Assura Limited (AGR) Earnings Call Transcript & Summary

So yes, the pharmacy market is going through a lot of changes at the moment. So traditionally, in our practices, what we would have -- we would have had one of the large multiples to Lloyds or [indiscernible] and as a cornerstone pharmacy operator. A lot of those larger companies are pulling out of the market. So we're seeing the larger operators step back and smaller, locally-owned businesses coming forward and taking over those pharmacies. I think there's still a lot of potential for growth. If you look at the policy of the current government or the potential new government tomorrow, and they're all talking about expanding the role of pharmacies and the scope of services that pharmacies can provide. So I still think there is potential in that market, but we are going through a challenging period. So it's a mixed picture. So we've got some pharmacies where we are -- or as a new tenant comes in, we are having to reduce the rent to make them affordable. We've got some where we're still continuing to see growth. So it's probably a -- overall, it's a stable rather than growing rental picture, but it's a market that has gone through a lot of changes at the moment.

Given the background of inflation over the last few years, has this made any discernible difference to the district valuers office valuations when considering new developments?

So the short answer is no. And I guess the long answer is what it should do. So this is probably one of the key business challenges we have at the moment. When you look at the cumulative inflation over the last 3 years, you're looking at 30% to 40% across the board. And so bricks are costing us more, steel is costing us more, the fit-out is costing us more. And this is a big point of dispute, if you like, between us and the NHS at the moment, because on current projects, we have 34 projects on hold at the moment with the total capital spend of over GBP 170 million. And the reason why they're on hold is because we can't deliver them at the old rates, because our costs have gone up 30%. So we need a 30% increase in the rent. And that at the moment is a position that is not being accepted by the NHS and so we're not able to progress with those schemes. It's a reality, those costs have gone up, and therefore, the rents will have to go up to compensate. But at the moment, we can't build new projects at a profit. And so therefore, we're not able to proceed with those 34.

I've got two questions, which are very similar, so I'll read them both together. When do you anticipate a recovery in your share price? What do you feel will be the trigger for many REITs to get share prices back to near net asset value per share? And additionally, the progress of Assura is very encouraging, but sadly this does not appear to have been recognized by the stock market. Please, can you explain why the share price continues to disappoint?

Yes. Okay. So I guess, to start with saying, I cannot explain why the share price does not correspond with our expectations, because that ultimately is a market-driven formula that is outside of my control or, frankly, at the moment, my understanding. In terms of what is going on, I think there is, in general, in real estate, there is a general negativity towards the sector because of higher interest rates and higher inflation. So I think there's a sort of general negative background. And I think that's holding all of the whole sector down. I think what's happening -- also happening is that we are not getting the credit for our unique positioning. So we are a specialist health care investor developer. We are -- we don't have the dominant position in our market. We are delivering fantastic new projects into a market which is experiencing material growth and has a significant growth to come as well, both in GPs, but also in private hospitals in [ Ireland ] and in mental health. And we have an amazing balance sheet with the -- frankly, the best debt book in the real estate sector. And none of those things, I think, are being credited in the current environment. So when will it change? What is the catalyst, which is the other part of your question. It's very difficult to say. I think, my best guess would be that a period of stable inflation, which I think is hopefully where we are and one or two interest rate cuts, which again I think we are near to. I think we could see a rerating, not that that has any direct impact, but I think that could change the sentiment. And I guess there's also a potential that we are [indiscernible] Election Day, that is likely to be based on current estimates to be a new government tomorrow. Again, we see that as a real positive for the business in terms of stated ambition to invest in NHS community infrastructure. So again, that could be, could be a catalyst for a change in position.

And the final question I have. Sorry. I'll go to the final one. How did you select the assets to put into the JV?

Good question. So effectively, what we did was, one of the big problems with having JV is, if you have multiple pots of capital, and you don't know which assets go and which part it gets very messy, and you end up, sort of, you arguing with your investors about where they go. So what we did is we came up with some very clear criteria. So what we said was assets that are generally larger in size, and have at least 15 years leases have to be direct let to the NHS or a GP. So they wanted specific NHS exposure. And they also wanted it to have a contractual formula rental growth assumptions included. So we put all of those criteria together. And then anything that meets those criteria is what goes into the JV. And effectively what we did is we took a sample of our assets that met those criteria, seven of them, and we moved those across in the first instance. And now any new projects that we develop that meet those criteria will automatically be offered to the JV in the first instance. Yes, you have a question.

Related question. Have you had any opportunities for cooperation, possibly, with the joint ventures, but just cooperation with the likes of the Segro or Tritax. Because they've got the space and they've got lots of experiences as well. They do operate [indiscernible] Manchester, right?

Well, we have 614 assets right across the U.K. So we're very -- we're geographically neutral. We're very happy to work anywhere in the U.K. The answer is no. We haven't had specific conversations with them. We have had conversations with a number of retail property operators where they've got empty spaces in shopping centers and they said, well, we'd like you to move your medical center into our facility. We just opened the Shirley asset that I mentioned before. For example, that's actually -- it formally was an outlet. And so we have got experience of converting surplus retail spaces into health care, because that's an obvious opportunity for us. It's quite hard in practice. There's quite a lot of technical challenges with taking a shopping center and turning it into a health center, but it's definitely an area for growth. Less so on the logistics Segro and the Tritax, because, frankly, their buildings are full, and also very expensive, very high rents. And so that -- if you're a shareholder then, that's great. But it makes it harder to convert into health care spaces.

The government will improve the planning situation for you. And how long are they going to take in doing it?

Planning is not really a big problem for us, because generally speaking, planning offices don't vote against GP surgeries. And so it's not a big problem. But I think just we think, they're certainly talking about hiring more planning offices, we do experience delays because they are under resource. So that has to be positive. So yes, we are hopeful we would see an improvement.

On your point on shopping centers and other spaces, what we are seeing is the diagnostic screening end of the sector, looking at those spaces and so they have to provide the equipment into as well. So there is some movement and being able to have a diagnostic as you do a bit of shopping and things is always, of course, quite a helpful thing to do for some. Okay. So we've had the questions. I mean, I just want to summarize by saying that we are, as a Board, completely focused on long-term shareholder value. This is our purpose. But associated with that is we built the health and we are passionate as some of the questions in the room and on the screen have indicated. We are passionate about driving great spaces for the health economy in this country, be it the National Health Service, private health service, associated [ analog ] professional health services, including the education of health workers, mental health and the private sector. So it's what we're going to do. We just need to have, shall we say, the wind behind us on a number of fronts to keep doing what we are really good at doing and what we are absolutely intent on driving into the future. So I hope that is a helpful final comment on our purpose. Can I move to the formal business of the AGM, which we will now proceed to. This consists of resolution set out in the notice of meeting dated the 1st of June 2024, which was sent to shareholders with an explanatory circular and notwithstanding the comment this morning, the annual report online, but we will get hard copies presented at future meetings. As mentioned in the circular, and that's presented under Assurance Articles of Association, I direct that all business to be transacted at today's meeting be voted on by way of a poll. This will result in a more accurate reflection of the views of shareholders by ensuring that every vote is recognized, including the votes of those shareholders who have been unable to attend, but who have appointed proxies at the meeting. Shareholders present in person, corporate representatives and proxies are, of course, entitled to vote. The notice of the meeting includes 18 items of business for your consideration and explanation of each of these is set out in the AGM circular. But in summary, Resolution 1 covers our annual report and accounts for the year ended 31st of March 2024. Resolution 2 seeks approval by way of an advisory resolution of the directors' remuneration report for the year ended 31st March 2024 contained in the annual report and accounts. Resolutions 3 and 4 are audit-related resolutions. Resolutions 5 to 12 cover the reelection of Louise Fowler, Jonathan Murphy, Jayne Cottam, Jonathan Davies, Sam Barrell, Emma Cariaga, Noel Gordon and myself as directors. Resolutions 13 to 17 cover capital and other issues, including authorizations relating to the allotment of share capital, the disapplication of pre-emption rights, the repurchase of shares and the notice period for general meetings. Resolution 18 covers the change to our articles to satisfy the legal requirements of the company to register as a B Corp. Resolutions 14 to 18 are proposed as special resolutions. Does anyone either in the room or online have any questions on today's resolutions before we proceed to voting? I'll explain the voting procedure in a minute, but I'll mention now the fact that because all resolutions that we voted on by way of a poll, these resolutions will, in effect, be voted upon simultaneously rather than sequentially. So there is one opportunity to ask questions that you might have before I invite you to vote. Yes, we have a question.

This business about the B?

B Corp.

Is it explained in the annual report when I basically get one?

Yes, it is. It is. Would you like a brief explanation now?

Well, will not if everybody else in the room has any idea what B Corp is.

Well, let me. Let me because we think it's absolutely consistent with delivering long-term shareholder value. We think it's a right thing to do, but our Company Secretary, Orla, has been driving this process. I'll just give 30 seconds on.

Yes. So basically, the B Corp movement is a recognition that business should be a force for good as well as making money. You should also be looking after the people in the planet, the communities, your employees, all your stakeholders. You have to do an assessment to see whether we were a responsible business. You have to get a certain number of points and we scored far more than we needed as we already operate as a responsible business. So what we're doing now is we have to change our articles, so that we're saying we are making money for obviously for shareholders, where shareholders is important but so are all of our stakeholders, including the planet, and that's the way we operate. So it's basically making sure that businesses going forward are used for the best purpose that they can be.

As I said to a shareholder on our call last week, with 90% of our customer base being the public sector, the NHS, the intent of what we do is very consistent with that mission. And for our staff coming and joining Assura, it's equally very consistent with what people want to see organizations like us do. So we don't think it will make much difference to how we have operated for a number of years, but we think that certification and stepping up to it and demonstrating it is an important part of being a responsible business.

And I think, one of the things to highlight and probably a bit that I'm most proud about the whole process is speaking to other companies that have done this, they actually had to make quite big changes. They had to change their policies, they had to change procedures, they had to change the way they ran, but we made no changes. So we've already acting in this way and it's part of our overall belief in our overall mission and purpose. So we're really delighted that we are able to now meet that growth.

Presumably, it's all tied to Irish holdings as well. There's been no division.

Yes. It's a company-wide accreditation, yes. But it is equally positive in the average market as well to be able to represent yourself as having this statement and the accreditation as a responsible business.

Okay. So I think there are no more questions online. So I'll now explain the poll voting procedures, the company Secretary, Orla Ball, will act as scrutineer in connection with the poll. She will be assisted by our registrars, Link Asset Services. Only shareholders or their proxies or corporate representatives are entitled to vote on the poll. And to vote on the poll, you will need the poll card, which you're given when you registered today. If you wish to vote on the poll in more than one capacity, you will need a separate poll card for each capacity in which you vote. If you need a further poll card, please put your hand up, we will have one passed to you. The shareholders present who have returned the form of proxy need not complete the poll card unless you wish to alter your voting instructions based on being here this morning. However, if a shareholder now completes a poll card, any proxy vote given by that shareholder will be then canceled. When the poll commences, you should insert in your poll card, in the places indicated the full name of the shareholder. If you are using a poll card to vote only some of the shares registered in the shareholders named but not all of them, the number of shares that you are voting with the card and across in respect of each resolution to indicate that you are voting for or against that resolution or withholding your vote. If you wish to vote some shares for a resolution and other shares against it, you should insert the relevant number of shares alongside the separate crosses that you insert for that resolution. You should then sign the card in the place indicated and the cards will be collected at the end of the poll procedure when I have declared the poll closed. Does anybody have questions on that poll process? Okay. Can I suggest that we commence that the poll process then for the shareholders present this morning. [Voting]

Put more ticks and crosses in the box and you do have the polling stations during the course of the day. How are we doing? Are we completed on our polling? Okay. Thank you. So I think we are done. And as there are no more poll cards to be completed, the poll is now closed. The results of the poll will be determined by Ms. Ball, as scrutineer. This will take some time. The results will be announced by RNS as soon as practical. We believe that will be sometime during the course of the afternoon later today. We'd like to see any details of the valid proxy votes lodged or the relevant proxy cut -- relevant proxy cutoff time. These are available from Ms. Ball. And that concludes the Annual General Meeting for this year. Thank you for attending. Thank you for the questions. Thank you.

Thank you very much to the Board for updating attendees today. Could I please ask attendees not to close this session as you will now be automatically redirected to provide your feedback in order that for Board can better understand your views and expectations. This will only take a few moments to complete. And I'm sure it'll be greatly valued by the company. On behalf of the Board of Assura plc, we'd like to thank you for attending today's Annual General Meeting, and good morning to you all.