Target Healthcare REIT |
Portfolio growth |
NAV update |
Real estate |
28 April 2017 |
Share price performance
Business description
Next events
Analysts
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Target Healthcare REIT (Target) continues to approach full investment, having completed the acquisitions of four care homes in the quarter to 31 March and one more in April. Portfolio value stood at £274.6m at the quarter-end (31 December: £253.1m). The Q217 dividend was the main cause of a slight decrease in EPRA NAV per share to 101.5p (31 December: 101.8p); we expect full dividend cover to be achieved in FY18 as the company becomes fully invested. The secular trends of an ageing population and a persistent lack of modern care homes create a significant opportunity for further investment to underpin the attractive dividend yield.
Year end |
Revenue (£m) |
EPRA EPS* |
EPRA NAV/ |
Price/EPRA NAVE/share (x) |
DPS |
Yield |
06/15 |
12.7 |
5.71 |
97.9 |
1.18 |
6.12 |
5.3 |
06/16 |
16.3 |
4.56 |
100.6 |
1.15 |
6.18 |
5.3 |
06/17e |
22.6 |
4.75 |
100.7 |
1.15 |
6.28 |
5.4 |
06/18e |
26.6 |
6.34 |
102.3 |
1.13 |
6.34 |
5.5 |
Note: *EPRA EPS excludes revaluation gains and movements in the fair value of financial derivatives and debt swap contracts.
Asset and income growth
Of the 8.5% increase in portfolio value, 50bp was due to growth of the like-for-like portfolio, driven by rent uplifts and some yield compression. The remainder (c £20.2m) was attributable to the acquisitions of two care homes in Dorset let for 35 years to existing tenant Care Concern, and two others, in Nottinghamshire and Essex, let to the group’s 16th tenant, Oakdale, and Care Concern. Diversification of income continued in April with the acquisition for £6.1m of a home in Dover, let for 35 years to Athena Healthcare. Before that acquisition, the portfolio had passing rent of £19.8m (net initial yield of 6.75%) and an average term of 29.6 years.
Outlook
Target aims to have LTV of c 20% (31 March: 10.9%), it currently has £20m of debt available for investment and is in the late stages of discussions with a new provider to obtain further funding. Interest rate swaps mean that the cost of existing debt will be 2.36% to June 2019 and 2.25% from then until September 2021. Target reports that it has several investment opportunities under review and, as noted above, the structural drivers underlying its chosen market are likely to keep the pipeline full. We continue to expect that Target will achieve full investment in the current financial year (ending 30 June) and that the FY18 dividend will be 100% covered as a result.
Valuation: Attractive long-term income
Target has the longest leases in its sector, inexpensive debt, low LTV and a prospective yield of 5.4% (FTSE EPRA NAREIT index 3.4%). We expect its growing portfolio of income streams to cover the attractive dividend fully in FY18, and Target’s shares have performed well in recent weeks as it approaches full investment. The 14% premium to the last reported EPRA NAV may continue to converge with other long-lease healthcare property investors (averaging c 21%) as that process continues.
Exhibit 1: Financial summary
Year end 30 June |
2014 |
2015 |
2016 |
2017e |
2018e |
2019e |
|
INCOME STATEMENT |
|||||||
£000s |
|||||||
Rent revenue |
3,817 |
9,898 |
12,677 |
18,054 |
22,456 |
23,267 |
|
Movement in lease incentive or rent review |
1,547 |
3,760 |
4,136 |
5,143 |
5,446 |
5,446 |
|
Rental income |
5,364 |
13,658 |
16,813 |
23,197 |
27,902 |
28,713 |
|
Other income |
0 |
66 |
61 |
195 |
0 |
0 |
|
Total revenue |
5,364 |
13,724 |
16,874 |
23,392 |
27,902 |
28,713 |
|
Gains/(losses) on revaluation |
(2,233) |
(839) |
425 |
2,181 |
(134) |
989 |
|
Cost of corporate acquisitions |
0 |
(174) |
(998) |
(3,006) |
(1,212) |
0 |
|
Total income |
3,131 |
12,711 |
16,301 |
22,566 |
26,556 |
29,701 |
|
Management fee |
(648) |
(1,524) |
(2,654) |
(3,447) |
(3,093) |
(3,122) |
|
Other expenses |
(780) |
(880) |
(992) |
(1,434) |
(1,925) |
(1,981) |
|
Total expenditure |
(1,428) |
(2,404) |
(3,646) |
(4,881) |
(5,018) |
(5,103) |
|
Profit before finance and tax |
1,703 |
10,307 |
12,655 |
17,685 |
21,538 |
24,598 |
|
Net finance cost |
190 |
(716) |
(929) |
(1,075) |
(1,461) |
(1,460) |
|
Profit before taxation |
1,893 |
9,591 |
11,726 |
16,610 |
20,076 |
23,138 |
|
Tax |
(4) |
(39) |
(24) |
(533) |
0 |
0 |
|
Profit for the year |
1,889 |
9,552 |
11,702 |
16,077 |
20,076 |
23,138 |
|
Movement in valuation of interest rate swap |
0 |
0 |
(316) |
223 |
0 |
0 |
|
Total comprehensive income for the year |
1,889 |
9,552 |
11,386 |
16,300 |
20,076 |
23,138 |
|
Average number of shares in issue |
105,231,661 |
119,160,560 |
171,734,587 |
252,180,851 |
252,180,851 |
252,180,851 |
|
IFRS earnings |
1,889 |
9,552 |
11,386 |
16,300 |
20,076 |
23,138 |
|
Adjusted for rent arising from recognising |
(1,547) |
(3,760) |
(4,136) |
(5,143) |
(5,446) |
(5,446) |
|
Adjusted for valuation changes |
2,233 |
839 |
(425) |
(2,181) |
134 |
(989) |
|
Adjusted for corporate acquisitions |
0 |
174 |
998 |
3,006 |
1,212 |
0 |
|
EPRA earnings |
2,575 |
6,805 |
7,823 |
11,983 |
15,977 |
16,703 |
|
Adjusted for performance fee |
150 |
466 |
871 |
745 |
800 |
800 |
|
Group adjusted EPRA earnings |
2,725 |
7,271 |
8,694 |
12,728 |
16,777 |
17,503 |
|
IFRS EPS (p) |
1.80 |
8.02 |
6.63 |
6.46 |
7.96 |
9.18 |
|
EPRA EPS (p) |
2.45 |
5.71 |
4.56 |
4.75 |
6.34 |
6.62 |
|
Adjusted EPS (p) |
2.59 |
6.10 |
5.06 |
5.05 |
6.65 |
6.94 |
|
Dividend per share (declared) |
6.12 |
6.12 |
6.18 |
6.28 |
6.34 |
6.34 |
|
BALANCE SHEET |
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Investment properties |
81,422 |
138,164 |
200,720 |
280,240 |
300,905 |
301,894 |
|
Trade and other receivables |
0 |
2,530 |
3,742 |
3,763 |
3,763 |
3,763 |
|
Non-current assets |
81,422 |
140,694 |
204,462 |
284,003 |
304,668 |
305,657 |
|
Trade and other receivables |
6,524 |
6,457 |
13,222 |
16,474 |
16,474 |
16,474 |
|
Cash and equivalents |
17,125 |
29,159 |
65,107 |
11,941 |
401 |
6,562 |
|
Current assets |
23,649 |
35,616 |
78,329 |
28,415 |
16,875 |
23,036 |
|
Total assets |
105,071 |
176,310 |
282,791 |
312,418 |
321,544 |
328,694 |
|
Bank loan |
(11,764) |
(30,865) |
(20,449) |
(48,256) |
(53,256) |
(53,256) |
|
Interest rate swap |
0 |
0 |
(316) |
(93) |
(93) |
(93) |
|
Trade and other payables |
0 |
(2,530) |
(3,742) |
(3,763) |
(3,763) |
(3,763) |
|
Non-current liabilities |
(11,764) |
(33,395) |
(24,507) |
(52,112) |
(57,112) |
(57,112) |
|
Trade and other payables |
(3,089) |
(3,623) |
(5,002) |
(6,497) |
(6,497) |
(6,497) |
|
Current Liabilities |
(3,089) |
(3,623) |
(5,002) |
(6,497) |
(6,497) |
(6,497) |
|
Total liabilities |
(14,853) |
(37,018) |
(29,509) |
(58,609) |
(63,609) |
(63,609) |
|
Net assets |
90,218 |
139,292 |
253,282 |
253,809 |
257,935 |
265,085 |
|
Period end shares |
95,221,629 |
142,298,226 |
252,180,851 |
252,180,851 |
252,180,851 |
252,180,851 |
|
NAV per ordinary share |
94.7 |
97.9 |
100.4 |
100.6 |
102.3 |
105.1 |
|
Adjusted for interest rate swap |
0 |
0 |
0 |
0 |
0 |
0 |
|
EPRA NAV per share |
94.7 |
97.9 |
100.6 |
100.7 |
102.3 |
105.2 |
|
CASH FLOW |
|||||||
Profit before tax |
1,893 |
9,591 |
11,726 |
16,610 |
20,076 |
23,138 |
|
Adjusted for |
|||||||
Interest receivable |
(201) |
(99) |
(173) |
(138) |
(80) |
(80) |
|
Interest payable |
11 |
815 |
1,102 |
1,213 |
1,541 |
1,540 |
|
Revaluation gains on property portfolio |
686 |
(2,921) |
(4,787) |
(6,201) |
(666) |
(989) |
|
(Increase)/decrease in trade and other receivables |
(558) |
(308) |
(233) |
(931) |
0 |
0 |
|
Increase/(decrease) in trade and other payables |
1,341 |
1,003 |
1,271 |
19 |
0 |
0 |
|
Total working capital adjustments |
1,279 |
(1,510) |
(2,820) |
(6,037) |
796 |
471 |
|
Interest paid |
0 |
(613) |
(854) |
(1,002) |
(1,541) |
(1,540) |
|
Interest received |
161 |
99 |
173 |
138 |
80 |
80 |
|
Tax paid |
0 |
(47) |
(164) |
(25) |
0 |
0 |
|
Total other adjustments |
161 |
(561) |
(845) |
(889) |
(1,461) |
(1,460) |
|
Net cash flow from operating activities |
3,333 |
7,520 |
8,061 |
9,684 |
19,411 |
22,149 |
|
Purchase of investment properties |
(51,894) |
(51,736) |
(34,833) |
(50,149) |
(20,000) |
0 |
|
Acquisition of subsidiaries |
0 |
(5,845) |
(27,091) |
(27,932) |
(1,212) |
0 |
|
Net cash flow from investing activities |
(51,894) |
(57,581) |
(61,924) |
(78,081) |
(21,212) |
0 |
|
Issue of ordinary share capital |
45,450 |
47,802 |
100,279 |
0 |
0 |
0 |
|
Expenses of issue |
(930) |
(1,158) |
(2,778) |
0 |
0 |
0 |
|
Sale of shares from treasury |
0 |
0 |
14,799 |
0 |
0 |
0 |
|
(Repayment)/drawdown of bank loan |
11,946 |
19,225 |
(10,638) |
28,000 |
5,000 |
0 |
|
(Grant)/repayment of development loan |
(3,300) |
3,300 |
(2,170) |
0 |
0 |
0 |
|
Dividends paid |
(4,364) |
(7,074) |
(9,681) |
(15,514) |
(15,950) |
(15,988) |
|
Net cash flow from financing activities |
48,802 |
62,095 |
89,811 |
12,486 |
(10,950) |
(15,988) |
|
Net change in cash and equivalents |
241 |
12,034 |
35,948 |
(55,912) |
(12,752) |
6,161 |
|
Opening cash and equivalents |
16,884 |
17,125 |
29,159 |
65,107 |
9,195 |
(3,557) |
|
Closing cash and equivalents |
17,125 |
29,159 |
65,107 |
9,195 |
(3,557) |
2,604 |
|
Net debt |
(17,125) |
(17,395) |
(44,658) |
36,315 |
52,855 |
46,694 |
Source: Company data, Edison Investment Research
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