TIDMTHRL
RNS Number : 5619C
Target Healthcare REIT PLC
12 October 2022
To: RNS
From: Target Healthcare REIT plc
LEI: 213800RXPY9WULUSBC04
Date: 12 October 2022
ANNUAL RESULTS FOR THE YEARED 30 JUNE 2022
Modern portfolio of scale with diversified tenant base and
inflation-linked rental growth
Target Healthcare REIT plc (the "Company" or the "Group"), the
listed specialist investor in modern, purpose-built UK care homes,
is pleased to announce its results for the year ended 30 June
2022.
Benefit of inflation-linked leases, combined with asset
management and yield compression driving high single digit
returns
-- NAV total return(1) of 8.1% (2021: 8.8%), with valuation
uplifts reflecting inflation-linked leases
-- EPRA NTA per share increased 1.7% to 112.3 pence (2021: 110.4 pence)
-- Group specific adjusted EPRA earnings per share decreased
7.5% to 5.05 pence per share (2021: 5.46 pence), partially
reflecting the time lag between the oversubscribed GBP125 million
equity issuance in September 2021 and the investment of the
proceeds in December 2021
-- Dividend increased by 0.6% to 6.76 pence in respect of the year (2021: 6.72 pence)
-- Dividends in respect of the period 72% covered by adjusted
EPRA earnings, 95% covered based on EPRA earnings
-- Low net loan-to-value ("LTV") of 22.0% as at 30 June 2022,
with an average cost of drawn debt (interest-only) of 3.1% and
average term to maturity of 6.9 years. GBP180 million of fixed rate
debt, being 77% of total drawn debt at 30 June 2022.
Focus on diversification, and real estate and tenant quality,
underpins like-for-like rental and valuation growth
-- Resilient portfolio performance, with 95% of rent collected
-- Portfolio value increased by GBP226.8 million, or 33%, to
GBP911.6 million, including like-for-like valuation growth of 4.2%
(2021: 3.8%)
-- Contractual rent increased by 35% to GBP55.5 million per
annum (2021: GBP41.2 million), including a like-for-like increase
of 4.6% from rent reviews and asset management initiatives
-- Acquisition commitments during the year totalling GBP 223
million, taking the portfolio to 101 properties, consisting of 97
operational care homes and four pre-let sites
-- Resident occupancy levels across the mature portfolio
continue to recover from Q1 2021 low point, with mature homes spot
occupancy currently at 83%
-- Weighted average unexpired lease term of 27.2 years (2021: 28.8 years)
Responsible investment strategy with a clear purpose to improve
the UK's care home real estate
-- Compelling long-term demand from ageing population supports
both investor and operator activity in the sector
-- Strong alignment of ESG principles, with continued social
purpose and advocacy of minimum real estate standards across the
sector
o Modern, purpose-built care homes; full en suite wet-rooms
account for 96% of the portfolio compared to just 29% for all UK
care homes
o 92% of the portfolio A or B EPC rated
o Sector-leading average 47m(2) of space per resident
(1) Based on EPRA NTA movement and dividends paid
Malcolm Naish, Chairman of the Company, said:
"Amidst the current market uncertainty and economic headwinds,
we continue to focus on the favourable long-term prospects for our
portfolio. We have been delighted to grow through the addition of a
significant value of assets during the year, with inclusion in the
FTSE 250 testament to valued shareholder support and the stable
total returns from our well-diversified portfolio.
"Our portfolio remains well-placed, resident occupancies are
improving, and home environments are returning to "normal" trading
and activity conditions. Our rent collection for the year was 95%,
inclusive of successful arrears recovery post year-end, and our
immediate focus is on moving as quickly as possible towards full
rent collection, for which initiatives are in progress and remain
under our control. We expect our ESG-compliant modern assets to
provide sustainable long-term returns, and in volatile times such
as these we are thankful to have remained prudent in the rents we
have set, capital prices paid and in our borrowing levels and
terms.
"The Board remains confident in the Group's prospects and I
would personally like to thank shareholders for their support. We
collectively are making a positive social impact through our
committed backing of the care sector."
A webcast presentation for investors and analysts will take
place at 9am BST this morning, which can be accessed at:
https://stream.brrmedia.co.uk/broadcast/6324a53956f8df42425ec404
All enquiries:
Kenneth MacKenzie / Gordon Bland
Target Fund Managers 01786 845 912
Mark Young / Mark Bloomfield
Stifel Nicolaus Europe Limited 020 7710 7600
Dido Laurimore / Richard Gotla 020 3727 1000
FTI Consulting 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.
Chairman's Statement
1. Reflections
Despite the persistent COVID-19 impact faced by UK care homes
this past year, our portfolio remains well-placed. Resident
occupancies are improving (mature home occupancy now at 83% from
73% at its lowest point in early 2021) and home environments are
returning to "normal" trading and activity conditions. The quality
of our real estate, and the level of demand for it in the UK care
home investment market, has driven a healthy and consistent
accounting total return of 8.1%, with valuation increases
reflecting our inflation-linked leases and positive sentiment as to
future trading conditions.
Our rent collection for the year was 95%, inclusive of
successful arrears recovery post year-end. We have collected 95% of
rent since the start of the COVID-19 pandemic in March 2020. We
remain confident our portfolio will deliver sustainable value over
the long-term.
The start of the year brought shareholder support for our
capital raise to fund the acquisition of a portfolio of 18 homes.
We were delighted to secure this in what was a competitive bidding
process, with the mature trading histories complementing our many
newer homes. Following the disposal of one non-core asset
post-year-end, the integration of the portfolio is complete with
performance in line with expectations on acquisition and we look
forward to many years of stable income returns.
Late 2021 optimism was tempered early in 2022 with the emergence
of the COVID-19 Omicron variant. This slowed trading recovery
across the portfolio as the frequency of embargoes on admissions
increased once more. A small number of tenants most exposed to
newly opened/ immature homes were significantly impacted. We have
resolved an arrears position with one tenant who represented 6.8%
of contracted rent and have initiatives in progress on the
remaining affected assets, giving visibility on rent collection
improving towards pre-pandemic norms.
2. Outlook
Other headwinds have emerged in 2022 which are potentially more
long-lasting and impactful, though we feel our business model and
strategy provides insulation. Matters of concern include: energy
and food source supplies; inflation; monetary policy tightening by
Central Banks and fast-rising interest rates; the cost of living
crisis, and general fears of a significant economic
downturn/recession. The repricing of financial assets is likely to
arise with commercial real estate tipped by many to bear the brunt,
as reflected in the sector's recent share price movements.
However, our investment class benefits from tailwinds.
Underlying demand for residential care places is supported by
demographic change, evidenced by projected growth in the number of
over 85s, and investment demand for modern, ESG-compliant care home
real estate remains strong.
The Group has some protection from higher interest rates, having
fixed rates on GBP180 million of its borrowings prior to recent
market increases. On inflation, our portfolio bias towards private
pay provides comfort that our tenants are more likely to be able to
reflect their cost increases in resident fees, supporting
sustainable trading.
3. Performance
Our total return performance over the year has been robust, with
EPRA NTA* growth of 1.7% (112.3 pence from 110.4 pence) underpinned
by a portfolio which has performed resiliently.
The Manager comments in more detail on rent cover and occupancy
in the Investment Manager's Report below, with these key metrics
trending positively as trading in the homes improves further
following the Omicron impacts earlier in 2022.
Growth in the portfolio's valuation has largely been driven by
rental uplifts, with some additional yield tightening from strength
of demand, providing an overall like-for-like increase of 4.2%.
Contracted rent has increased by 35% to GBP55.5 million, including
4.6% on a like-for-like basis.
Under the widely-used EPRA earnings metric the dividend was 95%
covered, though we focus on an adjusted EPRA earnings per share
result of 5.05 pence. Adjusted EPRA earnings increased by 16% to
GBP30.2 million, translating to 72% cover.
4. Investment market and care home trading
There remains a weight of capital investing in the
ESG-compliant, modern homes which are our staple. Demand and
activity has not yet dampened in response to either the wider
macro-environment or the sector's trading difficulties through
"late-COVID". We note valuations starting to soften in other
commercial real estate sectors and would be surprised were ours to
be immune. However, high volatility is not something inherent in
the asset class and we would note the performance of premium
quality homes relative to the yield expansion in poorer quality
homes following the 2007-08 global financial crisis.
The sector's challenges this past year are well-documented, and
the Manager discusses these in more detail below. We are pleased to
see the sustained rise in occupancy levels in our homes. Whilst
homes with a focus on publicly funded residents have outperformed
those focusing on the private market through much of the pandemic,
this has recently reversed and the majority of our tenants report a
positive outlook.
5. Governance
Board Succession
The succession plan detailed in last year's report is drawing to
a successful conclusion. We were pleased to welcome Dr Amanda
Thompsell to the Board on 1 February 2022 and, subsequent to the
year end, Richard Cotton has also been appointed. The appointment
of Michael Brodtman, expected early in the next calendar year, will
complete the planned changes to the Board.
Having previously announced my intention to retire following the
conclusion of the forthcoming AGM, along with Gordon Coull, this
will be my last statement to shareholders. However, in handing over
the chair to Alison Fyfe, ably supported by an experienced and
skilled Board, I know I am leaving the Company in good hands.
Annual General Meeting ('AGM')
The AGM will be held on 6 December 2022. Shareholders are
encouraged to make use of the proxy form provided in order to lodge
their votes and to raise any questions or comments they may have in
advance of the AGM through the Company Secretary.
6. Looking ahead
Our immediate focus is on moving as quickly as possible towards
full rent collection, for which initiatives are in progress and
remain under our control. We have a solid track record of achieving
change in the portfolio when required.
We continually review our investment policy and business model
and believe both to be sound. We expect our ESG-compliant modern
assets to provide sustainable long-term returns, and in volatile
times such as these we are thankful to have remained prudent in the
rents we have set, capital prices paid and in our borrowing levels
and terms.
Our portfolio consists of premium quality assets in a
non-cyclical investment class where underlying trading is improving
as COVID-19 recedes.
The interest rate environment has a significant impact on our
path to full dividend cover. Drawing available debt to fund
portfolio growth is not currently accretive to earnings, having a
negative impact to cover of c.10% relative to what our planning
showed a few short weeks ago. We have a stable platform providing a
clear path to cover exceeding 90% and will closely watch interest
rates with a view to acting quickly on our borrowings should market
conditions improve.
Given the current environment, we believe it is prudent to
maintain our dividend level, though will be mindful of any further
adverse impact that the many matters outwith our control may
have.
The Board remains confident in the Group's prospects and I would
personally like to thank shareholders for their support. We
collectively are making a positive social impact through our
committed backing of the care sector.
Malcolm Naish, Chairman
11 October 2022
Investment Manager's Report
Portfolio performance and UK care home investment market
The portfolio has outperformed the MSCI UK Annual Healthcare
Property Index once again, in respect of the calendar year to 31
December 2021, with a portfolio total return of 10.5% relative to
the Index's 9.6%. The portfolio's annualised total return since
launch now stands at 11.1% while the portfolio's last five-year
period has an annualised total return of 10.5% relative to 8.9% for
the Index.
Rent collection for the year was 95%, and has measured 95% since
March 2020 as the COVID-19 pandemic emerged. Our portfolio has
shown robust performance in the face of the depressed occupancies
and other trading challenges our tenants have encountered. We have
seen some underperforming assets, typically reflecting our exposure
to recently opened or new-build homes and growing tenants with a
number of new homes. Start-up losses during the pandemic have run
beyond the ordinary "fill-up" period when a home is building
occupancy and moving to mature trading, straining financial
reserves at our tenants. We reaffirm our commitment to supporting
the sector's modernisation and will continue to hold a proportion
of such assets in the portfolio recognising their investment case
to provide long-term sustainable value.
Modern and ESG-compliant UK care homes as an investment asset
class have continued to provide attractive returns with low
volatility. The risk premia relative to other "safe" asset classes,
GP surgery funds whose rents are effectively 100% government
backed, and the 15-year gilt rate, have remained steady until
recent months where the "risk-free" gilt rate has increased
sharply. We have not yet observed valuation/yield softening in the
section of the care home real estate market in which we invest and
note the more significant yield impact on poorer quality care home
real estate following the 2007-08 global financial crisis. The
tailwind of stronger demand for modern stock may moderate any
valuation response for our portfolio. This would be consistent with
the low volatility in returns from the asset class experienced
historically.
The portfolio's EPRA topped-up Net Initial Yield ('NIY') has
been stable, at 5.82% compared with 5.83% at the start of the year,
which reflects well the trends in market activity and pricing we
have seen and are seeing.
Following a subdued 2020 and early 2021, market activity
accelerated once more with a weight of capital and a number of
participants eager to invest in high quality care home real estate.
Participation from the larger European healthcare investors
continues, as they seek higher yields than their home markets can
offer, and their pursuit of the fit-for-purpose home types we have
been advocating has accelerated as they complement their existing
older portfolios.
H1 22 saw equity raises from UK and European healthcare funds,
with proceeds being allocated to investment in care homes,
primarily in the premium part of the sector in which we invest.
Significant capital has also been made available to private funds
which invest in the same. We welcome the demand and interest in the
sector though would note we have declined to participate in a
number of acquisition processes recently where we have not been
willing to accept rental levels offered by vendors.
We are seeing a number of development opportunities coming to
the market with enhanced environmental credentials such as BREEAM
"Excellent" ratings. It is pleasing that the design aspects we have
long advocated are now generally accepted in new homes, and
developers and designers are now taking this to the next level of
excellence. We expect such opportunities to command premium pricing
and, as always, we will carefully assess the sustainability of
rental levels in their local markets in our considerations.
We comment on some of the "hot topic" issues facing the sector
below. An additional trend which could have a real impact in a
short timescale is the potential for regulatory/legislative change
in relation to environmental and social standards in respect of
care home real estate which currently falls short. The most
relevant current example is the authorities in Wales considering
mandating Net-Zero/ low-carbon standards for real estate where
residents receive public care funding. Our immediate impact will be
on ensuring any new build homes we acquire will meet these, or
anticipated future, requirements as our typical home already does.
However, the wider challenge for the sector and other investors
will be on the many (71%) not fit-for-purpose homes which are being
used to deliver care to the majority of residents in the UK.
Health & social care update
We note below a number of areas which are prominent in our minds
and those of our tenants:
Path to occupancy recovery
Occupancy levels in our homes are showing a steady and
consistent improvement following the decline from the widespread
embargoes during H1 22 due to the Omicron variant and its rate of
spread. COVID-19 is now seen as a frustration in homes, rather than
the trauma it has been.
Helping occupancy:
-- Visiting is "friendlier", with mask and testing requirements relaxed
-- Latent demand exists from delayed admissions (300k potential
residents awaiting social worker assessment)
-- Vaccinations protecting residents, and boosters expected to
become an annual/seasonal ritual
-- Homes have improved their online presence as more decisions are made using this medium
-- Embargoes, if arising, are sensibly restricted to floors/wings
Public funding of care
Consistency and clarity is still awaited, which is frustrating
for operators. The National Insurance increase to direct funds to
health and social care, swallowed largely by the NHS, has since
been reversed.
Policies designed to remove the "lottery of care funding" are in
some doubt also. The "Care cap" is a long awaited and complex plan
to track an individual's care costs across their lifetime, capping
when required to protect from the "catastrophic costs" described in
the 2010/11 Dilnot Report. The testing and assessment of Local
Authority 'Pilot' areas has already been pushed back, with the
reasonable conclusion being that introduction of the policy, if
adopted, would also be delayed.
The adequacy of both manpower to administer the policy, and the
funding requirement, have been raised as concerns, resulting in
some legitimately founded anticipation that the whole policy may
find "the long grass" as the Government prioritises other
workstreams.
Staffing pressures
Following admissions, staffing remains perhaps the biggest
day-today headache, though solutions are being found. With access
to EU staff restricted, many operators are taking advantage of
Government Sponsorship Licences to bring nursing and senior care
staff from countries such as the Philippines and India, where
language and training are reasonably aligned with the UK.
We have seen some encouraging internal solutions from our
tenants also, with more investment in training and development, as
well as recognition through enhanced policies which reward loyalty
and contribution. Ensuring adequate staffing allows operators to
grow occupancy.
Inflationary pressures
"Household costs" have been a relatively small part of the
typical care home's expenditure, with staffing consuming the lion's
share of turnover, however inflation will erode margins unless fees
can keep pace. With recent reports of 10-20% rises in private fees
to reflect staff / household inflationary pressures there is some
indication that for our care homes this will be achievable,
although public funding is potentially less likely to keep pace
with this than private feepayers are. Feedback from tenants
suggests that an excess in energy cost inflation would be passed
onto residents through private fee increases.
Target Fund Managers Limited
11 October 2022
Our Strategy
Our purpose to improve the standard of living for older people
in the UK is achieved through our four strategic pillars.
Strategic pillar #1
To grow a robust portfolio
We are creating a portfolio of scale with a clear focus on the
quality of real estate and diversification of income sources to
provide a stable long-term platform for returns.
Significant portfolio growth
The Group's portfolio has historically been assembled in small
increments, both by necessity, due to the relatively low number of
assets which meet our investment quality criteria, and
deliberately, as we have maintained a bias towards smaller,
regional operators. In the current year a portfolio of homes was
marketed by an institutional investor whose vehicle was at the end
of its life. The Manager was familiar with those assets, having
advised that vehicle on acquisition and management of many of the
homes. The Group was ultimately successful in the acquisition of a
diversified portfolio of 18 modern homes for c.GBP160 million,
including costs, in December 2021 (a number of weeks later than
hoped due to COVID-19 accessibility restrictions) and support from
shareholders was secured via new equity issuance. Overall, GBP223
million (including costs) has been committed to 24 new assets
during the year, growing the portfolio to 101, comprising 97
operational care homes and four development sites.
Three existing development sites reached practical completion,
adding 206 brand new beds to their local markets and bringing total
new homes supported by the Group's development commitments to 11
(749 beds), with four currently under construction which will
provide a further 269 new beds.
Valuation Growth Analysis GBP'm
------------------------------- ------
Valuation at 30 June 2021 684.8
Acquisitions and developments 199.4
Rent reviews and yield shifts 27.4
------------------------------- ------
Valuation at 30 June 2022 911.6
------------------------------- ------
Investment discipline maintained
In addition to the physical real estate, our investment
appraisals remain focussed on (i) the local market and trading
prospects for a home and (ii) sustainable rental levels for a home
in that context. This approach has not changed and will continue to
guide our assessment of long-term value during the competitive
conditions we currently see. Key metrics for acquisitions completed
during the year were consistent with portfolio metrics at the start
of the year, see table below.
EPRA topped-up NIY at 30 June
2021 5.83%
Blended NIY on acquisitions during
the year 5.64%
EPRA topped-up NIY at 30 June
2022 5.82%
------------------------------------ ------
Portfolio Differentiators
We know the standard of UK care home real estate. The KPIs below
benchmark well against peer group portfolios and provide assurance
as to long-term sustainable returns.
Ensuite WC rooms 100%
Ensuite wet-rooms with shower 96%
-------------------------------- ---------
Purpose-Built 2010s+ 79%
Purpose-Built 00's 18%
Purpose-Built 90's 3%
Purpose-Built pre-90's 0%
Converted property 0%
-------------------------------- ---------
Average sqm per bedroom 47
-------------------------------- ---------
EPC B or better 92%
EPC C 8%
EPC D or worse 0%
-------------------------------- ---------
Average value per bed GBP132k
Value per built sqm GBP2,871
-------------------------------- ---------
Average rent per bed per annum GBP8.3k
Rent per built sqm GBP175
-------------------------------- ---------
The continued tightening of NIYs, relative to the increase in
gilt yields (the traditional "risk-free" benchmark), of course may
be suggestive that the top of the market may have been reached for
this cycle. Whilst the weight of capital coveting fit-for-purpose
assets counters that, the drop in spread/ yield gap between rental
yields and cost of funding goes some way to discouraging new
investment from us at this time.
The Manager's ESG House Standard was developed and adopted
during the year, and will be used as a tool to ensure compliant
assets are added to the portfolio.
Diversification
We continue to diversify the portfolio, most importantly
increasing the number of tenants and mitigating risk from
over-concentration on a small number of tenant groups. The Group
now has 34 tenants, having grown from 28, and will increase to 36
following practical completion of the Group's development
assets.
The largest tenant is unchanged from 2021, being Ideal Carehomes
who operate 18 of the Group's homes and account for 15.7% of
contractual rent as at 30 June 2022.
Underlying resident fees are balanced between private and public
sources, with a deliberate bias towards the former. Census data
from our tenants shows private sources contribute to 67% of fee
revenue, with 49% being fully private and 18% from "top-up"
payments where residents pay over and above that which the Local
Authority funds for them. 33% of residents are wholly publicly
funded.
Geographically, Yorkshire & the Humber remains the largest
region by asset value, at 24%.
Strategic pillar #2
Sector specialist portfolio management that values
relationships
The Investment Manager has deep experience within the sector and
uses that specialism to engage effectively with our tenants,
understanding the complexities inherent in the sector.
Positive returns
The portfolio total return has again outperformed the MSCI UK
Annual Healthcare Property Index, with a total return for the
calendar year to 31 December 2021 of 10.5 per cent relative to the
Index's 9.6 per cent. This outperformance has occurred consistently
since launch in 2013.
Portfolio total return MSCI UK Annual Healthcare
(%) Property Index total
return (%)
Year to 31 December
2015 14.5 10.3
----------------------- --------------------------
Year to 31 December
2016 10.6 7.9
----------------------- --------------------------
Year to 31 December
2017 11.9 11.7
----------------------- --------------------------
Year to 31 December
2018 12.7 9.1
----------------------- --------------------------
Year to 31 December
2019 9.2 7.4
----------------------- --------------------------
Year to 31 December
2020 8.2 6.8
----------------------- --------------------------
Year to 31 December
2021 10.5 9.6
----------------------- --------------------------
NAV total return also remains stable and consistent, at 8.1 per
cent for the year to June 2022, and with an annualised 7.8 per cent
since launch.
Underpinning these returns figures are quality assets with
attractive long-term leases. Like-for-like rental growth of 4.6 per
cent has been achieved with 3.8 per cent of this from annual rent
reviews and the remainder from re-tenanting initiatives.
Like-for-like valuation growth was 4.2 per cent driven by rent
reviews, the demand for the asset class and the portfolio's stable
trading performance.
Overall, the Group's portfolio value has increased by 33.1 per
cent and the contractual rent roll by 34.6 per cent.
Resiliency through pandemic; trading outlook much improved
Rent collection measured 95% for the year, including amounts
collected subsequent to the year-end, with a 95% collection record
since the start of the pandemic in March 2020. This stable
performance comes despite the significant operational challenges
our tenants have faced through the pandemic, demonstrating the
sustainable nature of our underlying rental income.
Resident occupancies are recovering following the Omicron wave
in the first half of 2022 with steady growth since March of this
year. Our tenants continue to report strong enquiry levels and are
now consistently converting these to admissions as restrictions
have eased.
Rent cover at the portfolio level has been stable and should
respond with the recovery in occupancy levels. We anticipate
inflationary cost increases to largely be passed on to residents
through fee increases, allowing rent covers to improve with
occupancy.
The Manager has been supporting tenants, closely monitoring home
performance and actively initiating changes where required. As well
as protecting long-term value for shareholders, the Manager strives
to ensure continuity of care for residents as a social priority,
and is pleased to note that all portfolio initiatives have seen
care provided throughout. Completed and ongoing initiatives
are:
-- Group of homes in Northern Ireland identified as likely to
benefit from new management. Re-tenanting initiated and completed
from large national to a smaller operator focused on the
region.
-- Alternative tenants were lined-up for seven homes where the
incumbent tenant faced financial challenges. Patient and
disciplined response allowed full recovery of outstanding rent and
uninterrupted care provision for residents.
-- Solutions proposed and agreed to re-tenant two of five homes
allowing focus on the incumbent tenant's care geography and
services and reducing liquidity strain.
Tenant engagement and satisfaction
We remain committed to our role as an effective, supportive and
engaged landlord. We once again invited our tenants to provide
formal feedback via a survey which, alongside learnings from the
many points of contact we have, is used to inform our approach. The
survey returned positive quantitative results, and more usefully
some qualitative feedback on how we may consider altering our
interactions with tenants to recognise that no two tenants are the
same.
In summary:
-- 9/10 of responders agreed that working with Target was a positive experience (2021: 10/10)
-- 9/10 of responders agreed that Target provides real estate
that is a great working environment and helps deliver dignified
care to residents (2021: 8/10)
-- 10/10 of responders agreed that Target participates in sector
events and appropriately shares knowledge
Resident satisfaction
Regulator (CQC in England) ratings are informative but limited.
The Manager also monitors reviews on "Carehome.co.uk", a
"Tripadvisor" style website for care homes, as a useful source of
real-time feedback which is more focussed on the resident
experience, and that of their loved ones.
The portfolio's current average rating is 9.3/10 with sufficient
review volume and frequency to be considered a valuable data point
for the quality of service experienced by residents.
Strategic pillar #3
Regular dividends for shareholders
Total dividends of 6.76 pence per share were declared and paid
in respect of the year to 30 June 2022, an increase of 0.6 per cent
on 2021, and reflecting a yield of 6.2 per cent based on the 30
June 2022 closing share price of 108.4 pence.
Earnings & dividend cover
Adjusted EPRA earnings per share is the key performance metric
used in assessing recurring profitability levels. This reduced to
5.05 pence per share relative to dividends of 6.76 pence per share.
Dividend cover on adjusted EPRA earnings was 72% for the year.
Applying the more widely used EPRA earnings measure, dividend cover
was 95%.
The three main drivers of reduced earnings level were:
-- Portfolio acquisition and equity issuance proceeds. Earnings
dilution from cash drag occurred during the three-month acquisition
process following the Group's GBP125 million associated equity
issuance in September 2021. The 18 care home assets began
generating rental income immediately upon acquisition on 17
December 2021.
-- Prudent rental income provisioning. As rent collection
declined during 2022 following the Omicron wave of the pandemic,
the Group prudently provided for an increased level of doubtful
debts. Initiatives to successfully manage these positions have seen
GBP1.1 million subsequently collected which has not been adjusted
for in the year's results. The Manager is progressing further
initiatives to move towards full rent collection across the
portfolio.
-- Uninvested capital. At 30 June 2022 the Group had cash and
undrawn debt awaiting investment of GBP105 million. GBP54 million
of this is committed to developments or portfolio improvements and
is awaiting drawdown, with GBP51 million remaining available. Had
the spread level between investment yields and debt costs which
existed through the Group's lifetime persisted, conversion of the
Group's identified pipeline assets would have seen the Group fully
geared and invested and generating earnings fully covering
dividends.
However, the significant reduction in that spread (from c.250
bps to nil) impacts the Group's ability to invest available capital
in immediately earnings-accretive assets at the current time. The
Group is carefully assessing pipeline assets on a case-by-case
basis with respect to wider market conditions, and is currently
minded to retain a conservative buffer of uninvested capital as a
defence against further market deterioration.
The combined effect of the above is that the long-planned
progression to full investment at targeted gearing levels will be
delayed, with the knock-on effect to also delay the Group's path to
full dividend cover.
Total Returns
The attractive investment characteristics of the asset class has
seen continued yield tightening and valuation increases. Whilst
limiting earnings-accretive new investment, this has been a
tailwind for valuation growth and returns from the existing
portfolio.
EPRA NTA has increased 1.7% to 112.3 pence per share over the
year. NAV total return for the year was 8.1%, with the portfolio's
EPRA topped-up net initial yield ending the year stable at 5.82%
from 5.83%.
Debt funding: More fixed interest rates and longer terms
The Group entered new long-term, fixed-rate facilities of GBP100
million with an existing lender during the year, increasing total
debt available to GBP320 million.
This increased the weighted average term to maturity of the
Group's facilities to 6.9 years at 30 June 2022 (2021: 4.8 years)
and increased the quantum of the Group's drawn debt at fixed
interest rates, being GBP180 million at 30 June 2022 (2021: GBP80
million).
The Group's weighted average cost (interest-only) of its drawn
debt was 3.1%, reflecting the low-rate environment when these fixes
were struck. In December 2021 when the most recent 15-year debt
transaction completed, the relevant gilt reference was c.1%
compared to c.4.5% today.
The Group retains flexibility on debt levels, with GBP140
million of revolving credit facilities which can be drawn/repaid
in-line with capital requirements. The Group is currently reviewing
the suitability of these facilities given the interest rate
environment and outlook and anticipates increasing fixed-rate or
hedged debt, subject to market conditions.
2022 2021
GBPm Movement GBPm
------------------------------------- ------- ----------- -------
Rental income (excluding guaranteed
uplifts) 49.8 +21% 41.2
Administrative expenses (including
management fee) (13.7) +23% (11.1)
Net financing costs (6.6) +38% (4.8)
Interest from development funding 0.8 +33% 0.6
------------------------------------- ------- ----------- -------
Adjusted EPRA earnings 30.2 +16% 26.0
------------------------------------- ------- ----------- -------
Adjusted EPRA EPS (pence) 5.05 -7.5% 5.46
EPRA EPS (pence) 6.62 -7.5% 7.16
Adjusted EPRA cost ratio 27.1% +50bps 26.6%
EPRA cost ratio 21.5% -80bps 22.3%
Ongoing charges figure ('OCF') 1.51% -4bps 1.55%
------------------------------------- ------- ----------- -------
EPRA NTA per share (pence)
EPRA NTA per share has increased to 112.3 pence, primarily
driven by an increase in property valuations.
Pence per share
-------------------------- ----------------
EPRA NTA per share as at
30 June 2021 110.4
Acquisition costs (1.5)
Property revaluations 4.7
Adjusted EPRA earnings 4.8
Dividends paid (6.5)
Equity issuance 0.4
-------------------------- ----------------
EPRA NTA per share as at
30 June 2022 112.3
-------------------------- ----------------
Strategic pillar #4
To achieve our social purpose
ESG Principles What this means for Target What we did in 2022 What we'll do in 2023
and beyond
1. Responsible Leading in social impact Social Social
investment for care home real estate - 24 homes acquired, 1,632 - Continue to advocate
As an investor - We understand the resident spaces for quality real estate
we understand importance - Development commitments - Continue to fund new
that our actions of maintaining a portfolio for homes, modernising the
have influence. that supports the needs of 269 new beds as at year-end sector's real estate
We use our platform tenants and residents, - 96% wet-rooms
to lead by example which - Homes provide space of
through embedding in turn contributes to the 47m(2)
appropriate long-term sustainability of per resident
ESG considerations social care infrastructure - All real estate has Energy
into our decision-making. in the UK. generous - Assess BREEAM
social and useable outdoor recommendations
space and initiate
Energy and climate change: improvements where aligned
Responsible acquisitions Energy with long-term value.
and - 100% A-C EPC ratings - Increase proportion
portfolio management - Manager created and of leases with "green"
- Energy efficiency is a adopted reporting provisions to
specific "house standard" to gather more data on energy
consideration in our formally consumption patterns from
investment incorporate minimum and our tenants for use in
analysis for acquisitions, aspirational decision-making
developments and portfolio ESG standards into - Manager to use toolkit
management decisions. investment and resources to progress
- In our role as a appraisal. its net zero journey
responsible - Representative sample of
landlord we are committed BREEAM-in use ratings
to helping our tenants substantially
identify Excellent and Very Good.
and implement energy - Increased data collection
reduction from our tenants on energy
and efficiency measures. usage equating to 40% of
the
portfolio
- Target Fund Managers
supports
the Edinburgh Science
Climate
and Sustainability
programme
being a founding pledger of
its Mission Net Zero
project.
---------------------------- ---------------------------- -----------------------------
2. Responsible Tenant selection, Tenants Tenants
partnerships engagement - 9/10 "positive - Focus on supporting
We engage with & collaboration experience" our tenants with COVID-19
all our - As a satisfaction score recovery, considering
stakeholders responsible, further real estate design
to drive the proactive enhancements in response
creation of landlord we - Invest in fully understanding
economic, social prioritise good, and responding feedback
and environmental open from tenant survey
value around relationships
our buildings with our
and in wider tenants.
society. - We make sure
that we solicit, Communities
assess and Communities - Complete portfolio initiatives
respond to - Re-tenanted identified which will
feedback homes with new benefit long-term care
on our portfolio tenants committed continuity
and our to continuing - Continue to facilitate
behaviours care provision tenant interaction and
to ensure carers where required learning sessions as COVID-19
are respected - Worked restrictions ease
and residents are constructively
cared for with
with dignity. tenants in rental
- We select arrears to
tenants who share deliver positive
our care ethos solutions
and can deliver to maintain
operationally. continuity of care
Communities and
society
- We fully
appreciate the
vital role that
care homes
play in every
community, and
take decisions in
the best
interest of
maintaining
continuity
of care for
residents.
- Advocate for
and support
the sector.
3. Responsible Governance & Governance & Governance & transparency
business transparency transparency - Complete Board succession
We will treat - We uphold the - Undertook plan by appointing two
all stakeholders highest ethical director new Directors
with respect standards and recruitment - To prepare and publish
and deal fairly adhere to best process resulting enhanced reporting suite,
in a manner practice in every in Vince inclusive of:
consistent with aspect of Niblett and Amanda * GRESB reporting following data collection process
how we would our business. Thompsell
expect to be - Our governance being appointed
treated ourselves. and behaviour during the * Comprehensive sustainability reporting, inclusive
treat year of
transparency for - Investment EPRA measures
all Manager
of our successfully
stakeholders as retained position
core. as a signatory
to the FRC
People, culture Stewardship Code
and wellbeing - GBP13.2 million
- We encourage taxation
employment directly paid to
practices across the UK government
our key service by way of VAT and
providers that stamp duty
reflect our land taxes.
core values, with Dividends paid
a focus of GBP40.0 million
on wellbeing, are assessed
fairness and for tax upon
opportunity for reaching
all. shareholders
------------------ ------------------- --------------------------------------------------------
Promoting the success of Target Healthcare REIT plc
The Board considers that it has made decisions during the year
which will promote the success of the Group for the benefit of its
members as a whole.
This section, which serves as the Company's section 172
statement, explains how the Directors have had regard to the
matters set out in section 172 (1) (a)-(f) of the Companies Act
2006 for the financial year to 30 June 2022, taking into account
the likely long-term consequences of decisions and the need to
foster relationships with all stakeholders in accordance with the
AIC Code.
a) The likely consequences Our investment approach is long-term with
of any decision an average lease length of 27.2 years. We
in the long term believe this is the most responsible approach
to provide stability and sustainability to
tenants and key stakeholders. Therefore, most
decisions require consideration of long-term
consequences, from determining a sustainable
rent level and the right tenant partner for
each investment, to considering the impact
of debt and key contracts with service providers
on the recurring earnings which support dividends
to shareholders.
b) The interests The Company is externally managed and therefore
of the Company's has no employees.
employees
---------------------------------------------------
c) The need to As a REIT with no employees, the Board works
foster the Company's in close partnership with the Manager, which
business relationships runs the Group's operations and portfolio
with within parameters set by the Board and subject
suppliers, customers to appropriate oversight. The Manager has
and others deep relationships with tenants, the wider
care home sector, and many of the Group's
other suppliers. These are set out in more
detail in the following table.
---------------------------------------------------
d) The impact of The Board is confident the Group's approach
the Company's operations to investing in a sensitive sector is responsible
on the community with regard to social and environmental impact.
and This is set out in more detail in the community
the environment and the environment section of the following
table.
---------------------------------------------------
e) The desirability The Board requires high standards of itself,
of the Company maintaining service providers and stakeholders. The Group's
a reputation for purpose and investment objectives dictate
high standards of that these standards are met in order to retain
business conduct credibility. The ethos and tone is set by
the Board and the Manager.
---------------------------------------------------
f) The need to The Board encourages an active dialogue with
act fairly as between shareholders to ensure effective communication,
members of the Company either directly or via its broker and/or Manager.
The interests of all shareholders are considered
when issuing new shares.
---------------------------------------------------
The significant transactions where the interests of stakeholders
were actively considered by the Board during the year were:
Dividends paid
The Board recognised the importance of dividends to its
shareholders and, after careful analysis of the Group's forecast
cash position and expected rental collection, concluded that
continuing dividend payments at the level announced in the Annual
Report 2021 remained in the interests of all stakeholders.
Ongoing investment and asset management activity
The Group acquired a significant portfolio in December 2021,
consisting of 18 operational care homes of which the Investment
Manager had unparalleled knowledge. This acquisition expanded the
Group's portfolio of high-quality real estate, the vast majority of
which benefitted from full wet-rooms, operated by eight tenants,
three of which were new to the Group.
The re-tenanting of four homes in Northern Ireland was completed
in the year, resulting in a move from a large, national operator to
a smaller operator more focussed in that local market, with the
Group receiving a surrender premium from the outgoing tenant.
Stakeholders benefitted from (i) a positive net financial effect,
following agreed capex which will improve each of the homes; and
(ii) the addition of an established regional operator.
Capital financing
The Company issued GBP125 million of ordinary shares, at a
premium to NAV, in September 2021. The equity raised was used to
temporarily repay some of the Group's loan facilities whilst it
awaited investment before being utilised primarily to finance the
portfolio acquisition in December 2021.
The Group also increased its loan facilities with Phoenix Group,
increasing the existing GBP50 million 10-year facility to an
aggregate of GBP150 million with a weighted term to maturity of 12
years, on terms that are expected to be beneficial to significant
stakeholders over the duration of the facilities.
Director appointments
During the year, as part of the Board succession plan, Mr
Niblett and Dr Thompsell were appointed as Directors. Mr Niblett's
significant financial experience and expertise and Dr Thompsell's
knowledge of healthcare and care homes is expected to benefit all
stakeholders over the period of their respective appointments.
Subsequent to the year end, the Board have appointed one
Director and have identified another who is expected to be
appointed early in the following calendar year.
Stakeholders
The Company is a REIT and has no executive directors or
employees and is governed by the Board of Directors. Its main
stakeholders are shareholders, tenants and their underlying
residents, debt providers, the Investment Manager, other service
providers and the community and the environment. The Board
considers the long-term consequences of its decisions on its
stakeholders to ensure the long-term sustainability of the
Company.
Shareholders Shareholders are key stakeholders and the
Board proactively seeks the views of its shareholders
and places great importance on communication
with them.
The Board reviews the detail of significant
shareholders and recent movements at each
Board Meeting and receives regular reports
from the Investment Manager and Broker on
the views of shareholders, and prospective
shareholders, as well as updates on general
market trends and expectations. The Chairman
and other Directors make themselves available
to meet shareholders when required to discuss
the Group's business and address shareholder
queries. Following disruption during the pandemic,
the Directors were pleased to be able to return
to holding the AGM in person, whilst also
retaining the ability for any questions to
be raised with the Board by email in advance
of the meeting.
The Company and Investment Manager also provide
regular updates to shareholders and the market
through the Annual Report, Interim Report,
regular RNS announcements (including the quarterly
NAV), quarterly investor reports and the Company's
website. The Investment Manager intends to
hold a results presentation on the day of
publication of the Annual Report and will
also meet with analysts and members of the
financial press.
Tenants and underlying The Investment Manager liaises closely with
residents tenants to understand their needs, and those
of their underlying residents, through visits
to properties and regular communication with
both care home personnel and senior management
of the tenant operators. The effectiveness
of this engagement is assessed through an
annual survey.
The Investment Manager also receives, and
analyses, management information provided
by each tenant at least quarterly and regularly
monitors the CQC, or equivalent, rating for
each home and any online reviews, such as
carehome.co.uk. Any significant matters are
discussed with the tenant and included within
the Board reporting.
-------------------------------------------------------
Debt providers The Group has term loan and revolving credit
facilities with the Royal Bank of Scotland
plc, HSBC Bank plc and Phoenix Group (see
note 8 to the extract from the Consolidated
Financial Statements for more information).
The Company maintains a positive working relationship
with each of its lenders and provides regular
updates, at least quarterly, on portfolio
activity and compliance with its loan covenants
in relation to each loan facility.
-------------------------------------------------------
Investment Manager The Investment Manager has responsibility
for the day-to-day management of the Group
pursuant to the Investment Management Agreement.
The Board, and its committees, are in regular
communication with the Investment Manager
and receive formal presentations at every
Board Meeting to aid its oversight of the
Group's activities and the formulation of
its ongoing strategy.
The Board, through the Management Engagement
Committee, formally reviews the performance
of the Investment Manager, the terms of its
appointment and the quality of the other services
provided at least annually. Further details
on this process and the conclusions reached
in relation to the year ended 30 June 2022
are contained in the Annual Report.
-------------------------------------------------------
Other service providers The Board, through the Management Engagement
Committee, formally reviews the performance
of each of its significant service providers
at least annually. The reviews will include
the Company's legal advisers, brokers, tax
advisers, auditors, depositary, valuers, company
secretary, insurance broker, surveyors and
registrar. The purpose of the review is to
ensure that the quality of the service provided
remains of the standard expected by the Board
and that overall costs and other contractual
arrangements remain in the interests of the
Group and other significant stakeholders.
The Investment Manager also reports regularly
to the Board on these relationships.
The significant other service providers, particularly
the Group's legal advisers and brokers, are
invited to attend Board Meetings and report
directly to the Directors where appropriate.
-------------------------------------------------------
Community and the The Group's principal non-financial objective
environment is to generate a positive social impact for
the end-users of its real estate. Investment
decisions are made based on the fundamental
premise that the real estate is suitable for
its residents, the staff who care for them,
and their friends, families and local communities,
both on original acquisition and for the long-term.
Environmental considerations are an integral
part of the acquisition and portfolio management
process, given the strategy of only acquiring
modern buildings which benchmark well from
an energy efficiency aspect. The Group's ESG
strategy is currently prioritising the gathering
of useful energy/consumption data on our portfolio
which will be used to align the portfolio
appropriately with benchmarks over the medium
and longer term.
-------------------------------------------------------
Principal and emerging risks and uncertainties
Risks Description of risk and Mitigation
factors
affecting risk rating
Poor performance There is a risk that a tenant's The Investment Manager
of assets business could become unsustainable focuses on tenant diversification
Risk rating if it fails to trade successfully. across the portfolio
& change: High This could lead to a loss and, considering the
(unchanged) of income for the Group and local market dynamics
an adverse impact on the for each home, focuses
Group's results and shareholder on ensuring that rents
returns. The strategy of are set at sustainable
investing in new purpose-built levels. Rent deposits
care homes could lead to or other guarantees are
additional fill-up risk and sought, where appropriate,
there may be a limited amount to provide additional
of time that small regional security for the Group.
operators can fund start-up The Investment Manager
losses. has ongoing engagement
with the Group's tenants
to proactively assist
and monitor performance.
---------------------------------------- -----------------------------------
Adverse interest Adverse interest rate fluctuations The Group has a conservative
rate fluctuations will increase the cost of gearing strategy, although
/ debt covenant the Group's variable rate net gearing is anticipated
compliance debt facilities; limit borrowing to increase as the Group
Risk rating capacity; adversely impact nears full investment.
& change: property valuations; and Loan covenants and liquidity
High (increased) be detrimental to the Group's levels are closely monitored
overall returns. for compliance and headroom.
The Group has fixed interest
costs on GBP180 million
of borrowings as at 30
June 2022.
---------------------------------------- -----------------------------------
High inflationary An increase in the UK inflation The Group's portfolio
environment rate to a level above the includes inflation-linked
(emerging) rent review caps in place leases, with primarily
Risk rating across the portfolio's long-term annual upwards-only rent
& change: leases may result in a real reviews within a cap
High (increased) term decrease in the Group's and collar. The Manager
income and be detrimental is monitoring tenant
NEW to its performance. In addition, performance, including
cost increases for tenants, whether average weekly
particularly in relation fees paid by the underlying
to staffing and utilities, diversified mix of publicly
may erode their profitability funded and private-fee
and rent cover unless their paying residents are
revenue increases accordingly. growing in line with
inflation.
---------------------------------------- -----------------------------------
Development The high inflationary environment, The Group is not significantly
costs (emerging) particularly for building exposed to development
Risk rating materials and staff, combined risk, with forward funded
& change: with supply chain difficulties, acquisitions being developed
Medium (increased) may result in an increased under fixed price contracts,
risk that the developers with the Investment Manager
NEW of contracted developments having considered both
do not fulfil their obligations the financial strength
and/ or may increase the of the developer and
cost of new development opportunities. the ability of the developer's
profit to absorb any
cost overruns.
---------------------------------------- -----------------------------------
Pandemic As a result of the COVID-19 The Group is committed
reduces pandemic, there is a risk to investing in high
demand for that overall demand for care quality real estate with
care home home beds is reduced causing high quality operators.
beds asset performance to fall These assets are expected
Risk rating below expectations. While to experience
& change: demographic shifts and the demand ahead of the sector
Medium (decreased) realities of needs-based average while in the
demand remain intact, occupancy wider market a large
across the sector remains number of care homes
below pre-pandemic levels without fit-for-purpose
and the emergence of new facilities are expected
variants of COVID-19 remains to close. A trend of
a possibility. improving occupancy rates
across the portfolio
has been noted in recent
times.
---------------------------------------- -----------------------------------
ESG and climate A change in climate, such The Group is committed
change as an increased risk of local to investing in high
Risk rating or coastal flooding, or a quality real estate with
& change: change in tenant/ investor high quality operators.
Medium (increased) demands or regulatory requirements The portfolio's EPC and
for properties which meet BREEAM in-use ratings
NEW certain environmental criteria, suggest the portfolio
such as integral heat pumps, is well positioned to
may result in a fall in demand meet future requirements/
for the Group's properties, expectations. The Investment
reducing rental income and/or Manager has introduced
property valuations. a house standard to ensure
ESG factors are fully
considered during the
acquisition process.
---------------------------------------- -----------------------------------
Reduced The combined impacts of the The Group is committed
availability pandemic and increased employment to investing in high
of and wage inflation in competing quality real estate with
carers, nurses sectors has reduced the availability high quality operators
and other of key staff in the care and these should be better
care sector which may result in placed to attract staff.
home staff a reduction in the quality The Investment Manager
Risk rating of care for underlying residents, continues to engage with
& change: restrict tenants from being tenants in the portfolio
Medium (unchanged) able to admit residents or and to share examples
result in wage inflation. of best practice in recruitment
and retention of staff.
---------------------------------------- -----------------------------------
Breach A breach of REIT regulations, The Group's activities,
of REIT primarily in relation to including the level of
regulations making the necessary level distributions, are monitored
Risk rating of distributions, may result to ensure all conditions
& change: in loss of tax advantages are adhered to. The REIT
Medium (unchanged) derived from the Group's rules are considered
REIT status. The Group remains during investment appraisal
fully compliant with the and transactions structured
REIT regulations and is fully to ensure conditions
domiciled in the UK. are met.
---------------------------------------- -----------------------------------
Changes in Changes in government policies, Government policy is
government including those affecting monitored by the Group
policies local authority funding of to increase the ability
Risk rating care, may render the Group's to anticipate changes.
& change: strategy inappropriate. Secure The Group's tenants also
Medium (unchanged) income and property valuations typically have a multiplicity
will be at risk if tenant of income sources, with
finances suffer from policy their business models
changes. not wholly dependent
on government funding.
---------------------------------------- -----------------------------------
Availability Without access to equity The Group maintains regular
of capital or debt capital, the Group communication with investors
Risk rating may be unable to grow through and existing debt providers,
& change: acquisition of attractive and, with the assistance
Medium (unchanged) investment opportunities. of its broker and sponsor,
This is likely to be driven regularly monitors the
by both investor demand and Group's capital requirements
lender appetite which will and investment pipeline
reflect Group performance, alongside opportunities
competitor performance, general to raise both equity
market conditions and the and debt. During the
relative attractiveness of year, the Group has extended
investment in UK healthcare the weighted average
property. term and quantum of its
debt facilities.
---------------------------------------- -----------------------------------
Reliance on The Group is externally managed The Investment Manager,
third party and, as such, relies on a along with all other
service number of service providers. service providers, is
providers Poor quality service from subject to regular performance
Risk rating providers such as the Investment appraisal by the Board.
& change: Manager, company secretary, The Manager has retained
Medium (unchanged) broker, legal advisers or key personnel since the
depositary could have potentially Group's IPO and has successfully
negative impacts on the Group's hired further skilled
investment performance, legal individuals and invested
obligations, compliance or in its systems.
shareholder relations.
---------------------------------------- -----------------------------------
Failure to Failing to differentiate The stakeholder communications
differentiate strategy and qualities from strategy of the Group
qualities competitors is a significant has always been to highlight
from risk for the business, with the quality of the real
competitors increased competition in estate in which the Group
or the healthcare real estate invests. The regular
poor investment sector. The failure to communicate production of investor
performance these effectively to stakeholders relations materials (annual
Risk rating could have a negative impact and interim reports,
& change: on the Company's share price, investor presentations
Medium (unchanged) future demand for equity and quarterly factsheets)
raises and/or debt finance along with direct engagement
and wider reputational damage. with investors helps
to mitigate this risk.
---------------------------------------- -----------------------------------
The Company's risk matrix is reviewed regularly by the Board.
Emerging risks are identified though regular discussion at Board
meetings of matters relevant to the Company and the sectors in
which it operates; including matters that may impact on the
underlying tenant operators. In addition, the Board holds an annual
two-day strategy meeting which includes presentations from relevant
external parties to ensure that the Board are fully briefed on
relevant matters. At the strategy meeting, principal and emerging
risks are discussed and reviewed to ensure that they have all been
appropriately identified and, where necessary, addressed.
Malcolm Naish
Chairman
11 October 2022
Viability Statement
The AIC Code requires the Board to assess the Group's prospects,
including a robust assessment of the emerging and principal risks
facing the Group including those that would threaten its business
model, future performance, solvency or liquidity. This assessment
is undertaken with the aim of stating that the Directors have a
reasonable expectation that the Group will continue in operation
and be able to meet its liabilities as they fall due over the
period of their assessment.
The Board has conducted this review over a five-year time
horizon, which is a period thought to be appropriate for a company
investing in UK care homes with a long-term investment outlook. At
each Board Meeting, the Directors consider the key outputs from a
detailed financial model covering a similar five year rolling
period, as this is considered the maximum timescale over which the
performance of the Group can be forecast with a reasonable degree
of accuracy. The Group has a property portfolio at 30 June 2022
which has long leases and a weighted average unexpired lease term
of 27.2 years. The Group has drawn borrowings of GBP234.8 million,
on which the interest rate has been fixed, either directly or
through the use of interest rate swaps, on GBP180.0 million at a
weighted interest rate of 3.07 per cent per annum (excluding the
amortisation of arrangement costs), and the remaining GBP54.8
million carries interest at SONIA plus a weighted margin of 2.17
per cent per annum (excluding the amortisation of arrangement
costs). The Group has access to a further GBP85.2 million of
available debt under committed loan facilities. The Group's
committed loan facilities have staggered expiry dates with GBP100.0
million being committed to 5 November 2024, GBP70.0 million to 5
November 2025, GBP87.3 million to 12 January 2032 and GBP62.7
million to 12 January 2037. Discussions with existing and/or new
potential lenders do not indicate any issues with re-financing
and/or increasing the quantum of these loans on acceptable terms in
due course.
The Directors' assessment of the Group's principal risks are
highlighted above. The most significant risks identified as
relevant to the viability statement were those relating to:
-- Poor performance of assets: The risk that a tenant is unable
to sustain a sufficient rental cover, leading to a loss of rental
income for the Group;
-- Adverse interest rate fluctuations: The risk that an increase
in interest rates may increase the cost of the Group's variable
rate debt facilities, impact property valuations and/or limit the
Group's borrowing capacity;
-- High inflationary environment: The risk that the level of the
UK inflation rate results in a real term decrease in the Group's
income or erodes the profitability of tenants;
-- Pandemic reduces demand for care home beds: The risk that
overall demand for care home beds is reduced resulting in a decline
in the capital and/or income return from the property portfolio;
and
-- Reduced availability of care home staff: The risk that
unavailability of staff restricts the ability of tenants to admit
residents or results in significant wage cost inflation, impacting
on the tenants' rental cover and leading to a loss of rental income
for the Group.
In assessing the Group's viability, the Board has considered the
key outputs from a detailed model of the Group's expected cashflows
over the coming five years under both normal and stressed
conditions. The stressed conditions, which were intended to
represent severe but plausible scenarios, included modelling
increases in interest rates, movements in the capital value of the
property portfolio and a significant default on rental receipts
from the Group's tenants. The stressed level of default from the
Group's tenants assumed in the financial modelling was based on a
detailed assessment of the financial position of each individual
tenant or tenant group, the structure in place to secure rental
income (such as the strength of tenants' balance sheets, rental
guarantees in place or rental deposits held) and included
consideration of the cumulative financial impact on each tenant
from the COVID--19 pandemic.
Based on the results of the scenario analysis outlined above,
the Board has a reasonable expectation that the Group will be able
to continue in operation and meet its liabilities as they fall due
over the five year period of its assessment.
Consolidated Statement of Comprehensive Income (audited)
For the year ended 30 June 2022
Year ended 30 Year ended 30 June
June 2022 2021
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ------ --------- -------- --------- --------- -------- ---------
Revenue
Rental income 48,807 10,215 59,022 41,168 8,739 49,907
Other rental income 796 3,877 4,673 - - -
Other income 164 - 164 73 - 73
------------------------------------- ------ --------- -------- --------- --------- -------- ---------
Total revenue 49,767 14,092 63,859 41,241 8,739 49,980
------------------------------------- ------ --------- -------- --------- --------- -------- ---------
Gains on revaluation of investment
properties 5 - 5,553 5,553 - 9,536 9,536
Gains on investment properties
realised 5 - - - - 1,306 1,306
Losses on revaluation of properties
held for sale 6 - (7) (7) - (92) (92)
Total income 49,767 19,638 69,405 41,241 19,489 60,730
------------------------------------- ------ --------- -------- --------- --------- -------- ---------
Expenditure
Investment management fee 2 (7,307) - (7,307) (5,796) - (5,796)
Credit loss allowance and
bad debts 3 (3,232) - (3,232) (2,717) - (2,717)
Other expenses 3 (3,163) - (3,163) (2,617) - (2,617)
Total expenditure (13,702) - (13,702) (11,130) - (11,130)
------------------------------------- ------ --------- -------- --------- --------- -------- ---------
Profit before finance costs
and taxation 36,065 19,638 55,703 30,111 19,489 49,600
------------------------------------- ------ --------- -------- --------- --------- -------- ---------
Net finance costs
Interest receivable 71 - 71 39 - 39
Interest payable and similar
charges (6,671) - (6,671) (4,850) (913) (5,763)
------------------------------------- ------ --------- -------- --------- --------- -------- ---------
Profit before taxation 29,465 19,638 49,103 25,300 18,576 43,876
Taxation (6) - (6) 8 - 8
------------------------------------- ------ --------- -------- --------- --------- -------- ---------
Profit for the year 29,459 19,638 49,097 25,308 18,576 43,884
Other comprehensive income:
Items that are or may be
reclassified subsequently
to profit or loss
Movement in fair value of
interest rate swaps - 2,033 2,033 - 298 298
Reclassification to profit
and loss on
discontinuation of interest
rate swaps - - - - 180 180
------------------------------------- ------ --------- -------- --------- --------- -------- ---------
Total comprehensive income
for the year 29,459 21,671 51,130 25,308 19,054 44,362
------------------------------------- ------ --------- -------- --------- --------- -------- ---------
Earnings per share (pence) 4 4.92 3.28 8.20 5.32 3.91 9.23
------------------------------------- ------ --------- -------- --------- --------- -------- ---------
The total column of this statement represents the Group's
Consolidated Statement of Comprehensive Income, prepared in
accordance with IFRS. The supplementary revenue return and capital
return columns are both prepared under guidance published by the
Association of Investment Companies.
All revenue and capital items in the above statement are derived
from continuing operations.
No operations were discontinued in the year.
Consolidated Statement of Financial Position (audited)
As at 30 June 2022
As at
30 June As at
2022 30 June 2021
Notes GBP'000 GBP'000
------------------------------ ------ ---------- --------------
Non-current assets
Investment properties 5 857,691 631,156
Trade and other receivables 63,651 54,580
Interest rate swap 2,284 251
------------------------------ ------ ---------- --------------
923,626 685,987
Current assets
Trade and other receivables 5,549 3,981
Cash and cash equivalents 34,483 21,106
40,032 25,087
Properties held for sale 6 - 7,320
------------------------------ ------ ---------- --------------
40,032 32,407
------------------------------ ------ ---------- --------------
Total assets 963,658 718,394
------------------------------ ------ ---------- --------------
Non-current liabilities
Bank loans 8 (231,383) (127,904)
Trade and other payables (7,145) (6,840)
------------------------------ ------ ---------- --------------
(238,528) (134,744)
Current liabilities
Trade and other payables (26,363) (18,465)
------------------------------ ------ ---------- --------------
Total liabilities (264,891) (153,209)
------------------------------ ------ ---------- --------------
Net assets 698,767 565,185
------------------------------ ------ ---------- --------------
Stated capital and reserves
Share capital 9 6,202 5,115
Share premium 9 256,633 135,228
Merger reserve 47,751 47,751
Distributable reserve 226,461 265,164
Hedging reserve 2,284 251
Capital reserve 83,750 64,112
Revenue reserve 75,686 47,564
Equity shareholders' funds 698,767 565,185
------------------------------ ------ ---------- --------------
Net asset value per ordinary
share (pence) 4 112.7 110.5
------------------------------ ------ ---------- --------------
Consolidated Statement of Changes in Equity (audited)
For the year ended 30 June 2022
Distrib-utable
Share Share Merger reserve Hedging Capital Revenue
capital premium reserve reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 June
2021 5,115 135,228 47,751 265,164 251 64,112 47,564 565,185
Total
comprehensive
income for
the year: - - - - 2,033 19,638 29,459 51,130
Transactions
with
owners
recognised
in equity:
Dividends paid 1 - - - (38,703) - - (1,337) (40,040)
Issue of
ordinary
shares 9 1,087 123,913 - - - - - 125,000
Expenses of
issue 9 - (2,508) - - - - - (2,508)
--------------- --- --------- ---------- --------- --------------- --------- ---------- ---------- ----------
At 30 June
2022 6,202 256,633 47,751 226,461 2,284 83,750 75,686 698,767
--------------- --- --------- ---------- --------- --------------- --------- ---------- ---------- ----------
For the year ended 30 June 2021
Distrib-utable
Share Share Merger reserve Hedging Capital Revenue
capital premium reserve reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 June
2020 4,575 77,452 47,751 296,770 (227) 45,536 22,256 494,113
Total
comprehensive
income for
the year: - - - - 478 18,576 25,308 44,362
Transactions
with
owners
recognised
in equity:
Dividends paid 1 - - - (31,606) - - - (31,606)
Issue of
ordinary
shares 9 540 59,460 - - - - - 60,000
Expenses of
issue 9 - (1,684) - - - - - (1,684)
--------------- --- --------- ---------- --------- --------------- --------- ---------- ---------- ----------
At 30 June
2021 5,115 135,228 47,751 265,164 251 64,112 47,564 565,185
--------------- --- --------- ---------- --------- --------------- --------- ---------- ---------- ----------
Consolidated Statement of Cash Flows (audited)
For the year ended 30 June 2022
Year ended
30 June Year ended
2022 30 June 2021
Note GBP'000 GBP'000
-------------------------------------------- ----- ----------- --------------
Cash flows from operating activities
Profit before tax 49,103 43,876
Adjustments for:
Interest receivable (71) (39)
Interest payable 6,671 5,763
Revaluation gains on investment properties
and movements in lease incentives,
net of acquisition costs written off 5 (19,645) (19,581)
Revaluation losses on properties held
for sale 6 7 92
Increase in performance payments (1,250) (1,550)
Increase in trade and other receivables (3,768) (1,232)
Increase in trade and other payables 4,590 1,859
-------------------------------------------- ----- ----------- --------------
35,637 29,188
-------------------------------------------- ----- ----------- --------------
Interest paid (5,310) (4,266)
Interest received 71 39
Tax paid (6) (5)
-------------------------------------------- ----- ----------- --------------
(5,245) (4,232)
-------------------------------------------- ----- ----------- --------------
Net cash inflow from operating activities 30,392 24,956
-------------------------------------------- ----- ----------- --------------
Cash flows from investing activities
Purchase of investment properties
and properties held for sale, including
acquisition costs (206,993) (51,400)
Disposal of investment properties
and properties held for sale, net
of lease incentives 4,360 7,825
Net cash outflow from investing activities (202,633) (43,575)
-------------------------------------------- ----- ----------- --------------
Cash flows from financing activities
Issue of ordinary share capital 125,000 60,000
Expenses of issue of ordinary share
capital (2,508) (1,684)
Drawdown of bank loan facilities 222,000 152,000
Repayment of bank loan facilities (117,250) (174,000)
Expenses of arrangement of bank loan
facilities (1,839) (1,538)
Dividends paid (39,785) (31,493)
-------------------------------------------- ----- ----------- --------------
Net cash inflow from financing activities 185,618 3,285
-------------------------------------------- ----- ----------- --------------
Net increase/(decrease) in cash and
cash equivalents 13,377 (15,334)
Opening cash and cash equivalents 21,106 36,440
-------------------------------------------- ----- ----------- --------------
Closing cash and cash equivalents 34,483 21,106
-------------------------------------------- ----- ----------- --------------
Transactions which do not require the use
of cash
Movement in fixed or guaranteed rent reviews
and lease incentives 12,148 9,656
Fixed or guaranteed rent reviews derecognised
on disposal or re-tenanting (3,362) (1,556)
----------------------------------------------- -------- --------
Total 8,786 8,100
----------------------------------------------- -------- --------
Statement of Directors' Responsibilities in Respect of the
Annual Financial Report
In accordance with Chapter 4 of the Disclosure Guidelines and
Transparency Rules, we confirm that to the best of our
knowledge:
-- The financial statements contained within the Annual Report
for the year ended 30 June 2022, of which this statement of results
is an extract, have been prepared in accordance with applicable
International Financial Reporting Standards, on a going concern
basis, and give a true and fair view of the assets, liabilities,
financial position and return of the Company;
-- The Chairman's Statement, Investment Manager's Report and Our
Strategy include a fair review of the important events that have
occurred during the financial year and their impact on the
financial statements;
-- 'Principal and emerging risks and uncertainties' includes a
description of the Company's principal and emerging risks and
uncertainties; and
-- The Annual Report includes details of related party
transactions that have taken place during the financial year.
On behalf of the Board
Malcolm Naish
Chairman
11 October 2022
Extract from Notes to the Audited Consolidated Financial
Statements
1. Dividends
Amounts paid as distributions to equity holders during the year
to 30 June 2022.
Dividend rate Year ended
(pence per 30 June 2022
share) GBP'000
-------------------------------------- -------------- --------------
Fourth interim dividend for the year
ended 30 June 2021 1.68000 8,594
First interim dividend for the year
ended 30 June 2022 1.69000 10,482
Second interim dividend for the year
ended 30 June 2022 1.69000 10,482
Third interim dividend for the year
ended 30 June 2022 1.69000 10,482
-------------------------------------- -------------- --------------
Total 6.75000 40,040
-------------------------------------- -------------- --------------
Amounts paid as distributions to equity holders during the year
to 30 June 2021.
Dividend rate Year ended
(pence per 30 June 2021
share) GBP'000
-------------------------------------- -------------- --------------
Fourth interim dividend for the year
ended 30 June 2020 1.67000 7,640
First interim dividend for the year
ended 30 June 2021 1.68000 7,686
Second interim dividend for the year
ended 30 June 2021 1.68000 7,686
Third interim dividend for the year
ended 30 June 2021 1.68000 8,594
-------------------------------------- -------------- --------------
Total 6.71000 31,606
-------------------------------------- -------------- --------------
It is the policy of the Directors to declare and pay dividends
as interim dividends. The Directors do not therefore recommend a
final dividend. The fourth interim dividend in respect of the year
ended 30 June 2022, of 1.69 pence per share, was paid on 26 August
2022 to shareholders on the register on 12 August 2022 and amounted
to GBP10,482,000. It is the intention of the Directors that the
Group will continue to pay dividends quarterly.
2. Fee paid to the Investment Manager
Year ended Year ended
30 June 2022 30 June 2021
GBP'000 GBP'000
---------------- -------------- ---------------
Management fee 7,307 5,796
Total 7,307 5,796
---------------- -------------- ---------------
The Group's Investment Manager and Alternative Investment Fund
Manager ('AIFM') is Target Fund Managers Limited (the 'Investment
Manager' or 'Target'). The Investment Manager is entitled to an
annual management fee on a tiered basis based on the net assets of
the Group as set out below. Where applicable, VAT is payable in
addition.
Net assets of the Group Management fee percentage
---------------------------------------------- --------------------------
Up to and including GBP500 million 1.05
Above GBP500 million and up to and including
GBP750 million 0.95
Above GBP750 million and up to and including
GBP1 billion 0.85
Above GBP1 billion and up to and including
GBP1.5 billion 0.75
Above GBP1.5 billion 0.65
---------------------------------------------- --------------------------
The Investment Manager is entitled to an additional fee of
GBP126,000 per annum (plus VAT), increasing annually in line with
inflation, in relation to their appointment as Company Secretary
and Administrator to the Group.
The Investment Management Agreement can be terminated by either
party on 24 months' written notice. Should the Company terminate
the Investment Management Agreement earlier then compensation in
lieu of notice will be payable to the Investment Manager. The
Investment Management Agreement may be terminated immediately
without compensation if the Investment Manager: is in material
breach of the agreement; is guilty of negligence, wilful default or
fraud; is the subject of insolvency proceedings; or there occurs a
change of Key Managers to which the Board has not given its prior
consent.
3. Other expenses
Year ended Year ended
30 June 2022 30 June 2021
GBP'000 GBP'000
------------------------------------- -------------- --------------
Credit loss allowance 2,865 1,697
Bad debts written off 367 1,020
Total credit loss allowance and bad
debts 3,232 2,717
------------------------------------- -------------- --------------
Year ended Year ended
30 June 2022 30 June 2021
GBP'000 GBP'000
------------------------------------------- -------------- --------------
Valuation and other professional fees 1,143 1,008
Auditor's remuneration for:
- statutory audit of the Company 118 104
- statutory audit of the Company's
subsidiaries 230 184
- review of interim financial information 16 15
Other taxation compliance and advisory* 361 436
Public relations and marketing 327 213
Directors' fees 214 181
Secretarial and administration fees 177 172
Direct property costs 160 32
Printing, postage and website 111 92
Listing and Registrar fees 102 78
Other 204 102
Total other expenses 3,163 2,617
------------------------------------------- -------------- --------------
* The other taxation compliance and advisory fees were all paid
to parties other than the Company's Auditor.
4. Earnings per share and Net Asset Value per share
Earnings per share
Year ended 30 June Year ended 30 June
2022 2021
---------------------- ----------------------
Pence per Pence per
GBP'000 share GBP'000 share
-------------------------- -------- ------------ -------- ------------
Revenue earnings 29,459 4.92 25,308 5.32
Capital earnings 19,638 3.28 18,576 3.91
Total earnings 49,097 8.20 43,884 9.23
-------------------------- -------- ------------ -------- ------------
Average number of shares
in issue 599,093,808 475,406,929
-------------------------- -------- ------------ -------- ------------
There were no dilutive shares or potentially dilutive shares in
issue.
EPRA is an industry body which issues best practice reporting
guidelines for property companies and the Group report an EPRA NAV
quarterly. EPRA has issued best practice recommendations for the
calculation of certain figures which are included below. Other EPRA
measures are included in the section below entitled EPRA
Performance Measures.
The EPRA earnings are arrived at by adjusting for the
revaluation movements on investment properties and other items of a
capital nature and represents the revenue earned by the Group.
The Group's specific adjusted EPRA earnings adjusts the EPRA
earnings for rental income arising from recognising guaranteed
rental review uplifts and for development interest received from
developers in relation to monies advanced under forward fund
agreements which, in the Group's IFRS financial statements, is
required to be offset against the book cost of the property under
development. The Board believes that the Group's specific adjusted
EPRA earnings represents the underlying performance measure
appropriate for the Group's business model as it illustrates the
underlying revenue stream and costs generated by the Group's
property portfolio.
The reconciliations are provided in the table below:
Year
Year ended ended
30 June 30 June
2022 2021
GBP'000 GBP'000
------------------------------------------------------ ----------- ---------
Earnings per IFRS Consolidated Statement of
Comprehensive Income 49,097 43,884
Adjusted for gains on investment properties
realised - (1,306)
Adjusted for revaluations of investment properties (5,553) (9,536)
Adjusted for revaluations of properties held
for sale 7 92
Adjusted for other capital items (3,877) 913
------------------------------------------------------ ----------- ---------
EPRA earnings 39,674 34,047
Adjusted for rental income arising from recognising
guaranteed rent review uplifts (10,215) (8,739)
Adjusted for development interest under forward
fund agreements 783 647
Group specific adjusted EPRA earnings 30,242 25,955
Earnings per share ('EPS') (pence per share)
EPS per IFRS Consolidated Statement of Comprehensive
Income 8.20 9.23
EPRA EPS 6.62 7.16
Group specific adjusted EPRA EPS 5.05 5.46
------------------------------------------------------ ----------- ---------
Net Asset Value per share
The Group's Net Asset Value per ordinary share of 112.7 pence
(2021: 110.5 pence) is based on equity shareholders' funds of
GBP698,767,000 (2021: GBP565,185,000) and on 620,237,346 (2021:
511,541,694) ordinary shares, being the number of shares in issue
at the year-end.
The EPRA best practice recommendations include a set of EPRA NAV
metrics that are arrived at by adjusting the net asset value
calculated under International Financial Reporting Standards
('IFRS') to provide stakeholders with what EPRA believe to be the
most relevant information on the fair value of the assets and
liabilities of a real estate investment company, under different
scenarios. The three EPRA NAV metrics are:
-- EPRA Net Reinstatement Value ('NRV'): Assumes that entities
never sell assets and aims to represent the value required to
rebuild the entity. The objective is to highlight the value of net
assets on a long-term basis. Assets and liabilities that are not
expected to crystallise in normal circumstances, such as the fair
value movements on financial derivatives, are excluded and the
costs of recreating the Group through investment markets, such as
property acquisition costs and taxes, are included.
-- EPRA Net Tangible Assets ('NTA'): Assumes that entities buy
and sell assets, thereby crystallising certain levels of
unavoidable deferred tax. Given the Group's REIT status, it is not
expected that significant deferred tax will be applicable to the
Group.
-- EPRA Net Disposal Value ('NDV'): Represents the shareholders'
value under a disposal scenario, where deferred tax, financial
instruments and certain other adjustments are calculated to the
full extent of their liability, net of any resulting tax. At 30
June 2022, the Group held all its material balance sheet items at
fair value, or at a value considered to be a close approximation to
fair value, in its financial statements apart from its fixed-rate
debt facility where the fair value is estimated to be lower than
the nominal value. See note 8 for further details on the Group's
loan facilities.
2022 2022 2022 2021 2021 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 698,767 698,767 698,767 565,185 565,185 565,185
Fair value of interest
rate swap (2,284) (2,284) - (251) (251) -
Fair value of loans - - 22,257 - - (1,389)
Estimated purchasers'
costs 60,225 - - 44,696 - -
------------------------ --------- --------- --------- --------- --------- ---------
EPRA net assets 756,708 696,483 721,024 609,630 564,934 563,796
------------------------ --------- --------- --------- --------- --------- ---------
EPRA net assets (pence
per share) 122.0 112.3 116.2 119.2 110.4 110.2
------------------------ --------- --------- --------- --------- --------- ---------
5. Investment properties
Freehold and leasehold properties
As at As at
30 June 30 June 2021
2022
GBP'000 GBP'000
------------------------------------------------------ --------- --------------
Opening market value 677,525 610,084
Opening fixed or guaranteed rent reviews
and lease incentives (47,919) (39,998)
Opening performance payments 1,550 -
------------------------------------------------------ --------- --------------
Opening carrying value 631,156 570,086
------------------------------------------------------ --------- --------------
Disposals - proceeds - (7,616)
- gain on sale - 2,336
Purchases 199,869 52,295
Transfer from properties held for sale 6,830 -
Acquisition costs capitalised 9,671 2,264
Acquisition costs written off (9,671) (2,264)
Unrealised gain realised during the period - (1,030)
Revaluation movement - gains 43,234 26,565
Revaluation movement - losses (15,862) (5,109)
------------------------------------------------------ --------- --------------
Movement in market value 234,071 67,441
Fixed or guaranteed rent reviews and lease
incentives derecognised on disposal or re-tenanting 3,362 1,735
Movement in fixed or guaranteed rent reviews
and lease incentives (12,148) (9,656)
Movement in performance payments 1,250 1,550
------------------------------------------------------ --------- --------------
Movement in carrying value 226,535 61,070
------------------------------------------------------ --------- --------------
Closing market value 911,596 677,525
Closing fixed or guaranteed rent reviews
and lease incentives (56,705) (47,919)
Closing performance payments (see Note 12) 2,800 1,550
------------------------------------------------------ --------- --------------
Closing carrying value 857,691 631,156
------------------------------------------------------ --------- --------------
Changes in the valuation of investment properties Year ended
30 June Year ended
2022 30 June 2021
GBP'000 GBP'000
--------------------------------------------------- ----------- --------------
Gain on sale of investment properties - 2,336
Unrealised gain realised during the year - (1,030)
--------------------------------------------------- ----------- --------------
Gains on sale of investment properties realised - 1,306
Revaluation movement 27,372 21,456
Acquisition costs written off (9,671) (2,264)
Movement in lease incentives (1,933) (917)
Movement in fixed or guaranteed rent reviews (10,215) (8,739)
--------------------------------------------------- ----------- --------------
Gains on revaluation of investment properties 5,553 10,842
--------------------------------------------------- ----------- --------------
The investment properties can be analysed as follows:
As at As at
30 June 30 June 2021
2022
GBP'000 GBP'000
-------------------------------------------- --------- --------------
Standing assets 892,336 655,175
Developments under forward fund agreements 19,260 22,350
-------------------------------------------- --------- --------------
Closing market value 911,596 677,525
-------------------------------------------- --------- --------------
The properties were valued at GBP911,596,000 (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 - Global Standards, incorporating the International
Valuation Standards (the 'Red Book Global', 31 January 2022) issued
by the Royal Institution of Chartered Surveyors ('RICS') on the
basis of Market Value, supported by reference to market evidence of
transaction prices for similar properties. Colliers has recent
experience in the location and category of the investment
properties being valued.
Market Value represents the estimated amount for which an asset
or liability should exchange on the valuation date between a
willing buyer and a willing seller in an arm's length transaction,
after proper marketing where the parties had each acted
knowledgeably, prudently and without compulsion. The quarterly
property valuations are reviewed by the Board at each Board
meeting. The fair value of the properties after adjusting for the
movement in the fixed or guaranteed rent reviews and lease
incentives was GBP857,691,000 (2021: GBP631,156,000). The
adjustment consisted of GBP48,802,000 (2021: GBP41,949,000)
relating to fixed or guaranteed rent reviews and GBP7,903,000
(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
accounts as non-current or current assets within 'trade and other
receivables'. An adjustment is also made to reflect the amount by
which the portfolio value is expected to increase if the
performance payments recognised in 'trade and other payables' are
paid and the passing rent at the relevant property increased
accordingly (see Note 12). The total purchases in the year to 30
June 2022, inclusive of the performance payments recognised, were
GBP201,119,000 (2021: GBP53,845,000).
6. Properties held for sale
As at As at
30 June 30 June 2021
2022
GBP'000 GBP'000
-------------------------------------------- --------- --------------
Opening fair value 7,320 7,500
Purchases - 300
Disposals - proceeds (483) (388)
- gain on sale 122 34
Unrealised gain realised during the period (129) (126)
Transfer to investment properties (6,830) -
-------------------------------------------- --------- --------------
Closing fair value - 7,320
-------------------------------------------- --------- --------------
The properties held for sale were valued 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. Certain of
the apartments are being rented on a short-term basis whilst
awaiting sale.
As the apartments have been held for a period of more than
twelve months since initial acquisition, they have been
reclassified as investment properties and transferred at their fair
value at 30 June 2022. However, there is no change to the Group's
commercial intention in relation to these apartments which is to
sell the leasehold on the individual apartments in the short to
medium term.
7. Investment in subsidiary undertakings
The Group included 57 subsidiary companies as at 30 June 2022
(30 June 2021: 50). All subsidiary companies were wholly owned,
either directly or indirectly, by the Company and, from the date of
acquisition onwards, the principal activity of each company within
the Group was to act as an investment and property company. Other
than one subsidiary incorporated in Jersey, two subsidiaries
incorporated in Gibraltar and two subsidiaries incorporated in
Luxembourg, all subsidiaries are incorporated within the United
Kingdom.
During the period, the Group incorporated five new subsidiaries,
THR Number 41 Limited, THR Number 42 Limited, THR Number 43 plc,
THR Number 45 Limited and THR Number 46 Limited. The Group also
acquired two new companies which have been renamed THR Number 47
Limited and THR Number 48 Limited. The Group includes eight
companies which were acquired as part of previous corporate
acquisitions and which, having remained dormant throughout the
year, have been placed into liquidation.
8. Bank loans
As at
30 June As at
2022 30 June 2021
GBP'000 GBP'000
------------------------------ --------- --------------
Principal amount outstanding 234,750 130,000
Set-up costs (4,315) (2,476)
Amortisation of set-up costs 948 380
------------------------------ --------- --------------
Total 231,383 127,904
------------------------------ --------- --------------
In November 2020, the Group entered into a GBP70,000,000
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 GBP50,000,000
of the facility and 2.33 per cent per annum on the remaining
GBP20,000,000 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 GBP20,000,000 of any undrawn element of the
facility, reducing to 1.05 per cent per annum thereafter. As at 30
June 2022, the Group had drawn GBP50,000,000 under this facility
(2021: GBP30,000,000).
In November 2020, the Group entered into a GBP100,000,000
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 30 June 2022, the Group had
drawn GBP34,750,000 under this facility (2021: GBP50,000,000).
In January 2020, the Group entered into a GBP50,000,000
committed term loan facility with Phoenix Group which is repayable
on 12 January 2032. During the period, the Group entered into
further committed term loan facilities of GBP37,250,000, also
repayable on 12 January 2032, and of GBP62,750,000, 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 30 June 2022, the Group had drawn GBP150,000,000 under these
facilities (2021: GBP50,000,000).
The following interest rate swap was in place during the year
ended 30 June 2022. to hedge the GBP30,000,000 RBS committed term
loan:
Notional Interest Counter-party
Value Starting Ending Date Paid Interest Received
Date
----------- ----------- -------------- --------- -------------------- --------------
Daily compounded
SONIA (floor
5 November 5 November at
30,000,000 2020 2025 0.30% -0.08%) RBS
----------- ----------- -------------- --------- -------------------- --------------
Inclusive of all interest rate swaps, the interest rate on
GBP180,000,000 of the Group's borrowings is fixed, including the
amortisation of arrangement costs, at an all-in rate of 3.22 per
cent per annum until at least 5 November 2025. The remaining
GBP140,000,000 of debt, of which GBP54,750,000 was drawn at 30 June
2022, would, if fully drawn, carry interest at a variable rate
equal to SONIA plus a weighted average lending margin, including
the amortisation of arrangement costs, of 2.44 per cent per
annum.
The fair value of the interest rate swap at 30 June 2022 was an
aggregate asset of GBP2,284,000 (2021: GBP251,000) and all interest
rate swaps are categorised as level 2 in the fair value
hierarchy.
At 30 June 2022, the nominal value of the Group's loans equated
to GBP234,750,000 (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
treasury plus an estimated margin based on market conditions at 30
June 2022, totalled, in aggregate, GBP212,493,000 (2021:
GBP131,389,000). The payment required to redeem the loans in full,
incorporating the terms of the Spens clause in relation to the
Phoenix Group facilities, would have been GBP239,728,000 (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 Phoenix Group loans of GBP50,000,000 and GBP37,250,000 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 Phoenix Group
loan of GBP62,750,000 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 GBP795,949,000 as at 30 June 2022
(2021: GBP525,526,000).
Under the bank covenants related to the loans, the Group is to
ensure that:
- the loan to value percentage for each of THR1 Group and THR15
Group does not exceed 50 per cent;
- the loan to value percentage for THR12 Group 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 THR12 Group and THR43 is greater than 10
per cent on any calculation date.
All bank loan covenants have been complied with during the
year.
Analysis of net debt:
Cash Cash and
and cash cash equivalents
equivalents Borrowing Net debt Borrowing Net debt
2022 2022 2022 2021 2021 2021
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- ------------- ------------ ----------- ------------------ ------------ -----------
Opening balance 21,106 (127,904) (106,798) 36,440 (150,135) (113,695)
Cash flows 13,377 (102,911) (89,534) (15,334) 23,538 8,204
Non-cash flows - (568) (568) - (1,307) (1,307)
----------------- ------------- ------------ ----------- ------------------ ------------ -----------
Closing balance 34,483 (231,383) (196,900) 21,106 (127,904) (106,798)
----------------- ------------- ------------ ----------- ------------------ ------------ -----------
9. Share capital
Allotted, called-up and fully paid ordinary Number of
shares of GBP0.01 each shares GBP'000
--------------------------------------------- ------------ --------
Balance as at 30 June 2021 511,541,694 5,115
Issued on 9 September 2021 108,695,652 1,087
--------------------------------------------- ------------ --------
Balance as at 30 June 2022 620,237,346 6,202
--------------------------------------------- ------------ --------
Under the Company's Articles of Association, the Company may
issue an unlimited number of ordinary shares. Ordinary shareholders
are entitled to all dividends declared by the Company and to all of
the Company's assets after repayment of its borrowings and ordinary
creditors. Ordinary shareholders have the right to vote at meetings
of the Company. All ordinary shares carry equal voting rights.
During the year to 30 June 2022, the Company issued 108,695,652
(2021: 54,054,054) ordinary shares raising gross proceeds of
GBP125,000,000 (2021: GBP60,000,000). The consideration received in
excess of the par value of the ordinary shares issued, net of the
expenses of issue of GBP2,508,000 (2021: GBP1,684,000), has been
credited to the share premium account.
During the year to 30 June 2022, the Company did not repurchase
any ordinary shares into treasury (2021: nil) or resell any
ordinary shares from treasury (2021: nil). At 30 June 2022, the
Company did not hold any shares in treasury (2021: nil).
Capital management
The Group's capital is represented by the share capital, share
premium, merger reserve, distributable reserve, hedging reserve,
capital reserve, revenue reserve and long-term borrowings. The
Group is not subject to any externally-imposed capital
requirements, other than the financial covenants on its loan
facilities as detailed in note 8.
The capital of the Group is managed in accordance with its
investment policy, in pursuit of its investment objective.
Capital risk management
The objective of the Group is to provide ordinary shareholders
with an attractive level of income together with the potential for
income and capital growth from investing in a diversified portfolio
of freehold and long leasehold care homes that are let to care home
operators; and other healthcare assets in the UK.
The Board has responsibility for ensuring the Group's ability to
continue as a going concern. This involves the ability to borrow
monies in the short and long term; and pay dividends out of
reserves, all of which are considered and approved by the Board on
a regular basis.
To maintain or adjust the capital structure, the Company may
adjust the dividend payment to shareholders, return capital to
shareholders, issue new shares or buyback shares for cancellation
or for holding in treasury. The Company may also increase or
decrease its level of long-term borrowings.
Where ordinary shares are held in treasury these are available
to be sold to meet on-going market demand. The ordinary shares will
be sold only at a premium to the prevailing NAV per share. The net
proceeds of any subsequent sales of shares out of treasury will
provide the Company with additional capital to enable it to take
advantage of investment opportunities in the market and make
further investments in accordance with the Company's investment
policy and within its appraisal criteria. Holding shares in
treasury for this purpose assists the Company in matching its
on-going capital requirements to its investment opportunities and
therefore reduces the negative effect of holding excess cash on its
balance sheet over the longer term.
No changes were made in the objectives, policies or processes
during the year.
10. Financial instruments
Consistent with its objective, the Group holds UK care home
property investments. In addition, the Group's financial
instruments comprise cash, bank loans and receivables and payables
that arise directly from its operations. The Group's exposure to
derivative instruments consists of interest rate swaps used to fix
the interest rate on the Group's variable rate borrowings.
The Group is exposed to various types of risk that are
associated with financial instruments. The most important types are
credit risk, liquidity risk, interest rate risk and market price
risk. There is no foreign currency risk as all assets and
liabilities of the Group are maintained in pounds sterling.
The Board reviews and agrees policies for managing the Group's
risk exposure. These policies are summarised below and have
remained unchanged for the year under review. These disclosures
include, where appropriate, consideration of the Group's investment
properties which, whilst not constituting financial instruments as
defined by IFRS, are considered by the Board to be integral to the
Group's overall risk exposure.
Credit risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Group. At the reporting date, the Group's financial assets
exposed to credit risk amounted to GBP38,996,000 (2021:
GBP24,563,000), consisting of cash of GBP34,483,000 (2021:
GBP21,106,000), net rent receivable of GBP906,000 (2021:
GBP955,000), VAT recoverable of GBP1,387,000 (2021: GBP732,000),
accrued development interest of GBP452,000 (2021: GBP739,000) and
other debtors of GBP1,768,000 (2021: GBP1,031,000).
In the event of default by a tenant if it is in financial
difficulty or otherwise unable to meet its obligations under the
lease, the Group will suffer a rental shortfall and incur
additional expenses until the property is relet. These expenses
could include legal and surveyor's costs in reletting, maintenance
costs, insurances, rates and marketing costs and may have a
material adverse impact on the financial condition and performance
of the Group and/or the level of dividend cover. The Group may also
require to provide rental incentives to the incoming tenant. The
Board receives regular reports on concentrations of risk and any
tenants in arrears. The Investment Manager monitors such reports in
order to anticipate, and minimise the impact of, defaults by
occupational tenants. The expected credit risk in relation to
tenants is an inherent element of the due diligence considered by
the Investment Manager on all property transactions with an
emphasis being placed on ensuring that initial rents are set at a
sustainable level. The risk is further mitigated by rental deposits
or guarantees where considered appropriate. The majority of rental
income is received in advance.
As at 30 June 2022, the Group had recognised a credit loss
allowance totalling GBP6,963,000 against a gross rent receivable
balance of GBP7,399,000 and gross loans to tenants totalling
GBP1,097,000. Whilst this allowance has increased during the year
ended 30 June 2022, it remains low relative to the Group's overall
balance sheet, and relates primarily to the tenant of two immature
homes where rent is now being received in full in relation to one
of the homes, and partial rent being received in relation to the
other. As at 30 June 2021, the gross rent receivable was
GBP4,641,000, of which GBP40,000 was subsequently recovered,
GBP147,000 was written off and GBP4,454,000 is still outstanding.
There were no other financial assets which were either past due or
considered impaired at 30 June 2022 (2021: nil).
All of the Group's cash is placed with financial institutions
with a long-term credit rating of BBB or better. Bankruptcy or
insolvency of such financial institutions may cause the Group's
ability to access cash placed on deposit to be delayed, limited or
lost. Should the credit quality or the financial position of the
banks currently employed significantly deteriorate, cash holdings
would be moved to another bank.
Should the Group hold significant cash balances for an extended
period, then counterparty risk will be spread, by placing cash
across different financial institutions. At 30 June 2022 the Group
held GBP34.5 million (2021: GBP20.9 million) with The Royal Bank of
Scotland plc and GBPnil (2021: GBP0.2 million) with HSBC Bank
plc.
Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulties in realising assets or otherwise raising funds to meet
financial commitments. The Group's investments comprise UK care
homes. Property and property-related assets in which the Group
invests are not traded in an organised public market and may be
illiquid. As a result, the Group may not be able to liquidate
quickly its investments in these properties at an amount close to
their fair value in order to meet its liquidity requirements.
The Group's liquidity risk is managed on an on-going basis by
the Investment Manager and monitored on a quarterly basis by the
Board. In order to mitigate liquidity risk the Group aims to have
sufficient cash balances (including the expected proceeds of any
property sales) to meet its obligations for a period of at least
twelve months.
Interest rate risk
Some of the Company's financial instruments are
interest-bearing. Interest-rate risk is the risk that future cash
flows will change adversely as a result of changes in market
interest rates.
The Group's policy is to hold cash in variable rate or
short-term fixed rate bank accounts. At 30 June 2022 interest was
being received on cash at a weighted average variable rate of nil
(2021: nil). Exposure varies throughout the period as a consequence
of changes in the composition of the net assets of the Group
arising out of the investment and risk management policies. These
balances expose the Group to cash flow interest rate risk as the
Group's income and operating cash flows will be affected by
movements in the market rate of interest.
The Group has GBP170,000,000 (2021: GBP170,000,000) of committed
term loans and revolving credit facilities which were charged
interest at a rate of SONIA plus the relevant margin. At the
year-end GBP84,750,000 of the variable rate facilities had been
drawn down (2021: GBP80,000,000). The fair value of the variable
rate borrowings is affected by changes in the market rate of the
lending margin that would apply to similar loans. The variable rate
borrowings are carried at amortised cost and the Group considers
this to be a close approximation to fair value at 30 June 2022 and
30 June 2021.
The Group has not hedged its exposure on GBP54,750,000 of the
drawn variable rate borrowings at 30 June 2022 (2021:
GBP50,000,000). On these loans the interest was payable at a
variable rate equal to SONIA plus the weighted average lending
margin, including the amortisation of costs, of 2.43 per cent per
annum (2021: 2.43 per cent). The variable rate borrowings expose
the Group to cash flow interest rate risk as the Group's income and
operating cash flows will be affected by movements in the market
rate of interest.
The Group has fixed rate term loans totalling GBP150,000,000
(2021: GBP50,000,000) and has hedged its exposure on GBP30,000,000
(2021: GBP30,000,000) of the variable rate loans, as referred to
above, through entering into a fixed rate interest rate swap.
Fixing the interest rate exposes the Group to fair value interest
rate risk as the fair value of the fixed rate borrowings, or the
fair value of the interest rate swap used to fix the interest rate
on an otherwise variable rate loan, will be affected by movements
in the market rate of interest. The GBP150,000,000 fixed rate term
loans are carried at amortised cost on the Group's balance sheet,
with the estimated fair value and cost of repayment being disclosed
in note 8, whereas the fair value of the interest rate swap is
recognised directly on the Group's balance sheet. At 30 June 2022,
an increase of 0.25 per cent in interest rates would have increased
the fair value of the interest rate swap asset and increased the
reported total comprehensive income for the year by GBP211,000
(2021: GBP298,000). The same movement in interest rates would have
decreased the fair value of the fixed rate term loans by an
aggregate of GBP2,822,000 (2021: GBP1,106,000); however, as the
fixed rate loan is held at amortised cost, the reported total
comprehensive income for the year would have remained unchanged. A
decrease in interest rates would have had an approximately equal
and opposite effect.
Market price risk
The management of market price risk is part of the investment
management process and is typical of a property investment company.
The portfolio is managed with an awareness of the effects of
adverse valuation movements through detailed and continuing
analysis, with an objective of maximising overall returns to
shareholders. Investments in property and property-related assets
are inherently difficult to value due to the individual nature of
each property. As a result, valuations are subject to substantial
uncertainty. There is no assurance that the estimates resulting
from the valuation process will reflect the actual sales price even
where such sales occur shortly after the valuation date. Such risk
is minimised through the appointment of external property
valuers.
The external valuers are mindful of the potential impacts ESG
may have on capital and rental valuations. Currently in the UK, the
external valuers have not seen consistent prima facie evidence to
suggest that ESG has a direct impact on the valuation of all
commercial and residential buildings. However, as the UK real
estate market continues to adapt to ESG development practices and
legislative requirements, the valuers anticipate an evolution in
the analysis undertaken when providing real estate valuations. This
may potentially impact on the valuation of a property over the
course of a typical investment period.
11. Capital commitments
The Group had capital commitments as follows:
30 June 30 June 2021
2022 GBP'000
GBP'000
--------------------------------------------------- --------- -------------
Amounts due to complete forward fund developments 34,458 21,054
Other capital expenditure commitments 3,594 3,158
--------------------------------------------------- --------- -------------
Total 38,052 24,212
--------------------------------------------------- --------- -------------
12. Contingent assets and liabilities
As at 30 June 2022, fourteen (2021: twelve) properties within
the Group's investment property portfolio contained performance
payment clauses meaning that, subject to contracted performance
conditions being met, further capital payments totalling
GBP13,320,000 (2021: GBP20,025,000) 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 performance payments 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 performance payments made
would be expected to result in a commensurate increase in the value
of the Group's investment property portfolio.
Having assessed each clause on an individual basis, the Group
has determined that the contracted performance conditions were
highly likely to be met in relation to two of these properties and
therefore at 30 June 2022 an amount of GBP2,800,000 (2021:
GBP1,550,000) has been recognised as a liability. An equal but
opposite amount has been recognised as an asset in 'investment
properties' in note 5 to reflect the increase in the investment
property value that would be expected to arise were the performance
payments to be paid and the contracted rental income increased
accordingly.
13. Related party transactions
The Board of Directors is considered to be a related party. No
Director has an interest in any transactions which are, or were,
unusual in their nature or significant to the nature of the Group.
The Directors of the Group received fees for their services. Total
fees for the year were GBP214,000 (2021: GBP181,000) of which
GBPnil (2021: GBP12,000) remained payable at the year-end.
The Investment Manager received GBP7,307,000 (inclusive of
irrecoverable VAT) in management fees in relation to the year ended
30 June 2022 (2021: GBP5,796,000). Of this amount GBP1,895,000
(2021: GBP1,551,000) remained payable at the year-end. The
Investment Manager received a further GBP151,000 (inclusive of
irrecoverable VAT) during the year ended 30 June 2022 (2021:
GBP146,000) in relation to its appointment as Company Secretary and
Administrator, of which GBP38,000 (2021: GBP36,000) remained
payable at the year end. Certain employees of the Investment
Manager are directors of some of the Group's subsidiaries. Neither
they nor the Investment Manager receive any additional remuneration
in relation to fulfilling this role.
There were related party transactions within the Group and its
wholly-owned subsidiaries which are eliminated upon
consolidation.
14. Operating segments
The Board has considered the requirements of IFRS 8 'Operating
Segments'. The Board is of the view that the Group is engaged in a
single segment of business, being property investment, and in one
geographical area, the United Kingdom, and that therefore the Group
has only a single operating segment. The Board of Directors, as a
whole, has been identified as constituting the chief operating
decision maker of the Group. The key measure of performance used by
the Board to assess the Group's performance is the EPRA NTA. The
reconciliation between the NAV, as calculated under IFRS, and the
EPRA NTA is detailed in note 4.
The view that the Group is engaged in a single segment of
business is based on the following considerations:
- One of the key financial indicators received and reviewed by
the Board is the total return from the property portfolio taken as
a whole;
- There is no active allocation of resources to particular types
or groups of properties in order to try to match the asset
allocation of the benchmark; and
- The management of the portfolio is ultimately delegated to a single property manager, Target.
15. Post balance sheet events
As at 10 October 2022, the Company's share price was 86.0 pence
per share (30 June 2022: 108.4 pence).
16. Financial statements
This statement was approved by the Board on 11 October 2022. It
is not the Company's full statutory financial statements in terms
of Section 434 of the Companies Act 2006. The statutory annual
report and financial statements for the year ended 30 June 2022 has
been approved and audited and received an unqualified audit report
which did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying the
report. The statutory annual report and financial statements for
the year to 30 June 2022 will be posted to shareholders in
October/November 2022 and will be available for inspection at Level
13, Broadgate Tower, 20 Primrose Street, London, EC2A 2EW, the
registered office of the Company.
The statutory annual report and financial statements will be
made available on the website www.targethealthcarereit.co.uk .
Copies may also be obtained from Target Fund Managers Limited,
Glendevon House, Castle Business Park, Stirling FK9 4TZ.
The audited financial statements for the year to 30 June 2022
will be lodged with the Registrar of Companies following the Annual
General Meeting to be held on 6 December 2022.
Alternative Performance Measures
The Company uses Alternative Performance Measures ('APMs'). APMs
do not have a standard meaning prescribed by GAAP and therefore may
not be comparable to similar measures presented by other entities.
The definitions of all APMs used by the Company are highlighted in
the glossary contained in the Annual Report, with detailed
calculations, including reconciliation to the IFRS figures where
appropriate, being set out below and within the EPRA Performance
Measures which follow.
Discount or Premium - the share price of an Investment Company
is derived from buyers and sellers trading their shares on the
stock market. This price is not identical to the NAV. If the share
price is lower than the NAV per share, the shares are trading at a
discount and, if the share price is higher than the NAV per share,
are said to be at a premium. The figure is calculated at a point in
time and, unless stated otherwise, the Company measures its
discount or premium relative to the EPRA NTA per share.
2022 2021
pence pence
------------------------------------ ----------- ------- -------
EPRA Net Tangible Assets per share
(see note 4) (a) 112.3 110.4
Share price (b) 108.4 115.4
------------------------------------ ----------- ------- -------
(Discount)/premium = (b-a)/a (3.5)% 4.5%
------------------------------------ ----------- ------- -------
Dividend Cover - the percentage by which Group specific adjusted
EPRA earnings for the year cover the dividend paid.
2022 2021
GBP'000 GBP'000
-------------------------------------- --------- --------- ---------
Group-specific EPRA earnings for the
year (see note 4) (a) 30,242 25,955
First interim dividend 10,482 7,686
Second interim dividend 10,482 7,686
Third interim dividend 10,482 8,594
Fourth interim dividend 10,482 8,594
------------------------------------------------- --------- ---------
Dividends paid in relation to the
year (b) 41,928 32,560
Dividend cover = (a/b) 72% 80%
-------------------------------------- --------- --------- ---------
Ongoing Charges - a measure of all operating costs incurred in
the reporting period, calculated as a percentage of average net
assets in that year. Operating costs exclude costs of buying and
selling investments, interest costs, taxation, non-recurring costs
and the costs of buying back or issuing ordinary shares.
2022 2021
GBP'000 GBP'000
------------------------------------------- --------- --------- ---------
Investment management fee 7,307 5,796
Other expenses 3,163 2,617
Less direct property costs and other
non-recurring items (347) (263)
Adjustment to management fee arrangements
and irrecoverable VAT* 312 49
------------------------------------------------------ --------- ---------
Total (a) 10,435 8,199
------------------------------------------- --------- --------- ---------
Average net assets (b) 693,292 528,035
Ongoing charges = (a/b) 1.51% 1.55%
------------------------------------------- --------- --------- ---------
* Based on the Group's net asset value at 30 June 2022, the
management fee is expected to be paid at a weighted average rate of
1.02% (2021: 1.04%) of the Group's average net assets plus an
effective irrecoverable VAT rate of approximately 7% (2021: 7%).
The management fee has therefore been amended so that the Ongoing
Charges figure includes the expected all-in management fee rate of
1.10% (2021: 1.11%).
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.
2022 2021
------------------------ --------- ------------------------------- -------------------------------
EPRA IFRS Share EPRA IFRS Share
NTA NAV price NTA NAV price
(pence) (pence) (pence) (pence) (pence) (pence)
------------------------ --------- --------- --------- --------- --------- --------- ---------
Value at start of year (a) 110.4 110.5 115.4 108.1 108.0 110.0
Value at end of year (b) 112.3 112.7 108.4 110.4 110.5 115.4
------------------------ --------- --------- --------- --------- --------- --------- ---------
Change in value during
year (b-a) (c) 1.9 2.2 (7.0) 2.3 2.5 5.4
Dividends paid (d) 6.8 6.8 6.8 6.7 6.7 6.7
Additional impact of
dividend reinvestment (e) 0.3 0.3 (0.2) 0.5 0.4 0.3
------------------------ --------- --------- --------- --------- --------- --------- ---------
Total gain in year
(c+d+e) (f) 9.0 9.3 (0.4) 9.5 9.6 12.4
------------------------ --------- --------- --------- --------- --------- --------- ---------
Total return for the
year = (f/a) 8.1% 8.4% (0.3)% 8.8% 8.9% 11.3%
------------------------ --------- --------- --------- --------- --------- --------- ---------
EPRA Performance Measures
The European Public Real Estate Association is the industry body
representing listed companies in the real estate sector. EPRA
publishes Best Practice Recommendations ('BPR') to establish
consistent reporting by European property companies. Further
information on the EPRA BPR can be found at www.epra.com .
The figures below are calculated and presented in line with the
BPR Guidelines published by EPRA in February 2022.
2022 2021
---------------------------------------------------- -------- --------
EPRA Net Reinstatement Value (GBP'000) 756,708 609,630
EPRA Net Tangible Assets (GBP'000) 696,483 564,934
EPRA Net Disposal Value (GBP'000) 721,024 563,796
EPRA Net Reinstatement Value per share (pence) 122.0 119.2
EPRA Net Tangible Assets per share (pence) 112.3 110.4
EPRA Net Disposal Value per share (pence) 116.2 110.2
EPRA Earnings (GBP'000) 39,674 34,047
Group specific adjusted EPRA earnings (GBP'000) 30,242 25,955
EPRA Earnings per share (pence) 6.62 7.16
Group specific adjusted EPRA earnings per share
(pence) 5.05 5.46
EPRA Net Initial Yield 5.38% 5.76%
EPRA Topped-up Net Initial Yield 5.82% 5.83%
EPRA Vacancy Rate - -
EPRA Cost Ratio - including direct vacancy
costs 21.5% 22.3%
EPRA Group specific adjusted Cost Ratio (including
direct vacancy costs) 27.1% 26.6%
EPRA Cost Ratio - excluding direct vacancy
costs 21.5% 22.3%
EPRA Group specific adjusted Cost Ratio (excluding
direct vacancy costs) 27.1% 26.6%
EPRA Loan-to-Value 24.0% 17.8%
Capital Expenditure (GBP'000) 209,540 54,859
Like-for-like Rental Growth 4.6% 0.1%
---------------------------------------------------- -------- --------
EPRA NAV metrics and EPRA Earnings
Full details of these calculations, including reconciliations of
each to the IFRS measures, are detailed in note 4 to the extract
from the Consolidated Financial Statements.
EPRA Net Initial Yield and EPRA Topped-up Net Initial Yield
EPRA Net Initial Yield is calculated as annualised rental income
based on the cash rents passing at the balance sheet date, less
non-recoverable property operating expenses, divided by the market
value of the property, increased with (estimated) purchasers'
costs. The EPRA Topped-up Net Initial Yield incorporates an
adjustment in respect of the expiration of rent-free periods (or
other unexpired lease incentives).
2022 2021
GBP'000 GBP'000
------------------------------------------- --------- ---------- ----------
Annualised passing rental income based
on cash rents (a) 51,217 40,763
Notional rent expiration of rent-free
periods or other lease incentives 4,259 450
------------------------------------------------------ ---------- ----------
Topped-up net annualised rent (b) 55,476 41,213
------------------------------------------- --------- ---------- ----------
Standing assets including properties held
for sale (see notes 5 and 6) 892,336 662,495
Allowance for estimated purchasers' costs 60,225 44,696
------------------------------------------------------ ---------- ----------
Grossed-up completed property portfolio
valuation (c) 952,561 707,191
------------------------------------------- --------- ---------- ----------
EPRA Net Initial Yield = (a/c) 5.38% 5.76%
EPRA Topped-up Net Initial Yield = (b/c) 5.82% 5.83%
------------------------------------------- --------- ---------- ----------
EPRA Vacancy Rate
EPRA Vacancy Rate is the estimated rental value (ERV) of vacant
space (excluding forward fund developments and properties held for
sale) divided by the contractual rent of the investment property
portfolio, expressed as a percentage.
2022 2021
GBP'000 GBP'000
------------------------------------------- --------- --------- ---------
Annualised potential rental value of (a) - -
vacant premises*
Annualised potential rental value of
the property portfolio (including vacant
properties) (b) 55,476 41,213
------------------------------------------- --------- --------- ---------
EPRA Vacancy Rate = (a/b) - -
------------------------------------------- --------- --------- ---------
* There were no unoccupied properties at either 30 June 2022 or
30 June 2021.
EPRA Cost Ratio
The EPRA cost ratios are produced using EPRA methodology, which
aims to provide a consistent base-line from which companies can
provide additional information, and include all property expenses
and management fees. Consistent with the Group specific adjusted
EPRA earnings detailed in note 4 to the extract from the
Consolidated Financial Statements, similar adjustments have been
made to also present the adjusted Cost Ratio which is thought more
appropriate for the Group's business model.
Year ended Year ended
30 June 30 June 2021
2022 GBP'000
GBP'000
-------------------------------------------- --------------- ----------- --------------
Investment management fee 7,307 5,796
Credit loss allowance and bad debts 3,232 2,717
Other expenses 3,163 2,617
------------------------------------------------------------- ----------- --------------
EPRA costs (including direct vacancy
costs) (a) 13,702 11,130
Specific cost adjustments, if applicable - -
-------------------------------------------- --------------- ----------- --------------
Group specific adjusted EPRA costs
(including direct vacancy costs) (b) 13,702 11,130
-------------------------------------------- --------------- ----------- --------------
Direct vacancy costs (c) - -
-------------------------------------------- --------------- ----------- --------------
Gross rental income per IFRS (d) 63,859 49,980
Adjusted for rental income arising
from recognising guaranteed rent
review uplifts and lease incentives (10,215) (8,739)
Adjusted for surrender premiums recognised (3,877) -
in capital
Adjusted for development interest
under forward fund arrangements 783 647
Group specific adjusted gross rental
income (e) 50,550 41,888
EPRA Cost Ratio (including direct
vacancy costs) = (a/d) 21.5% 22.3%
EPRA Group specific adjusted Cost
Ratio (including direct vacancy costs) = (b/e) 27.1% 26.6%
EPRA Cost Ratio (excluding direct
vacancy costs) = ((a-c)/d) 21.5% 22.3%
EPRA Group specific adjusted Cost
Ratio (excluding direct vacancy costs) = ((b-c)/e) 27.1% 26.6%
-------------------------------------------- --------------- ----------- --------------
EPRA Loan-to-Value
As at As at
30 June 30 June 2021
2022 GBP'000
GBP'000
--------------------------------------- --------- --------- --------------
Borrowings 234,750 130,000
Net payables 18,213 13,113
Cash and cash equivalent (34,483) (21,106)
-------------------------------------------------- --------- --------------
Net debt (a) 218,480 122,007
--------------------------------------- --------- --------- --------------
Investment properties at market value 911,596 677,525
Properties held for sale - 7,320
-------------------------------------------------- --------- --------------
Total property value (b) 911,596 684,845
--------------------------------------- --------- --------- --------------
EPRA Loan-to-Value = (a/b) 24.0% 17.8%
--------------------------------------- --------- --------- --------------
EPRA Capital Expenditure
Year ended Year ended
30 June 30 June 2021
2022 GBP'000
GBP'000
--------------------------------------- ----------- --------------
Acquisitions (including acquisition
costs) 178,830 34,808
Forward fund developments 28,851 20,032
Like-for-like portfolio 1,859 19
---------------------------------------- ----------- --------------
Total capital expenditure 209,540 54,859
Conversion from accrual to cash basis (2,547) (3,459)
---------------------------------------- ----------- --------------
Total capital expenditure on a cash
basis 206,993 51,400
---------------------------------------- ----------- --------------
Like-for-like Rental Growth
Year ended Year ended
30 June 30 June 2021
2022 GBP'000
GBP'000
------------------------------------ --------- ----------- --------------
Opening contractual rent (a) 41,213 39,013
------------------------------------ --------- ----------- --------------
Rent reviews 1,581 686
Movement in variable rental leases - (162)
Re-tenanting of properties 312 (468)
----------------------------------------------- ----------- --------------
Like-for-like rental growth (b) 1,893 56
Acquisitions and developments 12,370 2,582
Disposals - (438)
----------------------------------------------- ----------- --------------
Total movement (c) 14,263 2,200
Closing contractual rent = (a+c) 55,476 41,213
------------------------------------ --------- ----------- --------------
Like-for-like rental growth = (b/a) 4.6% 0.1%
------------------------------------ --------- ----------- --------------
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END
FR UAVURUWURAUA
(END) Dow Jones Newswires
October 12, 2022 02:00 ET (06:00 GMT)
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