TIDMTHRL
RNS Number : 9951E
Target Healthcare REIT PLC
02 November 2022
2 November 2022
Target Healthcare REIT plc and its subsidiaries
("Target Healthcare" or "the Group")
Net Asset Value, update on corporate activity and dividend
declaration
Target Healthcare (LSE: THRL), the UK listed specialist investor
in modern, purpose-built care homes, announces its unaudited
quarterly Net Asset Value ('NAV') as at 30 September 2022, together
with an update on corporate activity, and declares its first
interim dividend for the year ending 30 June 2023.
Corporate activity highlights
Stable financial performance with focus on debt management and
maintaining capital headroom:
-- EPRA Net Tangible Assets ('NTA') per share broadly flat at
112.1 pence (30 June 2022: 112.3 pence), with the like-for-like
portfolio valuation increasing 0.1%, reflecting inflation-linked
annual rental uplifts and completion of portfolio management
initiatives partially offset by outward yield movement on select
assets
-- NAV total return of 1.3% for the quarter (based on EPRA NTA and including dividend)
-- No debt maturity until November 2025 following extension of
GBP100 million HSBC facility by one year
-- Interest costs on drawn debt fully hedged out to November
2025 following entry into interest rate cap in October 2022
-- Net Loan to Value stable at 22.3% (30 June 2022: 22.0%)
-- Capital headroom of GBP42 million net of the Group's development commitments
Improving portfolio trading, with sustained occupancy growth,
increased rent collection and significant arrears collection:
-- Diversified portfolio of 100 assets let to 33 tenants and
valued at GBP913.7 million, following disposal of one non-core home
for carrying value which represented 0.5% of portfolio value
-- 0.3% net increase in contracted rent roll reflecting the
decrease from the above-mentioned disposal and uplifts from rent
reviews and portfolio management initiatives, including a 0.7%
like-for-like increase from 16 rent reviews at an average uplift of
3.8% per annum
-- Portfolio EPRA "topped-up" net initial yield of 5.84% (30 June 2022: 5.82%)
-- Weighted average unexpired lease term of 26.9 years remains
one of the longest in the listed real estate sector (30 June 2022:
27.2 years)
-- High quality, modern and ESG-compliant real estate:
o 93% of the portfolio is A or B EPC rated, and 2030 compliant
with minimum energy efficiency standards
o Leading High social impact from sector-leading real estate
standards: 97% wet-rooms; 47 sqm space per resident; rent per sqm
GBP177
-- Rent collection of 96% (30 June 2022: 94%):
o Arrears collected from seven-home tenant; initiatives in
progress to re-tenant two homes following Covid trading
challenges
-- Mature home resident occupancy has increased to 84%,
maintaining consistent upward trend since February 2022
Kenneth MacKenzie, CEO of Target Fund Managers, commented:
"Our focus this quarter has been securing certainty on debt
costs and availability on our shorter-term facilities and managing
our underperforming assets to improve rent collection.
"We have extended the weighted average term to debt maturity to
6.9 years by exercising our option with the HSBC facility, as well
as capping the remaining drawn debt we had which was not otherwise
fixed or hedged. We have a plan to efficiently manage interest rate
risk on the c.GBP50 million we will draw to fund the construction
of our development assets. We intend to retain capital headroom
beyond our existing portfolio commitments.
"We also made significant operational progress at those assets
still underperforming due to Covid challenges. Two of those homes
are in the process of being transferred to alternative operators.
Having lined up five parties willing to step into the leases on a
seven-home group, we collected in full the rental arrears from the
incumbent tenant and have welcomed their renewed commitment to
those homes. We are encouraged that our view on their future
trading outlook and prospects for long-term profitability was
shared across several parties with specialist knowledge of the
sector and the advantages of modern real estate. We look forward to
our tenant delivering to its residents and staff in the homes and
flourishing in the more favourable trading conditions we are now
seeing.
"Our portfolio is modern, ESG-compliant and provides long-term,
sustainable, inflation-linked income. Given these attributes and
the demographic tailwinds within the care home sector, we would
expect to see downward valuation movements which are more muted
than those anticipated across the wider real estate market. In the
current challenging economic conditions, we will continue to
monitor the resilience of our tenants' trading, as well as the
impact of changes in interest rates and inflation. We will remain
responsive to significant developments and will assess the impact
of these factors on our business model and earnings as volatility
eases towards a more settled outlook, on which longer-term planning
can be based."
Net Total Assets
The Group's unaudited EPRA NTA per share as at 30 September 2022
was 112.1 pence. The total return for the quarter based on EPRA NTA
was 1.3%.
A balance sheet summary and an analysis of the movement in the
EPRA NTA over the quarter is presented at the end of this
announcement in the Appendix.
Corporate Update
Portfolio performance
As at 30 September 2022, the Group's portfolio was valued at
GBP913.7 million and comprised 100 properties, consisting of 96
operational care homes and four pre-let sites, which are being
developed through capped forward funding commitments with
established development partners.
The portfolio value increased by 0.2% over the quarter. This
comprised a 0.5% decrease resulting from the disposal of a non-core
asset, a 0.1% increase in the like-for-like value of the
operational portfolio and 0.6% from further investment into the
development portfolio and performance payments/capital expenditure
on existing assets. The like-for-like movement primarily reflects
the portfolio's inflation-linked rental reviews partially offset by
some outward yield movements on specific assets.
Contractual rent increased by 0.3% over the period,
comprising:
-- 0.8% decrease from the disposal
-- 0.4% increase from performance payments/rentalised capex on existing assets
-- 0.7% increase from 16 inflation-linked upwards-only rent
reviews, with an average uplift of 3.8%
The portfolio's weighted average unexpired lease term was 26.9
years (30 June 2022: 27.2 years).
The portfolio had an EPRA topped-up net initial yield of 5.84%
based on an annualised contractual rent of GBP55.6 million. The
portfolio's EPRA net initial yield was 5.61% with five assets in
rent-free periods.
Acquisitions and other asset management
During the quarter, the following transactions and asset
management initiatives were completed:
-- The disposal of a non-core asset. This care home was part of
the 18-home portfolio acquired in December 2021, with real estate
standards below the average of that portfolio. It has been sold to
the operator for proceeds consistent with carrying value. The home
represented 0.5% of the portfolio by value.
-- Payments totalling GBP2.8 million were made in respect of
contractual commitments on two homes made at original acquisition
in the event of strong trading performance. Rent cover thresholds
have been consistently met over the relevant time period since the
homes opened, triggering the payments which are rentalised at a
level consistent with the acquisition NIY, which maintain rent
cover headroom at investment case level, and increase portfolio
rent by 0.4%.
Debt facilities and swap arrangements
As at 30 September 2022, the Group's total borrowings were
GBP223 million, giving a net LTV of 22.3% (total gross debt less
cash, as a proportion of gross property value). The Group's
weighted average cost on its drawn debt, inclusive of amortisation
of arrangement costs, was 3.49% (30 June 2022: 3.31%). The increase
over the quarter was due to the increase in market interest rates
impacting the variable rate paid on the Group's revolving credit
facilities.
GBP180 million of the drawn debt has been fixed prior to the
rise in interest rates seen during 2022. GBP150 million is fixed
for a weighted average of 11.4 years with a weighted average
interest rate excluding the amortisation of arrangement fees of
3.18%. GBP30 million of the Group's bank facilities is fixed at
2.48% for 3.1 years through an interest rate swap entered into in
November 2020. An interest rate cap was entered into during October
2022 which caps SONIA at 3% on a further GBP50 million of the
Group's revolving credit facilities until November 2025. The
premium paid to acquire the cap equates to 0.4 pence per share.
The Group's GBP100 million revolving credit facility with HSBC
Bank plc was extended by one year, to November 2025, during October
2022. Inclusive of this extension, the weighted average term to
expiry on the Group's total committed loan facilities was 6.9 years
as at 1 November 2022 (30 June 2022: 6.9 years).
Dividends in the period
The Group paid its fourth interim dividend for the year ended 30
June 2022, in respect of the period from 1 April 2022 to 30 June
2022, of 1.69 pence per share, on 26 August 2022 to shareholders on
the register on 12 August 2022. This distribution was comprised
wholly of an ordinary dividend.
Announcement of first interim dividend
The Company today declares its first interim dividend for the
year ending 30 June 2023, in respect of the period from 1 July 2022
to 30 September 2022, of 1.69 pence per share as detailed in the
schedule below:
Interim Property Income Distribution (PID): 1.69 pence per share
Interim ordinary dividend: nil
Ex-Dividend Date: 10 November
2022
Record Date: 11 November
2022
Payment Date: 25 November
2022
The dividend reflects an annualised payment of 6.76 pence per
share and a dividend yield of 7.6% based on the 1 November 2022
closing share price of 89.4 pence.
The Company had 620,237,346 ordinary shares in issue at 30
September 2022 and has not issued or bought back any shares since
that date.
Shareholders entitled to elect to receive distributions without
deduction for withholding tax may complete the declaration form
which is available on request from the Company through the contact
details provided on its website www.targethealthcarereit.co.uk , or
from the Company's registrar. Shareholders who qualify for gross
payments are, principally, UK resident companies, certain UK public
bodies, UK charities, UK pension schemes and the managers of ISAs,
PEPs and Child Trust Funds, in each case subject to certain
conditions. Individuals and non-UK residents do not qualify for
gross payments of distributions and should not complete the
declaration form.
LEI: 213800RXPY9WULUSBC04
ENDS
Enquiries:
Kenneth MacKenzie; Gordon Bland
Target Fund Managers Limited
01786 845 912
Mark Young; Mark Bloomfield
Stifel Nicolaus Europe Limited
020 7710 7600
Dido Laurimore; Richard Gotla
FTI Consulting
020 3727 1000
TargetHealthcare@fticonsulting.com
Notes to editors:
UK listed Target Healthcare REIT plc (THRL) is an externally
managed Real Estate Investment Trust which provides shareholders
with an attractive level of income, together with the potential for
capital and income growth, from investing in a diversified
portfolio of modern, purpose-built care homes.
The Group's portfolio at 30 September 2022 comprised 100 assets
let to 33 tenants with a total value of GBP913.7 million.
The Group invests in modern, purpose-built care homes that are
let to high quality tenants who demonstrate strong operational
capabilities and a strong care ethos. The Group builds
collaborative, supportive relationships with each of its tenants as
it believes working in this way helps raise standards of care and
helps its tenants build sustainable businesses. In turn, that helps
the Group deliver stable returns to its investors.
Important information
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the UK version of the Market Abuse Regulations (EU) No. 596/2014,
which is part of UK law by virtue of the European Union
(Withdrawal) Act 2018, as amended. Upon the publication of this
announcement via Regulatory Information Service, this inside
information is now considered to be in the public domain.
APPENDIX
1. Analysis of movement in EPRA NTA
The following table provides an analysis of the movement in the
unaudited EPRA NTA per share for the period from 1 July 2022 to 30
September 2022:
Pence per
share
------------
EPRA NTA per share as at 30 June 2022 112.3
Revaluation gains / (losses) on investment -
properties
Net Revaluation gains / (losses) on assets
under construction^ (0.1 )
Movement in revenue reserve 1.6
Fourth interim dividend payment for the
year ended 30 June 2022 (1.7)
-------------------------------------------- ------------
EPRA NTA per share as at 30 September
2022 112.1
-------------------------------------------- ------------
Percentage change in the quarter ( 0.2)%
-------------------------------------------- ------------
The EPRA Best Practices Recommendations Guidelines state that
companies should publish a set of three NAV metrics. The full set
of EPRA NAV metrics are published in the Group's Annual Report. The
Company intends to continue to announce the EPRA NTA on a quarterly
basis.
At 30 September 2022, due to the valuation ascribed to the
Group's interest rate derivative contract used to hedge its
exposure to variable interest rates, which is excluded from the
calculation of the EPRA NTA, the unaudited NAV calculated under
International Financial Reporting Standards was 112.8 pence per
share.
^Consistent with standard valuation practice for assets under
construction, the carrying value of these assets is calculated by
the valuer through application of a discount to accumulated costs
to date. This discount varies depending on factors such as the
remaining development time. As the asset progresses towards
completion, the discount that has been applied is unwound.
2. Summary balance sheet (unaudited)
Sep-22 Jun-22 Mar-22 Dec-21
GBPm GBPm GBPm GBPm
Property portfolio* 913.7 911.6 886.8 870.5
Cash 19.6 34.5 42.8 49.0
Net current assets / (liabilities)* (15.2 ) (14.8) (13.4) (9.6)
Bank loans (223.0) (234.8) (222.8) (222.8)
-------- -------- -------- --------
Net assets 695.1 696.5 693.4 687.1
-------- -------- -------- --------
EPRA NTA per share (pence) 112.1 112.3 111.8 110.8
*Properties within the portfolio are stated at the market value
provided by the external valuer and the IFRS effects of
fixed/guaranteed minimum rent reviews are not reflected.
The next quarterly valuation of the property portfolio will be
conducted by Colliers International Healthcare Property Consultants
Limited during January 2023 and the unaudited EPRA NTA per share as
at 31 December 2022 is expected to be announced in January
2023.
3. EPRA NIY profiles and unwind of rent-free periods
The Group currently has five assets with rent-free periods. As
these unwind, assuming no other changes including inter alia the
portfolio valuation or rental profile, the EPRA yield profiles for
the portfolio will be as follows:
30 September 31 December 31 March 30 June
2022 2022 2023 2023
EPRA topped-up
NIY 5.84% 5.84% 5.84% 5.84%
------------- ----------- -------- -------
EPRA NIY 5.61% 5.79% 5.84% 5.84%
------------- ----------- -------- -------
Contractual
rent (GBPm) 55.6 55.6 55.6 55.6
------------- ----------- -------- -------
Passing rent
(GBPm) 53.5 55.2 55.6 55.6
------------- ----------- -------- -------
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END
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