TIDMTHRL
RNS Number : 7146S
Target Healthcare REIT PLC
08 November 2019
8 November 2019
Target Healthcare REIT plc and its subsidiaries
("Target Healthcare" or "the Group")
Net Asset Value and update on corporate activity
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 September 2019 and
provides an update on its corporate activity.
Highlights
-- EPRA NAV per share of 107.9 pence (30 June 2019: 107.5
pence), resulting in a NAV total return (including dividend) for
the quarter of 2.0%
-- 0.7% increase in like-for-like value of the operational
portfolio; total portfolio value of GBP511.4 million, made up of 63
assets comprising 61 operational homes and two pre-let forward
funded developments
-- 11 rent reviews completed at an average uplift of 2.9% per
annum; contractual rent roll now stands at GBP32.9 million per
annum from 61 operational properties
-- Portfolio EPRA Topped-up Net Initial Yield of 6.19%
-- Three new operating homes added to the portfolio through
acquisitions and the Group's development programme, complemented by
the strategic disposal of two homes
-- Net increase in annualised contractual rent of GBP0.7 million
during the quarter, with the number of tenants increasing by two to
26
-- On track to add a further tenant and a further GBP1.7 million
of annual contractual rent during 2019 from the Group's two forward
funded pre-let developments and commitment to acquire an additional
home upon construction completion
-- Subsequent to the quarter-end, the first interim dividend of
1.67 pence per share was declared for the year ending 30 June 2020,
an increase of 1.5% on the 2019 quarterly dividends. On an
annualised basis, this reflects a payment of 6.68 pence per share
and a dividend yield of 5.8% based on the closing share price of
114.8 pence on 7 November 2019
-- Substantially oversubscribed placing raised gross proceeds of
GBP80 million, with strong support from existing and new
shareholders. The targeted size of the placing was increased from
GBP50 million during the marketing period due to investor support
combined with an improved level of dealflow of suitable investment
properties sourced by the Investment Manager.
-- Post-period end acquisitions for a total consideration of
GBP81.3 million inclusive of transaction costs, comprising eight
care homes and a block of retirement apartments, in four separate
transactions, which substantially deploys the placing proceeds.
Kenneth MacKenzie, CEO of Target Fund Managers Limited,
commented:
"The successful capital raise in September has allowed us to
continue the disciplined growth of the portfolio, which is
increasingly well-positioned in terms of both scale and diversity
and thereby enables our delivery of sustainable, long-term income
returns to shareholders. The support and participation of both new
and existing shareholders is a strong endorsement of our growth
strategy, which continues to be underpinned by the chronic shortage
of high quality UK care home rooms, with full en suite wetroom
facilities, coupled with an increasingly discerning resident
profile and an ageing population.
"The most recent acquisitions are the latest demonstration of
our ability to originate opportunities that meet our strict
investment criteria, starting with the underlying quality of the
real estate and the local market fundamentals. This approach
provides us with conviction that the defensive qualities of the
overall portfolio will support any short term challenges, further
enhanced by the ongoing diversification by operator, location and
end-user payment profile. With our deep sector knowledge and strong
tenant relationships we remain well placed to deploy the balance of
capital we have available over the coming months."
Net Asset Value
The Group's unaudited EPRA NAV per share as at 30 September 2019
was 107.9 pence. The total return for the quarter based on EPRA NAV
was 2.0%.
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 September 2019, the Group's portfolio was valued at
GBP511.4 million and comprised 63 assets, a combination of 61
operational care homes and two pre-let sites, which are being
developed through capped forward funding commitments with
established development partners.
The portfolio value has increased by 2.1% over the quarter. Of
this, 1.4% is derived from acquisitions and further investment into
developments, net of portfolio disposals, with a positive
like-for-like movement in the operational portfolio value of 0.7%,
reflecting the impact of the annual inflation-linked rental reviews
as well as yield shift to reflect the quality and performance of
individual assets.
Portfolio contractual rent has increased by 2.2% over the
quarter, of which 1.7% is the net impact of acquisitions, disposals
and completion of developments. Where rent reviews were completed
during the quarter, the average increase was 2.9%, resulting in a
0.5% like-for-like increase to the contractual rent roll.
The portfolio's weighted average unexpired lease term has
shortened slightly to 28.91 years.
The portfolio had an EPRA topped-up net initial yield of 6.19%
based on an annualised contractual rent upon expiry of lease
incentives of GBP32.9 million. The EPRA net initial yield was 6.02%
based on passing rent of GBP32.0 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
As announced in August, the Group acquired two modern,
purpose-built care homes for GBP18.6 million during the period: a
70-bedroom home with full en suite wet-room facilities in Ripon,
Yorkshire; and a 67-bedroom home with full en suite wet-room
facilities in Stourport, West Midlands. The homes opened to
residents in 2015 and 2018 respectively and are let to a subsidiary
of Maria Mallaband Care Group, the national care home operator and
a new tenant to the Group, on 35-year leases with RPI-linked cap
and collar.
As announced in July, the Group completed the disposal of two
care homes, in Surrey and Essex, for a price which was ahead of
book value.
Construction has completed on the Group's development project in
Preston, Lancashire, which has now opened to residents and provides
74 bedrooms with full en suite wet-room facilities.
The Group has today announced the acquisition of eight care
homes and 31 retirement apartments, in four separate transactions,
for a total consideration of GBP81.3 million including transaction
costs. The acquisitions, which had been identified in advance of
the aforementioned GBP80 million equity placing, deploy the
majority of shareholders' funds in a timely manner, reducing the
cash drag effect of uninvested capital.
Details of the individual transactions are as follows:
-- Completed the acquisition of a portfolio of five care homes,
totalling 362 rooms, in Yorkshire;
-- Exchanged contracts to acquire a further two care homes in
Yorkshire. This transaction will complete once the second home has
received CQC registration, which is expected before the end of the
calendar year;
-- Completed the acquisition of the freehold of 31 retirement
living apartments in Gloucestershire, operated by an existing Group
tenant; and
-- Completed the acquisition of an operational care home in
Dorset which adds a new tenant to the Group.
The acquisition yield on the care home transactions is
representative of assets of a similar standard and location within
the Group's portfolio, with all having the benefit of long-term
occupational leases with RPI-linked cap and collars.
In September the Group announced that it had received notice
from one of its tenants which operates six homes in the portfolio,
Orchard Care Homes, of its intention to exit these six leasehold
homes as part of a wider business restructuring of the tenant's
business. The Investment Manager is in productive discussions with
alternative care home operators to ensure an orderly handover of
these homes with minimal disruption to residents, and reiterates
its expectation that, following the re-tenanting, operational and
financial performance can reasonably be expected to improve and
that this event will not have a material impact on value.
Pipeline and Investment Market
The investment market for the high quality, modern,
fit-for-purpose assets which meet the Group's investment criteria
remains competitive. As can be seen from the acquisitions announced
today, the Group continues, through its Investment Manager, to use
its specialist knowledge, in-house research capabilities and
relationships with vendors and operators to identify and acquire
assets with a compelling investment case. Following these
acquisitions, the Investment Manager is assessing a number of
opportunities to deploy the Group's remaining investible
capital.
Debt facilities & swap arrangements
As at 30 September 2019, the Group's total borrowings were
GBP130.0 million. Taking account of the equity issuance proceeds
received on the final day of the quarter, this gives a
loan-to-value (LTV) of 2.7% using net debt (total gross debt less
cash, as a proportion of gross property value). Gross LTV (total
gross debt as a proportion of gross property value) was 25.4%.
Through RBS, HSBC and FCB, the Group has GBP70 million of fixed
term debt facilities and GBP100 million of revolving facilities. As
at 30 September 2019 the Group had drawn GBP70 million of fixed
term debt and GBP60 million under the revolving facilities, with
the interest on GBP66 million being fixed through interest rate
swaps and the remainder carrying a variable interest rate linked to
3-month LIBOR.
On 1 October 2019 proceeds from the equity issuance become
available and were used to temporarily repay GBP60 million drawn
from the revolving facilities.
As at 30 September 2019 the Group's weighted average cost on its
drawn debt, inclusive of amortisation of arrangement costs, was
3.0% with a weighted average term to expiry of 1.9 years. The Group
is currently assessing options available from lenders which would
extend the term of its facilities.
Dividends in the period
The Group paid its fourth interim dividend for the year to 30
June 2019, in respect of the period from 1 April 2019 to 30 June
2019, of 1.64475 pence per share on 2 August 2019 to shareholders
on the register on 19 July 2019.
Subsequent to the quarter-end, the Company announced its first
interim dividend for the year to 30 June 2020, in respect of the
period from 1 July 2019 to 30 September 2019, of 1.67 pence per
share, payable on 29 November 2019 to shareholders on the register
on 15 November 2019. This distribution will be paid wholly as a
property income distribution (PID).
The dividend reflects an annualised payment of 6.68 pence per
share and a dividend yield of 5.8% based on the 7 November 2019
closing share price of 114.8 pence.
The Company had 457,487,640 ordinary shares in issue at 30
September 2019 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
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 current portfolio comprises 63 assets with a total
value of GBP511.4 million (30 September 2019), which are let to 26
tenants.
The Group only invests in modern, purpose-built 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 July 2019 to 30
September 2019:
Pence per share
----------------
EPRA NAV per share as at 30 June 2019 107.5
Revaluation gains / (losses) on investment properties 0.6
Net effect of acquisition costs and assets under construction^ (0.1)
Effect of equity issuance 0.1
Movement in revenue reserve 1.2
Fourth interim dividend payment for the year to 30 June 2019 (1.4)
---------------------------------------------------------------- ----------------
EPRA NAV per share as at 30 September 2019 107.9
---------------------------------------------------------------- ----------------
Percentage change in the 3-month period 0.4%
---------------------------------------------------------------- ----------------
The EPRA NAV provides a measure of the fair value of a company
on a long-term basis. As at 30 September 2019 the EPRA NAV stated
above differed from that calculated under International Financial
Reporting Standards of 107.7 pence per share. This was due to the
valuation of the Group's interest rate derivative contracts used to
hedge its exposure to variable interest rates, which is excluded
from the calculation of the EPRA NAV.
^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. During
the quarter, one asset has reached practical completion which has
contributed to a positive contribution to EPRA NAV from unwinding
of the discount in this case.
2. Summary balance sheet (unaudited)
Sep-19 Jun-19 Mar-19 Dec-18
GBPm GBPm GBPm GBPm
Investment properties* 511.4 500.9 477.1 463.9
Cash 116.4 26.9 21.1 28.8
Net current assets
/ (liabilities)* (4.1) (6.0) (1.0) (10.2)
Bank loans (130.0) (108.0) (84.0) (71.0)
------------ -------- ------- -------
Net assets 493.7 413.8 413.2 411.5
------------ -------- ------- -------
EPRA NAV per share
(pence) 107.9 107.5 107.3 106.9
*Investment properties are stated at market value 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 January 2020 and the unaudited EPRA NAV per share as
at 31 December 2019 is expected to be announced in January
2020.
3. EPRA NIY profiles and unwind of rent-free periods
The Group has two assets currently 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 September 31 December 31 March 30 June
2019 2019 2020 2020
EPRA topped-up
NIY 6.19% 6.19% 6.19% 6.19%
------------- ------------ --------- --------
EPRA NIY 6.02% 6.10% 6.19% 6.19%
------------- ------------ --------- --------
Contractual
rent (GBPm) 32.9 32.9 32.9 32.9
------------- ------------ --------- --------
Passing rent
(GBPm) 32.0 32.4 32.9 32.9
------------- ------------ --------- --------
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END
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