TIDMTHRL
RNS Number : 8959E
Target Healthcare REIT PLC
16 March 2022
16 March 2022
Target Healthcare REIT plc
HALF-YEAR RESULTS FOR THE SIX MONTHSED 31 DECEMBER 2021
GBP191 million of investment activity and strengthened balance
sheet underpins robust financial performance and provides platform
for future earnings growth
Target Healthcare REIT plc (the "Company" or the "Group"), the
UK listed specialist investor in modern, purpose-built care homes,
is pleased to announce its results for the six months ended 31
December 2021.
Key highlights
-- Significant portfolio growth, driven by new investment and
development commitments of GBP191 million, including an 18-home
portfolio acquisition, the Group's largest to date, which added
stable assets with a mature trading history and annual rental
income of GBP9.3 million
-- Enhanced balance sheet stability and flexibility from new,
long-term capital, with GBP100 million of additional long-term debt
secured at attractive fixed interest rate and a GBP125 million
oversubscribed equity issuance in September 2021
-- Resilient portfolio performance with robust rent collection,
and like-for-like rental and valuation growth
-- The recovery in resident occupancy levels had slowed over the
winter as a result of rising COVID-19 case numbers and staff
shortages caused by the Omicron variant. Tenants report that
enquiry levels remain strong and staff availability is now
improving.
Robust portfolio growth and increasing diversification
-- Portfolio market value increased by GBP186 million, or 27.1%,
to GBP870.5 million (June 2021: GBP684.8 million), primarily driven
by GBP171 million of acquisitions and development activity; like
for like portfolio valuation uplift of 2.2%
-- Contractual rent increased by 29.6% to GBP53.4 million (June
2021: GBP41.2 million), including like for like rental growth of
2.8%.
-- Growing and diversified tenant base, increasing to 31(1) (June 2021: 28 tenants)
-- Weighted average unexpired lease term of 27.5 years (June 2021: 28.8 years)
Sustainable returns from portfolio management and
inflation-linked characteristics
-- EPRA NTA per share increased by 0.4% to 110.8 pence (June 2021: 110.4 pence)
-- NAV total return(2) of 3.4% (2020: 3.3%)
-- Portfolio total return of 4.8% (2020: 4.1%)
-- Rent collection of 96%
-- 96% of leases benefit from upwards only inflation-linked rent reviews; 4% fixed uplifts
-- Weighted average cost of drawn debt at 3.1% (June 2021: 2.9%), with average term to maturity significantly increasing to 7.4 years (June 2021: 4.8 years)
-- Net LTV increased to 20.7% (June 2021: 15.9%)
Progressive dividend policy maintained
-- Dividends increased by 0.6% to 3.38 pence (2020: 3.36 pence)
-- Adjusted EPRA Earnings per share(3) of 2.36 pence (2020: 2.66
pence), reflecting the temporary cash drag from the time between
the GBP125m equity issuance and the completion of the portfolio
acquisition
-- EPRA Earnings per share(3) of 3.08 pence (2020: 3.61 pence)
-- Adjusted EPRA Cost Ratio of 27.7% (2020: 29.2%); EPRA Cost Ratio of 23.3% (2020: 24.1%)
Responsible investment with a clear purpose to improve the UK's
care home real estate
-- Compelling long-term demand supply dynamics support both
investor and operator activity in the sector
-- Selective investment into new developments of new-build care
homes; two homes (134 beds) opened in the period, and four homes
(270 beds) being funded at period end
-- Full en suite wet-rooms account for 96% of the portfolio,
compared to the UK national average of just 29%
-- EPC ratings: 100% A-C ratings, with 88% A or B ratings
-- Initial sample of BREEAM In-Use assessments completed, all
rated 'good', 'very good' or 'excellent'
Unless otherwise stated in the above, references to 2020 mean
the comparative six month period to 31 December 2020 and references
to 2021 mean 30 June 2021, being the start of the period under
review.
(1) At 31 December 2021. Will increase to 32 tenants upon completion of development sites.
(2) Based on EPRA NTA movement and dividends paid, see
alternative performance measures below.
(3) For the details of EPRA earnings and adjusted EPRA earnings
refer to note 6 to the Condensed Consolidated Financial
Statements.
Malcolm Naish, Chairman of the Company, said:
"This has been a transformative six months for the Company. In
testament to the continued appeal of our strategy, we successfully
completed an oversubscribed GBP125 million equity raise, the
proceeds of which were deployed into our largest acquisition to
date, providing robust portfolio growth and driving the 27.1%
increase in the market value of our portfolio. Additionally, we
have further strengthened our balance sheet through securing an
additional GBP100 million long-term fixed-rate debt facility. Our
portfolio has maintained a strong level of rent collection, with
our tenants' underlying trading remaining resilient despite the
ongoing challenges arising from the COVID-19 pandemic.
"We remain confident in the demand for modern, purpose-built
care homes in strategic locations. In particular, we believe that
the portfolio's long-term inflation linked income characteristics
and clear social purpose provide investors with a unique and
compelling investment proposition. More broadly, the sector's
structural drivers are hugely supportive, and we are ideally placed
to capitalise on these through our increasingly diverse tenant
base, modern, fit for purpose portfolio and deep sector
expertise."
A live webcast presentation for analysts will be held at 10.00am
this morning and can be accessed via:
https://webcasting.brrmedia.co.uk/broadcast/6229c2e861bd9a4d1028bf27
LEI: 213800RXPY9WULUSBC04
Enquiries:
Kenneth MacKenzie; Gordon Bland
Target Fund Managers Limited
01786 845 912
Mark Young; Mark Bloomfield
Stifel Nicolaus Europe Limited
020 7710 7600
Dido Laurimore; Claire Turvey; Richard Gotla
FTI Consulting
020 3727 1000
TargetHealthcare@fticonsulting.com
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 31 December 2021 comprised 98 assets
let to 31 tenants with a total value of GBP870.5 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 continue to find ourselves in uncertain times; 2016's Brexit
referendum sparked domestic political turbulence; the global
COVID-19 pandemic provided a serious public health emergency with
unprecedented impact; 2022 has started with conflict in Ukraine and
coordinated sanctions against Russia. Scarcity of energy supplies,
rising inflation & interest rates, and a potential retreat from
recent "net zero" commitments as a response to energy worries,
appear to be the major themes which will be impacting financial
markets and investor confidence in the coming months. There is also
a significant relief effort required, both within Ukraine itself
and outside its borders, given the millions seeking refuge within
Europe.
Owning and managing a care home portfolio, on behalf of
shareholders, provides a valuable sense of perspective, and we
continue to hear touching stories of care being provided to
residents by the many dedicated professionals within our homes.
This care, and the modern real estate we provide, has been the
basis for the stable, sustainable returns our portfolio has
provided throughout the turbulent times I note above. The Company's
share price, however, will not be immune to the short term
volatility currently being experienced by equity markets as a
whole.
We have made significant progress in the six months under
review. Improved scale has resulted from our successful fundraise
to secure a desirable portfolio of mature assets. Our continued
patience and discipline have been crucial in completing these major
transactions and also in making portfolio management decisions to
protect value for the long-term.
Portfolio performance has followed the pattern we have seen
throughout the COVID-19 pandemic. Strong rent collection has been
maintained despite the occupancy challenges our tenants have faced,
with underlying trading remaining resilient. Occupancy levels
improved through the early part of the period, though this stalled
with the emergence of the Omicron variant. We witnessed a pause in
the rebuild of occupancy as new admissions were affected by
increased COVID-19 cases and the staffing pressures which resulted
from isolation requirements.
Positively, our tenants reported the majority of cases affecting
residents to be mild or indeed asymptomatic, and recently the
position has improved: declining case numbers, increasing staff
availability and ongoing strong demand for places as evidenced by
enquiry levels. This sees resident occupancy growth resuming, with
sustained profitability likely to follow. However, whilst the
outlook for the sector is expected to continue to improve, the
pandemic is not yet over and individual tenants may continue to
face operational and financial challenges over the short to medium
term.
Group performance
Underlying profits, measured by adjusted EPRA earnings, have
increased by 12% to GBP13.7 million (2020: GBP12.2 million), being
2.36 pence per share (2020: 2.66 pence). The accounting total
return for the period was 3.4% (2020: 3.3%).(1)
The temporary cash drag from the time between the GBP125 million
equity issuance of September 2021 and the completion of the
portfolio acquisition impacted the earnings per share performance.
Following the portfolio acquisition on 17 December 2021, the
capital is now substantially invested. This investment will
generate GBP9.3 million of annual rental income which is not fully
reflected in earnings for the period under review, which will boost
earnings and dividend cover going forward.
The portfolio continues to provide attractive total returns
(4.8% for the period) as capital values have grown alongside the
rental income generated. Valuation yields have tightened (EPRA
topped-up net initial yield: 5.84%) as a result of (a) the stable
performance of the assets and (b) the continued competitive
investment market for modern care homes, given the asset class'
long-term, inflation-linked sustainable rental cashflows.
Portfolio & balance sheet strength
Following commitments of GBP191 million for new acquisitions
during the period, the Group's busiest period in its almost nine
year history, as at 31 December 2021 the Group's portfolio has
grown to 98 properties valued at GBP870.5 million. Our 31 tenants
provide diversity of income with rental and valuation growth
delivered on a like-for-like basis at 2.8% and 2.2%, respectively,
from annual rental uplifts, yield compression and asset management
initiatives. The underlying trading performance at the homes has
proven remarkably resilient - notably, rent cover for the mature
homes in the portfolio was 1.4 times(2) at 31 December 2021.
Gearing increased to 21% net LTV following the drawdowns in
December 2021 (a) to fund the acquisitions and (b) to secure
long-term fixed rates on the new GBP100 million of loan facilities.
Having now reached a portfolio of scale, and our targeted debt
structure, the Group anticipates this to be the base level of
gearing looking forward. Revolving credit facilities remain
available to fund our development portfolio and cover further
pipeline acquisitions as they arise, which will see gearing
increase to our medium-term target of c.27-29%. We have the ability
to manage a modest level of pipeline acquisitions beyond this level
using our available facilities ahead of permanent and
dividend-paying equity, achieving portfolio growth whilst
minimising cash drag.
The GBP100 million of additional debt capacity and maturity
extensions during the period have further strengthened the balance
sheet and provide increased certainty of funding. Our weighted
average term to maturity now exceeds seven years at a weighted
interest rate of 3.1%.
Board succession
We have continued to address board succession and, in line with
the expectations set out in the previous Annual Report, Professor
Andrews and Mr Hutchison retired from the Board at the Annual
General Meeting in December 2021 and I thank them for their
service. Subsequent to the period end, I am pleased to welcome Dr
Amanda Thompsell to the Board. Dr Thompsell has significant
clinical experience of all aspects of caring for older people and a
comprehensive knowledge of the care home sector.
Dividend and outlook
We have maintained our progressive dividend policy having
increased quarterly dividends by 0.6% to 1.69 pence per share, with
the first interim dividend for the year having been paid in
November 2021 in respect of the quarter to September 2021.
Subsequent to the period end, the second interim dividend has also
been paid in respect of the quarter to December 2021. Whilst
dividend cover(3) (65%) was depressed in the period, we have a
clear path to full cover when fully invested and geared. Increased
earnings are already arising from our recent capital
deployment.
Perhaps most importantly, we are well-positioned for an
environment of higher inflation and increasing interest rates. The
upwards-only annual rent reviews embedded in our leases, and our
addition of GBP100 million of fixed-rate debt during the period at
a weighted average duration of 13 years, are two aspects of our
strategy designed to provide certainty and stability, with the
opportunity for progressive returns, in the months and years to
come.
We were delighted with the support from both existing
shareholders and new investors for the oversubscribed GBP125
million equity issuance completed in September 2021. We carefully
considered the prospects for the portfolio and the sector alongside
the acquisition opportunities presented to us by the Investment
Manager. Our tenants remain optimistic about upcoming trading, and
with our beds being part of the 29% of the UK market which we
believe meets the minimum standards in which our elderly should be
cared for, we are confident that the demand dynamics strongly
support this optimism. The sector's long-term fundamentals remain
compelling, and we are well placed to capitalise on these through
our broadening occupier mix and balance sheet strength.
Malcolm Naish
Chairman
15 March 2022
(1) Based on EPRA NTA movement and dividends paid, see alternative performance measures below.
(2) Twelve month rolling average to 31 December 2021 .
(3) Based on adjusted EPRA earnings, see alternative performance
measures below.
Investment Manager's Report
Overview
The Group's portfolio of 98 assets, comprising 94 operational
homes and four pre-let development sites, was valued at GBP870.5
million at 31 December 2021. The operational homes were let to 31
tenants, providing 6,522 beds for residents, and generating a
contractual rent of GBP53.4 million per annum. The EPRA topped-up
net initial yield was 5.84% and the EPRA net initial yield was
5.58%.
The portfolio value has increased by 27.1% in the period. Of
this, 24.9% is due to net capital deployment in 19 new acquisitions
and further investment into developments (two having completed
during the period, two ongoing throughout the period and two new
commitments), with a positive like-for-like movement in the
operational portfolio of 2.2%, which primarily reflects the impact
of both inflation-linked rent reviews and yield compression.
The contractual rent roll has increased by 29.6% in the period,
primarily from a 26.8% increase from acquisitions and completed
development sites. The Group's upwards-only rent reviews
contributed a 1.6% like-for-like increase, with the remaining 1.2%
increase attributable to the successful re--tenanting of the
remaining home of one of the previous tenants who had already been
in financial distress prior to the COVID-19 pandemic. The weighted
average unexpired lease term has shortened slightly to 27.5
years.
The portfolio total return for the six-month period was 4.8%
(10.5% for the 2021 calendar year), maintaining its stable
performance since IPO.
COVID-19 & asset trading performance
The period under review was another in which COVID-19 was a
substantial driver of trading performance in our homes. The average
occupancy level improved early in the period until the effects of
the emergence of the Omicron variant were experienced. This
resulted in both staff shortages due to self-isolation and rising
case numbers in home residents. Each of these factors are barriers
to accepting new residents, with the combination resulting in the
stalling of admission rates.
As with previous periods, in another display of resilience and
the long-term sustainability which underpins our strategy, trading
performance at these reduced occupancy levels has remained robust,
supporting rental receipts by the Group. Average rent cover as at
31 December 2021 was 1.4 times on a last twelve months' basis.(1)
This level has been consistently achieved during the two years of
COVID-19, with the recent data showing the positive effects of (i)
early occupancy increases (ii) fee increases achieved and (iii)
efficient operational management offsetting the reduction in
government support.
Current challenges for the sector, aside from the clear need to
rebuild occupancy to pre-COVID-19 levels, are to navigate the
effects of general cost inflation and staffing shortages. Increases
in staff costs, and general inflationary pressures, are likely to
be managed by passing these onto residents by way of annual fee
increases, more easily achieved in private pay settings. We have
evidence of continued success by our tenants in achieving this from
both the private and public purse, based on the demand for, and
quality of, the services provided and the real estate in which
these are provided from. Mandated vaccinations in care home
settings from November 2021, a policy which the Government has
advised at the time of writing will be reversed, was not a material
concern to our tenants who had been reporting high vaccination
uptake from their staff since early in the rollout.
Our tenants are optimistic, with reported enquiry levels once
again high and conversion rates to resident admissions expected to
increase as we emerge from the Omicron wave.
Asset management initiatives
As at 15 March 2022, the Group had collected 96% of the rent
that was due and payable in respect of the six months under review.
Through the two years of challenging trading as a result of the
COVID-19 pandemic, we have initiated some tenant changes to protect
rent and property values and will continue to closely monitor the
portfolio to identify further areas where this will be
required.
During the period we have completed the re-tenanting of the
second of two homes from a national operator which had financial
challenges prior to the pandemic. The second home's re-tenanting
has, like the first, been achieved on rental terms consistent with
the existing lease and our investment case for the asset, with
comprehensive refurbishment capex committed for both assets to
improve the standard of the real estate. Late in the period,
contracts were exchanged to re-tenant four homes from a large
national operator to a regional operator. Completion is subject to
regulatory approval, expected to be received shortly, and
strategically sees us move to a tenant whose knowledge of the local
markets in which these homes trade is expected to enhance
performance and better serve their communities. Consistent with the
Group's prior re-tenantings, the quality of the assets and the
rental levels inherent in the leases have resulted in attractive
commercial arrangements being achieved.
Investment market
The investment market for assets which meet the Group's
investment criteria remains very competitive. Higher standard real
estate assets are attracting numerous offers, partly due to their
scarcity and partly due to the recognition by investors that much
of the UK's care home stock is not fit for purpose. This is being
reflected in pricing, with yields generally remaining unchanged,
though with continued tightening on higher quality assets. We
continue to see a number of new development opportunities, noting
that pricing is being impacted by higher land/ build/construction
costs. Despite this competitive landscape, we continue to access
pipeline stock through (a) existing relationships (b) our
long-established team (c) our reputation and (d) our expertise,
which provides valuable commercial insight and the ability to
secure sustainable returns.
Sectoral
The sector is in a period of cautious optimism as the Omicron
variant seems to be on the wane. Residents have remained generally
protected and, while we owe a debt to the science of vaccinations
in this regard, we should not underestimate how adept care homes
have become at testing, safe visiting, and infection control
procedures.
After suffering some unwarranted reputational damage in the
early stages of the pandemic, public scrutiny of the sector
mellowed and helped focus Government attention on sector change and
funding. The resulting White Paper, while heralded by Government
Ministers as ground-breaking, was generally met with disappointment
by the sector, with concern that the public funding of those with
means is not as generous as first impressions suggest. In fact, the
national insurance fuelled tax raise does little for the social
care sector, with the lions' share ending up in the NHS for the
first few years.
Eyebrows were raised in the sector by the mention of 'levelling'
fees, a reference buried in the white paper in relation to the
common practice of operators subsidising publicly funded residents
by charging private residents higher fees. While the sector rightly
feels some consternation regarding this point, the intention to
require Local Authorities to address fees paid to private operators
in line with the 'true cost of care' is a welcome directive. This,
coupled with strong demand by clientele for quality accommodation
and the fact that residents will still be able to 'top-up' to the
quality of their choice, means we envisage operators will not be
unduly troubled by the potential changes. Other white paper
proposals are welcome, such as increased integration between
authorities and joined up health pathways for the public.
2022 will remain a challenging year for operators. Even if
COVID-19 should fade, or more likely become endemic, the spectre of
inflation is firmly on the horizon; wages, energy and food costs,
coupled with a continued difficult recruitment environment will
keep the pressure on. While the pandemic has been tough on smaller
operators, particularly those with older real estate, which will
likely speed their demise, a new public focus on the quality of
accommodation will support operators such as our own tenants.
Target Fund Managers Limited
Investment Manager
15 March 2022
(1) All occupancy and rent cover figures quoted relate to mature
homes within the portfolio.
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 31 December 2021
Six months ended Six months ended
31 December 2021 31 December 2020
(unaudited) (unaudited)
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Revenue
Rental income 21,929 4,515 26,444 20,308 4,554 24,862
Other income 66 - 66 6 - 6
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Total revenue 21,995 4,515 26,510 20,314 4,554 24,868
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Gains on investment
properties 8 - 871 871 - 307 307
Losses on properties
held for sale 9 - - - - (92) (92)
Total income 21,995 5,386 27,381 20,314 4,769 25,083
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Expenditure
Investment management
fee 2 (3,553) - (3,553) (2,821) - (2,821)
Credit loss allowance
and bad debts 3 (1,073) - (1,073) (1,940) - (1,940)
Other expenses 3 (1,558) - (1,558) (1,230) - (1,230)
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Total expenditure (6,184) - (6,184) (5,991) - (5,991)
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Profit before finance
costs and taxation 15,811 5,386 21,197 14,323 4,769 19,092
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Net finance costs
Interest receivable 36 - 36 18 - 18
Interest payable
and similar charges 4 (2,519) - (2,519) (2,389) (913) (3,302)
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Profit before taxation 13,328 5,386 18,714 11,952 3,856 15,808
Taxation 5 (6) - (6) 12 - 12
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Profit for the period 13,322 5,386 18,708 11,964 3,856 15,820
Other comprehensive
income:
Items that are or
may be reclassified
subsequently to profit
or loss
Movement in fair
value of interest
rate swaps - 678 678 - (141) (141)
Reclassification
to profit and loss
on discontinuation
of interest rate
swaps - - - - 180 180
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Total comprehensive
income for the period 13,322 6,064 19,386 11,964 3,895 15,859
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Earnings per share
(pence) 6 2.31 0.93 3.24 2.62 0.84 3.46
-------------------------- ------ --------- -------- --------- --------- -------- ---------
The total column of this statement represents the Group's
Condensed Consolidated Statement of Comprehensive Income, prepared
in accordance with UK adopted IAS 34 'Interim Financial Reporting'.
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 period.
Condensed Consolidated Statement of Financial Position
As at 31 December 2021
As at As at
31 December 30 June
2021 2021
(unaudited) (audited)
Notes GBP'000 GBP'000
Non-current assets
Investment properties 8 810,277 629,606
Trade and other receivables 10 59,969 54,580
Interest rate swap 12 929 251
------------------------------------ ------ ------------- -----------
871,175 684,437
------------------------------------ ------ ------------- -----------
Current assets
Trade and other receivables 10 19,017 5,531
Cash and cash equivalents 34,647 21,106
------------------------------------ ------ ------------- -----------
53,664 26,637
Properties held for sale 9 7,320 7,320
------------------------------------ ------ ------------- -----------
60,984 33,957
------------------------------------ ------ ------------- -----------
Total assets 932,159 718,394
------------------------------------ ------ ------------- -----------
Non-current liabilities
Bank loans 12 (219,109) (127,904)
Trade and other payables 13 (7,302) (6,840)
------------------------------------ ------ ------------- -----------
(226,411) (134,744)
------------------------------------ ------ ------------- -----------
Current liabilities
Trade and other payables 13 (17,758) (18,465)
------------------------------------ ------ ------------- -----------
Total liabilities (244,169) (153,209)
------------------------------------ ------ ------------- -----------
Net assets 687,990 565,185
------------------------------------ ------ ------------- -----------
Share capital and reserves
Share capital 14 6,202 5,115
Share premium 256,636 135,228
Merger reserve 47,751 47,751
Distributable reserve 246,088 265,164
Hedging reserve 929 251
Capital reserve 69,498 64,112
Revenue reserve 60,886 47,564
------------------------------------ ------ ------------- -----------
Equity shareholders' funds 687,990 565,185
------------------------------------ ------ ------------- -----------
Net asset value per ordinary share
(pence) 6 110.9 110.5
------------------------------------ ------ ------------- -----------
Condensed Consolidated Statement of Changes in Equity
For the six months ended 31 December 2021 (unaudited)
Distrib-utable
Share Share Merger reserve Hedging Capital Revenue
Notes capital premium reserve reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 30 June
2021 5,115 135,228 47,751 265,164 251 64,112 47,564 565,185
Total
comprehensive
income for
the period - - - - 678 5,386 13,322 19,386
Transactions
with owners
recognised
in equity:
Dividends paid 7 - - - (19,076) - - - (19,076)
Issue of
ordinary
shares 14 1,087 123,913 - - - - - 125,000
Expenses of
issue 14 - (2,505) - - - - - (2,505)
As at 31
December
2021 6,202 256,636 47,751 246,088 929 69,498 60,886 687,990
---------------- ------- --------- ---------- --------- --------------- --------- --------- --------- ----------
For the six months ended 31 December 2020 (unaudited)
Distrib-utable
Share Share Merger reserve Hedging Capital Revenue
Notes capital premium reserve reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 30 June
2020 4,575 77,452 47,751 296,770 (227) 45,536 22,256 494,113
Total
comprehensive
income for
the period - - - - 39 3,856 11,964 15,859
Transactions
with owners
recognised
in equity:
Dividends
paid 7 - - - (15,326) - - - (15,326)
As at 31
December
2020 4,575 77,452 47,751 281,444 (188) 49,392 34,220 494,646
---------------- ------- --------- --------- --------- --------------- --------- --------- --------- ----------
Condensed Consolidated Statement of Cash Flows
For the six months ended 31 December 2021
Six months Six months
ended ended
31 December 31 December
2021 2020
(unaudited) (unaudited)
Notes GBP'000 GBP'000
------------------------------------------- ------- ------------- -------------
Cash flows from operating activities
Profit before tax 18,714 15,808
Adjustments for:
Interest receivable (36) (18)
Interest payable 2,519 3,302
Revaluation losses on properties
held for sale - 92
Revaluation gains on investment
properties and movements in lease
incentives, net of acquisition costs
written off (5,386) (4,861)
Increase in trade and other receivables (14,331) (348)
Increase in trade and other payables 1,216 498
-------------------------------------------- ------ ------------- -------------
2,696 14,473
-------------------------------------------- ------ ------------- -------------
Interest paid (2,201) (2,158)
Interest received 36 18
Tax paid (6) -
-------------------------------------------- ------ ------------- -------------
(2,171) (2,140)
-------------------------------------------- ------ ------------- -------------
Net cash inflow from operating activities 525 12,333
-------------------------------------------- ------ ------------- -------------
Cash flows from investing activities
Disposal of properties held for
sale - 388
Purchase of investment properties
and properties held for sale, including
acquisition costs (181,873) (24,013)
Net cash outflow from investing
activities (181,873) (23,625)
-------------------------------------------- ------ ------------- -------------
Cash flows from financing activities
Issue of ordinary share capital 14 125,000 -
Expenses of issue of ordinary share (2,505) -
capital
Drawdown of bank loan facilities 12 210,000 112,000
Expenses of arrangement of bank
loan facilities (1,519) (1,449)
Repayment of bank loan facilities 12 (117,250) (102,000)
Dividends paid (18,837) (15,375)
-------------------------------------------- ------ ------------- -------------
Net cash inflow/(outflow) from financing
activities 194,889 (6,824)
-------------------------------------------- ------ ------------- -------------
Net increase/(decrease) in cash
and cash equivalents 13,541 (18,116)
Opening cash and cash equivalents 21,106 36,440
-------------------------------------------- ------ ------------- -------------
Closing cash and cash equivalents 34,647 18,324
-------------------------------------------- ------ ------------- -------------
Transactions which do not require the
use of cash
Movement in fixed or guaranteed rent
reviews and lease incentives 4,938 5,311
--------------------------------------- ------ ------
Notes to the Condensed Consolidated Financial Statements
1. Basis of Preparation
The condensed consolidated financial statements have been
prepared in accordance with IAS 34 'Interim Financial Reporting'
and the accounting policies set out in the statutory financial
statements of the Group for the year ended 30 June 2021.
The condensed consolidated financial statements do not include
all of the information required for a complete set of IFRS
financial statements and should be read in conjunction with the
consolidated financial statements of the Group for the year ended
30 June 2021, which were prepared under full IFRS requirements.
Going concern
The condensed consolidated financial statements have been
prepared on the going concern basis. In assessing the going concern
basis of accounting the Directors have had regard to the guidance
issued by the Financial Reporting Council. Given the potentially
significant impact of COVID-19 on the economic conditions in which
the Group is operating, the Directors have continued to place a
particular focus on the appropriateness of adopting the going
concern basis in preparing the financial statements for the period
ended 31 December 2021.
The Group's going concern assessment particularly considered
that:
-- The value of the Group's portfolio of assets significantly
exceeds the value of its liabilities, with the valuation yield
applied to the portfolio having tightened marginally since the
start of the pandemic;
-- The Group is contractually entitled to receive rental income
which significantly exceeds its forecast expenses and loan
interest; and
-- The Group remains within its loan covenants, with its finance
facilities having been extended and increased during the period,
resulting in a weighted average term to maturity of 7.4 years at 31
December 2021 and an earliest repayment date of November 2024.
The Group has a significant balance of cash and undrawn debt
available and the Group's current policy is to prudently retain a
proportion of this to ensure it can continue to pay the Group's
expenses and loan interest in the unlikely scenario that the level
of rental income received deteriorates significantly. The
proportion retained will be kept under review dependent on
portfolio performance and market conditions.
Based on these considerations, the Directors consider that the
Group has adequate resources to continue in operational existence
for the foreseeable future and at least the next twelve months from
the date of issuance of this report. For this reason, they continue
to adopt the going concern basis in preparing the financial
statements.
2. Investment Management Fee
For the six month For the six month
period ended period ended
31 December 2021 31 December 2020
GBP'000 GBP'000
----------------------- ------------------ ------------------
Investment management
fee 3,553 2,821
----------------------- ------------------ ------------------
The Group's Investment Manager and Alternative Investment Fund
Manager ('AIFM') is Target Fund Managers Limited. 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
----------------------------------------------- --------------------------
2. Investment Management Fee (continued)
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; 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
For the six For the six
month period month period
ended ended
31 December 31 December
2021 2020
GBP'000 GBP'000
------------------------------------- -------------- --------------
Credit loss allowance and bad debts
written off 1,073 1,940
Valuation and other professional
fees 932 853
Secretarial and administration fees 90 88
Directors' fees 114 91
Other 422 198
------------------------------------- -------------- --------------
Total 2,631 3,170
------------------------------------- -------------- --------------
4. Interest payable and similar charges
For the six For the six
month period month period
ended ended
31 December 31 December
2021 2020
GBP'000 GBP'000
----------------------------- -------------- --------------
Interest paid on bank loans 2,264 2,056
Amortisation of loan costs 255 333
Cost of early redemption - 913
Total 2,519 3,302
----------------------------- -------------- --------------
5. Taxation
The Directors intend to conduct the Group's affairs such that
management and control is exercised in the United Kingdom and so
that the Group carries on any trade in the United Kingdom.
The Group has entered the REIT regime for the purposes of UK
taxation. Subject to continuing relevant UK-REIT criteria being
met, the profits from the Group's property rental business, arising
from both income and capital gains, are exempt from corporation
tax.
6. Earnings per share and Net Asset Value per share
Earnings per share
For the six month For the six month
period ended period ended
31 December 2021 31 December 2020
Pence per Pence per
GBP'000 share GBP'000 share
-------------------------- ---------- ------------ ---------- ------------
Revenue earnings 13,322 2.31 11,964 2.62
Capital earnings 5,386 0.93 3,856 0.84
Total earnings 18,708 3.24 15,820 3.46
-------------------------- ---------- ------------ ---------- ------------
Average number of shares
in issue 578,295,002 457,487,640
-------------------------- ---------- ------------ ---------- ------------
The European Public Real Estate Association ('EPRA') is an
industry body which issues best practice reporting guidelines for
property companies and the Group reports an EPRA NAV quarterly.
EPRA has issued best practice recommendations for the calculation
of certain figures which are included below.
The EPRA earnings are arrived at by adjusting for the
revaluation movements on investment properties and properties held
for sale 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 that 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:
For the six For the six
month period month period
ended ended
31 December 31 December
2021 2020
GBP'000 GBP'000
------------------------------------------ -------------- --------------
Earnings per IFRS Consolidated Statement
of Comprehensive Income 18,708 15,820
Adjusted for gains on investment
properties (871) (307)
Adjusted for losses on properties
held for sale - 92
Adjusted for cost of debt refinancing
and other capital items - 913
EPRA earnings 17,837 16,518
Adjusted for rental income arising
from recognising guaranteed rent
review uplifts (4,515) (4,554)
Adjusted for development interest
under forward fund agreements 335 212
Group specific adjusted EPRA earnings 13,657 12,176
Earnings per share ('EPS') (pence
per share)
EPS per IFRS Consolidated Statement
of Comprehensive Income 3.24 3.46
EPRA EPS 3.08 3.61
Group specific adjusted EPRA EPS 2.36 2.66
------------------------------------------ -------------- --------------
Earnings for the period ended 31 December 2021 should not be
taken as a guide to the results for the year to 30 June 2022.
6. Earnings per share and Net Asset Value per share (continued)
Net Asset Value per share
The Group's net asset value per ordinary share of 110.9 pence
(30 June 2021: 110.5 pence) is based on equity shareholders' funds
of GBP687,990,000 (30 June 2021: GBP565,185,000) and on 620,237,346
(30 June 2021: 511,541,694) ordinary shares, being the number of
shares in issue at the period end.
The three EPRA NAV metrics are shown below. Further details are
included in the glossary.
31 December 2021 30 June 2021
------------------------------- -------------------------------
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 687,990 687,990 687,990 565,185 565,185 565,185
Fair value of interest
rate swap (929) (929) - (251) (251) -
Fair value of loans - - 472 - - (1,389)
Estimated purchasers'
costs 57,875 - - 44,696 - -
------------------------ --------- --------- --------- --------- --------- ---------
EPRA net assets 744,936 687,061 688,462 609,630 564,934 563,796
------------------------ --------- --------- --------- --------- --------- ---------
EPRA net assets (pence
per share) 120.1 110.8 111.0 119.2 110.4 110.2
------------------------ --------- --------- --------- --------- --------- ---------
7. Dividends
Dividends paid as distributions to equity shareholders during
the period.
For the six For the six
month period month period
ended ended
31 December 31 December
2021 2020
Pence GBP'000 Pence GBP'000
----------------------------------- ------ -------- ------ --------
Fourth interim dividend for prior
year 1.68 8,594 1.67 7,640
First interim dividend 1.69 10,482 1.68 7,686
Total 3.37 19,076 3.35 15,326
----------------------------------- ------ -------- ------ --------
A second interim dividend for the year to 30 June 2022, of 1.69
pence per share, was paid on 25 February 2022 to shareholders on
the register on 11 February 2022.
8. Investment properties
As at
31 December
2021
Freehold and Leasehold Properties GBP'000
---------------------------------------------- -------------
Opening market value 677,525
Opening fixed or guaranteed rent reviews
and lease incentives (47,919)
----------------------------------------------- -------------
Opening carrying value 629,606
----------------------------------------------- -------------
Purchases 171,200
Acquisition costs capitalised 8,600
Acquisition costs written off (8,600)
Revaluation movement - gains 18,937
Revaluation movement - losses (4,528)
----------------------------------------------- -------------
Movement in market value 185,609
Movement in fixed or guaranteed rent reviews
and lease incentives (4,938)
----------------------------------------------- -------------
Movement in carrying value 180,671
Closing market value 863,134
Closing fixed or guaranteed rent reviews
and lease incentives (52,857)
----------------------------------------------- -------------
Closing carrying value 810,277
The investment properties can be analysed as follows:
As at As at
31 December 30 June
2021 2021
GBP'000 GBP'000
-------------------------------------------- ------------- ---------
Standing assets 850,324 655,175
Developments under forward fund agreements 12,810 22,350
-------------------------------------------- ------------- ---------
Closing market value 863,134 677,525
-------------------------------------------- ------------- ---------
Changes in the valuation of investment For the six For the six
properties month period month period
ended ended
31 December 31 December
2021 2020
GBP'000 GBP'000
----------------------------------------------- -------------- --------------
Revaluation movement 14,409 6,597
Acquisition costs written off (8,600) (979)
Movement in lease incentives (423) (757)
Movement in fixed or guaranteed rent reviews (4,515) (4,554)
----------------------------------------------- -------------- --------------
Gains on revaluation of investment properties 871 307
----------------------------------------------- -------------- --------------
The investment properties were valued at GBP863,134,000 (30 June
2021: GBP677,525,000) by Colliers International Healthcare Property
Consultants Limited ('Colliers'), in their capacity as external
valuers. The valuation was undertaken in accordance with the RICS
Valuation - Professional 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. Market Value
represents the estimated amount for which a property should
exchange on the date of valuation between a willing buyer and a
willing seller in an arm's length transaction after proper
marketing wherein the parties had each acted knowledgeably,
prudently and without compulsion.
8. Investment properties (continued)
The fair value of the properties after adjusting for the
movement in the fixed or guaranteed rent reviews and lease
incentives was GBP810,277,000 (30 June 2021: GBP629,606,000). The
adjustment consisted of GBP46,464,000 (30 June 2021: GBP41,949,000)
relating to fixed or guaranteed rent reviews and GBP6,393,000 (30
June 2021: GBP5,970,000) 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 financial statements as non-current and current
assets within 'trade and other receivables' (see note 10).
The Group is required to classify fair value measurements of its
investment properties using a fair value hierarchy, in accordance
with IFRS 13 'Fair Value Measurement'. This hierarchy reflects the
subjectivity of the inputs used, and has the following levels:
-- Level 1: unadjusted quoted prices in active markets for
identical assets or liabilities that the entity can access at the
measurement date;
-- Level 2: observable inputs other than quoted prices included
within level 1;
-- Level 3: use of inputs that are not based on observable
market data.
The Group's investment properties are valued by Colliers on a
quarterly basis. The valuation methodology used is the yield model,
which is a consistent basis for the valuation of investment
properties within the healthcare industry. This model has regard to
the current investment market and evidence of investor interest in
properties with income streams secured on healthcare businesses. On
an asset-specific basis, the valuer makes an assessment of: the
quality of the asset; recent and current performance of the asset;
and the financial position and performance of the tenant operator.
This asset specific information is used alongside a review of
comparable transactions in the market and an investment yield is
applied to the asset which, along with the contracted rental level,
is used to derive a market value.
In determining what level of the fair value hierarchy to
classify the Group's investments within, the Directors have
considered the content and conclusion of the position paper on IFRS
13 prepared by the European Public Real Estate Association
('EPRA'), the representative body of the publicly listed real
estate industry in Europe. This paper concludes that, even in the
most transparent and liquid markets, it is likely that valuers of
investment property will use one or more significant unobservable
inputs or make at least one significant adjustment to an observable
input, resulting in the vast majority of investment properties
being classified as level 3.
Observable market data is considered to be that which is readily
available, regularly distributed or updated, reliable and
verifiable, not proprietary, and provided by independent sources
that are actively involved in the relevant market. In arriving at
the valuation Colliers make adjustments to observable data of
similar properties and transactions to determine the fair value of
a property and this involves the use of considerable judgement.
Considering the Group's specific valuation process, industry
guidance, and the level of judgement required in the valuation
process, the Directors believe it appropriate to classify the
Group's investment properties within level 3 of the fair value
hierarchy.
The Group's investment properties, which are all care homes, are
considered to be a single class of assets. The weighted average net
initial yield ('NIY') on these assets, as measured by the EPRA
topped-up net initial yield, is 5.8%. The yield on the majority of
the individual assets ranges from 5.0 per cent to 8.6 per cent.
There have been no changes to the valuation technique used through
the period, nor have there been any transfers between levels.
The key unobservable inputs made in determining the fair values
are:
-- Contracted rental level: The rent payable under the lease
agreement at the date of valuation or, where applicable, on expiry
of the rent free period; and
-- Yield: The yield is defined as the initial net income from a
property at the date of valuation, expressed as a percentage of the
gross purchase price including the costs of purchase.
8. Investment properties (continued)
The contracted rental level and yield are not directly
correlated although they may be influenced by similar factors. Rent
is set at a long-term, supportable level and is likely to be
influenced by property-specific matters. The yield also reflects
market sentiment and the strength of the covenant provided by the
tenant, with a stronger covenant attracting a lower yield.
The lease agreements on the properties held within the Group's
property portfolio generally allow for annual increases in the
contracted rental level in line with inflation, within a cap and a
collar. An increase of 1.0 per cent in the contracted rental level
will increase the fair value of the portfolio, and consequently the
Group's reported income from unrealised gains on investments, by
GBP8.6 million (30 June 2021: GBP6.8 million); an equal and
opposite movement would have decreased net assets and decreased the
Group's income by the same amount.
A decrease of 0.25 per cent in the net initial yield applied to
the property portfolio, including properties held for sale, will
increase the fair value of the portfolio by GBP38.8 million (30
June 2021: GBP30.1 million), and consequently increase the Group's
reported income from unrealised gains on investments. An increase
of 0.25 per cent in the net initial yield will decrease the fair
value of the portfolio by GBP35.6 million (30 June 2021: GBP27.7
million) and reduce the Group's income.
9. Properties held for sale
As at
31 December
2021
GBP'000
-------------------- -------------
Opening fair value 7,320
Closing fair value 7,320
--------------------- -------------
The properties held for sale were valued at GBP7,320,000 (30
June 2021: GBP7,320,000) 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. The apartments are being
actively marketed, with one being sold subsequent to the period
end.
10. Trade and other receivables
As at As at
31 December 30 June
2021 2021
Non-current trade and other receivables GBP'000 GBP'000
-------------------------------------------- ------------- ---------
Fixed rent reviews 46,464 41,949
Rental deposits held in escrow for tenants 7,302 6,840
Lease incentives 6,203 5,791
-------------------------------------------- ------------- ---------
Total 59,969 54,580
-------------------------------------------- ------------- ---------
As at As at
31 December 30 June
2021 2021
Current trade and other receivables GBP'000 GBP'000
----------------------------------------------- ------------- ---------
Cash held as security in relation to the 7,601 -
bank loan
Cash held in escrow for property acquisitions 6,700 -
Lease incentives 190 179
VAT recoverable 572 732
Accrued income - rent receivable 650 955
Accrued development interest under forward
fund agreements 306 739
Other debtors and prepayments 2,998 2,926
----------------------------------------------- ------------- ---------
Total 19,017 5,531
----------------------------------------------- ------------- ---------
11. Investment in subsidiary undertakings
The Group included 55 subsidiary companies as at 31 December
2021. 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 which are
incorporated in Gibraltar and two subsidiaries which are
incorporated in Luxembourg, all subsidiaries are incorporated
within the United Kingdom.
During the period, the Group incorporated five new subsidiaries;
THR Number 41 Limited, THR Number 42 Limited, THR Number 43 plc,
THR Number 45 Limited and THR Number 46 Limited, which are each
incorporated in England & Wales.
The Group includes eight dormant companies which were acquired
as part of previous corporate acquisitions. These companies were
placed into liquidation during the period and are expected to be
dissolved shortly.
12. Bank loans
As at As at
31 December 30 June
2021 2021
GBP'000 GBP'000
------------------------------- ------------- ---------
Principal amounts outstanding 222,750 130,000
Set-up costs (4,276) (2,476)
Amortisation of set-up costs 635 380
------------------------------- ------------- ---------
Total 219,109 127,904
------------------------------- ------------- ---------
The Group has entered into a 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 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 GBP20.0 million of any undrawn element of the facility,
reducing to 1.05 per cent per annum thereafter. As at 31 December
2021, the Group had drawn GBP50.0 million under this facility (30
June 2021: GBP30.0 million).
The Group has entered into a GBP100.0 million revolving credit
facility with HSBC Bank plc ('HSBC') which is repayable in November
2024, with the option of a one-year extension 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. As at 31 December 2021, the Group had drawn GBP22.75
million under this facility (30 June 2021: GBP50.0 million).
The Group has a GBP50.0 million committed term loan facility
with ReAssure which is repayable on 12 January 2032. During the
period, the Group entered into further committed term loan
facilities of GBP37.25 million, also repayable on 12 January 2032,
and of GBP62.75 million, which is repayable on 12 January 2037.
Interest accrues on these three loans at aggregate annual fixed
rates of interest of 3.28 per cent, 3.13 per cent and 3.14 per
cent, respectively and is payable quarterly. As at 31 December
2021, the Group had drawn GBP150.0 million under these facilities
(30 June 2021: GBP50.0 million).
The following interest rate swap was in place during the period
ended 31 December 2021:
Notional Starting Ending Date Interest Interest received Counterparty
Value Date paid
Daily compounded
5 November 5 November SONIA (floor at
30,000,000 2020 2025 0.30% -0.08%) RBS
----------- ------------ --------- ------------------ -------------
12. Bank loans (continued)
At 31 December 2021, inclusive of the interest rate swap, the
interest rate on GBP180.0 million of the Group's borrowings had
been fixed, including the amortisation of arrangement costs, at an
all-in rate of 3.22 per cent per annum until at least November
2025. The remaining GBP140.0 million of debt, of which GBP42.75
million was drawn at 31 December 2021, would, if fully drawn, carry
interest at a variable rate equal to daily compounded 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 swap at 31 December 2021 was
an asset of GBP929,000 (30 June 2021: asset of GBP251,000). The
Group categorises all interest rate swaps as level 2 in the fair
value hierarchy (see note 8).
At 31 December 2021, the nominal value of the Group's loans
equated to GBP222,750,000 (30 June 2021: GBP130,000,000). Excluding
the interest rate swap referred to above, the fair value of these
loans, based on a discounted cashflow using the market rate on the
relevant treasuries plus an estimated margin based on market
conditions at 31 December 2021, totalled, in aggregate,
GBP222,278,000 (30 June 2021: GBP131,389,000). The payment required
to redeem the loans in full, incorporating the terms of the Spens
clause in relation to the ReAssure facilities, would have been
GBP249,742,000 (30 June 2021: GBP139,748,000). 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 five subsidiaries.
The ReAssure loans of GBP50.0 million and GBP37.25 million are
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 eight subsidiaries. The ReAssure loan of
GBP62.75 million is secured by way of a fixed and floating charge
over the majority of the assets of THR Number 43 plc ('THR43'). 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 GBP780 million as at 31 December 2021 (30 June 2021:
GBP526 million).
Under the bank covenants related to the loans, the Group is to
ensure that:
- the loan to value percentage for THR1 Group and THR15 Group
does not exceed 50 per cent;
- the loan to value percentage for THR12 Group and THR43 does
not exceed 60 per cent;
- the interest cover for each of THR1 Group and THR15 Group is
greater than 300 per cent on any calculation date; and
- the debt yield for each of THR12 Group and THR43 is greater
than 10 per cent on any calculation date.
All bank loan covenants have been complied with during the
period.
13. Trade and other payables
As at As at
31 December 30 June
2021 2021
Non-current trade and other payables GBP'000 GBP'000
-------------------------------------- ------------- ---------
Rental deposits 7,302 6,840
Total 7,302 6,840
-------------------------------------- ------------- ---------
As at As at
31 December 30 June
2021 2021
Current trade and other payables GBP'000 GBP'000
-------------------------------------------- ------------- ---------
Rental income received in advance 6,908 5,719
Property acquisition and development costs
accrued 5,676 8,182
Investment Manager's fees payable 1,889 1,551
Interest payable 1,032 969
Other payables 2,253 2,044
-------------------------------------------- ------------- ---------
Total 17,758 18,465
-------------------------------------------- ------------- ---------
13. Trade and other payables (continued)
The Group's payment policy is to ensure settlement of supplier
invoices in accordance with stated terms.
14. Share capital
Allotted, called-up and fully paid ordinary Number of shares GBP'000
shares of GBP0.01 each
--------------------------------------------- ----------------- --------
Balance as at 30 June 2021 511,541,694 5,115
Issued on 9 September 2021 108,695,652 1,087
--------------------------------------------- ----------------- --------
Balance as at 31 December 2021 620,237,346 6,202
--------------------------------------------- ----------------- --------
During the period to 31 December 2021, the Company issued
108,695,652 ordinary shares of GBP0.01 each (period to 31 December
2020: nil) raising gross proceeds of GBP125,000,000. The
consideration in excess of the par value of the ordinary shares
issued, net of the expenses of issue of GBP2,505,000, has been
credited to the share premium account. The Company did not buyback
or resell any ordinary shares (period to 31 December 2020:
nil).
At 31 December 2021, the Company did not hold any shares in
treasury (30 June 2021: nil).
15. Commitments
The Group had capital commitments as follows:
As at As at
31 December 30 June
2021 2021
GBP'000 GBP'000
--------------------------------------------------- ------------- ---------
Amounts due to complete forward fund developments 32,753 21,054
Other capital expenditure commitments 3,858 3,158
--------------------------------------------------- ------------- ---------
Total 36,611 24,212
--------------------------------------------------- ------------- ---------
16. Contingent assets and liabilities
As at 31 December 2021, twelve (30 June 2021: twelve) 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 (30 June 2021: GBP20.03 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 Company
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 31 December 2021 (30 June 2021: GBP1.55 million). 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 to increase accordingly.
17. Related party transactions
The Directors are considered to be related parties to the
Company. No Director has an interest in any transactions which are,
or were, unusual in their nature or significant to the nature of
the Company.
The Directors of the Company received fees for their services.
Total fees for the period were GBP114,000 (period ended 31 December
2020: GBP91,000) of which GBP18,000 (31 December 2020: GBP12,000)
remained payable at the period end.
The Investment Manager received GBP3,553,000 (inclusive of
estimated irrecoverable VAT) in management fees in relation to the
period ended 31 December 2021 (period ended 31 December 2020:
GBP2,821,000). Of this amount GBP1,889,000 remained payable at the
period end (31 December 2020: GBP1,401,000). The Investment Manager
received a further GBP75,000 (inclusive of irrecoverable VAT)
during the period ended 31 December 2021 (period ended 31 December
2020: GBP73,000) in relation to its appointment as Company
Secretary and Administrator, of which GBP38,000 (31 December 2020:
GBP36,000) remained payable at the period 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.
18. 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 is the EPRA NTA. The reconciliation between the NAV, as
calculated under IFRS, and the EPRA NTA is detailed in note 6.
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.
19. Post balance sheet event
On 7 January 2022, the Group completed the acquisition of a
modern, purpose-built care home in Westhoughton, greater
Manchester, for GBP7.2 million including acquisition costs. The
home has been trading for seven years with an attractive track
record of care/service, occupancy and profitability. It will be
operated by Harbour Healthcare, new to the home and a new tenant to
the Group, and comprises 55 bedrooms with full en suite facilities.
The property is leased on a 35-year term with RPI-linked increases,
subject to a cap and collar. The majority of the monies required to
complete this transaction was held in escrow at 31 December 2021
(see note 10).
20. Interim Report Statement
These are not full statutory accounts in terms of Section 434 of
the Companies Act 2006 and are unaudited. Statutory accounts for
the Company for the year ended 30 June 2021, which received an
unqualified audit report and which did not contain a statement
under Section 498 of the Companies Act 2006, have been lodged with
the Registrar of Companies. No full statutory accounts, for either
the Company or Group, in respect of any period after 30 June 2021
have been reported on by the Company's auditor or delivered to the
Registrar of Companies.
The Interim Report and Condensed Consolidated Financial
Statements for the six months ended 31 December 2021 will be posted
to shareholders and made available on the website:
www.targethealthcarereit.co.uk . Copies may also be obtained from
the Company Secretary, Target Fund Managers Limited, 1st Floor,
Glendevon House, Castle Business Park, Stirling FK9 4TZ.
D irectors' Statement of Principal Risks and Uncertainties
The risks, and the way in which they are managed, are described
in more detail in the Strategic Report within the Annual Report and
Financial Statements for the year to 30 June 2021. The Board has
also concluded that the recent increase in the rate of UK-inflation
has raised the risk that this represents for the Group. This has
therefore been re-assessed as constituting an additional principal
risk, rated as medium. This risk is partially mitigated by the fact
that the property lease agreements generally allow for a regular
increase in the contracted rental level in line with inflation,
either within a cap and a collar, or at a fixed level. However,
should UK-inflation be at a level in excess of this cap, whilst
this may improve the tenants' level of rent cover, the increase in
the Group's overall rental income may not be entirely commensurate
with the level of inflation.
Other than the above, and as disclosed in the Chairman's
Statement and Investment Manager's Report, the Group's principal
risks and uncertainties have not changed materially since the date
of the report and are not expected to change materially for the
remainder of the Group's financial year.
Statement of Directors' Responsibilities in Respect of the
Interim Report
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 'Interim Financial Reporting' and gives a
true and fair view of the assets, liabilities, financial position
and profit of the Group;
-- the Chairman's Statement and Investment Manager's Report
(together constituting the Interim Management Report) include a
fair review of the information required by the Disclosure Guidance
and Transparency Rules ('DTR') 4.2.7R, being an indication of
important events that have occurred during the period and their
impact on the financial statements;
-- the Statement of Principal Risks and Uncertainties referred
to above is a fair review of the information required by DTR
4.2.7R; and
-- the condensed set of financial statements includes a fair
review of the information required by DTR 4.2.8R, being related
party transactions that have taken place in the period and that
have materially affected the financial position or performance of
the Group during the period.
On behalf of the Board
Malcolm Naish
Chairman
15 March 2022
Independent Review Report to Target Healthcare REIT plc
Introduction
We have been engaged by Target Healthcare REIT plc ("the
Company") to review the condensed consolidated set of financial
statements in the Interim Report and Financial Statements for the
six months ended 31 December 2021 which comprises the Condensed
Consolidated Statement of Comprehensive Income, Condensed
Consolidated Statement of Financial Position, Condensed
Consolidated Statement of Changes in Equity, Condensed Consolidated
Statement of Cash Flows and the related notes 1 to 20 to the
Condensed Consolidated Financial Statements. We have read the other
information contained in the Interim Report and Financial
Statements and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed consolidated set of financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated set of
financial statements in the Interim Report and Financial Statements
for the six months ended 31 December 2021 is not prepared, in all
material respects, in accordance with UK adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK and Ireland) 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the
Group will be prepared in accordance with UK adopted international
accounting standards. The condensed set of consolidated financial
statements included in this Interim Report and Financial Statements
has been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting'.
Responsibilities of the Directors
The Directors are responsible for preparing the Interim Report
and Financial Statements in accordance with the Disclosure Guidance
and Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Auditor's Responsibilities for the Review of the Financial
Information
In reviewing the Interim Report and Financial Statements, we are
responsible for expressing to the Company a conclusion on the
condensed consolidated set of financial statements in the Interim
Report and Financial Statements. Our conclusion is based on
procedures that are less extensive than audit procedures, as
described in the Basis for Conclusion paragraph of this report.
Use of our Report
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
Edinburgh
15 March 2022
Glossary of Terms and Definitions
Contractual The annual rental income receivable on a property
Rent as at the balance sheet date, adjusted for the inclusion
of rent currently subject to a rent free period.
Discount/ The amount by which the market price per share of
Premium* a Closed-end Investment Company is lower or higher
than the net asset value per share. The discount
or premium is expressed as a percentage of the net
asset value per share.
Dividend Cover* The absolute value of Group specific adjusted EPRA
Earnings divided by the absolute value of dividends
relating to the period of calculation.
Dividend Yield* The annual Dividend expressed as a percentage of
the share price at the date of calculation.
EPRA Cost Reflects the relevant overhead and operating costs
Ratio* of the business. It is calculated by expressing
the sum of property expenses (net of service charge
recoveries and third-party asset management fees)
and administration expenses (excluding exceptional
items) as a percentage of gross rental income.
EPRA Group The EPRA Cost Ratio adjusted for items thought appropriate
specific adjusted for the Group's specific business model. The adjustments
Cost Ratio* made are consistent with those made to the Group
specific adjusted EPRA earnings as detailed in note
6.
EPRA Earnings Recurring earnings from core operational activities.
per Share* A key measure of a company's underlying operating
results from its property rental business and an
indication of the extent to which current dividend
payments are supported by earnings. A reconciliation
of the earnings per IFRS and the EPRA earnings,
including any items specific to the Group, is contained
in note 6.
EPRA Net Disposal A measure of Net Asset Value which represents the
Value ('NDV')* 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.
EPRA Net Reinstatement A measure of Net Asset Value which assumes that
Value ('NRV')* 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 A measure of Net Asset Value which assumes that
Assets ('NTA')* entities buy and sell assets, thereby crystallising
certain levels of unavoidable deferred tax.
EPRA Net Initial Annualised rental income based on the cash rents
Yield* 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. EPRA's purpose is to provide
a comparable measure around Europe for portfolio
valuations.
EPRA Topped-up Incorporates an adjustment to the EPRA Net Initial
Net Initial Yield in respect of the expiration of rent-free
Yield* periods (or other unexpired lease incentives).
Loan-to-Value A measure of the Group's Gearing level. Gross LTV
('LTV')* is calculated as total gross debt as a proportion
of gross property value. Net LTV is calculated as
total gross debt less cash (including any cash held
as security in relation to the debt facilities)
as a proportion of gross property value.
Mature Homes Care homes which have been in operation for more
than three years.
Portfolio The annual rental income currently receivable on
or Passing a property as at the balance sheet date, excluding
Rent* rental income where a rent free period is in operation.
The gross rent payable by a tenant at a point in
time.
Rent Cover* A measure of a tenant's ability to meet its rental
liability from the profit generated by their underlying
operations. Generally calculated as the tenant's
EBITDARM (earnings before interest, taxes, depreciation,
amortisation, rent and management fees) divided
by the contracted rent.
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.
WAULT* Weighted average unexpired lease term. The average
lease term remaining to expiry across the portfolio
weighted by contracted rental income.
* Alternative Performance Measure
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 above, with detailed calculations, including
reconciliation to the IFRS figures where appropriate, being set out
below.
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.
31 December 30 June
2021 2021
pence pence
------------------------------------ ----------- ------------ --------
EPRA Net Tangible Assets per share
(see note 6) (a) 110.8 110.4
Share price (b) 118.0 115.4
------------------------------------ ----------- ------------ --------
Premium = (b-a)/a 6.5% 4.5%
------------------------------------ ----------- ------------ --------
Dividend Cover - the percentage by which Group specific adjusted
EPRA earnings for the period cover the dividend paid.
Period ended Period ended
31 December 31 December
2021 2020
GBP'000 GBP'000
------------------------------------------ --------- ------------- -------------
Group-specific EPRA earnings for the
period (see note 6) (a) 13,657 12,176
First interim dividend 10,482 7,686
Second interim dividend 10,482 7,686
Dividends paid in relation to the period (b) 20,964 15,372
Dividend cover = (a/b) 65% 79%
------------------------------------------ --------- ------------- -------------
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. The Group did not have any
vacant properties during the periods and therefore separate
measures excluding direct vacancy costs are not presented.
Consistent with the Group specific adjusted EPRA earnings detailed
in note 6 to the Condensed 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.
Period ended Period ended
31 December 31 December
2021 2020
GBP'000 GBP'000
------------------------------------------ ----------- ------------- -------------
Investment management fee 3,553 2,821
Credit loss allowance and bad debts
written off 1,073 1,940
Other expenses 1,558 1,230
------------------------------------------------------- ------------- -------------
EPRA costs (a) 6,184 5,991
Specific cost adjustments, if applicable - -
------------------------------------------ ----------- ------------- -------------
Group specific adjusted EPRA costs (b) 6,184 5,991
------------------------------------------ ----------- ------------- -------------
Gross rental income per IFRS (c) 26,510 24,868
Adjusted for rental income arising
from recognising guaranteed rent review
uplifts and lease incentives (4,515) (4,554)
Adjusted for development interest
under forward fund arrangements 335 212
Group specific adjusted gross rental
income (d) 22,330 20,526
EPRA Cost Ratio (including direct
vacancy costs) = (a/c) 23.3% 24.1%
EPRA Group specific adjusted Cost
Ratio (including direct vacancy costs) = (b/d) 27.7% 29.2%
------------------------------------------ ----------- ------------- -------------
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).
31 December 30 June
2021 2021
GBP'000 GBP'000
----------------------------------------- --------- ------------ ----------
Annualised passing rental income based
on cash rents (a) 51,069 40,763
Notional rent expiration of rent-free
periods or other lease incentives 2,358 450
---------------------------------------------------- ------------ ----------
Topped-up net annualised rent (b) 53,427 41,213
----------------------------------------- --------- ------------ ----------
Standing assets including properties
held for sale (see notes 8 and 9) 857,644 662,495
Allowance for estimated purchasers'
costs 57,875 44,696
---------------------------------------------------- ------------ ----------
Grossed-up completed property portfolio
valuation (c) 915,519 707,191
----------------------------------------- --------- ------------ ----------
EPRA Net Initial Yield = (a/c) 5.58% 5.76%
EPRA Topped-up Net Initial Yield = (b/c) 5.84% 5.83%
----------------------------------------- --------- ------------ ----------
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.
Period ended Period ended
31 December 2021 31 December 2020
-------------------------- --------- ------------------------------- -------------------------------
EPRA IFRS Share EPRA IFRS Share
NTA NAV price NTA NAV price
(pence) (pence) (pence) (pence) (pence) (pence)
-------------------------- --------- --------- --------- --------- --------- --------- ---------
Value at start of period (a) 110.4 110.5 115.4 108.1 108.0 110.0
Value at end of period (b) 110.8 110.9 118.0 108.2 108.1 114.0
-------------------------- --------- --------- --------- --------- --------- --------- ---------
Change in value during
period (b-a) (c) 0.4 0.4 2.6 0.1 0.1 4.0
Dividends paid (d) 3.4 3.4 3.4 3.4 3.4 3.4
Additional impact of
dividend reinvestment (e) (0.1) - - - - 0.1
-------------------------- --------- --------- --------- --------- --------- --------- ---------
Total gain in period
(c+d+e) (f) 3.7 3.8 6.0 3.5 3.5 7.5
-------------------------- --------- --------- --------- --------- --------- --------- ---------
Total return for the
period = (f/a) 3.4% 3.5% 5.2% 3.3% 3.3% 6.8%
-------------------------- --------- --------- --------- --------- --------- --------- ---------
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END
IR FFFLLVIIELIF
(END) Dow Jones Newswires
March 16, 2022 03:00 ET (07:00 GMT)
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