REG - Target H'care REIT - Net Asset Value, Corporate Update & Dividend

Target Healthcare ReitAnnouncement

05/05/2022 07:00

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RNS Number : 3707K  Target Healthcare REIT PLC  05 May 2022

 

5 May 2022

 

Target Healthcare REIT plc and its subsidiaries

 

("Target Healthcare" or "the Group")

 

Net Asset Value, update on corporate activity and dividend declaration

 

Target Healthcare (LSE: THRL), the UK listed specialist investor in modern,
purpose-built care homes, announces its unaudited quarterly Net Asset Value
('NAV') as at 31 March 2022, together with an update on corporate activity,
and declares its third interim dividend for the year ending 30 June 2022.

 

Corporate activity highlights

 

Increasing scale and diversification driving strong earnings growth

 

·      EPRA Net Tangible Assets ('NTA') per share increased by 0.9% to
111.8 pence (31 December 2021: 110.8 pence), primarily reflecting valuation
uplifts across the portfolio driven by inflation-linked annual rental uplifts
and modest yield compression

·      NAV total return of 2.5% for the quarter (based on EPRA NTA and
including dividend)

o  34% increase in Adjusted EPRA earnings to £9.0 million from £6.7
million, reflecting a full quarter's rental income from the portfolio acquired
during the prior quarter and one-off rental income of £0.8 million arising
from successful re-tenanting

·      Two acquisitions, including one completed post period end, for a
total investment of £23 million

·      Low Net Loan to Value of 20.3% (31 December 2021: 20.7%)

·      Available investible capital (comprising cash and undrawn debt)
at 30 April 2022 of £67 million, fully allocated to pipeline deals in
diligence

 

Valuation growth continues, given attractiveness of portfolio of high quality,
modern real estate with strong ESG credentials & long duration RPI-linked
leases.

 

·      Diversified portfolio of 99 assets let to 33 tenants and valued
at £886.8 million

o  1.1% like-for-like valuation increase of the operational portfolio; 0.7%
from rent reviews and 0.4% from continued yield compression

o  Social impact from real estate which best serves care providers and their
underlying residents; strong ESG credentials - 92% of the portfolio A or B EPC
rated

o  Portfolio EPRA "topped-up" net initial yield of 5.82% (31 December 2021:
5.84%)

·      Rental growth from inflation-linked, annual rent reviews, with 20
rent reviews completed at an average uplift of 3.9% per annum average,
contributing to a 0.7% increase in like-for-like contracted rent

·      1.2% overall increase in contracted rent roll, including
acquisitions and asset management

·      Weighted average unexpired lease terms of 27.3 years, one of the
longest within the listed real estate sector (31 December 2021: 27.5 years)

·      Demand for our portfolio as an investment asset class continues,
evidenced by the modest tightening of valuation yields and the competitive
market for modern care homes. Strong demand for the Group's assets from tenant
operators has been confirmed as the Manager actively re-tenants homes from two
tenants whose resilience has been stretched following restrictions during the
most recent COVID-19 Omicron wave. These comprehensive asset management
initiatives in progress will help to alleviate the impact on recent rent
collection, which, up to today's date, was 92% for the quarter.

·      Successful re-tenanting of a group of four homes completed in the
quarter from a large national operator to a local operator, who is better
positioned to provide successful future trading. Financial terms are accretive
to returns, with a lease surrender premium received to reflect the revised
lease terms and the incoming tenant covenant.

 

Dividend

·      Third interim dividend of 1.69 pence per share declared for the
year ending 30 June 2022, representing an increase of 0.6% on the FY 2021
quarterly dividends. On an annualised basis, this reflects a payment of 6.76
pence per share and a dividend yield of 6.2% based on the closing share price
of 109.2 pence on 4 May 2022.

 

 

 

 

Kenneth MacKenzie, CEO of Target Fund Managers, commented:

 

"The significant earnings increase we have reported supports our progression
towards full dividend cover, which will be further enhanced as we convert on
our remaining investment pipeline, our development portfolio comes on stream
and as we reallocate amongst interested parties a small proportion of our
in-demand real estate.

 

"The social impact of providing high quality, modern care home real estate
should not be underestimated. It is fundamental to why this Company exists and
we will not compromise on the physical standard of care homes we invest in.
Our convictions in this area also impact our choice of tenants; it is part of
our mission to support the sector's modernisation and future through backing
progressive care providers. We have seen the latter stages of COVID-19 as
being particularly challenging for such businesses, where the recovery in
private-fee occupancy has generally lagged that of homes which have a higher
rate of publicly funded residents. Tenants who have diligently paid rent in
full for two years, whilst managing multiple immature homes, have now found
themselves stretched. We have a tried-and-tested approach to protecting value
and ensuring stability of operations at our homes which we are implementing.

 

"The fundamentals propelling the sector, including demographics and the
paucity of supply of modern real estate, remain strong. Resident occupancy
across the portfolio is recovering once more, following the Omicron wave, and
our tenants continue to report strong demand from potential new residents and
some easing of staffing challenges."

 

Net Total Assets

 

The Group's unaudited EPRA NTA per share as at 31 March 2022 was 111.8 pence.
The total return for the quarter based on EPRA NTA was 2.5%.

 

A balance sheet summary and an analysis of the movement in the EPRA NTA over
the quarter is presented at the end of this announcement in the Appendix.

 

Corporate Update

 

Portfolio performance

 

As at 31 March 2022, the Group's portfolio was valued at £886.8 million and
comprised 99 properties, consisting of 95 operational care homes and four
pre-let sites, which are being developed through capped forward funding
commitments with established development partners.

 

The portfolio value increased by 1.9% over the quarter. This comprised a 0.8%
increase resulting from acquisitions, 1.1% from a like-for-like uplift in the
operational portfolio value and a net neutral impact from further investment
into the development portfolio, capital expenditure and the re-tenanting
impact on existing assets. The like-for-like movement primarily reflects the
portfolio's inflation-linked rental reviews as well as continued modest yield
compression in the investment market for modern, purpose-built care homes.

 

Contractual rent increased by 1.2% over the period, comprising:

·      0.8% from acquisitions

·      0.7% from 20 inflation-linked upwards-only rent reviews, with an
average uplift of 3.9%

·      (0.3%) from asset management initiatives

 

The portfolio's weighted average unexpired lease term was 27.3 years (31
December 2021: 27.5 years).

 

The portfolio had an EPRA topped-up net initial yield of 5.82% based on an
annualised contractual rent of £54.1 million. The portfolio's EPRA net
initial yield was 5.35% with 10 assets in rent-free periods.

 

Acquisitions and other asset management

·      One acquisition completed during the quarter and one subsequent
to the quarter-end, adding an operational home and a development site, for a
total commitment of £23 million, including costs:

o  As previously announced, on 7 January 2022 the Group acquired a 55-bed
modern, purpose-built operational care home in Westhoughton, greater
Manchester. This is let to Harbour Healthcare, a new tenant to the Group, on a
35 year, fully repairing and insuring, occupational lease with annual,
upwards-only RPI-linked increases, subject to a cap and collar.

o  Subsequent to the quarter end, on 28 April 2022, the Group acquired a
development site in Dartford, Kent. This, the Group's one hundredth asset,
will add a further 71 modern, en suite wet-rooms by September 2023 by virtue
of a capped development agreement and is pre-let on a lease typical of the
portfolio, being long-term with annual, upwards-only RPI-linked rent reviews,
subject to a cap and collar.

 

·      The re-tenanting of four homes in Northern Ireland completed in
the period, moving from a large, national operator to a smaller operator more
focussed in that local market, in line with the Group strategy. A surrender
premium was received from the outgoing tenant to reflect the rental incentives
for the incoming tenant and the lease change impact on asset valuations. The
Group will benefit from (i) a positive net financial effect, following agreed
capex to each of the homes; and (ii) the addition of an established regional
operator.

 

Debt facilities and swap arrangements

 

As at 31 March 2022, the Group's total borrowings were £223 million, giving a
net LTV of 20.3% (total gross debt less cash, as a proportion of gross
property value). The Group's weighted average cost on its drawn debt,
inclusive of amortisation of arrangement costs, was 3.20% (31 December 2021:
3.09%). The increase over the quarter was due to the impact of the change in
SONIA on the Group's revolving credit facilities. The weighted average term to
expiry was 7.2 years (31 December 2021: 7.4 years).

 

The Group has £180 million of fixed term debt facilities and £140 million of
revolving credit facilities, with a diversified mix of maturities and lenders.
As at 31 March 2022, the Group had drawn £180 million of fixed term debt,
with interest costs fixed, and £43 million under the revolving credit
facilities which carry a variable interest rate linked to SONIA.

 

Dividends in the period

 

The Group paid its second interim dividend for the year ending 30 June 2022,
in respect of the period from 1 October 2021 to 31 December 2021, of 1.69
pence per share, on 25 February 2022 to shareholders on the register on
11 February 2022. This distribution was comprised wholly of a property income
distribution (PID).

 

Valuation

 

The property portfolio was externally valued at £886.8 million at 31 March
2022.

 

Announcement of third interim dividend

 

The Company today declares its third interim dividend for the year ending 30
June 2022, in respect of the period from 1 January 2022 to 31 March 2022, of
1.69 pence per share as detailed in the schedule below:

 

Interim Property Income Distribution (PID):     1.69 pence per share

 

 Ex-Dividend Date:  12 May 2022
 Record Date:       13 May 2022
 Payment Date:      27 May 2022

 

The dividend reflects an annualised payment of 6.76 pence per share and a
dividend yield of 6.2% based on the 4 May 2022 closing share price of 109.2
pence.

 

 

The Company had 620,237,346 ordinary shares in issue at 31 March 2022 and has
not issued or bought back any shares since that date.

 

Shareholders entitled to elect to receive distributions without deduction for
withholding tax may complete the declaration form which is available on
request from the Company through the contact details provided on its website
www.targethealthcarereit.co.uk (http://www.targethealthcarereit.co.uk) , or
from the Company's registrar. Shareholders who qualify for gross payments are,
principally, UK resident companies, certain UK public bodies, UK charities, UK
pension schemes and the managers of ISAs, PEPs and Child Trust Funds, in each
case subject to certain conditions. Individuals and non-UK residents do not
qualify for gross payments of distributions and should not complete the
declaration form.

LEI: 213800RXPY9WULUSBC04

 

ENDS

 

 

 

Enquiries:

 

Kenneth MacKenzie; Gordon Bland

Target Fund Managers Limited

01786 845 912

 

Mark Young; Mark Bloomfield

Stifel Nicolaus Europe Limited

020 7710 7600

 

Dido Laurimore; Claire Turvey; 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 March 2022 comprised 99 assets let to 33 tenants
with a total value of £886.8 million.

The Group invests in modern, purpose-built care homes that are let to high
quality tenants who demonstrate strong operational capabilities and a strong
care ethos. The Group builds collaborative, supportive relationships with each
of its tenants as it believes working in this way helps raise standards of
care and helps its tenants build sustainable businesses. In turn, that helps
the Group deliver stable returns to its investors.

Important information

 

The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the UK version of the Market
Abuse Regulations (EU) No. 596/2014, which is part of UK law by virtue of the
European Union (Withdrawal) Act 2018, as amended. Upon the publication of this
announcement via Regulatory Information Service, this inside information is
now considered to be in the public domain.

APPENDIX

 

1.     Analysis of movement in EPRA NTA

 

The following table provides an analysis of the movement in the unaudited EPRA
NTA per share for the period from 1 January 2022 to 31 March 2022:

 

                                                                  Pence per share
 EPRA NTA per share as at 31 December 2021                                          110.8

 Revaluation gains / (losses) on investment properties            1.4
 Net Revaluation gains / (losses) on assets under construction^   (0.1)
 Net impact of acquisition costs                                  -
 Movement in revenue reserve                                      1.4
 Second interim dividend payment for the year ended 30 June 2022  (1.7)
 EPRA NTA per share as at 31 March 2022                           111.8
 Percentage change in the quarter                                 0.9%

 

The EPRA Best Practices Recommendations Guidelines state that companies should
publish a set of three NAV metrics. The full set of EPRA NAV metrics are
published in the Group's Annual Report. The Company intends to continue to
announce the EPRA NTA on a quarterly basis.

 

At 31 March 2022, due to the valuation ascribed to the Group's interest rate
derivative contract used to hedge its exposure to variable interest rates,
which is excluded from the calculation of the EPRA NTA, the NAV calculated
under International Financial Reporting Standards was 112.1 pence per share.

 

^Consistent with standard valuation practice for assets under construction,
the carrying value of these assets is calculated by the valuer through
application of a discount to accumulated costs to date. This discount varies
depending on factors such as the remaining development time. As the asset
progresses towards completion, the discount that has been applied is unwound.

 

 2.     Summary balance sheet (unaudited)

                                      Mar-22        Dec-21        Sept-21       Jun-21
                                      £m            £m            £m            £m
 Property portfolio*                  886.8         870.5         702.7         684.8
 Cash                                 42.8          49.0          72.8          21.1
 Net current assets / (liabilities)*  (13.4)        (9.6)         (4.9)         (11.0)
 Bank loans                           (222.8)       (222.8)       (80.0)        (130.0)
 Net assets                           693.4         687.1         690.6         564.9

 EPRA NTA per share (pence)           111.8         110.8         111.3         110.4

 

*Properties within the portfolio are stated at the market value provided by
the external valuer and the IFRS effects of fixed/guaranteed minimum rent
reviews are not reflected.

 

The next quarterly valuation of the property portfolio will be conducted by
Colliers International Healthcare Property Consultants Limited during July
2022 and the unaudited EPRA NTA per share as at 30 June 2022 is expected to be
announced in July 2022.

 

3.     EPRA NIY profiles and unwind of rent-free periods

 

The Group currently has 10 assets with rent-free periods. As these unwind,
assuming no other changes including inter alia the portfolio valuation or
rental profile, the EPRA yield profiles for the portfolio will be as follows:

                         31 March  30 June  30 September 2022  31 December  31 March

                         2022      2022                        2022         2023
 EPRA topped-up NIY      5.82%     5.82%    5.82%              5.82%        5.82%
 EPRA NIY                5.35%     5.50%    5.72%              5.78%        5.82%
 Contractual rent (£m)   54.1      54.1     54.1               54.1         54.1
 Passing rent (£m)       49.7      51.1     53.1               53.7         54.1

 

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