Impact Healthcare REIT has posted strong results as inflation-linked leases negate the impact of rising interest rates.
The care home provider reported a 2.0% drop in NAV to 110.17p per share. Its property portfolio was valued at £568.8m as at 31 December 2022, up 14.3% in the year due to acquisitions. The change in fair value of investment properties was down £14.5m (2021: £4.2m gain), contributing to profit before tax of £16.9m (2021: £32.0m).
NAV total return for the year was 3.78%, comprising dividends paid of 6.51p and NAV reduction of 2.26p (-2.0%), compared with a 9% per annum medium-term total return target.
Dividends declared for the year were 128% covered by EPRA earnings per share and 109% by adjusted earnings per share (7.11p – up up 6.4% as a result of increased revenue from inflation-linked rent reviews).
The company is targeting a 3.5% increase in its dividend for the year to 31 December 2023 to 6.77p per share.
Annual contracted rent roll grew by 13.6% to £43.1m (2021: £38.0m), as a result of acquisition of 12 properties (contributing £4.0m), rent reviews on 107 properties (adding £1.3m, representing a 3.5% increase), and capex commitments added a further £0.1m, while disposals reduced contracted rent by £0.3m.
Conservative balance sheet
Drawn debt at year end was £142.3m, with gross LTV of 23.9%. Weighted average term of debt facilities was 6.3 years.
At the year end, 70% (£100m) of drawn debt facilities were hedged against rising interest rate costs. An additional £50m two-year interest rate cap at 3% was taken out after the year end. Drawn debt today is £187.3m, of which 80% is hedged against rising interest rates.
Operational highlights
|
|
2022 |
2021 |
Change |
|
Topped-up net initial yield (NIY) |
6.98% |
6.71% |
27 bps |
|
Average NIY on acquisitions to date |
7.4% |
7.4% |
(8) bps |
|
Rent containing inflation-linked uplifts |
100% |
100% |
– |
|
WAULT to first break (years) |
19.7 |
19.2 |
+0.5 |
|
Portfolio let |
100% |
100% |
– |
|
Rent cover |
1.80 |
1.91 |
(5.8)% |
|
Rent collection |
100% |
100% |
– |
|
Properties |
135 |
124 |
8.9% |
|
Completed beds |
6,842 |
6,141 |
11.4% |
|
Tenants |
14 |
13 |
+1 |
The company acquired 12 properties, adding 764 beds to the portfolio, for a total of £69.2m (using the proceeds of the £62.3m it raised from placings of new ordinary shares in February and July 2022).
Post-year end the company acquired a portfolio of six homes with 438 beds for £56m and sold one non-core asset for £1.25m, in line with its latest valuation.
Chairman comments
Rupert Barclay said:
“We are continuing to deliver a strong financial and operational performance, benefitting from our robust, long term and responsible business model and resilient and defensive portfolio, with annual inflation-linked upward-only rent reviews in 100% of our leases. This underpinned the delivery of our dividend target of 6.54 pence per share, which was fully covered by our earnings. We remain disciplined in investing capital, while managing the business efficiently and maintaining a conservative balance sheet, helping to ensure we continue to focus on growing the portfolio responsibly and accretively and creating further value through asset management and by funding development.
“2023 has started with continued high levels of volatility in financial markets. While healthcare is not immune, the essential nature of our tenants’ services – which translated into zero voids and 100% rent collection for 2022 as well as further rental growth – are expected to continue to help our asset values to hold up much better than most other real estate sub-sectors. At the same time, the returns available to us on acquisitions and asset management projects remain above our cost of capital, and rising rents over the life of our leases, all of which are long duration with inflation-linked rent reviews, should support capital growth.
“What we can be certain about is that care homes are critical social infrastructure, which provides an essential service for vulnerable elderly people. Demand for that service is driven by demography and acuity, and is not directly related to developments in the wider economy or financial markets. This gives care home operators a higher level of in-built resilience than tenants in many other real estate sectors, demonstrated in part by their ability to pass through inflation in the fees they charge for care. The investments and acquisitions we’ve made and the inflation-linked rental growth in 100% of our leases leave us well-positioned for future earnings growth and a progressive dividend.”
IHR : Inflation-linked leases helps Impact Healthcare REIT post strong results