TIDMTHRL
RNS Number : 8552U
Target Healthcare REIT PLC
04 August 2022
4 August 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 30 June 2022, together with
an update on corporate activity, and declares its fourth interim
dividend for the year ended 30 June 2022.
Corporate activity highlights
FTSE 250 inclusion; low LTV with drawn debt largely fixed rate
& long-term; further rent & valuation growth:
-- EPRA Net Tangible Assets ('NTA') per share increased by 0.4%
to 112.3 pence (31 March 2022: 111.8 pence), primarily reflecting
valuation uplifts across the portfolio driven by inflation-linked
annual rental uplifts
-- NAV total return of 2.0% for the quarter (based on EPRA NTA and including dividend)
-- FTSE 250 inclusion effected from 20 June 2022 following the
quarterly review, reflecting (i) patient yet regular growth in
portfolio/company scale to date and (ii) stable, non-cyclical
returns, relative to volatility elsewhere, from modern real estate
portfolio benefitting from supportive long-term trends
-- Low Net Loan to Value of 22.0% (31 March 2022: 20.3%) with
GBP180 million of the GBP235 million of drawn debt at fixed
interest rates
-- Available investible capital comprising cash and undrawn debt
facilities at 3 August 2022 of GBP49 million, fully allocated but
not yet contractually committed to pipeline deals
-- Rental growth from inflation-linked, annual rent reviews,
with 23 rent reviews completed at an average uplift of 3.8% per
annum average, contributing to a 1.0% increase in like-for-like
contracted rent
Modern portfolio with strong ESG credentials & RPI-linked
leases; strong investment demand for asset class; occupancy &
trading improvements underway across the portfolio, with
well-advanced initiatives regarding remaining COVID-19 affected
assets:
-- Diversified portfolio of 101 assets let to 34 tenants and valued at GBP911.6 million
o 0.9% like-for-like valuation increase of the operational
portfolio driven primarily by rent reviews
o Social impact from real estate which best serves care
providers and the residents they look after; strong ESG credentials
- 92% of the portfolio is A or B EPC rated, and 2030 compliant with
minimum energy efficiency standards
o Portfolio EPRA "topped-up" net initial yield of 5.82% (31
March 2022: 5.82%)
-- 2.6% overall increase in contracted rent roll, including
acquisitions and asset management initiatives
-- Weighted average unexpired lease term of 27.2 years remains
one of the longest within the listed real estate sector (31 March
2022: 27.3 years)
-- Patient pipeline conversion, with two acquisitions completed
totalling GBP24 million comprising a mature, trading asset and a
development site. Continued investment in development portfolio,
with one site reaching practical completion during the period
-- Programme to re-tenant nine homes from two tenants is
well-progressed, with the re-tenanting of the first home completed
in the quarter. Currently heads of terms are agreed for four homes
and the Manager is close to reaching agreed terms on the remaining
four homes, with completion for all homes expected by the end of
the calendar year, subject to regulatory approval and legal
documentation. These comprehensive initiatives will, in aggregate,
allocate homes providing 8.3% of contractual rent to six
alternative operators, and alleviate the impact on recent rent
collection, which, up to today's date, was 90% for the quarter
Dividend
-- Fourth interim dividend of 1.69 pence per share declared for
the year ended 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 5.9% based on the closing share
price of 115.4 pence on 3 August 2022
Kenneth MacKenzie, CEO of Target Fund Managers, commented:
"Notable milestones this quarter include, the portfolio passing
100 assets and our inclusion in the FTSE 250. We continue to focus
on the favourable long-term prospects for the portfolio,
underpinned by demographic trends, the quality and modernity of our
real estate and the Company's clear environmental and social
impact. We believe we are as future proof as we can be -
environmentally 92% of our portfolio is 2030 compliant, and 100% of
our homes form part of the 29% of the UK care home stock which in
our opinion is socially compliant [1] .
"Resident occupancy levels continue to improve and mature home
occupancy is currently at its highest level since the first wave of
the pandemic in April 2020. Encouragingly, almost all operators are
reporting increased momentum in occupancy growth in recent
weeks.
"The six-month lag in this recovery caused by the Omicron
variant has had a more significant impact on two of our tenants
struggling to grow occupancy and reach operational maturity in the
face of the continued restrictions on admissions in the event of an
outbreak. However, we have a proven record of effecting change when
it is required and are well-advanced in our efforts to reallocate
the homes across a number of alternative operators.
"We therefore see numerous positives: our portfolio's trading
outlook is as encouraging as it has been since March 2020; rent
levels on the assets we are choosing to re-tenant are matching
existing contractual levels; and strong investment demand continues
with multiple bidders for ESG-compliant modern care homes. Market
pricing, by reference to acquisition net initial yields, reflects
these positives and is not correlating with the rising cost of
capital and the negative sentiment of the current macroeconomic
environment. We prefer to be considered at this point and, with the
narrowing spread available on new investments as interest rates and
development costs rise, we believe that cautious deployment of our
available capital is the more prudent path in these uncertain
times. Whilst accepting that this will extend the path to dividend
cover we still anticipate achieving full cover once the Group is
fully invested. We have an excellent portfolio of assets creating
stable long-term income and prefer to be prudent while working
diligently to achieve continued stability and growth."
Net Total Assets
The Group's unaudited EPRA NTA per share as at 30 June 2022 was
112.3 pence. The total return for the quarter based on EPRA NTA was
2.0%.
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 30 June 2022, the Group's portfolio was valued at GBP911.6
million and comprised 101 properties, consisting of 97 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 2.8% over the quarter. This
comprised a 1.1% increase resulting from acquisitions, 0.9% from a
like-for-like uplift in the operational portfolio value and 0.8%
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.
Contractual rent increased by 2.6% over the period,
comprising:
-- 1.6% from acquisitions and the practical completion of development sites
-- 1.0% from 23 inflation-linked upwards-only rent reviews, with an average uplift of 3.8%
The portfolio's weighted average unexpired lease term was 27.2
years (31 March 2022: 27.3 years).
The portfolio had an EPRA topped-up net initial yield of 5.82%
based on an annualised contractual rent of GBP55.5 million. The
portfolio's EPRA net initial yield was 5.38% with 10 assets in
rent-free periods.
Acquisitions and other asset management
During the quarter, the following transactions and asset
management initiatives were completed:
-- On 28 April 2022, as previously announced, the Group acquired
a development site subject to a forward funding agreement to
construct a care home in Dartford, Kent. This 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.
-- On 14 June 2022, the Group completed the acquisition of a
mature, modern, purpose-built care home in Halesowen, West
Midlands. The home has been trading for six years with a strong
record of occupancy, care/service and profitability and will be
operated by a subsidiary of Kingsley Healthcare, an existing tenant
of the Group, following the exit from the market of the previous
operator, a local social housing provider.
-- Practical completion of the Group's development site in
Chesterfield was reached in June 2022, contributing 72 new beds to
the portfolio.
-- In addition, as referred to above, on 30 June 2022 the Group
continued to resolve its position with regard to an existing tenant
who has faced financial challenges as a result of the COVID-19
pandemic, by completing the re-tenanting of one of its homes to a
new tenant to the Group.
Debt facilities and swap arrangements
As at 30 June 2022, the Group's total borrowings were GBP235
million, giving a net LTV of 22.0% (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 3.31% (31 March 2022: 3.20%). The increase over the
quarter was due to the impact of the change in SONIA on the Group's
revolving credit facilities.
GBP180 million of the drawn debt is at fixed-rates, GBP150
million of which is fixed for a weighted average of 11.6 years and
the remaining GBP30 million bank facility is fixed for 3.4 years.
The weighted average interest rate on the Group's fixed-rate
facilities, excluding the amortisation of arrangement fees, is
3.07%. GBP55 million was drawn under revolving credit facilities
which carry a variable interest rate linked to SONIA.
The weighted average term to expiry on the Group's total
committed loan facilities was 6.9 years (31 March 2022: 7.2
years).
Dividends in the period
The Group paid its third interim dividend for the year ended 30
June 2022, in respect of the period from 1 January 2022 to 31 March
2022, of 1.69 pence per share, on 27 May 2022 to shareholders on
the register on 13 May 2022. This distribution was comprised wholly
of a property income distribution (PID).
Valuation
The property portfolio was externally valued at GBP911.6 million
at 30 June 2022.
Announcement of fourth interim dividend
The Company today declares its fourth interim dividend for the
year ended 30 June 2022, in respect of the period from 1 April 2022
to 30 June 2022, of 1.69 pence per share as detailed in the
schedule below:
Interim ordinary dividend: 1.69 pence per share
Interim Property Income Distribution (PID): nil
Ex-Dividend Date: 11 August 2022
Record Date: 12 August 2022
Payment Date: 26 August 2022
The dividend reflects an annualised payment of 6.76 pence per
share and a dividend yield of 5.9% based on the 3 August 2022
closing share price of 115.4 pence.
The Company had 620,237,346 ordinary shares in issue at 30 June
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; 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 30 June 2022 comprised 101 assets let
to 34 tenants with a total value of GBP911.6 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 April 2022 to 30
June 2022:
Pence per
share
------------
EPRA NTA per share as at 31 March 2022 111.8
Revaluation gains / (losses) on investment
properties 1.2
Net Revaluation gains / (losses) on assets
under construction^ (0.1)
Net impact of acquisition costs (0.1)
Movement in revenue reserve 1.2
Third interim dividend payment for the
year ended 30 June 2022 (1.7)
-------------------------------------------- ------------
EPRA NTA per share as at 30 June 2022 112.3
-------------------------------------------- ------------
Percentage change in the quarter 0.4%
-------------------------------------------- ------------
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 30 June 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 unaudited NAV calculated under International
Financial Reporting Standards was 112.7 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)
Jun-22 Mar-22 Dec-21 Sept-21
GBPm GBPm GBPm GBPm
Property portfolio* 911.6 886.8 870.5 702.7
Cash 34.5 42.8 49.0 72.8
Net current assets / (liabilities)* (14.8) (13.4) (9.6) (4.9)
Bank loans (234.8) (222.8) (222.8) (80.0)
-------- -------- -------- --------
Net assets 696.5 693.4 687.1 690.6
-------- -------- -------- --------
EPRA NTA per share (pence) 112.3 111.8 110.8 111.3
*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 October 2022 and the unaudited EPRA NTA per share as
at 30 September 2022 is expected to be announced in October
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:
30 June 30 September 31 December 31 March
2022 2022 2022 2023
EPRA topped-up
NIY 5.82% 5.82% 5.82% 5.82%
-------- ------------ ----------- --------
EPRA NIY 5.38% 5.60% 5.75% 5.82%
-------- ------------ ----------- --------
Contractual rent
(GBPm) 55.5 55.5 55.5 55.5
-------- ------------ ----------- --------
Passing rent
(GBPm) 51.2 53.3 54.8 55.5
-------- ------------ ----------- --------
[1] 71% of beds within the UK's care home market do not benefit
from en suite wet rooms and as such are fundamentally compromised
in the level of dignified, socially responsible and operationally
efficient care that can be provided to residents. With 96% of the
Group's portfolio benefitting from this standard and plans in place
for the majority of the remaining beds that have only an en suite
wc, the Group continues to demonstrate industry-leading social
impact through its investment in exclusively care homes that are
truly fit-for-purpose.
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END
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