Target Healthcare REIT PLC Net Asset Value, Corporate Update & Dividend (1409V)

TIDMTHRL

RNS Number : 1409V

Target Healthcare REIT PLC

05 August 2020

5 August 2020

Target Healthcare REIT plc and its subsidiaries

("Target Healthcare" or "the Group")

Net Asset Value, update on corporate activity & dividend declaration

Target Healthcare (LSE: THRL), the UK listed specialist investor in modern, purpose-built care homes, announces its unaudited quarterly Net Asset Value (NAV) as at 30 June 2020, together with an update on corporate activity and declares its fourth interim dividend. Despite the more general uncertain backdrop in relation to COVID-19, the Group is pleased to report an increase in its NAV alongside the announced dividend.

Corporate activity highlights

NAV progression and balance sheet strength

-- EPRA NAV per share of 108.1 pence (31 March 2020: 108.0 pence) reflecting an increase in the value of the operational portfolio as a result of inflation-linked upwards-only rent reviews

   --      NAV total return (including dividend) of 1.6% for the quarter 

-- Cash reserves of GBP20 million (at 4 August 2020) together with GBP28 million available in undrawn facilities, and low net loan-to-value ("LTV") of 18.7%, provides significant operational flexibility

Portfolio performance

-- Total property portfolio value of GBP617.6 million, with a like-for-like increase of 0.5% in the value of the operational portfolio; and an EPRA topped-up net initial yield of 6.04%

   --      17 rent reviews completed at an average uplift of 2.1% per annum 

-- Like-for-like rental growth of 0.4%; contractual rent roll of GBP39.0 million per annum at quarter end generated from 71 operational properties, increasing to GBP40.5 million per annum from 73 operational properties following the acquisition and development completion subsequent to the quarter end as detailed below

   --      Weighted average unexpired lease term across the portfolio of 29.0 years. 

-- Total portfolio rent collection continues to be resilient, as announced in more detail on 6 July 2020, demonstrating the stable and secure nature of the portfolio's cashflows

Acquisitions, asset management & personnel

-- Practical completion of the Group's pre-let development site in Burscough, Lancashire, in July 2020, delivering an 80-bed care home

-- On 3 July 2020 the Group completed the acquisition of a 66-bed new-build care home in Bicester, Oxfordshire, for GBP15 million including costs

-- As announced on 4 May 2020, the Board of Directors is pleased to have Ms Alison Fyfe join as an independent non-executive Director

Dividend

-- Fourth interim dividend of 1.67 pence per share declared for the year ended 30 June 2020, representing an increase of 1.5% on the FY 2019 quarterly dividends. On an annualised basis, this reflects a payment of 6.68 pence per share and a dividend yield of 6.1% based on the closing share price of 109.8 pence on 4 August 2020

COVID-19 Update

Confirmed or suspected cases of COVID-19 are currently affecting residents occupying less than 0.3% of the portfolio's beds, a significant reduction from the peak of 3.2% in mid-April. Whilst portfolio occupancy has fallen as a result of the Group's tenants imposing strict restrictions on admissions prior to and during the lockdown period, admission activity is now picking-up with tenants reporting an encouraging number of enquiries.

Kenneth MacKenzie, CEO of Target Fund Managers, commented:

"Our portfolio has continued to demonstrate its resilient and defensive characteristics during this challenging period, as evidenced by an increase in NAV and affirmation of dividend following strong rental collection.

"Alongside delivering stable returns to our investors we have a clear strategy to deliver positive social impact through the provision of fit for purpose care home real estate to our tenants, for their residents and the care professionals working in these homes. We believe that the responsible investment principles we practice have been evidenced recently through our sustainable and affordable rents which have allowed our tenants to focus on their business of providing care during a period which saw an effective embargo on admissions.

"Reflecting our confidence in the outlook for the sector, we have recommenced our investment activity, which contributes to the opening of 146 beds, across two brand new homes. Our belief is that the chronic undersupply of fit-for-purpose beds facing the UK care home sector is likely to be exacerbated as a result of the COVID-19 pandemic, resulting in growing demand for modern, purpose-built homes with en suite wet-rooms for every resident, which allow dignity, hygiene and enhanced infection control by allowing social distancing. Whilst we remain alert to further economic and sectoral headwinds, and will remain highly disciplined as we look to grow the portfolio, through the strength of our local market expertise and strong stakeholder partnerships, we have an identified pipeline of attractively priced opportunities which we are carefully considering.

"We continue to focus on sustainable long-term performance and believe that the diversification and quality of the property portfolio, combined with the strength of the Group's balance sheet and its long-term debt financing, at both a conservative leverage ratio and attractive long-term interest rate, leaves us well positioned."

Net Asset Value

The Group's unaudited EPRA NAV per share as at 30 June 2020 was 108.1 pence. The total return for the quarter based on EPRA NAV was 1.6%.

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

Corporate Update

Portfolio performance

As at 30 June 2020, the Group's portfolio was valued at GBP617.6 million and comprised 73 properties, consisting of 71 operational care homes and two pre-let sites which are being developed through capped forward funding commitments with established development partners; one of which subsequently reached practical completion in early July 2020.

The portfolio value increased by 0.7% over the quarter. Of this, 0.2% derived from further investment into our development portfolio, with a positive like-for-like movement in the operational portfolio value of 0.5%, reflecting the impact of the inflation-linked rental reviews and the passage of time shortening the remaining rent-free periods.

Portfolio contractual rent increased by 0.4% on a like-for-like basis as a result of the portfolio's inflation-linked upwards-only rent reviews. Where these were completed during the quarter, the average increase was 2.1%.

The portfolio's weighted average unexpired lease term reduced slightly to 29.0 years.

The portfolio had an EPRA topped-up net initial yield of 6.04% based on an annualised contractual rent upon expiry of lease incentives of GBP39.0 million. The EPRA net initial yield was 5.69% based on passing rent of GBP36.7 million. A schedule showing the respective NIY profiles from the unwind of portfolio assets in rent-free periods is shown in the Appendix.

Investment and asset management activity

During the three months to 30 June 2020, the Group's principal focus has been actively managing the current portfolio and working alongside its tenants to offer support and sharing best practice, whilst continuing to comprehensively monitor asset performance in order to protect long term shareholder value.

As noted above, subsequent to the period end and reflecting the robust performance of the portfolio and the attractive off market acquisition opportunities identified, the Group has resumed its investment programme with the acquisition of 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.

Practical completion on the development of an 80-bed care home in Burscough, Lancashire was also achieved in July. 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.

Pipeline and investment market

The investment market for high-quality, modern, fit-for-purpose assets which meet the Group's investment criteria has been subdued as a result of the COVID-19 pandemic, primarily as a result of a deterioration in price discovery. During July, as evidence emerged demonstrating the resilience one would expect from this part of the market given the fundamentals of the investment case, we have seen a small number of transactions agreed earlier in the year progressing to completion, and an emergence of a higher volume of new opportunities at the earlier stages of marketing.

The Investment Manager is analysing and performing diligence on a number of investment opportunities, both near-term and earlier stage. Future acquisitions will be considered carefully taking into account both the market outlook and the Group's available funds.

Debt facilities and swap arrangements

As at 30 June 2020, the Group's total borrowings were GBP152 million, giving an LTV of 18.7%, using net debt (total gross debt less cash, as a proportion of gross property value). The Group's weighted average cost on its drawn debt, inclusive of amortisation of arrangement costs, was 2.87%, with a weighted average term to expiry of 4.24 years.

The Group has GBP80 million of fixed term debt facilities and GBP100 million of revolving credit facilities, with a diversified mix of maturities and lenders. As at 30 June 2020, the Group has drawn GBP80 million of fixed term debt, with interest costs fixed, and GBP72 million under the revolving credit facilities which carry a variable interest rate linked to three-month LIBOR.

Dividends in the period

The Group paid its third interim dividend for the year to 30 June 2020, in respect of the period from 1 January 2020 to 31 March 2020, of 1.67 pence per share, on 29 May 2020 to shareholders on the register on 11 May 2020. This distribution was paid wholly as a property income distribution (PID).

Valuation

The property portfolio was independently valued at GBP617.6 million at 30 June 2020. The valuation report, in accordance with industry practice, was subject to a material uncertainty clause consistent with that reported in the prior quarter.

Announcement of fourth interim dividend

The Company today declares its fourth interim dividend for the year ending 30 June 2020, in respect of the period from 1 April 2020 to 30 June 2020, of 1.67 pence per share as detailed in the schedule below:

   Interim Property Income Distribution (PID):      0.0835  pence per share 
   Interim Ordinary Dividend:                                1.5865  pence per share 
 
 Ex-Dividend Date:   13 August 2020 
 Record Date:        14 August 2020 
 Payment Date:       28 August 2020 
 

The dividend reflects an annualised payment of 6.68 pence per share and a dividend yield of 6.1% based on the 4 August 2020 closing share price of 109.8 pence.

The Company had 457,487,640 ordinary shares in issue at 30 June 2020 and has not issued or bought back any shares since that date.

Shareholders entitled to elect to receive distributions without deduction for withholding tax may complete the declaration form which is available on request from the Company through the contact details provided on its website www.targethealthcarereit.co.uk , or from the Company's registrar. Shareholders who qualify for gross payments are, principally, UK resident companies, certain UK public bodies, UK charities, UK pension schemes and the managers of ISAs, PEPs and Child Trust Funds, in each case subject to certain conditions. Individuals and non-UK residents do not qualify for gross payments of distributions and should not complete the declaration form.

Investor relations

Shareholders will find the latest Group information at its website: https://www.targethealthcarereit.co.uk/

LEI: 213800RXPY9WULUSBC04

ENDS

Enquiries:

Kenneth MacKenzie; Gordon Bland

Target Fund Managers Limited

01786 845 912

Mark Young; Mark Bloomfield

Stifel Nicolaus Europe Limited

020 7710 7600

Dido Laurimore; Claire Turvey; Richard Gotla

FTI Consulting

020 3727 1000

[e-mail]

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 let to 27 tenants with a total value of GBP617.6 million.

The Group invests in modern, purpose-built care homes that are let to high quality tenants who demonstrate strong operational capabilities and a strong care ethos. The Group builds collaborative, supportive relationships with each of its tenants as it believes working in this way helps raise standards of care and helps its tenants build sustainable businesses. In turn, that helps the Group deliver stable returns to its investors.

Important information

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement via Regulatory Information Service this inside information is now considered to be in the public domain.

APPENDIX

   1.     Analysis of movement in EPRA NAV 

The following table provides an analysis of the movement in the unaudited EPRA NAV per share for the period from 1 April 2020 to 30 June 2020:

 
                                                                Pence per share 
                                                               ---------------- 
 EPRA NAV per share as at 31 March 2020                                   108.0 
 
 Revaluation gains / (losses) on investment properties                      0.6 
 Revaluation gains / (losses) on assets under construction^                   - 
 Movement in revenue reserve                                                1.2 
 Third interim dividend payment for the year to 30 June 2020              (1.7) 
-------------------------------------------------------------  ---------------- 
 EPRA NAV per share as at 30 June 2020                                    108.1 
-------------------------------------------------------------  ---------------- 
 Percentage change in the 3-month period                                   0.1% 
-------------------------------------------------------------  ---------------- 
 

The EPRA NAV provides a measure of the fair value of a company on a long-term basis. At 30 June 2020, due to the low valuation ascribed to the Group's remaining interest rate derivative contract used to hedge its exposure to variable interest rates, which is excluded from the calculation of the EPRA NAV, the NAV calculated under International Financial Reporting Standards was 108.0 pence per share.

^Consistent with standard valuation practice for assets under construction, the carrying value of these assets is calculated by the valuer through application of a discount to accumulated costs to date. This discount varies depending on factors such as the remaining development time. As the asset progresses towards completion, the discount that has been applied is unwound.

 
 
            2. Summary balance sheet (unaudited) 
                                              Jun-20    Mar-20    Dec-19    Sep-19 
                                                GBPm      GBPm      GBPm      GBPm 
 Property portfolio*                           617.6     613.4     589.9     511.4 
 Cash                                           36.4      31.1      31.8     116.4 
 Net current assets 
  / (liabilities)*                             (7.7)     (8.3)       7.9     (4.1) 
 Bank loans                                  (152.0)   (142.0)   (135.0)   (130.0) 
                                       -------------  --------  --------  -------- 
 Net assets                                    494.3     494.2     494.6     493.7 
                                       -------------  --------  --------  -------- 
 
 EPRA NAV per share 
  (pence)                                      108.1     108.0     108.1     107.9 
 
 

*Properties within the portfolio are stated at the market value provided by the external valuer and the IFRS effects of fixed/guaranteed minimum rent reviews are not reflected.

The next quarterly valuation of the property portfolio will be conducted by Colliers International Healthcare Property Consultants Limited during September 2020 and the unaudited EPRA NAV per share as at 30 September 2020 is expected to be announced in October 2020.

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

The Group currently has four assets with rent-free periods. As these unwind, assuming no other changes including inter alia the portfolio valuation or rental profile, the EPRA yield profiles for the portfolio will be as follows:

 
                   30 June   30 September   31 December   31 March 
                     2020        2020           2020        2021 
 EPRA topped-up 
  NIY               6.04%       6.04%          6.04%       6.04% 
                  --------  -------------  ------------  --------- 
 EPRA NIY           5.69%       5.76%          5.85%       6.04% 
                  --------  -------------  ------------  --------- 
 Contractual 
  rent (GBPm)       39.0         39.0          39.0         39.0 
                  --------  -------------  ------------  --------- 
 Passing rent 
  (GBPm)            36.7         37.2          37.8         39.0 
                  --------  -------------  ------------  --------- 
 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [e-mail] or visit www.rns.com.

END

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August 05, 2020 02:00 ET (06:00 GMT)