Continuing positive returns in Q4

Target Healthcare REIT 20 August 2019 Update
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Target Healthcare REIT

Continuing positive returns in Q4

Q419 update

Real estate

20 August 2019

Price

116p

Market cap

£447m

Net debt (£m) at 30 June 2019

81.1

Net LTV at 30 June 2019

16.2%

Shares in issue

385.1m

Free float

97%

Code

THRL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.9

0.5

1.3

Rel (local)

6.1

2.8

6.9

52-week high/low

118.2p

106.0p

Business description

Target Healthcare REIT invests in modern, purpose-built residential care homes in the UK let on long leases to high-quality care providers. It selects assets according to local demographics and intends to pay increasing dividends underpinned by structural growth in demand for care.

Next events

FY19 results

Sept. 2019

Analysts

Martyn King

+44 (0)20 3077 5745

Andrew Mitchell

+44 (0)20 3681 2500

Target Healthcare REIT is a research client of Edison Investment Research Limited

Target’s portfolio of high-quality purpose-built care homes continues to grow and perform well with RPI-driven rental growth, increased property valuations, continuing acquisitions of operational homes and progress with pre-let forward-funded developments. Due diligence on potential further acquisition opportunities continues, in aggregate sufficient to fully deploy remaining debt capital resources.

Year end

Revenue (£m)

Adj. earnings* (£m)

Adjusted EPS* (p)

EPRA NAV/
share (p)

DPS
(p)

P/NAV per share (x)

Yield
(%)

06/17

23.6

13.2

5.23

101.9

6.28

1.14

5.4

06/18

28.4

15.7

5.54

105.7

6.45

1.10

5.6

06/19e

33.2

19.9

5.37

107.8

6.58

1.08

5.7

06/20e

43.0

26.1

6.78

111.0

6.71

1.04

5.8

Note: *Adjusted earnings exclude revaluation movements, non-cash income arising from the accounting treatment of lease incentives and guaranteed rent review uplifts and acquisition costs and include development interest under forward fund agreements.

Q419 2.1% EPRA NAV total return

EPRA NAV per share was 107.8p at 30 June 2019 (Q419), an increase of c 0.5% in the quarter and 2.0% in the year. Including dividends paid, the quarterly EPRA NAV total return was 2.1% or 8.2% for the year. Aggregate quarterly DPS for the year increased 2% to 6.58p. The portfolio value increased 5.0% in the quarter to £500.9m, including two acquisitions, continuing investment in the forward-funded developments (two completed in the period and three under construction) and underlying valuation gains. The latter were supported by rental growth on the mainly RPI-linked leases, with modest yield tightening in the period. Acquisitions have taken longer than we assumed but the pipeline remains strong with debt funding available. The share placing programme approved by the EGM along with the new corporate structure provides additional funding flexibility. We continue to forecast DPS growth in FY20, fully covered by earnings.

Demographics support long-term growth

Demographics should support growing care-home demand for years to come, while there is an undersupply of the modern, well-designed homes, fully equipped with en-suite wet rooms and suitable communal spaces that differentiate Target’s investment strategy. Investors continue to be attracted by long lease lengths and upwards-only RPI-linked rental growth, with strong competition for assets. Although increasing asset prices have a positive impact on the NAV, they make Target’s disciplined approach to acquisitions, targeting ‘future-proof assets’, an essential ingredient in delivering attractive and sustainable long-term returns.

Valuation: Visible income supports premium to NAV

Target offers a growing dividend with visible inflation-linked potential for growth, which we expect to be fully covered by adjusted earnings in FY20. The dividend represents a highly attractive yield (FY19: 5.7%) that supports the continuing 8% premium to Q419 EPRA NAV.

Investment summary

Target’s portfolio continues to grow and perform well. During the three months to 30 June 2019 (Q419) the company generated a NAV total return of 2.1% (an annualised c 8.7%) and we estimate a full-year (FY19) return of 8.2%. We expect audited full-year results to be reported in late September. While some areas of the mainstream commercial property market (most clearly the retail sector) have recently experienced more challenging conditions, Target continues to benefit from effectively full occupancy (the operators, Targets tenants carry any void risk) and predominantly RPI-linked uplifts on its very long leases (29.1 years at 30 June 2019).

Exhibit 1: Quarterly NAV performance

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Pence per share unless otherwise stated

Q418

Q119

Q219

Q319

Q419

Opening EPRA NAV per share

105.0

105.7

106.1

106.9

107.3

Property revaluation

N/A

1.2

1.7

0.1

0.5

Property acquisition costs & other capital items

N/A

(0.5)

(0.7)

0.8

0.5

Net gains/(losses) on investment property revaluation

1.2

0.7

1.0

0.9

1.0

Net effect of equity issuance

0.0

0.0

0.1

0.0

0.0

Cost of corporate restructure

0.0

0.0

0.0

0.0

(0.2)

Movement in revenue reserve

1.2

1.3

1.1

1.1

1.3

Performance fee accrual

(0.1)

0.0

0.0

0.0

0.0

Dividend paid

(1.6)

(1.6)

(1.4)

(1.6)

(1.6)

Closing EPRA NAV per share

105.7

106.1

106.9

107.3

107.8

EPRA NAV total return in period

2.2%

1.9%

2.3%

1.9%

2.1%

Source: Target Healthcare

The key features of the Q419 financial performance were:

EPRA NAV per share increased to 107.8p compared with 107.3p at the end of March 2019 (Q319) and 105.7p at the end of June 2018 (FY18). Including the quarterly DPS paid of 1.645p, the Q4 NAV total return was 2.1%. A fourth interim dividend of 1.645p was paid on 2 August 2019, bringing the aggregate DPS declared for FY19 to 6.58p, a 2% increase on FY18.

One-off costs related to the corporate restructuring negatively affected Q419 NAV per share by 0.2p (c £800k). Excluding this, NAV total return in the quarter would have been c 0.2% higher. We expect some additional but much lower costs in the current quarter (Q120) and going forward the company expects the corporate restructuring to generate a recurring benefit to costs.

Recurring profits, shown in the revenue reserve movement (which excludes the corporate restructuring costs), increased to 1.3p during the quarter and reflected the benefits of portfolio growth and continued increases in rents. Rental growth was the main driver of valuation gains, with the portfolio topped up net initial yield tightening only modestly from 6.29% at end-Q319 to 6.26%. NAV also benefited from the completion of two forward-funded developments with the discount applied by the external valuer during construction released at completion.

Portfolio development and rental growth

At 30 June 2019 (end-FY19) the portfolio was externally valued at £500.9m (the balance sheet value is adjusted for lease incentives and fixed rent uplifts and we estimate was c £473m). It comprised 63 assets of which 60 were fully completed and operational care homes and three were pre-let assets being developed under forward-funding commitments with established development partners.

The annualised contracted rent from the 60 completed properties was £32.2m (passing rent after lease incentives £30.5m), let to 24 tenants, with an average weighted unexpired lease term of just over 29 years. Completion of the three forward-funded development assets as well as Target’s commitment to acquire an additional home at completion are expected to add an additional £2.3m of annual contractual rent in 2019.

Exhibit 2: Portfolio summary at 30 June 2019

Properties

63

Of which operational properties

60

Of which pre-let forward-funded developments

3

Tenants

24

Portfolio contractual rent on completed properties (£m)

32.2

Portfolio value (£m)

500.9

WAULT

29.1 years

EPRA topped-up net initial yield

6.26%

Properties

Of which operational properties

Of which pre-let forward-funded developments

Tenants

Portfolio contractual rent on completed properties (£m)

Portfolio value (£m)

WAULT

EPRA topped-up net initial yield

63

60

3

24

32.2

500.9

29.1 years

6.26%

Source: Target Healthcare data

The portfolio value increased by £23.8m, or 5.0%, to £500.9m during Q419. The majority of this (4.4%) represented acquisitions and ongoing investment into the forward-funded development assets, with the balance (0.6%) coming from revaluation movement, largely driven by annual inflation-linked rent reviews. Contractual rent increased by £2.5m, or 8.4%, to £32.2m during the quarter with acquisitions adding 3.1%, the two development completions 4.7% and like-for-like rental increases 0.6%. During the quarter, 16 rent reviews were completed at an average uplift of 2.8% pa.

The two operational homes acquired in Q419 were:

A 40-bed care home in Formby, Merseyside, an affluent area with a shortage of alternative care options, for £6.9m. Opened in 2017, the home is let to Athena Healthcare, an existing tenant of the group.

A 64-bed care home, in area of low supply, close to the centre of Nottingham, for £7.6m. The home was purpose built in 2013 and is let to Acacia Care, a local operator and existing tenant of the group.

Both homes meet the group’s strict acquisition criteria, providing flexible layouts and high-quality residential facilities, including single-occupancy bedrooms complete with en-suite wet rooms. They are let on long (35 years at inception) leases linked to RPI with caps and collars and were acquired at yields that Target says are consistent with the overall portfolio yield.

The two forward-funded development assets completed and opened in the quarter, in Shropshire and Kent, added 128 high-quality beds with full en-suite wet-room facilities.

Reflecting the increasing size and breadth of the portfolio and Target’s close monitoring and active management of its assets, two care homes have been disposed of since the end of Q419. No price has been given for the disposals although Target says the two assets combined accounted for less than 3% of the portfolio by value (ie less than £15m) and that combined sales value was more than 5% above the 31 March 2019 book value.

Strong pipeline of potential acquisitions with funding available

A number of further investment opportunities are progressing through Target’s due diligence processes and Target says that if they all complete as anticipated they will fully utilise the group’s existing equity and debt capital resources by the end of 2019 (or end-H120).

Exhibit 3: Unaudited balance sheet summary

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

£m unless stated otherwise

Q418

Q119

Q219

Q319

Q419

Investment properties at market value

385.5

403.7

463.9

477.1

500.9

Cash

41.4

24.0

28.8

21.1

26.9

Net current assets/(liabilities)

(2.4)

(1.9)

(10.2)

(1.0)

(4.6)

Bank loan

(66.0)

(66.0)

(71.0)

(84.0)

(108.0)

Net assets

358.5

359.8

411.5

413.2

415.2

Net debt

(24.6)

(42.0)

(42.2)

(62.9)

(81.1)

Gross LTV

17.1%

16.3%

15.3%

17.6%

21.6%

Net LTV

6.4%

10.4%

9.1%

13.2%

16.2%

Source: Target Healthcare

Drawn debt at end-Q419 was £108m of aggregate debt facilities of £170m, comprising £70m of fixed-term debt and £100m of more flexible debt in the form of revolving credit facilities. The gross loan to value ratio was 21.6% and taking account of the £26.9m of period-end cash the net LTV was 16.2%. We estimate that full drawing of available debt facilities would take the net LTV to around 30%. The recent EGM held to consider and approve the new corporate structure (see below) also agreed a new ordinary share placing programme that allows Target to issue up to 125m new ordinary shares to fund suitable acquisitions. If issued, it is the board’s intention that this would be done at a premium to NAV. At the current share price, the issue of all 125m shares would raise new equity of more than £140m.

New corporate structure agreed

A shareholder EGM recently approved changes to the group’s corporate structure, which has established a new English-incorporated parent company (Target Healthcare REIT) at the head of the group. The main driver for moving the group’s ultimate parent company to a UK domicile from Jersey is to align the group with its existing UK tax jurisdiction, maintain and enhance its important relationships with UK local authorities and health services and help reduce administrative costs and regulatory complexities. Importantly, there is no change to the way the group will be run, its investment strategy or dividend policy.

Financials and estimates

We have reviewed our estimates to bring our FY19e balance sheet into line with the Q419 update and will review our estimates in greater detail with the full-year results. The main difference to our previous forecasts is that the acquisitions we forecast for end-FY19 have taken a little longer to complete, pushing activity (and income) into FY20. We had previously assumed £55m in new investment commitments compared with the £14.5m completed. In our revised forecast the additional investment commitment that we had previously assumed for FY19 is pushed into FY20 and, given management’s comments about the strength of the pipeline and currently available debt funding, we have also increased the amount by c £20m. We now look for Target to commit a net c £60m to new investment by the end of H120 (£40m carried over from FY19 plus the additional £20m). Given the recent disposals, this suggests gross new commitment of c £75m.

The additional assumed investment contributes to a slight increase in FY21e revenues and adjusted earnings. We have made no changes to our dividend growth assumptions and continue to look for dividends to be fully covered by adjusted earnings in FY20.

Exhibit 4: Estimate revisions

Revenue (£m)

Adj. net earnings (£m)

Adjusted EPS (p)

EPRA NAV/share (p)

DPS (p)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

06/19e

34.4

33.2

-3.3

21.0

19.9

-5.4

5.7

5.4

-5.4

106.5

107.8

1.3

6.58

6.58

0.0

06/20e

43.1

43.0

-0.2

25.8

26.1

1.1

6.7

6.8

1.1

110.6

111.0

0.4

6.71

6.71

0.0

06/21e

44.4

44.9

1.2

26.6

27.2

2.1

6.9

7.1

2.1

115.1

115.9

0.7

6.84

6.84

0.0

Source: Edison Investment Research

Valuation

With increasing economic and Brexit uncertainty, the mainstream UK commercial property market has entered a more challenging period. In this environment investors have continued to target long leases and visible secure income. With its long average WAULT (c 29 years) and predominantly upwards-only RPI-linked rent reviews backed by demographic trends and demand/supply imbalances, Target provides investors with considerable income visibility protection against inflation and has continued to outperform the broader UK property sector and FTSE All-Share Index over the past 12 months.

Based on the FY19 DPS of 6.58p, the shares provide an attractive yield of 5.7% and we forecast further dividend growth with full cover in FY20 as available capital is deployed. This supports a share premium to the last reported NAV of 8%.

Exhibit 5: Financial summary

Year to 30 June (£000s)

2014

2015

2016

2017

2018

2019e

2020e

2021e

INCOME STATEMENT

Rent revenue

 

3,817

9,898

12,677

17,760

22,029

27,629

37,556

39,498

Movement in lease incentive/fixed rent review adjustment

1,547

3,760

4,136

5,127

6,334

5,603

5,400

5,400

Rental income

 

5,364

13,658

16,813

22,887

28,363

33,232

42,956

44,898

Other income

0

66

61

671

3

0

0

0

Total revenue

 

5,364

13,724

16,874

23,558

28,366

33,232

42,956

44,898

Gains/(losses) on revaluation

(2,233)

(839)

425

2,211

6,434

8,346

6,715

12,359

Cost of corporate acquisitions

0

(174)

(998)

(626)

0

0

0

0

Total income

 

3,131

12,711

16,301

25,143

34,800

41,578

49,671

57,257

Management fee

(648)

(1,524)

(2,654)

(3,758)

(3,734)

(5,000)

(5,292)

(5,505)

Other expenses

(780)

(880)

(992)

(1,236)

(1,458)

(2,420)

(1,600)

(1,700)

Total expenditure

(1,428)

(2,404)

(3,646)

(4,994)

(5,192)

(7,420)

(6,892)

(7,205)

Profit before finance and tax

 

1,703

10,307

12,655

20,149

29,608

34,158

42,779

50,052

Net finance cost

190

(716)

(929)

(808)

(2,010)

(3,075)

(4,749)

(5,136)

Profit before taxation

 

1,893

9,591

11,726

19,341

27,598

31,083

38,030

44,916

Tax

(4)

(39)

(24)

(219)

11

0

0

0

Profit for the year

 

1,889

9,552

11,702

19,122

27,609

31,083

38,030

44,916

Average number of shares in issue (m)

105.2

119.2

171.7

252.2

282.5

369.8

385.1

385.1

IFRS earnings

1,889

9,552

11,702

19,122

27,609

31,083

38,030

44,916

Adjust for rent arising from recognising
guaranteed rent review uplifts + lease incentives

(1,547)

(3,760)

(4,136)

(5,127)

(6,334)

(5,603)

(5,400)

(5,400)

Adjust for valuation changes

2,233

839

(425)

(2,211)

(6,434)

(8,346)

(6,715)

(12,359)

Other EPRA adjustments

0

174

998

420

1

850

0

0

EPRA earnings

 

2,575

6,805

8,139

12,204

14,842

17,984

25,915

27,157

Adjust for development interest under forward fund agreements

261

1889

200

0

Adjust for performance fee

150

466

871

997

550

0

0

0

Group adjusted earnings

 

2,725

7,271

9,010

13,201

15,653

19,873

26,115

27,157

IFRS EPS (p)

1.80

8.02

6.81

7.58

9.77

8.41

9.88

11.66

Adjusted EPS (p)

 

2.59

6.10

5.25

5.23

5.54

5.37

6.78

7.05

EPRA EPS (p)

2.45

5.71

4.74

4.84

5.25

4.86

6.73

7.05

Dividend per share (declared)

6.00

6.12

6.18

6.28

6.45

6.58

6.71

6.84

BALANCE SHEET

Investment properties

81,422

138,164

200,720

266,219

362,918

472,720

551,156

563,515

Other non-current assets

0

2,530

3,742

3,988

27,139

33,788

41,208

46,843

Non-current assets

 

81,422

140,694

204,462

270,207

390,057

506,508

592,364

610,358

Cash and equivalents

17,125

29,159

65,107

10,410

41,400

26,872

15,832

17,024

Other current assets

6,524

6,457

13,222

25,629

3,365

6,093

6,093

6,093

Current assets

 

23,649

35,616

78,329

36,039

44,765

32,965

21,925

23,117

Bank loan

(11,764)

(30,865)

(20,449)

(39,331)

(64,182)

(106,716)

(169,216)

(169,716)

Other non-current liabilities

0

(2,530)

(4,058)

(3,997)

(4,673)

(5,131)

(5,131)

(5,131)

Non-current liabilities

 

(11,764)

(33,395)

(24,507)

(43,328)

(68,855)

(111,847)

(174,347)

(174,847)

Trade and other payables

(3,089)

(3,623)

(5,002)

(5,981)

(7,360)

(12,500)

(12,500)

(12,500)

Current Liabilities

 

(3,089)

(3,623)

(5,002)

(5,981)

(7,360)

(12,500)

(12,500)

(12,500)

Net assets

 

90,218

139,292

253,282

256,937

358,607

415,126

427,441

446,128

Period end shares (m)

95.2

142.3

252.2

252.2

339.2

385.1

385.1

385.1

IFRS NAV per ordinary share

 

94.7

97.9

100.4

101.9

105.7

107.8

111.0

115.9

EPRA NAV per share

 

94.7

97.9

100.6

101.9

105.7

107.8

111.0

115.9

CASH FLOW

Cash flow from operations

 

3,172

8,081

8,906

4,394

23,627

12,783

28,644

32,058

Net interest paid

161

(514)

(681)

(615)

(1,366)

(2,427)

(4,249)

(4,636)

Tax paid

0

(47)

(164)

(543)

(122)

14

0

0

Net cash flow from operating activities

 

3,333

7,520

8,061

3,236

22,139

10,370

24,396

27,421

Purchase of investment properties

(51,894)

(51,736)

(34,833)

(37,698)

(89,981)

(92,238)

(71,721)

0

Acquisition of subsidiaries

0

(5,845)

(27,091)

(25,552)

0

0

0

0

Net cash flow from investing activities

 

(51,894)

(57,581)

(61,924)

(63,250)

(89,981)

(92,238)

(71,721)

0

Issue of ordinary share capital (net of expenses)

44,520

46,644

97,501

0

91,729

49,049

0

0

(Repayment)/drawdown of loans

8,646

22,525

(12,808)

20,906

24,456

42,000

62,000

0

Dividends paid

(4,364)

(7,074)

(9,681)

(15,589)

(17,353)

(23,709)

(25,715)

(26,229)

Other

0

0

14,799

0

0

0

0

0

Net cash flow from financing activities

 

48,802

62,095

89,811

5,317

98,832

67,340

36,285

(26,229)

Net change in cash and equivalents

 

241

12,034

35,948

(54,697)

30,990

(14,528)

(11,040)

1,192

Opening cash and equivalents

16,884

17,125

29,159

65,107

10,410

41,400

26,872

15,832

Closing cash and equivalents

 

17,125

29,159

65,107

10,410

41,400

26,872

15,832

17,024

Balance sheet debt

(11,764)

(30,865)

(20,449)

(39,331)

(64,182)

(106,716)

(169,216)

(169,716)

Unamortised loan arrangement costs

(497)

(645)

(551)

(669)

(1,818)

(1,284)

(784)

(284)

Net cash/(debt)

 

4,864

(2,351)

44,107

(29,590)

(24,600)

(81,128)

(154,168)

(152,976)

Gross LTV

15.1%

22.8%

10.5%

14.2%

17.1%

21.6%

29.1%

28.2%

Net LTV

0.0%

1.7%

0.0%

10.5%

6.4%

16.2%

26.4%

25.4%

Source: Company data, Edison Investment Research


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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Target Healthcare and prepared and issued by Edison, in consideration of a fee payable by Target Healthcare. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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