REG - Target Healthcare - Notice of Results <Origin Href="QuoteRef">THRLT.L</Origin> - Part 1

Target Healthcare ReitAnnouncement

29/10/2014 10:16

RNS Number : 7049T
Target Healthcare REIT Limited
08 October 2014
Target Healthcare REIT Limited
Report and Results Announcement
Target Healthcare REIT Limited (the "Company" or the "Group"), a specialist investor in UK care homes, is pleased to announce its results for the period from incorporation on 22 January 2013 to 30 June 2014. 
Highlights 2014
 As at 30 June 2014, the Company had raised 95.7 million from a combination of institutional investors, wealth managers and private investors. 
 The Net Asset Value ("NAV") per share as at 30 June 2014 was 94.7 pence. 
 Share price of 104.75 pence as at 30 June 2014 represented a 10.6 per cent. premium to the NAV. 
 Dividends of 8.0 pence per share declared and paid in respect of the reporting period. 
 As at 30 June 2014 the Group had invested capital in a portfolio of 17 care homes with a market value of 83.2 million and had cash balances of 17.1 million. 
 On 23 June 2014, the Group secured a new 5 year 30 million term committed loan and revolving credit facility, of which 12.3 million was drawn-down at the period end. 
 Since the period end the Group has acquired a further 6 care homes, for approximately 31.5 million (including acquisition costs). 
Malcolm Naish, Chairman of the Company, said:
Introduction 
When we established Target Healthcare REIT Limited in early 2013 we did so with the intention of delivering stable, long-term returns to investors, backed by modern, purpose-built care home assets and supporting established operators whose focus is on the provision of quality care. 
I am pleased to report that having grown the portfolio to 17 properties let to 5 separate care operators on long-term full repairing and insuring ("FRI") leases we remain on-track to deliver these objectives. As a result of our investment discipline, the Group has performed well, creating a portfolio of quality purpose-built care homes at sustainable valuations and providing investors with dividends equating to 6 per cent. per annum, in line with expectations. 
I am therefore delighted to present the Group's first annual report for the period from incorporation on 22 January 2013 to 30 June 2014. 
Group Performance 
Rental income in the reporting period was 6.3 million and the Group has benefitted from the first of the annual RPI-linked rental uplifts. The annual rent roll at 30 June 2014 was 6.4 million and we expect this to grow as we add further quality assets to the portfolio and as additional annual rental uplifts occur, coinciding with the anniversary of the operational leases. 
The Group generated an operating profit of 0.6 million, comprising a capital loss of 2.2 million primarily relating to the purchase costs on the care home assets and a revenue profit of 2.8 million. The earnings per share for the period were 1.1 pence. Total acquisition costs represented 5.2 per cent. of the gross acquisition price and remained below the Group's budgeted costs of 5.8 per cent. This is in part due to the Investment Manager sourcing transactions on behalf of the Group without employing the use of third party agents or advisers. 
As at 30 June 2014, the Group had cash balances of 17.1 million and an audited net asset value per share of 94.7 pence. 
Portfolio 
At the balance sheet date, the Group had successfully acquired 17 care home assets (excluding one property on which the Group had exchanged contracts, but not yet completed) located in the North of England, the Midlands and Scotland. The properties are fully occupied, let to 5 established, quality care operators each on long-term FRI leases. With an average capital-weighted unexpired lease term in excess of 30 years, the Group should be able to benefit from a sustained level of rental income over the longer-term. 
The portfolio valuation across the 17 properties as at 30 June 2014 was 83.2 million and in the first two quarters of 2014 the Group benefitted from its first property valuation uplifts, primarily due to two factors: firstly, the portfolio benefitted from a small amount of yield tightening across individual assets as the underlying trading performance matured; and secondly, as a result of the first annual RPI-linked rental uplifts. The net initial yield on acquisition across the portfolio remains ahead of the 7.0 per cent. blended initial yield modelled pre-launch, supporting the Company's stated dividend policy. 
Funding 
Following the listing on 7 March 2013 at which point gross proceeds of 45.7 million were raised, the Company successfully secured additional funds of 50.0 million via two fundraisings: 4.6 million was raised via an equity issue announced on 12 June 2013; and a further 45.4 million via a further equity issue announced on 25 October 2013. I am particularly pleased to report that the share issue in October 2013 was over-subscribed and I would like to thank the shareholders for their support. 
On 23 June 2014, the Group secured a new 5 year 30.0 million committed term loan and revolving credit facility with The Royal Bank of Scotland plc. This facility allows the Group to make further acquisitions after investment of its equity capital, and allows the Group to lower its overall cost of capital.
Interest payable under the facility is at a floating rate equal to 3 month LIBOR plus a margin of 2.0 per cent. per annum; however, the Group's intention remains to fix a proportion of the interest through a forward interest rate swap in order to manage debt costs over the longer-term. Whilst the debt facility is within the Group's stated gearing limit of 35 per cent. of gross assets, it remains the Board's intention that as the proceeds of further capital raisings are invested, any further borrowings will not exceed 20 per cent. of the Group's gross assets at the time of drawdown.
Dividends 
A stated intention of the Company at launch was to deliver to shareholders a sustainable dividend of 6 per cent per annum and I am pleased to report this has been achieved, with a total dividend of 8 pence per share declared and paid in respect of the reporting period. 
The Board's dividend policy is to target a fully covered dividend and once fully invested we continue to forecast achieving this objective. 
Regulatory & Board Changes 
As a result of changes in the regulatory environment in which the Company operates, during July 2014 the Company appointed Target Advisers LLP ("Target") as its alternative investment manager to comply with the terms of the Alternative Investment Fund Managers Directive ("AIFMD"). 
We also recently added two new non-executive directors to the Board, Mrs Hilary Jones and Mr Graeme Ross, and may I take this opportunity formally to welcome them?
Outlook 
In the first 18 months since incorporation the Group has made significant progress in establishing itself as a credible, long-term investor in the UK elderly healthcare market. 
Drawing on the well-established relationships that our Investment Manager has formed with regional and national operators and agents alike, I am pleased to report that the Group maintains a robust investment pipeline. As a result of this, the Board looks forward to adding further high quality assets located in existing and new geographies as well as welcoming new tenants to the portfolio. 
Since the end of June 2014, the Group has added a further 6 purpose-built care facilities to the portfolio for a total consideration (including acquisition costs) of approximately 31.5 million. In September 2014 the Group also announced that it had exchanged contracts to acquire a new purpose-built care home in Hastings, East Sussex, for approximately 8.0 million (including acquisition costs). In addition, we have a number of investment opportunities both under negotiation and at advanced non-binding heads of terms stage which the Group intends to conclude during the coming months, subject to the availability of additional funding. 
In September 2014, the Company raised gross proceeds of 17.4 million following the issue of a further 17.2 million ordinary shares. 
Under the 12 month placing programme the Board expects to issue further ordinary shares to fund further acquisition opportunities as they arise. 
As I look ahead to the second half of 2014 and beyond, my Board colleagues and I look forward to securing further high quality investments at sustainable valuations enabling the Group to continue to deliver on its core investment objectives for the benefit of its shareholders. 
Mr Malcolm Naish 
Chairman 
7 October 2014
Enquiries:
Target Advisers LLP
Kenneth MacKenzie, Managing Partner
01786 406 581
Winterflood Securities
Graeme Caton, Director
020 3100 0268
Quill PR
Sam Emery, Account Director
Fiona Harris, Managing Director
020 7466 5056
020 7466 5058


Strategic Report
The Directors present their strategic report on the Group for the period ended 30 June 2014. 
Business Model & Strategic Objectives
The Group seeks to execute its investment policy, to fulfil its overall objective of providing shareholders with an attractive income return with the potential for growth in that income return and invested capital. The Group's key objectives, therefore, are:
1. To pay a 6 per cent. dividend yield, with annual uplifts linked to RPI with caps and collars, which will be fully covered when the Group is fully invested.
2. To acquire a diversified portfolio of high quality modern care homes that are able to provide excellent accommodation standards for residents.
3. To let such assets to high quality care providers on terms which provide secure long term and sustainable rental income to the Group which will grow annually.
4. To fund its investments primarily using shareholder equity whilst enhancing returns through modest use of leverage within pre-determined risk levels.
5. To deliver total returns to shareholders through a combination of dividend payments and asset value appreciation.
The Group's success is dependent on the acquisition of assets which meet the investment criteria, and the letting of these assets to tenant operators with the ability to provide quality care alongside meeting their rental commitments to the Group.
The Investment Manager applies its specialist healthcare asset and fund management expertise to identify target investments which are likely to benefit from the following:
-- Changing UK demographics resulting in higher numbers of the elderly;
-- Resident choice, expectations as to the quality of care homes and the expectation of growth in the private pay market;
-- The forecast rise in acute chronic illness and dementia. 
The Investment Manager's approach to specific investment analysis and appraisal focuses on:
-- Geographical regions and local markets with acceptable economic fundamentals;
-- A demand/supply imbalance for 'best in class' care homes;
-- Support from both the state and self-pay markets.
The Group's investments can include: single care homes; portfolios of care homes; pre-let development funding for care homes; and, other healthcare assets where a robust investment opportunity exists.
Market Overview
We have long since maintained that the UK's elderly healthcare sector represents an attractive investment opportunity. The compelling population demographic dynamics are clear, as too is the paucity of quality care home stock across the UK and the subsequent requirement for substantial investment over the short/medium-term. Traditional occupational leases in the sector are long-term, without breaks and with annual rental uplifts linked to inflation (with a cap and collar). These factors combine to offer investors the opportunity to benefit from stable, long-term income returns by way of dividend yield with the potential for additional capital growth.
Attracted by these fundamentals, over the course of the last 18 months we have witnessed several new entrants to the market. These include both domestic investors, such as institutional funds, private equity and venture capital firms, and pension funds, as well as investors from overseas, including North American REITs and Middle Eastern investors. An interesting development has been the increase in the prevalence of generalist commercial property investors entering the market seeking to benefit from the attractive yields available, competing directly against the new and existing specialist healthcare property investors. Whilst the number of new investors entering the market appears to be slowing, it is also evident that those investors who already have a presence intend to stay, ensuring the market remains competitive in the short-term at least. Earlier this year, we commented on the fact that we were observing early indications that investment yields in the sector may be hardening, albeit at that stage it was difficult to ascertain whether these were isolated instances or represented a wider trend. Six months on, we believe that there is evidence of modest yield compression across the sector with some very keen yields having been paid for the strongest quality covenants. We believe that best value may often be realised at the single asset and smaller portfolio level, likely involving regional operators with smaller balance sheets but who nevertheless deliver robust operational and trading performances, often as a result of a strong care culture. It is in this context that we believe a specialist investment vehicle such as Target Healthcare REIT is best able to thrive, but only when a robust and rigorous investment discipline is applied. This investment discipline extends beyond simple analysis of tenant covenant and property location, but also includes population demographics and competitive landscape analysis of the individual asset; the ability of the home to attract residents backed by several sources of income; an emphasis on setting sustainable rent levels over the long-term with appropriate rent covers; and, importantly, a strong care culture which is focused on delivering quality care standards. We are pleased to report that the investment pipeline in this regard remains robust and with the underlying market dynamics remaining strong there should be further investment opportunities available for the Group. By ensuring these investment appraisal fundamentals remain at the forefront of our deliberations, we remain confident of being able to add further quality assets to the portfolio which will deliver long-term, sustainable returns for investors despite the strong levels of external competition for assets.
Business Review
The results as described in the Chairman's Statement have been driven by the following activities of the Group in its first period from incorporation to 30 June 2014.
Group financing
The Group's successful investment activity during the period has been made possible by its equally successful financing activity, with the completion of three equity issues and entry into a debt facility.
Share issues
The Company successfully raised gross proceeds of 45.7 million through the issue of 45.7 million shares in an initial public offering on 7 March 2013. A further small issue of 4.6 million shares was then completed in June 2013 for gross proceeds of 4.6 million. This issue was undertaken at a discount of 3 per cent. to the share price immediately prior to the issue and at a premium to NAV as at 31 March 2013 of 7 per cent. In October 2013 the Company raised 45.4 million in an over-subscribed issue of 45.0 million shares. The issue price was a discount to the share price immediately before issue of 2 per cent. and at a premium to the 30 September 2013 NAV of 7 per cent.
The October share issue provided the opportunity for a number of new institutional shareholders to join the Company's register to complement the initial shareholders in diversifying and strengthening the Company's supportive shareholder base.
Debt financing
In June 2014 the Group entered into a facility agreement with its bankers, The Royal Bank of Scotland plc, which provides a 30.0 million five year debt facility comprising a term loan facility of 18.0 million and a revolving credit facility of 12.0 million.
The proceeds of the facility have been used to add to the Group's portfolio of care homes, with 12.2 million having been drawn as at 30 June 2014 and subsequent drawdowns to the date of this report taking the total to 27.0 million.
Properties acquired
The Group has undertaken significant investment activity during the period. Please see the full annual report and financial statements for details of property acquisitions and the current portfolio.
Dividends
The Company paid a total of 6.5 pence per share in dividends during the period. 1.5 pence per share in relation to the final quarter of the period from April to June 2014, was paid during August 2014, therefore dividends relating to the Group's operations during the period to 30 June 2014 have totalled 8.0 pence per share.
These dividends were split as follows:

Pence per share
Property income distribution
0.73
Ordinary dividend
7.27
Total
8.00
Given that the aggregate net initial rental yield on acquisition across the portfolio remains ahead of the 7 per cent. blended initial yield modelled pre-launch, and the impact of the inflation-linked annual rental uplifts which are upwards only, the Directors intend to increase the quarterly dividends in respect of the year to 30 June 2015 by 2 per cent. to 1.53 pence per share, in the absence of unforeseen circumstances.
Key Performance Indicators
The Board monitors Group performance relative to the strategic objectives detailed above through the use of the following KPIs:

Metric
Performance
Objective 1
To pay covered quarterly
dividends with
growth potential
-- Dividend rates.
-- Growth in rental income.
-- Control of operating costs.
-- Dividends paid as per prospectus.
-- Modelling suggests strong potential for growth, and cover once fully invested.
-- Ongoing charges figure <2 per cent.
Objective 2
To increase property assets
under management.
-- Acquisitions completed
-- 17 assets to value of 83.2 million acquired during the period.
Objective 3
To generate long term
secure rental income.
-- Rent roll increase.
-- Number of tenants.
-- Weighted average unexpired
lease term ('WAULT').
-- Rental increases.
-- 100 per cent. of properties fully let at rent roll of 6.4 million.
-- 5 tenant operators.
-- WAULT of 30.9 years.
-- Annual rental reviews completed during the period resulted in 2.8 per cent. increases.
Objective 4
Implement efficient and
effective capital structure.
-- Manage debt/equity
at appropriate balance
to generate leveraged
returns within agreed
risk threshold levels.
-- Debt facility secured to set gearing level as at 30 June at target and within allowable threshold.
-- Gross equity of 95.7 million raised during period.
Objective 5
To maximise total returns to
shareholders from the Group's
performance.
-- Portfolio performance relative to Investment Property
Databank ('IPD') Healthcare
index benchmark.
-- Asset revaluations.
-- Full period portfolio total return (excluding acquisition costs) as calculated by IPD of 14.2 per cent.
-- Asset revaluations of 2.0 million.
Principal Risks and Uncertainties
The process of risk acceptance and risk management is addressed through a framework of policies, procedures and internal controls. All policies are subject to Board approval and ongoing review. 
Compliance with regulation, legal and ethical standards is a high priority for the Group and the Investment Manager takes on an important role in this regard. The Audit Committee is responsible for satisfying itself as to the effectiveness of the risk management and internal control procedures. 
The Group has developed a framework for identifying risks and their potential impact on the Group's assets. This process is risk based and will identify emerging risks as well as monitor existing risks. 
The principal risks arise from: financing availability; the healthcare property market; the taxation environment; and operations, as further noted below.
Risks and 
Uncertainties 
Impact 
Mitigation 
Group financing 
1. Lack of equity capital 
The Group may be unable to acquire newly identified assets meeting its investment criteria and be unable to invest in its existing portfolio to maintain values and income if required. This will restrict its ability to fulfil growth objectives. 
The Group maintains regular communication with investors, and, with the assistance of its Placing Agent and Sponsor, regularly monitors the Group's capital requirements and investment pipeline alongside opportunities to raise equity. 
Liquidity available from income, equity and debt is kept under constant review to ensure the Group can meet any forward commitments as they fall due. 
2. Debt facility covenants 
The Group is at risk of penalties or potential default should it fail to meet covenant tests as agreed with its lender. 
The Group monitors covenant levels on an ongoing basis to ensure compliance, and has the ability to provide early warning of potential issues. The Group has headroom in its current facility and has flexibility on which of its assets are used as security. 
3. Interest rate risk 
The Group's debt facility carries a floating rate of interest. An increase in interest rates would adversely impact cashflow and profitability. 
The Group intends to hedge a proportion of this exposure through entering into a fixed rate Interest Rate Swap arrangement. 
Healthcare Property Market risk 
4. Healthcare property valuations 
Property values could fall, reducing shareholder capital returns and reducing the borrowing capacity available to the Group. 
The Board seeks to mitigate this risk through a detailed and considered investment appraisal process prior to asset acquisition, allied with subsequent monitoring of asset quality and performance by the Investment Manager. 
 
The portfolio is 100 per cent. let with sustainable rental levels and upwards-only annual rental reviews which support asset values. 
5. Lack of available properties or inability to invest on acceptable terms 
The Group may not be able to acquire suitable properties which would allow continued growth. 
The Investment Manager develops and maintains a network of relationships with property owners and developers which it is expected will provide the Group with the best possible opportunity to acquire suitable properties. 
Demographics are such that many new homes require to be built to satisfy demand. The Group is well-positioned to participate in acquiring a share of these. 
6. Government or local authority policies or funding of elderly care change 
The Group's strategy may become inappropriate and its objectives unachievable through a downturn in demand for its properties. 
Government policy is monitored by the Group so as to increase ability to anticipate changes. 
Tenants typically have a multiplicity of income sources, thereby not being totally dependent on government pay. 
The Group's properties are let on long-term leases at sustainable rent levels, providing security of income. 
Taxation risk 
7. Breach of REIT regime regulations 
Failure to meet requirements may result in loss of REIT status and access to associated taxation advantages. 
The Group's activities are monitored to ensure that all conditions are adhered to. The REIT rules are considered during investment appraisal and transactions structured to ensure conditions are met. 
Operational risks 
8. Performance of third party advisers 
The Group has no employees and relies on third parties to manage effectively operations. Termination of the investment management agreement (the "IMA") with, or poor performance by, Target Advisers LLP could adversely affect Group performance. 
The IMA has a notice period and key man provision relating to the Investment Manager. Investment Manager remuneration is linked to Group performance, including a performance fee. Third Party service providers are continually monitored and reviewed by the Board. 
Social, community, employee responsibility & environmental policy
The Directors recognise that their first duty is to act in the best financial interests of the Company's shareholders and to achieve good financial returns against acceptable levels of risk, in accordance with the objectives of the Company.
The Investment Manager acquires and manages properties on behalf of the Company. It is recognised that these activities have both direct and indirect environmental impacts. These assets are modern purpose-built care homes and are therefore expected to be effective in minimising those impacts.
The Investment Manager takes into account the broader social, ethical and environmental issues of investing in properties that are let to care home operators, acknowledging that tenants failing to manage these issues adequately run a long term risk to the sustainability of their businesses. More specifically, they expect tenants to demonstrate ethical conduct, effective management of their stakeholder relationships, responsible management and mitigation of social and environmental impacts, as well as due regard for wider societal issues.
As an investment trust with its current structure the Company has no direct social, community, employee or environmental responsibilities of its own. The Company has no greenhouse gas emissions to report from its operations for the period ended 30 June 2014, nor does it have responsibility for any other emissions producing sources.
At 30 June 2014 there was one female Director and three male Directors. Since the period end the Company has appointed a further female Director and a further male Director. The Company has no employees so does not require to report further on gender diversity.
On behalf of the Board
Mr Malcolm Naish
Chairman
7 October 2014


Consolidated Statement of Comprehensive Income
For the period from incorporation on 22 January 2013 to 30 June 2014  







Revenue
Capital
Total

Notes
'000
'000
'000
Revenue




Rental income 

4,517
1,824
6,341
Total revenue

4,517
1,824
6,341





Losses on revaluation of investment properties 
-
(4,076)
(4,076)
Total income

4,517
(2,252)
2,265





Expenditure




Investment management fee
2
(974)
-
(974)
Performance fee
2
(150)
-
(150)
Other expenses

(552)
-
(552)
Total expenditure

(1,676)
-
(1,676)
Profit / (loss) before finance costs and taxation

2,841
(2,252)
589





Net finance costs




Interest receivable

221
-
221
Interest payable and similar charges

(11)
-
(11)
Profit / (loss) before taxation

3,051
(2,252)
799
Taxation

(14)
-
(14)
Profit / (loss) for the period

3,037
(2,252)
785
Total comprehensive profit / (loss) for the period

3,037
(2,252)
785
Earnings / (loss) per share (pence)
3
4.19
(3.11)
1.08
The total column of this statement represents the Group's 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 discontinued in the period.


Consolidated Balance Sheet 
As at 30 June 2014




Notes
'000 
Non-current assets


Investment properties
4
81,422


81,422
Current assets


Trade and other receivables

6,524
Cash and cash equivalents

17,125


23,649
Total assets

105,071
Non-current liabilities


Bank loan

(11,764)


(11,764)
Current liabilities


Trade and other payables

(3,089)
Total liabilities

(14,853)
Net assets

90,218



Stated capital and reserves


Stated capital account
7
91,516
Capital reserve

(2,252)
Revenue reserve

954
Equity shareholders' funds

90,218



Net asset value per ordinary share (pence)
5
94.7








Consolidated Statement of Changes in Equity
For the period from incorporation on 22 January 2013 to 30 June 2014  







Stated capital account 
Capital reserve 
Revenue reserve
Total

'000
'000
'000
'000
At 22 January 2013
-
-
-
-
Total comprehensive (loss) / profit for the period:
-
(2,252)
3,037
785





Transactions with owners recognised in equity:




Dividends paid
(2,333)
-
(2,083)
(4,416)
Issue of ordinary shares
95,740
-
-
95,740
Expenses of issue
(1,891)
-
-
(1,891)
At 30 June 2014
91,516
(2,252)
954
90,218


Consolidated Cash Flow Statement 
For the period from incorporation on 22 January 2013 to 30 June 2014 




Notes
'000 
Cash flows from operating activities


Profit before tax

799
Adjustments for:


Interest receivable 

(221)
Interest payable

11
Revaluation losses on property portfolio

2,252
(Increase) in trade and other receivables

(565)
Increase in trade and other payables

2,032


4,308
Interest paid

-
Interest received

181
Tax paid

-


181
Net cash inflow from operating activities

4,489



Cash flows from investing activities


Purchase of investment properties
4
(85,498)
Net cash outflow from investing activities

(85,498)
Cash flows from financing activities


Issue of ordinary share capital 

95,740
Expenses of issue paid

(1,888)
Drawdown of bank loan facility

11,946
Development loan

(3,300)
Dividends paid

(4,364)
Net cash inflow from financing activities

98,134



Net increase in cash and cash equivalents 

17,125
Opening cash and cash equivalents 

-
Closing cash and cash equivalents

17,125


Statement of Directors' Responsibilities 
The Directors are responsible for preparing the Annual Report and Financial Statements, in accordance with applicable Jersey law and International Financial Reporting Standards ("IFRS") as adopted by the EU. 
Jersey law requires the Directors to prepare, in accordance with generally accepted accounting principles, financial statements for each financial period which give a true and fair view of the state of affairs of the Group and of the profit and loss of the Group for that period. In addition the Directors must not approve the financial statements unless they are satisfied that they present a fair, balanced and understandable report and provide the information necessary for shareholders to assess the Group's performance, business model and strategy. 
Under Jersey law they have elected to prepare the financial statements in accordance with IFRS as adopted by the EU. 
In preparing these financial statements, the Directors are required to: 
 select suitable accounting policies and then apply them consistently; 
 make judgements and estimates that are reasonable; 
 state whether applicable International Financial Reporting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and 
 prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. 
The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that its financial statements comply with the Companies (Jersey) Law 1991, where applicable. They are responsible for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. 
Under applicable law and regulations, the Directors are also responsible for preparing a Statement of Corporate Governance that complies with that law and those regulations. 
As far as each of the Directors is aware, there is no relevant audit information of which the Auditor is unaware and each Director confirms that they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Auditor is aware of that information.
The Directors confirm that to the best of their knowledge: 
 the financial statements, prepared in accordance with the applicable International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit of the Group; 
 the Annual Report and Financial Statements taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Group's performance, business model and strategy; and 
 the Strategic Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that the Group faces. 
On behalf of the Board 
Mr Malcolm Naish 
Chairman 
7 October 2014


Notes to the Consolidated Financial Statements
1. Dividends
The Group paid interim dividends during the period ended 30 June 2014 as follows: 

Rate per share (p)
'000
First interim dividend paid on 30 August 2013 
2.00 
1,005 
Second interim dividend paid on 29 November 2013 
1.50 
753 
Third interim dividend paid on 28 February 2014 
0.44 
221 
Fourth interim dividend paid on 28 February 2014 
1.06 
1,009 
Fifth interim dividend paid on 30 May 2014 
1.50 
1,428 
Total 
6.50 
4,416 
It is the policy of the Directors to declare and pay dividends as interim dividends. The Directors do not
therefore recommend a final dividend. The last interim dividend in respect of the period ended 30 June 2014, of 1.5p per share, was paid on 29 August 2014 to shareholders on the register on 8 August 2014. It is the intention of the Directors that the Group will continue to pay dividends quarterly.
2. Investment Management Fee

For the period from incorporation on 22 January 2013 to 30 June 2014

'000
Base management fee
974
Performance fee
150
Total
1,124
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 (the "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 will be measured over a rolling three year period, commencing from the acquisition of the first property, being 8 March 2013. The first performance fee will be 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 shall be limited to 1.25 per cent of the average net assets of the Group over that year. At the period-end an accrual of 150,000 has been made based on the Group's portfolio performance and available Index data.
3. Earnings / (Loss) per Share
The Group's revenue earnings per ordinary share of 4.19 pence per share are based on the net revenue for the period of 3,037,000 and on 72,313 773 ordinary shares, being the weighted average number of shares in issue during the period.
The Group's capital loss per ordinary share of 3.11 pence per share are based on the capital loss for the period of 2,252,000 and on 72,313 773 ordinary shares, being the weighted average number of shares in issue during the period.
The Group's total earnings per ordinary share of 1.08 pence per share are based on the profit for the period of 785,000 and on 72,313 773 ordinary shares, being the weighted average number of shares in issue during the period.
4. Investments 
Freehold and leasehold properties 

As at 30 June 2014

'000
Opening carrying value
-
Purchases
85,498
Sales - proceeds
-
 - gain/(loss) on sale
-
Capital expenditure
-
Acquisition costs
(4,281)
Revaluation movement
2,029
Closing market value
83,246
Movement in fixed or guaranteed rent reviews
(1,824)
Closing carrying value 
81,422
Changes in the valuation of investment properties

For the period from incorporation on 22 January 2013 to 30 June 2014 

'000 
Net revaluation movement
(2,252)
Movement in fixed or guaranteed rent reviews
(1,824)
Losses on revaluation of investment properties
(4,076)
5. Net Asset Value
The Group's net asset value per ordinary share of 94.7p is based on equity shareholders' funds of 90,218,000 and on 95,221,629 ordinary shares, being the number of shares in issue at the period end. 
6. 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. 
The Company provided a capital contribution of 4.0 million to THRM during the period. 
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 4.6m to THR1 as at 30 June 2014. Interest is payable at a fixed rate of 2.5 per cent per annum. This loan was repaid by THR1 on 9 July 2014. 
THR1 has lent 3.1 million to THR2 as at 30 June 2014. Interest is payable at a fixed rate of 2.5 per cent per annum. This loan was repaid by THR2 on 9 July 2014.
7. Stated Capital Movements

As at 30 June 2014

Number of shares
'000
Allotted, called-up and fully paid


Issue of 45,656,029 ordinary shares of no par value 
45,656,029
45,656
Issue of 4,565,600 ordinary shares of no par value
4,565,600
4,634
Issue of 45,000,000 ordinary shares of no par value
45,000,000
45,450


95,740
Expenses of issue

(1,891)


93,849
Dividends allocated to capital

(2,333)
Balance as at 30 June 2014
95,221,629
91,516
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 2014, the Company did not hold any ordinary shares in treasury.
No changes were made in the objectives, policies or processes during the period.
8. 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 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 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 period, due to the quantum of cash balances held, counterparty risk was spread by placing cash across two different financial institutions and at the period-end the Group held 12.9 million with The Royal Bank of Scotland plc and 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. 
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 0.65 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 30 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 period end 12.3 million was drawn-down. 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. 
An increase of 0.25 per cent in interest rates would have increased the reported profit for the period and the net assets at the period end by 108,000, a decrease in interest rates would have an equal and opposite effect. These movements are calculated as at 30 June 2014 and may not be reflective of actual future conditions.
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. 
Any changes in market conditions will directly affect the profit and loss reported through the Statement of Comprehensive Income. A 10 per cent increase in the value of the investment properties held as at 30 June 2014 would have increased net assets available to shareholders and increased the net income for the year by 8.1 million; an equal and opposite movement would have decreased net assets and decreased the net income by an equivalent amount. 
The calculations are based on the investment property valuations at the respective balance sheet date and are not representative of the period as a whole, nor reflective of future market conditions.
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. 
The Directors of the Company received fees for their services. Total fees for the period were 82,000 of which 9,550 remained payable at the period end.
Target Advisers LLP received 1,124,000 during the period of which 49,000 related to the expenses of issue and 394,000 (inclusive of VAT) remained payable at the period end.
10. 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 Balance Sheet, 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.
11. Post balance sheet events
In July 2014, the Group acquired three purpose-built care homes and four specialist care bungalows in Norfolk and Northern Ireland for approximately 20.4 million including acquisition costs, and has acquired another care home in Leicestershire for approximately 6.0 million including acquisition costs.
In April 2014, the Group announced it had exchanged contracts to acquire a modern, purpose-built care home in York. The care home was under construction and was due to be completed in summer 2014. In August 2014, having now reached practical completion, the Group confirmed it had acquired the property for a total consideration of approximately 5.1 million including acquisition costs. As part of the transaction, the Group had provided a short-term loan facility to Ideal Carehomes Group to fund the completion of the property and this was repaid from the consideration proceeds of the sale.
In September 2014 the Group also announced that it had exchanged contracts to acquire a new purpose-built care home in Hastings, East Sussex, for approximately 8.0 million (including acquisition costs).
In September 2014, the Company raised gross proceeds of 17.4 million following the issue of a further 17.2 million ordinary shares. 
12. Financial Statements
The report and financial statements for the period from incorporation on 22 January 2013 to 30 June 2014 will posted to shareholders and made available on the website: www.targethealthcare.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
  END
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