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Sustainability and financial returns: the case for senior care property
The start of 2025 was both tumultuous for financial markets, with geopolitical tensions and trade policies bringing volatility back, and also eventful in regard to ESG news. In Q1, the UK strengthened green finance ties with China, issuing its first overseas sovereign green bond, denominated in Chinese yuan and listed on the London Stock Exchange, raising a total of $824 million. The European Union began implementation of the Corporate Sustainability Reporting Directive (CSRD) which will simplify ESG reporting standards and improve transparency and accountability, impacting 50,000 companies in Europe.
In terms of portfolio performance, equities ended the quarter in line with global indexes despite a positive tilt towards the US and an underweight to the UK. Fixed income outperformed thanks to the diversification provided by short duration credit and emerging market impact bonds and alternatives were a mixed bag with absolute return, pharmaceutical royalties and care homes offsetting the drag of green energy and core infrastructure.
The highlight of this quarter’s newsletter is the case for social infrastructure, and in particular care homes, from both a sustainability and profitability angle. We added CARE REIT – formerly known as Impact Healthcare REIT – in September 2024 as we felt that the business case was compelling, and we equally appreciated the social value that the business model could deliver. The focus of CARE has always been quality yet affordable care homes, supporting vulnerable populations and relieving pressure on the NHS. Management delivers on this objective by acquiring properties used as residential units for the elderly and leasing them to specialist operators.
he latter have shown an average rent cover of 2x, showing the affordability of the fees charged by CARE while 70% of the portfolio is backed by publicly funded residents, which underlies the importance and value of care homes to the UK health system and broader society.
With an ageing population, care homes for the elderly are a critical part of the UK’s health infrastructure as they play an increasingly vital role in preventing hospital admissions in the first place and helping to free up hospital beds by taking patients awaiting discharge.
We see clear alignments with sustainable development goals and in particular good health and well-being, industry, innovation and infrastructure and sustainable cities and communities:
Figure 1: Sustainable development goals
Source: CARE REIT 2023 sustainability report
To assess the soundness of the sustainability case we also conducted due diligence on how CARE manages its exposure to ESG factors and the review was satisfactory.
CARE REIT increased its efforts to integrate environmental, social responsibility and transparent governance into its operations. The company set a net zero carbon emissions target by 2045, with interim targets to reduce emissions by 15% by 2025 and 50% by 2030. It has improved its Energy Performance Certificate ratings, with 57% of properties achieving a B rating or higher as at the end of 2023.
Socially, CARE supports vulnerable populations through quality care homes and maintains strong tenant relationships. Governance is robust, with transparent reporting in line with blueprints like the European Public Real Estate Association (EPRA) Sustainability Best Practices Recommendations and adherence to responsible investment practices as a United Nation Principles of responsible investment (PRI) signatory.
The poor share price performance following the Truss mini-budget in 2022 made the company an appealing acquisition target—not just for us, but for others as well. This interest culminated in a cash offer by CareTrust, a NYSE listed US REIT involved in seniors housing and healthcare-related properties, 35% above the pre-announcement share price, ultimately delivering an overall portfolio return of 27.8% since its inclusion in the portfolio.
Figure 2: CARE REIT Cumulative total return since inception as at 28.03.25
Source: Bloomberg
We plan to reinvest the proceeds of the takeover in Target Healthcare REIT, a close competitor with an equally socially aligned portfolio. We believe that the outcome of the investment in CARE REIT is an example of how it is possible to add value via asset selection, pursuing real assets in niche markets, delivering positive impact as well as financial returns.
Tiziana Maida, CFA Head of Research
