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Research: Real Estate
Target Healthcare REIT’s H122 results demonstrate a resilient performance, and completed and prospective capital deployment chart a path to further strong earnings growth and full dividend cover. Indexed rent uplifts, an extension of long-term fixed-rate debt, and an historical ability of operators to match inflation pressures with fee growth offer good inflation protection.
Target Healthcare REIT |
Resilient H122 and continuing growth |
Interim results |
Real estate |
4 April 2022 |
Share price performance
Business description
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Analyst
Target Healthcare REIT is a research client of Edison Investment Research Limited |
Target Healthcare REIT’s H122 results demonstrate a resilient performance, and completed and prospective capital deployment chart a path to further strong earnings growth and full dividend cover. Indexed rent uplifts, an extension of long-term fixed-rate debt, and an historical ability of operators to match inflation pressures with fee growth offer good inflation protection.
Year end |
Rental income (£m) |
Adjusted net |
Adjusted |
NAV**/ |
DPS |
P/NAV |
Yield |
06/21 |
50.0 |
26.0 |
5.46 |
110.4 |
6.72 |
1.02 |
6.0 |
06/22e |
59.6 |
33.3 |
5.55 |
111.7 |
6.76 |
1.01 |
6.0 |
06/23e |
73.2 |
40.7 |
6.56 |
116.1 |
6.86 |
0.97 |
6.1 |
06/24e |
77.6 |
43.2 |
6.97 |
119.4 |
6.96 |
0.94 |
6.2 |
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. **NAV is net tangible assets.
Clear path to further growth and dividend cover
Including the £159m acquisition of an 18-home portfolio, Target committed £191m to new investment and developments during H122 and has since acquired an additional home for £7.2m. The remaining available capital of c £80m is all allocated to an identified pipeline in late-stage due diligence. Annualised contracted rent increased by 30% to £51.4m in H122 and Target anticipates c £64m on a fully deployed basis, sufficient to fully cover DPS on a ‘cash’ adjusted earnings basis. The portfolio acquisition added £9.3m to contracted rents, but contributed for just 12 days and the temporary cash drag drove an 11% y-o-y reduction in adjusted EPS to decline to 2.36p with cash dividend cover of 0.65x. Like for like growth in rents and valuations of 2.8% and 2.2% respectively better indicate underlying performance with a 3.4% NAV total return. Our forecasts are little changed.
Sustainably meeting a long-term need
The care home sector is driven by demographics rather than the economy. A growing elderly population and the need to improve the existing estate point to continuing demand for new, purpose-built homes with flexible layouts and high-quality residential facilities. With its unwavering focus on asset and tenant quality, these are the homes in which Target invests. They are appealing to residents and support operators in providing better and more effective care. Financially, Target believes these factors are key to providing sustainable, long-duration, inflation-linked income. Rent collection has remained robust during the pandemic with operators experiencing a recovery in occupancy over the past year. Omicron slowed performance improvement recently, but is now waning and, with resident enquiries strong and staff shortages improving, the outlook appears positive.
Valuation: Inflation protected long income
The FY22e DPS represents an attractive 6.1% yield, with good prospects for continuing DPS growth. Meanwhile, the shares trade at around NAV versus an average c 6% premium since IPO and a peak of 11%.
Interim results summary
Several of the key financial performance metrics had already been disclosed in the quarterly reporting and covered in our update note published on 3 February, but the H122 results provide more detail. Although earnings and dividend cover were deferred by some delays in the deployment of £125m (gross) equity raise in the September 2022, the underlying performance can be seen in like-for-like rent and valuation growth and a six-month NAV total return of 3.4%.
Of the £191m of new investment and development commitments during H122, the most significant transaction by far was the £159m acquisition of a portfolio of 18 homes, adding £9.3m to contracted annualised rents. All the properties are purpose-built care homes with an average age of c 11 years providing high-quality modern facilities including full ensuite provision, the vast majority of which (96%) benefit from wet rooms. The portfolio is spread across eight tenants, three of which are new to Target, including national operator Barchester Healthcare, as well as two regional operators. In an arm’s length transaction, the portfolio was acquired from the maturing Kames Capital Healthcare Fund, the first fund advised by Target when it was founded in 2010, on behalf of Kames Capital. Target selected 17 of the 18 homes in the portfolio, providing it with an informational advantage in the portfolio acquisition in respect of both the assets and the tenants.
The end-H122 portfolio comprised 98 homes (of which four were under development) valued at £870.5m with contracted rents of £53.4m and let to 31 tenants. The long weighted average unexpired lease term (WAULT) was a long 27.5 years with 96% of rents subject to annual upward-only RPI-linked reviews and 4% fixed uplifts.
Performance during the period continued Target’s track record since IPO in January 2013 of consistent annual DPS growth and consistently positive NAV total returns on both a quarterly and annual basis, reflecting the resilience of the sector and of Target’s strategy. The average annual compound return over this period has been 6.0%, of which c 80% reflects dividends paid.
Exhibit 1: NAV total return history (no reinvestment of dividends paid)
FY14* |
FY15 |
FY16 |
FY17 |
FY18 |
FY19 |
FY20 |
FY21 |
H122 |
Cumulative |
|
Opening EPRA NAV/NTA (p) |
98.0** |
94.7 |
97.9 |
100.6 |
101.9 |
105.7 |
107.5 |
108.1 |
110.4 |
98.0 |
Closing EPRA NAV/NTA (p) |
94.7 |
97.9 |
100.6 |
101.9 |
105.7 |
107.5 |
108.1 |
110.4 |
110.8 |
110.8 |
DPS paid |
6.5 |
6.1 |
6.2 |
6.3 |
6.4 |
6.5 |
6.7 |
6.7 |
3.4 |
54.7 |
EPRA NAV/NTA total return |
3.3% |
9.7% |
9.0% |
7.5% |
10.1% |
7.8% |
6.8% |
8.4% |
3.4% |
68.8% |
Compound annual average return |
^% |
Source: Target Healthcare REIT data, Edison Investment Research. Note: Company published total returns are on a dividend reinvested basis and are higher. *22 January 2013 to 30 June 2014. **Adjusted for IPO costs.
Exhibit 2 provides a summary of H122 financial performance.
Exhibit 2: Summary of H122 financial performance
H122 |
H121 |
H122/H121 |
H222 |
|||||
£m unless stated otherwise |
IFRS |
Adjustments |
Adjusted earnings* |
IFRS |
Adjustments |
Adjusted earnings* |
Adjusted earnings* |
Adjusted earnings* |
Rent revenue |
22.0 |
22.0 |
20.3 |
20.3 |
8.2% |
20.9 |
||
Income from guaranteed rent reviews & lease incentives |
4.5 |
(4.5) |
0.0 |
4.6 |
(4.6) |
0.0 |
0.0 |
|
Total revenue |
26.5 |
(4.5) |
22.0 |
24.9 |
(4.6) |
20.3 |
8.2% |
20.9 |
Investment management fee |
(3.6) |
(3.6) |
(2.8) |
(2.8) |
25.9% |
(3.0) |
||
Credit loss allowance & bad debts |
(1.1) |
(1.1) |
(1.9) |
(1.9) |
(0.8) |
|||
Other expenses |
(1.6) |
(1.6) |
(1.2) |
(1.2) |
26.7% |
(1.4) |
||
Operating profit before property gains/(losses) |
20.3 |
(4.5) |
15.8 |
18.9 |
(4.6) |
14.3 |
10.3% |
15.8 |
Realised/unrealised gains/(losses) on properties |
0.9 |
(0.9) |
0.0 |
0.2 |
(0.2) |
0.0 |
0.0 |
|
Operating profit |
21.2 |
(5.4) |
15.8 |
19.1 |
(4.8) |
14.3 |
10.3% |
15.8 |
Net finance cost |
(2.5) |
0.0 |
(2.5) |
(3.3) |
0.9 |
(2.4) |
4.7% |
(2.4) |
Development interest under forward fund agreements |
0.0 |
0.3 |
0.3 |
0.0 |
0.2 |
0.2 |
58.0% |
0.4 |
Net earnings |
18.7 |
(5.1) |
13.7 |
15.8 |
(3.6) |
12.2 |
12.2% |
13.8 |
Other data: |
H122 |
H121 |
H122/H121 |
H221 |
||||
Number of shares outstanding (m) |
620.2 |
457.5 |
35.6% |
511.5 |
||||
Average number of shares outstanding |
578.3 |
457.5 |
26.4% |
493.3 |
||||
IFRS EPS (p) |
3.24 |
3.46 |
-6.4% |
5.77 |
||||
EPRA EPS (p) |
3.08 |
3.61 |
-14.6% |
3.55 |
||||
Adjusted EPS (p) |
2.36 |
2.66 |
-11.3% |
2.66 |
||||
DPS declared (p) |
3.38 |
3.36 |
0.6% |
3.36 |
||||
Dividend cover - EPRA earnings |
0.85 |
1.07 |
1.02 |
|||||
Dividend cover - Adjusted earnings |
0.65 |
0.79 |
0.80 |
|||||
IFRS NAV per share (p) |
110.9 |
108.1 |
110.5 |
|||||
EPRA NTA per share (p) |
110.8 |
108.2 |
110.4 |
|||||
EPRA NTA total return/accounting total return) |
3.4% |
3.2% |
5.2% |
|||||
Investment properties |
870.5 |
647.7 |
684.8 |
|||||
Borrowings |
222.8 |
162.0 |
130.0 |
|||||
Cash |
34.6 |
18.3 |
21.1 |
|||||
Gross LTV |
25.6% |
25.0% |
19.0% |
|||||
Net LTV |
20.7%* |
22.2% |
15.9% |
Source: Target Healthcare REIT data, Edison Investment Research. Note: *Net debt adjusted for £7.6m development loan receivable.
Focusing on adjusted earnings, we note:
■
Excluding non-cash IFRS rent smoothing adjustments rental income increased c 8% versus H121 to £22.0m. The increase included the impact of acquisitions, development completions and like-for-like rental growth of 2.8%. We expect the latter to increase in line with recent inflation trends.
■
The completion of the portfolio acquisition was delayed by around three months, primarily due to the impact of the pandemic on the process, and contributed to H122 income for just 12 days.
■
Rent collection was a resilient 96% in the period and the rent provisions recorded in the income statement of £1.1m were well down on H121 (£1.9m). Growth in investment management fees followed the increase in net asset value, while other operating expenses increased with the size of the business and inflation.
■
Net finance expense rose only modestly.
■
Including a £0.3m adjustment for development interest under forward funding agreements, net adjusted earnings increases by c 12% to £13.7m. Reflecting the increased number of shares and the time taken to deploy the equity raise proceeds, adjusted EPS was c 11% lower at 2.36p. With DPS up 0.6% to 3.34p, dividend cover was temporarily reduced to 0.65x (0.85x on an EPRA earnings basis, including IFRS smoothing but excluding development interest). In the following section we discuss the path to full dividend cover.
■
Earnings on an IFRS basis further included £0.9m of revaluation gains, with acquisition costs in the period masking a 2.2% like-for-like increase.
Well-charted path to dividend cover
Target says that it has c £80m of capital available for further deployment, allowing for existing commitments, and that is all earmarked for identified acquisitions that have been approved by the board. Including the impact of this future deployment, a full contribution from previous acquisitions, development completions, rent reviews and economies of scale, Target estimates that dividend cover (on an adjusted earnings basis) will increase to a little more than 100%.
Exhibit 3: Pro forma income statement* |
Source: Target Healthcare REIT. Note: *Based on the company’s current estimates and expectations and subject to change. |
The rental income and results reported for H122 were mainly driven by the level of annualised contracted rents in place during Q421 (to end-June 2021) and Q122 (to 30 September 2021). Although Q222 annualised contracted rental income increased by £10.2m or c 24% to £53.8m, this largely reflected the portfolio acquisition1 that came in late December 2021 and contributed to H122 income for just 12 days. Current annualised contracted rents are now £53.8m (including the acquisition of a standing asset in Manchester announced on 7 January 2021), while completion of the four pre-let developments will add an additional £2.7m,2 taking annualised contracted rents to £56.5m.
The portfolio acquisition added £9.3m to annualised contracted rents at acquisition and the Q222 uplift also included rent reviews in the period.
We expect developments at Chesterfield in Derbyshire, Olney in Buckinghamshire and Holt in Norfolk to complete by the end of calendar 2022 and the development at Weymouth in Dorset to complete by the middle of calendar 2023.
Target expects the additional £80m capital deployment plus contractual rent increases to further increase annualised contracted rent roll to £63.7m. Given the advanced stage of the targeted investments, we expect most of this increase to be achieved by the end of FY22 with the exclusion of the developments yet to complete. We anticipate that three of the existing developments will remain on site with aggregate estimated annualised contracted rent of c £2.2m, while the £80m capital deployment is likely to include additional development assets (we assume £20m of commitment with aggregate rents of c £1.1m).
Our forecasts are consistent with Target’s analysis above, although the slightly lower dividend cover ratios shown in the financial summary (Exhibit 11) reflect ongoing increases in DPS.
Well placed to manage risks in an inflationary environment
Income visibility and inflation protection
Target has a long WAULT of more than 27 years which, combined with upward-only annual RPI-linked (96% of income) and fixed (4%) contractual rent uplifts, provides significant income visibility and protection against inflation. Uplifts are typically capped at c 4% with a floor of c 2% and although this means that while Retail Price Index (RPI) inflation is above 4%, rental growth will lag in real terms, it contributes towards rents remaining affordable for tenant operators and enhances the security of Target’s income. The company estimates that rent costs represent c 20% of gross revenues for its typical established home.
The 12-month increase in the RPI was 8.2% in February 2022, the highest rate of increase since March 1991, while the 12-month increase in the Consumer Price Index (CPI) was 6.2%, the highest rate of increase since March 1992. The Bank of England continues to expect a moderation in inflation as commodity prices stabilise, supply shortages ease and global demand rebalances, but this is far from assured. War in Ukraine and rising international tensions have seen oil and commodity prices increase further.
Exhibit 4: Inflation at multi-year highs |
Source: Office of National Statistics (ONS) data |
Although inflation has recently spiked upwards, across the sector the growth in average fees charged to privately funded care home residents has tracked or exceeded inflation over the past c 20 years, subsidising typically lower fees for local authority-funded residents. Using data provided by its operator tenants, Target estimates that c 62% of the residents in its homes are wholly or partly privately funded and 38% are purely publicly funded (predominantly local authority but also NHS).3
This is based on data collected over the past 12 months and, as the composition of care home residency is constantly changing, may not reflect the position at any particular point in time.
Energy cost pressures are acute for care homes, as elsewhere, but Target estimates that these typically account for c 2% of revenues across its homes, much less important than staff costs, typically within a range of 50–60%, and rents. We do not expect staff costs to increase as a percentage of revenues provided operators can maintain their historical pricing power and ability to pass through inflationary pressures.
Meanwhile, tenant performance has remained resilient despite the continuing impacts of the pandemic. Rent collection was 96% in H122 and although the rapid spread of the Omicron variant punctuated the trend of recovering occupancy in portfolio homes,4 the rent cover ratio has remained at c 1.4x5 for mature homes (those that have had the same operator for a three-year period or more, therefore excluding newly developed homes not yet stabilised). This comes despite the gradual withdrawal of government financial support during the peak of the crisis.
Target’s homes are fully let to care home operators and home occupancy no direct impact on it. However, it is a key performance indicator of the ability of operators to sustainably meet their rental commitments and maintain high standards of care.
Rent cover is a key measure of the underlying profitability of tenants and the sustainability of rents. The ratio tracks operational cash earnings at the home level (before rent) with the agreed rent and is presented on a rolling 12-month basis.
Exhibit 5: Trading performance of Target homes on a rolling 12-month basis |
Source: Target Healthcare REIT. Note: (1) As reported to Target through tenant management accounts. |
The improvement in home occupancy that began during the second half of 2021 is not obvious from the 12-month rolling data shown in Exhibit 5. However, having dipped by more than 10pp on a ‘spot’ basis to less than 70% at the low point earlier in 2021, occupancy for mature homes has since improved to c 80% currently. Where homes were affected by the winter pick-up in COVID cases, predominantly Omicron, admissions at affected homes had to be put on hold, although none of the tenants has reported significant excess deaths. With cases receding again (19 cases across five homes), enquiry levels remaining strong, and staff shortages beginning to improve the prospects for a resumption of occupancy growth and increase in rent cover towards a normal level of 1.6x, appear positive.6
Setting rents at the right level is key to the sustainability of income and Target believes rent cover of 1.6x provides sufficient flexibility to allow for variances in occupancy and operational performance and is consistent with rent costs at c 20% of revenues for the typical home.
H122 included c £1.1m of provisions against rent receivables, which Target describes as prudent (c 5% of rental income in the period versus the 96% collection rate). Most of the recent rent arrears have primarily related to two tenants across four of the homes and, although not helped by the pandemic, reflect more fundamental performance issues. Asset management initiatives aimed at addressing these were delayed by the physical restrictions in place during the lockdowns but have recently completed. For one tenant, a new operator of two immature homes, trading performance has improved. The position with the other tenant has been resolved with outstanding rents partially settled and the homes re-tenanted. On a much more modest scale, Target says it prudently budgets for a certain recurring level of provisioning to reflect the challenges that continue to face the sector. It is currently negotiating the re-tenanting of four homes managed by a national operator which it believes would be better suited to a smaller regional operator, despite current performance being satisfactory.
Increased long-term fixed-rate debt funding
Financing during H122 increased available debt, increased the share of long-term fixed-rate debt, and extended average duration with a better spread of maturities. In an increasingly inflationary period, this provides significantly enhanced protection against further increases in market interest rates. The long-term, fixed-rate borrowing locks in a positive margin between rental income and borrowing costs and this will increase with inflation-indexed rental growth. More flexible, low-cost variable rate debt remains undrawn to support further portfolio growth and may be replaced with equity or refinanced at some later date.
At the end of November 2021, Target agreed £100m of new fixed-rate funding in two tranches, at a cost of 3.14%, with a weighted average maturity of c 13 years. Including this, end-FY22 total debt facilities amounted to £320m, of which c £223m had been drawn. Including interest rate swaps, £180m of the drawn borrowings had been fixed at an all-in rate of 3.22% (including amortisation of arrangement costs) at least until November 2025 and mostly (£150m) until January 2032.
The remaining £140m of total debt facilities, of which c £43m had been drawn at end-H122, carry interest at a variable rate based on an agreed margin over the SONIA7 benchmark rate. Including amortisation of arrangement fees, the average cost of this variable rate borrowing at end-H122 was 2.44%.
Sterling Overnight Index Average, a benchmark replacement for the RPI.
The end-H122 net loan to value ratio (LTV) was 20.7% and, when fully invested, Target expects this to increase to c 28%, a level with which it is comfortable.
Exhibit 6: Summary of debt portfolio
Lender |
Facility type |
Facility |
Term |
Margin |
RBS |
Term loan |
£30m |
Nov-25 |
SONIA + 2.18% |
Revolving credit facility |
£40m |
Nov-25 |
SONIA + 2.33% |
|
HSBC |
Revolving credit facility |
£100m |
Nov-24 |
SONIA + 2.17% |
Phoenix/Reassure |
Term loan |
£50m |
Jan-32 |
Fixed 3.28% |
Phoenix/Reassure |
Term loan |
£37m |
Jan-32 |
Fixed 3.13% |
Phoenix/Reassure |
Term loan |
£63m |
Jan-37 |
Fixed 3.14% |
Source: Target Healthcare REIT data
Forecasts and valuation
Summary of forecast changes
The changes to our forecasts are relatively modest. Despite the acquisition timing delays, based on H122 performance, our forecast for cash rental income is increased, but offset by higher H122 rent income provisions. The slight reduction to FY23 adjusted earnings is primarily driven by a correction to our estimation of licence fee income8 in respect of the balance sheet value of properties under development.
Income accrued on development funding extended and recognised as a reduction in the purchase cost of the asset at completion.
Exhibit 7: Forecast revisions
Rental income (£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 (%) |
|
06/22e |
58.4 |
59.6 |
2.0 |
33.4 |
33.3 |
-0.3 |
5.6 |
5.6 |
-1.4 |
111.2 |
111.7 |
0.4 |
6.76 |
6.76 |
0.0 |
06/23e |
71.9 |
73.2 |
1.9 |
41.0 |
40.7 |
-0.7 |
6.6 |
6.6 |
-0.7 |
115.1 |
116.1 |
0.9 |
6.86 |
6.86 |
0.0 |
06/24e |
76.5 |
77.6 |
1.4 |
42.2 |
43.2 |
2.3 |
6.8 |
7.0 |
2.3 |
119.6 |
119.4 |
-0.1 |
6.96 |
6.96 |
0.0 |
Source: Edison Investment Research
There is no change to our DPS growth forecasts, and we expect dividends to be well covered by EPRA earnings (including non-cash IFRS rent smoothing adjustments) as capital deployment takes a full effect, with full cover on a ‘cash’ adjusted earnings basis (excluding IFRS adjustments but including licence fee income on development) by FY24.
Exhibit 8: Dividend cover projections
New forecast |
Previous forecast |
||||||
FY22e |
FY23e |
FY24e |
FY22e |
FY23e |
FY24e |
||
Dividend cover by EPRA earnings |
101% |
122% |
128% |
97% |
119% |
127% |
|
Dividend cover by adjusted (‘cash’) earnings |
79% |
96% |
100% |
80% |
96% |
98% |
Source: Edison Investment Research
Key forecasting assumptions
In line with Target’s guidance of available capital, we assume £80m of new investment commitment by end-FY22. This includes £60m of completed assets and £20m of forward-funded developments, all at a net initial yield of 5.6%. Our other forecasting assumptions include:
■
Rent indexation of 4% pa (in line with average capped RPI-linked increases) through to end-FY23 and 3% in FY24.
■
Expenses substantially driven by investment manager fees with a marginal rate of 0.95% on average net assets of more than £500m. Other expenses, excluding rent impairment, increase broadly in line with inflation, while rent impairment in FY22e (c £1.4m or c 5% rents receivable) is well down on FY21 (£2.7m) with a return to a background level, prudently assumed at 2.5% of rents receivable, in FY23e and FY24e.
■
Gross revaluation movements broadly in line with rent indexation, effectively assuming no change in valuation yields. As reported under IFRS in the income statement, in FY22e this is substantially offset by acquisition costs and IFRS smoothing rent effects.
Exhibit 9: Revaluation movements
£m |
FY21 actual |
FY22e |
FY23e |
FY24e |
Gross unrealised revaluation movement (including held for sale) |
21.4 |
27.8 |
29.6 |
20.7 |
Acquisition costs written off |
(2.3) |
(13.3) |
0.0 |
0.0 |
Movement in lease incentives |
(0.9) |
(0.4) |
0.0 |
0.0 |
Net realised and unrealised valuation movement |
18.2 |
14.1 |
29.6 |
20.7 |
Movement in fixed or guaranteed rent reviews |
(8.7) |
(10.0) |
(11.9) |
(12.1) |
Gains/(losses) on revaluation of investment properties as per income statement |
9.4 |
4.1 |
17.7 |
8.6 |
Acquisition costs as % purchase value |
4.3% |
5.1% |
N/A |
N/A |
Gross revaluation as % opening portfolio value |
3.5% |
4.1% |
3.1% |
2.0% |
Gross revaluation gain per share (p) |
4.2 |
4.5 |
4.8 |
3.3 |
Source: Target Healthcare REIT FY21 data, Edison Investment Research forecasts
Valuation
The current year DPS target of 6.76p (+0.6% versus FY21) represents an attractive yield of 6.1%. The shares trade at a small 1% premium to the H122 EPRA NTA per share of 110.8p, below the average c 6% since IPO and the high of c 11%.
In Exhibit 10, we show a summary of the performance and valuation of a group of REITs that we consider to be Target’s closest peers in the broad and diverse commercial property sector. The group is invested in the primary healthcare, supported housing and care home sectors, all targeting stable, long-term income growth derived from long lease exposures. Compared with the average, Target has a clearly longer WAULT and trailing dividend yield with a similar P/NAV.
Exhibit 10: Peer valuation and performance summary
WAULT |
Price |
Market |
P/NAV* |
Yield** |
Share price performance |
|||||
1 month |
3 months |
YTD |
12 months |
3 years |
||||||
Assura |
12 |
68 |
2005 |
1.16 |
4.3 |
11% |
-3% |
-11% |
-6% |
20% |
Civitas Social Housing |
23 |
87 |
535 |
0.80 |
6.3 |
3% |
-10% |
-17% |
-19% |
-15% |
Impact Healthcare |
19 |
119 |
459 |
1.06 |
5.4 |
9% |
0% |
10% |
4% |
16% |
Primary Health Properties |
12 |
149 |
1985 |
1.28 |
4.2 |
10% |
-2% |
-3% |
1% |
28% |
Residential secure Income |
N/A |
111 |
205 |
1.05 |
4.5 |
12% |
2% |
24% |
21% |
18% |
Triple Point Social Housing |
26 |
94 |
380 |
0.87 |
5.5 |
10% |
-2% |
-15% |
-7% |
-11% |
Average |
18 |
1.04 |
5.0 |
9% |
-2% |
-2% |
-1% |
9% |
||
Target Healthcare |
28 |
113 |
700 |
1.01 |
6.0 |
5% |
-4% |
-1% |
0% |
-1% |
UK property sector index |
1,938 |
7% |
-3% |
21% |
17% |
7% |
||||
UK equity market index |
4,199 |
4% |
0% |
14% |
9% |
0% |
Source: Company data, Refinitiv pricing at 1 April 2021. Note: *Based on last reported NAV. **Based on trailing 12-month DPS declared.
In terms of average share price performance, the peer group has trailed the overall UK property sector and FTSE All-Share Index over the past year, as less defensive, more cyclical areas of the sector rebounded from the impact of pandemic lockdowns. Over the same period, Target’s share price performance has been in line with the average for the group.
Exhibit 11: Financial summary
Year to 30 June (£m) |
2017 |
2018 |
2019 |
2020 |
2021 |
2022e |
2023e |
2024e |
INCOME STATEMENT |
||||||||
Rent revenue |
17.8 |
22.0 |
27.9 |
36.0 |
41.2 |
49.5 |
61.4 |
65.5 |
Movement in lease incentive/fixed rent review adjustment |
5.1 |
6.3 |
6.4 |
8.2 |
8.7 |
10.0 |
11.9 |
12.1 |
Rental income |
22.9 |
28.4 |
34.3 |
44.2 |
49.9 |
59.5 |
73.2 |
77.6 |
Other income |
0.7 |
0.0 |
0.0 |
0.0 |
0.1 |
0.1 |
0.0 |
0.0 |
Total revenue |
23.6 |
28.4 |
34.3 |
44.3 |
50.0 |
59.6 |
73.2 |
77.6 |
Gains/(losses) on revaluation |
1.6 |
6.4 |
6.2 |
1.7 |
9.4 |
4.1 |
17.7 |
8.6 |
Realised gains/(losses) on disposal |
0.0 |
0.0 |
0.0 |
0.6 |
1.3 |
0.0 |
0.0 |
0.0 |
Management fee |
(3.8) |
(3.7) |
(4.7) |
(5.3) |
(5.8) |
(7.4) |
(7.8) |
(8.1) |
Other expenses |
(1.2) |
(1.5) |
(2.7) |
(4.3) |
(5.3) |
(4.6) |
(4.0) |
(4.2) |
Operating profit |
20.1 |
29.6 |
33.0 |
37.0 |
49.6 |
51.7 |
79.2 |
74.0 |
Net finance cost |
(0.8) |
(2.0) |
(3.1) |
(5.4) |
(5.7) |
(6.5) |
(9.5) |
(10.0) |
Profit before taxation |
19.3 |
27.6 |
29.9 |
31.6 |
43.9 |
45.2 |
69.7 |
63.9 |
Tax |
(0.2) |
0.0 |
0.0 |
0.0 |
0.0 |
(0.0) |
0.0 |
0.0 |
IFRS net result |
19.1 |
27.6 |
29.9 |
31.6 |
43.9 |
45.2 |
69.7 |
63.9 |
Adjust for: |
||||||||
Gains/(losses) on revaluation |
(2.2) |
(6.4) |
(6.2) |
(1.7) |
(9.5) |
(4.1) |
(17.7) |
(8.6) |
Other EPRA adjustments |
0.4 |
0.0 |
0.7 |
0.5 |
(0.3) |
1.4 |
0.0 |
0.0 |
EPRA earnings |
17.3 |
21.2 |
24.5 |
30.5 |
34.0 |
42.5 |
51.9 |
55.3 |
Adjust for fixed/guaranteed rent reviews |
(5.1) |
(6.3) |
(6.4) |
(8.2) |
(8.7) |
(10.0) |
(11.9) |
(12.1) |
Adjust for development interest under forward fund agreements |
0.0 |
0.3 |
2.0 |
1.0 |
0.6 |
0.7 |
0.6 |
0.0 |
Adjust for performance fee |
1.0 |
0.6 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Group adjusted earnings |
13.2 |
15.7 |
20.1 |
23.2 |
26.0 |
33.3 |
40.7 |
43.2 |
Average number of shares in issue (m) |
252.2 |
282.5 |
368.8 |
440.3 |
475.4 |
599.3 |
620.2 |
620.2 |
IFRS EPS (p) |
7.58 |
9.77 |
8.10 |
7.18 |
9.23 |
7.78 |
11.23 |
10.31 |
EPRA EPS (p) |
6.87 |
7.50 |
6.63 |
6.92 |
7.16 |
7.10 |
8.37 |
8.92 |
Adjusted EPS (p) |
5.23 |
5.54 |
5.45 |
5.27 |
5.46 |
5.55 |
6.56 |
6.97 |
Dividend per share (declared) |
6.28 |
6.45 |
6.58 |
6.68 |
6.72 |
6.76 |
6.86 |
6.96 |
Dividend cover (Adjusted earnings) |
0.83 |
0.82 |
0.82 |
0.76 |
0.80 |
0.79 |
0.96 |
1.00 |
BALANCE SHEET |
||||||||
Investment properties |
266.2 |
362.9 |
469.6 |
570.1 |
629.6 |
906.2 |
949.8 |
974.2 |
Other non-current assets |
4.0 |
27.1 |
37.6 |
46.0 |
54.8 |
66.4 |
78.2 |
90.4 |
Non-current assets |
270.2 |
390.1 |
507.2 |
616.1 |
684.4 |
972.6 |
1,028.1 |
1,064.6 |
Cash and equivalents |
10.4 |
41.4 |
26.9 |
36.4 |
21.1 |
19.1 |
18.9 |
21.8 |
Other current assets |
25.6 |
3.4 |
4.3 |
11.2 |
12.9 |
12.9 |
8.7 |
7.9 |
Current assets |
36.0 |
44.8 |
31.2 |
47.6 |
34.0 |
32.1 |
27.6 |
29.7 |
Bank loan |
(39.3) |
(64.2) |
(106.4) |
(150.1) |
(127.9) |
(279.4) |
(300.0) |
(315.6) |
Other non-current liabilities |
(4.0) |
(4.7) |
(7.1) |
(6.4) |
(6.8) |
(9.6) |
(10.6) |
(11.3) |
Non-current liabilities |
(43.3) |
(68.9) |
(113.5) |
(156.5) |
(134.7) |
(289.0) |
(310.7) |
(326.9) |
Trade and other payables |
(6.0) |
(7.4) |
(11.8) |
(13.1) |
(18.5) |
(22.1) |
(24.2) |
(25.6) |
Current Liabilities |
(6.0) |
(7.4) |
(11.8) |
(13.1) |
(18.5) |
(22.1) |
(24.2) |
(25.6) |
Net assets |
256.9 |
358.6 |
413.1 |
494.1 |
565.2 |
693.5 |
720.8 |
741.7 |
Adjust for derivative financial liability |
0.0 |
0.1 |
0.7 |
0.2 |
(0.3) |
(0.9) |
(0.9) |
(0.9) |
EPRA net assets |
256.9 |
358.7 |
413.8 |
494.3 |
564.9 |
692.6 |
719.9 |
740.8 |
Period end shares (m) |
252.2 |
339.2 |
385.1 |
457.5 |
511.5 |
620.2 |
620.2 |
620.2 |
IFRS NAV per ordinary share |
101.9 |
105.7 |
107.3 |
108.0 |
110.5 |
111.8 |
116.2 |
119.6 |
EPRA NAV per share |
101.9 |
105.7 |
107.5 |
108.1 |
110.4 |
111.7 |
116.1 |
119.4 |
EPRA NAV total return |
7.5% |
10.1% |
7.8% |
6.8% |
8.4% |
7.2% |
10.1% |
8.9% |
CASH FLOW |
||||||||
Cash flow from operations |
4.4 |
23.6 |
20.5 |
25.6 |
29.2 |
43.6 |
51.9 |
54.9 |
Net interest paid |
(0.6) |
(1.4) |
(2.3) |
(4.1) |
(4.2) |
(5.9) |
(8.9) |
(9.4) |
Tax paid |
(0.5) |
(0.1) |
0.0 |
(0.1) |
(0.0) |
(0.0) |
0.0 |
0.0 |
Net cash flow from operating activities |
3.2 |
22.1 |
18.2 |
21.5 |
25.0 |
37.7 |
43.0 |
45.4 |
Purchase of investment properties |
(63.3) |
(90.0) |
(99.6) |
(117.5) |
(51.4) |
(274.6) |
(25.9) |
(15.8) |
Disposal of investment properties |
0.0 |
0.0 |
0.0 |
14.1 |
7.8 |
1.0 |
5.0 |
1.3 |
Net cash flow from investing activities |
(63.3) |
(90.0) |
(99.6) |
(103.4) |
(43.6) |
(273.6) |
(20.9) |
(14.5) |
Issue of ordinary share capital (net of expenses) |
0.0 |
91.7 |
48.9 |
78.2 |
58.3 |
122.5 |
0.0 |
0.0 |
(Repayment)/drawdown of loans |
20.9 |
26.0 |
42.0 |
44.0 |
(22.0) |
152.8 |
20.0 |
15.0 |
Dividends paid |
(15.6) |
(17.4) |
(23.6) |
(29.2) |
(31.5) |
(39.8) |
(42.4) |
(43.0) |
Other |
0.0 |
(1.5) |
(0.3) |
(1.6) |
(1.5) |
(1.5) |
(0.0) |
0.0 |
Net cash flow from financing activities |
5.3 |
98.8 |
67.0 |
91.4 |
3.3 |
233.9 |
(22.4) |
(28.0) |
Net change in cash and equivalents |
(54.7) |
31.0 |
(14.5) |
9.5 |
(15.3) |
(2.0) |
(0.3) |
3.0 |
Opening cash and equivalents |
65.1 |
10.4 |
41.4 |
26.9 |
36.4 |
21.1 |
19.1 |
18.9 |
Closing cash and equivalents |
10.4 |
41.4 |
26.9 |
36.4 |
21.1 |
19.1 |
18.9 |
21.8 |
Balance sheet debt |
(39.3) |
(64.2) |
(106.4) |
(150.1) |
(127.9) |
(279.4) |
(300.0) |
(315.6) |
Unamortised loan arrangement costs |
(0.7) |
(1.8) |
(1.6) |
(1.9) |
(2.1) |
(3.3) |
(2.7) |
(2.1) |
Net cash/(debt) |
(29.6) |
(24.6) |
(81.1) |
(115.6) |
(108.9) |
(263.6) |
(283.9) |
(295.9) |
Gross LTV |
14.2% |
17.1% |
21.6% |
24.9% |
19.2% |
29.3% |
29.7% |
30.1% |
Net LTV |
10.5% |
6.4% |
16.2% |
18.9% |
16.1% |
27.3% |
27.8% |
28.0% |
Source: Target Healthcare REIT historical data, Edison Investment Research forecasts
|
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Research: Oil & Gas
Hellenic Petroleum, a leading oil refiner in Greece, is making progress in its Vision 2025 strategy by building a 0.3GW renewable energy portfolio as of Q122. The company reported Q421 adjusted EBITDA of €138m, up 80% from Q420 (€77m), supported by a recovery in the refining sector. We expect Hellenic to continue to benefit from favourable refining margins and higher oil demand in Q122 and note that margins increased as an immediate reaction to Russia’s invasion of Ukraine. However, as natural gas and oil prices have surged, we expect a negative impact on cash flow due to increased working capital (estimated at a c €300m outflow). Due to the complexity of factors and the uncertain environment, we do not adjust our post-FY22 refining margin estimates at this stage. Hellenic could potentially provide a dividend yield of c 10% for FY22, including a special dividend once the sale of DEPA Infrastructure completes.
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