TIDMTHRL
RNS Number : 3707K
Target Healthcare REIT PLC
05 May 2022
5 May 2022
Target Healthcare REIT plc and its subsidiaries
("Target Healthcare" or "the Group")
Net Asset Value, update on corporate activity and dividend
declaration
Target Healthcare (LSE: THRL), the UK listed specialist investor
in modern, purpose-built care homes, announces its unaudited
quarterly Net Asset Value ('NAV') as at 31 March 2022, together
with an update on corporate activity, and declares its third
interim dividend for the year ending 30 June 2022.
Corporate activity highlights
Increasing scale and diversification driving strong earnings
growth
-- EPRA Net Tangible Assets ('NTA') per share increased by 0.9%
to 111.8 pence (31 December 2021: 110.8 pence), primarily
reflecting valuation uplifts across the portfolio driven by
inflation-linked annual rental uplifts and modest yield
compression
-- NAV total return of 2.5% for the quarter (based on EPRA NTA and including dividend)
o 34% increase in Adjusted EPRA earnings to GBP9.0 million from
GBP6.7 million, reflecting a full quarter's rental income from the
portfolio acquired during the prior quarter and one-off rental
income of GBP0.8 million arising from successful re-tenanting
-- Two acquisitions, including one completed post period end,
for a total investment of GBP23 million
-- Low Net Loan to Value of 20.3% (31 December 2021: 20.7%)
-- Available investible capital (comprising cash and undrawn
debt) at 30 April 2022 of GBP67 million, fully allocated to
pipeline deals in diligence
Valuation growth continues, given attractiveness of portfolio of
high quality, modern real estate with strong ESG credentials &
long duration RPI-linked leases.
-- Diversified portfolio of 99 assets let to 33 tenants and valued at GBP886.8 million
o 1.1% like-for-like valuation increase of the operational
portfolio; 0.7% from rent reviews and 0.4% from continued yield
compression
o Social impact from real estate which best serves care
providers and their underlying residents; strong ESG credentials -
92% of the portfolio A or B EPC rated
o Portfolio EPRA "topped-up" net initial yield of 5.82% (31
December 2021: 5.84%)
-- Rental growth from inflation-linked, annual rent reviews,
with 20 rent reviews completed at an average uplift of 3.9% per
annum average, contributing to a 0.7% increase in like-for-like
contracted rent
-- 1.2% overall increase in contracted rent roll, including acquisitions and asset management
-- Weighted average unexpired lease terms of 27.3 years, one of
the longest within the listed real estate sector (31 December 2021:
27.5 years)
-- Demand for our portfolio as an investment asset class
continues, evidenced by the modest tightening of valuation yields
and the competitive market for modern care homes. Strong demand for
the Group's assets from tenant operators has been confirmed as the
Manager actively re-tenants homes from two tenants whose resilience
has been stretched following restrictions during the most recent
COVID-19 Omicron wave. These comprehensive asset management
initiatives in progress will help to alleviate the impact on recent
rent collection, which, up to today's date, was 92% for the
quarter.
-- Successful re-tenanting of a group of four homes completed in
the quarter from a large national operator to a local operator, who
is better positioned to provide successful future trading.
Financial terms are accretive to returns, with a lease surrender
premium received to reflect the revised lease terms and the
incoming tenant covenant.
Dividend
-- Third interim dividend of 1.69 pence per share declared for
the year ending 30 June 2022, representing an increase of 0.6% on
the FY 2021 quarterly dividends. On an annualised basis, this
reflects a payment of 6.76 pence per share and a dividend yield of
6.2% based on the closing share price of 109.2 pence on 4 May
2022.
Kenneth MacKenzie, CEO of Target Fund Managers, commented:
"The significant earnings increase we have reported supports our
progression towards full dividend cover, which will be further
enhanced as we convert on our remaining investment pipeline, our
development portfolio comes on stream and as we reallocate amongst
interested parties a small proportion of our in-demand real
estate.
"The social impact of providing high quality, modern care home
real estate should not be underestimated. It is fundamental to why
this Company exists and we will not compromise on the physical
standard of care homes we invest in. Our convictions in this area
also impact our choice of tenants; it is part of our mission to
support the sector's modernisation and future through backing
progressive care providers. We have seen the latter stages of
COVID-19 as being particularly challenging for such businesses,
where the recovery in private-fee occupancy has generally lagged
that of homes which have a higher rate of publicly funded
residents. Tenants who have diligently paid rent in full for two
years, whilst managing multiple immature homes, have now found
themselves stretched. We have a tried-and-tested approach to
protecting value and ensuring stability of operations at our homes
which we are implementing.
"The fundamentals propelling the sector, including demographics
and the paucity of supply of modern real estate, remain strong.
Resident occupancy across the portfolio is recovering once more,
following the Omicron wave, and our tenants continue to report
strong demand from potential new residents and some easing of
staffing challenges."
Net Total Assets
The Group's unaudited EPRA NTA per share as at 31 March 2022 was
111.8 pence. The total return for the quarter based on EPRA NTA was
2.5%.
A balance sheet summary and an analysis of the movement in the
EPRA NTA over the quarter is presented at the end of this
announcement in the Appendix.
Corporate Update
Portfolio performance
As at 31 March 2022, the Group's portfolio was valued at
GBP886.8 million and comprised 99 properties, consisting of 95
operational care homes and four pre-let sites, which are being
developed through capped forward funding commitments with
established development partners.
The portfolio value increased by 1.9% over the quarter. This
comprised a 0.8% increase resulting from acquisitions, 1.1% from a
like-for-like uplift in the operational portfolio value and a net
neutral impact from further investment into the development
portfolio, capital expenditure and the re-tenanting impact on
existing assets. The like-for-like movement primarily reflects the
portfolio's inflation-linked rental reviews as well as continued
modest yield compression in the investment market for modern,
purpose-built care homes.
Contractual rent increased by 1.2% over the period,
comprising:
-- 0.8% from acquisitions
-- 0.7% from 20 inflation-linked upwards-only rent reviews, with an average uplift of 3.9%
-- (0.3%) from asset management initiatives
The portfolio's weighted average unexpired lease term was 27.3
years (31 December 2021: 27.5 years).
The portfolio had an EPRA topped-up net initial yield of 5.82%
based on an annualised contractual rent of GBP54.1 million. The
portfolio's EPRA net initial yield was 5.35% with 10 assets in
rent-free periods.
Acquisitions and other asset management
-- One acquisition completed during the quarter and one
subsequent to the quarter-end, adding an operational home and a
development site, for a total commitment of GBP23 million,
including costs:
o As previously announced, on 7 January 2022 the Group acquired
a 55-bed modern, purpose-built operational care home in
Westhoughton, greater Manchester. This is let to Harbour
Healthcare, a new tenant to the Group, on a 35 year, fully
repairing and insuring, occupational lease with annual,
upwards-only RPI-linked increases, subject to a cap and collar.
o Subsequent to the quarter end, on 28 April 2022, the Group
acquired a development site in Dartford, Kent. This, the Group's
one hundredth asset, will add a further 71 modern, en suite
wet-rooms by September 2023 by virtue of a capped development
agreement and is pre-let on a lease typical of the portfolio, being
long-term with annual, upwards-only RPI-linked rent reviews,
subject to a cap and collar.
-- The re-tenanting of four homes in Northern Ireland completed
in the period, moving from a large, national operator to a smaller
operator more focussed in that local market, in line with the Group
strategy. A surrender premium was received from the outgoing tenant
to reflect the rental incentives for the incoming tenant and the
lease change impact on asset valuations. The Group will benefit
from (i) a positive net financial effect, following agreed capex to
each of the homes; and (ii) the addition of an established regional
operator.
Debt facilities and swap arrangements
As at 31 March 2022, the Group's total borrowings were GBP223
million, giving a net LTV of 20.3% (total gross debt less cash, as
a proportion of gross property value). The Group's weighted average
cost on its drawn debt, inclusive of amortisation of arrangement
costs, was 3.20% (31 December 2021: 3.09%). The increase over the
quarter was due to the impact of the change in SONIA on the Group's
revolving credit facilities. The weighted average term to expiry
was 7.2 years (31 December 2021: 7.4 years).
The Group has GBP180 million of fixed term debt facilities and
GBP140 million of revolving credit facilities, with a diversified
mix of maturities and lenders. As at 31 March 2022, the Group had
drawn GBP180 million of fixed term debt, with interest costs fixed,
and GBP43 million under the revolving credit facilities which carry
a variable interest rate linked to SONIA.
Dividends in the period
The Group paid its second interim dividend for the year ending
30 June 2022, in respect of the period from 1 October 2021 to 31
December 2021, of 1.69 pence per share, on 25 February 2022 to
shareholders on the register on 11 February 2022. This distribution
was comprised wholly of a property income distribution (PID).
Valuation
The property portfolio was externally valued at GBP886.8 million
at 31 March 2022.
Announcement of third interim dividend
The Company today declares its third interim dividend for the
year ending 30 June 2022, in respect of the period from 1 January
2022 to 31 March 2022, of 1.69 pence per share as detailed in the
schedule below:
Interim Property Income Distribution (PID): 1.69 pence per share
Ex-Dividend Date: 12 May 2022
Record Date: 13 May 2022
Payment Date: 27 May 2022
The dividend reflects an annualised payment of 6.76 pence per
share and a dividend yield of 6.2% based on the 4 May 2022 closing
share price of 109.2 pence.
The Company had 620,237,346 ordinary shares in issue at 31 March
2022 and has not issued or bought back any shares since that
date.
Shareholders entitled to elect to receive distributions without
deduction for withholding tax may complete the declaration form
which is available on request from the Company through the contact
details provided on its website www.targethealthcarereit.co.uk , or
from the Company's registrar. Shareholders who qualify for gross
payments are, principally, UK resident companies, certain UK public
bodies, UK charities, UK pension schemes and the managers of ISAs,
PEPs and Child Trust Funds, in each case subject to certain
conditions. Individuals and non-UK residents do not qualify for
gross payments of distributions and should not complete the
declaration form.
LEI: 213800RXPY9WULUSBC04
ENDS
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 March 2022 comprised 99 assets let
to 33 tenants with a total value of GBP886.8 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.
Important information
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the UK version of the Market Abuse Regulations (EU) No. 596/2014,
which is part of UK law by virtue of the European Union
(Withdrawal) Act 2018, as amended. Upon the publication of this
announcement via Regulatory Information Service, this inside
information is now considered to be in the public domain.
APPENDIX
1. Analysis of movement in EPRA NTA
The following table provides an analysis of the movement in the
unaudited EPRA NTA per share for the period from 1 January 2022 to
31 March 2022:
Pence per share
----------------
EPRA NTA per share as at 31 December 2021 110.8
Revaluation gains / (losses) on investment
properties 1.4
Net Revaluation gains / (losses) on assets
under construction^ (0.1)
Net impact of acquisition costs -
Movement in revenue reserve 1.4
Second interim dividend payment for the
year ended 30 June 2022 (1.7)
-------------------------------------------- ----------------
EPRA NTA per share as at 31 March 2022 111.8
-------------------------------------------- ----------------
Percentage change in the quarter 0.9%
-------------------------------------------- ----------------
The EPRA Best Practices Recommendations Guidelines state that
companies should publish a set of three NAV metrics. The full set
of EPRA NAV metrics are published in the Group's Annual Report. The
Company intends to continue to announce the EPRA NTA on a quarterly
basis.
At 31 March 2022, due to the valuation ascribed to the Group's
interest rate derivative contract used to hedge its exposure to
variable interest rates, which is excluded from the calculation of
the EPRA NTA, the NAV calculated under International Financial
Reporting Standards was 112.1 pence per share.
^Consistent with standard valuation practice for assets under
construction, the carrying value of these assets is calculated by
the valuer through application of a discount to accumulated costs
to date. This discount varies depending on factors such as the
remaining development time. As the asset progresses towards
completion, the discount that has been applied is unwound.
2. Summary balance sheet (unaudited)
Mar-22 Dec-21 Sept-21 Jun-21
GBPm GBPm GBPm GBPm
Property portfolio* 886.8 870.5 702.7 684.8
Cash 42.8 49.0 72.8 21.1
Net current assets / (liabilities)* (13.4) (9.6) (4.9) (11.0)
Bank loans (222.8) (222.8) (80.0) (130.0)
-------- -------- -------- --------
Net assets 693.4 687.1 690.6 564.9
-------- -------- -------- --------
EPRA NTA per share (pence) 111.8 110.8 111.3 110.4
*Properties within the portfolio are stated at the market value
provided by the external valuer and the IFRS effects of
fixed/guaranteed minimum rent reviews are not reflected.
The next quarterly valuation of the property portfolio will be
conducted by Colliers International Healthcare Property Consultants
Limited during July 2022 and the unaudited EPRA NTA per share as at
30 June 2022 is expected to be announced in July 2022.
3. EPRA NIY profiles and unwind of rent-free periods
The Group currently has 10 assets with rent-free periods. As
these unwind, assuming no other changes including inter alia the
portfolio valuation or rental profile, the EPRA yield profiles for
the portfolio will be as follows:
31 March 30 June 30 September 31 December 31 March
2022 2022 2022 2022 2023
EPRA topped-up
NIY 5.82% 5.82% 5.82% 5.82% 5.82%
--------- -------- ------------ ----------- --------
EPRA NIY 5.35% 5.50% 5.72% 5.78% 5.82%
--------- -------- ------------ ----------- --------
Contractual rent
(GBPm) 54.1 54.1 54.1 54.1 54.1
--------- -------- ------------ ----------- --------
Passing rent
(GBPm) 49.7 51.1 53.1 53.7 54.1
--------- -------- ------------ ----------- --------
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END
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