Our strategy

Our objectives

We aim to provide shareholders with attractive and sustainable returns, primarily in the form of quarterly dividends, while also generating growth in net asset values over the medium-term.

Our strategy

To achieve our value-creation objectives, we:

• buy the right assets on the right terms, by implementing our investment strategy;
• effectively manage the portfolio as a whole as well as individual assets, by implementing our portfolio management and asset management strategies; and
• optimise our balance sheet, by implementing our financing strategy.

Investment strategy

Our investment policy (see below) allows us to invest in a broad range of healthcare real estate assets. The market dynamics described in Our Market underline that the care home sector currently offers the most attractive opportunities for the Group. Our investment strategy is, therefore, to primarily acquire care homes, while continuing to broaden the range of tenants we work with, thus reducing our exposure to any one tenant.

We mainly look to acquire portfolios, which helps us to maximise value. These portfolios may include healthcare real estate assets in addition to care homes. We will acquire these where they have a future strategic opportunity to deliver care home services, or where we are confident we can deliver value in the short-term for our shareholders, as part of our portfolio management activities.

Portfolio management strategy

We categorise each of our assets into one of three categories – core, value add and non-core. This enables us to manage appropriately the balance between these categories, so we deliver our target returns, and to identify the assets which can benefit from our approach to active asset management (see below).

Asset management strategy

A hands-on asset management strategy helps to enhance shareholder returns over the longer term while helping to mitigate risk. To deliver our target long-term shareholder returns, our asset management strategy prioritises investment in our value-add portfolio and in projects that enhance the sustainability of our assets, including those that improve the quality of the environment for residents and the sustainability of the home, while extending the useful economic life of the property.

Financing strategy

We fund our business through equity and a prudent level of debt. In doing so we look to minimise the effects of ‘cash drag’ on our earnings per share, which is the effect of issuing equity and holding the cash raised on the balance sheet, ahead of investing it in income-producing assets.

Our conservative gearing policy is to have a maximum Group loan-to-value ratio of 35% at the time of drawdown. Our approach to hedging and debt is designed to prudently maximise the return to shareholders while mitigating the long-term risk from interest-rate fluctuations.

Investment policy

The Company’s investment policy is to acquire, own, lease, renovate, extend and redevelop high quality, Healthcare Real Estate Assets in the UK, in particular residential care homes and to lease those assets to care home operators and other healthcare service providers under full repairing and insuring leases.

The Company will continue to pursue its investment policy as follows:

• In order to manage risk in the portfolio, at the time of investment, no single asset shall exceed in value 15% of the total gross asset value of the Group.
• No single customer paying for care provided in assets owned by the Group will account for more than 15% of the aggregate revenues of the tenants to whom the Group’s assets are leased from time to time, measured at the time of acquisition.
• The annual contracted rent from any single tenant is not expected to exceed 40% of the total annual contracted rent of the Group, measured at the time of investment.
• The portfolio will be diversified by location across the UK, with focus on areas where there is a good balance of supply and demand for the provision of care and assets are available at attractive valuations.
• Within these locations, the Group will acquire existing modern buildings or those that are currently considered fit for purpose by occupiers, but in respect of which the Investment Manager has developed a plan to add value to, and improve the environmental sustainability of, the asset through targeted capital expenditure.
• Leases granted by the Group will be linked to inflation, have long duration (with an unexpired lease term of at least 20 years) and will not be subject to break clauses. The Group will seek to amend any future leases acquired by the Group to obtain similar terms.
• The Group will not undertake speculative development (that is, development of property which has not been leased or preleased), subject to the limitation in the final bullet below, so as to reposition a home in its local market and thus to increase the rent due.
• The Group may invest in forward-funding agreements or forward commitments to pre-let developments, or as part of a structured acquisition of an asset, subject to the limitation in the final bullet below, where the Group will own the asset on the completion of the work, or has the ability to acquire the asset upon agreed conditions being satisfied.
• The gross budgeted development costs of any refurbishment, extension or replacement of existing holdings and/or forward funding and forward commitments, is limited to 25% of the Company’s gross assets at the time of commitment.

The Group will be permitted to generate up to 15% of its gross income in any financial year from non-rental revenue or profit related payments from Tenants, in addition to the rental income due under the leases.

In addition, the Group is also permitted to invest up to:

• 10% of its Gross Assets, at the time of investment, in non-residential Healthcare Real Estate Assets, such as properties which accommodate GP or dental practices and other healthcare related services including occupational health and physiotherapy practices, pharmacies and hospitals or in non-healthcare related residential assets attached to residential Healthcare Real Estate Assets;
• 25% of its Gross Assets, at the time of investment, in indirect property investment funds (including joint ventures) with a similar investment policy to that of the Company; and
• 15% of its Gross Assets, at the time of investment, in closed-ended investment funds which are listed on the Official List, however, the Directors have no current intention to acquire non-residential Healthcare Real Estate Assets or indirect property investment funds or to enter into joint venture arrangements.

The Group may also acquire or establish companies, funds or other SPVs which themselves own assets falling within the Company’s investment policy.

The Group will not acquire any asset or enter into any lease or related agreement if that would result in a breach of the conditions applying to the Company to hold REIT status. In addition, the Group will not acquire any asset, or enter into any lease or related agreement in assets, located outside of the U.K.

The Company may invest cash held for working capital purposes and awaiting investment in cash deposits, gilts and money market funds. It will not invest in derivatives but it may use derivatives for hedging purposes.

Borrowing policy

Gearing, calculated as borrowings as a percentage of the Group’s Gross Assets (including any borrowings incurred by any joint ventures or indirect property investment funds through which the Company may invest), may not exceed 35% at the time of drawdown.

Material changes to the investment policy will require the prior approval of Shareholders

The directors do not currently intend to propose any material changes to the Company’s investment policy, save in the case of exceptional or unforeseen circumstances. Any material change to the investment policy of the Company will be made only with the approval of shareholders.

Freeland House, Oxfordshire, one of the 56 care homes that formed the Seed Portfolio acquired in May 2017