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

Target Healthcare ReitAnnouncement

04/08/2022 07:15

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RNS Number : 8552U  Target Healthcare REIT PLC  04 August 2022

4 August 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 30 June 2022, together with an update on corporate activity, and
declares its fourth interim dividend for the year ended 30 June 2022.

 

Corporate activity highlights

 

FTSE 250 inclusion; low LTV with drawn debt largely fixed rate &
long-term; further rent & valuation growth:

 

·      EPRA Net Tangible Assets ('NTA') per share increased by 0.4% to
112.3 pence (31 March 2022: 111.8 pence), primarily reflecting valuation
uplifts across the portfolio driven by inflation-linked annual rental uplifts

·      NAV total return of 2.0% for the quarter (based on EPRA NTA and
including dividend)

·      FTSE 250 inclusion effected from 20 June 2022 following the
quarterly review, reflecting (i) patient yet regular growth in
portfolio/company scale to date and (ii) stable, non-cyclical returns,
relative to volatility elsewhere, from modern real estate portfolio
benefitting from supportive long-term trends

·      Low Net Loan to Value of 22.0% (31 March 2022: 20.3%) with £180
million of the £235 million of drawn debt at fixed interest rates

·      Available investible capital comprising cash and undrawn debt
facilities at 3 August 2022 of £49 million, fully allocated but not yet
contractually committed to pipeline deals

·      Rental growth from inflation-linked, annual rent reviews, with 23
rent reviews completed at an average uplift of 3.8% per annum average,
contributing to a 1.0% increase in like-for-like contracted rent

 

 

Modern portfolio with strong ESG credentials & RPI-linked leases; strong
investment demand for asset class; occupancy & trading improvements
underway across the portfolio, with well-advanced initiatives regarding
remaining COVID-19 affected assets:

 

·      Diversified portfolio of 101 assets let to 34 tenants and valued
at £911.6 million

o  0.9% like-for-like valuation increase of the operational portfolio driven
primarily by rent reviews

o  Social impact from real estate which best serves care providers and the
residents they look after; strong ESG credentials - 92% of the portfolio is A
or B EPC rated, and 2030 compliant with minimum energy efficiency standards

o  Portfolio EPRA "topped-up" net initial yield of 5.82% (31 March 2022:
5.82%)

·      2.6% overall increase in contracted rent roll, including
acquisitions and asset management initiatives

·      Weighted average unexpired lease term of 27.2 years remains one
of the longest within the listed real estate sector (31 March 2022: 27.3
years)

·      Patient pipeline conversion, with two acquisitions completed
totalling £24 million comprising a mature, trading asset and a development
site. Continued investment in development portfolio, with one site reaching
practical completion during the period

·      Programme to re-tenant nine homes from two tenants is
well-progressed, with the re-tenanting of the first home completed in the
quarter. Currently heads of terms are agreed for four homes and the Manager is
close to reaching agreed terms on the remaining four homes, with completion
for all homes expected by the end of the calendar year, subject to regulatory
approval and legal documentation. These comprehensive initiatives will, in
aggregate, allocate homes providing 8.3% of contractual rent to six
alternative operators, and alleviate the impact on recent rent collection,
which, up to today's date, was 90% for the quarter

 

 

Dividend

·      Fourth interim dividend of 1.69 pence per share declared for the
year ended 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 5.9% based on the closing share price of 115.4 pence on 3
August 2022

 

 

 

 

Kenneth MacKenzie, CEO of Target Fund Managers, commented:

 

"Notable milestones this quarter include, the portfolio passing 100 assets and
our inclusion in the FTSE 250. We continue to focus on the favourable
long-term prospects for the portfolio, underpinned by demographic trends, the
quality and modernity of our real estate and the Company's clear environmental
and social impact. We believe we are as future proof as we can be -
environmentally 92% of our portfolio is 2030 compliant, and 100% of our homes
form part of the 29% of the UK care home stock which in our opinion is
socially compliant 1  (#_ftn1) .

 

"Resident occupancy levels continue to improve and mature home occupancy is
currently at its highest level since the first wave of the pandemic in April
2020. Encouragingly, almost all operators are reporting increased momentum in
occupancy growth in recent weeks.

 

"The six-month lag in this recovery caused by the Omicron variant has had a
more significant impact on two of our tenants struggling to grow occupancy and
reach operational maturity in the face of the continued restrictions on
admissions in the event of an outbreak. However, we have a proven record of
effecting change when it is required and are well-advanced in our efforts to
reallocate the homes across a number of alternative operators.

 

"We therefore see numerous positives: our portfolio's trading outlook is as
encouraging as it has been since March 2020; rent levels on the assets we are
choosing to re-tenant are matching existing contractual levels; and strong
investment demand continues with multiple bidders for ESG-compliant modern
care homes. Market pricing, by reference to acquisition net initial yields,
reflects these positives and is not correlating with the rising cost of
capital and the negative sentiment of the current macroeconomic environment.
We prefer to be considered at this point and, with the narrowing spread
available on new investments as interest rates and development costs rise, we
believe that cautious deployment of our available capital is the more prudent
path in these uncertain times. Whilst accepting that this will extend the path
to dividend cover we still anticipate achieving full cover once the Group is
fully invested. We have an excellent portfolio of assets creating stable
long-term income and prefer to be prudent while working diligently to achieve
continued stability and growth."

 

Net Total Assets

 

The Group's unaudited EPRA NTA per share as at 30 June 2022 was 112.3 pence.
The total return for the quarter based on EPRA NTA was 2.0%.

 

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

 

Corporate Update

 

Portfolio performance

 

As at 30 June 2022, the Group's portfolio was valued at £911.6 million and
comprised 101 properties, consisting of 97 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 2.8% over the quarter. This comprised a 1.1%
increase resulting from acquisitions, 0.9% from a like-for-like uplift in the
operational portfolio value and 0.8% 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.

 

Contractual rent increased by 2.6% over the period, comprising:

·      1.6% from acquisitions and the practical completion of
development sites

·      1.0% from 23 inflation-linked upwards-only rent reviews, with an
average uplift of 3.8%

 

The portfolio's weighted average unexpired lease term was 27.2 years (31 March
2022: 27.3 years).

 

The portfolio had an EPRA topped-up net initial yield of 5.82% based on an
annualised contractual rent of £55.5 million. The portfolio's EPRA net
initial yield was 5.38% with 10 assets in rent-free periods.

 

Acquisitions and other asset management

 

During the quarter, the following transactions and asset management
initiatives were completed:

 

·      On 28 April 2022, as previously announced, the Group acquired a
development site subject to a forward funding agreement to construct a care
home in Dartford, Kent. This 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.

·      On 14 June 2022, the Group completed the acquisition of a mature,
modern, purpose-built care home in Halesowen, West Midlands. The home has been
trading for six years with a strong record of occupancy, care/service and
profitability and will be operated by a subsidiary of Kingsley Healthcare, an
existing tenant of the Group, following the exit from the market of the
previous operator, a local social housing provider.

·      Practical completion of the Group's development site in
Chesterfield was reached in June 2022, contributing 72 new beds to the
portfolio.

·      In addition, as referred to above, on 30 June 2022 the Group
continued to resolve its position with regard to an existing tenant who has
faced financial challenges as a result of the COVID-19 pandemic, by completing
the re-tenanting of one of its homes to a new tenant to the Group.

 

Debt facilities and swap arrangements

 

As at 30 June 2022, the Group's total borrowings were £235 million, giving a
net LTV of 22.0% (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 3.31% (31 March 2022:
3.20%). The increase over the quarter was due to the impact of the change in
SONIA on the Group's revolving credit facilities.

 

£180 million of the drawn debt is at fixed-rates, £150 million of which is
fixed for a weighted average of 11.6 years and the remaining £30 million bank
facility is fixed for 3.4 years. The weighted average interest rate on the
Group's fixed-rate facilities, excluding the amortisation of arrangement fees,
is 3.07%. £55 million was drawn under revolving credit facilities which carry
a variable interest rate linked to SONIA.

 

The weighted average term to expiry on the Group's total committed loan
facilities was 6.9 years (31 March 2022: 7.2 years).

 

Dividends in the period

 

The Group paid its third interim dividend for the year ended 30 June 2022, in
respect of the period from 1 January 2022 to 31 March 2022, of 1.69 pence per
share, on 27 May 2022 to shareholders on the register on 13 May 2022. This
distribution was comprised wholly of a property income distribution (PID).

 

Valuation

 

The property portfolio was externally valued at £911.6 million at 30 June
2022.

 

Announcement of fourth interim dividend

 

The Company today declares its fourth interim dividend for the year ended 30
June 2022, in respect of the period from 1 April 2022 to 30 June 2022, of 1.69
pence per share as detailed in the schedule below:

 

Interim ordinary
dividend:
1.69 pence per share

Interim Property Income Distribution (PID):     nil

 

 Ex-Dividend Date:  11 August 2022
 Record Date:       12 August 2022
 Payment Date:      26 August 2022

 

The dividend reflects an annualised payment of 6.76 pence per share and a
dividend yield of 5.9% based on the 3 August 2022 closing share price of
115.4 pence.

 

 

The Company had 620,237,346 ordinary shares in issue at 30 June 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; 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 30 June 2022 comprised 101 assets let to 34 tenants
with a total value of £911.6 million.

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

Important information

 

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

APPENDIX

 

1.     Analysis of movement in EPRA NTA

 

The following table provides an analysis of the movement in the unaudited EPRA
NTA per share for the period from 1 April 2022 to 30 June 2022:

 

                                                                 Pence per share
 EPRA NTA per share as at 31 March 2022                                            111.8

 Revaluation gains / (losses) on investment properties           1.2
 Net Revaluation gains / (losses) on assets under construction^  (0.1)
 Net impact of acquisition costs                                 (0.1)
 Movement in revenue reserve                                     1.2
 Third interim dividend payment for the year ended 30 June 2022  (1.7)
 EPRA NTA per share as at 30 June 2022                           112.3
 Percentage change in the quarter                                0.4%

 

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

 

At 30 June 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 unaudited NAV
calculated under International Financial Reporting Standards was 112.7 pence
per share.

 

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

 

 2.     Summary balance sheet (unaudited)

                                      Jun-22        Mar-22        Dec-21        Sept-21
                                      £m            £m            £m            £m
 Property portfolio*                  911.6         886.8         870.5         702.7
 Cash                                 34.5          42.8          49.0          72.8
 Net current assets / (liabilities)*  (14.8)        (13.4)        (9.6)         (4.9)
 Bank loans                           (234.8)       (222.8)       (222.8)       (80.0)
 Net assets                           696.5         693.4         687.1         690.6

 EPRA NTA per share (pence)           112.3         111.8         110.8         111.3

 

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

 

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

                         30 June  30 September 2022  31 December  31 March

                         2022                        2022         2023
 EPRA topped-up NIY      5.82%    5.82%              5.82%        5.82%
 EPRA NIY                5.38%    5.60%              5.75%        5.82%
 Contractual rent (£m)   55.5     55.5               55.5         55.5
 Passing rent (£m)       51.2     53.3               54.8         55.5

 

 1  (#_ftnref1) 71% of beds within the UK's care home market do not benefit
from en suite wet rooms and as such are fundamentally compromised in the level
of dignified, socially responsible and operationally efficient care that can
be provided to residents. With 96% of the Group's portfolio benefitting from
this standard and plans in place for the majority of the remaining beds that
have only an en suite wc, the Group continues to demonstrate industry-leading
social impact through its investment in exclusively care homes that are truly
fit-for-purpose.

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