Impact Healthcare REIT — Interest hedging provides dividend visibility

Impact Healthcare REIT (LSE: IHR)

Last close As at 22/05/2024

GBP0.89

0.20 (0.23%)

Market capitalisation

GBP368m

More on this equity

Research: Real Estate

Impact Healthcare REIT — Interest hedging provides dividend visibility

Impact Healthcare REIT delivered strong operational and financial progress in the six months to 30 June 2023 (H123). Completion of additional interest rate hedging arrangements, with interest costs on 92% of drawn debt now fixed or hedged, provides visibility over debt costs and Impact’s ability to continue to pay fully cash-covered progressive dividends.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Impact Healthcare REIT

Interest hedging provides dividend visibility

H123 update

Real estate

22 August 2023

Price

84.5p

Market cap

£350m

Gross debt at 30 June 2023

£190.8m

Gross LTV at 30 June 2023

28.5%

Shares in issue

414.4m

Free float

90%

Code

IHR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(9.9)

(14.7)

(29.0)

Rel (local)

(4.7)

(8.7)

(25.3)

52-week high/low

124p

90p

Business description

Impact Healthcare REIT, traded on the Main Market of the London Stock Exchange, invests in a diversified portfolio of UK healthcare assets, primarily 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 events

FY23 results announced

March 2024

Analyst

Martyn King

+44 (0)20 3077 5700

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

Impact Healthcare REIT delivered strong operational and financial progress in the six months to 30 June 2023 (H123). Completion of additional interest rate hedging arrangements, with interest costs on 92% of drawn debt now fixed or hedged, provides visibility over debt costs and Impact’s ability to continue to pay fully cash-covered progressive dividends.

Year end

Net rental
income (£m)

EPRA earnings* (£m)

EPRA
EPS* (p)

EPRA NTA/
share (p)

DPS
(p)

P/NAV
(x)**

Yield
(%)**

12/22

45.4

30.8

8.4

110.1

6.54

0.77

7.7

12/23e

53.4

33.9

8.2

112.6

6.77

0.75

8.0

12/24e

56.2

34.6

8.3

117.0

6.96

0.72

8.2

12/25e

59.4

38.4

9.3

121.8

7.10

0.69

8.4

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

Underlying earnings forecasts increased

The acquisition of an additional £50m interest rate cap for £1.76m, limiting SONIA costs to 4.0% for two years, eliminates most exposure to a further rise in interest rates over what is expected to be the peak in the interest rate cycle. Volatile money markets currently project that SONIA will reach a high of more than 6% in 2024. Hedging combined with the continuation of a generally strong tenant operational and financial performance (Impact has acted decisively to re-tenant the assets of one struggling operator), we are confident that the FY23 target DPS of 6.77p (+3.5%) will be met and fully covered by cash earnings. We expect this trend to continue through FY24 and 25. We have increased our adjusted cash earnings forecasts by 2–3% for the next two years, with higher revenues and lower costs offsetting the ‘baked-in’ effect of recent interest rate increases, with growing dividends covered 104–105%. Rental growth is again driving property gains as yields stabilise and we expect this to continue, lifting NAV and NAV total returns.

Structurally supported

DPS has increased each year since listing in 2017, driving consistently positive accounting returns, averaging 7.1% pa. Providing a strong tailwind, Impact operates in a structurally supported market, where care demand is driven by the demographics of a growing elderly population rather than the economy. Leases are long term (Impact has a 21-year WAULT) and inflation indexed, while caps at c 4% manage the risks for landlord and tenant alike in periods such as this. For tenants, fee growth and improved occupancy are an offset to inflationary pressures, and underlying rent cover remains strong at c 1.8x. For the first time, rent collection dipped in H123 (to 98%), but a turnaround plan is in place, and we do not believe that the single tenant in arrears is indicative of wider tenant stress.

Valuation: Income-driven, long-term returns

The FY23 DPS target represents an attractive yield of 8.0%, which we expect to again be fully covered by adjusted ‘cash’ earnings. Meanwhile, the shares trade at a c 25% discount to H123 NAV per share.

Operational and financial progress as expected in H123

Impact’s strategy for sustainable growth in the structurally supported care home sector, with a disciplined approach to acquisitions and careful tenant selection at its core, is discussed in detail in our May update note.

Having successfully collected 100% of rent, without lease variation, in the period since listing in March 2017, through the pandemic, and up until end-FY22, Impact’s problems with one of its 13 care home tenants1 was a disappointment, but we forecast that the swift re-tenanting and implementation of a turnaround plan (discussed in our June note) will restore rental income, on a sustainable footing, by the end of 2024.

  1 14 tenants in total including the NHS.

Across the portfolio, underlying tenant occupancy had increased to 89% by late July 2023, a further increase on end-FY22 (86.6%) and well up from the COVID-19 low of 79% in January 2021. There remains some further headroom to the pre-COVID-19 ‘norm’ of a low 90% level. Average weekly fee growth in the year to end-H123 was an underlying 15%, up from 13% in the year to end-FY22. Combined with a significant reduction in the need for expensive agency staff (down to 9% of staff costs vs 14% at end-FY22), average rent cover2 of 1.8x continues to be high and stable, in line with historical experience.

  2 Rent cover is a key metric used by Impact in monitoring and assessing the ability of individual homes and operators to support the rents that it expects from its portfolio sustainably. The ratio tracks home-level earnings before interest, tax, depreciation, amortisation, rent and group management overheads (EBITDARM), or operational cash earnings, on a rolling 12-month basis divided by rents over the same period. It excludes ‘turnaround’ and ‘immature’ homes. Immature homes are defined as homes that are newly opened or are undergoing major capital improvement requiring partial closure.

We provide an overview of the H123 performance below. During the period, the annualised contracted rent roll increased by 11.6% to £48.1m (end-FY22: £43.1m), including the acquisition of a six-home portfolio, one non-core disposal and indexed rental growth. The number of homes closed the period at 140 from 135 at the start of the period, and the 90 annual rent reviews completed were at an average 4.0% increase, contributing £1.1m of the increase in annualised rental income,

The end-H123 portfolio valuation was £638m, up by £69m or 12.2% over six months. The main driver was the portfolio acquisition (£57.1m including costs) but with valuation yields stabilising (topped up EPRA net initial yield of 6.95% at end-H123 versus 6.98% at end-FY22 and 6.69% a year earlier), like-for-like rental growth of 2.4% drove a £12.6m increase in valuation.

Interim results detail

In the following table we provide details of the interim financial performance and a reconciliation from adjusted ‘cash’ earnings to both EPRA earnings and statutory IFRS earnings.

Exhibit 1: Summary of H123 financial performance

£m unless stated otherwise

H123

H122

H123/H122

H222

FY22

Cash rental and loan income

23.4

18.8

20.3

39.1

Bad debt write-off

(0.4)

0.0

0.0

0.0

Net income

23.1

18.8

23%

20.3

39.1

Administrative and other expenses

(3.7)

(3.2)

16%

(3.8)

(7.0)

Gain on disposal

(0.0)

0.0

0.1

0.1

Net finance expense

(4.1)

(1.8)

125%

(2.6)

(4.5)

Adjusted earnings

15.3

13.8

11%

14.0

27.7

IFRS rent smoothing & lease incentive adjustments

3.3

2.7

3.6

6.4

Gain on disposal

0.0

0.0

(0.1)

(0.1)

Amortisation of loan arrangement fees

(0.8)

(0.6)

(0.6)

(1.2)

Interest received on cap

(0.6)

0.0

(0.1)

(0.1)

EPRA earnings

17.2

15.9

8%

16.8

32.6

Change in fair value of investment properties

9.3

10.6

(25.0)

(14.3)

Change in fair value of call option

0.0

0.5

(2.3)

(1.8)

Change in fair value of interest rate derivative

1.1

0.2

0.1

0.4

IFRS earnings

27.6

27.3

(10.4)

16.9

Closing number of shares in issue (m)

414.4

385.7

7%

404.8

Average number of shares (m)

413.9

375.8

10%

390.1

IFRS EPS (p)

6.66

7.26

4.33

EPRA EPS (p)

4.15

4.22

-2%

8.37

Adjusted EPS (p)

3.69

3.66

1%

7.11

DPS declared (p)

3.385

3.27

4%

6.54

DPS cover (EPRA earnings)

123%

129%

128%

DPS cover (adjusted earnings)

109%

112%

109%

Adjusted EPRA cost ratio

14.0%

14.8%

16.6%

Gross debt

190.8

137.6

142.3

Gross LTV

28.5%

23.1%

23.8%

EPRA NTA per share

113.6

116.1

110.1

EPRA NTA total return

6.2%

6.2%

3.8%

Source: Impact Healthcare REIT data, Edison Investment Research

Looking first at the adjusted earnings result:

Cash rental income (excluding non-cash IFRS smoothing adjustments) of £23.1m was 23% up on H122 and was well ahead of H222. Growth was driven by indexed rent growth and acquisitions/investments, and H123 included a £0.4m bad debt write-off in respect of the problems encountered by Silverline.

Expenses increased at a lower rate than income, growing by 16% compared with H122, to £3.7m, but were lower than in H222. Including loan investment interest in income (as we do), the adjusted EPRA cost ratio has continued to decrease, reaching 14.0% in H123.

The significant increase in net finance expense, to £4.1m in H123, reflects both an increase in borrowings to fund acquisitions/other investments and higher average debt costs (discussed in detail below).

Adjusted earnings of £15.3m were 11% ahead of H123 and were almost 10% ahead of H222. Including an increased number of shares in issue, adjusted EPS was 3.69p, 1% ahead of H122 but 7% up on H222.

Aggregate DPS of 3.85p was 3.5% up on H122, in line with the full year target of 6.77p, 109% covered.

EPRA earnings of £17.2m (H122: £15.9m; H222: £16.8m) includes non-cash IFRS rent smoothing adjustments and amortisation of loan arrangement fees but excludes the interest earned on Impact’s interest rate swap arrangements. EPRA basis DPS cover was 123%.

IFRS earnings captures fair value changes in investment properties and financial derivatives. At £27.6m it was similar to H122 but compared with a loss of £10.4m in H222 when property values were weak across the market. NAV per share increased 3.2% to 113.6p. Including DPS paid, the six-month NAV/accounting total return was 6.2% (12.8% annualised),

Returns have been driven by progressive dividends

The H123 total return continues a strong track record of positive NAV/accounting total returns since listing in March 2017, with an average of 7.1% pa. Even in 2022, when the broad UK commercial property sector was negatively affected by rising yields and falling values, the relative robustness of care home valuations and continuing strong cash flow enabled the company to report a dividend-driven total return of 3.8%. Since listing, progressive dividends have generated 70% of returns.

Exhibit 2: Strong track record of returns

2017

2018

2019

2020

2021

2022

H123

FY17–H123

Opening NAV

97.9

100.6

103.2

106.8

109.6

112.4

110.17

97.9

Closing NAV

100.6

103.2

106.8

109.6

112.4

110.2

113.64

113.6

Dividends paid

3.0

6.0

6.1

6.3

6.4

6.5

3.4

37.7

Annualised NAV total return

7.2%

8.5%

9.5%

8.5%

8.4%

3.8%

6.2%

54.5%

Of which dividends paid

3.1%

6.0%

5.9%

5.9%

5.8%

5.8%

3.1%

38.5%

Of which change in NAV

2.8%

2.5%

3.5%

2.6%

2.6%

-2.0%

3.2%

16.1%

Average annualised return

7.1%

Source: Impact Healthcare REIT data, Edison Investment Research

As the portfolio increased in scale and diversification after listing, since 2019, dividend growth has been directly linked to the previous year’s inflation-indexed uplift in rents received. Dividends have been fully covered by EPRA earnings in each year since listing and, as cash rents have continued to increase, have been well covered on an adjusted ‘cash’ basis. We expect Impact to continue to target progressive dividends and despite the increased cost of borrowing we forecast a fully covered dividend in both this year and next, albeit with cash cover slightly lower than in previous years. With interest costs on 92% of drawn debt3 now fixed or hedged, the primary risk to our forecasts has been removed.

  3 Taking drawn borrowings as at 30 June 2023.

Exhibit 3: Progressive dividends and cash cover

Source: Impact Healthcare REIT data, Edison Investment Research

Although the interest rate hedges are of relatively short duration (£50m matures at end-2024 and £50m in August 2025), we note that:

This provides Impact with the flexibility to review its longer-term financing at a point when a decline in interest rates is implied by the current market yield curve.

The completion of development and asset management projects, a restoration of rents from the Silverline properties, as well as continuing indexed rental growth that we forecast will provide an additional offsetting uplift in revenues.

Financing update

With the fixed/hedged ratio at 92%, debt costs are now well protected from interest rate increases for the next two years. The ratio had dropped briefly at the end of H123, to 66% from 80%, due to the expected expiry of a £25m interest rate swap at 1%,4 but the company had made clear its progress with various options to increase it again.

  4 The SONIA rate paid was limited to 1%.

The new £50m interest rate cap limits the SONIA rate paid5 to 4.0% for a two-year period, expiring on 15 August 2025. Including the £1.75m paid to acquire the cap, which will be amortised over its maturity, the total rate paid by Impact is effectively limited to 5.76%, before lending margin. This provides almost complete visibility over the cost of existing borrowings through the peak of more than 6% reflected in current money market pricing, although this has increased recently and remains volatile.

  5 The total interest paid by Impact on its floating rate also includes a lending margin of 2.0%.

The blended average interest cost of fixed/hedged and floating rate drawn debt at end-H123 was 4.85% with the three-month compounded SONIA rate at 4.9%. The SONIA rate has subsequently increased by c 50 percentage points to c 5.4% and including the additional hedging, the average running interest cost of drawn6 debt to 4.66%. At current drawn debt levels an increase of 50bp in the SONIA rate would increase this by just 4bp.

  6 This excludes amortisation of loan arrangement fees and the cost of caps.

Moderate gearing mitigates the modest remaining interest rate exposure

End-H123 debt drawn was £190.7m and the gross loan to value ratio (LTV) was 28.5% (end FY22: £142.3m and 23.9%). LTV is a little above the company’s medium-term target of 25%, but well below the 35% maximum specified by its gearing policy.

Borrowing facilities amount to £250m, with a weighted average maturity of 6.8 years at end-H123, of which £59.2m was undrawn. Allowing for cash (£22m), capital commitments of £22.6m7and payment of the Q2 dividend, available liquidity was c £52m. While management continues to identify numerous attractive investment opportunities, describing current conditions as ‘a buyers’ market’ amid the continuing volatility in debt markets, we expect the company to remain cautious and highly selective.

  7 Development and asset management schemes of £18.0m and deferred acquisition payments, conditional on tenant performance and subject to rent increases, of £4.6m.

Exhibit 4: Summary of debt portfolio

Clydesdale

HSBC

NatWest

Total bank debt

Private placement

Facility type

RCF

RCF

RCF

Facility size

£50m

£75m

£50m

£175m

£75m

Expiry

March 2029

April 2026

June 2024

2035

Margin

200bp

200bp

200bp

Fixed 2.97%

Source: Impact Healthcare REIT data, Edison Investment Research

Forecasts

Our forecasts for adjusted ‘cash’ earnings are little changed with fully covered growth in dividends maintained. With little sensitivity to future interest rate rises, much of the past increases is absorbed by increases to our revenue forecasts and reductions to administrative costs. H123 cash rental income was above our expectations, prompting us to reappraise our assumptions for passing rent relative to contracted rents.8 We have also included the additional £9.8m of asset management projects that Impact has committed to, forecasting monetisation at 8% on completion, in line with the company’s financial targets. Growth in administrative expenses was slower than we had anticipated in H123, and we expect this to continue.

  8 End-H123 annualised contracted rents include the Norwich forward funded development, asset management underway at Fairview House, and rents on the Silverline assets that are in abeyance until the tenant loan is repaid.

We forecast the current year DPS target of 6.77p (+3.5%) to be met and to be 105% covered (H123: 109%). We forecast DPS growth of 2.8% to 6.96p (104% covered) in FY24 and growth of 2.0% to 7.10p (105% covered) in FY25.

Exhibit 5: Forecast summary

New forecast

Previous forecast

Forecast change

£m unless stated otherwise

FY23e

FY24e

FY25e

FY23e

FY24e

FY25e

FY23e

FY24e

FY25e

FY23e

FY24e

FY25e

Cash rental income

42.6

47.6

50.0

39.3

40.6

42.5

3.3

7.0

7.5

Interest from loan investments

3.7

0.0

0.0

6.1

6.5

6.5

(2.4)

(6.5)

(6.5)

Bad debt charge

(0.4)

0.0

0.0

0.0

0.0

0.0

Net revenue*

46.0

47.6

50.0

45.4

47.1

49.0

0.9

0.5

1.0

1%

1%

2%

Net finance costs

(10.3)

(12.4)

(11.7)

(8.6)

(9.5)

(9.5)

(1.7)

(2.9)

(2.2)

20%

31%

24%

Interest received on rate cap

1.5

2.5

0.4

Administrative costs

(7.6)

(7.7)

(7.8)

(8.1)

(8.3)

(8.4)

0.5

0.6

0.6

-6%

-7%

-7%

Adjusted earnings

29.5

29.9

30.9

28.7

29.3

31.2

(0.3)

(1.8)

(0.7)

3%

2%

-1%

IFRS adjustments

7.4

8.6

9.4

7.2

7.6

7.9

0.2

1.1

1.4

Loan fee amortisation

(1.5)

(1.5)

(1.5)

(1.2)

(1.2)

(1.2)

(0.3)

(0.3)

(0.3)

Interest received on rate cap

(1.5)

(2.5)

(0.4)

0.0

0.0

0.0

(1.5)

(2.5)

(0.4)

EPRA earnings

33.9

34.6

38.4

34.7

35.7

37.9

(1.9)

(3.6)

0.1

-2%

-3%

1%

EPRA EPS (p)

8.2

8.3

9.3

8.4

8.6

9.2

(0.2)

(0.3)

0.1

-2%

-3%

1%

Adjusted EPS (p)

7.1

7.2

7.5

6.9

7.1

7.5

0.2

0.2

(0.1)

3%

2%

-1%

DPS declared (p)

6.8

7.0

7.1

6.8

7.0

7.1

0.0

0.0

0.0

0%

0%

0%

EPRA DPS cover

121%

120%

130%

124%

124%

129%

Adjusted DPS cover

105%

104%

105%

102%

102%

106%

EPRA NTA per share (‘NAV’)

112.6

117.0

121.8

111.4

114.3

116.0

1.2

2.7

5.9

1%

2%

5%

NAV total return

9.0%

9.4%

9.9%

7.5%

8.6%

7.4%

Source: Edison Investment Research

Valuation: High yield and discount to NAV persist

For FY23, Impact is targeting a DPS of 6.77p (+3.5%), fully covered by adjusted ‘cash’ earnings. This represents an attractive yield of 8.0%. Meanwhile the shares trade at a c 25% discount to H123 EPRA NTA (NAV) per share of 113.6p. The market appears to be anticipating that further increases in interest rates will lead to wider property valuations, despite recent stabilisation.

Exhibit 6: Dividend yield since listing

Exhibit 7: P/NAV since listing (x)

Source: Company DPS data, Refinitiv prices

Source: Company NAV data, Refinitiv prices

Exhibit 6: Dividend yield since listing

Source: Company DPS data, Refinitiv prices

Exhibit 7: P/NAV since listing (x)

Source: Company NAV data, Refinitiv prices

Exhibit 8 shows a summary of the performance and valuation of a group of real estate investment trusts (REITs) that we consider to be Impact’s closest peers within the broad and diverse commercial property sector. The group is invested in the primary healthcare, supported housing and care home sectors, all targeting stable, long-term income growth derived from long lease exposures. For consistency, NAV and DPS data are presented on a trailing basis9 and do not reflect Impact’s increased FY23 DPS target.

  9 Target Healthcare’s yield reflects its quarterly dividend rebasing, effective Q323, to 1.4p per share or 5.6p on an annualised basis.

Exhibit 8: Peer group comparison

WAULT*
(years)

Price
(p)

Market cap
(£m)

P/NTA**
(x)

Yield***
(%)

Share price performance

1 month

3 months

1 year

3 years

Assura

11

43

1281

0.81

7.3

-12%

-16%

-37%

-47%

Primary Health Properties

11

89

1187

0.80

7.4

-10%

-16%

-39%

-42%

Target Healthcare****

27

67

412

0.64

8.4

-16%

-20%

-42%

-40%

Triple Point Social Housing

25

57

225

0.51

9.5

-4%

6%

-35%

-46%

Average

19

0.69

8.2

-10%

-12%

-38%

-44%

Impact Healthcare

20

85

350

0.75

7.9

-10%

-15%

-29%

-16%

UK property index

1,150

-11%

-12%

-29%

-24%

UK All-Share Index

3,953

-5%

-7%

-4%

18%

Source: Historical company data, Refinitiv. Note: *Weighted average unexpired lease term. **Based on last published EPRA NTA/NAV per share. ***Based on trailing 12-month DPS declared (except for Target). ****Based on the H223 target yield, annualised. Refinitiv price data at 8 August 2023.

Impact’s shares have performed broadly in line with the peer group over one year, but have substantially outperformed over three years. Despite this outperformance, continuing dividend growth leaves the shares on a similar yield to the group average.

Exhibit 9: Financial summary

Year to 31 December (£m)

2020

2021

2022

2023e

2024e

2025e

Cash rental income

25.9

30.5

35.9

42.6

47.6

50.0

Interest income from loaned portfolio investments

0.0

0.1

3.2

3.7

0.0

0.0

Rental income arising from recognising rental premiums, fixed rent uplifts & lease incentives

4.9

5.9

6.4

7.4

8.6

9.4

Gross rental income

 

30.8

36.5

45.4

53.7

56.2

59.4

Net other income/(expense)

(0.0)

0.0

0.0

0.0

0.0

0.0

Bad debt charge

(0.4)

Net rental income

 

30.8

36.5

45.4

53.4

56.2

59.4

Administrative & other expenses

(5.3)

(5.8)

(7.0)

(7.6)

(7.7)

(7.8)

Realised gain on disposal

0.2

0.3

0.1

(0.0)

0.0

0.0

Operating profit before change in fair value of investment properties

 

25.7

31.0

38.6

45.7

48.5

51.6

Unrealised change in fair value of investment properties

5.6

4.2

(16.3)

5.6

9.7

10.2

Operating profit

 

31.3

35.2

22.3

51.3

58.2

61.8

Net finance cost

(2.5)

(3.3)

(5.4)

(10.8)

(13.9)

(13.9)

Profit before taxation

 

28.8

32.0

16.9

40.6

44.3

47.8

Tax

0.0

0.0

0.0

0.0

0.0

0.0

Profit for the year (IFRS)

 

28.8

32.0

16.9

40.6

44.3

47.8

Adjust for:

Realised and unrealised gain/(loss) on investment properties

(5.7)

(4.5)

14.3

(5.6)

(9.7)

(10.2)

Change in fair value of interest rate derivatives

0.1

(0.1)

(0.4)

(1.1)

0.0

0.7

EPRA earnings

23.1

27.4

30.8

33.9

34.6

38.4

Rental income arising from recognising rental premiums & fixed rent uplifts

(4.9)

(6.0)

(6.5)

(7.5)

(8.6)

(9.4)

Amortisation of loan arrangement fees

0.7

1.0

1.2

1.5

1.5

1.5

Interest received on rate cap

0.0

0.0

0.1

1.5

2.5

0.4

Other adjustments

0.2

0.4

2.1

0.1

0.0

0.0

Adjusted earnings

 

19.1

22.7

27.7

29.4

29.9

30.9

Average number of shares in issue (m)

319.0

339.8

390.1

414.2

414.4

414.4

Basic & diluted IFRS EPS (p)

9.02

9.41

4.33

9.80

10.69

11.55

EPRA EPS (p)

7.25

8.05

8.37

8.19

8.34

9.26

Adjusted EPS (p)

5.98

6.68

7.11

7.11

7.22

7.45

Dividend per share (declared) (p)

6.29

6.41

6.54

6.77

6.96

7.10

EPRA earnings dividend cover

115%

126%

128%

121%

120%

130%

Adjusted earnings dividend cover

95%

104%

109%

105%

104%

105%

NAV total return

8.5%

8.4%

3.8%

9.0%

9.4%

9.9%

EPRA cost ratio

17.1%

15.8%

16.6%

15.2%

13.7%

13.1%

BALANCE SHEET

Investment properties

405.7

437.6

504.3

611.2

634.9

653.1

Other non-current assets

15.9

62.0

68.1

38.0

46.6

56.0

Non-current assets

 

421.6

499.7

572.4

649.2

681.5

709.1

Cash and equivalents

8.0

13.3

22.5

14.7

13.2

7.7

Other current assets

0.1

1.6

1.5

5.3

2.2

1.3

Current assets

 

8.1

14.8

24.1

20.0

15.4

9.0

Borrowings

(74.2)

(110.9)

(122.4)

(186.1)

(197.6)

(199.1)

Other non-current liabilities

(2.8)

(2.6)

(4.3)

(2.4)

(2.4)

(2.4)

Non-current liabilities

 

(77.0)

(113.5)

(126.7)

(188.5)

(200.0)

(201.5)

Borrowings

0.0

0.0

(14.8)

0.0

0.0

0.0

Other current liabilities

(3.1)

(6.7)

(9.1)

(10.8)

(11.4)

(12.1)

Current Liabilities

 

(3.1)

(6.7)

(23.9)

(10.8)

(11.4)

(12.1)

Net assets

 

349.5

394.2

445.9

469.9

485.5

504.5

Adjust for derivative financial liability/(asset)

(0.0)

(0.1)

(0.4)

(3.2)

(0.8)

0.3

EPRA net tangible assets (NTA)

 

349.5

394.2

445.6

466.6

484.7

504.8

Period end shares (m)

319.0

350.6

404.8

414.4

414.4

414.4

IFRS NAV per ordinary share

109.6

112.4

110.2

113.4

117.2

121.8

EPRA net tangible assets (NTA) per share

109.6

112.4

110.1

112.6

117.0

121.8

CASH FLOW

Net cash flow from operating activities

 

21.0

(13.9)

29.5

38.2

41.1

42.8

Purchase of investment properties (including acquisition costs)

(88.5)

(28.1)

(71.9)

(48.6)

(6.0)

0.0

Capital improvements

(1.7)

(1.1)

(11.2)

(6.9)

(8.0)

(8.0)

Other cash flow from investing activities

0.9

1.6

5.4

2.2

0.0

0.0

Net cash flow from investing activities

 

(89.3)

(27.6)

(77.7)

(53.2)

(14.0)

(8.0)

Issue of ordinary share capital (net of expenses)

0.0

34.6

60.5

(0.0)

0.0

0.0

(Repayment)/drawdown of loans

51.2

38.2

27.7

48.5

10.0

0.0

Dividends paid

(20.0)

(21.9)

(25.7)

(27.8)

(28.6)

(28.8)

Other cash flow from financing activities

(2.8)

(4.1)

(5.1)

(13.5)

(10.0)

(11.3)

Net cash flow from financing activities

 

28.5

46.8

57.4

7.2

(28.6)

(40.2)

Net change in cash and equivalents

 

(39.8)

5.3

9.3

(7.9)

(1.5)

(5.4)

Opening cash and equivalents

47.8

8.0

13.3

22.5

14.7

13.2

Closing cash and equivalents

 

8.0

13.3

22.5

14.7

13.2

7.7

Balance sheet debt

(74.2)

(110.9)

(137.2)

(186.1)

(197.6)

(199.1)

Unamortised loan arrangement costs

(2.2)

(3.6)

(5.1)

(4.7)

(3.2)

(1.6)

Net cash/(debt)

 

(68.4)

(101.3)

(119.7)

(176.1)

(187.6)

(193.0)

Gross LTV (net debt as % gross assets)

17.8%

22.3%

23.8%

28.5%

28.8%

28.0%

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 £60,000 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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom


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 £60,000 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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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