend policy. While the strength of our balance sheet has supported refinancing at an attractive rate, we intend to reduce our leverage in the next 18-24 months via a targeted disposal programme.
“The portfolio’s diversified occupier base, combined with our existing private occupier mix, means we now have relationships with all tier one private healthcare providers. This represents a unique opportunity to participate in the growing demand for private healthcare services to help ease growing NHS waiting lists amidst the ongoing UK healthcare crisis.”
Ed Smith CBE, Assura Chairman, said:
“The UK healthcare crisis is getting more severe with each year, a point well recognised by the incoming Labour Government. This worsening crisis is driving increased demand for healthcare infrastructure including private health estates, and today’s acquisition positions us as the clear leader in this sector of the market. We are now better positioned than ever to use our expertise and capital to help support the NHS and the country’s wider healthcare market as together we address the health challenges of the modern day.”
Craig Mitchell, Northwest CEO commented:
“These high-quality assets represent significant future growth potential buoyed by favourable healthcare market dynamics in the UK and Assura’s sector-leading position, long-term relationships and expertise in asset management, development and enhancement. Our conviction in Assura and their strategy is evidenced by Northwest taking an equity stake in Assura as part of this transaction, allowing us to benefit from their future success.”