Asset management

We work with our tenants to implement asset management opportunities that benefit the tenant, residents and our shareholders.

Asset management often involves extending a home to add new beds. As well as increasing capacity, this may enable the tenant to command higher fees through offering new services, such as providing care for people living with dementia. Asset management can also mean improving the existing building or enhancing the communal space, to ensure the home offers a consistently high standard to all residents.

A tenant-led approach

Our tenants are best placed to understand the demand for beds and the services their residents need. We therefore require our asset management projects to be tenant led, with the tenant coming to us with a specific plan for improving the asset and filling any additional space. We look for reasons to say yes to these proposals, rather than no. Once we have agreed to a scheme, the framework agreement with the tenant gives us the option to fund the works.

However, we will not fund speculative development, which is explicitly excluded by our investment policy, or repairs and maintenance, which remain the tenant’s responsibility under the terms of the lease.

Generating returns from asset management

We appoint our own quantity surveyor to oversee the work and make sure it is in line with the plans we approved. We then pay the contractors’ fees as they fall due and accrue our return on what we fund. On reaching practical completion, we turn that accrual into a rental increase. This generates a very attractive return for our shareholders, which is greater than the return on investing in standing assets.

The risks associated with asset management are limited. We only look to enhance 5% to 10% of the portfolio at any one time and the marginal cost of adding rooms can be relatively low, given that we already own the land and the supporting infrastructure such as offices, kitchens and laundries, will already be in place.

Our asset management programme

The table below shows the number of capital expenditure projects we had approved as at 30 June 2018, along with the number of new beds, the forecast rental increase and the total cost.

Number of
Homes
Existing
beds
New
beds
Total
beds
Current
rent
Forecast
rent increases*
Total
rent
Capex
11466150616£2,798,463£1,147,800£33,946,263£13,186,700

* Based on formula agreed in Framework Agreement (master lease) with tenants: capex invested by Impact accrues 8% pa and, after completion, the invested amount plus accruals are reutilised at 8%

As at 30 June 2018, one project had completed, adding 21 additional beds to the portfolio with another project adding 25 additional beds due to complete shortly.

new-bedroom-at-Turnpike-Court

In June 2018, we successfully completed an extension to our Turnpike Court home, increasing capacity from 28 to 53 beds. We did this cost effectively, by converting a number of supported living flats in an existing building to high-quality new rooms, at a total cost of £730,000.

See the recent case study for Turnpike Court for further information.

The Group, with its tenants, is advancing development opportunities to add beds to the existing portfolio. These opportunities could  increase the number of beds at the Group’s existing assets by up to 20%, growing both rent and net asset values. The programme is expected to take around three years to implement on the existing portfolio and new opportunities are expected to arise as we acquire new assets and work with new tenants.