Impact Healthcare REIT - Strong cash flow underpins further DPS growth

Impact Healthcare REIT’s Q423 update shows a continued strengthening in operational and financial tenant performance, reflected in a record level of rent cover and 100% rent collection. With cash flow remaining strong, we expect the FY23 DPS of 6.77p (+3.5%) was fully covered by adjusted ‘cash’ earnings and the FY24 DPS target has been set at 6.95p (+2.7%). We will review our forecasts with the full year results in late March.

Impact Healthcare REIT - On track to meet dividend target

Impact Healthcare REIT’s Q323 total return was 2.6%, or 8.5% over the first nine months of the year (9M23). With rent cover continuing to strengthen, rent collection back to 100% and 98% of drawn debt fixed or hedged, the company is well on track to meet its FY23 DPS target of 6.77p (+3.5%), fully covered by adjusted ‘cash’ earnings, with a yield of 8.6%.

Impact Healthcare REIT - Interest hedging provides dividend visibility

Impact Healthcare REIT delivered strong operational and financial progress in the six months to 30 June 2023 (H123). Completion of additional interest rate hedging arrangements, with interest costs on 92% of drawn debt now fixed or hedged, provides visibility over debt costs and Impact’s ability to continue to pay fully cash-covered progressive dividends.

Impact Healthcare REIT - Resolving sole underperforming tenant issue

Impact Healthcare REIT has successfully negotiated the transfer of the operation of the homes leased to one of its 13 care home tenants, which, as previously disclosed, in H123 has not paid its contractual rent (3.4% of the group total). The transfer is structured to maintain continuity of staffing and care while generating operational improvements. Under the terms of the transfer, our forecasts for FY23 and FY24 are reduced but we expect full dividend cover to be maintained. Meanwhile, the broa

Impact Healthcare REIT - Making hay in all weathers

In Q123, Impact Healthcare REIT built on its strong FY22 underlying income performance. It also benefited from a stabilisation of the portfolio valuation yield, allowing indexed rental growth to feed through to property values and NAV. In this note we focus on the drivers of Impact’s consistently positive financial and operational performance.

Impact Healthcare REIT - Progressive dividends continuing into FY23

With its Q422 NAV update, Impact Healthcare REIT (IHR) increased it DPS target for FY23 to 6.77p (+3.5%). With earnings continuing to be driven by inflation-indexed rental growth, significantly protected by fixed costs on 80%, we expect DPS to be fully covered by cash earnings. The Q4 impact of yield widening across the broad property sector was limited by the long-indexed leases, while low gearing mitigated the impact on NAV.

Impact Healthcare REIT - Attractive growing income, innovatively funded

Impact Healthcare REIT (IHR) has invested £56m, on an accretive basis, in a portfolio of six quality care homes, to be operated by existing tenant Welford Healthcare. The transaction is innovatively funded by a blend of new equity issued to the vendors, attractively priced at the last published NAV, and cash/newly hedged debt, managing near-term interest rate risks.

Impact Healthcare REIT - Performing well in a challenging environment

Impact Healthcare REIT’s performance year to date provides evidence of the continuing robustness of its strategy and the resilience of its tenants. For tenants, fee growth and increased occupancy are mitigating the impact of inflation such that rents continue to be paid in full while rent cover remains strong. For Impact, indexed rent uplifts are driving organic growth. Rising interest rates will negatively affect earnings and delay capital deployment, but we expect further fully covered DPS gro

Impact Healthcare REIT - Successfully growing with tenants

Impact Healthcare REIT’s recent results provided strong evidence of the robustness of its strategy and the resilience of its tenants. Indexed rent uplifts and an historical ability of operators to pass inflation pressures through to fee increases provides inflation protection, and the prospects for further organic growth. Meanwhile, capital is available to fund accretive acquisitions and asset management investment.

Impact Healthcare REIT - Positive Q421 returns

Impact Healthcare REIT’s unaudited NAV data for the three months to 31 December 2021 (Q421) show the consistent trend of positive quarterly NAV total returns since IPO continuing. The FY21 DPS target has been met and FY22 DPS is targeted to increase further, supported by long-term inflation-linked leases. With a significant pipeline of identified investment opportunities, Impact is seeking additional equity funding. Our forecasts are as published prior to the equity issue announcement and NAV up

Impact Healthcare REIT - Accretive acquisitions and attractive financing

Late in 2021 Impact Healthcare REIT (IHR) announced significant investment activity amounting to £52m and its debut transaction in the institutional debt market. The investments are accretive to earnings and the new long-term fixed rate debt is attractively priced, reflecting lender confidence in the robustness of the business model, and provides a good match to IHR’s long-term income profile.

Impact Healthcare REIT - Strong H1 progress and positive reforms

Recently outlined government proposals for social care reform are positive for the sector, providing additional state funding and a more certain long-term planning environment for providers. In this note we review the continuing resilience of Impact Healthcare REIT’s business model and of its tenants, reflected in a strong H121 financial performance, and future growth prospects.

Impact Healthcare REIT - Attractive financial and social returns

Impact Healthcare REIT continues to deliver consistently positive returns, demonstrating the resilience of its tenant operators and the group’s strategy during the pandemic. Accretive portfolio growth combined with long-term inflation-linked rents are driving income and capital growth, while continuing full rent collection underpins increasing dividends.

UK REITs: Building back better

UK commercial property has been a cornerstone asset for many income-seeking investors (both retail and institutional) in recent decades, particularly since the global financial crisis of 2007/8 and the resulting ultra-low interest rate environment. However, since rates began to rise in 2022 to tackle surging inflation, meaningful returns have once more become available on lower-risk assets such as cash and government bonds, which has led to a retrenchment from alternative income assets such as p

Upcoming Webinar - Schroder Real Estate Investment Trust

Attend our SREI Investor Webinar, 15th May 9-10am. Nick Montgomery, Head of UK Real Estate Investment, will provide an intro to the Trust and answer live questions.

LIBERUM: Amedeo Air Four Plus: Emirates aircraft upgrade plans imply the retention of almost all A380s

Hardman & Co Research on NB Private Equity Partners: Wider operating company EBITDA margins in 2023

We reviewed NBPE’s business model in our initiation, Co-investments generating superior performance. We noted the high-secular-growth and downside-resilient investee companies, the value added by GPs, the good co-investing cashflow and return profile and the value added by the NB. The 2023 results confirmed all these trends. The key numbers were i) NAV p/sh $28.07 (£22.02), ii) private portfolio +5.3% in 2023 on a constant currency basis, iii) EV/LTM EBITDA 14.9x, and iv) debt/EBITDA 5.3x. The p

Hardman & Co Insight: 2023 was an annus horribilis for Quoted UK Infrastructure and Renewable Energy

The focus of Hardman & Co Research is on the nine quoted Infrastructure Investment Companies (IICs) and on the 22 Renewable Energy Infrastructure Funds (REIFs): the stocks analysed are all members of the Association of Investment Companies (AIC). We are updating our publication of January 2023, assessing both the lacklustre share price performances during 2023 and the key issues, including interest rates, inflation and power prices. As a 31-strong group, its combined market capitalisation is no

Gresham House Energy Storage Fund - Responding to challenging times

Gresham House Energy Storage Fund (GRID) is the largest UK fund investing in utility-scale battery energy storage systems (BESS). A recent sharp decline in gas prices, a ‘disappointing’ start to the Energy System Operator’s (ESO’s) new energy trading platform and systemic delays connecting completed projects to the national grid have raised concerns about the revenue generating capacity of the BESS sector. This has placed significant downward pressure on the share prices of GRID and others in th

Chesnara (CSN): Good 2023 results set platform for future progress

Chesnara has announced its 2023 results. Positive returns from equity markets and gains from acquisitions in the first half were somewhat offset by adverse changes to operating assumptions in the second. Economic Value profit of £59.1m marked a good turnaround from a loss of £85.1m in 2022. Economic Value of £524.7m was 2% higher than a year ago, reflecting the dividend payment and forex effects. The final dividend of 15.61p brought the full year up to 23.97p, a 3% increase over the previous yea

NextEnergy Solar Fund – High- and growing-income opportunity?

NextEnergy Solar Fund (NESF) is almost 10 years old. Since launch, it has built a £1.2bn, 933MW portfolio of 100 operating solar assets, powering the equivalent of over 330,000 homes, declared dividends totalling £333m, and avoided the emission of about 2.2 Mt CO2e. NESF is on track to pay 8.35p in dividends, with forecast dividend cover of about 1.3x. Share price weakness that has afflicted the whole sector means that dividend translates to a yield of 11.1%, one of the highest in its sector, a

NextEnergy Solar Fund - Second Refinancing Delivered

NextEnergy Solar Fund has extended its £70m revolving credit facility by a year to June 2025 and improved the margin by 10bps. Along with the refinancing of £135m announced in April the move shows a willingness amongst lenders to support solar energy and storage on attractive terms in our view.

PCI Pal - +25% FY23 revenue growth, FY24 growth of +28% reiterated

PCI Pal’s FY23 results show revenue growth of +25% to £14.9m, gross profit growth of +31% to £13.1m at a margin of 88%, and an outlook confirming robust momentum in H1 24. The FY23 results are as expected following the August trading update, and FY23 Total Annual Contract Value (TACV) is +23% yoy to £16.4m, with ARR +14% yoy to £12.6m due to £3.1m of contracts in deployment. We expect ARR will increase +35% and +31% to £17.0m and £22.2m in FY24 and FY25, as management lands and expands following

Postcard from Vodafone headquarters

Morning Note – 3 May 2024

Reality check

As we emerged from the pandemic, it seemed the world was gripped by a greater awareness of the fragility of our planet, and our place within it. Mirroring this, investors and fund managers started to explore what this increased focus on sustainability meant for investing. For many, the instinctive response was to follow their heart and ditch ‘dirty’ stocks from portfolios, such as oil companies. Hot on the heels of the likes of Shell and BP cutting their dividends in 2020 – a result of Covid-19

Hardman & Co Healthcare Index: 2023 – Capital demands dent performance

The Hardman & Co Healthcare Index (HHI) has been running since 2009. Its main function is to highlight the attractions of life sciences investments over the long term. For the second year running, apart from global economic influences affecting world markets, performance in 2023 was dented by the capital-intensive nature of the sector. The HHI fell 3.7%, to 483.8, underperforming the main London markets – FTSE 100 (+3.8%) and FTSE All-Share (3.8%) but outperforming the FTSE AIM All-Share Index (

Morning Note – 2 April 2024