Assura has agreed a deal to acquire Northwest Healthcare Properties’ UK private hospital portfolio for £500m.

To fund the deal for the 14 asset portfolio, the company plans to issue Northwest £100m in shares, refinance £266m of debt, drawn down £80m from its revolving credit facility and use £54m of cash.

Portfolio overview

• The portfolio comprises Northwest’s entire UK portfolio of 14 fully operational private hospitals with an average of 36 registered beds per hospital
• WAULT of 26 years, rent roll of £29.4m, yield on cost of 5.9% and day one rent cover of 2.3 times
• Assets located across the UK, with 64% London weighting based on latest current passing rent
• Estimated rental value of £30.2m, 3% above passing rent based on latest estimated rental value as of December 2023
• All assets annual index-linked rent reviews (60% to RPI and 40% to CPI), capped and collared, typically at 4% and 1% respectively
• All properties feature fully tenant repairing and insuring (FRI) leases
• Tenant base mostly comprising ‘tier 1’ private operators, including Nuffield Health, Circle and Spire, with 92% at ‘Good’ or ‘Outstanding’ Care Quality Commission (CQC) rating.

Rationale

The company said that the acquisition offers a number of strategic benefits including:

• Accelerating Assura’s ability to realise attractive investment characteristics of structurally supported private healthcare market:
  • The addition of a private hospital portfolio valued at over £500m represents a material expansion into the private health market in line with Assura’s strategy
  • The portfolio, combined with its existing exposure to Ramsay Health Care UK and HCA International, will enable the company to access significant relationships with all Tier 1 healthcare providers operating at scale in the UK
  • Socio-demographic drivers in the UK, and an NHS system that remains under considerable strain, are leading to growing demand across all three strands of private health (PMI, self-pay and NHS referred services)
  • Private hospitals typically benefit from long lease lengths of 25-30 years with indexed rents let to long established operators
• The Portfolio includes opportunities for asset enhancement including extensions, reconfigurations and upgrading the sustainability performance
• Improved short and long-term group financial profile:
  • proforma group rent roll will grow from £149m to £179m (c.20% increase)
  • Earnings accretive in the first full year and will enhance earnings in the medium term with rents efficiently flowing through to earnings

Balance sheet and disposals programme

Assura recently announced a joint venture with Universities Superannuation Scheme Limited (USS) to support investment in essential NHS infrastructure. This, along with this acquisition, will see the group’s property value increase to £3.2bn.

Proforma LTV following the deal will be 48%. Over the following 18-24 months, Assura intends to strengthen the balance sheet by targeting LTV to below 45% and net debt to EBITDA below 9 times through the use of third party capital and a disposals programme which will include a mixture of portfolio and individual asset disposals.

Debt terms and financing intentions

Assura has refinanced the £266m debt through a new term loan provided by Barclays Bank, which has a 110bps margin above SONIA, matures in August 2026 with an option to extend by two additional one-year periods. Interest rate swap will be taken out for full two-year period with expected rate of 4%.

The loan is repayable at any point at Assura’s discretion, with no break costs. The proceeds from the disposal programme will help to reduce net debt over the next 18-24 months.

Assura’s debt maturity profile will be 5.3 years from a weighted average maturity of 5.75 years as of 30 June 2024, with weighted average cost of debt increasing from 2.30% to 2.99%.

Northwest consideration shares

Northwest will be issued 245,298,262 new ordinary shares of Assura.Following admission, Assura will have 3,236,951,244 ordinary shares in issue, and Northwest will own around 7.6% of the company.

Jonathan Murphy, Assura chief executive, commented:

“The acquisition of Northwest’s high quality UK private hospital portfolio accelerates the delivery of our broader healthcare strategy, securing increased exposure to the structurally supported private healthcare market as we continue to diversify our offering in line with UK healthcare demands. The acquired portfolio – with long average lease length of 26 years and index-linked rent reviews – complements our existing assets and will benefit from our sector relationships, development and asset enhancement capabilities as the leading listed UK healthcare property investor and developer.  

“Expected to be earnings accretive in the first full year, the transaction offers attractive financial benefits including sustainable long-term top line growth to underpin a covered and progressive dividend policy. While the strength of our balance sheet has supported refinancing at an attractive rate, we intend to reduce our leverage in the next 18-24 months via a targeted disposal programme. 

“The portfolio’s diversified occupier base, combined with our existing private occupier mix, means we now have relationships with all tier one private healthcare providers. This represents a unique opportunity to participate in the growing demand for private healthcare services to help ease growing NHS waiting lists amidst the ongoing UK healthcare crisis.”