3 November 2021

Target Healthcare REIT plc and its subsidiaries

("Target Healthcare" or "the Group")

Net Asset Value, update on corporate activity and dividend declaration

Target Healthcare (LSE: THRL), the UK listed specialist investor in modern, purpose-built care homes, announces its unaudited quarterly Net Asset Value ('NAV') as at 30 September 2021, together with an update on corporate activity, and declares its first interim dividend for the year ending 30 June 2022.

Corporate activity highlights

Continued NAV progression, balance sheet strength and capital deployment update

·      EPRA Net Tangible Assets ('NTA') per share increased by 0.8% to 111.3 pence (30 June 2021: 110.4 pence) primarily reflecting valuation uplifts across the portfolio driven by modest yield compression and annual rental uplifts

·      NAV total return of 2.4% for the quarter (based on EPRA NTA and including dividend)

·      Substantially oversubscribed and upsized equity issue raised gross proceeds of £125 million, with strong support from existing and new shareholders. The targeted size of the placing was increased from £100 million during the marketing period due to significant investor demand and strong acquisition pipeline visibility

·      Capital available (comprising cash and undrawn debt) following the equity raise, to be supplemented by additional debt, is allocated in full to asset acquisitions totalling £215 million in late-stage diligence. The Group's revolving credit facilities were fully repaid following the equity raise prior to the period end resulting in a net loan-to-value ("LTV") of 1.0%. All else being equal, on completion of the acquisitions in late-stage diligence and the developments currently in progress, the Group's LTV would equal 27%

·      The Investment Manager's due diligence on the major portfolio acquisition under exclusivity (which was detailed in the equity issue announcement on 26 August 2021) is progressing well and is currently expected to complete shortly.

Portfolio performance

·      0.7% increase in the like-for-like value of the operational portfolio; total property portfolio value of £702.7 million and an EPRA "topped-up" net initial yield of 5.82%

·      14 rent reviews were completed at an average uplift of 3.3% per annum, contributing a 0.6% increase to like-for-like contractual rent

·      Weighted average unexpired lease term across the portfolio remained stable at 28.8 years (30 June 2021: 28.8 years) and remains one of the longest within the listed real estate sector

·      Substantially all of the portfolio's leases provide upwards-only rent reviews, with caps and collars, protecting income in an inflationary environment

·      Resilient rent collection performance during the most recent period consistent with prior quarters, demonstrating the secure and stable nature of the portfolio's cashflows

·      Occupancy levels across the mature portfolio have continued to recover towards normalised levels, with c.2 percentage points of improvement and strong enquiry levels from potential residents reported by our tenants. Reported COVID-19 cases remain very low while booster vaccinations are being offered to residents and staff in homes across the portfolio.

Acquisitions and asset management

·      Acquisition of an operational care home and a forward fund development, with a further forward fund development contracted following the quarter end, committing total capital of £33 million, including acquisition costs, which will provide three modern, fit-for-purpose care homes with 100% en suite wet rooms

·      Practical completion reached on two existing development sites, with first residents already in occupancy

·      The Investment Manager is working through the due diligence process on a number of transactions, which when progressed to completion will see all available equity and debt capital invested.

Dividend

·      First interim dividend of 1.69 pence per share declared for the year ending 30 June 2022, representing an increase of 0.6% on the FY 2021 quarterly dividends. On an annualised basis, this reflects a payment of 6.76 pence per share and a dividend yield of 5.7% based on the closing share price of 118.0 pence on 2 November 2021

Kenneth MacKenzie, CEO of Target Fund Managers, commented:

"The successful capital raise in September allows us to accelerate our mission of supporting the sector through disciplined investment in modern, purpose-built care homes. In addition to highlighting the conviction of investors in our long-term strategy, it allows us, alongside additional debt capacity, to continue scaling the portfolio and the associated benefits that brings. Importantly we anticipate putting the proceeds to work imminently, with a transformational 18-asset portfolio transaction, which will deliver £9.1 million of annual rent immediately following completion consistent with the portfolio's high-quality sustainability credentials. Alongside this, we have an attractive near-term pipeline of other opportunities in advanced due diligence, all of which meet our strict investment criteria.

"As the vaccination booster programme is rolled out across our portfolio, we are seeing encouraging increases in occupancy as our homes return to normalised levels. The pandemic has reinforced the need for high-quality homes in strategic locations, and Target remains well placed to source, acquire and develop the right type of assets that we are confident will perform and contribute positively to stable returns over the long-term." 

Net Total Assets

The Group's unaudited EPRA NTA per share as at 30 September 2021 was 111.3 pence. The total return for the quarter based on EPRA NTA was 2.4%.

A balance sheet summary and an analysis of the movement in the EPRA NTA over the quarter is presented at the end of this announcement in the Appendix.

Corporate Update

Portfolio performance

As at 30 September 2021, the Group's portfolio was valued at £702.7 million and comprised 79 properties, consisting of 76 operational care homes and three pre-let sites, which are being developed through capped forward funding commitments with established development partners.

The portfolio value increased by 2.6% over the quarter. This comprised a 1.5% increase resulting from acquisitions, 0.7% from a like-for-like uplift in the operational portfolio value and an increase of 0.4% from further investment into the development portfolio. The like-for-like movement primarily reflects the portfolio's inflation-linked rental reviews as well as continued modest yield compression in the investment market for modern, purpose-built care homes.

Contractual rent increased by 4.9% over the period, comprising:

·      3.6% from the practical completion of two development sites

·      0.7% from acquisitions

·      0.6% from 14 inflation-linked upwards-only rent reviews, with an average uplift of 3.3%.

The portfolio's weighted average unexpired lease term remained stable at 28.8 years (30 June 2021: 28.8 years).

The portfolio had an EPRA topped-up net initial yield of 5.82% based on an annualised contractual rent of £43.2 million. The portfolio's EPRA net initial yield was 5.70% with two assets in rent-free periods.

Acquisitions and asset management

On 5 August 2021, the Group completed the acquisition of a modern, purpose-built care home in Liverpool for £5.5 million including acquisition costs. This home is leased to an incumbent operator of the Group, Kingsley Healthcare, and comprises 56 bedrooms with full en suite facilities, in line with the Group's strict investment criteria. The home is currently undergoing a comprehensive refurbishment programme which will deliver a high-quality product, comparable to the best homes in the area and is expected to welcome residents in the coming weeks.

On 11 August 2021, the Group acquired a pre-let development site subject to a forward funding agreement to construct a 66-bed care home in Holt, Norfolk for a maximum commitment of £12.8 million including acquisition costs. Construction on the home will commence in early 2022 and is expected to be completed in the second half of 2023.

Practical completion of the Group's development sites in Rudheath, Cheshire and Droitwich Spa, Worcestershire was reached in July and August 2021, respectively, delivering a total of 134 beds.

Post period-end, on 11 October 2021, the Group acquired a pre-let development site subject to a forward funding agreement to construct a 66-bed care home in Weymouth, Dorset for a maximum commitment of £14.3 million including acquisition costs. Construction on the home has commenced and is expected to be completed in the second half of 2022.

All of the Group's development sites are pre-let with 30+year, fully repairing and insuring, occupational leases which include annual, upwards-only RPI-linked increases, subject to caps and collars.

Re-tenanting initiatives are continuing on a number of homes within the portfolio with the Investment Manager progressing negotiations with selected operators within the sector.

Debt facilities and swap arrangements

As at 30 September 2021, the Group's total borrowings were £80 million, giving a net LTV of 1.0% (total gross debt less cash, as a proportion of gross property value). This followed the Group's equity issuance of £125 million which was used to prudently repay the Group's revolving credit facilities while the diligence on the current pipeline of assets is finalised. The Group's weighted average cost on its drawn debt, inclusive of amortisation of arrangement costs, was 3.16% (30 June 2021: 2.90%). The weighted average term to expiry was 4.6 years (30 June 2021: 4.8 years).

The Group has £80 million of fixed term debt facilities and £140 million of revolving credit facilities, with a diversified mix of maturities and lenders. As at 30 September 2021, the Group had drawn £80 million of fixed term debt, with interest costs fixed, and had fully repaid the revolving credit facilities which carry a variable interest rate linked to SONIA. The Investment Manager is in the process of completing diligence to further increase and extend the Group's fixed term debt facilities with an existing lender and expects to complete this imminently.

Dividends in the period

The Group paid its fourth interim dividend for the year ended 30 June 2021, in respect of the period from 1 April 2021 to 30 June 2021, of 1.68 pence per share, on 27 August 2021 to shareholders on the register on 13 August 2021. This distribution was comprised of a property income distribution (PID) of 0.168 pence per share and an ordinary dividend of 1.512 pence per share.

Valuation

The property portfolio was externally valued at £702.7 million at 30 September 2021.

Announcement of first interim dividend

The Company today declares its first interim dividend for the year ending 30 June 2022, in respect of the period from 1 July 2021 to 30 September 2021, of 1.69 pence per share as detailed in the schedule below:

Interim Property Income Distribution (PID):     1.69 pence per share

The dividend reflects an annualised payment of 6.76 pence per share and a dividend yield of 5.7% based on the 2 November 2021 closing share price of 118.0 pence.

On 14 September 2021, the Company issued 108,695,652 ordinary shares, raising gross proceeds of £125 million. The Company had 620,237,346 ordinary shares in issue at 30 September 2021 and has not issued or bought back any shares since that date.

Shareholders entitled to elect to receive distributions without deduction for withholding tax may complete the declaration form which is available on request from the Company through the contact details provided on its website www.targethealthcarereit.co.uk, or from the Company's registrar. Shareholders who qualify for gross payments are, principally, UK resident companies, certain UK public bodies, UK charities, UK pension schemes and the managers of ISAs, PEPs and Child Trust Funds, in each case subject to certain conditions. Individuals and non-UK residents do not qualify for gross payments of distributions and should not complete the declaration form.

LEI: 213800RXPY9WULUSBC04

ENDS

Enquiries:

Kenneth MacKenzie; Gordon Bland

Target Fund Managers Limited

01786 845 912

Mark Young; Mark Bloomfield

Stifel Nicolaus Europe Limited

020 7710 7600

Dido Laurimore; Claire Turvey; Richard Gotla

FTI Consulting

020 3727 1000

TargetHealthcare@fticonsulting.com 

Notes to editors:

UK listed Target Healthcare REIT plc (THRL) is an externally managed Real Estate Investment Trust which provides shareholders with an attractive level of income, together with the potential for capital and income growth, from investing in a diversified portfolio of modern, purpose-built care homes.

The Group's portfolio at 30 September 2021 comprised 79 assets let to 28 tenants with a total value of £702.7 million.

The Group invests in modern, purpose-built care homes that are let to high quality tenants who demonstrate strong operational capabilities and a strong care ethos. The Group builds collaborative, supportive relationships with each of its tenants as it believes working in this way helps raise standards of care and helps its tenants build sustainable businesses. In turn, that helps the Group deliver stable returns to its investors.

Important information

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the UK version of the Market Abuse Regulations (EU) No. 596/2014, which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended. Upon the publication of this announcement via Regulatory Information Service, this inside information is now considered to be in the public domain.

APPENDIX

1.     Analysis of movement in EPRA NTA

The following table provides an analysis of the movement in the unaudited EPRA NTA per share for the period from 1 July 2021 to 30 September 2021:

The EPRA Best Practices Recommendations Guidelines state that companies should publish a set of three NAV metrics. The full set of EPRA NAV metrics were detailed in the recently published Annual Report for the year ended 30 June 2021. The EPRA Net Tangible Assets ("NTA") included in this announcement is equivalent to the EPRA NAV published previously, given the circumstances of the Company. The Company intends to continue to announce the EPRA NTA on a quarterly basis.

At 30 September 2021, due to the valuation ascribed to the Group's interest rate derivative contract used to hedge its exposure to variable interest rates, which is excluded from the calculation of the EPRA NTA, the NAV calculated under International Financial Reporting Standards was 111.4 pence per share.

^Consistent with standard valuation practice for assets under construction, the carrying value of these assets is calculated by the valuer through application of a discount to accumulated costs to date. This discount varies depending on factors such as the remaining development time. As the asset progresses towards completion, the discount that has been applied is unwound.

*Properties within the portfolio are stated at the market value provided by the external valuer and the IFRS effects of fixed/guaranteed minimum rent reviews are not reflected.

The next quarterly valuation of the property portfolio will be conducted by Colliers International Healthcare Property Consultants Limited during January 2022 and the unaudited EPRA NTA per share as at 31 December 2021 is expected to be announced in January 2022.

3.     EPRA NIY profiles and unwind of rent-free periods

The Group currently has two assets with rent-free periods. As these unwind, assuming no other changes including inter alia the portfolio valuation or rental profile, the EPRA yield profiles for the portfolio will be as follows: