Assura has set out its ambitious plans for private hospitals after more than tripling the weighting of its portfolio in this market segment.
The REIT has agreed a deal with Northwest Healthcare Properties to buy its UK private hospital portfolio, comprising 14 facilities, for £500m.
Jonathan Murphy, chief executive at Assura, told EG that the move came as the company started to see an improvement in market conditions.
He said: “I think that we are buying at the right time in the cycle and, obviously, that is never precise. We’ve had our first interest rate cut now and we are very much feeling that we are moving into more positive territory for real estate, broadly.”
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The acquisition of the 14 hospitals is being funded through a mix of cash and shares, which were issued to the vendor at a discount to the net tangible assets. The transaction closed at a margin of 110 basis points above SONIA.
Jayne Cottam, chief financial officer at Assura, said: “We are very comfortable with that. It’s one of our best price debts at a margin level. Some of the shareholders are concerned that we may lose our credit rating, but I can assure them that is not going to be the case.”
Credit rating agency Fitch has revised the outlook on Assura’s long-term issuer default rating to Negative from Stable and affirmed it at A-. It forecasts that the deal will lead to higher leverage and the execution risk of planned asset disposals.
Murphy said: “We were able to structure the deal in such a way that it is accretive on day one or in the first year, and we’re going to see growth in earnings. As an income-paying REIT, that’s the most important thing.”
The deal is expected to help Assura diversify into new sectors at scale by adding high-quality, fully operational assets in the private market. The newly acquired assets provide an average of 36 registered beds per hospital and have a WAULT of 26 years. The portfolio provides a rent roll of £29.4m per annum.
Murphy said: “It’s immediately earnings-enhancing, gives us access to a very long-term and growing cash flow, and also it’s a further opportunity for us to move and grow into the private hospital market, which, given all the backlog in the NHS, is an area where we see significant growth over the next three to five years.”
The transaction has grown Assura’s property portfolio weighting into the private hospitals segment to 22%, from 7% it had before. Geographically, 64% of newly acquired facilities are in London, with Parkside, a hospital in south-west London, named as the highest performing asset.
Murphy said: “In hospitals, the geography is linked to the performance of the asset closely. In private hospitals, we are more focused on London in the South East because rental growth is stronger in that market.”
Diversification drive
Assura said it intended to explore opportunities across several new markets, including mental health and the Irish market, as well as working directly with the NHS and Universities Superannuation Scheme , with which it has a £250m jv.
Murphy said: “We’re very explicit about wanting to grow across all of those markets, as well as primary care.”
He added: “With a new Labour government wanting to focus on care in the community and do more treatment outside of hospitals, if some of the funding is made available to support new builds and the development of new facilities, then it’s a really exciting place, to be across all of those markets.
“Healthcare is less volatile than other sectors because the demand underpin is there and that demand isn’t impacted by the economy.”
The healthcare sector has been experiencing elevated levels of demand since the pandemic, which had a major impact on waiting lists. In addition, the UK has got a growing and ageing population.
“Those trends are still very current. Overall, healthcare demand in the UK is growing so we see this as a really strong long-term market,” said Murphy.
Over the following 18-24 months, Assura said it would focus on strengthening its balance sheet by targeting its LTV to below 45% through the use of third-party capital and a disposals programme, which will include a mixture of portfolio and individual asset disposals.
Photo © Assura
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