Target Healthc. Regulatory News (THRL)

27 July 2017

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 June 2017 was 101.9 pence. The NAV total return for the quarter was 1.9%.

Corporate Update

Portfolio

As at 30 June 2017 the Group owned forty-five care homes with a market value of £282.0 million. The portfolio had an EPRA net initial yield of 6.75% (based on contractual net income) and an annualised rent roll of £20.3 million with a weighted average unexpired lease term of 29.5 years. Portfolio passing rent has increased by 2.8% during the quarter, 2.1% from additions and asset management activity, plus 0.7% from rent reviews.

The portfolio value has increased 2.7% over the quarter, with the like-for-like value up 0.6%. The increase reflects our acquisitions in the period, value generated from our ongoing embedded rental uplifts, and also an element of yield compression across individual assets.

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

Debt facility & swap arrangements

As at 30 June 2017, the Group's total borrowings were £40.0 million, giving a loan-to-value ratio of 14.2% (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 currently has total agreed facilities of £50 million, consisting of a £30 million term loan and a £20 million revolving credit facility. The Group's interest rate swap arrangements as at 30 June 2017 provided an all-in weighted average interest cost on £30.0 million of debt of 2.36% for the period to 24 June 2019 and 2.25% thereafter until 1 September 2021. The remaining debt is drawn from the revolving credit facility with interest payable at a rate equal to three month LIBOR plus a lending margin of 1.50 per cent. per annum. 

The current debt arrangements allow the Group to flexibly manage its capital structure with the Group currently benefitting from £10 million of capital available to be drawn from the revolving credit facility to fund the completion of acquisitions. Over the medium term the Group is committed to maintaining a loan-to-value ratio of approximately 20%, as described in its Investment Policy. To that end, the Group is currently at an advanced stage in obtaining an additional debt facility from a new debt provider. The facility is expected to be available, subject to the satisfactory completion of legal diligence, to fund additional near-term investment opportunities upon the existing facilities being fully utilized.

Investment activity

In the three months to 30 June 2017, the Group's investment and asset management activities have comprised:

· The acquisition of a care home in Dover, Kent for a total consideration of £6.1 million including costs. The home has 79 large bedrooms over four floors and benefits from large lounges as well as a hairdressing salon and dedicated cinema room. Upon acquisition, the home was leased back to Athena Healthcare who developed the property, and is subject to a 35-year lease with RPI-linked uplifts with a cap and collar.

Subsequent to the quarter end:

· The acquisition of an 88 bed home in Melton Mowbray, Leicestershire for £8.4 million, including acquisition costs. The home opened its doors to residents in March 2017 and boasts very large lounges and well laid out gardens providing good outdoor space for residents and visitors. The home was leased back to Melton Care Limited and is subject to a 35 year lease with RPI-linked uplifts with a cap and collar. Melton Care is a joint venture between Magnum Care, a Leicestershire-based operator, and the principals behind Care Concern, the national operator with whom the Group have worked in a number of homes.

· The acquisition of a development site, with planning permission, in Birkdale, Merseyside, and entry into a capped development contract to develop a home with 55 large bedrooms and good public space in an impressive building on this corner location. The development will be carried out by Athena Healthcare, who have also contracted to pre-let the property on completion at an agreed rental level. The lease will again be for 35 years with RPI uplifts subject to cap and collar. The home will target the premium residential market, and once completed will become the third home in the Group's portfolio with Athena, a growing operator with three operational homes and several further in development. The home is expected to complete by March 2019, with a total development price of around £8.2 million including costs.

Pipeline and Investment Market

Since the Company's £84 million equity issuance in May 2016, the Group has committed investments with an aggregate value of around £105 million.

The Group continues to be acquisitive, and continues, through its Investment Manager, to see attractive assets meeting its strict investment criteria. Diligence is being performed on a number of near-term investment opportunities which will utilize current available debt capital, and that expected to be available shortly from a new facility. A wider pipeline of assets is being assessed where the timetable for potential completion remains subject to additional due diligence and vendor negotiations. The Group will continue to consider its ongoing capital requirements with respect to these opportunities as and when they progress.

Dividends in the period

The Company paid its third interim dividend for the year to 30 June 2017, in respect of the period from 1 January 2017 to 31 March 2017, of 1.570 pence per share on 26 May 2017. This reflects an annualised payment of 6.28 pence per share and a dividend yield of 5.3% based on the 26 July 2017 closing share price of 118.0 pence.

The Group's unaudited EPRA Earnings per share for the quarter were 1.46 pence, excluding the effects of the performance fee accruals as noted in the Appendix.

The Company had 252,180,851 ordinary shares in issue at 30 June 2017 and has not issued or bought back any shares since that date.

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

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

Interim Property Income Distribution (PID) 0.707 pence per share

Interim Ordinary Dividend 0.863 pence per share

Ex-Dividend Date: 3 August 2017

Record Date: 4 August 2017

Pay Date: 25 August 2017

Quarterly investor report

The Group's quarterly investor report for June 2017 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:

"This has been another strong quarter for Target Healthcare REIT. Our portfolio of modern, purpose-built homes continues to perform well and as an engaged landlord we have been encouraged by the feedback from many of our recent home visits. In addition, we have progressed several attractive investment opportunities, some of these arising from recommendations from existing tenants who value our care home expertise and corporate ethos. In the short term the team are also focused on securing new debt facilities which will allow us to meet our long term leverage targets and provide operational flexibility to progress these investment opportunities in an efficient timeframe."

Enquiries:

Kenneth MacKenzie

Target Advisers

01786 845 912

Mark Young, Neil Winward, Tom Yeadon

Stifel Nicolaus Europe Limited

020 7710 7600

Martin Cassels

Maitland Administration Services (Scotland) 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 April 2017 to 30 June 2017:

\* To recognise: (1) a quarterly accrual of £198,000 for a performance fee, if due, for the year from 1 January 2017 to 31 December 2017. The accrued amount is estimated based on historic portfolio performance relative to the MSCI UK Annual Healthcare Property Index. The final performance fee for the year to 31 December 2017 will be calculated once the Index figures for the year to 31 December 2017 are available, and; (2) an amendment of £140,000 in relation to the performance fee paid to the Investment Manager in April 2017 in respect of the calendar year to 31 December 2016 which has been refunded to the Company following a minor adjustment to the applicable portfolio valuation.

The EPRA NAV provides a measure of the fair value of a company on a long-term basis. As at 30 June 2017 the EPRA NAV stated above was materially equal to that calculated under International Financial Reporting Standards of 101.9 pence per share. The difference, of less than 0.1 pence per share, 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 September 2017 and the unaudited EPRA NAV per share as at 30 September 2017 will be announced in October 2017.