Target Healthc. Regulatory News (THRL)

27 October 2016

Corporate Update, Net Asset Value & Dividend announcement

Net Asset Value

Target Healthcare REIT Limited (the "Company" and together with its subsidiaries, the "Group") announces that its unaudited EPRA NAV per share as at 30 September 2016 was 100.0 pence. The EPRA NAV total return for the quarter was 1.0%.

Corporate Update

Portfolio

As at 30 September 2016 the Group owned forty care homes with a market value of £232.3 million. The valuation of the homes is based on the independent external valuation of the Group's property portfolio prepared by Colliers International Healthcare LLP ("Colliers"). Colliers has updated the clause contained in its valuation relating to the UK's decision to leave the EU, stating that after an initial period of uncertainty and an absence of activity, transactional volumes and available evidence has risen in most sectors of the market and liquidity is returning to more normal levels. Colliers further state that this has led to a generally more stable outlook for the market.

On a like-for-like basis the portfolio has increased in value by 0.5% over the quarter. The increase reflects an element of yield compression across individual assets as the underlying trading performance of the homes mature as well as uplifts from six rent reviews where rents increased by an average of 2.4%, resulting in a like-for-like increase to portfolio passing rent of 0.3%.

As at 30 September 2016, the portfolio had an EPRA net initial yield of 6.9% (based on contractual net income) and an annualised rent roll of £16.9 million with a weighted average unexpired lease term of 29.1 years.

A balance sheet summary and an analysis of the movement in EPRA NAV over the quarter is presented in the Appendix.

Debt facilities: Extension, renegotiation & swap arrangements

On 1 September 2016 the Group extended the term of its £50 million facility with RBS from June 2019 to September 2021, and renegotiated interest to be payable at a rate equal to 3 month LIBOR plus a margin of 1.5% per annum, a reduction of 50 bps from the previous margin of 2.0% per annum.

In addition, the amendment provides an option of two further one year extensions thereafter, subject to the consent of RBS. 

The Group's total borrowings were £21.0 million at 30 September 2016, giving a loan-to-value ratio of 9.0% (calculated as total gross debt as a proportion of gross property value). As the Group expects to invest the vast majority of its current cash balance in new care homes, cash has been excluded from the calculation.

The Group's interest rate swap arrangements provide an all-in interest cost on the £21.0 million of currently drawn debt of 2.35% for the period to 24 June 2019 and 2.20% thereafter until 1 September 2021.

The Group has total agreed facilities of £50 million allowing it to draw down a further £29 million. The debt availability will allow the Group to manage its capital structure in line with its stated intention that over the medium term the average loan-to-value ratio will be approximately 20%, whilst also providing shorter term capital to fund the completion of transactions.

Pipeline and Investment Market

In the three months to 30 September 2016, the Group has invested £20.5 million in new acquisitions, inclusive of acquisition costs, as follows:

· £14.0 million in two modern, purpose built care homes located in Dundee, Scotland and Sandiacre, Derbyshire. The homes will continue to be operated by the incumbent operator, Hudson Healthcare who became the 14th tenant of the Group, thereby further diversifying the Group's tenant base. The homes are subject to 35-year leases with RPI-linked cap and collar.

· £6.5 million a modern, purpose built care home in Mytchett near Camberley, Surrey. Upon acquisition, the home was leased back to the existing tenant, Care Concern Group, who has operated the home since its opening. The lease is for a term of 35-years and is subject to an RPI-linked cap and collar.

Subsequent to 30 September 2016, the Group has completed the following acquisition:

· A purpose built care home in Tonbridge, Kent for approximately £12.2 million including acquisition costs. The Group had previously entered into a forward commitment to acquire this property. The home is let to Abbeyfield Kent Society, a charitable organisation which provides care and housing to over 400 people at 14 locations across Kent. The lease is for a 30 year term with RPI-linked uplifts subject to a cap and collar. Abbeyfield is the Group's 15th tenant and further diversifies the Group's tenant base.

Additionally, the Group has completed renovation works at its home in Sheffield which is expected to open to new residents in the coming days.

Since the Company's £84 million capital raise in April, the Group has committed to investments of £70 million. In addition the Group has near-term investment opportunities of £23 million, of which it hopes to complete or commit to the majority following diligence processes. The Investment Manager continues to identify a wider pipeline of assets where the timetable for potential completion remains uncertain pending due diligence and vendor negotiations.

Dividends in the period

The Company paid its fourth interim dividend for the year to 30 June 2016, in respect of the period from 1 April 2016 to 30 June 2016, of 1.545 pence per share on 26 August 2016. This reflects an annualised payment of 6.18 pence per share and a dividend yield of 5.6% based on the 26 October 2016 closing share price of 110.75 pence.

The Group's unaudited EPRA Earnings per share for the quarter were 1.1 pence, excluding the effects of accrual for potential performance fee for the year to 31 December 2016 as noted in the Appendix.

The Company had 252,180,851 ordinary shares in issue at 30 September 2016 and has not issued or bought back any shares since that date.

Announcement of First Interim Dividend for the year ending 30 June 2017

The Company has today declared its first interim dividend payment for the year ending 30 June 2017, in respect of the period from 1 July 2016 to 30 September 2016 of 1.570 pence per share as detailed in the schedule below:

Interim Property Income Distribution (PID) 1.256 pence per share

Interim Ordinary Dividend 0.314 pence per share

Ex-Dividend Date: 3 November 2016

Record Date: 4 November 2016

Pay Date: 25 November 2016

Quarterly investor report

The Group's quarterly investor report for September 2016 will shortly be available on its website at:

 http://www.targethealthcarereit.co.uk/Financial%20reporting.aspx

Kenneth MacKenzie, Managing Partner of Target Advisers LLP, commented on the Group's activity during the period:

"We remain focussed on the continued investment of capital provided by shareholders which have passed our unique and rigorous investment appraisal process. We are particularly pleased with the recent acquisition of two high quality properties which will be accretive to the portfolio. Both of these properties were unfinished at the time of the Group's commitment, allowing us to maximise our asset management skills in creating high quality purpose built homes. The Group also benefits from the additional security of both properties being fully pre-let with the security of long-term leases set at sustainable rental levels."

Enquiries:

Kenneth MacKenzie

Target Advisers

01786 845 912

Stifel Nicolaus Europe Limited

Mark Young, Neil Winward, Tom Yeadon

020 7710 7600

Martin Cassels

R&H Fund Services Limited

0131 550 3760

Fiona Harris/Sam Emery

Quill PR

020 7466 5058 / 020 7466 5056

Important information

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014). Upon the publication of this announcement via Regulatory Information Service this inside information is now considered to be in the public domain.

APPENDIX

Analysis of movement in EPRA NAV

The following table provides an analysis of the movement in the unaudited EPRA NAV per share for the period from 1 July 2016 to 30 September 2016:

*An accrual for a performance fee, if due, for the year from 1 January 2016 to 31 December 2016, payable to the investment manager. The accrued amount is based on historic portfolio performance relative to the MSCI UK Annual Healthcare Property Index.

The EPRA NAV provides a measure of the fair value of a company on a long-term basis. As at 30 September 2016 the EPRA NAV stated above differed from that calculated under International Financial Reporting Standards of 99.9 pence per share. This was due to the valuation of the Group's interest rate derivative contracts used to hedge its exposure to variable interest rates, which is excluded from the calculation of the EPRA NAV.

The next quarterly valuation of the property portfolio will be conducted by Colliers International Healthcare LLP during December 2016 and the unaudited EPRA NAV per share as at 31 December 2016 will be announced in January 2017.