Primary Health Properties Issues Statement Re Possible Combination

Possible Combination of Primary Health Properties PLC and Assura plc

Summary

Primary Health Properties PLC (“PHP”) announces that it has made an indicative cash and share proposal to the Board of Assura plc (“Assura”), based on an adjusted NTA for adjusted NTA exchange ratio, pursuant to which PHP will acquire the entire issued and to be issued share capital of Assura (the “Combination”).

Under the terms of the Combination, shareholders of Assura would receive for each Assura share:

PHP will make a mix and match facility available to Assura shareholders in order to provide flexibility by enabling them to elect to vary the proportions in which they receive new PHP shares and cash.

In addition, Assura shareholders would be able to retain the quarterly dividend of 0.84 pence per share which is due to be paid on 9 April 2025.

Based on the PHP closing share price of 94.35 pence on 2 April 2025, being the last trading date before the date of this announcement (the “Closing Price”), the 9.08 pence cash consideration would represent 20 per cent. of the total consideration. The Combination implies an initial value of 46.2 pence for each Assura share, inclusive of the Assura dividend of 0.84 pence per share due to be paid on 9 April 2025, and values Assura’s entire issued and to be issued ordinary share capital at approximately £1.5 billion, representing:

• a premium of 23.5 per cent. to Assura’s closing share price of 37.4 pence on 13 February 2025 (being the last business day prior to the commencement of Assura’s offer period);
• a premium of 25.2 per cent. to the 1-month volume weighted average Assura share price of 36.9 pence as of 13 February 2025 (being the last business day prior to the commencement of Assura’s offer period); and
• a premium of 22.2 per cent. to the 3-month volume weighted average Assura share price of 37.8 pence as of 13 February 2025 (being the last business day prior to the commencement of Assura’s offer period).

Following completion of the Combination, Assura shareholders would hold approximately 48 per cent. of the combined group’s issued share capital.

Benefits of the Combination

The Board of PHP believes that a combination of Assura and PHP would deliver significant strategic and financial benefits for both sets of shareholders, including:

• Creating a UK REIT of significant scale (eighth largest UK listed REIT) benefiting from increased public markets presence, greater index weighting and improved investor flows;
• Creating a specialist of greater scale in a growth sector, underpinned by critical infrastructure assets, supported by government policy placing greater focus on primary care and increasing the demand for modern healthcare facilities;
• A combined £6 billion portfolio of long-leased, sustainable infrastructure assets principally let to government tenants and leading UK providers, benefiting from increased income security, longevity, diversity of product type, geography and mix of rent review types;
• Ability to benefit from the improving rental growth outlook reflecting the significant increases in construction costs in recent years together with the historically suppressed levels of open market rental value growth in the sector;
• Significant cost and operating synergies, supporting expected earnings accretion and dividend growth for both companies, with the combined group expected to have one of the lowest EPRA Cost Ratios in the sector;
• Improved access to capital markets, both debt and equity, with potential cost of capital benefits due to enhanced scale, liquidity and diversity;
• Embedded value of the low fixed cost, long-term, debt facilities of both Assura and PHP valued at 5.5 pence per share as at 30 September 2024 and 9.4 pence per share as at 31 December 2024 respectively, which is expected to be largely retained in the Combination to the benefit of the enlarged group’s shareholders;
• Enhanced ability to pursue select developments, with operational synergies; and
• “Best of both” management approach, leveraging the significant experience and expertise of the combined management team and Boards.

Furthermore, a return to a normalised price / NAV rating provides potential for significant further valuation upside. PHP has for many years traded at a premium rating compared to Assura. On a five-year average basis, PHP has traded at a 12 per cent. premium to NTA, compared to an 8 per cent. premium to NTA for Assura, and discount to NTA of 4 per cent. over a three-year period compared to 10 per cent. The Board of PHP believes that an improved rating and longer-term value can be generated through the creation of a stronger combined group with enhanced growth driven by two highly complementary property portfolios with a lower cost of capital.

Dividends

Pursuant to the Combination, Assura shareholders would retain:

• the declared quarterly dividend of 0.84 pence per share which is due to be paid to Assura shareholders on 9 April 2025;
• the quarterly dividend expected to be paid on 9 July 2025 of no more than 0.84 pence per share; and
• further quarterly dividends, on Assura’s usual timetable and at a level to be specified by PHP, up to the date any offer becomes unconditional, further details of which will be set out in any firm offer announcement.

Financial effects of the Combination and track record

The Combination is based on an adjusted NTA to adjusted NTA ratio, taking into account the respective fair value of fixed cost debt of each company. The Combination is expected to be adjusted NTA neutral (pre-transaction costs), while providing Assura with credit for its proportionally higher embedded fair value of debt.

The Combination is expected to be earnings enhancing in the first full financial year post completion of the Combination for both companies’ shareholders, taking account of PHP management’s view of the annualised, run-rate synergies.

PHP has experience of successfully executing a public merger, demonstrated by the successful acquisition of MedicX PLC in 2019 with a net asset value of approximately £367 million. In this transaction, PHP disclosed £4 million of annualised cost saving synergies.

The cash consideration will be fully financed through new third-party debt for which PHP is in discussions with a number of highly reputable lenders. Following the Combination, PHP’s loan to value (“LTV”) ratio is expected to be initially above its target of between 40 per cent. and 50 per cent. with the expectation that the combined group’s leverage would return to within the target range within 12 to 18 months of completion of the Combination. PHP is actively engaged in discussions with potential partners to reduce leverage following completion of the transaction to return to the target LTV ratio and is confident that the combined group would continue to benefit from an Investment Grade credit rating.

Conclusion and next steps

PHP firmly believes that the Combination represents a highly compelling proposition for Assura’s shareholders at a significant premium to relevant trading metrics, providing participation in the future potential value creation of the combined group and part of the consideration in cash.

The future outlook for primary care real estate is positively compelling at a time that both the UK and Irish Governments look to reform their healthcare systems using primary care as the foundation. The combined group would be extremely well placed to work with and alongside Government to deliver its plans, allowing both sets of shareholders to share in future growth.

In light of the upcoming deadline under Rule 2.6(a) of the Code on 7 April 2024, PHP is announcing the possible terms of the Combination to provide shareholders of both companies with the opportunity to make their views known regarding the attractiveness of the Combination, and to urge Assura shareholders to encourage the Board of Assura to provide PHP with an extension to the deadline.

There can be no certainty that an offer for Assura will be made. A further announcement will be made as appropriate.