REG - Target Healthcare - Half-year Report <Origin Href="QuoteRef">THRLT.L</Origin> - Part 2

Target Healthcare ReitAnnouncement

27/02/2017 07:06

- Part 2: For the preceding part double click  ID:nRSa8533Xa 

flow on acquisition                           (8,026)  (5,647)  (11,406)  
                                                                                    
 Cost of corporate acquisitions (including goodwill)    140      140      279       
 
 
In addition to the cost of corporate acquisitions stated above, there were
costs of £23,000 charged to the Income Statement which related to acquisitions
which completed in the prior year. 
 
The Company sought independent valuations by Colliers of the investment
property held within each of the companies at the time of acquisition. From
the date of acquisition, the profit and total comprehensive income of each
company included within the Consolidated Statement of Comprehensive Income for
the six months ended 31 December 2016 were as follows: 
 
            THR7   THR8   THR9   
            £'000  £'000  £'000  
 Revenue    193    134    132    
 Capital    (182)  (130)  990    
 Total      11     4      1,122  
 
 
8.   Bank Loan 
 
                                As at 31 December 2016  As at 30 June 2016  
                                £'000                   £'000               
 Principal amounts outstanding  21,000                  21,000              
 Set-up costs                   (1,097)                 (836)               
 Amortisation of set-up costs   353                     285                 
 Total                          20,256                  20,449              
 
 
The Group has a £50.0 million committed term loan and revolving credit
facility with the Royal Bank of Scotland plc ('RBS') which was repayable on 23
June 2019. On 1 September 2016, the Group extended the loan facility to 1
September 2021, with the option of two further one year extensions thereafter,
subject to the consent of RBS. Interest accrues on the bank loan at a variable
rate, based on 3 month LIBOR plus margin and mandatory lending costs, and is
payable quarterly. The margin is 1.5 per cent. per annum for the duration of
the loan (30 June 2016: 2.0 per cent). A non-utilisation fee of 0.75 per cent
per annum is payable on any undrawn element of the facility. 
 
The Group has hedged the interest rate by entering into interest rate swaps
for a notional value of £21.0 million. Under the terms of the interest rate
swaps, the Group will pay quarterly a fixed rate of interest of 0.85 per cent
per annum and will receive 3-month LIBOR for the period to 23 June 2019. For
the period from 24 June 2019 to 1 September 2021, the Group will pay quarterly
a fixed rate of interest of 0.70 per cent per annum and will receive 3-month
LIBOR. The fair value of the interest rate swaps at 31 December 2016 was a
liability of £93,000 (30 June 2016: £316,000). 
 
Inclusive of both the interest rate swaps, the interest rate on the Group's
£21.0 million of drawn down borrowings has therefore been fixed at an all-in
rate of 2.35 per cent per annum until 23 June 2019 and 2.20 per cent per annum
from 24 June 2019 to 1 September 2021. 
 
The bank loan is secured by way of a fixed and floating charge over the whole
of the assets of the THR Number One PLC Group ('THR1 Group') which consists of
THR1 and its two directly held subsidiaries, THR Number Two Limited and THR
Number 3 Limited. Under the bank covenants related to this loan, the Group is
to ensure that for THR1 Group: 
 
·      the loan to value percentage, based on the market value of the secured
properties, does not exceed 50 per cent; and 
 
·      the interest cover is greater than 300 per cent on any calculation
date. 
 
THR1 Group has complied with all the bank loan covenants during the period. 
 
9.   Stated Capital Movements 
 
 Allotted, called-up and fully paid ordinary shares of no par value  Number of shares  £'000    
 Opening balance as at 1 July 2016                                   252,180,851       246,533  
 Dividend allocated to capital                                                         (2,916)  
 Balance as at 31 December 2016                                      252,180,851       243,617  
 
 
During the period to 31 December 2016, the Company did not issue, buyback or
resell any ordinary shares (period to 31 December 2015: the Company issued
29,882,625 ordinary shares raising gross proceeds of £30,438,000, repurchased
14,229,822 ordinary shares to be held in treasury at a cost of £14,159,000 and
resold 14,229,822 ordinary shares from treasury raising gross proceeds of
£14,799,000). 
 
At 31 December 2016, the Company did not hold any shares in treasury (30 June
2016: nil). 
 
10.  Commitments 
 
At 31 December 2016, the Group had entered into contractual arrangements as
follows: 
 
·      In June 2016, the Company exchanged contracts to acquire a
purpose-built care home in the village of Kirby Cross near Frinton-on-Sea,
Essex. The home will be acquired for approximately £9.2 million, including
acquisition costs, once works have been undertaken to complete the home to the
Group's specification. Completion of the transaction is expected in March
2017, at which point payment will become due. 
 
·      In November 2016, the Company exchanged contracts to acquire a
purpose-built care home located in the town of Sutton-in-Ashfield,
Nottinghamshire. The home will be acquired for approximately £5.6 million
including acquisition costs. The transaction is expected to conclude by April
2017 once the build has been completed and the home has been fitted out to the
Group and Operator's specifications. 
 
Update on commitments previously reported: 
 
·      In February 2016, the Company exchanged contracts to acquire a 12-bed
specialist care home in Bricket Wood, St Albans for approximately £2.3 million
including acquisition costs. As part of the agreed terms, the Group provided a
short-term loan facility to HSN Care, the tenant operator who holds the lease
on the property, in order to fund the land acquisition and refurbishment of
the property. The loan facility attracted an accrued coupon of 8.85 per cent
per annum and the loan capital and accrued interest was expected to be
repayable from the consideration proceeds once the acquisition completed. This
loan was included in trade and other receivables at 31 December 2016. HSN
subsequently notified the Company that they did not wish to complete this
transaction. The loan was repaid in full, including accrued interest, on 14
February 2017 and the Company discharged its security over the company and
property and released HSN of their obligations under the forward sale
contract. 
 
11.  Related Party Transactions and fees paid to Target Advisers LLP 
 
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. 
 
Mr G Ross, who retired as a Director following the Annual General Meeting on
10 November 2016, was 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. Mr I Webster, who was appointed
as a Director of the Company with effect from 11 November 2016, is an employee
of the Company Secretary, R&H Fund Services (Jersey) Limited. Mrs H Jones is a
director of the Company Secretary, R&H Fund Services (Jersey) Limited.
Secretarial and administration fees for the period were £98,000 (six months
ended 31 December 2015: £71,000). 
 
The Directors of the Company received fees for their services. Total fees for
the period were £83,000 (six months ended 31 December 2015: £56,000) of which
£18,000 (31 December 2015: £16,000) remained payable at the period end. 
 
Target Advisers LLP received £1,696,000 (six months ended 31 December 2015:
£914,000) during the period of which £345,000 related to the performance fee
(six months ended 31 December 2015: £110,000). Of these amounts £1,346,000
(inclusive of estimated irrecoverable VAT) remained payable at the period end
(31 December 2015: £634,000). 
 
12.  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 NAV. The reconciliation between the NAV, as calculated
under IFRS, and the EPRA NAV is detailed in  note 4. 
 
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. 
 
13.  Contingent Assets and Liabilities 
 
Update on contingent assets/ liabilities reported in previous Annual Report 
 
At 30 June 2016, one property within the portfolio had met contracted
performance conditions and this triggered a deferred payment of £2.0 million
to the vendor, which was subsequently paid during the period to 31 December
2016. The Group received an uplift in rental income consistent with the net
initial yield of the original acquisition commencing from the date the
deferred payment was made. 
 
14.  Interim Report and Financial Statements 
 
The interim report and financial statements for the six months ended 31
December 2016 will be posted to shareholders and made available on the
website: www.targethealthcare.co.uk. Copies may also be obtained from the
Company Secretary, R&H Fund Services (Jersey) Limited, Ordnance House, 31 Pier
Road, Jersey JE4 8PW. 
 
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 2016. 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 Chairman's Statement and Investment Manager's Review (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 
 
M Naish 
 
Chairman 
 
24 February 2017 
 
Independent Review Report to Target Healthcare REIT Limited 
 
Introduction 
 
We have been engaged by the Company to review the condensed set of
consolidated financial statements in the Interim Report and Financial
Statements for the six months ended 31 December 2016 which comprises the
Condensed Consolidated Statement of Comprehensive Income, the Condensed
Consolidated Statement of Financial Position, the Condensed Consolidated
Statement of Changes in Equity, the Condensed Consolidated Cash Flow Statement
and the related explanatory notes 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
condensed set of consolidated financial statements. 
 
This report is made solely to the Company in accordance with guidance
contained in International Standard on Review Engagements  (UK and Ireland)
2410 'Review of Interim Financial Information Performed by the Independent
Auditor of the Entity' issued by the Auditing Practices Board. 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. 
 
Directors' Responsibilities 
 
The Interim Report and Financial Statements are the responsibility of, and
have been approved by, the Directors. The Directors are responsible for
preparing Interim Report and Financial Statements in accordance with the
Disclosure and Transparency Rules of the United Kingdom's Financial Conduct
Authority. 
 
As disclosed in note 1, the annual consolidated financial statements of the
Company are prepared in accordance with IFRSs as adopted by the European
Union. The condensed set of consolidated financial statements included in this
Interim Report and Financial Statements has been prepared in accordance with
International Accounting Standard 34, 'Interim Financial Reporting', as
adopted by the European Union. 
 
Our Responsibility 
 
Our responsibility is to express to the Company a conclusion on the condensed
set of consolidated financial statements in the Interim Report and Financial
Statements based on our review. 
 
Scope of Review 
 
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. 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 Ireland) 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. 
 
Conclusion 
 
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of consolidated financial statements in the
Interim Report and Financial Statements for the six months ended 31 December
2016 is not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European Union and the
Disclosure and Transparency Rules of the United Kingdom's Financial Conduct
Authority. 
 
Ernst & Young LLP, 
 
Edinburgh 
 
24 February 2017 
 
This information is provided by RNS
The company news service from the London Stock Exchange