12 April 2016
Corporate Update, Placing Programme and Net Asset Value
Net Asset Value
Target Healthcare REIT Limited (the "Company" and together with its subsidiaries, the "Group") announces that its unaudited EPRA NAV per share as at 31 March 2016 was 100.8 pence. The NAV total return for the quarter was 1.5%.
Portfolio
As at 31 March 2016 the Group owned thirty-three care homes with a market value of £184.1 million. On a like-for-like basis the portfolio has increased in value by 0.9% over the quarter. This valuation increase comes despite the negative impact on valuation from the 1% increase in Stamp Duty Land Tax ("SDLT") and reflects an element of yield compression across individual assets as the underlying trading performance of the homes mature, and uplifts from nine rent reviews where rents increased by 2%, resulting in a like-for-like increase to portfolio passing rent of 0.5%.
As at 31 March 2016, the portfolio had an EPRA net initial yield of 7.0% (based on contractual net income) and an annualised rent roll of £13.6 million with a weighted average unexpired lease term of 28.6 years.
The valuation of the homes is based on the independent external valuation of the Group's property portfolio prepared by Colliers International Healthcare LLP.
A balance sheet summary and an analysis of the movement in EPRA NAV is presented in the Appendix.
Gearing and Increase to debt facility
The Group's borrowings remained unchanged at £31.5 million at 31 March 2016, giving a loan-to-value ratio of 17.1 per cent (calculated as total gross debt as a proportion of gross property value. As the Group expects to invest the vast majority of its current cash balance in new care homes, cash has been excluded from the calculation).
Subsequent to the period-end, on 1 April 2016, the Group agreed to increase its £35 million committed term loan and revolving credit facility with The Royal Bank of Scotland plc to £50 million.
This debt availability will allow the Group to manage its capital structure in line with its stated intention that the long-term average loan-to-value ratio will be approximately 20%, whilst providing capital to fund the completion of transactions which are currently in non-binding advanced legal negotiations.
In the event that the full amount is drawn down under the debt facility, and this and all available cash is utilised to acquire assets, the Group's gearing would be expected to be approximately 25% of the Group's gross assets.
Interest is payable under the facility at a rate equal to 3 month LIBOR plus a margin of 2.0% per annum.
Pipeline and Investment Market
Following its recent acquisitions and extension of debt facilities, the Group has available capital cash reserves of approximately £17.7 million and the ability to drawdown an additional £18.5 million from its existing debt facility. After consideration of its ongoing working capital and corporate requirements, together the cash reserves and the debt facility provide the Group with approximately £30.0 million of cash to deploy into new investments.
The Group has recently seen good activity in the long-term elderly healthcare investment markets with several investment opportunities being shown to it, a decline in overseas investment competition, and an increase in demand from established operators (including existing tenants) for modern, purpose-built properties.
The Group has a near-term pipeline of £68.7 million which includes £14.9 million of assets it has forward committed to fund, and £53.8 million of investment opportunities, the majority of which it hopes to acquire or to have committed to acquiring (subject to due diligence) by 30 June 2016.
In addition, as the investment market has improved, the Investment Manager has also made initial indicative offers on an additional £32.3 million of assets, where the timetable for potential completion remains uncertain pending due diligence and vendor negotiations.
Placing Programme
To provide the Group with operational flexibility and allow it to react quickly in relation to the acquisition opportunities noted above, it is the Company's intention to initiate a new placing programme. Shareholders will be asked to disapply pre-emption rights in connection with shares issued under this placing programme, noting that all placings will happen at a premium to the last published Net Asset Value per share.
As part of the placing programme, the Company will simultaneously launch an initial placing and offer for subscription targeting gross proceeds of circa £75 million, in order that it can complete on the near-term pipeline identified above. The initial placing and offer for subscription is expected to close in early May and the structure of the fundraise should allow all existing UK investors in the Company to participate in the fundraise should they so choose.
The Board believes that the initial placing, offer for subscription and placing programme will have the following benefits to Shareholders and the Company:
· providing additional capital will enable the Company to take advantage of current investment opportunities in the market and make further investments in accordance with the Company's investment policy and within its appraisal criteria;
· as the Company is actively considering a number of specific property opportunities, the initial placing and offer for subscription will assist in matching the capital requirements of the Company to the investment opportunities identified;
· the average net initial yield on the identified pipeline opportunities is expected to be approximately 7%. The new investments should therefore enhance the Company's income focus as well as providing further asset and income diversification for shareholders;
· providing a larger equity base over which the fixed costs of the Company may be spread, thereby reducing the Company's ongoing costs per ordinary share; and
· further diversification of the shareholder register, potentially enhancing liquidity in the Company's shares.
Further details on the initial placing and offer for subscription, including the initial placing and offer price, will be provided when the requisite prospectus and circular are published, which is expected to be on, or around, 15 April 2016.
Dividends in the period
The Company paid its second interim dividend for the year to 30 June 2016, in respect of the period from 1 October 2015 to 31 December 2015, of 1.545 pence per share on 26 February 2016. This reflects an annualised payment of 6.18 pence per share and a dividend yield of 5.6% based on the 11 April 2016 closing share price of 110.4 pence per share.
The Group's unaudited EPRA earnings per share for the quarter was 1.30 pence, excluding the effects of the adjustment to the performance fee for the year to 31 December 2015 as noted in the Appendix.
Acquisitions in the period
The Group has invested £16.0 million in acquisitions inclusive of acquisition costs, and has committed to a further £2.3 million, in the three months to 31 March 2016:
· On 3 February 2016 the Group completed the acquisition of a premium, purpose-built care home in the south east of England for circa £14.2 million (including transaction costs). The home will continue to be operated by the incumbent operator who became the 11th operator in the Group's portfolio. The rent payable under the 30 year lease comprises a base rent subject to RPI-linked uplifts and incorporating a cap and collar, as well as a share in the profits of the care home. The rental income to the Group will therefore be variable but is forecast to represent a net initial yield approaching 7% based upon current run rate trading.
· £1.8 million was invested in the substantial redesign and refurbishment of a care home in Sheffield which was acquired during January 2016, with the refurbishment works expected to be completed by September 2016. The overall price for the acquisition and subsequent renovation of the home is £3.9 million including costs. Upon completion of the refurbishment works the care home will be leased to Care Concern Group, an existing tenant of the Group, for a period of 35 years. The transaction represents a net initial yield in excess of 7% with the rent payable under the lease being subject to an annual uplift in line with the retail prices index subject to a cap and collar.
· On 11 February 2016, the Group exchanged contracts to acquire a 12-bed specialist care home in Bricket Wood, St Albans for approximately £2.3 million including transaction costs. The care home comprises three linked bungalows and has been extensively refurbished to provide the highest quality residential care and supported living accommodation. Following the expiry of the judicial review period, expected imminently, the Group expects to complete the acquisition of the care home and will lease the home back to specialist care provider HSN Care for a period of 50 years. The transaction represents a net initial yield in excess of 7% and the rent payable under the lease is subject to upwards-only annual uplifts in line with the retail prices index, subject to a cap and collar.
Change in Investment Policy
The Group remains focused on selectively securing further assets, at the right price.
To give the Group greater flexibility to execute this objective and in the light of appealing opportunities, changes are proposed to its investment policy to allow for:
· Limited non-speculative forward funding of development and refurbishment activity, all of which would be capped at 25% of the gross assets of the Company. All forward funded assets will be substantially de-risked, for example with planning permission in place and a lease arrangement agreed, prior to the Group's commitment to the development project
· A small increase in the investment limit in relation to other healthcare assets from 10% of Gross Asset Value to 15% of Gross Asset Value. The Investment Manager is seeing some accretive opportunities in areas such as special care schools, physiotherapy practices, specialist hospitals and assets dealing with occupational health. This small increase should allow the Group to more actively pursue these opportunities as and when they arise.
Shareholders will shortly be sent a circular which will explain these proposed changes in more detail and will convene a general meeting at which approval for these changes will be sought.
Quarterly investor report
The Group's quarterly investor report for March 2016 will shortly be available on its website at:
http://www.targethealthcarereit.co.uk/Financial%20reporting.aspx
Kenneth MacKenzie, Managing Partner of Target Advisers LLP, commented on the Group's activity during the period:
"The Group's portfolio has continued to perform well. Quarterly rental returns have allowed the Group to continue paying attractive quarterly dividends and the portfolio has seen further capital growth as the portfolio matures and upwards-only rental reviews are reflected in valuations.
We are delighted to have invested a significant proportion of the proceeds of the November share issue and also have secured the further support of our debt providers to continue to grow the Group's portfolio. We maintain a robust investment pipeline and have a number of investment opportunities under negotiation, which we hope to execute, subject to the availability of capital and completion of our due diligence.
The placing programme will therefore facilitate the acquisition of these investment opportunities and through this allow the Company to continue helping our tenants provide care to their residents in modern, purpose-built care homes on a long-term, sustainable basis."
Enquiries:
Target Advisers
Kenneth MacKenzie
01786 845 912
Stifel Nicolaus Europe Limited
Mark Young, Neil Winward, Tom Yeadon, Roger Clarke
020 7710 7600
R&H Fund Services Limited
Martin Cassels
0131 550 3760
Quill PR
Fiona Harris, Sam Emery
020 7466 5058 / 020 7466 5056
APPENDIX
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 January 2016 to 31 March 2016:
|
Pence per share |
|
EPRA NAV per share as at 31 December 2015 |
100.8 |
|
Property revaluation* |
0.8 |
|
Property acquisition costs |
(0.3) |
|
Movement in revenue reserve (excluding performance fee for year to 31 December 2015) |
1.3 |
|
Movement in performance fee accrual** |
(0.3) |
|
Second interim dividend payment for the year to 30 June 2016 |
(1.5) |
|
EPRA NAV per share as at 31 March 2016 |
100.8 |
|
Percentage change in the 3 month period |
0.0% |
|
*Had there been no increase in SDLT rate the like-for-like portfolio would have increased by 1.6%, in the quarter to 31 March 2016.
**The accrual for the performance fee for the year from 1 January 2015 to 31 December 2015, payable to the investment manager, was increased following the publication by IPD in March 2016 of the index required to calculate this fee. The care home portfolio total return for the year of 13.6% as calculated by Investment Property Databank ("IPD") exceeded the IPD UK Annual Healthcare Property Index total return of 10.4% for the same period.
The EPRA NAV provides a measure of the fair value of a company on a long-term basis. As at 31 March 2016 there were no differences between the EPRA NAV stated above and that calculated under International Financial Reporting Standards.
The Company had 172,180,851 ordinary shares in issue at 31 March 2016 and has not issued or bought back any shares since that date.
SUMMARY BALANCE SHEET (Unaudited) |
|
|
|
|
|
|
|
Mar-16 |
Dec-15 |
Sep-15 |
|
|
|
|
|
£m |
£m |
£m |
|
Investment properties |
|
|
184.1 |
167.2 |
145.8 |
|
|
Cash |
|
|
|
23.0 |
41.1 |
27.2 |
|
Net current assets / (liabilities) |
|
(2.0) |
(3.2) |
(0.4) |
|
|
Bank loan |
|
|
|
(31.5) |
(31.5) |
(31.5) |
|
Net assets |
|
|
173.6 |
173.6 |
141.1 |
|
|
|
|
|
|
|
|
|
|
EPRA NAV per share (pence) |
|
100.8 |
100.8 |
99.2 |
|
|
|
|
|
|
|
|
|
|
Ignores the effect of fixed/guaranteed rent reviews |
|
|
|
The next quarterly valuation of the property portfolio will be conducted by Colliers International Healthcare LLP during June 2016 and the unaudited NAV per share as at 30 June 2016 will be announced in July 2016.
Important Information
The content of this announcement, which has been prepared by, and is the sole responsibility of, Target Healthcare REIT Limited, has been approved by Target Advisers LLP solely for the purposes of section 21 (2)(b) of the Financial Services and Markets Act 2000 (as amended).
The information contained in this announcement is given at the date of its publication (unless otherwise marked) and is subject to updating, revision and amendment from time to time.
Stifel Nicolaus Europe Limited, which is authorised and regulated by the Financial Conduct Authority, is acting only for the Company in connection with the matters described in this announcement and is not acting for or advising any other person, or treating any other person as its client, in relation thereto and will not be responsible for providing the regulatory protection afforded to clients of Stifel Nicolaus Europe Limited or advice to any other person in relation to the matters contained herein.
This announcement may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology. All statements other than statements of historical facts included in this announcement, including, without limitation, those regarding the Company's financial position, strategy, plans, proposed acquisitions and objectives, are forward-looking statements.
Forward-looking statements are subject to risks and uncertainties and, accordingly, the Company's actual future financial results and operational performance may differ materially from the results and performance expressed in, or implied by, the statements. These forward-looking statements speak only as at the date of this announcement and cannot be relied upon as a guide to future performance. The Company, Target Advisers LLP and Stifel Nicolaus Europe Limited expressly disclaim any obligation or undertaking to update or revise any forward-looking statements contained herein to reflect actual results or any change in the assumptions, conditions or circumstances on which any such statements are based unless required to do so by the Financial Services and Markets Act 2000, the Prospectus Rules of the Financial Conduct Authority or other applicable laws, regulations or rules.
None of the Company, Target Advisers LLP or Stifel Nicolaus Europe Limited, or any of their respective affiliates, accepts any responsibility or liability whatsoever for or makes any representation or warranty, express or implied, as to this announcement, including the truth, accuracy or completeness of the information in this announcement (or whether any information has been omitted from the announcement) or any other information relating to the Company or associated companies, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available or for any loss howsoever arising from any use of the announcement or its contents or otherwise arising in connection therewith. The Company, Target Advisers LLP and Stifel Nicolaus Europe Limited, and their respective affiliates, accordingly disclaim all and any liability whether arising in tort, contract or otherwise which they might otherwise have in respect of this announcement or its contents or otherwise arising in connection therewith.
This announcement does not constitute a prospectus relating to the Company and does not constitute, or form part of, any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares in the Company in any jurisdiction nor shall it, or any part of it, or the fact of its distribution, form the basis of, or be relied on in connection with or act as any inducement to enter into, any contract therefor. Investors should not purchase or subscribe for any transferable securities referred to in this announcement except on the basis of information contained in the prospectus being considered for publication by the Company in due course, conditional on relevant shareholder approvals being granted. The contents of such prospectus will, if published, supersede the information in this announcement.
This announcement is an advertisement and not a prospectus and is strictly confidential, may not be distributed to the press or any other person, may not be reproduced in any form and may not be published, in whole or in part, for any purpose. Failure to comply with this restriction may constitute a violation of applicable securities laws. Nothing in this document constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Copies of the prospectus, if published, will be available from the Company's website www.targethealthcarereit.co.uk
The shares have not been, nor will they be, registered under the US Securities Act of 1933, as amended or with any securities regulatory authority of any state or other jurisdiction of the United States or under the applicable securities laws of any member state of the European Economic Area (other than the United Kingdom), Australia, Canada, Japan or South Africa. Subject to certain exceptions, the shares may not be offered or sold in any member state of the European Economic Area (other than the United Kingdom), the United States, Australia, Canada, Japan or South Africa or to or for the account or benefit of any national, resident or citizen of any member state of the European Economic Area (other than the United Kingdom), Australia, Canada, Japan or South Africa or any person located in the United States. The issue and the distribution of this announcement in other jurisdictions may be restricted by law and the persons into whose possession this announcement comes should inform themselves about, and observe, any such restrictions.
