Impact Healthcare REIT — Progressive dividends continuing into FY23

Impact Healthcare REIT (LSE: IHR)

Last close As at 28/02/2024

GBP0.80

−1.00 (−1.23%)

Market capitalisation

GBP333m

More on this equity

Research: Real Estate

Impact Healthcare REIT — Progressive dividends continuing into FY23

With its Q422 NAV update, Impact Healthcare REIT (IHR) increased it DPS target for FY23 to 6.77p (+3.5%). With earnings continuing to be driven by inflation-indexed rental growth, significantly protected by fixed costs on 80%, we expect DPS to be fully covered by cash earnings. The Q4 impact of yield widening across the broad property sector was limited by the long-indexed leases, while low gearing mitigated the impact on NAV.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Impact Healthcare REIT

Progressive dividends continuing into FY23

Q422 NAV & trading update

Real estate

3 March 2023

Price

100p

Market cap

£414m

Gross debt at 31 December 2022

£142.3m

Gross LTV at 31 December 2022

23.9%

Shares in issue

414.4m

Free float

90%

Code

IHR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(6.3)

(2.7)

(9.8)

Rel (local)

(7.0)

(7.1)

(14.0)

52-week high/low

127p

92p

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

FY22 results

Expected March 2023

Analyst

Martyn King

+44 (0)20 3077 5700

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

With its Q422 NAV update, Impact Healthcare REIT (IHR) increased it DPS target for FY23 to 6.77p (+3.5%). With earnings continuing to be driven by inflation-indexed rental growth, significantly protected by fixed costs on 80%, we expect DPS to be fully covered by cash earnings. The Q4 impact of yield widening across the broad property sector was limited by the long-indexed leases, while low gearing mitigated the impact on NAV.

Year end

Net rental
income (£m)

EPRA earnings* (£m)

EPRA
EPS* (p)

EPRA NTA/ share (p)

DPS
(p)

P/NAV
(x)**

Yield
(%)**

12/21

36.5

27.4

8.1

112.4

6.41

0.89

6.4

12/22e

45.5

32.7

8.4

110.1

6.54

0.91

6.5

12/23e

52.9

35.0

8.4

109.5

6.77

0.91

6.8

12/24e

54.5

36.7

8.8

113.0

6.96

0.88

7.0

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

Q422 data indicates earnings forecast uplift

Despite the decline in property values in Q422, FY22 NAV total return was a positive 3.8%. FY22 DPS was 128% covered by EPRA earnings and 108% covered by adjusted cash earnings, and the FY23 target reflects the past year’s achieved rent growth, in line with the clearly stated dividend policy. The Q422 like-for-like decline in property valuations was significantly lower than the c 12% broad market decline indicated by MSCI data and NAV per share was 5.5% lower quarter-on-quarter at 110.18p. We forecast further valuation declines to be limited, as rental growth provides an offset to further yield expansion. For tenants, fee growth and improved occupancy are an offset to inflationary pressures, and rent cover remains strong at c 1.8x. We do not believe that the single tenant in arrears is indicative of wider tenant stress. Based on the Q4 data, and pending the full-year results in March, we have lifted our FY22 adjusted EPS by c 1% and lowered NAV per share.

Predictable cash flow and progressive dividends

Impact operates in a structurally supported market, driven by the demographics of a growing elderly population rather than the economy. There is a shortage of homes with the quality to meet demand sustainably, which is non-discretionary over the medium term. Impact’s homes are let on long, triple net leases at affordable initial rents, indexed to inflation. DPS has increased each year since listing in 2017, driving consistently positive accounting returns, averaging 6.9% pa, of which dividend income represents c 75%. Utilising its strong balance sheet position, since end-FY22 Impact has completed an innovatively funded and immediately accretive £56m investment in a six-home portfolio, part-funded by equity. Gross LTV has increased to a comfortable 23.9%, while c £45m of undrawn debt remains.

Valuation: Income-driven, long-term returns

FY23 DPS target represents an attractive yield of 6.8% and despite headwinds we continue to forecast fully covered dividend growth from inflation-indexed rent uplifts and a full contribution from recent investments. The c 9% discount to FY22e NAV already anticipates some further weakening of property values.

Further details on the Q4 update

Income-driven strategy continuing

Impact aims to provide shareholders with attractive and sustainable returns, primarily in the form of quarterly dividends. DPS has increased each year since listing and, having met its initial DPS targets, in early 2019 the company introduced a clear and progressive dividend policy. Under this policy, Impact targets dividend growth in line with the inflation-linked rental uplifts received in the preceding financial year. Dividends have been covered by EPRA earnings (FY22: 128%) throughout and, as the company has increased in scale, since FY21 dividends have also been fully covered by adjusted ‘cash’ earnings’1 (FY22: 108%). We forecast this to continue.

  1 Unlike EPRA earnings, this excludes non-cash IFRS adjustments but does adjust for loan arrangement fee amortisation, licence fees and other non-recurring cash items.

Exhibit 1: Increasing DPS and cover

Source: Impact Healthcare REIT data, Edison Investment Research

FY22 total return remained positive despite property valuation pressure

Dividend returns remained positive during Q422, but this was more than offset by the 5.5% negative capital return, reflecting the property valuation yield widening. Nonetheless, the FY22 total return remained, with the 3.8% total return comprising c 6.5p of dividends paid and a c 2.3% reduction in NAV.

Exhibit 2: Movement in Q421 NAV per share

Pence per share unless stated otherwise

FY22

Q422

Q322

Q222

Q122

Opening NAV

112.4

116.6

116.2

114.9

112.4

Closing NAV

110.2

110.2

116.6

116.2

114.9

Dividends paid

6.5

1.6

1.6

1.6

1.6

Dividend return

5.8%

1.4%

1.4%

1.4%

1.4%

Capital return

-2.0%

-5.5%

0.4%

1.1%

2.2%

Total return

3.8%

-4.1%

1.8%

2.5%

3.7%

Source: Impact Healthcare REIT data

Since listing in 2017, annual returns have been consistently positive, amounting to an aggregate 47.5%, an average annual return of 6.9%. Dividends paid have represented around three-quarters of the total return.

Exhibit 3: NAV total return history

Pence per share unless stated otherwise

2017

2018

2019

2020

2021

2022*

FY17–22

Opening NAV per share

97.9

100.6

103.2

106.8

109.6

112.4

97.9

Closing NAV per share

100.6

103.2

106.8

109.6

112.4

110.2

110.2

Dividends paid

3.0

6.0

6.1

6.3

6.4

6.5

34.3

Dividend return

3.1%

6.0%

5.9%

5.9%

5.8%

5.8%

35.0%

Capital return

2.8%

2.5%

3.5%

2.6%

2.6%

-2.0%

12.5%

Total return

7.2%

8.5%

9.5%

8.5%

8.4%

3.8%

47.5%

Average annualised return

6.9%

Source: Impact Healthcare REIT data. Note: *2022 is unaudited data.

The decline in property values and NAV in Q422 is of little surprise in one of the worst quarters for market-wide capital values in 30 years, driven primarily by increased interest rates. For Impact, the like-for-like reduction in property valuation during the quarter was £21.6m or 4.0%, and the portfolio EPRA topped up net initial yield widened by 30bp to 6.98%. While directionally this mirrored the valuation impact of yield widening experienced across the broad UK commercial sector, the impact was on a much lower scale. MSCI data show a decline in valuations of c 12% across the broad UK sector. There are several factors that mitigated the general decline in values including the relatively higher starting point of care home property yields, indexed rent growth with long leases (Impact’s weighted unexpired lease length is 20 years) and, we expect, the robust performance of tenants through the pandemic.

In addition to the like-for-like valuation movement, the Q422 change in the property value included £1.0m of asset management investment, £13.6m from acquisitions and a £2.65m reduction from the sale of a non-core home at 4% above its H122 book value.

In addition to the investment property valuation movement, Impact’s investment in a portfolio of 12 care homes by way of a loan was independently valued at £36.3m versus £38.1m at end-Q322, a 4.7% reduction, or £1.8m, similarly reflecting the upward shift in valuation yields across the sector.

Rent cover has remained strong

Rent cover2 across Impact’s portfolio has remained strong. The latest available data collected from tenants shows 1.9x cover for Q322 compared with a little over 1.7x for Q223. The 12-month average rate through the end of September 2022 was c 1.8x, broadly in line with the 12-month rate ending 30 June 2022 (1.85x).

  2 Rent cover is a key metric Impact uses in monitoring and assessing the ability of individual homes and operators to sustainably support the rents it expects from its portfolio. The ratio tracks operational cash earnings at the home level (before rent) with the agreed rent on a quarterly basis.

Exhibit 4: Trend in 12-month average tenant rent cover

Source: Impact Healthcare REIT

Most tenants continue to perform well, managing the challenge of inflation, with increased occupancy and strong fee growth. Having reached a pandemic-driven low point of c 79% in March 2021, occupancy has been steadily recovering towards pre-pandemic levels of c 90%. End-Q422 occupancy was slightly down on end-Q322 (86.6% versus 87.3%), which Impact attributes to expected seasonal fluctuations over the Christmas and New Year holiday period. Occupancy has started to recover in January 2023.

Having consistently collected all rent due, with no variation in lease terms, throughout the pandemic, one single tenant has fallen behind with its rent payments for Q123.3 As at 31 January 2023, 97% of rent due for the quarter ending 31 March 2023 had been received, including 1% from rent deposits. The overdue rent was £0.4m, all attributable to this one tenant, with whom the investment manager is in active discussions regarding rental payments. We believe that all other tenants are trading as expected and that the issues with this one tenant do not represent more general issues.

  3 Group charges rent quarterly or monthly in advance.

Estimate revisions

We have updated our forecasts for the data contained within the Q422 update and the early FY23 investment via a loan in a six-care home portfolio for £56m.4 The investment, part-financed by equity issued to the vendor at the prevailing NAV, has already been discussed. We have also included an FY24 forecast for the first time. The Q422 data is unaudited and only provides a guide to full-year performance and so further, minor revisions are likely when the FY22 results are published in March.

  4 A small non-core asset has also been sold for £1.25m, in line with the 31 December 2022 valuation.

We have adjusted FY22 earnings in line with those implied by the disclosed dividend cover and NAV.

The increase in FY23e adjusted earnings includes the investment in the portfolio, with EPS further reflecting the vendor shares issued.

FY23e NAV per share, very slightly down on FY22, assumes, and we stress that it is an assumption, a further increase in the EPRA topped-up net initial yield of c 10bp to c 7.10%. This is substantially offset by indexed rent growth, just as rent growth mitigated Q422 market-wide yield expansion.

Exhibit 5: Estimate revisions*

Last published

Change

£m unless stated otherwise

2022e

2023e

2024e

2022e

2023e

2022e

2023e

Cash rental income plus loan interest*

39.0

45.4

46.8

38.7

42.8

0.4

2.7

IFRS adjustments

6.5

7.4

7.7

5.6

6.5

0.9

1.0

Administrative expenses

(7.1)

(8.1)

(8.4)

(6.6)

(7.0)

(0.4)

(1.2)

Net finance expense,

(5.8)

(9.7)

(9.5)

(6.1)

(9.4)

0.3

(0.3)

Tax

0.0

0.0

0.0

0.0

0.0

0.0

0.0

EPRA earnings

32.7

35.0

36.7

31.5

32.9

1.2

2.1

IFRS adjustments

(6.5)

(7.4)

(7.7)

(5.6)

(6.5)

(0.9)

(1.0)

Other non-cash adjustments

1.4

1.2

1.2

1.1

1.2

0.3

0.0

Adjusted earnings

27.6

28.7

30.2

27.0

27.6

0.6

1.1

Average number of shares (m)

390.1

414.1

414.4

385.5

404.8

4.6

9.3

EPRA EPS (p)

8.4

8.4

8.8

8.2

8.1

0.2

0.3

Adjusted EPS (p)

7.1

6.9

7.3

7.0

6.8

0.1

0.1

DPS (p)

6.54

6.77

6.96

6.54

6.76

0.00

0.01

EPRA dividend cover

128%

125%

127%

125%

120%

300bps

400bps

Adjusted ‘cash’ dividend cover

108%

103%

105%

107%

101%

100bps

200pbs

EPRA NTA per share (p)

110.1

109.5

113.0

115.7

115.5

(5.6)

(6.0)

NAV total return*

3.7%

5.7%

9.3%

8.7%

5.6%

-500bps

100bps

Source: Edison Investment Research. Note: *Cash rental income includes interest on loan investments.

Valuation update

For FY23, Impact is targeting a DPS of 6.77p (+3.5%), fully covered by adjusted ‘cash’ earnings. This represents an attractive yield of 6.6%. Meanwhile the shares trade at a c 0.92x the unaudited end-Q422/FY22 EPRA NTA (NAV) per share of 110.17p. This discount appears to already anticipate some further weakening of property valuations. With the shares trailing the growth in dividends, the yield is at the upper end of its range (excluding the peak of pandemic uncertainty) and the P/NAV is below its average since listing of c 1.0x and the peak of c 1.2x.

Exhibit 6: Price to NAV and dividend yield history since listing

Source: Refinitiv prices as at 10 February 2023. Note: Company published NAV and DPS data.

Exhibit 7 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.

Exhibit 7: 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

12

51

1495

0.84

6.0

-12%

-9%

-18%

-33%

Civitas Social Housing

22

62

376

0.56

9.1

2%

2%

-29%

-36%

Primary Health Properties

12

106

1422

0.91

6.0

-9%

-6%

-22%

-29%

Target Healthcare

27

77

478

0.75

8.8

-12%

-3%

-29%

-34%

Triple Point Social Housing

26

52

209

0.46

10.4

2%

-26%

-41%

-44%

Average

20

0.70

8.1

-6%

-8%

-28%

-35%

Impact Healthcare

20

100

415

0.91

6.5

-7%

-3%

-11%

-5%

UK property index

1,371

-9%

1%

-26%

-21%

FTSE All-Share Index

4,321

0%

4%

5%

17%

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. Refinitiv price data at 2 March 2023.

Impact’s shares have substantially outperformed the peer group and the broad UK property market over the past one and three years. Average yields and P/NAV multiples for our selected peer group have been notably affected by the weakness of the social housing sector investment REITs. As a result, Impact’s trailing yield is now below the average of the peer group but remains above that of the primary healthcare REITs. The latter have significant exposure to open market rent reviews and, although this is accelerating, we do not expect it to reach 4% in the near term (the average level at which Impact’s indexed rents are capped). Despite having a higher yield and, we expect, faster rent growth, Impact shares trade at a similar P/NAV to the primary healthcare REITs. The primary healthcare REITs benefit from an exceptionally strong tenant covenant, with c 90% of rents coming directly or indirectly from government, but we note Impact’s robust tenant performance through, and emerging from, the pandemic.

Exhibit 8: Financial summary

Year to 31 December (£m)

2019

2020

2021

2022e

2023e

2024e

PROFIT & LOSS

Cash rental income

19.1

25.9

30.5

39.0

45.4

46.8

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

4.9

4.9

5.9

6.5

7.4

7.7

Net rental income

24.0

30.8

36.5

45.5

52.9

54.5

Administrative & other expenses

(4.6)

(5.3)

(5.8)

(7.1)

(8.148)

(8.355)

Realised gain on disposal

0.0

0.2

0.3

0.1

0.0

0.0

Operating profit before change in fair value of investment properties

19.4

25.7

31.0

38.6

44.7

46.1

Unrealised change in fair value of investment properties

9.1

5.6

4.2

(15.4)

(8.8)

6.5

Change in fair value of loan asset call option

(1.2)

0.0

0.0

Operating profit

28.5

31.3

35.2

21.9

35.9

52.6

Loan related interest

0.0

0.0

0.0

0.0

0.0

0.0

Other net finance cost

(2.1)

(2.5)

(3.3)

(5.8)

(10.5)

(10.2)

Profit before taxation

26.3

28.8

32.0

16.1

25.4

42.4

Tax

0.0

0.0

0.0

0.0

0.0

0.0

Profit for the year (IFRS)

26.3

28.8

32.0

16.1

25.4

42.4

Adjust for:

Change in fair value of investment properties Including loan assets)

(9.1)

(5.6)

(4.2)

16.7

8.8

(6.5)

Gain on disposal

0.0

(0.2)

(0.3)

(0.1)

0.0

0.0

Change in fair value of interest rate derivatives

0.4

0.1

(0.1)

0.0

0.8

0.8

EPRA earnings

17.6

23.1

27.4

32.7

35.0

36.7

Rental income arising from recognising rental premiums & fixed rent uplifts

(4.9)

(4.9)

(6.0)

(6.6)

(7.4)

(7.7)

Amortisation of loan arrangement fees

0.4

0.7

1.0

1.3

1.2

1.2

Amortisation of lease incentive

0.1

0.1

0.0

0.0

Non-recurring costs

0.2

0.0

0.0

0.0

0.0

0.0

Gain on disposal

0.0

0.2

0.3

0.1

0.0

0.0

Adjusted earnings

13.4

19.1

22.7

27.6

28.7

30.2

Average number of shares in issue (m)

254.0

319.0

339.8

390.1

414.1

414.4

Basic & diluted IFRS EPS (p)

10.37

9.02

9.41

4.13

6.14

10.22

EPRA EPS (p)

6.95

7.25

8.05

8.38

8.45

8.85

Adjusted EPS (p)

5.26

5.98

6.68

7.07

6.94

7.28

Dividend per share (declared)

6.17

6.29

6.41

6.54

6.77

6.96

EPRA earnings dividend cover

113%

115%

126%

128%

125%

127%

Adjusted earnings dividend cover

85%

95%

104%

108%

103%

105%

NAV total return

9.5%

8.5%

8.4%

3.7%

5.7%

9.3%

EPRA cost ratio

17.1%

15.8%

15.5%

15.4%

15.3%

BALANCE SHEET

Investment properties

310.5

405.7

437.6

540.5

600.0

614.4

Other non-current assets

10.1

15.9

62.0

30.9

39.1

46.0

Non-current assets

320.7

421.6

499.7

571.4

639.0

660.4

Cash and equivalents

47.8

8.0

13.3

22.0

5.1

8.9

Other current assets

0.6

0.1

1.6

1.8

1.8

1.8

Current assets

48.3

8.1

14.8

23.8

7.0

10.7

Borrowings

(23.5)

(74.2)

(110.9)

(139.6)

(180.8)

(192.0)

Other non-current liabilities

(1.8)

(2.8)

(2.6)

(2.6)

(2.6)

(2.6)

Non-current liabilities

(25.2)

(77.0)

(113.5)

(142.2)

(183.4)

(194.6)

Borrowings

0.0

0.0

0.0

0.0

0.0

0.0

Other current liabilities

(3.1)

(3.1)

(6.7)

(7.4)

(8.0)

(8.2)

Current Liabilities

(3.1)

(3.1)

(6.7)

(7.4)

(8.0)

(8.2)

Net assets

340.7

349.5

394.2

445.6

454.6

468.3

Adjust for derivative financial liability/(asset)

(0.1)

(0.0)

(0.1)

(0.1)

(0.8)

(0.1)

EPRA net tangible assets (NTA)

340.6

349.5

394.2

445.5

453.8

468.2

Period end shares (m)

319.0

319.0

350.6

404.8

414.4

414.4

IFRS NAV per ordinary share

106.8

109.6

112.4

110.1

109.7

113.0

EPRA net tangible assets (NTA) per share

106.8

109.6

112.4

110.1

109.5

113.0

CASH FLOW

Net cash flow from operating activities

14.9

21.0

23.6

25.2

37.9

38.6

Purchase of investment properties (including acquisition costs)

(73.4)

(88.5)

(28.1)

(70.8)

(10.3)

0.0

Capital improvements

(8.2)

(1.7)

(1.1)

(7.6)

(12.0)

(8.0)

Other cash flow from investing activities

0.1

0.9

(35.9)

3.9

(46.0)

0.0

Net cash flow from investing activities

(81.5)

(89.3)

(65.1)

(74.5)

(68.3)

(8.0)

Issue of ordinary share capital (net of expenses)

132.2

0.0

34.6

60.7

11.2

0.0

(Repayment)/drawdown of loans

(0.9)

51.2

38.2

27.8

40.0

10.0

Dividends paid

(16.1)

(20.0)

(21.9)

(25.4)

(27.7)

(28.6)

Other cash flow from financing activities

(2.2)

(2.8)

(4.1)

(5.0)

(10.0)

(8.3)

Net cash flow from financing activities

112.9

28.5

46.8

58.1

13.5

(26.9)

Net change in cash and equivalents

46.3

(39.8)

5.3

8.7

(16.9)

3.7

Opening cash and equivalents

1.5

47.8

8.0

13.3

22.0

5.1

Closing cash and equivalents

47.8

8.0

13.3

22.0

5.1

8.9

Balance sheet debt

(23.5)

(74.2)

(110.9)

(139.6)

(180.8)

(192.0)

Unamortised loan arrangement costs

(1.7)

(2.2)

(3.6)

(2.7)

(1.5)

(0.3)

Net cash/(debt)

22.7

(68.4)

(101.3)

(120.3)

(177.2)

(183.5)

Gross LTV (net debt as % gross assets)

6.8%

17.8%

22.3%

23.9%

28.2%

28.7%

Source: Impact Healthcare REIT historical data, Edison Investment Research

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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In its capital markets event in February, Record provided more detail on the progress it is making with its strategy and in particular on its diversification initiatives. This highlighted a range of partnerships to develop new products and, as a result, a promising sales pipeline pointing towards growth and potentially contributing to realisation of the target for FY25 revenue of £60m. Subsequently, signalling a further step in its succession planning, the group has announced that Neil Record, founder of the group in 1983 and currently non-executive chairman, is to retire from his role and the board following the AGM in July. David Morrison has been appointed as chair elect.

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