Target Healthc. Regulatory News (THRL)

6 February 2020

Target Healthcare REIT plc 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 modern, purpose-built care homes, announces its unaudited quarterly Net Asset Value (NAV) as at 31 December 2019, provides an update on its corporate activity during the quarter and declares its second interim dividend.

Highlights

Continued NAV progression

·; EPRA NAV per share of 108.1 pence (30 September 2019: 107.9 pence). Revaluation gains were more than sufficient to offset the costs of significant acquisition activity, resulting in continued positive progression in the EPRA NAV and a NAV total return (including dividend) for the quarter of 1.8%

Portfolio performance

·; 0.9% increase in like-for-like value of the operational portfolio - total portfolio value of £589.9 million and an EPRA Topped-up Net Initial Yield of 6.07%

·; Rent reviews completed at an average uplift of 3.0% per annum; contractual rent roll now stands at £37.6 million per annum from 69 operational properties, an increase of £4.7 million during the quarter, with a further £1.3 million increase once the Group's two forward funded pre-let developments reach completion

Acquisitions and asset management

·; Strong progress in deploying the proceeds from September 2019's equity issuance with eight new operating care homes and a block of retirement apartments (adjacent to an existing property) added to the operational portfolio in the quarter, along with the acquisition of a new pre-let development site

Dividend

·; Second interim dividend of 1.67 pence per share declared for the year ending 30 June 2020, representing an increase of 1.5% on the 2019 quarterly dividends. On an annualised basis, this reflects a payment of 6.68 pence per share and a dividend yield of 5.5% based on the closing share price of 122.5 pence on 5 February 2020

Post period-end

·; In January 2020, the Group completed the acquisition of two care homes in Yorkshire, as previously announced by the Group on exchange of contracts in November 2019

·; Also in January, the Group secured a new long-term £50 million committed term loan facility with life and pensions company ReAssure

·; The Group has today announced the successful re-tenanting of six care homes previously leased to Orchard Care Homes to two of the Group's existing operators

Kenneth MacKenzie, CEO of Target Fund Managers, commented:

"As an engaged landlord, we seek to have continual constructive dialogue with several levels of management across our tenant base. Following the announcement in September 2019 that Orchard Care Homes had given notice to us of their intention to exit the leases across six assets held by the Group, we entered into discussions with a range of parties with a view to retenanting the care homes in short order. Testament to our diverse tenant pool, future-proofed real estate and the underlying local supply and demand fundamentals underpinning the attractiveness of our care homes across the portfolio, we are pleased to announce the successful retenanting of all six care homes to two existing tenants of the Group. We have continued to receive the contracted rental income throughout the re-tenanting process and the new arrangements will also result in no material change to the rental income received by the Group and a small valuation uplift across the six care homes.

"The portfolio has performed well over the quarter with sustainable, stable rental returns continuing to underpin the Group's dividend strategy. After the re-tenanting of the former Orchard care homes there are now 27 separate tenants across the Group. Diversity of income provided by long duration and inflation-linked leases underlying our portfolio of modern purpose-built care homes with wet-rooms, together with increased certainty over the Group's borrowings, all contribute to the security of income for our shareholders.

"Following the oversubscribed £80 million equity fundraise in September 2019, the recent acquisitions mean that the complete £92 million pipeline of assets identified at the time of the fundraise has now been acquired by the Group. Despite increased activity from market participants, we continue to see investment opportunities and, subject to progression through our extensive due diligence procedures, we envisage the deployment of the remainder of the Group's investable capital in the coming months."

Net Asset Value

The Group's unaudited EPRA NAV per share as at 31 December 2019 was 108.1 pence. The total return for the quarter based on EPRA NAV was 1.8%.

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 31 December 2019, the Group's portfolio was valued at £589.9 million and comprised 71 properties, a combination of 69 operational care homes and two pre-let sites which are being developed through capped forward funding commitments with established development partners.

The portfolio value has increased by 15.4% over the quarter. Of this, 14.5% is derived from acquisitions and further investment into developments with a positive like-for-like movement in the operational portfolio value of 0.9%, reflecting the impact of the inflation-linked rental reviews as well as yield compression to reflect the quality and performance of individual assets.

Portfolio contractual rent has increased by 14.3% over the quarter, of which 13.6% is the impact of acquisitions and completion of developments. Where rent reviews were completed during the quarter, the average increase was 3.0%, or 2.3% excluding the impact of a five-yearly review on one asset. This resulted in a 0.7% like-for-like increase to the portfolio's contractual rent roll.

Due to the acquisitions and the completed development in the quarter, the portfolio's weighted average unexpired lease term has lengthened slightly to 29.2 years from 28.9 years.

The portfolio had an EPRA topped-up net initial yield of 6.07% based on an annualised contractual rent upon expiry of lease incentives of £37.6 million. The EPRA net initial yield was 5.73% based on passing rent of £35.5 million. A schedule showing the respective NIY profiles from the unwind of portfolio assets in rent-free periods is shown in the Appendix.

Investment and asset management activity

During the three months to 31 December 2019, the Group's activity in relation to investments comprised:

·; The acquisition of a portfolio of five care homes in Yorkshire, totalling 362 bedrooms, which were each let to an existing tenant of the Group;

·; The acquisition of a block of retirement living apartments in Gloucestershire, located adjacent to one of the Group's existing care homes and managed by an existing Group tenant;

·; The acquisition of an operational care home in Dorset which added a new operator to the Group;

·; The acquisition of a newly-constructed care home in Newtown, Wales, adding a further new tenant to the Group. The Group had previously exchanged contracts to acquire this care home once construction had reached completion;

·; The acquisition of a new development site and the entering into a forward funding agreement for the development of a care home in Rudheath, Cheshire, which is pre-let to an existing Group tenant; and

·; The exchange of contracts to acquire a further two care homes in Yorkshire to be let to an existing tenant. This transaction subsequently completed in January 2020.

Additionally, the Group reached practical completion on the development of a care home in Birkdale, Merseyside under a forward funding agreement. The care home, which opened in January 2020, is let to an existing tenant.

The acquisition yield on the transactions detailed above is representative of assets of a similar quality and location within the Group's portfolio, and all have the benefit of long-term occupational leases with RPI-linked cap and collars, contributing to the increase in the portfolio's weighted average unexpired lease term to 29.2 years. The transactions, including those that completed post period-end, added a total of two new tenants to the Group and will add £6.3 million per annum in rental income.

Pipeline and Investment Market

Since the Company's £80 million capital raise in September 2019, the Group has completed on investments with an aggregate value of c. £92 million.

The investment market for high-quality, modern, fit-for-purpose assets which meet the Group's investment criteria remains competitive, with increasing volumes of transactions around the sector. The Investment Manager is analysing and performing diligence on a number of near-term investment opportunities and there continues to be a pipeline of assets where the timetable for potential completion remains subject to additional vendor negotiations and due diligence. The Group will continue to consider its ongoing capital requirements with respect to these opportunities as and when they progress further.

Debt facilities and swap arrangements

As at 31 December 2019, the Group's total borrowings were £135.0 million, giving a loan-to-value (LTV) of 17.5% using net debt (total gross debt less cash, as a proportion of gross property value). Gross LTV (total gross debt as a proportion of gross property value) was 22.9%. The Group's weighted average cost on its drawn debt, inclusive of amortisation of arrangement costs, was 3.05% with a weighted average term to expiry of 1.6 years.

As announced on 15 January 2020, the Group has entered into a new 12-year £50 million committed term loan facility with ReAssure. The facility carries a fixed rate of interest of 3.28% per annum for its 12-year term. The facility was used to repay the Group's existing £40 million term loan with FCB and provides an additional £10 million of new investable capital. This facility introduces an institutional lender to the Group's existing debt capital structure while providing long-term, committed funds that secures longer term financing for the Group and significantly increases the weighted average term to maturity on the Group's debt facilities.

Following the introduction of the ReAssure facility, and combined with its retained facilities with RBS and HSBC, the Group has £80 million of fixed term debt facilities and £100 million of revolving credit facilities.

As at 5 February 2020, the Group has drawn £80 million of fixed term debt, with interest costs fixed, and £47 million under the revolving facilities which carry a variable interest rate linked to 3-month LIBOR. The Group's weighted average cost on its drawn debt, inclusive of amortisation of arrangement costs, is 3.05%. The Group's facilities now have a weighted average term to expiry of 4.2 years.

Dividends in the period

The Group paid its first interim dividend for the year to 30 June 2020, in respect of the period from 1 July 2019 to 30 September 2019, of 1.67 pence per share, on 29 November 2019 to shareholders on the register on 15 November 2019. This distribution was paid wholly as a property income distribution (PID).

Announcement of second interim dividend

The Company today declares its second interim dividend for the year ending 30 June 2020, in respect of the period from 1 October 2019 to 31 December 2019, of 1.67 pence per share as detailed in the schedule below:

Interim Property Income Distribution (PID): 1.67 pence per share 

Ex-Dividend Date: 13 February 2020

Record Date: 14 February 2020

Pay Date: 28 February 2020

This distribution will be paid wholly as a property income distribution (PID). The dividend reflects an annualised payment of 6.68 pence per share and a dividend yield of 5.5% based on the 5 February 2020 closing share price of 122.5 pence.

The Company had 457,487,640 ordinary shares in issue at 31 December 2019 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.

Investor relations

Shareholders will find the latest Group information at its website: https://www.targethealthcarereit.co.uk/

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 December 2019 comprised 71 assets let to 28 tenants with a total value of £589.9 million. Following the successful re-tenanting of six care homes previously let to Orchard Care Homes to two existing tenants, there are currently 27 tenants across the Group.

The Group only 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 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

1. 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 October 2019 to 31 December 2019:

The EPRA NAV provides a measure of the fair value of a company on a long-term basis. As at 31 December 2019 the EPRA NAV stated above differed from that calculated under International Financial Reporting Standards of 108.0 pence per share. This was due to the valuation of the Group's interest rate derivative contracts used to hedge its exposure to variable interest rates, which is excluded from the calculation of the EPRA NAV. Post period-end, the Group closed-out one of its interest rate swap positions that related to the FCB facility at the time of repayment of that facility, at a cost similar to that accrued in the IFRS NAV at 31 December 2019.

^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. During the quarter, one asset has reached practical completion which has contributed to a positive contribution to EPRA NAV from unwinding of the discount in this case.

*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 April 2020 and the unaudited EPRA NAV per share as at 31 March 2020 is expected to be announced in April 2020.

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

The Group has four assets currently 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: