Impact Healthcare REIT plc (the “Company” or, together with its subsidiaries, the “Group”) has invested in a portfolio of 12 care homes which were owned and operated by Kingdom Homes whose owners are retiring from the care home business. All of the homes will be operated by an existing Group tenant, Holmes Care Group, and are located in Fife, offering 480 high quality en-suite beds, located within established residential areas.
The homes each have a track record of delivering high quality care and strong operational performance which will continue under the stewardship of Holmes. Each home has either an equivalent EPC rating of B or C with strategies in place for achieving an equivalent EPC rating of B.1
The initial consideration is £37.5 million, with a potential deferred payment of up to £2.5 million subject to the future performance of the care homes. The deferred payment, if it becomes payable, will result in increased rental payments, ensuring that the effective purchase yield remains materially unchanged.
The investment has been made initially by way of a loan to Holmes Care Group which will allow it to complete the acquisition of Kingdom Homes immediately. The structure creates a number of benefits for all stakeholders, including enabling Holmes Care Group to take immediate operational control of the homes, thereby avoiding a potentially lengthy transition period while regulatory approvals are sought to register the operation of the homes in new legal entities, as well as other financial and operational efficiencies.
Once the regulatory approvals are received, Impact then has the option to acquire the property assets from Holmes Care Group (who also has the option to sell the property assets to Impact). Impact will receive interest payments equal to 8.6% per annum for the duration of the loan and, if either option is exercised, new 30-year leases on Impact’s standard terms have been pre-agreed with Holmes. Initial rent under the new leases is set at £2.7 million reflecting a gross initial yield of 7.2%.
The loan structure used to make this investment includes additional protections for Impact’s shareholders, including security over the applicable property assets under option and a number of operational covenants from Holmes Care Group, whilst the options also allow Impact to fix the future price of the property assets and associated rents in advance.
This investment will take the Group’s relationship with Holmes Care Group to 21 care homes across Scotland, with 1,129 beds.