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

Target Healthcare ReitAnnouncement

02/08/2023 07:00

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RNS Number : 9783H  Target Healthcare REIT PLC  02 August 2023

2 August 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 30 June 2023, together with an update on corporate activity, and
declares its fourth interim dividend for the year ended 30 June 2023.

 

Corporate activity highlights

 

Strong portfolio performance; stable NTA and earnings, fully covered dividend;
conservative LTV and fully hedged interest costs:

 

·      EPRA Net Tangible Assets ('NTA') per share increased to 104.5
pence (31 March 2023: 103.4 pence), reflecting a like-for-like valuation
uplift driven by inflation-linked rent reviews

·      Portfolio EPRA "topped-up" net initial yield of 6.22% (31 March
2023: 6.21%)

·    Adjusted EPRA EPS for the quarter of 1.5 pence per share, fully
covering the dividend to be paid in respect of the quarter of 1.4 pence per
share

·      NAV total return of 2.4% for the quarter (based on EPRA NTA and
including payment of dividend)

·      Net Loan to Value of 24.7% (31 March 2023: 23.8%)

·      Weighted average debt term of 6.2 years (31 March 2023: 6.5
years) with the earliest maturity being November 2025. Interest costs hedged
on 100% of drawn debt to the relevant facility maturity date

·   Total capital available of £43 million, net of the Group's commitments
on five development assets, following the completion of a further development
site acquisition subsequent to quarter-end, as detailed below.

 

99% rent collection reflecting improved trading and demand for modern care
home real estate. Inflation-linked annual rent reviews continue to drive
rental and capital growth:

 

·      Diversified portfolio of 97 assets let to 32 tenants valued at
£868.7 million (31 March 2023: £855.7 million) reflecting a 0.9%
like-for-like valuation increase

·    Like-for-like increase in contracted rent roll of 1.1%, primarily
driven by inflation-linked upwards-only annual rent reviews

·     Weighted average unexpired lease term of 26.5 years which remains
one of the longest in the listed UK real estate sector (31 March 2023: 26.8
years)

·      High quality, modern and sustainable real estate portfolio:

o  94% of the portfolio is A or B EPC rated, (100% A to C ratings) therefore
currently compliant with the minimum energy efficiency standards anticipated
to apply from 2030

o  Leading Positive social impact from sector-leading real estate standards:
98% wet-rooms; generous 47 sqm space per resident; sustainable rent of £186
per sqm

·    Rent collection of 99%, continuing the quarterly improvement (31 March
2023: 97%) as overall tenant profitability continues to respond to improved
trading performance across our fit-for-purpose real estate, and in response to
the completion of portfolio management initiatives.

 

Kenneth MacKenzie, CEO of Target Fund Managers, commented:

 

"The return to near-full rent collection and the stability of our portfolio
valuation is consistent with our investment thesis - that modern,
purpose-built care homes will provide compelling long-term returns. Demand for
places in our homes remains encouraging, as reported by our tenants, and is
demonstrated by growing weekly fee rates and improving rent
covers/profitability. Resident occupancy across our portfolio continues to
recover towards pre-pandemic levels.

 

"Our focus remains on managing the portfolio, supporting our tenants in their
business aspirations and actively investing to improve our real estate where
we see opportunities to unlock further value. We also continue to invest in
the future of the sector with construction underway on a best-in-class care
home offering carbon net-zero operational ability at our most recently
acquired development site. In addition, we have four further sites where
pre-let care homes are being built subject to capped development contracts,
which will deliver to the sector a pipeline of much-needed fit-for-purpose
modern real estate."

 

 

Net Total Assets

 

The Group's unaudited EPRA NTA per share as at 30 June 2023 was 104.5 pence.
The total return for the quarter based on EPRA NTA was 2.4%.

 

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 2023, the Group's portfolio was valued at £868.7 million and
comprised 97 properties, consisting of 93 operational care homes and four
pre-let sites, which are being developed through capped forward funding
commitments with established development partners. A further pre-let site was
acquired after the period-end.

 

Portfolio value increased by 1.5% over the quarter, comprising:

·     a 0.9% increase in the like-for-like operational portfolio,
reflecting a 1.0% increase from inflation-linked rent reviews and rent-free
unwinds, offset by a marginal 0.1% decrease driven by net outward yield shift
on a limited number of specific assets

·      a 0.6% increase from capital expenditure, mainly associated with
the four development properties

 

Contractual rental income increased by 1.1% over the quarter, comprising a
1.0% like-for-like increase from 25 inflation-linked upwards-only rent
reviews, with an average uplift of 3.8%; and 0.1% from the deferred completion
of a five-yearly rental uplift on one property.

 

The portfolio's weighted average unexpired lease term was 26.5 years (31 March
2023: 26.8 years).

 

The portfolio had an EPRA "topped-up" net initial yield of 6.22% based on an
annualised contractual rent of £56.6 million. The portfolio's EPRA net
initial yield was 6.05% with two assets in rent-free periods.

 

Acquisitions and other asset management

 

During the quarter the following asset management initiatives were completed:

 

·      The conversion to 51 full ensuite wet-rooms from poorer quality
ensuites at two of the Group's homes, progressing plans to move the portfolio
to 100% wet-rooms, currently 98% following these works

·      The Group signed legal agreements relating to the addition of 18
bedrooms at a property. This includes a commitment by the Group to provide
£2.35 million to fund the capital works which are expected to be completed by
September 2023 and which will be rentalised at completion at a NIY consistent
with the current valuation yield of the property. Further:

o  The additional bedroom space created, a proportion of which the tenant has
agreed to sub-let to a local charity for a three-year term, is forecast to
improve the tenant's rent cover. Rent deposits covering both properties with
this tenant have been established to further strengthen the surety of rent
receipts

o  Agreement has also been reached for a partial write-off of the majority of
historic rent arrears from this tenant, which had previously been fully
provided for, and a payment plan has been agreed for the remainder

o  Following completion and rentalisation of the capital works, this tenant
will equate to 4.6% of the portfolio's contracted rent.

 

Subsequent to the quarter-end, the following acquisition completed:

 

·      On 4 July 2023, the Group acquired a pre-let development site
subject to a forward funding agreement to construct a 66-bed care home
in Weston-super-Mare, Somerset for a maximum commitment of £16.0
million including acquisition costs.

o  Construction on the home has commenced and is expected to be completed in
the summer of 2024

o  The care home is to be built to exceptional ESG standards, with the
highest certifications anticipated, and will offer carbon net-zero operational
ability

o  Consistent with the Group's standard approach, the home is pre-let to a
new tenant to the Group. A capped development agreement, underpinned by a
fixed price construction contract, is in place

o  The lease agreement includes green provisions such as energy-usage data
collection, per the Group's standard lease terms.

 

Debt facilities and swap arrangements

 

As at 30 June 2023, the Group's total borrowings were £230 million,
representing a net LTV of 24.7% (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 3.70% (31 March 2023:
3.70%).

 

100% of drawn debt is fully hedged against further interest rate increases:

·    £150 million is fixed with a weighted average term of 10.6 years and
a weighted average interest rate of 3.18% (excluding the amortisation of
arrangement fees)

·      £30 million of the Group's bank facilities is fixed at 2.48% for
2.4 years through an interest rate swap

·      The remaining £50 million of the Group's drawn revolving credit
facilities have interest rates capped via a 3% SONIA cap for 2.4 years.

 

The Group has access to a further £90 million of committed, but undrawn,
revolving credit facilities which, if drawn, would carry an interest rate of
SONIA plus 2.21%.

 

At 30 June 2023, the weighted average term to expiry on the Group's total
committed loan facilities was 6.2 years (31 March 2023: 6.5 years) with the
earliest maturity being November 2025.

 

Dividends in the period

 

The Group paid its third interim dividend for the year ended 30 June 2023, in
respect of the period from 1 January 2023 to 31 March 2023, of 1.40 pence per
share, on 26 May 2023 to shareholders on the register on 12 May 2023. This
distribution was comprised wholly of a property income distribution (PID).

 

Announcement of fourth interim dividend

 

The Company today declares its fourth interim dividend for the year ended 30
June 2023, in respect of the period from 1 April 2023 to 30 June 2023, of 1.40
pence per share as detailed in the schedule below:

 

Interim Property Income Distribution (PID):     1.19 pence per share

Interim ordinary dividend:
0.21 pence per share

 

 Ex-Dividend Date:  10 August 2023
 Record Date:       11 August 2023
 Payment Date:      25 August 2023

 

The dividend reflects an annualised payment of 5.60 pence per share and a
dividend yield of 7.6% based on the 1 August 2023 closing share price of 73.4
pence.

 

 

The Company had 620,237,346 ordinary shares in issue at 30 June 2023 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 30 June 2023 comprised 97 assets let to 32 tenants
with a total value of £868.7 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 April 2023 to 30 June 2023:

 

                                                                  Pence per share
 EPRA NTA per share as at 31 March 2023                                             103.4

 Revaluation gains / (losses) on investment properties            1.1
 Revaluation gains / (losses) on assets under construction^       (0.1)
 Movement in revenue reserve                                      1.5
 Third interim dividend payment for the year ending 30 June 2023  (1.4)
 EPRA NTA per share as at 30 June 2023                            104.5
 Percentage change in the quarter                                 1.1%

 

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 30 June 2023, 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 105.6 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-23        Mar-23        Dec-22        Sep-22
                                      £m            £m            £m            £m
 Property portfolio*                  868.7         855.7         867.7         913.7
 Cash                                 15.4          26.4          21.8          19.6
 Net current assets / (liabilities)*  (6.2)         (10.5)        (10.4)        (15.2)
 Bank loans                           (230.0)       (230.0)       (240.0)       (223.0)
 Net assets                           647.9         641.6         639.1         695.1

 EPRA NTA per share (pence)           104.5         103.4         103.0         112.1

 

*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
2023 and the unaudited EPRA NTA per share as at 30 September 2023 is expected
to be announced in October 2023.

 

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

 

The Group currently has two 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 Sept  31 Dec  31 March  30 June

                         2023     2023     2023    2024      2024
 EPRA topped-up NIY      6.22%    6.22%    6.22%   6.22%     6.22%
 EPRA NIY                6.05%    6.05%    6.14%   6.18%     6.22%
 Contractual rent (£m)   56.6     56.6     56.6    56.6      56.6
 Passing rent (£m)       55.0     55.0     55.8    56.2      56.6

 

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