TIDMTHRL
RNS Number : 9783H
Target Healthcare REIT PLC
02 August 2023
2 August 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 30 June 2023, together with
an update on corporate activity, and declares its fourth interim
dividend for the year ended 30 June 2023.
Corporate activity highlights
Strong portfolio performance; stable NTA and earnings, fully
covered dividend; conservative LTV and fully hedged interest
costs:
-- EPRA Net Tangible Assets ('NTA') per share increased to 104.5
pence (31 March 2023: 103.4 pence), reflecting a like-for-like
valuation uplift driven by inflation-linked rent reviews
-- Portfolio EPRA "topped-up" net initial yield of 6.22% (31 March 2023: 6.21%)
-- Adjusted EPRA EPS for the quarter of 1.5 pence per share,
fully covering the dividend to be paid in respect of the quarter of
1.4 pence per share
-- NAV total return of 2.4% for the quarter (based on EPRA NTA
and including payment of dividend)
-- Net Loan to Value of 24.7% (31 March 2023: 23.8%)
-- Weighted average debt term of 6.2 years (31 March 2023: 6.5
years) with the earliest maturity being November 2025. Interest
costs hedged on 100% of drawn debt to the relevant facility
maturity date
-- Total capital available of GBP43 million, net of the Group's
commitments on five development assets, following the completion of
a further development site acquisition subsequent to quarter-end,
as detailed below.
99% rent collection reflecting improved trading and demand for
modern care home real estate. Inflation-linked annual rent reviews
continue to drive rental and capital growth:
-- Diversified portfolio of 97 assets let to 32 tenants valued
at GBP868.7 million (31 March 2023: GBP855.7 million) reflecting a
0.9% like-for-like valuation increase
-- Like-for-like increase in contracted rent roll of 1.1%,
primarily driven by inflation-linked upwards-only annual rent
reviews
-- Weighted average unexpired lease term of 26.5 years which
remains one of the longest in the listed UK real estate sector (31
March 2023: 26.8 years)
-- High quality, modern and sustainable real estate portfolio:
o 94% of the portfolio is A or B EPC rated, (100% A to C
ratings) therefore currently compliant with the minimum energy
efficiency standards anticipated to apply from 2030
o Leading Positive social impact from sector-leading real estate
standards: 98% wet-rooms; generous 47 sqm space per resident;
sustainable rent of GBP186 per sqm
-- Rent collection of 99%, continuing the quarterly improvement
(31 March 2023: 97%) as overall tenant profitability continues to
respond to improved trading performance across our fit-for-purpose
real estate, and in response to the completion of portfolio
management initiatives.
Kenneth MacKenzie, CEO of Target Fund Managers, commented:
"The return to near-full rent collection and the stability of
our portfolio valuation is consistent with our investment thesis -
that modern, purpose-built care homes will provide compelling
long-term returns. Demand for places in our homes remains
encouraging, as reported by our tenants, and is demonstrated by
growing weekly fee rates and improving rent covers/profitability.
Resident occupancy across our portfolio continues to recover
towards pre-pandemic levels.
"Our focus remains on managing the portfolio, supporting our
tenants in their business aspirations and actively investing to
improve our real estate where we see opportunities to unlock
further value. We also continue to invest in the future of the
sector with construction underway on a best-in-class care home
offering carbon net-zero operational ability at our most recently
acquired development site. In addition, we have four further sites
where pre-let care homes are being built subject to capped
development contracts, which will deliver to the sector a pipeline
of much-needed fit-for-purpose modern real estate."
Net Total Assets
The Group's unaudited EPRA NTA per share as at 30 June 2023 was
104.5 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 June 2023, the Group's portfolio was valued at GBP868.7
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. A further pre-let site was acquired after the
period-end.
Portfolio value increased by 1.5% over the quarter,
comprising:
-- a 0.9% increase in the like-for-like operational portfolio, reflecting a 1.0% increase from inflation-linked rent reviews and rent-free unwinds, offset by a marginal 0.1% decrease driven by net outward yield shift on a limited number of specific assets
-- a 0.6% increase from capital expenditure, mainly associated
with the four development properties
Contractual rental income increased by 1.1% over the quarter,
comprising a 1.0% like-for-like increase from 25 inflation-linked
upwards-only rent reviews, with an average uplift of 3.8%; and 0.1%
from the deferred completion of a five-yearly rental uplift on one
property.
The portfolio's weighted average unexpired lease term was 26.5
years (31 March 2023: 26.8 years).
The portfolio had an EPRA "topped-up" net initial yield of 6.22%
based on an annualised contractual rent of GBP56.6 million. The
portfolio's EPRA net initial yield was 6.05% with two assets in
rent-free periods.
Acquisitions and other asset management
During the quarter the following asset management initiatives
were completed:
-- The conversion to 51 full ensuite wet-rooms from poorer
quality ensuites at two of the Group's homes, progressing plans to
move the portfolio to 100% wet-rooms, currently 98% following these
works
-- The Group signed legal agreements relating to the addition of
18 bedrooms at a property. This includes a commitment by the Group
to provide GBP2.35 million to fund the capital works which are
expected to be completed by September 2023 and which will be
rentalised at completion at a NIY consistent with the current
valuation yield of the property. Further:
o The additional bedroom space created, a proportion of which
the tenant has agreed to sub-let to a local charity for a
three-year term, is forecast to improve the tenant's rent cover.
Rent deposits covering both properties with this tenant have been
established to further strengthen the surety of rent receipts
o Agreement has also been reached for a partial write-off of the
majority of historic rent arrears from this tenant, which had
previously been fully provided for, and a payment plan has been
agreed for the remainder
o Following completion and rentalisation of the capital works,
this tenant will equate to 4.6% of the portfolio's contracted
rent.
Subsequent to the quarter-end, the following acquisition
completed:
-- On 4 July 2023, the Group acquired a pre-let development site
subject to a forward funding agreement to construct a 66-bed care
home in Weston-super-Mare, Somerset for a maximum commitment of
GBP16.0 million including acquisition costs.
o Construction on the home has commenced and is expected to be
completed in the summer of 2024
o The care home is to be built to exceptional ESG standards,
with the highest certifications anticipated, and will offer carbon
net-zero operational ability
o Consistent with the Group's standard approach, the home is
pre-let to a new tenant to the Group. A capped development
agreement, underpinned by a fixed price construction contract, is
in place
o The lease agreement includes green provisions such as
energy-usage data collection, per the Group's standard lease
terms.
Debt facilities and swap arrangements
As at 30 June 2023, the Group's total borrowings were GBP230
million, representing a net LTV of 24.7% (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 March 2023: 3.70%).
100% of drawn debt is fully hedged against further interest rate
increases:
-- GBP150 million is fixed with a weighted average term of 10.6
years and a weighted average interest rate of 3.18% (excluding the
amortisation of arrangement fees)
-- GBP30 million of the Group's bank facilities is fixed at
2.48% for 2.4 years through an interest rate swap
-- The remaining GBP50 million of the Group's drawn revolving
credit facilities have interest rates capped via a 3% SONIA cap for
2.4 years.
The Group has access to a further GBP90 million of committed,
but undrawn, revolving credit facilities which, if drawn, would
carry an interest rate of SONIA plus 2.21%.
At 30 June 2023, the weighted average term to expiry on the
Group's total committed loan facilities was 6.2 years (31 March
2023: 6.5 years) with the earliest maturity being November
2025.
Dividends in the period
The Group paid its third interim dividend for the year ended 30
June 2023, in respect of the period from 1 January 2023 to 31 March
2023, of 1.40 pence per share, on 26 May 2023 to shareholders on
the register on 12 May 2023. This distribution was comprised wholly
of a property income distribution (PID).
Announcement of fourth interim dividend
The Company today declares its fourth interim dividend for the
year ended 30 June 2023, in respect of the period from 1 April 2023
to 30 June 2023, of 1.40 pence per share as detailed in the
schedule below:
Interim Property Income Distribution (PID): 1.19 pence per share
Interim ordinary dividend: 0.21 pence per share
Ex-Dividend Date: 10 August 2023
Record Date: 11 August 2023
Payment Date: 25 August 2023
The dividend reflects an annualised payment of 5.60 pence per
share and a dividend yield of 7.6% based on the 1 August 2023
closing share price of 73.4 pence.
The Company had 620,237,346 ordinary shares in issue at 30 June
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
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 30 June 2023 comprised 97 assets let to
32 tenants with a total value of GBP868.7 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 April 2023 to 30
June 2023:
Pence per
share
------------
EPRA NTA per share as at 31 March 2023 103.4
Revaluation gains / (losses) on investment
properties 1.1
Revaluation gains / (losses) on assets
under construction^ (0.1)
Movement in revenue reserve 1.5
Third interim dividend payment for the
year ending 30 June 2023 (1.4)
-------------------------------------------- ------------
EPRA NTA per share as at 30 June 2023 104.5
-------------------------------------------- ------------
Percentage change in the quarter 1.1%
-------------------------------------------- ------------
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 30 June 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 105.6 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)
Jun-23 Mar-23 Dec-22 Sep-22
GBPm GBPm GBPm GBPm
Property portfolio* 868.7 855.7 867.7 913.7
Cash 15.4 26.4 21.8 19.6
Net current assets / (liabilities)* (6.2) (10.5) (10.4) (15.2)
Bank loans (230.0) (230.0) (240.0) (223.0)
-------- -------- -------- --------
Net assets 647.9 641.6 639.1 695.1
-------- -------- -------- --------
EPRA NTA per share (pence) 104 .5 103.4 103.0 112.1
*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 October 2023 and the unaudited EPRA NTA per share as
at 30 September 2023 is expected to be announced in October
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:
30 June 30 Sept 31 Dec 31 March 30 June
2023 2023 2023 2024 2024
EPRA topped-up
NIY 6.22% 6.22% 6.22% 6.22% 6.22%
------- ------- ------ -------- -------
EPRA NIY 6.05% 6.05% 6.14% 6.18% 6.22%
------- ------- ------ -------- -------
Contractual rent
(GBPm) 56.6 56.6 56.6 56.6 56.6
------- ------- ------ -------- -------
Passing rent
(GBPm) 55.0 55.0 55.8 56.2 56.6
------- ------- ------ -------- -------
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END
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