Our business model is designed to achieve our purpose, which is to form long-term partnerships with our tenants, through which we own and invest in the buildings they require in return for a predictable rent, enabling our tenants to concentrate on providing excellent care to their residents.
To implement our business model, we have a clear, six-stage process:
We build strong relationships with high-quality care providers, who we can work with long term.
We identify attractive assets to acquire, in partnership with those operators.
We perform rigorous due diligence before we selectively purchase care assets.
Our lease terms ensure strong rent cover on day one and require our tenants to maintain our assets to the right standard, with minimum spend requirements.
We work closely with our tenants to create sustainable value through mutually beneficial asset management projects.
We optimise our portfolio through selective asset sales, where we can reinvest in higher value opportunities.
Our business has several important strengths that help us to create value.
In addition, we benefit from having a well-diversified base of high-quality tenants. This reduces risk for us, increases our resilience and gives us multiple opportunities to responsibly grow our business alongside theirs.
The quality of our business is underpinned by three pillars that we use to monitor performance.
We own a diversified portfolio of care homes, which provide a welcoming physical environment for their residents. We categorise each of our assets as core, value-add or non-core (see portfolio management), which in turn informs our asset management strategy. Our asset management programme looks to enhance the quality of our homes and their sustainability over time, including ensuring their environmental performance and EPC ratings meet evolving regulatory requirements.
We carefully monitor our tenants’ financial performance, particularly their ability to grow revenues at least in line with inflation, to maintain a stable EBITDA margin and hence maintain or grow our rent cover.
Disciplined capital allocation has led to attractive net initial yields on acquisitions and our conservative approach to debt maximises cash we can distribute to shareholders. We tightly control our costs and exploit economies of scale as we grow, as many of our costs are fixed and some variable costs step down as our asset value rises.
The security of our rental streams depends on our tenants providing good-quality care to their residents, so the homes consistently remain in demand and sustain their profits. The Investment Manager reviews CQC or relevant regulator ratings and the outcomes of inspections, visits homes and receives quarterly reports from tenants, to ensure they are maintaining their quality of care and complying with their covenants. If appropriate, where a home is rated poorly, the Investment Manager may seek an independent assessment of the home to help us and the tenant understand any performance issues, or its resolution of these issues, in preparation for re-inspection.
Our high-quality business delivers sustainable value to our shareholders and other stakeholders.
Tenants can grow their business alongside us, in a mutually beneficial relationship.
The residents in our care homes benefit from security and stability, with an operator providing high-quality care and a landlord willing to invest in the quality of the environment they live in.
Our lenders can provide finance to us on attractive terms, in the knowledge that we have a secure and resilient business, with strong cash flows.
Shareholders benefit from growing dividends, underpinned by the highly predictable and rising revenue streams from index-linked leases. Alongside the potential for capital growth, this supports an attractive total return.