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

Target Healthcare ReitAnnouncement

02/02/2023 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:20230202:nRSB6567Oa&default-theme=true

RNS Number : 6567O  Target Healthcare REIT PLC  02 February 2023

2 February 2023

 

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 December 2022, together with an update on corporate activity,
and declares its second interim dividend for the year ending 30 June 2023.

 

Corporate activity highlights

 

Stable financial position and portfolio valuation movement:

 

·      EPRA Net Tangible Assets ('NTA') per share decreased to 103.0
pence (30 September 2022: 112.1 pence), largely driven by a like-for-like
portfolio valuation decrease on standing assets of 5.0% primarily reflecting
sector-wide outward yield movement following recent interest rate rises

·      Portfolio EPRA "topped-up" net initial yield of 6.22% (30
September 2022: 5.84%)

·      NAV total return of -6.6% for the quarter (based on EPRA NTA and
including dividend)

·      Net Loan to Value of 25.1% (30 September 2022: 22.3%)

·     Weighted average term to expiry on the Group's total committed
loan facilities of 6.7 years (30 September 2022: 6.7 years) with an earliest
maturity of November 2025. Interest costs hedged to the relevant facility
maturity date on 96% of the drawn debt

·    Overall capital available for investment currently £35 million, net
of the Group's development commitments on four assets

 

Strong portfolio and operational progress: 1.1% like-for-like rental growth;
active portfolio management initiatives providing visibility on rent
collection improvement:

 

·      Diversified portfolio of 100 assets let to 33 tenants and valued
at £867.7 million (30 September 2022: £913.7 million)

·      2.6% net increase in contracted rent roll reflecting:

o  a 1.5% increase from the completion of a development site

o  a 1.1% increase from 24 inflation-linked upwards-only rent reviews, at an
average uplift of 4.2%

·      Weighted average unexpired lease term of 26.8 years remains one
of the longest in the listed real estate sector (30 September 2022: 26.9
years)

·      High quality, modern and sustainable real estate portfolio:

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

o  Leading Positive social impact from sector-leading real estate standards:
97% wet-rooms; 47 sqm space per resident; rent per sqm £180

·      Rent collection of 96% (30 September 2022: 96%; 30 June 2022:
94%). Active portfolio management has resulted in meaningful progress with two
tenants subsequent to the quarter end. The re-tenanting of a home with the
first tenant is now imminent, with improved trading performance increasing
rent collection from the other.

·      Subsequent to an exchange of contracts on a subject-to-planning
basis in the summer of 2022, on 27 January 2023 the Group completed the
acquisition of a development site near Malvern, Worcestershire, following the
receipt of the required planning consent for the construction of a 60-bed care
home.

 

 

Kenneth MacKenzie, CEO of Target Fund Managers, commented:

 

"Following the interest rate rises witnessed in late 2022, real estate values
across almost all sectors have been falling. While the Group has not been
completely immune to this trend, our portfolio has demonstrated its resilience
versus the CBRE UK monthly index (all property) capital decline of 14.6% for
the same quarter. This is largely due to our strategy of investing in prime,
modern real estate with strong overall ESG credentials, inclusive of notably
positive EPC ratings, and underpinned by long term inflation-linked
indexation, in a sector where demographic tailwinds continue to support
demand.

 

"Against a challenging market backdrop, we have again delivered like-for-like
rental growth and remain focussed on the long-term sustainability of our
rental income which is inflation linked (subject to caps and collars). Our
portfolio performance is improving, with rent cover responding positively to
the increases in occupancy we've seen through recent quarters. We have closely
managed specific assets and tenants where occupancy has been slower to recover
and have progressed initiatives where required.

 

"Our capital base remains conservatively structured with adequate headroom
and, whilst we are not aggressively pursuing an acquisitions strategy at
present, we remain alert to opportunities that may be presented as a result of
changing market conditions."

 

Net Total Assets

 

The Group's unaudited EPRA NTA per share as at 31 December 2022 was 103.0
pence. The total return for the quarter based on EPRA NTA was -6.6%.

 

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 December 2022, the Group's portfolio was valued at £867.7 million
and comprised 100 properties, consisting of 97 operational care homes and
three pre-let sites, which are being developed through capped forward funding
commitments with established development partners.

 

The portfolio value decreased by 5.0% over the quarter which matched the
movement in the like-for-like value of the operational portfolio. The
like-for-like movement reflects a 6.2% decrease due to outward yield shifts
applied by the valuers to reflect the higher interest rate environment and
overall economic conditions, offset by a 1.2% increase from inflation-linked
rent reviews. The spend on the development assets, including the site which
completed in the quarter, increased the portfolio value by 0.5%; however, this
was fully offset by similar outward yield shifts on the developments as
described above.

 

Contractual rental income increased by 2.6% over the period, comprising:

·      a 1.5% increase from the lease entered into on a new-build home
following practical completion of a development site; and

·      a 1.1% increase from 24 inflation-linked upwards-only rent
reviews, with an average uplift of 4.2%

 

The portfolio's weighted average unexpired lease term was 26.8 years (30
September 2022: 26.9 years).

 

The portfolio had an EPRA "topped-up" net initial yield of 6.22% based on an
annualised contractual rent of £57.1 million. The portfolio's EPRA net
initial yield was 6.06% with three assets in rent-free periods.

 

Acquisitions and other asset management

 

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

 

·      Practical completion of the Group's development site in Weymouth,
Dorset was reached in November 2022, contributing 66 new beds to the
portfolio. A new tenant to the Group has entered into a 35 year lease which
incorporates green provisions and annual rent reviews (subject to caps and
collars).

·      Completion of a retrofit programme on 31 rooms to bring one of
the Group's small number of homes without full en suite wet-room provision to
acceptable modern standards.

 

 

Subsequent to the quarter end the following transactions and asset management
initiatives were completed/progressed:

 

·      The acquisition of a development site near Malvern,
Worcestershire, following the receipt of the required planning consent for the
construction of a 60-bed care home. Consistent with the Group's standard
approach, the home is pre-let to an existing tenant and has in place a capped
development agreement which is itself underpinned by a fixed price
construction contract. The lease includes green provisions such as
energy-related data collection, per the Group's standard lease.

·      Substantial completion of the process to re-tenant one home,
which will alleviate cashflow pressures for a tenant, allowing a return to a
fully rent-paying position on its three remaining homes. The contractual rent
for the incoming tenant will remain the same.

·      Improved trading performance at a second tenant has seen a
further increase in the proportion of rent received for both of its homes. The
tenant has been able to grow towards full occupancy having been (as an
immature business) behind in occupancy growth at the start of the pandemic.

 

Debt facilities and swap arrangements

 

As at 31 December 2022, the Group's total borrowings were £240 million,
representing a net LTV of 25.1% (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 loan arrangement costs, was 3.79% (30 September
2022: 3.49%). This excludes the amortisation of the cost of the interest rate
cap, the upfront cost of which has already been deducted in full from the EPRA
NTA as shown in the table in the appendix. The increase over the quarter was
due to the increase in market interest rates impacting the variable rate
applied to the Group's revolving credit facilities.

 

Going forward, 96% of the £240 million of drawn debt is fully hedged to
further increases in interest rates. £180 million of the drawn debt was fixed
prior to the rise in interest rates seen during 2022. Of this, £150 million
has been fixed for a weighted average term of 11.1 years with a weighted
average interest rate excluding the amortisation of arrangement fees of 3.18%.
£30 million of the Group's bank facilities have been fixed at 2.48% for 2.9
years through an interest rate swap entered into in November 2020. As
previously announced, a further £50 million of the Group's revolving credit
facilities have interest rates capped via a 3% SONIA cap entered into in
November 2022.

 

During the quarter, the Group extended by one year the maturity date on the
Group's £100 million revolving credit facility with HSBC Bank plc.
The weighted average term to expiry on the Group's total committed loan
facilities remained unchanged at 6.7 years (30 September 2022: 6.7 years).

 

Dividends in the period

 

The Group paid 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, on 25 November 2022 to shareholders on the register on 11 November
2022. This distribution was comprised wholly of a property income distribution
(PID).

 

 

Announcement of second interim dividend

 

The Company today declares its second interim dividend for the year ending 30
June 2023, in respect of the period from 1 October 2022 to 31 December 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:  9 February 2023
 Record Date:       10 February 2023
 Payment Date:      24 February 2023

 

The dividend reflects an annualised payment of 6.76 pence per share and a
dividend yield of 8.4% based on the 1 February 2023 closing share price of
80.1 pence.

 

 

The Company had 620,237,346 ordinary shares in issue at 31 December 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:

 

 

 Target Fund Managers Limited    Tel: 01786 845 912
 Kenneth MacKenzie
 Gordon Bland

 Stifel Nicolaus Europe Limited  Tel: 020 7710 7600
 Mark Young
 Rajpal Padam

 Catriona Neville

 FTI Consulting                  Tel: 020 7710 7600
 Dido Laurimore                  TargetHealthcare@fticonsulting.com
 Richard Gotla

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 2022 comprised 100 assets let to 33
tenants with a total value of £867.7 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 October 2022 to 31 December 2022:

 

                                                                  Pence per share
 EPRA NTA per share as at 30 September 2022                                         112.1

 Revaluation gains / (losses) on investment properties            (7.6)
 Net Revaluation gains / (losses) on assets under construction^   (0.8)
 Premium paid for interest rate cap                               (0.4)
 Movement in revenue reserve                                      1.4
 First interim dividend payment for the year ending 30 June 2023  (1.7)
 EPRA NTA per share as at 31 December 2022                        103.0
 Percentage change in the quarter                                 (8.1%)

 

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 December 2022, due to the valuation ascribed to the Group's interest
rate derivative contracts used to hedge its exposure to variable interest
rates, which are excluded from the calculation of the EPRA NTA, the unaudited
NAV calculated under International Financial Reporting Standards was 103.9
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)

                                      Dec-22        Sep-22        Jun-22        Mar-22
                                      £m            £m            £m            £m
 Property portfolio*                  867.7         913.7         911.6         886.8
 Cash                                 21.8          19.6          34.5          42.8
 Net current assets / (liabilities)*  (10.4)        (15.2)        (14.8)        (13.4)
 Bank loans                           (240.0)       (223.0)       (234.8)       (222.8)
 Net assets                           639.1         695.1         696.5         693.4

 EPRA NTA per share (pence)           103.0         112.1         112.3         111.8

 

*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 April
2023 and the unaudited EPRA NTA per share as at 31 March 2023 is expected to
be announced in April 2023.

 

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

 

The Group currently has three 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 December  31 March  30 June  30 September  31 December

                         2022         2023      2023     2023          2023
 EPRA topped-up NIY      6.22%        6.22%     6.22%    6.22%         6.22%
 EPRA NIY                6.06%        6.13%     6.13%    6.13%         6.22%
 Contractual rent (£m)   57.1         57.1      57.1     57.1          57.1
 Passing rent (£m)       55.5         56.3      56.3     56.3          57.1

 

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  UPDNKDBDCBKDPBK