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

Target Healthcare ReitAnnouncement

23/02/2015 07:00

RNS Number : 5242F
Target Healthcare REIT Limited
23 February 2015
To: RNS Company Announcements
Date: 23 February 2015
Company: Target Healthcare REIT Limited 
Subject: Interim Report and Accounts for the six months ended 31 December 2014
Key Performance Figures 
For the six months ended 31 December 2014
Sustained growth during the period
 Gross equity proceeds raised of 22.3 million and the debt facility increased by 5.0 million.
 Ten modern care homes acquired for a total consideration of 52.7 million (including acquisition costs) and a forward commitment to acquire a purpose-built care home in Tonbridge, Kent.
 63.0 per cent. increase in portfolio value to 135.6 million, 2.7 per cent. on a like-for-like basis.
 64.1 per cent. increase in total annual rent roll to 10.5 million.
Increase in underlying profit and net asset value
 Net asset value ('NAV') per share as at 31 December 2014 of 95.5 pence, an increase of 0.8 per cent. during the period.
 Share price continues to represent a premium to NAV.
 Revenue earnings increased from 1.67 pence per share to 3.20 pence per share, an increase of 91.6 per cent. over the same six month period. 
Uplift in dividend
 Two interim dividends declared in respect of the period of 1.53 pence per share each, representing an increase of 2.0 per cent on the previous quarterly dividend rates.
 During the periods when the Company has been fully invested, the dividend has been fully covered. 
Strong market fundamentals
 Underlying fundamentals of population demographics and supply / demand imbalance of UK care home stock remain favourable.
 Attractive asset pricing and lease characteristics with annual uplifts in line with inflation.
 Focused on setting sustainable rental levels based on local property knowledge.
Positive outlook
 Average capital-weighted unexpired lease term of 30.2 years as at 31 December 2014.
 During January 2015 acquired a further care home for 4.5 million (including acquisition costs).
 Strong pipeline of suitable investment opportunities.
 Open prospectus to issue a further 77.7 million shares to support sustained growth.
 Placing of up to 25.0 million shares announced on 11 February 2015, with a closing date expected to be 3 March 2015. 
Enquiries:
Kenneth MacKenzie 
Target Advisers
01786 406 581
Oriel Securities
Mark Young, Roger Clarke, Neil Winward
020 7710 7600
Fiona Harris/Sam Emery
Quill PR
020 7466 5058 / 020 7466 5056


Chairman's Statement
Group Performance
The Board is pleased to report that in the six months ended 31 December 2014 the Group generated rental income across the portfolio of 4.5 million.
Having established a portfolio of twenty-seven modern, fully-let care home properties the Group's annual rent roll as at 31 December 2014 stood at 10.5 million, almost three times what it was as at the same date last year and an increase of 64.1 per cent. over the reporting period. We expect the annual rent roll to continue to grow as we add further assets to the portfolio and as additional annual rental uplifts occur, coinciding with the anniversaries of the operational leases.
During the reporting period, the Group successfully acquired ten care home assets for a total consideration of 52.7 million including acquisition costs. This brings the market value of the portfolio as at 31 December 2014 to 135.6 million, representing an increase in value of 63.0 per cent. in actual terms over the reporting period, 2.7 per cent. on a like-for-like basis. In addition, the Group entered into a forward commitment to acquire a purpose-built care home in Tonbridge, Kent for 12.5 million including acquisition costs.
The Group generated an operating profit of 3.4 million, comprising a capital loss of 0.3 million and a revenue profit of 3.7 million. The capital loss comprised of acquisition costs of 2.1 million for the ten care home assets acquired during the period and an uplift in valuations of 1.8 million. The total earnings per share for the period were 3.20 pence.
The Group incurred acquisition costs during the period of 4.7 per cent. of the total gross acquisition price, remaining below the Group's budgeted costs of 5.8 per cent. This is in part due to the Investment Manager continuing to successfully source transactions on behalf of the Group without the use of third party agents or advisers. 
As at 31 December 2014, the Group had cash balances of approximately 5.9 million and a NAV per share of 95.5 pence. This represented an increase of 0.8 per cent. on the NAV per share as at 30 June 2014. The Group's share price as at 31 December 2014 of 100.8 pence per share represented a 5.5 per cent. premium to the NAV per share as at the same date and maintains the trend of the share price consistently trading at a premium to NAV since launch.
Funding
On 5 September 2014 the Company published a prospectus in connection with an initial placing and offer for subscription and 12 month placing programme of up to 100 million ordinary shares. The first placing of shares under this programme occurred in September 2014, raising gross proceeds of 17.4 million. A second allotment of shares was made on 26 November 2014, raising further gross proceeds of 4.9 million and taking the aggregate raised to date under the placing programme to 22.3 million.
The Group also increased its five year 30.0 million committed term loan and revolving credit facility to 35.0 million. As at 31 December 2014, the drawn balance was 27.0 million and further drawdowns will be made against the facility to coincide with completion of property acquisitions. As at 31 December 2014, the loan-to-value ratio of the Group was 19.9 per cent. and it remains the Board's intention that the long-term average loan-to-value ratio will be approximately 20.0 per cent.
Dividends
During the period, the Company paid its first interim dividend for the year to 30 June 2015 (reflecting the period from 1 July 2014 to 30 September 2014) of 1.53 pence per share on 28 November 2014. This represented an increase of 2.0 per cent. on the quarterly dividend rates from the previous period, reflecting an annualised payment of 6.12 pence per share. 
In February 2015, the Company declared its second interim dividend for the year to 30 June 2015 (reflecting the period from 1 October 2014 to 31 December 2014) of 1.53 pence per share. 
During the periods when the Company has been fully invested, the dividend has been fully covered. 
Outlook
During January 2015 the Group acquired a further care home asset in Swaffham, Norfolk for approximately 4.5 million (including acquisition costs). The home is a modern property and is leased to Norfolk Care Homes, further diversifying the Group's tenant base.
The Group also maintains a strong investment pipeline of both single and multi-asset acquisitions and the Board remains confident of being able to add additional high quality assets to the portfolio.
Malcolm Naish
Chairman 
20 February 2015
Investment Manager's Report
Portfolio
As at 31 December 2014 the Group's portfolio comprised twenty-seven modern, purpose-built care homes. Each of the properties in the portfolio is less than nine years old, with the majority of the homes having been constructed in 2011 and 2012. They are built to excellent specifications and each benefits from generously proportioned bedrooms and include large areas of communal space. All of the 1,772 bedrooms across the portfolio have en-suite facilities, almost all with wet-room showers, and the homes also include additional on-site facilities, such as hair-dressing salons, libraries, cinemas and spa facilities.
Each of the properties is fully occupied and let to seven quality care home operators. The tenant balance across the portfolio is currently weighted towards Ideal Carehomes with this tenant representing 32.5 per cent. of the portfolio as at 31 December 2014 by passing rent. As the Group grows, however, we expect this to be rebalanced.
The leases are each long-term Full Repairing and Insuring leases and include annual rental increases, either linked to RPI or through fixed rental uplifts. At the period end the total annual rent roll across the portfolio was 10.5 million and the weighted unexpired lease term across the portfolio was 30.2 years. The net initial yield on acquisitions across the portfolio remains ahead of the 7.0 per cent. blended initial yield modelled pre-launch, supporting the Company's stated dividend policy.
Continuing the Group's investment ethos of being an actively engaged landlord, we have undertaken at least bi-annual inspections of each of the care homes during the period on behalf of the Group.The experience of the Target team in the elderly care sector, in relation to funding and in the direct provision of care services, is invaluable during this process.
Geographic Split by Property Valuation
Location
% of portfolio
as at 
31 December 2014
North West
22.0%
East Midlands
18.3%
Yorkshire & The Humber
16.0%
Scotland
14.5%
Northern Ireland
10.2%
West Midlands
9.2%
South East
5.6%
Eastern
4.2%
Valuation
The property portfolio was externally valued as at 31 December 2014 at a market value of 135.6 million by Colliers International Property Consultants Limited.
The valuation as at 31 December 2014 represents an increase in value of 2.7 per cent. during the reporting period on a like-for-like basis. The valuation uplift is due to two factors: firstly, the portfolio benefitted from a small amount of yield tightening across individual assets as the underlying trading performance maturing; and secondly, as a result of the annual rental uplifts.
UK Healthcare Investment Market
Investment activity within the UK elderly healthcare sector during the reporting period has remained strong, notwithstanding the expected seasonal lull in the weeks preceding Christmas.
The fiercest competition in the real estate segment continues to be seen for transactions which offer investors scale through portfolio acquisitions; access to a perceived strong tenant covenant; and / or geographically are located in the south east of England. Strong competition inevitably brings the hardening of yields and to this end we have continued to witness sub 6.0 per cent. yields being offered, and paid, for investment opportunities which evidence these characteristics. The principal parties in these transactions primarily remain large institutional investors, such as pension funds and wealth managers.
In the Group's core regional mid-market, competition for assets, often outside of a portfolio, has remained less pronounced and has typically included smaller, niche investment firms and private investors, or operators willing to acquire both the operations as well as the real estate of the care home business. In this segment of the market, whilst there has been a compression of yields, principally as a result of what is happening elsewhere, we have continued to place money either around or in excess of the Group's targeted net initial yield of 7.0 per cent.
Pipeline
We continue to draw on our well-established relationship with regional and national operators and agents alike to source a variety of care home investment opportunities for the Group.
We have in place a strong pipeline of additional investment opportunities valued at over 100 million across single and multi-asset acquisitions located across the UK, therefore enabling the Group to diversify both in terms of geographic reach and tenant spread. 
Target Advisers LLP
Investment Manager
20 February 2015


Condensed Consolidated Statement of Comprehensive Income
For the six months ended 31 December 2014 


Six months ended
31 December 2014 (unaudited)
Six months ended
31 December 2013
(unaudited)


Revenue
Capital
Total
Revenue
Capital
Total

Notes
'000
'000
'000
'000
'000
'000
Revenue







Rental income

4,495
1,887
6,382
1,591
583
2,174
Total revenue

4,495
1,887
6,382
1,591
583
2,174
Losses on revaluation of investment properties

-
(2,226)
(2,226)
-
(1,382)
(1,382)
Total income

4,495
(339)
4,156
1,591
(799)
792
Expenditure







Investment management fee
2
(488)
-
(488)
(332)
-
(332)
Performance fee
2
-
-
-
-
-
-
VAT refund on management fees 

82
-
82
-
-
-
Other expenses

(382)
-
(382)
(228)
-
(228)
Total expenditure

(788)
-
(788)
(560)
-
(560)
Profit / (loss) before finance costs and taxation

3,707
(339)
3,368
1,031
(799)
232
Net finance costs







Interest receivable

52
-
52
73
-
73
Interest payable and similar charges

(393)
-
(393)
-
-
-
Profit / (loss) before taxation

3,366
(339)
3,027
1,104
(799)
305
Taxation

-
-
-
(4)
-
(4)
Profit / (loss) for the period

3,366
(339)
3,027
1,100
(799)
301
Total comprehensive profit / (loss) for the period

3,366
(339)
3,027
1,100
(799)
301
Earnings / (loss) per share (pence)
3
3.20
(0.32)
2.88
1.67
(1.21)
0.46









The total column of this statement represents the Group's Condensed Consolidated Statement of Comprehensive Income, prepared in accordance with IFRS. 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 acquired or discontinued in the period.
 


Condensed Consolidated Balance Sheet 
As at 31 December 2014


As at
31 December
2014
(unaudited)
As at
30 June
2014 
(audited)

Notes
'000
'000
Non-current assets



Investment properties
5
131,936
81,422


131,936
81,422
Current assets



Trade and other receivables

6,206
6,524
Cash and cash equivalents

5,897
17,125


12,103
23,649
Total assets

144,039
105,071
Non-current liabilities



Bank loan
6
(26,428)
(11,764)


(26,428)
(11,764)
Current liabilities



Trade and other payables

(5,643)
(3,089)
Total liabilities

(32,071)
(14,853)
Net assets

111,968
90,218




Stated capital and reserves



Stated capital account
8
110,864
91,516
Capital reserve

(2,591)
(2,252)
Revenue reserve

3,695
954
Equity shareholders' funds

111,968
90,218




Net asset value per ordinary share (pence)
7
95.5
94.7






Condensed Consolidated Statement of Changes in Equity
For the six months ended 31 December 2014 (unaudited) 
 
Stated capital account 
Capital Reserve
Revenue Reserve
Total

'000
'000
'000
'000
As at 1 July 2014
91,516
(2,252)
954
90,218
Total comprehensive (loss) / profit for the period:
-
(339)
3,366
3,027
Transactions with owners recognised in equity:




Dividends paid
(2,524)
-
(625)
(3,149)
Issue of ordinary shares
22,302
-
-
22,302
Expenses of issue
(430)
-
-
(430)
As at 31 December 2014
110,864
(2,591)
3,695
111,968
For the six months ended 31 December 2013 (unaudited) 

Stated capital account 
Capital Reserve
Revenue Reserve
Total

'000
'000
'000
'000
As at 1 July 2013
49,331
(1,566)
462
48,227
Total comprehensive (loss) / profit for the period:
-
(799)
1,100
301
Transactions with owners recognised in equity:




Dividends paid
(864)
-
(894)
(1,758)
Issue of ordinary shares
45,450
-
-
45,450
Expenses of issue
(925)
-
-
(925)
As at 31 December 2013
92,992
(2,365)
668
91,295


Condensed Consolidated Cash Flow Statement 
For the six months ended 31 December 2014 


Six months ended 
31 December
2014
(unaudited)
Six months ended 
31 December
2013
(unaudited)


'000
'000
Cash flows from operating activities



Profit before tax

3,027
305
Adjustments for:



Interest receivable

(52)
(73)
Interest payable

393
-
Revaluation losses on property portfolio

339
799
Decrease / (increase) in trade and other receivables

350
(433)
Decrease in trade and other payables

852
609


4,909
1,207
Interest paid

(195)
-
Interest received

52
73
Tax paid

-
-
Net cash inflow from operating activities

4,766
1,280




Purchase of investment properties

(52,740)
(15,625)
Net cash outflow from investing activities

(52,740)
(15,625)
Cash flows from financing activities



Issue of ordinary share capital

22,302
45,450
Expenses of issue paid

(415)
(923)
Drawdown of bank loan facility

14,613
-
Development loan repayment 

3,300
-
Dividends paid

(3,054)
(1,711)
Net cash inflow from financing activities

36,746
42,816
Net (decrease) / increase in cash and cash equivalents

(11,228)
28,471
Opening cash and cash equivalents

17,125
16,883
Closing cash and cash equivalents

5,897
45,354
 


Notes to the Condensed Consolidated Financial Statements
1. Interim results
The condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 'IAS' 34 'Interim Financial Reporting' and the accounting policies set out in the statutory accounts of the Group for the period ended 30 June 2014. The condensed consolidated financial statements do not include all of the information required for a complete set of International Financial Reporting Standards ('IFRS') financial statements and should be read in conjunction with the consolidated financial statements of the Group for the period ended 30 June 2014, which were prepared under full IFRS requirements.
2. Investment Management Fee:

For the six months ended 
31 December 2014
For the six months ended 
31 December 2013

'000
'000
Base management fee
488
332
Performance fee
-
-
Total
488
332
Between 19 March 2013 and 21 July 2014, the Company's Investment Manager was R&H Fund Services (UK) Limited. During this period, the property management arrangements of the Company were delegated by R&H Fund Services (UK) Limited, with the approval of the Company, to Target Advisers LLP (the 'Investment Adviser' or 'Target'), with the Investment Adviser being responsible for the day-to-day management of the Company.
On 22 July 2014, Target became the Company's Investment Manager and was also appointed as its Alternative Investment Fund Manager ('AIFM'). Target is entitled to an annual base management fee of 0.90 per cent. of the net assets of the Group, provided that the fee shall be 0.85 per cent. if the net assets of the Group are below 60 million, and an annual performance fee calculated by reference to 10 per cent. of the outperformance of the Group's portfolio total return relative to the IPD UK Annual Healthcare Index.
The performance fee is measured over a rolling three year period, commencing from the acquisition of the first property, being 8 March 2013.
The first performance fee was paid in respect of the financial period to 30 June 2014, subject to clawback over the following two financial years.
The maximum amount of total fees payable by the Group to the Investment Manager is up to 1.25 per cent. of the average net assets of the Group over a financial year. 
As at 31 December 2014 there was no accrual for performance fees. The fee is capped at a maximum of 0.35 per cent. of the average net assets of the Group and the fee will be calculated once the IPD UK Annual Healthcare Index figures for the year to 31 December 2014 are available. 
3. Earnings / (loss) per share
The Group's revenue earnings per ordinary share of 3.20 pence per share (31 December 2013: 1.67 pence) is based on the net revenue for the period of 3,366,000 (31 December 2013: 1,100,000) and on 105,231,661 ordinary shares (31 December 2013: 65,959,334), being the weighted average number of shares in issue during the period.
 
The Group's capital loss per ordinary share of 0.32 pence per share (31 December 2013: 1.21 pence) is based on the capital loss for the period of 339,000 (31 December 2013: 799,000) and on 105,231,661 ordinary shares (31 December 2013: 65,959,334), being the weighted average number of shares in issue during the period.
 
The Group's total earnings per ordinary share of 2.88 pence per share (31 December 2013: 0.46 pence) is based on the profit for the period of 3,027,000 (31 December 2013: 301,000) and on 105,231,661 ordinary shares (31 December 2013: 65,959,334), being the weighted average number of shares in issue during the period.
 
Earnings for the six months ended 31 December 2014 should not be taken as a guide to the results for the year to 30 June 2015.
4. Dividends 
Dividends paid as distributions to equity shareholders during the period. 

For the six months ended
31 December 2014
For the six months ended
31 December 2013

Pence
'000
Pence
'000
Sixth interim dividend
1.50
1,428
-
-
First interim dividend
1.53
1,721
2.00
1,005
Second interim dividend
-
-
1.50
753
Total
3.03
3,149
3.50
1,758
A second interim dividend for the year to 30 June 2015, of 1.53 pence per share, will be paid on 27 February 2015 to shareholders on the register on 13 February 2015.


5. Investments 
Freehold Properties

As at 
31 December 
2014
As at 
30 June
2014

'000
'000
Opening market value at beginning of the period
83,246
-
Purchases
52,740
85,498
Acquisition costs
(2,139)
(4,281)
Revaluation movement
1,800
2,029
Closing market value
135,647
83,246



Opening carrying value at beginning of the period
81,422
-
Purchases
52,740
85,498
Acquisition costs written off
(2,139)
(4,281)
Revaluation movement
1,800
2,029
Fixed or guaranteed rent reviews movement
(1,887)
(1,824)
Closing carrying value 
131,936
81,422
Opening fixed or guaranteed rent reviews at beginning of the period
(1,824)
-
Fixed or guaranteed rent reviews movement
(1,887)
(1,824)
Closing fixed or guaranteed rent reviews
(3,711)
(1,824)




Changes in the valuation of investment properties 

As at 
31 December 
2014
As at 
30 June
2014

'000
'000
Revaluation movement
(339)
(2,252)
Movement in fixed or guaranteed rent reviews
(1,887)
(1,824)
Losses on revaluation of investment properties 
(2,226)
(4,076)
The properties were valued at 135.6 million as at 31 December 2014 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 a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The fair value of the properties after adjusting for the fixed or guaranteed rent reviews was 131.9 million.


6. Bank loan

As at 
31 December 
2014
As at 
30 June
2014

'000
'000
Principal amounts outstanding
27,009
12,261
Set-up costs
(634)
(499)
Amortisation of set-up costs
53
2
Total 
26,428
11,764
As at 31 December 2014 the Group had a 35 million committed term loan and revolving credit facility with the Royal Bank of Scotland plc which is repayable on 23 June 2019. 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 2 per cent. per annum for the duration of the loan.
This bank loan is secured by way of a fixed and floating charge over certain of the Group's properties for which the following covenants apply:
 the loan to value percentage does not exceed 50 per cent; and
 the interest cover is greater than 300 per cent. on any calculation date.
The Group has complied with all the bank loan covenants during the period.
7. Net asset value
The Group's net asset value per ordinary share of 95.5 pence (30 June 2014: 94.7 pence) is based on equity shareholders' funds of 111,968,000 (30 June 2014: 90,218,000) and on 117,298,226 (30 June 2014: 95,221,629) ordinary shares, being the number of shares in issue at the period end.
8. 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 2014
95,221,629
91,516
Issue on 25 September 2014 
17,244,597
17,417
Issue on 26 November 2014
4,832,000
4,885
Expenses of issue

(430)
Dividend allocated to capital

(2,524)
Balance as at 31 December 2014
117,298,226
110,864
9. 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. Secretarial and administration fees for the period were 51,000 (31 December 2013: 31,000). 
The Directors of the Company received fees for their services. Total fees for the period were 56,000 (31 December 2013: 51,000) of which 10,000 (30 June 2014: 9,550) remained payable at the period end.
Target Advisers LLP received 488,000 (31 December 2013: 332,000) during the period of which nil (31 December 2013: 49,000) related to the expenses of issue and 280,000 (inclusive of VAT) (30 June 2014: 394,000) remained payable at the period end.
10. Commitments
 In December 2014 the Company entered into a forward commitment agreement to acquire a purpose-built care home in Tonbridge, Kent, for a consideration of 12.5 million including acquisition costs. The property is yet to be built, with the development expected to reach practical completion in summer 2016, at which point payment will become due. 
11. Contingent assets and liabilities
Three properties within the portfolio are subject to deferred consideration clauses within the purchase agreements if certain performance measures are met. For one of the properties, subsequent to the disclosures made in the Group's report for the period to 30 June 2014, the Group has been notified by a vendor that contracted performance conditions have been met which would trigger a deferred payment of 0.5 million. The reported performance figures are currently subject to verification by an independent reporting accountant. If verified, and formal approval is granted by the Board, payment is expected to be made in March 2015. The Group will become entitled to receive an uplift in rental income from the property commencing at the date the deferred payment is made. All other things being equal, this will result in an increase in the market value of the property to a value equivalent to the deferred payment made. The performance conditions on the other two properties have not yet been met. 
As the net effect on the Group's financial position and income is expected to be immaterial, no post-balance sheet adjustment has been made.
12. Transactions with the Investment Manager
The forward commitment noted above in Note 10 is being developed and sold by an investment vehicle of which Target Advisers LLP acts as investment and property adviser. 
13. Post balance sheet events
In January 2015, the Group acquired a purpose-built care home in Norfolk for approximately 4.5 million including acquisition costs.
14. Further Information 
All information shown for the period to 31 December 2014 is unaudited.
Certain statements in this report are forward looking statements. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results or event to differ materially from those expressed or implied by those statements. Forward regarding past trends or activities should not be taken as representation that such trends or activities will continue in the future. Accordingly, undue reliance should not be placed on forward looking statements.
15. Accounts
The interim report and accounts for the six months ended 31 December 2014 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 contained within the Report and Financial Statements for the period from incorporation on 22 January 2013 to 30 June 2014. In the opinion of the Director's 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 rest 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 consolidated 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 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 consolidated 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
20 February 2015


Independent Review Report to Target Healthcare REIT Limited
Introduction 
We have been engaged by the Company to review the condensed consolidated set of financial statements in the Interim Report and Accounts for the six months ended 31 December 2014 which comprises the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Cash Flow Statement and the Condensed Consolidated Notes to the Financial Statements. We have read the other information contained in the interim report and accounts 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 financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim report and accounts in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority. 
As disclosed in note 1, the annual financial statements of the Group 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 Accounts 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 consolidated set of financial statements in the interim report and accounts 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 consolidated set of financial statements in the interim report and accounts for the six months ended 31 December 2014 and is not prepared, in all material respects, in accordance with IAS 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 20 February 2015

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