08 August 2024
If you are covering Assura’s £500m acquisition of 14 private hospitals, please see the following comment from Oli Creasey, property analyst at Quilter Cheviot:
"Assura have this morning announced the £500m acquisition of a portfolio of 14 private hospitals from a Canadian REIT (Northwest). The hospitals are spread throughout the UK, though with a concentration towards London, and are let on long leases to a number of private healthcare providers.
"The transaction is genuinely transformative for Assura’s portfolio, which up until now has been dominated by NHS-run GP surgeries, typically associated with a low rate of rental growth. The hospitals have a longer unexpired lease length of 26 years and are rent growth is index-linked, which should increase the portfolio rental growth rate in future years.
"Assura had previously discussed a move into the private healthcare market earlier this year, so the deal doesn’t come as a complete surprise, however, the size of the transaction is significant and changes the portfolio characteristics considerably – the current portfolio is c. £2.6bn, so the new addition will increase the overall size by almost +20%. It will also change the metrics of the portfolio significantly, increasing the average lease length by +3yrs, and reducing the amount of rent determined by open market review (typically a low growth rate in the public sector) to c.50%.
"Where the transaction is also transformative is the balance sheet, and here we have some concerns. The LTV is rising by 300bps to 48% as the transaction is largely debt-funded (plus some cash, and new shares issued to Northwest). The yield on the portfolio is 5.9% and the cost of new debt is c.4%, so it will be accretive to earnings (thought to be +9% to earnings), but the new shares will knock a small 0.1p of the NAV as they will be issued at a discount. The LTV rising to the top end of management’s preferred range of 40-50% is a concern, especially as this range is based on a portfolio with secure Government-backed income (which is not the case for the private hospitals). Management expect to make some disposals from elsewhere in the portfolio to pay down some debt, and we will welcome this move when it comes."
