4 August 2022

Target Healthcare REIT plc and its subsidiaries

("Target Healthcare" or "the Group")

Net Asset Value, update on corporate activity and dividend declaration

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 June 2022, together with an update on corporate activity, and declares its fourth interim dividend for the year ended 30 June 2022.

Corporate activity highlights

FTSE 250 inclusion; low LTV with drawn debt largely fixed rate & long-term; further rent & valuation growth:

·      EPRA Net Tangible Assets ('NTA') per share increased by 0.4% to 112.3 pence (31 March 2022: 111.8 pence), primarily reflecting valuation uplifts across the portfolio driven by inflation-linked annual rental uplifts

·      NAV total return of 2.0% for the quarter (based on EPRA NTA and including dividend)

·      FTSE 250 inclusion effected from 20 June 2022 following the quarterly review, reflecting (i) patient yet regular growth in portfolio/company scale to date and (ii) stable, non-cyclical returns, relative to volatility elsewhere, from modern real estate portfolio benefitting from supportive long-term trends

·      Low Net Loan to Value of 22.0% (31 March 2022: 20.3%) with £180 million of the £235 million of drawn debt at fixed interest rates

·      Available investible capital comprising cash and undrawn debt facilities at 3 August 2022 of £49 million, fully allocated but not yet contractually committed to pipeline deals

·      Rental growth from inflation-linked, annual rent reviews, with 23 rent reviews completed at an average uplift of 3.8% per annum average, contributing to a 1.0% increase in like-for-like contracted rent

Modern portfolio with strong ESG credentials & RPI-linked leases; strong investment demand for asset class; occupancy & trading improvements underway across the portfolio, with well-advanced initiatives regarding remaining COVID-19 affected assets:

·      Diversified portfolio of 101 assets let to 34 tenants and valued at £911.6 million

o  0.9% like-for-like valuation increase of the operational portfolio driven primarily by rent reviews

o  Social impact from real estate which best serves care providers and the residents they look after; strong ESG credentials - 92% of the portfolio is A or B EPC rated, and 2030 compliant with minimum energy efficiency standards

o  Portfolio EPRA "topped-up" net initial yield of 5.82% (31 March 2022: 5.82%)

·      2.6% overall increase in contracted rent roll, including acquisitions and asset management initiatives

·      Weighted average unexpired lease term of 27.2 years remains one of the longest within the listed real estate sector (31 March 2022: 27.3 years)

·      Patient pipeline conversion, with two acquisitions completed totalling £24 million comprising a mature, trading asset and a development site. Continued investment in development portfolio, with one site reaching practical completion during the period

·      Programme to re-tenant nine homes from two tenants is well-progressed, with the re-tenanting of the first home completed in the quarter. Currently heads of terms are agreed for four homes and the Manager is close to reaching agreed terms on the remaining four homes, with completion for all homes expected by the end of the calendar year, subject to regulatory approval and legal documentation. These comprehensive initiatives will, in aggregate, allocate homes providing 8.3% of contractual rent to six alternative operators, and alleviate the impact on recent rent collection, which, up to today's date, was 90% for the quarter

Dividend

·      Fourth interim dividend of 1.69 pence per share declared for the year ended 30 June 2022, representing an increase of 0.6% on the FY 2021 quarterly dividends.

On an annualised basis, this reflects a payment of 6.76 pence per share and a dividend yield of 5.9% based on the closing share price of 115.4 pence on 3 August 2022

Kenneth MacKenzie, CEO of Target Fund Managers, commented:

"Notable milestones this quarter include, the portfolio passing 100 assets and our inclusion in the FTSE 250. We continue to focus on the favourable long-term prospects for the portfolio, underpinned by demographic trends, the quality and modernity of our real estate and the Company's clear environmental and social impact. We believe we are as future proof as we can be - environmentally 92% of our portfolio is 2030 compliant, and 100% of our homes form part of the 29% of the UK care home stock which in our opinion is socially compliant[1].

"Resident occupancy levels continue to improve and mature home occupancy is currently at its highest level since the first wave of the pandemic in April 2020. Encouragingly, almost all operators are reporting increased momentum in occupancy growth in recent weeks.

"The six-month lag in this recovery caused by the Omicron variant has had a more significant impact on two of our tenants struggling to grow occupancy and reach operational maturity in the face of the continued restrictions on admissions in the event of an outbreak. However, we have a proven record of effecting change when it is required and are well-advanced in our efforts to reallocate the homes across a number of alternative operators.

"We therefore see numerous positives: our portfolio's trading outlook is as encouraging as it has been since March 2020; rent levels on the assets we are choosing to re-tenant are matching existing contractual levels; and strong investment demand continues with multiple bidders for ESG-compliant modern care homes. Market pricing, by reference to acquisition net initial yields, reflects these positives and is not correlating with the rising cost of capital and the negative sentiment of the current macroeconomic environment. We prefer to be considered at this point and, with the narrowing spread available on new investments as interest rates and development costs rise, we believe that cautious deployment of our available capital is the more prudent path in these uncertain times. Whilst accepting that this will extend the path to dividend cover we still anticipate achieving full cover once the Group is fully invested. We have an excellent portfolio of assets creating stable long-term income and prefer to be prudent while working diligently to achieve continued stability and growth."

Net Total Assets

The Group's unaudited EPRA NTA per share as at 30 June 2022 was 112.3 pence. The total return for the quarter based on EPRA NTA was 2.0%.

A balance sheet summary and an analysis of the movement in the EPRA NTA over the quarter is presented at the end of this announcement in the Appendix.

Corporate Update

Portfolio performance

As at 30 June 2022, the Group's portfolio was valued at £911.6 million and comprised 101 properties, consisting of 97 operational care homes and four pre-let sites, which are being developed through capped forward funding commitments with established development partners.

The portfolio value increased by 2.8% over the quarter. This comprised a 1.1% increase resulting from acquisitions, 0.9% from a like-for-like uplift in the operational portfolio value and 0.8% from further investment into the development portfolio, capital expenditure and the re-tenanting impact on existing assets. The like-for-like movement primarily reflects the portfolio's inflation-linked rental reviews.

Contractual rent increased by 2.6% over the period, comprising:

·      1.6% from acquisitions and the practical completion of development sites

·      1.0% from 23 inflation-linked upwards-only rent reviews, with an average uplift of 3.8%

The portfolio's weighted average unexpired lease term was 27.2 years (31 March 2022: 27.3 years).

The portfolio had an EPRA topped-up net initial yield of 5.82% based on an annualised contractual rent of £55.5 million. The portfolio's EPRA net initial yield was 5.38% with 10 assets in rent-free periods.

Acquisitions and other asset management

During the quarter, the following transactions and asset management initiatives were completed:

·      On 28 April 2022, as previously announced, the Group acquired a development site subject to a forward funding agreement to construct a care home in Dartford, Kent. This asset will add a further 71 modern, en suite wet-rooms by September 2023 by virtue of a capped development agreement and is pre-let on a lease typical of the portfolio, being long-term with annual, upwards-only RPI-linked rent reviews, subject to a cap and collar.

·      On 14 June 2022, the Group completed the acquisition of a mature, modern, purpose-built care home in Halesowen, West Midlands. The home has been trading for six years with a strong record of occupancy, care/service and profitability and will be operated by a subsidiary of Kingsley Healthcare, an existing tenant of the Group, following the exit from the market of the previous operator, a local social housing provider.

·      Practical completion of the Group's development site in Chesterfield was reached in June 2022, contributing 72 new beds to the portfolio.

·      In addition, as referred to above, on 30 June 2022 the Group continued to resolve its position with regard to an existing tenant who has faced financial challenges as a result of the COVID-19 pandemic, by completing the re-tenanting of one of its homes to a new tenant to the Group.

Debt facilities and swap arrangements

As at 30 June 2022, the Group's total borrowings were £235 million, giving a net LTV of 22.0% (total gross debt less cash, as a proportion of gross property value). The Group's weighted average cost on its drawn debt, inclusive of amortisation of arrangement costs, was 3.31% (31 March 2022: 3.20%). The increase over the quarter was due to the impact of the change in SONIA on the Group's revolving credit facilities.

£180 million of the drawn debt is at fixed-rates, £150 million of which is fixed for a weighted average of 11.6 years and the remaining £30 million bank facility is fixed for 3.4 years. The weighted average interest rate on the Group's fixed-rate facilities, excluding the amortisation of arrangement fees, is 3.07%. £55 million was drawn under revolving credit facilities which carry a variable interest rate linked to SONIA.

The weighted average term to expiry on the Group's total committed loan facilities was 6.9 years (31 March 2022: 7.2 years).

Dividends in the period

The Group paid its third interim dividend for the year ended 30 June 2022, in respect of the period from 1 January 2022 to 31 March 2022, of 1.69 pence per share, on 27 May 2022 to shareholders on the register on 13 May 2022. This distribution was comprised wholly of a property income distribution (PID).

Valuation

The property portfolio was externally valued at £911.6 million at 30 June 2022.

Announcement of fourth interim dividend

The Company today declares its fourth interim dividend for the year ended 30 June 2022, in respect of the period from 1 April 2022 to 30 June 2022, of 1.69 pence per share as detailed in the schedule below:

Interim ordinary dividend:                                  1.69 pence per share

Interim Property Income Distribution (PID):     nil

The dividend reflects an annualised payment of 6.76 pence per share and a dividend yield of 5.9% based on the 3 August 2022 closing share price of 115.4 pence.

The Company had 620,237,346 ordinary shares in issue at 30 June 2022 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.

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; 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 portfolio at 30 June 2022 comprised 101 assets let to 34 tenants with a total value of £911.6 million.

The Group 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 UK version of the Market Abuse Regulations (EU) No. 596/2014, which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended. 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 NTA

The following table provides an analysis of the movement in the unaudited EPRA NTA per share for the period from 1 April 2022 to 30 June 2022:

The EPRA Best Practices Recommendations Guidelines state that companies should publish a set of three NAV metrics. The full set of EPRA NAV metrics are published in the Group's Annual Report. The Company intends to continue to announce the EPRA NTA on a quarterly basis.

At 30 June 2022, due to the valuation ascribed to the Group's interest rate derivative contract used to hedge its exposure to variable interest rates, which is excluded from the calculation of the EPRA NTA, the unaudited NAV calculated under International Financial Reporting Standards was 112.7 pence per share.

^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.

*Properties within the portfolio are stated at the market value provided by the external valuer 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 October 2022 and the unaudited EPRA NTA per share as at 30 September 2022 is expected to be announced in October 2022.

3.     EPRA NIY profiles and unwind of rent-free periods

The Group currently has 10 assets 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: