Assura Limited (AGR) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Assura Plc investor presentation. [Operator Instructions] The company may not be in a position to answer every question we receive during the meeting itself, however, the company review all questions submitted today and publish responses where it's appropriate to do so. These will be available via an Investor Meet company dashboard, and you'll receive a notification once they're ready for your review. I'd also I'd like to remind you this presentation is being recorded. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Jonathan Murphy, CEO; and Jayne Cottam, CFO of Assura Plc. Good afternoon.

Good afternoon. Welcome to Assura's investor presentation. Delighted that you've taken the time to join us today. So my name is Jonathan Murphy. I'm the CEO of Assura. So I'm going to start today's presentation with a brief overview about the business and the market that we operate in. I'll then pass over to Jayne Cottam, the CFO, to take you through some of the financials and our recent performance in detail. And then I'll come back to wrap up the presentation with a view on the forward-looking view as to where the market is, trends that we're seeing in the market and future impact on the business. So starting with position of Assura, I think there are a few elements about our business model, which really set us apart from the competition. And this is where I'd like to start the discussion. So first of all, we are obviously a property business. We are an investor developer. But we pride ourselves very much on taking a partnership approach. So we work with our customers to help them in terms of designing the property solutions that they need and then looking to deliver those for them in the most efficient way possible. Now a key part of that is our wider commitment, not just to profit but also to what we describe as social impact. We have a major program, which we launched last year called our sixbysix Initiative, and I will come on and explain that in a little bit more detail later. But that's a core part of our business is the fact that we offer both profit, but also a broader social impact on top of that. Another element that is quite distinctive is the fact that we act as developer in many of our instances. So i.e., we design and we build and then we manage thereafter. So we are involved in all the stages, and we've got an in-house team that is able to deliver these new schemes for the NHS and the local health economy. The final point here is we maintain a conservative financing structure with a very strong balance sheet. And Jayne will talk you through that in more detail later. In terms of our market, there are a couple of key areas that just need to pull out. The first one is the nature of the leases. So they're very long term with 21 years being the average. We have a predominantly NHS occupier base. So 84% of our rents is linked to the NHS. So you have a long lease. You have a very secure tenant. And as a result of that, you also have a very low default risk because the NHS is an excellent payer. You have a rent review cycle, which is every 3 years, which means that you capture any rental reversion in a relatively quick way. And there is an indirect linkage to construction cost, which I'm happy to explain later. So very strong leases, but you also have very strong demand. So we've got an aging population. We've got a growing population. The over 85s are predicted to double by 2040. This will inevitably place strains and demands upon our health system. Part of that, to meet that demand is the need for more services delivered in communities and out of hospital. That requires significant investment into the primary care infrastructure in the U.K. So as a result of this, what we're seeing is the need for new developments is increasing, and Assura is very well placed to meet that. The final point is that these 2 factors together, so very strong underlying leases, very strong demand and no speculative supply, means that we have a very strong risk-adjusted returns in the business. We are a specialist, and we are an expert in our area, and that provides us with a barrier to entry to new players. So the combination of all these factors is what enables us to deliver very stable and very predictable returns in the ordinary course. So if you look at our track record over the last 10 years, the data set from MSCI, which looks at all different types of asset classes, records primary health care as having the second highest level of return, that's 8% over the last 10 years, but the lowest level of volatility. And that's why we talk about strong risk-adjusted returns. In terms of Assura's position, we have a nationwide portfolio of assets, just under 600, with a rent roll of GBP 118 million and a value of GBP 2.3 billion. Very resilient income profile with 84% linked to the NHS and a long lease profile with just under 12 years and 98% let. That's built on our very strong relationships that we have with the GPs and the NHS. That commitment to social impact that I mentioned aligns us with the values and culture of the NHS. And our capability of development, management and investment means that we've got the right skills as a property partner to support our customers. This very strong capability is what has enabled us to grow the business so successfully over the last decade. And it also means that we're ideally placed to support the future requirements as we look forward. The financial strength is also crucial. So we've got a loan-to-value ratio in our most recently published numbers of 33% with an interest cover of 3.5x and an investment-grade rating from Fitch of A-, which sets us apart and provides us access to very well-priced financing, which Jayne will come on to later. Just to give you an idea of the type of assets that we develop and manage. On the screen here, you can see quite a range. I think there's often a misconception that there's -- the only future for medical centers is very large hubs in urban locations. Actually, different things are required in different locations. So on the far left here, in Stow-on-the-Wold, it's a relatively small development, which is ideal for that community in that location. If you go to the far right, that's a sort of almost like a hospital replacement type facility that provides a massive range of services to a large number of patients. So it's about having the right asset in the right location. I'd just like now to cover briefly our response to the COVID pandemic and what we have done as a business over the last year. Virtually, in the last day, we've just gone just come past the anniversary of when we closed the office. So the team reacted and responded to working remotely, and we look to support our customers wherever we could. So that could involve things like separate entrances and exits for the GPs, installing intercoms to control access to buildings, helping them with improved infection control and creating separate spaces within their buildings for those patients who are being treated for COVID and those patients who are not. Our customers continue to pay their rents all the way through. We had very little disruption to our rent collection, and rental concessions have been agreed at less than GBP 0.1 million. In terms of developments, we had to modify the way we work. We had to install new safety measures in our sites to make sure that we were maintaining social distancing. And obviously, we had to reduce the number of people able to work on-site at any one time. Inevitably, that involved minor delays and also minor design adaptations where necessary. So for example, those -- creation of those separate hot and cold zones, if you like, for COVID and non-COVID patients. This was very much, though, in line with our general response and our general attitude, which is to constantly look for new ways of delivering medical centers and looking at ways of innovating, creating a more friendly patient-supportive environment. And that's something that you'll see. If you look on our website, we've got a surgery of the future concept where we encapsulate many of these ideas about the future delivery of primary care. I referenced earlier the importance for us of social impact. And for us, this is encapsulated in what we describe as our sixbysix Pledge. This is broadly -- you can broadly group this into 2 areas. The first one is our commitment to our communities. So we created the Assura Community Fund last year, and we invested -- we donated, rather, GBP 2.5 million to that fund to support health and wellness initiatives in those communities close to our buildings. We also have a second commitment, which is around sustainability, and that involves us committing to developing a zero-carbon building -- developing and building a zero-carbon building within the next 6 years. Clearly, a lot of work is still to be done, but a significant commitment. We also focus on improving the sustainability of our current state. And so we have set ourselves a target of an EPC rating of B across our portfolio. To give you an idea of a few of the things we've already been able to achieve this year, as I've already mentioned, we made our initial GBP 2.5 million donation to the community fund, and that's been able to support those groups most affected by the pandemic. So in particular, people suffering from mental illness issues and loneliness. And we've also redoubled our efforts in terms of our sustainability by signing up to the World Green Building Council Net Zero Carbon pledge to be achieved by 2030. So hopefully, that gives you an indication of our commitment to social impact. I'd now like to pass over to Jayne to take you through some of the financials of the business. Jayne?

Thank you, Jonathan. Good afternoon, everyone. It's good to welcome you all here today. I'm Jayne Cottam. I'm the CFO. I'm going to take you through a brief overview of our financial performance over the last few years and also just highlight our pipelines and the strength of our balance sheet. So as you can see from the graphs on here, we've got a very strong record -- track record over the last 5 years. The graph on the top left looks at our portfolio. And you can see the portfolio has grown from GBP 1.1 billion to at GBP 2.3 billion. So it's double -- more than doubled in that time at a compound annual growth rate of 17% since 2016. But whilst growing that, we've also managed to maintain our costs and get some economies of scale. So if we look at the bottom left, and we have our EPRA cost ratio, we are industry-leading in this area. So our EPRA cost ratio prior to March '17 was over 20%. It came down to 13.7%, and now it sits at 12.5%. And as we continue to grow the business, we do continue to expect to maintain that EPRA cost ratio. There are 2 bars on that chart there, and one is excluding our development team. And just to give you a little bit more detail, we don't capitalize our development team costs. We're very prudent in terms of how we recognize our cost and therefore, other developers do capitalize their costs. So we have excluded that. And on that basis, our cost ratio would be down at 11%, which, again, is industry leading. And so if we take the chart on our top right, you can see that our EPRA net tangible value per share has grown on a compound growth rate of 5% over the last 5 years from 45.8p to 56.2p. And what that does is that drives our growth, our earnings, driving our dividend growth. And on the bottom right there, you can see that our EPRA earnings per share and our dividend per share since 2015 has grown by 8% for the dividends and 6% for earnings. Now we have a dividend policy to provide progressive and growing dividends for our shareholders, and we expect to pass on our earnings growth in the form of dividend growth to our shareholders. So if we go back to April of 2020 and the beginning of our financial year, we raised equity of GBP 185 million. And what these charts are showing you is how we said we would deploy that capital. And I'm really pleased to say that actually, we are deploying that equity ahead of our expectations. So if we take the developments at the equity placing, we have 15 developments on site. We -- for GBP 81 million, and we had a pipeline of GBP 77 million. If we fast forward for the first 9 months, we've actually completed 9 developments, and we've moved a further 9 developments on to site. We are still with 15 developments at GBP 71 million on-site as at the end of December. However, from December to March, we do expect to increase these numbers. And this will be our strongest year for development that the business has ever had and it's a fantastic outcome, which we're delighted with. Looking at our acquisitions. This is where we buy stand-alone existing assets. So we had an immediate pipeline of GBP 67 million at the time of the equity placing. So what does that mean? Those assets have to be in legal hands where the terms are agreed, and we're pretty certain of those acquisitions going ahead, and they would complete within 3 to 6 months. If we look at the 9-month period, we actually acquired 36 assets for a total of GBP 169 million, and we had an GBP 80 million immediate pipeline. Again, meaning that we would expect to deploy that capital and acquire those assets within 3 to 6 months. And indeed, some of the GBP 80 million, we have already completed before our year-end. And then the final part on there are our asset enhancement initiatives. So we have 22 projects with GBP 17 million projected to spend over 2 years. Now these projects are mainly physical extensions to existing buildings. So not all surgeries require a brand-new building. Some will absolutely be brought up to date and fit-for-purpose with a few extra consulting rooms, and this is where we are experts and we can absolutely drive those projects forward. We've completed 4 projects in the year, and we still have 19 projects in our pipeline for the next 2 years. So we're all about long-term income, and we are always looking at long-term cash flows. Therefore, if you look at our total contracted rental income, we have just under GBP 1.5 billion contracted to us as I stand here today. What does that mean? That means if we did nothing else, then the business is due to receive GBP 1.5 billion in rent in the next 10 years or so. And the chart on the right shows our weighted average unexpired lease term history. So basically, we started at 13.2 years in March '17. And had we not done anything else, that number would come down by a year every year. However, with the work that we're doing on our asset enhancement initiatives, with our acquisition program and our development pipeline, we have managed to stop the reduction in that number, and it's actually only reduced by just over a year in a 3.5-year period. And indeed, at the year-end for March '20, our unexpired lease term was 11.7 years. And in the first half, we actually managed to increase that to 11.9 years. And that's a fantastic result for the business, and it's something that we're aiming to do going forward as we continue with those long, strong cash flows for the future. Just taking a look at our balance sheet. So we pride ourselves on having a very strong financial position. So if you look at the chart there, you can see over the last 5 years, our loan-to-value has fallen from just under 50% to a 33% as of the last reporting period in September. And indeed, our weighted average interest rate has fallen from an excess of 5% to 2.68%. The business started on a journey about 5 years ago to move from a secured to an unsecured funding structure. So that's where every asset was secured by way of mortgage, and that led to it being very inflexible, very difficult to do anything with those assets. So now we have this fully unsecured funding structure. It gives us the flexibility. We have been able to secure an A- rating from Fitch. What that does is that enables us to access different pools of capital. So we have private placements. We have public bonds, one of which I'll come on to in a moment. And we also have a revolving credit facility of GBP 225 million from our 4 partner banks. So you can see, we are very well capitalized, and we have access to various different pools of capital as the business continues to grow. Our loan-to-value at 33% is below our guidance. So we have guidance, which allows us to go to 50%. However, we prefer to move in and around 40%. The 50% gives us the flexibility should we require it. However, we have been operating in and around 40% for a number of years now. So just to give you some context, that gives us GBP 275 million of headroom before we reach our 40% loan-to-value. So back in September, we launched our first social bond. So what is a social bond? This is where we created a social finance framework, and we committed to use the proceeds in alignment with the U.N. Sustainable Development Goals. Goal #3, which is access to essential services i.e. health care. So we have to use the proceeds and that are eligible for our acquisition developments and some of our refurbishments activity of our primary care and community health care buildings. So this aligns with our sixbysix Pledge. But going out to the corporate bond markets, this was very new and a first for the real estate business. However, we experienced incredibly strong demand from the debt market. The transaction was heavily oversubscribed with an order book almost at GBP 2 billion. And we managed to fix the GBP 300 million bond at a fixed coupon for 10 years of 1.5%, which for us is a fantastic business. And we definitely believe that we have a funding, a pricing advantage upon this transaction by taking this approach. And this is going to be our approach going forward, we expect to -- when we raise our future debt to be in line with social and sustainable goals. So this slide is just looking at our development pipeline. You heard me talk earlier about what was on-site and about our immediate pipeline to be in our immediate pipeline. So the GBP 65 million that you can see there, means that we expect to be on-site with a spade in the ground within the next 12 months. An extended pipeline of GBP 207 million means we are the preferred contractor. We are working with the NHS and the GPs, and we're going through the relevant planning and approval processes, but we expect to be on-site after the 12-month period. So therefore, you can see there, we have a pipeline of GBP 349 million, which is a great pipeline. And then back in February, just -- we acquired Apollo. Apollo are a leading developer of primary care assets in our space, and they bring along a further GBP 50 million pipeline, which isn't included in the chart there, but we will update everything along in there. And if we look along the bottom, you can see the cost of our development completions. And just looking at September '20 there on the right, we have GBP 38 million of completions in the first half, and that is the strongest year we've ever had. This slide just looks at some of the innovative design of features that we like to bring out within our buildings. It's not just about sustainability. It's about that social impact. So if we take the property on the top left there at Cinderford, we designed this to be the first dementia-friendly medical center in the U.K. So we work with Dementia U.K. looking at the signage, looking at way finding in the business -- in building, apologies. And that has been a huge success, and we hope to roll that out to further buildings within our estate, and it is very much seen as a flagship asset. An asset on the right, Netherfield, again, this -- looking at some innovative designs to provide an interactive child learning center, some diagnostic pods and also to provide the space for local social prescribing groups to make that building a real asset to its community. And then looking at the bottom to Stow-on-the-Wold in Tonbridge, there's very much a focus here on the sustainability element. So they're both BREEAM Excellent buildings. And on the left, it was a focus on a low ecological impact because it's in a row and you see -- and it's only a small asset. And on the right, it was looking at bringing an all-electric energy solution to the building and looking at how we could save that practice cost in use for the building going forward, very much setting it up for the future on a highly sustainable building. And with that, I hand you back over to Jonathan.

Thanks, Jayne. So I'd now like to turn to another key part of the business, which is we've talked about new developments, which is obviously creating brand-new facilities for patients and for the NHS. But also one of our key areas is looking after the existing just under 600 buildings and making sure those are fit-for-purpose for their future requirements. And often, an improvement or enhancement to an existing building is exactly the right solution in that location rather than necessarily developing and building a brand-new facility. So if we look at the 2 examples you've got on the screen here, Eastfield Medical Centre in Scarborough and Threeways Surgery in Stoke Poges, both of these were very, very well-supported practices that we're encountering overcrowding and restrictions on facilities that they were -- services they were able to provide. And so in both cases, we provided them with a physical extension and enhancement to their existing facility to enable them to increase the range of services and to continue to grow the number of patients that they look after. So we funded all of those elements. And in return for the new space, we will have received additional rent. And for the refurbished areas, we received an extension on the lease. So in this way, we benefit from increased rent on the new space and an extension to the lease on that, that we've refurbished. So a clear example of where we benefit from more secure long-term income and the practices benefit from an improved facility to help them serving their patients. Another key area, which Jayne has already talked about, is the need for us to focus on long-term income streams. And so to maintain our lease lending to continue to provide that return for investors, we're constantly talking to our customers about the potential for lease regears. So that means taking the lease and extending it back to its original terms. So the classic example here is you've got a lease where you just dropped below 10 years. And we approach the practice. We propose some modest improvements to the buildings. And in return, we extend the lease back out to 21 years. So within that, you obviously have an investor benefit from future and secure income streams, and the practice benefits from a modest improvement in their facility. So we've done 13 lease regears completed year-to-date and a really strong pipeline of activity, with 42 lease regears the planning. 13 regears of the first physical extension and that's enhancement that I've already mentioned and given you the example of Eastfield and Threeways Surgery. So it's not just about building the new buildings. It's also about improving our existing portfolio, and this remains a key focus for us. And just to give you an idea, at the bottom there, you can see we made a GBP 10 million valuation gain as a result of this type of activity in the first half. In terms of what we're seeing in the market, it will be useful just to touch on some of the trends that are affecting the sector and also to highlight that really, like many sectors, COVID has greatly impacted and disrupted the business but it's also accelerated a lot of trends that actually were already there, but perhaps moving at a little slower pace. So for example, if we focus on the sort of requirement for services. You've got a backlog of treatments in hospitals, which means that, that is going to result in an increased demand for services outside of hospital. And the most obvious location for those treatments to take place is in 1 of our mega modern medical centers with a wide range of consulting rooms and potentially even extended services like minor surgery or diagnostics and testing. So those sort of trends that you will be reading about, about delayed, potential delays, some hospital treatments. If some of those could be brought out of the hospital and delivered in a community setting, then that could be beneficial to the system and are clearly would provide and underpin for -- and demand for our real estate. The other key thing that's happened across the board is the increased use of technology. We're having this conversation now on a screen. A year ago, this wouldn't have even been something that we would have considered as a model for delivering this type of presentation. Well, it's exactly the same in the clinical environment. So we've moved very quickly to adopting digital consultations. At one point, in the early first lockdown, it was a very high percentage of consultations. And the BMA is suggesting that maybe this might stabilize around about the half and half area. So you could have 50% of your consultation would be a video or telephone call, triage. And then where it's necessary for you to come in and have a physical consultation, that will continue to be done in the ordinary course in our type of facility. Crucially, when you do come in, we also then need to make sure that we're able to then provide a broad range of services and testing to make sure that we minimize the follow-on treatment that you might need in a hospital. So if we can make the community facilities even more relevant, then that will provide a further range of services and treatments for the patients in the community rather than in the hospital. So that's another key trend that we're seeing. The last point here on the slide is just the really -- remaining underspend in our facilities. I mean, there are lots of people on the call. You'll have a completely different range of access to medical centers. Some of you will have fantastic modern facilities, but many of you, I'm afraid to say, statistically are likely to be having treatment at an outdated unsuitable premises. 25% of all medical centers in the U.K. predate the existence of the NHS. That's pre-1948. So that's clearly not a fit in suitable a state for a modern health system. And you can see here, the BMA in the most recent submission to the treasury recommended GBP 1 billion investment, not to future proof, not to make the system the best in the world, but just to bring us up to scratch in terms of essential repairs and maintenance as required. In terms of Assura's offer, just wanted to highlight another trend that we're seeing. So we traditionally have provided our services, our property partner services exclusively to GPs. Now what we're finding is, increasingly, there's greater cooperation between GPs and the NHS trusts and hospitals. And as a result, we are providing -- extending our range of services to also provide property partnering services to those groups as well. So you can see on the slide there on the left, the Durham Diagnostics and Treatment Center, this is a facility that we delivered in 2018. This provides outpatient services, day case surgery and also a dialysis center that's open 24/7. It's located not on a hospital site, but on an industrial park just on the outskirts of Durham. So a convenient location for patients to access. That type of cooperation, that type of services coming out of hospitals and into the community is exactly the sort of thing that we expect to do more of as we go forward. So hopefully, that's given you an introduction to the range of services that Assura offers, the attractive long-term income profile that we offer to investors and also some of that potential for future growth. So a very strong and stable platform, but also a lot of opportunity for further innovation, for further investment in new types of facilities and improving existing ones. And our long-term relationships with doctors and our long track record means we're ideally placed to provide that support and to provide those services and deliver the assets that the system requires. A key part of that is our development capability, the fact that we have a very strong in-house development team with an excellent track record means that we'll be able to continue to promote that offering to the NHS and ensure that we continue to grow our pipeline, which is already the strongest that it's ever been in our history, but we actually think there's still significant potential for growth there. A key part of our is not just about pursuing profit but also about being very mindful of the potential for positive impact on the communities we serve. So we will continue to make that commitment, looking for sustainability improvements wherever we can, continuing to support our community fund and supporting the health systems through the quality of the offer that we can provide. And finally, all of these things have to be built on a strong financial position on solid financials, on consistent and secure growth for our investors, and that's still off a very strong platform, our A- rating, which means that we are ideally positioned to take advantage of those opportunities going forward. So thank you very much for listening. That concludes our run-through of the presentation, and we'll now move to some questions.

Jonathan, Jayne, thank you very much indeed for your presentation. [Operator Instructions] I just want the company to take a few moments to review those investor questions submitted. I'd like to remind you that a recording of the presentation, along with a copy of the slides and the published Q&A, can be accessed via our Investor dashboard on the Investor company platform. I'd also like to remind you that your feedback is important to the company. And immediately after the presentation has ended, you will be redirected for the opportunity to provide feedback in order for the company can better understand your views and expectations. And Jonathan, Jayne, perhaps before we start with the live Q&A that we've had, we did have a presubmitted question from an investor. If I could just address this one to you. It reads as follow: what threat do Livi and the acquisition of GP practices by corporate pose to the Assura business model?

Great. Thank you. So Livi is one of the online health care providers. So there's a number of players in that space. There's Livi. You might have heard of GP at hand. There's also another one called Push Doctor. So that effectively -- the delivery mechanism for you to have online consultations with your GPs. So that really talks to the point about the digital mix going forward that I referenced in the slides and the fact that we've swung during the pandemic to an almost exclusively remote and digital delivery model. And then we've swung back to sort of a hybrid. And we absolutely think that hybrid is where we'll land. So what does that mean for us as a business? Well, it means that we need to make sure that the premises that we're offering have the capability to support that digital offer. So that could be greater facilities for the doctor. So they've got access to video conferences. Sorry, it's not video conferencing, really. It's just somewhere quiet to do video calls. But they've got access to that type of facility. They've got the right technology in the building to make sure they can share records and share information and share best practice, which is crucial. And also to make sure that the facilities have got the latest access to sharing information with hospitals to make sure that they can deliver more of those services that I referenced. So that would be my overall response to the point about the potential impact of Livi and that whole kind of digital online world. So just turning, there's quite a lot of questions coming through, so we can't promise to get through all of them, but I will -- we will get through as many as we can. So the first one is from Matthew, and he's asking about the EPCs. How long it will take to get the portfolio up to that level of B that I referenced? And how much that would cost? So excellent question. The short answer is we don't have that full information right now. So the issue being that we have 600 assets in the portfolio. And traditionally, we didn't have the EPC information for all of them. We've undertook a survey of every single 1 of the buildings. We have got 85% -- 80% of those complete. We'll have the full 100% done by the year-end. And then there's a process to go through to then aggregate all those and look at the costs. So it's an excellent question. It's one we're very keen to answer. We're just not in a position to answer right now. If you come back and have a look at our full year results, we'll be able to give you an update, and we'll be able to announce the full details shortly thereafter. So we've set ourselves quite an ambitious target without full visibility, but we're confident based on what we already had that we should be able to deliver that. So the next one is about -- is from Simon, and he's asking about the competitive landscape and what we see as the biggest challenge moving forward. So in terms of competitive landscape, I guess, probably the thing there to highlight is those secure long-term cash flows that Jayne has referenced are obviously really attractive right now. It's a very challenged economic backdrop. Other property sectors have come under pressure. And this type of asset has become more popular. So we've definitely seen increased competition. That's a fair observation. More people looking to buy assets, so prices have increased a little bit over the last 12 months. And we are now finding, whereas previously, there was only a handful of bidders on assets, there's now maybe 4 or 5 on each building. So it's not an avalanche of new entrants, but there's definitely an increase -- increased competitive pressure. So a very good observation. And in terms of the biggest challenge, I guess, really, it's probably that digital challenge, making sure that we remain up to date, make sure that we're helping our customers remain on top of the digital offer to make sure they're staying relevant to their patients. And that's something we're absolutely standing ready to support going forward. What I would say there is there has been this acceleration over the last 12 months, but the NHS generally moves incredibly slowly. So I think this will be -- even though we have this sort of one-off boost to the acceleration of digital take up, it will be more gradual from here. So it's absolutely coming, but it's not going to be overnight, and we'll continue to support wherever we can. So just moving on the next question. It's from Nick, and he's asking about how much of the current portfolio can you develop and expand? And does this offer better returns? So there is a difference between development returns and portfolio returns. I might ask Jayne just to cover that in more detail. So that's looking at how much we make from our developments and how much we make from our asset enhancements. Is that right, Jayne?

No. Absolutely no problem. Thanks, Jonathan. So if we take our developments, we talk about developing an asset, which typically at an in-house development, we get 100 basis points on average betterment on the yield for that asset. So it's a very good business for us. If that asset was to be acquired as brand new, the yield would be in the low 4%. And therefore, we would develop that at just over 5%. Now when it comes to the actual extensions, the physical extensions, the returns on those can actually be a lot higher. And you'll see from the notes earlier that returns on those evaluation uplift is quite significant on some of those assets. So on an asset-by-asset basis, it does offer better returns. However, the number of assets within the portfolio that can be developed and the size of that development, they're very small schemes, maybe anything from GBP 0.5 million. Some of the larger ones, maybe a few million pounds. But on the asset, it drives a much -- a very strong return. And in some cases, we can get anywhere between 100 and 175-ish basis points betterment on the yield on those assets. So again, very good business because we own the land already. And then obviously, we can rentalize that space, so it does drive a very strong return for us. And in terms of how much within the portfolio can we do? Well, we're constantly looking at this. So we do have a number of assets, but it's whether there is a need within that community, it's not whether there's a space with the asset or whether we think we could do it. It's actually, we need to actually go further than that a little bit more granular detail with the practice to see if there's actually a need for that physical extension. And that's -- we've got 22 schemes that we started with. We completed 4. We've got 19 schemes in the pipeline. And I know that our team are working on many more schemes going forward.

Great. Thanks, Jayne. So next question is from Colin, and it's about build-cost inflation, and do we expect it to be reflected in district value judgments? And are we satisfied that this has been the case in the past? So this reflects, what I talked about in the presentation about this indirect linkage between construction cost inflation and rental growth. So when we build a brand-new medical center, we negotiate with the NHS about the opening rent for that facility, and we do so on an open book basis. And so in a rising cost environment, you would expect year-on-year, if inflation is rising, that therefore, the rents would rise as well. So this is the model that we work towards. Now there is -- there are a couple of challenges here. One is you need to have a new build in your location to be able to demonstrate that evidence to the local district value who sets the rents or who you negotiate the rents with. And the other thing is the delay. So sometimes there can be a gap between the rising costs and actually capturing that in rental growth. So if you look at our most recent published numbers, we generated an open market rental uplift of 1.2%. So that is a little bit behind construction cost inflation over the last year or so. It's actually running quite a bit ahead of that. So there are a couple of factors at play here. One is, I talked about the open book basis. So you share the costs. And then what you do is you then apply yield to those costs to generate the opening rent. So in a rising price environment where the values of medical centers are rising, then the yields will be reducing. So you get that sort of counter punch, if you like. So you've got rising inflation, which should push rents up. But actually rising values actually push rents down because that initial yield is a lower yield. So -- but overall, we're still seeing modest growth. The other factor that's probably slowed us down a little bit is we have seen a bit of a delay due to COVID. So inevitably, you understand that all these conversations have to go through the NHS. And clearly, the NHS bureaucracy has had other things to worry about in the last 12 months. And quite rightly, they have de-prioritized dealing with things like our rent review queries. So there's been a little bit of a bureaucratic delay as well. But overall, that whole system, the linkage of construction cost inflation to rental growth, do we still believe that holds? Absolutely. Is it really -- is it a really clean, linear correlation? No, and that's because of the lack of data points you need. You need a good cross action around the country. And there's always that bit of delay. So it's a frustrating picture, but the overall trend remains a positive one. So we still -- absolutely still are confident about the future outlook for rental growth. So moving on to a question from Abby. How do you see the mix of growth moving forward? Is it mainly through organic growth? Or is there any opportunity for growth through M&A? And do you see mental health as a particular area of growth? An excellent set of questions. So first one is organic growth. So we've spoken about the fact that the rental growth I've just referenced, Jayne spoke very clearly about the asset enhancement opportunity, which are very substantial on a percentage uplift basis, but relatively insubstantial in terms of quantum because they're quite small schemes. So it's a really important area, but it's not that material to the portfolio. So you got your rental growth. You've got -- it has enhancement. You've got all lease regears. So we're constantly working to improve as many of our 600 buildings as we can. And that provides you with a very solid underpinning in your return. And then the thing that has really probably driven the growth most over the last 5 years has been our ability to buy assets in the market, secure assets. We don't have to add proportionately to our cost base, so we can collect the rents more efficiently. We don't have to -- we don't -- we won't lose. Proportionately, we lose less from our overhead cost because a lot of it is fixed. And so we've been able to drive quite significant earnings growth from that combination over the last 5 years. We've got a very strong year this year on acquisitions, and we see a competitive environment, but there's still plenty of potential for us to continue to do that. In terms of large-scale deals, this is much harder. So 5 years ago, there were probably 20 large portfolios of medical center assets in the U.K. Right now, there's -- we're down to 3 or 4. So there's already been quite a bit of consolidation. So large-scale M&A, rather challenging, continued expansion through acquisitions, absolutely. Mental health, that's a really interesting question. So I think with what we're going to see, there's going to be some real challenges for the country for rental health as we come out of the pandemic. We're talking -- the NHS is talking about trying to break down some of the barriers to people that were seeking help for mental health. And one of the ways of doing that is to integrate mental health into our normal medical centers. So we have a handful of sites at the moment where there is canceling services on-site in a GP surgery and I think this is a fantastic model. So I think it's very likely that mental health and primary care will become much more involved and much more integrated in the future. And if that is the case, then absolutely, that is something we've been very supportive of. I'm very happy to look at those types of extensions or new assets to support that. We have also seen some standalone mental health assets. So we do have One Century in Wakefield. You look at the building, it just looks like a GP surgery. It's not. It's actually a counseling center for a local mental health trust. That type of facility is absolutely the type of thing we might look at in the future. So expect to hear a lot more about the role of mental health going forward. So the next question is Colin. What I might do is I'd like to ask Jayne to take this one. So this is at what lot size would you expect to see increased competition in acquisitions from institutional investors? Do you want to take that, Jayne?