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
TargetHealthcare@fticonsulting.com
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
-------- ------------- ------------ ---------
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END
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