TIDMTHRL
RNS Number : 2702K
Target Healthcare REIT PLC
21 April 2020
21 April 2020
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 March 2020, together with
the corporate activity during the quarter that influenced this and
declares its third interim dividend. In addition, and further to
its announcement on 16 April 2020, the Group is providing
additional and updated commentary with regard to the impact of
COVID-19 on its business and that of its tenants.
COVID-19 Update
There has been no change to our stated expectation that our
tenants' cashflows will remain supported by continued demand for
their beds. Our tenants continue to care for their residents with
the utmost skill and compassion. As anticipated, confirmed or
suspected cases of COVID-19 have increased, though still represent
residents occupying fewer than 5% of the portfolio's beds.
Corporate activity highlights
NAV progression & balance sheet strength
-- EPRA NAV per share of 108.0 pence (31 December 2019: 108.1
pence) reflecting the one-off costs of the debt refinancing of 0.3
pence per share which have offset the positive NAV impact from the
Group's recurring activities
-- NAV total return (including dividend) for the quarter of
1.5%, underpinned by revaluation gains and the Group's regular
dividend
-- Entered into a twelve-year committed GBP50 million term loan
facility with an institutional lender at a fixed interest rate of
3.28%, securing long-term debt funding to complement our existing
revolving credit facilities with RBS and HSBC
-- Available cash reserves at the current date of GBP29 million
as well as GBP38 million available in undrawn facilities, and low
net LTV of 18.5% provides significant operational flexibility
Portfolio performance
-- 0.6% increase in like-for-like value of the operational
portfolio; total portfolio value of GBP613.4 million and an EPRA
topped-up net initial yield of 6.05%
-- 13 rent reviews completed at an average uplift of 2.6% per annum
-- Contractual rent roll now stands at GBP38.9 million per annum
generated from 71 operational properties, an increase of GBP1.2
million during the quarter, with a further GBP1.3 million increase
once the Group's two forward funded pre-let developments reach
completion
Acquisitions and asset management
-- Successful re-tenanting of six care homes previously leased
by Orchard Care Homes to two of the Group's existing operators, a
strong endorsement of the Group's investment strategy
-- Further progress in deploying the proceeds from the
oversubscribed equity issuance in September 2019 with the
acquisition of two new operating care homes in January 2020
Dividend
-- Third interim dividend of 1.67 pence per share declared for
the year ending 30 June 2020, representing an increase of 1.5% on
the FY 2019 quarterly dividends. On an annualised basis, this
reflects a payment of 6.68 pence per share and a dividend yield of
6.3% based on the closing share price of 105.8 pence on 20 April
2020
-- We will continue to monitor the impact of the pandemic on the
Group's portfolio and operations and will provide updates as
required
Kenneth MacKenzie, CEO of Target Fund Managers, commented:
"These are unprecedented times. With each day bringing a unique
set of challenges, our priority continues to be ensuring where
possible that we are supporting our tenants, their employees and
the residents living in our care homes. At the same time, we are
acutely aware of our responsibility to our shareholders and
protecting the long-term interests of the Company. The whole team
has seamlessly moved to a remote working set-up and are working
tirelessly in the interests of our shareholders and wider
stakeholders.
"Given the fast-moving nature of the COVID-19 pandemic, it is
impossible to predict with any certainty what sort of impact we may
see across our portfolio. Whilst we expect to see a small number of
care homes disproportionately affected, our investment strategy has
always focused on the quality and design facilities of the
properties, underpinned by a forensic approach to understanding
local market dynamics. Nothing has changed our conviction that this
approach, coupled with the underlying demographic trends supporting
strong demand for care home beds, will underpin the delivery of
reliable and sustainable income over the long term.
"Over the seven years since the Company's launch we have
remained steadfast in our commitment to building a highly
diversified portfolio of care homes by geography, tenant and
end-user profile and are confident that its defensive
characteristics will serve us well during this period. At the same
time, we have been consistent with our highly disciplined and
prudent approach to financing, which has been further enhanced by
January's new facility, securing further long-term, fixed-rate debt
funding to complement the existing flexible facilities and ensuring
we are robustly positioned to navigate any short-term
volatility."
Net Asset Value
The Group's unaudited EPRA NAV per share as at 31 March 2020 was
108.0 pence. The total return for the quarter based on EPRA NAV was
1.5%.
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 March 2020, the Group's portfolio was valued at
GBP613.4 million and comprised 73 properties, consisting of 71
operational care homes and two pre-let sites which are being
developed through capped forward funding commitments with
established development partners.
The portfolio value increased by 4.0% over the quarter. Of this,
3.4% derived from acquisitions and further investment into
developments, with a positive like-for-like movement in the
operational portfolio value of 0.6%, reflecting the impact of the
inflation-linked rental reviews, the shortening of rent-free
periods and the re-tenanting of the six former Orchard Care Home
properties during the period.
Portfolio contractual rent has increased by 3.3% over the
quarter, of which 2.9% is the impact of acquisitions, capex spend
and the completed Orchard re-tenanting. Where rent reviews were
completed during the quarter, the average increase was 2.6%. This
resulted in a 0.4% like-for-like increase in the portfolio's
contractual rent roll.
Due to the impact of acquisitions in the quarter being offset by
the passage of time on the existing properties, the portfolio's
weighted average unexpired lease term remained unchanged at 29.2
years.
The portfolio had an EPRA topped-up net initial yield of 6.05%
based on an annualised contractual rent upon expiry of lease
incentives of GBP38.9 million. The EPRA net initial yield was 5.69%
based on passing rent of GBP36.6 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
During the three months to 31 March 2020, the Group's investment
activity comprised the acquisition of two care homes in Yorkshire
which are leased to an existing tenant on 35-year lease terms. The
newly built properties have been fitted out to an exceptional
standard in line with the Group's strategy. One is located in the
North Yorkshire town of Scarborough and opened in August 2019, and
the second is located in the market town of Pudsey in West
Yorkshire. Providing 172 bedrooms in total, both care homes have
100% en suite wet-rooms. There is a rent-free period covering the
early trading stage on both properties.
The Group completed the re-tenanting of six care-homes from
Orchard to two of the Group's existing operators demonstrating a
clear endorsement of the Group's investment strategy. Rental income
continued to be received throughout the re-tenanting process and
the new rental incentives offered have been offset by the Orchard
rent deposits which were retained by the Group. On an aggregate
basis there has been no material change in the contracted rental
income the Group will receive from these properties once the rental
incentives expire and the valuation at 31 March 2020 has resulted
in a small uplift across these six homes.
Pipeline and investment market
For the majority of the quarter under review, the investment
market for high-quality, modern, fit-for-purpose assets which meet
the Group's investment criteria remained competitive. As a result
of the COVID-19 pandemic transaction volumes have reduced and the
government-imposed lockdown has virtually put a halt to those
transactions that were at an earlier stage. Having said that, we
are aware of a small number of transactions having progressed to
completion at pricing levels agreed prior to 23 March 2020.
The Investment Manager is analysing and performing diligence on
a number of near-term investment opportunities. The Board, together
with its Investment Manager, thought it prudent to postpone the
completion of the acquisition of two quality care homes towards
quarter-end as the severity of the COVID-19 pandemic emerged. This
position is under regular review and there is ongoing dialogue with
the vendors. The Group will continue to consider its capital
requirements with respect to these opportunities, or others that
may arise, as and when they progress further. The timing of
completion of any future acquisitions will be considered carefully
against both the market outlook and the Group's available
funds.
Existing capex commitments within the Group's property portfolio
total GBP12 million. This is principally in relation to the
development of two new care homes, construction of which has so far
continued during the quarter but for which completion may
ultimately be delayed by the current pandemic.
Debt facilities and swap arrangements
During January 2020, the Group entered into a new 12-year GBP50
million committed term loan facility with ReAssure Limited. The
facility carries a fixed rate of interest of 3.28% per annum for
its 12-year term. The facility was used to repay the Group's
existing GBP40 million term loan with FCB and provided an
additional GBP10 million of new investable capital. This facility
introduced an institutional lender to the Group's existing debt
capital structure whilst providing long-term, committed funds that
secured longer term financing for the Group. In March 2020, the
Group further extended the weighted average term to maturity on the
Group's debt facilities by extending the term on its existing
revolving credit facility with HSBC to January 2022.
As at 31 March 2020, the Group's total borrowings were GBP142
million, giving a loan-to-value (LTV) of 18.1%, using net debt
(total gross debt less cash, as a proportion of gross property
value). This prudent LTV is representative of the Group's strong
balance sheet which included GBP31.1 million of cash together with
GBP38 million of undrawn loan facilities.
The Group has GBP80 million of fixed term debt facilities and
GBP100 million of revolving credit facilities, with a diversified
mix of maturities and lenders. As at 31 March 2020, the Group has
drawn GBP80 million of fixed term debt, with interest costs fixed,
and GBP62 million under the revolving credit facilities which carry
a variable interest rate linked to 3-month LIBOR. The Group's
weighted average cost on its drawn debt, inclusive of amortisation
of arrangement costs, is 2.99%. The Group's facilities have a
weighted average term to expiry of 4.5 years.
Dividends in the period
The Group paid its second interim dividend for the year to 30
June 2020, in respect of the period from 1 October 2019 to 31
December 2019, of 1.67 pence per share, on 28 February 2020 to
shareholders on the register on 14 February 2020. This distribution
was paid wholly as a property income distribution (PID).
Valuation
The property portfolio was independently valued at GBP613.4
million at 31 March 2020. The valuation report, in accordance with
industry practice, was subject to a material uncertainty clause as
follows:
"The outbreak of the Novel Coronavirus (COVID-19), declared by
the World Health Organisation as a "Global Pandemic" on the 11th
March 2020, has impacted global financial markets. Travel
restrictions have been implemented by many countries.
Market activity is being impacted in many sectors. As at the
valuation date, we consider that we can attach less weight to
previous market evidence for comparison purposes to inform opinions
of value. Indeed, the current response to COVID-19 means that we
are faced with an unprecedented set of circumstances on which to
base a judgement.
Our valuations are therefore reported on the basis of 'material
valuation uncertainty' as per VPS 3 and VPGA 10 of the RICS Red
Book Global. Consequently, less certainty - and a higher degree of
caution - should be attached to our valuation than would normally
be the case. Given the unknown future impact that COVID-19 might
have on the real estate market, we recommend that you keep the
valuation of the portfolio under frequent review."
Investment Management Arrangements
After a period of discussion, the Board has agreed an extension
to the notice period provisions of the Company's investment
management agreement with the Investment Manager such that, going
forward, the minimum notice period will be extended from one year
to two years provided that the earliest that notice could be served
will be one year after the commencement of these new arrangements.
This gives an initial term certain of three years. It is believed
that these new arrangements will be of benefit to the Company and
its shareholders as they will provide certainty of the Investment
Manager's continuing service. There are no changes being made to
the fee provisions in the investment management agreement.
This is deemed to be a smaller related party transaction for the
purpose of Listing Rule 11.1.10R and the above statement is
therefore made in accordance with Listing Rule 11.1.10R(2)(c).
Announcement of third interim dividend
The Company today declares its third interim dividend for the
year ending 30 June 2020, in respect of the period from 1 January
2020 to 31 March 2020, of 1.67 pence per share as detailed in the
schedule below:
Interim Property Income Distribution (PID): 1.67 pence per share
Ex-Dividend Date: 7 May 2020
Record Date: 11 May 2020
Payment Date: 29 May 2020
This distribution will be paid wholly as a property income
distribution (PID). The dividend reflects an annualised payment of
6.68 pence per share and a dividend yield of 6.3% based on the 20
April 2020 closing share price of 105.8 pence.
The Company had 457,487,640 ordinary shares in issue at 31 March
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
Shareholders will find the latest Group information at its
website: https://www.targethealthcarereit.co.uk/
LEI: 213800RXPY9WULUSBC04
S
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 March 2020 comprised 73 assets let
to 27 tenants with a total value of GBP613.4 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.
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.
APPIX
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 January 2020 to
31 March 2020:
Pence per share
----------------
EPRA NAV per share as at 31 December 2019 108.1
Revaluation gains / (losses) on investment properties 0.6
Revaluation gains / (losses) on assets under construction^ 0.1
Net effect of acquisition costs (0.1)
Net effect of early repayment of debt facility and related swap (0.3)
Other movement in revenue reserve 1.3
Second interim dividend payment for the year to 30 June 2020 (1.7)
----------------------------------------------------------------- ----------------
EPRA NAV per share as at 31 March 2020 108.0
----------------------------------------------------------------- ----------------
Percentage change in the 3-month period (0.1)%
----------------------------------------------------------------- ----------------
The EPRA NAV provides a measure of the fair value of a company
on a long-term basis. At 31 March 2020, due to the low valuation
ascribed to the Group's remaining 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 also 108.0
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)
Mar-20 Dec-19 Sep-19 Jun-19
GBPm GBPm GBPm GBPm
Property portfolio* 613.4 589.9 511.4 500.9
Cash 31.1 31.8 116.4 26.9
Net current assets
/ (liabilities)* (8.3) 7.9 (4.1) (6.0)
Bank loans (142.0) (135.0) (130.0) (108.0)
-------- ---------- -------------- -----------
Net assets 494.2 494.6 493.7 413.8
-------- ---------- -------------- -----------
EPRA NAV per share
(pence) 108.0 108.1 107.9 107.5
*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 July 2020 and the unaudited EPRA NAV per share as at
30 June 2020 is expected to be announced in July 2020.
3. EPRA NIY profiles and unwind of rent-free periods
The Group currently has four 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 March 30 June 30 September 31 December 31 March
2020 2020 2020 2020 2021
EPRA topped-up
NIY 6.05% 6.05% 6.05% 6.05% 6.05%
--------- -------- ------------- ------------ ---------
EPRA NIY 5.69% 5.69% 5.77% 5.86% 6.05%
--------- -------- ------------- ------------ ---------
Contractual
rent (GBPm) 38.9 38.9 38.9 38.9 38.9
--------- -------- ------------- ------------ ---------
Passing rent
(GBPm) 36.6 36.6 37.1 37.6 38.9
--------- -------- ------------- ------------ ---------
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.
END
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