TIDMTHRL
RNS Number : 6316N
Target Healthcare REIT PLC
02 February 2021
2 February 2021
Target Healthcare REIT plc and its subsidiaries
("Target Healthcare" or "the Group")
Net Asset Value, update on corporate activity & dividend
declaration
Target Healthcare (LSE: THRL), the UK listed specialist investor
in modern, purpose-built care homes, announces its unaudited
quarterly Net Asset Value (NAV) as at 31 December 2020, together
with an update on corporate activity and declares its second
interim dividend for the year ending 30 June 2021.
Corporate activity highlights
NAV progression and balance sheet strength
-- EPRA NAV per share increased to 108.2 pence (30 September
2020: 108.0 pence) reflecting valuation uplifts across the
portfolio from modest yield tightening and annual rental
uplifts
-- NAV total return (including dividend) of 1.8% for the quarter
-- Complementing the Group's existing 12-year GBP50 million
facility with ReAssure, the Group has extended the maturities of
both the existing HSBC and RBS facilities to November 2023 and
November 2025 respectively. The extended HSBC facility also
benefits from two one-year extension options. In addition to the
increase in tenor, the combined facilities have added an additional
GBP40 million of committed revolving credit facilities
-- Available cash reserves of GBP18 million (at 31 December
2020) together with GBP58 million available in undrawn facilities
and low net loan-to-value ("LTV") of 22.2%, provides significant
operational flexibility
Portfolio performance
-- 0.8% increase in the like-for-like value of the operational
portfolio; total property portfolio value of GBP647.7 million and
an EPRA topped-up net initial yield of 5.97%
-- 17 rent reviews were completed at an average uplift of 1.5%
per annum providing a 0.4% like-for-like growth in contractual
rent. Reported contractual rent roll remains flat following a
prudent adjustment to estimated future rent in relation to the
Group's sole variable rental lease
-- Weighted average unexpired lease term across the portfolio of 28.7 years
-- Rent collection continues to be resilient, with 92% of the
rent due and payable to date in respect of the current quarter
having been collected as at 1 February 2021, in line with recent
quarters, demonstrating the stable and secure nature of the
portfolio's cashflows
Acquisitions & asset management
-- On 5 November 2020, the Group acquired a development site for
a total capped investment of GBP14.4 million, subject to a forward
funding agreement, to construct a 66-bed care home in Droitwich
Spa, Worcestershire. The home is expected to be operational in H2
2021 and is pre-let to the Group's largest tenant, Ideal
Carehomes
Dividend
-- Second interim dividend of 1.68 pence per share declared for
the year ending 30 June 2021, representing an increase of 0.6% on
the FY 2020 quarterly dividends. On an annualised basis, this
reflects a payment of 6.72 pence per share and a dividend yield of
5.8% based on the closing share price of 115.2 pence on 1 February
2021
COVID-19 update
-- As at 1 February 2021, vaccinations have been made available
to residents and staff in all of the Group's care homes, with
substantial uptake across each group
-- There are currently confirmed COVID-19 cases in 2.1 per cent.
of total portfolio beds across eleven care homes, down from the
peak of 3.2 per cent. suspected or confirmed cases of total
portfolio beds across 32 care homes during the third week of April
2020
Kenneth MacKenzie, CEO of Target Fund Managers, commented:
" Real estate investment markets have been defined by the
COVID-19 pandemic for almost a year now. Against this background,
the UK care home asset class has performed robustly. Two things
stand out at this point. The first is the resilience and character
of the tenants we have backed - their devoted care for residents
and operational capabilities have contributed to the robust
performance of our portfolio of modern homes. Second is the
incredible progress made by the scientific community in the
creation of effective vaccines, which has resulted in all our homes
having had access to immunisations for residents and staff. This is
a transformative process which positions the sector at the very
forefront of the recovery versus other real estate classes.
"As the benefits of the vaccination programme take hold, our
portfolio can look forward to operating conditions shielded from
the worst effects of the virus. We are confident of latent demand
for our homes, while recognising that these have been hard months
for our operators, particularly those focussing on privately-funded
residents, and we stand ready to support them as they seek to
recover to normal occupancy levels."
Net Asset Value
The Group's unaudited EPRA NAV per share as at 31 December 2020
was 108.2 pence. The total return for the quarter based on EPRA NAV
was 1.8%.
A balance sheet summary and an analysis of the movement in the
EPRA NAV over the quarter is presented at the end of this
announcement in the Appendix.
Corporate Update
Portfolio performance
As at 31 December 2020, the Group's portfolio was valued at
GBP647.7 million and comprised 76 properties, consisting of 73
operational care homes and three pre-let sites, which are being
developed through capped forward funding commitments with
established development partners.
The portfolio value increased by 1.6% over the quarter. This
comprised 0.8% from further investment into the development
portfolio and a like-for-like uplift in the operational portfolio
value of 0.8%. The latter movement reflects yield tightening in the
investment market for modern, purpose-built care homes, and the
portfolio's inflation-linked rental reviews.
Reported contractual rent has remained steady over the quarter.
Whilst the portfolio saw a like-for-like increase of 0.4% from its
inflation-linked upwards-only rent reviews, which averaged uplifts
of 1.5%, this reported number has been offset by the Group's
prudent approach to estimating future rental receipts from the
Group's one variable rental agreement.
The portfolio rent collection pattern remains consistent with
recent quarters. During the quarter there have been positive asset
management developments in relation to two tenants who comprise the
majority of recent and ongoing rent arrears. Progress has been made
towards commitments to replace one tenant operating two homes,
whilst occupancy and trading is improving towards the levels
anticipated by the investment case at the two immature homes
operated by the other tenant. Improved rent collection is expected
on these assets in the near-term.
The portfolio's weighted average unexpired lease term remained
broadly flat at 28.7 years (30 September 2020: 28.9 years).
The portfolio had an EPRA topped-up net initial yield of 5.97%
based on an annualised contractual rent upon expiry of lease
incentives of GBP40.6 million. The EPRA net initial yield was 5.80%
based on passing rent of GBP39.4 million. A schedule showing the
respective NIY profiles from the unwind of portfolio assets in
rent-free periods is shown in the appendix.
Investment and asset management activity
On 5 November 2020, the Group acquired a pre-let development
site subject to a forward funding agreement to construct a 66-bed
care home in Droitwich Spa, Worcestershire for a maximum commitment
of GBP14.4 million. Construction on the home has commenced and is
expected to be completed in the second half of 2021. The pre-let
occupational lease has a term of 35-years, is fully repairing and
insuring, and includes annual, upwards-only RPI-linked increases,
subject to a cap and collar.
Pipeline and investment market
The investment market for high quality, modern, fit-for-purpose
assets which meet the Group's investment criteria remains very
competitive. Strong investor appetite continues, with the best
properties and sites attracting offers and transacting at
pre-COVID-19 pandemic pricing.
The Investment Manager is analysing and undertaking diligence on
a number of potential acquisitions, with a combination of imminent,
near-term and earlier stage opportunities. Commitments to future
acquisitions will continue to be considered carefully, taking into
account both the market outlook and the Group's available
capital.
Debt facilities and swap arrangements
As at 31 December 2020, the Group's total borrowings were GBP162
million, giving a net LTV of 22.2% (total gross debt less cash, as
a proportion of gross property value). The Group's weighted average
cost on its drawn debt, inclusive of amortisation of arrangement
costs, was 2.81% (30 September 2020 2.72%). The extension both in
the quantum and tenor of the Group's borrowings during the quarter
was completed with a minimal increase in the ongoing interest costs
in return for a significant lengthening of the Group's weighted
average term to expiry to 5.3 years (30 September 2020: 4.0
years).
Following the increases to and refinancing of the RBS and HSBC
facilities in November 2020, the Group has GBP80 million of fixed
term debt facilities and GBP140 million of revolving credit
facilities, with a diversified mix of maturities and lenders. As at
31 December 2020, the Group has drawn GBP80 million of fixed term
debt, with interest costs fixed, and GBP82 million under the
revolving credit facilities which carry a variable interest rate
linked to SONIA.
The refinancing amendments address the transition of the
facilities with both HSBC and RBS to SONIA-based loans in advance
of the required transition away from LIBOR which, at the time,
would have been required by the end of 2021. The Group has closed
out the existing hedge in relation to the term loan element of the
RBS Facility and put in place a new SONIA-based interest rate swap
to align with the new term loan under the RBS Facility. The one-off
costs of the refinance has reduced the NAV growth in the quarter by
0.2%.
Dividends in the period
The Group paid its first interim dividend for the year to 30
June 2021, in respect of the period from 1 July 2020 to 30
September 2020, of 1.68 pence per share, on 27 November 2020 to
shareholders on the register on 13 November 2020. This distribution
was wholly comprised of a property income distribution (PID).
Valuation
The property portfolio was externally valued at GBP647.7 million
at 31 December 2020.
The pandemic and the measures taken to tackle COVID-19 continue
to affect economies and real estate markets globally. Nevertheless,
as at the valuation date some property markets have started to
function again, with transaction volumes and other relevant
evidence returning to levels where an adequate quantum of market
evidence exists upon which to base opinions of value. Accordingly,
and for the avoidance of doubt, the Colliers valuation at 31
December 2020 is not reported as being subject to 'material
valuation uncertainty' as defined by VPS 3 and VPGA 10 of the RICS
Valuation - Global Standards.
Announcement of second interim dividend
The Company today declares its second interim dividend for the
year ending 30 June 2021, in respect of the period from 1 October
2020 to 31 December 2020, of 1.68 pence per share as detailed in
the schedule below:
Interim Property Income Distribution (PID): 1.68 pence per share
Ex-Dividend Date: 11 February
2021
Record Date: 12 February
2021
Payment Date: 26 February
2021
The dividend reflects an annualised payment of 6.72 pence per
share and a dividend yield of 5.8% based on the 1 February 2021
closing share price of 115.20 pence.
The Company had 457,487,640 ordinary shares in issue at 31
December 2020 and has not issued or bought back any shares since
that date.
Shareholders entitled to elect to receive distributions without
deduction for withholding tax may complete the declaration form
which is available on request from the Company through the contact
details provided on its website www.targethealthcarereit.co.uk , or
from the Company's registrar. Shareholders who qualify for gross
payments are, principally, UK resident companies, certain UK public
bodies, UK charities, UK pension schemes and the managers of ISAs,
PEPs and Child Trust Funds, in each case subject to certain
conditions. Individuals and non-UK residents do not qualify for
gross payments of distributions and should not complete the
declaration form.
Investor relations
On 20 January 2021, the Group's manager hosted a virtual
property tour and webinar. A recording of this is available via the
Group's website at:
https://www.targethealthcarereit.co.uk/investor-relations/virtual-property-tour-and-webinar
LEI: 213800RXPY9WULUSBC04
ENDS
Enquiries:
Kenneth MacKenzie; Gordon Bland
Target Fund Managers Limited
01786 845 912
Mark Young; Mark Bloomfield
Stifel Nicolaus Europe Limited
020 7710 7600
Dido Laurimore; 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 invests in modern, purpose-built care homes that are
let to high quality tenants who demonstrate strong operational
capabilities and a strong care ethos. The Group builds
collaborative, supportive relationships with each of its tenants as
it believes working in this way helps raise standards of care and
helps its tenants build sustainable businesses. In turn, that helps
the Group deliver stable returns to its investors.
Important information
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014. Upon the
publication of this announcement via Regulatory Information Service
this inside information is now considered to be in the public
domain.
APPENDIX
1. Analysis of movement in EPRA NAV
The following table provides an analysis of the movement in the
unaudited EPRA NAV per share for the period from 1 October 2020 to
31 December 2020:
Pence per share
----------------
EPRA NAV per share as at 30 September 2020 108.0
Revaluation gains / (losses) on investment properties 1.1
Revaluation gains / (losses) on assets under construction^ (0.2)
Net effect of acquisition costs (0.1)
Net impact of loan refinances & swap termination (0.2)
Movement in revenue reserve 1.3
First interim dividend payment for the year to 30 June 2021 (1.7)
------------------------------------------------------------- ----------------
EPRA NAV per share as at 31 December 2020 108.2
------------------------------------------------------------- ----------------
Percentage change in the 3-month period 0.2%
------------------------------------------------------------- ----------------
The EPRA NAV provides a measure of the fair value of a company
on a long-term basis. At 31 December 2020, due to the valuation
ascribed to the Group's interest rate derivative contract used to
hedge its exposure to variable interest rates, which is excluded
from the calculation of the EPRA NAV, the NAV calculated under
International Financial Reporting Standards was 108.1 pence per
share.
^Consistent with standard valuation practice for assets under
construction, the carrying value of these assets is calculated by
the valuer through application of a discount to accumulated costs
to date. This discount varies depending on factors such as the
remaining development time. As the asset progresses towards
completion, the discount that has been applied is unwound.
2. Summary balance sheet (unaudited)
Dec-20 Sep-20 Jun-20 Mar-20
GBPm GBPm GBPm GBPm
Property portfolio* 647.7 637.5 617.6 613.4
Cash 18.3 17.5 36.4 31.1
Net current assets
/ (liabilities)* (9.2) (9.1) (7.7) (8.3)
Bank loans (162.0) (152.0) (152.0) (142.0)
------------- -------- -------- --------
Net assets 494.8 493.9 494.3 494.2
------------- -------- -------- --------
EPRA NAV per share
(pence) 108.2 108.0 108.1 108.0
*Properties within the portfolio are stated at the market value
provided by the external valuer and the IFRS effects of
fixed/guaranteed minimum rent reviews are not reflected.
The next quarterly valuation of the property portfolio will be
conducted by Colliers International Healthcare Property Consultants
Limited during April 2021 and the unaudited EPRA NAV per share as
at 31 March 2021 is expected to be announced in April 2021.
3. EPRA NIY profiles and unwind of rent-free periods
The Group currently has two assets with rent-free periods. As
these unwind, assuming no other changes including inter alia the
portfolio valuation or rental profile, the EPRA yield profiles for
the portfolio will be as follows:
31 December 31 March 30 June 30 September
2020 2021 2021 2021
EPRA topped-up
NIY 5.97% 5.97% 5.97% 5.97%
------------ --------- -------- -------------
EPRA NIY 5.80% 5.97% 5.97% 5.97%
------------ --------- -------- -------------
Contractual
rent (GBPm) 40.6 40.6 40.6 40.6
------------ --------- -------- -------------
Passing rent
(GBPm) 39.4 40.6 40.6 40.6
------------ --------- -------- -------------
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END
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