Target Healthcare REIT |
Income growth and growing NAV |
NAV & dividend update |
Real estate |
9 November 2017 |
Share price performance
Business description
Next events
Analysts
Target Healthcare REIT is a research client of Edison Investment Research Limited |
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Target has published its quarterly NAV and dividend update. NAV total return was 3.0% in the quarter including dividends paid of 1.570p. With investor interest in modern, purpose-built care homes remaining strong the portfolio valuation increased further. While this is positive for NAV, it also highlights the strong competition for quality assets in the market. Despite the competitive market conditions, as previously indicated the managers have identified a number of acquisition opportunities that meet its qualitative and financial hurdles on which due diligence is progressing.
Year end |
Revenue (£m) |
EPRA net earnings* (£m) |
EPRA EPS* (p) |
EPRA NAV/ |
DPS |
Price/EPRA NAV/share (x) |
Yield |
06/16 |
16.9 |
8.1 |
4.7 |
100.6 |
6.18 |
1.17 |
5.3 |
06/17 |
23.6 |
12.2 |
4.8 |
101.9 |
6.28 |
1.15 |
5.4 |
06/18e |
28.0 |
15.8 |
6.3 |
104.1 |
6.45 |
1.13 |
5.5 |
06/19e |
30.5 |
17.5 |
6.9 |
106.5 |
6.58 |
1.10 |
5.6 |
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.
Income in line; lifting NAV forecast
In the three months to 30 September 2017, Target’s EPRA NAV per share increased by 1.4p to 103.3p per share after the payment of 1.570p per share in dividends during the period. A 1.6125p DPS has been declared for the quarter under review. Passing rent increased 3.7%: 3.1% from previously disclosed acquisitions and 0.6% from rent reviews. The external portfolio valuation saw the EPRA net initial yield (NIY) tighten to 6.69% from 6.75% in June, combining with rent increases to generate 1.8p per share in property revaluation gains. Our only forecast change is to increase our assumed revaluation gains for the year from £6.0m to £9.0m with the balance of the year benefitting from an assumed 2% pa increase in rents and no further change in NIY. This adds 1.2p to our EPRA NAV per share forecasts.
Strong pipeline of growth opportunities
As discussed at length in our recent update note, Target seeks further portfolio growth, capturing the positive spread between rental income and funding costs, generating operational efficiencies, and further diversifying the portfolio. The investment manager continues to perform due diligence on a strong pipeline of opportunities and while it is not certain that all of these will proceed in aggregate they are higher than we have forecast. The scale of the opportunities is such that additional equity and debt capital support, not in our forecasts, may be required.
Valuation: Long-term income visibility
The mid-teens premium to EPRA NAV is supported by an attractive 5.5% prospective dividend yield, with our estimated cover increasing to 97% in FY18 and 106% in FY19. The long-term need for care home provision is clear, providing a strong opportunity for investors in modern, purpose-built facilities, such as Target, in combination with efficient, well managed, and financially sound operators.
Exhibit 1: Financial summary
Year to 30 June (£000s) |
2014 |
2015 |
2016 |
2017 |
2018e |
2019e |
|
INCOME STATEMENT |
|||||||
Rent revenue |
|
3,817 |
9,898 |
12,677 |
17,760 |
22,449 |
24,940 |
Movement in lease incentive or rent review |
1,547 |
3,760 |
4,136 |
5,127 |
5,414 |
5,414 |
|
Rental income |
|
5,364 |
13,658 |
16,813 |
22,887 |
27,863 |
30,354 |
Other income |
0 |
66 |
61 |
671 |
100 |
100 |
|
Total revenue |
|
5,364 |
13,724 |
16,874 |
23,558 |
27,963 |
30,454 |
Gains/(losses) on revaluation |
(2,233) |
(839) |
425 |
2,211 |
1,279 |
(271) |
|
Cost of corporate acquisitions |
0 |
(174) |
(998) |
(626) |
(688) |
(63) |
|
Total income |
|
3,131 |
12,711 |
16,301 |
25,143 |
28,555 |
30,120 |
Management fee |
(648) |
(1,524) |
(2,654) |
(3,758) |
(3,739) |
(3,796) |
|
Other expenses |
(780) |
(880) |
(992) |
(1,236) |
(1,400) |
(1,600) |
|
Total expenditure |
(1,428) |
(2,404) |
(3,646) |
(4,994) |
(5,139) |
(5,396) |
|
Profit before finance and tax |
|
1,703 |
10,307 |
12,655 |
20,149 |
23,416 |
24,724 |
Net finance cost |
190 |
(716) |
(929) |
(808) |
(1,622) |
(2,125) |
|
Profit before taxation |
|
1,893 |
9,591 |
11,726 |
19,341 |
21,794 |
22,599 |
Tax |
(4) |
(39) |
(24) |
(219) |
0 |
0 |
|
Profit for the year |
|
1,889 |
9,552 |
11,702 |
19,122 |
21,794 |
22,599 |
Average number of shares in issue (m) |
105.2 |
119.2 |
171.7 |
252.2 |
252.2 |
252.2 |
|
IFRS earnings |
1,889 |
9,552 |
11,702 |
19,122 |
21,794 |
22,599 |
|
Adjusted for rent arising from recognising |
(1,547) |
(3,760) |
(4,136) |
(5,127) |
(5,414) |
(5,414) |
|
Adjusted for valuation changes |
2,233 |
839 |
(425) |
(2,211) |
(1,279) |
271 |
|
Adjusted for corporate acquisitions |
0 |
174 |
998 |
420 |
688 |
63 |
|
EPRA earnings |
|
2,575 |
6,805 |
8,139 |
12,204 |
15,788 |
17,518 |
Adjustment for performance fee |
150 |
466 |
871 |
997 |
935 |
949 |
|
Group adjusted EPRA earnings |
|
2,725 |
7,271 |
9,010 |
13,201 |
16,723 |
18,467 |
IFRS EPS (p) |
1.80 |
8.02 |
6.81 |
7.58 |
8.64 |
8.96 |
|
EPRA EPS (p) |
|
2.45 |
5.71 |
4.74 |
4.84 |
6.26 |
6.95 |
Adjusted EPS (p) |
2.59 |
6.10 |
5.25 |
5.23 |
6.63 |
7.32 |
|
Dividend per share (declared) |
6.00 |
6.12 |
6.18 |
6.28 |
6.45 |
6.58 |
|
BALANCE SHEET |
|||||||
Investment properties |
81,422 |
138,164 |
200,720 |
266,219 |
324,093 |
328,967 |
|
Trade and other receivables |
0 |
2,530 |
3,742 |
3,988 |
4,495 |
4,753 |
|
Non-current assets |
|
81,422 |
140,694 |
204,462 |
270,207 |
328,588 |
333,720 |
Trade and other receivables |
6,524 |
6,457 |
13,222 |
25,629 |
24,261 |
29,675 |
|
Cash and equivalents |
17,125 |
29,159 |
65,107 |
10,410 |
4,186 |
4,884 |
|
Current assets |
|
23,649 |
35,616 |
78,329 |
36,039 |
28,447 |
34,559 |
Bank loan |
(11,764) |
(30,865) |
(20,449) |
(39,331) |
(84,487) |
(89,643) |
|
Other non-current liabilities |
0 |
(2,530) |
(4,058) |
(3,997) |
(3,997) |
(3,997) |
|
Non-current liabilities |
|
(11,764) |
(33,395) |
(24,507) |
(43,328) |
(88,484) |
(93,640) |
Trade and other payables |
(3,089) |
(3,623) |
(5,002) |
(5,981) |
(5,981) |
(5,981) |
|
Current Liabilities |
|
(3,089) |
(3,623) |
(5,002) |
(5,981) |
(5,981) |
(5,981) |
Net assets |
|
90,218 |
139,292 |
253,282 |
256,937 |
262,570 |
268,657 |
Period end shares (m) |
95.2 |
142.3 |
252.2 |
252.2 |
252.2 |
252.2 |
|
IFRS NAV per ordinary share |
|
94.7 |
97.9 |
100.4 |
101.9 |
104.1 |
106.5 |
EPRA NAV per share |
|
94.7 |
97.9 |
100.6 |
101.9 |
104.1 |
106.5 |
CASH FLOW |
|||||||
Profit before tax |
|
1,893 |
9,591 |
11,726 |
19,341 |
21,794 |
22,599 |
Adjusted for |
|||||||
Net interest payable |
(190) |
716 |
929 |
808 |
1,622 |
2,125 |
|
Revaluation gains on property portfolio |
686 |
(2,921) |
(4,787) |
(7,339) |
(6,695) |
(5,145) |
|
Cost of corporate acquisitions |
626 |
688 |
63 |
||||
Change in receivables/payables |
783 |
695 |
1,038 |
(9,042) |
6,275 |
(258) |
|
Net interest paid |
161 |
(514) |
(681) |
(615) |
(1,466) |
(1,969) |
|
Tax paid |
0 |
(47) |
(164) |
(543) |
0 |
0 |
|
Net cash flow from operating activities |
|
3,333 |
7,520 |
8,061 |
3,236 |
22,217 |
17,414 |
Purchase of investment properties |
(51,894) |
(51,736) |
(34,833) |
(37,698) |
(29,095) |
(2,645) |
|
Acquisition of subsidiaries |
0 |
(5,845) |
(27,091) |
(25,552) |
(28,188) |
(2,563) |
|
Net cash flow from investing activities |
|
(51,894) |
(57,581) |
(61,924) |
(63,250) |
(57,283) |
(5,208) |
Issue of ordinary share capital (net of expenses) |
44,520 |
46,644 |
97,501 |
0 |
0 |
0 |
|
Sale of shares from treasury |
0 |
0 |
14,799 |
0 |
0 |
0 |
|
(Repayment)/drawdown of loans |
8,646 |
22,525 |
(12,808) |
20,906 |
45,000 |
5,000 |
|
Dividends paid |
(4,364) |
(7,074) |
(9,681) |
(15,589) |
(16,158) |
(16,510) |
|
Net cash flow from financing activities |
|
48,802 |
62,095 |
89,811 |
5,317 |
28,842 |
(11,510) |
Net change in cash and equivalents |
|
241 |
12,034 |
35,948 |
(54,697) |
(6,224) |
697 |
Opening cash and equivalents |
16,884 |
17,125 |
29,159 |
65,107 |
10,410 |
4,186 |
|
Closing cash and equivalents |
|
17,125 |
29,159 |
65,107 |
10,410 |
4,186 |
4,884 |
Debt |
(11,764) |
(30,865) |
(20,449) |
(39,331) |
(84,487) |
(89,643) |
|
Net cash/(debt) |
|
5,361 |
(1,706) |
44,658 |
(28,921) |
(80,301) |
(84,759) |
Net LTV |
0.0% |
0.0% |
0.0% |
10.5% |
23.4% |
23.8% |
Source: Company data, Edison Investment Research
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