9 November 2017

Net Asset Value, Corporate Update & Dividend announcement

1. Net Asset Value

Target Healthcare REIT Limited (the "Company" and together with its subsidiaries, the "Group") announces that its unaudited EPRA NAV per share as at 30 September 2017 was 103.3 pence. The NAV total return for the quarter was 3.0%.

2. Corporate Update

2a. Portfolio performance

As at 30 September 2017 the Group owned forty-six care homes and one site subject to a forward fund commitment with a combined market value of £296.6 million. The portfolio had an EPRA net initial yield of 6.69% (based on contractual net income) and an annualised rent roll of £21.1 million with a weighted average unexpired lease term of 29.4 years. Portfolio passing rent has increased by 3.7% during the quarter, 3.1% from additions and asset management activity, plus 0.6% from rent reviews.

The portfolio value has increased 5.2% over the quarter, with the like-for-like value up 1.8%. The increase in like-for-like reflects value generated from our embedded rental uplifts and yield compression across the portfolio.

A balance sheet summary and an analysis of the movement in the EPRA NAV over the quarter is presented in the Appendix.

2b. Debt facilities & swap arrangements

As at 30 September 2017, the Group's total borrowings were £49.0 million, giving a loan-to-value ratio of 16.5% (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.

On 30 August 2017 the Group entered into a new five year £40 million committed term loan facility with First Commercial Bank, Limited (the "FCB facility"). This provides the Group with total facilities of £90 million, being £70 million of term loans and a £20 million revolving credit facility, when combined with the Group's existing Royal Bank of Scotland PLC facility.

The Group's weighted average interest rate as at 30 September 2017 was 2.16%. Interest costs were fixed on £30 million of drawn debt through interest rate swap arrangements maturing 1 September 2021, with £19 million at variable rates based on 3 month LIBOR plus lender margins.

2c. Investment activity

In the three months to 30 September 2017, the Group's investment and asset management activities have comprised the acquisition of two properties for a total value of £16.6 million (including acquisition costs and forward funding commitments):

·      An 88 bed home in Leicestershire in a prominent location adjacent to the town centre which opened to residents in March 2017. The home was purchased for £8.4 million including costs, and leased back to Melton Care Limited on a 35 year lease with RPI-linked uplifts with a cap and collar. Melton Care is a joint venture between Magnum Care, a Leicestershire-based operator, and the principals behind Care Concern, a national operator the Group have worked with in a number of homes.

·      A site and forward funding commitment totalling £8.2 million including costs, in Birkdale, Merseyside. The site received planning in early 2017 for a high quality care home which will be built, under a cost-capped contract, to have 55 large bedrooms with en-suite facilities with wetroom showers and good public space in an impressive building on this corner location. The development will be carried out in partnership with Athena Healthcare, an existing tenant of the Group, who have entered into an agreement to lease the property on completion at an agreed rental level. The lease will again be for 35 years with RPI uplifts subject to cap and collar. 

Yield across the two assets is broadly consistent with that seen on the Group's existing portfolio. Funds invested in high quality care homes since the Group's inception total around £285 million, including around £105 million committed since the Group's May 2016 equity issuance.

2d. Pipeline and Investment Market

The UK care home real estate sector is seeing a general contraction in investment yields which has been reflected in the Group's portfolio. Target continues to believe that homes which are appropriately located, incorporate modern design standards, and are well run by operators respected in their local markets provide the best foundation to support long term value and tenant performance. We are therefore focused on maintaining our high standards of selection and diligence irrespective of the short term increased levels of competition that we are seeing for all types of assets.

The Group continues to progress a select number of opportunities, as identified and recommended by its specialist Investment Manager. Those currently being progressed through diligence include existing homes, which will contribute to rental income immediately at acquisition, and commitments to enable the construction of modern, purpose-built homes to serve their local markets. All commitments being considered are on a pre-let basis and at attractive financial returns.

2e. Dividends in the period

The Company paid its fourth interim dividend for the year to 30 June 2017, in respect of the period from 1 April 2017 to 30 June 2017, of 1.570 pence per share on 25 August 2017. This reflects an annualised payment of 6.28 pence per share and a dividend yield of 5.4% based on the 8 November 2017 closing share price of 117.25 pence.

The Group's unaudited EPRA Earnings per share for the quarter were 1.53 pence, excluding the effects of the performance fee accruals as noted in the Appendix.

The Company had 252,180,851 ordinary shares in issue at 30 September 2017 and has not issued or bought back any shares since that date.

3. Announcement of First Interim Dividend for the year ending 30 June 2018

The Company has today declared its first interim dividend payment for the year ending 30 June 2018, in respect of the period from 1 July 2017 to 30 September 2017 of 1.6125 pence per share as detailed in the schedule below:

Interim Property Income Distribution (PID)                     1.6125 pence per share

Ex-Dividend Date:                16 November 2017

Record Date:                        17 November 2017

Pay Date:                             30 November 2017

4. Other

4a. Investor relations

The Group has recently launched its new website where shareholders will find the latest Group information, at:  

https://www.targethealthcarereit.co.uk/

4b. Quarterly investor report

The Group's quarterly investor report for September 2017 will shortly be available on its website at:

https://www.targethealthcarereit.co.uk/investor-relations/reports-and-presentations/financial-reporting

Kenneth MacKenzie, CEO of Target Fund Managers Limited, commented on the Group's activity during the period:

"The portfolio continues to perform well with the stable rental returns which underpin the Group's dividends also supported by growth in capital values. We note the significant investor interest in the market, with participation from a range of investor types. We will continue to identify and assess investment opportunities using our specialist sector knowledge, only recommending acquisitions when our criteria supporting long-term sustainable income returns are met."

Enquiries:

Kenneth MacKenzie, Gordon Bland

Target Fund Managers Limited

01786 845 912

Mark Young, Neil Winward, Tom Yeadon

Stifel Nicolaus Europe Limited

020 7710 7600

Martin Cassels

Maitland Administration Services (Scotland) Limited

0131 550 3760

Fiona Harris/Sam Emery

Quill PR

020 7466 5058 / 020 7466 5056

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.

APPENDIX

Analysis of movement in EPRA NAV

The following table provides an analysis of the movement in the unaudited EPRA NAV per share for the period from 1 July 2017 to 30 September 2017:

*To recognise: (1) a quarterly accrual of £0.2 million for a performance fee, if due, for the year from 1 January 2017 to 31 December 2017. The accrued amount is estimated based on historic portfolio performance relative to the IPD UK Annual Healthcare Property Index. The final performance fee for the year to 31 December 2017 will be calculated once the Index figures for the year to 31 December 2017 are available.

The EPRA NAV provides a measure of the fair value of a company on a long-term basis. As at 30 September 2017 the EPRA NAV stated above differed from that calculated under International Financial Reporting Standards of 103.4 pence per share. This was due to the valuation of the Group's interest rate derivative contracts used to hedge its exposure to variable interest rates, which is excluded from the calculation of the EPRA NAV.

The next quarterly valuation of the property portfolio will be conducted by Colliers International Healthcare LLP during December 2017 and the unaudited EPRA NAV per share as at 31 December 2017 will be announced in January 2018.