Target Healthcare REIT Limited Net Asset Value, Corporate Update & Dividend (3276C)

TIDMTHRL

RNS Number : 3276C

Target Healthcare REIT Limited

19 January 2018

19 January 2018

Net Asset Value, Corporate Update & Dividend announcement

1. Net Asset Value

Target Healthcare REIT Limited (the "Company" and together with its subsidiaries, the "Group") announces that its unaudited EPRA NAV per share as at 31 December 2017 was 104.4 pence. The NAV total return for the quarter was 2.6%.

2. Corporate Update

2a. Portfolio performance

As at 31 December 2017 the Group owned forty-nine care homes and one site subject to a forward fund commitment with a combined market value of GBP334.9 million. The portfolio had an EPRA net initial yield of 6.58% (based on contractual net income) and an annualised rent roll of GBP23.4 million with a weighted average unexpired lease term of 28.9 years. Portfolio passing rent has increased by 10.9% during the quarter, 10.2% from additions and asset management activity, plus 0.7% from rent reviews.

The portfolio value has increased 12.9% over the quarter, with the like-for-like value up 1.5%. The increase in like-for-like reflects value generated from our ongoing embedded rental uplifts and yield compression across the portfolio.

A balance sheet summary and an analysis of the movement in the EPRA NAV over the quarter is presented in the Appendix.

2b. Debt facilities & swap arrangements

As at 31 December 2017, the Group's total borrowings were GBP81.0 million, giving a loan-to-value ratio of 24.2% (calculated as total gross debt as a proportion of gross property value). As the Group expects to invest the vast majority of its current cash balance in new care homes, cash has been excluded from the calculation.

The Group's aggregate debt facilities with Royal Bank of Scotland plc and First Commercial Bank, Limited of GBP90 million are composed of GBP70 million of term loans and a GBP20 million revolving credit facility. The weighted average interest rate as applied to the Group's GBP81.0 million of drawn debt as at 31 December 2017 was 2.16%, with an all-in cost, including the amortisation of arrangement fees, of 2.52%.

Interest costs were fixed on GBP30 million of drawn debt, through interest rate swap arrangements which expire on 1 September 2021, with GBP51 million at variable rates based on 3 month LIBOR plus lender margins. The Group will continue to take a prudent approach to its gearing and will look to diversify its funding structure by covenant, lender, type and maturity profile. The Group regularly reviews the weighting of fixed versus variable interest on its debt and will continue to look to fix its interest rate exposure when it believes this is advantageous to its longer term financial position.

2c. Investment activity

In the three months to 31 December 2017, investments arising from the Group's portfolio management and investment activities have totalled GBP33.8 million (including acquisition costs). These all generate immediate rental income, and included the addition of three new properties:

-- A 64 bed, high quality, care home in Hertfordshire which opened in 2013 was acquired for approximately GBP20 million (including costs). The rent payable is subject to annual, upwards-only, RPI-linked uplifts, incorporating a cap and collar. The home will continue to be run by the incumbent operator, a new tenant to the Group, under a 30-year full repairing and insuring lease.

-- An 81 bed care home in York, opened in 2006, and a purpose-built 86 bed care home on the Wirral, opened in 1999 were acquired for a combined value of approximately GBP11million (including costs). The Group will be stepping into the existing full repairing and insuring occupational leases on both homes, which together have a blended average unexpired lease term of approximately 21 years.

Funds invested in high quality care homes since the Group's inception total around GBP318 million, including around GBP139 million committed since the Group's May 2016 equity issuance.

These acquisitions further increased the Group's tenant diversification, with two new tenants having been added, taking the Group's total tenants to nineteen.

2d. Pipeline and Investment Market

The UK care home real estate sector continues to see significant investor demand with investment yields narrowing for both prime and sub-prime homes as the operational supply/demand imbalance in the sector becomes more acute. The Group continues to progress a number of acquisition projects which it anticipates being able to complete in the near-term. In addition, the Investment Manager is in negotiations on several interesting opportunities which have the potential to meet the high standards the Group requires in appraising potential investments.

The Group remains focused on sourcing future-proof homes with modern fit-for-purpose facilities, supportive local demographics and a strong care ethos. Target believe that maintaining these high standards of selection and diligence is the best way to support long term value creation for both its tenants and the Company itself.

2e. Dividends in the period

The Company paid its first interim dividend for the year to 30 June 2018, in respect of the period from 1 July 2017 to 30 September 2017, of 1.6125 pence per share on 30 November 2017. This reflects an annualised payment of 6.45 pence per share and a dividend yield of 5.6% based on the 18 January 2018 closing share price of 114.5 pence.

The Group's unaudited EPRA Earnings per share for the quarter were 1.55 pence, excluding the effects of the performance fee accruals as noted in the Appendix.

The Company had 252,180,851 ordinary shares in issue at 31 December 2017 and has not issued or bought back any shares since that date.

3. Announcement of Second Interim Dividend for the year ending 30 June 2018

The Company has today declared its second interim dividend payment for the year ending 30 June 2018, in respect of the period from 1 October 2017 to 31 December 2017 of 1.6125 pence per share as detailed in the schedule below:

   Interim Property Income Distribution (PID)                     1.6125 pence per share 
   Ex-Dividend Date:                  1 February 2018 
   Record Date:                          2 February 2018 
   Pay Date:                             23 February 2018 

4. Other

4a. Investor relations

The group has recently launched its new website where shareholders will find the latest Group information, at: https://www.targethealthcarereit.co.uk/

4b. Quarterly investor report

The Group's quarterly investor report for December 2017 will shortly be available on its website at:

https://www.targethealthcarereit.co.uk/investor-relations/reports-and-presentations/financial-reporting

Kenneth MacKenzie, CEO of Target Fund Managers Limited, commented on the Group's activity during the period:

"The Group's portfolio has continued to perform well with capital values increasing and our inflation linked rents rising as RPI remained at elevated levels. Despite the well-publicised background noise of under-funding in the sector, performance is in-line with expectations. The benefits of modern purpose built assets, with good facilities and a strong local culture, continuing to be reflected in strong underlying occupancy rates.

The Group continues to pay an attractive quarterly dividend, which is increasingly covered by earnings as the portfolio advances to a state of near-full investment. We are actively assessing some interesting investment opportunities which we hope to execute on this year subject to the availability of capital and completion of our due diligence."

Enquiries:

Kenneth MacKenzie, Gordon Bland

Target Fund Managers Limited

01786 845 912

Mark Young, Neil Winward, Tom Yeadon

Stifel Nicolaus Europe Limited

020 7710 7600

Martin Cassels

Maitland Administration Services (Scotland) Limited

0131 550 3760

Fiona Harris/Sam Emery

Quill PR

020 7466 5058 / 020 7466 5056

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.

APPIX

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 2017 to 31 December 2017:

 
                                                                          Pence per share 
-------------------------------------------------------------------  -------------------- 
 EPRA NAV per share as at 30 September 2017                                         103.3 
 
   Property revaluation                                                               1.7 
 Property acquisition costs & other capital items                                   (0.5) 
 Movement in revenue reserve (including performance fee accruals)*                    1.5 
 First interim dividend payment for the year to 30 June 2018                        (1.6) 
-------------------------------------------------------------------  -------------------- 
 EPRA NAV per share as at 31 December 2017                                          104.4 
-------------------------------------------------------------------  -------------------- 
 Percentage change in the 3 month period                                             1.1% 
-------------------------------------------------------------------  -------------------- 
 

*The movement in revenue reserve includes a quarterly accrual of GBP0.2m (0.1 pence per share) for a performance fee, for the year from 1 January 2017 to 31 December 2017. This accrual is estimated using historic portfolio performance relative to the IPD UK Annual Healthcare Property Index. Any fee will be calculated and payable once the Index figures for the year to 31 December 2017 are available, and may differ from the amount accrued at that date.

Ordinarily the Group's EPRA NAV would differ from that calculated under International Financial Reporting Standards (IFRS), the latter including the value of the Group's interest rate derivate contracts. As at 31 December 2017 the value of these contracts was immaterial and therefore the EPRA NAV did not differ from the IFRS NAV.

 
 
 Summary balance sheet (unaudited) 
                                Dec-17   Sept-17   Jun-17   Mar-17 
                                  GBPm      GBPm     GBPm     GBPm 
 Investment properties*          334.9     296.6    282.0    274.6 
 Cash                             14.9      16.8     10.4     11.6 
 Net current assets 
  / (liabilities)*               (5.5)     (3.8)      4.5    (0.1) 
 Bank loan                      (81.0)    (49.0)   (40.0)   (30.0) 
                               -------  --------  -------  ------- 
 Net assets                      263.3     260.6    256.9    256.1 
                               -------  --------  -------  ------- 
 
 EPRA NAV per share 
  (pence)                        104.4     103.3    101.9    101.5 
 
 
 

*Investment properties stated at market value and ignore the IFRS effects of fixed/guaranteed minimum rent reviews.

The next quarterly valuation of the property portfolio will be conducted by Colliers International Healthcare Property Consultants Limited during March 2018 and the unaudited EPRA NAV per share as at 31 March 2018 will be announced in April 2018.

This information is provided by RNS

The company news service from the London Stock Exchange

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January 19, 2018 02:00 ET (07:00 GMT)