NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, IN OR INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION IN PARTICULAR THE UNITED STATES, ANY MEMBER STATE OF THE EUROPEAN ECONOMIC AREA (OTHER THAN THE UNITED KINGDOM, THE REPUBLIC OF IRELAND OR THE NETHERLANDS (AND, IN THE CASE OF THE NETHERLANDS, ONLY TO PROFESSIONAL INVESTORS)), CANADA, AUSTRALIA, THE REPUBLIC OF SOUTH AFRICA, NEW ZEALAND AND JAPAN
This announcement is an advertisement and not a prospectus. This announcement does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities in Target Healthcare REIT Limited (the "Company") or securities in any other entity, in any jurisdiction, including the United States, 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, any contract or investment decision whatsoever, in any jurisdiction. This announcement does not constitute a recommendation regarding any securities. Any investment decision must be made exclusively on the basis of the final prospectus published by the Company and any supplement thereto.
TARGET HEALTHCARE REIT LIMITED
("Target" or the "Company", together with its subsidiaries, the "Group")
PROPOSED ISSUE OF EQUITY
and
Notice of General Meeting
The Board of Target Healthcare REIT Limited is pleased to announce its intention to raise up to £100 million through the issue of up to 92,592,592 Ordinary Shares ("New Shares") by way of the Initial Placing, Open Offer and Offer for Subscription (together the "Share Issue"), all at 108 pence per New Share (the "Offer Price").
Highlights:
· Issue of up to 92,592,592 New Shares at 108 pence per New Share by way of the Initial Placing, Open Offer and Offer for Subscription
· The Offer Price represents a discount of 6.1 per cent. to the closing price of 115 pence per existing ordinary share in the capital of the Company ("Existing Ordinary Shares") on 31 January 2018 (being the last business day prior to the announcement of the Share Issue) and a premium of 3.4 per cent. to the Company's last reported EPRA NAV per Ordinary Share as at 31 December 2017 of 104.4 pence
· Under the Open Offer, Qualifying Shareholders(1) will have an Open Offer Entitlement of 2 New Shares for every 11 Existing Ordinary Shares held
· The Group has an identified investment pipeline of £100 million consisting of:
o £39 million of existing capital commitments and imminent acquisitions which it expects to complete by 31 March 2018; and
o £61 million of near term acquisitions where the Company is currently in advanced negotiations with vendors but expects to commit to acquiring these assets by 30 June 2018
· In addition to its identified investment pipeline the Company has commenced negotiations on a portfolio of care homes with an estimated value of approximately £62 million
The Company is currently preparing a prospectus in connection with the Share Issue which will be published shortly following approval by the UK Listing Authority ("UKLA").
Malcolm Naish, Chairman of the Company, said:
"An ageing population, changes in social attitudes and ongoing issues with funding continue to drive the supply and demand imbalance that we see in the care home sector. However with so many unsuitable and outdated care homes, we remain focused on maintaining our selective and careful approach with each and every asset we purchase, allowing us to create a portfolio of high quality homes that are well positioned to meet the future needs of our tenants and their residents. Today's proposed share issue will allow us to continue to grow our business, further diversify our asset, income and tenant base and, through this, provide significant value to shareholders."
Background to the Share Issue
The Company listed on the London Stock Exchange's Main Market on 7 March 2013 with an investment remit to focus on a diversified portfolio of modern, purpose-built care homes that are let to high quality tenants who demonstrate strong operational capabilities and a strong care ethos.
The Company's care homes typically benefit from favourable local dynamics and long leases at sustainable rental levels. These leases are typically structured to include annual rental uplifts (RPI linked or fixed) and cure rights. Target has built a portfolio of high quality assets in the right locations with the services and facilities that suit its tenants' needs. This is set against a background of an increasing population of over 85 year olds in the UK, a shift in how society cares for its elderly, and an insufficient supply of en-suite, fit-for-purpose rooms.
Since IPO, the Company has carefully crafted an investment portfolio consisting of 51 modern, purpose-built care homes(2), let to 20 different tenants with a portfolio weighted average unexpired lease term of 28.9 years and annual (RPI or fixed) rental uplifts. The portfolio value as at 31 December 2017 was £335 million and the Company has a relatively conservative gearing policy with borrowings, over the medium term, representing approximately 20 per cent. of the Group's gross assets. Alongside its care home specialism, the Company has an income focus with the current annualised quarterly dividend amounting to 6.45 pence per share, a 6.0 per cent. dividend yield on the Offer Price.
The Company joined the FTSE All Share Index Series in June 2016 and the FTSE EPRA/NAREIT Real Estate Index Series in June 2015.
Use of Proceeds
The Group has existing capital commitments in relation to its existing portfolio of assets of £20 million, comprising deferred consideration payments, forward funding obligations and refurbishments. In addition to these existing commitments the Group is also currently in advanced negotiations and is nearing the completion of due diligence in relation to two further forward funding projects for an aggregate consideration of approximately £19 million, located in Shropshire and Lancashire (the "Imminent Acquisition Assets"). The Company has entered into non legally binding heads of terms in relation to both of these assets and the Company expects to commit to acquiring both of these projects by 31 March 2018.
The Group has also identified approximately £61 million of near term investment opportunities where it is in advanced negotiations with vendors and expects to commit to these by 30 June 2018 (the "Pipeline Assets"). The Pipeline Assets comprise one modern care home situated in Birmingham, a forward commitment opportunity in Powys and three future funding arrangements one of which is located in Buckinghamshire and the other two are located in Oxfordshire. When complete the Pipeline Assets will have a total of 353 beds, of which 100 per cent. will be en-suite wetrooms. The weighted average unexpired lease term will be over 30 years with the majority of the Pipeline Assets being geographically located in the South of England. The Company will earn a cash coupon approximately equal to the respective net initial yield of the forward funding and forward commitment properties for the duration of the period of the forward funding.
In addition, the Group has commenced negotiations on a c.£62 million portfolio of care homes. However, at this stage in the process, there can be no certainty that the Company will approve the acquisition of these assets post due diligence, or indeed be able to agree acceptable terms with the vendor.
In addition to the investment opportunities identified, the Company also has an extensive pipeline of longer term opportunities where the timetable for potential completion remains uncertain and they are subject to due diligence and negotiation. These assets which have been shown to the Company as a result of its strong relationships in the sector, including via existing tenants, will provide the Company with further investment optionality over the medium to longer term.
In order to minimize the effect of cash drag on the Company's returns, as well as completing on the short-term investment opportunities, the proceeds of the Share Issue may also be used initially in repaying some of the Company's existing revolving credit facilities which will then be drawn upon later in the year as the Company's near term investment opportunities complete.
It remains the Board's intention that borrowings, over the medium term, should represent approximately 20 per cent. of the Group's gross assets at the time of drawdown. As at 30 January 2018 the Company has a Loan to Value ratio(3) of 27 per cent. and therefore noting the near term nature of much of the Company's investment pipeline, as well as its existing commitments, the Board of Directors believes it is now an appropriate time to proceed with the Share Issue.
Benefits of the Share Issue
The Board believes the Share Issue will confer the following benefits for shareholders and the Company:
· enable the Company to continue with its growth strategy, provide scale to its investment portfolio and increase the liquidity of the Shares by increasing the market capitalisation of the Company and further diversifying the shareholder register;
· provide additional capital which should enable the Company to take advantage of the 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 Share Issue should assist in matching the capital requirements of the Company to the investment opportunities identified;
· the Company intends to use the net proceeds principally to invest in the Existing Portfolio, Imminent Acquisition Assets and/or the Pipeline Assets as well as for paying down debt where appropriate. These include forward funding assets situated in Shropshire, Lancashire, Powys, Buckinghamshire and Oxfordshire. These projects provide the Company with the opportunity to invest in new, purpose-built care homes which may not otherwise be available in such locations;
· further diversify the Property Portfolio by introducing new tenants to the Group and operating in geographical locations that are currently under-represented in the Property Portfolio; and
· provide a larger equity base over which the fixed costs of the Company may be spread, thereby reducing the Company's ongoing costs per share.
Expected timetable
Record Date |
close of business on 30 January 2018 |
Latest time and date for receipt of application forms under the Offer for Subscription and Open Offer |
11 a.m. on 20 February 2018 |
Latest time and date for receipt of commitments under the Initial Placing |
11 a.m. on 22 February 2018 |
Results of the Initial Issues announced |
by close of business on 23 February 2018 |
Admission and dealings in New Shares commence |
8.00 a.m. on 27 February 2018 |
The dates set out in the expected timetable above may be adjusted by the Company, in which event details of the new dates will be notified to the UK Listing Authority and the London Stock Exchange and an announcement will be made through a regulatory information service.
Director Participation
Tom Hutchison and Malcolm Naish intend to invest in the Company through participation in the Share Issue for, in aggregate, 75,000 New Shares.
Further information on the Equity Issue
The Company proposes to raise up to £100 million through the issue up to 92,592,592 New Shares at 108 pence per New Share by way of the Initial Placing, Open Offer and Offer for Subscription.
The New Shares, when issued, will rank in full for all dividends or other distributions declared, made or paid after the admission of the New Shares issued under the Share Issue to the premium segment of the Official List and to trading on the London Stock Exchange's Main Market ("Admission") and in all other respects will rank pari passu with the existing Ordinary Shares. For the avoidance of doubt, the New Shares issued under the Share Issue will not qualify for the dividend declared on 19 January 2018 in respect of the period from 1 October 2017 to 31 December 2017. However, based on the current expected timetable, they will qualify for the quarterly dividend relating to the period 1 January 2018 to 31 March 2018, which is expected to be declared in April 2018.
The Initial Placing will close at 11 a.m. on 22 February 2018 and the Offer for Subscription and Open Offer will close at 11 a.m. on 20 February 2018 or such later date as the Company, Stifel Nicolaus Europe Limited ("Stifel") and Dickson Minto W.S., acting as sponsor to the Company may agree.
The Open Offer will be made to Qualifying Shareholders at the Offer Price, on the basis of 2 New Shares for every 11 Existing Ordinary Shares held on the Record Date. The total number of shares available under the Open Offer will therefore be 45,851,063. Qualifying Shareholders who take up all of their Open Offer Entitlements may also apply under the Excess Application Facility for additional New Shares in excess of their Open Offer Entitlement.
To the extent that Qualifying Shareholders choose not to take up their entitlements under the Open Offer or that applications from Qualifying Shareholders are invalid, unallocated Open Offer Shares may be allotted to Qualifying Shareholders to meet any valid applications under the Excess Application Facility. Thereafter, to the extent that there remain any unallocated Open Offer Shares, they will be made available under the Placing and/or the Offer for Subscription. The Directors also retain discretion to reallocate any amounts available under the Placing and Offer for Subscription to satisfy excess demand in Open Offer. For the avoidance of doubt, there will be no formal priority in relation to allocations within the Share Issue (other than the priority accorded to Existing Shareholders in accordance with their Open Offer Entitlement) and all such other allocations to Existing Shareholders and new investors using the balance of New Shares available pursuant to the relevant authority under the Prospectus are purely at the Directors' discretion.
The Offer for Subscription is only being made in the UK and Jersey, but subject to applicable law, the Company may issue and allot New Shares on a private placement basis to applicants in other jurisdictions.
In addition to the Share Issue, the Directors intend to implement a Placing Programme to enable the Company to raise new capital in the period from the date of the Prospectus to 31 January 2019. Under the Placing Programme, the Company is proposing to issue up to 150 million New Shares less the number of New Shares issued under the Share Issue. In the event the Directors and the Investment Manager believe that there are significant assets available and suitable for investment, within an appropriate timeframe, the Directors may reallocate New Shares available under the Placing Programme to the Share Issue. In the event that the number of New Shares applied for under the Share Issue exceeds 92,592,592 and the Board decides not to increase the size of the Share Issue, or the number of applications continues to exceed the number of available New Shares post any increase, it will be necessary to scale back applications under the Share Issue. In such event, New Shares will be allocated at the discretion of the Board.
The Share Issue, which is not underwritten, is conditional, inter alia, on:
(i) shareholders approving the special resolution to disapply the pre-emption rights attaching to up to 150 million New Shares at the General Meeting;
(ii) the Placing Agreement becoming wholly unconditional (save as to Admission) and not having been terminated in accordance with its terms prior to Admission; and
(iii) Admission for the New Shares issued under the Share Issue occurring by 8.00 a.m. on 27 February 2018 (or such later date as the Company and Stifel may agree in writing, being not later than 8.00 a.m. on 31 March 2018).
The Share Issue will only become effective if all of the conditions referred to above are satisfied or waived (as the case may be in respect of condition (ii) above) on or before 31 March 2018.
Applications will be made to the UKLA for Admission. It is expected that the Admission will become effective and that unconditional dealings in the New Shares will commence at 8.00 a.m. (London time) on, or around, 27 February 2018.
The New Shares will be issued in registered form and may be held in uncertificated form. The New Shares allocated will be issued to Placees through the CREST system unless otherwise stated. The New Shares will be eligible for settlement through CREST with effect from Initial Admission.
The Share Issue will be subject to the terms and conditions set out in the Prospectus which is expected to be published shortly. Further details of the Share Issue and the Placing Programme will also be set out in the Prospectus.
Notice of General Meeting
A notice, together with a shareholder circular which sets out further details of the Share Issue and the Placing Programme (the "Circular"), will be posted to shareholders to convene a general meeting to approve, amongst other things, the Initial Placing, Open Offer, Offer for Subscription and the Placing Programme. The general meeting is to be held at the offices of Dickson Minto W.S.,16 Charlotte Square, Edinburgh EH2 4DF at 12 noon on 21 February 2018.
Dealing codes
Ticker: THRL
ISIN for the new ordinary shares: JE00B95CGW71
ISIN of the Open Offer Entitlement: JE00BFWVNF12
ISIN of the Excess Open Offer Entitlement: JE00BFWVNM88
SEDOL for the new ordinary shares: B95CGW7
The Company's legal entity identifier: 2138008VQQ5Y9QXMX749
Enquiries:
Target Fund Managers Limited (Investment Manager to the Company)
Notes
Terms used and not defined in this announcement bear the meaning given to them in the Prospectus to be published in due course.
(1) Holders of Ordinary Shares on 30 January 2018, being the "Record Date", for the purposes of the Open Offer, who are entitled to participate in the Open Offer as further described in the Prospectus.
(2) Consisting of 49 operational assets and two forward funded assets as at 30 January 2018.
(3) Loan to Value 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.
Important Information
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via Regulatory Information Service this information is now considered to be in the public domain.
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.
This announcement does not contain or constitute an offer for sale or the solicitation of an offer to purchase securities in the United States. The New Shares have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act") or under any securities laws of any state or other jurisdiction of the United States and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within the United States except pursuant to an applicable exemption from or in a transaction not subject to the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There will be no public offer of the New Shares in the United States.
This announcement is for information purposes only and is not intended to and does not constitute or form part of any offer or invitation to purchase or subscribe for, or any solicitation to purchase or subscribe for, any securities in any jurisdiction. No offer or invitation to purchase or subscribe for, or any solicitation to purchase or subscribe for, any securities will be made in any jurisdiction in which such an offer or solicitation is unlawful. The information contained in this announcement is not for release, publication or distribution to persons in the United States, Canada, Australia, the Republic of South Africa, New Zealand or Japan, and should not be distributed, forwarded to or transmitted in or into any jurisdiction, where to do so might constitute a violation of local securities laws or regulations.
Dickson Minto W.S, 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 Dickson Minto W.S. or advice to any other person in relation to the matters contained herein.
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 Fund Managers Limited 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 Fund Managers Limited, Dickson Minto W.S. 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 Fund Managers Limited, Dickson Minto W.S. 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 AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, ANY MEMBER STATE OF THE EUROPEAN ECONOMIC AREA (OTHER THAN THE UNITED KINGDOM, THE REPUBLIC OF IRELAND OR THE NETHERLANDS (AND, IN THE CASE OF THE NETHERLANDS, ONLY TO PROFESSIONAL INVESTORS)), CANADA, AUSTRALIA, JAPAN, THE REPUBLIC OF SOUTH AFRICA, NEW ZEALAND OR ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL
