Target Healthc. Regulatory News (THRL)

1 November 2023

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 2023, an update on corporate activity and first interim dividend for the year ending 30 June 2024.

Corporate activity highlights

Third consecutive quarter of EPRA NTA growth, stable earnings, dividend fully covered and interest costs substantially hedged:

· EPRA Net Tangible Assets ('NTA') per share increased 1.1% to 105.6 pence (30 June 2023: 104.5 pence), primarily reflecting a like-for-like valuation uplift driven by inflation-linked rent reviews

· EPRA "topped-up" net initial yield remained stable at 6.22% (30 June 2023: 6.22%)

· Adjusted EPRA EPS for the quarter of 1.54 pence per share, fully covering the dividend of 1.428 pence per share to be paid in respect of the quarter

· NAV total return of 2.5% for the quarter (based on EPRA NTA and including payment of dividend)

· Net LTV of 25.0% (30 June 2023: 24.7%)

· Weighted average debt term of 6.0 years (30 June 2023: 6.2 years) with the earliest maturity in November 2025. Interest costs hedged on 95% of drawn debt to the relevant facility maturity date

· Total capital available of £42 million, net of the Group's commitments on five development assets and other capital projects

Continued improvement in underlying portfolio trading with portfolio rent cover ahead of pre-pandemic level and rent collection in excess of 99%; rental & capital growth driven by inflation-linked annual rent reviews:

· Diversified portfolio of 98 assets let to 32 tenants and valued at £890.3 million (30 June 2023: £868.7 million) reflecting an increase of 2.5%, of which the like-for-like valuation increase was 0.8%

· Like-for-like increase in contracted rent roll of 0.7%, primarily driven by inflation-linked upwards-only annual rent reviews

· WAULT of 26.3 years which remains one of the longest in the listed UK real estate sector (30 June 2023: 26.5 years)

· High quality, modern and sustainable real estate portfolio:

o  97% of the portfolio is A or B EPC rated, (100% A to C ratings) therefore compliant with the minimum energy efficiency standards anticipated to apply from 2030

o  Positive social impact from sector-leading real estate standards: 98% wet-rooms; generous 47 sqm space per resident; sustainable rent of £188 per sqm

· Rent collection in excess of 99%, as overall tenant profitability continues to benefit from improved trading performance across our fit-for-purpose real estate, and in response to the completion of portfolio management initiatives

Kenneth MacKenzie, CEO of Target Fund Managers, commented:

"Underlying trading across the portfolio continues to improve, with home profitability as measured by rent cover ahead of pre-pandemic levels. At the same time, resident occupancy at 86% is trending towards the >90% level experienced pre-pandemic. This is underpinning rental growth and overall earnings stability, which enabled us to announce a 2% dividend increase alongside our annual results. We are also seeing our investment thesis being validated in the wider care home market, where transactions continue to be focused on portfolios of modern, high-quality homes.

It is encouraging to see our tenants enjoy better trading following the challenging pandemic. As a diversified group of businesses who are fully independent of us, they serve their residents with their caring ethos, operational and commercial abilities, and share our views on what constitutes appropriate care home real estate in 2023."

EPRA NTA

The Group's unaudited EPRA NTA per share as at 30 September 2023 was 105.6 pence and NAV total return for the quarter was 2.5%.

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

Corporate Update

Portfolio performance

As at 30 September 2023, the Group's portfolio was valued at £890.3 million and comprised 98 properties, consisting of 93 operational care homes and five pre-let sites, which are being developed through capped forward funding commitments with established development partners.

Portfolio value increased by 2.5% over the quarter, comprising:

· a 0.8% increase in the like-for-like operational portfolio, reflecting an increase of 0.7% from inflation-linked rent reviews and rent-free unwinds alongside 0.1% net initial yield compression

· a 1.7% increase from capital expenditure, primarily associated with the five development properties

Contractual rental income increased by 1.0% over the quarter, comprising a 0.7% like-for-like increase from 18 inflation-linked upwards-only rent reviews, with an average uplift of 3.7%. The remaining 0.3% increase was from the rentalisation of capital expenditure following asset management initiatives at two of the Company's existing properties as detailed below.

The portfolio's WAULT was 26.3 years (30 June 2023: 26.5 years).

The EPRA "topped-up" net initial yield was 6.22% based on an annualised contractual rent of £57.1 million and the EPRA net initial yield was 6.05% with two assets in rent-free periods.

Portfolio update

During the quarter, the following asset management initiatives were undertaken:

· A further 15 full en suite wet-rooms were completed as part of the ongoing renovation works, progressing plans to move the portfolio to 100% wet-rooms, currently 98% following these works

· As reported in the prior quarter, the Group has committed to £2.35 million of capital expenditure to add 18 new bedrooms at an existing property. During the quarter to 30 September 2023, 10 of these were completed and the costs incurred to date of £1.7 million were rentalised during the quarter

· A deed of variation was entered into to rentalise capital expenditure of £0.5 million at a further home. This was combined with the insertion of "green lease" provisions and a landlord option to extend the lease to a term of 30 years at any time up until the expiry of the current lease

Subsequent to the quarter-end, the Group's largest tenant, Ideal CareHomes ("Ideal") was acquired by HC-One, the UK's largest care home operator, which runs 275 homes. Ideal runs 36 homes, 18 of which are owned by the Group, representing 16% of the Group's contractual rent roll and 18% of the portfolio's capital value. The 18 homes are trading well and based on discussions with the Group's valuers, no material valuation change is expected as a result of the transaction. In consenting to the change in control, the Group's rent deposit position has been strengthened, "green lease" provisions have been added and landlord lease extension options have been obtained.

Debt facilities and swap arrangements

As at 30 September 2023, the Group's total borrowings were £243 million, representing a net LTV of 25.0% (total gross debt less cash, as a proportion of gross property value). The Group's weighted average cost on its drawn debt, inclusive of amortisation of loan arrangement costs, was 3.91% (30 June 2023: 3.70%).

95% of drawn debt is fully hedged:

· £150 million is fixed with a weighted average term of 10.4 years and a weighted average interest rate of 3.18% (excluding the amortisation of arrangement fees)

· £30 million of the Group's bank facilities is fixed at 2.48% for 2.1 years through an interest rate swap

· £50 million of the Group's drawn revolving credit facilities have interest rates capped at 5.17% via a 3% SONIA cap for 2.1 years

· The remaining £13 million of the Group's drawn revolving credit facilities carries a variable interest rate of SONIA plus a margin of 2.18%

The Group has access to a further £77 million of committed, but undrawn, revolving credit facilities which, if drawn, would carry an interest rate of SONIA plus 2.21%. The £13 million drawn in the quarter is being used to fund construction of the Group's development assets, and the other capex initiatives noted above, with £39 million of such commitments remaining. The Group's recent forecasting and decision-making is based on the prudent assumption that these are funded using available facilities (with the associated higher marginal interest costs), with the Group's capital allocation currently being assessed to maximise the efficiency of this funding requirement.

At 30 September 2023, the weighted average term to expiry on the Group's total committed loan facilities was 6.0 years (30 June 2023: 6.2 years) with the earliest maturity in November 2025.

Dividends

The Group paid its fourth interim dividend for the year ended 30 June 2023, in respect of the period from 1 April 2023 to 30 June 2023, of 1.40 pence per share, on 25 August 2023 to shareholders on the register on 11 August 2023. This distribution was comprised of a property income distribution (PID) of 1.19 pence per share and an interim ordinary dividend of 0.21 pence per share.

Announcement of first interim dividend

The Company today declares its first interim dividend for the year ending 30 June 2024, in respect of the period from 1 July 2023 to 30 September 2023, of 1.428 pence per share as detailed in the schedule below:

Interim Property Income Distribution (PID): 1.428 pence per share

Interim ordinary dividend: nil

The quarterly dividend reflects an annualised dividend of 5.712 pence per share and a dividend yield of 7.9% based on the 31 October 2023 closing share price of 72.1 pence.

The Company had 620,237,346 ordinary shares in issue at 30 September 2023 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:

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 2023 comprised 98 assets let to 32 tenants with a total value of £890.3 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 2023 to 30 September 2023:

The EPRA Best Practices Recommendations Guidelines state that companies should publish a set of three NAV metrics. The full set of EPRA NAV metrics are published in the Group's Annual Report. The Company intends to continue to announce the EPRA NTA on a quarterly basis.

At 30 September 2023, due to the valuation ascribed to the Group's interest rate derivative contracts used to hedge its exposure to variable interest rates, which are excluded from the calculation of the EPRA NTA, the unaudited NAV calculated under International Financial Reporting Standards was 106.5 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 2024 and the unaudited EPRA NTA per share as at 31 December 2023 is expected to be announced in January 2024.

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: