FULL YEAR RESULTS FOR THE 12 MONTHS ENDED 31 DECEMBER 2022
Continuing to deliver a strong financial and operational performance, benefiting from the resilience and growth of our portfolio and the annual inflation-linked rental increases in 100% of our leases, underpinning our fully covered dividend
Impact Healthcare REIT plc (ticker: IHR), the real estate investment trust which gives investors exposure to a diversified portfolio of UK healthcare real estate assets, in particular care homes, is pleased to announce its full year results for the 12 months ended 31 December 2022.
Rupert Barclay, Chairman of Impact Healthcare REIT PLC, commented:
“We are continuing to deliver a strong financial and operational performance, benefitting from our robust, long term and responsible business model and resilient and defensive portfolio, with annual inflation-linked upward-only rent reviews in 100% of our leases. This underpinned the delivery of our dividend target of 6.54 pence per share, which was fully covered by our earnings. We remain disciplined in investing capital, while managing the business efficiently and maintaining a conservative balance sheet, helping to ensure we continue to focus on growing the portfolio responsibly and accretively and creating further value through asset management and by funding development.
2023 has started with continued high levels of volatility in financial markets. While healthcare is not immune, the essential nature of our tenants’ services – which translated into zero voids and 100% rent collection for 2022 as well as further rental growth – are expected to continue to help our asset values to hold up much better than most other real estate sub-sectors. At the same time, the returns available to us on acquisitions and asset management projects remain above our cost of capital, and rising rents over the life of our leases, all of which are long duration with inflation-linked rent reviews, should support capital growth.
What we can be certain about is that care homes are critical social infrastructure, which provides an essential service for vulnerable elderly people. Demand for that service is driven by demography and acuity, and is not directly related to developments in the wider economy or financial markets. This gives care home operators a higher level of in-built resilience than tenants in many other real estate sectors, demonstrated in part by their ability to pass through inflation in the fees they charge for care. The investments and acquisitions we’ve made and the inflation-linked rental growth in 100% of our leases leave us well-positioned for future earnings growth and a progressive dividend.”
Strong and resilient financial performance
- NAV at 31 December 2022 was £445.9 million (+13.1%) or 110.17 pence per share (-2.0%), (31 December 2021: £394.2 million; 112.43 pence per share), reflecting change in market value of property portfolio, partially offset by the benefit of inflation-linked rent reviews and stable operator performance.
- Total accounting return for the year was 3.78%, comprising dividends paid of 6.51 pence and NAV reduction of 2.26 pence per share (-2.0%) in the period, compared with 9% per annum medium-term total accounting return target1.
- Property investments independently valued at £568.8 million4 as at 31 December 2022, up 14.3% (31 December 2021: £496.9 million), largely reflecting acquisitions in the year, offset by the downward valuation movements described below.
- Change in fair value of investment properties was £(14.5) million (2021: £4.2 million gain), contributing to profit before tax of £16.9 million (2021: £32.0 million).
Generating secure, attractive and progressive income
- Declared four quarterly dividends of 1.635 pence for the year, meeting our dividend target of 6.54 pence per share, an increase of 2.0% (2021: 6.41 pence per share).
- Dividends declared for the year were 128% covered by EPRA earnings per share and 109% by adjusted earnings per share.
- EPS of 4.33 pence per share (2021: 9.41 pence per share) (basic and diluted), reflecting increase in rental income and £14.5 million fair value loss on the investment portfolio’s value.
- Adjusted EPS up 6.4% to 7.11 pence per share (2021: 6.68 pence per share), a result of increased revenue from rent reviews and use of moderate leverage to further scale property investments.
- Targeting a dividend for the year to 31 December 2023 to increase by 3.5% to 6.77 pence per share¹.
- The Company has a progressive dividend policy with a target to grow its annual aggregate dividend in line with the inflation-linked rental uplifts received by the Group under the terms of the rent review provisions contained in the Group’s leases in the prior financial year.
Driving the growth of our annual contracted rental income
- Annual contracted rent roll3 grew by 13.6% to £43.1 million (31 December 2021: £38.0 million), as a result of:
- Acquisition of 12 properties, contributing £4.0 million to contracted annual rent.
- Rent reviews on 107 properties, adding £1.3 million to contracted annual rent, representing a 3.5% increase on the associated portfolio.
- New capex commitments added a further £0.1 million to contracted annual rent.
- Disposals as part of the Group’s active portfolio management reduced contracted rent by £0.3 million.
Strong, resilient and conservative balance sheet
- Drawn debt at year end was £142.3 million, with gross LTV of 23.9%.
- Significant headroom within £241.0 million of committed debt facilities and our borrowing policy cap of 35%.
- As at 31 December 2022, weighted average term of debt facilities (excluding options to extend) was 6.3 years.
- At the year end, 70% (£100 million) of drawn debt facilities were hedged against rising interest rate costs, £75 million through long-term fixed-rate facilities and £25 million through an interest rate cap at 1% which expires in June 2023. An additional £50 million two-year interest rate cap at 3% was taken out after the year end.
- Drawn debt at the date of this report is £187.3 million, of which 80% is hedged against rising interest rates.
- Raised gross proceeds of £62.3 million from placing new ordinary shares in February and July 2022.
Continuing to demonstrate the resilience of our robust and defensive business model and portfolio
- Portfolio continues to have zero voids.
- Overall, tenants continue to perform well with average rent cover for 2022 at 1.80 (2021: 1.91) ².
- Occupancy continued to improve to 86.6%(6) by the year end, up 3.5 percentage points (31 December 2021: 83.1%), the highest it has been since early 2020.
- All leases inflation-linked with upward-only rent reviews and rental uplifts capped to avoid putting undue strain on tenants, helping to ensure sustainable long-term income.
- Collected 100% of rent due for the year, with no changes to any lease terms or payment schedules. Subsequent to the year end, rent collection for Q1 2023 was 97% including 1% from rent deposits. The overdue rent (£0.4 million) is owed by a single tenant, with whom the Investment Manager is in active discussions regarding rental payments.
- Acquired 12 properties, adding 764 beds for a total consideration of £69.2 million.
- Welcomed a new tenant, Belmont, to the Group’s operators, giving us 14 tenants(5) at the year end.
- WAULT of 19.7 years at 31 December 2022 (31 December 2021: 19.2 years).
- EPRA ‘topped up’ net initial yield of 6.98% as at 31 December 2022 (31 December 2021: 6.71%), compared with average net initial yield of acquisitions to date of 7.4%.
- Asset management remains a key focus. During the year we completed:
- Internal refurbishment of Belmont House in Harrogate and upgrade of three care homes in Northern Ireland.
- Comprehensive refurbishment and extension of Riverwell Beck in Carlisle (formerly Blackwell Vale).
- Forward-funded development of 94-bed home in Hartlepool, with initial yield on development costs of 7.8%.
- Phase one of the new link building at Fairview House and Fairview Court. Phase two has started which encompasses an extensive refurbishment of Fairview House and further improves its sustainability. This is due to be completed in late 2023.
- In addition, we continue to grow a pipeline of future asset management projects, with expected average yield on cost of 8%.
- Portfolio represents approximately 1.5% of a highly fragmented UK market (with an estimated 465,000 beds for elderly care in total), adding confidence to our ability to continuing to grow through very selective accretive acquisitions, which will also further increase diversification.
Further enhancing our ESG agenda
- Developing our ESG strategy and accompanying targets;
- Produced a net zero strategy and delivery plan with a target date of 2045 and interim milestones;
- Funded environmental improvements to four homes through asset management projects and completed update of EPCs;
- Commissioned our first independent social impact report; and
- Voluntarily published our first report against the TCFD framework.
- Targeting a dividend for the year to 31 December 2023 to increase by 3.5% to 6.77 pence per share¹.
- Invested in a portfolio of six homes with 438 beds for consideration of £56 million, 20% of which was paid in new shares issued at 116.62 pence per share.
- Purchased an interest rate option for £1.5 million, which caps SONIA at 3% for two years on £50 million of our RCF debt.
- Sold one non-core asset for £1.25 million, in line with its latest valuation.
- As announced on 7 December 2022, Rupert Barclay (Non-Executive Chairman of the Company) will step down from the Board and resign as a Director of the Company on 31 March 2023, when Simon Laffin (currently Non-Executive Director and Chairman Designate of the Company) will become Chairman.
- As part of our succession planning, Paul Craig will be stepping down as a director at the forthcoming Annual General Meeting.
1 This is a target only and not a profit forecast. There can be no assurance that the target will be met and it should not be taken as an indicator of the Company’s expected or actual results.
2 Includes the benefit of grant income, which largely ended in March 2022.
3 Contracted rent includes all post-tax income from investment in properties, whether generated from rental income or post-tax interest income.
4 This relates to the property portfolio along with property portfolios that have been invested in via loans to operators with an option for the Group to acquire.
5 Including Croftwood and Minster, which are both part of the Minster Care Group.
6 Excludes three turn-around assets that have not reached maturity.
7 Adjusted earnings per share reflects underlying cash earnings per share in the period. The adjustments made to EPS in arriving at EPRA and Adjusted EPS are set out in note 11 to the Financial Statements.
* EPRA EPS and all other EPRA alternative performance measures have been calculated in line with EPRA best practices recommendation.
FOR THE FULL RESULTS, PLEASE SEE THE ATTACHED PDF
FOR FURTHER INFORMATION, PLEASE CONTACT:
Impact Health Partners LLP via Maitland/AMO
Jefferies International Limited
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Neil Winward, firstname.lastname@example.org
Tel: +4420 7029 8000
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Neil Langford, email@example.com
Joe Winkley, firstname.lastname@example.org
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Alistair de Kare-Silver
Tel: +44 7747 113 930
The Company’s LEI is 213800AX3FHPMJL4IJ53.
Further information on Impact Healthcare REIT is available at www.impactreit.uk.
Impact Healthcare REIT plc acquires, renovates, extends and redevelops high quality healthcare real estate assets in the UK and lets these assets on long-term full repairing and insuring leases to high-quality established healthcare operators which offer high-quality care, under leases which provide the Company with attractive levels of rent cover.
The Company aims to provide shareholders with an attractive sustainable return, principally in the form of quarterly income distributions and with the potential for capital and income growth, through exposure to a diversified and resilient portfolio of UK healthcare real estate assets, in particular care homes for the elderly.
The Company has a progressive dividend policy with a target to grow its annual aggregate dividend in line with the inflation-linked rental uplifts received by the Group under the terms of the rent review provisions contained in the Group’s leases in the prior financial year.
On this basis, the Company is targeting a dividend for the year to 31 December 2023 to increase by 3.5% to 6.77 pence per share1.
The Group’s Ordinary Shares were admitted to trading on the main market of the London Stock Exchange, premium segment, on 8 February 2019. The Company is a constituent of the FTSE EPRA/NAREIT index.
Neither the content of the Company’s website, nor the content on any website accessible from hyperlinks on its website for any other website, is incorporated into, or forms part of, this announcement nor, unless previously published by means of a recognised information service, should any such content be relied upon in reaching a decision as to whether or not to acquire, continue to hold, or dispose of, securities in the Company.
* Neither the content of the Company’s website, nor the content on any website accessible from hyperlinks on its website or any other website, is incorporated into, or forms part of, this announcement nor, unless previously published by means of a Regulatory Information Service, should any such content be relied upon in reaching a decision as to whether or not to acquire, continue to hold, or dispose of, securities in the Company.
A Company presentation for investors and analysts will take place at 08:00am (GMT) today via a live webcast and conference call.
To access the live webcast, please register in advance here:
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The recording of the webcast results presentation will be available later in the day via the Company’s website: