REG - Target H'care REIT - Net Asset Value, Corporate Update & Dividend

Target Healthcare ReitAnnouncement

09/05/2024 07:00

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RNS Number : 6902N  Target Healthcare REIT PLC  09 May 2024

9 May 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 March 2024, an update on corporate activity and its third
interim dividend for the year ending 30 June 2024.

 

Corporate activity highlights

 

Continued EPRA NTA growth and sustainable earnings from prime care home real
estate, an investment class underpinned by structural tailwinds and
institutional investment demand:

 

·    EPRA Net Tangible Assets ('NTA') per share increased 2.2% to 109.0
pence (31 December 2023: 106.7 pence), primarily reflecting a like-for-like
valuation uplift driven by the portfolio's inflation-linked rent reviews and a
net tightening of yields

·      EPRA "topped-up" net initial yield tightened marginally to 6.19%
(31 December 2023: 6.25%)

·     Adjusted EPRA EPS for the quarter of 1.57 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 3.6% for the quarter (based on EPRA NTA and
including payment of dividend)

·      Net LTV of 25.8% (31 December 2023: 25.8%)

·      Weighted average debt term of 5.5 years (31 December 2023: 5.7
years) with the earliest maturity in November 2025. Interest costs hedged on
89% of drawn debt to the relevant facility maturity date

·    Total capital available of £41 million as at 31 March 2024, net of
the Group's capital commitments including three development assets, one of
which is an operationally net zero carbon home

 

Rental growth driven by inflation-linked reviews and completion of two
developments; valuation growth from strong underlying portfolio trading:

 

·    Diversified portfolio of 98 assets let to 33 tenants and valued at
£934.8 million (31 December 2023: £911.1 million) reflecting an increase of
2.6%, of which the like-for-like increase of 1.4% is driven by rental growth
and yield tightening

·      Contracted rent roll increased by 3.7%, comprising a:

o  0.8% like-for-like increase driven by inflation-linked upwards-only annual
rent reviews

o  2.9% increase from the practical completion of, and new 35-year leases
agreed on, two developments

·     WAULT of 26.0 years which remains one of the longest in the listed
UK real estate sector (31 December 2023: 26.0 years)

·      High quality, modern and sustainable real estate portfolio:

o  99% 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% en
suite wet-rooms; generous 47 sqm space per resident; sustainable rent of
£192 per sqm

·    Rent collection remains robust at >98% collected to date. Rent
cover on mature homes was stable, at 1.9x for the December 2023 quarter (most
recent quarter of tenant data)

 

Kenneth MacKenzie, CEO of Target Fund Managers, commented:

 

"Target Healthcare's portfolio was ranked #1 in total returns within the £8.6
billion MSCI UK Healthcare Annual Property Index in 2023, and #2 for the
10-year period ending 2023, reflecting the attractive long term returns and
low volatility available from disciplined investment by a highly experienced
team in this high-grade care home real estate. This is further supported by
the record rent covers at the underlying portfolio trading level, with our
tenants continuing to report steady occupancy and demand for places.

 

"We now have a mature and modern portfolio which is delivering consistently
strong performance. Our current portfolio management initiatives include: a
limited number of potential tenancy changes; select capital expenditure to
enhance assets alongside our three development sites; and live opportunities
to tighten-up the overall portfolio quality whilst reallocating some capital.

 

"We remain committed to our consistent, long-term approach to investment in
this critically important sector."

 

EPRA NTA

 

The Group's unaudited EPRA NTA per share as at 31 March 2024 was 109.0 pence
and NAV total return for the quarter was 3.6%.

 

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 March 2024, the Group's portfolio was valued at £934.8 million and
comprised 98 properties, consisting of 95 operational care homes and three
pre-let sites, which are being developed through capped forward funding
commitments with established development partners.

 

Portfolio value increased by 2.6% over the quarter, comprising:

·     a 1.4% like-for-like increase in the operational portfolio,
reflecting an increase of 0.8% from inflation-linked rent reviews and
rent-free unwinds alongside an increase of 0.6% from net yield tightening

·   a 1.2% increase from capital expenditure, primarily associated with the
five development properties of which two reached practical completion during
the quarter

 

Contractual rental income increased by 3.7% over the quarter, comprising:

·      a 0.8% like-for-like increase from 23 inflation-linked
upwards-only rent reviews, with an average uplift of 3.9%

·    a 2.9% increase from the completion of two forward funded developments
which were leased on pre-agreed terms, with one home introducing a new tenant
to the portfolio

 

The portfolio's WAULT remained unchanged at 26.0 years (31 December 2023: 26.0
years), with two new 35-year leases on the completed developments offsetting
the passage of time on the existing portfolio.

 

The EPRA "topped-up" net initial yield was 6.19% based on an annualised
contractual rent of £60.1 million and the EPRA net initial yield was 6.06%
with two assets in a rent-free / initially reduced rent period.

 

Portfolio update

 

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

·     As previously announced, two of the Group's development sites in
Dartford, Kent and Holt, Norfolk reached practical completion. These
developments contributed an aggregate of 137 new beds with modern, en suite
wet-rooms to the portfolio and increased annual contracted rent by £1.7
million. Each asset is leased on terms typical of the portfolio, being
long-term with annual, upwards-only RPI-linked rent reviews, subject to a cap
and collar.

·     The conversion of a further 24 rooms to provide full en suite
wet-room facilities was completed as part of ongoing asset enhancements,
increasing the portfolio towards 100% en suite wet-rooms.

 

Debt facilities and swap arrangements

 

As at 31 March 2024, the Group's total borrowings were £259 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 4.14% (31 December
2023: 4.05%).

 

89% of drawn debt is fully hedged:

·   £150 million is fixed with a weighted average term of 9.9 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
1.6 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 1.6 years

·      The remaining £29 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 £61 million of committed, but undrawn,
revolving credit facilities which, if drawn, would carry an interest rate of
SONIA plus 2.22%. The £6.5 million drawn in the quarter is being used to fund
construction of the Group's development assets, with £21 million of such
commitments remaining on a cash basis.

At 31 March 2024, the weighted average term to expiry on the Group's total
committed loan facilities was 5.5 years (31 December 2023: 5.7 years) with
the earliest maturity in November 2025.

Dividends

 

The Group paid 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, on 23 February 2024 to shareholders on the register on 9
February 2024. This distribution was comprised wholly of a property income
distribution (PID).

 

Announcement of third interim dividend

 

The Company today declares its third interim dividend for the year ending 30
June 2024, in respect of the period from 1 January 2024 to 31 March 2024, 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

 

 Ex-Dividend Date:  16 May 2024
 Record Date:       17 May 2024
 Payment Date:      31 May 2024

 

The quarterly dividend reflects an annualised dividend of 5.712 pence per
share and a dividend yield of 7.2% based on the 8 May 2024 closing share price
of 79.6 pence.

 

 

The Company had 620,237,346 ordinary shares in issue at 31 March 2024 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 (http://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:

 

 Target Fund Managers Limited    Tel: 01786 845 912
 Kenneth MacKenzie
 Gordon Bland

 Stifel Nicolaus Europe Limited  Tel: 020 7710 7600
 Mark Young
 Rajpal Padam
 Catriona Neville

 FTI Consulting                  Tel: 020 3727 1000
 Dido Laurimore                  TargetHealthcare@fticonsulting.com
 Richard Gotla

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 2024 comprised 98 assets let to 33 tenants
with a total value of £934.8 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 2024 to 31 March 2024:

 

                                                                   Pence per share
 EPRA NTA per share as at 31 December 2023                                           106.7

 Revaluation gains / (losses) on investment properties             2.0
 Revaluation gains / (losses) on assets under construction^        0.2
 Movement in revenue reserve                                       1.5
 Second interim dividend payment for the year ending 30 June 2024  (1.4)
 EPRA NTA per share as at 31 March 2024                            109.0
 Percentage change in the quarter                                  2.2%

 

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 2024, 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 109.6 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.

 

 2.     Summary balance sheet (unaudited)

                                      Mar-24        Dec-23        Sept-23       Jun-23
                                      £m            £m            £m            £m
 Property portfolio*                  934.8         911.1         890.3         868.7
 Cash                                 17.9          17.6          20.2          15.4
 Net current assets / (liabilities)*  (17.3)        (14.7)        (12.5)        (6.2)
 Loans                                (259.0)       (252.5)       (243.0)       (230.0)
 Net assets                           676.4         661.5         655.0         647.9

 EPRA NTA per share (pence)           109.0         106.7         105.6         104.5

 

*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 March 2024 was conducted by
CBRE Limited.

 

The next quarterly valuation of the property portfolio will be conducted by
CBRE Limited during July 2024 and the unaudited EPRA NTA per share as at 30
June 2024 is expected to be announced in July 2024.

 

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

 

The Group currently has two assets with a rent-free / reduced initial rent
period. 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:

 

                           31 March  30 June  30 September

                           2024      2024     2024
 EPRA "topped-up" NIY      6.19%     6.19%    6.19%
 EPRA NIY                  6.06%     6.10%    6.19%
 Contractual rent (£m)     60.1      60.1     60.1
 Passing rent (£m)         58.8      59.2     60.1

 

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