REG - Target H'care REIT - Half-year Report
14/03/2025 07:00
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RNS Number : 6431A Target Healthcare REIT PLC 14 March 2025
14 March 2025
Target Healthcare REIT plc
HALF-YEAR RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2024
Influential sectoral tailwinds and a business model focussed on high quality,
purpose-built real estate combine to deliver further earnings and NTA growth
Target Healthcare REIT plc (the "Company" or the "Group"), the UK listed
specialist investor in modern, purpose-built care homes, announces its results
for the six months ended 31 December 2024.
NTA growth and strong total return performance; robust balance sheet supported
by long-term fixed rate debt; fully covered and growing dividend
· EPRA NTA per share increased 1.8% to 112.7 pence (June 2024:
110.7 pence)
· Total Accounting Return((1)) of +4.5% (2023: +4.9%)
· Adjusted EPRA Earnings per share((2)) increased 2.6% to 3.13
pence (2023: 3.05 pence)
· Dividend per share in respect of the period of 2.942 pence, 107%
covered on adjusted EPRA earnings((3)), with quarterly rate increased by 3%
· Net loan-to-value ("LTV") of 22.7% (June 2024: 22.5%), with a
weighted average cost of drawn debt at 3.95% (June 2024: 3.91%), an average
term to maturity of 4.7 years (June 2024: 5.2 years) and interest rate hedged
on 93% of drawn debt until expiry
· EPRA Cost Ratio of 16.1% (2023: 16.0%)
Growing rent roll and stable valuations. Modern, purpose-built portfolio
providing a strong platform for robust underlying trading performance with
sustainable rent covers backed by operators weighted towards private fee
payers.
· Portfolio market valuation increased by 1.8% to £924.7 million
(June 2024: £908.5 million), primarily driven by:
o a 1.1% like-for-like valuation increase, comprising +1.3% from
inflation-linked rental uplifts and the unwind of rent-free periods offset by
-0.2% due to outward yield movements and other asset management activities;
and
o increase of 0.7% due to capital expenditure.
· Contractual rent increased by 3.0% to £60.6 million (June 2024:
£58.8 million), including like‑for-like rental growth of 1.3%
· Strong performance across all key metrics of underlying trading
performance at the homes with rent collection of 98% and mature home rent
cover of 1.9 times (June 2024: 1.9 times)
· Mature home resident spot occupancy at the period end of 86%
· Diversified portfolio and tenant base, with 34 tenants across 94
properties (June 2024: 34 tenants and 94 properties)
· Weighted average unexpired lease term of 26.1 years (June 2024:
26.4 years) remains one of the longest in the sector
Delivering sector-leading real estate metrics - significant differentiation in
real estate quality metrics, providing benefits from the dual tailwinds of an
ageing demographic and clear trend to quality:
· 100% properties A or B EPC ratings (+30ppts relative to listed
peer average)
· 99% of rooms fully en suite wet-rooms (+63 ppts relative to
listed peer average)
· Generous 48m(2) of average space per resident (+19% relative to
listed peer average)
· 84% of properties younger than 2010 build date (+67ppts relative
to listed peer average)
Unless otherwise stated in the above, references to 2023 mean the comparative
six month period to 31 December 2023 and references to 2024 mean 30 June 2024,
being the start of the period under review.
( )
((1)) Based on EPRA NTA movement and dividends paid, see alternative
performance measures below.
((2)) For the details of EPRA earnings and adjusted EPRA earnings refer to
note 6 to the Condensed Consolidated Financial Statements.
((3)) See alternative performance measures below.
Alison Fyfe, Chair of the Company, said:
"Target Healthcare REIT plc has continued to deliver both consistent property
and financial performance, which is a testament to the quality of our business
model, portfolio, and management team. We have a secure, long-duration income
stream which provides compounding growth annually, which is underpinned by a
portfolio containing some of the highest quality real estate in the care home
sector. The modernity of the portfolio is evidenced by having one of the
strongest EPC ratings of any UK listed real estate company."
A live webcast presentation for analysts will be held at 9.00 a.m. GMT this
morning and can be accessed via the following link:
https://brrmedia.news/THRL_INT_2025 (https://brrmedia.news/THRL_INT_2025)
LEI: 213800RXPY9WULUSBC04
Enquiries:
Kenneth MacKenzie; Gordon Bland
Target Fund Managers Limited
01786 845 912
Mark Young; Rajpal Padam
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 31 December 2024 comprised 94 assets let to 34
tenants with a total value of £924.7 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.
Chair's Statement
Target Healthcare REIT plc has continued to deliver both consistent property
and financial performance, which is a testament to the quality of our business
model, portfolio, and management team. We have a secure, long-duration income
stream which provides compounding growth annually, which is underpinned by a
portfolio containing some of the highest quality real estate in the care home
sector. The modernity of the portfolio is evidenced by having one of the
strongest EPC ratings(1) of any UK listed real estate company.
More widely, the share prices of other real estate companies outside the care
home sector remained anchored by the interest rate environment and economic
uncertainty, with the read-across from each of these being poorer occupier
trading and resulting concerns on rental and valuation growth. There are, of
course, real macro factors driving this, however more positive "micro" factors
affecting UK care homes are proving to be influential and leave our portfolio
well positioned. The dual tailwinds of growing, needs-based demand from an
ageing population, and the clear trend to quality in care home real estate(2),
are specific to our sector and support our portfolio. Our tenants continue to
report healthy demand for care home places with the quality of the underlying
real estate supporting resident fee levels that allow our tenants to manage
their inflationary cost pressures.
1. Results summary
The portfolio has once again outperformed the MSCI UK Annual Healthcare
Property Index, with calendar year total return at the property level of 10.8%
relative to the index's 5.4%, ranking the portfolio in the top quartile and
maintaining its record of outperforming the Index in every year since our IPO.
The portfolio return, when combined with the Group's efficient property
management model and stable valuations, translates to a Total Accounting
Return for the six months to 31 December 2024 of +4.5%. Adjusted EPRA Earnings
per share has increased by 2.6% to 3.13 pence per share and EPRA NTA increased
by 1.8% to 112.7 pence per share. We have increased the dividend by 3.0% to an
annualised 5.884 pence per share. This is comfortably covered by earnings for
the period at 107% based on adjusted EPRA earnings, which is similar to a cash
basis, and 134% when applying the more-widely used EPRA earnings metric.
2. Reflections
We, of course, acknowledge that our share price drives the day-to-day returns
to our shareholders. Along with income-producing real estate companies more
generally, our share price has been closely correlated with movements in
interest rates and our discount to NTA therefore remains persistent as
interest rates remain elevated. The sentiment towards real estate generally
remains bearish given the economic outlook, though with positive sectoral
demographics, consistently strong property performance and RPI-linked
contractual rental growth, we remain well positioned for the future.
In our annual report of September 2024, I provided our response to a number of
questions which were being posed to those running listed property companies.
It feels appropriate to revisit how we are addressing these.
How we deliver earnings growth
Our model provides guaranteed rental growth and an efficient property model
with respect to operating costs. We have embedded rental uplifts linked to
inflation and achieved like-for-like rental growth of 1.3% in the period, with
our key cost ratios demonstrating operational efficiency - our long-term
Ongoing Charges Ratio has remained consistent since launch at c.1.5% and our
current EPRA Cost Ratio (based on rental income) is 16.1%. The powerful
compounding effect of guaranteed rental growth combined with an efficient cost
structure is a key component of our long-term business model.
Stability of valuations
There remains a fundamental depth of demand for modern, purpose-built, high
quality UK care homes. Valuations have remained stable despite the risk-free
rate changing and this is backed up by transactional evidence including our
own disposals towards the end of the prior year of assets at the lower end of
our portfolio's quality spectrum. The demand for our assets and their robust
and growing rental streams is likely to mitigate the potential for some
outwards yield shift should the risk-free rate remain elevated, providing
further valuation stability.
Enviable debt position
At 22.7% net LTV, our debt remains one of the lowest amongst our peers. Our
net debt to EBITDA ratio of 4.6 times is a notable indicator of our ability to
not only service our debt but also to reduce debt from recurring cashflows
should it be required. Headroom levels on covenant compliance remain
comfortable.
Minimising the impact on returns of higher interest rate environment
The majority of the Group's drawn debt is long-term and fixed at low rates,
with £150 million due to expire between 2032 and 2037. In relation to the
Group's remaining debt facilities, which expire in November 2025, indicative
refinance terms have been obtained from a number of parties, including each of
the incumbent lenders, for a range of facility types and durations. Based on
refinancing terms and current market hedging prices, replacing these existing
facilities and hedging on a like-for-like five-year basis would provide a
weighted average cost on drawn debt of c.4.4%, compared to the current 4.0%,
leaving the dividend fully covered. Such discussions are well advanced and we
have absolute confidence in the Group's ability to appropriately refinance the
expiring loans.
We have been positioning the Group's capital structure and dividend policy
since the interest rate environment changed during 2022, and continuing with a
prudent approach to gearing would provide helpful flexibility with regard to
capital allocation.
Recent focus
The quality of our best-in-class real estate portfolio clearly differentiates
us from our listed peers. These quality metrics, our diversified tenant base
and underlying private fee bias provide a strong platform for sustainable
long-term returns. With growth capital having been constrained recently, our
focus has been on improving our portfolio's quality even further. Our
disposals programme has targeted the older and less spacious homes enabling
the recycling of capital into new build homes and we have continued to enhance
those few remaining "stragglers" without 100% en suite wet-rooms. We improved
our EPC ratings to 100% A or B, invested in environmental efficiencies such as
PV panels and thermal insulation and improved our GRESB score to 71, placing
the Group second in its peer group. The Investment Manager has also remained
active throughout the period through continual monitoring of the operational
and financial performance of our tenants in order to maintain and enhance the
quality of our rental income stream, resulting in the completion of one
property re‑tenanting and the progression of others. More details on our
portfolio enhancements and asset management initiatives are provided within
the Manager's report below.
3. Looking ahead
Our business model provides growing, secure rental income and valuation
stability from real estate which is in high demand. We have a 100% occupied,
modern real estate portfolio with leading environmental credentials, and
inflation-linked annual rental growth. Strong underlying trading at the care
home level supports the longevity and consistency of returns, evidenced by our
consistent top quartile performance in the MSCI UK Annual Healthcare Property
Index and consistent portfolio and total accounting returns.
The modernity of our portfolio, and its strong environmental credentials, will
also minimise the future need for returns-depleting remedial capital
expenditure.
The six-monthly Total Accounting Return for this reporting period is 4.5%,
following the 11.8% for the year to 30 June 2024. We note recently published
analyst research(3) concluding that share price total returns correlate with
total accounting returns over the longer term and would find it logical that a
best-in-class portfolio with strong fundamentals such as ours will provide
further evidence to support this correlation over time.
Whilst we remain cognisant of the discount and the heightened level of
corporate activity in the market and shareholder activism, we believe that the
Group's prospects remain positive. Our current dividend yield of 6.4% and
historical earnings yield for the period of 7.5% provide an attractive premium
to the risk-free rate. Almost 12 years of track record, inclusive of a global
pandemic, associated period of high inflation, and now an extended period
towards a normalisation of the cost of capital, provides compelling evidence
of our robust rental stream which appears to be very much "investment-grade"
in its volatility characteristics.
We know, however, that we need to remain on the front foot. We will continue
to consider disposals which will provide capital for us to allocate
intelligently to the investment pipeline and other opportunities, carefully
balancing the desire to enhance both shareholder returns and the quality of
the real estate portfolio to ensure it remains future-proof and significantly
differentiated from the sector average and our listed peers.
We continue to believe that our model (REIT, listed, closed-ended, and served
by a specialist manager) is an attractive way for investors to place capital
in a disciplined and well-founded investment in UK care home real estate.
Alison Fyfe
13 March 2025
(1) 100% A & B rated (Scottish homes assessed at England & Wales
equivalent).
(2) The percentage of UK care home beds with en suite wet-rooms is now 34%,
increasing from 14% in 2014 (Carterwood).
(3) Source - Panmure Liberum Real Estate - New Themes for a New World,
November 2024.
Investment Manager's Report
Portfolio performance
The portfolio once again demonstrated its ability to provide attractive
returns from assets which are proving their long-term investment grade
characteristics. On the income side, for the six months under review, rental
collection has remained robust at 98% (2023: 99%), rental growth was 1.3% on a
like-for-like basis (2023: 1.9%) and contractual rent has increased by 3.0% to
£61 million, with 39 rent reviews completed at an average increase of 3.0%.
Investment demand in an active market supports valuations, with the
like-for-like valuation growth for the period of 1.1% (2023: 1.4%) largely
driven by the growth in rents as valuation yield volatility remains low for
prime care homes. The EPRA topped-up NIY is stable at 6.20%.
The portfolio has continued to outperform the MSCI UK Annual Healthcare
Property Index, with a standing assets total return of 10.8% for the 2024
calendar year compared to the index of 5.4%.
We are deeply proud to remain a top performer in the MSCI UK Annual Healthcare
Property Index for the calendar year 2024, coming fourth of 37 contributors on
an all-assets basis. More importantly, this is sustained performance as we
rank second over 10 years.
Pence per share
EPRA NTA per share as at 30 June 2024 110.7
Property revaluations - rent review 2.1
Property revaluations - yield shift and asset management (0.3)
Adjusted EPRA earnings 3.1
Dividends paid (2.9)
EPRA NTA per share as at 31 December 2024 112.7
Underlying trading
Our growing rental stream is supported by underlying trading in a sector with
significant tailwinds and structural support. Our portfolio of 34 tenants
continues to generate sustainable earnings with an average rent cover of 1.9x
(2023: 1.9x). Underlying demand for places in our homes remains high at 86%
mature occupancy (2023: 86%) with scope for further profitability growth as
occupancy trends further towards the 90% long-term average. Our tenants'
commercial propositions are largely geared towards privately-funded residents,
with fee levels therefore able to be more easily varied in response to
inflationary cost increases. The current period, of course, sees National
Insurance and National Living Wage increases. This increases tenants' cost
bases by a typical 6% - 7% given staffing is the most significant cost for a
care home. In response, we are seeing fee increases across the portfolio for
private residents of c.8% - 10%, maintaining operating margins and supporting
the long-term stability of these care providers.
Real estate quality
We continue to manage the portfolio to ensure it is comfortably best-in-class
in listed care home real estate. Disposals of bottom quartile assets and
investment in developments has been a part of this, as well as capital
expenditure where required, usually as envisaged in the initial investment
underwrite.
· 100% EPCs A-B (+30 ppts from listed peer average)
· 99% en suite wet-rooms (+63 ppts from listed peer average)
· Spacious 48 m(2) per resident on average (+19% from listed peer
average)
· 84% of homes younger than 2010 build date (+67 ppts from listed
peer average)
· All let on long leases (WAULT 26.1 years) with upwards-only rent
reviews.
Based on these important metrics, the portfolio is significantly
differentiated from those of its listed peers, therefore benefitting from the
sector's trend towards quality, and compares well to wider commercial real
estate with respect to returns and longevity.
Asset management
Portfolio and investment capital expenditure, including developments,
ESG-improvements such as the installation of en suite wet-rooms and PV panels
and re-tenanting initiatives, has increased contractual rent by £1.0 million,
and we will continue to consider all opportunities as and when they arise.
Notable initiatives and challenges in the period include:
· One of the Group's two development sites reached practical
completion and was leased on pre-agreed terms to an existing tenant of the
Group adding £0.9 million to the Group's contractual rent;
· A home was re-tenanted resulting in a tenant who had taken the
strategic decision to exit the elderly care sector being replaced by a new
tenant to the Group with an experienced management team. The contracted rent
from the property remained unchanged, with the rent free period granted to the
incoming tenant being partially funded by the outgoing tenant, an increase in
the minimum annual rental uplift and an improvement in the property's
valuation yield;
· Action was taken in relation to a non-paying tenant of a single
home in the South West amounting to 1.5% of rent roll. Having already
commenced discussions with strong alternative tenants, and with others having
noted interest subsequently, we remain confident in the prospects for the
home, and anticipate a satisfactory resolution of the situation with minimal
impact on returns; and
· The following initiatives were completed with capital expenditure
rentalised at yields ahead of the portfolio topped-up EPRA NIY:
o Facilitated the installation of PV panels at five homes;
o Refurbished one of the Group's homes in the North West;
o Converted the final four rooms to provide full en suite wet-room
facilities at one of the Group's homes in North Yorkshire as part of ongoing
asset enhancements; and
o Paid a performance payment of £1.0 million to a tenant where contracted
performance conditions set at the time of entering into the initial lease had
been met.
Investment market
The UK care home investment market saw record activity in Q4 2024 with
transaction volumes of c.£1.3 billion (Source: Cushman & Wakefield).
Whilst US REITs dominated transactions, there were a broad range of market
participants. These volume levels provide ample evidence to support property
valuations.
Health and social care update
Social care reform
After initial speculation of a Royal Commission on Social Care last year the
Government subsequently announced that Baroness Louise Casey would chair an
independent commission which would identify the key issues facing the sector
and recommend changes. However, some voices in the sector expressed concern
that a final report would not be expected until 2028. The sector continues to
see itself as part of the answer to reduce delayed discharge and avoid
unnecessary hospital admissions, but sector commentators note the lack of
wider Government policy to work with operators, who have also experienced some
(unwarranted in their view) criticism of being uncooperative.
Budget
In tandem with other sectors, social care leaders were caught off guard with
the announcement of the changes to employers' national insurance contributions
in the autumn Budget, with many organisations, including the not-for-profit
sector, expressing disappointment at the extra costs, coupled with the rising
minimum wage, with no parallel announcement on support for the sector. These
rises are particularly significant for those who operate primarily on public
funding. It may be less so for those who have a higher proportion of private
fee payers. The sector expects an average fee increase of 8%+ to be required
to cover costs.
Funding
The Government subsequently announced a generally welcomed local government
finance settlement for 2025/26, making available up to £3.7 billion in
"additional funding" for adult social care, although sector commentators argue
the allocations only show an increase of £880 million compared to the current
year. Further detail is awaited, and, of course, the sector highlights the
difficulty in ring fencing those funds.
Council tax rises specifically with adult social care costs in mind have been
a feature of the past few years and 2025/26 is likely to be no exception, with
many councils opting to take the 2% social care precept allowance bringing
their requests to the maximum 4.99% limit. Six English councils have been
given specific permission to approach double digit rises, and around thirty
have been thrown a lifeline to borrow from a £1.5 billion pot to avoid
bankruptcy. Much of this financial stress is linked to the soaring demand for
social care.
Care Regulator (CQC in England)
The CQC remained in the headlines over the autumn and winter after a turbulent
period during which Dr Penny Dash concluded her review into the Regulatory
body and issued a report, noting that the organisation had ''lost its
credibility''. After a period under interim oversight, Sir Julian Hartley took
over as CEO, Sir Mike Richards has been named as the Government's preferred
candidate for Chair and Professor Adrian Fowler has been appointed Interim
Chief Inspector. Sir Julian has added his observation that the organisation
had "lost its way", not least with its IT system being ''not fit for
purpose''. An alliance within the sector has offered their own suggestions for
detailed change.
Staffing
Staffing is perhaps less of a concern than in recent years, with many of the
Group's tenants reporting stable team numbers. The wider sector is less
optimistic, with concerns regarding the reissue of overseas licenses once
current visas have run their course. Reapplications will, of course, exclude
the previously allowed dependants' ability to accompany the worker, and
reapplications taking place have seen a significant downturn in number, with
some believing the dependant issue may be at least part of that equation.
Target Fund Managers Limited
13 March 2025
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 31 December
2024
Six months ended Six months ended
31 December 2024 31 December 2023
(unaudited) (unaudited)
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Revenue
Rental income 29,770 5,487 35,257 28,588 5,463 34,051
Other income 7 - 7 5 - 5
Total revenue 29,777 5,487 35,264 28,593 5,463 34,056
8
Gain on investment properties - 5,908 5,908 - 7,745 7,745
Total income 29,777 11,395 41,172 28,593 13,208 41,801
Expenditure
Investment management fee 2 (3,909) - (3,909) (3,679) - (3,679)
Credit loss allowance and bad debts 3 (180) - (180) (306) - (306)
Other expenses 3 (1,581) - (1,581) (1,474) - (1,474)
Total expenditure (5,670) - (5,670) (5,459) - (5,459)
Profit before finance costs and taxation
24,107 11,395 35,502 23,134 13,208 36,342
Net finance costs
Interest income 225 - 225 33 - 33
Finance costs 4 (5,362) (403) (5,765) (5,212) (402) (5,614)
Net finance costs (5,137) (403) (5,540) (5,179) (402) (5,581)
Profit before taxation 18,970 10,992 29,962 17,955 12,806 30,761
Taxation 5 - - - - - -
Profit for the period 18,970 10,992 29,962 17,955 12,806 30,761
Other comprehensive income:
Items that are or may be reclassified subsequently to profit or loss
Movement in fair value of interest rate derivatives designated as cash flow
hedges
- (796) (796) - (2,975) (2,975)
Total comprehensive income for the period
18,970 10,196 29,166 17,955 9,831 27,786
Earnings per share (pence) 6 3.06 1.77 4.83 2.90 2.06 4.96
The total column of this statement represents the Group's Condensed
Consolidated Statement of Comprehensive Income, prepared in accordance with UK
adopted IAS 34 'Interim Financial Reporting'. The supplementary revenue return
and capital return columns are both prepared under guidance published by the
Association of Investment Companies.
All revenue and capital items in the above statement are derived from
continuing operations.
No operations were discontinued in the period.
Condensed Consolidated Statement of Financial Position
As at 31 December 2024
As at As at
31 December 30 June
2024 2024
(unaudited) (audited)
Notes £'000 £'000
Non-current assets
Investment properties 8 841,325 831,573
Trade and other receivables 9 96,019 88,426
Interest rate derivatives 12 - 2,820
937,344 922,819
Current assets
Trade and other receivables 9 3,439 5,667
Interest rate derivatives 12 1,621 -
Cash and cash equivalents 11 37,918 38,884
42,978 44,551
Total assets 980,322 967,370
Non-current liabilities
Loans 12 (148,341) (240,672)
Trade and other payables 13 (12,126) (9,893)
(160,467) (250,565)
Current liabilities
Loans 12 (97,643) -
Trade and other payables 13 (21,734) (27,512)
(119,377) (27,512)
Total liabilities (279,844) (278,077)
Net assets 700,478 689,293
Share capital and reserves
Share capital 14 6,202 6,202
Share premium 256,633 256,633
Merger reserve 47,751 47,751
Distributable reserve 170,347 170,347
Hedging reserve 945 1,741
Capital reserve 88,660 77,668
Revenue reserve 129,940 128,951
Equity shareholders' funds 700,478 689,293
Net asset value per ordinary share (pence) 6 112.9 111.1
Condensed Consolidated Statement of Changes in Equity
For the six months ended 31 December 2024
(unaudited)
Distrib-utable
Share capital Share premium Merger reserve reserve Hedging Capital reserve Revenue reserve
Notes reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
As at 30 June 2024 6,202 256,633 47,751 170,347 1,741 77,668 128,951 689,293
Profit for the period - - - - - 10,992 18,970 29,962
Other comprehensive income - - - - (796) - - (796)
Total comprehensive income
- - - - (796) 10,992 18,970 29,166
Transactions with owners recognised in equity:
Dividends paid 7 - - - - - - (17,981) (17,981)
As at 31 December 2024 6,202 256,633 47,751 170,347 945 88,660 129,940 700,478
For the six months ended 31 December 2023 (unaudited)
Distrib-utable
Share capital Share premium Merger reserve reserve Hedging Capital reserve Revenue reserve
Notes reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
As at 30 June 2023 6,202 256,633 47,751 187,887 5,026 40,914 110,395 654,808
Profit for the period - - - - - 12,806 17,955 30,761
Other comprehensive income - - - - (2,975) - - (2,975)
Total comprehensive income
- - - - (2,975) 12,806 17,955 27,786
Transactions with owners recognised in equity:
Dividends paid 7 - - - (17,540) - - - (17,540)
As at 31 December 2023 6,202 256,633 47,751 170,347 2,051 53,720 128,350 665,054
Condensed Consolidated Statement of Cash Flows
For the six months ended 31 December
2024
Six months ended Six months ended
31 December 31 December
2024 2023
(unaudited) (unaudited)
Notes £'000 £'000
Cash flows from operating activities
Profit before tax 29,962 30,761
Adjustments for:
Interest income (225) (33)
Finance costs 5,765 5,614
Revaluation gains on investment properties and movements in lease incentives,
net of acquisition costs written off
(11,395) (13,208)
Decrease in trade and other receivables 1,832 3,697
Increase in trade and other payables 676 506
26,615 27,337
Interest paid (5,049) (4,598)
Interest received 225 33
(4,824) (4,565)
Net cash inflow from operating activities 21,791 22,772
Cash flows from investing activities
Purchase of investment properties, including acquisition costs
(9,805) (25,477)
Net cash outflow from investing activities (9,805) (25,477)
Cash flows from financing activities
Drawdown of bank loan facilities 12 10,000 22,500
Repayment of bank loan facilities 12 (5,000) -
Dividends paid (17,952) (17,530)
Net cash (outflow)/inflow from financing activities (12,952) 4,970
Net (decrease)/increase in cash and cash equivalents (966) 2,265
Opening cash and cash equivalents 38,884 15,366
Closing cash and cash equivalents 11 37,918 17,631
Transactions which do not require the use of cash
Movement in fixed or guaranteed rent reviews and lease incentives 5,368 6,012
Notes to the Condensed Consolidated Financial Statements
1. Basis of Preparation
The condensed consolidated financial statements have been prepared in
accordance with UK-adopted IAS 34 'Interim Financial Reporting' and the
accounting policies set out in the statutory financial statements of the Group
for the year ended 30 June 2024.
The condensed consolidated financial statements do not include all of the
information required for a complete set of IFRS financial statements and
should be read in conjunction with the consolidated financial statements of
the Group for the year ended 30 June 2024, which were prepared under full
UK-adopted IFRS requirements.
Going concern
The condensed consolidated financial statements have been prepared on the
going concern basis. In assessing the going concern basis of accounting the
Directors have had regard to the guidance issued by the Financial Reporting
Council. The Directors have continued to place a particular focus on the
appropriateness of adopting the going concern basis in preparing the financial
statements for the period ended 31 December 2024.
The Group's going concern assessment particularly considered that:
· The value of the Group's portfolio of assets significantly
exceeds the value of its liabilities;
· The Group is contractually entitled to receive rental income
which significantly exceeds its forecast expenses and loan interest; and
· The Group remains within its loan covenants, with a weighted
average term to maturity of 4.7 years at 31 December 2024 and an earliest
repayment date of November 2025. Discussions with existing and potential
lenders do not raise any concerns over the Group's ability to re-finance the
proportion of its debt facilities due to expire in November 2025 on
appropriate terms in due course.
The Group has a significant balance of cash and undrawn debt available and the
Group's current policy is to prudently retain a proportion of this to ensure
it can continue to pay the Group's expenses and loan interest in the unlikely
scenario that the level of rental income received deteriorates significantly.
The proportion retained will be kept under review dependent on portfolio
performance and market conditions.
Based on these considerations, the Directors consider that the Group has
adequate resources to continue in operational existence for the foreseeable
future and at least the next twelve months from the date of issuance of this
report. For this reason, they continue to adopt the going concern basis in
preparing the financial statements.
2. Investment Management Fee
For the six month For the six month
period ended period ended
31 December 2024 31 December 2023
£'000 £'000
Investment management fee 3,909 3,679
The Group's Investment Manager and Alternative Investment Fund Manager
('AIFM') is Target Fund Managers Limited. The Investment Manager is entitled
to an annual management fee on a tiered basis based on the net assets of the
Group as set out below. Where applicable, VAT is payable in addition.
Net assets of the Group Management fee percentage
Up to and including £500 million 1.05
Above £500 million and up to and including £750 million 0.95
Above £750 million and up to and including £1 billion 0.85
Above £1 billion and up to and including £1.5 billion 0.75
Above £1.5 billion 0.65
2. Investment Management Fee (continued)
The Investment Management Agreement can be terminated by either party on 24
months' written notice. Should the Company terminate the Investment Management
Agreement earlier then compensation in lieu of notice will be payable to the
Investment Manager. The Investment Management Agreement may be terminated
immediately without compensation if: the Investment Manager is in material
breach of the agreement; guilty of negligence, wilful default or fraud; is the
subject of insolvency proceedings; or there occurs a change of Key Managers to
which the Board has not given its prior consent.
3. Other expenses
For the six month period ended For the six month period ended
31 December 2024 31 December 2023
£'000 £'000
Total movement in credit loss allowance 180 306
Credit loss allowance charge 180 306
Valuation and other professional fees 969 835
Secretarial and administration fees 109 116
Directors' fees 114 114
Other 389 409
Total other expenses 1,581 1,474
4. Finance costs
For the six month period ended For the six month period ended
31 December 2024 31 December 2023
£'000 £'000
Interest paid on loans 5,050 4,900
Amortisation of loan costs 312 312
Finance and transaction costs relating to the interest rate cap
403 402
Total 5,765 5,614
5. Taxation
The Directors intend to conduct the Group's affairs such that management and
control is exercised in the United Kingdom and so that the Group carries on
any trade in the United Kingdom.
The Group has entered the REIT regime for the purposes of UK taxation. Subject
to continuing relevant UK-REIT criteria being met, the profits from the
Group's property rental business, arising from both income and capital gains,
are exempt from corporation tax.
6. Earnings per share and Net Asset Value per share
Earnings per share
For the six month For the six month
period ended period ended
31 December 2024 31 December 2023
Pence per share Pence per share
£'000 £'000
Revenue earnings 18,970 3.06 17,955 2.90
Capital earnings 10,992 1.77 12,806 2.06
Total earnings 29,962 4.83 30,761 4.96
Average number of shares in issue 620,237,346 620,237,346
The European Public Real Estate Association ('EPRA') is an industry body which
issues best practice reporting guidelines for property companies and the Group
reports an EPRA NAV quarterly. EPRA has issued best practice recommendations
for the calculation of certain figures which are included below.
The EPRA earnings are calculated by making prescribed adjustments specifically
defined by EPRA, being an adjustment for the revaluation movements on
investment properties and other items of a capital nature. EPRA considers this
to be a measure of operational performance and representative of the net
income generated from the Group's operational activities.
The Group's specific adjusted EPRA earnings also includes any additional
adjustments considered by an individual company to be required to arrive at an
underlying performance measure appropriate for their specific business model.
In the case of the Group, this adjusts the EPRA earnings downwards for rental
income arising from recognising guaranteed rental review uplifts and upwards
for development interest received from developers in relation to monies
advanced under forward fund agreements which, in the Group's IFRS financial
statements, is required to be offset against the book cost of the property
under development. The Board believes that that Group's specific adjusted EPRA
earnings represents the underlying performance measure appropriate for the
Group's business model as it illustrates the underlying revenue stream and
costs generated by the Group's property portfolio. The reconciliations are
provided in the table below:
For the six month period ended For the six month period ended
31 December 2024 31 December 2023
£'000 £'000
Earnings per IFRS Consolidated Statement of Comprehensive Income
29,962 30,761
Adjusted for gain on investment properties (5,908) (7,745)
Adjusted for finance and transaction costs on the interest rate cap and other
capital items
403 402
EPRA earnings 24,457 23,418
Adjusted for rental income arising from recognising guaranteed rent review
uplifts
(5,487) (5,463)
Adjusted for development interest under forward fund agreements
469 964
Group specific adjusted EPRA earnings 19,439 18,919
Earnings per share ('EPS') (pence per share)
EPS per IFRS Consolidated Statement of Comprehensive Income
4.83 4.96
EPRA EPS 3.94 3.78
Group specific adjusted EPRA EPS 3.13 3.05
Earnings for the period ended 31 December 2024 should not be taken as a guide
to the results for the year to 30 June 2025.
6. Earnings per share and Net Asset Value per share (continued)
Net Asset Value per share
The Group's net asset value per ordinary share of 112.9 pence (30 June 2024:
111.1 pence) is based on equity shareholders' funds of £700,478,000 (30 June
2024: £689,293,000) and on 620,237,346 (30 June 2024: 620,237,346) ordinary
shares, being the number of shares in issue at the period end.
The three EPRA NAV metrics are shown below. Further details are included in
the glossary.
31 December 2024 30 June 2024
EPRA NRV EPRA NTA EPRA NDV EPRA NRV EPRA NTA EPRA NDV
£'000 £'000 £'000 £'000 £'000 £'000
IFRS NAV per financial statements 700,478 700,478 700,478 689,293 689,293 689,293
Fair value of interest rate derivatives (1,621) (1,621) - (2,820) (2,820) -
Fair value of loans - - 31,661 - - 29,780
Estimated purchasers' costs 61,844 - - 60,026 - -
EPRA net assets 760,701 698,857 732,139 746,499 686,473 719,073
EPRA net assets (pence per share) 122.6 112.7 118.0 120.4 110.7 115.9
7. Dividends
Dividends paid as distributions to equity shareholders during the period.
For the six month period ended For the six month period ended
31 December 2024 31 December 2023
Pence £'000 Pence £'000
Fourth interim dividend for prior year 1.428 8,857 1.400 8,683
First interim dividend 1.471 9,124 1.428 8,857
Total 2.899 17,981 2.828 17,540
A second interim dividend for the year to 30 June 2025, of 1.471 pence per
share, was paid on 28 February 2025 to shareholders on the register on 14
February 2025.
8. Investment properties
As at
31 December
2024
Freehold and Leasehold Properties £'000
Opening market value 908,530
Opening fixed or guaranteed rent reviews (68,856)
Opening lease incentives (10,011)
Opening performance payments 1,910
Opening carrying value 831,573
Purchases and capital expenditure 4,839
Acquisition costs capitalised 5
Acquisition costs written off (5)
Revaluation movement - gains 13,561
Revaluation movement - losses (2,280)
Movement in market value 16,120
Movement in fixed or guaranteed rent reviews (5,487)
Movement in lease incentives 119
Movement in performance payments (1,000)
Movement in carrying value 9,752
Closing market value 924,650
Closing fixed or guaranteed rent reviews (74,343)
Closing lease incentives (9,892)
Closing performance payments 910
Closing carrying value 841,325
The investment properties can be analysed as follows:
As at As at
31 December 30 June
2024 2024
£'000 £'000
Standing assets 916,020 889,255
Developments under forward fund agreements 8,630 19,275
Closing market value 924,650 908,530
Changes in the valuation of investment properties For the six month period ended For the six month period ended
31 December 31 December
2024 2023
£'000 £'000
Revaluation movement 11,281 14,038
Acquisition costs written off (5) (281)
Movement in lease incentives 119 (549)
Movement in fixed or guaranteed rent reviews (5,487) (5,463)
Gain on revaluation of investment properties 5,908 7,745
8. Investment properties (continued)
At 31 December 2024, the investment properties were valued at £924,650,000
(30 June 2024: £908,530,000) by CBRE Limited ('CBRE'), in their capacity as
external valuers. The valuation was undertaken in accordance with the latest
version of the Royal Institution of Chartered Surveyors ('RICS') Valuation -
Global Standards, incorporating the International Valuation Standards, and the
UK national supplement ('the Red Book'). The valuation was prepared on the
basis of Fair Value as defined in IFRS13 which is effectively the same as
Market Value. Market Value represents the estimated amount for which a
property should exchange on the valuation date between a willing buyer and a
willing seller in an arm's length transaction, after proper marketing and
where the parties had each acted knowledgeably, prudently and without
compulsion.
The fair value of the properties after adjusting for the movement in the fixed
or guaranteed rent reviews, lease incentives and performance payments was
£841,325,000 (30 June 2024: £831,573,000). The adjustment consisted of
£74,343,000 (30 June 2024: £68,856,000) relating to fixed or guaranteed rent
reviews and £9,892,000 (30 June 2024: £10,011,000) of accrued income
relating to the recognition of rental income over rent free periods
subsequently amortised over the life of the lease, which are both separately
recorded in the financial statements as non-current and current assets within
'trade and other receivables' (see note 9). An adjustment is also made to
reflect the amount by which the portfolio value is expected to increase if the
performance payments recognised in 'trade and other payables' of £910,000 (30
June 2024: £1,910,000) are paid and the passing rent at the relevant property
increased accordingly (see notes 13 and 16).
The Group is required to classify fair value measurements of its investment
properties using a fair value hierarchy, in accordance with IFRS 13 'Fair
Value Measurement'. This hierarchy reflects the subjectivity of the inputs
used, and has the following levels:
-- Level 1: unadjusted quoted prices in active markets for identical assets or
liabilities that the entity can access at the measurement date;
-- Level 2: observable inputs other than quoted prices included within level
1;
-- Level 3: use of inputs that are not based on observable market data.
The Group's investment properties are valued by CBRE on a quarterly basis. The
valuation methodology used is the yield model, which is a consistent basis for
the valuation of investment properties within the healthcare industry. This
model has regard to the current investment market and evidence of investor
interest in properties with income streams secured on healthcare businesses.
On an asset-specific basis, the valuer makes an assessment of: the quality of
the asset; recent and current performance of the asset; and the financial
position and performance of the tenant operator. This asset specific
information is used alongside a review of comparable transactions in the
market and an investment yield is applied to the asset which, along with the
contracted rental level, is used to derive a market value.
In determining what level of the fair value hierarchy to classify the Group's
investments within, the Directors have considered the content and conclusion
of the position paper on IFRS 13 prepared by the European Public Real Estate
Association ('EPRA'), the representative body of the publicly listed real
estate industry in Europe. This paper concludes that, even in the most
transparent and liquid markets, it is likely that valuers of investment
property will use one or more significant unobservable inputs or make at least
one significant adjustment to an observable input, resulting in the vast
majority of investment properties being classified as level 3.
Observable market data is considered to be that which is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary,
and provided by independent sources that are actively involved in the relevant
market. In arriving at the valuation the external valuers make adjustments to
observable data of similar properties and transactions to determine the fair
value of a property and this involves the use of judgement. Considering the
Group's specific valuation process, industry guidance, and the level of
judgement required in the valuation process, the Directors believe it
appropriate to classify the Group's investment properties within level 3 of
the fair value hierarchy.
8. Investment properties (continued)
The key unobservable inputs made in determining the fair values are:
· Contracted rental level: the rent payable under the lease
agreement at the date of valuation or, where applicable, on expiry of the rent
free period; and
· Yield: the yield is defined as the initial net income from a
property at the date of valuation, expressed as a percentage of the gross
purchase price including the costs of purchase.
The contracted rental level and yield are not directly correlated although
they may be influenced by similar factors. Rent is set at a long-term,
supportable level and is likely to be influenced by property-specific matters.
The yield also reflects market sentiment and the strength of the covenant
provided by the tenant, with a stronger covenant attracting a lower yield.
The Group's investment properties, which are all care homes, are considered to
be a single class of assets. The weighted average net initial yield ('NIY') on
these assets, as measured by the EPRA topped-up net initial yield, is 6.2 per
cent. The yield on the majority of the individual assets ranges from 5.5 per
cent to 9.8 per cent (30 June 2024: 5.5 per cent to 8.9 per cent). The average
annual contracted rent per bed is £9,474 (30 June 2024: £9,292) with the
annual contracted rent per bed on individual assets ranging between £5,093
and £21,033 (30 June 2024: between £4,919 and £20,481). There have been no
changes to the valuation technique used through the period, nor have there
been any transfers between levels.
The lease agreements on the properties held within the Group's property
portfolio generally allow for annual increases in the contracted rental level
in line with inflation, within a cap and a collar. An increase of 1.0 per cent
in the contracted rental level will increase the fair value of the portfolio,
and consequently the Group's reported income from unrealised gains on
investments, by £9,247,000 (30 June 2024: £9,085,000); an equal and opposite
movement would have decreased net assets and decreased the Group's income by
the same amount.
A decrease of 0.25 per cent in the net initial yield applied to the property
portfolio will increase the fair value of the portfolio by £38,630,000 (30
June 2024: £37,901,000), and consequently increase the Group's reported
income from unrealised gains on investments. An increase of 0.25 per cent in
the net initial yield will decrease the fair value of the portfolio by
£35,651,000 (30 June 2024: £34,982,000) and reduce the Group's income.
9. Trade and other receivables
As at As at
31 December 30 June
2024 2024
Non-current trade and other receivables £'000 £'000
Fixed rent reviews 74,343 68,856
Rental deposits held in escrow for tenants 12,126 9,893
Lease incentives 9,550 9,677
Total 96,019 88,426
As at As at
31 December 30 June
2024 2024
Current trade and other receivables £'000 £'000
Lease incentives 342 334
VAT recoverable 161 1,624
Accrued income - net rent receivable 1,290 890
Accrued development interest under forward fund agreements 553 1,076
Other debtors and prepayments 1,093 1,743
Total 3,439 5,667
10. Investment in subsidiary undertakings
The Group included 49 subsidiary companies as at 31 December 2024. All
subsidiary companies were wholly owned, either directly or indirectly, by the
Company and, from the date of acquisition onwards, the principal activity of
each company within the Group was to act as an investment and property
company. Other than one subsidiary which is incorporated in Jersey, two
subsidiaries which are incorporated in Gibraltar and two subsidiaries which
are incorporated in Luxembourg, all subsidiaries are incorporated within the
United Kingdom.
11. Cash and cash equivalents
All cash balances at the period-end were held in cash, current accounts or
deposit accounts.
As at As at
31 December 30 June
2024 2024
£'000 £'000
Cash at bank and in hand 13,151 15,813
Short-term deposits 24,767 23,071
Total 37,918 38,884
The cash on deposit at 31 December 2024 included £23,208,000 (30 June 2024:
£22,989,000) held in a secured account in relation to the loan from Phoenix
Group following disposals made by the Group. The use of this cash is
restricted until the Group either partially repays the loan or pledges
replacement assets as security. As at each of 30 June 2024 and 31 December
2024, the Group had sufficient unencumbered assets which could be pledged as
additional security in order to release these funds.
12. Loans
As at As at
31 December 30 June
2024 2024
Non-current loans £'000 £'000
Principal amounts outstanding 150,000 243,000
Set-up costs (2,413) (4,520)
Amortisation of set-up costs 754 2,192
Total 148,341 240,672
As at As at
31 December 30 June
2024 2024
Current loans £'000 £'000
Principal amounts outstanding 98,000 -
Set-up costs (2,107) -
Amortisation of set-up costs 1,750 -
Total 97,643 -
In November 2020, the Group entered into a £70,000,000 committed term loan
and revolving credit facility with the Royal Bank of Scotland plc ('RBS')
which is repayable in November 2025. Interest accrues on the bank loan at a
variable rate, based on SONIA plus margin and mandatory lending costs, and is
payable quarterly. The margin is 2.18 per cent per annum on £50,000,000 of
the facility and 2.33 per cent per annum on the remaining £20,000,000
revolving credit facility, both for the duration of the loan. A
non-utilisation fee of 1.13 per cent per annum is payable on the first
£20,000,000 of any undrawn element of the facility, reducing to 1.05 per cent
per annum thereafter. As at 31 December 2024, the Group had drawn £48,000,000
under this facility (30 June 2024: £43,000,000).
12. Loans (continued)
In November 2020, the Group entered into a £100,000,000 revolving credit
facility with HSBC Bank plc ('HSBC') which is repayable in November 2025.
Interest accrues on the bank loan at a variable rate, based on SONIA plus
margin and mandatory lending costs, and is payable quarterly. The margin is
2.17 per cent per annum for the duration of the loan and a non-utilisation fee
of 0.92 per cent per annum is payable on any undrawn element of the facility.
As at 31 December 2024, the Group had drawn £50,000,000 under this facility
(30 June 2024: £50,000,000).
In January 2020 and November 2021, the Group entered into committed term loan
facilities with Phoenix Group of £50,000,000 and £37,250,000, respectively.
Both these facilities are repayable on 12 January 2032. The Group has a
further committed term loan facility with Phoenix Group of £62,750,000 which
is repayable on 12 January 2037. Interest accrues on these three loans at
aggregate annual fixed rates of interest of 3.28 per cent, 3.13 per cent and
3.14 per cent, respectively and is payable quarterly. As at 31 December 2024,
the Group had drawn £150,000,000 under these facilities (30 June 2024:
£150,000,000).
The following interest rate derivatives were in place during the period ended
31 December 2024:
Notional Value Starting Date Ending Date Interest paid Interest received Counterparty
30,000,000 5 November 2020 5 November 2025 0.30% Daily compounded SONIA (floor at -0.08%) RBS
50,000,000 1 November 2022 5 November 2025 nil Daily compounded SONIA above 3.0% cap HSBC
The Group paid a premium of £2,577,000, inclusive of transaction costs of
£169,000, on entry into the £50,000,000 interest rate cap in November 2022.
At 31 December 2024, inclusive of the interest rate derivatives, the interest
rate on £230,000,000 of the Group's borrowings had been capped, including the
amortisation of loan arrangement costs, at an all-in rate of 3.70 per cent per
annum until at least November 2025. The remaining £90,000,000 of debt, of
which £18,000,000 was drawn at 31 December 2024, would, if fully drawn, carry
interest at a variable rate equal to daily compounded SONIA plus a weighted
average lending margin, inclusive of the amortisation of arrangement costs, of
2.46 per cent per annum.
The aggregate fair value of the interest rate derivatives at 31 December 2024
was an asset of £1,621,000 (30 June 2024: asset of £2,820,000). The Group
categorises all interest rate derivatives as level 2 in the fair value
hierarchy (see note 8).
At 31 December 2024, the nominal value of the Group's loans equated to
£248,000,000 (30 June 2024: £243,000,000). Excluding the interest rate
derivatives referred to above, the fair value of these loans, based on a
discounted cashflow using the market rate on the relevant treasuries plus an
estimated margin based on market conditions at 31 December 2024, totalled, in
aggregate, £216,339,000 (30 June 2024: £213,220,000). The payment required
to redeem the loans in full, incorporating the terms of the Spens clause in
relation to the Phoenix Group facilities, would have been £228,889,000 (30
June 2024: £226,721,000). The loans are categorised as level 3 in the fair
value hierarchy given the estimated margin is not observable market data.
The RBS loan is secured by way of a fixed and floating charge over the
majority of the assets of the THR Number One plc Group ('THR1 Group') which
consists of THR1 and its five subsidiaries. The Phoenix Group loans of
£50,000,000 and £37,250,000 are secured by way of a fixed and floating
charge over the majority of the assets of the THR Number 12 plc Group ('THR12
Group') which consists of THR12 and its eight subsidiaries. The Phoenix Group
loan of £62,750,000 is secured by way of a fixed and floating charge over the
majority of the assets of THR Number 43 plc ('THR43'). The HSBC loan is
secured by way of a fixed and floating charge over the majority of the assets
of the THR Number 15 plc Group ('THR15 Group') which consists of THR15 and its
18 subsidiaries. In aggregate, the Group has granted a fixed charge over
properties with a market value of £752,515,000 as at 31 December 2024 (30
June 2024: £743,265,000).
12. Loans (continued)
Under the financial covenants related to the loans, the Group is to ensure
that:
- the loan to value percentage for THR1 Group and THR15 Group does not
exceed 50 per cent;
- the loan to value percentage for THR12 Group and THR43 does not exceed 60
per cent;
- the interest cover for THR1 Group is greater than 225 per cent on any
calculation date;
- the interest cover for THR15 Group is greater than 200 per cent on any
calculation date; and
- the debt yield for each of THR12 Group and THR43 is greater than 10 per
cent on any calculation date.
All loan covenants have been complied with during the period.
13. Trade and other payables
As at As at
31 December 30 June
2024 2024
Non-current trade and other payables £'000 £'000
Rental deposits 12,126 9,893
Total 12,126 9,893
As at As at
31 December 30 June
2024 2024
Current trade and other payables £'000 £'000
Rental income received in advance 11,071 10,146
Property acquisition and development costs accrued 3,306 8,790
Interest payable 2,276 2,275
Investment Manager's fees payable 1,957 1,927
Performance payments 910 1,910
Other payables 2,214 2,464
Total 21,734 27,512
The Group's payment policy is to ensure settlement of supplier invoices in
accordance with stated terms.
14. Share capital
Allotted, called-up and fully paid ordinary shares of £0.01 each Number of shares £'000
Balance as at 30 June 2024 and 31 December 2024 620,237,346 6,202
During the period to 31 December 2024, the Company did not issue any ordinary
shares of £0.01 each (period to 31 December 2023: nil). The Company did not
buyback or resell any ordinary shares (period to 31 December 2023: nil).
At 31 December 2024, the Company did not hold any shares in treasury (30 June
2024: nil).
15. Commitments
The Group had capital commitments as follows:
As at As at
31 December 30 June
2024 2024
£'000 £'000
Amounts due to complete forward fund developments 1,112 4,723
Other capital expenditure commitments 938 394
Total 2,050 5,117
16. Contingent assets and liabilities
As at 31 December 2024, two (30 June 2024: three) properties within the
Group's investment property portfolio contained performance payment clauses
meaning that, subject to contracted performance conditions being met, further
capital payments totalling £2,695,000 (30 June 2024: £3,695,000) may be
payable by the Group to the vendors/tenants of these properties. The potential
timings of these payments are also conditional on the date(s) at which the
contracted performance conditions are met and are therefore uncertain.
It is highlighted that any performance payments subsequently paid will result
in an increase in the rental income due from the tenant of the relevant
property. As the net initial yield used to calculate the additional rental
which would be payable is not significantly different from the investment
yield used to arrive at the valuation of the properties, any performance
payments paid would be expected to result in a commensurate increase in the
value of the Group's investment property portfolio.
Having assessed each clause on an individual basis, the Group has determined
that the contracted performance conditions were highly likely to have been met
in relation to one (30 June 2024: two) of these properties and therefore at 31
December 2024 an amount of £910,000 (30 June 2024: £1,910,000) has been
recognised as a liability (see note 13). An equal but opposite amount has been
recognised as an asset in 'investment properties' in note 8 to reflect the
increase in the investment property value that would be expected to arise from
the payment of the performance payment(s) and the resulting increase in the
contracted rental income. A performance payment of £1,000,000 was paid and
rentalised during the six months ended 31 December 2024.
17. Related party transactions
The Directors are considered to be related parties to the Company. No Director
has an interest in any transactions which are, or were, unusual in their
nature or significant to the nature of the Company.
The Directors of the Company received fees for their services. Total fees for
the period were £114,000 (period ended 31 December 2023: £114,000) of which
£nil (31 December 2023: £nil) remained payable at the period end.
The Investment Manager received £3,909,000 (inclusive of estimated
irrecoverable VAT) in management fees in relation to the period ended 31
December 2024 (period ended 31 December 2023: £3,679,000). Of this amount
£1,957,000 remained payable at the period end (31 December 2023:
£1,841,000). The Investment Manager received a further £96,000 (inclusive of
irrecoverable VAT) during the period ended 31 December 2024 (period ended 31
December 2023: £94,000) in relation to its appointment as Company Secretary
and Administrator, of which £48,000 (31 December 2023: £47,000) remained
payable at the period end. Certain employees of the Investment Manager are
directors of some of the Group's subsidiaries. Neither they nor the Investment
Manager receive any additional remuneration in relation to fulfilling this
role.
18. Operating segments
The Board has considered the requirements of IFRS 8 'Operating Segments'. The
Board is of the view that the Group is engaged in a single segment of
business, being property investment, and in one geographical area, the United
Kingdom, and that therefore the Group has only a single operating segment. The
Board of Directors, as a whole, has been identified as constituting the chief
operating decision maker of the Group. The key measure of performance used by
the Board is the EPRA NTA. The reconciliation between the NAV, as calculated
under IFRS, and the EPRA NTA is detailed in note 6.
The view that the Group is engaged in a single segment of business is based on
the following considerations:
· One of the key financial indicators received and reviewed by the
Board is the total return from the property portfolio taken as a whole;
· There is no active allocation of resources to particular types or
groups of properties in order to try to match the asset allocation of the
benchmark; and
· The management of the portfolio is ultimately delegated to a
single property manager, Target.
19. Interim Report Statement
These are not full statutory accounts in terms of Section 434 of the Companies
Act 2006 and are unaudited. Statutory accounts for the Company for the year
ended 30 June 2024, which received an unqualified audit report and which did
not contain a statement under Section 498 of the Companies Act 2006, have been
lodged with the Registrar of Companies. No full statutory accounts, for either
the Company or Group, in respect of any period after 30 June 2024 have been
reported on by the Company's auditor or delivered to the Registrar of
Companies.
The Interim Report and Condensed Consolidated Financial Statements for the six
months ended 31 December 2024 will be posted to shareholders and made
available on the website: www.targethealthcarereit.co.uk. Copies may also be
obtained from the Company Secretary, Target Fund Managers Limited, 1st Floor,
Glendevon House, Castle Business Park, Stirling FK9 4TZ.
Directors' Statement of Principal Risks and Uncertainties
The risks, and the way in which they are managed, are described in more detail
in the Strategic Report within the Annual Report and Financial Statements for
the year to 30 June 2024. Other than as disclosed in the Chair's Statement and
Investment Manager's Report, the Group's principal risks and uncertainties
have not changed materially since the date of the report and are not expected
to change materially for the remainder of the Group's financial year.
Statement of Directors' Responsibilities in Respect of the Interim Report
We confirm that to the best of our knowledge:
• the condensed set of financial statements has been prepared in accordance
with IAS 34 'Interim Financial Reporting' and gives a true and fair view of
the assets, liabilities, financial position and profit of the Group;
• the Chair's Statement and Investment Manager's Report (together
constituting the Interim Management Report) include a fair review of the
information required by the Disclosure Guidance and Transparency Rules ('DTR')
4.2.7R, being an indication of important events that have occurred during the
period and their impact on the financial statements;
• the Statement of Principal Risks and Uncertainties referred to above is a
fair review of the information required by DTR 4.2.7R; and
• the condensed set of financial statements includes a fair review of the
information required by DTR 4.2.8R, being related party transactions that have
taken place in the period and that have materially affected the financial
position or performance of the Group during the period.
On behalf of the Board
Alison Fyfe
Chair
13 March 2025
Independent Review Report to Target Healthcare REIT plc
Conclusion
We have been engaged by Target Healthcare REIT plc ("the Company") to review
the consolidated set of financial statements in the Interim Report and
Financial Statements for the six months ended 31 December 2024 which comprises
the Condensed Consolidated Statement of Comprehensive Income, Condensed
Consolidated Statement of Financial Position, Condensed Consolidated Statement
of Changes in Equity, Condensed Consolidated Statement of Cash Flows and the
related notes 1 to 19 to the Condensed Consolidated Financial Statements. We
have read the other information contained in the Interim Report and Financial
Statements and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the consolidated set of
financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the consolidated set of financial statements in the Interim
Report and Financial Statements for the six months ended 31 December 2024 are
not prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34 and the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' (ISRE) issued by the Financial
Reporting Council. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with UK adopted international accounting standards. The
consolidated set of financial statements included in this Interim Report and
Financial Statements has been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'.
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the Interim Report and Financial
Statements in accordance with the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
In preparing the Interim Report and Financial Statements, the Directors are
responsible for assessing the Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the Directors either intend to
liquidate the Company or to cease operations, or have no realistic alternative
but to do so.
Auditor's Responsibilities for the Review of the Financial Information
In reviewing the Interim Report and Financial Statements, we are responsible
for expressing to the Company a conclusion on the consolidated set of
financial statements in the Interim Report and Financial Statements. Our
conclusion, including our Conclusions Relating to Going Concern, are based on
procedures that are less extensive than audit procedures, as described in the
Basis for Conclusion paragraph of this report.
Use of our Report
This report is made solely to the Company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) 'Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
13 March 2025
Glossary of Terms and Definitions
Contractual Rent The annual rental income receivable on a property as at the balance sheet
date, adjusted for the inclusion of rent currently subject to a rent free
period.
Discount/ The amount by which the market price per share of a Closed-end Investment
Company is lower or higher than the net asset value per share. The discount or
Premium* premium is expressed as a percentage of the net asset value per share.
Dividend Cover* The absolute value of Group specific adjusted EPRA Earnings, or EPRA earnings,
divided by the absolute value of dividends relating to the period of
calculation.
Dividend Yield* The annual Dividend expressed as a percentage of the share price at the date
of calculation.
Earnings Yield* The annualised Group specific adjusted EPRA Earnings per Share for the period
expressed as a percentage of the share price at the end of the relevant
period.
Energy Performance Certificate ('EPC') An Energy Performance Certificate (EPC) rates how energy efficient a building
is using grades from A to G (with 'A' the most efficient grade). All
commercial properties leased to a tenant must have an EPC. All EPCs are valid
for 10 years.
EPRA Cost Ratio* Reflects the relevant overhead and operating costs of the business. It is
calculated by expressing the sum of property expenses (net of service charge
recoveries and third-party asset management fees) and administration expenses
(excluding exceptional items) as a percentage of gross rental income.
EPRA Group specific adjusted Cost Ratio* The EPRA Cost Ratio adjusted for items thought appropriate for the Group's
specific business model. The adjustments made are consistent with those made
to the Group specific adjusted EPRA earnings as detailed in note 6.
EPRA Earnings Recurring earnings from core operational activities. A key measure of a
company's underlying operating results from its property rental business and
per Share* an indication of the extent to which current dividend payments are supported
by earnings. A reconciliation of the earnings per IFRS and the EPRA earnings,
including any items specific to the Group, is contained in note 6.
EPRA Net Disposal Value ('NDV')* A measure of Net Asset Value which represents the shareholders' value under a
disposal scenario, where deferred tax, financial instruments and certain other
adjustments are calculated to the full extent of their liability, net of any
resulting tax.
EPRA Net Reinstatement Value ('NRV')* A measure of Net Asset Value which assumes that entities never sell assets and
aims to represent the value required to rebuild the entity. The objective is
to highlight the value of net assets on a long-term basis. Assets and
liabilities that are not expected to crystallise in normal circumstances, such
as the fair value movements on financial derivatives, are excluded and the
costs of recreating the Group through investment markets, such as property
acquisition costs and taxes, are included.
EPRA Net Tangible Assets ('NTA')* A measure of Net Asset Value which assumes that entities buy and sell assets,
thereby crystallising certain levels of unavoidable deferred tax.
EPRA Net Initial Annualised rental income based on the cash rents passing at the balance sheet
date, less non-recoverable property operating expenses, divided by the market
Yield* value of the property, increased with (estimated) purchasers' costs. EPRA's
purpose is to provide a comparable measure around Europe for portfolio
valuations.
EPRA Topped-up Incorporates an adjustment to the EPRA Net Initial Yield in respect of the
expiration of rent-free periods (or other unexpired lease incentives).
Net Initial Yield*
Loan-to-Value A measure of the Group's Gearing level. Gross LTV is calculated as total gross
debt as a proportion of gross property value. Net LTV is calculated as total
('LTV')* gross debt less cash (including any cash held as security in relation to the
debt facilities) as a proportion of gross property value.
Mature Homes Care homes which have been in operation for more than three years. Homes which
do not meet this definition are referred to as 'immature'.
Portfolio or Passing Rent* The annual rental income currently receivable on a property as at the balance
sheet date, excluding rental income where a rent free period is in operation.
The gross rent payable by a tenant at a point in time.
Rent Cover* A measure of a tenant's ability to meet its rental liability from the profit
generated by their underlying operations. Generally calculated as the tenant's
EBITDARM (earnings before interest, taxes, depreciation, amortisation, rent
and management fees) divided by the contracted rent.
Total Return* The return to shareholders calculated on a per share basis by adding dividends
paid in the period to the increase or decrease in the Share Price or NAV. The
dividends are assumed to have been reinvested in the form of Ordinary Shares
or Net Assets.
Total Accounting Return* The return to shareholders calculated on a per share basis by adding dividends
paid in the period to the increase or decrease in the EPRA NTA. The dividends
are assumed to have been reinvested at the prevailing net asset value per
share at the date of the dividend payment.
WAULT* Weighted average unexpired lease term. The average lease term remaining to
expiry across the portfolio weighted by contracted rental income.
* Alternative Performance Measure
Alternative Performance Measures
The Company uses Alternative Performance Measures ('APMs'). APMs do not have a
standard meaning prescribed by GAAP and therefore may not be comparable to
similar measures presented by other entities. The definitions of all APMs used
by the Company are highlighted in the glossary above, with detailed
calculations, including reconciliation to the IFRS figures where appropriate,
being set out below.
Discount or Premium - the share price of an Investment Company is derived from
buyers and sellers trading their shares on the stock market. This price is not
identical to the NAV. If the share price is lower than the NAV per share, the
shares are trading at a discount and, if the share price is higher than the
NAV per share, are said to be at a premium. The figure is calculated at a
point in time and, unless stated otherwise, the Company measures its discount
or premium relative to the EPRA NTA per share.
31 December 30 June
2024 2024
pence pence
EPRA Net Tangible Assets per share (see note 6) (a) 112.7 110.7
Share price (b) 84.0 78.5
Discount = (b-a)/a (25.5)% (29.1)%
Dividend Cover - the percentage by which earnings for the period cover the
dividend paid.
Period ended Period ended
31 December 31 December
2024 2023
£'000 £'000
EPRA earnings for the period (see note 6) (a) 24,457 23,418
Group-specific EPRA earnings for the period (see note 6) (b) 19,439 18,919
First interim dividend 9,124 8,857
Second interim dividend 9,124 8,857
Dividends paid in relation to the period (c) 18,248 17,714
Dividend cover based on EPRA earnings = (a/c) 134% 132%
Dividend cover based on Group-specific EPRA earnings = (b/c) 107% 107%
EPRA Cost Ratio - the EPRA cost ratios are produced using EPRA methodology,
which aims to provide a consistent base-line from which companies can provide
additional information, and include all property expenses and management fees.
The Group did not have any vacant properties during the periods and therefore
separate measures excluding direct vacancy costs are not presented. Consistent
with the Group specific adjusted EPRA earnings detailed in note 6 to the
Condensed Consolidated Financial Statements, similar adjustments have been
made to also present the adjusted Cost Ratio which is thought more appropriate
for the Group's business model.
Period ended Period ended
31 December 2024 31 December
£'000 2023
£'000
Investment management fee 3,909 3,679
Credit loss allowance and bad debts written off 180 306
Other expenses 1,581 1,474
EPRA costs (including direct vacancy costs) (a) 5,670 5,459
Specific cost adjustments, if applicable - -
Group specific adjusted EPRA costs (including direct vacancy costs)
(b) 5,670 5,459
Gross rental income per IFRS (c) 35,264 34,056
Adjusted for rental income arising from recognising guaranteed rent review
uplifts
(5,487) (5,463)
Adjusted for development interest under forward fund arrangements
469 964
Group specific adjusted gross rental income (d) 30,246 29,557
EPRA Cost Ratio (including direct vacancy costs) = (a/c) 16.1% 16.0%
EPRA Group specific adjusted Cost Ratio (including direct vacancy costs)
= (b/d) 18.7% 18.5%
Net Debt to EBITDA ratio - a leverage ratio that measures the net earnings
available to address debt obligations.
Period ended Period ended
31 December 2024 31 December
£'000 2023
£'000
Net debt (see below) (a) 227,809 252,231
Group-specific adjusted EPRA earnings 19,439 18,919
Net finance costs 5,137 5,179
EBITDA (b) 24,576 24,098
Net debt to EBITDA ratio = a/(b*2) 4.6 times 5.2 times
EPRA Loan-to-Value ('LTV') - A shareholder-gearing measure to determine the
percentage of debt comparing to the appraised value of the properties. EPRA
LTV is calculated as total gross debt (adding net trade payables and less
cash) as a proportion of gross property value.
31 December 2024 30 June
£'000 2024
£'000
Borrowings 248,000 243,000
Net payables 17,727 20,269
Cash and cash equivalent (37,918) (38,884)
Net debt (a) 227,809 224,385
Investment properties at market value 924,650 908,530
Total property value (b) 924,650 908,530
EPRA Loan-to-Value = (a/b) 24.6% 24.7%
EPRA Net Initial Yield and EPRA Topped-up Net Initial Yield - EPRA Net Initial
Yield is calculated as annualised rental income based on the cash rents
passing at the balance sheet date, less non-recoverable property operating
expenses, divided by the market value of the property, increased with
(estimated) purchasers' costs. The EPRA Topped-up Net Initial Yield
incorporates an adjustment in respect of the expiration of rent-free periods
(or other unexpired lease incentives).
31 December 30 June
2024 2024
£'000 £'000
Annualised passing rental income based on cash rents (a) 59,340 57,462
Notional rent expiration of rent-free periods or other lease incentives
1,262 1,363
Topped-up net annualised rent (b) 60,602 58,825
Standing assets (see note 8) 916,020 889,255
Allowance for estimated purchasers' costs 61,844 60,026
Grossed-up completed property portfolio valuation (c) 977,864 949,281
EPRA Net Initial Yield = (a/c) 6.07% 6.05%
EPRA Topped-up Net Initial Yield = (b/c) 6.20% 6.20%
Total Return - the return to shareholders calculated on a per share basis by
adding dividends paid in the period to the increase or decrease in the Share
Price or NAV. The dividends are assumed to have been reinvested in the form of
Ordinary Shares or Net Assets.
Period ended Period ended
31 December 2024 31 December 2023
EPRA NTA IFRS NAV Share price EPRA NTA IFRS NAV Share price
(pence) (pence) (pence) (pence) (pence) (pence)
Value at start of period (a) 110.7 111.1 78.5 104.5 105.6 71.8
Value at end of period (b) 112.7 112.9 84.0 106.7 107.2 86.3
Change in value during the period (b-a)
(c) 2.0 1.8 5.5 2.2 1.6 14.5
Dividends paid (d) 2.9 2.9 2.9 2.8 2.8 2.8
Additional impact of dividend reinvestment
(e) 0.1 0.1 (0.1) 0.1 0.1 0.2
Total gain in period (c+d+e)
(f) 5.0 4.8 8.3 5.1 4.5 17.5
Total return for the period = (f/a) 4.5% 4.3% 10.6% 4.9% 4.3% 24.4%
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