Healthcare REIT Assura has credited new strategic directions coupled with renewed political focus on the NHS as the driving forces behind solid interim results which show an 8% rise in rental income and a 4% growth in earnings.
For the six months to the end of September, EPRA earnings were £52.7m, up from £50.8m in the same period last year, with net rental income of 76.7m, up from £70.8m last year. The value of the company’s investment assets stood at £3.1bn, up by £25.4m from the end of the preceding six months.
Assura chief executive Jonathan Murphy (pictured) said this growth largely reflects recent development within the REIT: “We have taken two really big strategic steps in the year. The first one was our joint venture with USS – £350m to invest in NHS assets, both current and future – and then the other one was our £500m move into private hospitals, which we see as a really attractive market with excellent growth prospects and really strong financials.”
Murphy is also encouraged by the change of government. “You can say lots of things about Labour, but one thing you cannot dispute is their commitment to the NHS,” he said. “The fact that pretty much all the increase in spending has gone to the NHS is a real sign of their commitment to make it work, and to make it work we need more efficient and productive healthcare services. Primary care is the best example of that, where it’s 10 times cheaper to be treated in primary care than it is in a hospital.”
Into the community
It is in delivery of primary care where Murphy sees particular potential. “[Health secretary] Wes Streeting is on record as saying that’s exactly what he wants to do,” he said. “He wants to move care into the community and out of hospitals so, for us, if you want to do that then you’ve got to have the infrastructure. You’ve got to have a building where you can do minor surgery, where you can have a diagnostics test done on-site and where you can take bloods and do the study on-site rather than having to go to a hospital. All of those things are very supportive of further investment in primary care.”
Murphy is also undeterred by those with ideological objections to the use of private capital in the NHS. “Wes Streeting isn’t one of them,” he said. “He has very explicitly said he only cares about patient outcome. He doesn’t care about who funds it and who delivers the care, but what is most effective and what is most productive.
“We are never saying that the only way to fund improvement in the NHS is the private sector; all we are saying is we think that, as a property partner with access to capital and deep skills in development, sustainability and commitment to social impact, we are a valuable partner as part of the mix.
“There should be a mixed economy, and we think property developers and investors like ourselves have an important role to play in that. We have expertise, we can deliver projects on time and we operate to fixed-price contracts, so we take on a fair proportion of the risk and we can move quickly. We do all the site identification, design and project management and delivery, so it is de-risking it for the public sector.”
Additional costs
Along with additional funding for the NHS, the Autumn Budget also increased national insurance contributions for employers, resulting in extra costs for private healthcare providers as well as GP surgeries.
However, Murphy is relaxed about the impact this will have. He said: “We are very confident that the private sector has pricing power to pass on those increases. Look at the level of inflation we have had over the past three to five years, and yet the private operators have been able to sustain – and in fact improve – their margins, so I think them passing on an extra 1-1.5% is well within their parameters.
“On the GP side, we are one step removed because the rent is ring-fenced, so the rent money that comes from the NHS is explicitly only for rent. I think it does make life harder for GPs; I think the government will recognise that, and I expect they will do something to help GPs.”
One of the consequences for Assura’s £500m hospital portfolio is that net debt increased from £1,217m at the end of March to £1,575m at the end of September. However, chief finance officer Jayne Cottam believes the company is ahead of schedule in bringing it down.
She said: “We have a very specific plan to bring LTV down, so as of September it was 49%. As I sit here today, it’s actually 48%, because we have disposed of some more assets into our jv and we have completed a small portfolio disposal of £25m.
“We are expecting it to be at 46% within three to six months because we have £110m of assets already under active discussion, and a further £90m of assets identified for disposal which would bring our LTV down to 45%, which is the target we set when we acquired the hospitals. We wanted to get the LTV down in 18-24 months, and we are well ahead of that.
Acquisition trail
Looking ahead, Murphy says the company will very much be on the lookout for new acquisitions, either on its own or through partnerships.
He said: “The USS jv is going to receive another tranche of our existing assets, but the plan is very much to look to grow that externally, by developing or buying assets in the open market for that vehicle of which we will have a 20% stake.
“In terms of other potential acquisitions, we will obviously look at those as and when they arise. If they were to arise then we would need to be creative on the funding, so we would need to do more disposals or we would need to find a partner to help us with those. But the scale of the opportunities is really impressive, so if opportunities do arise then we will work hard to fund them in the best way possible for each individual deal.”
The REIT is also taking a secondary listing on the Johannesburg Stock Exchange, which Murphy says is to make overseas investment easier. He said: “We have always had a number of South African investors on our register, and we have had a good level of interest from that investment market, but there are technical restrictions on the companies that they can invest in.
“Therefore, by taking a secondary listing, we remove all those barriers to them owning our shares, and the incremental cost to us is really marginal, so for a relatively small cost we can bring in some extra liquidity, which ultimately benefits all shareholders.”
Photo © Assura
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