Business and Portfolio Update

16 April 2020

Target Healthcare REIT plc and its subsidiaries

("Target Healthcare" or "the Group")

Business and Portfolio Update

 

 

Target Healthcare (LSE: THRL), the UK listed specialist investor in modern, purpose-built care homes, provides an update on its business and portfolio in the light of the evolving COVID-19 pandemic. During this difficult time, the safety and wellbeing of the residents in our care homes and the professionals who provide their care is of paramount importance to us. This update also reiterates the robust financial position of the Group and actions being taken in order to mitigate against short-term disruption.

 

The Group will continue to closely monitor the effect of the COVID-19 pandemic at an asset level and on the broader economy, and anticipates providing a full corporate update, NAV and dividend declaration on 21 April 2020 in line with its usual reporting schedule.

 

In the meantime, the Group notes the recent commentary on the care home sector and increasing reference to the magnificent work of all social care staff in these trying times. The sector plays a crucial role in supporting the NHS ordinarily, and is assisting the NHS's efforts to increase critical care capacity by making much of its own limited headroom available to those who can be moved from hospitals. Care home operators are clearly therefore faced with the difficult balance of exercising this civic duty whilst caring effectively for existing residents during the challenging conditions the pandemic brings. We are encouraged to see the sector's importance recognised with pledges for testing for residents and staff where required, which is especially long overdue for the latter group who are taking personal risk to care for residents, and for provision of personal protective equipment ("PPE").

 

Longer-term, the fundamental demand drivers for elderly care have not changed, nor have the advantages of the Group's ethos and strategy of owning modern, purpose-built care homes which by design segregate residents into groups, promote enhanced infection control, and allow effective isolation, as needed, of residents in their own rooms through the provision of private en suite wet-rooms.

 

Portfolio

 

The Group acts as landlord to 27 care home operators through its portfolio of 73 modern, purpose-built homes. From our ongoing dialogue and reporting channels with our tenants, we understand that:

 

-       All their staff members are currently working with expertise, compassion and diligence with many individuals making personal sacrifices to care for residents;

-       Avoidance of infection has always been a primary concern, and therefore protocols for infection control within care homes were implemented by our tenants well ahead of the COVID-19 guidelines for the general population, using existing PPE stocks;

-       Maintenance of staffing levels by our tenants is at the forefront of their management teams' minds as staff members who show signs of infection are required to stay at home and self-isolate for up to two weeks. Although this increases staff absences, these rates are currently manageable;

-       Confirmed or suspected cases of COVID-19 are currently affecting residents occupying less than 5% of the portfolio's beds. Whilst this number is likely to rise as the pandemic progresses, we trust that the prevention measures in place will help to minimise the impact on residents; and

-       Management teams across our portfolio are having to carefully consider their duty to effectively care for existing residents, their efforts to assist the NHS in accepting new residents, and the cost impact of additional staffing levels to (a) cover absence and (b) increase staffing for new residents who need to be isolated for a given period on entering a care home.

 

Our expectation is that demand for beds provided by our tenants across our portfolio will remain strong, therefore supporting cashflows, while we anticipate short-term increases in their labour and consumables costs. The portfolio's aggregate rent cover on mature homes was 1.6x as at 31 December 2019.

 

Financial Update

 

The Group received its March quarter rental payments in line with its typical collection pattern, although recognising the uncertainties currently being faced it has agreed for a limited number of tenants to stage payments in advance through the upcoming quarter. The Group continues to benefit from its highly diversified portfolio by tenant, geography and end-user payment profile, with rents set at sustainable levels.

 

As at the current date the Group has a strong balance sheet with a net loan-to-value of 18.3%, £30 million of cash reserves and £38 million of undrawn revolving credit facilities. Portfolio capex commitments, which are principally in relation to the development of two new care homes, construction of which has so far continued during the quarter but for which completion may ultimately be delayed by the current pandemic, total £12 million.

 

Valuation

 

At 31 March 2020 the portfolio was valued at £613.4 million, reflecting a like-for-like increase of 0.6% over the quarter, of course being subject to a market standard material uncertainty clause. This, along with any other relevant changes over the period, will be reflected in the net asset value of the Group to be published in due course as described above.

 

 

 

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

[email protected] 

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 2020 comprised 73 assets let to 27 tenants with a total value of £613.4 million.

The Group only 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.