TIDMTHRL
RNS Number : 6567O
Target Healthcare REIT PLC
02 February 2023
2 February 2023
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 31 December 2022, together
with an update on corporate activity, and declares its second
interim dividend for the year ending 30 June 2023.
Corporate activity highlights
Stable financial position and portfolio valuation movement:
-- EPRA Net Tangible Assets ('NTA') per share decreased to 103.0
pence (30 September 2022: 112.1 pence), largely driven by a
like-for-like portfolio valuation decrease on standing assets of
5.0% primarily reflecting sector-wide outward yield movement
following recent interest rate rises
-- Portfolio EPRA "topped-up" net initial yield of 6.22% (30 September 2022: 5.84%)
-- NAV total return of -6.6% for the quarter (based on EPRA NTA and including dividend)
-- Net Loan to Value of 25.1% (30 September 2022: 22.3%)
-- Weighted average term to expiry on the Group's total
committed loan facilities of 6.7 years (30 September 2022: 6.7
years) with an earliest maturity of November 2025. Interest costs
hedged to the relevant facility maturity date on 96% of the drawn
debt
-- Overall capital available for investment currently GBP35
million, net of the Group's development commitments on four
assets
Strong portfolio and operational progress: 1.1% like-for-like
rental growth; active portfolio management initiatives providing
visibility on rent collection improvement:
-- Diversified portfolio of 100 assets let to 33 tenants and
valued at GBP867.7 million (30 September 2022: GBP913.7
million)
-- 2.6% net increase in contracted rent roll reflecting:
o a 1.5% increase from the completion of a development site
o a 1.1% increase from 24 inflation-linked upwards-only rent
reviews, at an average uplift of 4.2%
-- Weighted average unexpired lease term of 26.8 years remains
one of the longest in the listed real estate sector (30 September
2022: 26.9 years)
-- High quality, modern and sustainable real estate portfolio:
o 93% of the portfolio is A or B EPC rated, and currently
compliant with the minimum energy efficiency standards anticipated
to apply from 2030
o Leading Positive social impact from sector-leading real estate
standards: 97% wet-rooms; 47 sqm space per resident; rent per sqm
GBP180
-- Rent collection of 96% (30 September 2022: 96%; 30 June 2022:
94%). Active portfolio management has resulted in meaningful
progress with two tenants subsequent to the quarter end. The
re-tenanting of a home with the first tenant is now imminent, with
improved trading performance increasing rent collection from the
other.
-- Subsequent to an exchange of contracts on a
subject-to-planning basis in the summer of 2022, on 27 January 2023
the Group completed the acquisition of a development site near
Malvern, Worcestershire, following the receipt of the required
planning consent for the construction of a 60-bed care home.
Kenneth MacKenzie, CEO of Target Fund Managers, commented:
"Following the interest rate rises witnessed in late 2022, real
estate values across almost all sectors have been falling. While
the Group has not been completely immune to this trend, our
portfolio has demonstrated its resilience versus the CBRE UK
monthly index (all property) capital decline of 14.6% for the same
quarter. This is largely due to our strategy of investing in prime,
modern real estate with strong overall ESG credentials, inclusive
of notably positive EPC ratings, and underpinned by long term
inflation-linked indexation, in a sector where demographic
tailwinds continue to support demand.
"Against a challenging market backdrop, we have again delivered
like-for-like rental growth and remain focussed on the long-term
sustainability of our rental income which is inflation linked
(subject to caps and collars). Our portfolio performance is
improving, with rent cover responding positively to the increases
in occupancy we've seen through recent quarters. We have closely
managed specific assets and tenants where occupancy has been slower
to recover and have progressed initiatives where required.
"Our capital base remains conservatively structured with
adequate headroom and, whilst we are not aggressively pursuing an
acquisitions strategy at present, we remain alert to opportunities
that may be presented as a result of changing market
conditions."
Net Total Assets
The Group's unaudited EPRA NTA per share as at 31 December 2022
was 103.0 pence. The total return for the quarter based on EPRA NTA
was -6.6%.
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 31 December 2022, the Group's portfolio was valued at
GBP867.7 million and comprised 100 properties, consisting of 97
operational care homes and three pre-let sites, which are being
developed through capped forward funding commitments with
established development partners.
The portfolio value decreased by 5.0% over the quarter which
matched the movement in the like-for-like value of the operational
portfolio. The like-for-like movement reflects a 6.2% decrease due
to outward yield shifts applied by the valuers to reflect the
higher interest rate environment and overall economic conditions,
offset by a 1.2% increase from inflation-linked rent reviews. The
spend on the development assets, including the site which completed
in the quarter, increased the portfolio value by 0.5%; however,
this was fully offset by similar outward yield shifts on the
developments as described above.
Contractual rental income increased by 2.6% over the period,
comprising:
-- a 1.5% increase from the lease entered into on a new-build
home following practical completion of a development site; and
-- a 1.1% increase from 24 inflation-linked upwards-only rent
reviews, with an average uplift of 4.2%
The portfolio's weighted average unexpired lease term was 26.8
years (30 September 2022: 26.9 years).
The portfolio had an EPRA "topped-up" net initial yield of 6.22%
based on an annualised contractual rent of GBP57.1 million. The
portfolio's EPRA net initial yield was 6.06% with three assets in
rent-free periods.
Acquisitions and other asset management
During the quarter, the following transactions and asset
management initiatives were completed:
-- Practical completion of the Group's development site in
Weymouth, Dorset was reached in November 2022, contributing 66 new
beds to the portfolio. A new tenant to the Group has entered into a
35 year lease which incorporates green provisions and annual rent
reviews (subject to caps and collars).
-- Completion of a retrofit programme on 31 rooms to bring one
of the Group's small number of homes without full en suite wet-room
provision to acceptable modern standards.
Subsequent to the quarter end the following transactions and
asset management initiatives were completed/progressed:
-- The acquisition of a development site near Malvern,
Worcestershire, following the receipt of the required planning
consent for the construction of a 60-bed care home. Consistent with
the Group's standard approach, the home is pre-let to an existing
tenant and has in place a capped development agreement which is
itself underpinned by a fixed price construction contract. The
lease includes green provisions such as energy-related data
collection, per the Group's standard lease.
-- Substantial completion of the process to re-tenant one home,
which will alleviate cashflow pressures for a tenant, allowing a
return to a fully rent-paying position on its three remaining
homes. The contractual rent for the incoming tenant will remain the
same.
-- Improved trading performance at a second tenant has seen a
further increase in the proportion of rent received for both of its
homes. The tenant has been able to grow towards full occupancy
having been (as an immature business) behind in occupancy growth at
the start of the pandemic.
Debt facilities and swap arrangements
As at 31 December 2022, the Group's total borrowings were GBP240
million, representing a net LTV of 25.1% (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 loan arrangement costs, was 3.79% (30 September 2022: 3.49%).
This excludes the amortisation of the cost of the interest rate
cap, the upfront cost of which has already been deducted in full
from the EPRA NTA as shown in the table in the appendix. The
increase over the quarter was due to the increase in market
interest rates impacting the variable rate applied to the Group's
revolving credit facilities.
Going forward, 96% of the GBP240 million of drawn debt is fully
hedged to further increases in interest rates. GBP180 million of
the drawn debt was fixed prior to the rise in interest rates seen
during 2022. Of this, GBP150 million has been fixed for a weighted
average term of 11.1 years with a weighted average interest rate
excluding the amortisation of arrangement fees of 3.18%. GBP30
million of the Group's bank facilities have been fixed at 2.48% for
2.9 years through an interest rate swap entered into in November
2020. As previously announced, a further GBP50 million of the
Group's revolving credit facilities have interest rates capped via
a 3% SONIA cap entered into in November 2022.
During the quarter, the Group extended by one year the maturity
date on the Group's GBP100 million revolving credit facility with
HSBC Bank plc. The weighted average term to expiry on the Group's
total committed loan facilities remained unchanged at 6.7 years (30
September 2022: 6.7 years).
Dividends in the period
The Group paid its first interim dividend for the year ending 30
June 2023, in respect of the period from 1 July 2022 to 30
September 2022, of 1.69 pence per share, on 25 November 2022 to
shareholders on the register on 11 November 2022. This distribution
was comprised wholly of a property income distribution (PID).
Announcement of second interim dividend
The Company today declares its second interim dividend for the
year ending 30 June 2023, in respect of the period from 1 October
2022 to 31 December 2022, of 1.69 pence per share as detailed in
the schedule below:
Interim Property Income Distribution (PID): 1.69 pence per share
Interim ordinary dividend: nil
Ex-Dividend Date: 9 February
2023
Record Date: 10 February
2023
Payment Date: 24 February
2023
The dividend reflects an annualised payment of 6.76 pence per
share and a dividend yield of 8.4% based on the 1 February 2023
closing share price of 80.1 pence.
The Company had 620,237,346 ordinary shares in issue at 31
December 2022 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:
Target Fund Managers Limited Tel: 01786 845 912
Kenneth MacKenzie
Gordon Bland
Stifel Nicolaus Europe Limited Tel: 020 7710 7600
Mark Young
Rajpal Padam
Catriona Neville
FTI Consulting Tel: 020 7710 7600
Dido Laurimore TargetHealthcare@fticonsulting.com
Richard Gotla
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 2022 comprised 100 assets
let to 33 tenants with a total value of GBP867.7 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 October 2022 to
31 December 2022:
Pence per
share
------------
EPRA NTA per share as at 30 September
2022 112.1
Revaluation gains / (losses) on investment
properties (7.6)
Net Revaluation gains / (losses) on assets
under construction^ (0.8)
Premium paid for interest rate cap (0.4)
Movement in revenue reserve 1.4
First interim dividend payment for the
year ending 30 June 2023 (1.7)
-------------------------------------------- ------------
EPRA NTA per share as at 31 December
2022 103.0
-------------------------------------------- ------------
Percentage change in the quarter (8.1%)
-------------------------------------------- ------------
The EPRA Best Practices Recommendations Guidelines state that
companies should publish a set of three NAV metrics. The full set
of EPRA NAV metrics are published in the Group's Annual Report. The
Company intends to continue to announce the EPRA NTA on a quarterly
basis.
At 31 December 2022, due to the valuation ascribed to the
Group's interest rate derivative contracts used to hedge its
exposure to variable interest rates, which are excluded from the
calculation of the EPRA NTA, the unaudited NAV calculated under
International Financial Reporting Standards was 103.9 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-22 Sep-22 Jun-22 Mar-22
GBPm GBPm GBPm GBPm
Property portfolio* 867.7 913.7 911.6 886.8
Cash 21.8 19.6 34.5 42.8
Net current assets / (liabilities)* (10.4) (15.2) (14.8) (13.4)
Bank loans (240.0) (223.0) (234.8) (222.8)
-------- -------- -------- --------
Net assets 639.1 695.1 696.5 693.4
-------- -------- -------- --------
EPRA NTA per share (pence) 103.0 112.1 112.3 111.8
*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 2023 and the unaudited EPRA NTA per share as
at 31 March 2023 is expected to be announced in April 2023.
3. EPRA NIY profiles and unwind of rent-free periods
The Group currently has three 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 31 December
2022 2023 2023 2023 2023
EPRA topped-up
NIY 6.22% 6.22% 6.22% 6.22% 6.22%
------------ -------- ------- ------------ -----------
EPRA NIY 6.06% 6.13% 6.13% 6.13% 6.22%
------------ -------- ------- ------------ -----------
Contractual
rent (GBPm) 57.1 57.1 57.1 57.1 57.1
------------ -------- ------- ------------ -----------
Passing rent
(GBPm) 55.5 56.3 56.3 56.3 57.1
------------ -------- ------- ------------ -----------
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END
UPDNKDBDCBKDPBK
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