Net Asset Value, Corporate Update & Dividend

9 May 2024

Target Healthcare REIT plc and its subsidiaries

("Target Healthcare" or "the Group")

Net Asset Value, update on corporate activity and dividend declaration

Target Healthcare (LSE: THRL), the UK listed specialist investor in modern, purpose-built care homes, announces its unaudited quarterly Net Asset Value ('NAV') as at 31 March 2024, an update on corporate activity and its third interim dividend for the year ending 30 June 2024.

Corporate activity highlights

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

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

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

·     Adjusted EPRA EPS for the quarter of 1.57 pence per share, fully covering the dividend of 1.428 pence per share, which is to be paid in respect of the quarter 

·      NAV total return of 3.6% for the quarter (based on EPRA NTA and including payment of dividend)

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

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

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

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

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

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

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

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

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

·      High quality, modern and sustainable real estate portfolio:

o  99% of the portfolio is A or B EPC rated, (100% A to C ratings) and therefore compliant with the minimum energy efficiency standards anticipated to apply from 2030

o  Positive social impact from sector-leading real estate standards: 99% en suite wet-rooms; generous 47 sqm space per resident; sustainable rent of £192 per sqm

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

Kenneth MacKenzie, CEO of Target Fund Managers, commented:

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

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

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

EPRA NTA

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

A balance sheet summary and an analysis of the movement in the EPRA NTA over the quarter is shown in the Appendix of this announcement.

Corporate Update

Portfolio performance

As at 31 March 2024, the Group's portfolio was valued at £934.8 million and comprised 98 properties, consisting of 95 operational care homes and three pre-let sites, which are being developed through capped forward funding commitments with established development partners.

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

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

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

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

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

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

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

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

Portfolio update

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

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

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

Debt facilities and swap arrangements

As at 31 March 2024, the Group's total borrowings were £259 million, representing a net LTV of 25.8% (total gross debt less cash, as a proportion of gross property value). The Group's weighted average cost on its drawn debt, inclusive of amortisation of loan arrangement costs, was 4.14% (31 December 2023: 4.05%).

89% of drawn debt is fully hedged:

·   £150 million is fixed with a weighted average term of 9.9 years and a weighted average interest rate of 3.18% (excluding the amortisation of arrangement fees)

·      £30 million of the Group's bank facilities is fixed at 2.48% for 1.6 years through an interest rate swap

·      £50 million of the Group's drawn revolving credit facilities have interest rates capped at 5.17% via a 3% SONIA cap for 1.6 years

·      The remaining £29 million of the Group's drawn revolving credit facilities carries a variable interest rate of SONIA plus a margin of 2.18%

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

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

Dividends

The Group paid its second interim dividend for the year ending 30 June 2024, in respect of the period from 1 October 2023 to 31 December 2023, of 1.428 pence per share, on 23 February 2024 to shareholders on the register on 9 February 2024. This distribution was comprised wholly of a property income distribution (PID).

Announcement of third interim dividend

The Company today declares its third interim dividend for the year ending 30 June 2024, in respect of the period from 1 January 2024 to 31 March 2024, of 1.428 pence per share as detailed in the schedule below:

Interim Property Income Distribution (PID):     1.428 pence per share

Interim ordinary dividend:                                  nil

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

The Company had 620,237,346 ordinary shares in issue at 31 March 2024 and has not issued or bought back any shares since that date.

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

LEI: 213800RXPY9WULUSBC04

ENDS

Enquiries:

Notes to editors:

UK listed Target Healthcare REIT plc (THRL) is an externally managed Real Estate Investment Trust which provides shareholders with an attractive level of income, together with the potential for capital and income growth, from investing in a diversified portfolio of modern, purpose-built care homes.

The Group's portfolio at 31 March 2024 comprised 98 assets let to 33 tenants with a total value of £934.8 million.

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

Important information

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the UK version of the Market Abuse Regulations (EU) No. 596/2014, which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended. Upon the publication of this announcement via Regulatory Information Service, this inside information is now considered to be in the public domain.

APPENDIX

1.     Analysis of movement in EPRA NTA

The following table provides an analysis of the movement in the unaudited EPRA NTA per share for the period from 1 January 2024 to 31 March 2024:

The EPRA Best Practices Recommendations Guidelines state that companies should publish a set of three NAV metrics. The full set of EPRA NAV metrics are published in the Group's Annual Report. The Company intends to continue to announce the EPRA NTA on a quarterly basis.

At 31 March 2024, due to the valuation ascribed to the Group's interest rate derivative contracts used to hedge its exposure to variable interest rates, which are excluded from the calculation of the EPRA NTA, the unaudited NAV calculated under International Financial Reporting Standards was 109.6 pence per share.

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

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

3.     External Valuer

The valuation of the property portfolio as at 31 March 2024 was conducted by CBRE Limited.

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

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

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