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

Target Healthcare ReitAnnouncement

02/11/2022 07:00

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RNS Number : 9951E  Target Healthcare REIT PLC  02 November 2022

2 November 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 September 2022, together with an update on corporate
activity, and declares its first interim dividend for the year ending 30 June
2023.

 

Corporate activity highlights

 

Stable financial performance with focus on debt management and maintaining
capital headroom:

 

·      EPRA Net Tangible Assets ('NTA') per share broadly flat at 112.1
pence (30 June 2022: 112.3 pence), with the like-for-like portfolio valuation
increasing 0.1%, reflecting inflation-linked annual rental uplifts and
completion of portfolio management initiatives partially offset by outward
yield movement on select assets

·      NAV total return of 1.3% for the quarter (based on EPRA NTA and
including dividend)

·      No debt maturity until November 2025 following extension of £100
million HSBC facility by one year

·      Interest costs on drawn debt fully hedged out to November 2025
following entry into interest rate cap in October 2022

·      Net Loan to Value stable at 22.3% (30 June 2022: 22.0%)

·      Capital headroom of £42 million net of the Group's development
commitments

 

Improving portfolio trading, with sustained occupancy growth, increased rent
collection and significant arrears collection:

 

·      Diversified portfolio of 100 assets let to 33 tenants and valued
at £913.7 million, following disposal of one non-core home for carrying value
which represented 0.5% of portfolio value

·      0.3% net increase in contracted rent roll reflecting the decrease
from the above-mentioned disposal and uplifts from rent reviews and portfolio
management initiatives, including a 0.7% like-for-like increase from 16 rent
reviews at an average uplift of 3.8% per annum

·      Portfolio EPRA "topped-up" net initial yield of 5.84% (30 June
2022: 5.82%)

·      Weighted average unexpired lease term of 26.9 years remains one
of the longest in the listed real estate sector (30 June 2022: 27.2 years)

·      High quality, modern and ESG-compliant real estate:

o  93% of the portfolio is A or B EPC rated, and 2030 compliant with minimum
energy efficiency standards

o  Leading High social impact from sector-leading real estate standards: 97%
wet-rooms; 47 sqm space per resident; rent per sqm £177

·      Rent collection of 96% (30 June 2022: 94%):

o  Arrears collected from seven-home tenant; initiatives in progress to
re-tenant two homes following Covid trading challenges

·      Mature home resident occupancy has increased to 84%, maintaining
consistent upward trend since February 2022

 

 

Kenneth MacKenzie, CEO of Target Fund Managers, commented:

 

"Our focus this quarter has been securing certainty on debt costs and
availability on our shorter-term facilities and managing our underperforming
assets to improve rent collection.

 

"We have extended the weighted average term to debt maturity to 6.9 years by
exercising our option with the HSBC facility, as well as capping the remaining
drawn debt we had which was not otherwise fixed or hedged. We have a plan to
efficiently manage interest rate risk on the c.£50 million we will draw to
fund the construction of our development assets. We intend to retain capital
headroom beyond our existing portfolio commitments.

 

"We also made significant operational progress at those assets still
underperforming due to Covid challenges. Two of those homes are in the process
of being transferred to alternative operators. Having lined up five parties
willing to step into the leases on a seven-home group, we collected in full
the rental arrears from the incumbent tenant and have welcomed their renewed
commitment to those homes. We are encouraged that our view on their future
trading outlook and prospects for long-term profitability was shared across
several parties with specialist knowledge of the sector and the advantages of
modern real estate. We look forward to our tenant delivering to its residents
and staff in the homes and flourishing in the more favourable trading
conditions we are now seeing.

 

"Our portfolio is modern, ESG-compliant and provides long-term, sustainable,
inflation-linked income. Given these attributes and the demographic tailwinds
within the care home sector, we would expect to see downward valuation
movements which are more muted than those anticipated across the wider real
estate market. In the current challenging economic conditions, we will
continue to monitor the resilience of our tenants' trading, as well as the
impact of changes in interest rates and inflation. We will remain responsive
to significant developments and will assess the impact of these factors on our
business model and earnings as volatility eases towards a more settled
outlook, on which longer-term planning can be based."

 

Net Total Assets

 

The Group's unaudited EPRA NTA per share as at 30 September 2022 was 112.1
pence. The total return for the quarter based on EPRA NTA was 1.3%.

 

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 September 2022, the Group's portfolio was valued at £913.7 million
and comprised 100 properties, consisting of 96 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 0.2% over the quarter. This comprised a 0.5%
decrease resulting from the disposal of a non-core asset, a 0.1% increase in
the like-for-like value of the operational portfolio and 0.6% from further
investment into the development portfolio and performance payments/capital
expenditure on existing assets. The like-for-like movement primarily reflects
the portfolio's inflation-linked rental reviews partially offset by some
outward yield movements on specific assets.

 

Contractual rent increased by 0.3% over the period, comprising:

·      0.8% decrease from the disposal

·      0.4% increase from performance payments/rentalised capex on
existing assets

·      0.7% increase from 16 inflation-linked upwards-only rent reviews,
with an average uplift of 3.8%

 

The portfolio's weighted average unexpired lease term was 26.9 years (30 June
2022: 27.2 years).

 

The portfolio had an EPRA topped-up net initial yield of 5.84% based on an
annualised contractual rent of £55.6 million. The portfolio's EPRA net
initial yield was 5.61% with five assets in rent-free periods.

 

Acquisitions and other asset management

 

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

 

·      The disposal of a non-core asset. This care home was part of the
18-home portfolio acquired in December 2021, with real estate standards below
the average of that portfolio. It has been sold to the operator for proceeds
consistent with carrying value. The home represented 0.5% of the portfolio by
value.

·      Payments totalling £2.8 million were made in respect of
contractual commitments on two homes made at original acquisition in the event
of strong trading performance. Rent cover thresholds have been consistently
met over the relevant time period since the homes opened, triggering the
payments which are rentalised at a level consistent with the acquisition NIY,
which maintain rent cover headroom at investment case level, and increase
portfolio rent by 0.4%.

 

Debt facilities and swap arrangements

 

As at 30 September 2022, the Group's total borrowings were £223 million,
giving a net LTV of 22.3% (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 3.49% (30 June 2022:
3.31%). The increase over the quarter was due to the increase in market
interest rates impacting the variable rate paid on the Group's revolving
credit facilities.

 

£180 million of the drawn debt has been fixed prior to the rise in interest
rates seen during 2022. £150 million is fixed for a weighted average of 11.4
years with a weighted average interest rate excluding the amortisation of
arrangement fees of 3.18%. £30 million of the Group's bank facilities is
fixed at 2.48% for 3.1 years through an interest rate swap entered into in
November 2020. An interest rate cap was entered into during October 2022 which
caps SONIA at 3% on a further £50 million of the Group's revolving credit
facilities until November 2025. The premium paid to acquire the cap equates to
0.4 pence per share.

 

The Group's £100 million revolving credit facility with HSBC Bank plc was
extended by one year, to November 2025, during October 2022. Inclusive of this
extension, the weighted average term to expiry on the Group's total committed
loan facilities was 6.9 years as at 1 November 2022 (30 June 2022: 6.9 years).

 

Dividends in the period

 

The Group paid 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, on 26 August 2022 to shareholders on the register on 12 August 2022.
This distribution was comprised wholly of an ordinary dividend.

 

 

Announcement of first interim dividend

 

The Company today declares its first interim dividend for the year ending 30
June 2023, in respect of the period from 1 July 2022 to 30 September 2022, of
1.69 pence per share as detailed in the schedule below:

 

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

Interim ordinary
dividend:
nil

 

 Ex-Dividend Date:  10 November 2022
 Record Date:       11 November 2022
 Payment Date:      25 November 2022

 

The dividend reflects an annualised payment of 6.76 pence per share and a
dividend yield of 7.6% based on the 1 November 2022 closing share price of
89.4 pence.

 

 

The Company had 620,237,346 ordinary shares in issue at 30 September 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 September 2022 comprised 100 assets let to 33
tenants with a total value of £913.7 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 July 2022 to 30 September 2022:

 

                                                                  Pence per share
 EPRA NTA per share as at 30 June 2022                                              112.3

 Revaluation gains / (losses) on investment properties            -
 Net Revaluation gains / (losses) on assets under construction^   (0.1)
 Movement in revenue reserve                                      1.6
 Fourth interim dividend payment for the year ended 30 June 2022  (1.7)
 EPRA NTA per share as at 30 September 2022                       112.1
 Percentage change in the quarter                                 (0.2)%

 

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 September 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 112.8
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)

                                      Sep-22        Jun-22        Mar-22        Dec-21
                                      £m            £m            £m            £m
 Property portfolio*                  913.7         911.6         886.8         870.5
 Cash                                 19.6          34.5          42.8          49.0
 Net current assets / (liabilities)*  (15.2)        (14.8)        (13.4)        (9.6)
 Bank loans                           (223.0)       (234.8)       (222.8)       (222.8)
 Net assets                           695.1         696.5         693.4         687.1

 EPRA NTA per share (pence)           112.1         112.3         111.8         110.8

 

*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 January
2023 and the unaudited EPRA NTA per share as at 31 December 2022 is expected
to be announced in January 2023.

 

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

 

The Group currently has five 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 September 2022  31 December  31 March  30 June

                                            2022         2023      2023
 EPRA topped-up NIY      5.84%              5.84%        5.84%     5.84%
 EPRA NIY                5.61%              5.79%        5.84%     5.84%
 Contractual rent (£m)   55.6               55.6         55.6      55.6
 Passing rent (£m)       53.5               55.2         55.6      55.6

 

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