TIDMTHRL
RNS Number : 5945P
Target Healthcare REIT PLC
20 October 2021
To: RNS
From: Target Healthcare REIT plc
LEI: 213800RXPY9WULUSBC04
Date: 20 October 2021
ANNUAL RESULTS FOR THE YEARED 30 JUNE 2021
Focus on best-in-class real estate, portfolio diversification
and improving sector outlook provides platform for continued
growth
Target Healthcare REIT plc (the "Company" or the "Group"), the
listed specialist investor in modern, purpose-built UK care homes,
is pleased to announce its results for the year ended 30 June
2021.
Asset management and yield compression driving high single digit
returns and progressive dividend
-- NAV total return(1) of 8.8% (2020: 7.0%), driven by growth of
the underlying portfolio value as a result of modest yield
compression and annual rental uplifts
-- EPRA NTA per share increased 2.1% to 110.4 pence (2020: 108.1 pence)
-- Group specific adjusted EPRA earnings per share increased
3.6% to 5.46 pence per share (2020: 5.27 pence), despite cautious
investment activity as a result of COVID-19
-- Continued progressive dividend policy, with dividends
increased by 0.6% to 6.72 pence in respect of the period (2020:
6.68 pence)
-- Dividends in respect of the period 80% covered by adjusted
EPRA earnings, fully covered based on EPRA earnings
-- Low net loan-to-value ("LTV") of 15.9% as at 30 June 2021
(average cost of drawn debt 2.9%, average term to maturity 4.8
years)
-- Completion of two oversubscribed equity issuances, reflecting
the Company's supportive investor base and its conviction in the
asset class' fundamentals:
o A GBP60 million equity issuance in March 2021
o A post-period end GBP125 million equity issuance, as announced
on 10 September 2021, with prompt deployment anticipated on assets
under diligence
Focus on diversification and quality real estate underpins
improving income characteristics
-- Resilient portfolio performance, with 95% of rent collected
-- Portfolio value increased by GBP67.2 million, or 10.9%, to
GBP684.8 million, including like-for-like valuation growth of 3.8%
(2020: 2.8%)
-- Contractual rent increased by 5.6% to GBP41.2 million per
annum (2020: GBP39.0 million), with the assets that were subject to
rent review in the period delivering an average increase of
1.8%
-- Acquisition commitments during the year totalling GBP70
million, taking the portfolio to 77 properties, consisting of 73
operational care homes and four pre-let sites
-- Resident occupancy levels across the mature portfolio
continue to recover from the low point in Q1 2021, with
twelve-month rolling rent cover of 1.5 times at 30 June 2021.
Responsible investment with a clear purpose to improve the UK's
care home real estate
-- Modern, purpose-built care homes; full en suite wet-rooms
account for 96% of the portfolio compared to just 28% for all UK
care homes
-- Compelling long-term demand supply dynamics support both
investor and operator activity in the sector, with recent
Government consideration of social care reform and steps towards a
funding solution
-- Strong alignment of ESG principles, with continued social
purpose and advocacy of minimum real estate standards across the
sector
o 92% of the portfolio A or B EPC rated
(1) Based on EPRA NAV movement and dividends paid
Malcolm Naish, Chairman of the Company, said:
"We are once again pleased to have achieved our key objectives:
stable investment returns provided to shareholders and excellent
care home real estate to our tenants and their residents. It is
crucial to us that our longstanding approach is "doing the right
thing" through the provision of fit-for-purpose care facilities
which are also comfortable living, visiting & social spaces.
Our business model, which prioritises stability of returns, and our
portfolio resiliency were fundamentals which stood out strongly
during a period of uncertainty. We own real estate of the highest
standards and build relationships with tenants who have proven to
be capable of caring for residents and operating commercially well
through the most challenging of conditions.
"Our recent GBP125 million equity issuance, alongside additional
debt capacity, allows us to add further assets to the portfolio,
including our first significant portfolio of 18 assets which will
deliver GBP9.1 million of annual rent immediately following
completion of the acquisition, expected imminently.
"The Board remains confident in the Group's prospects, whilst
remaining cautious and patient with respect to the portfolio
returning to normalised trading levels. Our strategy and decisions
will reflect our commitment to being a long-term backer of our
tenants and the social care sector, doing so in a responsible and
supportive manner."
All enquiries:
Kenneth MacKenzie / Gordon Bland
Target Fund Managers 01786 845 912
Mark Young / Mark Bloomfield
Stifel Nicolaus Europe Limited 020 7710 7600
Dido Laurimore / Claire Turvey / 020 3727 1000
Richard Gotla targethealthcare@fticonsulting.com
FTI Consulting
Notes to editors:
UK listed Target Healthcare REIT plc (THRL) is an externally
managed Real Estate Investment Trust which provides shareholders
with an attractive level of income, together with the potential for
capital and income growth, from investing in a diversified
portfolio of modern, purpose-built care homes.
The Group's portfolio at 30 June 2021 comprised 77 assets, 73
operational assets and four pre-let development sites, let to 28
different tenants with a total value of GBP684.8 million.
The Group invests in modern, purpose-built care homes that are
let to high quality tenants who demonstrate strong operational
capabilities and a strong care ethos. The Group builds
collaborative, supportive relationships with each of its tenants as
it believes working in this way helps raise standards of care and
helps its tenants build sustainable businesses. In turn, that helps
the Group deliver stable returns to its investors.
Chairman's Statement
We are once again pleased to have achieved our key objectives:
stable investment returns provided to shareholders and excellent
care home real estate to our tenants and their residents. It is
crucial to us that our longstanding approach is "doing the right
thing" through the provision of fit-for-purpose care facilities
which are also comfortable living, visiting & social
spaces.
1. Performance
Our financial performance during the year has been robust, with
EPRA NTA growth of 2.1% (110.4 pence from 108.1 pence) underpinned
by a portfolio which has performed resiliently - 95% of rents have
been collected, with rent cover at our mature homes, a key
underlying profitability metric, at 1.5 times which compares well
to the 1.6 times we would expect in normal trading conditions. Our
tenants have been reporting steady increases in occupancy since the
sector's low point earlier this year as the COVID-19 pandemic eases
somewhat.
Growth in the portfolio's valuation has exceeded that which is
driven by rental uplifts, with an overall like-for-like increase of
3.8% as market pricing reacts to the portfolio's stable returns
relative to other commercial property classes and demand from a
number of buyers in the market. Contracted rent has increased by
5.6% to GBP41.2 million and adjusted EPRA earnings have increased
by 11.8% to GBP26.0 million. This translates to dividend cover of
80% and an adjusted EPRA EPS of 5.46 pence. Under the more
widely-used EPRA earnings metric the dividend was 105% covered.
The COVID-19 pandemic has had an impact on our business, however
rental concessions have only been requested by a limited number of
our tenants. Physical restrictions have translated to some delays
in portfolio initiatives, though we are pleased with progress made
more recently with acquisition and re-tenanting transactions as we
build and shape a robust portfolio as a basis for long-term stable
returns.
We look forward to growing earnings and dividend cover following
our recent equity raise and significant pipeline of imminent
acquisitions, and take pride in having delivered a NAV total return
of 8.8% for the year.
2. Business model and investment case
Whilst financial performance and tenant feedback on our real
estate have been satisfying, following the impact of the COVID-19
pandemic it would be inappropriate not to have reflected fully on
our strategy and objectives - it is important to us that we can be
a supportive partner to the social care sector now and for many
years to come.
Our business model is set out in the Annual Report and, whilst
we have not amended it significantly in response to COVID-19, our
reflections provided three findings of note:
1. We unapologetically use en suite wet-room provision as a
proxy for real estate quality. By this, we mean fully private and
functional spaces for each resident's personal hygiene
requirements, often with assistance. Eleven years into my
involvement in the sector I still find it astonishing that 72% of
care home places in the UK fail to provide this. This will continue
to be a strict requirement of our responsible investment
approach.
2. Sustainable rents are crucial. The social care sector needs
long-term, patient capital partners who understand and support the
investment and commitments made by care providers. Setting rents at
appropriate levels to weather variable trading performance, whether
that be local/seasonal or pandemic-type events, helps drive good
behaviours and long-term thinking at care providers, and investment
returns for us. We will continue to act with discipline when
assessing what rent a home will support over the long-term.
3. ESG and our responsibilities to society. We take pride in
having delivered a positive social impact from day one, both
directly via our investment approach and via our wider advocacy of
responsible investment in the sector. We will enhance our
environmental sustainability efforts, firstly by more explicit
incorporation into our acquisition, development and portfolio
management activities, and secondly by moving towards comprehensive
collection, analysis and reporting of data from our tenants on
energy usage at our homes.
3. COVID-19 - outlook
We talk more about the impact and our response in the Annual
Report. The most significant impact has been on our tenants in
their caring for residents and their staff, and their experience of
challenging trading conditions for a prolonged period as resident
occupancy levels dropped and remained depressed. Our tenants have
responded well, with resident care as a priority, but also
commercially and operationally to protect their businesses and meet
their obligations to us as long-term capital providers. We are
pleased to see underlying resident occupancy levels now recovering
and increased optimism from our tenants.
General staff availability, the effect of mandatory
vaccinations, and local authority funding constraints will continue
to challenge our tenants in the coming weeks and months, though we
believe our portfolio is well-placed to manage these and it is
comforting to report that COVID-19 cases across the portfolio now
are very low. Vigilance will be required in respect of emerging
variants, though the booster vaccination programme will benefit
residents ahead of the general population. The focus in care homes
is on managing the return to normalised occupancy levels safely. As
restrictions ease, homes should once again experience the full
vibrancy which increased socialising, activities and community
interaction bring.
4. Governance
Board Succession
With the majority of the current Directors having been appointed
at the Company's launch in 2013, we continue the process of
refreshment started in the prior year. Subsequent to the year end,
I am pleased to welcome Mr Vince Niblett to the Board. Mr Niblett
has many years of financial and commercial experience and is
expected to be appointed as Chair of the Audit Committee shortly,
with Mr Coull assuming the role of Senior Independent Director. I
would also like to take the opportunity to express the Board's
gratitude for the service and expertise provided by Mr Hutchison
and Professor Andrews, both of whom will retire following the
conclusion of the forthcoming AGM.
Annual General Meeting ('AGM')
The AGM will be held on 14 December 2021. Shareholders are
encouraged to make use of the proxy form provided in order to lodge
their votes and to raise any questions or comments they may have in
advance of the AGM through the Company Secretary.
5. Outlook and dividend
I stated last year that our business model, which prioritises
stability of returns, and our portfolio resiliency were
fundamentals which stood out strongly during a period of
uncertainty. We own real estate of the highest standards and build
relationships with tenants who have proven to be capable of caring
for residents and operating commercially well through the most
challenging of conditions. Allied with the non-cyclical,
needs-based demand for places in care homes such as ours we are
confident in being well-placed to continue to deliver on our
objectives.
We once again are grateful for shareholder support by way of our
recent GBP125 million equity issuance, which follows our GBP60
million issuance during the year. This capital, alongside
additional debt capacity, allows us to add further assets to the
portfolio, including our first significant portfolio of 18 assets
which will deliver GBP9.1 million of annual rent immediately
following completion of the acquisition, expected imminently.
We have carefully considered portfolio performance and trading
conditions as we emerge from pandemic conditions in setting our
target dividend level for the year to June 2022, and remain
committed to providing a progressive dividend. As previously
announced, in the absence of unforeseen circumstances, the Board
intends to increase quarterly dividend levels by 0.6% to 1.69 pence
per share, providing an annual dividend of 6.76 pence per
share.
The Board remains confident in the Group's prospects, whilst
remaining cautious and patient with respect to the portfolio
returning to normalised trading levels. Our strategy and decisions
will reflect our commitment to being a long-term backer of our
tenants and the social care sector, doing so in a responsible and
supportive manner.
Malcolm Naish Chairman
19 October 2021
Investment Manager's Report
The portfolio has outperformed the MSCI UK Annual Healthcare
Property Index once again, in respect of the calendar year to 31
December 2020, with a portfolio total return of 8.2% relative to
the Index's 6.8%.
Portfolio review
The portfolio has outperformed the MSCI UK Annual Healthcare
Property Index once again, in respect of the calendar year to 31
December 2020, with a portfolio total return of 8.2% relative to
the Index's 6.8%. The portfolio's annualised total return since
launch now stands at 11.2% while the portfolio's last five-year
period has an annualised total return of 10.5% relative to 8.6% for
the Index.
An analysis of the investment yield progression and the
risk/return based on data from MSCI, further details on which are
shown in the Annual Report, both demonstrate stable returns and
movements consistent with other stable and "lower risk" asset
classes in UK gilts and the listed primary healthcare composite
which consists primarily of GP surgery funds with almost 100%
government-backed underlying income. The portfolio's EPRA topped-up
NIY now stands at 5.83%, down from 6.04% in 2020, which reflects
well the shift in market pricing we have seen. This valuation level
also reflects the portfolio's underlying trading performance,
robust rent collection and positive outlook/demand for our real
estate through, and emerging from, the COVID-19 pandemic.
The portfolio's low volatility measure is a core aspect of the
investment case, which anticipates stable, non-cyclical returns at
a total return level which could suggest a mispricing of the asset
class. Although we acknowledge this may be partially driven by the
relatively low collateral in our tenants' balance sheets (as they
tend to be family/owner-managed regional businesses), we believe
our investment approach, skill in investment appraisal, and
assembly of a diversified portfolio of scale helps in
mitigation.
UK care home investment market
The market experienced a subdued 2020 due to the COVID-19
pandemic, as market participants focussed on managing their way
through the crisis, protecting residents and their own personnel.
Asset visits for inspections, home management meetings and general
marketing were logistically difficult, and not a priority for
operators regardless.
As restrictions eased later in the year we saw activity pick-up
again, with pricing continuing to respond to significant investment
demand in what is a competitive market for the type of assets we
acquire and hold. We did not see many acquisition opportunities
reflecting distressed circumstances as the sector traded robustly,
and would expect sales processes for assets whose trading has been
significantly affected by COVID-19 to delay until resident
occupancy recovers towards normalised levels.
As well as demand from the typical domestic investors, the main
change we have noted in the year has been an uptick in activity
from European investors, these are generally larger and less
specialist healthcare real estate investors whose home markets are
saturated and lower-yielding. Their initial forays were into poorer
quality real estate, by way of portfolio acquisitions in recent
years, though they are currently more active in their pursuit of
the real estate we have been advocating for as fit-for-purpose.
None of this is a surprise in a market where only 28% of beds
meet our quality standards, and which needs substantial
modernisation overall. The non-cyclical nature of returns, which
are still relatively high-yielding, make the investment desirable
for the income investor. Whilst we welcome new capital to support
development of real estate and operator growth, we would argue that
specialist knowledge and a committed long-term holder would be
characteristics of the suitable investor.
Health & social care
We write at a time when our tenants report a positive outlook
and underlying occupancies within the homes they run are increasing
towards normalised levels as we emerge from the pandemic. We
believe the combination of quality real estate, talented operators,
and the demographic tailwinds supporting demand for needs-based
care will see this improved trading with time. In the meantime, we
note below a number of areas which are prominent in our minds and
those of our tenants:
Path to occupancy recovery
Occupancy has been depressed from normal levels in the past 18
months, not necessarily through unusually high deaths, but through
lack of admissions as families sought to keep their loved ones at
home. Many families found more time to care due to furlough and
working from home. As lockdowns dissipate and furloughs come to an
end, occupancy is on the rise again, for what is a "needs-based"
service. We anticipate steady increases as homes cautiously admit
new residents in small numbers, ensuring people settle into their
new homes with adequate staffing and care plans effected.
Sector reputation
Early on in the pandemic, care home sector reputations appeared
to suffer from the perception operators were unable to adequately
protect those in their care, despite the strength of pre-existing
infection control protocols which we are now all familiar with
applying. More recently that perception has shifted somewhat, as
evidence emerged of unreasonable pressure put on operators by the
volume of hospital discharge patients into homes with undue haste
and lack of robust testing protocols. We pause at this point to pay
tribute to those staff who worked through these outbreaks, and the
care they provided, and would endorse a positive view of the people
in the sector.
Staffing pressures
We see evidence of staffing shortages affecting our sector
similar to leisure, hospitality and some logistics businesses. The
majority of our tenants feel this will be manageable and are
enhancing their recruitment and HR functions in response, as well
as taking advantage of some flexibility in immigration allowances
to find suitably skilled individuals. Good staffing management is
crucial to good care provision, and as the largest single item on a
care provider's expense line, is directly core to profitability.
Regardless of our tenants' ability to manage this well, we do
foresee wage cost inflation in response to these supply-side
challenges. We anticipate our tenants will effectively manage these
through fee increases, principally through privately-funded
residents.
Residual COVID-19 considerations
Mandatory vaccinations for social care staff is a point of
discussion currently. Many of our larger tenants are reporting
staff vaccination rates at 95% plus, and are not unduly concerned,
though find it to be a frustration that other healthcare sectors'
staff do not have the same restrictions. We will all be alert to
the possibility of new variants and waning immunity with time,
though this sector will likely have the advantage of priority
access to booster vaccinations and any necessary supplemental
vaccination rollouts.
Government policy (support and onwards)
Government minds have once again been concentrated on social
care reform and a funding solution. Deadlines for a comprehensive
solution via a detailed White Paper have slipped, having been
replaced with some interim measures. These measures, whilst
bordering on being a weak positive for the sector overall in
recognising and delivering some funding, are statistically
insignificant given (a) the overall size of the funding need and
(b) being unclear on the efficiency of directing funding to the
care providers.
Government financial support through the pandemic was, however,
well targeted and well-received, with England's Infection Control
Fund (similar in other UK nations) covering some of the costs of
staff overtime, additional equipment and supplies, as well as the
management burden of the testing regime.
Summary
At the height of the pandemic, there were calls to review the
use of care homes as a future resource for our ageing elders. We in
the social care sector and wider healthcare environment know that
to be naïve; care homes will always be required as part of the mix
of resources in this rapidly ageing society, but quality of
facility must improve, and we are pleased to be at the forefront of
that provision.
Target Fund Managers Limited
19 October 2021
Our Strategy
Our purpose to improve the standard of living for older people
in the UK is achieved through our four strategic pillars.
Strategic pillar #1
To grow a robust portfolio
We are creating a portfolio of scale with a clear focus on the
quality of real estate and diversification of income sources to
provide a stable long-term platform for returns.
Acquisitions and developments
GBP70 million of investment, inclusive of costs, has been
committed to five new assets during the year, growing the portfolio
to 77 assets, inclusive of 73 operational care homes and four
development sites, the latter being underpinned by fixed-price or
capped development agreements and which are pre-let on long (30
years plus) FRI leases to trusted operating partners.
These investment commitments made during the year along with the
acquisition of a further three assets completed post-period end
have fully committed the capital raised in the March 2021 equity
issuance.
One of the Group's existing development sites reached practical
completion early in the year with that brand new care home in
Burscough welcoming residents in July 2020. A further two
development sites have reached practical completion since the
period end, with the three homes together providing a combined
total of 214 new beds to their local markets, all benefiting from
en suite wet rooms within modern, fit-for-purpose homes.
Real estate standards: commitment to responsible investing
We have a clear vision on what makes care home real estate
fit-for-purpose, with the principal objective that residents can
live with choice, dignity and privacy in a comfortable and pleasant
environment. We also want intelligent layouts and facilities for
our tenants to efficiently deliver their services. We require our
homes to include generous bedrooms, spacious communal areas and en
suite wetroom facilities that are vital for both dignity during
care and for infection control within a home. 96% of the 5,351 beds
in the portfolio are equipped with en suite wet rooms while 100%
have en suites. We are committed to upgrading the remaining beds in
the portfolio that do not meet this minimum requirement as
identified during diligence on these acquisitions.
The national comparator on en suite wet rooms has grown to be
28% currently from only 17% in 2017, driven both by the provision
of new homes and the exit of many non-compliant older homes from
the market.
Diversification
Diversification continues to be a focus for the Group in order
to manage portfolio risk with the metrics remaining broadly
unchanged from 2020 other than the positive addition of two (net)
new tenants bringing the total to 28. The largest tenant is
unchanged from 2020 being Ideal Carehomes, accounting for 13.1 per
cent of the Group's contractual rent.
Sources of resident fees, the underlying income received by our
tenants, continue to originate from both public and private
sources, with a deliberate bias towards the latter in our portfolio
assembly. Census data collected during the period notes that 44 per
cent of the portfolio's underlying residents are funded exclusively
from private sources, 18 per cent by a mix of private and public
funding, where "top-up" payments are made by Local Authorities, and
38 per cent are funded from public sources.
Geographically, the largest region by asset value remains
Yorkshire & the Humber, with 20 per cent. The Group's portfolio
contains homes from all regions of the UK and the Investment
Manager continues to explore opportunities for acquisitions that
will further enhance the existing geographic diversification.
Strategic pillar #2
Sustainable returns from a portfolio management approach with
valued relationships as its core
The Investment Manager has deep experience within the sector and
uses that specialism to engage effectively with our tenants,
understanding the complexities inherent in the sector.
Engaged
The Investment Manager has continued to support the Group's
growing base of 28 tenants while the importance of selecting
operators demonstrating high levels of care ethos and expertise has
been reaffirmed throughout the pandemic. We once again pay tribute
to the carers, staff and management who have performed admirably
throughout the challenges that the care sector has faced over the
last year. As a highly engaged landlord, the Group through its
Investment Manager will continue to liaise closely with its tenants
to ensure that the Group's income is protected through sustainable
rental levels and that we remain supportive of operators that seek
to raise the overall standard of care.
As part of our ongoing desire to be an effective and engaged
landlord, we invited our tenants to participate in a survey to
evaluate their satisfaction with our engagement. The results from
this survey were very encouraging:
-- 100% of responders agreed that working with us is a positive
experience and that we actively listen, taking time to understand
their business, proactively resolving questions and issues.
-- 82% also agreed that we demonstrate our commitment to
investing in homes that provide the best environments for residents
and their care providers.
We look forward to enhancing this survey in future years to
supplement our ongoing discussions with our tenants and addressing
any concerns or suggested improvements forthcoming.
As part of our ongoing data gathering and support of our tenants
during the year we:
-- Collected and analysed monthly management information for each home.
-- Visited (either virtually or physically) each home in the portfolio.
-- Had >1,000 calls/interactions with our operators at all levels of management.
While these calls were often emotional during lockdown as a
number of homes experienced difficulties through COVID-19
outbreaks, the dedication and diligence of the care staff across
the portfolio was demonstrated repeatedly while their appreciation
for our engagement was also noted.
Performance
The Group's key metrics have performed positively. The portfolio
total return has again outperformed the MSCI UK Annual Healthcare
Property Index, with a total return for the calendar year to
December 2020 of 8.2 per cent relative to the Index's 6.8 per
cent.
The portfolio has outperformed the Index each year since launch,
as shown in the table below.
Portfolio total MSCI Index total
return (%) return (%)
Year to 31 December 2015 14.5 10.3
---------------- -----------------
Year to 31 December 2016 10.6 7.9
---------------- -----------------
Year to 31 December 2017 11.9 11.7
---------------- -----------------
Year to 31 December 2018 12.7 9.1
---------------- -----------------
Year to 31 December 2019 9.2 7.4
---------------- -----------------
Year to 31 December 2020 8.2 6.8
---------------- -----------------
Valuation growth on a like-for-like basis was 3.8 per cent and a
substantial driver to overall growth in the portfolio value of 10.9
per cent during the year. The remainder was driven by acquisitions
and developments at 4.0 per cent (net of disposals) and 3.1 per
cent respectively. Contractual rent increased by 5.6 per cent over
the period with new acquisitions, net of disposals, contributing
3.8 per cent and the completion of developments contributing 1.8
per cent. The annual uplifts from rent-reviews in the year of 1.8%
were netted off by rental reallocations and adjustments made as a
result of asset management initiatives.
Rental collection has continued its robust performance
throughout the pandemic, at 95% for the year. This strong
performance in a challenging context demonstrates the portfolio's
resiliency with its sustainable rent levels and diversified tenant
base, further supported by portfolio rent cover of 1.5x. This
metric reflects the underlying profitability at the homes, over a
period substantially affected by depressed occupancy levels as a
result of COVID-19. Sustainable rent levels; commercially astute
trading by our tenants; and some government support have each
contributed. The portfolio has retained a level of rent cover
(1.2x) if non-recurring government contributions are excluded.
Recovery in occupancy levels, as reported by our tenants as
COVID-19 restrictions ease, provides a platform for the portfolio
to return to normalised trading conditions which we anticipate will
translate to steady growth to stable rent cover levels at or above
1.6x in time.
Current COVID-19 prevalence across the portfolio is very low,
however the Investment Manager continues to collect case numbers
from the Group's operators and will monitor this closely.
Portfolio Management
The Investment Manager has been closely monitoring a small
number of tenants and completed some initiatives to further improve
rent collection and portfolio resiliency going forward. A tenant
operating two of the Group's homes had been a contributor to rental
arrears for some time as they experienced financial distress and
went through a restructuring of their business. The Group has
resolved its position with this tenant, reaching an agreement for
partial settlement of outstanding rent and a consensual
re-tenanting of both homes. The re-tenanting of one of these homes
was completed during the year to a family-owned operator providing
an immediate valuation and net income uplift. The re-tenanting of
the second home is expected to complete imminently with revised
rental terms and a lengthened lease duration.
A further re-tenanting was completed during the year from a
large national operator to a family-owned operator on a lengthened
lease term with a substantial transfer payment received from the
outgoing tenant which will fund capital expenditure on the home
along with the rental incentives provided to the new tenant. The
impact on residents and staff was minimised during this
transition.
The Investment Manager's experience and sector expertise has
been apparent in a conviction to support the Group's other tenant
who has been a significant contributor to rent arrears. That
tenant's two high-end, immature homes are now trading well, with
strong occupancy levels and growing rent covers, with full value
recovery to investment case levels anticipated.
The combination of decisive re-tenanting action when required
alongside patience and support when justified for the right
operators reflect our approach to achieving shareholder returns in
a responsible manner.
Strategic pillar #3
Regular dividends for shareholders
Total dividends of 6.72 pence per share were declared and paid
in respect of the year to 30 June 2021, an increase of 0.6 per cent
on 2020, and reflecting a yield of 5.8 per cent based on the 30
June 2021 closing share price of 115.4 pence.
Earnings & dividend
Adjusted EPRA earnings per share, used by management as a key
metric in assessing operational performance, increased to 5.46
pence for the year. Dividend cover using the adjusted earnings
measure also increased, to 80% for the year. Applying the more
widely used comparative of EPRA earnings, the dividend was fully
covered at 105%.
The Group anticipates achieving a covered dividend when fully
invested at an appropriate gearing level. The significant share
issuance subsequent to year-end is intended to fund a substantial
pipeline of imminent acquisitions, the majority of which are fully
income generating immediately on completion. The Group's current
scale, patiently earned through modest fund raises to date, its
track record as a reliable counterparty and its flexible debt
arrangements, provide the platform to grow the portfolio and
earnings whilst minimising the cash drag effect of undeployed
capital on dividend cover.
For the year under review, cash drag has impacted earnings and
dividend cover as acquisitions were slowed due to COVID-19
initially. The oversubscribed equity issuance of GBP60 million in
March 2021 has been deployed during the final quarter and
subsequent to the year-end, with earnings now accruing on this
capital. Admin expenses of GBP11.1 million (2020: GBP9.5 million)
includes GBP2.7 million of provisions for doubtful rental income,
also adversely impacting reported dividend cover. The Investment
Manager has implemented a number of asset management initiatives
during the year and the Group is confident of successful solutions
being reached on the other homes contributing to arrears which have
shown much improved performance in recent months. The quality of
the real estate available and supportive local demographics for
these homes reaffirms the Group's view that we expect to see
positive developments in these homes in the coming weeks and
months.
As previously announced, and reflecting a cautiously optimistic
outlook for the portfolio, in the absence of unforeseen
circumstances the Board intends to increase quarterly dividend
levels by 0.6% to 1.69 pence per share, providing an annual
dividend of 6.76 pence per share.
2021 2020
GBPm Movement GBPm
-------------------------------------- ------- ----------- ------
Rental income (excluding guaranteed
uplifts) 41.2 +14% 36.0
Admin expenses (including management
fee) (11.1) +17% (9.5)
Net financing costs (4.8) +12% (4.3)
Interest from development funding 0.6 -40% 1.0
-------------------------------------- ------- ----------- ------
Adjusted EPRA earnings 26.0 +12% 23.2
-------------------------------------- ------- ----------- ------
Adjusted EPRA EPS (pence) 5.46 +3.6% 5.27
EPRA EPS (pence) 7.16 +3.5% 6.92
Adjusted EPRA cost ratio 26.6% +90bps 25.7%
EPRA cost ratio 22.3% +80bps 21.5%
Ongoing charges figure 1.55% +4bps 1.51%
-------------------------------------- ------- ----------- ------
Total Returns
The Group targets modest capital growth as well as its income
priority, with a belief that a quality portfolio of modern care
home real estate is likely to be in demand. Despite the difficult
trading conditions across the portfolio from COVID-19, and
depressed occupancy levels from slower admissions, the portfolio
has continued to perform, with robust rent collection, and has a
positive outlook. Being one of the first investment asset classes
to fully benefit from the COVID-19 vaccination programme has helped
stimulate the anticipated return towards normalised trading.
This robust and sustainable performance, the completion of some
portfolio initiatives, and the investment demand for the stable,
non-cyclical returns from a diversified portfolio of quality
assets, has seen asset value appreciation. EPRA NTA has grown 2.1
per cent to 110.4 pence per share from 108.1 pence per share, NAV
total return for the year has been 8.8 per cent, and annualised NAV
total return over the period since the Group's launch in March 2013
has been 7.8 per cent. The portfolio's EPRA topped-up NIY has
tightened to 5.83 per cent from 6.04 per cent.
EPRA NTA per share
EPRA NTA per share has increased to 110.4 pence, primarily
driven by an increase in property valuations.
Pence per share
----------------------------- -----------------------
EPRA NTA per share as at 30
June 2020 108.1
Acquisition costs (0.5)
Property revaluations 4.2
Adjusted EPRA earnings 5.4
Dividends paid (6.6)
Loan repayment costs (0.2)
Equity issuance -
----------------------------- -----------------------
EPRA NTA per share as at 30
June 2021 110.4
----------------------------- -----------------------
Efficient capital structure
In November 2020, the Group entered into agreements with two of
its existing lenders (RBS and HSBC) in order to extend the terms
and increase its facilities with each. These revised arrangements
increased available facilities to GBP220 million from GBP180
million while maintaining the weighted average cost of debt and
extending the weighted average term to maturity. At 30 June 2021,
these metrics were 2.9% (2020: 2.9%) and 4.8 years respectively
(2020: 4.2 years).
The Group was also the first real estate client of each of these
lenders to transition its facilities to a SONIA interest basis from
LIBOR, with the latter due to be phased-out by June 2023.
The Group retains flexibility through its debt-mix with GBP140
million of the GBP220 million being fully revolving facilities and
continues to focus on achieving competitively-priced debt at
appropriate durations.
Subsequent to the year-end the Group has agreed heads of terms
for an additional GBP100 million of long-term facilities with an
existing lender which are intended to complement the equity
issuance to efficiently fund the significant pipeline. Diligence
procedures and legal documentation are currently being completed on
this anticipated facility increase.
Strategic pillar #4
To achieve our social purpose
Pillar What this means What we did in What we'll do in 2022
for Target 2021 and beyond
1. Responsible Leading in social Social Social
investment impact for - 5 homes - Continue to advocate
As an investor care home real acquired, 344 for quality real estate
we understand estate resident - Monitor new ideas (architecture,
that our actions - We understand spaces dementia friendly design,
have influence. the importance - Development energy)
We use our of maintaining a commitments for - Monitor design and innovation
platform portfolio 272 new beds as at response to COVID-19
to lead by example that supports the year-end
through embedding needs of - 96% wet-rooms
appropriate tenants and - Homes provide Energy
ESG considerations residents, which space of 47m(2) - Balanced assessment
into our in turn per resident of data &
decision-making. contributes to - All real estate recommendations obtained
the has generous from BREEAM reports
long-term social and outdoor - Increase proportion
sustainability of space of leases with "green"
social care reporting provisions to
infrastructure Energy gather more data on energy
in the UK. - 100% A-C EPC consumption patterns from
ratings our tenants for use in
- Introduced decision-making
Energy and energy efficiency - Manager to use toolkit
climate change: consideration into and resources to progress
Responsible policies its net zero journey
acquisitions & - Instructed
portfolio BREEAM-in use
management assessment for a
- Energy representative
efficiency is a sample of
specific portfolio
consideration in - "Green"
our investment provision on
analysis for energy
acquisitions, usage reporting
developments and introduced
portfolio into our standard
management lease
decisions. - Target Fund
- In our role as Managers supports
a responsible the Edinburgh
landlord we are Science Climate
committed and Sustainability
to helping our programme
tenants identify and became a
and implement founding pledger
energy reduction of its Mission Net
and efficiency Zero project
measures. in 2021
------------------ ------------------- --------------------------------------------------------
2. Responsible Tenant selection, Tenants Tenants
partnerships engagement - 10/10 "positive - Focus on supporting
We engage with & collaboration experience" our tenants with COVID-19
all our - As a satisfaction score recovery, considering
stakeholders responsible, - Committed further real estate design
to drive the proactive engagement with enhancements in response
creation of landlord we our tenants to - Invest in fully understanding
economic, social prioritise good, consider and and responding to lower-scoring
and environmental open consent to real areas from tenant survey
value around relationships estate alterations
our buildings with our in response to
and in wider tenants. COVID-19 challenge
society. - We make sure
that we solicit, Communities
assess and - Complete re-tenanting
respond to initiatives identified
feedback which will benefit long-term
on our portfolio Communities care continuity
and our - Re-tenanted two - Continue to facilitate
behaviours homes with tenant interaction and
to ensure carers new tenants learning sessions as COVID-19
and residents committed to restrictions ease
can be respected continuing
and cared care provision
for with dignity.
- We only select
tenants who
share our care
ethos and can
deliver
operationally.
Communities and
society
- We fully
appreciate the
vital role that
care homes
play in every
community, and
take decisions in
the best
interest of
maintaining
continuity
of care for
residents.
- Advocate for
and support
the sector.
------------------ ------------------- --------------------------------------------------------
3. Responsible Governance & Governance & Governance & transparency
business transparency transparency - To prepare and publish
We will treat - We uphold the - Undertook enhanced reporting suite,
all stakeholders highest ethical director inclusive of:
with respect standards and recruitment * GRESB reporting following data collection process
and deal fairly adhere to best process resulting
in a manner practice in every in Mr Niblett
consistent with aspect of being appointed * Comprehensive sustainability reporting, inclusive
how we would our business. post year end of
expect to be - Our governance - Investment EPRA measures
treated ourselves. and behaviour Manager
treat successfully
transparency for applied to become
all signatory
of our to the FRC
stakeholders as Stewardship Code
core. - GBP3 million
taxation directly
People, culture paid to the UK
and wellbeing government by
- We encourage way of VAT and
employment stamp duty land
practices across taxes. Dividends
our key service paid of GBP32
providers that million are
reflect our assessed for tax
core values, with upon reaching
a focus shareholders
on wellbeing,
fairness and
opportunity for
all.
------------------ ------------------- --------------------------------------------------------
Promoting the success of Target Healthcare REIT plc
The Board considers that it has made decisions during the year
which will promote the success of the Group for the benefit of its
members as a whole.
This section, which serves as the Company's section 172
statement, explains how the Directors have had regard to the
matters set out in section 172(a)-(f) of the Companies Act 2006 for
the financial year to 30 June 2021, taking into account the likely
long-term consequences of decisions and the need to foster
relationships with all stakeholders in accordance with the AIC
Code.
a) The likely consequences Our investment approach is long-term with
of any decision an average lease length of 28.8 years. We
in the long term believe this is the most responsible approach
to provide stability and sustainability to
tenants and key stakeholders. Therefore, most
decisions require consideration of long-term
consequences, from determining a sustainable
rent level and the right tenant partner for
each investment, to considering the impact
of debt and key contracts with service providers
on the recurring earnings which support dividends
to shareholders.
b) The interests The Company is externally managed and therefore
of the Company's has no employees.
employees
---------------------------------------------------
c) The need to foster As a REIT with no employees, the Board works
the Company's business in close partnership with the Manager, which
relationships with runs the Group's operations and portfolio
suppliers, customers within parameters set by the Board and subject
and others to appropriate oversight. The Manager has
deep relationships with tenants, the wider
care home sector, and many of the Group's
other suppliers. These are set out in more
detail in the following table.
---------------------------------------------------
d) The impact of The Board is confident the Group's approach
the Company's operations to investing in a sensitive sector is responsible
on the community with regard to social and environmental impact.
and This is set out in more detail in the community
the environment and the environment section of the following
table.
---------------------------------------------------
e) The desirability The Board requires high standards of itself,
of the Company maintaining service providers and stakeholders. The Group's
a reputation for purpose and investment objectives dictate
high standards of that these standards are met in order to retain
business conduct, credibility. The ethos and tone is set by
and the Board and the Manager.
---------------------------------------------------
f) The need to act The Board encourages an active dialogue with
fairly as between shareholders to ensure effective communication,
members of the Company either directly or via its broker and/or Manager.
The interests of all shareholders are considered
when issuing new shares.
---------------------------------------------------
The significant transactions where the interests of stakeholders
were actively considered by the Board during the year were:
Dividends paid
The Board recognised the importance of dividends to its
shareholders and, after careful analysis of the Group's forecast
cash position and expected rental collection, concluded that
continuing dividend payments at the level announced in the Annual
Report 2020 remained in the interests of all stakeholders. With
rental collection remaining robust, the Company recently announced
an increase in the expected dividend level, barring unforeseen
circumstances, for the year ending 30 June 2022.
Ongoing investment and asset management activity
Following a short hiatus towards the end of the previous
financial year, the Group recommenced its investment activity in
July 2020. Progress was made in resolving a position with a
distressed tenant with a settlement agreed, a re-tenanting
completed, and limited rent concessions were granted, ensuring on
each occasion that the transactions agreed appropriately balanced
the interest of shareholders, tenants (both incoming and outgoing)
and the underlying residents of the relevant care homes.
Capital financing
During the year, the Group refinanced its loan facilities with
the Royal Bank of Scotland and HSBC Bank, extending the term and
increasing the quantum of each on terms that are expected to be
beneficial to significant stakeholders over the duration of the
facilities. The Company also issued GBP60 million of ordinary
shares, at a premium to NAV, in March 2021 and a further GBP125
million post year end. The equity raised was used to temporarily
repay some of the Group's loan facilities whilst it awaited
investment.
Appointment of a Director
Subsequent to the year end, as part of the Board succession
plan, Mr Niblett was appointed as a Director. Mr Niblett's
significant financial experience and expertise is expected to
benefit all stakeholders over the period of his appointment.
Stakeholders
The Company is a REIT and has no executive directors or
employees and is governed by the Board of Directors. Its main
stakeholders are shareholders, tenants and their underlying
residents, debt providers, the Investment Manager, other service
providers and the community and the environment. The Board
considers the long-term consequences of its decisions on its
stakeholders to ensure the long-term sustainability of the
Company.
Shareholders Shareholders are key stakeholders and the
Board proactively seeks the views of its shareholders
and places great importance on communication
with them.
The Board reviews the detail of significant
shareholders and recent movements at each
Board Meeting and receives regular reports
from the Investment Manager and Broker on
the views of shareholders, and prospective
shareholders, as well as updates on general
market trends and expectations. The Chairman
and other Directors make themselves available
to meet shareholders when required to discuss
the Group's business and address shareholder
queries. Whilst government guidelines prevented
the holding of a physical AGM during the year,
provisions were made for any questions to
be raised with the Board by email in advance
of the meeting.
The Company and Investment Manager also provides
regular updates to shareholders and the market
through the Annual Report, Interim Report,
regular RNS announcements (including the quarterly
NAV), quarterly investor reports and the Company's
website. The Investment Manager will also
meet with analysts and members of the financial
press.
Tenants and underlying As set out in more detail in the 'Our Strategy'
residents section above, the Investment Manager liaises
closely with tenants to understand their needs,
and those of their underlying residents, through
visits to properties and regular communication
with both care home personnel and senior management
of the tenant operators. The effectiveness
of this engagement is assessed through an
annual survey.
The Investment Manager also receives, and
analyses, management information provided
by each tenant at least quarterly and regularly
monitors the CQC, or equivalent, rating for
each home and any online reviews. Any significant
matters are discussed with the tenant and
included within the Board reporting.
-------------------------------------------------------
Debt providers The Group has term loan and revolving credit
facilities with the Royal Bank of Scotland
plc, HSBC Bank plc and ReAssure Limited (see
note 8 to the extract from the Consolidated
Financial Statements for more information).
The Company maintains a positive working relationship
with each of its lenders and provides regular
updates, at least quarterly, on portfolio
activity and compliance with its loan covenants
in relation to each loan facility.
-------------------------------------------------------
Investment Manager The Investment Manager has responsibility
for the day-to-day management of the Group
pursuant to the Investment Management Agreement.
The Board, and its committees, are in regular
communication with the Investment Manager
and receive formal presentations at every
Board Meeting to aid its oversight of the
Group's activities and the formulation of
its ongoing strategy.
The Board, through the Management Engagement
Committee, formally reviews the performance
of the Investment Manager, the terms of its
appointment and the quality of the other services
provided at least annually. Further details
on this process and the conclusions reached
in relation to the year ended 30 June 2021
are contained in the Annual Report.
-------------------------------------------------------
Other service providers The Board, through the Management Engagement
Committee, formally reviews the performance
of each of its significant service providers
at least annually. The reviews will include
the Company's legal advisers, brokers, tax
advisers, auditors, depositary, valuers, company
secretary, insurance broker, surveyors and
registrar. The purpose of the review is to
ensure that the quality of the service provided
remains of the standard expected by the Board
and that overall costs and other contractual
arrangements remain in the interests of the
Group and other significant stakeholders.
The Investment Manager also reports regularly
to the Board on these relationships.
The significant other service providers, particularly
the Group's legal advisers and brokers, will
be invited to attend Board Meetings and report
directly to the Directors where appropriate.
-------------------------------------------------------
Community and the The Group's principal non-financial objective
environment is to generate a positive social impact for
the end-users of its real estate. Investment
decisions are made based on the fundamental
premise that the real estate is suitable for
its residents, the staff who care for them,
and their friends, families and local communities,
both on original acquisition and for the long-term.
Environmental considerations are an integral
part of the acquisition and portfolio management
process, given the strategy of only acquiring
modern buildings which benchmark well from
an energy efficiency aspect. The Group's ESG
strategy is currently prioritising the gathering
of useful energy/consumption data on our portfolio
which will be used to align the portfolio
appropriately with benchmarks over the medium
and longer term.
-------------------------------------------------------
Principal and emerging risks and uncertainties
Risks Description of risk and factors Mitigation
affecting risk rating
Poor performance There is a risk that a tenant's Tenant diversification
of assets business could become unsustainable across the Group's portfolio
if it fails to trade successfully is an important criteria
Risk rating and sustain a sufficient taken into consideration
& change: High rent cover. This could lead before any investment
(unchanged) to a loss of income for the transaction. Investment
Group and an adverse impact decisions are made with
on the Group's results and reference to the Investment
shareholder returns. The Manager's analysis and
strategy of investing in projections, based on
new purpose-built care homes the local market dynamics
could lead to additional for the home, and the
fill-up risk and there may Investment Manager focuses
be a limited amount of time on ensuring that rents
that small regional operators are set at sustainable
can fund start-up losses. levels. Rent deposits
There is also a risk that or other guarantees are
the effects of COVID-19 may sought, where appropriate,
lead to longer fill times to provide additional
before a home becomes mature. security for the Group.
As at 30 June 2021, the
Group had a diversified
portfolio consisting
of 28 tenants. The Investment
Manager has ongoing engagement
with the Group's tenants
to proactively assist
and monitor performance.
---------------------------------------- ----------------------------------
Pandemic reduces As a result of the COVID-19 The Group is committed
demand for pandemic, there is a risk to investing in high
care home beds that overall demand for care quality real estate with
home beds is reduced causing high quality operators.
Risk rating asset performance to fall These assets are expected
& change: below expectations. While to experience demand
High (unchanged) demographic shifts and the ahead of the sector average
realities of needs-based while in the wider market
demand remain intact, and a large number of care
the rollout of the vaccination homes without fit-for-purpose
programme has been a positive facilities are expected
development, occupancy levels to close. Our tenants
have fallen across the sector are well-versed in best
and the speed of recovery practice for responding
may depend on the prevalence to infection control
of COVID-19 in the UK generally, and the wider pandemic
increased levels of resident while the Investment
admissions by tenants, the Manager has been actively
availability of booster vaccines engaged with the tenants
and the efficacy of existing in the portfolio during
vaccines. the outbreak and continues
to maintain good lines
of communication.
---------------------------------------- ----------------------------------
Availability Without access to equity The Group maintains regular
of capital or debt capital, the Group communication with investors
may be unable to grow through and existing debt providers,
Risk rating acquisition of attractive and, with the assistance
& change: investment opportunities. of its broker and sponsor,
Medium (unchanged) This is likely to be driven regularly monitors the
by both investor demand and Group's capital requirements
lender appetite which will and investment pipeline
reflect Group performance, alongside opportunities
competitor performance, general to raise both equity
market conditions and the and debt. During the
relative attractiveness of year, the Group has extended
investment in UK healthcare the weighted average
property. term of its debt facilities
(30 June 2021: 4.8 years).
---------------------------------------- ----------------------------------
Breach of REIT A breach of REIT regulations, The Group's activities,
regulations primarily in relation to including the level of
making the necessary level distributions, are monitored
Risk rating of distributions, may result to ensure all conditions
& change: in loss of tax advantages are adhered to. The REIT
Medium (unchanged) derived from the Group's rules are considered
REIT status. The Group remains during investment appraisal
fully compliant with the and transactions structured
REIT regulations and is fully to ensure conditions
domiciled in the UK. are met.
---------------------------------------- ----------------------------------
Changes in Changes in government policies, Government policy is
government including those affecting monitored by the Group
policies local authority funding of to increase the ability
elderly care, may render to anticipate changes.
Risk rating the Group's strategy inappropriate. The Group's tenants also
& change: Secure income and property typically have a multiplicity
Medium (unchanged) valuations will be at risk of income sources, with
if tenant finances suffer their business models
from policy changes. Whilst dependent on government
the care sector is facing funding.
significant challenges and
reform has been mooted by
successive governments, including
the recent introduction of
the health and social care
levy, a white paper containing
full detail is still awaited.
---------------------------------------- ----------------------------------
Debt covenant Falls in property valuations The Group has a conservative
compliance could adversely affect the gearing strategy although
/adverse interest Group's borrowing capacity net gearing is anticipated
rate fluctuations which is primarily linked to increase from its
to the value of its properties. level of 15.9% at 30
Risk rating Property valuations are inherently June 2021 as the Group
& change: subjective and can fluctuate nears full investment.
Medium (increased) dependent on market conditions. Loan covenants and liquidity
Similarly, a large increase levels are closely monitored
in market interest rates for compliance and headroom
would be detrimental to overall is projected.
returns and may limit borrowing
capacity. The Group has fixed interest
costs on its GBP80 million
of fixed term borrowings
as at 30 June 2021.
---------------------------------------- ----------------------------------
Reliance on The Group is externally managed The Investment Manager,
third party and, as such, relies on a along with all other
service providers number of service providers. service providers, is
Poor quality service from subject to regular performance
Risk rating providers such as the Investment appraisal by the Board.
& change: Manager, company secretary, The Manager has retained
Medium (unchanged) broker, legal advisers or key personnel since the
depositary could have potentially Group's IPO and has successfully
negative impacts on the Group's hired further skilled
investment performance, legal individuals and invested
obligations and compliance in its systems. The sustained
as well as shareholder relations. number of years of service
from both the Investment
Manager and other key
providers further mitigates
this risk.
---------------------------------------- ----------------------------------
Reduced availability The combined impacts of the The Group is committed
of carers, pandemic and Brexit has reduced to investing in high
nurses and the availability of key staff quality real estate with
other care in the care sector which high quality operators
home staff may result in a reduction and these should be better
in the quality of care for placed to attract staff.
Risk rating underlying residents, restrict
& change: tenants from being able to The Investment Manager
Medium (new admit residents or result continues to engage with
and emerging) in wage inflation. Mandatory tenants in the portfolio
vaccination for care home and to share examples
staff and an expected recovery of best practice in recruitment
in other sectors, such as and retention of staff.
retail or hospitality, that
may draw further staff from
the care sector introduces
further uncertainties.
---------------------------------------- ----------------------------------
Failure to Failing to differentiate The stakeholder communications
differentiate strategy and qualities from strategy of the Group
qualities from competitors is a significant has always been to highlight
competitors risk for the business with the quality of the real
& to communicate increased competition in estate in which the Group
ESG strategy the healthcare real estate invests and the ESG KPIs
sector. The failure to communicate continue to be developed
Risk rating effectively the ESG and sustainable and improved. The regular
& change: impact qualities of the Group production of investor
Medium (unchanged) to investors and other stakeholders relations materials (annual
could have a negative impact and interim reports,
on future demand for equity investor presentations
raises and wider reputational and quarterly factsheets)
damage as investor groups along with direct engagement
demand greater participation with investors has helped
in sustainability pledges/disclosures. to mitigate this risk.
---------------------------------------- ----------------------------------
Risk to business The loss of confidential The Investment Manager
continuity information through a breach has IT policies and associated
from IT downtime/ of the Manager's IT systems cyber-insurance which
loss of data could have a significant mitigate the potential
detrimental effect on the for loss of data while
Risk rating business activities of the key data is also held
& change: Group as well as the potential with other service providers
Medium (decreased) for financial loss from fraud, (solicitors, registrars
breach of GDPR legislation and depositary). The
and reputational damage to Group's control environment
the Group. As some business is also assessed annually
activities are now being by a third party who
carried out virtually, there report to the Board.
is an increased reliance
on the IT systems and the
control environment surrounding
them.
---------------------------------------- ----------------------------------
Malcolm Naish
Chairman
19 October 2021
Viability Statement
The AIC Code requires the Board to assess the Group's prospects,
including a robust assessment of the emerging and principal risks
facing the Group including those that would threaten its business
model, future performance, solvency or liquidity. This assessment
is undertaken with the aim of stating that the Directors have a
reasonable expectation that the Group will continue in operation
and be able to meet its liabilities as they fall due over the
period of their assessment.
The Board has conducted this review over a five-year time
horizon, which is a period thought to be appropriate for a company
investing in UK care homes with a long-term investment outlook. At
each Board Meeting, the Directors consider the key outputs from a
detailed financial model covering a similar five year rolling
period, as this is considered the maximum timescale over which the
performance of the Group can be forecast with a reasonable degree
of accuracy. The Group has a property portfolio at 30 June 2021
which has long leases and a weighted average unexpired lease term
of 28.8 years. The Group has borrowings of GBP130.0 million, on
which the interest rate has been fixed, either directly or through
the use of interest rate swaps, on GBP80.0 million at 2.98 per cent
per annum (excluding the amortisation of arrangement costs), and
the remaining GBP50.0 million carries interest at SONIA plus a
weighted margin of 2.17 per cent per annum (excluding the
amortisation of arrangement costs). The Group has access to a
further GBP90.0 million of available debt under committed loan
facilities.
The Group's committed loan facilities have staggered expiry
dates with GBP100.0 million being committed to 5 November 2023,
GBP70.0 million to 5 November 2025 and GBP50.0 million to 12
January 2032. Discussions with existing and/or new potential
lenders do not indicate any issues with re-financing and/or
increasing the quantum of these loans on acceptable terms in due
course.
The Directors' assessment of the Group's principal risks are
highlighted above. The most significant risks identified as
relevant to the viability statement were those relating to:
-- Poor performance of assets. The risk that a tenant is unable
to sustain a sufficient rental cover, leading to a loss of rental
income for the Group;
-- Pandemic reduces demand for care home beds. The risk that
overall demand for care home beds is reduced resulting in a decline
in the capital and/or income return from the property
portfolio;
-- Reduced availability of care home staff. The risk that
unavailability of staff restricts the ability of tenants to admit
residents or results in significant wage cost inflation, impacting
on the tenant's rental cover and leading to a loss of rental income
for the Group; and
-- Debt finance. The risk that falls in property valuations or
rental income from the portfolio reduce the Group's borrowing
capacity, or that an increase in interest rates reduces net
returns.
In assessing the Group's viability, the Board has considered the
key outputs from a detailed model of the Group's expected cashflows
over the coming five years under both normal and stressed
conditions. The stressed conditions, which were intended to
represent severe but plausible scenarios, included modelling
increases in interest rates, movements in the capital value of the
property portfolio and a significant default on rental receipts
from the Group's tenants. The stressed level of default from the
Group's tenants assumed in the financial modelling was based on a
detailed assessment of the financial position of each individual
tenant or tenant group, the structure in place to secure rental
income (such as the strength of tenants' balance sheets, rental
guarantees in place or rental deposits held) and included
consideration of the financial impact on each tenant from the
COVID-19 pandemic.
Based on the results of the scenario analysis outlined above,
the Board has 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 of its assessment.
Consolidated Statement of Comprehensive Income (audited)
For the year ended 30 June 2021
Year ended 30 June Year ended 30 June
2021 2020
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ------ --------- -------- --------- -------- -------- ---------
Revenue
Rental income 41,168 8,739 49,907 36,025 8,219 44,244
Other income 73 - 73 23 - 23
--------------------------------------- ------ --------- -------- --------- -------- -------- ---------
Total revenue 41,241 8,739 49,980 36,048 8,219 44,267
--------------------------------------- ------ --------- -------- --------- -------- -------- ---------
Gains on revaluation of investment
properties 5 - 9,536 9,536 - 198 198
Gains on investment properties
realised 5 - 1,306 1,306 - 642 642
(Losses)/ gains on revaluation
of properties held for sale 6 - (92) (92) - 1,505 1,505
Total income 41,241 19,489 60,730 36,048 10,564 46,612
--------------------------------------- ------ --------- -------- --------- -------- -------- ---------
Expenditure
Investment management fee 2 (5,796) - (5,796) (5,264) - (5,264)
Credit loss allowance and
bad debts 3 (2,717) - (2,717) (2,171) - (2,171)
Other expenses 3 (2,617) - (2,617) (2,090) (47) (2,137)
Total expenditure (11,130) - (11,130) (9,525) (47) (9,572)
--------------------------------------- ------ --------- -------- --------- -------- -------- ---------
Profit before finance costs
and taxation 30,111 19,489 49,600 26,523 10,517 37,040
--------------------------------------- ------ --------- -------- --------- -------- -------- ---------
Net finance costs
Interest receivable 39 - 39 111 - 111
Interest payable and similar
charges (4,850) (913) (5,763) (4,388) (1,144) (5,532)
--------------------------------------- ------ --------- -------- --------- -------- -------- ---------
Profit before taxation 25,300 18,576 43,876 22,246 9,373 31,619
Taxation 8 - 8 3 - 3
--------------------------------------- ------ --------- -------- --------- -------- -------- ---------
Profit for the year 25,308 18,576 43,884 22,249 9,373 31,622
Other comprehensive income:
Items that are or may be reclassified
subsequently to profit or
loss
Movement in fair value of
interest rate swaps - 298 298 - (232) (232)
Reclassification to profit
and loss on
discontinuation of interest
rate swaps - 180 180 - 712 712
--------------------------------------- ------ --------- -------- --------- -------- -------- ---------
Total comprehensive income
for the year 25,308 19,054 44,362 22,249 9,853 32,102
--------------------------------------- ------ --------- -------- --------- -------- -------- ---------
Earnings per share (pence) 4 5.32 3.91 9.23 5.05 2.13 7.18
--------------------------------------- ------ --------- -------- --------- -------- -------- ---------
The total column of this statement represents the Group's
Consolidated Statement of Comprehensive Income, prepared in
accordance with IFRS. The supplementary revenue return and capital
return columns are both prepared under guidance published by the
Association of Investment Companies.
All revenue and capital items in the above statement are derived
from continuing operations.
No operations were discontinued in the year.
Consolidated Statement of Financial Position (audited)
As at 30 June 2021
As at As at
30 June 2021 30 June 2020
Notes GBP'000 GBP'000
------------------------------ ------ -------------- --------------
Non-current assets
Investment properties 5 629,606 570,086
Trade and other receivables 54,580 46,044
Interest rate swaps 251 -
------------------------------ ------ -------------- --------------
684,437 616,130
Current assets
Trade and other receivables 5,531 3,702
Cash and cash equivalents 21,106 36,440
26,637 40,142
Properties held for sale 6 7,320 7,500
------------------------------ ------ -------------- --------------
33,957 47,642
------------------------------ ------ -------------- --------------
Total assets 718,394 663,772
------------------------------ ------ -------------- --------------
Non-current liabilities
Bank loans 8 (127,904) (150,135)
Interest rate swaps - (227)
Trade and other payables (6,840) (6,183)
------------------------------ ------ -------------- --------------
(134,744) (156,545)
Current liabilities
Trade and other payables (18,465) (13,114)
------------------------------ ------ -------------- --------------
Total liabilities (153,209) (169,659)
------------------------------ ------ -------------- --------------
Net assets 565,185 494,113
------------------------------ ------ -------------- --------------
Stated capital and reserves
Share capital 9 5,115 4,575
Share premium 9 135,228 77,452
Merger reserve 47,751 47,751
Distributable reserve 265,164 296,770
Hedging reserve 251 (227)
Capital reserve 64,112 45,536
Revenue reserve 47,564 22,256
Equity shareholders' funds 565,185 494,113
------------------------------ ------ -------------- --------------
Net asset value per ordinary
share (pence) 4 110.5 108.0
------------------------------ ------ -------------- --------------
Consolidated Statement of Changes in Equity (audited)
For the year ended 30 June 2021
Distrib-utable
Share Share Merger reserve Hedging Capital Revenue
capital premium reserve reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 June
2020 4,575 77,452 47,751 296,770 (227) 45,536 22,256 494,113
Total
comprehensive
income for
the year: - - - - 478 18,576 25,308 44,362
Transactions
with
owners
recognised
in equity:
Dividends paid 1 - - - (31,606) - - - (31,606)
Issue of
ordinary
shares 9 540 59,460 - - - - - 60,000
Expenses of
issue 9 - (1,684) - - - - - (1,684)
--------------- --------- ---------- --------- --------------- ---------- ---------- ---------- ----------
At 30 June
2021 5,115 135,228 47,751 265,164 251 64,112 47,564 565,185
--------------- --------- ---------- --------- --------------- ---------- ---------- ---------- ----------
For the year ended 30 June 2020
Stated Distrib-utable
capital Share Share Merger reserve Hedging Capital Revenue
account capital premium reserve reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 June 2019 372,685 - - - - (707) 36,163 4,948 413,089
Total
comprehensive
income for the
year: - - - - - 480 9,373 22,249 32,102
Transactions
with owners
recognised in
equity:
Group
reconstruction (371,292) 385,090 - 47,751 (61,549) - - - -
Reduction of
share capital - (381,239) - - 381,239 - - - -
Dividends paid 1 (1,393) - - - (22,920) - - (4,941) (29,254)
Issue of
ordinary
shares 9 - 724 79,276 - - - - - 80,000
Expenses of
issue 9 - - (1,824) - - - - - (1,824)
---------------- ---------- ---------- --------- --------- --------------- --------- --------- --------- ----------
At 30 June
2020 - 4,575 77,452 47,751 296,770 (227) 45,536 22,256 494,113
---------------- ---------- ---------- --------- --------- --------------- --------- --------- --------- ----------
Consolidated Statement of Cash Flows (audited)
For the year ended 30 June 2021
Year ended Year ended
30 June 2021 30 June 2020
Note GBP'000 GBP'000
-------------------------------------------- ----- -------------- --------------
Cash flows from operating activities
Profit before tax 43,876 31,619
Adjustments for:
Interest receivable (39) (111)
Interest payable 5,763 5,532
Revaluation gains on investment properties
and movements in lease incentives,
net of acquisition costs written off 5 (19,581) (9,059)
Revaluation losses/(gains) on properties
held for sale 6 92 (1,505)
Increase in trade and other receivables (2,782) (1,238)
Increase in trade and other payables 1,859 370
-------------------------------------------- ----- -------------- --------------
29,188 25,608
-------------------------------------------- ----- -------------- --------------
Interest paid (4,266) (4,177)
Interest received 39 111
Tax paid (5) (73)
-------------------------------------------- ----- -------------- --------------
(4,232) (4,139)
-------------------------------------------- ----- -------------- --------------
Net cash inflow from operating activities 24,956 21,469
-------------------------------------------- ----- -------------- --------------
Cash flows from investing activities
Purchase of investment properties
and properties held for sale, including
acquisition costs (51,400) (117,501)
Disposal of investment properties
and properties held for sale, net
of lease incentives 7,825 14,086
Net cash outflow from investing activities (43,575) (103,415)
-------------------------------------------- ----- -------------- --------------
Cash flows from financing activities
Issue of ordinary share capital 60,000 80,000
Expenses of issue of ordinary share
capital (1,684) (1,824)
Drawdown of bank loan facilities 152,000 162,000
Repayment of bank loan facilities (174,000) (118,000)
Expenses of arrangement of bank loan
facilities (1,538) (1,585)
Dividends paid (31,493) (29,151)
-------------------------------------------- ----- -------------- --------------
Net cash inflow from financing activities 3,285 91,440
-------------------------------------------- ----- -------------- --------------
Net (decrease)/increase in cash and
cash equivalents (15,334) 9,494
Opening cash and cash equivalents 36,440 26,946
-------------------------------------------- ----- -------------- --------------
Closing cash and cash equivalents 21,106 36,440
-------------------------------------------- ----- -------------- --------------
Transactions which do not require the use
of cash
Movement in fixed or guaranteed rent reviews
and lease incentives 9,656 10,014
Fixed or guaranteed rent reviews derecognised
on disposal or re-tenanting (1,556) (988)
----------------------------------------------- -------- -------
Total 8,100 9,026
----------------------------------------------- -------- -------
Statement of Directors' Responsibilities in Respect of the
Annual Financial Report
In accordance with Chapter 4 of the Disclosure Guidelines and
Transparency Rules, we confirm that to the best of our
knowledge:
-- The financial statements contained within the Annual Report
for the year ended 30 June 2021, of which this statement of results
is an extract, have been prepared in accordance with applicable
International Financial Reporting Standards, on a going concern
basis, and give a true and fair view of the assets, liabilities,
financial position and return of the Company;
-- The Chairman's Statement, Investment Manager's Report and Our
Strategy include a fair review of the important events that have
occurred during the financial year and their impact on the
financial statements;
-- 'Principal and emerging risks and uncertainties' includes a
description of the Company's principal and emerging risks and
uncertainties; and
-- The Annual Report includes details of related party
transactions that have taken place during the financial year.
On behalf of the Board
Malcolm Naish
Chairman
19 October 2021
Extract from Notes to the Audited Consolidated Financial
Statements
1. Dividends
Amounts paid as distributions to equity holders during the year
to 30 June 2021.
Dividend rate Year ended
(pence per 30 June 2021
share) GBP'000
-------------------------------------- -------------- --------------
Fourth interim dividend for the year
ended 30 June 2020 1.67000 7,640
First interim dividend for the year
ended 30 June 2021 1.68000 7,686
Second interim dividend for the year
ended 30 June 2021 1.68000 7,686
Third interim dividend for the year
ended 30 June 2021 1.68000 8,594
-------------------------------------- -------------- --------------
Total 6.71000 31,606
-------------------------------------- -------------- --------------
Amounts paid as distributions to equity holders during the year
to 30 June 2020.
Dividend rate Year ended
(pence per 30 June 2020
share) GBP'000
-------------------------------------- -------------- --------------
Fourth interim dividend for the year
ended 30 June 2019 1.64475 6,334
First interim dividend for the year
ended 30 June 2020 1.67000 7,640
Second interim dividend for the year
ended 30 June 2020 1.67000 7,640
Third interim dividend for the year
ended 30 June 2020 1.67000 7,640
-------------------------------------- -------------- --------------
Total 6.65475 29,254
-------------------------------------- -------------- --------------
It is the policy of the Directors to declare and pay dividends
as interim dividends. The Directors do not therefore recommend a
final dividend. The fourth interim dividend in respect of the year
ended 30 June 2021, of 1.68 pence per share, was paid on 27 August
2021 to shareholders on the register on 13 August 2021 amounting to
GBP8,594,000. It is the intention of the Directors that the Group
will continue to pay dividends quarterly.
2. Fee paid to the Investment Manager
Year ended Year ended
30 June 2021 30 June 2020
GBP'000 GBP'000
---------------- -------------- ---------------
Management fee 5,796 5,264
Total 5,796 5,264
---------------- -------------- ---------------
The Group's Investment Manager and Alternative Investment Fund
Manager ('AIFM') is Target Fund Managers Limited (the 'Investment
Manager' or 'Target'). The Investment Manager is entitled to an
annual management fee on a tiered basis based on the net assets of
the Group as set out below. Where applicable, VAT is payable in
addition.
Net assets of the Group Management fee percentage
---------------------------------------------- --------------------------
Up to and including GBP500 million 1.05
Above GBP500 million and up to and including
GBP750 million 0.95
Above GBP750 million and up to and including
GBP1 billion 0.85
Above GBP1 billion and up to and including
GBP1.5 billion 0.75
Above GBP1.5 billion 0.65
---------------------------------------------- --------------------------
The Investment Manager is entitled to an additional fee of
GBP121,000 per annum (plus VAT), increasing annually in line with
inflation, in relation to their appointment as Company Secretary
and Administrator to the Group.
The Investment Management Agreement can be terminated by either
party on 24 months' written notice. Should the Company terminate
the Investment Management Agreement earlier then compensation in
lieu of notice will be payable to the Investment Manager. The
Investment Management Agreement may be terminated immediately
without compensation if the Investment Manager: is in material
breach of the agreement; is guilty of negligence, wilful default or
fraud; is the subject of insolvency proceedings; or there occurs a
change of Key Managers to which the Board has not given its prior
consent.
3. Other expenses
Year ended Year ended
30 June 2021 30 June 2020
GBP'000 GBP'000
------------------------------------------- -------------- --------------
Credit loss allowance 1,697 2,141
Bad debts written off 1,020 30
Valuation and other professional fees 1,008 707
Auditor's remuneration for:
- statutory audit of the Company 104 71
- statutory audit of the Company's
subsidiaries 184 209
- review of interim financial information 15 15
Other taxation compliance and advisory* 436 242
Public relations and marketing 213 185
Directors' fees 181 160
Secretarial and administration fees 172 186
Printing, postage and website 92 57
Listing & Registrar fees 78 89
Direct property costs 32 30
Other 102 139
Total 5,334 4,261
------------------------------------------- -------------- --------------
* The other taxation compliance and advisory fees were all paid
to parties other than the Company's Auditor.
4. Earnings per share and Net Asset Value per share
Earnings per share
Year ended 30 June Year ended 30 June
2021 2020
---------------------- ----------------------
Pence per Pence per
GBP'000 share GBP'000 share
----------------------------- -------- ------------ -------- ------------
Revenue earnings 25,308 5.32 22,249 5.05
Capital earnings 18,576 3.91 9,373 2.13
Total earnings 43,884 9.23 31,622 7.18
----------------------------- -------- ------------ -------- ------------
Average number of shares in
issue 475,406,929 440,278,234
----------------------------- -------- ------------ -------- ------------
There were no dilutive shares or potentially dilutive shares in
issue.
EPRA is an industry body which issues best practice reporting
guidelines for property companies and the Group report an EPRA NAV
quarterly. EPRA has issued best practice recommendations for the
calculation of certain figures which are included below. Other EPRA
measures are included in the section below entitled EPRA
Performance Measures.
The EPRA earnings are arrived at by adjusting for the
revaluation movements on investment properties and other items of a
capital nature and represents the revenue earned by the Group.
The Group's specific adjusted EPRA earnings adjusts the EPRA
earnings for rental income arising from recognising guaranteed
rental review uplifts and for development interest received from
developers in relation to monies advanced under forward fund
agreements which, in the Group's IFRS financial statements, is
required to be offset against the book cost of the property under
development. The Board believes that the Group's specific adjusted
EPRA earnings represents the underlying performance measure
appropriate for the Group's business model as it illustrates the
underlying revenue stream and costs generated by the Group's
property portfolio.
The reconciliations are provided in the table below:
Year
Year ended ended
30 June 30 June
2021 2020
GBP'000 GBP'000
------------------------------------------------------ ----------- ---------
Earnings per IFRS Consolidated Statement of
Comprehensive Income 43,884 31,622
Adjusted for gains on investment properties
realised (1,306) (642)
Adjusted for revaluations of investment properties (9,536) (198)
Adjusted for revaluations of properties held
for sale 92 (1,505)
Adjusted for other capital items 913 1,191
------------------------------------------------------ ----------- ---------
EPRA earnings 34,047 30,468
Adjusted for rental income arising from recognising
guaranteed rent review uplifts (8,739) (8,219)
Adjusted for development interest under forward
fund agreements 647 975
Group specific adjusted EPRA earnings 25,955 23,224
Earnings per share ('EPS') (pence per share)
EPS per IFRS Consolidated Statement of Comprehensive
Income 9.23 7.18
EPRA EPS 7.16 6.92
Group specific adjusted EPRA EPS 5.46 5.27
------------------------------------------------------ ----------- ---------
Net Asset Value per share
The Group's Net Asset Value per ordinary share of 110.5 pence
(2020: 108.0 pence) is based on equity shareholders' funds of
GBP565,185,000 (2020: GBP494,113,000) and on 511,541,694 (2020:
457,487,640) ordinary shares, being the number of shares in issue
at the year-end.
In October 2019, EPRA published new best practice
recommendations for financial disclosures by public real estate
companies for accounting periods commencing after 1 January 2020.
These introduced a new set of EPRA NAV metrics that are arrived at
by adjusting the net asset value calculated under International
Financial Reporting Standards ('IFRS') to provide stakeholders with
what EPRA believe to be the most relevant information on the fair
value of the assets and liabilities of a real estate investment
company, under different scenarios. The three EPRA NAV metrics
are:
-- EPRA Net Reinstatement Value ('NRV'): Assumes that entities
never sell assets and aims to represent the value required to
rebuild the entity. The objective is to highlight the value of net
assets on a long-term basis. Assets and liabilities that are not
expected to crystallise in normal circumstances, such as the fair
value movements on financial derivatives, are excluded and the
costs of recreating the Group through investment markets, such as
property acquisition costs and taxes, are included.
-- EPRA Net Tangible Assets ('NTA'): Assumes that entities buy
and sell assets, thereby crystallising certain levels of
unavoidable deferred tax. Given the Group's REIT status, it is not
expected that significant deferred tax will be applicable to the
Group.
-- EPRA Net Disposal Value ('NDV'): Represents the shareholders'
value under a disposal scenario, where deferred tax, financial
instruments and certain other adjustments are calculated to the
full extent of their liability, net of any resulting tax. At 30
June 2021, the Group held all its material balance sheet items at
fair value, or at a value considered to be a close approximation to
fair value, in its financial statements apart from its fixed-rate
debt facility where the fair value is estimated to be higher than
the nominal value. See note 8 for further details on the Group's
loan facilities.
Given the nature of the Group's assets and liabilities, the EPRA
NTA is the same as the EPRA NAV reported in prior years, with the
EPRA NDV being the same as the previously reported EPRA NNNAV.
2021 2021 2021 2020 2020 2020
EPRA EPRA EPRA EPRA EPRA EPRA
NRV NTA NDV NRV NTA NDV
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ --------- --------- --------- --------- --------- ---------
IFRS NAV per financial
statements 565,185 565,185 565,185 494,113 494,113 494,113
Fair value of interest
rate swaps (251) (251) - 227 227 -
Fair value of loans - - (1,389) - - (1,511)
Estimated purchasers'
costs 44,696 - - 40,916 - -
------------------------ --------- --------- --------- --------- --------- ---------
EPRA net assets 609,630 564,934 563,796 535,256 494,340 492,602
------------------------ --------- --------- --------- --------- --------- ---------
EPRA net assets (pence
per share) 119.2 110.4 110.2 117.0 108.1 107.7
------------------------ --------- --------- --------- --------- --------- ---------
5. Investment properties
Freehold and leasehold properties
As at As at
30 June 2021 30 June 2020
GBP'000 GBP'000
------------------------------------------------------ -------------- --------------
Opening market value 610,084 500,884
Opening fixed or guaranteed rent reviews
and lease incentives (39,998) (31,288)
------------------------------------------------------ -------------- --------------
Opening carrying value 570,086 469,596
------------------------------------------------------ -------------- --------------
Disposals - proceeds (7,616) (14,402)
- gain/(loss) on sale 2,336 (438)
Purchases 52,295 108,852
Acquisition costs capitalised 2,264 3,896
Acquisition costs written off (2,264) (3,896)
Unrealised (gain)/loss realised during the
period (1,030) 1,080
Revaluation movement - gains 26,565 18,905
Revaluation movement - losses (5,109) (4,797)
------------------------------------------------------ -------------- --------------
Movement in market value 67,441 109,200
Fixed or guaranteed rent reviews and lease
incentives derecognised on disposal or re-tenanting 1,735 1,304
Movement in fixed or guaranteed rent reviews
and lease incentives (9,656) (10,014)
------------------------------------------------------ -------------- --------------
Movement in carrying value 59,520 100,490
------------------------------------------------------ -------------- --------------
Closing market value 677,525 610,084
Closing fixed or guaranteed rent reviews
and lease incentives (47,919) (39,998)
------------------------------------------------------ -------------- --------------
Closing carrying value 629,606 570,086
------------------------------------------------------ -------------- --------------
Changes in the valuation of investment properties Year ended Year ended
30 June 2021 30 June 2020
GBP'000 GBP'000
--------------------------------------------------- -------------- --------------
Gain/(loss) on sale of investment properties 2,336 (438)
Unrealised (gain)/loss realised during the
period (1,030) 1,080
--------------------------------------------------- -------------- --------------
Gains on sale of investment properties realised 1,306 642
Revaluation movement 21,456 14,108
Acquisition costs written off (2,264) (3,896)
Movement in lease incentives (917) (1,795)
Movement in fixed or guaranteed rent reviews (8,739) (8,219)
--------------------------------------------------- -------------- --------------
Gains on revaluation of investment properties 10,842 840
--------------------------------------------------- -------------- --------------
The investment properties can be analysed as follows:
As at As at
30 June 2021 30 June 2020
GBP'000 GBP'000
-------------------------------------------- -------------- --------------
Standing assets 655,175 597,484
Developments under forward fund agreements 22,350 12,600
-------------------------------------------- -------------- --------------
Closing market value 677,525 610,084
-------------------------------------------- -------------- --------------
The properties were valued at GBP677,525,000 (2020:
GBP610,084,000) by Colliers International Healthcare Property
Consultants Limited ('Colliers'), in their capacity as external
valuers. The valuation was undertaken in accordance with the RICS
Valuation - Global Standards, incorporating the International
Valuation Standards (the 'Red Book Global', 31 January 2020) issued
by the Royal Institution of Chartered Surveyors ('RICS') on the
basis of Market Value, supported by reference to market evidence of
transaction prices for similar properties. Colliers has recent
experience in the location and category of the investment
properties being valued.
Market Value represents the estimated amount for which an asset
or liability should exchange on the valuation date between a
willing buyer and a willing seller in an arm's length transaction,
after proper marketing where the parties had each acted
knowledgeably, prudently and without compulsion. The quarterly
property valuations are reviewed by the Board at each Board
meeting. The fair value of the properties after adjusting for the
movement in the fixed or guaranteed rent reviews and lease
incentives was GBP629,606,000 (2020: GBP570,086,000). The
adjustment consisted of GBP41,949,000 (2020: GBP34,766,000)
relating to fixed or guaranteed rent reviews and GBP5,970,000
(2020: GBP5,232,000) of accrued income relating to the recognition
of rental income over rent free periods subsequently amortised over
the life of the lease, which are both separately recorded in the
accounts as non-current or current assets within 'trade and other
receivables'
6. Properties held for sale
As at As at
30 June 2021 30 June 2020
GBP'000 GBP'000
-------------------------------------------- -------------- --------------
Opening fair value 7,500 -
Purchases 300 5,695
Acquisition costs capitalised - 300
Acquisition costs written off - (300)
Disposals - proceeds (388) -
- gain on sale 34 -
Unrealised gain realised during the period (126) -
Revaluation movement - gains - 1,805
-------------------------------------------- -------------- --------------
Closing fair value 7,320 7,500
-------------------------------------------- -------------- --------------
The properties held for sale were valued at GBP7,320,000 (30
June 2020: GBP7,500,000) by Colliers International Healthcare
Property Consultants Limited ('Colliers'). The properties held for
sale consist of two blocks of apartments adjacent to an existing
property holding which were acquired to consolidate ownership of
the overall retirement village. The intention is to sell the
leasehold on the individual apartments.
7. Investment in subsidiary undertakings
The Group included 50 subsidiary companies as at 30 June 2021
(30 June 2020: 46). All subsidiary companies were wholly owned,
either directly or indirectly, by the Company and, from the date of
acquisition onwards, the principal activity of each company within
the Group was to act as an investment and property company. Other
than one subsidiary incorporated in Jersey, two subsidiaries
incorporated in Gibraltar and two subsidiaries incorporated in
Luxembourg, all subsidiaries are incorporated within the United
Kingdom.
During the period, the Group incorporated four new subsidiaries,
THR Number 37 Limited, THR Number 38 Limited, THR Number 39 Limited
and THR Number 40 Limited. The Group includes eight companies which
were acquired as part of previous corporate acquisitions which are
currently dormant and which will be placed into liquidation
imminently.
8. Bank loans
As at As at
30 June 2021 30 June 2020
GBP'000 GBP'000
------------------------------ -------------- --------------
Principal amount outstanding 130,000 152,000
Set-up costs (2,476) (3,732)
Amortisation of set-up costs 380 1,867
------------------------------ -------------- --------------
Total 127,904 150,135
------------------------------ -------------- --------------
On 5 November 2020, the Group entered into an amended and
restated GBP70.0 million committed term loan and revolving credit
facility with the Royal Bank of Scotland plc ('RBS') which is
repayable in November 2025. Interest accrues on the bank loan at a
variable rate, based on SONIA plus margin and mandatory lending
costs, and is payable quarterly. The margin is 2.18 per cent per
annum on GBP50.0 million of the facility and 2.33 per cent per
annum on the remaining GBP20.0 million of the revolving credit
facility, both for the duration of the loan. A non-utilisation fee
of 1.13 per cent per annum is payable on the first GBP20 million of
any undrawn element of the facility, reducing to 1.05 per cent per
annum thereafter. Prior to the amendment, the interest on the
GBP50.0 million facility was based on LIBOR plus a margin of 1.50
per cent per annum and a non-utilisation fee of 0.75 per cent per
annum. As at 30 June 2021, the Group had drawn GBP30.0 million
under this facility (30 June 2020: GBP50.0 million).
On 5 November 2020, the Group entered into an amended and
restated GBP100.0 million revolving credit facility with HSBC Bank
plc ('HSBC') which is repayable in November 2023, with the option
of two one-year extensions thereafter subject to the consent of
HSBC. Interest accrues on the bank loan at a variable rate, based
on SONIA plus margin and mandatory lending costs, and is payable
quarterly. The margin is 2.17 per cent per annum for the duration
of the loan and a non-utilisation fee of 0.92 per cent per annum is
payable on any undrawn element of the facility. Prior to the
amendment, the interest on the GBP80.0 million facility was based
on LIBOR plus a margin of 1.70 per cent per annum and a
non-utilisation fee of 0.75 per cent per annum. As at 30 June 2021,
the Group had drawn GBP50.0 million under this facility (30 June
2020: GBP52.0 million).
The Group has a GBP50.0 million committed term loan facility
with ReAssure which is repayable on 12 January 2032. Interest
accrues on the loan at an aggregate fixed rate of interest of 3.28
per cent per annum and is payable quarterly. As at 30 June 2021,
the Group had drawn GBP50.0 million under this facility (30 June
2020: GBP50.0 million).
The following interest rate swaps were in place during the year
ended 30 June 2021:
Notional Interest Counter-party
Value Starting Date Ending Date Paid Interest Received
----------- ---------------- -------------- --------- -------------------- --------------
1 September
21,000,000 24 June 2019 2021* 0.70% 3-month LIBOR RBS
1 September
9,000,000 7 April 2017 2021* 0.86% 3-month LIBOR RBS
Daily compounded
SONIA (floor
5 November 5 November at
30,000,000 2020 2025 0.30% -0.08%) RBS
----------- ---------------- -------------- --------- -------------------- --------------
* These interest rate swaps were closed out in November 2020 at
the time of amendment of the related loan. The cost of such early
redemption was recognised in capital.
Inclusive of all interest rate swaps, the interest rate on
GBP80.0 million of the Group's borrowings is fixed, inclusive of
the amortisation of arrangement costs, at an all-in rate of 3.16
per cent per annum until at least 5 November 2025. The remaining
GBP140.0 million of debt, of which GBP50.0 million was drawn at 30
June 2021, would, if fully drawn, carry interest at a variable rate
equal to SONIA plus a weighted average lending margin, inclusive of
the amortisation of arrangement costs, of 2.44 per cent per
annum.
The fair value of the interest rate swaps at 30 June 2021 was an
aggregate asset of GBP251,000 (30 June 2020: liability of
GBP227,000) and all interest rate swaps are categorised as level 2
in the fair value hierarchy.
At 30 June 2021, the nominal value of the Group's loans equated
to GBP130,000,000 (2020: GBP152,000,000). Excluding the interest
rate swaps referred to above, the fair value of these loans, based
on a discounted cashflow using the market rate on the relevant
treasury plus an estimated margin based on market conditions at 30
June 2021, totalled, in aggregate, GBP131,389,000 (2020:
GBP153,511,000). The payment required to redeem the loans in full,
incorporating the terms of the Spens clause in relation to the
ReAssure facility, would have been GBP139,748,000 (2020:
GBP165,974,000). The loans are categorised as level 3 in the fair
value hierarchy.
The RBS loan is secured by way of a fixed and floating charge
over the majority of the assets of the THR Number One plc Group
('THR1 Group') which consists of THR1 and its two subsidiaries. The
ReAssure loan is secured by way of a fixed and floating charge over
the majority of the assets of the THR Number 12 plc Group ('THR12
Group') which consists of THR12 and its four subsidiaries. The HSBC
loan is secured by way of a fixed and floating charge over the
majority of the assets of the THR Number 15 plc Group ('THR15
Group') which consists of THR15 and its 18 subsidiaries (excluding
those subsidiaries which are currently dormant). In aggregate, the
Group has granted a fixed charge over properties with a market
value of GBP526 million as at 30 June 2021 (2020: GBP496
million).
Under the bank covenants related to the loans, the Group is to
ensure that:
-- the loan to value percentage for each of THR1 Group and THR15
Group does not exceed 50 per cent;
-- the loan to value percentage for THR12 Group does not exceed 60 per cent; and
-- the interest cover, or equivalent, for each of THR1 Group,
THR12 Group and THR15 Group is greater than c.300 per cent on any
calculation date.
All bank loan covenants have been complied with during the
year.
Analysis of net debt:
Cash and Cash and
cash equivalents cash equivalents
Borrowing Net debt Borrowing Net debt
2021 2021 2021 2020 2020 2020
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- ------------------ ------------ ----------- ------------------ ------------ -----------
Opening balance 36,440 (150,135) (113,695) 26,946 (106,420) (79,474)
Cash flows (15,334) 23,538 8,204 9,494 (42,511) (33,017)
Non-cash flows - (1,307) (1,307) - (1,204) (1,204)
----------------- ------------------ ------------ ----------- ------------------ ------------ -----------
Closing balance 21,106 (127,904) (106,798) 36,440 (150,135) (113,695)
----------------- ------------------ ------------ ----------- ------------------ ------------ -----------
9. Share capital
Allotted, called-up and fully paid ordinary
shares of GBP0.01 each Number of shares GBP'000
--------------------------------------------- ----------------- --------
Opening balance 457,487,640 4,575
Issued on 1 March 2021 54,054,054 540
--------------------------------------------- ----------------- --------
Balance at 30 June 2021 511,541,694 5,115
--------------------------------------------- ----------------- --------
Under the Company's Articles of Association, the Company may
issue an unlimited number of ordinary shares. Ordinary shareholders
are entitled to all dividends declared by the Company and to all of
the Company's assets after repayment of its borrowings and ordinary
creditors. Ordinary shareholders have the right to vote at meetings
of the Company. All ordinary shares carry equal voting rights.
During the year to 30 June 2021, the Company issued 54,054,054
(2020: 72,398,191) ordinary shares raising gross proceeds of
GBP60,000,000 (2020: GBP80,000,000). The consideration received in
excess of the par value of the ordinary shares issued, net of the
expenses of issue of GBP1,684,000 (2020: GBP1,824,000), has been
credited to the share premium account. See note 15 for details of
ordinary shares issued subsequent to the year end.
During the year to 30 June 2021, the Company did not repurchase
any ordinary shares into treasury (2020: nil) or resell any
ordinary shares from treasury (2020: nil). At 30 June 2021, the
Company did not hold any shares in treasury (2020: nil).
Capital management
The Group's capital is represented by the share capital, share
premium, merger reserve, distributable reserve, hedging reserve,
capital reserve, revenue reserve and long-term borrowings. The
Group is not subject to any externally-imposed capital
requirements, other than the financial covenants on its loan
facilities as detailed in note 8.
The capital of the Group is managed in accordance with its
investment policy, in pursuit of its investment objective.
Capital risk management
The objective of the Group is to provide 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 that are let to care home
operators; and other healthcare assets in the UK.
The Board has responsibility for ensuring the Group's ability to
continue as a going concern. 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.
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. The Company may also increase or
decrease its level of long-term borrowings.
Where ordinary shares are held in treasury these are available
to be sold to meet on-going market demand. The ordinary shares will
be sold only at a premium to the prevailing NAV per share. The net
proceeds of any subsequent sales of shares out of treasury will
provide the Company with additional capital to enable it to take
advantage of investment opportunities in the market and make
further investments in accordance with the Company's investment
policy and within its appraisal criteria. Holding shares in
treasury for this purpose assists the Company in matching its
on-going capital requirements to its investment opportunities and
therefore reduces the negative effect of holding excess cash on its
balance sheet over the longer term.
No changes were made in the objectives, policies or processes
during the year.
10. Financial instruments
Consistent with its objective, the Group holds UK care home
property investments. In addition, the Group's financial
instruments comprise cash, bank loans and receivables and payables
that arise directly from its operations. The Group's exposure to
derivative instruments consists of interest rate swaps used to fix
the interest rate on the Group's variable rate borrowings.
The Group is exposed to various types of risk that are
associated with financial instruments. The most important types are
credit risk, liquidity risk, interest rate risk and market price
risk. There is no foreign currency risk as all assets and
liabilities of the Group are maintained in pounds sterling.
The Board reviews and agrees policies for managing the Group's
risk exposure. These policies are summarised below and have
remained unchanged for the year under review. These disclosures
include, where appropriate, consideration of the Group's investment
properties which, whilst not constituting financial instruments as
defined by IFRS, are considered by the Board to be integral to the
Group's overall risk exposure.
Credit risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Group. At the reporting date, the Group's financial assets
exposed to credit risk amounted to GBP24,563,000 (2020:
GBP39,854,000), consisting of cash of GBP21,106,000 (2020:
GBP36,440,000), net rent receivable of GBP955,000 (2020:
GBP1,520,000), accrued development interest of GBP739,000 (2020:
GBP996,000) and other debtors of GBP1,763,000 (2020:
GBP898,000).
In the event of default by a tenant if it is in financial
difficulty or otherwise unable to meet its obligations under the
lease, the Group will suffer a rental shortfall and incur
additional expenses until the property is relet. These expenses
could include legal and surveyor's costs in reletting, maintenance
costs, insurances, rates and marketing costs and may have a
material adverse impact on the financial condition and performance
of the Group and/or the level of dividend cover. The Board receives
regular reports on concentrations of risk and any tenants in
arrears. The Investment Manager monitors such reports in order to
anticipate, and minimise the impact of, defaults by occupational
tenants. The expected credit risk in relation to tenants is an
inherent element of the due diligence considered by the Investment
Manager on all property transactions with an emphasis being placed
on ensuring that initial rents are set at a sustainable level. The
risk is further mitigated by rental deposits or guarantees where
considered appropriate. The majority of rental income is received
in advance.
As at 30 June 2021, the Group had recognised a credit loss
allowance totalling GBP4,098,000 against a gross rent receivable
balance of GBP4,641,000 and gross loans to tenants totalling
GBP1,262,000. Whilst this allowance has increased during the year
ended 30 June 2021, it remains low relative to the Group's overall
balance sheet, and relates primarily to the tenant of two immature
homes which are now trading well. As at 30 June 2020, the gross
rent receivable was GBP3,922,000, of which GBP660,000 was
subsequently recovered, GBP753,000 was written off and GBP2,509,000
is still outstanding. There were no other financial assets which
were either past due or considered impaired at 30 June 2021 (2020:
nil).
All of the Group's cash is placed with financial institutions
with a long-term credit rating of BBB or better. Bankruptcy or
insolvency of such financial institutions may cause the Group's
ability to access cash placed on deposit to be delayed, limited or
lost. Should the credit quality or the financial position of the
banks currently employed significantly deteriorate, cash holdings
would be moved to another bank.
Should the Group hold significant cash balances for an extended
period, then counterparty risk will be spread, by placing cash
across different financial institutions. At 30 June 2021 the Group
held GBP20.9 million (2020: GBP36.4 million) with The Royal Bank of
Scotland plc and GBP0.2 million (2020: GBPnil) with HSBC Bank
plc.
Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulties in realising assets or otherwise raising funds to meet
financial commitments. The Group's investments comprise UK care
homes. Property and property-related assets in which the Group
invests are not traded in an organised public market and may be
illiquid. As a result, the Group may not be able to liquidate
quickly its investments in these properties at an amount close to
their fair value in order to meet its liquidity requirements.
The Group's liquidity risk is managed on an on-going basis by
the Investment Manager and monitored on a quarterly basis by the
Board. In order to mitigate liquidity risk the Group aims to have
sufficient cash balances (including the expected proceeds of any
property sales) to meet its obligations for a period of at least
twelve months.
Interest rate risk
Some of the Company's financial instruments are
interest-bearing. Interest-rate risk is the risk that future cash
flows will change adversely as a result of changes in market
interest rates.
The Group's policy is to hold cash in variable rate or
short-term fixed rate bank accounts. At 30 June 2021 interest was
being received on cash at a weighted average variable rate of nil
(2020: 0.01 per cent). Exposure varies throughout the period as a
consequence of changes in the composition of the net assets of the
Group arising out of the investment and risk management policies.
These balances expose the Group to cash flow interest rate risk as
the Group's income and operating cash flows will be affected by
movements in the market rate of interest.
The Group has GBP170.0 million (2020: GBP130.0 million) of
committed term loans and revolving credit facilities which were
charged interest at a rate of SONIA (2020: three-month LIBOR) plus
the relevant margin. At the year-end GBP80.0 million of the
variable rate facilities had been drawn down (2020: GBP102.0
million). The fair value of the variable rate borrowings is
affected by changes in the market rate of the lending margin that
would apply to similar loans. The variable rate borrowings are
carried at amortised cost and the Group considers this to be a
close approximation to fair value at 30 June 2021 and 30 June
2020.
The Group has not hedged its exposure on GBP50.0 million of the
drawn variable rate borrowings at 30 June 2021 (2020: GBP72.0
million). On these loans the interest was payable at a variable
rate equal to SONIA (2020: three-month LIBOR) plus the weighted
average lending margin, including the amortisation of costs, of
2.43 per cent per annum (2020: 2.17 per cent). The variable rate
borrowings expose the Group to cash flow interest rate risk as the
Group's income and operating cash flows will be affected by
movements in the market rate of interest.
The Group has a GBP50.0 million fixed rate term loan (2020:
GBP50.0 million) and has hedged its exposure on GBP30.0 million
(2020: GBP30.0 million) of the variable rate loans, as referred to
above, through entering into a fixed rate interest rate swap.
Fixing the interest rate exposes the Group to fair value interest
rate risk as the fair value of the fixed rate borrowings, or the
fair value of the interest rate swap used to fix the interest rate
on an otherwise variable rate loan, will be affected by movements
in the market rate of interest. The GBP50.0 million fixed rate term
loan is carried at amortised cost on the Group's balance sheet,
with the estimated fair value and cost of repayment being disclosed
in note 8, whereas the fair value of the interest rate swap is
recognised directly on the Group's balance sheet. At 30 June 2021,
an increase of 0.25 per cent in interest rates would have increased
the fair value of the interest rate swap asset and increased the
reported total comprehensive income for the year by GBP0.3 million
(2020: GBP0.1 million). The same movement in interest rates would
have decreased the fair value of the fixed rate term loan by GBP1.1
million (2020: GBP1.2 million); however, as the fixed rate loan is
held at amortised cost, the reported total comprehensive income for
the year would have remained unchanged. A decrease in interest
rates would have had an approximately equal and opposite
effect.
Market price risk
The management of market price risk is part of the investment
management process and is typical of a property investment company.
The portfolio is managed with an awareness of the effects of
adverse valuation movements through detailed and continuing
analysis, with an objective of maximising overall returns to
shareholders. Investments in property and property-related assets
are inherently difficult to value due to the individual nature of
each property. As a result, valuations are subject to substantial
uncertainty. There is no assurance that the estimates resulting
from the valuation process will reflect the actual sales price even
where such sales occur shortly after the valuation date. Such risk
is minimised through the appointment of external property
valuers.
11. Capital commitments
The Group had capital commitments as follows:
30 June 2021 30 June 2020
GBP'000 GBP'000
--------------------------------------------------- ------------- -------------
Amounts due to complete forward fund developments 21,054 5,394
Other capital expenditure commitments 3,158 530
--------------------------------------------------- ------------- -------------
Total 24,212 5,924
--------------------------------------------------- ------------- -------------
12. Contingent assets and liabilities
As at 30 June 2021, twelve (2020: ten) properties within the
Group's investment property portfolio contained deferred
consideration clauses meaning that, subject to contracted
performance conditions being met, deferred payments totalling
GBP20.03 million (2020: GBP18.03 million) may be payable by the
Group to the vendors/tenants of these properties. The potential
timings of these payments are also conditional on the date(s) at
which the contracted performance conditions are met and are
therefore uncertain.
It is highlighted that any deferred consideration subsequently
paid will result in an increase in the rental income due from the
tenant of the relevant property. As the net initial yield used to
calculate the additional rental which would be payable is not
significantly different from the investment yield used to arrive at
the valuation of the properties, any deferred consideration paid
would be expected to result in a commensurate increase in the value
of the Group's investment property portfolio.
Having assessed each clause on an individual basis, the Group
has determined that the contracted performance conditions were
highly likely to be met in relation to one of these properties and
therefore an amount of GBP1.55 million has been recognised as a
liability at 30 June 2021 (2020: GBPnil). An equal but opposite
amount has been recognised in other debtors to reflect the increase
in the investment property value that would be expected to arise
were the deferred consideration to be paid and the contracted
rental income increased accordingly.
13. Related party transactions
The Board of Directors is considered to be a related party. No
Director has an interest in any transactions which are, or were,
unusual in their nature or significant to the nature of the Group.
The Directors of the Group received fees for their services. Total
fees for the year were GBP181,000 (2020: GBP160,000) of which
GBP12,000 (2020: GBP12,000) remained payable at the year-end.
The Investment Manager received GBP5,796,000 (inclusive of
irrecoverable VAT) in management fees in relation to the year ended
30 June 2021 (2020: GBP5,264,000). Of this amount GBP1,551,000
(2020: GBP1,364,000) remained payable at the year-end. The
Investment Manager received a further GBP146,000 (inclusive of
irrecoverable VAT) during the year ended 30 June 2021 (2020:
GBP129,000) in relation to its appointment as Company Secretary and
Administrator, of which GBP36,000 (2020: GBP35,000) remained
payable at the year end. Certain employees of the Investment
Manager are directors of some of the Group's subsidiaries. Neither
they nor the Investment Manager receive any additional remuneration
in relation to fulfilling this role.
There were related party transactions within the Group and its
wholly-owned subsidiaries which are eliminated upon
consolidation.
14. Operating segments
The Board has considered the requirements of IFRS 8 'Operating
Segments'. The Board is of the view that the Group is engaged in a
single segment of business, being property investment, and in one
geographical area, the United Kingdom, and that therefore the Group
has only a single operating segment. The Board of Directors, as a
whole, has been identified as constituting the chief operating
decision maker of the Group. The key measure of performance used by
the Board to assess the Group's performance is the EPRA NTA. The
reconciliation between the NAV, as calculated under IFRS, and the
EPRA NTA is detailed in note 4.
The view that the Group is engaged in a single segment of
business is based on the following considerations:
- One of the key financial indicators received and reviewed by
the Board is the total return from the property portfolio taken as
a whole;
- There is no active allocation of resources to particular types
or groups of properties in order to try to match the asset
allocation of the benchmark; and
- The management of the portfolio is ultimately delegated to a single property manager, Target.
15. Post balance sheet events
Property transactions
Subsequent to the year end, practical completion was achieved at
the Group's development site in Rudheath, Cheshire, delivering a
68-bed care home. The home was completed under a fixed-priced
forward-fund arrangement and leased to L&M Healthcare, an
existing tenant of the Group, on a 30-year lease with RPI-linked
increases, subject to a cap and collar. Similarly, practical
completion was achieved at the Group's development site in
Droitwich Spa, Worcestershire and leased to the Group's largest
tenant, Ideal Carehomes.
In addition the Company has acquired one operational care home
and two forward fund developments, committing total capital of
GBP32.0 million, plus acquisition costs.
Equity issuance
On 9 September 2021, the Company issued 108,695,652 ordinary
shares at a price of 115.0 pence per share, raising gross proceeds
of GBP125 million.
16. Financial statements
This statement was approved by the Board on 19 October 2021. It
is not the Company's full statutory financial statements in terms
of Section 434 of the Companies Act 2006. The statutory annual
report and financial statements for the year ended 30 June 2021 has
been approved and audited and received an unqualified audit report
which did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying the
report. The statutory annual report and financial statements for
the year to 30 June 2021 will be posted to shareholders in November
2021 and will be available for inspection at Level 13, Broadgate
Tower, 20 Primrose Street, London, EC2A 2EW, the registered office
of the Company.
The statutory annual report and financial statements will be
made available on the website www.targethealthcarereit.co.uk .
Copies may also be obtained from Target Fund Managers Limited,
Laurel House, Laurelhill Business Park, Stirling FK7 9JQ.
The audited financial statements for the year to 30 June 2021
will be lodged with the Registrar of Companies following the Annual
General Meeting to be held on 14 December 2021.
Alternative Performance Measures
The Company uses Alternative Performance Measures ('APMs'). APMs
do not have a standard meaning prescribed by GAAP and therefore may
not be comparable to similar measures presented by other entities.
The definitions of all APMs used by the Company are highlighted in
the glossary contained in the Annual Report, with detailed
calculations, including reconciliation to the IFRS figures where
appropriate, being set out below and within the EPRA Performance
Measures which follow.
Discount or Premium - the share price of an Investment Company
is derived from buyers and sellers trading their shares on the
stock market. This price is not identical to the NAV. If the share
price is lower than the NAV per share, the shares are trading at a
discount and, if the share price is higher than the NAV per share,
are said to be at a premium. The figure is calculated at a point in
time and, unless stated otherwise, the Company measures its
discount or premium relative to the EPRA NTA per share.
2021 2020
pence pence
------------------------------------ ----------- ------- -------
EPRA Net Tangible Assets per share
(see note 4) (a) 110.4 108.1
Share price (b) 115.4 110.0
------------------------------------ ----------- ------- -------
Premium = (b-a)/a 4.5% 1.8%
------------------------------------ ----------- ------- -------
Dividend Cover - the percentage by which Group specific adjusted
EPRA earnings for the year cover the dividend paid.
2021 2020
GBP'000 GBP'000
---------------------------------------- --------- --------- ---------
Group-specific EPRA earnings for the
year (see note 4) (a) 25,955 23,224
First interim dividend 7,686 7,640
Second interim dividend 7,686 7,640
Third interim dividend 8,594 7,640
Fourth interim dividend 8,594 7,640
--------------------------------------------------- --------- ---------
Dividends paid in relation to the year (b) 32,560 30,560
Dividend cover = (a/b) 80% 76%
---------------------------------------- --------- --------- ---------
Ongoing Charges - a measure of all operating costs incurred in
the reporting period, calculated as a percentage of average net
assets in that year. Operating costs exclude costs of buying and
selling investments, interest costs, taxation, non-recurring costs
and the costs of buying back or issuing ordinary shares.
2021 2020
GBP'000 GBP'000
------------------------------------------- --------- ---------- ----------
Investment management fee 5,796 5,264
Other expenses 5,334 4,261
Less movement in impairment for credit
losses and bad debts written off (2,717) (2,171)
Less direct property costs and other
non-recurring items (263) (138)
Adjustment to management fee arrangements
and irrecoverable VAT* 49 259
------------------------------------------------------ ---------- ----------
Total (a) 8,199 7,475
------------------------------------------- --------- ---------- ----------
Average net assets (b) 528,035 493,691
Ongoing charges = (a/b) 1.55% 1.51%
------------------------------------------- --------- ---------- ----------
* Based on the Group's net asset value at 30 June 2021, the
management fee is expected to be paid at a weighted average rate of
1.04% (2020: 1.05%) of the Group's average net assets plus an
effective irrecoverable VAT rate of approximately 7%. The
management fee has therefore been amended so that the Ongoing
Charges figure includes the expected all-in management fee rate of
1.11% (2020: 1.12%).
Total Return - the return to shareholders calculated on a per
share basis by adding dividends paid in the period to the increase
or decrease in the Share Price or NAV. The dividends are assumed to
have been reinvested in the form of Ordinary Shares or Net
Assets.
2021 2020
---------------------------- --------- ------------------------------- -------------------------------
EPRA IFRS Share EPRA IFRS Share
NTA NAV price NTA NAV price
(pence) (pence) (pence) (pence) (pence) (pence)
---------------------------- --------- --------- --------- --------- --------- --------- ---------
Value at start of year (a) 108.1 108.0 110.0 107.5 107.3 115.6
Value at end of year (b) 110.4 110.5 115.4 108.1 108.0 110.0
---------------------------- --------- --------- --------- --------- --------- --------- ---------
Change in value during
year (b-a) (c) 2.3 2.5 5.4 0.6 0.7 (5.6)
Dividends paid (d) 6.7 6.7 6.7 6.7 6.7 6.7
Additional impact of
dividend reinvestment (e) 0.5 0.4 0.3 0.2 0.3 -
---------------------------- --------- --------- --------- --------- --------- --------- ---------
Total gain in year (c+d+e) (f) 9.5 9.6 12.4 7.5 7.7 1.1
---------------------------- --------- --------- --------- --------- --------- --------- ---------
Total return for the
year = (f/a) 8.8% 8.9% 11.3% 7.0% 7.2% 0.9%
---------------------------- --------- --------- --------- --------- --------- --------- ---------
EPRA Performance Measures
The European Public Real Estate Association is the industry body
representing listed companies in the real estate sector. EPRA
publishes Best Practice Recommendations ('BPR') to establish
consistent reporting by European property companies. Further
information on the EPRA BPR can be found at www.epra.com .
The figures below are calculated and presented in line with the
BPR Guidelines published by EPRA in October 2019, applicable for
accounting periods commencing after 1 January 2020.
2021 2020
---------------------------------------------------- -------- --------
EPRA Net Reinstatement Value (GBP'000) 609,630 535,256
EPRA Net Tangible Assets (GBP'000) 564,934 494,340
EPRA Net Disposal Value (GBP'000) 563,796 492,602
EPRA Net Reinstatement Value per share (pence) 119.2 117.0
EPRA Net Tangible Assets per share (pence) 110.4 108.1
EPRA Net Disposal Value per share (pence) 110.2 107.7
EPRA Earnings (GBP'000) 34,047 30,468
Group specific adjusted EPRA earnings (GBP'000) 25,955 23,224
EPRA Earnings per share (pence) 7.16 6.92
Group specific adjusted EPRA earnings per share
(pence) 5.46 5.27
EPRA Net Initial Yield 5.76% 5.69%
EPRA Topped-up Net Initial Yield 5.83% 6.04%
EPRA Vacancy Rate - -
EPRA Cost Ratio - including direct vacancy
costs 22.3% 21.5%
EPRA Group specific adjusted Cost Ratio (including
direct vacancy costs) 26.6% 25.7%
EPRA Cost Ratio - excluding direct vacancy
costs 22.3% 21.5%
EPRA Group specific adjusted Cost Ratio (excluding
direct vacancy costs) 26.6% 25.7%
Capital Expenditure (GBP'000) 54,859 118,743
Like-for-like Rental Growth 0.1% 1.5%
---------------------------------------------------- -------- --------
EPRA NAV metrics and EPRA Earnings
Full details of these calculations, including reconciliations of
each to the IFRS measures, are detailed in note 4 to the extract
from the Consolidated Financial Statements.
EPRA Net Initial Yield and EPRA Topped-up Net Initial Yield
EPRA Net Initial Yield is calculated as 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. The EPRA Topped-up Net Initial Yield incorporates an
adjustment in respect of the expiration of rent-free periods (or
other unexpired lease incentives).
2021 2020
GBP'000 GBP'000
------------------------------------------- --------- ---------- ----------
Annualised passing rental income based
on cash rents (a) 40,763 36,749
Notional rent expiration of rent-free
periods or other lease incentives 450 2,264
------------------------------------------------------ ---------- ----------
Topped-up net annualised rent (b) 41,213 39,013
------------------------------------------- --------- ---------- ----------
Standing assets including properties held
for sale (see notes 5 and 6) 662,495 604,984
Allowance for estimated purchasers' costs 44,696 40,916
------------------------------------------------------ ---------- ----------
Grossed-up completed property portfolio
valuation (c) 707,191 645,900
------------------------------------------- --------- ---------- ----------
EPRA Net Initial Yield = (a/c) 5.76% 5.69%
EPRA Topped-up Net Initial Yield = (b/c) 5.83% 6.04%
------------------------------------------- --------- ---------- ----------
EPRA Vacancy Rate
EPRA Vacancy Rate is the estimated rental value (ERV) of vacant
space (excluding forward fund developments and properties held for
sale) divided by the contractual rent of the investment property
portfolio, expressed as a percentage.
2021 2020
GBP'000 GBP'000
------------------------------------------- --------- --------- ---------
Annualised potential rental value of (a) - -
vacant premises*
Annualised potential rental value of
the property portfolio (including vacant
properties) (b) 41,213 39,013
------------------------------------------- --------- --------- ---------
EPRA Vacancy Rate = (a/b) - -
------------------------------------------- --------- --------- ---------
* There were no unoccupied properties at either 30 June 2021 or
30 June 2020.
EPRA Cost Ratio
The EPRA cost ratios are produced using EPRA methodology, which
aims to provide a consistent base-line from which companies can
provide additional information, and include all property expenses
and management fees. Consistent with the Group specific adjusted
EPRA earnings detailed in note 4 to the extract from the
Consolidated Financial Statements, similar adjustments have been
made to also present the adjusted Cost Ratio which is thought more
appropriate for the Group's business model.
Year ended Year ended
30 June 30 June 2020
2021 GBP'000
GBP'000
------------------------------------------ --------------- ----------- --------------
Investment management fee 5,796 5,264
Other expenses 5,334 4,261
----------------------------------------------------------- ----------- --------------
EPRA costs (including direct vacancy
costs) (a) 11,130 9,525
Specific cost adjustments, if applicable - -
------------------------------------------ --------------- ----------- --------------
Group specific adjusted EPRA costs
(including direct vacancy costs) (b) 11,130 9,525
------------------------------------------ --------------- ----------- --------------
Direct vacancy costs (c) - -
------------------------------------------ --------------- ----------- --------------
Gross rental income per IFRS (d) 49,980 44,267
Adjusted for rental income arising
from recognising guaranteed rent
review uplifts and lease incentives (8,739) (8,219)
Adjusted for development interest
under forward fund arrangements 647 975
Group specific adjusted gross rental
income (e) 41,888 37,023
EPRA Cost Ratio (including direct
vacancy costs) = (a/d) 22.3% 21.5%
EPRA Group specific adjusted Cost
Ratio (including direct vacancy costs) = (b/e) 26.6% 25.7%
EPRA Cost Ratio (excluding direct
vacancy costs) = ((a-c)/d) 22.3% 21.5%
EPRA Group specific adjusted Cost
Ratio (excluding direct vacancy costs) = ((b-c)/e) 26.6% 25.7%
------------------------------------------ --------------- ----------- --------------
EPRA Capital Expenditure
Year ended Year ended
30 June 2021 30 June 2020
GBP'000 GBP'000
--------------------------------------- -------------- --------------
Acquisitions (including acquisition
costs) 34,808 108,024
Forward fund developments 20,032 9,245
Like-for-like portfolio 19 1,474
---------------------------------------- -------------- --------------
Total capital expenditure 54,859 118,743
Conversion from accrual to cash basis (3,458) (1,242)
---------------------------------------- -------------- --------------
Total capital expenditure on a cash
basis 51,401 117,501
---------------------------------------- -------------- --------------
Like-for-like Rental Growth
Year ended Year ended
30 June 30 June 2020
2021 GBP'000
GBP'000
------------------------------------ --------- ----------- --------------
Opening contractual rent (a) 39,013 32,193
------------------------------------ --------- ----------- --------------
Rent reviews 686 732
Movement in variable rental leases (162) (56)
Re-tenanting of properties* (468) (199)
----------------------------------------------- ----------- --------------
Like-for-like rental growth (b) 56 477
Acquisitions and developments 2,582 7,490
Disposals (438) (1,147)
----------------------------------------------- ----------- --------------
Total movement (c) 2,200 6,820
Closing contractual rent = (a+c) 41,213 39,013
------------------------------------ --------- ----------- --------------
Like-for-like rental growth* = (b/a) 0.1% 1.5%
------------------------------------ --------- ----------- --------------
* During the year ended 30 June 2021, the Group resolved its
position with a tenant which had been operating two of the Group's
homes. The re-tenanting of one of these homes was completed during
the year resulting in a small uplift in rental income; however,
this asset management activity has resulted in a temporary
reduction in contractual rent in relation to the other home,
thereby reducing the reported like-for-like rental growth for the
year by 1.2%. The re-tenanting of the second home is expected to
complete imminently.
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END
FR UKOARASURAUA
(END) Dow Jones Newswires
October 20, 2021 02:00 ET (06:00 GMT)
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