25 March 2024
The
information contained in this announcement is restricted and is not
for publication, release or distribution in the United States of
America, any member state of the European Economic Area (other than
the Republic of Ireland or the Netherlands and then only to
professional investors in such jurisdictions), Canada, Australia,
Japan or the Republic of South Africa.
Impact Healthcare REIT
plc
("Impact" or the
"Company" or, together with
its subsidiaries, the "Group")
ANNUAL RESULTS FOR THE 12
MONTHS ENDED 31 DECEMBER 2023
Financial and operational
gains with improved rent cover
Impact Healthcare REIT plc
(ticker: IHR), the real estate investment trust
which gives investors exposure to a diversified portfolio of UK
healthcare real estate assets, with a focus on care homes,
today announces the Company's annual results for
the year ended 31 December 2023.
Summary of 2023
Our tenants continued to improve
their performance with higher care home occupancy and increased
fees to residents, as inflation peaked in the year. Our rent
increases are largely capped at 4%, so this helps tenants' rent
cover, and makes our income more secure. Boosted by an acquisition,
our total rent roll grew strongly, and this has flowed through to
both earnings and dividend growth.
Statutory profit before tax was up
by 189% over the previous year, but this is flattered by
revaluation movements. Adjusted earnings per share gives the best
view of underlying performance, and it grew by 2.4%. We therefore
met our dividend target, whilst still 108% covered by adjusted
earnings.
Rental growth from the
inflation-linkage in all of our leases drove up the value of our
property investments by 4.1% on a like-for-like basis. This in turn
grew NAV per share by 4.7% to 115.38 pence. Including the benefit
of our dividend meant that total accounting return was 10.8% for
the year.
Our dividend
target for 2024 is 6.95 pence1, up 2.7% on
2023.
Strategic Priorities
These are our strategic priorities,
with an update on how they have fared in 2023:
· Growing our business: With a net increase of five homes taking
our total to 140 properties and over 7,700 completed beds and
contracted rent up 13.2% to £48.8 million2. Further
growth was constrained by the general economic situation and the
share price.
· Working with our tenants: They have successfully increased
fees and occupancy in the year broadly in line with inflation,
whilst reducing their dependency on expensive agency staff. Our
weighted average unexpired lease term lengthened to 20.8 years
(19.7 years in 2022). We managed the transfer of one failing
tenant3 as part of a recovery programme while achieving
99% rent collection across the portfolio.
· Improving the quality of our portfolio: We approved £11.7
million of new asset management projects that will increase the
number of available beds and improve EPC ratings. The growing
strength of our portfolio and its ability to generate stable and
growing income enabled EPRA topped-up net initial yield to firm up
to 6.9%.
· Maintaining the affordability of our rents: Our tenants'
improved operational performance, alongside the 4% rent cap, led to
rent cover4 rising to 2.0x in the year, the highest
annual cover since we listed in 2017. Rent cover was 2.2x in the
second half of 2023.
· Enhancing our environmental sustainability: We increased the
percentage of our homes rated EPC B or higher to 57% (up from
53%). We have set a target of achieving net zero status by
2045 with an interim target of a 15% reduction in absolute carbon
emissions on a like-for-like basis by 2025.
Our strategic priorities are
supported by our balance sheet with low gearing. We have £250
million of committed debt facilities and a weighted average term of
6.3 years. Drawn debt was £184.8 million at a 4.56% average cost,
and 95% of our drawn debt facilities are
fixed or hedged against interest rate rises. At the year-end
our EPRA (net) LTV was 27.8%.
Simon Laffin, Chair, commented;
"Our aim is to work with our tenants
to provide quality, affordable and sustainable care homes. The
country needs a thriving and growing care home sector. The private
sector can play an even more significant role in providing care for
elderly people and helping the NHS, deploying capital and resources
to enhance and grow affordable care home provision. By offering
more step-down, nursing and residential care for elderly people,
the sector has the medium-term potential to take tens of thousands
of patients out of hospital beds: freeing up NHS resources and
reducing costs.
As the economy recovers from 2023's
high inflation and interest rate rises, and as government begins to
recognise the larger role that this sector can play in the health
infrastructure we believe that there will be opportunities for
Impact. We are well positioned to play a larger role in helping
both residents and the NHS, whilst delivering long-term sustainable
returns to shareholders."
Financial Highlights
|
Year ended
31 December
2023
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Year ended
31 December
2022
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Change
|
Dividends declared per
share
|
6.77p
|
6.54p
|
+3.5%
|
Profit before tax
|
£48.8m
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£16.9m
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+188.8%
|
Earnings per share ("EPS")
|
11.79p
|
4.33p
|
+172.3%
|
EPRA EPS
|
8.33p
|
8.37p
|
-0.5%
|
Adjusted earnings per
share
|
7.28p
|
7.11p
|
+2.4%
|
Adjusted earnings dividend
cover
|
108%
|
109%
|
|
Contracted annual rent
roll2
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£48.8m
|
£43.1m
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+13.2%
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Property
Investments5
|
£651.3m
|
£568.8m
|
+14.5%
|
Net asset value ("NAV") per
share
|
115.38p
|
110.17p
|
+4.7%
|
EPRA (net) LTV
|
27.8%
|
24.1%
|
+3.7%
pts
|
Total accounting return
|
10.82%
|
3.78%
|
+7.0%
pts
|
Cash
|
£9.4m
|
£22.5m
|
|
ANNUAL RESULTS PRESENTATION
A Company presentation for analysts
and investors will take place today at 8.30am (UK) via an in-person
meeting and a live webcast and conference call.
To
attend the in-person presentation, please
contact:
impacthealth-maitland@h-advisors.global
To
view the live webcast, please register in advance
at:
https://stream.brrmedia.co.uk/broadcast/65e9a4042cbb0478a930d370
The
conference call dial-in is available using the below
details:
Phone number:
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+44 (0) 33 0551 0200
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Participant access quote:
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Impact Healthcare - Full Year Results
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If you would like to ask your
questions verbally, please use the dial in number. Alternatively,
you can type questions into the webcast question box.
The presentation will also be
accessible on demand later in the day on the Company's
website: www.impactreit.uk
ANNUAL REPORT
We have completely redesigned the
Annual Report this year to make it more concise with less
duplication, while making the key elements of the Company's
strategy and its performance clearer. It can be accessed here
http://www.rns-pdf.londonstockexchange.com/rns/0574I_1-2024-3-24.pdf
A copy of the Annual Report is also
available on the Company's website at https://www.impactreit.uk/investors/reporting-centre/reports/.
The Annual Report has also been submitted to the National Storage
Mechanism and will shortly be available at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
2024 NOTICE OF ANNUAL GENERAL MEETING
The 2024 Notice of Annual General
Meeting is now available to view on the Company's website at
https://www.impactreit.uk/investors/reporting-centre/.
The Company's Annual General Meeting will be held at 9:00 a.m. on
Tuesday, 21 May 2024, at the offices of Travers Smith LLP, 10 Snow
Hill, London EC1A 2AL.
The formal Notice of the Annual
General Meeting will be posted to those shareholders who have
requested that the Company should continue with postal
correspondence and in accordance with Listing Rule 9.6.1 has been
submitted to the Financial Conduct Authority and will shortly be
available for inspection from the National Storage Mechanism
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The Board encourages Shareholders to
vote on any of the matters of business at the AGM in advance by
proxy.
FOR
FURTHER INFORMATION, PLEASE CONTACT:
Impact Health Partners LLP
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Via H/Advisors Maitland
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Andrew Cowley
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David Yaldron
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Jefferies International Limited
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020 7029 8000
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Tom Yeadon
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tyeadon@jefferies.com
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Neil Winward
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nwinward@jefferies.com
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Ollie Nott
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onott@jefferies.com
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Winterflood Securities Limited
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020 3100 0000
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Neil Langford
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neil.langford@winterflood.com
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Joe Winkley
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joe.winkley@winterflood.com
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H/Advisors Maitland (Communications advisor)
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impacthealth-maitland@h-advisors.global
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James Benjamin
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07747 113 930
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Rachel Cohen
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020 7379 5151
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Billy Moran
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020 7379 5151
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The Company's LEI is
213800AX3FHPMJL4IJ53.
Further information on Impact
Healthcare REIT plc is available at www.impactreit.uk.
NOTES:
Impact Healthcare REIT plc acquires,
renovates, extends and redevelops high quality healthcare real
estate assets in the UK and lets these assets on long-term full
repairing and insuring leases to high-quality established healthcare operators which offer good
quality care, under leases which provide
the Company with attractive levels of rent
cover.
The Company aims to provide
shareholders with an attractive sustainable return, principally in
the form of quarterly income distributions and with the potential
for capital and income growth, through exposure to a diversified
and resilient portfolio of UK healthcare real estate assets, in
particular care homes for the elderly.
The Company's dividend policy is to
maintain a progressive dividend that is covered by adjusted
earnings.
On this basis, the target total
dividend for the year ending 31 December
2024 is 6.95 pence per share1, a 0.18 pence increase over
the 6.77 pence in dividends paid or declared per ordinary share for
the year ended 31 December 2023.
The Group's Ordinary Shares trade on
the main market of the London Stock Exchange, premium segment. The
Company is a constituent of the FTSE EPRA/NAREIT index.
Notes
1 This is a target only and
not a profit forecast. There can be no assurance that the target
will be met and it should not be taken as an indicator of the
Company's expected or actual results.
2 The annualised rent
adjusting for: rent due following rent-free periods; underlying
contractual rent on temporarily varied leases including rent
due from Melrose); rent due on capex projects or
profit‑related
deferred payments where the Group recognises a capital commitment;
and post-tax income from interest received from property
investments made via loans to operators for the acquisition of
property portfolios.
3 These homes were
transferred to Melrose Holdings Limited, an affiliate of a related
party, Minster Care Group.
4 Rent cover is total annual rent divided by our tenants'
EBITDARM (earnings before interest, tax, depreciation,
amortisation, rent and management charges). EBITDARM is a useful
approximation for our tenants' cash earnings, which they can use to
pay their rent. This excludes Rent cover has been adjusted to
exclude seven turnaround homes and one new home in build-up. These
were also excluded in the quoted comparative adjusted rent
covers.
5 This relates to the
property portfolio along with property portfolios that have been
invested in via loans to operators with an option for the Group to
acquire.
INVESTING IN UK CARE HOMES FOR
EVERYONE
2023 ANNUAL REPORT AND FINANCIAL
STATEMENTS
About us
Impact Healthcare REIT plc is a specialist and
responsible long-term owner of care homes and other healthcare
properties across the UK.
We take a long-term view and look to generate
secure and growing income. This has allowed us to offer attractive
and progressive dividends to our shareholders, and the potential
for capital growth.
Our
purpose
Our purpose is to work with tenants to provide
quality, affordable and sustainable care homes in order to deliver
an attractive risk adjusted return.
Our
values
· We focus on the long-term sustainability of our
business.
· We are open and transparent with our stakeholders.
· We are a dependable partner who's trusted to
deliver.
· We combine the strengths of a listed company with
entrepreneurship.
Find us
online
www.impactreit.uk
Key
statistics
|
Year ended
31 December
2023
|
Year ended
31 December
2022
|
Change
|
Properties
|
140
|
135
|
+3.7%
|
Beds
|
7,721
|
7,336
|
+5.2%
|
Tenants1
|
14
|
14
|
|
Portfolio valuation
|
£651.3m
|
£568.8m2
|
+14.5%
|
Contracted rent
roll3
|
£48.8m
|
£43.1m
|
+13.2%
|
Weighted average unexpired lease
term
|
20.8
years
|
19.7
years
|
+5.6%
|
Leases that are inflation
linked
|
100%
|
100%
|
|
Pence per share dividend for
2023
|
6.77p
|
6.54p
|
+3.5%
|
Assets rated EPC B or better based on
English equivalent ratings
|
57%
|
53%
|
+4%
pts
|
Tenant CQC ratings - Good or
Outstanding
|
80.6%
|
78.0%
|
+2.6%
pts
|
1
Includes Minster and Croftwood, which are subsidiaries of Minster
Care Group, and Melrose, which is an affiliate of Minster Care
Group.
2
Includes properties invested in via loans to operators where the
Group has an option to acquire.
3
Contracted rent roll is a defined term in the Glossary, this
includes contractual rent on temporarily varied leases (including
Melrose).
WE'RE HELPING
TO MEET THE GROWING NEED FOR CARE BEDS FOR THE
ELDERLY
The UK needs
more care beds for the elderly
We're a real
estate company that's deeply immersed in the social infrastructure
of this country.
The UK has an ageing population, with 6.5
million people aged over 75 living in the United Kingdom in 2024.
That number is forecast to increase by 55%, to 10.1 million over
the next 25 years, and to double over the next years. The over 75s
are the fastest growing part of the UK population. These increases
will happen during the lives of our long leases. Demand for care
home beds is therefore rising, but supply has changed little for
almost three decades. This has important implications for the care
older people receive, as well as for our wider healthcare system.
Many thousands of older people find themselves stuck in hospital
because there are no free care home beds or step-down care places
to take them. On average during 2023, there were just over 12,000
people in hospital every night who had no clinical reason to be
there but could not be safely discharged. Half of those people,
nearly all of them elderly, had been waiting more than 21 days to
be discharged. This "bed blocking" also has a knock-on effect on
other patients in the NHS, who can't be admitted to hospital
without a vacant bed.
Our society needs a thriving care home sector,
which can provide the care older people need and relieve the cost
and bed blocking pressure on the NHS. In short, the care home
sector is vital to the health and wellbeing of everyone in the
UK.
Our purpose and
strategy reflect the need for more care beds for the
elderly
Our purpose is to work with tenants to provide
quality, affordable and sustainable care homes in order to deliver
an attractive risk adjusted return. This purpose and our business
model determine our strategic priorities. These are to:
Grow
our business
By adding assets to the portfolio while
carefully managing risk, so we can invest in care home beds for
more of the people who need them;
Work
with our tenants
To form long-term, mutually beneficial
partnerships, so we can grow together;
Focus on quality
By investing in our buildings and supporting our
tenants who provide quality care to their residents;
Maintain affordability
By seeking to set initial rents at affordable
levels, which our tenants can afford both now and in the long term.
This in turn helps our tenants to charge fees that are likely to be
more affordable to residents; and
Increase our
sustainability
By continuing to improve our portfolio's social
and environmental sustainability.
We have
opportunities to create value
We currently own 1.7% of a highly fragmented
market. Successfully implementing our strategy gives us substantial
scope for long‑term growth.
Our focus on generating secure income from a growing portfolio
allows us to offer attractive and progressive dividends, that are
targeted to be fully covered, to our shareholders, alongside the
potential for capital growth. In the process, we add value for our
tenants by helping them to grow their businesses, so they in turn
can provide high standards of care to more people.
Impact Health Partners LLP, our Investment
Manager (IM), plays a vital role in our success. Its senior team
has decades of experience of owning and operating healthcare real
estate, and their knowledge, skills and relationships give us an
important advantage in our market.
2023 IN
BRIEF
Our financial
performance was robust and we made further progress with our
strategy
Putting our
purpose into practice: delivering attractive risk-adjusted
returns
Our objectives are to generate:
· a progressive dividend that's fully covered by
adjusted1 earnings per share (EPS); and
· an average total accounting return of 9.0% per
annum2.
Achieving these goals requires us to grow our
profit, cash earnings and the value of our assets, to produce an
attractive overall return.
Despite some risks materialising in the year, we
were able to deliver our highest total accounting return of the
past five years and a growing dividend fully covered by adjusted
EPS.
Our performance
highlights in 2023 included the following
· We met our dividend target for 2023 of 6.77 pence per share,
with the total dividend being 108% covered by adjusted EPS and 123%
by EPRA EPS.
· The value of our property investments rose by 4.1% on a
like-for-like basis (2022: (8.1)% like-for-like reduction). This
was mainly due to inflation-linked rental growth which contributed
to NAV per share increasing by 4.7%.
· Total accounting return improved by over seven percentage
points to 10.82%, reflecting more stable asset values compared with
20222.
· Our dividend target for 2024 is 6.95 pence per share, up
2.66%2.
The Group
performed well in 2023, as shown below:
|
Year ended 31 December
2023
|
Year ended 31 December
2022
|
Year ended 31 December
2021
|
Year ended 31 December
2020
|
Year ended 31 December
2019
|
Dividends declared per
share
|
6.77p
(+3.5%)
|
6.54p
|
6.41p
|
6.29p
|
6.17p
|
Adjusted EPS1
|
7.28p
(+2.4%)
|
7.11p
|
6.68p
|
5.93p
|
5.26p
|
Profit before tax
|
£48.8m
(+188.8%)
|
£16.9m
|
£32.0m
|
£28.8m
|
£26.3m
|
EPRA EPS1,3
|
8.33p
(-0.5%)
|
8.37p
|
8.05p
|
7.25p
|
6.95p
|
Property
investments3
|
£651.3m
(+14.5%)
|
£568.8m
|
£496.9m
|
£418.8m
|
£318.8m
|
Net asset value (NAV) per
share
|
115.38p
(+4.7%)
|
110.17p
|
112.43p
|
109.58p
|
106.81p
|
Total accounting
return3
|
10.82%
(+7.0%
pts)
|
3.78%
|
8.42%
|
8.46%
|
9.46%
|
EPRA (net) LTV
|
27.85%
(+3.8%)
|
24.10%
|
23.17%
|
17.06%
|
-%
|
1
Adjusted EPS strips out non-cash and one-off items.
2
This is a target only and not a profit forecast. There can be no
assurance that the target will be met and it should not be taken as
an indicator of the Company's expected or actual results. Total
accounting return reflects the dividend we pay and growth in the
value of our assets. We expect higher valuations to mainly result
from rising rents and our asset management projects, rather than
relying on wider market improvements.
3
EPRA alternative performance measures have been calculated in line
with EPRA best practices recommendation.
Putting our
purpose into practice: growing the business so we can invest in
much-needed care home beds
We continued to grow the portfolio during the
year, with a net increase of five homes. This resulted
from:
· buying a portfolio of six homes for £56 million, on a net
initial yield1 of 7%; and
· selling one non-core asset for £1.25 million, in line
with its book value.
At the year end, the key indicators of growth in
our portfolio compared to the prior year were as
follows:
|
Year ended
31 December
2023
|
Year ended
31 December
2022
|
Change
|
Properties
|
140
|
135
|
+3.7%
|
Completed Beds
|
7,721
|
7,336
|
+5.2%
|
Portfolio let
|
100%
|
100%
|
|
Contracted annual rent
roll
|
£48.8m
|
£43.1m
|
+13.2%
|
Working with
our tenants
We work closely with our tenants to identify
ways we can grow together, while keeping a close eye on their
financial and operational performance. During 2023:
· higher occupancy and strong fee increases (see below)
contributed to improved financial performance for most of our
tenants;
· one tenant, Silverline, got into financial difficulties. We
took firm action and successfully transferred their seven homes to
another tenant2 on variable rent. Trading in these homes
has shown good signs of improvement since the transfer.
Silverline's issues reduced our rental income for 2023 by £1.2
million;
· we expanded our relationship with Welford, which operates the
six care homes we bought in 2023. Welford now runs 18 of our homes
with 1,094 beds, making it one of our largest tenants;
and
· our long-term partnership approach to our tenants is reflected
in weighted average unexpired lease term (WAULT)3 of
20.8 years at 31 December 2023 (31 December 2022: 19.7 years), with
the increase reflecting new 30 and 35-year leases entered into
during 2023.
Putting our
purpose into practice: our focus on quality
Improving the quality of our
assets
We continue to invest in our assets to improve
the environment for residents and staff, enable our tenants to
broaden their offer (for example, by adding specialist dementia
beds) and to make them more environmentally sustainable. We
typically rentalise these inflation-linked investments at 8%, which
means we earn an extra £8 in annual rent for every £100 we
invest.
In 2023:
· we approved £11.7 million new asset management
projects;
· delays to some projects resulted in our actual investment in
existing asset management projects in the year being lower than
expected, at £4.7 million; and
· at the year end, we had four projects in the pipeline, with
anticipated funding of £9.5 million over the next two to three
years.
In addition to our total accounting return and
the WAULT, the quality of our portfolio is reflected in the
following metrics:
|
Year ended
31 December
2023
|
Year ended
31 December
2022
|
Change
|
EPRA topped up net initial yield
(NIY)4
|
6.92%
|
6.98%
|
(6)
bps
|
Bed occupancy
|
88.2%
|
86.6%
|
+1.6%
pts
|
· The NIY indicates the portfolio's ability to generate income,
in comparison to its market value. It has improved during the year,
reflecting a general trend of larger, better specified homes in our
area of the market seeing improvement in their valuation
yield.
· Occupancy continued to recover from the lows during the
pandemic, showing our assets remain attractive to potential
residents. We've seen signs that tenants are prioritising fee
increases (see below) over filling empty beds, resulting in
occupancy remaining around half a percent below the pre-pandemic
average.
Our
tenants continue to provide good care
While the quality of our assets is important,
the quality of care our tenants provide to their residents is
paramount: poor care in a great building is still poor
care.
At the end of 2023, 80.6% of our homes were
rated good or outstanding by the regulator. This was above the
national average of 79% for comparable
homes5.
Putting our
purpose into practice: maintaining affordability
With our leases running for up to 35 years, it's
vital that our rents remain affordable to tenants in the long term.
We therefore look to set initial rents at sustainable levels and
then increase them only with inflation each year. Almost all our
leases set out minimum and maximum annual increases, which are
typically 2% and 4% respectively.
We monitor affordability using the following
metrics:
|
Year ended
31 December
2023
|
Year ended
31 December
2022
|
Change
|
Rent cover6
|
2.00x
|
1.80x
|
+0.20x
|
Average rental growth
|
4.1%
|
4.1%
|
+0%
pts
|
Rent collection
|
99%
|
100%
|
(1)%
pts
|
1
The net initial yield is the annual rent generated by the assets,
less non-recoverable property costs, divided by the assets'
value.
2
These leases were transferred to Melrose, an affiliate of a related
party, Minster Care Group.
3
The WAULT is the average unexpired lease term of the property
portfolio, weighted by annual passing rents. The passing rent is
the actual rent a tenant is paying at that point in
time.
4
This is the net income from the portfolio (rent less irrecoverable
property costs) divided by the total amount a purchaser would have
to pay to buy the assets (the market value plus the estimated costs
the purchaser would incur).
5
Homes outside of England are inspected by different regulatory
bodies and rated on a separate system, in our reported metric
we have aligned these ratings to those used by the CQC.
6 Rent cover
is our tenants' EBITDARM (earnings before interest, tax,
depreciation, amortisation, rent and management charges) divided by
total annual rent. EBITDARM is a useful approximation for our
tenants' cash earnings, which they can use to pay their rent. This
has been adjusted to exclude seven turnaround homes and one new
home in build-up.
Rent cover is one of our most important key
performance indicators. The increase in the year reflects improved
occupancy, and in particular, our tenants' ability to continue to
increase their fees in line with or ahead of inflation. The average
weekly fee across the portfolio increased by 13.3% to £1,049 during
2023.
Our tenants' staff costs have benefited from
reduced agency staff use, which declined from an average of 8.9% of
their revenue to 4.7% in the year. The rate of inflation for other
key costs such as energy and food came down in the second half of
the year.
Rent reviews in the year increased rents by 4.1%
on average, adding £1.6 million to the contracted rent
roll.
One test to measure the sustainability of our
rents over the long life of our leases is the percentage of their
revenues our tenants pay in rent, with anything over 15% being
potentially too high. In 2023 on average they paid 12.6% of their
revenues to us in rent, down from 13.2% in 2022.
We collected 99% of rent due in respect of the
year, with all tenants other than Silverline paying in
full.
Putting our
purpose into practice: increasing our
sustainability
We continued to focus on improvements to the
environmental sustainability of our portfolio with a target to
achieve net zero status by 2045. During 2023, we continued to
improve the energy efficiency of homes through asset management
projects and improved energy performance certificate
(EPC)1 ratings through further energy efficiency
projects.
We are also focusing on reducing the carbon
emissions per m2. During the year these increased
slightly from 50kg to 54kg which is in part explained by the
increased occupancy over the past two years while the improvements
we are focusing on are taking time to embed. Reducing this metric
remains a core focus, with an interim target to reduce by 15% by
the end of 2025.
We also carried out "deep-dive" sustainability
surveys of six homes, to inform our net zero delivery plan and
ensure that our tenants' businesses and the care they provide can
continue sustainably.
|
Year ended
31 December
2023
|
Year ended
31 December
2022
|
Change
|
Carbon emissions (kg CO2e
per m2)
|
54
|
50
|
+8%
|
EPC B and above
|
57%
|
53%
|
+4%
pts
|
Prudently
financing the business
We use debt financing to support our growth and
increase returns, while making sure we have a strong balance sheet
at all times.
We use the following metrics to monitor our
financial position:
|
Year ended
31 December
2023
|
Year ended
31 December
2022
|
Change
|
Net debt2
|
£181.4m
|
£128.3m
|
+41.3%
|
EPRA (net) LTV2
|
27.8%
|
24.1%
|
+3.7%
pts
|
During 2023 we:
· increased our revolving credit facility (RCF) with NatWest by
£24 million to £50 million, extended the term from 2024 to 2028,
and extended the term on our £75 million RCF with HSBC by one year
to 2026;
· paid off the remaining £15 million of our term loan with
Metro Bank, which was our most expensive debt; and
· increased our interest rate hedging by a net £75
million.
At the year end:
· the increase in LTV during 2023 was largely to finance the
acquisition of a portfolio of six care homes in January 2023. This
acquisition was accretive to earnings during the year after taking
into account these additional financing costs;
· we had committed bank facilities of £250 million, with a
weighted average term (excluding options to extend) of 6.3
years;
· we had significant liquidity available to us, with £65.2
million of undrawn facilities and £9.4 million of cash, against
commitments of £16.2 million;
· the average cost of our drawn debt was 4.56%, with 95% of our
drawn facilities fixed or hedged against interest rate rises;
and
· our LTV was well within the maximum in our policy of
35%.
Outlook
We're well positioned to continue to deliver
long-term sustainable returns to shareholders. As the economy
recovers from 2023's high inflation and interest rate rises, and as
the government sees the role that this sector can play in both
health and the economy, we believe that we'll see more
opportunities for growth in the future.
1 An EPC rates a
property's energy efficiency from A (most efficient) to G (least
efficient).
2 EPRA (net) LTV is
calculated using net debt to gross portfolio valuation.
THE SOCIAL NEED
FOR CARE BEDS FOR THE ELDERLY
Demand for care
beds for the elderly is rising
There are 6.5 million people aged over 75 living
in the United Kingdom in 2024. That number is forecast to increase
by 55%, to 10.1 million over the next 25 years. The over 75s are
the fastest growing part of the UK population. These increases will
happen during the lives of our long leases.
Care needs are
becoming more complex
While rising life expectancies are good news,
the downside is that most people will spend the last 15 years of
their life with some ill health. Around 10% of people over 80 have
care needs that make it difficult for them to live at
home.
Many people end up stuck in hospital beds, which
means they're in the wrong setting for the type of care they need,
particularly if they have dementia, and this increases costs for
the NHS. On average during 2023, there were just over 12,000 people
in hospital every night who had no clinical reason to be there but
could not be safely discharged. Half of those people, nearly all of
them elderly, had been waiting more than 21 days to be discharged.
This "bed blocking" also has a knock-on effect on other patients in
the NHS, who can't be admitted to hospital without a vacant
bed.
Since the COVID-19 pandemic, there's evidence
that people are moving into care homes later than before, that
they're more likely to be frail or ill and that their stays are
shorter. This is creating a longer term shift in the industry, with
increasing demand for care providers who can deliver higher acuity
care.
Dementia is the most common acute condition
affecting people in care homes. Around 70% of care home residents
suffer from some form of memory loss, which ranges from being
mildly confused to severe dementia. The Alzheimer's Society
projects that the number of people with some form of dementia in
the UK will rise from just over 900,000 in 2020, to over 1.2
million in 2023, with the greatest rise being amongst people who
have a severe form of the condition. By 2022 dementia and
Alzheimer's diseases had already replaced heart disease and cancer
as the leading cause of death in England and Wales.
The number of
care beds isn't responding to demand
Despite the ageing population and rising acuity,
the number of available care beds for elderly care has been
stagnant. Between 2012 and 2021, the number of beds in nursing and
residential care homes fell from 11.3 per 100 people aged over 75
to 9.4 - a 17% decrease. Looking at longer-term trends, an
estimated 25% of over 85s lived in care homes for the elderly in
1996. By 2017, this had fallen to 15%. This reflects several
factors, including a shift in social care policy towards home care.
It might also reflect an element of rationing in the care system,
as many older people struggle to access the care they
need.
Although the care home market is attractive, for
existing care homes the economics make it difficult to create much
new supply.
Construction costs have risen substantially over
the past two years, making it difficult to deliver a high quality
new care home for less than £200,000 per bed. In contrast, an older
home with an established record for providing good quality care can
cost less than £100,000 per bed, which we believe offers a better
risk adjusted return. Given the higher capital costs of brand new
homes, tenants have to pay higher rents - up to 20% of their
revenues as opposed to our average of 12.6% - which means that they
in turn have to pass these costs on by charging higher fees to
their residents. Higher fees do not automatically translate into
better quality care, which depends more on the quality and
stability of the team than the building.
Staffing rotas are highly regulated and tend to
be similar in new and older homes. The higher fees needed by newly
built care homes limit the number of residents who can afford this,
restricting the size and growth of this segment of the
market.
Slightly older homes also offer opportunities to
add value, by updating them, adding facilities and improving their
environmental performance, which is another reason we favour this
part of the market over new builds.
The market is
highly fragmented
There are currently just over 12,000 registered
care homes in the UK. Our market is unusually fragmented. Over the
past 15 years that fragmentation has increased as the market share
of the top-10 care providers in the UK has declined from a peak of
27% in 2006, to 19% in 2023. The market share of sole traders
operating one or two care homes has also declined, from over 80% in
the early 1990s, to under 30% today.
Where there has been growth is of mid-sized care
providers operating between three and 80 homes. Developing
partnerships with operators in this space has given us the
opportunity to acquire good quality assets at attractive
yields.
We currently own 1.7% of a highly fragmented
market. Successfully implementing our strategy gives us substantial
scope for long‑term
growth.
Government
policy and funding for care is complicated
To put it mildly, government policy and funding
for adult social care is a complicated field. There is no national
government budget for adult social care in England. A person's care
needs might be met by their local authority's social services
budget or by their local NHS Trust, and the individual or their
relatives may also have to contribute to the cost.
Most local authorities support their adult
social care costs through a council tax levy and, in certain
situations, local authority or NHS funding is means tested. The
system is ripe for reform, but successive governments have failed
to implement it, despite numerous white and green papers, plus
industry reports. Our tenants are experienced at delivering care in
this complex environment while also running sustainable
businesses.
DELIVERING
ATTRACTIVE RISK-ADJUSTED RETURNS | OUR BUSINESS
MODEL
Our business
model allows us to generate attractive returns,
with managed risk.
We consider risk from many angles, from ensuring
our balance sheet stays strong, to the way we pick tenants and make
sure they're performing well, to our focus on sustainability and
creating a positive social impact.
What we do
|
|
|
Select
tenants
|
Identify and appraise
assets
|
Agree
leases
|
We have a diversified portfolio of
tenants that includes national, regional and local businesses. When
selecting a new tenant we consider:
·
track record and financial performance;
· the
strength of their business plan;
·
their ability to provide high-quality care to residents; and
·
their ability to deliver strong trading returns over the longer
term, that will support our investment.
|
Sometimes tenants bring new
opportunities to us and sometimes we select assets we'd like to
acquire and determine which current or new tenant will operate
them. We then check every aspect of the homes, including reviewing
their local market and the building's environmental sustainability.
Our disciplined approach means we can buy at attractive prices,
which are often less than the cost of replacing the
asset.
|
Our leases are typically for 25
years or more and balance rental growth with ensuring rent remains
affordable to tenants. The leases require tenants to spend a
minimum amount every year on repairs and maintenance, and all our
leases since 2020 include "green" clauses, to help us work with
tenants on our ESG objectives.
|
|
|
|
Monitor tenants'
performance
|
Work with tenants to
improve our assets
|
Optimise
portfolio
|
We keep a careful watch on many
aspects of our tenants' performance, including their financial
results and the quality of their care, which we discuss with our
tenants on a quarterly basis.
|
We agree plans with our tenants to
upgrade and extend our homes. This makes them better places to live
and work, increases their capacity, improves their sustainability
and can broaden their offer, for example by adding specialist
dementia beds. We can also work with tenants to develop new homes
in areas with strong demand. These activities increase our rent,
the value of our homes and our tenants' revenues.
|
We regularly review our assets and
categorise them as core, value-add or non‑core. Value-add assets are candidates
for asset management. We may sell non‑core assets, so we can reinvest the
proceeds and create more value, while improving overall portfolio
quality.
|
Our competitive
advantages
Our strategy
delivered by our Investment Manager is our main source of
competitive advantage. In particular, we benefit
from:
· our strategic focus on upper mid-market care homes which we
can acquire at below replacement cost with rents at affordable
rates;
· the IM's deep sector knowledge and understanding of how care
businesses work, which helps with everything from buying the right
assets to forming and maintaining supportive tenant
partnerships;
· the IM's relationships with care-home owners who might want to
sell, the agents they work with and with potential new tenants.
Great relationships and a proven track record can help us to buy
assets off-market or beat the competition even when we're not the
highest bidder; and
· the IM's asset management and development skills, so we can
identify how to improve a care home before we buy it, successfully
complete each project and improve returns by developing new
homes.
The value we
create
Our
high-quality business generates attractive and sustainable value
for our stakeholders.
Tenants
Tenants can grow their business alongside ours,
in a long-term relationship with affordable rents, which benefits
both of us.
Residents and
their carers
Residents benefit from security, stability and
high-quality care and their carers benefit from a stable
environment in which to receive training alongside potential career
progression in a vocational sector supporting vulnerable members of
their community. As a landlord we seek to support both residents
and their carers through our willingness to invest in their homes
to improve the spaces they live and work in to create a lasting
social impact.
Lenders
Our lenders can provide long-term finance to us
on attractive terms, knowing we have a secure and resilient
business, with strong cash flows.
Shareholders
Our model delivers predictable and rising
revenue, so we can pay a progressive, fully covered dividend. There
is also the potential for capital growth, which supports an
attractive total return.
Careful cost control enables us to benefit from
economies of scale as we grow. Many of our costs are fixed and some
variable costs will step down as our asset value rises (including
the IM fee which reduces from 1.0% to 0.7% of NAV above £500
million). Along with our conservative approach to debt finance,
this helps to maximise the cash we can distribute to
shareholders.
1 | GROWING THE
BUSINESS SO WE CAN INVEST IN MUCH-NEEDED CARE HOME BEDS FOR
EVERYONE
|
Year ended
31 December
2023
|
Year ended
31 December
2022
|
Change
|
Beds
|
7,721
|
7,336
|
+5.2%
|
Properties
|
140
|
135
|
+3.7%
|
Growing our
business requires us to make strategic choices that influence our
returns and the risks we face.
These choices include the types of assets we
buy, where they are and how we use debt finance to finance our
growth.
Strategy:
choosing which assets to buy
Our investment policy allows us to invest in
different types of healthcare properties. Given the growing demand
for care beds for the elderly, we've chosen to focus on care homes,
in particular existing homes in the mid-market. These are
attractive to us because:
· they provide a good setting for quality care;
· they're affordable for many more people than high-end homes,
so they have a larger target market, which should mean fewer
unfilled beds for our tenants;
· they're lower risk than new developments, as the capital
cost is significantly less per bed and they don't need to build
their occupancy and staff team from scratch; and
· they often give us scope to add value through asset
management.
In January, we invested in a portfolio of six
homes in Shropshire and Cheshire, for £56 million. The homes have
438 high-quality beds, a track record of strong operational
performance and good sustainability credentials. We funded 80% in
cash and the remainder by issuing 9.6 million shares at 116.62
pence per share. We made the initial investment by lending the
money to Welford, an existing tenant of ours.
This allowed Welford to buy the companies that
owned the homes and immediately take over running them, rather than
having to wait several months for Care Quality
Commission1 (CQC) approval to come through. This
minimised disruption for residents and made sure Welford could
focus on care. The CQC approved the transfer in June, allowing
us to take up our option to buy the homes from Welford and complete
the 35-year leases we'd already agreed, at an initial rent of £3.9
million a year.
Approving the completion of the deal was one of
the board's key decisions in the year. We also sell non-core
assets, as the business model explains. During 2023, we sold
Mulberry Manor, a 49-bed care home in Mexborough, which we acquired
as part of the portfolio we bought following our IPO in 2017. The
home wasn't a strategic fit for either us or the tenant, hence it
wasn't classified as core and we disposed of it for
£1.25 million, in line with its book value. We expect to make
further disposals of non-core assets in 2024.
The transactions in 2023 increased our portfolio
by a net five homes, from 135 at 31 December 2022 to 140 at the
year end.
s172
Stakeholders'
interests: long-term impact and the environment
We sign long leases with tenants and as
directors, we require extensive due diligence, both before we start
working with them and careful monitoring once they're running our
homes.
In this case the directors concluded that
Welford was a good partner for us, that the acquisition would
further strengthen both businesses and that it was appropriate to
agree 35-year lease terms.
The directors also have a keen interest in the
assets' sustainability and we discussed the cost, strategy and
regulations associated with decarbonising the homes and improving
their energy performance certificate (EPC) ratings and alignment
with our net zero delivery plans, before approving the
acquisition.
1
The CQC is the independent regulator for health and social care in
England.
Measuring our
progress
We also use the following key
performance indicators (KPIs) to monitor our returns from the
portfolio.
|
Year ended
31 December
2023
|
Year ended
31 December
2022
|
Profit before tax
|
£48.8m
|
£16.9m
|
Profits have been enhanced by rental income
growing at a faster rate than expenses as shown in the Group's
reducing cost ratios. However, the key driver this year has been
the valuation gains reversing the fair value losses seen in the
previous period.
|
Year ended
31 December
2023
|
Year ended
31 December
2022
|
NAV
|
£478.1m
|
£445.9m
|
Primarily driven by steady yields across the
portfolio with rent reviews feeding directly into valuation
growth.
|
Year ended
31 December
2023
|
Year ended
31 December
2022
|
NAV per share
|
115.38p
|
110.17p
|
Total NAV of the Group grew by 7.22% to £478.1
million and the NAV per share grew by 4.73% to 115.38p. The reduced
growth per share is reflective of the incremental 9.6 million
shares issued in January 2023 as part (£11.2 million) of the
consideration for the acquisition of six care homes.
|
Year ended
31 December
2023
|
Year ended
31 December
2022
|
Adjusted earnings per
share
|
7.28p
|
7.11p
|
The Group's adjusted earnings (closely aligned
to cash profits) continued to increase in 2023 owing to
inflation-linked rent reviews improving cash revenue while
administrative costs further reduced as a percentage of income and
the Group's well-hedged debt position mitigated the effects of high
interest rates.
Strategy: where
we buy assets
We manage risk by spreading the portfolio around
the UK, so we don't rely on a small number of local markets. Most
of our homes are in areas where asset prices are more attractive,
there's strong demand for care and often less competition. This
makes our homes an even more important part of their local
communities.
At 31 December 2023, we owned homes in the
following locations:
|
Number
of
|
2023
change
|
|
2023
change
|
% of
portfolio
|
Location
|
properties
|
in
properties
|
Beds
|
in
beds
|
market
value
|
England
|
|
|
|
|
|
East Midlands
|
8
|
-
|
405
|
-
|
6.0%
|
East of England
|
9
|
-
|
547
|
-
|
10.0%
|
North East
|
12
|
-
|
767
|
-
|
8.9%
|
North West
|
33
|
-
|
1,348
|
+6
|
14.3%
|
South East
|
4
|
-
|
318
|
+1
|
6.0%
|
South West
|
10
|
-
|
537
|
+5
|
9.9%
|
West Midlands
|
14
|
+6
|
860
|
+440
|
14.1%
|
Yorkshire & The
Humber
|
11
|
(1)
|
693
|
(49)
|
6.3%
|
Northern Ireland
|
5
|
-
|
340
|
-
|
3.4%
|
Scotland
|
32
|
-
|
1,805
|
(16)
|
20.4%
|
Wales
|
2
|
-
|
105
|
(2)
|
0.7%
|
Total
|
140
|
+5
|
7,721
|
+385
|
|
Strategy:
financing our growth
We can grow the portfolio more quickly and
increase returns by using an appropriate amount of debt. We're very
aware of the risks of having too much leverage, so our policy is to
have a maximum loan-to-value1 (LTV) ratio of 35% at the
time we drawdown the debt and to hedge at least 75% of our drawn
debt against rising interest rates. We have also updated our
hedging policy to ensure we have adequate hedging in place to
manage the risk of interest rate increases within our risk
tolerance. At the year end, 95% of our drawn debt was hedged
against interest rate increases.
In June, we increased our revolving credit
facility (RCF) with NatWest by £24 million to £50 million, and
extended the term from 2024 to 2028. The interest rate on this RCF
is 200 basis points above SONIA. We also extended the term of our
£75 million RCF with HSBC by one year to 2026. At the same time, we
agreed lower interest cover covenants with both banks.
Increasing the NatWest RCF enabled us to replace
the last £15 million of our loan from Metro Bank. This was our most
expensive debt, at 265 basis points above
SONIA2.
To manage our interest rate costs, we took out
two interest rate caps in the year. These each hedge the cost of
£50 million of debt, with the first capping SONIA at 3.0% until
January 2025 and the second capping SONIA at 4.0% until August
2025. In June, a hedge which capped the interest rate on £25
million of debt expired. At the year end, we therefore had either
fixed rates or caps on £175 million of debt or 95% of our drawn
debt, in line with our policy.
Strategy: who
funds our tenants' residents
We like our portfolio to have a good balance of
funding for tenants' residents, from local authorities, the NHS and
private pay. This helps to make our tenants' revenues more
resilient than relying on one source of fees and means, we earn a
predictable income from our assets.
Funding for our tenants' fee income changed only
modestly during the year and remained well balanced:
Source of
tenant income
|
Year ended
31 December
2023
|
Year ended
31 December
2022
|
Local authorities
|
58.8%
|
60.2%
|
Private pay
|
31.3%
|
31.7%
|
NHS
|
9.9%
|
8.1%
|
How we monitor
our financing
We use the following KPIs to monitor our debt
position:
|
Year ended
31 December
2023
|
Year ended
31 December
2022
|
Net debt
|
£181.4m
|
£128.3m
|
The increase was predominantly due to £44.8
million cash consideration to acquire the portfolio of
six assets acquired in January 2023.
|
Year ended
31 December
2023
|
Year ended
31 December
2022
|
EPRA (net) LTV
|
27.8%
|
24.1%
|
Increased in the year owing to an acquisition
and capital expenditure on the existing portfolio, partially
tempered by growing portfolio valuation.
1 The gross LTV is our
gross debt as a percentage of our gross asset value.
2 The interest costs on
our variable rate debt are linked to an interest rate benchmark
called the Sterling Overnight Index Average (SONIA), which in turn
is driven by the Bank of England's base rate.
Engaging with
our shareholders and lenders
While all our stakeholders have an interest in
the growth of our business and our financial stability, our
shareholders and lenders are the most directly affected.
Understanding our shareholders'
interests
The IM leads our investor relations programme
and, along with our corporate brokers, ensures the board is kept
well informed of shareholder views.
The Chair also offered meetings to our largest
shareholders in the year.
Understanding our lenders'
interests
The IM also regularly engages with our debt
providers, providing quarterly information that shows we're
complying with the covenants in our debt facilities and reporting
on the performance of the tenants and the homes the facilities are
secured against. In 2023, the IM was in regular contact with
NatWest and HSBC, as it negotiated the increased and extended RCFs
discussed above.
During the year, the IM took the lenders to
visit several of the homes in their security pool to provide full
transparency of the intended asset management works and
environmental criteria we are upgrading these properties to. This
regular and open engagement with our lenders, along with improved
familiarity with the properties, has allowed us to increase and
extend these facilities efficiently.
Key board
decision - refining the dividend policy
Relevant stakeholders:
shareholders
Dividends are a key attraction for shareholders
in real estate investment trusts (REITs), with the UK REIT rules
requiring us to pay out at least 90% of the profits from our
property rental business each year. Paying an attractive and
progressive dividend is therefore one of our most important
objectives.
In 2018, the board adopted a policy of
increasing the target dividend each year in line with the
inflation-linked rental growth in the previous year. The board
reviewed this policy in 2023.
While the policy gave shareholders certainty
about dividend growth, the directors concluded that it was in
shareholders' interests for the policy to be more flexible and
forward looking.
The board therefore agreed an updated policy, to
seek to maintain a progressive dividend that's covered by adjusted
earnings. The directors continue to see adjusted earnings as the
best yardstick for dividend payments, as they more closely reflect
the Company's cash earnings than the IFRS or EPRA
measures.
Case
study
Morris
Care
What was the
opportunity?
To acquire a group of six homes in Shropshire
and Cheshire, with a focus upon the wider Shrewsbury catchment
area. We were attracted by the high specification of the assets,
their local reputation and weighting towards higher acuity care
provision.
Whilst the vendor was looking for a clean exit
from the elderly care market, they were keen to ensure continuity
of care for the residents. Operational and local management would
remain with the business post completion and Welford agreed a
licence to continue to use their well-established local brand name
for at least three years after completion.
The IM identified an existing portfolio tenant,
Welford Healthcare, as the best fit for the transfer of the
operational businesses. Welford's own due diligence aligned with
the IM's assessment regarding the potential for the portfolio and
as a result, we were able to provide confidence to the vendor
regarding continuity of care.
How did the
timeline unfold?
The transaction was agreed in principle in
mid-2022, with exchange targeted for the end of September.
Unfortunately, the mini-budget in September 2022 created a
market-wide hiatus and the transaction was paused by joint
agreement. The terms were then revised to reflect the rise in the
cost of capital after the mini-budget and agreement was reached in
early December 2022, with completion occurring in January 2023.
Given the increase in the cost of debt, the vendors' agreement to
take 20% of the consideration in new shares issued by Impact at NAV
was critical to ensure that the acquisition would be accretive to
our earnings in 2023.
What has gone
well?
Both Welford and ourselves saw opportunity
within the trading performance, focusing on fees, occupancy and
staffing. In particular, by extending an overseas recruitment
campaign, there was scope to reduce the use of agency staffing in
the short term. Coupled with some revenue growth as refurbished
beds in one of the homes were filled, the business plan was
expected to improve profit, and hence rent cover to over two times,
within 6 - 12 months.
The latest available data demonstrates
outperformance against the original business plan, with strong rent
cover in the context of the portfolio overall. As a result of
trading performance, despite wider market conditions, asset
value is showing a healthy return against the original purchase
price.
Looking forward, there are significant potential
development concepts at two of the properties, including one
that incorporates planning permission for a solar farm, which will
help advance our ESG strategy.
Value uplift
since acquisition
£3.3m +5.8%
% of Group's
portfolio by market value
9.1%
2 | WORKING
WITH OUR TENANTS
|
Year ended
31 December
2023
|
Year ended
31 December
2022
|
Change
|
WAULT
|
20.8yrs
|
19.7yrs
|
+5.6%
|
Bed occupancy
|
88.2%
|
86.6%
|
+1.6%
pts
|
We don't run
our care homes, so we need to partner with tenants who will operate
them well and who share our focus on providing high-quality, and
increasingly higher-acuity, care.
We keep in close contact with our tenants
throughout the year, receive detailed monthly and quarterly
reporting from them and carefully monitor their
performance.
The business model describes our process for
selecting tenants. We also have important choices to make as we
grow our portfolio. In particular, we need to determine the right
balance between adding new tenants and growing with existing
tenants, as well as deciding how long we want our tenant
relationships to be.
Strategy:
adding tenants and growing with them
When we buy assets, we can select a new tenant
to run them or increase the number of homes an existing tenant
operates. Adding new tenants manages risk by reducing our reliance
on individual tenants. However, growing with an existing tenant
strengthens their business and supports our long-term
partnership.
The acquisition we made during the year further
increased the number of assets run by Welford, which has been a
tenant since 2018. Over that time, we've expanded our relationship
from an initial two homes to the current 18 homes with 1,087 beds,
making Welford one of our largest tenants.
There was one change to our tenant base during
the year, as we replaced Silverline with
Melrose1.
At the year end, our tenant base was as
follows:
Tenant
|
Contracted
rent (%)
|
Homes
|
Beds
|
Minster1
|
22
|
31
|
1,774
|
Welford
|
20
|
18
|
1,094
|
Holmes
|
14
|
21
|
1,129
|
Croftwood1
|
12
|
27
|
1,118
|
Careport
|
5
|
9
|
439
|
MMCG
|
5
|
7
|
508
|
Prestige
|
5
|
5
|
444
|
Electus
|
4
|
5
|
340
|
Carlton Hall
|
3
|
2
|
86
|
Melrose1
|
3
|
7
|
394
|
Belmont
|
2
|
2
|
168
|
Renaissance
|
2
|
2
|
128
|
Optima
|
2
|
2
|
99
|
NHS
|
1
|
2
|
-
|
|
100
|
140
|
7,721
|
1 Minster and Croftwood
are part of Minster Care Group. Melrose is an affiliate of Minster
Care Group.
s172
Stakeholders'
interests: business relationships
The directors must consider the Group's business
relationships, including with our tenants. In addition to receiving
regular updates and detailed reports from the IM on each of our
tenants, the directors all took part in calls with tenants during
the year.
This allowed them to hear first-hand what
tenants think of the Company as a landlord, and to discuss the
issues tenants are facing.
Strategy:
choosing the length of our tenant relationships
The length of new leases is an important
decision for us. We favour leases of 25 years or more, since this
generates long-term and growing income for our shareholders,
encourages tenants to take a partnership approach, and gives
residents and care home staff a stable environment to live and work
in. Leases of this length also require us to be very selective when
signing new tenants.
During the year, new leases came into effect
on 18 assets. These were:
· the 35-year leases with Welford on the six homes we acquired
in January 2023; and
· 30-year leases on 12 care homes we originally invested in
through a loan to Holmes. We had an option to buy the homes
following regulatory approval, which we exercised in June
2023.
How we measure
our progress
The portfolio's weighted average unexpired lease
term (WAULT) is a KPI for us.
|
At 31
December
|
|
|
KPI
|
2023
|
2022
|
Comment
|
WAULT
|
20.8 years
|
19.7 years
|
The WAULT increased by one year
during 2023, due to the new 30 and 35-year leases described above.
This was partially offset by the passage of time reducing the
remaining period of existing leases.
|
Monitoring our
tenants' performance
The IM engages with tenants on a weekly and
monthly basis and in more depth each quarter, when it receives
reports from them setting out their financial and operating
performance.
Three main factors affect our tenants' financial
performance and their ability to pay our rents: their occupancy;
the fees they charge for the care they provide; and the cost and
availability of staff. Trends in occupancy and fees were positive
in 2023 and most tenants reported improved financial performance
and higher rent cover.
In 2022, tenants struggled to recruit permanent
staff and used more agency staff as a result. Encouragingly, we've
seen clear signs since that tenants are getting these issues under
control.
Their spending on agency staff fell from an
average high of 14% of their total spending on staff at the
beginning of 2022, to an average of 8% at the end
of 2023.
With our largest tenants, we can also track
whether they're maintaining staffing levels. Hours worked per
occupied bed were stable at 36 hours a week, showing that while
costs were rising sharply as inflation surged tenants were not
cutting back on their main cost, staff.
Among other important costs, food prices rose
but were steady as a percentage of tenants' revenues, and energy
costs fell back to more normal levels in the second half of
2023.
Key board
decision - replacing Silverline with Melrose
Relevant stakeholders: shareholders,
lenders, tenants, tenants' residents
Despite the generally positive backdrop for our
tenants in 2023, it became apparent at the start of the year that
Silverline was in financial difficulties and in January 2023 they
asked us for a six‑month rent
holiday.
Silverline rented seven homes from us - four in
Scotland and three in Yorkshire - for £1.6 million per year. The IM
reviewed the situation in detail, including why the homes were
underperforming, and continued to engage with Silverline about its
financial position.
The board and the IM considered several options
for the homes and were clear throughout these discussions that the
solution had to minimise disruption for residents and staff.
Ultimately, the board decided it was in the best interests of all
stakeholders to replace Silverline as the operator. After running a
competitive process, the board agreed with the IM's recommendation
to replace Silverline with Melrose, an affiliate of a related party
- Minster Care Group Limited (our largest tenant), at the beginning
of June 2023. For further detail of this transfer of operations
please see Note 22 to the financial statements.
The lessons
learnt
Between the Company's inception in 2017 and the
end of 2022 our rent collection record was 100%. This was the first
time we have had a problem with rent collection. Following
Silverline, we've reviewed and updated the due diligence we carry
out on potential new tenants.
We first started working with Silverline when we
bought the three Yorkshire homes in 2020. These homes were bought
as a turnaround project on pricing that reflected their
under-performance. We thought they had the potential to do much
better. Silverline had a plan for turning them around but
unfortunately failed to do so. Clearly the COVID pandemic made
delivering a successful turnaround much more challenging. While we
may buy homes that need turning around in the future, we'll only do
this with an existing tenant and probably not with an operator we
haven't worked with before.
s172
Stakeholders'
interests: community impact
and business reputation
The directors must consider how their decisions
could affect the community, and whether they could harm the Group's
reputation for high standards of business conduct. A fundamental
stakeholder consideration in the board's decision making, is the
conflict of interest risk as a result of the related party
relationship between the Investment Manager and Minster, the
Group's largest tenant. The directors take this very
seriously.
These issues were relevant to Silverline. One
option available to the Group would have led to the homes closing
and then reopening under a new tenant. This would have caused the
most disruption to the local community, given its impact on
residents and staff, and could also have harmed the Group's
reputation, which is important for attracting new
tenants.
Case
study
Silverline
Silverline was a tenant of the Group, operating
three of our homes in Bradford with turnaround opportunities
identified, and four in or near to Glasgow. The Bradford homes were
acquired immediately prior to Covid, resulting in delays to the
planned turnaround strategy at these homes. The acquisition of the
four homes in Scotland was expected to help deliver growth for both
Impact and Silverline; however, there were delays to the completion
of this portfolio which was compounded by a material change in the
broader business activity of the Silverline group. As a result,
they requested a rent payment holiday for six months from the
beginning of January 2023. Following a five-month period during
which several solutions were considered, we decided that the best
outcome for the residents, employees of the homes and our wider
stakeholders was a consensual transfer of the Silverline operations
to Melrose, an affiliate of a related party, Minster Group, who has
been operating the homes since June 2023. In identifying the best
alternative operator to partner with, both new and existing
operators were approached. Ultimately, Melrose was selected due to
a number of factors, including their significant experience
operating mid-market homes in both England and Scotland, track
record in turnarounds and the competitive cost structure offered to
the Group.
To support the transfer of these operations to
Melrose and the continued investment in the turnaround of the
individual homes, we agreed a variable rent structure and provided
a £1.6 million loan facility accruing interest at 8% on drawn
funds.
Since transferring the operations of the homes,
their underlying performance has improved, albeit at a faster pace
in the assets located close to Glasgow than in Bradford, confirming
our conviction in the quality of the homes. We will continue to
work closely with all parties involved to secure the long-term
future of the homes and to ensure the essential care services
provided within the homes remain unaffected.
Whilst there is still a lot of hard work to do
at each of the homes, we are proud to say that one year on from the
failure to pay rent, the homes are now cash flow positive and each
with their own future ahead. This unfortunate event helps
demonstrate the positive impact we as landlord can have on the
residents and staff who live and work within our
buildings.
Number of
beds
394
(properties:
seven)
% of Group's
portfolio by market value
2.6%
3 | OUR FOCUS
ON QUALITY
Capex invested
in improving homes for residents and staff
£4.69m
Quality has two
main aspects for us: care and buildings. The quality of care is
paramount for both us and our tenants.
We focus on the buildings which will best
support our tenants in providing care. Both the quality of
care and the building itself determine how full the homes are, how
much our tenants can charge and how secure our income
is.
Our strategic choices include how much capital
we should allocate to asset management, what sort of improvements
we should target, and the extent to which we should fund new
developments. Our tenants are responsible for repairing and
maintaining the buildings and for their quality of care. We monitor
both of these and discuss them with our tenants on at least a
quarterly basis.
Strategy:
increasing quality by investing in our assets
Everyone gains from successful asset management:
the residents who live in our homes; the staff who work there, our
tenant who operates the home; and us as its owner. When we invest
to improve our homes, the lease terms typically allow us to
rentalise the investment at 8% with potential for valuation uplift
on the capital invested, giving a rate of return above just the
yield alone. The returns on asset management are therefore higher
than on most asset acquisitions. These projects are also generally
lower risk, since we and the tenant have a good understanding of
the home and how the project will improve its
performance.
However, we have to carefully consider how much
to invest each year and which projects to favour,
since:
· we want to continue to grow the portfolio and need to retain
enough capital to buy assets; and
· our tenants have to balance a project's longer-term benefits
with the short-term disruption to the home, which can reduce their
income while rooms are upgraded and disturb residents. We therefore
need our tenant's permission for a project to go ahead.
Our portfolio management process
identifies homes with the potential to add value through asset
management. Where we acquire homes as part of a portfolio, this may
include non-core assets that have limited credentials for a
long-term hold and will be earmarked for disposal. We then target
projects that:
· improve the home for residents and staff, such as adding
ensuite bedrooms and upgrading kitchens, laundries and other
facilities;
· improve the environmental performance of the home and
future-proof the home against obsolescence;
· expand the services our tenants can offer, such as adding
specialist beds for dementia care; and/or
· improve the home for residents and staff, such as adding
ensuite bedrooms and upgrading kitchens, laundries, outside spaces
and other facilities.
We made good progress with our ongoing project
at Fairview House and Court in Bristol, where we have invested £3.2
million to link the two buildings, add bedrooms and improve the
environmental performance. When we bought Fairview in 2018, the
rent was £356,000. After five years of inflation-linked rent
increases and rentalising our investment in the home, we've grown
the annual rent to £690,000. At the same time, the home's
improved trading position has seen its rent cover rise.
The asset value has, as a result, grown by more
than the capital investment.
Overall, however, we did not invest as much in
asset management as we intended in 2023. Some larger projects were
delayed, for example because increased build costs meant we needed
to revisit the plans, while several smaller projects also started
later than we expected. In total, we invested £4.7 million in asset
management in the year.
Our pipeline currently has 24 such projects at
various stages. The total funding for these projects is up to £31
million over the next two to three years, which we will
support if it enhances the quality of care and environment, is
accretive to shareholder returns and we have adequate financial
resources available to deploy.
Our progress in
2023
During the year, we approved £11.7 million to
asset management projects of which £2.2 million was spent in the
year and £9.5 million remains outstanding. The largest projects are
shown in the table below:
Asset and tenant
|
Amount committed
|
Project benefits
|
Mavern
House
|
|
|
Welford
|
£1.9m
|
Eight new bedrooms and improved EPC
rating (C to B).
|
Elm House
|
|
|
Croftwood
|
£3.0m
|
Extension with 21 high-specification
bedrooms with wet rooms, upgraded bathrooms for five existing
bedrooms, and improved EPC rating (C to B).
|
Amberley
|
|
|
Minster
|
£2.5m
|
16 new bedrooms with wet rooms,
upgrades to 10 existing bedrooms and bathrooms, and improved EPC
rating (C to B).
|
Yew Tree
|
|
|
Prestige
|
£2.5m
|
New 25-bed building on land we
already own, increasing beds at Yew Tree to 101.
|
Ensuring our
tenants maintain our buildings
Regular repairs and maintenance protect the
value of our homes and keep them up to standard for residents
and staff.
Our leases specify the minimum amount our
tenants need to spend and we monitor this carefully, looking at
spend in the current year and the total over the last three years.
The IM regularly visits homes to inspect them and check
progress, with over 110 visits taking place in 2023.
In addition, our valuer, surveyors,
environmental specialists and other advisers support the IM in
reviewing the quality of our buildings. Collectively, they
undertook 197 home inspections in the year.
Where we identify concerns either by tenants
falling behind on their repairs and maintenance commitments against
our covenant requirements, or more generally a concern that the
home does not meet the fully repairing standards expected, we will
engage proactively with those tenants to resolve these
issues.
How we measure
our portfolio quality
The following KPIs reflect the overall quality
of our assets. Our total return and the WAULT are also important
measures of quality:
EPRA topped-up
net initial yield (NIY)
2023
6.92%
2022 6.98%
The EPRA topped-up NIY has been steadily
reducing over the year as the property values have stabilised
following a sudden outward move at the end of 2022. This has been
benefited further by the acquisition of high-quality assets during
the year alongside continued improvements to the existing
portfolio.
Year-end bed
occupancy
2023
88.2%
2022 86.6%
Occupancy across the portfolio continued to
increase during the year, although it was still around half a
percent below pre-COVID levels at the year end. Tenants have
prioritised passing on cost inflation rather than discounting fees
to fill beds, which is reflected in the 13.3% average increase in
their fees in 2023.
Impact Group average adjusted bed
occupancy1
Looked at over a longer period, occupancy has
steadily recovered since the COVID low point of 79% in January
2021, but has not yet fully returned to pre-covid levels of
90%.
1 Excludes one new home
in build-up and three turnaround assets which have not reached
maturity.
Monitoring the
quality of care
The IM tracks reports and ratings from
regulators, and regularly reviews customer feedback on the
homes.
During 2023, the regulator inspected 27 of our
homes. If the regulator rates a home as inadequate or requires
improvement, the IM reviews the report in detail and discusses the
findings with the tenant's operations director.
This allows us to understand the issues, the
actions the tenant is taking and whether there are any broader
operational concerns the tenant is looking to address. Where
appropriate, we'll seek independent support to help resolve
any ongoing issues.
s172
Stakeholders'
interest: community impact and
business reputation
In addition to the financial implications of
building and care quality discussed above, the directors must
consider how these issues can affect the community and the Group's
reputation. Poor buildings or care have a direct impact on
residents' quality of life and the working environment for staff
and therefore the community within which they operate. Badly
maintained buildings and poor care could do significant damage to
tenants' reputations, which in turn could harm perceptions of the
Group.
How we measure
our tenants' care quality
The regulator's ratings are a KPI for
us:
Home rated good
or outstanding by CQC
2023
80.6%
2022 78.2%
The proportion of good or outstanding homes
improved during the year and is above the sector average of 79%. At
the year end, two homes were rated inadequate and 23 required
improvement.
Taking account
of residents' interests
Our tenants are responsible for their residents
and we don't directly engage with them, except when we meet them
during home visits. The main ways we look after residents'
interests are through our oversight of care quality ratings and
ensuring the homes are well maintained, as described
above.
Case
study
Asset
management timeline
January
Works commence at Mavern, Wiltshire
to add eight new bedrooms and residents lounge
|
February
Works commence at Golborne, adding
new bedrooms and wet rooms
|
May
Handover of link block incorporating
11 new bedrooms at Fairview, Bristol, enabling improved operational
efficiency
|
June
Handover at Isle Court Shropshire,
creating three new premium rooms
|
July
Works commence on new 25-bed care
home alongside the existing Yew Tree Care Centre in
Redcar
|
August
Works commence at Amberley House,
Truro, to create 16 new bedrooms, laundry and improved resident day
space
|
October
Works commence at Elm House,
Cheshire, to add 21 bedrooms, resident lounge and
sensory garden
|
November
Handover at Golborne
|
December
Handover at Mavern
|
|
Mavern -
refurbishment and extension in progress
We approved an extension and extensive
refurbishment of Mavern in January 2023 which is due for completion
in early 2024. The refurbishment will modernise the care home
ensuring it can continue to provide high quality care over the term
of the lease while delivering improved energy efficiency in line
with our ESG strategy.
· Beds: +8 beds to 62 beds.
· New resident lounge.
· EPC improvement from C to B - including air source heat pumps
and solar pv.
· Capital expenditure of £1.9 million.
· Target value uplift of £0.5 million.
"We are so pleased with the investment in our
home and the wonderful new bedrooms and day spaces that have been
created. We are sure that residents and staff will benefit
from the improvements and further enhance our reputation
locally."
Justine Old, Registered Manager
Freeland Lodge
- three years on
Construction of Freeland Lodge, a 46-bed care
home, was completed in 2020. Located adjacent to Freeland House the
home offers nursing, dementia and residential care. Three years
after opening, the home is delivering in line with projections with
strong occupancy and similar fees from both self-funded and
publicly funded residents, reflective of the quality of environment
and care provided.
· Beds: 46.
· Capital expenditure: £5.2 million.
· Value uplift since completion £1.6
million1.
· Year-end occupancy: 93.5%.
· AWF: £1,480.
· Carehome.co.uk: 9.5/10.
· CQC: Good.
· EPC: B37.
1 This includes uplifts
on the existing property, Freeland House.
"We are so pleased with the progress we have
made over the last three years. Residents and staff really love the
light and airy spaces and the wonderful views out over the
gardens and beyond."
May Hernandez Vidal-Payne, Registered
Manager
4 | OUR FOCUS
ON AFFORDABILITY
Rent
cover
2.0x +11.7%
2022: 1.8x
For our
business to be sustainable, our tenants must be able to afford our
rent and their fees must be affordable to a sufficient number of
potential residents, both private and publicly
funded.
Our strategic choices relate to the rents we set
when we first agree leases and how we structure our rent review
clauses.
Strategy:
setting initial rents and ensuring sustainable rental
growth
We believe that all our stakeholders will be
better off in the long run if we make sure rents remain affordable.
With this in mind:
· we typically set initial rents to ensure strong rent cover
from day one; and
· all our leases include annual inflation-linked rental growth,
with minimum and maximum increases each year. For most leases,
these are set at 2% and 4% respectively.
This structure shares risk between
us and our tenants. It guarantees that our income will grow every
year, including when inflation is low, while protecting our tenants
when inflation is high, as it has been over the last 12 to 18
months.
Impact leases
inflation linkage
Percentage of Impact leases with RPI
linkage
99%1
Percentage of Impact leases with CPI
linkage
1%
Impact leases
caps and collars
Percentage with floor 2%/cap
4%
85%1
Percentage with floor 1%/cap
5%
14%
Percentage with upwards-only inflation
linkage 1%
s172
Stakeholders'
interests: long-term impact and business
reputation
The way we set initial rents and structure rent
reviews are good examples of our focus on the long term. If rents
become too high, we'll lose tenants and hence income, causing
major disruption to residents and staff, reducing the value of our
assets and risking damage to our reputation. Balancing rental
growth with affordability is therefore a key part of providing
sustainable returns for shareholders.
1 This includes the
seven leases with Melrose which have been temporarily amended to
variable rent.
How we measure
affordability
Rent cover is one of the most important KPIs for
our business. We also track our rental growth and the amount of
rent that's overdue:
Last 12 Months
(LTM) Rent cover
2023
2.00x
2022 1.80x
Rent cover increased throughout the year and was
the highest we'd recorded at the year end. This reflects our
tenants' success in passing on inflationary cost pressures through
higher fees, and the fact that fees grew faster than rent due to
the caps in our leases.
Average rental
growth from rent reviews
2023
4.1%
2022 4.1%
Across both years, all the Group's care home
rents had increased in line with the rent review cap in their
lease.
Rent
collection
2023
99%
2022 100%
In the first half of 2023 Silverline stopped
paying rent, the homes were re-tenanted by June 2023, although this
was partially mitigated by a rental deposit held by the Group; it
resulted in £236,000 rent written off.
The chart on page 31 of the annual report shows
rent cover over time, demonstrating that rents have been
consistently affordable for our tenants, as well as the scale of
the improvement this year
The chart on page 31 of the annual report sets
out the rental growth we've achieved over the last six years and
compares the percentage increase with the rate of inflation. It
shows that we've received above-inflation increases for much of
this period, with our tenants being protected more recently from
high inflation. In total, rent reviews added £1.6 million to our
contracted rent in 2023.
1 Rent cover excludes
seven turnaround homes which were previously operated by Silverline
and were re‑tenanted in June
2023 and one new home in build-up stage. The adjustments are
consistent with reporting in previous periods.
Affordability
of our tenants' rent
An important indicator of whether our tenants'
rent is affordable, is whether they can increase their fees at or
ahead of the rate of inflation. As shown below, care home operators
have a long history of achieving this:
This continued in 2023. Across our portfolio,
the average weekly fee (AWF) rose by 13.3%
to £1,049, contributing to rising tenant profitability
and rent cover.
Case
study
Q&A with
our tenant - Careport
Careport
summary
Number of care homes with
us
9
2023
average occupancy
96%
Public/private fee
split
74% /
26%
Average EBITDARM margin (since January
2020)
26%
Q: What are
your main aims as a business?
A: Our principal aim is to ensure that Careport
is the preferred provider of dementia care in all areas where we
operate.
Q: How do you
do that?
A: We need to show we can deliver on three
fronts: we provide good quality care; we are a reliable partner for
our staff, residents and the people paying for their care; and we
manage well-invested care homes where people want to live and
work.
Q: What are
your plans for 2024 and beyond?
A: During the COVID pandemic we really focused
on being a reliable and trusted care provider during a very
challenging period. Then, in 2023, we had to concentrate on
managing cost inflation. We are now moving into the next period
where we are thinking about the investment required to enable our
business to perform over the longer term.
Q: What kind of
investments are you considering?
A: We are already quite advanced in rolling out
modern digital care management tools and want to take that
investment further. Our aim is not to reduce staff, but to ensure
the staff we have work consistently better and have more job
satisfaction.
That leads into the second major area of
investment - our staff - where we are putting in place measures to
be able recruit the best people, train them and offer a career with
real potential.
Q: Over 75% of
the residents you care for are funded by their local council or NHS
on lower fees than are typically paid in the
private market. Can you afford to
invest?
A: We aim to deliver excellent care at
affordable rates and never forget that in order to be a sustainable
organisation we also need to be a profitable business. Since we
started our relationship with Impact in 2018, our rent cover has
been consistently better than two times during some very
challenging times.
Q: There are
significant capex programmes agreed with Impact due to start in
2024.What's the best project you've worked with
Impact on so far?
A: The completion of the large-scale project we
undertook to convert Blackwell Vale, a weak and underinvested
care home bought in partnership with Impact, into what is now
Riverwell Beck has been transformational. Impact supported us by
envisioning the potential in Blackwell Vale and assisting us to
undertake a complete overhaul of the internal layout, including a
refurbishment and an extension which culminated in an additional
five bedrooms and a significant improvement in the building
specification and energy efficiency.
We worked with Impact to agree an affordable
rent from day one which provided headroom for further investment.
On Riverwell Beck, Impact challenged us to be more optimistic on
the extent of the refurbishment and we are delighted we took this
risk as performance has outperformed our initial
expectations.
Q: And of
course Impact have also worked with you on sustainability
improvement programmes…
A: We are fully aware of the need for greener
and more sustainable properties and have embarked on projects
across our entire portfolio to enhance the energy efficiency of our
buildings; a consequence of which has been lower energy costs.
Impact has been instrumental in providing us with the tools and
funding to improve our buildings' sustainability. This is an area
of capex that we continue to explore, such as installing solar PV
on many of our properties.
5 | INCREASING
OUR SUSTAINABILITY
EPCs
improved
12
8 of which
moved up to a higher band
Carbon
Intensity (kg
CO2e per m2 per year)
54kg
(2022:
50kg)
Carbon intensity has increased, in part due to
increased occupancy, while energy efficiency measures take time to
embed.
We believe that
high quality, affordable care should be accessible to
all.
We were pleased to retain our EPRA sBPR Gold
award for the fourth year running, demonstrating our commitment to
transparent disclosure on the environmental performance of our
portfolio. In 2023, our initial Carbon Disclosure Project report
received a D grade. This is a good platform for a first submission
and we are looking to build on this in the future. The IM is a
signatory to the UN Principles of Responsible Investment (UN PRI)
and has embedded those principles in its risk management and
investment decision‑making
processes.
Care homes are an essential part of the UK's
social infrastructure and have a crucial part to play in their
communities. Our care homes can also free up much-needed bed space
in hospitals, improving people's lives by reducing the time they
spend in hospital and providing them with a more appropriate
setting for community‑based
care. Our homes also benefit the wider community and sustain and
create local employment. We believe that our long-term investment
in these homes delivers positive social outcomes for residents,
their families and the staff providing their care in a community
setting.
Homes for publicly funded residents have
traditionally had less investment than those for private
payers.
As a long-term investor and partner to care
home operators, ensuring our rents are at appropriate levels helps
enable our tenants to provide affordable care for residents who may
have less choice which aligns with our purpose.
We set rents at levels that enable operators to
provide quality care and value for money to residents, irrespective
of whether they are funded privately or by the local authority and
NHS.
Alongside supporting tenants to deliver
excellent care, we are focused on improving the environmental
performance of our portfolio, by increasing our EPC ratings and by
achieving net zero by 2045. We are engaging with tenants to
identify areas where energy consumption can be reduced in line with
our net zero milestones and targets. While the EPC rating of our
homes improved in the year our energy intensity increased from 50kg
CO2e/m2/year to 54kg
CO2e/m2/year. This can in part be explained
by the increased occupancy in our homes and increased carbon
factors for energy compared to 2022. Energy efficiency measures
will take time to embed, and we recognise that our 2025 interim
target of a 15% like for like reduction in carbon emissions is
challenging. We remain committed to identifying areas to invest in
measures to achieve this and are engaging with our tenants to seek
alignment of reducing energy use and carbon emissions in a managed
and affordable way.
Building on our materiality assessment completed
in 2022, the priorities (listed below) informed our ESG strategy,
both of which we referenced in last year's report. During 2023, we
have made good progress with embedding these priorities in our
day-to-day operations and our decision-making, as well as setting
ourselves performance targets where appropriate. Our challenge, as
for many businesses, is that we do not have direct control over
certain areas. We also need to ensure that everything we do is set
within a commercial context.
|
Environmental
|
Social
|
Governance
|
Direct influence
|
·
Energy efficiency management
·
Carbon reduction and net zero strategy
|
·
Close collaboration with care home operators
·
Refurbishment of care homes
·
Provision of affordable care
|
·
Governance and policies for our operations, acquisitions and
disposals
·
Stakeholder engagement
·
Transparent reporting
|
Indirect influence
|
·
Physical impacts of climate change
·
Water and waste management
|
·
Residential care and wellbeing
·
Employee wellbeing, training and retention
|
·
Responsible management of care homes
|
Environment
|
Social
|
Governance
|
Strategic investment in our
portfolio to improve environmental impact.
|
Having a positive impact on the
people living and working in our homes.
|
Robust governance and transparent
reporting to all stakeholders.
|
Improving EPCs through enhancements
to our properties' energy efficiency and reduction in carbon
emissions in line with our net zero pathway.
|
Recognising the vital social role
care homes play and investing in homes that provide high-quality
care to a range of residents.
|
Maintain effective partnerships with
key stakeholders and providing clear and accountable
data.
|
Aligns with the following UN
Sustainable Development Goals.
13, 11
|
Aligns with the following UN
Sustainable Development Goals.
3, 10, 11
|
Aligns with the following UN
Sustainable Development Goals.
8
|
Key pillars of
our ESG framework
ESG
Pillar 1 Strategic Investment in our portfolio to improve
environmental impact.
Objectives
|
How
we do it
|
Metrics
|
Update
|
Ensure all assets achieve a minimum
of EPC Grade C by 2026 and a minimum of B by 2030.
Ensure our portfolio is net zero by
2045 with interim targets of:
- 15% reduction in absolute carbon emission on a like-for-like
basis by the end of 2025, and
- 50% reduction in absolute carbon emission on a like-for-like
basis by the end of 2030.
Ensure our portfolio is resilient to
climate change.
|
Investing in assets that are highly
energy efficient or have the potential to be with further
capex.
Modelling the carbon footprint of
the portfolio and implementing our net zero strategy and
plan.
Investing in asset management
projects to improve energy efficiency.
Climate change scenario
planning.
|
Percentage of assets with EPC of C
or higher.
Number of assets with improved
EPC.
Carbon intensity of portfolio in kg
CO2e/m2/year.
Embodied carbon associated with
developments and extensions.
Percentage of assets with green
leases.
Absolute carbon
emissions.
Capex deployed on environment
improvements.
|
93% of portfolio rated C or higher.
(2022: 88%)1.
12 homes with improved EPCs (2022:
5).
Carbon intensity has increased to 54
kg CO2e/m2/year (2022: 50).
Asset specific carbon mapping
underway on potential capital projects.
17% (2022: 13%).
15,923 tCO2e (2022:
13,768).
£741,000 capital deployed on
sustainability measures in 2023 (2022: n/a).
|
Pillar 2: Having a positive impact on
the people living and working in our homes.
Objectives
|
How
we do it
|
Metrics
|
Update
|
Support health and well-being of
vulnerable people.
Ensure access to quality and value
for money care for both the publicly funded and private-pay
sectors.
|
Investing in quality buildings and
actively monitor care provider performance.
Developing close partnerships with
operators through formal and informal engagement.
Conducting detailed due diligence on
long-term need for care.
Maintaining balance of private and
publicly funded residents.
|
Tenant satisfaction
survey.
Affordability of rental payments to
tenants.
Proportion of publicly funded and
private-pay residents.
Independent impact
report.
CQC ratings.
|
82% rate relationship with Impact as
moderately or very satisfied (2022: 87%).
Rent cover 2.0x (2022:
1.8x).
69% of tenant income funded by
NHS/LA (2022: 69%).
Not commissioned for
2023.
80.6% of homes rated Good or
Outstanding (2022: 78%).
|
Pillar 3: Robust Governance and
transparent reporting to all stakeholders.
Objectives
|
How
we do it
|
Metrics
|
Update
|
Be transparent with all
stakeholders.
Maintain robust corporate
governance.
Proactively listen and engage with
public and private stakeholders.
|
Maintain clear disclosures on
operational performance.
Maintain policies on supplier code
of conduct, anti-money laundering and bribery.
Manage the business in accordance
with our responsible investment policy.
Engage with tenants on good
governance practices.
|
Investment Manager's UN PRI
submission.
EPRA sustainability
rating.
Carbon Disclosure Project
rating.
|
UN PRI Signatory Status (2022
N/A).
Gold rated (fourth year
running).
D rated (2022: F).
|
1 Based of English
equivalent data for Scottish EPCs.
Delivering on a
credible net zero delivery plan
In 2022, we published our commitment to
achieving net zero by 2045, following a specialist consultancy's
desktop analysis of the care homes in our portfolio, using the
widely adopted CRREM toolkit. We also included interim targets for
2025 (15% reduction against 2022 baseline) and 2030 (50% reduction
against 2022 baseline), mindful that it's important that we
demonstrate progress in the near to medium term whilst balancing
the affordability of the investment for our tenants. Over time we
expect the affordability and efficiency of low carbon technologies
to improve, however we are focusing on what measures can also be
achieved today to help deliver against these targets.
In 2023, our CO2e emissions on a
like-for-like basis increased on a m2 basis. Occupancy
is a key driver of energy intensity and this has increased over the
past two years, however our target remains to reduce this overall
and as we implement energy efficiency measures through asset
management projects we expect these emissions to fall.
During 2023, we have continued to research and
refine our path to net zero to ensure that we're creating a
credible net zero delivery plan. We've conducted on-site energy
audits in six homes, which are representative of our portfolio. The
audit results are helping us to engage more effectively with our
tenants to agree a practical, sustainability-related capital
expenditure programme, which takes into account our tenants'
considerations.
We continue to improve our data collection for
energy consumption from our tenants. We have 85% coverage, with
estimates based on previous years for where we don't have up to
date data. As the quality and quantity of our data improves, we're
in a better position to engage with tenants to identify
opportunities where we can increase energy efficiency, reduce
harmful CO2 emissions and reduce running
costs.
In 2023, the energy use intensity and carbon
emissions of our portfolio were as follows:
|
2023
|
2022
|
Like-for-like building energy
intensity (kWh per bed)
|
10,966
|
10,615
|
Like-for-like greenhouse gas
emissions from building energy consumptions (tCO2e
per bed)
|
2.02
|
1.99
|
Like-for-like total indirect
greenhouse gas emissions (kg CO2e per
m2)
|
53
|
50
|
Total indirect greenhouse gas
emissions (kg CO2e per m2)
|
54
|
50
|
Improving the
energy performance of our portfolio
In 2022, we also set out our target to improve
the EPC ratings across our portfolio. Our objective is to
achieve a minimum B rating (or Scottish equivalent) by 2030, with
an interim target of 50% by 2025.
During 2023, we continued to assess where EPC
ratings can be improved through interventions such as building
fabric improvements, more efficient LED lighting and more efficient
heating systems. Where we have implemented measures like these, we
have updated the EPC in accordance with current building
regulations. As a result, we're pleased to report a positive
movement in the proportion of our homes rated EPC B or higher
across the portfolio.
Percentage of assets with an EPC of B or
above1:
Year
|
Target
|
Progress
in 2023
|
2025
|
50%
|
57%
|
2030
|
100%
|
|
1 This data is derived
using the English equivalent EPC ratings for all properties
including Scotland as documented by the published EPC
Certification. The full breakdown of EPCs in Scotland, based on
Scottish methodology, is C (3%), D, (15%), E (59%), F (12%) and G
(12%).
Charitable
causes
In 2023, we were delighted to establish a
partnership with the Care Workers Charity. It supports care workers
in times of need, particularly with mental health support,
financial grants and advocating for care workers generally. We look
forward to supporting its work throughout 2024.
Satisfaction
with Impact as long‑term
partner
Very
satisfied
46%
Moderately
satisfied
36%
Neutral
9%
Not satisfied at
all
9%
Tenant
survey
In 2023, we have again conducted a tenant
survey, facilitated by an independent external body. We are pleased
to report a 92% response rate of which 81% of tenants reported
having a positive relationship with Impact and viewed us a good
long-term partner and 91% reported satisfaction with Impact's level
of engagement with them. We are always keen to get feedback from
tenants and we seek to maintain and grow our positive relationships
with them.
Progress with
our climate resilience
In last year's report, we included our initial
response to the Task Force on Climate-related Financial Disclosures
(TCFD) methodology. We examined the possible physical climate
change risks of three IPCC warming scenarios: RCP 2.6 (1.5-2
degrees), RCP 4.5 (2-3.5 degrees) and RCP 8.5 (4 degrees) across a
representative sample of 20 properties from our portfolio and
considered the wider climate transition risks and opportunities.
The findings, alongside the concurrent work on our net zero
strategy, helped to inform our financial planning and risk
management processes.
During 2023 we have made good progress with
developing our understanding, management, measurement and
decision-making in regard to climate action.
The IM has established an ESG committee to drive
actions and monitor progress, and improved EPC ratings. From a risk
and opportunity perspective, "deep‑dives" have been undertaken into four material
issues, namely:
· physical risk of flooding;
· stranded assets due to an inability to satisfy MEES
requirements;
· the associated costs involved in improving energy efficiency
and fulfilling our net zero delivery plan; and
· initial consideration of carbon pricing mechanisms.
RISK MANAGEMENT
IS INTEGRAL TO THE WAY WE MANAGE OUR BUSINESS
Our purpose is
to deliver attractive risk-adjusted returns.
To achieve
that, we've built risk management into everything we
do.
The board sets our risk appetite, which then
guides the IM's actions when implementing our strategy. While our
appetite for risk will vary over time, in general we maintain a
balanced overall level of risk, which is appropriate for achieving
our strategic objective; working with tenants to provide quality,
affordable and sustainable care homes. The board reviews our risk
appetite each year.
The diagram on page 39 of the annual report
shows the Group's principal risks and uncertainties, in order of
the residual risk that remains after taking account of the
mitigations we have in place.
As the diagram shows, two of our risks are
outside our risk appetite and we're looking to mitigate them
further:
· for significant tenant default, our target is for no tenant to
account for more than 25% of our contracted rent. The Minster Group
and its affiliates are currently 37% of our contracted rent. We aim
to continue adding new tenants over time, to further diversify our
income; and
· for underinvestment in care homes, the board is working with
the IM to understand the cost and delivery plan for achieving our
net zero carbon target by 2045. We're looking at whether we can do
this by investing in the homes in return for higher rents, whether
our tenants could fund the work through increased fees for
residents, or, in the worst case, if it could be an irrecoverable
cost for us.
Risk
tolerance
Our appetite for risk has been reviewed to
assess whether we are operating within our risk tolerance.
Risk tolerance is a continuum and the range for some risks extends
over more than one of these categories.
Risk
appetite
We have defined risk appetite from high to low
in the following categories: 'Accepting' (where we are
focused on maximising opportunities); 'Flexible' (willing to
consider all options); 'Cautious' (where we are willing to tolerate
a degree of risk); 'Minimalist' (preferring options with low
inherent risk); and 'Averse' (where we avoid risk and
uncertainty).
Infectious
diseases
Probability:
Medium
Impact:
Moderate
Change in the year:
No change
Risk
appetite: Cautious
An outbreak of a significant new infectious
disease would clearly place care home residents, who are naturally
vulnerable, at significant danger. It may result in lower care home
occupancy, reduced tenant profitability and higher costs. All of
these would impact on the ability of our tenants to pay us rent,
the value our portfolio and our ability to work with tenants
successfully.
How
we manage this risk
COVID-19, together with other illnesses, means
care home operators have experience of managing infectious
diseases. Since the outbreak of COVID-19, we have increased our
monitoring of occupancy statistics to a weekly format, giving us
rapid feedback on this KPI. Also, having an affordable rent, and
thus strong rent cover, enables our tenant operating partners to
react better to unforeseen changes. In an extreme outbreak we would
expect the government to support operators as they did through
COVID-19; however, should they not provide this support, we have
ensured that our business can sustain a delay in rent
collection.
We continually work with our tenants to explore
improvements to the homes, this can include ensuring the home is
better protected to help with infection control, including air
filtration, temperature sensors and unitisation of the home, to
help with isolating outbreaks.
We believe that, especially with the learnings
from the recent pandemic, the mitigations are sufficient to reduce
the risk to moderate, and to be within our risk
tolerance.
Opportunity
None.
Significant
tenant default
Probability:
Medium
Impact:
Moderate
Change in the year:
No change
Risk
appetite: Cautious
This is the risk that either a single large
tenant (more than 10% of rent roll) defaults or several smaller
tenants default. Any tenant failure is likely to cost us money (as
the Silverline situation shows), but some tenants are larger than
others. Failure of most tenants would have a moderate impact on us,
but a Minster Group failure, as by far the largest group (37% of
rent, including affiliates), would be critical and is why the risk
is outside of our risk tolerance. This could reduce our revenues
and asset values.
How
we manage this risk
Our close monitoring of tenants' performance
enables us to spot issues quickly and we have shown we can replace
a tenant if needed. Most tenants have seen improved profitability
this year.
Our strategy is for no tenant to account for
more than 25% of our contracted rent. Accordingly, we aim to
continue adding new tenants over time, to further diversify our
income. We also maintain close contact with Minster and the IM
receives quarterly accounts which they discuss in detail with the
tenant, confirming its financial health.
Opportunity
None.
Underinvestment
in care homes
Probability:
Medium
Impact:
Moderate
Change in the year:
No change
Risk
appetite: Cautious
Underinvestment could occur if: tenants don't
invest in maintaining the properties, which could reduce the
quality of care they can provide; the market or regulation may
demand enhanced or different facilities (such as limiting the size
of a care home); or, failure to consider the effects of climate
change which could accelerate obsolescence of our care homes (both
physical and low carbon transition risks) including minimum
requirements for EPCs and to meet our net zero target by
2045.
How
we manage this risk
All of our leases have full repair and
maintenance obligations, as described above. In extreme
circumstances, we could replace a tenant who fails to
comply.
We identify asset management opportunities
before we buy assets and where appropriate we commit with our
tenants to ensure this works begins in the first 12 to 18
months.
The board is working with the IM to understand
the cost and delivery plan for achieving our net zero carbon target
by 2045. We are looking at whether we can do this by investing in
the homes in return for higher rents, whether our tenants could
fund the work through increased fees for residents, or, in the
worst case, if it could be an irrecoverable cost for us. While we
continue this work and await guidance on future regulation, we have
put this risk slightly outside of our risk tolerance and we keep it
under close review.
Opportunity
We can fund building extensions or other
improvements, in return for an increase in rent.
Economic
disruption
Probability:
High
Impact:
Moderate
Change in the year:
No change
Risk
appetite: Cautious
An economic downturn could have a moderate to
significant impact on the business, but we believe that our
mitigations are sufficient to bring it within our risk
tolerance.
Difficult economic conditions could put further
pressure on local authority funding, affecting our tenants' fees
and their ability to pay our rent.
High inflation has led to sharp increases in
interest rates, hitting property valuations across all sectors and
placing pressure on the financial covenants of our debt facilities
which if breached, could result in the banks taking security over
our assets. While inflation has come down, interest rates are not
expected to return to the previous very low levels.
How
we manage this risk
We can limit the impact of this risk by buying
well, ensuring our tenants have strong rent cover and managing the
assets to increase their value.
Tenant profitability and long-term affordable
rents are the key to a sustainable business. We regularly assess
our tenants' financial performance, particularly their rent cover.
The Care Act 2014 places responsibilities upon local authorities to
support individuals who need care, which helps to mitigate this
risk.
The board agrees cash flow and debt levels,
maintaining a cautious leverage in line with our risk appetite. Our
LTV cap is 35% and we our aiming to keep our debt levels below this
cap. We also have a policy to limit our exposure to increases in
interest rates through fixed rate debt and interest rate caps. Our
inflation-linked leases ensure our income grows every year, which
supports property valuations.
Opportunity
Reduced asset valuations and/or higher debt
costs may create attractive buying opportunities.
Political
events
Probability:
Medium
Impact:
Moderate
Change in the year:
No change
Risk
appetite: Cautious
Changes to government in the next 12 months are
likely to heighten the risk of changes in policy and funding that
affect our market. Increased regulation, changes to immigration or
changes to care worker pay levels alongside the risk of alternative
ways of providing care could make it harder for our tenants to pay
their rent, reducing the value of our properties.
How
we manage this risk
We see this risk as moderate, because if
government were to change regulation that increases operational
costs in care homes (for whatever reason) it would have to accept
that fees would rise to pay for this - the alternative being
tenants losing money and homes closing, which would be politically
unacceptable and disastrous for local authorities and the NHS. We
have enhanced our knowledge of likely future developments in the
health service and sought contact with opinion formers to increase
their understanding of the sector.
Opportunity
Increased government funding could help the
sector to grow and provide more opportunities for us to
support adult social care.
Reputational
damage
Probability:
Medium
Impact:
Moderate
Change in the year:
No
change
Risk
appetite: Minimalist
Circumstances that could damage our reputation
include our tenants providing poor care or breaching standards
around matters like minimum wage or modern slavery. In addition,
Minster Group is a related party to the IM. If there is a breakdown
in trust on related party disclosures, this could damage our
reputation.
We have also set targets to deliver net zero
carbon by 2045, failure to deliver against our carbon reduction
strategy could damage our reputation with investors and the
community within which our care homes operate.
How
we manage this risk
We are a responsible company and so conscious of
reputational risks, which we think could be critical if
unmitigated, but are minor after the measures we take. We monitor
tenants carefully for the quality of the care, through regular
meetings, care home visits and CQC ratings. We select only tenants
with high standards.
The board ensures we transparently disclose
related party activities and take decisions in the best interest of
stakeholders. The board also oversees the monitoring of our
progress against our ESG targets.
Opportunity
None.
Investment
Manager fails
Probability:
Low
Impact:
High
Change in the year:
No change
Risk
appetite: Minimalist
We rely on the IM's capabilities to execute our
strategy and support our day-to-day relationships. If the IM fails
to retain the key staff, this could result in poor relationships
with stakeholders and, ultimately, failure to collect rent and a
reduction in value of our portfolio.
How
we manage this risk
The service requirements are set out in the
Investment Management Agreement which the board monitors annually
through the management engagement committee and more regularly
through board member interactions with the IM. The IM is a well-run
partnership closely bound into the success of the Company. In the
last resort, the board believes that it could find an alternative
manager to take over. The net risk is therefore within our risk
tolerance.
Opportunity
None.
Other
risks
There are several other risks that we monitor
closely but we don't believe are principal risks for us. These
include:
Taxation
risk - We're a UK REIT and have to comply with
certain rules to maintain that status. Any change to our tax status
or in UK tax legislation could make it harder to achieve our
investment objectives.
Cyber
security - We need to protect our customer and
company data from cyber attacks. Losing sensitive information could
materially harm our financial condition. We have relatively few IT
systems, as the IM runs our business and the Administrator runs the
accounting and banking systems. The risk committee reviews our
internal controls and provides assurance to the audit committee
that they're effective. The audit committee also reviews our
internal controls once a year.
Financial
management - There's a risk that our budgets
and plans are inaccurate, that we've made unrealistic assumptions
or not applied them correctly, leading to our financial position
deteriorating. The board reviews our financial results and any
differences to our forecasts at least once a quarter, so we can
investigate any issues.
Development
activity - Developments are inherently risky
and can face unexpected cost overruns and delays. High inflation
and global supply chain delays have increased this risk over recent
years. Through careful planning, site optimisation and ensuring our
forward-fund commitments are capped, we seek to ensure all
developments remain accretive to investors even if risks
materialise.
FINANCIAL
REVIEW
Portfolio
valuation reflects stabilising asset values
Cushman & Wakefield independently values our
portfolio in accordance with the RICS Valuation - Professional
Standard (the "Red Book").
As at 31 December 2023, the portfolio was valued
at £651.3 million (31 December 2022: £532.5 million), up
£118.8 million or 22.3%. The increase was made up as
follows:
|
Contribution to
valuation increase
|
|
£'m
|
%
|
Acquisitions completed
|
91.71
|
17.2
|
Acquisition costs
capitalised
|
1.8
|
0.3
|
Capital improvements
|
4.7
|
0.9
|
Disposals
|
(1.3)
|
(0.2)
|
Valuation movement
|
21.9
|
4.1
|
Total
|
118.8
|
22.3
|
The like-for-like valuation increase of £21.9
million equates to 5.30 pence per share. Of this, 5.22 pence
per share resulted from inflation-linked rental growth, with 0.08
pence per share due to market value movements.
Resilient
financial performance
Net rental income for the year increased by
17.0% to £49.4 million (2022: £42.2 million). Under IFRS, net
rental income includes some rent we're required to recognise as
income before we receive it, reflecting the minimum uplift in
rents over the lease terms, on a straight‑line basis. Our cash rental income for the year
increased by 18.5% to £42.5 million (2022: £35.9 million). The
issue with Silverline resulted in written off rental income of £0.2
million for the year.
In addition to our net rental income, the total
income we earned from the portfolio in the year included interest
on the loans we'd made to Holmes in December 2021 and Welford in
January 2023, to finance asset purchases. This income totalled £3.7
million in 2023 (2022: £3.2 million) and is included within
our interest income (see below). Having exercised our options to
buy the assets in June 2023, this finance income came to an end and
was replaced by rental income from that date.
Our administrative and other expenses totalled
£7.1 million (2022: £7.0 million), which led to a total expense
ratio of 1.54% for the year (2022: 1.67%). The EPRA cost ratio
reduced to 14.4% (2022: 16.6%). Adjusting revenue to include
interest income from our loans to operators and exclude the
Silverline rent write-off reduces the cost ratio further to 13.4%
(2022: 15.4%).
Finance costs were £12.0 million (2022: £5.4
million), mainly reflecting the increase in SONIA. Interest income
was £3.8 million (2022: £3.2 million), which was largely from the
operator loans and also included £0.1 million of interest on
deposits.
The change in the fair value of investment
properties was a gain of £14.8 million (2022: £(14.5) million
loss), contributing to profit before tax of £48.8 million (2022:
£16.9 million).
Earnings per share (EPS) for the year was 11.79
pence (2022: 4.33 pence) and EPRA EPS was 8.33 pence (2022: 8.37
pence per share). Adjusted EPS, which strips out non-cash and
one-off items, was 7.28 pence (2022: 7.11 pence).
These EPS figures are all on both a basic and
diluted basis. More information on the calculation of EPS can be
found in note 11 to the financial statements.
Attractive and
fully covered dividends
As a REIT, the Company must distribute at least
90% of its qualifying profits each year. The Company has therefore
declared four quarterly dividends of 1.6925 pence each in respect
of 2023, meeting the total dividend target of 6.77 pence per share,
up 3.5% on the 6.54 pence paid in respect of 2022. All four
dividends were Property Income Distributions.
The details of these dividends were as
follows:
Quarter to
|
Declared
|
Paid
|
Cash cost
£'m
|
31 March 2023
|
25 April
2023
|
19 May
2023
|
7.0
|
30 June 2023
|
9 August
2023
|
20
September 2023
|
7.0
|
30 September 2023
|
20 October
2023
|
24
November 2023
|
7.0
|
31 December 2023
|
30 January
2024
|
23
February 2024
|
7.0
|
Total
|
|
|
28.0
|
The total dividend for 2023 was 123% covered by
EPRA EPS and 108% covered by adjusted EPS.
At 31 December 2023, the Company had
distributable reserves of £97.2 million.
1 This includes the
acquisition of a portfolio of nine assets which were invested in
via a loan to operator in December 2021, where the Group had an
option to acquire upon certain regulatory requirements being met.
This option was exercised in June 2023.
Portfolio
valuation drives higher net asset value
The NAV at 31 December 2023 was £478.1 million,
up 7.2% (31 December 2022: £445.9 million). NAV per share was
115.38 pence (31 December 2022: 110.17 pence per share), with the
growth rate of 4.7% reflecting the share issue as part of the
portfolio acquisition in January, which increased the number of
shares in issue by 2.4%.
The chart on page 44 of the annual report shows
the main contributors to the movement in NAV per share. As we're
required to pay out the large majority of our property rental
earnings, the portfolio revaluation was the largest
factor.
Strong and
prudent balance sheet
During the year, we increased the size and
duration of our RCFs, repaid our £15.0 million term loan with Metro
Bank and put further interest rate caps in place. As a result, our
facilities at the year end were as follows:
|
|
|
Drawn
at
|
|
|
|
|
Facility
size
|
31 Dec
2023
|
Propco
interest
|
Propco
LTV
|
|
Expiry
|
(£'m)
|
(£'m)
|
cover
covenant
|
covenant
|
CYBG
|
|
|
|
|
|
RCF
|
Dec
2029
|
50.0
|
32.5
|
200%
|
50%
|
HSBC
|
|
|
|
|
|
RCF
|
Apr
2026
|
75.0
|
47.0
|
200%
|
55%
|
NatWest
|
|
|
|
|
|
RCF
|
Jun
20281
|
50.0
|
30.3
|
175%2
|
50%
|
Private placement
|
|
|
|
|
|
Senior secured notes
|
Dec
2035
|
37.0
|
37.0
|
250%
|
55%
|
Senior secured notes
|
Jun
2035
|
38.0
|
38.0
|
250%
|
55%
|
Total
|
|
250.0
|
184.8
|
|
|
With the option to extend for up to two years
to June 2030, subject to NatWest's agreement.
Interest cover covenant is 175% until June 2025
after which it will increase to 200% for the remainder of the
term.
At the year end, our debt facilities had an
average maturity of 6.3 years (31 December 2022: 6.3 years). If we
exercise the extension options on the NatWest facility, this
increases to 6.7 years.
We had significant liquidity at 31 December
2023, with cash and cash equivalents of £9.4 million and undrawn
debt facilities of £65.2 million. This gave us total headroom of
£60.5 million, after accounting for our capital
commitments.
Dividends and
net interest costs fully covered by operating
cashflows:
Our cash movements in the year show that our
dividends and net annual interest payments are fully covered by
operating activities.
GOING
CONCERN
The board regularly monitors the Company and
Group's ability to continue as a going concern and its longer-term
viability. The going concern assessment covers the 12-month period
to 31 March 2025. Summaries of the Group's liquidity position,
actual and prospective compliance with loan covenants and the
financial strength of its tenants are considered at the scheduled
quarterly board meetings. As part of the Group's assessment, the
modelling includes (but is not limited to) the identification of
uncertainties facing the Group, including:
· the risks of default of the Group's tenants, taking into
consideration current rent cover. We review the occupancy
performance of each tenant over the preceding 12 months and then
run sensitivities by the tenant, including a drop in occupancy of
5%, an increase in staff costs by 5% and other costs by 10% and the
effect these sensitivities have on rent cover and appraise the risk
of a tenant default as low, medium or high; and
· the risk of a fall in investment property values. This may be
because of a multitude of risks. We review the resulting impact on
the Group's debt covenants and the remedial action that may be
taken, including the extent of the resources available to the
Company to cure covenant breaches.
The Group's forecasting model includes a variety
of stress tests including reduction in investment property
valuations, restriction of income from tenants (i.e. non-payment of
rent), the inclusion of increases in underlying costs and increases
in interest rates. Reverse stress tests have been prepared to
evaluate how much valuations or net income would need to fall to
trigger defaults in each of the security pools.
Mitigating actions including corresponding
reductions in costs as valuations fall, the use of unsecured
properties to prevent covenant breaches and stopping dividends were
also considered. The sensitivity scenarios reviewed by the audit
committee and the board include:
· non-payment of rent for all medium and high-risk tenants for
six months while increasing SONIA and bank base rates to 5.5% on
variable interest rate loans;
· assessing the level of loss of rents that could be sustained
within a security group before each covenant or default level is
triggered; and
· assessing the loss of rents or valuation that could be
sustained before the Group's unsecured assets would be fully
utilised in application to cure rights within debt
facilities.
The detailed scenario modelling is performed by
the IM and presented to the audit committee and board for review,
challenge and debate. The projections and scenarios considered in
connection with the approval of this financial information had
particular regard to stresses arising from rising inflation and
interest rates and, in particular, the impact on the trading and
financial strength of the Group's tenants as highlighted
above.
Property values would need to fall by more than
38% before loan-to-value covenant breaches would arise with all
facilities being fully drawn. Rental income would need to fall by
36% before interest cover covenant breaches would arise, with all
facilities being fully drawn.
Going concern
statement
The board has weighed up the risks to going
concern set out above, together with the ability of the Company to
take mitigating action in response to those risks.
The board considers that the combination of
their conclusions as to the tenants' prospects, the headroom
available on debt covenants and the liquidity available to the
Group to deal with stressed scenarios on income and valuation
outlook, leads to a conclusion that the Company and the Group are
each able to continue in business for the foreseeable
future.
In 2024, the Company's Articles of Association
require the board to propose an ordinary resolution at the Annual
General Meeting (AGM) for the Company to continue in its current
form. This will be the first continuation vote since the Company's
inception, if the vote is passed the Company will continue its
business as presently constituted and the continuation vote will be
held at every fifth AGM thereafter. If the vote is not passed the
directors shall within three months after the date of the
resolution, put forward proposals to members to the effect that the
Company be reconstructed, reorganised or wound up. The board are
not aware of any significant or material issues raised by
shareholders in relation to this continuation vote but will
continue to engage with shareholders as the 2024 AGM approaches. In
the event that a continuation vote was not passed, and the Group
instructed to wind up, there would be a process of selling off the
Group's assets and exiting its current business agreements, this
would be expected to take at least 12 months following the AGM so
the Company would continue to be a going concern.
The board therefore consider it appropriate to
adopt the going concern basis in the preparation of this financial
information.
Viability
statement
The period over which the directors consider it
feasible and appropriate to report on the Group's viability is the
five-year period to 31 March 2029. This period has been
selected because it is the period that is used for the Group's
medium-term business plans. The board considers the resilience of
projected liquidity, as well as compliance with debt covenants,
under a range of inflation and property valuation assumptions.
These scenarios include stress tests and reverse stress tests
consistent with those described in the paragraphs preceding the
going concern statement and include a consideration of mitigating
actions that may be taken to avert or mitigate potential threats to
viability.
Given the longer period of assessment covered by
the viability review, further analysis is conducted in order to
test the reasonableness of the key assumptions made and to examine
potential alternative outcomes and mitigating actions relating to
those risks and assumptions.
These included:
· debt re-financings during the forecast period. In relation to
additional refinancing obligations within the period of the
viability assessment, the directors have reasonable confidence that
extensions or replacement debt facilities will be put in place;
and
· furthermore, the Group has the ability to make disposals of
investment properties to meet its future financing requirements;
however, this assessment did not assume any disposals took
place.
Having considered the forecast cash flows and
the impact of the sensitivities in combination, the directors
confirm that they have a reasonable expectation that the Group will
be able to continue in operation and meet its liabilities as they
fall due over the five-year period ending 31 March 2029.
Section 172
statement
Section 172 of the Companies Act 2006 gives the
directors several duties relating to the matters shown in the table
below. During 2023, the directors consider that they've acted in
good faith and in the way that would be most likely to promote the
Company's success for the benefit of shareholders, while also
considering the broad range of stakeholders who interact with our
business.
Matter
|
Response
|
a) The likely consequence of any
decision in the long term.
|
See pages 13 and 30 of the annual
report.
|
b) The interests of the Company's
employees.
|
The Company doesn't have any
employees, so this doesn't apply.
|
c) The need to foster the Company's
business relationships with suppliers, customers and
others.
|
Tenants: see pages 19, 21 and 54 of
the annual report.
Service providers: see pages 54 and
55 of the annual report.
|
d) The impact of the Company's
operations on the community and environment.
|
See pages 13, 21 and 26 of the
annual report.
|
e) The desirability of the Company
maintaining a reputation for high standards of business
conduct.
|
See pages 21, 26 and 30 of the
annual report.
|
f) The need to act fairly between
members of the Company.
|
The directors must ensure they treat
all shareholders fairly when making their decisions. The board
wasn't required to make any decisions in 2023 where any group of
shareholders could be treated differently from others, so this
issue didn't arise.
|
Key board
decisions
The board's key decisions in the year included
approving:
· the portfolio acquisition in January (page 17 of the annual
report);
· the revised dividend policy (page 16 of the annual report);
and
· replacing Silverline as a tenant (page 21 of the annual
report).
The other significant matters the directors
considered are shown on pages 52 to 54 of the annual
report.
This strategic report was approved by the board
on 22 March 2024 and signed on its behalf by:
Simon
Laffin
Chair
STATEMENT OF
RESPONSIBILITIES
Directors'
statement of responsibilities
The directors are responsible for preparing the
annual report and the Group and Parent Company financial statements
in accordance with applicable law and regulations. Company law
requires the directors to prepare the Group and Company financial
statements for each financial year. The Group financial statements
have been prepared in accordance with UK‑adopted international accounting standards. The
Company financial statements have been prepared in accordance with
United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law). Under company
law, the directors must not approve the financial statements unless
they are satisfied they give a true and fair view of the state of
affairs of the Group and Company and of the profit or loss for the
Group and Company for that year.
In preparing the financial statements, the
directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make judgements and estimates that are reasonable and
prudent;
· for the Group financial statements, state whether they have
been prepared in accordance with UK-adopted international
accounting standards, subject to any material departures disclosed
and explained in the Group financial statements;
· for the Company financial statements, state whether they have
been prepared in accordance with Financial Reporting Standard 102
(FRS 102), subject to any material departures disclosed and
explained in the Company financial statements; and
· prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
Company will continue in business.
The directors are responsible for keeping
adequate accounting records that are sufficient to show and explain
the Group's and Company's transactions and disclose with reasonable
accuracy at any time the financial position of the Group and
Company and enable them to ensure that its financial statements
comply with the Companies Act 2006.
They have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the
Group and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Under applicable law and regulations, the
directors are also responsible for preparing a directors' report, a
strategic report, a directors' remuneration report and a corporate
governance statement that comply with that law and those
regulations.
Website
publication
The directors are responsible for ensuring the
annual report, including the financial statements, is made
available on a website. Financial statements are published on the
Company's website in accordance with legislation in the United
Kingdom governing the preparation and dissemination of financial
statements, which may vary from legislation in other jurisdictions.
The maintenance and integrity of the Company's website (at
https://www.impactreit.uk) is the responsibility of the directors.
The directors' responsibility also extends to the ongoing integrity
of the financial statements contained therein.
Directors'
responsibility statement, pursuant to DTR4
We confirm that to the best of our
knowledge:
· the financial statements have been prepared in accordance with
UK-adopted international accounting standards and give a true and
fair view of the assets, liabilities, financial position and profit
or loss of the Company and the undertakings included in the
consolidation as a whole; and
· the management report includes a fair review of the
development and performance of the business and the financial
position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
Signed on behalf of the board by:
Simon
Laffin
Chair
22 March 2024
CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME
For the year
ended 31 December 2023
|
Notes
|
31 December 2023 Total
£'000
|
31
December 2022 Total £'000
|
Gross rental income
|
5
|
49,659
|
42,242
|
Bad debts written off
|
5
|
(236)
|
-
|
Insurance/service charge
income
|
5
|
871
|
704
|
Insurance/service charge
expense
|
5
|
(871)
|
(704)
|
Net
rental income
|
|
49,423
|
42,242
|
Administrative and other
expenses
|
6
|
(7,137)
|
(7,009)
|
(Loss)/profit on disposal of
investment properties
|
13
|
(16)
|
130
|
Operating profit before changes in fair
value
|
|
42,270
|
35,363
|
Changes in fair value of put
option
|
|
-
|
(1,811)
|
Changes in fair value of investment
properties
|
13
|
14,788
|
(14,456)
|
Operating profit
|
|
57,058
|
19,096
|
Finance income
|
8
|
3,761
|
3,200
|
Finance expense
|
9
|
(11,988)
|
(5,408)
|
Profit before tax
|
|
48,831
|
16,888
|
Tax charge on profit for the
year
|
10
|
-
|
-
|
Profit and total comprehensive income (attributable to
shareholders)
|
|
48,831
|
16,888
|
Earnings per share - basic and diluted
(pence)
|
11
|
11.79p
|
4.33p
|
The results are derived from continuing
operations during the year, the Group had no other comprehensive
income in the current or prior year.
CONSOLIDATED
STATEMENT OF FINANCIAL POSITION
As at 31
December 2023
|
Notes
|
31 December 2023
£'000
|
31
December 2022
|
Non-current assets
|
|
|
|
Investment property
|
13
|
616,006
|
504,318
|
Interest rate derivatives
|
18
|
1,750
|
-
|
Trade and other
receivables
|
14
|
39,237
|
68,131
|
Total non-current assets
|
|
656,993
|
572,449
|
Current assets
|
|
|
|
Trade and other
receivables
|
14
|
907
|
1,181
|
Interest rate derivatives
|
18
|
-
|
363
|
Cash and cash equivalents
|
15
|
9,389
|
22,531
|
Total current assets
|
|
10,296
|
24,075
|
Total assets
|
|
667,289
|
596,524
|
Current liabilities
|
|
|
|
Borrowings
|
17
|
-
|
(14,814)
|
Trade and other payables
|
16
|
(6,915)
|
(9,126)
|
Total current liabilities
|
|
(6,915)
|
(23,940)
|
Non-current liabilities
|
|
|
|
Borrowings
|
17
|
(179,937)
|
(122,382)
|
Put option
|
16
|
-
|
(1,811)
|
Trade and other payables
|
16
|
(2,330)
|
(2,471)
|
Total non-current liabilities
|
|
(182,267)
|
(126,664)
|
Total liabilities
|
|
(189,182)
|
(150,604)
|
Total net assets
|
|
478,107
|
445,920
|
Equity
|
|
|
|
Share capital
|
21
|
4,144
|
4,048
|
Share premium reserve
|
21
|
376,716
|
365,642
|
Capital reduction reserve
|
21
|
24,077
|
24,077
|
Retained earnings
|
|
73,170
|
52,153
|
Total equity
|
|
478,107
|
445,920
|
Net
asset value per ordinary share (pence)
|
23
|
115.38p
|
110.17p
|
The consolidated financial statements for Impact
Healthcare REIT plc (registered number: 10464966) were approved and
authorised for issue by the board of directors on 22 March 2024 and
are signed on its behalf by:
Simon
Laffin
Chair
CONSOLIDATED
STATEMENT OF CASH FLOWS
For the year
ended 31 December 2023
|
Notes
|
31 December 2023
£'000
|
31
December 2022 £'000
|
Cash flows from operating activities
|
|
|
|
Profit for the year (attributable to
equity shareholders)
|
|
48,831
|
16,888
|
Finance income
|
8
|
(3,761)
|
(3,200)
|
Finance expense
|
9
|
11,988
|
5,408
|
Loss/(profit) on disposal of
investment properties
|
13
|
16
|
(130)
|
Changes in fair value of put
option
|
18
|
-
|
1,811
|
Changes in fair value of investment
properties
|
13
|
(14,788)
|
14,456
|
Net cash flow before working capital
changes
|
|
42,286
|
35,233
|
Working capital changes
|
|
|
|
Increase in trade and other
receivables
|
|
(6,308)
|
(5,952)
|
(Decrease)/increase in trade and
other payables
|
|
(2,618)
|
207
|
Net
cash flow generated from operating activities
|
|
33,360
|
29,488
|
Investing activities
|
|
|
|
Purchase of investment
properties
|
|
(44,799)
|
(69,217)
|
Proceeds on sale of investment
property
|
|
1,234
|
2,625
|
Acquisition costs
capitalised
|
|
(1,765)
|
(2,661)
|
Capital improvements
|
|
(3,375)
|
(11,195)
|
Loan advanced to operator
|
|
(1,600)
|
-
|
Loan associated costs
|
|
-
|
(478)
|
Interest received
|
|
3,695
|
3,270
|
Net
cash flow used in investing activities
|
|
(46,610)
|
(77,656)
|
Financing activities
|
|
|
|
Proceeds from issue of
shares
|
21
|
-
|
62,269
|
Issue costs of ordinary share
capital
|
21
|
(30)
|
(1,757)
|
Borrowings drawn
|
17
|
82,500
|
85,074
|
Borrowings repaid
|
17
|
(40,000)
|
(57,362)
|
Loan arrangement fees
paid
|
|
(2,827)
|
(1,265)
|
Loan commitment fees paid
|
|
(528)
|
(628)
|
Purchase of derivative
|
|
(3,238)
|
-
|
Interest payments received on
interest rate derivatives
|
18
|
1,035
|
112
|
Interest paid on bank
borrowings
|
|
(8,990)
|
(3,281)
|
Dividends paid to equity
holders
|
12
|
(27,814)
|
(25,724)
|
Net
cash flow generated from financing activities
|
|
108
|
57,438
|
Net (decrease)/increase in cash and
cash equivalents for the year
|
|
(13,142)
|
9,270
|
Cash and cash equivalents at the
start of the year
|
|
22,531
|
13,261
|
Cash and cash equivalents at the end of the
year
|
15
|
9,389
|
22,531
|
CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY
For the year
ended 31 December 2023
|
Notes
|
Share
capital £'000
|
Share
premium £'000
|
Capital
reduction reserve £'000
|
Retained
earnings £'000
|
Total
£'000
|
1
January 2023
|
|
4,048
|
365,642
|
24,077
|
52,153
|
445,920
|
Total comprehensive income
|
|
-
|
-
|
-
|
48,831
|
48,831
|
Transactions with owners
|
|
|
|
|
|
|
Dividends paid
|
12
|
-
|
-
|
-
|
(27,814)
|
(27,814)
|
Share issue
|
21
|
96
|
11,104
|
-
|
-
|
11,200
|
Share issue costs
|
21
|
-
|
(30)
|
-
|
-
|
(30)
|
31
December 2023
|
|
4,144
|
376,716
|
24,077
|
73,170
|
478,107
|
For the year
ended 31 December 2022
|
Notes
|
Share
capital £'000
|
Share
premium £'000
|
Capital
reduction reserve £'000
|
Retained
earnings £'000
|
Total
£'000
|
1
January 2022
|
|
3,506
|
305,672
|
24,077
|
60,989
|
394,244
|
Total comprehensive income
|
|
-
|
-
|
-
|
16,888
|
16,888
|
Transactions with owners
|
|
|
|
|
|
|
Dividends paid
|
12
|
-
|
-
|
-
|
(25,724)
|
(25,724)
|
Share issue
|
21
|
542
|
61,727
|
-
|
-
|
62,269
|
Share issue costs
|
21
|
-
|
(1,757)
|
-
|
-
|
(1,757)
|
31
December 2022
|
|
4,048
|
365,642
|
24,077
|
52,153
|
445,920
|
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
For the year
ended 31 December 2023
1. Basis of
preparation
General information
The consolidated financial statements for the
year ended 31 December 2023 are prepared in accordance with
UK-adopted international accounting standards.
The financial information does not constitute
the Group's financial statements for the periods ended 31 December
2023 or 31 December 2022, but is derived from those financial
statements. Financial statements for the year ended 31 December
2022 have been delivered to the Registrar of Companies and those
for the year ended 31 December 2023 will be delivered following the
Company's Annual General Meeting. The auditor's reports on both the
31 December 2022 and 31 December 2023 financial statements were
unqualified; did not draw attention to any matters by way of
emphasis; and did not contain statements under section 498 (2) or
(3) of the Companies Act 2006.
The consolidated financial statements have been
prepared on a historical cost basis, except for investment
properties, the put option and interest rate derivatives, which
have been measured at fair value.
The Group has chosen to adopt EPRA best
practices recommendations guidelines for calculating key metrics
such as earnings per share.
The Company is a public listed company
incorporated and domiciled in England and Wales. The Company's
ordinary shares are listed on the Premium Listing Segment of the
Official List and trade on the premium segment of the main market
of the London Stock Exchange. The registered address of the Company
is disclosed in the corporate information.
Convention
The consolidated financial statements are
presented in Sterling, which is also the Group's functional
currency, and all values are rounded to the nearest thousand
(£'000), except when otherwise indicated.
Going concern
The strategic report describes the Group's
financial position, cash flows and liquidity position. The
principal risks are set out in this report and note 19 to the
financial statements also provide details of the Group's financial
instruments and its exposure to liquidity and credit
risk.
The ongoing effect of the high inflation and
interest rate environment has been considered by the directors. The
directors have reviewed the forecasts for the Group taking into
account the impact of heightened interest rates and rising costs on
trading over the 12 months from the date of signing this annual
report. The forecasts have been assessed against a range of
possible downside outcomes incorporating significantly lower levels
of income and higher costs; see going concern and viability for
further detail.
The directors believe that there are currently
no material uncertainties in relation to the Group's ability to
continue for a period of at least 12 months from the date of
approval of the Group's financial statements. The board is,
therefore, of the opinion that the going concern basis adopted in
the preparation of the annual report is appropriate.
2. Significant
accounting judgements, estimates and assumptions
The preparation of the Group's financial
statements requires management to make judgements, estimates and
assumptions that affect the reported amounts recognised in the
financial statements and disclosures. However, uncertainty about
these assumptions and estimates could result in outcomes that could
require material adjustment to the carrying amount of the assets or
liabilities in future periods.
Information about significant areas of
estimation, uncertainty and critical judgements in applying
accounting policies that have the most significant effect on the
amount recognised in the financial statements are disclosed
below.
2.1.
Judgements
Operating
lease contracts - the Group as lessor
The Group has acquired investment properties
that are subject to commercial property leases with tenants. The
Group has determined, based on an evaluation of the terms and
conditions of the arrangements, particularly the duration of the
lease terms and minimum lease payments, that it retains all the
significant risks and rewards of ownership of these properties and
so accounts for the leases as operating leases.
The leases, when signed, are for between 20 and
30 years with a tenant-only option to extend for one or two periods
of 10 years. At the inception of the lease, management do not
judge any extension of the leases to be reasonably certain and, as
such, do not factor any lease extensions into their considerations
of lease incentives and their treatment.
2.2.
Estimates
Fair valuation
of investment property
The valuations have been prepared in accordance
with the RICS Valuation - current edition of the global and UK
standards as at the valuation date, or the RICS "Red Book" as
it has become widely known.
The basis of value adopted is that of fair value
being "the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date" in accordance with IFRS 13.
The concept of fair value is considered to be consistent with that
of market value.
The significant methods and assumptions used by
the valuers in estimating the fair value of the investment
properties are set out in note 13.
Gains or losses arising from changes in the fair
values are included in the consolidated statement of comprehensive
income in the period in which they arise. In order to avoid double
counting, the assessed fair value may be increased or reduced by
the carrying amount of any accrued income resulting from the
spreading of lease incentives and/or guaranteed minimum rent
uplifts at the inception of the lease.
The nature of uncertainty regarding the
estimation of fair value as well as sensitivity analysis has been
considered as set out in note 13.
3. Summary of
material accounting policies
The principal accounting policies applied in the
preparation of these consolidated financial statements are set out
below or alongside the relevant note.
Basis of consolidation
The consolidated financial statements comprise
the financial statements of the Company and all of its subsidiaries
drawn up to 31 December 2023. Subsidiaries are those entities,
including special purpose entities, controlled by the Company.
Control exists when the Company is exposed, or has rights, to
variable returns from its investment with the investee and has the
ability to affect those returns through its power over the
investee. In assessing control, potential voting rights that
presently are exercisable are taken into account. The financial
statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the
date that control ceases.
Segmental information
The board is of the opinion that the Group is
engaged in a single segment business, being the investment in the
United Kingdom in healthcare assets. The board consider that these
properties have similar economic characteristics and as a result,
these individual properties have been aggregated into a single
reportable operating element. Reporting on tenants providing
greater than 10% of revenue is included in note 5.
4. New
standards issued
4.1.
New standards issued with effect from 1 January
2023
No new standards have been applied that have had
a material effect on the financial position or performance of
the Group.
4.2.
New standards issued but not yet effective
There are no new standards issued but not yet
effective that are expected to have a material effect on the
Group.
5. Property
income
|
Year ended 31 December 2023
£'000
|
Year ended
31 December 2022 £'000
|
Rental income cash received in the year
|
42,513
|
35,889
|
Rent received in advance of
recognition1
|
141
|
170
|
Rent recognised in advance of
receipt2
|
7,145
|
6,324
|
Rental lease incentive
amortisation3
|
(140)
|
(141)
|
Gross rental income
|
49,659
|
42,242
|
Bad debts written
off4
|
(236)
|
-
|
Insurance/service charge
income
|
871
|
704
|
Insurance/service charge
expense
|
(871)
|
(704)
|
Net
rental income
|
49,423
|
42,242
|
1 This relates to
movement in rent premiums received in prior periods as well as any
rent premiums received during the year, deemed to be a premium over
the term of the lease.
2 Relates to movement
in both rent-free periods being recognised on a straight-line basis
over the term of the lease and rent recognised in the period to
reflect the minimum uplift in rents over the term of the lease on a
straight-line basis.
3 Lease incentives
relate to the amortisation of payments made to tenants that are not
part of any acquisition contractual obligations. These payments are
made in return for an increase in rent.
4 Bad debts written off
relates to rental arrears due from one tenant who leased seven of
the Group's properties, in the period these properties were
re-tenanted, see note 22 for further detail.
For accounting purposes, premiums received are
reflected on a straight-line basis over the term of the lease. In
addition, the Group benefits from a minimum annual rental uplift of
1% or 2% on all care home leases. For accounting purposes these
uplifts are also incorporated to recognise income on a
straight-line basis.
Insurance/service charge relates to property
insurance that is paid by the Group and recharged
to tenants.
Minster Care Management Limited and Croftwood
Care UK Limited are both part of the Minster Care Group Limited and
together represent 38.4% of gross rental income:
|
2023
|
2022
|
Minster Care Management
Limited
|
24.9%
|
29.3%
|
Welford
|
17.1%
|
11.3%
|
Croftwood Care UK Limited
|
13.5%
|
15.4%
|
Holmes Care Group
|
12.5%
|
10.3%
|
Others
|
32.0%
|
33.7%
|
Accounting
policy
Rental income
Rental income arising on investment properties
is included in gross rental income in the consolidated statement of
comprehensive income and is accounted for on a straight-line basis
over the lease term. The change in the RPI is reviewed
annually, with the minimum uplifts being taken into consideration
when accounting for the rental income on a straight-line basis upon
inception of the lease. The resulting asset or liability is
reflected as a receivable or payable in the consolidated statement
of financial position.
When a contract includes both lease and
non-lease components, the Group applies IFRS 16 to allocate
the consideration under the contract to each
component.
The valuation of investment properties is
increased or reduced by the total of the unamortised lease,
incentive and straight-line receivable or payable balances. Any
remaining balances in respect of properties disposed of are
included in the calculation of the profit or loss arising at
disposal.
The initial lease rental payments and guaranteed
rental uplifts are spread evenly over the lease term, even if
payments are not made on such a basis. The lease term is the
non-cancellable period of the lease together with any further term
for which the tenant has the option to continue the lease, except
for where, at the inception of the lease, the directors have no
certainty that the tenant will exercise that option.
Increased rental payments arising from the
variation of the lease on capital improvement licences are spread
evenly over the remaining lease term from the date of signing the
licence agreement.
At each rent review, the uplift in rent is
calculated in accordance with the terms of the lease. If greater
than the minimum uplift then the uplift above and beyond the
minimum recognised is calculated and recognised in the period in
which it arises, with there being no rebasing of the amounts to
recognise over the remaining lease.
Service charges, insurance and other
expenses recoverable from tenants
Income arising from expenses recharged to
tenants is recognised in the year which the compensation becomes
receivable. Service, insurance and other similar charges that are
recoverable are included in gross rental income as the
directors consider that the Group acts as principal in this
respect.
6.
Administrative and other expenses
|
Year ended
|
Year
ended
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Investment Manager fees (see note
22)
|
4,810
|
4,581
|
Directors' remuneration (see note
7)
|
276
|
250
|
Auditor's fees
|
|
|
- Statutory audit of the Company and
Group (including subsidiaries)
|
302
|
280
|
- Agreed upon procedures for the
Company's interim report
|
17
|
16
|
Total auditor's
fees1
|
319
|
296
|
Administration fees
|
523
|
497
|
Regulatory fees
|
34
|
18
|
Legal and professional
|
912
|
630
|
Recruitment services and
remuneration committee advice
|
32
|
70
|
Other administrative
costs
|
231
|
667
|
|
7,137
|
7,009
|
1 In 2023, the auditor
also received fees of £nil (2022: £66,000) relating to other
advisory services in relation to share issues during the year.
These fees have been recognised in share premium as share issue
costs.
The amounts shown above include irrecoverable
VAT as appropriate.
7. Directors'
remuneration
The Group had no employees in the current or
prior period. The directors, who are key management personnel of
the Company, are appointed under letters of appointment for
services. Directors' remuneration, all of which represents their
fees for services provided during the year, are as
follows:
|
Year ended
|
Year
ended
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Simon Laffin (Chair)
|
55
|
-
|
Rupert Barclay (resigned)
|
15
|
49
|
Rosemary Boot
|
40
|
35
|
Philip Hall
|
40
|
35
|
Paul Craig (resigned)
|
15
|
35
|
Amanda Aldridge
|
46
|
41
|
Chris Santer
|
40
|
35
|
|
251
|
230
|
Employer's National
Insurance
|
25
|
20
|
|
276
|
250
|
Directors' remuneration payable at 31 December
2023 amounted to £18,440 (2022: £10,242).
8. Finance
income
|
Year ended
|
Year
ended
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Bank interest
|
55
|
8
|
Loan interest
|
3,706
|
3,192
|
|
3,761
|
3,200
|
Loan interest income relates to interest on
loans made to operators to purchase property portfolios. Upon
granting these loans, the Group enters into put and call option
agreements that allows it to purchase the property-owning entity
for £1 upon certain conditions being met.
Accounting
policy
Finance income
Finance income is accounted for on an accruals
basis.
9. Finance
expenses
|
|
Year ended
|
Year
ended
|
|
|
31
December
|
31
December
|
|
|
2023
|
2022
|
|
Note
|
£'000
|
£'000
|
Interest payable on bank
borrowings
|
|
9,584
|
3,985
|
Commitment fee payable on
borrowings
|
|
528
|
599
|
Amortisation of loan arrangement
fee
|
|
1,418
|
1,205
|
Changes in fair value of interest
rate derivatives
|
18
|
458
|
(381)
|
|
|
11,988
|
5,408
|
The total interest payable on financial
liabilities carried at amortised cost comprises interest payable on
borrowings, which was £184.8m at 31 December 2023 (2022: £142.3m).
Amortisation on loan arrangement fees relates to capitalised fees
being amortised over the term of the facility, in the year ended 31
December 2023 £1.2m was capitalised (2022: £2.6m).
Accounting
policy
Finance expense
Finance expenses consist principally of interest
payable, amortisation of loan arrangement fees and fair value
movements on interest rate derivatives.
Loan arrangement fees are expensed over the term
of the relevant loan. Interest payable and other finance costs
which the Group incurs on bank facilities, are expensed in the
period to which they relate.
10.
Taxation
As a REIT, the Group is exempt from corporation
tax on the profits and gains from its property investment business,
provided it continues to meet certain conditions as per REIT
regulations. For the year ended 31 December 2023 and the year
ended 31 December 2022, the Group did not have any
non-qualifying profits except interest income.
Tax charge in the consolidated statement of
comprehensive income:
|
Year ended
|
Year
ended
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
UK
corporation tax
|
-
|
-
|
Reconciliation of the corporation tax
charge:
|
Year ended
|
Year
ended
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Profit before tax
|
48,831
|
16,888
|
Theoretical tax at UK corporation
tax rate 23.5% (2022: 19%)
|
11,475
|
3,209
|
Effects of:
|
|
|
REIT exempt profits
|
(8,860)
|
(5,905)
|
Non-taxable items
|
(2,615)
|
2,696
|
Total tax charge
|
-
|
-
|
Under the UK REIT rules within which the Group
operates, capital gains on the Group's UK properties are generally
exempt from UK corporation tax, provided they are not held for
trading. The Group also received income outside of the property
rental business (not covered by the REIT tax exemptions), this was
namely in the form of interest income on loans to operators for the
acquisition of property portfolios where the Group had an option to
acquire upon certain regulatory requirements being met. This income
was offset by residual business expenses and carried forward losses
so incurred no tax charge for the period.
Accounting
policy
Taxation
The Group is a REIT in relation to its property
investments and is therefore exempt from tax, subject to
the Group maintaining its REIT status.
Current tax is the expected tax payable on any
non-REIT taxable income for the year, using tax rates enacted or
substantively enacted at the balance sheet date.
11. Earnings
per share
Earnings per share (EPS) amounts are calculated
by dividing profit for the period attributable to ordinary equity
holders of the Company by the time-weighted average number of
ordinary shares outstanding during the period. As there are no
dilutive instruments outstanding, basic and diluted earnings per
share are identical.
|
Year ended
|
Year
ended
|
|
31
December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Total comprehensive income (attributable to
shareholders)
|
48,831
|
16,888
|
Adjusted for:
|
|
|
- Revaluation movement
|
(21,934)
|
8,103
|
- Rental lease incentive
|
(140)
|
(141)
|
- Rental income arising from
recognising rental premiums and future guaranteed rent
uplifts
|
7,286
|
6,494
|
Change in fair value of investment
properties
|
(14,788)
|
14,456
|
Change in fair value of put
option
|
-
|
1,811
|
Loss/(profit) on disposal of
investment property
|
16
|
(130)
|
Change in fair value of interest
rate derivative
|
458
|
(381)
|
EPRA earnings
|
34,517
|
32,644
|
Adjusted for:
|
|
|
Rental income arising from
recognising rental premiums and future guaranteed rent
uplifts
|
(7,287)
|
(6,494)
|
Amortisation of lease
incentives
|
141
|
141
|
Cash received on interest rate
cap
|
1,393
|
112
|
Amortisation of loan arrangement
fees
|
1,418
|
1,205
|
(Loss)/profit on disposal of
investment property
|
(16)
|
130
|
Adjusted earnings
|
30,166
|
27,738
|
Average number of ordinary
shares
|
414,157,674
|
390,058,661
|
Earnings per share (pence)1
|
11.79p
|
4.33p
|
EPRA basic and diluted earnings per share
(pence)1
|
8.33p
|
8.37p
|
Adjusted basic and diluted earnings per share
(pence)1
|
7.28p
|
7.11p
|
1 There is no
difference between basic and diluted earnings per share.
The European Public Real Estate Association
(EPRA) publishes guidelines for calculating adjusted earnings
designed to represent core operational activities.
The EPRA earnings are arrived at by adjusting
for the changes in fair value of investment properties and interest
rate derivatives, and removal of profit or loss on disposal of
investment properties.
Adjusted earnings:
Adjusted earnings is used by the board to help
assess the Group's ability to deliver a cash covered dividend from
recurring net income. The metric adjusts EPRA earnings by other
non-cash items credited or charged to the Group statement of
comprehensive income including the effect of straight-lining of
rental income from fixed rental uplift adjustments and amortisation
of loan arrangement fees. The metric also adjusts for any one-off
costs that are not expected to be recurring and for cash items
which are excluded from the EPRA earnings calculation such as
interest income on hedging arrangement.
Fixed rental uplift adjustments relate to
adjustments to net rental income on leases with minimum uplifts
embedded within their review profiles. The total minimum income
recognised over the lease term is recognised on a straight-line
basis and therefore not supported by cash flows during the early
term of the lease, but this reverses towards the end of the
lease.
The board uses the adjusted earnings alongside
the available distributable reserves in its consideration and
approval of dividends.
12.
Dividends
|
|
Year ended
|
Year
ended
|
|
|
31
December
|
31
December
|
|
Dividend
rate
|
2023
|
2022
|
|
(pence per
share)
|
£'000
|
£'000
|
Fourth interim dividend for the
period ended 31 December 2021 (ex-dividend -
25 February 2022)
|
1.6025p
|
-
|
6,181
|
First interim dividend for the
period ended 31 December 2022 (ex-dividend - 5 May
2022)
|
1.6350p
|
-
|
6,307
|
Second interim dividend for the
period ended 31 December 2022 (ex-dividend - 25 August
2022)
|
1.6350p
|
-
|
6,618
|
Third interim dividend for the
period ended 31 December 2022 (ex-dividend -
3 November 2022)
|
1.6350p
|
-
|
6,618
|
Fourth interim dividend for the
period ended 31 December 2022 (ex-dividend -
31 January 2023)
|
1.6350p
|
6,775
|
-
|
First interim dividend for the
period ended 31 December 2023 (ex-dividend - 25 April
2023)
|
1.6925p
|
7,013
|
-
|
Second interim dividend for the
period ended 31 December 2023 (ex-dividend - 9 August
2023)
|
1.6925p
|
7,013
|
-
|
Third interim dividend for the
period ended 31 December 2023 (ex-dividend -
20 October 2023)
|
1.6925p
|
7,013
|
-
|
Total dividends paid
|
|
27,814
|
25,724
|
Total dividends paid in respect of
the year
|
|
5.0775p
|
4.9050p
|
Total dividends unpaid but declared
in respect of the year
|
|
1.6925p
|
1.6350p
|
Total dividends declared in respect of the year - per
share
|
|
6.77p
|
6.54p
|
On 31 January 2023, the Company declared an
interim dividend of 1.6350 pence per share for the period from
1 October 2022 to 31 December 2022 and was paid on 24 February
2023.
On 25 April 2023, the Company declared an
interim dividend of 1.6925 pence per ordinary share for the period
from 1 January 2023 to 31 March 2023 and was paid on 19 May
2023.
On 9 August 2023, the Company declared an
interim dividend of 1.6925 pence per share for the period from 1
April 2023 to 30 June 2023 and was paid on 20 September
2023.
On 20 October 2023, the Company declared an
interim dividend of 1.6925 pence per share for the period 1 July
2023 to 30 September 2023 and was paid on 24 November
2023.
Accounting
policy
Dividends
Dividends are recognised when they become
legally payable.
13. Investment
property
In accordance with the RICS "Red Book" the
properties have been independently valued on the basis of fair
value by Cushman & Wakefield, an accredited independent valuer
with a recognised professional qualification. They have recent and
relevant experience in the locations and categories of investment
property being valued and skills and understanding to undertake the
valuations competently. The properties have been valued on an
individual basis and their values aggregated rather than the
portfolio valued as a single entity. The valuers have used
recognised valuation techniques in accordance with those
recommended by the International Valuation Standards Committee and
are compliant with IFRS 13. Factors reflected include current
market conditions, annual rentals, lease lengths, property
condition, including improvements affected during the year, rent
coverage, location and comparable evidence.
The valuers of the Group property portfolio have
a working knowledge of the various ways that environmental, social
and governance factors can impact the value of property. Concerning
Governance, within the care sector in the UK, the valuers reflect
the latest available regulatory reports from the various regulatory
bodies within the UK (being CQC, CSSIW, Care Inspectorate and
RQIA). With regards to Social, there are fewer established
benchmarks in this area but the valuers are aware that care homes
generally meet a social need to residents and are also employment
providers.
Environmental and sustainability standards,
which vary across parts of the UK are also referenced within the
valuers' report. The valuers also note that they continue to
monitor the wider property market for evidence of transactional
activity that evidences the views of market participants in this
area.
The Group continues to share recently conducted
physical climate and transitional risk assessments with the
valuers, which they have reviewed and reflected in their valuations
to the extent that current market participants would do
so.
Valuers observe, assess and monitor evidence
from market activities, including market sentiment, on issues
such as longer-term obsolescence and, where known, future
environmental, social and governance related risks. These may
include, for example, the market's approach to capital expenditure
required to maintain the utility of the asset. In the absence of
reliable benchmarking data and indices for estimating costs,
specialist advice on cost management may be required. This is
usually agreed with the valuer in the terms of engagement and
without reasonable estimates, assumptions may be needed properly to
reflect market expectations in arriving at the
valuation.
The valuations are the ultimate responsibility
of the directors. Accordingly, the critical assumptions used in
establishing the independent valuation are reviewed by the
board.
All corporate acquisitions during the year have
been treated as asset purchases rather than business combinations
because they are considered to be acquisitions of properties rather
than businesses.
|
As at
|
As
at
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Opening value
|
532,479
|
459,442
|
Property additions
|
91,688
|
69,217
|
Property
disposals1
|
(1,250)
|
(2,495)
|
Acquisition costs
capitalised
|
1,765
|
2,591
|
Capital improvements
|
4,697
|
11,826
|
Revaluation movement
|
21,934
|
(8,102)
|
Closing value per independent valuation
report
|
651,313
|
532,479
|
Guaranteed rent reviews
debtor
|
(35,258)
|
(28,112)
|
Lease incentive debtor
|
(2,379)
|
(2,519)
|
Rent premium creditor
|
2,330
|
2,470
|
Closing fair value per consolidation statement of financial
position
|
616,006
|
504,318
|
1 In 2023 the carrying
value of disposals was £1,250,000 (2022: £2,495,000), this combined
with the loss on disposal of £16,000 (2022: £130,000 profit), makes
up the total net proceeds shown in the consolidated statement of
cash flows.
During the year, the Group acquired an
additional £91.7m assets, of which £35.7m relates to a
portfolio which was purchased via a loan to operator in December
2021 where the Group had an option to acquire, this option was
exercised in June 2023 and £56m relates to the purchase of a
portfolio in 2023 where 20% of the consideration was made up of
shares in the Company, see note 21 for further detail.
The majority of the properties owned are
freehold except for 11 properties which are long leasehold, eight
of these are under a minimum of 999-year leases at a peppercorn
rent and the remaining three are under 125-year leases at a
peppercorn rent.
Change in fair value of investment
properties
The following elements are included in the
change in fair value of investment properties reported in the
consolidated financial statements:
|
Year ended
|
Year
ended
|
|
31
December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Revaluation movement
|
21,934
|
(8,102)
|
Rental lease
incentive1
|
140
|
141
|
Rental income arising from
recognising rental premiums and guaranteed rent uplifts
|
(7,286)
|
(6,495)
|
Change in fair value of investment
properties
|
14,788
|
(14,456)
|
1 Lease incentives
relate to the amortisation of payments made to tenants that are not
part of any acquisition contractual obligations. These payments are
made in return for an increase in rent.
Rental income arising from recognising
guaranteed rent uplifts and initial lease rental payment includes
the adjustments to rental receipts for the period to reflect the
total minimum income recognised over the expected lease terms on a
straight-line basis. Rent premiums received are being reflected on
a straight-line basis over the term of the lease. In addition, the
Group benefits from a minimum annual rental uplift of 1% or 2% on
all care home leases. These uplifts are also incorporated to
recognise income on a straight-line basis. The elements are
reported in the table below. Capital improvements funded by the
Group are undertaken under Deeds of Variation to the leases. The
period between signing the Deed of Variation and rent commencing is
a rent-free period and rent is recognised on a straight-line basis
from the signing of the Deed of Variation.
|
|
Year ended
|
Year
ended
|
|
|
31 December
|
31
December
|
|
|
2023
|
2022
|
|
Note
|
£'000
|
£'000
|
Rent received in advance of
recognition1
|
5
|
140
|
170
|
Rent recognised in advance of
receipt2
|
5
|
7,145
|
6,324
|
Rental income arising from recognising rental premium and
future guaranteed rent uplifts
|
|
7,286
|
6,494
|
1 Rent premiums
received in prior periods, as well as any rent premiums received
during the year, deemed to be a premium over the term of the
lease.
2 Relates to both
rent-free periods being recognised on a straight-line basis over
the term of the lease and rent recognised in the period to reflect
the minimum 1% or 2% uplift in rents over the term of the care home
lease on a straight-line basis.
Descriptions and definitions relating to
valuation techniques and key unobservable inputs made in
determining fair values are as follows:
Valuation techniques used to derive fair
values
The valuations have been prepared on the basis
of fair value which is defined in the RICS "Red Book" as the
"price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market
participants at the measurement date" in accordance with IFRS 13.
The concept of fair value is considered to be consistent with that
of market value. The valuation takes into consideration the
current market conditions, including improvements effected during
the year, annual rentals, lease lengths, property condition, rent
coverage and location.
Unobservable inputs
These include: estimated average increase in
rent based on both market estimations and contractual situations;
equivalent yield (defined as the weighted average of the net
initial yield and reversionary yield); estimated rental value (ERV)
based on market conditions prevailing at the valuation date and the
physical condition of the property determined by inspections on a
rotational basis. A decrease in the ERV would decrease fair value.
A decrease in the equivalent yield would increase the fair value.
An increase in the remaining lease term would increase the
fair value.
Sensitivity of measurement of
significant unobservable inputs
The Group's investment properties, which are all
healthcare assets, are considered to be a single class of asset.
Initial yields range from 3.6% to 12.5% across the portfolio, the
average yield, as measured by the EPRA "topped-up" net initial
yield for the portfolio, was 6.92% as at
31 December 2023. Annual rent roll for the portfolio as
at 31 December 2023 was £47.2m and the total ERV was £48.2m.
ERV per bed ranges from £2,300/bed to £12,000/bed.
A 0.25% movement of the valuation yield would
have approximately a £22.6m impact on the investment property
valuation. A 1% movement in the rental income would have
approximately a £6.5m impact on the investment property
valuation.
Fair
value hierarchy
The Group is required to classify fair value
measurements of its investment properties using a fair value
hierarchy, in accordance with IFRS 13: Fair Value Measurement. This
hierarchy reflects the subjectivity of the inputs used, and has the
following levels:
Level 1 - unadjusted quoted prices in active
markets;
Level 2 - observable inputs other than quoted
prices included within level 1; and
Level 3 - unobservable inputs.
The following table provides the fair value
measurement hierarchy for investment property:
|
Date
of
|
Total
|
Level
1
|
Level
2
|
Level
3
|
|
valuation
|
£'000
|
£'000
|
£'000
|
£'000
|
Assets measured at fair value:
|
|
|
|
|
|
Investment properties
|
31
December 2023
|
616,006
|
-
|
-
|
616,006
|
Investment properties
|
31
December 2022
|
504,318
|
-
|
-
|
504,318
|
There have been no transfers between any of the
levels during the year.
Accounting
policy
Investment properties
Investment properties consist of land and
buildings (principally care homes) which are held to earn rental
income and for capital growth potential.
Investment properties are initially recognised
at cost, being the fair value of consideration given, including
transaction costs associated with the investment property.
Investment properties are recognised when the risk and rewards on
the acquired properties passes to the Group on completion of the
purchase. Any subsequent capital expenditure incurred in improving
investment properties is capitalised in the period incurred and
included within the book cost of the property.
After initial recognition, investment properties
are measured at fair value, with gains and losses recognised in the
consolidated statement of comprehensive income in the period which
they arise. Fair value measurement takes into consideration the
improvements to the investment property during the year, taking
into account the future cash flows from increases in rent that have
been contracted in relation to the improvement and discounting
them at an appropriate rate to reflect the percentage of completion
of the works being undertaken and the risk to completion that
remains.
Gains and losses on disposals of investment
properties are determined as the difference between net disposal
proceeds and the carrying value of the asset. These are recognised
in the consolidated statement of comprehensive income in the period
in which they arise.
14. Trade and
other receivables
|
As at
|
As
at
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Non-current
|
|
|
Rent recognised in advance of
receipt
|
35,258
|
28,112
|
Rental lease incentive
|
2,379
|
2,519
|
Loan
receivable1,2
|
1,600
|
37,500
|
|
39,237
|
68,131
|
Current
|
|
|
Interest receivable on interest rate
derivatives
|
358
|
-
|
Interest receivable on operator
loan
|
66
|
-
|
Loan associated costs
|
-
|
671
|
Accrued income
|
142
|
-
|
Prepayments
|
196
|
510
|
Other receivables
|
145
|
-
|
|
907
|
1,181
|
|
40,144
|
69,312
|
1 In December 2021, the
Group entered into a loan agreement with the Holmes Care Group, in
which the Group provided a term loan facility of £37,500,000 which
bears interest at 8.57% per annum. The funds were lent to Holmes
Care Group to acquire a portfolio of properties. Upon certain
conditions being met, a put and call option for the Group to
acquire this portfolio of assets for £1 is exercisable (see note 16
for further detail). In June 2023, the option was exercised and the
portfolio was acquired by the Group.
2 In June 2023, the
Group entered into a loan agreement with Melrose Holdings Limited,
a related party, where the Group provided a working capital loan of
£1,600,000 which bears interest at 8.00% per annum (see note 22 for
further detail).
No impairment losses have been recognised as at
31 December 2023 (2022: £nil), refer to note 19 for further
detail. However, the Group did write-off £236,000 of rent in the
period as a result of non‑payment by one of the Group's tenants, see note
22 for further detail.
Accounting
policy
Trade and other
receivables
Trade receivables comprise mainly lease income
receivable.
Trade and other receivables are initially
recognised at fair value plus transaction costs and subsequently
measured at amortised cost less impairment.
The Group applies the amortised cost basis as
trade and other receivables are normally held with
an objective to collect contractual cash flows, i.e. "held to
collect"; which comprises payment of principal and interest on the
principal amount outstanding.
15. Cash and
cash equivalents
|
As at
|
As
at
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Cash and cash equivalents
|
9,389
|
22,531
|
Included as part of cash and cash equivalents is
restricted cash of £nil (2022: £14.7m). This restricted cash
relates to the proceeds of the loan notes issued and will be
released upon addition of the designated properties into the
security pool.
Accounting
policy
Cash
and cash equivalents
Cash and cash equivalents include cash at bank
and deposits with maturities of three months, or less, held at
call with banks.
16. Trade and
other payables
|
As at
|
As
at
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Non-current
|
|
|
Rent received in advance of
recognition
|
2,330
|
2,471
|
Put option
|
-
|
1,811
|
Current
|
|
|
Trade and other payables
|
1,686
|
3,420
|
Interest payable
|
1,745
|
1,149
|
Withholding tax payable - (PID
dividends)
|
606
|
609
|
Rental received in
advance
|
-
|
1,949
|
Rental deposits
|
-
|
443
|
Capital improvements
payable
|
2,878
|
1,556
|
|
6,915
|
9,126
|
|
9,245
|
13,408
|
To reconcile working capital changes in the
consolidated statement of cash flows, the interest payable and
capital improvements payable movements are excluded as these are
allocated to financing activities and investing activities
respectively.
On 23 December 2021, the Group entered into a
loan agreement with the Holmes Care Group, in which the Group
provided a term loan facility of £37,500,000 which bore interest at
8.57% per annum. The funds were lent to Holmes Care Group to
acquire a portfolio of properties.
On the same date, put and call options were
entered into between entities owned by Holmes Care Group and Impact
Property 6 Limited which, upon certain conditions being met, gave
the Group the right to acquire and Holmes Care Group the right to
sell the company holding the portfolio of properties and the
£37,500,000 loan liability, to the options' counterparty for
consideration of £1.
This option became exercisable primarily upon
Holmes Care Group receiving approval from the Care Inspectorate to
re-register the operations of the care homes into another operating
entity. This was considered to be a substantive condition to be met
before the options was exercisable and therefore management did not
consider there was any present ownership interest in the property
company which may be acquired at a future date until the conditions
were met. The fair value of the option reflects the underlying
investment properties, offset by loan and interest due at each
balance sheet date. The investment properties were valued on the
same basis as the Group's investment property. In June 2023 the
option was exercised, and the portfolio was acquired by the
Group.
Accounting
policy
Trade payables
Trade payables are initially recognised at their
fair value and are subsequently measured at amortised
cost.
Put
and call options
Put and call option instruments, comprising the
right for an operator to sell to the Group or Impact to acquire
from the operator the share capital of a company holding a
portfolio of properties, are measured at fair value.
Changes in fair value of put and call option
instrument are recognised within the consolidated statement of
comprehensive income in the period in which they occur.
The Group does not apply hedge accounting in
accordance with IFRS 9.
17.
Borrowings
A summary of the bank borrowings drawn in the
period are shown below:
|
As at
|
As
at
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
At the beginning of the
year
|
142,260
|
114,548
|
Borrowings drawn in the
year
|
82,500
|
85,074
|
Borrowings repaid in the
year
|
(40,000)
|
(57,362)
|
Total bank borrowings drawn1
|
184,760
|
142,260
|
1 Total bank borrowings
drawn are equal to its fair value.
As at 31 December 2023, the Group had £250m
(2022: £241m) of available facilities of which £65.2m was undrawn
(2022: £98.7m).
A summary of the bank borrowings by lender are
shown below:
As at 31 December 2023:
|
|
|
National
|
|
|
|
|
Clydesdale
|
HSBC
UK
|
Westminster
|
Senior
secured
|
Senior
secured
|
|
|
Bank
PLC
|
Bank
Plc
|
Bank
Plc
|
loan
notes
|
loan
notes
|
|
|
('Virgin')
|
('HSBC')
|
('NatWest')
|
(tranche
A)
|
(tranche
B)
|
Total
|
Facility type
|
RCF
|
RCF
|
RCF
|
Private
placement
|
Private
placement
|
|
Size (£'m)
|
50.0
|
75.0
|
50.0
|
37.0
|
38.0
|
250
|
Drawn debt (£'m)
|
32.5
|
47.0
|
30.3
|
37.0
|
38.0
|
184.8
|
Start date
|
December
2022
|
April
2020
|
May
2017
|
December
2021
|
December
2021
|
|
Expiry date
|
December
2029
|
April
2026
|
June
2028
|
December
2035
|
June
2035
|
|
Margin
|
2.00%
|
2.00%
|
2.00%
|
N/A
|
N/A
|
|
Fixed interest rate
|
N/A
|
N/A
|
N/A
|
2.93%
|
3.00%
|
|
Independent valuation of secured
properties (£'m)
|
118.2
|
163.6
|
129.2
|
171.3
|
582.3
|
Financial covenants:
|
|
|
|
|
|
|
LTV1
|
50%
|
55%
|
50%
|
55%
|
|
Interest
cover2
|
2.00x
|
2.00x
|
1.75x
|
2.50x
|
|
As at 31 December 2022:
|
|
|
|
National
|
|
|
|
|
Metro
Bank
|
Clydesdale
|
HSBC
UK
|
Westminster
|
Senior
secured
|
Senior
secured
|
|
|
PLC
|
Bank
PLC
|
Bank
Plc
|
Bank
Plc
|
loan
notes
|
loan
notes
|
|
|
('Metro')
|
('Virgin')
|
('HSBC')
|
('NatWest')
|
(tranche
A)
|
(tranche
B)
|
Total
|
Facility type
|
Term
loan
|
RCF
|
RCF
|
RCF
|
Private
placement
|
Private
placement
|
|
Size (£'m)
|
15.0
|
50.0
|
75.0
|
26.0
|
37.0
|
38.0
|
241.0
|
Drawn debt (£'m)
|
15.0
|
17.0
|
10.0
|
25.3
|
37.0
|
38.0
|
142.3
|
Start date
|
June
2018
|
December
2022
|
April
2020
|
May
2017
|
December
2021
|
December
2021
|
|
Expiry date
|
June
2023
|
December
2029
|
April
2025
|
June
2024
|
December
2035
|
June
2035
|
|
Margin
|
2.65%
|
2.00%
|
2.00%
|
1.90%
|
N/A
|
N/A
|
|
Fixed interest rate
|
N/A
|
N/A
|
N/A
|
N/A
|
2.93%
|
3.00%
|
|
Independent valuation of secured
properties (£'m)
|
53.9
|
110.9
|
146.8
|
64.7
|
128.9
|
505.2
|
Financial covenants:
|
|
|
|
|
|
|
|
LTV1
|
|
50%
|
55%
|
50%
|
55%
|
|
Interest
cover2
|
|
2.00x
|
2.50x
|
2.50x
|
2.50x
|
|
1 Loan to value must
not exceed the stated percentage.
2 Passing rent from
ringfenced properties divided by interest expense must exceed the
stated cover ratio.
In June 2023, the Group repaid its £15m term
loan with Metro Bank PLC.
In June 2023, the Group increased its RCF
facility with NatWest from £26m to £50m, extended the facility term
from June 2024 to June 2028 with a further two one-year extension
options (subject to lender approval) to June 2030. In recognition
of the maturity extension, the margin was increased to 200 bps
above SONIA (previously 190 bps). The interest cover covenant was
reduced from 2.50x to 1.75x in the first two years, after which it
increases to 2.00x for the remainder of the term.
In June 2023, the Group agreed a one-year
extension option to its HSBC RCF to April 2026. The interest
cover covenant was reduced from 2.50x to 2.00x, with the margin
remaining at 200 bps above SONIA.
The Group has been in compliance with all of the
financial covenants of the loan facilities as applicable throughout
the year covered by these financial statements.
Any fees associated with arranging the
borrowings unamortised as at the year end are offset against
amounts drawn on the facilities as shown in the table
below:
|
As at
|
As
at
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Borrowings drawn
|
184,760
|
142,260
|
Arrangement fees - brought
forward
|
(5,064)
|
(3,641)
|
Arrangement fees incurred during the
year
|
(1,177)
|
(2,628)
|
Amortisation of loan arrangement
fees
|
1,418
|
1,205
|
Borrowings at amortised cost
|
179,937
|
137,196
|
Borrowings at amortised cost due
within one year
|
-
|
14,814
|
Borrowings at amortised cost due
after one year
|
179,937
|
122,382
|
Maturity analysis of borrowings:
|
As at
|
As
at
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Repayable within one year
|
-
|
15,000
|
Repayable between one and two
years
|
-
|
25,260
|
Repayable between two and five
years
|
77,260
|
10,000
|
Repayable in over five
years
|
107,500
|
92,000
|
Total
|
184,760
|
142,260
|
The weighted average term of the Group's
committed facilities is 6.8 years (2022: 6.3 years).
As at 31 December 2023, the nominal value of the
Group's loans equated to £184.8m, the fair value of these loans,
based on a discounted cash flow using relevant rates based on
market conditions as at 31 December 2023, totalled
£161.8m.
Accounting
policy
Borrowings
All borrowings are initially recognised at fair
value net of attributable transaction costs. After initial
recognition, all borrowings are measured at amortised cost, using
the effective interest method. The effective interest rate is
calculated to include all associated transaction costs.
Fees paid on the establishment of loan
facilities are recognised as transaction costs of the loan to the
extent that it is probable that some or all of the facility will be
drawn down. The fee is capitalised as a prepayment for liquidity
services and amortised over the period of the facility to which it
relates within finance costs in the consolidated statement of
comprehensive income.
18. Interest
rate derivatives
|
As at
|
As
at
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
At the beginning of the
year
|
363
|
94
|
Purchase of derivative
|
3,238
|
-
|
Change in fair value of interest
rate derivatives
|
(458)
|
381
|
Payments received and accrued on
interest rate derivatives
|
(1,393)
|
(112)
|
|
1,750
|
363
|
To mitigate the interest rate risk that arises
as a result of entering into variable rate linked loans, the Group
has entered into interest rate caps.
In June 2018, the Group entered into an interest
rate cap with the notional value of £25m and a strike rate of 1%
which terminated in June 2023.
In January 2023, the Group purchased a two-year
interest rate cap for £1.5m, which caps SONIA at 3% for a notional
amount of £50m.
In August 2023, the Group purchased a two-year
interest rate cap for £1.8m, which caps SONIA at 4% for a notional
amount of £50m.
At 31 December 2023, the Group had loans of
£109.8m (2022: £67.3m) which were exposed to interest rate
risk.
Accounting
policy
Interest rate
derivatives
Derivative financial instruments, comprising
interest rate caps for hedging purposes, are initially
recognised at fair value and are subsequently measured at fair
value.
Changes in fair value of interest rate
derivatives are recognised within the consolidated statement
of comprehensive income in the period in which they
occur.
The Group does not apply hedge accounting in
accordance with IFRS 9.
19. Financial
instruments and financial risk management
The Group's principal financial assets and
liabilities are those that arise directly from its operations:
trade and other receivables, trade and other payables and cash held
at bank. The Group's other principal financial assets and
liabilities are borrowings and interest rate derivatives, the main
purpose of which is to finance the acquisition and development of
the Group's investment property portfolio and hedge against the
interest rate risk arising.
Set out below is a comparison by class of the
carrying amounts of the Group's financial instruments:
|
As at
|
As
at
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Financial assets at amortised cost:
|
|
|
Loan receivable
|
1,600
|
37,500
|
Cash and cash equivalents
|
9,389
|
22,531
|
Trade and other
receivables
|
711
|
-
|
Financial assets at fair value:
|
|
|
Interest rate derivative
|
1,750
|
363
|
Financial liabilities at amortised cost:
|
|
|
Borrowings
|
179,937
|
137,196
|
Trade and other payables
|
6,309
|
6,568
|
Financial liabilities at fair value:
|
|
|
Put option
|
-
|
1,811
|
The interest rate derivative and put option are
the only financial instruments that are measured at fair value
through the Group's consolidated statement of comprehensive
income.
The following table provides the fair value
measurement hierarchy for the interest rate derivative and put
option:
|
Date
of
|
Total
|
Level
11
|
Level
21
|
Level
31
|
|
valuation
|
£'000
|
£'000
|
£'000
|
£'000
|
Assets measured at fair value:
|
|
|
|
|
|
Interest rate derivative
|
31
December 2023
|
1,750
|
-
|
1,750
|
-
|
Interest rate derivative
|
31
December 2022
|
363
|
-
|
363
|
-
|
Financial liabilities at fair value:
|
|
|
|
|
|
Put option
|
31
December 2023
|
-
|
-
|
-
|
-
|
Put option
|
31
December 2022
|
1,811
|
-
|
-
|
1,811
|
The fair value categories are defined in note
13.
Risk
management
The Group is exposed to market risk (including
interest rate risk), credit risk and liquidity risk. The board
oversees the management of these risks. The board reviews and
agrees policies for managing each of the risks that are summarised
below.
Market risk (including interest rate
risk)
Market risk is the risk that the fair values or
future cash flows of financial instruments will fluctuate because
of changes in market prices. The financial assets held by the Group
that are affected by interest rate risk are principally the Group's
cash balances and the interest rate derivative.
The Group monitors its interest rate exposure on
a regular basis. A sensitivity analysis performed to ascertain the
impact on profit or loss and net assets of a 50-basis point shift
in interest rates on the Group's cash balances would result in a
movement of £46,945 (2022: £112,660) in interest receivable for the
year.
The financial liabilities held by the Group that
are affected by interest rate risk are principally the Group's
borrowings. The Group has entered into an interest rate derivatives
to reduce its exposure to interest rate risk on its floating-rate
debt (refer to note 18). A sensitivity analysis is performed to
ascertain the impact on profit or loss and net assets of a 50-basis
point shift in interest rates on the Group's unhedged borrowings
would result in a movement of £48,800 (2022: £211,300)
in interest payable for the year.
Credit risk
Credit risk is the risk that a counterparty will
not meet its obligations under a financial instrument or customer
contract, leading to a financial loss.
The Group is exposed to credit risks from its
leasing activities. Credit risk is reduced by requiring tenants to
pay rentals in advance under their lease obligations. The credit
quality of the tenant is also assessed based at the time of
entering into a lease agreement thereby reducing credit risk.
Outstanding trade receivables are regularly monitored. There are no
outstanding trade receivables at 31 December 2023.
Credit risk also arises with the cash balances
held with banks and financial institutions. The board believes that
the credit risk on current account cash balances is limited because
the counterparties are reputable banks with high credit ratings
assigned by international credit-rating agencies.
The impairment loss identified on cash balances was considered
immaterial.
Accounting
policy
Expected credit losses
The Group applies the IFRS 9 simplified approach
to measuring the expected credit losses (ECLs) for trade
receivables whereby the allowance or provision for all trade
receivables are based on the lifetime ECLs.
The Group applies the general approach for
initial recognition and subsequent measurement of ECL provisions
for the loan receivable and other receivables which have maturities
of 12 months or more and have a significant finance
component.
This approach comprises of a three-stage
approach to evaluating ECLs. These stages are classified as
follows:
Stage one
12-month ECLs are recognised in profit or loss
at initial recognition and a loss allowance is established. For
financial instruments that have not deteriorated significantly in
credit quality since initial recognition or that have low credit
risk at the reporting date, the loss allowance for 12-month ECLs is
maintained and updated for changes in amount. Interest revenue is
calculated on the gross carrying amount of the asset (i.e. without
reduction for ECLs).
Stage two
If the credit risk increases significantly and
the resulting credit quality is not considered to be low credit
risk, full lifetime ECLs are recognised and includes those
financial instruments that do not have objective evidence of a
credit loss event. Interest revenue is still calculated on the
gross carrying amount of the asset.
Stage three
If the credit risk of a financial asset
increases to the point that it is considered credit impaired (there
is objective evidence of impairment at the reporting date),
lifetime ECLs continue to be recognised. For financial assets
in this stage, lifetime ECLs will generally be individually
assessed. Interest revenue is calculated on the amortised cost net
carrying amount (amortised cost less impairment).
Rent-smoothing adjustments are not considered to
be financial assets as the amounts are not yet contractually due.
As such, the requirements of IFRS 9 (including the expected credit
loss method) are not applied to those balances, although the
credit risk is considered in the determination of the fair
value of the related property.
Liquidity risk
Liquidity risk arises from the Group's
management of working capital. It is the risk that the Group will
encounter difficulty in meeting its financial obligations as they
fall due, as the majority of the Group's assets are property
investments and are therefore not readily realisable. The Group's
objective is to ensure it has sufficient available funds for its
operations and to fund its capital expenditure. This is achieved by
regular monitoring of forecast and actual cash flows by the AIFM
ensuring the Group has appropriate levels of cash and available
drawings to meet liabilities as they fall due.
The table below summarises the maturity profile
of the Group's financial liabilities based on contractual
undiscounted payments:
|
<3
months
|
3-12
months
|
1-2
years
|
2-5
years
|
>5
years
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
31
December 2023:
|
|
|
|
|
|
|
Borrowings
|
-
|
-
|
-
|
77,260
|
107,500
|
184,760
|
Interest and commitment fees on
borrowings
|
937
|
2,853
|
3,790
|
9,318
|
15,382
|
32,280
|
Trade and other payables
|
6,309
|
-
|
-
|
-
|
-
|
6,309
|
31
December 2022:
|
|
|
|
|
|
|
Borrowings
|
-
|
15,000
|
25,260
|
10,000
|
92,000
|
142,260
|
Interest and commitment fees on
borrowings
|
968
|
2,765
|
3,458
|
8,195
|
18,065
|
33,451
|
Trade and other payables
|
6,568
|
-
|
-
|
-
|
-
|
6,568
|
20. Capital
management
The objective of the Group is to acquire, own,
lease, renovate, extend and redevelop high-quality, healthcare real
estate assets in the UK and lease those assets, under full
repairing and insuring leases, primarily to healthcare operators
providing residential healthcare services. This provides ordinary
shareholders with an attractive level of income together with the
potential for income and capital growth from investing in a
diversified portfolio of freehold and long leasehold care
homes.
The board has responsibility for ensuring the
Group's ability to continue as a going concern and continues to
qualify for UK REIT status. This involves the ability to borrow
monies in the short and long term and pay dividends out of
reserves, all of which are considered and approved by the board on
a regular basis.
The Company achieved its increased targeted
aggregate dividend of 6.77 pence per share for the year ended 31
December 2023 and its target aggregate dividend of 6.54 pence per
share for the year ended 31 December 2022.
As at 31 December 2023, the Group remains within
its maximum loan-to-value (LTV) covenant which is 35% of gross
asset value of the Group as a whole. The Group has a further £65.2m
of RCF facilities available from which it can draw.
To maintain or adjust the capital structure, the
Company may adjust the dividend payment to shareholders, return
capital to shareholders, issue new shares or buyback shares for
cancellation or for holding in treasury. Capital consists of
ordinary share capital, other capital reserves and retained
earnings.
21. Share
capital, share premium and capital reduction
reserve
|
|
|
|
Capital
reduction
|
|
|
Shares in
issue
|
Share
capital
|
Share
premium
|
reserve
|
Total
|
|
Number
|
£'000
|
£'000
|
£'000
|
£'000
|
As
at 31 December 2021
|
350,644,188
|
3,506
|
305,672
|
24,077
|
333,255
|
Share issue
|
54,120,140
|
542
|
61,727
|
-
|
62,269
|
Share issue cost
|
-
|
-
|
(1,757)
|
-
|
(1,757)
|
As
at 31 December 2022
|
404,764,328
|
4,048
|
365,642
|
24,077
|
393,767
|
Share issue
|
9,603,841
|
96
|
11,104
|
-
|
11,200
|
Share issue cost
|
-
|
-
|
(30)
|
-
|
(30)
|
As
at 31 December 2023
|
414,368,169
|
4,144
|
376,716
|
24,077
|
404,937
|
The Company had 414,368,169 shares of nominal
value of 1 pence each in issue at the end of the year (2022:
404,764,328).
On 13 January 2023, the Company issued 9,603,841
ordinary shares at a price of 116.62 pence per ordinary share
raising gross proceeds of £11.2m. These shares were part
consideration for the acquisition of a portfolio of six properties
purchased in January 2023, the remaining consideration of £44.8m
was paid in cash, see note 13 for further detail.
Accounting
policy
Share capital
The share capital relates to amounts subscribed
for share capital at its par value.
Share premium
The surplus of net proceeds received from the
issuance of new shares over their par value is credited to
this account and the related issue costs are deducted from
this account. The reserve is non-distributable.
Capital reduction
reserve
The capital reduction reserve is the result of
the transfer of a portion of share premium into a
distributable reserve.
22.
Transactions with related parties
Investment Manager
The fees calculated and paid for the year to the
Investment Manager were as follows:
|
Year ended
|
Year
ended
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Amounts payable to Impact Health
Partners LLP
|
|
|
Net fee
|
4,810
|
4,581
|
Gross fee
|
4,810
|
4,581
|
Certain members of the Investment Manager are
also directors of the Group's subsidiary companies. Neither they,
nor the Investment Manager receive any additional remuneration in
relation to fulfilling this role.
For the year ended 31 December 2023, the
principals and Finance Director of Impact Health Partners LLP, the
Investment Manager, are considered key management personnel. Mr
Patel and Mr Cowley are the principals and Mr Yaldron is the
Finance Director of Impact Health Partners LLP and they own 3.14%,
0.35% and 0.02% respectively (either directly, with related parties
or through a wholly owned company) of the total issued ordinary
share capital of Impact Healthcare REIT plc. Mr Patel also
(directly and/or indirectly) holds a majority 72.5% stake in
Minster Care Group Limited (MCGL). Mr Cowley also holds a 20%
interest in MCGL. 41% of the Group's rental income was received
from MCGL or its subsidiaries. No trade receivables were
outstanding at the year end (2022: £nil).
During the year, the key management of Impact
Health Partners LLP received the following dividends from Impact
Healthcare REIT plc: Mahesh Patel £722,610 (2022: £723,130); Andrew
Cowley £109,445 (2022: £91,871) and David Yaldron £11,137 (2022:
£7,975).
Directors' interests
During the year, the directors, who are
considered key management personnel, received the following
dividends from the Company: Simon Laffin £5,078 (2022: £nil);
Rupert Barclay (resigned on 31 March 2023) £2,997 (2022: £11,927);
Rosemary Boot £2,014 (2022: £1,952); Chris Santer £949 (2022: £920)
and Philip Hall £2,014 (2022: £1,952). In addition, funds which
were managed by Paul Craig (resigned on 17 May 2023) received
dividends from the Company of £1,070,323 (2022:
£4,089,458).
Directors' remuneration for the year is
disclosed in note 7 as well as in the directors' remuneration
report.
Minster Care Group Limited
(MCGL)
MCGL, a tenant of the Group, is considered a
related party as it is majority owned by the principals of the
Investment Manager. As at 31 December 2023, the Group leased 58
properties to MCGL (2022: 59), all properties owned for over
one year underwent an inflation-linked rent review in line with
their lease provisions. In 2023, the Group entered into no new
leases with MCGL (2022: no new leases) and disposed of one property
let to MCGL to a third party, the lease, which was subject to
annual rent of £166,035, was cancelled with 14 years remaining
(2022: disposed of one property). In 2023, the Group spent £nil on
approved capital expenditure on homes operated by MCGL (2022:
£0.8m). These transactions were fully compliant with the Company's
related party policy.
The Group had seven homes let to Silverline
(3.4% of the Group's contracted annual income), who did not pay its
contractual rent for the quarters to 31 March 2023 and 30 June
2023. This was partially covered by a £0.4m rent deposit. The
Group had extensive discussions with alternative care providers to
take over Silverline's responsibilities, following which it decided
on 2 June 2023 that it was in the best interests of the
Group's stakeholders that it enable the solvent sale of
Silverline's tenant companies to Melrose Holdings Limited (MHL).
MHL immediately took over responsibility for operating the seven
homes. MHL is a new company, wholly-owned by connected parties of
Mahesh Patel, and benefits from a service agreement with MCGL,
under which MCGL supports the turnaround of these homes. To assist
in the funding of Silverline's overdue liabilities to third parties
other than the Group and to fund remedial capital expenditure, the
Group agreed to provide a £1.6m loan facility for up to three years
to MHL. This facility has an interest rate of 8.0% per annum on
drawn funds and will be repaid in priority to rent from surplus
funds in MHL. In the initial phase of the operational turnaround of
these care homes, the existing leases have been temporarily amended
to replace the fixed rent with a variable rent, payable once the
loan has been repaid. The lease variations allow MHL to pay MCGL a
fixed management fee of £1,000 per registered bed in the homes
(approximately £400,000 per annum plus VAT) to cover the direct
costs it incurs in overseeing the turnaround, payable only from any
surplus cash generated by the seven homes. Any surplus cash after
the management fee will first be used to repay the loan facility
and accrued interest and, once the loan is repaid, will be paid as
rent to the Group. Once the turnaround is complete, it is expected
that the lease amendment will be cancelled by mutual consent and
the rent payable will revert to the amount under the original
lease.
23. Net asset
value (NAV) per share
Basic NAV per share is calculated by dividing
net assets in the consolidated statement of financial position
attributable to ordinary equity holders of the Company by the
number of ordinary shares outstanding at the end of the year. As
there are no dilutive instruments outstanding, basic and diluted
NAV per share are identical.
The Group has chosen to adopt EPRA net tangible
assets (EPRA NTA) as its primary EPRA NAV measure as it most
closely aligns with the business practices of the Group. The
adjustments between NAV and EPRA NTA are reflected in the following
table:
|
As at
|
As
at
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Net assets per consolidated
statement of financial position
|
478,107
|
445,920
|
Fair value of derivatives
|
(1,750)
|
(363)
|
EPRA NTA
|
476,357
|
445,557
|
|
|
|
Issued share capital
(number)
|
414,368,169
|
404,764,328
|
Basic NAV per share
|
115.38p
|
110.17p
|
EPRA NTA per share
|
114.96p
|
110.08p
|
24. Operating
leases
The following table sets out the maturity
analysis of leases receivables, showing the undiscounted lease
payments under non-cancellable operating leases receivable by the
Group:
|
As at
|
As
at
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Year one
|
48,541
|
40,477
|
Year two
|
49,409
|
41,125
|
Year three
|
50,158
|
41,901
|
Year four
|
51,046
|
42,509
|
Year five
|
51,761
|
43,270
|
Onwards
|
986,920
|
762,841
|
Total
|
1,237,835
|
972,123
|
The Group's investment properties are leased to
tenants under the terms of property leases that include upward only
rent reviews that are performed annually. These are annual
inflation uplifts linked to either CPI or RPI. RPI-linked leases
have a floor and cap at either 2% and 4% or 1% and 5%.
25.
Reconciliation of liabilities to cash flows from financing
activities
|
|
Notes
|
Borrowings
|
Interest
|
|
|
|
Interest
rate
|
derivative
|
payable
|
Total
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
As
at 1 January 2022
|
|
110,907
|
(94)
|
474
|
111,287
|
Cash flows from financing activities:
|
|
|
|
|
|
Borrowings drawn
|
17
|
85,074
|
-
|
-
|
85,074
|
Borrowings repaid
|
17
|
(57,362)
|
-
|
-
|
(57,362)
|
Loan arrangement fees
paid
|
|
(1,265)
|
-
|
-
|
(1,265)
|
Interest received
|
18
|
-
|
112
|
-
|
112
|
Interest and commitment fees
paid
|
|
-
|
-
|
(3,909)
|
(3,909)
|
Non-cash movements:
|
|
|
|
|
|
Amortisation of loan arrangement
fees
|
17
|
1,205
|
-
|
-
|
1,205
|
Fair value movement
|
18
|
-
|
(381)
|
-
|
(381)
|
Loan arrangement fees
accrued
|
|
(1,363)
|
-
|
-
|
(1,363)
|
Interest and commitment
charge
|
|
-
|
-
|
4,584
|
4,584
|
As
at 31 December 2022
|
|
137,196
|
(363)
|
1,149
|
137,982
|
Cash flows from financing activities:
|
|
|
|
|
|
Borrowings drawn
|
17
|
82,500
|
-
|
-
|
82,500
|
Borrowings repaid
|
17
|
(40,000)
|
-
|
-
|
(40,000)
|
Loan arrangement fees
paid
|
|
(2,827)
|
-
|
-
|
(2,827)
|
Interest received
|
18
|
-
|
1,035
|
-
|
1,035
|
Interest and commitment fees
paid
|
|
-
|
-
|
(9,518)
|
(9,518)
|
Purchase of interest rate
derivatives
|
18
|
-
|
(3,238)
|
-
|
(3,238)
|
Non-cash movements:
|
|
|
|
|
|
Amortisation of loan arrangement
fees
|
17
|
1,418
|
-
|
-
|
1,418
|
Fair value movement
|
18
|
-
|
458
|
-
|
458
|
Loan arrangement fees - reversal of
accrual
|
|
1,650
|
-
|
-
|
1,650
|
Interest and commitment
charge
|
|
-
|
-
|
10,114
|
10,114
|
Accrued interest receivable on
interest rate derivatives
|
|
-
|
358
|
-
|
358
|
As
at 31 December 2023
|
|
179,937
|
(1,750)
|
1,745
|
179,932
|
26. Capital
commitments
At 31 December 2023, the Group had committed
capital expenditure on one forward-funded development of a new
property and on capital improvements to three existing properties;
this amounted to £9.5m (2022: £9.2m).
The Group has committed to deferred payment
agreements on two acquisitions in return for increased rent based
on certain trading performance conditions being met by the tenant.
As at 31 December 2023, the total capital commitment
for these deferred payments is estimated at £4.6m (2022:
£4.6m).
27. Controlling
parties
The Company is not aware of any person who,
directly or indirectly, owns or controls the Company. The Company
is not aware of any arrangements the operations of which may give
rise to a change in control of the Company.
28. Subsequent
events
No significant events have occurred between the
statement of financial position date and the date when the
financial statements have been authorised by the directors, which
would require adjustments to, or disclosure in, the financial
statements.
COMPANY
STATEMENT OF FINANCIAL POSITION
As at 31
December 2023
Company
Registration Number: 10464966
|
|
31 December
|
31
December
|
|
|
2023
|
2022
|
|
Notes
|
£'000
|
£'000
|
Non-current assets
|
|
|
|
Investment in
subsidiaries
|
6
|
418,861
|
430,079
|
Total non-current assets
|
|
418,861
|
430,079
|
Current assets
|
|
|
|
Trade and other
receivables
|
7
|
60,994
|
18,862
|
Cash and cash equivalents
|
8
|
7,773
|
283
|
Total current assets
|
|
68,767
|
19,145
|
Total assets
|
|
487,628
|
449,224
|
Current liabilities
|
|
|
|
Trade and other payables
|
9
|
(9,521)
|
(11,720)
|
Total liabilities
|
|
(9,521)
|
(11,720)
|
Total net assets
|
|
478,107
|
437,504
|
Equity
|
|
|
|
Share capital
|
10
|
4,144
|
4,048
|
Share premium reserve
|
10
|
376,716
|
365,642
|
Capital reduction reserve
|
10
|
24,077
|
24,077
|
Retained earnings
|
|
73,170
|
43,737
|
Total equity
|
|
478,107
|
437,504
|
The Company has taken advantage of the exemption
allowed under section 408 of the Companies Act 2006 and has not
presented its own statement of comprehensive income in these
financial statements. The profit attributable to the Parent Company
for the year ended 31 December 2023 amounted to £57,247,000 (2022:
profit of £17,556,000).
The financial statements were approved and
authorised for issue by the board of directors on 22 March 2024 and
are signed on its behalf by:
Simon
Laffin
Chair
The accompanying notes form an integral part of
these financial statements.
Company statement of changes in equity
For the year
ended 31 December 2023
|
|
|
|
Capital
|
|
|
|
|
|
Share
|
reduction
|
Retained
|
|
|
|
Share
capital
|
premium
|
reserve
|
earnings
|
Total
|
|
Notes
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
1
January 2023
|
|
4,048
|
365,642
|
24,077
|
43,737
|
437,504
|
Total comprehensive income
|
|
-
|
-
|
-
|
57,247
|
57,247
|
Transactions with owners
|
|
|
|
|
|
|
Dividends paid
|
5
|
-
|
-
|
-
|
(27,814)
|
(27,814)
|
Share issue
|
10
|
96
|
11,104
|
-
|
-
|
11,200
|
Share issue costs
|
10
|
-
|
(30)
|
-
|
-
|
(30)
|
31
December 2023
|
|
4,144
|
376,716
|
24,077
|
73,170
|
478,107
|
For the year
ended 31 December 2022
|
|
|
|
Capital
|
|
|
|
|
|
Share
|
reduction
|
Retained
|
|
|
|
Share
capital
|
premium
|
reserve
|
earnings
|
Total
|
|
Notes
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
1
January 2022
|
|
3,506
|
305,672
|
24,077
|
51,905
|
385,160
|
Total comprehensive income
|
|
-
|
-
|
-
|
17,556
|
17,556
|
Transactions with owners
|
|
|
|
|
|
|
Dividends paid
|
5
|
-
|
-
|
-
|
(25,724)
|
(25,724)
|
Share issue
|
10
|
542
|
61,727
|
-
|
-
|
62,269
|
Share issue costs
|
10
|
-
|
(1,757)
|
-
|
-
|
(1,757)
|
31
December 2022
|
|
4,048
|
365,642
|
24,077
|
43,737
|
437,504
|
The accompanying notes form an integral part of
these financial statements.
NOTES TO THE
COMPANY FINANCIAL STATEMENTS
For the year
ended 31 December 2023
1. Basis of
preparation
General information
The financial statements for the year ended 31
December 2023 are prepared in accordance with Financial
Reporting Standard 102, the Financial Reporting Standard applicable
in the United Kingdom and the Republic of Ireland (FRS 102) and in
accordance with the Companies Act 2006, with comparatives presented
for the year ended 31 December 2022.
Disclosure exemptions
adopted
In preparing these financial statements the
Company has taken advantage of all disclosure exemptions conferred
by FRS 102.
In preparing the separate financial statements
of the Company, advantage has been taken of the following
disclosure exemptions available in FRS 102:
·
a reconciliation of the number of shares outstanding at the
beginning and end of the period has not been presented as the
reconciliations of the Group and the Company would be
identical;
·
no statement of cash flows has been presented for the
Company;
·
disclosures in respect of the Company's financial instruments
have not been presented as equivalent disclosures have been
provided in respect of the Group as a whole;
·
the requirement to present related party disclosures between
the Company and fellow subsidiaries where ownership is all 100%;
and
·
no disclosures have been given for the aggregate remuneration
of the key management personnel of the Company as their
remuneration is included in the totals for the Group as
a whole.
Convention
The financial statements are presented in
Sterling, which is also the Company's functional currency, and all
values are rounded to the nearest thousand (£'000), except when
otherwise indicated.
Going concern
After making enquiries and bearing in mind the
nature of the Company's business and assets, the directors consider
that the Company has adequate resources to continue in operational
existence for the next 12 months from the date of approval of these
financial statements. For this reason, they continue to adopt the
going concern basis in preparing the financial
statements.
The ongoing effect of the high inflation and
interest rate environment has been considered by the directors. The
directors have reviewed the forecasts for the Company, taking into
account the impact of heightened interest rates and rising costs on
trading over the 12 months from the date of signing this annual
report. The forecasts have been assessed against a range of
possible downside outcomes incorporating significantly lower levels
of income and higher costs; see going concern and viability for
further detail.
The directors believe that there are currently
no material uncertainties in relation to the Company's ability to
continue for a period of at least 12 months from the date of
approval of the Company's financial statements. The board is,
therefore, of the opinion that the going concern basis adopted in
the preparation of the annual report is appropriate.
2. Significant
accounting judgements, estimates and assumptions
The preparation of the Company's financial
statements requires management to make judgements, estimates and
assumptions that affect the reported amounts recognised in the
financial statements and disclosures. However, uncertainty about
these assumptions and estimates could result in outcomes that could
require material adjustment to the carrying amount of the assets or
liabilities in future periods.
The most significant estimates, assumptions and
judgements relate to the determination of carrying value of
unlisted investments in the Company's subsidiary undertakings. The
nature, facts and circumstance of the investment are taken into
account in assessing whether there are any indications of
impairment. Provisions provided reflect any reduction in net asset
value of subsidiaries in the year, typically as a result of
dividends declared in the year.
3. Summary of
significant accounting policies
The principal accounting policies applied in the
preparation of these financial statements are set out alongside the
relevant note.
4.
Taxation
The Company is exempt from corporation tax on
the profits and gains from its property investment business,
provided it continues to meet certain conditions as per REIT
regulations. Any non-qualifying profits and gains however,
will continue to be subject to corporation tax.
Tax charge included in total comprehensive
income:
|
Year
ended
|
Year
ended
|
|
31
December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
UK corporation tax
|
-
|
-
|
5.
Dividends
Details of dividends paid by the Company are
included in note 12 to the consolidated financial
statements.
Accounting
policy
Dividends
Dividends are recognised when they become
legally payable.
6. Investment
in subsidiaries
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
At the beginning of the
year
|
430,079
|
392,486
|
Additions
|
165,234
|
93,425
|
Impairment
|
(176,452)
|
(55,832)
|
At
the end of the year
|
418,861
|
430,079
|
The Company has the following
subsidiaries:
|
Principal activity
|
Country of incorporation
|
Ownership
%
|
Impact Property 1 Limited ('Propco
1')1
|
Real estate investment
|
England and Wales
|
100
|
Impact Property 2 Limited ('Propco
2') 1
|
Real estate investment
|
England and Wales
|
100
|
Impact Property 3 Limited ('Propco
3') 1
|
Real estate investment
|
England and Wales
|
100
|
Impact Property 4 Limited ('Propco
4') 1
|
Real estate investment
|
England and Wales
|
100
|
Impact Property 5 Limited ('Propco
5')
|
Real estate investment
|
England and Wales
|
100
|
Impact Property 6 Limited ('Propco
6')
|
Real estate investment
|
England and Wales
|
100
|
Impact Property 7 Limited ('Propco
7') 1
|
Real estate investment
|
England and Wales
|
100
|
Impact Property 8 Limited ('Propco
8') 1
|
Real estate investment
|
England and Wales
|
100
|
Impact Property 9 Limited ('Propco
9') 1
|
Real estate investment
|
England and Wales
|
100
|
Impact Finance 1 Limited ('Finance
1') 1
|
Financing company
|
England and Wales
|
100
|
Impact Finance 2 Limited ('Finance
2') 1
|
Financing company
|
England and Wales
|
100
|
Impact Finance 3 Limited ('Finance
3') 1
|
Financing company
|
England and Wales
|
100
|
Impact Finance 4 Limited ('Finance
4') 1
|
Financing company
|
England and Wales
|
100
|
Impact Finance 5 Limited ('Finance
5') 1
|
Financing company
|
England and Wales
|
100
|
Impact Finance 6 Limited ('Finance
6') 1
|
Financing company
|
England and Wales
|
100
|
Impact Holdco 1 Limited ('Holdco
1')
|
Investment holding
company
|
England and Wales
|
100
|
Impact Holdco 2 Limited ('Holdco
2')
|
Investment holding
company
|
England and Wales
|
100
|
Impact Holdco 3 Limited ('Holdco
3')
|
Investment holding
company
|
England and Wales
|
100
|
Impact Holdco 4 Limited ('Holdco
4')
|
Investment holding
company
|
England and Wales
|
100
|
Impact Holdco 5 Limited ('Holdco
5')
|
Investment holding
company
|
England and Wales
|
100
|
Impact Holdco 6 Limited ('Holdco
6')
|
Investment holding
company
|
England and Wales
|
100
|
Roseville Property
Limited1,2
|
Property holding company
|
England and Wales
|
100
|
Romney Care Home
Limited1,2
|
Property holding company
|
England and Wales
|
100
|
Cholwell Care (Nailsea)
Limited1,2
|
Property holding company
|
England and Wales
|
100
|
Butterfly Cumbria Properties
Limited1
|
Property holding company
|
England and Wales
|
100
|
The Holmes Care Holdings
Limited1,2
|
Property holding company
|
England and Wales
|
100
|
Hollyblue Healthcare (Ulster)
Limited1,2
|
Property holding company
|
England and Wales
|
100
|
Tower Bridge Homes Care
Limited1,2
|
Property holding company
|
England and Wales
|
100
|
The Holmes Care Group GB
Limited1,2
|
Property holding company
|
England and Wales
|
100
|
Hillcrest House
Limited1,2
|
Property holding company
|
England and Wales
|
100
|
Carlton Hall (Lowestoft)
Limited1,2
|
Property holding company
|
England and Wales
|
100
|
Abingdon Manor Care Centre
Limited1,2
|
Property holding company
|
Northern Ireland
|
100
|
Larne Care Centre
Limited1,2
|
Property holding company
|
Northern Ireland
|
100
|
Larne C C
Limited1,2
|
Property holding company
|
Northern Ireland
|
100
|
Welford Bidco 5 Midco
Limited1
|
Investment holding
company
|
England and Wales
|
100
|
Morris Care
Limited1
|
Property holding company
|
England and Wales
|
100
|
Kingdom Finco 1
Limited1
|
Investment holding
company
|
England and Wales
|
100
|
Kingdom Homes
Limited1
|
Property holding company
|
Scotland
|
100
|
Barrogil
Limited1
|
Property holding company
|
Scotland
|
100
|
Eastleigh Care Group
Limited1
|
Property holding company
|
England and Wales
|
100
|
Woodleigh Christian Care Home
Limited1
|
Property holding company
|
England and Wales
|
100
|
Welford Bidco 2 Midco
Limited1
|
Investment holding
company
|
England and Wales
|
100
|
Welford Bidco 4 Midco
Limited1
|
Investment holding
company
|
England and Wales
|
100
|
1 As at 31 December
2023 these entities were held indirectly by the Company.
2 As at 31 December
2023 these entities are in the process of winding up.
The registered address for the above
subsidiaries incorporated in England and Wales is: The Scalpel,
18th Floor, 52 Lime Street, London, EC3M 7AF, England
The registered address for the above
subsidiaries incorporated in Northern Ireland is: 21 Arthur Street,
Belfast, BT1 4GA, Northern Ireland
The registered address for the above
subsidiaries incorporated in Scotland is: 177 Bothwell Street,
Glasgow, G2 7ER, Scotland
Where the entity is in the process of winding
up, the registered address is that of the liquidator appointed by
the Company.
Accounting
policy
Investments in
subsidiaries
The investments in subsidiary companies are
included in the Company's statement of financial position
at cost less provision for impairment.
7. Trade and
other receivables
|
As at
|
As
at
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Loan to Group companies
|
60,797
|
18,658
|
Prepayments
|
197
|
204
|
|
60,994
|
18,862
|
As at 31 December 2023, there were no trade
receivables past due or impaired (2022: none). Loans to
subsidiaries are interest free, repayable on demand and management
expect them to be settled within the next 12 months.
Accounting
policy
Trade and other
receivables
Trade and other receivables are recognised and
carried at the lower of their original invoiced value and
recoverable amount. Where the time value of money is material,
receivables are initially recognised at fair value and subsequently
measured at amortised cost. A provision for impairment is made when
there is objective evidence that the Company will not be able to
recover balances in full.
Balances are written off when the probability of
recovery is assessed as being remote.
8. Cash and
cash equivalents
|
As at
|
As
at
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Cash and cash equivalents
|
7,773
|
283
|
None of the Company's cash balances are held in
restricted accounts.
Accounting
policy
Cash
and cash equivalents
Cash and cash equivalents include cash at bank
and short-term deposits.
9. Trade and
other payables
|
As at
|
As
at
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Loan from Group companies
|
7,781
|
9,977
|
Trade and other payables
|
1,740
|
1,743
|
|
9,521
|
11,720
|
Loans from Group companies are unsecured,
interest-free and are repayable on demand.
Trade and other
payables
Trade payables are initially recognised at their
fair value and are subsequently measured at cost.
10. Share
capital, share premium and capital reduction
reserve
Details on movements in share capital, share
premium and capital reduction reserve of the Company are the same
as that of the Group and are included in note 21 to the
consolidated financial statements.
Accounting
policy
Share premium
The surplus of net proceeds received from the
issuance of new shares over their par value is credited to
this account and the related issue costs are deducted from
this account. The reserve is non-distributable.
Capital reduction
reserve
The capital reduction reserve is the result of
the transfer of a portion of the share premium into a distributable
reserve.
11.
Transactions with related parties
The Company has taken advantage of the exemption
provided by FRS 102 not to disclose transactions with other members
of the Group as the Company's own financial statements are
presented together with its consolidated financial
statements.
See note 22 of the consolidated financial
statements for disclosure of related party transactions of the
Group.
12. Capital
commitments
There were no capital commitments held by the
Company (2022: £nil).
13. Contingent
liabilities
On 21 December 2021, the Company guaranteed a
long-term loan note issue made by a wholly owned subsidiary. The
loan notes total £75m and mature in 2035. See note 17 of the
consolidated financial statements for further detail.
14. Subsequent
events
Significant events after the reporting period
are the same as those of the Group. See note 28 to the consolidated
financial statements.
No other significant events have occurred
between the statement of financial position date and the date when
the financial statements have been authorised by the directors,
which would require adjustments to, or disclosure in, the financial
statements.
Reporting against the Task Force on Climate-Related Financial
Disclosures framework
Positive
progress
In last year's report, we included our initial
response to the Task Force on Climate-related Financial Disclosures
(TCFD) methodology, where we reported across the framework's four
key pillars of governance, strategy, risk management and metrics
and targets and responded to the underlying 11 recommended
disclosures. In line with the TCFD's suggested approach, we
considered a 1.5-2 degrees warming scenario, based on the
Intergovernmental Panel on Climate Change's (IPCC) defined
Representative Concentration Pathway 2.6 and assessed the
associated physical and transition risks. We also considered IPCC's
RCP 4.5 (2-3.5 degrees warming) and RCP 8.5 (4 degrees warming). We
have not repeated that analysis in this report.
During 2023 we have made good progress in terms
of continuing to develop our understanding, management, measurement
and decision-making in regard to climate action. The IM has
established an ESG committee chaired by the Finance Director; we
have continued to develop a credible climate net zero delivery plan
and model the associated finances; and, building on last year's
TCFD analysis, we have considered specific material risks and
opportunities in greater detail.
Reporting
against the TCFD Framework
The table below highlights how we have reported
in line with the 11 recommendations of TCFD and includes our own
informed assessment of our level of alignment. We recognise that
this is an iterative process and have highlighted those areas where
we still need to make improvement or continue to
progress.
Recommended disclosure
|
Current status
|
Comment
|
Governance
|
|
|
Describe the board's oversight of
climate-related risks and opportunities
|
Reporting in line with the
recommendations
|
We have included these disclosures
in the report
|
Describe the management's role in
assessing and managing climate‑related risks and
opportunities
|
Reporting in line with the
recommendations
|
We have included these disclosures
in the report
|
Strategy
|
|
|
Describe the climate-related risks
and opportunities the organisation has identified over
the short, medium and long term
|
Reporting in line with the
recommendations
|
We have included these disclosures
in the report
|
Describe the impact of
climate‑related
risks and opportunities on the organisation's businesses, strategy
and financial planning
|
We have made disclosures but are not
yet fully reporting in line with the recommendations
|
We have assessed the impacts of
climate-related risks and opportunities from a qualitative
perspective but have yet to translate this fully into quantifiable
financial impacts. This will continue to be reviewed during
2024
|
Describe the resilience of the
organisation's strategy, taking into consideration different
climate-related scenarios, including a 2°C or lower
scenario
|
We have made disclosures but are not
yet fully reporting in line with the recommendations
|
We have assessed the impacts of
climate-related risks and opportunities and the actions we are
taking to increase our resilience, however we have yet to translate
this fully into quantifiable financial impacts and articulate our
resilience on this basis. This will continue to be reviewed during
2024
|
Risk
management
|
|
|
Describe the organisation's
processes for identifying and assessing climate‑related risks
|
Reporting in line with the
recommendations
|
We have included these disclosures
in the report
|
Describe the organisation's
processes for managing climate-related risks
|
Reporting in line with the
recommendations
|
We have included these disclosures
in the report
|
Describe how processes for
identifying, assessing and managing climate‑related risks are integrated into the
organisation's overall risk management
|
Reporting in line with the
recommendations
|
We have included these disclosures
in the report
|
Metrics and
targets
|
|
|
Disclose the metrics used by the
organisation to assess climate-related risks and opportunities in
line with its strategy and risk management processes
|
Reporting in line with the
recommendations
|
We have included these disclosures
in the report
|
Describe Scope 1, Scope 2 and if
appropriate, Scope 3 greenhouse gas (GHG) emissions, and the
related risks
|
We have made disclosures but are not
yet fully reporting in line with the recommendations
|
We continue to improve the accuracy
of our reported Scope 3 emissions, which represents a significant
proportion of our total emissions. We now collect over 85% of scope
3 emissions data from our tenants and continue to explore ways to
improve the quality and quantity of this data capture and
disclosure
|
Describe the targets used by the
organisation to manage climate‑related risks and opportunities and
performance against targets
|
We have made disclosures but are not
yet fully reporting in line with the recommendations
|
We have developed some headline
targets but in 2024, we will consider further targets related to
transition and physical risks and opportunities
|
Governance
The board sets our risk appetite and oversees
our risk management, which the Investment Manager carries out on
our behalf. This risk framework includes climate change and
sustainability related matters. Twice a year, the board and the
Investment Manager review our principal risks and consider emerging
risks. Following the board's approval of the ESG Strategy in
February 2023 the IM established an ESG Committee to provide
further structure and formality to its ESG workstreams and to track
progress against targets for climate related targets.
The IM's ESG Committee, which meets on a
quarterly basis and documents minutes and actions, is responsible
for reviewing and advising on the recommendations made by the IM's
ESG Working Group, also established in 2023, chaired by the IM's
Development Director.
The IM's ESG Committee is chaired by the IM's
Finance Director who, in partnership with the Development Director,
oversees the operational and financial aspects of our
sustainability programme. The IM's Finance Director reports
directly into the board and consults with the audit committee to
ensure the relevant level of assurance is being provided.
ESG/Sustainability is an item on the board agenda and a
dedicated Board session takes place periodically.
More information on our governance of climate
change considerations can be found within our reporting on
Principal Risk and our Audit, Risk and Internal Control.
Board
Overall accountability for ESG
strategy
Audit
committee
Identification and management of climate
risks
ESG
committee
Review and advise on climate strategy
Risk
committee
Identification and management of climate
risks
ESG working
group
Accountable for execution of Sustainability/ ESG
strategy
TCFD working
group
Initial assessment of risks and opportunities
linked to climate change
Strategy
Having modelled a net zero strategy, which we
reported on in our 2022 annual report, we used 2023 to develop
further our net zero delivery plan. We identified six properties
which were representative of the energy performance across our
portfolio and commissioned detailed on-site energy audits to test
our assumptions and associated financial modelling.
In tandem with our net zero delivery planning we
continue to make good progress on making the necessary improvements
to our properties to ensure that they comply with future MEES
regulation.
Building on last year's assessments of risks and
opportunities, we undertook a detailed review of the following
areas which we considered material to our business (see below).
Once again, to align with our business strategy, we have
defined short term as one to three years, medium term as five to 10
years and a long-term timeframe as up to 25 years.
While we have assessed the potential financial
impacts relating to our net zero planning and MEES compliance, we
still need to quantify the financial impacts posed by physical
risks of flooding and other risks and opportunities.
Following our review of climate related risks
and opportunities in 2022 we have highlighted in the table below
the most material risks and how we are managing these.
Detailed review of risks and
opportunities
Flooding
Probability:
Medium
Impact:
Moderate
Change in the year:
No change
Risk
appetite: Cautious
Timescale:
Medium/Long
Disruption to provision of care or
possible closure of care home
How we are
assessing the risk
Using the Environment Agency (EA) current data,
we have assessed all care homes within our portfolio for flood
risk related to seas, rivers, surface and ground water. We have
also cross-referenced IPCC longer-term data which we had mapped
against a representative 20 care homes in our portfolio. As regards
EA's current data, we have identified 12 assets which are
potentially at high risk (greater than 3.3% chance of flooding each
year), and within our longer-term assessment, we have identified
three properties from our representative sample which are at high
risk from rising sea levels under a high‑emissions longer term scenario.
Flooding risk is also included in our due
diligence sustainability reports for new acquisitions. During 2024,
we will conduct a more detailed risk assessment for those
considered high risk, reviewing aspects such as local authority
flood defence planning.
How we manage
this risk
All of our homes are fully insured against
damage including loss of rent. Our tenants separately have
insurance for loss of earnings for their own business. Where flood
risk has been identified, or occurred, we look to work with our
tenants and insurers to enhance the flood defences and safety for
residents.
Opportunity
Increased investment in our homes and capital
deployed in return for increased rent.
Improved long-term care
of residents
Additional
capital expenditure
Probability:
High
Impact:
Moderate
Change in the year:
No change
Risk
appetite: Cautious
Timescale:
Medium/Long
Additional costs required to improve
energy efficiency and realise net zero targets
How we are
assessing the risk
We have mapped and estimated a capex profile
from the present day until 2045 when we plan to be net zero. We are
targeting approximately 15% of our asset management budget towards
energy-efficiency improvements.
During 2023, we conducted a first round of
on-site energy audits to verify our net zero modelling assumptions.
These findings and costings are being incorporated into our climate
transition planning.
How we manage
this risk
Our leases with our tenants are fully insuring
and repairing and require tenants to ensure the property is
compliant with legislation. Therefore, as legislation comes in to
align with these targets, our tenants will be responsible for the
cost and have the ability to factor this in to the cost of their
services.
We are working with our tenants to ensure our
buildings are well prepared for future legislation and our ESG
targets. We do this by having a good understanding of the
environmental performance of our homes We also ensure that any
capital improvements that require our permission include some
environmental enhancements.
Opportunity
Increased investment in our homes and capital
deployed in return for increased rent.
Ability to utilise Improvements in technology to
help reducing the carbon footprint of our portfolio
Improved long-term care of residents
Regulation
Probability:
High
Impact:
Moderate
Change in the year:
No change
Risk
appetite: Cautious
Timescale:
Medium/Long
Potential loss of value for assets not
meeting expected future standards. Assets may become "stranded" by
evolving environmental legislation
How we are
assessing the risk
We work closely with environmental and political
consultants to help us understand future proposals for any changes
in regulation and we appraise our portfolio against these proposed
regulations.
For new acquisitions, we have set ourselves a
target of an EPC B rating or the ability to achieve a B rating in
the short term. We also undertake environmental due diligence
including CRREM analysis to model stranding year and key
mitigations. An objective of our net zero delivery plan is to
ensure our portfolio is upgraded to meet our targets.
We now have full visibility of EPCs across our
entire portfolio of properties and have an active asset management
improvements schedule in place to ensure we are compliant with
anticipated 2030 MEES regulation. Our leases require our tenant
operators to ensure the buildings are in compliance with
legislation.
How we manage
this risk
As explained above, our leases require our
tenant operators to ensure the buildings are in compliance
with legislation.
Opportunity
Increased investment in our homes and capital
deployed in return for increased rent.
Ability to utilise Improvements in technology to
help reducing the carbon footprint of our portfolio.
Cost of
carbon
Probability:
Medium
Impact:
Moderate
Change in the year:
No change
Risk
appetite: Cautious
Timescale:
Medium
Introduction of carbon levy by Govt to
encourage reduction in carbon emissions that results in
additional taxation liability for the
Company
How we are
assessing the risk
The IM has held two workshops to discuss the
possible options re carbon pricing/taxation and how best to
introduce this into our business strategy and financial
planning.
We continue to ensure we are capturing as much
underlying data from our tenants on our Scope 3
emissions.
We will continue to monitor the situation in
2024 and also ensure that we are compliant with future
ISSB/government guidance. We expect to start to embed an internal
carbon price within our planning to inform
decision-making.
How we manage
this risk
By understanding the legislation being applied
in other countries we are able to model similar legislation being
applied in the UK and ensuring this can be incorporated into our
risk modelling in 2024.
Opportunity
With increased regulation there is
the opportunity for our tenants to charge increased fees for their
services and therefore enable us to increase our investment in our
homes in return for an increased rent.
Additional Risk & opportunities
disclosed in 2022
Water stress
and heatwaves
Probability:
Medium
Impact:
Significant
Change in the year:
No change
Risk
appetite: Cautious
Timescale:
Medium/Long
Environment within assets is detrimental
for wellbeing of residents and staff and additional capex is
required to retro fit cooling and improve water
use
How we are
assessing the risk
Our net zero strategy includes assumptions on
additional cooling requirements for existing assets.
We will continue to work with our environmental
consultants to help us understand the expected regular peak
temperatures across the UK as a result of a 1.5o or more
global increase in temperature and ensure this is factored into our
design parameters when approving asset management
activity.
How we manage
this risk
This continues to be work in progress to
understand on an asset by asset basis what the implications could
be and how we can mitigate these.
Opportunity
Increased investment in our homes and capital
deployed in return for increased rent.
Market
Probability:
Medium
Impact:
Moderate
Change in the year:
No change
Risk
appetite: Cautious
Timescale:
Medium
Investors and markets increasing
awareness of environmental performance. If we fail to communicate a
strategy and implications for our portfolio investors are less
likely to want to invest in our business
How we are
assessing the risk
We are undertaking a significant amount of work
to ensure we can deliver against our ESG strategy and net zero
targets and communicate the risks and opportunities that
come with this.
We regularly engage with investors and ensure we
are open and transparent about our business in our reporting to
ensure we understand any investor concerns and address
these.
How we manage
this risk
Alongside investor engagement we have already
retained our EPRA sBPR Gold award for our sustainability reporting
and a D rating for our initial Carbon Disclosure Project submission
(a voluntary disclosure for companies seeking to be transparent on
climate related risks and opportunities.
In 2024 we are looking to gain GRESB
accreditation which will provide investors with incremental
benchmarking about the quality of information we hold on our
portfolio.
Opportunity
By taking our environmental targets seriously
and transparently reporting, more investors could be interested in
investing in our business.
Reputation
Probability:
Medium
Impact:
Moderate
Change in the year:
No change
Risk
appetite: Minimalist
Timescale:
Short
Investors, tenants and commissioners may
have increasing expectations of real estate owners for
environmental issues and if we fail to meet these or deliver
against our objectives and net zero targets our reputation would be
damaged and stakeholders may be less willing to engage with
us
How we are
assessing the risk
We are continuing to appraise our portfolio and
collect as much evidence as possible to be able to benchmark and
report on our portfolio.
How we manage
this risk
We aim to be fully transparent and honest about
our ESG targets, the activities we are undertaking and how we are
performing against these. Our aim is to achieve these targets and
provide comfort that the Company is committed to improving
environmental standards.
Opportunity
If we are successful in communicating and
delivering against these targets, existing stakeholders will want
to continue to work with us and potentially, more will be keen to
work with us.
Risk
management
As a
principal risk for the business, climate-related risks are subject
to the same formal governance and review process as other risks on
our risk register.
The Investment Management team has a risk
committee which assesses and reviews the Company's risk register on
a quarterly basis and reports to the audit committee. Prioritised
risks are discussed and considered by the audit committee and board
twice a year. Environmental regulation and impact of climate change
is already a principal risk for the Group; the assessment has been
maintained/changed from Probability: Medium, Impact: Low to
Probability: Medium, Impact: Medium. Following a full climate risk
analysis undertaken in 2022 we continue to review risks and
opportunities.
As part of our due diligence process for
potential new acquisitions and asset management projects,
environmental performance and opportunities to decarbonise are
considered in detail. Risks around our portfolio and ability to
decarbonise in accordance with our net zero delivery plan are
assessed using the CRREM toolkit which measures the potential rate
of decarbonisation against the Paris Climate Treaty 1.5 degree
warming scenario. Assets with higher risks associated with this are
reviewed annually as part of our portfolio stratification (Core,
Value Add and Non‑Core).
Looking ahead, this due diligence will continue
to factor in possible identified risks and opportunities associated
with climate change and a decarbonisation pathway.
Metrics and
targets
As part of our EPRA reporting responsibilities,
we have been disclosing our energy consumption data since 2019 in
accordance with the EPRA Best Practice Sustainability requirements.
Impact's Scope 1 and 2 emissions are minimal with all reported
emissions relating to tenant-obtained energy consumption falling
under Scope 3. In this report we have included our GHG emissions
for the 12 months to 31 December 2023 in order to provide
as up-to-date information as possible.
We have been modelling our portfolio as part of
our net zero strategy planning and have referenced our progress
within this report. This net zero strategy incorporates projections
and impacts based on the size of our current portfolio and on the
size of our projected portfolio.
Last year, we published our incremental
emissions reduction targets and longer-term net zero target. As we
continue to gain greater insight into our Scope 3 emissions, we
will continue to review and refine our metrics and
targets.
In 2023 our CO2e emissions per m2 increased
slightly from 50kg to 54kg. This in part reflects the increased
occupancy experienced over this period. It will take time for the
improvement measures being implemented to embed in energy
performance. We continue to explore how we can accelerate progress
to meet our interim milestone of a 15% reduction in like-for-like
emissions by 2025, whilst maintaining affordability for our
tenant's businesses.
Our key climate related metrics are:
· EPC Ratings
· Energy Intensity per bed (KWh per bed)
· GHG Emissions Intensity (CO2e per bed)
· Capex deployed on sustainability improvements (£pa)
· Interim net zero targets
· Proportion of leases with 'Green' obligations
Energy and carbon
disclosures
Environmental
performance measures1,2,3
Performance measure - Impact
Healthcare REIT plc
|
Unit
|
Scope
|
2023
|
2022
|
Change
|
Electricity Absolute Consumption
|
kWh
|
3
|
21,197
|
18,077
|
17%
|
Electricity Total & like-for-like
consumption
|
kWh
|
3
|
19,630
|
18,077
|
9%
|
Gas
Absolute Consumption
|
kWh
|
3
|
60,502
|
52,592
|
15%
|
Gas
Total & like-for-like consumption
|
kWh
|
3
|
54,464
|
52,592
|
4%
|
Other Fuels Absolute Consumption
|
kWh
|
3
|
5,424
|
2,758
|
97%
|
Other Fuels Like-for-like
consumption1
|
kWh
|
3
|
4,349
|
2,758
|
58%
|
Building energy intensity
absolute1
|
kWh/bed/year
|
3
|
11,284
|
10,615
|
6%
|
Building energy intensity
like-for-like1
|
kWh/bed/year
|
3
|
10,966
|
10,615
|
3%
|
Building energy intensity like-for-like
|
kWh/m2/year
|
3
|
286
|
268
|
7%
|
Total indirect greenhouse gas (GHG) emissions from tenant
obtained fuel usage1
|
Tonnes CO2e
|
3
|
15,923
|
13,768
|
16%
|
Total indirect greenhouse gas (GHG) emissions from tenant
obtained fuel usage like-for-like1
|
Tonnes CO2e
|
3
|
14,482
|
13,768
|
5%
|
Greenhouse gas (GHG) emissions intensity from building energy
consumption
|
Tonnes CO2e
/bed/year
|
3
|
2.06
|
1.99
|
3%
|
Greenhouse gas (GHG) emissions intensity from building energy
consumption
|
Kg
CO2e/m2/year
|
3
|
54
|
50
|
8%
|
Greenhouse gas (GHG) emissions intensity from building energy
consumption like-for-like1
|
Tonnes
CO2e/bed/year
|
3
|
2.02
|
1.99
|
1%
|
Greenhouse gas (GHG) emissions intensity from building energy
consumption like-for-like1
|
Kg
CO2e/m2/year
|
3
|
53
|
50
|
5%
|
Performance measure -
Investment Manager
|
Unit
|
Scope
|
2023
|
2022
|
Change
|
Total electricity consumption
|
kWh
|
Total Investment Manager
electricity
|
7,336
|
5,470
|
34%
|
Investment Manager energy intensity
|
kWh/FTE
|
Average kWh electricity consumption
per FTE in year
|
734
|
521
|
41%
|
Total indirect greenhouse gas (GHG)
emissions
|
tCO2e
|
Indirect - Scope 2
(location-based)
|
1.5
|
1.1
|
44%
|
Business travel - Land - Car
|
tCO2e
|
Scope 3 - Private vehicles (incl.
WTT2)
|
4.0
|
3.7
|
8%
|
Business travel - Land - Air
|
tCO2e
|
Scope 3 - Flights (With RF incl.
WTT3)
|
1.7
|
1.6
|
9%
|
Business travel - Land - Rail
|
tCO2e
|
Scope 3 - Rail (incl.
WTT3)
|
0.2
|
1.2
|
(84)%
|
Total Emissions
|
tCO2e
|
|
7.4
|
7.6
|
(3)%
|
1 Like-for-like
figures adjusted to exclude 3 biomass boilers which were not
disclosed in 2022 based on available data at time of
publication.
2 Well-to-tank (WTT)
business travel - air conversion factors are used to account for
the upstream Scope 3 emissions associated with extraction, refining
and transportation of the aviation fuel to the plane before
take-off.
3 Well-to-tank (WTT)
conversion factors for passenger vehicles and business travel on
land are used to report the upstream Scope 3 emissions associated
with extraction, refining and transportation of the raw fuels
before they are used to power the transport mode.
EPRA
PERFORMANCE MEASURES
The table below shows additional performance
measures, calculated in accordance with the Best Practices
Recommendations of the European Public Real Estate Association
(EPRA). We provide these measures to aid comparison with other
European real estate businesses.
1. EPRA
earnings per share
£34.5m
8.33p per share
for the year
to 31 December 2023
(for the year to 31 December 2022: £32.6m/8.37p
per share)
2023
8.33p
2022 8.37p
2021 8.05p
2020 7.25p
Definition
Earnings from operational activities.
The EPRA calculation removes revaluation movements in the
investment portfolio and interest rate derivatives, but includes
rent smoothing.
Purpose
A key measure of a company's underlying
operating results is an indication of the extent to which current
dividend payments are supported by earnings.
2.1 EPRA net
reinstatement value (NRV)
£518.8m
125.20p per share
as at 31
December 2023
(as at 31 December 2022: £479.7m/118.51p
per share)
2023
125.20p
2022 118.51p
2021 120.84p
2020 118.04p
Definition
Net asset value adjusted for fair value of
derivatives and transaction costs under the assumption they will
not crystallise if the Company never sells assets.
Purpose
The aim of this measure is to represent the
value required to rebuild the entity.
2.2 EPRA net
tangible assets (NTA)
£476.4m
114.96p per share
as at 31
December 2023
(as at 31 December 2022: £445.6m/110.08p per
share)
2023
114.96p
2022 110.08p
2021 112.41p
2020 109.58p
Definition
Net asset value adjusted for fair value of
derivatives as these will not crystallise if held to
maturity.
Purpose
This represents the value of the Company
assuming assets are bought and sold.
2.3 EPRA net
disposal value (NDV)
£473.3m
114.22p per share
as at 31
December 2023
(as at 31 December 2022: £440.9/108.92p
per share)
2023
114.22p
2022 108.92p
2021 111.16p
2020 108.91p
Definition
Net asset value adjusted to align borrowings to
their drawn amount. If the Company was in an immediate disposal
scenario certain assets and liabilities are adjusted to show the
full value if not held to maturity.
Purpose
This measure aims to show the shareholders'
value under a disposal scenario.
3.1 EPRA net
initial yield (NIY)
6.69%
as at 31
December 2023
(as at 31 December 2022:
6.98%)
2023
6.69%
2022 6.98%
2021 6.71%
2020 6.57%
Definition
Annualised rental income based on the cash rents
passing at the balance sheet date, less non-recoverable property
operating expenses, divided by the market value of the property,
increased with (estimated) purchasers' costs.
Purpose
This measure should make it easier for investors
to judge for themselves how the valuation of one portfolio compares
with another portfolio.
3.2 EPRA
"topped-up" NIY
6.92%
as at 31
December 2023
(as at 31 December 2022:
6.98%)
2023
6.92%
2022 6.98%
2021 6.71%
2020 6.71%
Definition
This measure adjusts the EPRA NIY in respect of
the expiration of rent-free periods (or other unexpired lease
incentives, such as discounted rent periods and step
rents).
Purpose
This measure should make it easier for investors
to judge for themselves how the valuation of one portfolio compares
with another portfolio.
4. EPRA vacancy
rate
0.00%
as at 31
December 2023
(as at 31 December 2022:
0.00%)
2023
0.00%
2022 0.00%
2021 0.00%
2020 0.00%
Definition
Estimated market rental value (ERV) of vacant
space divided by the ERV of the whole portfolio.
Purpose
A "pure" (%) measure of investment property
space that is vacant, based on ERV.
5. EPRA cost
ratio
14.37%
for the year
to 31 December 2023
(for the year to 31 December 2022:
16.59%)
2023
14.37%
2022 16.59%
2021 15.84%
2020 17.09%
Definition
Administrative and operating costs (including,
and excluding, direct vacancy costs) divided by gross rental
income.
Purpose
A key measure, to enable meaningful measurement
of the changes in a company's operating costs. The EPRA cost ratio
does not include the interest income received on the Group's
property investments made via a loan to operator, adjusting for
this gives a cost ratio of 13.4%.
6.
Like-for-like rental growth
4.67%
for the year
to 31 December 2023
(for the year to 31 December 2022:
5.07%)
2023
4.67%
2022 5.07%
2021 5.74%
2020 4.26%
Definition
Rental growth on the portfolio of properties
that have been owned and operational for two full reporting
cycles.
Purpose
Growth of rental income excludes acquisitions
and disposals, but includes increases in rent from inflationary
uplifts and rentalised capital expenditure. This allows
stakeholders to estimate the organic income growth.
7. EPRA (net)
LTV
27.85%
as at 31
December 2023
(as at 31 December 2022:
24.10%)
2023
27.85%
2022 24.10%
2021 23.17%
2020 17.06%
Definition
Debt drawn at nominal value net of cash and net
payables divided by portfolio value.
Purpose
To assess the gearing of the shareholder equity
within a real estate company.
Notes to the EPRA performance measures
For the year
ended 31 December 2023
1. EPRA
earnings per share
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Total comprehensive income (attributable to
shareholders)
|
48,831
|
16,888
|
Adjusted for:
|
|
|
- Revaluation movement
|
(21,934)
|
8,103
|
- Rental lease incentives
|
(140)
|
(141)
|
- Rental income arising from
recognising future guaranteed rent uplifts and rental
premiums
|
7,286
|
6,494
|
Change in fair value of investment
properties
|
(14,788)
|
14,456
|
Loss/(profit) on disposal of
investment property
|
16
|
(130)
|
Change in fair value of put
option
|
-
|
1,811
|
Change in fair value of interest
rate derivatives
|
458
|
(381)
|
Profits to calculate EPRA earnings per share
|
34,517
|
32,644
|
|
|
|
Weighted average number of ordinary
shares (basic and diluted)
|
414,157,674
|
390,058,661
|
EPRA earnings per share - basic and diluted
|
8.33p
|
8.37p
|
2. EPRA NAV
measures
The EPRA best practice recommendations, released
in October 2020, give three NAV metrics: EPRA net reinstatement
value (NRV), EPRA net tangible assets (NTA) and EPRA net disposal
value (NDV). NRV aims to show the value of assets on a long-term
basis, adjusting for items that would not be expected to
crystallise under normal circumstances, NTA is calculated on the
basis that assets are bought and sold whilst NDV intends to show
shareholders the value of assets and liabilities in the event they
cannot be held until maturity. The Group has adopted NTA as its
primary EPRA NAV measure as it most closely aligns with the Group's
business practices.
As at 31 December 2023:
|
EPRA NRV
|
EPRA NTA
|
EPRA NDV
|
|
£'000
|
£'000
|
£'000
|
Net
assets at end of year
|
478,107
|
478,107
|
478,107
|
Exclude:
|
|
|
|
Fair value of derivatives
|
(1,750)
|
(1,750)
|
-
|
Include:
|
|
|
|
Fair value of
debt1
|
-
|
-
|
(4,823)
|
Transaction
costs2
|
42,452
|
-
|
-
|
Net
assets (per EPRA measure)
|
518,809
|
476,357
|
473,284
|
Shares in issue at 31 December
(basic and diluted)
|
414,368,169
|
414,368,169
|
414,368,169
|
Net
assets per share (per EPRA measure)
|
125.20p
|
114.96p
|
114.22p
|
As at 31 December 2022:
|
EPRA
NRV
|
EPRA
NTA
|
EPRA
NDV
|
|
£'000
|
£'000
|
£'000
|
Net
assets at end of year
|
445,919
|
445,919
|
445,919
|
Exclude:
|
|
|
|
Fair value of derivatives
|
(363)
|
(363)
|
-
|
Include:
|
|
|
|
Fair value of
debt1
|
-
|
-
|
(5,064)
|
Transaction
costs2
|
34,139
|
-
|
-
|
Net
assets (per EPRA measure)
|
479,695
|
445,556
|
440,855
|
Shares in issue at 31 December
(basic and diluted)
|
404,764,329
|
404,764,329
|
404,764,329
|
Net
assets per share (per EPRA measure)
|
118.51p
|
110.08p
|
108.92p
|
1
Difference between interest-bearing loans and borrowings included
in the balance sheet at amortised cost, and fair value of
interest-bearing loans and borrowings at drawn amount.
2
NTA and NDV are calculated using property values in line with IFRS,
where values are net of real estate transfer tax and other
purchasers' costs. These transaction costs are added back for
NRV.
3. EPRA net
initial yield (NIY) and EPRA "topped-up" NIY
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Investment property - wholly owned
|
651,313
|
532,478
|
Less capital improvements under
construction
|
(9,669)
|
(7,535)
|
Completed property portfolio
|
641,644
|
524,943
|
Allowance for estimated purchasers'
cost1
|
40,424
|
33,071
|
Gross up completed property portfolio valuation
(B)
|
682,068
|
558,014
|
Annualised cash passing rental
income
|
45,601
|
38,932
|
Property outgoings (non-recoverable
insurance)
|
-
|
-
|
Annualised net rents (A)
|
45,601
|
38,932
|
Add:
|
|
|
Contractual rent on properties with
interim variable rents
|
|
|
whilst in turnaround
|
1,617
|
-
|
Topped-up net annualised rent (C)
|
47,218
|
38,932
|
EPRA net initial yield (A/B)
|
6.69%
|
6.98%
|
EPRA topped-up net initial yield (C/B)
|
6.92%
|
6.98%
|
1 Assumes a purchaser
of the Company's portfolio would pay SDLT and transaction costs
equal to 6.3% of the portfolio's value.
4. EPRA vacancy
rate
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Estimated rental value of vacant
space
|
-
|
-
|
Estimated rental value of the whole
portfolio
|
48,154
|
39,476
|
EPRA vacancy rate
|
0.00%
|
0.00%
|
5. EPRA cost
ratio
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Administrative and other
expenses
|
7,137
|
7,008
|
Net service charge cost
|
-
|
-
|
Total costs including and excluding
vacant property costs
|
7,137
|
7,008
|
Gross rental income
|
49,659
|
42,243
|
Total EPRA cost ratio (including, and excluding, direct
vacancy costs)
|
14.37%
|
16.59%
|
None of the costs in this note have been
capitalised. Only costs directly associated with the purchase of
properties as well as subsequent value-enhancing capital
expenditure qualify as acquisition costs and are
capitalised.
6.
Like-for-like rental growth
This note shows the rental income and market
value for property assets that have been owned and operational for
two full reporting periods, hence all below information relates to
the property portfolio that has been owned and operational since 31
December 2021. It therefore excludes any rental increases or values
in relation to properties acquired after 31 December
2021.
|
Rent
|
Market
value
|
|
£'000
|
£'000
|
Property portfolio as at 31 December
2021
|
31,925
|
450,897
|
Inflation-linked rental
uplifts
|
1,308
|
|
Rental uplifts in return for capital
improvements or deferred payments
|
269
|
|
Increase/(decrease) due to vacancy
rate
|
-
|
|
Property portfolio as at 31 December 2022
|
33,502
|
451,664
|
Inflation-linked rental
uplifts
|
1,395
|
|
Rental uplifts in return for capital
improvements or deferred payments
|
168
|
|
Increase/(decrease) due to vacancy
rate
|
-
|
|
Property portfolio as at 31 December 2023
|
35,065
|
472,808
|
All properties operate within the same sector,
UK healthcare.
7. EPRA (net)
LTV
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Gross debt
|
184,760
|
142,260
|
Include:
|
|
|
Net payables
|
6,009
|
8,617
|
Less:
|
|
|
Cash and cash equivalents
|
(9,389)
|
(22,531)
|
Net
debt
|
181,380
|
128,346
|
Property portfolio
|
651,313
|
532,478
|
EPRA (net) LTV
|
27.85%
|
24.10%
|
ALTERNATIVE
PERFORMANCE MEASURES
The other alternative performance measures may
not be comparable with similarly titled measures presented by other
companies. Alternative performance measures should not be viewed in
isolation but as supplementary information.
1. Total
expense ratio (TER)
Total recurring administration costs as a
percentage of average NAV throughout the period.
|
Year ended
|
Year
ended
|
|
31
December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Opening NAV
|
445,920
|
394,244
|
Closing NAV
|
478,107
|
445,920
|
Average NAV for the year
|
462,013
|
420,082
|
Administrative expenses
|
7,137
|
7,009
|
One-off costs
|
-
|
-
|
Recurring expenses
|
7,137
|
7,009
|
TER
|
1.54%
|
1.67%
|
2. Total
accounting return
The growth in NAV per share plus dividends paid
expressed as a percentage of NAV per share at the beginning of the
period.
|
Year ended
|
Year
ended
|
|
31
December
|
31
December
|
|
2023
|
2022
|
Opening NAV per share
(pence)
|
110.17
|
112.43
|
Closing NAV per share
(pence)
|
115.38
|
110.17
|
NAV growth for the year
(pence)
|
5.21
|
(2.26)
|
Dividends per share paid in the year
(pence)
|
6.71
|
6.51
|
Total return (pence)
|
11.92
|
4.25
|
Total accounting return
|
10.82%
|
3.78%
|
3. Gross loan
to value (LTV)
The gross debt as a percentage of our gross
asset value.
|
As at
|
As
at
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Gross debt
|
184,760
|
142,260
|
Gross assets
|
667,289
|
596,524
|
LTV
|
27.69%
|
23.85%
|
4. Property
investments
This relates to the portfolio valuation along
with investments via loans to operators for the acquisition of
property portfolios.
|
As at
|
As
at
|
|
31 December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Portfolio valuation
|
651,313
|
532,478
|
Investments in properties via loans
to operators
|
-
|
36,360
|
Property Investments
|
651,313
|
568,838
|
OUR
PORTFOLIO
At
31 December 2023, the Group owned the homes listed in the table
below:
|
|
Acquisition
|
|
Capital
|
Tenant and home
|
Region
|
date1
|
Beds2
|
projects3
|
Belmont Healthcare
|
|
|
|
|
Madeira Lodge
|
South
East
|
Nov
2022
|
48
|
|
Wombwell Hall
|
South
East
|
Nov
2022
|
120
|
|
Value at 31 December 2023: £14.2m
|
|
|
|
|
Careport
|
|
|
|
|
Briardene
|
North
East
|
Aug
2018
|
60
|
|
Derwent
|
North
East
|
Aug
2018
|
45
|
|
Holly Lodge
|
North
East
|
Nov
2018
|
41
|
|
Kingston Court
|
North
West
|
Jun
2019
|
76
|
|
Old Prebendal House and
Court
|
South
East
|
Jun
2019
|
40
|
|
Riverwell Beck
|
North
West
|
Dec
2020
|
60
|
|
Sovereign Court and
Lodge4
|
North
East
|
Aug
2018
|
60
|
|
The Grove
|
North
East
|
Sep
2018
|
57
|
|
Value at 31 December 2023: £35.5m
|
|
|
|
|
Carlton Hall
|
|
|
|
|
Carlton Hall
|
East of
England
|
Sep
2021
|
86
|
|
Oasis Development Site
|
East of
England
|
Sep
2021
|
-
|
+80
|
Value at 31 December 2023: £13.8m
|
|
|
|
|
Croftwood Care5
|
|
|
|
|
Ancliffe
|
North
West
|
|
40
|
|
Astbury Lodge
|
North
West
|
|
41
|
|
Croftwood
|
North
West
|
|
47
|
|
Crossways
|
North
West
|
|
39
|
|
Elm House
|
North
West
|
|
40
|
+19
|
Florence Grogan
|
North
West
|
|
40
|
|
Garswood
|
North
West
|
|
53
|
|
Gleavewood
|
North
West
|
|
32
|
|
Golborne House
|
North
West
|
|
45
|
|
Greenacres
|
North
West
|
|
40
|
|
Hourigan
|
North
West
|
|
40
|
|
Ingersley Court
|
North
West
|
|
46
|
|
Lakelands
|
North
West
|
|
40
|
|
Leycester House
|
North
West
|
|
40
|
|
Loxley Hall
|
North
West
|
|
40
|
|
Lyndhurst
|
North
West
|
|
40
|
|
New Milton House
|
North
West
|
|
39
|
|
Parklands
|
North
West
|
|
40
|
+1
|
The Cedars
|
North
West
|
|
27
|
|
The Elms
|
North
West
|
|
41
|
|
The Hawthorns
|
North
West
|
|
39
|
|
The Laurels
|
North
West
|
|
40
|
|
Thorley House
|
North
West
|
|
40
|
|
Turnpike Court
|
North
West
|
|
53
|
|
Wealstone
|
North
West
|
|
42
|
|
Westhaven
|
North
West
|
|
52
|
|
Whetstone Hey
|
North
West
|
|
42
|
|
Value at 31 December 2023: £72.8m
|
|
|
|
|
Electus Care
|
|
|
|
|
Abingdon Manor
|
Northern
Ireland
|
Feb
2022
|
60
|
|
Cedarhurst Lodge
|
Northern
Ireland
|
Dec
2020
|
67
|
|
Edgewater Lodge
|
Northern
Ireland
|
Dec
2020
|
75
|
|
Larne
|
Northern
Ireland
|
Feb
2022
|
87
|
|
Saintfield Lodge
|
Northern
Ireland
|
Dec
2020
|
51
|
|
Value at 31 December 2023: £22.9m
|
|
|
|
|
Holmes Care Group
|
|
|
|
|
Alexander House
|
Scotland
|
Dec
2021
|
40
|
|
Almond Court
|
Scotland
|
Aug
2020
|
42
|
|
Almond View
|
Scotland
|
Aug
2020
|
78
|
|
Bankview (& BVDC)
|
Scotland
|
Aug
2020
|
65
|
|
Barrogil House
|
Scotland
|
Dec
2021
|
40
|
|
Beechwood
|
Scotland
|
Aug
2020
|
90
|
|
Camilla
|
Scotland
|
Dec
2021
|
40
|
|
Craigie House
|
Scotland
|
Dec
2021
|
30
|
|
Cragielea
|
Scotland
|
Aug
2020
|
85
|
|
Fernlea House
|
Scotland
|
Dec
2021
|
36
|
|
Finavon Court
|
Scotland
|
Dec
2021
|
24
|
|
Grandholm
|
Scotland
|
Aug
2020
|
79
|
|
Heatherfield
|
Scotland
|
Aug
2020
|
60
|
|
Larkfield
|
Scotland
|
Aug
2020
|
90
|
|
Lomond View
|
Scotland
|
Dec
2021
|
50
|
|
Methven House
|
Scotland
|
Dec
2021
|
60
|
|
Preston House
|
Scotland
|
Dec
2021
|
60
|
|
Roselea House
|
Scotland
|
Dec
2021
|
20
|
|
Three Towns
|
Scotland
|
Aug
2020
|
60
|
|
Walton House
|
Scotland
|
Dec
2021
|
40
|
|
Willow House
|
Scotland
|
Dec
2021
|
40
|
|
Value at 31 December 2023: £92.1m
|
|
|
|
|
Maria Mallaband and Countrywide Group (MMCG)
|
|
|
|
|
Belmont House
|
Yorkshire
& The Humber
|
May
2019
|
106
|
|
Croft House
|
Yorkshire
& The Humber
|
Mar
2020
|
68
|
|
Howgate House
|
Yorkshire
& The Humber
|
Mar
2020
|
63
|
|
Manor Park
|
Yorkshire
& The Humber
|
Mar
2020
|
75
|
|
Parksprings
|
Scotland
|
May
2019
|
96
|
|
Thorntree Mews
|
Scotland
|
May
2019
|
40
|
|
Wallace View
|
Scotland
|
May
2019
|
60
|
|
Value at 31 December 2023: £35.7m
|
|
|
|
|
Minster Care5
|
|
|
|
|
Abbeywell
|
West
Midlands
|
|
45
|
|
Amberley
|
South
West
|
|
30
|
+7
|
Ashgrove
|
Yorkshire
& The Humber
|
|
56
|
|
Broadgate
|
East
Midlands
|
|
40
|
|
Carnbroe
|
Scotland
|
May
2018
|
76
|
|
Craigend
|
Scotland
|
|
48
|
|
Diamond House
|
East
Midlands
|
|
74
|
|
Duncote Hall
|
East
Midlands
|
|
40
|
|
Duncote, The Lakes
|
East
Midlands
|
|
47
|
|
Emmanuel
|
Yorkshire
& The Humber
|
|
44
|
|
Eryl Fryn
|
Wales
|
|
30
|
|
Falcon House
|
East
Midlands
|
|
46
|
|
Freeland House
|
South
East
|
|
111
|
|
Gray's Court
|
East of
England
|
|
87
|
|
Grenville
|
East of
England
|
May
2018
|
64
|
|
Hamshaw Court
|
Yorkshire
& The Humber
|
|
45
|
|
Hillcrest
|
South
West
|
Nov
2021
|
88
|
|
Ideal
|
West
Midlands
|
|
50
|
|
Karam Court
|
West
Midlands
|
|
47
|
|
Littleport Grange
|
East of
England
|
|
80
|
|
Meadows & Haywain
|
East of
England
|
|
65
|
|
Mowbray
|
West
Midlands
|
|
39
|
|
Red Hill
|
West
Midlands
|
Jan
2020
|
90
|
|
Rydal
|
North
East
|
|
60
|
|
Saffron
|
East
Midlands
|
Jun
2017
|
48
|
|
Sovereign House
|
West
Midlands
|
|
60
|
|
Stansty House
|
Wales
|
|
73
|
|
Three Elms
|
North
West
|
|
60
|
|
Waterside
|
West
Midlands
|
|
47
|
|
Woodlands Court
|
North
West
|
|
40
|
|
Wordsley
|
West
Midlands
|
|
44
|
|
Value at 31 December 2023: £137.3m
|
|
|
|
|
NCUH NHS Trust
|
|
|
|
|
Reiver House
|
North
West
|
Jun
2019
|
-
|
|
Surgical Unit
|
North
West
|
Jun
2019
|
-
|
|
Value at 31 December 2023: £4.3m
|
|
|
|
|
Optima
|
|
|
|
|
Barham
|
East of
England
|
Aug
2019
|
44
|
|
Baylham
|
East of
England
|
Aug
2019
|
55
|
|
Value at 31 December 2023: £15.6m
|
|
|
|
|
Prestige Group
|
|
|
|
|
Merlin Manor Care Centre
|
North
East
|
Mar
2020
|
94
|
|
Parkville
|
North
East
|
Mar
2018
|
94
|
|
Roseville
|
North
East
|
Mar
2018
|
103
|
|
Sandbanks
|
North
East
|
Oct
2018
|
77
|
|
Yew Tree
|
North
East
|
Jan
2019
|
76
|
+25
|
Value at 31 December 2023: £36.3m
|
|
|
|
|
Renaissance Care
|
|
|
|
|
Croftbank
|
Scotland
|
Nov
2018
|
68
|
|
Rosepark
|
Scotland
|
Nov
2018
|
60
|
|
Value at 31 December 2023: £13.3m
|
|
|
|
|
Melrose5
|
|
|
|
|
Baillieston
|
Scotland
|
Aug
2022
|
60
|
|
Cardonald
|
Scotland
|
Aug
2022
|
31
|
|
Laurel Bank
|
Yorkshire
& The Humber
|
Mar
2020
|
63
|
|
Springhill
|
Scotland
|
Nov
2021
|
61
|
|
Stobhill
|
Scotland
|
Aug
2022
|
60
|
|
The Beeches
|
Yorkshire
& The Humber
|
Mar
2020
|
60
|
|
Willow Bank
|
Yorkshire
& The Humber
|
Mar
2020
|
59
|
|
Value at 31 December 2023: £17.1m
|
|
|
|
|
Welford
|
|
|
|
|
Argentum Lodge
|
South
West
|
Sep
2019
|
56
|
|
Baily House
|
East
Midland
|
Jun
2022
|
66
|
|
Birchlands
|
Yorkshire
& The Humber
|
Jun
2019
|
54
|
|
Corbrook Park
|
North
West
|
Jan
2023
|
80
|
|
Eastleigh - East Street &
Rossiter House
|
South
West
|
May
2022
|
54
|
|
Eastleigh - Periton Road
|
South
West
|
May
2022
|
69
|
|
Eastleigh - Raleigh Mead
|
South
West
|
May
2022
|
62
|
|
Fairview Court and House4
|
South
West
|
Mar
2018
|
73
|
|
Isle Court
|
West
Midlands
|
Jan
2023
|
82
|
|
Mavern House
|
South
West
|
Jan
2021
|
55
|
|
Morris Care Centre
|
West
Midlands
|
Jan
2023
|
96
|
|
Oldbury Grange
|
West
Midlands
|
Jan
2023
|
69
|
|
Radbrook
|
West
Midlands
|
Jan
2023
|
63
|
|
Stretton Hall
|
West
Midlands
|
Jan
2023
|
50
|
|
St Peter's House
|
East of
England
|
Dec
2020
|
66
|
|
Vale View Heights Care
Home
|
South
West
|
Jun
2019
|
55
|
|
Woodleigh Christian Care
Home
|
East
Midlands
|
Jun
2022
|
44
|
|
Value at 31 December 2023: £140.5m
|
|
|
|
|
1 May 2017 unless
stated.
2 Number of registered
beds.
3 Capital improvement
bed additions under development.
4 Treated as two
properties.
5 Croftwood Care and
Minster Care are both part of Minster Care Group Limited. Melrose
Holdings Limited is an affiliate of Minster Care Group
Limited.
AIFM
statement
Impact Health Partners LLP have served as the
Alternative Investment Fund Manager since 15 March 2019;
references in this statement to "AIFM" are to Impact Health
Partners LLP.
Quantitative
remuneration disclosure for the AIFM
Information in relation to the remuneration paid
by the AIFM is available upon request.
Liquidity
At the date of this annual report there are no
assets held by the Company which are subject to special
arrangements arising from their illiquid nature. There has been no
change to the liquidity management system and procedures during the
period since incorporation. Please refer to note 19 in the
financial statements for an analysis of the Company's liabilities
and their maturity dates at 31 December 2023.
The current
risk profile of the Company and the risk management systems
employed by the AIFM to manage those risks
The Company's risk management framework and risk
appetite are set out in "Audit, risk and internal control" on pages
127 to 129 of the annual report.
Please refer to pages 39 to 42 of the annual
report for the board's assessment of the principal risks and
uncertainties facing the Company. The AIFM has assessed the current
risk profile of the Company to be low.
Leverage
The Group's maximum and actual leverage levels
at 31 December 2023 are shown below:
Leverage exposure
|
Gross
method
|
Commitment
|
Maximum limit
|
200.0%
|
200.0%
|
Actual
|
149.8%
|
151.7%
|
For the purposes of (i) the EU Alternative
Investment Fund Managers Directive (Directive 2011/61/EU) (the "EU
AIFMD"); and (ii) the UK version of EU AIFMD as it forms part of UK
law by virtue of the European Union (Withdrawal) Act 2018, and as
implemented by the Financial Conduct Authority in the UK (the "UK
AIFMD"), leverage is any method that increases the Group's
exposure, including the borrowing of cash and the use of
derivatives. It is expressed as a percentage of the Group's
exposure to its net asset value and is calculated on both a gross
and commitment method.
Under the gross method, exposure represents the
sum of the Group's positions after deduction of cash balances,
without taking account of any hedging or netting arrangements.
Under the commitment method, exposure is calculated without the
deduction of cash balances and after certain hedging and netting
positions are offset against each other. Both methods include the
Group's interest rate swaps measured at notional value.
There has been no change to the maximum level of
leverage that the AIFM may employ on behalf of the Company. The
actual level of gearing employed by the Company at
31 December 2023 was 27.69%.
Material
changes to information
Article 23 of the EU AIFMD (in respect of the
marketing of the Company in the EU) and FUND 3.2.2, 3.2.5 and 3.2.6
if the UK AIFMD (in respect of the marketing of the Company in the
UK) require certain information to be made available to investors
before they invest (the "Required Information") and require
material changes to the Required Information to be disclosed to
investors. An updated copy of the Company's disclosure schedule
containing the Required Information was published on 27 January
2022. There have been no other material changes to the Required
Information.
INVESTMENT
POLICY
The Company's
investment policy is to acquire, own, lease, renovate, extend and
redevelop high-quality, healthcare real estate assets in the UK, in
particular elderly care homes, and to lease those assets to care
home operators and other healthcare service providers under full
repairing and insuring leases.
The Company pursues the investment policy as
follows:
Policy
|
Status
|
In order to manage risk in the
portfolio, at the time of investment, no single asset shall exceed
in value 15% of the total gross asset value of the
Group.
|
Achieved
|
No single customer paying for care
provided in assets owned by the Group will account for more than
15% of the aggregate revenues of the tenants to whom the Group's
assets are leased from time to time, measured at the time of
acquisition.
|
Achieved
|
The annual contracted rent from any
single tenant is not expected to exceed 40% of the total annual
contracted rent of the Group, measured at the time of
investment.
|
Achieved
|
The portfolio will be diversified by
location across the UK, with focus on areas where there is a good
balance of supply and demand for the provision of care and assets
are available at attractive valuations.
|
Achieved
|
Within these locations, the Group
will acquire existing modern buildings or those that are currently
considered fit for purpose by occupiers, but in respect of which
the Investment Manager has developed a plan to add value to, and
improve the environmental sustainability of, the asset through
targeted capital expenditure.
|
Achieved
|
Leases granted by the Group will be
linked to inflation, have long duration (with an unexpired lease
term of at least 20 years) and will not be subject to break
clauses. The Group will seek to amend any future leases acquired by
the Group to obtain similar terms.
|
Achieved
|
The Group will not undertake
speculative development (that is, development of property which has
not been leased or preleased), subject to the limitation in the
final bullet below, so as to reposition a home in its local market
and thus to increase the rent due.
|
Achieved
|
The Group may invest in
forward-funding agreements or forward commitments to pre-let
developments, or as part of a structured acquisition of an asset,
subject to the limitation in the final bullet below, where the
Group will own the asset on the completion of the work, or has the
ability to acquire the asset upon agreed conditions being
satisfied.
|
Achieved
|
The gross budgeted development costs
of any refurbishment, extension or replacement of existing holdings
and/or forward funding and forward commitments, is limited to 25%
of the Company's gross assets at the time of commitment.
|
Achieved
|
The Group is permitted to generate up to 15% of
its gross income in any financial year from non‑rental revenue or profit-related payments from
the tenants in addition to the rental income due under the leases.
The Group is also permitted to invest up to:
I. 10% of its
gross assets, at the time of investment, in non-residential
Healthcare Real Estate Assets, such as properties which
accommodate GP or dental practices and other
healthcare‑related
services including occupational health and physiotherapy practices,
pharmacies and hospitals or in non-healthcare-related residential
assets attached to residential Healthcare Real Estate
Assets;
II. 25% of its gross
assets, at the time of investment, in indirect property investment
funds (including joint ventures) with a similar investment policy
to that of the Company; and
III. 15% of its gross assets,
at the time of investment, in other closed-ended investment funds
listed on the Official List. The directors have no current
intention to acquire non-residential Healthcare Real Estate Assets
or indirect property investment funds.
The Group may also acquire or establish
companies, funds or other SPVs which themselves own assets falling
within the Company's investment policy.
The Group will not acquire any asset or enter
into any lease or related agreement if that would:
I. result in a
breach of the conditions applying to the Company to hold real
estate investment trust (REIT) status; or
II. result in any
investment by the Group in assets located outside of the
UK.
The Company may invest cash held for working
capital purposes and awaiting investment in cash deposits, gilts
and money market funds. It will not invest in derivatives but it
may use derivatives for hedging purposes.
Any material change to the investment policy
will require the prior approval of shareholders.
Board
composition and diversity reporting in line with
LR9
The tables below show the diversity of the board
as at 31 December 2023
|
|
|
Number
of
|
|
|
|
senior
positions
|
|
Number
of
|
Percentage
of
|
on the
board
|
|
board
members
|
the
board
|
(SID and
Chair)
|
Men
|
3
|
60%
|
1
|
Women
|
2
|
40%
|
1
|
|
|
|
Number
of
|
|
|
|
senior
positions
|
|
Number
of
|
|
on the
board
|
|
board
members
|
|
(SID and
Chair)
|
White British or other White
(including minority-white groups)
|
5
|
|
2
|
Black/African/Caribbean/Black
British
|
01
|
|
0
|
The data was collected by asking the directors
to confirm their diversity characteristics. The Company has no
executive management and these disclosures are therefore not
applicable.
1 This increases
to one with effect from 1 April 2024.