REG - Target Healthcare - Corporate Update, Net Asset Value & Dividend <Origin Href="QuoteRef">THRLT.L</Origin>

Target Healthcare ReitAnnouncement

02/08/2016 07:06

RNS Number : 9077F
Target Healthcare REIT Limited
02 August 2016
2 August 2016
Corporate Update, Net Asset Value & Dividend announcement
Net Asset Value
Target Healthcare REIT Limited (the "Company" and together with its subsidiaries, the "Group") announces that its unaudited EPRA NAV per share as at 30 June 2016 was 100.6 pence. The NAV total return for the quarter was 1.3%.
Corporate Update
Portfolio
As at 30 June 2016 the Group owned thirty-seven care homes with a market value of 210.7 million. The valuation of the homes is based on the independent external valuation of the Group's property portfolio prepared by Colliers International Healthcare LLP ("Colliers"). In line with the approach adopted by other valuers, Colliers has added a clause to its valuation flagging that we are now in a period of uncertainty following the UK's decision to exit the EU. Therefore it has not been possible to gauge the effect of the decision by reference to transactions in the market place and therefore the probability that the valuations exactly coincide with prices received were the properties to be sold has reduced.
On a like-for-like basis, the portfolio valuation remains unchanged from the previous valuation point. Whilst rent reviews and yield compression on individual assets contributed to a small uplift in value, this was off-set by a reduction in the variable top-up rent payable on one of the Group's assets. The home remains profitable and the Investment Manager is actively reviewing strategies with the home's tenant to enhance performance and maximise the EBITDA top-up rent in the future.
As at 30 June 2016, the portfolio had an EPRA net initial yield of 7.0% (based on contractual net income) and an annualised rent roll of 15.5 million with a weighted average unexpired lease term of 28.6 years.
A balance sheet summary and an analysis of the movement in EPRA NAV over the quarter is presented in the Appendix.
Borrowings
The Group utilised 10.5 million of cash from the May equity issuance to repay borrowings from its revolving credit facility. The Group's total borrowings were 21.0 million at 30 June 2016, giving a loan-to-value ratio of 10.0% (calculated as total gross debt as a proportion of gross property value). As the Group expects to invest the vast majority of its current cash balance in new care homes, cash has been excluded from the calculation.
Interest is payable under the facility at a rate equal to 3 month LIBOR plus a margin of 2.0% per annum.
On 21 June 2016 the Group entered into an interest rate swap for 21.0 million notional value, matching current drawn debt, which has a fixed rate of interest payable at 0.85% per annum until 23 June 2019 providing an all-in interest cost on the loan and swap combined of 2.85% per annum. 
The Group has total agreed facilities of 50 million allowing it to draw down a further 29 million. The debt availability will allow the Group to manage its capital structure in line with its stated intention that the long term average loan-to-value ratio will be approximately 20%, whilst providing capital to fund the completion of transactions.
Pipeline and Investment Market
Following its May equity issuance and recent acquisitions, the Group has capital cash reserves of approximately 57.8 million.
In the three months to 30 June 2016, the Group has invested 27.5 million in acquisitions inclusive of acquisition costs, and has committed to a further 9.2 million, as follows:
 5.75 million in a modern, purpose built care home in Warrenpoint, Northern Ireland. The home will continue to be operated by the incumbent operator, a subsidiary of the Priory Group. The existing lease is for a 30 year term with circa 25 years remaining. The rent payable under the lease is subject to annual uplifts of up to 3%. 
 6.6 million in a modern, purpose built care home in Southport, Merseyside. Upon acquisition, the home was leased back to Athena Healthcare, the Group's 12th tenant, and is subject to a 35-year lease with RPI-linked uplifts with a cap and collar. 
 7.2 million in a modern purpose-built facility with 106 beds over three floors in Halifax, West Yorkshire. Upon acquisition the home was let to a subsidiary of the Bondcare Group, an existing tenant of the Group. The home is subject to a 35-year lease with RPI-linked cap and collar. 
 7.9 million in a modern, purpose built care home in Cheltenham, Gloucestershire. Upon acquisition the home was let to a subsidiary of Caring Homes group, the UK-wide care home operator. Caring Homes becomes the Group's 13th tenant, enhancing and further diversifying the tenant base with which the Group works. The home is subject to a 35-year lease with RPI-linked cap and collar. 
 Exchanged contracts to acquire a purpose-built care home located in the village of Kirby Cross near Frinton-on-Sea, Essex for approximately 9.2 million once works have been undertaken to complete the home to the Group's specification. Completion of the transaction is expected in January 2017. Upon completion the property will be leased to existing tenant Care Concern group, and will be subject to a 35-year lease with RPI-linked cap and collar. 
Despite the background of political uncertainty the Group is actively pursuing investment opportunities previously identified, and continues to see activity in the long-term elderly healthcare investment markets. The long lease terms and annual rent uplifts within the healthcare market continue to provide an attractive long-term outlook which has been reflected by the robust response of healthcare REITs to the EU referendum result. The fundamental demographic situation in the UK is unchanged, showing a shift towards a greater dependence on care facilities for elderly people both in the short-term and beyond. 
The Group has near-term investment opportunities of 30.0 million where it hopes to complete or commit to the majority of these following its diligence processes during the summer. The Investment Manager continues to identify a wider pipeline of assets where the timetable for potential completion remains uncertain pending due diligence and vendor negotiations. 
Share issuance
On 10 May 2016 the Company successfully raised gross proceeds of 84 million by way of an initial placing (the "Initial Placing") and offer for subscription (the "Offer") of 80,000,000 new ordinary shares ("New Shares"). This represented a premium of 4% to the prevailing NAV at the time of issuance. Investor demand exceeded the initially targeted supply and as such, after careful consideration of acquisition opportunities and general economic uncertainty, the Board determined to increase the size of the Initial Placing and Offer from 75 million to 84 million. Notwithstanding the increased number of New Shares investor demand still exceeded this supply and as such a scaling back exercise was undertaken.
The Company had 252,180,851 ordinary shares in issue at 30 June 2016 and has not issued or bought back any shares since that date.
Dividends in the period
The Company paid its third interim dividend for the year to 30 June 2016, in respect of the period from 1 January 2016 to 31 March 2016, of 1.545 pence per share on 27 May 2016. This reflects an annualised payment of 6.18 pence per share and a dividend yield of 5.5% based on the 1 August 2016 closing share price of 113.0 pence.
The Group's unaudited EPRA Earnings per share for the quarter was 1.2 pence, excluding the effects of accrual for potential performance fee for the year to 31 December 2016 as noted in the Appendix.
Announcement of Fourth Interim Dividend for the year ending 30 June 2016
The Company has today declared its fourth interim dividend payment in respect of the period from 1 April 2016 to 30 June 2016 of 1.545 pence per share as detailed in the schedule below:
Interim Property Income Distribution (PID) 0.155 pence per share
Interim Ordinary Dividend 1.390 pence per share
Ex-Dividend Date:  11 August 2016
Record Date:   12 August 2016
Pay Date: 26 August 2016
Quarterly investor report 
The Group's quarterly investor report for June 2016 will shortly be available on its website at:
http://www.targethealthcarereit.co.uk/Financial%20reporting.aspx
Kenneth MacKenzie, Managing Partner of Target Advisers LLP, commented on the Group's activity during the period:
"Following our successful fund raise during the period, we are very pleased to have completed a significant number of deals on high quality, purpose built care homes. We maintain a robust acquisition pipeline and have a number of investment opportunities under negotiation, which we hope to execute in the coming weeks.
In spite of the continued uncertainty following the EU referendum result, the Group's portfolio has continued to perform well. Strong rental returns have allowed the Group to continue paying attractive and sustainable quarterly dividends.
The Group will continue to focus on helping our tenants provide care to their residents through investment in modern, purpose-built care homes on a long-term, sustainable basis."
Enquiries:
Kenneth MacKenzie 
Target Advisers
01786 845 912
Stifel Nicolaus Europe Limited
Mark Young, Neil Winward, Tom Yeadon, Roger Clarke, 
020 7710 7600
Martin Cassels
R&H Fund Services Limited
0131 550 3760
Fiona Harris/Sam Emery
Quill PR
020 7466 5058 / 020 7466 5056
APPENDIX
Analysis of movement in EPRA NAV
The following table provides an analysis of the movement in the unaudited EPRA NAV per share for the period from 1 April 2016 to 30 June 2016:
Pence per share
EPRA NAV per share as at 31 March 2016
 100.8
Property revaluation
0.0
Property acquisition costs
(0.6)
Net effect of equity issuance
0.6
Movement in revenue reserve (excluding performance fee accrual for year to 31 December 2016)
1.0
Movement in performance fee accrual*
(0.1)
Third interim dividend payment for the year to 30 June 2016
(1.1)
EPRA NAV per share as at 30 June 2016
100.6
Percentage change in the 3 month period
 (0.2%)
*An accrual for a performance fee, if due, for the year from 1 January 2016 to 31 December 2016, payable to the investment manager. The accrued amount is based on historic portfolio performance relative to the IPD UK Annual Healthcare Property Index. 
The EPRA NAV provides a measure of the fair value of a company on a long-term basis. As at 30 June 2016 the EPRA NAV stated above differed from that calculated under International Financial Reporting Standards of 100.4 pence per share. This was due to the valuation of the Group's interest rate derivative contract used to hedge its exposure to variable interest rates, which is excluded from the calculation of the EPRA NAV.
SUMMARY BALANCE SHEET (Unaudited)
Jun-16
Mar-16
Dec-15
Sep-15
m
m
m
m
Investment properties
210.7
184.1
167.2
145.8
Cash
65.1
23.0
41.1
27.2
Net current assets / (liabilities)
(1.2)
(2.0)
(3.2)
(0.4)
Bank loan
(21.0)
(31.5)
(31.5)
(31.5)
Net assets
253.6
173.6
173.6
141.1
EPRA NAV per share (pence)
100.6
100.8
100.8
99.2
Ignores the effect of fixed/guaranteed rent reviews
The next quarterly valuation of the property portfolio will be conducted by Colliers International Healthcare LLP during September 2016 and the unaudited EPRA NAV per share as at 30 September 2016 will be announced in October 2016.

This information is provided by RNS
The company news service from the London Stock Exchange
  END
MSCUAUBRNBAWRAR