2 August 2023

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 2023, together with an update on corporate activity, and declares its fourth interim dividend for the year ended 30 June 2023.

Corporate activity highlights

Strong portfolio performance; stable NTA and earnings, fully covered dividend; conservative LTV and fully hedged interest costs:

·      EPRA Net Tangible Assets ('NTA') per share increased to 104.5 pence (31 March 2023: 103.4 pence), reflecting a like-for-like valuation uplift driven by inflation-linked rent reviews

·      Portfolio EPRA "topped-up" net initial yield of 6.22% (31 March 2023: 6.21%)

·    Adjusted EPRA EPS for the quarter of 1.5 pence per share, fully covering the dividend to be paid in respect of the quarter of 1.4 pence per share

·      NAV total return of 2.4% for the quarter (based on EPRA NTA and including payment of dividend)

·      Net Loan to Value of 24.7% (31 March 2023: 23.8%)

·      Weighted average debt term of 6.2 years (31 March 2023: 6.5 years) with the earliest maturity being November 2025. Interest costs hedged on 100% of drawn debt to the relevant facility maturity date

·   Total capital available of £43 million, net of the Group's commitments on five development assets, following the completion of a further development site acquisition subsequent to quarter-end, as detailed below.

99% rent collection reflecting improved trading and demand for modern care home real estate. Inflation-linked annual rent reviews continue to drive rental and capital growth:

·      Diversified portfolio of 97 assets let to 32 tenants valued at £868.7 million (31 March 2023: £855.7 million) reflecting a 0.9% like-for-like valuation increase

·    Like-for-like increase in contracted rent roll of 1.1%, primarily driven by inflation-linked upwards-only annual rent reviews

·     Weighted average unexpired lease term of 26.5 years which remains one of the longest in the listed UK real estate sector (31 March 2023: 26.8 years)

·      High quality, modern and sustainable real estate portfolio:

o  94% of the portfolio is A or B EPC rated, (100% A to C ratings) therefore currently compliant with the minimum energy efficiency standards anticipated to apply from 2030

o  Leading Positive social impact from sector-leading real estate standards: 98% wet-rooms; generous 47 sqm space per resident; sustainable rent of £186 per sqm

·    Rent collection of 99%, continuing the quarterly improvement (31 March 2023: 97%) as overall tenant profitability continues to respond to improved trading performance across our fit-for-purpose real estate, and in response to the completion of portfolio management initiatives.

Kenneth MacKenzie, CEO of Target Fund Managers, commented:

"The return to near-full rent collection and the stability of our portfolio valuation is consistent with our investment thesis - that modern, purpose-built care homes will provide compelling long-term returns. Demand for places in our homes remains encouraging, as reported by our tenants, and is demonstrated by growing weekly fee rates and improving rent covers/profitability. Resident occupancy across our portfolio continues to recover towards pre-pandemic levels.

"Our focus remains on managing the portfolio, supporting our tenants in their business aspirations and actively investing to improve our real estate where we see opportunities to unlock further value. We also continue to invest in the future of the sector with construction underway on a best-in-class care home offering carbon net-zero operational ability at our most recently acquired development site. In addition, we have four further sites where pre-let care homes are being built subject to capped development contracts, which will deliver to the sector a pipeline of much-needed fit-for-purpose modern real estate."

Net Total Assets

The Group's unaudited EPRA NTA per share as at 30 June 2023 was 104.5 pence. The total return for the quarter based on EPRA NTA was 2.4%.

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 2023, the Group's portfolio was valued at £868.7 million and comprised 97 properties, consisting of 93 operational care homes and four pre-let sites, which are being developed through capped forward funding commitments with established development partners. A further pre-let site was acquired after the period-end.

Portfolio value increased by 1.5% over the quarter, comprising:

·     a 0.9% increase in the like-for-like operational portfolio, reflecting a 1.0% increase from inflation-linked rent reviews and rent-free unwinds, offset by a marginal 0.1% decrease driven by net outward yield shift on a limited number of specific assets

·      a 0.6% increase from capital expenditure, mainly associated with the four development properties

Contractual rental income increased by 1.1% over the quarter, comprising a 1.0% like-for-like increase from 25 inflation-linked upwards-only rent reviews, with an average uplift of 3.8%; and 0.1% from the deferred completion of a five-yearly rental uplift on one property.

The portfolio's weighted average unexpired lease term was 26.5 years (31 March 2023: 26.8 years).

The portfolio had an EPRA "topped-up" net initial yield of 6.22% based on an annualised contractual rent of £56.6 million. The portfolio's EPRA net initial yield was 6.05% with two assets in rent-free periods.

Acquisitions and other asset management

During the quarter the following asset management initiatives were completed:

·      The conversion to 51 full ensuite wet-rooms from poorer quality ensuites at two of the Group's homes, progressing plans to move the portfolio to 100% wet-rooms, currently 98% following these works

·      The Group signed legal agreements relating to the addition of 18 bedrooms at a property. This includes a commitment by the Group to provide £2.35 million to fund the capital works which are expected to be completed by September 2023 and which will be rentalised at completion at a NIY consistent with the current valuation yield of the property. Further:

o  The additional bedroom space created, a proportion of which the tenant has agreed to sub-let to a local charity for a three-year term, is forecast to improve the tenant's rent cover. Rent deposits covering both properties with this tenant have been established to further strengthen the surety of rent receipts

o  Agreement has also been reached for a partial write-off of the majority of historic rent arrears from this tenant, which had previously been fully provided for, and a payment plan has been agreed for the remainder

o  Following completion and rentalisation of the capital works, this tenant will equate to 4.6% of the portfolio's contracted rent.

Subsequent to the quarter-end, the following acquisition completed:

·      On 4 July 2023, the Group acquired a pre-let development site subject to a forward funding agreement to construct a 66-bed care home in Weston-super-Mare, Somerset for a maximum commitment of £16.0 million including acquisition costs.

o  Construction on the home has commenced and is expected to be completed in the summer of 2024

o  The care home is to be built to exceptional ESG standards, with the highest certifications anticipated, and will offer carbon net-zero operational ability

o  Consistent with the Group's standard approach, the home is pre-let to a new tenant to the Group. A capped development agreement, underpinned by a fixed price construction contract, is in place

o  The lease agreement includes green provisions such as energy-usage data collection, per the Group's standard lease terms.

Debt facilities and swap arrangements

As at 30 June 2023, the Group's total borrowings were £230 million, representing a net LTV of 24.7% (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 loan arrangement costs, was 3.70% (31 March 2023: 3.70%).

100% of drawn debt is fully hedged against further interest rate increases:

·    £150 million is fixed with a weighted average term of 10.6 years and a weighted average interest rate of 3.18% (excluding the amortisation of arrangement fees)

·      £30 million of the Group's bank facilities is fixed at 2.48% for 2.4 years through an interest rate swap

·      The remaining £50 million of the Group's drawn revolving credit facilities have interest rates capped via a 3% SONIA cap for 2.4 years.

The Group has access to a further £90 million of committed, but undrawn, revolving credit facilities which, if drawn, would carry an interest rate of SONIA plus 2.21%.

At 30 June 2023, the weighted average term to expiry on the Group's total committed loan facilities was 6.2 years (31 March 2023: 6.5 years) with the earliest maturity being November 2025.

Dividends in the period

The Group paid its third interim dividend for the year ended 30 June 2023, in respect of the period from 1 January 2023 to 31 March 2023, of 1.40 pence per share, on 26 May 2023 to shareholders on the register on 12 May 2023. This distribution was comprised wholly of a property income distribution (PID).

Announcement of fourth interim dividend

The Company today declares its fourth interim dividend for the year ended 30 June 2023, in respect of the period from 1 April 2023 to 30 June 2023, of 1.40 pence per share as detailed in the schedule below:

Interim Property Income Distribution (PID):     1.19 pence per share

Interim ordinary dividend:                                 0.21 pence per share

The dividend reflects an annualised payment of 5.60 pence per share and a dividend yield of 7.6% based on the 1 August 2023 closing share price of 73.4 pence.

The Company had 620,237,346 ordinary shares in issue at 30 June 2023 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:

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 2023 comprised 97 assets let to 32 tenants with a total value of £868.7 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 2023 to 30 June 2023:

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 2023, due to the valuation ascribed to the Group's interest rate derivative contracts used to hedge its exposure to variable interest rates, which are excluded from the calculation of the EPRA NTA, the unaudited NAV calculated under International Financial Reporting Standards was 105.6 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 2023 and the unaudited EPRA NTA per share as at 30 September 2023 is expected to be announced in October 2023.

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

The Group currently has two 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: