Target Healthc. Regulatory News (THRL)

5 May 2022

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 31 March 2022, together with an update on corporate activity, and declares its third interim dividend for the year ending 30 June 2022.

Corporate activity highlights

Increasing scale and diversification driving strong earnings growth

· EPRA Net Tangible Assets ('NTA') per share increased by 0.9% to 111.8 pence (31 December 2021: 110.8 pence), primarily reflecting valuation uplifts across the portfolio driven by inflation-linked annual rental uplifts and modest yield compression

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

o 34% increase in Adjusted EPRA earnings to £9.0 million from £6.7 million, reflecting a full quarter's rental income from the portfolio acquired during the prior quarter and one-off rental income of £0.8 million arising from successful re-tenanting

· Two acquisitions, including one completed post period end, for a total investment of £23 million

· Low Net Loan to Value of 20.3% (31 December 2021: 20.7%)

· Available investible capital (comprising cash and undrawn debt) at 30 April 2022 of £67 million, fully allocated to pipeline deals in diligence

Valuation growth continues, given attractiveness of portfolio of high quality, modern real estate with strong ESG credentials & long duration RPI-linked leases.

· Diversified portfolio of 99 assets let to 33 tenants and valued at £886.8 million

o 1.1% like-for-like valuation increase of the operational portfolio; 0.7% from rent reviews and 0.4% from continued yield compression

o Social impact from real estate which best serves care providers and their underlying residents; strong ESG credentials - 92% of the portfolio A or B EPC rated

o Portfolio EPRA "topped-up" net initial yield of 5.82% (31 December 2021: 5.84%)

· Rental growth from inflation-linked, annual rent reviews, with 20 rent reviews completed at an average uplift of 3.9% per annum average, contributing to a 0.7% increase in like-for-like contracted rent

· 1.2% overall increase in contracted rent roll, including acquisitions and asset management

· Weighted average unexpired lease terms of 27.3 years, one of the longest within the listed real estate sector (31 December 2021: 27.5 years)

· Demand for our portfolio as an investment asset class continues, evidenced by the modest tightening of valuation yields and the competitive market for modern care homes. Strong demand for the Group's assets from tenant operators has been confirmed as the Manager actively re-tenants homes from two tenants whose resilience has been stretched following restrictions during the most recent COVID-19 Omicron wave. These comprehensive asset management initiatives in progress will help to alleviate the impact on recent rent collection, which, up to today's date, was 92% for the quarter.

· Successful re-tenanting of a group of four homes completed in the quarter from a large national operator to a local operator, who is better positioned to provide successful future trading. Financial terms are accretive to returns, with a lease surrender premium received to reflect the revised lease terms and the incoming tenant covenant.

Dividend

· Third interim dividend of 1.69 pence per share declared for the year ending 30 June 2022, representing an increase of 0.6% on the FY 2021 quarterly dividends. On an annualised basis, this reflects a payment of 6.76 pence per share and a dividend yield of 6.2% based on the closing share price of 109.2 pence on 4 May 2022.

Kenneth MacKenzie, CEO of Target Fund Managers, commented:

"The significant earnings increase we have reported supports our progression towards full dividend cover, which will be further enhanced as we convert on our remaining investment pipeline, our development portfolio comes on stream and as we reallocate amongst interested parties a small proportion of our in-demand real estate.

"The social impact of providing high quality, modern care home real estate should not be underestimated. It is fundamental to why this Company exists and we will not compromise on the physical standard of care homes we invest in. Our convictions in this area also impact our choice of tenants; it is part of our mission to support the sector's modernisation and future through backing progressive care providers. We have seen the latter stages of COVID-19 as being particularly challenging for such businesses, where the recovery in private-fee occupancy has generally lagged that of homes which have a higher rate of publicly funded residents. Tenants who have diligently paid rent in full for two years, whilst managing multiple immature homes, have now found themselves stretched. We have a tried-and-tested approach to protecting value and ensuring stability of operations at our homes which we are implementing.

"The fundamentals propelling the sector, including demographics and the paucity of supply of modern real estate, remain strong. Resident occupancy across the portfolio is recovering once more, following the Omicron wave, and our tenants continue to report strong demand from potential new residents and some easing of staffing challenges."

Net Total Assets

The Group's unaudited EPRA NTA per share as at 31 March 2022 was 111.8 pence. The total return for the quarter based on EPRA NTA was 2.5%.

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

Corporate Update

Portfolio performance

As at 31 March 2022, the Group's portfolio was valued at £886.8 million and comprised 99 properties, consisting of 95 operational care homes and four pre-let sites, which are being developed through capped forward funding commitments with established development partners.

The portfolio value increased by 1.9% over the quarter. This comprised a 0.8% increase resulting from acquisitions, 1.1% from a like-for-like uplift in the operational portfolio value and a net neutral impact from further investment into the development portfolio, capital expenditure and the re-tenanting impact on existing assets. The like-for-like movement primarily reflects the portfolio's inflation-linked rental reviews as well as continued modest yield compression in the investment market for modern, purpose-built care homes.

Contractual rent increased by 1.2% over the period, comprising:

· 0.8% from acquisitions

· 0.7% from 20 inflation-linked upwards-only rent reviews, with an average uplift of 3.9%

· (0.3%) from asset management initiatives

The portfolio's weighted average unexpired lease term was 27.3 years (31 December 2021: 27.5 years).

The portfolio had an EPRA topped-up net initial yield of 5.82% based on an annualised contractual rent of £54.1 million. The portfolio's EPRA net initial yield was 5.35% with 10 assets in rent-free periods.

Acquisitions and other asset management

· One acquisition completed during the quarter and one subsequent to the quarter-end, adding an operational home and a development site, for a total commitment of £23 million, including costs:

o As previously announced, on 7 January 2022 the Group acquired a 55-bed modern, purpose-built operational care home in Westhoughton, greater Manchester. This is let to Harbour Healthcare, a new tenant to the Group, on a 35 year, fully repairing and insuring, occupational lease with annual, upwards-only RPI-linked increases, subject to a cap and collar.

o Subsequent to the quarter end, on 28 April 2022, the Group acquired a development site in Dartford, Kent. This, the Group's one hundredth asset, will add a further 71 modern, en suite wet-rooms by September 2023 by virtue of a capped development agreement and is pre-let on a lease typical of the portfolio, being long-term with annual, upwards-only RPI-linked rent reviews, subject to a cap and collar.

· The re-tenanting of four homes in Northern Ireland completed in the period, moving from a large, national operator to a smaller operator more focussed in that local market, in line with the Group strategy. A surrender premium was received from the outgoing tenant to reflect the rental incentives for the incoming tenant and the lease change impact on asset valuations. The Group will benefit from (i) a positive net financial effect, following agreed capex to each of the homes; and (ii) the addition of an established regional operator.

Debt facilities and swap arrangements

As at 31 March 2022, the Group's total borrowings were £223 million, giving a net LTV of 20.3% (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 arrangement costs, was 3.20% (31 December 2021: 3.09%). The increase over the quarter was due to the impact of the change in SONIA on the Group's revolving credit facilities. The weighted average term to expiry was 7.2 years (31 December 2021: 7.4 years).

The Group has £180 million of fixed term debt facilities and £140 million of revolving credit facilities, with a diversified mix of maturities and lenders. As at 31 March 2022, the Group had drawn £180 million of fixed term debt, with interest costs fixed, and £43 million under the revolving credit facilities which carry a variable interest rate linked to SONIA.

Dividends in the period

The Group paid its second interim dividend for the year ending 30 June 2022, in respect of the period from 1 October 2021 to 31 December 2021, of 1.69 pence per share, on 25 February 2022 to shareholders on the register on 11 February 2022. This distribution was comprised wholly of a property income distribution (PID).

Valuation

The property portfolio was externally valued at £886.8 million at 31 March 2022.

Announcement of third interim dividend

The Company today declares its third interim dividend for the year ending 30 June 2022, in respect of the period from 1 January 2022 to 31 March 2022, of 1.69 pence per share as detailed in the schedule below:

Interim Property Income Distribution (PID): 1.69 pence per share

The dividend reflects an annualised payment of 6.76 pence per share and a dividend yield of 6.2% based on the 4 May 2022 closing share price of 109.2 pence.

The Company had 620,237,346 ordinary shares in issue at 31 March 2022 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:

Kenneth MacKenzie; Gordon Bland

Target Fund Managers Limited

01786 845 912

Mark Young; Mark Bloomfield

Stifel Nicolaus Europe Limited

020 7710 7600

Dido Laurimore; Claire Turvey; Richard Gotla

FTI Consulting

020 3727 1000

TargetHealthcare@fticonsulting.com 

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 31 March 2022 comprised 99 assets let to 33 tenants with a total value of £886.8 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 January 2022 to 31 March 2022:

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 31 March 2022, due to the valuation ascribed to the Group's interest rate derivative contract used to hedge its exposure to variable interest rates, which is excluded from the calculation of the EPRA NTA, the NAV calculated under International Financial Reporting Standards was 112.1 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 July 2022 and the unaudited EPRA NTA per share as at 30 June 2022 is expected to be announced in July 2022.

3. EPRA NIY profiles and unwind of rent-free periods

The Group currently has 10 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: