Earnings growth and portfolio valuation supported by above carrying value property disposal post period end; with a rebasing of dividend to reflect the interest rate environment Target Healthcare REIT plc , the UK listed specialist investor in modern, purpose-built care homes, has announced its results for the six months ended 31 December 2022.
Portfolio performance supported by inflation-linked rental uplifts
• Portfolio market value decreased by 4.8% to £867.7 million (June 2022: £911.6 million), primarily driven by a like-for-like portfolio valuation movement of -5.5% and net acquisitions of 0.7%. The like-for-like valuation movement consists of a decrease of 7.3%, reflecting the outward shift in yields, offset by a 1.8% increase from inflation-linked rental uplifts
• Contractual rent increased by 2.9% to £57.1 million (June 2022: £55.5 million), including like-for-like rental growth of 1.8%
• Diversified tenant base, with 33 tenants across 100 properties (June 2022: 34 tenants and 101 properties)
• Underlying trading performance at the homes recovering towards pre-pandemic levels. Most recent resident occupancy and rent covers for the mature homes in the portfolio were 84% and 1.5 times, respectively
• Post period end £22 million disposal of four assets for above carrying value and June 2022 valuation, representing a full exit from Northern Ireland
Sustainable returns generated through portfolio management and inflation-linked characteristics of leases
• EPRA NTA per share decreased by 8.3% to 103.0 pence (June 2022: 112.3 pence)
• NAV total return⁽¹⁾ of -5.4% (2021: 3.4%)
• Portfolio total return on standing assets of -2.2% (2021: 4.8%)
• Rent collection of 96%
• Full recovery of rent outstanding from one tenant, of which £1.1 million had been provided for at 30 June 2022
• 99% of leases benefit from upwards only inflation-linked rent reviews; 1% fixed uplifts
• Weighted average unexpired lease term of 26.8 years (June 2022: 27.2 years)
• Weighted average cost of drawn debt at 3.8% (June 2022: 3.3%), with average term to maturity of 6.7 years (June 2022: 6.9 years) and interest rate hedged on 96% of drawn debt until expiry
• Net LTV increased to 25.1% (June 2022: 22.0%)
Rebasing of target dividend to sustainable level reflecting higher interest rate environment
• Dividend per share in respect of the period maintained at 3.38 pence (2021: 3.38 pence)
• Annual dividend target rebased to 5.60 pence per share, commencing with the third interim dividend payable in May 2023, providing a sustainable dividend level which will be fully covered by earnings whilst allowing for annual growth. This represents a reduction of 17%
• Adjusted EPRA Earnings per share⁽²⁾ of 3.01 pence (2021: 2.36 pence)
• EPRA Earnings per share⁽²⁾ of 3.89 pence (2021: 3.08 pence)
• Adjusted EPRA Cost Ratio of 18.7% (2021: 27.7%); EPRA Cost Ratio of 15.7% (2021: 23.3%)
Responsible investment with a clear purpose to improve the UK’s care home real estate
• Compelling long-term demand supply dynamics support both investor and operator activity in the sector
• Selective investment into new developments of new-build care homes; one home (66 beds) opened in the period, three homes (203 beds) were being funded at period end and a further development site (60 beds) was acquired post period end
• Full en suite wet-rooms account for 97% of the portfolio, compared to the UK national average of just 31%
• Our homes provide generous space at an average of 47m² per resident
• EPC ratings: 100% A-C ratings, with 93% A or B ratings and currently compliant with the minimum energy efficiency standards anticipated to apply from 2030
Unless otherwise stated in the above, references to 2021 mean the comparative six month period to 31 December 2021 and references to 2022 mean 30 June 2022, being the start of the period under review.
⁽¹⁾ Based on EPRA NTA movement and dividends paid, see alternative performance measures below.
⁽²⁾ For the details of EPRA earnings and adjusted EPRA earnings refer to note 6 to the Condensed Consolidated Financial Statements.
Alison Fyfe, Chair of the Company, said: “We remain committed to our primary investment objective, producing long-term stable income and
attractive total returns, with positive social impact by investing in fit-for-purpose care homes for older people in society. There is an increased national focus on supporting people in the community rather than having them experience unnecessary and potentially distressing hospital admission and care homes play a crucial role in this.
“The recent increases in interest rates have impacted on earnings but our tenants’ underlying trading performance is improving and maturing, with this property sector benefitting from significant tailwinds of demographic change and needs-based demand for care. With a rebased dividend to reflect the Group’s current recurring earnings, we believe the Group’s modern portfolio is well positioned to deliver sustainable long-term returns to shareholders.”
A live webcast presentation for analysts will be held at 9.00 a.m. BST this morning and can be accessed via the following link:
https://stream.brrmedia.co.uk/broadcast/63fe469cd684866e54345175
LEI: 213800RXPY9WULUSBC04
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