Share Name Share Symbol Market Type Share ISIN Share Description
Target Healthcare Reit Plc LSE:THRL London Ordinary Share GB00BJGTLF51 ORD 1P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.40 0.35% 113.40 112.80 113.60 114.00 111.60 114.00 47,923 10:53:06
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Real Estate Investment Trusts 36.0 22.2 5.1 22.5 519

Target Healthcare REIT PLC Final Results

06/10/2020 7:00am

UK Regulatory (RNS & others)

Target Healthcare Reit (LSE:THRL)
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From Sep 2020 to Nov 2020

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RNS Number : 1648B

Target Healthcare REIT PLC

06 October 2020


From: Target Healthcare REIT plc


Date: 6 October 2020


Continued focus on high quality real estate and further portfolio diversification underpins strong operational and financial performance and dividend increase

Target Healthcare REIT plc (the "Company" or the "Group"), the listed specialist investor in modern, purpose-built UK care homes, is pleased to announce its results for the year ended 30 June 2020.

COVID-19 and Corporate Update

-- Resilient portfolio performance, with 95% of rent due on the March and June quarter dates collected.

-- Cash reserves of GBP36 million as at 30 June 2020, together with GBP28.0 million available in undrawn revolving credit facilities, and low net loan-to-value ("LTV") of 18.7%, provides significant operational flexibility. The Group cautiously resumed new investment activity post year-end.

-- Tenants continue to benefit from the distinct nature of the Group's modern portfolio, particularly the prevalence of en-suite wet rooms, in managing the pandemic and isolation / social distancing requirements.

-- Rent cover of mature homes in the portfolio, a key metric in monitoring the long-term sustainable rent levels, has remained unchanged at 1.6 times over the course of 2020. Going forward, homes are preparing for the winter while being much better prepared for a second wave.

-- The reduction in occupancy levels of the underlying tenant operators as a result of lockdown, which restricted viewings and new resident uptakes, are now being substantially matched by new enquiry levels.

-- As announced in May 2020, we are pleased that Ms Alison Fyfe has joined the Board as an independent non-executive Director.

Financial Highlights

   --      EPRA* NAV per share up 0.6% to 108.1p (2019: 107.5p). 

-- NAV total return of 7.0% (2019: 8.1%)**, reflecting supportive adjusted EPRA earnings and a moderate level of capital growth.

   --      Continued progressive dividend policy: 
   --     Dividend for the year ended 30 June 2020 increased by 1.5% to 6.68p (2019: 6.579p) 
   --     Proposed 0.6% increase to 6.72p for 2021, barring unforeseen circumstances. 
   --      IFRS profit for the year up 5.7% to GBP31.6 million (2019: GBP29.9 million). 

-- Dividend cover on adjusted EPRA earnings of 76% (2019: 82%); fully covered based on EPRA earnings. The fall in adjusted EPRA earnings is primarily a result of a pause in investment activity due to COVID-19 and prudent provisioning in relation to rental income recognised from two tenants.

-- Oversubscribed GBP80 million equity issuance in September 2019, with proceeds subsequently fully deployed.

-- Increase in term of debt facilities with a GBP50 million 12-year term loan with a large insurer secured, combined with a one-year extension to the existing GBP80 million revolving credit facility with HSBC.

Portfolio Highlights

-- Portfolio value increased by 23% to GBP617.6 million (2019: GBP500.9 million), comprising 71 homes and two pre-let sites , including like-for-like valuation growth of 2.8%.

-- Agreements to acquire 12 assets for a total commitment of GBP117 million (including costs), at yields representative of assets of similar standard and location within the Group's existing portfolio.

   --      The Group completed its first property sales; with two disposals ahead of book value. 

-- Contracted portfolio rent increased by 21% to GBP39.0 million (2019: GBP32.2 million), including like-for-like rental growth of 1.5%.

   --      Number of tenants increased to 27 (2019: 24), further diversifying the tenant base. 

-- Weighted average unexpired lease term ('WAULT') maintained at 29 years, despite the passage of time.

-- Successful re-tenanting in January 2020 of six care homes previously leased to Orchard Care Homes to two of the Group's existing operators, resulting in no net loss in income or capital value to the Group.

Market Outlook

-- Compelling supply and demand dynamics remain unchanged, supporting both investor and operator activity in the sector, with the number of people aged 85 or over in the UK forecast to double to 3.2 million in the next 20 years.

-- The Group's acute focus on best in class, purpose-built homes with full en-suite wet rooms, which account for 95% of the portfolio is an increasingly attractive differentiator, with only 26% of rooms in the UK having en-suite wet rooms. 86% of homes in the portfolio are less than 10 years old.

* European Public Real Estate Association

** Based on EPRA NAV movement and dividends paid

Malcolm Naish, Chairman of the Company, said:

"The strong relationships we have with our tenants means we understand their operational stresses and strains, with updates received via many hundreds of phone calls and virtual meetings. The Manager has given help and support with sourcing of PPE, sharing of best practice and collation of sector news and guidance, as well as acting as a sounding board. Where appropriate, we have relaxed contractual obligations to ease cashflow pressures. All of this is in order to allow our tenants to focus on what they do best - providing care.

" Our business model is designed to allow us to pay a regular, stable and attractive dividend in what may well be an entrenched "lower-for-longer" interest rate environment. Our portfolio has performed well during the year, and has thus far demonstrated a satisfying resilience during COVID-19. We have seen rental and valuation growth. Falls in occupancy levels as a result of lockdown are being substantially matched by new enquiry levels.

"The proposed dividend increase reflects both the Board's confidence in the Group's prospects and caution with regard to the ongoing COVID-19 situation. We are pleased to be able to continue delivering returns to shareholders."

All enquiries:

 Kenneth MacKenzie / Gordon Bland 
  Target Fund Managers               01786 845 912 
  Mark Young / Mark Bloomfield 
  Stifel Nicolaus Europe Limited      020 7710 7600 
 Dido Laurimore / Claire Turvey /    020 3727 1000 
  Richard Gotla              
  FTI Consulting 

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 2020 comprised 73 assets, 71 operational assets and two pre-let development sites, let to 27 different tenants with a total value of GBP617.6 million.

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.

Chairman's Statement

The extraordinary impact of COVID-19 has demonstrated the importance of the social care infrastructure, alongside the NHS, in care of the nation's health. I continue to be deeply impressed by our tenants' exceptional commitment and I have heard numerous stories of people in our homes delivering care with skill and compassion, often at considerable personal sacrifice, in extremely challenging conditions.

Many of our homes took action to protect residents ahead of the government lockdown. Our tenants and our management team have shown a consistent focus on the wellbeing and safety of all our stakeholders, most particularly residents, care workers, and their friends and families.

For our management team, working from home, and not being able to visit our care homes as often as usual over these months has been a challenge. Avoiding any risk of spreading the virus meant a shift to increased telephone and virtual support.

The strong relationships we have with our tenants means we understand their operational stresses and strains, with updates received via many hundreds of phone calls and virtual meetings. The Manager has given help and support with sourcing of PPE, sharing of best practice and collation of sector news and guidance, as well as acting as a sounding board. Where appropriate, we have relaxed contractual obligations to ease cashflow pressures. All of this is in order to allow our tenants to focus on what they do best - providing care.

I hope the sector's vitality will continue to be recognised and appropriate long-term investment will be encouraged.


Prior to COVID-19 we were focussed on our objectives to grow a more robust portfolio and lengthen our debt duration. We believe a diversified portfolio of scale provides resilience and stability.

During the year, we invested GBP117 million in the acquisition of 12 care homes/sites, added four new tenants, and the portfolio generated a like-for-like valuation growth of 2.8 per cent. Across the portfolio, seven newly-built homes opened to residents during the year.

Shareholders again showed their faith in our investment strategy, entrusting us with GBP80 million of new capital in September 2019. Likewise, the lending community was supportive, with a 12-year facility with a new institutional lender substantially lengthening the average maturity profile of the Group's debt to 4.24 years. LTV remains conservative at 18.7 per cent, with the ability to increase to 25 per cent on a fully invested basis.

Our focus on "bottom-up" investing, whereby we only acquire care homes which we believe will prosper in their local market, passed a real test when a significant tenant notified us of their intention to exit their commitments with respect to six of our assets. The quality of these assets and our engagement in the sector allowed us to promptly re-tenant to alternative operators with no net loss in rentals or capital values and no interruption to the residents in those homes.

Prior to the onset of COVID-19, the portfolio was in good shape. Rolling last 12 months rent cover of Mature Homes, a key metric in monitoring the long-term sustainable rent levels we desire, was 1.6 times at the end of 2019 and has remained static at 1.6 times during the two quarters impacted by COVID-19. Rent collection has been largely uninterrupted, with a collection rate of 95% across the March and June quarters. Adjusted EPRA EPS was 5.27 pence per share, providing dividend cover of

76 per cent. Under the more widely-used EPRA EPS metric, the dividend was fully covered. The pause in acquisitions from March to June, and prudent provisioning in relation to rental income recognised from two tenants, have negatively impacted earnings and dividend cover. Since the year-end, we have cautiously resumed new investment activity and, combined with the continued resilient performance of the portfolio overall and active asset management initiatives, we expect earnings and dividend cover to improve in the coming year.

The Manager provides more detail in the Investment Manager's Report and Strategy in Action below.

Board & Advisers

We continue to assess the Board composition to ensure we have the requisite skills and experience, now and with succession in mind. We welcomed Ms Alison Fyfe to the Board in May, who is a highly experienced property professional whose skills gained in surveying, banking and property finance will serve the Group well.

We also agreed to extend the duration of the contract with the Manager during the year, with a two year notice period now applying with an initial three year minimum term. The Board believes this arrangement provides a satisfactory balance of flexibility and security with respect to a key service provider, in what is a long-term business of increasing scale and complexity.

Annual General Meeting ("AGM")

The AGM will be held on 2 December 2020. Unfortunately, due to the COVID-19 pandemic and uncertainty over the social distancing guidance and regulations that will be in place at the time of the meeting, physical attendance by shareholders is likely to be restricted. However, shareholders are strongly encouraged to make use of the proxy form provided in order to lodge their votes on the resolutions proposed and to raise any questions or comments they may have in advance of the AGM through the Company Secretary. Further details in relation to the AGM are included in the Annual Report.

Outlook & dividend

I wrote last year that the macroeconomic outlook was bearish given Brexit concerns, political uncertainty and the prospect of trade wars escalating. "Flu pandemic" was an entry on the Group's risk register which was assessed as low risk and low impact. Our core business of receiving rent and passing that onto shareholders as dividend has been largely uninterrupted, perhaps justifying that assessment, however the impact COVID-19 has had on society and the economy has been immediate and shocking in its scale. The uncertainty and disruption look like continuing for quite some time in the absence of effective treatment or a vaccine.

In the same manner in which many anticipate further profound changes to our way of life, particularly with regard to places of work, commuting and travel, government policy may also have to respond radically. The shape of recovery, with the prospects for a quick "V" shape rapidly waning, will impact borrowing, taxation levels and the need for further stimulus initiatives. Brexit concerns and trade wars haven't vanished, and the counter-intuitive recent stock market highs have been "tech-dependent" and feel fragile.

Against this backdrop, two fundamentals stand out for me - both of which give me great confidence about the Group's prospects. Firstly, our business model is designed to allow us to pay a regular, stable and attractive dividend in what may well be an entrenched "lower-for-longer" interest rate environment. Secondly, our portfolio has performed well during the year, and has thus far demonstrated a satisfying resilience during COVID-19. We have seen rental and valuation growth. Falls in occupancy levels as a result of lockdown are being substantially matched by new enquiry levels. Whilst the timeframe for our homes to fully recover occupancy is uncertain, ultimately the care they offer is in the best modern real estate which can meet the needs of residents. We believe the portfolio will continue to perform.

The Board remains committed to its strategy to provide a progressive dividend. In the absence of unforeseen circumstances, the Board intends to reflect an element of the rental growth achieved via an increase in the quarterly dividend in respect of the year ending June 2021 by 0.6 per cent to 1.68 pence per share, providing an annual total of 6.72 pence.

This increase reflects both the Board's confidence in the Group's prospects and caution with regard to the ongoing COVID-19 situation. We are pleased to be able to continue delivering returns to shareholders, the nature of which we can reasonably conclude will be welcomed by investors more generally. We hope this will allow us to continue to grow and invest in a sector where we can generate a positive social impact.

Malcolm Naish


5 October 2020

Investment Manager's Report

Portfolio review

We are pleased to note that the portfolio has once again outperformed the MSCI UK Annual Healthcare Property Index for the calendar year to December 2019. Portfolio annualised total return since launch has been 11.6 per cent, relative to the index's 9.0 per cent.

Performance since then, for the quarters ending March and June 2020, has been stable despite the significant operational challenges faced by our tenants through the COVID-19 pandemic. This is testament to our core investment thesis of setting sustainable rents in the sector.

UK care home investment market

Following a subdued period through the peak of the COVID-19 crisis so far, investment activity in the part of the sector in which we invest has regained the momentum shown for the majority of the year. Deals marketed and agreed pre-COVID have generally completed without movement in pricing. More generally, valuation yields have continued their gradual tightening, as the reliable return and defensive characteristics of the asset class continue to be proven.

There continues to be a number of buyers active in the investment market, though perhaps less generalist activity currently, given other distractions. We would anticipate competition from this cohort to quickly return given the low yields on government and corporate bonds at present, and their forecast curves. Whilst this provides challenges to us in identifying and securing new assets, it can only be positive for the sector and for returns on our existing portfolio.

That said, we continue to identify pipeline assets, through our deep engagement in the sector, and believe we can grow and enhance the portfolio. We will not compromise on our strict investment criteria, with a particular focus on setting sustainable rent levels - we will lose out on assets if others are willing to pay higher capital values based on higher rents, thereby accepting more risk from lower rent cover. We don't believe this to be a prudent long-term strategy for us, nor for tenants.

Health & social care

The global COVID-19 pandemic was unforeseen and has caused unprecedented disruption across society as a whole.

As other countries in Europe started to report significant numbers of COVID-19 cases in late January, there was a dawning recognition that containment of the reported cases in China had failed. The World Health Organization (WHO) subsequently classified COVID-19 a pandemic on March 11, 2020. The UK government response was summed up in the slogan - 'Stay Home, Protect the NHS, Save Lives'.

To save the UK from the disastrous scenes seen in such places as Lombardy in Italy, hospitals rapidly discharged patients who had been delayed discharges, stopped elective procedures and built extra capacity in the form of the Nightingale units. The whole of the UK went into "lockdown" and was urged to "Save the NHS".

Care homes sprung to help; there was an encouraging surge of renewed partnerships and collaborative thinking. Relationships between Social Care and the NHS have been historically difficult at times, but Covid was seen as a catalyst for changed working.

However, all was not well, as some homes felt pressurised to admit patients from the NHS, testing of those residents at hospital discharge was deemed unnecessary by Government guidance, and PPE became increasingly scarce, with reports even of consignments being impounded and redirected to the NHS. Homes reported staff shortages in the early weeks of up to 20% or 30% of their workforce as shielding took priority, at the same time as the NHS was supported by conscripting medical and nursing students, recall of recently retired staff and government calls for general public volunteers including furloughed workers.

Most care home operators were cautious about admitting residents, quickly implementing 14-day isolation policies. Homes 'locked down' some time before the Government advised it, restricting families and non-essential visitors; agency use was limited to 'single home only' where possible.

Inconsistent and inoperable guidance was a significant concern for care home operators. For example, PPE policy changed over 25 times in several months, with government agencies often giving conflicting advice. Some local regulators were too 'hands-off', while operators in other areas received supportive calls from their local inspector.

Testing was sporadic, absent or results returned too slowly over spring and early summer. Once a positive case was identified in a home, no further residents were tested, so the true extent of those who were infected will never be known.

Fortunately, the recovery rate for many residents was much better than feared, with the majority of the Group's homes experiencing fewer than ten deaths from COVID-19. However, every death was very sad for all involved especially when family visiting was restricted by government advice. Care home teams gave of themselves selflessly, and many managed to bring relatives together at the end of life. We acknowledge and are grateful for their supreme effort and dedication.

Going forward, homes are preparing for the winter while being much better prepared for a second wave. Testing is improving but frustration continues due to its lack of reliability and the sometimes unnecessary isolation for residents which results. Improved occupancy will come when families see sensible and sensitive visiting policies from public health authorities and government.

Those who hope for COVID-19 to be a catalyst for change may yet be proven to be right; the pandemic has highlighted the need for modern facilities such as those favoured by this REIT, which prioritises wet rooms for infection control, and access to outdoor spaces for visiting and exercise, and good air quality. The need for change of the kind we advocate and better funding has been laid bare for all to see.

COVID-19 response

The onset of the pandemic required an immediate and significant shift in our operations, with our response prioritising the safety and wellbeing of all stakeholders. As well as assessing and managing the direct impact on the portfolio, we have also taken specific actions with respect to the potential impact on the long-term prospects for the Group.


Understood operational stresses of tenants, and responded to that with empathy, flexibility and support. Objective to minimise distractions to allow focus on navigating the pandemic safely:

-- More than 700 phone calls and virtual meetings at tenants' convenience to replace physical visits and data collection

   --      Helped with sourcing of PPE 
   --      Collated and shared latest government guidance, sector news and best practice 

-- Provided support and equipment to facilitate safe visiting and resident and carer "virtual visits" with family and friends

-- Relaxed contractual obligations, where appropriate, to ease tenants' cashflow pressures and/or lease covenants

Secure future

-- Care home visits and other business travel cancelled prior to government-imposed lockdown. Business interruption plan enacted with IT, equipment and other practical support provided to team members as required. No staff furloughed, with three new team members recruited

-- Frequent MS Teams/Zoom meetings scheduled within the management team and with the Board to ensure data shared and assessed on a timely basis and appropriate actions taken

   --      Business processes updated to recognise increased risks from working from home 

-- Changed parameters of financial stress testing to consider the potential severe COVID-19 impact, aiding informed risk assessment and decision-making

-- Paused investment to preserve uncommitted capital, prioritising long-term viability through peak of uncertainty

   --      Proactive actions to update lenders and market on strong portfolio performance 

Target Fund Managers Limited

5 October 2020

Promoting the success of Target Healthcare REIT plc

The Board considers that it has made decisions during the year which will most likely promote the success of the Group for the benefit of its members as a whole.

The table below provides an outline of this approach, and highlights some key decisions alongside consideration for key stakeholder groups, as required by s172 of the Companies Act 2006:

 S172 matter           How matter is considered by the                                More detail 
                        Board in decision-making 
 a) The likely         Our investment approach is long-term                           Our sustainable 
  consequences          with an average lease length of                                investment process 
  of any decision       29 years. We believe this is the                               is 
  in the long           most responsible approach to provide                           further explored 
  term                  stability and sustainability to                                within 
                        tenants and key stakeholders. Therefore,                       the Strategy 
                        most decisions require consideration                           in Action 
                        of long-term consequences, from                                section below 
                        determining a sustainable rent level                           while the capital 
                        and the right tenant partner for                               activities during 
                        each investment, to considering                                the year are 
                        the impact of debt and key contracts                           outlined in the 
                        with service providers on the recurring                        Investment Manager's 
                        earnings which support dividends                               Report. 
                        to shareholders. 
                        During the year the following key 
                        decisions were made: 
                         *    To grow the Group via an GBP80m equity raise based on 
                              positive prospects for the Group and the UK care home 
                              real estate investment market 
                         *    To refinance short-term bank debt with a new 
                              long-term (12-year) facility 
                         *    To temporarily pause investment plans to prudently 
                              conserve Group capital as a response to the 
                              uncertainty brought by the COVID-19 pandemic. 
                              Following careful consideration, it was subsequently 
                              determined to be appropriate to continue dividend 
                              payments to shareholders following continuity of 
                              rental collection and the portfolio outlook. 
                      -------------------------------------------------------------  ----------------------- 
 b) The interests      The Company is externally managed 
  of the Company's      and therefore has no employees. 
                      -------------------------------------------------------------  ----------------------- 
 c) The need           As a REIT with no employees, the                               The activities 
  to foster the         Board works in close partnership                               of the 
  Company's business    with the Manager, which runs the                               Group (including 
  relationships         Group's operations and portfolio                               more details 
  with                  within parameters set by the Board                             of the portfolio 
  suppliers,            and subject to appropriate oversight.                          management by 
  customers and         The Manager has deep relationships                             the Investment 
  others                with tenants, the wider care home                              Manager) is 
                        sector, and many of the Group's                                explored in the 
                        other suppliers.                                               Strategy in Action 
                                                                                       section below. 
                        The Manager reports regularly to 
                        the Board on these relationships, 
                        and all key suppliers/advisers are 
                        able to report directly to the Board. 
                        During the year the following key 
                        decisions were made: 
                         *    To extend the contractual arrangements with the 
                              Manager to an initial three-year term, reverting to a 
                              two-year notice period after the first year. 
                         *    An amicable re-tenanting of six properties to two 
                              other Group tenants. 
                      -------------------------------------------------------------  ----------------------- 
 d) The impact         The Board is confident the Group's                             Within the Strategic 
  of the Company's      approach to investing in a sensitive                           Report in the 
  operations            sector is responsible with regard                              Annual Report 
  on the community      to social and environmental impact.                            the Environmental, 
  and                   During the year a review of the                                Social and Governance 
  the environment       Group's ESG strategy, with particular                          characteristics 
                        focus on measurement and reporting,                            of the 
                        has been initiated with reporting                              Group are described 
                        expected to commence in 2021.                                  in more detail. 
                      -------------------------------------------------------------  ----------------------- 
 e) The desirability   The Board requires high standards                              The strategic 
  of the Company        of itself, service providers and                               objectives of 
  maintaining           stakeholders. The Group's purpose                              the Group are 
  a reputation          and investment objectives dictate                              shown below and 
  for high standards    that these standards are met in                                further details 
  of business           order to retain credibility. The                               (including the 
  conduct, and          ethos and tone is set by the Board                             succession plans 
                        and the Manager.                                               for 
                                                                                       the Board) are 
                        During the year the following key                              included In the 
                        decisions were made:                                           Corporate Governance 
                         *    To appoint an additional Director, assisting with        Statement in 
                              governance in a growth period and in advance of a        the Annual Report. 
                              planned succession period. 
                      -------------------------------------------------------------  ----------------------- 
 f) The need           The Board encourages an active dialogue 
  to act fairly         with shareholders to ensure effective 
  as between            communication, either directly or 
  members of            via its broker and/or Manager. The 
  the Company           interests of all shareholders are 
                        considered when issuing new shares. 
                      -------------------------------------------------------------  ----------------------- 

Strategic Objectives

 Objectives         2020 activity and                                             2021 priorities                                               Risks 
 Growing a 
 robust portfolio    *    Portfolio growth of 12 assets acquired and GBP117m by     *    Continue to source opportunities to grow and improve     *    Lack of suitable properties and/or inability to 
 Creating a               value. Like-for-like valuation growth of 2.8%                  portfolio                                                     invest on suitable commercial terms 
 of scale with 
 focus on real       *    EPRA Topped-up NIY of 6.04%, EPRA NIY 5.69%               *    Support modernisation of UK care home real estate        *    Underperformance of assets due to poor asset 
 estate quality,                                                                         through selective investment in well-designed assets          selection or external factors such as ongoing 
 diversification,                                                                                                                                      COVID-19 pandemic, may adversely affect portfolio 
 and                 *    4(1) new tenants introduced to portfolio,                                                                                    returns 
 sustainability           representing 12.2% per cent of contractual rent 
 of returns. 
                     *    Rental growth of GBP6.8 million contractual rent. 
                          Like-for-like growth of 1.5%. 
                     *    WAULT maintained at 29 years 
                     *    Portfolio last 12 months Mature Homes rent cover 
                          three year average of 1.5 times (1.6 times at 30 June 
                   ------------------------------------------------------------  ------------------------------------------------------------  ------------------------------------------------------------ 
 engaged manager      *    Portfolio total returns ahead of the relevant MSCI      *    Monitoring portfolio/sector response to and emergence     *    Underperformance of assets due to the impact of 
 Utilise the               index. 9.2% vs. 7.4% for 2019 calendar year,                 from COVID-19                                                  external factors, such as ongoing COVID-19 impact, 
 Manager's                 annualised since launch 11.6% vs. 9.0%                                                                                      may adversely affect portfolio returns 
 experience                                                                        *    Careful prioritisation of asset management 
 and insight          *    Real estate standards: 95% beds have full en suite           initiatives as progress from lockdown allows: (i)         *    Government policies/funding of care may change 
 to navigate               wet-room facilities and 86% homes are                        safely resume on-site asset monitoring and (ii) 
 a complex                                                                              progress portfolio changes where required 
 protecting           *    Relationships: Currently undertaking a tenant 
 returns;                  questionnaire exercise to further understand and 
 promoting                 develop tenant relationships 
 the contribution 
 of our tenants; 
 and advocating       *    Complexity of sector & end-user focus: Successful 
 improvements              re-tenanting of homes representing 8.1% of rent roll 
 in real estate            - preserving shareholder value and continuity of 
 standards.                resident care 
                   ------------------------------------------------------------  ------------------------------------------------------------  ------------------------------------------------------------ 
 Dividend focus 
 Leverage            *    Earnings: Adjusted EPRA EPS 5.27 pence per share         *    Increase earnings through prudent capital deployment     *    Reduction in earnings from poor portfolio performance 
 financial                                                                              and active portfolio management initiatives for lower 
 strength and                                                                           ranking assets 
 disciplined         *    Cost control: Adjusted EPRA cost ratio 25.7 per cent                                                                   *    Refinance and interest rate risk - short-term 
 cost control                                                                                                                                         borrowing facilities may not be renewed by lenders, 
 to provide                                                                        *    Pursue options to improve debt certainty and                  and the Group's cost of borrowing may increase 
 covered dividend    *    Financial strength: Average cost of drawn debt 2.87%,         longevity given overall capital markets uncertainty 
 when fully               average term to maturity 4.24 years, net LTV 18.7% 
 invested at 
 prudent gearing 
 levels.             *    Dividend of 6.68 pence per share, 6.1% yield based on 
                          30 June 2020 closing share price 
                     *    Dividend cover (2) 76 per cent, fully covered based 
                          on EPRA EPS 
                     *    Total returns on EPRA NAV for year of 7.0%, 7.7% 
                          annualised since launch 
                   ------------------------------------------------------------  ------------------------------------------------------------  ------------------------------------------------------------ 
 Objectives      2020 activity and metrics                                     2021 priorities 
 Our purpose                                                                   We are currently reviewing 
 and              *    Seven homes/520 beds in the portfolio opened during     our ESG strategy, 
 responsible           the year (c.9% of new beds registered in the UK in      ensuring this is aligned 
 investment            the period)                                             with our core objectives, 
 In addition                                                                   and how we measure 
 to reporting                                                                  and report our progress. 
 on financial     *    Portfolio EPC ratings compare favourably to peers       We intend to introduce 
 returns                                                                       a full suite of KPIs 
 to                                                                            during the current 
 shareholders,    *    A number of electronic tablets donated to each home     year and report on 
 we                    to improve opportunities for residents and carers to    these for 2021 and 
 want to be            communicate with friends and families during lockdown   beyond, covering additional 
 able to                                                                       areas such as: 
 measure and                                                                    *    Our carbon footprint 
 report           *    Responsible investment during the re-tenanting of six 
 our wider             homes, with continuity of resident care at the 
 environmental         forefront of all discussions                             *    Our success in promoting and being an advocate for 
 ,                                                                                   the care home sector 
 social and 
 (ESG) impact.                                                                  *    Our charitable activities and sector support 
                ------------------------------------------------------------  --------------------------------------------------------- 

(1) Net three new tenants as Orchard care homes ceased to be a tenant during the year

(2) Using Adjusted EPRA Earnings which management uses as a key metric to measure operational performance

Strategy in Action

Robust portfolio

Resilient portfolio performance. Rent and valuation increases on a like-for-like basis. Growth and diversification enhancements from acquisitions and portfolio management.


The Group's portfolio of 71 completed assets is 100 per cent let to 27 tenants. Like-for-like rental and valuation growth have been 1.5 per cent and 2.8 per cent respectively - the former being driven by the upwards-only rent reviews which are a characteristic of all the Group's leases. Rental collection has been positive through the period affected by the COVID pandemic, at 95 per cent(1) in respect of the March and June 2020 rental quarter dates combined.

This rent collection has been underpinned by solid trading performance across the portfolio - last 12 months rent cover across the Mature Homes in the portfolio has averaged 1.5 times over the last three years and on a rolling last 12 months basis has been 1.6 times over the most recent two quarters (matching pre-COVID-19 levels), further demonstrating the portfolio's resilience and sustainable rent levels.

(1) After allowing for temporary agreements in respect of a limited proportion of care homes in the portfolio to pay monthly in advance. Excluded from this collection analysis are two of the portfolio's immature care homes on which agreements were in place prior to the pandemic to defer rental payments.


GBP117 million of investment, inclusive of costs, has been made on the following assets during the year:

-- GBP100 million on trading care homes

-- GBP17 million on new developments/forward commitments

These new investments have complemented the substantial progress made in the year at the Group's sites with development agreements, with seven new homes comprising 520 new beds opening to residents during the year, underlining our commitment to the modernisation of the sector's real estate.

Diversification metrics

Acquisitions and portfolio management have added three (net) new tenants. No individual tenant accounts for more than 12 per cent of contractual rent.

Sources of resident fees, the underlying income received by our tenants, continues to originate from both public and private sources. Census data collected during the period notes that 48 per cent of residents are funded exclusively from private sources, 18 per cent by a mix of private and public funding, where "top-up" payments are made by Local Authorities, and 34 per cent are funded from public sources.

Geographically, the largest region by asset value has changed from the South-East to Yorkshire & the Humber, with 21 per cent.

Specialist, engaged landlord

We strongly believe that a deep understanding of the sector is vital to deliver returns from socially responsible investment.

The care sector is a vital one, and therefore requires insight, knowledge and sensitivity. The Manager has to invest in the right homes with the right tenants and provide a highly engaged stewardship of the portfolio. Our approach to asset management comprises numerous touch-points with tenants, via home visits and contact at Executive level, as well as intelligent and analytical review of the regular and detailed reporting our leases provide for.

The portfolio has once again delivered returns ahead of the MSCI UK Annual Healthcare Property Index, with a total return for the calendar year to December 2019 of 9.2 per cent relative to the Index's 7.4 per cent. The portfolio has consistently outperformed the Index since launch, as shown in the table below:

                             Portfolio total   MSCI Index total 
                                return (%)        return (%) 
 21 months to 31 December 
  2014                            20.3               15.0 
                            ----------------  ----------------- 
 Year to 31 December 2015         14.5               10.3 
                            ----------------  ----------------- 
 Year to 31 December 2016         10.6               7.9 
                            ----------------  ----------------- 
 Year to 31 December 2017         11.9               11.7 
                            ----------------  ----------------- 
 Year to 31 December 2018         12.7               9.1 
                            ----------------  ----------------- 
 Year to 31 December 2019          9.2               7.4 
                            ----------------  ----------------- 

Supportive & collaborative portfolio management

During the year Orchard Care Homes, as part of a strategic review of their business, notified the Group of its intention to exit six leasehold homes, comprising 8.1 per cent of the Group's contractual rent at the time. We efficiently managed a process which resulted in two of the Group's tenants taking on the leases of the six homes, delivering no loss in income or capital value to the Group.

As well as being a clear endorsement of the Group's investment strategy whereby the asset and lease fundamentals are attractive to a range of operators, by acting as a responsible landlord we have facilitated an outcome which has minimised disruption to the residents and staff who live and work in our homes.

Two assets were sold during the year for proceeds ahead of book value, following a review of the long-term prospects for those assets when compared to the initial investment case.

Modernity & standard of real estate

We believe responsible investment in care homes should focus on intelligently designed, purpose-built care homes. These provide spacious private rooms and generous social space, including outdoor access for residents, with high standard amenities such as public and private dining, lifts and wide corridors which help our tenants provide care with operational efficiency.

Using en suite wet-rooms, which provide accessible and private facilities essential for personal hygiene and dignity, as a proxy for real estate standards across the portfolio, our beds are 95 per cent compliant. We have firm commitments to upgrade the balance, being legacy and identified as part of the acquisition process. The comparator for all care homes across the UK is 26 per cent.


Care home real estate investment is not a practice which should be passive. The complexities require a detailed understanding of the real estate, trading/commercial performance, evolving market conditions, and the regulatory environment/scrutiny, amongst others.

During the year, we were continuing to visit each asset twice at a minimum, to complement our review and analysis of monthly data received from operators for each home. Following lockdown protocols being introduced across our portfolio in early March, we switched to entirely remote portfolio monitoring as we worked from home. During the period from 10 March to 31 August 2020 we engaged with our homes and tenants via c.700 phone/video calls, whilst continuing to collect and analyse detailed management information.

Dividend focus

Total dividends of 6.68 pence per share were paid in respect of the year, an increase of 1.5% on 2019, and reflecting a yield of 6.1 per cent based on the 30 June 2020 closing share price of 110.0 pence.

Earnings & dividend

Adjusted EPRA earnings per share, which management uses as a key metric to measure operational performance, decreased to 5.27 pence during the year. As a result, dividend cover also decreased to 76 per cent. With the more widely-used comparative of EPRA EPS of 6.92 pence per share, the dividend was fully covered.

Whilst the Group has been successful in completing investments during the year, GBP113 million of capital has been deployed since September's GBP80 million equity issuance, the temporary pause in activity due to COVID-19 and the full year effect of the higher dividend have both contributed to a decrease in dividend cover for the year. The increase in admin expenses to GBP9.5 million from GBP6.7million includes GBP2.1 million of provisions for doubtful rental income, also adversely impacting reported dividend cover. This amount is primarily in relation to two tenants across four homes: two of the homes were mature homes acquired at acquisition yields which reflected an increased level of risk and which are at present subject to asset management initiatives with good visibility of value recovery. The other two homes are immature and, whilst being behind budget, the operational performance was showing an improved trajectory prior to the impact of COVID-19. The Group remains confident that the real estate and commercial fundamentals of the homes are consistent with the initial investment case and expect to see positive returns in the medium-term.

Earnings summary

The Group's cost base is benefiting from the Group's increasing scale. OCF has reduced to 1.51% and whilst the EPRA cost ratios have increased, this is due to the calculation methodologies of these ratios classifying rental provisions as expense items. Excluding this effect, each ratio would have reduced from the prior year levels.

                                          2020                 2019 
                                          GBPm     Movement    GBPm 
--------------------------------------  ------  -----------  ------ 
 Rental income (excluding guaranteed 
  uplifts)                                36.0         +29%    27.9 
 Admin expenses (including management 
  fee)                                   (9.5)         +42%   (6.7) 
 Net financing costs                     (4.3)         +39%   (3.1) 
 Interest from development funding         1.0         -50%     2.0 
--------------------------------------  ------  -----------  ------ 
 Adjusted EPRA earnings                   23.2         +15%    20.1 
--------------------------------------  ------  -----------  ------ 
 Adjusted EPRA EPS (pence)                5.27        -3.3%    5.45 
 EPRA EPS (pence)                         6.92        +4.4%    6.63 
 Adjusted EPRA cost ratio (per 
  cent)                                  25.7%      +330bps   22.4% 
 EPRA cost ratio (per cent)              21.5%      +190bps   19.6% 
 OCF (per cent)                          1.51%        -1bps   1.52% 
--------------------------------------  ------  -----------  ------ 

Total returns

The Group recognises total returns are important to shareholders, with much of the portfolio and Manager activity contributing to preserving capital values with potential for growth. Annualised NAV total return over the period since the Group's launch in March 2013 has been 7.7%, reflecting moderate levels of capital growth achieved on the portfolio from rental increases, asset management and market yield shift.

                                       Pence per share 
 EPRA NAV per share as at 30 
  June 2019                                      107.5 
 Acquisition costs                               (0.9) 
 Property revaluations                             3.3 
 Adjusted EPRA earnings                            4.6 
 Dividends paid                                  (6.5) 
 Equity issuance                                   0.1 
-----------------------------  ----------------------- 
 EPRA NAV per share as at 30 
  June 2020                                      108.1 
-----------------------------  ----------------------- 

Balance sheet/debt

In the medium term, the Group targets a capital structure with gearing of approximately 25 per cent to achieve financial performance objectives at a suitable risk level for its portfolio and the asset class overall. Following the Group entering into its first long-term borrowing arrangement with an institutional lender, available facilities have increased to GBP180 million and additional funding certainty has been achieved with weighted average term more than doubling to 4.24 years.

The proportion of drawn debt incurring a fixed interest cost has increased to 53 per cent, and the overall cost of drawn debt has reduced to 2.87 per cent. The Group retains considerable flexibility through its debt portfolio, with GBP100 million of fully revolving facilities.

The Group will continue to focus on achieving competitively-priced debt at an appropriate duration.

Principal and emerging risks and uncertainties

  Risks                     Description of risk and factors             Mitigation 
                             affecting risk rating 
      Poor performance           There is a risk that a tenant's       Tenant diversification 
       of assets                  trading business could become         across the Group's 
                                  unsustainable if it fails to          portfolio is a hugely 
       Risk rating                meet projections and sustain          important consideration 
       & change: High             a sufficient rent cover. This         before any investment 
       (increased)                could lead to a loss of income        decision is made. 
                                  for the Group and an adverse          The investment decision 
                                  impact on the Group's results         is always made with 
                                  and shareholder returns. The          reference to the Investment 
                                  strategy of investing in new          Manager's analysis 
                                  purpose-built care homes could        and projections and 
                                  lead to additional fill-up            is based on the local 
                                  risk and there may be a limited       market dynamics for 
                                  amount of time that small regional    the home. Rent deposits 
                                  operators can fund start-up           are sought, where 
                                  losses. There is also a risk          appropriate, to provide 
                                  that the effects of COVID-19          an additional buffer 
                                  may lead to longer fill times         for the Group and 
                                  before a home becomes mature,         the strategy of having 
                                  however, some homes have agreed       a highly diversified 
                                  contracts with local authorities      portfolio (27 tenants 
                                  which have been ahead of their        at 30 June 2020) allows 
                                  forecasts.                            for significant mitigation 
                                                                        of this risk. The 
                                                                        Investment Manager 
                                                                        also has ongoing engagement 
                                                                        with the Group's tenants 
                                                                        to proactively assist 
                                                                        and monitor performance. 
                           -----------------------------------------  -------------------------------- 
      Pandemic reduces      As a result of the COVID-19                The Group is committed 
       demand for            pandemic, there is a risk that             to investing in high 
       care home beds        overall demand for care home               quality real estate 
                             beds is reduced causing asset              with high quality 
       Risk rating           performance to fall below expectations,    operators. These assets 
       & change:             due to the disproportionate                are expected to experience 
       High (increased)      effect on the elderly and those            demand ahead of the 
                             with underlying health conditions.         sector average while 
                             While demographic shifts and               in the wider market 
                             the realities of needs-based               a large number of 
                             demand remain intact, there                care homes without 
                             was a large decrease in the                fit-for-purpose facilities 
                             number of admissions for residents         are expected to close. 
                             across the sector during lockdown          Our tenants are well-versed 
                             as well as reputational damage             in best practice for 
                             done to some care homes and                responding to infection 
                             operators.                                 control and the wider 
                                                                        pandemic while the 
                                                                        Investment Manager 
                                                                        has been actively 
                                                                        engaged with the tenants 
                                                                        in the portfolio during 
                                                                        the outbreak and continues 
                                                                        to maintain good lines 
                                                                        of communication. 
                           -----------------------------------------  -------------------------------- 
 Availability               Without access to equity or                The Group maintains 
  of capital                 debt capital, the Group may                regular communication 
                             be unable to grow through acquisition      with investors and 
  Risk rating                of attractive investment opportunities.    existing debt providers, 
  & change:                  This is likely to be driven                and, with the assistance 
  Medium (unchanged)         by both investor demand and                of its broker and 
                             lender appetite which will                 sponsor, regularly 
                             reflect Group performance,                 monitors the Group's 
                             competitor performance, general            capital requirements 
                             market conditions and the relative         and investment pipeline 
                             attractiveness of investment               alongside opportunities 
                             in UK healthcare property.                 to raise both equity 
                                                                        and debt. 
                           -----------------------------------------  -------------------------------- 
 Breach of REIT             A breach of REIT regulations,              The Group's activities, 
  regulations                primarily in relation to making            including the level 
                             the necessary level of distributions,      of distributions, 
  Risk rating                may result in loss of tax advantages       are monitored to ensure 
  & change:                  derived from the Group's REIT              all conditions are 
  Medium (decreased)         status. The Group remains fully            adhered to. The REIT 
                             compliant with the REIT regulations        rules are considered 
                             and, whilst the Group has always           during investment 
                             been UK-tax resident, its parent           appraisal and transactions 
                             company is now fully domiciled             structured to ensure 
                             in the UK.                                 conditions are met. 
                           -----------------------------------------  -------------------------------- 
      Changes in            Changes in government policies,            Government policy 
       government            including those affecting local            is monitored by the 
       policies              authority funding of elderly               Group to increase 
                             care, may render the Group's               the ability to anticipate 
       Risk rating           strategy inappropriate. Secure             changes. The Group's 
       & change:             income and property valuations             tenants also typically 
       Medium (unchanged)    will be at risk if tenant finances         have a multiplicity 
                             suffer from policy changes.                of income sources, 
                             Whilst the care sector is facing           with their business 
                             significant challenges and                 models dependent on 
                             reform has been mooted by successive       government funding. 
                             governments, no viable proposals 
                             have yet been brought forward. 
                           -----------------------------------------  -------------------------------- 
 Debt covenant              Falls in property valuations               The Group has a conservative 
  compliance                 could adversely affect the                 gearing strategy with 
  /adverse interest          Group's borrowing capacity                 net LTV of 18.7% at 
  rate fluctuations          which is primarily linked to               30 June 2020. Loan 
                             the value of its properties.               covenants are closely 
  Risk rating                Property valuations are inherently         monitored for compliance 
  & change:                  subjective and can fluctuate               and headroom projected. 
  Medium (unchanged)         dependent on market conditions.            Liquidity is kept 
                             Similarly, a large increase                under constant review 
                             in market interest rates would             to ensure any potential 
                             be detrimental to overall returns          covenant breaches 
                             and may limit borrowing capacity.          can be prevented. 
                                                                        The Group has fixed 
                                                                        interest costs on 
                                                                        its GBP80 million 
                                                                        of fixed term borrowings 
                                                                        as at 30 June 2020. 
                           -----------------------------------------  -------------------------------- 
 Reliance on                The Group is externally managed            The Investment Manager, 
  third party                and as such the Group relies               along with all other 
  service providers          on a number of service providers           service providers, 
                             to fulfil all of the activities            is subject to regular 
  Risk rating                required by the Group with                 performance appraisal 
  & change:                  the performance of each being              by the Board while 
  Medium (unchanged)         assessed by the non-executive              also having its remuneration 
                             Board. Poor quality service                aligned with Group 
                             from providers such as the                 performance. The Manager 
                             Investment Manager, company                has retained key personnel 
                             secretary, broker, legal advisers          since the Group's 
                             or depositary could have potentially       IPO and has successfully 
                             negative impacts on the Group's            hired further skilled 
                             investment performance, legal              individuals as required 
                             obligations and compliance                 to bolster its resource. 
                             as well as shareholder relations.          The recent IMA extension 
                                                                        and the sustained 
                                                                        number of years of 
                                                                        service from key providers 
                                                                        further mitigates 
                                                                        this risk. 
                           -----------------------------------------  -------------------------------- 
 Failure to                 Failing to differentiate strategy          The stakeholder communications 
  differentiate              and qualities from competitors             strategy of the Group 
  qualities from             is a significant risk for the              has always been to 
  competitors                business with increased competition        highlight the quality 
  & to communicate           in the healthcare real estate              of the real estate 
  ESG strategy               sector. The failure to communicate         in which the Group 
                             effectively the ESG and sustainable        invests and the Investment 
  Risk rating                impact qualities of the Group              Manager is currently 
  & change:                  to investors and other stakeholders        putting significant 
  Medium (new)               could have a negative impact               effort into providing 
                             on future demand for equity                further quantifiable 
                             raises and wider reputational              metrics and ESG KPIs 
                             damage as investor groups demand           that will be reported 
                             greater participation in sustainability    on in the future. 
                             pledges/disclosures. In recent             The regular production 
                             months this has emerged as                 of investor relations 
                             a growing risk for the Group               materials (annual 
                             with the Investment Manager                report, investor presentations 
                             taking steps to address this.              and quarterly factsheets) 
                                                                        along with direct 
                                                                        engagement with investors 
                                                                        has helped to mitigate 
                                                                        this risk. 
                           -----------------------------------------  -------------------------------- 
 Disruption                 One of the effects of the COVID-19         There is some uncertainty 
  to business                pandemic has been an increase              around whether WFH 
  activities                 in the levels of working from              is the 'new normal' 
  with continued             home "WFH" as mandated by government       for office-based businesses, 
  WFH                        lockdowns. The performance                 however the Group 
                             of service providers to the                has been in close 
  Risk rating                Group could be negatively impacted         contact with all of 
  & change:                  if WFH proves disruptive for               the various service 
  Medium (new)               those service providers. The               providers to ensure 
                             business processes and controls            that continuity across 
                             have also had to be altered                business activities 
                             in short order to allow business           is maintained. This 
                             activities to continue uninterrupted.      emerging risk is being 
                                                                        continually assessed 
                                                                        and monitored by the 
                           -----------------------------------------  -------------------------------- 
 Risk to business           The loss of confidential information       The Investment Manager 
  continuity                 through a breach of the Manager's          has IT policies and 
  from IT downtime/          IT systems could have a significant        associated cyber-insurance 
  loss of data               detrimental effect on the business         which mitigate the 
                             activities of the Group as                 potential for loss 
  Risk rating                well as the potential for financial        of data while key 
  & change:                  loss from fraud, breach of                 data is also held 
  Medium (increased)         GDPR legislation and reputational          with other service 
                             damage to the Group. As business           providers (solicitors, 
                             activities are now being carried           registrars and depositary). 
                             out virtually, there is an                 The Group's control 
                             increased reliance on the IT               environment is also 
                             systems and the control environment        assessed annually 
                             surrounding them.                          by a third party who 
                                                                        report to the Board. 
                           -----------------------------------------  -------------------------------- 

Malcolm Naish


5 October 2020

Viability Statement

The AIC Code requires the Board to assess the Group's prospects, including a robust assessment of the emerging and principal risks facing the Group including those that would threaten its business model, future performance, solvency or liquidity. This assessment is undertaken with the aim of stating that the Directors have a reasonable expectation that the Group will continue in operation and be able to meet its liabilities as they fall due over the period of their assessment.

The Board has conducted this review over a five-year time horizon, which is a period thought to be appropriate for a company investing in UK care homes with a long-term investment outlook. At each Board Meeting, the Directors consider the key outputs from a detailed financial model covering a similar five year rolling period, as this is considered the maximum timescale over which the performance of the Group can be forecast with a reasonable degree of accuracy. The Group has a property portfolio at 30 June 2020 which has long leases and a weighted average unexpired lease term of 29.0 years. The Group has borrowings of GBP152.0 million, on which the interest rate has been fixed, either directly or through the use of interest rate swaps, on GBP80.0 million at 2.89 per cent per annum (excluding the amortisation of arrangement costs), and the remaining GBP72.0 million carries interest at three-month LIBOR plus a weighted margin of 1.64 per cent per annum (excluding the amortisation of arrangement costs). The Group has access to a further GBP28.0 million of available debt under committed loan facilities. The Group's committed loan facilities have staggered expiry dates with GBP50.0 million being committed to 1 September 2021, GBP80.0 million to 29 January 2022 and GBP50.0 million to 12 January 2032. Discussions with existing and/or new potential lenders do not indicate any issues with re-financing these loans on acceptable terms.

The Directors' assessment of the Group's principal risks are highlighted above. The most significant risks identified as relevant to the viability statement were those relating to:

-- Poor performance of assets. The risk that a tenant is unable to sustain a sufficient rental cover, leading to a loss of rental income for the Group;

-- Pandemic reduces demand for care home beds. The risk that that overall demand for care home beds is reduced resulting in a decline in the capital and/ or income return from the property portfolio; and

-- Debt finance. The risk that falls in property valuation or rental income from the portfolio reduce the Group's borrowing capacity, or that an increase in interest rates reduces net returns.

In assessing the Group's viability, the Board has considered the key outputs from a detailed model of the Group's expected cashflows over the coming five years under both normal and stressed conditions. The stressed conditions, which were intended to represent severe but plausible scenarios, included modelling increases in interest rates, movements in the capital value of the property portfolio and a significant default on rental receipts from the Group's tenants. The stressed level of default from the Group's tenants assumed in the financial modelling was based on a detailed assessment of the financial position of each individual tenant or tenant group, the structure in place to secure rental income (such as the strength of tenants' balance sheets, rental guarantees in place or rental deposits held) and included consideration of the potential financial impact on each tenant arising from the COVID-19 pandemic.

Based on the results of the scenario analysis outlined above, the Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the five year period of its assessment.

Consolidated Statement of Comprehensive Income (audited)

For the year ended 30 June 2020

                                                            Year ended 30 June        Year ended 30 June 
                                                                          2020                2019 
                                                  Revenue   Capital      Total   Revenue   Capital      Total 
                                          Notes   GBP'000   GBP'000    GBP'000   GBP'000   GBP'000    GBP'000 
---------------------------------------  ------  --------  --------  ---------  --------  --------  --------- 
 Rental income                                     36,025     8,219     44,244    27,923     6,354     34,277 
 Other income                                          23         -         23         -         -          - 
---------------------------------------  ------  --------  --------  ---------  --------  --------  --------- 
 Total revenue                                     36,048     8,219     44,267    27,923     6,354     34,277 
---------------------------------------  ------  --------  --------  ---------  --------  --------  --------- 
 Gains on revaluation of investment 
  properties                                  4         -       198        198         -     6,155      6,155 
 Gains on investment properties 
  realised                                    4         -       642        642         -         -          - 
 Gains on revaluation of properties 
  held for sale                               5         -     1,505      1,505         -         -          - 
 Total income                                      36,048    10,564     46,612    27,923    12,509     40,432 
---------------------------------------  ------  --------  --------  ---------  --------  --------  --------- 
 Investment management fee                    2   (5,264)         -    (5,264)   (4,702)         -    (4,702) 
 Other expenses                                   (4,261)      (47)    (4,308)   (2,013)     (729)    (2,742) 
 Total expenditure                                (9,525)      (47)    (9,572)   (6,715)     (729)    (7,444) 
---------------------------------------  ------  --------  --------  ---------  --------  --------  --------- 
 Profit before finance costs 
  and taxation                                     26,523    10,517     37,040    21,208    11,780     32,988 
---------------------------------------  ------  --------  --------  ---------  --------  --------  --------- 
 Net finance costs 
 Interest receivable                                  111         -        111        61         -         61 
 Interest payable and similar 
  charges                                         (4,388)   (1,144)    (5,532)   (3,165)         -    (3,165) 
---------------------------------------  ------  --------  --------  ---------  --------  --------  --------- 
 Profit before taxation                            22,246     9,373     31,619    18,104    11,780     29,884 
 Taxation                                               3         -          3         -         -          - 
---------------------------------------  ------  --------  --------  ---------  --------  --------  --------- 
 Profit for the year                               22,249     9,373     31,622    18,104    11,780     29,884 
 Other comprehensive income: 
 Items that are or may be reclassified 
  subsequently to profit or 
 Movement in fair value of 
  interest rate swaps                                   -       480        480         -     (592)      (592) 
---------------------------------------  ------  --------  --------  ---------  --------  --------  --------- 
 Total comprehensive income 
  for the year                                     22,249     9,853     32,102    18,104    11,188     29,292 
---------------------------------------  ------  --------  --------  ---------  --------  --------  --------- 
 Earnings per share (pence)                   3      5.05      2.13       7.18      4.91      3.19       8.10 
---------------------------------------  ------  --------  --------  ---------  --------  --------  --------- 

The total column of this statement represents the Group's Consolidated Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in the above statement are derived from continuing operations.

No operations were discontinued in the year.

Consolidated Statement of Financial Position (audited)

As at 30 June 2020

                                                 As at           As at 
                                          30 June 2020    30 June 2019 
                                 Notes         GBP'000         GBP'000 
------------------------------  ------  --------------  -------------- 
 Non-current assets 
 Investment properties               4         570,086         469,596 
 Trade and other receivables                    46,044          37,573 
------------------------------  ------  --------------  -------------- 
                                               616,130         507,169 
 Current assets 
 Trade and other receivables                     3,702           4,264 
 Cash and cash equivalents                      36,440          26,946 
                                                40,142          31,210 
 Properties held for sale            5           7,500               - 
------------------------------  ------  --------------  -------------- 
                                                47,642          31,210 
------------------------------  ------  --------------  -------------- 
 Total assets                                  663,772         538,379 
------------------------------  ------  --------------  -------------- 
 Non-current liabilities 
 Bank loans                          7       (150,135)       (106,420) 
 Interest rate swaps                             (227)           (707) 
 Trade and other payables                      (6,183)         (6,361) 
------------------------------  ------  --------------  -------------- 
                                             (156,545)       (113,488) 
 Current liabilities 
 Trade and other payables                     (13,114)        (11,802) 
------------------------------  ------  --------------  -------------- 
 Total liabilities                           (169,659)       (125,290) 
------------------------------  ------  --------------  -------------- 
 Net assets                                    494,113         413,089 
------------------------------  ------  --------------  -------------- 
 Stated capital and reserves 
 Stated capital account              8               -         372,685 
 Share capital                       8           4,575               - 
 Share premium                       8          77,452               - 
 Merger reserve                     14          47,751               - 
 Distributable reserve              14         296,770               - 
 Hedging reserve                                 (227)           (707) 
 Capital reserve                                45,536          36,163 
 Revenue reserve                                22,256           4,948 
 Equity shareholders' funds                    494,113         413,089 
------------------------------  ------  --------------  -------------- 
 Net asset value per ordinary 
  share (pence)                      3           108.0           107.3 
------------------------------  ------  --------------  -------------- 

Consolidated Statement of Changes in Equity (audited)

For the year ended 30 June 2020

                           Stated                                     Distrib-utable 
                          capital       Share      Share     Merger          reserve    Hedging    Capital    Revenue 
                          account     capital    premium    reserve                     reserve    reserve    reserve       Total 
                          GBP'000     GBP'000    GBP'000    GBP'000          GBP'000    GBP'000    GBP'000    GBP'000     GBP'000 
 At 30 June 2019          372,685           -          -          -                -      (707)     36,163      4,948     413,089 
  income for the 
  year:                         -           -          -          -                -        480      9,373     22,249      32,102 
  with owners 
  recognised in 
  reconstruction   14   (371,292)     385,090          -     47,751         (61,549)          -          -          -           - 
 Reduction of 
  share capital    14           -   (381,239)          -          -          381,239          -          -          -           - 
 Dividends paid     1     (1,393)           -          -          -         (22,920)          -          -    (4,941)    (29,254) 
 Issue of 
  shares            8           -         724     79,276          -                -          -          -          -      80,000 
 Expenses of 
  issue             8           -           -    (1,824)          -                -          -          -          -     (1,824) 
----------------  ---  ----------  ----------  ---------  ---------  ---------------  ---------  ---------  ---------  ---------- 
   At 30 June 
   2020                         -       4,575     77,452     47,751          296,770      (227)     45,536     22,256     494,113 
----------------  ---  ----------  ----------  ---------  ---------  ---------------  ---------  ---------  ---------  ---------- 

For the year ended 30 June 2019

                                          capital    Hedging     Capital     Revenue 
                                          account    reserve     reserve     reserve      Total 
                                 Notes    GBP'000    GBP'000     GBP'000     GBP'000    GBP'000 
------------------------------  ------  ---------  ---------  ----------  ----------  --------- 
 At 30 June 2018                          330,436      (115)      24,383       3,903    358,607 
   Total comprehensive income 
   for the year:                                -      (592)      11,780      18,104     29,292 
 Transactions with owners 
  recognised in equity: 
 Dividends paid                      1    (6,658)          -           -    (17,059)   (23,717) 
 Issue of ordinary shares            8     50,000          -           -           -     50,000 
 Expenses of issue                        (1,093)          -           -           -    (1,093) 
 At 30 June 2019                          372,685      (707)      36,163       4,948    413,089 
------------------------------  ------  ---------  ---------  ----------  ----------  --------- 

Consolidated Statement of Cash Flows (audited)

For the year ended 30 June 2020

                                                         Year ended      Year ended 
                                                       30 June 2020    30 June 2019 
                                               Note         GBP'000         GBP'000 
--------------------------------------------  -----  --------------  -------------- 
 Cash flows from operating activities 
 Profit before tax                                           31,619          29,884 
 Adjustments for: 
 Interest receivable                                          (111)            (61) 
 Interest payable                                             5,532           3,165 
 Revaluation gains on investment properties 
  and movements in lease incentives, 
  net of acquisition costs written off            4         (9,059)        (12,509) 
 Revaluation gains on properties held 
  for sale                                        5         (1,505)               - 
 Increase in trade and other receivables                    (1,238)         (2,060) 
 Increase in trade and other payables                           370           2,057 
--------------------------------------------  -----  --------------  -------------- 
                                                             25,608          20,476 
--------------------------------------------  -----  --------------  -------------- 
 Interest paid                                              (4,177)         (2,374) 
 Interest received                                              111              61 
 Tax (paid)/recovered                                          (73)               1 
--------------------------------------------  -----  --------------  -------------- 
                                                            (4,139)         (2,312) 
--------------------------------------------  -----  --------------  -------------- 
 Net cash inflow from operating activities                   21,469          18,164 
--------------------------------------------  -----  --------------  -------------- 
 Cash flows from investing activities 
 Purchase of investment properties 
  and properties held for sale, including 
  acquisition costs                                       (117,501)        (99,615) 
 Disposal of investment properties, 
  net of lease incentives                                    14,086               - 
 Net cash outflow from investing activities               (103,415)        (99,615) 
--------------------------------------------  -----  --------------  -------------- 
   Cash flows from financing activities 
 Issue of ordinary share capital                             80,000          50,000 
 Expenses of issue of ordinary share 
  capital                                                   (1,824)         (1,075) 
 Drawdown of bank loan facilities                           162,000          75,500 
 Repayment of bank loan facilities                        (118,000)        (33,500) 
 Expenses of arrangement of bank loan 
  facilities                                                (1,585)           (300) 
 Dividends paid                                            (29,151)        (23,628) 
--------------------------------------------  -----  --------------  -------------- 
 Net cash inflow from financing activities                   91,440          66,997 
--------------------------------------------  -----  --------------  -------------- 
 Net increase/(decrease) in cash and 
  cash equivalents                                            9,494        (14,454) 
 Opening cash and cash equivalents                           26,946          41,400 
--------------------------------------------  -----  --------------  -------------- 
 Closing cash and cash equivalents                           36,440          26,946 
--------------------------------------------  -----  --------------  -------------- 
 Transactions which do not require the use 
  of cash 
 Movement in fixed or guaranteed rent reviews 
  and lease incentives                            10,014   8,664 
 Fixed or guaranteed rent reviews derecognised 
  on disposal                                      (988)       - 
-----------------------------------------------  -------  ------ 
 Total                                             9,026   8,664 
-----------------------------------------------  -------  ------ 

Statement of Directors' Responsibilities in Respect of the Annual Financial Report

In accordance with Chapter 4 of the Disclosure Guidelines and Transparency Rules, we confirm that to the best of our knowledge:

-- The financial statements contained within the Annual Report for the year ended 30 June 2020, of which this statement of results is an extract, have been prepared in accordance with applicable International Financial Reporting Standards, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Company;

-- The Chairman's Statement, Investment Manager's Report, Strategic Objectives and Strategy in Action include a fair review of the important events that have occurred during the financial year and their impact on the financial statements;

-- 'Principal and emerging risks and uncertainties' includes a description of the Company's principal and emerging risks and uncertainties; and

-- The Annual Report includes details of related party transactions that have taken place during the financial year.

On behalf of the Board

Malcolm Naish


5 October 2020

Extract from Notes to the Audited Consolidated Financial Statements

1. Dividends

Amounts paid as distributions to equity holders during the year to 30 June 2020.

                                         Dividend rate      Year ended 
                                            (pence per    30 June 2020 
                                                share)         GBP'000 
--------------------------------------  --------------  -------------- 
 Fourth interim dividend for the year 
  ended 30 June 2019*                          1.64475           6,334 
 First interim dividend for the year 
  ended 30 June 2020                           1.67000           7,640 
 Second interim dividend for the year 
  ended 30 June 2020                           1.67000           7,640 
 Third interim dividend for the year 
  ended 30 June 2020                           1.67000           7,640 
--------------------------------------  --------------  -------------- 
 Total                                         6.65475          29,254 
--------------------------------------  --------------  -------------- 

Amounts paid as distributions to equity holders during the year to 30 June 2019.

                                         Dividend rate      Year ended 
                                            (pence per    30 June 2019 
                                                share)         GBP'000 
--------------------------------------  --------------  -------------- 
 Fourth interim dividend for the year 
  ended 30 June 2018*                          1.61250           5,470 
 First interim dividend for the year 
  ended 30 June 2019*                          1.64475           5,579 
 Second interim dividend for the year 
  ended 30 June 2019*                          1.64475           6,334 
 Third interim dividend for the year 
  ended 30 June 2019*                          1.64475           6,334 
--------------------------------------  --------------  -------------- 
 Total                                         6.54675          23,717 
--------------------------------------  --------------  -------------- 

* Paid by the previous parent company of the Group, Target Healthcare REIT Limited. See note 14 for details on the Group reconstruction.

It is the policy of the Directors to declare and pay dividends as interim dividends. The Directors do not therefore recommend a final dividend. The fourth interim dividend in respect of the year ended 30 June 2020, of 1.67 pence per share, was paid on 28 August 2020 to shareholders on the register on 14 August 2020 amounting to GBP7,640,000. It is the intention of the Directors that the Group will continue to pay dividends quarterly.

2. Fee paid to the Investment Manager

                      Year ended       Year ended 
                    30 June 2020     30 June 2019 
                         GBP'000          GBP'000 
----------------  --------------  --------------- 
 Management fee            5,264            4,702 
 Total                     5,264            4,702 
----------------  --------------  --------------- 

The Group's Investment Manager and Alternative Investment Fund Manager ('AIFM') is Target Fund Managers Limited (the 'Investment Manager' or 'Target'). The Investment Manager is entitled to an annual management fee on a tiered basis based on the net assets of the Group as set out below. Where applicable, VAT is payable in addition.

 Net assets of the Group                         Management fee percentage 
----------------------------------------------  -------------------------- 
 Up to and including GBP500 million                                   1.05 
 Above GBP500 million and up to and including 
  GBP750 million                                                      0.95 
 Above GBP750 million and up to and including 
  GBP1 billion                                                        0.85 
 Above GBP1 billion and up to and including 
  GBP1.5 billion                                                      0.75 
 Above GBP1.5 billion                                                 0.65 
----------------------------------------------  -------------------------- 

Subsequent to its appointment as Company Secretary and Administrator to the Group with effect from 7 August 2019, the Investment Manager is entitled to an additional fee of GBP120,000 per annum plus VAT, increasing annually in line with inflation.

The Investment Management Agreement can be terminated by either party on 24 months' written notice, provided that the earliest that notice could be served is 30 April 2021. Should the Company terminate the Investment Management Agreement earlier then compensation in lieu of notice will be payable to the Investment Manager. The Investment Management Agreement may be terminated immediately without compensation if the Investment Manager: is in material breach of the agreement; is guilty of negligence, wilful default or fraud; is the subject of insolvency proceedings; or there occurs a change of Key Managers to which the Board has not given its prior consent.

3. Earnings per share and Net Asset Value per share

Earnings per share

                                   Year ended 30 June      Year ended 30 June 
                                                 2020                    2019 
                               ----------------------  ---------------------- 
                                            Pence per               Pence per 
                                GBP'000         share   GBP'000         share 
-----------------------------  --------  ------------  --------  ------------ 
 Revenue earnings                22,249          5.05    18,104          4.91 
 Capital earnings                 9,373          2.13    11,780          3.19 
 Total earnings                  31,622          7.18    29,884          8.10 
-----------------------------  --------  ------------  --------  ------------ 
 Average number of shares in 
  issue                                   440,278,234             368,751,632 
-----------------------------  --------  ------------  --------  ------------ 

There were no dilutive shares or potentially dilutive shares in issue.

EPRA is an industry body which issues best practice reporting guidelines and the Group report an EPRA NAV quarterly. EPRA has issued best practice recommendations for the calculation of certain figures which are included below.

The EPRA earnings are arrived at by adjusting for the revaluation movements on investment properties and other items of a capital nature and represents the revenue earned by the Group.

The Group's specific adjusted EPRA earnings adjusts the EPRA earnings for rental income arising from recognising guaranteed rental review uplifts and for development interest received from developers in relation to monies advanced under forward fund agreements which, in the Group's IFRS financial statements, is required to be offset against the book cost of the property under development. The Board believes that the Group's specific adjusted EPRA earnings represents the underlying performance measure appropriate for the Group's business model as it illustrates the underlying revenue stream and costs generated by the Group's property portfolio.

The reconciliations are provided in the table below:

                                                         Year ended      ended 
                                                            30 June    30 June 
                                                               2020       2019 
                                                            GBP'000    GBP'000 
------------------------------------------------------  -----------  --------- 
 Earnings per IFRS Consolidated Statement of 
  Comprehensive Income                                       31,622     29,884 
 Adjusted for gains on investment properties 
  realised                                                    (642)          - 
 Adjusted for revaluations of investment properties           (198)    (6,155) 
 Adjusted for revaluations of properties held 
  for sale                                                  (1,505)          - 
 Adjusted for cost of corporate acquisitions 
  and other capital items                                     1,191        729 
------------------------------------------------------  -----------  --------- 
 EPRA earnings                                               30,468     24,458 
 Adjusted for rental income arising from recognising 
  guaranteed rent review uplifts                            (8,219)    (6,354) 
 Adjusted for development interest under forward 
  fund agreements                                               975      2,011 
 Group specific adjusted EPRA earnings                       23,224     20,115 
 Earnings per share ('EPS') (pence per share) 
 EPS per IFRS Consolidated Statement of Comprehensive 
  Income                                                       7.18       8.10 
 EPRA EPS                                                      6.92       6.63 
 Group specific adjusted EPRA EPS                              5.27       5.45 
------------------------------------------------------  -----------  --------- 

Net Asset Value per share

The Group's Net Asset Value per ordinary share of 108.0 pence (2019: 107.3 pence) is based on equity shareholders' funds of GBP494,113,000 (2019: GBP413,089,000) and on 457,487,640 (2019: 385,089,448) ordinary shares, being the number of shares in issue at the year-end.

The EPRA Net Asset Value ('EPRA NAV') per share is arrived at by adjusting the net asset value ('NAV') calculated under International Financial Reporting Standards ('IFRS'). The EPRA NAV provides a measure of the fair value of a company on a long-term basis. The only adjustment required to the NAV is that the EPRA NAV excludes the fair value of the Group's interest rate swaps, which were recognised as a liability of GBP227,000 under IFRS as at 30 June 2020 (2019: liability of GBP707,000).

EPRA believes that, under normal circumstances, the financial derivatives which property investment companies use to provide an economic hedge are held until maturity and so the theoretical gain or loss at the balance sheet date will not crystallise.

EPRA guidance also recognises an EPRA NNNAV, the objective of which is to report net asset value including fair value adjustments in respect of all material balance sheet items which are not reported at their fair value as part of the EPRA NAV. At 30 June 2020, the Group held all its material balance sheet items at fair value, or at a value considered to be a close approximation to fair value, in its financial statements apart from its fixed-rate debt facility where the fair value of the liability is estimated to be GBP1,511,000 higher than the nominal value at 30 June 2020 (2019: GBPnil). See note 7 for further details on the Group's loan facilities.

                                                 As at      As at 
                                               30 June    30 June 
                                                  2020       2019 
-------------------------------------------  ---------  --------- 
 IFRS NAV per financial statements (pence 
  per share)                                     108.0      107.3 
 Valuation of interest rate swaps                  0.1        0.2 
-------------------------------------------  ---------  --------- 
 EPRA NAV (pence per share)                      108.1      107.5 
 Fair value adjustment for fixed-rate loan 
  facilities and interest rate swaps             (0.4)      (0.2) 
-------------------------------------------  ---------  --------- 
 EPRA NNNAV (pence per share)                    107.7      107.3 
-------------------------------------------  ---------  --------- 

4. Investment properties

Freehold and leasehold properties

                                                         As at           As at 
                                                  30 June 2020    30 June 2019 
                                                       GBP'000         GBP'000 
----------------------------------------------  --------------  -------------- 
 Opening market value                                  500,884         385,542 
 Opening fixed or guaranteed rent reviews 
  and lease incentives                                (31,288)        (22,624) 
----------------------------------------------  --------------  -------------- 
 Opening carrying value                                469,596         362,918 
----------------------------------------------  --------------  -------------- 
 Disposals - proceeds                                 (14,402)               - 
                 - loss on sale                          (438)               - 
 Purchases                                             108,852          97,956 
 Acquisition costs capitalised                           3,896           2,567 
 Acquisition costs written off                         (3,896)         (2,567) 
 Unrealised loss realised during the period              1,080               - 
 Revaluation movement - gains                           18,905          22,202 
 Revaluation movement - losses                         (4,797)         (4,816) 
----------------------------------------------  --------------  -------------- 
 Movement in market value                              109,200         115,342 
 Fixed or guaranteed rent reviews and lease 
  incentives derecognised on disposal                    1,304               - 
 Movement in fixed or guaranteed rent reviews 
  and lease incentives                                (10,014)         (8,664) 
----------------------------------------------  --------------  -------------- 
 Movement in carrying value                            100,490         106,678 
----------------------------------------------  --------------  -------------- 
 Closing market value                                  610,084         500,884 
 Closing fixed or guaranteed rent reviews 
  and lease incentives                                (39,998)        (31,288) 
----------------------------------------------  --------------  -------------- 
 Closing carrying value                                570,086         469,596 
----------------------------------------------  --------------  -------------- 
 Changes in the valuation of investment properties       Year ended      Year ended 
                                                       30 June 2020    30 June 2019 
                                                            GBP'000         GBP'000 
---------------------------------------------------  --------------  -------------- 
 Loss on sale of investment properties                        (438)               - 
 Unrealised loss realised during the period                   1,080               - 
---------------------------------------------------  --------------  -------------- 
 Gains on sale of investment properties realised                642               - 
 Revaluation movement                                        14,108          17,386 
 Acquisition costs written off                              (3,896)         (2,567) 
 Movement in lease incentives                               (1,795)         (2,310) 
 Movement in fixed or guaranteed rent reviews               (8,219)         (6,354) 
---------------------------------------------------  --------------  -------------- 
 Gains on revaluation of investment properties                  840           6,155 
---------------------------------------------------  --------------  -------------- 

The investment properties can be analysed as follows:

                                                       As at           As at 
                                                30 June 2020    30 June 2019 
                                                     GBP'000         GBP'000 
--------------------------------------------  --------------  -------------- 
 Standing assets                                     597,484         482,084 
 Developments under forward fund agreements           12,600          18,800 
--------------------------------------------  --------------  -------------- 
 Closing market value                                610,084         500,884 
--------------------------------------------  --------------  -------------- 

The properties were valued at GBP610,084,000 (2019: GBP500,884,000) by Colliers International Healthcare Property Consultants Limited ('Colliers'), in their capacity as external valuers. The valuation was undertaken in accordance with the RICS Valuation - Global Standards, incorporating the International Valuation Standards (the 'Red Book Global', 31 January 2020) issued by the Royal Institution of Chartered Surveyors ('RICS') on the basis of Market Value, supported by reference to market evidence of transaction prices for similar properties. Colliers has recent experience in the location and category of the investment properties being valued.

Market Value represents the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing where the parties had each acted knowledgeably, prudently and without compulsion. The quarterly property valuations are reviewed by the Board at each Board meeting. The fair value of the properties after adjusting for the movement in the fixed or guaranteed rent reviews and lease incentives was GBP570,086,000 (2019: GBP469,596,000). The adjustment consisted of GBP34,766,000 (2019: GBP27,535,000) relating to fixed or guaranteed rent reviews and GBP5,232,000 (2019: GBP3,753,000) of accrued income relating to the recognition of rental income over rent free periods subsequently amortised over the life of the lease, which are both separately recorded in the accounts as non-current or current assets within 'trade and other receivables'.

The Colliers' property valuation at 30 June 2020, in accordance with industry practice, was subject to a material uncertainty clause as follows:

"The outbreak of the Novel Coronavirus (COVID-19), declared by the World Health Organisation as a "Global Pandemic" on the 11th March 2020, has impacted global financial markets. Travel restrictions have been implemented by many countries.

Market activity is being impacted in many sectors. As at the valuation date, we consider that we can attach less weight to previous market evidence for comparison purposes to inform opinions of value. Indeed, the current response to COVID-19 means that we are faced with an unprecedented set of circumstances on which to base a judgement.

Our valuation(s) is/are therefore reported on the basis of 'material valuation uncertainty' as per VPS 3 and VPGA 10 of the RICS Red Book Global. Consequently, less certainty - and a higher degree of caution - should be attached to our valuation than would normally be the case. Given the unknown future impact that COVID-19 might have on the real estate market, we recommend that you keep the valuation of this portfolio under frequent review."

The RICS Material Valuation Uncertainty Leaders Forum (UK) reached consensus in early August 2020 that reporting material valuation uncertainty may no longer be appropriate for healthcare assets and therefore it is anticipated that the material uncertainty clause will be removed from the next valuation of the property portfolio which will be conducted as at 30 September 2020.

5. Properties held for sale

                                         As at           As at 
                                  30 June 2020    30 June 2019 
                                       GBP'000         GBP'000 
------------------------------  --------------  -------------- 
 Purchases                               5,695               - 
 Acquisition costs capitalised             300               - 
 Acquisition costs written off           (300)               - 
 Revaluation movement - gains            1,805               - 
------------------------------  --------------  -------------- 
 Closing fair value                      7,500               - 
------------------------------  --------------  -------------- 

The properties held for sale were valued at GBP7,500,000 (30 June 2019: GBPnil) by Colliers International Healthcare Property Consultants Limited ('Colliers'). The properties held for sale consist of a block of apartments adjacent to an existing property holding which was acquired to consolidate ownership of the overall retirement village. The intention is to sell the leasehold on the individual apartments.

6. Investment in subsidiary undertakings

The Group included 46 subsidiary companies as at 30 June 2020 (30 June 2019: 29). All subsidiary companies were wholly owned, either directly or indirectly, by the Company and, from the date of acquisition onwards, the principal activity of each company within the Group was to act as an investment and property company. Other than one subsidiary incorporated in Jersey, two subsidiaries incorporated in Gibraltar and two subsidiaries incorporated in Luxembourg, all subsidiaries are incorporated within the United Kingdom.

During the period, as well as establishing the new parent company (see note 14), the Group acquired eight new active property holding companies; THR Number 29 Limited, THR Number 30 Limited, THR Number 31 Limited, THR Number 32 Limited, THR Number 33 Limited, THR Number 34 Limited, THR Number 35 Limited and THR Number 36 Limited. These acquisitions were accounted for as Investment Property acquisitions. As part of these acquisitions, the Group acquired eight further companies which are currently dormant and which are expected to be liquidated shortly.

7. Bank loans

                                         As at           As at 
                                  30 June 2020    30 June 2019 
                                       GBP'000         GBP'000 
------------------------------  --------------  -------------- 
 Principal amount outstanding          152,000         108,000 
 Set-up costs                          (3,732)         (3,040) 
 Amortisation of set-up costs            1,867           1,460 
------------------------------  --------------  -------------- 
 Total                                 150,135         106,420 
------------------------------  --------------  -------------- 

The Group has a GBP50.0 million committed term loan and revolving credit facility with the Royal Bank of Scotland plc ('RBS') which is repayable on 1 September 2021. Interest accrues on the bank loan at a variable rate, based on three-month LIBOR plus margin and mandatory lending costs, and is payable quarterly. The margin is 1.5 per cent per annum for the duration of the loan and a non-utilisation fee of 0.75 per cent per annum is payable on any undrawn element of the facility. As at 30 June 2020, the Group had drawn GBP50.0 million under this facility (30 June 2019: GBP50.0 million).

The Group has an GBP80.0 million revolving credit facility with HSBC Bank plc ('HSBC') which is repayable on 29 January 2022, with the option of a further one-year extension thereafter subject to the consent of HSBC. Interest accrues on the bank loan at a variable rate, based on three-month LIBOR plus margin and mandatory lending costs, and is payable quarterly. The margin is 1.70 per cent per annum for the duration of the loan and a non-utilisation fee of 0.75 per cent per annum is payable on any undrawn element of the facility. As at 30 June 2020, the Group had drawn GBP52.0 million under this facility (2019: GBP22.0 million).

In January 2020, the Group entered into a new GBP50.0 million committed term loan facility with ReAssure which is repayable on 12 January 2032. Interest accrues on the loan at an aggregate fixed rate of interest of 3.28 per cent per annum, and is payable quarterly. As at 30 June 2020, the Group had drawn GBP50.0 million under this facility (30 June 2019: GBPnil).

During the year, the Group had a GBP40.0 million committed term loan facility with First Commercial Bank, Limited ('FCB'). Interest accrued on the bank loan at a variable rate, based on three-month LIBOR plus margin and mandatory lending costs, and was payable quarterly. The margin was 1.65 per cent per annum for the duration of the loan. The Group repaid the facility in January 2020 and the interest rate swap which had been entered into in order to hedge this facility was also closed out.

The following interest rate swaps were in place during the year ended 30 June 2020:

 Notional                                      Interest   Interest Received 
  Value         Starting       Ending Date      Paid                            Counterparty 
-----------  -------------  ----------------  ---------  ------------------  --------------- 
                             1 September 
 21,000,000   24 June 2019    2021             0.70%      3-month LIBOR                  RBS 
                             1 September 
 9,000,000    7 April 2017    2021             0.86%      3-month LIBOR                  RBS 
 36,000,000   9 July 2018    30 August 2022*   1.43%      3-month LIBOR                  FCB 
-----------  -------------  ----------------  ---------  ------------------  --------------- 

* The interest rate swap with FCB was closed out in January 2020 at the time of repayment of the related loan. The cost of such early redemption was recognised in capital.

Inclusive of all interest rate swaps, the interest rate on GBP80.0 million of the Group's borrowings is fixed, inclusive of the amortisation of arrangement costs, at an all-in rate of 3.13 per cent per annum until at least 1 September 2021. The remaining GBP100.0m of debt, of which GBP72.0 million was drawn at 30 June 2020, would, if fully drawn, carry interest at a variable rate equal to three-month LIBOR plus a weighted average lending margin, inclusive of the amortisation of arrangement costs, of 2.21 per cent per annum.

The fair value of the interest rate swaps at 30 June 2020 was an aggregate liability of GBP227,000 (30 June 2019: liability of GBP707,000) and all interest rate swaps are categorised as level 2 in the fair value hierarchy.

At 30 June 2020, the nominal value of the Group's loans equated to GBP152,000,000 (2019: GBP108,000,000). Excluding the interest rate swaps referred to above, the fair value of these loans, based on a discounted cashflow using the market rate on the relevant treasury plus an estimated margin based on market conditions at 30 June 2020, totalled, in aggregate, GBP153,511,000 (2019: GBP108,000,000). The payment required to redeem the loans in full, incorporating the terms of the Spens clause in relation to the ReAssure facility, would have been GBP165,974,000 (2019: GBP108,000,000) The loans are categorised as level 3 in the fair value hierarchy.

The RBS loan is secured by way of a fixed and floating charge over the majority of the assets of the THR Number One plc Group ('THR1 Group') which consists of THR1 and its two subsidiaries. The ReAssure loan is secured by way of a fixed and floating charge over the majority of the assets of the THR Number 12 plc Group ('THR12 Group') which consists of THR12 and its four subsidiaries. The HSBC loan is secured by way of a fixed and floating charge over the majority of the assets of the THR Number 15 plc Group ('THR15 Group') which consists of THR15 and its 18 subsidiaries (excluding those subsidiaries which are currently dormant). In aggregate, the Group has granted a fixed charge over properties with a market value of GBP496 million as at 30 June 2020.

Under the bank covenants related to the loans, the Group is to ensure that:

-- the loan to value percentage for each of THR1 Group and THR15 Group does not exceed 50 per cent;

   --      the loan to value percentage for THR12 Group does not exceed 60 per cent; and 

-- the interest cover, or equivalent, for each of THR1 Group, THR12 Group and THR15 Group is greater than c.300 per cent on any calculation date.

All bank loan covenants have been complied with during the year.

Analysis of net debt:

                             Cash and                                       Cash and 
                     cash equivalents                               cash equivalents 
                                          Borrowing     Net debt                         Borrowing     Net debt 
                                 2020          2020         2020                2019          2019         2019 
                              GBP'000       GBP'000      GBP'000             GBP'000       GBP'000      GBP'000 
-----------------  ------------------  ------------  -----------  ------------------  ------------  ----------- 
 Opening balance               26,946     (106,420)     (79,474)              41,400      (64,182)     (22,782) 
 Cash flows                     9,494      (42,511)     (33,017)            (14,454)      (41,604)     (56,058) 
 Non-cash flows                     -       (1,204)      (1,204)                   -         (634)        (634) 
-----------------  ------------------  ------------  -----------  ------------------  ------------  ----------- 
 Closing balance               36,440     (150,135)    (113,695)              26,946     (106,420)     (79,474) 
-----------------  ------------------  ------------  -----------  ------------------  ------------  ----------- 

8. Share capital

 Allotted, called-up and fully paid ordinary 
  shares                                            Number of shares     GBP'000 
-------------------------------------------------  -----------------  ---------- 
 Target Healthcare REIT Limited 
 Opening balance                                         385,089,448     372,685 
 Dividends allocated to capital                                          (1,393) 
-------------------------------------------------  -----------------  ---------- 
 Shares in issue at date of Group reconstruction         385,089,448     371,292 
-------------------------------------------------  -----------------  ---------- 
 Target Healthcare REIT plc 
 Ordinary shares of GBP1 each in issue                             1           - 
 Ordinary shares of GBP1 each issued as 
  part of Group reconstruction                           385,089,448     385,090 
 Reduction of nominal value of ordinary 
  shares to GBP0.01 each                                           -   (381,239) 
 Ordinary shares of GBP0.01 each issued 
  on 25 September 2019                                    72,398,191         724 
-------------------------------------------------  -----------------  ---------- 
 Balance as at 30 June 2020                              457,487,640       4,575 
-------------------------------------------------  -----------------  ---------- 

Under the Company's Articles of Association, the Company may issue an unlimited number of ordinary shares. Ordinary shareholders are entitled to all dividends declared by the Company and to all of the Company's assets after repayment of its borrowings and ordinary creditors. Ordinary shareholders have the right to vote at meetings of the Company. All Ordinary Shares carry equal voting rights.

Under a scheme of arrangement, the parent company of the Group changed from Target Healthcare REIT Limited to Target Healthcare REIT plc on 7 August 2019. Under this scheme of arrangement, each shareholder received one share in Target Healthcare REIT plc for every one share previously held in Target Healthcare REIT Limited. After completion of the scheme of arrangement, the Company undertook a capital reduction. On 24 September 2019, the High Court confirmed the reduction of the nominal value of each of the 385,089,449 shares in issue from GBP1.00 to GBP0.01. The reduction in the share capital of GBP381,239,000 created the Group's distributable reserve. See note 14 for further details.

During the year to 30 June 2020, the Company issued a further 72,398,191 ordinary shares of GBP0.01 raising gross proceeds of GBP80,000,000 (2019: Target Healthcare REIT Limited, the previous parent company, issued 45,871,559 ordinary shares raising GBP50,000,000). The consideration received in excess of the par value of the ordinary shares issued, net of the expenses of issue of GBP1,824,000, has been credited to the share premium account.

During the year to 30 June 2020, the Company did not repurchase any ordinary shares into treasury (2019: nil) or resell any ordinary shares from treasury (2019: nil). At 30 June 2020, the Company did not hold any shares in treasury (2019: nil).

Capital management

The Group's capital is represented by the share capital, share premium, merger reserve, distributable reserve, hedging reserve, capital reserve, revenue reserve and long-term borrowings. The Company is not subject to any externally-imposed capital requirements, other than the financial covenants on its loan facilities as detailed in note 7.

The capital of the Group is managed in accordance with its investment policy, in pursuit of its investment objective.

Capital risk management

The objective of the Group is to provide ordinary shareholders with an attractive level of income together with the potential for income and capital growth from investing in a diversified portfolio of freehold and long leasehold care homes that are let to care home operators; and other healthcare assets in the UK.

The Board has responsibility for ensuring the Group's ability to continue as a going concern. This involves the ability to borrow monies in the short and long term; and pay dividends out of reserves, all of which are considered and approved by the Board on a regular basis.

To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders, issue new shares or buyback shares for cancellation or for holding in treasury. The Company may also increase or decrease its level of long-term borrowings.

Where ordinary shares are held in treasury these are available to be sold to meet on-going market demand. The ordinary shares will be sold only at a premium to the prevailing NAV per share. The net proceeds of any subsequent sales of shares out of treasury will provide the Company with additional capital to enable it to take advantage of investment opportunities in the market and make further investments in accordance with the Company's investment policy and within its appraisal criteria. Holding shares in treasury for this purpose assists the Company in matching its on-going capital requirements to its investment opportunities and therefore reduces the negative effect of holding excess cash on its balance sheet over the longer term.

No changes were made in the objectives, policies or processes during the year.

9. Financial instruments

Consistent with its objective, the Group holds UK care home property investments. In addition, the Group's financial instruments comprise cash, bank loans and receivables and payables that arise directly from its operations. The Group's exposure to derivative instruments consists of interest rate swaps used to fix the interest rate on the Group's variable rate borrowings.

The Group is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk, liquidity risk, interest rate risk and market price risk. There is no foreign currency risk as all assets and liabilities of the Group are maintained in pounds sterling.

The Board reviews and agrees policies for managing the Group's risk exposure. These policies are summarised below and have remained unchanged for the year under review. These disclosures include, where appropriate, consideration of the Group's investment properties which, whilst not constituting financial instruments as defined by IFRS, are considered by the Board to be integral to the Group's overall risk exposure.

Credit risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group. At the reporting date, the Group's financial assets exposed to credit risk amounted to GBP39,854,000 (2019: GBP31,057,000), consisting of cash of GBP36,440,000 (2019: GBP26,946,000), net rent receivable of GBP1,520,000 (2019: GBP602,000), accrued development interest of GBP996,000 (2019: GBP1,378,000) and other debtors of GBP898,000 (2019: GBP2,131,000).

In the event of default by a tenant if it is in financial difficulty or otherwise unable to meet its obligations under the lease, the Group will suffer a rental shortfall and incur additional expenses until the property is relet. These expenses could include legal and surveyor's costs in reletting, maintenance costs, insurances, rates and marketing costs and may have a material adverse impact on the financial condition and performance of the Group and/or the level of dividend cover. The Board receives regular reports on concentrations of risk and any tenants in arrears. The Investment Manager monitors such reports in order to anticipate, and minimise the impact of, defaults by occupational tenants. The expected credit risk in relation to tenants is an inherent element of the due diligence considered by the Investment Manager on all property transactions with an emphasis being placed on ensuring that initial rents are set at a sustainable level. The risk is further mitigated by rental deposits or guarantees where considered appropriate. The majority of rental income is received in advance.

As at 30 June 2020, the Company had recognised a credit loss allowance totalling GBP2,402,000 against a gross rent receivable balance of GBP3,922,000 and, whilst this balance has increased during the year ended 30 June 2020, it remains low relative to the Group's overall balance sheet. The provision relates primarily to two tenants where active asset management activities are being taken as described in the Chairman's Statement. As at 30 June 2019, the provision was GBP261,000, of which GBP261,000 is still outstanding. There were no other financial assets which were either past due or considered impaired at 30 June 2020 (2019: nil).

All of the Group's cash is placed with financial institutions with a long-term credit rating of BBB or better. Bankruptcy or insolvency of such financial institutions may cause the Group's ability to access cash placed on deposit to be delayed, limited or lost. Should the credit quality or the financial position of the banks currently employed significantly deteriorate, cash holdings would be moved to another bank.

Over the course of the year, due to the quantum of cash balances held, counterparty risk was spread by placing cash across different financial institutions. At 30 June 2020 the Group held GBP36.4 million (2019: GBP26.5 million) with The Royal Bank of Scotland plc and GBPnil million with First Commercial Bank, Limited (2019: GBP0.5 million). During the year, monies were also held with HSBC Bank plc.

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulties in realising assets or otherwise raising funds to meet financial commitments. The Group's investments comprise UK care homes. Property and property-related assets in which the Group invests are not traded in an organised public market and may be illiquid. As a result, the Group may not be able to liquidate quickly its investments in these properties at an amount close to their fair value in order to meet its liquidity requirements.

The Group's liquidity risk is managed on an on-going basis by the Investment Manager and monitored on a quarterly basis by the Board. In order to mitigate liquidity risk the Group aims to have sufficient cash balances (including the expected proceeds of any property sales) to meet its obligations for a period of at least twelve months.

Interest rate risk

Some of the Company's financial instruments are interest-bearing. Interest-rate risk is the risk that future cash flows will change adversely as a result of changes in market interest rates.

The Group's policy is to hold cash in variable rate or short-term fixed rate bank accounts. Interest is received on cash at a weighted average variable rate of 0.01 per cent (2019: 0.20 per cent). Exposure varies throughout the period as a consequence of changes in the composition of the net assets of the Group arising out of the investment and risk management policies. These balances expose the Group to cash flow interest rate risk as the Group's income and operating cash flows will be affected by movements in the market rate of interest.

The Group has GBP130.0 million (2019: GBP170.0 million) of committed term loans and revolving credit facilities which were charged interest at a rate of three-month LIBOR plus the relevant margin. At the year-end GBP102.0 million of the variable rate facilities had been drawn down (2019: GBP108.0 million). The fair value of the variable rate borrowings is affected by changes in the market rate of the lending margin that would apply to similar loans. The variable rate borrowings are carried at amortised cost and the Group considers this to be a close approximation to fair value at 30 June 2020 and 30 June 2019.

The Group has not hedged its exposure on GBP72.0 million of the variable rate borrowings at 30 June 2020 (2019: GBP42.0 million). On these loans the interest was payable at a variable rate equal to three-month LIBOR plus the weighted average lending margin, including the amortisation of costs, of 2.17 per cent per annum. The variable rate borrowings expose the Group to cash flow interest rate risk as the Group's income and operating cash flows will be affected by movements in the market rate of interest.

The Group has a GBP50.0 million fixed rate term loan (2019: GBPnil) and has hedged its exposure on GBP30.0 million (2019: GBP66.0 million) of the variable rate loans, as referred to above, through entering into fixed rate interest rate swaps. Fixing the interest rate exposes the Group to fair value interest rate risk as the fair value of the fixed rate borrowings, or the fair value of the interest rate swap used to fix the interest rate on an otherwise variable rate loan, will be affected by movements in the market rate of interest. The GBP50.0 million fixed rate term loan is carried at amortised cost on the Group's balance sheet, with the estimated fair value and cost of repayment being disclosed in note 7, whereas the fair value of the interest rate swaps is recognised directly on the Group's balance sheet. At 30 June 2020, an increase of 0.25 per cent in interest rates would have decreased the fair value of the interest rate swap liability and increased the reported total comprehensive income for the year by GBP0.1 million (2019: GBP0.4 million). The same movement in interest rates would have decreased the fair value of the fixed rate term loan by GBP1.2 million (2019: n/a); however, as the fixed rate loan is held at amortised cost, the reported total comprehensive income for the year would have remained unchanged. A decrease in interest rates would have had an approximately equal and opposite effect.

Market price risk

The management of market price risk is part of the investment management process and is typical of a property investment company. The portfolio is managed with an awareness of the effects of adverse valuation movements through detailed and continuing analysis, with an objective of maximising overall returns to shareholders. Investments in property and property-related assets are inherently difficult to value due to the individual nature of each property. As a result, valuations are subject to substantial uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where such sales occur shortly after the valuation date. Such risk is minimised through the appointment of external property valuers.

10. Capital commitments

The Group had capital commitments as follows:

                                                      30 June 2020   30 June 2019 
                                                           GBP'000        GBP'000 
---------------------------------------------------  -------------  ------------- 
 Amounts due to complete forward fund developments 
  and acquisition commitments                                5,394         12,263 
 Other capital expenditure commitments                         530          2,233 
---------------------------------------------------  -------------  ------------- 
 Total                                                       5,924         14,496 
---------------------------------------------------  -------------  ------------- 

11. Related party transactions

The Board of Directors is considered to be a related party. No Director has an interest in any transactions which are, or were, unusual in their nature or significant to the nature of the Group. The Directors of the Group received fees for their services. Total fees for the year were GBP160,000 (2019: GBP177,000) of which GBP12,000 (2019: GBP19,000) remained payable at the year-end.

The Investment Manager received GBP5,264,000 (inclusive of irrecoverable VAT) in management fees in relation to the year ended 30 June 2020 (2019: GBP4,702,000). Of this amount GBP1,364,000 (2019: GBP1,162,000) remained payable at the year-end. The Investment Manager received a further GBP129,000 (inclusive of irrecoverable VAT) during the year ended 30 June 2020 (2019: GBPnil) in relation to its appointment as Company Secretary and Administrator, of which GBP35,000 (2019: GBPnil) remained payable at the year end. Certain employees of the Investment Manager are directors of some of the Group's subsidiaries. Neither they nor the Investment Manager receive any additional remuneration in relation to fulfilling this role.

There were related party transactions within the Group and its wholly-owned subsidiaries which are eliminated upon consolidation.

12. Operating segments

The Board has considered the requirements of IFRS 8 'Operating Segments'. The Board is of the view that the Group is engaged in a single segment of business, being property investment, and in one geographical area, the United Kingdom, and that therefore the Group has only a single operating segment. The Board of Directors, as a whole, has been identified as constituting the chief operating decision maker of the Group. The key measure of performance used by the Board to assess the Group's performance is the EPRA NAV. The reconciliation between the NAV, as calculated under IFRS, and the EPRA NAV is detailed in note 3.

The view that the Group is engaged in a single segment of business is based on the following considerations:

- One of the key financial indicators received and reviewed by the Board is the total return from the property portfolio taken as a whole;

- There is no active allocation of resources to particular types or groups of properties in order to try to match the asset allocation of the benchmark; and

   -     The management of the portfolio is ultimately delegated to a single property manager, Target. 

13. Contingent assets and liabilities

As at 30 June 2020, ten (2019: nine) properties within the Group's investment property portfolio contained deferred consideration clauses meaning that, subject to contracted performance conditions being met, deferred payments totalling GBP18.03 million (2019: GBP18.75 million) may be payable by the Group to the vendors/tenants of these properties. The potential timings of these payments are also conditional on the date(s) at which the contracted performance conditions are met and are therefore uncertain.

Having assessed each clause on an individual basis, the Company has determined that none of these deferred consideration clauses are more likely than not to become payable in the future and therefore an amount of GBPnil (2019: GBPnil) has been recognised as a liability at 30 June 2020. It is highlighted that the potential deferred consideration would, if paid, result in an increase in the rental income due from the tenant of the relevant property. As the net initial yield used to calculate the additional rental which would be payable is not significantly different from the investment yield used to arrive at the valuation of the properties, any deferred consideration paid would be expected to result in a commensurate increase in the value of the Group's investment property portfolio.

As part of the sale agreements in relation to the two properties sold in July 2019, the Group may receive further proceeds from these sales should either property be re-sold prior to 18 July 2021 for a price above a pre-determined level.

14. Significant events: corporate reconstruction

On 21 June 2019, Target Healthcare REIT Limited ("Original THRL") announced proposals to change the Group's corporate structure by establishing Target Healthcare REIT plc ("New THRL" or "the Company") a new English-incorporated parent company (registration number: 11990238), at the head of the Group. The Board believed that moving the Group's ultimate parent company to a UK domicile would align the Group with its UK tax jurisdiction, maintain and enhance its important relationships with UK local authorities and health services and help to reduce some of the Group's administration costs and regulatory complexities which arose due to the requirement to operate in both Jersey and the UK.

The proposal, which required the approval of Original THRL's existing shareholders and the Royal Court of Jersey, was effected by way of a scheme of arrangement under article 125 of the Companies (Jersey) Law 1991 pursuant to which the Company acquired Original THRL and became its ultimate parent company. The Company replicates all of the existing arrangements and structure of Original THRL. It has, for example, the same management, depositary and corporate governance arrangements alongside having the same investment, gearing and dividend policies. The Company is also a REIT for the purposes of UK taxation.

The scheme of arrangement was approved by shareholders at meetings held on 18 July 2019 and, following the agreement of the Royal Court of Jersey, became effective on 7 August 2019. Original THRL's existing shareholders received one new share in the Company for every share they held in Original THRL at close on 6 August 2019. The Ordinary Shares of the Company were admitted to the premium segment of the Official List and to trading on the main market of the London Stock Exchange on 7 August 2019.

The scheme of arrangement gave rise to the issuance of 385,089,448 Ordinary Shares in the Company with a nominal value of GBP1 each. The shares were issued at a deemed fair value of 112.4 pence per share, which was the market price of the shares of Original THRL as quoted on the London Stock Exchange immediately prior to the completion of the scheme of arrangement. The difference between the aggregate fair value and the aggregate nominal value, which constitutes the amount eligible for merger relief under section 612 of the Companies Act 2006, has been credited to the merger reserve. The difference between the fair value of the shares issued and the stated capital account of Original THRL immediately prior to the completion of the scheme of arrangement has been offset against the distributable reserve.

After completion of the scheme of arrangement, the Company undertook a capital reduction. On 24 September 2019, the High Court confirmed the reduction of the nominal value of each of the 385,089,449 shares in issue from GBP1.00 to GBP0.01, creating a distributable reserve of GBP381,239,000.

A breakdown of the merger and distributable reserves at 30 June 2020 are shown below:

-------------------------------------------------------------   ---------- 
 Fair value of shares issued under the scheme of arrangement       432,841 
 Nominal value of shares of GBP1.00 each issued under 
  the scheme of arrangement                                      (385,090) 
--------------------------------------------------------------  ---------- 
 Merger reserve at 30 June 2020                                     47,751 
--------------------------------------------------------------  ---------- 
-------------------------------------------------------------   ---------- 
 Stated capital account of Original THRL immediately 
  prior to scheme of arrangement                                   371,292 
 Fair value of shares issued                                     (432,841) 
--------------------------------------------------------------  ---------- 
 Reduction of nominal value from GBP1.00 per share to 
  GBP0.01 per share                                                381,239 
 Dividends subsequently charged to the distributable 
  reserve*                                                        (22,920) 
--------------------------------------------------------------  ---------- 
 Distributable reserve at 30 June 2020                             296,770 
--------------------------------------------------------------  ---------- 

* Being the interim dividends for the year ended 30 June 2020 paid by the Company before it has had sufficient time to build up its own revenue reserve.

15. Post balance sheet events

Subsequent to the year end, the Group has acquired a new-build care home in Bicester, Oxfordshire for a consideration of GBP15 million inclusive of costs. The high quality, 66 bed, purpose-built asset is let to Ideal Carehomes, the Group's largest tenant, on a 35-year, fully repairing and insuring, occupational lease which includes annual, upwards-only RPI-linked increases, subject to a cap and collar.

In addition, practical completion on the development of an 80-bed care home in Burscough, Lancashire was achieved in July 2020. The home was completed under a forward-fund arrangement pre-let to Athena Healthcare, an existing tenant of the Group, at a cost of GBP10 million, on a 35-year lease with RPI-linked increases, subject to a cap and collar.

16. Financial statements

This statement was approved by the Board on 5 October 2020. It is not the Company's full statutory financial statements in terms of Section 434 of the Companies Act 2006. The statutory annual report and financial statements for the year ended 30 June 2020 has been approved and audited and received an unqualified audit report which did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report. The statutory annual report and financial statements for the year to 30 June 2020 will be posted to shareholders in October 2020 and will be available for inspection at Level 13, Broadgate Tower, 20 Primrose Street, London, EC2A 2EW, the registered office of the Company.

The statutory annual report and financial statements will be made available on the website: . Copies may also be obtained from Target Fund Managers Limited, Laurel House, Laurelhill Business Park, Stirling FK7 9JQ.

The audited financial statements for the year to 30 June 2020 will be lodged with the Registrar of Companies following the Annual General Meeting to be held on 2 December 2020.

Alternative Performance Measures

The Company uses Alternative Performance Measures ('APMs'). APMs do not have a standard meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other entities. The definitions of all APMs used by the Company are highlighted in the glossary contained in the Annual Report, with detailed calculations, including reconciliation to the IFRS figures where appropriate, being set out below.

Discount or Premium - the share price of an Investment Company is derived from buyers and sellers trading their shares on the stock market. This price is not identical to the NAV. If the share price is lower than the NAV per share, the shares are trading at a discount and, if the share price is higher than the NAV per share, are said to be at a premium. The figure is calculated at a point in time.

                                                      2020     2019 
                                                      pence    pence 
-------------------------------------  -----------  -------  ------- 
 EPRA Net Asset Value per share (see 
  note 3)                                  (a)       108.1    107.5 
 Share price                               (b)       110.0    115.6 
-------------------------------------  -----------  -------  ------- 
 Premium                                = (b-a)/a     1.8%     7.5% 
-------------------------------------  -----------  -------  ------- 

Dividend Cover - the percentage by which Group specific adjusted EPRA earnings for the year cover the dividend paid.

                                                        2020       2019 
                                                       GBP'000    GBP'000 
----------------------------------------  ---------  ---------  --------- 
 Group-specific EPRA earnings for the 
  year (see note 3)                          (a)       23,224     20,115 
   First interim dividend                               7,640      5,579 
 Second interim dividend                               7,640      6,334 
 Third interim dividend                                7,640      6,334 
 Fourth interim dividend                               7,640      6,334 
---------------------------------------------------  ---------  --------- 
 Dividends paid in relation to the year      (b)       30,560     24,581 
 Dividend cover                            = (a/b)      76%        82% 
----------------------------------------  ---------  ---------  --------- 

EPRA Cost Ratio

The EPRA cost ratios are produced using EPRA methodology, which aims to provide a consistent base-line from which companies can provide additional information, and include all property expenses and management fees. The Group did not have any vacant properties during the periods and therefore separate measures excluding direct vacancy costs are not presented. Consistent with the Group specific adjusted EPRA earnings detailed in note 3 to the Consolidated Financial Statements, similar adjustments have been made to also present the adjusted Cost Ratio which is thought more appropriate for the Group's business model.

                                                          Year ended    Year ended 
                                                            30 June     30 June 2019 
                                                             2020         GBP'000 
------------------------------------------  -----------  -----------  -------------- 
 Investment management fee                                  5,264          4,702 
 Other expenses                                             4,261          2,013 
-------------------------------------------------------  -----------  -------------- 
 EPRA costs                                     (a)         9,525          6,715 
 Specific cost adjustments, if applicable                     -              - 
------------------------------------------  -----------  -----------  -------------- 
 Group specific adjusted EPRA costs             (b)         9,525          6,715 
------------------------------------------  -----------  -----------  -------------- 
 Gross rental income per IFRS                   (c)         44,267        34,277 
 Adjusted for rental income arising 
  from recognising guaranteed rent review 
  uplifts and lease incentives                              (8,219)        (6,354) 
 Adjusted for development interest 
  under forward fund arrangements                             975           2,011 
 Group specific adjusted gross rental 
  income                                        (d)         37,023        29,934 
 EPRA Cost Ratio (including direct 
  vacancy costs)                              = (a/c)       21.5%          19.6% 
 EPRA Group specific adjusted Cost 
  Ratio (including direct vacancy costs)       = (b/d)       25.7%          22.4% 
------------------------------------------  -----------  -----------  -------------- 

Ongoing Charges - a measure of all operating costs incurred in the reporting period, calculated as a percentage of average net assets in that year. Operating costs exclude costs of buying and selling investments, interest costs, taxation, non-recurring costs and the costs of buying back or issuing ordinary shares.

                                                           2020        2019 
                                                          GBP'000     GBP'000 
-------------------------------------------  ---------  ----------  --------- 
 Investment management fee                                 5,264      4,702 
 Other expenses                                            4,261      2,013 
 Less movement in impairment for credit 
  losses and bad debts written off                         (2,171)     (337) 
 Less direct property costs and other 
  non-recurring items                                      (138)       (56) 
 Adjustment to management fee arrangements 
  and irrecoverable VAT*                                     259       (264) 
------------------------------------------------------  ----------  --------- 
 Total                                          (a)        7,475      6,058 
-------------------------------------------  ---------  ----------  --------- 
 Average net assets                             (b)       493,691    399,308 
 Ongoing charges                              = (a/b)      1.51%      1.52% 
-------------------------------------------  ---------  ----------  --------- 

* The management fee is expected to be paid at a rate of 1.05% of the Group's average net asset plus an effective irrecoverable VAT rate of approximately 7%. The management fee has therefore been amended so that the Ongoing Charges figure includes the expected all-in management fee rate of 1.12%.

EPRA Net Initial Yield and EPRA Topped-up Net Initial Yield - EPRA Net Initial Yield is calculated as annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the market value of the property, increased with (estimated) purchasers' costs. The EPRA Topped-up Net Initial Yield incorporates an adjustment in respect of the expiration of rent-free periods (or other unexpired lease incentives).

                                                         2020        2019 
                                                        GBP'000     GBP'000 
-----------------------------------------  ---------  ----------  ---------- 
 Annualised passing rental income based 
  on cash rents                               (a)       36,749      30,542 
 Notional rent expiration of rent-free 
  periods or other lease incentives                       2,264       1,651 
----------------------------------------------------  ----------  ---------- 
 Topped-up net annualised rent                (b)       39,013      32,193 
-----------------------------------------  ---------  ----------  ---------- 
 Standing assets including properties 
  held for sale (see notes 4 and 5)                      604,984     482,084 
 Allowance for estimated purchasers' 
  costs                                                 40,916      32,573 
----------------------------------------------------  ----------  ---------- 
 Grossed-up completed property portfolio 
  valuation                                   (c)       645,900     514,657 
-----------------------------------------  ---------  ----------  ---------- 
 EPRA Net Initial Yield                     = (a/c)      5.69%       5.93% 
 EPRA Topped-up Net Initial Yield           = (b/c)      6.04%       6.26% 
-----------------------------------------  ---------  ----------  ---------- 

Total Return - the return to shareholders calculated on a per share basis by adding dividends paid in the period to the increase or decrease in the Share Price or NAV. The dividends are assumed to have been reinvested in the form of Ordinary Shares or Net Assets.

                                                    2020                  2019 
-------------------------------  ---------  --------------------  -------------------- 
                                               EPRA      Share       EPRA      Share 
                                                NAV       price       NAV       price 
                                              (pence)    (pence)    (pence)    (pence) 
-------------------------------  ---------  ---------  ---------  ---------  --------- 
 Value at start of year             (a)       107.5      115.6      105.7      110.5 
 Value at end of year               (b)       108.1      110.0      107.5      115.6 
-------------------------------  ---------  ---------  ---------  ---------  --------- 
 Change in value during the 
  year (b-a)                        (c)        0.6       (5.6)       1.8        5.1 
 Dividends paid                     (d)        6.7        6.7        6.5        6.5 
 Additional impact of dividend 
  reinvestment                      (e)        0.2         -         0.3        0.3 
-------------------------------  ---------  ---------  ---------  ---------  --------- 
 Total gain/(loss) in year 
  (c+d+e)                           (f)        7.5        1.1        8.6        11.9 
-------------------------------  ---------  ---------  ---------  ---------  --------- 
 Total return for the year        = (f/a)      7.0%       0.9%       8.1%      10.8% 
-------------------------------  ---------  ---------  ---------  ---------  --------- 

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