6
August 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 30
June 2024, an update on corporate activity and its fourth interim
dividend for the year ended 30 June 2024.
Corporate activity highlights
Sustained EPRA NTA growth, driven by valuation uplift
reflecting recurring rental growth alongside the effect of £44.5
million of disposals achieved at a modest premium to carrying
value:
· EPRA
Net Tangible Assets ('NTA') per share increased 1.6% to 110.7 pence
(31 March 2024: 109.0 pence), primarily reflecting a like-for-like
valuation uplift driven by the portfolio's inflation-linked rent
reviews as well as the positive impact from disposals ahead of
carrying value
· EPRA "topped-up" net initial yield of 6.20% (31 March 2024:
6.19%) based on an annualised contractual rent of
£58.8 million
·
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 2.8% for the quarter (based on EPRA NTA and
including dividend payment)
· Net
LTV reduced to 22.5% (31 March 2024: 25.8%)
· Weighted average debt term of 5.2 years (31 March 2024: 5.5
years). Interest costs hedged on 95% of drawn debt to the relevant
facility maturity date with a weighted average cost of drawn debt
of 3.91% (inclusive of amortisation of arrangement
costs)
· Total capital available of £85 million as at 30 June 2024, net
of the Group's capital commitments including two development
assets, one of which is an operationally net zero
carbon home
Strong underlying portfolio trading continues, with 1.9x rent
cover and portfolio quality metrics further enhanced following the
sale of four older, shorter-lease properties:
· Diversified portfolio of 94 assets let to 34 tenants and
valued at £908.5 million (31 March 2024: £934.8 million) reflecting
a decrease of 2.8% following the disposals. The like-for-like
valuation increased by 0.8%, primarily driven by continued rental
growth
·
Contracted rent decreased 2.1%
but increased 1.0% on a like-for-like basis, driven by
inflation-linked upwards-only annual rent reviews
· WAULT
increased to 26.4 years (31 March 2024: 26.0 years) following the
sale of the four properties with the shortest lease lengths in the
portfolio and a new 35-year lease on a completed development in
Weston-super-Mare, Somerset
· 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 48 sqm space per
resident; sustainable rent of £195 per sqm
· Rent collection remains robust at 99% collected to date. Rent
cover on mature homes was stable, at 1.9x
for the March 2024 quarter (most recent quarter of tenant
data)
Kenneth MacKenzie, CEO of Target Fund Managers,
commented:
"The £44.5 million disposal, which
completed during the period at an implied net initial yield of
5.64%, demonstrates the institutional grade quality and demand for
both our prime care home real estate portfolio and the wider
sector, which continues to be underpinned by supportive structural
tailwinds. These four assets were in the lower quartile of our
portfolio with respect to age, lease length and overall building
quality, with the transaction therefore enhancing our real estate
quality and portfolio longevity metrics. The net proceeds have been
allocated to reducing our more expensive unhedged debt and funding
our development pipeline, which will further improve these
portfolio metrics.
"Following the appointment of a new
Government, social care is again in focus. Whilst the axing of the
proposed social care costs cap has dominated recent headlines, it
is a decision consistent with the approach of recent governments
and has no impact on the existing obligations for local authorities
to fund social care, nor on the private funding from residents
which comprises the majority of fee income for our tenants. The
more acute problem facing the sector remains the large proportion
of care home real estate which is no longer fit-for-purpose,
against a backdrop of an ageing UK population. This is why we
prioritise investment into modern, purpose-built care homes, with a
significant bias to private pay residents, a strategy that
continues to underpin our delivery of sustainable shareholder
returns."
EPRA NTA
The Group's unaudited EPRA NTA per
share as at 30 June 2024 was 110.7 pence and NAV total return for
the quarter was 2.8%.
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 30 June 2024, the Group's
portfolio was valued at £908.5 million and comprised 94 properties,
consisting of 92 operational care homes and two pre-let sites,
which are being developed through capped forward funding
commitments with established development partners.
Reflecting disposal activity, the
portfolio value decreased by 2.8% over the quarter,
comprising:
· a 4.5%
decrease from property disposals, discussed in more detail
below.
· a 0.8% like-for-like increase in the operational portfolio,
reflecting an increase of 0.9% from inflation-linked rent reviews
and rent-free unwinds alongside a decrease of 0.1% from a net
outward movement in yields
· a 0.9% increase from capital expenditure, primarily associated
with the three development properties of which one reached
practical completion during the quarter
Contractual rental income decreased
by 2.1% over the quarter, comprising:
· a 4.5%
decrease from the property disposals
· a 1.0%
like-for-like increase from 27 inflation-linked upwards-only rent
reviews, with an average uplift of 3.4%
·
a 1.4% increase from the
completion of a forward funded development which was leased on
pre-agreed terms and which introduces a new tenant to the
portfolio
The EPRA "topped-up" net initial
yield was 6.20% based on an annualised contractual rent of
£58.8 million and the EPRA net initial yield was 6.05% with
two assets in a rent-free period.
Portfolio update
During the quarter, the following
asset management initiatives were undertaken:
· As
previously announced, the Group completed the disposal of four UK
care homes for £44.5 million to the incumbent tenant. The sale
price reflected a modest premium to the portfolio's carrying value
at both 31 December 2023 (the latest date prior to the offer being
received) and 31 March 2024, and an implied net initial yield of
5.64%.
· One
of the Group's development sites (in Weston-super-Mare, Somerset)
reached practical completion. This development contributed 66 new
beds with modern, en suite wet-rooms to the portfolio and the lease
to a new tenant to the Group increased annual contracted rent by
£0.9 million. The property 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 Group re-tenanted one of its properties with the rental
level remaining unchanged overall. A six-month rent-free period was
granted to the incoming tenant which was funded by the outgoing
party. The Group also took the opportunity to include green
provisions in the revised lease.
· The conversion of a further six rooms to provide full en suite
wet-room facilities at one of the Group's homes in North Yorkshire
completed as part of ongoing asset enhancements, increasing the
portfolio towards 100% en suite wet-rooms.
Debt
facilities and swap arrangements
As at 30 June 2024, the Group's
total borrowings were £243 million, representing a net LTV of 22.5%
(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 3.91% (31
March 2024: 4.14%).
95% of drawn debt is fully
hedged:
· £150 million is fixed with a weighted average term of 9.6
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 1.4
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 1.4
years
· The
remaining £13 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
£77 million of committed, but undrawn, revolving credit facilities
which, if drawn, would carry an interest rate of SONIA plus 2.21%.
During the quarter, the Group drew £7.5 million to fund
construction of the Group's development assets, with £13 million of
such commitments remaining on a cash basis. This drawdown was then
offset by the repayment of £23.5 million following the disposal of
the four properties towards the end of the quarter, with the Group
retaining the remaining £21 million from these disposals as cash in
the short term which it intends to use to reduce its variable rate
debt further and to fund the completion of the two remaining
development assets.
As at 30 June 2024,
the weighted average term to expiry on the Group's total
committed loan facilities was 5.2 years (31 March 2024: 5.5
years) with the earliest maturity in November 2025. In relation to
the Group's shortest dated debt facilities, indicative refinance
terms have been obtained from a number of lenders for a range of
facility types and durations. The Group is pleased with the
potential lender appetite and is carefully evaluating the available
options.
Dividends
The Group paid 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, on 31 May 2024 to shareholders on the register on 17 May
2024. This distribution was comprised wholly of a property income
distribution (PID).
Announcement of fourth interim dividend
The Company today declares its
fourth interim dividend for the year ended 30 June 2024, in respect
of the period from 1 April 2024 to 30 June 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:
|
15 August 2024
|
Record Date:
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16 August 2024
|
Payment Date:
|
30 August 2024
|
The quarterly dividend reflects an
annualised dividend of 5.712 pence per share and a dividend yield
of 7.3% based on the 5 August 2024 closing share price of 77.8
pence.
Sustainability Report
The Group has published its
Sustainability Report for the year ended 31 December 2023. This is
available on the Company's website at www.targethealthcarereit.co.uk
The Company had 620,237,346 ordinary
shares in issue at 30 June 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,
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
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Tel: 01786 845 912
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Kenneth MacKenzie
|
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Gordon Bland
|
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Stifel Nicolaus Europe Limited
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Tel: 020 7710 7600
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Mark Young
|
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Rajpal Padam
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Catriona Neville
|
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FTI
Consulting
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Tel: 020 3727 1000
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Dido Laurimore
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TargetHealthcare@fticonsulting.com
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Richard Gotla
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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 30 June
2024 comprised 94 assets let to 34 tenants with a total value of
£908.5 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 April 2024 to 30 June 2024:
|
Pence per
share
|
|
EPRA
NTA per share as at 31 March 2024
|
109.0
|
|
|
|
|
Revaluation gains / (losses) on
investment properties
|
1.2
|
|
Revaluation gains / (losses) on
assets under construction^
|
0.1
|
|
Gains on properties
realised
|
0.3
|
|
Movement in revenue
reserve
|
1.5
|
|
Third interim dividend payment for
the year ending 30 June 2024
|
(1.4)
|
|
EPRA
NTA per share as at 30 June 2024
|
110.7
|
|
Percentage change in the quarter
|
1.6%
|
|
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 30 June 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 111.1 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.
2. Summary balance sheet
(unaudited)
|
|
|
Jun-24
|
Mar-24
|
Dec-23
|
Sept-23
|
|
£m
|
£m
|
£m
|
£m
|
Property portfolio*
|
908.5
|
934.8
|
911.1
|
890.3
|
Cash
|
38.9
|
17.9
|
17.6
|
20.2
|
Net current assets /
(liabilities)*
|
(17.9)
|
(17.3)
|
(14.7)
|
(12.5)
|
Loans
|
(243.0)
|
(259.0)
|
(252.5)
|
(243.0)
|
Net
assets
|
686.5
|
676.4
|
661.5
|
655.0
|
|
|
|
|
|
EPRA NTA per share (pence)
|
110.7
|
109.0
|
106.7
|
105.6
|
*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 30 June 2024 was conducted by CBRE
Limited.
The next quarterly valuation of the
property portfolio will be conducted by CBRE Limited during October
2024 and the unaudited EPRA NTA per share as at 30 September 2024
is expected to be announced in October 2024.
4. EPRA NIY profiles and unwind of
rent-free periods
The Group currently has two assets
with a rent-free 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:
|
|
30 June
2024
|
30 September
2024
|
31 December
2024
|
EPRA "topped-up" NIY
|
|
6.20%
|
6.20%
|
6.20%
|
EPRA NIY
|
|
6.05%
|
6.14%
|
6.20%
|
Contractual rent (£m)
|
|
58.8
|
58.8
|
58.8
|
Passing rent (£m)
|
|
57.5
|
58.3
|
58.8
|