TIDMTHRL

RNS Number : 5945P

Target Healthcare REIT PLC

20 October 2021

To: RNS

From: Target Healthcare REIT plc

LEI: 213800RXPY9WULUSBC04

Date: 20 October 2021

ANNUAL RESULTS FOR THE YEARED 30 JUNE 2021

Focus on best-in-class real estate, portfolio diversification and improving sector outlook provides platform for continued 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 2021.

Asset management and yield compression driving high single digit returns and progressive dividend

-- NAV total return(1) of 8.8% (2020: 7.0%), driven by growth of the underlying portfolio value as a result of modest yield compression and annual rental uplifts

   --    EPRA NTA per share increased 2.1% to 110.4 pence (2020: 108.1 pence) 

-- Group specific adjusted EPRA earnings per share increased 3.6% to 5.46 pence per share (2020: 5.27 pence), despite cautious investment activity as a result of COVID-19

-- Continued progressive dividend policy, with dividends increased by 0.6% to 6.72 pence in respect of the period (2020: 6.68 pence)

-- Dividends in respect of the period 80% covered by adjusted EPRA earnings, fully covered based on EPRA earnings

-- Low net loan-to-value ("LTV") of 15.9% as at 30 June 2021 (average cost of drawn debt 2.9%, average term to maturity 4.8 years)

-- Completion of two oversubscribed equity issuances, reflecting the Company's supportive investor base and its conviction in the asset class' fundamentals:

o A GBP60 million equity issuance in March 2021

o A post-period end GBP125 million equity issuance, as announced on 10 September 2021, with prompt deployment anticipated on assets under diligence

Focus on diversification and quality real estate underpins improving income characteristics

   --    Resilient portfolio performance, with 95% of rent collected 

-- Portfolio value increased by GBP67.2 million, or 10.9%, to GBP684.8 million, including like-for-like valuation growth of 3.8% (2020: 2.8%)

-- Contractual rent increased by 5.6% to GBP41.2 million per annum (2020: GBP39.0 million), with the assets that were subject to rent review in the period delivering an average increase of 1.8%

-- Acquisition commitments during the year totalling GBP70 million, taking the portfolio to 77 properties, consisting of 73 operational care homes and four pre-let sites

-- Resident occupancy levels across the mature portfolio continue to recover from the low point in Q1 2021, with twelve-month rolling rent cover of 1.5 times at 30 June 2021.

Responsible investment with a clear purpose to improve the UK's care home real estate

-- Modern, purpose-built care homes; full en suite wet-rooms account for 96% of the portfolio compared to just 28% for all UK care homes

-- Compelling long-term demand supply dynamics support both investor and operator activity in the sector, with recent Government consideration of social care reform and steps towards a funding solution

-- Strong alignment of ESG principles, with continued social purpose and advocacy of minimum real estate standards across the sector

o 92% of the portfolio A or B EPC rated

(1) Based on EPRA NAV movement and dividends paid

Malcolm Naish, Chairman of the Company, said:

"We are once again pleased to have achieved our key objectives: stable investment returns provided to shareholders and excellent care home real estate to our tenants and their residents. It is crucial to us that our longstanding approach is "doing the right thing" through the provision of fit-for-purpose care facilities which are also comfortable living, visiting & social spaces. Our business model, which prioritises stability of returns, and our portfolio resiliency were fundamentals which stood out strongly during a period of uncertainty. We own real estate of the highest standards and build relationships with tenants who have proven to be capable of caring for residents and operating commercially well through the most challenging of conditions.

"Our recent GBP125 million equity issuance, alongside additional debt capacity, allows us to add further assets to the portfolio, including our first significant portfolio of 18 assets which will deliver GBP9.1 million of annual rent immediately following completion of the acquisition, expected imminently.

"The Board remains confident in the Group's prospects, whilst remaining cautious and patient with respect to the portfolio returning to normalised trading levels. Our strategy and decisions will reflect our commitment to being a long-term backer of our tenants and the social care sector, doing so in a responsible and supportive manner."

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 / Claire Turvey /    020 3727 1000 
  Richard Gotla                       targethealthcare@fticonsulting.com 
  FTI Consulting 
 
 

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 2021 comprised 77 assets, 73 operational assets and four pre-let development sites, let to 28 different tenants with a total value of GBP684.8 million.

The Group invests in modern, purpose-built care homes that are let to high quality tenants who demonstrate strong operational capabilities and a strong care ethos. The Group builds collaborative, supportive relationships with each of its tenants as it believes working in this way helps raise standards of care and helps its tenants build sustainable businesses. In turn, that helps the Group deliver stable returns to its investors.

Chairman's Statement

We are once again pleased to have achieved our key objectives: stable investment returns provided to shareholders and excellent care home real estate to our tenants and their residents. It is crucial to us that our longstanding approach is "doing the right thing" through the provision of fit-for-purpose care facilities which are also comfortable living, visiting & social spaces.

1. Performance

Our financial performance during the year has been robust, with EPRA NTA growth of 2.1% (110.4 pence from 108.1 pence) underpinned by a portfolio which has performed resiliently - 95% of rents have been collected, with rent cover at our mature homes, a key underlying profitability metric, at 1.5 times which compares well to the 1.6 times we would expect in normal trading conditions. Our tenants have been reporting steady increases in occupancy since the sector's low point earlier this year as the COVID-19 pandemic eases somewhat.

Growth in the portfolio's valuation has exceeded that which is driven by rental uplifts, with an overall like-for-like increase of 3.8% as market pricing reacts to the portfolio's stable returns relative to other commercial property classes and demand from a number of buyers in the market. Contracted rent has increased by 5.6% to GBP41.2 million and adjusted EPRA earnings have increased by 11.8% to GBP26.0 million. This translates to dividend cover of 80% and an adjusted EPRA EPS of 5.46 pence. Under the more widely-used EPRA earnings metric the dividend was 105% covered.

The COVID-19 pandemic has had an impact on our business, however rental concessions have only been requested by a limited number of our tenants. Physical restrictions have translated to some delays in portfolio initiatives, though we are pleased with progress made more recently with acquisition and re-tenanting transactions as we build and shape a robust portfolio as a basis for long-term stable returns.

We look forward to growing earnings and dividend cover following our recent equity raise and significant pipeline of imminent acquisitions, and take pride in having delivered a NAV total return of 8.8% for the year.

2. Business model and investment case

Whilst financial performance and tenant feedback on our real estate have been satisfying, following the impact of the COVID-19 pandemic it would be inappropriate not to have reflected fully on our strategy and objectives - it is important to us that we can be a supportive partner to the social care sector now and for many years to come.

Our business model is set out in the Annual Report and, whilst we have not amended it significantly in response to COVID-19, our reflections provided three findings of note:

1. We unapologetically use en suite wet-room provision as a proxy for real estate quality. By this, we mean fully private and functional spaces for each resident's personal hygiene requirements, often with assistance. Eleven years into my involvement in the sector I still find it astonishing that 72% of care home places in the UK fail to provide this. This will continue to be a strict requirement of our responsible investment approach.

2. Sustainable rents are crucial. The social care sector needs long-term, patient capital partners who understand and support the investment and commitments made by care providers. Setting rents at appropriate levels to weather variable trading performance, whether that be local/seasonal or pandemic-type events, helps drive good behaviours and long-term thinking at care providers, and investment returns for us. We will continue to act with discipline when assessing what rent a home will support over the long-term.

3. ESG and our responsibilities to society. We take pride in having delivered a positive social impact from day one, both directly via our investment approach and via our wider advocacy of responsible investment in the sector. We will enhance our environmental sustainability efforts, firstly by more explicit incorporation into our acquisition, development and portfolio management activities, and secondly by moving towards comprehensive collection, analysis and reporting of data from our tenants on energy usage at our homes.

3. COVID-19 - outlook

We talk more about the impact and our response in the Annual Report. The most significant impact has been on our tenants in their caring for residents and their staff, and their experience of challenging trading conditions for a prolonged period as resident occupancy levels dropped and remained depressed. Our tenants have responded well, with resident care as a priority, but also commercially and operationally to protect their businesses and meet their obligations to us as long-term capital providers. We are pleased to see underlying resident occupancy levels now recovering and increased optimism from our tenants.

General staff availability, the effect of mandatory vaccinations, and local authority funding constraints will continue to challenge our tenants in the coming weeks and months, though we believe our portfolio is well-placed to manage these and it is comforting to report that COVID-19 cases across the portfolio now are very low. Vigilance will be required in respect of emerging variants, though the booster vaccination programme will benefit residents ahead of the general population. The focus in care homes is on managing the return to normalised occupancy levels safely. As restrictions ease, homes should once again experience the full vibrancy which increased socialising, activities and community interaction bring.

4. Governance

Board Succession

With the majority of the current Directors having been appointed at the Company's launch in 2013, we continue the process of refreshment started in the prior year. Subsequent to the year end, I am pleased to welcome Mr Vince Niblett to the Board. Mr Niblett has many years of financial and commercial experience and is expected to be appointed as Chair of the Audit Committee shortly, with Mr Coull assuming the role of Senior Independent Director. I would also like to take the opportunity to express the Board's gratitude for the service and expertise provided by Mr Hutchison and Professor Andrews, both of whom will retire following the conclusion of the forthcoming AGM.

Annual General Meeting ('AGM')

The AGM will be held on 14 December 2021. 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.

5. Outlook and dividend

I stated last year that our business model, which prioritises stability of returns, and our portfolio resiliency were fundamentals which stood out strongly during a period of uncertainty. We own real estate of the highest standards and build relationships with tenants who have proven to be capable of caring for residents and operating commercially well through the most challenging of conditions. Allied with the non-cyclical, needs-based demand for places in care homes such as ours we are confident in being well-placed to continue to deliver on our objectives.

We once again are grateful for shareholder support by way of our recent GBP125 million equity issuance, which follows our GBP60 million issuance during the year. This capital, alongside additional debt capacity, allows us to add further assets to the portfolio, including our first significant portfolio of 18 assets which will deliver GBP9.1 million of annual rent immediately following completion of the acquisition, expected imminently.

We have carefully considered portfolio performance and trading conditions as we emerge from pandemic conditions in setting our target dividend level for the year to June 2022, and remain committed to providing a progressive dividend. As previously announced, in the absence of unforeseen circumstances, the Board intends to increase quarterly dividend levels by 0.6% to 1.69 pence per share, providing an annual dividend of 6.76 pence per share.

The Board remains confident in the Group's prospects, whilst remaining cautious and patient with respect to the portfolio returning to normalised trading levels. Our strategy and decisions will reflect our commitment to being a long-term backer of our tenants and the social care sector, doing so in a responsible and supportive manner.

Malcolm Naish Chairman

19 October 2021

Investment Manager's Report

The portfolio has outperformed the MSCI UK Annual Healthcare Property Index once again, in respect of the calendar year to 31 December 2020, with a portfolio total return of 8.2% relative to the Index's 6.8%.

Portfolio review

The portfolio has outperformed the MSCI UK Annual Healthcare Property Index once again, in respect of the calendar year to 31 December 2020, with a portfolio total return of 8.2% relative to the Index's 6.8%. The portfolio's annualised total return since launch now stands at 11.2% while the portfolio's last five-year period has an annualised total return of 10.5% relative to 8.6% for the Index.

An analysis of the investment yield progression and the risk/return based on data from MSCI, further details on which are shown in the Annual Report, both demonstrate stable returns and movements consistent with other stable and "lower risk" asset classes in UK gilts and the listed primary healthcare composite which consists primarily of GP surgery funds with almost 100% government-backed underlying income. The portfolio's EPRA topped-up NIY now stands at 5.83%, down from 6.04% in 2020, which reflects well the shift in market pricing we have seen. This valuation level also reflects the portfolio's underlying trading performance, robust rent collection and positive outlook/demand for our real estate through, and emerging from, the COVID-19 pandemic.

The portfolio's low volatility measure is a core aspect of the investment case, which anticipates stable, non-cyclical returns at a total return level which could suggest a mispricing of the asset class. Although we acknowledge this may be partially driven by the relatively low collateral in our tenants' balance sheets (as they tend to be family/owner-managed regional businesses), we believe our investment approach, skill in investment appraisal, and assembly of a diversified portfolio of scale helps in mitigation.

UK care home investment market

The market experienced a subdued 2020 due to the COVID-19 pandemic, as market participants focussed on managing their way through the crisis, protecting residents and their own personnel. Asset visits for inspections, home management meetings and general marketing were logistically difficult, and not a priority for operators regardless.

As restrictions eased later in the year we saw activity pick-up again, with pricing continuing to respond to significant investment demand in what is a competitive market for the type of assets we acquire and hold. We did not see many acquisition opportunities reflecting distressed circumstances as the sector traded robustly, and would expect sales processes for assets whose trading has been significantly affected by COVID-19 to delay until resident occupancy recovers towards normalised levels.

As well as demand from the typical domestic investors, the main change we have noted in the year has been an uptick in activity from European investors, these are generally larger and less specialist healthcare real estate investors whose home markets are saturated and lower-yielding. Their initial forays were into poorer quality real estate, by way of portfolio acquisitions in recent years, though they are currently more active in their pursuit of the real estate we have been advocating for as fit-for-purpose.

None of this is a surprise in a market where only 28% of beds meet our quality standards, and which needs substantial modernisation overall. The non-cyclical nature of returns, which are still relatively high-yielding, make the investment desirable for the income investor. Whilst we welcome new capital to support development of real estate and operator growth, we would argue that specialist knowledge and a committed long-term holder would be characteristics of the suitable investor.

Health & social care

We write at a time when our tenants report a positive outlook and underlying occupancies within the homes they run are increasing towards normalised levels as we emerge from the pandemic. We believe the combination of quality real estate, talented operators, and the demographic tailwinds supporting demand for needs-based care will see this improved trading with time. In the meantime, we note below a number of areas which are prominent in our minds and those of our tenants:

Path to occupancy recovery

Occupancy has been depressed from normal levels in the past 18 months, not necessarily through unusually high deaths, but through lack of admissions as families sought to keep their loved ones at home. Many families found more time to care due to furlough and working from home. As lockdowns dissipate and furloughs come to an end, occupancy is on the rise again, for what is a "needs-based" service. We anticipate steady increases as homes cautiously admit new residents in small numbers, ensuring people settle into their new homes with adequate staffing and care plans effected.

Sector reputation

Early on in the pandemic, care home sector reputations appeared to suffer from the perception operators were unable to adequately protect those in their care, despite the strength of pre-existing infection control protocols which we are now all familiar with applying. More recently that perception has shifted somewhat, as evidence emerged of unreasonable pressure put on operators by the volume of hospital discharge patients into homes with undue haste and lack of robust testing protocols. We pause at this point to pay tribute to those staff who worked through these outbreaks, and the care they provided, and would endorse a positive view of the people in the sector.

Staffing pressures

We see evidence of staffing shortages affecting our sector similar to leisure, hospitality and some logistics businesses. The majority of our tenants feel this will be manageable and are enhancing their recruitment and HR functions in response, as well as taking advantage of some flexibility in immigration allowances to find suitably skilled individuals. Good staffing management is crucial to good care provision, and as the largest single item on a care provider's expense line, is directly core to profitability. Regardless of our tenants' ability to manage this well, we do foresee wage cost inflation in response to these supply-side challenges. We anticipate our tenants will effectively manage these through fee increases, principally through privately-funded residents.

Residual COVID-19 considerations

Mandatory vaccinations for social care staff is a point of discussion currently. Many of our larger tenants are reporting staff vaccination rates at 95% plus, and are not unduly concerned, though find it to be a frustration that other healthcare sectors' staff do not have the same restrictions. We will all be alert to the possibility of new variants and waning immunity with time, though this sector will likely have the advantage of priority access to booster vaccinations and any necessary supplemental vaccination rollouts.

Government policy (support and onwards)

Government minds have once again been concentrated on social care reform and a funding solution. Deadlines for a comprehensive solution via a detailed White Paper have slipped, having been replaced with some interim measures. These measures, whilst bordering on being a weak positive for the sector overall in recognising and delivering some funding, are statistically insignificant given (a) the overall size of the funding need and (b) being unclear on the efficiency of directing funding to the care providers.

Government financial support through the pandemic was, however, well targeted and well-received, with England's Infection Control Fund (similar in other UK nations) covering some of the costs of staff overtime, additional equipment and supplies, as well as the management burden of the testing regime.

Summary

At the height of the pandemic, there were calls to review the use of care homes as a future resource for our ageing elders. We in the social care sector and wider healthcare environment know that to be naïve; care homes will always be required as part of the mix of resources in this rapidly ageing society, but quality of facility must improve, and we are pleased to be at the forefront of that provision.

Target Fund Managers Limited

19 October 2021

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.

Acquisitions and developments

GBP70 million of investment, inclusive of costs, has been committed to five new assets during the year, growing the portfolio to 77 assets, inclusive of 73 operational care homes and four development sites, the latter being underpinned by fixed-price or capped development agreements and which are pre-let on long (30 years plus) FRI leases to trusted operating partners.

These investment commitments made during the year along with the acquisition of a further three assets completed post-period end have fully committed the capital raised in the March 2021 equity issuance.

One of the Group's existing development sites reached practical completion early in the year with that brand new care home in Burscough welcoming residents in July 2020. A further two development sites have reached practical completion since the period end, with the three homes together providing a combined total of 214 new beds to their local markets, all benefiting from en suite wet rooms within modern, fit-for-purpose homes.

Real estate standards: commitment to responsible investing

We have a clear vision on what makes care home real estate fit-for-purpose, with the principal objective that residents can live with choice, dignity and privacy in a comfortable and pleasant environment. We also want intelligent layouts and facilities for our tenants to efficiently deliver their services. We require our homes to include generous bedrooms, spacious communal areas and en suite wetroom facilities that are vital for both dignity during care and for infection control within a home. 96% of the 5,351 beds in the portfolio are equipped with en suite wet rooms while 100% have en suites. We are committed to upgrading the remaining beds in the portfolio that do not meet this minimum requirement as identified during diligence on these acquisitions.

The national comparator on en suite wet rooms has grown to be 28% currently from only 17% in 2017, driven both by the provision of new homes and the exit of many non-compliant older homes from the market.

Diversification

Diversification continues to be a focus for the Group in order to manage portfolio risk with the metrics remaining broadly unchanged from 2020 other than the positive addition of two (net) new tenants bringing the total to 28. The largest tenant is unchanged from 2020 being Ideal Carehomes, accounting for 13.1 per cent of the Group's contractual rent.

Sources of resident fees, the underlying income received by our tenants, continue to originate from both public and private sources, with a deliberate bias towards the latter in our portfolio assembly. Census data collected during the period notes that 44 per cent of the portfolio's underlying residents are funded exclusively from private sources, 18 per cent by a mix of private and public funding, where "top-up" payments are made by Local Authorities, and 38 per cent are funded from public sources.

Geographically, the largest region by asset value remains Yorkshire & the Humber, with 20 per cent. The Group's portfolio contains homes from all regions of the UK and the Investment Manager continues to explore opportunities for acquisitions that will further enhance the existing geographic diversification.

Strategic pillar #2

Sustainable returns from a portfolio management approach with valued relationships as its core

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.

Engaged

The Investment Manager has continued to support the Group's growing base of 28 tenants while the importance of selecting operators demonstrating high levels of care ethos and expertise has been reaffirmed throughout the pandemic. We once again pay tribute to the carers, staff and management who have performed admirably throughout the challenges that the care sector has faced over the last year. As a highly engaged landlord, the Group through its Investment Manager will continue to liaise closely with its tenants to ensure that the Group's income is protected through sustainable rental levels and that we remain supportive of operators that seek to raise the overall standard of care.

As part of our ongoing desire to be an effective and engaged landlord, we invited our tenants to participate in a survey to evaluate their satisfaction with our engagement. The results from this survey were very encouraging:

-- 100% of responders agreed that working with us is a positive experience and that we actively listen, taking time to understand their business, proactively resolving questions and issues.

-- 82% also agreed that we demonstrate our commitment to investing in homes that provide the best environments for residents and their care providers.

We look forward to enhancing this survey in future years to supplement our ongoing discussions with our tenants and addressing any concerns or suggested improvements forthcoming.

As part of our ongoing data gathering and support of our tenants during the year we:

   --      Collected and analysed monthly management information for each home. 
   --      Visited (either virtually or physically) each home in the portfolio. 
   --      Had >1,000 calls/interactions with our operators at all levels of management. 

While these calls were often emotional during lockdown as a number of homes experienced difficulties through COVID-19 outbreaks, the dedication and diligence of the care staff across the portfolio was demonstrated repeatedly while their appreciation for our engagement was also noted.

Performance

The Group's key metrics have performed positively. The portfolio total return has again outperformed the MSCI UK Annual Healthcare Property Index, with a total return for the calendar year to December 2020 of 8.2 per cent relative to the Index's 6.8 per cent.

The portfolio has outperformed the Index each year since launch, as shown in the table below.

 
                             Portfolio total   MSCI Index total 
                                return (%)        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 
                            ----------------  ----------------- 
 

Valuation growth on a like-for-like basis was 3.8 per cent and a substantial driver to overall growth in the portfolio value of 10.9 per cent during the year. The remainder was driven by acquisitions and developments at 4.0 per cent (net of disposals) and 3.1 per cent respectively. Contractual rent increased by 5.6 per cent over the period with new acquisitions, net of disposals, contributing 3.8 per cent and the completion of developments contributing 1.8 per cent. The annual uplifts from rent-reviews in the year of 1.8% were netted off by rental reallocations and adjustments made as a result of asset management initiatives.

Rental collection has continued its robust performance throughout the pandemic, at 95% for the year. This strong performance in a challenging context demonstrates the portfolio's resiliency with its sustainable rent levels and diversified tenant base, further supported by portfolio rent cover of 1.5x. This metric reflects the underlying profitability at the homes, over a period substantially affected by depressed occupancy levels as a result of COVID-19. Sustainable rent levels; commercially astute trading by our tenants; and some government support have each contributed. The portfolio has retained a level of rent cover (1.2x) if non-recurring government contributions are excluded. Recovery in occupancy levels, as reported by our tenants as COVID-19 restrictions ease, provides a platform for the portfolio to return to normalised trading conditions which we anticipate will translate to steady growth to stable rent cover levels at or above 1.6x in time.

Current COVID-19 prevalence across the portfolio is very low, however the Investment Manager continues to collect case numbers from the Group's operators and will monitor this closely.

Portfolio Management

The Investment Manager has been closely monitoring a small number of tenants and completed some initiatives to further improve rent collection and portfolio resiliency going forward. A tenant operating two of the Group's homes had been a contributor to rental arrears for some time as they experienced financial distress and went through a restructuring of their business. The Group has resolved its position with this tenant, reaching an agreement for partial settlement of outstanding rent and a consensual re-tenanting of both homes. The re-tenanting of one of these homes was completed during the year to a family-owned operator providing an immediate valuation and net income uplift. The re-tenanting of the second home is expected to complete imminently with revised rental terms and a lengthened lease duration.

A further re-tenanting was completed during the year from a large national operator to a family-owned operator on a lengthened lease term with a substantial transfer payment received from the outgoing tenant which will fund capital expenditure on the home along with the rental incentives provided to the new tenant. The impact on residents and staff was minimised during this transition.

The Investment Manager's experience and sector expertise has been apparent in a conviction to support the Group's other tenant who has been a significant contributor to rent arrears. That tenant's two high-end, immature homes are now trading well, with strong occupancy levels and growing rent covers, with full value recovery to investment case levels anticipated.

The combination of decisive re-tenanting action when required alongside patience and support when justified for the right operators reflect our approach to achieving shareholder returns in a responsible manner.

Strategic pillar #3

Regular dividends for shareholders

Total dividends of 6.72 pence per share were declared and paid in respect of the year to 30 June 2021, an increase of 0.6 per cent on 2020, and reflecting a yield of 5.8 per cent based on the 30 June 2021 closing share price of 115.4 pence.

Earnings & dividend

Adjusted EPRA earnings per share, used by management as a key metric in assessing operational performance, increased to 5.46 pence for the year. Dividend cover using the adjusted earnings measure also increased, to 80% for the year. Applying the more widely used comparative of EPRA earnings, the dividend was fully covered at 105%.

The Group anticipates achieving a covered dividend when fully invested at an appropriate gearing level. The significant share issuance subsequent to year-end is intended to fund a substantial pipeline of imminent acquisitions, the majority of which are fully income generating immediately on completion. The Group's current scale, patiently earned through modest fund raises to date, its track record as a reliable counterparty and its flexible debt arrangements, provide the platform to grow the portfolio and earnings whilst minimising the cash drag effect of undeployed capital on dividend cover.

For the year under review, cash drag has impacted earnings and dividend cover as acquisitions were slowed due to COVID-19 initially. The oversubscribed equity issuance of GBP60 million in March 2021 has been deployed during the final quarter and subsequent to the year-end, with earnings now accruing on this capital. Admin expenses of GBP11.1 million (2020: GBP9.5 million) includes GBP2.7 million of provisions for doubtful rental income, also adversely impacting reported dividend cover. The Investment Manager has implemented a number of asset management initiatives during the year and the Group is confident of successful solutions being reached on the other homes contributing to arrears which have shown much improved performance in recent months. The quality of the real estate available and supportive local demographics for these homes reaffirms the Group's view that we expect to see positive developments in these homes in the coming weeks and months.

As previously announced, and reflecting a cautiously optimistic outlook for the portfolio, in the absence of unforeseen circumstances the Board intends to increase quarterly dividend levels by 0.6% to 1.69 pence per share, providing an annual dividend of 6.76 pence per share.

 
                                           2021                 2020 
                                           GBPm     Movement    GBPm 
--------------------------------------  -------  -----------  ------ 
 Rental income (excluding guaranteed 
  uplifts)                                 41.2         +14%    36.0 
 Admin expenses (including management 
  fee)                                   (11.1)         +17%   (9.5) 
 Net financing costs                      (4.8)         +12%   (4.3) 
 Interest from development funding          0.6         -40%     1.0 
--------------------------------------  -------  -----------  ------ 
 Adjusted EPRA earnings                    26.0         +12%    23.2 
--------------------------------------  -------  -----------  ------ 
 
 Adjusted EPRA EPS (pence)                 5.46        +3.6%    5.27 
 EPRA EPS (pence)                          7.16        +3.5%    6.92 
 Adjusted EPRA cost ratio                 26.6%       +90bps   25.7% 
 EPRA cost ratio                          22.3%       +80bps   21.5% 
 Ongoing charges figure                   1.55%        +4bps   1.51% 
--------------------------------------  -------  -----------  ------ 
 

Total Returns

The Group targets modest capital growth as well as its income priority, with a belief that a quality portfolio of modern care home real estate is likely to be in demand. Despite the difficult trading conditions across the portfolio from COVID-19, and depressed occupancy levels from slower admissions, the portfolio has continued to perform, with robust rent collection, and has a positive outlook. Being one of the first investment asset classes to fully benefit from the COVID-19 vaccination programme has helped stimulate the anticipated return towards normalised trading.

This robust and sustainable performance, the completion of some portfolio initiatives, and the investment demand for the stable, non-cyclical returns from a diversified portfolio of quality assets, has seen asset value appreciation. EPRA NTA has grown 2.1 per cent to 110.4 pence per share from 108.1 pence per share, NAV total return for the year has been 8.8 per cent, and annualised NAV total return over the period since the Group's launch in March 2013 has been 7.8 per cent. The portfolio's EPRA topped-up NIY has tightened to 5.83 per cent from 6.04 per cent.

EPRA NTA per share

EPRA NTA per share has increased to 110.4 pence, primarily driven by an increase in property valuations.

 
                                       Pence per share 
-----------------------------  ----------------------- 
 EPRA NTA per share as at 30 
  June 2020                                      108.1 
 
 Acquisition costs                               (0.5) 
 Property revaluations                             4.2 
 Adjusted EPRA earnings                            5.4 
 Dividends paid                                  (6.6) 
 Loan repayment costs                            (0.2) 
 Equity issuance                                     - 
-----------------------------  ----------------------- 
 
 EPRA NTA per share as at 30 
  June 2021                                      110.4 
-----------------------------  ----------------------- 
 

Efficient capital structure

In November 2020, the Group entered into agreements with two of its existing lenders (RBS and HSBC) in order to extend the terms and increase its facilities with each. These revised arrangements increased available facilities to GBP220 million from GBP180 million while maintaining the weighted average cost of debt and extending the weighted average term to maturity. At 30 June 2021, these metrics were 2.9% (2020: 2.9%) and 4.8 years respectively (2020: 4.2 years).

The Group was also the first real estate client of each of these lenders to transition its facilities to a SONIA interest basis from LIBOR, with the latter due to be phased-out by June 2023.

The Group retains flexibility through its debt-mix with GBP140 million of the GBP220 million being fully revolving facilities and continues to focus on achieving competitively-priced debt at appropriate durations.

Subsequent to the year-end the Group has agreed heads of terms for an additional GBP100 million of long-term facilities with an existing lender which are intended to complement the equity issuance to efficiently fund the significant pipeline. Diligence procedures and legal documentation are currently being completed on this anticipated facility increase.

Strategic pillar #4

To achieve our social purpose

 
 Pillar               What this means     What we did in       What we'll do in 2022 
                      for Target          2021                  and beyond 
 1. Responsible       Leading in social   Social               Social 
 investment           impact for          - 5 homes             - Continue to advocate 
 As an investor       care home real      acquired, 344         for quality real estate 
 we understand        estate              resident              - Monitor new ideas (architecture, 
 that our actions     - We understand     spaces                dementia friendly design, 
 have influence.      the importance      - Development         energy) 
 We use our           of maintaining a    commitments for       - Monitor design and innovation 
 platform             portfolio           272 new beds as at    response to COVID-19 
 to lead by example   that supports the   year-end 
 through embedding    needs of            - 96% wet-rooms 
 appropriate          tenants and         - Homes provide       Energy 
 ESG considerations   residents, which    space of 47m(2)       - Balanced assessment 
 into our             in turn             per resident          of data & 
 decision-making.     contributes to      - All real estate     recommendations obtained 
                      the                 has generous          from BREEAM reports 
                      long-term           social and outdoor    - Increase proportion 
                      sustainability of   space                 of leases with "green" 
                      social care                               reporting provisions to 
                      infrastructure      Energy                gather more data on energy 
                      in the UK.          - 100% A-C EPC        consumption patterns from 
                                          ratings               our tenants for use in 
                                          - Introduced          decision-making 
                      Energy and          energy efficiency     - Manager to use toolkit 
                      climate change:     consideration into    and resources to progress 
                      Responsible         policies              its net zero journey 
                      acquisitions &      - Instructed 
                      portfolio           BREEAM-in use 
                      management          assessment for a 
                      - Energy            representative 
                      efficiency is a     sample of 
                      specific            portfolio 
                      consideration in    - "Green" 
                      our investment      provision on 
                      analysis for        energy 
                      acquisitions,       usage reporting 
                      developments and    introduced 
                      portfolio           into our standard 
                      management          lease 
                      decisions.          - Target Fund 
                      - In our role as    Managers supports 
                      a responsible       the Edinburgh 
                      landlord we are     Science Climate 
                      committed           and Sustainability 
                      to helping our      programme 
                      tenants identify    and became a 
                      and implement       founding pledger 
                      energy reduction    of its Mission Net 
                      and efficiency      Zero project 
                      measures.           in 2021 
                     ------------------  -------------------  -------------------------------------------------------- 
 2. Responsible       Tenant selection,   Tenants              Tenants 
 partnerships         engagement          - 10/10 "positive     - Focus on supporting 
 We engage with       & collaboration     experience"           our tenants with COVID-19 
 all our              - As a              satisfaction score    recovery, considering 
 stakeholders         responsible,        - Committed           further real estate design 
 to drive the         proactive           engagement with       enhancements in response 
 creation of          landlord we         our tenants to        - Invest in fully understanding 
 economic, social     prioritise good,    consider and          and responding to lower-scoring 
 and environmental    open                consent to real       areas from tenant survey 
 value around         relationships       estate alterations 
 our buildings        with our            in response to 
 and in wider         tenants.            COVID-19 challenge 
 society.             - We make sure 
                      that we solicit,                          Communities 
                      assess and                                - Complete re-tenanting 
                      respond to                                initiatives identified 
                      feedback                                  which will benefit long-term 
                      on our portfolio    Communities           care continuity 
                      and our             - Re-tenanted two     - Continue to facilitate 
                      behaviours          homes with            tenant interaction and 
                      to ensure carers    new tenants           learning sessions as COVID-19 
                      and residents       committed to          restrictions ease 
                      can be respected    continuing 
                      and cared           care provision 
                      for with dignity. 
                      - We only select 
                      tenants who 
                      share our care 
                      ethos and can 
                      deliver 
                      operationally. 
 
                      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         - To prepare and publish 
 We will treat        - We uphold the     - Undertook          enhanced reporting suite, 
 all stakeholders     highest ethical     director             inclusive of: 
 with respect         standards and       recruitment           *    GRESB reporting following data collection process 
 and deal fairly      adhere to best      process resulting 
 in a manner          practice in every   in Mr Niblett 
 consistent with      aspect of           being appointed       *    Comprehensive sustainability reporting, inclusive 
 how we would         our business.       post year end         of 
 expect to be         - Our governance    - Investment               EPRA measures 
 treated ourselves.   and behaviour       Manager 
                      treat               successfully 
                      transparency for    applied to become 
                      all                 signatory 
                      of our              to the FRC 
                      stakeholders as     Stewardship Code 
                      core.               - GBP3 million 
                                          taxation directly 
                      People, culture     paid to the UK 
                      and wellbeing       government by 
                      - We encourage      way of VAT and 
                      employment          stamp duty land 
                      practices across    taxes. Dividends 
                      our key service     paid of GBP32 
                      providers that      million are 
                      reflect our         assessed for tax 
                      core values, with   upon reaching 
                      a focus             shareholders 
                      on wellbeing, 
                      fairness and 
                      opportunity for 
                      all. 
                     ------------------  -------------------  -------------------------------------------------------- 
 

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(a)-(f) of the Companies Act 2006 for the financial year to 30 June 2021, 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 28.8 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 foster         As a REIT with no employees, the Board works 
  the Company's business        in close partnership with the Manager, which 
  relationships with            runs the Group's operations and portfolio 
  suppliers, customers          within parameters set by the Board and subject 
  and others                    to appropriate oversight. The Manager has 
                                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 
  and                           the Board and the Manager. 
                              --------------------------------------------------- 
 f) The need to act            The Board encourages an active dialogue with 
  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 2020 remained in the interests of all stakeholders. With rental collection remaining robust, the Company recently announced an increase in the expected dividend level, barring unforeseen circumstances, for the year ending 30 June 2022.

Ongoing investment and asset management activity

Following a short hiatus towards the end of the previous financial year, the Group recommenced its investment activity in July 2020. Progress was made in resolving a position with a distressed tenant with a settlement agreed, a re-tenanting completed, and limited rent concessions were granted, ensuring on each occasion that the transactions agreed appropriately balanced the interest of shareholders, tenants (both incoming and outgoing) and the underlying residents of the relevant care homes.

Capital financing

During the year, the Group refinanced its loan facilities with the Royal Bank of Scotland and HSBC Bank, extending the term and increasing the quantum of each on terms that are expected to be beneficial to significant stakeholders over the duration of the facilities. The Company also issued GBP60 million of ordinary shares, at a premium to NAV, in March 2021 and a further GBP125 million post year end. The equity raised was used to temporarily repay some of the Group's loan facilities whilst it awaited investment.

Appointment of a Director

Subsequent to the year end, as part of the Board succession plan, Mr Niblett was appointed as a Director. Mr Niblett's significant financial experience and expertise is expected to benefit all stakeholders over the period of his appointment.

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. Whilst government guidelines prevented 
                            the holding of a physical AGM during the year, 
                            provisions were made for any questions to 
                            be raised with the Board by email in advance 
                            of the meeting. 
 
                            The Company and Investment Manager also provides 
                            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 will also 
                            meet with analysts and members of the financial 
                            press. 
 Tenants and underlying    As set out in more detail in the 'Our Strategy' 
  residents                 section above, the Investment Manager liaises 
                            closely with 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. 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 ReAssure Limited (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 2021 
                            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, will 
                            be 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 factors            Mitigation 
                             affecting risk rating 
      Poor performance      There is a risk that a tenant's           Tenant diversification 
       of assets             business could become unsustainable       across the Group's portfolio 
                             if it fails to trade successfully         is an important criteria 
       Risk rating           and sustain a sufficient                  taken into consideration 
       & change: High        rent cover. This could lead               before any investment 
       (unchanged)           to a loss of income for the               transaction. Investment 
                             Group and an adverse impact               decisions are made with 
                             on the Group's results and                reference to the Investment 
                             shareholder returns. The                  Manager's analysis and 
                             strategy of investing in                  projections, based on 
                             new purpose-built care homes              the local market dynamics 
                             could lead to additional                  for the home, and the 
                             fill-up risk and there may                Investment Manager focuses 
                             be a limited amount of time               on ensuring that rents 
                             that small regional operators             are set at sustainable 
                             can fund start-up losses.                 levels. Rent deposits 
                             There is also a risk that                 or other guarantees are 
                             the effects of COVID-19 may               sought, where appropriate, 
                             lead to longer fill times                 to provide additional 
                             before a home becomes mature.             security for the Group. 
                                                                       As at 30 June 2021, the 
                                                                       Group had a diversified 
                                                                       portfolio consisting 
                                                                       of 28 tenants. The Investment 
                                                                       Manager has ongoing engagement 
                                                                       with the Group's tenants 
                                                                       to proactively assist 
                                                                       and monitor performance. 
                           ----------------------------------------  ---------------------------------- 
      Pandemic reduces      As a result of the COVID-19               The Group is committed 
       demand for            pandemic, there is a risk                 to investing in high 
       care home beds        that overall demand for care              quality real estate with 
                             home beds is reduced causing              high quality operators. 
       Risk rating           asset performance to fall                 These assets are expected 
       & change:             below expectations. While                 to experience demand 
       High (unchanged)      demographic shifts and the                ahead of the sector average 
                             realities of needs-based                  while in the wider market 
                             demand remain intact, and                 a large number of care 
                             the rollout of the vaccination            homes without fit-for-purpose 
                             programme has been a positive             facilities are expected 
                             development, occupancy levels             to close. Our tenants 
                             have fallen across the sector             are well-versed in best 
                             and the speed of recovery                 practice for responding 
                             may depend on the prevalence              to infection control 
                             of COVID-19 in the UK generally,          and the wider pandemic 
                             increased levels of resident              while the Investment 
                             admissions by tenants, the                Manager has been actively 
                             availability of booster vaccines          engaged with the tenants 
                             and the efficacy of existing              in the portfolio during 
                             vaccines.                                 the outbreak and continues 
                                                                       to maintain good lines 
                                                                       of communication. 
                           ----------------------------------------  ---------------------------------- 
 Availability               Without access to equity                  The Group maintains regular 
  of capital                 or debt capital, the Group                communication with investors 
                             may be unable to grow through             and existing debt providers, 
  Risk rating                acquisition of attractive                 and, with the assistance 
  & change:                  investment opportunities.                 of its broker and sponsor, 
  Medium (unchanged)         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 of its debt facilities 
                                                                       (30 June 2021: 4.8 years). 
                           ----------------------------------------  ---------------------------------- 
 Breach of REIT             A breach of REIT regulations,             The Group's activities, 
  regulations                primarily in relation to                  including the level of 
                             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 
                             elderly care, may render                  to anticipate changes. 
       Risk rating           the Group's strategy inappropriate.       The Group's tenants also 
       & change:             Secure income and property                typically have a multiplicity 
       Medium (unchanged)    valuations will be at risk                of income sources, with 
                             if tenant finances suffer                 their business models 
                             from policy changes. Whilst               dependent on government 
                             the care sector is facing                 funding. 
                             significant challenges and 
                             reform has been mooted by 
                             successive governments, including 
                             the recent introduction of 
                             the health and social care 
                             levy, a white paper containing 
                             full detail is still awaited. 
                           ----------------------------------------  ---------------------------------- 
 Debt covenant              Falls in property valuations              The Group has a conservative 
  compliance                 could adversely affect the                gearing strategy although 
  /adverse interest          Group's borrowing capacity                net gearing is anticipated 
  rate fluctuations          which is primarily linked                 to increase from its 
                             to the value of its properties.           level of 15.9% at 30 
  Risk rating                Property valuations are inherently        June 2021 as the Group 
  & change:                  subjective and can fluctuate              nears full investment. 
  Medium (increased)         dependent on market conditions.           Loan covenants and liquidity 
                             Similarly, a large increase               levels are closely monitored 
                             in market interest rates                  for compliance and headroom 
                             would be detrimental to overall           is projected. 
                             returns and may limit borrowing 
                             capacity.                                 The Group has fixed interest 
                                                                       costs on its GBP80 million 
                                                                       of fixed term borrowings 
                                                                       as at 30 June 2021. 
                           ----------------------------------------  ---------------------------------- 
 Reliance on                The Group is externally managed           The Investment Manager, 
  third party                and, as such, relies on a                 along with all other 
  service providers          number of service providers.              service providers, is 
                             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 and compliance                in its systems. The sustained 
                             as well as shareholder relations.         number of years of service 
                                                                       from both the Investment 
                                                                       Manager and other key 
                                                                       providers further mitigates 
                                                                       this risk. 
                           ----------------------------------------  ---------------------------------- 
 Reduced availability       The combined impacts of the               The Group is committed 
  of carers,                 pandemic and Brexit has reduced           to investing in high 
  nurses and                 the availability of key staff             quality real estate with 
  other care                 in the care sector which                  high quality operators 
  home staff                 may result in a reduction                 and these should be better 
                             in the quality of care for                placed to attract staff. 
  Risk rating                underlying residents, restrict 
  & change:                  tenants from being able to                The Investment Manager 
  Medium (new                admit residents or result                 continues to engage with 
  and emerging)              in wage inflation. Mandatory              tenants in the portfolio 
                             vaccination for care home                 and to share examples 
                             staff and an expected recovery            of best practice in recruitment 
                             in other sectors, such as                 and retention of staff. 
                             retail or hospitality, that 
                             may draw further staff from 
                             the care sector introduces 
                             further uncertainties. 
                           ----------------------------------------  ---------------------------------- 
 Failure to                 Failing to differentiate                  The stakeholder communications 
  differentiate              strategy and qualities from               strategy of the Group 
  qualities from             competitors is a significant              has always been to highlight 
  competitors                risk for the business with                the quality of the real 
  & to communicate           increased competition in                  estate in which the Group 
  ESG strategy               the healthcare real estate                invests and the ESG KPIs 
                             sector. The failure to communicate        continue to be developed 
  Risk rating                effectively the ESG and sustainable       and improved. The regular 
  & change:                  impact qualities of the Group             production of investor 
  Medium (unchanged)         to investors and other stakeholders       relations materials (annual 
                             could have a negative impact              and interim reports, 
                             on future demand for equity               investor presentations 
                             raises and wider reputational             and quarterly factsheets) 
                             damage as investor groups                 along with direct engagement 
                             demand greater participation              with investors has helped 
                             in sustainability pledges/disclosures.    to mitigate this risk. 
                           ----------------------------------------  ---------------------------------- 
 Risk to business           The loss of confidential                  The Investment Manager 
  continuity                 information through a breach              has IT policies and associated 
  from IT downtime/          of the Manager's IT systems               cyber-insurance which 
  loss of data               could have a significant                  mitigate the potential 
                             detrimental effect on the                 for loss of data while 
  Risk rating                business activities of the                key data is also held 
  & change:                  Group as well as the potential            with other service providers 
  Medium (decreased)         for financial loss from fraud,            (solicitors, registrars 
                             breach of GDPR legislation                and depositary). The 
                             and reputational damage to                Group's control environment 
                             the Group. As some business               is also assessed annually 
                             activities are now being                  by a third party who 
                             carried out virtually, there              report to the Board. 
                             is an increased reliance 
                             on the IT systems and the 
                             control environment surrounding 
                             them. 
                           ----------------------------------------  ---------------------------------- 
 

Malcolm Naish

Chairman

19 October 2021

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 2021 which has long leases and a weighted average unexpired lease term of 28.8 years. The Group has borrowings of GBP130.0 million, on which the interest rate has been fixed, either directly or through the use of interest rate swaps, on GBP80.0 million at 2.98 per cent per annum (excluding the amortisation of arrangement costs), and the remaining GBP50.0 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 GBP90.0 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 2023, GBP70.0 million to 5 November 2025 and GBP50.0 million to 12 January 2032. 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;

-- 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;

-- 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 tenant's rental cover and leading to a loss of rental income for the Group; and

-- Debt finance. The risk that falls in property valuations or rental income from the portfolio reduce the Group's borrowing capacity, or that an increase in interest rates reduces net returns.

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 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 2021

 
 
                                                             Year ended 30 June        Year ended 30 June 
                                                                           2021                2020 
                                                   Revenue   Capital      Total   Revenue   Capital      Total 
                                          Notes    GBP'000   GBP'000    GBP'000   GBP'000   GBP'000    GBP'000 
---------------------------------------  ------  ---------  --------  ---------  --------  --------  --------- 
 Revenue 
 Rental income                                      41,168     8,739     49,907    36,025     8,219     44,244 
 Other income                                           73         -         73        23         -         23 
---------------------------------------  ------  ---------  --------  ---------  --------  --------  --------- 
 Total revenue                                      41,241     8,739     49,980    36,048     8,219     44,267 
---------------------------------------  ------  ---------  --------  ---------  --------  --------  --------- 
 
 Gains on revaluation of investment 
  properties                                  5          -     9,536      9,536         -       198        198 
 Gains on investment properties 
  realised                                    5          -     1,306      1,306         -       642        642 
 (Losses)/ gains on revaluation 
  of properties held for sale                 6          -      (92)       (92)         -     1,505      1,505 
 Total income                                       41,241    19,489     60,730    36,048    10,564     46,612 
---------------------------------------  ------  ---------  --------  ---------  --------  --------  --------- 
 
 Expenditure 
 Investment management fee                    2    (5,796)         -    (5,796)   (5,264)         -    (5,264) 
 Credit loss allowance and 
  bad debts                                   3    (2,717)         -    (2,717)   (2,171)         -    (2,171) 
 Other expenses                               3    (2,617)         -    (2,617)   (2,090)      (47)    (2,137) 
 Total expenditure                                (11,130)         -   (11,130)   (9,525)      (47)    (9,572) 
---------------------------------------  ------  ---------  --------  ---------  --------  --------  --------- 
 Profit before finance costs 
  and taxation                                      30,111    19,489     49,600    26,523    10,517     37,040 
---------------------------------------  ------  ---------  --------  ---------  --------  --------  --------- 
 
 Net finance costs 
 Interest receivable                                    39         -         39       111         -        111 
 Interest payable and similar 
  charges                                          (4,850)     (913)    (5,763)   (4,388)   (1,144)    (5,532) 
---------------------------------------  ------  ---------  --------  ---------  --------  --------  --------- 
 Profit before taxation                             25,300    18,576     43,876    22,246     9,373     31,619 
 Taxation                                                8         -          8         3         -          3 
---------------------------------------  ------  ---------  --------  ---------  --------  --------  --------- 
 Profit for the year                                25,308    18,576     43,884    22,249     9,373     31,622 
 Other comprehensive income: 
 Items that are or may be reclassified 
  subsequently to profit or 
  loss 
 Movement in fair value of 
  interest rate swaps                                    -       298        298         -     (232)      (232) 
 Reclassification to profit 
  and loss on 
  discontinuation of interest 
  rate swaps                                             -       180        180         -       712        712 
---------------------------------------  ------  ---------  --------  ---------  --------  --------  --------- 
 Total comprehensive income 
  for the year                                      25,308    19,054     44,362    22,249     9,853     32,102 
---------------------------------------  ------  ---------  --------  ---------  --------  --------  --------- 
 Earnings per share (pence)                   4       5.32      3.91       9.23      5.05      2.13       7.18 
---------------------------------------  ------  ---------  --------  ---------  --------  --------  --------- 
 

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 2021

 
                                                 As at           As at 
                                          30 June 2021    30 June 2020 
                                 Notes         GBP'000         GBP'000 
------------------------------  ------  --------------  -------------- 
 Non-current assets 
 Investment properties               5         629,606         570,086 
 Trade and other receivables                    54,580          46,044 
 Interest rate swaps                               251               - 
------------------------------  ------  --------------  -------------- 
                                               684,437         616,130 
 Current assets 
 Trade and other receivables                     5,531           3,702 
 Cash and cash equivalents                      21,106          36,440 
                                                26,637          40,142 
 Properties held for sale            6           7,320           7,500 
------------------------------  ------  --------------  -------------- 
                                                33,957          47,642 
------------------------------  ------  --------------  -------------- 
 Total assets                                  718,394         663,772 
------------------------------  ------  --------------  -------------- 
 Non-current liabilities 
 Bank loans                          8       (127,904)       (150,135) 
 Interest rate swaps                                 -           (227) 
 Trade and other payables                      (6,840)         (6,183) 
------------------------------  ------  --------------  -------------- 
                                             (134,744)       (156,545) 
 Current liabilities 
 Trade and other payables                     (18,465)        (13,114) 
------------------------------  ------  --------------  -------------- 
 Total liabilities                           (153,209)       (169,659) 
------------------------------  ------  --------------  -------------- 
 Net assets                                    565,185         494,113 
------------------------------  ------  --------------  -------------- 
 
 Stated capital and reserves 
 Share capital                       9           5,115           4,575 
 Share premium                       9         135,228          77,452 
 Merger reserve                                 47,751          47,751 
 Distributable reserve                         265,164         296,770 
 Hedging reserve                                   251           (227) 
 Capital reserve                                64,112          45,536 
 Revenue reserve                                47,564          22,256 
 Equity shareholders' funds                    565,185         494,113 
------------------------------  ------  --------------  -------------- 
 
 Net asset value per ordinary 
  share (pence)                      4           110.5           108.0 
------------------------------  ------  --------------  -------------- 
 
 
 

Consolidated Statement of Changes in Equity (audited)

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 
---------------      ---------  ----------  ---------  ---------------  ----------  ----------  ----------  ---------- 
 

For the year ended 30 June 2020

 
                          Stated                                     Distrib-utable 
                         capital       Share      Share     Merger          reserve    Hedging    Capital    Revenue 
                         account     capital    premium    reserve                     reserve    reserve    reserve       Total 
                         GBP'000     GBP'000    GBP'000    GBP'000          GBP'000    GBP'000    GBP'000    GBP'000     GBP'000 
 At 30 June 2019         372,685           -          -          -                -      (707)     36,163      4,948     413,089 
 Total 
  comprehensive 
  income for the 
  year:                        -           -          -          -                -        480      9,373     22,249      32,102 
 Transactions 
  with owners 
  recognised in 
  equity: 
 Group 
  reconstruction       (371,292)     385,090          -     47,751         (61,549)          -          -          -           - 
 Reduction of 
  share capital                -   (381,239)          -          -          381,239          -          -          -           - 
 Dividends paid    1     (1,393)           -          -          -         (22,920)          -          -    (4,941)    (29,254) 
 Issue of 
  ordinary 
  shares           9           -         724     79,276          -                -          -          -          -      80,000 
 Expenses of 
  issue            9           -           -    (1,824)          -                -          -          -          -     (1,824) 
----------------      ----------  ----------  ---------  ---------  ---------------  ---------  ---------  ---------  ---------- 
 
   At 30 June 
   2020                        -       4,575     77,452     47,751          296,770      (227)     45,536     22,256     494,113 
----------------      ----------  ----------  ---------  ---------  ---------------  ---------  ---------  ---------  ---------- 
 

Consolidated Statement of Cash Flows (audited)

For the year ended 30 June 2021

 
                                                         Year ended      Year ended 
                                                       30 June 2021    30 June 2020 
                                               Note         GBP'000         GBP'000 
--------------------------------------------  -----  --------------  -------------- 
 Cash flows from operating activities 
 Profit before tax                                           43,876          31,619 
 Adjustments for: 
 Interest receivable                                           (39)           (111) 
 Interest payable                                             5,763           5,532 
 Revaluation gains on investment properties 
  and movements in lease incentives, 
  net of acquisition costs written off            5        (19,581)         (9,059) 
 Revaluation losses/(gains) on properties 
  held for sale                                   6              92         (1,505) 
 Increase in trade and other receivables                    (2,782)         (1,238) 
 Increase in trade and other payables                         1,859             370 
--------------------------------------------  -----  --------------  -------------- 
                                                             29,188          25,608 
--------------------------------------------  -----  --------------  -------------- 
 Interest paid                                              (4,266)         (4,177) 
 Interest received                                               39             111 
 Tax paid                                                       (5)            (73) 
--------------------------------------------  -----  --------------  -------------- 
                                                            (4,232)         (4,139) 
--------------------------------------------  -----  --------------  -------------- 
 Net cash inflow from operating activities                   24,956          21,469 
--------------------------------------------  -----  --------------  -------------- 
 
 Cash flows from investing activities 
 Purchase of investment properties 
  and properties held for sale, including 
  acquisition costs                                        (51,400)       (117,501) 
 Disposal of investment properties 
  and properties held for sale, net 
  of lease incentives                                         7,825          14,086 
 Net cash outflow from investing activities                (43,575)       (103,415) 
--------------------------------------------  -----  --------------  -------------- 
 
   Cash flows from financing activities 
 Issue of ordinary share capital                             60,000          80,000 
 Expenses of issue of ordinary share 
  capital                                                   (1,684)         (1,824) 
 Drawdown of bank loan facilities                           152,000         162,000 
 Repayment of bank loan facilities                        (174,000)       (118,000) 
 Expenses of arrangement of bank loan 
  facilities                                                (1,538)         (1,585) 
 Dividends paid                                            (31,493)        (29,151) 
--------------------------------------------  -----  --------------  -------------- 
 Net cash inflow from financing activities                    3,285          91,440 
--------------------------------------------  -----  --------------  -------------- 
 
 Net (decrease)/increase in cash and 
  cash equivalents                                         (15,334)           9,494 
 Opening cash and cash equivalents                           36,440          26,946 
--------------------------------------------  -----  --------------  -------------- 
 Closing cash and cash equivalents                           21,106          36,440 
--------------------------------------------  -----  --------------  -------------- 
 
 
 Transactions which do not require the use 
  of cash 
 Movement in fixed or guaranteed rent reviews 
  and lease incentives                              9,656   10,014 
 Fixed or guaranteed rent reviews derecognised 
  on disposal or re-tenanting                     (1,556)    (988) 
-----------------------------------------------  --------  ------- 
 Total                                              8,100    9,026 
-----------------------------------------------  --------  ------- 
 

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 2021, 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

19 October 2021

Extract from Notes to the Audited Consolidated Financial Statements

1. Dividends

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 
--------------------------------------  --------------  -------------- 
 

Amounts paid as distributions to equity holders during the year to 30 June 2020.

 
                                         Dividend rate      Year ended 
                                            (pence per    30 June 2020 
                                                share)         GBP'000 
--------------------------------------  --------------  -------------- 
 Fourth interim dividend for the year 
  ended 30 June 2019                           1.64475           6,334 
 First interim dividend for the year 
  ended 30 June 2020                           1.67000           7,640 
 Second interim dividend for the year 
  ended 30 June 2020                           1.67000           7,640 
 Third interim dividend for the year 
  ended 30 June 2020                           1.67000           7,640 
--------------------------------------  --------------  -------------- 
 Total                                         6.65475          29,254 
--------------------------------------  --------------  -------------- 
 

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 2021, of 1.68 pence per share, was paid on 27 August 2021 to shareholders on the register on 13 August 2021 amounting to GBP8,594,000. 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 2021     30 June 2020 
                         GBP'000          GBP'000 
----------------  --------------  --------------- 
 Management fee            5,796            5,264 
 Total                     5,796            5,264 
----------------  --------------  --------------- 
 

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 GBP121,000 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 2021    30 June 2020 
                                                    GBP'000         GBP'000 
-------------------------------------------  --------------  -------------- 
 Credit loss allowance                                1,697           2,141 
 Bad debts written off                                1,020              30 
 Valuation and other professional fees                1,008             707 
 Auditor's remuneration for: 
 - statutory audit of the Company                       104              71 
 - statutory audit of the Company's 
  subsidiaries                                          184             209 
 - review of interim financial information               15              15 
 Other taxation compliance and advisory*                436             242 
 Public relations and marketing                         213             185 
 Directors' fees                                        181             160 
 Secretarial and administration fees                    172             186 
 Printing, postage and website                           92              57 
 Listing & Registrar fees                                78              89 
 Direct property costs                                   32              30 
 Other                                                  102             139 
 Total                                                5,334           4,261 
-------------------------------------------  --------------  -------------- 
 

* 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 
                                                 2021                    2020 
                               ----------------------  ---------------------- 
                                            Pence per               Pence per 
                                GBP'000         share   GBP'000         share 
-----------------------------  --------  ------------  --------  ------------ 
 Revenue earnings                25,308          5.32    22,249          5.05 
 Capital earnings                18,576          3.91     9,373          2.13 
 Total earnings                  43,884          9.23    31,622          7.18 
-----------------------------  --------  ------------  --------  ------------ 
 
 Average number of shares in 
  issue                                   475,406,929             440,278,234 
-----------------------------  --------  ------------  --------  ------------ 
 

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 
                                                               2021       2020 
                                                            GBP'000    GBP'000 
------------------------------------------------------  -----------  --------- 
 Earnings per IFRS Consolidated Statement of 
  Comprehensive Income                                       43,884     31,622 
 Adjusted for gains on investment properties 
  realised                                                  (1,306)      (642) 
 Adjusted for revaluations of investment properties         (9,536)      (198) 
 Adjusted for revaluations of properties held 
  for sale                                                       92    (1,505) 
 Adjusted for other capital items                               913      1,191 
------------------------------------------------------  -----------  --------- 
 EPRA earnings                                               34,047     30,468 
 Adjusted for rental income arising from recognising 
  guaranteed rent review uplifts                            (8,739)    (8,219) 
 Adjusted for development interest under forward 
  fund agreements                                               647        975 
 Group specific adjusted EPRA earnings                       25,955     23,224 
 
 Earnings per share ('EPS') (pence per share) 
 EPS per IFRS Consolidated Statement of Comprehensive 
  Income                                                       9.23       7.18 
 EPRA EPS                                                      7.16       6.92 
 Group specific adjusted EPRA EPS                              5.46       5.27 
------------------------------------------------------  -----------  --------- 
 

Net Asset Value per share

The Group's Net Asset Value per ordinary share of 110.5 pence (2020: 108.0 pence) is based on equity shareholders' funds of GBP565,185,000 (2020: GBP494,113,000) and on 511,541,694 (2020: 457,487,640) ordinary shares, being the number of shares in issue at the year-end.

In October 2019, EPRA published new best practice recommendations for financial disclosures by public real estate companies for accounting periods commencing after 1 January 2020. These introduced a new 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 2021, 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 higher than the nominal value. See note 8 for further details on the Group's loan facilities.

Given the nature of the Group's assets and liabilities, the EPRA NTA is the same as the EPRA NAV reported in prior years, with the EPRA NDV being the same as the previously reported EPRA NNNAV.

 
                               2021       2021       2021       2020       2020       2020 
                               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                565,185    565,185    565,185    494,113    494,113    494,113 
 Fair value of interest 
  rate swaps                  (251)      (251)          -        227        227          - 
 Fair value of loans              -          -    (1,389)          -          -    (1,511) 
 Estimated purchasers' 
  costs                      44,696          -          -     40,916          -          - 
------------------------  ---------  ---------  ---------  ---------  ---------  --------- 
 EPRA net assets            609,630    564,934    563,796    535,256    494,340    492,602 
------------------------  ---------  ---------  ---------  ---------  ---------  --------- 
 EPRA net assets (pence 
  per share)                  119.2      110.4      110.2      117.0      108.1      107.7 
------------------------  ---------  ---------  ---------  ---------  ---------  --------- 
 

5. Investment properties

Freehold and leasehold properties

 
                                                                 As at           As at 
                                                          30 June 2021    30 June 2020 
                                                               GBP'000         GBP'000 
------------------------------------------------------  --------------  -------------- 
 Opening market value                                          610,084         500,884 
 Opening fixed or guaranteed rent reviews 
  and lease incentives                                        (39,998)        (31,288) 
------------------------------------------------------  --------------  -------------- 
 Opening carrying value                                        570,086         469,596 
------------------------------------------------------  --------------  -------------- 
 
 Disposals - proceeds                                          (7,616)        (14,402) 
                 - gain/(loss) on sale                           2,336           (438) 
 Purchases                                                      52,295         108,852 
 Acquisition costs capitalised                                   2,264           3,896 
 Acquisition costs written off                                 (2,264)         (3,896) 
 Unrealised (gain)/loss realised during the 
  period                                                       (1,030)           1,080 
 Revaluation movement - gains                                   26,565          18,905 
 Revaluation movement - losses                                 (5,109)         (4,797) 
------------------------------------------------------  --------------  -------------- 
 Movement in market value                                       67,441         109,200 
 Fixed or guaranteed rent reviews and lease 
  incentives derecognised on disposal or re-tenanting            1,735           1,304 
 Movement in fixed or guaranteed rent reviews 
  and lease incentives                                         (9,656)        (10,014) 
------------------------------------------------------  --------------  -------------- 
 Movement in carrying value                                     59,520         100,490 
------------------------------------------------------  --------------  -------------- 
 
 Closing market value                                          677,525         610,084 
 Closing fixed or guaranteed rent reviews 
  and lease incentives                                        (47,919)        (39,998) 
------------------------------------------------------  --------------  -------------- 
 Closing carrying value                                        629,606         570,086 
------------------------------------------------------  --------------  -------------- 
 
 
 Changes in the valuation of investment properties       Year ended      Year ended 
                                                       30 June 2021    30 June 2020 
                                                            GBP'000         GBP'000 
---------------------------------------------------  --------------  -------------- 
 Gain/(loss) on sale of investment properties                 2,336           (438) 
 Unrealised (gain)/loss realised during the 
  period                                                    (1,030)           1,080 
---------------------------------------------------  --------------  -------------- 
 Gains on sale of investment properties realised              1,306             642 
 Revaluation movement                                        21,456          14,108 
 Acquisition costs written off                              (2,264)         (3,896) 
 Movement in lease incentives                                 (917)         (1,795) 
 Movement in fixed or guaranteed rent reviews               (8,739)         (8,219) 
---------------------------------------------------  --------------  -------------- 
 Gains on revaluation of investment properties               10,842             840 
---------------------------------------------------  --------------  -------------- 
 

The investment properties can be analysed as follows:

 
                                                       As at           As at 
                                                30 June 2021    30 June 2020 
                                                     GBP'000         GBP'000 
--------------------------------------------  --------------  -------------- 
 Standing assets                                     655,175         597,484 
 Developments under forward fund agreements           22,350          12,600 
--------------------------------------------  --------------  -------------- 
 Closing market value                                677,525         610,084 
--------------------------------------------  --------------  -------------- 
 

The properties were valued at GBP677,525,000 (2020: GBP610,084,000) 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 2020) issued by the Royal Institution of Chartered Surveyors ('RICS') on the basis of Market Value, supported by reference to market evidence of transaction prices for similar properties. 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 GBP629,606,000 (2020: GBP570,086,000). The adjustment consisted of GBP41,949,000 (2020: GBP34,766,000) relating to fixed or guaranteed rent reviews and GBP5,970,000 (2020: GBP5,232,000) 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'

6. Properties held for sale

 
                                                       As at           As at 
                                                30 June 2021    30 June 2020 
                                                     GBP'000         GBP'000 
--------------------------------------------  --------------  -------------- 
 Opening fair value                                    7,500               - 
 Purchases                                               300           5,695 
 Acquisition costs capitalised                             -             300 
 Acquisition costs written off                             -           (300) 
 Disposals - proceeds                                  (388)               - 
                 - gain on sale                           34               - 
 Unrealised gain realised during the period            (126)               - 
 Revaluation movement - gains                              -           1,805 
--------------------------------------------  --------------  -------------- 
 Closing fair value                                    7,320           7,500 
--------------------------------------------  --------------  -------------- 
 

The properties held for sale were valued at GBP7,320,000 (30 June 2020: GBP7,500,000) by Colliers International Healthcare Property Consultants Limited ('Colliers'). The properties held for sale consist of two blocks of apartments adjacent to an existing property holding which were acquired to consolidate ownership of the overall retirement village. The intention is to sell the leasehold on the individual apartments.

7. Investment in subsidiary undertakings

The Group included 50 subsidiary companies as at 30 June 2021 (30 June 2020: 46). 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 four new subsidiaries, THR Number 37 Limited, THR Number 38 Limited, THR Number 39 Limited and THR Number 40 Limited. The Group includes eight companies which were acquired as part of previous corporate acquisitions which are currently dormant and which will be placed into liquidation imminently.

8. Bank loans

 
                                         As at           As at 
                                  30 June 2021    30 June 2020 
                                       GBP'000         GBP'000 
------------------------------  --------------  -------------- 
 Principal amount outstanding          130,000         152,000 
 Set-up costs                          (2,476)         (3,732) 
 Amortisation of set-up costs              380           1,867 
------------------------------  --------------  -------------- 
 Total                                 127,904         150,135 
------------------------------  --------------  -------------- 
 

On 5 November 2020, the Group entered into an amended and restated GBP70.0 million committed term loan and revolving credit facility with the Royal Bank of Scotland plc ('RBS') which is repayable in November 2025. Interest accrues on the bank loan at a variable rate, based on SONIA plus margin and mandatory lending costs, and is payable quarterly. The margin is 2.18 per cent per annum on GBP50.0 million of the facility and 2.33 per cent per annum on the remaining GBP20.0 million of the 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 million of any undrawn element of the facility, reducing to 1.05 per cent per annum thereafter. Prior to the amendment, the interest on the GBP50.0 million facility was based on LIBOR plus a margin of 1.50 per cent per annum and a non-utilisation fee of 0.75 per cent per annum. As at 30 June 2021, the Group had drawn GBP30.0 million under this facility (30 June 2020: GBP50.0 million).

On 5 November 2020, the Group entered into an amended and restated GBP100.0 million revolving credit facility with HSBC Bank plc ('HSBC') which is repayable in November 2023, with the option of two one-year extensions 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. Prior to the amendment, the interest on the GBP80.0 million facility was based on LIBOR plus a margin of 1.70 per cent per annum and a non-utilisation fee of 0.75 per cent per annum. As at 30 June 2021, the Group had drawn GBP50.0 million under this facility (30 June 2020: GBP52.0 million).

The Group has a GBP50.0 million committed term loan facility with ReAssure which is repayable on 12 January 2032. Interest accrues on the loan at an aggregate fixed rate of interest of 3.28 per cent per annum and is payable quarterly. As at 30 June 2021, the Group had drawn GBP50.0 million under this facility (30 June 2020: GBP50.0 million).

The following interest rate swaps were in place during the year ended 30 June 2021:

 
 Notional                                       Interest                         Counter-party 
  Value         Starting Date     Ending Date    Paid        Interest Received 
-----------  ----------------  --------------  ---------  --------------------  -------------- 
                                1 September 
 21,000,000   24 June 2019       2021*          0.70%      3-month LIBOR                   RBS 
                                1 September 
 9,000,000    7 April 2017       2021*          0.86%      3-month LIBOR                   RBS 
                                                           Daily compounded 
                                                            SONIA (floor 
              5 November        5 November                  at 
 30,000,000    2020              2025           0.30%       -0.08%)                        RBS 
-----------  ----------------  --------------  ---------  --------------------  -------------- 
 

* These interest rate swaps were closed out in November 2020 at the time of amendment of the related loan. The cost of such early redemption was recognised in capital.

Inclusive of all interest rate swaps, the interest rate on GBP80.0 million of the Group's borrowings is fixed, inclusive of the amortisation of arrangement costs, at an all-in rate of 3.16 per cent per annum until at least 5 November 2025. The remaining GBP140.0 million of debt, of which GBP50.0 million was drawn at 30 June 2021, would, if fully drawn, carry interest at a variable rate equal to SONIA plus a weighted average lending margin, inclusive of the amortisation of arrangement costs, of 2.44 per cent per annum.

The fair value of the interest rate swaps at 30 June 2021 was an aggregate asset of GBP251,000 (30 June 2020: liability of GBP227,000) and all interest rate swaps are categorised as level 2 in the fair value hierarchy.

At 30 June 2021, the nominal value of the Group's loans equated to GBP130,000,000 (2020: GBP152,000,000). Excluding the interest rate swaps 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 2021, totalled, in aggregate, GBP131,389,000 (2020: GBP153,511,000). The payment required to redeem the loans in full, incorporating the terms of the Spens clause in relation to the ReAssure facility, would have been GBP139,748,000 (2020: GBP165,974,000). 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 two subsidiaries. The ReAssure loan is 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 four subsidiaries. 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 GBP526 million as at 30 June 2021 (2020: GBP496 million).

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 does not exceed 60 per cent; and 

-- the interest cover, or equivalent, for each of THR1 Group, THR12 Group and THR15 Group is greater than c.300 per cent on any calculation date.

All bank loan covenants have been complied with during the year.

Analysis of net debt:

 
                             Cash and                                       Cash and 
                     cash equivalents                               cash equivalents 
                                          Borrowing     Net debt                         Borrowing     Net debt 
                                 2021          2021         2021                2020          2020         2020 
                              GBP'000       GBP'000      GBP'000             GBP'000       GBP'000      GBP'000 
-----------------  ------------------  ------------  -----------  ------------------  ------------  ----------- 
 Opening balance               36,440     (150,135)    (113,695)              26,946     (106,420)     (79,474) 
 Cash flows                  (15,334)        23,538        8,204               9,494      (42,511)     (33,017) 
 Non-cash flows                     -       (1,307)      (1,307)                   -       (1,204)      (1,204) 
-----------------  ------------------  ------------  -----------  ------------------  ------------  ----------- 
 Closing balance               21,106     (127,904)    (106,798)              36,440     (150,135)    (113,695) 
-----------------  ------------------  ------------  -----------  ------------------  ------------  ----------- 
 

9. Share capital

 
 Allotted, called-up and fully paid ordinary 
  shares of GBP0.01 each                        Number of shares   GBP'000 
---------------------------------------------  -----------------  -------- 
 Opening balance                                     457,487,640     4,575 
 Issued on 1 March 2021                               54,054,054       540 
---------------------------------------------  -----------------  -------- 
 Balance at 30 June 2021                             511,541,694     5,115 
---------------------------------------------  -----------------  -------- 
 

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 2021, the Company issued 54,054,054 (2020: 72,398,191) ordinary shares raising gross proceeds of GBP60,000,000 (2020: GBP80,000,000). The consideration received in excess of the par value of the ordinary shares issued, net of the expenses of issue of GBP1,684,000 (2020: GBP1,824,000), has been credited to the share premium account. See note 15 for details of ordinary shares issued subsequent to the year end.

During the year to 30 June 2021, the Company did not repurchase any ordinary shares into treasury (2020: nil) or resell any ordinary shares from treasury (2020: nil). At 30 June 2021, the Company did not hold any shares in treasury (2020: 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 GBP24,563,000 (2020: GBP39,854,000), consisting of cash of GBP21,106,000 (2020: GBP36,440,000), net rent receivable of GBP955,000 (2020: GBP1,520,000), accrued development interest of GBP739,000 (2020: GBP996,000) and other debtors of GBP1,763,000 (2020: GBP898,000).

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 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 2021, the Group had recognised a credit loss allowance totalling GBP4,098,000 against a gross rent receivable balance of GBP4,641,000 and gross loans to tenants totalling GBP1,262,000. Whilst this allowance has increased during the year ended 30 June 2021, it remains low relative to the Group's overall balance sheet, and relates primarily to the tenant of two immature homes which are now trading well. As at 30 June 2020, the gross rent receivable was GBP3,922,000, of which GBP660,000 was subsequently recovered, GBP753,000 was written off and GBP2,509,000 is still outstanding. There were no other financial assets which were either past due or considered impaired at 30 June 2021 (2020: 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 2021 the Group held GBP20.9 million (2020: GBP36.4 million) with The Royal Bank of Scotland plc and GBP0.2 million (2020: GBPnil) 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 2021 interest was being received on cash at a weighted average variable rate of nil (2020: 0.01 per cent). 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 GBP170.0 million (2020: GBP130.0 million) of committed term loans and revolving credit facilities which were charged interest at a rate of SONIA (2020: three-month LIBOR) plus the relevant margin. At the year-end GBP80.0 million of the variable rate facilities had been drawn down (2020: GBP102.0 million). 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 2021 and 30 June 2020.

The Group has not hedged its exposure on GBP50.0 million of the drawn variable rate borrowings at 30 June 2021 (2020: GBP72.0 million). On these loans the interest was payable at a variable rate equal to SONIA (2020: three-month LIBOR) plus the weighted average lending margin, including the amortisation of costs, of 2.43 per cent per annum (2020: 2.17 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 a GBP50.0 million fixed rate term loan (2020: GBP50.0 million) and has hedged its exposure on GBP30.0 million (2020: GBP30.0 million) 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 GBP50.0 million fixed rate term loan is 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 2021, 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 GBP0.3 million (2020: GBP0.1 million). The same movement in interest rates would have decreased the fair value of the fixed rate term loan by GBP1.1 million (2020: GBP1.2 million); 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.

11. Capital commitments

The Group had capital commitments as follows:

 
                                                      30 June 2021   30 June 2020 
                                                           GBP'000        GBP'000 
---------------------------------------------------  -------------  ------------- 
 Amounts due to complete forward fund developments          21,054          5,394 
 Other capital expenditure commitments                       3,158            530 
---------------------------------------------------  -------------  ------------- 
 Total                                                      24,212          5,924 
---------------------------------------------------  -------------  ------------- 
 

12. Contingent assets and liabilities

As at 30 June 2021, twelve (2020: ten) properties within the Group's investment property portfolio contained deferred consideration clauses meaning that, subject to contracted performance conditions being met, deferred payments totalling GBP20.03 million (2020: GBP18.03 million) may be payable by the Group to the vendors/tenants of these properties. The potential timings of these payments are also conditional on the date(s) at which the contracted performance conditions are met and are therefore uncertain.

It is highlighted that any deferred consideration subsequently paid will result in an increase in the rental income due from the tenant of the relevant property. As the net initial yield used to calculate the additional rental which would be payable is not significantly different from the investment yield used to arrive at the valuation of the properties, any deferred consideration paid would be expected to result in a commensurate increase in the value of the Group's investment property portfolio.

Having assessed each clause on an individual basis, the Group has determined that the contracted performance conditions were highly likely to be met in relation to one of these properties and therefore an amount of GBP1.55 million has been recognised as a liability at 30 June 2021 (2020: GBPnil). An equal but opposite amount has been recognised in other debtors to reflect the increase in the investment property value that would be expected to arise were the deferred consideration to be paid and the contracted rental income 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 GBP181,000 (2020: GBP160,000) of which GBP12,000 (2020: GBP12,000) remained payable at the year-end.

The Investment Manager received GBP5,796,000 (inclusive of irrecoverable VAT) in management fees in relation to the year ended 30 June 2021 (2020: GBP5,264,000). Of this amount GBP1,551,000 (2020: GBP1,364,000) remained payable at the year-end. The Investment Manager received a further GBP146,000 (inclusive of irrecoverable VAT) during the year ended 30 June 2021 (2020: GBP129,000) in relation to its appointment as Company Secretary and Administrator, of which GBP36,000 (2020: GBP35,000) 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

Property transactions

Subsequent to the year end, practical completion was achieved at the Group's development site in Rudheath, Cheshire, delivering a 68-bed care home. The home was completed under a fixed-priced forward-fund arrangement and leased to L&M Healthcare, an existing tenant of the Group, on a 30-year lease with RPI-linked increases, subject to a cap and collar. Similarly, practical completion was achieved at the Group's development site in Droitwich Spa, Worcestershire and leased to the Group's largest tenant, Ideal Carehomes.

In addition the Company has acquired one operational care home and two forward fund developments, committing total capital of GBP32.0 million, plus acquisition costs.

Equity issuance

On 9 September 2021, the Company issued 108,695,652 ordinary shares at a price of 115.0 pence per share, raising gross proceeds of GBP125 million.

16. Financial statements

This statement was approved by the Board on 19 October 2021. 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 2021 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 2021 will be posted to shareholders in November 2021 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, Laurel House, Laurelhill Business Park, Stirling FK7 9JQ.

The audited financial statements for the year to 30 June 2021 will be lodged with the Registrar of Companies following the Annual General Meeting to be held on 14 December 2021.

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.

 
                                                     2021     2020 
                                                     pence    pence 
------------------------------------  -----------  -------  ------- 
 EPRA Net Tangible Assets per share 
  (see note 4)                            (a)       110.4    108.1 
 Share price                              (b)       115.4    110.0 
------------------------------------  -----------  -------  ------- 
 Premium                               = (b-a)/a     4.5%     1.8% 
------------------------------------  -----------  -------  ------- 
 

Dividend Cover - the percentage by which Group specific adjusted EPRA earnings for the year cover the dividend paid.

 
                                                        2021       2020 
                                                       GBP'000    GBP'000 
----------------------------------------  ---------  ---------  --------- 
 Group-specific EPRA earnings for the 
  year (see note 4)                          (a)       25,955     23,224 
 
   First interim dividend                               7,686      7,640 
 Second interim dividend                               7,686      7,640 
 Third interim dividend                                8,594      7,640 
 Fourth interim dividend                               8,594      7,640 
---------------------------------------------------  ---------  --------- 
 Dividends paid in relation to the year      (b)       32,560     30,560 
 Dividend cover                            = (a/b)      80%        76% 
----------------------------------------  ---------  ---------  --------- 
 

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.

 
                                                           2021        2020 
                                                          GBP'000     GBP'000 
-------------------------------------------  ---------  ----------  ---------- 
 Investment management fee                                 5,796       5,264 
 Other expenses                                            5,334       4,261 
 Less movement in impairment for credit 
  losses and bad debts written off                         (2,717)     (2,171) 
 Less direct property costs and other 
  non-recurring items                                      (263)       (138) 
 Adjustment to management fee arrangements 
  and irrecoverable VAT*                                     49          259 
------------------------------------------------------  ----------  ---------- 
 Total                                          (a)        8,199       7,475 
-------------------------------------------  ---------  ----------  ---------- 
 Average net assets                             (b)       528,035     493,691 
 Ongoing charges                              = (a/b)      1.55%       1.51% 
-------------------------------------------  ---------  ----------  ---------- 
 

* Based on the Group's net asset value at 30 June 2021, the management fee is expected to be paid at a weighted average rate of 1.04% (2020: 1.05%) of the Group's average net assets plus an effective irrecoverable VAT rate of approximately 7%. The management fee has therefore been amended so that the Ongoing Charges figure includes the expected all-in management fee rate of 1.11% (2020: 1.12%).

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.

 
                                                       2021                             2020 
----------------------------  ---------  -------------------------------  ------------------------------- 
                                            EPRA       IFRS      Share       EPRA       IFRS      Share 
                                             NTA        NAV       price       NTA        NAV       price 
                                           (pence)    (pence)    (pence)    (pence)    (pence)    (pence) 
----------------------------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
 Value at start of year          (a)       108.1      108.0      110.0      107.5      107.3      115.6 
 Value at end of year            (b)       110.4      110.5      115.4      108.1      108.0      110.0 
----------------------------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
 Change in value during 
  year (b-a)                     (c)        2.3        2.5        5.4        0.6        0.7       (5.6) 
 Dividends paid                  (d)        6.7        6.7        6.7        6.7        6.7        6.7 
 Additional impact of 
  dividend reinvestment           (e)        0.5        0.4        0.3        0.2        0.3         - 
----------------------------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
 Total gain in year (c+d+e)      (f)        9.5        9.6        12.4       7.5        7.7        1.1 
----------------------------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
 Total return for the 
  year                         = (f/a)      8.8%       8.9%      11.3%       7.0%       7.2%       0.9% 
----------------------------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
 

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 October 2019, applicable for accounting periods commencing after 1 January 2020.

 
                                                        2021      2020 
----------------------------------------------------  --------  -------- 
 EPRA Net Reinstatement Value (GBP'000)                609,630   535,256 
 EPRA Net Tangible Assets (GBP'000)                    564,934   494,340 
 EPRA Net Disposal Value (GBP'000)                     563,796   492,602 
 EPRA Net Reinstatement Value per share (pence)         119.2     117.0 
 EPRA Net Tangible Assets per share (pence)             110.4     108.1 
 EPRA Net Disposal Value per share (pence)              110.2     107.7 
 EPRA Earnings (GBP'000)                               34,047    30,468 
 Group specific adjusted EPRA earnings (GBP'000)       25,955    23,224 
 EPRA Earnings per share (pence)                        7.16      6.92 
 Group specific adjusted EPRA earnings per share 
  (pence)                                               5.46      5.27 
 EPRA Net Initial Yield                                 5.76%     5.69% 
 EPRA Topped-up Net Initial Yield                       5.83%     6.04% 
 EPRA Vacancy Rate                                        -         - 
 EPRA Cost Ratio - including direct vacancy 
  costs                                                 22.3%     21.5% 
 EPRA Group specific adjusted Cost Ratio (including 
  direct vacancy costs)                                 26.6%     25.7% 
 EPRA Cost Ratio - excluding direct vacancy 
  costs                                                 22.3%     21.5% 
 EPRA Group specific adjusted Cost Ratio (excluding 
  direct vacancy costs)                                 26.6%     25.7% 
 Capital Expenditure (GBP'000)                         54,859    118,743 
 Like-for-like Rental Growth                            0.1%      1.5% 
----------------------------------------------------  --------  -------- 
 

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).

 
                                                           2021        2020 
                                                          GBP'000     GBP'000 
-------------------------------------------  ---------  ----------  ---------- 
 Annualised passing rental income based 
  on cash rents                                 (a)       40,763      36,749 
 Notional rent expiration of rent-free 
  periods or other lease incentives                          450        2,264 
------------------------------------------------------  ----------  ---------- 
 Topped-up net annualised rent                  (b)       41,213      39,013 
-------------------------------------------  ---------  ----------  ---------- 
 Standing assets including properties held 
  for sale (see notes 5 and 6)                             662,495     604,984 
 Allowance for estimated purchasers' costs                44,696      40,916 
------------------------------------------------------  ----------  ---------- 
 Grossed-up completed property portfolio 
  valuation                                     (c)       707,191     645,900 
-------------------------------------------  ---------  ----------  ---------- 
 EPRA Net Initial Yield                       = (a/c)      5.76%       5.69% 
 EPRA Topped-up Net Initial Yield             = (b/c)      5.83%       6.04% 
-------------------------------------------  ---------  ----------  ---------- 
 

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.

 
                                                           2021       2020 
                                                          GBP'000    GBP'000 
-------------------------------------------  ---------  ---------  --------- 
 Annualised potential rental value of           (a)         -          - 
  vacant premises* 
 Annualised potential rental value of 
  the property portfolio (including vacant 
  properties)                                    (b)       41,213     39,013 
-------------------------------------------  ---------  ---------  --------- 
 EPRA Vacancy Rate                            = (a/b)       -          - 
-------------------------------------------  ---------  ---------  --------- 
 

* There were no unoccupied properties at either 30 June 2021 or 30 June 2020.

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 2020 
                                                                 2021         GBP'000 
                                                                GBP'000 
------------------------------------------  ---------------  -----------  -------------- 
 Investment management fee                                      5,796          5,264 
 Other expenses                                                 5,334          4,261 
-----------------------------------------------------------  -----------  -------------- 
 EPRA costs (including direct vacancy 
  costs)                                          (a)           11,130         9,525 
 Specific cost adjustments, if applicable                         -              - 
------------------------------------------  ---------------  -----------  -------------- 
 Group specific adjusted EPRA costs 
  (including direct vacancy costs)                (b)            11,130         9,525 
------------------------------------------  ---------------  -----------  -------------- 
 Direct vacancy costs                             (c)             -              - 
------------------------------------------  ---------------  -----------  -------------- 
 Gross rental income per IFRS                     (d)           49,980        44,267 
 Adjusted for rental income arising 
  from recognising guaranteed rent 
  review uplifts and lease incentives                           (8,739)        (8,219) 
 Adjusted for development interest 
  under forward fund arrangements                                 647            975 
 Group specific adjusted gross rental 
  income                                          (e)           41,888        37,023 
 EPRA Cost Ratio (including direct 
  vacancy costs)                                = (a/d)         22.3%          21.5% 
 EPRA Group specific adjusted Cost 
  Ratio (including direct vacancy costs)         = (b/e)         26.6%          25.7% 
 EPRA Cost Ratio (excluding direct 
  vacancy costs)                              = ((a-c)/d)       22.3%          21.5% 
 EPRA Group specific adjusted Cost 
  Ratio (excluding direct vacancy costs)       = ((b-c)/e)       26.6%          25.7% 
------------------------------------------  ---------------  -----------  -------------- 
 

EPRA Capital Expenditure

 
                                            Year ended      Year ended 
                                            30 June 2021    30 June 2020 
                                              GBP'000         GBP'000 
---------------------------------------   --------------  -------------- 
 Acquisitions (including acquisition 
  costs)                                      34,808          108,024 
 Forward fund developments                    20,032           9,245 
 Like-for-like portfolio                        19             1,474 
----------------------------------------  --------------  -------------- 
 Total capital expenditure                    54,859          118,743 
 Conversion from accrual to cash basis        (3,458)         (1,242) 
----------------------------------------  --------------  -------------- 
 Total capital expenditure on a cash 
  basis                                       51,401          117,501 
----------------------------------------  --------------  -------------- 
 

Like-for-like Rental Growth

 
                                                  Year ended    Year ended 
                                                    30 June     30 June 2020 
                                                     2021         GBP'000 
                                                    GBP'000 
------------------------------------  ---------  -----------  -------------- 
 Opening contractual rent                (a)        39,013        32,193 
------------------------------------  ---------  -----------  -------------- 
 Rent reviews                                        686            732 
 Movement in variable rental leases                 (162)          (56) 
 Re-tenanting of properties*                        (468)          (199) 
-----------------------------------------------  -----------  -------------- 
 Like-for-like rental growth             (b)          56            477 
 Acquisitions and developments                      2,582          7,490 
 Disposals                                          (438)         (1,147) 
-----------------------------------------------  -----------  -------------- 
 Total movement                          (c)        2,200          6,820 
 Closing contractual rent              = (a+c)      41,213        39,013 
------------------------------------  ---------  -----------  -------------- 
 Like-for-like rental growth*          = (b/a)       0.1%          1.5% 
------------------------------------  ---------  -----------  -------------- 
 

* During the year ended 30 June 2021, the Group resolved its position with a tenant which had been operating two of the Group's homes. The re-tenanting of one of these homes was completed during the year resulting in a small uplift in rental income; however, this asset management activity has resulted in a temporary reduction in contractual rent in relation to the other home, thereby reducing the reported like-for-like rental growth for the year by 1.2%. The re-tenanting of the second home is expected to complete imminently.

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END

FR UKOARASURAUA

(END) Dow Jones Newswires

October 20, 2021 02:00 ET (06:00 GMT)

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