Target Healthcare REIT PLC · LSE:THRL
Target Healthcare REIT — FY2023 Earnings Presentation
35 slides from Target Healthcare REIT's earnings presentation, Oct 10, 2023
Slide 1: Investing in care. Delivering returns.
Investing in care. Delivering returns. Results for the year ended 30 June 2023 Webinar and Presentation | 10 October 2023 | Investor ResultsPresentation: August 2021 for the year-ended June 2023 Roden Hall, Telford 0
Slide 2: Presentation Team Agenda
Presentation Team Agenda Section Page 1 Introduction 01 2 2023 results section 1 03 – Dividend reduction – Portfolio performance – Position – Real estate market context 3 2023 results section 2 14 – Valuations – Income statement & earnings – Balance sheet & debt 4 Sector update 28 Kenneth MacKenzie
Slide 3: At a Glance: Target Healthcare REIT Portfolio
At a Glance: Target Healthcare REIT Portfolio THR has a well-positioned portfolio of modern, purpose-built homes benefitting from en-suite wet rooms as standard 97 6,442 98% £57m 94% Care Beds1 En suite wet- rooms Contracted Rent A & B EPC ratings Homes (100% C+) 32 £869m 6.22% 26.5 Years 99% Tenant
Slide 4: 2023 Results – Section 1
2023 Results – Section 1 Dividend reduction Portfolio performance End of year position Real estate market context | Investor ResultsPresentation: August 2021 for the year-ended June 2023 3
Slide 5: 2023: Dividend reduction
2023: Dividend reduction Meaningful impact of interest rate increase and valuation yield stability Marginal cost of debt > Typical acquisition NIY Jun-22 3.50% 5.50% Jun-23 7.50% 6.00% Change 4.00% 0.50% − Envisaged fully investing available debt capital − Fully invested (@ high 20%s LTV) earnings w
Slide 6: Resident occupancy
Resident occupancy Mature* portfolio and full portfolio spot occupancies 90% 85% 85% 83% 83% 82% Portfolio performance 80% 75% 70% 65% 60% Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 Total Occupancy Mature Occupancy *Mature
Slide 7: Rent Cover
Rent Cover Mature portfolio quarterly rent cover 2.0 1.8 1.75x 1.6 1.55x Portfolio performance 1.47x 1.47x 1.4 1.2 1.0 0.8 0.6 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 | Investor ResultsPresentation: August 2021 for the y
Slide 8: Rent Collection
Rent Collection Full portfolio quarterly rent collection 100% 98% 99.1% 96% 96.6% 96.2% 95.5% 94% Portfolio performance 92% 90% 88% 86% 84% 82% 80% Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 | Investor ResultsPresentation: August 2021 for the year-ended June 2023 7
Slide 9: Maturing Portfolio
Maturing Portfolio Mature homes percentage of full portfolio 100% 89% 90% 90% 90% 90% 80% 70% Portfolio performance 60% 50% 40% 30% 20% 10% 0% Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 | Investor ResultsPresentation: Augus
Slide 10: Inflation and Rental Growth
Inflation and Rental Growth Annualised average uplift of rent reviews completed during quarter (%) 16.0% 14.0% 12.0% Portfolio performance 10.0% 8.0% 6.0% 4.2% 3.9% 3.8% 3.8% 4.0% 2.0% 0.0% Dec-19 Jun-20 Nov-20 Dec-20 Jun-21 Nov-21 Dec-21 Jul-20 Jun-22 Nov-22 Dec-22 Oct-20 Jul-21 Jun-23 Oct-21 Jul-2
Slide 11: End of year position
End of year position Covered dividend 107% 7.6% 25% +2% PORTFOLIO TRADING & PERFORMANCE Average last 2 Dividend yield Conservative LTV Dividend increase quarters Hedged/fixed rates FY24 Performing portfolio, well-placed for long-term returns: − Annual rental growth − Stable valuations supported by d
Slide 12: Real estate market context
Real estate market context Vacancy Rate: Year-ended 30 June 2023 25% 20% 15% 10% 5% Real estate market 0% context Jul 2022 Aug 2022 Sep 2022 Oct 2022 Nov 2022 Dec 2022 Jan 2023 Feb 2023 Mar 2023 Apr 2023 May 2023 Jun 2023 All Retail Office Industrial Target | Investor ResultsPresentation: August 202
Slide 13: Real estate market context
Real estate market context Rental growth: Year-ended 30 June 2023 108 106 104 102 100 98 96 Real estate market 94 context Jun 2022 Jul 2022 Aug 2022 Sep 2022 Oct 2022 Nov 2022 Dec 2022 Jan 2023 Feb 2023 Mar 2023 Apr 2023 May 2023 Jun 2023 All Retail Office Industrial Target | Investor ResultsPresent
Slide 14: Real estate market context
Real estate market context Net Initial Yield : Year-ended 30 June 2023 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Jul 2022 Aug 2022 Sep 2022 Oct 2022 Nov 2022 Dec 2022 Jan 2023 Feb 2023 Mar 2023 Apr 2023 May 2023 Jun 2023 All Retail Office Industrial Target Capital value change : Year-ended 30 June
Slide 15: 2023 Results – Section 2
2023 Results – Section 2 Valuations Income statement & earnings Balance sheet & debt | Investor ResultsPresentation: August 2021 for the year-ended June 2023 14
Slide 16: Institutional investment demand
Institutional investment demand Like-for-like Deal volumes (£m) valuation movement PORTFOLIO “ (4.1%) 200,000 TRADING …we continue to see institutional “ & 180,000 investor appetite. PERFORMANCE 160,000 Richard Harris, Colliers 140,000 “ 120,000 100,000 EPRA 2023 volumes to date are for better toppe
Slide 17: Valuations: Strategic disposal ahead of carry value
Valuations: Strategic disposal ahead of carry value THR Portfolio Geography March 2023 example: £22 million Disposal of four assets post period-end to incumbent tenant Largest disposal to date 8 Number of homes per region at 31 December 2022 Sale price ahead of current carrying value and 2 ahead of
Slide 18: Valuations: Real estate quality drives resilience
Valuations: Real estate quality drives resilience Premium, purpose-built portfolio. Significantly ahead of peers across range of key quality metrics Valuations Purpose Built since 2000 % En suite Wet-rooms Sqm per resident THR 97% THR 98% THR 47 Listed Listed Listed Peers Av. 42% Peers Av. 28% 40 Pe
Slide 19: Valuations: EPC
Valuations: EPC EPC A & B Rated EPC Rating % THR portfolio Valuations A 8% THRL 94% B 86% C 6% Listed Peers 58% D or below - av. | Investor ResultsPresentation: August 2021 for the year-ended June 2023 Listed Peers Average is comprised of publicly available information available or disclosed by Impa
Slide 20: Income statement summary
Income statement summary 2023 Change 2022 (£m) (£m) (£m) Rental income (excluding guaranteed uplifts) 56.4 6.6 49.8 Admin expenses (including management fee) (10.7) 3.0 (13.7) Income statement & Net financing costs (9.4) (2.8) (6.6) earnings Interest from development funding 0.9 0.2 0.8 Adjusted EPR
Slide 21: Income statement – Portfolio value bridge
Income statement – Portfolio value bridge Valuation analysis (£ millions) £950m £20m £912m £900m (£26m) £36m £869m £850m Income statement & (£73m) earnings £800m £750m 30 June 2022 Acquisition Disposal Market yield Rent reviews 30 June 2023 and shift developments 2 +1.4% 1 0 -1 -2 -3 -4 -5 (4.1%) -6
Slide 22: Earnings summary
Earnings summary 2023 Change Change 2022 (£m) (£m) (%) (£m) Rental income (excluding guaranteed uplifts) 56.4 6.6 +13% 49.8 Admin expenses (including management fee) (10.7) 3.0 -22% (13.7) Net financing costs (9.4) (2.8) +42% (6.6) Income statement & Interest from development funding 0.9 0.2 +13% 0.
Slide 23: Earnings summary
Earnings summary 2023 Change Change 2022 (£m) (£m) (%) (£m) Rental income (excluding guaranteed uplifts) 56.4 6.6 +13% 49.8 Admin expenses (including management fee) (10.7) 3.0 -22% (13.7) Net financing costs (9.4) (2.8) +42% (6.6) Income statement & earnings Interest from development funding 0.9 0.
Slide 24: Income statement – Contractual rent roll bridge
Income statement – Contractual rent roll bridge Movement in Contracted Rent (£ millions) £60m £1.1m £2.1m £58m Income statement & £56.6m earnings £56m £55.5m (£2.1m) £54m £52m Open Contracted Rent Acquisitions/ Disposals Closing rent Reviews Development Contracted Rent sites completed | Investor Res
Slide 25: Earnings
Earnings Adjusted EPRA EPS Adjusted EPRA EPRA cost ratio EPS +19% 6.00p 15.8% 2022: 5.05p 2022: 21.5% Earnings growth driven by: − Rent collection improvement to 98% for year (2022: 96%) − Full-year effect of prior year acquisitions − Rental growth − Operating expenses stable − Finance costs fixed/h
Slide 26: Balance sheet summary
Balance sheet summary 2023 Change 2022 (£m) (£m) (£m) Portfolio market value (per independent valuers)* 868.7 (42.9) 911.6 Cash 15.4 (19.1) 34.5 Working capital* (6.2) 8.6 (14.8) Debt (230.0) 4.8 (234.8) EPRA NET tangible assets (NTA) 647.9 (48.6) 696.5 EPRA NTA per share (pence) 104.5 (7.8) 112.3 *
Slide 27: Earnings summary – NTA bridge
Earnings summary – NTA bridge EPRA NTA per share (pence) 114.0 112.3 0.1 112.0 6.0 (0.1) 110.0 108.0 Income statement & 106.0 104.5 earnings 104.0 (6.9) (6.5) (0.4) 102.0 100.0 30 June Acquisition Disposal Property Adjusted Dividends Cost of 30 June 2022 costs revaluations EPRA paid interest rate 20
Slide 28: Debt summary
Debt summary 2023 2022 (£m) (£m) Net LTV 24.7% 22.0% % drawn debt fixed rate or hedged 100% 77% Average cost of drawn debt (inc. arrangement costs) 3.70% 3.07% Fixed/hedged positions as follows: £150m £30m £50m Phoenix debt at 3.18% RBS swapped at 2.48% HSBC capped, weighted average (10.6 cost to No
Slide 29: Care home sector: update & outlook
Care home sector: update & outlook Favourable Sector Inflation/Costs Staffing Dynamics (structural) – Inflation easing – Increased availability of staff – Demographics – Wage inflation has been supported – Visa schemes now more – Private-pay fees by resident fee increases (public widely used – Needs
Slide 30: Summary Q & A
Summary Real estate quality – Supports values, investor demand Portfolio performance – Improved during year, supports rental income Balance sheet Q&A – Conservative LTV, fixed/hedged finance costs Demographics & trends to quality – Clear bifurcation in portfolio relative to peers Roden Hall, Telford
Slide 31: APPENDIX
APPENDIX | Investor ResultsPresentation: August 2021 for the year-ended June 2023 Roden Hall, Telford 30
Slide 32: Demographics
Demographics Fundamental demand dynamics 13.4% 85+ Of over 85s require demographic expected to long-term residential care1 almost double to 3.2 million in the next 25 years1 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 1901 1932 1962 1993 2023 2054 The sector’s supply and demand fundament
Slide 33: Trend to quality
Trend to quality Market shift towards en suite wet-rooms UK care home real estate en suite wet-room provision1 14% 31% 2014 2023 69% 86% Clear market shift to ESG-compliant care homes however today 69% of UK care home beds are not fit-for-purpose | Investor ResultsPresentation: August 2021 for the y
Slide 34: Private-pay
Private-pay THR Portfolio: bias towards self-funders THR Portfolio: Residents Source of Fees2 Private Pay1 27% 73% Self-funding resident fee levels are increasingly ahead of Local Authority fee rates 1) Estimate based on information gathered by Investment Manager following discussions with tenants o
Slide 35: Example tenant financials: Private-pay focus
Example tenant financials: Private-pay focus Example Home1 Trading: 2019 - 2022 Example Home KPIs Dec-19 LTM Dec-22 LTM Occupancy 97% 92% Rent Cover 1.8x 2.3x Mature homes with private pay bias are able to pass on above Average Weekly Fee (Spot) £801 £1,001 inflation fee increases thereby impr
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