Assura Regulatory News (AGR)

Assura plc

Accelerated investment, improved balance sheet and strong financial performance

23 May 2018

Assura plc ("Assura"), the leading primary care property investor and developer, is pleased to announce its results for the year to 31 March 2018:

Continued growth of the portfolio

· 28.8% increase in investment property to £1.7 billion (2017: £1.3 billion)

· 6.3% growth in diluted EPRA NAV per share to 52.4 pence (2017: 49.3 pence)

· 22.3% increase in rent roll to £91.0 million (2017: £74.4 million)

Delivering for investors

· 4.2% increase in EPRA EPS to 2.5 pence (2017: 2.4 pence)

· Profit before tax of £71.8 million (2017: £95.2 million) reduced reflecting the net impact of the £56.4 million early repayment costs payable to Aviva

· Dividend increased by 9.1% to 2.455 pence (2017: 2.25 pence)

Strengthened balance sheet enabling reduction in cost of debt

· Over £400 million, gross of expenses, raised from equity placing in June 2017 and share issue in December 2017

· Weighted average cost of debt reduced by 94 bps to 3.12% (March 2017: 4.06%)

· £211 million of Aviva debt repaid in January 2018

· Unsecured revolving credit facility increased to £300 million at initial margin of 150 bps

· £150 million notes in two tranches privately placed in October 2017, weighted average coupon 3.04%, maturities of eight and ten years

Well positioned, sector leader in a market that is in significant need of investment

· Current LTV of 26% (2017: 37%) giving Assura significant headroom for future investment

· Strong pipeline with £152 million of acquisitions and developments

· Scalable internally managed operating model, with in-house development team

· Consensus that primary care must play a bigger role in health provision

· Significant underinvestment in the nation's primary care premises, many GP premises not currently fit for purpose

· Group operates in a highly fragmented market: portfolio of 518 medical centres compares with a total UK market of approximately 9,000 surgery buildings

Jonathan Murphy, CEO, said:

"We have delivered against our key objectives for the past year of growing the portfolio through acquisitions, strengthening the balance sheet to allow us to capitalise on the opportunities in our market and delivering sustainable returns to investors. Primary care remains key to the future requirements of the NHS. Our unique model, which delivers significant value to the NHS, and diversified funding structure, positions us well to deliver the improvements needed for a primary care estate that is fit for the future."

Summary Results

For further information, please contact:

This announcement contains inside information as defined in Article 7 of the EU Market Abuse Regulation No 596/2014 and has been announced in accordance with the Company's obligations under Article 17 of that Regulation.

Presentation and webcast:

A presentation will be held for analysts and investors on 23 May 2018 at 11am London time, with a webcast available from our website or via the following link:

http://webcasting.brrmedia.co.uk/broadcast/5ad4d1f35a296618f1792adc

Notes to Editors

Assura plc, a constituent of the FTSE 250 and the EPRA* indices, is a UK REIT and long-term investor in and developer of primary care property. The company, headquartered in Warrington, works with GPs, health professionals and the NHS to create innovative property solutions in order to facilitate delivery of high quality patient care in the community. At 31 March 2018, Assura's property portfolio was valued at £1,733 million.

Further information is available at www.assuraplc.com

*EPRA is a registered trademark of the European Public Real Estate Association.

Chairman's statement

Dear Shareholder

Assura exists to provide premises to the UK's primary care sector and we are proud of our role in supporting the public health of the UK. The NHS is often maligned, but it is in fact a great organisation providing free health services to everyone, based on need not means, and at a cost that is competitive in international terms. It is widely accepted now that the NHS needs to leverage its investment in primary care more effectively in order to relieve the strain on secondary care and to reduce costs whilst improving patient outcomes. When the Government makes this change of emphasis, as surely it must, Assura will be well placed to assist by providing further private sector capital to enhance primary care premises, enabling GPs to provide more services and attend to more patients.

The NHS is Assura's prime customer, accounting for 84% of our total rent roll. Some 7.5% of the UK's NHS patients now use our premises. This important social dimension to our work is reflected in our alignment with the values of the NHS and our commitment to the highest standards of ethics and integrity.

Over the last 12 months, Assura has continued to grow, providing more and better premises to the primary care sector. Our property portfolio has been expanded significantly, through both acquisitions and new developments. We now own and manage 518 premises, up by 120 since last year. Over the period under review we have added £314 million of property and this, together with the £170 million of property additions in the previous year, increased our net rental income by 18% to £80.2 million.

Thanks to the continued support of our shareholders we were able to raise £409 million in two separate equity raises in June 2017 and December 2017. This support has enabled us to fund our investment programme and restructure some of our more expensive debt facilities. We are well advanced in implementing our plan to deploy these proceeds.

We remain the UK's largest developer and owner-manager of primary healthcare property with a property portfolio valued at over £1.7 billion. The increased scale of our operations and our strong financial position have assisted us in obtaining better terms on our debt. We have signed new unsecured debt facilities of £200 million, lowering the overall cost of borrowings by 94 basis points to 3.12%. 

Following the two equity raises in the year our loan to value ("LTV") fell from 37% to 26% at the year end. We have stated previously that we are comfortable with LTV increasing to a level between 40% and 50%, so the current position gives us a significant level of headroom for future investment. We are continuing to source attractive opportunities and currently have a £152 million pipeline of further property acquisitions and developments in solicitors' hands.

A key part of our strategy is our unique partnership with GPs, to whom we offer all elements of property service. This provides GPs with a long-term partner approach throughout the lifecycle of a medical centre, from first idea for a new surgery through the NHS business case; the development and build of the new surgery; moving in; sale of the old property; and maintenance of the new premises over the next 25 plus years. Our ability to "develop, invest and manage" gives us a crucial advantage when securing new development opportunities and other asset management initiatives. Moreover, our model is highly scalable meaning that, as we grow, the benefits of scale accrue to shareholders through a growing dividend stream. The benefit of this model has been illustrated again this year as net rental income rose by 18% to £80.2 million and EPRA earnings rose by 24% to £50 million, and profit before tax was £71.8 million.

Dividends

We aim to deliver superior risk adjusted returns to our shareholders and a key component of this return is a growing, covered dividend. In January 2018 the Board increased the quarterly dividend payment by 9% to 0.655 pence per share. This represents an increase of nearly one third from the level of 0.5 pence per share paid three years ago.

Shareholder engagement

We are committed to the highest standards of financial transparency and believe a significant investment in investor relations activity is a key responsibility for any public company. We have held 141 meetings with investors during the year and I am delighted to welcome a number of significant new shareholders onto our register.

Our people and the Board

Following the appointment of Jonathan Murphy as CEO in February 2017, we then recruited a very talented new CFO in Jayne Cottam, who joined us in September 2017. Jayne brings a wealth of financial and debt strategy experience as well as a keen mind. Andrew Darke retired from the Board on 31 March 2018 after 14 years of sterling service, although I am pleased to report that he continues to support the business as an advisor.

I indicated to the Board last year that I was considering retiring, and as a result Ed Smith was appointed as a Non‑Executive Director in October 2017 with a view to succeeding me as Chairman. On 22 March 2018, I announced my intention to retire at the conclusion of the AGM and the Board has announced that it intends to appoint Ed Smith as Chairman at that time. Ed has a long and successful career in finance as well as deep experience of the health service and government and this will serve us well when he becomes Chairman of this Company.

Assura has undergone much change since I joined back in August 2011. We refocused to become a pure property company, sold non-core activities, simplified the Group structure, launched five equity issues to raise a total of £933 million, refinanced our debt, became a REIT and entered the FTSE 250 index. Over this period, our property portfolio increased from some £500 million to £1.7 billion today, and our market capitalisation increased from £120 million at its low point to just over £1.4 billion today. The business is now in excellent shape with a leadership position in its chosen market, a supportive shareholder base and a strong financial position to underpin future growth. 

We have 50 people employed in Assura and, on behalf of the Board, I would like to thank each and every one of them for their hard work, dedication and contribution to the success of the business. They are the key to Assura's success.

Looking ahead

Assura has the strongest balance sheet in the sector and we are well placed to continue investing in primary care property, which remains a very fragmented market. In addition, we remain focused on carefully managing our existing portfolio with our in-house management team striving to deliver the highest standard of customer service and operational excellence for the nation's GPs, while also maximising the value of our portfolio through asset management initiatives.

Although the policy consensus across all mainstream parties to increase emphasis and investment in primary care is more positive now than ever before, we remain frustrated by the slow progress in transforming policy into meaningful investment. Everyone seems to agree that better healthcare hinges on more care being provided in the primary sector. Having more doctors and better leveraging their expertise through ancillary healthcare professionals will require more and better premises. We stand ready to support this essential investment in NHS infrastructure by offering a powerful combination of the right skills, relationships and capital to make such plans a reality on the ground.

Simon LaffinNon-Executive Chairman

22 May 2018

CEO review

OverviewAssura has continued to deliver significant growth in 2018, adding 120 medical centres to create a portfolio of 518 properties at the year end.

The UK primary care market remains highly fragmented with approximately 9,000 medical centres and so this represents a market share of around 6%.

Assura maintains a distinct model that offers investment, development and management of premises to our GP customers. This multi-faceted approach enables us to understand better the requirements of the GPs and to anticipate their future needs, thus giving us an advantage in securing investment or development opportunities. This has been a key factor behind our success in adding £314 million of property additions. We continue to source many schemes off market, taking advantage of our relationships and market knowledge to identify opportunities that are not widely advertised.

I would specifically highlight four successful portfolio transactions in the year which between them included 57 properties for a gross consideration of £134 million. They neatly reflect our long-term approach to business as we had been patiently tracking several of these deals for a number of years to ensure that we were in pole position when the opportunities materialised.

Delivering long-term outperformance in property returnsAssura is a constituent of the IPD All Healthcare Index and over the last five years we have delivered an annualised ungeared return of 9.9% which compares favourably to the Index at 9.4% over the same period. 

Moreover, these strong returns have been achieved against a background of historically low levels of development activity. Development activity enhances our returns in two ways: firstly, we are typically able to develop new premises at an effective yield on cost that is 100 basis points higher than achieved through buying existing premises; and secondly, developments provide evidence of construction cost inflation that in turn drives rental growth.

Our 518 medical centres, which are geographically diverse and collectively serve more than 7.5% of the UK's population, currently have a rent roll of £91.0 million. Our investment approach is to identify and acquire those assets we believe are best in class in their local catchment areas and facilitate provision of a broad range of services to their local communities. We believe such properties provide better prospects for lease renewal on expiry and so drive higher property returns over the long term.

A good example of this approach is seen in our acquisition of Argyle Surgery Medical Centre, which was acquired off market after a direct approach through our marketing team. This centre today serves over 24,000 patients and as such is the largest practice in Wales. It provides almost 20 additional services on site including counselling, phlebotomy, asthma treatment, coronary disease clinics and a minor surgery suite.

At the same time, we are prepared to acquire shorter leases, and then use our property skills to redevelop or enhance the premises, whilst seeking to re-gear the lease to a longer period.

Rental income

The key driver of our property return is the income from our long-term leases. In the year, rental growth was 1.7% from settled rent reviews. Most of our rent reviews are on an open market basis, set by reference to rental awards agreed with the District Valuer on new schemes. This means that rents are influenced by land and construction cost inflation over the medium term. While there has been significant inflation in these costs in recent years, this is not yet fully reflected in our passing rents as the slowdown in new schemes has reduced the available evidence of that inflation. Our portfolio is well placed to capture this rental growth once new development activity picks up and this gives us confidence in rental growth prospects over the medium term.

Capital growth

The balance of our ungeared annualised return is generated from capital growth, which has seen a like-for-like valuation growth of 6.9% in the past year. This increase has primarily come from a movement in yields, with our net equivalent yield moving down by 31 basis points over the past year. The portfolio net initial yield as at 31 March 2018 was 4.80%. We completed six developments during the year at a total development cost of £31.3 million. This has added £1.6 million to our annual rent roll.

We also add value through active asset management of our properties, working with our GP tenants on proposals for physical extensions or agreeing new or extended lease terms. We have done this at Wide Way Medical Centre, where working with the practice and the NHS, with part funding from the NHS London Improvement Grant Fund, we were able deliver a 195 sq.m extension. This provides five new patient consultation rooms, a minor operations suite and a conference room, as well as improved reception, waiting and administration areas allowing the premises to provide seven day extended access to primary care. As part of this new extension Assura was able to agree a new 25-year lease with the GP tenant. Overall, during the year we agreed three extensions, 13 new leases and 15 lease extensions, significantly improving surgery provision for some 235,000 patients, whilst adding a further £0.5 million to our rent roll.

The combined impact of our investment and asset management activity has been to achieve a 6% growth in EPRA NAV to 52.4 pence per share.

Maximising operational efficiency

GPs are our principal customer, so we naturally measure ourselves against their satisfaction with what we do for them and the best test of this is whether our GPs would recommend us to other GPs. In our annual tenant satisfaction survey, over 96% of our tenants said they would recommend us as potential landlords to other GPs. This is reflected in the fact that our GPs remain our greatest source of referrals for new business. We continue to focus on understanding their evolving needs and demands, so we can be at the forefront of the significant investment required in improving premises going forward.

Our team of portfolio and investment managers are responsible for identifying value enhancing asset management opportunities, such as lease extensions and redevelopments within our existing estate, as well as new acquisition opportunities. 

This approach enables us to optimise the efficiency with which we can translate increased rental income into underlying profit and hence dividends. In the year we have delivered a 24% growth in EPRA earnings to £50.0 million, which has been achieved from a combination of 18% growth in our net rental income and a reduction from 14% to 13% in our EPRA Cost Ratio. Profit before tax was £71.8 million.

The overall impact of all of these factors has enabled us to increase our quarterly dividend from January 2018 by 9% to 0.655 pence per share, which is the sixth successive dividend increase over a period of six years.

Continued focus on our specialist sector

Assura maintains a proprietary database of every primary care property in the UK from which we can identify and analyse potential acquisition opportunities. This unique market perspective has been a key contributor to our continued success in expanding our portfolio. We closed the year with a portfolio of 518 properties and a valuation in excess of £1.7 billion.

The ongoing growth in the portfolio has largely been achieved through acquisitions. In the year we completed £314 million of property additions, which was the largest contributor to the £388 million increase in investment property in the year. This has enabled our rent roll to grow by 22% to £91.0 million.

Meanwhile our in-house development team is currently busier than it has been for a number of years. We completed six schemes in the year for a gross development cost of £31.3 million and the number of potential opportunities has increased markedly. We are currently on site at a further five schemes with a gross development cost of £23.6 million. The pipeline where we expect to be on site within the next 12 months remains strong, comprising a further 10 schemes with a gross development cost of £47 million.

This increased level of activity is encouraging and has resulted in us increasing the size of our development team from two to five colleagues as we look to both secure more schemes and increase the proportion that we manage in-house. 

There continue to be delays in implementing approved schemes under the Estates and Technology Transformation Fund, although we are encouraged by the announcement in the Autumn Budget of £2.6 billion being made available to support capital projects by Sustainability and Transformation Partnerships ("STPs"). More than £700 million of this total has already been allocated to the most advanced projects, including a number of primary care schemes, and we remain optimistic that these central initiatives will result in increased future investment across the NHS estate. Assura has the skills, resources and capital to support these plans when they convert into action.

Funding further growth

The success in delivering growth in our portfolio has only been possible thanks to the continued support of our shareholders and we successfully raised £409 million in two separate equity issues in June 2017 and December 2017.

In October 2017 we secured £150 million from a UK private placement with Legal & General Investment Management with a maturity split between eight and 10 years and a blended interest rate of 3.04%. In addition, the available facilities under the RCF were increased to £300 million, which is a variable rate facility at an initial margin of 150 basis points. In line with Assura's funding strategy, the new notes and the RCF are unsecured.

Our LTV was 26% at the year end. We are comfortable with our LTV increasing to a level between 40% and 50% and so we retain significant headroom to fund future growth. We are continuing to source attractive investment opportunities and we currently have a pipeline of further property acquisitions and developments of £152 million in solicitors' hands. 

Market developments

Estates have been a continuing theme of focus for STPs this year, with government expecting detailed estates strategies to be submitted by all areas this summer. Through work with the Nuffield Trust, we have played our part in supporting a number of STPs with their thinking and planning on primary care infrastructure matters. Providing a wider range of health services closer to home, from a broader range of primary care professionals, creates a better care experience for patients and the conditions for better outcomes for the NHS. The outdated and unfit converted residential stock of surgery premises must evolve into purpose built medical centres, with the capacity and the capability to meet the challenges the NHS will face in the future. The NHS desperately needs more investment in its primary care estate, which is largely owned now by GPs themselves, and we stand ready to provide capital to deliver this investment.

In the past year the importance of improving the quality of physical infrastructure for primary care has been explicitly recognised as being part of the solution to broader NHS challenges, with the Government's formal response to the Naylor Review largely accepting its recommendations as well as highlighting the need for private capital to play a role in funding the investment that will be required. 

Executive Board

I am delighted to report that Jayne Cottam was appointed Chief Financial Officer in September, joining us from the leading private house builder, Morris Homes. She serves on both the Group and Executive Boards.

Andrew Darke stepped down from both Boards at the end of the year. Following this change, I have taken the opportunity to rejig the Executive Board to include the three Heads of Department from our property team who join Jayne Cottam, our CFO, Orla Ball, our Head of Legal, and myself. The three new members are: Spencer Kenyon (Head of Portfolio Management) who has been with the business since its formation and has managed the portfolio throughout this time; Simon Gould (Head of Development) who has led our development efforts for the last decade; and Patrick Lowther (Head of Investment) who joined us last year having previously been a property fund manager at Savills and so benefits from extensive investment management experience.

The new Executive Board has been in place only a few months, but I am pleased with the progress the newly established team has made already and I look forward to working with them as we enter the next chapter in Assura's development as a leading real estate business and partner to the NHS.

Outlook

The political agenda continues to be dominated by Brexit, but in its 70th anniversary year, the NHS is one of the few domestic issues managing to secure meaningful debate. The Prime Minister has publicly accepted the need for a long-term funding settlement for the health service, and MPs from all parties are working together on potential solutions. Assura firmly believes in the NHS. Regardless of the politics, the fundamentals for primary care estate will remain steadfast: to reduce pressure on hospitals, improve access to general practice and help the people who rely on health services the most to reach them closer to home. GP surgery buildings and primary care premises must be fit for the future. 

Jonathan MurphyCEO22 May 2018

Business review

Portfolio as at 31 March 2018 £1,732.7 million (31 March 2017: £1,344.9 million)

Our business is based on our investment portfolio of 518 properties. This has a passing rent roll of £91.0 million (March 2017: £74.4 million), 84% of which is underpinned by the NHS. The WAULT is 12.6 years and 74% of the rent roll will still be contracted in 2028.

At 31 March 2018 our portfolio of completed investment properties was valued at a total of £1,709.6 million, including investment properties held for sale of £7.4 million (March 2017: £1,315.3 million and £nil), which produced a net initial yield ("NIY") of 4.80% (March 2017: 5.10%). Taking account of potential lettings of unoccupied space and any uplift to current market rents on review, our valuers assess the net equivalent yield to be 4.98% (March 2017: 5.29%). Adjusting this Royal Institution of Chartered Surveyors ("RICS") standard measure to reflect the advanced payment of rents, the true equivalent yield is 5.15% (March 2017: 5.47%).

Our EPRA NIY, based on our passing rent roll and latest annual direct property costs, was 4.77% (March 2017: 5.05%).

Expressed as a percentage of opening investment property plus additions, Total Property Return for the year was 9.7%, which is the same return as in 2017.

Our annualised Total Return over the five years to 31 December 2017 as calculated by IPD was 9.9% compared with the IPD All Healthcare Benchmark of 9.4% over the same period.

The net valuation gain in the year of £79.4 million comprises a 6.86% uplift on a like-for-like basis net of movements relating to properties acquired in the period. The uplift has arisen due to the downward pressure on yields with increased demand for assets in the sector. Despite the downward pressure, the NIY on our assets continues to represent a substantial premium over the 15-year UK gilt which traded at 1.588% at 31 March 2018.

Investment and development activity

We have invested substantially during the period, with this expenditure split between investments in completed properties, developments, forward funding projects, extensions and fit-out costs enabling vacant space to be let as follows:

The bulk of the growth in our investment portfolio has come from the acquisition of 115 properties for £278.9 million during the period.

Despite the continued delay in NHS approval of new developments, we have completed six developments during the period (all under forward funding agreements) with a total development cost of £31.3 million. This has added £1.6 million to our annual rent roll and generated a 5.2% yield on cost. The £31.7 million in the table above is development spend during the year, whereas the £31.3 million relates to projects completed.

During the year we recorded a revaluation gain of £6.2 million in respect of investment property under construction (2017: £0.8 million).

Development gains are recorded based on the stage of completion whilst there has also been uplift reflecting an element of yield shift, as with the existing portfolio.

As at 31 March 2018, we had five developments on site (four under forward funding agreements), with a total committed investment value of £23.6 million, and a further 10 which we would hope to be on site shortly (estimated cost of £47 million).

Live developments and forward funding arrangements

Portfolio management

We have continued to deliver rental growth and have successfully concluded 182 rent reviews during the year to generate a weighted average annual rent increase of 1.70% (2017: 1.57%) on those properties. Our portfolio benefits from a 28% weighting in fixed, RPI and other uplifts which generated an average uplift of 3.14% during the period. The majority of our portfolio is subject to open market reviews and these have generated an average uplift of 0.68% during the period.

We have secured 13 new tenancies with an annual rent roll of £0.4 million, in addition to 15 lease re-gears (rent of £0.9 million) and three extensions to existing buildings (rent of £0.1 million). Our EPRA Vacancy Rate was 1.8% (March 2017: 2.1%).

Administrative expenses

The Group analyses cost performance by reference to our EPRA Cost Ratios (including and excluding direct vacancy costs) which were 13.0% and 12.0% respectively (2017: 13.7% and 12.4%).

We also measure our operating efficiency as the proportion of administrative costs to the average gross investment property value. This ratio during the period was 0.51% (2017: 0.57%) and administrative costs stood at £7.9 million (2017: £7.0 million).

Financing

In line with our financing strategy, we have continued the move from secured to unsecured facilities and increased our share capital base through two equity issuances.

In May 2017, we extended the revolving credit facility to £250 million. The terms were unchanged, being unsecured and at an initial margin of 150 basis points above LIBOR, subject to leverage. In October 2017, this was further extended to £300 million.

In June 2017, we completed a £98.4 million, gross of expenses, equity raise via a placing of approximately 164 million shares.

In October 2017, we issued £150 million of privately placed loan notes in two tranches with maturities of eight and 10 years. The weighted average coupon is 3.04% and the notes are unsecured.

In December 2017, we completed a £310.7 million, gross of expenses, equity raise via Firm Placing, Placing and Open Offer and Offer for Subscription.

In January 2018, the proceeds from the December equity raise were used, in part, to repay the remaining £211 million of long-term loans held by Aviva Commercial Finance, with associated repayment costs of £56 million.

1. Interest cover is the number of times net interest payable is covered by EPRA earnings before net interest.

Our LTV ratio currently stands at 26% following the equity raises in the year. LTV will increase in the short term as we invest in additional properties and our policy allows us to reach the range of 40% to 50% should the need arise. 73% of the debt facilities are fixed with a weighted average debt maturity of 6.0 years.

As at 31 March 2018, we had undrawn facilities and cash totalling £199 million. Details of the outstanding facilities and their covenants are set out in Note 9.

Net finance costs presented through EPRA earnings in the year amounted to £22.0 million (2017: £20.6 million).

Finance costs presented outside of EPRA earnings totalled £57.3 million (2017: £1.4 million). These costs represent one-off costs associated with early repayment of facilities or accounting adjustments to write off loan fees where the revolving credit facility was amended. The 2018 charge included £56.4 million of early redemption fees associated with the Aviva loans being repaid in January 2018, in line with the plan announced in the prospectus for the December 2017 equity raise.

Alternative Performance Measures ("APMs")

The financial performance for the period is reported including a number of APMs (financial measures not defined under IFRS). We believe that including these alongside IFRS measures provides additional information to help understand the financial performance for the period, in particular in respect of EPRA measures which are designed to aid comparability across real estate companies. Calculations of the measures, with reconciliations back to reported IFRS measures, are included where possible.

Profit before tax

Profit before tax for the period was £71.8 million (2017: £95.2 million). The decrease reflects the net impact of the early repayment costs incurred relating to the repayment of the Aviva facilities, offset by increased valuation gain on investment property and the higher net rental income following additions to the portfolio.

EPRA earnings

The movement in EPRA earnings can be summarised as follows:

EPRA earnings has grown 24% to £50.0 million in the year to 31 March 2018 reflecting the property acquisitions and developments completed as well as the impact of our asset management activity with rent reviews and new lettings. This has been offset by increases in administrative expenses and financing costs.

Earnings per share

The basic earnings per share ("EPS") on profit for the period was 3.7 pence (2017: 5.8 pence).

EPRA EPS, which excludes the net impact of valuation movements and gains on disposal, was 2.5 pence (2017: 2.4 pence).

Based on calculations completed in accordance with IAS 33, share-based payment schemes are currently expected to be dilutive to EPS, with 0.2 million new shares expected to be issued. The dilution is not material as illustrated in the table below:

Dividends

Total dividends settled in the year to 31 March 2018 were £46.4 million or 2.455 pence per share (2017: 2.25 pence per share). £9.7 million of this was satisfied through the issuance of shares via scrip.

As a REIT with requirement to distribute 90% of taxable profits (Property Income Distribution, "PID"), the Group expects to pay out as dividends at least 90% of recurring cash profits. Three of the four dividends paid during the year were normal dividends (non-PID), as a result of brought forward tax losses and available capital allowances. The October 2017 dividend was paid as a PID and future dividends will be a mix of PID and normal dividends as required.

The table below illustrates our cash flows over the period:

Net cash flow from operations differs from EPRA earnings due to movements in working capital balances.

Diluted EPRA NAV movement

Our Total Accounting Return per share for the year ended 31 March 2018 is 11.0% of which 2.455 pence per share (5.0%) has been distributed to shareholders and 3.1 pence per share (6.0%) is the movement on EPRA NAV.

Portfolio analysis by capital value

Portfolio analysis by region

Portfolio analysis by tenant covenant

Consolidated income statement

For the year ended 31 March 2018

There were no items of other comprehensive income or expense and therefore the profit for the year also reflects the Group's total comprehensive income. All income derives from continuing operations.

Consolidated balance sheet

For the year ended 31 March 2018

Consolidated statement of changes in equity

For the year ended 31 March 2018

Consolidated cash flow statement

For the year ended 31 March 2018

Notes to the accounts

For the year ended 31 March 2018

1. Corporate information and operations

Assura plc ("Assura") is incorporated in England and Wales and the Company's Ordinary Shares are listed on the London Stock Exchange.

As of 1 April 2013, the Group has elected to be treated as a UK REIT. See Note 4 for further details.

Basis of preparation

The financial information set out in this preliminary announcement is derived from but does not constitute the Group's statutory accounts for the years ended 31 March 2018 and 31 March 2017, and as such, does not contain all information required to be disclosed in the financial statements prepared in accordance with International Financial Reporting Standards ("IFRSs"). The financial information has been extracted from the Group's audited consolidated statutory accounts upon which the auditor has issued has unqualified opinion.

The Annual Report will be posted to Shareholders on or before 31 July 2018.

The Preliminary Announcement was approved by the Board of Directors on 22 May 2018.

The Announcement can also be accessed on the internet at www.assuraplc.com. 

2. Revenue

3. Finance costs

Interest was capitalised on property developments at the appropriate cost of finance at commencement. During the year this ranged from 4% to 5% (2017: 5%).

Loan costs written off related to facilities terminated prior to their maturity.

4. Taxation

The differences from the standard rate of tax applied to the profit before tax may be analysed as follows:

The Group elected to be treated as a UK REIT with effect from 1 April 2013. The UK REIT rules exempt the profits of the Group's property rental business from corporation tax. Gains on properties are also exempt from tax, provided they are not held for trading or sold in the three years post completion of development. The Group will otherwise be subject to corporation tax at 19% in 2018/19 (2017/18: 19%).

Any Group tax charge/(credit) relates to its non-property income. As the Group has sufficient brought forward tax losses, no tax is due.

As a REIT, the Group is required to pay Property Income Distributions ("PIDs") equal to at least 90% of the Group's rental profit calculated by reference to tax rules rather than accounting standards. During the year the Group paid its first PID as part of the October 2017 dividend. Future dividends will be a mix of PID and normal dividends as required.

To remain as a UK REIT there are a number of conditions to be met in respect of the principal company of the Group, the Group's qualifying activities and the balance of business. The Group remains compliant at 31 March 2018.

Further reductions in the main rate of corporation tax have been substantively enacted; the rate reduced to 19% from 1 April 2017 and will reduce to 17% from 1 April 2020. These changes have been reflected in the calculation of deferred tax.

5. Earnings per Ordinary Share

6. NAV per Ordinary Share

The EPRA measures set out above are in accordance with the Best Practices Recommendations of the European Public Real Estate Association dated November 2016.

Mark to market adjustments have been provided by the counterparty or by reference to the quoted fair value of financial instruments.

7. Property assets

Investment property and investment property under construction ("IPUC")

Properties are stated at fair value, which has been determined for the Group by Savills Commercial Limited and Jones Lang LaSalle as at 31 March 2018. The properties have been valued individually and on the basis of open market value in accordance with RICS Valuation - Professional Standards 2017 ("the Red Book"). Valuers are paid on the basis of a fixed fee arrangement, subject to the number of properties valued.

Initial yields mainly range from 4.10% to 4.75% (2017: 4.40% to 5.00%) for prime units, increasing up to 8.00% (March 2017: 8.00%) for older units with shorter unexpired lease terms. For properties with weaker tenants and poorer units, the yields range from 5.50% to 8.00% (March 2017: 6.00% to over 8.00%) and higher for those very close to lease expiry or those approaching obsolescence.

A 0.25% shift of valuation yield would have approximately a £94.0 million (2017: £68.1 million) impact on the investment property valuation.

At March 2018, 15 assets are held as available for sale (2017: three assets).

The total value of investment property is £1,709.6 million, which is completed investment property of £1,702.2 million plus £7.4 million of investment properties held for sale.

Fair value hierarchy

The fair value measurement hierarchy for all investment property and IPUC as at 31 March 2018 was Level 3 - Significant unobservable inputs (2017: Level 3). There were no transfers between Levels 1, 2 or 3 during the year.

Descriptions and definitions relating to valuation techniques and key unobservable inputs made in determining fair values are as follows:

Valuation techniques used to derive Level 3 fair values

The valuations have been prepared on the basis of fair market value which is defined in the Red Book as "the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's-length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion".

Unobservable inputs

These include: estimated rental value ("ERV") based on market conditions prevailing at the valuation date; estimated average increase in rent based on both market estimations and contractual situations; equivalent yield (defined as the weighted average of the net initial yield and reversionary yield); and the physical condition of the property determined by inspections on a rotational basis (target once every three years). A decrease in the ERV would decrease market value. A decrease in the equivalent yield would increase the market value. An increase in the remaining lease term would increase the fair value.

8. Deferred revenue

9. Borrowings

The Group has the following bank facilities:

1. 10-year senior secured bond for £110 million at a fixed interest rate of 4.75% maturing in December 2021. The secured bond carries a loan to value ("LTV") covenant of 75% (70% at the point of substitution of an investment property or cash) and an interest cover requirement of 1.15 times (1.5 times at the point of substitution). In addition, the bond is subject to a WAULT test of 10 years which, if not met, gives the bondholder the option to change the facility to an amortising basis.

2. Five-year club revolving credit facility with RBS, HSBC, Santander and Barclays for £300 million on an unsecured basis at an initial margin of 1.50% above LIBOR, expiring in May 2021. The margin increases based on the LTV of the subsidiaries to which the facility relates, up to 2.0% where the LTV is in excess of 50%. The facility is subject to a historical interest cover requirement of at least 175%, maximum LTV of 60% and a weighted average lease length of seven years. As at 31 March 2018, £130 million of this facility was drawn.

3. 10-year notes in the US private placement market for a total of £100 million. The notes are unsecured, have a fixed interest rate of 2.65% and were drawn on 13 October 2016. The facility is subject to a historical interest cover requirement of at least 175%, maximum LTV of 60% and a weighted average lease length of seven years.

4. £150 million of privately placed notes in two tranches with maturities of eight and 10 years drawn on 20 October 2017. The weighted average coupon is 3.04%. The facility is subject to a historical cost interest cover requirement of at least 175%, maximum LTV of 60% and a weighted average lease length of seven years.

In January 2018, in line with the debt reduction plan announced in the Prospectus for the November 2017 equity raise, £211 million of long-term debt held by Aviva Commercial Finance was repaid. The weighted average interest rate on the loans redeemed was 5.43% with associated early repayment costs of £56 million.

The Group has been in compliance with all financial covenants on all of the above loans as applicable throughout the year.

10. Share capital

The Ordinary Shares issued in April 2016, July 2016, October 2016, January 2017, April 2017, July 2017, October 2017 and January 2018 were issued to shareholders who elected to receive Ordinary Shares in lieu of a cash dividend under the Company scrip dividend alternative.

In June 2017, a total of 163,999,820 new Ordinary Shares of 10 pence each were placed at a price of 60 pence per share. The raising resulted in gross proceeds of approximately £98.4 million which has been allocated appropriately between share capital (£16.4 million) and share premium (£82.0 million). Issue costs totalling £2.3 million were incurred and have been allocated against share premium.

In August 2017 and August 2016, 3,226,687 and 8,000,000 Ordinary Shares respectively were issued following employees exercising nil-cost options awarded under the VCP. Further information can be found in respect of the VCP in the Remuneration Report included in the Annual Report and Accounts.

On 6 December 2017, 545,124,813 Ordinary Shares were issued by way of a Firm Placing, Placing and Open Offer and Offer for Subscription at a price of 57 pence per Ordinary Share. Gross proceeds to the Company were £310.7 million, which has been allocated appropriately between share capital (£54.5 million) and share premium (£256.2 million). Issue costs totalling £9.7 million were incurred and have been allocated against share premium. 

11. Dividends paid on Ordinary Shares

The April dividend for 2018/19 of 0.655 pence per share was paid on 18 April 2018 and the July dividend for 2018/19 of 0.655 pence per share is currently planned to be paid on 18 July 2018 to shareholders on the share register at 15 June 2018.

A scrip dividend alternative was introduced with effect from the January 2016 quarterly dividend. Details of shares issued in lieu of dividend payments can be found in Note 10.

The October 2017 dividend was a PID as defined under the REIT regime. Future dividends will be a mix of PID and normal dividends as required.

12. Commitments

At the year end the Group had five (2017: seven) committed developments which were all on site with a contracted total expenditure of £23.6 million (2017: £39.7 million) of which £13.9 million (2017: £15.9 million) had been expended.