Continued growth driving income returns

23 May 2017

Assura plc ("Assura"), the UK's leading healthcare REIT, announces its full year results for the year ended 31 March 2017:

Continued growth of portfolio, rents, profit and dividend

·      21.2% increase in investment property, to £1.3 billion (2016: £1.1 billion)

·      7.6% growth in diluted EPRA NAV per share to 49.3 pence (2016: 45.8 pence)

·      16.6% increase in rent roll to £74.4 million (2016: £63.8 million)

·      20.0% increase in EPRA EPS to 2.4 pence (2016: 2.0 pence)

·      £95.2 million profit before tax (2016: £28.8 million)

·      Fully covered dividend increased by 9.8% to 2.25 pence (2016: 2.05 pence)

Strong balance sheet and cost of debt reducing

·      £250 million unsecured revolving credit facility signed at initial margin of 150bps

·      £100 million notes US private placement agreed at 2.65% fixed for 10 years

·      Weighted average cost of debt reduced by 78bps to 4.06% (2016: 4.84%)

Well positioned to grow portfolio and drive further platform efficiencies

·      Strong pipeline with £153 million of acquisition and development opportunities

·      Current LTV of 37% provides over £190 million of investment capacity before reaching the mid-point of our medium-term LTV range of 40-50%, allowing Assura to move quickly as the right investment opportunities arise

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

·      Group operates in fragmented market: portfolio of 398 medical centres compares to a total UK market of circa 9,000 buildings

Sector leader in a market that is in critical need of investment

·      There is cross party support for investment in the primary care sector to relieve pressure on secondary care

·      There is broad policy consensus that investment in the primary care estate is key to the transformation and sustainability of the NHS

·      In March of this year, Sir Robert Naylor released his landmark review of the NHS estate highlighting the crucial role for primary care premises

·      Assura is well placed to provide the NHS with cost effective and convenient premises

·      The overwhelming need in this country for improved primary care premises underpins the future of Assura

Jonathan Murphy, CEO, said:

"During a period of political and economic uncertainty, Assura has continued to deliver significant growth built on a secure and long-term income stream. Following the Naylor review, it is clear that mainstream thinking is strongly in favour of further investment in primary care premises.  That's why it is encouraging to see both the Conservatives and Labour making commitments to improve NHS buildings in the next parliament. Further to this, it is encouraging to see focus right across the political spectrum on providing better access to General Practice and innovative services in the community that better meet patients' needs. We now need firm timetables and funding to create the required space, and if we have this Assura is well placed to help primary care plans become reality."

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 2017 at 11am London time, with a webcast available from our website or via the following link: http://webcasting.brrmedia.co.uk/broadcast/590af0a3a2161528fb6362af

Chairman's statement

Dear Shareholder

Assura has continued to grow over the last 12 months.

Our property portfolio expanded significantly, through both acquisitions and new developments. In the past year we have added £170 million of property and this, together with the £141 million of property additions in the previous year, has increased our net rental income by 16% to £67.9 million. We are now the UK's largest developer and owner-manager of primary healthcare property with a property portfolio valued at over £1.3 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 £350 million, lowering the overall cost of borrowings by 78 basis points to 4.06%.

Last year we set a lower medium-term loan to value ("LTV") target range of between 40% and 50%. At the year end our LTV was 37%, well positioned relative to this range. We are continuing to source attractive investment opportunities and we currently have a pipeline of further property acquisitions and developments of £153 million in solicitors' hands. This will in time increase the LTV. We shall continue to monitor what the right LTV range is for the Company.

A key part of our strategy is our unique proposition of offering all of the elements of the property service for GPs. This provides GPs with a long-term partner approach throughout the lifecycle of a medical centre, from first idea of a new surgery through: the NHS business case; development and build of the new surgery; moving in; disposal of the old property; and maintenance of the 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 with GPs. Moreover, it provides a highly scalable model that means that, as we grow, the benefits of scale accrue to shareholders and drive our progressive dividend policy and shareholder returns. The benefit of this model has been illustrated again this year as rent roll rose by 17% to £74.4 million and EPRA earnings rose by 58% to £40.3 million.

Dividends

We aim to deliver superior risk adjusted returns to our shareholders. A key component of this return is a growing, covered dividend. In January 2017 the Board increased our quarterly dividend payment by 9% to 0.60 pence per share or 2.4 pence per share on an annualised basis. This represents an increase of over 33% from the level of 0.45 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 95 meetings with investors during the year and I am delighted to welcome a number of new shareholders onto our register. 

Our people and the Board

The past year was marked by the tragic death of our previous CEO, Graham Roberts. Graham stepped down in March 2016 and passed away in July, having been suffering from cancer. Graham was a great leader and CEO for Assura over his four years in charge, delivering a period of remarkable success which saw the Group grow from a market capitalisation of £152 million to become a FTSE 250 company valued at over £900 million. He had a clear vision, inspired investor confidence and built a strong team, all of which transformed Assura into a leading player in the sector.

I became Executive Chairman in March last year to cover for Graham's absence. In October 2016, the Board appointed Jonathan Murphy as Interim CEO and confirmed him as permanent CEO in February 2017. Jonathan had been Finance Director since January 2013. He brings extensive knowledge and experience to the role, as well as the commitment and ability to continue to deliver on our strategy. We are currently recruiting for a new Finance Director.

I am delighted to welcome Andrew Darke onto the Board as Property Director. Andrew has been with Assura since its flotation in 2003 and brings to the Board an unparalleled knowledge and understanding of the specialist primary care property market.

We have 43 people employed in Assura and, on behalf of the Board, I would like to thank them all for their hard work, dedication and contribution to the success of the business through such a busy year.

Culture, values and ethics 

The NHS is Assura's prime customer, accounting for 86% of our total rent roll. We strongly support the NHS and believe in its vital role in the country's health. We aim to provide the NHS, GPs and patients with the buildings needed for the NHS of today and tomorrow. These buildings provide the essential social infrastructure required to improve the health of the communities in which we operate. We direct private sector capital to provide, develop and enhance primary care premises. Some 6% 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. We have robust ethical policies and control procedures which help us ensure that good business ethics are embedded across the Group. The Government and NHS control both new asset investment and rental increases, based on a transparent market mechanism. This reflects the mutually beneficial partnership that we have with the public sector.

For a number of years, we have been working on designing and developing an energy neutral building, which brings together the latest thinking in sustainable design practice and construction techniques. Our first project under this initiative is now nearing completion and we hope to apply these innovative approaches to future schemes in our development pipeline. This is in addition to our commitment to meeting the highest possible BREEAM accreditation for our schemes as evidenced by us achieving a "Very Good" accreditation for both properties completed in the year.

Looking ahead

With the support of our shareholders, Assura has the strongest balance sheet in the sector and we are well placed to continue investing in what remains a very fragmented market. In addition, we remain focused on carefully managing our existing portfolio with our in-house management team continuing 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 NHS and primary care policy consensus across all mainstream parties is now more positive than ever before, we remain frustrated by the slow progress in transforming policy into meaningful investment in primary care premises. It looks as if the general election will result in a continuity in basic primary care strategy by whichever party wins it. Everyone seems to agree that better healthcare hinges on more care being provided in the primary care sector. Having more doctors and better leveraging of their skills through ancillary healthcare professionals will require more and better premises. We are ready to support this essential investment in the infrastructure of the NHS by offering the right skills, relationships and capital to make the plans a reality on the ground.

Simon Laffin
Non-Executive Chairman
22 May 2017

CEO review

Overview

A year of political disruption has contributed towards uncertainty in the financial and commercial property markets. Despite this backdrop Assura has continued to deliver superior risk adjusted returns built on a secure and long-term income stream funded by the NHS. In the past year, our property return was 9.7%, driven by an income return of 5.3% and an increase in property values adding a further 4.4%. 

At the end of the financial year, in March, Sir Robert Naylor released his landmark review of the NHS estate highlighting the crucial role for primary care premises in enabling the policy imperatives of dramatically increasing evening and weekend GP appointments, encouraging practices to work together in networks or hubs and increasing significantly the primary care workforce. It is now clear that mainstream thinking recognises that investment in primary care premises is an essential enabler to the necessary NHS transformation. Assura's bespoke approach, one that works for the NHS, for GPs, for wider community health teams and for patients, is well suited to deliver what is required.

Delivering long-term outperformance in property returns

Assura is a constituent of the IPD All Healthcare Index and over the last five years we have delivered an annualised ungeared return of 8.9% This level of consistent performance over a long period is a testament to the skills and dedication of our property team and to the specialist knowledge we have in our sector. 

The strong returns achieved in this five-year period are even more creditable given the development activity of this time has been at historically low levels, as development activity is a key driver of Assura's returns in two ways. Firstly, we are typically able to source developments at an effective yield on cost that is 100 basis points higher than through acquisitions. Secondly, developments provide evidence of construction cost inflation that drives rental growth. 

Our 398 medical centres have a rent roll of £74.4 million with the geographically diverse nature of the portfolio allowing us to serve more than 6% of the UK's population. Our investment approach is to identify those assets we believe are best in class in their local catchment areas. By acquiring those assets that provide a broad range of services to their local communities, we believe these will provide greater prospects for lease renewal on expiry and so drive greater property returns over the long term.

A good example of this approach can be seen in our acquisition of Donnington Medical Practice in Shropshire. This centre serves over 12,500 patients and provides 17 additional services on site including blood pressure and coronary heart disease prevention, dermatology, minor surgery, and smoking cessation programmes. 

For key properties, we are not afraid to acquire shorter leases, and 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 1.6% 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 they are influenced by land and construction cost inflation over the medium term. Over recent years there has been significant inflation in these costs, but this increased cost is not yet fully reflected in our passing rents as the slowdown in new schemes has reduced the evidence of that inflation. Our portfolio is well placed to capture this rental growth once new developments recommence and this gives us confidence for the medium-term prospects for rental growth in our sector.

Capital growth

The balance of our ungeared annualised return is generated from capital growth, which has seen a like-for-like valuation growth of 5.6% in the past year. This increase has primarily come from a movement in yields with our net equivalent yield moving by 23 basis points in the past year. The portfolio net initial yield as at 31 March 2017 was 5.10%.

We completed two developments during the year at a total development cost of £13.8 million. This has added £0.7 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. During the year we agreed four extensions, 15 new leases and 10 lease extensions. Together this asset management activity added a further £0.4 million to our rent roll. 

The combined impact of our investment and asset management activity has been to achieve a 7% growth in EPRA NAV to 49.4 pence per share.

Maximising operational efficiency

The property additions have been incorporated by our in-house property management team, which is delivering sector-leading tenant satisfaction across our portfolio. In our annual tenant satisfaction survey over 95% of our tenants said they would recommend us as potential landlords to other GPs, and our GPs remain our greatest source of referrals for new business. We remain focused on understanding their evolving needs and demands, so we can be at the forefront of the significant investment required in improving premises in the future.

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

This structure enables us to ensure that we can maximise the efficiency with which we can translate increased rental income into underlying profit and hence dividends. In the year we have delivered a 58% growth in EPRA earnings to £40.3 million. This has been achieved from 21% growth in our investment property value and a reduction in our EPRA Cost Ratio from 17% to 14%.

The overall impact of all of these factors has enabled us to increase our quarterly dividend from January 2017 by 9% to 0.60 pence per share.

Continued focus on our specialist sector

Assura represents a unique proposition in our sector as we act as investor, developer and manager of our properties. This gives us an unrivalled knowledge and understanding of the requirements of GPs for their premises. We also maintain a database of every primary care property in the UK that enables us to identify and analyse potential acquisition opportunities. This exceptional market knowledge has been a key contributor to our continued success in expanding our portfolio during the year and we closed the year with a portfolio of 398 properties and a valuation in excess of £1.3 billion.

The ongoing growth in the portfolio has largely been achieved through continued acquisitions. In the year we completed £156 million of property additions, which was the largest contributor to the £236 million increase in investment property in the year. This has enabled our rent roll to grow by 17% to £74.4 million. 

Our in-house development team is currently busier than it has been for a number of years. Although completed schemes in the year numbered only two sites, for a gross development cost of £13.8 million, the number of potential opportunities has increased markedly. We are currently on site at a further six schemes with a gross development cost of £31 million, which is a significant uplift from this time last year. The pipeline remains strong, with a further eight schemes with a gross development cost of £36 million where we expect to be on site within the next 12 months.

This increased level of activity is encouraging. The schemes we are working on are being driven by pressing local requirements; however, we are yet to see the full effect of national policy imperatives or programmes. The potential for the Sustainability and Transformation Plans ("STPs") and the Estates and Technology Transformation Fund is real, though we are not yet seeing that potential converted into significant investment.

We remain optimistic that these central initiatives will result in increased investment in the future. We have the skills, resources and capital to support and benefit from these plans when they convert into action. 

Funding further growth

At the year end we had an immediate acquisition pipeline of £86 million and we continue to identify new opportunities that meet our acquisition criteria.

To support this continued expansion of the portfolio, we have been active in sourcing new funding over the past year. In May 2016, we agreed a £200 million unsecured revolving credit facility with a club of four banks at an initial margin of 150 basis points. At the year end we had utilised £100 million of these facilities and so to provide further scope for expansion we have now, in May 2017, increased this facility to £250 million on the same terms.

In October 2016, Assura issued £100 million of unsecured 10-year notes at a fixed rate of 2.65%. This was Assura's first issue in the US private placement market and demonstrates our ability to attract a new source of long-term funding at an attractive rate. This unsecured funding increases operational flexibility and reduces transaction costs associated with financing the expanding property portfolio. 

These new facilities highlight that the increased financial strength of Assura is enabling us to source new unsecured funding at attractive rates. We have sustained a strong, long-term and diversified debt profile, with 81% of our borrowings now at fixed rate with an average maturity of 8.7 years, while delivering a reduction in our weighted average cost of debt from 4.84% to 4.06%.

The loan to value ratio at the year end was 37%, which provides further capacity for growth as we maintain a medium-term target range of 40% to 50%.

Market developments

Our purpose is simple: to provide GPs and patients with the buildings they need now, for the NHS of today and tomorrow. Providing a wider range of health services closer to home, from a broader range of primary care professionals, is both more convenient for patients and significantly less expensive for the NHS. Without the right buildings, however, the plans cannot be delivered. 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.

Given the complex pressures on our National Health Service, it is perhaps no surprise that the prosaic matter of bricks and mortar rarely makes it to the top of the policy agenda. However, in the past year the importance of improving the quality of physical infrastructure has been explicitly recognised as being part of the solution. 

Local STPs delivered this year set out the optimal design for services in 44 geographical areas. As ever, there is a huge variety in the detail of the documents. There is a common thread across all the plans that the primary care estate will be a crucial enabler of what they are trying to deliver. 

The plans highlight the need for a significant increase in the primary care workforce - with the potential scope going significantly beyond the recruitment of new GPs. More community pharmacists, nurse practitioners, physician associates and mental health therapists will operate from the primary care setting; however, if primary care premises do not have the capacity to host them, these desperately needed boosts to staffing levels simply cannot be achieved. 

A larger workforce represents a shift into a greater provision of primary care at scale. This reflects that larger scale practices can more easily manage extra services and extended hours, as well as potentially delivering greater efficiencies in operations and back office functions. To this end, there are a number of different ways that GPs can work together: through formal alliances, federations and clusters of merged practices. All models of working at scale rely upon larger and more modern buildings. 

Yet the level of government investment in primary care premises remains at historically low levels. The Estates and Technology Transformation Fund, offering £900 million of much-needed investment for both GP premises and surgery technology, has not resulted in significant progress for buildings. Demand for funding far outstrips supply, and the pace of projects cannot hope to match this demand. We must wait to see how much of the pledged £325 million of additional capital for the most advanced STPs filters through to improve primary care estate, and we await more detail on NHS England's vision to create 150 urgent treatment centres to take the pressure off A&E units.

Of course, health policy and health economics are extremely complex, so we engage regularly with the NHS and government to make the case for further investment in primary care infrastructure, both through our expanding in-house capability and through our chairing of the British Property Federation's Healthcare Committee. We believe that our model offers the best solution to the NHS's capital problem for primary care estate, so we work hard to ensure policymakers have a clear understanding of the benefits it can bring. 

There is no doubt that the policy backdrop is more positive than it has been for a number of years. However, there is a risk that this fails to convert into significant investment on the ground. In recent years investment has dropped to historically low levels despite a number of seemingly positive central initiatives. 

Outlook

With a general election just a few weeks away, all eyes will be on the next steps for NHS policy after 8 June. Whatever the make-up of Parliament, however, 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. Assura is uniquely placed both to deliver and support in this time of unprecedented change.

Jonathan Murphy

CEO
22 May 2017 

Business review

Portfolio as at 31 March 2017 £1,315.3 million (2016: £1,088.0 million)

Our business is built on our investment portfolio of 398 properties, with a passing rent roll of £74.4 million (2016: £63.8 million), 86% of which is underpinned by the NHS. The WAULT is 13.2 years and 75% of the rent roll will still be contracted in 2027.

At 31 March 2017, our portfolio of completed investment properties was valued at a total of £1,315.3 million (see Note 7, 2016: £1,088.0 million), which produced a net initial yield ("NIY") of 5.10% (2016: 5.29%). 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 5.29% (2016: 5.52%). Adjusting this Royal Institution of Chartered Surveyors standard measure to reflect the advanced payment of rents, the true equivalent yield is 5.47% (2016: 5.72%).

Our EPRA NIY, based on our passing rent roll and latest annual direct property costs, was 5.05% (2016: 5.23%).

Expressed as a percentage of opening investment property plus additions, Total Property Return was 9.7% compared with 8.9% in 2016. 

Our annualised Total Return over the five years to 31 December 2016 as calculated by IPD was 8.9% compared with the IPD All Healthcare benchmark of 7.0% over the same period.

The valuation gain in the year of £56.5 million represents a 5.6% uplift on a like-for-like basis net of actual purchase costs associated with properties acquired during the year. 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 gilt which traded at 1.49% at 31 March 2017. 

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 76 properties, seeing us invest £155.6 million during the period.

Despite the continued delay in NHS approval of new developments, we have completed two developments during the period (both under forward funding agreements) with a total development cost of £13.8 million. This has added £0.7 million to our annual rent roll and generated a 5.0% yield on cost. 

During the year we recorded a revaluation gain of £1.5 million in respect of investment property under construction and a deficit of £0.7 million in respect of land held for sale. This resulted in a net gain of £0.8 million (2016: £0.7 million).

As at 31 March 2017, we had six developments on site under a forward funding agreement, with a total committed investment value of £31.0 million, and a further eight which we would hope to be on site shortly (estimated cost of £36.0 million).

Live developments and forward funding arrangements

Portfolio management

We have continued to deliver rental growth and have successfully concluded on 156 rent reviews during the year to generate a weighted average annual rent increase of 1.57% (2016: 1.20%) on those properties. Our portfolio benefits from a 28% weighting in fixed, RPI and other uplifts which generated an average uplift of 2.49% during the period. The majority of our portfolio is subject to open market reviews and these have generated an average uplift of 0.88% during the period. 

We have a dedicated team of asset managers who are in regular communication with our customers and we monitor progress through regular customer satisfaction surveys. 

During the period we have secured 15 new tenancies with an annual rent roll of £0.4 million covering 4,377 square metres. Our EPRA Vacancy Rate was 2.1% (2016: 3.0%).

Administrative expenses

The Group analyses cost performance by reference to EPRA Cost Ratios (including and excluding direct vacancy costs) which were 13.7% and 12.4% respectively (2016: 16.5% and 16.0%). 

We also measure operating efficiency as the proportion of administrative costs to the average gross investment property value. This ratio during the year was 0.57% (2016: 0.60%) and administrative costs stood at £7.0 million (2016: £6.1 million).

Financing

In May 2016, we replaced our existing £120 million revolving credit facility with a new five-year £200 million facility on an unsecured basis. The initial interest rate is 150 basis points above LIBOR, subject to leverage. Subsequent to the year end, we have further extended this facility to £250 million. 

In October 2016, we announced that the Group had signed agreements in the US private placement market for new unsecured, 10-year notes totalling £100 million. These have a fixed interest rate of 2.65% and were drawn in full. 

At 31 March 2017, we had undrawn facilities and cash of £123.3 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 37%, which is below our target range of 40-50% but will increase as we invest in our pipeline in the short term. 81% of the debt facilities are fixed with a weighted average debt maturity of 8.7 years compared with a WAULT of 13.2 years, which highlights the security of the cash flows of the business.

Details of the facilities and their covenants are set out in Note 9. 

Net finance costs presented through EPRA earnings in the year amounted to £20.6 million (2016: £24.0 million). In addition, £1.4 million of loan issue costs were written off following the change in the revolving credit facility. 

EPRA earnings

The movement in EPRA earnings can be summarised as follows:

EPRA earnings has grown 58% to £40.3 million in the year to 31 March 2017 reflecting the property acquisitions completed and the reduced finance costs from reducing our LTV and the average cost of borrowings.

Alternative Performance Measures ("APMs")

The financial performance for the year 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 year and calculations with reconciliations back to reported IFRS measures are included where possible. 

Underlying profit is no longer reported, to avoid confusion, being similar to the industry standard EPRA measure.

Earnings per share

The basic earnings per share ("EPS") on profit for the period was 5.8 pence (2016: 2.2 pence). EPRA EPS, which excludes the net impact of valuation movements, non-recurring finance costs and gains on disposal, was 2.4 pence (2016: 2.0 pence). 

Based on calculations completed in accordance with IAS 33, share-based payment schemes are currently expected to be dilutive to EPS, with 3.3 million new shares expected to be issued. The dilution is not material as illustrated by the table below:

Dividends

Total dividends paid in the year to 31 March 2017 were £37.0 million (2016: £27.2 million) or 2.25 pence per share (2016: 2.05 pence per share). £5.1 million of this was satisfied through the issuance of shares via scrip.

As a REIT with the requirement to distribute 90% of taxable profits, the Group expects to pay out as dividends at least 90% of recurring cash profits. All dividends paid during the year were normal dividends (non-PID) with an associated tax credit, as a result of brought forward tax losses and available capital allowances. It is expected that some proportion of dividends paid out in the 2017/18 financial year will need to include a PID element.

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, and non-cash items such as share-based payment charges and movements in deferred tax. 

Net assets

EPRA NAV movement

Our Total Accounting Return per share for the year ended 31 March 2017 is 12.0% of which 2.25 pence per share (4.9%) has been distributed to shareholders and 3.3 pence per share (7.1%) 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 2017

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.

Consolidated balance sheet

As at 31 March 2017

The financial statements were approved at a meeting of the Board of Directors held on 22 May 2017 and signed on its behalf by:

Simon Laffin                                                          Jonathan Murphy
Non-Executive Chairman                                   CEO

Consolidated statement of changes in equity

For the year ended 31 March 2017

Consolidated cash flow statement

For the year ended 31 March 2017

Notes to the accounts

For the year ended 31 March 2017

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 2017 and 31 March 2016, 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 2017.

The Preliminary Announcement was approved by the Board of Directors on 22 May 2017.

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 5% (2016: 5%).

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% (2017: 20%).

The Group tax (credit)/charge relates to its non-property income. As the Group has sufficient brought forward tax losses, no tax is due and so the amount represents the movement in deferred tax. The movement in part relates to brought forward losses that have been utilised during the year, with the remainder representing a change in the estimated losses that will be utilised in the future.

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. In the year to 31 March 2016, the taxable rental profit of the Group was £nil as a result of capital allowances available, and consequently no PID was required. A small PID is expected to be required for the year to 31 March 2017 which will be distributed in due course within the usual quarterly dividends and in advance of the payment deadline of 31 March 2018.

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 2017.

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

The current estimated number of shares over which nil-cost options may be issued to participants of the VCP is 3.2 million (2016: 12.5 million). After allowing for shares held by the Employee Benefit Trust, this would amount to a potential issuance of a further 3.2 million (2016: 11.2 million) shares in September 2017. Options issued under the PSP are not currently considered dilutive.

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 2017. The properties have been valued individually and on the basis of open market value in accordance with RICS Valuation - Professional Standards 2014 ("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 4.40% to 5.00% (2016: 4.65% to 5.25%) for prime units, increasing up to 8.00% (March 2016: 6.15%) for older units with shorter unexpired lease terms. For properties with weaker tenants and poorer units, the yields range from 6.00% to 12.00% (March 2016: 6.15% and over 8.0%) and higher for those very close to lease expiry or those approaching obsolescence.

A 0.25% shift of valuation yield would have approximately a £68.1 million (2016: £54.2 million) impact on the investment property valuation.

Three land sites are held as available for sale (2016: three land sites).

Fair value hierarchy

The fair value measurement hierarchy for all investment property and IPUC as at 31 March 2017 was Level 3 - Significant unobservable inputs (2016: 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 RICS Valuation Standards as "the estimated amount for which a property should exchange on the date of the 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. 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 covenant of 10 years which, if breached, gives the bondholder the option to change the facility to an amortising basis.

2.   Loans from Aviva Commercial Finance with an aggregate balance of £213.8 million at 31 March 2017 (2016: £217.8 million). The Aviva loans are partially amortised by way of quarterly instalments and partially repaid by way of bullet repayments falling due between 2024 and 2044 with a weighted average term of 13.8 years to maturity; £4.3 million is due within a year. These loans are secured by way of charges over specific medical centre investment properties with cross-collateralisation between the loans and security. The loans are subject to fixed all-in interest rates ranging between 4.11% and 6.66% and a weighted average of 5.43%. The loans carry a debt service cover covenant of 1.05 times and an LTV covenant of 70%, calculated across all loans and secured properties.

In November 2015, in line with the debt reduction plan announced in the Prospectus for the October 2015 equity raise, £182.0 million of loans were repaid along with associated early repayment costs of £34.1 million.

3.   Five-year club revolving credit facility with RBS, HSBC, Santander and Barclays for £200 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 2017, £100 million of this facility was drawn. This facility replaced the previous £120 million secured revolving credit facility. Subsequent to the year end, the available facility has been increased to £250 million.

4.   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.

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

10. Share capital

Ordinary Shares issued on 20 July 2015, 4 November 2015 and 27 January 2016 represent shares issued as part consideration to discharge the monetary liability for the acquisition of investment properties held in corporate vehicles. The shares were valued based on the closing share price the day before issuance with this amount appropriately allocated between share capital and share premium.

On 25 September 2015 and 26 August 2017, 3,543,975 and 8,000,000 Ordinary Shares were issued following employees exercising nil-cost options awarded under the VCP. Further information can be found in respect of the VCP in Remuneration Report included in the Annual Report and Accounts.

On 14 October 2015, 618,000,000 Ordinary Shares were issued by way of a Firm Placing, Placing and Open Offer and Offer for Subscription at a price of 50 pence per Ordinary Share. Gross proceeds to the Company were £309.0 million, which has been allocated appropriately between share capital (£61.8 million) and share premium (£247.2 million). Issue costs totalling £9.5 million were incurred and have been allocated against share premium.

On 20 January 2016, 1,611,873 Ordinary Shares were issued to shareholders who elected to receive Ordinary Shares in lieu of a cash dividend under the Company scrip dividend alternative.

In the year ended 31 March 2017, 9,334,255 Ordinary Shares were issued to shareholders who elected to receive Ordinary Shares in lieu of a cash dividend under the Company scrip dividend alternative.

On 19 April 2017, 1,514,247 Ordinary Shares were issued to shareholders who elected to receive Ordinary Shares in lieu of a cash dividend under the Company scrip dividend alternative.

Own shares held comprise shares held by the Employee Benefit Trust.

11. Dividends paid on Ordinary Shares

A quarterly dividend for 2017/18 of 0.60 pence per share is currently planned to be paid on 19 July 2017 to shareholders on the share register at 15 July 2017.

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 dividends paid do not include any PIDs as defined under the REIT regime.

12. Commitments

At the year end the Group had seven (2016: two) committed developments of which six were on site with a contracted total expenditure of £39.7 million (2016: £13.5 million) of which £15.9 million (2016: £8.5 million) had been expended. 

13. Post balance sheet events

Subsequent to the year end, the revolving credit facility has been extended to £250 million.