Target Healthc. Regulatory News (THRL)

1 February 2024

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

Corporate activity highlights

Fourth consecutive quarter of EPRA NTA growth demonstrates resilience of business model and structural tailwinds underpinning modern, purpose built care home sector:

· EPRA Net Tangible Assets ('NTA') per share increased 1.0% to 106.7 pence (30 September 2023: 105.6 pence), primarily reflecting a like-for-like valuation uplift driven by inflation-linked rent reviews. The twelve-month increase in EPRA NTA is 3.6%

· EPRA "topped-up" net initial yield remained stable at 6.25% (30 September 2023: 6.22%)

· Adjusted EPRA EPS for the quarter of 1.51 pence per share, fully covering the dividend of 1.428 pence per share, which is to be paid in respect of the quarter

· NAV total return of 2.4% for the quarter (based on EPRA NTA and including payment of dividend)

· Net LTV of 25.8% (30 September 2023: 25.0%)

· Weighted average debt term of 5.7 years (30 September 2023: 6.0 years) with the earliest maturity in November 2025. Interest costs hedged on 91% of drawn debt to the relevant facility maturity date

· Total capital available of £41 million, net of the Group's capital commitments including five development assets, one of which is an operationally net zero carbon home

Inflation-linked rental growth, resilient capital values and underlying portfolio trading providing high portfolio rent covers:

· Diversified portfolio of 98 assets let to 32 tenants and valued at £911.1 million (30 September 2023: £890.3 million) reflecting an increase of 2.3%, of which the like-for-like increase was 0.6%

· Like-for-like increase in contracted rent roll of 1.1%, primarily driven by inflation-linked upwards-only annual rent reviews

· WAULT of 26.0 years which remains one of the longest in the listed UK real estate sector (30 September 2023: 26.3 years)

· High quality, modern and sustainable real estate portfolio:

o  98% of the portfolio is A or B EPC rated, (100% A to C ratings) and therefore compliant with the minimum energy efficiency standards anticipated to apply from 2030

o  Positive social impact from sector-leading real estate standards: 99% wet-rooms; generous 47 sqm space per resident; sustainable rent of £190 per sqm

· 99% rent collection, as overall tenant profitability continues to benefit from improved trading performance across our fit-for-purpose real estate with mature rent cover of 1.9x for the September 2023 quarter (most recent quarter of data from tenants)

Kenneth MacKenzie, CEO of Target Fund Managers, commented:

"Rental growth continues and is well-supported by tenant profitability, with the core positive drivers of portfolio value, demographic trends and increasing demand for modern, purpose-built, real estate being clearly demonstrated. Rent covers have continued to improve, with the September quarter result of 1.9x continuing the upward trend seen over the last five quarters and representing the highest level since IPO. Underlying resident spot occupancy for mature homes increased to 87% as at 31 December 2023 (87% today).

"Valuations are still seeing some limited outward NIY movement as a response to higher risk-free rates, though we note we are seeing significant bifurcation in market pricing between our prime UK care home real estate and poorer-quality, non-purpose built homes, as institutional investors recognise the benefits of the former such as social acceptability, energy efficiency and future demand for places.

"Our long-standing dedicated management team remain ever focused on our core investment strategy to deliver strong investment returns from our modern, purpose-built portfolio."

EPRA NTA

The Group's unaudited EPRA NTA per share as at 31 December 2023 was 106.7 pence and NAV total return for the quarter was 2.4%.

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 31 December 2023, the Group's portfolio was valued at £911.1 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 2.3% over the quarter, comprising:

· a 0.6% like-for-like increase in the operational portfolio, reflecting an increase of 1.2% from inflation-linked rent reviews and rent-free unwinds alongside a 0.6% decrease from outward movement in net initial yields

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

Contractual rental income increased by 1.3% over the quarter, comprising a 1.1% like-for-like increase from 25 inflation-linked upwards-only rent reviews, with an average uplift of 4.0%. The remaining 0.2% increase was from the rentalisation of capital expenditure following an asset management initiative at one of the Company's existing properties (as detailed below) and the rentalisation of a contingent performance payment which crystalised at another property.

The portfolio's WAULT was 26.0 years (30 September 2023: 26.3 years).

The EPRA "topped-up" net initial yield was 6.25% based on an annualised contractual rent of £57.9 million and the EPRA net initial yield was 6.17% with one asset in a rent-free period.

Portfolio update

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

· As previously announced, 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 as at 31 December 2023. The 18 homes are trading well and no material valuation change has occurred 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.

· The conversion of a further eight rooms to provide full en suite wet-room facilities were completed as part of ongoing asset enhancements, progressing plans to move the portfolio to 100% wet-rooms, currently 99% following these works.

· As reported previously, the Group had committed to £2.35 million of capital expenditure to add 18 new bedrooms at an existing property. During the quarter to 31 December 2023, the remaining eight of these were completed and the additional costs incurred to complete of £0.7 million were rentalised.

Debt facilities and swap arrangements

As at 31 December 2023, the Group's total borrowings were £252.5 million, representing a net LTV of 25.8% (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 4.05% (30 September 2023: 3.91%).

91% of drawn debt is fully hedged:

· £150 million is fixed with a weighted average term of 10.1 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 1.8 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 1.8 years

· The remaining £22.5 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 £67.5 million of committed, but undrawn, revolving credit facilities which, if drawn, would carry an interest rate of SONIA plus 2.22%. The £9.5 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 £29 million of such commitments remaining on a cash basis.

At 31 December 2023, the weighted average term to expiry on the Group's total committed loan facilities was 5.7 years (30 September 2023: 6.0 years) with the earliest maturity in November 2025.

Dividends

The Group paid 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, on 24 November 2023 to shareholders on the register on 10 November 2023. This distribution was comprised wholly of a property income distribution (PID).

Announcement of second interim dividend

The Company today declares its second interim dividend for the year ending 30 June 2024, in respect of the period from 1 October 2023 to 31 December 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 6.8% based on the 31 January 2024 closing share price of 83.8 pence.

The Company had 620,237,346 ordinary shares in issue at 31 December 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 31 December 2023 comprised 98 assets let to 32 tenants with a total value of £911.1 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 October 2023 to 31 December 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 31 December 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 107.2 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.

3. External Valuer

The valuation of the property portfolio as at 31 December 2023 was conducted by Colliers International Healthcare Property Consultants Limited. It was highlighted in the Annual Report 2023 that the Group anticipated undertaking a tender of the provision of external valuation services in advance of the expected introduction of new rules prescribing mandatory rotation. This tender process has now been completed, resulting in the appointment of CBRE Limited. The Board thanks Colliers International Healthcare Property Consultants Limited for the valuation services they have provided to the Group since its IPO in 2013.

The next quarterly valuation of the property portfolio will be conducted by CBRE Limited during April 2024 and the unaudited EPRA NTA per share as at 31 March 2024 is expected to be announced in April 2024.

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

The Group currently has one asset with a rent-free period. As this unwinds, assuming no other changes including inter alia the portfolio valuation or rental profile, the EPRA yield profiles for the portfolio will be as follows: