Funded for growth opportunities

Target Healthcare REIT 16 March 2018 Update
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Target Healthcare REIT

Funded for growth opportunities

Update on portfolio growth

Real estate

16 March 2018

Price

110.5p

Market cap

£375m

Net debt (£m) as at 31 December 2017

66.1

Gross LTV as at 31 December 2017

24.2%

Shares in issue

339.2m

Free float

90%

Code

THRL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.9

4.7

0.0

Rel (local)

1.7

9.0

1.5

52-week high/low

122.5p

105.6p

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

Interim results

March 2018

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 has recently raised an additional £94m in new equity and has extended its debt facilities by £40m, providing the capital resources to pursue an immediate investment pipeline of more than £100m. The strength of the pipeline and flexible debt facilities limit the drag from cash, while the expanded portfolio offers further diversification and scale economies to counter increasing asset prices. The shares have slightly de-rated during the process and offer an attractive 5.8% yield and growing dividend, which we expect to be fully covered on a fully invested basis.

Year end

Revenue (£m)

EPRA net earnings* (£m)

EPRA EPS* (p)

EPRA NAV/
share (p)

DPS
(p)

Price/EPRA NAV/share (x)

Yield
(%)

06/16

16.9

8.1

4.7

100.6

6.18

1.10

5.6

06/17

23.6

12.2

4.8

101.9

6.28

1.08

5.7

06/18e

29.1

15.9

5.6

104.2

6.45

1.07

5.8

06/19e

36.3

20.8

6.1

105.8

6.58

1.05

6.0

Note:*EPRA earnings exclude revaluation movements, non-cash income arising from the accounting treatment of lease incentives and guaranteed rent review uplifts, and the costs of acquisitions.

Significant new capital for growth

With £94m of additional equity and borrowing facilities increased to £130m, our revised estimates allow for £140m of new committed investment by the end of FY19, with the majority (c £120m) in the current year. Including existing commitments, we believe this would represent full investment, with borrowing facilities fully drawn and a net LTV of c 25%. The equity raising (at 108p) has no material effect on EPRA NAV per share (104.4p at end-2017) despite acquisition costs. Full dividend cover is delayed, but at an assumed 6.25% average yield on investment we expect 102% cover in FY20, as investments made by the end of FY19 make a full contribution to earnings.

Strong pipeline for swift deployment

In addition to £20m of existing commitments, advanced negotiations are underway for the immediate acquisition of two forward funding assets for an aggregate £19m (including costs) as well as for a £61m (including costs) pipeline of additional assets, including a modern care home and 4 forward funding assets. Negotiations have also begun regarding the potential acquisition of a portfolio of care homes for an estimated £62m (including costs). Clearly, the investment manager continues to identify a range of opportunities that meet its investment criteria and while the acquisitions completed may differ from those identified, the prospects for swift investment of the additional capital appear strong.

The yield has increased with NAV premium reduced

Since last October, when Target flagged the scale of its investment opportunity, in excess of capital resources, the premium to EPRA NAV has drifted lower, with the yield increasing. In part this may reflect more hawkish market interest rate expectations, but leaves the shares with an attractive and growing 5.8% yield and more modest 7% premium to NAV.

Continuing accretive growth opportunities

Target has for some time made clear that its intention is to grow its portfolio further, with a view to capturing the positive spread between rental income and funding costs as well as operational efficiencies, but also to continue to diversify the portfolio both by the number of assets and tenants. When the company announced its FY17 results in October 2017, it stated that the investment manager was performing due diligence on a range of further acquisition opportunities that it believed would meet its investment criteria and in aggregate had a value in excess of the capital that was available.

It invested c £34m (including costs) during the quarter ended 31 December, including three significant care home acquisitions, but that was only a part of the opportunity that had been identified. That took end-2017 debt to £81m (from its £90m of debt facilities at the time), and effectively represented full or near full deployment, in a total of 18 care home acquisitions, of the £84m proceeds from the equity raise that took place April 2016.

New debt and equity capital raised

The first stage of increasing the capital resources available to Target was to negotiate a new £40m revolving credit facility, with an initial three-year term and an option for two one-year extensions. However, gross gearing, or borrowing as a percentage of gross assets (overwhelmingly represented by the investment portfolio), is limited to 35% at the time of drawdown. In practice, a lower level of c 20% is targeted by the board over the medium term, while exceeding this occasionally to fund the growth of the portfolio also limited cash drag. The second stage of the capital raising process was therefore to increase equity capital resources. At the beginning of February Target announced an initial placing, open offer and offer for subscription at 108p (a premium to the end-December 2017 EPRA NAV per share of 104.4p), subsequently raising gross proceeds of £94m through the issue of 87.0m new shares in the initial issues. Shareholders also gave approval for a one-year placing programme, allowing for further issuance, up to a maximum 150m shares including the initial issues, at the discretion of the company, as and when it identifies suitable acquisition opportunities.

With the prospectus to accompany the share issue, Target stated that it had identified a pipeline of investment opportunities comprising:

£39m of imminent acquisitions and capital commitments in respect of the existing portfolio. The imminent acquisitions comprised two forward funding assets for which negotiations were at an advanced stage, with an aggregate consideration of up to £19m (including the costs of acquisition). The assets are in Shropshire and Lancashire and Target has entered into non-binding heads of terms, expecting to commit to funding and acquiring both assets by the end of March 2018.

A £61m (including costs) pipeline of additional assets, also at an advanced stage of negotiation, comprising a modern care home in Birmingham and four additional forward funding opportunities in Powys, Buckinghamshire and two in Oxfordshire.

Target’s intention is to optimise the deployment of the £94m net proceeds from the initial issue, and its debt facilities in the acquisition of the imminent and pipeline assets. Depending on the timing of investments, some of the revolving debt may be repaid for a time and should the acquisition of these assets not complete, Target intends to direct its available resources towards the acquisition of further properties that have been identified by the investment manager. This includes a portfolio of care homes with an estimated acquisition value of £62m (including costs).

The investment market is competitive, requiring selectivity

While longer-term funding for adult social care continues to be debated publicly, and the problems facing the wider industry inevitably receive much media attention, what is often overlooked is the ability of well-managed operators, with efficiently run homes, in locations with a good demand-supply balance to effectively and sustainably meet this need.

Investor interest in such homes remains strong and is continuing to drive a tightening in valuation yields, especially for purpose-built homes, in prime locations, focused on self-funded residents. The average net initial yield on Target’s portfolio tightened further in the quarter to end-2017, to 6.58% versus 6.69% in September. While this is positive for NAV, the yield tightening also highlights the strong competition for quality assets in the market.

In this environment, selective investment, in homes that are most likely to effectively and profitably meet care needs over many years is essential and we believe that Target remains focused on building just such a portfolio. Target has always put a strong emphasis on the careful selection of operators and growing share of forward funded assets in the investment pipeline gives access to modern, purpose-built homes. Target is not a developer and forward funding agreements allow it to acquire pre-let care homes at completion, meanwhile funding the development cost. So long as the location and operator of the home is carefully selected, the additional risk compared with the acquisition of operational homes should be minimal.

Earnings updated to include capital raise and investment

We have updated our forecasts to include the equity issue, the increase in total debt facilities and a revised assessment of how the increased funds are likely to be deployed. In short, given the scale of potential opportunities to which management refers, we assume the increased resources to be fully invested by the end of FY19. However, the FY19 investment will not fully contribute to earnings in that year, so we have extended our forecast period out to FY20 to illustrate the likely benefit. The FY20 forecast assumes no new investment and is perhaps best seen as an illustration of the potential earnings, dividend paying capacity and dividend cover that the new level of capital resources (equity and debt), fully invested, is capable of generating.

Our revised forecasts assume:

An increase in the number of shares by 87.0m to 339.2m, with gross proceeds of £94.0m less issue costs that we have assumed to be £1.4m or 1.5%.

An aggregate commitment to new investment of c £140m (including costs) between December 2017 (H118) and June 2019 (H219). This splits c 50:50 between investment in let standing assets and commitments to forward funding agreements.

An aggregate cash investment of c £151m between H118 and end-FY20. The investment is spread over a longer timeframe than the commitments because of the forward funding element and the aggregate amount exceeds the total committed because of commitments, made prior to H118, brought forward.

The aggregate amount of new investment commitment is broadly equivalent to the aggregate value of the Imminent Acquisition Assets, the Pipeline Assets, and the potential portfolio acquisition, although the actual assets acquired, and the amounts committed to, may differ.

We have assumed a 6.25% yield on all new investment, earned from the point of cash investment. Each asset will differ, but the assumed average, lower than the net initial yield of 6.58% reflected in the December 2017 portfolio valuation recognises the continuing strong investor interest in the asset class and market yield tightening. Income from the forward funding assets takes the form of coupon payment on the funding provided, and reported as other income, until rental income is reported at completion.

In our view the investments that we have assumed represent full investment of the capital resources now available, with the £130m of debt facilities fully drawn and a net LTV of 25.7%.

Faster than previously assumed investment increases our revenue forecasts for FY18 and FY19. The negative impact on EPRA EPS in FY18 from the increased number of shares is minimal, aided by Target having a strong pipeline of opportunities to quickly deploy the funds raised, as well as the ability to reduce the revolving debt usage in the near term to manage cash drag. The impact on FY19 is positive as a result of higher revenues and the effect of operational gearing. EPRA NAV is little changed, with the benefit to NAV per share from share issuance at a c 3.4% premium to the December 2017 EPRA NAV per share of 104.4, effectively off-setting share issuance costs and the additional property acquisition costs that we have assumed as a result of increased investment.

Exhibit 1: Forecast revisions

Revenue (£m)

EPRA EPS (p)

EPRA NAV/share (p)

DPS (p)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

June-18e

28.9

29.1

0.8

5.69

5.58

-1.9

104.1

104.2

0.1

6.45

6.45

0.0

June-19e

34.2

36.3

5.9

5.87

6.12

4.3

106.5

105.8

(0.7)

6.58

6.58

0.0

June-20e

N/A

38.6

N/A

N/A

6.86

N/A

N/A

108.4

N/A

N/A

6.71

N/A

Source: Edison Investment Research

Our forecasts indicate that EPRA earnings per share will be 87% of DPS in the current year, a slower increase on the 77% reported in FY17. This increases to 93% in FY19, with full cover og 103% achieved in FY20. The FY20 cover may be regarded as indicating the potential for full dividend cover on a fully invested basis. In reality, this may be deferred if Target continues to identify suitable further investment opportunities and raises additional capital (equity and debt) to fund these.

Strong yield attraction

Within the broad commercial property universe, Target is differentiated by its focus on care home assets, which appear primed to benefit from the ongoing demographic shifts, and the very long nature of leases arrangements in the sub-sector. Target’s weighted average unexpired lease term (WAULT) of 28.9 years at 31 December 2017 is one of the longest of all REITs, and combined with upwards-only rent reviews, mostly capped-and-collared RPI-linked, there is considerable visibility to future contracted rental income in real terms.

In Exhibit 2 we show a summary of the valuations and share price performances for a small group of companies that similarly target long leases. The closest comparators are perhaps Assura, MedicX and Primary Health Properties, all investors in modern primary healthcare facilities, primarily used by GPs. The average WAULT is a little lower at c 15 years, but the tenant covenant is strengthened by having NHS backing, directly or indirectly. In broad terms, the group shown in Exhibit 2 has outperformed the FTSE All Share Index over the past 12 months, and also offer a higher yield, supporting valuations above NAV.

Exhibit 2: Valuation comparison with other long lease property investors.

Price (p)

Market cap (£m)

P/NAV* (x)

Yield** (%)

Share price performance

1 month

3 months

12 months

From 12M high

Assura

58

1,387

1.10

4.5%

0%

-1%

3%

-10%

Medicx

83

356

1.06

7.3%

-1%

1%

-6%

-11%

Primary Health Properties

117

729

1.17

4.6%

2%

3%

6%

-5%

Secure Income REIT

371

855

1.00

3.8%

4%

3%

7%

-3%

Tritax

148

4.5%

4%

2%

3%

-3%

Average

647

1.08

5.2%

2%

2%

3%

-6%

Target Healthcare

112

378

1.07

5.8%

3%

-2%

-2%

-10%

FTSE All-Share Index

1%

-3%

0%

-7%

Source: Bloomberg data as at 12 March 2018. Edison forecasts for MedicX, Primary Health Properties, Target. *Last published NAV. **Yield based on expected current year dividend.

Target’s share price is c 10% off its 12-month high (of 123p in August 2017) and its P/NAV is down from a peak of c 1.20x. We suspect that increased expectations for interest increases and the recent equity issue are the main contributing factors. Its prospective yield is well above the average for the group, and second only to MedicX, and its P/NAV is very slightly below the average. As noted above, our forecasts include further dividend growth and the potential for full dividend cover in the year to June 2020.

Exhibit 3: Financial summary

Year to 30 June (£000s)

2014

2015

2016

2017

2018e

2019e

2020e

INCOME STATEMENT

Rent revenue

 

3,817

9,898

12,677

17,760

22,838

28,242

31,602

Movement in lease incentive or rent review

1,547

3,760

4,136

5,127

5,414

5,414

5,414

Rental income

 

5,364

13,658

16,813

22,887

28,252

33,656

37,016

Other income

0

66

61

671

861

2,604

1,576

Total revenue

 

5,364

13,724

16,874

23,558

29,113

36,259

38,592

Gains/(losses) on revaluation

(2,233)

(839)

425

2,211

151

1,373

3,341

Cost of corporate acquisitions

0

(174)

(998)

(626)

0

0

0

Total income

 

3,131

12,711

16,301

25,143

29,265

37,632

41,933

Management fee

(648)

(1,524)

(2,654)

(3,758)

(4,158)

(4,801)

(4,881)

Other expenses

(780)

(880)

(992)

(1,236)

(1,700)

(2,100)

(2,200)

Total expenditure

(1,428)

(2,404)

(3,646)

(4,994)

(5,858)

(6,901)

(7,081)

Profit before finance and tax

 

1,703

10,307

12,655

20,149

23,407

30,731

34,852

Net finance cost

190

(716)

(929)

(808)

(1,945)

(3,183)

(3,389)

Profit before taxation

 

1,893

9,591

11,726

19,341

21,462

27,548

31,463

Tax

(4)

(39)

(24)

(219)

0

0

0

Profit for the year

 

1,889

9,552

11,702

19,122

21,462

27,548

31,463

Average number of shares in issue (m)

105.2

119.2

171.7

252.2

284.8

339.2

339.2

IFRS earnings

1,889

9,552

11,702

19,122

21,462

27,548

31,463

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

(1,547)

(3,760)

(4,136)

(5,127)

(5,414)

(5,414)

(5,414)

Adjusted for valuation changes

2,233

839

(425)

(2,211)

(151)

(1,373)

(2,782)

Adjusted for corporate acquisitions

0

174

998

420

0

0

0

EPRA earnings

 

2,575

6,805

8,139

12,204

15,897

20,761

23,267

Adjustment for performance fee

150

466

871

997

960

960

960

Group adjusted EPRA earnings

 

2,725

7,271

9,010

13,201

16,857

21,721

24,227

IFRS EPS (p)

1.80

8.02

6.81

7.58

7.54

8.12

9.28

EPRA EPS (p)

 

2.45

5.71

4.74

4.84

5.58

6.12

6.86

Adjusted EPS (p)

2.59

6.10

5.25

5.23

5.92

6.40

7.14

Dividend per share (declared)

6.00

6.12

6.18

6.28

6.45

6.58

6.71

BALANCE SHEET

Investment properties

81,422

138,164

200,720

266,219

399,057

448,587

465,147

Trade and other receivables

0

2,530

3,742

3,988

5,061

5,816

6,064

Non-current assets

 

81,422

140,694

204,462

270,207

404,118

454,403

471,211

Trade and other receivables

6,524

6,457

13,222

25,629

24,261

29,675

35,089

Cash and equivalents

17,125

29,159

65,107

10,410

10,723

9,942

1,251

Current assets

 

23,649

35,616

78,329

36,039

34,984

39,617

36,340

Bank loan

(11,764)

(30,865)

(20,449)

(39,331)

(75,699)

(125,279)

(130,000)

Other non-current liabilities

0

(2,530)

(4,058)

(3,997)

(3,997)

(3,997)

(3,997)

Non-current liabilities

 

(11,764)

(33,395)

(24,507)

(43,328)

(79,696)

(129,276)

(133,997)

Trade and other payables

(3,089)

(3,623)

(5,002)

(5,981)

(5,981)

(5,981)

(5,981)

Current Liabilities

 

(3,089)

(3,623)

(5,002)

(5,981)

(5,981)

(5,981)

(5,981)

Net assets

 

90,218

139,292

253,282

256,937

353,425

358,764

367,573

Period end shares (m)

95.2

142.3

252.2

252.2

339.2

339.2

339.2

IFRS NAV per ordinary share

 

94.7

97.9

100.4

101.9

104.2

105.8

108.4

EPRA NAV per share

 

94.7

97.9

100.6

101.9

104.2

105.8

108.4

CASH FLOW

Profit before tax

 

1,893

9,591

11,726

19,341

21,462

27,548

31,463

Adjusted for

Net interest payable

(190)

716

929

808

1,945

3,183

3,389

Revaluation gains on property portfolio

686

(2,921)

(4,787)

(7,339)

(5,567)

(6,789)

(8,757)

Cost of corporate acquisitions

0

0

0

626

0

0

0

Change in receivables/payables

783

695

1,038

(9,042)

5,709

(756)

(248)

Net interest paid

161

(514)

(681)

(615)

(1,577)

(2,603)

(3,318)

Tax paid

0

(47)

(164)

(543)

0

0

0

Net cash flow from operating activities

 

3,333

7,520

8,061

3,236

21,972

20,584

22,530

Purchase of investment properties

(51,894)

(51,736)

(34,833)

(37,698)

(132,687)

(48,157)

(13,219)

Acquisition of subsidiaries

0

(5,845)

(27,091)

(25,552)

0

0

0

Net cash flow from investing activities

 

(51,894)

(57,581)

(61,924)

(63,250)

(132,687)

(48,157)

(13,219)

Issue of ordinary share capital (net of expenses)

44,520

46,644

97,501

0

92,590

0

0

Sale of shares from treasury

0

0

14,799

0

0

0

0

(Repayment)/drawdown of loans

8,646

22,525

(12,808)

20,906

36,000

49,000

4,650

Dividends paid

(4,364)

(7,074)

(9,681)

(15,589)

(17,562)

(22,208)

(22,652)

Net cash flow from financing activities

 

48,802

62,095

89,811

5,317

111,028

26,792

(18,002)

Net change in cash and equivalents

 

241

12,034

35,948

(54,697)

313

(781)

(8,691)

Opening cash and equivalents

16,884

17,125

29,159

65,107

10,410

10,723

9,942

Closing cash and equivalents

 

17,125

29,159

65,107

10,410

10,723

9,942

1,251

Debt

(11,764)

(30,865)

(20,449)

(39,331)

(75,699)

(125,279)

(130,000)

Net cash/(debt)

 

5,361

(1,706)

44,658

(28,921)

(64,976)

(115,337)

(128,749)

Net LTV

0.0%

0.0%

0.0%

10.5%

15.5%

24.1%

25.7%

Source: Edison Investment Research

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Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Target Healthcare REIT and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “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.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Target Healthcare REIT and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “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.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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