REG - Target Healthcare - Final Results <Origin Href="QuoteRef">THRLT.L</Origin> - Part 2

Target Healthcare ReitAnnouncement

02/10/2015 07:01

- Part 2: For the preceding part double click  ID:nRSB0339Ba 

         
 Opening fixed or guaranteed rent reviews at beginning of period  (1,824)             -                   
 Fixed or guaranteed rent reviews movement                        (3,760)             (1,824)             
 Closing fixed or guaranteed rent reviews                         (5,584)             (1,824)             
 
 
Changes in valuation of investment properties 
 
                                                 Year ended30 June 2015£'000  For the period from incorporation on 22 January 2013 to 30 June 2014£'000  
 Net revaluation movement                        2,921                        (2,252)                                                                    
 Movement in fixed or guaranteed rent reviews    (3,760)                      (1,824)                                                                    
 Losses on revaluation of investment properties  (839)                        (4,076)                                                                    
 
 
The properties were valued at £143,748,000 (2014: £83,246,000) by Colliers
International Property Consultants Limited ('Colliers'), in their capacity as
external valuers. The valuation was undertaken in accordance with the RICS
Valuation - Professional Standards, incorporating the International Valuation
Standards January 2014 ('the Red Book') issued by the Royal Institution of
Chartered Surveyors ('RICS') on the basis of Market Value, supported by
reference to market evidence of transaction prices for similar properties.
Market Value represents the estimated amount for which an asset or liability
should exchange on the valuation date between a willing buyer and a willing
seller in an arm's length transaction, after proper marketing where the
parties has each acted knowledgeably, prudently and without compulsion. The
quarterly property valuations are reviewed by the Board at each Board meeting.
The fair value of the properties after adjusting for the movement in the fixed
or guaranteed rent reviews was £138,164,000 (2014: £81,422,000). Included
within fixed rent reviews is £7,000 relating to lease incentives. 
 
5. Investment in subsidiary undertakings 
 
The Company owns 100 per cent. of the issued ordinary share capital of Target
Healthcare REIT (Mossvale) Limited ("THRM"), a company registered in Scotland.
The principal activity of Target Healthcare REIT (Mossvale) Limited is that of
an investment and property company. 
 
In the prior period the Company provided a capital contribution of £4.0
million to THRM. 
 
The Company owns 100 per cent. of the issued ordinary share capital of THR
Number One PLC ("THR1"), a company registered in England & Wales. The
principal activity of THR1 is that of an investment and property company. 
 
THR1 owns 100 per cent. of the share capital of THR Number Two Limited
("THR2"), a company registered in England & Wales. The principal activity of
THR2 is that of an investment and property company. 
 
In addition to its investment in the shares of THR1, the Company has lent £1.7
million to THR1 as at 30 June 2015 (2014: £4.6 million). Interest is payable
at a fixed rate of 2.5 per cent. per annum. 
 
THR1 has lent £950k to THR2 as at 30 June 2015 (2014: £2.9 million). Interest
is payable at a fixed rate of 2.5 per cent. per annum. 
 
6. Stated Capital Movements 
 
                                                                           As at 30 June 2015  
                                                                           Number of shares    £'000    
 Allotted, called-up and fully paid ordinary shares of no par value                                     
 Opening balance                                                           95,221,629          91,516   
 Issue of 17,244,597 ordinary shares of no par value on 25 September 2014  17,244,597          17,417   
 Issue of 4,832,000 ordinary shares of no par value on26 November 2014     4,832,000           4,885    
 Issue of 25,000,000 ordinary shares of no par value on 6 March 2015       25,000,000          25,500   
                                                                                               139,318  
 Expenses of issue                                                                             (1,159)  
                                                                                               138,159  
 Dividends allocated to capital                                                                (1,313)  
 Balance as at 30 June 2015                                                142,298,226         136,846  
 
 
Under the Company's Articles of Incorporation, the Company may issue an
unlimited number of ordinary shares. 
 
Capital management 
 
The Company's capital is represented by the stated capital account, capital
reserve and revenue reserve. The Company is not subject to any
externally-imposed capital requirements. 
 
The capital of the Company is managed in accordance with its investment
policy, in pursuit of its investment objective. The Company is able to pay a
dividend out of the Stated Capital Account in accordance with the requirements
of the Companies (Jersey) Law 1991. 
 
Capital risk management 
 
The objective of the Group is to provide ordinary shareholders with an
attractive level of income together with the potential for income and capital
growth from investing in a diversified portfolio of freehold and long
leasehold care homes, that are let to care home operators, and other
healthcare assets in the UK. 
 
The Board has responsibility for ensuring the Group's ability to continue as a
going concern. This involves the ability to borrow monies in the short and
long term; and pay dividends out of reserves, all of which are considered and
approved by the Board on a regular basis. 
 
To maintain or adjust the capital structure, the Company may adjust the
dividend payment to shareholders, return capital to shareholders or issue new
shares. The Company did not repurchase any ordinary shares during the period.
At 30 June 2015 and at 30 June 2014, the Company did not hold any ordinary
shares in treasury. On 27 August 2015, the Company issued 14,229,822 ordinary
shares at a price of 99.5 pence per share. These same shares were repurchased
at the same price, to be held in treasury, immediately on admission on 2
September 2015. See note 10 for further details. At 1 October 2015, the
Company held 14,229,822 ordinary shares in treasury. 
 
No changes were made in the objectives, policies or processes during the
year. 
 
7. Financial instruments 
 
Consistent with its objective, the Group holds UK care home property
investments. In addition, the Group's financial instruments comprise cash and
receivables and payables that arise directly from its operations. The Group
does not have exposure to any derivative instruments. 
 
The Group is exposed to various types of risk that are associated with
financial instruments. The most important types are credit risk, liquidity
risk, interest rate risk and market price risk. There is no foreign currency
risk as all assets and liabilities of the Group are maintained in pounds
sterling. 
 
The Board reviews and agrees policies for managing the Group's risk exposure.
These policies are summarised below and have remained unchanged for the period
under review. These disclosures include, where appropriate, consideration of
the Group's investment properties which, whilst not constituting financial
instruments as defined by IFRS, are considered by the Board to be integral to
the Group's overall risk exposure. 
 
Credit risk 
 
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment that it has entered into with the Group. At the
reporting date, the Group's financial assets exposed to credit risk amounted
to £29.8 million (2014: £20.8 million). 
 
In the event of default by a tenant if it is in financial difficulty or
otherwise unable to meet its obligations under the lease, the Group will
suffer a rental shortfall and incur additional expenses until the property is
relet. These expenses could include legal and surveyor's costs in reletting,
maintenance costs, insurances, rates and marketing costs and may have a
material adverse impact on the financial condition and performance of the
Group and/or the level of dividend cover. The Board receives regular reports
on concentrations of risk and any tenants in arrears. The Investment Manager
monitors such reports in order to anticipate, and minimise the impact of,
defaults by occupational tenants. 
 
There were no financial assets which were either past due or considered
impaired at 30 June 2015 and at 30 June 2014. 
 
All of the Group's cash is placed with financial institutions with a long-term
credit rating of A or better. Bankruptcy or insolvency of such financial
institutions may cause the Group's ability to access cash placed on deposit to
be delayed or limited. Should the credit quality or the financial position of
the banks currently employed significantly deteriorate, cash holdings would be
moved to another bank. 
 
During the year, due to the quantum of cash balances held, counterparty risk
was spread by placing cash across two different financial institutions and at
the year-end the Group held £14.1 million (2014: £12.9 million) with The Royal
Bank of Scotland plc and £15.0 million (2014: £4.2 million) with Lloyds Bank
plc. 
 
Liquidity risk 
 
Liquidity risk is the risk that the Group will encounter difficulties in
realising assets or otherwise raising funds to meet financial commitments. The
Group's investments comprise UK care homes. Property and property-related
assets in which the Group invests are not traded in an organised public market
and may be illiquid. As a result, the Group may not be able to liquidate
quickly its investments in these properties at an amount close to their fair
value in order to meet its liquidity requirements. 
 
The Group's liquidity risk is managed on an ongoing basis by the Investment
Manager and monitored on a quarterly basis by the Board. In order to mitigate
liquidity risk the Group aims to have sufficient cash balances (including the
expected proceeds of any property sales) to meet its obligations for a period
of at least twelve months. 
 
Interest rate risk 
 
Some of the Company's financial instruments are interest-bearing. Interest
rate risk is the risk that future cash flows will change adversely as a result
of changes in market interest rates. 
 
The Group's policy is to hold cash in variable rate or short term fixed rate
bank accounts. Interest is received on cash at fixed rates of 0.50 per cent.
and 0.55 per cent. and earns interest at these fixed rates for six months.
Exposure varies throughout the period as a consequence of changes in the
composition of the net assets of the Group arising out of the investment and
risk management policies. These balances expose the Group to cash flow
interest rate risk as the Group's income and operating cash flows will be
affected by movements in the market rate of interest. 
 
The Group has a £35 million committed term loan and revolving capital facility
which is charged interest at a rate of 3 month LIBOR plus a margin of 2 per
cent per annum and at the year-end £31.5 million was drawn-down (2014: £12.3
million). The bank borrowings are carried at amortised cost and the Group
considers this to be a close approximation to fair value. The fair value of
the bank borrowings is affected by changes in the market interest rate. The
Group intends to hedge a proportion of this exposure through entering into a
fixed rate Interest Rate Swap. 
 
Market price risk 
 
The management of market price risk is part of the investment management
process and is typical of a property investment company. The portfolio is
managed with an awareness of the effects of adverse valuation movements
through detailed and continuing analysis, with an objective of maximising
overall returns to shareholders. Investments in property and property-related
assets are inherently difficult to value due to the individual nature of each
property. As a result, valuations are subject to substantial uncertainty.
There is no assurance that the estimates resulting from the valuation process
will reflect the actual sales price even where such sales occur shortly after
the valuation date. Such risk is minimised through the appointment of external
property valuers. The basis of valuation of the property portfolio is set out
in note 4. 
 
8. Related Party Transactions and fees paid to Target Advisers LLP 
 
The Board of Directors is considered to be a related party. No Director has an
interest in any transactions which are, or were, unusual in their nature or
significant to the nature of the Company. 
 
Mr G Ross is a director of the Company Secretary and the Administrator, R&H
Fund Services (Jersey) Limited and R&H Fund Services Limited, which receive
fees from the Company. Mrs H Jones is a director of the Company Secretary, R&H
Fund Services (Jersey) Limited. 
 
The Directors of the Company received fees for their services. Total fees for
the year were £113,000 (prior period: £82,000) of which £16,000 (£9,550)
remained payable at the year end. 
 
Target Advisers LLP received £1,606,000 (prior period: £1,124,000) during the
period of which £nil (2014: £49,000) related to the expenses of issue and
£466,000 (prior period: £150,000) related to performance fee. £450,000 (2014:
£394,000) (inclusive of VAT) remained payable at the year end. 
 
9. 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 to assess the Group's performance is the total return on the Group's
net asset value. As the total return on the Group's net asset value is
calculated based on the net asset value per share calculated under IFRS as
shown at the foot of the Statement of Financial Position, assuming dividends
are re-invested, the key performance measure is that prepared under IFRS.
Therefore no reconciliation is required between the measure of profit or loss
used by the Board and that contained in the financial statements. 
 
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. 
 
-     The management of the portfolio is ultimately delegated to a single
property manager, Target. 
 
10. Post balance sheet events 
 
On 27 August 2015, the Company issued 14,229,822 ordinary shares, under the
placing programme described in the Company's prospectus dated 5 September
2014, as supplemented on 7 January 2015 and 24 February 2015, at a price of
99.5 pence per share. Following admission on 2 September 2015, the Company
immediately repurchased these same shares, at the same price, to be held in
treasury. The net cash position of the Company, following this transaction,
remained unchanged. At 1 October 2015, the Company held 14,229,822 ordinary
shares in treasury. 
 
11. Financial Statements 
 
These are not full statutory accounts.  The report and financial statements
for the year to 30 June 2015 will posted to shareholders and made available on
the website: www.targethealthcarereit.co.uk. Copies may also be obtained from
the Administrator, R&H Fund Services Limited, 15-19 York Place, Edinburgh, EH1
3EB. 
 
This information is provided by RNS
The company news service from the London Stock Exchange