REG - Target H'care REIT - Final Results
12/10/2022 07:00
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RNS Number : 5619C Target Healthcare REIT PLC 12 October 2022
To: RNS
From: Target Healthcare REIT plc
LEI: 213800RXPY9WULUSBC04
Date: 12 October 2022
ANNUAL RESULTS FOR THE YEAR ENDED 30 JUNE 2022
Modern portfolio of scale with diversified tenant base and inflation-linked
rental growth
Target Healthcare REIT plc (the "Company" or the "Group"), the listed
specialist investor in modern, purpose-built UK care homes, is pleased to
announce its results for the year ended 30 June 2022.
Benefit of inflation-linked leases, combined with asset management and yield
compression driving high single digit returns
· NAV total return((1)) of 8.1% (2021: 8.8%), with valuation
uplifts reflecting inflation-linked leases
· EPRA NTA per share increased 1.7% to 112.3 pence (2021: 110.4 pence)
· Group specific adjusted EPRA earnings per share decreased 7.5%
to 5.05 pence per share (2021: 5.46 pence), partially reflecting the time lag
between the oversubscribed £125 million equity issuance in September 2021 and
the investment of the proceeds in December 2021
· Dividend increased by 0.6% to 6.76 pence in respect of the year
(2021: 6.72 pence)
· Dividends in respect of the period 72% covered by adjusted EPRA
earnings, 95% covered based on EPRA earnings
· Low net loan-to-value ("LTV") of 22.0% as at 30 June 2022, with
an average cost of drawn debt (interest-only) of 3.1% and average term to
maturity of 6.9 years. £180 million of fixed rate debt, being 77% of total
drawn debt at 30 June 2022.
Focus on diversification, and real estate and tenant quality, underpins
like-for-like rental and valuation growth
· Resilient portfolio performance, with 95% of rent collected
· Portfolio value increased by £226.8 million, or 33%, to £911.6
million, including like-for-like valuation growth of 4.2% (2021: 3.8%)
· Contractual rent increased by 35% to £55.5 million per annum (2021:
£41.2 million), including a like-for-like increase of 4.6% from rent reviews
and asset management initiatives
· Acquisition commitments during the year totalling £223 million,
taking the portfolio to 101 properties, consisting of 97 operational care
homes and four pre-let sites
· Resident occupancy levels across the mature portfolio continue to
recover from Q1 2021 low point, with mature homes spot occupancy currently at
83%
· Weighted average unexpired lease term of 27.2 years (2021: 28.8
years)
Responsible investment strategy with a clear purpose to improve the UK's care
home real estate
· Compelling long-term demand from ageing population supports both
investor and operator activity in the sector
· Strong alignment of ESG principles, with continued social purpose and
advocacy of minimum real estate standards across the sector
o Modern, purpose-built care homes; full en suite wet-rooms account for 96% of
the portfolio compared to just 29% for all UK care homes
o 92% of the portfolio A or B EPC rated
o Sector-leading average 47m(2) of space per resident
(1) Based on EPRA NTA movement and dividends paid
Malcolm Naish, Chairman of the Company, said:
"Amidst the current market uncertainty and economic headwinds, we continue to
focus on the favourable long-term prospects for our portfolio. We have been
delighted to grow through the addition of a significant value of assets during
the year, with inclusion in the FTSE 250 testament to valued shareholder
support and the stable total returns from our well-diversified portfolio.
"Our portfolio remains well-placed, resident occupancies are improving, and
home environments are returning to "normal" trading and activity conditions.
Our rent collection for the year was 95%, inclusive of successful arrears
recovery post year-end, and our immediate focus is on moving as quickly as
possible towards full rent collection, for which initiatives are in progress
and remain under our control. We expect our ESG-compliant modern assets to
provide sustainable long-term returns, and in volatile times such as these we
are thankful to have remained prudent in the rents we have set, capital prices
paid and in our borrowing levels and terms.
"The Board remains confident in the Group's prospects and I would personally
like to thank shareholders for their support. We collectively are making a
positive social impact through our committed backing of the care sector."
A webcast presentation for investors and analysts will take place at 9am BST
this morning, which can be accessed at:
https://stream.brrmedia.co.uk/broadcast/6324a53956f8df42425ec404
(https://stream.brrmedia.co.uk/broadcast/6324a53956f8df42425ec404)
All enquiries:
Kenneth MacKenzie / Gordon Bland 01786 845 912
Target Fund Managers
Mark Young / Mark Bloomfield 020 7710 7600
Stifel Nicolaus Europe Limited
Dido Laurimore / Richard Gotla 020 3727 1000
FTI Consulting 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 June 2022 comprised 101 assets let to 34 tenants
with a total value of £911.6 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.
Chairman's Statement
1. Reflections
Despite the persistent COVID-19 impact faced by UK care homes this past year,
our portfolio remains well-placed. Resident occupancies are improving (mature
home occupancy now at 83% from 73% at its lowest point in early 2021) and home
environments are returning to "normal" trading and activity conditions. The
quality of our real estate, and the level of demand for it in the UK care home
investment market, has driven a healthy and consistent accounting total return
of 8.1%, with valuation increases reflecting our inflation-linked leases and
positive sentiment as to future trading conditions.
Our rent collection for the year was 95%, inclusive of successful arrears
recovery post year-end. We have collected 95% of rent since the start of the
COVID-19 pandemic in March 2020. We remain confident our portfolio will
deliver sustainable value over the long-term.
The start of the year brought shareholder support for our capital raise to
fund the acquisition of a portfolio of 18 homes. We were delighted to secure
this in what was a competitive bidding process, with the mature trading
histories complementing our many newer homes. Following the disposal of one
non-core asset post-year-end, the integration of the portfolio is complete
with performance in line with expectations on acquisition and we look forward
to many years of stable income returns.
Late 2021 optimism was tempered early in 2022 with the emergence of the
COVID-19 Omicron variant. This slowed trading recovery across the portfolio as
the frequency of embargoes on admissions increased once more. A small number
of tenants most exposed to newly opened/ immature homes were significantly
impacted. We have resolved an arrears position with one tenant who represented
6.8% of contracted rent and have initiatives in progress on the remaining
affected assets, giving visibility on rent collection improving towards
pre-pandemic norms.
2. Outlook
Other headwinds have emerged in 2022 which are potentially more long-lasting
and impactful, though we feel our business model and strategy provides
insulation. Matters of concern include: energy and food source supplies;
inflation; monetary policy tightening by Central Banks and fast-rising
interest rates; the cost of living crisis, and general fears of a significant
economic downturn/recession. The repricing of financial assets is likely to
arise with commercial real estate tipped by many to bear the brunt, as
reflected in the sector's recent share price movements.
However, our investment class benefits from tailwinds. Underlying demand for
residential care places is supported by demographic change, evidenced by
projected growth in the number of over 85s, and investment demand for modern,
ESG-compliant care home real estate remains strong.
The Group has some protection from higher interest rates, having fixed rates
on £180 million of its borrowings prior to recent market increases. On
inflation, our portfolio bias towards private pay provides comfort that our
tenants are more likely to be able to reflect their cost increases in resident
fees, supporting sustainable trading.
3. Performance
Our total return performance over the year has been robust, with EPRA NTA*
growth of 1.7% (112.3 pence from 110.4 pence) underpinned by a portfolio which
has performed resiliently.
The Manager comments in more detail on rent cover and occupancy in the
Investment Manager's Report below, with these key metrics trending positively
as trading in the homes improves further following the Omicron impacts earlier
in 2022.
Growth in the portfolio's valuation has largely been driven by rental uplifts,
with some additional yield tightening from strength of demand, providing an
overall like-for-like increase of 4.2%. Contracted rent has increased by 35%
to £55.5 million, including 4.6% on a like-for-like basis.
Under the widely-used EPRA earnings metric the dividend was 95% covered,
though we focus on an adjusted EPRA earnings per share result of 5.05 pence.
Adjusted EPRA earnings increased by 16% to £30.2 million, translating to 72%
cover.
4. Investment market and care home trading
There remains a weight of capital investing in the ESG-compliant, modern homes
which are our staple. Demand and activity has not yet dampened in response to
either the wider macro-environment or the sector's trading difficulties
through "late-COVID". We note valuations starting to soften in other
commercial real estate sectors and would be surprised were ours to be immune.
However, high volatility is not something inherent in the asset class and we
would note the performance of premium quality homes relative to the yield
expansion in poorer quality homes following the 2007-08 global financial
crisis.
The sector's challenges this past year are well-documented, and the Manager
discusses these in more detail below. We are pleased to see the sustained rise
in occupancy levels in our homes. Whilst homes with a focus on publicly funded
residents have outperformed those focusing on the private market through much
of the pandemic, this has recently reversed and the majority of our tenants
report a positive outlook.
5. Governance
Board Succession
The succession plan detailed in last year's report is drawing to a successful
conclusion. We were pleased to welcome Dr Amanda Thompsell to the Board on 1
February 2022 and, subsequent to the year end, Richard Cotton has also been
appointed. The appointment of Michael Brodtman, expected early in the next
calendar year, will complete the planned changes to the Board.
Having previously announced my intention to retire following the conclusion of
the forthcoming AGM, along with Gordon Coull, this will be my last statement
to shareholders. However, in handing over the chair to Alison Fyfe, ably
supported by an experienced and skilled Board, I know I am leaving the Company
in good hands.
Annual General Meeting ('AGM')
The AGM will be held on 6 December 2022. Shareholders are encouraged to make
use of the proxy form provided in order to lodge their votes and to raise any
questions or comments they may have in advance of the AGM through the Company
Secretary.
6. Looking ahead
Our immediate focus is on moving as quickly as possible towards full rent
collection, for which initiatives are in progress and remain under our
control. We have a solid track record of achieving change in the portfolio
when required.
We continually review our investment policy and business model and believe
both to be sound. We expect our ESG-compliant modern assets to provide
sustainable long-term returns, and in volatile times such as these we are
thankful to have remained prudent in the rents we have set, capital prices
paid and in our borrowing levels and terms.
Our portfolio consists of premium quality assets in a non-cyclical investment
class where underlying trading is improving as COVID-19 recedes.
The interest rate environment has a significant impact on our path to full
dividend cover. Drawing available debt to fund portfolio growth is not
currently accretive to earnings, having a negative impact to cover of c.10%
relative to what our planning showed a few short weeks ago. We have a stable
platform providing a clear path to cover exceeding 90% and will closely watch
interest rates with a view to acting quickly on our borrowings should market
conditions improve.
Given the current environment, we believe it is prudent to maintain our
dividend level, though will be mindful of any further adverse impact that the
many matters outwith our control may have.
The Board remains confident in the Group's prospects and I would personally
like to thank shareholders for their support. We collectively are making a
positive social impact through our committed backing of the care sector.
Malcolm Naish, Chairman
11 October 2022
Investment Manager's Report
Portfolio performance and UK care home investment market
The portfolio has outperformed the MSCI UK Annual Healthcare Property Index
once again, in respect of the calendar year to 31 December 2021, with a
portfolio total return of 10.5% relative to the Index's 9.6%. The portfolio's
annualised total return since launch now stands at 11.1% while the portfolio's
last five-year period has an annualised total return of 10.5% relative to 8.9%
for the Index.
Rent collection for the year was 95%, and has measured 95% since March 2020 as
the COVID-19 pandemic emerged. Our portfolio has shown robust performance in
the face of the depressed occupancies and other trading challenges our tenants
have encountered. We have seen some underperforming assets, typically
reflecting our exposure to recently opened or new-build homes and growing
tenants with a number of new homes. Start-up losses during the pandemic have
run beyond the ordinary "fill-up" period when a home is building occupancy and
moving to mature trading, straining financial reserves at our tenants. We
reaffirm our commitment to supporting the sector's modernisation and will
continue to hold a proportion of such assets in the portfolio recognising
their investment case to provide long-term sustainable value.
Modern and ESG-compliant UK care homes as an investment asset class have
continued to provide attractive returns with low volatility. The risk premia
relative to other "safe" asset classes, GP surgery funds whose rents are
effectively 100% government backed, and the 15-year gilt rate, have remained
steady until recent months where the "risk-free" gilt rate has increased
sharply. We have not yet observed valuation/yield softening in the section of
the care home real estate market in which we invest and note the more
significant yield impact on poorer quality care home real estate following the
2007-08 global financial crisis. The tailwind of stronger demand for modern
stock may moderate any valuation response for our portfolio. This would be
consistent with the low volatility in returns from the asset class experienced
historically.
The portfolio's EPRA topped-up Net Initial Yield ('NIY') has been stable, at
5.82% compared with 5.83% at the start of the year, which reflects well the
trends in market activity and pricing we have seen and are seeing.
Following a subdued 2020 and early 2021, market activity accelerated once more
with a weight of capital and a number of participants eager to invest in high
quality care home real estate. Participation from the larger European
healthcare investors continues, as they seek higher yields than their home
markets can offer, and their pursuit of the fit-for-purpose home types we have
been advocating has accelerated as they complement their existing older
portfolios.
H1 22 saw equity raises from UK and European healthcare funds, with proceeds
being allocated to investment in care homes, primarily in the premium part of
the sector in which we invest. Significant capital has also been made
available to private funds which invest in the same. We welcome the demand and
interest in the sector though would note we have declined to participate in a
number of acquisition processes recently where we have not been willing to
accept rental levels offered by vendors.
We are seeing a number of development opportunities coming to the market with
enhanced environmental credentials such as BREEAM "Excellent" ratings. It is
pleasing that the design aspects we have long advocated are now generally
accepted in new homes, and developers and designers are now taking this to the
next level of excellence. We expect such opportunities to command premium
pricing and, as always, we will carefully assess the sustainability of rental
levels in their local markets in our considerations.
We comment on some of the "hot topic" issues facing the sector below. An
additional trend which could have a real impact in a short timescale is the
potential for regulatory/legislative change in relation to environmental and
social standards in respect of care home real estate which currently falls
short. The most relevant current example is the authorities in Wales
considering mandating Net-Zero/ low-carbon standards for real estate where
residents receive public care funding. Our immediate impact will be on
ensuring any new build homes we acquire will meet these, or anticipated
future, requirements as our typical home already does. However, the wider
challenge for the sector and other investors will be on the many (71%) not
fit-for-purpose homes which are being used to deliver care to the majority of
residents in the UK.
Health & social care update
We note below a number of areas which are prominent in our minds and those of
our tenants:
Path to occupancy recovery
Occupancy levels in our homes are showing a steady and consistent improvement
following the decline from the widespread embargoes during H1 22 due to the
Omicron variant and its rate of spread. COVID-19 is now seen as a frustration
in homes, rather than the trauma it has been.
Helping occupancy:
· Visiting is "friendlier", with mask and testing requirements
relaxed
· Latent demand exists from delayed admissions (300k potential
residents awaiting social worker assessment)
· Vaccinations protecting residents, and boosters expected to
become an annual/seasonal ritual
· Homes have improved their online presence as more decisions are
made using this medium
· Embargoes, if arising, are sensibly restricted to floors/wings
Public funding of care
Consistency and clarity is still awaited, which is frustrating for operators.
The National Insurance increase to direct funds to health and social care,
swallowed largely by the NHS, has since been reversed.
Policies designed to remove the "lottery of care funding" are in some doubt
also. The "Care cap" is a long awaited and complex plan to track an
individual's care costs across their lifetime, capping when required to
protect from the "catastrophic costs" described in the 2010/11 Dilnot Report.
The testing and assessment of Local Authority 'Pilot' areas has already been
pushed back, with the reasonable conclusion being that introduction of the
policy, if adopted, would also be delayed.
The adequacy of both manpower to administer the policy, and the funding
requirement, have been raised as concerns, resulting in some legitimately
founded anticipation that the whole policy may find "the long grass" as the
Government prioritises other workstreams.
Staffing pressures
Following admissions, staffing remains perhaps the biggest day-today headache,
though solutions are being found. With access to EU staff restricted, many
operators are taking advantage of Government Sponsorship Licences to bring
nursing and senior care staff from countries such as the Philippines and
India, where language and training are reasonably aligned with the UK.
We have seen some encouraging internal solutions from our tenants also, with
more investment in training and development, as well as recognition through
enhanced policies which reward loyalty and contribution. Ensuring adequate
staffing allows operators to grow occupancy.
Inflationary pressures
"Household costs" have been a relatively small part of the typical care home's
expenditure, with staffing consuming the lion's share of turnover, however
inflation will erode margins unless fees can keep pace. With recent reports of
10-20% rises in private fees to reflect staff / household inflationary
pressures there is some indication that for our care homes this will be
achievable, although public funding is potentially less likely to keep pace
with this than private feepayers are. Feedback from tenants suggests that an
excess in energy cost inflation would be passed onto residents through private
fee increases.
Target Fund Managers Limited
11 October 2022
Our Strategy
Our purpose to improve the standard of living for older people in the UK is
achieved through our four strategic pillars.
Strategic pillar #1
To grow a robust portfolio
We are creating a portfolio of scale with a clear focus on the quality of real
estate and diversification of income sources to provide a stable long-term
platform for returns.
Significant portfolio growth
The Group's portfolio has historically been assembled in small increments,
both by necessity, due to the relatively low number of assets which meet our
investment quality criteria, and deliberately, as we have maintained a bias
towards smaller, regional operators. In the current year a portfolio of homes
was marketed by an institutional investor whose vehicle was at the end of its
life. The Manager was familiar with those assets, having advised that vehicle
on acquisition and management of many of the homes. The Group was ultimately
successful in the acquisition of a diversified portfolio of 18 modern homes
for c.£160 million, including costs, in December 2021 (a number of weeks
later than hoped due to COVID-19 accessibility restrictions) and support from
shareholders was secured via new equity issuance. Overall, £223 million
(including costs) has been committed to 24 new assets during the year, growing
the portfolio to 101, comprising 97 operational care homes and four
development sites.
Three existing development sites reached practical completion, adding 206
brand new beds to their local markets and bringing total new homes supported
by the Group's development commitments to 11 (749 beds), with four currently
under construction which will provide a further 269 new beds.
Valuation Growth Analysis £'m
Valuation at 30 June 2021 684.8
Acquisitions and developments 199.4
Rent reviews and yield shifts 27.4
Valuation at 30 June 2022 911.6
Investment discipline maintained
In addition to the physical real estate, our investment appraisals remain
focussed on (i) the local market and trading prospects for a home and (ii)
sustainable rental levels for a home in that context. This approach has not
changed and will continue to guide our assessment of long-term value during
the competitive conditions we currently see. Key metrics for acquisitions
completed during the year were consistent with portfolio metrics at the start
of the year, see table below.
EPRA topped-up NIY at 30 June 2021 5.83%
Blended NIY on acquisitions during the year 5.64%
EPRA topped-up NIY at 30 June 2022 5.82%
Portfolio Differentiators
We know the standard of UK care home real estate. The KPIs below benchmark
well against peer group portfolios and provide assurance as to long-term
sustainable returns.
Ensuite WC rooms 100%
Ensuite wet-rooms with shower 96%
Purpose-Built 2010s+ 79%
Purpose-Built 00's 18%
Purpose-Built 90's 3%
Purpose-Built pre-90's 0%
Converted property 0%
Average sqm per bedroom 47
EPC B or better 92%
EPC C 8%
EPC D or worse 0%
Average value per bed £132k
Value per built sqm £2,871
Average rent per bed per annum £8.3k
Rent per built sqm £175
The continued tightening of NIYs, relative to the increase in gilt yields (the
traditional "risk-free" benchmark), of course may be suggestive that the top
of the market may have been reached for this cycle. Whilst the weight of
capital coveting fit-for-purpose assets counters that, the drop in spread/
yield gap between rental yields and cost of funding goes some way to
discouraging new investment from us at this time.
The Manager's ESG House Standard was developed and adopted during the year,
and will be used as a tool to ensure compliant assets are added to the
portfolio.
Diversification
We continue to diversify the portfolio, most importantly increasing the number
of tenants and mitigating risk from over-concentration on a small number of
tenant groups. The Group now has 34 tenants, having grown from 28, and will
increase to 36 following practical completion of the Group's development
assets.
The largest tenant is unchanged from 2021, being Ideal Carehomes who operate
18 of the Group's homes and account for 15.7% of contractual rent as at 30
June 2022.
Underlying resident fees are balanced between private and public sources, with
a deliberate bias towards the former. Census data from our tenants shows
private sources contribute to 67% of fee revenue, with 49% being fully private
and 18% from "top-up" payments where residents pay over and above that which
the Local Authority funds for them. 33% of residents are wholly publicly
funded.
Geographically, Yorkshire & the Humber remains the largest region by asset
value, at 24%.
Strategic pillar #2
Sector specialist portfolio management that values relationships
The Investment Manager has deep experience within the sector and uses that
specialism to engage effectively with our tenants, understanding the
complexities inherent in the sector.
Positive returns
The portfolio total return has again outperformed the MSCI UK Annual
Healthcare Property Index, with a total return for the calendar year to 31
December 2021 of 10.5 per cent relative to the Index's 9.6 per cent. This
outperformance has occurred consistently since launch in 2013.
Portfolio total return (%) MSCI UK Annual Healthcare Property Index total return (%)
Year to 31 December 2015 14.5 10.3
Year to 31 December 2016 10.6 7.9
Year to 31 December 2017 11.9 11.7
Year to 31 December 2018 12.7 9.1
Year to 31 December 2019 9.2 7.4
Year to 31 December 2020 8.2 6.8
Year to 31 December 2021 10.5 9.6
NAV total return also remains stable and consistent, at 8.1 per cent for the
year to June 2022, and with an annualised 7.8 per cent since launch.
Underpinning these returns figures are quality assets with attractive
long-term leases. Like-for-like rental growth of 4.6 per cent has been
achieved with 3.8 per cent of this from annual rent reviews and the remainder
from re-tenanting initiatives. Like-for-like valuation growth was 4.2 per cent
driven by rent reviews, the demand for the asset class and the portfolio's
stable trading performance.
Overall, the Group's portfolio value has increased by 33.1 per cent and the
contractual rent roll by 34.6 per cent.
Resiliency through pandemic; trading outlook much improved
Rent collection measured 95% for the year, including amounts collected
subsequent to the year-end, with a 95% collection record since the start of
the pandemic in March 2020. This stable performance comes despite the
significant operational challenges our tenants have faced through the
pandemic, demonstrating the sustainable nature of our underlying rental
income.
Resident occupancies are recovering following the Omicron wave in the first
half of 2022 with steady growth since March of this year. Our tenants continue
to report strong enquiry levels and are now consistently converting these to
admissions as restrictions have eased.
Rent cover at the portfolio level has been stable and should respond with the
recovery in occupancy levels. We anticipate inflationary cost increases to
largely be passed on to residents through fee increases, allowing rent covers
to improve with occupancy.
The Manager has been supporting tenants, closely monitoring home performance
and actively initiating changes where required. As well as protecting
long-term value for shareholders, the Manager strives to ensure continuity of
care for residents as a social priority, and is pleased to note that all
portfolio initiatives have seen care provided throughout. Completed and
ongoing initiatives are:
· Group of homes in Northern Ireland identified as likely to
benefit from new management. Re-tenanting initiated and completed from large
national to a smaller operator focused on the region.
· Alternative tenants were lined-up for seven homes where the
incumbent tenant faced financial challenges. Patient and disciplined response
allowed full recovery of outstanding rent and uninterrupted care provision for
residents.
· Solutions proposed and agreed to re-tenant two of five homes
allowing focus on the incumbent tenant's care geography and services and
reducing liquidity strain.
Tenant engagement and satisfaction
We remain committed to our role as an effective, supportive and engaged
landlord. We once again invited our tenants to provide formal feedback via a
survey which, alongside learnings from the many points of contact we have, is
used to inform our approach. The survey returned positive quantitative
results, and more usefully some qualitative feedback on how we may consider
altering our interactions with tenants to recognise that no two tenants are
the same.
In summary:
· 9/10 of responders agreed that working with Target was a positive
experience (2021: 10/10)
· 9/10 of responders agreed that Target provides real estate that
is a great working environment and helps deliver dignified care to residents
(2021: 8/10)
· 10/10 of responders agreed that Target participates in sector
events and appropriately shares knowledge
Resident satisfaction
Regulator (CQC in England) ratings are informative but limited. The Manager
also monitors reviews on "Carehome.co.uk", a "Tripadvisor" style website for
care homes, as a useful source of real-time feedback which is more focussed on
the resident experience, and that of their loved ones.
The portfolio's current average rating is 9.3/10 with sufficient review volume
and frequency to be considered a valuable data point for the quality of
service experienced by residents.
Strategic pillar #3
Regular dividends for shareholders
Total dividends of 6.76 pence per share were declared and paid in respect of
the year to 30 June 2022, an increase of 0.6 per cent on 2021, and reflecting
a yield of 6.2 per cent based on the 30 June 2022 closing share price of 108.4
pence.
Earnings & dividend cover
Adjusted EPRA earnings per share is the key performance metric used in
assessing recurring profitability levels. This reduced to 5.05 pence per share
relative to dividends of 6.76 pence per share. Dividend cover on adjusted EPRA
earnings was 72% for the year. Applying the more widely used EPRA earnings
measure, dividend cover was 95%.
The three main drivers of reduced earnings level were:
· Portfolio acquisition and equity issuance proceeds. Earnings
dilution from cash drag occurred during the three-month acquisition process
following the Group's £125 million associated equity issuance in September
2021. The 18 care home assets began generating rental income immediately upon
acquisition on 17 December 2021.
· Prudent rental income provisioning. As rent collection declined
during 2022 following the Omicron wave of the pandemic, the Group prudently
provided for an increased level of doubtful debts. Initiatives to successfully
manage these positions have seen £1.1 million subsequently collected which
has not been adjusted for in the year's results. The Manager is progressing
further initiatives to move towards full rent collection across the portfolio.
· Uninvested capital. At 30 June 2022 the Group had cash and
undrawn debt awaiting investment of £105 million. £54 million of this is
committed to developments or portfolio improvements and is awaiting drawdown,
with £51 million remaining available. Had the spread level between investment
yields and debt costs which existed through the Group's lifetime persisted,
conversion of the Group's identified pipeline assets would have seen the Group
fully geared and invested and generating earnings fully covering dividends.
However, the significant reduction in that spread (from c.250 bps to nil)
impacts the Group's ability to invest available capital in immediately
earnings-accretive assets at the current time. The Group is carefully
assessing pipeline assets on a case-by-case basis with respect to wider market
conditions, and is currently minded to retain a conservative buffer of
uninvested capital as a defence against further market deterioration.
The combined effect of the above is that the long-planned progression to full
investment at targeted gearing levels will be delayed, with the knock-on
effect to also delay the Group's path to full dividend cover.
Total Returns
The attractive investment characteristics of the asset class has seen
continued yield tightening and valuation increases. Whilst limiting
earnings-accretive new investment, this has been a tailwind for valuation
growth and returns from the existing portfolio.
EPRA NTA has increased 1.7% to 112.3 pence per share over the year. NAV total
return for the year was 8.1%, with the portfolio's EPRA topped-up net initial
yield ending the year stable at 5.82% from 5.83%.
Debt funding: More fixed interest rates and longer terms
The Group entered new long-term, fixed-rate facilities of £100 million with
an existing lender during the year, increasing total debt available to £320
million.
This increased the weighted average term to maturity of the Group's facilities
to 6.9 years at 30 June 2022 (2021: 4.8 years) and increased the quantum of
the Group's drawn debt at fixed interest rates, being £180 million at 30 June
2022 (2021: £80 million).
The Group's weighted average cost (interest-only) of its drawn debt was 3.1%,
reflecting the low-rate environment when these fixes were struck. In December
2021 when the most recent 15-year debt transaction completed, the relevant
gilt reference was c.1% compared to c.4.5% today.
The Group retains flexibility on debt levels, with £140 million of revolving
credit facilities which can be drawn/repaid in-line with capital requirements.
The Group is currently reviewing the suitability of these facilities given the
interest rate environment and outlook and anticipates increasing fixed-rate or
hedged debt, subject to market conditions.
2022 2021
£m Movement £m
Rental income (excluding guaranteed uplifts) 49.8 +21% 41.2
Administrative expenses (including management fee) (13.7) +23% (11.1)
Net financing costs (6.6) +38% (4.8)
Interest from development funding 0.8 +33% 0.6
Adjusted EPRA earnings 30.2 +16% 26.0
Adjusted EPRA EPS (pence) 5.05 -7.5% 5.46
EPRA EPS (pence) 6.62 -7.5% 7.16
Adjusted EPRA cost ratio 27.1% +50bps 26.6%
EPRA cost ratio 21.5% -80bps 22.3%
Ongoing charges figure ('OCF') 1.51% -4bps 1.55%
EPRA NTA per share (pence)
EPRA NTA per share has increased to 112.3 pence, primarily driven by an
increase in property valuations.
Pence per share
EPRA NTA per share as at 30 June 2021 110.4
Acquisition costs (1.5)
Property revaluations 4.7
Adjusted EPRA earnings 4.8
Dividends paid (6.5)
Equity issuance 0.4
EPRA NTA per share as at 30 June 2022 112.3
Strategic pillar #4
To achieve our social purpose
ESG Principles What this means for Target What we did in 2022 What we'll do in 2023 and beyond
1. Responsible investment Leading in social impact for care home real estate Social Social
As an investor we understand that our actions have influence. We use our - We understand the importance of maintaining a portfolio that supports the - 24 homes acquired, 1,632 resident spaces - Continue to advocate for quality real estate
platform to lead by example through embedding appropriate ESG considerations needs of tenants and residents, which in turn contributes to the long-term
into our decision-making. sustainability of social care infrastructure in the UK. - Development commitments for 269 new beds as at year-end - Continue to fund new homes, modernising the sector's real estate
- 96% wet-rooms
- Homes provide space of 47m(2) per resident
Energy and climate change: Responsible acquisitions and portfolio management - All real estate has generous social and useable outdoor space
- Energy efficiency is a specific consideration in our investment analysis for
acquisitions, developments and portfolio management decisions.
Energy Energy
- In our role as a responsible landlord we are committed to helping our
tenants identify and implement energy reduction and efficiency measures. - 100% A-C EPC ratings - Assess BREEAM recommendations and initiate
- Manager created and adopted "house standard" to formally incorporate minimum improvements where aligned with long-term value.
and aspirational ESG standards into investment appraisal.
- Increase proportion of leases with "green" reporting provisions to gather
- Representative sample of BREEAM-in use ratings substantially Excellent and more data on energy consumption patterns from our tenants for use in
Very Good. decision-making
- Increased data collection from our tenants on energy usage equating to 40% - Manager to use toolkit and resources to progress its net zero journey
of the portfolio
- Target Fund Managers supports the Edinburgh Science Climate and
Sustainability programme being a founding pledger of its Mission Net Zero
project.
2. Responsible partnerships Tenant selection, engagement & collaboration Tenants Tenants
We engage with all our stakeholders to drive the creation of economic, social - As a responsible, proactive landlord we prioritise good, open relationships - 9/10 "positive experience" satisfaction score - Focus on supporting our tenants with COVID-19 recovery, considering further
and environmental value around our buildings and in wider society. with our tenants.
real estate design enhancements in response
- We make sure that we solicit, assess and respond to feedback on our
- Invest in fully understanding and responding feedback from tenant survey
portfolio and our behaviours to ensure carers are respected and residents are
cared for with dignity.
- We select tenants who share our care ethos and can deliver operationally.
Communities and society
- We fully appreciate the vital role that care homes play in every community,
Communities
and take decisions in the best interest of maintaining continuity of care for
residents.
- Complete portfolio initiatives identified which will benefit long-term care
continuity
- Advocate for and support the sector.
- Continue to facilitate tenant interaction and learning sessions as
COVID-19 restrictions ease
Communities
- Re-tenanted homes with new tenants committed to continuing care provision
where required
- Worked constructively with tenants in rental arrears to deliver positive
solutions to maintain continuity of care
3. Responsible business Governance & transparency Governance & transparency Governance & transparency
We will treat all stakeholders with respect and deal fairly in a manner - We uphold the highest ethical standards and adhere to best practice in every - Undertook director recruitment process resulting in Vince Niblett and Amanda - Complete Board succession plan by appointing two new Directors
consistent with how we would expect to be treated ourselves. aspect of our business. Thompsell being appointed during the year
- To prepare and publish enhanced reporting suite, inclusive of:
- Our governance and behaviour treat transparency for all of our stakeholders - Investment Manager successfully retained position as a signatory to the FRC
as core. Stewardship Code · GRESB reporting following data collection process
- £13.2 million taxation directly paid to the UK government by way of VAT and · Comprehensive sustainability reporting, inclusive of EPRA
stamp duty land taxes. Dividends paid of £40.0 million are assessed for tax measures
People, culture and wellbeing upon reaching shareholders
- We encourage employment practices across our key service providers that
reflect our core values, with a focus on wellbeing, fairness and opportunity
for all.
Promoting the success of Target Healthcare REIT plc
The Board considers that it has made decisions during the year which will
promote the success of the Group for the benefit of its members as a whole.
This section, which serves as the Company's section 172 statement, explains
how the Directors have had regard to the matters set out in section 172 (1)
(a)-(f) of the Companies Act 2006 for the financial year to 30 June 2022,
taking into account the likely long-term consequences of decisions and the
need to foster relationships with all stakeholders in accordance with the AIC
Code.
a) The likely consequences of any decision in the long term Our investment approach is long-term with an average lease length of 27.2
years. We believe this is the most responsible approach to provide stability
and sustainability to tenants and key stakeholders. Therefore, most decisions
require consideration of long-term consequences, from determining a
sustainable rent level and the right tenant partner for each investment, to
considering the impact of debt and key contracts with service providers on the
recurring earnings which support dividends to shareholders.
b) The interests of the Company's employees The Company is externally managed and therefore has no employees.
c) The need to foster the Company's business relationships with As a REIT with no employees, the Board works in close partnership with the
Manager, which runs the Group's operations and portfolio within parameters set
suppliers, customers and others by the Board and subject to appropriate oversight. The Manager has deep
relationships with tenants, the wider care home sector, and many of the
Group's other suppliers. These are set out in more detail in the following
table.
d) The impact of the Company's operations on the community and The Board is confident the Group's approach to investing in a sensitive sector
is responsible with regard to social and environmental impact. This is set out
the environment in more detail in the community and the environment section of the following
table.
e) The desirability of the Company maintaining a reputation for high standards The Board requires high standards of itself, service providers and
of business conduct stakeholders. The Group's purpose and investment objectives dictate that these
standards are met in order to retain credibility. The ethos and tone is set by
the Board and the Manager.
f) The need to act fairly as between members of the Company The Board encourages an active dialogue with shareholders to ensure effective
communication, either directly or via its broker and/or Manager. The interests
of all shareholders are considered when issuing new shares.
( )
The significant transactions where the interests of stakeholders were actively
considered by the Board during the year were:
Dividends paid
The Board recognised the importance of dividends to its shareholders and,
after careful analysis of the Group's forecast cash position and expected
rental collection, concluded that continuing dividend payments at the level
announced in the Annual Report 2021 remained in the interests of all
stakeholders.
Ongoing investment and asset management activity
The Group acquired a significant portfolio in December 2021, consisting of 18
operational care homes of which the Investment Manager had unparalleled
knowledge. This acquisition expanded the Group's portfolio of high-quality
real estate, the vast majority of which benefitted from full wet-rooms,
operated by eight tenants, three of which were new to the Group.
The re-tenanting of four homes in Northern Ireland was completed in the year,
resulting in a move from a large, national operator to a smaller operator more
focussed in that local market, with the Group receiving a surrender premium
from the outgoing tenant. Stakeholders benefitted from (i) a positive net
financial effect, following agreed capex which will improve each of the homes;
and (ii) the addition of an established regional operator.
Capital financing
The Company issued £125 million of ordinary shares, at a premium to NAV, in
September 2021. The equity raised was used to temporarily repay some of the
Group's loan facilities whilst it awaited investment before being utilised
primarily to finance the portfolio acquisition in December 2021.
The Group also increased its loan facilities with Phoenix Group, increasing
the existing £50 million 10-year facility to an aggregate of £150 million
with a weighted term to maturity of 12 years, on terms that are expected to be
beneficial to significant stakeholders over the duration of the facilities.
Director appointments
During the year, as part of the Board succession plan, Mr Niblett and Dr
Thompsell were appointed as Directors. Mr Niblett's significant financial
experience and expertise and Dr Thompsell's knowledge of healthcare and care
homes is expected to benefit all stakeholders over the period of their
respective appointments.
Subsequent to the year end, the Board have appointed one Director and have
identified another who is expected to be appointed early in the following
calendar year.
Stakeholders
The Company is a REIT and has no executive directors or employees and is
governed by the Board of Directors. Its main stakeholders are shareholders,
tenants and their underlying residents, debt providers, the Investment
Manager, other service providers and the community and the environment. The
Board considers the long-term consequences of its decisions on its
stakeholders to ensure the long-term sustainability of the Company.
Shareholders Shareholders are key stakeholders and the Board proactively seeks the views of
its shareholders and places great importance on communication with them.
The Board reviews the detail of significant shareholders and recent movements
at each Board Meeting and receives regular reports from the Investment Manager
and Broker on the views of shareholders, and prospective shareholders, as well
as updates on general market trends and expectations. The Chairman and other
Directors make themselves available to meet shareholders when required to
discuss the Group's business and address shareholder queries. Following
disruption during the pandemic, the Directors were pleased to be able to
return to holding the AGM in person, whilst also retaining the ability for any
questions to be raised with the Board by email in advance of the meeting.
The Company and Investment Manager also provide regular updates to
shareholders and the market through the Annual Report, Interim Report, regular
RNS announcements (including the quarterly NAV), quarterly investor reports
and the Company's website. The Investment Manager intends to hold a results
presentation on the day of publication of the Annual Report and will also meet
with analysts and members of the financial press.
Tenants and underlying residents The Investment Manager liaises closely with tenants to understand their needs,
and those of their underlying residents, through visits to properties and
regular communication with both care home personnel and senior management of
the tenant operators. The effectiveness of this engagement is assessed through
an annual survey.
The Investment Manager also receives, and analyses, management information
provided by each tenant at least quarterly and regularly monitors the CQC, or
equivalent, rating for each home and any online reviews, such as
carehome.co.uk. Any significant matters are discussed with the tenant and
included within the Board reporting.
Debt providers The Group has term loan and revolving credit facilities with the Royal Bank of
Scotland plc, HSBC Bank plc and Phoenix Group (see note 8 to the extract from
the Consolidated Financial Statements for more information). The Company
maintains a positive working relationship with each of its lenders and
provides regular updates, at least quarterly, on portfolio activity and
compliance with its loan covenants in relation to each loan facility.
Investment Manager The Investment Manager has responsibility for the day-to-day management of the
Group pursuant to the Investment Management Agreement. The Board, and its
committees, are in regular communication with the Investment Manager and
receive formal presentations at every Board Meeting to aid its oversight of
the Group's activities and the formulation of its ongoing strategy.
The Board, through the Management Engagement Committee, formally reviews the
performance of the Investment Manager, the terms of its appointment and the
quality of the other services provided at least annually. Further details on
this process and the conclusions reached in relation to the year ended 30 June
2022 are contained in the Annual Report.
Other service providers The Board, through the Management Engagement Committee, formally reviews the
performance of each of its significant service providers at least annually.
The reviews will include the Company's legal advisers, brokers, tax advisers,
auditors, depositary, valuers, company secretary, insurance broker, surveyors
and registrar. The purpose of the review is to ensure that the quality of the
service provided remains of the standard expected by the Board and that
overall costs and other contractual arrangements remain in the interests of
the Group and other significant stakeholders. The Investment Manager also
reports regularly to the Board on these relationships.
The significant other service providers, particularly the Group's legal
advisers and brokers, are invited to attend Board Meetings and report directly
to the Directors where appropriate.
Community and the environment The Group's principal non-financial objective is to generate a positive social
impact for the end-users of its real estate. Investment decisions are made
based on the fundamental premise that the real estate is suitable for its
residents, the staff who care for them, and their friends, families and local
communities, both on original acquisition and for the long-term.
Environmental considerations are an integral part of the acquisition and
portfolio management process, given the strategy of only acquiring modern
buildings which benchmark well from an energy efficiency aspect. The Group's
ESG strategy is currently prioritising the gathering of useful
energy/consumption data on our portfolio which will be used to align the
portfolio appropriately with benchmarks over the medium and longer term.
Principal and emerging risks and uncertainties
Risks Description of risk and factors Mitigation
affecting risk rating
Poor performance of assets There is a risk that a tenant's business could become unsustainable if it The Investment Manager focuses on tenant diversification across the portfolio
fails to trade successfully. This could lead to a loss of income for the Group and, considering the local market dynamics for each home, focuses on ensuring
Risk rating & change: High (unchanged) and an adverse impact on the Group's results and shareholder returns. The that rents are set at sustainable levels. Rent deposits or other guarantees
strategy of investing in new purpose-built care homes could lead to additional are sought, where appropriate, to provide additional security for the Group.
fill-up risk and there may be a limited amount of time that small regional The Investment Manager has ongoing engagement with the Group's tenants to
operators can fund start-up losses. proactively assist and monitor performance.
Adverse interest Adverse interest rate fluctuations will increase the cost of the Group's The Group has a conservative gearing strategy, although net gearing is
variable rate debt facilities; limit borrowing capacity; adversely impact anticipated to increase as the Group nears full investment. Loan covenants and
rate fluctuations property valuations; and be detrimental to the Group's overall returns. liquidity levels are closely monitored for compliance and headroom. The Group
has fixed interest costs on £180 million of borrowings as at 30 June 2022.
/ debt covenant
compliance
Risk rating & change:
High (increased)
High inflationary An increase in the UK inflation rate to a level above the rent review caps in The Group's portfolio includes inflation-linked leases, with primarily annual
place across the portfolio's long-term leases may result in a real term upwards-only rent
environment decrease in the Group's income and be detrimental to its performance. In
addition, cost increases for tenants, particularly in relation to staffing and reviews within a cap and collar. The Manager is monitoring tenant performance,
(emerging) utilities, may erode their profitability and rent cover unless their revenue including whether average weekly fees paid by the underlying diversified mix
increases accordingly. of publicly funded and private-fee paying residents are growing in line with
Risk rating & change: inflation.
High (increased)
NEW
Development The high inflationary environment, particularly for building materials and The Group is not significantly exposed to development risk, with forward
staff, combined with supply chain difficulties, may result in an increased funded acquisitions being developed under fixed price contracts, with the
costs (emerging) risk that the developers of contracted developments do not fulfil their Investment Manager having considered both the financial strength of the
obligations and/ or may increase the cost of new development opportunities. developer and the ability of the developer's profit to absorb any cost
Risk rating & change: overruns.
Medium (increased)
NEW
Pandemic As a result of the COVID-19 pandemic, there is a risk that overall demand for The Group is committed to investing in high quality real estate with high
care home beds is reduced causing asset performance to fall below quality operators. These assets are expected to experience
reduces expectations. While demographic shifts and the realities of needs-based demand
remain intact, occupancy across the sector remains below pre-pandemic levels demand ahead of the sector average while in the wider market a large number of
demand for and the emergence of new variants of COVID-19 remains a possibility. care homes without fit-for-purpose facilities are expected to close. A trend
of improving occupancy rates across the portfolio has been noted in recent
care home beds times.
Risk rating & change:
Medium (decreased)
ESG and climate A change in climate, such as an increased risk of local or coastal flooding, The Group is committed to investing in high quality real estate with high
or a change in tenant/ investor demands or regulatory requirements for quality operators. The portfolio's EPC and BREEAM in-use ratings suggest the
change properties which meet certain environmental criteria, such as integral heat portfolio is well positioned to meet future requirements/ expectations. The
pumps, may result in a fall in demand for the Group's properties, reducing Investment Manager has introduced a house standard to ensure ESG factors are
Risk rating & change: rental income and/or property valuations. fully considered during the acquisition process.
Medium (increased)
NEW
Reduced The combined impacts of the pandemic and increased employment and wage The Group is committed to investing in high quality real estate with high
inflation in competing sectors has reduced the availability of key staff in quality operators and these should be better placed to attract staff. The
availability of the care sector which may result in a reduction in the quality of care for Investment Manager continues to engage with tenants in the portfolio and to
underlying residents, restrict tenants from being able to admit residents or share examples of best practice in recruitment and retention of staff.
carers, nurses result in wage inflation.
and other care
home staff
Risk rating & change:
Medium (unchanged)
Breach A breach of REIT regulations, primarily in relation to making the necessary The Group's activities, including the level of distributions, are monitored to
level of distributions, may result in loss of tax advantages derived from the ensure all conditions are adhered to. The REIT rules are considered during
of REIT Group's REIT status. The Group remains fully compliant with the REIT investment appraisal and transactions structured to ensure conditions are met.
regulations and is fully domiciled in the UK.
regulations
Risk rating & change:
Medium (unchanged)
Changes in Changes in government policies, including those affecting local authority Government policy is monitored by the Group to increase the ability to
funding of care, may render the Group's strategy inappropriate. Secure income anticipate changes. The Group's tenants also typically have a multiplicity of
government and property valuations will be at risk if tenant finances suffer from policy income sources, with their business models not wholly dependent on government
changes. funding.
policies
Risk rating & change:
Medium (unchanged)
Availability Without access to equity or debt capital, the Group may be unable to grow The Group maintains regular communication with investors and existing debt
through acquisition of attractive investment opportunities. This is likely to providers, and, with the assistance of its broker and sponsor, regularly
of capital be driven by both investor demand and lender appetite which will reflect Group monitors the Group's capital requirements and investment pipeline alongside
performance, competitor performance, general market conditions and the opportunities to raise both equity and debt. During the year, the Group has
Risk rating & change: relative attractiveness of investment in UK healthcare property. extended the weighted average term and quantum of its debt facilities.
Medium (unchanged)
Reliance on The Group is externally managed and, as such, relies on a number of service The Investment Manager, along with all other service providers, is subject to
providers. Poor quality service from providers such as the Investment Manager, regular performance appraisal by the Board. The Manager has retained key
third party company secretary, broker, legal advisers or depositary could have potentially personnel since the Group's IPO and has successfully hired further skilled
negative impacts on the Group's investment performance, legal obligations, individuals and invested in its systems.
service compliance or shareholder relations.
providers
Risk rating & change:
Medium (unchanged)
Failure to Failing to differentiate strategy and qualities from competitors is a The stakeholder communications strategy of the Group has always been to
significant risk for the business, with increased competition in the highlight the quality of the real estate in which the Group invests. The
differentiate healthcare real estate sector. The failure to communicate these effectively to regular production of investor relations materials (annual and interim
stakeholders could have a negative impact on the Company's share price, future reports, investor presentations and quarterly factsheets) along with direct
qualities from demand for equity raises and/or debt finance and wider reputational damage. engagement with investors helps to mitigate this risk.
competitors or
poor investment
performance
Risk rating & change:
Medium (unchanged)
The Company's risk matrix is reviewed regularly by the Board. Emerging risks
are identified though regular discussion at Board meetings of matters relevant
to the Company and the sectors in which it operates; including matters that
may impact on the underlying tenant operators. In addition, the Board holds an
annual two-day strategy meeting which includes presentations from relevant
external parties to ensure that the Board are fully briefed on relevant
matters. At the strategy meeting, principal and emerging risks are discussed
and reviewed to ensure that they have all been appropriately identified and,
where necessary, addressed.
Malcolm Naish
Chairman
11 October 2022
Viability Statement
The AIC Code requires the Board to assess the Group's prospects, including a
robust assessment of the emerging and principal risks facing the Group
including those that would threaten its business model, future performance,
solvency or liquidity. This assessment is undertaken with the aim of stating
that the Directors have a reasonable expectation that the Group will continue
in operation and be able to meet its liabilities as they fall due over the
period of their assessment.
The Board has conducted this review over a five-year time horizon, which is a
period thought to be appropriate for a company investing in UK care homes with
a long-term investment outlook. At each Board Meeting, the Directors consider
the key outputs from a detailed financial model covering a similar five year
rolling period, as this is considered the maximum timescale over which the
performance of the Group can be forecast with a reasonable degree of accuracy.
The Group has a property portfolio at 30 June 2022 which has long leases and a
weighted average unexpired lease term of 27.2 years. The Group has drawn
borrowings of £234.8 million, on which the interest rate has been fixed,
either directly or through the use of interest rate swaps, on £180.0 million
at a weighted interest rate of 3.07 per cent per annum (excluding the
amortisation of arrangement costs), and the remaining £54.8 million carries
interest at SONIA plus a weighted margin of 2.17 per cent per annum (excluding
the amortisation of arrangement costs). The Group has access to a further
£85.2 million of available debt under committed loan facilities. The Group's
committed loan facilities have staggered expiry dates with £100.0 million
being committed to 5 November 2024, £70.0 million to 5 November 2025, £87.3
million to 12 January 2032 and £62.7 million to 12 January 2037. Discussions
with existing and/or new potential lenders do not indicate any issues with
re-financing and/or increasing the quantum of these loans on acceptable terms
in due course.
The Directors' assessment of the Group's principal risks are highlighted
above. The most significant risks identified as relevant to the viability
statement were those relating to:
· Poor performance of assets: The risk that a tenant is unable to
sustain a sufficient rental cover, leading to a loss of rental income for the
Group;
· Adverse interest rate fluctuations: The risk that an increase in
interest rates may increase the cost of the Group's variable rate debt
facilities, impact property valuations and/or limit the Group's borrowing
capacity;
· High inflationary environment: The risk that the level of the UK
inflation rate results in a real term decrease in the Group's income or erodes
the profitability of tenants;
· Pandemic reduces demand for care home beds: The risk that overall
demand for care home beds is reduced resulting in a decline in the capital
and/or income return from the property portfolio; and
· Reduced availability of care home staff: The risk that
unavailability of staff restricts the ability of tenants to admit residents or
results in significant wage cost inflation, impacting on the tenants' rental
cover and leading to a loss of rental income for the Group.
In assessing the Group's viability, the Board has considered the key outputs
from a detailed model of the Group's expected cashflows over the coming five
years under both normal and stressed conditions. The stressed conditions,
which were intended to represent severe but plausible scenarios, included
modelling increases in interest rates, movements in the capital value of the
property portfolio and a significant default on rental receipts from the
Group's tenants. The stressed level of default from the Group's tenants
assumed in the financial modelling was based on a detailed assessment of the
financial position of each individual tenant or tenant group, the structure in
place to secure rental income (such as the strength of tenants' balance
sheets, rental guarantees in place or rental deposits held) and included
consideration of the cumulative financial impact on each tenant from the
COVID‑19 pandemic.
Based on the results of the scenario analysis outlined above, the Board has a
reasonable expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over the five year period of its
assessment.
Consolidated Statement of Comprehensive Income (audited)
For the year ended 30 June
2022
Year ended 30 June 2021
Year ended 30 June 2022
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Revenue
Rental income 48,807 10,215 59,022 41,168 8,739 49,907
Other rental income 796 3,877 4,673 - - -
Other income 164 - 164 73 - 73
Total revenue 49,767 14,092 63,859 41,241 8,739 49,980
Gains on revaluation of investment properties 5 - 5,553 5,553 - 9,536 9,536
Gains on investment properties realised 5 - - - - 1,306 1,306
Losses on revaluation of properties held for sale 6 - (7) (7) - (92) (92)
Total income 49,767 19,638 69,405 41,241 19,489 60,730
Expenditure
Investment management fee 2 (7,307) - (7,307) (5,796) - (5,796)
Credit loss allowance and bad debts 3 (3,232) - (3,232) (2,717) - (2,717)
Other expenses 3 (3,163) - (3,163) (2,617) - (2,617)
Total expenditure (13,702) - (13,702) (11,130) - (11,130)
Profit before finance costs and taxation 36,065 19,638 55,703 30,111 19,489 49,600
Net finance costs
Interest receivable 71 - 71 39 - 39
Interest payable and similar charges (6,671) - (6,671) (4,850) (913) (5,763)
Profit before taxation 29,465 19,638 49,103 25,300 18,576 43,876
Taxation (6) - (6) 8 - 8
Profit for the year 29,459 19,638 49,097 25,308 18,576 43,884
Other comprehensive income:
Items that are or may be reclassified subsequently to profit or loss
Movement in fair value of interest rate swaps - 2,033 2,033 - 298 298
Reclassification to profit and loss on - - - - 180 180
discontinuation of interest rate swaps
Total comprehensive income for the year 29,459 21,671 51,130 25,308 19,054 44,362
Earnings per share (pence) 4 4.92 3.28 8.20 5.32 3.91 9.23
The total column of this statement represents the Group's Consolidated
Statement of Comprehensive Income, prepared in accordance with IFRS. The
supplementary revenue return and capital return columns are both prepared
under guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement are derived from
continuing operations.
No operations were discontinued in the year.
Consolidated Statement of Financial Position (audited)
As at 30 June 2022
As at As at
30 June 2022 30 June 2021
Notes £'000 £'000
Non-current assets
Investment properties 5 857,691 631,156
Trade and other receivables 63,651 54,580
Interest rate swap 2,284 251
923,626 685,987
Current assets
Trade and other receivables 5,549 3,981
Cash and cash equivalents 34,483 21,106
40,032 25,087
Properties held for sale 6 - 7,320
40,032 32,407
Total assets 963,658 718,394
Non-current liabilities
Bank loans 8 (231,383) (127,904)
Trade and other payables (7,145) (6,840)
(238,528) (134,744)
Current liabilities
Trade and other payables (26,363) (18,465)
Total liabilities (264,891) (153,209)
Net assets 698,767 565,185
Stated capital and reserves
Share capital 9 6,202 5,115
Share premium 9 256,633 135,228
Merger reserve 47,751 47,751
Distributable reserve 226,461 265,164
Hedging reserve 2,284 251
Capital reserve 83,750 64,112
Revenue reserve 75,686 47,564
Equity shareholders' funds 698,767 565,185
Net asset value per ordinary share (pence) 4 112.7 110.5
Consolidated Statement of Changes in Equity (audited)
For the year ended 30 June 2022
Distrib-utable
Share capital Share premium Merger reserve reserve Hedging Capital reserve Revenue reserve
reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 30 June 2021 5,115 135,228 47,751 265,164 251 64,112 47,564 565,185
Total comprehensive income for the year:
- - - - 2,033 19,638 29,459 51,130
Transactions with owners recognised in equity:
Dividends paid 1 - - - (38,703) - - (1,337) (40,040)
Issue of ordinary shares 9 1,087 123,913 - - - - - 125,000
Expenses of issue 9 - (2,508) - - - - - (2,508)
At 30 June 2022 6,202 256,633 47,751 226,461 2,284 83,750 75,686 698,767
For the year ended 30 June 2021
Distrib-utable
Share capital Share premium Merger reserve reserve Hedging Capital reserve Revenue reserve
reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 30 June 2020 4,575 77,452 47,751 296,770 (227) 45,536 22,256 494,113
Total comprehensive income for the year:
- - - - 478 18,576 25,308 44,362
Transactions with owners recognised in equity:
Dividends paid 1 - - - (31,606) - - - (31,606)
Issue of ordinary shares 9 540 59,460 - - - - - 60,000
Expenses of issue 9 - (1,684) - - - - - (1,684)
At 30 June 2021 5,115 135,228 47,751 265,164 251 64,112 47,564 565,185
Consolidated Statement of Cash Flows (audited)
For the year ended 30 June 2022
Year ended Year ended
30 June 2022 30 June 2021
Note £'000 £'000
Cash flows from operating activities
Profit before tax 49,103 43,876
Adjustments for:
Interest receivable (71) (39)
Interest payable 6,671 5,763
Revaluation gains on investment properties and movements in lease incentives, 5 (19,645) (19,581)
net of acquisition costs written off
Revaluation losses on properties held for sale 6 7 92
Increase in performance payments (1,250) (1,550)
Increase in trade and other receivables (3,768) (1,232)
Increase in trade and other payables 4,590 1,859
35,637 29,188
Interest paid (5,310) (4,266)
Interest received 71 39
Tax paid (6) (5)
(5,245) (4,232)
Net cash inflow from operating activities 30,392 24,956
Cash flows from investing activities
Purchase of investment properties and properties held for sale, including (206,993) (51,400)
acquisition costs
Disposal of investment properties and properties held for sale, net of lease 4,360 7,825
incentives
Net cash outflow from investing activities (202,633) (43,575)
Cash flows from financing activities
Issue of ordinary share capital 125,000 60,000
Expenses of issue of ordinary share capital (2,508) (1,684)
Drawdown of bank loan facilities 222,000 152,000
Repayment of bank loan facilities (117,250) (174,000)
Expenses of arrangement of bank loan facilities (1,839) (1,538)
Dividends paid (39,785) (31,493)
Net cash inflow from financing activities 185,618 3,285
Net increase/(decrease) in cash and cash equivalents 13,377 (15,334)
Opening cash and cash equivalents 21,106 36,440
Closing cash and cash equivalents 34,483 21,106
Transactions which do not require the use of cash
Movement in fixed or guaranteed rent reviews and lease incentives 12,148 9,656
Fixed or guaranteed rent reviews derecognised on disposal or (3,362) (1,556)
re-tenanting
Total 8,786 8,100
Statement of Directors' Responsibilities in Respect of the Annual Financial
Report
In accordance with Chapter 4 of the Disclosure Guidelines and Transparency
Rules, we confirm that to the best of our knowledge:
· The financial statements contained within the Annual Report for
the year ended 30 June 2022, of which this statement of results is an extract,
have been prepared in accordance with applicable International Financial
Reporting Standards, on a going concern basis, and give a true and fair view
of the assets, liabilities, financial position and return of the Company;
· The Chairman's Statement, Investment Manager's Report and Our
Strategy include a fair review of the important events that have occurred
during the financial year and their impact on the financial statements;
· 'Principal and emerging risks and uncertainties' includes a
description of the Company's principal and emerging risks and uncertainties;
and
· The Annual Report includes details of related party transactions
that have taken place during the financial year.
On behalf of the Board
Malcolm Naish
Chairman
11 October 2022
Extract from Notes to the Audited Consolidated Financial Statements
1. Dividends
Amounts paid as distributions to equity holders during the year to 30 June
2022.
Dividend rate Year ended
(pence per share) 30 June 2022
£'000
Fourth interim dividend for the year ended 30 June 2021 1.68000 8,594
First interim dividend for the year ended 30 June 2022 1.69000 10,482
Second interim dividend for the year ended 30 June 2022 1.69000 10,482
Third interim dividend for the year ended 30 June 2022 1.69000 10,482
Total 6.75000 40,040
Amounts paid as distributions to equity holders during the year to 30 June
2021.
Dividend rate Year ended
(pence per share) 30 June 2021
£'000
Fourth interim dividend for the year ended 30 June 2020 1.67000 7,640
First interim dividend for the year ended 30 June 2021 1.68000 7,686
Second interim dividend for the year ended 30 June 2021 1.68000 7,686
Third interim dividend for the year ended 30 June 2021 1.68000 8,594
Total 6.71000 31,606
It is the policy of the Directors to declare and pay dividends as interim
dividends. The Directors do not therefore recommend a final dividend. The
fourth interim dividend in respect of the year ended 30 June 2022, of 1.69
pence per share, was paid on 26 August 2022 to shareholders on the register on
12 August 2022 and amounted to £10,482,000. It is the intention of the
Directors that the Group will continue to pay dividends quarterly.
2. Fee paid to the Investment Manager
Year ended Year ended
30 June 2022 30 June 2021
£'000 £'000
Management fee 7,307 5,796
Total 7,307 5,796
The Group's Investment Manager and Alternative Investment Fund Manager
('AIFM') is Target Fund Managers Limited (the 'Investment Manager' or
'Target'). The Investment Manager is entitled to an annual management fee on a
tiered basis based on the net assets of the Group as set out below. Where
applicable, VAT is payable in addition.
Net assets of the Group Management fee percentage
Up to and including £500 million 1.05
Above £500 million and up to and including £750 million 0.95
Above £750 million and up to and including £1 billion 0.85
Above £1 billion and up to and including £1.5 billion 0.75
Above £1.5 billion 0.65
The Investment Manager is entitled to an additional fee of £126,000 per annum
(plus VAT), increasing annually in line with inflation, in relation to their
appointment as Company Secretary and Administrator to the Group.
The Investment Management Agreement can be terminated by either party on 24
months' written notice. Should the Company terminate the Investment Management
Agreement earlier then compensation in lieu of notice will be payable to the
Investment Manager. The Investment Management Agreement may be terminated
immediately without compensation if the Investment Manager: is in material
breach of the agreement; is guilty of negligence, wilful default or fraud; is
the subject of insolvency proceedings; or there occurs a change of Key
Managers to which the Board has not given its prior consent.
3. Other expenses
Year ended Year ended
30 June 2022 30 June 2021
£'000 £'000
Credit loss allowance 2,865 1,697
Bad debts written off 367 1,020
Total credit loss allowance and bad debts 3,232 2,717
Year ended Year ended
30 June 2022 30 June 2021
£'000 £'000
Valuation and other professional fees 1,143 1,008
Auditor's remuneration for:
- statutory audit of the Company 118 104
- statutory audit of the Company's subsidiaries 230 184
- review of interim financial information 16 15
Other taxation compliance and advisory* 361 436
Public relations and marketing 327 213
Directors' fees 214 181
Secretarial and administration fees 177 172
Direct property costs 160 32
Printing, postage and website 111 92
Listing and Registrar fees 102 78
Other 204 102
Total other expenses 3,163 2,617
* The other taxation compliance and advisory fees were all paid to parties
other than the Company's Auditor.
4. Earnings per share and Net Asset Value per share
Earnings per share
Year ended 30 June 2022 Year ended 30 June 2021
£'000 Pence per share £'000 Pence per share
Revenue earnings 29,459 4.92 25,308 5.32
Capital earnings 19,638 3.28 18,576 3.91
Total earnings 49,097 8.20 43,884 9.23
Average number of shares in issue 599,093,808 475,406,929
There were no dilutive shares or potentially dilutive shares in issue.
EPRA is an industry body which issues best practice reporting guidelines for
property companies and the Group report an EPRA NAV quarterly. EPRA has issued
best practice recommendations for the calculation of certain figures which are
included below. Other EPRA measures are included in the section below entitled
EPRA Performance Measures.
The EPRA earnings are arrived at by adjusting for the revaluation movements on
investment properties and other items of a capital nature and represents the
revenue earned by the Group.
The Group's specific adjusted EPRA earnings adjusts the EPRA earnings for
rental income arising from recognising guaranteed rental review uplifts and
for development interest received from developers in relation to monies
advanced under forward fund agreements which, in the Group's IFRS financial
statements, is required to be offset against the book cost of the property
under development. The Board believes that the Group's specific adjusted EPRA
earnings represents the underlying performance measure appropriate for the
Group's business model as it illustrates the underlying revenue stream and
costs generated by the Group's property portfolio.
The reconciliations are provided in the table below:
Year ended Year
30 June 2022 ended
£'000 30 June 2021
£'000
Earnings per IFRS Consolidated Statement of Comprehensive Income 49,097 43,884
Adjusted for gains on investment properties realised - (1,306)
Adjusted for revaluations of investment properties (5,553) (9,536)
Adjusted for revaluations of properties held for sale 7 92
Adjusted for other capital items (3,877) 913
EPRA earnings 39,674 34,047
Adjusted for rental income arising from recognising guaranteed rent review (10,215) (8,739)
uplifts
Adjusted for development interest under forward fund agreements 783 647
Group specific adjusted EPRA earnings 30,242 25,955
Earnings per share ('EPS') (pence per share)
EPS per IFRS Consolidated Statement of Comprehensive Income 8.20 9.23
EPRA EPS 6.62 7.16
Group specific adjusted EPRA EPS 5.05 5.46
Net Asset Value per share
The Group's Net Asset Value per ordinary share of 112.7 pence (2021: 110.5
pence) is based on equity shareholders' funds of £698,767,000 (2021:
£565,185,000) and on 620,237,346 (2021: 511,541,694) ordinary shares, being
the number of shares in issue at the year-end.
The EPRA best practice recommendations include a set of EPRA NAV metrics that
are arrived at by adjusting the net asset value calculated under International
Financial Reporting Standards ('IFRS') to provide stakeholders with what EPRA
believe to be the most relevant information on the fair value of the assets
and liabilities of a real estate investment company, under different
scenarios. The three EPRA NAV metrics are:
· EPRA Net Reinstatement Value ('NRV'): Assumes that entities never
sell assets and aims to represent the value required to rebuild the entity.
The objective is to highlight the value of net assets on a long-term basis.
Assets and liabilities that are not expected to crystallise in normal
circumstances, such as the fair value movements on financial derivatives, are
excluded and the costs of recreating the Group through investment markets,
such as property acquisition costs and taxes, are included.
· EPRA Net Tangible Assets ('NTA'): Assumes that entities buy and
sell assets, thereby crystallising certain levels of unavoidable deferred tax.
Given the Group's REIT status, it is not expected that significant deferred
tax will be applicable to the Group.
· EPRA Net Disposal Value ('NDV'): Represents the shareholders'
value under a disposal scenario, where deferred tax, financial instruments and
certain other adjustments are calculated to the full extent of their
liability, net of any resulting tax. At 30 June 2022, the Group held all its
material balance sheet items at fair value, or at a value considered to be a
close approximation to fair value, in its financial statements apart from its
fixed-rate debt facility where the fair value is estimated to be lower than
the nominal value. See note 8 for further details on the Group's loan
facilities.
2022 2022 2022 2021 2021 2021
EPRA NRV EPRA NTA EPRA NDV EPRA NRV EPRA NTA EPRA NDV
£'000 £'000 £'000 £'000 £'000 £'000
IFRS NAV per financial statements 698,767 698,767 698,767 565,185 565,185 565,185
Fair value of interest rate swap (2,284) (2,284) - (251) (251) -
Fair value of loans - - 22,257 - - (1,389)
Estimated purchasers' costs 60,225 - - 44,696 - -
EPRA net assets 756,708 696,483 721,024 609,630 564,934 563,796
EPRA net assets (pence per share) 122.0 112.3 116.2 119.2 110.4 110.2
5. Investment properties
Freehold and leasehold properties
As at As at
30 June 2022 30 June 2021
£'000 £'000
Opening market value 677,525 610,084
Opening fixed or guaranteed rent reviews and lease incentives (47,919) (39,998)
Opening performance payments 1,550 -
Opening carrying value 631,156 570,086
Disposals - proceeds - (7,616)
- gain on sale - 2,336
Purchases 199,869 52,295
Transfer from properties held for sale 6,830 -
Acquisition costs capitalised 9,671 2,264
Acquisition costs written off (9,671) (2,264)
Unrealised gain realised during the period - (1,030)
Revaluation movement - gains 43,234 26,565
Revaluation movement - losses (15,862) (5,109)
Movement in market value 234,071 67,441
Fixed or guaranteed rent reviews and lease incentives derecognised on disposal
or re-tenanting
3,362 1,735
Movement in fixed or guaranteed rent reviews and lease incentives (12,148) (9,656)
Movement in performance payments 1,250 1,550
Movement in carrying value 226,535 61,070
Closing market value 911,596 677,525
Closing fixed or guaranteed rent reviews and lease incentives (56,705) (47,919)
Closing performance payments (see Note 12) 2,800 1,550
Closing carrying value 857,691 631,156
Changes in the valuation of investment properties Year ended Year ended
30 June 2022 30 June 2021
£'000 £'000
Gain on sale of investment properties - 2,336
Unrealised gain realised during the year - (1,030)
Gains on sale of investment properties realised - 1,306
Revaluation movement 27,372 21,456
Acquisition costs written off (9,671) (2,264)
Movement in lease incentives (1,933) (917)
Movement in fixed or guaranteed rent reviews (10,215) (8,739)
Gains on revaluation of investment properties 5,553 10,842
The investment properties can be analysed as follows:
As at As at
30 June 2022 30 June 2021
£'000 £'000
Standing assets 892,336 655,175
Developments under forward fund agreements 19,260 22,350
Closing market value 911,596 677,525
The properties were valued at £911,596,000 (2021: £677,525,000) by Colliers
International Healthcare Property Consultants Limited ('Colliers'), in their
capacity as external valuers. The valuation was undertaken in accordance with
the RICS Valuation - Global Standards, incorporating the International
Valuation Standards (the 'Red Book Global', 31 January 2022) issued by the
Royal Institution of Chartered Surveyors ('RICS') on the basis of Market
Value, supported by reference to market evidence of transaction prices for
similar properties. Colliers has recent experience in the location and
category of the investment properties being valued.
Market Value represents the estimated amount for which an asset or liability
should exchange on the valuation date between a willing buyer and a willing
seller in an arm's length transaction, after proper marketing where the
parties had each acted knowledgeably, prudently and without compulsion. The
quarterly property valuations are reviewed by the Board at each Board meeting.
The fair value of the properties after adjusting for the movement in the fixed
or guaranteed rent reviews and lease incentives was £857,691,000 (2021:
£631,156,000). The adjustment consisted of £48,802,000 (2021: £41,949,000)
relating to fixed or guaranteed rent reviews and £7,903,000 (2021:
£5,970,000) of accrued income relating to the recognition of rental income
over rent free periods subsequently amortised over the life of the lease,
which are both separately recorded in the accounts as non-current or current
assets within 'trade and other receivables'. An adjustment is also made to
reflect the amount by which the portfolio value is expected to increase if the
performance payments recognised in 'trade and other payables' are paid and the
passing rent at the relevant property increased accordingly (see Note 12). The
total purchases in the year to 30 June 2022, inclusive of the performance
payments recognised, were £201,119,000 (2021: £53,845,000).
6. Properties held for sale
As at As at
30 June 2022 30 June 2021
£'000 £'000
Opening fair value 7,320 7,500
Purchases - 300
Disposals - proceeds (483) (388)
- gain on sale 122 34
Unrealised gain realised during the period (129) (126)
Transfer to investment properties (6,830) -
Closing fair value - 7,320
The properties held for sale were valued by Colliers International Healthcare
Property Consultants Limited ('Colliers'). The properties held for sale
consist of two blocks of apartments adjacent to an existing property holding
which were acquired to consolidate ownership of the overall retirement
village. Certain of the apartments are being rented on a short-term basis
whilst awaiting sale.
As the apartments have been held for a period of more than twelve months since
initial acquisition, they have been reclassified as investment properties and
transferred at their fair value at 30 June 2022. However, there is no change
to the Group's commercial intention in relation to these apartments which is
to sell the leasehold on the individual apartments in the short to medium
term.
7. Investment in subsidiary undertakings
The Group included 57 subsidiary companies as at 30 June 2022 (30 June 2021:
50). All subsidiary companies were wholly owned, either directly or
indirectly, by the Company and, from the date of acquisition onwards, the
principal activity of each company within the Group was to act as an
investment and property company. Other than one subsidiary incorporated in
Jersey, two subsidiaries incorporated in Gibraltar and two subsidiaries
incorporated in Luxembourg, all subsidiaries are incorporated within the
United Kingdom.
During the period, the Group incorporated five new subsidiaries, THR Number 41
Limited, THR Number 42 Limited, THR Number 43 plc, THR Number 45 Limited and
THR Number 46 Limited. The Group also acquired two new companies which have
been renamed THR Number 47 Limited and THR Number 48 Limited. The Group
includes eight companies which were acquired as part of previous corporate
acquisitions and which, having remained dormant throughout the year, have been
placed into liquidation.
8. Bank loans
As at As at
30 June 2022 30 June 2021
£'000 £'000
Principal amount outstanding 234,750 130,000
Set-up costs (4,315) (2,476)
Amortisation of set-up costs 948 380
Total 231,383 127,904
In November 2020, the Group entered into a £70,000,000 committed term loan
and revolving credit facility with the Royal Bank of Scotland plc ('RBS')
which is repayable in November 2025. Interest accrues on the bank loan at a
variable rate, based on SONIA plus margin and mandatory lending costs, and is
payable quarterly. The margin is 2.18 per cent per annum on £50,000,000 of
the facility and 2.33 per cent per annum on the remaining £20,000,000
revolving credit facility, both for the duration of the loan. A
non-utilisation fee of 1.13 per cent per annum is payable on the first
£20,000,000 of any undrawn element of the facility, reducing to 1.05 per cent
per annum thereafter. As at 30 June 2022, the Group had drawn £50,000,000
under this facility (2021: £30,000,000).
In November 2020, the Group entered into a £100,000,000 revolving credit
facility with HSBC Bank plc ('HSBC') which is repayable in November 2024, with
the option of a one-year extension thereafter subject to the consent of HSBC.
Interest accrues on the bank loan at a variable rate, based on SONIA plus
margin and mandatory lending costs, and is payable quarterly. The margin is
2.17 per cent per annum for the duration of the loan and a non-utilisation fee
of 0.92 per cent per annum is payable on any undrawn element of the facility.
As at 30 June 2022, the Group had drawn £34,750,000 under this facility
(2021: £50,000,000).
In January 2020, the Group entered into a £50,000,000 committed term loan
facility with Phoenix Group which is repayable on 12 January 2032. During the
period, the Group entered into further committed term loan facilities of
£37,250,000, also repayable on 12 January 2032, and of £62,750,000, which is
repayable on 12 January 2037. Interest accrues on these three loans at
aggregate annual fixed rates of interest of 3.28 per cent, 3.13 per cent and
3.14 per cent, respectively and is payable quarterly. As at 30 June 2022, the
Group had drawn £150,000,000 under these facilities (2021: £50,000,000).
The following interest rate swap was in place during the year ended 30 June
2022. to hedge the £30,000,000 RBS committed term loan:
Notional Value Interest Paid Counter-party
Starting Date Ending Date Interest Received
30,000,000 5 November 2020 5 November 2025 0.30% Daily compounded SONIA (floor at RBS
-0.08%)
Inclusive of all interest rate swaps, the interest rate on £180,000,000 of
the Group's borrowings is fixed, including the amortisation of arrangement
costs, at an all-in rate of 3.22 per cent per annum until at least 5 November
2025. The remaining £140,000,000 of debt, of which £54,750,000 was drawn at
30 June 2022, would, if fully drawn, carry interest at a variable rate equal
to SONIA plus a weighted average lending margin, including the amortisation of
arrangement costs, of 2.44 per cent per annum.
The fair value of the interest rate swap at 30 June 2022 was an aggregate
asset of £2,284,000 (2021: £251,000) and all interest rate swaps are
categorised as level 2 in the fair value hierarchy.
At 30 June 2022, the nominal value of the Group's loans equated to
£234,750,000 (2021: £130,000,000). Excluding the interest rate swap referred
to above, the fair value of these loans, based on a discounted cashflow using
the market rate on the relevant treasury plus an estimated margin based on
market conditions at 30 June 2022, totalled, in aggregate, £212,493,000
(2021: £131,389,000). The payment required to redeem the loans in full,
incorporating the terms of the Spens clause in relation to the Phoenix Group
facilities, would have been £239,728,000 (2021: £139,748,000). The loans are
categorised as level 3 in the fair value hierarchy.
The RBS loan is secured by way of a fixed and floating charge over the
majority of the assets of the THR Number One plc Group ('THR1 Group') which
consists of THR1 and its five subsidiaries. The Phoenix Group loans of
£50,000,000 and £37,250,000 are secured by way of a fixed and floating
charge over the majority of the assets of the THR Number 12 plc Group ('THR12
Group') which consists of THR12 and its eight subsidiaries. The Phoenix Group
loan of £62,750,000 is secured by way of a fixed and floating charge over the
majority of the assets of THR Number 43 plc ('THR43'). The HSBC loan is
secured by way of a fixed and floating charge over the majority of the assets
of the THR Number 15 plc Group ('THR15 Group') which consists of THR15 and its
18 subsidiaries (excluding those subsidiaries which are currently dormant). In
aggregate, the Group has granted a fixed charge over properties with a market
value of £795,949,000 as at 30 June 2022 (2021: £525,526,000).
Under the bank covenants related to the loans, the Group is to ensure that:
- the loan to value percentage for each of THR1 Group and THR15 Group does not
exceed 50 per cent;
- the loan to value percentage for THR12 Group and THR43 does not exceed 60
per cent;
- the interest cover for each of THR1 Group and THR15 Group is greater than
300 per cent on any calculation date; and
- the debt yield for THR12 Group and THR43 is greater than 10 per cent on any
calculation date.
All bank loan covenants have been complied with during the year.
Analysis of net debt:
Cash and cash equivalents Cash and cash equivalents
Borrowing Net debt Borrowing Net debt
2022 2022 2022 2021 2021 2021
£'000 £'000 £'000 £'000 £'000 £'000
Opening balance 21,106 (127,904) (106,798) 36,440 (150,135) (113,695)
Cash flows 13,377 (102,911) (89,534) (15,334) 23,538 8,204
Non-cash flows - (568) (568) - (1,307) (1,307)
Closing balance 34,483 (231,383) (196,900) 21,106 (127,904) (106,798)
9. Share capital
Allotted, called-up and fully paid ordinary shares of £0.01 each Number of shares £'000
Balance as at 30 June 2021 511,541,694 5,115
Issued on 9 September 2021 108,695,652 1,087
Balance as at 30 June 2022 620,237,346 6,202
Under the Company's Articles of Association, the Company may issue an
unlimited number of ordinary shares. Ordinary shareholders are entitled to all
dividends declared by the Company and to all of the Company's assets after
repayment of its borrowings and ordinary creditors. Ordinary shareholders have
the right to vote at meetings of the Company. All ordinary shares carry equal
voting rights.
During the year to 30 June 2022, the Company issued 108,695,652 (2021:
54,054,054) ordinary shares raising gross proceeds of £125,000,000 (2021:
£60,000,000). The consideration received in excess of the par value of the
ordinary shares issued, net of the expenses of issue of £2,508,000 (2021:
£1,684,000), has been credited to the share premium account.
During the year to 30 June 2022, the Company did not repurchase any ordinary
shares into treasury (2021: nil) or resell any ordinary shares from treasury
(2021: nil). At 30 June 2022, the Company did not hold any shares in treasury
(2021: nil).
Capital management
The Group's capital is represented by the share capital, share premium, merger
reserve, distributable reserve, hedging reserve, capital reserve, revenue
reserve and long-term borrowings. The Group is not subject to any
externally-imposed capital requirements, other than the financial covenants on
its loan facilities as detailed in note 8.
The capital of the Group is managed in accordance with its investment policy,
in pursuit of its investment objective.
Capital risk management
The objective of the Group is to provide ordinary shareholders with an
attractive level of income together with the potential for income and capital
growth from investing in a diversified portfolio of freehold and long
leasehold care homes that are let to care home operators; and other healthcare
assets in the UK.
The Board has responsibility for ensuring the Group's ability to continue as a
going concern. This involves the ability to borrow monies in the short and
long term; and pay dividends out of reserves, all of which are considered and
approved by the Board on a regular basis.
To maintain or adjust the capital structure, the Company may adjust the
dividend payment to shareholders, return capital to shareholders, issue new
shares or buyback shares for cancellation or for holding in treasury. The
Company may also increase or decrease its level of long-term borrowings.
Where ordinary shares are held in treasury these are available to be sold to
meet on-going market demand. The ordinary shares will be sold only at a
premium to the prevailing NAV per share. The net proceeds of any subsequent
sales of shares out of treasury will provide the Company with additional
capital to enable it to take advantage of investment opportunities in the
market and make further investments in accordance with the Company's
investment policy and within its appraisal criteria. Holding shares in
treasury for this purpose assists the Company in matching its on-going capital
requirements to its investment opportunities and therefore reduces the
negative effect of holding excess cash on its balance sheet over the longer
term.
No changes were made in the objectives, policies or processes during the year.
10. Financial instruments
Consistent with its objective, the Group holds UK care home property
investments. In addition, the Group's financial instruments comprise cash,
bank loans and receivables and payables that arise directly from its
operations. The Group's exposure to derivative instruments consists of
interest rate swaps used to fix the interest rate on the Group's variable rate
borrowings.
The Group is exposed to various types of risk that are associated with
financial instruments. The most important types are credit risk, liquidity
risk, interest rate risk and market price risk. There is no foreign currency
risk as all assets and liabilities of the Group are maintained in pounds
sterling.
The Board reviews and agrees policies for managing the Group's risk exposure.
These policies are summarised below and have remained unchanged for the year
under review. These disclosures include, where appropriate, consideration of
the Group's investment properties which, whilst not constituting financial
instruments as defined by IFRS, are considered by the Board to be integral to
the Group's overall risk exposure.
Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment that it has entered into with the Group. At the
reporting date, the Group's financial assets exposed to credit risk amounted
to £38,996,000 (2021: £24,563,000), consisting of cash of £34,483,000
(2021: £21,106,000), net rent receivable of £906,000 (2021: £955,000), VAT
recoverable of £1,387,000 (2021: £732,000), accrued development interest of
£452,000 (2021: £739,000) and other debtors of £1,768,000 (2021:
£1,031,000).
In the event of default by a tenant if it is in financial difficulty or
otherwise unable to meet its obligations under the lease, the Group will
suffer a rental shortfall and incur additional expenses until the property is
relet. These expenses could include legal and surveyor's costs in reletting,
maintenance costs, insurances, rates and marketing costs and may have a
material adverse impact on the financial condition and performance of the
Group and/or the level of dividend cover. The Group may also require to
provide rental incentives to the incoming tenant. The Board receives regular
reports on concentrations of risk and any tenants in arrears. The Investment
Manager monitors such reports in order to anticipate, and minimise the impact
of, defaults by occupational tenants. The expected credit risk in relation to
tenants is an inherent element of the due diligence considered by the
Investment Manager on all property transactions with an emphasis being placed
on ensuring that initial rents are set at a sustainable level. The risk is
further mitigated by rental deposits or guarantees where considered
appropriate. The majority of rental income is received in advance.
As at 30 June 2022, the Group had recognised a credit loss allowance totalling
£6,963,000 against a gross rent receivable balance of £7,399,000 and gross
loans to tenants totalling £1,097,000. Whilst this allowance has increased
during the year ended 30 June 2022, it remains low relative to the Group's
overall balance sheet, and relates primarily to the tenant of two immature
homes where rent is now being received in full in relation to one of the
homes, and partial rent being received in relation to the other. As at 30 June
2021, the gross rent receivable was £4,641,000, of which £40,000 was
subsequently recovered, £147,000 was written off and £4,454,000 is still
outstanding. There were no other financial assets which were either past due
or considered impaired at 30 June 2022 (2021: nil).
All of the Group's cash is placed with financial institutions with a long-term
credit rating of BBB or better. Bankruptcy or insolvency of such financial
institutions may cause the Group's ability to access cash placed on deposit to
be delayed, limited or lost. Should the credit quality or the financial
position of the banks currently employed significantly deteriorate, cash
holdings would be moved to another bank.
Should the Group hold significant cash balances for an extended period, then
counterparty risk will be spread, by placing cash across different financial
institutions. At 30 June 2022 the Group held £34.5 million (2021: £20.9
million) with The Royal Bank of Scotland plc and £nil (2021: £0.2 million)
with HSBC Bank plc.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulties in
realising assets or otherwise raising funds to meet financial commitments. The
Group's investments comprise UK care homes. Property and property-related
assets in which the Group invests are not traded in an organised public market
and may be illiquid. As a result, the Group may not be able to liquidate
quickly its investments in these properties at an amount close to their fair
value in order to meet its liquidity requirements.
The Group's liquidity risk is managed on an on-going basis by the Investment
Manager and monitored on a quarterly basis by the Board. In order to mitigate
liquidity risk the Group aims to have sufficient cash balances (including the
expected proceeds of any property sales) to meet its obligations for a period
of at least twelve months.
Interest rate risk
Some of the Company's financial instruments are interest-bearing.
Interest-rate risk is the risk that future cash flows will change adversely as
a result of changes in market interest rates.
The Group's policy is to hold cash in variable rate or short-term fixed rate
bank accounts. At 30 June 2022 interest was being received on cash at a
weighted average variable rate of nil (2021: nil). Exposure varies throughout
the period as a consequence of changes in the composition of the net assets of
the Group arising out of the investment and risk management policies. These
balances expose the Group to cash flow interest rate risk as the Group's
income and operating cash flows will be affected by movements in the market
rate of interest.
The Group has £170,000,000 (2021: £170,000,000) of committed term loans and
revolving credit facilities which were charged interest at a rate of SONIA
plus the relevant margin. At the year-end £84,750,000 of the variable rate
facilities had been drawn down (2021: £80,000,000). The fair value of the
variable rate borrowings is affected by changes in the market rate of the
lending margin that would apply to similar loans. The variable rate borrowings
are carried at amortised cost and the Group considers this to be a close
approximation to fair value at 30 June 2022 and 30 June 2021.
The Group has not hedged its exposure on £54,750,000 of the drawn variable
rate borrowings at 30 June 2022 (2021: £50,000,000). On these loans the
interest was payable at a variable rate equal to SONIA plus the weighted
average lending margin, including the amortisation of costs, of 2.43 per cent
per annum (2021: 2.43 per cent). The variable rate borrowings expose the Group
to cash flow interest rate risk as the Group's income and operating cash flows
will be affected by movements in the market rate of interest.
The Group has fixed rate term loans totalling £150,000,000 (2021:
£50,000,000) and has hedged its exposure on £30,000,000 (2021: £30,000,000)
of the variable rate loans, as referred to above, through entering into a
fixed rate interest rate swap. Fixing the interest rate exposes the Group to
fair value interest rate risk as the fair value of the fixed rate borrowings,
or the fair value of the interest rate swap used to fix the interest rate on
an otherwise variable rate loan, will be affected by movements in the market
rate of interest. The £150,000,000 fixed rate term loans are carried at
amortised cost on the Group's balance sheet, with the estimated fair value and
cost of repayment being disclosed in note 8, whereas the fair value of the
interest rate swap is recognised directly on the Group's balance sheet. At 30
June 2022, an increase of 0.25 per cent in interest rates would have increased
the fair value of the interest rate swap asset and increased the reported
total comprehensive income for the year by £211,000 (2021: £298,000). The
same movement in interest rates would have decreased the fair value of the
fixed rate term loans by an aggregate of £2,822,000 (2021: £1,106,000);
however, as the fixed rate loan is held at amortised cost, the reported total
comprehensive income for the year would have remained unchanged. A decrease in
interest rates would have had an approximately equal and opposite effect.
Market price risk
The management of market price risk is part of the investment management
process and is typical of a property investment company. The portfolio is
managed with an awareness of the effects of adverse valuation movements
through detailed and continuing analysis, with an objective of maximising
overall returns to shareholders. Investments in property and property-related
assets are inherently difficult to value due to the individual nature of each
property. As a result, valuations are subject to substantial uncertainty.
There is no assurance that the estimates resulting from the valuation process
will reflect the actual sales price even where such sales occur shortly after
the valuation date. Such risk is minimised through the appointment of external
property valuers.
The external valuers are mindful of the potential impacts ESG may have on
capital and rental valuations. Currently in the UK, the external valuers have
not seen consistent prima facie evidence to suggest that ESG has a direct
impact on the valuation of all commercial and residential buildings. However,
as the UK real estate market continues to adapt to ESG development practices
and legislative requirements, the valuers anticipate an evolution in the
analysis undertaken when providing real estate valuations. This may
potentially impact on the valuation of a property over the course of a typical
investment period.
11. Capital commitments
The Group had capital commitments as follows:
30 June 2022 30 June 2021
£'000 £'000
Amounts due to complete forward fund developments 34,458 21,054
Other capital expenditure commitments 3,594 3,158
Total 38,052 24,212
12. Contingent assets and liabilities
As at 30 June 2022, fourteen (2021: twelve) properties within the Group's
investment property portfolio contained performance payment clauses meaning
that, subject to contracted performance conditions being met, further capital
payments totalling £13,320,000 (2021: £20,025,000) may be payable by the
Group to the vendors/tenants of these properties. The potential timings of
these payments are also conditional on the date(s) at which the contracted
performance conditions are met and are therefore uncertain.
It is highlighted that any performance payments subsequently paid will result
in an increase in the rental income due from the tenant of the relevant
property. As the net initial yield used to calculate the additional rental
which would be payable is not significantly different from the investment
yield used to arrive at the valuation of the properties, any performance
payments made would be expected to result in a commensurate increase in the
value of the Group's investment property portfolio.
Having assessed each clause on an individual basis, the Group has determined
that the contracted performance conditions were highly likely to be met in
relation to two of these properties and therefore at 30 June 2022 an amount of
£2,800,000 (2021: £1,550,000) has been recognised as a liability. An equal
but opposite amount has been recognised as an asset in 'investment properties'
in note 5 to reflect the increase in the investment property value that would
be expected to arise were the performance payments to be paid and the
contracted rental income increased accordingly.
13. Related party transactions
The Board of Directors is considered to be a related party. No Director has an
interest in any transactions which are, or were, unusual in their nature or
significant to the nature of the Group. The Directors of the Group received
fees for their services. Total fees for the year were £214,000 (2021:
£181,000) of which £nil (2021: £12,000) remained payable at the year-end.
The Investment Manager received £7,307,000 (inclusive of irrecoverable VAT)
in management fees in relation to the year ended 30 June 2022 (2021:
£5,796,000). Of this amount £1,895,000 (2021: £1,551,000) remained payable
at the year-end. The Investment Manager received a further £151,000
(inclusive of irrecoverable VAT) during the year ended 30 June 2022 (2021:
£146,000) in relation to its appointment as Company Secretary and
Administrator, of which £38,000 (2021: £36,000) remained payable at the year
end. Certain employees of the Investment Manager are directors of some of the
Group's subsidiaries. Neither they nor the Investment Manager receive any
additional remuneration in relation to fulfilling this role.
There were related party transactions within the Group and its wholly-owned
subsidiaries which are eliminated upon consolidation.
14. Operating segments
The Board has considered the requirements of IFRS 8 'Operating Segments'. The
Board is of the view that the Group is engaged in a single segment of
business, being property investment, and in one geographical area, the United
Kingdom, and that therefore the Group has only a single operating segment. The
Board of Directors, as a whole, has been identified as constituting the chief
operating decision maker of the Group. The key measure of performance used by
the Board to assess the Group's performance is the EPRA NTA. The
reconciliation between the NAV, as calculated under IFRS, and the EPRA NTA is
detailed in note 4.
The view that the Group is engaged in a single segment of business is based on
the following considerations:
- One of the key financial indicators received and reviewed by the
Board is the total return from the property portfolio taken as a whole;
- There is no active allocation of resources to particular types or
groups of properties in order to try to match the asset allocation of the
benchmark; and
- The management of the portfolio is ultimately delegated to a single
property manager, Target.
15. Post balance sheet events
As at 10 October 2022, the Company's share price was 86.0 pence per share (30
June 2022: 108.4 pence).
16. Financial statements
This statement was approved by the Board on 11 October 2022. It is not the
Company's full statutory financial statements in terms of Section 434 of the
Companies Act 2006. The statutory annual report and financial statements for
the year ended 30 June 2022 has been approved and audited and received an
unqualified audit report which did not include a reference to any matters to
which the auditor drew attention by way of emphasis without qualifying the
report. The statutory annual report and financial statements for the year to
30 June 2022 will be posted to shareholders in October/November 2022 and will
be available for inspection at Level 13, Broadgate Tower, 20 Primrose Street,
London, EC2A 2EW, the registered office of the Company.
The statutory annual report and financial statements will be made available on
the website www.targethealthcarereit.co.uk
(http://www.targethealthcarereit.co.uk) . Copies may also be obtained from
Target Fund Managers Limited, Glendevon House, Castle Business Park, Stirling
FK9 4TZ.
The audited financial statements for the year to 30 June 2022 will be lodged
with the Registrar of Companies following the Annual General Meeting to be
held on 6 December 2022.
Alternative Performance Measures
The Company uses Alternative Performance Measures ('APMs'). APMs do not have a
standard meaning prescribed by GAAP and therefore may not be comparable to
similar measures presented by other entities. The definitions of all APMs used
by the Company are highlighted in the glossary contained in the Annual Report,
with detailed calculations, including reconciliation to the IFRS figures where
appropriate, being set out below and within the EPRA Performance Measures
which follow.
Discount or Premium - the share price of an Investment Company is derived from
buyers and sellers trading their shares on the stock market. This price is not
identical to the NAV. If the share price is lower than the NAV per share, the
shares are trading at a discount and, if the share price is higher than the
NAV per share, are said to be at a premium. The figure is calculated at a
point in time and, unless stated otherwise, the Company measures its discount
or premium relative to the EPRA NTA per share.
2022 2021
pence pence
EPRA Net Tangible Assets per share (see note 4) (a) 112.3 110.4
Share price (b) 108.4 115.4
(Discount)/premium = (b-a)/a (3.5)% 4.5%
Dividend Cover - the percentage by which Group specific adjusted EPRA earnings
for the year cover the dividend paid.
2022 2021
£'000 £'000
Group-specific EPRA earnings for the year (see note 4) (a) 30,242 25,955
First interim dividend 10,482 7,686
Second interim dividend 10,482 7,686
Third interim dividend 10,482 8,594
Fourth interim dividend 10,482 8,594
Dividends paid in relation to the year (b) 41,928 32,560
Dividend cover = (a/b) 72% 80%
Ongoing Charges - a measure of all operating costs incurred in the reporting
period, calculated as a percentage of average net assets in that year.
Operating costs exclude costs of buying and selling investments, interest
costs, taxation, non-recurring costs and the costs of buying back or issuing
ordinary shares.
2022 2021
£'000 £'000
Investment management fee 7,307 5,796
Other expenses 3,163 2,617
Less direct property costs and other non-recurring items (347) (263)
Adjustment to management fee arrangements and irrecoverable VAT*
312 49
Total (a) 10,435 8,199
Average net assets (b) 693,292 528,035
Ongoing charges = (a/b) 1.51% 1.55%
* Based on the Group's net asset value at 30 June 2022, the management fee is
expected to be paid at a weighted average rate of 1.02% (2021: 1.04%) of the
Group's average net assets plus an effective irrecoverable VAT rate of
approximately 7% (2021: 7%). The management fee has therefore been amended so
that the Ongoing Charges figure includes the expected all-in management fee
rate of 1.10% (2021: 1.11%).
Total Return - the return to shareholders calculated on a per share basis by
adding dividends paid in the period to the increase or decrease in the Share
Price or NAV. The dividends are assumed to have been reinvested in the form of
Ordinary Shares or Net Assets.
2022 2021
EPRA NTA IFRS NAV Share price EPRA NTA IFRS NAV Share price
(pence) (pence) (pence) (pence) (pence) (pence)
Value at start of year (a) 110.4 110.5 115.4 108.1 108.0 110.0
Value at end of year (b) 112.3 112.7 108.4 110.4 110.5 115.4
Change in value during year (b-a) (c) 1.9 2.2 (7.0) 2.3 2.5 5.4
Dividends paid (d) 6.8 6.8 6.8 6.7 6.7 6.7
Additional impact of dividend reinvestment
(e) 0.3 0.3 (0.2) 0.5 0.4 0.3
Total gain in year (c+d+e) (f) 9.0 9.3 (0.4) 9.5 9.6 12.4
Total return for the year = (f/a) 8.1% 8.4% (0.3)% 8.8% 8.9% 11.3%
EPRA Performance Measures
The European Public Real Estate Association is the industry body representing
listed companies in the real estate sector. EPRA publishes Best Practice
Recommendations ('BPR') to establish consistent reporting by European property
companies. Further information on the EPRA BPR can be found at www.epra.com
(http://www.epra.com) .
The figures below are calculated and presented in line with the BPR Guidelines
published by EPRA in February 2022.
2022 2021
EPRA Net Reinstatement Value (£'000) 756,708 609,630
EPRA Net Tangible Assets (£'000) 696,483 564,934
EPRA Net Disposal Value (£'000) 721,024 563,796
EPRA Net Reinstatement Value per share (pence) 122.0 119.2
EPRA Net Tangible Assets per share (pence) 112.3 110.4
EPRA Net Disposal Value per share (pence) 116.2 110.2
EPRA Earnings (£'000) 39,674 34,047
Group specific adjusted EPRA earnings (£'000) 30,242 25,955
EPRA Earnings per share (pence) 6.62 7.16
Group specific adjusted EPRA earnings per share (pence) 5.05 5.46
EPRA Net Initial Yield 5.38% 5.76%
EPRA Topped-up Net Initial Yield 5.82% 5.83%
EPRA Vacancy Rate - -
EPRA Cost Ratio - including direct vacancy costs 21.5% 22.3%
EPRA Group specific adjusted Cost Ratio (including direct vacancy costs) 27.1% 26.6%
EPRA Cost Ratio - excluding direct vacancy costs 21.5% 22.3%
EPRA Group specific adjusted Cost Ratio (excluding direct vacancy costs)
27.1% 26.6%
EPRA Loan-to-Value 24.0% 17.8%
Capital Expenditure (£'000) 209,540 54,859
Like-for-like Rental Growth 4.6% 0.1%
EPRA NAV metrics and EPRA Earnings
Full details of these calculations, including reconciliations of each to the
IFRS measures, are detailed in note 4 to the extract from the Consolidated
Financial Statements.
EPRA Net Initial Yield and EPRA Topped-up Net Initial Yield
EPRA Net Initial Yield is calculated as annualised rental income based on the
cash rents passing at the balance sheet date, less non-recoverable property
operating expenses, divided by the market value of the property, increased
with (estimated) purchasers' costs. The EPRA Topped-up Net Initial Yield
incorporates an adjustment in respect of the expiration of rent-free periods
(or other unexpired lease incentives).
2022 2021
£'000 £'000
Annualised passing rental income based on cash rents (a) 51,217 40,763
Notional rent expiration of rent-free periods or other lease incentives
4,259 450
Topped-up net annualised rent (b) 55,476 41,213
Standing assets including properties held for sale (see notes 5 and 6)
892,336 662,495
Allowance for estimated purchasers' costs 60,225 44,696
Grossed-up completed property portfolio valuation (c) 952,561 707,191
EPRA Net Initial Yield = (a/c) 5.38% 5.76%
EPRA Topped-up Net Initial Yield = (b/c) 5.82% 5.83%
EPRA Vacancy Rate
EPRA Vacancy Rate is the estimated rental value (ERV) of vacant space
(excluding forward fund developments and properties held for sale) divided by
the contractual rent of the investment property portfolio, expressed as a
percentage.
2022 2021
£'000 £'000
Annualised potential rental value of vacant premises* (a) - -
Annualised potential rental value of the property portfolio (including vacant
properties)
(b) 55,476 41,213
EPRA Vacancy Rate = (a/b) - -
* There were no unoccupied properties at either 30 June 2022 or 30 June 2021.
EPRA Cost Ratio
The EPRA cost ratios are produced using EPRA methodology, which aims to
provide a consistent base-line from which companies can provide additional
information, and include all property expenses and management fees. Consistent
with the Group specific adjusted EPRA earnings detailed in note 4 to the
extract from the Consolidated Financial Statements, similar adjustments have
been made to also present the adjusted Cost Ratio which is thought more
appropriate for the Group's business model.
Year ended Year ended
30 June 2022 30 June 2021
£'000 £'000
Investment management fee 7,307 5,796
Credit loss allowance and bad debts 3,232 2,717
Other expenses 3,163 2,617
EPRA costs (including direct vacancy costs) (a) 13,702 11,130
Specific cost adjustments, if applicable - -
Group specific adjusted EPRA costs (including direct vacancy costs) (b)
13,702 11,130
Direct vacancy costs (c) - -
Gross rental income per IFRS (d) 63,859 49,980
Adjusted for rental income arising from recognising guaranteed rent review
uplifts and lease incentives
(10,215) (8,739)
Adjusted for surrender premiums recognised in capital (3,877) -
Adjusted for development interest under forward fund arrangements
783 647
Group specific adjusted gross rental income (e) 50,550 41,888
EPRA Cost Ratio (including direct vacancy costs) = (a/d) 21.5% 22.3%
EPRA Group specific adjusted Cost Ratio (including direct vacancy costs)
= (b/e) 27.1% 26.6%
EPRA Cost Ratio (excluding direct vacancy costs) = ((a-c)/d) 21.5% 22.3%
EPRA Group specific adjusted Cost Ratio (excluding direct vacancy costs)
= ((b-c)/e) 27.1% 26.6%
EPRA Loan-to-Value
As at As at
30 June 2022 30 June 2021
£'000 £'000
Borrowings 234,750 130,000
Net payables 18,213 13,113
Cash and cash equivalent (34,483) (21,106)
Net debt (a) 218,480 122,007
Investment properties at market value 911,596 677,525
Properties held for sale - 7,320
Total property value (b) 911,596 684,845
EPRA Loan-to-Value = (a/b) 24.0% 17.8%
EPRA Capital Expenditure
Year ended Year ended
30 June 2022 30 June 2021
£'000 £'000
Acquisitions (including acquisition costs) 178,830 34,808
Forward fund developments 28,851 20,032
Like-for-like portfolio 1,859 19
Total capital expenditure 209,540 54,859
Conversion from accrual to cash basis (2,547) (3,459)
Total capital expenditure on a cash basis 206,993 51,400
Like-for-like Rental Growth
Year ended Year ended
30 June 2022 30 June 2021
£'000 £'000
Opening contractual rent (a) 41,213 39,013
Rent reviews 1,581 686
Movement in variable rental leases - (162)
Re-tenanting of properties 312 (468)
Like-for-like rental growth (b) 1,893 56
Acquisitions and developments 12,370 2,582
Disposals - (438)
Total movement (c) 14,263 2,200
Closing contractual rent = (a+c) 55,476 41,213
Like-for-like rental growth = (b/a) 4.6% 0.1%
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