TIDMTHRL
RNS Number : 1821Y
Target Healthcare REIT PLC
03 May 2023
3 May 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 March 2023, together
with an update on corporate activity, and declares its third
interim dividend for the year ending 30 June 2023.
Corporate activity highlights
NTA and earnings growth, the latter fully covering rebased
dividend level; stable balance sheet with conservative LTV and
hedged interest costs:
-- EPRA Net Tangible Assets ('NTA') per share increased to 103.4
pence (31 December 2022: 103.0 pence), primarily driven by
like-for-like valuation uplift from inflation-linked rent reviews
and reflecting minimal yield shift
-- Adjusted EPRA EPS for the quarter of 1.5 pence per share,
fully covering dividend to be paid in respect of the quarter of 1.4
pence per share
-- Portfolio EPRA "topped-up" net initial yield of 6.21% (31 December 2022: 6.22%)
-- NAV total return of 2.1% for the quarter (based on EPRA NTA
and including payment of dividend)
-- Net Loan to Value of 23.8% (31 December 2022: 25.1%)
-- Weighted average term to expiry on the Group's total
committed loan facilities of 6.5 years (31 December 2022: 6.7
years) with an earliest maturity of November 2025. Interest costs
hedged on 100% of drawn debt to the relevant facility maturity
date
-- Overall capital available currently GBP62 million, net of the
Group's commitments on the four development assets
Disposals and re-tenanting activities optimising portfolio to
benefit from demand tailwinds and positive outlook for private-pay
market; portfolio valuation evidenced by GBP22m of disposals ahead
of carry value; further rental growth and rent collection
improvement:
-- Diversified portfolio of 97 assets let to 32 tenants and
valued at GBP855.7 million (31 December 2022: GBP867.7 million); on
a like-for-like basis the portfolio valuation increased by 0.5%
-- Disposal of four properties in Northern Ireland for a net
price above their blended book value as at 30 June 2022,
crystallising an annualised ungeared IRR in excess of 10% over the
period of ownership
-- Excluding recent disposals (2.8% decrease), the contracted
rent roll increased 0.8%, from 22 inflation-linked upwards-only
rent reviews, at an average uplift of 3.9%
-- Weighted average unexpired lease term of 26.8 years remains
one of the longest in the listed real estate sector (31 December
2022: 26.8 years), with the disposal of four shorter-duration
leases offsetting the effect of the passage of time on the
remaining portfolio
-- High quality, modern and sustainable real estate portfolio:
o 94% 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; generous 47 sqm space per resident;
sustainable rent of GBP184 per sqm
-- Rent collection of 97% (31 December 2022: 96%; 30 September
2022: 96%; 30 June 2022: 94%) as overall tenant profitability
responds to the improved trading conditions across prime care
homes, and in response to the completion of portfolio management
initiatives
Kenneth MacKenzie, CEO of Target Fund Managers, commented:
"The long-term stability of prime UK care homes as an investment
class continues to be demonstrated. Unlike many other parts of the
sector, not only are valuation levels being underpinned by both
occupier and investor demand, but we are also seeing rental quality
backed by improving profitability trends. Rent cover, a key
profitability metric, has improved to 1.5x for the most recent
quarter we have data for. This compares well to pre-pandemic norms
despite being achieved at lower levels of underlying resident
occupancy, currently 84%. We anticipate further tenant
profitability growth as occupancy closes in on the 90% generally
experienced prior to the pandemic, which will further support
valuations. The real estate standards fundamental to our strategy
enable our tenants to attract private-fee paying residents at fee
levels where they can increase staff pay and reinvest in their
business.
"The recent announcement to rebase our dividend in line with
current earnings was recognition of the higher interest rate
environment limiting our ability to grow earnings through
acquisitions at this time, as investment yields have remained
relatively low for the prime UK care homes we invest in. We retain
a strong conviction that improving portfolio performance, strong
demographic tailwinds and our embedded inflation-linked rental
growth will drive long-term sustainable returns."
Net Total Assets
The Group's unaudited EPRA NTA per share as at 31 March 2023 was
103.4 pence. The total return for the quarter based on EPRA NTA was
2.1%.
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 March 2023, the Group's portfolio was valued at
GBP855.7 million and comprised 97 properties, consisting of 93
operational care homes and four pre-let sites, which are being
developed through capped forward funding commitments with
established development partners.
The portfolio value decreased by 1.4% over the quarter,
comprising:
-- a 0.5% increase in the like-for-like operational portfolio, reflecting a 0.8% increase from inflation-linked rent reviews and asset management activity, offset by a marginal 0.3% decrease driven by net outward yield shift on a limited number of specific assets
-- a 2.4% decrease from the sale of four properties located in
Northern Ireland, of which sales proceeds represented a property
value decrease of 2.5% and the gain relative to the external
valuation of the properties at 31 December 2022 was 0.1%
-- a 0.5% increase from capital expenditure, mainly associated
with the four development properties
Contractual rental income decreased by 2.0% over the quarter,
comprising:
-- a 0.8% like-for-like increase from 22 inflation-linked
upwards-only rent reviews, with an average uplift of 3.9%; and
-- a 2.8% decrease from the sale of four properties located in Northern Ireland
The portfolio's weighted average unexpired lease term was 26.8
years (31 December 2022: 26.8 years).
The portfolio had an EPRA "topped-up" net initial yield of 6.21%
based on an annualised contractual rent of GBP55.9 million. The
portfolio's EPRA net initial yield was 6.04% with two assets in
rent-free periods.
Acquisitions and other asset management
As previously disclosed by the Group, during the quarter the
following transactions and asset management initiatives were
completed:
-- The sale of four care homes in Northern Ireland, representing
c. 2.5% of the Group's overall portfolio value. The disposals
represent a full exit from the Northern Irish market and form part
of the Group's wider capital recycling and asset management
strategy. The blended disposal price is supportive of the Group's
valuations, being ahead of carrying value at both 30 June 2022 (the
Group's last financial year-end) and 31 December 2022, and results
in an annualised ungeared IRR in excess of 10% over the period of
ownership.
-- 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.
-- 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.
Debt facilities and swap arrangements
As at 31 March 2023, the Group's total borrowings were GBP230
million, representing a net LTV of 23.8% (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 3.70% (31 December 2022: 3.79%).
This excludes the amortisation of the cost of the interest rate cap
given the full cost has already been deducted in calculating the
EPRA NTA. The decrease in the Group's weighted average cost on its
drawn debt over the quarter was due to the partial repayment of the
Group's revolving credit facilities following the sale of the
Northern Ireland properties.
The GBP230 million of drawn debt is fully hedged to further
increases in interest rates. GBP150 million has been fixed for a
weighted average term of 10.9 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 2.6 years through an interest rate swap and the
remaining GBP50 million of the Group's drawn revolving credit
facilities have interest rates capped via a 3% SONIA cap, also for
2.6 years. The Group has access to a further GBP90 million of
committed, but undrawn, revolving credit facilities.
At 31 March 2023, the weighted average term to expiry on the
Group's total committed loan facilities was 6.5 years (31 December
2022: 6.7 years).
Dividends in the period
The Group paid 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, on 24 February 2023 to
shareholders on the register on 10 February 2023. This distribution
was comprised wholly of a property income distribution (PID).
The Company announced on 27 March 2023 that increases in the
marginal rate of financing and lower net initial yields available
on assets that meet the Group's strict investment criteria had
resulted in Board concluding that the most appropriate response was
to rebase the target annual dividend level to 5.60 pence per share
to reflect the Group's current recurring earnings. The Board's
priority is to offer an attractive dividend to shareholders which
(i) will be fully covered by earnings (ii) allows annual growth and
(iii) fully contributes to an attractive level of total return.
Announcement of third interim dividend
The Company today declares its third interim dividend for the
year ending 30 June 2023, in respect of the period from 1 January
2023 to 31 March 2023, of 1.40 pence per share as detailed in the
schedule below:
Interim Property Income Distribution (PID): 1.40 pence per share
Interim ordinary dividend: nil
Ex-Dividend Date: 11 May 2023
Record Date: 12 May 2023
Payment Date: 26 May 2023
The dividend reflects an annualised payment of 5.60 pence per
share and a dividend yield of 7.4% based on the 2 May 2023 closing
share price of 75.7 pence.
The Company had 620,237,346 ordinary shares in issue at 31 March
2023 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
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 March 2023 comprised 97 assets let
to 32 tenants with a total value of GBP855.7 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 January 2023 to
31 March 2023:
Pence per
share
------------
EPRA NTA per share as at 31 December
2022 103.0
Revaluation gains / (losses) on investment
properties 0.7
Revaluation gains / (losses) on assets
under construction^ (0.2)
Revaluation gains / (losses) on investment
properties realised 0.1
Movement in revenue reserve 1.5
Second interim dividend payment for the
year ending 30 June 2023 (1.7)
-------------------------------------------- ------------
EPRA NTA per share as at 31 March 2023 103.4
-------------------------------------------- ------------
Percentage change in the quarter 0.4%
-------------------------------------------- ------------
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 March 2023, 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 104.2 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-23 Dec-22 Sep-22 Jun-22
GBPm GBPm GBPm GBPm
Property portfolio* 855.7 867.7 913.7 911.6
Cash 26.4 21.8 19.6 34.5
Net current assets / (liabilities)* (10.5) (10.4) (15.2) (14.8)
Bank loans (230.0) (240.0) (223.0) (234.8)
-------- -------- -------- --------
Net assets 641.6 639.1 695.1 696.5
-------- -------- -------- --------
EPRA NTA per share (pence) 103.4 103.0 112.1 112.3
*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 2023 and the unaudited EPRA NTA per share as at
30 June 2023 is expected to be announced in July 2023.
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 March 30 June 30 Sept 31 Dec 31 March 30 June
2023 2023 2023 2023 2024 2024
EPRA topped-up
NIY 6.21% 6.21% 6.21% 6.21% 6.21% 6.21%
-------- ------- ------- ------ -------- -------
EPRA NIY 6.04% 6.04% 6.04% 6.13% 6.17% 6.21%
-------- ------- ------- ------ -------- -------
Contractual rent
(GBPm) 55.9 55.9 55.9 55.9 55.9 55.9
-------- ------- ------- ------ -------- -------
Passing rent
(GBPm) 54.4 54.4 54.4 55.2 55.6 55.9
-------- ------- ------- ------ -------- -------
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END
MSCNKBBKOBKDPPK
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