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Impact
Healthcare
REIT
Investing in
UKcare homes
for everyone
2023
Annual report and financial statements
Our purpose
Our purpose is to work with
tenants to provide quality,
affordable and sustainable care
homes in order to deliveran
attractive risk adjusted return.
Our values
• We focus on the long-term
sustainability ofourbusiness.
• We are open and transparent
with our stakeholders.
• We are a dependable partner
who’strustedtodeliver.
• We combine the strengths
ofalisted companywith
entrepreneurship.
Impact Healthcare REIT plc is a specialist and
responsible owner of care homes and other
healthcare properties across the UK.
We take a long-term view
and look to generate secure
and growing income. This has
allowed us to offer attractive
and progressive dividends to
our shareholders, and the
potential for capital growth.
About us
Find us online:
www.impactreit.uk/
Contents
Strategic report
About us IFC
We’re helping to meet the growing
needforcare beds for the elderly 2
2023 in brief 4
The social need for care beds for the elderly 7
Delivering risk-adjusted returns |
Our business model 10
Putting our purpose into practice
1| Growing the business to provide
much-needed care home beds 12
2| Working with our tenants 18
3| Our focus on quality 23
4|Our focus on affordability 29
5|Increasing our sustainability 34
Risk management is integral to the
waywemanage our business 39
Financial review 43
Going concern 46
Section 172 statement 47
Governance
Our board 49
Corporate governance review 51
Working with the Investment Manager 55
Nomination committee report 57
Audit committee report 58
Directors’ remuneration report 60
Directors’ report 63
Statement of responsibilities 67
Independent auditor’s report 68
Financial statements
Consolidated statement
of comprehensive income 75
Consolidated statement
of financial position 76
Consolidated statement
of cash flows 77
Consolidated statement
of changes in equity 78
Notes to the consolidated
financial statements 79
Company statement
of financial position 98
Company statement
of changes in equity 99
Notes to the Company
financial statements 100
Additional information
Reporting against the Task Force on
Climate-Related FinancialDisclosures
framework 105
Applying the AIC Code Principles 113
EPRA performance measures 115
Notes to the EPRA performance measures 118
Alternative performance measures 121
Our portfolio 122
AIFM statement 125
Investment policy 126
How we manage risk 127
Glossary 130
Corporate information 131
Financial calendar 131
Key statistics at 31 December 2023
Properties Beds
140 +3.7% 7,721 +5.2%
2022: 135 202 2: 7, 336
Tenants
1
Portfolio valuation
14 £651.3m +14.5%
2022: 14 2022: £568.8m
2
Contracted
rent roll
3
Weighted average
unexpiredlease term
£48.8m +13.2% 20.8 years +5.6%
2022: £43.1m 2022: 19.7 years
Leases thatare
inflationlinked
Pence per share
dividendfor2023
100% 6.77p +3.5%
2022: 100% 2022: 6.54p
Assets rated EPC B or better
based on English equivalent
ratings
Tenant CQC ratings –
Good or Outstanding
57% +4% pts 80.6% +2.6% pts
2022: 53% 2022: 78.0%
1.
Includes Minster and Croftwood, which are subsidiaries of Minster Care Group, and Melrose, which is an
affiliate of Minster Care Group.
2.
Includes properties invested in via loans to operators where the Group has anoption to acquire.
3.
Contracted rent roll is a defined term in the Glossary, this includes contractual rent on temporarily varied
leases (including Melrose).
Strategic report
1
Impact Healthcare REIT plc
Annual report and financial statements 2023
The UK has an ageing population, with the
number of over 75s set to nearly double in the
next 50 years. Demand for care home beds is
therefore rising, but supply has changed little
for almost three decades. This has important
implications for the care older people
receive, as well as for our wider healthcare
system. Many thousands of older people find
themselves stuck in hospital because there
are no free care home beds or step-down care
places to take them.
Our society needs a thriving care home sector,
which can provide the care older people need
and relieve the pressure on the NHS. In short,
the care home sector is vital to the health and
wellbeing of everyone in the UK.
We’re helping to meet the growing need for care beds for the elderly
The UK needs more care
beds for the elderly
We’re a real estate company that’s deeply immersed
inthesocialinfrastructure of this country.
Our purpose and strategy reflect the need for more care beds for the elderly
Our purpose is to work with tenants to provide quality, affordable andsustainable care homes in order to deliver an attractive risk adjusted
return. This purpose and our business model determine our strategic priorities. These are to:
Grow our
business
By adding assets to the
portfolio while carefully
managing risk, so we can
invest in care home beds
for more of the people
who need them;
Work with
our tenants
To form long-term,
mutually beneficial
partnerships, so we can
grow together;
Focus on
quality
By investing in our
buildings and supporting
our tenants to provide
quality care to their
residents;
Maintain
affordability
By seeking to set initial
rents at affordable levels,
which our tenants can
afford both now and in
the long term. This in turn
helps them to charge fees
that are likely to be more
affordable to residents; and
Increase our
sustainability
By continuing to improve
our portfolio’s social
and environmental
sustainability.
See more on
pages 12 to 17
See more on
pages 18 to 22
See more on
pages 29 to 33
See more on
pages 23 to 28
See more on
pages 34 to 38
Strategic report
2
Impact Healthcare REIT plc
Annual report and financial statements 2023
We’re helping to meet the growing need for care beds for the elderly continued
We have opportunities
tocreate value
We currently own 1.7% of a highly fragmented
market. Successfully implementing our
strategy gives us substantial scope for
long-term growth. Our focus on generating
secure income from a growing portfolio allows
us to offer attractive and progressive dividends
to our shareholders, alongside the potential for
capital growth. In the process, we add value
for our tenants by helping them to grow their
businesses, so they in turn can provide high
standards of care to more people.
Impact Health Partners LLP, our Investment
Manager (IM), plays a vital role in our success.
Its senior team has decades of experience of
owning and operating healthcare real estate,
and their knowledge, skills and relationships
give us an important advantage in our market.
Strategic report
3
Impact Healthcare REIT plc
Annual report and financial statements 2023
2023 in brief
Putting our purpose into practice:
delivering attractive risk-adjusted
returns
Our objectives are to generate:
• a progressive dividend that’s fully covered by
adjusted
1
earnings per share (EPS); and
• an average total accounting return of
9.0%per annum
2
.
Achieving these goals requires us to grow
our profit, cash earnings and the value of our
assets, to produce an attractive overall return.
Despite some risks materialising in the year,
we were able to deliver our highest total
accounting return of the past five years and a
growing dividend fully covered by adjusted EPS.
Our performance highlights in 2023
included the following
•
We met our dividend target for 2023 of
6.77pence per share, with the total dividend
being 108% covered by adjusted EPS and
123% by EPRA EPS.
• The value of our property investments rose
by 4.1% on a like-for-like basis (2022: (8.1)%
like-for-like reduction). This was mainly due
to inflation-linked rental growth which
contributed to NAV per share increasing
by4.7%.
• Total accounting return improved by
over seven percentage points to 10.82%,
reflecting more stable asset values
compared with 2022
2
.
• Our dividend target for 2024 is 6.95 pence
per share, up 2.66%
2
.
Our financial performance
was robust and we
madefurther progress
withour strategy
The Group performed well in 2023, as shown below:
Dividends declared per share Adjusted EPS
1
6.77p
+3.5%
2023 6.77p
2022 6.54p
2021 6.41p
2020 6.29p
2019 6.17p
7.28p
+2.4%
2023 7.28p
202 2 7.11p
2021 6.68p
2020 5.93p
2019 5.26p
Profit before tax EPRA EPS
1,3
£48.8m
+188.8%
2023 £48.8m
2022
2021
2020
20193m
8.33p
(0.5)%
2023 8.33p
2022 8.37p
2021 8.05p
2020 7.25p
2019 6.95p
Property investments
3
Net asset value (NAV) per share
£651.3m
+14.5%
2023 £651.3m
2022 £568.8m
2021 £496.9m
2020
2019
115.38p
+4.7%
2023 115.38p
2022 110.17p
2021 112.43p
2020 109.58p
2019 106.81p
Total accounting return
3
EPRA (net) LTV
10.82%
+7.0% pts
2023 10.82%
2022
2021 8.42%
2020 8.46%
2019 9.46%
27.85%
+3.8% pts
2023 27.85%
2022 24.10%
2021 23.17%
2020
2019—
1.
Adjusted EPS strips out non-cash and one-off items. See note 11 on page 83 for the calculation.
2.
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. Total accounting return reflects
thedividend we pay and growth in the value of our assets (see page 121 for the calculation). Weexpect higher valuations to mainly result from rising rents and our asset management projects, rather than relying on wider
market improvements.
3.
For further discussion of these metrics, see page 121. EPRA alternative performance measures have been calculated in line with EPRA best practices recommendation, see pages 115 to 120.
£418.8m
£28.8m
£32.0m
£16.9m
£318.8m
17.06%
£26.3m
3.78%
Strategic report
4
Impact Healthcare REIT plc
Annual report and financial statements 2023
Putting our purpose into practice:
growing the business so we can
invest in much-needed care
homebeds
We continued to grow the portfolio during
the year, with a net increase of five homes.
Thisresulted from:
• buying a portfolio of six homes for
£56million, on a net initial yield
1
of 7%; and
• selling one non-core asset for £1.25 million,
inline with its book value.
At the year end, the key indicators of growth in
our portfolio compared to the prior year were
as follows:
Properties
140
+3.7%
2023 140
2022 135
Completed beds
7,721
+5.2%
2023 7,721
202 2 7,336
Portfolio let
100%
2023 100%
2022 100%
Contracted annual rent roll
£48.8m
+13.2%
2023 £48.8m
2022 £43.1m
Working with our tenants
We work closely with our tenants to identify
ways we can grow together, while keeping a
close eye on their financial and operational
performance. During 2023:
• higher occupancy and strong fee increases
(see below) contributed to improved financial
performance for most of our tenants;
• one tenant, Silverline, got into financial
difficulties. We took firm action and successfully
transferred their seven homes to another
tenant
2
on variable rent. Trading in these
homes has shown good signs of improvement
since the transfer. Silverline’s issues reduced our
rental income for 2023 by £1.2 million;
• we expanded our relationship with Welford,
which operates the six care homes we
bought in 2023. Welford now runs 18 of our
homes with 1,094 beds, making it one of our
largest tenants; and
• our long-term partnership approach to our
tenants is reflected in weighted average
unexpired lease term (WAULT)
3
of 20.8 years
at 31 December 2023 (31 December 2022:
19.7years), with the increase reflecting new 30
and 35-year leases entered into during 2023.
Putting our purpose into practice:
our focus on quality
Improving the quality of our assets
We continue to invest in our assets to improve
the environment for residents and staff, enable
our tenants to broaden their offer (for example,
by adding specialist dementia beds) and to
make them more environmentally sustainable.
We typically rentalise these inflation-linked
investments at 8%, which means we earn an
extra £8 in annual rent for every £100 we invest.
In 2023:
• we approved £11.7 million new asset
management projects;
• delays to some projects resulted in our actual
investment in existing asset management
projects in the year being lower than
expected, at £4.7 million; and
• at the year end, we had four projects in
the pipeline, with anticipated funding of
£9.5million over the next two to three years.
In addition to our total accounting return
and the WAULT, the quality of our portfolio
isreflected in the following metrics:
EPRA topped up net initial yield (NIY)
4
6.92%
(6) bps
2023 6.92%
2022 6.98%
Bed occupancy
88.2%
+1.6% pts
2023 88.2%
2022 86.6%
• The NIY indicates the portfolio’s ability to
generate income, in comparison to its market
value. It has improved during the year,
reflecting a general trend of larger, better
specified homes in our area of the market
seeing improvement in their valuationyield.
• Occupancy continued to recover from
the lows during the pandemic, showing
our assets remain attractive to potential
residents. We’ve seen signs that tenants are
prioritising fee increases (see below) over
filling empty beds, resulting in occupancy
remaining around half a percent below the
pre-pandemic average.
Our tenants continue to
providegoodcare
While the quality of our assets is important,
the quality of care our tenants provide to their
residents is paramount: poor care in a great
building is still poor care.
At the end of 2023, 80.6% of our homes
wererated good or outstanding by the
regulator. This was above the national average
of 79% for comparable homes
5
.
Putting our purpose into practice:
maintaining affordability
With our leases running for up to 35 years,
it’s vital that our rents remain affordable to
tenants in the long term. We therefore look to
set initial rents at sustainable levels and then
increase them only with inflation each year.
Almost all our leases set out minimum and
maximum annual increases, which are typically
2% and 4% respectively.
We monitor affordability using the following
metrics:
Rent cover
6
2.00x
+0.20x
2023 2.00x
2022 1.80x
Average rental growth
4.1%
+0% pts
2023 4.1%
2022 4.1%
Rent collection
99%
(1)% pts
2023 99%
2022 100%
2023 in brief continued
1.
The net initial yield is the annual rent generated by the assets, less non-recoverable property costs, divided
by the assets’ value.
2.
These leases were transferred to Melrose, an affiliate of a related party, Minster Care Group.
3.
The WAULT is the average unexpired lease term of the property portfolio, weighted by annual passing rents.
The passing rent is the actual rent a tenant is paying at that point in time.
4.
This is the net income from the portfolio (rent less irrecoverable property costs) divided by the total amount
a purchaser would have to pay to buy the assets (the market value plus the estimated costs the purchaser
would incur). See page 119 for the full calculation.
5.
Homes outside of England are inspected by different regulatory bodies and rated on a separate system,
inour reported metric we have aligned these ratings to those used by the CQC.
6.
Rent cover is a defined term in the Glossary, it is our tenants’ EBITDARM (earnings before interest, tax,
depreciation, amortisation, rent and management charges) divided by total annual rent. EBITDARM is a
useful approximation for our tenants’ cash earnings, which they can use to pay their rent. This has been
adjusted to exclude seven turnaround homes and one new home in build-up.
Strategic report
5
Impact Healthcare REIT plc
Annual report and financial statements 2023
Putting our purpose into practice:
maintaining affordability continued
•
Rent cover is one of our most important key
performance indicators. The increase in the
year reflects improved occupancy, and in
particular, our tenants’ ability to continue to
increase their fees in line with or ahead of
inflation. The average weekly fee across the
portfolio increased by 13.3% to £1,049 during
2023.
• Our tenants’ staff costs have benefited from
reduced agency staff use, which declined
from an average of 8.9% of their revenue
to 4.7% in the year. The rate of inflation for
other key costs such as energy and food
came down in the second half of the year.
• Rent reviews in the year increased rents by
4.1% on average, adding £1.6 million to the
contracted rent roll.
• One test to measure the sustainability of our
rents over the long life of our leases is the
percentage of their revenues our tenants
pay in rent, with anything over 15% being
potentially too high. In 2023 on average they
paid 12.6% of their revenues to us in rent,
down from 13.2% in 2022.
• We collected 99% of rent due in respect of
the year, with all tenants other than Silverline
paying in full.
Putting our purpose into practice:
increasing our sustainability
We continued to focus on improvements to the
environmental sustainability of our portfolio
with a target to achieve net zero status by
2045. During 2023, we continued to improve
the energy efficiency of homes through asset
management projects and improved energy
performance certificate (EPC)
1
ratings through
further energy efficiency projects.
We are also focusing on reducing the
carbon emissions per m
2
. During the year
these increased slightly from 50kg to 54kg
which is in part explained by the increased
occupancy over the past two years while the
improvements we are focusing on are taking
time to embed. Reducing this metric remains a
core focus, with an interim target to reduce by
15% by the end of 2025.
We also carried out “deep-dive” sustainability
surveys of six homes, to inform our net zero
delivery plan and ensure that our tenants’
businesses and the care they provide can
continue sustainably.
Carbon emissions (kg CO
2
e per m
2
)
54kg
+8%
2023 54
2022 50
EPC B and above
57%
+4% pts
2023 57%
2022 53%
Prudently financing the business
We use debt financing to support our growth
and increase returns, while making sure we
have a strong balance sheet at all times.
We use the following metrics to monitor our
financial position:
Net debt
2
£181.4m
+41.3%
2023 £181.4m
2022 £128.3m
EPRA (net) LTV
2
27.8%
+3.7% pts
2023 27.8%
2022 24.1%
During 2023 we:
• increased our revolving credit facility (RCF)
with NatWest by £24 million to £50 million,
extended the term from 2024 to 2028, and
extended the term on our £75 million RCF
with HSBC by one year to 2026;
• paid off the remaining £15 million of our
termloan with Metro Bank, which was our
most expensive debt; and
• increased our interest rate hedging by a net
£75 million.
At the year end:
• the increase in LTV during 2023 was largely
to finance the acquisition of a portfolio of six
care homes in January 2023 (see page 17).
This acquisition was accretive to earnings
during the year after taking into account
these additional financing costs;
• we had committed bank facilities of
£250million, with a weighted average term
(excluding options to extend) of 6.3 years;
• we had significant liquidity available to us,
with £65.2 million of undrawn facilities and
£9.4million of cash, against commitments of
£16.2million;
• the average cost of our drawn debt was
4.56%, with 95% of our drawn facilities fixed
or hedged against interest rate rises; and
• our LTV was well within the maximum in our
policy of 35%.
Outlook
We’re well positioned to continue to deliver
long-term sustainable returns to shareholders.
As the economy recovers from 2023’s high
inflation and interest rate rises, and as the
government sees the role that this sector can
play in both health and the economy, we
believe that we’ll see more opportunities for
growth in the future.
2023 in brief continued
1.
An EPC rates a property’s energy efficiency from A (most efficient) to G (least efficient). See page 37 for further explanation on the country level alignment of EPCs.
2.
EPRA (net) LTV is calculated using net debt to gross portfolio valuation. See page 120 for the full calculation.
Strategic report
6
Impact Healthcare REIT plc
Annual report and financial statements 2023
60,000
62,000
68,000
66,000
64,000
70,000
72,000
78,000
76,000
74,000
80,000
UK population
2024
Aged
0-14
Aged
15-29
Aged
30-44
Aged
45-59
Aged
60-74
Aged
75+
UK population
2049
69,025
148
(108)
1,217
1,952
1,532
3,568
77,334
The social need for care beds for the elderly
There are 6.5 million people aged over 75 living
in the United Kingdom in 2024. That number is
forecast to increase by 55%, to 10.1 million over the
next 25 years. The over 75s are the fastest growing
part of the UK population. These increases will
happen during the lives of our long leases.
Demand
forcarebeds
for the elderly
isrising
Demand: UK elderly population growth, 75 years + (000s)
Source: ONS.
Source: ONS.
Projected UK population aged over 75 (000s)
5,000
6,000
9,000
8,000
7,000
10,000
11,000 14.0%
13.0%
12.0%
11.0%
10.0%
9.0%
8.0%
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
Percentage of UK population aged 75+ (RHS)UK population aged over 75 (LHS)
6.5m
9.4% of
the total
population
10.1m
13.1% of
the total
population
Strategic report
7
Impact Healthcare REIT plc
Annual report and financial statements 2023
SevereModerateMild
2020
+25%
+18%
+46%
Total diagnosed
dementia cases:
907,900
Projected diagnosed
dementia cases:
1,233,400
128,400
236,900
542,600
160,900
280,400
792,100
2030
The social need for care beds for the elderly continued
Care needs are becoming
morecomplex
While rising life expectancies are good news,
the downside is that most people will spend
the last 15 years of their life with some ill health.
Around 10% of people over 80 have care needs
that make it difficult for them to live at home.
Many people end up stuck in hospital beds,
which means they’re in the wrong setting for
the type of care they need, particularly if they
have dementia, and this increases costs for the
NHS. On average during 2023 there were just
over 12,000 people in hospital every night who
had no clinical reason to be there but could
not be safely discharged. Half of those people,
nearly all of them elderly, had been waiting
more than 21 days to be discharged. This “bed
blocking” also has a knock-on effect on other
patients in the NHS, who can’t be admitted to
hospital without a vacant bed.
Since the COVID-19 pandemic, there’s evidence
that people are moving into care homes later
than before, that they’re more likely to be frail
or ill and that their stays are shorter. This is
creating a longer term shift in the industry, with
increasing demand for care providers who can
deliver higher acuity care.
Dementia is the most common acute condition
affecting people in care homes. Around 70% of
care home residents suffer from some form of
memory loss, which ranges from being mildly
confused to severe dementia. The Alzheimer’s
Society projects that the number of people
with some form of dementia in the UK will
rise from just over 900,000 in 2020, to over
1.2million in 2023, with the greatest rise being
amongst people who have a severe form of the
condition. By 2022 dementia and Alzheimer’s
diseases had already replaced heart disease
and cancer as the leading cause of death in
England and Wales.
The number of care beds isn’t
responding to demand
Despite the ageing population and rising
acuity, the number of available care beds for
elderly care has been stagnant. Between 2012
and 2021, the number of beds in nursing and
residential care homes fell from 11.3 per 100
people aged over 75 to 9.4 – a 17% decrease.
Looking at longer-term trends, an estimated
25% of over 85s lived in care homes for the
elderly in 1996. By 2017, this had fallen to 15%.
This reflects several factors, including a shift in
social care policy towards home care. It might
also reflect an element of rationing in the care
system, as many older people struggle to
access the carethey need.
Although the care home market is attractive,
for existing care homes the economics make it
difficult to create much new supply.
Construction costs have risen substantially
over the past two years, making it difficult
to deliver a high quality new care home for
less than £200,000 per bed. In contrast, an
older home with an established record for
providing good quality care can cost less than
£100,000 per bed, which we believe offers a
better risk adjusted return. Given the higher
capital costs of brand new homes, tenants
have to pay higher rents – up to 20% of their
revenues as opposed to our average of 12.6%
– which means that they in turn have to pass
these costs on by charging higher fees to their
residents. Higher fees do not automatically
translate into better quality care, which
depends more on the quality and stability of
the team than the building.
Increase in people living with dementia in the UK
Projections by the Alzheimer’s Society
Source: LangBuisson.Source: Alzheimer’s Society.
(30,000)
(20,000)
(10,000)
10,000
0
30,000
20,000
Year ending 31 March
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
10 months
to Jan 24
50,000
40,000
Total net capacity change
Beds
Capacity shake-out following
1993 community care reforms
Blair/Brown public
expenditure growth
Austerity COVID
Bed supply hasn’t increased to respond to forecast growth in demand
Strategic report
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Putting our purpose into practice
The number of care beds isn’t
responding to demand continued
Staffing rotas are highly regulated and tend to
be similar in new and older homes. The higher
fees needed by newly built care homes limit
the number of resident who can afford this,
restricting the size and growth of this segment
of the market.
Slightly older homes also offer opportunities
to add value, by updating them, adding
facilities and improving their environmental
performance, which is another reason we
favour this part of the market over new builds
(see page 13 for more on our investment
criteria).
The market is highly fragmented
There are currently just over 12,000 registered
care homes in the UK. Our market is unusually
fragmented. Over the past 15 years that
fragmentation has increased as the market
share of the top-10 care providers in the UK
has declined from a peak of 27% in 2006, to
19% in 2023. The market share of sole traders
operating one or two care homes has also
declined, from over 80% in the early 1990s, to
under 30% today.
Where there has been growth is of mid-sized
care providers operating between three and 80
homes. Developing partnerships with operators
in this space has given us the opportunity to
acquire good quality assets at attractive yields.
Government policy and funding
forcare is complicated
To put it mildly, government policy and funding
for adult social care is a complicated field.
There is no national government budget for
adult social care in England. A person’s care
needs might be met by their local authority’s
social services budget or by their local NHS
Trust, and the individual or their relatives may
also have to contribute to the cost.
Most local authorities support their adult social
care costs through a council tax levy and,
in certain situations, local authority or NHS
funding is means tested. The system is ripe
for reform, but successive governments have
failed to implement it, despite numerous white
and green papers, plus industry reports. Our
tenants are experienced at delivering care in
this complex environment while also running
sustainable businesses.
The social need for care beds for the elderly continued
Highly fragmented operator market
1.
Source: LangBuisson.
0%
20%
40%
60%
80%
23
Jan
24
2221201918171615
14
131211100908070605040302010099989796959493
92
10 largest groups All other groups (3+ care homes)
Source: LangBuisson.
Strategic report
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Putting our purpose into practice
Our business model
allowsus to generate
attractive returns,
withmanaged risk.
Delivering attractive risk-adjusted returns|Our business model
What we do
Select tenants
We have a diversified portfolio of tenants
that includes national, regional and local
businesses. When selecting a new tenant
weconsider:
• track record and financial performance;
• the strength of their business plan;
• their ability to provide high-quality care
toresidents; and
• their ability to deliver strong trading
returns over the longer term, that will
support our investment.
Identify and appraise assets
Sometimes tenants bring new opportunities
to us and sometimes we select assets we’d
like to acquire and determine which current
or new tenant will operate them. We then
check every aspect of the homes, including
reviewing their local market and the
building’s environmental sustainability. Our
disciplined approach means we can buy at
attractive prices, which are often less than
the cost of replacing the asset.
Agree leases
Our leases are typically for 25 years or
moreand balance rental growth with
ensuring rent remains affordable to tenants
(see page 30). The leases require tenants
to spend a minimum amount every year on
repairs and maintenance, and all our leases
since 2020 include “green” clauses, to help
us work with tenants on our ESG objectives.
Monitor tenants’
performance
We keep a careful watch on many aspects
of our tenants’ performance, including their
financial results and the quality of their
care, which we discuss with our tenants on
aquarterly basis.
Work with tenants to
improveour assets
We agree plans with our tenants to upgrade
and extend our homes. This makes them
better places to live and work, increases
their capacity, improves their sustainability
and can broaden their offer, for example
by adding specialist dementia beds. We
can also work with tenants to develop new
homes in areas with strong demand. These
activities increase our rent, the value of our
homes and our tenants’ revenues.
Optimise
portfolio
We regularly review our assets and
categorise them as core, value-add or
non-core. Value-add assets are candidates
for asset management. We may sell
non-core assets, so we can reinvest the
proceeds and create more value, while
improving overall portfolio quality.
More information: adding tenants and growing
with them (page 19).
More information: increasing quality by
investing inour assets (page 24).
More information: improving quality through
asset management (pages 27 and 28)
More information: choosing which assets to
buy (page 13), where we buy assets (page 14),
who funds our tenants’ residents (page 15).
More information: monitoring our tenants’
performance (page 20), monitoring the quality
of care (page 26).
More information: choosing the length of our
tenant relationships (page 20), ensuring our
tenants maintain our buildings (page 25).
We consider risk from many angles, from
ensuring our balance sheet stays strong,
to the way we pick tenants and make
sure they’re performing well, to our focus
on sustainability and creating a positive
socialimpact.
Strategic report
10
Impact Healthcare REIT plc
Annual report and financial statements 2023
Putting our purpose into practice
Delivering attractive risk-adjusted returns|Our business model continued
Our competitive advantages The value we create
Our strategy delivered by our Investment Manager is our main source
ofcompetitive advantage. Inparticular, we benefit from:
• our strategic focus on upper mid-market care homes which we can
acquire at below replacement cost with rents at affordable rates;
• the IM’s deep sector knowledge and understanding of how care
businesses work, which helps with everything from buying the right
assets to forming and maintaining supportive tenant partnerships;
• the IM’s relationships with care-home owners who might want to sell,
the agents they work with and with potential new tenants. Great
relationships and a proven track record can help us to buy assets
off-market or beat the competition even when we’re not the
highestbidder; and
• the IM’s asset management and development skills, so we can identify
how to improve a care home before we buy it, successfully complete
each project and improve returns by developing new homes.
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.
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.
Residents and their carers
Residents benefit from security, stability
and high-quality care and their carers
benefit from a stable environment in which
to receive training alongside potential
career progression in a vocational sector
supporting vulnerable members of their
community. As a landlord we seek to
support both residents and their carers
through our willingness to invest in their
homes to improve the spaces they live and
work in to create a lasting social impact.
Shareholders
Our model delivers predictable and rising
revenue, so we can pay a progressive, fully
covered dividend (see page 4). There is
also the potential for capital growth, which
supports an attractive total return.
Careful cost control enables us to benefit
from economies of scale as we grow. Many
of our costs are fixed and some variable
costs will step down as our asset value rises
(including the IM fee which reduces from
1.0% to 0.7% of NAV above £500 million).
Along with our conservative approach to
debt finance, this helps to maximise the
cash we can distribute to shareholders.
Strategic report
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Putting our purpose into practice
Beds
7,721 +5.2%
202 2: 7, 336
Properties
140 +3.7%
2022: 135
1 | Growing the
business so we
caninvest in
much-needed
care home beds
Strategic report
Putting our purpose into practice
12
Impact Healthcare REIT plc
Annual report and financial statements 2023
1 | Growing the business so we can invest in much-needed care home beds continued
Growing our
business requires
us to make
strategic choices
that influence our
returns and the
risks we face.
Strategy: choosing which assets to buy
These choices include the types of assets we
buy, where they are and how we use debt
finance tofinance our growth.
Our investment policy (see page 126) allows
us to invest in different types of healthcare
properties. Given the growing demand for care
beds for the elderly (see page 7), we’ve chosen
to focus on care homes, in particular existing
homes in the mid-market. These are attractive
to us because:
• they provide a good setting for quality care;
• they’re affordable for many more people
than high-end homes, so they have a larger
target market, which should mean fewer
unfilled beds for our tenants;
• they’re lower risk than new developments,
asthe capital cost is significantly less per bed
(see page 8) and they don’t need to build
their occupancy and staff team from scratch;
and
• they often give us scope to add value
through asset management (see page 24).
In January, we invested in a portfolio of
six homes in Shropshire and Cheshire, for
£56million. The homes have 438 high-quality
beds, a track record of strong operational
performance and good sustainability
credentials. We funded 80% in cash and the
remainder by issuing 9.6 million shares at
116.62pence per share. We made the initial
investment by lending the money to Welford,
an existing tenant of ours.
This allowed Welford to buy the companies
that owned the homes and immediately take
over running them, rather than having to wait
several months for Care Quality Commission
1
(CQC) approval to come through. This minimised
disruption for residents and made sure Welford
could focus on care. TheCQC approved the
transfer in June, allowing us to take up our
option to buy the homes from Welford and
complete the 35-year leases we’d already
agreed, at an initial rent of £3.9million a year.
Approving the completion of the deal was
one of the board’s key decisions in the year
and we describe it in detail on page 59 of the
2022 annual report. We also sell non-core
assets, as the business model explains on page
10. During 2023, we sold Mulberry Manor, a
49-bed care home in Mexborough, which we
acquired as part of the portfolio we bought
following our IPO in 2017. The home wasn’t a
strategic fit for either us or the tenant, hence it
wasn’t classified as core and we disposed of it
for £1.25million, in line with its book value. We
expect to make further disposals of non-core
assets in 2024.
The transactions in 2023 increased our
portfolio by a net five homes, from 135 at
31December2022 to 140 at the year end.
Stakeholders’ interests: long-term impact and theenvironment
We sign long leases with tenants andas
directors, we require extensive due diligence,
both before we start working with them and
careful monitoring once they’re running our
homes (see page20).
In this case the directors concluded that
Welford was a good partner for us, that the
acquisition would further strengthen both
businesses and that it was appropriate to
agree 35-year lease terms.
The directors also have a keen interest in the
assets’ sustainability and we discussed the
cost, strategy and regulations associated
with decarbonising the homes and improving
theirenergy performance certificate (EPC)
ratings and alignment with our net zero
delivery plans, before approving the acquisition.
See our Section 172 statement on page 47
1.
The CQC is the independent regulator for
health and social care in England.
Strategic report
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Putting our purpose into practice
1 | Growing the business so we can invest in much-needed care home beds continued
Strategy: where we buy assets
We manage risk by spreading the portfolio around the UK, so we don’t rely on a small number
of local markets. Most of our homes are in areas where assetprices are more attractive, there’s
strong demand for care and often less competition. Thismakes our homes an even more
important part of their local communities.
At 31 December 2023, we owned homes in the following locations:
Location
Number of
properties
2023 change
in properties Beds
2023 change
in beds
% of portfolio
market value
England
East Midlands 8 — 405 — 6.0%
East of England 9 — 547 — 10.0%
North East 12 — 767 — 8.9%
North West 33 — 1,348 +6 14.3%
South East 4 — 318 +1 6.0%
South West 10 — 537 +5 9.9%
West Midlands 14 +6 860 +440 14.1%
Yorkshire & The Humber 11 (1) 693 (49) 6.3%
Northern Ireland 5 — 340 — 3.4%
Scotland 32 — 1,805 (16) 20.4%
Wales 2 — 105 (2) 0.7%
Total 140 +5 7,721 +385
Measuring our progress
Information on our dividends and total accounting return in 2023 and our dividend target
for 2024 can be found in the 2023 in brief section on page 4. We also use the following key
performanceindicators (KPIs) to monitor our returns from the portfolio.
Profit before tax
£48.8m 2022: £16.9m
Profits have been enhanced by rental income
growing at a faster rate than expenses as shown
in the Group’s reducing cost ratios. However,
the key driver this year has been the valuation
gains reversing the fair value losses seen in the
previousperiod.
2023 £48.8m
2022 £16.9m
NAV
£478.1m 2022: £445.9m
Primarily driven by steady yields across the
portfolio with rent reviews feeding directly into
valuation growth.
2023 £478.1m
2022 £445.9m
NAV per share
115.38p 2022: 110.17p
Total NAV of the Group grew by 7.22% to
£478.1million and the NAV per share grew by
4.73% to 115.38p. The reduced growth per share
is reflective of the incremental 9.6 million shares
issued in January 2023 as part (£11.2 million) of
the consideration for the acquisition of six care
homes.
2023 115.38p
2022 110.17p
Adjusted earnings per share
7.28p 2022: 7.11p
The Group’s adjusted earnings (closely aligned
to cash profits) continued to increase in 2023
owing to inflation-linked rent reviews improving
cash revenue while administrative costs further
reduced as a percentage of income (see further
detail of cost ratios on page 43) and the Group’s
well-hedged debt position mitigated the effects
of high interest rates.
2023 7.28p
202 2 7.11p
Strategic report
14
Impact Healthcare REIT plc
Annual report and financial statements 2023
Putting our purpose into practice
1 | Growing the business so we can invest in much-needed care home beds continued
Strategy: who funds our tenants’ residents
Strategy: financing our growth How we monitor our financing
We like our portfolio to have a good balance
of funding for tenants’ residents, from local
authorities, the NHS and private pay. This helps
to make our tenants’ revenues more resilient
than relying on one source of fees and means,
we earn a predictable income from our assets.
Funding for our tenants’ fee income changed
only modestly during the year and remained
well balanced:
We can grow the portfolio more quickly and
increase returns by using an appropriate
amount of debt. We’re very aware of the risks
of having too much leverage, so our policy is to
have a maximum loan-to-value
1
(LTV) ratio of
35% at the time we drawdown the debt and to
hedge at least 75% of our drawn debt against
rising interest rates. We have also updated our
hedging policy to ensure we have adequate
hedging in place to manage the risk of interest
rate increases within our risk tolerance. At the
year end, 95% of our drawn debt was hedged
against interest rate increases.
In June, we increased our revolving credit
facility (RCF) with NatWest by £24 million to
£50 million, and extended the term from 2024
to 2028. The interest rate on this RCF is 200
basis points above SONIA. We also extended
the term of our £75 million RCF with HSBC by
one year to 2026. At the same time, we agreed
lower interest cover covenants with both banks.
Increasing the NatWest RCF enabled us to
replace the last £15 million of our loan from
Metro Bank. This was our most expensive debt,
at 265 basis points above SONIA
2
.
To manage our interest rate costs, we took out
two interest rate caps in the year. These each
hedge the cost of £50 million of debt, with the
first capping SONIA at 3.0% until January 2025
and the second capping SONIA at 4.0% until
August 2025. In June, a hedge which capped
the interest rate on £25 million of debt expired.
At the year end, we therefore had either fixed
rates or caps on £175 million of debt or 95% of
our drawn debt, in line with our policy.
You can find full information on our debt
facilities and interest costs in the financial
review on page 44.
We use the following KPIs to monitor our debt position:
Net debt
£181.4m 2022: £128.3m
The increase was predominantly due
to £44.8 million cash consideration to
acquire the portfolio of sixassets acquired
in January 2023 (see page 17 for further
detail).
2023 £181.4m
2022 £128.3m
EPRA (net) LTV
27.8% 2022: 24.1%
Increased in the year owing to an acquisition
and capital expenditure on the existing
portfolio, partially tempered by growing
portfolio valuation.
2023 27.8%
2022 24.1%
Local authorities
58.8%
2023 58.8%
2022 60.2%
Private pay
31.3%
2023 31.3%
2022 31.7%
NHS
9.9%
2023 9.9%
2022 8.1%
Source of tenant income
1.
The gross LTV is our gross debt as a percentage of our gross asset value. See page 121 for the full calculation.
2.
The interest costs on our variable rate debt are linked to an interest rate benchmark called the Sterling
Overnight Index Average (SONIA), which in turn is driven by the Bank of England’s base rate.
Strategic report
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Putting our purpose into practice
1 | Growing the business so we can invest in much-needed care home beds continued
Key board decision – refining the
dividendpolicy
Relevant stakeholders:
shareholders
Dividends are a key attraction for
shareholders in real estate investment trusts
(REITs), with the UK REIT rules requiring us to
pay out at least 90% of the profits from our
property rental business each year. Paying
an attractive and progressive dividend
is therefore one of our most important
objectives.
In 2018, the board adopted a policy of
increasing the target dividend each year in
line with the inflation-linked rental growth in
the previous year. The board reviewed this
policy in2023.
While the policy gave shareholders certainty
about dividend growth, the directors
concluded that it was in shareholders’
interests for the policy to be more flexible
andforward looking.
The board therefore agreed an updated
policy, to seek to maintain a progressive
dividend that’s covered by adjusted earnings.
Thedirectors continue to see adjusted
earnings asthe best yardstick for dividend
payments, as they more closely reflect the
Company’s cash earnings than the IFRS or
EPRA measures.
Engaging with our shareholders
andlenders
While all our stakeholders have an interest in
the growth of our business and our financial
stability, our shareholders and lenders are the
most directly affected. Our engagement with
our tenants and their residents is discussed on
pages 19 and 26 respectively.
Understanding our shareholders’
interests
The IM leads our investor relations programme
and, along with our corporate brokers,
ensuresthe board is kept well informed of
shareholder views.
The Chair also offered meetings to our largest
shareholders in the year. See page 54 in the
governance review for more information.
Understanding our lenders’
interests
The IM also regularly engages with our debt
providers, providing quarterly information that
shows we’re complying with the covenants
in our debt facilities and reporting on the
performance of the tenants and the homes the
facilities are secured against. In 2023, the IM
was in regular contact with NatWest and HSBC,
as it negotiated the increased and extended
RCFs discussed above.
During the year, the IM took the lenders to
visit several of the homes in their security pool
to provide full transparency of the intended
asset management works and environmental
criteria we are upgrading these properties to.
This regular and open engagement with our
lenders, along with improved familiarity with
the properties, has allowed us to increase and
extend these facilities efficiently.
Strategic report
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Putting our purpose into practice
1 | Growing the business so we can invest in much-needed care home beds continued
Morris Care
Case study
What was the opportunity?
To acquire a group of six homes in Shropshire
and Cheshire, with a focus upon the wider
Shrewsbury catchment area. We were
attracted by the high specification of the
assets, their local reputation and weighting
towards higher acuity care provision.
Whilst the vendor was looking for a clean exit
from the elderly care market, they were keen
to ensure continuity of care for the residents.
Operational and local management would
remain with the business post completion and
Welford agreed a licence to continue to use
their well-established local brand name for
atleast three years after completion.
The IM identified an existing portfolio
tenant, Welford Healthcare, as the best fit
for the transfer of the operational businesses.
Welford’s own due diligence aligned with the
IM’s assessment regarding the potential for
the portfolio and as a result, we were able to
provide confidence to the vendor regarding
continuity of care.
How did the timelineunfold?
The transaction was agreed in principle in
mid-2022, with exchange targeted for the end
of September. Unfortunately, the mini-budget
in September 2022 created a market-wide
hiatus and the transaction was paused by
joint agreement. The terms were then revised
to reflect the rise in the cost of capital after
the mini-budget and agreement was reached
in early December 2022, with completion
occurring in January 2023. Given the increase
in the cost of debt, the vendors’ agreement to
take 20% of the consideration in new shares
issued by Impact at NAV was critical to ensure
that the acquisition would be accretive to our
earnings in 2023.
What has gone well?
Both Welford and ourselves saw opportunity
within the trading performance, focusing on
fees, occupancy and staffing. In particular, by
extending an overseas recruitment campaign,
there was scope to reduce the use of agency
staffing in the short term. Coupled with some
revenue growth as refurbished beds in one of
the homes were filled, the business plan was
expected to improve profit, and hence rent
cover to over two times, within 6 – 12 months.
The latest available data demonstrates
outperformance against the original
business plan, with strong rent cover in the
context of the portfolio overall. As a result of
trading performance, despite wider market
conditions,asset value is showing a healthy
return against the original purchase price.
Looking forward, there are significant
potential development concepts at two of
theproperties, including one that incorporates
planning permission for a solar farm, which will
help advance our ESG strategy.
Value uplift since acquisition
£3.3m +5.8%
% of Group’s portfolio by market value
9.1%
Strategic report
17
Impact Healthcare REIT plc
Annual report and financial statements 2023
Putting our purpose into practice
WAULT
20.8 years +5.6%
2022: 19.7 years
Bed occupancy
88.2% +1.6% pts
2022: 86.6%
2 | Working with
ourtenants
Strategic report
Putting our purpose into practice
18
Impact Healthcare REIT plc
Annual report and financial statements 2023
2 | Working with our tenants continued
We don’t run our
care homes, so we
need to partner
with tenants
who will operate
them well and
who share our
focus on providing
high-quality,
and increasingly
higher-acuity, care
(seepage 26).
Strategy: adding tenants and growing with them
We keep in close contact with our tenants
throughout the year, receive detailed
monthly and quarterly reporting from them
and carefully monitor their performance.
The business model on page 10 describes
our process for selecting tenants. We also
have important choices to make as we
grow our portfolio. In particular, we need
to determine the right balance between
adding new tenants and growing with
existing tenants, as well as deciding how
long we want our tenant relationships to be.
When we buy assets, we can select a new
tenant to run them or increase the number of
homes an existing tenant operates. Adding
new tenants manages risk by reducing our
reliance on individual tenants. However,
growing with an existing tenant strengthens
their business and supports our long-term
partnership.
The acquisition we made during the year
(see page 17) further increased the number of
assets run by Welford, which has been a tenant
since 2018. Over that time, we’ve expanded
our relationship from an initial two homes to
the current 18 homes with 1,087 beds, making
Welford one of our largest tenants.
There was one change to our tenant base
during the year, as we replaced Silverline with
Melrose
1
. See the key board decision on page
21 for more information and the case study on
page22.
At the year end, our tenant base was as follows:
Tenant Contracted rent (%) Homes Beds
Minster
1
22 31 1,7 74
Welford 20 18 1,094
Holmes 14 21 1,129
Croftwood
1
12 27 1,118
Careport 5 9 439
MMCG 5 7 508
Prestige 5 5 444
Electus 4 5 340
Carlton Hall 3 2 86
Melrose
1
3 7 394
Belmont 2 2 168
Renaissance 2 2 128
Optima 2 2 99
NHS 1 2 —
100 140 7,7 21
1.
Minster and Croftwood are part of Minster Care Group. Melrose is an affiliate of Minster Care Group.
Stakeholders’ interests: business relationships
The directors must consider the Group’s
business relationships, including with our
tenants. In addition to receiving regular
updates and detailed reports from the IM on
each of our tenants, the directors all took part
in calls with tenants during the year.
This allowed them tohear first-hand what
tenants think of the Company as a landlord,
and to discuss the issues tenants are facing.
See page 54 for more information.
See our Section 172 statement on page 47
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Annual report and financial statements 2023
Putting our purpose into practice
Strategy: choosing the length
ofourtenant relationships
Monitoring our tenants’ performance
The length of new leases is an important
decision for us. We favour leases of 25 years
or more, since this generates long-term
and growing income for our shareholders,
encourages tenants to take a partnership
approach, and gives residents and care home
staff a stable environment to live and work in.
Leases of this length also require us to be very
selective when signing new tenants.
During the year, new leases came into effect
on18 assets. These were:
• the 35-year leases with Welford on the six
homes we acquired in January 2023; and
• 30-year leases on 12 care homes we
originally invested in through a loan to
Holmes. We had an option to buy the homes
following regulatory approval, which we
exercised in June 2023.
The IM engages with tenants on a weekly
and monthly basis and in more depth each
quarter, when it receives reports from them
setting out their financial and operating
performance.
Three main factors affect our tenants’
financial performance and their ability to
pay our rents: their occupancy; the fees they
charge for the care they provide; and the cost
and availability of staff. Trends in occupancy
and fees were positive in 2023 and most
tenants reported improved financial
performance and higher rent cover (see
pages20 and 31).
In 2022, tenants struggled to recruit
permanent staff and used more agency staff
as a result. Encouragingly, we’ve seen clear
signs since that tenants are getting these
issues under control.
Their spending on agency staff fell from an
average high of 14% of their total spending on
staff atthe beginning of 2022, to an average
of 8% at the end of2023.
With our largest tenants, we can also track
whether they’re maintaining staffing levels.
Hours worked per occupied bed were stable
at 36 hours a week, showing that while
costs were rising sharply as inflation surged
tenantswere not cutting back on their main
cost, staff.
Among other important costs, food prices rose
but were steady as a percentage of tenants’
revenues, and energy costs fell back to more
normal levels in the second half of 2023.
More information on how we engage with
tenants can be found in the quality section
onpages 24 to 26.
2 | Working with our tenants continued
Impact Group tenant staff cost
0%
20%
40%
60%
80%
0%
5%
10%
15%
20%
Q4
23
Q3
23
Q2
23
Q1
23
Q4
22
Q3
22
Q2
22
Q1
22
Q4
21
Q3
21
Q2
21
Q1
21
Q4
20
Q3
20
Q2
20
Q1
20
Q4
19
Q3
19
Q2
19
Q1
19
Q4
18
Q3
18
Q2
18
Q1
18
Tenant staff costs as percentage of their revenues (LHS)
Agency staff as a percentage of total tenant staff costs (RHS)
At 31 December
KPI 2023 2022 Comment
WAULT 20.8 years 19.7 years The WAULT increased by one year during 2023,
due to the new 30 and 35-year leases described
above. This was partially offset by the passage
of time reducing the remaining period of existing
leases.
How we measure our progress
The portfolio’s weighted average unexpired lease term (WAULT) is a KPI for us.
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Annual report and financial statements 2023
Putting our purpose into practice
Key board decision – replacing Silverlinewith Melrose
Relevant stakeholders:
shareholders, lenders, tenants,
tenants’ residents
Despite the generally positive backdrop for our
tenants in 2023, it became apparent at the
start of the year that Silverline was in financial
difficulties and in January 2023 they asked us
for a six-month rent holiday.
Silverline rented seven homes from us – four in
Scotland and three in Yorkshire – for £1.6million
per year. The IM reviewed the situation
in detail, including why the homes were
underperforming, and continued to engage
with Silverline about its financial position.
The board and the IM considered several
options for the homes and were clear
throughout these discussions that the solution
had to minimise disruption for residents and
staff. Ultimately, the board decided it was in
the best interests of all stakeholders to replace
Silverline as the operator. After running a
competitive process, the board agreed with
theIM’s recommendation to replace Silverline
with Melrose, an affiliate of a related party –
Minster Care Group Limited (our largest tenant),
at the beginning of June 2023. For further
detail of this transfer of operations please
seeNote 22 to the financial statements on
page 95.
The lessons learnt
Between the Company’s inception in 2017
and the end of 2022 our rent collection
record was 100%. This was the first time we
have had a problem with rent collection.
Following Silverline, we’ve reviewed and
updated the due diligence we carry out on
potential new tenants (see page 10).
We first started working with Silverline
when we bought the three Yorkshire homes
in 2020. These homes were bought as a
turnaround project on pricing that reflected
their under-performance. We thought
they had the potential to do much better.
Silverline had a plan for turning them around
but unfortunately failed to do so. Clearly
the COVID pandemic made delivering
a successful turnaround much more
challenging. While we may buy homes that
need turning around in the future, we’ll only
do this with an existing tenant and probably
not with an operator we haven’t worked
with before.
Stakeholders’ interests: community impact
andbusinessreputation
The directors must consider how their decisions could affect the community, and whether they
could harm the Group’s reputation for high standards of business conduct. A fundamental
stakeholder consideration in the board’s decision making, is the conflict of interest risk as a result
of the related party relationship between the Investment Manager and Minster, the Group’s
largest tenant. Thedirectors take this very seriously as explained in more detail on page 55.
These issues were relevant to Silverline. One option available to the Group would have led to
the homes closing and then reopening under a new tenant. This would have caused the most
disruption to the local community, given its impact on residents and staff, and could also have
harmed the Group’s reputation, which is important for attracting new tenants.
See our Section 172 statement on page 47
2 | Working with our tenants continued
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Annual report and financial statements 2023
Putting our purpose into practice
2 | Working with our tenants continued
Silverline
Silverline was a tenant of the Group, operating
three of our homes in Bradford with turnaround
opportunities identified, and four in or near to
Glasgow. The Bradford homes were acquired
immediately prior to COVID, resulting in delays
to the planned turnaround strategy at these
homes. The acquisition of the four homes in
Scotland was expected to help deliver growth
for both Impact and Silverline; however, there
were delays to the completion of this portfolio
which was compounded by a material
change in the broader business activity of the
Silverline group. As a result, they requested
a rent payment holiday for six months from
the beginning of January 2023. Following
a five-month period during which several
solutions were considered, we decided that the
best outcome for the residents, employees of
the homes and our wider stakeholders was a
consensual transfer of the Silverline operations
to Melrose, an affiliate of a related party,
Minster Group, who has been operating the
homes since June 2023. In identifying the best
alternative operator to partner with, both
new and existing operators were approached.
Ultimately, Melrose was selected due to a
number of factors, including their significant
experience operating mid-market homes in
both England and Scotland, track record in
turnarounds andthecompetitive cost structure
offered tothe Group.
To support the transfer of these operations
to Melrose and the continued investment in
the turnaround of the individual homes, we
agreed a variable rent structure and provided
a £1.6million loan facility accruing interest at
8% on drawn funds.
Since transferring the operations of the homes,
their underlying performance has improved,
albeit at a faster pace in the assets located
close to Glasgow than in Bradford, confirming
our conviction in the quality of the homes.
Wewill continue to work closely with all parties
involved to secure the long-term future of
the homes and to ensure the essential care
services provided within the homes remain
unaffected.
Whilst there is still a lot of hard work to do at
each of the homes, we are proud to say that
one year on from the failure to pay rent, the
homes are now cash flow positive and each
with their own future ahead. This unfortunate
event helps demonstrate the positive impact
we as landlord can have on the residents and
staff who live and work within our buildings.
Case study
Number of beds
394
(properties: seven)
% of Group’s portfolio by market value
2.6%
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Annual report and financial statements 2023
Putting our purpose into practice
Capex invested in improving homes
for residents and staff
£4.69m
3 | Our focus
onquality
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Annual report and financial statements 2023
Putting our purpose into practice
3 | Our focus on quality continued
Quality has two
main aspects
for us: care and
buildings. The
quality of care is
paramount for
both us and our
tenants.
Strategy: increasing quality by investing in our assets
We focus on the buildings which will best
support our tenants in providing care.
Boththe quality of care and the building
itself determine how full the homes are,
how much our tenants can charge and
howsecure our income is.
Our strategic choices include how much
capital we should allocate to asset
management, what sort of improvements
we should target, and the extent to which
we should fund new developments. Our
tenants are responsible for repairing and
maintaining the buildings and for their
quality of care. We monitor both of these
and discuss them with our tenants on at
least a quarterly basis.
Everyone gains from successful asset
management: the residents who live in our
homes; the staff who work there, our tenant
who operates the home; and us as its owner.
When we invest to improve our homes, the
lease terms typically allow us to rentalise the
investment at 8% with potential for valuation
uplift on the capital invested, giving a rate of
return above just the yield alone. The returns
on asset management are therefore higher
than on most asset acquisitions. These projects
are also generally lower risk, since we and the
tenant have a good understanding of the
home and how the project will improve its
performance.
However, we have to carefully consider how
much to invest each year and which projects
tofavour, since:
• we want to continue to grow the portfolio
and need to retain enough capital to buy
assets; and
• our tenants have to balance a project’s
longer-term benefits with the short-term
disruption to the home, which can reduce
their income while rooms are upgraded and
disturb residents. We therefore need our
tenant’s permission for a project to go ahead.
Our portfolio management process identifies
homes with the potential to add value
throughasset management. Where we acquire
homes as part of a portfolio, this may include
non-core assets that have limited credentials
for a long-term hold and will be earmarked for
disposal. We then target projects that:
• improve the home for residents and staff, such
as adding ensuite bedrooms and upgrading
kitchens, laundries and other facilities
• improve the environmental performance of
the home and future-proof the home against
obsolescence;
• expand the services our tenants can offer,
such as adding specialist beds for dementia
care; and/or
• improve the home for residents and staff,
such as adding ensuite bedrooms and
upgrading kitchens, laundries, outside spaces
and other facilities.
We made good progress with our ongoing
project at Fairview House and Court in Bristol,
where we have invested £3.2 million to link the
two buildings, add bedrooms and improve the
environmental performance. When we bought
Fairview in 2018, the rent was £356,000. After
five years of inflation-linked rent increases
and rentalising our investment in the home,
we’ve grown the annual rent to £690,000.
Atthe same time, the home’s improved trading
position has seen its rent cover rise.
The asset value has, as a result, grown by more
than the capital investment.
Overall, however, we did not invest as much
in asset management as we intended in
2023. Some larger projects were delayed, for
example because increased build costs meant
we needed to revisit the plans, while several
smaller projects also started later than we
expected. In total, we invested £4.7 million in
asset management in the year.
Our pipeline currently has 24 such projects
at various stages. The total funding for these
projects is up to £31 million over the next
two tothree years, which we will support if it
enhances the quality of care and environment,
is accretive to shareholder returns and we
have adequate financial resources available
todeploy.
Our progress in 2023
During the year, we approved £11.7 million to asset management projects of which £2.2 million
was spent in the year and £9.5 million remains outstanding. The largest projects are shown in
the table below:
Asset and
tenant
Amount
committed Project benefits
Mavern House
Welford
£1.9m
Eight new bedrooms and improved EPC rating (C to B).
Elm House
Croftwood
£3.0m
Extension with 21 high-specification bedrooms with wet
rooms, upgraded bathrooms for five existing bedrooms, and
improved EPC rating (C to B).
Amberley
Minster
£2.5m
16 new bedrooms with wet rooms, upgrades to 10 existing
bedrooms and bathrooms, and improved EPC rating (C to B).
Yew Tree
Prestige
£2.5m
New 25-bed building on land we already own, increasing
beds at Yew Tree to 101.
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Annual report and financial statements 2023
Putting our purpose into practice
3 | Our focus on quality continued
Ensuring our tenants maintain
ourbuildings
Regular repairs and maintenance protect
the value of our homes and keep them up
tostandard for residents and staff.
Our leases specify the minimum amount
our tenants need to spend and we monitor
this carefully, looking at spend in the current
year and the total over the last three years.
TheIMregularly visits homes to inspect them
and check progress, with over 110 visits taking
place in 2023.
In addition, our valuer, surveyors, environmental
specialists and other advisers support the
IM in reviewing the quality of our buildings.
Collectively, they undertook 197 home
inspections in the year.
Where we identify concerns either by
tenants falling behind on their repairs and
maintenancecommitments against our
covenant requirements, or more generally
aconcern that the home does not meet the
fully repairing standards expected, we will
engage proactively with those tenants to
resolve these issues.
How we measure our portfolio quality
The following KPIs reflect the overall quality of our assets. Our total accounting return (page 4)
and the WAULT (page 20) are also important measures of quality:
EPRA topped-up
net initial yield (NIY)
6.92% 2022: 6.98%
2023 6.92%
2022 6.98%
The EPRA topped-up NIY has been steadily
reducing over the year as the property values
have stabilised following a sudden outward move
at the end of 2022. This has been benefited
further by the acquisition of high-quality
assets during the year alongside continued
improvements to the existing portfolio.
Year-end bed occupancy
88.2% 2022: 86.6%
2023 88.2%
2022 86.6%
Occupancy across the portfolio continued to
increase during the year, although it was still around
half a percent below pre-COVID levels at the year
end. Tenants have prioritised passing on cost
inflation rather than discounting fees to fill beds,
which is reflected in the 13.3% average increase in
their fees in 2023 (see page 32).
Impact Group average adjusted bed occupancy
1
Looked at over a longer period, the chart below shows how occupancy has steadily recovered
since the COVID low point of 79% in January 2021, but has not yet fully returned to pre-COVID
levels of 90%.
1.
Excludes one new home in build-up and three turnaround assets which have not reached maturity.
76%
78%
88%
86%
84%
82%
80%
90%
92%
Dec
2023
Apr
2020
Aug
2020
Dec
2020
Apr
2021
Aug
2021
Dec
2021
Apr
2022
Aug
2022
Apr
2023
Aug
2023
Dec
2022
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Annual report and financial statements 2023
Putting our purpose into practice
3 | Our focus on quality continued
Monitoring the quality of care
The IM tracks reports and ratings from
regulators, and regularly reviews customer
feedback on the homes.
During 2023, the regulator inspected 27 of
our homes. If the regulator rates a home as
inadequate or requires improvement, the IM
reviews the report in detail and discusses the
findings with the tenant’s operations director.
This allows us to understand the issues, the
actions the tenant is taking and whether
there are any broader operational concerns
the tenant is looking to address. Where
appropriate, we’ll seek independent support
tohelp resolve any ongoing issues.
Stakeholders’ interest: community impact and
businessreputation
In addition to the financial implications of building and care quality discussed above,
the directors must consider how these issues can affect the community and the Group’s
reputation. Poor buildings or care have a direct impact on residents’ quality of life and the
working environment for staff and therefore the community within which they operate.
Badlymaintained buildings and poor care could do significant damage to tenants’ reputations,
which in turn could harm perceptions of the Group.
See our Section 172 statement on page 47
How we measure our tenants’
care quality
Taking account of
residents’ interests
The regulator’s ratings are a KPI for us: Our tenants are responsible for their residents
and we don’t directly engage with them,
except when we meet them during home visits.
The main ways we look after residents’ interests
are through our oversight of care quality ratings
and ensuring the homes are well maintained,
as described above.
Home rated good or outstanding by CQC
80.6% 2022: 78.2%
The proportion of good or outstanding homes
improved during the year and is above the sector
average of 79%. At the year end, two homes were
rated inadequate and 23 required improvement.
2023 80.6%
2022 78.2%
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Annual report and financial statements 2023
Putting our purpose into practice
3 | Our focus on quality continued
January May July October
February June August November
December
Works commence at
Mavern,Wiltshire to add eight
newbedrooms and residents
lounge
Works commence at Golborne,
adding new bedrooms and
wetrooms
Handover at Isle Court Shropshire,
creating three new premium
rooms
Works commence at Amberley
House, Truro, to create 16 new
bedrooms, laundry and improved
resident day space
Handover at Golborne
Handover of link block
incorporating 11 new bedrooms
at Fairview, Bristol, enabling
improved operational efficiency
Works commence on new 25-bed
care home alongside the existing
Yew Tree Care Centre in Redcar
Works commence at Elm
House, Cheshire, to add 21
bedrooms, resident lounge and
sensorygarden Handover at Mavern
Asset management timeline
Case study
Strategic report
27
Impact Healthcare REIT plc
Annual report and financial statements 2023
Putting our purpose into practice
3 | Our focus on quality continued
Mavern – refurbishment and extension
inprogress
We approved an extension and extensive
refurbishment of Mavern in January 2023
which is due for completion in early 2024.
The refurbishment will modernise the care
home ensuring it can continue to provide
high quality care over the term of the lease
while delivering improved energy efficiency in
line with our ESG strategy.
• Beds: +8 beds to 62 beds.
• New resident lounge.
• EPC improvement from C to B – including
air source heat pumps and solar pv.
• Capital expenditure of £1.9 million.
• Target value uplift of £0.5 million.
Freeland Lodge – three years on
Construction of Freeland Lodge, a 46-bed
care home, was completed in 2020. Located
adjacent to Freeland House the home
offers nursing, dementia and residential
care. Three years after opening, the home
is delivering in line with projections with
strong occupancy and similar fees from both
self-funded and publicly funded residents,
reflective of the quality of environment and
care provided.
• Beds: 46.
• Capital expenditure: £5.2 million.
• Value uplift since completion £1.6 million
1
.
• Year-end occupancy: 93.5%.
• AWF: £1,480.
• Carehome.co.uk: 9.5/10.
• CQC: Good.
• EP C: B37.
1.
This includes uplifts on the existing
property,Freeland House.
“We are so pleased with the investment in our home and the wonderful new
bedroomsandday spaces that have been created. We are sure that residents and
staff willbenefit from the improvements and further enhance our reputation locally.”
Justine Old, Registered Manager
“We are so pleased with the progress we have made over the last three years.
Residents and staff really love the light and airy spaces and the wonderful views
outover the gardens and beyond.”
May Hernandez Vidal-Payne, RegisteredManager
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Putting our purpose into practice
Rent cover
2.0x +11.7%
2022: 1.8x
4 | Our focus on
affordability
Strategic report
Putting our purpose into practice
29
Impact Healthcare REIT plc
Annual report and financial statements 2023
4 | Our focus on affordability continued
For our business to be
sustainable, our tenants must
be able to afford our rent and
their fees must be affordable
to a sufficient number of
potential residents, both
private andpublicly funded
Strategy: setting initial rents and
ensuring sustainable rental growth
Our strategic choices relate to the rents we set when we first agree
leases and how we structure our rent review clauses.
We believe that all our stakeholders will be better off in the long run if we make sure rents remain affordable.
With this in mind:
• we typically set initial rents to ensure strong rent cover from day one; and
• all our leases include annual inflation-linked rental growth, with minimum and maximum increases each year.
For most leases, these are set at 2% and 4% respectively.
This structure shares risk between us and our tenants. It guarantees that our income will grow every year, including
wheninflation is low, while protecting our tenants when inflation is high, as it has been over the last 12 to 18 months.
Stakeholders’ interests: long-term impact and businessreputation
The way we set initial rents and structure rent reviews
are good examples of our focus on thelong term. If rents
become too high, we’lllose tenants and hence income,
causing major disruption to residents and staff,
reducingthevalue of our assets and risking damage to
our reputation. Balancing rental growth with affordability
is therefore a key part of providing sustainable returns for
shareholders.
Impact leases inflation linkage
99%
1
1%
 Percentage of Impact leases with RPIlinkage
 Percentage of Impact leases with CPIlinkage
Impact leases caps and collars
1%
85%
1
14%
 Percentage with floor 2%/cap 4%
 Percentage with floor 1%/cap 5%
 Percentage with upwards-only inflation linkage
See our Section 172 statement on page 47
1.
This includes the seven leases with Melrose which have been temporarily amended to variable rent.
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Putting our purpose into practice
4 | Our focus on affordability continued
How we measure affordability
Rent cover is one of the most important KPIs for our business. We also track our rental
growth and the amount of rent that’s overdue:
The chart below shows rent cover over time, demonstrating that rents have been consistently
affordable for our tenants, as well as the scale of the improvement this year:
The next chart sets out the rental growth we’ve achieved over the last six years and compares
the percentage increase with the rate of inflation. It shows that we’ve received above-inflation
increases for much of this period, with our tenants being protected more recently from high
inflation. In total, rent reviews added £1.6 million to our contracted rent in 2023.
Last 12 Months (LTM) Rent cover
2.00x 2022: 1.80x
Rent cover increased throughout the year and
wasthe highest we’d recorded at the year end.
Thisreflects our tenants’ success in passing on
inflationary cost pressures through higher fees, and
the fact that fees grew faster than rent due to the
caps in our leases.
2023 2.00x
2022 1.80x
Average rental growth from rent reviews
4.1% 2022: 4.1%
Across both years, all the Group’s care home
rentshad increased in line with the rent review
capintheir lease.
2023 4.1%
2022 4.1%
Rent collection
99% 2022: 100%
In the first half of 2023 Silverline stopped paying rent,
the homes were re-tenanted by June 2023, although
this was partially mitigated by a rental deposit held
by the Group; it resulted in £236,000 rent written off.
2023 99%
2022 100%
Impact Group rent cover
1
Inflation-linked rent with floor and cap
1.
Rent cover excludes seven turnaround homes which were previously operated by Silverline and were
re-tenanted in June 2023 and one new home in build-up stage. The adjustments are consistent with
reporting in previous periods.
1.0
1.2
1.4
1.6
1.8
2.0
2.2
Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1
Rent cover LTM rolling average
2019 2020 2021 2022 2023
16%
12%
8%
4%
0%
Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q1 Q2 Q3 Q4
RPI uplift floor protection RPI uplift cap protectionRPI Rental uplift % increase
2018 2019 2020 2021 2022 2023
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Annual report and financial statements 2023
Putting our purpose into practice
Average fees for
nursing care
Average fees for
residential care
4.2%
4.3%
3.5%
RPI
Source: Laingbuisson/ONS.
4 | Our focus on affordability continued
An important indicator of whether our tenants’ rent is affordable, is whether they can increase
their fees at or ahead of the rate of inflation. As shown below, care home operators have a long
history of achieving this:
This continued in 2023. Across our portfolio, the average weekly fee (AWF) rose by 13.3%
to£1,049,contributing to rising tenant profitability and rent cover.
Average annual fee increase 1998-2022
Impact portfolio demonstrates significant AWF growth
Affordability of our tenants’ rent
0
£400
£200
£600
£800
£1,000
16%
14%
12%
10%
8%
6%
2%
4%
0%
Q4
23
Q3
23
Q2
23
Q1
23
Q4
22
Q3
22
Q2
22
Q1
22
Q4
21
Q3
21
Q2
21
Q1
21
Q4
20
Q3
20
Q2
20
Q1
20
Q4
19
Q3
19
Q2
19
Q1
19
Q1
18
Q2
18
Q3
18
Q4
18
Impact AWF excluding grant income AWF increase LTM (%) Linear (Impact AWF excluding grant income)
Trend line
£1,200 18%
Strategic report
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Annual report and financial statements 2023
Putting our purpose into practice
4 | Our focus on affordability continued
Q: What are your main aims as a business?
A: Our principal aim is to ensure that Careport
is the preferred provider of dementia care in
all areas where we operate.
Q: How do you do that?
A: We need to show we can deliver on three
fronts: we provide good quality care; we are
a reliable partner for our staff, residents and
the people paying for their care; and we
manage well-invested care homes where
people want to live and work.
Q: What are your plans for 2024 and beyond?
A: During the COVID pandemic we really
focused on being a reliable and trusted care
provider during a very challenging period.
Then, in 2023, we had to concentrate
on managing cost inflation. We are now
moving into the next period where we are
thinking about the investment required to
enable our business to perform over the
longer term.
Q: What kind of investments are you
considering?
A: We are already quite advanced in rolling
out modern digital care management tools
and want to take that investment further.
Our aim is not to reduce staff, but to ensure
the staff we have work consistently better
and have more job satisfaction.
That leads into the second major area
of investment – our staff – where we are
putting in place measures to be able recruit
the best people, train them and offer a
career with real potential.
Q: Over 75% of the residents you care for are
funded by their local council or NHS on
lower fees than are typically paid in the
private market. Can you afford to invest?
A: We aim to deliver excellent care at
affordable rates and never forget that in
order to be a sustainable organisation we
also need to be a profitable business. Since
we started our relationship with Impact in
2018, our rent cover has been consistently
better than two times during some very
challenging times.
Q: There are significant capex programmes
agreed with Impact due to start in 2024.
What’s the best project you’ve worked with
Impact on so far?
A: The completion of the large-scale project
we undertook to convert Blackwell Vale,
aweak and underinvested care home
bought in partnership with Impact, into
what is now Riverwell Beck has been
transformational. Impact supported us by
envisioning the potential in Blackwell Vale
and assisting us to undertake a complete
overhaul of the internal layout, including
a refurbishment and an extension which
culminated in an additional five bedrooms
and a significant improvement in the
building specification and energy efficiency.
We worked with Impact to agree an
affordable rent from day one which
provided headroom for further investment.
On Riverwell Beck, Impact challenged us
to be more optimistic on the extent of
the refurbishment and we are delighted
we took this risk as performance has
outperformed our initial expectations.
Q: And of course Impact have also worked
with you on sustainability improvement
programmes…
A: We are fully aware of the need for greener
and more sustainable properties and have
embarked on projects across our entire
portfolio to enhance the energy efficiency
of our buildings; a consequence of which
has been lower energy costs. Impact has
been instrumental in providing us with the
tools and funding to improve our buildings’
sustainability. This is an area of capex that
we continue to explore, such as installing
solar PV on many of our properties.
Case study
Careport summary
Number of care
homes with us
2023 average
occupancy
9 96%
Public/private
fee split
Average EBITDARM
margin (since
January 2020)
74%/26% 26%
Q&A with our
tenant – Careport
Strategic report
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Putting our purpose into practice
EPCs improved
12
8 of which moved up to a higher band
5 | Increasing our
sustainability
Carbon Intensity
(kg CO
2
e per m
2
per year)
54kg
(2022: 50kg)
Carbon intensity has increased, in part due to
increased occupancy, while energy efficiency
measures take time to embed.
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Annual report and financial statements 2023
Putting our purpose into practice
5 | Increasing our sustainability continued
We believe that
high quality,
affordable
care should be
accessible to all.
Care homes are an essential part of the UK’s social
infrastructure and have a crucial part to play in
their communities. Our care homes can also free up
much-needed bed space in hospitals, improving
people’s lives by reducing the time they spend in
hospital and providing them with a more appropriate
setting for community-based care. Our homes also
benefit the wider community and sustain and create
local employment. We believe that our long-term
investment in these homes delivers positive social
outcomes for residents, their families and the staff
providing their care in acommunity setting.
Homes for publicly funded residents have traditionally
had less investment than those forprivate payers.
As a long-term investor and partner to care home
operators, ensuring our rents are at appropriate levels
helps enable our tenants to provide affordable care
for residents who may have less choice which aligns
with our purpose.
As discussed on page 30, we set rents at levels that
enable operators to provide quality care and value for
money to residents, irrespective of whether they are
funded privately or by the local authority and NHS.
Alongside supporting tenants to deliver excellent
care, we are focused on improving theenvironmental
performance of our portfolio, by increasing our EPC
ratings and byachieving net zero by 2045. We
are engaging with tenants to identify areas where
energy consumption can be reduced in line with
our net zero milestones and targets. While the EPC
rating of our homes improved in the year our energy
intensity increased from 50kg CO
2
e/m
2
/year to 54kg
CO
2
e/m
2
/year. This can in part be explained by the
increased occupancy in our homes, and increased
carbon factors for energy compared to 2022.
Energy efficiency measures will take time to embed
and we recognise that our 2025 interim target of
a 15% like-for-like reduction in carbon emissions is
challenging.
We remain committed to identifying areas to invest in
measures to achieve this and are engaging with our
tenants to seek alignment of reducing energy use and
carbon emissions in a managed and affordable way.
Building on our materiality assessment completed
in 2022, the priorities (listed below) informed our
ESG strategy, both of which we referenced in last
year’s report. During 2023, we have made good
progress with embedding these priorities in our
day-to-day operations and our decision-making, as
well as setting ourselves performance targets where
appropriate. Our challenge, as for many businesses, is
that we do not have direct control over certain areas.
We also need to ensure that everything we do is set
within a commercial context.
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
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.
Improving EPCs through enhancements to our
properties’ energy efficiency and reduction in
carbon emissions in line with ournet zero pathway.
Recognising the vital social role care homes play
and investing in homes that provide high-quality
care to a range of residents.
Maintain effective partnerships with key
stakeholders and providing clear and accountable
data.
Aligns with the following UN Sustainable
Development Goals.
Aligns with the following UN Sustainable
Development Goals.
Aligns with the following UN Sustainable
Development Goals.
We were pleased to retain our EPRA sBPR
Gold award for the fourth year running,
demonstrating our commitment to
transparent disclosure on the environmental
performance of our portfolio. In 2023, our
initial Carbon Disclosure Project report
received a D grade. This is a good platform
for a first submission and we are looking
to build on this in the future. The IM 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.
Strategic report
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Putting our purpose into practice
An important indicator of whether our tenants’ fees are affordable is whether they can increase
their fees at or ahead of the rate of inflation. As shown below, care home operators have a long
history of achieving this: [Will we be able to get one updated to 2023?]
5 | Increasing our sustainability continued
Key pillars of our ESG framework
ESG Pillar 1 Strategic Investment in our portfolio to improve environmental impact.
Objectives How we do it Metrics Update
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 with
interim targets of:
• 15% reduction in absolute carbon emission on
alike-for-like basis by the end of 2025; and
• 50% reduction in absolute carbon emission on
alike-for-like basis by the end of 2030.
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/m
2
/year.
Embodied carbon associated with developments
and extensions.
Percentage of assets with green leases.
Absolute carbon emissions.
Capex deployed on environment improvements.
93% of portfolio rated C or higher. (2022: 88%)
1
.
12 homes with improved EPCs (2022: 5).
Carbon intensity has increased to 54 kg CO
2
e/m
2
/
year (2022: 50).
Asset specific carbon mapping underway on
potential capital projects.
17% (2022: 13%).
15,923 tCO
2
e (2022: 13,768).
£741,000 capital deployed on sustainability
measures in 2023 (2022: n/a).
Pillar 2: Having a positive impact on the people living and working in our homes.
Objectives How we do it Metrics Update
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.
82% rate relationship with Impact as moderately
or very satisfied (2022: 87%).
Rent cover 2.0x (2022: 1.8x).
69% of tenant income funded by NHS/LA
(2022:69%).
Not commissioned for 2023.
80.6% of homes rated Good or Outstanding
(2022: 78%).
Pillar 3: Robust Governance and transparent reporting to all stakeholders.
Objectives How we do it Metrics Update
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.
Carbon Disclosure Project rating.
UN PRI Signatory Status (2022 N/A).
Gold rated (fourth year running).
D rated (2022: F).
1.
Based of English equivalent data for Scottish EPCs.
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Putting our purpose into practice
5 | Increasing our sustainability continued
Delivering on a credible net zero
deliveryplan
In 2022, we published our commitment to achieving net zero by 2045, following a specialist
consultancy’s desktop analysis of the care homes in our portfolio, using the widely adopted
CRREM toolkit. We also included interim targets for 2025 (15% reduction against 2022
baseline) and 2030 (50% reduction against 2022 baseline), mindful that it’s important that
we demonstrate progress in the near to medium term whilst balancing the affordability of the
investment for our tenants. Over time we expect the affordability and efficiency of low carbon
technologies to improve, however we are focusing on what measures can also be achieved
today to help deliver against these targets.
In 2023, our CO
2
e emissions on a like-for-like basis increased on a m
2
basis. Occupancy is a key
driver of energy intensity and this has increased over the past two years, however our target
remains to reduce this overall and as we implement energy efficiency measures through asset
management projects we expect these emissions to fall.
During 2023, we have continued to research and refine our path to net zero to ensure that
we’re creating a credible net zero delivery plan. We’ve conducted on-site energy audits
in six homes, which are representative of our portfolio. The audit results are helping us to
engage more effectively with our tenants to agree a practical, sustainability-related capital
expenditure programme, which takes into account our tenants’ considerations.
We continue to improve our data collection for energy consumption from our tenants.
Wehave85% coverage, with estimates based on previous years for where we don’t have up
to date data. As the quality and quantity of our data improves, we’re in abetter position to
engage with tenants to identify opportunities where we can increase energy efficiency, reduce
harmful CO
2
emissions and reduce running costs.
In 2023, the energy use intensity and carbon emissions of our portfolio were as follows:
2023 2022
Like-for-like building energy intensity (kWh per bed) 10,966 10,615
Like-for-like greenhouse gas emissions from building energy
consumptions(tCO
2
e per bed) 2.02 1.99
Like-for-like total indirect greenhouse gas emissions
(kg CO
2
e per m
2
) 53 50
Total indirect greenhouse gas emissions (kg CO
2
e per m
2
) 54 50
Our report against the TCFD framework is set out on pages 105 to 112.
Improving the energy performance
of our portfolio
In 2022, we also set out our target to improve the EPC ratings across our portfolio. Our objective
isto achieve a minimum B rating (or Scottish equivalent) by 2030, with an interim target of
50%by2025.
During 2023, we continued to assess where EPC ratings can be improved through interventions
such as building fabric improvements, more efficient LED lighting and more efficient heating
systems. Where we have implemented measures like these, we have updated the EPC in
accordance with current building regulations. As a result, we’re pleased to report a positive
movement in the proportion of our homes rated EPC B or higher across the portfolio.
Percentage of assets with an EPC of B or above
1
:
Year Target
Progress in
2023
2025 50% 57%
2030 100%
EPC Breakdown
English equivalent for UK wide portfolio
1
0
30
20
10
40
50
60
A B C D
2023 English equivalent (Combined) % 2022 English equivalent (Combined) %
1.
This data is derived using the English equivalent EPC ratings for all properties including Scotland as
documented by the published EPC Certification. The full breakdown of EPCs in Scotland, based on Scottish
methodology, is C (3%), D, (15%), E (59%), F (12%) and G (12%).
Strategic report
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Putting our purpose into practice
5 | Increasing our sustainability continued
Progress with our climate resilience
In last year’s report, we included our initial
response to the Task Force on Climate-related
Financial Disclosures (TCFD) methodology. We
examined the possible physical climate change
risks of three IPCC warming scenarios: RCP 2.6
(1.5-2 degrees), RCP 4.5 (2-3.5 degrees) and
RCP 8.5 (4 degrees) across a representative
sample of 20 properties from our portfolio and
considered the wider climate transition risks
and opportunities. The findings, alongside
the concurrent work on our net zero strategy,
helped to inform our financial planning and risk
management processes.
During 2023 we have made good progress with
developing our understanding, management,
measurement and decision-making in regard
to climate action.
The IM has established an ESG committee
to drive actions and monitor progress and
improved EPC ratings. From a risk and
opportunity perspective, “deep-dives” have
been undertaken into four material issues,
namely:
• physical risk of flooding;
• stranded assets due to an inability to satisfy
MEES requirements;
• the associated costs involved in improving
energy efficiency and fulfilling our net zero
delivery plan; and
• initial consideration of carbon pricing
mechanisms.
Our TCFD reporting for 2023 can be found
onpages 105 to 112.
Charitable causes
Tenant survey
In 2023, we were delighted to establish a
partnership with the Care Workers Charity.
It supports care workers in times of need,
particularly with mental health support,
financial grants and advocating for care
workers generally. We look forward to
supporting its work throughout 2024.
In 2023, we have again conducted
a tenant survey, facilitated by an
independent external body. We are
pleased to report a 92% response rate
of which 81% of tenants reported having
a positive relationship with Impact and
viewed us a good long-term partner and
91% reported satisfaction with Impact’s
level of engagement with them. We
are always keen to get feedback from
tenants and we seek to maintain and
grow our positive relationships with them.
Satisfaction with Impact as
long-term partner
Very satisfied 46%
Moderately satisfied 36%
Neutral 9%
Not satisfied at all 9%
Strategic report
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Putting our purpose into practice
Risk management is integral to the waywe manage our business
The board sets our risk appetite, which then
guides the IM’s actions when implementing
our strategy. While our appetite for risk will vary
over time, in general we maintain a balanced
overall level of risk, which is appropriate for
achieving our strategic objective; working with
tenants to provide quality, affordable and
sustainable care homes (see pages 18 to 38).
The board reviews our risk appetite each year.
Further details of the risk management process
are provided on pages 127 to 129.
The diagram on the right shows the Group’s
principal risks and uncertainties, in order of the
residual risk that remains after taking account
of the mitigations we have in place.
As the diagram shows, two of our risks are
outside our risk appetite and we’re looking to
mitigate them further:
• for significant tenant default, our target is
for no tenant to account for more than 25%
of our contracted rent. The Minster Group
and its affiliates are currently 37% of our
contracted rent. We aim to continue adding
new tenants over time, to further diversify our
income (see page 19); and
• for underinvestment in care homes, the
board is working with the IM to understand
the cost and delivery plan for achieving
our net zero carbon target by 2045. We’re
looking at whether we can do this by
investing in the homes in return for higher
rents, whether our tenants could fund the
work through increased fees for residents,
or, in the worst case, if it could be an
irrecoverable cost for us.
Risk appetite Business impact
Infectious
diseases
Significant
tenant default
Underinvestment
in care homes
Economic
disruption
Political
events
Reputational
damage
Investment
Manager fails
Accepting Critical
Flexible Significant
Cautious Moderate
Minimalist
Minor
Averse
Our purpose is to deliver attractive risk-adjusted returns.
Toachieve that, we’vebuilt risk management into everythingwe do.
Key
Unmitigated risk
Mitigated risk
Risk tolerance
Risk tolerance: Our appetite for risk has been reviewed to assess whether we are operating within our risk tolerance.
Risk tolerance is a continuum and the range for some risks extends over more than one of these categories.
Risk appetite: We have defined risk appetite from high to low in the following categories: ‘Accepting’ (where we are focused
onmaximisingopportunities); ‘Flexible’ (willing to consider all options); ‘Cautious’ (where we are willing to tolerate a degree of risk);
‘Minimalist’ (preferring options with low inherent risk); and ‘Averse’ (where we avoid risk and uncertainty).
Strategic report
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Risk management is integral to the waywe manage our business continued
Infectious diseases Economic disruptionSignificant tenant default
Probability: Medium
Impact: Moderate
Change in the year: No change
Risk appetite: Cautious
An outbreak of a significant new infectious
disease would clearly place care home residents,
who are naturally vulnerable, at significant
danger. It may result in lower care home
occupancy, reduced tenant profitability and
higher costs. All of these would impact on the
ability of our tenants to pay us rent, the value
our portfolio and our ability to work with tenants
successfully.
How we manage this risk
COVID-19, together with other illnesses, means
care home operators have experience of
managing infectious diseases. Since the outbreak
of COVID-19, we have increased our monitoring
of occupancy statistics to a weekly format,
giving us rapid feedback on this KPI. Also, having
an affordable rent, and thus strong rent cover,
enables our tenant operating partners to react
better to unforeseen changes. In an extreme
outbreak we would expect the government to
support operators as they did through COVID-19;
however, should they not provide this support,
we have ensured that our business can sustain a
delay in rent collection.
We continually work with our tenants to explore
improvements to the homes, this can include
ensuring the home is better protected to help
with infection control, including air filtration,
temperature sensors and unitisation of the home,
to help with isolating outbreaks.
We believe that, especially with the learnings from
the recent pandemic, the mitigations are sufficient
to reduce the risk to moderate, and to be within
our risk tolerance.
Opportunity
None.
Probability: High
Impact: Moderate
Change in the year: No change
Risk appetite: Cautious
An economic downturn could have a moderate
to significant impact on the business, but we
believe that our mitigations are sufficient to
bring it within our risk tolerance.
Difficult economic conditions could put further
pressure on local authority funding, affecting our
tenants’ fees and their ability to pay our rent.
High inflation has led to sharp increases in interest
rates, hitting property valuations across all sectors
and placing pressure on the financial covenants of
our debt facilities which if breached, could result
in the banks taking security over our assets. While
inflation has come down, interest rates are not
expected to return to the previous very low levels.
How we manage this risk
We can limit the impact of this risk by buying well,
ensuring our tenants have strong rent cover and
managing the assets to increase their value.
Tenant profitability and long-term affordable rents
are the key to a sustainable business (see pages
30 to 32). We regularly assess our tenants’ financial
performance, particularly their rent cover (see page
31). The Care Act 2014 places responsibilities upon
local authorities to support individuals who need
care, which helps to mitigate this risk.
The board agrees cash flow and debt levels,
maintaining a cautious leverage in line with our risk
appetite. Our LTV cap is 35% and we our aiming
to keep our debt levels below this cap. We also
have a policy to limit our exposure to increases in
interest rates through fixed rate debt and interest
rate caps. Our inflation-linked leases ensure our
income grows every year, which supports property
valuations.
Opportunity
Reduced asset valuations and/or higher debt
costs may create attractive buying opportunities.
Probability: Medium
Impact: Moderate
Change in the year: No change
Risk appetite: Cautious
This is the risk that either a single large tenant
(more than 10% of rent roll) defaults or several
smaller tenants default. Any tenant failure is
likely to cost us money (as the Silverline situation
shows), but some tenants are larger than others.
Failure of most tenants would have a moderate
impact on us, but a Minster Group failure, as
by far the largest group (37% of rent, including
affiliates), would be critical and is why the risk is
outside of our risk tolerance. This could reduce
our revenues and asset values.
How we manage this risk
Our close monitoring of tenants’ performance
enables us to spot issues quickly and we have
shown we can replace a tenant if needed. Most
tenants have seen improved profitability this year.
Our strategy is for no tenant to account for more
than 25% of our contracted rent. Accordingly, we
aim to continue adding new tenants over time,
to further diversify our income (see page 19). We
also maintain close contact with Minster and the
IM receives quarterly accounts which they discuss
in detail with the tenant, confirming its financial
health.
Opportunity
None.
Underinvestment in care homes
Probability: Medium
Impact: Moderate
Change in the year: No change
Risk appetite: Cautious
Underinvestment could occur if: tenants don’t
invest in maintaining the properties, which could
reduce the quality of care they can provide; the
market or regulation may demand enhanced
or different facilities (such as limiting the size of
a care home); or, failure to consider the effects
of climate change which could accelerate
obsolescence of our care homes (both physical
and low carbon transition risks) including
minimum requirements for EPCs (see page 37)
and to meet our net zero target by 2045.
How we manage this risk
All of our leases have full repair and maintenance
obligations, as described above (see page 25). In
extreme circumstances, we could replace a tenant
who fails to comply.
We identify asset management opportunities
before we buy assets and where appropriate
we commit with our tenants to ensure this works
begins in the first 12 to 18 months.
The board is working with the IM to understand
the cost and delivery plan for achieving our net
zero carbon target by 2045. We are looking at
whether we can do this by investing in the homes
in return for higher rents, whether our tenants
could fund the work through increased fees for
residents, or, in the worst case, if it could be an
irrecoverable cost for us. While we continue this
work and await guidance on future regulation,
we have put this risk slightly outside of our risk
tolerance and we keep it under close review.
Opportunity
We can fund building extensions or other
improvements, in return for an increase in rent.
Strategic report
40
Impact Healthcare REIT plc
Annual report and financial statements 2023
Risk management is integral to the waywe manage our business continued
Political events
Probability: Medium
Impact: Moderate
Change in the year: No change
Risk appetite: Cautious
Changes to government in the next 12 months
are likely to heighten the risk of changes in
policy and funding that affect our market.
Increased regulation, changes to immigration or
changes to care worker pay levels alongside the
risk of alternative ways of providing care could
make it harder for our tenants to pay their rent,
reducing the value of our properties.
How we manage this risk
We see this risk as moderate, because if
government were to change regulation that
increases operational costs in care homes (for
whatever reason) it would have to accept that
fees would rise to pay for this – the alternative
being tenants losing money and homes closing,
which would be politically unacceptable and
disastrous for local authorities and the NHS. We
have enhanced our knowledge of likely future
developments in the health service and sought
contact with opinion formers to increase their
understanding of the sector.
Opportunity
Increased government funding could help the
sector to grow and provide more opportunities
forus to support adult social care.
Reputational damage
Probability: Medium
Impact: Moderate
Change in the year: No change
Risk appetite: Minimalist
Circumstances that could damage our
reputation include our tenants providing poor
care or breaching standards around matters like
minimum wage or modern slavery. In addition,
Minster Group is a related party to the IM. If
there is a breakdown in trust on related party
disclosures, this could damage our reputation.
We have also set targets to deliver net zero
carbon by 2045, failure to deliver against our
carbon reduction strategy could damage our
reputation with investors and the community
within which our care homes operate.
How we manage this risk
We are a responsible company and so conscious of
reputational risks, which we think could be critical
if unmitigated, but are minor after the measures
we take. We monitor tenants carefully for the
quality of the care, through regular meetings,
care home visits and CQC ratings. We select only
tenants with high standards.
The board ensures we transparently disclose
related party activities and take decisions in the
best interest of stakeholders. The board also
oversees the monitoring of our progress against
our ESGtargets.
Opportunity
None.
Investment Manager fails
Probability: Low
Impact: High
Change in the year: No change
Risk appetite: Minimalist
We rely on the IM’s capabilities to execute
our strategy and support our day-to-day
relationships. If the IM fails to retain the key
staff, this could result in poor relationships with
stakeholders and, ultimately, failure to collect
rent and a reduction in value of our portfolio.
How we manage this risk
The service requirements are set out in the
Investment Management Agreement which
theboard monitors annually through the
management engagement committee
and moreregularly through board member
interactions with the IM. TheIM is a well-run
partnership closely bound into the success of the
Company. In the last resort, the board believes
that it could find an alternative manager to
take over. The net risk is therefore within our risk
tolerance.
Opportunity
None.
Strategic report
41
Impact Healthcare REIT plc
Annual report and financial statements 2023
Risk management is integral to the waywe manage our business continued
Other risks
There are several other risks that we monitor closely but we don’t believe are principal risks for us.
These include:
Taxation risk – We’re a UK REIT and have to comply with certain rules to maintain that status.
Anychange to our tax status or in UK tax legislation could make it harder to achieve our
investment objectives.
Cyber security – We need to protect our customer and company data from cyber attacks.
Losing sensitive information could materially harm our financial condition. We have relatively
few IT systems, as the IM runs our business and the Administrator runs the accounting and
banking systems. The risk committee reviews our internal controls and provides assurance to the
audit committee that they’re effective. The audit committee also reviews our internal controls
onceayear.
Financial management – There’s a risk that our budgets and plans are inaccurate, that we’ve
made unrealistic assumptions or not applied them correctly, leading to our financial position
deteriorating. The board reviews our financial results and any differences to our forecasts at least
once a quarter, so we can investigate any issues.
Development activity – Developments are inherently risky and can face unexpected cost overruns
and delays. High inflation and global supply chain delays have increased this risk over recent years.
Through careful planning, site optimisation and ensuring our forward-fund commitments are
capped, we seek to ensure all developments remain accretive to investors even if risks materialise.
Strategic report
42
Impact Healthcare REIT plc
Annual report and financial statements 2023
Financial review
Cushman & Wakefield independently values our portfolio in accordance with the RICS Valuation
-Professional Standard (the “Red Book”).
As at 31 December 2023, the portfolio was valued at £651.3 million (31 December 2022:
£532.5million), up £118.8 million or 22.3%. The increase was made up as follows:
Contribution to
valuation increase
£’m %
Acquisitions completed 91.7
1
17.2
Acquisition costs capitalised 1.8 0.3
Capital improvements 4.7 0.9
Disposals (1.3) (0.2)
Valuation movement 21.9 4.1
Total 118.8 22.3
The like-for-like valuation increase of £21.9 million equates to 5.30 pence per share. Of this,
5.22pence per share resulted from inflation-linked rental growth, with 0.08 pence per share
dueto market value movements.
Resilient financial performance
Net rental income for the year increased by 17.0% to £49.4 million (2022: £42.2 million). UnderIFRS,
net rental income includes some rent we’re required to recognise as income beforewe receive
it, reflecting the minimum uplift in rents over the lease terms, on a straight-line basis. Our cash
rental income for the year increased by 18.5% to £42.5 million (2022: £35.9 million). The issue with
Silverline (see page 22) resulted in written off rental income of £0.2 million for the year.
In addition to our net rental income, the total income we earned from the portfolio in the
year included interest on the loans we’d made to Holmes in December 2021 and Welford in
January2023, to finance asset purchases. This income totalled £3.7 million in 2023 (2022:
£3.2million) and is included within our interest income (see below). Having exercised our options
to buy the assets in June 2023, this finance income came to an end and was replaced by rental
income from that date.
Our administrative and other expenses totalled £7.1 million (2022: £7.0 million), which led to a total
expense ratio of 1.54% for the year (2022: 1.67%). The EPRA cost ratio reduced to 14.4% (2022:
16.6%). Adjusting revenue to include interest income from our loans to operators and exclude the
Silverline rent write-off reduces the cost ratio further to 13.4% (2022: 15.4%)
2
.
Finance costs were £12.0 million (2022: £5.4 million), mainly reflecting the increase in SONIA.
Interest income was £3.8 million (2022: £3.2 million), which was largely from the operator
loansand also included £0.1 million of interest on deposits.
The change in the fair value of investment properties was a gain of £14.8 million (2022:
£(14.5)million loss), contributing to profit before tax of £48.8 million (2022: £16.9 million).
Earnings per share (EPS) for the year was 11.79 pence (2022: 4.33 pence) and EPRA EPS was
8.33pence (2022: 8.37 pence per share). Adjusted EPS, which strips out non-cash and one-off
items, was 7.28 pence (2022: 7.11 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 1.6925 pence each in respect of 2023,
meeting the total dividend target of 6.77 pence per share, up 3.5% on the 6.54 pence paid in
respect of 2022. All four dividends were Property Income Distributions.
The details of these dividends were as follows:
Quarter to Declared Paid
Cash cost
£’m
31 March 2023 25 April 2023 19 May 2023 7.0
30 June 2023 9 August 2023 20 September 2023 7.0
30 September 2023 20 October 2023 24 November 2023 7.0
31 December 2023 30 January 2024 23 February 2024 7.0
Total 28.0
The total dividend for 2023 was 123% covered by EPRA EPS and 108% covered by adjusted EPS.
At 31 December 2023, the Company had distributable reserves of £97.2 million.
Portfolio valuation reflects stabilising asset values
1.
This includes the acquisition of a portfolio of nine assets which were invested in via a loan to operator in December 2021, where the Group had an option to acquire upon certain regulatory requirements being met.
Thisoptionwas exercised in June 2023, see note 16 for further detail on page 88.
2.
Further discussion of these cost ratios can be found on pages 117 and 121.
Strategic report
43
Impact Healthcare REIT plc
Annual report and financial statements 2023
Financial review continued
Portfolio valuation drives higher net asset value
The NAV at 31 December 2023 was £478.1 million, up 7.2% (31 December 2022: £445.9 million).
NAVper share was 115.38 pence (31 December 2022: 110.17 pence per share), with the growth rate
of 4.7% reflecting the share issue as part of the portfolio acquisition in January (see page 17),
whichincreased the number of shares in issue by 2.4%.
The chart below shows the main contributors to the movement in NAV per share. As we’re required
to pay out the large majority of our property rental earnings, the portfolio revaluation was the
largest factor.
Strong and prudent balance sheet
During the year, we increased the size and duration of our RCFs, repaid our £15.0 million term loan
with Metro Bank and put further interest rate caps in place. As a result, our facilities at the year
end were as follows:
Expiry
Facility size
(£’m)
Drawn at
31 Dec 2023
(£’m)
Propco interest
cover covenant
Propco LTV
covenant
CYBG
RCF Dec 2029 50.0 32.5 200% 50%
HSBC
RCF Apr 2026 75.0 47.0 200% 55%
NatWest
RCF Jun 2028
1
50.0 30.3 175%
2
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 250.0 184.8
1.
With the option to extend for up to two years to June 2030, subject to NatWest’s agreement.
2.
Interest cover covenant is 175% until June 2025 after which it will increase to 200% for the remainder of the
term.
At the year end, our debt facilities had an average maturity of 6.3 years (31 December 2022:
6.3years). If we exercise the extension options on the NatWest facility, this increases to 6.7 years.
See page 15 for more information on our debt financing, including our gross LTV at
31December2023 and our interest rate hedging arrangements.
NAV per share (pence)
100
114
110
116
118
120
112
122
Opening
NAV
110.17
8.33
3.57
0.02 115.38
EPRA
earnings
Portfolio
revaluation
Dividends
paid
Other Closing
NAV
Increase Decrease Total
124
(6.71)
Strategic report
44
Impact Healthcare REIT plc
Annual report and financial statements 2023
Strong and prudent balance
sheetcontinued
We had significant liquidity at
31December2023, with cash and cash
equivalents of £9.4million and undrawn
debtfacilities of £65.2 million. This gave
us totalheadroom of £60.5million, after
accounting for our capital commitments.
Financial review continued
Liquidity bridge (£’m)
0
60
20
80
40
Cash at
Dec 23
9.4
60.5
Undrawn
debts
Available cash
and debts
Capital
commitments
Headroom
Increase Decrease Total
100
(14.1)
74.665.2
(20)
(40)
(60)
(80)
60
40
20
0
Net cash
rental
income
Admin
expenses
Working
capital
movements
Interest
received
Interest
paid
Net
cash flow
from
operations
Dividends
paid
Net
free
cash flow
Investments,
disposals
and capex
Debt and
hedging
costs
Net cash
movement
in the
period
Finance
from
cash
Finance
from
loan
facilities
£42.3m
£4.7m
£(7.1)m
£(1.8)m
£(9.5)m
£28.6m
£(27.8)m
£0.8m
£(48.7)m
£(7.7)m £(55.6)m
£13.1m
£42.5m
Dividends and net interest
costsfully covered by operating
cashflows:
Our cash movements in the year show
that our dividends and net annual
interest payments arefully covered by
operating activities.
Strategic report
45
Impact Healthcare REIT plc
Annual report and financial statements 2023
The board regularly monitors the Company
and 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 2025. 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. 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 the 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; and
• the risk of a fall in investment property values.
This may be because of a multitude of risks
(as outlined on pages 39 to 42). 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.
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 corresponding
reductions in costs as valuations fall, the use
of unsecured properties to prevent covenant
breaches and stopping dividends 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
5.5% 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 IM and presented to the audit
committee and board for 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 38% before loan-to-value covenant
breaches would arise with all facilities being
fully drawn. Rental income would need to
fall by 36% before interest cover covenant
breaches would arise, with all facilities being
fully drawn.
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.
In 2024, the Company’s Articles of Association
require the board to propose an ordinary
resolution at the Annual General Meeting
(AGM) 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
AGM 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 AGM approaches. In the event that a
continuation vote was not passed, and the
Group instructed to wind up, there would be
a process of selling off the Group’s assets and
exiting its current business agreements, this
would be expected to take at least 12 months
following the AGM so the Company would
continue to be a going concern.
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 2029. 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 re-financings during the forecast
period. 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; and
• 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.
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 2029.
Going concern
Strategic report
46
Impact Healthcare REIT plc
Annual report and financial statements 2023
Section 172 of the Companies Act 2006 gives the directors several duties relating to the matters
shown in the table below. During 2023, the directors consider that they’ve acted in good faith
and in the way that would be most likely to promote the Company’s success for the benefit
of shareholders, while also considering the broad range of stakeholders who interact with our
business.
Matter Response
a) The likely consequence of any
decision in the long term.
See pages 13 and 30.
b) The interests of the company’s
employees.
The Company doesn’t have any employees, so this doesn’t
apply.
c) The need to foster the
company’s business relationships
with suppliers, customers and
others.
Tenants: see pages 19, 21 and 54.
Service providers: see pages 54 and 55.
d) The impact of the company’s
operations on the community
and environment.
See pages 13, 21 and 26.
e) The desirability of the
Company maintaining a
reputation for high standards of
business conduct.
See pages 21, 26 and 30.
f) The need to act fairly between
members of the Company.
The directors must ensure they treat all shareholders
fairly when making their decisions. The board wasn’t
required to make any decisions in 2023 where any group
of shareholders could be treated differently from others,
sothis issue didn’t arise.
Key board decisions
The board’s key decisions in the year included approving:
• the portfolio acquisition in January (page 17);
• the revised dividend policy (page 16); and
• replacing Silverline as a tenant (page 21).
The other significant matters the directors considered are shown on pages 52 to 54.
This strategic report was approved by the board on 22 March 2024 and signed on its behalf by:
Simon Laffin
Chair
Section 172 statement
Strategic report
47
Impact Healthcare REIT plc
Annual report and financial statements 2023
Governance
What’s in this section
Our board 49
Corporate governance review 51
Working with the Investment Manager 55
Nomination committee report 57
Audit committee report 58
Directors’ remuneration report 60
Directors’ report 63
Directors’ statement of responsibilities 67
Independent auditor’s report 68
Governance
48
Impact Healthcare REIT plc
Annual report and financial statements 2023
Our board
Appointed
1 January 2023 to the board, 1 April 2023 as Chair
Skills and experience
Experienced Chair, executive and non-executive
director in large and small, public and private
companies. Career has spanned healthcare real
estate, property development and management,
retail, consumer goods, financing, restructuring,
financial services and private equity. Corporate
governance expertise from 30 years on boards.
Hepublished a book “Behind Closed Doors.
TheBoardroom: How to Get In, Get On and Make
a Difference”, mentors senior executives and
presents on governance. Former finance director
of a FTSE 100 company and qualified accountant
Previous roles
• Chair of Assura plc, Flybe Group plc and
Hozelock Group
• 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)
• Adviser to CVC Capital Partners
• Group finance & property director of
Safewayplc
Other current roles
None
Appointed
16 January 2017
Skills and experience
Experienced board director and committee
member, across a range of sectors. Strong
financial background, as a former corporate
finance adviser to large listed companies and
through chief financial officer roles. Deep interest
in sustainability, having worked for and founded
organisations focused on tackling climate change
as a businessissue
Previous roles
• Chief financial officer/finance lead of Future
Cities Catapult, Low Carbon Contracts
Company and Carbon Trust
• Executive director and strategy adviser at Circle
Housing Group
• Executive director at UBS Warburg
• Non-executive director, Southern Water
• Trustee of The Green Alliance
Other current roles
• Non-executive director of Urban&Civic plc
andTriple Point Energy Transition plc
• Co-founder and director of Chapter Zero
Limited
Appointed
1 March 2019
Skills and experience
Extensive risk and governance experience
including LSE and AIM requirements, public sector
governance and reporting, M&A and fundraising.
Conversant with evolving ESG reporting
requirements and best practice approaches in a
range of sectors, including government incentives
for investment to accelerate net zero. Experience
of working with listed and private companies,
public sector businesses and not-for-profit
organisations. Fellow of the Institute of Chartered
Accountants in England and Wales
Previous roles
• Audit and advisory partner at KPMG
• Non-executive director of Headlam Group plc
and Places for People
Other current roles
• Non-executive director of The Brunner
Investment Trust Plc, Staffline Group plc,
LowCarbon Contracts Company, TheElectricity
Settlements Company and Helical PLC (from
1April 2024)
Simon Laffin
Chair,
aged 64
Rosemary Boot
Senior independent non-executive director,
aged 61
Amanda Aldridge
Independent non-executive director,
aged 61
Key
 Audit committee
 Management engagement committee
 Nomination committee
 Remuneration committee
Committee Chair
Governance
49
Impact Healthcare REIT plc
Annual report and financial statements 2023
Our board continued
Appointed
16 January 2017
Skills and experience
More than 25 years’ experience in the healthcare
sector in the UK and internationally, including
real estate acquisitions and sales, portfolio
strategy and valuation. Advised on restructuring
of Southern Cross, as well as on lease and loan
restructuring transactions, asset management
and turnaround strategies. Author of “The
Valuation of Care Homes, Valuation: Principles
intoPractice”. Member of the Royal Institution of
Chartered Surveyors
Previous roles
• Founder and director of Deben Healthcare
Consultancy
• Chair for healthcare at Jones Lang LaSalle
• Founder and managing director of Taylors
Business Surveyors and Valuers
Other current roles
None
Appointed
13 May 2021
Skills and experience
Around 25 years of real estate investment
and development experience in the UK and
Continental Europe, in both listed and private
equity funds, making or managing direct and
indirect real estate investments. Particular focus
on healthcare real estate, including primary care,
medical centres, senior living and care homes.
Previous healthcare experience includes joint
ventures with Sunrise Senior Living Inc. to develop
and operate premium, private pay care homes
in the UK. Member of the Royal Institution of
Chartered Surveyors
Previous roles
• Chief investment officer for Primary Health
Properties PLC
• Director of portfolio management at PGIM
RealEstate and MGPA
Other current roles
• Portfolio manager for Schroders Capital Real
Estate Impact Fund
Appointed
With effect from 1 April 2024
Skills and experience
Over his 40-year career, Cedi has held a number
of senior management, chief executive and
board member positions in the healthcare and
housing sectors across the public, private and
not-for-profit arenas. He is currently Chair of NHS
Kent and Medway, Chair of the Health and Europe
Centre, Co-Chair of Inspire for Black Londoners,
and Non-Executive Director of Sage Homes.
Heisalso owner and Managing Director of Article
Consulting Ltd, which works with and supports
the`Leaders of Today and Tomorrow’, and the
CEO of a health tech start-up. Previously, Cedi
wasa non-executive director of two specialist NHS
Mental Health Trusts, Chair of an NHS Hospital
Trust and Governor of Canterbury ChristChurch
University as elsewhere
Previous roles
• Chief Executive of Avante Partnership
• Chief Executive of Adepta
Other current roles
• Chair of NHS Kent and Medway
• Chair of the Health and Europe Centre
• Co-Chair of Inspire for Black Londoners
• Managing Director of Article Consulting
• CEO of Consiliaris Digital Systems
Philip Hall
Independent non-executive director,
aged 69
Chris Santer
Independent non-executive director,
aged 50
Cedi Frederick
Independent non-executive director,
aged 66
For more
informationsee:
www.impactreit.uk/esg/
Board
tenure
Gender
diversity
Male 3
Female 2
0-5 years 3
6-8 years 2
Governance
50
Impact Healthcare REIT plc
Annual report and financial statements 2023
Corporate governance review
The AIC Code of Corporate Governance is a sensible set of principles, based on the UK Corporate
Governance Code, but adapted to the specific circumstances of externally managed investment
companies. In 2023, wecomplied with all its principles and provisions.
The table on pages 113 and 114 shows how we’ve complied with each provision and where you can find the
relevant disclosures. You can download the AIC Code from www.theaic.co.uk.
Board membership
We discussed the board’s composition and succession planning. Our longest-serving directors
joined the board when the Company was formed in 2017 and have therefore served six years.
It’simportant that we continue to refresh the board, balancing continuity with renewal. During
2023, Rupert Barclay stood down as Chair in March and Paul Craig retired at the AGM. Philip
Hall also indicated that he planned to retire at the AGM in 2024. The board would like to thank
them all for their significant contribution to the board and the Company. They helped to establish
Impact as a stable, respected and profitable REIT.
I joined the board in January 2023 and took over as Chair in April. I am delighted to announce
that Cedi Frederick has agreed to join the board with effect from 1 April2024 as a new
independentnon-executive director. The search was based on careful consideration of the
skills and experience we’ll need in the years ahead. The board identified a gap in our current
experience around public policy in healthcare, and particularly residential care. Although we’re a
property company, we invest exclusively in UK healthcare, making us an integral part of the UK’s
health infrastructure. Health policy and funding are therefore crucial components of our success.
We believe Cedi Frederick will provide the board with the expertise sought and I would like to
welcome him to the board.
Diversity of thought and experience are also important to good decision-making. This, together
with the concern that some groups in society face unfair barriers to serving on boards, means
thatwe look hard for female and ethnic-minority candidates.
Cedi Frederick’s appointment adds to the board ethnic diversity, and we continue to meet the
FCAgender diversity target.
We also meet the FCA’s target to have at least one of the senior positions of our board held by a
female with Rosemary Boot filling the Senior Independent Director role.
Inclusion is as important as diversity, so it’s very important to me that all directors feel listened to
and respected. This was reviewed as part of our board effectiveness work.
Other than Philip Hall, all the directors will be standing for re-election and Cedi Frederick will stand
for election at the AGM. Rosemary Boot, Amanda Aldridge, Chris Santer and Philip Hall allremain
independent and I was independent when I became Chair.
Our meetings
The table below shows the directors’ attendance at board and committee meetings. There
are also sub-committee meetings on specific topics. We are increasing slightly the number of
board meetings, as I would prefer to have full board and committee meetings, rather than
sub-committees. Consequently some board and committee meetings are called at short notice or
are more routine in nature. Directors who are unable to attend an individual meeting are invited
to give their views in advance.
Director Board
Audit
committee
Management
engagement
committee
Nomination
committee
Remuneration
committee
Simon Laffin 20/20 — 1/1 4/4 1/1
Rosemary Boot 18/20 7/7 1/1 4/4 1/1
Amanda Aldridge 20/20 7/7 1/1 3/4 1/1
Philip Hall 19/20 7/7 1/1 3/4 1/1
Chris Santer 18/20 7/7 1/1 2/4 1/1
Rupert Barclay
1
4/7 3/4 — 1/1 —
Paul Craig
2
6/8 — — — —
1.
Stepped down from the board with effect from 31 March 2023.
2.
Stepped down from the board with effect from 17 May 2023.
We believe strongly in good corporate governance because it is an important contributor
to making good decisions that will benefit all our stakeholders.
Governance
51
Impact Healthcare REIT plc
Annual report and financial statements 2023
Corporate governance review continued
What the board discussed duringthe year
As you would imagine, the rest of this annual report covers many of the topics that the board has
discussed during the year. However, some key highlights were:
Purpose
At our May meeting, we discussed and approved an update to the Company’s purpose (see
page 2). Although we agreed that the Company’s overall objective as a listed REIT is to deliver
an attractive return to shareholders, we cannot act solely as a financial investor. We also have a
social purpose to provide vital infrastructure to the residential care sector, so we must consider the
impact of our decisions on tenants and residents in our homes. Moreover, we will only deliver a
return to shareholders if we work effectively with tenants and ensure that our assets are the right
quality, affordable and sustainable.
We debated what quality really means in the residential sector, agreeing that it doesn’t mean
just asset quality, as the quality of personal care is even more important. For example, the care
provided by the carer in bathing a resident is extremely important. Having an ensuite bathroom
may be less important to a resident who needs help, and soin any case may need the greater
space afforded by a larger shared facility.
There is also little point in providing great assets, or even great care, if people simply can’t afford
them. So, we discussed the importance of tenants’ ability to pay the rent and whether their fees
offered value for money to residents and to the public sector.
Tenants
We pay careful attention to our tenants and their financial and care quality performance, which
we review at every quarterly board meeting. We are not directly responsible for our tenants, but
we work together with our tenants to encourage best practice, spot early signs of difficulties and
to improve the assets.
When one of our tenants, Silverline, found itself unable to pay its rent, we discussed this with the
IM, including; options for replacing them; the potential financial impact; the causes of Silverline’s
problems; how we can protect the residents and staff from the problem; what we can learn; and
what we will do differently in the future. We had to test all our options against the paramount
need to protect residents and staff at the homes. At our meeting in June, we approved the IM’s
proposal to replace Silverline, as described on page 21, reviewing carefully the possible conflict of
interest. The result has been lost rent to us, but the homes have continued to trade under new,
more efficient management, which has secured bothresidents’ care and staff jobs.
Acquisition
In January, the board approved the acquisition of six care homes from Morris Care. Among other
things, we considered the homes’ recent trading, how changing market conditions might have
affected their value, and the strategy and cost for decarbonising the assets and improving their
EPC ratings. With the emergence of the Silverline issue, we particularly discussed the importance
of ensuring the successful operation and management of the homes by the tenant.
Asset management
We receive regular updates on the Company’s asset management strategy and progress with
key projects. During the year, we approved investments at Mavern House, Yew Tree Care Centre,
Amberley House, Elm House, Golborne, Parklands, Croft Bank, IsleCourt and Wombwell Hall.
Our business cases look at the impact on all stakeholders, and how the projects affect the
environment and climate change.
We also regularly reviewed whether tenants were meeting their obligations to keep the homes
properly maintained, which is vital for keeping them fit for residents and preserving the value of
the asset.
Sustainability
We discussed the Company’s ESG strategy several times, including its objectives, KPIs and external
reporting. Among other things, we considered:
• the Company’s target date for reaching net zero and the trade-off between achieving this more
quickly and higher costs;
• tenant appetite for environmental improvements;
• EPC ratings across the portfolio;
• how the Company can measure its positive social outcomes; and
• managing ESG risks and how the IM could ensure stakeholders were addressing issues such
asmodern slavery, diversity and inclusion.
Dividend policy
We reviewed our dividend policy, which tied the increase in the dividend to the previous year’s
rental growth, and decided to change the policy to be more flexible. The new policy is to seek
tomaintain a progressive dividend that is covered by forecast adjusted earnings.
Governance
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Corporate governance review continued
Financing
The board considered the Company’s financing on several occasions, including the options for
funding further growth, recycling capital from disposals of non-core assets, share buybacks and
the appropriate level of gearing, which balanced increased returns to shareholders against
the risks of higher debt. We also discussed and approved the extension to credit facilities and
supported further hedging to protect against interest rate rises.
Risk management
We reviewed the Company’s approach to risk management at a number of meetings.
Weadopted the bow-tie method of evaluating and understanding risk, threats and
consequences. This gave us a modified set of risk events and a work programme to evaluate
and prepare ways to avoid and mitigate risks. The board also discussed our risk appetite at
a dedicated meeting and compared it to our perception of the gross and mitigated risks. We
agreed a programme of work arising from this.
Pages 127 to 129 and 39 to 42 provide a full description of the Company’s risk management
framework and principal risks.
Policies
We reviewed the Company’s process for escalating events of unpaid rent, and a range of other
policies including hedging, modern slavery, conflicts of interest, inside information, gifts and
hospitality.
Board committees
All directors are members of the management engagement, nomination and remuneration
committees. Although I’m not a member of the audit committee, the committee usually invites
me to attend its meetings. This structure means all of us know about each committee’s work.
The board reviewed the committees’ terms ofreference during the year and made only minor
changes.
The terms of reference are available at https://www.impactreit.uk/about/corporate-governance.
Board and committee evaluation
We think it is important that we stop and think about our own performance as directors, both
individually and collectively. Given that I had only recently become Chair and we’d had a lot
of change on the board, we decided to conduct an internal evaluation this year. We asked
all directors, plus Andrew Cowley and David Yaldron from the IM, to complete an anonymous
online questionnaire, which we had devised specifically for Impact to review and evaluate the
effectiveness of the board its committees and Chair.
I reviewed the responses and discussed the key themes with each participant. Rosemary Boot,
as our SID, also discussed my performance with the other directors and fed back to me. I then
presented the findings to the board and the IM. Overall, the feeling was that the board and
committees were becoming more effective, but we could still improve further. In particular, we
decided to:
• enhance our sector and policy awareness. We asked the IM to keep us up to date by
summarising and sharing sector reports, as well as working more on policy issues;
• appoint a new non-executive director, with specialist knowledge of healthcare policy;
• enhance our risk management and think more about our risk appetite;
• improve further the quality, timing and volume of board papers; and
• get a better understanding of the IM’s culture and ensure it aligns with the board’s. We asked
the IM to give us more exposure to its wider team.
Progress with the 2022 evaluation recommendations
Last year’s board evaluation produced the following recommendations, which we acted on during
the year:
Recommendation Action
Improvements to meeting
papers, including their timeliness.
We worked with the IM and the Company Secretary to
improve the papers. This improved but remains a work in
progress.
Explore the potential to delegate
more to the IM.
We reviewed the matters reserved for the board and the
delegated authorities during the year and updated the
limit in the delegated authority for acquisitions to be 3%
of net asset value, rather than the former £5 million. More
broadly, the board has focused on ensuring the decisions
we’re required to make are at a strategic level.
Increase the board’s strategic
focus, including implementing
strategic KPIs.
We’ve rebalanced our board agendas and allocated more
time to discussing strategy, both at our regular meetings
and at the strategy day. We’ve worked with the IM to
identify KPIs that align to our strategic priorities and these
are now included in our quarterly board packs.
Increase our focus on ESG. The board has spent more time on ESG this year, as
discussed in the sustainability section of the board’s
activities on page 52. We have an ESG strategy and
net zero target. We are working to understand better
our social impact, and we have improved further our
corporate governance.
Governance
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Annual report and financial statements 2023
Corporate governance review continued
Stakeholder engagement
We take decisions having thought through the impact on all our stakeholders. The IM leads
day-to-day engagement with the Company’s stakeholders, as discussed in the strategic report.
The board also engages directly with key stakeholders.
Tenants
In the second half of the year, the directors held calls with each tenant. Every director took part in
at least two calls, without the IM being present. We encouraged an open debate, asking about:
• how their business is going;
• how important sustainability was to them, their residents and their other stakeholders;
• how they rated the Company as a landlord and their working relationship with the IM; and
• the challenges they were facing.
We all shared file notes on each call and discussed the feedback at our November board meeting.
Shareholders
Mahesh Patel, Andrew Cowley and David Yaldron from the IM meet regularly with investors
and analysts. I also had discussions with seven large shareholders and offered myself for further
contact if shareholders would like to. Both the IM and our brokers keep us updated on investor
relations, including shareholder feedback from meetings and calls, and analyst reports.
At our November board meeting, we reviewed the proposed shareholder engagement strategy
for 2024, including board engagement with shareholders.
Reviewing our service providers
As the Company outsources its operations, we are very reliant on our service providers. We review
their performance through the management engagement committee (MEC) and the board and
committee evaluation, which also looks at how well the IMand Company Secretary support us.
At the MEC meeting in October, we asked for some changes, but agreed that JTC was
improving its service as the Administrator and Company Secretary and that we should continue
its appointment. We noted that our lead Company Secretary, with the support of their team,
continues to do a good job. We also reviewed the Company’s other service providers (other than
our external auditor, which is reviewed by the audit committee) and decided that they were
effective and theirappointments should continue.
Simon Laffin
Chair
22 March 2024
Director confirmations
The directors confirm that:
• we have undertaken a robust assessment of the Group’s emerging and principal risks, including
those that could threaten its business model, performance, solvency or liquidity. See the
strategic report (pages 39 to 42) and how we manage risk (pages 127 to 129);
• the audit committee has reviewed the risk management and internal control systems and
confirmed to the board that they are effective. See page 59; and
• 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 page 59.
Governance
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Annual report and financial statements 2023
The IM role includes: sourcing and reviewing investment opportunities and making
recommendations tothe board; carrying out approved transactions; and monitoring the progress
of the Company’s assets. It also devises and implements the asset management strategy.
The Investment Management framework defines responsibilities. It includes:
• matters reserved for the board (see page 63);
• the Investment Management Agreement (IMA); and
• delegated authorities, which set out the decisions the IM can make without needing our
approval.
We reviewed the framework during the year and made minor changes.
The IM must also work within the Company’s Investment Policy (see page 126) and the board’s
otherpolicies, such as ESG.
Andrew Cowley, David Yaldron, and other members of the IM’s team as required, attend our
board and committee meetings. Board members also meet individually with the IM, from time
totime, and on specific matters. The Chair has a regular monthly meeting with Andrew Cowley,
aswell as ad hoc calls with other members of the IM team.
There is a potential conflict of interest as one of the IM’s Managing Partners, Mahesh Patel is
also majority owner of Minster Care Group Limited, the Company’s largest tenant. Accordingly,
the IMA places a number of additional restrictions on the IM without specific board agreement
and reserves other rights to the board, such as first refusal on investment opportunities (see
page 64 for more details). The board discussed this relationship several times through the year.
In addition to the potential conflicts, the board noted many unique advantages, as the IM has
deep insight into the operations of a care home business. In particular, this year Mahesh Patel
was able to provide great assistance by using his resources to manage the Silverline homes after
that company defaulted on its rent. The board expressed its gratitude for this intervention, which
worked considerably to the benefit of all stakeholders.
The MEC in October confirmed that the IM had complied with the IMA and the Investment Policy.
The committee discussed the IM’s performance, and agreed that it had been very satisfactory.
The MEC also considered the IM’s team structure and how the teams interacted, as well as its
succession plan and its desire to make its leadership more diverse. The committee agreed that
itwould set specific objectives for the IM for 2024, to help benchmark performance.
Following the review, the MEC concluded that it was in stakeholders’ interests for the IM to
continue in office. The board has since confirmed this decision.
Under the IMA, the IM receives a management fee and has reasonable expenses paid.
Themanagement fee is calculated as follows:
Net asset value (NAV) Fee
£500 million or below 1% of NAV
Above £500 million £5 million plus 0.7% of the amount by which the NAV
exceeds £500 million
The fee is calculated and paid each quarter. The Company also pays the IM £95,000 a year to
cover the costs of acting as the AIFM. The MEC reviewed the fee arrangements, compared them
with similar REITs and concluded that they were reasonable.
Working with the Investment Manager
Our operations are outsourced to the IM, ImpactHealth Partners LLP.
Governance
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Working with the Investment Manager continued
The Investment Manager’s team
Alison Hayward
Office Manager
Charlotte Finch
Investment Manager
Chris Nicholson CGMA
Accountant
Killian Currey-Lewis CA
Investment Director
Martin Robb FRICS
Managing Director
Sam Josland CFA, ACA
Director of commercial finance and reporting
Shola Oso
Property Manager
Simon Gould MRICS
Development Director
Sophie Shrestha ACCA
Finance Manager
Mahesh is a qualified accountant with 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 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.
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 and Ireland.
Mahesh Patel ACA
Managing Partner
Andrew Cowley MA (Oxon)
Managing Partner
David Yaldron FCA
Finance Director
0-5 years 7
5+ years 5
IM team’s
tenure
Ethnic
diversity
Male 8
Female 4
Gender
diversity
White British or other White 8
Mixed/Multiple ethnic groups 1
Asian/Asian British 1
Black/African/Caribbean/Black British 1
Other ethnic group 1
Governance
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Simon Laffin
Committee Chair
During the year, we discussed a number
oftopics:
Board composition and diversity
We reviewed the mix of the directors’ skills
and experience, as well as our diversity and
inclusion. We believe the board had reasonable
diversity at the year end, based on:
• different perspectives from directors
with healthcare, financial and property
backgrounds;
• three male (60%) and two female directors
(40%), which is in line with the FCA target of
at least 40% of the directors being female;
• one female director in a senior board
position,in line with the FCA target, with
Rosemary Boot as our SID; and
• following the appointment of Cedi Frederick
with effect from 1 April 2024, one board
member will be from a minority ethnic
background in line with the FCA target.
The required diversity tables can be found on
page 128.
Succession planning and director
recruitment
We discussed our own succession planning,
as well as asking the IM to update us on its
succession planning and plans to increase
diversity in its senior team. With Rupert Barclay
and Paul Craig having left the board this year,
and Philip Hall intending to step down at
the 2024 AGM, we reviewed the experience
we needed in a new non-executive director.
Inparticular, we decided to look for someone
who has experience of and understands
public policy development and application
inhealthcare.
To undertake the recruitment process, we
selected a shortlist of three recruitment
consultants and asked each to present a
proposal on how they would conduct a search.
We ranked them on factors including their
diversity and ESG credentials and how widely
they would cast a net to find a range of
candidates, as well as the quality of their team
and level of fee. The nomination committee
appointed Nurole Ltd to lead the search.
Nurole Ltd is not a traditional headhunter,
as it makes greater use of a database and
self-selection of candidates. We thought that
this would assist our breadth of search and
ensure more diversity. Nurole Ltd has previously
led the process to recruit both Chris Santer
and Amanda Aldridge, so it has a successful
track record with us. Other than this, it has
no connection with either the Company or
individual directors. Weasked Nurole Ltd to
put special effort into finding candidates
who were female and/or from ethnic minority
backgrounds.
Following this process, the nomination
committee recommended to the board for
approval the appointment of Cedi Frederick
with effect from 1 April 2024 and he joins with
aproven track record in thehealthcare sector.
Directors’ time commitment
One of the committee’s jobs is to assess how
much time the directors should devote to the
Company and whether they’re able to do
so inpractice. We asked JTC to analyse the
directors’ other roles and this showed little
risk of anyone having too many other board
commitments. We also concluded that the
directors’ attendance and their contribution
to board and committee meetings in 2023,
as well as the positive outcomes from the
evaluation, showed that directors were able
toprovide the time and attention needed.
Directors’ training and
development
We discussed what training the directors had
and would like to have at our August meeting
and asked JTC to log all the training directors
received during the year.
Simon Laffin
Committee Chair
22 March 2024
Nomination committee report
I joined the committee
at the start of 2023
andtook over as
committee Chair in April,
after Rupert Barclay
stepped down.
Governance
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Impact Healthcare REIT plc
Annual report and financial statements 2023
During the year,
wecontinued to play
akey role in the Group’s
governance and our
main activities are
summarised below.
Amanda Aldridge
Committee Chair
Audit committee report
Committee membership
I chaired the committee throughout the year
and Rosemary Boot, Philip Hall and Chris
Santer were committee members throughout
the year. Rupert Barclay stepped down from
the committee when he left the board in
March 2023. Simon Laffin, representatives
ofthe IM, the Company Secretary and the
external auditor (BDO LLP) are invited to
attend all committee meetings.
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. All committee
members keep up to date with financial
accounting developments by attending
technical update courses. I am a chartered
accountant.
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.
Meetings
We met seven times during 2023 and
attendance is set out on page 51.
The committee and Simon Laffin met with
our valuer, Cushman & Wakefield (CW), in
January2023 and February 2024, to discuss
the respective 31December valuations in detail.
We held parts of these meetings without any
other attendees. CW also attended the August
committee meeting, to discuss the June
valuation.
I had several discussions with the IM’s Finance
Director and the external auditor, to ensure
they delivered the services we required
and were well placed to hold constructive
discussions 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.
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 IM and the external auditor, setting
out the significant areas. We discussed the
judgements and estimations with the IM 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 only significant judgement or estimation
relates to the fair values of investment
properties. The section below describes how
weconcluded that the relevant judgements
and estimates were appropriate.
Valuation of property portfolio
CW valued the property portfolio as at the
end of each quarter in 2023. We discussed
the half-year and year-end valuations with
the valuers to understand 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
had physically inspected and asked CW to
confirm that neither the Company nor the IM
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 68 to 73. The
auditor’s methodology included meeting the
valuer, assessing its independence, 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.
Other areas considered by
thecommittee
(i) The related party transaction
During the year, the Group transferred the
operation of seven care homes from Silverline
to Melrose Holdings Limited (MHL). This was a
related party transaction, as MHL is owned by
parties connected to Mahesh Patel, who is a
Managing Partner in the IM. We considered
the disclosures in respect of the related
party transaction, in particular, whether the
disclosures properly reflect the underlying
transactions and the process undertaken
during and following the change of tenant at
the relevant homes. See page 21 for more on
the transfer of operations.
(ii) 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 that 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 and that its
disclosure did not have undue prominence.
Governance
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Audit committee report continued
Other areas considered by the
committee continued
(iii) TCFD disclosures
Although the Group is not required to report
under TCFD, we have chosen to do so from last
year. The committee reviewed the relevant
disclosures and ensured that they were
consistent with information presented to the
board by the IM.
Fair, balanced and
understandablestatement
The board asked the committee to advise
on whether we consider that the Company’s
annual report and accounts, taken as a whole,
are fair, balanced and understandable, as
required under the AIC Code. The process
for putting together the Company’s annual
report and accounts is comprehensive, with
input from a range of contributors including
the IM, external consultants and the board.
Weconsidered the detailed reviews undertaken
at various stages of the production process by
the IM, Administrator, external auditor and the
audit committee, which are intended to ensure
consistency and overall balance.
We discussed the process for compiling the
annual report and accounts with the IM and
Administrator and received a series of drafts of
the document, which we thoroughly scrutinised
and discussed.
We also sought additional comfort from the
IM 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2023, 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 54.
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 127 to 129 provide an overview of the
risk management process and pages 39 to
42 discuss the principal risks and uncertainties
identified.
Internal audit
We discussed the need for an internal audit
function. The IM and the external auditor
contributed to the discussion. We considered
the assurance received from third parties
under the risk management framework,
which includes ISAE 3402 reports for the
Administrator and the Depository, together
with the work of the IM’s risk committee and
the compliance work by the IM over tenants.
Based on this, we were satisfied that the
internal controls and risk management were
adequate and effective and decided that
there was no current need for internal audit.
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.
Charles Ellis took over as lead audit partner
for the 2022 financial year, so this is his second
year in the role.
(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 work streams,
to satisfy ourselves that the timetable was
appropriate for meeting the reporting
requirements for the 2023 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 IM, 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 and
that the audit team as a whole demonstrates
an appropriate level of challenge to the board
and the IM in fulfilling its role.
Weconcluded that we had no concerns with
BDO’s effectiveness.
The audit committee has recommended that
a resolution to re-appoint BDO is proposed to
shareholders at the next AGM.
Non-audit services
We authorised £17,000 (2022: £16,000) of
non-audit fees in the year, in relation to the
agreed procedures for the Company’s interim
report. Non-audit fees of £nil (2022: £66,100)
were approved in relation to reporting
accounting services.
Total audit fees for the period were £302,000
and non-audit fees were £17,000. Non-audit
fees as a percentage of audit fees were
5.6% (2022: 29.3%). All fees are inclusive
ofirrecoverable VAT.
Committee evaluation
The committee’s activities formed part of the
evaluation of board effectiveness performed in
the year. Details of this process can be found in
the corporate governance review on page 53.
Amanda Aldridge
Committee Chair
22 March 2024
Governance
59
Impact Healthcare REIT plc
Annual report and financial statements 2023
We have continued
to apply Principles P
and Q of the AIC Code
2019, which means
we have a formal and
transparent procedure
for developing our
remuneration policy.
Rosemary Boot
Committee Chair
Directors’ remuneration report
Annual statement
The committee reviewed the directors’ fees and
the Company’s remuneration policy during the
year.
The Investment Manager updated the
independent benchmarking analysis
undertaken in 2022 and this showed that
the directors’ fees remain in line with the
Company’s peers. We also took stakeholder
interests into account in the current challenging
market conditions and concluded that we
would not increase the directors’ fees for
2024. We have continued to apply Principles
P and Q of the AIC Code 2019, which means
we have a formal and transparent procedure
for developing our remuneration policy, no
director was involved in discussing his or her
own remuneration, and we have designed our
remuneration policy to support the Company’s
strategy and promote its long-term success.
The Company’s proposed remuneration
policy is set out below. Having reviewed the
existing policy, we determined that it remained
appropriate but that it should be shortened
and simplified. As shareholders last approved
the policy at the AGM on 12May2021, we
are asking shareholders to consider and
approve the policy at the upcoming AGM,
on 21May2024. I will be at the AGM to
hear shareholders’ views and to answer any
questions on the policy.
The committee also reviewed the Company’s
Expenses Policy, including ensuring that it is
aligned to the Company’s ESG objectives,
and approved some minor amendments.
Inaddition, we agreed that the Company
should have a separate Gifts and Hospitality
Policy. The board reviewed and approved this
policy at its meeting in November.
Directors’ proposed remuneration
policy
The Company’s policy is to pay the directors
fixed annual fees. The Articles of Association
limit the total annual pay for the directors to
£500,000.
The remuneration committee reviews the
directors’ fees each year, which can include
independent benchmarking. The committee
may adjust the fees so they continue to attract
and retain the directors with the experience
needed to oversee the Company effectively.
When setting the directors’ fees, the committee
will consider:
• the experience of the board as a whole;
• the time commitment;
• the responsibilities of each role; and
• fairness and comparability to non-executive
directors of similar companies.
The Chair of the board and the audit
committee Chair receive additional fees,
reflecting their greater responsibilities.
The Company may pay additional fees to
the directors if their duties go beyond those
normally expected. If this happens, the board
will provide details of why the additional fees
were paid in the next annual report.
The directors do not receive any
performance-related pay, share options or
pensions from the Company or take part in
long-term incentive plans.
The directors are entitled to be paid
reasonable expenses they incur on the
Company’s business.
The directors’ appointments can be terminated
without compensation.
Recruitment
We apply the same remuneration policy for
recruitment purposes.
Consideration of shareholder views
We are committed to engaging with
shareholders and will seek major shareholders’
views before making any significant changes
tothe remuneration policy or how we
implement it. Our shareholder engagement
this year has not revealed any concerns about
the directors’ fees.
Company-wide considerations
The Company has no Executive Directors or
employees, so there are no statements to
make on consultations, comparisons or pay
and employment conditions.
Governance
60
Impact Healthcare REIT plc
Annual report and financial statements 2023
Directors’ remuneration report continued
Annual report on remuneration
Implementation of the remuneration policy in2023 and 2024
As we set out in the 2022 annual report, the committee adopted the following fees for 2023:
• £40,000 for the non-executive directors;
• an additional £20,000 for the Chair of the board; and
• an additional £6,000 for the audit committee Chair.
These fees will continue to apply in 2024.
Directors’ fees for 2023 (audited)
The directors’ fixed fees are shown in the table below. The directors’ expenses for 2023 totalled £213
(2022: £884) and no other remuneration or taxable benefits were paid or payable for the year.
2023 2022
Director
Simon Laffin
1
(Chair) £55,068 —
Rosemary Boot £40,000 £35,000
Amanda Aldridge £46,000 £41,000
Philip Hall £40,000 £35,000
Chris Santer £40,000 £35,000
Former directors
Rupert Barclay
2
£14,795 £48,500
Paul Craig
3
£15,014 £35,000
1.
Mr Laffin joined the board on 1 January 2023 and became Chair on 1 April 2023. Prior to becoming Chair,
Mr Laffin’s fees were consistent with other non-executive directors at £40,000 p.a. and these fees increased
from 1 April 2023 to £60,000 p.a.
2.
Mr Barclay stepped down on 31 March 2023, having been Chair of the board for six years.
3.
Mr Craig stepped down on 17 May 2023, having served as a director for nearly six years. He was previously
an employee of the Company’s largest shareholder and elected to pay his net director’s fee to charity while
heheld that position.
The Company maintains and pays for directors’ and officers’ liability insurance cover on the
directors’ behalf.
Payments to past directors or for loss of office (audited)
There are no payments to disclose. Under the directors’ remuneration policy, there would be no
compensation for loss of office.
Directors’ shareholdings (audited)
At the year end, the directors’ shareholdings were as follows:
Director
1
Number of
shares
Percentage
of share capital
Simon Laffin (Chair) 100,000 0.024%
Rosemary Boot 30,000 0.007%
Amanda Aldridge — —
Philip Hall 30,000 0.007%
Chris Santer 14,137 0.003%
1.
Includes shareholdings of directors and persons closely associated (as defined by the UK Market Abuse
Regulation).
The directors are not required to hold shares in the Company. Their shareholdings are not
significant and do not compromise their independence. The directors’ shareholdings were
unchanged between the year end and the date of this report.
Total shareholder return
The graph below shows the Company’s total shareholder return relative to a return on a
hypothetical holding in the FTSE EPRA/NAREIT UK Index. The Company’s shares are included in
this index, which tracks the performance of real estate companies listed on the London Stock
Exchange, making it useful for comparing the Company’s performance:
60
100
80
120
140
160
March 2017 March 2023March 2018 March 2019 March 2020 March 2021 March 2022
Impact Healthcare REIT FTSE EPRA/Narei UK Index
180
Governance
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Annual report and financial statements 2023
Directors’ remuneration report continued
Relative importance of spend on pay
The table below compares the directors’ remuneration to the Investment Manager’s fee and
distributions to shareholders.
2023
£’m
2022
£’m
Change
%
Directors’ remuneration 0.28 0.25 12.4
Investment management fee 4.81 4.58 5.0
Dividends 27.8 25.7 8.1
Committee composition and external advice
We benefit from the remuneration and nomination committees having the same membership,
giving us full visibility of succession planning. I have relevant experience to chair the committee,
having served on remuneration committees for other organisations. I am currently a member of
one other remuneration committee.
We did not seek any external advice during the year.
Statement of voting
The directors’ remuneration report was subject to an advisory vote at the 2023 AGM. Shareholders
also voted to approve the directors’ remuneration policy at the 2021 AGM. The results of those
votes are shown below:
Votes
for
Votes
against
Votes
withheld
Approve the directors’ remuneration report –
2023 AGM 99.96% 0.04% 166,581
Approve the directors’ remuneration policy –
2021 AGM 99.99% 0.01% 66,047
Rosemary Boot
Remuneration committee Chair
22 March 2024
Governance
62
Impact Healthcare REIT plc
Annual report and financial statements 2023
Directors’ report
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, pages 43 to 45.
• Future developments, pages 7 to 9.
• Engagement with suppliers, customers and others with business relationships with the
Company, pages 19, 21 and 54.
• Corporate governance statement, pages 51 to 54.
• Manager and service providers, pages 54 to 56.
• Directors’ names and board of directors, pages 49 and 50.
• Directors’ and officers’ liability insurance, page 61.
• Directors’ interests in shares, page 61.
• Related-party transactions, note 22, pages 94 and 95.
• Financial instruments, note 19, pages 91 to 93.
• Share capital, note 21, page 94.
• Events subsequent to the year-end date, note 28, pages 97.
• Going concern statement, page 46.
There are no disclosures required in accordance with LR 9.8.4 R.
Corporate governance disclosures
This section of the directors’ report contains required corporate governance disclosures that are
not covered in the corporate governance review or the committee reports on pages 51 to 62. The
tables on pages 113 and 114 set out where in the report the information required by each principle
of the AIC Code can be found.
The directors’ powers and responsibilities
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.
The board has a schedule of matters specifically reserved for its decision, which it reviews annually.
These include:
• approving the Group’s annual profit and loss and cash flow budget;
• 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 the Group’s activities;
• regulatory, financial and material operational policies;
• changes to the Group’s 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; and
• approving new investments over 3% of net asset value that are leased to existing tenants,
andall new investments leased to new tenants.
The board may delegate some functions to its committees, which each have board-approved
terms of reference, setting out their roles and responsibilities. The board also delegates to the
IM, the Administrator, the Company Secretary and the Registrar. In particular, the board has
delegated day-to-day management of the portfolio to the IM, under the board’s supervision.
The responsibilities of the Chair and the senior independent director (SID) have been agreed by
the board and are set out in writing.
The full set of matters reserved to the board, the responsibilities of the Chair and the SID,
andcopies of the committees’ terms of reference are available at
https://www.impactreit.uk/about/corporate-governance/
The directors’ report, together with the strategic report, comprise the “management
report”, for the purposes of disclosure guidance and transparency Rule 4.1.5R.
Governance
63
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Annual report and financial statements 2023
Directors’ report continued
Corporate governance disclosures continued
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 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.
Directors’ service contracts
The directors hold their office in accordance with the Articles and their appointment letters. They
do not have service contracts with the Company.
Diversity policy
The Company’s diversity policy applies to the board and its committees. It recognises 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, as well as individuals’ different experiences and knowledge.
When making appointments to the board, the directors emphasise the importance of diversity in
drawing up lists of candidates, while maintaining their approach of appointing the best possible
person for the role, considered against objective criteria and in accordance with the Equality Act
2010. The directors review diversity in the context of complementing and expanding the skills,
knowledge and experience of the board as a whole.
The Investment Management Agreement (IMA)
The IMA imposes restrictions on the IM 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
IM’s Managing Partners owns Minster Care Group Limited, which is the Group’s largest tenant.
The IMA also:
a) grants the Group pre-emption rights in respect of any investment opportunities within its
investment policy, of which the IM or its associates become aware;
b) grants the Group the right to terminate the agreement if:
• any tenant in which any principal of the IM (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 IM 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 the Group the right to seek advice from a third-party property adviser, when the IM is
conflicted; and
d) prohibits the IM 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 IM or any of its associates (from time to time) has abeneficialinterest.
Either party may terminate the IMA on 12months’ notice, or immediately in certain circumstances,
such as a material breach thatis not remedied.
Administrator and Company Secretary
JTC (UK) Limited is the Administrator and Company Secretary.
As Administrator, JTC is responsible for (on the directors’ behalf):
• maintaining books and records;
• preparing management and financial accounts;
• managing cash movements; and
• calculating the Company’s net asset value, inconjunction with the IM.
As Company Secretary, JTC ensures regulatory compliance and supports the board’s corporate
governance processes and continuing obligations. In addition, JTC liaises with the Company, the
IM and the Registrar in relation to dividend payments, as well as general secretarial functions
required by the Companies Act.
Under the Administration and Company Secretarial Services Agreement, JTC is entitled to an
annual fee of £141,750.
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.
Advice for directors
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.
Governance
64
Impact Healthcare REIT plc
Annual report and financial statements 2023
Directors’ report continued
Depositary
Indos Financial Limited is the Company’s Depositary.
UK Alternative Investment Fund Manager Directive (UK AIFMD)
The Company is an Alternative Investment Fund for the purposes of the UK AIFMD regulation.
TheIM is the Company’s AIFM.
Substantial shareholdings
The Company has one class of share. As at 21 March 2024, 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 57,596 ,43 8 13.89%
Schroder & Co Limited 27,921,45 4 6.74%
Gravis Advisory Limited 22,513,730 5.43%
Brooks Macdonald Asset Management Limited 21, 317,9 88 5.14%
Royal London Asset Management Limited 18,823,339 4.54%
Premier Fund Managers Limited 18,326,384 4.42%
Integrated Financial Arrangements Limited 17,135,000 4.14%
Hargreaves Lansdown Stockbrokers 13,169,423 3.18%
Legal & General Investment Management Limited 12,826,782 3.10%
Based on 414,368,169 ordinary shares in issue as at 31 December 2023.
No individual underlying shareholder or fund owns more than 10%.
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 18.9%.
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 (£34.63 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.
In January 2023, the Company issued 9,603,841 new ordinary shares at a price of 116.62 pence
per share, as part of the consideration payable for the acquisition of sixcare homes from Morris
Care Limited.
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 IM breaching
any law or regulation.
The Company is not aware of any agreements between holders of securities that may result in
restrictions on transferring securities in the Company.
Securities carrying special rights
No person holds securities in the Company carrying special rights with regard to control ofthe
Company.
Change of control
The Company is not aware of any person who, directly or indirectly, owns or controls the Company,
or any arrangements which may result in a change in control of the Company.
There are no agreements between the Company and the directors for compensation for loss of
office as a result of a takeover.
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.
Governance
65
Impact Healthcare REIT plc
Annual report and financial statements 2023
Directors’ report continued
Energy and carbon reporting
The Group is a low energy user and therefore exempt from the Streamlined Energy and Carbon
Reporting regulation. During 2023, 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 IM’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 sustainability section on pages 34 to 38, the Group does have scope to
enhance the energy efficiency of its portfolio and thereby reduce the emissions incurred by its
tenants (see GHG emission data on page 37). We voluntarily report against the TCFD framework
(pages 105 to 112) and have net zero targets for our portfolio’s emissions (page 37). Wealso report
information on tenant emissions in the Group’s annual EPRA sustainability reporting (retaining the
EPRA sBPR gold award for the 2022 submission) which is available at
https://www.impactreit.uk/about/sustainability/.
Political donations
The Group made no political donations during the year.
Employees
The Group has no employees and therefore no employee share scheme, policies for the
employment of disabled persons or employee engagement.
Articles of Association
These are available on the Company’s website at http://www.impactreit.uk/about/corporate-
governance/ or by application to the Company Secretary. Amendments to the Company’s Articles
of Association require a special resolution of the Company’s shareholders.
Overseas branches
The Company does not have any branches outside the UK.
Independent auditor
BDO LLP has expressed its willingness to continue as auditor for the financial year ending
31December 2024.
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.
Annual General Meeting
The Company’s AGM is scheduled to be held at 9 am on 21 May 2024.
Shareholders who would like to contact theChair or the Company before the AGMcanemail the
Company Secretary atImpact.CoSec@jtcgroup.com.
Signed on behalf of the board by
Simon Laffin
Chair
22 March 2024
Governance
66
Impact Healthcare REIT plc
Annual report and financial statements 2023
Statement 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 63 to 66, inside front cover to page
47, 60 to 62 and 51 to 54, 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 https://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:
Simon Laffin
Chair
22 March 2024
Governance
67
Impact Healthcare REIT plc
Annual report and financial statements 2023
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2023 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 2023, 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 the consolidated financial
statements, the Company statement of
financial position, the Company statement
of changes in equity, notes to the Company
financial statements, including material and
significant accounting policy information.
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
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
re-appointments is seven years, covering
the years ended 31December 2017 to
31December2023. 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:
• using our knowledge of the Group and the
Parent Company and its market sector,
together with the current general economic
environment, to assess the directors’
identification of the inherent risks to the
Group’s and Parent Company’s business
and how these might impact the Group’s
and Parent Company’s ability to remain a
going concern for the going concern period,
being the period to 31 March 2025, which is
at least 12 months from when the financial
statements are authorised for issue;
• obtaining an understanding of the directors’
process for assessing going concern, including
an understanding of the key assumptions
used;
• assessing 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 of
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 and Parent Company’s liquidity
and loan covenant compliance; and
• 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 and the Parent Company’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 or the Parent Company’s
ability to continue as a going concern for a
period of at least 12 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.
Governance
68
Impact Healthcare REIT plc
Annual report and financial statements 2023
Independent auditor’s report continued
to the members of Impact Healthcare REIT plc
Overview
Coverage 100% (2022: 100%) of Group profit before tax
100% (2022: 100%) of Group revenue
100% (2022: 100%) of Group total assets
Key audit matters
2023 2022
Valuation of investment
properties
Materiality Group financial statements as a whole
£6.7m (2022: £6.0m) based on 1% (2022: 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. These
matters were 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 these matters.
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 under
long-term rental
agreements. The
properties are
independently,
externally valued
using the income
capitalisation method
in accordance with
RICS methodology
and IFRS 13: Fair Value
Measurement.
The valuation of
investment property
requires significant
judgement and
estimates by the
directors and
their independent
external valuer and is
therefore considered a
significant risk due to
the subjective nature
of certain assumptions
inherent in each
valuation.
Our audit procedures included, but were not
restricted to, the following:
Experience of the valuer and relevance
ofitswork
We assessed the valuer’s competence
and capabilities (both for the firm and
the individuals) 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 RICS 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.
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Annual report and financial statements 2023
Independent auditor’s report continued
to the members of Impact Healthcare REIT plc
Key audit matter
How the scope of our audit addressed
thekey audit matter
Valuation of
investment
properties continued
Any input inaccuracies
or unreasonable bases
used in the valuation
judgements (such as in
respect of estimated
rental value and yield
profile applied) could
result in a material
misstatement of
the Group financial
statements.
There is also a fraud
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.
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, and an
understanding of the properties.
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 net initial
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
was inappropriate.
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
2023
£’m
2022
£’m
2023
£’m
2022
£’m
Materiality 6.7 6.0 4.9 4.3
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 5.0 4.5 3.7 3.3
Basis for determining
performance materiality
75% of materiality
Rationale for the
percentageapplied for
performance materiality
The level of performance materiality applied was set
afterhaving considered a number of factors including
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.
An overview of the scope of our audit continued
Key audit matters continued
Governance
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Independent auditor’s report continued
to the members of Impact Healthcare REIT plc
Our application of materiality continued
Specific materiality
We also determined that for any items that could affect the calculation of the Group’s European
Public Real Estate (EPRA) earnings, a misstatement of less than materiality for the financial
statements as a whole, specific materiality, could influence the economic decisions of users.
We consider EPRA earnings to be a key performance measure of the Group. EPRA earnings
excludes the impact of the net surplus on revaluation of investment properties, profit on disposal
of investment properties and changes in the fair value of interest rate derivatives. As a result, we
determined materiality for these items based on 5% of EPRA earnings, amounting to £1.73 million
(2022: £1.63 million) for the Group. We further applied a performance materiality level of 75%
(2022: 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 £336,000 (2022: £300,000) for the financial statements as a whole, and in excess
of £89,000 (2022: £81,500) 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 and financial statements 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 regard to the appropriateness of
adopting the going concern basis of accounting and any material
uncertainties identified, set out on page 46.
• 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 46.
Other Code
provisions
• The directors’ statement on fair, balanced and understandable, set
out on page 54.
• The board’s confirmation that it has carried out a robust
assessment of the emerging and principal risks, set out on page 54.
• The section of the annual report that describes the review of
effectiveness of risk management and internal control systems, set
out on page 54.
• The section describing the work of the audit committee set, out on
pages 58 and 59.
Governance
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Annual report and financial statements 2023
Independent auditor’s report continued
to the members of Impact Healthcare REIT plc
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.
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:
Non-compliance with laws and regulations
Based on:
• our understanding of the Group and the industry in which it operates;
• discussion with management and those charged with governance; and
• obtaining and understanding of the Group’s policies and procedures regarding compliance
withlaws and regulations.
We considered the significant laws and regulations to be the Companies Act 2006, UK Listing
Rules, the REIT tax regime requirements and legislation relevant to the rental of properties.
Our procedures in respect of the above included:
• review of minutes of meeting of those charged with governance for any instances of
non-compliance with laws and regulations;
• review of correspondence with regulatory and tax authorities for any instances of
non-compliance with laws and regulations;
• review of financial statement disclosures and agreeing to supporting documentation;
• involvement of REIT tax experts in the audit; and
• review of legal expenditure accounts to understand the nature of expenditure incurred.
Governance
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Impact Healthcare REIT plc
Annual report and financial statements 2023
Independent auditor’s report continued
to the members of Impact Healthcare REIT plc
Auditor’s responsibilities for the
audit of the financial statements
continued
Fraud
We assessed the susceptibility of the financial
statements to material misstatement,
including fraud. Our risk assessment procedures
included:
• enquiry with management and those
charged with governance regarding any
known or suspected instances of fraud;
• obtaining an understanding of the Group’s
policies and procedures relating to:
• detecting and responding to the risks of
fraud; and
• internal controls established to mitigate
risks related to fraud.
• review of minutes of meeting of those
charged with governance for any known or
suspected instances of fraud;
• discussion amongst the engagement team
as to how and where fraud might occur in
the financial statements;
• involvement of forensic specialists in the audit
to assess the susceptibility of the financial
statements to material fraud;
• performing analytical procedures to identify
any unusual or unexpected relationships that
may indicate risks of material misstatement
due to fraud; and
• considering remuneration incentive schemes
and performance targets and the related
financial statement areas impacted by
these.
Based on our risk assessment, we considered
the areas most susceptible to fraud to
be the valuation of investment property,
managementbias and override of controls,
existence of and/or inappropriate treatment
ofinvestment property capital improvements.
Our procedures in respect of the above
included:
• testing a sample of journal entries
throughout the year, which met a defined
risk criteria, by agreeing to supporting
documentation;
• assessing significant estimates made by
management for bias, which included the
valuation of the Group’s investment property
as detailed under the key audit matters; and
• testing a sample of investment property
improvement additions to supporting
documentation and evidence that the work
has been completed and they have been
appropriately classified.
We also communicated relevant identified
laws and regulations and potential fraud risks
to all engagement team members who were
all deemed to have appropriate competence
and capabilities and remained alert to any
indications of fraud or non-compliance with
laws and regulations throughout the audit.
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
22 March 2024
BDO LLP is a limited liability partnership
registered in England and Wales (with
registered number OC305127).
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Annual report and financial statements 2023
Financial
statements
What’s in this section
Consolidated statement of comprehensive income 75
Consolidated statement of financial position 76
Consolidated statement of cash flows 77
Consolidated statement of changes in equity 78
Notes to the consolidated financial statements 79
Company statement of financial position 98
Company statement of changes in equity 99
Notes to the Company financial statements 100
74
Impact Healthcare REIT plc
Annual report and financial statements 2023
Financial statements
Consolidated statement of comprehensive income
For the year ended 31 December 2023
31 December 31 December
20232022
TotalTotal
Notes£’000£’000
Gross rental income
5
49,65 9
42 ,242
Bad debts written off
5
(23 6)
—
Insurance/service charge income
5
87 1
70 4
Insurance/service charge expense
5
(87 1)
(70 4)
Net rental income
49,42 3
42, 242
Administrative and other expenses
6
(7 ,137)
(7, 0 0 9)
(Loss)/profit on disposal of investment properties
13
(1 6)
130
Operating profit before changes in fair value
42 , 270
35, 363
Changes in fair value of put option
—
(1 ,811)
Changes in fair value of investment properties
13
1 4,788
(14, 456)
Operating profit
5 7, 0 5 8
1 9,09 6
Finance income
8
3 ,761
3,200
Finance expense
9
(11 ,9 88)
(5 ,4 08)
Profit before tax
48,831
1 6,888
Tax charge on profit for the year
10
—
—
Profit and total comprehensive income (attributable to shareholders)
48,83 1
16,888
Earnings per share – basic and diluted (pence)
11
11 .79p
4. 33p
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 79 to 97.
Financial statements
75
Impact Healthcare REIT plc
Annual report and financial statements 2023
Consolidated statement of financial position
As at 31 December 2023
31 December31 December
20232022
Notes£’000£’000
Non-current assets
Investment property
13
616,006
50 4,31 8
Interest rate derivatives
18
1, 750
—
Trade and other receivables
14
39, 237
6 8 ,1 31
Total non-current assets
656,993
57 2,4 49
Current assets
Trade and other receivables
14
907
1, 181
Interest rate derivatives
18
—
363
Cash and cash equivalents
15
9, 389
22,531
Total current assets
10, 29 6
24, 07 5
Total assets
6 6 7, 2 8 9
5 96 , 524
Current liabilities
Borrowings
17
—
(14,814)
Trade and other payables
16
(6,915)
(9 ,12 6)
Total current liabilities
(6,9 15)
(23 ,940)
Non-current liabilities
Borrowings
17
(179,937)
(122,382)
Put option
16
—
(1,811)
Trade and other payables
16
(2 , 33 0)
(2 , 47 1)
Total non-current liabilities
(182 ,267)
(126,664)
Total liabilities
(189,182)
(150,604)
Total net assets
47 8 ,1 07
4 45 ,920
31 December31 December
20232022
Notes£’000£’000
Equity
Share capital
21
4 ,14 4
4,0 4 8
Share premium reserve
21
3 76, 71 6
3 65 ,6 42
Capital reduction reserve
21
24, 077
24, 07 7
Retained earnings
7 3 ,170
5 2,1 5 3
Total equity
47 8 ,1 07
4 45 ,920
Net asset value per ordinary share (pence)
23
115.38p
11 0 .1 7p
The accompanying notes to the consolidated statement of financial position can be found on
pages 79 to 97.
The consolidated financial statements for Impact Healthcare REIT plc (registered number:
10464966) were approved and authorised for issue by the board of directors on 22 March 2024
and are signed on its behalf by:
Simon Laffin
Chair
Financial statements
76
Impact Healthcare REIT plc
Annual report and financial statements 2023
Consolidated statement of cash flows
For the year ended 31 December 2023
31 December31 December
20232022
Notes£’000£’000
Cash flows from operating activities
Profit for the year (attributable to equity
shareholders)
48,83 1
16,888
Finance income
8
(3 ,761)
(3,200)
Finance expense
9
11,988
5 ,408
Loss/(profit) on disposal of investment properties
13
16
(130)
Changes in fair value of put option
18
—
1 ,811
Changes in fair value of investment properties
13
(14 ,78 8)
14,4 56
Net cash flow before working capital changes
42, 28 6
35 ,2 33
Working capital changes
Increase in trade and other receivables
(6, 3 08)
(5,9 52)
(Decrease)/increase in trade and other payables
(2 ,61 8)
2 07
Net cash flow generated from operating
activities
33,360
2 9,48 8
Investing activities
Purchase of investment properties
(4 4 , 79 9)
(69, 21 7)
Proceeds on sale of investment property
1 ,234
2, 625
Acquisition costs capitalised
(1 ,765)
(2,661)
Capital improvements
(3, 375)
(1 1 ,1 9 5)
Loan advanced to operator
(1 ,6 00)
—
Loan associated costs
—
(478)
Interest received
3,695
3 ,2 70
Net cash flow used in investing activities
(4 6 ,6 1 0)
(7 7, 6 5 6)
31 December31 December
20232022
Notes£’000£’000
Financing activities
Proceeds from issue of shares
21
—
62 ,269
Issue costs of ordinary share capital
21
(3 0)
(1,757)
Borrowings drawn
17
82 ,50 0
8 5 , 0 74
Borrowings repaid
17
(40 ,000)
(5 7, 3 6 2)
Loan arrangement fees paid
(2 , 827)
(1 ,265)
Loan commitment fees paid
(528)
(628)
Purchase of derivative
(3 ,2 38)
—
Interest payments received on interest rate
derivatives
18
1 ,035
112
Interest paid on bank borrowings
(8,990)
(3 ,28 1)
Dividends paid to equity holders
12
(2 7 ,814)
(2 5 , 7 24)
Net cash flow generated from financing
activities
108
5 7, 4 3 8
Net (decrease)/increase in cash and cash
equivalents for the year
(13 ,142)
9, 270
Cash and cash equivalents at the start of the
year
22 ,531
13, 261
Cash and cash equivalents at the end of the
year
15
9, 389
2 2,531
The accompanying notes to the consolidated statement of cash flows can be found on
pages79to 97.
Financial statements
77
Impact Healthcare REIT plc
Annual report and financial statements 2023
Consolidated statement of changes in equity
For the year ended 31 December 2023
Capital
Share Share reduction Retained
capitalpremiumreserveearningsTotal
Notes£’000£’000£’000£’000£’000
1 January 2023
4,04 8
36 5,6 42
24 ,07 7
52 ,1 53
4 45,920
Total comprehensive income
—
—
—
4 8, 831
4 8,831
Transactions with owners
Dividends paid
12
—
—
—
(2 7, 8 1 4)
(2 7, 8 1 4)
Share issue
21
96
1 1 ,1 0 4
—
—
11,200
Share issue costs
21
—
(30)
—
—
(30)
31 December 2023
4 ,14 4
376 ,7 1 6
24, 077
7 3 ,170
47 8 ,1 07
For the year ended 31 December 2022Capital
Share Share reduction Retained
capitalpremiumreserveearningsTotal
Notes£’000£’000£’000£’000£’000
1 January 2022
3,50 6
305,672
2 4,07 7
6 0,98 9
39 4, 244
Total comprehensive income
—
—
—
16,888
16,888
Transactions with owners
Dividends paid
12
—
—
—
(2 5, 7 24)
(2 5 ,7 24)
Share issue
21
5 42
61 ,72 7
—
—
62, 269
Share issue costs
21
—
(1,7 57)
—
—
(1,75 7)
31 December 2022
4,04 8
36 5,6 42
24 ,07 7
52 ,1 53
4 45,920
The accompanying notes to the consolidated statement of changes in equity can be found on pages 79 to 97.
Financial statements
78
Impact Healthcare REIT plc
Annual report and financial statements 2023
Notes to the consolidated financial statements
For the year ended 31 December 2023
1. Basis of preparation
General information
The consolidated financial statements for the
year ended 31 December 2023 are prepared
in accordance with UK-adopted international
accounting standards.
The consolidated financial statements have
been prepared on a historical cost basis, except
for investment properties, the put option and
interest rate derivatives, which have been
measured at fair value.
The Group has chosen to adopt EPRA best
practices recommendations guidelines for
calculating key metrics such as earnings per
share.
The Company is a public listed company
incorporated and domiciled in England and
Wales. The Company’s ordinary shares are
listed on the Premium Listing Segment of
the Official List and trade on the premium
segment of the main market of the London
Stock Exchange. The registered address of
the Company is disclosed in the corporate
information.
Convention
The consolidated financial statements are
presented in Sterling, which is also the Group’s
functional currency, and all values are rounded
to the nearest thousand (£’000), except when
otherwise indicated.
Going concern
The strategic report describes the Group’s
financial position, cash flows and liquidity
position. The principal risks are set out on
pages 39 to 42 and note 19 to the financial
statements also provide details of the Group’s
financial instruments and its exposure to
liquidity and credit risk.
The ongoing effect of the high inflation and
interest rate environment has been considered
by the directors. The directors have reviewed
the forecasts for the Group taking into account
the impact of heightened interest rates and
rising costs 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
Group’s ability to continue for a period of at
least 12 months from the date of approval of
the Group’s financial statements. The board is,
therefore, of the opinion that the going concern
basis adopted in the preparation of the annual
report is appropriate.
2. Significant accounting
judgements, estimates and
assumptions
The preparation of the Group’s financial
statements requires management to make
judgements, estimates and assumptions that
affect the reported amounts recognised in the
financial statements and disclosures. However,
uncertainty about these assumptions and
estimates could result in outcomes that could
require material adjustment to the carrying
amount of the assets or liabilities in future
periods.
Information about significant areas of
estimation, uncertainty and critical judgements
in applying accounting policies that have
the most significant effect on the amount
recognised in the financial statements are
disclosed below.
2.1. Judgements
Operating lease contracts – the Group
as lessor
The Group has acquired investment properties
that are subject to commercial property leases
with tenants. The Group has determined,
based on an evaluation of the terms and
conditions of the arrangements, particularly
the duration of the lease terms and minimum
lease payments, that it retains all the
significant risks and rewards of ownership of
these properties and so accounts for the leases
as operating leases.
The leases, when signed, are for between
20 and 30 years with a tenant-only option
to extend for one or two periods of 10 years.
At the inception of the lease, management do
not judge any extension of the leases to be
reasonably certain and, as such, do not factor
any lease extensions into their considerations
of lease incentives and their treatment.
2.2. Estimates
Fair valuation of investment property
The valuations have been prepared in
accordance with the RICS Valuation – current
edition of the global and UK standards as at
the valuation date, or the RICS “Red Book” as
it has become widely known.
The basis of value adopted is that of fair
value being “the price that would be received
to sell an asset or paid to transfer a liability
in an orderly transaction between market
participants at the measurement date” in
accordance with IFRS 13. The concept of fair
value is considered to be consistent with that
of market value.
The significant methods and assumptions used
by the valuers in estimating the fair value of the
investment properties are set out in note 13.
Gains or losses arising from changes in the
fair values are included in the consolidated
statement of comprehensive income in
the period in which they arise. In order to
avoid double counting, the assessed fair
value may be increased or reduced by the
carrying amount of any accrued income
resulting from the spreading of lease
incentives and/or guaranteed minimum rent
uplifts at the inception of the lease.
The nature of uncertainty regarding the
estimation of fair value as well as sensitivity
analysis has been considered as set out in
note 13.
3. Summary of material
accounting policies
The principal accounting policies applied in
the preparation of these consolidated financial
statements are set out below or alongside the
relevant note.
Basis of consolidation
The consolidated financial statements
comprise the financial statements of the
Company and all of its subsidiaries drawn up
to 31 December 2023. Subsidiaries are those
entities, including special purpose entities,
controlled by the Company. Control exists
when the Company is exposed, or has rights,
to variable returns from its investment with the
investee and has the ability to affect those
returns through its power over the investee.
In assessing control, potential voting rights
that presently are exercisable are taken
into account. The financial statements of
subsidiaries are included in the consolidated
financial statements from the date that control
commences until the date that control ceases.
Financial statements
79
Impact Healthcare REIT plc
Annual report and financial statements 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
3. Summary of material accounting policies continued
Segmental information
The board is of the opinion that the Group is engaged in a single segment business, being the
investment in the United Kingdom in healthcare assets. The board consider that these properties
have similar economic characteristics and as a result, these individual properties have been
aggregated into a single reportable operating element. Reporting on tenants providing greater
than 10% of revenue is included in note 5.
4. New standards issued
4.1. New standards issued with effect from 1 January 2023
No new standards have been applied that have had a material effect on the financial position
or performance of the Group.
4.2. New standards issued but not yet effective
There are no new standards issued but not yet effective that are expected to have a material
effect on the Group.
5. Property income
Year ended Year ended
31 December 31 December
2023 2022
£’000 £’000
Rental income cash received in the year
42,513
35,889
Rent received in advance of recognition
141
170
Rent recognised in advance of receipt
7,145
6,324
Rental lease incentive amortisation
(140)
(141)
Gross rental income
49,659
42,242
Bad debts written off
(236)
—
Insurance/service charge income
871
704
Insurance/service charge expense
(871)
(704)
Net rental income
49,423
42,242
1
2
3
4
1.
This relates to movement in rent premiums received in prior periods as well as any rent premiums received
during the year, deemed to be a premium over the term of the lease.
2.
Relates to movement in both rent-free periods being recognised on a straight-line basis over the term of the
lease and rent recognised in the period to reflect the minimum uplift in rents over the term of the lease on a
straight-line basis.
3.
Lease incentives relate to the amortisation of payments made to tenants that are not part of any acquisition
contractual obligations. These payments are made in return for an increase in rent.
4.
Bad debts written off relates to rental arrears due from one tenant who leased seven of the Group’s
properties, in the period these properties were re-tenanted, see note 22 for further detail.
For accounting purposes, premiums received are reflected on a straight-line basis over the term
of the lease. In addition, the Group benefits from a minimum annual rental uplift of 1% or 2% on
all care home leases. For accounting purposes these uplifts are also incorporated to recognise
income on a straight-line basis.
Insurance/service charge relates to property insurance that is paid by the Group and recharged
to tenants.
Minster Care Management Limited and Croftwood Care UK Limited are both part of the Minster
Care Group Limited and together represent 38.4% of gross rental income:
2023
2022
Minster Care Management Limited
24.9%
29.3%
Welford
17.1%
11.3%
Croftwood Care UK Limited
13.5%
15.4%
Holmes Care Group
12.5%
10.3%
Others
32.0%
33.7%
Accounting policy
Rental income
Rental income arising on investment properties is included in gross rental income in the consolidated
statement of comprehensive income and is accounted for on a straight-line basis over the lease term.
The change in the RPI is reviewed annually, with the minimum uplifts being taken into consideration when
accounting for the rental income on a straight-line basis upon inception of the lease. The resulting asset
or liability is reflected as a receivable or payable in the consolidated statement of financial position.
When a contract includes both lease and non-lease components, the Group applies IFRS 16 to allocate
the consideration under the contract to each component.
The valuation of investment properties is increased or reduced by the total of the unamortised lease,
incentive and straight-line receivable or payable balances. Any remaining balances in respect of
properties disposed of are included in the calculation of the profit or loss arising at disposal.
The initial lease rental payments and guaranteed rental uplifts are spread evenly over the lease term,
even if payments are not made on such a basis. The lease term is the non-cancellable period of the lease
together with any further term for which the tenant has the option to continue the lease, except for where,
at the inception of the lease, the directors have no certainty that the tenant will exercise that option.
Increased rental payments arising from the variation of the lease on capital improvement licences are
spread evenly over the remaining lease term from the date of signing the licence agreement.
At each rent review, the uplift in rent is calculated in accordance with the terms of the lease. If greater
than the minimum uplift then the uplift above and beyond the minimum recognised is calculated and
recognised in the period in which it arises, with there being no rebasing of the amounts to recognise over
the remaining lease.
Service charges, insurance and other expenses recoverable from tenants
Income arising from expenses recharged to tenants is recognised in the year which the compensation
becomes receivable. Service, insurance and other similar charges that are recoverable are included in
gross rental income as the directors consider that the Group acts as principal in this respect.
Financial statements
80
Impact Healthcare REIT plc
Annual report and financial statements 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
6. Administrative and other expenses
Year ended Year ended
31 December 31 December
2023 2022
£’000 £’000
Investment Manager fees (see note 22)
4,810
4,581
Directors’ remuneration (see note 7)
276
250
Auditor’s fees
– Statutory audit of the Company and Group (including
subsidiaries)
302
280
– Agreed upon procedures for the Company’s interim report
17
16
Total auditor’s fees
319
296
Administration fees
523
497
Regulatory fees
34
18
Legal and professional
912
630
Recruitment services and remuneration committee advice
32
70
Other administrative costs
231
667
7,137
7,00
9
1
1.
In 2023, the auditor also received fees of £nil (2022: £66,000) relating to other advisory services in relation
to share issues during the year. These fees have been recognised in share premium as share issue costs.
The amounts shown above include irrecoverable VAT as appropriate.
7. Directors’ remuneration
The Group had no employees in the current or prior period. The directors, who are key
management personnel of the Company, are appointed under letters of appointment for services.
Directors’ remuneration, all of which represents their fees for services provided during the year, are
as follows:
Year ended Year ended
31 December 31 December
2023 2022
£’000 £’000
Simon Laffin (Chair)
55
—
Rupert Barclay (resigned)
15
49
Rosemary Boot
40
35
Philip Hall
40
35
Paul Craig (resigned)
15
35
Amanda Aldridge
46
41
Chris Santer
40
35
251
230
Employer’s National Insurance
25
20
276
250
Directors’ remuneration payable at 31 December 2023 amounted to £18,440 (2022: £10,242).
8. Finance income
Year ended Year ended
31 December 31 December
2023 2022
£’000 £’000
Bank interest
55
8
Loan interest
3,706
3,192
3,761
3,200
Loan interest income relates to interest on loans made to operators to purchase property
portfolios. Upon granting these loans, the Group enters into put and call option agreements that
allows it to purchase the property-owning entity for £1 upon certain conditions being met.
Accounting policy
Finance income
Finance income is accounted for on an accruals basis.
Financial statements
81
Impact Healthcare REIT plc
Annual report and financial statements 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
9. Finance expenses
Year ended Year ended
31 December 31 December
2023 2022
Note £’000 £’000
Interest payable on bank borrowings
9,584
3,985
Commitment fee payable on borrowings
528
599
Amortisation of loan arrangement fee
1,418
1,205
Changes in fair value of interest rate derivatives
18
458
(381)
11,988
5,408
The total interest payable on financial liabilities carried at amortised cost comprises interest
payable on borrowings, which was £184.8m at 31 December 2023 (2022: £142.3m). Amortisation
on loan arrangement fees relates to capitalised fees being amortised over the term of the facility,
in the year ended 31 December 2023 £1.2m was capitalised (2022: £2.6m).
Accounting policy
Finance expense
Finance expenses consist principally of interest payable, amortisation of loan arrangement fees and
fair value movements on interest rate derivatives.
Loan arrangement fees are expensed over the term of the relevant loan. Interest payable and other
finance costs which the Group incurs on bank facilities, are expensed in the period to which they relate.
10. Taxation
As a REIT, the Group is exempt from corporation tax on the profits and gains from its property
investment business, provided it continues to meet certain conditions as per REIT regulations.
For the year ended 31 December 2023 and the year ended 31 December 2022, the Group did
not have any non-qualifying profits except interest income.
Tax charge in the consolidated statement of comprehensive income:
Year ended Year ended
31 December 31 December
2023 2022
£’000 £’000
UK corporation tax
—
—
Reconciliation of the corporation tax charge:
Year ended Year ended
31 December 31 December
2023 2022
£’000 £’000
Profit before tax
48,831
16,888
Theoretical tax at UK corporation tax rate 23.5% (2022: 19%)
11,475
3,209
Effects of:
REIT exempt profits
(8,860)
(5,905)
Non-taxable items
(2,615)
2,696
Total tax charge
—
—
Under the UK REIT rules within which the Group operates, capital gains on the Group’s UK
properties are generally exempt from UK corporation tax, provided they are not held for trading.
The Group also received income outside of the property rental business (not covered by the
REIT tax exemptions), this was namely in the form of interest income on loans to operators for
the acquisition of property portfolios where the Group had an option to acquire upon certain
regulatory requirements being met. This income was offset by residual business expenses and
carried forward losses so incurred no tax charge for the period.
Accounting policy
Taxation
The Group is a REIT in relation to its property investments and is therefore exempt from tax, subject to
the Group maintaining its REIT status.
Current tax is the expected tax payable on any non-REIT taxable income for the year, using tax rates
enacted or substantively enacted at the balance sheet date.
Financial statements
82
Impact Healthcare REIT plc
Annual report and financial statements 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
11. Earnings per share
Earnings per share (EPS) amounts are calculated by dividing profit for the period attributable to
ordinary equity holders of the Company by the time-weighted average number of ordinary shares
outstanding during the period. As there are no dilutive instruments outstanding, basic and diluted
earnings per share are identical.
Year ended Year ended
31 December 31 December
2023 2022
£’000 £’000
Total comprehensive income (attributable to shareholders)
48,831
16,888
Adjusted for:
– Revaluation movement
(21,934)
8,103
– Rental lease incentive
(140)
(141)
– Rental income arising from recognising rental premiums
and future guaranteed rent uplifts
7,286
6,494
Change in fair value of investment properties
(14,788)
14,456
Change in fair value of put option
—
1,811
Loss/(profit) on disposal of investment property
16
(130)
Change in fair value of interest rate derivative
458
(381)
EPRA earnings
34,517
32,644
Adjusted for:
Rental income arising from recognising rental premiums
and future guaranteed rent uplifts
(7,287 )
(6,494)
Amortisation of lease incentives
141
141
Cash received on interest rate cap
1,393
112
Amortisation of loan arrangement fees
1,418
1,205
(Loss)/profit on disposal of investment property
(16)
130
Adjusted earnings
30,166
27,7 3 8
Average number of ordinary shares
414,157,674
390,058,661
Earnings per share (pence)
11.79p
4.33p
EPRA basic and diluted earnings per share (pence)
8.33p
8.37p
Adjusted basic and diluted earnings per share (pence)
7.28p
7.1 1p
1
1
1
1.
There is no difference between basic and diluted earnings per share.
The European Public Real Estate Association (EPRA) publishes guidelines for calculating adjusted
earnings designed to represent core operational activities.
The EPRA earnings are arrived at by adjusting for the changes in fair value of investment
properties and interest rate derivatives, and removal of profit or loss on disposal of investment
properties.
Adjusted earnings:
Adjusted earnings is used by the board to help assess the Group’s ability to deliver a cash covered
dividend from recurring net income. The metric adjusts EPRA earnings by other non-cash items
credited or charged to the Group statement of comprehensive income including the effect of
straight-lining of rental income from fixed rental uplift adjustments and amortisation of loan
arrangement fees. The metric also adjusts for any one-off costs that are not expected to be
recurring and for cash items which are excluded from the EPRA earnings calculation such as
interest income on hedging arrangement.
Fixed rental uplift adjustments relate to adjustments to net rental income on leases with minimum
uplifts embedded within their review profiles. The total minimum income recognised over the
lease term is recognised on a straight-line basis and therefore not supported by cash flows during
the early term of the lease, but this reverses towards the end of the lease.
The board uses the adjusted earnings alongside the available distributable reserves in its
consideration and approval of dividends.
Financial statements
83
Impact Healthcare REIT plc
Annual report and financial statements 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
12. Dividends
Year ended Year ended
31 December 31 December
Dividend rate 2023 2022
(pence per share) £’000 £’000
Fourth interim dividend for the period
ended 31 December 2021 (ex-dividend –
25 February 2022)
1.6 025p
—
6,181
First interim dividend for the period ended
31 December 2022 (ex-dividend – 5 May 2022)
1 .6350p
—
6,307
Second interim dividend for the period ended
31 December 2022 (ex-dividend – 25 August 2022)
1.6 350p
—
6,618
Third interim dividend for the period
ended 31 December 2022 (ex-dividend –
3 November 2022)
1. 6350p
—
6,618
Fourth interim dividend for the period
ended 31 December 2022 (ex-dividend –
31 January 2023)
1. 6350p
6,775
—
First interim dividend for the period ended
31 December 2023 (ex-dividend – 25 April 2023)
1 .692 5p
7,013
—
Second interim dividend for the period ended
31 December 2023 (ex-dividend – 9 August 2023)
1. 6925p
7,013
—
Third interim dividend for the period
ended 31 December 2023 (ex-dividend –
20 October 2023)
1 .6925p
7,013
—
Total dividends paid
27,814
25,724
Total dividends paid in respect of the year
5.0775p
4.9050p
Total dividends unpaid but declared in respect
of the year
1.6925p
1.635 0p
Total dividends declared in respect of the year
– per share
6 .7 7p
6 .54p
On 31 January 2023, the Company declared an interim dividend of 1.6350 pence per share for
the period from 1 October 2022 to 31 December 2022 and was paid on 24 February 2023.
On 25 April 2023, the Company declared an interim dividend of 1.6925 pence per ordinary share
for the period from 1 January 2023 to 31 March 2023 and was paid on 19 May 2023.
On 9 August 2023, the Company declared an interim dividend of 1.6925 pence per share for the
period from 1 April 2023 to 30 June 2023 and was paid on 20 September 2023.
On 20 October 2023, the Company declared an interim dividend of 1.6925 pence per share for the
period 1 July 2023 to 30 September 2023 and was paid on 24 November 2023.
Accounting policy
Dividends
Dividends are recognised when they become legally payable.
13. Investment property
In accordance with the RICS “Red Book” the properties have been independently valued on the
basis of fair value by Cushman & Wakefield, an accredited independent valuer with a recognised
professional qualification. They have recent and relevant experience in the locations and
categories of investment property being valued and skills and understanding to undertake the
valuations competently. The properties have been valued on an individual basis and their values
aggregated rather than the portfolio valued as a single entity. The valuers have used recognised
valuation techniques in accordance with those recommended by the International Valuation
Standards Committee and are compliant with IFRS 13. Factors reflected include current market
conditions, annual rentals, lease lengths, property condition, including improvements affected
during the year, rent coverage, location and comparable evidence.
The valuers of the Group property portfolio have a working knowledge of the various ways that
environmental, social and governance factors can impact the value of property. Concerning
Governance, within the care sector in the UK, the valuers reflect the latest available regulatory
reports from the various regulatory bodies within the UK (being CQC, CSSIW, Care Inspectorate
and RQIA). With regards to Social, there are fewer established benchmarks in this area but
the valuers are aware that care homes generally meet a social need to residents and are also
employment providers.
Environmental and sustainability standards, which vary across parts of the UK are also referenced
within the valuers’ report. The valuers also note that they continue to monitor the wider property
market for evidence of transactional activity that evidences the views of market participants in
this area.
The Group continues to share recently conducted physical climate and transitional risk
assessments with the valuers, which they have reviewed and reflected in their valuations to
the extent that current market participants would do so.
Valuers observe, assess and monitor evidence from market activities, including market
sentiment, on issues such as longer-term obsolescence and, where known, future environmental,
social and governance related risks. These may include, for example, the market’s approach
to capital expenditure required to maintain the utility of the asset. In the absence of reliable
benchmarking data and indices for estimating costs, specialist advice on cost management
may be required. This is usually agreed with the valuer in the terms of engagement and without
reasonable estimates, assumptions may be needed properly to reflect market expectations in
arriving at the valuation.
The valuations are the ultimate responsibility of the directors. Accordingly, the critical assumptions
used in establishing the independent valuation are reviewed by the board.
Financial statements
84
Impact Healthcare REIT plc
Annual report and financial statements 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
13. Investment property continued
All corporate acquisitions during the year have been treated as asset purchases rather than business
combinations because they are considered to be acquisitions of properties rather than businesses.
As at As at
31 December 31 December
2023 2022
£’000 £’000
Opening value
532,479
459,442
Property additions
91,688
69,217
Property disposals
(1,250)
(2,495)
Acquisition costs capitalised
1,765
2,591
Capital improvements
4,697
11,826
Revaluation movement
21,934
(8,102)
Closing value per independent valuation report
651,313
532,479
Guaranteed rent reviews debtor
(35,258)
(28,112)
Lease incentive debtor
(2,379)
(2,519)
Rent premium creditor
2,330
2,470
Closing fair value per consolidation statement of
financial position
616,006
504,318
1
1.
In 2023 the carrying value of disposals was £1,250,000 (2022: £2,495,000), this combined with the loss on
disposal of £16,000 (2022: £130,000 profit), makes up the total net proceeds shown in the consolidated
statement of cash flows.
During the year, the Group acquired an additional £91.7m assets, of which £35.7m relates to a
portfolio which was purchased via a loan to operator in December 2021 where the Group had an
option to acquire, this option was exercised in June 2023 and £56m relates to the purchase of
a portfolio in 2023 where 20% of the consideration was made up of shares in the Company, see
note 21 for further detail.
The majority of the properties owned are freehold except for 11 properties which are long
leasehold, eight of these are under a minimum of 999-year leases at a peppercorn rent and
the remaining three are under 125-year leases at a peppercorn rent.
Change in fair value of investment properties
The following elements are included in the change in fair value of investment properties reported
in the consolidated financial statements:
Year ended Year ended
31 December 31 December
2023 2022
£’000 £’000
Revaluation movement
21,934
(8,102)
Rental lease incentive
140
141
Rental income arising from recognising rental premiums and
guaranteed rent uplifts
(7,286)
(6,495)
Change in fair value of investment properties
14,788
(14,456)
1
1.
Lease incentives relate to the amortisation of payments made to tenants that are not part of any acquisition
contractual obligations. These payments are made in return for an increase in rent.
Rental income arising from recognising guaranteed rent uplifts and initial lease rental payment
includes the adjustments to rental receipts for the period to reflect the total minimum income
recognised over the expected lease terms on a straight-line basis. Rent premiums received are
being reflected on a straight-line basis over the term of the lease. In addition, the Group benefits
from a minimum annual rental uplift of 1% or 2% on all care home leases. These uplifts are also
incorporated to recognise income on a straight-line basis. The elements are reported in the table
below. Capital improvements funded by the Group are undertaken under Deeds of Variation to
the leases. The period between signing the Deed of Variation and rent commencing is a rent-free
period and rent is recognised on a straight-line basis from the signing of the Deed of Variation.
Year ended Year ended
31 December 31 December
2023 2022
Note £’000 £’000
Rent received in advance of recognition
5
140
170
Rent recognised in advance of receipt
5
7,145
6,324
Rental income arising from recognising rental
premium and future guaranteed rent uplifts
7, 286
6,494
1
2
1.
Rent premiums received in prior periods, as well as any rent premiums received during the year, deemed to
be a premium over the term of the lease.
2.
Relates to both rent-free periods being recognised on a straight-line basis over the term of the lease and rent
recognised in the period to reflect the minimum 1% or 2% uplift in rents over the term of the care home lease
on a straight-line basis.
Financial statements
85
Impact Healthcare REIT plc
Annual report and financial statements 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
13. Investment property continued
Descriptions and definitions relating to valuation techniques and key unobservable inputs made in
determining fair values are as follows:
Valuation techniques used to derive fair values
The valuations have been prepared on the basis of fair value which is defined in the RICS “Red Book”
as the “price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date” in accordance with IFRS 13.
The concept of fair value is considered to be consistent with that of market value. The valuation
takes into consideration the current market conditions, including improvements effected during the
year, annual rentals, lease lengths, property condition, rent coverage and location.
Unobservable inputs
These include: estimated average increase in rent based on both market estimations and
contractual situations; equivalent yield (defined as the weighted average of the net initial yield
and reversionary yield); estimated rental value (ERV) based on market conditions prevailing at
the valuation date and the physical condition of the property determined by inspections on a
rotational basis. A decrease in the ERV would decrease fair value. A decrease in the equivalent
yield would increase the fair value. An increase in the remaining lease term would increase the
fair value.
Sensitivity of measurement of significant unobservable inputs
The Group’s investment properties, which are all healthcare assets, are considered to be a
single class of asset. Initial yields range from 3.6% to 12.5% across the portfolio, the average
yield, as measured by the EPRA “topped-up” net initial yield for the portfolio, was 6.92% as at
31 December 2023. Annual rent roll for the portfolio as at 31 December 2023 was £47.2m and
the total ERV was £48.2m. ERV per bed ranges from £2,300/bed to £12,000/bed.
A 0.25% movement of the valuation yield would have approximately a £22.6m impact on the
investment property valuation. A 1% movement in the rental income would have approximately
a £6.5m impact on the investment property valuation.
Fair value hierarchy
The Group is required to classify fair value measurements of its investment properties using a fair
value hierarchy, in accordance with IFRS 13: Fair Value Measurement. This hierarchy reflects the
subjectivity of the inputs used, and has the following levels:
• Level 1 – unadjusted quoted prices in active markets;
• Level 2 – observable inputs other than quoted prices included within level 1; and
• Level 3 – unobservable inputs.
The following table provides the fair value measurement hierarchy for investment property:
Date of Total Level 1 Level 2 Level 3
valuation £’000 £’000 £’000 £’000
Assets
measured at
fair value:
Investment 31 December
properties
2023
616,006
—
—
616,006
Investment 31 December
properties
2022
504,318
—
—
504,318
There have been no transfers between any of the levels during the year.
Accounting policy
Investment properties
Investment properties consist of land and buildings (principally care homes) which are held to earn rental
income and for capital growth potential.
Investment properties are initially recognised at cost, being the fair value of consideration given, including
transaction costs associated with the investment property. Investment properties are recognised when
the risk and rewards on the acquired properties passes to the Group on completion of the purchase. Any
subsequent capital expenditure incurred in improving investment properties is capitalised in the period
incurred and included within the book cost of the property.
After initial recognition, investment properties are measured at fair value, with gains and losses recognised
in the consolidated statement of comprehensive income in the period which they arise. Fair value
measurement takes into consideration the improvements to the investment property during the year,
taking into account the future cash flows from increases in rent that have been contracted in relation
to the improvement and discounting them at an appropriate rate to reflect the percentage of completion
of the works being undertaken and the risk to completion that remains.
Gains and losses on disposals of investment properties are determined as the difference between net
disposal proceeds and the carrying value of the asset. These are recognised in the consolidated statement
of comprehensive income in the period in which they arise.
Financial statements
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Annual report and financial statements 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
14. Trade and other receivables
As at As at
31 December 31 December
2023 2022
£’000 £’000
Non-current
Rent recognised in advance of receipt
35,258
28,112
Rental lease incentive
2,379
2,519
Loan receivable
1,600
37,50
0
39,237
68,131
Current
Interest receivable on interest rate derivatives
358
—
Interest receivable on operator loan
66
—
Loan associated costs
—
671
Accrued income
142
—
Prepayments
196
510
Other receivables
145
—
907
1,181
40,144
69,312
1,2
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).
In June 2023, the option was exercised and the portfolio was acquired by the Group.
2.
In June 2023, the Group entered into a loan agreement with Melrose Holdings Limited, a related party,
where the Group provided a working capital loan of £1,600,000 which bears interest at 8.00% per annum
(see note 22 for further detail).
No impairment losses have been recognised as at 31 December 2023 (2022: £nil), refer to note
19 for further detail. However, the Group did write-off £236,000 of rent in the period as a result of
non-payment by one of the Group’s tenants, see note 22 for further detail.
Accounting policy
Trade and other receivables
Trade receivables comprise mainly lease income receivable.
Trade and other receivables are initially recognised at fair value plus transaction costs and subsequently
measured at amortised cost less impairment.
The Group applies the amortised cost basis as trade and other receivables are normally held with
an objective to collect contractual cash flows, i.e. “held to collect”; which comprises payment of principal
and interest on the principal amount outstanding.
15. Cash and cash equivalents
As at As at
31 December 31 December
2023 2022
£’000 £’000
Cash and cash equivalents
9,389
22,531
Included as part of cash and cash equivalents is restricted cash of £nil (2022: £14.7m). This
restricted cash relates to the proceeds of the loan notes issued and will be released upon addition
of the designated properties into the security pool.
Accounting policy
Cash and cash equivalents
Cash and cash equivalents include cash at bank and deposits with maturities of three months, or less,
held at call with banks.
Financial statements
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Annual report and financial statements 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
16. Trade and other payables
As at As at
31 December 31 December
2023 2022
£’000 £’000
Non-current
Rent received in advance of recognition
2,330
2,471
Put option
—
1,811
Current
Trade and other payables
1,686
3,420
Interest payable
1,745
1,149
Withholding tax payable – (PID dividends)
606
609
Rental received in advance
—
1,949
Rental deposits
—
443
Capital improvements payable
2,878
1,556
6,915
9,126
9,245
13,408
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 bore 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, gave
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 became 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 was considered to be a substantive condition to be met before the options was exercisable
and therefore management did not consider there was any present ownership interest in the
property company which may be acquired at a future date until the conditions were met. The fair
value of the option reflects the underlying investment properties, offset by loan and interest due at
each balance sheet date. The investment properties were valued on the same basis as the Group’s
investment property. In June 2023 the option was exercised, and the portfolio was acquired by
the Group.
Accounting policy
Trade payables
Trade payables are initially recognised at their fair value and are subsequently measured at amortised
cost.
Put and call options
Put and call option instruments, comprising the right for an operator to sell to the Group or Impact to
acquire from the operator the share capital of a company holding a portfolio of properties, are measured
at fair value.
Changes in fair value of put and call option instrument are recognised within the consolidated statement
of comprehensive income in the period in which they occur.
The Group does not apply hedge accounting in accordance with IFRS 9.
17. Borrowings
A summary of the bank borrowings drawn in the period are shown below:
As at As at
31 December 31 December
2023 2022
£’000 £’000
At the beginning of the year
142,260
114,548
Borrowings drawn in the year
82,500
85,074
Borrowings repaid in the year
(40,000)
(57,362)
Total bank borrowings drawn
184,760
142,260
1
1.
Total bank borrowings drawn are equal to its fair value.
As at 31 December 2023, the Group had £250m (2022: £241m) of available facilities of which
£65.2m was undrawn (2022: £98.7m).
Financial statements
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Annual report and financial statements 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
17. Borrowings continued
A summary of the bank borrowings by lender are shown below:
As at 31 December 2023:
National
Clydesdale HSBC UK Westminster Senior secured Senior secured
Bank PLC Bank Plc Bank Plc loan notes loan notes
(‘Virgin’) (‘HSBC’) (‘NatWest’) (tranche A)
(tranche B)
Total
Facility type
RCF
RCF
RCF
Private placement
Private placement
Size (£’m)
50.0
75.0
50.0
37.0
38.0
250
Drawn debt (£’m)
32.5
47.0
30.3
37.0
38.0
184.8
Start date
December 2022
April 2020
May 2017
December 2021
December 2021
Expiry date
December 2029
April 2026
June 2028
December 2035
June 2035
Margin
2.00%
2.00%
2.00%
N/A
N/A
Fixed interest rate
N/A
N/A
N/A
2.93%
3.00%
Independent valuation of secured properties (£’m)
118.2
163.6
129.2
171.3
582.3
Financial covenants:
LTV
50%
55%
50%
55%
Interest cover
2.00x
2.00x
1.75x
2.50x
1
2
As at 31 December 2022:
National
Metro Bank Clydesdale HSBC UK Westminster Senior secured Senior secured
PLC Bank PLC Bank Plc Bank Plc loan notes loan notes
(‘Metro’) (‘Virgin’) (‘HSBC’) (‘NatWest’) (tranche A)
(tranche B)
Total
Facility type
Term loan
RCF
RCF
RCF
Private placement
Private placement
Size (£’m)
15.0
50.0
75.0
26.0
37.0
38.0
241.0
Drawn debt (£’m)
15.0
17.0
10.0
25.3
37.0
38.0
142.3
Start date
June 2018
December 2022
April 2020
May 2017
December 2021
December 2021
Expiry date
June 2023
December 2029
April 2025
June 2024
December 2035
June 2035
Margin
2.65%
2.00%
2.00%
1.90%
N/A
N/A
Fixed interest rate
N/A
N/A
N/A
N/A
2.93%
3.00%
Independent valuation of secured properties (£’m)
53.9
110.9
146.8
64.7
128.9
505.2
Financial covenants:
LTV
50%
55%
50%
55%
Interest cover
2.00x
2.50x
2.50x
2.50x
1
2
1.
Loan to value must not exceed the stated percentage.
2.
Passing rent from ringfenced properties divided by interest expense must exceed the stated cover ratio.
Financial statements
89
Impact Healthcare REIT plc
Annual report and financial statements 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
17. Borrowings continued
In June 2023, the Group repaid its £15m term loan with Metro Bank PLC.
In June 2023, the Group increased its RCF facility with NatWest from £26m to £50m, extended
the facility term from June 2024 to June 2028 with a further two one-year extension options
(subject to lender approval) to June 2030. In recognition of the maturity extension, the margin
was increased to 200 bps above SONIA (previously 190 bps). The interest cover covenant was
reduced from 2.50x to 1.75x in the first two years, after which it increases to 2.00x for the
remainder of the term.
In June 2023, the Group agreed a one-year extension option to its HSBC RCF to April 2026.
The interest cover covenant was reduced from 2.50x to 2.00x, with the margin remaining at
200 bps above SONIA.
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 As at
31 December 31 December
2023 2022
£’000 £’000
Borrowings drawn
184,760
142,260
Arrangement fees – brought forward
(5,064)
(3,641)
Arrangement fees incurred during the year
(1,177)
(2,628)
Amortisation of loan arrangement fees
1,418
1,205
Borrowings at amortised cost
179,937
137,1 96
Borrowings at amortised cost due within one year
—
14,814
Borrowings at amortised cost due after one year
179,937
122,382
Maturity analysis of borrowings:
As at As at
31 December 31 December
2023 2022
£’000 £’000
Repayable within one year
—
15,000
Repayable between one and two years
—
25,260
Repayable between two and five years
77,260
10,000
Repayable in over five years
107,500
92,000
Total
184,760
142,260
The weighted average term of the Group’s committed facilities is 6.8 years (2022: 6.3 years).
As at 31 December 2023, the nominal value of the Group’s loans equated to £184.8m, the fair
value of these loans, based on a discounted cash flow using relevant rates based on market
conditions as at 31 December 2023, totalled £161.8m.
Accounting policy
Borrowings
All borrowings are initially recognised at fair value net of attributable transaction costs. After initial
recognition, all borrowings are measured at amortised cost, using the effective interest method.
The effective interest rate is calculated to include all associated transaction costs.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the
extent that it is probable that some or all of the facility will be drawn down. The fee is capitalised as a
prepayment for liquidity services and amortised over the period of the facility to which it relates within
finance costs in the consolidated statement of comprehensive income.
18. Interest rate derivatives
As at As at
31 December 31 December
2023 2022
£’000 £’000
At the beginning of the year
363
94
Purchase of derivative
3,238
—
Change in fair value of interest rate derivatives
(458)
381
Payments received and accrued on interest rate derivatives
(1,393)
(112)
1,750
363
To mitigate the interest rate risk that arises as a result of entering into variable rate linked loans,
the Group has entered into interest rate caps.
In June 2018, the Group entered into an interest rate cap with the notional value of £25m and a
strike rate of 1% which terminated in June 2023.
In January 2023, the Group purchased a two-year interest rate cap for £1.5m, which caps SONIA
at 3% for a notional amount of £50m.
In August 2023, the Group purchased a two-year interest rate cap for £1.8m, which caps SONIA at
4% for a notional amount of £50m.
At 31 December 2023, the Group had loans of £109.8m (2022: £67.3m) which were exposed to
interest rate risk.
Accounting policy
Interest rate derivatives
Derivative financial instruments, comprising interest rate caps for hedging purposes, are initially
recognised at fair value and are subsequently measured at fair value.
Changes in fair value of interest rate derivatives are recognised within the consolidated statement
of comprehensive income in the period in which they occur.
The Group does not apply hedge accounting in accordance with IFRS 9.
Financial statements
90
Impact Healthcare REIT plc
Annual report and financial statements 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
19. Financial instruments and financial risk management
The Group’s principal financial assets and liabilities are those that arise directly from its operations: trade and other receivables, trade and other payables and cash held at bank. The Group’s other
principal financial assets and liabilities are borrowings and interest rate derivatives, the main purpose of which is to finance the acquisition and development of the Group’s investment property
portfolio and hedge against the interest rate risk arising.
Set out below is a comparison by class of the carrying amounts of the Group’s financial instruments:
As at As at
31 December 31 December
2023 2022
£’000 £’000
Financial assets at amortised cost:
Loan receivable
1,600
37,50
0
Cash and cash equivalents
9,389
22,531
Trade and other receivables
711
—
Financial assets at fair value:
Interest rate derivative
1,750
363
Financial liabilities at amortised cost:
Borrowings
179,937
13
7,19
6
Trade and other payables
6,309
6,568
Financial liabilities at fair value:
Put option
—
1,811
The interest rate derivative and put option are the only financial instruments that are measured at fair value through the Group’s consolidated statement of comprehensive income.
The following table provides the fair value measurement hierarchy for the interest rate derivative and put option:
Date of Total Level 1 Level 2 Level 3
valuation £’000 £’000 £’000 £’000
Assets measured at fair value:
Interest rate derivative
31 December 2023
1,750
—
1,750
—
Interest rate derivative
31 December 2022
363
—
363
—
Financial liabilities at fair value:
Put option
31 December 2023
—
—
—
—
Put option
31 December 2022
1,811
—
—
1,811
1
1
1
1.
The fair value categories are defined in note 13.
Financial statements
91
Impact Healthcare REIT plc
Annual report and financial statements 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
19. Financial instruments and financial risk management continued
Risk management
The Group is exposed to market risk (including interest rate risk), credit risk and liquidity risk.
The board oversees the management of these risks. The board reviews and agrees policies for
managing each of the risks that are summarised below.
Market risk (including interest rate risk)
Market risk is the risk that the fair values or future cash flows of financial instruments will fluctuate
because of changes in market prices. The financial assets held by the Group that are affected by
interest rate risk are principally the Group’s cash balances and the interest rate derivative.
The Group monitors its interest rate exposure on a regular basis. A sensitivity analysis performed
to ascertain the impact on profit or loss and net assets of a 50-basis point shift in interest rates
on the Group’s cash balances would result in a movement of £46,945 (2022: £112,660) in interest
receivable for the year.
The financial liabilities held by the Group that are affected by interest rate risk are principally the
Group’s borrowings. The Group has entered into an interest rate derivatives to reduce its exposure
to interest rate risk on its floating-rate debt (refer to note 18). A sensitivity analysis is performed
to ascertain the impact on profit or loss and net assets of a 50-basis point shift in interest rates
on the Group’s unhedged borrowings would result in a movement of £48,800 (2022: £211,300)
in interest payable for the year.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument
or customer contract, leading to a financial loss.
The Group is exposed to credit risks from its leasing activities. Credit risk is reduced by requiring
tenants to pay rentals in advance under their lease obligations. The credit quality of the tenant
is also assessed based at the time of entering into a lease agreement thereby reducing credit
risk. Outstanding trade receivables are regularly monitored. There are no outstanding trade
receivables at 31 December 2023.
Credit risk also arises with the cash balances held with banks and financial institutions. The board
believes that the credit risk on current account cash balances is limited because the counterparties
are reputable banks with high credit ratings assigned by international credit-rating agencies.
The impairment loss identified on cash balances was considered immaterial.
Accounting policy
Expected credit losses
The Group applies the IFRS 9 simplified approach to measuring the expected credit losses (ECLs) for trade
receivables whereby the allowance or provision for all trade receivables are based on the lifetime ECLs.
The Group applies the general approach for initial recognition and subsequent measurement of ECL
provisions for the loan receivable and other receivables which have maturities of 12 months or more and
have a significant finance component.
This approach comprises of a three-stage approach to evaluating ECLs. These stages are classified as
follows:
Stage one
12-month ECLs are recognised in profit or loss at initial recognition and a loss allowance is established.
For financial instruments that have not deteriorated significantly in credit quality since initial recognition
or that have low credit risk at the reporting date, the loss allowance for 12 month ECLs is maintained and
updated for changes in amount. Interest revenue is calculated on the gross carrying amount of the asset
(i.e. without reduction for ECLs).
Stage two
If the credit risk increases significantly and the resulting credit quality is not considered to be low credit
risk, full lifetime ECLs are recognised and includes those financial instruments that do not have objective
evidence of a credit loss event. Interest revenue is still calculated on the gross carrying amount of the asset.
Stage three
If the credit risk of a financial asset increases to the point that it is considered credit impaired (there
is objective evidence of impairment at the reporting date), lifetime ECLs continue to be recognised.
For financial assets in this stage, lifetime ECLs will generally be individually assessed. Interest revenue is
calculated on the amortised cost net carrying amount (amortised cost less impairment).
Rent-smoothing adjustments are not considered to be financial assets as the amounts are not yet
contractually due. As such, the requirements of IFRS 9 (including the expected credit loss method) are
not applied to those balances, although the credit risk is considered in the determination of the fair
value of the related property.
Financial statements
92
Impact Healthcare REIT plc
Annual report and financial statements 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
19. Financial instruments and financial risk management continued
Liquidity risk
Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due, as the majority of the
Group’s assets are property investments and are therefore not readily realisable. The Group’s objective is to ensure it has sufficient available funds for its operations and to fund its capital expenditure.
This is achieved by regular monitoring of forecast and actual cash flows by the AIFM ensuring the Group has appropriate levels of cash and available drawings to meet liabilities as they fall due.
The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments:
<3 months 3-12 months 1-2 years 2-5 years >5 years Total
£’000 £’000 £’000 £’000 £’000 £’000
31 December 2023:
Borrowings
—
—
—
77,260
107, 500
184,760
Interest and commitment fees on borrowings
937
2,853
3,790
9,318
15,382
32,280
Trade and other payables
6,309
—
—
—
—
6,309
31 December 2022:
Borrowings
—
15,000
25,260
10,000
92,000
142,260
Interest and commitment fees on borrowings
968
2,765
3,458
8,195
18,065
33,451
Trade and other payables
6,568
—
—
—
—
6,568
20. Capital management
The objective of the Group is to acquire, own, lease, renovate, extend and redevelop high-quality, healthcare real estate assets in the UK and lease those assets, under full repairing and insuring leases,
primarily to healthcare operators providing residential healthcare services. This provides ordinary shareholders with an attractive level of income together with the potential for income and capital
growth from investing in a diversified portfolio of freehold and long leasehold care homes.
The board has responsibility for ensuring the Group’s ability to continue as a going concern and continues to qualify for UK REIT status. This involves the ability to borrow monies in the short and long
term and pay dividends out of reserves, all of which are considered and approved by the board on a regular basis.
The Company achieved its increased targeted aggregate dividend of 6.77 pence per share for the year ended 31 December 2023 and its target aggregate dividend of 6.54 pence per share for the
year ended 31 December 2022.
As at 31 December 2023, the Group remains within its maximum loan-to-value (LTV) covenant which is 35% of gross asset value of the Group as a whole. The Group has a further £65.2m of RCF facilities
available from which it can draw.
To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders, issue new shares or buyback shares for cancellation or for
holding in treasury. Capital consists of ordinary share capital, other capital reserves and retained earnings.
Financial statements
93
Impact Healthcare REIT plc
Annual report and financial statements 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
21. Share capital, share premium and capital reduction reserve
Capital reduction
Shares in issue Share capital Share premium reserve Total
Number £’000 £’000 £’000 £’000
As at
31 December
2021
350,644,188
3,506
305,672
24,077
333,255
Share issue
54,120,140
542
61,727
—
62,269
Share issue cost
—
—
(1,757)
—
(1,757)
As at
31 December
2022
404,764,328
4,048
365,642
24,077
393,767
Share issue
9,603,841
96
11,104
—
11,200
Share issue cost
—
—
(30)
—
(30)
As at
31 December
2023
414,368,169
4,144
376,716
24,077
404,937
The Company had 414,368,169 shares of nominal value of 1 pence each in issue at the end of the
year (2022: 404,764,328).
On 13 January 2023, the Company issued 9,603,841 ordinary shares at a price of 116.62 pence
per ordinary share raising gross proceeds of £11.2m. These shares were part consideration for the
acquisition of a portfolio of six properties purchased in January 2023, the remaining consideration
of £44.8m was paid in cash, see note 13 for further detail.
Accounting policy
Share capital
The share capital relates to amounts subscribed for share capital at its par value.
Share premium
The surplus of net proceeds received from the issuance of new shares over their par value is credited to
this account and the related issue costs are deducted from this account. The reserve is non-distributable.
Capital reduction reserve
The capital reduction reserve is the result of the transfer of a portion of share premium into a
distributable reserve .
22. Transactions with related parties
Investment Manager
The fees calculated and paid for the year to the Investment Manager were as follows:
Year ended Year ended
31 December 31 December
2023 2022
£’000 £’000
Amounts payable to Impact Health Partners LLP
Net fee
4,810
4,581
Gross fee
4,810
4,581
Certain members of the Investment Manager are also directors of the Group’s subsidiary
companies. Neither they, nor the Investment Manager receive any additional remuneration in
relation to fulfilling this role.
For the year ended 31 December 2023, the principals and Finance Director of Impact Health
Partners LLP, the Investment Manager, are considered key management personnel. Mr Patel and
Mr Cowley are the principals and Mr Yaldron is the Finance Director of Impact Health Partners LLP
and they own 3.14%, 0.35% and 0.02% respectively (either directly, with related parties or through
a wholly owned company) of the total issued ordinary share capital of Impact Healthcare REIT
plc. Mr Patel also (directly and/or indirectly) holds a majority 72.5% stake in Minster Care Group
Limited (MCGL). Mr Cowley also holds a 20% interest in MCGL. 41% of the Group’s rental income
was received from MCGL or its subsidiaries. No trade receivables were outstanding at the year end
(2022: £nil).
During the year, the key management of Impact Health Partners LLP received the following
dividends from Impact Healthcare REIT plc: Mahesh Patel £722,610 (2022: £723,130); Andrew
Cowley £109,445 (2022: £91,871) and David Yaldron £11,137 (2022: £7,975).
Directors’ interests
During the year, the directors, who are considered key management personnel, received the
following dividends from the Company: Simon Laffin £5,078 (2022: £nil); Rupert Barclay (resigned
on 31 March 2023) £2,997 (2022: £11,927); Rosemary Boot £2,014 (2022: £1,952); Chris Santer £949
(2022: £920) and Philip Hall £2,014 (2022: £1,952). In addition, funds which were managed by
Paul Craig (resigned on 17 May 2023) received dividends from the Company of £1,070,323 (2022:
£4,089,458).
Directors’ remuneration for the year is disclosed in note 7 as well as in the directors’ remuneration
report.
Financial statements
94
Impact Healthcare REIT plc
Annual report and financial statements 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
22. Transactions with related parties continued
Minster Care Group Limited (MCGL)
MCGL, a tenant of the Group, is considered a related party as it is majority owned by the
principals of the Investment Manager. As at 31 December 2023, the Group leased 58 properties
to MCGL (2022: 59), all properties owned for over one year underwent an inflation-linked rent
review in line with their lease provisions. In 2023, the Group entered into no new leases with MCGL
(2022: no new leases) and disposed of one property let to MCGL to a third party, the lease, which
was subject to annual rent of £166,035, was cancelled with 14 years remaining (2022: disposed of
one property). In 2023, the Group spent £nil on approved capital expenditure on homes operated
by MCGL (2022: £0.8m). These transactions were fully compliant with the Company’s related
party policy.
The Group had seven homes let to Silverline (3.4% of the Group’s contracted annual income), who
did not pay its contractual rent for the quarters to 31 March 2023 and 30 June 2023. This was
partially covered by a £0.4m rent deposit. The Group had extensive discussions with alternative
care providers to take over Silverline’s responsibilities, following which it decided on 2 June 2023
that it was in the best interests of the Group’s stakeholders that it enable the solvent sale of
Silverline’s tenant companies to Melrose Holdings Limited (MHL). MHL immediately took over
responsibility for operating the seven homes. MHL is a new company, wholly-owned by connected
parties of Mahesh Patel, and benefits from a service agreement with MCGL, under which MCGL
supports the turnaround of these homes. To assist in the funding of Silverline’s overdue liabilities to
third parties other than the Group and to fund remedial capital expenditure, the Group agreed to
provide a £1.6m loan facility for up to three years to MHL. This facility has an interest rate of 8.0%
per annum on drawn funds and will be repaid in priority to rent from surplus funds in MHL. In the
initial phase of the operational turnaround of these care homes, the existing leases have been
temporarily amended to replace the fixed rent with a variable rent, payable once the loan has
been repaid. The lease variations allow MHL to pay MCGL a fixed management fee of £1,000 per
registered bed in the homes (approximately £400,000 per annum plus VAT) to cover the direct
costs it incurs in overseeing the turnaround, payable only from any surplus cash generated by
the seven homes. Any surplus cash after the management fee will first be used to repay the loan
facility and accrued interest and, once the loan is repaid, will be paid as rent to the Group. Once
the turnaround is complete, it is expected that the lease amendment will be cancelled by mutual
consent and the rent payable will revert to the amount under the original lease.
23. Net asset value (NAV) per share
Basic NAV per share is calculated by dividing net assets in the consolidated statement of financial
position attributable to ordinary equity holders of the Company by the number of ordinary shares
outstanding at the end of the year. As there are no dilutive instruments outstanding, basic and
diluted NAV per share are identical.
The Group has chosen to adopt EPRA net tangible assets (EPRA NTA) as its primary EPRA NAV
measure as it most closely aligns with the business practices of the Group. The adjustments
between NAV and EPRA NTA are reflected in the following table:
As at As at
31 December 31 December
2023 2022
£’000 £’000
Net assets per consolidated statement of financial position
478,107
445,920
Fair value of derivatives
(1,750)
(363)
EPRA NTA
476,357
445,557
Issued share capital (number)
414,368,169
404,764,328
Basic NAV per share
115.38p
110.17p
EPRA NTA per share
114.96p
110.08p
24. Operating leases
The following table sets out the maturity analysis of leases receivables, showing the undiscounted
lease payments under non-cancellable operating leases receivable by the Group:
As at As at
31 December 31 December
2023 2022
£’000 £’000
Year one
48,541
40,477
Year two
49,409
41,125
Year three
50,158
41,901
Year four
51,046
42,509
Year five
51,761
43,270
Onwards
986,920
762,841
Total
1,237,835
972,123
The Group’s investment properties are leased to tenants under the terms of property leases that
include upward only rent reviews that are performed annually. These are annual inflation uplifts
linked to either CPI or RPI. RPI-linked leases have a floor and cap at either 2% and 4% or 1% and 5%.
Financial statements
95
Impact Healthcare REIT plc
Annual report and financial statements 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
25. Reconciliation of liabilities to cash flows from financing activities
Interest rate Interest
Borrowings derivative payable Total
Notes £’000 £’000 £’000 £’000
As at 1 January 2022
110,907
(94)
474
111,287
Cash flows from financing activities:
Borrowings drawn
17
85,074
—
—
85,074
Borrowings repaid
17
(57,362)
—
—
(57,3 62)
Loan arrangement fees paid
(1,265)
—
—
(1,265)
Interest received
18
—
112
—
112
Interest and commitment fees paid
—
—
(3,909)
(3,909)
Non-cash movements:
Amortisation of loan arrangement fees
17
1,205
—
—
1,205
Fair value movement
18
—
(381)
—
(381)
Loan arrangement fees accrued
(1,363)
—
—
(1,363)
Interest and commitment charge
—
—
4,584
4,584
As at 31 December 2022
137,196
(363)
1,149
137,982
Cash flows from financing activities:
Borrowings drawn
17
82,500
—
—
82,500
Borrowings repaid
17
(40,000)
—
—
(40,000)
Loan arrangement fees paid
(2,827)
—
—
(2,827)
Interest received
18
—
1,035
—
1,035
Interest and commitment fees paid
—
—
(9,518)
(9,518)
Purchase of interest rate derivatives
18
—
(3,238)
—
(3,238)
Non-cash movements:
Amortisation of loan arrangement fees
17
1,418
—
—
1,418
Fair value movement
18
—
458
—
458
Loan arrangement fees – reversal of accrual
1,650
—
—
1,650
Interest and commitment charge
—
—
10,114
10,114
Accrued interest receivable on interest rate derivatives
—
358
—
358
As at 31 December 2023
179,937
(1,750)
1,745
179,932
Financial statements
96
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Annual report and financial statements 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
26. Capital commitments
At 31 December 2023, the Group had committed capital expenditure on one forward-funded
development of a new property and on capital improvements to three existing properties; this
amounted to £9.5m (2022: £9.2m).
The Group has committed to deferred payment agreements on two acquisitions in return for
increased rent based on certain trading performance conditions being met by the tenant.
As at 31 December 2023, the total capital commitment for these deferred payments is estimated
at £4.6m (2022: £4.6m).
27. Controlling parties
The Company is not aware of any person who, directly or indirectly, owns or controls the Company.
The Company is not aware of any arrangements the operations of which may give rise to a
change in control of the Company.
28. Subsequent events
No 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.
Financial statements
97
Impact Healthcare REIT plc
Annual report and financial statements 2023
Company statement of financial position
As at 31 December 2023
Company Registration Number: 10464966
Notes
31 December
2023
£’000
31 December
2022
£’000
Non-current assets
Investment in subsidiaries 6 418,861 430,079
Total non-current assets 418,861 430,079
Current assets
Trade and other receivables 7 60,994 18,862
Cash and cash equivalents 8 7,773 283
Total current assets 68,767 19,145
Total assets 487,628 449,224
Current liabilities
Trade and other payables 9 (9,521) (11,720)
Total liabilities (9,521) (11,720)
Total net assets 478,107 43 7,50 4
Equity
Share capital 10 4,144 4,048
Share premium reserve 10 376,716 365,642
Capital reduction reserve 10 24,077 24,077
Retained earnings 73,170 43,737
Total equity 478,107 43 7,50 4
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 2023 amounted to £57,247,000 (2022: profit of £17,556,000).
The financial statements were approved and authorised for issue by the board of directors on 22 March 2024 and are signed on its behalf by:
Simon Laffin
Chair
The accompanying notes form an integral part of these financial statements.
Financial statements
98
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Annual report and financial statements 2023
Company statement of changes in equity
For the year ended 31 December 2023
Notes
Share capital
£’000
Share
premium
£’000
Capital
reduction
reserve
£’000
Retained
earnings
£’000
Total
£’000
1 January 2023 4,048 365,642 24,077 43,737 437, 504
Total comprehensive income — — — 57, 247 57, 247
Transactions with owners
Dividends paid 5 — — — (27,8 14) (27,814)
Share issue 10 96 11,104 — — 11,200
Share issue costs 10 — (30) — — (30)
31 December 2023 4,144 376,716 24,077 73,170 478,107
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 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
The accompanying notes form an integral part of these financial statements.
Financial statements
99
Impact Healthcare REIT plc
Annual report and financial statements 2023
Notes to the Company financial statements
For the year ended 31 December 2023
1. Basis of preparation
General information
The financial statements for the year ended 31 December 2023 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 2022.
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 Company would be identical;
• no statement of cash flows has been presented for the Company;
• disclosures in respect of the 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 of the 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 inflation and interest rate environment has been considered by
the directors. The directors have reviewed the forecasts for the Company, taking into account
the impact of heightened interest rates and rising costs 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.
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,
typically as a result of dividends declared in the year.
3. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set
out alongside the relevant note.
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
2023
£’000
Year ended
31 December
2022
£’000
UK corporation tax — —
5. Dividends
Details of dividends paid by the Company are included in note 12 to the consolidated financial
statements.
Accounting policy
Dividends
Dividends are recognised when they become legally payable.
6. Investment in subsidiaries
31 December
2023
£’000
31 December
2022
£’000
At the beginning of the year 430,079 392,486
Additions 165,234 93,425
Impairment (176,452) (55,832)
At the end of the year 418,861 430,079
Financial statements
100
Impact Healthcare REIT plc
Annual report and financial statements 2023
Notes to the Company financial statements continued
For the year ended 31 December 2023
6. Investment in subsidiaries continued
The Company has the following subsidiaries:
Principal activity Country of incorporation Ownership %
Impact Property 1 Limited (‘Propco 1’)
1
Real estate investment England and Wales 100
Impact Property 2 Limited (‘Propco 2’)
1
Real estate investment England and Wales 100
Impact Property 3 Limited (‘Propco 3’)
1
Real estate investment England and Wales 100
Impact Property 4 Limited (‘Propco 4’)
1
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’)
1
Real estate investment England and Wales 100
Impact Property 8 Limited (‘Propco 8’)
1
Real estate investment England and Wales 100
Impact Property 9 Limited (‘Propco 9’)
1
Real estate investment England and Wales 100
Impact Finance 1 Limited (‘Finance 1’)
1
Financing company England and Wales 100
Impact Finance 2 Limited (‘Finance 2’)
1
Financing company England and Wales 100
Impact Finance 3 Limited (‘Finance 3’)
1
Financing company England and Wales 100
Impact Finance 4 Limited (‘Finance 4’)
1
Financing company England and Wales 100
Impact Finance 5 Limited (‘Finance 5’)
1
Financing company England and Wales 100
Impact Finance 6 Limited (‘Finance 6’)
1
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
1,2
Property holding company England and Wales 100
Romney Care Home Limited
1,2
Property holding company England and Wales 100
Cholwell Care (Nailsea) Limited
1,2
Property holding company England and Wales 100
Butterfly Cumbria Properties Limited
1
Property holding company England and Wales 100
The Holmes Care Holdings Limited
1,2
Property holding company England and Wales 100
Hollyblue Healthcare (Ulster) Limited
1,2
Property holding company England and Wales 100
Tower Bridge Homes Care Limited
1,2
Property holding company England and Wales 100
Financial statements
101
Impact Healthcare REIT plc
Annual report and financial statements 2023
Notes to the Company financial statements continued
For the year ended 31 December 2023
Principal activity Country of incorporation Ownership %
The Holmes Care Group GB Limited
1,2
Property holding company England and Wales 100
Hillcrest House Limited
1,2
Property holding company England and Wales 100
Carlton Hall (Lowestoft) Limited
1,2
Property holding company England and Wales 100
Abingdon Manor Care Centre Limited
1,2
Property holding company Northern Ireland 100
Larne Care Centre Limited
1,2
Property holding company Northern Ireland 100
Larne C C Limited
1,2
Property holding company Northern Ireland 100
Welford Bidco 5 Midco Limited
1
Investment holding company England and Wales 100
Morris Care Limited
1
Property holding company England and Wales 100
Kingdom Finco 1 Limited
1
Investment holding company England and Wales 100
Kingdom Homes Limited
1
Property holding company Scotland 100
Barrogil Limited
1
Property holding company Scotland 100
Eastleigh Care Group Limited
1
Property holding company England and Wales 100
Woodleigh Christian Care Home Limited
1
Property holding company England and Wales 100
Welford Bidco 2 Midco Limited
1
Investment holding company England and Wales 100
Welford Bidco 4 Midco Limited
1
Investment holding company England and Wales 100
1.
As at 31 December 2023 these entities were held indirectly by the Company.
2.
As at 31 December 2023 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
The registered address for the above subsidiaries incorporated in Scotland is: 177 Bothwell Street, Glasgow, G2 7ER, Scotland
Where the entity is in the process of winding up, the registered address is that of the liquidator appointed by the Company.
Accounting policy
Investments in subsidiaries
The investments in subsidiary companies are included in the Company’s statement of financial position
atcost less provision for impairment.
6. Investment in subsidiaries continued
Financial statements
102
Impact Healthcare REIT plc
Annual report and financial statements 2023
Notes to the Company financial statements continued
For the year ended 31 December 2023
7. Trade and other receivables
As at
31 December
2023
£’000
As at
31 December
2022
£’000
Loan to Group companies 60,797 18,658
Prepayments 197 204
60,994 18,862
As at 31 December 2023, there were no trade receivables past due or impaired (2022: none). Loans
to subsidiaries are interest free, repayable on demand and management expect them to be
settled within the next 12 months.
Accounting policy
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.
8. Cash and cash equivalents
As at
31 December
2023
£’000
As at
31 December
2022
£’000
Cash and cash equivalents 7,773 283
None of the Company’s cash balances are held in restricted accounts.
Accounting policy
Cash and cash equivalents
Cash and cash equivalents include cash at bank and short-term deposits.
9. Trade and other payables
As at
31 December
2023
£’000
As at
31 December
2022
£’000
Loan from Group companies 7,781 9,977
Trade and other payables 1,740 1,743
9,521 11,720
Loans from Group companies are unsecured, interest-free and are repayable on demand.
Trade and other payables
Trade payables are initially recognised at their fair value and are subsequently measured at cost.
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.
Accounting policy
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.
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 (2022: £nil).
13. Contingent liabilities
On 21 December 2021, the Company guaranteed a long-term loan note issue made by a wholly
owned subsidiary. The loan notes total £75m 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.
Financial statements
103
Impact Healthcare REIT plc
Annual report and financial statements 2023
Additional
information
What’s in this section
Reporting against the Task Force on Climate-Related
FinancialDisclosures framework 105
Applying the AIC Code Principles 113
EPRA performance measures 115
Notes to the EPRA performance measures 118
Alternative performance measures 121
Our portfolio 122
AIFM statement 125
Investment policy 126
How we manage risk 127
Glossary 130
Corporate information 131
Financial calendar 131
104
Impact Healthcare REIT plc
Annual report and financial statements 2023
Additional information
Reporting against the Task Force on Climate-Related Financial Disclosures framework
Positive progress
In last year’s report, we included our initial response to the Task Force on Climate-related Financial
Disclosures (TCFD) methodology, where we reported across the framework’s four key pillars of
governance, strategy, risk management and metrics and targets and responded to the underlying
11 recommended disclosures. In line with the TCFD’s suggested approach, we considered a 1.5–2
degrees warming scenario, based on the Intergovernmental Panel on Climate Change’s (IPCC)
defined Representative Concentration Pathway 2.6 and assessed the associated physical and
transition risks. We also considered IPCC’s RCP 4.5 (2-3.5 degrees warming) and RCP 8.5 (4 degrees
warming). We have not repeated that analysis in this report.
During 2023 we have made good progress in terms of continuing to develop our understanding,
management, measurement and decision-making in regard to climate action. The IM has
established an ESG committee chaired by the Finance Director; we have continued to develop a
credible climate net zero delivery plan and model the associated finances; and, building on last
year’s TCFD analysis, we have considered specific material risks and opportunities in greater detail
(pages 108 to 110).
Reporting against the TCFD Framework
The table below highlights how we have reported in line with the 11 recommendations of TCFD
and includes our own informed assessment of our level of alignment. We recognise that this is an
iterative process and have highlighted those areas where we still need to make improvement or
continue to progress.
Recommended disclosure
Current
status Comment
Page
ref
Governance
Describe the board’s oversight of
climate-related risks and opportunities
We have included these
disclosures in the report
39-42
Describe the management’s
role in assessing and managing
climate-related risks and opportunities
We have included these
disclosures in the report
39
Strategy
Describe the climate-related risks
andopportunities the organisation
hasidentified over the short, medium
and long term
We have included these
disclosures in the report
108-110
Recommended disclosure
Current
status Comment
Page
ref
Strategy continued
Describe the impact of climate-related
risks and opportunities on the
organisation’s businesses, strategy
andfinancial planning
We have assessed the
impacts of climate-related
risks and opportunities from
a qualitative perspective but
have yet to translate this fully
into quantifiable financial
impacts. This will continue to
be reviewed during 2024
108-110
Describe the resilience of the
organisation’s strategy, taking into
consideration different climate-related
scenarios, including a 2°C or lower
scenario
We have assessed the
impacts of climate-related
risks and opportunities
and the actions we are
taking to increase our
resilience, however we have
yet to translate this fully
into quantifiable financial
impacts and articulate our
resilience on this basis. This
will continue to be reviewed
during 2024
108-110
Risk management
Describe the organisation’s processes
for identifying and assessing
climate-related risks
We have included these
disclosures in the report
127
Describe the organisation’s processes
formanaging climate-related risks
We have included these
disclosures in the report
127
Describe how processes for
identifying, assessing and managing
climate-related risks are integrated
into the organisation’s overall risk
management
We have included these
disclosures in the report
127
Key
Reporting in line with the recommendations.
 We have made disclosures but are not yet fully reporting in line with the recommendations.
Additional information
105
Impact Healthcare REIT plc
Annual report and financial statements 2023
Reporting against the Task Force on Climate-Related Financial Disclosures framework continued
Recommended disclosure
Current
status Comment
Page
ref
Metrics and targets
Disclose the metrics used by the
organisation to assess climate-related
risks and opportunities in line with
its strategy and risk management
processes
We have included these
disclosures in the report
36 and
112
Describe Scope 1, Scope 2 and if
appropriate, Scope 3 greenhouse gas
(GHG) emissions, and the related risks
We continue to improve the
accuracy of our reported
Scope 3 emissions, which
represents a significant
proportion of our total
emissions. We now collect
over 85% of scope 3
emissions data from our
tenants and continue to
explore ways to improve the
quality and quantity of this
data capture and disclosure
112
Describe the targets used by
the organisation to manage
climate-related risks and opportunities
and performance against targets
We have developed some
headline targets but in 2024,
we will consider further
targets related to transition
and physical risks and
opportunities
36
Reporting against the TCFD Framework continued
Key
Reporting in line with the recommendations.
 We have made disclosures but are not yet fully reporting in line with the recommendations.
Additional information
106
Impact Healthcare REIT plc
Annual report and financial statements 2023
Reporting against the Task Force on Climate-Related Financial Disclosures framework continued
Governance
The board sets our risk appetite and oversees our risk management, which the Investment Manager carries out on our behalf. 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. Following the Board’s approval of the ESG Strategy in February 2023 theIM
established an ESG Committee to provide further structure and formality to its ESG workstreams and to track progress against targets for climate related targets.
The IM’s ESG Committee, which meets on a quarterly basis and documents minutes and actions, is responsible for reviewing and advising on the recommendations made by the IM’s ESG Working
Group, also established in 2023, chaired by the IM’s Development Director.
The IM’s ESG Committee is chaired by the IM’s Finance Director who, in partnership with the Development Director, oversees the operational and financial aspects of our sustainability programme.
TheIM’s Finance Director reports directly into the board and consults with the audit committee to ensure the relevant level of assurance is being provided. ESG/Sustainability is an item onthe board
agenda and a dedicated Board session takes place periodically.
More information on our governance of climate change considerations can be found within our reporting on Principal Risk (pages 36 to 41) and our Audit, Risk and Internal Control (pages 127 to 129).
Board
Overall accountability for ESG strategy
ESG committee
Review and advise on climate strategy
Audit committee
Identification and management of climate
risks
TCFD working group
Initial assessment of risks and opportunities
linked to climate change
ESG working group
Accountable for execution of Sustainability/
ESG strategy
Risk committee
Identification and management of climate
risks
Key
Board level
Investment Manager
Additional information
107
Impact Healthcare REIT plc
Annual report and financial statements 2023
Reporting against the Task Force on Climate-Related Financial Disclosures framework continued
Strategy
Having modelled a net zero strategy, which we
reported on in our 2022 annual report, we used
2023 to develop further our net zero delivery
plan. We identified six properties which were
representative of the energy performance
across our portfolio and commissioned detailed
on-site energy audits to test our assumptions
and associated financial modelling.
In tandem with our net zero delivery planning
we continue to make good progress on making
the necessary improvements to our properties
to ensure that they comply with future MEES
regulation.
Building on last year’s assessments of risks and
opportunities, we undertook a detailed review
of the following areas which we considered
material to our business (see below). Once
again, to align withour business strategy,
we have defined short term as one to three
years, medium term as five to 10 years and
along-term timeframe as up to 25 years.
While we have assessed the potential financial
impacts relating to our net zero planning and
MEES compliance, we still need to quantify
the financial impacts posed by physical risks of
flooding and other risks and opportunities.
Following our review of climate related risks
and opportunities in 2022 we have highlighted
in the table below the most material risks and
how we are managing these.
Flooding Additional capital expenditure
Probability: Medium
Impact: Moderate
Change in the year: No change
Risk appetite: Cautious
Timescale: Medium/Long
Disruption to provision of care or possible closure ofcare home
How we are assessing the risk
Using the Environment Agency (EA) current data, wehave assessed
all care homes within our portfolio for flood risk related to seas, rivers,
surface and ground water. We have also cross-referenced IPCC
longer-term data which we had mapped against a representative
20 care homes in our portfolio. As regards EA’s current data,
we have identified 12 assets which are potentially at high risk
(greater than 3.3% chance of flooding each year), and within our
longer-term assessment, we have identified three properties from
our representative sample which are at high risk from rising sea levels
under a high-emissions longer term scenario.
Flooding risk is also included in our due diligence sustainability reports
for new acquisitions. During 2024, we will conduct a more detailed
risk assessment for those considered high risk, reviewing aspects such
as local authority flood defence planning.
How we manage this risk
All of our homes are fully insured against damage including loss of
rent. Ourtenants separately have insurance for loss of earnings for
their own business. Where flood risk has been identified, or occurred,
we look to work with our tenants and insurers to enhance the flood
defences and safety for residents.
Opportunity
Increased investment in our homes and capital deployed in return for
increasedrent.
Improved long-term care ofresidents
Probability: High
Impact: Moderate
Change in the year: No change
Risk appetite: Cautious
Timescale: Medium/Long
Additional costs required to improve energy efficiency and realise
net zero targets
How we are assessing the risk
We have mapped and estimated a capex profile from the present
day until 2045 when we plan to be net zero. We are targeting
approximately 15% of our asset management budget towards
energy-efficiency improvements.
During 2023, we conducted a first round of on-site energy audits
to verify our net zero modelling assumptions. These findings and
costings are being incorporated into our climate transition planning.
How we manage this risk
Our leases with our tenants are fully insuring and repairing and
require tenants to ensure the property is compliant with legislation.
Therefore, as legislation comes in to align with these targets, our
tenants will be responsible for the cost and have the ability to factor
this in to the cost of their services.
We are working with our tenants to ensure our buildings are well
prepared for future legislation and our ESG targets. We do this by
having a good understanding of the environmental performance of
our homes We also ensure that any capital improvements that require
our permission include some environmental enhancements.
Opportunity
Increased investment in our homes and capital deployed in return for
increasedrent.
Ability to utilise Improvements in technology to help reducing the
carbon footprint of our portfolio
Improved long-term care of residents
Detailed review of risks and opportunities
Additional information
108
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Annual report and financial statements 2023
Reporting against the Task Force on Climate-Related Financial Disclosures framework continued
Strategy continued
Detailed review of risks and opportunities continued
Regulation Cost of carbon
Probability: High
Impact: Moderate
Change in the year: No change
Risk appetite: Cautious
Timescale: Medium/Long
Potential loss of value for assets not meeting expected
future standards. Assets may become “stranded” by evolving
environmental legislation
How we are assessing the risk
We work closely with environmental and political consultants to help
us understand future proposals for any changes in regulation and we
appraise our portfolio against these proposed regulations.
For new acquisitions, we have set ourselves a target of an EPC B
rating or the ability to achieve a B rating in the short term. We also
undertake environmental due diligence including CRREM analysis
to model stranding year and key mitigations. An objective of our
net zero delivery plan is to ensure our portfolio is upgraded to meet
ourtargets.
We now have full visibility of EPCs across our entire portfolio of
properties and have an active asset management improvements
schedule in place to ensure we are compliant with anticipated 2030
MEES regulation. Our leases require our tenant operators to ensure
thebuildings are in compliance with legislation.
How we manage this risk
As explained above, our leases require our tenant operators to ensure
the buildings are in compliance withlegislation.
Opportunity
Increased investment in our homes and capital deployed in return for
increased rent.
Ability to utilise Improvements in technology to help reducing the
carbon footprint of our portfolio.
Probability: Medium
Impact: Moderate
Change in the year: No change
Risk appetite: Cautious
Timescale: Medium
Introduction of carbon levy by Govt to encourage reduction
incarbon emissions that results in additional taxation liability
forthe Company
How we are assessing the risk
The IM has held two workshops to discuss the possible options re
carbon pricing/taxation and how best to introduce this into our
business strategy and financial planning.
We continue to ensure we are capturing as much underlying data
from our tenants on our Scope 3 emissions.
We will continue to monitor the situation in 2024 and also ensure that
we are compliant with future ISSB/government guidance. We expect
to start to embed an internal carbon price within our planning to
inform decision-making
How we manage this risk
By understanding the legislation being applied in other countries
we are able to model similar legislation being applied in the UK and
ensuring this can be incorporated into our risk modelling in 2024.
Opportunity
With increased regulation there is the opportunity for our tenants to
charge increased fees for their services and therefore enable us to
increase our investment in our homes in return for an increased rent.
Additional information
109
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Annual report and financial statements 2023
Reporting against the Task Force on Climate-Related Financial Disclosures framework continued
Strategy continued
Additional Risk & opportunities disclosed in 2022
Water stress and heatwaves Market Reputation
Probability: Medium
Impact: Significant
Change in the year: No change
Risk appetite: Cautious
Timescale: Medium/Long
Environment within assets is detrimental for wellbeing of residents
and staff and additional capex is required to retro fit cooling and
improve water use
How we are assessing the risk
Our net zero strategy includes assumptions on additional cooling
requirements for existing assets.
We will continue to work with our environmental consultants to help
us understand the expected regular peak temperatures across the
UK as a result of a 1.5° or more global increase in temperature and
ensure this is factored into our design parameters when approving
asset management activity.
How we manage this risk
This continues to be work in progress to understand on an asset by
asset basis what the implications could be and how we can mitigate
these.
Opportunity
Increased investment in our homes and capital deployed in return
forincreased rent.
Probability: Medium
Impact: Moderate
Change in the year: No change
Risk appetite: Cautious
Timescale: Medium
Investors and markets increasing awareness of environmental
performance. If we fail to communicate a strategy and implications
for our portfolio investors are less likely to want to invest in our
business
How we are assessing the risk
We are undertaking a significant amount of work to ensure we
can deliver against our ESGstrategy and net zero targets and
communicate the risks and opportunities that comewith this.
We regularly engage with investors and ensure we are open and
transparent about our business in our reporting to ensure we
understand any investor concerns and address these.
How we manage this risk
Alongside investor engagement we have already retained our EPRA
sBPR Gold award for our sustainability reporting and a D rating for
our initial Carbon Disclosure Project submission (a voluntary disclosure
for companies seeking to be transparent on climate related risks and
opportunities.
In 2024 we are looking to gain GRESB accreditation which will
provideinvestors with incremental benchmarking about the quality
ofinformation we hold on our portfolio.
Opportunity
By taking our environmental targets seriously and
transparentlyreporting, more investors could be interested in
investingin our business.
Probability: Medium
Impact: Moderate
Change in the year: No change
Risk appetite: Minimalist
Timescale: Short
Investors, tenants and commissioners may have increasing
expectations of real estate owners for environmental issues and if
we fail to meet these or deliver against our objectives and net zero
targets our reputation would be damaged and stakeholders may
be less willing to engage with us
How we are assessing the risk
We are continuing to appraise our portfolio and collect as much
evidence as possible to be able to benchmark and report on our
portfolio.
How we manage this risk
We aim to be fully transparent and honest about our ESG targets, the
activities we are undertaking and how we are performing against
these. Our aim is to achieve these targets and provide comfort that
the Company is committed to improving environmental standards.
Opportunity
If we are successful in communicating and delivering against these
targets, existing stakeholders will want to continue to work with us
and potentially, more will be keen to work with us.
Additional information
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Annual report and financial statements 2023
Reporting against the Task Force on Climate-Related Financial Disclosures framework continued
Risk management
As a principal risk for the business, climate-related risks are subject to the same formal
governance and review process as other risks on our risk register.
The Investment Management team has a risk committee which assesses and reviews the
company’s risk register on a quarterly basis and reports to the audit committee. Prioritised risks
are discussed and considered by the audit committee and board twice a year. Environmental
regulation and impact of climate change is already a principal risk for the Group; the assessment
has been maintained/changed from Probability: Medium, Impact: Low to Probability: Medium,
Impact: Medium. Following a full climate risk analysis undertaken in 2022 we continue to review
risks and opportunities. The key climate related risks and opportunities are shown on pages 108
to110.
As part of our due diligence process for potential new acquisitions and asset management
projects, environmental performance and opportunities to decarbonise are considered in detail.
Risks around our portfolio and ability to decarbonise in accordance with our net zero delivery
plan are assessed using the CRREM toolkit which measures the potential rate of decarbonisation
against the Paris Climate Treaty 1.5 degree warming scenario. Assets with higher risks associated
with this are reviewed annually as part of our portfolio stratification (Core, Value Add and
Non-Core).
Looking ahead, this due diligence will continue to factor in possible identified risks and
opportunities associated with climate change and a decarbonisation pathway.
Metrics and targets
As part of our EPRA reporting responsibilities, we have been disclosing our energy consumption
data since 2019 in accordance with the EPRA Best Practice Sustainability requirements. Impact’s
Scope 1 and 2 emissions are minimal with all reported emissions relating to tenant-obtained
energy consumption falling under Scope 3. In this report we have included our GHG emissions for
the 12months to 31December 2023 in order to provide as up-to-date information as possible.
We have been modelling our portfolio as part of our net zero strategy planning and have
referenced our progress within this report. This net zero strategy incorporates projections and
impacts based on the size of our current portfolio and on the size of our projected portfolio.
Last year, we published our incremental emissions reduction targets and longer-term net zero
target. As we continue to gain greater insight into our Scope 3 emissions, we will continue to
review and refine our metrics and targets.
In 2023 our CO
2
e emissions per m
2
increased slightly from 50kg to 54kg. This in part reflects the
increased occupancy experienced over this period. It will take time for the improvement measures
being implemented to embed in energy performance. We continue to explore how we can
accelerate progress to meet our interim milestone of a 15% reduction in like-for-like emissions by
2025, whilst maintaining affordability for our tenant’s businesses.
Our key climate related metrics are:
• EPC Ratings (page 37)
• Energy Intensity per bed (KWh per bed) (page 112)
• GHG Emissions Intensity (CO
2
e per bed) (page 112)
• Capex deployed on sustainability improvements (£pa) (page 36)
• Interim net zero targets (page 37)
• Proportion of leases with ‘Green’ obligations (page 36)
Additional information
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Reporting against the Task Force on Climate-Related Financial Disclosures framework continued
Metrics and targets continued
Energy and carbon disclosures
Environmental performance measures
1,2,3
Performance measure – Impact Healthcare REIT plc Unit Scope 2023 2022 Change
Electricity Absolute Consumption kWh 3 21,197 18,077 17%
Electricity Total & like-for-like consumption kWh 3 19,630 18,077 9%
Gas Absolute Consumption kWh 3 60,502 52,592 15%
Gas Total & like-for-like consumption kWh 3 54,464 52,592 4%
Other Fuels Absolute Consumption kWh 3 5,424 2,758 97%
Other Fuels like-for-like consumption
1
kWh 3 4,349 2,758 58%
Building energy intensity absolute
1
kWh/bed/year 3 11,284 10,615 6%
Building energy intensity like-for-like
1
kWh/bed/year 3 10,966 10,615 3%
Building energy intensity like-for-like kWh/m
2
/year 3 286 268 7%
Total indirect greenhouse gas (GHG) emissions from tenant obtained fuel usage
1
Tonnes CO
2
e 3 15,923 13,768 16%
Total indirect greenhouse gas (GHG) emissions from tenant obtained fuel usage like-for-like
1
Tonnes CO
2
e 3 14,482 13,768 5%
Greenhouse gas (GHG) emissions intensity from building energy consumption Tonnes CO
2
e /bed/year 3 2.06 1.99 3%
Greenhouse gas (GHG) emissions intensity from building energy consumption Kg CO
2
e/m
2
/year 3 54 50 8%
Greenhouse gas (GHG) emissions intensity from building energy consumption like-for-like
1
Tonnes CO
2
e/bed/year 3 2.02 1.99 1%
Greenhouse gas (GHG) emissions intensity from building energy consumption like-for-like
1
Kg CO
2
e/m
2
/year 3 53 50 5%
Performance measure – Investment Manager Unit Scope 2023 2022 Change
Total electricity consumption kWh Total Investment Manager electricity 7, 336 5,470 34%
Investment Manager energy intensity kWh/FTE Average kWh electricity consumption per FTE in year 734 521 41%
Total indirect greenhouse gas (GHG) emissions tCO
2
e Indirect - Scope 2 (location-based) 1.5 1.1 44%
Business travel - Land - Car tCO
2
e Scope 3 - Private vehicles (incl. WTT
2
) 4.0 3.7 8%
Business travel - Land - Air tCO
2
e Scope 3 - Flights (With RF incl. WTT
3
) 1.7 1.6 9%
Business travel - Land - Rail tCO
2
e Scope 3 - Rail (incl. WTT
3
) 0.2 1.2 (84)%
Total Emissions tCO
2
e 7.4 7.6 (3)%
1.
Like-for-like figures adjusted to exclude 3 biomass boilers which were not disclosed in 2022 based on available data at time of publication.
2.
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.
3.
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.
Additional information
112
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Annual report and financial statements 2023
Applying the AIC Code Principles
The table below explains how we applied the AIC Code’s Principles during 2023.
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.
Corporate governance review, pages
51to54
Business model, page 10
Principal risks, pages 39 to 42
Investment policy, page 126
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.
Corporate governance review, pages
51to54
Our values, inside front cover
Our purpose, page 2
Board and committee evaluation, page 53
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.
Strategic report, inside front cover to page
47
How we manage risk, pages 127 to 129
Principal risks, pages 39 to 42
Working with the Investment Manager,
pages 55 and 56
Audit committee report, pages 58 and 59
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.
Corporate governance review, pages
51to54
Strategic report, inside front cover to page
47
Section 172 statement, page 47
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.
Directors’ report, pages 63 to 66
Corporate governance review, pages
51to54
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.
Board of directors, pages 49 and 50
Nomination committee report, page 57
Directors’ report, pages 63 to 66
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.
Corporate governance review, pages
51to54
Nomination committee report, page 57
Audit committee report, pages 58 and 59
How we work with the Investment Manager,
pages 55 and 56
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.
Corporate governance review, pages
51to54
Directors’ report, pages 63 to 66
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.
Corporate governance review, pages
51to54
Nomination committee report, page 57
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 49 and 50
Corporate governance review, pages
51to54
Nomination committee report, page 57
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.
Corporate governance review, pages
51to54
Additional information
113
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Annual report and financial statements 2023
Applying the AIC Code Principles continued
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 committee report, pages 58 and 59
Notes 2 and 3 to the financial statements,
pages 79 and 80
Principle N – The board should present a fair,
balanced and understandable assessment of
the Company’s position and prospects.
Strategic report, inside front cover to page
47
Corporate governance review, pages
51to54
Audit committee report, pages 58 and 59
Independent auditor’s report, pages
68to73
Financial statements, pages 75 to 103
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.
How we manage risk, pages 127 to 129
Principal risks, pages 39 to 42
Viability statement, page 46
Audit committee report, pages 58 and 59
Note 19 to the financial statements, pages
91 to 93
Remuneration
Principle P – Remuneration policies and
practices should be designed to support
strategy and promote long-term sustainable
success.
Directors’ remuneration report, pages
60to62
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
60to62
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
60to62
Additional information
114
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Annual report and financial statements 2023
EPRA performance measures
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
£34.5m
8.33p
per share
for the year to 31 December 2023
(for the year to 31 December 2022:
£32.6m/8.37p per share)
2.1 EPRA net reinstatement value
(NRV)
£518.8m
125.20p
per share
as at 31 December 2023
(as at 31 December 2022: £479.7m/118.51p
pershare)
2.2 EPRA net tangible assets
(NTA)
£476.4m
114.96p
per share
as at 31 December 2023
(as at 31 December 2022: £445.6m/110.08p
per share)
Definition
Earnings from operational activities.
TheEPRA calculation removes revaluation
movements in the investment portfolio and
interest rate derivatives, but includes rent
smoothing.
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.
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.
Purpose
The aim of this measure is to represent the
value required to rebuild the entity.
Definition
Net asset value adjusted for fair value of
derivatives as these will not crystallise if held
to maturity.
Purpose
This represents the value of the Company
assuming assets are bought and sold.
2023 8.33p 2023 125.20p 2023 114.96p
2022 8.37p 2022 118.51p 2022 110.08p
2021 8.05p 2021 120.84p 2021 112.41p
2020 7.25p 2020 118.04p 2020 109.58p
2.3 EPRA net disposal value
(NDV)
£473.3m
114.22p
per share
as at 31 December 2023
(as at 31 December 2022: £440.9/108.92p
pershare)
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.
Purpose
This measure aims to show the shareholders’
value under a disposal scenario.
2023 114.22p
2022 108.92p
2021 111.16p
2020 108.91p
Additional information
115
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Annual report and financial statements 2023
EPRA performance measures continued
3.1 EPRA net initial yield (NIY)
6.69%
as at 31 December 2023 (as at
31December2022: 6.98%)
3.2 EPRA “topped-up” NIY
6.92%
as at 31 December 2023 (as at
31December2022: 6.98%)
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.
Purpose
This measure should make it easier for
investors to judge for themselves how the
valuation of one portfolio compares with
another portfolio.
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 should make it easier for
investors to judge for themselves how the
valuation of one portfolio compares with
another portfolio.
2023 6.69% 2023 6.92%
2022 6.98% 2022 6.98%
2021 6.71% 2021 6.71%
2020 6.57% 2020 6.71%
4. EPRA vacancy rate
0.00%
as at 31 December 2023 (as at
31December2022: 0.00%)
Definition
Estimated market rental value (ERV) of
vacant space divided by the ERV of the
whole portfolio.
Purpose
A “pure” (%) measure of investment property
space that is vacant, based on ERV.
2023 0.00%
2022 0.00%
2021 0.00%
2020 0.00%
Additional information
116
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Annual report and financial statements 2023
EPRA performance measures continued
5. EPRA cost ratio
14.37%
for the year to 31 December 2023
(for the year to 31 December 2022: 16.59%)
6. Like-for-like rental growth
4.67%
for the year to 31 December 2023
(for the year to 31 December 2022: 5.07%)
7. EPRA (net) LTV
27.85%
as at 31 December 2023 (as at
31December2022: 24.10%)
Definition
Administrative and operating costs
(including, and excluding, direct vacancy
costs) divided by gross rental income.
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 13.4%.
Definition
Rental growth on the portfolio of properties
that have been owned and operational for
two full reporting cycles.
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.
Definition
Debt drawn at nominal value net of cash
and net payables divided by portfolio value.
Purpose
To assess the gearing of the shareholder
equity within a real estate company.
2023 14.37% 2023 4.67% 2023 27.85%
2022 16.59% 2022 5.07% 2022 24.10%
2021 15.84% 2021 5.74% 2021 23.17%
2020 17.09% 2020 4.26% 2020 17.06%
Additional information
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Annual report and financial statements 2023
Notes to the EPRA performance measures
For the year ended 31 December 2023
1. EPRA earnings per share
31 December
2023
£’000
31 December
2022
£’000
Total comprehensive income (attributable to shareholders) 48,831 16,888
Adjusted for:
– Revaluation movement (21,934) 8,103
– Rental lease incentives (140) (141)
– Rental income arising from recognising future guaranteed rent
uplifts and rental premiums 7,286 6,494
Change in fair value of investment properties (14,788) 14,456
Loss/(profit) on disposal of investment property 16 (130)
Change in fair value of put option — 1,811
Change in fair value of interest rate derivatives 458 (381)
Profits to calculate EPRA earnings per share 34,517 32,644
Weighted average number of ordinary shares (basic and diluted) 414,157,674 390,058,661
EPRA earnings per share – basic and diluted 8.33p 8.37p
2. EPRA NAV measures
The EPRA best practice recommendations, released in October 2020, give three NAV metrics:
EPRA net reinstatement value (NRV), EPRA net tangible assets (NTA) and EPRA net disposal
value (NDV). 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 2023:
EPRA NRV
£’000
EPRA NTA
£’000
EPRA NDV
£’000
Net assets at end of year 478,107 478,107 478,107
Exclude:
Fair value of derivatives (1,750) (1,750) —
Include:
Fair value of debt
1
— — (4,823)
Transaction costs
2
42,452 — —
Net assets (per EPRA measure) 518,809 476,357 473,284
Shares in issue at 31 December
(basic anddiluted) 414,368,169 414,368,169 414,368,169
Net assets per share (per EPRA measure) 125.20p 114.96p 114.22p
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 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 measure) 118.51p 110.08p 108.92p
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.
Additional information
118
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Annual report and financial statements 2023
Notes to the EPRA performance measures continued
For the year ended 31 December 2023
3. EPRA net initial yield (NIY) and EPRA “topped-up” NIY
31 December
2023
£’000
31 December
2022
£’000
Investment property – wholly owned 651,313 532,478
Less capital improvements under construction (9,669) (7,535)
Completed property portfolio 641,644 524,943
Allowance for estimated purchasers’ cost
1
40,424 33,071
Gross up completed property portfolio valuation (B) 682,068 558,014
Annualised cash passing rental income 45,601 38,932
Property outgoings (non-recoverable insurance) — —
Annualised net rents (A) 45,601 38,932
Add:
Contractual rent on properties with interim variable rents
whilst in turnaround 1,617 —
Topped-up net annualised rent (C) 47,218 38,932
EPRA net initial yield (A/B) 6.69% 6.98%
EPRA topped-up net initial yield (C/B) 6.92% 6.98%
1.
Assumes a purchaser of the Company’s portfolio would pay SDLT and transaction costs equal to 6.3% of the
portfolio’s value.
4. EPRA vacancy rate
31 December
2023
£’000
31 December
2022
£’000
Estimated rental value of vacant space — —
Estimated rental value of the whole portfolio 48,154 39,476
EPRA vacancy rate 0.00% 0.00%
5. EPRA cost ratio
31 December
2023
£’000
31 December
2022
£’000
Administrative and other expenses 7,137 7,00 8
Net service charge cost — —
Total costs including and excluding vacant property costs 7,137 7,00 8
Gross rental income 49,659 42,243
Total EPRA cost ratio (including, and excluding,
direct vacancy costs) 14.37% 16.59%
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.
Additional information
119
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Annual report and financial statements 2023
Notes to the EPRA performance measures continued
For the year ended 31 December 2023
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 2021. It therefore excludes any
rental increases or values in relation to properties acquired after 31 December 2021.
Rent
£’000
Market value
£’000
Property portfolio as at 31 December 2021 31,925 450,897
Inflation-linked rental uplifts 1,308
Rental uplifts in return for capital improvements or deferred
payments 269
Increase/(decrease) due to vacancy rate —
Property portfolio as at 31 December 2022 33,502 451,664
Inflation-linked rental uplifts 1,395
Rental uplifts in return for capital improvements or deferred
payments 168
Increase/(decrease) due to vacancy rate —
Property portfolio as at 31 December 2023 35,065 472,808
All properties operate within the same sector, UK healthcare.
7. EPRA (net) LTV
31 December
2023
£’000
31 December
2022
£’000
Gross debt 184,760 142,260
Include:
Net payables 6,009 8,617
Less:
Cash and cash equivalents (9,389) (22,531)
Net debt 181,380 128,346
Property portfolio 651,313 532,478
EPRA (net) LTV 27.85% 24.10%
Additional information
120
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Annual report and financial statements 2023
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
2023
£’000
Year ended
31 December
2022
£’000
Opening NAV 445,920 394,244
Closing NAV 478,107 445,920
Average NAV for the year 462,013 420,082
Administrative expenses 7,137 7,009
One-off costs — —
Recurring expenses 7,137 7,0 09
TER 1.54% 1.67%
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
2023
Year ended
31 December
2022
Opening NAV per share (pence) 110.17 112.43
Closing NAV per share (pence) 115.38 110.17
NAV growth for the year (pence) 5.21 (2.26)
Dividends per share paid in the year (pence) 6.71 6.51
Total return (pence) 11.92 4.25
Total accounting return 10.82% 3.78%
3. Gross loan to value (LTV)
The gross debt as a percentage of our gross asset value.
As at
31 December
2023
£’000
As at
31 December
2022
£’000
Gross debt 184,760 142,260
Gross assets 667, 289 596,524
LTV 27.69% 23.85%
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
2023
£’000
As at
31 December
2022
£’000
Portfolio valuation 651,313 532,478
Investments in properties via loans to operators — 36,360
Property Investments 651,313 568,838
Additional information
121
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Annual report and financial statements 2023
Our portfolio
At 31 December 2023, 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 2023: £14.2m
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 76
Old Prebendal House and Court South East Jun 2019 40
Riverwell Beck North West Dec 2020 60
Sovereign Court and Lodge
4
North East Aug 2018 60
The Grove North East Sep 2018 57
Value at 31 December 2023: £35.5m
Carlton Hall
Carlton Hall East of England Sep 2021 86
Oasis Development Site East of England Sep 2021 — +80
Value at 31 December 2023: £13.8m
Croftwood Care
5
Ancliffe North West 40
Astbury Lodge North West 41
Croftwood North West 47
Crossways North West 39
Elm House North West 40 +19
Florence Grogan North West 40
Garswood North West 53
Gleavewood North West 32
Golborne House North West 45
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
Lyndhurst North West 40
New Milton House North West 39
Parklands North West 40 +1
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 2023: £72.8m
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 2023: £22.9m
Holmes Care Group
Alexander House Scotland Dec 2021 40
Almond Court Scotland Aug 2020 42
Almond View Scotland Aug 2020 78
Bankview (& BVDC) Scotland Aug 2020 65
Barrogil House Scotland Dec 2021 40
Beechwood Scotland Aug 2020 90
Additional information
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Annual report and financial statements 2023
Our portfolio continued
Tenant and home Region
Acquisition
date
1
Beds
2
Capital
projects
3
Camilla Scotland Dec 2021 40
Craigie House Scotland Dec 2021 30
Cragielea Scotland Aug 2020 85
Fernlea House Scotland Dec 2021 36
Finavon Court Scotland Dec 2021 24
Grandholm Scotland Aug 2020 79
Heatherfield Scotland Aug 2020 60
Larkfield Scotland Aug 2020 90
Lomond View Scotland Dec 2021 50
Methven House Scotland Dec 2021 60
Preston House Scotland Dec 2021 60
Roselea House Scotland Dec 2021 20
Three Towns Scotland Aug 2020 60
Walton House Scotland Dec 2021 40
Willow House Scotland Dec 2021 40
Value at 31 December 2023: £92.1m
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 2023: £35.7m
Minster Care
5
Abbeywell West Midlands 45
Amberley South West 30 +7
Ashgrove Yorkshire & The Humber 56
Broadgate East Midlands 40
Carnbroe Scotland May 2018 76
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 30
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
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 73
Three Elms North West 60
Waterside West Midlands 47
Woodlands Court North West 40
Wordsley West Midlands 44
Value at 31 December 2023: £137.3m
Additional information
123
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Annual report and financial statements 2023
Our portfolio continued
Tenant and home Region
Acquisition
date
1
Beds
2
Capital
projects
3
NCUH NHS Trust
Reiver House North West Jun 2019 —
Surgical Unit North West Jun 2019 —
Value at 31 December 2023: £4.3m
Optima
Barham East of England Aug 2019 44
Baylham East of England Aug 2019 55
Value at 31 December 2023: £15.6m
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 +25
Value at 31 December 2023: £36.3m
Renaissance Care
Croftbank Scotland Nov 2018 68
Rosepark Scotland Nov 2018 60
Value at 31 December 2023: £13.3m
Melrose
5
Baillieston Scotland Aug 2022 60
Cardonald Scotland Aug 2022 31
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 2023: £17.1m
Welford
Argentum Lodge South West Sep 2019 56
Baily House East Midland Jun 2022 66
Birchlands Yorkshire & The Humber Jun 2019 54
Corbrook Park North West Jan 2023 80
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 62
Fairview Court and House
4
South West Mar 2018 73
Isle Court West Midlands Jan 2023 82
Mavern House South West Jan 2021 55
Morris Care Centre West Midlands Jan 2023 96
Oldbury Grange West Midlands Jan 2023 69
Radbrook West Midlands Jan 2023 63
Stretton Hall West Midlands Jan 2023 50
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 2023: £140.5m
1.
May 2017 unless stated.
2.
Number of registered beds.
3.
Capital improvement bed additions under development.
4.
Treated as two properties.
5.
Croftwood Care and Minster Care are both part of Minster Care Group Limited. Melrose Holdings Limited
isan affiliate of Minster Care Group Limited.
Additional information
124
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Annual report and financial statements 2023
AIFM statement
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 2023.
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 127 to 129 of the annual report.
Please refer to pages 39 to 42 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 2023 are shown below:
Leverage exposure Gross method Commitment
Maximum limit 200.0% 200.0%
Actual 149.8% 151.7%
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2023 was 27.69%.
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.
Additional information
125
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Annual report and financial statements 2023
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.
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.
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.
Additional information
126
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Annual report and financial statements 2023
How we manage risk
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.
Risk profile
Our principal risks and uncertainties are set
out on pages 39 to 42. 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
the residual likelihood and impact assuming
our controls operate effectively. The board
updates and approves the risk register at least
annually.
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.
Risk appetite
Our risk appetite reflects the risks the board
is willing to take to achieve our investment
objectives, as set out on page 4. 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 on
page 129:
Board
• Has ultimate responsibility for our risk
management and internal control.
• Delegates certain responsibilities to the audit
and management engagement committees.
• Reviews the Company’s liquidity each
quarter.
• Assesses our principal emerging risks twice a
year.
• Assesses and articulates our risk appetite.
Audit committee
Keeps our internal financial controls and
internal control and risk management systems
under review, through reports from the risk
committee, reports exceptions to the board
and follows-up queries with the risk committee.
• Reviews the effectiveness of the risk
management framework each year.
• Reviews and approves the statements to
be included in the annual report concerning
internal controls and risk management.
• Reviews and approves statements explaining
how assets have been invested, with a view
to spreading investment risk.
Management engagement committee
• Consider risk issues arising from the functions
performed by service providers and
reported to the management engagement
committee or board as necessary.
Investment Manager
• Performs portfolio and risk management
functions, including monitoring the systems
and controls for managing risk.
• Oversees operational risks and reviews
principal risks.
• Forecasts cash flows and monitors
compliance with debt covenants.
• Monitors our compliance with the qualifying
conditions set out in the UK REIT rules
(Corporation Tax Act 2010).
• Has appointed Carne Global AIFM Solutions
(C.I.) Limited to carry out risk management
on its behalf.
Risk committee
• Identifies key and emerging risks and the
controls to mitigate those risks (documented
in the risk register).
• Assesses the materiality of each risk,
according to its likelihood and potential
impact (documented in the risk register).
• Assesses control effectiveness each quarter,
via reporting on key risks by the Investment
Manager, Administrator, Registrar and
Depositary.
• Agrees actions for risks that are outside our
tolerance, ensures that risk events, errors
and breaches are appropriately remedied,
andthat controls are enhanced to prevent
reoccurrence.
• Reviews risks to our business model, future
performance, solvency or liquidity, in the
context of the going concern and long-term
viability statements.
• Reviews counterparty credit risk, with
reference to our financing arrangements and
policies.
• Reviews regulatory risk via the Administrator’s
compliance monitoring and the Investment
Manager’s monitoring of the REIT conditions.
• Assesses service provider risk via Service
Organisation Control reports and due
diligence reviews.
Company Secretary and Administrator
• Monitors compliance with the UK Listing
Rules and the Disclosure Guidance and
Transparency Rules.
• Prepares quarterly management accounts.
Depositary
• Reviews risks relevant to the depositary
function in accordance with the requirements
of UK AIFMD.
• Includes verification of assets, payment
of expenses, leverage limits, investment
restrictions, cash flow monitoring and good
title to assets.
Service providers
• Responsible for monitoring their own internal
control systems, to ensure they properly
manage risk when performing services for us.
Additional information
127
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Annual report and financial statements 2023
How we manage risk continued
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.
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 2023.
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 directors received a report from the Investment Manager that summarises
its internal controls, 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 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.
Board composition and diversity reporting in line with LR9
The tables below show the diversity of the board as at 31 December 2023.
Number of
board members
Percentage of
the board
Number of
senior positions
on the board
(SID and Chair)
Men 3 60% 1
Women 2 40% 1
Number of
board members
Number of
senior positions
on the board
(SID and Chair)
White British or other White
(including minority-white groups) 5 2
Black/African/Caribbean/Black British 0
1
0
1.
This increases to one with effect from 1 April 2024.
The data was collected by asking the directors to confirm their diversity characteristics. The
Company has no executive management and these disclosures are therefore not applicable.
Additional information
128
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Annual report and financial statements 2023
How we manage risk continued
Internal controls continued
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.
Investors
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.
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.
Depositary
Indos
Brokers
Winterflood & Jefferies
Registrar
Computershare
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.
1.
Decision-making responsibilities.
2.
Independent support, review and advice.
1
2
222
1
2
See pages 49 and 50
See pages 55 and 56
Nomination
committee
See page 57
Remuneration
committee
See pages 60 to 62
Management
engagement
committee
Audit
committee
See pages 58 and 59
1111
Operational/
Strategy
Risk ESGInvestment
Additional information
129
Impact Healthcare REIT plc
Annual report and financial statements 2023
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
Care beds: Includes nursing and residential
dementia beds for the elderly, which are
registered with the CQC or equivalent regional
regulatory body.
CMA: Competitions and Markets Authority
Contracted rent: The annualised rent adjusting
for: rent due following rent-free periods;
underlying contractual rent on temporarily
varied leases (including rent due from Melrose);
rent due on capex projects or profit-related
deferred payments where the Group recognises
a capital commitment; and 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
IBOR: InterBank Offered Rates
ICSA: The Chartered Governance Institute
Investment Manager: Impact Health
PartnersLLP
IPO: Initial Public Offering
LED: Light-Emitting Diode
LTV: 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: Rent cover is our tenants’
EBITDARM divided by total annual rent.
EBITDARM is a useful approximation for our
tenants’ cash earnings, which they can use
to pay their rent. This has been adjusted to
exclude seven turnaround homes and one
newhome in build-up
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 Over Night 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
Additional information
130
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Annual report and financial statements 2023
Corporate information
Directors
Amanda Aldridge Non-executive director
Rosemary Boot Senior independent
non-executive director
Philip Hall Non-executive director
Simon Laffin Non-executive Chair
Chris Santer Non-executive director
Cedi Frederick Non-executive director
(from 1 April 2024)
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
Financial calendar
Announcement of full-year results 22 March 2024
Annual General Meeting 21 May 2024
Half year end 30 June 2024
Announcement of half-year results August 2024
Full year end 31 December 2024
Additional information
131
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Annual report and financial statements 2023
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Impact
Healthcare
REIT
Impact Healthcare REIT plc
The Scalpel, 18th Floor,
52 Lime Street, London
EC3M 7AF
www.impactreit.uk