Target Healthc. Regulatory News (THRL)

15 October 2018

Target Healthcare REIT Limited and its subsidiaries

("Target Healthcare" or "the Group")

Net Asset Value, update on corporate activity & dividend declaration

Target Healthcare (LSE: THRL), the UK listed specialist investor in purpose-built care homes, announces its unaudited quarterly Net Asset Value (NAV) as at 30 September 2018 and provides an update on its corporate activity and its dividend declaration.

Highlights

· EPRA NAV per share of 106.1 pence (30 June 2018: 105.7 pence), resulting in a NAV total return for the quarter of 1.9%

· 1.1% increase in like-for-like value of the operational portfolio. 12 rent reviews completed at an average uplift of 3.1%

· Total portfolio value of £403.7 million, comprising 58 assets, delivering an annualised rent roll of £26.4 million from 52 operational properties

· Portfolio additions totalling £31.0 million (inclusive of costs and funding commitments), being: the acquisition of one operational home; two sites on which pre-let homes will be constructed through forward funded development agreements; and, the exchange of contracts to acquire one further newly constructed home at practical completion in the second half of 2019.

· First interim dividend declared for the year ending 30 June 2019 of 1.64475 pence per share, an increase of 2.0% on 2018's dividend rate. On an annualised basis, this reflects a payment of 6.579 pence per share and a dividend yield of 5.8% based on the closing share price on 12 October 2018

Kenneth MacKenzie, CEO of Target Fund Managers Limited, commented:

"Building on the strong financial and operational performance reported in our recent results, our focus remains on the delivery of favourable shareholder returns through the growth of long term, quality and highly visible income streams. A combination of our rigorous approach to asset selection and the demographic changes underpinning increasing demand for care homes which are well located, modern and well-equipped with wet rooms is the foundation for the continued performance of the portfolio, while new investments are also diversifying our operator exposure.

Whilst the investment market remains competitive, our experience and track record enables us to successfully identify and acquire high quality assets, supporting the Group's growth ambitions. We expect to shortly complete our diligence process on a number of pipeline acquisitions which would see deployment of our remaining investment capacity."

Net Asset Value

The Group announces that its unaudited EPRA NAV per share as at 30 September 2018 was 106.1 pence. The total return for the quarter based on EPRA NAV was 1.9%.

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

Corporate Update

Portfolio performance

As at 30 September 2018 the Group's portfolio was valued at £403.7 million and comprised of 52 operational care homes and 6 pre-let sites being developed via forward funding commitments with established development partners. The portfolio had an EPRA topped-up net initial yield of 6.41% based on an annualised rent upon expiry of lease incentives of £26.4 million. Where rent reviews were completed during the quarter, the average increase was 3.1%, resulting in a 0.6% like-for-like increase to the rent roll. The portfolio's weighted average unexpired lease term was 28.25 years.

The portfolio value has increased by 4.7% over the quarter. Of this, 3.6% comprises the new asset acquisitions and further investment in the six development sites, with a like-for-like movement in the operational portfolio of 1.1% predominantly reflecting the impact of annual inflation-linked rental reviews.

Debt facilities & swap arrangements

As at 30 September 2018, the Group's total borrowings were £66.0 million, giving a gross loan-to-value ratio of 16.3% (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 care home investments, cash has been excluded from the calculation).

The Group, through facilities with RBS, HSBC and FCB, has available fixed term debt of £70 million with an additional £60 million of more flexible debt available from revolving facilities. The Group has currently drawn £66.0 million of fixed term debt on which the interest rate has been fixed through the use of interest rate swaps. The Group's weighted average cost on its drawn debt, inclusive of amortisation of arrangement costs, is 3.12% with a weighted average term to expiry of 3.0 years.

Investment activity

In the three months to 30 September 2018, the Group's activity in relation to new investments has been:

· The acquisition of a 40-bed care home in Doncaster, South Yorkshire. Operated by Orchard Care Homes, an existing tenant of the Group, the home is let on a full repairing and insuring lease with 24 years remaining and is subject to annual RPI-linked rent increases subject to a cap and collar.

· A development site for an 80-bed care home in Burscough, Lancashire. The development will be carried out in partnership with Athena Healthcare ("Athena"), an existing tenant of the Group, under a capped development contract, and subject to a forward funding agreement. On completion of the building, which is expected in Q4 2019, the home will be let to Athena for 35 years on a full repairing and insuring lease with RPI-linked rent increases subject to a cap and collar.

· A development site for a 66-bed care home in Wetherby, West Yorkshire. The development will be undertaken by LNT Construction Limited a sister company of Ideal Carehomes Limited ("Ideal"), an existing tenant of the Group. Practical completion is expected in early 2019 at which point the home will be let to Ideal for 35 years on a full repairing and insuring lease with RPI-linked rent increases subject to a cap and collar.

· An exchange of contracts to acquire a pre-let, purpose-built home in Newtown, Powys. The home, which marks the Group's first transaction in Wales, will offer 73 bedrooms over three floors all with en-suite wetrooms. On completion, the property will be leased to a new tenant, Caresolve Operations Limited, for 35 years on a full repairing and insuring lease with annual, upwards-only, RPI-linked uplifts, incorporating a cap and collar.

Pipeline and Investment Market

We continue to witness significant investor demand in the UK care home real estate sector, bringing competition for assets and a tightening of yields. This tightening is evident for the modern, purpose-built homes which are compliant with our investment criteria, as well as the poorer quality real estate which comprises the majority of beds in the market.

As at 12 October the Group has £22 million of cash and £64 million of debt available to be drawn. £36 million of this has been allocated to upcoming commitments of the Group's development programme, which will support the construction of seven brand new care homes adding £4 million to portfolio rent annually once operational. In addition, the Group has up to £19 million of potential deferred consideration payments on eight previously acquired assets and prudently apportions £13 million of cash to general corporate purposes, including dividends and working capital. Therefore, after accounting for pre-existing commitments and general corporate requirements, the Group has approximately £18 million of uncommitted capital available for new acquisitions.

The Group has near term potential acquisitions totalling £79 million which are currently in advanced due diligence and which the Group expects to commit to acquiring by the end of 2018. In addition to the investment opportunities identified, the Group has an extensive pipeline of longer-term opportunities where the timetable for potential completion remains uncertain, with the assets remaining subject to due diligence and negotiation.

In light of these opportunities, and the Group's current cash position, the Directors are considering the optimal way to finance any further asset acquisitions, including issuance of new equity. The Group is cognisant of the negative effect of cash drag on its returns. Accordingly, if an equity raise is launched, the Directors expect it to be relatively small allowing the Group to quickly invest the proceeds. Any equity raise in the near term is likely to be carried out under the remaining placing programme and shareholder authorities.

Dividends in the period

The Company paid its fourth interim dividend for the year to 30 June 2018, in respect of the period from 1 April 2018 to 30 June 2018, of 1.6125 pence per share on 31 August 2018 to shareholders on the register on 10 August 2018.

The Company had 339,217,889 ordinary shares in issue at 30 September 2018 and has not issued or bought back any shares since that date.

Announcement of first interim dividend

The Company has today declared its first interim dividend payment for the year ending 30 June 2019, in respect of the period from 1 July 2018 to 30 September 2018 of 1.64475 pence per share as detailed in the schedule below:

Interim Property Income Distribution (PID) 1.64475 pence per share 

Ex-Dividend Date: 25 October 2018

Record Date: 26 October 2018

Pay Date: 30 November 2018

The dividend reflects an annualised payment of 6.579 pence per share and a dividend yield of 5.8% based on the 12 October 2018 closing share price of 112.5 pence.

Investor relations

Shareholders will find the latest Group information, including its quarterly investor report for September 2018, at its website: https://www.targethealthcarereit.co.uk/

ENDS

Enquiries:

Kenneth MacKenzie; Gordon Bland

Target Fund Managers Limited

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

Dido Laurimore; Claire Turvey; Richard Gotla

FTI Consulting

020 3727 1000

TargetHealthcare@fticonsulting.com

Notes to editors:

UK listed Target Healthcare REIT Limited (THRL) is an externally managed Real Estate Investment Trust which aims to provide 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 current portfolio comprises 58 assets with a total value of circa £403.7 million (30 September 2018), which are let to 21 tenants.

The Group only invests in modern, purpose-built homes that are let to high quality tenants who demonstrate strong operational capabilities and a strong care ethos. The Group aims to build 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 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 2018 to 30 September 2018:

Ordinarily the Group's EPRA NAV would differ from that calculated under International Financial Reporting Standards (IFRS), as the latter includes the value of the Group's interest rate derivative contracts. As at 30 September 2018 the value of these contracts was immaterial and therefore the EPRA NAV did not differ from the IFRS NAV.

^Consistent with standard valuation practice for assets under construction, the carrying value is shown at a discount to accumulated costs to date. This discount reflects the remaining development time and is anticipated to unwind as the asset reaches practical completion.

*Investment properties are stated at market value 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 December 2018 and the unaudited EPRA NAV per share as at 31 December 2018 will be announced in January 2019.