IMPACT HEALTHCARE REIT PLC ANNUAL REPORT 2022
We invest in care homes,
which are essential social infrastructure
Annual report 2022
STRATEGIC REPORT
1 Highlights
2 Who we are
4 Chairman’s statement
8 Why invest?
9 A large and growing market
14 Generating attractive returns
16 An experienced and strategic
management team
18 Strong cash generation
supporting our progressive
dividend policy
20 Adding value through asset
management and development
22 Portfolio
24 Objectives and strategy
26 Key performance indicators
28 Responsible investment
34 Report against the Task-force
on Climate Related Financial
Disclosure (“TCFD”) framework
42 Investment Manager’s report
50 Stakeholders
52 Principal risks and uncertainties
58 Section 172(1) statement
60 Going concern and viability
GOVERNANCE
64 Corporate governance
statement
– Chairman’s introduction
65 Compliance statement
66 Application of AIC Code
Principles
68 Other key governance
statements
69 Board leadership and
Company purpose
72 Division of responsibilities
75 Board of directors
78 Nomination Committee report
82 Audit, risk and internal control
86 Audit Committee report
90 Management Engagement
Committee report
92 Directors’ remuneration report
96 Directors’ report
100 Statements of responsibilities
101 Independent Auditor’s report
FINANCIAL STATEMENTS
110 Consolidated statement
of comprehensive income
111 Consolid ated statement
of financial position
112 Consolidated statement
of cash flows
113 Consolidated statement
of changes in equity
114 Notes to the consolidated
financial statements
138 Company statement
of financial position
139 Company statement
of changes in equity
140 Notes to the Company
financial statements
ADDITIONAL INFORMATION
146 EPRA performance
measures (unaudited)
149 Notes to the EPRA
performance measures
(unaudited)
152 Alternative performance
measures
154 Our portfolio
156 AIFM statement (unaudited)
157 Investment policy
159 Glossary
160 Corporate information
161 Financial calendar
Belmont House, Harrogate, Yorkshire and the Humber, which
was refurbished in 2021-22. The refurbishment included
14 bedrooms with ensuite wet rooms, communal bathrooms
and day space. The capital expenditure was £0.5 million.
Total accounting
return
* (%)
3.78%
-4.6%
8.42
3.78
8.46
20222018 2020 20212019
8.47
9.46
EPRA earnings per
share
(“EPS”)* (p)
8.37p
+4.0%
8.05
8.37
7.25
20222018 2020 20212019
6.47
6.95
Highlights
We continued to deliver a strong financial and operational performance, benefiting from
the resilience and growth of the portfolio and the annual rental increases inherent in the
leases, underpinning our fully covered dividend.
Gross loan to value
(“LTV”) ratio
* (%)
23.9%
+1.6%
22.3
23.9
17.8
20222018 2020 20212019
11.6
6.8
Contracted rent
1
(£m)
£43.1m
+13.6%
38.0
43.1
30.9
20222018 2020 20212019
17.8
23.1
Dividends declared
per share
(p)
6.54p
+2.0%
6.41
6.54
6.29
20222018 2020 20212019
6.00
6.17
Adjusted EPS 2* (p)
7.11p
+6.4%
6.68
7.11
5.93
20222018 2020 20212019
5.07
5.26
Net asset value (“NAV”)
per share
(p)
110.17p
-2.0%
112.43
110.17
109.58
20222018 2020 20212019
103.18
106.81
Profit before tax (£m)
£16.9m
-47.2%
32.0
16.9
28.8
20222018 2020 20212019
16.5
26.3
ESG highlights
Net zero
Produced a net zero strategy and
delivery plan with a target date of 2045
and interim milestones.
Environmental improvements
Funded environmental improvements
to four homes through asset
management projects and completed
update of EPCs.
First social impact report
Commissioned our first independent
social impact report.
Operational highlights
Rent cover 1.80x
Overall, tenants continue to perform
well with average rent cover for 2022 at
1.80x (2021: 1.91x
4
).
All leases are inflation-linked,
with upwards-only rent reviews.
107 properties had rent reviews during
the year, adding £1.3 million to the
annual contracted rent, representing
an annualised 3.5% increase on a
like-for-like basis.
Improved debt facilities
Increased the size and extended the
tenure of a debt facility with Virgin
Money to £50 million for seven years
on improved terms.
In addition, we increased the debt
facility with HSBC from £50 million to
£75 million.
12 acquisitions
Invested in 12 care homes for a
consideration of £69.2 million, further
diversifying the portfolio and adding
764 beds.
Completed development in
Hartlepool... The forward-funded
development in Hartlepool completed
in May.
...and an asset management project
in Bristol Phase 1 of the Fairview
extension in Bristol completed in
September and commenced Phase 2,
which is due to be completed late 2023.
Post-year end
Invested in a portfolio of six homes
with 438 beds for consideration of
£56 million, 20% of which was paid in
new shares issued at 116.62 pence per
share. Purchased an interest rate option
for £1.5 million, which caps SONIA at
3% for two years on £50 million of our
RCF debt. Sold one non-core asset for
£1.25 million, in line with its latest
valuation.
New tenant
Welcomed a new tenant, Belmont,
to the Group’s operators, giving us
14 tenants
3
at the year end.
1 Contracted rent includes all post-tax income from investments in properties, whether generated from rental income or post-tax interest income.
2 Adjusted earnings per share reflects underlying cash earnings per share in the period. The adjustments made to EPS in arriving at EPRA and Adjusted EPS are set out in note 11 to the Financial Statements.
3 Including Croftwood and Minster, which are both part of the Minster Care Group.
4 This includes the benefit of grant income, which largely ended in March 2022.
* For further discussion of these metrics see pages 26-27. EPRA EPS and all other EPRA alternative performance measures have been calculated in line with EPRA best practices recommendation,
see pages 146-153.
1
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
IMPACT HEALTHCARE REIT
0
10
20
30
40
50
£m
Measured growth with contracted rent
1
up by 13.6% in 2022
2020201920182017 20222021
30.9
23.1
17.8
11.9
43.1
38.0
1 Contracted annual rent includes all post-tax income from investment in properties
0
1
2
3
4
5
6
7
8
6.29
6.17
6.00
4.50
6.54
6.41
pence per share
2020201920182017 20222021
Progressive dividend fully covered
by adjusted earnings per share since 2021
Our business model
Our business model is to own and
invest in a high-quality, resilient and
diversified portfolio of care homes.
We choose tenants who seek to
provide high-quality care and work
in long-term partnership with them
to grow, create value and deliver
lasting social impact. In return, we
receive predictable, sustainable
and inflation-linked rental income,
which enables us to target a
progressive and covered dividend.
See pages 14-15
Who we are
Our purpose
We invest in care homes, which are
essential social infrastructure.
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
high-quality care to their residents.
Our values
Our core values are to:
focus on the long-term
sustainability of our business;
invest for lasting positive social
impact;
act openly and transparently
with all our stakeholders;
be a dependable partner who’s
trusted to deliver; and
combine the strengths of a listed
company with entrepreneurship.
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
32
12
33
5
2
10
4
9
8
8
12
Our portfolio as at 31 December 2022
The care homes we own are primarily in the mid-market and have a good
balance of residents funded by local authorities, the NHS and private pay.
At 31 December 2022, the portfolio’s key characteristics were as follows:
14 tenants
1
£568.8 million
property investments
100% inflation-
linked leases
135 properties 6,842 completed beds 19.7 years WAULT
£43.1 million
contracted rent roll
£1.3 million per annum
uplift in rent from
107 rent reviews
1 Includes Minster and Croftwood,
which are both part of the Minster
Care Group.
Note: The information on this page
includes forward-funded assets and
portfolios invested in via a loan to the
operator where the Group has an option
to acquire.
15
asset management
and development
projects
commenced or
in planning
4
asset management
and development
projects completed
in 2022
IMPACT HEALTHCARE REIT
Merlin Manor Care Centre
Hartlepool
See Portfolio page 22
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Fairview Court
Bristol
Freeland House, Freeland,
Nr Witney, Oxfordshire.
Chairman’s statement
This year, the Group once again showed its
resilience. We delivered good progress on a wide
range of fronts, as we continued to grow the
portfolio and created further value through asset
management and by funding development. We’ve
also developed our ESG strategy and set goals that
will focus our efforts where we can make the most
difference. As part of this, we’ve increased our
understanding of the social value that we enable
and how we can measure it.
We achieved all of this as we were buffeted by
strengthening economic headwinds during 2022,
caused mainly by the spike in inflation. Our tenants
are in good shape overall, with one exception, which is
discussed further in the Investment Manager’s report
(see pages 42-47). Their occupancy and fees are rising
and their rent cover is above pre-pandemic levels.
Demand for their services is strong and based on
needs, not wants, which means it isn’t directly linked to
the broader economy. The urgent need for care beds
to unblock space in the NHS also shows our tenants’
services are crucial to society. Our tenants’ performance
during the year is discussed in more detail in the
Investment Manager’s report.
Economic uncertainty peaked at the end of the third
quarter, at the time of the mini-budget, and led to
a sharp rise in interest rates. This contributed to falls in
asset values in many real estate sectors in the second
half of 2022. While healthcare was not immune, the
essential nature of our tenants’ services – which
translated into zero voids, 100% rent collection for 2022
and further rental growth – helped our asset values to
hold up much better than most other real estate sub-
sectors. At the same time, the returns available to us
on acquisitions remain above our cost of capital and
rising rents over the life of our leases, all of which are
long duration with inflation-linked rent reviews, should
support capital growth.
This is my last report to you as Chairman, as I’ll be
stepping down on 31 March after six years on the
board. We’ve made great progress during these six
years, growing from an initial portfolio of 56 assets
and nearly 2,500 beds to 135
1
properties and 6,842
completed beds at the date of this report. We’ve paid a
highly attractive dividend from the outset, which we’ve
grown progressively while fully covering our payout
by adjusted earnings since 2021. This has contributed
to a total shareholder return of 44.1%
2
since inception.
I’m confident that I’m handing on a business with
good prospects for delivering further growth and
value creation for our shareholders and all our wider
stakeholders.
Successfully implementing the strategy
We continued to implement our growth strategy in
2022, investing £69.2 million in 12 care homes with
764 beds. We have since deployed a further £56 million,
acquiring a further portfolio in January 2023. This
transaction would have completed in 2022 had we not
decided to pause the process and review its terms,
following the mini-budget.
These acquisitions have further diversified the portfolio
across the UK and allowed some of our existing
tenants to increase the number of homes they run for
us, providing the Group with a stronger covenant given
the framework agreement we have in place across all
homes leased to each tenant. We were also pleased
to welcome our 14th tenant
3
. We choose tenants who
prioritise high-quality care and share our vision of
continuing to improve the assets.
We made good progress with asset management
and committed £11.8 million to projects in 2022. These
Net asset value
(“NAV”)
£445.9m
+13.1% 2021: £394.2m
Basic and diluted
adjusted earnings
per share
7.11p
+6.4% 2021: 6.68p
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
projects increase rents and asset values for us, make the
homes a better business for our tenants, and a better
place to live and work for residents and staff. They also
enhance their environmental performance. We have a
growing pipeline and expect to earn an average return
of 8% on capital projects through increased rents, with
the potential for capital growth in addition to this. Along
with the Investment Manager, we’re also very focused
on maintaining our properties to a high standard
and pay close attention to our tenants’ repair and
maintenance spend. The developments we’re funding
also progressed, with Merlin Manor in Hartlepool now
in operation and increasing occupancy in line with our
tenant’s plan.
Robust and resilient financial performance
The net asset value (“NAV”) at 31 December 2022 was
£445.9 million or 110.17 pence per share (31 December
2021: NAV: £394.2 million; 112.43 pence per share). This
small decline in NAV per share was mainly the result
of the change in market value of the property portfolio,
caused largely by the rise in investment yields in
response to the tripling of interest rates during the year.
This was partially offset by the benefits of rising rents
and our asset management and development projects.
Basic and diluted earnings per share (“EPS”) was
4.33 pence (2021: 9.41 pence). EPRA EPS was 8.37 pence
(2021: 8.05 pence per share) and Adjusted EPS was
7.11 pence (2021: 6.68 pence).
More information on our financial performance can be
found in the Investment Manager’s report.
Secure, attractive and inflation-linked dividends
We aim to grow our target dividend in line with rental
growth in the year before. All of our leases include
inflation-linked rental growth, with floors and caps
typically between 2% and 4%. We want to ensure
our assets are not over-rented with leases that are
sustainable and put these caps in place to ensure the
rent does not become onerous for our tenants, as a
result of spikes in inflation of the kind we’re currently
experiencing.
For 2022, we set a target total dividend of 6.54 pence
per share, a 2.0% increase over 2021. We achieved this
by paying four quarterly dividends of 1.635 pence each.
The total dividend was 128% covered by EPRA EPS and
109% by Adjusted EPS. For 2023, our target dividend is
6.77 pence per share
4
, an increase of 3.53%.
Our total accounting return for the year was 3.78%,
compared with our medium-term total accounting
return target, which is an average of 9.0% a year
4
. This
reflects the reduction in market value of the assets,
as discussed above.
Strong and conservative balance sheet
We’ve always taken a prudent approach to managing
our balance sheet, using debt to improve returns while
keeping our leverage modest to help manage risk.
We completed several significant funding activities in
the year. We raised £62.3 million of new equity through
share placings; issued the remaining £38 million of our
long-term institutional loan notes at a fixed rate of 3.0%;
extended our revolving credit facility (“RCF”) with HSBC
by £25 million to £75 million; cancelled the £15 million
RCF with Metro Bank; and renegotiated our RCF with
Virgin Money, which increased the facility from £25 million
to £50 million, extended its term to 2029 and reduced its
cost. Since the year end, we’ve also purchased an interest
rate option at a cost of £1.5 million, which caps SONIA
at 3.0% for two years on £50 million of our RCF debt.
We now have £241 million of committed debt facilities.
Our drawn debt at the year end was £142.3 million, giving
us a gross LTV of 23.9%, and we had cash of £22.5 million.
Drawn debt at the date of this report is £187.3 million,
of which 80% is hedged against rising interest rates.
Enhancing sustainability
This year the Investment Manager has done
considerable work on developing our ESG strategy,
which the board approved after the year end. As part
of this, we have improved our understanding of the
social value we add and how to measure it, as well as
determining the actions we can take on our pathway
to net zero. For more information, see pages 28 to 33.
Strong governance
We’re delighted that Simon Laffin joined the board
as a non-executive director on 1 January 2023 and will
become Chairman when I step down. He has more
than 30 years’ experience as a director, including in real
estate, with his past roles including chairing Assura plc.
As part of our succession planning, Paul Craig will be
stepping down as a director at the forthcoming Annual
General Meeting. On behalf of the board, I want to
thank him for his important contribution to our work
over nearly six years.
Property
investments
£568.8m
+14.5% 2021: £496.9m
Dividend declared
per share
6.54p
+2.0% 2021: 6.41p
Raised
£62.3m
through share placings
We developed
our ESG strategy
and set goals
to focus our
efforts
CHAIRMAN’S STATEMENT
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
We ran an internal evaluation of the board and its
committees during the year, which produced positive
results and identified some areas where we can further
improve. More information can be found on page 79.
Specialist, experienced and disciplined
Investment Manager
We continue to benefit from the diligence and
expertise of our Investment Manager, Impact Health
Partners LLP. The Investment Manager effectively
implements our strategy, and its close relationship
with and oversight of our tenants, alongside its
knowledge of the sector, has helped us to navigate the
challenges of the past few years. We’re pleased to see
that the Investment Manager has continued to grow
its team and capability, to support our goals.
Post-balance sheet events
In addition to taking out the interest rate cap
discussed above, since the end of the year we’ve
invested £56 million in a portfolio of six care homes
with 438 beds to be operated by our tenant, Welford
Healthcare. We paid 80% of the consideration in cash
and the remainder through issuing 9.6 million new
shares. More information can be found on pages 23
and 137.
Well positioned to deliver sustainable value
We’re a long-term responsible business and our
resilient and defensive portfolio provides essential
homes for the care of vulnerable older people across
the UK. Our business model remains robust and we’ll
continue to be disciplined in investing capital, while
managing the business efficiently. The acquisitions
we’ve made and the indexation in our leases leave us
well-positioned for future earnings growth and
a progressive dividend.
Rupert Barclay Cha irman
27 March 2023
1 This relates to the property portfolio along with property portfolios that have been invested in
via loans to operators with an option for the Group to acquire.
2 From inception to 31 December 2022.
3 Including Croftwood and Minster, which are both part of the Minster Care Group.
4 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.
CHAIRMAN’S STATEMENT
6
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Old Prebendal House,
Shipton-under-Wychwood,
Chipping Norton, Oxfordshire.
7
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
We’ve created a compelling business, which is
resilient and has real opportunities for growth,
creating sustainable value for our shareholders
and wider stakeholders.
Over the following pages, we set out how:
1. We’re in a large and growing market. The
population is getting older and as people live longer,
their care needs become more complex. The need
for care isn’t affected by the wider economy and
demand for care home beds exceeds supply.
(Pages 9-13)
2. We designed our business model to produce
attractive and sustainable returns, while
we carefully manage risk. These returns are
underpinned by our income from long-term
inflation-linked leases that have helped deliver
covered dividends for investors. (Pages 14-15)
3. The Investment Manager has an experienced and
strategic management team, which gives us a
competitive advantage in our market. (Pages 16-17)
4. We generate strong cash flows, we’re well financed
and we’re growing our dividend. The Company
also carefully considers dividend cover and its REIT
requirements when deciding the dividend quantum.
(Pages 18-19)
5. We’re adding value and improving environmental
and social performance through active
management. We balance our portfolio between
core assets and value-add, and invest in our
assets to increase returns, enhance environmental
performance and make our homes even more
appealing to residents and their carers. (Pages 20-21)
Together, these strengths mean we’re well positioned
for further growth and value creation. We have
around 1.5% of the market by number of beds, so we
can continue to grow by taking market share. We’ve
got a multi-year pipeline of asset management and
development opportunities, and we’ll continue our
disciplined approach to adding homes to the portfolio.
For more information on our prospects, see the
Chairman’s statement (pages 4-6).
Andrew Cowley,
Managing Partner, Impact
Healthcare Partners
Why invest?
8
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
0
2,000
4,000
6,000
8,000
10,000
12,000
UK elderly population (’000)
■
Age 75-84 ■ Age 85+
2020
2070
2060
2050
2040
2030
Source: ONS
Shrinking supply of care beds (%)
●
Care home beds ● Nursing home beds
2012
2013
2014
2021
2020
2019
2015
2016
2017
2018
Source: Nuffield Trust and Health Foundation
12
10
8
6
4
2
0
Beds per 100 people aged 75+
WHY INVEST?
A large and growing market
1. Growing demand for elderly care
There were just over six million people aged over 75
living in the United Kingdom in 2022. That number
is forecast almost to double over the next 50 years,
to just under 12 million. The over-85s are the fastest
growing segment of the UK population.
To put these numbers into context, when the NHS was
founded in 1948 one in two people died before the
age of 65. This figure is now one in eight. By the time
they reach 65, women can expect to live on average for
another 20 years, and men for another 18 years.
That’s the good news. The less good news is that the
majority of people will spend the last 15 years of their
life with some ill health. Around 10% of people over 80
have a level of care needs which make it difficult for
them to continue to live at home.
2. Falling supply
As the population has aged, the number of available
care beds has been stagnant. This means that the
total number of beds in both nursing and residential
care homes for older people declined from 11.3 per
100 people aged over 75 in 2012, to 9.4 in 2021 – a 17%
decrease.
This reduction in supply accelerated during the
pandemic. Data from the CQC show that between
March 2021 and August 2022, the number of registered
care homes in England fell by 2.4%.
The failure of supply to match rising demand reflects
several factors including a shift in social care policy
towards home care. However, it might also reflect
an element of rationing in the care system, as many
elderly people struggle to access the care they need.
Looking at longer-term trends, an estimated 25% of
over-85s lived in elderly residential accommodation in
1996. By 2017, this had fallen to 15%.
9
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Healthcare sector investment
■
Total UK healthcare investment ■ Cumulative total
2012
2011
2013
2014
2022
2021
2020
2019
2015
2016
2017
2018
Source: CBRE
4.0
3.5
2.5
3.0
1.5
0.5
1.0
2.0
0
Annual investment volume (£ billion)
Cumulative investment volume (£ billion)
30
25
15
20
5
10
0
0
200
400
600
800
1,000
1,200
1,400
1,600
Jan 2040
Jan 2030
Jan 2021
Mar 2050
32 year CAGR: 1.7%
Estimated number of people living with
dementia in the UK
(m)
■
Not living in care homes ■ Registered beds 2021
■
Living in care homes ■ Registered dementia beds 2021
Source: Alzheimer's Research UK
WHY INVEST?
3. More people are living with dementia
Alzheimer’s Research UK estimates that the number
of people in the UK living with dementia will increase
from more than 900,000 today to 1.5 million by 2050.
Dementia is a complex condition and treatment isn’t
always available from the NHS. Today, just under 40%
of people who’ve been diagnosed with the condition
are living in care homes, which now have 378,000
beds registered to provide care for people with some
form of dementia. There could be a substantial rise in
demand for such specialist capacity over the coming
decades.
4. Investor interest in healthcare
CBRE estimates that £25 billion has been invested
in UK healthcare real estate over the past decade,
of which 40% has been invested in care homes.
Annual investment volumes have been volatile, with
sharp contractions in 2016, the year of the Brexit
referendum, and 2020, the first year of the pandemic.
In 2022, investment in the sector was £1.7 billion,
a relatively high number in a year of great economic
uncertainty.
The nature of the healthcare sector tends to attract
long-term, index-linked investment. Turnover of asset
ownership in the sector is therefore low, as investors
generally have a buy-and-hold strategy. However, there
has been a change over time in who the investors are.
In 2019, over half the investment came from non-UK
REITs. In 2022, over half the investment was from
UK-based specialist healthcare investors, who are best
placed to find value in a very fragmented market.
Private equity has been very active in the healthcare
space in the past but has pulled back as interest rates
have risen.
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
5. Government policy
To put it mildly, government policy for adult social care
is a complicated field. There is no national government
budget for adult social care in England. Instead,
publicly funded social care is mostly financed through
local government revenue. This is made up of central
government funding from the local government finance
settlement, combined with locally raised revenue from
business rates, council tax and income from fees.
This complex funding picture was further complicated
by several policy changes during 2022. At the end of
2021, the then government announced ambitious
reforms to adult social care, with a series of White
Papers. They set out reforms aimed at increasing
government funding for the sector, while capping the
costs individuals would have to pay before government
funding became available. The additional costs were to
be funded by a 1.25% levy on National Insurance, which
came into effect in April 2022.
In the mini-budget in September 2022, the Truss
government announced that this levy would be
scrapped in November and that the reforms would be
funded from general taxation. Then, in the Autumn
Statement in November 2022, Jeremy Hunt, the new
Chancellor, announced he was pushing back the start
date for implementing the structural reforms from
October 2023 to October 2025.
While this delay was disappointing, the reason Mr Hunt
gave for delaying the reforms was to avoid imposing
additional costs on the government and care providers
at a time when the government’s priority is to create
more capacity. In his Autumn Statement he said that
the government would make available up to an
extra £2.8 billion in 2023/24, and £4.7 billion in
2024/25 to help support adult social care and hospital
discharge.
There were two government initiatives that gained less
attention during 2022, but may have important longer-
term consequences for the sector. First, in England
the government carried out a major data collection
exercise from care providers to assess the Fair Cost of
Care (FCOC). The aim was to ensure that care providers
can meet local authority demand at a price that covers
their costs and is sustainable for the future. The
data was collected by the end of October 2022 and
has been a significant input into large fee increases
announced by some local authorities since then, as it
showed they’ve been paying less than the FCOC (see
page 12).
Second, new integrated care systems (ICSs) in England
formally took up their responsibilities in July 2022. ICSs
are partnerships that bring together NHS organisations
and local authorities, to take collective responsibility
for planning services and improving health across
geographical areas. There are 42 ICSs, each covering
between 500,000 and three million people. The
changes have been described as the biggest legislative
overhaul of the NHS in a decade.
If successful, these reforms will help to break down
the silos between care for the elderly provided by the
NHS, and care funded by local authorities. This should
improve outcomes for the vulnerable people who need
care and will make the NHS an increasingly important
counterparty for elderly care providers who can deliver
what the NHS needs – complex, higher acuity care.
WHY INVEST?
11
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Fee and staff costs index (2009-2022)
■ AWF growth ■ Staff cost growth ■ RPI
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2021/22
2020/21
2019/20
2015/16
2016/17
2017/18
2018/19
Source: Knight Frank
180
160
140
120
100
80
60
40
20
0
Fee and staff costs index
■ Private pay ■ Local authority ■ Staff costs ■ RPI
2016/17 2017/18 2018/19 2019/20 2020/21 2021/22
Source: Knight Frank
150
140
130
120
110
100
90
80
70
Case study:
The impact of inflation
on care providers
After two years at the frontline of managing the
impact of the COVID-19 pandemic on the people
most at risk from the virus, care providers had been
hoping for a calmer, more normal 2022. Instead they
found themselves in a perfect inflationary storm,
with utility, food and, above all, staff costs rising very
rapidly, as general inflation peaked in double digits
in October 2022.
The one cost which our tenants had capped was
their rent: 90% of our rent increases are capped at 4%
per annum, and 8% are capped at 5% (the remaining
2% are uncapped). We put these caps in place to make
sure that our rents continue to be affordable over
the long term if inflation did spike, as it now sadly has.
Two other things have helped to shelter care
providers against these inflationary headwinds. First,
their occupancy has been steadily rebuilding from
the lows caused by the pandemic. Second, they
provide an essential social service, demand for which
is non-discretionary. This means they can increase
their prices when they’re forced to do so.
Different firms do annual surveys of fees charged
by care providers. In 2022, all pointed in the same
direction – substantial increases on 2021. The survey by
Carterwood, for example, found that private fees for
the year beginning April 2022 were up 9.6% for nursing
care and 7.3% for residential care (compared to 6.1% and
6.6% in 2021), while local authority fees were up 7.4%
and 6.9% (2021: 2.8% and 3.0% respectively). Our tenants
performed slightly more strongly than these benchmark
numbers (see the Investment Manager’s report).
As ever, a note of caution is worthwhile. An increase to
baseline fee rates does not necessarily translate into
an increase in the fees received by operators, if they’ve
already negotiated an uplift to those floor fees, as you
would expect a successful operator to have done. And,
paradoxically, a cut in baseline fees can be good news
for successful operators with strong local reputations.
Some local authorities – for example, Hampshire and
Oxfordshire – announced cuts in their baseline fees
in 2022 as they moved away from a standard model
of a set fee, to reviewing fees on a case-by-case basis,
greatly expanding the range of fees offered.
With that proviso, we expect the fee increases that
come into effect in April 2023 to be in line with 2022,
or slightly higher, which will be helpful to our tenants
as inflation comes down.
This confirms a long-term pattern, that care providers
can increase their fees in line with inflation. Over the
24 years ending in April 2022, fees for nursing care
have risen by an average of 3.6% per annum, and for
residential care by an average of 3.5% per annum.
RPI over that time averaged 2.8% per annum.
WHY INVEST?
12
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
WHY INVEST?
13
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
WHY INVEST?
Generating attractive returns
Our business model
Our business model allows us to generate
attractive returns (see page 1) with managed risk.
We consider risk from many different angles,
from ensuring our balance sheet stays strong,
to the way we carefully pick tenants and make
sure they’re performing well, to our focus on
sustainability and creating a positive social
impact. Our external Investment Manager is
essential to our success and its strengths give us
an edge in our market. See pages 16-17 for more
information.
How our business model
supports our purpose
Each stage of our process links to one or
more aspects of our purpose:
1. Build relationships
We build strong relationships with tenants
who seek to provide high-quality care and
who we can work with long term. We look
to add new tenants over time, which reduces risk
by diversifying our business and making us more
resilient, and gives us more scope to grow our
business responsibly.
Link to purpose:
Long-term partnerships with tenants
4. Agree leases
Our leases are typically 25 years or more,
so we’re careful that they protect everyone’s
long-term interests. That means setting
rents so they’re well covered by tenants’ profits
from day one, linking rents to inflation so they
rise over time but stay affordable, and requiring
tenants to spend a minimum amount every year
on repairs and maintenance. All our new leases
also include “green” clauses, to help us work with
tenants on our ESG objectives.
Link to purpose:
Long-term partnerships with tenants
Owning and investing in buildings
Predictable and sustainable rent
2. Identify assets
We identify attractive assets to invest in,
often in partnership with existing tenants,
and frequently acquired from owner-
operators who are exiting the market. Our
disciplined approach results in attractive net
initial yields and we often buy at less than the
cost of replacing the asset, which helps create
a barrier to entry for new competitors. See
our investment strategy on page 24 for more
information.
Link to purpose:
Long-term partnerships with tenants
Owning buildings
5. Work with tenants to improve our assets
Our asset management projects include
upgrading and extending our homes, so
they’re even better places to live and can
provide care for more people, including those
living with dementia. We also look to work with
tenants to develop new homes in areas with
strong demand. These activities require tenant
consent in accordance with the long leases and
will increase our rent, our tenants’ revenues and
the value of our homes, and make them more
sustainable.
Link to purpose:
Long-term partnerships with tenants
Owning and investing in buildings
3. Appraise purchases
We’re very selective in what we buy and
rigorously check every aspect of the
homes, including their environmental
sustainability and the market within which it
operates. This allows us to develop a plan for the
improvements we’ll make, once we own them.
Link to purpose:
Owning and investing in buildings
6. Optimise portfolio
We regularly review our assets to look
for those where it makes sense to sell,
so we can reinvest the proceeds and
create more value. We also put in place
appropriate levels of debt to enhance shareholder
returns in line with our leverage policy.
Link to purpose:
Owning and investing in buildings
Our focus on quality
14
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
WHY INVEST?
How our business model
supports our purpose
Each stage of our process links to one or
more aspects of our purpose:
1. Build relationships
We build strong relationships with tenants
who seek to provide high-quality care and
who we can work with long term. We look
to add new tenants over time, which reduces risk
by diversifying our business and making us more
resilient, and gives us more scope to grow our
business responsibly.
Link to purpose:
Long-term partnerships with tenants
4. Agree leases
Our leases are typically 25 years or more,
so we’re careful that they protect everyone’s
long-term interests. That means setting
rents so they’re well covered by tenants’ profits
from day one, linking rents to inflation so they
rise over time but stay affordable, and requiring
tenants to spend a minimum amount every year
on repairs and maintenance. All our new leases
also include “green” clauses, to help us work with
tenants on our ESG objectives.
Link to purpose:
Long-term partnerships with tenants
Owning and investing in buildings
Predictable and sustainable rent
2. Identify assets
We identify attractive assets to invest in,
often in partnership with existing tenants,
and frequently acquired from owner-
operators who are exiting the market. Our
disciplined approach results in attractive net
initial yields and we often buy at less than the
cost of replacing the asset, which helps create
a barrier to entry for new competitors. See
our investment strategy on page 24 for more
information.
Link to purpose:
Long-term partnerships with tenants
Owning buildings
5. Work with tenants to improve our assets
Our asset management projects include
upgrading and extending our homes, so
they’re even better places to live and can
provide care for more people, including those
living with dementia. We also look to work with
tenants to develop new homes in areas with
strong demand. These activities require tenant
consent in accordance with the long leases and
will increase our rent, our tenants’ revenues and
the value of our homes, and make them more
sustainable.
Link to purpose:
Long-term partnerships with tenants
Owning and investing in buildings
3. Appraise purchases
We’re very selective in what we buy and
rigorously check every aspect of the
homes, including their environmental
sustainability and the market within which it
operates. This allows us to develop a plan for the
improvements we’ll make, once we own them.
Link to purpose:
Owning and investing in buildings
6. Optimise portfolio
We regularly review our assets to look
for those where it makes sense to sell,
so we can reinvest the proceeds and
create more value. We also put in place
appropriate levels of debt to enhance shareholder
returns in line with our leverage policy.
Link to purpose:
Owning and investing in buildings
Our focus on quality
Our focus on quality
Quality is at the heart of our business
model. By following the process set out
above, we maintain the:
Quality of our buildings, ensuring they’re
well maintained, that we’ve identified
ways to improve them through asset
management, and that they’re fit for purpose for
our tenants and their residents for years to come.
Quality of care, since our income
depends on our tenants providing care
that meets residents’ needs and attracts
new residents. The Investment Manager regularly
meets our tenants as well as visiting the homes,
reviewing what customers are saying and
considering reports from regulators. If they see any
ongoing issues with care, they’ll seek independent
support to help resolve them, where appropriate.
Quality of cash flows, as discussed on
page 17, which together with our prudent
approach to investment ensures we
maintain a healthy balance sheet.
The value we create
Our high-quality business generates
attractive and sustainable value for our
stakeholders.
Tenants
Tenants can grow their business alongside
ours, in a long-term relationship with
affordable rents which benefits both of us.
Residents
Residents benefit from security, stability
and high-quality care, with a landlord
who’s willing to invest in their home.
Lenders
Our lenders can provide long-term finance
to us on attractive terms, knowing we have
a secure and resilient business, with strong
cash flows.
Shareholders
Our model is to deliver predictable and
rising revenue, so that we can pay a
progressive, fully covered dividend (see
pages 18-19). There is also the potential for capital
growth, which supports an attractive total return.
15
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
An experienced and strategic management team
Impact Health Partners LLP is our Investment
Manager. Its role includes sourcing investments
for us, closely monitoring the progress of our
homes and asset management.
Our portfolio and Investment Manager are our main
sources of advantage in our market. We benefit
significantly from the team’s skills and experience, in
particular their:
1. Deep knowledge of the sector, which allows us to
buy the right assets, choose the right tenants and
add value by actively managing our assets.
2. Positive relationships with care home owners who
might want to sell their assets, the agents they
work with and with potential new tenants, all of
which help our business to grow and diversify.
Great relationships can help us to buy assets off-
market or beat the competition even when we’re
not the highest bidder.
3. Asset management and development skills, so we
can identify how to improve a care home before we
buy it, successfully complete each project and work
with our tenants to develop new homes.
4. Understanding of how care businesses work,
which allows us to form supportive partnerships
with our tenants.
WHY INVEST?
David Yaldron FCA
Finance Director
David is a chartered accountant with
more than 25 years’ experience, having
held senior financial roles in real estate
and investment companies. He was
previously a senior director at Grosvenor,
Britain & Ireland.
Mahesh Patel ACA
Managing Partner
Mahesh is a qualified accountant
who has over 35 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.
Andrew Cowley MA (Oxon)
Managing Partner
Andrew is an experienced fund manager,
working in infrastructure and private
equity investment since 2000. He was
previously a senior managing director at
Macquarie and deputy chief executive
of the listed Macquarie Airports.
Martin Robb MRICS
Managing Director
Killian Currey-Lewis CA
Investment Director
Simon Gould MRICS
Development Director
Sam Josland CFA, ACA
Investment Manager
Charlotte Finch
Investment Manager
Sophie Shrestha ACCA
Finance Manager
Alison Hayward
Office Manager
16
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
WHY INVEST?
Our focus on quality
Quality is at the heart of our business model which is set out on pages 14-15. Our board and Investment
Manager ensure we maintain this focus, as outlined below:
Delivering quality in practice
Quality of our buildings
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 ensuite bedrooms.
We also identify opportunities
for improving the environmental
performance of the building.
Ensuring our buildings are well maintained is the responsibility of our tenants.
To ensure this is properly executed we will seek to visit our homes both directly
and indirectly. In addition, we review and discuss with our tenants their spend on
repairs and maintenance across our portfolio.
Directly via the Investment Manager, who will routinely visit our properties to
inspect and understand the operations with our tenants, to check the maintenance
and progress on asset management projects at the homes and discuss opportunities
for improvements. In 2022, the Investment Manager undertook 63 visits to both
individual and portfolios of our homes.
Directly via the board. A selection of board members look to engage directly with
our tenants and visit some of the homes across the portfolio to understand the
operations, how the tenant is performing and to help understand the challenges
and opportunities across the portfolio. In 2022, our board members visited three
homes.
Indirectly through our valuer, surveyors, environmental specialists and
independent social value reviewers, who support the Investment Manager
in understanding the quality of our buildings and collectively undertook
197 home inspections in the year.
Quality of care
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 collaborative and proactive work
with tenants to ensure quality of care is
maintained. Where appropriate, we will
seek independent support to resolve
any ongoing issues.
Delivering the service of care is undertaken by our tenants; the Investment
Manager monitors occupancy across our homes weekly, receive notifications
on care inspections as they are produced and reviews each tenant’s financial
performance quarterly either via conference calls or meetings in our tenants’
offices
If a home is rated inadequate or requires improvement, the Investment Manager
will review the reports in detail, have a conversation with the tenant’s operations
director to understand the issues identified, the remedial actions being undertaken
and whether there are any broader concerns with the operations that the tenant is
looking to resolve.
During 2022, 28 of our homes were inspected by the regulator. Our Investment
Manager also undertook 44 meetings with our tenants, reviewing their overall
financial and operational performance. Outside of these meetings, our Investment
Management team speaks regularly with our tenants on a variety of topics including
occupancy, agency usage, asset management, environmental performance and
quality assurance.
Quality of cash flows
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, helps
to maximise cash we can distribute to
shareholders.
The quality of our cash flows starts with our tenants as outlined above. We have a
disciplined approach to ensuring we are able to target delivery of a cash covered
dividend and the headroom to manage downside scenarios as detailed in our going
concern and viability statements on page 61.
Our Investment Manager also regularly engages with our debt providers, providing
quarterly financial information on covenant compliance and reporting on the
performance of the tenants and homes within their security pool. In 2022, we
successfully enlarged our debt facility with HSBC and enlarged and extended our
debt facility with Virgin Money. The Group's Investment Manager undertook site
visits with both banks as part of this process, enabling them to better understand
the homes and activities of our tenants.
Shortly after the year end, we put in place an additional £50 million interest rate cap
to help manage our cash flows and cash security across the Group.
17
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Strong cash generation supporting our progressive
dividend policy
Dividends fully covered by adjusted
earnings since 2021, supporting attractive
total accounting returns
We’ve designed our business to produce growing,
long-term income. All of our leases include rent
increases linked to inflation, typically with a minimum
increase of 1% or 2% and a maximum of 4% or 5%,
so rents stay affordable for our tenants.
This allows us to have a progressive dividend policy,
which has grown our dividend by 9% since 2018 to
6.54 pence per share in 2022. This has been fully
covered by EPRA earnings since 2018 and by adjusted
earnings, which is the Group’s benchmark for cash
earnings, since 2021.
The Company has announced its target dividend for
2023 of 6.77 pence per share
1
, an increase of 3.53%.
WHY INVEST?
-2
0
2
4
6
8
10
Total accounting return (%)
2020201920182017 20222021
5.86%
5.94%
5.96%
3.74%
(2.01)%
5.82%
2.60%
3.52%
2.51%
3.30%
5.79%
2.60%
8.46%
9.46%
8.47%
7.04%
3.78%
8.42%
■ Dividend return ■ NAV growth ■ Total accounting return
1 This is a target not a profit forecast.
18
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
0
5
10
15
20
25
30
Net cash flows from operating activities (£m)
2020201920182017 2022
£21.02m
£14.94m
£9.99m
£8.24m
£29.49m
2021
£23.58m
0
10
20
30
40
50
60
70
80
90
100
110
120
130
Dividend cover (%)
■
Adjusted earnings dividend cover ■ EPRA earnings dividend cover
FY20
FY19
FY18
FY17
FY22
95%
85%
84%
98%
109%
FY21
104%
FY20
FY19
FY18
FY17
FY22
FY21
115%
113%
108%
97%
128%
126%
0
10
20
30
40
50
60
70
80
Debt facilities maturity (£m)
20292024 20252023 2035
£50m
£26m*
£75m*
£15m
£75m
■ Metro ■ Clydesdale ■ HSBC ■ NatWest
■ Private placement 1 ■ Private placement 2
£38m
3.00%
£37m
2.93%
*These maturities exclude extension options.
70% of drawn debt as at year end was capped
or fixed. This has since increased to
80%
Floating with
interest cap
at 1%, £25m
Fixed interest
debt, £75m
Floating rate
debt, £141m
Drawn debt,
£142m
Gross LTV, 23.9%
WHY INVEST?
As a REIT, we’re required to pay out at least 90% of our
profits as dividends each year.
The dividend is a key part of our total accounting return,
which includes the movement in our net asset value
each year. Our target is to achieve an average return of
9% a year over the medium term
1
.
High-quality cash generation
As outlined in our business model on pages 14-15, we’re
always focused on the quality of our cash flows.
Our cash flows rely on having tenants who perform
well and pay their rent on time. We regularly review
the performance of our tenants and each home, so we
understand how they’re doing and can offer practical
support if needed. This helps our tenants to maintain their
profit margins, so their rent payments are well covered.
We also carefully control our own costs and benefit from
economies of scale as we grow, as many of our costs
are fixed and some step down as our asset value rises.
The result has been a rapid increase in our operating
cash flows, as we’ve grown the portfolio.
A prudently financed business
As a property business, prudently using a modest level
of debt is a key part of our business model. It gives us
additional money to invest in assets, which increases
returns and reduces risk by diversifying our portfolio.
At the same time, we have to balance these upsides
with the need to ensure we’re prudently and sustainably
financed, so we’re flexible and resilient. We have
limited our leverage to 35% and are seeking to ensure
that 75% of our drawn debt is fixed or hedged. Since
the year end we have put in place a further £50 million
of hedging to align with our hedging policy and 80% of
our current drawn debt of £150 million is now hedged.
We carefully manage the maturity of our debt, with
the capital structure including a long-term private
placement that runs to 2035, and protect the business
from rising interest rates through a suitable amount of
fixed-rate and capped debt.
See our financing strategy on page 25 for more
information.
1 This is a target not a profit forecast.
19
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Landscaping to encourage
invertebrates and wildlife
Biodiversity
Attractive external spaces
for residents to enjoy
Soft landscapingOutdoor covered area
For residents to enjoy the
outdoors and events
High efficiency
glazing
New salonNew café
Improves heat retention
Enhanced insulation
Generates renewable energy
from sunlight
Solar PV
High efficiency LED lighting
with controls
Energy efficient lighting
Reduces energy demand
from laundry and cooking
Super efficient appliances
Renewable and highly
efficient source of electricity
Air source heat pump
Plant room
New kitchen
and laundry
Ensuite
rooms
Enhanced
garden area
Configuration of the rooms,
communal areas and facilities
for residents and their
families, and care workers
Upgrade and optimise
Keeps heat in and
prevents excessive
solar gain
WHY INVEST?
Adding value through asset management
and development
Capital investment 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 while making the
homes even better places to live, improving
environmental performance and helping the
homes to compete better in their markets.
Investing in asset management is a great way to
improve our properties, provide better facilities to our
residents, whilst increasing returns. We typically target
an 8% return on each project through increased rents,
with the potential for capital growth in addition to this.
In 2022, we invested £11.8 million in asset management
projects and over the next two years, we’ve identified
a further £16 million of projects. The main initiatives
are shown below:
Asset Project description
Capital
investment
Expected
completion
Mavern House Extension and
additional ensuites £2.0m Q4 23
Yew Tree
Care Centre New 25 beds £1.5m Q4 23
Wombwell Hall Reconfiguration and
upgrading £4.0m Q4 24
Amberley Extension and internal
reconfiguration £2.5m Q2 24
Craigend Extension and internal
reconfiguration £1.2m Q2 24
Elm House Extension and internal
reconfiguration £1.8m Q1 24
Barham Extension and internal
reconfiguration £3.0m Q3 24
For more information, see our portfolio management,
asset management and development strategies
on page 25 and the Investment Manager’s report on
pages 42-47.
The graphic on the right shows a selection of the many
ways that we can improve a home through asset
management, making the building a better place
to live and work and improving its environmental
performance.
20
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Landscaping to encourage
invertebrates and wildlife
Biodiversity
Attractive external spaces
for residents to enjoy
Soft landscapingOutdoor covered area
For residents to enjoy the
outdoors and events
High efficiency
glazing
New salonNew café
Improves heat retention
Enhanced insulation
Generates renewable energy
from sunlight
Solar PV
High efficiency LED lighting
with controls
Energy efficient lighting
Reduces energy demand
from laundry and cooking
Super efficient appliances
Renewable and highly
efficient source of electricity
Air source heat pump
Plant room
New kitchen
and laundry
Ensuite
rooms
Enhanced
garden area
Configuration of the rooms,
communal areas and facilities
for residents and their
families, and care workers
Upgrade and optimise
Keeps heat in and
prevents excessive
solar gain
Projects in planning or
immediate pipeline
15
(next 12 months)
Capital deployed
in 2022
£11.8m
(£4.0m forward-funded
development, £7.8m asset
management projects)
Yield on funds deployed
excluding capital growth
8%
WHY INVEST?
21
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Security of tenant income (%)
based on % revenue, for the quarter to
31 December 2022, to care home tenants
Local
Authority
60.2%
NHS 8.1%
Private
Pay 31.7%
3 2
2
21
4
7
2
2
2
27
8
2
2 8
1 1
4
6
4
1
1 4
4 3
2
1
2
5
2
2
5.7%
0.8%
3.9%
5.3%
12.6%
3.6%
15.1%
4.0%
2.4%
2.1%
5.2%
24.1%
2.3%
12.9%
Diverse tenant base (%)
based on % contracted income
Our tenants
Belmont
Careport
Carlton Hall
Croftwood
Electus Care
Holmes
Minster
MMCG
NHS
Optima
Prestige
Renaissance Care
Silverline
Welford
Note: The information on this page includes forward-
funded assets and portfolios invested in via a loan to
operator where the Group has an option to acquire.
Portfolio
For the year ended 31 December 2022
Since our IPO in 2017, we’ve deliberately
constructed a portfolio that’s diversified by
location, tenant and funding of our tenants’
residents, which is well diversified across local
authorities, the NHS and private pay. This helps
to make us more resilient and means we earn a
predictable income from our assets.
Our tenants
Our tenants are established healthcare providers.
They seek to provide great care and have the ambition
to grow their businesses alongside ours.
Region
Number of
properties Beds
% of
portfolio
market
value
East Midlands 8 405 6.7%
East of England 9 627 11.1%
North East 12 767 9.4%
North West 33 1,348 15.6%
Northern Ireland 5 340 3.8%
Scotland 32 1,805 22.8%
South East 4 318 6.6%
South West 10 537 10.4%
Wales 2 105 0.8%
West Midlands 8 422 5.5%
Yorkshire & The Humber 12 742 7.3%
22
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Welford Healthcare
Building strong
partnerships
During the year we continued to build on and strengthen our partnerships
with our tenants.
Growth with existing tenants helps to de-risk the portfolio, by enabling
them to develop larger and more resilient businesses, diversified by the
number of homes.
In H1 2022 we completed the purchase of three homes in south-west
England and two homes in the East Midlands in partnership with Welford
Healthcare. In both cases, the existing owner operator was exiting the
business. Working with Welford, we acquired the freehold interests and
assigned the operations to Welford with new long-term leases that reflected
attractive value for both of us.
These acquisitions took our total number of homes with them to 12. This
equates to 12.6% of our annual rental income.
All five homes are well established, with excellent local reputations, and
have CQC ratings of either Good or Outstanding and benefit from favourable
underlying demographics in the local catchment areas with attractive
demand/supply fundamentals.
EPC ratings are B on two homes and C on three, with a clear pathway to
convert them to EPC B, in line with our ESG strategy.
Building scale with operators provides more secure returns with enhanced
diversity and a stable platform for undertaking asset management
opportunities. We are on-site with Welford at Fairview House in Bristol and
have a further two asset management projects in our immediate pipeline.
“We welcome the opportunity to
grow our partnership with Impact,
who have shown themselves to be a
supportive and pro-active partner to
us since our first transaction in 2018.”
Peter Madden, Welford Healthcare
2022 acquisition highlights
Capital committed
£36.1m
Number of registered beds
294
Additional rent
£2.4m
Total number of beds with Welford
649
Post-year end
In January 2023, the Group invested
a further £56 million, in partnership
with Welford, in six care homes across
Shropshire and Cheshire, adding
an additional 438 predominantly
ensuite beds to the Group’s portfolio.
Following this, Welford now comprises
c.20% of our income. This acquisition
was funded 80% by cash, with
the remainder in shares priced at
116.62 pence per share.
Top, left: Raleigh Mead, South Molton,
Devon. This is a 61-bed specialist dementia
nursing home which was purpose-built in
2011 and benefits from 100% ensuite wet
rooms
Top, right: East Street and Rossiter House,
South Molton Devon.
Bottom: Periton Road, Minehead,
Somerset.
23
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Lomond View, Falkland, Fife, one
of 32 properties that we own in
Scotland. It has 50 high-quality
ensuite beds, and is tenanted by
Holmes Care Group.
Objectives and strategy
Our objectives
Our targets are to deliver:
a progressive dividend, with a target for 2023
of 6.77 pence per share
1
; and
an average total accounting return of 9.0% per
annum
1
, with the capital growth element mainly
coming from rising rents and our asset management
projects, rather than relying on increases in market
values.
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. See
page 159 for the definition of total accounting return.
Our strategy
To achieve our objectives, we:
buy the right assets that enhance our portfolio
through improved geographic and tenant diversity
and are accretive to shareholder returns, by
implementing our investment strategy;
effectively manage the portfolio and individual
assets, by implementing our portfolio management
and asset management strategies; and
ensure we’re appropriately financed, by
implementing our financing strategy.
24
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Strategy Our progress in 2022
Investment strategy
Our investment policy (see pages 157-158)
allows us to invest in different types of healthcare
properties. The market conditions described on
pages 9-13 mean care homes currently offer us
the best opportunities.
We manage risk by having a portfolio that’s well
diversified by location and tenant, by adding new
tenants over time and by increasing the number
of homes our tenants run.
We mainly buy portfolios, which can include other
types of healthcare properties where this gives us
a strategic opportunity to add value or we intend
to sell them on when the time is right.
During 2022, we:
invested in 12 care homes with 764 beds, for
a total of £69.2 million;
further diversified the portfolio geographically and
strengthened existing tenants by increasing the
number of homes they run; and
added one new tenant, to give us 14 tenants
1
at
the year end.
Since the end of the year, we’ve invested £56 million
in a portfolio of six care homes with 438 beds, leased
to an existing tenant.
Portfolio management strategy
We class each of our assets as core, value-add or
non-core.
We make sure we have the right balance
between these categories and that we identify
the assets where we can add value through asset
management, or which are candidates for sale.
In October 2022, we sold a non-core care home with
68 beds for £2.65 million, 4% above its valuation at
30 June 2022.
Since the year end, we sold a further non-core
home with 49 beds for £1.25 million, in line with its
valuation at 31 December 2022.
Asset management and development strategy
Investing to add value to our assets and to
enhance their social impact and sustainability is
a priority for us.
We also provide funding to develop new homes,
once we’ve agreed a lease with the tenant
who’ll run it. This gives us better returns than
buying existing homes and adds new and highly
sustainable assets to the portfolio.
During 2022, we committed £11.8 million to asset
management projects, which will earn an average
return of 8% through higher rents.
Notable projects we completed, in partnership with
our tenants, were:
completing our project at Riverwell Beck
(previously called Blackwell Vale);
completing phase one of our project at Fairview
and starting phase two; and
refurbishments of Belmont House, Harrogate, and
three homes in Northern Ireland.
We also reached practical completion on the 94-bed
care home development we funded in Hartlepool,
which is being run by Prestige.
Financing strategy
We fund the business through equity and debt.
When we issue new shares, we aim to invest the
cash as quickly as possible in assets that generate
income for us, to minimise the impact on our
earnings per share of holding cash.
Our policy is to have a maximum Group LTV of
35% at the time we draw down the debt (see
page 19).
We aim to hedge at least 75% of our drawn debt
against rising interest rates.
We completed several significant funding initiatives
in 2022. These were:
raising £62.3 million of new equity, through share
placings in February and July;
issuing the remaining £38 million of the long-term
institutional notes we arranged in 2021;
extending our RCF with HSBC by £25 million and
cancelling the £15 million RCF with Metro Bank; and
renegotiating our RCF with Virgin Money,
increasing it from £25 million to £50 million,
extending the term to 2029 and reducing its cost.
Since the year end, we have taken out a £50 million
cap at a cost of £1.5 million, which caps SONIA at
3.0% for two years.
1. Including Croftwood and Minster, which are both part of the Minster Care Group.
OBJECTIVES AND STRATEGY
25
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Key performance indicators
We use the following measures to assess the progress we’re making with our strategy.
1. Total accounting
return*
2. Dividends 3. EPRA earnings
per share*
4. EPRA “topped up”
net initial yield (“NIY”)*
3.78%
for the year ended
31 December 2022
(2021: 8.42%)
6.54p
per share
for the year ended
31 December 2022
(2021: 6.41p per share)
8.37p
per share
for the year ended
31 December 2022
(2021: 8.05p per share)
6.98%
as at 31 December 2022
(31 December 2021: 6.71%)
Total accounting return (%)
3.78%
0 11
8.42
3.78
8.4 6
20222018 2020 20212019
8.47
9.46
Dividends (p)
6.54%
0 8
6.41
6.54
6.29
20222018 2020 20212019
6.00
6.17
EPRA earnings per share (%)
8.37%
0 10
8.05
8.37
7.25
20222018 2020 20212019
6.47
6.95
EPRA ‘topped up’ net
initial yield (“NIY”)
(%)
6.98%
0 8
6.71
6.98
6.71
20222018 2020 20212019
6.97
6.66
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
Annualised rental income
based on the cash rents
passing on the balance sheet
date, less non-recoverable
property operating expenses,
divided by the market value
of the property portfolio,
increased by 6.3% to reflect
a buyer’s costs and adjusted
for the expiration of rent-free
periods or other unexpired.
lease incentives.
Relevance to strategy
Shows the returns we’re
creating for our shareholders,
by paying out our earnings
and growing our portfolio
value.
Relevance to strategy
Shows the quality of our
buildings and tenants, which
allow us to earn a predictable
income and pay a growing
dividend.
Relevance to strategy
This is a key measure of our
operational performance and
the extent to which earnings
support our dividend.
Relevance to strategy
NIY indicates the portfolio’s
ability to generate income,
in comparison to its market
value.
Commentary
NAV total return comprised
dividend paid in the year
of 6.51p per share and the
change in NAV of (2.26)p per
share, and totalled 3.78%,
against our target of 9.0% per
annum
1
.
Commentary
We met our dividend target
for 2022. Our dividend
target for 2023 is 6.77p
1
,
representing 3.53% growth.
Commentary
EPRA EPS increased by 4.0%,
giving 128% dividend cover.
Commentary
The NIY at 31 December 2022
was 6.98%. The average NIY
of our acquisitions in the year
was 6.50%.
26
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
KEY PERFORMANCE INDICATORS
5. NAV per share 6. Gross loan to value
(“LTV”)*
7. Weighted average
unexpired lease term
(“WAULT”)
8. Total expense ratio
(“TER”)*
110.17p
per share
as at 31 December 2022
(31 December 2021:
112.43p per share)
23.85%
as at 31 December 2022
(31 December 2021: 22.26%)
19.7yrs
as at 31 December 2022
(31 December 2021:
19.2 years)
1.67%
for the year ended
31 December 2022
(2021: 1.55%)
NAV per share (p)
110.17p
0 140
112.43
110.17
109.58
20222018 2020 20212019
103.18
106.81
Gross loan to value (“LTV”) (%)
23.85%
0 30
22.26
23.85
17.77
20222018 2020 20212019
11.62
6.81
Weighted average
unexpired lease term (“WAULT”)
19.7%
0 25
19.2
19.7
20.0
20222018 2020 20212019
19.5 19.7
Total expense ratio
(“TER”)
1.67%
0.0 2.2
1.55
1.67
1.53
20222018 2020 20212019
1.80
1.60
Definition
Net asset value based on
the properties and other
investment interests at
fair value.
Definition
Our 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
We believe this is the most
relevant measure of the
fair value of our assets and
liabilities.
Relevance to strategy
This is an important indicator
of the amount of debt we’ve
used in implementing our
strategy. A higher LTV 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 leases
support the quality of our
income stream and our
dividends.
Relevance to strategy
The TER is a key measure of
how efficiently we’re running
the business.
Commentary
NAV at 31 December 2022
was 110.17 pence per share
(-2.0%), (2021: 112.43p per
share), reflecting the
change in market value
of the property portfolio,
partially offset by the benefit
of inflation-linked rent
reviews and stable operator
performance.
Commentary
We have total facilities of
£241 million and had drawn
£142.3 million at the year
end, giving an LTV of 23.85%.
If the facilities were fully
drawn, with no changes to
the Group’s current equity
base, the LTV would be
approximately 34.7%.
Commentary
We continued to agree new
leases of 25 years or longer
during 2022, offsetting some
of the natural reduction in
the portfolio WAULT over
time.
Commentary
The TER increased 12bps
in the year. The EPRA cost
ratio (reported on page 148)
increased to 16.59% (2021:
15.84%). Adding the interest
received on loans to tenants
to our rental income reduces
the EPRA cost ratio to 15.4%.
* EPRA and alternative performance measures and associated notes can be found on pages 146-153.
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.
27
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Responsible investment
Our homes are part of the UK’s essential social
infrastructure, allowing our tenants to care
for and support some of the country’s most-
vulnerable people. Quality homes and strong
partnerships with our tenants help us to achieve
positive outcomes for society, while generating
sustainable cash flows for our shareholders.
We’re also focused on making sure our assets are
environmentally sustainable, so our portfolio
remains resilient to the physical and transitional
risks of climate change, and we can reduce fossil
fuel use and carbon emissions from our portfolio
and our tenants’ operations.
The Investment Manager is a signatory to the
UN Principles of Responsible Investment (UN PRI) and
has embedded those principles in its risk management
and investment decision-making processes.
Assessing our material issues
In 2022, we updated the materiality assessment we
originally carried out in 2019 and used the results to
help inform our sustainability strategy. We based
the areas of questioning on the UN PRI’s Real Estate
and Healthcare guidelines and the relevant industry
metrics defined by the Sustainability Accounting
Standards Board (SASB).
The materiality assessment included input from
board members, representatives of the Investment
Manager, care home operators and two financial
institutions, representing equity and debt. We had
strong engagement with our stakeholders and they
recognised that we’ve taken steps to further embed
ESG considerations in the business.
We rated the issues we identified on their importance
to our stakeholders and the potential impact on
our business. The table below categorises the most
important items into environmental, social and
governance issues, and between those we can
influence directly and those where we have indirect
influence, as the ultimate responsibility lies with
our tenants.
Environmental Social Governance
Direct
Influence
Energy efficiency
management
Carbon reduction and
net zero strategy
Close collaboration with
care home operators
Refurbishment of care
homes
Provision of affordable care
Governance and policies for
our operations, acquisitions
and disposals
Stakeholder engagement
Transparent reporting
Indirect
Influence
Physical impacts
of climate change
Water and waste
management
Residential care and
wellbeing
Employee wellbeing,
training and retention
Responsible management
of care homes
28
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ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Key impact pillars
Having identified the material issues, we distilled the
overarching themes and used them to define the
three pillars of our ESG strategy. Improving the UK’s
social healthcare infrastructure is at the heart of our
investment strategy and is therefore a central pillar of
our ESG strategy. We will combine this with a robust
focus on the environmental impact of our portfolio and
making sure we have a comprehensive governance
framework. More information on our objectives, actions
and metrics for each pillar can be found on page 33.
Environment Social Governance
Strategic
investment in
our portfolio,
to improve
environmental
impact
Having a
positive impact
on the people
living and
working in our
homes
Robust
governance
and transparent
reporting to all
stakeholders
Environment
The UK needs more care beds in the right locations
and of the right standard and we help this need
through our asset management projects and carefully
selected new developments. At the same time,
we’re aware of the carbon emissions resulting from
building work – known as embodied carbon – which
includes the carbon footprint of the materials we use,
transporting them to the site and the construction
process itself. In the future, we intend to measure
embodied carbon and reduce it where we can.
Investing to improve a building and extend its life
has significantly less impact on the environment
than building new assets. We use refurbishment and
extension projects as opportunities to improve the
sustainability of a home, including fitting LED lighting,
better insulation and renewable energy sources such
as solar PV and air source heat pumps. We target
a minimum EPC band B for all significant asset
management projects. More information can be found
on pages 20-21. For new build projects, we will target
an EPC rating of A and, where possible, we will seek a
BREEAM rating of Very Good or Excellent.
When we’re considering buying a home, we screen its
environmental performance, including its current and
expected EPC rating and energy use intensity. Specialist
consultants create a full energy model for the building
to identify ways to improve the EPC rating and move
along the net zero pathway (see opposite). We assess any
capex required for environment improvements as part
of the acquisition decision process. We undertake due
diligence on potential climate related risk, for example
fluvial and surface water flooding.
Net zero
To help to futureproof our portfolio and preserve
its value, we’ve developed a net zero strategy and
delivery plan. To do this, we used the industry-leading
CRREM (Carbon Risk Real Estate Monitor) toolkit. This
shows the decarbonisation trajectory required for
us to comply with the 2015 Paris Climate Agreement
target to limit the global temperature increase to
1.5
o
C. The CRREM toolkit is the major global standard
for operational decarbonisation of buildings and its
pathways are aligned with science-based targets.
We’ve developed our net zero strategy with the
assistance of a leading sustainability consultancy. We
have applied the principles of the energy reduction
hierarchy (see the diagram below) to the stages of
the real estate lifecycle, to ensure our decarbonisation
pathway is as efficient and cost effective as possible.
Initially, we’re focusing on reducing energy demand
by engaging with our tenants and through measures
such as installing LED lighting and insulation upgrades.
The next stage will be more substantive retrofits and
moving from fossil fuel heating systems to low-carbon
electrical systems, alongside a roll out of on-site
renewable energy sources such as solar PV cells. We’ll
offset any residual carbon emissions using recognised
offsetting programmes, in accordance with the UK
Green Building Council guidelines. Importantly, we
have included all tenant energy and refrigerant carbon
emissions in our decarbonisation strategy, which
are classed as “Scope 3” under the Greenhouse Gas
Protocol. We consider this to be a responsible and
transparent approach to the environmental impact
of our portfolio.
Net zero pathway
Energy efficiency measures
Low carbon technologies
Renewable energy
generation
(on-site)
Renewable energy
generation
(off-site)
Energy demand reduction
Carbon
offsetting
RESPONSIBLE INVESTMENT
29
IMPACT HEALTHCARE REIT PLC
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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Riverwell Beck Care Home, Durdar Road, Blackwell, Carlisle CA2 4SE
Creating a brighter, more
energy efficient home
Before
Purpose-built two-storey care home, three miles south of Carlisle town
centre. Well located on a main bus route and close to local amenities.
51 bedrooms with eight ensuite rooms.
Home was well regarded locally but needed upgrading to meet
modern standards.
EPC rating of C.
What we did
Refurbished existing home, including floor finishes, furniture, decoration
and upgraded lighting.
Added two extensions, to create six additional ensuite wet room bedrooms
and a new laundry.
New cinema room, hairdressing salon and welcoming entrance café area.
Upgraded garden.
Outcomes
Additional facilities and new and refurbished bedrooms and day spaces
improve the resident experience and comfort.
Additional capacity helps to meet increasing demand from the local hospital
to discharge people into an appropriate community setting.
Upgraded garden provides calm and sheltered areas for residents and their
families to enjoy fresh air.
New and larger laundry makes daily routines more efficient for staff and
adds much-needed storage space.
New high efficiency boiler, improved insulation and LED lighting
throughout improves energy efficiency and reduces carbon emissions and
costs for the operator.
EPC rating improved from C to B.
“We are delighted with the outcome
of the project and feedback from
residents and staff has been very
positive.”
Wendy Carruthurs, Home Manager
Operator
Careport
Bedrooms
57 (+6)
Capex investment
£1.825 million
Incremental rent
£146,740
Commencement
Feb 2022
Completion
Sep 2022
Sustainability
New high efficiency boiler, increased
insulation, LED lighting and lighting
controls.
EPC
B (previously C)
CQC Rating
Good
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IMPACT HEALTHCARE REIT PLC
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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
RESPONSIBLE INVESTMENT
We have set interim targets for our net zero strategy
and delivery plan, which we will continue to monitor
and review as we progress.
Year
Reduction in absolute
carbon emissions on a
like-for-like basis
**Percentage
of assets with an EPC
of B or above
2025 15% 50%
2030 50% 100%
2045 90%* 100%
* At present we estimate that there will be some residual carbon emissions which we will offset. This
will be kept under review as low carbon options become more widely available and effective.
** There may be cases where exemptions apply under MEES regulations in which case we
will provide all viable energy efficiency measures. EPC B is for England & Wales only but an
equivalent rating will be sought for assets in Scotland.
The chart below shows the effect of different actions
on the carbon intensity of our portfolio. Our approach
is to deliver a methodical, planned and considered
decarbonisation plan working in partnership with our
tenants. Based on current assumptions on available
technology we estimate that we will be fully net zero in
2045, well ahead of legislative targets. We will continually
review this pathway to assess whether we can accelerate
this process as new low carbon options become more
widely available and effective. The pathway has also been
developed on the basis that the government preferred
approach to the Minimum Energy Efficiency Standards
(MEES), which will require all buildings to be an EPC B
rating or above by 2030, comes into effect. See page 44
for the Group’s EPC rating across the portfolio.
Net zero pathway
Tenant engagement
to reduce energy
demand
High-quality
green energy
procurement
Quick win retrofit LED lighting.
Insulation solar PV
Deep retrofit and replacement
of fossil fuel heating systems
Residual
carbon offset
2031-20402023-2030 2041-2045
Carbon timeline
Carbon intensity
‐‐
SBT (1.5 degrees) ‒ Green tariffs ‒ Renewables ‒ Heat pumps ‒
BAU
‒
Energy efficiency deep retrofit ‒ Energy efficiency quick wins
‒
Tenant engagement ‒ Baseline
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
0
50
30
40
20
10
60
70
80
Annual carbon intensity (kgCO
2
/m
2
)
The chart above shows the impact of carbon reduction
interventions over time on our portfolio compared to
the 1.5
o
C trajectory.
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IMPACT HEALTHCARE REIT PLC
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RESPONSIBLE INVESTMENT
Partnerships with tenants
We’ve leased all of our portfolio to tenants on a full
repairing basis, which means upgrading the building’s
environmental performance and buying utilities are
outside our direct control. The carbon emissions are
therefore classed as Scope 3 under the UN Greenhouse
Gas Protocol.
However, we have a responsibility to use our influence
and partnership working to improve the energy
performance of the buildings, and this is key to our net
zero strategy. Since 2020, we’ve used “Green” leases,
which require tenants to plan for expected changes
in environmental legislation and to share energy
performance data with us. Making our buildings more
energy efficient will reduce costs for our tenants and
make the homes better places to live and work. It will
also help to future-proof the buildings against rising
expectations from customers and commissioners
of care. We increasingly see our tenants working on
their own energy efficiency plans and we will continue
to support them so that they can comply with
environmental regulations.
A vital social role
The majority of residents in our homes are funded
by their local authority or the NHS. Homes for
publicly funded residents have traditionally had less
investment than those for private payers. This gives
us an important role as a capital partner for operators
who deliver vital care to residents who may have
less choice. These homes can also free up much-
needed bed space for the NHS, improving people’s
lives by reducing the time they spend in hospital and
providing them with appropriate community-based
care. Our homes also benefit the wider community
and sustain and create local employment. We believe
therefore that our long-term investment in these
homes delivers positive social outcomes for residents
and their families and for the staff providing care in a
community setting.
We aim to have a portfolio that continues to serve both
the publicly-funded and private-pay markets, with
appropriate rents that allow our tenants to provide a
sustainable and commercially viable care service for
people, irrespective of their background. This balanced
approach gives us a prudent and resilient commercial
strategy, enables our tenants to grow their businesses
and helps us deliver substantial positive social impact.
Positive social impact
Majority of residents from the
publicly funded sector – we
provide long-term institutional
investment in a sector traditionally
overlooked by investors
We set rents at appropriate
levels, enabling tenants to grow
and invest in quality of care and
provide value for money care
publicly-funded and private-pay
residents
We form long-term partnerships
with tenants, with high
satisfaction survey results
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RESPONSIBLE INVESTMENT
Our ESG framework
The tables below show our objectives against each of our three pillars, how we intend to reach those objectives and
the metrics we’ll use to measure our progress.
Pillar 1: Strategic investment in our portfolio to improve our environmental impact
Aligns with
the following
UN Sustainable
Development
Goals:
Our objectives How we do it Metrics
Ensure all assets achieve a
minimum of EPC Grade C by
2026 and a minimum of B by
2030
Ensure our portfolio is net zero
by 2045
Ensure our portfolio is resilient
to climate change
Investing in assets that are
highly energy efficient or have
the potential to be with further
capex
Modelling the carbon
footprint of the portfolio and
implementing our net zero
strategy and plan
Investing in asset
management projects to
improve energy efficiency
Climate change scenario
planning
Percentage of assets with EPC
of C or higher
Number of assets with
improved EPC
Carbon intensity of portfolio in
Kg CO
2
e/m2/year
Embodied carbon associated
with developments and
extensions
Percentage of assets with
green leases
Absolute carbon emissions
Pillar 2: Having a positive impact on the people living and working in our homes
Aligns with
the following
UN Sustainable
Development
Goals:
Our objectives How we do it Metrics
Support health and well-
being of vulnerable people
Ensure access to quality and
value for money care for
both the publicly funded and
private-pay sectors
Investing in quality buildings
and actively monitor care
provider performance
Developing close
partnerships with operators
through formal and informal
engagement
Conducting detailed due
diligence on long-term need
for care
Maintaining balance of
private and publicly funded
residents
Tenant satisfaction survey
Affordability of rental
payments to tenants
Proportion of publicly funded
and private-pay residents
Independent impact report
CQC ratings
Pillar 3: Robust governance and transparent reporting to all stakeholders
Aligns with
the following
UN Sustainable
Development
Goal:
Our objectives How we do it Metrics
Be transparent with all
stakeholders
Maintain robust corporate
governance
Proactively listen and engage
with public and private
stakeholders
Maintain clear disclosures on
operational performance
Maintain policies on supplier
code of conduct, anti-money
laundering and bribery
Manage the business
in accordance with our
responsible investment policy
Engage with tenants on good
governance practices
Investment Manager’s UN PRI
submission
EPRA sustainability rating
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Overview
Through the 2015 Paris Climate Agreement, world
governments have committed to keeping the
global temperature rise to well below 2°C above
pre-industrial levels and are working to limit
warming to 1.5°C. In the UK, the government
aims to reduce emissions by 78% by 2035 and
achieve net zero by 2050. It has made net zero by
2050 part of UK law, providing opportunities to
introduce further legislation and regulations to
promote change.
Climate change and the laws and regulations needed
to mitigate it create both risks and opportunities
for our business. During 2022, the board oversaw
the Investment Manager’s work in this area. This
included developing an initial analysis of our portfolio,
defining the actions we need to take to decarbonise
the portfolio over time and increasing our focus
on physical risks during acquisitions and portfolio
management.
Being accountable for and transparent about how
we assess and manage climate-related risks and
opportunities is important for maintaining our
stakeholder relationships. We’re therefore reporting
against the Taskforce on Climate-Related Financial
Disclosures (TCFD) recommendations for the first
time this year. As an investment company, we’re not
currently required to report against TCFD, but we
believe starting to do so helps our stakeholders to
understand the possible effect of climate change on
our business and the actions we are taking.
This is our first year of voluntary reporting against
the TCFD framework and we are making progress
towards full compliance with the TCFD requirements.
We expect to improve our compliance in future years
as we continue to refine our assessment of climate
change risks and opportunities and embed climate
change risk management in our day-to-day operations
and acquisitions. The implementation of our net zero
strategy, targets and delivery plan will also be kept
under close review.
Our consideration of climate change
The Investment Manager set up an ESG working
group, with members from its asset management and
finance functions. The working group met regularly
with external advisers during 2022, to:
understand the potential consequences of climate
change;
review and discuss the portfolio analysis and the
options for decarbonising the business;
work through scenarios; and
consider the associated risks and opportunities.
The working group also analysed how this work would
match the expectations of the TCFD framework.
Climate change scenario planning
To improve our understanding of climate change
risks and opportunities, we’ve considered the
recommended 1.5-2 degrees warming scenario, based
on the Intergovernmental Panel on Climate Change’s
(IPCC) defined Representative Concentration Pathway
(“RCP”) 2.6 (1.5-2 degrees), as well as the IPCC’s RCP 4.5
(2-3.5 degrees) and RCP 8.5 (4 degrees). RCP 2.6 takes
into account actions to keep warming to 1.5-2 degrees,
while RCP 8.5 sets out the worst-case warming
scenario. We also included IPCC’s 4.5 pathway, as this
is generally considered the middle-of-the-road option.
To align with our business strategy, we’ve defined a
short-term timeframe as one to three years, medium
term as five to ten years (aligned to our business plan),
and a long-term timeframe as up to 25 years.
Governance
Our board is made up of non-executive directors,
who set our risk appetite and oversee the Investment
Manager, which is responsible for the day-to-day
management of the business, risk management and
strategy. The board and the Investment Manager both
recognise the importance of climate action and what
it means for our ongoing sustainability and success.
Through the Investment Management Agreement,
the Investment Manager is accountable to the board and
Report against the Task-force on Climate Related Financial
Disclosures (“TCFD”) framework
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REPORT AGAINST THE TCFD FRAMEWORK
reports regularly to the board and committees. The
Investment Manager’s Finance Director is responsible
for reporting to the board on sustainability, including
how we’re mitigating climate change and the actions
we’re taking to adapt to it, and the progress we have
been making with our revised sustainability strategy.
To supplement the ESG working group, the
Investment Manager intends to set up its own formal
ESG Committee, with appropriate terms of reference.
This committee will be chaired by the Investment
Manager’s Finance Director and will meet quarterly.
Strategy
Our strategy is to invest in existing care homes
through refurbishments and asset management
projects, with selective new build developments.
All our investment decisions take into account
environmental matters and the longer term impacts
of climate change.
Our net zero strategy and delivery plan will enable
us to mitigate the impact of transitional climate-
related risks.
Risk management
The Investment Manager has a Risk Committee which
assesses and reviews our risk register every quarter
and reports to the Audit Committee. The board and
Audit Committee discuss and consider the principal
risks twice a year. Environmental regulation has been
a principal risk for us since 2019 and we changed our
assessment of environmental regulation and the
impact of climate change in September 2022 from
Probability: Medium, Impact: Low to Probability: High,
Impact: Medium. The board pushed for this decision,
reflecting our need to start acting now to reduce our
risks over the longer term.
As part of our acquisition due diligence, we’ve used
specialist consultants to assess environmental
performance on all acquisitions since 2020. We’ll
continue to factor in climate change risks and
opportunities, including a broader consideration of
physical risks and the decarbonisation pathway, in line
with our net zero strategy.
Metrics
We’ve disclosed our energy consumption data since
2019, in line with the EPRA Best Practice Sustainability
Requirements. Our Scope 1 and 2 emissions are
minimal, and our reported emissions relate to energy
that our tenants buy and use, which fall under Scope 3.
We’ve been modelling our portfolio as part of our
net zero strategy planning and have discussed our
progress in this report. Our net zero strategy takes into
account projections of our future carbon emissions
and decarbonisation pathways, based on the size
of our current portfolio and assumptions about how
it will grow. We have adopted a zero carbon target
of 2045 with interim milestones for 2025 and 2030
(see page 29).
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TCFD’s recommended disclosures
Disclosure Commentary
Describe the board’s
oversight of climate-
related risks and
opportunities.
The board sets our risk appetite and oversees our risk management, which the
Investment Manager carries out on our behalf, as our Alternative Investment Fund
Manager (AIFM) registered with the FCA. This risk framework includes climate change
and sustainability related matters. Twice a year, the board and the Investment Manager
review our principal risks and consider emerging risks.
Climate change has been a principal risk for us since 2019. Following the board
strategy day in October 2021, the board asked the Investment Manager to develop
a sustainability strategy and carry out the analysis needed to propose a net zero
strategy in 2022. These were considered and approved by the board in February 2023.
The strategy and its implementation will be reviewed by the board on an annual basis.
The board has delegated responsibility to the Audit Committee for monitoring
compliance with our internal financial controls, reviewing our risk management
framework, reviewing external reporting related to risks and internal controls, and
reviewing our processes and controls to ensure our ESG disclosures are accurate,
comparable and consistent.
This is the first year that we’ve voluntarily reported our climate risks and opportunities
using the TCFD framework. The AIFM’s ESG working group, established in 2021 and
responsible for leading the process, presented to the board on progress and options
in August and December 2022. The board approved the strategy in February 2023.
Describe the
management’s role
in assessing and
managing climate-
related risks and
opportunities.
As an externally managed REIT, the Investment Manager performs portfolio and risk
management functions on our behalf. This includes monitoring our systems and
controls to manage risk, due diligence, screening potential acquisitions and ongoing
management of our assets. The AIFM’s ESG working group assessed our climate-
related risks and opportunities during the year and these are now being embedded
in our day-to-day operations. These include:
assessing transitional and physical climate-related risks for potential acquisitions;
developing a net zero strategy and delivery plan that sets a framework, methodology
and metrics and targets for the reduction in operational carbon to net zero status
by 2045 with interim milestones. The plan has been developed using the globally
recognised CRREM toolkit;
updating and reviewing the EPC ratings of our assets;
identifying opportunities to improve energy efficiency through asset management;
obtaining energy consumption data and reporting on GHG emissions; and
engaging with our tenants to raise the profile of environmental issues and objectives,
and identify areas of mutual benefit.
Scenario planning
To improve our understanding of physical and transitional climate risks, we’ve mapped
20 of our properties against the IPCC’s 2.6, 4.5 and 8.5 emissions pathways. We selected
these properties to provide a representative cross section of the portfolio, ensuring we
had a good spread:
across different tenants;
across Northern Ireland, Scotland, England and Wales; and
of different ages of properties.
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REPORT AGAINST THE TCFD FRAMEWORK
TCFD’s recommended disclosures (continued)
Disclosure Commentary
Describe the climate-
related risks and
opportunities the
organisation has
identified over the
short, medium, and
long term.
We’ve assessed our climate-related risks and opportunities, and identified and
reviewed a range of physical and transitional risks which could affect our strategy.
The assessment also covered potential opportunities arising from climate change.
We grouped the risks and opportunities as follows:
Transition risks arise from the shift to a lower-carbon economy and may involve policy,
legal, fiscal, market and regulatory compliance.
Physical risks arise from climate-related events or longer-term changes in weather
patterns, which could damage our assets or affect our tenants’ ability to use them.
In line with the TCFD methodology, we grouped the risks and opportunities into five
subcategories: Market, Reputation, Policy & Legal, Chronic and Acute.
We then recorded the risks and opportunities on a register and ranked them by how
likely they were to occur and their potential impact on our strategy. We assessed the
risks and opportunities over short (one to three years), medium (five to ten years)
and long-term (up to 25 years) timeframes.
The risks and opportunities are summarised in the table on page 40.
Describe the
impact of climate-
related risks and
opportunities on
the organisation’s
businesses, strategy
and financial
planning.
As a real estate investor rather than a care home operator, many of the effects
of climate change are outside our direct control. At the same time, we recognise
that we and our tenants can only mitigate climate change risks and maximise any
opportunities through close collaboration. We’re therefore developing an ongoing
stakeholder engagement plan, so we can better understand the challenges and find
appropriate solutions working together.
Our net zero plan includes a granular assessment of the energy performance of each
home in our portfolio. Through a combination of analysing the EPC ratings across our
portfolio and our net zero planning, we’re now prioritising properties that require
action to reduce their carbon emissions and improve their energy efficiency. When we’re
looking to acquire assets, we commission specialist reports on their environmental
performance and climate change considerations. We also inform our decision-making
by modelling the capex required to improve their energy efficiency, in line with our
net zero strategy.
Describe the
resilience of the
organisation’s
strategy, taking
into consideration
different climate-
related scenarios,
including a 2°C or
lower scenario.
Having mapped our risks and opportunities under the IPCC’s 2.6, 4.5 and 8.5 warming
scenarios, and considered their likelihood, the mitigations we can put in place and the
potential outcomes, we consider that our strategy is resilient to physical risk. We’re
incorporating short-term considerations into our planning and we’ll continue to assess
the longer-term physical risks linked to the locations of our care homes.
Environmental regulation and the impact of climate change is already a principal risk
for the Group. Following a board review in September 2022 and in line with our net
zero planning, we changed our assessment from Probability: Medium, Impact: Low
to Probability: High, Impact: Medium.
Describe the
organisation’s
processes for
identifying and
assessing and
managing climate-
related risks.
As part of the scenarios we modelled for our portfolio, we considered potential
physical risks including heatwaves, water stress/drought, rainfall, flooding, wildfires
and sea level rises, for a representative sample size of 20 care homes.
In terms of transition risks, we’ve reviewed legislative and policy changes (such as
MEES and carbon taxation), as well as reporting requirements (TCFD, net zero) and
other related risks, such as permanently higher utility costs, higher insurance costs and
protracted planning processes. We also considered climate-related reputational risks.
We continue to monitor transition risks, including potential environmental taxes,
anticipated legislation (MEES) and reputational risk, and plan to mitigate these risks
by implementing our net zero strategy.
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TCFD’s recommended disclosures (continued)
Disclosure Commentary
Describe the
organisation’s
processes for
managing climate-
related risks.
Our processes for managing climate-related risks are embedded in our operations
and procedures. In particular:
we communicate regularly with our tenants on their energy use and costs, and
actions to reduce them;
climate-related considerations are core to our new acquisition and asset
management due diligence process;
we’ve put green leases in place, to ensure we and our tenants have common goals
for energy efficiency and that we’re capturing data to improve energy performance;
we have a targeted capex programme to improve energy efficiency, add
renewable energy generation where possible and reduce operating costs, to
mitigate transitional and regulatory risk;
regularly reviewing our physical risk climate scenarios to understand if risks have
materially changed;
for any assets considered at greater risk developing a resilience plan, for example
flood risk management plan; and
we’ve developed a well-considered net zero strategy, underpinned by our medium
to long-term decarbonisation strategy.
Describe how
processes for
identifying, assessing,
and managing
climate-related risks
are integrated into
the organisation’s
overall risk
management.
We will continue to update and review our climate physical risk scenario planning
to understand if any risks have materially changed. We will continue to assess the
regulatory landscape and potential new regulations, taxes or other requirements. The
Investment Manager’s Development Director sits on the British Property Federation
Sustainability Committee and therefore has access and insight to current industry
thinking and lobbying on climate-related matters.
The AIFM’s ESG working group’s findings feed into the Investment Manager’s risk
assurance process via the Investment Manager’s proposed ESG Committee. The
Investment Manager’s Risk Committee assesses and reviews our risk register every
quarter and reports to the Audit Committee. The board considers our principal risks
twice a year.
We’ve already identified climate change as a principal risk in our risk register. It’s
therefore subject to annual review and we assess and manage risk at the Investment
Manager’s ESG and Risk Committees and agree risk ratings before and after taking
account of our mitigation strategies. The Audit Committee considers the findings of
this process and the board discusses and approves the conclusions.
Disclose the
metrics used by the
organisation to assess
climate-related risks
and opportunities in
line with its strategy
and risk management
processes.
We disclose our GHG emissions and energy consumption each year through our
EPRA Sustainability Best Practice reporting. The emissions we report are mainly
Scope 3 and are aligned to the Greenhouse Gas Protocol Corporate Standard and
DEFRA Environmental Reporting Guidelines.
We report Scope 3 emissions in our annual report.
See page 44 for detail of the Group's EPC ratings.
Describe Scope 1,
Scope 2 and, if
appropriate, Scope 3
greenhouse gas
(GHG) emissions, and
the related risks.
We report our Scope 1 and 2 emissions in our EPRA Sustainable Best Practice Report
www.impactreit.uk/about/sustainability/
The majority of our Scope 3 emissions come from energy that our tenants buy and use.
The related risk is that these Scope 3 emissions are beyond our direct control.
However, we’re mitigating this risk through the actions described in the section above:
processes for managing climate-related risks.
See emissions data on the following page.
REPORT AGAINST THE TCFD FRAMEWORK
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TCFD’s recommended disclosures (continued)
Disclosure Commentary
Describe the
targets used by
the organisation to
manage climate-
related risks and
opportunities and
performance
against targets.
We use several measures to understand and manage climate-related risks. We assess these
when considering acquisitions or asset management projects and as part of our ongoing
portfolio management, in particular in relation to our net zero strategy.
EPC ratings
Energy intensity per bed (kWh per bed)
Absolute carbon emissions (tCO
2
e)
GHG emissions intensity (CO
2
e per bed)
Capex deployed on sustainability improvements (£pa)
Net zero target of 2045 and interim targets/milestones and delivery plan
Proportion of leases with “Green” obligations
Energy and carbon disclosures
Environmental performance measures – Impact Healthcare REIT plc
1,2,3,6
Performance measure Unit Scope 2022 2021 Change
Electricity absolute mWh 3 18,077 16,732 8.0%
Gas absolute mWh 3 52,592 44,769 17. 5%
Biomass/LPG/heating oil/propane
absolute
mWh 3 2,758 n/a n/a
Total indirect greenhouse gas (GHG)
emissions from tenant obtained
energy use
tCO
2
e 3 13,521 11,609 16.5%
Building energy intensity kWh/bed/year 3 10,615 10,666 -0.5%
Greenhouse gas (GHG) emissions
intensity from building energy
consumption
tCO
2
e/bed/year 3 1.95 2.01 -2.8%
Environmental performance measures – Investment Manager
Performance measure Unit Scope 2022 2021 Change
Total electricity consumption kWh Total Investment Manager
electricity (office) – Scope 2
5,470 5,623 -2.7%
Investment Manager energy intensity kWh/FTE Average kWh electricity
consumption per FTE in year
521 655 -20.5%
Total indirect greenhouse gas (GHG)
emissions
tCO
2
e Indirect – Scope 2
(location-based)
1.1 1.2 -11.9%
Business travel – land – car tCO
2
e Scope 3 – private vehicles
(incl. WTT
4
)
3.7 1.0 275.2%
Business travel – land – air tCO
2
e Scope 3 – flights
(with RF incl. WTT
5
)
1.6 3.0 -46.8%
Business travel – land – rail tCO
2
e Scope 3 – rail
(incl. WTT
5
)
1.2 0.2 493.6%
Total emissions tCO
2
e 7.6 5.4 40.6%
1 Biomass energy estimated based on 2021 data.
2 Data for three Electus homes estimated for three months.
3 Data for three Silverline homes estimated for three months.
4 Well-to-tank (WTT) business travel – air conversion factors are used to account for the upstream Scope 3 emissions associated with extraction, refining and transportation of the aviation
fuel to the plane before take-off.
5 Well-to-tank (WTT) conversion factors for passenger vehicles and business travel on land are used to report the upstream Scope 3 emissions associated with extraction, refining and
transportation of the raw fuels before they are used to power the transport mode.
6 Includes additional LPG, Biomass and heating oil data excluded in 2021.
REPORT AGAINST THE TCFD FRAMEWORK
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Risks and opportunities associated with climate change
Risk type Description Timescale Impact Mitigation
Transitional
Legal Higher regulatory
standards for energy
performance (MEES)
Short to
medium term
Potential loss of value for
assets not meeting expected
future standards. Assets may
become “stranded” by evolving
environmental legislation
We’ve assessed our assets for
their current and expected
regulatory compliance.
Our leases require our tenants
to ensure the buildings
comply with legislation
Policy Carbon taxation Medium term Additional taxation liability for
the Group
Our net zero strategy has
identified the current
emissions and the pathway
to reduce them over time. We
continue to review potential
future environmental taxation
policy.
Market Investors and
markets increasing
awareness of
environmental
performance
Medium term Reduced pool of capital
available and impact on
portfolio valuation
Our net zero strategy has
identified the current
emissions and the pathway
to reduce them over time.
Investing in existing assets
is far more sustainable than
new build
Reputation Investors, tenants
and commissioners
may have increasing
expectations of real
estate owners for
environmental issues
Medium term Reduced number of potential
partners for the Group to
work with
We disclose our net zero
targets and ESG strategy
and targets to give comfort
that we’re committed to
improving environmental
standards
Physical
Extreme
weather
Weather events
cause disruption
(e.g. flooding)
Short to
long term
Risk to life of our tenants’
residents
Loss of revenue and disruption
to operations
We’ve enhanced our due
diligence on flood risk for
acquisitions, carried out
scenario planning for the
existing portfolio, and have
a capital investment strategy
to improve resilience
Extreme
weather
Water stress and
heatwaves
Medium to
long term
Environment within assets is
detrimental for wellbeing of
residents and staff. Additional
capex required to retrofit
cooling
Our net zero strategy
includes assumptions
on additional cooling
requirements for existing
assets
Opportunities
Capital New sources
of capital
Short to
medium term
Having a credible net zero
strategy and investing in
existing assets (as opposed to
carbon-intensive new builds)
may give us access to new
capital and improved terms
(sustainability linked finance)
Technological New and more
environmentally
efficiency
technology comes
on stream
Medium to
long term
Technological advances may
enable more efficient heating
and cooling systems and renew-
able energy, resulting in lower
running costs for our tenants
Market Commissioners and
customer demand
for more energy
efficient homes
Medium Technological advances may
enable more efficient heating
and cooling systems and renew-
able energy, resulting in lower
running costs for our tenants
As awareness of
sustainability grows homes
that are low carbon may
become in greater demand
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IMPACT HEALTHCARE REIT PLC
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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Social value impact
6,842
beds in the portfolio with
diversified geographical spread
Investing in homes meeting local need
87%
of tenants describe relationship
with Impact as “very good” from
tenant survey
1
Proactive partner with deep sector
understanding
64%
of beds are in the 40% most
deprived areas of the UK
Investing in communities where care homes
provide an important community resource and
source of employment
75%
of tenants rate Impact as
“very good” as a long-term
partner
1
We create lasting relationships with tenants and
stability for residents and families
75%
of beds are commissioned by
local authorities or the NHS
Our approach enables operators to deliver care
to a range of sectors at affordable rents
14
different operators
2
Diversified and growing range of partners
£29.9m
invested since inception
on asset management and
development initiatives
Increasing quality of building for staff
and residents
78%
of homes have CQC ratings
of Good or Outstanding
Tenant selection and active management
1 Based off responses from eight tenants
2 Includes Minster and Croftwood which are both part of Minster Care Group
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We were pleased with the Group’s progress
during 2022, as we successfully implemented
its strategy for the sixth year. The strategy is
designed to ensure the Group remains highly
resilient during challenging times and at
its heart is our aim to work closely with the
Group’s tenants to support their objectives and
the high-quality care they deliver to residents.
Strong and resilient tenants
The Group signs long-term leases of 20 years or more
with its tenants. That means we’re very selective about
new tenants and it’s extremely important to us that
their businesses are strong and resilient, so they can
successfully weather challenges such as COVID-19 and
the current high levels of inflation.
Inflation rose significantly in the second half of 2022,
reaching levels not seen in several decades. While
inflation isn’t expected to persist at this level and the
government and Bank of England are committed to
bringing it down, the level it will settle at is unclear
and further periods of volatility seem likely. In the
current environment both tenants and the Group
have benefited from the principles we’ve consistently
applied since the business was founded. Specifically:
we set rents at prudent and sustainable levels when
the Group first partners with a tenant;
we’ve ensured that 100% of the leases have inflation-
linked rents; and
we’ve focused on keeping rents affordable for
tenants over the life of the lease, by putting caps and
floors in place on our rent increases.
The link to inflation means the Group benefits from the
certainty of rising rents each year. In 98% of the leases
these uplifts are capped, at 4% in 90% of the leases and
5% in 8% of them. Two NHS leases have no floor or caps.
Caps give the Group’s tenants some protection when
inflation spikes, and the floors, which kicked in in 2019,
mean the Group gets progressive rental growth when
inflation is low.
The success of our approach is shown by the tenants’
overall rent cover, which was 1.8 times in 2022, which is
higher than before the pandemic. The Group received
100% of rent due for 2022 and has no voids.
Since the year end one tenant, who manages seven
of the Group’s homes and accounts for less than 4%
of the Group’s contracted rent, has not paid its rent
for the first quarter of 2023 and we’ve drawn down on
rent deposits relating to four of the homes for the first
quarter. This portfolio includes three homes acquired in
the first quarter of 2020 as a turnaround project, but the
turnaround was made significantly more challenging
by the COVID pandemic. We’re in active discussions
with this tenant to resolve the situation in a way which
shouldn’t affect the residents and staff in these homes.
Tenants generally benefited from rising occupancy
and fees, and this is reflected in the rent cover across
our tenant group. Across the portfolio, occupancy
averaged 81% during 2021. In January 2022, it was 83%,
and had recovered to 87% by the end of the year. In
the fourth quarter of 2021, tenants’ average weekly
fee (AWF) was £822, excluding any COVID-19 infection
control grants from the government. By the fourth
quarter of 2022, the AWF had increased to £926, a 13%
increase that matched inflation. The Group’s tenants
provide an essential service and the sector has shown
over long periods that it can increase fees ahead of
inflation. Over the past two decades, nursing and
residential care fees rose by 3.8% and 3.6% a year
respectively, while RPI averaged 2.8% a year.
The growth in tenants’ revenues as they rebuilt
occupancy and benefited from AWF increases, helped
to offset the very sharp rises in some of their costs.
During 2022, they spent an average of 2.8% of their
revenues on gas and electricity, up from 2.0% in 2021.
Their spending on food as a percentage of revenues
rose from 3.6% to 3.8%.
Tenants’ top line growth also enabled them to give
their staff substantial pay increases: staff pay per
resident rose by an average of 10% in 2022. The most
common problem tenants reported during the year
was their greater need for temporary agency staff.
This appears to have been caused by many staff being
forced to self-isolate during the Omicron wave of the
pandemic in early 2022, and staff who had gone on
furlough deciding not to return to work. Tenants spent
an average of 5.9% of their revenues on agency staff
during 2021. This increased to an average of 8.7% in
2022. The Group’s tenants are working hard to reduce
Investment Manager’s report
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IMPACT HEALTHCARE REIT PLC
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INVESTMENT MANAGER’S REPORT
their usage of agency staff, for example by putting in
place strategies for overseas recruitment of nurses and
senior carers.
We closely monitor the financial and operational
performance of each of tenant. If we’re not satisfied with
a tenant’s performance and its attempts to address the
problem, we can, if necessary, give notice to the tenant
and bring in a replacement to run the homes.
The case study on page 23 provides more information
on the financial performance of a typical tenant.
Managing the portfolio
We’ve carefully constructed the portfolio to give the
Group a good balance of core and value-add assets.
We classify the assets as follows:
Core: These are the main contributors to the Group’s
long-term, stable income. These are good-quality,
well-invested homes that are trading well and have
sustainable rent cover.
Value-add: These are candidates for asset
management, where we can invest capital to improve
the asset and its performance. This can also allow
tenants to offer new services, such as dementia care.
Non-core: These are candidates for sale, for example
because they have more value for an alternative
use, and it’s likely we bought them as part of larger
portfolios.
We actively manage the portfolio, disposing of non-
core assets and turning value-add assets into core
assets through asset management (see below).
Investing for growth
During the year, the Group invested £69.2 million in
12 care homes with 764 beds. At the year end, the
Group had a portfolio of 135 properties with 7,416 beds
(31 December 2021: 124 properties and 6,720 beds)
1
.
These figures include homes the Group owns directly
and 12 homes it has invested in through loans to
tenants, where the Group has options to buy the assets.
In making these investments, we followed our policy
of managing risk by diversifying the portfolio. The
homes the Group invested in are spread around
the UK, including Scotland, Kent, Nottinghamshire,
Devon and Somerset, and we increased the number
of homes existing tenants run, helping to diversify their
businesses and add to their resilience. We also welcomed
the Group’s 14th tenant
2
, Belmont Healthcare. When the
Group buys assets, we ensure they’re either already at an
EPC B or there’s a clear plan to achieve that rating, and
we take account of any additional capital needed in the
investment decision.
The homes the Group invested in during the year and
the rent increases received due to the index-linking in
the leases grew the contracted rent roll
3
by 13.6%, from
£38.0 million on 31 December 2021 to £43.1 million at
the year end. This has since risen to £47.9 million at
27 March 2023, including rent reviews and the portfolio
of six care homes invested in since the year end.
1 Based on the ratings across all of the portfolio, using the England & Wales methodology.
2 Including Croftwood and Minster, which are both part of the Minster Care Group.
3 Contracted rent is an annualised number that includes all income from investments in
properties, whether generated from rental income or post-tax interest income.
4 Includes the benefit of grant income, which largely ended in March 2022.
5 This relates to the property portfolio along with property portfolios that have been invested in
via loans to operators with an option for the Group to acquire.
6 Including Croftwood and Minster, which are both part of the Minster Care Group.
Operational highlights
Year ended 31 December 2022 2021 Change
Topped-up net initial yield (“NIY”) 6.98% 6.71% 27 bps
Average NIY on acquisitions to date 7.4% 7.4% (8) bps
Rents containing inflation-linked uplifts 100% 100% –
Weighted average unexpired lease term (“WAULT”) to first break 19.7 years 19.2 years +0.5 years
Portfolio let 100% 100% –
Rent cover
4
1.80 1.91 (5.8)%
Rent collection 100% 100% –
Properties
5
135 124 8.9%
Completed beds 6,842 6,141 11.4%
Tenants
6
14 13 +1
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Value-enhancing asset management
Asset management is an increasingly important part
of our strategy, as it benefits many of our stakeholders.
In particular:
shareholders gain because we earn an average
return on our investment of 8% through increased
rents, and we also increase the value of the buildings;
we improve the environmental efficiency of the home
through increased energy efficiency and, where
possible, we will add renewable energy sources such
as solar panels or air source heat pumps;
by extending homes and increasing the number of
bedrooms, we increase capacity for the local social
care market and make them more efficient for
tenants to operate;
residents benefit from having an even better place to
live, in line with our social objectives;
tenants’ staff have a better working environment,
with improved facilities such as kitchens, laundries
and staff rooms; and
tenants will benefit from our appraisal process,
which tests the business case for the investment and
the affordability of the proposed increased rent.
During 2022, the Group deployed £7.8 million to asset
management projects that have a projected return of
8%. We work in partnership with tenants to implement
these schemes and completed the following notable
projects in 2022:
refurbishments at Belmont House, Harrogate and
three homes in Northern Ireland;
the project at Riverwell Beck, which was previously
called Blackwell Vale (see the case study on page 30
for more information); and
the new link building that connects Fairview House
and Fairview Court in Bristol, with phase two now
under way, which involves a comprehensive upgrade
of Fairview House, adding ensuites to bedrooms,
improving the residents’ day spaces and increasing
energy efficiency, so the new combined building will
have an EPC rating of A.
Asset management is an important part of the Group’s
strategy and we continually review the portfolio and
engage with tenants to identify opportunities. We’ve
identified a further pipeline of projects, which we
intend to start over the next 12 months. See page 20
for more information.
Improving EPC ratings is an important part of the
asset management programme and the Group’s
INVESTMENT MANAGER’S REPORT
■
“A” rating ■ “B” rating ■ “C” rating ■ “D” rating
32
54
3
11
< 2021
39
48
3
10
2022 >
Group’s EPCs – England, Northern Ireland and Wales (%)
59
13
6
19
< 2021
59
9
16
13
2022 >
3
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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INVESTMENT MANAGER’S REPORT
environmental objectives. 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. No
properties in the portfolio will be caught by this. The
minimum EPC requirement is expected to increase
to C by 2027 and B by 2030. The average rating across
the portfolio is C and, in line with the Group’s ESG
objectives (see page 33), we have a strategy in place to
ensure compliance.
Keeping our properties in good repair
Making sure the properties are consistently well-
maintained is just as important as investing in major
asset management projects. The leases require
tenants to keep the buildings in good condition,
through ongoing repairs and maintenance. We
monitor the amount they spend on this, regularly
inspect the assets and hold progress meetings at
homes with the tenants.
All the leases also require tenants to ensure the home
complies with legislation, including on environmental
performance. Since October 2020, new leases ensure
tenants provide us with data such as their energy
use, so we can track environmental performance
and support improvements. The new leases also aim
for tenants to use 25% of the maintenance spend on
environmental improvements.
Value-enhancing forward-funded development
During 2022, the Group deployed £4.0 million to forward-
funded development and Merlin Manor, the care home
development the Group funded in Hartlepool, reached
practical completion during the first half of 2022. It’s now
in the occupancy build-up phase and we’re pleased that
it’s attracting residents in line with the tenant’s plan. The
Group provided £6.1 million to fund the development,
achieving a yield on these costs of 7.8%. The completion
value of the asset included a £1.9 million increase in value
in the period or a 30% profit on cost. See the case study
on pages 48-49 for more information.
In Norwich, the Group has committed to fund a new
care home development, which we believe will be
the best of its type in the area. Planning permission
for the project has been delayed while issues relating
to nutrient neutrality in the River Wensum basin are
resolved. We now expect planning permission to be
granted in H1 2023.
Funding new builds remains a small but important
part of the Group’s strategy. We also recognise the
environmental benefits of repurposing and future-
proofing existing buildings, and we’re actively
considering this as we recognise the complexities
of achieving net zero.
We require all new development and asset management
projects to achieve a minimum EPC B, or an EPC A
where possible.
Portfolio valuation
Each quarter, Cushman & Wakefield independently
values the portfolio in accordance with the RICS
Valuation – Professional Standard (the “Red Book”).
As at 31 December 2022, the portfolio was valued at
£532.5 million, a 15.9% or £73.0 million increase from
the valuation of £459.4 million at 31 December 2021.
The increase was made up as follows:
Contribution to
valuation increase
£m %
Acquisitions completed 69.2 15.1
Acquisition costs capitalised 2.6 0.6
Capital improvements 11.8 2.6
Disposals (2.5) (0.5)
Less: Like-for-like valuation movement (8.1) (1.7)
Total 73.0 15.9
Interest rates rose sharply in the year, leading to
valuation yields shifting upwards in the fourth
quarter of 2022, including in healthcare. As a result,
the portfolio EPRA “topped up” initial yield increased
27 basis points to 6.98% as at 31 December 2022.
Investment activity is continuing in the market,
including the Group’s investment in a portfolio for
£56 million in January 2023, for an equivalent EPRA
“topped-up” initial yield of 6.55%. This activity reflects
confidence in the market sector and its ability to
continue to generate accretive returns to stakeholders
in a higher interest rate environment. See pages 9-13
for an overview of market conditions.
In addition to the portfolio above, the Group invested
in 12 care homes, in December 2021, by way of a loan
for £37.5 million. This loan is subject to an option for
the freehold property interests, which are therefore
also independently valued by Cushman & Wakefield.
The value of this portfolio is £36.4 million with the
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INVESTMENT MANAGER’S REPORT
reduction in value and associated costs reflected in the
£1.8 million “Put option” liability.
Strong financial results against
a challenging backdrop
Total net rental income for the year increased by 16.1%
to £42.2 million (2021: £36.4 million). This reflected
growth in the portfolio and the rental uplifts generated
by the leases. Under IFRS, the Group is required to
recognise some rent as income before it receives it,
reflecting the minimum uplifts in rents over the lease
terms, on a straight-line basis. The cash rental income
for the year increased by 17.8% to £35.9 million (2021:
£30.5 million).
Administrative and other expenses totalled
£7.0 million (2021: £5.8 million), which led to a total
expense ratio of 1.67% for the year (2021: 1.55%). The
EPRA cost ratio was 16.6%, up from 15.8% in 2021, as
revenue doesn’t include income the Group receives
on loans to tenants to buy property portfolios, where
it has an option to acquire. Including this income in
revenue gives an adjusted cost ratio of 15.4%.
Finance costs were £5.4 million (2021: £3.3 million).
Interest income was £3.2 million (2021: £0.1 million),
reflecting property investments made via a loan
to tenants.
The change in the fair value of investment properties,
driven by upwards movements in investment yields in
the second half as interest rates rose sharply, causing
profit before tax to fall to £16.9 million in 2022 from
£32.0 million in 2021.
Earnings per share (“EPS”) for the year was 4.33 pence
(2021: 9.41 pence). The Group’s EPRA EPS and Adjusted
EPS were both up on the previous year. EPRA EPS was
8.37 pence (2021: 8.05 pence per share). Adjusted EPS,
which strips out non-cash and one-off items, was
7.11 pence (2021: 6.68 pence).
These EPS figures are all on both a basic and diluted
basis. More information on the calculation of EPS can
be found in note 11 to the financial statements.
Attractive and fully covered dividends
As a REIT, the Company must distribute at least 90%
of its qualifying profits each year. The Company
has therefore declared four quarterly dividends of
1.635 pence each in respect of 2022, meeting the total
dividend target of 6.54 pence per share, up 2.0% on the
6.41 pence paid in respect of 2021. All four dividends
were Property Income Distributions.
The details of these dividends were as follows:
Quarter to Declared Paid
Cash cost
£m
31 Mar 2022 25 Apr 2022 20 May 2022 6.3
30 Jun 2022 16 Aug 2022 9 Sep 2022 6.6
30 Sep 2022 21 Oct 2022 25 Nov 2022 6.6
31 Dec 2022 31 Jan 2023 24 Feb 2023 6.6
Total 25.7
The total dividend for 2022 was 128% covered by EPRA
EPS and 109% covered by Adjusted EPS.
Strong and prudent balance sheet
During the year, we continued to successfully raise
financing to support the Group’s growth strategy.
On 21 February 2022, the Company completed
a placing of 35.1 million new ordinary shares at
114.0 pence per share, which raised gross proceeds
of £40.0 million. On 8 July 2022, the Company raised
a further £22.3 million by placing 19.0 million new
ordinary shares at 117.0 pence per share. After the year
end the Company also issued a further 9.6 million new
ordinary shares at 116.6 pence per share, as part of the
acquisition of six care homes discussed later.
Our approach to using debt to grow the business
has always been conservative. At 31 December 2022,
the Group had five facilities totalling £241.0 million,
of which we’d drawn £142.3 million (31 December 2021:
£114.5 million), giving headroom of £98.7 million and
a gross LTV of 23.9% (31 December 2021: 22.3%). The
Group also had £22.5 million of cash.
In November 2022, we extended the Group’s RCF with
HSBC by £25 million to £75 million, which allowed us
to cancel the £15 million RCF with Metro Bank. This
increased the Group’s facilities by £10 million, while
improving the covenants and reducing the cost of
debt, with the HSBC margin being 65 bps lower than
on the Metro facility.
In December 2022, we renegotiated the £50 million
RCF with Clydesdale Bank, trading as Virgin Money.
This increased the facility from the previous £25 million,
extended its maturity from March 2024 to December 2029
and reduced the margin over SONIA by 25 bps to 200 bps.
46
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As a result, the Group’s facilities at the year end were
as follows:
Expiry
Facility
size
(£m)
Drawn
at 31 Dec
2022
(£m)
Propco
interest
cover
covenant
Propco
LTV
covenant
Metro Bank
Term loan Jun 2023 15.0 15.0 200% 35%
Virgin Money
RCF Dec 2029 50.0 17.0 200% 50%
HSBC
RCF Apr 2025
4
75.0 10.0 250% 55%
NatWest
RCF Jun 2024
5
26.0
6
25.3 250% 50%
Private placement
Senior secured notes
Dec 2035 37.0 37.0 250% 55%
Senior secured notes
Jun 2035 38.0 38.0 250% 55%
Total 241.0 142.3
4 With the option to extend for one year to April 2026, subject to HSBC’s agreement.
5 With the option to extend for up to two years to June 2026, subject to NatWest’s agreement.
6 An accordion agreement is in place to increase this to £50 million, subject to NatWest’s
agreement.
At the year end, the Group had substantial headroom
within the covenants on these facilities.
The renegotiated Virgin Money facility increased the
weighted average term of the Group’s debt facilities to
6.3 years at 31 December 2022, excluding any options
to extend. The only facility that matures in 2023 is the
£15 million term loan with Metro Bank, which we can
repay from the Group’s existing facilities.
The Group’s policy is to hedge at least 75% of its drawn
debt against interest rate increases. At the year end,
the Group had fixed or capped 70% of its drawn debt
or 41% of its total facilities (31% fixed and 10% from a 1%
interest rate cap which expires in June 2023).
Since the end of the year, we have put a further
£50 million interest cap in place, which caps SONIA at
3.0% for two years. The cap’s cost was £1.5 million. As a
result, we’d hedged 80% of the Group’s drawn debt at
27 March 2023.
Post-year end activities
On 10 January 2023, the Group announced an
investment of £56 million in six care homes (438 beds)
in Shropshire and Cheshire. See the case study on
page 23 for more information.
Outlook
2023 has started with continued high levels of volatility
in financial markets. Fixed income markets started the
year with severe whiplash as global bonds followed
their best ever January performance with their worst
February performance since 1990. These sharp moves
in the cost of capital contributed to the second largest
bank failure ever in the United States in March, which
in turn has led investors to question if Central Banks
can increase interest rates as much as was assumed in
February, causing the bond markets to rally again.
We expect the uncertainty caused by this volatility
to continue for some time. However, what we can
be certain about is that care homes are crucial social
infrastructure that provide an essential service for
vulnerable elderly people. Demand for that service is
driven by demography and acuity, and is not directly
related to developments in the wider economy or
financial markets. This gives care home operators a
higher level of in-built resilience than tenants in many
other real estate sectors, demonstrated in part by their
ability to pass through inflation in the fees they charge
for care, as discussed above.
There was a pause in most investment activity after
the mini-budget in September 2022. That hiatus ended
in late 2022 and there is once again a functioning
market of buyers and sellers for care home assets, at
price levels that reflect the new, higher cost of capital,
which is also reflected in the year-end valuation for the
Group’s investment portfolio. We expect the relatively
high level of resilience and attractive yields available in
the sector to attract more investor interest, rather than
less, during an uncertain time.
Impact Health Partners LLP
Investment Manager
27 March 2023
INVESTMENT MANAGER’S REPORT
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IMPACT HEALTHCARE REIT PLC
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Merlin Manor Care Centre, Merlin Way, Hartlepool TS26 0BF
Creating value through
funding development
Before
Development site on a quiet housing estate in Bishop Cuthbert, Hartlepool,
with easy access to the town centre, marina and local beach.
Reviewed our tenant’s business plan and undertook detailed due diligence
on the demand for additional quality care beds in the area, with the region
having been underserved by new supply for several years.
What we did
Forward funded the development of the care home, with a total investment
of £6.1 million.
Worked closely with our tenant, Prestige, who was undertaking the
development and has long-standing relationships with local authorities and
hospitals.
Outcomes
Merlin Manor provides residential, nursing and dementia care and is set to
become a cornerstone of local healthcare infrastructure.
All bedrooms have ensuite wet rooms and the building is light and airy.
Generous dining and lounge areas are spread around the building and
residents can enjoy a cinema room and hairdressing salon.
Landscaped gardens and terraces offer fresh air and sea views.
The home will employ up to 100 local staff, who will benefit from the modern
kitchen and laundry facilities.
The building meets all current environmental standards and has an EPC
rating of B.
“We are so pleased to open the
doors at Merlin Manor and have
been pleasantly surprised by the
number of residents we have been
able to welcome to the home. We
look forward to welcoming many
more residents and establishing
the home as an important part
of the community.”
Kevin Robinson-Husband, Home
Manager
Operator
Prestige
Bedrooms
94
Capex investment
£6.1 million
Works
New build care home, with 94 beds
and full ensuite wet rooms
Commencement
Jan 2020
Completion
Sep 2022
Sustainability
High-efficiency gas boiler, LED lighting
and lighting controls, high levels of
insulation
CQC Rating
Good
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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Our key stakeholders are our tenants, their
residents, our shareholders and our lenders.
The ways we typically engage with them are
set out in the table [opposite]. On pages 58-59
we describe how the board considered
stakeholders’ interests in its decisions.
The Investment Manager is the main point of
contact with our stakeholders and is one of
our two main service providers, along with the
Administrator. The board regularly interacts with
the Investment Manager and the Administrator
and the Management Engagement Committee
(“MEC”) meets at least once a year to review their
performance and our other key service providers.
See pages 90-91 for more information on the
MEC’s work.
The Group also has other stakeholders, including
central and local government, NHS and regulators,
who set and oversee the policies and rules that
govern the care home sector. However, we don’t
have direct relationships with local government, the
NHS or the regulators, as our tenants manage these
relationships as operators of the care homes.
Employees and directors
As an externally managed business, we don’t
have any employees and therefore don’t have 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.
Simon Laffin joined as Chairman designate in
January 2023; two male directors are stepping
down by the Annual General Meeting, meaning
the board will be five, of which two are female. More
information on the directors can be found
on pages 75-77.
Stakeholders
Our engagement activities
Stakeholder Stakeholder interests How we engage Stakeholder engagement in practice
Tenants
We have a steadily
growing tenant base,
with a mix of strong
national and local
operators. We work in
long-term partnership
with our tenants, to
grow our business while
managing risk.
Our tenants’ interests
include:
our ability to support
their businesses through
acquisitions and asset
management;
our financial strength;
our knowledge and
understanding of their
operations; and
our ability to share best
practice with them.
The Investment Manager engages with tenants on a weekly
and monthly basis and in more depth each quarter, when it
receives reports from them setting out their performance.
The Investment Manager holds meetings and visits homes
and sites, works with tenants on acquisition and asset
management opportunities, and shares best practices.
See our business model for more information on pages 14-15.
The board looks to meet new tenants within six months of
acquisition if not before. 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 64).
The engagement during the year has continued to
help us formulate our asset management plans, which
will benefit:
tenants, by adding new beds, making the homes
more attractive to potential residents and improving
their energy efficiency; and
residents, by making the homes better places to live
and able to accommodate more residents.
We’ve currently identified £16 million of further
asset management opportunities. For example,
we’re investing around £2 million in Mavern House
in Wiltshire, which will see us add a net seven new
bedrooms and create six new ensuites. We’re also
planning to invest around £4 million in Wombwell
Hall, Kent, which will see the home reconfigured to
enable an innovative dementia focused care facility,
along with upgrades to residents, communal spaces
and energy efficiency.
The board’s direct engagement with tenants has
also given the directors first-hand knowledge of our
tenants’ growth ambitions, the challenges they are
facing and the role we can play in supporting them,
which will underpin the board’s oversight of tenant
performance in the coming year.
In addition, we engaged with tenants when developing
the materiality assessment for our ESG strategy (see
pages 28-33).
Tenants’ residents
The quality of care our
tenants provide is very
important to us. It’s
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.
Tenants’ residents’ interests
include:
the quality of their care;
the quality of their
home and how well it’s
maintained;
the security and stability
of their home and the
tenant that runs it; and
our ability to invest in
the home, to make it a
better place to live and to
support additional needs
such as dementia.
Our tenants are responsible for looking after residents and
we don’t directly engage with them, except when we meet
them during home visits.
The Investment Manager monitors the CQC rating for
every home and the outcomes of inspections, and engages
with tenants on the findings. It also pays close attention
to tenants’ repairs and maintenance, to ensure the homes
remain good places to live.
The board also carefully monitors CQC ratings, to ensure
tenants are managing their homes properly.
Shareholders
To grow our business, we
need well-informed and
supportive shareholders.
We look to communicate
regularly and openly
and provide high-quality
corporate reporting.
Shareholders’ interests
include:
the security and growth
of our dividend;
our ability to add value
through acquisitions and
asset management;
our financial and
operational performance;
our ESG strategy and
performance;
conditions in the care
home market; and
the quality of our
corporate governance.
The Investment Manager regularly meets institutional
investors, analysts and the financial press. We provide timely
news flow and also communicate through our interim and
annual reports and the Annual General Meeting.
The Chairman and Senior Independent Director offer
meetings to major shareholders each year. The board receives
regular investor relations reports.
See relations with shareholders on page 70 for more
information.
The Investment Manager engaged with our
shareholders on a wide range of topics during the
year. In particular, this has continued to highlight
the importance of a well-considered and long-term
approach to ESG issues, including the impact of
climate change and reaching net zero. The Investment
Manager specifically engaged with an important
institutional shareholder when developing the
materiality assessment for our refined ESG strategy
(see pages 28-33). In addition, although we’re not
yet required to report under TCFD, we’ve voluntarily
published our first report against the TCFD framework
(see pages 34-40), recognising the importance of this
information to shareholders and other stakeholders.
Lenders
We use an appropriate
amount of debt to
generate higher returns.
We therefore build
strong relationships with
lenders, who provide the
debt facilities we need to
grow our business.
Lenders’ interests include:
the quality of the security
we provide for our loans;
our ability to meet our
interest payments;
the resilience of our
revenue; and
ESG.
The Investment Manager engages with our lenders through
quarterly compliance reporting.
The board receives information about debt funding as part
of its regular meeting papers and at other times when
needed.
Our strong relationships with our lenders enabled us
to agree new or extended facilities with HSBC and
Virgin Money during the year. See page 46 for more
information.
The board also welcomed a representative from
Virgin Money to its board meeting in August to better
understand their view of the market and help the
board consider additional risks and opportunities,
particularly with Virgin Money’s significant experience
in development funding.
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IMPACT HEALTHCARE REIT PLC
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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
STAKEHOLDERS
Our engagement activities
Stakeholder Stakeholder interests How we engage Stakeholder engagement in practice
Tenants
We have a steadily
growing tenant base,
with a mix of strong
national and local
operators. We work in
long-term partnership
with our tenants, to
grow our business while
managing risk.
Our tenants’ interests
include:
our ability to support
their businesses through
acquisitions and asset
management;
our financial strength;
our knowledge and
understanding of their
operations; and
our ability to share best
practice with them.
The Investment Manager engages with tenants on a weekly
and monthly basis and in more depth each quarter, when it
receives reports from them setting out their performance.
The Investment Manager holds meetings and visits homes
and sites, works with tenants on acquisition and asset
management opportunities, and shares best practices.
See our business model for more information on pages 14-15.
The board looks to meet new tenants within six months of
acquisition if not before. 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 64).
The engagement during the year has continued to
help us formulate our asset management plans, which
will benefit:
tenants, by adding new beds, making the homes
more attractive to potential residents and improving
their energy efficiency; and
residents, by making the homes better places to live
and able to accommodate more residents.
We’ve currently identified £16 million of further
asset management opportunities. For example,
we’re investing around £2 million in Mavern House
in Wiltshire, which will see us add a net seven new
bedrooms and create six new ensuites. We’re also
planning to invest around £4 million in Wombwell
Hall, Kent, which will see the home reconfigured to
enable an innovative dementia focused care facility,
along with upgrades to residents, communal spaces
and energy efficiency.
The board’s direct engagement with tenants has
also given the directors first-hand knowledge of our
tenants’ growth ambitions, the challenges they are
facing and the role we can play in supporting them,
which will underpin the board’s oversight of tenant
performance in the coming year.
In addition, we engaged with tenants when developing
the materiality assessment for our ESG strategy (see
pages 28-33).
Tenants’ residents
The quality of care our
tenants provide is very
important to us. It’s
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.
Tenants’ residents’ interests
include:
the quality of their care;
the quality of their
home and how well it’s
maintained;
the security and stability
of their home and the
tenant that runs it; and
our ability to invest in
the home, to make it a
better place to live and to
support additional needs
such as dementia.
Our tenants are responsible for looking after residents and
we don’t directly engage with them, except when we meet
them during home visits.
The Investment Manager monitors the CQC rating for
every home and the outcomes of inspections, and engages
with tenants on the findings. It also pays close attention
to tenants’ repairs and maintenance, to ensure the homes
remain good places to live.
The board also carefully monitors CQC ratings, to ensure
tenants are managing their homes properly.
Shareholders
To grow our business, we
need well-informed and
supportive shareholders.
We look to communicate
regularly and openly
and provide high-quality
corporate reporting.
Shareholders’ interests
include:
the security and growth
of our dividend;
our ability to add value
through acquisitions and
asset management;
our financial and
operational performance;
our ESG strategy and
performance;
conditions in the care
home market; and
the quality of our
corporate governance.
The Investment Manager regularly meets institutional
investors, analysts and the financial press. We provide timely
news flow and also communicate through our interim and
annual reports and the Annual General Meeting.
The Chairman and Senior Independent Director offer
meetings to major shareholders each year. The board receives
regular investor relations reports.
See relations with shareholders on page 70 for more
information.
The Investment Manager engaged with our
shareholders on a wide range of topics during the
year. In particular, this has continued to highlight
the importance of a well-considered and long-term
approach to ESG issues, including the impact of
climate change and reaching net zero. The Investment
Manager specifically engaged with an important
institutional shareholder when developing the
materiality assessment for our refined ESG strategy
(see pages 28-33). In addition, although we’re not
yet required to report under TCFD, we’ve voluntarily
published our first report against the TCFD framework
(see pages 34-40), recognising the importance of this
information to shareholders and other stakeholders.
Lenders
We use an appropriate
amount of debt to
generate higher returns.
We therefore build
strong relationships with
lenders, who provide the
debt facilities we need to
grow our business.
Lenders’ interests include:
the quality of the security
we provide for our loans;
our ability to meet our
interest payments;
the resilience of our
revenue; and
ESG.
The Investment Manager engages with our lenders through
quarterly compliance reporting.
The board receives information about debt funding as part
of its regular meeting papers and at other times when
needed.
Our strong relationships with our lenders enabled us
to agree new or extended facilities with HSBC and
Virgin Money during the year. See page 46 for more
information.
The board also welcomed a representative from
Virgin Money to its board meeting in August to better
understand their view of the market and help the
board consider additional risks and opportunities,
particularly with Virgin Money’s significant experience
in development funding.
51
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
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 82-85.
1. Changes to government social care policy
2. Infectious diseases
3. General economic conditions
4. Weakening care market
5. Significant tenant default
6. Underinvestment in care homes by tenants
7. Environmental regulation and impact of
climate change
8. Ability to meet our debt financing obligations
9. Reliance on the Investment Manager
10. Reputation (new)
IMPACT
PROBABILITY
Moderate Major
Low Medium High
Principal risk
Movement from last year
Low
2
1
5
8
3
7
0
9
4
6
10
Political
1. Changes to government social care policy
Probability: Medium Impact: Moderate
Change in the year:
Our business provides premises in which our
tenant operators provide care for vulnerable people.
Government has a responsibility to ensure the delivery
of affordable care for all that need it. Changes in
government legislation and funding affect the market
in which we operate, by changing requirements that
may affect revenue or costs. This could reduce our
tenants’ ability to pay their rent and result in changes
to valuations of our properties.
The government published a White Paper in
December 2021 that set out measures for reforming
adult social care, including £5.4 billion of incremental
funding between 2022 and 2025. This was followed by
a further White Paper in February 2022 outlining how
the NHS and local government can come together
to deliver care for their communities. However, in
November 2022 the government cancelled its planned
health and social care levy and announced a two-year
delay to funding due to the current economic challenges.
Timeframe and funding for implementation of the
planned changes continue to be uncertain.
Mitigation
It is not in the interests of any political party to
undermine the viability of the care home sector. If
operators were to fail and premises be repurposed
to other uses, the government and local authorities
would have to step in to provide alternatives. Such an
outcome would undoubtedly increase public sector
funding of the sector.
We have little sway over government policy, although
we seek to educate and influence decision-makers to
see the need for a successful elderly care sector.
The Investment Manager closely monitors policy
developments and engages with representative
organisations and care home operators to ensure it is
fully informed on proposals and their likely effect.
Opportunity
Increased funding by the government on elderly care
may provide increased growth opportunities.
Principal risks and uncertainties
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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Market conditions
2. Infectious diseases
Probability: Moderate Impact: Moderate
Change in the year:
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 from an outbreak include: 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. 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.
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, significant tenant default and the ability to
meet our financing obligations.
While COVID-19 remains a risk to health, vaccinations
have reduced the level of hospitalisations and those
falling seriously ill from COVID-19 in care homes. 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, is experienced in preparing for and
implementing procedures to deal with infections
as evidenced by their response to other infectious
diseases, that were prevalent before COVID-19, which
are now returning.
Central government and local authorities provided
support to operators to help deal with the infection
control measures, staff sick pay and the immediate
effects of a potential reduction in occupancy. This
was evidenced during the height of the COVID-19
pandemic and would be sought in any future
infectious disease outbreaks.
Ensuring our tenants maintain strong rent cover
enables them to better react to any immediate and
unforeseen changes.
3. General economic conditions
Probability: High Impact: Moderate
Change in the year:
The economy is in a period of high inflation as a result
of several factors including staffing shortages, supply
chain issues and heightened gas and electricity prices.
Interest rates have risen sharply and are not expected
to return to the levels experienced for the past 15 years.
This combination of factors is having a continued
effect on global economies and supply chains. Higher
interest rates have hit property valuations across all
sectors in the UK including healthcare. If they continue
to rise, they could put further pressure on valuations
and bank funding financial covenants.
Local authorities may not have adequate funding,
putting pressure on care operator’s fee levels. Should
this result in weakening tenants' profitability, this
would put pressure on rental levels and valuations,
possibly leading to tenant default or covenant breaches.
Mitigation
We believe that tenant profitability with long-term
affordable rents is key to sustainable profitability and
risk management. Our homes are let on leases of at
least 20 years, with annual rental increases linked to
the Retail Price Index, the majority with floors and
caps of between 2% and 4%. We regularly assess and
monitor the financial robustness of our tenants and,
in particular, the rent cover (see pages 42-43). We
generally acquire homes with a proven track record
that should ensure rent cover towards 2.0x can be
achieved. The caps on our rental increases help protect
our tenants particularly in times of high inflation.
Our strategy is to keep average leverage below the
cap of 35% adding additional resilience to our financing
structure (see the going concern section on pages 60-61).
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.
PRINCIPAL RISKS AND UNCERTAINTIES
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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
4. Weakening care market
Probability: Medium Impact: Moderate
Change in the year:
Several factors may affect the market for care for older
people, including:
adverse conditions in the healthcare sector;
local authority funders amending their payment
terms, affecting our tenants’ revenues;
increased regulatory responsibility and associated
costs for our tenants that are 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 monitor every care home that we own to
understand its underlying performance, so that we can
identify any concerns early and can explore mitigating
actions such as additional investment, or discussing
with our tenants staffing levels and the acuity of the
care provided.
Opportunity
Our investment criteria seek to identify assets that 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. Significant tenant default
Probability: Medium Impact: Moderate
Change in the year:
As a result of the tenant diversification, we have
clarified this risk to reflect a risk of a significant tenant
default which may arise as a result of a default of a
single large tenant (typically above 10% of rent roll) or
a combination of defaults of our smaller tenants.
The default of tenants, or failing to act quickly and
decisively when confronted with a failing tenant, would
affect the value of our homes and, if significant, 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
management or quality of care resulting in a home
closure; or
transitional issues when taking on a new home; or
external pressures such as increased competition,
inflationary pressures or infectious diseases
The availability of staff continues to be a challenge
across the healthcare sector and rising food and utility
costs are challenging.
Mitigation
Our tenants have shown themselves to be resilient and
have displayed an ability to pass on most inflationary
pressure in higher fees and have been helped by
our rent caps. Apart from our close monitoring of
individual operator and home performance, we also
ensure a diversified and high-quality tenant base. In
general, our low levels of leverage and fully covered
dividend limit the effect on the performance of the
Group. We are able to re-tenant homes with a new
operator or one of our existing tenants. Recently one
tenant has defaulted and we are actively engaging with
this tenant while exploring all options (see page 42).
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.
PRINCIPAL RISKS AND UNCERTAINTIES
Market conditions (continued)
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PRINCIPAL RISKS AND UNCERTAINTIES
6. Underinvestment in care homes by tenants
Probability: Moderate Impact Medium
Change in the year:
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. The most important point is to have homes
that are well suited to residents' needs and their ability
to pay. They do not have to be newly built, but they
need to be comfortable, fit for purpose and affordable.
There is a risk that increased investment is required to
ensure the homes are compliant with environmental
regulations. This includes the expectation that regulation
will be put in place for all leased properties to be English
EPC C by 2027 and EPC B by 2030.
There is also a risk that insufficient investment is made
and homes become unattractive to residents.
Mitigation
All of our leases have full repair and maintenance
obligations on tenants including 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 legal requirements to enable them
to continue to operate as a care home.
Failure to comply with the terms of the lease results in
a default, enabling us to replace the tenant in extreme
circumstances.
As part of our acquisition due diligence, we undertake
further assessment of improvements that will 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.
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.
7. Environmental regulation and impact
of climate change
Probability: High Impact: Medium
Change in the year
1
:
Tightening environmental regulations increase the
need for investment or redevelopment of our portfolio
and could 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.
Our current estimates is that an investment of, on
average, £2.4 million per year is required on the current
portfolio to deliver this strategy and we will work with
our tenants to implement these measures. We have
undertaken additional analysis on the further actions
required to reduce the carbon footprint of our care
homes and we have developed a delivery plan with
interim milestones, reaching our net zero target in 2045.
This will enable our actions now to help mitigate the
longer-term risks to our portfolio and society as a whole.
As part of our acquisition due diligence, we also
undertake an environmental assessment of the homes
to ensure they are EPC compliant and we identify
improvements that can be made to the homes and,
where 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.
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.
Underperformance of assets (continued)
1 With the additional work we have undertaken in preparation for a net zero strategy,
we have changed our outlook for environmental risks to 25 years.
55
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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Financing
8. Ability to meet our debt financing obligations
Probability: Medium Impact: Moderate
Change in the year:
If we are unable to operate within our debt covenants
(primarily interest cover and LTV 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.
Mitigation
We seek to ensure appropriate levels of leverage are
put in place with mitigating measures that enable us
to manage our debt financing in downside scenarios.
These measures include but are not limited to leverage
and hedging policies and ring fenced security pools
with no cross-default provisions. See the going
concern section on pages 60-61, where risks and
mitigations are reviewed in detail.
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 Impact: Major
Change in the year:
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.
Our performance depends on the Investment
Manager’s capabilities, the retention of its key staff and
its ability to deliver business continuity.
There is a risk of potential conflict of interest with the
Investment Manager and its initial tenant for the Seed
Portfolio (see related party note on page 134).
Mitigation
We have an Investment Management Agreement,
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.
PRINCIPAL RISKS AND UNCERTAINTIES
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PRINCIPAL RISKS AND UNCERTAINTIES
Corporate risk (continued)
10. Reputational risk
Probability: Medium Impact: Moderate
Change in the year: NEW
There are a variety of circumstances that could damage
our reputation and have a corresponding impact on
value for all stakeholders. Some examples include:
Our tenants operate in a challenging market caring for
people with significant needs and they need to ensure
there is adequate training of their carers to provide
high-quality care. There is a risk that the training is
not properly administered or adhered to, resulting
in a poor quality of care. The care home could be
embargoed and its reputation damaged. Our tenant
could be fined, and occupancy could fall and may
struggle to recover leading to weaker trading, putting
at risk the tenant’s ability to pay rent and affect the
valuation of the property.
Our tenants employ a large workforce of carers
and support staff and they need to ensure they are
properly supporting these staff and not breaching
minimum wage and modern slavery standards. This
could result in fines and operational difficulties for the
tenants putting at risk the tenant’s ability to pay rent.
A combination of the above risks could result in
negative publicity for the REIT and reduced investor
confidence.
There are related party activities, which we disclose,
between the Investment Manager and the Minster
Group. If there is a breakdown in trust on related party
disclosures this could damage both tenant and the
Group’s reputation and ability to raise further equity
financing or renew its debt facilities.
Mitigation
We monitor and work closely with our tenants to
understand when and where standards may have
fallen below those expected by their residents,
residents’ families, staff and the regulators. We support
and challenge our tenants where these standards are
not upheld.
The board ensures that related party activities are
transparently disclosed and decisions taken are in the
best interest of stakeholders. Legal advice is sought
where necessary to ensure disclosures are properly and
promptly disclosed.
Other risks that we monitor closely
Adverse change in investment opportunities
A change in the market conditions and availability
of investments may provide opportunities as well as
risks.
Taxation risk
We are a UK REIT and subject to rules to maintain
that status. 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. The
Group has relatively few IT systems as the Investment
Manager operates the business trading and the
Administrator runs the accounting and banking
systems.
Financial management
Budgets and plans may be inaccurate, based on
unrealistic assumptions or inappropriately applied,
leading to material adverse financial conditions,
performance, results and investor concerns. The board
review financial results, forecasts and variances on at
least a quarterly basis.
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 slowdown in
construction activity and rising costs; we continue to
monitor this risk as the situation evolves.
The Company has a robust risk management
framework in place to monitor and mitigate all of the
above risks. This is set out on pages 82-85.
57
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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
The directors have considered 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
our business.
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 50-51 and 64.
Key board decisions
The board’s principal decisions each year typically include
approving acquisitions, capital expenditure, raising
equity and debt, and dividend payments. The case
study on page 59 shows how the board took account
of stakeholders’ interests in making a key decision. Other
key decision in the year included the equity raises and
refinancing, see pages 50-51. for how we engage with
stakeholders on these.
Section 172(1) statement
Matter Response
a) The likely consequence
of any decision in the
long term.
The nature of our business means that the directors have to consider the long-term impact
of their decisions, given that we expect our tenant relationships to last for at least 20 years.
During the year, the board considered and approved our investments in 12 care homes on
leases of up to 35 years.
b) The interests of the
Company’s employees.
This is not applicable, as we do not have any employees.
c) The need to foster the
Company’s business
relationships with suppliers,
customers and others.
Our tenants are our customers. Developing long-term relationships with them is central
to our business model (see pages 14-15). During the year, all the directors took part in
calls with our tenants, to understand their views on a range of issues. See page 64 for more
information. The board also reviews reports of tenant performance at each scheduled meetings.
Our main suppliers are our service providers, in particular the Investment Manager
and Administrator. The board engages frequently 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 90-91.
d) The impact of the
Company’s operations
on the community and
environment.
As our tenants operate our care homes, they’re responsible for relationships with their
local communities and for the environmental impact of running the homes. However,
we work closely with our tenants to improve the sustainability of our assets, as described
on pages 28-33. The board has a strong focus on ESG matters and considers them at every
regular meeting. The board also held a separate sessions on our ESG strategy in August
and December 2022 and a further meeting was held in February 2023. The board has
developed its ESG strategy and net zero pathway and milestones.
e) The desirability of the
Company maintaining
a reputation for high
standards of business
conduct.
The directors understand that tenants will only sign long-term leases with landlords they can
trust and want to work with. The Group therefore relies on a reputation for high standards
of business conduct. This is reflected in our core values, which include acting openly and
transparently with all of our stakeholders, as well as in our ESG strategy (see page 33).
The directors continue to directly engage with our stakeholders, such as the tenant call
noted above, contributing to open and transparent relationships.
f) The need to act fairly
between members
of the Company.
As at the date of this report all directors are independent. This ensures that all decisions
taken by the board or committees reflect the interests of shareholders as a whole.
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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
SECTION 172(1) STATEMENT
Case study: considering our stakeholders’
interests
During the year, the board spent time considering a
potential investment in six care homes in Shropshire
and Cheshire, which we announced shortly after the
year end.
Background
We invested £56 million in the homes, funding 80%
in cash and the remainder through issuing 9.6 million
shares at 116.62 pence per share. The homes have 438
beds, including 400 ensuites. Four homes have EPC B
ratings and two have C ratings, and we’ve developed
outline strategies to increase the C ratings to B.
We’ve initially invested through a loan to Welford
Healthcare, an existing tenant who’ll operate the
homes. This allowed Welford to buy the legal entities
that own the assets, so it could immediately take over
running the homes. Once the CQC has approved the
transfer, we have the option to acquire the homes and
Welford has the option to sell them to us to repay the
loan. While the loan is in place, we’ll receive interest
payments at 8.4% per annum and, when either option
is exercised, new 35-year leases come into effect,
which we’ve pre-agreed with Welford. These specify
initial rent of £3.9 million a year, which is a gross initial
yield of 7.0%.
The homes were owned and run by Morris Care
Limited, which has a strong reputation and good
working relationships with its local authorities and
NHS. The homes will continue to trade under the
Morris brand for the next three years.
We funded the cash element of the investment by
drawing down existing debt facilities. To provide
certainty about the cost, we also took out a £50 million
interest rate cap, which caps the SONIA rate at 3.0% for
two years.
The stakeholder interests we considered
Tenants
One of our objectives is to grow with our tenants,
which helps to diversify their businesses and improve
their resilience. With this transaction, our relationship
with Welford has increased to 18 homes with 1,087 beds.
Welford also benefited from Morris Care’s operational
management transferring across to it, ensuring it has the
capacity to successfully take on the increased business.
Residents
By structuring the deal as a “loan to buy” transaction,
we avoided a potentially long transition period while
waiting for the CQC to approve the homes’ transfer
to new legal entities. Allowing Welford to take over
immediately means it can ensure residents receive
a consistently high standard of care.
Shareholders
The transaction benefits shareholders, adding six high-
quality assets to the portfolio, generating an attractive
income and strengthening an important tenant.
Shareholders are also protected while the loan remains
in force, as the structure includes security over the care
homes and several operational covenants.
Long-term effect of the decision
The new leases we’ve pre-agreed with Welford run
for 35 years, on our standard terms. The transaction
will deliver long-term benefits, as the rents in the new
leases are index linked, which will grow our revenues
over time and help to increase the capital values of
the assets.
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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
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 2024. 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 Group’s
assessment the modelling includes (but is not limited
to), the identification of uncertainties facing the Group,
including:
The risks of default of the Group’s tenants taking
into consideration current rent cover. 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%, an
increase in staff costs by 5% and other costs by 10%
and the effect these sensitivities have on rent cover
and appraise the risk of a tenant default as low,
medium or high;
The risk of a fall in investment property values. This
may be because of a multitude 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 may be
taken, including the extent of the resources available
to the Company to cure covenant breaches; and
The board also considered the expiry of the
£15 million Metro facility in June 2023. In the second
half of 2022, the Group secured two increases to
debt facilities, one on improved terms and with an
extended maturity. Following this, there is sufficient
headroom available to repay the Metro term loan as
it falls due.
The Group’s forecasting 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 while increasing SONIA and
bank base rates to 4.5% on variable interest rate loans;
assessing the level of loss of rents that could be
sustained within a security group before each
covenant or default level is triggered; and
assessing the loss of rents or 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 stresses arising from rising inflation
and interest rates and, in particular, the impact on the
trading and financial strength of the Group’s tenants
as highlighted above.
Property values would need to fall by more than 33%
before loan to value covenant breaches would arise
with all facilities being fully drawn. Rental income
would need to fall by 37% before interest cover
covenant breaches would arise with all facilities being
fully drawn.
Going concern and viability
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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
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 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 2028. 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 paragraphs
preceding the going concern statement 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 in order
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 included:
Debt refinancings during the forecast period, beyond
the £15 million Metro facility. In relation to additional
refinancing obligations within the period of the
viability assessment, the directors have reasonable
confidence that extensions or 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; however, this assessment
did not assume any disposals took place.
In 2024, the Company’s articles of association
require the board to propose an ordinary resolution
at the Annual General Meeting for the Company
to continue in its current form. This will be the first
continuation vote since the Company’s inception,
if the vote is passed the Company will continue
its business as presently constituted and the
continuation vote will be held at every fifth Annual
General Meeting thereafter. If the vote is not passed
the directors shall within three months after the date
of the resolution, put forward proposals to members
to the effect that the Company be reconstructed,
reorganised or wound up. The board are not aware
of any significant or material issues raised by
shareholders in relation to this Continuation Vote,
but will continue to engage with shareholders as the
2024 Annual General Meeting approaches.
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 2028.
GOING CONCERN AND VIABILITY
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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Morris Care Centre,
Holyhead Road,
Wellington, Telford.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Governance
64 Corporate governance statement
– Chairman’s introduction
65 Compliance statement
66 Application of the AIC Code Principles
68 Other key governance statements
69 Board leadership and Company purpose
72 Division of responsibilities
73 Meetings and attendance
75 Board of directors
78 Nominations Committee report
78 Committee membership
79 Board evaluation
80 Succession planning
80 Recruitment of new non-executive director and
Chairman designate
80 Board composition and diversity
82 Audit, risk and internal control
86 Audit Committee report
86 Key activities of the committee during the year
86 Committee membership
86 Relevant experience and competence
87 Financial reporting and significant judgements
88 Review of risk framework and internal control
88 Internal audit
89 External auditor
89 Non-audit services
90 Management Engagement Committee report
90 Committee membership
90 Investment Manager
91 Administrator and Company Secretary
92 Directors’ remuneration report
92 Annual statement
92 Directors’ remuneration policy
93 Annual report on remuneration
94 Committee membership
96 Directors’ report
100 Statements of responsibilities
101 Independent Auditor’s report
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Rupert Barclay,
Chairman
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ANNUAL REPORT 2022
This was another busy year for the board. As directors,
we are all highly engaged in supporting, guiding and
challenging the Company’s strategy, performance
and objectives. This reflects our belief that good
governance enables performance and is not about
achieving compliance for its own sake. We are ably
supported by the Investment Manager and our other
key service providers, and we maintain a rigorous focus
on their performance and support to the board.
The board
One of the important events this year was the
recruitment of Simon Laffin as an independent non-
executive director and my designated successor as
Chairman, following my indication that I was planning
to step down from the board after six years in the chair.
Rosemary Boot, our Senior Independent Director, led
the process and we are delighted that Simon joined
the board from 1 January 2023. He will take on the
Chairman role when I step down on 31 March 2023,
ahead of the next Annual General Meeting. More
information on Simon and the appointment process
can be found in my statement in the Strategic report
on pages 5-6 and in the Nomination Committee report
on pages 78-81.
Succession planning remains an important part of our
work, while maintaining the breadth of experience
we have within our current board. At the date of this
report, we had four directors who joined around the
time of the IPO and Simon’s recruitment has helped to
increase the stagger in board appointment dates. As
part of our succession planning, Paul Craig will also be
stepping down from the board at the AGM. This means
that following the AGM, only two of the directors will
have been in place since the IPO, showing our success
in refreshing the board’s membership in recent years.
We are also very aware of the importance and benefits
of diversity, including gender and ethnicity, as well
as the increased focus on this area following recent
changes to the Listing Rules. When working with
external consultants on recruiting new directors, we
request a diverse list of candidates and will continue
to prioritise diversity in future appointments, while
ensuring any appointee is also the best candidate for
the role and has a strong fit with the rest of the board
and the Investment Manager.
This year’s internal evaluation of the board and
committees (see page 79) shows that we continue to
work well together, which in part results from our ad
hoc calls during the year, outside our formal schedule
of meetings. Suggestions for improvement included
further increasing our focus on strategy and ESG
matters, both of which we spent time on during the
year. We held our annual strategy day in November
(page 70), during which we considered the Company’s
growth plans, and related topics such as the availability
of finance, the level of returns and current market
conditions. At our August board meeting, and in a
follow up sub-committee in December, we provided
input on the developing ESG strategy, in particular
focusing on our social impact, environmental issues
including our pathway to net zero. More information
on this can be found on pages 28-33.
Engaging with and considering our
stakeholders
The directors have continued to engage with key
stakeholders during the year. We again held calls
with the majority of our tenants, to discuss their
businesses and growth plans, views of the Company
and the Investment Manager. This was followed by a
questionnaire to all tenants as part of an independent
social impact study of our business. More information
on our tenant engagement can be found on page 70.
Rosemary Boot as SID and I also offered calls to
our major shareholders, as we do every year, with
several taking up the offer. Not surprisingly given
the macroeconomic environment in recent months,
common themes included the resilience of our
business model, our approach to gearing, the cost
of debt and the importance of having a covered
dividend.
The board has always been aware of its responsibilities
under s172. See pages 50-51 for more on stakeholder
engagement and pages 58-59 for our s172 statement.
The board papers now include summaries of the
impact on relevant stakeholder groups when we
are asked to make decisions. These impacts are also
documented in the meeting minutes.
Internal controls and risk management
Ensuring the effectiveness of our risk management
and internal controls is among the board’s key
Corporate governance statement
– Chairman’s introduction
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responsibilities. With the support of our Audit and
Management Engagement Committees, we have
continued to ensure that our policies, procedures and
internal controls are appropriate and effective, and
that our key service providers 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, and we have continued
to review and update our risk appetite and monitor
compliance against it.
Compliance
During 2022, the Company complied with the
principles and provisions of the AIC Code of Corporate
Governance (“AIC Code”). The AIC Code addresses the
principles and provisions set out in the UK Corporate
Governance Code (“the UK Code”) and includes
additional provisions that are specifically relevant to
us. Reporting against the AIC Code therefore provides
more relevant information to shareholders than
reporting against the UK Code.
The Financial Reporting Council has endorsed the
AIC Code, which is available from www.theaic.co.uk.
It includes an explanation of how the AIC Code adapts
the UK Code’s principles and provisions to make them
relevant for investment companies.
Looking forward
I am pleased to be passing on the Chairmanship with
the Company in a sound position. We have a strong
and effective governance framework and the board
remains focused on ensuring the business remains
well governed and sustainable, for the benefit of all its
stakeholders.
Rupert Barclay Chairman
27 March 2023
CORPORATE GOVERNANCE STATEMENT – CHAIRMAN’S INTRODUCTION
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
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Application of AIC Code Principles
The table below explains how we applied the AIC Code’s main principles during 2022.
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 1-62
Chairman’s introduction, pages 64-65
Board leadership and company purpose, pages 69-71
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 1-62
Chairman’s introduction, pages 64-65
Board leadership and company purpose, pages 69-71
Division of responsibilities, pages 72-74
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.
Responsible investment, pages 28-33
Stakeholders, pages 50-51
Principal risks and uncertainties, pages 52-57
Audit, risk and internal control, pages 82-85
Audit Committee report, pages 86-89
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 50-51
Section 172(1) statement, pages 58-59
Board leadership and company purpose, pages 69-71
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.
Division of responsibilities, pages 72-74
Chairman’s introduction, pages 64-65
Board leadership and company purpose, pages 69-71
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 72-74
Board of directors, pages 75-77
Nomination Committee report, pages 78-81
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, pages 69-71
Division of responsibilities, pages 72-74
Nomination Committee report, pages 78-81
Audit Committee report, pages 86-89
Management Engagement Committee report, pages 90-91
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 72-74
Audit Committee report, pages 86-89
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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 78-81
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 75-77
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 78-81
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 82-85
Audit Committee report, pages 86-89
Notes 2 and 3 to the financial statements, pages 114-118
Principle N – The board should present a fair, balanced and
understandable assessment of the company’s position and
prospects.
Strategic report, pages 1-62
Fair, balanced and understandable, page 88
Audit, risk and internal control, pages 82-85
Audit Committee report, pages 86-89
Independent Auditor’s report, pages 101-108
Financial statements, pages 110-144
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 52-57
Viability statement, page 61
Robust assessment of principal risk, page 68
Review of risk management and internal control, page 85
Audit, risk and internal control, pages 82-85
Audit Committee report, pages 86-89
Management Engagement Committee report, pages 90-91
Note 19 to the financial statements, pages 131-132
Remuneration
Principle P – Remuneration policies and practices should
be designed to support strategy and promote long-term
sustainable success.
Directors’ remuneration report, pages 92-95
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 92-95
Remuneration Committee, pages 94-95
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 92-95
Remuneration Committee, pages 94-95
APPLICATION OF AIC CODE PRINCIPLES
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
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The directors confirm that:
Going concern
The Going concern statement is on page 61.
Long-term viability
The Viability statement is on page 61. Further details
of the board’s assessment of the Company’s viability
are set out in Audit, risk and internal control on
pages 82-85. The principal risks and uncertainties are
set out on pages 52-57.
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 82-85,
Principal risks and uncertainties on pages 52-57 and
report against the TCFD framework on pages 34-41 for
further information on how these risks are identified
and managed.
Review of risk management and internal control
We have established a continuing process for
identifying, evaluating and managing the risks
the Company faces 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 82-85.
Continuing appointment of the Investment
Manager
The continuing appointment of Impact Health
Partners LLP as Investment Manager, on the terms
agreed, is in the interests of shareholders as a whole.
Further details of the basis for this conclusion, and the
terms, are set out in the Management Engagement
Committee report on pages 90-91.
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 86-89 for further information on how we
reached this conclusion.
Other key governance statements
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
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Board leadership and Company purpose
Board agenda
The board meets every quarter and has a formal agenda, which typically includes:
the Investment Manager’s report, including
acquisitions, investment performance, operator
performance, risk, market conditions and financing;
our financial results against budget and cash flow
forecasts;
the dividends to be declared and forecast liquidity;
investor communications;
the corporate governance and Secretary’s report,
policies and procedures, compliance and an update
on legislation and regulations; and
the board committees’ updates and
recommendations.
Specific matters the board considered during the year included:
Matter
Relevant
stakeholders
Quarterly net asset value and dividend S
Annual report and financial statements and the interim results announcement S, L
Five-year strategic plan S, T, L
Equity raises in February and July 2022 S, L, T
Budget for 2022 and review of performance against budget S, L
Acquisitions of care homes and discussion of investment pipeline S, T, R
Debt strategy, extension of revolving credit facility, liquidity, covenant compliance and hedging policy L, S
Asset management plans and approval of specific projects, where required S, T, R, L
Operator performance, rent collection, and repairs and maintenance T, R, S, L
Performance of prior period acquisitions S
ESG strategy and framework, net zero strategy, targets and delivery plans S, T, R, L
The health, social care and related real estate market S
Strategic disposals of assets S, L, T, R
Appointment of Simon Laffin as non-executive director and Chairman designate S, L, T
Reappointment of BDO as auditor S, L
Principal and emerging risks, and risk reporting S, L
Training options for the non-executive directors S
Developments in corporate governance S
Amendments to delegated authorities S, L
Key to stakeholders:
S – shareholders; T – tenants; R – tenants’ residents; L – lenders
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
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Strategic oversight
The board challenges and approves the strategy,
ensures it aligns with the Company’s purpose and
culture (see page 2) and oversees how the Investment
Manager implements the strategy. The board routinely
discusses strategic topics at its regular quarterly
meetings and also holds an annual strategy day, with
the latest taking place in November 2022. The main
areas covered were:
an overview of the current strategy;
the competitive landscape;
a review of interest rates, property yields and credit
spreads;
a review of asset management; and
a review of risk management.
Tenant engagement
Tenants are one of our most important stakeholders, so
the board has continued to engage directly with most
of them, to understand their views. A minimum of two
directors attended each tenant call, with every director
taking part in the series of calls. The calls covered a
range of topics, including their views of the Company
as a landlord and of the Investment Manager, their
current trading and issues such as staffing and fee
levels, the potential for asset management initiatives
and their plans for growth. Views of the Company and
the Investment Manager were highly positive, with
Impact seen as an engaged and supportive landlord.
Tenants also valued the Company’s ability to fund their
asset management and growth plans.
The Investment Manager is the primary contact for all
our tenants and meets them regularly. The focus with
all tenants is ensuring it is a partnership relationship,
with open and constructive conversations on a host
of topics including resident welfare, operational
performance, regulatory performance and regulator
engagement, environmental performance, staff
satisfaction, staffing levels and use of agency
staff, utility costs and utility cost benchmarking,
maintenance plans and asset management
opportunities, and new investment opportunities.
Shareholder relations
The board is committed to strong relationships with
shareholders. Our investor relations activities aim to:
increase understanding of our business, strategy and
growth opportunities;
better define our market and how it differs from
our peers;
develop a strong, supportive shareholder base that
wants to continue to invest in us;
build relationships with potential new investors in
the Company; and
ensure the board understands the market’s view
of the Company.
Mahesh Patel, Andrew Cowley and David Yaldron, from
the Investment Manager, are our principal spokesmen
with shareholders and other stakeholders. During the
year, they met regularly with investors, analysts and
the financial press to update them on our progress.
The Investment Manager regularly updates the
board on investor relations, including analyst reports
and shareholder feedback from meetings and calls.
The board also meets formally and informally with
our corporate brokers, to better understand major
shareholders’ views.
Rupert Barclay, Chairman, and Rosemary Boot, Senior
Independent Director, continue to make themselves
available to shareholders. In 2022, they again held calls
with a number of the Company’s leading shareholders,
to hear their views and answer questions. The calls
covered topics including the resilience of our business
model, the level and cost of debt and the importance
of ensuring the dividend is covered by earnings. The
calls did not highlight any significant issues and Rupert
and Rosemary provided feedback to the other directors.
BOARD LEADERSHIP AND COMPANY PURPOSE
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
71
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Engagement with lenders
Our relationships with lenders are primarily the
Investment Manager’s responsibility. However, the
board is also keen to hear lenders’ views directly
from time to time, to learn more about their interests
and conditions in the debt market. A representative
from one of our lenders, CYBG, attended the board’s
August 2022 meeting, to discuss the real estate market
in health, social care and related sectors, including
an update on the bank’s portfolio and the treasury
market.
Annual General Meeting
Our 2022 AGM took place on 11 May 2022. With the
previous year’s AGM having been affected by COVID-
related restrictions, we were pleased to be able to
return to holding the meeting in person.
Information on arrangements for the 2023 AGM can be
found on page 99.
Shareholders who would like to contact the Chairman
or the Company before the AGM can email the
Company Secretary at Impact.CoSec@jtcgroup.com.
Public communications
We ensure we release any price sensitive information to
all shareholders at the same time, in line with regulations.
All public information and Company announcements
we release through the London Stock Exchange can be
found on our website at https://www.impactreit.uk/.
Other stakeholder engagement
Our engagement with our other key stakeholders
is discussed in the Responsible investment and
Stakeholders sections on pages 28-33 and 50-51, and in
our Section 172(1) statement on pages 58-59.
BOARD LEADERSHIP AND COMPANY PURPOSE
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
72
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
The board and its responsibilities
The directors manage the business in line with the
Articles of Association and the Company’s investment
policy. They are responsible for our activities, including
our strategy, investment activities and reviewing the
performance of our portfolio.
The board has a schedule of matters specifically reserved
for its decision, which it reviews annually. These include:
any decision likely to have a material impact on the
Group, including financial, operational, strategic or
reputational matters;
strategic direction, objectives, budgets and forecasts,
authority levels for approving expenditure, and any
material changes to them;
starting, materially expanding, diversifying or
stopping any of our activities;
regulatory, financial and material operational policies;
changes to our capital, corporate management or
control structures;
material capital or operating expenditures, outside
predetermined criteria or the delegated authorities;
any material contract or joint venture and material
arrangements with customers or suppliers;
approving the financial statements and published
reports;
approving equity and debt fundraising;
overseeing potential conflicts of interest, as the
Investment Manager’s principals own our largest
tenant, Minster Care Group Limited;
approving new investments over £5 million that are
leased to existing tenants, and all new investments
leased to new tenants; and
approving capital improvements over £1 million.
The full set of matters reserved to the board are
available on our website at ht tps://www.impactreit.uk/
about/corporate-governanc e/
The board may delegate some functions to
its committees, the Investment Manager, the
Administrator, the Company Secretary and the
Registrar. In particular, the board has delegated
day-to-day management of the portfolio to the
Investment Manager, under the board’s supervision.
Board composition
There were no changes to board membership during
the year. On 7 December 2022, it was announced that
Rupert Barclay had decided to step down from the board
at the end of the first quarter of 2023, and that Simon
Laffin was being appointed as a non-executive director
and Chairman designate, from 1 January 2023. More
information on the process for Simon’s appointment
can be found in the Nomination Committee report on
pages 78-81.
The board comprised six non-executive directors
at the year end and seven from 1 January 2023 until
the Chairman steps down at the end of March. Their
biographies are on pages 75-77. All the directors are
deemed to be independent of the Investment Manager.
Paul Craig was not an independent director for the
majority of the year, as he was an employee of our largest
shareholder. Paul is stepping down from the board at
the AGM. The board will then comprise five independent
non-executive directors, two of which are female.
The non-executive directors provide objective,
rigorous and constructive challenge to the Investment
Manager. In doing so, they draw on their collective
skills and experience, which include 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 corporate
governance experience gained at boardroom level in a
range of other organisations.
The Chairman
The Chairman sets the agenda for board meetings,
manages the meeting timetable and ensures all the
directors can take part in an open and constructive
dialogue during meetings.
Rupert Barclay was independent on appointment
and Simon Laffin will also be independent on his
appointment as Chairman. Neither Rupert nor Simon
has any relationships that may create a conflict of
interest with shareholders.
Re-election of directors
We assume directors will serve for a minimum three-year
term, subject to annual re-election by the shareholders.
Division of responsibilities
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
73
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
All directors, other than Rupert Barclay and Paul Craig
will seek re-election at the AGM, in line with the AIC Code.
Directors’ time commitment
During the year, the Nomination Committee reviewed
each director’s commitments and concluded that their
attendance and contribution in 2022 shows they have
sufficient time to devote to the Company.
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 86-89, 90-91, 78-81 and 94-95, respectively.
The committees’ terms of reference are available on
our website at https://www.impactreit.uk/about/
corporate-governance/
During 2022, all the independent directors served on
each board committee, reflecting the links between
the committees’ work and ensuring each committee
has full knowledge of the other committees’ activities.
Simon Laffin as Chairman designate and future Chairman
has not joined the Audit Committee but will be invited
to attend. The committees formally report to the board
and present their recommendations for its decision.
The Investment Manager also has a risk committee,
which monitors our risk management framework.
Amanda Aldridge, our 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 82-85.
Director
Quarterly board
meetings
Audit
Committee
Management
Engagement
Committee
Nomination
Committee
Remuneration
Committee
Rupert Barclay (Chairman) 4/4 3/3 1/1 4/4 2/2
Rosemary Boot 4/4 3/3 1/1 4/4 2/2
Amanda Aldridge 4/4 3/3 1/1 4/4 2/2
Paul Craig 4/4 N/A N/A N/A N/A
Philip Hall 4/4 3/3 1/1 4/4 2/2
Chris Santer 4/4 3/3 1/1 4/4 2/2
Meetings and attendance
The table below shows each director’s attendance at
the scheduled board and committee meetings during
the year.
JTC attends all scheduled meetings as Secretary (see
below). Representatives of the Investment Manager,
the external auditor and other advisers are invited as
required.
The board also has an annual strategy day (see page 70)
and calls ad hoc meetings as needed, for example
to approve announcements or transactions. These
frequently involve a sub-committee, which the board
appoints as necessary. During 2022, the board held
12 ad hoc meetings (2021: 13).
Service and support
We have no employees and the Company is externally
managed by the Investment Manager, supported by
the Company Secretary and Administrator.
The Management Engagement Committee
formally reviews their performance each year and
makes recommendations to the board about their
reappointment. Further details can be found in the
Management Engagement Committee report on
pages 90-91.
DIVISION OF RESPONSIBILITIES
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
1
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
16-17, 42-49
1
Audit
Committee
See pages 86-89
1
Management
Engagement
Committee
See pages 90-91
1
Remuneration
Committee
See page 94-95
1
Nomination
Committee
See pages
78-81
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 75-77
Investors
Registrar
Computershare
2
Brokers
Winterflood
& Jefferies
2
2
3
Risk/ESG
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
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
Risk
management
Carne
2
Operational/
Strategy
3
Depositary
Indos
1 Decision-making responsibilities
2 Independent support, review and advice
3 Full Risk Committee structure and reporting on page 83
Reporting structure
74
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Administrator and Company Secretary
JTC (UK) Limited (“JTC”) is our Administrator and
Company Secretary.
As Administrator, JTC is responsible for (on the
directors’ behalf):
maintaining our books and records;
preparing our management and financial accounts;
managing our cash movements; and
calculating our Net Asset Value, in conjunction with
the Investment Manager.
As Company Secretary, JTC ensures regulatory
compliance and supports the board’s corporate
governance process and continuing obligations. In
addition, JTC liaises 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 JTC’s advice and services.
Where necessary for carrying out their duties, the
directors may seek independent professional advice
and services at the Company’s expense.
UK Alternative Investment Fund Manager
Directive (“UK AIFMD”)
The Company is an Alternative Investment Fund
for the purposes of the UK AIFMD regulation. The
Investment Manager is our AIFM.
Depositary
Indos Financial Limited is the Company’s Depositary.
DIVISION OF RESPONSIBILITIES
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
75
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Board of directors
The directors have a broad range of backgrounds, skills and experience, which enable them
to work well together in leading the Group.
Amanda Aldridge FCA
Independent Non-executive Director,
aged 60
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.
Board experience includes Headlam
Group plc, where she was a non-
executive director and chair of the audit
committee and Places for People.
She qualified as a Chartered
Accountant in 1987 and is a Fellow of
the Institute of Chartered Accountants
in England and Wales.
Other current roles
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 66
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 roles
Swallow Place Associates LLP,
2004-present, Designated Member
Rosemary Boot
Senior Independent Non-executive
Director, aged 60
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 roles
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 Transition plc,
2020-present. Senior independent
director and audit committee chair
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
76
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Paul Craig
Non-executive Director, aged 54
Appointed: 30 June 2017
Paul was a portfolio manager at
Quilter Investors, which has an interest
in the Company through funds he
manages. He has more than 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 roles
None
Philip Hall
Independent Non-executive Director,
aged 68
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 roles
None
BOARD OF DIRECTORS
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
77
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Chris Santer
Independent Non-executive Director,
aged 49
Appointed: 13 May 2021
Committees: Audit, Management
Engagement, Nomination and
Remuneration
Chris has c.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, ranging from core, value-add
and opportunistic and across sectors
including office, retail, warehouse,
residential and alternative asset classes,
especially healthcare.
Chris is the Portfolio Manager
for Schroders Capital Real Estate
Impact Fund, an investment vehicle
seeking to have positive impact on
the communities in which it invests
as well as delivering a market rate
financial return. Prior to this, Chris was
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, 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 care homes in the UK.
Chris has an MBA from Warwick
Business School and is a Member
of the Royal Institution of Chartered
Surveyors.
Other current roles
None
BOARD OF DIRECTORS
Simon Laffin
Independent Non-executive Director
and Chairman designate, aged 63
Appointed: 1 January 2023
Committees: Management
Engagement, Nomination and
Remuneration
Simon has 30 years of board experience
across a number of sectors including
real estate, previously serving as
Chairman of Assura plc, Flybe Group plc
and Hozelock Group. He has also been a
non-executive director at Watkin Jones
plc, Dentsu Group Inc, Quintain Estates
and Development plc, Aegis Group plc,
Mitchells & Butlers plc and Northern
Rock (as part of the rescue team). He
was an adviser to CVC Capital Partners
for ten years. Prior to this, he was Group
Finance & Property Director of Safeway
plc. Simon published his first book,
“Behind Closed Doors. The Boardroom:
How to Get In, Get On and Make a
Difference” last year.
He is a qualified accountant and
graduate of Cambridge University.
Other current roles
None
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Rupert Barclay,
Chairman
78
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Introduction from Rupert Barclay
During 2022, the Committee supervised the process of
recruiting a new non-executive director and Chairman
designate, following my indication that I was planning
to step down from the board at the end of the first
quarter of 2023. Rosemary Boot led this process, as our
Senior Independent Director. We were delighted to
recommend Simon Laffin’s appointment to the board.
More information about this can be found below.
We also continued our regular work on succession
planning and reviewing the board’s size, structure
and composition, as part of which we considered the
benefits of adding to the board’s diversity.
Committee membership
Rupert Barclay (Chairman)
Amanda Aldridge
Rosemary Boot
Philip Hall
Chris Santer
Simon Laffin (from 1 January 2023)
JTC attends our meetings as Secretary. We also invite
representatives of the Investment Manager or other
service providers to attend as needed.
Role
The Committee helps to ensure the board is effective
and can operate in the best interests of shareholders and
other stakeholders. Our most important functions are to:
ensure we have a formal, rigorous and transparent
procedure for appointing new directors;
lead the process for board appointments and
recommend appointments to the board;
review the board’s structure, size and composition
(including the directors’ skills, experience,
independence, knowledge and diversity) and make
recommendations to the board about any changes;
consider succession planning for directors, taking
into account the Company’s challenges and
opportunities, and the skills and expertise the board
will need;
review the time we require from non-executive
directors, including the Chairman and SID, and
assess whether the non-executive directors are
spending enough time to fulfil their duties;
consider recommendations for annual re-election of
each director and the reappointment of directors at
the end of their term; and
assist with the annual board and committee
evaluation.
Committee meetings
We meet formally at least once a year and hold
additional meetings when required. We had four
meetings during the year, as we considered the key
steps in the director recruitment process. Committee
members’ attendance at these meetings is shown
on page 73. Set out below are the key matters we
considered at each of our meetings:
July 2022
Board and Chairman succession planning, including
the criteria we would look for in a candidate and
potential external search consultancies
Audit Committee composition
August 2022
Proposals from external search consultancies, as a
result of which we agreed to appoint Fidelio Partners
October 2022
Results of the 2022 board and committee evaluation
(see below)
Shortlisting and interview process for director
recruitment
Board structure, size and composition
Succession planning
Board diversity
Board training
Reappointment of directors at the next AGM
November 2022
Decision to recommend to the board the
appointment of Simon Laffin, which was approved
by the board in December 2022, following discussion
of candidates interviewed for the role.
Committee terms of reference
There were no changes to our terms of reference
during 2022. The terms of reference of all board
committees are available on our website at: https://
www.impactreit.uk/about/corporate-governance/
Nomination Committee report
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
79
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Board evaluation
This was the second year of our three-year evaluation
cycle and we therefore undertook an internal
evaluation of the board and its committees. This
involved a questionnaire on board-level topics, reviews
specific to each committee, and self-assessments by
the directors. I reviewed the results, which we then
discussed at the Nomination Committee meeting in
October 2022.
The evaluation showed that the board continued to
function well, with a “robust but respectful” board
dynamic. The areas for further development that we
identified were:
improvements to meeting papers, including the
timeliness of their distribution to the board;
the potential for greater delegation to the
Investment Manager;
a further increase in the board’s strategic focus,
including implementing strategic KPIs; and
further increasing our focus on ESG.
We will report on our progress with these topics in the
2023 Annual Report.
At an individual level, the evaluation showed that all
the directors were performing well and were making
robust contributions to the board and its committees.
I discussed individual feedback with the other
directors.
NOMINATION COMMITTEE REPORT
Progress with 2021 evaluation recommendations
Last year’s board evaluation produced the following recommendations, which we have acted on during the year:
Recommendation Action
Continue to concentrate on the Company’s strategy. The board has continued to focus on strategy, in particular
through the annual strategy day (see page 70), as well as
through discussions of strategic topics at regular board
meetings.
Increase the length of board meetings, to accommodate an
increasing workload.
We have increased meeting lengths, to ensure sufficient
time to complete the agenda.
Consider key tenant relationships in greater depth. The board had continued its programme of holding calls
with tenants during the year (see pages 50-51), and monitors
tenant performance on a regular basis. The Group adopts
tenant-specific strategies where required, for example
working with a tenant to grow the number of homes it
operates, thereby increasing its resilience, spreading risk and
generating economies of scale.
Consider the Company’s long-term resilience. The board has considered the Company’s resilience
as part of:
its ongoing oversight of strategy;
Portfolio obsolescence and climate change;
the annual budgeting process;
its consideration of the Group’s financing, including its
debt strategy and hedging; and
when reviewing and approving transactions, with a focus
on growing and further diversifying the portfolio and
tenant base.
Allocate more time to reviewing purpose, values and culture. The board reviewed our culture, purpose and values during
the year and asked the Investment Manager to consider
how ESG should be more explicitly taken into account in our
purpose.
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOMINATION COMMITTEE REPORT
Succession planning
In addition to recruiting my successor as Chairman
of the board, the Committee continued to consider
the broader issue of succession planning for the
directors. Including me, four of the directors joined the
board around the time of the IPO and our succession
planning over recent years has considered the need
to introduce more variability into appointment dates.
Simon Laffin’s recruitment further increases the
stagger of appointment dates, following Chris Santer’s
appointment to the board in 2021. With Paul Craig
stepping down from the board at the AGM as part of
our succession planning, following the AGM only two
directors will have been in place since the IPO.
Recruitment of new non-executive director
and Chairman designate
During the year, I told the board that after six years as
Chairman, I was considering stepping down in 2023.
Under Rosemary Boot’s leadership, the Committee
began the search for a new non-executive director,
who would be able to take on the role of Chair once
I left the board.
The Committee considered the criteria we would like
in candidates, including experience in the property
industry, mergers and acquisitions and with ESG, and
their readiness to assume the role of Chairman, based
on a track record of being a senior non-executive
director at listed property companies. We determined
that diversity was very important but that we would
make the appointment based on the candidates’ fit
with our criteria and their overall merit.
We sought proposals from four suitably qualified
external search consultancies. After reviewing their
proposals, including their understanding of our brief,
experience in the sector, diversity and ESG credentials,
indicative candidate profiles, team quality, approach,
timescale and fees, we agreed to appoint Fidelio Partners
to conduct the search. Fidelio Partners has no other
connection with the Company or with any director.
Following our review of the list of candidates, we
selected five for interview and three for second
interview. After considering their performance at
interview and their fit with the rest of the board and
with the Investment Manager, we chose to proceed
with Simon Laffin’s appointment, which was supported
by the board with appointment from 1 January 2023.
The Company Secretary has organised Simon’s
induction. He has been provided with the Company’s
key constitutional documents, an introduction and
briefing session with the Company Secretary, a
half-day review of the Company’s portfolio, financial
management framework and historic performance
with the Investment Manager, and a briefing session
with me as the outgoing Chairman. Simon also intends
to conduct some care home visits during the year, to
familiarise himself with the Company’s assets and
key tenants.
Training and development
To support their continuing professional development,
we offer the directors a range of training and
development opportunities each year. During 2022, the
directors received training in continuing obligations,
UK Market Abuse Regulations, inside information and
insider dealing and directors’ duties. The board also
expects to receive training on key developments in the
healthcare industry.
Board composition and diversity
We reviewed the board’s structure, diversity and
balance of skills and experience. This included
assessing the board’s skills matrix and the board
compositions of our peer group. As a result of this
work, we concluded that the board’s size, skills and
experience remained appropriate for achieving our
purpose and strategy.
At the same time, we are aware of the benefits of
adding to the board’s diversity. 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. During the year, we reviewed our
diversity policy, which remained unchanged.
Diversity was an important consideration in our recent
recruitment process for a new Chair. The shortlist of
three included one female candidate. When making
future appointments to the board, we will continue
to emphasise the importance of diversity and will be
seeking to ensure the board composition complies
with the new Listing Rule targets in relation to gender
and minority ethnic representation.
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At the year end, one third of the directors were
female and we had no directors from a minority
ethnic background. After the upcoming Annual
General Meeting, the board will comprise five
members of which two are female, meeting the
at least 40% expectation. Our Senior Independent
Director is female.
Committee effectiveness
The board and committee evaluation showed that the
Nomination Committee continues to function well,
with the main recommendations relating to planning
and preparation for committee meetings.
Rupert Barclay Committee Chairman
27 March 2023
NOMINATION COMMITTEE REPORT
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Audit, risk and internal control
Overview
The directors are responsible for maintaining our
system of internal control and risk management, in
order to safeguard our assets. This system is designed
to identify, manage and mitigate the financial,
operational and compliance risks we face, and to
manage rather than eliminate the risk of failing to
achieve our business objectives. As such, it can
provide reasonable but not absolute assurance against
material misstatement or loss.
Risk profile
Our principal risks and uncertainties are set out on
pages 52-57. The directors have performed robust
reviews of our principal and emerging risks during the
year, with the Investment Manager’s support. We also
consider our principal risks in the context of the UK
AIFMD, which sets out certain categories of risk that
the Investment Manager must take into account, in
monitoring and managing risk on our behalf.
The risk register details our principal risks and our
mitigations to control them. It measures each risk’s
inherent likelihood and impact, and their residual
likelihood and impact assuming our controls operate
effectively. The board updates and approves the risk
register at least annually.
Having assessed our principal risks, the board has
procedures in place to ensure that we monitor and
manage risks on an ongoing basis and that it receives
adequate assurance that our systems and controls are
operating effectively (see Risk processes below).
Risk appetite
Our risk appetite reflects the risks the board is willing
to take, in order to successfully implement our strategy
and achieve our investment objectives, as set out on
pages 24-25. We continued to review and update our
risk appetite framework during the year, as well as
assessing our current and past compliance with our
risk appetite.
Risk processes
Our risk governance structure is summarised below:
Board
Has ultimate responsibility for our risk management
and internal control.
Audit Committee
Has delegated responsibility from the board for
monitoring compliance with internal financial controls,
reviewing our risk management framework and
reviewing our external reporting on risks and internal
control.
Management Engagement Committee
Has delegated responsibility from the board for
assessing the competence of our service providers
and, by extension, their ability to monitor and control
risk on our behalf.
Investment Manager
Performs portfolio and risk management functions
on our behalf. 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 carry out risk management on its behalf.
Risk Committee
Oversees risk management and controls. The
Committee’s members include the Audit Committee
Chair and representatives from the Investment
Manager, the Administrator and Carne. Its remit
includes reviewing and updating our risk register,
ensuring risks stay within tolerance, stress and
scenario testing, and monitoring our regulatory
compliance. It reports by exception to the board and
the Audit Committee.
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Service providers
We expect our service providers to monitor their own internal control systems, to ensure they properly manage
risk when performing services for us.
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 review
REIT status
ESG and climate change
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
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AUDIT, RISK AND INTERNAL CONTROL
Responsibilities for managing risk
The responsibilities for managing risk are
summarised below:
1. Board responsibilities
Quarterly review of Company liquidity
Semi-annual assessment of our principal risks and
consideration of emerging risks
Reviewed the climate change related risks and
opportunities and the net zero targets and delivery
plan
Assessment and articulation of our risk appetite
2. Audit Committee responsibilities
Keep our internal financial controls and internal
control and risk management systems under review,
through reports from the Risk Committee, report
exceptions to the board and follow-up queries with
the Risk Committee
Annual review of the 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 or board as
necessary
4. Risk Committee responsibilities
Identify key and emerging risks facing the business
and the controls to mitigate those risks (documented
in the risk register)
Assess the materiality of each risk, according to its
likelihood and potential impact (documented in the
risk register)
Assess control effectiveness each quarter, via
reporting on key risks by the Investment Manager,
Administrator, Registrar and Depositary
Agree actions for risks that are outside our tolerance,
ensure that risk events, errors and breaches are
appropriately remedied, and that controls are
enhanced to prevent reoccurrence
Review risks to our business model, future
performance, solvency or liquidity, in the context of
going concern and long-term viability statements
Review counterparty credit risk, with reference to our
financing arrangements and policies
Review regulatory risk via the Administrator’s
compliance monitoring and the Investment Manager’s
monitoring of the REIT conditions monitoring
Assess service provider risk via Service Organisation
Control reports and due diligence reviews
5. Compliance monitoring responsibilities
JTC, as Administrator and Company Secretary,
monitors our compliance with the UK Listing Rules
and the Disclosure Guidance and Transparency Rules
The Investment Manager monitors our compliance
with the qualifying conditions set out in the UK REIT
rules (Corporation Tax Act 2010)
6. Depositary monitoring responsibilities
Indos Financial Limited, as Depositary, reviews risks
relevant to the depositary function in accordance
with the requirements of UK AIFMD. This includes
verification of assets, payment of expenses, leverage
limits, investment restrictions, cash flow monitoring
and good title to assets
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
were in place for the year under review and remained
in place up to the date of approval of the annual report
and accounts.
Our 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 our conflicts
policy.
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In addition, the board has a Financial Position &
Prospects Procedures board memorandum, which the
Audit Committee reviews annually and updates when
required. This sets out our procedures for identifying
the information needed to monitor the business and
manage risk, so we can make proper judgements on
our financial position and prospects. It also details
our procedures to identify, assess and document the
risk factors likely to affect our financial position and
prospects and any changes, and the preparation and
communication to the directors of related information.
This was last reviewed at the Audit Committee
meeting in November 2022.
The Risk Committee addresses changes to our internal
controls, or controls to respond to changing risks, and
escalates 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 our 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 Audit Committee received reports
from the Investment Manager and the Administrator
that summarises their internal controls as applied
to managing our Company and overseeing the
administration, which primarily relate to segregation
of duties, including who provides cover if particular
individuals are unavailable. The directors have also
received bridging letters from service providers to
provide assurance that their controls continued to
operate effectively throughout the period under review,
where the service providers’ own review of their internal
controls is not coterminous with our reporting period.
Financial reporting
We have internal control and risk management
arrangements relating to our financial reporting
processes and preparing our consolidated accounts, with
the Investment Manager and Administrator’s support.
We have established and documented our internal
management reporting and external statutory reporting
timetables and delivery requirements. The Administrator
controls these and communicates them regularly.
The arrangements include the Administrator’s
procedures to maintain records that accurately and
fairly reflect transactions. The Investment Manager
reviews and comments on the records, to confirm the
appropriate treatment.
Where we are adopting new reporting standards or
financial reporting approaches, due to either changing
regulation or new contractual arrangements, the
Administrator, in collaboration with the Investment
Manager, prepares an assessment of this treatment
and discusses it with the Audit Committee. Where
required, third-party advisers are consulted. This
enables us to prepare 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 by the Administrator, in collaboration
with the Investment Manager, with appropriate
monitoring internally and by the Audit Committee.
We monitor our ongoing financial performance
through the Administrator reporting regularly to the
Investment Manager, with performance then reported
to the board.
We regulate our capital investment and all revenue
expenditure through our budget process and
authorisation levels. The Investment Manager prepares
a budget, which the board approves annually, and
the board receives quarterly reports of performance
against budget. 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 risk management and internal
control
The board has a continuing process for identifying,
evaluating and managing the risks we face and
reviewing the effectiveness of our internal control
systems. The formal statement on the annual review is
on page 68.
AUDIT, RISK AND INTERNAL CONTROL
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Amanda Aldridge,
Committee Chairman
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Audit Committee report
Introduction
I’m delighted to present the Committee’s report for the
year ended 31 December 2022.
During the year, we continued to play a key role in
the Group’s governance. Our main activities included
monitoring and reviewing the integrity of financial
information and the quality and effectiveness of the
external audit, as well as challenging and overseeing
the Group’s risk management processes and internal
control framework. We also monitored how higher
inflation and rising interest rates affected the Group’s
principal risks and uncertainties and our assessment
of going concern and viability, as well as the continued
effects of the global pandemic.
The Risk Committee’s role in the risk management
framework is described on pages 84-85. During the year
I attended this Committee’s meetings and this gives
me first-hand experience of the detailed assurance
that underpins our risk management framework.
My report below summarises the Audit Committee’s
key activities during the year and gives more detail on
each area of our work.
Committee membership
I chaired the Committee throughout the year and
Rupert Barclay, Rosemary Boot, Philip Hall and Chris
Santer were Committee members throughout the year.
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 experience from our other board
directorships. Committee members keep up to date
with financial accounting developments by attending
technical update courses. Rupert and I are chartered
accountants.
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.
The Chairman of the board, Rupert Barclay, has been
a member of the Committee since the IPO, and the
Committee considers this to be appropriate due to
his accounting background and knowledge of the
business and given the board’s size and composition.
Following Chris Santer joining the board and the
Committee in 2021, which increased the number
of Committee members to five, the Nomination
Committee decided that we will not replace Rupert as
a Committee member when he retires from the board.
We will invite Simon Laffin, our Chairman designate,
to attend Committee meetings rather than be a
Committee member. This reflects best practice under
the Code.
Relevant experience and competence
Amanda Aldridge FCA: audit and advisory partner at
KPMG for 20 years; experience of chairing the audit
committee at two other listed companies and chairing
the audit and risk committee at a government body;
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.
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;
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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 page 61);
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 three times during 2022 and attendance is set
out on page 73. Our meetings were the right length
to allow us to consider all the important matters and
we were satisfied that we received full and timely
information, so we could fulfil our obligations.
Representatives of the Investment Manager, the
Company Secretary and the auditor (BDO LLP) also
attended our meetings.
A sub-committee of the Audit Committee met with
our valuer, Cushman & Wakefield (CW), in January
2022, prior to publishing the 31 December 2021 NAV,
and in January 2023, prior to publishing the
31 December 2022 NAV, to discuss the respective
31 December valuations in detail. CW also attended
the August Committee meeting, to discuss the
June valuation.
I had several discussions with the Investment
Manager’s Finance Director and the external auditor,
to ensure they delivered the services we required and
were well placed to hold a constructive discussion
with the Committee. The Committee also met with the
external auditor twice during the year, without other
parties present.
Terms of reference
We reviewed the Committee’s terms of reference
and concluded that we did not need to make any
significant changes. The terms of reference are
available on our website at ht tps://www.impactreit.uk/
about/corporate-governanc e/
Financial reporting and significant judgements
One of our key responsibilities is to consider significant
areas of complexity in the financial statements, and the
judgements and estimations made in preparing them.
We received reports and recommendations from the
Investment Manager and the auditor, setting out the
significant areas. We discussed the judgements and
estimations with the Investment Manager during the
year and with the auditor, both when we reviewed and
agreed the Group audit plan and when the audit team
presented its findings from the year-end audit.
The section below describes how we concluded
that the significant judgements and estimates were
appropriate.
Valuation of property portfolio
CW valued the property portfolio as at the end of
each quarter in 2022. We discussed the half-year
valuation with the valuers at the August Audit
Committee meeting. Before the Company published
its unaudited 31 December 2022 NAV, in January 2023,
a sub-committee of the Audit Committee discussed
CW’s approach to valuing the assets, the assumptions
underlying the property valuations and the valuation
of individual properties highlighted by the valuer and
raised by Committee members. We discussed the
number of properties CW inspected and were pleased
to hear that it had caught up with the backlog of
inspections caused by the pandemic. We also asked
CW to confirm that neither the Company nor the
Investment Manager had applied undue influence in
reaching its conclusion.
We and the auditor discussed its review of the valuation,
referred to in the Independent Auditor’s report on
pages 101-108. The auditor’s methodology included
meeting the valuer, assessing its independence,
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assessing the valuation for each property against
the auditor’s expected range of values (based on
its experience and externally available metrics) and
agreeing the valuation inputs to source documentation.
The Committee was satisfied that the judgements and
estimates underlying the valuation reflected in the
accounts were appropriate.
Put and call options
The Committee also discussed with CW its valuation
of the properties underlying the put and call options
and satisfied itself that the judgements and estimates
underlying the valuation were appropriate.
We also considered some other areas of accounting
and reporting during the year, specifically: (i) adjusted
earnings per share, (ii) accounting for finance income
and (iii) TCFD reporting requirements.
(i) Adjusted earnings per share
We considered the implications of reporting adjusted
earnings per share that are different to IFRS and EPRA
calculations. We reviewed the reported adjusted
earnings, to ensure they reflect the Company’s
underlying sustainable cash earnings, and satisfied
ourselves that it was appropriate to disclose the non-
statutory earnings per share measure.
(ii) Accounting for finance income
In December 2021, the Group invested in a portfolio
of 12 care homes through a loan to the tenant, with
an option to acquire the properties once regulatory
approvals are received. While the loan is in place, the
income the Company receives is properly accounted
for as finance income. We received a presentation
on and discussed the accounting policy for finance
income during the year.
(iii) TCFD disclosures
Although the Group is not required to report under
TCFD until 2023, we have chosen to start doing so
from this year. The Committee reviewed the relevant
disclosures and ensured that they were consistent with
information presented to the board by the Investment
Manager.
Fair, balanced and understandable statement
Producing and auditing the Company’s annual report
and accounts is a comprehensive process, with input
from a range of contributors including the Investment
Manager, external consultants and the board. To reach
a conclusion on whether the Company’s annual report
and accounts, taken as a whole, are fair, balanced
and understandable, as required under the AIC Code,
the board asked the Audit Committee to advise on
whether we considered that the annual report fulfilled
these requirements. We considered the detailed
reviews undertaken at various stages of the production
process by the Investment Manager, Administrator,
external 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, which we thoroughly
scrutinised and discussed.
We also sought additional comfort from the
Investment Manager and Administrator, by asking
them to provide representation letters in relation to
the conclusion of the board.
As a result of this work, we have concluded and
reported to the board that the annual report and
accounts for the year ended 31 December 2022, 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 68.
Review of risk framework and internal control
The board has ultimate responsibility for effectively
managing risk for the Group, including determining
its risk appetite and identifying key strategic and
emerging risks. Pages 52-57 provide an overview
of the risk management process and the principal
risks and uncertainties identified. The Risk Committee
(see pages 84-85) acts as a governance body,
overseeing, reviewing and challenging the risk
management processes.
Internal audit
The Committee discussed the need for an internal
audit function. The Investment Manager and the
external auditor provided input for our debate and
we considered the assurance received from third
parties under the risk management framework. We
decided that there was no current need for an internal
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audit, as the work of the Risk Committee and the
compliance work by the Investment Manager over
tenants satisfied us that the internal controls and risk
management were adequate and effective.
External auditor
The Company appointed BDO as auditor after 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. Until then, we will continue
to monitor the auditor’s performance and make
any appropriate recommendations. Under current
professional standards, the lead audit partner will
change every five years and, as I indicated in my report
last year, Charles Ellis has taken over as lead audit
partner for the 2022 financial year. I am satisfied that
Charles 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 additional requirements for auditors
in relation to ISA 315, Identifying and Assessing the
Risks of Material Misstatement. We also discussed
BDO’s analysis of the valuation, involving its in-house
valuation specialists and review of independent
market data, and held separate meetings to discuss
the valuation with CW.
We considered the audit timetable and our ability to
deliver the audit workstreams, to satisfy ourselves
that the timetable was appropriate for meeting the
reporting requirements for the 2022 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 we 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 that we considered
them independent of the Company.
We discussed BDO’s effectiveness as auditor, with
input from the Investment Manager, and 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 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
We authorised £82,000 of non-audit fees in the year,
in relation to the agreed procedures for the Company’s
interim report and reporting accountant role (2021:
£14,100).
Total audit fees for the period were £279,600 and
non-audit fees were £82,000. Non-audit fees as a
percentage of audit fees were 29.3% (2021: 7.0%).
Committee evaluation
A detailed and rigorous external evaluation of the
Committee was undertaken as part of the overall
board evaluation. This found that the Committee
is working well and the skills and experience of
the members is appropriate for their roles. We will
continue to concentrate on personal development and
training for Committee members, as the regulatory
focus on audit and audit committees increases.
Amanda Aldridge Committee Chairman
27 March 2023
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Rupert Barclay,
Committee Chairman
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Introduction from Rupert Barclay
This year, the Committee’s main focus was on the
performance of the Investment Manager and other key
service providers, and ensuring the Company received
appropriate service and value for money.
Committee membership
Rupert Barclay (Chairman)
Amanda Aldridge
Rosemary Boot
Philip Hall
Chris Santer
Simon Laffin (from 1 January 2023)
All the Committee members are independent of the
Investment Manager.
Role
The Committee’s most important function is to
conduct an annual review of:
the Investment Manager’s compliance with
our investment policy, when sourcing potential
investments;
the Investment Manager’s compliance with the
Investment Management Agreement; and
the performance of the Company’s other key service
providers.
Committee meetings
We meet formally at least once a year or as required.
We held one meeting in 2022. The Committee
members’ attendance is set out on page 73.
JTC attends our meetings as Secretary and we also
invite representatives of the Investment Manager to
attend. Neither JTC nor the Investment Manager are
present when we are discussing their performance.
Terms of reference
We reviewed our terms of reference during the year
and made only minor changes to ensure consistency.
The board approves terms of reference for all the board
committees and they are available on our website
at: https://www.impactreit.uk/about/corpo rate-
governance/
Investment Manager
Impact Health Partners LLP is our Investment
Manager. Under the terms of the Investment
Management Agreement (IMA), it provides advisory
and management services to us that include ongoing
portfolio monitoring, asset management and sourcing
investment opportunities.
The IMA imposes restrictions on the Investment
Manager and its associates from acquiring, developing,
leasing or operating residential healthcare services
without the prior written consent of the Company. This
ensures the board can effectively manage any potential
conflict of interest, given that one of the Investment
Manager’s Managing Partners owns Minster Care Group
Limited, which is our largest tenant.
The IMA also:
a) grants us pre-emption rights in respect of any
investment opportunities within our investment
policy, of which the Investment Manager or its
associates become aware;
b) grants us the right to terminate the agreement if:
any tenant in which any principal of the
Investment Manager (from time to time) has a
beneficial interest, fails to pay rent or any other
sums due under the leases in excess of £50,000; or
any tenant, in which any principal of the Investment
Manager or any of its associates (from time to time)
has a beneficial interest, is wound up or liquidated;
the financial report provided to us 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;
c) grants us the right to seek advice from a third-party
property adviser, when the Investment Manager is
conflicted; and
d) 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.
Management Engagement
Committee report
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Either party may terminate the IMA on 12 months’
notice or immediately in certain circumstances, such
as a material breach that is not remedied.
Review of performance
The Committee reviewed the Investment Manager’s
performance. Our view was that the Investment
Manager was performing well, and in particular that
it had delivered good financial, debt management
and share price performance. We also noted some
areas for the Investment Manager to address,
including introducing more strategic KPIs to support
management of the business, and progressing our
asset management and ESG agendas.
As part of our review, we considered the Investment
Manager’s staffing relative to its workload. We were
pleased to note the number of senior appointments
at the Investment Manager during the year and its
plans to continue to add to its team, to ensure the
management had sufficient support as the Company
continued to grow.
Following this review, we determined that it was
in 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 IMA, the Investment Manager is entitled to
a management fee and reimbursement of reasonable
expenses.
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 each quarter.
The Investment Manager is also paid £95,000 per
annum to cover the incremental costs of providing
services as AIFM.
We reviewed these fee arrangements, compared
them with similar REITs and concluded that they were
reasonable.
Administrator and Company Secretary
JTC (UK) Limited (“JTC”) is our Administrator and
Company Secretary.
Under the Administration and Company Secretarial
Services Agreement, JTC is entitled to an annual fee
of £140,000 as Administrator.
Either party can terminate the agreement on at
least three months’ written notice, or immediately
in circumstances such as a material breach or the
insolvency of a party.
Review of performance
The Committee discussed JTC’s performance as
both Administrator and as Company Secretary. The
Chairman has provided JTC with feedback following
the Committee’s review. The Committee, supported
by the Investment Manager, will continue to monitor
the performance of the Administrator and Company
Secretary to ensure that service levels are maintained.
The Committee concluded that JTC’s performance was
satisfactory and that its appointment as Administrator
and Company Secretary should continue.
Review of other service providers
The Committee reviewed the service level of our
other service providers. We concluded that their
performance was satisfactory and their appointments
should continue.
Committee effectiveness
The board and committee evaluation showed that
the Management Engagement Committee continues
to function well. The main recommendation was to
consider each year whether we should obtain an
independent review of the Investment Manager and
other service providers.
Rupert Barclay Committee Chairman
27 March 2023
MANAGEMENT ENGAGEMENT COMMITTEE REPORT
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Rosemary Boot,
Committee Chairman
92
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Annual statement
During the year, we continued to focus on ensuring
that our approach to remuneration enables the
Company to attract and retain the skilled and
experienced board members it needs to successfully
implement its strategy and achieve its objectives.
Our 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. In going through the process of recruiting
a new Chair, we identified that our directors’ fees
would benefit from an independent review for the
first time since the IPO in March 2017.
As a result, the Committee commissioned Fidelio
Partners to conduct an independent review of
the directors’ remuneration. Having considered
Fidelio Partners’ report, the range of fees paid at
comparable companies across the market and the
time the directors spent on both planned and ad hoc
meetings, we concluded that with effect from
1 January 2023, we should increase the Chairman’s
fee from £48,500 to £60,000 and the fee for the non-
executive directors from £35,000 to £40,000, with
an extra £6,000 for the Audit Committee Chair. We
believe these fees appropriately reflect the directors’
responsibilities and workload and support our
succession planning for the board, while remaining
within the range of comparable peer companies.
As required by the AIC Code, each director abstained
from the decision on his or her 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 2022.
Directors’ remuneration policy
Shareholders considered and approved our
remuneration policy at the AGM on 12 May 2021.
We followed this policy during 2022 and, having
reviewed it at our October 2022 meeting, we
concluded that it remains appropriate.
Our remuneration policy
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
Chairman are entitled to additional fees over and
above their normal directors’ fees, reflecting their
duties and responsibilities of these roles.
Directors’ remuneration report
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93
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
DIRECTORS’ REMUNERATION REPORT
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, each director received a fee for 2022 of £35,000.
The Chairman was paid a further £13,500 and the Audit
Committee Chair was paid a further £6,000.
Since 1 January 2023, each director receives an annual
fee of £40,000. The Chairman receives an additional
£20,000 and the Audit Committee Chair continues to
receive an additional £6,000.
Company-wide considerations
As we have no executive directors or employees,
there are no statements to make on consultations,
comparisons or pay and employment conditions
within the Company.
Recruitment
We apply the same remuneration policy for
recruitment purposes.
Statement of consideration of shareholder views
We continue to engage with shareholders on a regular
basis, including on the directors’ fees and future
remuneration policy. During the year, the Chairman of
the board and I again held calls with a number of our
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 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 2022 totalled £884 (2021: £nil).
No other remuneration or taxable benefits were paid
or payable during the period to any director.
Director 2022 2021
Rupert Barclay (Chairman) £48,500 £46,000
Rosemary Boot £35,000 £33,000
Amanda Aldridge £41,000 £38,000
Paul Craig * £35,000 £33,000
Philip Hall £35,000 £33,000
Chris Santer
†
£35,000 £20,900
* Paul Craig elected to pay all proceeds received from his directorship with the Company to
charity, while he was in full employment with Quilter. He has confirmed that the net proceeds
received for 2022 and 2021 were paid in full to charity.
† Appointed on 13 May 2021.
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.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
94
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Total shareholder return
The graph below shows our total shareholder return
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
2022
Jan MarFeb Apr May Jun Jul Aug Sep Oct Nov
Source: FTSE Russel monthly total return index/Investis
60
70
80
90
100
110
Directors’ shareholdings (audited)
We do not require the directors to own shares in
the Company. 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 – 0.00%
Paul Craig
†
66,923,191 16.53%
Philip Hall 30,000 0.01%
Chris Santer 14,137 0.00%
* Includes shareholdings of directors and persons closely associated (as defined by the EU Market
Abuse Regulation).
† These shares are held by funds owned by Quilter Investors, of which Paul Craig was Investment
Manager.
The shareholdings of the directors, other than
Paul Craig, are not significant and do not therefore
compromise their independence. Paul Craig was not
an independent director for the majority of the year,
as he was an employee of our largest shareholder.
Paul is stepping down from the board at the Annual
General Meeting, meaning that none of the directors
will have a significant interest in the Company’s shares.
Relative importance of spend on pay
The table below shows the relative importance of the
directors’ remuneration, when compared with the fee
paid to the Investment Manager and distributions to
shareholders.
Director*
2022
£m
2021
£m
Change
%
Directors’ remuneration 0.25 0.22 13.1
Investment management fee 4.58 3.86 18.7
Dividends paid to
shareholders
25.7 21.9 17.6
Statement of implementation of remuneration
policy for financial year 2022
The Committee adopted the following fees for 2022:
£48,500 for the Chairman of the board.
£35,000 for the non-executive directors.
An additional £6,000 for the Audit Committee Chair.
Committee membership
Rosemary Boot (Chair)
Amanda Aldridge
Rupert Barclay
Philip Hall
Chris Santer
Simon Laffin (from 1 January 2023)
I have experience of serving on remuneration
committees and currently serve on one other. We
benefit from the Remuneration and Nomination
Committees having the same membership, giving us
full visibility of succession planning.
DIRECTORS’ REMUNERATION REPORT
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
95
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
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 two
meetings in 2022. Attendance is set out on page 73.
JTC attends our meetings as Secretary and we 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 79.
The evaluation showed that the Committee functions
effectively and there were no significant suggestions
for improvement.
External advisers
The Committee received external advice from Fidelio
Partners during the year, as described in the annual
statement above. Fidelio Partners was appointed
following a resolution of the Committee at its meeting
in October 2022. The fee paid to Fidelio Partners for
its remuneration advice service was £7,500 on top of
its fee for search services discussed in the Nomination
Committee report. Fidelio Partners has no other
connections to the Company and the Committee is
satisfied that its advice is independent.
Statement of voting at the 2022 Annual
General Meeting
The directors’ remuneration report was subject to an
advisory vote at the AGM on 11 May 2022. The voting
outcome is shown in the table below:
Resolution to
approve directors’
remuneration
report
Votes for* 251,323,630
% 99.92
Votes against 209,371
% 0.08
Total votes validly cast 251,533,001
Total votes cast as % of issued share capital 65.21
Votes withheld
†
106,974
The directors’ remuneration policy was subject to
shareholder approval at the AGM in 2021. 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
27 March 2023
DIRECTORS’ REMUNERATION REPORT
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
96
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
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 2022.
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 4-49
Engagement with suppliers, customers and others with
business relationships with the Company, pages 50-51 and 70
Corporate governance statement, pages 64-91
Manager and service providers, pages 73-74
Directors’ names and Board of directors, pages 75-77
Directors’ and officers’ liability insurance, page 93
Directors’ interests in shares, page 94
Related-party transactions, note 22, page 134
Financial instruments, note 19, pages 131-132
Share capital, note 21, page 133
Events subsequent to the year-end date, note 28, page 137
Substantial shareholdings
As at 27 March 2023, 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 65,816,438 15.88%
Schroder & Co Limited 24,543,190 5.92%
Brooks Macdonald Asset
Management Limited 21,173,702 5.11%
Gravis Advisory Ltd 20,447,854 4.93%
Royal London Asset
Management Limited 19,918,153 4.81%
Premier Fund Managers Limited 18,326,384 4.42%
Newton Investment
Management Limited 14,356,006 3.46%
Integrated Financial Arrangements Ltd 13,899,383 3.35%
Hargreaves Lansdown Stockbrokers 12,458,683 3.01%
Based on 414,368,169 ordinary shares in issue as at
27 March 2023.
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.
Directors’ report
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
97
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
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 1.2% of the
aggregate value of the properties and is estimated
at £6.6 million on the net purchase price of assets
acquired since IPO.
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 2022, 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.
As discussed in the Responsible investment section
on pages 28-33, the Group does have the scope to
enhance the energy efficiency of its portfolio and
thereby reduce the emissions incurred by its tenants,
see GHG emission data on page 39. This year, we have
voluntarily reported against the TCFD framework on
pages 34-41 and set net zero targets for our tenants’
emissions, see page 31. In addition we continued to
report information on tenant emissions in the Group’s
annual EPRA sustainability reporting (retaining its
EPRA sBPR gold award for its 2021 submission) which
is available on our website at https://www.impactreit.
uk/about/sustainability/.
DIRECTORS’ REPORTDIRECTORS’ REPORT
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
98
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
DIRECTORS’ REPORT
Political donations
The Group made no political donations 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.
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 15.9%.
In April 2021, 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 (£34.6 million net of share
issue costs) were used to repay amounts drawn under
revolving credit facilities and to fund new investments.
In July 2022, 19,032,420 new ordinary shares were
admitted at a placing price of 117.0 pence per share,
a discount of 4.6% at the placement proposal date. The
proceeds of £22.3 million (£21.4 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 114.0 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 2023.
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.
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99
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
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 at
11:00am on 17 May 2023.
Signed on behalf of the board by
Rupert Barclay Chairman
27 March 2023
DIRECTORS’ REPORT
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
100
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Statements of responsibilities
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 96-99, 1-62, 92-95 and 64-91, 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.
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
27 March 2023
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
101
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Independent Auditor’s report
to the members of Impact Healthcare REIT plc
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 2022 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 (the ‘Group’) for the year ended 31
December 2022 which comprise the consolidated
statement of comprehensive income, the consolidated
statement of financial position, the consolidated
statement of cash flows, the consolidated statement
of changes in equity and notes to consolidated
the financial statements, the company statement
of financial position, the company statement of
changes in equity, notes to the company 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 the 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 6 years, covering the years ended 31 December
2017 to 31 December 2022. 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.
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 reverse stress
tests performed in relation to the Group’s liquidity and
loan covenant compliance.
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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% (2021: 100%) of Group profit
before tax
100% (2021:100%) of Group revenue
100% (2021: 100%) of Group total assets
Key audit
matters
2022 2021
Valuation of investment
properties
✓ ✓
Materiality Group financial statements as a whole
£6.0 million (2021: £5.14 million) based on
1% (2021: 1%) of Group 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 matters 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 13
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 13 to the
consolidated financial
statements.
The Group owns care home
investment properties
that are leased to tenant
operators underlong-
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 (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 the
Directors 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 our real estate experts, 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.
Alongside our real estate experts, 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
Directors’ influence on the valuations.
Key observations:
Based on the procedures performed, 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
2022
£m
2021
£m
2022
£m
2021
£m
Materiality 6.0 5.14 4.3 3.84
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 4.5 3.85 3.29 2.88
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.
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Specific materiality
We also determined that for any items that could
affect the calculation of 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 £1.63 million (2021 £1.37million)
for the Group. We further applied a performance
materiality level of 75% (2021: 75%) of specific
materiality to ensure that the risk of errors exceeding
specific materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would
report to them all individual audit differences in
excess of £300,000 (2021: £256,800) for the financial
statements as a whole, and in excess of £81,500 (2021:
£68,350) for specific items. We also agreed to report
differences below this threshold 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 61; and
The Directors’ explanation as to their
assessment of the Group’s prospects,
the period this assessment covers and
why the period is appropriate set out
on page 61.
Other Code
provisions
Directors' statement on fair, balanced
and understandable set out on
page 68;
Board’s confirmation that it has
carried out a robust assessment of the
emerging and principal risks set out
on page 68;
The section of the annual report that
describes the review of effectiveness
of risk management and internal
control systems set out on page 68;
and
The section describing the work
of the Audit Committee set out on
pages 86-89.
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INDEPENDENT AUDITOR’S REPORT
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.
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.
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INDEPENDENT AUDITOR’S REPORT
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:
Through our knowledge of the Group and its sector
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.
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 assessed the susceptibility of the financial
statements to material misstatement, including
fraud and considered the fraud risk areas to be
investment property valuations, and management
override of controls. Our responses to the valuation
of investment properties risk are set out in the key
audit matters 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 tested a sample of capital additions to invoice
and approved budgets to address the risk of
inappropriate or fraudulent capital improvements or
fictitious acquisition costs.
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.
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INDEPENDENT AUDITOR’S REPORT
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
statements, 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.
Charles Ellis (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor,
London, UK
27 March 2023
BDO LLP is a limited liability partnership registered
in England and Wales (with registered number
OC305127).
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
109
Financial statements
110 Consolidated statement of comprehensive income
111 Consolidated statement of financial position
112 Consolidated statement of cash flows
113 Consolidated statement of changes in equity
114 Notes to the consolidated financial statements
138 Company statement of financial position
139 Company statement of changes in equity
140 Notes to the Company financial statements
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Consolidated statement of comprehensive income
For the year ended 31 December 2022
Notes
31 December 2022
Total
£’000
31 December 2021
Total
£’000
Gross rental income 5
Insurance/service charge income 5
Insurance/service charge expense 5
(704 )
(496 )
Net rental income
Administrative and other expenses 6
(7,009 )
(5,766 )
Profit on disposal of investment properties 13
Operating profit before changes in fair value
Changes in fair value of put option
16
(1,811 )
Changes in fair value of investment properties 13 (14,456 ) 4,220
Operating profit 19,096 35,160
Finance income 8
Finance expense 9
(5,408 )
(3,264 )
Profit before tax
Tax charge on profit for the year 10
Profit and total comprehensive income (attributable to
shareholders)
Earnings per share – basic and diluted (pence) 11
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 114-137.
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Notes
31 December 2022
£’000
31 December 2021
£’000
Non‑current assets
Investment property 13
Interest rate derivatives 18, 25
Trade and other receivables 14
Total non‑current assets
Current assets
Trade and other receivables 14
Interest rate derivatives 18, 25
Cash and cash equivalents 15
Total current assets
Total assets
Current liabilities
Borrowings 17, 25
(14,814 )
Trade and other payables 16
(9,126 )
(6,703 )
Total current liabilities
(23,940 )
(6,703 )
Non‑current liabilities
Borrowings 17, 25
(122,382 )
(110,907 )
Put option 16 (1,811 ) –
Trade and other payables 16
(2,471 )
(2,641 )
Total non‑current liabilities
(126,664 )
(113,548 )
Total liabilities
(150,604 )
(120,251 )
Total net assets
Equity
Share capital 21
Share premium reserve 21
Capital reduction reserve 21
Retained earnings
Total equity
Net Asset Value per ordinary share (pence) 23
The accompanying notes to the Consolidated statement of financial position can be found on pages 114-137.
Consolidated statement of financial position
As at 31 December 2022
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Consolidated statement of cash flows
For the year ended 31 December 2022
Notes
31 December 2022
£’000
31 December 2021
£’000
Cash flows from operating activities
Profit for the year (attributable to equity shareholders)
Finance income 8
(3,200 )
(72 )
Finance expense 9
Profit on disposal of investment properties 13
(130 )
(308 )
Changes in fair value of put option 16 1,811 –
Changes in fair value of investment properties 13
(4,220 )
Net cash flow before working capital changes
Working capital changes
Increase in trade and other receivables
(5,952 )
(9,183 )
Increase in trade and other payables
Net cash flow generated from operating activities
Investing activities
Purchase of investment properties 13
(69,217 )
(26,900 )
Proceeds on sale of investment property
Acquisition costs capitalised
(2,661 )
(1,230 )
Capital improvements
(11,195 )
(1,050 )
Loan advanced to operator for portfolio acquisition
(37,500 )
Loan associated costs
(478 )
(93 )
Interest received
Net cash flow used in investing activities
(77,656 )
(65,095 )
Financing activities
Proceeds from issue of shares 21
Issue costs of ordinary share capital 21
(1,757 )
(707 )
Borrowings drawn 17, 25
Borrowings repaid 17, 25
(57,362 )
(54,507 )
Loan arrangement fees paid 25
(1,265 )
(1,844 )
Loan commitment fees paid
(628 )
(430 )
Interest payments received on interest rate derivatives 25 112 –
Interest paid on bank borrowings
(3,281 )
(1,864 )
Dividends paid to equity holders 12
(25,724 )
(21,872 )
Net cash flow generated from financing activities
Net (decrease)/increase in cash and cash equivalents for the year
Cash and cash equivalents at the start of the year
Cash and cash equivalents at the end of the year
The accompanying notes to the Consolidated statement of cash flows can be found on pages 114-137.
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113
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Consolidated statement of changes in equity
For the year ended 31 December 2022
Notes
Share capital
£’000
Share premium
£’000
Capital reduction
reserve
£’000
Retained earnings
£’000
Total
£’000
1 January 2022 3,506 305,672 24,077 60,989 394,244
Total comprehensive income – – – 16,888 16,888
Transactions with owners
Dividends paid 12 – – – (25,724 ) (25,724 )
Share issue 21 542 61,727 – – 62,269
Share issue costs 21 – (1,757 ) – – (1,757 )
31 December 2022 4,048 365,642 24,077 52,153 445,920
For the year ended 31 December 2021
Notes
Share capital
£’000
Share premium
£’000
Capital reduction
reserve
£’000
Retained earnings
£’000
Total
£’000
1 January 2021 3,189 271,362 24,077 50,893 349,521
Total comprehensive income – – – 31,968 31,968
Transactions with owners
Dividends paid 12 – – – (21,872 ) (21,872 )
Share issue 21 317 35,017 – – 35,334
Share issue costs 21 – (707 ) – – (707 )
31 December 2021 3,506 305,672 24,077 60,989 394,244
The accompanying notes to the Consolidated statement of changes in equity can be found on pages 114-137.
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Notes to the consolidated financial statements
For the year ended 31 December 2022
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115
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
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116
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
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117
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
119
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
120
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
121
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
122
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
123
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
124
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
125
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
126
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
14. Trade and other receivables
As at
31 December 2022
£’000
As at
31 December 2021
£’000
Non‑current
Rent recognised in advance of receipt
28,112
21,788
Rental lease incentive
2,519
2,660
Loan receivable
1
37,500 37,500
68,131
61,948
Current
Loan interest receivable
1
–
70
Loan associated costs
671
748
Prepayments 510 739
1,181 1,557
69,312 63,505
1 In December 2021, the Group entered into a loan agreement with the Holmes Care Group, in which the Group provided a term loan facility of £37,500,000 which bears
interest at 8.57% 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 £1 is exercisable (see note 16 for further detail).
No impairment losses have been recognised during the year (refer to note 19).
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
16. Trade and other payables
As at
31 December 2022
£’000
As at
31 December 2021
£’000
Non‑current
Rent received in advance of recognition 2,471 2,641
Put option 1,811 –
Current
Trade and other payables 3,420 2,859
Interest payable 1,149 474
Withholding tax payable – (PID Dividends) 609 505
Rental received in advance 1,949 1,427
Rental deposits 443 443
Capital improvements payable 1,556 995
9,126 6,703
13,408 9,344
To reconcile Working capital changes in 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.
On 23 December 2021, the Group entered into a loan agreement with the Holmes Care Group, in which the Group
provided a term loan facility of £37,500,000 which bears interest at 8.57% per annum. The funds were lent to
Holmes Care Group to acquire a portfolio of properties.
On the same date, put and call options were entered into between entities owned by Holmes Care Group and
Impact Property 6 Limited which, upon certain conditions being met, gives the Group the right to acquire and
Holmes Care Group the right to sell the company holding the portfolio of properties and the £37,500,000 loan
liability, to the options’ counterparty for consideration of £1.
This option becomes exercisable primarily upon Holmes Care Group receiving approval from the Care Inspectorate
to re-register the operations of the care homes into another operating entity. This is considered to be a substantive
condition to be met before the options will be exercisable and therefore management do not consider there is
any present ownership interest in the property company which may be acquired at a future date. The fair value of
the option reflects the underlying investment properties, offset by loan and interest due at the balance sheet date.
The investment properties have been valued on the same basis as the Group's investment property (see note 3 for
further detail).
17. Borrowings
A summary of the bank borrowings drawn in the period are shown below:
As at
31 December 2022
£’000
As at
31 December 2021
£’000
At the beginning of the year 114,548 76,370
Borrowings drawn in the year 85,074 92,685
Borrowings repaid in the year (57,362) (54,507)
Total bank borrowings drawn
1
142,260 114,548
1 Total bank borrowings drawn are equal to its fair value
As at 31 December 2022, the Group had £241 million (2021: £168 million) of available facilities of which £98.7 million
was undrawn (2021: £53.4 million).
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
17. Borrowings (continued)
The Group signed a £50 million five-year loan facility with Metro Bank PLC (the “Metro Facility”) on 15 June 2018;
this facility terminates on 15 June 2023. The Metro Facility initially had two elements: a term loan of £25 million
(the “Term Loan”) and a revolving credit facility of £25 million (the “RCF”). During 2022, the Group cancelled its
RCF. As at 31 December 2022, the balance of the Term Loan was £15 million (31 December 2021: £15 million) and
the cancelled RCF £nil (31 December 2021: £7.3 million).
The Metro Facility has a margin of 265 basis points over Metro Bank PLC’s published Base Lending Rate. The five-
year Term Loan can be repaid without penalty. The loan is secured against a portfolio of 16 care homes (2021: 38)
held in wholly owned Group companies (Impact Property 1 Limited (IP1) and Impact Property 2 Limited (IP2)).
These assets had a closing value per the independent valuation report of £53.9 million as at 31 December 2022
(2021: £109.4 million). The change in value from 2021 to 2022 is primarily driven by the removal of assets from the
security pool upon the cancellation of the RCF portion of the loan facility. The lender also holds charges over the
shares of the subsidiaries and intermediate holding companies.
On 23 December 2022, the Group agreed a seven-year revolving credit facility of £50 million (the “Clydesdale
Facility”) with Clydesdale Bank PLC (“Clydesdale”), replacing the £25 million revolving credit facility previously
secured with Clydesdale which was due to expire in 2024; this facility terminates on 23 December 2029.
In 2022, the Group drew down £12 million (2021: £5 million) from the Clydesdale Facility and repaid £5 million
(2021: £5 million). As at 31 December 2022, the Group had drawn £17 million (2021: £10 million) from the
Clydesdale Facility.
The Clydesdale Facility has a margin of 200 basis points over SONIA and is secured against a portfolio of
23 properties (2021: 15), 20 of which are held in a wholly owned Group company (Impact Property 3 Limited (IP3)).
These assets had a closing value per the independent valuation report of £110.9 million as at 31 December 2022
(2021: £68.7 million).
On 6 April 2020, the Group secured a three-year revolving credit facility of £50 million (the “HSBC Facility”) with
HSBC UK Bank Plc (“HSBC”) with two one-year extension options, subject to HSBC approval. On 31 October 2022,
the HSBC Facility was amended and restated to £75 million with a maturity in 2025 and a one-year extension
option. The Group drew down £35 million (2021: £15 million) from the HSBC Facility and repaid £45 million
(2021: £16 million) in 2022. As at 31 December 2022, the Group had drawn £10 million (2021: £20 million) from the
HSBC Facility.
The HSBC Facility has a margin of 200 or 205 basis points over SONIA, depending on the loan to value ratio of
the 34 properties (2021: 22) over which the Group has granted security to HSBC as security for the loan held in
a wholly owned Group company (Impact Property 4 Limited (IP4)). These assets had a closing value per the
independent valuation report of £146.8 million as at 31 December 2022 (2021: £114.1 million).
On 25 June 2021, the Group agreed a revolving credit facility of £26 million (the “NatWest Facility”) with National
Westminster Bank Plc (“NatWest”). The Group did not draw down (2021: £25 million) from the NatWest Facility
and made no repayments (2021: £nil) in 2022. As at 31 December 2022, the Group had drawn £25.3 million
(2021: £25.3 million) from the NatWest Facility.
The three-year NatWest Facility has a margin of 190 basis points per annum over SONIA and is secured against
a portfolio of 16 properties (2021: 16) which are held in a wholly owned Group company (Impact Property 7
Limited (IP7)). These assets had a closing value per the independent valuation report of £64.7 million as at
31 December 2022 (2021: £61.2 million).
On 21 December 2021, the Group agreed a long-term debt financing in the form of senior secured notes of
£75 million with two large institutional investors. The Group issued £75 million of senior secured notes (“Notes”),
comprising two tranches with a weighted average coupon of 2.967%, and a weighted average maturity of 14
years. The first tranche comprises of £37 million of Notes at a fixed coupon of 2.932% which were issued on
21 December 2021 and mature in December 2035. The second tranche comprises of £38 million of Notes at
a fixed coupon of 3.002% which were issued on 20 June 2022 and mature in June 2035. The debt is secured over
a portfolio of 21 care homes (2021: 14) held in a wholly owned Group company (Impact Property 8 Limited (IP8)).
These assets had a closing value per the independent valuation report of £128.9 million as at 31 December 2022
(2021: £82.5 million). The debt has been guaranteed by Impact Healthcare REIT plc.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
130
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
17. Borrowings (continued)
Under the covenants related to the loans the Group is required to ensure that the:
IP1 and IP2 IP3 IP4 IP7 IP8
Loan to value does not exceed 35% 50% 55% 50% 55%
Interest cover based on passing rent from the
ring-fenced properties must exceed 200% 250% 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.
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
31 December 2022
£’000
As at
31 December 2021
£’000
Borrowings drawn 142,260 114,548
Arrangement fees – brought forward (3,641) (2,157)
Arrangement fees incurred during the year (2,628) (2,444)
Amortisation of loan arrangement fees 1,205 960
Borrowings at amortised cost 137,196 110,907
Borrowings at amortised cost due within one year 14,814 –
Borrowings at amortised cost due after one year 122,382 110,907
Maturity analysis of borrowings:
As at
31 December 2022
£’000
As at
31 December 2021
£’000
Repayable within one year 15,000 –
Repayable between one and two years 25,260 22,286
Repayable between two and five years 10,000 55,262
Repayable in over five years 92,000 37,000
Total 142,260 114,548
The weighted average term of the Group’s committed facilities is 6.3 years (2021: 4.7 years).
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
131
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
132
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
133
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
134
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
135
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
136
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
137
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Company statement of financial position
As at 31 December 2022
138
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Company Registration Number: 10464966
Notes
31 December 2022
£’000
31 December 2021
£’000
Non‑current assets
Investment in subsidiaries 6
430,079
392,486
Total non‑current assets
430,079
392,486
Current assets
Trade and other receivables 7
18,862
7,828
Cash and cash equivalents 8
283
10,336
Total current assets
19,145
18,164
Total assets
449,224
410,650
Current liabilities
Trade and other payables 9
(11,720)
(25,490)
Total liabilities
(11,720)
(25,490)
Total net assets
437,504
385,160
Equity
Share capital 10
4,048
3,506
Share premium reserve 10
365,642
305,672
Capital reduction reserve 10
24,077
24,077
Retained earnings
43,737
51,905
Total equity
437,504
385,160
The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006
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 31 December 2022 amounted to £17,556,000 (2021: profit
of £36,504,000).
The financial statements were approved and authorised for issue by the board of directors on 27 March 2023 and
are signed on its behalf by:
Rupert Barclay Chairman
The accompanying notes form an integral part of these financial statements.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
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IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Notes
Share capital
£’000
Share premium
£’000
Capital reduction
reserve
£’000
Retained earnings
£’000
Total
£’000
1 January 2022 3,506 305,672 24,077 51,905 385,160
Total comprehensive income – – – 17,556 17,556
Transactions with owners
Dividends paid 5 – – – (25,724) (25,724)
Share issue 10 542 61,727 – – 62,269
Share issue costs 10 – (1,757) – – (1,757)
31 December 2022 4,048 365,642 24,077 43,737 437,504
For the year ended 31 December 2021
Notes
Share capital
£’000
Share premium
£’000
Capital reduction
reserve
£’000
Retained earnings
£’000
Total
£’000
1 January 2021 3,189 271,362 24,077 37,273 335,901
Total comprehensive income – – – 36,504 36,504
Transactions with owners
Dividends paid 5 – – – (21,872) (21,872)
Share issue 10 317 35,017 – – 35,334
Share issue costs 10 – (707) – – (707)
31 December 2021 3,506 305,672 24,077
51,905 385,160
The accompanying notes form an integral part of these financial statements.
Company statement of changes in equity
For the year ended 31 December 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
140
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
Notes to the Company financial statements
For the year ended 31 December 2022
1. Basis of preparation
General information
The financial statements for the year ended 31 December 2022, are prepared in accordance with Financial
Reporting Standard 102, the Financial Reporting Standard applicable in the United Kingdom and the Republic
of Ireland (“FRS 102”) and in accordance with the Companies Act 2006, with comparatives presented for the year
ended 31 December 2021.
Disclosure exemptions adopted
In preparing these financial statements the Company has taken advantage of all disclosure exemptions
conferred by FRS 102.
In preparing the separate financial statements of the Company, advantage has been taken of the following
disclosure exemptions available in FRS 102:
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 100%; 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 (£’000), 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 12 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 high inflationary environment and rising interest rates have been considered by the
directors. The directors have reviewed the forecasts for the Group taking into account the impact of increasing
interest rates and rising costs, as a result of inflation, on trading over the 12 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 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 12 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.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATIONSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
141
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
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 the share premium into
a distributable reserve.
Trade and other payables
Trade 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.
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
31 December 2022
£’000
Year ended
31 December 2021
£’000
UK corporation tax – –
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
142
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
5. Dividends
Details of dividends paid by the Company are included in note 12 to the consolidated financial statements.
6. Investment in subsidiaries
31 December 2022
£’000
31 December 2021
£’000
At the beginning of the year 392,486 369,371
Additions 93,425 210,135
Impairment (55,832) (187,020)
At the end of the year
430,079
392,486
The Company has the following subsidiaries:
Principal activity Country of incorporation Ownership %
Impact Property 1 Limited (“Propco 1”)* Real Estate Investment England and Wales 100
Impact Property 2 Limited (“Propco 2”)* Real Estate Investment England and Wales 100
Impact Property 3 Limited (“Propco 3”)* Real Estate Investment England and Wales 100
Impact Property 4 Limited (“Propco 4”)* Real Estate Investment England and Wales 100
Impact Property 5 Limited (“Propco 5”)* Real Estate Investment England and Wales 100
Impact Property 6 Limited (“Propco 6”)* Real Estate Investment England and Wales 100
Impact Property 7 Limited (“Propco 7”)* Real Estate Investment England and Wales 100
Impact Property 8 Limited (“Propco 8”)* Real Estate Investment England and Wales 100
Impact Property 9 Limited (“Propco 9”)* Real Estate Investment England and Wales 100
Impact Finance 1 Limited (“Finance 1”)* Financing company England and Wales 100
Impact Finance 2 Limited (“Finance 2”)* Financing company England and Wales 100
Impact Finance 3 Limited (“Finance 3”)* Financing company England and Wales 100
Impact Finance 4 Limited (“Finance 4”)* Financing company England and Wales 100
Impact Finance 5 Limited (“Finance 5”)* Financing company England and Wales 100
Impact Finance 6 Limited (“Finance 6”)* Financing company England and Wales 100
Impact Holdco 1 Limited (“Holdco 1”) Investment holding company England and Wales 100
Impact Holdco 2 Limited (“Holdco 2”) Investment holding company England and Wales 100
Impact Holdco 3 Limited (“Holdco 3”) Investment holding company England and Wales 100
Impact Holdco 4 Limited (“Holdco 4”) Investment holding company England and Wales 100
Impact Holdco 5 Limited (“Holdco 5”) Investment holding company England and Wales 100
Impact Holdco 6 Limited (“Holdco 6”)
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
Beeley (Holdings) Limited*
#
Property holding company England and Wales 100
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
143
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
6. Investment in subsidiaries (continued)
Principal activity Country of incorporation Ownership %
Hillcrest House Limited* Property holding company England and Wales 100
Springhill Properties (No.1) Limited*
#
Property holding company England and Wales 100
Carlton Hall (Lowestoft) Limited* Property holding company England and Wales 100
Abingdon Manor Care Centre Limited* Property holding company Northern Ireland 100
Larne Care Centre Limited* Property holding company
Northern Ireland 100
Larne C C Limited* Property holding company Northern Ireland 100
Eastleigh Care Group Limited* Property holding company England and Wales 100
Woodleigh Christian Care Home Limited* Property holding company England and Wales 100
Welford Bidco 2 Midco Limited* Investment holding company England and Wales 100
Welford Bidco 4 Midco Limited* Investment holding company England and Wales 100
* As at 31 December 2022 these entities were held indirectly by the Company.
#
As at 31 December 2022 these entities are in the process of winding up.
The registered address for the above subsidiaries incorporated in England and Wales is:
The Scalpel, 18th Floor, 52 Lime Street, London EC3M 7AF, England
The registered address for the above subsidiaries incorporated in Northern Ireland is:
21 Arthur Street, Belfast, BT1 4GA, Northern Ireland
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
31 December 2022
£’000
As at
31 December 2021
£’000
Loan to Group companies 18,658 7,766
Prepayments 204 62
18,862 7,828
As at 31 December 2022, there were no trade receivables past due or impaired (2021: none). Loans to subsidiaries
are interest free, repayable on demand and management expect them to be settled within the next 12 months.
8. Cash and cash equivalents
As at
31 December 2022
£’000
As at
31 December 2021
£’000
Cash and cash equivalents 283 10,336
None of the Company’s cash balances are held in restricted accounts.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATIONSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
144
IMPACT HEALTHCARE REIT PLC
ANNUAL REPORT 2022
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
9. Trade and other payables
As at
31 December 2022
£’000
As at
31 December 2021
£’000
Loan from Group companies 9,977 23,954
Trade and other payables 1,743 1,536
11,720 25,490
Loans from Group companies are unsecured, interest-free 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 21 to the consolidated financial statements.
11. Transactions with related parties
The Company has taken advantage of the exemption provided by FRS 102 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 22 of the consolidated financial statements for disclosure of related party transactions of the Group.
12. Capital commitments
There were no capital commitments held by the Company (2021: nil).
13. Contingent liabilities
On 21 December 2021, the Company guaranteed a long-term loan note issue made by its wholly owned
subsidiary. The loan notes total £75 million and mature in 2035. See note 17 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 28 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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Additional information
146 EPRA performance measures (unaudited)
149 Notes to the EPRA performance measures (unaudited)
152 Alternative performance measures
154 Our portfolio
156 AIFM statement (unaudited)
157 Investment policy
159 Glossary
160 Corporate information
161 Financial calendar
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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”)
£32.6m
8.37p per share
for the year to 31 December 2022
(for the year to 31 December 2021:
£27.4m / 8.05p)
£479.7m
118.51p per share
for the year to 31 December 2022
(for the year to 31 December 2021:
£423.7m / 120.84p per share)
£445.6m
110.08p per share
for the year to 31 December 2022
(for the year to 31 December 2021:
£394.2m / 112.41p per share)
EPRA earnings per share (p)
8.40p +[•]%
8.05
000.00
8.37
20242020 2022 20232021
7.25
8.05
EPRA net reinstatement
value
(p)
118.96p +[•]%
8.05
000.00
118.51
20242020 2022 20232021
118.04
120.84
EPRA net reinstatement
value
(p)
110.53p +[•]%
8.05
000.00
110.08
20242020 2022 20232021
109.58
112.41
Definition
Earnings from operational
activities. The EPRA calculation
removes revaluation
movements in the investment
portfolio and interest rate
derivatives, but includes rent
smoothing.
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
£440.9m
108.92p per share
for the year to 31 December 2022
(for the year to 31 December 2021:
£398.8m / 111.16p per share)
6.98%
for the year 31 December 2022 (for the
year to 31 December 2021: 6.71%)
6.98%
for the year to 31 December 2022 (for
the year to 31 December 2021: 6.71%)
EPRA net reinstatement
value
(p)
108.92p +[•]%
8.05
108.92
20242020 2022 20232021
108.91
111.16
EPRA Net Initial Yield (%)
6.98p +[•]%
0 8
6.57
000.00
6.98
2020 2022 20232021
6.57
6.71
EPRA Net Initial Yield (%)
6.98p +[•]%
0 8
6.71 000.00
6.98
20242020 2022 20232021
6.71 6.71
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
0.00%
for the year to 31 December 2022 (for
the year to 31 December 2021: 0.00%)
16.59%
for the year to 31 December 2022 (for
the year to 31 December 2021: 15.84%)
5.07%
for the year to 31 December 2022 (for
the year to 31 December 2021: 5.74%)
EPRA cost ratio (%)
16.59p +[•]%
0 20
00.00
00.00
16.59
20222020 2022 20212021
17.09
15.84
EPRA Like-for-like rental
growth
(%)
[•]p +[•]%
0 7
6.57
000.00
5.07
2020 2022 20232021
4.26
5.74
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. The EPRA cost ratio does
not include the interest income
received on the Group’s property
investments made via a loan to
operator, adjusting for this gives
a cost ratio of 15.4%.
Purpose
Growth of rental income excludes
acquisitions and disposals, but
includes increases in rent from
inflationary uplifts and rentalised
capital expenditure. This 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 2022
1. EPRA earnings per share
31 December
2022
£’000
31 December
2021
£’000
Total comprehensive income (attributable to shareholders) 16,888 31,968
Adjusted for:
Profit on disposal of investment property (130) (308)
Change in fair value of put option 1,811 –
Change in fair value of investment properties 8,103 (12,896)
Rental lease incentives (141) 2,660
Rental income arising from recognising guaranteed rent uplifts and
rental premiums 6,494 6,016
16,137 (4,528)
Change in fair value of interest rate derivatives (381) (87)
Profits to calculate EPRA earnings per share 32,644 27,353
Weighted average number of ordinary shares (basic and diluted) 390,058,661 339,761,521
EPRA earnings per share – basic and diluted 8.37p 8.05p
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 2022:
EPRA NRV
£’000
EPRA NTA
£’000
EPRA NDV
£’000
Net assets at end of year 445,919 445,919 445,919
Exclude:
Fair value of derivatives (363) (363) –
Include:
Fair value of debt 1 – – (5,064)
Transaction costs 2 34,139 – –
Net assets (per EPRA NAV measure) 479,695 445,556 440,855
Shares in issue at 31 December (basic and diluted) 404,764,329 404,764,329 404,764,329
Net assets per share (per EPRA NAV measure) 118.51p 110.08p 108.92p
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2. EPRA NAV measures (continued)
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 1 – – (4,471)
Transaction costs 2 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
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
2022
£’000
31 December
2021
£’000
Investment property – wholly owned 532,478 459,442
Less capital improvements under construction (7,535) (5,614)
Completed property portfolio 524,943 453,828
Allowance for estimated purchasers’ cost 1 33,071 28,591
Gross up completed property portfolio valuation (B) 558,014 482,419
Annualised cash passing rental income 38,932 32,353
Property outgoings (non-recoverable insurance) – –
Annualised net rents (A) 38,932 32,353
Add:
Contractual uplifts on rent-free periods of funded capital improvements – –
Topped-up net annualised rent (C) 38,932 32,353
EPRA net initial yield (A/B) 6.98% 6.71%
EPRA topped-up net initial yield (C/B) 6.98% 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 2022
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4. EPRA vacancy rate
31 December
2022
£’000
31 December
2021
£’000
Estimated rental value of vacant space – –
Estimated rental value of the whole portfolio 39,476 30,277
EPRA vacancy rate 0.00% 0.00%
5. EPRA cost ratio
31 December
2022
£’000
31 December
2021
£’000
Administrative and other expenses 7,008 5,766
Net service charge cost – –
Total costs including and excluding vacant property costs 7,008 5,766
Gross rental income 42,243 36,398
Total EPRA cost ratio (including, and excluding, direct vacancy costs) 16.59% 15.84%
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 2020.
Rent
£’000
Market value
£’000
Property portfolio as at 31 December 2020 28,713 413,338
Inflation-linked rental uplifts 740
Rental uplifts in return for capital improvements or deferred payments 932
Increase/(decrease) due to vacancy rate –
Property portfolio as at 31 December 2021 30,385 426,867
Inflation-linked rental uplifts 1,273
Rental uplifts in return for capital improvements or deferred payments 269
Increase/(decrease) due to vacancy rate –
Property portfolio as at 31 December 2022 31,926 428,104
All properties operate within the same sector, UK healthcare.
NOTES TO THE EPRA PERFORMANCE MEASURES (UNAUDITED)
For the year ended 31 December 2022
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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
2022
£’000
Year ended
31 December
2021
£’000
Opening NAV 394,244 349,521
Closing NAV 445,919 394,244
Average NAV for the year 420,082 371,883
Administrative expenses 7,008 5,766
One-off costs – –
Recurring expenses 7,008 5,766
TER 1.67% 1.55%
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
2022
Year ended
31 December
2021
Opening NAV per share (pence) 112.43 109.58
Closing NAV per share (pence) 110.17 112.43
NAV growth for the year (pence) (2.26) 2.85
Dividends per share paid in the year (pence) 6.51 6.38
Total return (pence) 4.25 9.23
Total accounting return 3.78% 8.42%
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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
2022
£’000
As at
31 December
2021
£’000
Gross debt 142,260 114,548
Gross assets 596,524 514,495
LTV 23.85% 22.26%
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
2022
£’000
As at
31 December
2021
£’000
Portfolio valuation 532,478 459,442
Investments in properties via loans to operators 36,360 37,500
Property Investments 568,838 496,942
ALTERNATIVE PERFORMANCE MEASURES
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Our portfolio
At 31 December 2022, the Group owned the homes listed in the table below:
Tenant and home Region
Acquisition
date
1
Beds
2
Capital
projects
3
Belmont Healthcare
Madeira Lodge South East Nov 2022
48
Wombwell Hall South East Nov 2022
120
Value at 31 December 2022: £13.6m
Careport
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
Riverwell Beck North West Dec 2020
60 +6
Sovereign Court
and Lodge ⁴
North East Aug 2018
60
The Grove North East Sep 2018
57
Value at 31 December 2022: £33.2m
Carlton Hall
Carlton Hall East of England Sep 2021
86
Oasis Development
Site
East of England Sep 2021
– +80
Value at 31 December 2022: £13.4m
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 2022: £69.3m
Tenant and home Region
Acquisition
date
1
Beds
2
Capital
projects
3
Electus Care
Abingdon Manor Northern Ireland Feb 2022
60
Cedarhurst Lodge Northern Ireland Dec 2020
67
Edgewater Lodge Northern Ireland Dec 2020
75
Larne Northern Ireland Feb 2022
87
Saintfield Lodge Northern Ireland Dec 2020
51
Value at 31 December 2022: £22.0m
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
Craigie House
5
Scotland Dec 2021
30
Cragielea Scotland Aug 2020
85
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 2022: £89.3m
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
Parksprings Scotland May 2019
96
Thorntree Mews Scotland May 2019
40
Wallace View Scotland May 2019
60
Value at 31 December 2022: £34.4m
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
* Croftwood Care and Minster Care are both part of Minster Care Group
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Tenant and home Region
Acquisition
date
1
Beds
2
Capital
projects
3
Minster Care *
Abbeywell West Midlands
45
Amberley South West
30
Ashgrove Yorkshire & The Humber
56
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 2022: £134.4m
NCUH NHS Trust
Reiver House North West Jun 2019
–
Surgical Unit North West Jun 2019
–
Value at 31 December 2022: £4.1m
Optima
Barham East of England Aug 2019
44
Baylham East of England Aug 2019
55
Value at 31 December 2022: £15.0m
OUR PORTFOLIO
Tenant and home Region
Acquisition
date
1
Beds
2
Capital
projects
3
Prestige Group
Merlin Manor
Care Centre 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 2022: £33.4m
Renaissance Care
Croftbank Scotland Nov 2018
68
Rosepark Scotland Nov 2018
60
Value at 31 December 2022: £12.9m
Silverline
Baillieston Scotland Aug 2022
60
Cardonald Scotland Aug 2022
35
Laurel Bank Yorkshire & The Humber Mar 2020
63
Springhill Scotland Nov 2021
61
Stobhill Scotland Aug 2022
60
The Beeches Yorkshire & The Humber Mar 2020
60
Willow Bank Yorkshire & The Humber Mar 2020
59
Value at 31 December 2022: £18.5m
Welford
Argentum Lodge South West Sep 2019
56
Baily House East Midland Jun 2022
66
Birchlands Yorkshire & The Humber Jun 2019
54
Eastleigh – East
Street & Rossiter
House South West May 2022
54
Eastleigh – Periton
Road South West May 2022
69
Eastleigh – Raleigh
Mead South West May 2022
61
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
Vale View Heights
Care Home South West Jun 2019
55
Woodleigh Christian
Care Home East Midlands Jun 2022
44
Value at 31 December 2022: £75.3m
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
* Croftwood Care and Minster Care are both part of Minster Care Group
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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 upon request.
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 19 in the financial
statements for an analysis of the Company’s liabilities
and their maturity dates at 31 December 2022.
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 82-85 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 2022 are shown below:
Leverage exposure Gross method Commitment
Maximum limit 200.0% 200.0%
Actual 126.7% 131.8%
For the purposes of (i) the EU Alternative Investment
Fund Managers Directive (Directive 2011/61/EU) (the
“EU AIFMD”); and (ii) the UK version of EU AIFMD
as it forms part of UK law by virtue of the European
Union (Withdrawal) Act 2018, and as implemented by
the Financial Conduct Authority in the UK (the “UK
AIFMD”), 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 2022 was 23.85%.
Material changes to information
Article 23 of the EU AIFMD (in respect of the marketing
of the Company in the EU) and FUND 3.2.2, 3.2.5 and
3.2.6 if the UK AIFMD (in respect of the marketing of
the Company in the UK) require certain information
to be made available to investors before they invest
(the “Required Information”) and require material
changes to the Required Information to be disclosed
to investors. An updated copy of the Company’s
disclosure schedule containing the Required
Information was published on 27 January 2022. There
have been no other material changes to the Required
Information.
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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
BREEAM: Building Research Establishment
Environmental Assessment Method
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
CRREM: Carbon Risk Real Estate Monitor
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
GHG: Greenhouse gas
ICSA: The Chartered Governance Institute
Investment Manager: Impact Health Partners LLP
IBOR: InterBank Offered Rates
IPO: Initial Public Offering
LED: Light-Emitting Diode
LTV: 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
Simon Laffin Non-executive Director and Chairman Designate (from 1 January 2023)
Chris Santer Non-executive Director
Registered office
The Scalpel
18th Floor
52 Lime Street
London
EC3M 7AF
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
H/Advisors Maitland
3 Pancras Square
London
N1C 4AG
Company Registration
Number
10464966
Website
www.impactreit.uk
Corporate information
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Financial calendar
Designed and produced by Bruce Associates
Printed in England
Announcement of full year results 28 March 2023
Annual General Meeting 17 May 2023
Half year end 30 June 2023
Announcement of half year results August 2023
Full year end 31 December 2023
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
IMPACT HEALTHCARE REIT PLC ANNUAL REPORT 2022
Impact Healthcare REIT plc
The Scalpel, 18th Floor, 52 Lime Street, London EC3M 7AF
www.impactreit.uk
We invest in care homes,
which are essential social infrastructure