TIDMTHRL
RNS Number : 1030T
Target Healthcare REIT PLC
23 March 2021
23 March 2021
Target Healthcare REIT plc
INTERIM RESULTS FOR THE SIX MONTHSED 31 DECEMBER 2020
Distinct focus on best-in-class real estate and diversified
tenant base underpins profit, portfolio valuation and dividend
increase
Target Healthcare REIT plc (the "Company" or the "Group"), the
UK listed specialist investor in modern, purpose-built care homes,
is pleased to announce its results for the six months ended 31
December 2020.
Financial Highlights
-- NAV total return(1) of 3.3% (2019: 3.8%), driven primarily by
the rental and valuation growth of the underlying portfolio
-- Share price total return of 6.8% (2019: 3.3%)
-- Group specific adjusted EPRA earnings per share(2) of 2.66
pence per share (2019: 2.72 pence)
-- Continued progressive dividend policy, with dividends
increased by 0.6% to 3.36 pence in respect of the period (2019:
3.34 pence)
-- Dividends in respect of the period 79% covered by adjusted
earnings(2) , fully covered based on EPRA earnings per share
-- Dividend yield of 5.9% based on 31 December 2020 closing share price of 114.0 pence
-- Cash reserves of GBP18.3 million as at 31 December 2020,
together with GBP58.0 million available in undrawn revolving credit
facilities, and low net loan-to-value ("LTV") of 22.2% (average
cost of drawn debt 2.81%, average term to maturity 5.34 years),
provides financial and operational flexibility
-- Oversubscribed GBP60 million equity issuance successfully
completed in March 2021, with attractive pipeline of investment
opportunities identified
Portfolio Highlights
-- Portfolio value increased by GBP30 million, or 4.9%, to
GBP647.7 million, including like-for-like valuation growth of
1.3%
-- Portfolio total returns of 4.1% (2019: 4.7%)
-- Contractual rent increased by 4.2% to GBP40.6 million per
annum (2020: GBP39.0 million), including a like-for-like increase
of 0.3%, with the assets that were subject to rent review in the
period delivering an average increase of 1.7%
-- EPRA Topped-up Net Initial Yield of 5.97% and EPRA Net Initial Yield of 5.80%
-- Weighted Average Unexpired Lease Term ('WAULT') of 28.7 years
(2020: 29.0 years), one of the longest in the UK listed real estate
sector
Update and Outlook
-- Vaccinations made available to residents and staff in all of
the Group's care homes by 1 February 2021, with substantial uptake
across both groups
-- Whilst trading conditions for some underlying tenants may
remain challenging for a period, we expect tenant occupancy to
recover as new admissions can now occur more safely and residents
are able to interact with visitors and their local communities more
regularly. Reports from tenants indicate significant levels of
enquiries from prospective residents
-- The Group has carefully invested in modern, purpose-built
care home real estate, with full en-suite wet-rooms which account
for 95% of the portfolio, leased at sustainable rental levels,
creating a portfolio which is diversified by both tenant and
geography
-- Compelling long-term demand supply dynamics supporting both
investor and operator activity in the sector, with evidence that
the flight to high quality assets is accelerating
-- Strong alignment of ESG principles, with continued social
purpose and advocacy of minimum real estate standards across the
sector
-- Ongoing supportive dialogue with tenants through crisis;
landlord flexibility providing assurance and allowing focus on care
provision for residents
Unless otherwise stated in the above, references to 2019 mean
the comparative six month period to 31 December 2019 and references
to 2020 mean 30 June 2020, being the start of the period under
review.
(1) Based on EPRA NAV movement and dividends paid
(2) For the details of adjusted earnings refer to note 6 to the
Condensed Consolidated Financial Statements.
Malcolm Naish, Chairman of the Company, said:
"The extensive feedback we have received throughout the period
from care home managers and their teams has confirmed that the
standards of our modern, purpose-built real estate have been vital
to their efforts to provide dignified care for residents during the
challenging circumstances of the pandemic.
"The COVID-19 vaccination programme provides a massive relief to
residents, their friends and families, and care staff. While our
outlook for our homes and the sector is optimistic, we recognise
that trading conditions may remain challenging for a period for
some homes as we continue to emerge from the worst of the pandemic.
Positive relationships with our tenants are fundamental to our
business model and we remain a highly engaged and supportive
landlord.
"Our business model provides stable, noncyclical returns from
long-term, committed investment in UK care homes. Real estate
standards across the sector remain generally poor and this
significant undersupply of quality, and the increasing numbers of
people over 85 years of age, allows us to invest with confidence
for the long-term. "
LEI: 213800RXPY9WULUSBC04
Enquiries:
Kenneth MacKenzie; Gordon Bland
Target Fund Managers Limited
01786 845 912
Mark Young; Mark Bloomfield
Stifel Nicolaus Europe Limited
020 7710 7600
Dido Laurimore; Claire Turvey; Richard Gotla
FTI Consulting
020 3727 1000
TargetHealthcare@fticonsulting.com
Notes to editors:
UK listed Target Healthcare REIT plc (THRL) is an externally
managed Real Estate Investment Trust which provides shareholders
with an attractive level of income, together with the potential for
capital and income growth, from investing in a diversified
portfolio of modern, purpose-built care homes.
The Group's portfolio at 31 December 2020 comprised 76 assets
let to 27 tenants with a total value of GBP647.7 million.
The Group only 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
Introduction and COVID-19
We have now been living with the COVID-19 pandemic for over a
year. Throughout this time, we have heard powerful first-hand
accounts from our homes detailing the extent of the challenges
faced, and the impact on residents, families and their care
workers. We are grateful to all those working in our homes for
their devoted service. The extensive feedback we have received
throughout the period from care home managers and their teams has
confirmed that the standards of our modern, purpose-built real
estate have been vital to their efforts to provide dignified care
for residents - we shall continue to advocate for these as the
minimum real estate standards anyone should be willing to accept
for frail older people.
The urgent roll-out of vaccinations to residents and carers in
all our homes has been a success. The protection provided is a
massive relief to residents, their friends and families, and care
staff. This also delivers the first significant commercial
assurance this year to our tenants. We are pleased to hear reports
from our tenants of significant levels of enquiries from
prospective residents and expect occupancy to recover as new
admissions can now occur more safely and residents are able to
interact with visitors and their local communities more
regularly.
While our outlook for our homes and the sector is optimistic, we
recognise that trading conditions may remain challenging for a
period for some homes as we continue to emerge from the worst of
the pandemic. Positive relationships with our tenants are
fundamental to our business model and we remain a highly engaged
and supportive landlord.
Group performance
Despite the unparalleled difficulties of the past year,
underlying profits, measured by adjusted EPRA earnings, have
increased by 6% to GBP12.2 million (2019: GBP11.5 million), being
2.66 pence per share (2019: 2.72 pence). The Group's portfolio, on
which the Investment Manager reports in more detail below, now
comprises beds for up to 5,071 residents to be cared for by our 27
tenants and their many thousands of nurses, carers and other
essential staff.
The Group continues to provide attractive total returns (3.3%
accounting total return for the period(1) ), driven primarily by
the rental and valuation growth of the underlying portfolio.
Valuation yields have tightened (EPRA topped-up Net Initial Yield:
5.97%) with a number of market participants providing competition
for the sustainable rental cashflows and relatively low volatility
provided by the type of homes in which we invest.
We have all faced necessary restrictions that have prevented us
taking our preferred actions, and this has extended to our
management of the portfolio. We prudently paused investment
activity at the height of the uncertainty a year ago, and the
implementation of initiatives to address performance concerns
relating to a small number of our assets were delayed. While these
restrictions on our normal course of business unsurprisingly
impacted on our ability to deliver maximum earnings and dividend
cover, the impact was slight. Moreover, the evidence of the robust
performance of our portfolio, with 94% of rent collected for the
COVID-affected period(2) and market demand and competition for
assets reflected in the aforementioned tightening of valuation
yields, provides a solid basis to resume acquisitions and we have
progressed initiatives on the underperforming assets. These actions
should contribute positively to further earnings growth in the
near-term.
Portfolio & balance sheet strength
At 31 December 2020, the Group's portfolio has grown to 76
properties valued at GBP647.7 million. Our 27 tenants provide
diversity of income, with rental and valuation growth delivered on
a like-for-like basis at 0.3% and 1.3% respectively from both
rental uplifts and yield compression. Underlying trading
performance at the homes has proven remarkably resilient - notably,
rent cover for the mature homes in the portfolio of 1.5 times(3)
has been achieved over the period largely affected by COVID-19.
Gearing remains low, despite having increased from 19% to 22%
over the six month period as we have moved closer to a fully
invested and fully geared balance sheet. Management of our
investment pipeline, development programme and capital structure is
also becoming more efficient with scale and with the agreement of
enhanced debt arrangements. The GBP40 million of additional debt
capacity and maturity extensions during the period have further
strengthened the balance sheet and provide increased certainty of
funding. Our weighted average term to maturity on our debt
facilities now exceeds five years at a weighted interest rate of
2.8%.
We have been delighted by the support from both existing
shareholders and new investors for the oversubscribed GBP60 million
equity issuance completed this month. We carefully considered the
immediate prospects for the portfolio and the sector, as well as
the medium to longer term, and firmly believe shareholders can
benefit from the further scale and tenant diversity that investment
of the funds raised will add to our underlying investment
portfolio. The Manager has identified an attractive pipeline of
investment opportunities and also reports significant interest in
the type of real estate we hold, with some evidence that the
"flight to quality" within the sector is accelerating. We look
forward to deploying the capital raised and continuing to grow our
portfolio on accretive terms whilst remaining highly selective with
our approach to acquisition opportunities.
Dividend and outlook
We have maintained our progressive dividend policy having
increased quarterly dividends by 0.6% to 1.68 pence per share.
While dividend cover over this COVID-affected six-month period was
79%(4) , we have a clear path to full cover from the increased
earnings which are already being generated by recent capital
deployment, and from the improved rental collection expected on
completion of our portfolio management initiatives.
Our Manager's specialist understanding of the sector and
deep-seated relationships help identify assets that meet our strict
criteria and, more crucially, set rental levels which are
sustainable for operationally astute care home operators. This
approach has delivered annualised accounting total returns(1) since
launch of 7.7% and, despite the unprecedented conditions since the
outbreak of the pandemic, returned 6.5% for the 2020 calendar
year.
Our business model provides stable, non-cyclical returns from
long-term, committed investment in UK care homes. Real estate
standards across the sector remain generally poor - 74%(5) of the
UK's existing care home bedrooms are in need of modernisation to
effectively allow dignity and privacy in care, as well as
enhancements to infection control. This significant undersupply of
quality, and the increasing numbers of people over 85 years of age,
allows us to invest with confidence for the long-term.
Malcolm Naish
Chairman
22 March 2021
(1) Based on EPRA NAV movement plus dividends paid.
(2) For the period from 11 March 2020 (when COVID-19 was
declared a global pandemic by the World Health Organisation) to 31
December 2020.
(3) Twelve month rolling average to 31 December 2020.
(4) Based on adjusted earnings, please refer to note 6 to the
Condensed Consolidated Financial Statements.
(5) Carterwood - 2020
Investment Manager's Report
Overview
The Group's portfolio of 76 assets, comprising 73 operational
homes and three pre-let development sites, was valued at GBP647.7
million at 31 December 2020. The operational homes were let to 27
tenants, providing 5,071 beds for residents, and generating a
contractual rent of GBP40.6 million per annum. The EPRA topped-up
net initial yield was 5.97% and the EPRA net initial yield was
5.80%.
The portfolio value has increased by 4.9% in the period. Of
this, 3.6% is due to net capital deployment in one new acquisition
and further investment into developments (two new commitments, one
existing), with a positive like-for-like movement in the
operational portfolio of 1.3%, which primarily reflects the impact
of both inflation-linked rent reviews and yield compression.
The contractual rent roll has increased by 4.2% in the period,
including an increase of 3.9% from an acquisition and a completed
development site. The Group's upwards-only rent reviews contributed
a like-for-like increase of 0.7%, though we report a net increase
of 0.3% following a prudent reduction in estimated rent from the
portfolio's sole variable rental lease agreement, where the
affected property has seen a weaker trading performance due to
COVID-19. The WAULT has shortened slightly to 28.7 years.
The portfolio total return for the six-month period was 4.1%
(8.2% for the 2020 calendar year), maintaining its stable
performance since IPO.
COVID-19
As at 18 March 2021 there were confirmed COVID-19 cases in less
than 0.6% of total portfolio beds across nine homes, down from the
April 2020 peak of 3.2% suspected or confirmed cases across 32
homes. Vaccinations had been made available to residents and staff
in all of the Group's care homes by 1 February 2021, with
substantial uptake across both groups. The roll-out of second dose
vaccinations has commenced and is expected to complete in the
coming weeks.
The pandemic has had a significant impact on underlying
occupancy across the portfolio, with a decrease of 10% since the
pandemic began, consistent with the trend seen across the sector,
as admissions of new residents slowed. Home trading performance has
remained resilient, with average rent cover as at 31 December 2020
of 1.5 times on a last twelve months' basis.(1) These results
reflect the positive effects of (i) government support (ii) local
authority fee increases arriving promptly; and (iii) reduced agency
staff usage.
The progress towards normality which appears likely as a result
of vaccinations is, of course, welcomed. We look forward to
recommencing our regular visiting programme, when safe to do so,
and experiencing the vibrant and caring environments our homes
provide their residents, visitors and local communities.
Asset management initiatives
As at 22 March 2021, the Group had collected 93 per cent of the
rent that was due and payable in respect of the current quarter.
The Investment Manager has ongoing engagement with the Group's
tenants to proactively assist and monitor performance. Two tenants,
operating four homes in aggregate and comprising approximately
eight per cent of the Group's total rent, have contributed to the
majority of recent and ongoing rent arrears. The market value of
these properties as reported at 31 December 2020 is at a reduced
level which reflects the sustained underperformance to date. Whilst
the restrictions and interruptions of the COVID-19 pandemic have
limited our ability to implement initiatives to address the
underperformance, positive progress has been made recently. An
agreement has been reached with one tenant for partial settlement
of outstanding rent and consensual re-tenanting of their two homes.
At the other two homes, operated by a different tenant, resident
occupancy and trading is improving towards the levels anticipated
by the investment case, with one home having recently started
paying its rent in full. The other home is making slower progress
in part due to restrictions put in place throughout the COVID-19
pandemic.
We have also continued to progress other asset management
activities to secure long-term rental income.
Investment market
The investment market for high quality, modern, fit-for-purpose
assets which meet the Group's investment criteria remains very
competitive. There is sustained strong investor appetite, with the
best properties and sites transacting at pre-COVID-19 pandemic
pricing.
Yields continue to tighten and, based on the reliable cash-flows
generated, competition levels we are witnessing from a number of
participants, and the resilient performance through the pandemic,
we anticipate modest tightening to continue. We are not seeing
distressed sales, as one may expect, rather the opposite as the
requirement for the sector's real estate to modernise, and the
resultant flight to quality of limited supply, becomes more
pronounced.
Our pipeline of potential portfolio additions is healthy, with
opportunities to: add homes which are market-leading in their local
areas; support care providers in their growth aspirations; and to
enhance our portfolio's diversification through new tenants. We
expect to complete diligence procedures and announce acquisitions
in the coming months.
Sectoral
In the aftermath of COVID-19, there is a continued strong
political commitment to improving the relationship between health
and social care across the UK, to avoid medically fit older
patients occupying urgently needed hospital beds. This offers
further opportunities for the social care sector by caring for this
population, as has been demonstrated during the pandemic. Other
positive areas of opportunity for joint working with the NHS
include intermediate care for people who are not yet well enough to
return home from hospital, and rapid response care beds for people
who require rehabilitation which can be delivered in the care home
to avoid hospital admission altogether.
Policy makers continue to discuss how the public funded element
of elder care is to be settled, with new ideas being considered
after the shelving of the Dilnot proposals on long term care
funding. There are no proposals for structural reform of social
care, though discussion about funding through personal taxation or
insurance schemes is live. The Department of Health and Social Care
has released a White Paper called 'Integration and Innovation',
described as a 'shift away from the old legislative focus on
competition between health care organisations towards a new model
of collaboration, partnership and integration'. Proposals to look
at joined up thinking across whole communities may ultimately be
beneficial to all.
Plans for a new 'National Care Service' in Scotland seek to draw
together the NHS and social care, but the sector is content that
the government commissioned Independent Review of Adult Social Care
has comprehensively vetoed the idea of nationalising the
independent sector on financial grounds. In addition, the Scottish
Care Inspectorate is due to publish an update of design guidance
for care homes reinforcing the opportunities for those providing
fit-for-purpose buildings.
The Department of Health Northern Ireland has announced its
intention to simplify and standardise NHS payment of 'Continuing
Healthcare' which will be progressive, clarifying formerly
contentious issues of NHS funding for residents within care homes,
making it easier to access much needed care that this sector can
provide.
The last year has seen the staff who work in care homes held up
in proper respect alongside their colleagues in the NHS, with
acknowledgement of their heroic efforts. Recognition of the value
of the sector as a whole is reflected in these policy
developments.
Target Fund Managers Limited
Investment Manager
22 March 2021
(1) All occupancy and rent cover figures quoted relate to mature
homes within the portfolio.
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 31 December 2020
Six months ended Six months ended
31 December 2020 31 December 2019
(unaudited) (unaudited)
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Revenue
Rental income 20,308 4,554 24,862 16,973 3,855 20,828
Other income 6 - 6 10 - 10
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Total revenue 20,314 4,554 24,868 16,983 3,855 20,838
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Gains on investment
properties 8 - 307 307 - 299 299
(Losses)/gains on
properties held for
sale 9 - (92) (92) - 1,505 1,505
Total income 20,314 4,769 25,083 16,983 5,659 22,642
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Expenditure
Investment management
fee 2 (2,821) - (2,821) (2,525) - (2,525)
Other expenses 3 (3,170) - (3,170) (1,486) (47) (1,533)
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Total expenditure (5,991) - (5,991) (4,011) (47) (4,058)
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Profit before finance
costs and taxation 14,323 4,769 19,092 12,972 5,612 18,584
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Net finance costs
Interest receivable 18 - 18 62 - 62
Interest payable
and similar charges 4 (2,389) (913) (3,302) (2,090) - (2,090)
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Profit before taxation 11,952 3,856 15,808 10,944 5,612 16,556
Taxation 5 12 - 12 3 - 3
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Profit for the period 11,964 3,856 15,820 10,947 5,612 16,559
Other comprehensive
income:
Items that are or
may be reclassified
subsequently to profit
or loss
Movement in fair
value of interest
rate swaps - (141) (141) - 17 17
Reclassification
to profit and loss
on discontinuation
of interest rate
swaps - 180 180 - - -
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Total comprehensive
income for the period 11,964 3,895 15,859 10,947 5,629 16,576
-------------------------- ------ --------- -------- --------- --------- -------- ---------
Earnings per share
(pence) 6 2.62 0.84 3.46 2.58 1.33 3.91
-------------------------- ------ --------- -------- --------- --------- -------- ---------
The total column of this statement represents the Group's
Condensed Consolidated Statement of Comprehensive Income, prepared
in accordance with IFRS as adopted by the European Union. 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 period.
Condensed Consolidated Statement of Financial Position
As at 31 December 2020
As at As at
31 December 30 June
2020 2020
(unaudited) (audited)
Notes GBP'000 GBP'000
Non-current assets
Investment properties 8 595,090 570,086
Trade and other receivables 10 51,968 46,044
------------------------------------ ------ ------------- -----------
647,058 616,130
------------------------------------ ------ ------------- -----------
Current assets
Trade and other receivables 10 2,627 3,702
Cash and cash equivalents 18,324 36,440
------------------------------------ ------ ------------- -----------
20,951 40,142
Properties held for sale 9 7,320 7,500
------------------------------------ ------ ------------- -----------
28,271 47,642
------------------------------------ ------ ------------- -----------
Total assets 675,329 663,772
------------------------------------ ------ ------------- -----------
Non-current liabilities
Bank loans 12 (159,683) (150,135)
Interest rate swaps 12 (188) (227)
Trade and other payables 13 (6,821) (6,183)
------------------------------------ ------ ------------- -----------
(166,692) (156,545)
------------------------------------ ------ ------------- -----------
Current liabilities
Trade and other payables 13 (13,991) (13,114)
------------------------------------ ------ ------------- -----------
Total liabilities (180,683) (169,659)
------------------------------------ ------ ------------- -----------
Net assets 494,646 494,113
------------------------------------ ------ ------------- -----------
Share capital and reserves
Share capital 14 4,575 4,575
Share premium 77,452 77,452
Merger reserve 47,751 47,751
Distributable reserve 281,444 296,770
Hedging reserve (188) (227)
Capital reserve 49,392 45,536
Revenue reserve 34,220 22,256
------------------------------------ ------ ------------- -----------
Equity shareholders' funds 494,646 494,113
------------------------------------ ------ ------------- -----------
Net asset value per ordinary share
(pence) 6 108.1 108.0
------------------------------------ ------ ------------- -----------
Condensed Consolidated Statement of Changes in Equity
For the six months ended 31 December 2020 (unaudited)
Distrib-utable
Share Share Merger reserve Hedging Capital Revenue
Note capital premium reserve reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 30 June
2020 4,575 77,452 47,751 296,770 (227) 45,536 22,256 494,113
Total
comprehensive
income for
the period: - - - - 39 3,856 11,964 15,859
Transactions
with owners
recognised
in equity:
Dividends
paid 7 - - - (15,326) - - - (15,326)
As at 31
December
2020 4,575 77,452 47,751 281,444 (188) 49,392 34,220 494,646
---------------- ------ --------- --------- --------- --------------- --------- --------- --------- ----------
For the six months ended 31 December 2019 (unaudited)
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
As at 30 June
2019 372,685 - - - - (707) 36,163 4,948 413,089
Total
comprehensive
income for
the period: - - - - - 17 5,612 10,947 16,576
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 7 (1,393) - - - (7,640) - - (4,941) (13,974)
Issue of
ordinary
shares 14 - 724 79,276 - - - - - 80,000
Expenses of
issue - - (1,824) - - - - - (1,824)
---------------- ----- ---------- ------------ --------- --------- --------------- --------- --------- --------- ----------
As at 31
December
2019 - 4,575 77,452 47,751 312,050 (690) 41,775 10,954 493,867
---------------- ----- ---------- ------------ --------- --------- --------------- --------- --------- --------- ----------
Condensed Consolidated Cash Flow Statement
For the six months ended 31 December 2020
Six months Six months
ended ended
31 December 31 December
2020 2019
(unaudited) (unaudited)
Notes GBP'000 GBP'000
------------------------------------------ ------- ------------- -------------
Cash flows from operating activities
Profit before tax 15,808 16,556
Adjustments for:
Interest receivable (18) (62)
Interest payable 3,302 2,090
Revaluation losses/(gains) on properties
held for sale 92 (1,505)
Revaluation gains on investment
properties and movements in lease
incentives, net of acquisition costs
written off (4,861) (4,471)
Increase in trade and other receivables (348) (16,314)
Increase in trade and other payables 498 2,133
------------------------------------------- ------ ------------- -------------
14,473 (1,573)
------------------------------------------- ------ ------------- -------------
Interest paid (2,158) (1,524)
Interest received 18 62
Tax paid - (73)
------------------------------------------- ------ ------------- -------------
(2,140) (1,535)
------------------------------------------- ------ ------------- -------------
Net cash inflow/(outflow) from operating
activities 12,333 (3,108)
------------------------------------------- ------ ------------- -------------
Cash flows from investing activities
Disposal of investment properties - 14,402
Disposal of properties held for
sale 9 388 -
Purchase of investment properties
and properties held for sale, including
acquisition costs (24,013) (97,700)
Net cash outflow from investing
activities (23,625) (83,298)
------------------------------------------- ------ ------------- -------------
Cash flows from financing activities
Issue of ordinary share capital 14 - 80,000
Expenses of issue paid - (1,824)
Bank loans drawn down 12 112,000 87,000
Costs of arranging bank loan facilities (1,449) (117)
Bank loans repaid 12 (102,000) (60,000)
Dividends paid (15,375) (13,837)
------------------------------------------- ------ ------------- -------------
Net cash (outflow)/inflow from financing
activities (6,824) 91,222
------------------------------------------- ------ ------------- -------------
Net (decrease)/increase in cash
and cash equivalents (18,116) 4,816
Opening cash and cash equivalents 36,440 26,946
------------------------------------------- ------ ------------- -------------
Closing cash and cash equivalents 18,324 31,762
------------------------------------------- ------ ------------- -------------
Transactions which do not require the
use of cash
Movement in fixed or guaranteed rent
reviews and lease incentives 5,311 4,255
--------------------------------------- ------ ------
Notes to the Condensed Consolidated Financial Statements
1. Basis of Preparation
The condensed consolidated financial statements have been
prepared in accordance with IAS 34 'Interim Financial Reporting'
and the accounting policies set out in the statutory financial
statements of the Group for the year ended 30 June 2020.
The condensed consolidated financial statements do not include
all of the information required for a complete set of IFRS
financial statements and should be read in conjunction with the
consolidated financial statements of the Group for the year ended
30 June 2020, which were prepared under full IFRS requirements.
Going concern
The condensed consolidated financial statements have been
prepared on the going concern basis. In assessing the going concern
basis of accounting the Directors have had regard to the guidance
issued by the Financial Reporting Council. Given the potentially
significant impact of COVID-19 on the economic conditions in which
the Group is operating, the Directors have placed a particular
focus on the appropriateness of adopting the going concern basis in
preparing the financial statements for the period ended 31 December
2020.
The Group's going concern assessment particularly considered
that:
-- The value of the Group's portfolio of assets significantly
exceeds the value of its liabilities, with the valuation yield
applied to the portfolio having tightened marginally since the
start of the pandemic;
-- The Group is contractually entitled to receive rental income
which significantly exceeds its forecast expenses and loan
interest; and
-- The Group remains within its loan covenants, with its finance
facilities having been extended and increased during the period,
resulting in a weighted average term to maturity of 5.3 years at 31
December 2020 and an earliest repayment date of November 2023.
The Group has a significant balance of cash and undrawn debt
available and the Group's current policy is to prudently retain a
proportion of this to ensure it can continue to pay the Group's
expenses and loan interest in the unlikely scenario that the level
of rental income received deteriorates significantly. The
proportion retained will be kept under review dependent on
portfolio performance and market conditions.
Based on these considerations, the Directors consider that the
Group has adequate resources to continue in operational existence
for the foreseeable future and at least the next twelve months from
the date of issuance of this report. For this reason, they continue
to adopt the going concern basis in preparing the financial
statements.
2. Investment Management Fee
For the six month For the six month
period ended period ended
31 December 2020 31 December 2019
GBP'000 GBP'000
----------------------- ------------------ ------------------
Investment management
fee 2,821 2,525
----------------------- ------------------ ------------------
The Group's Investment Manager and Alternative Investment Fund
Manager ('AIFM') is Target Fund Managers Limited. 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
----------------------------------------------- --------------------------
2. Investment Management Fee (continued)
The Investment Management Agreement can be terminated by either
party on 24 months' written notice, provided that the earliest that
notice could be served is 30 April 2021. 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; 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
For the six For the six
month period month period
ended ended
31 December 31 December
2020 2019
GBP'000 GBP'000
------------------------------------- -------------- --------------
Credit loss allowance and bad debts
written off 1,940 520
Valuation and other professional
fees 853 516
Secretarial and administration fees 88 86
Directors' fees 91 80
Capital costs relating to Group
reconstruction - 47
Other 198 284
------------------------------------- -------------- --------------
Total 3,170 1,533
------------------------------------- -------------- --------------
4. Interest payable and similar charges
For the six For the six
month period month period
ended ended
31 December 31 December
2020 2019
GBP'000 GBP'000
----------------------------- -------------- --------------
Interest paid on bank loans 2,056 1,689
Amortisation of loan costs 333 401
Cost of early redemption 913 -
Total 3,302 2,090
----------------------------- -------------- --------------
During the period ended 31 December 2020, the Group amended its
existing GBP50.0 million term loan and revolving credit facility
with RBS and closed out the interest rate swaps used to hedge the
previous facility. The Group also amended its existing GBP80.0
million revolving credit facility with HSBC. The costs of early
redemption, including the release of the unamortised loan costs
remaining at the time of restatement of both the RBS and HSBC loans
and the crystallisation of a loss of GBP180,000 on the early
termination of the interest rate swaps that had previously been
recognised through other comprehensive income, totalled GBP913,000
and have been charged to capital. Further detail on the amended and
restated loans is provided in note 12.
5. Taxation
The Directors intend to conduct the Group's affairs such that
management and control is exercised in the United Kingdom and so
that the Group carries on any trade in the United Kingdom.
The Group has entered the REIT regime for the purposes of UK
taxation. Subject to continuing relevant UK-REIT criteria being
met, the profits from the Group's property rental business, arising
from both income and capital gains, are exempt from corporation
tax.
6. Earnings per share and Net Asset Value per share
Earnings per share
For the six month For the six month
period ended period ended
31 December 2020 31 December 2019
Pence per Pence per
GBP'000 share GBP'000 share
-------------------------- ---------- ------------ ---------- ------------
Revenue earnings 11,964 2.62 10,947 2.58
Capital earnings 3,856 0.84 5,612 1.33
Total earnings 15,820 3.46 16,559 3.91
-------------------------- ---------- ------------ ---------- ------------
Average number of shares
in issue 457,487,640 423,255,886
-------------------------- ---------- ------------ ---------- ------------
The European Public Real Estate Association ('EPRA') is an
industry body which issues best practice reporting guidelines for
property companies and the Group reports an EPRA NAV quarterly.
EPRA has issued best practice recommendations for the calculation
of certain figures which are included below.
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 that 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:
For the six For the six
month period month period
ended ended
31 December 31 December
2020 2019
GBP'000 GBP'000
------------------------------------------- -------------- --------------
Earnings per IFRS Consolidated Statement
of Comprehensive Income 15,820 16,559
Adjusted for gains on investment
properties (307) (299)
Adjusted for losses/(gains) on properties
held for sale 92 (1,505)
Adjusted for cost of debt refinancing
and other capital items 913 47
EPRA earnings 16,518 14,802
Adjusted for rental income arising
from recognising guaranteed rent
review uplifts (4,554) (3,855)
Adjusted for development interest
under forward fund agreements 212 577
Group specific adjusted EPRA earnings 12,176 11,524
Earnings per share ('EPS') pence
per share
EPS per IFRS Consolidated Statement
of Comprehensive Income 3.46 3.91
EPRA EPS 3.61 3.50
Group specific adjusted EPRA EPS 2.66 2.72
------------------------------------------- -------------- --------------
Earnings for the period ended 31 December 2020 should not be
taken as a guide to the results for the year to 30 June 2021.
Net Asset Value per share
The Group's net asset value per ordinary share of 108.1 pence
(30 June 2020: 108.0 pence) is based on equity shareholders' funds
of GBP494,646,000 (30 June 2020: GBP494,113,000) and on 457,487,640
(30 June 2020: 457,487,640) ordinary shares, being the number of
shares in issue at the period end.
The EPRA Net Asset Value ('EPRA NAV') per share is arrived at by
adjusting the net asset value ('NAV') calculated under
International Financial Reporting Standards ('IFRS'). The EPRA NAV
provides a measure of the fair value of a company on a long-term
basis. The only adjustment required to the NAV is that the EPRA NAV
excludes the fair value of the Group's interest rate swaps which
was recognised as a liability of GBP188,000 under IFRS as at 31
December 2020 (30 June 2020: liability of GBP227,000). EPRA
believes that, under normal circumstances, the financial
derivatives which property investment companies use to provide an
economic hedge are held until maturity and so the theoretical gain
or loss at the balance sheet date will not crystallise.
As at As at
31 December 30 June
2020 2020
Pence per share Pence per
share
-------------------------------------- ---------------- ----------
NAV per financial statements (pence
per share) 108.1 108.0
Valuation of interest rate swaps 0.1 0.1
-------------------------------------- ---------------- ----------
EPRA NAV (pence per share) 108.2 108.1
Fair value adjustment for fixed-rate
loan facilities and interest rate
swaps (0.6) (0.4)
-------------------------------------- ---------------- ----------
EPRA NNNAV (pence per share) 107.6 107.7
-------------------------------------- ---------------- ----------
EPRA guidance also recognises an EPRA NNNAV (Triple Net Asset
Value), the objective of which is to report net asset value
including fair value adjustments in respect of all material balance
sheet items which are not reported at their fair value as part of
the EPRA NAV. At 31 December 2020, 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 of the
liability is estimated to be GBP2,579,000 higher than the nominal
value at 31 December 2020 (30 June 2020: GBP1,511,000).
7. Dividends
Dividends paid as distributions to equity shareholders during
the period.
For the six For the six
month period month period
ended ended
31 December 31 December
2020 2019
Pence GBP'000 Pence GBP'000
----------------------------------- ------ -------- ------ --------
Fourth interim dividend for prior
year 1.67 7,640 1.64 6,334
First interim dividend 1.68 7,686 1.67 7,640
Total 3.35 15,326 3.31 13,974
----------------------------------- ------ -------- ------ --------
A second interim dividend for the year to 30 June 2021, of 1.68
pence per share, was paid on 26 February 2021 to shareholders on
the register on 12 February 2021.
8. Investment properties
As at
31 December
2020
Freehold and Leasehold Properties GBP'000
---------------------------------------------- -------------
Opening market value 610,084
Opening fixed or guaranteed rent reviews
and lease incentives (39,998)
----------------------------------------------- -------------
Opening carrying value 570,086
----------------------------------------------- -------------
Purchases 23,718
Acquisition costs capitalised 979
Acquisition costs written off (979)
Revaluation movement - gains 9,741
Revaluation movement - losses (3,144)
----------------------------------------------- -------------
Movement in market value 30,315
Movement in fixed or guaranteed rent reviews
and lease incentives (5,311)
----------------------------------------------- -------------
Movement in carrying value 25,004
Closing market value 640,399
Closing fixed or guaranteed rent reviews
and lease incentives (45,309)
----------------------------------------------- -------------
Closing carrying value 595,090
The investment properties can be analysed as follows:
As at As at
31 December 30 June
2020 2020
GBP'000 GBP'000
-------------------------------------------- ------------- ---------
Standing assets 629,939 597,484
Developments under forward fund agreements 10,460 12,600
-------------------------------------------- ------------- ---------
Closing market value 640,399 610,084
-------------------------------------------- ------------- ---------
Changes in the valuation of investment For the six For the six
properties month period month period
ended 31 ended 31
December December
2020 2019
GBP'000 GBP'000
----------------------------------------------- -------------- --------------
Loss on sale of investment properties - (948)
Unrealised gains realised during the period - 1,590
Gains on sale of investment properties
realised - 642
Revaluation movement 6,597 7,614
Acquisition costs written off (979) (3,386)
Movement in lease incentives (757) (715)
Movement in fixed or guaranteed rent reviews (4,554) (3,856)
----------------------------------------------- -------------- --------------
Gains on revaluation of investment properties 307 299
----------------------------------------------- -------------- --------------
The investment properties were valued at GBP640,399,000 (30 June
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 - Professional 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. Market Value
represents the estimated amount for which a property should
exchange on the date of valuation between a willing buyer and a
willing seller in an arm's length transaction after proper
marketing wherein the parties had each acted knowledgeably,
prudently and without compulsion.
8. Investment properties (continued)
The fair value of the properties after adjusting for the
movement in the fixed or guaranteed rent reviews and lease
incentives was GBP595,090,000 (30 June 2020: GBP570,086,000). The
adjustment consisted of GBP39,320,000 (30 June 2020: GBP34,766,000)
relating to fixed or guaranteed rent reviews and GBP5,989,000 (30
June 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 financial statements as non-current and current
assets within 'trade and other receivables'.
The Group is required to classify fair value measurements of its
investment properties using a fair value hierarchy, in accordance
with IFRS 13 'Fair Value Measurement'. This hierarchy reflects the
subjectivity of the inputs used, and has the following levels:
-- Level 1: unadjusted quoted prices in active markets for
identical assets or liabilities that the entity can access at the
measurement date;
-- Level 2: observable inputs other than quoted prices included
within level 1;
-- Level 3: use of inputs that are not based on observable
market data.
The Group's investment properties are valued by Colliers on a
quarterly basis. The valuation methodology used is the yield model,
which is a consistent basis for the valuation of investment
properties within the healthcare industry. This model has regard to
the current investment market and evidence of investor interest in
properties with income streams secured on healthcare businesses. On
an asset-specific basis, the valuer makes an assessment of: the
quality of the asset; recent and current performance of the asset;
and the financial position and performance of the tenant operator.
This asset specific information is used alongside a review of
comparable transactions in the market and an investment yield is
applied to the asset which, along with the contracted rental level,
is used to derive a market value.
In determining what level of the fair value hierarchy to
classify the Group's investments within, the Directors have
considered the content and conclusion of the position paper on IFRS
13 prepared by the European Public Real Estate Association
('EPRA'), the representative body of the publicly listed real
estate industry in Europe. This paper concludes that, even in the
most transparent and liquid markets, it is likely that valuers of
investment property will use one or more significant unobservable
inputs or make at least one significant adjustment to an observable
input, resulting in the vast majority of investment properties
being classified as level 3.
Observable market data is considered to be that which is readily
available, regularly distributed or updated, reliable and
verifiable, not proprietary, and provided by independent sources
that are actively involved in the relevant market. In arriving at
the valuation Colliers make adjustments to observable data of
similar properties and transactions to determine the fair value of
a property and this involves the use of considerable judgement.
Considering the Group's specific valuation process, industry
guidance, and the level of judgement required in the valuation
process, the Directors believe it appropriate to classify the
Group's investment properties within level 3 of the fair value
hierarchy.
The Group's investment properties, which are all care homes, are
considered to be a single class of assets. The weighted average net
initial yield ('NIY') on these assets, as measured by the EPRA
topped-up net initial yield, is 6.0%. The yield on the majority of
the individual assets ranges from 5.0 per cent to 8.0 per cent.
There have been no changes to the valuation technique used through
the period, nor have there been any transfers between levels.
The key unobservable inputs made in determining the fair values
are:
-- Contracted rental level: The rent payable under the lease
agreement at the date of valuation or, where applicable, on expiry
of the rent free period; and
-- Yield: The yield is defined as the initial net income from a
property at the date of valuation, expressed as a percentage of the
gross purchase price including the costs of purchase.
8. Investment properties (continued)
The ERV and Yield are not directly correlated although they may
be influenced by similar factors. Rent is set at a long-term,
supportable level and is likely to be influenced by
property-specific matters. The yield also reflects market sentiment
and the strength of the covenant provided by the tenant, with a
stronger covenant attracting a lower yield.
The lease agreements on the properties held within the Group's
property portfolio generally allow for annual increases in the
contracted rental level in line with inflation, within a cap and a
collar. An increase of 1.0 per cent in the contracted rental level
will increase the fair value of the portfolio, and consequently the
Group's reported income from unrealised gains on investments, by
GBP6.4 million (30 June 2020: GBP6.1 million); an equal and
opposite movement would have decreased net assets and decreased the
Group's income by the same amount.
A decrease of 0.25 per cent in the net initial yield applied to
the property portfolio, including properties held for sale, will
increase the fair value of the portfolio by GBP27.9 million (30
June 2020: GBP26.3 million), and consequently increase the Group's
reported income from unrealised gains on investments. An increase
of 0.25 per cent in the net initial yield will decrease the fair
value of the portfolio by GBP25.7 million (30 June 2020: GBP24.3
million) and reduce the Group's income.
9. Properties held for sale
As at
31 December
2020
GBP'000
-------------------------------------------- -------------
Opening fair value 7,500
Purchases 300
Disposals - proceeds (388)
- gain on sale 34
Unrealised gain realised during the period (126)
--------------------------------------------- -------------
Closing fair value 7,320
--------------------------------------------- -------------
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.
10. Trade and other receivables
As at As at
31 December 30 June
2020 2020
Non-current trade and other receivables GBP'000 GBP'000
-------------------------------------------- ------------- ---------
Fixed rent reviews 39,320 34,766
Rental deposits held in escrow for tenants 6,821 6,183
Lease incentives 5,827 5,095
-------------------------------------------- ------------- ---------
Total 51,968 46,044
-------------------------------------------- ------------- ---------
As at As at
31 December 30 June
2020 2020
Current trade and other receivables GBP'000 GBP'000
-------------------------------------------- ------------- ---------
Lease incentives 162 137
VAT recoverable 505 184
Accrued income - rent receivable 1,044 1,520
Accrued development interest under forward
fund agreements 304 996
Other debtors and prepayments 612 865
-------------------------------------------- ------------- ---------
Total 2,627 3,702
-------------------------------------------- ------------- ---------
11. Investment in subsidiary undertakings
The Group included 48 subsidiary companies as at 31 December
2020. 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 which are
incorporated in Gibraltar and two subsidiaries which are
incorporated in Luxembourg, all subsidiaries are incorporated
within the United Kingdom.
During the period, the Group incorporated two new property
holding companies; THR Number 37 Limited and THR Number 38 Limited,
which are each incorporated in England & Wales.
12. Bank Loans
As at As at
31 December 30 June
2020 2020
GBP'000 GBP'000
------------------------------- ------------- ---------
Principal amounts outstanding 162,000 152,000
Set-up costs (2,455) (3,732)
Amortisation of set-up costs 138 1,867
------------------------------- ------------- ---------
Total 159,683 150,135
------------------------------- ------------- ---------
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 GBP50.0m of the facility and 2.33 per cent per annum on
the remaining GBP20.0m revolving credit facility, both for the
duration of the loan. A non-utilisation fee of 1.13 per cent per
annum is payable on any undrawn element of the facility. As at 31
December 2020, the Group had drawn GBP50.0 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. As at 31 December
2020, the Group had drawn GBP62.0 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 31 December
2020, 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
period ended 31 December 2020:
Notional Starting Ending Date Interest Interest received Counterparty
Value Date paid
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 as described in note 4.
12. Bank Loans (continued)
At 31 December 2020, inclusive of all interest rate swaps, the
interest rate on GBP80.0 million of the Group's borrowings had been
fixed, including the amortisation of arrangement costs, at an
all-in rate of 3.19 per cent per annum until at least November
2025. The remaining GBP140.0 million of debt, of which GBP82.0
million was drawn at 31 December 2020, would, if fully drawn, carry
interest at a variable rate equal to daily compounded 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 swap at 31 December 2020 was
a liability of GBP188,000 (30 June 2020: an aggregate liability of
GBP227,000) and all interest rate swaps are categorised as level 2
in the fair value hierarchy (see note 8).
At 31 December 2020, the nominal value of the Group's loans
equated to GBP162,000,000 (30 June 2020: GBP152,000,000). Excluding
the interest rate swap referred to above, the fair value of these
loans, based on a discounted cashflow using the market rate on the
relevant treasury plus an estimated margin based on market
conditions at 31 December 2020, totalled, in aggregate,
GBP164,579,000 (30 June 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
GBP175,315,000 (30 June 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 GBP503 million as at 31 December 2020 (30 June 2020:
GBP496 million).
Under the bank covenants related to the loans, the Group is to
ensure that:
- the loan to value percentage for 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 for each of THR 1 Group, THR 12 Group and
THR 15 Group is greater than c.300 per cent on any calculation
date.
All bank loan covenants have been complied with during the
period.
13. Trade and other payables
As at As at
31 December 30 June
2020 2020
Non-current trade and other payables GBP'000 GBP'000
-------------------------------------- ------------- ---------
Rental deposits 6,821 6,183
Total 6,821 6,183
-------------------------------------- ------------- ---------
As at As at
31 December 30 June
2020 2020
Current trade and other payables GBP'000 GBP'000
-------------------------------------------- ------------- ---------
Rental income received in advance 6,281 5,835
Property acquisition and development costs
accrued 3,722 3,430
Investment Manager's fees payable 1,401 1,364
Interest payable 858 779
Other payables 1,729 1,706
-------------------------------------------- ------------- ---------
Total 13,991 13,114
-------------------------------------------- ------------- ---------
The Group's payment policy is to ensure settlement of supplier
invoices in accordance with stated terms.
14. Share Capital
Allotted, called-up and fully paid Number of shares GBP'000
ordinary shares
------------------------------------ ----------------- --------
Balance as at 30 June 2020 and 31
December 2020 457,487,640 4,575
------------------------------------ ----------------- --------
During the period to 31 December 2020, the Company did not issue
any ordinary shares (period to 31 December 2019: 72,398,191
ordinary shares raising gross proceeds of GBP80,000,000). The
Company did not buyback or resell any ordinary shares (period to 31
December 2019: nil).
At 31 December 2020, the Company did not hold any shares in
treasury (30 June 2020: nil).
15. Commitments
The Group had capital commitments as follows:
As at As at
31 December 30 June
2020 2020
GBP'000 GBP'000
----------------------------------------------------- ------------- ---------
Amounts due to complete standing asset acquisitions 19,600 -
Amounts due to complete forward fund developments 17,811 5,394
Other capital expenditure commitments 530 530
----------------------------------------------------- ------------- ---------
Total 37,941 5,924
----------------------------------------------------- ------------- ---------
16. Contingent Assets and Liabilities
As at 31 December 2020, eleven properties (30 June 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 GBP19.03 million (30 June 2020: GBP18.03 million) may be
payable by the Group to the vendors/tenants of these
properties.
Having assessed each clause on an individual basis, the Company
has determined that the deferred consideration clauses that are
more likely than not to become payable in the future are not, in
aggregate, material to the financial statements and therefore an
amount of GBPnil has been recognised as a liability at 31 December
2020 (30 June 2020: GBPnil).
It is highlighted that the potential deferred consideration
would, if paid, 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.
17. Related Party Transactions
The Directors are considered to be related parties to the
Company. No Director has an interest in any transactions which are,
or were, unusual in their nature or significant to the nature of
the Company.
The Directors of the Company received fees for their services.
Total fees for the period were GBP91,000 (six months ended 31
December 2019: GBP80,000) of which GBP12,000 (31 December 2019:
GBP12,000) remained payable at the period end.
The Investment Manager received GBP2,821,000 (inclusive of
estimated irrecoverable VAT) in management fees in relation to the
six months ended 31 December 2020 (six months ended 31 December
2019: GBP2,525,000). Of this amount GBP1,401,000 remained payable
at the period end (31 December 2019: GBP1,382,000).
18. 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 is the EPRA NAV. The reconciliation between the NAV, as
calculated under IFRS, and the EPRA NAV is detailed in note 6.
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.
19. Post Balance Sheet Events
Equity issuance and establishment of placing programme
At a General Meeting held on 1 March 2021, the Company's
shareholders approved proposals in respect of the issue of up to
150 million Ordinary Shares on a non pre-emptive basis. Pursuant to
an initial placing, offer for subscription and intermediaries
offer, the Company subsequently issued 54,054,054 Ordinary Shares,
raising gross proceeds of GBP60,000,000.
The Company retains authority to issue up to a further
95,945,946 Ordinary Shares over the period to 12 February 2022, as
per the terms of the placing programme detailed in the prospectus
dated 12 February 2021. The prospectus is available on the
Company's website at www.targethealthcarereit.co.uk .
20. Interim Report Statement
These are not full statutory accounts in terms of Section 434 of
the Companies Act 2006 and are unaudited. Statutory accounts for
the Company for the year ended 30 June 2020, which received an
unqualified audit report and which did not contain a statement
under Section 498 of the Companies Act 2006, have been lodged with
the Registrar of Companies. No full statutory accounts, for either
the Company or Group, in respect of any period after 30 June 2020
have been reported on by the Company's auditor or delivered to the
Registrar of Companies.
The Interim Report and Condensed Consolidated Financial
Statements for the six months ended 31 December 2020 will be posted
to shareholders and made available on the website:
www.targethealthcarereit.co.uk . Copies may also be obtained from
the Company Secretary, Target Fund Managers Limited, Laurel House,
Laurelhill Business Park, Stirling FK7 9JQ.
D irectors' Statement of Principal Risks and Uncertainties
The risks, and the way in which they are managed, are described
in more detail in the Strategic Report within the Annual Report and
Financial Statements for the year to 30 June 2020. Other than as
disclosed in the Chairman's Statement and Investment Manager's
Report, the Group's principal risks and uncertainties have not
changed materially since the date of the report and are not
expected to change materially for the remainder of the Group's
financial year.
Statement of Directors' Responsibilities in Respect of the
Interim Report
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 'Interim Financial Reporting' and gives a
true and fair view of the assets, liabilities, financial position
and profit of the Group;
-- the Chairman's Statement and Investment Manager's Report
(together constituting the Interim Management Report) include a
fair review of the information required by the Disclosure Guidance
and Transparency Rules ('DTR') 4.2.7R, being an indication of
important events that have occurred during the period and their
impact on the financial statements;
-- the Statement of Principal Risks and Uncertainties referred
to above is a fair review of the information required by DTR
4.2.7R; and
-- the condensed set of financial statements includes a fair
review of the information required by DTR 4.2.8R, being related
party transactions that have taken place in the period and that
have materially affected the financial position or performance of
the Group during the period.
On behalf of the Board
Malcolm Naish
Chairman
22 March 2021
Independent Review Report to Target Healthcare REIT plc
Introduction
We have been engaged to review the condensed consolidated set of
financial statements in the Interim Report and Financial Statements
for the six months ended 31 December 2020 which comprises the
Condensed Consolidated Statement of Comprehensive Income, Condensed
Consolidated Statement of Financial Position, Condensed
Consolidated Statement of Changes in Equity, Condensed Consolidated
Cash Flow Statement and the related explanatory notes to the
Condensed Consolidated Financial Statements. We have read the other
information contained in the Interim Report and Financial
Statements and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed consolidated set of financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than
Target Healthcare REIT plc, for our work, for this report, or for
the conclusions we have formed.
Directors' Responsibilities
The Interim Report and Financial Statements are the
responsibility of, and have been approved by, the Directors. The
Directors are responsible for preparing the Interim Report and
Financial Statements in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
As disclosed in note 1, the annual consolidated financial
statements of the Group are prepared in accordance with IFRSs as
adopted by the European Union. The condensed consolidated set of
financial statements included in this Interim Report and Financial
Statements has been prepared in accordance with International
Accounting Standard 34, "Interim Financial Reporting", as adopted
by the European Union.
Our Responsibility
Our responsibility is to express a conclusion on the condensed
consolidated set of financial statements in the Interim Report and
Financial Statements based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated set of
financial statements in the Interim Report and Financial Statements
for the six months ended 31 December 2020 is not prepared, in all
material respects, in accordance with International Accounting
Standard 34 as adopted by the European Union and the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
Ernst & Young LLP
Edinburgh
22 March 2021
Glossary of Terms and Definitions
Contractual The annual rental income receivable on a property
Rent as at the balance sheet date, adjusted for the inclusion
of rent currently subject to a rent free period.
Discount/ The amount by which the market price per share of
Premium a Closed-end Investment Company is lower or higher
than the net asset value per share. The discount
or premium is expressed as a percentage of the net
asset value per share.
Dividend Cover The absolute value of Group specific adjusted EPRA
Earnings divided by the absolute value of dividends
relating to the period of calculation.
Dividend Yield The annual Dividend expressed as a percentage of
the share price at the date of calculation.
EPRA Cost Reflects the relevant overhead and operating costs
Ratio of the business. It is calculated by expressing
the sum of property expenses (net of service charge
recoveries and third-party asset management fees)
and administration expenses (excluding exceptional
items) as a percentage of gross rental income.
EPRA Group The EPRA Cost Ratio adjusted for items thought appropriate
specific adjusted for the Group's specific business model. The adjustments
Cost Ratio made are consistent with those made to the Group
specific adjusted EPRA earnings as detailed in note
6.
EPRA Earnings Recurring earnings from core operational activities.
per Share A key measure of a company's underlying operating
results from its property rental business and an
indication of the extent to which current dividend
payments are supported by earnings. A reconciliation
of the earnings per IFRS and the EPRA earnings,
including any items specific to the Group, is contained
in note 6.
EPRA NAV Net Asset Value adjusted to include properties and
other investment interests at fair value and to
exclude certain items not expected to crystallise
in a long-term investment property business model.
Makes adjustments to the IFRS NAV to provide stakeholders
with the most relevant information on the fair value
of the assets and liabilities within a true real
estate investment company with a long-term investment
strategy. A reconciliation of the NAV per IFRS and
the EPRA NAV is contained in note 6.
EPRA Net Initial Annualised rental income based on the cash rents
Yield 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. EPRA's purpose is to provide
a comparable measure around Europe for portfolio
valuations.
EPRA Topped-up Incorporates an adjustment to the EPRA Net Initial
Net Initial Yield in respect of the expiration of rent-free
Yield periods (or other unexpired lease incentives).
Loan-to-Value A measure of the Group's Gearing level. Gross LTV
('LTV') is calculated as total gross debt as a proportion
of gross property value. Net LTV is calculated as
total gross debt less cash as a proportion of gross
property value.
Mature Homes Care homes which have been in continual operation
for more than three years.
Portfolio The annual rental income currently receivable on
or Passing a property as at the balance sheet date, excluding
Rent rental income where a rent free period is in operation.
The gross rent payable by a tenant at a point in
time.
Rent Cover A measure of a tenant's ability to meet its rental
liability from the profit generated by their underlying
operations. Generally calculated as the tenant's
EBITDARM (earnings before interest, taxes, depreciation,
amortisation, rent and management fees) divided
by the contracted rent.
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.
WAULT Weighted average unexpired lease term. The average
lease term remaining to expiry across the portfolio
weighted by contracted rental income.
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 above, with detailed calculations, including
reconciliation to the IFRS figures where appropriate, being set out
below.
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.
31 December 30 June
2020 2020
pence pence
------------------------------------- ----------- ------------ --------
EPRA Net Asset Value per share (see
note 6) (a) 108.2 108.1
Share price (b) 114.0 110.0
------------------------------------- ----------- ------------ --------
Premium = (b-a)/a 5.4% 1.8%
------------------------------------- ----------- ------------ --------
Dividend Cover - the percentage by which Group specific adjusted
EPRA earnings for the period cover the dividend paid.
2020 2019
GBP'000 GBP'000
------------------------------------------ --------- --------- ---------
Group-specific EPRA earnings for the
period (see note 6) (a) 12,176 11,524
First interim dividend 7,686 7,640
Second interim dividend 7,686 7,640
Dividends paid in relation to the period (b) 15,372 15,280
Dividend cover = (a/b) 79% 75%
------------------------------------------ --------- --------- ---------
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. The Group did not have any vacant properties
during the periods and therefore separate measures excluding direct
vacancy costs are not presented. Consistent with the Group specific
adjusted EPRA earnings detailed in note 6 to the Condensed
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.
Period ended Period ended
31 December 31 December
2020 2019
GBP'000 GBP'000
------------------------------------------ ----------- ------------- -------------
Investment management fee 2,821 2,525
Credit loss allowance and bad debts
written off 1,940 520
Other expenses 1,230 966
------------------------------------------------------- ------------- -------------
EPRA costs (a) 5,991 4,011
Specific cost adjustments, if applicable - -
------------------------------------------ ----------- ------------- -------------
Group specific adjusted EPRA costs (b) 5,991 4,011
------------------------------------------ ----------- ------------- -------------
Gross rental income per IFRS (c) 24,868 20,838
Adjusted for rental income arising
from recognising guaranteed rent review
uplifts and lease incentives (4,554) (3,855)
Adjusted for development interest
under forward fund arrangements 212 577
Group specific adjusted gross rental
income (d) 20,526 17,560
EPRA Cost Ratio (including direct
vacancy costs) = (a/c) 24.1% 19.2%
EPRA Group specific adjusted Cost
Ratio (including direct vacancy costs) = (b/d) 29.2% 22.8%
------------------------------------------ ----------- ------------- -------------
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).
31 December 30 June
2020 2020
GBP'000 GBP'000
----------------------------------------- --------- ------------ ----------
Annualised passing rental income based
on cash rents (a) 39,431 36,749
Notional rent expiration of rent-free
periods or other lease incentives 1,213 2,264
---------------------------------------------------- ------------ ----------
Topped-up net annualised rent (b) 40,644 39,013
----------------------------------------- --------- ------------ ----------
Standing assets including properties
held for sale (see notes 8 and 9) 637,259 604,984
Allowance for estimated purchasers'
costs 43,105 40,916
---------------------------------------------------- ------------ ----------
Grossed-up completed property portfolio
valuation (c) 680,364 645,900
----------------------------------------- --------- ------------ ----------
EPRA Net Initial Yield = (a/c) 5.80% 5.69%
EPRA Topped-up Net Initial Yield = (b/c) 5.97% 6.04%
----------------------------------------- --------- ------------ ----------
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.
2020 2019
------------------------------- --------- -------------------- --------------------
EPRA Share EPRA Share
NAV price NAV price
(pence) (pence) (pence) (pence)
------------------------------- --------- --------- --------- --------- ---------
Value at start of period (a) 108.1 110.0 107.5 115.6
Value at end of period (b) 108.2 114.0 108.1 116.0
------------------------------- --------- --------- --------- --------- ---------
Change in value during the
period (b-a) (c) 0.1 4.0 0.6 0.4
Dividends paid (d) 3.4 3.4 3.3 3.3
Additional impact of dividend
reinvestment (e) - 0.1 0.1 0.1
------------------------------- --------- --------- --------- --------- ---------
Total gain in period (c+d+e) (f) 3.5 7.5 4.0 3.8
------------------------------- --------- --------- --------- --------- ---------
Total return for the period = (f/a) 3.3% 6.8% 3.8% 3.3%
------------------------------- --------- --------- --------- --------- ---------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
IR FLFLAVSIFFIL
(END) Dow Jones Newswires
March 23, 2021 03:00 ET (07:00 GMT)
Target Healthcare Reit (LSE:THRL)
Gráfica de Acción Histórica
De Feb 2024 a Mar 2024
Target Healthcare Reit (LSE:THRL)
Gráfica de Acción Histórica
De Mar 2023 a Mar 2024