REG - Target H'care REIT - Half-year Report
12/03/2024 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240312:nRSL4113Ga&default-theme=true
RNS Number : 4113G Target Healthcare REIT PLC 12 March 2024
12 March 2024
Target Healthcare REIT plc
HALF-YEAR RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2023
Improving tenant performance, rental growth and investor demand for purpose
built care homes underpins NTA growth momentum and strong total return
performance
Target Healthcare REIT plc (the "Company" or the "Group"), the UK listed
specialist investor in modern, purpose-built care homes, announces its results
for the six months ended 31 December 2023.
NTA growth and strong total return performance; robust balance sheet supported
by long-term fixed rate debt; fully covered and growing dividend
· EPRA NTA per share increased 2.1% to 106.7 pence (June 2023:
104.5 pence)
· NAV total return((1)) of +4.9% (2022: -5.4%)
· Adjusted EPRA Earnings per share((2)) increased 1.3% to 3.05
pence (2022: 3.01 pence)
· Dividend per share in respect of the period of 2.856 pence, 107%
covered on adjusted EPRA earnings((3)), with quarterly rate increased by 2%
compared to six months to 30 June 2023
· Net loan-to-value ("LTV") of 25.8% (June 2023: 24.7%), with a weighted
average cost of drawn debt at 4.0% (June 2023: 3.7%), an average term to
maturity of 5.7 years (June 2023: 6.2 years) and interest rate hedged on 91%
of drawn debt until expiry
Portfolio valuation increase reflecting demand for sustainable, purpose built
homes; continued improvement in tenants' underlying trading performance with
rent cover at highest since IPO
· Portfolio market valuation increased by 4.9% to £911.1 million
(June 2023: £868.7 million), primarily driven by:
o a 1.4% like-for-like valuation increase, comprising 2.0% from
inflation-linked rental uplifts and the unwind of rent-free periods offset by
0.6% due to outward yield movements; and
o acquisitions and capital expenditure of 3.5%.
· Contractual rent increased by 2.4% to £57.9 million (June 2023:
£56.6 million), including like‑for-like rental growth of 1.9%
· Continued improvement across all key metrics of underlying trading
performance at the homes with rent collection increasing to 99%, resident
occupancy for mature homes of 87% (June 2023: 85%) and rent cover of 1.9 times
(June 2023: 1.75 times)
· Diversified portfolio and tenant base, with 32 tenants across 98
properties (June 2023: 32 tenants and 97 properties)
· Weighted average unexpired lease term of 26.0 years (June 2023: 26.5
years) remains one of the longest in the sector
· Five additional best-in-class homes (329 beds) under development at
period end, with two reaching practical completion post period end
Clear purpose to improve the quality of the UK's care home real estate
increasingly aligned with stakeholders
· Compelling long-term demand supply dynamics support both investor
and operator activity in modern care home sector
· Selective development investment supporting delivery of high standard
new-build care homes, and completion of retrofit programmes to add a further
18 bedrooms at one home, and another 29 wet rooms at others to bring them to
the standard we expect
· Continued advocacy of minimum real estate standards across the
sector
o Full en suite wet-rooms account for 99% of the portfolio versus UK
national average of just 32%
o Sector-leading average 47m(2) of space per resident
o 98% of portfolio A or B EPC rated at period end
Unless otherwise stated in the above, references to 2022 mean the comparative
six month period to 31 December 2022 and references to 2023 mean 30 June 2023,
being the start of the period under review.
( )
((1)) Based on EPRA NTA movement and dividends paid, see alternative
performance measures below.
((2)) For the details of EPRA earnings and adjusted EPRA earnings refer to
note 6 to the Condensed Consolidated Financial Statements.
((3)) See alternative performance measures below.
Alison Fyfe, Chair of the Company, said:
"Against one of the more challenging backdrops in recent times, we have
delivered an accounting total return of +4.9% and earnings growth of 1.3%
which is a strong performance when benchmarked against the wider real estate
sector. Our portfolio is fully let, provides inflation-linked annual rental
growth supported by tenants with robust underlying trading, and has
historically demonstrated a low volatility in asset valuations.
"Commercial real estate is experiencing many headwinds right now, though we
note a clear bifurcation in sentiment towards high quality assets with a solid
long-term future in their current or near-current state, and those that cannot
be described in that way. Investors increasingly value energy efficiency,
social impact and positive experience for users and we remain deeply proud to
be running a portfolio and strategy with real impact and longevity."
A live webcast presentation for analysts will be held at 9.00 a.m. GMT this
morning and can be accessed via the following link:
https://stream.brrmedia.co.uk/broadcast/65c2472a3fb3f51bf67d2df2
(https://stream.brrmedia.co.uk/broadcast/65c2472a3fb3f51bf67d2df2)
LEI: 213800RXPY9WULUSBC04
Enquiries:
Kenneth MacKenzie; Gordon Bland
Target Fund Managers Limited
01786 845 912
Mark Young; Rajpal Padam
Stifel Nicolaus Europe Limited
020 7710 7600
Dido Laurimore; Richard Gotla
FTI Consulting
020 3727 1000
TargetHealthcare@fticonsulting.com (mailto: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 31 December 2023 comprised 98 assets let to 32
tenants with a total value of £911.1 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
1. Introduction
Dear valued shareholders,
I am delighted to provide you with this update which describes a strong real
estate business delivering sustainable returns from impactful investment in a
structurally-supported sector.
Commercial real estate is experiencing many headwinds right now, though we
note a clear bifurcation in sentiment towards high quality assets with a solid
long-term future in their current or near-current state, and those which
struggle to support such assertions. Energy efficiency, social impact and
positive experience for users rank highly in these assessments, and we remain
deeply proud to be running a portfolio and strategy with real impact and
longevity.
As a reminder of what this provides, our portfolio is fully let, provides
inflation-linked annual rental growth supported by tenants with robust
underlying trading, and has historically demonstrated a low volatility in
asset valuations. In this period we have delivered an accounting total return
of +4.9%(1) and earnings growth of 1.3%(2).
Our portfolio focus this period has been on enhancing the existing high
quality nature of our real estate. Targeted, rent-producing capital
expenditure has taken our wet-room proportion closer to full provision, now
standing at 99%, and the addition of 18 rooms on the upper floor of one asset
will help realise its significant trading potential. We also continue the
build-out of our development sites, with two of the five held during the
reporting period having now reached practical completion.
We note we are making progress towards our target of 100% EPC A and B rated,
with 99% of the portfolio achieving this as at today's date. This is an
important metric for the longevity and sustainability of the portfolio and
cements our sector-leading position.
2. Results summary
Our accounting total return performance of +4.9% was driven by an increase in
the EPRA NTA per share of 2.1% (106.7 pence from 104.5 pence), with dividends
of 2.856 pence per share paid in respect of the period.
The Manager provides further detail on the portfolio's key underlying trading
metrics in the Investment Manager's Report below. These continue to trend
positively, and portfolio rent cover has reached the highest level we have
seen since our IPO in 2013.
The like-for-like increase of 1.4% in the portfolio valuation largely reflects
the impact of our annual rental uplifts (2.0% from rent reviews, offset by
0.6% from outward yield shift applied by the external valuers). The overall
increase of 4.9% also reflects the effect of capital expenditure and
development investment. Contracted rent has increased by 2.4% to £57.9
million, including 1.9% on a like-for-like basis.
Adjusted EPRA earnings per share increased by 1.3% to 3.05 pence, translating
to dividend cover of 107%. Under the widely-used EPRA earnings metric the
dividend was 132% covered.
3. Sector: Investment
Despite the positive structural dynamics for investment in prime care home
real estate, and a performing portfolio, the Company's share price continues
to trade at a discount to EPRA NTA, albeit we saw a positive share price total
return of 24.4% over the period. This discount is consistent with other
high-quality real estate businesses, reflecting the uncertain economic outlook
generally, and more specific sensitivity to sentiment and outlook on interest
rates.
We believe our portfolio is well-placed in its current state to meet the
long-term needs of residents and their care providers, to remain in demand by
tenant operators and to provide long-term returns to investors. We note,
however, that significant transformation is required to the majority of the
sector's infrastructure. In our view, only 32% of available beds are of a
suitable standard, in providing private wet-room facilities for all residents.
Care homes fill a crucial role in meeting the nation's health and social care
need. A growing and ageing population is placing stress on the system overall,
given the increased frailty and dementia naturally associated with an
increased elderly population. This is an obvious demand driver for care home
places. As our healthcare system struggles to keep up with increasing demand,
social care is increasingly being recognised and looked-to as the appropriate
setting for many who don't necessarily require NHS/primary care. Increased
investment in the sector can readily help alleviate the pressures on the NHS
and primary medical care settings.
We see no let-up in the need for substantial investment in modern care home
real estate and our mission is to provide and support such investment. Being
capital-constrained at present given interest rates and equity market
sentiment limits our ability to do so, though we will continue to engage with
relevant stakeholders and act when we see opportunities to allocate capital in
line with our investment strategy.
4. Sector: Values and activity
The healthcare sector has continued to perform well relative to mainstream
commercial property classes, most notably office and retail which according to
the CBRE Monthly Index have produced total returns of -5.4% and -2.0%,
respectively, over the six-month period. Modernity, environmental credentials,
inflation-linked rental growth, and of course the support of structural demand
within the sector, all play their part. Current signs are that property
valuations and interest rates are en route to something more closely
resembling stability, which would provide a better platform for
decision‑making. We will continue to monitor closely.
Transaction volumes for prime care home real estate remain lower than prior to
Autumn 2023, though we are aware of private capital deals completing and
continue to emphasise that assets in our investible universe which come to
market see significant interest and attract a number of bids. This is
consistent with our understanding of the demand dynamic for our assets and
helps evidence values. The continued improvement in underlying tenant
profitability at the individual home level is also supportive.
Assets of the quality which make up our portfolio are a relatively small part
of the overall commercial property market, and are tightly held by a small
number of knowledgeable investors who are generally lowly-geared.
We prize our own portfolio for (amongst other characteristics) its:
• Scale, quality and tenant and geographic diversification (32
tenants)
• Robust and growing rental stream
• ESG-credentials
• Total return outlook
5. Governance
I am pleased to announce the appointment of Amanda Thompsell as chair of the
Nomination Committee. This completes the expected amendments to the Board's
roles and responsibilities following the appointment of two directors during
the course of the previous financial year.
The Board has also recently appointed CBRE Limited as valuation adviser,
having completed a tender of valuation services to reflect best practice and
in the expectation of regular rotation becoming a mandatory requirement. The
Board thanks Colliers International Healthcare Property Consultants Limited
for the valuation services it has provided to the Group since its launch in
2013.
6. Outlook
Near-term growth will come from embedded rental uplifts across the portfolio,
as well as completion of our three ongoing developments and our remaining
capex initiatives. On completion of these activities, all other things being
equal, the Group's LTV will increase to c.28%, and it will have available
capital remaining of £41 million and borrowings substantially-protected from
higher interest rates on long-term facilities.
The Board retains its belief in the Group's strategy and the positive impact
it makes across its stakeholder base. We are frustrated that current
conditions are limiting our ambition to grow this further, but are delighted
that the existing portfolio is providing great care homes and we will focus on
delivering consistent returns.
Alison Fyfe
11 March 2024
(1) Based on EPRA NTA movement and dividends paid, see alternative performance
measures below.
(2) Based on adjusted EPRA earnings per share, see note 6 to the Condensed
Consolidated Financial Statements.
Investment Manager's Report
Overall portfolio review and performance
Portfolio performance and progression in the six months under review extended
the trends seen before, namely: rental and valuation growth (like-for-like and
absolute); near-full rent collection (99%); rent covers improving to
portfolio-high levels; and further establishment of homes as maturing
businesses in their local markets (92% of the portfolio is now mature).
Contractual rent has increased to £57.9 million, with 43 rent reviews
completed in the period at an average increase of 3.9% and contributing to a
like-for-like increase of 1.9% for the half year. Portfolio capital
expenditure increased contractual rent by a further 0.5%.
Resident occupancy, whilst lower than the typical mature home's pre-pandemic
rate of c.90%, has seen steady growth towards its current 86%, enabling
operators to manage their resident admissions, fee levels, and their
staffing/cost bases effectively. This has resulted in growing rent covers,
supporting the Group's rental receipts and embedded rental growth. The
relevant metrics are 1.8x for the last year, 1.9x for the most recent six
months, and 1.9x for the December quarter.(1)
This improved profitability at the care home level has also supported
valuations, which have proven significantly less volatile than other real
estate sectors. We have now seen four consecutive quarters of like-for-like
valuation growth following the market nadir in December 2022, with a
like-for-like increase of 1.4% during the period under review.
The portfolio's strong relative performance is evidenced by comparison to the
MSCI UK Annual Healthcare Property Index, with the portfolio being ranked
first out of the 37 constituents of the Index for the most recent calendar
year. The Group's standing portfolio total return for the calendar year to 31
December 2023 was 9.7%, outperforming the Index's 4.2%. The portfolio's
quality is further emphasised by its consistent long-term relative returns,
with its annualised total return since launch now standing at 10.1%, while the
portfolio's last five-year period has an annualised total return of 8.0%
relative to 5.9% for the Index.
The portfolio's bias towards, and its relative attractiveness to, private-fee
paying residents has helped tenant operators manage the inflationary
environment and reflect the true cost of their service provision. Operators'
revenue generally increased on the back of growing occupancy combined with
increased fees per resident. These factors, along with well-managed costs per
resident, resulted in the improved profitability described previously. This
supports the continued building of resilience in our tenant operators, which
we welcome following what has been a challenging period since the beginning of
the pandemic.
Pence per share
EPRA NTA per share as at 30 June 2023 104.5
Acquisition costs (0.1)
Property revaluations - standing assets 1.9
Development sites 0.1
Adjusted EPRA earnings 3.1
Dividends paid (2.8)
EPRA NTA per share as at 31 December 2023 106.7
Asset management
Our asset management activity in the period has remained focussed on making
marginal quality improvements to what is already considered a best-in-class
portfolio. During the period we have:
• Converted 29 bedrooms to full en suite private wet-room provision
• Constructed 18 brand new rooms in an asset to capitalise on demand
in its local market
Subsequent to the period end:
• Practical completion was achieved on two development sites,
bringing 137 new beds to market, with operational leases entered into for
£1.7 million contractual rent
• EPC A and B ratings have increased to 99%
The Group has a further three pre-let developments ongoing which, on
completion, will add a further £2.3 million to contractual rent.
Borrowings
As at 31 December 2023, the Group's total borrowings were £252.5 million,
representing a net LTV of 25.8%. The Group's weighted average cost on its
drawn debt, inclusive of amortisation of loan arrangement costs, was 4.05%.
The weighted average term to expiry on the Group's total committed loan
facilities was 5.7 years, with the earliest maturity in November 2025 and 91%
of the Group's drawn debt being fully hedged to maturity.
The Group has access to a further £67.5 million of committed, but undrawn,
revolving credit facilities which, if drawn, would carry an interest rate of
SONIA plus 2.22%. A proportion of these facilities will be drawn to complete
the Group's capital commitments, including the completion of its development
properties, and we are actively considering the Group's optimal debt position
going forward.
Health & social care update
Regular readers will note a familiar tale, as government reforms to social
care policy continue to drift whilst:
• Data shows clear under-resource. The ADASS 2023 Autumn Survey
highlighted 470,000 people in England are waiting for care, while 250,000 are
a stage behind and await assessment of need; and
• Influential voices continue to advocate for enhanced adult social
care provision as very much "part of the solution" to the NHS's challenges.
Regarding the latter, the CQC's annual "State of Care" report published in
October 2023 noted "insufficient capacity in adult social care is continuing
to contribute to delays in discharging people from hospital".
The King's Fund asserted similar in February 2024, noting that solutions
require more than just a narrow focus on the NHS.
In the meantime, the Chancellor's Autumn Statement brought news of a long-term
workforce plan for the NHS, alongside the largest expansion of staff training
in its history. In January 2024 a lesser "workforce pathway" was announced for
social care.
The CQC also made prominent their comments on Local Authority funding
pressure:
• Local Authority budgets have failed to keep track with the numbers
of people requiring social care; and
• The lower level of fees paid by Local Authorities to providers of
adult social care impacts on quality of care.
This remains a significant issue for the large part of the care home sector
who rely on Local Authority funding of residents, and of course for the Local
Authorities themselves and their wider obligations to their communities
(witness the extent of cost-cutting across a wide range of public services).
We note that our own portfolio is weighted towards private-fee paying
residents. The CQC has also commenced its new assessment approach, which
appears to be less prescriptive and more focussed on "care outcomes", as well
as an assessment programme of Local Authorities, which could be useful.
Staffing & Visas
Staffing pressures have eased greatly, with the Health and Care Worker Visa
scheme having been a very effective and warmly-received policy, helping the
sector increase immediate capacity (see occupancy increases). Changes to the
legislation announced late in 2023, effective this month, spared the care home
sector the addition of a minimum salary requirement for incoming international
workers, however did place restrictions on dependants which once again puts
the sector at a disadvantage to the NHS which continues to enjoy lesser
restrictions.
General election
As we enter a period of increased political campaigning, it may be that all
parties will be unwilling to be too specific on social care policy. Labour is
concentrating on a plan to recruit and retain, elevate as well as better
reward care workers, with wider reform taking 10 years or two parliamentary
terms, while the Conservatives have yet to commit to an outline plan or update
their commitment to a 'Cap on Social Care costs' which is now pushed back to
beyond the current parliament. The Liberal Democrats have announced a
'Scottish style' free personal care manifesto but have noted it does not
include 'care home costs', as well as an emphasis on preventative health
interventions and greater support for individuals to remain in their own home.
They also propose a Royal College of Care Workers to provide recognition,
skills development and regulation of the workforce along with the usual 'wider
reform' of social care. Irrespective of the outcome of the general election,
we remain dedicated to improving UK care home real estate.
Target Fund Managers Limited
11 March 2024
(1) All occupancy and rent cover figures quoted relate to mature homes within
the portfolio.
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 31 December
2023
Six months ended Six months ended
31 December 2023 31 December 2022
(unaudited) (unaudited)
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Revenue
Rental income 28,588 5,463 34,051 28,058 5,897 33,955
Other income 5 - 5 81 - 81
Total revenue 28,593 5,463 34,056 28,139 5,897 34,036
Gains/(losses) on investment properties 8
- 7,745 7,745 - (58,058) (58,058)
Gains on sale of investment properties realised 8
- - - - 55 55
Total income 28,593 13,208 41,801 28,139 (52,106) (23,967)
Expenditure
Investment management fee 2 (3,679) - (3,679) (3,799) - (3,799)
Credit loss allowance and bad debts 3 (306) - (306) 8 - 8
Other expenses 3 (1,474) - (1,474) (1,564) - (1,564)
Total expenditure (5,459) - (5,459) (5,355) - (5,355)
Profit/(loss) before finance costs and taxation
23,134 13,208 36,342 22,784 (52,106) (29,322)
Net finance costs
Interest income 33 - 33 84 - 84
Finance costs 4 (5,212) (402) (5,614) (4,636) (302) (4,938)
Net finance costs (5,179) (402) (5,581) (4,552) (302) (4,854)
Profit/(loss) before taxation 17,955 12,806 30,761 18,232 (52,408) (34,176)
Taxation 5 - - - - - -
Profit/(loss) for the period 17,955 12,806 30,761 18,232 (52,408) (34,176)
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 flow
hedges
- (2,975) (2,975) - 879 879
Total comprehensive income for the period
17,955 9,831 27,786 18,232 (51,529) (33,297)
Earnings/(loss) per share (pence) 6 2.90 2.06 4.96 2.94 (8.45) (5.51)
The total column of this statement represents the Group's Condensed
Consolidated Statement of Comprehensive Income, prepared in accordance with UK
adopted IAS 34 'Interim Financial Reporting'. 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 period.
Condensed Consolidated Statement of Financial Position
As at 31 December 2023
As at As at
31 December 30 June
2023 2023
(unaudited) (audited)
Notes £'000 £'000
Non-current assets
Investment properties 8 836,558 800,155
Trade and other receivables 9 82,754 76,373
Interest rate derivatives 11 3,528 6,905
922,840 883,433
Current assets
Trade and other receivables 9 6,219 9,459
Cash and cash equivalents 17,631 15,366
23,850 24,825
Total assets 946,690 908,258
Non-current liabilities
Loans 11 (249,863) (227,051)
Trade and other payables 12 (8,504) (8,093)
(258,367) (235,144)
Current liabilities
Trade and other payables 12 (23,269) (18,306)
Total liabilities (281,636) (253,450)
Net assets 665,054 654,808
Share capital and reserves
Share capital 13 6,202 6,202
Share premium 256,633 256,633
Merger reserve 47,751 47,751
Distributable reserve 170,347 187,887
Hedging reserve 2,051 5,026
Capital reserve 53,720 40,914
Revenue reserve 128,350 110,395
Equity shareholders' funds 665,054 654,808
Net asset value per ordinary share (pence) 6 107.2 105.6
Condensed Consolidated Statement of Changes in Equity
For the six months ended 31 December 2023
(unaudited)
Distrib-utable
Share capital Share premium Merger reserve reserve Hedging Capital reserve Revenue reserve
Notes reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
As at 30 June 2023 6,202 256,633 47,751 187,887 5,026 40,914 110,395 654,808
Profit for the period - - - - - 12,806 17,955 30,761
Other comprehensive income - - - - (2,975) - - (2,975)
Total comprehensive income
- - - - (2,975) 12,806 17,955 27,786
Transactions with owners recognised in equity:
Dividends paid 7 - - - (17,540) - - - (17,540)
As at 31 December 2023 6,202 256,633 47,751 170,347 2,051 53,720 128,350 665,054
For the six months ended 31 December 2022
(unaudited)
Distrib-utable
Share capital Share premium Merger reserve reserve Hedging Capital reserve Revenue reserve
Notes reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
As at 30 June 2022 6,202 256,633 47,751 226,461 2,284 83,750 75,686 698,767
(Loss)/profit for the period - - - - - (52,408) 18,232 (34,176)
Other comprehensive income - - - - 879 - - 879
Total comprehensive income
- - - - 879 (52,408) 18,232 (33,297)
Transactions with owners recognised in equity:
Dividends paid 7 - - - (20,964) - - - (20,964)
As at 31 December 2022 6,202 256,633 47,751 205,497 3,163 31,342 93,918 644,506
Condensed Consolidated Statement of Cash Flows
For the six months ended 31 December
2023
Six months ended Six months ended
31 December 31 December
2023 2022
(unaudited) (unaudited)
Notes £'000 £'000
Cash flows from operating activities
Profit/(loss) before tax 30,761 (34,176)
Adjustments for:
Interest income (33) (84)
Finance costs 5,614 4,938
Revaluation (gains)/losses on investment properties and movements in lease
incentives, net of acquisition costs written off
(13,208) 52,106
Decrease/(increase) in trade and other receivables 3,697 (512)
Increase/(decrease) in trade and other payables 506 (358)
27,337 21,914
Interest paid (4,598) (4,101)
Premium paid on interest rate cap 11 - (2,577)
Interest received 33 84
(4,565) (6,594)
Net cash inflow from operating activities 22,772 15,320
Cash flows from investing activities
Disposal of investment properties, net of lease incentives - 4,280
Purchase of investment properties, including acquisition costs
(25,477) (16,457)
Net cash outflow from investing activities (25,477) (12,177)
Cash flows from financing activities
Drawdown of bank loan facilities 11 22,500 42,000
Expenses of arrangement of bank loan facilities 11 - (205)
Repayment of bank loan facilities 11 - (36,750)
Dividends paid (17,530) (20,870)
Net cash inflow/(outflow) from financing activities 4,970 (15,825)
Net increase/(decrease) in cash and cash equivalents 2,265 (12,682)
Opening cash and cash equivalents 15,366 34,483
Closing cash and cash equivalents 17,631 21,801
Transactions which do not require the use of cash
Fixed or guaranteed rent reviews derecognised on disposal - (50)
Movement in fixed or guaranteed rent reviews and lease incentives 6,012 7,349
Notes to the Condensed Consolidated Financial Statements
1. Basis of Preparation
The condensed consolidated financial statements have been prepared in
accordance with UK-adopted IAS 34 'Interim Financial Reporting' and the
accounting policies set out in the statutory financial statements of the Group
for the year ended 30 June 2023.
The condensed consolidated financial statements do not include all of the
information required for a complete set of IFRS financial statements and
should be read in conjunction with the consolidated financial statements of
the Group for the year ended 30 June 2023, which were prepared under full
UK-adopted IFRS requirements.
Going concern
The condensed consolidated financial statements have been prepared on the
going concern basis. In assessing the going concern basis of accounting the
Directors have had regard to the guidance issued by the Financial Reporting
Council. The Directors have continued to place a particular focus on the
appropriateness of adopting the going concern basis in preparing the financial
statements for the period ended 31 December 2023.
The Group's going concern assessment particularly considered that:
· The value of the Group's portfolio of assets significantly exceeds
the value of its liabilities;
· The Group is contractually entitled to receive rental income which
significantly exceeds its forecast expenses and loan interest; and
· The Group remains within its loan covenants, with a weighted average
term to maturity of 5.7 years at 31 December 2023 and an earliest repayment
date of November 2025. Initial discussions with existing and potential lenders
do not raise any concerns over the Group's ability to re-finance its
shorter-dated debt facilities on appropriate terms in due course.
The Group has a significant balance of cash and undrawn debt available and the
Group's current policy is to prudently retain a proportion of this to ensure
it can continue to pay the Group's expenses and loan interest in the unlikely
scenario that the level of rental income received deteriorates significantly.
The proportion retained will be kept under review dependent on portfolio
performance and market conditions.
Based on these considerations, the Directors consider that the Group has
adequate resources to continue in operational existence for the foreseeable
future and at least the next twelve months from the date of issuance of this
report. For this reason, they continue to adopt the going concern basis in
preparing the financial statements.
2. Investment Management Fee
For the six month For the six month
period ended period ended
31 December 2023 31 December 2022
£'000 £'000
Investment management fee 3,679 3,799
The Group's Investment Manager and Alternative Investment Fund Manager
('AIFM') is Target Fund Managers Limited. The Investment Manager is entitled
to an annual management fee on a tiered basis based on the net assets of the
Group as set out below. Where applicable, VAT is payable in addition.
Net assets of the Group Management fee percentage
Up to and including £500 million 1.05
Above £500 million and up to and including £750 million 0.95
Above £750 million and up to and including £1 billion 0.85
Above £1 billion and up to and including £1.5 billion 0.75
Above £1.5 billion 0.65
2. Investment Management Fee (continued)
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; 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
For the six month period ended For the six month period ended
31 December 2023 31 December 2022
£'000 £'000
Total movement in credit loss allowance 306 (323)
Bad debts written off - 315
Credit loss allowance charge/(credit) 306 (8)
Valuation and other professional fees 835 922
Secretarial and administration fees 116 106
Directors' fees 114 110
Other 409 426
Total other expenses 1,474 1,564
4. Finance costs
For the six month period ended For the six month period ended
31 December 2023 31 December 2022
£'000 £'000
Interest paid on loans 4,900 4,320
Amortisation of loan costs 312 316
Finance and transaction costs relating to the interest rate cap
402 302
Total 5,614 4,938
5. Taxation
The Directors intend to conduct the Group's affairs such that management and
control is exercised in the United Kingdom and so that the Group carries on
any trade in the United Kingdom.
The Group has entered the REIT regime for the purposes of UK taxation. Subject
to continuing relevant UK-REIT criteria being met, the profits from the
Group's property rental business, arising from both income and capital gains,
are exempt from corporation tax.
6. Earnings per share and Net Asset Value per share
Earnings per share
For the six month For the six month
period ended period ended
31 December 2023 31 December 2022
Pence per share Pence per share
£'000 £'000
Revenue earnings 17,955 2.90 18,232 2.94
Capital earnings 12,806 2.06 (52,408) (8.45)
Total earnings 30,761 4.96 (34,176) (5.51)
Average number of shares in issue 620,237,346 620,237,346
The European Public Real Estate Association ('EPRA') is an industry body which
issues best practice reporting guidelines for property 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.
The EPRA earnings are calculated by making prescribed adjustments specifically
defined by EPRA, being an adjustment for the revaluation movements on
investment properties and other items of a capital nature. EPRA considers this
to be a measure of operational performance and representative of the net
income generated from the Group's operational activities.
The Group's specific adjusted EPRA earnings also includes any additional
adjustments considered by an individual company to be required to arrive at an
underlying performance measure appropriate for their specific business model.
In the case of the Group, this adjusts the EPRA earnings downwards for rental
income arising from recognising guaranteed rental review uplifts and upwards
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 that 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:
For the six month period ended For the six month period ended
31 December 2023 31 December 2022
£'000 £'000
Earnings per IFRS Consolidated Statement of Comprehensive Income
30,761 (34,176)
Adjusted for (gains)/losses on investment properties (7,745) 58,058
Adjusted for gains on investment properties realised - (55)
Adjusted for finance and transaction costs on the interest rate cap and other
capital items
402 302
EPRA earnings 23,418 24,129
Adjusted for rental income arising from recognising guaranteed rent review
uplifts
(5,463) (5,897)
Adjusted for development interest under forward fund agreements
964 460
Group specific adjusted EPRA earnings 18,919 18,692
Earnings per share ('EPS') (pence per share)
EPS per IFRS Consolidated Statement of Comprehensive Income
4.96 (5.51)
EPRA EPS 3.78 3.89
Group specific adjusted EPRA EPS 3.05 3.01
Earnings for the period ended 31 December 2023 should not be taken as a guide
to the results for the year to 30 June 2024.
6. Earnings per share and Net Asset Value per share (continued)
Net Asset Value per share
The Group's net asset value per ordinary share of 107.2 pence (30 June 2023:
105.6 pence) is based on equity shareholders' funds of £665,054,000 (30 June
2023: £654,808,000) and on 620,237,346 (30 June 2023: 620,237,346) ordinary
shares, being the number of shares in issue at the period end.
The three EPRA NAV metrics are shown below. Further details are included in
the glossary.
31 December 2023 30 June 2023
EPRA NRV EPRA NTA EPRA NDV EPRA NRV EPRA NTA EPRA NDV
£'000 £'000 £'000 £'000 £'000 £'000
IFRS NAV per financial statements 665,054 665,054 665,054 654,808 654,808 654,808
Fair value of interest rate derivatives (3,528) (3,528) - (6,905) (6,905) -
Fair value of loans - - 26,639 - - 39,672
Estimated purchasers' costs 58,635 - - 57,461 - -
EPRA net assets 720,161 661,526 691,693 705,364 647,903 694,480
EPRA net assets (pence per share) 116.1 106.7 111.5 113.7 104.5 112.0
7. Dividends
Dividends paid as distributions to equity shareholders during the period.
For the six month period ended For the six month period ended
31 December 2023 31 December 2022
Pence £'000 Pence £'000
Fourth interim dividend for prior year 1.400 8,683 1.69 10,482
First interim dividend 1.428 8,857 1.69 10,482
Total 2.828 17,540 3.38 20,964
A second interim dividend for the year to 30 June 2024, of 1.428 pence per
share, was paid on 23 February 2024 to shareholders on the register on 9
February 2024.
8. Investment properties
As at
31 December
2023
Freehold and Leasehold Properties £'000
Opening market value 868,705
Opening fixed or guaranteed rent reviews and lease incentives (68,550)
Opening carrying value 800,155
Purchases and performance payments 28,377
Acquisition costs capitalised 281
Acquisition costs written off (281)
Revaluation movement - gains 21,130
Revaluation movement - losses (7,092)
Movement in market value 42,415
Movement in fixed or guaranteed rent reviews and lease incentives (6,012)
Movement in carrying value 36,403
Closing market value 911,120
Closing fixed or guaranteed rent reviews and lease incentives (74,562)
Closing carrying value 836,558
The investment properties can be analysed as follows:
As at As at
31 December 30 June
2023 2023
£'000 £'000
Standing assets 868,360 851,305
Developments under forward fund agreements 42,760 17,400
Closing market value 911,120 868,705
Changes in the valuation of investment properties For the six month period ended For the six month period ended
31 December 31 December
2023 2022
£'000 £'000
Loss on sale of investment properties - (559)
Unrealised loss realised during the year - 614
Gains on sale of investment properties realised - 55
Revaluation movement 14,038 (50,593)
Acquisition costs written off (281) (116)
Movement in lease incentives (549) (1,452)
Movement in fixed or guaranteed rent reviews (5,463) (5,897)
Gains/(losses) on revaluation of investment properties 7,745 (58,003)
8. Investment properties (continued)
The investment properties were valued at £911,120,000 (30 June 2023:
£868,705,000) by Colliers International Healthcare Property Consultants
Limited ('Colliers'), in their capacity as external valuers. The valuation was
undertaken in accordance with the RICS Valuation - Professional 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. Market Value represents
the estimated amount for which a property should exchange on the date of
valuation between a willing buyer and a willing seller in an arm's length
transaction after proper marketing wherein the parties had each acted
knowledgeably, prudently and without compulsion.
The fair value of the properties after adjusting for the movement in the fixed
or guaranteed rent reviews and lease incentives was £836,558,000 (30 June
2023: £800,155,000). The adjustment consisted of £64,841,000 (30 June 2023:
£59,378,000) relating to fixed or guaranteed rent reviews and £9,721,000 (30
June 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 financial statements as
non-current and current assets within 'trade and other receivables' (see note
9).
The Group is required to classify fair value measurements of its investment
properties using a fair value hierarchy, in accordance with IFRS 13 'Fair
Value Measurement'. This hierarchy reflects the subjectivity of the inputs
used, and has the following levels:
-- Level 1: unadjusted quoted prices in active markets for identical assets or
liabilities that the entity can access at the measurement date;
-- Level 2: observable inputs other than quoted prices included within level
1;
-- Level 3: use of inputs that are not based on observable market data.
The Group's investment properties are valued by Colliers on a quarterly basis.
The valuation methodology used is the yield model, which is a consistent basis
for the valuation of investment properties within the healthcare industry.
This model has regard to the current investment market and evidence of
investor interest in properties with income streams secured on healthcare
businesses. On an asset-specific basis, the valuer makes an assessment of: the
quality of the asset; recent and current performance of the asset; and the
financial position and performance of the tenant operator. This asset specific
information is used alongside a review of comparable transactions in the
market and an investment yield is applied to the asset which, along with the
contracted rental level, is used to derive a market value.
In determining what level of the fair value hierarchy to classify the Group's
investments within, the Directors have considered the content and conclusion
of the position paper on IFRS 13 prepared by the European Public Real Estate
Association ('EPRA'), the representative body of the publicly listed real
estate industry in Europe. This paper concludes that, even in the most
transparent and liquid markets, it is likely that valuers of investment
property will use one or more significant unobservable inputs or make at least
one significant adjustment to an observable input, resulting in the vast
majority of investment properties being classified as level 3.
Observable market data is considered to be that which is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary,
and provided by independent sources that are actively involved in the relevant
market. In arriving at the valuation Colliers make adjustments to observable
data of similar properties and transactions to determine the fair value of a
property and this involves the use of considerable judgement.
Considering the Group's specific valuation process, industry guidance, and the
level of judgement required in the valuation process, the Directors believe it
appropriate to classify the Group's investment properties within level 3 of
the fair value hierarchy.
8. Investment properties (continued)
The Group's investment properties, which are all care homes, are considered to
be a single class of assets. The weighted average net initial yield ('NIY') on
these assets, as measured by the EPRA topped-up net initial yield, is 6.2 per
cent. The yield on the majority of the individual assets ranges from 5.6 per
cent to 8.7 per cent. There have been no changes to the valuation technique
used through the period, nor have there been any transfers between levels.
The key unobservable inputs made in determining the fair values are:
· Contracted rental level: The rent payable under the lease
agreement at the date of valuation or, where applicable, on expiry of the rent
free period; and
· Yield: The yield is defined as the initial net income from a
property at the date of valuation, expressed as a percentage of the gross
purchase price including the costs of purchase.
The contracted rental level and yield are not directly correlated although
they may be influenced by similar factors. Rent is set at a long-term,
supportable level and is likely to be influenced by property-specific matters.
The yield also reflects market sentiment and the strength of the covenant
provided by the tenant, with a stronger covenant attracting a lower yield.
The lease agreements on the properties held within the Group's property
portfolio generally allow for annual increases in the contracted rental level
in line with inflation, within a cap and a collar. An increase of 1.0 per cent
in the contracted rental level will increase the fair value of the portfolio,
and consequently the Group's reported income from unrealised gains on
investments, by £9,111,000 (30 June 2023: £8,687,000); an equal and opposite
movement would have decreased net assets and decreased the Group's income by
the same amount.
A decrease of 0.25 per cent in the net initial yield applied to the property
portfolio will increase the fair value of the portfolio by £37,705,000 (30
June 2023: £37,940,000), and consequently increase the Group's reported
income from unrealised gains on investments. An increase of 0.25 per cent in
the net initial yield will decrease the fair value of the portfolio by
£34,823,000 (30 June 2023: £35,025,000) and reduce the Group's income.
9. Trade and other receivables
As at As at
31 December 30 June
2023 2023
Non-current trade and other receivables £'000 £'000
Fixed rent reviews 64,841 59,378
Rental deposits held in escrow for tenants 8,504 8,093
Lease incentives 9,409 8,902
Total 82,754 76,373
As at As at
31 December 30 June
2023 2023
Current trade and other receivables £'000 £'000
Cash held in escrow for property purchases - 4,295
Lease incentives 312 270
VAT recoverable 956 667
Accrued income - net rent receivable 1,363 1,088
Accrued development interest under forward fund agreements 1,974 1,010
Other debtors and prepayments 1,614 2,129
Total 6,219 9,459
10. Investment in subsidiary undertakings
The Group included 49 subsidiary companies as at 31 December 2023. 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 which is incorporated in Jersey, two
subsidiaries which are incorporated in Gibraltar and two subsidiaries which
are incorporated in Luxembourg, all subsidiaries are incorporated within the
United Kingdom.
11. Loans
As at As at
31 December 30 June
2023 2023
£'000 £'000
Principal amounts outstanding 252,500 230,000
Set-up costs (4,520) (4,520)
Amortisation of set-up costs 1,883 1,571
Total 249,863 227,051
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 31 December 2023, the Group had drawn £50,000,000
under this facility (30 June 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 31 December 2023, the Group had drawn £52,500,000 under this facility
(30 June 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 31 December 2023,
the Group had drawn £150,000,000 under these facilities (30 June 2023:
£150,000,000).
The following interest rate derivatives were in place during the period ended
31 December 2023:
Notional Value Starting Date Ending Date Interest paid Interest received Counterparty
30,000,000 5 November 2020 5 November 2025 0.30% Daily compounded SONIA (floor at -0.08%) RBS
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 31 December 2023, inclusive of the interest rate derivatives, the interest
rate on £230,000,000 of the Group's borrowings had been capped, including the
amortisation of loan arrangement costs, at an all-in rate of 3.70 per cent per
annum until at least November 2025. The remaining £90,000,000 of debt, of
which £22,500,000 was drawn at 31 December 2023, would, if fully drawn, carry
interest at a variable rate equal to daily compounded SONIA plus a weighted
average lending margin, inclusive of the amortisation of arrangement costs, of
2.46 per cent per annum.
11. Loans (continued)
The aggregate fair value of the interest rate derivatives at 31 December 2023
was an asset of £3,528,000 (30 June 2023: asset of £6,905,000). The Group
categorises all interest rate derivatives as level 2 in the fair value
hierarchy (see note 8).
At 31 December 2023, the nominal value of the Group's loans equated to
£252,500,000 (30 June 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 treasuries plus an
estimated margin based on market conditions at 31 December 2023, totalled, in
aggregate, £225,861,000 (30 June 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 £241,619,000 (30
June 2023: £209,898,000). The loans are categorised as level 3 in the fair
value hierarchy.
The RBS loan is secured by way of a fixed and floating charge over the
majority of the assets of the THR Number One plc Group ('THR1 Group') which
consists of THR1 and its five subsidiaries. The Phoenix Group loans of
£50,000,000 and £37,250,000 are secured by way of a fixed and floating
charge over the majority of the assets of the THR Number 12 plc Group ('THR12
Group') which consists of THR12 and its eight subsidiaries. The Phoenix Group
loan of £62,750,000 is secured by way of a fixed and floating charge over the
majority of the assets of THR Number 43 plc ('THR43'). The HSBC loan is
secured by way of a fixed and floating charge over the majority of the assets
of the THR Number 15 plc Group ('THR15 Group') which consists of THR15 and its
18 subsidiaries. In aggregate, the Group has granted a fixed charge over
properties with a market value of £775,025,000 as at 31 December 2023 (30
June 2023: £762,100,000).
Under the financial covenants related to the loans, the Group is to ensure
that:
- the loan to value percentage for 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.
All loan covenants have been complied with during the period.
12. Trade and other payables
As at As at
31 December 30 June
2023 2023
Non-current trade and other payables £'000 £'000
Rental deposits 8,504 8,093
Total 8,504 8,093
As at As at
31 December 30 June
2023 2023
Current trade and other payables £'000 £'000
Rental income received in advance 9,042 8,239
Property acquisition and development costs accrued 8,020 3,875
Interest payable 2,294 1,992
Investment Manager's fees payable 1,841 1,835
Other payables 2,072 2,365
Total 23,269 18,306
The Group's payment policy is to ensure settlement of supplier invoices in
accordance with stated terms.
13. 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 31 December 2023 620,237,346 6,202
During the period to 31 December 2023, the Company did not issue any ordinary
shares of £0.01 each (period to 31 December 2022: nil). The Company did not
buyback or resell any ordinary shares (period to 31 December 2022: nil).
At 31 December 2023, the Company did not hold any shares in treasury (30 June
2023: nil).
14. Commitments
The Group had capital commitments as follows:
As at As at
31 December 30 June
2023 2023
£'000 £'000
Amounts due to complete forward fund developments 21,982 31,066
Other capital expenditure commitments 1,061 2,160
Total 23,043 33,226
15. Contingent assets and liabilities
As at 31 December 2023, three (30 June 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 (30 June 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 paid 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 not highly likely to be met in
relation to any of these properties and therefore no liability was recognised
at 31 December 2023 (30 June 2023: £nil).
16. Related party transactions
The Directors are considered to be related parties to the Company. No Director
has an interest in any transactions which are, or were, unusual in their
nature or significant to the nature of the Company.
The Directors of the Company received fees for their services. Total fees for
the period were £114,000 (period ended 31 December 2022: £110,000) of which
£nil (31 December 2022: £56,000) remained payable at the period end.
The Investment Manager received £3,679,000 (inclusive of estimated
irrecoverable VAT) in management fees in relation to the period ended 31
December 2023 (period ended 31 December 2022: £3,799,000). Of this amount
£1,841,000 remained payable at the period end (31 December 2022:
£1,816,000). The Investment Manager received a further £94,000 (inclusive of
irrecoverable VAT) during the period ended 31 December 2023 (period ended 31
December 2022: £85,000) in relation to its appointment as Company Secretary
and Administrator, of which £47,000 (31 December 2022: £42,000) remained
payable at the period 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.
17. 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 is the EPRA NTA. The reconciliation between the NAV, as calculated
under IFRS, and the EPRA NTA is detailed in note 6.
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.
18. Post balance sheet events
In February 2024, two of the Group's development sites in Dartford, Kent and
Holt, Norfolk reached practical completion. These developments contributed an
aggregate of 137 new beds with modern, en suite wet-rooms to the portfolio and
increased annual contracted rent by £1.7 million. Each asset is leased on
terms typical of the portfolio, being long-term with annual, upwards-only
RPI-linked rent reviews, subject to a cap and collar.
As described in note 8, the valuation of the property portfolio as at 31
December 2023 was conducted by Colliers International Healthcare Property
Consultants Limited. The Directors highlighted in the Annual Report 2023 that
a tender of the provision of external valuation services was anticipated in
advance of the expected introduction of new rules prescribing mandatory
rotation. The Board also consider such rotation of the external valuers on a
periodic basis to reflect best practice. The tender process has now been
completed and resulted in the appointment of CBRE Limited, who will conduct
the next quarterly valuation of the property portfolio.
19. Interim Report Statement
These are not full statutory accounts in terms of Section 434 of the Companies
Act 2006 and are unaudited. Statutory accounts for the Company for the year
ended 30 June 2023, which received an unqualified audit report and which did
not contain a statement under Section 498 of the Companies Act 2006, have been
lodged with the Registrar of Companies. No full statutory accounts, for either
the Company or Group, in respect of any period after 30 June 2023 have been
reported on by the Company's auditor or delivered to the Registrar of
Companies.
The Interim Report and Condensed Consolidated Financial Statements for the six
months ended 31 December 2023 will be posted to shareholders and made
available on the website: www.targethealthcarereit.co.uk. Copies may also be
obtained from the Company Secretary, Target Fund Managers Limited, 1st Floor,
Glendevon House, Castle Business Park, Stirling FK9 4TZ.
Directors' Statement of Principal Risks and Uncertainties
The risks, and the way in which they are managed, are described in more detail
in the Strategic Report within the Annual Report and Financial Statements for
the year to 30 June 2023. Other than as disclosed in the Chair's Statement and
Investment Manager's Report, the Group's principal risks and uncertainties
have not changed materially since the date of the report and are not expected
to change materially for the remainder of the Group's financial year.
Statement of Directors' Responsibilities in Respect of the Interim Report
We confirm that to the best of our knowledge:
• the condensed set of financial statements has been prepared in accordance
with IAS 34 'Interim Financial Reporting' and gives a true and fair view of
the assets, liabilities, financial position and profit of the Group;
• the Chair's Statement and Investment Manager's Report (together
constituting the Interim Management Report) include a fair review of the
information required by the Disclosure Guidance and Transparency Rules ('DTR')
4.2.7R, being an indication of important events that have occurred during the
period and their impact on the financial statements;
• the Statement of Principal Risks and Uncertainties referred to above is a
fair review of the information required by DTR 4.2.7R; and
• the condensed set of financial statements includes a fair review of the
information required by DTR 4.2.8R, being related party transactions that have
taken place in the period and that have materially affected the financial
position or performance of the Group during the period.
On behalf of the Board
Alison Fyfe
Chair
11 March 2024
Independent Review Report to Target Healthcare REIT plc
Introduction
We have been engaged by Target Healthcare REIT plc ("the Company") to review
the condensed consolidated set of financial statements in the Interim Report
and Financial Statements for the six months ended 31 December 2023 which
comprises the Condensed Consolidated Statement of Comprehensive Income,
Condensed Consolidated Statement of Financial Position, Condensed Consolidated
Statement of Changes in Equity, Condensed Consolidated Statement of Cash Flows
and the related notes 1 to 19 to the Condensed Consolidated Financial
Statements. We have read the other information contained in the Interim Report
and Financial Statements and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the
condensed consolidated set of financial statements.
Review Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed consolidated set of financial statements in the
Interim Report and Financial Statements for the six months ended 31 December
2023 is not prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34 and the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK and Ireland) 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Financial
Reporting Council. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 1, the annual financial statements of the Group will be
prepared in accordance with UK adopted international accounting standards. The
condensed set of consolidated financial statements included in this Interim
Report and Financial Statements has been prepared in accordance with UK
adopted International Accounting Standard 34, 'Interim Financial Reporting'.
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the Interim Report and Financial
Statements in accordance with the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
In preparing the Interim Report and Financial Statements, the Directors are
responsible for assessing the Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the Directors either intend to
liquidate the Company or to cease operations, or have no realistic alternative
but to do so.
Auditor's Responsibilities for the Review of the Financial Information
In reviewing the Interim Report and Financial Statements, we are responsible
for expressing to the Company a conclusion on the condensed consolidated set
of financial statements in the Interim Report and Financial Statements. Our
conclusion is based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of this report.
Use of our Report
This report is made solely to the company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK and
Ireland) 'Review of Interim Financial Information Performed by the Independent
Auditor of the Entity' issued by the Auditing Practices Board. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company, for our work, for this report, or for the conclusions
we have formed.
Ernst & Young LLP
London
11 March 2024
Glossary of Terms and Definitions
Building Research Establishment BREEAM is the world's leading science-based suite of validation and
certification systems for sustainable built environment. The BREEAM in-use
Environmental Assessment standards provide a framework to enable property investors, owners, managers
and occupiers to determine and drive sustainable improvements in the
Method ('BREEAM') operational performance of their assets, leading to benchmarking, assurance
and validation of operational asset data.
Contractual Rent The annual rental income receivable on a property as at the balance sheet
date, adjusted for the inclusion of rent currently subject to a rent free
period.
Discount/ The amount by which the market price per share of a Closed-end Investment
Company is lower or higher than the net asset value per share. The discount or
Premium* premium is expressed as a percentage of the net asset value per share.
Dividend Cover* The absolute value of Group specific adjusted EPRA Earnings, or EPRA earnings,
divided by the absolute value of dividends relating to the period of
calculation.
Dividend Yield* The annual Dividend expressed as a percentage of the share price at the date
of calculation.
Energy Performance Certificate ('EPC') An Energy Performance Certificate (EPC) rates how energy efficient a building
is using grades from A to G (with 'A' the most efficient grade). All
commercial properties leased to a tenant must have an EPC. All EPCs are valid
for 10 years.
EPRA Cost Ratio* Reflects the relevant overhead and operating costs of the business. It is
calculated by expressing the sum of property expenses (net of service charge
recoveries and third-party asset management fees) and administration expenses
(excluding exceptional items) as a percentage of gross rental income.
EPRA Group specific adjusted Cost Ratio* The EPRA Cost Ratio adjusted for items thought appropriate for the Group's
specific business model. The adjustments made are consistent with those made
to the Group specific adjusted EPRA earnings as detailed in note 6.
EPRA Earnings Recurring earnings from core operational activities. A key measure of a
company's underlying operating results from its property rental business and
per Share* an indication of the extent to which current dividend payments are supported
by earnings. A reconciliation of the earnings per IFRS and the EPRA earnings,
including any items specific to the Group, is contained in note 6.
EPRA Net Disposal Value ('NDV')* A measure of Net Asset Value which 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.
EPRA Net Reinstatement Value ('NRV')* A measure of Net Asset Value which 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')* A measure of Net Asset Value which assumes that entities buy and sell assets,
thereby crystallising certain levels of unavoidable deferred tax.
EPRA Net Initial Annualised rental income based on the cash rents passing at the balance sheet
date, less non-recoverable property operating expenses, divided by the market
Yield* value of the property, increased with (estimated) purchasers' costs. EPRA's
purpose is to provide a comparable measure around Europe for portfolio
valuations.
EPRA Topped-up Incorporates an adjustment to the EPRA Net Initial Yield in respect of the
expiration of rent-free periods (or other unexpired lease incentives).
Net Initial Yield*
Loan-to-Value A measure of the Group's Gearing level. Gross LTV is calculated as total gross
debt as a proportion of gross property value. Net LTV is calculated as total
('LTV')* gross debt less cash (including any cash held as security in relation to the
debt facilities) as a proportion of gross property value.
Mature Homes Care homes which have been in operation for more than three years. Homes which
do not meet this definition are referred to as 'immature'.
Portfolio or Passing Rent* The annual rental income currently receivable on a property as at the balance
sheet date, excluding rental income where a rent free period is in operation.
The gross rent payable by a tenant at a point in time.
Rent Cover* A measure of a tenant's ability to meet its rental liability from the profit
generated by their underlying operations. Generally calculated as the tenant's
EBITDARM (earnings before interest, taxes, depreciation, amortisation, rent
and management fees) divided by the contracted rent.
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.
WAULT* Weighted average unexpired lease term. The average lease term remaining to
expiry across the portfolio weighted by contracted rental income.
* Alternative Performance Measure
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 above, with detailed
calculations, including reconciliation to the IFRS figures where appropriate,
being set out below.
Discount or Premium - the share price of an Investment Company is derived from
buyers and sellers trading their shares on the stock market. This price is not
identical to the NAV. If the share price is lower than the NAV per share, the
shares are trading at a discount and, if the share price is higher than the
NAV per share, are said to be at a premium. The figure is calculated at a
point in time and, unless stated otherwise, the Company measures its discount
or premium relative to the EPRA NTA per share.
31 December 30 June
2023 2023
pence pence
EPRA Net Tangible Assets per share (see note 6) (a) 106.7 104.5
Share price (b) 86.3 71.8
Discount = (b-a)/a (19.1)% (31.3)%
Dividend Cover - the percentage by which earnings for the period cover the
dividend paid.
Period ended Period ended
31 December 31 December
2023 2022
£'000 £'000
EPRA earnings for the period (see note 6) (a) 23,418 24,129
Group-specific EPRA earnings for the period (see note 6) (b) 18,919 18,692
First interim dividend 8,857 10,482
Second interim dividend 8,857 10,482
Dividends paid in relation to the period (c) 17,714 20,964
Dividend cover based on EPRA earnings = (a/c) 132% 115%
Dividend cover based on Group-specific EPRA earnings = (b/c) 107% 89%
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.
The Group did not have any vacant properties during the periods and therefore
separate measures excluding direct vacancy costs are not presented. Consistent
with the Group specific adjusted EPRA earnings detailed in note 6 to the
Condensed 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.
Period ended Period ended
31 December 2023 31 December
£'000 2022
£'000
Investment management fee 3,679 3,799
Credit loss allowance and bad debts written off 306 (8)
Other expenses 1,474 1,564
EPRA costs (including direct vacancy costs) (a) 5,459 5,355
Specific cost adjustments, if applicable - -
Group specific adjusted EPRA costs (including direct vacancy costs)
(b) 5,459 5,355
Gross rental income per IFRS (c) 34,056 34,036
Adjusted for rental income arising from recognising guaranteed rent review
uplifts
(5,463) (5,897)
Adjusted for development interest under forward fund arrangements
964 460
Group specific adjusted gross rental income (d) 29,557 28,599
EPRA Cost Ratio (including direct vacancy costs) = (a/c) 16.0% 15.7%
EPRA Group specific adjusted Cost Ratio (including direct vacancy costs)
= (b/d) 18.5% 18.7%
EPRA Loan-to-Value ('LTV') - A shareholder-gearing measure to determine the
percentage of debt comparing to the appraised value of the properties. EPRA
LTV is calculated as total gross debt (adding net trade payables and less
cash) as a proportion of gross property value.
31 December 2023 30 June
£'000 2023
£'000
Borrowings 252,500 230,000
Net payables 17,362 9,117
Cash and cash equivalent (17,361) (15,366)
Net debt (a) 252,231 223,751
Investment properties at market value 911,120 868,705
Total property value (b) 911,120 868,705
EPRA Loan-to-Value = (a/b) 27.7% 25.8%
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).
31 December 30 June
2023 2023
£'000 £'000
Annualised passing rental income based on cash rents (a) 57,169 55,003
Notional rent expiration of rent-free periods or other lease incentives
751 1,554
Topped-up net annualised rent (b) 57,920 56,557
Standing assets (see note 8) 868,360 851,305
Allowance for estimated purchasers' costs 58,635 57,461
Grossed-up completed property portfolio valuation (c) 926,995 908,766
EPRA Net Initial Yield = (a/c) 6.17% 6.05%
EPRA Topped-up Net Initial Yield = (b/c) 6.25% 6.22%
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.
Period ended Period ended
31 December 2023 31 December 2022
EPRA NTA IFRS NAV Share price EPRA NTA IFRS NAV Share price
(pence) (pence) (pence) (pence) (pence) (pence)
Value at start of period (a) 104.5 105.6 71.8 112.3 112.7 108.4
Value at end of period (b) 106.7 107.2 86.3 103.0 103.9 80.2
Change in value during period (b-a)
(c) 2.2 1.6 14.5 (9.3) (8.8) (28.2)
Dividends paid (d) 2.8 2.8 2.8 3.4 3.4 3.4
Additional impact of dividend reinvestment
(e) 0.1 0.1 0.2 (0.2) (0.1) (0.2)
Total gain in period (c+d+e)
(f) 5.1 4.5 17.5 (6.1) (5.5) (25.0)
Total return for the period = (f/a) 4.9% 4.3% 24.4% (5.4)% (4.9)% (23.1)%
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END IR FLFLDVDILLISRecent news on Target Healthcare Reit
See all newsREG - Target H'care REIT - Director/PDMR Shareholding
AnnouncementREG - Target H'care REIT - Half-year Report
AnnouncementREG - Target H'care REIT - Investor Presentation via Investor Meet Company
AnnouncementREG - Target H'care REIT - Notice of Half Year Results
AnnouncementREG - Target H'care REIT - Net Asset Value, Corporate Update & Dividend
Announcement