Impact Healthcare REIT — Q220 DPS reaffirmed

Impact Healthcare REIT (LSE: IHR)

Last close As at 28/03/2024

GBP0.83

−0.40 (−0.48%)

Market capitalisation

GBP347m

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Research: Real Estate

Impact Healthcare REIT — Q220 DPS reaffirmed

With care home COVID-19 infection rates continuing to decline, and continuing full rent collection, Impact has reaffirmed its intention to pay its Q220 DPS in line with expectations. Across the sector, the pandemic has created operational challenges for care home operators, including Impact’s tenants, but it has also highlighted the essential service that the sector provides. This may have the positive effect of permanently improving resident funding and support investment to meet the increasing care needs of a growing elderly population.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Impact Healthcare REIT

Q220 DPS reaffirmed

Business update

Real estate

14 July 2020

Price

96p

Market cap

£307m

Net cash (£m) at 31 December 2019

22.7

Gross LTV at 31 March 2020

(maximum c 18% if all committed transactions completed)

6.8%

Shares in issue

319.0m

Free float

94%

Code

IHR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(6.2)

(0.2)

(14.9)

Rel (local)

(2.8)

(4.5)

3.3

52-week high/low

114p

62p

Business description

Impact Healthcare REIT, traded on the Main Market of the London Stock Exchange, invests in a diversified portfolio of UK healthcare assets, particularly residential and nursing care homes, let on long leases to high-quality operators. It aims to provide shareholders with attractive and sustainable returns, primarily in the form of dividends, underpinned by structural growth in demand for care.

Next event

Half-year results

August 2020

Analyst

Martyn King

+44 (0)20 3077 5745

Impact Healthcare REIT is a research client of Edison Investment Research Limited

With care home COVID-19 infection rates continuing to decline, and continuing full rent collection, Impact has reaffirmed its intention to pay its Q220 DPS in line with expectations. Across the sector, the pandemic has created operational challenges for care home operators, including Impact’s tenants, but it has also highlighted the essential service that the sector provides. This may have the positive effect of permanently improving resident funding and support investment to meet the increasing care needs of a growing elderly population.

Year end

Net rental income (£m)

EPRA earnings* (£m)

EPRA
EPS*(p)

EPRA NAV/
share (p)

DPS
(p)

P/NAV/
share (x)**

Yield
(%)**

12/18

17.3

12.4

6.47

102.9

6.00

0.93

6.2

12/19

24.0

17.6

6.95

106.8

6.17

0.90

6.4

12/20e

30.4

22.6

7.08

108.7

6.29

0.88

6.5

12/21e

35.3

26.5

8.30

112.2

6.40

0.86

6.7

Note: *EPRA earnings exclude fair value movements on properties and interest rate derivatives. **P/NAV and yield are based on the current share price.

Business model continues to be resilient

Impact collected all rents due to the end of June and as of 6 July had received 100% of the rent payable in advance in respect of the forthcoming period. Of the total rent due this month 76% is rent payable quarterly in advance and 24% is rent payable monthly in advance. We expect a Q220 DPS of 1.5725p to be declared, in line with Q120 and the full year target of 6.29p (+1.9%), fully covered by EPRA earnings.

Impact continues to work closely with tenants and with more widespread testing now available it has a clearer picture of the spread of the pandemic through the homes in its portfolio. At 6 July, six of the group’s 96 homes had a small number of isolated confirmed cases of COVID-19 and the number of related deaths peaked in late April in line with the wider sector. With homes closed to new admissions in many cases, the number of occupied beds across the portfolio reduced by c 8% during the 17-week period from early March, when the first UK COVID-19 death was registered. The additional costs incurred by tenants in managing the pandemic have been mitigated by government support and increased fees, and tenants are again focusing on reopening homes to new admissions. Impact has agreed to support this careful reopening process in a number of ways, including the purchase and installation of thermal scanners at all its homes.

The continuing robust performance of tenants is encouraging. Entering the pandemic, the average financial performance of Impact’s tenants was strong (2019 rent cover of 1.8x with little or no external debt), while the company itself has low gearing, good liquidity and significant access to undrawn debt, suggesting a resumption of acquisition-led portfolio growth in due course.

Valuation: DPS growth linked to rental uplifts

Impact targets aggregate DPS of 6.29p in FY20 (+1.9%), barring a material COVID-19 impact on rent collection, representing an attractive yield of 6.5% while the c 6% discount to NAV compares with an average 3% premium since IPO (peak of 11%).

Exhibit 1: Financial summary

Year to 31 December (£000s)

2017

2018

2019

2020e

2021e

2022e

INCOME STATEMENT

Cash rental income

9,453

13,866

19,113

25,312

30,490

32,107

Rental income arising from recognising rental premiums & fixed rent uplifts

(61)

3,443

4,867

5,059

4,858

4,666

Gross rental income

9,392

17,309

23,980

30,371

35,349

36,773

Net other income/(expense)

0

(3)

(2)

0

0

0

Net rental income

9,392

17,306

23,978

30,371

35,349

36,773

Administrative & other expenses

(2,318)

(4,270)

(4,589)

(5,266)

(5,429)

(5,668)

Operating profit before change in fair value of investment properties

7,074

13,036

19,389

25,104

29,920

31,105

Change in fair value of investment properties

2,378

4,134

9,070

3,602

4,817

5,247

Operating profit

9,452

17,170

28,459

28,706

34,737

36,351

Net finance cost

6

(698)

(2,127)

(2,507)

(3,435)

(3,611)

Profit before taxation

9,458

16,472

26,332

26,199

31,302

32,741

Tax

(1)

0

0

0

0

0

Profit for the year (IFRS)

9,457

16,472

26,332

26,199

31,302

32,741

Adjust for:

Change in fair value of investment properties

(2,378)

(4,134)

(9,070)

(3,602)

(4,817)

(5,247)

Change in fair value of interest rate derivatives

0

105

383

0

0

0

EPRA earnings

7,079

12,443

17,645

22,597

26,485

27,494

Rental income arising from recognising rental premiums & fixed rent uplifts

61

(3,443)

(4,867)

(5,059)

(4,858)

(4,666)

Non-recurring costs

0

742

171

0

0

0

Adjusted earnings

7,140

9,742

12,949

17,538

21,627

22,828

Average number of shares in issue (m)

162.6

192.2

254.0

319.0

319.0

319.0

Basic & diluted IFRS EPS (p)

5.82

8.57

10.37

8.21

9.81

10.27

Basic & diluted EPRA EPS (p)

4.35

6.47

6.95

7.08

8.30

8.62

Basic & diluted adjusted EPS (p)

4.39

5.07

5.10

5.50

6.78

7.16

Dividend per share (declared) (p)

4.50

6.00

6.17

6.29

6.40

6.53

EPRA earnings dividend cover

97%

108%

113%

113%

130%

132%

Adjusted earnings dividend cover

98%

84%

83%

87%

106%

110%

BALANCE SHEET

Investment properties

156,226

220,463

310,542

401,799

449,616

457,863

Other non-current assets

1,651

5,725

10,111

15,170

20,028

24,694

Non-current assets

157,877

226,188

320,653

416,969

469,644

482,557

Cash and equivalents

38,387

1,470

47,790

17,161

15,916

15,479

Other current assets

119

587

554

554

554

554

Current assets

38,506

2,057

48,344

17,715

16,470

16,033

Borrowings

0

(24,709)

(23,461)

(82,915)

(123,369)

(123,823)

Other non-current liabilities

(1,712)

(1,866)

(1,768)

(1,768)

(1,768)

(1,768)

Non-current liabilities

(1,712)

(26,575)

(25,229)

(84,683)

(125,137)

(125,591)

Borrowings

0

0

0

0

0

0

Other current liabilities

(1,221)

(3,333)

(3,086)

(3,086)

(3,086)

(3,086)

Current Liabilities

(1,221)

(3,333)

(3,086)

(3,086)

(3,086)

(3,086)

Net assets

193,450

198,337

340,682

346,914

357,891

369,913

Adjust for derivative financial liability/(asset)

0

(477)

(94)

(94)

(94)

(94)

EPRA net assets

193,450

197,860

340,588

346,820

357,797

369,819

Period end shares (m)

192.2

192.2

319.0

319.0

319.0

319.0

IFRS NAV per ordinary share

100.6

103.2

106.8

108.8

112.2

116.0

EPRA NAV per share

100.6

102.9

106.8

108.7

112.2

115.9

CASH FLOW

Net cash flow from operating activities

8,236

9,991

14,941

20,046

25,062

26,439

Purchase of investment properties (including acquisition costs)

(153,338)

(55,076)

(73,416)

(84,655)

(40,000)

0

Capital improvements

(510)

(3,886)

(8,226)

(3,000)

(3,000)

(3,000)

Other cash flow from investing activities

6

39

110

26

16

16

Net cash flow from investing activities

(153,842)

(58,923)

(81,532)

(87,629)

(42,984)

(2,984)

Issue of ordinary share capital (net of expenses)

189,279

(53)

132,156

0

0

0

(Repayment)/drawdown of loans

0

26,000

(873)

59,000

40,000

0

Dividends paid

(5,286)

(11,611)

(16,143)

(19,967)

(20,325)

(20,719)

Other cash flow from financing activities

0

(2,321)

(2,229)

(2,079)

(2,997)

(3,172)

Net cash flow from financing activities

183,993

12,015

112,911

36,955

16,677

(23,891)

Net change in cash and equivalents

38,387

(36,917)

46,320

(30,629)

(1,245)

(437)

Opening cash and equivalents

0

38,387

1,470

47,790

17,161

15,916

Closing cash and equivalents

38,387

1,470

47,790

17,161

15,916

15,479

Balance sheet debt

0

(24,709)

(23,461)

(82,915)

(123,369)

(123,823)

Unamortised loan arrangement costs

0

(1,291)

(1,666)

(1,212)

(758)

(304)

Net cash/(debt)

38,387

(24,530)

22,663

(66,966)

(108,211)

(108,648)

Gross LTV (net debt as % gross assets)

0.0%

11.4%

6.8%

19.4%

25.5%

24.9%

Source: Impact Healthcare REIT historical data, Edison Investment Research forecasts


General disclaimer and copyright

This report has been commissioned by Impact Healthcare REIT and prepared and issued by Edison, in consideration of a fee payable by Impact Healthcare REIT. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

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United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

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United States of America

Sydney +61 (0)2 8249 8342

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Impact Healthcare REIT and prepared and issued by Edison, in consideration of a fee payable by Impact Healthcare REIT. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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