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Research: Real Estate
Impact Healthcare REIT has completed the transfer of four homes located in Scotland to a new tenant. As a result, all of the seven homes that have been operating on an intermediate basis (as part of a turnaround plan) have now been transferred to experienced, long-term operators. The resumption of rental payments from all seven assets will provide a significant uplift to cash rental income, the basis for dividend decisions. Under the new operators, the assets also provide additional and accretive asset management opportunities.
Impact Healthcare REIT |
Successful turnaround |
25 September 2024 |
Share price performance
Business description
Analyst
Impact Healthcare REIT is a research client of Edison Investment Research Limited |
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Impact Healthcare REIT has completed the transfer of four homes located in Scotland to a new tenant. As a result, all of the seven homes that have been operating on an intermediate basis (as part of a turnaround plan) have now been transferred to experienced, long-term operators. The resumption of rental payments from all seven assets will provide a significant uplift to cash rental income, the basis for dividend decisions. Under the new operators, the assets also provide additional and accretive asset management opportunities.
Transfer of assets |
Year end |
Rental |
Adjusted earnings* (£m) |
Adjusted |
NAV**/ |
DPS |
P/NAV |
Yield |
06/23 |
53.1 |
34.5 |
8.3 |
115.0 |
6.77 |
0.74 |
8.0 |
06/24e |
54.6 |
35.7 |
8.6 |
119.9 |
6.95 |
0.71 |
8.2 |
06/25e |
58.0 |
39.2 |
9.4 |
123.9 |
7.20 |
0.69 |
8.5 |
06/26e |
60.8 |
41.2 |
10.0 |
127.9 |
7.50 |
0.67 |
8.8 |
Note: *EPRA earnings exclude fair value movements on properties and interest rate derivatives. **EPRA net tangible assets.
Impact’s only problem tenant since listing remains Silverline, which ran into financial difficulties in early 2023. Other than a brief drop in H123 (to 98%), rent collection has been consistently 100%. Rent cover, a key measure of the affordability of rents to tenants, is at a record high 2.2x.
In June 2023, the seven homes that had been operated by Silverline, with annual rents of £1.6m, were swiftly transferred to Melrose Holdings (MHL), which has a track record of successful turnaround. Under the intermediate stewardship of MHL, the performance of the homes improved to the point that all seven have now been transitioned to new long-term operators in just 15 months.
Three homes located in Bradford were transferred to We Care in August and the other four assets, in and around Glasgow, have now been transferred to Fulcrum Care. Impact notes that Fulcrum is experienced at managing complex care home turnaround strategies and brings a wealth of operational experience.
Both We Care and Fulcrum are new tenants to the group and further increase tenant diversification. There are now 15 tenants (including the NHS).
Impact has provided Fulcrum with support to ensure the homes build on their improved performance and achieve their full potential. This includes a £0.3m lease incentive and an interest-bearing short-term working capital facility of £0.45m at a cost of 10% pa. The lease incentive will be fully recovered over the life of the leases. Rent payments will recommence on 1 November. Impact also expects to invest a further £0.5m of capex across the four homes, which, like other asset management projects, will be reflected in increased rents and will be accretive to shareholder value. Rental payments will recommence on 1 November 2024, which is earlier than we had assumed.
Like Fulcrum, We Care also has significant experience with turnaround homes, including in the Bradford submarket, and is a well-established operator with over 30 homes. The experience of these operators gives confidence in the future performance of all seven assets.
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