Target Healthc. Regulatory News (THRL)

10 October 2023

Target Healthcare REIT plc

ANNUAL RESULTS FOR THE YEAR ENDED 30 JUNE 2023

Modern care home portfolio delivering strong operational performance underpinned by continued institutional investor and end-user demand.

Target Healthcare REIT plc (the "Company" or the "Group"), the listed specialist investor in modern, purpose-built UK care homes, is pleased to announce its annual results for the year ended 30 June 2023.

Continued earnings growth; EPRA NTA and valuation growth in the second half of the financial year; clear path for sustainable dividend

· NAV total return(1) of -1.2% (2022: 8.1%), with valuation uplifts of 1.5% in the second half of the financial year predominantly reflecting inflation-linked leases.

· EPRA NTA per share decreased 6.9% to 104.5 pence (2022: 112.3 pence)

· Group specific adjusted EPRA earnings per share increased 18.8% to 6.00 pence per share (2022: 5.05 pence)

· Dividend decreased by 8.6% to 6.18 pence in respect of the year (2022: 6.76 pence), following the reduction in Q1 2023

· Intention to increase the quarterly dividend in respect of the year ending 30 June 2024 by 2.0% to 1.428 pence per share, representing an annual total dividend of 5.712 pence

· Dividends in respect of the period were 97% covered by adjusted EPRA earnings, with full cover for dividends paid in respect of the periods from January 2023 onwards. Under the widely-used EPRA earnings metric the annual dividend was 124% covered

· Net loan-to-value ("LTV") of 24.7% as at 30 June 2023, with an average cost of drawn debt, inclusive of the amortisation of loan arrangement costs, of 3.70% and weighted average term to maturity of 6.2 years. £230 million of debt, being 100% of total drawn debt at 30 June 2023, fully hedged to maturity against further interest rate increases

Strong portfolio performance through year; Rent cover ahead of pre-pandemic levels and other key portfolio metrics trending upward, supported by needs-based demand for care services and lack of supply of modern real estate.

· Portfolio to 97 properties, consisting of 93 modern operational care homes and four pre-let sites let to 32 tenants with a total value of £868.7 million

· Robust and improving portfolio performance, 97% of rent collected for the year, with 99% rent collection and mature home rent cover of 1.75x for the most recent quarter. Mature homes spot occupancy currently at 86%

· Resilient portfolio performance versus wider commercial real estate market with portfolio value decreased by £42.9 million, or 4.7%, to £868.7 million, including a like-for-like valuation decrease of 4.1% (2022: increase of 4.2%) versus 19% capital decline in the CBRE UK monthly index (all property)

· Contractual rent increased by 2.0% to £56.6 million per annum (2022: £55.5 million), including a like-for-like increase of 3.8% predominantly driven by rent reviews

· Portfolio becoming increasingly mature, with 90% of the operational portfolio having passed the "fill up" stage, relative to 71% at the start of the pandemic, supporting tenant profitability and resilience.

· Disposals of £27 million, ahead of carrying value, in order to recycle capital out of older, non-core assets in less preferred geographies, with the sale of the four-property portfolio delivering an annualised ungeared IRR in excess of 10% over the period of ownership

· One of the longest weighted average unexpired lease terms in the listed UK real estate sector of 26.5 years (2022: 27.2 years)

Compelling sector tailwinds; responsible investment strategy with a clear purpose to improve the UK's care home real estate and future-proofed portfolio

· Compelling sector tailwinds with long-term demand from ageing population supporting both investor and operator activity in the sector

· Strong alignment of ESG principles, with continued social purpose and advocacy of minimum real estate standards across the sector

o Modern, purpose-built care homes; full en suite wet-rooms account for 98% of the portfolio compared to just 31% for all UK care homes

o 80% of the portfolio purpose-built from 2010 onwards, compared to 12% for all care homes in England and Scotland

o 94% of the portfolio A or B EPC rated

o Sector-leading average 47m2 of space per resident

(1) Based on EPRA NTA movement and dividends paid

Alison Fyfe, Chair of the Company, said:

"The Board remains confident in the Group's prospects. Our portfolio consists of premium quality assets in a critical real estate investment class with compelling sector tailwinds.

"Our portfolio is performing strongly, benefitting from our initiatives to dispose of non-core assets, from further capex to refresh or enhance our real estate, from our active engagement with tenants, and from the more favourable trading environment. Our vacancy rate remains at nil with rent collection, rent cover and underlying resident occupancy all improving. Asset valuations remain stable, and our financing costs are well-protected from higher interest rates.

"This improvement in portfolio performance, when combined with our effective management of interest rate exposure, gives us confidence in the Group's earnings outlook, allowing us to increase our dividend in line with rental growth."

A webcast presentation for investors and analysts will take place at 8.30am BST this morning, which can be accessed at: https://stream.brrmedia.co.uk/broadcast/64e771c98fa54022913411e5

LEI: 213800RXPY9WULUSBC04

Enquiries:

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 June 2023 comprised 97 assets let to 32 tenants with a total value of £868.7 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.

Chairman's Statement

I am delighted to provide you with this update, which clearly shows a strong real estate business providing unique social impact in the sector. Our portfolio's key performance metrics show the significant progress we have made. Our vacancy rate remains at nil with rent collection, rent cover and underlying resident occupancy all improving. Asset valuations remain stable, and our financing costs are well-protected from higher interest rates.

1. Reflections

At this time last year, we reaffirmed that our business model and strategy would provide stable long-term income and total returns despite the challenging macro headwinds. Our share price has declined alongside the UK REIT sector, reflecting the expected impact of higher interest rates and concerns for the UK economy on earnings and valuation outlooks. We believe our own outlook is more positive, given the high levels of investment demand for our assets, the underlying demographics of an ageing population, and the dearth of quality care home real estate across the UK. Our portfolio is performing strongly, benefitting from our initiatives to dispose of non-core assets, from further capex to refresh or enhance our real estate, from our active engagement with tenants, and from the more favourable trading environment.

The downward pressure on real estate valuations was muted in our portfolio, underpinned by the strength of investment demand for our type of modern, purpose-built assets and from the improved trading conditions our tenants are encountering. The net result has been a valuation move of c.40 basis points on yield, significantly lower than UK real estate has experienced more widely. The targeted disposals of some older properties, which the Investment Manager assessed as having a less favourable outlook, were achieved at or above book values recorded prior to the market valuation decline in late 2022, with the sale of the four-property portfolio delivering an annualised IRR in excess of 10% over the period of ownership.

Our earnings outlook remains robust, with rent collection having improved to 99% in the most recent quarter (97% for the year). Improved tenant profitability across the portfolio (rent cover of 1.75x for the most recent quarter) supports our sustainable rental levels and embedded annual rental growth. We have minimised the impact of the higher interest rate environment on the Group's earnings through our existing long-term fixed rate facilities and our hedging programme applied to our flexible debt.

We have also maintained our social and environmental impact commitments, prioritising investment capital towards developing new-build homes which offer the best modern amenities for residents and minimise energy usage. Likewise, we have continued to collect energy usage data from our portfolio, analysis of which shapes our ongoing investment to reduce carbon emissions.

The change in market interest rates experienced earlier in the year did, of course, have a significant impact on our ability to grow earnings through acquisitions. We substantially reduced our new investment programme as the relative outward movement in income yields did not correlate with the more significant increase in the Group's cost of capital. We reduced the dividend level in response to ensure earnings were immediately covering our payouts to shareholders, providing a stable platform for future growth and total returns.

2. Outlook

Despite the more challenging macroeconomic environment, strong sector tailwinds continue to support investment in modern care home real estate. Underlying demand for residential care places is supported by demographic change, evidenced by projected growth in the number of those aged over 85, and investment demand for modern, ESG-compliant care home real estate remains strong.

On inflation and recessionary concerns, our portfolio bias towards private pay provides comfort that our tenants are more likely to be able to pass on their cost increases through higher resident fees, supporting sustainable tenant trading. We have seen evidence over the year that the quality of our real estate allows tenants to secure commercially appropriate fee levels.

We feel that portfolio valuations are robust and our rental income is high quality. On the former, we note transactional evidence of healthy competition for assets which are being marketed for sale. A number of buyers are participating in processes for prime assets such as ours, though we note this is not the case for sub-prime, poorer quality real estate.

3. Performance

Our total return performance of -1.2% for the year, driven by an EPRA NTA reduction of 6.9% (104.5 pence from 112.3 pence) and dividends of 6.18 pence per share, reflects our resilient portfolio and the muted impact of the wider correction in commercial real estate valuations.

The Investment Manager comments in more detail on rent cover and occupancy in the Investment Manager's Report, with these key metrics trending positively as trading conditions and performance in prime care homes improves.

The portfolio valuation movement has been driven by market movements, our disposals programme and the impact of rental uplifts, providing an overall valuation reduction of 4.7% and a like-for-like decrease of 4.1%. Contracted rent has increased by 2.0% to £56.6 million, and 3.8% on a like-for-like basis.

Adjusted EPRA earnings increased by 23% to £37.2 million, equating to an adjusted EPRA earnings per share of 6.00 pence. This translates to 97% dividend cover for the year with full cover for dividends paid in respect of the periods from January 2023 onwards. Under the widely-used EPRA earnings metric the dividend was 124% covered.

4. Investment market and care home trading

We saw a pause and a re-pricing of deals in progress as an immediate reaction to September 2022's mini-budget and the uncertainty which followed. During early 2023 a number of these transactions slowly started to complete again, at prices generally higher than those considered during re-pricing discussions at the trough. The strength of demand and the number of buyers active in the market were influential supporters of values, as was the continued improvement in trading profitability at operational homes. This market activity continues today, with a weight of capital investing in the ESG?compliant, modern homes which are our staple.

In care home trading we have seen a reversal of pandemic fortunes between homes focussed on private residents versus those with a local authority bias. Profitability is now increasing in the former, which is reflected in our portfolio performance. Tellingly, we have seen a focus from tenants on admitting new residents at an appropriate fee level, as opposed to a "fill at any cost" approach. This has seen operator profitability improve to levels ahead of where they were prior to the COVID-19 pandemic and at resident occupancies around 5% lower (85% vs. 90%). This data is very encouraging and is consistent with the positivity on trading we hear from our tenants.

5. Governance

Board succession

Our succession plan has been completed with the appointments of Richard Cotton in November 2022 and Michael Brodtman in January 2023. Richard Cotton assumed the role of SID, and I assumed the Chair, on the retirements of Gordon Coull and Malcolm Naish on 6 December 2022.

Annual General Meeting ('AGM')

The AGM will be held in London on 29 November 2023. Shareholders are encouraged to make use of the proxy form provided in order to lodge their votes and to raise any questions or comments they may have in advance of the AGM through the Company Secretary.

6. Looking ahead

We see the following as our priorities:

? Manage our portfolio to ensure its performance is consistent with its inherent quality and trading advantages.

? Set ambitious but realistic environmental targets, and start to deliver tangible and observable progress towards these.

? Increase earnings from our embedded rental growth and efficient management of operating expenses and financing costs.

In the absence of unforeseen circumstances, the Board intends to increase the quarterly dividend in respect of the year ending June 2024 by 2.0% to 1.428 pence per share, representing an annual total dividend of 5.712 pence. In the six months since 1 January 2023 our portfolio has achieved rental growth of 2%, rental collection has increased to 99% and portfolio rent cover has increased to 1.75 times. This improvement in portfolio performance, when combined with our effective management of interest rate exposure, gives us confidence in the Group's earnings outlook, allowing us to increase our dividend in line with rental growth.

The Board remains confident in the Group's prospects. Our portfolio consists of premium quality assets in a critical real estate investment class with compelling sector tailwinds.

Alison Fyfe

Chair

9 October 2023

Investment Manager's Report

Overall portfolio performance

The year has seen conflicting pressures impacting portfolio returns. Our homes remain fully let with no vacancies and our rent collection has increased, to 99% for the most recent quarter and 97% for the year, in response to operator profitability growth across the portfolio from sustained higher occupancy and more stable trading conditions. Underlying resident occupancy was 85% for the portfolio at June 2023 and is 86% at the time of writing, with rent cover for the June 2023 quarter of 1.75x (June 2022: 1.3x). This improvement to the financial performance has supported property valuations for our type of modern, purpose-built assets, as has continued strong investment demand. Nevertheless, valuations have decreased overall, driven by the downwards pressure on commercial real estate mainly from higher interest rates and persistent inflation.

In relative terms, the portfolio has performed well. The portfolio once again outperformed the MSCI UK Annual Healthcare Property Index in respect of the calendar year to 31 December 2022 (THRL portfolio total return of 2.5% relative to the Index's 1.7%), and the like-for-like valuation decrease of 4.1% for the year to 30 June 2023 compares well to the 19% capital decline in the CBRE UK monthly index (all property) over the same period. The valuation of the portfolio partially recovered in the second half of the financial year, with the like-for-like value increasing by 1.5%. The portfolio's annualised total return since launch now stands at 10.2% while the portfolio's last five-year period has an annualised total return of 8.6% relative to 8.1% and 6.9% respectively for the MSCI Index.

Rental quality and home trading

We have observed many operators sensibly focussing on admitting new residents at fee levels appropriate to the care package required, as opposed to prioritising occupancy. With management of costs, this approach is driving tenant profitability recovery to levels ahead of those seen prior to the pandemic. With resident occupancy levels around 5% lower now than pre-pandemic, further occupancy growth will translate to profitability increases and improved rent covers.

Average weekly resident fees across the portfolio have increased by 13%, reflecting the inflationary environment and the cost of care focus noted above. Operators' staff costs have increased by 6% due to wage increases, though expensive agency costs have decreased significantly. Energy costs and other operational expenses of 16% of revenues have remained stable. The following aspects of our investment strategy and asset management in the year have enhanced the quality of our rental streams:

? Mature homes1: 90% of our operational portfolio has passed the "fill-up" stage and is now mature, relative to 71% at start of the pandemic. This supports tenant profitability and resilience.

? Private pay bias: High-quality real estate supports tenants in setting resident fee rates, with further evidence that profitability at such homes is outperforming Local Authority biased-homes.

? Disposals of £27 million, moving on some of our older, non-core assets in less preferred geographies to refresh the portfolio.

? Re-tenantings: Full recovery of rent arrears from one tenant (6.4% of contracted rent roll) and completion of re-tenanting programme with another tenant, to 3.3% of rent roll from 5.3%.

Mature Homes as a Proportion of Total Portfolio

UK care home investment market & valuation drivers

Modern and ESG-compliant UK care homes with inflation-linked, long-term rents have continued to attract investment interest, with several buyers having remained active in the market through the year. Whilst a number of live transactions were paused and subject to re-pricing (by c.50bps) immediately following the mini-budget, there was little deal volume. Instead, sellers remained patient and net initial yields recovered by 10-20bps as deals re-emerged for completion early into 2023. This net movement of 30-40bps remains consistent with where we see pricing today. It should be noted that institutional buyers remain scarce/limited for non-prime, older care home real estate with these depressed demand levels likely to impact valuations thereon.

The established, specialist investors have been active in the market through the year, with a focus on the development of new-builds, and a limited volume of mature trading assets. The more generalist UK pension funds have become active again after a period of quiet due to tight yields for the strong tenant covenants they prefer and are making their way back in, alongside the US REITs who appear to be targeting the higher end of the yield curve at this point. In contrast to recent years, the larger European healthcare investors have been quiet, perhaps focussed on their existing portfolios following operator challenges on the continent.

On the operator side, we see M&A activity and some consolidation: partly as some well-run, smaller groups feel market conditions now suit following the tough pandemic years. Additionally, we see some of the larger operator groups looking to shift the overall quality and modernity of their estates through the acquisition of businesses operating exclusively from modern, purpose-built homes.

Health & social care update

We note below a number of areas which are prominent in our minds and those of our tenants:

Resident occupancy

Occupancy has continued on a slow but consistent upward trajectory towards pre-COVID levels. Progress in this respect has, at times, been stalled by workforce recruitment challenges, but, as mentioned elsewhere, we also note a new trend toward operators being more fee focused than in the pre-pandemic era, resisting the natural push to fill beds even where staff are available but where fees do not reflect the cost of care. Concerns that future residents have been put off by negative press around care homes during the pandemic seem to be fading, with good interest reported at lower ends of the acuity scale, where loneliness, isolation, and security play on people's minds. At the high end of the scale, acuity has become even more pronounced, as care homes seek to support the NHS with timely discharges from hospital, and many operators are focused on this task, but as noted, require sensible fee rates to provide this level of care.

Public funding of care

Following a trend of more than two decades, reform of (English) Social Care policy has stalled yet again. New funding in the main has been diverted primarily to the NHS and wider reform pushed into the long grass. On a more positive note, the sector (across the whole UK) has at least enjoyed some silver linings, not least being recognised as an essential contributor to the health of the NHS. Ring?fenced Government funding for hospital discharge has been useful, with continued funds this coming winter expected to benefit all parties. The "fair cost of care" exercise, implemented to establish core data for any reform, has proven useful in educating many stakeholders on the true costs of providing a care home placement. However, the funding of Local Authority care obligations and the cross?subsidisation of publicly-funded residents by private-fee paying residents remains unaddressed.

Staffing pressures

Staffing (recruitment) has settled down to more normalised everyday pressures compared to the crisis levels felt by many care homes over the last 18 months. Many operators continue to make use of the sponsorship licences, albeit there are concerns over calls for restrictions on the legislation. Few homes now are obliged to restrict occupancy due to staffing pressure, and most have reduced their agency dependency to occasional routine cover, or in many cases zero use, which is a welcome position to be in.

There has been much pressure on Government to introduce wider workforce policies, alongside a campaign to address the stigmas that exist around working in social care as opposed to the NHS. A funding pot of £600 million over the next two years was announced, part of which will be available to promote workforce issues, albeit operators are likely to have little control over the direction of such funds.

Inflationary pressures

Operators continue to focus on inflation. For two years those who have a healthy exposure to private residents (which we feel is essential), have been able to recover escalating costs with corresponding fee rises. Those in the sector who are not as fortunate to have this flexibility have taken some comfort in useful public pay awards, albeit not all Local Authorities have been well positioned (or willing) to match inflation, and pockets of poor public fee award/pressure remain, not least north of the border. Progressive operators are also becoming more adept at adopting an 'open book' policy with public funders (Local Authorities, NHS, etc), and many of the latter have engaged positively in the setting of fees in light of the current climate. Families of private residents are also well aware of inflationary pressures and have therefore generally been acceptive of corresponding fee rises, albeit operators are concerned that this patience may eventually be exhausted. Care homes of course, like other businesses, enjoyed some Government protection from energy price rises previously, but while that protection has come to an end, we have found that most progressive (and larger) operators have been reasonably protected from extreme pricing by prudent locking in to fixed price tariffs.

Pandemic as accelerant to change

While COVID-19 is still with us, and care homes remain on alert but confident in now well versed infection control protocols, we note that the pandemic has focussed the minds of many operators on building layout and suitability, and we believe that the now historic COVID-19 lockdowns may ultimately be seen as a catalyst for change, where modern homes with self-contained living units and en suite wet-rooms are regarded as de rigueur, which in time will further increase demand for quality beds.

Target Fund Managers Limited

9 October 2023

1 A mature home is a care home which has been in operation for more than three years.

Our Strategy

Our purpose, to improve the standard of living for older people in the UK, is achieved through our four strategic pillars.

Strategic pillar #1

Build a high-quality real estate portfolio

We are creating a portfolio of scale with a clear focus on the quality of real estate and diversification of income sources to provide a stable long-term platform for returns.

Better homes, modernising the sector

The Group's portfolio has historically grown through acquisitions of individual assets which meet our investment quality criteria.

Today, with the higher cost of capital and our marginal rate of debt financing currently exceeding initial rental returns, we are choosing to recycle our capital to ensure our portfolio remains modern and high quality and underpins the best possible care. This has seen us dispose of five properties in the current year:

? One property which was below the average standard of the 18-home portfolio acquired in December 2021.

? Four properties in Northern Ireland, being an exit from that local market where the fee and funding dynamics outlook is unfavourable.

All disposals were made at or above book value.

Proceeds of the sales have initially been used to repay flexible debt, and beyond that allocated to the development of new homes. Of the four homes in development at the start of the year, one reached practical completion in November, with the 66-bed home leased to a new tenant to the Group on a 35?year lease. One new 60-bed care home development site was acquired in January 2023. Following the year end, on 4 July, the Group acquired a pre-let development site for the construction of a 66?bed home, which will be built to exceptional ESG standards, with the highest certification standards anticipated which offer carbon net zero operational ability.

Funds have also been invested in the continual improvement of the portfolio, with the conversion of 128 beds into full wet-rooms at four of the Group's care-homes and work commenced at one care home to add an additional 18 rooms. A portion of capital has also been allocated to direct carbon reduction initiatives, most notably the installation of photovoltaic panels.

Valuation movement

The portfolio value reduced by 4.7% during the year, driven by the c.40 basis points of market yield shift applied as real estate valuations were impacted by the changed economic conditions. The like-for-like decrease was 4.1%, largely reflecting the positive impact of the Group's rental growth on valuations. The Group's disposals and development programmes resulted in a small net decrease to year-end portfolio value.

Best-in-class real estate

Our investment thesis remains that modern, purpose-built care homes will out-perform poorer real estate assets and provide compelling returns.

Wet-rooms (98%): These are essential for private and dignified hygiene, with trends continuing to show residents expect and demand this.

Carbon reduction (94% EPC A or B; 100% C or better): Energy efficiency of real estate is critical, with legislative change and public opinion demanding higher standards. Our portfolio is substantially better than peers.

Purpose-built and modern (100%): All our properties are designed and built to be used as care homes and to best meet the needs of residents and staff.

Financials: Our metrics reflecting capital values and rental levels compare favourably with peers, demonstrating sustainability and longevity.

Portfolio Differentiators

We know the standard of UK care home real estate. The metrics below compare our portfolio with other listed care home portfolios.

1 The Investment Manager monitors the key statistics for its listed peer group, and the analysis in the table is the weighted average scores for this peer group.

Diversification

We continue to ensure the portfolio remains diversified, by leasing our homes to a range of high-quality regional operators. The Group has 32 tenants, down from 34 in the previous year due to the disposals in the year. The largest tenant is unchanged from 2022, being Ideal Carehomes who operate 18 of the Group's homes and account for 16% of contracted rent as at 30 June 2023. Overall, our top five tenants account for 41% and top ten, 63% of our contracted rents.

Underlying resident fees are balanced between private and public sources, with a deliberate bias towards private. There is long-term evidence and strong current anecdotal evidence that this group is accepting of higher fees, particularly for the quality real estate and care services our properties and their operators provide.

Census data from our tenants shows that 73% of residents are privately-funded, with 50% being fully private and 23% from "top up" payments where residents pay over and above that which the Local Authority funds for them. 27% of residents are wholly publicly funded.

Geographically, Yorkshire and the Humber remains the largest region by asset value at 25%.

Strategic pillar #2

Manage portfolio as a trusted landlord in a fair and commercial manner.

The Investment Manager has deep experience within the sector and uses its unique knowledge to manage the portfolio. Starting with informed assessment of home performance using profitability and operational metrics, through empathetic and sensitive engagement with our tenants and sector participants as a whole - we are trusted and respected and people want to partner with us. This enables fair treatment and commerciality to be balanced, essential in a complex sector.

Portfolio profitability

Rent collection measured 97% (2022: 95%) for the year, with improvement throughout the year leading to 99% collection for the final quarter of the financial year.

Our portfolio is fully let therefore continues to have a vacancy rate of nil. Underlying resident occupancies have grown to 85% at the year end and 86% at the date of this report. Whilst this remains lower than the pre-pandemic norm of 90%, many operators are focussed on accepting new residents at fee levels commensurate with the services provided, rather than filling to capacity at uneconomic fees. This approach efficiently manages demand, minimises the need for expensive agency staff, and facilitates a care-led approach when welcoming new residents to a home. Staffing shortages have eased, having been an operational challenge limiting occupancy growth early in the year.

Rent covers have grown in response, supporting rental payments and the rebuilding of tenant financial reserves. Portfolio rent cover for mature homes for the quarter to 30 June 2023 was 1.75x and for the year was 1.6x. These profitability and headroom levels are higher than those delivered prior to the pandemic when occupancy levels were higher, at around 90%. Clearly, there is potential for enhancement to tenant profitability and rent covers with higher occupancies, should homes choose to do so (enquiry levels are generally reported to be high). Whilst the focus of attention has been on resident fee levels, homes have generally managed their cost bases effectively, with the reduction in agency cost being the most material improvement.

Total returns and rental growth

The portfolio total return has again outperformed the MSCI UK Annual Healthcare Property Index, with a total return for the calendar year to 31 December 2022 of 2.5 per cent relative to the Index's 1.7 per cent. This outperformance has occurred consistently since launch in 2013 as shown in the table below.

Accounting total return was -1.2% for the year ended June 2023 and an annualised 6.9% since launch. The decline in property values seen in the second half of 2022 was the main driver of the decrease in NAV, with our quarterly dividends paid to shareholders now fully covered by earnings (97% covered for the full year). Property values now appear to have stabilised, as noted elsewhere, with continued investment demand for prime care homes.

Contractual rent has increased to £56.6 million, with like-for-like rental growth of 3.8% having been achieved for our annual, upward-only rent reviews with typical collars and caps at 2% and 4% respectively.

Demand for assets from investors and operators

During the year, the Investment Manager's specialist knowledge, data-led assessment, and wide sector relationships, have allowed successful portfolio management initiatives noted in the table above to complete.

Tenant engagement and satisfaction

We remain committed to our role as an effective, supportive and engaged landlord. We once again invited our tenants to provide formal feedback via a survey, which, alongside learnings from the many points of contact we have, is used to inform our approach. The survey returned positive quantitative results, and more usefully some qualitative feedback on how we may consider altering our interactions with tenants to recognise that no two tenants are the same.

In summary:

? 10/10 of responders agreed that working with Target was a positive experience (2022: 9/10).

? 9/10 of responders agreed that Target provides real estate that is a great working environment and helps deliver dignified care to residents (2022: 9/10).

? 10/10 of responders agreed that Target participates in sector events and appropriately shares knowledge (2022: 10/10).

Resident satisfaction

Regulator (CQC in England) ratings are informative but limited. The Investment Manager also monitors reviews on "Carehome.co.uk", a "Tripadvisor" style website for care homes, as a useful source of real-time feedback which is more focussed on the resident experience, and that of their loved ones.

The portfolio's current average rating is 9.4/10 (2022: 9.3/10) with sufficient review volume and frequency to be considered a valuable data point for the quality of service experienced by residents.

Strategic pillar #3

Regular dividends for shareholders

Total dividends of 6.18 pence per share were declared and paid in respect of the year to 30 June 2023, a decrease of 0.58 pence on 2022 reflecting the decision to reduce the dividend from 1 January 2023. This represents a yield of 8.6% based on the 30 June 2023 closing share price of 71.8 pence.

Earnings

Earnings increased by 19%, as measured by adjusted EPRA EPS; the Group's primary performance measure. Rental income has increased, with operating expenses and financing costs being managed effectively.

Despite the disposal of five assets, rental income increased by 13% (£6.6 million) over the prior year, driven by the full-year effect of a significant portfolio of assets acquired part-way through the previous year, inflation-linked rental growth and the practical completion of development assets and new leases entered into.

The Group's operating expenses reduced by £3.0 million from the effects of the portfolio's trading performance improvements. In line with the increase to near full rent collection, credit loss allowances and bad debts improved to a charge of £0.3 million, £2.9 million lower than the prior year. Other administrative expenses remained consistent with 2022.

Net finance costs increased from £6.6 million to £10.1 million, predominantly driven by the annualisation effect of the increase in drawn debt in the previous year relating to the acquisition of the portfolio of assets. The significant increase in market interest rates in the second half of the financial year have been managed through existing fixed or hedged debt arrangements, supplemented by the acquisition of a £50 million 3% SONIA cap in November 2022, which has protected the Group's interest costs from further increases in interest rates as SONIA has risen to 4.93% at 30 June 2023.

Expense ratio

The Group's expense ratios reflect these movements.

The EPRA cost ratio decreased to 15.8% in 2023 from 21.5% in 2022 as a result of the significant reduction in the credit loss allowance and bad debts in the year. Both the Investment Manager fee and other expenses were broadly in line with the prior year in absolute terms resulting in a decrease in the cost ratio expressed as a percentage of the Group's increased rental income. The Ongoing Charges Figure was fairly stable at 1.53% (2022: 1.51%), the marginal increase driven by the decrease in the value of the portfolio.

Uninvested Capital

At 30 June 2023 the Group had cash and undrawn debt of £105 million. £41.5 million of this is committed to developments or portfolio improvements, with £16.0m allocated to the acquisition of a further development site post year end which was awaiting drawdown. £47.5 million remains available. The Group continues to assess pipeline assets carefully on a case-by-case basis, with respect to market conditions and financing costs.

Debt

Debt facilities were unchanged in the year at £320m. The Group's £100 million revolving credit facility with HSBC was extended by one year to November 2025 and at 30 June 2023 the weighted average term to expiry on the Group's total committed loan facilities was 6.2 years (30 June 2022: 6.9 years)

In November 2022, the Group acquired a 3% SONIA interest rate cap, covering £50 million of the Group's revolving credit facilities. £230 million of the £320 million available debt was drawn at 30 June 2023, at a weighted average cost, inclusive of amortisation of loan arrangement costs, of 3.70%. £180 million of the drawn debt was fixed prior to the significant rise in interest rates seen in the second half of 2022.

The Group retains flexibility on debt levels, with £90 million of the Group's revolving credit facilities available to be drawn/repaid in line with capital requirements. If drawn, appropriate hedging protection will be considered.

Debt facilities are considered prudent with LTV of 24.7%, weighted average term of 6.2 years and all debt drawn at 30 June 2023 being hedged against further interest rate increases.

Strategic pillar #4

To achieve our social purpose

Principal and emerging risks and uncertainties

The Company's risk matrix is reviewed regularly by the Board. Emerging risks are identified though regular discussion at Board meetings of matters relevant to the Company and the sectors in which it operates; including matters that may impact on the underlying tenant operators. In addition, the Board holds an annual two-day strategy meeting which includes presentations from relevant external parties to ensure that the Board are fully briefed on relevant matters. At the strategy meeting, principal and emerging risks are discussed and reviewed to ensure that they have all been appropriately identified and, where necessary, addressed. The detailed consideration of the Company's viability and its continuation as a going concern, including sensitivity analysis to address the appropriate risks, is set out below.

Promoting the success of Target Healthcare REIT plc

The Board considers that it has made decisions during the year which will promote the success of the Group for the benefit of its members as a whole.

This section, which serves as the Company's section 172 statement, explains how the Directors have had regard to the matters set out in section 172 (1) (a)-(f) of the Companies Act 2006 for the financial year to 30 June 2023, taking into account the likely long-term consequences of decisions and the need to foster relationships with all stakeholders in accordance with the AIC Code.

The significant transactions where the interests of stakeholders were actively considered by the Board during the year were:

Dividends paid

The Board recognised the importance of dividends to its shareholders and, after careful analysis of the Group's forecast net revenue concluded that it was in the interests of all stakeholders to reduce the Company's dividend to a level at which it is expected to be fully covered with the potential for growth.

Ongoing investment and asset management activity

The Group acquired two new development sites, including one in July 2023. The new, high-quality beds which will be added to the market when these developments complete, combined with the Group's asset management activities to increase the percentage of wet rooms in the property portfolio to 98% and add further beds at another of the Group's properties, illustrate the Group's intent of improving the overall level of care home real estate in the UK. This approach targets attractive long?term returns to shareholders by focusing on a sustainable and 'future proofed' sector of the care home market. The latest development site acquired is for a care home to be built to exceptional ESG standards, with the highest certifications anticipated, which will offer carbon net-zero operational ability.

The sale of four homes in Northern Ireland was completed in the year. This followed the successful re-tenanting of the properties in the prior year and crystallised an annualised ungeared IRR in excess of 10% over the period of ownership. The disposal represented a full exit from the Northern Irish market and formed part of the Group's wider capital recycling and asset management strategy. The Group also sold a non-core asset that had been acquired as part of the 18-home portfolio in the prior year.

Capital financing

The Group extended its loan facility with HSBC plc by a further year, to November 2025 and entered into an interest rate cap on the £50 million of this facility currently drawn in order to reduce the Group's exposure to rising interest rates on its borrowings.

Director appointments

During the year, as part of the Board succession plan, Mr Cotton and Mr Brodtman were appointed as Directors. Mr Cotton's experience of real estate corporate finance and Mr Brodtman's extensive knowledge of the property sector is expected to benefit all stakeholders over the period of their respective appointments. These appointments complete the Board's succession plan for the medium term.

Stakeholders

The Company is a REIT and has no executive directors or employees and is governed by the Board of Directors. Its main stakeholders are shareholders, tenants and their underlying residents, debt providers, the Investment Manager, other service providers and the community and the environment. The Board considers the long-term consequences of its decisions on its stakeholders to ensure the long-term sustainability of the Company.

Alison Fyfe

Chair

9 October 2023

Viability Statement

The AIC Code requires the Board to assess the Group's prospects, including a robust assessment of the emerging and principal risks facing the Group including those that would threaten its business model, future performance, solvency or liquidity. This assessment is undertaken with the aim of stating that the Directors have a reasonable expectation that the Group will continue in operation and be able to meet its liabilities as they fall due over the period of their assessment.

The Board has conducted this review over a five-year time horizon, which is a period thought to be appropriate for a company investing in UK care homes with a long-term investment outlook. At each Board Meeting, the Directors consider the key outputs from a detailed financial model covering a similar five year rolling period, as this is considered the maximum timescale over which the performance of the Group can be forecast with a reasonable degree of accuracy. At 30 June 2023, the Group had a property portfolio which has long leases and a weighted average unexpired lease term of 26.5 years. The Group had drawn borrowings of £230.0 million, on which the interest rate had been fixed, either directly or through the use of interest rate derivatives, at a maximum weighted interest rate of 3.52 per cent per annum (excluding the amortisation of arrangement costs). The Group had access to a further £90.0 million of available debt under committed loan facilities which,

if drawn, would carry interest at a variable rate equal to SONIA plus 2.21%. The Group's committed loan facilities have staggered expiry dates with £170.0 million being committed to 5 November 2025, £87.3 million to 12 January 2032 and £62.7 million to 12 January 2037. Discussions with existing and/or new potential lenders do not indicate any issues with re-financing these loans on acceptable terms in due course.

The Directors' assessment of the Group's principal risks are highlighted above The most significant risks identified as relevant to the viability statement were those relating to:

· Poor performance of assets: The risk that a tenant is unable to sustain a sufficient rental cover, leading to a loss of rental income for the Group;

· High inflationary environment: The risk that the level of the UK inflation rate results in a real term decrease in the Group's income or erodes the profitability of tenants;

· Adverse interest rate fluctuations: The risk that an increase in interest rates may impact property valuations, increase the cost of the Group's variable rate debt facilities, and/or limit the Group's borrowing capacity;

· Negative perception of the care home sector reduces demand for care home beds: The risk that overall demand for care home beds is reduced resulting in a decline in the capital and/or income return from the property portfolio; and

· Reduced availability of care home staff: The risk that unavailability of staff restricts the ability of tenants to admit residents or results in significant wage cost inflation, impacting on the tenants' rental cover and leading to a loss of rental income for the Group.

In assessing the Group's viability, the Board has considered the key outputs from a detailed model of the Group's expected cashflows over the coming five years under both normal and stressed conditions. The stressed conditions, which were intended to represent severe but plausible scenarios, included modelling increases in interest rates, movements in the capital value of the property portfolio and a significant default on rental receipts from the Group's tenants. The stressed level of default from the Group's tenants assumed in the financial modelling was based on a detailed assessment of the financial position of each individual tenant or tenant group, the structure in place to secure rental income (such as the strength of tenants' balance sheets, rental guarantees in place or rental deposits held) and included consideration of the cumulative impact on each tenant's financial reserves from recent economic conditions, including increasing staff and utilities costs and the reduced level of resident occupancy experienced following the pandemic.

Based on the results of the scenario analysis outlined above, the Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the five?year period of its assessment.

Consolidated Statement of Comprehensive Income (audited)

For the year ended 30 June 2023

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 year.

Consolidated Statement of Financial Position (audited)

As at 30 June 2023

Consolidated Statement of Changes in Equity (audited)

For the year ended 30 June 2023

For the year ended 30 June 2022

Consolidated Statement of Cash Flows (audited)

For the year ended 30 June 2023

Statement of Directors' Responsibilities in Respect of the Annual Financial Report

In accordance with Chapter 4 of the Disclosure Guidelines and Transparency Rules, we confirm that to the best of our knowledge:

· The financial statements contained within the Annual Report for the year ended 30 June 2023, of which this statement of results is an extract, have been prepared in accordance with applicable UK-adopted International Financial Reporting Standards, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Company;

· The Chairman's Statement, Investment Manager's Report and Our Strategy include a fair review of the important events that have occurred during the financial year and their impact on the financial statements;

· 'Principal and emerging risks and uncertainties' includes a description of the Company's principal and emerging risks and uncertainties; and

· The Annual Report includes details of related party transactions that have taken place during the financial year.

On behalf of the Board

Alison Fyfe

Chair

9 October 2023

Extract from Notes to the Audited Consolidated Financial Statements

1. Dividends

Amounts paid as distributions to equity holders during the year to 30 June 2023.

Amounts paid as distributions to equity holders during the year to 30 June 2022.

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 fourth interim dividend in respect of the year ended 30 June 2023, of 1.40 pence per share, was paid on 25 August 2023 to shareholders on the register on 11 August 2023 and amounted to £8,683,000. It is the intention of the Directors that the Group will continue to pay dividends quarterly.

2. Fee paid to the Investment Manager

The Group's Investment Manager and Alternative Investment Fund Manager ('AIFM') is Target Fund Managers Limited (the 'Investment Manager' or 'Target'). The Investment Manager is entitled to an annual management fee calculated on a tiered basis based on the net assets of the Group as set out below. Where applicable, VAT is payable in addition.

The Investment Manager is entitled to an additional fee of £141,000 per annum (plus VAT), increasing annually in line with inflation, in relation to their appointment as Company Secretary and Administrator to the Group.

The Investment Management Agreement can be terminated by either party on 24 months' written notice. Should the Company terminate the Investment Management Agreement earlier then compensation in lieu of notice will be payable to the Investment Manager. The Investment Management Agreement may be terminated immediately without compensation if the Investment Manager: is in material breach of the agreement; is guilty of negligence, wilful default or fraud; is the subject of insolvency proceedings; or there occurs a change of Key Managers to which the Board has not given its prior consent.

3. Other expenses

* The other taxation compliance and advisory fees were all paid to parties other than the Company's Auditor.

4. Earnings per share and Net Asset Value per share

Earnings per share

There were no dilutive shares or potentially dilutive shares in issue.

EPRA is an industry body which issues best practice reporting guidelines for financial disclosures by public real estate companies and the Group reports an EPRA NAV quarterly. EPRA has issued best practice recommendations for the calculation of certain figures which are included below. Other EPRA measures are included in the section below entitled EPRA Performance Measures.

The EPRA earnings are arrived at by adjusting for the revaluation movements on investment properties and other items of a capital nature and represents the revenue earned by the Group.

The Group's specific adjusted EPRA earnings adjusts the EPRA earnings for rental income arising from recognising guaranteed rental review uplifts and for development interest received from developers in relation to monies advanced under forward fund agreements which, in the Group's IFRS financial statements, is required to be offset against the book cost of the property under development. The Board believes that the Group's specific adjusted EPRA earnings represents the underlying performance measure appropriate for the Group's business model as it illustrates the underlying revenue stream and costs generated by the Group's property portfolio.

The reconciliations are provided in the table below:

Net Asset Value per share

The Group's Net Asset Value per ordinary share of 105.6 pence (2022: 112.7 pence) is based on equity shareholders' funds of £654,808,000 (2022: £698,767,000) and on 620,237,346 (2022: 620,237,346) ordinary shares, being the number of shares in issue at the year-end.

The EPRA best practice recommendations include a set of EPRA NAV metrics that are arrived at by adjusting the net asset value calculated under International Financial Reporting Standards ('IFRS') to provide stakeholders with what EPRA believe to be the most relevant information on the fair value of the assets and liabilities of a real estate investment company, under different scenarios. The three EPRA NAV metrics are:

· EPRA Net Reinstatement Value ('NRV'): Assumes that entities never sell assets and aims to represent the value required to rebuild the entity. The objective is to highlight the value of net assets on a long-term basis. Assets and liabilities that are not expected to crystallise in normal circumstances, such as the fair value movements on financial derivatives, are excluded and the costs of recreating the Group through investment markets, such as property acquisition costs and taxes, are included.

· EPRA Net Tangible Assets ('NTA'): Assumes that entities buy and sell assets, thereby crystallising certain levels of unavoidable deferred tax. Given the Group's REIT status, it is not expected that significant deferred tax will be applicable to the Group.

· EPRA Net Disposal Value ('NDV'): Represents the shareholders' value under a disposal scenario, where deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liability, net of any resulting tax. At 30 June 2023, the Group held all its material balance sheet items at fair value, or at a value considered to be a close approximation to fair value, in its financial statements apart from its fixed-rate debt facilities where the fair value is estimated to be lower than the nominal value. See note 7 for further details on the Group's loan facilities.

5. Investment properties

Freehold and leasehold properties

The investment properties can be analysed as follows:

The properties were valued at £868,705,000 (2022: £911,596,000) by Colliers International Healthcare Property Consultants Limited ('Colliers'), in their capacity as external valuers. The valuation was undertaken in accordance with the RICS Valuation - Global Standards, incorporating the International Valuation Standards (the 'Red Book Global', 31 January 2022) 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. Colliers has recent experience in the location and category of the investment properties being valued.

Market Value represents the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing where the parties had each acted knowledgeably, prudently and without compulsion. The quarterly property valuations are reviewed by the Board at each Board meeting. The fair value of the properties after adjusting for the movement in the fixed or guaranteed rent reviews and lease incentives was £800,155,000 (2022: £857,691,000). The adjustment consisted of £59,378,000 (2022: £48,802,000) relating to fixed or guaranteed rent reviews and £9,172,000 (2022: £7,903,000) of accrued income relating to the recognition of rental income over rent free periods subsequently amortised over the life of the lease, which are both separately recorded in the accounts as non-current or current assets within 'trade and other receivables'. An adjustment is also made to reflect the amount by which the portfolio value is expected to increase if the performance payments recognised in 'trade and other payables' are paid and the passing rent at the relevant property increased accordingly (see Note 10). The total purchases in the year to 30 June 2023, excluding the performance payments recognised in the prior year, were £20,694,000 (2022: £201,119,000).

6. Investment in subsidiary undertakings

The Group included 49 subsidiary companies as at 30 June 2023 (30 June 2022: 57). All subsidiary companies were wholly owned, either directly or indirectly, by the Company and, from the date of acquisition onwards, the principal activity of each company within the Group was to act as an investment and property company. Other than one subsidiary incorporated in Jersey, two subsidiaries incorporated in Gibraltar and two subsidiaries incorporated in Luxembourg, all subsidiaries are incorporated within the United Kingdom.

The Group did not incorporate or acquire any new subsidiaries during the year. At 30 June 2022, the Group included eight companies which had been acquired as part of previous corporate acquisitions and which, having remained dormant throughout the prior year, were dissolved during the year ended 30 June 2023.

7. Loans

In November 2020, the Group entered into a £70,000,000 committed term loan and revolving credit facility with the Royal Bank of Scotland plc ('RBS') which is repayable in November 2025. Interest accrues on the bank loan at a variable rate, based on SONIA plus margin and mandatory lending costs, and is payable quarterly. The margin is 2.18 per cent per annum on £50,000,000 of the facility and 2.33 per cent per annum on the remaining £20,000,000 revolving credit facility, both for the duration of the loan. A non-utilisation fee of 1.13 per cent per annum is payable on the first £20,000,000 of any undrawn element of the facility, reducing to 1.05 per cent per annum thereafter. As at 30 June 2023, the Group had drawn £30,000,000 under this facility (2022: £50,000,000).

In November 2020, the Group entered into a £100,000,000 revolving credit facility with HSBC Bank plc ('HSBC') which is repayable in November 2025. Interest accrues on the bank loan at a variable rate, based on SONIA plus margin and mandatory lending costs, and is payable quarterly. The margin is 2.17 per cent per annum for the duration of the loan and a non-utilisation fee of 0.92 per cent per annum is payable on any undrawn element of the facility. As at 30 June 2023, the Group had drawn £50,000,000 under this facility (2022: £34,750,000).

In January 2020 and November 2021, the Group entered into committed term loan facilities with Phoenix Group of £50,000,000 and £37,250,000, respectively. Both these facilities are repayable on 12 January 2032. The Group has a further committed term loan facility with Phoenix Group of £62,750,000 which is repayable on 12 January 2037. Interest accrues on these three loans at aggregate annual fixed rates of interest of 3.28 per cent, 3.13 per cent and 3.14 per cent, respectively and is payable quarterly. As at 30 June 2023, the Group had drawn £150,000,000 under these facilities (2022: £150,000,000).

The following interest rate derivatives were in place during the year ended 30 June 2023:

The Group paid a premium of £2,577,000, inclusive of transaction costs of £169,000, on entry into the £50,000,000 interest rate cap.

At 30 June 2023, inclusive of the interest rate derivatives, the interest rate on £230,000,000 of the Group's borrowings has been capped, including the amortisation of loan arrangement costs, at an all-in rate of 3.70 per cent per annum until at least 5 November 2025. The remaining £90,000,000 of debt, which was undrawn at 30 June 2023, would, if fully drawn, carry interest at a variable rate equal to daily compounded SONIA plus a weighted average lending margin, including the amortisation of loan arrangement costs, of 2.46 per cent per annum.

The aggregate fair value of the interest rate derivatives held at 30 June 2023 was an asset of £6,905,000 (2022: £2,284,000). The Group categorises all interest rate derivatives as level 2 in the fair value hierarchy.

At 30 June 2023, the nominal value of the Group's loans equated to £230,000,000 (2022: £234,750,000). Excluding the interest rate derivatives referred to above, the fair value of these loans, based on a discounted cashflow using the market rate on the relevant treasury plus an estimated margin based on market conditions at 30 June 2023, totalled, in aggregate, £190,328,000 (2022: £212,493,000). The payment required to redeem the loans in full, incorporating the terms of the Spens clause in relation to the Phoenix Group facilities, would have been £209,898,000 (2022: £239,728,000). The loans are categorised as level 3 in the fair value hierarchy.

The RBS loan is secured by way of a fixed and floating charge over the majority of the assets of the THR Number One plc Group ('THR1 Group') which consists of THR1 and its five subsidiaries. The Phoenix Group loans of £50,000,000 and £37,250,000 are secured by way of a fixed and floating charge over the majority of the assets of the THR Number 12 plc Group ('THR12 Group') which consists of THR12 and its eight subsidiaries. The Phoenix Group loan of £62,750,000 is secured by way of a fixed and floating charge over the majority of the assets of THR Number 43 plc ('THR43'). The HSBC loan is secured by way of a fixed and floating charge over the majority of the assets of the THR Number 15 plc Group ('THR15 Group') which consists of THR15 and its 18 subsidiaries. In aggregate, the Group has granted a fixed charge over properties with a market value of £762,100,000 as at 30 June 2023 (2022: £795,949,000).

Under the covenants related to the loans, the Group is to ensure that:

· the loan to value percentage for each of THR1 Group and THR15 Group does not exceed 50 per cent;

· the loan to value percentage for THR12 Group and THR43 does not exceed 60 per cent;

· the interest cover for THR1 Group is greater than 225 per cent (30 June 2022: 300 per cent) on any calculation date;

· the interest cover for THR15 Group is greater than 200 per cent (30 June 2022: 300 per cent) on any calculation date; and

· the debt yield for each of THR12 Group and THR43 is greater than 10 per cent on any calculation date.

During the year ended 30 June 2023, the Group entered into agreements with HSBC and RBS to relax the interest cover covenants on the relevant loans with effect from 1 January 2023. All other significant terms of the facilities remained unchanged. All loan covenants have been complied with during the year.

Analysis of net debt:

8. Share capital

Under the Company's Articles of Association, the Company may issue an unlimited number of ordinary shares. Ordinary shareholders are entitled to all dividends declared by the Company and to all of the Company's assets after repayment of its borrowings and ordinary creditors. Ordinary shareholders have the right to vote at meetings of the Company. All ordinary shares carry equal voting rights.

During the year to 30 June 2023, the Company did not issue any ordinary shares (2022: issued 108,695,652 ordinary shares of £0.01 each raising gross proceeds of £125,000,000). The Company did not repurchase any ordinary shares into treasury (2022: nil) or resell any ordinary shares from treasury (2022: nil). At 30 June 2023, the Company did not hold any shares in treasury (2022: nil).

Capital management

The Group's capital is represented by the share capital, share premium, merger reserve, distributable reserve, hedging reserve, capital reserve, revenue reserve and long-term borrowings. The Group is not subject to any externally-imposed capital requirements, other than the financial covenants on its loan facilities as detailed in note 7.

The capital of the Group is managed in accordance with its investment policy, in pursuit of its investment objective.