REG - Target H'care REIT - Final Results
17/09/2024 07:00
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RNS Number : 4090E Target Healthcare REIT PLC 17 September 2024
17 September 2024
Target Healthcare REIT plc
ANNUAL RESULTS FOR THE YEAR ENDED 30 JUNE 2024
Total return outperformance and NTA growth with portfolio management
initiatives
improving sector-leading real estate quality metrics
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 annual results for the year ended 30 June 2024.
Accounting total return of 11.8%; earnings growth; six consecutive quarters of
EPRA NTA and valuation growth; fully covered dividend.
· NAV total return((1)) of 11.8% (2023: -1.2%)
· EPRA NTA per share increased 5.9% to 110.7 pence (2023: 104.5 pence)
· Adjusted EPRA earnings per share increased 2.2% to 6.13 pence
per share (2023: 6.00 pence)
· Return to a progressive dividend policy with quarterly dividends
increased by 2% compared to rate as at 30 June 2023. Annual dividend of 5.712
pence, being 7.6% lower than 2023 (6.18 pence) following the reduction in Q1
2023.
· Intention to increase the quarterly dividend in respect of the year
ending 30 June 2025 by 3.0% to 1.471 pence per share, representing an annual
total dividend of 5.884 pence
· Dividends in respect of the period were 107% covered by adjusted
EPRA earnings. Under the widely-used EPRA earnings metric the annual dividend
was 133% covered
· Net loan-to-value ("LTV") of 22.5% as at 30 June 2024, with an
average cost of drawn debt, inclusive of the amortisation of loan arrangement
costs, of 3.91% and weighted average term to maturity of 5.2 years. £230
million of debt, being 95% of total drawn debt at 30 June 2024, fully hedged
to maturity against further interest rate increases
Continued strong performance from prime modern portfolio underpinned by
supportive demographic tailwinds, with no vacancy, record rent covers, and
like-for-like rental growth of 3.8%.
· Portfolio of 94 properties, consisting of 92 modern operational care
homes and two pre-let sites let to 34 tenants
· Portfolio value increased by £39.8 million, or 4.6%, to £908.5
million, including a like-for-like increase of 3.7% (2023: decrease of 4.1%)
· Continued improvement across all key metrics of underlying
trading performance at the homes, with 99% of rent collected for the year
(2023: 97%) and mature homes rent cover of 1.9x (2023: 1.75x). Mature homes
spot occupancy has remained steady at 87%
· Contractual rent increased by 4.0% to £58.8 million per annum (2023:
£56.6 million), including a like-for-like increase of 3.8% (2023: 3.8%)
predominantly driven by rent reviews
· Disposals of £44.3 million (net of costs), ahead of carrying value,
for four older assets with the shortest remaining lease terms in the portfolio
at an implied net initial yield of 5.64%
· One of the longest weighted average unexpired lease terms in the
listed UK real estate sector of 26.4 years (2023: 26.5 years)
· Two additional best-in-class homes (126 beds) under development
at year end with three, including the Group's first operationally Net Zero
Carbon care home, having reached practical completion during the year
Responsible investment strategy continues to provide a clear differentiator in
improving the UK's care home real estate with a future-proofed portfolio with
compelling sector tailwinds.
· Long-term demand from ageing population supporting 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, and portfolio
improvements throughout the year
o Modern, purpose-built care homes; full en suite wet-rooms account for 99%
(2023: 98%) of the portfolio compared to just 33% for all UK care homes
o 84% of the portfolio is purpose-built from 2010 onwards (2023: 80%)
o 99% of the portfolio is A or B EPC rated (2023: 94%)
o Sector-leading average 48m(2) of space per resident (2023: 47m(2))
((1)) Based on EPRA NTA movement and dividends paid
Alison Fyfe, Chair of the Company, said:
"Target Healthcare REIT has provided another year of solid portfolio and
financial performance. Accounting total return was 11.8%, reflecting the
continued resilience of our business model and informed investment approach.
Our predictable and robust rental stream provides annual growth with its
inflation-linkage, and the valuations of our prime, modern care home assets
remain stable given institutional investment demand.
"Our portfolio is comprised of high-quality care home real estate, which is
highly desired by operators for its well-designed modern properties from which
they can provide profitable care, and by institutional investors for its
growing rental income and low volatility of returns. We have clear evidence
that transactions in prime care home real estate such as ours are supportive
of our valuations.
"Along with long-term returns for shareholders, we firmly believe our approach
benefits our wider stakeholder group, most particularly our tenants and their
residents, and this will remain critical to our approach."
Results presentation
A webcast presentation for analysts will take place at 8.15am BST this
morning, for which registration can be accessed at:
https://stream.brrmedia.co.uk/broadcast/66d72d05a576c20bfece0a59
(https://stream.brrmedia.co.uk/broadcast/64e771c98fa54022913411e5)
LEI: 213800RXPY9WULUSBC04
Enquiries:
Target Fund Managers 01786 845 912
Kenneth MacKenzie / Gordon Bland
Stifel Nicolaus Europe Limited 020 7710 7600
Mark Young / Rajpal Padam / Catriona Neville
FTI Consulting 020 3727 1000
Dido Laurimore / Richard Gotla / Talia Shirion 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 2024 comprised 94 assets let to 34 tenants
with a total value of £908.5 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.
Chair's Statement
I am pleased to report that Target Healthcare REIT has provided another year
of solid portfolio and financial performance. Accounting total return was
11.8%, reflecting the continued resilience of our business model and informed
investment approach. Our predictable and robust rental stream provides annual
growth with its inflation-linkage, and the valuations of our prime, modern
care home assets remain stable given institutional investment demand. Along
with long-term returns for shareholders, we firmly believe our approach
benefits our wider stakeholder group, most particularly our tenants and their
residents, and this will remain critical to our approach.
1. Reflections
Listed property companies continue to largely trade at a discount to EPRA NTA
as investors' capital allocations are directed elsewhere. However, a more
positive outlook for property markets is perhaps being noticed as the trend to
lower inflation and interest rates solidifies. In contrast to the share price
discount, property portfolios invested in modern assets with strong
environmental credentials and solid underlying user demand fundamentals have
performed well. The main questions being posed by participants in the listed
market to those running property companies right now are:
Earnings - where is growth coming from?
Our leases have contractual annual uplifts linked to inflation and our
operators' improving rent cover is evidence of their ability to pay these
growing rents on a sustainable basis. This helps underpin our confidence in
the outlook for the Group's earnings growth, which should feed through to
progressive growth in dividends as we control operating and finance costs.
Valuations - are they reliable?
The prevailing mismatch between market evidence of direct investment in our
sector and stock market valuations has attracted comment. Whilst we can't
answer for all property, we have clear evidence that transactions in prime
care home real estate such as ours are supportive of our valuations. We have
transacted on £71 million of asset disposals since late 2022, all at or above
book value and with positive return metrics. Our disposal of four assets in
June 2024 was at an implied net initial yield of 5.6% and comprised some of
our older and less spacious properties. Reliability of our valuations is
further supported by their lack of volatility. During the macro-driven
sector-wide yield shift seen in late 2022 the initial reaction was an outward
yield shift of 40-50bps in our assets which then stabilised relatively quickly
at only 30-40 bps as evidence from transactional activity and the strong
underlying trading performance across our portfolio provided reliable data
points for valuers. We have seen valuation growth for six consecutive quarters
since.
Debt - is it serviceable at higher rates?
Our debt levels are amongst the lowest in the REIT universe at 22.5% net LTV
and a net debt to EBITDA ratio of 4.6x. We have greater than 60% of our drawn
debt on long-term, low fixed rate facilities with remaining terms of 8-13
years and we have executed value-adding hedging strategies on our shorter-term
bank debt. Our ability to generate capital from asset disposals has allowed us
to finance our development commitments efficiently and manage debt levels.
Our forecasting has long anticipated higher interest rate levels on the
refinancing of our shorter-term bank debt as our existing hedged facilities
mature, with this having been reflected in all our material decision-making.
We have obtained terms to refinance our shorter-term bank facilities (£170
million) which we are currently assessing. The structure of these revised
facilities will be aligned with our current capital requirements and will
provide the flexibility we need to respond proactively to investment
opportunities as they are identified.
Assets and long-term fundamentals - are they suitable for the changed
investment environment?
In short, we remain confident that our assets and investment approach have the
necessary characteristics to support sustainable long-term returns. Our
portfolio is comprised of high-quality care home real estate, which is highly
desired by operators for its well-designed modern properties from which they
can provide profitable care, and by institutional investors for its growing
rental income and low volatility of returns.
Our approach benefits from, but does not rely upon, the widely understood
demographic changes from an ageing population. We believe the future of care
home provision is in modern real estate with en suite wet-rooms for all
residents and adequate social and outdoor space, of which there is a chronic
under-supply. Investing capital in such property now may well be
lower-yielding given the high cost of land and construction, however, the
longevity of our hold period and the compounding effect of rents growing
annually will provide attractive returns. We further believe that our approach
helps mitigate the risk from any issues that might arise with the public
funding of care. There are clear trends to suggest that residents and their
families choose to live in a higher quality physical environment where
available, with significant net wealth in those aged over 65 to support this
demand and the private fee bias of our model. Our environmental credentials
are market leading within commercial real estate, at 99% A & B EPC
ratings, and will not require the significant remedial capital expenditure
that many other portfolios will.
Further detail on the care home sector is included in the Investment Manager's
Report below.
2. Performance
Our accounting total return performance was 11.8% for the year, driven by an
EPRA NTA increase of 5.9% (110.7 pence from 104.5 pence) and dividends paid in
the year.
Adjusted EPRA earnings per share increased by 2.2% to 6.13 pence translating
to 107% dividend cover for the year. Under the widely-used EPRA earnings
metric the dividend was 133% covered. The quarterly dividend paid in respect
of the year was 2.0% higher than that at June 2023, as we returned to a
progressive dividend, though the total dividend per share for the year shows a
reduction of 7.6% as the higher rate for the first two quarters of the prior
year are still reflected in the annual change.
Our earnings outlook is robust, with rent collection near full and supported
by record levels of rent cover for the portfolio. The Investment Manager's
Report covers the portfolio in more detail below. We have minimised the impact
of the higher interest rate environment on our finance costs through our
existing long-term fixed rate facilities, our hedging programme and by using
the proceeds from asset disposals to reduce drawn debt.
The positive portfolio valuation movement has been driven by market movements,
our disposals programme, and then the impact of rental uplifts providing an
overall increase of 4.6% and a like-for-like increase of 3.7%. Contracted rent
has increased by 4.0% to £58.8 million, including 3.8% on a like-for-like
basis.
3. ESG considerations
Target has a strong commitment to being a responsible business, and our
business model is one which prioritises a positive social impact. Through the
year, we have been focussed on finalising plans for our portfolio's transition
to net zero carbon through our Net Zero Pathway (NZP) plan.
Our starting point, measured by the carbon intensity of our portfolio as
calculated by external experts, shows us to be in a very strong position, one
which is currently ahead of where we need to be in order to meet science-based
target levels to restrict global temperature increases to 1.5C. We are
therefore in an excellent position relative to other property companies. There
is more detail in our sustainability reporting and below.
4. Annual General Meeting ('AGM')
The AGM will be held in London on 9 December 2024. Shareholders that are
unable to attend 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.
5. Looking ahead
Our investment thesis is a simple one: we invest in high-quality care home
assets. This approach has produced strong long-term returns with low
volatility of performance as well as achieving our social purpose to improve
the standard of care homes real estate. We encourage regular shareholder
engagement, which has been positive and supportive of our patient and
disciplined strategy to grow the portfolio and further our social purpose. We
are open to, and regularly assess, alternative approaches and opportunities
that fall outside our core strategy, and continue to consider where best to
invest shareholder capital. We remain firmly committed to our investment
approach and therefore set the following priorities:
• Manage our portfolio to ensure its performance is consistent with
its inherent quality and trading advantages;
• Be opportunistic and nimble with respect to market conditions and
all potential uses of capital, supported by a stable yet flexible funding
platform; and
• Provide a growing dividend complemented by attractive total
returns over the long-term.
In the absence of unforeseen circumstances, the Board intends to increase the
quarterly dividend in respect of the year ending June 2025 by 3.0% to 1.471
pence per share, providing an annual total dividend of 5.884 pence. This
increase represents a modest premium to RPI of 2.9% for the year ended 30 June
2024. The quality of our rental stream and its guaranteed growth allow us to
grow our dividends to shareholders with confidence.
Our portfolio consists of premium quality assets in a defensive investment
class with compelling demand tailwinds, representing a great foundation for
our future.
Alison Fyfe
Chair
16 September 2024
Investment Manager's Report
Portfolio performance
Two key portfolio metrics are presented in this report which are reflective of
the investment grade characteristics of our prime, modern UK care home
portfolio. Firstly, rental growth was 3.8% on a like-for-like basis (2023:
3.8%) and has been supported by a quality rental stream from 34 tenants with
robust rent covers of 1.9x (2023: 1.6x). Underlying demand for places in our
homes remains high at 87% mature home occupancy (2023: 85%) with scope for
further profitability growth as occupancy trends further towards the 90%
long-term average.
Secondly, portfolio-level total returns continue to impress. We are delighted
to have been the top performer in the MSCI UK Annual Healthcare Property Index
for the calendar year 2023, coming first of 37 contributors at 9.7% total
return. More importantly, this is sustained performance as we rank second over
the 10-year period ending 2023. Investment demand in an active market supports
valuations, with the like-for-like valuation growth for the year of 3.7%
largely driven by the growth in rents as valuation yield volatility remains
low for prime care homes.
Our portfolio metrics are strong. 90% of homes are mature in their trading,
84% are younger than 2010-build date, and the WAULT remains long at over 26
years. These characteristics and the bias towards private-fee payments of our
tenants' revenue (74%) all support the quality of our rental stream and its
annual and compounding long-term growth. We continue to be able to re-tenant
assets to alternative operators where it benefits the overall portfolio. We
transitioned a home in the North-East of Scotland to an operator with a core
focus in that region, and consistent with previous tenant changes, this was
achieved at no change to the prevailing, sustainable rent level and with no
Group-funded incentives required. The portfolio metrics have also benefitted
from our disposal programme. The £44.3 million transaction for four care
homes prior to the year-end was (i) at an implied NIY of 5.6%, ahead of the
portfolio average of 6.2%; (ii) for four of the oldest assets in the
portfolio; and (iii) for four of the shortest remaining lease terms. The
proceeds have been used to reduce drawn debt levels and to fund construction
of the Group's development assets, providing brand new, purpose-built beds on
35-year leases to replace the older assets subject to disposal.
Care home trading
Our typical investment appraisal is based on a home's ability to achieve
earnings at least 1.6x the home's rent, to provide headroom and financial
resilience. The portfolio has achieved 1.9x rent cover this year, endorsing
our investment case on the trading potential of prime care home real estate,
particularly given resident occupancy is not at capacity. We continue to
believe this is at least partly due to tenants' reluctance to fill beds 'at
any cost', with many being resistant to accepting financially unviable fees
from publicly-funded sources. Profitability follows growing revenue in a
well-run business, and we believe this trend will continue for those who have
chosen to follow a 'quality first' ethos with regard to building suitability.
There is increasing evidence that post Covid the flight to quality is
accelerating with families willing and prepared to pay for better facilities
for their loved ones.
Average weekly fees for residents have increased by c.9%-10% as a result of
the above approach and inflationary cost increases are largely being passed
on. Staff costs are the largest and potentially most volatile expense item for
a home and are therefore the bellwether for the sustainability of home
profitability. Staff costs per resident per week have increased by a similar
percentage as fees, whilst agency usage and costs have reduced as operators
manage costs.
Investment market
Low volatility of valuation continues
The UK care home investment market remained muted relative to the pre-2022
average. Some of the major investors paused activity, with availability of
capital and the yield available relative to the risk-free rate being
constraining factors. Scarcity of quality product in the market has also been
a key theme with sales activity in the main driven by investment holders
requiring to re-balance their asset weightings and to generate liquidity.
There has been competitive tension for prime assets, with lower demand for
sub-prime where pricing has moved out towards net initial yields of 10%. Care
homes with strong ESG credentials remain attractive targets for investment
activity.
On pricing, the reaction to the 2022 mini budget was an initial outward yield
movement of 40-50 bps which then softened marginally to 30-40 bps. This
reflects what we observed in the transactional market for deals completing,
and also in the portfolio EPRA topped-up NIY of 6.20% compared to that of two
years ago at 30 June 2022 of 5.82%. Prime care homes have once again proven to
be less volatile than All Property whilst still providing returns at an
attractive spread to the risk-free rate.
Health and social care update
We note below a number of areas which are prominent in our minds and those of
our tenants:
Change of Government and the future of social care
During the July 2024 General Election campaign, the Conservatives chose to
promote their multi-year funding settlement to Local Authorities as well as
their commitment to implement the previously postponed 'Dilnot' cap on social
care costs from October 2025. Labour mirrored the same care cap proposal along
with the creation of a National Care Service, and an intention to establish a
fair pay agreement across the sector.
Subsequent to its win the new Labour government cancelled the proposed
'Dilnot' cap on care costs and proposed instead a much broader rethink of
policy, likely including a Royal Commission on the matter. Private operators
may be encouraged by pre-election comments of Wes Streeting, (now) Secretary
of State for Health and Social Care, who said he was 'pragmatic' about the use
of private health in support of the NHS going forward. Also, it is recognised
by Government that care homes and the wider social care sector are an
essential aide to the smooth running of the NHS. The Labour Government has set
a priority on improving the flow through NHS hospitals - including by allowing
earlier discharges and the likely consequence of this will be to increase
demand for care home provision.
Staffing and inflationary pressures
Recruitment has eased considerably over the course of the year, and while
concerns have been raised recently about the fall in health and social care
worker visa applications, many operators are reporting stable staffing, with
the use of expensive agency support reduced back to more historical low levels
and used mainly for routine gaps in staffing, brought about by unplanned
shortages such as sickness cover. Operators are however watching applications
with some disquiet, as the previous Government's decision to restrict
accompanying dependants from applicants (while not doing the same for NHS
applicants) has created a nervousness that future applicants may choose other
geographies over the UK and worry that come reapplication time for existing
visa holders, unknown numbers may not choose to stay.
The minimum wage rise, while putting pressure on organisations who rely on
lower publicly funded fee rates, is widely supported by the sector, who value
the dedication of those who choose the sector as much from a vocational
perspective as simply just routine employment. Most operators will however be
watching with interest the new Government's intention to introduce collective
and fair pay agreements across adult social care, which will push costs up
going forward with a resultant pressure on fee inflation.
Demographics of those of working age may become more of a challenge for the
sector. The 150,000 vacancy volume across the sector has recently been reduced
to 130,000, according to the organisation 'Skills for care', but the same
organisation notes if the workforce need grows in line with demographic
changes an extra 440,000 roles will be required by 2035. There are currently
440,000 posts filled by people who will reach retirement age in the next 10
years.
Regulation
English operators who have suffered some frustration with the Care Quality
Commission (CQC), since the introduction of the regulator's new 'single
assessment framework' last autumn, feel slightly vindicated in the
Government's 'Dash' report, which highlights some serious concerns in the
methodology for inspections and ratings. Wes Streeting, the Secretary of State
for Health and Social Care, went as far as to say it was clear to him that the
CQC was 'not fit for purpose'. While this is a relief to many operators, in
that they too found difficulty in understanding what was expected of them, it
potentially causes further frustration in the delay of inspections for homes
deemed 'Required Improvement', where operators are delayed in communicating a
clean bill of health to potential clientele. It is too early to say whether
the CQC will be subject to tinkering reform, or whether more sweeping change
will take place.
Target Fund Managers Limited
16 September 2024
Our Strategy
We are a responsible investor in ESG-compliant, purpose-built care home real
estate which is commensurate with modern living and care standards.
We are advocates of the benefits that intelligently designed, purpose-built
care homes can bring and we want more residents, care professionals, families
and local communities to benefit from their positive social impact.
Our Investment Manager is a specialist who understands the operational
challenges our tenants face on a daily basis when providing quality care.
The key strengths of our approach are:
1. Our premium quality real estate is attractive to both operators and
investors, in that:
a. it is future-proofed against legislative change and societal trends
influencing demand, and;
b. it generates high quality earnings from financially sustainable rents
2. Specialist manager, highly engaged within sector and with our tenants
3. Prudent approach to financial risks with diversified income sources,
low gearing and long-term, fixed rate debt
Strategic pillar #1
Build high-quality portfolio: Acquire high quality real estate via a mix of
new developments, recently completed builds, and modern assets at mature
trading.
We are creating a portfolio of scale through investment in a mix of
development sites, recently completed builds and modern assets with a trading
track record. Our clear focus on the quality of real estate and sustainable
long-term trading provides a stable platform for consistent total returns.
Focus on enhancing modernity and quality metrics
Consistent with the prior year, the negative spread between our marginal cost
of capital and available investment yields have seen us pause new investment
and focus on enhancing the existing portfolio. We have continued to dispose of
assets where their returns outlook is less favourable and/or where they sit at
the lower end of our quality rankings. Disposal proceeds have been applied to
fund the committed development of new-build assets rather than drawing debt
with an expensive marginal cost.
Disposals of four assets this year follow last year's five disposals. All have
been made at or above carrying value, and at attractive return metrics. We
have been active on five development sites during the year, with three homes
reaching practical completion, adding 203 beds and £2.5m of contractual rent
to the portfolio, including our first operationally carbon zero home. We
remain active on two sites at year-end, which will add a further 126 beds and
£1.5m of contractual rent at practical completion, expected in Autumn 2024.
These initiatives further enhance the portfolio's modernity and longevity. The
positive impact can be seen through the progression in key portfolio metrics
relative to the start of the year:
2024 2023
Purpose- built 2010 onwards 84% 80%
WAULT (years) 26.4 26.5
EPC A&B rated 99% 94%
Best-in-class care home real estate
Our investment thesis remains that modern, purpose-built care homes will
outperform poorer real estate assets and provide compelling returns.
Wet-rooms (99%): These are essential for private and dignified personal
hygiene, with a clear trend to this being the minimum expected standard for
care home beds.
Carbon reduction (99% EPC A or B; 100% C or better): Energy efficiency of real
estate is critical, with legislative change and public opinion demanding
higher standards. Our portfolio is compliant with anticipated incoming
legislation.
Purpose-built and modern (100%): All our properties are designed and built to
be used as care homes and to best meet the needs of residents and staff.
Financials: Our metrics reflecting capital values and rental levels compare
favourably with peers, despite significantly better real estate, demonstrating
sustainability and longevity.
Premium, purpose-built portfolio: We are significantly ahead of our listed
peers across a range of key quality metrics.
Group Listed Peers Average(1)
Purpose-built since 2000 97% 41%
En suite wet-rooms 99% 29%
Space per resident 48m(2) 40m(2)
Portfolio Topped-up NIY 6.2% 6.5%
Average rent per m(2) £195 £183
Average value per m(2) £3.0k £2.6k
(1) Listed Peers Average is comprised of publicly available information
available or disclosed by Impact
Healthcare REIT and Aedifica (in relation to their UK portfolio).
Stable valuations growing with rental income
The portfolio value increased by 4.6% during the year, driven by an increase
of £50.3 million from capital expenditure under the Group's development and
asset improvement programmes, offset by disposals of £42.4 million. On a
like-for-like basis, the valuation increased by 3.7% largely reflecting the
positive impact of the Group's rental growth on valuations as well as yield
stability.
Valuation Analysis £millions
Valuation at 30 June 2023 869
Acquisitions and developments 50
Disposals (42)
Market yield shift 1
Rent reviews 31
Valuation at 30 June 2024 909
Valuation certificates are received quarterly by the Group from CBRE (from
March 2024, previously Colliers) with up-to-date values reflecting latest
asset trading and comparable market transactions. The portfolio has a strong
track record of valuation growth contributing to total returns.
Diversification
We continue to ensure the portfolio remains diversified, by leasing our homes
to a range of high-quality regional operators. The Group has 34 tenants, up
from 32 due to the completed developments and a re-tenanting, and offset by
the disposals in the year. The largest tenant remains unchanged with Ideal
Carehomes ("Ideal") operating 18 of the Group's homes and accounting for 16%
of contracted rent as at 30 June 2024. Ideal's care provision is performed
exclusively from modern, purpose-built homes, often brand-new builds, and is
one we have supported for a number of years. During the year Ideal was
acquired by the UK's largest care home operator, HC-One. Overall, our top five
tenants account for 41% and top ten, 63% of our contracted rents.
Underlying resident fees are balanced between private and public sources, with
a deliberate bias towards private. There is long-term evidence and strong
current anecdotal evidence that these residents are more accepting of higher
fees, particularly for the quality real estate and care services our
properties and their operators provide. Census data from our tenants show that
74% of residents are privately-funded, with 52% being fully private and 22%
from "top up" payments where residents pay over and above that which the Local
Authority funds for them. 26% of residents are wholly publicly funded.
Geographically, following the disposals in the year, the South East is now the
Group's largest region by asset value, at 20%, with Yorkshire and the Humber
accounting for 19%.
Strategic pillar #2
Trusted Landlord: Manage assets and tenants commercially yet fairly,
recognising the value of long-term relationships and our influence within a
complex sector.
Manage portfolio as a trusted landlord in a fair and commercial manner
The Investment Manager has deep experience within the sector and uses its
unique knowledge to manage the portfolio. Starting with informed assessment of
home performance using profitability and operational metrics, through
empathetic and sensitive engagement with our tenants and sector participants
as a whole - we are trusted and respected and people want to partner with us.
This enables fair treatment and commerciality to be balanced, essential in a
complex sector.
Portfolio operational performance - Steady occupancy and strong profitability
continues at home level
Our completed portfolio is fully let with long-term occupational leases to our
tenants, the care providers. Their underlying resident occupancies have
remained stable at 87%, consistent with the 86% we reported at this time last
year. Operators continue to focus on accepting new residents at fee levels
commensurate with the services provided, rather than filling to capacity at
uneconomic fees. This approach efficiently manages demand, minimises the need
for expensive agency staff, and facilitates a care-led approach when welcoming
new residents to a home. Staffing shortages have eased, having been an
operational challenge limiting occupancy growth in previous years.
Rent covers have responded to this approach. Having improved to a quarterly
1.9x for mature homes at the start of the year, they have remained at these
levels, with the last 12 months returning cover of 1.9x. These profitability
levels support rental payments and financial resilience, and incentivise care
providers to invest in their businesses and people.
Clearly, should operators increase resident occupancy levels towards 90% there
is potential for further growth in their underlying profitability.
Rent collection was near-full at 99% (2023: 97%) for the year, with no
exclusions for non-performing or turnaround homes.
Growing and compounding rental income
The portfolio's contractual rent roll was £58.8 million at year-end (2023:
£56.6 million). The 4.0% increase was driven by positive contribution from
capex and our developments offset by our disposals programme. Like-for-like
rental growth, which reflects the Group's annual rent reviews, is the Key
Performance Indicator used by management in assessing recurring rental growth,
with this being 3.8% for the year.
Movement in Contacted Rent £millions
Contracted rent at 30 June 2023 56.6
Rent reviews 2.1
Acquisitions and developments 2.8
Disposals (2.7)
Contracted rent at 30 June 2024 58.8
Rent from the Group's leases increase annually, linked to inflation. Collars
on this (typically 1.5%) ensure the Group receives guaranteed growth, while
caps (at a typical 4%) ensure assets do not become over-rented, risking rents
becoming unaffordable, in periods of higher inflation as we have seen
recently. This is an important aspect in providing long-term security to our
tenants, and in achieving sustainable investment returns.
Tenant and resident 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 performed by an independent third party. We use this output, alongside
learnings from the many informal points of contact we have, 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.
Resident satisfaction
Regulator (CQC in England) ratings are informative but limited. The Investment
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.
Strategic pillar #3
Deliver Returns: Convert portfolio income and capital returns into sustainable
returns to shareholders through disciplined financial and risk management.
Regular dividends for shareholders.
The Group has achieved earnings growth; NTA growth; and a dividend fully
covered by earnings from its disciplined financial and risk management.
Pence per share
EPRA NTA per share as at 30 June 2023 104.5
Acquisition costs (0.1)
Disposal 0.3
Property revaluations 5.8
Adjusted EPRA earnings 5.9
Dividends paid (5.7)
EPRA NTA per share as at 30 June 2024 110.7
Earnings
Earnings increased by 2.2%, as measured by adjusted EPRA EPS; the Group's
primary performance measure. Rental income has increased by 4.0%, with reduced
income from prior year disposals countered by inflation-linked rental growth
and new leases entered as the Group's development assets reach practical
completion. Provisioning/ credit loss allowance (for doubtful debts) was
significantly reduced from the prior year as the portfolio continues to
perform well from a rent collection and rent cover perspective, though the
reported movement has increased on a net basis given the prior year also
benefitted from the recovery of a substantial arrears balance.
The impact of inflation on the Group's operating expenses was controlled, with
a 1.1% increase for the year.
Net finance costs increased to £10.8 million from £9.4 million, driven by
the increase in drawn debt through the year and the higher interest rate
environment. The Group's interest costs are fixed/hedged on £230 million of
drawn debt until November 2025.
2024 2023
£m Movement £m
Rental income (excluding guaranteed uplifts) 58.6 +4% 56.4
Administrative expenses (including management fee and credit loss allowance)
(11.6) +8% (10.7)
Net financing costs (10.8) +15% (9.4)
Interest from development funding 1.8 +100% 0.9
Adjusted EPRA earnings 38.0 +2% 37.2
Adjusted EPRA EPS (pence) 6.13 +2% 6.00
EPRA EPS (pence) 7.61 -1% 7.67
Adjusted EPRA cost ratio 19.1% +40bps 18.7%
EPRA cost ratio 16.6% +80bps 15.8%
Ongoing Charges Figure ('OCF') 1.51% -2bps 1.53%
Expense ratio
The Group's expense ratios reflect these movements. The adjusted EPRA cost
ratio, expressing costs as a percentage of the Group's rental income,
increased slightly to 19.1% from 18.7% with the £698k net increase in the
credit loss allowance and bad debts in the year having a proportionately
larger numerator effect on the expenses than the £3.0 million growth in the
gross rental income denominator. The Ongoing Charges Figure, which provides a
measure of recurring operating expenses was fairly stable at 1.51% (2023:
1.53%), the marginal decrease being driven by reductions in the Group's
recurring cost base such as the outcome of the valuation tender conducted
during the year.
Total Returns
Accounting total return, using EPRA NTA movement and dividends paid, was a
healthy 11.8% for the year ended June 2024 and an annualised 7.4% since
launch. Our portfolio has returned like-for-like valuation growth for each of
the six quarters since the December 2022 macro-driven response to the higher
interest rate environment. Our valuations have been less volatile than the
wider commercial property population, as reported within the MSCI Monthly
Index (All Property), due to the strength of investment demand and the trading
performance at the underlying home level.
This valuation performance, allied with our dividend payouts, fully covered by
earnings for the same six-quarter period, has seen EPRA NTA grow by 5.9% over
the year, and 7.5% since the market nadir, and contribute to total returns.
The consistency of Group level accounting total returns and those at portfolio
level clearly demonstrate the stability of our business model, and the
defensive, non-cyclical nature of prime care homes as a real estate asset
class.
Debt
Debt facilities were unchanged in the year at £320 million. The weighted
average term to expiry on the Group's total committed loan facilities was 5.2
years (30 June 2023: 6.2 years), with drawn debt of £243 million incurring a
weighted average cost, inclusive of amortisation of loan arrangement costs, of
3.9% (3.7% on a cash only basis with costs excluded).
Net LTV was 22.5%, with the Group's revolving credit facilities allowing
flexible drawdowns /repayments in line with capital requirements.
Ahead of the earliest refinancing point in November 2025, the Group has (i)
obtained refinancing terms from its existing bank lenders and (ii) presented
to a number of lenders in the private placement markets. Both avenues have
yielded commercially attractive refinancing terms and options, and evidenced
appetite/demand. These are being carefully assessed with respect to the
Group's preferred financing structure and capital requirements.
Debt Provider Facility Size Drawn at
Debt Type 30 June 2024 Maturity
Phoenix Group £150m Term debt £150m (fixed rate) Jan 2037 - £63m Jan 2032 - £87m
RBS £70m £30m Term debt £30m (hedged) Nov 2025
£40m Revolving credit facility £13m (floating rate)
HSBC £100m Revolving credit facility £50m (hedged) Nov 2025
Total £320m £243m
Net debt to EBITDA ratio of 4.6x (2023: 4.8x)
This is a leverage ratio that compares the Group's long-term liabilities in
the form of net debt to an estimate of its cash flow available to pay down
this debt, in the form of EBITDA (which stands for earnings before interest,
taxes, depreciation and amortisation).
The Group uses adjusted EPRA earnings as its EBITDA, and the gradual reduction
illustrates the improvement in the Group's ability to repay the capital value
of its debt from earnings over a period in which interest rates have risen.
Strategic pillar #4
To achieve our social purpose: To adhere to our responsible investment
fundamentals, delivering positive social impact allied with a firm commitment
to environmental sustainability and good governance.
We have a clear ESG Charter (Targeting Tomorrow) to ensure the social impact
objective we launched with remains embedded in our business for years to come,
working with shareholders, tenants and other stakeholders. We have made firm
ESG commitments which we measure and report progress on annually.
ESG commitments
What this means for Target Status
Responsible investment Continue to provide better care home real estate which results in positive Met
social impact for residents, their carers and local communities.
Support the sector's transition from poor real estate standards via long-term Met
financial/ investment support for new developments.
Obtain reliable certification and insightful data on the energy efficiency of Met
our real estate.
Increase data coverage of energy consumption by our tenants, aiding Met
transparency and our ability to positively influence energy efficiency.
Ensure ESG factors embedded into acquisition process and portfolio management. Met
Net zero commitment. Partially met
Responsible partnerships Engage with tenants to ensure real estate is meeting their operational and Partially met
staff needs, allowing effective care for residents.
Use energy data obtained from tenants to positively influence behaviours where Partially met
possible.
Be a responsible landlord to our tenants and their communities through Met
significant challenges, such as pandemics.
Responsible business To establish an ESG Committee to provide appropriate focus and impetus to ESG Met
matters.
Ensure the benefits of Board diversity are achieved. Partially met
Participate in benchmarking and sector appropriate programmes to provide Partially met
comparable information to stakeholders.
Other reporting: Align financial and non-financial reporting with widely used Partially met
frameworks.
ESG Commitments in focus: Net Zero Pathway (NZP)
Quality of input data
Achieving a zero-carbon portfolio is a crucial part of our suite of "targeting
tomorrow" commitments as a responsible business. It is essential to adopt a
strategy that is:
(i) based on comprehensive and reliable data;
(ii) achievable and measurable; and
(iii) suitably ambitious.
We have collaborated with our tenants and are now collecting their energy
usage data to an extent (94% coverage) which our external technical experts
inform us compares strongly to sector averages. This rich data allows a
reliable analysis of our starting position and of the impacts of initiatives.
Any such output would be significantly diminished without the quality of input
data we have.
Output status
The output we currently have:
• Benchmark data on where we currently stand on carbon intensity,
relative to the CRREM and SBTi joint 1.5°C decarbonisation pathway, required
to achieve net zero in an appropriate timeframe
• Suggested energy efficiency and carbon reduction initiatives
relevant to our properties
• Cost estimates and impact assessments on carbon intensity
Next steps
We are carefully considering this information with respect to:
• How likely is grid decarbonisation and how much reliance should we
place on this versus prioritising on-site renewables?
• How effective are on-site electrification initiatives? (the most
relevant question is the relationship between heat pumps and existing heat
distribution systems within a property)
• What are our views on the value of offsetting initiatives, and the
future outlook for that market?
Certainties
• Our portfolio's modernity provides an excellent starting point,
benchmarking significantly ahead of the CRREM and SBTi current required
minimum level of intensity)
• There are a number of interventions we can pursue to reduce carbon
intensity, which appear to be effective from a cost perspective. We are
currently focussed on increasing our understanding of these to rank our
preferred initiatives.
We'll continue to perform diligence to ensure we are educated and informed.
Our NZP will have meaningful and realistic targets, and will include
stakeholder value as an objective when considering how best to deliver a
zero-carbon portfolio.
Principal and emerging risks and risk management
Risk Description of risk and factors Mitigation
affecting risk rating
Poor performance of investments/ investment assets There is a risk that a tenant's business could become unsustainable if its The Investment Manager focuses on tenant diversification across the portfolio
care homes trade poorly. This could lead to a loss of income for the Group and and, by considering the local market dynamics for each home, aims to ensure
Risk rating & change: High (unchanged) an adverse impact on the Group's results and shareholder returns. The strategy that rents are set at sustainable levels. Rent deposits or other guarantees
of investing in new purpose-built care homes could lead to additional fill-up are sought, where appropriate, to provide additional security for the Group.
risk and there may be a limited amount of time that operators can fund The Investment Manager has ongoing engagement with the Group's tenants to
start-up losses. proactively assist and monitor performance.
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 reviews within a cap and collar. The gradual fall in the RPI
environment decrease in the Group's income and be detrimental to its performance. In inflation rate since October 2022 means that, at 30 June 2024, the rate of
addition, cost increases for tenants, particularly in relation to staffing and inflation was below the level of the Group's rent review caps. The Investment
Risk rating & change: utilities, may erode their profitability and rent cover unless their revenue Manager is monitoring tenant performance, including rent covers and whether
increases accordingly. average weekly fees paid by the underlying diversified mix of publicly funded
Medium (decreased) and private-fee paying residents are growing in line with inflation.
Adverse interest Adverse interest rate fluctuations will increase the cost of the Group's The Group has a conservative gearing strategy and, although net gearing is
variable rate debt facilities; limit borrowing capacity; adversely impact anticipated to increase as the Group nears full investment, this reduced
rate fluctuations property valuations; and be detrimental to the Group's overall returns. following the property disposals in June 2024. Loan covenants and liquidity
levels are closely monitored for compliance and headroom. The Group has fixed
/ debt covenant interest costs on £230 million of its total borrowings of £243 million as at
30 June 2024.
compliance
Risk rating & change:
Medium (unchanged)
Negative A negative perception of the care home sector, due to matters such as societal The Group is committed to investing in high quality real estate with high
trends, pandemic or safeguarding failures, or difficulties in accessing social quality operators. These assets are expected to experience demand ahead of the
perception of care, may result in a reduction in demand for care home beds, causing asset sector average while in the wider market a large number of care homes without
performance to fall below expectations despite the demographic shifts and the fit-for-purpose facilities are expected to close. A trend of improving
the care home realities of needs-based demand in the sector. The resultant reputational occupancy rates across the portfolio has been noted in recent times.
damage could impact occupancy levels and rent covers across the portfolio.
sector
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. Whilst the Company's shares
Risk rating & change: relative attractiveness of investment in UK healthcare property. remain at a discount, potentially limiting access to equity capital for
further growth, discussions with existing and potential lenders indicate
Medium (unchanged) sufficient appetite to enable a refinancing on acceptable terms of the Group's
loan facilities due to expire in November 2025.
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 uses a house standard to ensure ESG factors are fully
Risk rating & change: rental income and/or property valuations. considered during the acquisition process.
Medium (unchanged)
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)
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 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. As at 30 June 2024, the Group held only two remaining developments.
Medium (decreased)
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
government and property valuations will be at risk if tenant finances suffer from policy
changes. tenants also typically have a multiplicity of income sources, with their
policies business models not wholly dependent on government funding.
Risk rating & change:
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 Investment Manager has
third party company secretary, broker, legal advisers or depositary could have potentially
negative impacts on the Group's investment performance, legal obligations, retained key personnel since the Group's IPO and has successfully hired
service compliance or shareholder relations. further skilled individuals and invested in its systems.
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 is fully briefed on relevant
matters. At the strategy meeting, as part of an overall SWOT analysis,
principal and emerging risks are discussed and reviewed to ensure that they
have all been appropriately identified and, where necessary, addressed. The
detailed consideration of the Company's viability and its continuation as a
going concern, including sensitivity analysis to address the appropriate
risks, is set out below.
Section 172 Statement: 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.
a) The likely consequences of any decision in the long term Our investment approach is long-term with an average lease length of 26.4
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 and/or considering
the level of distributions or other return of capital.
( )
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 net revenue concluded that,
having reduced the quarterly dividend in January 2023, it was in the interests
of all stakeholders to increase the Company's dividends in relation to the
year ended 30 June 2024 to reflect underlying rental growth whilst remaining
at a level which is expected to be fully covered with the potential for
further growth. As set out in more detail in the Chair's Statement, the Board
intends to increase the quarterly dividends for 2024/25 by a further 3%.
Ongoing investment and asset management activity
The Group acquired a new development site in July 2023. The new, high-quality
beds brought to the market by completion of this operationally net carbon zero
home in June 2024, combined with the Group's other developments and its asset
management activities to increase the percentage of wet rooms in the property
portfolio to 99%, illustrate the Group's intent of improving the overall level
of care home real estate in the UK. This approach targets attractive long-term
returns to shareholders by focusing on a sustainable and 'future proofed'
sector of the care home market.
The overall quality of the Group's portfolio was also improved by the disposal
of four homes from the portfolio which were in the lower quartile of the
portfolio with respect to age, lease length and overall building quality. The
disposal at an implied net initial yield of 5.64%, demonstrated to the market
the institutional grade quality and demand for both the Group's prime care
home real estate portfolio and for the wider sector.
The Group has particularly considered the level of carbon emissions from its
property portfolio, significantly improving the level of data collection and
significantly advancing its determination of a plan to reach net zero carbon
in line with the science-based target to limit warming to 1.5°C.
The Group completed the re-tenanting of a property with the rental level
remaining unchanged and green provisions being included in the revised lease.
Capital financing
The Board continued to minimise the Group's exposure to rising interest rates
on its borrowings by allocating the proceeds from the disposal above to reduce
the Group's more expensive unhedged debt and fund the remaining development
pipeline. The Board has encouraged the Investment Manager to progress the
exploration of options available to refinance the Group's shortest dated debt
facilities which expire in November 2025.
Director appointments
With the completion in the prior year of the Board's succession plan for the
medium term, Dr Thompsell took on the role of chair of the Nomination
Committee, in addition to her existing role as chair of the Remuneration
Committee, to ensure the ongoing effectiveness of the Board and continue the
process of planning for the longer term. In addition, subsequent to the
year-end, Mr Cotton has been appointed as chair of the Management Engagement
Committee.
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 Chair and other
Directors make themselves available to meet shareholders when required to
discuss the Group's business and address shareholder queries. The Directors
make themselves available at the AGM in person, with the Company also
providing 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,
Sustainability Report, regular RNS announcements, quarterly investor reports
and the Company's website. The Investment Manager holds a results presentation
on the day of publication of each of the Annual and Interim Reports, and meets
with analysts and members of the financial press throughout the year.
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
a regular survey which, during 2024, was undertaken by an external
third-party.
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 7 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. The
Company has commenced discussions with both existing and potential new lenders
in relation to refinancing the proportion of its debt facilities which will
expire in November 2025.
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
2024 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 adviser,
auditor, depositary, external valuer, company secretary, insurance broker,
surveyors and registrar. The purpose of these reviews is to ensure that the
quality of the services 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, including the
annual Strategy Meeting, 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 and which meet
the requirements of the Investment Manager's ESG Charter 'Targeting Tomorrow'.
Under the remit of the ESG Committee, the progression of the Group's ESG
strategy has prioritised gathering useful energy/consumption data on its
portfolio, whilst identifying and commencing work on a straightforward
hierarchy of initiatives to maximise the Group's impact over both the short
and longer term; and progressing the formation of a longer term portfolio
strategy in relation to setting and meeting the Group's net zero carbon
target.
Alison Fyfe
Chair
16 September 2024
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.
At 30 June 2024, the Group had a property portfolio which has long leases and
a weighted average unexpired lease term of 26.4 years. The Group had drawn
borrowings of £243.0 million on which the interest rate had been fixed,
either directly or through the use of interest rate derivatives, on £230.0
million at a maximum weighted interest rate of 3.52 per cent per annum
(excluding the amortisation of arrangement costs) and the remaining £13.0
million carries interest at SONIA plus a weighted average margin of 2.18 per
cent per annum (excluding the amortisation of arrangement costs). The Group
had access to a further £77.0 million of available debt under committed loan
facilities which, if drawn, would carry interest at a variable rate equal to
SONIA plus 2.21%. The Group's committed loan facilities have staggered expiry
dates with £170.0 million being committed 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 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 investments/ investment assets: The risk that
a tenant is unable to sustain a sufficient rental cover, leading to a loss of
rental income for the Group;
• 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;
• Adverse interest rate fluctuations: The risk that an increase in
interest rates may impact property valuations, increase the cost of the
Group's variable rate debt facilities, and/or limit the Group's borrowing
capacity;
• Negative perception of the care home sector: 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 of 200bps per annum compared to market
forecasts at 30 June 2024 (which was applied to both the Group's current
uncapped debt and to the assumed rate of refinancing of the Group's hedged
loan facilities which expire in November 2025), a reduction in the capital
value of the property portfolio of 20% and a significant default on rental
receipts from the Group's tenants equating to an aggregate of c.12% of the
Group's contracted rent roll. 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 and the
structure in place to secure rental income (such as the strength of tenants'
balance sheets, rental guarantees in place or rental deposits held). The
financial modelling assumed that the Group's dividend continued to be paid
throughout the five year period of the assessment, and that the financial
covenants on the Group's loan facilities remained substantially unchanged post
refinancing. Under the stressed scenario, the Group's net LTV was forecast to
reach a peak of 29% and no breaches were forecast in relation to the Group's
compliance with the financial covenants on each of its loan facilities.
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
2024
Year ended 30 June 2023
Year ended 30 June 2024
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Revenue
Rental income 58,615 10,927 69,542 56,354 11,308 67,662
Other income 9 - 9 86 - 86
Total revenue 58,624 10,927 69,551 56,440 11,308 67,748
Gains/(losses) on revaluation of investment properties 5 - 24,693 24,693 - (54,021) (54,021)
Gains on investment properties realised 5 - 1,934 1,934 - 575 575
Total income 58,624 37,554 96,178 56,440 (42,138) 14,302
Expenditure
Investment management fee 2 (7,518) - (7,518) (7,428) - (7,428)
Credit loss allowance and bad debts 3 (962) - (962) (264) - (264)
Other expenses 3 (3,074) - (3,074) (3,046) - (3,046)
Total expenditure (11,554) - (11,554) (10,738) - (10,738)
Profit/(loss) before finance costs and taxation 47,070 37,554 84,624 45,702 (42,138) 3,564
Net finance costs
Interest income 66 - 66 134 - 134
Finance costs (10,866) (800) (11,666) (9,572) (698) (10,270)
Net finance costs (10,800) (800) (11,600) (9,438) (698) (10,136)
Profit/(loss) before taxation 36,270 36,754 73,024 36,264 (42,836) (6,572)
Taxation - - - - - -
Profit/(loss) for the year 36,270 36,754 73,024 36,264 (42,836) (6,572)
Other comprehensive income:
Items that are or may be reclassified subsequently to profit or loss
Movement in fair value of interest rate derivatives designated as cash - (3,285) (3,285) - 2,742 2,742
flow hedges
Total comprehensive income for the year 36,270 33,469 69,739 36,264 (40,094) (3,830)
Earnings per share (pence) 4 5.85 5.92 11.77 5.85 (6.91) (1.06)
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 2024
As at As at
30 June 2024 30 June 2023
Notes £'000 £'000
Non-current assets
Investment properties 5 831,573 800,155
Trade and other receivables 88,426 76,373
Interest rate derivatives 2,820 6,905
922,819 883,433
Current assets
Trade and other receivables 5,667 9,459
Cash and cash equivalents 38,884 15,366
44,551 24,825
Total assets 967,370 908,258
Non-current liabilities
Loans 7 (240,672) (227,051)
Trade and other payables (9,893) (8,093)
(250,565) (235,144)
Current liabilities
Trade and other payables (27,512) (18,306)
Total liabilities (278,077) (253,450)
Net assets 689,293 654,808
Share capital and reserves
Share capital 8 6,202 6,202
Share premium 256,633 256,633
Merger reserve 47,751 47,751
Distributable reserve 170,347 187,887
Hedging reserve 1,741 5,026
Capital reserve 77,668 40,914
Revenue reserve 128,951 110,395
Equity shareholders' funds 689,293 654,808
Net asset value per ordinary share (pence) 4 111.1 105.6
Consolidated Statement of Changes in Equity (audited)
For the year ended 30 June 2024
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 2023 6,202 256,633 47,751 187,887 5,026 40,914 110,395 654,808
Profit for the year - - - - - 36,754 36,270 73,024
Other comprehensive income - - - - (3,285) - - (3,285)
Total comprehensive income - - - - (3,285) 36,754 36,270 69,739
Transactions with owners recognised in equity:
Dividends paid 1 - - - (17,540) - - (17,714) (35,254)
At 30 June 2024 6,202 256,633 47,751 170,347 1,741 77,668 128,951 689,293
For the year ended 30 June 2023
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 2022 6,202 256,633 47,751 226,461 2,284 83,750 75,686 698,767
(Loss)/profit for the year - - - - - (42,836) 36,264 (6,572)
Other comprehensive income - - - - 2,742 - - 2,742
Total comprehensive income - - - - 2,742 (42,836) 36,264 (3,830)
Transactions with owners recognised in equity:
Dividends paid 1 - - - (38,574) - - (1,555) (40,129)
At 30 June 2023 6,202 256,633 47,751 187,887 5,026 40,914 110,395 654,808
Consolidated Statement of Cash Flows (audited)
For the year ended 30 June 2024
Year ended Year ended
30 June 2024 30 June 2023
Note £'000 £'000
Cash flows from operating activities
Profit/(loss) before tax 73,024 (6,572)
Adjustments for:
Interest income (66) (134)
Finance costs 11,666 10,270
Revaluation (gains)/losses on investment properties and movements in lease 5 (35,620) 42,713
incentives, net of acquisition costs written off
Gains on investment properties realised 5 (1,934) (575)
Decrease/(increase) in trade and other receivables 3,083 (4,550)
Increase/(decrease) in trade and other payables 2,088 (325)
52,241 40,827
Interest paid (9,962) (8,719)
Premium paid on interest rate cap - (2,577)
Interest received 66 134
(9,896) (11,162)
Net cash inflow from operating activities 42,345 29,665
Cash flows from investing activities
Purchase of investment properties, including acquisition costs (40,927) (29,342)
Disposal of investment properties, net of lease incentives 44,344 25,789
Net cash inflow/(outflow) from investing activities 3,417 (3,553)
Cash flows from financing activities
Drawdown of bank loan facilities 52,500 62,000
Repayment of bank loan facilities (39,500) (66,750)
Expenses of arrangement of bank loan facilities - (205)
Dividends paid (35,244) (40,274)
Net cash outflow from financing activities (22,244) (45,229)
Net increase/(decrease) in cash and cash equivalents 23,518 (19,117)
Opening cash and cash equivalents 15,366 34,483
Closing cash and cash equivalents 38,884 15,366
Transactions which do not require the use of cash
Movement in fixed or guaranteed rent reviews and lease incentives 11,766 13,516
Fixed or guaranteed rent reviews derecognised on disposal or (1,449) (732)
re-tenanting
Total 10,317 12,784
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 2024, of which this statement of results is an extract,
have been prepared in accordance with applicable UK-adopted 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 development and performance of the business and
the position of the Company, including important events that have occurred
during the financial year and their impact on the financial statements;
· 'Principal and emerging risks and risk management' 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
Alison Fyfe
Chair
16 September 2024
Extract from Notes to the Audited Consolidated Financial Statements
1. Dividends
Amounts paid as distributions to equity holders during the year to 30 June
2024.
Dividend rate Year ended
(pence per share) 30 June 2024
£'000
Fourth interim dividend for the year ended 30 June 2023 1.400 8,683
First interim dividend for the year ended 30 June 2024 1.428 8,857
Second interim dividend for the year ended 30 June 2024 1.428 8,857
Third interim dividend for the year ended 30 June 2024 1.428 8,857
Total 5.684 35,254
Amounts paid as distributions to equity holders during the year to 30 June
2023.
Dividend rate Year ended
(pence per share) 30 June 2023
£'000
Fourth interim dividend for the year ended 30 June 2022 1.69 10,482
First interim dividend for the year ended 30 June 2023 1.69 10,482
Second interim dividend for the year ended 30 June 2023 1.69 10,482
Third interim dividend for the year ended 30 June 2023 1.40 8,683
Total 6.47 40,129
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 2024, of 1.428
pence per share, was paid on 30 August 2024 to shareholders on the register on
16 August 2024 and amounted to £8,857,000. 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 2024 30 June 2023
£'000 £'000
Investment management fee 7,518 7,428
Total 7,518 7,428
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
calculated 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 £156,000 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 2024 30 June 2023
£'000 £'000
Total movement in credit loss allowance 962 (4,991)
Bad debts written off - 5,255
Credit loss allowance charge 962 264
Year ended Year ended
30 June 2024 30 June 2023
£'000 £'000
Valuation and other professional fees 1,107 1,131
Auditor's remuneration for:
- statutory audit of the Company 181 131
- statutory audit of the Company's subsidiaries 277 221
- review of interim financial information 16 16
Other taxation compliance and advisory* 271 258
Secretarial and administration fees 229 208
Directors' fees 227 218
Direct property costs 199 182
Public relations and marketing 179 229
Listing and Registrar fees 115 114
Printing, postage and website 100 95
Other 173 243
Total other expenses 3,074 3,046
* 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 2024 Year ended 30 June 2023
£'000 Pence per share £'000 Pence per share
Revenue earnings 36,270 5.85 36,264 5.85
Capital earnings 36,754 5.92 (42,836) (6.91)
Total earnings 73,024 11.77 (6,572) (1.06)
Average number of shares in issue 620,237,346 620,237,346
There were no dilutive shares or potentially dilutive shares in issue.
EPRA is an industry body which issues best practice reporting guidelines for
financial disclosures by public real estate companies and the Group reports 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 2024 ended
£'000 30 June 2023
£'000
Earnings per IFRS Consolidated Statement of Comprehensive Income 73,024 (6,572)
Adjusted for gains on investment properties realised (1,934) (575)
Adjusted for revaluations of investment properties (24,693) 54,021
Adjusted for finance and transaction costs on the interest rate cap and other 800 698
capital items
EPRA earnings 47,197 47,572
Adjusted for rental income arising from recognising guaranteed rent review (10,927) (11,308)
uplifts
Adjusted for development interest under forward fund agreements 1,767 952
Group specific adjusted EPRA earnings 38,037 37,216
Earnings per share ('EPS') (pence per share)
EPS per IFRS Consolidated Statement of Comprehensive Income 11.77 (1.06)
EPRA EPS 7.61 7.67
Group specific adjusted EPRA EPS 6.13 6.00
Net Asset Value per share
The Group's Net Asset Value per ordinary share of 111.1 pence (2023: 105.6
pence) is based on equity shareholders' funds of £689,293,000 (2023:
£654,808,000) and on 620,237,346 (2023: 620,237,346) 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 2024, 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 facilities where the fair value is estimated to be lower than
the nominal value. See note 7 for further details on the Group's loan
facilities.
2024 2024 2024 2023 2023 2023
EPRA NRV EPRA NTA EPRA NDV EPRA NRV EPRA NTA EPRA NDV
£'000 £'000 £'000 £'000 £'000 £'000
IFRS NAV per financial statements 689,293 689,293 689,293 654,808 654,808 654,808
Fair value of interest rate derivatives (2,820) (2,820) - (6,905) (6,905) -
Fair value of loans - - 29,780 - - 39,672
Estimated purchasers' costs 60,026 - - 57,461 - -
EPRA net assets 746,499 686,473 719,073 705,364 647,903 694,480
EPRA net assets (pence per share) 120.4 110.7 115.9 113.7 104.5 112.0
5. Investment properties
Freehold and leasehold properties
As at As at
30 June 2024 30 June 2023
£'000 £'000
Opening market value 868,705 911,596
Opening fixed or guaranteed rent reviews (59,378) (48,802)
Opening lease incentives (9,172) (7,903)
Opening performance payments - 2,800
Opening carrying value 800,155 857,691
Disposals - proceeds (44,344) (26,728)
- gain on sale 1,382 6,088
Purchases and performance payments 45,444 23,494
Acquisition costs capitalised 332 273
Acquisition costs written off (332) (273)
Unrealised loss/(gain) realised during the year 552 (5,513)
Revaluation movement - gains 45,496 3,645
Revaluation movement - losses (8,705) (43,877)
Movement in market value 39,825 (42,891)
Fixed or guaranteed rent reviews derecognised on disposal or
re-tenanting
1,449 732
Lease incentives derecognised on disposal or re-tenanting - 939
Movement in fixed or guaranteed rent reviews (10,927) (11,308)
Movement in lease incentives (839) (2,208)
Movement in performance payments 1,910 (2,800)
Movement in carrying value 31,418 (57,536)
Closing market value 908,530 868,705
Closing fixed or guaranteed rent reviews (68,856) (59,378)
Closing lease incentives (10,011) (9,172)
Closing performance payments (see Note 10) 1,910 -
Closing carrying value 831,573 800,155
Changes in the valuation of investment properties Year ended Year ended
30 June 2024 30 June 2023
£'000 £'000
Gain on sale of investment properties 1,382 6,088
Unrealised loss/(gain) realised during the year 552 (5,513)
Gain on sale of investment properties realised 1,934 575
Revaluation movement 36,791 (40,232)
Acquisition costs written off (332) (273)
Movement in fixed or guaranteed rent reviews (10,927) (11,308)
Movement in lease incentives (839) (2,208)
Gains/(losses) on revaluation of investment properties 26,627 (53,446)
The investment properties can be analysed as follows:
As at As at
30 June 2024 30 June 2023
£'000 £'000
Standing assets 889,255 851,305
Developments under forward fund agreements 19,275 17,400
Closing market value 908,530 868,705
At 30 June 2024, the properties were valued at £908,530,000 by CBRE Limited
('CBRE'), 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. CBRE has recent experience in the location and
category of the investment properties being valued. At 30 June 2023, the
properties had been valued at £868,705,000 by Colliers International
Healthcare Property Consultants Limited ('Colliers') on the same basis.
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, lease incentives and performance payments was
£831,573,000 (2023: £800,155,000). The adjustment consisted of £68,856,000
(2023: £59,378,000) relating to fixed or guaranteed rent reviews and
£10,011,000 (2023: £9,172,000) 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 10). The total purchases in the year to 30
June 2024, inclusive of the performance payments recognised in the year, were
£47,354,000 (2023: £20,694,000).
6. Investment in subsidiary undertakings
The Group included 49 subsidiary companies as at 30 June 2024 (30 June 2023:
49). 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.
The Group did not incorporate, acquire or dispose of any subsidiaries during
the year (2023: the Group dissolved eight companies which had been acquired as
part of previous corporate acquisitions).
7. Loans
As at As at
30 June 2024 30 June 2023
£'000 £'000
Principal amount outstanding 243,000 230,000
Set-up costs (4,520) (4,520)
Amortisation of set-up costs 2,192 1,571
Total 240,672 227,051
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 2024, the Group had drawn £43,000,000
under this facility (2023: £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 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
2.17 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 2024, the Group had drawn £50,000,000 under this facility
(2023: £50,000,000).
In January 2020 and November 2021, the Group entered into committed term loan
facilities with Phoenix Group of £50,000,000 and £37,250,000, respectively.
Both these facilities are repayable on 12 January 2032. The Group has a
further committed term loan facility with Phoenix Group 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 2024, the
Group had drawn £150,000,000 under these facilities (2023: £150,000,000).
The following interest rate derivatives were in place during the year ended 30
June 2024:
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%)
50,000,000 1 November 2022 5 November 2025 nil Daily compounded SONIA above 3.0% cap HSBC
The Group paid a premium of £2,577,000, inclusive of transaction costs of
£169,000, on entry into the £50,000,000 interest rate cap in November 2022.
At 30 June 2024, inclusive of the interest rate derivatives, the interest rate
on £230,000,000 of the Group's borrowings has been capped, including the
amortisation of loan arrangement costs, at an all-in rate of 3.70 per cent per
annum until at least 5 November 2025. The remaining £90,000,000 of debt, of
which £13,000,000 was drawn at 30 June 2024, would, if fully drawn, carry
interest at a variable rate equal to daily compounded SONIA plus a weighted
average lending margin, including the amortisation of loan arrangement costs,
of 2.46 per cent per annum.
The aggregate fair value of the interest rate derivatives held at 30 June 2024
was an asset of £2,820,000 (2023: £6,905,000). The Group categorises all
interest rate derivatives as level 2 in the fair value hierarchy.
At 30 June 2024, the nominal value of the Group's loans equated to
£243,000,000 (2023: £230,000,000). Excluding the interest rate derivatives
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 2024, totalled, in aggregate,
£213,220,000 (2023: £190,328,000). 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 £226,721,000 (2023: £209,898,000).
The loans are categorised as level 3 in the fair value hierarchy given the
estimated margin is not observable market data.
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. In aggregate, the Group has granted a fixed charge over
properties with a market value of £743,265,000 as at 30 June 2024 (2023:
£762,100,000).
Under the 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 THR1 Group is greater than 225 per cent on
any calculation date;
· the interest cover for THR15 Group is greater than 200 per cent
on any calculation date; and
· the debt yield for each of THR12 Group and THR43 is greater than
10 per cent on any calculation date.
The significant terms of the facilities remained unchanged and all 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
2024 2024 2024 2023 2023 2023
£'000 £'000 £'000 £'000 £'000 £'000
Opening balance 15,366 (227,051) (211,685) 34,483 (231,383) (196,900)
Cash flows 23,518 (13,000) 10,518 (19,117) 4,955 (14,162)
Non-cash flows - (621) (621) - (623) (623)
Closing balance 38,884 (240,672) (201,788) 15,366 (227,051) (211,685)
8. Share capital
Allotted, called-up and fully paid ordinary shares of £0.01 each Number of shares £'000
Balance as at 30 June 2023 and 30 June 2024 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 2024, the Company did not issue any ordinary shares
(2023: nil). The Company did not repurchase any ordinary shares into treasury
(2023: nil) or resell any ordinary shares from treasury (2023: nil). At 30
June 2024, the Company did not hold any shares in treasury (2023: 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 7.
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. The
Group monitors capital using the net LTV ratio, which was 22.5% at 30 June
2024 (2023: 24.7%). The Board currently intends that, over the medium term,
borrowings of the Group will represent approximately 25 per cent of the
Group's gross assets at the time of drawdown.
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 capital management objectives, policies or
processes during the year.
9. Financial instruments
Consistent with its objective, the Group holds UK care home property
investments. In addition, the Group's financial instruments comprise cash,
loans and receivables and payables that arise directly from its operations.
The Group's exposure to derivative instruments consists of interest rate swaps
and interest rate caps 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 £41,536,000 (2023: £22,850,000), consisting of cash of £38,884,000
(2023: £15,366,000), accrued development interest of £1,076,000 (2023:
£1,010,000) net rent receivable of £890,000 (2023: £1,088,000), other
debtors of £686,000 (2023: £1,091,000) and cash held in escrow for property
purchases of £nil (2023: £4,295,000).
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 the initial rent is 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 2024, the Group had recognised a credit loss allowance totalling
£2,935,000 (2023: £1,972,000) against a gross rent receivable balance of
£3,267,000 (2023: £2,496,000) and gross loans to tenants totalling £952,000
(2023: £989,000). Of the gross receivable of £3,485,000 at 30 June 2023,
£383,000 was subsequently recovered and £3,102,000 is still outstanding.
There were no other financial assets which were either past due or considered
impaired at 30 June 2024 (2023: 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 2024 the Group held £37.7 million (2023: £15.2
million) with The Royal Bank of Scotland plc and £1.2 million (2023: £0.2
million) with HSBC Bank plc. Given the credit quality of the counterparties
used, no credit loss allowance is recognised against cash balances as it is
considered to be immaterial.
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 2024, interest was being received on cash at a
weighted average variable rate of 1.1% (2023: 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 (2023: £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 £93,000,000 of the variable rate
facilities had been drawn down (2023: £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 2024 and 30 June 2023.
At 30 June 2024, the Group had hedged its exposure on £80,000,000 of the
£93,000,000 of the drawn variable rate borrowings (2023: £80,000,000 of the
£80,000,000 of drawn variable rate facilities was hedged). On the unhedged
variable rate borrowings, interest is payable at a variable rate equal to
SONIA plus the weighted average lending margin, including the amortisation of
costs, of 2.46 per cent per annum (2023: 2.46 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 (2023:
£150,000,000) and has hedged its exposure to increases in interest rates on
£80,000,000 (2023: £80,000,000) of the variable rate loans, as referred to
above, through entering into a £30,000,000 fixed rate interest rate swap and
a £50,000,000 interest rate cap at 3.0%. 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 derivative 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 7, whereas
the fair value of the interest rate derivatives are recognised directly on the
Group's balance sheet.
At 30 June 2024 the Group's interest rate derivatives, which had a fair value
of £2,820,000 (2023: £6,905,000) and hedged a notional value of £80,000,000
(2023: £80,000,000), and its fixed rate term loans of £150,000,000 (2023:
£150,000,000) were exposed to fair value interest rate risk. At 30 June 2024,
an increase of 0.25 per cent in interest rates would have increased the fair
value of the interest rate derivative assets and increased the other
comprehensive income and reported total comprehensive income for the year by
£235,000 (2023: £377,000). The same increase in interest rates would have
decreased the fair value of the fixed rate term loans by an aggregate of
£2,221,000 (2023: £2,169,000); 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, demands for more precise
and rigorous valuation of sustainability features have grown in order to
evidence a 'green premium' or 'brown discount'. This has driven up the
collation of sustainability data, particularly energy usage and efficiency
data, with the existence of such a premium/discount being more pronounced in
secondary markets. However, pressures from investors, clients and customers
are expected to continue to grow over sustainability issues. This will include
social issues like the wellbeing of building users and providing benefits to
local communities, and it is expected that debates over how to measure 'value'
and how to price intangible benefits will also intensify. This, combined with
tightening UK regulations as the Government aims to make progress towards net
zero carbon emissions targets, will require landlords, especially those whose
properties do not meet the Minimum Energy Efficiency Standards' regulations,
to invest further in their properties. In addition, the UK's introduction of
mandatory climate related disclosures and the European Union's Sustainable
Finance Disclosure Regulations may impact on asset values, or how the market
views risks and incorporates them into the sale or letting of assets. There is
also the potential that future legislative change, such as an update to the
Minimum Energy Efficiency Standards or the introduction of an operational
rating, may impact future property valuations.
10. Contingent assets and liabilities
As at 30 June 2024, three (2023 six) 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 £3,695,000 (2023: £5,720,000) 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 have been met
in relation to two of these properties and therefore at 30 June 2024 an amount
of £1,910,000 (2023: £nil) 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 from the payment of the performance payment(s) and the
resulting increase in the contracted rental income.
11. Capital commitments
The Group had capital commitments as follows:
30 June 2024 30 June 2023
£'000 £'000
Amounts due to complete forward fund developments 4,723 31,066
Other capital expenditure commitments 394 2,160
Total 5,117 33,226
12. 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 £227,000 (2023:
£218,000) of which £nil (2023: £nil) remained payable at the year-end.
The Investment Manager received £7,518,000 (inclusive of irrecoverable VAT)
in management fees in relation to the year ended 30 June 2024 (2023:
£7,428,000). Of this amount £1,927,000 (2023: £1,835,000) remained payable
at the year-end. The Investment Manager received a further £187,000
(inclusive of irrecoverable VAT) during the year ended 30 June 2024 (2023:
£169,000) in relation to its appointment as Company Secretary and
Administrator, of which £47,000 (2023: £42,000) 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.
13. 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. Financial statements
This statement was approved by the Board on 16 September 2024. 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 2024 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 2024 will be posted to shareholders in October 2024 and will be
available for inspection at Level 4, Dashwood House, 69 Old Broad Street,
London, EC2M 1QS, 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 2024 will be lodged
with the Registrar of Companies following the Annual General Meeting to be
held on 9 December 2024.
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 amount by which the market price per share is lower
or higher than the net asset value per share.
2024 2023
pence pence
EPRA Net Tangible Assets per share (see note 4) (a) 110.7 104.5
Share price (b) 78.5 71.8
(Discount)/premium = (b-a)/a (29.1)% (31.3)%
Dividend Cover - the percentage by which Group specific adjusted EPRA earnings
for the year cover the dividend paid.
2024 2023
£'000 £'000
Group-specific EPRA earnings for the year (see note 4) (a) 38,037 37,216
First interim dividend 8,857 10,482
Second interim dividend 8,857 10,482
Third interim dividend 8,857 8,683
Fourth interim dividend 8,857 8,683
Dividends paid in relation to the year (b) 35,428 38,330
Dividend cover = (a/b) 107% 97%
Net Debt to EBITDA ratio - a leverage ratio that measures the net earnings
available to address debt obligations.
2024 2023
£'000 £'000
Net debt (see below) (a) 224,385 223,751
Group-specific EPRA earnings for the year (see note 4) 38,037 37,216
Net finance costs 10,800 9,438
EBITDA (b) 48,837 46,654
Net debt to EBITDA ratio = (a/b) 4.6 times 4.8 times
Ongoing Charges - a measure of all operating costs incurred, calculated as a
percentage of average net assets in that year.
2024 2023
£'000 £'000
Investment management fee 7,518 7,428
Other expenses 3,074 3,046
Less direct property costs and other non-recurring items (405) (292)
Adjustment to management fee arrangements and irrecoverable VAT*
(8) (35)
Total (a) 10,179 10,147
Average net assets (b) 673,625 661,231
Ongoing charges = (a/b) 1.51% 1.53%
* Based on the Group's net asset value at 30 June 2024, the management fee is
expected to be paid at a weighted average rate of 1.02% (2023: 1.03%) of the
Group's average net assets plus an effective irrecoverable VAT rate of
approximately 9% (2023: 9%). The management fee has therefore been amended so
that the Ongoing Charges figure includes the expected all-in management fee
rate of 1.11% (2023: 1.12%).
The Group is also required to publish a cost figure in its Key Information
Document which follows the methodology prescribed by UK law and regulations
applicable to PRIIPs. Under this methodology the reported 'portfolio
transaction costs' at 30 June 2024 would be 0.51% (2023: 0.65%). At the same
date, 'other ongoing costs' would be 3.45% (2023: 3.18%), which includes
finance costs of 1.73% (2023: 1.55%). The Company's Key Information Document
is available on its website at: www.targethealthcarereit.co.uk.
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.
2024 2023
EPRA NTA IFRS NAV Share price EPRA NTA IFRS NAV Share price
(pence) (pence) (pence) (pence) (pence) (pence)
Value at start of year (a) 104.5 105.6 71.8 112.3 112.7 108.4
Value at end of year (b) 110.7 111.1 78.5 104.5 105.6 71.8
Change in value during year (b-a) (c) 6.2 5.5 6.7 (7.8) (7.1) (36.6)
Dividends paid (d) 5.7 5.7 5.7 6.2 6.2 6.2
Additional impact of dividend reinvestment
(e) 0.4 0.4 - 0.3 0.4 -
Total gain/(loss) in year (c+d+e) (f) 12.3 11.6 12.4 (1.3) (0.5) (30.4)
Total return for the year = (f/a) 11.8% 11.0% 17.2% (1.2)% (0.5)% (28.1)%
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.
2024 2023
EPRA Net Reinstatement Value (£'000) 746,499 705,364
EPRA Net Tangible Assets (£'000) 686,473 647,903
EPRA Net Disposal Value (£'000) 719,073 694,480
EPRA Net Reinstatement Value per share (pence) 120.4 113.7
EPRA Net Tangible Assets per share (pence) 110.7 104.5
EPRA Net Disposal Value per share (pence) 115.9 112.0
EPRA Earnings (£'000) 47,197 47,572
Group specific adjusted EPRA earnings (£'000) 38,037 37,216
EPRA Earnings per share (pence) 7.61 7.67
Group specific adjusted EPRA earnings per share (pence) 6.13 6.00
EPRA Net Initial Yield 6.05% 6.05%
EPRA Topped-up Net Initial Yield 6.20% 6.22%
EPRA Vacancy Rate - -
EPRA Cost Ratio - including direct vacancy costs 16.6% 15.8%
EPRA Group specific adjusted Cost Ratio (including direct vacancy costs) 19.1% 18.7%
EPRA Cost Ratio - excluding direct vacancy costs 16.6% 15.8%
EPRA Group specific adjusted Cost Ratio (excluding direct vacancy costs)
19.1% 18.7%
EPRA Loan-to-Value 24.7% 25.8%
Capital Expenditure (£'000) 45,776 23,767
Like-for-like Rental Growth 3.8% 3.8%
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).
30 June 30 June
2024 2023
£'000 £'000
Annualised passing rental income based on cash rents (a) 57,462 55,003
Notional rent expiration of rent-free periods or other lease incentives
1,363 1,554
Topped-up net annualised rent (b) 58,825 56,557
Standing assets (see note 5) 889,255 851,305
Allowance for estimated purchasers' costs 60,026 57,461
Grossed-up completed property portfolio valuation (c) 949,281 908,766
EPRA Net Initial Yield = (a/c) 6.05% 6.05%
EPRA Topped-up Net Initial Yield = (b/c) 6.20% 6.22%
EPRA Vacancy Rate
EPRA Vacancy Rate is the estimated rental value (ERV) of vacant space
(excluding forward fund developments) divided by the contractual rent of the
investment property portfolio, expressed as a percentage.
30 June 30 June
2024 2023
£'000 £'000
Annualised potential rental value of vacant premises* (a) - -
Annualised potential rental value of the property portfolio (including vacant
properties)
(b) 58,825 56,557
EPRA Vacancy Rate = (a/b) - -
* There were no unoccupied properties at either 30 June 2023 or 30 June 2024.
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 2024 30 June 2023
£'000 £'000
Investment management fee 7,518 7,428
Credit loss allowance and bad debts 962 264
Other expenses 3,074 3,046
EPRA costs (including direct vacancy costs) (a) 11,554 10,738
Specific cost adjustments, if applicable - -
Group specific adjusted EPRA costs (including direct vacancy costs) (b)
11,554 10,738
Direct vacancy costs (c) - -
Gross rental income per IFRS (d) 69,551 67,748
Adjusted for rental income arising from recognising guaranteed rent review
uplifts
(10,927) (11,308)
Adjusted for development interest under forward fund arrangements
1,767 952
Group specific adjusted gross rental income (e) 60,391 57,392
EPRA Cost Ratio (including direct vacancy costs) = (a/d) 16.6% 15.8%
EPRA Group specific adjusted Cost Ratio (including direct vacancy costs)
= (b/e) 19.1% 18.7%
EPRA Cost Ratio (excluding direct vacancy costs) = ((a-c)/d) 16.6% 15.8%
EPRA Group specific adjusted Cost Ratio (excluding direct vacancy costs)
= ((b-c)/e) 19.1% 18.7%
EPRA Loan-to-Value
As at As at
30 June 2024 30 June 2023
£'000 £'000
Borrowings 243,000 230,000
Net payables 20,269 9,117
Cash and cash equivalent (38,884) (15,366)
Net debt (a) 224,385 223,751
Investment properties at market value 908,530 868,705
Total property value (b) 908,530 868,705
EPRA Loan-to-Value = (a/b) 24.7% 25.8%
EPRA Capital Expenditure
Year ended Year ended
30 June 2024 30 June 2023
£'000 £'000
Acquisitions (including acquisition costs) 332 234
Forward fund developments 40,368 17,385
Like-for-like portfolio 5,076 6,148
Total capital expenditure 45,776 23,767
Conversion from accrual to cash basis (4,849) 5,575
Total capital expenditure on a cash basis 40,927 29,342
Like-for-like Rental Growth
Year ended Year ended
30 June 2024 30 June 2023
£'000 £'000
Opening contractual rent (a) 56,557 55,476
Rent reviews 2,125 2,080
Re-tenanting of properties - 39
Like-for-like rental growth (b) 2,125 2,119
Acquisitions and developments 2,819 1,019
Disposals (2,676) (2,057)
Total movement (c) 2,268 1,081
Closing contractual rent = (a+c) 58,825 56,557
Like-for-like rental growth = (b/a) 3.8% 3.8%
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