Business update & acquisition of Oxfordshire home

6 July 2020

Target Healthcare REIT plc and its subsidiaries

("Target Healthcare" or "the Group")

Business & portfolio updates and acquisition of Oxfordshire care home

Target Healthcare (LSE: THRL), the UK listed specialist investor in modern, purpose-built care homes, provides a business update and announces the acquisition of a newly-developed care home in Bicester, Oxfordshire, for a total consideration of £15 million including costs.

Rental collection and dividend reaffirmation

The Group's portfolio has continued to demonstrate its high quality and defensive characteristics throughout the COVID-19 pandemic. 96% of the rent payable in respect of the recent quarter dates¹ has been collected, after allowing for agreements in respect of a limited proportion of the portfolio's 71 operational care homes to pay monthly in advance. Excluded from this collection analysis are two of the portfolio's immature care homes on which agreements were in place prior to the pandemic to defer rental payments. The 4% of rent currently outstanding relates to care homes where active asset management initiatives are in place which provide strong visibility of value recovery in the near-term.

As a result of the quarter's strong rental collection, the Company reaffirms its intention to pay its fourth-quarter interim dividend, for the period 1 April 2020 to 30 June 2020, in-line with expectations and as per the normal timetable, with announcement due in early August 2020.

Portfolio update

We have kept in close contact with our tenants to provide support, share best practice, and to continue our monitoring programme as an informed and engaged landlord. As at 2 July, five of the portfolio's 71 operational care homes were reporting confirmed or suspected COVID-19 cases, representing 15 of 4,925 beds (0.3%), down from a peak of 162 (3.2%) during the third week of April. Tenants are reporting an improvement in new resident enquiries in recent weeks, whilst exploring ways to facilitate safe visiting practices in line with government guidance.

Investment activity

The Group has acquired a new-build care home in Bicester, Oxfordshire for a consideration of £15 million inclusive of costs. The high quality, 66 bed, purpose-built asset is let to Ideal Carehomes ("Ideal"), the Group's largest existing tenant with leases on 12 assets including this one. Ideal has agreed a 35-year, fully repairing and insuring occupational lease which includes annual, upwards-only RPI-linked increases, subject to a cap and collar.  The acquisition yield on the transaction is representative of assets of a similar standard and location within the Group's portfolio, operated by a well-capitalised tenant.

Having recently reached practical completion, the property has been finished to a high standard by specialist elderly care home developer, LNT Care Developments, with the inclusion of full en suite wet-room facilities, large public spaces and a high-quality fit-out. The investment proposition for the property is predominantly targeting the self-funded, lower-acuity residential care market, supported by the positive underlying demographics and strong wealth characteristics of the local area.

Following the transaction, which was funded from existing cash resources, the financial position of the Group remains robust, evidenced by a strong balance sheet with a low net loan-to-value of 20.6% and remaining uncommitted capital of approximately £26 million.

Additionally, the Group has reached practical completion on the development of an 80-bed care home in Burscough, Lancashire. The home was completed under a forward-fund arrangement pre-let to Athena Healthcare, an existing tenant of the Group, and will open to residents in July 2020.

Kenneth MacKenzie, CEO of Target Fund Managers, commented:

"Target Healthcare was created to provide long-term stable income on the foundation of stable rents received from modern purpose-built care homes, operated wisely by dedicated care providers. COVID-19 arrived on these shores six months ago and our foundation remains, as does our long-term stable income. While we postponed some acquisitions early on in the pandemic to ensure a robust balance sheet, we now have sufficient visibility to continue our mission of creating a stable income platform of scale, while working to our long held ESG values, providing modern purpose-built care homes for their residents. We have been hugely impressed with the devotion and resilience of our tenants in their delivery of care to their residents during this difficult time.

"After very careful consideration we have proceeded with the acquisition of the Bicester home to add a further quality asset to our robust portfolio, and are pleased that practical completion has been reached on the construction of the home in Burscough. Each of these further demonstrates the support the Group provides towards the much-needed modernisation of the sector's real estate.  The fundamentals for the UK's elderly healthcare sector remain strong and we remain steadfast in our conviction as to the advantages of the Group's ethos and strategy of owning modern, purpose-built care homes which by design promote enhanced infection control and allow for effective isolation, as needed, of residents in their own rooms through the provision of private en suite wet-rooms.

"The acquisition together with the completion of the Burscough development add two best-in-class assets to the portfolio which will supplement earnings while also strengthening our relationships with operationally astute and valued tenants of the Group."

[1] 24 June England, Wales and Northern Ireland, 28 May Scotland

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, 71 operational assets and 2 pre-let development sites, let to 27 different 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.