Annual report 2021
Delivering sustainable returns from a diversified healthcare portfolio
Contents
STRATEGIC REPORT
1 Financial highlights
2 Portfolio performance
3 Portfolio
4 Chairman’s statement
8 Investment Manager’s Q&A
10 The impact of COVID-19
on care homes in 2021
11 Market growth drivers
14 Investment case
16 Our business model
20 Objectives and strategy
22 Key performance
indicators
24 Case study – Asset
management
26 Investment Manager’s
report
30 Case study – New tenant
34 Investment Manager
35 Portfolio management
36 Sustainability
40 Case study – ESG
42 Stakeholders
44 Principal risks and
uncertainties
50 Section 172(1) statement
53 Going concern and
viability
55 Board approval of the
Strategic report
GOVERNANCE
56 Corporate governance
statement
– Chairman’s introduction
57 Compliance statement
58 Application of AIC Code
Principles
60 Other key governance
statements
61 Board leadership and
Company purpose
64 Division of responsibilities
68 Board of directors
70 Nomination Committee
report
74 Audit, risk and internal
control
79 Audit Committee report
84 Management Engagement
Committee report
87 Directors’ remuneration
report
91 Directors’ report
94 Statements of
responsibilities
96 Independent Auditor’s
report
FINANCIAL STATEMENTS
104 Consolidated statement
of comprehensive income
105 Consolidated statement
of financial position
106 Consolidated statement
of cash flows
107 Consolidated statement
of changes in equity
108 Notes to the consolidated
financial statements
134 Company statement
of financial position
135 Company statement
of changes in equity
136 Notes to the Company
financial statements
ADDITIONAL INFORMATION
144 EPRA performance
measures (unaudited)
147 Notes to the EPRA
performance measures
(unaudited)
150 Alternative performance
measures
152 Our portfolio
154 AIFM statement
(unaudited)
155 Investment policy
157 Glossary
158 Corporate information
159 Financial calendar
Our purpose
To form long-term partnerships with
our tenants, through which we own
and invest in the buildings they lease
from us in return for a predictable and
sustainable rent, enabling our tenants
to concentrate on providing excellent
care to their residents.
Our values
Our core values are to:
focus on the long-term sustainability
of our business;
always act openly and transparently
with all of our stakeholders;
be practical, combining
entrepreneurial nimbleness with the
strength of a listed company; and
be efficient.
Our business model
Successfully implementing our
business model ensures we maintain
a high-quality business, with a rigorous
focus on:
the quality of the buildings we own;
the quality of care our tenants deliver;
and
the quality of the cash flows we
generate, helping us to maintain
a healthy balance sheet and provide
shareholders with attractive,
sustainable returns.
Impact Healthcare
Dedicated to UK healthcare real estate
We aim to provide shareholders with attractive and sustainable
returns, primarily in the form of quarterly dividends, and with the
potential for capital and income growth. We have a progressive
dividend policy, with a dividend target of 6.54 pence per share
1
for the year ending 31 December 2022. Our medium-term Total
accounting return target is an average of 9.0% per annum
1
.
Market conditions in the UK elderly care sector continue to
be supported by strengthening long-term structural growth
and investment drivers, including an ageing population and
a shortage of the good quality and resilient care homes that
we invest in.
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.
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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Total accounting return
8.42%
-0.5%
8.47%
8.42%
9.46%
7.19%
2018
2017
†
2021
8.46%2020
2019
Gross loan to value (“LTV”) ratio
22.26%
11.62%
22.26%
6.81%
2018
2021
17.77%2020
2019
6.00p
6.41p
6.17p
Dividends declared per share
6.41p
+1.9%
4.50p
2018
2017*
2021
6.29p2020
2019
Adjusted earnings dividend cover
104%
+9.6%
84%
104%
85%
98%
2018
2017*
2021
95%
1
2020
2019
1 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 10 to the Financial Statements. The inclusion of profit on disposal of investment property was made in the current year to better reflect
the underlying cash earnings of the Group. The prior year adjusted earnings figure has been restated.
2 Contracted rent includes all post-tax income from investments in properties, whether generated from rental income or post-tax interest income.
3 This relates to the portfolio valuation along with loans to operators for the acquisition of property portfolios.
For further discussion of these metrics see pages 22-23. EPRA EPS and all other EPRA alternative performance measures have been calculated in line with
EPRA best practices recommendation, see pages 144-149.
Financial highlights
We delivered a strong financial performance, benefiting from the resilience and growth of the portfolio and
the annual rental increases inherent in the leases, resulting in a fully covered dividend.
Contracted rent roll
2
£38.0m
+22.7%
£17.8m
£38.0m
£23.1m
£11.9m
2018
2017
2021
£30.9m2020
2019
Property Investments
£496.9m
+18.6%
£223.8m
£496.9m
£318.8m
£156.2m
2018
2017
20213
£418.8m2020
2019
Net asset value (“NAV”) per share
112.43p
+2.6%
103.18p
112.43p
106.81p
100.65p
2018
2017
2021
109.58p2020
2019
Profit before tax
£32.0m
+11.1%
£16.5m
£32.0m
£26.3m
£9.5m
2018
2017*
2021
£28.8m2020
2019
IFRS earnings per share (“EPS”)
9.41p
+4.3%
8.57p
9.41p
10.37p
5.82p
2018
2017*
2021
9.02p2020
2019
EPRA dividend cover
126%
+8.9%
108%
126%
113%
97%
2018
2017
2021
115%2020
2019
EPRA EPS
8.05p
+11.0%
6.47p
8.05p
6.95p
4.35p
2018
2017
2021
7.25p2020
2019
Adjusted EPS 1
6.68p
+12.6%
5.07p
6.68p
5.26p
4.39p
2018
2017
2021
5.93p2020
2019
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
Against the backdrop of the ongoing COVID-19 pandemic, we have continued to deliver
solid growth and attractive sustainable value to our stakeholders, demonstrating the
resilience of both the Group, its portfolio and its tenants.
Portfolio performance
as at 31 December 2021
Operational highlights Sustainability
Rent collected Rent cover Acquisitions Advanced our
ESG agenda
100% 1.95x 16
Continued to collect 100% of
rent due, with no changes to
any lease terms or payment
schedules.
The portfolio remains 100% let.
Contracted rent at 31 December
2021 was £38.0 million (2020:
£30.9 million).
The Group continued to
demonstrate its resilience
throughout 2021 with rent cover
rising to 1.95x (2020: 1.76x)
including the benefit of grant
funding.
This is an important metric for
both us and our tenants, as it
reflects our tenants’ profitability
and headroom against future
cost pressures.
Invested in 16 care homes
for net consideration of
£61.9 million, further diversifying
the portfolio and adding 780
beds. 12 of these homes have
been initially invested in through
a loan of £37.5 million to allow
the operator, Holmes Care
Group, to acquire the assets
with put and call options for
us to acquire the assets for £1
once regulatory approvals are
received.
Completed EPC audit of the
portfolio and assessed capital
cost of improvements to achieve
EPC band B.
Commenced work on TCFD
risk and opportunity analysis in
preparation for full reporting.
All new leases contain environ-
mental obligations on tenants.
Begun work on defining and
measuring the social value of
our investments.
Forward-funded
development
New tenant All leases
inflation-linked
Post-year end
1 1 100% £40.0m
Committed to forward fund
a property in Norwich with
80 beds, on a pre-let basis. The
development site was purchased
in the year for £2.4 million.
The development we forward
funded in Hartlepool is due to
complete in 2022.
Welcomed a new tenant, Carlton
Hall, to the Group’s operators, giving
us 13 tenants at the year end.
The Group has grown its
relationship with Holmes Care
Group, contributing to the
diversification of the tenant
base and reducing exposure
of contracted income from the
Group’s main tenant, Minster
Care Group, to 41% (2020: 48%).
All leases are inflation-linked,
with upwards-only rent reviews.
104 properties had rent reviews
during the year, adding
£0.7 million to the contracted
rent, representing an annualised
2.5% increase on a like-for-like
basis.
Raised £40 million of gross
proceeds from a placing of new
ordinary shares.
The Group completed the
acquisition of two properties
with 147 beds for £11.0 million
in February 2022.
The Group invested £11.1 million
in two homes with 107 beds.
The investment has initially
been made by way of a loan
to one of the Group’s existing
tenants, Welford, to acquire the
assets with put and call options
for us to acquire the assets
once regulatory approvals are
received.
WAULT New debt secured Raised
19.2 yrs £101m £35.0m
Weighted average unexpired
lease term (“WAULT”) of
19.2 years at 31 December 2021
(31 December 2020: 20.0 years).
Agreed new £26 million NatWest
facility, with an accordion
agreement to extend up to
£50 million. Secured the Group’s
first long-term institutional fixed
interest debt with a 14 year,
£75 million facility, providing an
attractive fixed interest rate over
the long term in an uncertain
inflationary environment.
Raised £35 million of gross
proceeds from a placing of
new ordinary shares, with
the proceeds used to pay
down debt and fund accretive
investment opportunities.
1 Including Croftwood and Minster, which are both part of the Minster Care Group.
2 Contracted rent includes all post-tax income from investments in properties, whether generated from rental income or post-tax interest income.
£
£
£
£ £
£
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
3 2
2
21
1
7
2
2
2
27
8
2
2 5
1 1
4
6
4
1
1 4
5 3
2
1
2
3
Scotland
Number of properties: 29
Beds: 1,650
% of portfolio market value: 24.8%
Northern Ireland
Number of properties: 3
Beds: 193
% of portfolio market value: 1.8%
North West
Number of properties: 33
Beds: 1,348
% of portfolio market value: 17.5%
West Midlands
Number of properties: 8
Beds: 422
% of portfolio market value: 6.7%
Wales
Number of properties: 2
Beds: 105
% of portfolio market value: 0.9%
South West
Number of properties: 7
Beds: 353
% of portfolio market value: 6.6%
North East
Number of properties: 12
Beds: 767
% of portfolio market value: 9.3%
Yorkshire & The Humber
Number of properties: 13
Beds: 810
% of portfolio market value: 9.1%
East Midlands
Number of properties: 6
Beds: 295
% of portfolio market value: 5.7%
East of England
Number of properties: 9
Beds: 627
% of portfolio market value: 12.8%
South East
Number of properties: 2
Beds: 150
% of portfolio market value: 4.8%
Careport
Carlton Hall
Croftwood*
Electus Care
Holmes
Minster*
MMCG
Tenants
NHS
Optima
Prestige
Renaissance Care
Silverline
Welford
* Part of the Minster Care group
Local
Authority
61.0%
NHS 7.7%
Private Pay
31.3%
Security of tenant income (%)
based on % revenue, for the quarter to 31 December 2021,
to care home tenants
Our tenants provide an essential service to local
authorities and the NHS.
MMCG 6.2%
NHS 0.9%
Carlton Hall 4.3%
Prestige 5.8%
Welford 7.7%
Silverline 2.4%
Holmes 16.4%
Electus Care 4.4%
Optima 2.7%
Careport 5.6%
Minster 27.0%
Renaissance Care 2.5%
Croftwood 14.1%
Diverse tenant base (%)
based on % of contracted income as at 31 December 2021
Portfolio
as at 31 December 2021
Our tenants are established
healthcare providers, offering good-
quality care and earning fees from
a broad spectrum of public sector
customers and private-pay residents.
At the year end the Group had
investments in 124 properties with
6,720 beds.
Note: The information on this page
includes forward-funded developments
and the 12 care homes funded via a
loan, with an option to acquire.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
Chairman’s statement
The COVID-19 pandemic has highlighted the
resilience of our business. Now we face new
challenges, in particular rapidly rising inflation and
the tragedy of a major war in Europe. We have
deliberately fostered our resilience by carefully
selecting tenants, putting in place leases with robust
rent cover and inflation linkages and maintaining a
prudent balance sheet. Our tenants have provided
high-quality care during the pandemic and in turn
we have received 100% of the rent due. This has
underpinned a fully covered dividend for 2021. We
confront the new challenges of 2022 from the firm
foundations we have put in place since inception.
As 2021 progressed, the vaccine roll-out and
booster programme, combined with rigorous
infection control, have provided a significant degree
of protection for care home residents and our
tenants have been steadily rebuilding occupancy.
While occupancy at the year end was still below its
pre-pandemic norm, rent cover has increased faster,
with fee increases being an important contributor.
This reflects the fact that care homes are vital social
infrastructure and demand for beds is not directly
correlated to the economic cycle. We continue to
engage with our tenants to understand the challenges
they are facing, as well as their growth plans.
Operational performance
We made good strategic progress in 2021, acquiring
four homes with 286 beds and exchanging on two
further properties with 147 beds. We also invested
in a portfolio of 12 care homes in Scotland, initially
through a loan to enable an existing tenant, Holmes
Care Group, to acquire the assets. Once regulatory
approvals are in place, we have an option to acquire
the properties.
At the year end, the Group’s Property Investments
were valued at £496.9 million, up 18.6% from
£418.8 million on 31 December 2020, and we had
investments in assets with 6,720 beds, giving
us approximately 1.5% of a highly fragmented
market. Our strategy is to secure further market share
Through responsibly delivering
vital social infrastructure with
positive social impacts, the
Group continued to demonstrate
its resilience in 2021, maintaining
its collection of 100% of rent due,
rent cover rising to 1.95x in line
with pre-pandemic levels, and a
fully covered inflation-protected
dividend.
Rupert Barclay Chairman
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
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through consolidation and we see considerable
scope to do so, while exercising strict capital discipline.
Asset management and the pre-let development
of new properties are a growing part of our value-
creation strategy. We work closely with our tenants
to identify mutually beneficial opportunities that
enhance the wellbeing of residents, improve
environmental performance and the working
environment for staff while also providing
incremental financial returns to our tenants and to
the Group. The largest asset management project
started in 2021 will connect two units at Fairview
in Bristol, adding new bedrooms, new kitchens
and a laundry, and enhancing the environmental
credentials of the unified building. The 94-bed care
home in Hartlepool being developed in partnership
with Prestige is due to complete in H1 2022 and
we have also committed to forward fund the
construction of an 80-bed home in Norwich.
Our tenants
We have further diversified the Group’s tenant base,
adding Carlton Hall during the year, which gave us
13 tenants at the year end. This diversification helps
us to grow the business while spreading risk. We
also look to grow with our tenants, by increasing
the number of our homes they manage, which adds
resilience to their businesses.
During the year, the board held calls with the
majority of our tenants, which gave us a direct
insight into their businesses and their relationship
with the Investment Manager. The feedback we
received was highly positive.
Financial performance
The NAV at 31 December 2021 was £394.2 million
or 112.43 pence per share (31 December 2020:
£349.5 million or 109.58 pence per share).
On both a basic and diluted basis, earnings per share
(EPS) for the year was 9.41 pence (2020: 9.02 pence),
EPRA EPS was 8.05 pence (2020: 7.25 pence) and
Adjusted EPS was 6.68 pence (2020: 5.98 pence).
More information about our financial performance
in the period can be found in the Investment
Manager's report.
Sustainability
The board is highly focused on the Group’s ESG
performance. Having put in place an ESG policy
during 2020, the board is working with the Investment
Manager to formalise the Group’s ESG strategy and
targets. We are also preparing to report against the
requirements of the Task Force on Climate-Related
Financial Disclosures (TCFD) from 2022.
Dividends and total return
All of the Group’s leases are inflation linked,
resulting in annual uplifts to rental income from
the portfolio. As a result, our policy is to grow the
target dividend each year in line with the rental
uplifts received in the prior year. We delivered
our target dividend for 2021 of 6.41 pence per
share, which represented 1.91% growth over the
2020 dividend. Importantly, the dividend was fully
covered by both EPRA and Adjusted EPS.
For 2022, our target dividend is 6.54 pence per
share, up 2.03%.
The Total accounting return for the year was 8.42%.
Financing
This was an important year for the evolution of
the Group’s debt financing, reflecting the growing
maturity of the business. We put in place a new
revolving credit facility with a major clearing bank,
NatWest, and issued our first long-term debt in
the institutional market, drawing down £37 million of
£75 million being provided by two major UK insurers.
The institutional debt has a weighted average term
of 14 years and has an attractive fixed rate of interest,
with a weighted average coupon of 2.967%. In
parallel, we have reduced our more expensive
Metro facility from £50 million to £30 million and
CHAIRMAN’S STATEMENT
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
extended the term of our HSBC facility by one year.
These activities give the board further confidence that
new sources of debt are readily available to the Group,
as existing facilities start to mature from mid-2023.
The Group now has £168 million of available debt
facilities, as well as the second £38 million tranche
of institutional debt, which is committed to be
issued in June 2022, and the option to expand the
NatWest facility by a further £24 million. Our drawn
debt at 31 December 2021 was £114.5 million,
giving us a gross LTV of 22.3%. The Group had cash
of £13.3 million at the year end.
Shareholders also continued to support our
strategy during the year, through a placing that
raised gross proceeds of £35 million. We used
these proceeds to pay down debt and to fund
our investments in the second half of 2021. Since
the end of the year, we have raised a further
£40 million through an equity issue allowing
the repayment of revolving credit facilities. The
Group has the opportunity to redraw debt under
these facilities, to execute its acquisition, forward
funding and asset management pipeline.
Corporate governance
The Company has a strong and independent
board, comprising me and five other non-
executive directors, following Chris Santer’s
appointment in the first half of the year. His
significant experience of direct property
investment is already proving valuable.
The annual evaluation of the board and its committees
showed that we continue to work well together,
while identifying areas for continued improvement.
Having recruited Chris Santer, the board believes
it has the right balance of skills, experience and
diversity for this stage of the Group’s development.
Investment Manager
Impact Health Partners LLP is our Investment
Manager. The Investment Manager continues to
identify attractive and well-considered acquisition
and portfolio management opportunities for the
Group, which will further our profitable growth
and our diversification strategy which delivers
enhanced value to our stakeholders. Our tenants’
feedback on the Investment Manager showed
that they highly value its partnership ethos and
support, which has helped us to work closely with
tenants through the challenges of the pandemic.
Outlook and summary
As we emerge from the pandemic, the long-term
investment case for care homes is unchanged.
Occupancy is expected to recover while the
support from government grant funding falls away.
Demographic trends and the rising incidence of
specialist needs, such as dementia, will continue to
drive demand for care, which will require many new
beds, in suitable homes, to be added to the market.
The government’s reforms will provide additional
funding for the sector and contribute to its resilience.
We have a good level of protection against the current
inflationary environment, through the upward-only
index-linked rent reviews in our leases. The caps on
these rent reviews help to protect our tenants and
ensure that rents remain affordable for them in the
long term. This is important when tenants are also
managing the effect of wage and cost inflation.
We have a strong pipeline of accretive acquisitions,
which has the potential to add attractive new
assets and further tenants to the portfolio. We
are also exploring further asset management
and development opportunities, with a view to
enhancing shareholder returns. We therefore
look forward to making further progress with our
growth strategy during 2022.
Rupert Barclay Chairman
28 March 2022
CHAIRMAN’S STATEMENT
1 Including forward-funded developments and the 12 care homes invested in
through the loan to Holmes Care Group.
2 Including Croftwood and Minster, which are both part of the Minster
Care Group.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
Working in partnership with
Maria Mallaband Care Group,
we have completed the
refurbishment of Belmont
House in Harrogate. This
involved a comprehensive
refurbishment of 14 bedrooms
with en suite wet rooms,
communal bathrooms and
day space. In addition, the
main reception hall and
communal day space were
reconfigured to provide a
variety of private seating
areas for residents and their
families.
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ANNUAL REPORT 2021
Investment Manager’s Q&A
“
Our resilient portfolio remains
well placed, with very supportive
long-term structural trends in
the care home sector, and strong
inflation protection in our leases
and from our tenants’ track record
of securing fee increases.
”
Andrew Cowley
Managing Partner, Impact Healthcare Partners
Q What has the pandemic changed in
care homes?
A As the pandemic is not yet finished, it is premature
to give a definitive answer to this question.
However, we would point to three trends. First,
care homes were at the front line of the pandemic
and we think, after a challenging start, illustrated
how they are a vital part of the country’s social
infrastructure. In recognition of this, at the end
of 2021, the Government introduced a series of
legislative measures to improve access to care,
funding for care and the quality of care, which
we welcome. Second, we are having ongoing
conversations with current and potential future
tenants about improving the design of care
homes to enable them to manage infection
control better and to offer a better environment
for people living with dementia. Third, the
pandemic will accelerate the move from paper-
based methods of managing health and social
care to digital systems, which over time should
improve quality and transparency.
Q What are the biggest challenges facing your
tenants as we emerge from the pandemic?
A We are continuing to actively engage with our
tenants and provide them with support. Our
tenants have three main challenges ahead
of them: rebuilding occupancy steadily back to
normal levels; attracting and retaining staff in a
tight labour market; and managing rises in utility
bills and other costs. They have demonstrated
during the exceptional period of the pandemic
that they are adept at dealing with challenges, and
in some cases can turn them into opportunities.
We have ended the year with strong rent cover,
meaning that our tenants are well placed to
handle the inflationary increase in costs.
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
Q Inflation has been rising rapidly in the UK.
How will this affect the Group?
A Our tenants are well positioned to manage the
inflationary challenges as outlined in the previous
question. The Group itself also has a good degree
of protection from inflation, with 100% of rental
income linked to inflation. Across the portfolio,
90% of the leases are linked to RPI with an annual
floor of 2% and cap of 4%. A further 8% are linked
to RPI with a floor of 1% and cap of 5% per annum,
and 2% of the leases have an annual uplift in line
with CPI. These arrangements mean the Group
received above inflation rent rises in 2019 and
2020, when inflation was below 2%, while the caps
ensure rents remain affordable for tenants for the
long term. We believe this strikes the right balance
between protecting the interests of the Group and
tenants, who have demonstrated over many years
that they have substantial pricing power as the
essential service they provide is non-discretionary.
Q Are your tenants focused on sustainability
issues?
A The short answer is yes. A slightly longer answer
would be that I think it is fair to say that their
approach to ESG is slightly different to other
sectors. They are in a people business, and their
primary focus has to be on providing the best
possible care for their residents, while ensuring
they can attract, train and retain stable staff teams.
So their top priority is on the S in ESG, which we
fully support.
Q How are you progressing with your
ESG strategy?
A Having said that our tenants’ main focus should
and must be on the social impact that they deliver,
they are also engaged in exploring improvements
to the sustainability of the homes they lease from
us and ensuring they continue to provide a quality
environment for their residents.
We have made good progress on a number
of fronts during the year, including further
improvements to EPC ratings and establishing
working groups to support our sustainability
approach and lead our response to the Task Force
on Climate-Related Financial Disclosures. During
the first half of 2022, we will be working with
the board to develop the Group’s ESG strategy,
which will give us a framework for making further
progress in the coming years.
Q What’s the total cost of getting the
current portfolio to EPC B?
A Our current portfolio is fully compliant with
existing legislation. We estimate the cost of
improving our entire portfolio to an EPC B
is circa £5 million, approximately 1% of the
current portfolio value. There are some obvious
improvements we are prioritising, including
working with our tenants to upgrade all lighting to
LED, which will help to lower energy consumption
and costs. We have a clear understanding of the
improvements that can be made and we are
ensuring that where major works are undertaken,
this delivers at least an EPC B once completed.
INVESTMENT MANAGER’S Q&A
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The impact of COVID-19 on care homes in 2021
In the first eight weeks of 2021, the second wave
of the COVID-19 pandemic hit the UK. Office for
National Statistics (ONS) data shows that during
this period, 50,161 deaths were linked to COVID-19
in England and Wales. This was 8% more than
in the peak of the first wave, over the 10 weeks
beginning on 28 March 2020. A third wave, caused
by the Omicron variant, hit towards the end of the
year, with the number of COVID-19 cases peaking
at a new daily record of 246,415 across the UK on
29 December 2021.
Care homes, however, were much less directly
affected by the pandemic in 2021 than they had
been in 2020. During the first seven weeks of
2021, which were the peak of the second wave,
there were 4,201 excess deaths in care homes, a
decline of 84% from the first wave. Between weeks
eight and 51 of 2021, deaths in care homes were
4,809 below their five-year average. This trend has
continued into 2022, with deaths in care homes in
the first eight weeks of the year 5,543 below the
five-year average.
This reduced impact on care homes reflects a
number of factors. The first reason, tragically, is
the number of the most vulnerable elderly people
who had already died in the first wave. More
positively, it reflects the success of the vaccination
programme in shielding the most vulnerable and
care homes’ great efforts to improve infection
control. By the end of the first quarter of 2021, all
residents had received or been offered two doses of
the vaccine. The government made it mandatory
for all care workers to be fully vaccinated from
11 November 2021, which the Group’s tenants
complied with without suffering a major impact
on staffing levels.
Over the past two years care home operators
have also worked intensively to improve infection
control measures and have received substantial
support from government to do so. Between May
2020 and September 2021, the Adult Social Care
Infection Control Fund provided £1.49 billion of
ring-fenced funding for infection prevention and
control, and a further £396 million for rapid testing
in care settings. This fund has been extended until
31 March 2022, with an extra £388 million to help
the care sector put in place crucial measures over
the winter period. This brings the total ring-fenced
funding for infection prevention and control to
almost £1.75 billion and support for testing in care
settings to almost £523 million.
One of the major side effects of related lockdowns
has been the interruption to normal medical and
social care. During the first wave in 2020, GPs were
advised to stop referring patients for dementia
assessments. Partly as result of this, the number
of people diagnosed with dementia in England
declined from 471,252 in February 2020, to 427,021 a
year later. It had increased to 439,056 by January 2022.
With lockdowns coming to an end and GPs and
social workers returning to a more normal way of
working, we expect to see an increased focus on
individuals’ welfare, resulting in a release of pent-
up demand for the level of care which can only be
provided in a care home.
-1,000
0
1,000
2,000
3,000
4,000
5,000
6,000
-20%
0%
20%
40%
60%
80%
100%
Excess deaths in care homes in England and Wales above/
below the five-year average and COVID-19 antibodies
in over-80s between week 11, 2020 and week 51, 2021
Wk 15
Wk 17
Wk 19
Wk 21
Wk 23
Wk 25
Wk 27
Wk 29
Wk 31
Wk 35
Wk 37
Wk 39
Wk 41
Wk 43
Wk 45
Wk 47
Wk 49
Wk 51
Wk 53
Wk 2
Wk 4
Wk 6
Wk 8
Wk 10
Wk 12
Wk 14
Wk 16
Wk 18
Wk 20
Wk 22
Wk 24
Wk 26
Wk 28
Wk 30
Wk 32
Wk 34
Wk 36
Wk 38
Wk 40
Wk 42
Wk 44
Wk 46
Wk 48
Wk 50
Wk 13
Wk 11
Adults 80+ testing positive for SARS-CoV-2 antibodies (RHS)
■
Excess deaths (LHS)
Source: ONS – Coronavirus (COVID-19) Infection Survey, antibody and vaccination data, UK.
13 January 2022 and Deaths Registered Weekly in England and Wales, Provisional, 18 January 2022
2020 2021
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Weekly fees Resident breakdown
■ Nursing
■ Residential
■ ‘pure’ self-pay
■ ‘quasi’ self-pay
■ ‘pure’ state-funded
■ NHS
(£)
£17.3bn
market value
Nursing care homes
Total £8,071m
For profit £7,281m
Not-for-profit £791m
Residential care homes
Total £7,489m
For profit £5,930m
Not-for-profit £1,559m
NHS older care facilities
State-run £1,069m
Local authority care homes
State-run £689m
33,000
9%
136,000
37%
42,000
11%
160,000
43%
0 200 400 600 800 1,000 1,200
Self-pay
State
funded
Weighted
average
Market growth drivers
We see attractive long-term opportunities for growth in our market. These reflect a sustained increase in
demand for elderly care and the constrained supply of beds in a highly fragmented market, coupled with
rising fees and the prospect of further government funding for the sector.
1. The population is ageing
People aged over 85 are the core client group for care homes
and the fastest growing part of the UK population. The ONS
estimates the proportion of the UK population over 85 years
will grow from 1.7 million (2.5% of the population) in 2021 to
3.6 million (5.2%) by 2051.
The COVID-19 pandemic has reduced care home occupancy
in the short-term (see the Investment Manager’s report on
pages 26-33). However, over the medium and longer term,
demand for elderly care will grow. Research by LaingBuisson,
a leading social care consultancy, forecasts that up to an
additional 93,000 beds will be required over the next ten years,
up more than 20% on demand today.
0%
5%
10%
15%
20%
25%
30%
An ageing population
1991
2001
2010
2020
2030
2040
2050
2060
2070
2080
2090
2100
2110
2120
1931
1901
■
% of total population aged 85+
■
% of total population aged 75-84
■
% of total population aged 65-74
Source: Office for National Statistics
Source: LaingBuisson - Care Homes for Older People - UK Market Report - 31st Edition, January 2021
Source: Office for National Statistics – Census Data (1901-2001) and
ONS Successive Principal National Projections
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MARKET GROWTH DRIVERS
2. Capacity has not risen in line with an
ageing population
The number of available care beds for the elderly
in the UK rose rapidly in the 1970s and 1980s,
reaching a peak of 563,100 across residential and
nursing homes in 1996. It then declined 17% to
465,100 in 2018.
Since 2013, the market has been broadly stable,
with the number of new beds built broadly equal
to beds withdrawn from the market. However,
underlying this stability there have been notable
changes in the market structure. Independent
operators, both for profit and not-for-profit, now
dominate the market and have continued to take
share from the public sector. In addition, while the
number of beds has been stable, the number of
care homes shrank by 9% between 2010 and 2020
as older, obsolete buildings were withdrawn from
the market and replaced by more modern, larger
homes. The average size of care homes has risen
from 37 to 42 beds in that period. The average
home in our portfolio has 55 beds.
3. The market is fragmented
Over recent years the market has seen
deconsolidation at its top end. The market share of
the ten largest independent operators declined from
a peak of 27% in 2006 to 20% in 2020. This reflects
diseconomies of scale in the care business. For the
larger operators, the potential benefits of access
to capital at lower cost and purchasing power for
consumables such as utilities and food tend to be
more than outweighed by higher group overheads
and the lack of economies of scale in pay rates for
care staff, which are operators' largest expenditure.
From 2006 to 2020, the market share of sole
traders with one or two homes also shrank. Mid-
sized groups, which operate between 100 and
4,000 beds as local or regional clusters, have been
more vibrant, growing their market share from
24% to 47%. Most of our tenants are active in this
part of the middle market.
Capacity not rising in line with an ageing population
Note: Excludes changes in NHS hospital long-stay places for older people
1 Other net capacity change includes extensions and reductions to existing homes as well
as re-registrations of care homes to and from client groups other than old age and dementia
2 Apr-Sep 20 (annualised)
Source: LaingBuisson database
9794 9593 96929190 98 0099 01 02 03 0704 05 06 08 09 10 11 12 13 14 15 16 17 18 19 2020
2
■
New registrations – independent sector
■
New registrations – public sector from 2000
■
Other net capacity change
1
■ Closures – independent sector
■ Closures – public sector from 2000
Total net capacity change
(30,000)
(20,000)
(10,000)
0
10,000
20,000
30,000
40,000
50,000
0%
10%
20%
30%
40%
50%
60%
70%
Share of bed capacity owned or leased by a) the ten largest
independent sector care home groups and b) all groups
1
with
three or more care homes
2
1 Groups defined as any entity under common management with three or more care homes
for older people with dementia (65+), £m UK annualised at March, UK 1992-2020
2 Up to 2015, includes care homes for younger adults with physical disabilities. From 2017,
care homes for older people and dementia only
Source: LaingBuisson database (10 largest groups from Table 4.3)
9895 9694 9793 99 0100 02 03 04 0805 06 07 09 10 11 12 13 14 15 16 17 18 19 20
■
10 largest groups ■ All other groups
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Numbers and annual costs of older people (65+) with dementia in care
homes and NHS long-stay residential settings, UK, year ending 31 March 2020
Sources: Estimate (A) is based on the Alzheimer's Society's estimate of the prevalence of dementia in care
homes (estimated at 69% in 2014). Estimate (B), the principal estimate, is calculated using a series of censuses
of residents in Bupa care homes between 2003 and 2012 (see references in Table 3.2) to estimate the
prevalence of 'provider defined' dementia care among nursing and residential care, adjusted to the total UK
care home mix of nursing and residential care residents of old people's care homes. Estimate (C) is calculated
to include all residents in care homes with the primary client type of dementia. In all cases, fees specific to
dementia services are used.
All older
residents,
65+:
395,000;
£17.3bn
(B)
Principal estimate:
residents in receipt
of provider-defined
“dementia care”:
158,000; £7.1bn
(A)
Residents with
diagnosable
dementia:
273,000;
£12.1bn
(C)
Residents in care homes
and units with dementia
as the primary client type:
96,000; £4.4bn
4. The number of people with dementia is rising
The Alzheimer's Society estimates that in 2020
there were 850,000 people in the UK with some
form of dementia, “with the number set to rise to
over 1 million by 2025 and 2 million by 2051”.
An estimated 69% of care home residents in 2020
had some form of dementia and 96,000 had acute
dementia requiring specialised care. Building
dedicated units to provide this care has been a
particular focus of our asset management and
development activities.
5. Fees have been rising faster than inflation
As a result of increasing demand, limited new
capacity and a shift from government provision to
independent providers, the independent sector
has seen sustained and above-inflation growth in
its care fees. Between 1998 and 2020, weekly fees
grew on average by 3.8% per annum for nursing
care and 3.7% for residential care. Over the same
period, the Retail Price Index has averaged 2.8%
per annum. This gives us confidence that tenants
will be able to pass on higher costs through
increased fees, which in turn means that the RPI
linkage in our leases is sustainable.
Average weekly fees (RHS)
0
£200
£400
£600
£800
£1,000
98 99 0100 02 03 04 0805 06 07 09 10 11 12 13 14 15 16 17 18 19 2120
Average weekly fees (£) versus RPI (%)
Average weekly fees increase (LHS)
Annual RPI (LHS)
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
6. Government policy is increasing funding
for social care
To finance reforms for social care, the Government
has introduced the Health and Social Care Levy.
This will take the form of an increase in National
Insurance (NI) of 1.25 percentage points in
2022/23, which will then be replaced by a levy
of the same amount from 2023/24. This move
is expected to raise £11.4 billion a year, with an
increase in income tax on dividends raising a
further £0.6 billion. Of this, £5.4 billion has been
allocated to adult social care in England over the
three years to 2024/25. Two thirds of this will be
used to cap the care costs individuals must pay
themselves and one third will be used for wider
reform, primarily improving staff recruitment and
retention. The devolved governments in Scotland,
Wales and Northern Ireland will receive £2 billion a
year towards their health and social policies.
What these dynamics mean for our strategy
These market conditions offer good scope for
further accretive growth for us. In particular we can:
act as a consolidator, growing our market share
through further acquisitions that meet our strict
investment criteria;
help to meet the demand for new beds through
our asset management and forward-funded
development activities that give potential for
further capital growth;
provide specialised facilities for people living with
dementia, as we develop or upgrade our assets; and
continue to partner with high-quality operators
who can provide the quality of care residents
require.
More information on our strategy can be found on pages 20-21.
MARKET GROWTH DRIVERS
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Investment case
The strengths and resilience of our business and the long-term structural
growth potential in our market will help us to deliver attractive and
sustainable returns for our shareholders and positive social impact for
our wider stakeholders.
1. A large and growing
market
Each year, £17.3 billion is spent
on providing residential care for
elderly people in the UK, which
is approximately 0.8% of UK GDP. The market is
expected to grow as the population ages. Care
homes are critical social care infrastructure and
demand for care is non-cyclical, enabling us to
plan for the longer term.
See page 11, Market growth drivers
3. Experienced and strategic
management team
We benefit from the knowledge,
expertise and relationships of our
Investment Manager. They allow
us to source and negotiate deals off market, which
offer shareholders good value and give vendors
the certain execution they are looking for. One of
the Investment Manager’s priorities is to build and
maintain long-term partnerships with our tenants.
See page 34, Investment Manager
5. Adding value through
asset management
Our portfolio is carefully
constructed to combine core,
high-quality and resilient assets,
which generate predictable income, and assets
with asset management opportunities, offering
the potential to add value for shareholders,
tenants and residents.
See page 26-33, Investment Manager’s report
2. Risk-adjusted returns
We consider risk at different
levels: maintaining balance sheet
strength with modest debt;
carefully selecting tenants and
monitoring their performance; acquiring assets
typically below replacement cost and therefore
lower rent, creating barriers to entry against new
competitors; maintaining rent cover as we add
tenants; managing assets and the overall portfolio
to add value; and focusing on our economic and
environmental sustainability. This allows us to
generate attractive returns with lower risk.
See page 26-33, Investment Manager’s report
4. Strong cash generation
and dividend growth
We aim to grow shareholder
returns through dividend
increases and capital
appreciation. Our portfolio generates a sustainable
and growing long-term income stream, with 100%
of our lease structures offering us inflation-linked
income with low volatility. This results in strong and
predictable cash flows and supports a progressive
dividend policy.
See page 5, Chairman’s statement
6. Positioned for further
accretive growth
At the end of 2021 we had
invested in c.1.5% of the
operational beds in the
highly-fragmented UK elderly care market. We
have a pipeline of attractive acquisition, asset
management and development opportunities
with scope to further increase the number of
tenants, while continuing to exercise strong
capital discipline.
See page 26-33, Investment Manager’s report
£
£
£
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ANNUAL REPORT 2021
A refurbishment of Old
Prebendal House was
completed during 2021.
Refurbished communal
facilities include the dining
and informal seating area
within the 15th Century Tithe
Barn restaurant (bottom
and top left photographs).
Further refurbished
communal areas include a
private dining room, lounge
and day conservatory.
All bedrooms have been
enhanced with a newly
refurbished décor and en
suite facility (top middle and
right photographs).
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Our business model
Our purpose is to form long-term partnerships with our tenants,
through which we own and invest in the buildings they lease from us
in return for a predictable and sustainable rent, enabling our tenants to
concentrate on providing excellent care to their residents.
How our business model helps to achieve our purpose
Each stage of our process links to one or more aspects of our purpose:
1. Build relationships
We build and maintain strong
relationships with high-quality care
providers, who we can work with
long term.
Link to purpose:
Long-term partnerships with
tenants
2. Identify assets
We identify attractive assets to
acquire, in partnership with those
operators.
Link to purpose:
Long-term partnerships with tenants
Owning buildings
3. Appraise purchases
We perform rigorous due diligence,
including understanding their
sustainability credentials, before we
selectively purchase care assets.
Link to purpose:
Owning buildings
Investing in buildings
4. Agree leases
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. All new leases
include clauses that increase tenants’
obligations to meet ESG objectives.
Link to purpose:
Long-term partnerships with tenants
Owning buildings
Investing in buildings
Predictable and sustainable rent
5. Engage tenants
We work closely with our tenants
to create sustainable value
through mutually beneficial asset
management projects, including
sustainability enhancements
to existing homes and new
developments.
Link to purpose:
Long-term partnerships with tenants
Investing in buildings
6. Optimise portfolio
We optimise our portfolio
through selective asset sales,
where we can reinvest in higher
value opportunities.
Link to purpose:
Owning buildings
For further information see pages 20-21, Objectives and strategy; pages 36-39, Sustainability; pages 44-49, Principal risks and
uncertainties; pages 56-95, Governance
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OUR BUSINESS MODEL
Breaking ground at Fairview Court and House, near
Bristol. From left: Rupert Barclay, Chairman; Richard
Smith, Investment Director, Investment Manager; and
Peter Madden, Managing Director, Welford.
Our competitive advantages
Our business has several important strengths that help us to create value.
The Investment Manager is our key source of competitive advantage. In particular its:
1
deep knowledge of the sector is a critical
advantage in assessing assets to acquire, selecting
operators and identifying opportunities to add value
through asset and portfolio management;
2
positive relationships with vendors and their
agents, alongside existing and prospective tenants
is core to our business. It enables us to deliver against
stakeholder expectations including ensuring there is
financial headroom to maintain and enhance the quality
of care at the care homes. This proactive and flexible
approach enables us to secure off market transactions and
also succeed in competitive sales even if we are not the
highest bid;
3
detailed development and asset management
capability enables us to identify opportunities to
enhance a care home before acquisition and work with
tenants to develop new care homes; and
4
understanding of tenants’ operations enables us to
form supportive partnerships with them. These are
crucial for sustainable value creation, and enables us to
work with tenants to enhance the quality of care.
We also benefit from having a well-diversified base of high-quality tenants. This reduces risk for
us, increases our resilience and gives us more opportunities to grow our business responsibly,
alongside theirs.
For further information see pages 155-156, Investment policy; page 35, Portfolio management; page 56, Purpose and culture
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IMPACT HEALTHCARE REIT PLC
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OUR BUSINESS MODEL
The output from our business model
The quality of our business is underpinned by three pillars that we use to monitor performance.
Quality of buildings Quality of care
We are constantly reviewing the quality and performance
of our homes in partnership with our tenants. Our
asset management strategy for each home identifies
opportunities to invest further to improve the quality
of environment for residents and staff, for example the
addition of specialist beds for dementia and increasing
the proportion of en suite bedrooms. We also identify
opportunities for improving the environmental
performance of the building.
The security of our rental income depends on tenants
maintaining a high standard of care, so the homes
remain relevant and meet the needs of residents. The
Investment Manager works closely with our tenant
partners to identify any areas of improvement and regularly
reviews customer feedback and reports from regulators.
Regular meetings and visits to homes help us to work
collaboratively and proactively with tenants to ensure
quality of care is maintained. Where appropriate, we will
seek independent support to resolve any ongoing issues.
Quality of cash flows Delivering sustainable value
Our high-quality business generates attractive
sustainable value for our stakeholders.
Tenants
Tenants can grow their business alongside ours,
in a mutually beneficial relationship.
Residents
Our tenants’ residents benefit from security and stability,
with an operator providing high-quality care and a
landlord willing to invest in the environment they live in.
Lenders
Our lenders can provide long-term finance to us on
attractive terms, in the knowledge that we have a secure
and resilient business, with strong cash flows.
Shareholders
Shareholders benefit from growing dividends,
underpinned by the predictable and rising revenue
from inflation-linked leases. With the potential for capital
growth, this supports an attractive total return.
We regularly review our tenants’ operational and
financial performance. This helps us understand the
overall performance of each home and help optimise
performance, enabling tenants to maintain a sustainable
EBTIDA margin and achieve resilient rent cover.
Disciplined capital allocation has led to attractive net
initial yields on acquisitions. Careful cost control enables
us to benefit from economies of scale as we grow, as
many of our costs are fixed and some variable costs
step down as our asset value rises. This control, and our
conservative financial approach, maximises cash we can
distribute to shareholders.
For further information see pages 22-23,
Key performance indicators
For further information see pages 42-43,
Stakeholders
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
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ANNUAL REPORT 2021
Lomond View, Falkland Fernlea House, Cadenden Cragie House, Crossgates
Alexander House, Crossgate Camilla House, Auchertool
We invested in 12 properties in Scotland initially through a loan
with Holmes Care Group. This adds 480 high-quality en suite beds,
located within established residential areas, at an accretive yield.
Each home has a strong track record of delivering high-quality care.
Preston House, Glenrothes
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Objectives and strategy
Our objectives
Our targets are to deliver:
a progressive dividend, with a total target dividend
in respect of 2022 of 6.54 pence per share ; and
an average Total accounting return of 9.0% per
annum , with capital growth driven primarily by
annual inflation-linked rent increases and active
asset management, rather than relying on yield
compression.
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.
Our strategy
To achieve our value-creation objectives, we:
buy the right assets on the right terms, by
implementing our investment strategy;
invest in a responsible manner with positive
financial and social outcomes;
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.
Refurbished bedroom with en suite
facility at Turnpike Court.
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IMPACT HEALTHCARE REIT PLC
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Strategy Our progress in 2021
Further
information
Investment strategy
We can invest in a range of healthcare real estate
(see investment policy, page 155).
Market dynamics (see pages 11-13) mean the
care home sector currently offers the most
attractive opportunities.
We manage risk by diversifying the portfolio
by location and tenant, adding new tenants and
increasing the number of homes operated by
existing tenants.
We primarily acquire portfolios, which may
include other healthcare real estate where this
offers a strategic or portfolio management
opportunity.
Acquired four care homes with 286 beds, for total
consideration of £24.4 million.
Invested in a portfolio of 12 care homes with
480 beds in Scotland, through an initial loan to the
operator of £37.5 million, with the option to acquire
the assets when regulatory approvals are received.
Exchanged contracts to acquire two properties with
147 beds, for total consideration of £11.0 million.
The Group’s percentage of contracted income
from its largest tenant, Minster Care Group, has
reduced from 48% in 2020 to 41% in 2021, owing
to the successful execution of the Group’s tenant
diversification strategy.
See page 27,
Implementing
the investment
strategy
Portfolio management strategy
We categorise each of our assets as core, value-
add or non-core.
We manage the balance between these
categories, to deliver our target returns and
identify assets for active management.
Disposed of a 67-bed care home in Sheffield for
£1.68 million, 29% above the purchase cost and
12% ahead of the carrying value at 30 June 2021.
See page 35,
Portfolio
management
Asset management and development strategies
We prioritise investment and development
in our value-add portfolio and projects that
enhance sustainability.
We selectively forward fund the development
of new homes on a pre-let basis, to achieve a
better yield on cost than acquiring standing
assets, while adding new and highly sustainable
assets to the portfolio.
Began work on a range of initiatives including an
extension to link Fairview House and Fairview Court
in Bristol, adding a net 11 beds and improving the
EPC rating to A.
Reached practical completion after the year end
on the pre-let development we forward funded
in Hartlepool.
Agreed to forward fund a new 80-bed care home
in Norwich.
See page 24,
Continuing
to add value
through
active asset
management
and development
Financing strategy
We fund the business through equity and debt,
aiming to time any equity raises to minimise
earnings dilution from holding cash ahead of
investing it in income-producing assets.
Our gearing policy is to have a maximum
Group LTV of 35% at the time of drawdown.
We maintain a prudent balance sheet and
expect average gearing to be no higher
than 25%.
Raised gross proceeds of £35 million through
a share placing in April 2021.
Agreed a new £26 million RCF with NatWest,
along with an accordion to increase the facility to
£50 million.
Agreed £75 million of institutional fixed-rate, term
debt and drew down the first tranche of £37 million.
Repaid £10 million of the Metro Bank term loan and
£10 million of the Metro Bank RCF.
See page 32,
Equity financing
and
Debt financing
OBJECTIVES AND STRATEGY
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
Key performance indicators
The Group uses the following measures to assess its strategic progress.
1. Total accounting
return
2. Dividends 3. EPRA earnings
per share
4. EPRA ‘topped up’
net initial yield (“NIY”)
8.42%
for the year ended
31 December 2021
(2020: 8.46%)
6.41p
per share
for the year ended
31 December 2021
(2020: 6.29p per share)
8.05p
per share
for the year ended
31 December 2021
(2020: 7.25p per share)
6.71%
as at 31 December 2021
(31 December 2020: 6.71%)
Net Asset Total Return (%)
0 10
8.46%
9.46%
8.47%
2018
8.42%
2019
17.09%
2020
2021
2022
Dividends (p)
0.0 6.5
6.29p
6.17p
6.00p
2018
6.41p
2019
17.09%
2020
2021
2022
EPRA earnings per share (p)
0.0 8.2
7.25p
6.95p
6.47p
2018
8.05p
2019
17.09%
2020
2021
2022
EPRA “topped up” net initial yield (“NIY”) (%)
0 8
6.71%
6.66%
6.97%
2018
6.71%
2019
17.09%
2020
2021
2022
Definition
The change in the NAV over
the period, plus dividends
paid, as a percentage of NAV
at the start of the period.
Definition
Dividends declared in
relation to the period.
Definition
Earnings from operational
activities. The EPRA
calculation removes
revaluation movements in
the investment portfolio and
interest rate derivatives, but
includes rent smoothing.
Definition
Passing rent at the year
end, less non-recoverable
property expenses, divided
by the market value of the
property, increased to reflect
a buyer's costs and adjusted
for the expiration of rent-free
periods or other unexpired
lease incentives.
Relevance to strategy
Demonstrates our ability
to add value for our
shareholders, by distributing
earnings and growing our
portfolio value.
Relevance to strategy
Reflects our ability to
generate a secure and
growing income stream
from our portfolio.
Relevance to strategy
This is a key measure of
underlying operating results,
as well as the extent to
which current dividend
payments are supported by
earnings.
Relevance to strategy
NIY indicates the income
generating capacity of the
portfolio, in comparison to
its market value.
Commentary
Total accounting return
comprised dividend paid in
the year of 6.41p per share
and NAV growth of 2.85p
per share and totalled 8.42%,
against our target of 9.0%
per annum
Commentary
We met our dividend target
for 2021. Our dividend
target for 2022 is 6.54p ,
representing 2.03% growth.
Commentary
EPRA EPS increased
by 11.0%, giving 126%
dividend cover.
Commentary
The NIY at 31 December
2021 was 6.7%. The
average initial yield of our
acquisitions in the year
was 6.9%.
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.
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
5. NAV per share 6. Gross loan to value
(“LTV”)
7. Weighted average
unexpired lease term
(“WAULT”)
8. Total expense ratio
(“TER”)
112.43p
per share
as at 31 December 2021
(31 December 2020: 109.58p
per share)
22.26%
as at 31 December 2021
(31 December 2020: 17.77%)
19.2 years
as at 31 December 2021
(31 December 2020:
20.0 years)
1.55%
for the year ended
31 December 2021
(2020: 1.53%)
NAV per share (p)
50 113
109.58p
106.81p
103.18p
2018
112.43p
2019
17.09%
2020
2021
2022
Gross-LTV (%)
0 23
17.77%
6.81%
11.62%
2018
22.26%
2019
17.09%
2020
2021
2022
WAULT (yrs)
0 22
20.0yrs
19.7yrs
19.5yrs
2018
19.2yrs
2019
17.09%
2020
2021
2022
Total expense ratio (“TER”) (yrs)
0 2
1.53%
1.60%
1.80%
2018
1.55%
2019
17.09%
2020
2021
2022
Definition
Net asset value based on
the properties and other
investment interests at
fair value.
Definition
The gross debt as a
percentage of our gross
asset value.
Definition
The average unexpired
lease term of the property
portfolio, weighted by
annual passing rents.
Definition
Total recurring
administration costs as a
percentage of average NAV
throughout the period.
Relevance to strategy
Provides shareholders with
the most relevant information
on the fair value of the assets
we have assembled and the
liabilities we have incurred in
doing so.
Relevance to strategy
This is an important
indicator of the level of
gearing we have used to
implement the strategy.
Higher gearing can lead
to higher returns but also
increases downside risk.
Relevance to strategy
The WAULT is a key measure
of the long-term security
of our income. Long lease
terms underpin the quality
of our income stream and
hence our dividends.
Relevance to strategy
The TER is a key measure
of our operational efficiency.
Commentary
NAV growth continued to
be driven primarily by rental
growth and the benefits of
active asset management.
Commentary
We have total facilities of
£168 million and had drawn
£114.5 million at the year
end, giving an LTV of 22.3%.
If the facilities were fully
drawn, with no changes to
the Group’s current equity
base, the LTV would be
approximately 32.7%.
Commentary
We continued to grant leases
of around 25 years during
2021, offsetting some of the
natural reduction in the
portfolio WAULT.
Commentary
TER has remained stable
in the year, reflecting
the benefits of tight cost
control. The EPRA cost ratio,
calculated by dividing our
recurring administrative and
operating costs by gross
rental income, was 15.84%
for the year (2020: 17.09%).
See pages 144-149, EPRA performance measures and associated notes; pages 150-151 Other alternative performance measures
KEY PERFORMANCE INDICATORS
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
Asset management is a key part of our value-
creation strategy and we have numerous projects
at different stages across the portfolio. Many
of the projects add new beds to the portfolio,
while making the homes even better places to
live, improving environmental performance and
helping the homes to compete in their markets.
Below are just some examples of this work.
At Wealstone in Cheshire, for example, we have
recently received planning permission for a
30-bed specialist dementia facility, to be built
in the grounds of the existing care home. This
will provide much-needed extra capacity as the
number of people living with dementia continues
to rise (see page 13). We are also working on
plans to upgrade the existing home, including the
addition of en suites.
During the year, we completed a single storey
extension to Loxley Hall. This added five bedrooms
and a garden room for residents, while reconfiguring
and improving the internal space, including
expanding the lounge. We have also funded the
refurbishment of three homes in Northern Ireland,
which our tenant, Electus, committed to at the
time we acquired the assets. The works include
general redecoration, new furniture and LED
lighting throughout. LEDs offer the dual benefit
of significant energy savings and improvements
to the quality of light, contributing to a better
resident experience.
As outlined on pages 36-37, we have an ongoing
programme to improve the environmental
performance of our assets and increase their EPC
ratings. At Blackwell Vale, work started on site in
February 2022 on a project that will substantially
improve the home’s sustainability. This includes
upgrading the boiler, installing LED lighting,
new insulation, draft proofing and pipe lagging,
replacing mechanical ventilation and extractor
fans with more efficient equivalents, and using
heat recovery technology to recycle heat that
would otherwise be vented. We expect this work
will improve the EPC rating from C to B.
In total, we spent £1.5 million on capital expenditure
during 2021, on projects across seven different
homes.
CASE STUDY
Continuing to add value through active asset management
and development
Asset management and development activity
Capital
investment
Expected
completion
Asset Description
Asset management expenditure
Loxley Added five additional bedrooms, a new lounge, garden room and
laundry. Work completed on site. Existing tenant yet to draw down funds
£0.5m Practical
completion
Falcon House Refurbishment of existing home £0.2m Practical
completion
Old Prebendal House Reconfiguration and improvements to an existing home £0.8m Practical
completion
Edgewater Lodge, Saintfield
Lodge and Cedarhurst Lodge
Update and refurbishment of three existing care homes £1.2m H1 2022
Blackwell Vale Undertake refurbishment of existing care home £1.9m H1 2023
Mavern House New eight-bed extension and resident lounge £0.6m H1 2022
Fairview Court and House New link extension, net 11 additional beds, further en suite provision
within existing care home, new laundry and kitchen services
£3.5m H2 2022
Belmont House Refurbish top floor accommodation and entrance hall of an
existing home
£0.5m H1 2022
Laurel Bank and The Beeches Refurbishing day space in two existing care homes £0.3m H1 2022
Forward-funded development expenditure
Oasis Forward fund new 80-bed facility £10.5m 2024
Hartlepool Forward fund new 94-bed facility £6.1m H1 2022
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
Top Left: CGI image of a newly
refurbished bedroom at Blackwell
Vale Care Home, Carlisle.
Top Right: CGI image of proposed
extension at Blackwell Vale Care
Home, Carlisle.
Above: Drone footage of the new
link building under construction,
linking Fairview House and Fairview
Court, Bristol.
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
Investment Manager’s report
As the Chairman has outlined on page 4, the
business once again demonstrated its resilience
in 2021 and it remains in excellent shape. The
financial performance in the year was strong,
reflecting the benefits of portfolio growth and the
rental increases inherent in the leases, helping
the Company to deliver a fully covered dividend
for the year.
We also made good progress with implementing
all aspects of our strategy and see attractive
prospects for further acquisitions and driving value
from the portfolio through asset management.
Shareholders and debt providers also showed their
support for the strategy by providing additional
capital, which supports our growth plans.
Tenant performance
A fundamental part of the Group’s business model
is to select high-quality operators and put in place
leases that ensure high levels of rent cover from
the outset. Our experience during the pandemic
has demonstrated the benefits of this approach.
Our tenants have continued to work hard to
overcome the challenges thrown at them by
the pandemic and have been rewarded with
improving performance as the year progressed.
With occupancy having fallen from nearly 90%
before the pandemic to just 79% during the
second wave in late January 2021, our tenants
have since seen occupancy increase, to stand at
an average of 83.5% at the start of March 2022.
Throughout the pandemic, all the homes the
Group owns have remained operational and we
have continued to collect 100% of our rent.
Although the reduction in occupancy caused by
the pandemic pushed rent cover down to a low
of 1.68 times in mid-2020, it has since bounced
back to exceed the level before the pandemic,
at 1.95 times in Q4 2021. This reflects our care in
setting sustainable rents, as noted above, and
0.70
0.75
0.80
0.85
0.90
0.95
1.00
Group average adjusted occupancy (%)
S O N D J FJ JM AAM S O N D JJ JM AAM
2020 2021
F
●
Knight Frank UK average care home occupancy
1 Excludes three turnaround homes
2 Source: 2021 UK Care Homes Trading Performance Review, Knight Frank
Low point in
occupancy at peak
of second wave
Mid-April to
December
occupancy +5%
10% decline in
occupancy
peak to trough
1% decline
due to reduced
admissions during
Christmas and
omicron wave
1.5
1.6
1.7
1.8
1.9
2.0
2.1
Group rent cover
Q4Q3Q2Q1
2020 2021
Q2Q1 Q3 Q4
20%
21%
22%
23%
24%
25%
26%
Tenant average EBITDARM margin (%)
Q3Q4 Q1Q3 Q2Q2Q1
2020 2021
Q4
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
the fact that our homes are part of a critical
social infrastructure, in the communities where
our homes are located, which has contributed
to strong fee growth for our tenants. The
improvement in rent cover also reflects grant
support from government to help operators
improve their infection control measures, and
which therefore covers tenants’ additional costs
in areas such as PPE.
Continued successful implementation
of the strategy
The Group’s strategy has four elements, as
described on page 21. Below we explain how
we have implemented the Group’s investment,
portfolio management and asset management
strategies during the year. Information on how we
have implemented the Group’s financial strategy
can be found under Equity financing and Debt
financing on page 32.
Implementing the investment strategy
We have identified a substantial pipeline of
opportunities to acquire assets that fit the Group’s
investment policy and would be accretive to
returns. This has enabled us to acquire four care
homes with 286 beds during the year, for a total
consideration of £24.4 million, while adding a
new tenant to take the total to 13 . The homes
acquired have been let on leases of between
20 and 30 years with no breaks, and with upward-
only annual rent reviews linked to inflation. The
Group also exchanged contracts to acquire two
care homes with 147 beds for a total consideration
of £11.0 million.
In addition, the Group invested in a portfolio
of 12 care homes in Scotland, to be operated
by an existing tenant, Holmes Care Group. The
investment has been made initially through a loan
to Holmes of £37.5 million, allowing it to complete
the acquisition of the assets and take immediate
operational control, thereby avoiding a lengthy
transition period while regulatory approvals are
sought to register the operation of the homes in
new legal entities. The structure also delivers other
financial and operational efficiencies.
Once the regulatory approvals are received, the
Group has the option to acquire the properties
from Holmes, which in turn also has the option
to sell the properties to us. We will receive
interest payments equal to 8.6% per annum for
the duration of the loan and, if either option is
exercised, we have pre-agreed new 30-year leases
on our standard terms. Initial rent under the new
leases is set at £2.7 million, reflecting an initial yield
of 7.2%.
The loan structure used to make this investment
contains additional protections for our shareholders,
including security over the property assets under
option and a number of operational covenants
from Holmes, while the options also allow us to
fix the future price of the property assets and
associated rents in advance.
Implementing the portfolio
management strategy
In October 2021, we announced the disposal
of Heeley Bank, a 67-bed care home in Sheffield
that we acquired in 2020 as part of a portfolio.
The home was not a long-term strategic asset for
either us or the tenant, MMCG, and we therefore
jointly marketed it post-acquisition. The sale
proceeds of £1.68 million were 29% above the
purchase cost and 12% above the carrying value
at 30 June 2021.
INVESTMENT MANAGER’S REPORT
1 Including Croftwood and Minster, which are both part of the Minster
Care Group.
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Implementing the asset management and
development strategies
Well-delivered asset management has the potential
to create value for our shareholders and tenants,
while also offering an enhanced environment and
facilities for residents and their families at our homes.
Through our asset management opportunities, we
are adding beds and improving existing homes. We
already own the land and our tenants have central
services (kitchens, laundry, staff offices) on site, so
the marginal cost of adding beds is lower than with
a new build and the risks are easier to assess.
New beds added to an existing home should also
be quicker for the tenant to fill than for a new
home, which needs to establish itself in its market.
During the year we began work on a major project
at Fairview House and Court, two units on the
eastern outskirts of Bristol. This will turn the two
units into one operationally, with 17 new beds
in the link building and modern kitchens and
a laundry in its basement, improving the work
environment for staff. This results in a net increase
of 11 new beds, to a total of 84, and we have
committed additional funding to ensure the new
Fairview has an EPC rating of A.
In addition to Fairview, the Group is working with
tenants on a number of smaller refurbishment
and extension projects, the majority of which
will complete during 2022, and has a pipeline
of further projects under consideration. More
information on some of these initiatives can be
found in the case study on page 24.
Repairs and maintenance
Under the terms of the leases, our tenants are fully
responsible for keeping the Group's buildings in
good repair through regular repair and maintenance
programmes. This ensures the buildings remain
high-quality environments for residents to live in. We
monitor these programmes carefully, to ensure they
are being effectively implemented.
Forward-funded developments
In 2020, we committed to forward fund a new,
94-bed care home in Hartlepool at a total cost of
£6.1 million and a yield of 7.8% from completion.
The home has been built and will be operated by
Prestige, one of the Group's existing tenants. While
construction work was interrupted during the
pandemic, practical completion has been reached
since the year end.
During 2021, we committed £10.5 million to
forward-fund the development of a new care
home in Norwich, which will be operated by
our latest tenant, Carlton Hall. £2.5 million of this
was spent in the year for the purchase of the
development site. The forecast yield on this new
home is 7.1% and construction is expected to
start in Q3 2022. The development will comprise
an 80-bed care home.
The portfolio
As a result of the activity described above, at
31 December 2021 the Group had investments
in 126 properties, with 6,853 beds, including the
12 homes in Scotland, the two forward-funded
developments and two exchanged assets,
which completed shortly after the year end. This
represents approximately 1.5% of the elderly care
beds available in the UK.
Of these properties, 124 are care homes let to
12 tenants , on leases of 20 to 30 years, with no
break clauses. Rents are subject to annual upward-
only rent reviews linked to the RPI, with a floor and
cap of 1% and 5% or 2% and 4% respectively.
In addition, the Group owns two healthcare
facilities leased to the NHS. In total, the Group has
13 tenants across the portfolio.
Valuation
The portfolio is independently valued by Cushman
& Wakefield, in accordance with the RICS Valuation
– Professional Standard (the “Red Book”).
INVESTMENT MANAGER’S REPORT
1 Including Croftwood and Minster, which are both part of the Minster
Care Group.
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ANNUAL REPORT 2021
As at 31 December 2021, the portfolio was valued
at £459.4 million, an increase of £40.6 million from
the valuation of £418.8 million at 31 December
2020. The components of this valuation increase
were as follows:
acquisitions completed: £26.9 million
disposal: £1.3 million;
acquisition costs capitalised: £1.3 million
capital improvements: £0.8 million and
valuation uplift: £12.9 million.
The valuation uplift was largely driven by rent
increases received during the year.
Financial results
Total net rental income recognised for the year
was £36.4 million (2020: £30.8 million). This growth
was driven by a full year of ownership of the assets
acquired in 2020, the initial contribution from the
2021 acquisitions and the rental growth inherent
in the leases.
Under IFRS, the Group must recognise some rent
in advance of receipt on a straight-line basis,
reflecting the minimum uplift in rents over the
term of the leases. Cash rental income received in
2021 was £30.5 million (2020: £25.9 million).
The Group’s cost base is primarily made up of the
Investment Manager’s fee, Administrator fees,
other professional fees including valuations and
audit, and the directors’ fees. Administrative
and other expenses totalled £5.8 million (2020:
£5.3 million).
The Group’s cost ratios remained stable this year,
reflecting the Group’s tight cost control. The total
expense ratio, which is the Group’s recurring
administrative and operating costs as a percentage
of average net assets, was 1.55% (2020: 1.53%).
The EPRA cost ratio, which is administrative and
operating costs as a percentage of gross rental
income, was 15.84% (2020: 17.1%).
Net finance costs are primarily interest costs and
amortised arrangement fees on the Group’s
debt facilities and totalled £3.3 million (2020:
£2.6 million) in the year.
The Group recorded a profit on disposal of
£0.3 million in 2021 (2020: £0.2 million) following
the disposal of a non-strategic asset, Heeley Bank.
The change in fair value of investment properties
was £4.2 million (2020: £5.6 million). This includes
the £12.9 million of valuation uplifts noted above,
offset by rent smoothing adjustments from the
accounting recognition of rental uplifts over the
life of the lease.
Profit before tax was £32.0 million (2020:
£28.8 million).
As a REIT, the Group is exempt from corporation
tax on the profits and gains from its property
investment business, provided it continues to
meet certain conditions in the REIT regulations.
The corporation tax charge for the year was
therefore £nil (2020: £nil). In 2022, the Group will
earn interest income from the loan to Holmes Care
Group, which will be subject to corporation tax.
The interest rate on the loan has been set to allow
the Group to earn the equivalent amount after tax
as if it were charging rent on these assets.
EPS for the year was 9.41 pence (2020: 9.02 pence)
and EPRA EPS was 8.05 pence (2020: 7.25 pence).
Adjusted EPS, which better reflects underlying
cash earnings in the year, was 6.68 pence (2020:
5.98 pence). All the EPS figures listed above are on
both a basic and diluted basis. More information
on the calculation of EPS can be found in note 10
to the financial statements.
INVESTMENT MANAGER’S REPORT
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
During the year, we further diversified our tenant
base with the addition of Carlton Hall Limited.
The tenant operates the Carlton Hall care home
in Lowestoft, Suffolk, which we acquired in April
2021. At the heart of the care home is a beautiful
18th century hall with high-quality linked
buildings, including a specialist dementia unit.
The home has an ethos of optimising its residents’
health and wellbeing, and recognising their need
for personal fulfilment, which aligns with our focus
on choosing tenants who prioritise a positive
environment for residents. Carlton Hall also offers
less acute care to residents living in their own
bungalows, set within the ten-acre grounds.
Positive social impact
We are excited to work with this tenant and its
business model, which combines independent
living with residential and nursing support in an
engaging community environment. We jointly
see the opportunity for growth and have an
aligned partnership to provide high-quality care
environments.
A key part of our approach to working
with tenants is to support the growth and
diversification of their own businesses, which
increases their resilience and reduces their reliance
on any one asset. We were therefore pleased to
agree to forward fund the construction of a new
80-bed care home in Norwich, which Carlton Hall
will build and operate. The new development
will follow Carlton Hall’s successful Lowestoft
model, with 19 bungalows in the grounds,
and is expected to be a blueprint for further
developments in the region by our tenant. We
also continue to review other opportunities to
grow with Carlton Hall, including the potential
to acquire further standing assets for it to run.
CASE STUDY
Growing and diversifying our tenant portfolio
Growth with new tenant, Carlton Hall
£24.8m
Capital committed
+1 66
Beds
+£1.6m
Contracted annual rent
“We have rapidly built a strong
relationship with Impact and
greatly value its support for our
growth plans and the team’s
expertise in the care home market.
We look forward to working
together for years to come,
to achieve mutual success.”
Anthony Prendergast, MD, Carlton Hall
Carlton Hall
Bungalows
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St Peter’s Church
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CARLTON COLVILLE
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
Carlton Hall’s aim is to give its
residents the opportunity to
improve their quality of life by
providing a safe, happy, caring and
comfortable family home.
CASE STUDY: NEW TENANT CARLTON HALL
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
INVESTMENT MANAGER’S REPORT
Dividends
To ensure the Company benefits from the full
exemption from tax on rental income afforded by
the UK REIT regime, it must distribute at least 90%
of the qualifying profits each year from the Group's
qualifying rental business.
The Company has declared four quarterly
dividends of 1.6025 pence each in respect of
the year, thereby meeting its target for 2021 of
6.41 pence per share. All four dividends were
Property Income Distributions. The details of these
dividends were as follows:
Quarter to Declared Paid Cash cost £m
31 Mar 2021 13 May 2021 11 Jun 2021 5.6
30 Jun 2021 29 Jul 2021 27 Aug 2021 5.6
30 Sep 2021 15 Oct 2021 19 Nov 2021 5.6
31 Dec 2021 4 Feb 2022 11 Mar 2022 6.2
Total 23.0
Dividends declared for the year were 126%
covered by EPRA EPS and 104% covered by
Adjusted EPS.
Equity financing
On 30 April 2021, we completed a placing of
31,690,327 new ordinary shares at 111.5 pence per
share, which raised gross proceeds of £35 million
for the Company. The net proceeds from the
placing were used to pay down debt and to fund
new investments.
Debt financing
This was an important year in the evolution of the
Group’s debt financing, as we agreed a new facility
with a major clearing bank and completed our
debut transaction in the institutional debt market.
On 28 June 2021, we announced a new £26 million
revolving credit facility with NatWest, at a margin
of 190 basis points over SONIA. The facility
has a fully documented accordion agreement
to increase it to £50 million, subject to lender
approval. At the same, time the Group’s facility
with Metro Bank was reduced from £50 million to
£40 million.
On 22 December 2021, we announced £75 million
of new long-term debt, provided by two large UK
insurance companies. The senior secured notes
have a weighted average coupon of 2.967% and
a weighted average maturity of 14 years. The debt
comprises two tranches:
£37 million of notes at a fixed coupon of 2.932%,
which were issued on 21 December 2021 and
mature in December 2035 and
£38 million of notes at a fixed coupon of 3.002%,
which will be issued on 20 June 2022 and mature
in June 2035.
These will both lengthen the Group’s average debt
term and lower the average coupon, providing
Impact with long-term, fixed-rate debt to match
the Group’s long income profile. This new debt
reflects both the high level of resilience the Group
has demonstrated during the pandemic, and
support from institutional investors for Impact and
our strategy.
Following the drawdown of the first tranche in
December 2021, we cancelled a further £10 million
of the Metro Bank facility.
In addition, during the year we exercised our
option to extend the duration of the HSBC facility
by one year, to April 2024. Following the year end,
the second one-year extension was exercised on
the HSBC facility bringing its expiry to April 2025.
We also agreed with Clydesdale Bank and HSBC to
transition our facilities with them to SONIA, which
took place before the end of the year.
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As a result of these activities, at the year end the
Group had the following debt facilities:
Expiry
Facility size
£m
Drawn at
31 Dec 2021
£m
Metro Bank
Term loan Jun 2023 15.0 15.0
Revolving credit facility Jun 2023 15.0 7.3
Clydesdale Bank
Revolving credit facility Mar 2024 25.0 10.0
HSBC
Revolving credit facility Apr 2024 50.0 20.0
NatWest
Revolving credit facility Jun 2024 26.0 25.2
Private placement
Senior secured notes Dec 2035 37.0 37.0
Total as at 31 Dec 2021 168.0 114. 5
Senior secured notes Jun 2035 38.0 –
Total 206.0 114. 5
1 With the option to extend for one year to April 2025, subject to HSBC’s
agreement.
2 With the option to extend for up to two years to June 2026, subject to
NatWest’s agreement.
3 An accordion agreement is in place to increase this to £50 million, subject to
NatWest’s agreement.
4 Due to be issued in June 2022.
At 31 December 2021:
the Group had drawn debt of £114.5 million
(31 December 2020: £76.4 million), giving a gross
LTV of 22.3% (31 December 2020: 17.8%);
the weighted average term of debt facilities
(excluding options to extend) was 4.7 years
(31 December 2020: 2.5 years), benefiting from the
new debt arrangements put in place in the year;
and
we had £53.5 million of undrawn debt facilities and
£13.3 million of cash, leaving headroom to finance
all committed contingent liabilities for deferred
payments and capital expenditure, as well as to
pursue acquisition opportunities.
Post balance sheet events
The Group raised £40 million in equity in
February 2022 and used the proceeds to pay
down revolving credit facilities giving the Group
additional headroom to pursue its attractive
acquisition pipeline.
In February 2022, the Group completed the
acquisition of two care homes in Northern Ireland
for consideration of £11.0 million. This added
147 beds to the portfolio and they have been let
to an existing tenant, Electus.
In March 2022, the Group invested in two
homes in Nottinghamshire with 107 beds. The
investment has initially been made by way of an
£11.1 million loan to one of the Group’s existing
tenants, Welford, allowing it to complete the
acquisition of these two homes. Upon receipt of
certain regulatory approvals, a put and call option
for the Group to acquire these homes becomes
exercisable.
Acquisition pipeline and outlook
We continue to progress a near-term accretive
investment pipeline of standing assets, forward
fundings and asset management commitments,
which we expect to deliver further well invested
critical social care infrastructure for vulnerable
people, whilst providing attractive inflation-
protected income and capital growth with a
huge positive social impact for our shareholders.
We are confident in the long-term outlook for
the sector and the Group’s investment and
diversification strategy.
Impact Health Partners LLP Investment Manager
28 March 2022
INVESTMENT MANAGER’S REPORT
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Investment Manager
Impact Health Partners LLP is our Investment Manager. It sources investments, carries out approved
transactions, monitors the progress of our homes and provides portfolio management services to the Group.
It also develops and recommends the asset management strategy for approval and then implements it.
Andrew Cowley
Managing Partner
Mahesh Patel ACA
Managing Partner
David Yaldron FCA
Finance Director
Simon Gould
Development Director
Richard Smith
Investment Director
Andrew is an experienced fund
manager, working in infrastructure and
private equity investment since 2000.
He was a senior managing director at
Macquarie and deputy chief executive of
the listed Macquarie Airports.
Andrew has served on company boards,
including various international airports,
Moto Holdings, Creative Broadcast
Services and as chairman of Halterm
Container Terminal in Canada.
Mahesh is a qualified accountant with
more than 30 years’ experience in
healthcare-related industries and assets,
including positions in finance.
Prior to 2006, he built up and then sold
three healthcare-related businesses,
Highclear and Kingsclear and a supported
living business, Independent Living.
Mahesh has helped found and grow
Minster and Croftwood, along with
Pathways Care, which provides specialist
support for people with various disabilities.
David is a chartered accountant with
more than 20 years’ experience and
has been the finance director for the
Investment Manager since 2017.
From 2012, David was a director at
Grosvenor responsible for projects and
new investments, becoming the senior
director responsible for all investments,
developments and strategic land
activities outside London.
David trained and spent the first ten
years of his career at KPMG, working in
the Transaction Services team.
Simon is a chartered surveyor with more
than 20 years’ experience working across
residential and commercial property
investment and development.
Simon’s early career was in affordable
housing, extra care and estate
regeneration. During 15 years with
primary care specialist Assura, Simon
was involved in the delivery of over
20 healthcare developments and led the
in-house development team.
In Simon’s current role at the Investment
Manager, he is responsible for
development strategy and ESG.
Richard has worked exclusively in the
elderly care market for more than
25 years. As a Chartered Surveyor
Richard has historically provided
valuation and consultancy advice to
banks and investors but latterly has held
senior appointments with some of the
UK’s largest care home groups where
he combined property and operational
experience for a holistic approach to
understanding healthcare investments.
Richard joined the Investment Manager
in 2019 to drive the acquisition of new
assets and on boarding of new tenants.
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Portfolio management
As we build our portfolio, we look for an appropriate balance of high-quality core assets that generate
attractive, secure and long-term income, and value-add assets with potential to create further value for
shareholders and our wider stakeholders. We continuously assess this balance to identify asset management
and capital recycling opportunities.
We categorise each asset as follows:
Core Value-add Non-core
These assets are the primary
contributors to our long-term,
stable income.
Good-quality buildings with
a useful life greater than the
duration of the lease
Invested to an appropriate
standard
Stable trading, underpinning a
sustainable level of rent cover
Value-add assets are candidates
for asset management
initiatives.
Present opportunities to
deploy capital to enhance the
asset and its performance
May be a smaller home,
have a low level of en suite
bathrooms or other elements
of functional obsolescence,
or need environmental
performance improvements
Value uplift through enabling
the tenant to offer a new
service, such as dementia and/
or targeting private residents
Non-core assets may be
candidates for sale and are
likely to have been acquired
as part of larger portfolios.
Limited lifespan homes with
a high degree of functional
obsolescence
Higher alternative use value
Could be geographically
isolated
■ Core ■ Value-add ■ Non-core
A core portfolio delivering an
en suite facility service
Rooms with en suite bathrooms
77.1%
42.1%
88.6%
A proportional rent per bed with
strong rent cover across the portfolio
Average rent per bed
£3,524
£4,903
£5,828
Homes of scale, delivering an
efficient service to residents
Average number of beds per property
Average
55
49.6
48.1
62.3
A strong core portfolio
underpinning value
65.3%
3.0%
31.7%
■ Core ■ Value-add ■ Non-core
65.3%
Core
by market value
Significant opportunity to enhance
value from the value-add portfolio
51.4%
7.3%
41.3%
■ Core ■ Value-add ■ Non-core
41.3%
Value-add by
number of homes
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Sustainability
Careful management of environmental, social and governance (ESG) issues is intrinsic to developing a strong
and sustainable business and is therefore fundamental to the way we work.
Our approach to managing ESG issues
As a long-term investor, we are committed to
working in partnership with our tenants to deliver
positive environmental and social outcomes. This
starts with the due diligence on new investment
and development opportunities to ensure that
current and potential environment performance
forms a key part of our approval process. We
work collaboratively with tenants to deliver
improvements in existing buildings through asset
management projects, for example through the
installation of LED lighting. As well as reducing
the carbon emissions of the building this also
helps to lower running costs for our tenants. We
also consider the long-term social value of our
investments by ensuring buildings are leased on
long-term sustainable rents to enable our tenants
to provide high-quality care at affordable levels
to meet the needs of residents, providing a vital
service at the heart of the community.
Our ESG policy
The Group’s ESG policy governs our environmental
and social conduct and the way we manage our
business. These three areas are captured by our
seven core principles of sustainability set out in
the policy, which are shown in the table below.
The ESG policy is available from the sustainability
section of our website: https://www.impactreit.
uk/about/sustainability/.
Our core principles of sustainability E S G
Conduct our business with integrity and in an open and ethical manner and
require the same standards from our stakeholder relationships.
Operate in an environmentally sustainable manner and minimise the
environmental impact of our operations including on climate change.
Climate resilience – protecting the business from the future effects
of climate change and anticipated low carbon transition policies.
Extend the economically useful lives of our buildings through monitoring
our tenants’ obligations and investing in refurbishment and reconfiguration.
Disseminate the Group’s policies to advisers, suppliers, occupiers and
our key stakeholders.
Comply with all legal and regulatory requirements and, where feasible,
exceed minimum compliance.
Promote diversity and inclusion throughout our activities.
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Our sustainability priorities for 2021
In our 2020 annual report, we set out the following priorities for 2021:
Priority Progress
Develop our sustainability strategy and plan We continue to develop our sustainability
strategy and the board has included this as an
agenda item at one of its quarterly meetings in
H1 2022. The Investment Manager has created
a sustainability working group chaired by its
Development Director, which will be supported
by both external experts and the non-executive
directors, as required. The working group will
provide structure and accountability for all the
ESG policies and initiatives that underline our
overall sustainability strategy, including TCFD,
procuring renewable energy, measuring social
impact and support for relevant charities.
Share EPC evaluations with tenants, understand
any work already done to improve them, engage
with tenants on further work to enhance EPC
ratings and update EPCs where beneficial
This work continues as part of our long-term
programme to ensure we have EPC ratings of B
across the portfolio by 2030. We regularly engage
with tenants on actions to improve EPC ratings
and ensure any major refurbishment incorporates
improvements to secure a minimum EPC B rating.
Install smart meters at all homes We continue to install smart meters where
practical and where there will be obvious benefits
from the improved data that results from having
a smart meter. This programme is linked to our
actions to enhance EPC ratings.
Investigate the potential for Group-wide utility
purchasing, including transferring tenants to a
green electricity supply
We have completed the necessary research into
utility purchasing and will engage with tenants
about switching suppliers, as their existing supply
contracts expire over time.
Establish work streams to prepare for TCFD
compliance
We have established these work streams and
expect to report early against the requirements
of TCFD in our 2022 annual report (see below).
SUSTAINABILITY
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SUSTAINABILITY
Managing our environmental impact
During the year, we have completed significant
work on our approach for upgrading and
decarbonising the assets in our portfolio. We
have undertaken a detailed analysis of the energy
efficiency of our portfolio on an asset by asset basis.
This enables us to agree strategies for improving
these where required in partnership with our
tenants. On all acquisitions and asset management
projects we commission a detailed carbon
efficiency report to identify specific measures
needed to reduce greenhouse gas emissions.
We are committed to decarbonising our assets;
we need to work in partnership with our tenants
to identify and make improvements to the homes.
This also benefits tenants, by reducing their energy
costs. One example of this work is at Fairview House
and Fairview Court, where we are going beyond the
minimum requirements to introduce upgrades to
the building that will achieve an EPC grade of A.
As noted above, we remain focused on our long-term
programme to enhance EPC ratings where necessary,
with the resulting energy efficiency improvements
contributing to our overall decarbonisation efforts.
From 1 April 2023, under the Minimum Energy
Efficiency Standards (“MEES”) a lease on a commercial
property in England and Wales cannot continue if
the EPC rating is below E. Tightening regulations
mean the minimum EPC requirement will increase
to grade B by 2030 and C by 2027.
The average rating across the portfolio is C and
we have identified measures on a home-by-home
basis that can improve the overall rating to B. As
discussed in the Investment Manager’s Q&A on
pages 8-9, we estimate the total cost of carrying
out this work is £5 million over the next eight
years.
When we acquire assets for the portfolio, we look
to ensure that they are either already at an EPC B
or that there is a clear plan to achieve that rating
with any additional capital requirement accounted
for in our investment decision.
All new developments will be required to deliver
a minimum EPC B and, where possible an EPC A.
The planned development in Norwich, for example,
will be built to high environment standards through
a highly insulated ‘fabric first’ approach and at least
10% of energy produced from on site renewable
sources from solar photo-voltaic cells on the roof.
Biodiversity through the soft landscaping design is
another key consideration with the aim of this being
an engaging and interactive feature for residents.
All our leases require out tenants to ensure the
■
“A” rating ■ “B” rating ■ “C” rating ■ “D” rating
29
54
5
12
< 2020
32
53
3
12
2021 >
Group’s EPCs – England and Wales (%)
58
16
11 11
< 2020
58
13
19
6
2021 >
3
■
“C” rating ■ “D” rating ■ “E” rating ■ “F” rating ■ “G” rating
Group’s EPCs – Scotland (%)
Note: The Scottish EPC ratings are split out here due to the difference in calculation basis. The Scottish system calculates a building’s emission rate and the
corresponding band is derived. In England and Wales the building’s emission rate is compared to the standard emission rate of a reference building and the
output gives us the applicable band. The Scottish EPCs do not take account of the type of property and its typical energy needs in determining its performance.
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home is compliant with legislation including on
environmental performance. Since October 2020
our new leases have been enhanced to increase
tenant reporting. These terms have been accepted
by all existing tenants entering into new leases
during 2021 and require tenants to provide us with
data such as their energy use, ensuring we can
monitor environmental performance and support
improvements. The new leases aim for 25% of
tenants’ obligated maintenance spend to be used
for environmental enhancements.
Task Force on Climate-Related Financial
Disclosures
During 2021, the Investment Manager set up
a TCFD working group, led by its Development
Director. This group has conducted training on
TCFD and undertaken a climate change risk
assessment, to understand how climate change
may influence the Group’s strategy. The next stage
is to conduct scenario analyses, for example to
consider the potential impact of different increases
in global temperatures and engage with the
board to review our business strategy and our risk
management processes.
As an investment company, the Group is not required
to report against the TCFD requirements until 2023.
However, our intention is to report on the TCFD
recommendations in our 2022 Annual Report.
Our social impact
Care homes are a vital form of social infrastructure
in the UK, playing a key role in the quality of later
life for nearly half a million people. Care homes
also create other forms of social value, including
employment.
The Group supports its tenants in the creation
of social value. Very little public sector capital is
being invested in social care assets, so the required
investment must come from the private sector.
We provide capital that enables tenants to invest
in the homes, improving the environment for both
residents and staff and helping to future-proof the
buildings. This in turn helps to give residents a sense of
security and stability. Through our asset management
initiatives, we also provide facilities for people with
particular care needs, such as dementia. Adding beds
to existing homes and developing new homes also
provides much-needed extra capacity in the system,
given the growing demand for care home places.
Many of the homes we own are in less affluent
parts of the country. Our tenants are often
important local employers, with a high proportion
of female staff. Investing in our buildings supports
demand from residents, which in turn protects the
jobs of the staff. Improvements can also make the
homes better and more efficient places to work,
helping to improve staff retention.
Committed to strong governance and
transparency
The Corporate governance report on pages 56-95
details our governance framework and the board’s
role in leading and overseeing the business.
An important part of our approach is our
commitment to transparency in our engagement
with stakeholders and in our reporting.
Information on our stakeholder engagement can
be found on pages 42-43 and 56.
We continue to publish a separate EPRA sustainability
report, which is available from our website. We retained
our EPRA sBPR Gold award on our 2020 submission.
Priorities for 2022
Our priorities for the coming year are to:
Publish our sustainability strategy;
Publish a social impact report;
Continue to implement EPC improvements; and
Develop a net zero carbon strategy.
SUSTAINABILITY
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CASE STUDY
A business with social value at its heart
As a long-term investor in the social care
sector, our business has social value at its heart.
Care homes are a key part of the UK’s social
infrastructure and the COVID-19 pandemic
demonstrated more than ever the need for
safe and secure care homes, both for individual
residents and to ease pressure on the healthcare
system as a whole, for example by providing a safe
environment for discharge from hospital.
We work closely with our tenants to support their
delivery of quality care to some of the UK’s most
vulnerable people, within both the state-funded
and self-pay sectors. In the state-funded sector,
residents may have less choice for their care needs,
so our investments in homes providing care for
these residents has particular social value.
Our investments make a difference to the lives
of residents and staff, both directly and indirectly.
For example, our investment in Kingdom Homes
in Scotland in 2021 enabled a seamless transition
from the original owners to the new operators,
Holmes Care. Having undertaken detailed due
diligence the new operator was able to take
control with immediate effect. The Group and
Holmes Care shared a strong vision to enhance the
operational performance of the homes and quality
of care for residents. This includes improvements
to the environment for residents and expansion
of care capacity in the local area.
We also create social value through asset
management, with improvements to homes that
enhance the resident experience and add new
facilities for specialist needs such as dementia.
At the same time, we improve energy efficiency,
benefit the wider healthcare system and boost the
local economy, by employing local contractors.
Some examples of our current projects can be
found in the case study on pages 24-25.
Social value in action – making a difference for residents and staff
Project: Loxley Hall
Capex invested: £0.5 million
Outcomes:
Improved garden space
Five additional bedrooms increasing
capacity in the local social care system
New day space for residents
Replacement laundry
Local contractor employed
“...the works have resulted in a huge
benefit to residents and provide them
with a light and airy space to enjoy
during the day and participate in
activities. Staff really value the improved
laundry which makes daily tasks easier
and more convenient. Overall, the
investment will have a really positive
impact for residents and staff.”
Emma Owens, Registered Manager
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Top Left: New link under
construction, linking Fairview
House and Fairview Court,
Bristol.
Top Centre: Resident’s
gardening club at Birchlands
Nursing Home, Haxby.
Top Right: New build care home
development in Hartlepool.
Bottom: Person-centred care
and support at Birchlands
Nursing Home, Haxby.
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Stakeholders
Our engagement activities
Stakeholder Stakeholder interests How we engage Stakeholder engagement in practice
Tenants
The Group has a steadily
growing tenant base,
comprising strong national
and local operators.
Working in long-term
partnership with our tenants
is central to our ability to
grow our business, while
managing risk.
Ability to support their
business plans through
acquisitions and asset
management
Our financial strength
Our knowledge and
understanding of their
operations
Our ability to share best
practices across our
tenant base
We engage through a variety of mechanisms, including site
visits and meetings. Our Investment Manager engages with
tenants on a weekly and monthly basis and in more depth each
quarter, when we receive reports from them setting out their
performance. We work with tenants to identify and implement
acquisition and asset management opportunities, and share
best practice where pandemic-related issues are highlighted.
See our business model for more information on pages 16-19.
The board looks to meet new tenants when they are appointed,
or within six months of appointment. During the year, the board
held calls with the majority of tenants, to hear their experience
of working with the Investment Manager and learn more about
their opportunities and challenges (see page 62).
One example of effective tenant engagement during 2021
was at Blackwell Vale, where the tenant was planning an
initial refurbishment with further improvements to follow.
We identified the opportunity for an enhanced extension,
instead of this piecemeal approach. The tenant saw the
benefit of this and we have worked with them to ensure
the design, EPC performance and funding are aligned with
our thinking. Completing the work as a single project will
also benefit residents, through reduced disruption and
an enhanced living environment. See the case study on
page 24 for more information.
Tenants’ residents
The quality of care our
tenants provide to their
residents is of prime
importance to us. It
is central to residents’
quality of life and directly
influences demand for our
tenants’ services, which in
turn affects their ability to
pay rent to us.
The quality of care
provided by tenants
The quality of their home,
including regular repairs
and maintenance
The security and stability
of their home
Our ability to use asset
management to make their
home a better place to live
and to support additional
needs such as dementia.
Our tenants are responsible for the relationship with residents
and we do not directly engage with them, except for residents
we may meet during site visits.
Our Investment Manager regularly monitors the CQC rating
for each home and the outcomes of inspections, and engages
with tenants where necessary on the findings. We also
pay close attention to tenants’ programmes of repairs and
maintenance, to ensure the homes remain good places to live.
Following a flood at Old Prebendal House, our Investment
Manager supported residents by helping secure space
at another tenant’s newly completed development. We
then worked with the tenant to repair the home and make
improvements, while looking to determine the reasons for
the flood and ensure enhanced measures are being put in
place to ensure this is less likely to happen again. This work
will complete in 2022.
Shareholders
To continue to grow
our business, we need
a well-informed and
supportive shareholder
base. We therefore look to
ensure regular and open
communications and high-
quality corporate reporting.
The security and growth
of our dividend
Our ability to source
accretive investments and
add value through asset
management
Developments in the care
home market
Our approach to
environmental, social and
governance issues
Our financial and
operational performance
The Investment Manager conducts a regular programme
of meetings with institutional investors, as well as opinion
formers such as analysts and the financial press. We also look
to provide regular and timely news flow. Other important
communication channels include our interim and annual
reports and the annual general meeting.
The Chairman and Senior Independent Director continued
to offer meetings to major shareholders during 2021.
Shareholders are also invited to speak to the Chairman and
other directors when the Company is raising funds through
share placings. The board is also kept up to date through
regular investor relations reports.
See relations with shareholders on pages 62-63 for more
information.
Our engagement has highlighted the importance of ESG to
our shareholders, helping to ensure that we keep it at the top
of our priority list. The Investment Manager has enhanced
its capability in the year to help deliver our ESG agenda,
including our sustainability strategy, preparedness for TCFD,
ensuring homes acquired in the year are at EPC B or can
reach that rating, and that we have an asset management
plan or a commitment from our tenants to deliver this.
Examples include the capital expenditure we agreed with
Electus, the plan to upgrade Blackwell Vale (see above) and
the sign-off of the work at Fairview House and Fairview
Court, which targets an EPC A. We are also assessing the
physical risk to our assets from climate changes, for example
through flooding.
Lenders
An appropriate amount
of gearing is important for
generating higher returns. We
therefore look to build strong
relationships with lenders,
who will provide the debt
facilities needed to support
our business growth.
The quality of the security
we provide for our loans
Our ability to meet our
interest payments
The strength and
diversification of our
income streams
The Investment Manager is responsible for engaging with our
lenders. It does this through quarterly compliance reporting.
Information about debt funding is provided as appropriate
to the board, as part of its regular papers ahead of board
meetings.
During 2021, we worked with HSBC and Clydesdale Bank
on the transition to SONIA, ensuring this was agreed
comfortably ahead of the deadline to avoid undue pressure
on us or the banks. We listened to Metro Bank’s desire to
reduce its facility with us and took the opportunity to cancel
£20 million of the facility during the year.
The Group also explored the market appetite for some
long-term fixed rate debt. Following significant interest, the
Group ran a competitive process and identified an attractive
partnership to provide a long-term private placement for
£75 million which was signed just before the year end.
The board has identified our key stakeholders as
our tenants, their residents, our shareholders and
our lenders. The ways we typically engage with our
key stakeholders is set out in the table opposite.
On pages 50-52 we describe how stakeholder
considerations affected our decisions as a board.
The Investment Manager is an integral point of
contact between the Group and our stakeholders.
The Investment Manager is one of our two main
service providers, along with the Administrator.
They and our other service providers are
fundamental to our operations and to ensuring
we meet the high standards of conduct that we
require. The Management Engagement Committee
(“MEC”) meets at least annually to review the
performance of the key service providers and the
board has regular interactions with the Investment
Manager and the Administrator. See pages 84-86
for more information on the MEC’s work.
The Group has a number of other stakeholders,
in addition to the key stakeholders discussed in
this section. These include the government and
regulators, who set and oversee the policies and
regulations that govern the care home sector.
We do not have direct relationships with the
government or regulators in this regard, as these
relationships are managed by our tenants as the
operators of the care homes.
Employees and directors
As an externally managed business, the Group has
no employees and therefore does not require any
employee-related policies or disclosures.
At the year end, the board comprised six non-
executive directors including the Chairman, of
which four were male and two were female. More
information on the directors can be found on
pages 68-69.
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Our engagement activities
Stakeholder Stakeholder interests How we engage Stakeholder engagement in practice
Tenants
The Group has a steadily
growing tenant base,
comprising strong national
and local operators.
Working in long-term
partnership with our tenants
is central to our ability to
grow our business, while
managing risk.
Ability to support their
business plans through
acquisitions and asset
management
Our financial strength
Our knowledge and
understanding of their
operations
Our ability to share best
practices across our
tenant base
We engage through a variety of mechanisms, including site
visits and meetings. Our Investment Manager engages with
tenants on a weekly and monthly basis and in more depth each
quarter, when we receive reports from them setting out their
performance. We work with tenants to identify and implement
acquisition and asset management opportunities, and share
best practice where pandemic-related issues are highlighted.
See our business model for more information on pages 16-19.
The board looks to meet new tenants when they are appointed,
or within six months of appointment. During the year, the board
held calls with the majority of tenants, to hear their experience
of working with the Investment Manager and learn more about
their opportunities and challenges (see page 62).
One example of effective tenant engagement during 2021
was at Blackwell Vale, where the tenant was planning an
initial refurbishment with further improvements to follow.
We identified the opportunity for an enhanced extension,
instead of this piecemeal approach. The tenant saw the
benefit of this and we have worked with them to ensure
the design, EPC performance and funding are aligned with
our thinking. Completing the work as a single project will
also benefit residents, through reduced disruption and
an enhanced living environment. See the case study on
page 24 for more information.
Tenants’ residents
The quality of care our
tenants provide to their
residents is of prime
importance to us. It
is central to residents’
quality of life and directly
influences demand for our
tenants’ services, which in
turn affects their ability to
pay rent to us.
The quality of care
provided by tenants
The quality of their home,
including regular repairs
and maintenance
The security and stability
of their home
Our ability to use asset
management to make their
home a better place to live
and to support additional
needs such as dementia.
Our tenants are responsible for the relationship with residents
and we do not directly engage with them, except for residents
we may meet during site visits.
Our Investment Manager regularly monitors the CQC rating
for each home and the outcomes of inspections, and engages
with tenants where necessary on the findings. We also
pay close attention to tenants’ programmes of repairs and
maintenance, to ensure the homes remain good places to live.
Following a flood at Old Prebendal House, our Investment
Manager supported residents by helping secure space
at another tenant’s newly completed development. We
then worked with the tenant to repair the home and make
improvements, while looking to determine the reasons for
the flood and ensure enhanced measures are being put in
place to ensure this is less likely to happen again. This work
will complete in 2022.
Shareholders
To continue to grow
our business, we need
a well-informed and
supportive shareholder
base. We therefore look to
ensure regular and open
communications and high-
quality corporate reporting.
The security and growth
of our dividend
Our ability to source
accretive investments and
add value through asset
management
Developments in the care
home market
Our approach to
environmental, social and
governance issues
Our financial and
operational performance
The Investment Manager conducts a regular programme
of meetings with institutional investors, as well as opinion
formers such as analysts and the financial press. We also look
to provide regular and timely news flow. Other important
communication channels include our interim and annual
reports and the annual general meeting.
The Chairman and Senior Independent Director continued
to offer meetings to major shareholders during 2021.
Shareholders are also invited to speak to the Chairman and
other directors when the Company is raising funds through
share placings. The board is also kept up to date through
regular investor relations reports.
See relations with shareholders on pages 62-63 for more
information.
Our engagement has highlighted the importance of ESG to
our shareholders, helping to ensure that we keep it at the top
of our priority list. The Investment Manager has enhanced
its capability in the year to help deliver our ESG agenda,
including our sustainability strategy, preparedness for TCFD,
ensuring homes acquired in the year are at EPC B or can
reach that rating, and that we have an asset management
plan or a commitment from our tenants to deliver this.
Examples include the capital expenditure we agreed with
Electus, the plan to upgrade Blackwell Vale (see above) and
the sign-off of the work at Fairview House and Fairview
Court, which targets an EPC A. We are also assessing the
physical risk to our assets from climate changes, for example
through flooding.
Lenders
An appropriate amount
of gearing is important for
generating higher returns. We
therefore look to build strong
relationships with lenders,
who will provide the debt
facilities needed to support
our business growth.
The quality of the security
we provide for our loans
Our ability to meet our
interest payments
The strength and
diversification of our
income streams
The Investment Manager is responsible for engaging with our
lenders. It does this through quarterly compliance reporting.
Information about debt funding is provided as appropriate
to the board, as part of its regular papers ahead of board
meetings.
During 2021, we worked with HSBC and Clydesdale Bank
on the transition to SONIA, ensuring this was agreed
comfortably ahead of the deadline to avoid undue pressure
on us or the banks. We listened to Metro Bank’s desire to
reduce its facility with us and took the opportunity to cancel
£20 million of the facility during the year.
The Group also explored the market appetite for some
long-term fixed rate debt. Following significant interest, the
Group ran a competitive process and identified an attractive
partnership to provide a long-term private placement for
£75 million which was signed just before the year end.
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IMPACT
PROBABILITY
Rare Low Moderate Major
Rare Low Medium High
Principal risk
Movement from last year
2
1
5
8
3
7
0
9
4
6
Principal risks and uncertainties
Our risk assessment
The table below shows the Group’s post-mitigation principal
risks and uncertainties. Information on our risk management
framework can be found on pages 74-78.
1. Changes to government social care policy
2. Infectious diseases
3. General economic conditions
4. Weakening care market
5. Default of one or more tenants
6. Underinvestment in care homes
7. Environmental regulation and impact of climate change
8. Ability to meet our debt financing obligations
9. Reliance on the Investment Manager
Political
1. Changes to government social care policy
Probability: Medium Change in the year:
Impact: Moderate
Care for older people is at the heart of our business and a
key focus for government, ensuring it delivers the public’s
demand for high-quality affordable care for all. As a result, care
for the elderly is subject to changes in government legislation
and funding, including the provision of grant funding during
the height of the pandemic, which is now reducing and the
requirement for all care workers to be vaccinated, which has
subsequently been reversed.
The government published a White Paper in December 2021
that set out measures of how additional funding will be used
to improve care, which should have a positive influence on the
sector. This heightened focus is likely to result in further changes
and refinements with corresponding risk and opportunity.
£3.6 billion of the additional funding was to be used to
enable local authorities to pay more for care; £1.7 billion of
the additional funding from the levy was to be used for wider
system reform, including £500 million for training the care
workforce; and at least £300 million allocated to support the
range of supported living options available. The government
also put in place a cap of £86,000 on the maximum amount
anyone will have to pay for personal care. How these will be
implemented in practice is not yet clear.
Mitigation
The Investment Manager closely monitors developments
around funding and legislation for adult social care and
engages with representative organisations and care home
operators to ensure it is fully informed on proposals and their
likely effect.
Different policies will apply in England, Wales, Scotland and
Northern Ireland, enabling us to focus future growth in the
countries with favourable regulatory regimes, and we would
seek to work with other landlords and operators to campaign
against any unfavourable legislation.
Opportunity
Increased focus by the government on elderly care may
provide increased growth opportunities.
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PRINCIPAL RISKS AND UNCERTAINTIES
Market conditions
2. Infectious diseases
Probability: High Change in the year:
Impact: Moderate
Significant outbreaks of infectious diseases, in particular
pandemics such as COVID-19, can have long-lasting and far-
reaching effects across all businesses. Care for older people
is a particular area of heightened concern.
The risks of an outbreak are: reduced occupancy at care
homes and the lack of availability of key workers at the care
homes as a result of infection or a requirement to self-isolate.
Should a pandemic take hold and not be capable of being
contained, it could compound and enhance a number of principal
risks, including general economic conditions, default of one or
more tenants and the ability to meet our financing obligations.
Restoring occupancy to normal levels could take time to
achieve, with increased availability of beds across the sector
and increased price competition, adding to the long-term
challenge of financial stability for tenants.
The effects of COVID-19 have reduced over the past 12 months
with increased vaccinations and immunity amongst residents
and their carers; however, the requirements to close care homes
to new admissions when positive cases are identified has
limited the ability of operators to increase occupancy.
There remains a risk of further variants that could result in
increased restrictions and health concerns for the residents
and carers in our care homes.
Mitigation
The healthcare sector, including care home operators and
staff, are experienced in preparing for and implementing
procedures to deal with infections.
Grant funding from central government and local authorities
during the COVID-19 pandemic helped support tenants deal
with the infection control measures, staff sick pay and the
immediate effects of a potential reduction in occupancy.
Tenants can also explore all options to reduce the impact of
staff shortages, including from other sectors and the overseas
recruitment of nurses and senior carers.
Ensuring our tenants maintain strong rent cover enables them
to better react to any immediate and unforeseen changes.
3. General economic conditions
Probability: High Change in the year:
Impact: Moderate
The economy is in a period of high inflation as a result of
several factors including staffing shortages, supply chain
issues and gas and electricity price rises. In addition, the
government is committed to increasing National Insurance
contributions in April 2022 to fund its commitments to the
NHS and adult social care.
These increases in costs are placing pressures on all parts of the
economy including care homes. The risks to general economic
conditions are expected to heighten with the added turmoil of
war in Ukraine.
These risks could result in falling fees for our underlying
tenants alongside potential increased costs. Weakening
financial performance of our tenants could result in a decline
in real estate valuations and lower market rents including
weaker tenancy terms. It may also give rise to a greater risk
of tenant default or covenant breaches.
Mitigation
Our homes are let on leases of at least 20 years, with annual
rental increases linked to the Retail Price Index. We regularly
assess and monitor the financial robustness of our tenants. The
majority of our homes were also acquired with a proven track
record and established trade, enabling us to set an affordable
rent that is cash flow positive for our tenants from acquisition.
Demand for care home places is relatively uncorrelated to
economic conditions. Local authority funding may be put under
greater pressure in an economic downturn but the underlying
need to provide and fund elderly care remains unchanged and
is supported in the Adult Social Care Reform White Paper.
Our year end LTV was 22% and our investment and growth
strategy ensures Group leverage does not exceed 35%,
limiting our overall reliance on debt finance.
The Company’s strategy is to deliver growth through both
acquisition and asset management. If the investment market
is restricted, the Company can continue to progress asset
management opportunities, to continue to deliver growth.
Opportunity
The Group has a growth strategy with a view of the long-term
opportunity in healthcare property. In a downward trending
market it enables us to make acquisitions at more attractive
yields and in an upward trending market, to enhance value
and improve rent cover.
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PRINCIPAL RISKS AND UNCERTAINTIES
Market conditions
4. Weakening care market
Probability: Medium Change in the year:
Impact: Moderate
Several factors may affect the market for care for older people,
including:
adverse conditions in the healthcare sector;
local authority funding partners amending their payment
terms, affecting our tenants’ revenues;
increased regulatory responsibility and associated costs for
our tenants which is not offset by an increase in fees; and
competition or alternative forms of care provision.
These could all materially affect our tenants’ covenant strength
and their ability to pay rent, resulting in a reduction in the
value of the care home and a higher risk of default.
Mitigation
We work closely with our tenants to understand the
underlying performance of the individual homes, so we
identify any concerns early and can explore mitigating actions
such as additional investment, or discussing with our tenants
staffing levels and the public/private resident mix.
Our portfolio has a low average rent per bed providing a level
of protection against alternative healthcare delivery either via
competition or alternative care provision.
Opportunity
Our investment criteria seek to identify assets which can be
acquired at or below their replacement cost with strong rent
cover to ensure our tenants have resilient operating cash
flows. This provides us and our tenants the headroom to invest
in our assets and their services to ensure our tenants are the
providers of choice in a changing market.
Underperformance of assets
5. Default of one or more tenants
Probability: Medium Change in the year:
Impact: Moderate
The default of one or more tenants, or failing to act quickly and
decisively when confronted with a failing tenant, would affect
the value of our homes and both our ability to pay dividends to
our shareholders and to meet our financing obligations.
A default, or a risk of default, can arise due to rising costs, reduced
occupancy and changing fee rates. These can arise from a
variety of issues which can include but are not restricted to:
internal pressures such as poor cost control, poor manage-
ment or quality of care resulting in a home closure; or
external pressures such as increased competition,
inflationary pressures or infectious diseases
The effect of COVID-19 has resulted in restricted staff availability
and reduced occupancy across the care sector. The recovery
of occupancy to pre-pandemic levels is expected to take time,
which may place pressure on our tenants’ financial resilience.
Mitigation
Our tenants have shown themselves to be resilient in their
ability to operate in a challenging environment. Their rent
cover was set at a level to help them sustain fluctuations
in income and maintain their own business operations.
Government grant funding has further supported our tenants
to meet the increased cost of infection control and reduced
occupancy, although this is expected to end in the near term.
The tenants have controls in place to identify issues early and
resolve them alongside clear objectives to enhance the homes
and their rent cover.
Our investment policy includes growing our investments with
each tenant reducing the effects of a drop in occupancy at
an individual care home. It is also focused on diversifying our
tenant base to reduce the effect of a single tenant default
on portfolio valuation and underlying income. In the event
a tenant does default, our low levels of leverage and fully
covered dividend limit the effect on the performance of the
Group. In addition, we have the ability to retenant the home
with a new tenant or one of our existing tenants.
Opportunity
We have the opportunity to explore different service
provisions at our homes to ensure they are successful and
meeting the demands of the current market opportunities,
and the asset management capability to support this.
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PRINCIPAL RISKS AND UNCERTAINTIES
Underperformance of assets
6. Underinvestment in care homes
Probability: Medium Change in the year:
Impact Moderate
The attractiveness of our portfolio is based on the quality
of the operators, measured by their regulatory and financial
performance, and our properties’ ability to provide effective
space from which our tenants can operate. This does not
require our homes to be new but it does require them to be
well maintained and fit for purpose.
There is a heightened risk that repair and maintenance
programmes fall behind as a result of care homes limiting access
to third parties and contractors to reduce the risk of infection.
There is also a risk that value-add investment activities are not
progressed and more homes become non-core within our
portfolio categorisation, with corresponding implications to
value and long-term income generation.
Existing and proposed legislation on the energy performance
of buildings may also require further investment to meet the
energy performance guidelines.
Mitigation
All of our leases with tenants have full repair and maintenance
obligations, with the additional clarity of a minimum spend
per annum per bed (based on a three-year average spend),
which tenants are required to report against and we actively
monitor. In addition, all our leases require our tenants to meet
all legislation requirements to enable them to continue to
operate as a care home.
Failure to comply with the terms of the lease will result in
a default enabling us to replace the tenant in an extreme
circumstance.
As part of our acquisition due diligence, we are undertaking
further assessment of home improvements that can enhance
the quality of service and environmental sustainability of the
homes. Where appropriate we jointly commit with our tenants
to ensure appropriate works are undertaken within the first
12 to 18 months of the home’s operation under the lease.
The value-add opportunities we have identified are intended
to be accretive to both our tenants and us and reduced
occupancy may present opportunities to accelerate these plans.
Opportunity
We work very closely with our tenants to identify opportunities
to maintain and enhance the portfolio and where appropriate
agree to fund these improvements, in return for an increase in
rent. The benefit of operating a portfolio reduces our exposure
to changes in individual properties.
Underperformance of assets
7. Environmental regulation and impact
of climate change
Probability: Medium Change in the year:
Impact: Low
Tightening environmental regulations may increase the need
for investment or redevelopment of our portfolio and restrict
our tenants’ ability to provide care and earn revenue.
Failure to consider the effects of climate change could
accelerate the obsolescence of our care homes (both
physical and low carbon transition risks) with corresponding
implications to value and long-term income generation.
Mitigation
Our leases require that our tenants maintain our buildings in
line with regulatory requirements.
We have undertaken a review of our portfolio, analysing its
carbon footprint and current and potential EPC ratings to
ensure our investment strategy supports carbon reduction
and improved EPC ratings across our portfolio and
preparedness for future legislation. The Investment Manager
has estimated that the cost of ensuring all of our homes are
rated EPC B would be circa £5 million or approximately 1%
of the portfolio value.
As part of our acquisition due diligence, we also undertake
an environmental assessment of the homes to ensure it is
currently EPC compliant and we identify improvements that
can be made to the home and, if appropriate, commit to these
with our tenants from the outset. Our valuers also include
commentary around the risk of flooding for the asset within
their valuation report, which forms part of the building’s
environmental assessment.
In line with the Task Force on Climate-Related Financial
Disclosures (TCFD), we are working towards having a strategic
response to the longer-term effects of climate change on our
portfolio.
Opportunity
There is an opportunity for us to invest in our homes to
ensure they remain fit for purpose with the potential for this
investment to be value-enhancing.
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PRINCIPAL RISKS AND UNCERTAINTIES
Financing
8. Ability to meet our debt financing
obligations
Probability: Medium Change in the year:
Impact: Moderate
If we are unable to operate within our debt covenants, this
could lead to a default and our debt funding being recalled.
Interest on our variable rate debt facilities is payable based
on a margin over SONIA and bank base rates. Any adverse
movements in these rates could significantly impair our
profitability and ability to pay dividends to shareholders.
COVID-19 has resulted in reduced occupancy across the sector
including within our homes. The initial strong rent cover
within our tenant groups has resulted in all of our tenants
maintaining their rental payments and stable valuations of our
portfolio; however, the risk remains of an enduring pandemic
environment and rising inflationary environment placing
future risks on our financial performance.
Mitigation
We continually monitor our debt covenant compliance,
to ensure we have sufficient headroom and to give us early
warning of any issues that may arise. Our LTV is low (limited
to 35% on a Group-wide basis) and we selectively enter fixed-
rate loans and interest rate caps to mitigate the risk of interest
rate rises.
Furthermore, we invest in homes with long WAULTs, reducing
the volatility in our property values.
We have significant headroom on our interest and LTV
covenants. In addition, we have assets held outside of the
charged properties currently secured by the existing debt
which can be transferred into the security pool if breaches
are anticipated. We have introduced long-term fixed-rate
debt at attractive rates alongside our variable-rate revolving
credit facilities to further help mitigate the risk from rising
interest rates.
Opportunity
As we grow, we have the opportunity to implement more
attractive financial structures including long-term funding
and sustainability-linked loans that can enhance the financial
returns for our stakeholders and reduce the risks of default.
Corporate risk
9. Reliance on the Investment Manager
Probability: Low Change in the year:
Impact: Major
As an externally managed company, we rely on the
Investment Manager’s services and reputation to execute our
strategy and support our day-to-day relationships.
As a result, our performance will depend to some extent on
the Investment Manager’s ability, the retention of its key staff
and its ability to deliver business continuity.
There is a risk of potential conflicts with the Investment
Manager and its initial tenant for the Seed Portfolio.
Mitigation
We have an Investment Management Agreement with the
Investment Manager, which sets out the basis on which the
Investment Manager provides services to us, the restrictions
it must operate within and certain additional rights we have,
such as a right of pre-emption for investment opportunities.
The Agreement may be terminated on 12 months’ notice.
The Management Engagement Committee’s role and
responsibilities include reviewing the Investment Manager’s
performance. The board as a whole remains actively engaged
with the Investment Manager to ensure a positive and
collaborative working relationship.
The board has put in a number of controls and procedures
to mitigate the risk of conflicts. For example, all investment
decisions with related parties require board approval.
Opportunity
The Company has secured an experienced team that is
delivering on the investment objectives for our shareholders.
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PRINCIPAL RISKS AND UNCERTAINTIES
Other risks that we monitor closely
Adverse change in investment opportunities
A change in the market conditions and availability
of investments to generate acceptable returns.
Taxation risk
We are a UK REIT and have a tax-efficient corporate structure.
Any change to our tax status or in UK tax legislation could
affect our ability to achieve our investment objectives and our
ability to provide favourable returns to shareholders.
Cyber security
Inappropriate access to customer or Company data may lead
to loss of sensitive information and result in a material adverse
effect on the Company’s financial condition, reputation and
investor confidence.
Conflicts of interest
Risk that a transaction with a related party may not be at
arm’s length. We maintain independence of the board and
management to scrutinise any conflicts and a conflicts of
interest policy is in place to help manage potential conflicts.
Financial management
Budgets and plans may be inaccurate, based on unrealistic
assumptions or inappropriately applied, leading to adverse
material financial conditions, performance, results and
investor concerns.
Development activity
Development contracts have inherent risks in relation to cost
and quality management that can result in cost overruns
and delays. The pandemic and subsequent high inflationary
environment have produced a challenge to developments
due to a slow down in construction activity and rising costs; we
continue to monitor this risk as the situation evolves.
Tenant performance
In addition to the financial performance of our tenants, we
monitor our tenants’ overall operational performance including
their regulatory quality of care performance, and reputational
issues, that could affect the quality of care or the perception
of the quality of care. We regularly engage with our tenants
to understand any key issues within their operations and their
mitigating activity and where possible contribute to solutions
where we or our other tenants have identified solutions.
The Company has a robust risk management framework in
place to monitor and control the above risks.
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Section 172(1) statement
The directors have had regard for the matters
set out in section 172(1)(a)-(f ) of the Companies
Act 2006 when performing their duty under
section 172. They consider that they have acted
in good faith in the way that would be most likely
to promote the success of the Company for the
benefit of its members as a whole, while also
considering the broad range of stakeholders who
interact with and are impacted by our business,
especially with regard to major decisions.
Taking account of our stakeholder views
Information on our stakeholder engagement,
including how the board keeps itself informed
about stakeholder views and how we take their
views into account in decision making, can be
found on pages 42-43 and 56.
Key board decisions
The board’s principal decisions each year
typically include approving acquisitions, capital
expenditure, capital raises (equity and debt)
and dividend payments. Specific examples of
key decisions in 2021 included approving: the
April 2021 equity raise, the new debt facility
with NatWest, the long-term fixed-rate debt
financing, the acquisition and forward funding
of a new development with Carlton Hall, and the
investment in 12 care homes by way of a loan.
Case studies giving more detail of two of these
decisions are set out below.
Investment in a portfolio of 12 care homes
by way of a loan
Background
The board was required to consider a new
investment structure in terms of its alignment with
the Group’s investment policy, the security in place
against the lending and the requirement for the
Group to remain REIT compliant. More information
on the transaction can be found on page 27.
Stakeholders considered
The investment rationale considered stakeholders,
including the care home residents, the tenant,
the vendor, lenders and shareholders. Among the
principal considerations were ensuring that the
residents continued to receive an appropriate
quality of care and that the transaction delivered
suitable financial returns for shareholders, while
managing risk.
Conclusion
The board considered that residents and the
vendor would benefit from the structure of
the transaction enabling a rapid and seamless
transition to the new operator, Holmes Care Group,
and that Holmes and the Group’s shareholders
would benefit from the growth delivered by the
transaction. Although the investment would
not be able to be placed as security against any
lending the Group wished to secure, this would
change if the option to acquire the freehold
interests was exercised. The returns were accretive
to shareholders irrespective of the ability to secure
financing. The long-term impact of the decision
would be beneficial for the Group, with 30-year
leases on the assets pre-agreed with Holmes.
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Agreement of long-term fixed-rate debt
financing
Background
The board was asked to support a new long-term
fixed-rate debt financing for the Group. While the
new long-term debt was secured on a ring-fenced
portfolio, it also required a parent guarantee in the
event of a default.
Stakeholders considered
The strategic decision to secure long-term
financing took into consideration shareholders and
lenders as the primary stakeholders affected, but
also the tenants and the tenants’ residents of the
portfolio offered as security.
Conclusion
The board concluded that the long-term debt
was attractive to shareholders, providing secure
debt at a fixed interest rate that was accretive
to shareholder returns, as well as increasing the
average term of the Group’s facilities. The board
also concluded that the portfolio being provided
as security was attractive to the lender and
would offer the security required. The board also
considered the effects of the parent guarantee and
how it would influence its decision making in a
downside scenario, and concluded that the effects
were manageable and that the facility remained
attractive to shareholders without affecting other
lenders. The board was therefore supportive of the
new financing arrangement.
SECTION 1721 STATEMENT
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Matter Response
a) The likely
consequence of
any decision in
the long term.
The nature of the Group’s business means that the directors must consider the long-term
impact of their decisions, given that the Group expects its relationships with tenants to last for
a minimum of 20 years.
During the year, the board considered and approved the issuance of senior loan notes with
a weighted average term of 14 years, the acquisition of 16 care homes on leases of up to 30 years
and the pre-let forward funding of a further home, on a 35-year lease.
b) The interests of the
company’s employees.
As an externally managed property investment company, we do not have any employees, so this
matter is not applicable.
c) The need to foster
the company’s
business relationships
with suppliers,
customers and others.
The Group’s customers are its tenants. Developing long-term relationships with tenants is central
to our business model (see pages 16-17). During the year, all the board members took part in
calls with the majority of the Group’s tenants, to ascertain their views on a range of issues. See
page 62 for more information. The board also reviews reports of tenant performance at each of its
scheduled meetings.
Our primary suppliers are our service providers, principally the Investment Manager and
Administrator. The board engages regularly with both, including at its regular board meetings.
Information on our service provider relationships can be found in the Management Engagement
Committee report on pages 84-86.
d) The impact of the
company’s operations
on the community and
environment.
As our tenants operate our care homes, they have responsibility for relationships with communities
surrounding the homes and for the environmental impact of operating them. However, we work
closely with our tenants to identify ways to improve the sustainability performance of our assets,
as described on pages 36-41. The board has a strong focus on ESG matters and the strategy day
in November 2021 included a session dedicated to ESG. The board will continue to work with the
Investment Manager on developing the Group’s sustainability strategy in 2022.
e) The desirability
of the company
maintaining a
reputation for high
standards of business
conduct.
The directors are aware that potential tenants will only sign leases of 20 years or more with
landlords they can trust and want to work in partnership with over the long term. The Group
therefore relies on a reputation for high standards of business conduct. This is reflected in one
of our core values, which is to always act openly and transparently with all of our stakeholders,
as well as in our ESG policy (see page 36).
The directors continue to increase their direct engagement with stakeholders, such as the tenant
call noted above, contributing to open and transparent relationships. High standards of conduct
require a robust policy framework and we continue to develop our policies as the business
matures. During 2021, the board approved a new Counterparty Credit Risk policy.
f) The need to act fairly
between members of
the company.
Our largest shareholder, Quilter Investors, is represented on the board by Paul Craig. Paul brings
an institutional investor’s viewpoint to board discussions, which helps the board to make effective
decisions. In addition, the Chairman and Senior Independent Director seek to engage with large
shareholders directly and are available to smaller investors upon request to ensure all interests are
understood. The large majority of the directors are independent and the board committees only
comprise the independent directors. This ensures that all decisions taken reflect the interests of
shareholders as a whole.
The board recognises the importance of pre-emption rights and therefore ensured that
shares issued during the February 2022 equity raise were initially offered to existing qualifying
shareholders.
SECTION 1721 STATEMENT
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Going concern and viability
Going concern and viability
The board regularly monitors both the Company’s
and the Group’s ability to continue as a going
concern and its longer-term viability. The Going
concern assessment covers the 12-month
period to 31 March 2023. Summaries of the
Group’s liquidity position, actual and prospective
compliance with loan covenants and the
financial strength of its tenants are considered
at the scheduled quarterly board meetings and
more often as required. As part of the board’s
assessment the modelling includes (but is
not limited to), the identification of risks and
uncertainties facing the Group, including;
The risk of default of the Group’s tenants taking
into consideration current rent cover, the
movement in tenant’s average weekly fees from
residents and the level of grant funding being
received. We review the occupancy performance
of each tenant over the preceding 12 months and
then run sensitivities by tenant including a drop
in occupancy of 5%, while average weekly fees
remain unchanged, increase in staff costs by 5%
and other costs by 10%. We consider the effect
these sensitivities have on rent cover and appraise
the risk of default of each tenant as low, medium,
or high.
The risk of a fall in investment property values. This
could be driven by a number of risks, as outlined
in the Principal risks and uncertainties section.
We review the resulting impact on the Group’s debt
covenants and the remedial action that could be
taken, including the extent of the resources available
to the Company to address any covenant breaches.
The Group’s going concern model includes
a variety of stress tests including reduction in
investment property valuations, restriction of
income from tenants (i.e. non payment of rent),
the inclusion of increases in underlying costs and
increases in interest rates. Reverse stress tests
have been prepared to evaluate how much
valuations or net income would need to fall to
trigger defaults in each of the security pools.
Mitigating actions including stopping dividend
payments, corresponding reductions in costs
as valuations fall and the use of unsecured
properties to prevent covenant breaches were also
considered. The sensitivity scenarios reviewed by
the Audit Committee and the board include:
non-payment of rent for all medium and high-
risk tenants for six months, reducing dividend
payments by 25% for the same six-month period,
increasing SONIA and bank base rates to 2% on
variable interest rate loans;
non-payment of rent from all existing tenants
for 12 months (excluding planned acquisitions),
stopping dividend payments for the same
12-month period, increasing SONIA and bank base
rates to 2% on variable interest rate loans and the
continued servicing of these debt facilities;
assessing the level of loss of rents or reduction in
valuation that could be sustained within a security
group before each covenant or default level is
triggered; and
assessing the loss of rents or reduction in
valuation that could be sustained before the
Group’s unsecured assets would be fully utilised in
application to cure rights within debt facilities.
The detailed scenario modelling is performed by
the Investment Manager and presented to the
Audit Committee for its review, challenge and
debate. The projections and scenarios considered
in connection with the approval of this financial
information had particular regard to ongoing
stresses arising from the COVID-19 pandemic and
rising inflation, and in particular the impact on
the trading and financial strength of the Group’s
tenants as highlighted in the consideration of
uncertainties above.
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Values of secured properties would need to fall by
over 25% before loan to value covenant breaches
would arise with all facilities being fully drawn.
Rental income would need to fall by over 40%
before interest cover covenant breaches would
arise, with all facilities being fully drawn.
Although falling outside the 12-month period
of assessment for going concern, the board also
considered the expiry of the £30 million Metro
facility in June 2023. The Group is exploring several
options to satisfy this termination event, including
the scenario used in the modelling, which is to
utilise the proceeds of the private placement, of
£38 million which will be received in June 2022.
Going concern statement
The board has weighed up the risks to going
concern set out above, together with the ability
of the company to take mitigating action in
response to those risks. The board considers
that the combination of their conclusions as to
the tenants’ prospects, the headroom available
on debt covenants and the liquidity available
to the Group to deal with reasonable stressed
scenarios on income and valuation outlook leads
to a conclusion that the Company and the Group
are each able to continue in business for the
foreseeable future. The board therefore consider
it appropriate to adopt the going concern basis in
the preparation of this financial information.
Viability statement
The period over which the directors consider it
feasible and appropriate to report on the Group’s
viability is the five-year period to 31 March 2027.
This period has been selected because it is the
period that is used for the Group’s medium-term
business plans. The Board considers the resilience
of projected liquidity, as well as compliance with
debt covenants, under a range of inflation and
property valuation assumptions. These scenarios
include stress tests and reverse stress tests
consistent with those described in the preceding
paragraphs and include a consideration of
mitigating actions that may be taken to avert or
mitigate potential threats to viability.
Given the longer period of assessment covered
by the viability review, further analysis is
conducted to test the reasonableness of the key
assumptions made and to examine potential
alternative outcomes and mitigating actions
relating to those risks and assumptions. These
include:
Debt refinancing during the forecast period,
including the £30 million Metro facility, the
status of which is explained within the going
concern review. In relation to additional refinancing
obligations within the period of the viability
assessment, the directors have reasonable
confidence that additional replacement debt
facilities will be put in place. Furthermore, the Group
has the ability to make disposals of investment
properties to meet its future financing requirements,
should this be necessary.
The default of one of the Group’s larger tenants
with dividends reduced by 50% as a mitigating
action.
Having considered the forecast cash flows and
the impact of the sensitivities in combination,
the directors confirm that they have a reasonable
expectation that the Group will be able to
continue in operation and meet its liabilities as
they fall due over the five-year period ending
31 March 2027.
GOING CONCERN AND VIABILITY
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Mavern House Nursing Home,
Corsham Road, Shaw, Wiltshire
55
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
Governance
56 Corporate governance statement
– Chairman’s introduction
57 Compliance statement
58 Application of the AIC Code Principles
60 Other key governance statements
61 Board leadership and company purpose
64 Division of responsibilities
66 Meetings and attendance
68 Composition, succession and evaluation
68 Board of directors
70 Nominations Committee report
70 Committee membership
71 Board evaluation
72 Succession planning
73 Recruitment of new
non-executive director
73 Board composition and diversity
74 Audit, risk and internal control
79 Audit Committee report
79 Key activities of the committee during
the year
79 Committee membership
79 Relevant experience and competence
81 Financial reporting and significant
judgements
82 Review of risk framework and
internal control
82 Internal audit
82 External auditor
83 Non-audit services
84 Management Engagement Committee
report
84 The committee and its role
84 Investment Manager
85 Administrator and Company Secretary
87 Directors’ remuneration report
87 Annual statement
87 Directors’ remuneration policy
88 Annual report on remuneration
89 Committee membership
91 Directors’ report
94 Statements of responsibilities
96 Independent Auditor’s report
Board approval of the
Strategic report
The Strategic report was approved on behalf
of the board by
Rupert Barclay Chairman
28 March 2022
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Rupert Barclay,
Chairman
56
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
After a highly unusual year in 2020, during which
the board oversaw the Company’s response
to the initial stages of the pandemic, 2021 has
seen a return to more typical activities. While
we have continued to pay close attention to our
tenants and the impact of the pandemic on their
businesses, including occupancy levels and rent
cover, we have also been able to spend more
time considering the Group’s strategy and growth
opportunities.
We have stepped up our stakeholder engagement,
including the board holding meetings with
most of the Group’s tenants. They reported very
positive views of the Investment Manager as a
landlord, along with high net promoter scores.
The Senior Independent Director and I also
once again offered meetings to the Company’s
largest institutional shareholders. We had a
number of constructive conversations, with
shareholders being particularly interested in
engaging with the board on ESG matters. More
generally, the directors remain highly aware of our
responsibilities to the Company’s stakeholders,
and we continue to enhance our approach to
managing these commitments. More information
on our engagement work can be found on page 62
of this Corporate governance statement and
pages 42-43 of the Strategic report. Environmental,
social and governance (ESG) issues have also been
firmly in the spotlight and the board continues to
work with the Investment Manager on developing
our ESG strategy, following the introduction of an
ESG policy in the previous year.
Purpose and culture
One of the board’s primary responsibilities is to
formulate the Company’s purpose and ensure
the strategy, objectives, risk appetite and culture
align to it. We reviewed the Company’s purpose at
our meeting in November 2021 and concluded it
remained appropriate.
We also considered the Company’s values
and culture. Our values are set out on the
inside front cover and we and the Investment
Manager continue to integrate them into the
way the Company operates. Our culture is
based on diversity, openness, transparency and
supportiveness, which is also consistent with
the culture within the Investment Manager.
This consistency is vital, given the Investment
Manager’s responsibility for the Group’s operations.
Composition, succession and evaluation
We were pleased to welcome Chris Santer as an
independent non-executive director in May 2021.
Chris has significant experience in the real estate
sector, including healthcare facilities and, crucially,
brings experience of direct property investment,
a capability we were keen to add to the board.
Following Chris’s appointment, we are satisfied
that the size of the board and the mix of skills
and experience is appropriate for this stage of the
Company’s development.
The appointment also assists with our ongoing
work on succession planning. We recognise that
four of the six directors were appointed around the
time of the IPO and our succession planning aims
to add greater stagger to appointment dates, to
avoid a number of directors retiring from the board
at the same time. The board is also aware of the
importance of diversity and the potential for targets
for gender and ethnicity in the near future, and this
also forms part of our succession planning.
During 2021, we ran an internal evaluation
of the board and its committees, following
the framework created by the independent
consultants who carried out our externally
facilitated evaluation in 2020. This showed that the
board and the committees continue to function
well, in addition to highlighting a number of areas
for development. More information can be found
on pages 71-72.
Corporate governance statement
– Chairman’s introduction
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Governance
We believe that good governance provides a
framework for enabling performance, rather
than being an exercise in achieving compliance.
We have continued to ensure that our policies,
procedures and internal controls are appropriate
and effective, and that our key service providers
also have effective control systems in place.
Risk management also remains high on our agenda.
Achieving the Group’s growth plans requires us to
accept a controlled level of risk, so we introduced
a new risk appetite framework at the start of the
year and have kept this under review to ensure it
continues to align with the business strategy. The
Investment Manager’s recruitment of senior people
with deep experience in areas such as development
and asset management are also important in
helping to mitigate risk, as we look to create more
value through these activities.
Compliance
The Company is a member of the Association of
Investment Companies (AIC). We have continued
to apply the Principles and comply with the
provisions of the AIC Corporate Governance Code
(the AIC Code).
The AIC Code addresses the Principles and
Provisions of the UK Corporate Governance Code
(the UK Code) that are relevant to investment
companies, as well as setting out additional
Provisions of specific relevance to us. We
therefore believe that reporting under the AIC
Code provides more relevant information to
shareholders than reporting under the UK Code.
The AIC Code, which has been endorsed by the
Financial Reporting Council, can be obtained
from the AIC website: https://www.theaic.co.uk/
aic-code-of-corporate-governance. It includes
an explanation of how the AIC Code adapts the
UK Code’s Principles and Provisions to make them
relevant to investment companies.
Looking forward
The board remains highly focused on the Group’s
strategy and growth prospects, and the role of
effective governance in delivering our objectives.
We believe the Group has a robust framework in
place, which we will continue to review and adapt
to ensure it remains fit for purpose as the business
grows.
Rupert Barclay Chairman
28 March 2022
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Application of AIC Code Principles
The table below explains how we have applied the main principles of the AIC Code.
Board leadership and Company purpose
Principle A – A successful company is led by an effective
board, whose role is to promote the long-term sustainable
success of the company, generating value for shareholders and
contributing to wider society.
Strategic report, pages 1-55
Chairman’s introduction, pages 56-57
Board leadership and Company purpose, pages 61-63
Principle B – The board should establish the company’s
purpose, values and strategy, and satisfy itself that these and its
culture are aligned. All directors must act with integrity, lead by
example and promote the desired culture.
Strategic report, pages 1-55
Chairman’s introduction, pages 56-57
Board leadership and Company purpose, pages 61-63
Division of responsibilities, pages 64-65
Principle C – The board should ensure that the necessary
resources are in place for the company to meet its objectives
and measure performance against them. The board should
also establish a framework of prudent and effective controls,
which enable risk to be assessed and managed.
Sustainability and Stakeholders, pages 36-41 and 42-43
Principal risks and uncertainties, pages 44-49
Section 172(1) statement, pages 50-52
Audit, risk and internal control, pages 74-78
Audit Committee report, pages 79-83
Principle D – In order for the company to meet its
responsibilities to shareholders and stakeholders, the board
should ensure effective engagement with, and encourage
participation from, these parties.
Stakeholders, pages 42-43
Section 172(1) statement, pages 50-52
Board leadership and Company purpose, pages 61-63
Division of responsibilities
Principle F – The chair leads the board and is responsible
for its overall effectiveness in directing the company. They
should demonstrate objective judgement throughout their
tenure and promote a culture of openness and debate. In
addition, the chair facilitates constructive board relations
and the effective contribution of all non-executive directors,
and ensures that directors receive accurate, timely and clear
information.
Chairman’s introduction, pages 56-57
Board leadership and Company purpose, pages 61-63
Division of responsibilities, pages 64-65
Principle G – The board should consist of an appropriate
combination of directors (and, in particular, independent non-
executive directors) such that no one individual or small group
of individuals dominates the board’s decision making.
Division of responsibilities, pages 64-65
Board of directors, pages 68-69
Nomination Committee report, pages 70-73
Principle H – Non-executive directors should have sufficient
time to meet their board responsibilities. They should provide
constructive challenge, strategic guidance, offer specialist
advice and hold third-party service providers to account.
Board leadership and Company purpose, page 61-63
Division of responsibilities, pages 64-65
Nomination Committee report, pages 70-73
Audit Committee report, pages 79-83
Management Engagement Committee report, pages 84-86
Principle I – The board, supported by the Company Secretary,
should ensure that it has the policies, processes, information,
time and resources it needs in order to function effectively
and efficiently.
Division of responsibilities, pages 64-65
Audit Committee report, pages 79-83
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Composition, succession and evaluation
Principle J – Appointments to the board should be subject to
a formal, rigorous and transparent procedure, and an effective
succession plan should be maintained. Both appointments and
succession plans should be based on merit and objective criteria
and, within this context, should promote diversity of gender,
social and ethnic backgrounds, cognitive and personal strengths.
Nomination Committee report, pages 70-73
Principle K – The board and its committees should
have a combination of skills, experience and knowledge.
Consideration should be given to the length of service of
the board as a whole and membership regularly refreshed.
Board of directors, pages 68-69
Principle L – Annual evaluation of the board should consider its
composition, diversity and how effectively members work together
to achieve objectives. Individual evaluation should demonstrate
whether each director continues to contribute effectively.
Nomination Committee report, pages 70-73
Audit, risk and internal control
Principle M – The board should establish formal and
transparent policies and procedures to ensure the
independence and effectiveness of external audit functions
and satisfy itself on the integrity of financial and narrative
statements.
Audit, risk and internal control, pages 74-78
Audit Committee report, pages 79-83
Notes 2 and 3 to the Financial statements, pages 108-113
Principle N – The board should present a fair, balanced
and understandable assessment of the company’s position
and prospects.
Strategic report, pages 1-55
Fair, balanced and understandable, pages 81-82
Audit, risk and internal control, pages 74-78
Audit Committee report, pages 79-83
Independent Auditor’s report, pages 96-102
Financial statements, pages 104-142
Principle O – The board should establish procedures to
manage risk, oversee the internal control framework, and
determine the nature and extent of the principal risks the
company is willing to take in order to achieve its long-term
strategic objectives.
Principal risks and uncertainties, pages 44-49
Viability statement, page 54
Robust assessment of principal risk, page 60
Review of risk management and internal control, pages 81-82
Audit, risk and internal control, pages 74-78
Audit Committee report, pages 79-83
Management Engagement Committee report, pages 84-86
Note 18 to the Financial statements, pages 126-128
Remuneration
Principle P – Remuneration policies and practices should
be designed to support strategy and promote long-term
sustainable success.
Strategic report, pages 1-55
Board leadership and Company purpose, pages 61-63
Directors’ remuneration report, pages 87-90
Principle Q – A formal and transparent procedure for developing
policy remuneration should be established. No director should be
involved in deciding their own remuneration outcome.
Directors’ remuneration report, pages 87-90
Remuneration Committee, pages 89-90
Principle R – Directors should exercise independent
judgement and discretion when authorising remuneration
outcomes, taking account of company and individual
performance, and wider circumstances.
Directors’ remuneration report, pages 87-90
Remuneration Committee, page 89-90
APPLICATION OF AIC CODE PRINCIPLES
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Other key governance statements
The directors confirm that:
Going concern
The Going concern statement is made on page 54.
Viability
The Viability statement is provided on page 54.
Further details of the board’s assessment of the
Company’s viability are set out in Audit, risk and
internal control on pages 74-78. The principal risks
and uncertainties are set out on pages 44-49.
Robust assessment of principal risks
The board has undertaken a robust assessment of
the Group’s emerging and principal risks, including
those that would threaten its business model,
future performance, solvency or liquidity. This
annual report describes the procedures to identify
these risks. See Audit, risk and internal control on
pages 74-78 and Principal risks and uncertainties
on pages 44-49 for further information on how
these risks are identified and managed.
Review of risk management and
internal control
A continuing process for identifying, evaluating
and managing the risks the Company faces has
been established and the Audit Committee has
reviewed the effectiveness of the internal control
systems. Further details are set out in the Audit,
risk and internal control section on pages 74-78.
Continuing appointment of the
Investment Manager
The continuing appointment of the Impact Health
Partners LLP as the Investment Manager, on the
terms agreed, is in the interests of the shareholders
as a whole. Further details on the basis for this
conclusion, and the terms, are set out in the
Management Engagement Committee report on
pages 84-86.
Fair, balanced and understandable
The annual report and accounts taken as a whole
are fair, balanced and understandable and provide
the information necessary for shareholders to
assess the Company’s position, performance,
business model and strategy. See the Audit
Committee report on pages 79-83 for further
information on how this conclusion was reached.
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Board leadership and Company purpose
Board agenda
At its quarterly meetings, the board follows a
formal agenda. This agenda typically includes:
the Investment Manager’s report for the period,
including acquisitions, a review of the performance
of the investments, operator performance, risk, market
conditions, banking relationships and facilities, and
any plans to raise further equity or debt;
financial results against budget and cash flow
forecasts, including dividends declared and forecast;
reports and updates on investor communications;
the corporate governance and Secretary’s report,
a review of policies and procedures, a compliance
report and an update on legislative/regulatory
obligations as appropriate; and
recommendations and updates from the board
committees, as appropriate.
Specific matters considered by the board during
the year included:
approval of the quarterly net asset value and
dividend;
approval of the Company’s annual report,
interim results, trading updates, other regulatory
announcements, the key information document
and the Company factsheet;
approval of the acquisition of four care homes,
the forward-funded development of a home, the
investment in 12 care homes in Scotland and the
extension at Fairview House and Court;
approval of the April 2021 equity raise;
approval of the new debt facility with NatWest, the
new long-term institutional debt arrangements and
the transition to SONIA for the existing debt facilities;
approval of the dividend target for 2021;
approval of Chris Santer’s appointment as a non-
executive director;
discussion of operator performance, rent collection,
and repairs and maintenance;
discussion of progress with implementing the Group’s
ESG policy and preparations for TCFD reporting;
discussion of stakeholder engagement and
stakeholder interests;
approval of the board’s risk appetite;
approval of the Counterparty Credit Risk policy;
approval of the updated terms of reference for the
Management Engagement Committee; and
approval of the appointment of Jefferies
International as joint brokers.
Strategic oversight
The board’s primary responsibilities include
challenging and approving the strategy, ensuring
it aligns with the Company’s purpose and culture
(see page 56) and overseeing the strategy’s
implementation.
The board therefore identifies several strategic
topics at the start of each year, with one topic
covered in depth at each regular meeting.
The topics in 2021 included a review of post-
investment performance of a number of the
Group’s acquisitions, a review of the overall
portfolio quality, in consultation with the
Company’s independent valuer, and a review
of tenant quality.
In addition, the board holds a strategy day roughly
once per year. The latest strategy day took place in
November 2021. The main areas covered were:
current market conditions;
adding value through development;
tenant selection;
benchmarking against peers; and
conditions in the capital markets.
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BOARD LEADERSHIP AND COMPANY PURPOSE
Tenant engagement
During the year, the board held meetings with
the majority of the Group’s tenants. The Chairman
attended all of these meetings, with the other
directors attending several meetings each,
ensuring all directors took part in the exercise.
The calls covered a range of topics, including
tenants’ experience of working with the Investment
Manager. Tenants’ views of the Investment Manager
were very positive, with frequent references
to the strong relationship and the quality of
communication and collaboration. While tenants
were often managing issues such as staff availability
during the pandemic, all were optimistic about the
long-term outlook for their businesses.
Shareholder relations
The board is committed to fostering and
maintaining strong relationships with the
Company’s shareholders and recognises the
importance of good communications. The
primary objectives of the shareholder relations
activities are to:
increase understanding of the business, its strategy
and its growth opportunities;
better define the Company’s market and
differentiate it from its peers;
achieve a strong, supportive shareholder base with
ongoing investment appetite; and
ensure the board understands the market’s view
of the Company.
Mahesh Patel, Andrew Cowley and David Yaldron,
from the Investment Manager, are the Company’s
principal spokesmen with shareholders, the
press, analysts, debt finance providers and other
stakeholders. During the year, the Investment
Manager, working together with the Company’s
corporate brokers and communications adviser,
met regularly with institutional investors, analysts
and the financial press to update them on the
Company’s progress.
The Investment Manager provides the board with
regular investor relations updates, which include
analyst reports and shareholder feedback from
meetings and calls. In addition, non-executive
director Paul Craig brings an institutional investor’s
viewpoint to the board, as he represents the
largest shareholder. The board also meets
periodically, on a formal and informal basis,
with the Company’s corporate brokers, in order
to better understand the views of major
shareholders.
Rupert Barclay, Chairman, and Rosemary Boot,
Senior Independent Director, have continued
to make themselves available to speak to any
shareholders to discuss matters relating to the
Company. In 2021, they again held calls with a
number of the Company’s leading shareholders
to hear their views and answer questions. The
calls covered a wide range of topics, including
developments in the sector, the performance of
the Group’s tenants, the quality of care tenants
are providing for their residents, and the Group’s
approach to ESG. No significant issues were
highlighted during the calls and feedback from
shareholders was provided to the other directors.
Annual General Meeting
As a result of the COVID-19 pandemic, the Company
was required to adopt alternative arrangements for
the 2021 AGM. Although the meeting went ahead,
it only considered the formal business that was
legally required. Shareholders were able to submit
questions in advance of the meeting and to listen
to the proceedings via telephone. Subject to any
further restrictions on holding meetings in person,
the board hopes to welcome shareholders back to
a normal in-person AGM in 2022.
Further information on arrangements for the 2022
AGM can be found on page 93.
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Should shareholders wish to contact the Chairman
or the Company in advance of the AGM, they can
be contacted by emailing the Company Secretary
at Impact.CoSec@jtcgroup.com.
Public communications
The Company ensures that any price sensitive
information is released to all shareholders at the
same time and in accordance with regulatory
requirements. All public information and Company
announcements released through the London
Stock Exchange are made available on the
Company’s website at https://www.impactreit.uk/
Other stakeholder engagement
Engagement with our other key stakeholders is
discussed in the Sustainability and Stakeholders
sections on pages 36-41 and 42-43, and in our
Section 172(1) statement on pages 50-52.
BOARD LEADERSHIP AND COMPANY PURPOSE
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Division of responsibilities
The board and its responsibilities
The directors are responsible for managing the
Company’s business affairs in accordance with
the articles and the investment policy and have
overall responsibility for the Company’s activities,
including its strategy, investment activities and
reviewing the performance of the portfolio.
The board has a schedule of matters specifically
reserved for its decision, which is reviewed
annually. These include:
any decision likely to have a material impact on
the Group from any perspective including, but
not limited to, financial, operational, strategic or
reputational matters;
the strategic direction of the business, objectives,
budgets and forecasts, levels of authority to approve
expenditure, and any material changes to them;
the commencement, material expansion,
diversification or cessation of any of the Group’s
activities;
the Group’s regulatory, financial and material
operational policies;
changes relating to the Group’s capital, corporate,
management or control structures;
material capital or operating expenditures, outside
predetermined criteria or beyond the delegated
authorities;
any material contract or joint venture and material
arrangements with customers or suppliers;
the approval of the Company’s financial statements
and published reports;
the approval of equity and debt fundraising;
the oversight of potential conflicts arising from the
principals of the Investment Manager being the
owners of the Group’s largest tenant, Minster Care
Group Limited;
the approval of all new investments other than
those leased to existing tenants, where the
approval is for investments over £5 million; and
the approval of capital improvements over
£1 million.
The full set of matters reserved to the board
are available on our website at https://www.
impactreit.uk/about/corporate-governance/
The board may delegate certain functions to
other parties, such as the board committees,
the Investment Manager, the Administrator, the
Company Secretary and the Registrar. In particular,
the board has delegated responsibility for day-to-
day management of the Company’s portfolio to the
Investment Manager. The directors are responsible
for supervising the Investment Manager.
Board composition
There was one change to the board’s composition
during the year, with the appointment of
Chris Santer as a non-executive director with
effect from 13 May 2021. At the year end, the
board therefore comprised six non-executive
directors. Rupert Barclay, Rosemary Boot, Philip
Hall, Amanda Aldridge and Chris Santer are
deemed to be independent of the Investment
Manager. Paul Craig is also independent of the
Investment Manager but is not considered
to be an independent director because he
is a representative of the Company’s largest
shareholder. See Board of directors, pages 68-69.
The Chairman
The Chairman, Rupert Barclay, was independent
on appointment and has no relationships that may
create a conflict of interest with shareholders. As
Chairman, he sets the agendas for board meetings,
manages the meeting timetable and facilitates
open and constructive dialogue during the
meetings.
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The Chairman has held the post for five years.
As the Company is subject to the AIC Code (the
Code), there is no requirement for a limit on
the Chairman’s tenure, as approved by the FRC.
However, the board recognises that there is a
significant body of opinion that tenure should be
limited to nine years and the directors bear this in
mind in their succession planning.
Time commitment and re-election
of directors
The Company’s practice is to assume directors
serve for a minimum three-year term, subject
to annual re-election by the shareholders. All
directors will seek re-election at the AGM, in
accordance with the Code’s recommendations.
During the year, the Nomination Committee
reviewed the risk of overboarding against each
director’s current commitments and concluded
that all the directors have adequate time to devote
to the Company, as shown by their attendance
and contribution in 2021.
Provision of challenge
The non-executive directors provide objective,
rigorous and constructive challenge to the
Investment Manager. In doing so, they draw
upon their collective skills and experience, which
include specific expertise in the care home and
social care sector, as well as significant experience
of financial matters, corporate finance and audit.
The board also has a strong understanding of
the investor perspective, as well as knowledge
and experience of corporate governance, gained
through operating at boardroom level in a range
of other organisations.
The performance of the other service providers
(except for the Independent Auditor) is assessed
on a regular basis, and at least annually, by the
Management Engagement Committee. A formal
evaluation of the other service providers has been
conducted, including that of the Independent
Auditor by the Audit Committee. For more details
see pages 66-67.
Board committees
The board has four standing committees: the
Audit Committee, the Management Engagement
Committee, the Nomination Committee and
the Remuneration Committee. Details of these
committees are set out in their reports, on pages
79-83, 84-86, 70-73 and 87, respectively. The
committees’ terms of reference are available on
our website at https://www.impactreit.uk/about/
corporate-governance/
All of the independent directors serve on each
board committee, so the links and overlaps
between the committees’ responsibilities are
fully recognised and each committee has full
knowledge of the business and deliberations
of the other committees. The committees also
formally report to the Company’s board at board
meetings, to present recommendations from the
committees to the board for decision.
In addition, the Investment Manager has a risk
committee, which monitors the Company’s risk
management framework. Amanda Aldridge,
the Audit Committee Chair, represents the
board on this committee, which also includes
representatives of the Investment Manager,
the Company Secretary and the Investment
Manager’s risk advisers, Carne. More details of this
committee’s activities are set out in Audit, risk and
internal control on pages 74-78.
DIVISION OF RESPONSIBILITIES
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Meetings and attendance
The board meets formally on a quarterly basis
and there is an annual strategy day which the
whole board attended in November 2021. There
are also ad hoc meetings, which are generally
called to approve specific announcements or
transactions and frequently involve a quorate sub-
committee of the board, which is appointed as
necessary. During 2021, the board had 13 ad hoc
meetings (2020: 12). The table below shows each
director’s attendance at the scheduled board and
committee meetings during the year.
DIVISION OF RESPONSIBILITIES
Director
Quarterly board
meetings
Audit
Committee
Management
Engagement
Committee
Nomination
Committee
Remuneration
Committee
Rupert Barclay (Chairman) 4/4 4/4 1/1 2/2 1/1
Rosemary Boot 4/4 4/4 1/1 2/2 1/1
Amanda Aldridge 4/4 4/4 1/1 2/2 1/1
Paul Craig 4/4 N/A N/A N/A N/A
Philip Hall 4/4 4/4 1/1 2/2 1/1
Chris Santer 2/2
1
2/2
1
1/1 1/1
1
1/1
1
Chris Santer was appointed on 13 May 2021.
JTC attends all the scheduled meetings as
Secretary to the board. In addition, representatives
of the Investment Manager, the external auditor
and other advisers are invited to attend as
required.
Service and support
The Company has no employees and is externally
managed by the Investment Manager (as the
mandatory Alternative Investment Fund Manager),
supported by the Company Secretary and
Administrator.
The Management Engagement Committee formally
reviews the performance of the Investment Manager
and the Company Secretary and Administrator
each year and makes recommendations to the
board as it considers appropriate. Further details
of these reviews, and the relationships with the
Investment Manager and Administrator are given
in the Management Engagement Committee
report on pages 84-86.
Depositary
Indos Financial Limited is the Company’s Depositary.
Administrator
JTC (UK) Limited (“JTC”) served as Administrator
and Company Secretary to the Company, during
the year.
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As Administrator, JTC, on behalf of the directors,
is responsible for:
maintaining the Company’s books and records;
preparing the management and financial accounts;
managing all of the Company’s cash movements;
and
calculating, in conjunction with the Investment
Manager, the Company’s Net Asset Value.
As Company Secretary, JTC is also responsible for
ensuring regulatory compliance and supporting
the board’s corporate governance process and
its continuing obligations. In addition, JTC is
responsible for liaising with the Company, the
Investment Manager and the Registrar in relation
to dividend payments, as well as general secretarial
functions required by the Companies Act.
The directors have access to the advice and
services of the Administrator and Company
Secretary. Where necessary in carrying out their
duties, the directors may seek independent
professional advice and services at the Company’s
expense.
Alternative Investment Fund Manager
Directive (“AIFMD”)
The Company is an Alternative Investment Fund
(“AIF”) for the purposes of the AIFMD.
1
Administrator
JTC is responsible for the maintenance of the books and financial accounts of the Company and
the calculation, in conjunction with the Investment Manager, of the Net Asset Value of the
Company and the ordinary shares.
2
Depositary
Indos
2
Registrar
Computershare
2
Risk management
Carne
2
Brokers
Winterflood & RBC
2
1
Investment Manager
Impact Health Partners LLP (“IHP”) is
appointed by the Group to be the AIFM
and provides discretionary investment
management responsibilities including
portfolio and risk management services.
See pages
[•-•]
1
Audit
Committee
See pages 79-83
1
Management
Engagement
Committee
See pages 84-86
1
Remuneration
Committee
See page
87-90
1
Nomination
Committee
See pages
70-73
The board
Responsible for the long-term success of the Company, the Company’s strategic aims, risks and values. It sets the Company’s investment objectives and
investment policy and is responsible for the Company’s investment decisions, other than those delegated to the Investment Manager.
See pages 68-69
Investors
Risk/ESG
3
Operational /
Strategy
Investment
Company Secretary
JTC is responsible for ensuring good information flows within the board and its committees and
between the AIFM/Investment Manager and non-executive directors, as well as advising the
board on governance matters.
2
1 Decision making responsibilities
2 Independent support, review and advice
3 Full Risk Committee structure and reporting on page 75
Reporting structure
DIVISION OF RESPONSIBILITIES
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Board of directors
The directors have a broad range of backgrounds and relevant skills and experience,
which enables them to work well together in leading the Group.
Amanda Aldridge FCA
Independent Non-executive Director,
aged 59
Appointed: 1 March 2019
Committees: Audit (Chairman),
Management Engagement,
Nomination and Remuneration
Amanda was an audit and advisory
partner in KPMG LLP from 1996
until 2017, when she retired from
the partnership. She has significant
experience as an external auditor,
working predominantly with quoted
clients, and has also advised quoted
companies on corporate transactions
and the assessment and remediation
of internal controls. Her audit and
advisory work included clients with
significant property portfolios.
She qualified as a Chartered
Accountant in 1987 and is a Fellow of
the Institute of Chartered Accountants
in England and Wales.
Other current directorships
Headlam Group plc, 2018-present,
non-executive director, chairman of the
audit committee and member of the
remuneration and nomination committee
The Brunner Investment Trust Plc,
2019-present. Non-executive director,
chair of the audit and member of
the remuneration, nominations and
management engagement committees
The Low Carbon Contracts Company
Limited and The Electricity Settlements
Company Limited, 2020-present.
Non-executive director and chair of the
audit and risk committees
Rupert Barclay FCA
Independent Chairman, aged 65
Appointed: 16 January 2017
Committees: Management
Engagement (Chairman), Nomination
(Chairman), Audit and Remuneration
Rupert has significant boardroom
experience in listed and quoted
companies, including Sanditon
Investment Trust plc (where he served
as chairman), Lowland Investment
Company plc (where he was a director
and chairman of the audit committee),
Dimension Data plc (where he was
the senior independent director) and
Instinet, Inc, where he was a director
and member of the remuneration
and audit committees. His career is
in strategic consultancy, with roles as
corporate strategy director at Allied
Domecq and Reuters, following his
time as a partner at LEK Consulting.
He has an MA in Classics from
Cambridge, an MBA with Distinction
from INSEAD and is a Fellow of the
Institute of Chartered Accountants in
England & Wales.
Other current directorships/
memberships
Cairneagle Associates LLP, 2004-present,
Managing Partner
Rosemary Boot
Senior Independent Non-executive
Director, aged 59
Appointed: 16 January 2017
Committees: Remuneration
(Chairman), Audit, Management
Engagement and Nomination
Rosemary was chief financial officer of
Future Cities Catapult, one of a network
of technology and innovation centres
established by the UK government.
She has also previously served as an
executive director and strategy adviser
at a large housing association and as
group finance director of the Carbon
Trust, an independent company set up
in 2001 to work with business and the
public sector to accelerate the move to
a sustainable, low carbon economy.
Previously, Rosemary worked for 16
years as an investment banker at UBS
Warburg, primarily advising large listed
UK companies on corporate finance
matters.
Other current directorships
The Green Alliance, 2014-present.
Trustee and Member of the finance and
management committee
Southern Water Services Limited,
2015-present. Independent non-
executive director, chair of the ESG
committee and member of the audit
committee
Urban&Civic plc, 2019-present.
Independent non-executive director
and member of audit and remuneration
committees. Reappointed as independent
non-executive director following takeover
by the Wellcome Trust in 2021
Chapter Zero Limited, 2019-present.
Co-founder and director
Triple Point Energy Efficiency
Infrastructure Company plc,
2020-present. Senior independent
director and audit committee chair
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Paul Craig
Non-executive Director, aged 53
Appointed: 30 June 2017
Paul is a portfolio manager at Quilter
Investors, which has an interest in the
Company through funds he manages.
He has over 20 years of investment
experience, including ten years at
Exeter Investment Group, six years
at New Star Asset Management as
a director of the asset management
subsidiary, and six years as a director
within the multi-manager investment
team at Henderson Global Investors.
Over the past 18 years, Paul’s focus has
been on multi-manager products, with
an emphasis on closed-ended funds.
Paul is an associate of the UK Society
for Investment Professionals.
Other current directorships
The Diverse Income Trust plc,
2011-present, director
Philip Hall
Independent Non-executive Director,
aged 67
Appointed: 16 January 2017
Committees: Audit, Management
Engagement, Nomination and
Remuneration
Philip is a chartered surveyor with
more than 25 years’ experience in
the healthcare sector in the UK and
internationally. Until 2017 he was
Chairman for healthcare at Jones Lang
LaSalle (JLL), where he was involved
principally in sales, acquisitions,
portfolio strategy and valuations. He
then ran his own healthcare property
consultancy until February 2021.
During his career, he advised on the
restructuring of Southern Cross and
its legacy and was a member of its
landlord committee, which steered the
winding up of Southern Cross and the
transfer of its residents and staff to new
operators. He has also advised on lease
and loan restructuring transactions,
asset management and turnaround
strategies. Before joining JLL, Philip was
a founding shareholder and managing
director of Taylors Business Surveyors
and Valuers Ltd, a chartered surveying
company, which he sold in 2005.
In addition, he is the author of “The
Valuation of Care Homes, Valuation:
Principles into Practice”, which was
published in 2008. Philip is a member
of the Royal Institution of Chartered
Surveyors.
Other current directorships
None
Chris Santer
Independent Non-executive Director,
aged 48
Appointed: 13 May 2021
Committees: Audit, Management
Engagement, Nomination and
Remuneration
Most recently, Chief Investment
Officer for Primary Health Properties
PLC (“PHP”), one of the UK’s leading
investors in modern primary healthcare
facilities in the UK and Ireland and
a constituent of the FTSE 250, Chris
has around 25 years of real estate
investment and development
experience in the UK and Continental
Europe, in both listed and private
equity funds. He has been responsible
for a number of funds making or
managing direct and indirect real
estate investments totalling over
£5 billion, including core, value-add
and opportunistic investments and
across sectors including office, retail,
warehouse, residential and alternative
asset classes, especially healthcare.
Prior to joining PHP, Chris was a Director
of Portfolio Management at PGIM Real
Estate and previously MGPA. Chris’s
healthcare experience also included
joint ventures with Sunrise Senior
Living Inc. to develop and operate
premium, private pay UK care homes.
Chris has an MBA from Warwick
Business School and is a Member of the
Royal Institution of Chartered Surveyors.
Other current directorships
None
BOARD OF DIRECTORS
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Chairman
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Introduction
During 2021, the Nomination Committee’s
focus areas included recruiting an additional
non-executive director, completing an internal
evaluation of the board and its committees, and our
ongoing succession planning. More information on
each of these areas, as well as the board’s approach
to diversity, is set out in this report.
Committee membership
The Committee’s membership during the year
comprised Rosemary Boot, Amanda Aldridge,
Philip Hall, Chris Santer and me, Rupert Barclay, as
Committee Chairman. Chris joined the Committee
on his appointment as a non-executive director on
13 May 2021.
Role
The Committee helps to ensure the board is
effective and able to operate in the best interests
of shareholders and other stakeholders. The most
important of its functions are:
ensuring there is a formal, rigorous and transparent
procedure for appointing new directors to the
board;
leading the process for board appointments and
making recommendations about appointments to
the board;
performing an annual review of the board’s
structure, size and composition (including the
directors’ skills, experience, independence,
knowledge and diversity) and making
recommendations to the board about any
changes;
considering succession planning for directors,
taking into account the challenges and
opportunities facing the Company, and the skills
and expertise the board will need in the future;
performing an annual review of the time required
from non-executive directors, including the
Chairman and Senior Independent Director,
and using the performance evaluation to assess
whether the non-executive directors are spending
enough time to fulfil their duties;
considering recommendations for re-election on
retirement and the re-appointment of any director
at the conclusion of his or her specified term of
office; and
assisting the Chairman of the board with
implementing an annual evaluation process, to
assess the overall and individual performance
and effectiveness of the board, the Chair and
its committees.
Committee meetings
The Nomination Committee meets formally at
least once a year and also when required. We had
two meetings during the year, in May and October
2021. Committee members’ attendance at these
meetings is set out on page 66.
JTC attends our meetings as Secretary to
the Committee. In addition, we may invite
representatives of the Investment Manager or
other service providers to attend as required.
At the meeting in May, the Committee considered
the appointment of Chris Santer as a non-
executive director and agreed to recommend his
appointment to the board.
Nomination Committee report
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At the meeting in October, the Committee:
received and discussed the results of the 2021
board evaluation;
considered the board’s composition, including
diversity and the mix of skills on the board;
considered the directors’ ability to devote adequate
time to the Company’s business; and
reviewed succession planning.
Terms of reference
There were no changes to the Nomination
Committee’s terms of reference during 2021.
The terms of reference of all board committees
are available on our website at: https://www.
impactreit.uk/about/corporate-governance/
Board evaluation
During the year, we completed an internal
evaluation of the Board and its Committees.
The evaluation used the framework created by
the consultants who undertook the external
evaluation in 2020, ensuring we comprehensively
reviewed the functioning of the board, its
committees and the individual directors.
The evaluation process included a questionnaire
on board-level topics, with accompanying reviews
of each Committee, which addressed reviews
specific to that Committee. The directors also
completed self-assessments. I reviewed the results,
which were then reported to and discussed by the
Nomination Committee.
The results of the evaluation were positive, with
the board and the committees performing well.
The exercise also highlighted a number of areas
for the board to address, including:
continuing to concentrate on the Company’s strategy;
increasing the length of board meetings, to
accommodate an increasing workload;
considering key tenant relationships in greater depth;
considering the Company’s long-term resilience; and
allocating more time to reviewing purpose, values
and culture.
We will report on our progress against these
matters in the 2022 annual report.
In order to support their continuing professional
development, the board is offered a range of
training and development opportunities each year.
These offerings will continue during 2022 and it
is anticipated that the board will receive training
sessions on the following key areas:
regulatory framework, policies and changes/
updates within the healthcare sector;
Directors’ duties, MAR/inside information,
continuing obligations; and
ESG and sustainability business impact.
In addition to the above, the board has access to
the advice and services of the Company Secretary,
who is responsible for compliance with board
procedures and the provision of information to
the board.
Set out below are the recommendations that arose
from the 2020 board evaluation and our progress
against them.
NOMINATION COMMITTEE REPORT
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NOMINATION COMMITTEE REPORT
Focus area Progress
Set out key roles in writing, including those
of the board, the Chairman and the Senior
Independent Director
The board reviewed this requirement during the year and concluded
that the roles and responsibilities of the Chair and Senior Independent
Director are adequately documented and no further action was
required.
Tailor updates on governance and regulations
to the Company’s circumstances
The Company Secretary provides tailored updates at each regular board
meeting, but this remains a development point going forward.
Discuss the need for a further board
appointment
See Appointment of non-executive director below.
Discuss individual director’s intentions about
their tenure, to aid succession planning
See Succession planning below.
Additional focus on succession planning at
the Investment Manager
The Committee was pleased to see that the Investment Manager has
added to its senior management team, including the appointment of
a development director with significant experience of ESG issues.
Develop an annual plan for the board and
encourage board members to contribute to
agenda setting
The board has developed an annual plan, including agreeing the
strategic topics to be covered at each quarterly meeting. The directors
were also involved in setting the agenda for the annual strategy day.
Continue to improve board papers Board papers have continued to improve, for example through the
use of a traffic light system to highlight topics for noting, discussion or
decision. Further work is required to reduce the length of board papers.
Ensure that meetings run to time Meetings have generally run to time during the year, with the use
of Zoom and Teams to hold virtual meetings contributing to their
efficiency.
Arrange informal meetings between the
directors, to allow more time for reflection
and discussion
The pandemic and the use of video conferencing for board meetings
have made it difficult to meet informally. The board intends to have
informal meetings around its regular meetings in 2022.
Develop a strategic route map for the
Company and the implications for the
Investment Manager’s resourcing and
capabilities
The board discussed the strategic route map for the Company at its
strategy day in November and has tasked the Investment Manager to
produce a five-year plan of the shape of the business and the resources
required to achieve it.
Give additional consideration to risk appetite
and emerging risks
As part of the board’s annual strategy review, they have spent additional
time on risk appetite and emerging risks. See Audit, risk and internal
controls.
Individual director performance
All the directors were felt to be performing well
and to be making robust contributions to the
work of the board and its committees. I discussed
individual feedback with the other directors, while
the Senior Independent Director discussed my
performance as Chairman of the board with me.
Succession planning
The Committee’s work on succession planning
during 2021 reflected the need to add further
variability into the appointment dates of board
members, given that four of the six directors joined
around the time of our IPO. Carefully managed
succession will also keep thinking on the board
fresh, increase the board’s capacity as the Company
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grows and enable us to ensure appropriate diversity
on the board. The appointment of Chris Santer in
2021 has helped to both increase the stagger of
appointments and bring in a new perspective.
As part of our considerations, I have held meetings
with each of the other directors to discuss their
aspirations about their tenure on the board. I have
also discussed my thinking on my own position with
the Senior Independent Director, Rosemary Boot,
who in turn fed back the other directors’ view of the
appropriate length of my tenure. The Committee also
met formally without me to discuss this matter.
Recruitment of new non-executive director
In last year’s report, we noted our intention to
recruit an additional non-executive director and
that we had appointed Nurole to conduct the
search on our behalf. Nurole is a specialist in
board-level recruitment. It also conducted the
search that led to Amanda Aldridge’s appointment
as a non-executive director in 2019 but otherwise
has no connection with the Company.
The Committee determined that the primary
criterion we were looking for was hands-on
experience of investing in property. Nurole provided
a longlist of candidates, from which we drew up a
shortlist. Ultimately, we selected two candidates
for interview. Following this process, we concluded
that Chris Santer was the outstanding person for
the role. The Committee therefore recommended
Chris’s appointment to the board, which approved
his appointment at its meeting in May 2021. Details
of Chris’s experience and qualifications can be
found in his biography on page 69.
Chris underwent a thorough induction process
on his appointment to the board. This induction
included a briefing session with the Company
Secretary, who provided Chris with an overview
of the Company, an outline of its governance
structure and a review of the Company’s key
constitutional documents and corporate records,
including minutes from previous board meetings.
Chris also had a number of briefing sessions
with the Investment Manager and these sessions
included an introduction to our existing tenants,
investment process and acquisition pipeline.
Board composition and diversity
The Committee reviewed the balance of skills and
experience on the board and considered it to be
appropriate for the Company’s current purpose
and strategy.
The board recognises the benefits that diversity
brings and has a formal diversity policy, which
it adopted in 2019. At the year end, one third of
the board was female. We recognise that diversity
includes, and makes good use of, differences
in knowledge and understanding of relevant
geographies, peoples and their backgrounds,
including race or ethnic origin, sexual orientation,
gender, age, disability or religion. We are also starting
to plan for the likely changes to the Listing Rules,
which are expected to require companies to either
meet a 40% target for the proportion of women
on their boards and to have at least one member
from a non-white ethnic minority background, or
to explain why they do not meet these targets.
When making appointments to the board,
our approach is to appoint the best possible
candidate, considered against objective criteria
and in accordance with the Equality Act
2010. Candidates are reviewed in the context
of complementing and expanding the skills,
knowledge and experience of the board as a whole.
Rupert Barclay Committee Chairman
28 March 2022
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Audit, risk and internal control
Overview
The directors are responsible for maintaining the
Company’s system of internal control and risk
management, in order to safeguard the Company’s
assets. This system is designed to identify, manage
and mitigate the financial, operational and
compliance risks that are inherent to the Company,
and to manage rather than eliminate the risk of
failure to achieve business objectives. As such,
it can only provide reasonable, but not absolute,
assurance against material misstatement or loss.
Risk profile
The Group’s principal risks and uncertainties
are set out on pages 44-49. The directors, with
the support of the Investment Manager, have
performed robust reviews of the Company’s
principal and emerging risks during the year. The
annual assessment of principal risks includes a
survey of board members and key service providers,
and discussion of the survey results. The Company’s
principal risks are also considered in the context
of the AIFMD, which sets out certain categories of
risk that the Investment Manager, on behalf of the
Company, must take into account in monitoring
and managing risk.
The Company’s principal risks, and the mitigations
in place to control them, are detailed in the risk
register. This measures the inherent likelihood and
impact of each risk and their residual likelihood
and impact, assuming controls are operating
effectively. The risk register is updated and
approved by the board at least annually.
Having assessed its principal risks, the board
has procedures in place to ensure that risks are
monitored and managed on an ongoing basis
and that it gains adequate assurance that systems
and controls are operating effectively (see Risk
processes below).
Risk appetite
The Company’s risk appetite reflects the risks the
board is willing to take, in order to successfully
implement its strategy and achieve its investment
objectives, as set out on page 20. The directors
approved a new risk appetite statement at their
meeting in March 2021, following a review of the
statement by the Audit Committee and assessed
this as part of its review of strategy in November
2021.
Risk processes
The Company’s risk governance structure is
summarised below:
Board
Has ultimate responsibility for the Company’s risk
management and internal control.
Audit Committee
Has delegated responsibility from the board for
monitoring compliance with internal financial
controls, reviewing the risk management
framework and reviewing external reporting
related to risks and internal control.
Management Engagement Committee
Has delegated responsibility from the board for
assessing the competence of service providers
and, by extension, their ability to monitor and
control risk on the Company’s behalf.
Investment Manager
Performs portfolio and risk management
functions on behalf of the Company. This includes
monitoring the systems and controls in place
to manage risk. The Investment Manager has
appointed Carne Global AIFM Solutions (C.I.)
Limited to undertake the risk management
function on its behalf.
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Risk Committee
Oversees risk management and controls. The
Committee’s membership includes representatives
from the board, the Investment Manager, the
Administrator and Carne. Its remit includes
reviewing and updating the risk register, ensuring
risks stay within tolerance, stress and scenario
testing, and monitoring of regulatory compliance.
It reports by exception to the board and the
Audit Committee.
Service providers
Providers are expected to monitor their own
internal control systems, to ensure that risk is
properly managed in performing services for
the Company.
AUDIT, RISK AND INTERNAL CONTROL
Operational risks, business
risk and regulatory
reporting including TCFD
Board
Committees
of the board
AIFM
External
Exception
reporting
Service
provider risk
Impact Healthcare REIT plc
Audit
Committee
Management
Engagement
Committee
Investment Manager
■
Monitoring of top 20 risks
and mitigations
■
Cash flow forecasting
■
Debt covenants
■
Operational risk oversight
■
Principal risks questionnaire
■
REIT status
Risk Committee
■
Market risk
■
Credit risk
■
Counterparty risk
■
Liquidity risk
■
Operational risk
■
Regulatory risk
Registrar Reporting
■
Maintenance of shareholder register
■
Service organisation controls
Depositary Reporting
■
Verification of assets
■
Cash flow
■
Leverage limits
■
Investment restrictions
Company Secretary and
Administrator Reporting
■
Quarterly management accounts
■
UK Listings Rules compliance
■
Service organisation controls
The risk governance structure and associated reporting lines are set out the following schematic:
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AUDIT, RISK AND INTERNAL CONTROL
Responsibilities for managing risk
The responsibilities for managing risk by each
element of the risk management framework are
summarised below:
1. Board responsibilities
Quarterly review of Company liquidity
Semi-annual assessment of principal risks facing
the business and consideration of emerging risks
Assessment and articulation of risk appetite
2. Audit Committee responsibilities
Keep under review the Company’s internal financial
controls and internal control and risk management
systems through reports from the Risk Committee,
with exceptions reported to the board and queries
followed up with the Risk Committee
Annual review of effectiveness of the risk
management framework
Review and approve the statements to be included
in the annual report concerning internal controls
and risk management
Review and approve statements explaining
how assets have been invested, with a view to
spreading investment risk
3. Management Engagement Committee
responsibilities
Consider risk issues arising from the functions
performed by service providers and reported to
the Management Engagement Committee/board
as necessary
4. Risk Committee responsibilities
Identify key and emerging risks facing the business
and the controls in place to mitigate those risks
(documented in the risk register)
Assess the materiality of each risk according to the
likelihood of occurrence and potential impact on
the business (documented in the risk register)
On a quarterly basis, assess control effectiveness
via reporting on key risks by service providers
(Investment Manager, Administrator, Registrar,
Depositary)
Agree follow-up actions in respect of risks that are
outside of tolerance. Ensure that risk events, errors
and breaches are appropriately remedied, and that
controls are enhanced to prevent reoccurrence
Review risks to the business model, future
performance, solvency or liquidity of the Company,
in the context of going concern and long-term
viability statements
Review counterparty credit risk, with reference to the
Company’s financing arrangements and policies
Review regulatory risk via the compliance
monitoring undertaken by the Administrator and
REIT conditions monitoring undertaken by the
Investment Manager
Assess third-party service provider risk via Service
Organisation Control reports and due diligence
reviews
5. Compliance monitoring responsibilities
JTC, in its capacity as Administrator and Company
Secretary, monitors the Company’s compliance with
the UK Listing Rules and the Disclosure Guidance
and Transparency Rules.
The Investment Manager monitors the Company’s
compliance with the qualifying conditions set out
in the UK REIT rules (Corporation Tax Act 2010)
6. Depositary monitoring responsibilities
Indos Financial Limited, in its capacity as
Depositary, reviews risks relevant to the depositary
function in accordance with the requirements of
AIFMD. This includes verification of assets, payment
of expenses, leverage limits, investment restrictions,
cash flow monitoring and good title to assets
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Internal control processes
The Audit Committee, working with the
Investment Manager and Administrator, reviews
the Group’s systems of risk management and
their effectiveness on behalf of the board. These
systems and processes have been in place for
the year under review and remained in place up
to the date of approval of the annual report and
accounts.
The Group’s internal control systems include
a detailed authorisation process, formal
documentation of all transactions, a robust
system of financial planning (including cash flow
forecasting and scenario testing) and a robust
appraisal process for all property investments,
including compliance with the conflicts policy.
In addition, the board has a Financial Position &
Prospects Procedures board memorandum, which
is updated and reviewed by the Audit Committee
every year. This sets out the procedures operating
to identify the information needed to monitor
the business and manage risk, so as to make
proper judgements on its financial position
and prospects. It also details the procedures to
identify, assess and document the risk factors likely
to affect the Company’s financial position and
prospects and any changes, and the preparation
and communication to the directors of related
information. This was last reviewed prior to the
publication of the Company’s Prospectus on
27 January 2022.
Changes to internal controls, or controls to
respond to changing risks identified, are addressed
by the Risk Committee, with escalation to the
board as required.
The directors, along with the Investment Manager
and Administrator, have established an internal
control framework to provide reasonable
assurance on the effectiveness of internal controls.
This covers capital expenditure approval and
authorisation of capital funding, investment
acquisition and disposal approval, annual budget
approval, expenditure and supplier contract
approval, NAV and dividend authorisation, equity
and debt approval and formal communications
with investors.
During the year, the directors received a report
from the Investment Manager that summarises
its internal controls, which primarily relate to
segregation of duties, including who is responsible
for providing cover if particular individuals are
unavailable. In addition, the directors have
received bridging letters from service providers
to provide assurance that their controls have
continued to operate effectively throughout the
period under review, where the service providers’
own review of their internal controls is not
coterminous with the Company’s reporting period.
Financial reporting
The Group, with the support of the Investment
Manager and Administrator, has internal control
and risk management arrangements in relation
to its financial reporting processes and the
preparation of its consolidated accounts. Internal
management reporting and external statutory
reporting timetables and delivery requirements
have been established and documented. The
Administrator maintains control of these and
communicates them regularly.
The arrangements include procedures
implemented by the Administrator to ensure
records are maintained which accurately and fairly
reflect transactions. The Investment Manager
reviews and comments on the records, to confirm
the appropriate treatment.
Where new reporting standards or financial
reporting approaches are being adopted, either
as a result of changing regulation or as a result of
new contractual arrangements, the Administrator,
in collaboration with the Investment Manager,
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AUDIT, RISK AND INTERNAL CONTROL
prepares an assessment of this treatment and
discusses it with the Audit Committee. Where
required, third-party advisers are consulted. This
enables the preparation of financial statements
in accordance with UK adopted International
Financial Reporting Standards (“IFRS”), or FRS
102, as appropriate, with reasonable assurance.
Reported data is reviewed and reconciled, with
appropriate monitoring internally and by the Audit
Committee.
Ongoing financial performance is monitored
through the Administrator reporting regularly to
the Investment Manager, with performance then
reported to the board.
Capital investment and all revenue expenditure
are regulated by a budgetary process and
authorisation levels. The Investment Manager
prepares a budget which is approved by the
board, with performance against budget reported
to the board quarterly. The Administrator also
tracks expenditure and investment against
budget. Payment of Investment Manager fees are
presented to an individual director for sign off.
Review of internal audit requirement
The Audit Committee, on behalf of the board,
considered during 2021 whether the Company
should employ an internal audit function and
concluded that, due to the Company’s structure,
the nature of its activities and taking into account
the controls already in place and, more particularly,
the external service already provided by the
Administrator, the Depositary and the Investment
Manager, an internal audit function was not
necessary.
Review of risk management and
internal control
The board has established a continuing process for
identifying, evaluating and managing the risks the
Company faces and reviewing the effectiveness of
the internal control systems. The formal statement
on the annual review is given on page 60.
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Amanda Aldridge,
Committee Chairman
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
Introduction
I am delighted to present the Committee’s report
for the year ended 31 December 2021.
During the year, the Committee has continued
to play a valuable role in the Group’s governance.
Our principal activities focused on monitoring and
reviewing the integrity of financial information
and the quality and effectiveness of external audit,
and providing challenge and oversight of risk
management processes and the internal control
framework.
We also continued to monitor the impact of the
COVID-19 pandemic on the Group’s principal risks
and uncertainties and our assessment of going
concern and viability. In addition, we monitored
the impact of the pandemic on our service
providers, who provide detailed statements and
representations to the Risk Committee.
The Risk Committee’s role in the risk management
framework is described on pages 74-78. During
the year I attended all meetings of this Committee,
which continues to provide me with first-hand
experience of how it operates and the detailed
assurance which underpins our risk management
framework.
The remainder of my report comprises a summary of
the Audit Committee’s key activities during the year
and more detail in respect of each area of our work.
Committee membership
I chaired the Committee throughout the year and
Rosemary Boot, Rupert Barclay and Philip Hall
were members of the Committee throughout the
year. We welcomed Chris Santer to the Committee
when he joined the board on 13 May.
Rupert, Rosemary and I are considered to have
recent and relevant financial experience, as we
have audit, accountancy and/or chief financial
officer experience, as well as our other board
directorships. All committee members keep up
to date with financial accounting developments
through attendance at a range of technical update
courses. Rupert and I are chartered accountants.
The Committee believes it is appropriate for the
Chairman of the board, Rupert Barclay, to be a
member of the Committee, due to his accounting
background, knowledge of the business and his
positive interactions with the other Committee
members.
In addition, the board has concluded that the
Audit Committee as a whole has competence
relevant to the sector in which the Company
operates, bringing a broad range of skills and
experience to bear.
Relevant experience and competence
Amanda Aldridge FCA: audit and advisory partner at
KPMG for 20 years; chairs the audit committee at two
other listed companies; sector experience includes
property, social housing and investment trusts.
Rupert Barclay FCA: senior management positions
in listed and private companies, including
executive and non-executive board membership;
M&A and strategy.
Rosemary Boot: social care, housing sectors and
climate change; senior management and CFO
positions in private companies, executive and
non-executive board membership, including audit
committee membership of other listed companies;
M&A, investment banking and strategy.
Philip Hall: healthcare, social care and real estate
sectors; senior executive positions in a property
company; surveying and valuation; and capex,
turnaround and restructuring programmes.
Chris Santer: healthcare, social care and real estate
sectors; real estate investment and development
in listed and private equity funds; managing direct
and indirect real estate investments; surveying and
valuation.
Audit Committee report
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Role
The Committee’s primary responsibilities are to:
monitor the integrity of the Company’s financial
statements and formal announcements relating to
the Company’s financial performance, and review
any significant financial reporting judgements
contained in them;
consider the appropriateness of our accounting
policies;
review the interim and final valuations with
the valuers;
review and then advise the board that the annual
report and accounts taken as whole, are fair,
balanced and understandable and provide the
information necessary for shareholders to assess
the Company’s position and performance, business
model and strategy;
review and consider the basis of the Going concern
statement and Viability statement made by the
directors (see pages 53-54);
review the adequacy and effectiveness of the
Group’s internal controls and risk management
framework;
consider the need for internal audit;
review and approve the role of the external auditor
in the interim review and associated fees;
review the external auditor’s plan for the audit
of the Group’s accounts, approve the terms of
engagement for the audit, including the audit fee,
and review the findings;
oversee the relationship with the external auditor,
including reviewing its independence, objectivity
and effectiveness; and
review the financial position and prospects
procedures (“FPPP”).
Meetings
We met four times during 2021 and attendance
is set out on page 66. The meetings were of
sufficient length to allow the Committee to
consider all the matters of importance and the
Committee was satisfied that it received full
information, in a timely manner, to allow it to fulfil
its obligations.
These meetings were also attended by
representatives of the Investment Manager, the
Company Secretary and the auditor (BDO LLP).
A sub-committee of the Audit Committee met
with our valuer, Cushman & Wakefield (CW), in
January 2021, prior to publication of the
31 December 2020 NAV, and in January 2022, prior
to publication of the 31 December 2021 NAV,
without other parties in attendance, to discuss the
respective 31 December valuations in detail. CW
also attended the August Committee meeting to
discuss the June valuation.
I held a number of preparatory discussions with
the Finance Director of the Investment Manager
and the external auditor, to ensure that they
delivered in line with the scope of services and
were well placed to hold a constructive discussion
with the Committee. The Committee also met with
the external auditor, without other parties present,
on two occasions during the year.
Terms of reference
We reviewed the Committee’s terms of reference
and concluded that, following the extensive
review last year, no further changes were
necessary. The terms of reference are available on
our website at https://www.impactreit.uk/about/
corporate-governance/
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Financial reporting and significant
judgements
A key responsibility of the Committee is to consider
the significant areas of complexity, judgement and
estimation that have been applied in the preparation
of the financial statements. The Committee received
reports and recommendations from the Investment
Manager and the auditor, setting out the significant
areas. These areas of judgement and estimation
were discussed with the Investment Manager during
the year and with the auditor at the time the Audit
Committee reviewed and agreed the auditor’s Group
audit plan, and when the auditor presented its
findings at the conclusion of its year-end audit.
The main areas where significant judgement or
estimation was required were the assessment of
fair values of investment properties and operating
lease contracts.
Set out below is a description of how the
Committee concluded that the judgements and
estimates that have been made were appropriate.
(i) Valuation of property portfolio
The property portfolio was valued by CW quarterly
in 2021. The Audit Committee discussed the half-
year valuation with the valuers at the August Audit
Committee meeting. Prior to the publication of
the unaudited 31 December 2021 NAV, in January
2022, a sub-committee of the Audit Committee
discussed the approach undertaken by CW in
the valuation of the assets, the assumptions
underlying the property valuations and the
valuation of individual properties of interest to
Committee members. We discussed the level
of inspections undertaken by CW and progress
towards catching up with the backlog of
inspections caused by pandemic restrictions. The
Audit Committee also sought confirmation from
CW that no undue influence had been applied
by the Company or the Investment Manager in
reaching its conclusion.
We discussed with the auditor its review of the
valuation, referred to in the Independent Auditor’s
report on pages 96-102, and were informed that
the auditor had met separately with CW and had
satisfied itself, on a property by property basis, that
the valuation approach was appropriate.
(ii) Operating lease contracts
The Group has determined, based on an
evaluation of the terms and conditions of the
arrangements, that it retains all significant risks
and rewards of ownership of its properties and
so accounts for the leases as operating leases.
The leases when signed, are for between 20 and
25 years with a tenant-only option to extend for
one or two periods of ten years. At the inception
of the lease, management does not judge any
extension of the leases to be reasonably certain
and, as such, does not factor any lease extensions
into its considerations of lease incentives and their
treatment.
The Audit Committee has reviewed the Investment
Manager’s approach to the assessment of leases
and discussed this with the auditor to understand
its work and conclusions in this area.
Adjusted Earnings per Share
The Committee considered the implications
of reporting adjusted earnings per share that
are different to IFRS and EPRA calculations. The
Committee reviewed the reported adjusted earnings
to ensure they reflect the underlying sustainable
cash earnings of the Company and satisfied itself
regarding the appropriateness of the disclosure
of the non-statutory earnings per share measures.
Fair, balanced and understandable
statement
The production and audit of the Company’s
annual report and accounts is a comprehensive
process, requiring input from a number of
contributors. To reach a conclusion on whether the
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AUDIT COMMITTEE REPORT
Company’s annual report and accounts, taken as
a whole, are fair, balanced and understandable, as
required under the AIC Code, the board requested
that the Audit Committee advise on whether
we considered that the annual report fulfilled
these requirements. In outlining our advice, we
considered the detailed reviews undertaken at
various stages of the production process by the
Investment Manager, Administrator, auditor and
the Audit Committee, which are intended to
ensure consistency and overall balance.
We then discussed the process for compiling the
annual report and accounts with the Investment
Manager and Administrator and received a series
of drafts of the document. These were scrutinised
and discussed thoroughly at two separate Audit
Committee meetings.
Additional comfort was also sought from the
Investment Manager and Administrator in relation
to the conclusion reached by the board.
As a result of the work performed, we have
concluded and reported to the board that the
annual report and accounts for the period ended
31 December 2021, taken as a whole, is fair,
balanced and understandable and provides the
information necessary for shareholders to assess
the Company’s position and performance, business
model and strategy. The board’s conclusions in this
respect are set out on page 60.
Review of risk framework and
internal control
The board has ultimate responsibility for effective
management of risk for the Group, including
determining its risk appetite and identifying key
strategic and emerging risks. An overview of the risk
management process and the principal risks and
uncertainties identified is set out on pages 44-49.
The Risk Committee (see pages 74-78) serves as a
governance body to provide oversight, review and
challenge of the risk management processes.
Internal audit
The Committee discussed the need for an internal
audit function. The debate included input from
the Investment Manager and the external auditor
and consideration of the assurance received
from third parties under the risk management
framework. In the light of this consideration, we
decided that there was no current requirement,
as the Committee was satisfied based on the work
of the Risk Committee and the compliance work
by the Investment Manager over tenants, that
the internal controls and risk management were
adequate and effective.
External auditor
BDO was appointed as the Company’s auditor
following a formal tender as part of the IPO in
March 2017. This was a competitive process and
involved BDO, EY and Grant Thornton. Under
current FRC guidance, the next audit tender
will be required in respect of the year ending
31 December 2027. In the intervening period,
the Audit Committee will continue to monitor
the performance of the auditor and make any
appropriate recommendations. Richard Levy
has been the lead audit partner since BDO’s
appointment and therefore this is his fifth year in
the role. In accordance with current professional
standards, the lead audit partner will change every
five years. Since the year end, I have met Charles
Ellis, who will take over as lead audit partner
for the 2022 financial year. He has appropriate
experience in the REIT sector and understanding
of our business.
(i) Audit planning
At our meeting in November we discussed the audit
plan with BDO, considering the overall planning
materiality and BDO’s assessment of the audit risks,
including the capital expenditure additions
and the additional requirements for auditors in
relation to going concern and viability reviews.
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We also discussed the analysis of the valuation
which BDO carries out, involving its in-house
valuation specialists and review of independent
market data, as well as separate meetings to
discuss the valuation with CW.
We considered the audit timetable in the context
of the global pandemic and our ability to deliver
the audit work streams if restrictions continued.
We satisfied ourselves that the timetable was
appropriate to meet the reporting requirements
for the 2021 annual report and accounts and the
external audit.
(ii) External auditor independence and
effectiveness
BDO has formally confirmed its independence
as part of the annual reporting process, and the
Committee considered and agreed that BDO,
the engagement team and other partners and
directors conducting the audit had complied
with relevant ethical requirements, including
the FRC’s Ethical Standard, and were considered
independent of the Company.
The Committee discussed the effectiveness
of BDO as auditor. Assessment of the auditor’s
performance was provided by the Investment
Manager and the Committee members. We agreed
that the auditor had adhered to high professional
and ethical principles and demonstrated the
appropriate skills and knowledge about the
business, industry and environment, together
with the regulatory and legal frameworks in which
the Company operates. We also agreed that the
audit partner demonstrates experience in the
REIT sector and is well-informed about current
topical issues with the FRC. We concluded that we
had no concerns with BDO’s effectiveness.
The Audit Committee has recommended that
a resolution to reappoint BDO is proposed to
shareholders at the next AGM.
Non-audit services
£14,100 of non-audit fees were authorised in the
period, in relation to the agreed procedures for the
Company’s interim report (2020: £13,800).
Total audit fees for the period were £202,680 and
non-audit fees were £14,100. Non-audit fees as a
percentage of audit fees were 7.0% (2020: 7.9%).
Committee evaluation
A detailed and rigorous external evaluation of the
Committee was undertaken as part of the overall
board evaluation. The Committee was found to be
working well and the skills and experience of the
members was found to be appropriate for their
roles. The Committee will continue to concentrate
on personal development and training of
committee members, as the regulatory focus on
audit and audit committees increases.
Amanda Aldridge Committee Chairman
28 March 2022
AUDIT COMMITTEE REPORT
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Rupert Barclay,
Chairman
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ANNUAL REPORT 2021
Management Engagement
Committee report
Introduction
The Committee’s primary focus was on reviewing
the performance of the Investment Manager and
other key service providers, and ensuring the
Company continued to receive appropriate service
and value for money.
Committee membership
The Committee’s membership comprises all of the
Company’s independent directors: Rosemary Boot,
Amanda Aldridge, Philip Hall, Chris Santer and
me, Rupert Barclay, as Committee Chairman. I am
independent of the Investment Manager.
Role
The Committee has several functions, the most
important of which are to conduct an annual
review of:
the Investment Manager’s compliance with the
Company’s investment policy, when sourcing
potential investment opportunities;
the Investment Manager’s compliance with its
Investment Management Agreement with the
Company; and
the performance of the Company’s other key
service providers.
Committee meetings
The Committee meets formally at least once a year
or as and when required. It met once in 2021.
The Committee members’ attendance is set out
on page 66.
JTC (UK) Limited attends our meetings as
Secretary to the Committee, except when its
performance is being discussed. In addition,
we invite representatives of the Investment
Manager to attend, except when its performance
is being discussed.
Terms of reference
The Committee reviewed its terms of reference
during the year and made one change, requiring
the Committee to review the Investment
Manager’s ability to deliver Company performance.
Terms of reference for all the board committees
are approved by the board and are available on
our website at: https://www.impactreit.uk/about/
corporate-governance/
Investment Manager
Impact Health Partners LLP is the Company’s
Investment Manager. Under the terms of the
Investment Management Agreement, the
Investment Manager provides certain advisory
services to the Group including:
ongoing monitoring of the portfolio and asset
management; and
sourcing potential opportunities in which the
Company may invest.
The Investment Management Agreement imposes
certain restrictions on the Investment Manager and
its associates from acquiring, developing, leasing
or operating competing businesses. This ensures
that the board can effectively manage any potential
conflict, given that one of the Investment Manager’s
Managing Partners owns Minster Care Group
Limited, which is the Company’s initial tenant.
The Investment Management Agreement also:
a) grants the Group pre-emption rights in respect of
any investment opportunities within the Company’s
investment policy, of which the Investment
Manager or its associates become aware;
b) grants the Company the right to terminate the
agreement upon:
the failure of any tenant in which any principal
of the Investment Manager (from time to time)
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has a beneficial interest, to pay rent or any other
sums due under the leases in excess of £50,000; or
the winding up or liquidation of any tenant, in
which any principal of the Investment Manager
or any of its associates (from time to time) has
a beneficial interest;
c) grants the Company the right to terminate the
agreement if the financial report provided to the
Company by Minster Care Group Limited shows
that its rent cover is less than 1.1 times in two
consecutive quarterly financial reports or in any two
quarterly financial reports in any 12-month period;
d) grants the Company the right to seek advice from
a third-party property adviser in circumstances
where the Investment Manager is conflicted; and
e) prohibits the Investment Manager from taking
any decision, or making any recommendation to
the board relating to enforcement of the Group’s
rights, on certain covenant breaches by a tenant
in which any principal of the Investment Manager
or any of its associates (from time to time) has a
beneficial interest.
The Investment Management Agreement may be
terminated by either party on 12 months’ notice.
The agreement may be immediately terminated
by either party in certain circumstances, such as
a material breach which is not remedied.
Review of performance
The Committee reviewed the Investment
Manager’s performance. Our view was that
the Investment Manager was performing well,
that it continued to provide a good service to
the Company and that service had remained
consistent over the past 12 months.
The Committee noted the size of the Investment
Manager’s workload and welcomed the additions
to its team in this regard. The Committee also
noted the overwhelmingly positive feedback on the
Investment Manager from tenants (see page 56).
Following this review, we determined that it was in
the shareholders’ best interests for the Investment
Manager’s appointment to continue and the board
has since ratified this decision.
Review of the Investment Manager’s
remuneration
Under the terms of the Investment Management
Agreement, the Investment Manager is entitled to
a management fee together with reimbursement
of reasonable expenses it incurs in performing
its duties.
The management fee is 1% of the Company’s
Net Asset Value (NAV), where the NAV is less than
or equal to £500 million, or £5 million plus 0.70%
of the amount by which the NAV exceeds £500
million. These amounts are calculated and paid in
quarterly instalments.
The Investment Manager is also paid a fixed
amount of £95,000 per annum to cover the
incremental costs of providing services as AIFM.
The Committee reviewed the fee arrangements,
compared them with comparable REITs and
concluded that they were reasonable.
Administrator and Company Secretary
JTC (UK) Limited (“JTC”) serves as Administrator
and Company Secretary.
Under the terms of the Administration and Company
Secretarial Services Agreement, which was updated
during the year, JTC as Administrator is entitled to
an annual fee of £140,000.
The Administration and Company Secretarial
Services Agreement can be terminated by either
party, either in accordance with the agreement (for
example in the case of a material breach or of the
MANAGEMENT ENGAGEMENT COMMITTEE REPORT
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MANAGEMENT ENGAGEMENT COMMITTEE REPORT
insolvency of a party, whereby the agreement may
be terminated immediately upon notice), or by at
least three months’ written notice.
Review of performance
The Committee discussed the performance of JTC
both as Administrator and as Company Secretary.
We concluded that the Investment Manager
should oversee JTC more closely.
Review of other service providers
There was one notable change to the Company’s
other service providers during the year. We
appointed Jefferies International Limited as
joint corporate broker and financial adviser,
alongside our existing corporate broker
Winterflood Securities Limited. The Committee
also reviewed the service level of the Company’s
other service providers and concluded that the
performance was satisfactory and that the relevant
appointments should continue.
Rupert Barclay Committee Chairman
28 March 2022
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Rosemary Boot,
Committee Chairman
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Annual statement
This was another straightforward year for the
Committee. At the 2021 AGM, shareholders
overwhelmingly approved the Company’s updated
remuneration policy, with 99.99% of votes cast
being in favour. I want to thank shareholders for
their continued support.
We undertook our annual review of remuneration
for the directors, which last increased in 2018. The
Articles of Association and the AIC Code require
us to consider whether the level of remuneration
reflects our time commitment and responsibilities,
particularly for any duties beyond those normally
expected. Our discussions took into account
directors’ fees for the Company’s peers, using
analysis provided by the Investment Manager, as
well as fees at comparable companies that have
recently come to market. We also noted that
the Board members each dedicate a significant
amount of time to the Company. As a result, we
increased the directors’ fees by c. 5-7%, depending
on the role, to apply from 1 January 2022.
Information on the revised fees can be found in
the Directors’ remuneration section below.
As required by the AIC Code, each director
abstained from the decision on their own
remuneration.
Application of the Principles of the AIC Code
2019 to the Directors’ Remuneration policy
Principles Q and P of the AIC Code 2019 apply to
the policy. Principle Q requires us to establish a
formal and transparent procedure for developing
our remuneration policy and states that no
director should be involved in deciding their own
remuneration outcome. Principle P requires us to
design remuneration policies and practices that
support the Company’s strategy and promote its
long-term sustainable success. As set out in this
report, we continued to apply these principles
during 2021.
Directors’ remuneration policy
The policy that applied during 2021 was
considered and approved by shareholders at the
Company’s AGM, on 12 May 2021.
The Company’s policy is to determine the level of
directors’ fixed annual fees in accordance with its
Articles of Association.
When setting the level of directors’ fees, the
Company will have due regard to the experience
of the board as a whole, the time commitment
required, the responsibilities of the role and to be
fair and comparable to non-executive directors
of similar companies. Furthermore, the level
of remuneration should be sufficient to attract
and retain the directors needed to oversee the
Company properly and to reflect its specific
circumstances. The Company may also periodically
choose to benchmark directors’ fees with an
independent review, to ensure they remain fair
and reasonable.
Directors’ fees are reviewed annually and will be
adjusted from time to time, as may be determined
by the board under the Articles of Association
and this policy. In terms of the Company’s Articles
of Association, the aggregate remuneration of
all the directors shall not exceed £500,000 per
annum.
The directors are also entitled to be paid their
reasonable expenses incurred while engaged on
the business of the Company.
Additional directors’ fees may be paid by the
Company where directors are involved in duties
beyond those normally expected as part of
the director’s appointment. In such instances
where additional remuneration is paid, the board
will provide details of the events, duties and
responsibilities that gave rise to any additional
directors’ fees in the Company’s annual report.
The Chair of the board and the Audit Committee
Chair are entitled to additional fees over and
Directors’ remuneration report
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above their normal directors’ fees, reflecting their
duties and responsibilities of these roles.
No element of the directors’ remuneration is
performance-related, nor does any director have
any entitlement to pensions, share options or any
long-term incentive plans from the Company.
The directors hold their office in accordance with
the Articles and their appointment letters. No
director has a service contract with the Company,
nor are any such contracts proposed. The directors’
appointments can be terminated in accordance
with the Articles and without compensation.
The Company is committed to engagement with
shareholders and will seek major shareholders’
views in advance of making significant changes to
its remuneration policy and how it is implemented.
The Chair of the Remuneration Committee will
attend the Annual General Meeting to hear the
views of shareholders on the policy and to answer
any questions in relation to remuneration.
Directors’ remuneration
In line with the remuneration policy in force
during the year, for 2021 each director received
an annual fee of £33,000. The Chairman was
paid a further £13,000 and the Audit Committee
Chairman was paid a further £5,000.
Since 1 January 2022, each director receives an
annual fee of £35,000. The Chairman receives
an additional £13,500 and the Audit Committee
Chairman receives an additional £6,000.
Company-wide considerations
The Company has no executive directors or
employees, so there are no statements to make
on any consultations, comparisons or pay and
employment conditions within the Company.
Recruitment
The same remuneration policy will be applied for
any recruitment purposes.
Statement of consideration
of shareholder views
The Company continues to engage with
shareholders on a wide range of topics, including the
directors’ fees and future remuneration policy. During
the year, the Chairman of the board and the Senior
Independent Director again held calls with a number
of large institutional shareholders, which revealed no
concerns about the level of directors’ remuneration.
Annual report on remuneration
Principle R of the AIC Code 2019 requires that
directors should exercise independent judgement
and discretion when authorising remuneration
outcomes, taking account of Company and
individual performance, and wider circumstances.
We believe that the information set out in
the annual statement and this section of the
remuneration report demonstrates and explains
our application of this principle.
Directors’ fees for the year under
review (audited)
The directors only receive fees and reasonable
expenses for services as non-executive directors.
The directors’ fees are shown in the table below. The
directors’ expenses for 2021 totalled £nil (2020: £nil).
No other remuneration or taxable benefits were
paid or payable during the period to any director.
Director 2021 2020
Rupert Barclay (Chairman) £46,000 £46,000
Rosemary Boot £33,000 £33,000
Amanda Aldridge £38,000 £38,000
Paul Craig £33,000 £33,000
Philip Hall £33,000 £33,000
Chris Santer * £20,900 –
* Appointed on 13 May 2021.
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The Company maintains directors’ and officers’
liability insurance cover and public offering
of securities insurance, at its expense, on the
directors’ behalf.
Payments to past directors or for loss of office
There are no payments to disclose. Under the
Directors’ remuneration policy, there would be no
compensation for loss of office.
Total shareholder return
The graph below shows the total shareholder
return of the Company’s ordinary shares relative to
a return on a hypothetical holding over the same
period in the FTSE EPRA/NAREIT UK Index:
Total shareholder return (p)
■
Impact Healthcare REIT ■ FTSE EPRA/Nareit UK Index
Dec
2021
Jan MarFeb Apr May Jun Jul Aug Sep Oct Nov
Source: FTSE Russel monthly total return index/Investis
90p
100p
110p
120p
130p
Directors’ shareholdings (audited)
There is no requirement for the directors to own
shares in the Company. As at the year end, the
directors had the shareholdings listed below.
Director*
Number of
shares held
Percentage
of share
capital held
Rupert Barclay (Chairman) 183,287 0.05%
Rosemary Boot 30,000 0.01%
Amanda Aldridge – –
Paul Craig
†
56,808,553 16.20%
Philip Hall 30,000 0.01%
Chris Santer 12,567 0.00%
* Includes directors and persons closely associated (as defined by the EU
Market Abuse Regulation) shareholdings.
† These shares are held by funds owned by Quilter Investors, of which Paul
Craig is Investment Manager.
The shareholdings of the directors, other than Paul
Craig, are not significant and, therefore, do not
compromise their independence. Paul Craig has
been identified as non-independent as he is an
employee of the Company’s largest shareholder,
Quilter Investors.
Statement of implementation of
remuneration policy for financial year 2021
The Committee adopted the following fees for 2021:
£46,000 for the Chairman of the board.
£33,000 for the non-executive directors.
An additional £5,000 for the Audit Committee
Chairman.
Committee membership
All the independent directors are members of the
Remuneration Committee. I chair the Committee
and the other members are Rupert Barclay,
Amanda Aldridge, Philip Hall and Chris Santer.
Chris joined the committee on 13 May 2021.
I have experience of serving on remuneration
committees and currently serve on one other. We
benefit from the Remuneration and Nomination
DIRECTORS’ REMUNERATION REPORT
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Committees having the same membership, giving
us full visibility of succession planning.
Role
The Committee’s main responsibilities are to:
determine, and agree with the board, the
framework and broad policy for the directors’
remuneration, and to review the ongoing
appropriateness and relevance of the remuneration
policy, so it meets the Company’s needs;
take into account all factors we deem necessary,
including legal and regulatory requirements, the
principles of the AIC Code and relevant provisions
of the UK Corporate Governance Code, and any
associated recommendations and guidance; and
agree the policy for authorising the directors’
expense claims.
No director is involved in setting their own pay.
Committee meetings
The Remuneration Committee meets formally once
a year and otherwise when needed. We had one
meeting in 2021. Attendance is set out on page 66.
JTC attends our meetings as Secretary to the
Committee. We also invite representatives of the
Investment Manager to attend as required.
Terms of reference
The Committee operates under terms of reference,
which we reviewed during the year and left
unchanged. These are available on the Company’s
website at: https://www.impactreit.uk/about/
corporate-governance/
Committee evaluation
The Committee was evaluated as part of the
overall board evaluation, which is described on
pages 71-72. The evaluation showed that the
Committee functions effectively and there were
no suggestions for improvement.
External advisers
The Committee has not received any external
advice with respect to remuneration and has not
appointed an external remuneration adviser.
Statement of voting at the 2021 Annual
General Meeting
The directors’ remuneration report was subject to
an advisory vote at the AGM on 12 May 2021. The
voting outcome is shown in the table below:
Resolution to
approve directors’
remuneration report
Votes for* 210,081,097
% 99.99
Votes against 12,759
% 0.01
Total votes validly cast 210,093,856
Total votes cast as % of issued share capital 59.92
Votes withheld
†
67,369
The directors’ remuneration policy was subject
to shareholder approval at the AGM. The voting
outcome is shown in the table below:
Resolution to
approve the
Remuneration Policy
Votes for * 210,082,419
% 99.99
Votes against 12,759
% 0.01
Total votes validly cast 210,095,178
Total votes cast as % of issued share capital 59.92
Votes withheld
†
66,047
* Includes discretionary votes.
† A vote withheld is not a vote in law and is not counted in the calculation
of the votes for or against a resolution.
Rosemary Boot Committee Chairman
28 March 2022
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Introduction
The directors are pleased to present the annual
report, including the Company’s audited
financial statements as at, and for the year ended,
31 December 2021.
The Directors’ report, together with the Strategic
report, comprise the “Management Report”, for the
purposes of Disclosure Guidance and Transparency
Rule 4.1.5R.
Statutory information contained elsewhere
in the annual report
Information required to be part of this Directors’
report can be found elsewhere in the annual
report and is incorporated into this report by
reference, as indicated below:
Financial results and dividends, page 1
Future developments, pages 4-41
Engagement with suppliers, customers and others with
business relationships with the Company, pages 42-43 and 62
Corporate governance statement, pages 56-86
Manager and service providers, pages 66-67
Directors’ names and Board of directors, pages 68-69
Directors’ and officers’ liability insurance, page 89
Directors’ interests in shares, page 89
Related-party transactions, note 21, pages 129-130
Financial instruments, note 18, pages 126-128
Share capital, note 20, page 129
Events subsequent to the year-end date, note 28, pages 133
Substantial shareholdings
As at 28 March 2021, the Company is aware of the
following substantial shareholdings, which were
directly or indirectly interested in 3% or more of the
total voting rights in the Company’s issued share capital:
Investor
Number of
ordinary
shares
% holding
of issued
share
capital
Quilter Investors Limited 56,808,553 16.20%
Royal London Asset Management Limited
21,059,932 6.01%
Premier Fund Managers Limited 20,826,182 5.94%
Gravis Advisory Ltd 19,373,114 5.53%
Schroder & Co Limited 16,735,175 4.77%
Brooks Macdonald Asset Management
16,297,610 4.65%
I
ntegrated Financial Arrangements Ltd
13,738,234 3.92%
Newton Investment Management Limited
11,107,524 3.17%
Based on 350,644,188 ordinary shares in issue as at
31 December 2021.
No individual underlying shareholder or fund owns
more than 10%.
The Company only has one class of share.
Restrictions on transfer of securities
in the Company
There are no restrictions on the transfer of
securities in the Company, except as a result of:
the FCA’s Listing Rules, which require certain
individuals to have approval to deal in the
Company’s shares; and
the Company’s Articles of Association, which allow
the board to decline to register a transfer of shares
or otherwise impose a restriction on shares, to
prevent the Company or the Investment Manager
breaching any law or regulation.
The Company is not aware of any agreements
between holders of securities that may result in
restrictions on transferring securities in the Company.
Securities carrying special rights
No person holds securities in the Company carrying
special rights with regard to control of the Company.
Change of control
Full relief for Stamp Duty Land Tax (“SDLT”)
has been granted in relation to the transfer
of properties between companies which are
members of the Group. Should there be a change
in control of the Company within three years of
completion, or a single shareholder acquires a
substantial stake in the Company, a liability in the
subsidiary companies could arise. This is equal to
approximately 5% of the aggregate value of the
properties and is estimated at £5.4 million on the
net purchase price of assets acquired since IPO.
Directors’ report
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The Company is not aware of any person who,
directly or indirectly, owns or controls the
Company. The Company is not aware of any
arrangements the operations of which may give
rise to a change in control of the Company.
Directors’ share dealings
The directors have adopted a code of directors’
dealings in ordinary shares, which is in accordance
with the Market Abuse Regulation. The board is
responsible for taking all proper and reasonable
steps to ensure any dealings by directors, or
persons closely associated with them, are in
compliance with the Market Abuse Regulation.
Greenhouse gas emissions reporting
The board has considered the requirement
to disclose the Company’s measured carbon
emissions sources under the Companies Act 2006
(Strategic report and Directors’ report) Regulations
2013. The Group is a low energy user and therefore
exempt from the Streamlined Energy and Carbon
Reporting regulation.
During the year ended 31 December 2021, the
Group had no directly reportable emissions, as:
any emissions from the Group’s properties are the
tenants’ responsibility rather than the Group’s, so the
principle of operational control has been applied;
any emissions produced from the Company’s
registered office or from offices used to provide
administrative support are deemed to be the
Investment Manager’s responsibility; and
the Group has not leased or owned any vehicles
which fall under the requirements of Mandatory
Emissions Reporting.
However, as discussed in the Strategic report
on pages 1-55, the Group does have the scope
to enhance the energy efficiency of its portfolio
and thereby reduce the emissions incurred by its
tenants. The Group publishes information on tenant
emissions in its annual EPRA sustainability reporting
and retained its EPRA sBPR gold award for its 2020
submission which is available on our website at
https://www.impactreit.uk/about/sustainability/
More information on the Group’s work in this area in
2021 can be found on pages 36-39.
Political donations
No political donations were made during the year.
Employees
The Group has no employees and therefore
no employee share scheme or policies for the
employment of disabled persons or employee
engagement.
Articles of Association
These are available on our website at
http://www.impactreit.uk/documents or by
application to the Company Secretary. Any
amendment to the Company’s Articles of
Association may only be made by passing a special
resolution of the shareholders of the Company.
Branches outside the UK
The Company does not have any branches outside
the UK.
Powers of the directors
The board manages the Company’s business and
may exercise all the Company’s powers, subject to
the Articles of Association, the Companies Act and
any directions given by the Company by special
resolution.
Powers in relation to the Company issuing
its shares
Subject to Company law and the Articles of
Association, the directors are authorised to issue
shares of such number of tranches and on such
terms as they determine, provided that such terms
are consistent with the provisions of the Articles.
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Non-pre-emptive share issuance
Over the past three financial years, the Company’s
non-pre-emptive share issuance increased the
issued share capital by 82.43%.
In May 2019, 94,339,623 new ordinary shares were
admitted to the premium segment of the Official
List and to trading on the London Stock Exchange
at a placing price of 106 pence per share, a
discount of 2.3% at the placement proposal date.
The £100 million proceeds (£97.95 million net of
share issue costs) from this issue were used to pay
down debt drawn under revolving credit facilities,
pursue near-term pipeline opportunities and
invest in value-enhancing opportunities within the
Group’s existing portfolio.
In December 2019, a further 32,407,407 new
ordinary shares were admitted at a placing price
of 108 pence per share, a discount of 1.8% at the
placement proposal date. The £35 million proceeds
(£34.21 million net of share issue costs) were used
to pursue near-term acquisition opportunities.
In April 2021, a further 31,690,327 new ordinary
shares were admitted at a placing price of
111.5 pence per share, a discount of 2.5% at the
placement proposal date. The £35 million proceeds
(£34.63 million net of share issue costs) were used
to repay amounts drawn under revolving credit
facilities and to fund new investments.
Pre-emptive share issuance
In February 2022, a further 35,087,720 new ordinary
shares were admitted at a placing price of 114 pence
per share, a discount of 2.7% at the placement
proposal date. The £40 million of gross proceeds
were used to repay revolving credit facilities and
pursue near-term pipeline opportunities.
Appointment and replacement of directors
A director may be appointed by ordinary resolution
of the shareholders in a general meeting following
nomination by the board or a member (or members)
entitled to vote at such a meeting. In addition, the
directors may appoint a director to fill a vacancy
or as an additional director, provided that the
individual retires at the next AGM.
A director may be removed by the Company in
certain circumstances set out in the Company’s
Articles of Association or by an ordinary resolution
of the Company.
Full details of the processes by which directors can
be appointed or replaced are set out in the Articles
of Association.
Independent Auditor
BDO LLP has expressed its willingness to
continue as auditor for the financial year ending
31 December 2022.
Disclosure of information to the auditor
The directors who were members of the board at
the time of approving the Directors’ report have
confirmed that:
so far as each director is aware, there is no relevant
audit information of which the Company’s auditor
is not aware; and
each director has taken all the steps that they
ought to have taken as a director in order to make
themselves aware of any relevant audit information
and to establish that the Company’s auditor is
aware of that information.
Additional information
There are no disclosures required in accordance
with LR 9.8.4 R.
Annual General Meeting
The Company’s AGM is scheduled to be held in
person at 11am on 11 May 2022.
Signed on behalf of the board by
Rupert Barclay Chairman
28 March 2022
DIRECTORS’ REPORT
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Directors’ statement of responsibilities
The directors are responsible for preparing the
annual report and the Group and parent company
financial statements in accordance with applicable
law and regulations. Company law requires the
directors to prepare the Group and Company
financial statements for each financial year. The
Group financial statements have been prepared
in accordance with UK adopted international
accounting standards. The Company financial
statements have been prepared in accordance
with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting
Standards and applicable law). Under company
law, the directors must not approve the financial
statements unless they are satisfied they give
a true and fair view of the state of affairs of the
Group and Company and of the profit or loss for
the Group and Company for that year.
In preparing the financial statements, the directors
are required to:
select suitable accounting policies and then apply
them consistently;
make judgements and estimates that are
reasonable and prudent;
for the Group financial statements, state whether
they have been prepared in accordance with
UK adopted international accounting standards,
subject to any material departures disclosed and
explained in the Group financial statements;
for the Company financial statements, state
whether they have been prepared in accordance
with Financial Reporting Standard 102 (“FRS 102”),
subject to any material departures disclosed and
explained in the Company financial statements;
and
prepare the financial statements on the going
concern basis unless it is inappropriate to presume
that the Group and the Company will continue in
business.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Group’s and Company’s transactions
and disclose with reasonable accuracy at any time
the financial position of the Group and Company
and enable them to ensure that its financial
statements comply with the Companies Act 2006.
They have general responsibility for taking such
steps as are reasonably open to them to safeguard
the assets of the Group and hence for taking
reasonable steps for the prevention and detection
of fraud and other irregularities.
Under applicable law and regulations, the directors
are also responsible for preparing a directors’
report, a strategic report, a directors’ remuneration
report and a corporate governance statement that
comply with that law and those regulations. These
can be found on pages 91-93, 1-55, 87-90 and
56-86, respectively.
Website publication
The directors are responsible for ensuring the
annual report, including the financial statements,
is made available on a website. Financial
statements are published on the Company’s
website in accordance with legislation in the
United Kingdom governing the preparation and
dissemination of financial statements, which
may vary from legislation in other jurisdictions.
The maintenance and integrity of the Company’s
website (at http://www.impactreit.uk) is the
responsibility of the directors. The directors’
responsibility also extends to the ongoing integrity
of the financial statements contained therein.
Statements of responsibilities
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Directors’ responsibility statement,
pursuant to DTR4
We confirm that to the best of our knowledge:
the financial statements have been prepared
in accordance with UK adopted international
accounting standards and, give a true and fair
view of the assets, liabilities, financial position and
profit or loss of the Company and the undertakings
included in the consolidation as a whole; and
the Management Report includes a fair review of
the development and performance of the business
and the financial position of the Company and the
undertakings included in the consolidation taken
as a whole, together with a description of the
principal risks and uncertainties that they face.
Signed on behalf of the board by:
Rupert Barclay Chairman
28 March 2022
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Opinion on the financial statements
In our opinion:
the financial statements give a true and fair view
of the state of the Group’s and of the Parent
Company’s affairs as at 31 December 2021 and
of the Group’s profit for the year then ended;
the Group financial statements have been
properly prepared in accordance with UK adopted
international accounting standards;
the Parent Company financial statements have been
properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements of Impact
Healthcare REIT Plc (the ‘Parent Company’) and
its subsidiaries (together, the ‘Group’) for the year
ended 31 December 2021 which comprise the
consolidated statement of comprehensive income,
the consolidated and Company statements of financial
position, the consolidated statement of cash flows, the
consolidated and Company statements of changes in
equity and notes to the financial statements, including
a summary of significant accounting policies.
The financial reporting framework that has been
applied in the preparation of the Group financial
statements is applicable law and UK adopted
international accounting standards. The financial
reporting framework that has been applied in the
preparation of the Parent Company financial statements
is applicable law and United Kingdom Accounting
Standards, including Financial Reporting Standard
102 The Financial Reporting Standard applicable in
the United Kingdom and Republic of Ireland (United
Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities
under those standards are further described in
the auditor’s responsibilities for the audit of the
financial statements section of our report. We
believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for
our opinion. Our audit opinion is consistent with
the additional report to the Audit Committee.
Independence
Following the recommendation of the Audit
Committee, we were appointed by the Directors in
September 2017 to audit the financial statements
for the year ended 31 December 2017 and
subsequent financial periods. The period of total
uninterrupted engagement including retenders
and reappointments is 5 years, covering the years
ending 31 December 2017 to 31 December 2021.
We remain independent of the Group and the
Parent Company in accordance with the ethical
requirements that are relevant to our audit of
the financial statements in the UK, including the
FRC’s Ethical Standard as applied to listed public
interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these
requirements. The non-audit services prohibited
by that standard were not provided to the Group
or the Parent Company.
Conclusions relating to going concern
In auditing the financial statements, we have
concluded that the Directors’ use of the going
concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation
of the Directors’ assessment of the Group and the
Parent Company’s ability to continue to adopt the
going concern basis of accounting included:
assessment of the appropriateness and accuracy
of the Directors’ cash flow forecasts by reference to
current cash reserves, available finance, contractual
rental income, debt service cost obligations and
other committed or expected cash flows.
Independent Auditor’s report
to the members of Impact Healthcare REIT plc
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evaluation of the Directors’ assessment as to the
ability of each material tenant to satisfy its future
contractual rent obligations based on historic and
current occupancy and profitability levels.
evaluation of the sensitivity analyses and stress
tests performed in relation to the Group’s liquidity
and loan covenant compliance.
assessment of the identified options that would
be available to mitigate the impact of any future
substantial non-payment of rent on the Group and
Parent Company’s liquidity and the Group’s ability
to continue to operate within its loan covenants.
Based on the work we have performed, we
have not identified any material uncertainties
relating to events or conditions that, individually
or collectively, may cast significant doubt on
the Group and the Parent Company’s ability to
continue as a going concern for a period of at
least twelve months from when the financial
statements are authorised for issue.
In relation to the Parent Company’s reporting on
how it has applied the UK Corporate Governance
Code, we have nothing material to add or draw
attention to in relation to the Directors’ statement
in the financial statements about whether the
Directors considered it appropriate to adopt the
going concern basis of accounting.
Our responsibilities and the responsibilities of
the Directors with respect to going concern are
described in the relevant sections of this report.
Overview
Coverage 100% (2020: 100%) of Group profit before tax
100% (2020: 100%) of Group revenue
100% (2020: 100%) of Group total assets
Key audit
matters
2021 2020
Valuation of Investment Properties
✓ ✓
Materiality Group financial statements as a whole
£5.14 million (2020: £4.30 million) based on 1%
(2020: 1%) of Total Assets
An overview of the scope of our audit
Our Group audit was scoped by obtaining an
understanding of the Group and its environment,
including the Group’s system of internal control,
and assessing the risks of material misstatement
in the financial statements. We also addressed the
risk of management override of internal controls,
including assessing whether there was evidence
of bias by the Directors that may have represented
a risk of material misstatement.
The Group operates in one segment, investment
property, structured through a number of
subsidiary entities and therefore we treated the
Group as one significant component. The Group
audit engagement team performed all the work
necessary to issue the Group and Parent Company
audit opinion, including undertaking all of the
audit work on the risks of material misstatement
identified in the key audit matters section below.
Key audit matters
Key audit matters are those matters that, in our
professional judgement, were of most significance
in our audit of the financial statements of the
current period and include the most significant
assessed risks of material misstatement (whether
or not due to fraud) that we identified, including
those which had the greatest effect on: the overall
audit strategy, the allocation of resources in the
audit, and directing the efforts of the engagement
team. This matter was addressed in the context of
our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do
not provide a separate opinion on this matter.
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Key audit matter How the scope of our audit addressed the key audit matter
Valuation of
investment properties
As detailed in note 12
to the consolidated
financial statements, the
Group owns a portfolio
of investment properties
which are carried at their
fair value.
The Group’s accounting
policy for these
properties is described
in note 3 to the
consolidated financial
statements.
The key judgements and
estimates in arriving at
the fair values are set out
in notes 2.2 and 12 to the
consolidated financial
statements.
The Group owns care home
investment properties that
are leased to tenant operators
under long-term rental
agreements. The properties
are independently, externally
valued using the income
capitalisation method
in accordance with RICS
methodology and IFRS 13 Fair
Value Measurement.
The valuation of investment
property requires significant
judgement and estimates
by the Directors and their
independent valuer and
is therefore considered a
significant risk due to the
subjective nature of certain
assumptions inherent in each
valuation.
Any input inaccuracies or
unreasonable bases used in
the valuation judgements
(such as in respect of
estimated rental value
and yield profile applied)
could result in a material
misstatement of the Group
financial statements.
There is also a risk that
management may influence
the judgements and estimates
in respect of property
valuations in order to achieve
property valuations and other
performance targets to
meet market expectations.
The valuation of investment
properties was therefore
considered to be a key audit
matter.
Our audit procedures included, but was not restricted to,
the following:
Experience of the valuer and relevance of its work
We assessed the valuer’s competence and capabilities and
read their terms of engagement with the Group, to identify
any matters that could have affected their independence and
objectivity or imposed scope limitations upon them.
With the assistance of the real estate experts within our team,
we read the valuation reports and assessed whether the
valuations had been prepared in accordance with applicable
valuation guidelines and IFRS 13, and they were appropriate
for determining the carrying value in the Group’s financial
statements
Data provided to the valuer
We inspected that the data provided to the valuer by the
Investment Manager was consistent with the information
provided to, and tested by us. This data included inputs such as
current rent and lease term, which we have agreed on a sample
basis to executed lease agreements.
Assumptions and estimates used by the valuer
We developed yield expectations for each property using
available independent industry data, reports and details of
relevant comparable transactions in the market around the
year-end date.
We compared the key valuation assumptions against our
independently formed market expectations and challenged
the external valuers where significant variances from these
expectations were identified. We corroborated their responses
to supporting documentation where appropriate. The key
valuation assumptions were the equivalent yields, which we
evaluated by reference to market data based on the location
and specifics of each property.
With the assistance of the real estate experts within our team, we
met with the Group’s external valuers to discuss and challenge
the valuation methodology and key assumptions and considered
if there were any indicators of undue management influence on
the valuations.
Key observations
We did not identify any indicators to suggest that the valuation
of the Group’s investment properties is inappropriate.
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Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the
effect of misstatements. We consider materiality to be the magnitude by which misstatements, including
omissions, could influence the economic decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality,
we use a lower materiality level, performance materiality, to determine the extent of testing needed.
Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we
also take account of the nature of identified misstatements, and the particular circumstances of their
occurrence, when evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole
and performance materiality as follows:
Group financial statements Parent company financial statements
2021 2020 2021 2020
Materiality £5.14 million £4.30 million £4.11 million £3.84 million
Basis for
determining
materiality
1% of total assets
Rationale for
the benchmark
applied
We determined that total assets would be the most appropriate basis for determining overall materiality as
we consider it to be one of the principal considerations for users of the financial statements in assessing the
financial performance of the Group and the Parent Company.
Performance
materiality
£3.85 million £3.22 million £3.08 million £2.88 million
Basis for
determining
performance
materiality
Overall performance materiality for the Group and Parent Company has been set at 75% of materiality. This
was on the basis of our risk assessment, together with our assessment of the Group’s and Parent Company’s
overall control environment and our past experience of the audit which has indicated a low number of
corrected and uncorrected misstatements in the prior period and Management’s willingness to investigate
and correct these.
Specific materiality
We also determined that for any items that could affect the calculation of the Group’s European Public
Real Estate (“EPRA”) earnings, a misstatement of less than materiality for the financial statements as a
whole, specific materiality, could influence the economic decisions of users. We consider EPRA earnings
to be a key performance measure of the Group. EPRA earnings excludes the impact of the net surplus
on revaluation of investment properties, profit on disposal of investment properties and changes in the
fair value of interest rate derivatives. As a result, we determined materiality for these items based on 5%
of EPRA earnings amounting to £1.37 million (2020: £1.16 million) for the Group. We further applied a
performance materiality level of 75% (2020: 75%) of specific materiality to ensure that the risk of errors
exceeding specific materiality was appropriately mitigated.
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Reporting threshold
We agreed with the Audit Committee that we
would report to them for the Group all individual
audit differences in excess of £256,800 (2020:
£214,800) for the financial statement as a whole,
and in excess of £68,350 (2020: £58,200) for
specific items. We also agreed to report differences
below these thresholds that, in our view,
warranted reporting on qualitative grounds.
Other information
The directors are responsible for the other
information. The other information comprises
the information included in the annual report
other than the financial statements and our
auditor’s report thereon. Our opinion on the
financial statements does not cover the other
information and, except to the extent otherwise
explicitly stated in our report, we do not express
any form of assurance conclusion thereon. Our
responsibility is to read the other information
and, in doing so, consider whether the other
information is materially inconsistent with the
financial statements or our knowledge obtained
in the course of the audit, or otherwise appears
to be materially misstated. If we identify such
material inconsistencies or apparent material
misstatements, we are required to determine
whether this gives rise to a material misstatement
in the financial statements themselves. If, based
on the work we have performed, we conclude
that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
Corporate governance statement
The Listing Rules require us to review the Directors’
statement in relation to going concern, longer-term
viability and that part of the Corporate Governance
Statement relating to the parent company’s
compliance with the provisions of the UK Corporate
Governance Code specified for our review.
Based on the work undertaken as part of our audit,
we have concluded that each of the following
elements of the Corporate Governance Statement is
materially consistent with the financial statements
or our knowledge obtained during the audit.
Going
concern and
longer-term
viability
The Directors' statement with regards to
the appropriateness of adopting the
going concern basis of accounting and
any material uncertainties identified (set
out on page 54); and
The Directors’ explanation as to its
assessment of the Group’s prospects,
the period this assessment covers and
why the period is appropriate (set out
on page 54).
Other Code
provisions
Directors' statement on fair, balanced and
understandable (set out on page 60);
Board’s confirmation that it has carried out
a robust assessment of the emerging and
principal risks (set out on page 60);
The section of the annual report that
describes the review of effectiveness of risk
management and internal control systems
(set out on page 60); and
The section describing the work of the
Audit Committee (set out on pages 79 to 83).
Other Companies Act 2006 reporting
Based on the responsibilities described below
and our work performed during the course of the
audit, we are required by the Companies Act 2006
and ISAs (UK) to report on certain opinions and
matters as described below.
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Strategic
report and
Directors’
report
In our opinion, based on the work
undertaken in the course of the audit:
the information given in the Strategic
report and the Directors’ report for the
financial year for which the financial
statements are prepared is consistent with
the financial statements; and
the Strategic report and the Directors’
report have been prepared in accordance
with applicable legal requirements.
In the light of the knowledge and
understanding of the Group and Parent
Company and its environment obtained
in the course of the audit, we have not
identified material misstatements in the
strategic report or the Directors’ report.
Directors’
remuneration
In our opinion, the part of the Directors’
remuneration report to be audited has been
properly prepared in accordance with the
Companies Act 2006.
Matters on
which we
are required
to report by
exception
We have nothing to report in respect of the
following matters in relation to which the
Companies Act 2006 requires us to report to
you if, in our opinion:
adequate accounting records have not been
kept by the Parent Company, or returns
adequate for our audit have not been
received from branches not visited by us; or
the Parent Company financial statements
and the part of the Directors’ remuneration
report to be audited are not in agreement
with the accounting records and returns; or
certain disclosures of Directors’ remuneration
specified by law are not made; or
we have not received all the information
and explanations we require for our audit.
Responsibilities of Directors
As explained more fully in the Directors’ statement
of responsibilities, the Directors are responsible for
the preparation of the financial statements and
for being satisfied that they give a true and fair
view, and for such internal control as the Directors
determine is necessary to enable the preparation
of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors
are responsible for assessing the Group’s and the
Parent Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to
going concern and using the going concern basis
of accounting unless the Directors either intend to
liquidate the Group or the Parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit
of the financial statements
Our objectives are to obtain reasonable assurance
about whether the financial statements as a whole
are free from material misstatement, whether due
to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK)
will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the
aggregate, they could reasonably be expected to
influence the economic decisions of users taken on
the basis of these financial statements.
Extent to which the audit was capable of
detecting irregularities, including fraud
Irregularities, including fraud, are instances of
non-compliance with laws and regulations. We
design procedures in line with our responsibilities,
outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent
to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
We gained an understanding of the legal and
regulatory framework applicable to the Group and
the industry in which it operates, and considered
the risk of acts by the Group that were contrary to
applicable laws and regulations, including fraud.
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We considered the Group’s compliance with laws
and regulations that have a direct impact on the
financial statements including UK company law, the
applicable accounting framework, tax legislation
(including the UK REIT regime requirements) and
the relevant listing Rules, and we considered the
extent to which non-compliance might have a
material effect on the Group financial statements.
We designed audit procedures to identify instances
of non-compliance with such laws and regulations.
Our procedures included reviewing the financial
statement disclosures and accounting policies to
identify instances of management bias, and agreeing
to underlying supporting documentation where
necessary. We reviewed minutes of Board meetings
held during and subsequent to the year for any
indicators of non-compliance and made enquiries
of management and of the Directors as to the risks
of non-compliance and any instances thereof.
We considered the valuation of the investment
property portfolio and management override
of internal controls to be significant risks to the
audit. Our response to the valuation of investment
properties is set out in the key audit matter section
above. We addressed the risk of management
override of internal controls by, testing a sample
of journal entries processed during the year,
agreeing to supporting documentation and
evaluating whether there was evidence of bias by
management or the Directors that represented
a risk of material misstatement due to fraud.
We communicated relevant identified laws
and regulations and potential fraud risks to all
engagement team members and remained alert
to any indications of fraud or non-compliance
with laws and regulations throughout the audit.
The engagement partner has assessed and
confirmed that the engagement team collectively
had the appropriate competence and capabilities
to identify or recognise non-compliance with laws
and regulations.
Our audit procedures were designed to respond to
risks of material misstatement in the financial state-
ments, recognising that the risk of not detecting a
material misstatement due to fraud is higher than the
risk of not detecting one resulting from error, as fraud
may involve deliberate concealment by, for example,
forgery, misrepresentations or through collusion.
There are inherent limitations in the audit procedures
performed and the further removed non-compliance
with laws and regulations is from the events and
transactions reflected in the financial statements, the
less likely we are to become aware of it.
A further description of our responsibilities
is available on the Financial Reporting
Council’s website at: www.FRC.org.uk/
AuditorsResponsibilities. This description forms
part of our auditor’s report.
Use of our report
This report is made solely to the Parent Company’s
members, as a body, in accordance with Chapter 3
of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might
state to the Parent Company’s members those
matters we are required to state to them in an
auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than
the Parent Company and the Parent Company’s
members as a body, for our audit work, for this
report, or for the opinions we have formed.
Richard Levy (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, United Kingdom
28 March 2022
BDO LLP is a limited liability partnership registered
in England and Wales (with registered number
OC305127).
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Financial statements
104 Consolidated statement of
comprehensive income
105 Consolidated statement of
financial position
106 Consolidated statement of cash flows
107 Consolidated statement of changes
in equity
108 Notes to the consolidated financial
statements
134 Company statement of financial position
135 Company statement of changes in equity
136 Notes to the Company financial
statements
Cragie House, Main Street, Crossgates Fife
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Consolidated statement of comprehensive income
For the year ended December
Notes
December
Total
£’
December
Total
£’
Gross rental income 36,398 30,818
Insurance/service charge income 496 374
Insurance/service charge expense (496 ) (376 )
Net rental income 36,398 30,816
Administrative and other expenses (5,766 ) (5,264 )
Profit on disposal of investment properties 308 153
Operating profit before changes in fair value
ofinvestmentproperties 30,940 25,705
Changes in fair value of investment properties 4,220 5,585
Operating profit 35,160 31,290
Finance income 72 49
Finance expense (3,264 ) (2,556 )
Profit before tax 31,968 28,783
Tax charge on profit for the year – –
Profit and total comprehensive income (attributable to
shareholders) 31,968 28,783
Earnings per share – basic and diluted (pence) 9.41 p 9.02 p
The results are derived from continuing operations during the year, the Group had no other
comprehensive income in the current or prior year.
The accompanying notes to the Consolidated statement of comprehensive income can be found on
pages -.
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Notes
December
£’
December
£’
Non-current assets
Investment property 437,635 405,657
Interest rate derivatives , 94 7
Trade and other receivables 61,948 15,915
Total non-current assets 499,677 421,579
Current assets
Trade and other receivables 1,557 89
Cash and cash equivalents 13,261 7,979
Total current assets 14,818 8,068
Total assets 514,495 429,647
Current liabilities
Trade and other payables (6,703 ) (3,129 )
Total current liabilities (6,703 ) (3,129 )
Non-current liabilities
Borrowings , (110,907 ) (74,213 )
Trade and other payables (2,641 ) (2,784 )
Total non-current liabilities (113,548 ) (76,997 )
Total liabilities (120,251 ) (80,126 )
Total net assets 394,244 349,521
Equity
Share capital 3,506 3,189
Share premium reserve 305,672 271,362
Capital reduction reserve 24,077 24,077
Retained earnings 60,989 50,893
Total equity 394,244 349,521
Net Asset Value per ordinary share (pence) 112.43 p 109.58 p
The accompanying notes to the Consolidated statement of financial position can be found on
pages -.
The consolidated financial statements for Impact Healthcare REIT plc (registered number: )
were approved and authorised for issue by the board of directors on March and are signed on
its behalf by:
Rupert Barclay Chairman
Consolidated statement of financial position
As at December
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Consolidated statement of cash flows
For the year ended December
Notes
December
£’
December
£’
Cash flows from operating activities
Profit for the year (attributable to equity shareholders) 31,968 28,783
Finance income (72 ) (49 )
Finance expense 3,264 2,556
Profit on disposal of investment properties (308 ) (153 )
Changes in fair value of investment properties (4,220 ) (5,585 )
Net cash flow before working capital changes 30,632 25,552
Working capital changes
Increase in trade and other receivables (9,183 ) (5,433 )
Increase in trade and other payables 2,133 904
Net cash flow generated from operating activities 23,582 21,023
Investing activities
Purchase of investment properties (26,900 ) (85,978 )
Proceeds on sale of investment property 1,676 886
Acquisition costs capitalised (1,230 ) (2,533 )
Capital improvements (1,050 ) (1,723 )
Loan advanced to operator for portfolio acquisition (37,500 ) –
Loan associated costs (93 ) –
Interest received 2 49
Net cash flow used in investing activities (65,095 ) (89,299 )
Financing activities
Proceeds from issue of shares 35,334 –
Issue costs of ordinary share capital (707 ) 21
Borrowings drawn , 92,685 51,243
Borrowings repaid , (54,507 ) –
Loan arrangement fees paid (1,844 ) (1,156 )
Loan commitment fees paid (430 ) (417 )
Interest paid on bank borrowings (1,864 ) (1,261 )
Dividends paid to equity holders (21,872 ) (19,965 )
Net cash flow generated from financing activities 46,795 28,465
Net (decrease)/increase in cash and cash equivalents for the year 5,282 (39,811 )
Cash and cash equivalents at the start of the year 7,979 47,790
Cash and cash equivalents at the end of the year 13,261 7,979
The accompanying notes to the Consolidated statement of cash flows can be found on pages -.
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Consolidated statement of changes in equity
For the year ended December
Notes
Share capital
£’
Share premium
£’
Capital reduction
reserve
£’
Retained earnings
£’
Total
£’
January 3,189 271,362 24,077 50,893 349,521
Total comprehensive income – – – 31,968 31,968
Transactions with owners
Dividends paid – – – (21,872 ) (21,872 )
Share issue 317 35,017 – – 35,334
Share issue costs – (707 ) – – (707 )
December 3,506 305,672 24,077 60,989 394,244
For the year ended December
Notes
Share capital
£’
Share premium
£’
Capital reduction
reserve
£’
Retained earnings
£’
Total
£’
January 3,189 271,341 24,077 42,075 340,682
Total comprehensive income – – – 28,783 28,783
Transactions with owners
Dividends paid – – – (19,965 ) (19,965 )
Share issue costs – 21 – – 21
December 3,189 271,362 24,077 50,893 349,521
The accompanying notes to the Consolidated statement of changes in equity can be found on
pages -.
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
Notes to the consolidated financial statements
For the year ended December
1. Basis of preparation
General information
The consolidated financial statements for the year ended December are prepared in accordance
with UK adopted international accounting standards.
The consolidated financial statements have been prepared on a historical cost basis, except for
investment properties and the interest rate derivative which have been measured at fair value.
The Group has chosen to adopt EPRA best practices recommendations guidelines for calculating key
metrics such as earnings per share.
The Company is a public listed company incorporated and domiciled in England and Wales
Company’s ordinary shares are listed on the Premium Listing Segment of the Official List and trade on
the premium segment of the main market of the London Stock Exchange. The registered address of the
Company is disclosed in the corporate information.
Convention
The consolidated financial statements are presented in Sterling, which is also the Group’s functional
currency, and all values are rounded to the nearest thousand (£’), except when otherwise indicated.
Going concern
The Strategic report describes the Group’s financial position, cash flows and liquidity position. The
principal risks are set out on pages - and note to the financial statements also provide details
of the Group’s financial instruments and its exposure to liquidity and credit risk.
The ongoing effect of the COVID- pandemic alongside the high inflationary environment has been
considered by the directors. The directors have reviewed the forecasts for the Group taking into account
the impact of COVID- and rising costs, as a result of inflation, on trading over the months from
the date of signing this annual report. The forecasts have been assessed against a range of possible
downside outcomes incorporating significantly lower levels of income and higher costs, see Going
concern and viability on pages - for further detail.
The directors believe that there are currently no material uncertainties in relation to the Group’s ability to
continue for a period of at least months from the date of approval of the Group’s financial statements.
The board is, therefore, of the opinion that the going concern basis adopted in the preparation of the
annual report is appropriate.
2. Significant accounting judgements, estimates and assumptions
The preparation of the Group’s financial statements requires management to make judgements,
estimates and assumptions that affect the reported amounts recognised in the financial statements and
disclosures. However, uncertainty about these assumptions and estimates could result in outcomes that
could require material adjustment to the carrying amount of the assets or liabilities in future periods.
Information about significant areas of estimation, uncertainty and critical judgements in applying
accounting policies that have the most significant effect on the amount recognised in the financial
statements are disclosed below:
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Notes to the consolidated financial statements
For the year ended December
2.1 Judgements
Operating lease contracts – the Group as lessor
The Group has acquired investment properties that are subject to commercial property leases with
tenants. The Group has determined, based on an evaluation of the terms and conditions of the
arrangements, particularly the duration of the lease terms and minimum lease payments, that it retains
all the significant risks and rewards of ownership of these properties and so accounts for the leases as
operating leases.
The leases, when signed, are for between and years with a tenant-only option to extend for one or
two periods of ten years. At the inception of the lease, management do not judge any extension of the
leases to be reasonably certain and, as such, do not factor any lease extensions into their considerations
of lease incentives and their treatment.
2.2 Estimates
Fair valuation of investment property
The valuations have been prepared in accordance with the RICS Valuation – current edition of the global
and UK standards as at the valuation date, or the RICS “Red Book” as it has become widely known.
The basis of value adopted is that of fair value being “the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement
date” in accordance with IFRS . The concept of fair value is considered to be consistent with that of
market value.
The significant methods and assumptions used by the valuers in estimating the fair value of the
investment properties are set out in note .
Gains or losses arising from changes in the fair values are included in the Consolidated statement
of comprehensive income in the period in which they arise. In order to avoid double counting, the
assessed fair value may be increased or reduced by the carrying amount of any accrued income
resulting from the spreading of lease incentives and/or guaranteed minimum rent uplifts at the
inception of the lease.
The nature of uncertainty regarding the estimation of fair value as well as sensitivity analysis has been
considered as set out in note .
3. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements
are set out below.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and all of its
subsidiaries drawn up to December . Subsidiaries are those entities, including special purpose
entities, controlled by the Company. Control exists when the Company is exposed, or has rights, to
variable returns from its investment with the investee and has the ability to affect those returns through
its power over the investee. In assessing control, potential voting rights that presently are exercisable are
taken into account. The financial statements of subsidiaries are included in the consolidated financial
statements from the date that control commences until the date that control ceases.
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Notes to the consolidated financial statements
For the year ended December
3. Summary of significant accounting policies (continued)
Segmental information
The board is of the opinion that the Group is engaged in a single segment business, being the investment
in the United Kingdom in healthcare assets. The board consider that these properties have similar economic
characteristics and as a result these individual properties have been aggregated into a single reportable
operating element. Reporting on customers with greater than % of revenue is included in note .
Rental income
Rental income arising on investment properties is included in gross rental income in the Consolidated
statement of comprehensive income and is accounted for on a straight-line basis over the lease term. The
change in the RPI is reviewed annually, with the minimum uplifts being taken into consideration when
accounting for the rental income on a straight-line basis upon inception of the lease. The resulting asset or
liability is reflecting as a receivable or payable in the Consolidated statement of financial position.
When a contract includes both lease and non-lease components, the Group applies IFRS to allocate
the consideration under the contract to each component.
The valuation of investment properties is increased or reduced by the total of the unamortised lease
incentive and straight-line receivable or payable balances. Any remaining balances in respect of
properties disposed of are included in the calculation of the profit or loss arising at disposal.
The initial lease rental payments and guaranteed rental uplifts are spread evenly over the lease term,
even if payments are not made on such a basis. The lease term is the non-cancellable period of the
lease together with any further term for which the tenant has the option to continue the lease, except
for where, at the inception of the lease, the directors have no certainty that the tenant will exercise
that option.
Increased rental payments arising from the variation of the lease on capital improvement licences are
spread evenly over the remaining lease term from the date of signing the licence agreement.
At each rent review, the uplift in rent is calculated in accordance with the terms of the lease. If greater
than the minimum uplift then the uplift above and beyond the minimum recognised is calculated and
recognised in the period in which it arises, with there being no rebasing of the amounts to recognise
over the remaining lease.
Finance income
Finance income is accounted for on an accruals basis.
Service charges, insurance and other expenses recoverable from tenants
Income arising from expenses recharged to tenants is recognised in the year which the compensation
becomes receivable. Service, insurance and other similar charges which are recoverable are included in
gross rental income as the directors consider that the Group acts as principal in this respect.
Finance expenses
Finance expenses consist principally of interest payable, amortisation of loan arrangement fees and fair
value movements on interest rate derivatives.
Loan arrangement fees are expensed over the term of the relevant loan. Interest payable and other
finance costs which the Group incurs on bank facilities, are expensed in the period to which they relate.
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Notes to the consolidated financial statements
For the year ended December
3. Summary of significant accounting policies (continued)
Taxation
The Group is a REIT in relation to its property investments and is therefore exempt from tax, subject to
the Group maintaining its REIT status.
Current tax is the expected tax payable on any non-REIT taxable income for the year, using tax rates
enacted or substantively enacted at the balance sheet date.
Investment properties
Investment properties consist of land and buildings (principally care homes) which are held to earn
rental income and for capital growth potential.
Investment properties are initially recognised at cost, being the fair value of consideration given,
including transaction costs associated with the investment property. Investment properties are
recognised when the risk and rewards on the acquired properties passes to the Group on completion
of the purchase. Any subsequent capital expenditure incurred in improving investment properties is
capitalised in the period incurred and included within the book cost of the property.
After initial recognition, investment properties are measured at fair value, with gains and losses
recognised in the Consolidated statement of comprehensive income in the period which they arise.
Fair value measurement takes into consideration the improvements to the investment property during
the year taking into account the future cash flows from increases in rent that have been contracted in
relation to the improvement and discounting them at an appropriate rate to reflect the percentage of
completion of the works being undertaken and the risk to completion that remains.
Gains and losses on disposals of investment properties are determined as the difference between
net disposal proceeds and the carrying value of the asset. These are recognised in the Consolidated
statement of comprehensive income in the period in which they arise.
Trade and other receivables
Trade receivables comprise mainly lease income receivable.
Trade and other receivables are initially recognised at fair value plus transaction costs and subsequently
measured at amortised cost less impairment.
The Group applies the amortised cost basis as trade and other receivables are normally held with an
objective to collect contractual cash flows, i.e. “held to collect”; which comprises payment of principal
and interest on the principal amount outstanding.
The Group applies the IFRS simplified approach to measuring the expected credit losses (“ECLs”)
for trade receivables whereby the allowance or provision for all trade receivables are based on the
lifetime ECLs.
The Group applies the general approach for initial recognition and subsequent measurement of ECL
provisions for the loan receivable and other receivables which have maturities of months or more and
have a significant finance component.
This approach comprises of a three-stage approach to evaluating ECLs. These stages are
classified as follows:
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Notes to the consolidated financial statements
For the year ended December
3. Summary of significant accounting policies (continued)
Stage one
Twelve-month ECLs are recognised in profit or loss at initial recognition and a loss allowance is
established. For financial instruments that have not deteriorated significantly in credit quality since initial
recognition or that have low credit risk at the reporting date, the loss allowance for -month ECLs is
maintained and updated for changes in amount. Interest revenue is calculated on the gross carrying
amount of the asset (i.e. without reduction for ECLs).
Stage two
If the credit risk increases significantly and the resulting credit quality is not considered to be low
credit risk, full lifetime ECLs are recognised and includes those financial instruments that do not have
objective evidence of a credit loss event. Interest revenue is still calculated on the gross carrying amount
of the asset.
Stage three
If the credit risk of a financial asset increases to the point that it is considered credit impaired (there is
objective evidence of impairment at the reporting date), lifetime ECLs continue to be recognised. For
financial assets in this stage, lifetime ECLs will generally be individually assessed. Interest revenue is
calculated on the amortised cost net carrying amount (amortised cost less impairment).
The key estimation techniques including key inputs and assumptions regarding the Group’s ECL
provision for trade and other receivables are included as part of the Group’s assessment of credit risk as
set out in note .
Rent smoothing adjustments are not considered to be financial assets as the amounts are not yet
contractually due. As such, the requirements of IFRS (including the expected credit loss method) are
not applied to those balances, although the credit risk is considered in the determination of the fair
value of the related property.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and deposits with maturities of three months, or less,
held at call with banks.
Dividends
Dividends are recognised when they become legally payable.
Share capital
The share capital relates to amounts subscribed for share capital at its par value.
Share premium
The surplus of net proceeds received from the issuance of new shares over their par value is credited to
this account and the related issue costs are deducted from this account. The reserve is non-distributable.
Capital reduction reserve
The capital reduction reserve is the result of the transfer of a portion of share premium into
a distributable reserve.
Trade payables
Trade payables are initially recognised at their fair value and are subsequently measured at
amortised cost.
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Notes to the consolidated financial statements
For the year ended December
3. Summary of significant accounting policies (continued)
Borrowings
All borrowings are initially recognised at fair value net of attributable transaction costs. After initial
recognition, all borrowings are measured at amortised cost, using the effective interest method. The
effective interest rate is calculated to include all associated transaction costs.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the
extent that it is probable that some or all of the facility will be drawn down. The fee is capitalised as
a prepayment for liquidity services and amortised over the period of the facility to which it relates within
finance costs in the Consolidated statement of comprehensive income.
Interest rate derivatives
Derivative financial instruments, comprising interest rate caps for hedging purposes, are initially
recognised at fair value and are subsequently measured at fair value.
Changes in fair value of interest rate derivatives are recognised within the Consolidated statement
of comprehensive income in the period in which they occur.
The Group does not apply hedge accounting in accordance with IFRS .
4. New standards issued
4.1 New standards issued with effect from 1 January 2021
No new standards have been applied that have had a material effect on the financial position or
performance of the Group.
4.2 New standards issued but not yet effective
There are no new standards issued but not yet effective that are expected to have a material effect
on the Group.
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Notes to the consolidated financial statements
For the year ended December
5. Property income
Year ended
December
£’
Year ended
December
£’
Rental income cash received in the year 30,472 25,936
Rent received in advance of recognition
143 (1,016)
Rent recognised in advance of receipt
5,873 5,898
Rental lease incentive amortisation
(90) –
Gross rental income 36,398 30,818
Insurance/service charge income 496 374
Insurance/service charge expense (496) (376)
Net rental income 36,398 30,816
This relates to movement in rent premiums received in prior periods as well as any rent premiums received during the year, deemed to be a premium over the term
of the lease.
Relates to movement in both rent-free periods being recognised on a straight-line basis over the term of the lease and rent recognised in the period to reflect the
minimum uplift in rents over the term of the lease on a straight-line basis.
Lease incentives relate to the amortisation of payments made to tenants that are not part of any acquisition contractual obligations. These payments are made in
return for an increase in rent.
For accounting purposes, premiums received are reflected on a straight-line basis over the term of
the lease. In addition, the Group benefits from a minimum annual rental uplift of % or % on all care
home leases. For accounting purposes these uplifts are also incorporated to recognise income on
a straight-line basis.
Insurance/service charge relates to property insurance that is paid by the Group and recharged
to tenants.
Minster Care Management Limited and Croftwood Care UK Limited are both part of the Minster Care
Group Limited and together represent .% of Gross rental income; Holmes Care Group Limited also
represents more than % of the Gross rental income:
Minster Care Management Limited 31.1% 35.1%
Croftwood Care UK Limited 17.3% 19.5%
Holmes Care Group Limited 11.6% 4.7%
Others 40.0% 40.7%
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Notes to the consolidated financial statements
For the year ended December
6. Administrative and other expenses
Year ended
December
£’
Year ended
December
£’
Investment Manager fees (see note ) 3,858 3,548
Directors’ remuneration (see note ) 233 209
Auditor’s fees
– Statutory audit of the Company and Group (including subsidiaries) 203 174
– Additional fees payable to the auditor in respect of the prior year audit – 32
– Agreed upon procedures for the Company’s interim report 14 14
Total auditor’s fees 217 220
Administration fees 472 450
Regulatory fees 20 42
Legal and professional 509 448
Other administrative costs 457 347
5,766 5,264
The amounts shown above include irrecoverable VAT as appropriate.
7. Directors’ remuneration
The Group had no employees in the current or prior period. The directors, who are key management
personnel of the Company, are appointed under letters of appointment for services. Directors’
remuneration, all of which represents their fees for services provided during the year, are as follows:
Year ended
December
£’
Year ended
December
£’
Rupert Barclay (Chairman) 46 46
Rosemary Boot 33 33
Philip Hall 33 33
Paul Craig 33 33
Amanda Aldridge 38 38
Chris Santer 21 –
204 183
Employer’s National Insurance 17 20
Recruitment fees – non-executive director 12 6
233 209
Directors’ remuneration payable at December amounted to £, (: £,).
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Notes to the consolidated financial statements
For the year ended December
8. Finance expenses
Note
Year ended
December
£’
Year ended
December
£’
Interest payable on bank borrowings 1,874 1,362
Commitment fee payable on borrowings 517 442
Amortisation of loan arrangement fee 960 665
Changes in fair value of interest rate derivatives (87) 87
3,264 2,556
The total interest payable on financial liabilities carried at amortised cost comprises interest payable on
borrowings, which were £. million at December (: £. million). Amortisation on loan
arrangement fees relates to capitalised fees being amortised over the term of the facility; in the year
ended December £,, was capitalised (: £,,).
9. Taxation
As a REIT, the Group is exempt from corporation tax on the profits and gains from its property
investment business, provided it continues to meet certain conditions as per REIT regulations. For
the year ended December and the year ended December , the Group did not have any
non-qualifying profits except interest income on bank deposits.
Tax charge in the Consolidated statement of comprehensive income:
Year ended
December
£’
Year ended
December
£’
UK corporation tax – –
Reconciliation of the corporation tax charge:
Year ended
December
£’
Year ended
December
£’
Profit before tax 31,968 28,783
Theoretical tax at UK corporation tax rate (%) 6,074 5,469
Effects of:
REIT exempt income (5,256) (4,424)
Non-taxable items (818) (1,045)
Total tax charge – –
Under the UK REIT rules within which the Group operates, capital gains on the Group’s UK properties are
generally exempt from UK corporation tax, provided they are not held for trading.
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Notes to the consolidated financial statements
For the year ended December
10. Earnings per share
Earnings per share (EPS) amounts are calculated by dividing profit for the period attributable to Ordinary
equity holders of the Company by the time-weighted average number of ordinary shares outstanding
during the period. As there are no dilutive instruments outstanding, basic and diluted earnings per share
are identical.
Year ended
December
£’
Year ended
December
£’
Total comprehensive income (attributable to shareholders) 31,968 28,783
Adjusted for:
– Revaluation movement (12,896) (10,467)
– Rental lease incentive 2,660 –
– Rental income arising from recognising rental premiums and future
guaranteed rent uplifts 6,016 4,882
Change in fair value of investment properties (4,220) (5,585)
Profit on disposal of investment property (308) (153)
Change in fair value of interest rate derivative (87) 87
EPRA earnings 27,353 23,132
Adjusted for:
Rental income arising from recognising rental premiums and future
guaranteedrent uplifts (6,016) (4,882)
Amortisation of lease incentives 90 –
Amortisation of loan arrangement fees 960 665
Profit on disposal of investment property 308 153
Adjusted earnings
22,695 19,068
Average number of ordinary shares 339,705,743 318,953,861
Earnings per share (pence)
1
9.41p 9.02p
EPRA basic and diluted earnings per share (pence)
1
8.05p 7.25p
Adjusted basic and diluted earnings per share (pence)
1
6.68p 5.98p
There is no difference between basic and diluted earnings per share.
The inclusion of profit on disposal of investment property is a change made in the current year to better reflect the cash earnings of the Group. The prior year
adjusted earnings figure has been restated to include this adjustment.
The European Public Real Estate Association (“EPRA”) publishes guidelines for calculating adjusted
earnings designed to represent core operational activities.
The EPRA earnings are arrived at by adjusting for the changes in fair value of investment properties and
interest rate derivatives, and removal of profit or loss on disposal of investment properties.
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Notes to the consolidated financial statements
For the year ended December
10. Earnings per share (continued)
Adjusted earnings:
Adjusted earnings is used by the board to help assess the Group’s ability to deliver a cash covered
dividend from net income. The metric reduces EPRA earnings by other non-cash items credited or
charged to the Group statement of comprehensive income including the effect of straight-lining
of rental income from fixed rental uplift adjustments and amortisation of lease incentives and loan
arrangement fees.The metric also adjusts for any one-off items that are not expected to be recurring.
Fixed rental uplift adjustments relate to adjustments to net rental income on leases with minimum
uplifts embedded within their review profiles. The total minimum income recognised over the lease
term is recognised on a straight-line basis and therefore not supported by cash flows during the early
term of the lease, but this reverses towards the end of the lease.
No one-off costs were incurred in the current or prior year.
The board uses the adjusted earnings alongside the available distributable reserves in its consideration
and approval of dividends.
11. Dividends
Dividend rate
(pence per share)
Year ended
December
£’
Year ended
December
£’
Fourth interim dividend for the period ended December
(ex-dividend – February ) 1.5425p – 4,920
First interim dividend for the period ended December
(ex-dividend – May ) 1.5725p – 5,015
Second interim dividend for the period ended December
(ex-dividend – August ) 1.5725p – 5,015
Third interim dividend for the period ended December
(ex-dividend – November ) 1.5725p – 5,015
Fourth interim dividend for the period ended December
(ex-dividend – February ) 1.5725p 5,015 –
First interim dividend for the period ended December
(ex-dividend – May ) 1.6025p 5,619 –
Second interim dividend for the period ended December
(ex-dividend – August ) 1.6025p 5,619 –
Third interim dividend for the period ended December
(ex-dividend – October ) 1.6025p 5,619 –
Total dividends paid 21,872 19,965
Total dividends paid in respect of the year 4.8075p 4.7175p
Total dividends unpaid but declared in respect of the year 1.6025p 1.5725p
Total dividends declared in respect of the year – per share 6.41p 6.29p
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Notes to the consolidated financial statements
For the year ended December
11. Dividends (continued)
On January , the Company declared an interim dividend of . pence per ordinary share for the
period from October to December and was paid on February .
On May , the Company declared an interim dividend of . pence per ordinary share for the
period from January to March and was paid on June .
On July , the Company declared an interim dividend of . pence per share for the period from
April to June and was paid on August .
On October , the Company declared an interim dividend of . pence per share for the period
from July to September and was paid on November .
On February , the Company declared an interim dividend of . pence per share for the period
from October to December and will be paid on March .
12. Investment property
In accordance with the RICS “Red Book” the properties have been independently valued on the basis
offair value by Cushman & Wakefield, an accredited independent valuer with a recognised professional
qualification. They have recent and relevant experience in the locations and categories of investment
property being valued and skills and understanding to undertake the valuations competently. The
properties have been valued on an individual basis and their values aggregated rather than the
portfolio valued as a single entity. The valuers have used recognised valuation techniques in accordance
with those recommended by the International Valuation Standards Committee and are compliant
with IFRS . Factors reflected include current market conditions, annual rentals, lease lengths,
property condition including improvements effected during the year, rent coverage, location and
comparable evidence.
The valuations are the ultimate responsibility of the directors. Accordingly, the critical assumptions used
in establishing the independent valuation are reviewed by the board.
All corporate acquisitions during the year have been treated as asset purchases rather than business
combinations because they are considered to be acquisitions of properties rather than businesses.
As at
December
£’
As at
December
£’
Opening value 418,788 318,791
Property additions 26,900 85,978
Property disposals
(1,368) (733)
Acquisition costs capitalised 1,311 2,677
Capital improvements 915 1,608
Revaluation movement 12,896 10,467
Closing value per independent valuation report 459,442 418,788
Guaranteed rent reviews debtor (21,788) (15,915)
Lease incentive debtor (2,660) –
Rent premium creditor 2,641 2,784
Closing fair value per Consolidation statement of financial position 437,635 405,657
In the carrying value of disposals was £,, (: £,), this combined with the profit on disposal of £, (: £,) makes up the total net
proceeds shown in the Consolidated statement of cash flows.
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Notes to the consolidated financial statements
For the year ended December
12. Investment property (continued)
During the year, the Group acquired an additional five assets and disposed of one property.
The majority of the properties owned are freehold except for properties which are long leasehold,
eight of these are under a minimum of year leases at a peppercorn rent and the remaining three are
under year leases at a peppercorn rent.
Change in fair value of investment properties
The following elements are included in the change in fair value of investment properties reported in the
consolidated financial statements:
Year ended
December
£’
Year ended
December
£’
Revaluation movement 12,896 10,467
Rental lease incentive
(2,660) –
Rental income arising from recognising rental premiums and
guaranteed rent uplifts (6,016) (4,882)
Change in fair value of investment properties 4,220 5,585
Lease incentives relate to the amortisation of payments made to tenants that are not part of any acquisition contractual obligations. These payments are made in
return for an increase in rent.
Rental income arising from recognising guaranteed rent uplifts and initial lease rental payment includes
the adjustments to rental receipts for the period to reflect the total minimum income recognised
over the expected lease terms on a straight-line basis. Rent premiums received are being reflected
on a straight-line basis over the term of the lease. In addition, the Group benefits from a minimum
annual rental uplift of % or % on all leases. These uplifts are also incorporated to recognise income on
a straight-line basis. The elements are reported in the table below. Capital improvements funded by the
Group are undertaken under Deeds of Variation to the leases. The period between signing the Deed of
Variation and rent commencing is a rent-free period and rent is recognised on a straight-line basis from
the signing of the Deed of Variation.
Note
Year ended
December
£’
Year ended
December
£’
Rent received in advance of recognition
143 (1,016)
Rent recognised in advance of receipt
5,873 5,898
Rental income arising from recognising rental premium and
future guaranteed rent uplifts 6,016 4,882
Rent premiums received in prior periods as well as any rent premiums received during the year, deemed to be a premium over the term of the lease.
Relates to both rent-free periods being recognised on a straight-line basis over the term of the lease and rent recognised in the period to reflect the minimum % or
% uplift in rents over the term of the care home lease on a straight-line basis.
Descriptions and definitions relating to valuation techniques and key unobservable inputs made in
determining fair values are as follows:
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Notes to the consolidated financial statements
For the year ended December
12. Investment property (continued)
Valuation techniques used to derive fair values
The valuations have been prepared on the basis of fair value which is defined in the RICS “Red Book” as
the “price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date” in accordance with IFRS . The concept of fair
value is considered to be consistent with that of market value. The valuation takes into consideration
the current market conditions including improvements effected during the year, annual rentals, lease
lengths, property condition, rent coverage and location.
Unobservable inputs
These include: estimated rental value (“ERV”) based on market conditions prevailing at the valuation
date; estimated average increase in rent based on both market estimations and contractual situations;
equivalent yield (defined as the weighted average of the net initial yield and reversionary yield);
a change in lease term; and the physical condition of the property determined by inspections on
a rotational basis. A decrease in the ERV would decrease fair value. A decrease in the equivalent yield
would increase the fair value. An increase in the remaining lease term or improvement in physical
condition would increase the fair value.
Sensitivity of measurement of significant unobservable inputs
Initial yields range from .% to .% across the portfolio.
A .% movement of the net initial yield would have approximately a £. million impact on the
investment property valuation. A % movement in the rental income would have approximately
a £. million impact on the investment property valuation.
Fair value hierarchy
The Group is required to classify fair value measurements of its investment properties using a fair value
hierarchy, in accordance with IFRS “Fair Value Measurement”. This hierarchy reflects the subjectivity of
the inputs used, and has the following levels:
Level – unadjusted quoted prices in active markets;
Level – observable inputs other than quoted prices included within level ; and
Level – unobservable inputs.
The following table provides the fair value measurement hierarchy for investment property:
Date of
valuation
Total
£’
Level
£’
Level
£’
Level
£’
Assets measured at fair value:
Investment properties 31 December 2021 437,635 – – 437,635
Investment properties 31 December 2020 405,657 – – 405,657
There have been no transfers between any of the levels during the year.
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Notes to the consolidated financial statements
For the year ended December
13. Trade and other receivables
As at
December
£’
As at
December
£’
Non-current
Rent recognised in advance of receipt 21,788 15,915
Rental lease incentive 2,660 –
Loan receivable 37,500 –
61,948 15,915
Current
Loan interest receivable 70 –
Loan associated costs 748 –
Prepayments 739 89
1,557 89
63,505 16,004
During the year, the Group entered into a loan agreement with the Holmes Care Group, in which the
Group provided a term loan facility of £,, which bears interest at .% per annum. The funds
were lent to Holmes Care Group to acquire a portfolio of properties. Upon certain conditions being
met, a put and call option for the Group to acquire this portfolio of assets for £ is exercisable. This can
happen no sooner than June .
No impairment losses have been recognised during the year (refer to note ).
14. Cash and cash equivalents
As at
December
£’
As at
December
£’
Cash and cash equivalents 13,261 7,979
None of the Group’s cash balances are held in restricted accounts.
15. Trade and other payables
As at
December
£’
As at
December
£’
Non-current
Rent received in advance of recognition 2,641 2,784
Current
Trade and other payables 2,859 1,338
Interest payable 474 377
Withholding tax payable – (PID Dividends) 505 226
Rental received in advance 1,427 139
Rental deposits 443 –
Capital improvements payable 995 1,049
6,703 3,129
9,344 5,913
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Notes to the consolidated financial statements
For the year ended December
15. Trade and other payables (continued)
To reconcile Working capital changes, per the Consolidated statement of cash flows, the Interest payable
and Capital improvements payable movements are excluded as these are allocated to Financing
activities and Investing activities respectively.
16. Borrowings
A summary of the bank borrowings drawn in the period are shown below:
As at
December
£’
As at
December
£’
At the beginning of the year 76,370 25,127
Borrowings drawn in the year 92,685 51,243
Borrowings repaid in the year (54,507) –
Total bank borrowings drawn
1
114,548 76,370
Total bank borrowings undrawn 53,452 48,630
Total bank borrowings drawn are equal to its fair value
The Group signed a £ million five-year loan facility with Metro Bank PLC (the “Metro Facility”) on
June ; this facility terminates on June . The Metro Facility initially had two elements: a term
loan of £ million (the “Term Loan”) and a revolving credit facility of £ million (the “RCF”). During
the Group repaid £ million of the term loan and reduced the RCF by £ million following the release
of certain properties from Metro Facility's security pool, which have been used as security under the new
NatWest Facility and the long-term senior secured notes. These amounts are not able to be redrawn. As at
December the balance of the Term Loan was £ million ( December : £ milllion). As at
December £. million was drawn under the RCF ( December : £. million).
The Metro Facility has a margin of basis points over Metro Bank PLC's published Base Lending Rate.
The five-year Term Loan and amounts drawn under the RCF can be repaid without penalty. The loan is
secured over a portfolio of care homes held in wholly owned Group companies (Impact Property
Limited (IP) and Impact Property Limited (IP)). These assets had a closing value per the independent
valuation report of £. million as at December (: £. million). The lender also holds
charges over the shares of the subsidiaries and intermediate holding companies.
On March , the Group agreed a five-year revolving credit facility of £ million (the “Clydesdale
Facility”) with Clydesdale Bank PLC (“Clydesdale”); this facility terminates on March . In the Group
drew down £ million (: £ million) from the Clydesdale Facility and repaid £ million (: £nil). As at
December the Group had drawn £ million (: £ million) from the Clydesdale Facility.
The Clydesdale Facility had a margin of or basis points over three-month LIBOR, depending on
the loan to value ratio of the properties over which the Group has granted security to Clydesdale as
security for the loan held in a wholly owned Group company (Impact Property Limited (IP)). These
assets had a closing value per the independent valuation report of £. million as at December
(: £. million). From January , the Clydesdale Facility has a margin of or basis points
over three-month SONIA, with basis point credit adjustment spread.
On April , the Group agreed a new three-year revolving credit facility of £ million (the “HSBC
Facility”) with HSBC UK Bank Plc (“HSBC”) with the option of two one-year extensions subject to HSBC
approval. The Group drew down £ million (: £ million) from the HSBC Facility and repaid
£ million (: £nil) in . As at December the Group had drawn £ million (: £ million)
from the HSBC Facility.
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Notes to the consolidated financial statements
For the year ended December
16. Bank borrowings (continued)
The HSBC Facility has a margin of or basis points over one-month SONIA, depending on the
loan to value ratio of the properties over which the Group has granted security to HSBC as security
for the loan held in a wholly owned Group company (Impact Property Limited (IP)). These assets had
a closing value per the independent valuation report of £. million as at December . The HSBC
Facility previously had a margin of or basis points over one-month LIBOR.
On June , the Group agreed a new revolving credit facility of £ million (the “NatWest Facility”)
with National Westminster Bank Plc (“NatWest”). The Group drew down £ million (: £. million)
from the NatWest Facility and made no repayments (: £nil) in . As at December the Group
had drawn £. million (: £. million) from the NatWest Facility.
The three-year NatWest Facility has a margin of basis points per annum over SONIA. depending on
the loan to value ratio of the properties over which the Group has granted security to NatWest as
security for the loan held in a wholly owned Group company (Impact Property Limited (IP)). These
assets had a closing value per the independent valuation report of £. million as at December .
On December , the Group agreed a new long-term debt financing in the form of senior secured
notes of £ million with two large institutional investors. The Group has agreed to issue £ million of
senior secured notes (“Notes”), comprising two tranches with a weighted average coupon of .%,
and a weighted average maturity of years. The first tranche comprises of £ million of Notes at
a fixed coupon of .% which were issued on December and mature in December . The
second tranche comprises of £ million of Notes at a fixed coupon of .% which will be issued on
June and mature in June . The debt is secured over a portfolio of care homes held in
a wholly owned Group company (Impact Property Limited (IP)). These assets had a closing value per
the independent valuation report of £. million as at December . The debt has been guaranteed
by Impact Healthcare REIT plc.
Under the covenants related to the loans and Notes the Group is required to ensure that:
IP and IP IP IP IP IP
Loan to value does not exceed 35% 55% 55% 50% 55%
Interest cover based on passing rent from the ring-fenced
properties must exceed 200% 325% 250% 250% 250%
The Group has been in compliance with all of the financial covenants of the loan facilities as applicable
throughout the year covered by these financial statements.
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Notes to the consolidated financial statements
For the year ended December
16. Bank borrowings (continued)
Any fees associated with arranging the borrowings unamortised as at the year end are offset against
amounts drawn on the facilities as shown in the table below:
As at
December
£’
As at
December
£’
Borrowings drawn: due after more than one year 114,548 76,370
Arrangement fees – brought forward (2,157) (1,666)
Arrangement fees incurred during the year (2,444) (1,156)
Amortisation of loan arrangement fees 960 665
Non-current liabilities: borrowings 110,907 74,213
Maturity analysis of borrowings:
As at
December
£’
As at
December
£’
Repayable between one and two years 22,286 –
Repayable between two and five years 55,262 76,370
Repayable in over five years 37,000 –
Total 114,548 76,370
The weighted average term of the Group’s committed facilities is . years (: . years).
17. Interest rate derivatives
As at
December
£’
As at
December
£’
At the beginning of the year 7 94
Change in fair value of interest rate derivatives 87 (87)
94 7
To mitigate the interest rate risk that arises as a result of entering into variable rate linked loans, the
Group entered into an interest rate cap with the notional value of £ million and a strike rate of %
effective from June with a termination date of June . The fair value of the interest rate cap
is based on a floating reference of one-month SONIA.
At December , the Group has loans of £. million (: £. million) which are exposed to
interest rate risk.
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Notes to the consolidated financial statements
For the year ended December
18. Financial instruments and financial risk management
The Group’s principal financial assets and liabilities are those that arise directly from its operations: trade
and other receivables, trade and other payables and cash held at bank. The Group’s other principal
financial assets and liabilities are borrowings and interest rate derivatives, the main purpose of which
is to finance the acquisition and development of the Group’s investment property portfolio and hedge
against the interest rate risk arising.
Set out below is a comparison by class of the carrying amounts of the Group’s financial instruments:
As at
December
£’
As at
December
£’
Financial assets at amortised cost:
Loan receivable including accrued interest 37,570 –
Cash and cash equivalents 13,261 7,979
Financial assets at fair value:
Interest rate derivative 94 7
Financial liabilities at amortised cost:
Borrowings 110,907 74,213
Trade and other payables 4,711 2,764
The interest rate derivative is the only financial instrument that is measured at fair value through the
Group’s Consolidated statement of comprehensive income.
The following table provides the fair value measurement hierarchy for the interest rate derivative:
Date of
Valuation
Total
£’
Level *
£’
Level *
£’
Level *
£’
Assets measured at fair value:
Interest rate derivative 31 December 2021 – – 94 –
Interest rate derivative 31 December 2020 – – 7 –
*The fair value categories are defined in note .
Risk management
The Group is exposed to market risk (including interest rate risk), credit risk and liquidity risk. The board
oversees the management of these risks. The board reviews and agrees policies for managing each of
these risks that are summarised below.
Market risk (including interest rate risk)
Market risk is the risk that the fair values or future cash flows of financial instruments will fluctuate
because of changes in market prices. The financial assets held by the Group that are affected by interest
rate risk are principally the Group’s cash balances and the interest rate derivative.
The Group monitors its interest rate exposure on a regular basis. A sensitivity analysis performed to
ascertain the impact on profit or loss and net assets of a basis point shift in interest rates on the
Group’s cash balances would result in an increase of £, (: £,) or a decrease of £,
(: £,).
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Notes to the consolidated financial statements
For the year ended December
18. Financial instruments and financial risk management (continued)
The financial liabilities held by the Group that are affected by interest rate risk are principally the Group’s
borrowings. The Group entered into an interest rate derivative to reduce its exposure to interest rate risk
on the Term Loan (refer to note ). A sensitivity analysis is performed to ascertain the impact on profit or
loss and net assets of a basis point shift in interest rates on the Group’s unhedged borrowings would
result in an increase of £, (: £,) or a decrease of £, (: £,).
The loan of £. million, granted to one of the Group's operators, has a fixed interest rate and is not
exposed to market risk.
All of the Group’s LIBOR linked financial instruments had transitioned to SONIA linked rates by the
reporting date. The margin above SONIA has been set at a rate to be equivalent in terms of risk and
return to the rate above LIBOR that was in place previously and therefore management do not consider
there to be any significant change in the risks to which the Group is exposed as a result of IBOR reform.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or
customer contract, leading to a financial loss.
The Group is exposed to credit risks from its leasing activities. Credit risk is reduced by requiring tenants
to pay rentals in advance under their lease obligations. The credit quality of the tenant is also assessed
based at the time of entering into a lease agreement thereby reducing credit risk. Outstanding trade
receivables are regularly monitored. There are no outstanding trade receivables at December .
Credit risk also arises with the cash balances held with banks and financial institutions. The board
believes that the credit risk on current account cash balances is limited because the counterparties
are reputable banks with high credit ratings assigned by international credit-rating agencies. The
impairment loss identified on cash balances was considered immaterial.
The loan of £. million, granted to one of the Group's operators, is secured against the property
portfolio it was used to purchase. Periodic valuations of these properties are carried out to assess if the
loan is credit impaired. There has been no deterioration in credit quality since initial recognition and the
-month expected credit losses are nil.
Liquidity risk
Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will
encounter difficulty in meeting its financial obligations as they fall due, as the majority of the Group’s
assets are property investments and are therefore not readily realisable. The Group’s objective is to
ensure it has sufficient available funds for its operations and to fund its capital expenditure. This is
achieved by regular monitoring of forecast and actual cash flows by the AIFM ensuring the Group has
appropriate levels of cash and available drawings to meet liabilities as they fall due.
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Notes to the consolidated financial statements
For the year ended December
18. Financial instruments and financial risk management (continued)
The table below summarises the maturity profile of the Group’s financial liabilities based on contractual
undiscounted payments:
< months
£’
- months
£’
- years
£’
- years
£’
> years
£’
Total
£’
December :
Borrowings – – 22,286 55,262 37,000 114,548
Interest and
commitment fees on
borrowings 629 2,544 3,393 3,527 19,400 29,493
Trade and other
payables 4,771 – – – – 4,771
December :
Borrowings – – – 76,370 – 76,370
Interest and
commitment fees on
borrowings 405 1,248 1,658 796 – 4,107
Trade and other
payables 2,764 – – – – 2,764
19. Capital management
The objective of the Group is to acquire, own, lease, renovate, extend and redevelop high-quality,
healthcare real estate assets in the UK and lease those assets, under full repairing and insuring leases,
primarily to healthcare operators providing residential healthcare services. This provides ordinary
shareholders with an attractive level of income together with the potential for income and capital
growth from investing in a diversified portfolio of freehold and long leasehold care homes.
The board has responsibility for ensuring the Group’s ability to continue as a going concern and
continues to qualify for UK REIT status. This involves the ability to borrow monies in the short and long
term; and pay dividends out of reserves, all of which are considered and approved by the board on
a regular basis.
The Company achieved its increased targeted aggregate dividend of . pence per share for the year
ended December and its target aggregate dividend of . pence per share for the year ended
December .
As at December , the Group remains within its maximum loan to value (“LTV”) covenant which
is % of gross asset value of the Group as a whole. The Group has a further £. million RCF facilities
available from which it can draw.
To maintain or adjust the capital structure, the Company may adjust the dividend payment to
shareholders, return capital to shareholders, issue new shares or buyback shares for cancellation
or for holding in treasury. Capital consists of ordinary share capital, other capital reserves and
retained earnings.
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Notes to the consolidated financial statements
For the year ended December
20. Share capital, share premium and capital reduction reserve
Shares in issue
Number
Share capital
£’
Share premium
£’
Capital reduction
reserve
£’
Total
£’
As at December 318,953,861 3,189 271,341 24,077 298,607
Adjustment to share issue costs – – 21 – 21
As at December 318,953,861 3,189 271,362 24,077 298,628
Share issue 31,690,327 317 35,017 – 35,334
Share issue cost – – (707) – (707)
As at December 350,644,188 3,506 305,672 24,077 333,255
The Company had ,, shares of nominal value of pence each in issue at the end of the year
( December : ,,).
On May , the Company issued a further ,, ordinary shares at a price of . pence per
ordinary share raising gross proceeds of £,,.
21. Transactions with related parties
Investment Manager
The fees calculated and paid for the year to the Investment Manager were as follows:
Year ended
December
£’
Year ended
December
£’
Amounts payable to Impact Health Partners LLP:
Net fee 3,858 3,548
Gross fee 3,858 3,548
For the year ended December the principals and Finance Director of Impact Health Partners LLP,
the Investment Manager, are considered key management personnel. Mr Patel and Mr Cowley are the
principals and Mr Yaldron is the Finance Director of Impact Health Partners LLP and they own .%,
.% and .% respectively (either directly, with related parties or through a wholly owned company)
of the total issued ordinary share capital of Impact Healthcare REIT plc. Mr Patel also (directly and/or
indirectly) holds a majority .% stake in Minster Care Group Limited “MCGL”. Mr Cowley also holds
a % interest in MCGL. % of the Group’s rental income was received from MCGL or its subsidiaries.
A trade receivable of £nil was outstanding at the year end (: £nil).
During the year the key management of Impact Health Partners LLP received the following dividends
from Impact Healthcare REIT plc: Mahesh Patel £, (: £,); Andrew Cowley £,
(: £,) and David Yaldron £, (: £,).
Directors’ interests
Paul Craig is a director of the Company. He is also the portfolio manager at Quilter Investors, which
has an interest in ,, ordinary shares of the Company through funds under management.
The remaining directors who are shareholders in the Company do not hold significant interest in the
ordinary share capital of the Company.
During the year the directors, who are considered key management personnel, received the following
dividends from the Company: Rupert Barclay £, (: £,); Rosemary Boot £, (: £,);
Chris Santer £ (: £nil) and Philip Hall £, (: £,). In addition, funds managed by Paul
Craig received dividends from the Company of £,, (: £,,).
Directors’ remuneration for the year is disclosed in note as well as in the Directors’ remuneration report.
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Notes to the consolidated financial statements
For the year ended December
21. Transactions with related parties (continued)
Minster Care Group Limited (“MCGL”)
MCGL, a tenant of the Group, is considered a related party as it is majority owned by the principals of
the Investment Manager. As at December the Group leased properties to MCGL (: ),
all properties owned for over one year underwent an inflation-linked rent review in line with their
lease provisions. In the Group entered one new lease with MGCL for a rent of £, (: one
new lease for a rent of £,) and disposed of no properties let to MCGL (: disposed of one
property let to MGCL, the lease, which was subject to annual rent of £,, was cancelled with years
remaining term). In , the Group paid a performance-related deferred payment on one property
of £. million in return for a £, increase in rent (: no deferred payments made). In , the
Group spent £. million on approved capital expenditure, which will be rentalised at between -%
after completion of the works (: £. million). These transactions were fully compliant with the
Company’s related party policy.
22. Net Asset Value (NAV) per share
Basic NAV per share is calculated by dividing net assets in the Consolidated statement of financial
position attributable to ordinary equity holders of the Company by the number of ordinary shares
outstanding at the end of the year. As there are no dilutive instruments outstanding, basic and diluted
NAV per share are identical.
EPRA updated their guidance on NAV measures in October , giving three new NAV measures to
report, effective for periods commencing on or after January , see pages - for further detail.
The Group has chosen to adopt EPRA net tangible assets (“NTA”) as its primary EPRA NAV measure as it
most closely aligns with the business practices of the Group. The adjustments between NAV and NTA are
reflected in the following table:
As at
December
£’
As at
December
£’
Net assets per Consolidated statement of financial position 394,244 349,521
Fair value of derivatives (94) (7)
EPRA NTA 394,150 349,514
Issued share capital (number) 350,644,188 318,953,861
Basic NAV per share 112.43p 109.58p
EPRA NTA per share 112.41p 109.58p
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Notes to the consolidated financial statements
For the year ended December
23. Operating leases
The following table sets out the maturity analysis of leases receivables, showing the undiscounted lease
payments under non-cancellable operating leases receivable by the Group:
As at
December
£’
As at
December
£’
Year one 33,281 29,183
Year two 33,904 30,746
Year three 34,538 31,457
Year four 35,034 32,148
Year five 35,693 32,570
Onwards 612,974 571,176
Total 785,424 727,280
The Group’s investment properties are leased to tenants under the terms of property leases that include
upward-only rent reviews that are performed annually. These are annual inflation uplifts linked to either
CPI or RPI. RPI linked leases have a floor and cap at either % and % or % and %.
24. Reconciliation of liabilities to cash flows from financing activities
Notes
Borrowings
£’
Interest rate
derivative
£’
Total
£’
As at January 23,461 (94) 23,367
Cash flows from financing activities:
Borrowings drawn 51,243 – 51,243
Loan arrangement fees paid (1,156) – (1,156)
Non-cash movements:
Amortisation of loan arrangement fees 665 – 665
Fair value movement – 87 87
As at December 74,213 (7) 74,206
Cash flows from financing activities:
Borrowings drawn 92,685 – 92,685
Borrowings repaid (54,507) – (54,507)
Loan arrangement fees paid (1,844) – (1,844)
Non-cash movements:
Amortisation of loan arrangement fees 960 – 960
Fair value movement – (87) (87)
Loan arrangement fees accrued (600) – (600)
As at December 110,907 (94) 110,813
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Notes to the consolidated financial statements
For the year ended December
25. Capital commitments
At December the Group had committed capital expenditure on two forward-funded
developments of new properties and on capital improvements to existing properties, in total this
amounted to £. million.
The Group has committed to deferred payment agreements on two investments in return for increased
rent based on trading performance. As at December the total capital commitment for these
deferred payments was estimated at £. million.
The Group had a further £. million committed to the acquisition of portfolio of two properties which
was exchanged during the period and completed in February .
26. Contingent liabilities
Full relief for Stamp Duty Land Tax (SDLT) has been granted in relation to the transfer of properties
between companies which are members of the Group. Should there be a change in control of the
Company within three years of completion, or a single shareholder acquires a substantial stake in the
Company a liability in the subsidiary companies could arise. This is equal to approximately % of the
aggregate value of the properties and is estimated as £. million ( December : £. million) on
the net purchase price of the assets acquired in corporate acquisitions over the preceding three years.
27. Controlling parties
The Company is not aware of any person who, directly or indirectly, owns or controls the Company. The
Company is not aware of any arrangements the operations of which may give rise to a change in control
of the Company.
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Notes to the consolidated financial statements
For the year ended December
28. Subsequent events
In February , the Company issued ,, new ordinary shares at an issue price of pence per
share raising gross proceeds of £. million.
In February , the Group completed the acquisition of two care homes in Northern Ireland, with
registered beds, for consideration of £. million. There properties were leased to an existing tenant,
Electus, for initial annual rent of £,.
In March , the Group invested in two homes in Nottinghamshire with beds. The investment
has initially been made by way of an £. million loan to one of the Group's existing tenants, Welford,
allowing it to complete the acquisition of these two homes. Upon receipt of certain regulatory approvals,
a put and call option for the Group to acquire these homes for consideration of £ becomes exercisable.
In March , the Group exercised its second one-year extension option on its £ million RCF with
HSBC, bringing the expiry of the facility to April .
The following rent reviews took place in the period between year end and the date of this report:
(i) on March , in relation to portfolio of three assets let to Silverline;
(ii) on March , in relation to portfolio of assets let to Minster Care Group;
(iii) on March , in relation to three assets let to MMCG;
(iv) on January and March , in relation to two assets let to Prestige; and
(v) on March , in relation to two assets let to the NHS.
Rent reviews were linked to the annual RPI over the months up to the rent review date, with a floor
of % and a cap of % for Minster Care Group, Prestige, Silverline and MMCG. The two properties let to
the NHS had an annual consumer price index-linked rent review. These rent reviews have contributed
£. million to contracted rent.
The Group has paid £. million of capital expenditure in relation to £. million of committed capital
expenditure outstanding as at December .
No other significant events have occurred between the statement of financial position date and
the date when the financial statements have been authorised by the directors, which would require
adjustments to, or disclosure in, the financial statements.
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Company statement of financial position
As at December
Company Registration Number:
Notes
December
£’
December
£’
Non-current assets
Investment in subsidiaries 392,486 369,371
Total non-current assets 392,486 369,371
Current assets
Trade and other receivables 7,828 7,587
Cash and cash equivalents 10,336 6,806
Total current assets 18,164 14,393
Total assets 410,650 383,764
Current liabilities
Trade and other payables (25,490) (47,863)
Total liabilities (25,490) (47,863)
Total net assets 385,160 335,901
Equity
Share capital 3,506 3,189
Share premium reserve 305,672 271,362
Capital reduction reserve 24,077 24,077
Retained earnings 51,905 37,273
Total equity 385,160 335,901
The Company has taken advantage of the exemption allowed under section of the Companies Act
and has not presented its own statement of comprehensive income in these financial statements.
The profit attributable to the parent company for the year ended December amounted to
£,, (: profit of £,,).
The financial statements were approved and authorised for issue by the board of directors on
March and are signed on its behalf by:
Rupert Barclay Chairman
The accompanying notes form an integral part of these financial statements.
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ANNUAL REPORT 2021
Company statement of changes in equity
For the year ended December
Notes
Share capital
£’
Share premium
£’
Capital reduction
reserve
£’
Retained earnings
£’
Total
£’
January 3,189 271,362 24,077 37,273 335,901
Total comprehensive income – – – 36,504 36,504
Transactions with owners
Dividends paid – – – (21,872) (21,872)
Share issue 317 35,017 – – 35,334
Share issue costs – (707) – – (707)
December 3,506 305,672 24,077 51,905 385,160
For the year ended December
Notes
Share capital
£’
Share premium
£’
Capital reduction
reserve
£’
Retained earnings
£’
Total
£’
January 3,189 271,341 24,077 8,699 307,306
Total comprehensive income
–
–
– 48,539
48,539
Transactions with owners
Dividends paid
– – – (19,965) (19,965)
Share issue costs
– 21
–
– 21
December 3,189 271,362 24,077 37,273 335,901
The accompanying notes form an integral part of these financial statements.
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136
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
Notes to the Company financial statements
For the year ended December
1. Basis of Preparation
General information
The financial statements for the year ended December are prepared in accordance with Financial
Reporting Standard , the Financial Reporting Standard applicable in the United Kingdom and the
Republic of Ireland (“FRS ”) and in accordance with the Companies Act , with comparatives
presented for the year ended December .
Disclosure exemptions adopted
In preparing these financial statements the Company has taken advantage of all disclosure exemptions
conferred by FRS .
In preparing the separate financial statements of the Company, advantage has been taken of the
following disclosure exemptions available in FRS :
A reconciliation of the number of shares outstanding at the beginning and end of the period has not
been presented as the reconciliations of the Group and the parent company would be identical;
No statement of cash flows has been presented for the parent company;
Disclosures in respect of the parent company's financial instruments have not been presented as
equivalent disclosures have been provided in respect of the Group as a whole;
The requirement to present related party disclosures between the Company and fellow subsidiaries
where ownership is all %; and
No disclosures have been given for the aggregate remuneration of the key management personnel
ofthe Company as their remuneration is included in the totals for the Group as a whole.
Convention
The financial statements are presented in Sterling, which is also the Company’s functional currency, and
all values are rounded to the nearest thousand (£’), except when otherwise indicated.
Going concern
After making enquiries and bearing in mind the nature of the Company’s business and assets, the
directors consider that the Company has adequate resources to continue in operational existence
for the next months from the date of approval of these financial statements. For this reason, they
continue to adopt the going concern basis in preparing the financial statements.
The ongoing effect of the COVID- pandemic alongside the high inflationary environment has been
considered by the directors. The directors have reviewed the forecasts for the Company taking into
account the impact of COVID- and rising costs, as a result of inflation, on trading over the months
from the date of signing this annual report. The forecasts have been assessed against a range of possible
downside outcomes incorporating significantly lower levels of income and higher costs, see Going
concern and viability report on pages - for further detail.
The directors believe that there are currently no material uncertainties in relation to the Company’s
ability to continue for a period of at least months from the date of approval of the Company’s
financial statements. The board is, therefore, of the opinion that the going concern basis adopted in the
preparation of the annual report is appropriate.
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ANNUAL REPORT 2021
Notes to the Company financial statements
For the year ended December
2. Significant accounting judgements, estimates and assumptions
The preparation of the Company’s financial statements requires management to make judgements,
estimates and assumptions that affect the reported amounts recognised in the financial statements and
disclosures. However, uncertainty about these assumptions and estimates could result in outcomes that
could require material adjustment to the carrying amount of the assets or liabilities in future periods.
The most significant estimates, assumptions and judgements relate to the determination of carrying
value of unlisted investments in the Company’s subsidiary undertakings. The nature, facts and
circumstance of the investment are taken into account in assessing whether there are any indications
of impairment. Provisions provided reflect any reduction in net asset value of subsidiaries in the year.
3. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are
set out below.
Trade and other receivables
Trade and other receivables are recognised and carried at the lower of their original invoiced value and
recoverable amount. Where the time value of money is material, receivables are initially recognised at
fair value and subsequently measured at amortised cost. A provision for impairment is made when there
is objective evidence that the Company will not be able to recover balances in full.
Balances are written off when the probability of recovery is assessed as being remote.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and short-term deposits.
Dividends
Dividends are recognised when they become legally payable.
Share premium
The surplus of net proceeds received from the issuance of new shares over their par value is credited to
this account and the related issue costs are deducted from this account. The reserve is non-distributable.
Capital reduction reserve
The capital reduction reserve is the result of the transfer of a portion of share premium into
a distributable reserve.
Trade and other payables
Trade and other payables are initially recognised at their fair value and are subsequently
measured at cost.
Investments in subsidiaries
The investments in subsidiary companies are included in the Company’s statement of financial position
at cost less provision for impairment.
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ANNUAL REPORT 2021
Notes to the Company financial statements
For the year ended December
4. Taxation
The Company is exempt from corporation tax on the profits and gains from its property investment
business, provided it continues to meet certain conditions as per REIT regulations. Any non-qualifying
profits and gains however, will continue to be subject to corporation tax.
Tax charge included in total comprehensive income:
Year ended
December
£’
Year ended
December
£’
UK corporation tax – –
5. Dividends
Details of dividends paid by the Company are included in note to the consolidated
financial statements.
6. Investment in subsidiaries
December
£’
December
£’
At the beginning of the year 369,371 242,990
Cost of investments acquired through share purchases 23,115 126,381
At the end of the year 392,486 369,371
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139
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ANNUAL REPORT 2021
Notes to the Company financial statements
For the year ended December
The Company has the following subsidiaries:
Principal activity Country of incorporation Ownership %
Impact Property Limited (“Propco ”)* Real Estate Investment England and Wales 100
Impact Property Limited (“Propco ”)* Real Estate Investment England and Wales 100
Impact Property Limited (“Propco ”)* Real Estate Investment England and Wales 100
Impact Property Limited (“Propco ”)* Real Estate Investment England and Wales 100
Impact Property Limited (“Propco ”)* Real Estate Investment England and Wales 100
Impact Property Limited (“Propco ”)* Real Estate Investment England and Wales 100
Impact Property Limited (“Propco ”)* Real Estate Investment England and Wales 100
Impact Property Limited (“Propco ”)* Real Estate Investment England and Wales 100
Impact Finance Limited (“Finance ”)* Financing company England and Wales 100
Impact Finance Limited (“Finance ”)* Financing company England and Wales 100
Impact Finance Limited (“Finance ”)* Financing company England and Wales 100
Impact Finance Limited (“Finance ”)* Financing company England and Wales 100
Impact Finance Limited (“Finance ”)* Financing company England and Wales 100
Impact Holdco Limited (“Holdco ”) Investment holding company England and Wales 100
Impact Holdco Limited (“Holdco ”) Investment holding company England and Wales 100
Impact Holdco Limited (“Holdco ”) Investment holding company England and Wales 100
Impact Holdco Limited (“Holdco ”) Investment holding company England and Wales 100
Impact Holdco Limited (“Holdco ”) Investment holding company England and Wales 100
Roseville Property Limited*
#
Property holding company England and Wales 100
Sandbanks Property Redcar Limited*
#
Property holding company England and Wales 100
Cardinal Healthcare (UK) Ltd*
#
Property holding company England and Wales 100
Cholwell Care (Nailsea) Limited*
#
Property holding company England and Wales 100
Barham Care Centre Limited*
#
Property holding company England and Wales 100
Baylham Care Centre Limited*
#
Property holding company England and Wales 100
Butterfly Cumbria Properties Limited* Property holding company England and Wales 100
The Holmes Care Holdings Limited*
#
Property holding company England and Wales 100
Hollyblue Healthcare (Countrywide) Limited*
#
Property holding company England and Wales 100
Hollyblue Healthcare (Ulster) Limited*
#
Property holding company England and Wales 100
Tower Bridge Homes Care Limited*
#
Property holding company England and Wales 100
The Holmes Care Group GB Limited*
#
Property holding company England and Wales 100
Lakewood Limited*
#
Property holding company England and Wales 100
The Holmes Care (Greenock) Limited*
#
Property holding company England and Wales 100
The Holmes Care (Bathgate) Limited*
#
Property holding company England and Wales 100
Tower Bridge Homes Care (Central Care) Limited*
#
Property holding company Scotland 100
Aviemore Homes Limited*
#
Property holding company Scotland 100
Flagship Tower (Greenock) Limited*
#
Property holding company England and Wales 100
Heatherfield Community Care Limited*
#
Property holding company Scotland 100
Central Care Limited*
#
Property holding company Scotland 100
Beeley (Holdings) Limited*
#
Property holding company England and Wales 100
Hillcrest House Limited* Property holding company England and Wales 100
Springhill Properties (No) Limited* Property holding company England and Wales 100
Carlton Hall (Lowestoft) Limited* Property holding company England and Wales 100
*As at December these entities were held indirectly by the Company.
#
As at December these entities are in the process of winding up.
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ANNUAL REPORT 2021
Notes to the Company financial statements
For the year ended December
6. Investment in subsidiaries (continued)
The registered address for the above subsidiaries incorporated in England and Wales is:
The Scalpel, th Floor, Lime Street, London ECM AF, England
The registered address for the above subsidiaries incorporated in Scotland is:
Atria One, Morrison Street, Edinburgh EH EX, Scotland
Where the entity is in the process of winding up, the registered address is that of the liquidator
appointed by the Company.
7. Trade and other receivables
As at
December
£’
As at
December
£’
Loan to Group companies 7,766 7,513
Prepayments 62 74
7,828 7,587
As at December , there were no trade receivables past due or impaired (: none).
8. Cash and cash equivalents
As at
December
£’
As at
December
£’
Cash and cash equivalents 10,336 6,806
None of the Company’s cash balances are held in restricted accounts.
9. Trade and other payables
As at
December
£’
As at
December
£’
Loan from Group companies 23,954 46,792
Trade and other payables 1,536 926
Interest on loans to Group companies – 145
25,490 47,863
Loans from Group companies are unsecured and are repayable on demand.
10. Share capital, share premium and capital reduction reserve
Details on movements in share capital, share premium and capital reduction reserve of the Company are
the same as that of the Group and are included in note to the consolidated financial statements.
11. Transactions with related parties
The Company has taken advantage of the exemption provided by FRS not to disclose transactions
with other members of the Group as the Company’s own financial statements are presented together
with its consolidated financial statements.
See note of the consolidated financial statements for disclosure of related party transactions
of the Group.
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ANNUAL REPORT 2021
Notes to the Company financial statements
For the year ended December
12. Capital commitments
There were no capital commitments held by the Company (: nil).
13. Contingent liabilities
On the December the Company guaranteed a new long-term loan note issue made by its wholly
owned subsidiary. The loan notes total £ million and mature in . See note of the consolidated
financial statements for further detail.
14. Subsequent events
Significant events after the reporting period are the same as those of the Group. See note to the
consolidated financial statements.
No other significant events have occurred between the Statement of financial position date and
the date when the financial statements have been authorised by the directors, which would require
adjustments to, or disclosure in, the financial statements.
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Mavern House Nursing Home,
Corsham Road, Shaw, Wiltshire
143
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2021
Additional information
144 EPRA performance measures
(unaudited)
147 Notes to the EPRA performance
measures (unaudited)
150 Alternative performance measures
152 Our portfolio
154 AIFM statement (unaudited)
155 Investment policy
157 Glossary
158 Corporate information
159 Financial calendar
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ANNUAL REPORT 2021
EPRA performance measures (unaudited)
The table below shows additional performance measures, calculated in accordance with
the Best Practices Recommendations of the European Public Real Estate Association (EPRA).
We provide these measures to aid comparison with other European real estate businesses.
1. EPRA earnings per share 2.1 EPRA net reinstatement
value (“NRV”)
2.2 EPRA net tangible assets
(“NTA”)
£27.4m
8.05p per share
for the year to 31 December 2021
(for the year to 31 December 2020:
£23.1m / 7.25p)
£423.7m
120.84p per share
for the year to 31 December 2021
(for the year to 31 December 2020:
£376.5m / 118.04p per share)
£394.2m
112.41p per share
for the year to 31 December 2021
(for the year to 31 December 2020:
£349.5m / 109.58p per share)
EPRA earnings per share (p)
0.0 8.5
7.25p
6.66p
6.85p
2018
8.05p
2019
17.09%
2020
2021
2022
EPRA net reinstatement value (“NRV”) (p)
0 122
118.04p
113.25p
6.85p
2018
120.84p
2019
17.09%
2020
2021
2022
EPRA net tangible assets (“NTA”) (p)
0 120
109.58p
106.78p
6.85p
2018
112.41p
2019
17.09%
2020
2021
2022
Definition
Earnings from operational activities.
Definition
Net asset value adjusted for fair value of
derivatives and transaction costs under
the assumption they will not crystallise
if the company never sells assets.
Definition
Net asset value adjusted for fair
value of derivatives as these will not
crystallise if held to maturity.
Purpose
A key measure of a company’s
underlying operating results are an
indication of the extent to which
current dividend payments are
supported by earnings.
Purpose
The aim of this measure is to represent
the value required to rebuild the entity.
Purpose
This represents the value of the
company assuming assets are
bought and sold.
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2.3 EPRA net disposal value
(“NDV”)
3.1 EPRA Net Initial Yield
(“NIY”)
3.2 EPRA “topped-up” NIY
£389.8m
111.16p per share
for the year to 31 December 2021
(for the year to 31 December 2020:
£347.4m / 108.91p per share)
6.71%
for the year 31 December 2021
(for the year to 31 December 2020: 6.57%)
6.71%
for the year to 31 December 2021
(for the year to 31 December 2020: 6.71%)
EPRA net disposal value (“NDV”) (p)
0 120
108.91p
106.29p
6.85p
2018
111.16p
2019
17.09%
2020
2021
2022
EPRA Net Initial Yield (“NIY”) (%)
0 8
6.57%
6.66%
6.85%
2018
6.71%
2019
17.09%
2020
2021
2022
EPRA “topped-up” NIY (%)
0 8
6.71%
6.66%
6.97%
2018
6.71%
2019
17.09%
2020
2021
2022
Definition
Net asset value adjusted to align
borrowings to their drawn amount.
If the company was in an immediate
disposal scenario certain assets and
liabilities are adjusted to show the full
value if not held to maturity.
Definition
Annualised rental income based on
the cash rents passing at the balance
sheet date, less non-recoverable
property operating expenses,
divided by the market value of the
property, increased with (estimated)
purchasers’ costs.
Definition
This measure adjusts the EPRA NIY in
respect of the expiration of rent-free
periods (or other unexpired lease
incentives, such as discounted rent
periods and step rents).
Purpose
This measure aims to show the
shareholders’ value under a disposal
scenario.
Purpose
This measure should make it easier
for investors to judge for themselves
how the valuation of one portfolio
compares with another portfolio.
Purpose
This measure should make it easier
for investors to judge for themselves
how the valuation of one portfolio
compares with another portfolio.
EPRA PERFORMANCE MEASURES UNAUDITED
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4. EPRA vacancy rate 5. EPRA cost ratio 6. Like-for-like rental
growth
0%
for the year to 31 December 2021
(for the year to 31 December 2020: 0.00%)
15.84%
for the year to 31 December 2021
(for the year to 31 December 2020:
17.09%)
5.74%
for the year to 31 December 2021
(for the year to 31 December 2020:
4.26%)
EPRA cost ratio (%)
0 27
17.09%
19.15%
24.69%
2018
15.84%
2019
17.09%
2020
2021
2022
Like-for-like rental growth (%)
0 7
4.26%
19.15%
24.69%
2018
5.74%
2019
17.09%
2020
2021
2022
Definition
Estimated market rental value (ERV) of
vacant space divided by the ERV of the
whole portfolio.
Definition
Administrative and operating costs
(including, and excluding, direct
vacancy costs) divided by gross rental
income.
Definition
Rental growth on the portfolio
of properties that have been
owned and operational for two full
reporting cycles.
Purpose
A “pure” (%) measure of investment
property space that is vacant, based
on ERV.
Purpose
A key measure, to enable meaningful
measurement of the changes in a
company’s operating costs.
Purpose
Growth of rental income excluding
acquisitions and disposals allows
stakeholders to estimate the organic
income growth.
EPRA PERFORMANCE MEASURES UNAUDITED
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Notes to the EPRA performance measures (unaudited)
For the year ended 31 December 2021
1. EPRA earnings per share
31 December 2021
£’000
31 December 2020
£’000
Total comprehensive income (attributable to shareholders) 31,968 28,783
Adjusted for:
Profit on disposal of investment property (308) (154)
Change in fair value of investment properties (12,896) (10,467)
Rental lease incentives 2,660 –
Rental income arising from recognising guaranteed rent uplifts and
rental premiums 6,016 4,882
Change in fair value of interest rate derivatives (87) 87
Profits to calculate EPRA earnings per share 27,353 23,131
Weighted average number of ordinary shares (basic and diluted) 339,761,521 318,953,861
EPRA earnings per share – basic and diluted 8.05p 7.25p
2. EPRA NAV measures
The updated EPRA best practice recommendations, released in October 2020, give three new NAV
metrics: EPRA net reinstatement value (“NRV”), EPRA net tangible assets (“NTA”) and EPRA net disposal
value (“NDV”) to replace the previously reported EPRA NAV and EPRA NNNAV. NRV aims to show the
value of assets on a long-term basis, adjusting for items that would not be expected to crystallise under
normal circumstances, NTA is calculated on the basis that assets are bought and sold whilst NDV intends
to show shareholders the value of assets and liabilities in the event they cannot be held until maturity.
The Group has adopted NTA as its primary EPRA NAV measure as it most closely aligns with the Group’s
business practices.
As at 31 December 2021:
EPRA NRV
£’000
EPRA NTA
£’000
EPRA NDV
£’000
Net assets at end of year 394,244 394,244 394,244
Exclude:
Fair value of derivatives (94) (94) –
Include:
Fair value of debt – – (4,471)
Transaction costs 29,581 – –
Net assets (per EPRA NAV measure) 423,731 394,150 389,773
Shares in issue at 31 December (basic and diluted) 350,644,188 350,644,188 350,644,188
Net assets per share (per EPRA NAV measure) 120.84p 112.41p 111.16p
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2. EPRA NAV measures (continued)
As at 31 December 2020:
EPRA NRV
£’000
EPRA NTA
£’000
EPRA NDV
£’000
Net assets at end of year 349,521 349,521 349,521
Exclude:
Fair value of derivatives (7) (7) –
Include:
Fair value of debt – – (2,156)
Transaction costs 26,964 – –
Net assets (per EPRA NAV measure) 376,478 349,514 347,365
Shares in issue at 31 December (basic and diluted) 318,953,861 318,953,861 318,953,861
Net assets per share (per EPRA NAV measure) 118.04p 109.58p 108.91p
1 Difference between interest-bearing loans and borrowings included in the balance sheet at amortised cost, and fair value of interest-bearing loans and
borrowings at drawn amount.
2 NTA and NDV are calculated using property values in line with IFRS, where values are net of real estate transfer tax and other purchasers’ costs.
These transaction costs are added back for NRV.
3. EPRA net initial yield (“NIY”) and EPRA “topped–up” NIY
31 December
2021
£’000
31 December
2020
£’000
Investment property – wholly owned 459,442 418,787
Less capital improvements under construction (5,614) (1,907)
Completed property portfolio 453,828 416,880
Allowance for estimated purchasers’ cost 28,591 26,263
Gross up completed property portfolio valuation (B) 482,419 443,143
Annualised cash passing rental income 32,353 29,111
Property outgoings (non-recoverable insurance) – (2)
Annualised net rents (A) 32,353 29,109
Add:
Contractual uplifts on rent-free periods of funded capital improvements – 634
Topped-up net annualised rent (C) 32,353 29,743
EPRA net initial yield (A/B) 6.71% 6.57%
EPRA topped-up net initial yield (C/B) 6.71% 6.71%
1 Assumes a purchaser of the Company’s portfolio would pay SDLT and transaction costs equal to 6.3% of the portfolio’s value.
NOTES TO THE EPRA PERFORMANCE MEASURES UNAUDITED
For the year ended 31 December 2021
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4. EPRA vacancy rate
31 December 2021
£’000
31 December 2020
£’000
Estimated rental value of vacant space – –
Estimated rental value of the whole portfolio 30,277 28,922
EPRA vacancy rate 0.00% 0.00%
5. EPRA cost ratio
31 December 2021
£’000
31 December 2020
£’000
Administrative and other expenses 5,766 5,264
Net service charge cost – 2
Total costs including and excluding vacant property costs 5,766 5,266
Gross rental income 36,398 30,818
Total EPRA cost ratio (including, and excluding, direct vacancy costs) 15.84% 17.09%
None of the costs in this note have been capitalised. Only costs directly associated with the purchase of
properties as well as subsequent value-enhancing capital expenditure qualify as acquisition costs and
are capitalised.
6. Like-for-like rental growth
This note shows the rental income and market value for property assets that have been owned and
operational for two full reporting periods, hence all below information relates to the property portfolio
that has been owned and operational since 31 December 2018.
Rent
£’000
Market value
£’000
Property portfolio as at 31 December 2019 21,708
318,125
Inflation-linked rental uplifts 542
Rental uplifts in return for capital improvements or deferred payments 383
Increase/(decrease) due to vacancy rate –
Property portfolio as at 31 December 2020 22,633 327,593
Inflation-linked rental uplifts 527
Rental uplifts in return for capital improvements or deferred payments 772
Increase/(decrease) due to vacancy rate –
Property portfolio as at 31 December 2021 23,932 335,444
All properties operate within the same sector, UK healthcare.
NOTES TO THE EPRA PERFORMANCE MEASURES UNAUDITED
For the year ended 31 December 2021
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Alternative performance measures
The other alternative performance measures may not be comparable with similarly titled measures
presented by other companies. Alternative performance measures should not be viewed in isolation
but as supplementary information.
1. Total expense ratio (“TER”)
Total recurring administration costs as a percentage of average NAV throughout the period.
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
Opening NAV 349,521 340,682
Closing NAV 394,244 349,521
Average NAV for the year 371,883 345,102
Administrative expenses 5,766 5,264
One-off costs – –
Recurring expenses 5,766 5,264
TER 1.55% 1.53%
2. Total accounting return
The growth in NAV per share plus dividends paid expressed as a percentage of NAV per share at the
beginning of the period.
Year ended
31 December 2021
Year ended
31 December 2020
Opening NAV per share (pence) 109.58 106.81
Closing NAV per share (pence) 112.43 109.58
NAV growth for the year (pence) 2.85 2.77
Dividends per share paid in the year (pence) 6.38 6.26
Total return (pence) 9.23 9.03
Total accounting return 8.42% 8.46%
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3. Gross loan to value (“LTV”)
The gross debt as a percentage of our gross asset value.
As at
31 December 2021
£’000
As at
31 December 2020
£’000
Gross debt 114,548 76,369
Gross assets 514,495 429,647
LT V 22.26% 17.77%
4. Property Investments
This relates to the portfolio valuation along with investments via loans to operators for the acquisition
of property portfolios.
As at
31 December 2021
£’000
As at
31 December 2020
£’000
Portfolio valuation 459,442 418,788
Investments in properties via loans to operators 37,500 –
Property Investments 496,942 418,788
ALTERNATIVE PERFORMANCE MEASURES
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Our portfolio
At 31 December 2021, the Group owned the homes listed in the table below:
Tenant and home Region
Acquisition
date
1
Beds
2
Capital
projects
3
Careport
Blackwell Vale North West Dec 2020 60 +6
Briardene North East Aug 2018 60
Derwent North East Aug 2018 45
Holly Lodge North East Nov 2018 41
Kingston Court North West Jun 2019 75
Old Prebendal House
and Court South East Jun 2019 39
Sovereign Court
and Lodge North East Aug 2018 60
The Grove North East Sep 2018 57
Value at 31 December 2021: £33.7m
Carlton Hall
Carlton Hall East of England Sep 2021 86
Oasis Development
Site East of England Sep 2021 – +80
Value at 31 December 2021: £13.0m
Croftwood Care *
Ancliffe North West 40
Astbury Lodge North West 41
Croftwood North West 47
Crossways North West 39
Elm House North West 40
Florence Grogan North West 40
Garswood North West 53
Gleavewood North West 32
Golborne House North West 40
Greenacres North West 40
Hourigan North West 40
Ingersley Court North West 46
Lakelands North West 40
Leycester House North West 40
Loxley Hall North West 40 +5
Lyndhurst North West 40
New Milton House North West 39
Parklands North West 40
The Cedars North West 27
The Elms North West 41
The Hawthorns North West 39
The Laurels North West 40
Thorley House North West 40
Turnpike Court North West 53
Wealstone North West 42
Westhaven North West 52
Whetstone Hey North West 42
Value at 31 December 2021: £69.3m
1 May 2017 unless stated
2 Number of registered beds
3 Capital improvement bed additions under development
4 Treated as two properties
* Minster and Croftwood are both part of Minster Care Group
Tenant and home Region
Acquisition
date
1
Beds
2
Capital
projects
3
Electus Care
Cedarhurst Lodge Northern Ireland Dec 2020 67
Edgewater Lodge Northern Ireland Dec 2020 75
Saintfield Lodge Northern Ireland Dec 2020 51
Value at 31 December 2021: £9.2m
Maria Mallaband and Countrywide Group (MMCG)
Belmont House Yorkshire & The Humber May 2019 106
Croft House Yorkshire & The Humber Mar 2020 68
Howgate House Yorkshire & The Humber Mar 2020 63
Manor Park Yorkshire & The Humber Mar 2020 75
Park Springs Scotland May 2019 96
Thorntree Mews Scotland May 2019 40
Wallace View Scotland May 2019 60
Value at 31 December 2021: £35.1m
Minster Care *
Abbeywell West Midlands 45
Amberley South West 30
Ashgrove Yorkshire & The Humber 56
Attlee Yorkshire & The Humber 68
Broadgate East Midlands 40
Carnbroe Scotland May 2018 74
Craigend Scotland 48
Diamond House East Midlands 74
Duncote Hall East Midlands 40
Duncote, The Lakes East Midlands 47
Emmanuel Yorkshire & The Humber 44
Eryl Fryn Wales 31
Falcon House East Midlands 46
Freeland House South East 111
Gray’s Court East of England 87
Grenville East of England May 2018 64
Hamshaw Court Yorkshire & The Humber 45
Hillcrest South West Nov 2021 88
Ideal West Midlands 50
Karam Court West Midlands 47
Littleport Grange East of England 80
Meadows & Haywain East of England 65
Mowbray West Midlands 39
Mulberry Manor Yorkshire & The Humber 49
Red Hill West Midlands Jan 2020 90
Rydal North East 60
Saffron East Midlands Jun 2017 48
Sovereign House West Midlands 60
Stansty House Wales 74
Three Elms North West 60
Waterside West Midlands 47
Woodlands Court North West 40
Wordsley West Midlands 44
Value at 31 December 2021: £141.4m
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Tenant and home Region
Acquisition
date
1
Beds
2
Capital
projects
3
Holmes Care Group
Alexander House
5
Scotland Dec 2021 44
Almond Court Scotland Aug 2020 42
Almond View Scotland Aug 2020 78
Bankview (&BVDC) Scotland Aug 2020 65
Barrogil House
5
Scotland Dec 2021 40
Beechwood Scotland Aug 2020 90
Camilla
5
Scotland Dec 2021 42
Cragielea Scotland Aug 2020 85
Craigie House
5
Scotland Dec 2021 30
Fernlea House
5
Scotland Dec 2021 38
Finavon Court
5
Scotland Dec 2021 24
Grandholm Scotland Aug 2020 79
Heatherfield Scotland Aug 2020 60
Larkfield Scotland Aug 2020 90
Lomond View
5
Scotland Dec 2021 50
Methven House
5
Scotland Dec 2021 62
Preston House
5
Scotland Dec 2021 64
Roselea House
5
Scotland Dec 2021 20
Three Towns Scotland Aug 2020 60
Walton House
5
Scotland Dec 2021 40
Willow House
5
Scotland Dec 2021 40
Value at 31 December 2021: £90.1m
NCUH NHS Trust
Reiver House North West Jun 2019 –
Surgical Unit North West Jun 2019 –
Value at 31 December 2021: £4.5m
Prestige Group
Hartlepool North East Mar 2020 – +94
Parkville North East Mar 2018 94
Roseville North East Mar 2018 103
Sandbanks North East Oct 2018 77
Yew Tree North East Jan 2019 76
Value at 31 December 2021: £23.3m
Renaissance Care
Croftbank Scotland Nov 2018 68
Rosepark Scotland Nov 2018 60
Value at 31 December 2021: £13.3m
Silverline
Laurel Bank Yorkshire & The Humber Mar 2020 63
Springhill
Scotland Nov 2021 61
The Beeches Yorkshire & The Humber Mar 2020 60
Willow Bank Yorkshire & The Humber Mar 2020 59
Value at 31 December 2021: £10.9m
OUR PORTFOLIO
Tenant and home Region
Acquisition
date
1
Beds
2
Capital
projects
3
Optima
Barham East of England Aug 2019 44
Baylham East of England Aug 2019 55
Value at 31 December 2021: £14.8m
Welford
Argentum Lodge South West Sep 2019 56
Birchlands Yorkshire & The Humber Jun 2019 54
Fairview Court and
House
4
South West Mar 2018 73 +11
Mavern House
South West Jan 2021 51 +8
St Peter’s House
East of England Dec 2020 66
Holmesley South West Jun 2019 55
Value at 31 December 2021: £38.5m
1 May 2017 unless stated
2 Number of registered beds
3 Capital improvement bed additions under development
4 Treated as two properties
5 These assets were invested in via a loan
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AIFM statement (unaudited)
Impact Health Partners LLP have served as the
Alternative Investment Fund Manager since
15 March 2019; references in this statement to
“AIFM” are to Impact Health Partners LLP.
Quantitative remuneration disclosure
for the AIFM
Information in relation to the remuneration paid
by the AIFM is available on the Company’s website,
www.impactreit.uk.
Liquidity
At the date of this annual report there are no
assets held by the Company which are subject to
special arrangements arising from their illiquid
nature. There has been no change to the liquidity
management system and procedures during the
period since incorporation. Please refer to note 18
in the financial statements for an analysis of the
Company’s liabilities and their maturity dates at
31 December 2021.
The current risk profile of the Company and
the risk management systems employed by
the AIFM to manage those risks
The Company’s risk management framework and
risk appetite are set out in “Audit, risk and internal
control” on pages 74-78 of the annual report.
Please refer to page 60 for the board’s assessment
of the principal risks and uncertainties facing the
Company. The AIFM has assessed the current risk
profile of the Company to be low.
Leverage
The Group’s maximum and actual leverage levels
at 31 December 2021 are shown below:
Leverage exposure Gross method Commitment
Maximum limit 200.0% 200.0%
Actual 117.4% 120.7%
For the purposes of the AIFM Directive, leverage is
any method that increases the Group’s exposure,
including the borrowing of cash and the use of
derivatives. It is expressed as a percentage of
the Group’s exposure to its net asset value and
is calculated on both a gross and commitment
method.
Under the gross method, exposure represents
the sum of the Group’s positions after deduction
of cash balances, without taking account of any
hedging or netting arrangements. Under the
commitment method, exposure is calculated without
the deduction of cash balances and after certain
hedging and netting positions are offset against each
other. Both methods include the Group’s interest rate
swaps measured at notional value.
There has been no change to the maximum level
of leverage that the AIFM may employ on behalf
of the Company. The actual level of gearing
employed by the Company at 31 December 2021
was 22.26%.
Material changes to information
Article 23 of the AIFM Directive requires certain
information to be made available to investors
before they invest and requires material changes
to this information to be disclosed in the annual
report. An updated copy of the Company’s Article
23 disclosure schedule was published following
the change of AIFM on 15 March 2019. There have
been no other material changes to the information
requiring disclosure.
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The Company pursues the investment policy as follows:
Policy Status
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.
✓
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 elderly care homes, and to lease those assets to care
home operators and other healthcare service providers under full repairing and insuring leases.
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The Group is permitted to generate up to 15% of
its gross income, in any financial year from non-
rental revenue or profit-related payments from the
tenants in addition to the rental income due under
the leases. The Group is also permitted to invest up
to:
(i) 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;
(ii) 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
(iii) 15% of its gross assets, at the time of
investment, in other closed-ended investment
funds listed on the Official List. The Directors
have no current intention to acquire non-
residential Healthcare Real Estate Assets or
indirect property investment funds.
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:
(i) result in a breach of the conditions applying
to the Company to hold real estate investment
trust (“REIT”) status or
(ii) result in any investment by the Group in assets
located outside of the UK.
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.
Any material change to the investment policy will
require the prior approval of shareholders.
INVESTMENT POLICY
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Glossary
Adjusted EPS: Adjusted Earnings per Share
Administrator: JTC (UK) Limited
AIC: Association of Investment Companies
AIFM: Alternative Investment Fund Manager
BDO: BDO LLP
Capex: Capital Expenditure
CMA: Competitions and Markets Authority
Contracted rent: The annualised rent adjusting for
rent due following rent-free periods and including post-tax
income from interest received from property investments
made via loans to operators for the acquisition of property
portfolios
Contracted yield: Contracted rent divided by the
independent market value of the portfolio
CQC: Care Quality Commission
EBITDARM: Earnings Before Interest Tax Depreciation
Amortisation Rent and Management charges
EPC: Energy Performance Certificate
EPRA: European Public Real Estate Association
EPS: Earnings per Share
ESG: Environmental, Social and Governance
FCA: Financial Conduct Authority
ICSA: The Chartered Governance Institute
Investment Manager: Impact Health Partners LLP
IBOR: InterBank Offered Rates
IPO: Initial Public Offering
LED: Light-Emitting Diode
LT V: Gross Loan to Value
Management Report: As defined by the FCA handbook
and governed by DTR 4.1.8, incorporated within the Strategic
report and Governance section of this annual report
MMCG: Maria Mallaband and Countrywide Group
NAV: Net Asset Value
NIY: Net Initial Yield
Premium Listing/Premium List: The transfer of our shares to
the premium listing segment of the London Stock Exchange’s
main market and admitted to the premium listing segment of
the FCA’s Official List
Property Investments: This relates to the portfolio valuation
along with investments via loans to operators for the
acquisition of property portfolios
RCF: Revolving Credit Facility
REIT: Real Estate Investment Trust
Rent cover: Total annual rent divided by EBITDARM for
the year
RICS “Red Book”: RICS Valuation – Current edition of the
global and UK standards as at the valuation date
RPI: Retail Price Index
Seed Portfolio: Initial portfolio of 56 assets (including
two option assets) acquired in May 2017
SONIA: Sterling OverNight Index Average
SPV: Special Purpose Vehicle
Total accounting return: The growth in NAV per share plus
dividends paid expressed as a percentage of NAV per share at
the beginning of the period
WAULT: Weighted Average Unexpired Lease Term
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Directors
Amanda Aldridge Non-executive Director
Rupert Barclay Non-executive Chairman
Rosemary Boot Senior Independent Non-executive Director
Paul Craig Non-executive Director
Philip Hall Non-executive Director
Chris Santer Non-executive Director
Registered office
Telephone: +44 (0)207 409 0181
Investment Manager
and AIFM
Impact Health Partners LLP
149-151 Regent Street
London
W1B 4JD
Joint Financial Adviser and
Corporate Broker
Jefferies International Limited
100 Bishopsgate
London
EC2N 4JL
Winterflood Securities Limited
The Atrium Building
Cannon Bridge
25 Dowgate Hill
London
EC4R 2GA
Legal Advisers
Travers Smith LLP
10 Snow Hill
London
EC1A 2AL
Independent Auditor
BDO LLP
55 Baker Street
London
W1U 7EU
Administrator and Secretary
JTC (UK) Limited
The Scalpel
18th Floor
52 Lime Street
London
EC3M 7AF
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS99 6ZZ
United Kingdom
Depositary
Indos Financial Limited
54 Fenchurch Street
London
EC3M 3JY
Valuer
Cushman & Wakefield
43-45 Portman Square
London
W1A 3BG
Communications Adviser
Maitland/AMO
3 Pancras Square
London
N1C 4AG
Company Registration
Number
10464966
Website
www.impactreit.uk
Corporate information
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IMPACT HEALTHCARE REIT PLC
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Financial calendar
Designed and produced by Bruce Associates
Printed in England
Announcement of full year results 29 March 2022
Annual General Meeting 12 May 2022
Half year end 30 June 2022
Announcement of half year results August 2022
Full year end 31 December 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
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Impact Healthcare REIT plc
The Scalpel, 18th Floor, 52 Lime Street, London EC3M 7AF
www.impactreit.uk
Certificate Of Completion
Envelope Id: 24361B5B88D94015BDF0CD57DC505C20 Status: Completed
Subject: Attachment for DocuSigning : Impact Healthcare REIT plc
Document Type: Statutory Audit Report under ISA 700
UK Companies House Number: 10464966
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BDO LLP
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Westminster, London W1U 7EU
Imogen.Swales@bdo.co.uk
IP Address: 163.116.162.124
Record Tracking
Status: Original
28 March 2022 | 18:35
Holder: Imogen Swales
Imogen.Swales@bdo.co.uk
Location: DocuSign
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Richard Levy
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Signature Adoption: Pre-selected Style
Using IP Address: 163.116.162.141
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