TIDMTHRL
RNS Number : 1306R
Target Healthcare REIT PLC
03 November 2021
3 November 2021
Target Healthcare REIT plc and its subsidiaries
("Target Healthcare" or "the Group")
Net Asset Value, update on corporate activity and dividend
declaration
Target Healthcare (LSE: THRL), the UK listed specialist investor
in modern, purpose-built care homes, announces its unaudited
quarterly Net Asset Value ('NAV') as at 30 September 2021, together
with an update on corporate activity, and declares its first
interim dividend for the year ending 30 June 2022.
Corporate activity highlights
Continued NAV progression, balance sheet strength and capital
deployment update
-- EPRA Net Tangible Assets ('NTA') per share increased by 0.8%
to 111.3 pence (30 June 2021: 110.4 pence) primarily reflecting
valuation uplifts across the portfolio driven by modest yield
compression and annual rental uplifts
-- NAV total return of 2.4% for the quarter (based on EPRA NTA and including dividend)
-- Substantially oversubscribed and upsized equity issue raised
gross proceeds of GBP125 million, with strong support from existing
and new shareholders. The targeted size of the placing was
increased from GBP100 million during the marketing period due to
significant investor demand and strong acquisition pipeline
visibility
-- Capital available (comprising cash and undrawn debt)
following the equity raise, to be supplemented by additional debt,
is allocated in full to asset acquisitions totalling GBP215 million
in late-stage diligence. The Group's revolving credit facilities
were fully repaid following the equity raise prior to the period
end resulting in a net loan-to-value ("LTV") of 1.0%. All else
being equal, on completion of the acquisitions in late-stage
diligence and the developments currently in progress, the Group's
LTV would equal 27%
-- The Investment Manager's due diligence on the major portfolio
acquisition under exclusivity (which was detailed in the equity
issue announcement on 26 August 2021) is progressing well and is
currently expected to complete shortly.
Portfolio performance
-- 0.7% increase in the like-for-like value of the operational
portfolio; total property portfolio value of GBP702.7 million and
an EPRA "topped-up" net initial yield of 5.82%
-- 14 rent reviews were completed at an average uplift of 3.3%
per annum, contributing a 0.6% increase to like-for-like
contractual rent
-- Weighted average unexpired lease term across the portfolio
remained stable at 28.8 years (30 June 2021: 28.8 years) and
remains one of the longest within the listed real estate sector
-- Substantially all of the portfolio's leases provide
upwards-only rent reviews, with caps and collars, protecting income
in an inflationary environment
-- Resilient rent collection performance during the most recent
period consistent with prior quarters, demonstrating the secure and
stable nature of the portfolio's cashflows
-- Occupancy levels across the mature portfolio have continued
to recover towards normalised levels, with c.2 percentage points of
improvement and strong enquiry levels from potential residents
reported by our tenants. Reported COVID-19 cases remain very low
while booster vaccinations are being offered to residents and staff
in homes across the portfolio.
Acquisitions and asset management
-- Acquisition of an operational care home and a forward fund
development, with a further forward fund development contracted
following the quarter end, committing total capital of GBP33
million, including acquisition costs, which will provide three
modern, fit-for-purpose care homes with 100% en suite wet rooms
-- Practical completion reached on two existing development
sites, with first residents already in occupancy
-- The Investment Manager is working through the due diligence
process on a number of transactions, which when progressed to
completion will see all available equity and debt capital
invested.
Dividend
-- First interim dividend of 1.69 pence per share declared for
the year ending 30 June 2022, representing an increase of 0.6% on
the FY 2021 quarterly dividends. On an annualised basis, this
reflects a payment of 6.76 pence per share and a dividend yield of
5.7% based on the closing share price of 118.0 pence on 2 November
2021
Kenneth MacKenzie, CEO of Target Fund Managers, commented:
"The successful capital raise in September allows us to
accelerate our mission of supporting the sector through disciplined
investment in modern, purpose-built care homes. In addition to
highlighting the conviction of investors in our long-term strategy,
it allows us, alongside additional debt capacity, to continue
scaling the portfolio and the associated benefits that brings.
Importantly we anticipate putting the proceeds to work imminently,
with a transformational 18-asset portfolio transaction, which will
deliver GBP9.1 million of annual rent immediately following
completion consistent with the portfolio's high-quality
sustainability credentials. Alongside this, we have an attractive
near-term pipeline of other opportunities in advanced due
diligence, all of which meet our strict investment criteria.
"As the vaccination booster programme is rolled out across our
portfolio, we are seeing encouraging increases in occupancy as our
homes return to normalised levels. The pandemic has reinforced the
need for high-quality homes in strategic locations, and Target
remains well placed to source, acquire and develop the right type
of assets that we are confident will perform and contribute
positively to stable returns over the long-term."
Net Total Assets
The Group's unaudited EPRA NTA per share as at 30 September 2021
was 111.3 pence. The total return for the quarter based on EPRA NTA
was 2.4%.
A balance sheet summary and an analysis of the movement in the
EPRA NTA over the quarter is presented at the end of this
announcement in the Appendix.
Corporate Update
Portfolio performance
As at 30 September 2021, the Group's portfolio was valued at
GBP702.7 million and comprised 79 properties, consisting of 76
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 2.6% over the quarter. This
comprised a 1.5% increase resulting from acquisitions, 0.7% from a
like-for-like uplift in the operational portfolio value and an
increase of 0.4% from further investment into the development
portfolio. The like-for-like movement primarily reflects the
portfolio's inflation-linked rental reviews as well as continued
modest yield compression in the investment market for modern,
purpose-built care homes.
Contractual rent increased by 4.9% over the period,
comprising:
-- 3.6% from the practical completion of two development sites
-- 0.7% from acquisitions
-- 0.6% from 14 inflation-linked upwards-only rent reviews, with an average uplift of 3.3%.
The portfolio's weighted average unexpired lease term remained
stable at 28.8 years (30 June 2021: 28.8 years).
The portfolio had an EPRA topped-up net initial yield of 5.82%
based on an annualised contractual rent of GBP43.2 million. The
portfolio's EPRA net initial yield was 5.70% with two assets in
rent-free periods.
Acquisitions and asset management
On 5 August 2021, the Group completed the acquisition of a
modern, purpose-built care home in Liverpool for GBP5.5 million
including acquisition costs. This home is leased to an incumbent
operator of the Group, Kingsley Healthcare, and comprises 56
bedrooms with full en suite facilities, in line with the Group's
strict investment criteria. The home is currently undergoing a
comprehensive refurbishment programme which will deliver a
high-quality product, comparable to the best homes in the area and
is expected to welcome residents in the coming weeks.
On 11 August 2021, the Group acquired a pre-let development site
subject to a forward funding agreement to construct a 66-bed care
home in Holt, Norfolk for a maximum commitment of GBP12.8 million
including acquisition costs. Construction on the home will commence
in early 2022 and is expected to be completed in the second half of
2023.
Practical completion of the Group's development sites in
Rudheath, Cheshire and Droitwich Spa, Worcestershire was reached in
July and August 2021, respectively, delivering a total of 134
beds.
Post period-end, on 11 October 2021, the Group acquired a
pre-let development site subject to a forward funding agreement to
construct a 66-bed care home in Weymouth, Dorset for a maximum
commitment of GBP14.3 million including acquisition costs.
Construction on the home has commenced and is expected to be
completed in the second half of 2022.
All of the Group's development sites are pre-let with 30+year,
fully repairing and insuring, occupational leases which include
annual, upwards-only RPI-linked increases, subject to caps and
collars.
Re-tenanting initiatives are continuing on a number of homes
within the portfolio with the Investment Manager progressing
negotiations with selected operators within the sector.
Debt facilities and swap arrangements
As at 30 September 2021, the Group's total borrowings were GBP80
million, giving a net LTV of 1.0% (total gross debt less cash, as a
proportion of gross property value). This followed the Group's
equity issuance of GBP125 million which was used to prudently repay
the Group's revolving credit facilities while the diligence on the
current pipeline of assets is finalised. The Group's weighted
average cost on its drawn debt, inclusive of amortisation of
arrangement costs, was 3.16% (30 June 2021: 2.90%). The weighted
average term to expiry was 4.6 years (30 June 2021: 4.8 years).
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 30 September 2021, the Group
had drawn GBP80 million of fixed term debt, with interest costs
fixed, and had fully repaid the revolving credit facilities which
carry a variable interest rate linked to SONIA. The Investment
Manager is in the process of completing diligence to further
increase and extend the Group's fixed term debt facilities with an
existing lender and expects to complete this imminently.
Dividends in the period
The Group paid its fourth interim dividend for the year ended 30
June 2021, in respect of the period from 1 April 2021 to 30 June
2021, of 1.68 pence per share, on 27 August 2021 to shareholders on
the register on 13 August 2021. This distribution was comprised of
a property income distribution (PID) of 0.168 pence per share and
an ordinary dividend of 1.512 pence per share.
Valuation
The property portfolio was externally valued at GBP702.7 million
at 30 September 2021.
Announcement of first interim dividend
The Company today declares its first interim dividend for the
year ending 30 June 2022, in respect of the period from 1 July 2021
to 30 September 2021, of 1.69 pence per share as detailed in the
schedule below:
Interim Property Income Distribution (PID): 1.69 pence per share
Ex-Dividend Date: 11 November
2021
Record Date: 12 November
2021
Payment Date: 26 November
2021
The dividend reflects an annualised payment of 6.76 pence per
share and a dividend yield of 5.7% based on the 2 November 2021
closing share price of 118.0 pence.
On 14 September 2021, the Company issued 108,695,652 ordinary
shares, raising gross proceeds of GBP125 million. The Company had
620,237,346 ordinary shares in issue at 30 September 2021 and has
not issued or bought back any shares since that date.
Shareholders entitled to elect to receive distributions without
deduction for withholding tax may complete the declaration form
which is available on request from the Company through the contact
details provided on its website www.targethealthcarereit.co.uk , or
from the Company's registrar. Shareholders who qualify for gross
payments are, principally, UK resident companies, certain UK public
bodies, UK charities, UK pension schemes and the managers of ISAs,
PEPs and Child Trust Funds, in each case subject to certain
conditions. Individuals and non-UK residents do not qualify for
gross payments of distributions and should not complete the
declaration form.
LEI: 213800RXPY9WULUSBC04
ENDS
Enquiries:
Kenneth MacKenzie; Gordon Bland
Target Fund Managers Limited
01786 845 912
Mark Young; Mark Bloomfield
Stifel Nicolaus Europe Limited
020 7710 7600
Dido Laurimore; 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 30 September 2021 comprised 79 assets
let to 28 tenants with a total value of GBP702.7 million.
The Group invests in modern, purpose-built care homes that are
let to high quality tenants who demonstrate strong operational
capabilities and a strong care ethos. The Group builds
collaborative, supportive relationships with each of its tenants as
it believes working in this way helps raise standards of care and
helps its tenants build sustainable businesses. In turn, that helps
the Group deliver stable returns to its investors.
Important information
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the UK version of the Market Abuse Regulations (EU) No. 596/2014,
which is part of UK law by virtue of the European Union
(Withdrawal) Act 2018, as amended. Upon the publication of this
announcement via Regulatory Information Service, this inside
information is now considered to be in the public domain.
APPENDIX
1. Analysis of movement in EPRA NTA
The following table provides an analysis of the movement in the
unaudited EPRA NTA per share for the period from 1 July 2021 to 30
September 2021:
Pence per share
----------------
EPRA NTA per share as at 30 June 2021 110.4
Revaluation gains / (losses) on investment
properties 0.8
Revaluation gains / (losses) on assets
under construction^ 0.1
Net impact of acquisition costs (0.1)
Net impact of equity issuance 0.4
Movement in revenue reserve 1.1
Fourth interim dividend payment for the
year ended 30 June 2021 (1.4)
-------------------------------------------- ----------------
EPRA NTA per share as at 30 September
2021 111.3
-------------------------------------------- ----------------
Percentage change in the quarter 0.8%
-------------------------------------------- ----------------
The EPRA Best Practices Recommendations Guidelines state that
companies should publish a set of three NAV metrics. The full set
of EPRA NAV metrics were detailed in the recently published Annual
Report for the year ended 30 June 2021. The EPRA Net Tangible
Assets ("NTA") included in this announcement is equivalent to the
EPRA NAV published previously, given the circumstances of the
Company. The Company intends to continue to announce the EPRA NTA
on a quarterly basis.
At 30 September 2021, due to the valuation ascribed to the
Group's interest rate derivative contract used to hedge its
exposure to variable interest rates, which is excluded from the
calculation of the EPRA NTA, the NAV calculated under International
Financial Reporting Standards was 111.4 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)
Sept-21 Jun-21 Mar-21 Dec-20
GBPm GBPm GBPm GBPm
Property portfolio* 702.7 684.8 650.8 647.7
Cash 72.8 21.1 26.6 18.3
Net current assets / (liabilities)* (4.9) (11.0) (5.1) (9.2)
Bank loans (80.0) (130.0) (114.0) (162.0)
-------- -------- -------- --------
Net assets 690.6 564.9 558.3 494.8
-------- -------- -------- --------
EPRA NTA per share (pence) 111.3 110.4 109.1 108.2
*Properties within the portfolio are stated at the market value
provided by the external valuer and the IFRS effects of
fixed/guaranteed minimum rent reviews are not reflected.
The next quarterly valuation of the property portfolio will be
conducted by Colliers International Healthcare Property Consultants
Limited during January 2022 and the unaudited EPRA NTA per share as
at 31 December 2021 is expected to be announced in January
2022.
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:
30 September 31 March 30 September 31 March
2021 2022 2022 2023
EPRA topped-up NIY 5.82% 5.82% 5.82% 5.82%
------------- --------- ------------ --------
EPRA NIY 5.70% 5.70% 5.76% 5.82%
------------- --------- ------------ --------
Contractual rent
(GBPm) 43.2 43.2 43.2 43.2
------------- --------- ------------ --------
Passing rent (GBPm) 42.4 42.4 42.8 43.2
------------- --------- ------------ --------
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END
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