Target Healthcare REIT plc
Annual Report and
Financial Statements 2023
Investing in care.
Delivering returns.
Target Healthcare REIT plc Annual Report and Financial Statements 2023
About Us
Responsible investment
with a clear purpose –
delivering returns and
improving UK care
home real estate.
Key financial metrics for the year to, or as at, 30 June 2023
1 Based on EPRA NTA movement and dividends paid, see alternative performance measures on page 97.
2 Based on adjusted EPRA earnings, see note 8 of the consolidated financial statements and alternative performance measures on page 97.
EPRA NTA per share (pence)
104.5 -6.9%
110.4
112.3
104.5
2021
2022
2023
IFRS profit (£ million)
-£6.6m
43.9
49.1
-6.6
2021
2022
2023
Accounting total return (per cent)
1
-1.2%
8.8
8.1
-1.2
2021
2022
2023
Dividend cover (per cent)
2
97%
80
72
97
2021
2022
2023
Dividend per share (pence)
6.18 -8.6%
6.72
6.76
6.18
2021
2022
2023
Portfolio value (£ million)
868.7 -4.7%
684.8
911.6
868.7
2021
2022
2023
1Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
Strategic Report IFC-27
About Us IFC
Chair’s Statement 4
Business Model 6
At a Glance 8
Environmental, Social and Governance Charter 10
Investment Manager’s Report 14
Our Strategy 16
Principal and Emerging Risks and Risk Management 24
Section 172 Statement 26
Corporate Governance 28-59
Board of Directors 28
Investment Manager 30
Directors’ Report 32
Statement of Directors’ Responsibilities 39
Corporate Governance Statement 40
Report of the Audit Committee 45
Directors’ Remuneration Report 51
Independent Auditor’s Report 54
Financial Statements 60-90
Consolidated Statement of Comprehensive Income 60
Consolidated Statement of Financial Position 61
Consolidated Statement of Changes in Equity 62
Consolidated Statement of Cash Flows 63
Notes to the Consolidated Financial Statements 64
Company Statement of Financial Position 81
Company Statement of Changes in Equity 82
Notes to the Company Financial Statements 83
Additional Information 91-104
Notice of Annual General Meeting 91
Shareholder Information 94
Alternative Performance Measures 97
EPRA Performance Measures 98
Data Centre 100
Glossary of Terms and Definitions 101
Corporate Information 104
This document is important and
requires your immediate attention.
If you are in any doubt about the action you should take,
you are recommended to seek your own independent
financial advice from your stockbroker, bank manager,
solicitor, accountant or other independent financial adviser
authorised under the Financial Services and Markets Act
2000 if you are in the United Kingdom or, if not, from
another appropriately authorised financial adviser. If you
have sold or otherwise transferred all your ordinary shares in
Target Healthcare REIT plc, please forward this document,
together with the accompanying documents immediately
to the purchaser or transferee, or to the stockbroker, bank
or agent through whom the sale or transfer was effected
for transmission to the purchaser or transferee.
2 Target Healthcare REIT plc
About Us continued
Now
Standard-setting care home real estate.
100% purpose-built
98% wet-rooms
94% A or B EPC ratings
100% C or better
– Long leases at sustainable rents.
– Lowly geared balance sheet with long
duration fixed-rate debt.
– Growing demand for care home places:
– Number of people aged over 85
forecast to almost double from
1.7m to 3.3m by 2046.
– 1 in 7 people aged over 85 will
require residential care.
Near-future trends
Clear movement to these standards reflecting
resident demand and expectations.
% UK care home market with wet-rooms
Minimum Energy Efficiency Standards (MEES)
legislation has applied to commercial rented
buildings since 2018. COP 26 commitments made
by the UK Government anticipates the current “E”
rating requirement will be raised to “B” for 2030,
although recent Government announcements
suggest this may be voluntary.
Many commercial real estate owners with older/
converted properties face a significant burden to
meet the forthcoming changes.
Ageing population underpins demand
Source: LaingBuisson December 2022
31
14
31
2014
2023
1901
1911
1921
1631
1941
1951
1961
1971
1981
1991
2001
2011
2021
2031
2041
2051
2061
2071
2081
2091
2101
2111
0
4
8
12
16
20
24
Today
65–74 75–84 85+
2046
c.2x over 85s
Number of people (m)
Portfolio protected
from the sector’s
modernisation
challenge
Care home
sector-leading
environmental
credentials
Long-term outlook
and commitment,
aligned with care
sector needs and
supported by
demographic trends
Committed
long-term investment.
Modern real estate.
Demographic tailwinds.
Sustainable rents with inflation-linked growth.
Our purpose is to accelerate the improvement in the physical standards of UK care homes
through long term, responsible investment in modern real estate that delivers our return
objectives to shareholders.
We are advocates of the benefits that intelligently designed, purpose-built care homes can
bring and we want more residents, care professionals and local communities to benefit from
their positive social impact.
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Financial Statements Additional InformationCorporate GovernanceStrategic Report
Bedrooms
Bedrooms
Bedrooms
Lounge
Lounge
Laundry
Activity
Room
Sun
Room
Lift
Staff
Staff
Staff
Lift
Dining
Bedrooms
Wide corridors
Convenient outdoor access
Building services appropriately located
Social impact: Why purpose-built matters
It’s crucial. A building designed and then
built with its end-users in mind will be a
more dignified, agreeable and functional
environment, particularly in a care home
which has multiple user groups: Residents,
their families and friends; their direct
care-providers; and other essential
care home staff.
It’s simple. Consider a typical home, or a vital medical
facility like a hospital. These aren’t converted from another
use. More often than not it would limit suitability, usefulness
and ambience. The correct environment can have a
positive impact on the emotional wellbeing of the resident,
particularly those with dementia.
The descriptors ‘purpose-built’ and ‘modern’ are often used
broadly with the bulk of homes described in this fashion
being very different from those of the standard we invest in.
Below are some additional characteristics of our real estate
which may be assumed as pre-requisites for care homes
but are absent in the majority of homes across the UK:
Allows free and easy movement around the building for:
• Residents whilst socialising.
• Infirm or low-confidence residents to be accompanied.
• Residents requiring wheelchair use.
• Staff to move other equipment and residents’ belongings
such as laundry, and to distribute meals.
Assists the resident in being social and active, and boosts a home’s
efficiency and ambience.
Wide corridors are not present in many older, converted, care
homes which often have narrow corridors with variations in levels,
requiring steps.
Instinct and science both suggest convenient outdoor access to
be beneficial for users, though it is often overlooked, particularly
for residents not on ground level. We have long advocated for
balconies and unrestricted access to outdoor space for all residents,
whilst prioritising health and safety considerations.
Thoughtful location of core building services provides a
practical and efficient layout for care providers to manage
the main “non-care” aspects of their service, such as:
• Kitchen
• Laundry
• Lifts
• Staff rest and administrative areas
This creates a more efficient home with happier staff providing
better care and service to residents.
4 Target Healthcare REIT plc
1. Reflections
At this time last year, we reaffirmed that
our business model and strategy would
provide stable long-term income and total
returns despite the challenging macro
headwinds. Our share price has declined
alongside the UK REIT sector, reflecting the
expected impact of higher interest rates and
concerns for the UK economy on earnings
and valuation outlooks. We believe our
own outlook is more positive, given the
high levels of investment demand for our
assets, the underlying demographics of an
ageing population, and the dearth of quality
care home real estate across the UK. Our
portfolio is performing strongly, benefitting
from our initiatives to dispose of non-core
assets, from further capex to refresh or
enhance our real estate, from our active
engagement with tenants, and from the
more favourable trading environment.
The downward pressure on real estate
valuations was muted in our portfolio,
underpinned by the strength of investment
demand for our type of modern, purpose-
built assets and from the improved trading
conditions our tenants are encountering.
The net result has been a valuation move of
c.40 basis points on yield, significantly lower
than UK real estate has experienced more
widely. The targeted disposals of some older
properties, which the Investment Manager
assessed as having a less favourable outlook,
were achieved at or above book values
recorded prior to the market valuation decline
in late 2022, with the sale of the four-property
portfolio delivering an annualised IRR in
excess of 10% over the period of ownership.
Our earnings outlook remains robust, with
rent collection having improved to 99% in
the most recent quarter (97% for the year).
Improved tenant profitability across the
portfolio (rent cover of 1.75x for the most
recent quarter) supports our sustainable
rental levels and embedded annual rental
growth. We have minimised the impact of
the higher interest rate environment on the
Group’s earnings through our existing long-
term fixed rate facilities and our hedging
programme applied to our flexible debt.
We have also maintained our social
and environmental impact commitments,
prioritising investment capital towards
developing new-build homes which offer
the best modern amenities for residents
and minimise energy usage. Likewise,
EPRA NTA per share movement
-6.9%
Dividend cover
97%
Dear Shareholder,
I am delighted to provide you with this update, which
clearly shows a strong real estate business providing
unique social impact in the sector. Our portfolio’s key
performance metrics show the significant progress
we have made. Our vacancy rate remains at nil with
rent collection, rent cover and underlying resident
occupancy all improving. Asset valuations remain
stable, and our financing costs are well-protected
from higher interest rates.
Chair’s Statement
Investing in care.
Delivering returns.
5Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
we have continued to collect energy usage
data from our portfolio, analysis of which
shapes our ongoing investment to reduce
carbon emissions.
The change in market interest rates
experienced earlier in the year did, of course,
have a significant impact on our ability to
grow earnings through acquisitions. We
substantially reduced our new investment
programme as the relative outward
movement in income yields did not correlate
with the more significant increase in the
Group’s cost of capital. We reduced the
dividend level in response to ensure earnings
were immediately covering our payouts to
shareholders, providing a stable platform for
future growth and total returns.
2. Outlook
Despite the more challenging
macroeconomic environment, strong
sector tailwinds continue to support
investment in modern care home real estate.
Underlying demand for residential care
places is supported by demographic change,
evidenced by projected growth in the number
of those aged over 85, and investment
demand for modern, ESG-compliant care
home real estate remains strong.
On inflation and recessionary concerns, our
portfolio bias towards private pay provides
comfort that our tenants are more likely to be
able to pass on their cost increases through
higher resident fees, supporting sustainable
tenant trading. We have seen evidence over
the year that the quality of our real estate
allows tenants to secure commercially
appropriate fee levels.
We feel that portfolio valuations are robust
and our rental income is high quality. On
the former, we note transactional evidence
of healthy competition for assets which are
being marketed for sale. A number of buyers
are participating in processes for prime assets
such as ours, though we note this is not the
case for sub-prime, poorer quality real estate.
3. Performance
Our total return performance of -1.2% for
the year, driven by an EPRA NTA reduction
of 6.9% (104.5 pence from 112.3 pence) and
dividends of 6.18 pence per share, reflects
our resilient portfolio and the muted impact
of the wider correction in commercial real
estate valuations.
The Investment Manager comments,
on pages 14 – 15, in more detail on rent
cover and occupancy in the Investment
Manager’s Report, with these key metrics
trending positively as trading conditions and
performance in prime care homes improves.
The portfolio valuation movement has been
driven by market movements, our disposals
programme and the impact of rental uplifts,
providing an overall valuation reduction of
4.7% and a like-for-like decrease of 4.1%.
Contracted rent has increased by 2.0% to
£56.6 million, and 3.8% on a like-for-like basis.
Adjusted EPRA earnings increased by 23%
to £37.2 million, equating to an adjusted
EPRA earnings per share of 6.00 pence. This
translates to 97% dividend cover for the year
with full cover for dividends paid in respect
of the periods from January 2023 onwards.
Under the widely-used EPRA earnings metric
the dividend was 124% covered.
4. Investment market and care
home trading
We saw a pause and a re-pricing of deals
in progress as an immediate reaction to
September 2022’s mini-budget and the
uncertainty which followed. During early
2023 a number of these transactions
slowly started to complete again, at prices
generally higher than those considered
during re-pricing discussions at the trough.
The strength of demand and the number of
buyers active in the market were influential
supporters of values, as was the continued
improvement in trading profitability at
operational homes. This market activity
continues today, with a weight of capital
investing in the ESG-compliant, modern
homes which are our staple.
In care home trading we have seen a reversal
of pandemic fortunes between homes
focussed on private residents versus those
with a local authority bias. Profitability is now
increasing in the former, which is reflected
in our portfolio performance. Tellingly, we
have seen a focus from tenants on admitting
new residents at an appropriate fee level,
as opposed to a “fill at any cost” approach.
This has seen operator profitability improve
to levels ahead of where they were prior
to the COVID-19 pandemic and at resident
occupancies around 5% lower (85% vs.
90%). This data is very encouraging and is
consistent with the positivity on trading we
hear from our tenants.
5. Governance
Board succession
Our succession plan has been completed
with the appointments of Richard Cotton in
November 2022 and Michael Brodtman in
January 2023. Richard Cotton assumed the
role of SID, and I assumed the Chair, on the
retirements of Gordon Coull and Malcolm
Naish on 6 December 2022.
Annual General Meeting (‘AGM’)
The AGM will be held in London on
29 November 2023. Shareholders are
encouraged to make use of the proxy form
provided in order to lodge their votes and to
raise any questions or comments they may
have in advance of the AGM through the
Company Secretary.
6. Looking ahead
We see the following as our priorities:
• Manage our portfolio to ensure its
performance is consistent with its
inherent quality and trading advantages.
• Set ambitious but realistic environmental
targets, and start to deliver tangible and
observable progress towards these.
• Increase earnings from our embedded
rental growth and efficient management
of operating expenses and financing costs.
In the absence of unforeseen circumstances,
the Board intends to increase the quarterly
dividend in respect of the year ending June
2024 by 2.0% to 1.428 pence per share,
representing an annual total dividend
of 5.712 pence. In the six months since
1 January 2023 our portfolio has achieved
rental growth of 2%, rental collection has
increased to 99% and portfolio rent cover has
increased to 1.75 times. This improvement in
portfolio performance, when combined with
our effective management of interest rate
exposure, gives us confidence in the Group’s
earnings outlook, allowing us to increase our
dividend in line with rental growth.
The Board remains confident in the Group’s
prospects. Our portfolio consists of premium
quality assets in a critical real estate investment
class with compelling sector tailwinds.
Alison Fyfe
Chair
9 October 2023
6 Target Healthcare REIT plc
Business Model
Why we do it
We are advocates of the
benefits that intelligently designed,
purpose-built care homes can
bring and we want more residents,
care professionals, families and
local communities to benefit from
their positive social impact.
Our Investment Manager is
a specialist who understands
the operational challenges our
tenants face on a daily basis when
providing quality care.
Strategic pillars
Build a high-quality real estate portfolio which
supports long-term investor demand.
Manage portfolio as a trusted landlord in a fair
and commercial manner.
Recognise the value of relationships and our influence within
a complex sector.
Deliver regular investment returns for shareholders.
Disciplined and conservative financial and risk management
to deliver earnings supporting quarterly dividends.
To achieve our social purpose via responsible
and sustainable investment.
Our focus is on our social impact, allied with a firm commitment
to environmental sustainability and good governance.
Simple approach:
Best-in-class real
estate managed by
a dedicated team.
We are a responsible investor in ESG-compliant, purpose-built care home real estate,
which is commensurate with modern living and care standards.
7Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
How we do it
• Clearly defined house view on investible real estate standards and
sustainable rental levels.
• Stable and experienced team of sector experts with strong reputation
and track record.
• Conviction to build a portfolio highly diversified by tenant, geography,
and end-user payment profile.
• Informed decisions/assessment from specialist knowledge of care
home profitability drivers and operational service delivery, combined
with comprehensive monthly data collection.
• Collaborative sharing of knowledge, insight, and best practice with
tenants which drives their competitive advantage.
• Intelligent and sensitive asset monitoring through regular visits and
dialogue with tenants at operational and senior management levels.
• Prominent and respected sector presence – available and
approachable to those who seek to operate from our in-demand real
estate.
• Long income visibility with inflation-linked annual rental growth.
• Capital structuring focus on conservative approach to debt: low LTV;
long duration; fixed interest costs.
• Advantages from critical sector, with asset quality and diversification
further reducing volatility and risk profile.
• Commit to our approach and understand our influence.
• Learn, reflect, respond to feedback.
• Hold ourselves to high standards expected of social care responsibility.
2023 highlights
5
new build homes supported
£27m
disposals at carrying value
32
tenants, as at 30 June 2023
9/10
tenants agreed that Target
provides homes that help
deliver dignified care
100%
properties let
97%
rent collection
9/10
tenants agreed that Target’s
values are clearly evident
1
re-tenanting during year
6.18
pence dividend
6.00
pence adjusted EPRA EPS
-1.2%
NAV total return
3.8%
like-for-like rental growth
100%
EPC of C or above
79%
homes providing energy
usage data
Our key strengths
The key strengths of our approach are:
1. Asset-class benefits from strong demand from investors and operators, being:
(a) future-proofed against legislative change and trends influencing demand; and
(b) generation of high quality earnings from sustainable rents.
2. Specialist manager, highly engaged within the sector and with our tenants.
3. Prudent approach to financial risks with diversified income sources, low gearing and
long-term, predominantly fixed rate debt.
8 Target Healthcare REIT plc
High quality real estate Diversified Long-term focus
Homes
97
Tenants
32
WAULT
26.5 years
Portfolio
£869m market value
£57m contracted rent
Fee sources
1
73% private
27% public
Upwards only rent reviews
2
99% inflation-linked leases
1% fixed/other leases
Scale Track record Prudent
Beds
3
6,442
Accounting total return (annualised)
6.9% since launch
Net loan-to-value
24.7%
At a Glance
Portfolio at 30 June 2023
Business
Principled investment
exclusively in well-
designed, purpose-
built care homes.
1 50% privately paid, 23% topped up privately paid and 27% publicly funded.
2 99% of assets in the portfolio are subject to annual uplifts linked to inflation. The remaining home has a fixed annual uplift.
3 A further 263 beds will be added to the portfolio on completion of the four development sites held at 30 June 2023. A further 66-bed site was acquired post year end.
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2
1
18
26
7
13
5
4
13
8
MSCI Region
Number of
Properties
Contracted
Rent
(£m)
Market
Value
(£m)
Yorkshire & The Humber 26 13.7 213.3
South East
13 9.7 157.5
North West
18 9.9 141.9
East Midlands
13 7.0 99.9
Scotland
8 4.3 65.1
West Midlands
7 3.9 63.3
South West
4 3.8 55.5
Eastern
5 2.7 46.4
North East
2 1.1 17.7
Wales
1 0.5 8.1
Total 97 56.6 868.7
Our portfolio
We have clear criteria for home design,
quality and facilities to provide great
environments for residents and care
providers. We invest in homes the
length and breadth of the UK, with
portfolio diversification being key.
= Number of properties in region
1
1 Build type as a percentage of all care homes in England and Scotland as at 30 June 2023.
Properties by date of construction
80%
3%
17%
Group
80%
Purpose-built 2010 onward
16%
12%
13%
7%
52%
16%
6%
6%
5%
5%
5%
4%
4%
4%
8%
37%
Purpose-built 2010 onward
Purpose-built 2000–2009
Purpose-built 1990–1999
Purpose-built pre-1990’s
Converted property + extensions
The first ten blocks represent
our ten largest operators,
with the eleventh representing
the remaining 22 operators,
each below 3.3%.
Year Vacancy Rate
2021 nil
2022 nil
2023 nil
England and Scotland
1
Operator diversification by contracted rent
Vacancy Levels
10 Target Healthcare REIT plc
Environmental, Social and Governance Charter
Targeting
tomorrow.
Targeting Tomorrow is our Environmental, Social and Governance (‘ESG’) charter
to ensure the social impact objective we launched with remains embedded in
our business for years to come. We take a responsible approach to every aspect
of our business, including environmental sustainability and governance standards.
Targeting Tomorrow gives us the platform to work with shareholders, tenants and
other stakeholders more effectively than ever to supply care home real estate that
delivers tangible benefits.
We will report on our ESG activities and progress towards meeting our
commitments on a regular and timely basis.
Core ESG terms explained
Building research establishment environmental assessment method (BREEAM):
The world’s leading science-based suite of validation and certification systems for the
sustainable built environment. The BREEAM in-use standards provide a framework to enable
property investors, owners, managers and occupiers to determine and drive sustainable
improvements in the operational performance of their assets, leading to benchmarking,
assurance and validation of operational asset data. BREEAM in-use certification is valid
for three years.
Energy performance certificate (EPC):
Rates how energy-efficient a building is using grades from A to G. (with ‘A’ the most efficient
grade). All commercial properties leased to a tenant must have an EPC.
All EPCs are valid for 10 years.
Wet-room:
A private, en-suite shower and toilet room, fully tiled and drained, providing the practical
living space for personal hygiene to be applied in a dignified manner and with assistance
as required.
Green lease:
Contractual provision for a care home operator to provide energy consumption data
to the Group for analysis and reporting requirements.
Global standards on real estate benchmarking (GRESB):
A real estate industry ESG benchmark, collated from participant data and policy
submissions, used to aid transparency and comparability, and allows assessment
of performance and trends.
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ESG principles
Responsible
investment
As an investor we understand that our
actions have influence. We use our
platform to lead by example through
embedding appropriate ESG considerations
into our decision-making.
Responsible
partnerships
We engage with all our stakeholders to
drive the creation of economic, social and
environmental value around our buildings
and in wider society.
Responsible
business
We will treat all stakeholders with
respect and deal fairly in a manner
consistent with how we would expect
to be treated ourselves.
Environmental
ESG activities: 2023 Snapshot
Social
Governance & Transparency
EPC ratings
1
94% A-B ratings
100% A-C ratings
BREEAM in-use
certificates
Excellent 1
Very good 5
Good 1
Below good 0
Energy consumption
data
Electricity and gas usage data obtained
for 76% and 79% of homes, respectively.
Green lease provisions in 22% of leases.
Wet-rooms
98%
Defining proxy for real estate quality
and social impact.
National Comparative: 31%*
* Source: Carterwood
Space per
resident
47m
2
We assess this against peers
and compare favourably
(see page 17).
New homes/beds built
with our direct support
2
16/1,078
A further measure of our social impact
in supporting the sector’s transition to
modern real estate.
ESG committee
• Met 4 times.
• Approved £1 million budget
for ESG capex.
GRESB
• Score of 60 achieved in inaugural
published assessment
Board diversity
40% of the Board are women,
including the Chair.
1 Non-English homes follow a different rating system and have been converted to English equivalent ratings.
2 Since launch of Target Healthcare REIT in March 2013. Direct support refers to contractual financial commitment to forward fund or forward commit to a development.
12 Target Healthcare REIT plc
Environmental, Social and Governance Charter continued
Commitment Status Progress and insight
Responsible investment
Continue to provide better care home real estate
which provides positive social impact to residents,
their carers and local communities.
No compromise on quality.
– 100% of our homes are purpose-built.
– 98% wet-room coverage (2022: 97%).
– Sector leading space.
– Staff, social and outdoor spaces.
Support the sector’s transition from poor real estate
standards via long-term financial/investment support
for new developments.
16 new care homes 1,078 beds, £190 million committed
to fund new build care homes since launch.
Obtain useful benchmarking information on the
energy efficiency of our real estate.
BREEAM in use certificate coverage increased to seven homes
(2022: six).
Obtain more data on energy consumption by tenants
from our real estate. This will support our efforts
as an engaged and influential landlord, as well as
providing data for future disclosure, consistent with our
transparency objectives.
Energy usage data collection substantially improved to 75%
for electricity and 79% for gas (2022: 40%).
“Green lease” provision included within standard lease terms,
coverage of 22% of portfolio (2022: 10%).
Ensure ESG factors are embedded into the acquisition
process and portfolio management.
Manager “house standard” process produces a balanced
scorecard of ESG factors for each potential investment asset
and has been considered for all acquisitions in the year and
for subsequent acquisitions.
Net zero commitment.
Increased collection coverage of “scope 3” portfolio emissions
has provided an adequate data-set.
Third party consultant engaged and work continues to set
meaningful and realistic carbon reduction targets, aligned
with the 2050 net-zero objective.
We continue to make tangible progress towards both setting realistic and meaningful targets,
and to meeting those commitments we have defined.
Social impact remains fundamental to us, and our modern real estate has sector-leading
environmental ratings. However, the bulk of emissions are ‘scope 3’ downstream as they relate
to energy used by our tenants and their residents. We are working closely to understand this
energy usage and to positively influence using our insight as part of our contribution to net zero.
Our main areas of progress are highlighted in the table which follows:
Our ESG commitments.
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Commitment Status Progress and insight
Responsible partnerships
Engage with tenants to ensure real estate is meeting
their operational/social impact needs.
We visit every home at least twice a year, to review the building
condition and meet with those working in our homes. In our
annual survey 10/10 agreed that working with Target was a
positive experience and 9/10 agreed that Target is working
towards mitigating climate change and is active in helping
further its tenants’ understanding.
Use energy data obtained from tenants to positively
impact/influence change where possible.
Data analysis performed by the Investment Manager identified
energy usage trends and patterns used to direct capex
investment on efficiency and renewables infrastructure.
An initial, targeted investment in solar photovoltaic panels
of £1million has been authorised. Photovoltaic panels can
decrease reliance on grid electricity by 20% per home.
Be a responsible landlord to our tenants and their
communities, with the Investment Manager’s
healthcare team sharing best practice.
Target continues to engage regularly with our tenants,
and following the end of the pandemic restrictions, reprised
hosting of tenant event with focus on sharing best practice
and knowledge
Responsible business
To establish an ESG committee to provide appropriate
focus and impetus to ESG matters.
Committee met four times in the year, overseeing publication
of the Group’s inaugural Sustainability Report in March 2023,
and approving portfolio investment in a number of ESG initiatives.
Ensure the benefits of Board diversity are achieved.
Board recognises the benefits of diversity, and has consistently
met the Hampton-Alexander guidance on gender diversity
over recent years. Diversity, including ethnicity, was particularly
considered in the Board’s recruitment processes during the year.
Participate in benchmarking and sector appropriate
programmes to provide comparable information.
GRESB score of 60 in inaugural published assessment. Green star
awarded and score consistent with peer group average of 61.
Other reporting: Align financial and non-financial
reporting with widely used frameworks.
• EPRA BPR (Best Practice Recommendations) Gold Award.
• EPRA Sustainability BPR Silver Award.
Early stage Partially met Met
14 Target Healthcare REIT plc
Overall portfolio performance
The year has seen conflicting pressures
impacting portfolio returns. Our homes
remain fully let with no vacancies and our
rent collection has increased, to 99% for
the most recent quarter and 97% for the
year, in response to operator profitability
growth across the portfolio from sustained
higher occupancy and more stable trading
conditions. Underlying resident occupancy
was 85% for the portfolio at June 2023
and is 86% at the time of writing, with rent
cover for the June 2023 quarter of 1.75x
(June 2022: 1.3x). This improvement to
the financial performance has supported
property valuations for our type of modern,
purpose-built assets, as has continued
strong investment demand. Nevertheless,
valuations have decreased overall, driven by
the downwards pressure on commercial real
estate mainly from higher interest rates and
persistent inflation.
In relative terms, the portfolio has performed
well. The portfolio once again outperformed
the MSCI UK Annual Healthcare Property
Index in respect of the calendar year to
31 December 2022 (THRL portfolio total
return of 2.5% relative to the Index’s 1.7%),
and the like-for-like valuation decrease of
4.1% for the year to 30 June 2023 compares
well to the 19% capital decline in the CBRE
UK monthly index (all property) over the same
period. The valuation of the portfolio partially
recovered in the second half of the financial
year, with the like-for-like value increasing by
1.5%. The portfolio’s annualised total return
since launch now stands at 10.2% while
the portfolio’s last five-year period has an
annualised total return of 8.6% relative to
8.1% and 6.9% respectively for the MSCI Index.
Rental quality and home trading
We have observed many operators sensibly
focussing on admitting new residents at
fee levels appropriate to the care package
required, as opposed to prioritising occupancy.
With management of costs, this approach is
driving tenant profitability recovery to levels
ahead of those seen prior to the pandemic.
With resident occupancy levels around
5% lower now than pre-pandemic, further
occupancy growth will translate to profitability
increases and improved rent covers.
Average weekly resident fees across the
portfolio have increased by 13%, reflecting
the inflationary environment and the cost
of care focus noted above. Operators’ staff
costs have increased by 6% due to wage
increases, though expensive agency costs
have decreased significantly. Energy costs
and other operational expenses of 16%
of revenues have remained stable. The
following aspects of our investment strategy
and asset management in the year have
enhanced the quality of our rental streams:
• Mature homes
1
: 90% of our operational
portfolio has passed the “fill-up” stage
and is now mature, relative to 71% at start
of the pandemic. This supports tenant
profitability and resilience.
• Private pay bias: High-quality real estate
supports tenants in setting resident fee
rates, with further evidence that profitability
at such homes is outperforming Local
Authority biased-homes.
• Disposals of £27 million, moving on
some of our older, non-core assets in
less preferred geographies to refresh
the portfolio.
• Re-tenantings: Full recovery of rent
arrears from one tenant (6.4% of
contracted rent roll) and completion of
re-tenanting programme with another
tenant, to 3.3% of rent roll from 5.3%.
UK care home investment market
and valuation drivers
Modern and ESG-compliant UK care homes
with inflation-linked, long-term rents have
continued to attract investment interest, with
several buyers having remained active in the
market through the year. Whilst a number of
live transactions were paused and subject to
re-pricing (by c.50bps) immediately following
the mini-budget, there was little deal volume.
Instead, sellers remained patient and net
initial yields recovered by 10-20bps as deals
re-emerged for completion early into 2023.
This net movement of 30-40bps remains
consistent with where we see pricing today.
It should be noted that institutional buyers
remain scarce/limited for non-prime,
older care home real estate with these
depressed demand levels likely to impact
valuations thereon.
The established, specialist investors have
been active in the market through the year,
with a focus on the development of new-
builds, and a limited volume of mature trading
assets. The more generalist UK pension funds
have become active again after a period of
quiet due to tight yields for the strong tenant
covenants they prefer and are making their
way back in, alongside the US REITs who
appear to be targeting the higher end of
the yield curve at this point. In contrast to
recent years, the larger European healthcare
investors have been quiet, perhaps focussed
on their existing portfolios following operator
challenges on the continent.
On the operator side, we see M&A activity
and some consolidation: partly as some
well-run, smaller groups feel market
conditions now suit following the tough
pandemic years. Additionally, we see some
of the larger operator groups looking to shift
the overall quality and modernity of their
estates through the acquisition of businesses
operating exclusively from modern, purpose-
built homes.
Health and social care update
We note below a number of areas which
are prominent in our minds and those of
our tenants:
Resident occupancy
Occupancy has continued on a slow but
consistent upward trajectory towards pre-
COVID levels. Progress in this respect has, at
times, been stalled by workforce recruitment
challenges, but, as mentioned elsewhere,
we also note a new trend toward operators
being more fee focused than in the pre-
pandemic era, resisting the natural push to
fill beds even where staff are available but
where fees do not reflect the cost of care.
Concerns that future residents have been
put off by negative press around care homes
Investment Manager’s Report
Portfolio performance
and UK care home
investment market.
1 A mature home is a care home which has been
in operation for more than three years.
15Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
1.8x
1.6x
1.4x
1.2x
1.0x
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
80%
85%
90%
75%
95%
70%
65%
60%
50%
55%
73%
79%
84%
90%
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
during the pandemic seem to be fading, with
good interest reported at lower ends of the
acuity scale, where loneliness, isolation, and
security play on people’s minds. At the high
end of the scale, acuity has become even
more pronounced, as care homes seek to
support the NHS with timely discharges from
hospital, and many operators are focused on
this task, but as noted, require sensible fee
rates to provide this level of care.
Public funding of care
Following a trend of more than two decades,
reform of (English) Social Care policy has
stalled yet again. New funding in the main
has been diverted primarily to the NHS and
wider reform pushed into the long grass.
On a more positive note, the sector (across
the whole UK) has at least enjoyed some
silver linings, not least being recognised as
an essential contributor to the health of the
NHS. Ring-fenced Government funding
for hospital discharge has been useful,
with continued funds this coming winter
expected to benefit all parties.
The “fair cost of care” exercise, implemented
to establish core data for any reform,
has proven useful in educating many
stakeholders on the true costs of providing a
care home placement. However, the funding
of Local Authority care obligations and
the cross-subsidisation of publicly-funded
residents by private-fee paying residents
remains unaddressed.
Staffing pressures
Staffing (recruitment) has settled down
to more normalised everyday pressures
compared to the crisis levels felt by many
care homes over the last 18 months.
Many operators continue to make use of
the sponsorship licences, albeit there are
concerns over calls for restrictions on the
legislation. Few homes now are obliged to
restrict occupancy due to staffing pressure,
and most have reduced their agency
dependency to occasional routine cover, or
in many cases zero use, which is a welcome
position to be in.
There has been much pressure on
Government to introduce wider workforce
policies, alongside a campaign to address
the stigmas that exist around working in
social care as opposed to the NHS. A funding
pot of £600 million over the next two
years was announced, part of which will be
available to promote workforce issues, albeit
operators are likely to have little control over
the direction of such funds.
Inflationary pressures
Operators continue to focus on inflation.
For two years those who have a healthy
exposure to private residents (which we
feel is essential), have been able to recover
escalating costs with corresponding fee rises.
Those in the sector who are not as fortunate
to have this flexibility have taken some
comfort in useful public pay awards, albeit
not all Local Authorities have been
well positioned (or willing) to match inflation,
and pockets of poor public fee award/
pressure remain, not least north of the border.
Progressive operators are also becoming
more adept at adopting an ‘open book’ policy
with public funders (Local Authorities, NHS
etc), and many of the latter have engaged
positively in the setting of fees in light of
the current climate. Families of private
residents are also well aware of inflationary
pressures and have therefore generally been
acceptive of corresponding fee rises, albeit
operators are concerned that this patience
may eventually be exhausted. Care homes of
course, like other businesses, enjoyed some
Government protection from energy price
rises previously, but while that protection has
come to an end, we have found that most
progressive (and larger) operators have been
reasonably protected from extreme pricing
by prudent locking in to fixed price tariffs.
Pandemic as accelerant to change
While COVID-19 is still with us, and care
homes remain on alert but confident in
now well versed infection control protocols,
we note that the pandemic has focussed the
minds of many operators on building layout
and suitability, and we believe that the now
historic COVID-19 lockdowns may ultimately
be seen as a catalyst for change, where
modern homes with self-contained living
units and en suite wet-rooms are regarded as
de rigueur, which in time will further increase
demand for quality beds.
Target Fund Managers Limited
9 October 2023
Mature Homes: Rent Cover
Rent cover – spot Rent cover – rolling last 12 months
Mature Homes as a Proportion of Total Portfolio
16 Target Healthcare REIT plc
Our Strategy
Our purpose, to improve the standard of living for older people in the UK,
is achieved through our four strategic pillars as detailed in our business model
on pages 6 and 7. You can read more about these over the next eight pages.
Strategic Pillar #1
Build a high-quality real estate portfolio
We are creating a portfolio of scale with a clear focus on the quality of real estate and
diversification of income sources to provide a stable long-term platform for returns.
Better homes, modernising the sector
The Group’s portfolio has historically grown
through acquisitions of individual assets
which meet our investment quality criteria.
Today, with the higher cost of capital and
our marginal rate of debt financing currently
exceeding initial rental returns, we are
choosing to recycle our capital to ensure our
portfolio remains modern and high quality
and underpins the best possible care. This
has seen us dispose of five properties in the
current year:
• One property which was below the
average standard of the 18-home
portfolio acquired in December 2021.
• Four properties in Northern Ireland, being
an exit from that local market where the
fee and funding dynamics outlook is
unfavourable.
All disposals were made at or above book
value.
Proceeds of the sales have initially been
used to repay flexible debt, and beyond that
allocated to the development of new homes.
Of the four homes in development at the start
of the year, one reached practical completion
in November, with the 66-bed home leased to
a new tenant to the group on a 35-year lease.
One new 60-bed care home development
site was acquired in January 2023. Following
the year end, on 4 July, the Group acquired a
pre-let development site for the construction
of a 66-bed home, which will be built to
exceptional ESG standards, with the highest
certification standards anticipated which
offer carbon net zero operational ability.
Funds have also been invested in the
continual improvement of the portfolio,
with the conversion of 128 beds into full
wet-rooms at four of the Group’s care-homes
and work commenced at one care home
to add an additional 18 rooms. A portion
of capital has also been allocated to direct
carbon reduction initiatives, most notably
the installation of photovoltaic panels.
We create better homes
to achieve a better
standard of care.
£20m
(£26m)
(£73m)
£36m
£912m
£869m
30 June 2022 Market yield shiftDisposals Rent reviews 30 June 2023Acquisitions and
developments
£750m
£800m
£850m
£900m
£950m
Increase Decrease Total
Valuation analysis (£ millions)
17Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
Valuation movement
The portfolio value reduced by 4.7% during
the year, driven by the c.40 basis points
of market yield shift applied as real estate
valuations were impacted by the changed
economic conditions. The like-for-like
decrease was 4.1%, largely reflecting the
positive impact of the Group’s rental growth
on valuations. The Group’s disposals and
development programmes resulted in a small
net decrease to year-end portfolio value.
Best-in-class real estate
Our investment thesis remains that modern,
purpose-built care homes will out-perform
poorer real estate assets and provide
compelling returns.
Wet-rooms (98%): These are essential for
private and dignified hygiene, with trends
continuing to show residents expect and
demand this.
Carbon reduction (94% EPC A or B; 100%
C or better): Energy efficiency of real estate
is critical, with legislative change and public
opinion demanding higher standards. Our
portfolio is substantially better than peers.
Purpose-built and modern (100%): All our
properties are designed and built to be used
as care homes and to best meet the needs
of residents and staff.
Financials: Our metrics reflecting capital
values and rental levels compare favourably
with peers, demonstrating sustainability and
longevity.
Diversification
We continue to ensure the portfolio remains
diversified, by leasing our homes to a range
of high-quality regional operators. The
Group has 32 tenants, down from 34 in the
previous year due to the disposals in the year.
The largest tenant is unchanged from 2022,
being Ideal Carehomes who operate 18 of
the Group’s homes and account for 16% of
contracted rent as at 30 June 2023. Overall,
our top five tenants account for 41% and top
ten, 63% of our contracted rents.
Underlying resident fees are balanced
between private and public sources, with a
deliberate bias towards private. There is long-
term evidence and strong current anecdotal
evidence that this group is accepting of
higher fees, particularly for the quality real
estate and care services our properties and
their operators provide.
Census data from our tenants show that
73% of residents are privately-funded, with
50% being fully private and 23% from “top
up” payments where residents pay over and
above that which the Local Authority funds
for them. 27% of residents are wholly publicly
funded.
Geographically, Yorkshire and the Humber
remains the largest region by asset value
at 25%.
Portfolio
Differentiators
We know the standard of UK care home real estate. The metrics below compare
our portfolio with other listed care home portfolios.
Peer Comparison Group
Listed Peer
Group
1
En suite wet-rooms with shower 98% 28%
En suite WC rooms
100% 86%
Purpose-built 2010 onwards
80% 13%
Purpose-built 2000 – 2009
17% 27%
Purpose-built 1990 – 1999
3% 21%
Purpose-built pre-1990s
– 20%
Converted property
– 19%
Average sqm per bedroom
47 40
EPC B or better
94% 58%
EPC C
6% 35%
EPC D or lower
– 7%
Average value per bed
£131k £101k
Value per built sqm
£2.8k £2.5k
Average rent per bed per annum
£8.8k £6.8k
Rent per built sqm
£180 £172
Group
Listed Peer Composite
1 The Investment Manager monitors the key statistics
for its listed peer group, and the analysis in the table
is the weighted average scores for this peer group.
18 Target Healthcare REIT plc
Our Strategy continued
Strategic Pillar #2
Manage portfolio as a trusted landlord
in a fair and commercial manner.
The Investment Manager has deep experience within the sector and uses its unique knowledge to
manage the portfolio. Starting with informed assessment of home performance using profitability
and operational metrics, through empathetic and sensitive engagement with our tenants and
sector participants as a whole – we are trusted and respected and people want to partner with
us. This enables fair treatment and commerciality to be balanced, essential in a complex sector.
Portfolio profitability
Rent collection measured 97% (2022: 95%)
for the year, with improvement throughout
the year leading to 99% collection for the
final quarter of the financial year.
Our portfolio is fully let therefore continues
to have a vacancy rate of nil. Underlying
resident occupancies have grown to 85%
at the year end and 86% at the date of this
report. Whilst this remains lower than the
pre-pandemic norm of 90%, many operators
are focussed on accepting new residents at
fee levels commensurate with the services
provided, rather than filling to capacity at
uneconomic fees. This approach efficiently
manages demand, minimises the need for
expensive agency staff, and facilitates a
care-led approach when welcoming new
residents to a home. Staffing shortages have
eased, having been an operational challenge
limiting occupancy growth early in the year.
Rent covers have grown in response,
supporting rental payments and the rebuilding
of tenant financial reserves. Portfolio rent
cover for mature homes for the quarter to
30 June 2023 was 1.75x and for the year
was 1.6x. These profitability and headroom
levels are higher than those delivered prior
to the pandemic when occupancy levels
were higher, at around 90%. Clearly, there
is potential for enhancement to tenant
profitability and rent covers with higher
occupancies, should homes choose to do so
(enquiry levels are generally reported to be
high). Whilst the focus of attention has been
on resident fee levels, homes have generally
managed their cost bases effectively, with
the reduction in agency cost being the most
material improvement.
Total returns and rental growth
The portfolio total return has again
outperformed the MSCI UK Annual Healthcare
Property Index, with a total return for the
calendar year to 31 December 2022 of
2.5 per cent relative to the Index’s 1.7 per
cent. This outperformance has occurred
consistently since launch in 2013 as shown
in the chart opposite.
0%
5%
10%
15%
25%
20%
2014 2015 2020 202220212019201820172016
Total Return vs Index
MSCI UK Annual Healthcare Property Index
Total Return (%)
Portfolio Total Return (%)
£2.1m
£1.1m
(£2.1m)
£55.5m
£56.6m
Opening
Contracted Rent
DisposalsAquisitions/
Development sites
completed
Closing
Contracted Rent
Rent reviews
£52.0m
£54.0m
£56.0m
£58.0m
£60.0m
Increase Decrease Total
Movement in Contracted Rent (£ millions)
70%
75%
80%
85%
90%
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
Mature Homes: Spot Resident Occupancy Rates
19Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
Accounting total return was -1.2% for the
year ended June 2023 and an annualised
6.9% since launch. The decline in property
values seen in the second half of 2022 was the
main driver of the decrease in NAV, with our
quarterly dividends paid to shareholders now
fully covered by earnings (97% covered for the
full year). Property values now appear to have
stabilised, as noted elsewhere, with continued
investment demand for prime care homes.
Contractual rent has increased to £56.6
million, with like-for-like rental growth of
3.8% having been achieved for our annual,
upward-only rent reviews with typical collars
and caps at 2% and 4% respectively.
Demand for assets from investors and
operators
During the year, the Investment Manager’s
specialist knowledge, data-led assessment,
and wide sector relationships, have allowed
successful portfolio management initiatives
noted in the table above to complete.
Tenant engagement and satisfaction
We remain committed to our role as an
effective, supportive and engaged landlord.
We once again invited our tenants to
provide formal feedback via a survey, which,
alongside learnings from the many points
of contact we have, is used to inform our
approach. The survey returned positive
quantitative results, and more usefully some
qualitative feedback on how we may consider
altering our interactions with tenants to
recognise that no two tenants are the same.
In summary:
• 10/10 of responders agreed that working
with Target was a positive experience
(2022: 9/10).
• 9/10 of responders agreed that Target
provides real estate that is a great working
environment and helps deliver dignified
care to residents (2022: 9/10).
• 10/10 of responders agreed that
Target participates in sector events
and appropriately shares knowledge
(2022: 10/10).
Resident satisfaction
Regulator (CQC in England) ratings are
informative but limited. The Investment
Manager also monitors reviews on
“Carehome.co.uk”, a “Tripadvisor” style
website for care homes, as a useful source of
real-time feedback which is more focussed
on the resident experience, and that of their
loved ones.
The portfolio’s current average rating is
9.4/10 (2022: 9.3/10) with sufficient review
volume and frequency to be considered a
valuable data point for the quality of service
experienced by residents.
What Why Achieved
£27m of disposals
• Five properties.
• 3% of opening portfolio value.
• One property of a standard of
physical real estate that met our strict
acquisition criteria when acquired
as part of a portfolio, but which was
below the overall standard of the
portfolio.
• Four properties with total return
outlook lower than that of the overall
portfolio given resident funding
and fee pressures specific to their
geographic area.
• Network and relationships identified
potential purchasers.
• Sales proceeds obtained ahead of
carrying values and crystallising
satisfactory IRRs.
• Proceeds applied to reduce drawn
variable rate debt in time of rising
interest rates.
• Capital allocated long-term to a
next generation energy-efficient
development.
Engagement with tenants and
wider operator network
Constructive dialogue with two
tenants and alternative operators
allowed us to:
• Recover rent arrears from one.
• Re-tenant a further home from
one, moving to our preferred three-
home position.
• Assisted the tenants with operational
and cash flow pressures following
persistence of pandemic affected
trading.
• Protected rental quality and asset
values.
• Maintained uninterrupted care for
residents.
Demand from care providers for our
best-in-class assets allowed us to:
• Maintain prevailing rent levels on
re-tenanting.
• Fully recovered £1.1 million of rental
arrears from one tenant group with
fair commercial pressure applied from
having agreed terms with alternative
operators.
Further investment to maintain
and enhance property standards
• To further increase proportion of
wet-rooms towards 100%.
• To enhance homes with specific
asset management initiatives.
• £3.7 million of capex committed to,
and rentalised at market NIYs.
• Maintain our commitment to social
impact through fit-for-purpose
facilities for all residents.
(0.1)
0.1
(6.9)
6.0
(6.5)
(0.4)
112.3
104.5
100.0
102.0
104.0
106.0
108.0
110.0
112.0
114.0
30 June
2022
Adjusted
EPRA
earnings
Property
revaluations
Disposal Dividends
paid
Cost of
interest
rate cap
30 June
2023
Acquisition
costs
EPRA NTA per share (pence)
Increase Decrease Total
20 Target Healthcare REIT plc
Our Strategy continued
Strategic Pillar #3
Regular dividends for shareholders.
Total dividends of 6.18 pence per share were declared and paid in respect of the year to
30June 2023, a decrease of 0.58 pence on 2022 reflecting the decision to reduce the
dividend from 1 January 2023. This represents a yield of 8.6% based on the 30 June 2023
closing share price of 71.8 pence.
Earnings
Earnings increased by 19%, as measured
by adjusted EPRA EPS; the Group’s primary
performance measure. Rental income has
increased, with operating expenses and
financing costs being managed effectively.
Despite the disposal of five assets, rental
income increased by 13% (£6.6 million) over
the prior year, driven by the full-year effect
of a significant portfolio of assets acquired
part-way through the previous year, inflation-
linked rental growth and the practical
completion of development assets and new
leases entered into.
The Group’s operating expenses reduced by
£3.0 million from the effects of the portfolio’s
trading performance improvements. In line
with the increase to near full rent collection,
credit loss allowances and bad debts improved
to a charge of £0.3 million, £2.9 million lower
than the prior year. Other administrative
expenses remained consistent with 2022.
Net finance costs increased from £6.6
million to £10.1 million, predominantly driven
by the annualisation effect of the increase
in drawn debt in the previous year relating
to the acquisition of the portfolio of assets.
The significant increase in market interest
rates in the second half of the financial year
have been managed through existing fixed or
hedged debt arrangements, supplemented
by the acquisition of a £50 million 3% SONIA
cap in November 2022, which has protected
the Group’s interest costs from further
increases in interest rates as SONIA has risen
to 4.93% at 30 June 2023.
Expense ratio
The Group’s expense ratios reflect these
movements.
The EPRA cost ratio decreased to 15.8%
in 2023 from 21.5% in 2022 as a result of
the significant reduction in the credit loss
allowance and bad debts in the year. Both
the Investment Manager fee and other
expenses were broadly in line with the prior
year in absolute terms resulting in a decrease
in the cost ratio expressed as a percentage
of the Group’s increased rental income. The
Ongoing Charges Figure was fairly stable at
1.53% (2022: 1.51%), the marginal increase
driven by the decrease in the value of the
portfolio.
Earnings summary
2023
(£m) Movement
2022
(£m)
Rental income (excluding guaranteed uplift) 56.4 +13% 49.8
Administrative expenses (including management fee) (10.7) -22% (13.7)
Net financing costs (9.4) +42% (6.6)
Interest from development funding 0.9 +13% 0.8
Adjusted EPRA earnings 37. 2 +23% 30.2
Adjusted EPRA EPS (pence) 6.00 +19% 5.05
EPRA EPS (pence) 7.67 +16% 6.62
Adjusted EPRA cost ratio 18.7% -840bps 27.1%
EPRA cost ratio 15.8% -570bps 21.5%
Ongoing Charges Figure (‘OCF’) 1.53% +2bps 1.51%
21Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
Uninvested Capital
At 30 June 2023 the Group had cash and
undrawn debt of £105 million. £41.5 million
of this is committed to developments or
portfolio improvements, with £16.0m
allocated to the acquisition of a further
development site post year end and which
was awaiting drawdown. £47.5 million
remains available. The Group continues to
assess pipeline assets carefully on a case-by-
case basis, with respect to market conditions
and financing costs.
Debt
Debt facilities were unchanged in the year at
£320m. The Group’s £100 million revolving
credit facility with HSBC was extended by
one year to November 2025 and at 30 June
2023 the weighted average term to expiry on
the Group’s total committed loan facilities
was 6.2 years (30 June 2022: 6.9 years)
In November 2022, the Group acquired
a 3% SONIA interest rate cap, covering
£50 million of the Group’s revolving credit
facilities. £230million of the £320 million
available debt was drawn at 30 June 2023,
at a weighted average cost, inclusive of
amortisation of loan arrangement costs, of
3.70%. £180 million of the drawn debt was
fixed prior to the significant rise in interest
rates seen in the second half of 2022.
The Group retains flexibility on debt levels,
with £90 million of the Group’s revolving
credit facilities available to be drawn/repaid
in line with capital requirements. If drawn,
appropriate hedging protection will be
considered.
Debt facilities are considered prudent with
LTV of 24.7%, weighted average term of
6.2 years and all debt drawn at 30 June 2023
being hedged against further interest rate
increases.
Debt analysis
Debt Provider Facility Size Debt Type Drawn at 30 June 2023 Maturity
Phoenix Group £150m Term debt £150m (fixed rate) Jan 2032 – £87m
Jan 2037 – £63m
RBS £70m £30m Term debt, £40m revolving credit facility £30m (hedged) Nov 2025
HSBC £100m Revolving credit facility £50m (hedged) Nov 2025
Total £320m £230m
£150m
£30m
£40m
£50m
£50m
Debt facilities at 30 June 2023
Phoenix – Drawn
RBS – Drawn
RBS – Undrawn
HSBC – Drawn
HSBC – Undrawn
Hedged
Unhedged
£0m
£180m
£160m
£140m
£120m
£100m
£80m
£60m
£40m
£20m
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037
Maturity of debt facilities
RBS HSBC Phoenix Group
Adjusted EPRA EPS
+19%
Adjusted EPRA earnings
+23%
22 Target Healthcare REIT plc
Our Strategy continued
Strategic Pillar #4
To achieve our social purpose.
ESG Principles What this means for Target SDGs What we did in 2023 What we’ll do in 2024 and beyond
1. Responsible
investment
As an investor we understand
that our actions have influence.
We use our platform to lead by
example through embedding
appropriate ESG considerations
into our decision-making.
Leading in social impact for care home real estate
• We understand the importance of maintaining a portfolio that supports the needs
and well-being of residents, our tenants and their staff, which in turn contributes
to the long-term sustainability of social care infrastructure in the UK.
Social
• Development commitments for 262 new beds
as at year-end.
• 66 new beds construction completed in year.
• 98% wet-rooms.
• Homes provide space of 47m
2
per resident.
• All real estate has generous social and useable
outdoor space.
Social
• Continue to advocate for quality real estate.
• Continue to fund new homes, modernising
the sector’s real estate.
Energy and climate change: Responsible acquisitions and portfolio management
• Energy efficiency is a specific consideration in our investment analysis for acquisitions,
developments and portfolio management decisions.
• In our role as a responsible landlord we are committed to helping our tenants identify
and implement energy reduction and efficiency measures.
Energy
• 100% A-C EPC ratings.
• Increased data collection to obtain portfolio coverage
of 75% electricity and 79% gas usage.
• Used this data to benchmark energy usage and identify
outlier homes – providing insightful feedback to tenants.
• Further used the data to target green building
enhancements with £1 million of funding allocated to
solar PV panels, delivering 20% CO
2
reduction per home.
• External specialist engaged with carbon technical skills
to guide in setting tangible and measurable targets by
way of a steps plan to Net Zero.
Energy
• Continue data analysis to best target portfolio
enhancements.
• Assess ongoing asset reviews and certifications
(i.e. EPCs, BREEAMs) to initiate improvement
programmes where aligned with long-term value.
• Increase proportion of leases with “green”
reporting provisions to gather more data on energy
consumption patterns from our tenants for use in
decision-making.
2. Responsible
partnerships
We engage with all our
stakeholders to drive the
creation of economic, social
and environmental value around
our buildings and in wider society.
Tenant selection, engagement and collaboration
• As a responsible, proactive landlord we prioritise good, open relationships with our tenants,
sharing best practice.
• We make sure that we solicit, assess and respond to feedback on our portfolio and our
behaviours to ensure carers are respected and residents are cared for with dignity.
• We select tenants who share our care ethos and can deliver operationally.
Tenants
• 10/10 “positive experience” satisfaction score.
• Reprised hosting of tenant event with focus on
knowledge sharing and best practice.
Tenants
• Invest in fully understanding and responding
to feedback from tenant survey.
Communities and society
• We fully appreciate the vital role that care homes play in every community, and take decisions
in the best interest of maintaining continuity of care for residents.
• Advocate for and support the sector.
Communities
• Re-tenanted homes with new tenants committed to
continuing care provision where required.
• Worked constructively with tenants in rental arrears to
deliver positive solutions to maintain continuity of care.
Communities
• Continue to prioritise the provision of modern
real estate and continuity of services across
our portfolio.
3. Responsible
business
We will treat all stakeholders with
respect and deal fairly in a manner
consistent with how we would
expect to be treated ourselves.
Governance and transparency
• We uphold the highest ethical standards and adhere to best practice in every aspect
of our business.
• Our governance and behaviour treat transparency for all of our stakeholders as core.
People, culture and wellbeing
• We encourage employment practices across our key service providers that reflect
our core values, with a focus on wellbeing, fairness and opportunity for all.
Governance and transparency
• Undertook director recruitment process resulting
in Michael Brodtman and Richard Cotton being
appointed during the year.
• Investment Manager successfully retained position
as a signatory to the FRC Stewardship Code.
• £1.3 million taxation directly paid to the UK government
by way of VAT and stamp duty land taxes. Dividends
paid of £40.1 million are assessed for tax upon
reaching shareholders.
• Inaugural ESG report issued with enhanced disclosures.
Governance and transparency
• ESG committee will continue to provide
momentum to the Group’s carbon reduction
investment and sustainability reporting.
23Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
ESG Principles What this means for Target SDGs What we did in 2023 What we’ll do in 2024 and beyond
1. Responsible
investment
As an investor we understand
that our actions have influence.
We use our platform to lead by
example through embedding
appropriate ESG considerations
into our decision-making.
Leading in social impact for care home real estate
• We understand the importance of maintaining a portfolio that supports the needs
and well-being of residents, our tenants and their staff, which in turn contributes
to the long-term sustainability of social care infrastructure in the UK.
Social
• Development commitments for 262 new beds
as at year-end.
• 66 new beds construction completed in year.
• 98% wet-rooms.
• Homes provide space of 47m
2
per resident.
• All real estate has generous social and useable
outdoor space.
Social
• Continue to advocate for quality real estate.
• Continue to fund new homes, modernising
the sector’s real estate.
Energy and climate change: Responsible acquisitions and portfolio management
• Energy efficiency is a specific consideration in our investment analysis for acquisitions,
developments and portfolio management decisions.
• In our role as a responsible landlord we are committed to helping our tenants identify
and implement energy reduction and efficiency measures.
Energy
• 100% A-C EPC ratings.
• Increased data collection to obtain portfolio coverage
of 75% electricity and 79% gas usage.
• Used this data to benchmark energy usage and identify
outlier homes – providing insightful feedback to tenants.
• Further used the data to target green building
enhancements with £1 million of funding allocated to
solar PV panels, delivering 20% CO
2
reduction per home.
• External specialist engaged with carbon technical skills
to guide in setting tangible and measurable targets by
way of a steps plan to Net Zero.
Energy
• Continue data analysis to best target portfolio
enhancements.
• Assess ongoing asset reviews and certifications
(i.e. EPCs, BREEAMs) to initiate improvement
programmes where aligned with long-term value.
• Increase proportion of leases with “green”
reporting provisions to gather more data on energy
consumption patterns from our tenants for use in
decision-making.
2. Responsible
partnerships
We engage with all our
stakeholders to drive the
creation of economic, social
and environmental value around
our buildings and in wider society.
Tenant selection, engagement and collaboration
• As a responsible, proactive landlord we prioritise good, open relationships with our tenants,
sharing best practice.
• We make sure that we solicit, assess and respond to feedback on our portfolio and our
behaviours to ensure carers are respected and residents are cared for with dignity.
• We select tenants who share our care ethos and can deliver operationally.
Tenants
• 10/10 “positive experience” satisfaction score.
• Reprised hosting of tenant event with focus on
knowledge sharing and best practice.
Tenants
• Invest in fully understanding and responding
to feedback from tenant survey.
Communities and society
• We fully appreciate the vital role that care homes play in every community, and take decisions
in the best interest of maintaining continuity of care for residents.
• Advocate for and support the sector.
Communities
• Re-tenanted homes with new tenants committed to
continuing care provision where required.
• Worked constructively with tenants in rental arrears to
deliver positive solutions to maintain continuity of care.
Communities
• Continue to prioritise the provision of modern
real estate and continuity of services across
our portfolio.
3. Responsible
business
We will treat all stakeholders with
respect and deal fairly in a manner
consistent with how we would
expect to be treated ourselves.
Governance and transparency
• We uphold the highest ethical standards and adhere to best practice in every aspect
of our business.
• Our governance and behaviour treat transparency for all of our stakeholders as core.
People, culture and wellbeing
• We encourage employment practices across our key service providers that reflect
our core values, with a focus on wellbeing, fairness and opportunity for all.
Governance and transparency
• Undertook director recruitment process resulting
in Michael Brodtman and Richard Cotton being
appointed during the year.
• Investment Manager successfully retained position
as a signatory to the FRC Stewardship Code.
• £1.3 million taxation directly paid to the UK government
by way of VAT and stamp duty land taxes. Dividends
paid of £40.1 million are assessed for tax upon
reaching shareholders.
• Inaugural ESG report issued with enhanced disclosures.
Governance and transparency
• ESG committee will continue to provide
momentum to the Group’s carbon reduction
investment and sustainability reporting.
24 Target Healthcare REIT plc
Risk Report
Risk
Description of risk and factors
affecting risk rating
Mitigation
Risk rating
& change
Poor
performance
of assets
There is a risk that a tenant’s business could
become unsustainable if it fails to trade
successfully. This could lead to a loss of income for
the Group and an adverse impact on the Group’s
results and shareholder returns. The strategy
of investing in new purpose-built care homes
could lead to additional fill-up risk and there may
be a limited amount of time that small regional
operators can fund start-up losses.
The Investment Manager focuses on tenant
diversification across the portfolio and, considering
the local market dynamics for each home, focuses
on ensuring that rents are set at sustainable levels.
Rent deposits or other guarantees are sought,
where appropriate, to provide additional security
for the Group. The Investment Manager has
ongoing engagement with the Group’s tenants
to proactively assist and monitor performance.
High
High inflationary
environment
An increase in the UK inflation rate to a level above
the rent review caps in place across the portfolio’s
long-term leases may result in a real term decrease
in the Group’s income and be detrimental to
its performance. In addition, cost increases for
tenants, particularly in relation to staffing and
utilities, may erode their profitability and rent
cover unless their revenue increases accordingly.
The Group’s portfolio includes inflation-linked
leases, with primarily annual upwards-only rent
reviews within a cap and collar. The Manager
is monitoring tenant performance, including
whether average weekly fees paid by the
underlying diversified mix of publicly funded
and private-fee paying residents are growing
in line with inflation.
High
Adverse interest
rate fluctuations/
debt covenant
compliance
Adverse interest rate fluctuations will increase the
cost of the Group’s variable rate debt facilities; limit
borrowing capacity; adversely impact property
valuations; and be detrimental to the Group’s
overall returns.
The Group has a conservative gearing strategy,
although net gearing is anticipated to increase as
the Group nears full investment. Loan covenants
and liquidity levels are closely monitored for
compliance and headroom. The Group has fixed
interest costs on £230 million of borrowings as at
30 June 2023.
Medium
Development
costs
The high inflationary environment, particularly for
building materials and staff, combined with supply
chain difficulties, may result in an increased risk that
the developers of contracted developments do not
fulfil their obligations and/or may increase the cost
of new development opportunities.
The Group is not significantly exposed to
development risk, with forward funded
acquisitions being developed under fixed price
contracts, with the Investment Manager having
considered both the financial strength of the
developer and the ability of the developer’s
profit to absorb any cost overruns.
Medium
Negative
perception of
the care home
sector
A negative perception of the care home sector,
due to matters such as societal trends, pandemic
or safeguarding failures, or difficulties in accessing
social care, may result in a reduction in demand for
care home beds, causing asset performance to fall
below expectations despite the demographic shifts
and the realities of needs-based demand in the
sector. The resultant reputational damage could
impact occupancy levels and rent covers across
the portfolio.
The Group is committed to investing in high
quality real estate with high quality operators.
These assets are expected to experience demand
ahead of the sector average while in the wider
market a large number of care homes without
fit-for-purpose facilities are expected to close.
A trend of improving occupancy rates across
the portfolio has been noted in recent times.
Medium
ESG and climate
change
A change in climate, such as an increased risk of
local or coastal flooding, or a change in tenant/
investor demands or regulatory requirements for
properties which meet certain environmental
criteria, such as integral heat pumps, may result
in a fall in demand for the Group’s properties,
reducing rental income and/or property valuations.
The Group is committed to investing in high
quality real estate with high quality operators.
The portfolio’s EPC and BREEAM in-use ratings
suggest the portfolio is well positioned to meet
future requirements/expectations. The Investment
Manager has introduced a house standard to ensure
ESG factors are fully considered during the
acquisition process.
Medium
Principal and emerging
risks and risk management.
25Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
Risk
Description of risk and factors
affecting risk rating
Mitigation
Risk rating
& change
Reduced
availability of
carers, nurses
and other care
home staff
The combined impacts of the pandemic and
increased employment and wage inflation in
competing sectors has reduced the availability
of key staff in the care sector which may result in
a reduction in the quality of care for underlying
residents, restrict tenants from being able to admit
residents or result in wage inflation.
The Group is committed to investing in high
quality real estate with high quality operators and
these should be better placed to attract staff. The
Investment Manager continues to engage with
tenants in the portfolio and to share examples of
best practice in recruitment and retention of staff.
Medium
Breach
of REIT
regulations
A breach of REIT regulations, primarily in relation
to making the necessary level of distributions,
may result in loss of tax advantages derived from
the Group’s REIT status. The Group remains fully
compliant with the REIT regulations and is fully
domiciled in the UK .
The Group’s activities, including the level of
distributions, are monitored to ensure all conditions
are adhered to. The REIT rules are considered
during investment appraisal and transactions
structured to ensure conditions are met.
Medium
Changes in
government
policies
Changes in government policies, including
those affecting local authority funding of care,
may render the Group’s strategy inappropriate.
Secure income and property valuations will be at
risk if tenant finances suffer from policy changes.
Government policy is monitored by the Group
to increase the ability to anticipate changes. The
Group’s tenants also typically have a multiplicity
of income sources, with their business models
not wholly dependent on government funding.
Medium
Availability
of capital
Without access to equity or debt capital, the Group
may be unable to grow through acquisition of
attractive investment opportunities. This is likely
to be driven by both investor demand and lender
appetite which will reflect Group performance,
competitor performance, general market conditions
and the relative attractiveness of investment in UK
healthcare property.
The Group maintains regular communication
with investors and existing debt providers,
and, with the assistance of its broker and
sponsor, regularly monitors the Group’s capital
requirements and investment pipeline alongside
opportunities to raise both equity and debt.
During the year, the Group has extended its
£100m RCF facility with HSBC by one year.
Medium
Reliance on
third party
service
providers
The Group is externally managed and, as
such, relies on a number of service providers.
Poor quality service from providers such as the
Investment Manager, company secretary, broker,
legal advisers or depositary could have potentially
negative impacts on the Group’s investment
performance, legal obligations, compliance
or shareholder relations.
The Investment Manager, along with all other
service providers, is subject to regular performance
appraisal by the Board. The Manager has retained
key personnel since the Group’s IPO and has
successfully hired further skilled individuals and
invested in its systems.
Medium
Failure to
differentiate
qualities from
competitors or
poor investment
performance
Failing to differentiate strategy and qualities from
competitors is a significant risk for the business,
with increased competition in the healthcare real
estate sector. The failure to communicate these
effectively to stakeholders could have a negative
impact on the Company’s share price, future
demand for equity raises and/or debt finance
and wider reputational damage.
The stakeholder communications strategy of the
Group has always been to highlight the quality of the
real estate in which the Group invests. The regular
production of investor relations materials (annual
and interim reports, investor presentations and
quarterly factsheets) along with direct engagement
with investors helps to mitigate this risk.
Medium
Strategic objectives Risk trend
To grow a
robust portfolio
Risk
increased
Risk
unchanged
Risk
decreased
Dividend
focus
Specialist,
engaged manager
Responsible
investment
The Company’s risk matrix is reviewed regularly by the Board as detailed on page 46. Emerging risks are identified though regular discussion at
Board meetings of matters relevant to the Company and the sectors in which it operates; including matters that may impact on the underlying
tenant operators. In addition, the Board holds an annual two-day strategy meeting which includes presentations from relevant external parties
to ensure that the Board are fully briefed on relevant matters. At the strategy meeting, principal and emerging risks are discussed and reviewed
to ensure that they have all been appropriately identified and, where necessary, addressed.
The detailed consideration of the Company’s viability and its continuation as a going concern, including sensitivity analysis to address the
appropriate risks, is set out on pages 34 and 35.
26 Target Healthcare REIT plc
Section 172 Statement
Promoting the success of
Target Healthcare REIT plc.
The Board considers that it has made decisions during the year which will promote
the success of the Group for the benefit of its members as a whole.
This section, which serves as the Company’s section 172 statement, explains how the Directors have had regard to the matters set out
in section 172 (1) (a)-(f) of the Companies Act 2006 for the financial year to 30 June 2023, taking into account the likely long-term
consequences of decisions and the need to foster relationships with all stakeholders in accordance with the AIC Code.
(a) The likely consequences of
any decision in the long term
Our investment approach is long-term with an average lease length of 26.5 years. We believe this
is the most responsible approach to provide stability and sustainability to tenants and key stakeholders.
Therefore, most decisions require consideration of long-term consequences, from determining a
sustainable rent level and the right tenant partner for each investment, to considering the impact
of debt and key contracts with service providers on the recurring earnings which support dividends
to shareholders.
(b) The interests of the Company’s
employees
The Company is externally managed and therefore has no employees.
(c) The need to foster the Company’s
business relationships with
suppliers, customers and others
As a REIT with no employees, the Board works in close partnership with the Manager, which runs
the Group’s operations and portfolio within parameters set by the Board and subject to appropriate
oversight. The Manager has deep relationships with tenants, the wider care home sector, and many
of the Group’s other suppliers. These are set out in more detail in the following table.
(d) The impact of the Company’s
operations on the community
and the environment
The Board is confident the Group’s approach to investing in a sensitive sector is responsible with
regard to social and environmental impact. This is set out in more detail in the community and the
environment section of the table on the following page.
(e) The desirability of the Company
maintaining a reputation for high
standards of business conduct
The Board requires high standards of itself, service providers and stakeholders. The Group’s purpose
and investment objectives dictate that these standards are met in order to retain credibility. The ethos
and tone is set by the Board and the Manager.
(f) The need to act fairly as between
members of the Company
The Board encourages an active dialogue with shareholders to ensure effective communication,
either directly or via its broker and/or Manager. The interests of all shareholders are considered
when issuing new shares.
The significant transactions where the interests of stakeholders were actively considered by the Board during the year were:
Dividends paid
The Board recognised the importance
of dividends to its shareholders and, after
careful analysis of the Group’s forecast
net revenue concluded that it was in the
interests of all stakeholders to reduce the
Company’s dividend to a level at which it
is expected to be fully covered with the
potential for growth.
Ongoing investment and
asset management activity
The Group acquired two new development
sites, including one in July 2023. The new,
high-quality beds which will be added to
the market when these developments
complete, combined with the Group’s
asset management activities to increase the
percentage of wet rooms in the property
portfolio to 98% and add further beds at
another of the Group’s properties, illustrate
the Group’s intent of improving the overall
level of care home real estate in the UK. This
approach targets attractive long-term returns
to shareholders by focusing on a sustainable
and ‘future proofed’ sector of the care home
market. The latest development site acquired
is for a care home to be built to exceptional
ESG standards, with the highest certifications
anticipated, which will offer carbon net-zero
operational ability.
The sale of four homes in Northern
Ireland was completed in the year. This
followed the successful re-tenanting of the
properties in the prior year and crystallised
an annualised ungeared IRR in excess of 10%
over the period of ownership. The disposal
represented a full exit from the Northern Irish
market and formed part of the Group’s wider
capital recycling and asset management
strategy. The Group also sold a non-core
asset that had been acquired as part of the
18-home portfolio in the prior year.
Capital financing
The Group extended its loan facility with
HSBC plc by a further year, to November
2025 and entered into an interest rate cap on
the £50 million of this facility currently drawn
in order to reduce the Group’s exposure to
rising interest rates on its borrowings.
Director appointments
During the year, as part of the Board
succession plan, Mr Cotton and
Mr Brodtman were appointed as Directors.
Mr Cotton’s experience of real estate
corporate finance and Mr Brodtman’s
extensive knowledge of the property sector
is expected to benefit all stakeholders over
the period of their respective appointments.
These appointments complete the Board’s
succession plan for the medium term.
27Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
Stakeholders
The Company is a REIT and has no executive directors or employees and is governed by the Board of Directors. Its main stakeholders are
shareholders, tenants and their underlying residents, debt providers, the Investment Manager, other service providers and the community and
the environment. The Board considers the long-term consequences of its decisions on its stakeholders to ensure the long term sustainability
of the Company.
Shareholders
Shareholders are key stakeholders and the Board proactively seeks the views of its shareholders and places great
importance on communication with them.
The Board reviews the detail of significant shareholders and recent movements at each Board Meeting and receives
regular reports from the Investment Manager and Broker on the views of shareholders, and prospective shareholders,
as well as updates on general market trends and expectations. The Chair and other Directors make themselves
available to meet shareholders when required to discuss the Group’s business and address shareholder queries.
The Directors make themselves available at the AGM in person, with the Company also providing the ability for any
questions to be raised with the Board by email in advance of the meeting.
The Company and Investment Manager also provide regular updates to shareholders and the market through the
Annual Report, Interim Report, regular RNS announcements (including the quarterly NAV), quarterly investor reports
and the Company’s website. The Investment Manager intends to hold a results presentation on the day of publication
of the Annual Report, as undertaken for the first time in October 2022, and will also meet with analysts and members
of the financial press.
Tenants and
underlying residents
As set out in more detail on pages 18 and 19, the Investment Manager liaises closely with tenants to understand their
needs, and those of their underlying residents, through visits to properties and regular communication with both care
home personnel and senior management of the tenant operators. The effectiveness of this engagement is assessed
through an annual survey.
The Investment Manager also receives, and analyses, management information provided by each tenant at least
quarterly and regularly monitors the CQC, or equivalent, rating for each home and any online reviews, such as
carehome.co.uk. Any significant matters are discussed with the tenant and included within the Board reporting.
Debt providers
The Group has term loan and revolving credit facilities with the Royal Bank of Scotland plc, HSBC Bank plc and
Phoenix Group (see Note 13 to the Consolidated Financial Statements for more information). The Company maintains
a positive working relationship with each of its lenders and provides regular updates, at least quarterly, on portfolio
activity and compliance with its loan covenants in relation to each loan facility.
Investment Manager
The Investment Manager has responsibility for the day-to-day management of the Group pursuant to the Investment
Management Agreement. The Board, and its committees, are in regular communication with the Investment
Manager and receive formal presentations at every Board Meeting to aid its oversight of the Group’s activities and the
formulation of its ongoing strategy.
The Board, through the Management Engagement Committee, formally reviews the performance of the Investment
Manager, the terms of its appointment and the quality of the other services provided at least annually. Further details
on this process and the conclusions reached in relation to the year ended 30 June 2023 are contained on page 41.
Other service
providers
The Board, through the Management Engagement Committee, formally reviews the performance of each of its
significant service providers at least annually. The reviews will include the Company’s legal advisers, brokers, tax
advisers, auditors, depositary, valuers, company secretary, insurance broker, surveyors and registrar. The purpose of
the review is to ensure that the quality of the service provided remains of the standard expected by the Board and
that overall costs and other contractual arrangements remain in the interests of the Group and other significant
stakeholders. The Investment Manager also reports regularly to the Board on these relationships.
The significant other service providers, particularly the Group’s legal advisers and brokers, are invited to attend Board
Meetings and report directly to the Directors where appropriate.
Community and
the environment
The Group’s principal non-financial objective is to generate a positive social impact for the end-users of its real estate.
Investment decisions are made based on the fundamental premise that the real estate is suitable for its residents, the staff
who care for them, and their friends, families and local communities, both on original acquisition and for the long-term.
Environmental considerations are an integral part of the acquisition and portfolio management process, given the
strategy of only acquiring modern buildings which benchmark well from an energy efficiency aspect. The Group’s ESG
strategy is currently prioritising the gathering of useful energy/consumption data on its portfolio which will be used to
align the portfolio appropriately with benchmarks over the medium and longer term. During the year, the Group has
improved its ESG reporting through the introduction of its annual Sustainability Report, first published in March 2023,
and through collating, submitting and publishing data under the GRESB benchmark standards. Under the remit of the
newly established ESG Committee, the Board has encouraged the further development of the Investment Manager’s
property-by-property asset management plan to identify areas where the energy efficiency and carbon emissions of
the Group’s property portfolio can be further improved and approved an initial budget to action initiatives identified.
On behalf of the Board
Alison Fyfe
Chair
9 October 2023
28 Target Healthcare REIT plc
Board of Directors
Our experienced
and knowledgeable
Board are responsible
for the effective
stewardship of the
Company.
ALISON FYFE MICHAEL BRODTMAN RICHARD COTTON VINCE NIBLETT DR AMANDA THOMPSELL
Independent Non-Executive Chair Independent Non-Executive Director Independent Non-Executive Director and
Senior Independent Director
Independent Non-Executive Director and
Chair of Audit Committee
Independent Non-Executive Director
Ms Fyfe is a highly experienced property
professional with 35 years of experience in
surveying, banking and property finance. Having
trained and worked as a commercial surveyor
with Knight Frank in both London and Edinburgh,
she joined the Royal Bank of Scotland in 1996 to
specialise in property finance. Over a period of
19 years with the bank she fulfilled several senior
property finance roles, ultimately serving for
five years as Head of Real Estate Restructuring
in Scotland before leaving the bank in 2015.
She has subsequently acted as a director of
a number of companies in the property and
debt finance sectors. In August 2021, she was
elected as a Governing Board Member of
Hillcrest Homes (Scotland).
Ms Fyfe is a member of the Royal Institution of
Chartered Surveyors, a member of the Investment
Property Forum and a former Policy Board
member of the Scottish Property Federation.
Mr Brodtman has extensive knowledge of the
property sector. He worked for global property
advisers CBRE for over 40 years, retiring as
chairman of the UK Advisory division in June
2022. He led the firm’s Valuation department
for over 20 years, and served on its Executive
Board and Operating Committee, respectively
responsible for strategic direction and day-to-day
management.
He is a Fellow of the Royal Institution of
Chartered Surveyors, and has been extensively
involved with the RICS throughout his
professional career. He was formerly a
member of the Policy Committee of the British
Property Federation, the RICS Global Valuation
Professional Board and the Bank of England
Commercial Property Forum.
Mr Brodtman is currently a non-executive director
of Grainger plc, a listed residential property
company, and has further Board experience as
a former non-executive director of Investment
Property Databank and housing association
Places for People. He is keenly interested in
the healthcare sector, with relevant experience
from his role as a Trustee of Jewish Care,
which provides health and social care services
for London’s Jewish Community, including
ten care homes with some 500 residents.
Mr Cotton has over 40 years of experience in
the property sector and headed the real estate
corporate finance team at JP Morgan Cazenove
until April 2009. Subsequently he was a
managing director of Forum Partners and
chairman of Centurion Properties.
He has wide corporate experience as a former
non-executive director of Hansteen plc and
including advisory roles with Lloyds Bank and
Transport for London.
Mr Cotton is currently the chairman of Helical plc
and a consultant to Big Yellow Group plc, where
he served as a non-executive director from 2012
until 2022.
Mr Niblett has many years of financial and
commercial experience having been the Global
Managing Partner Audit for Deloitte. He held a
number of senior leadership roles within Deloitte
including as a member of the UK Board of
Partners and of the Global Executive Group and
the UK Executive Group before his retirement
from Deloitte in May 2015. During his career at
Deloitte, Mr Niblett served some of the firm’s
most significant public company clients, working
with them on commercial and strategic issues as
well as providing audit services.
Mr Niblett is an independent non-executive
director and chairman of the audit committee of
Forterra plc and an independent non-executive
director and senior independent director of
Big Yellow Group plc.
Mr Niblett also serves as a trustee of the
Ruth Strauss Foundation.
Dr Thompsell trained and originally practised
as a GP before switching to working in old age
hospital medicine, and then retraining in old age
psychiatry. She has significant clinical experience
of all aspects of caring for older people and has
held a number of clinical and national leadership
roles allowing her to develop a comprehensive
knowledge of the care home sector. This
included 17 years at the South London and
Maudsley NHS Foundation Trust, where she led
a multidisciplinary team supporting care homes
for seven years and was the clinical lead for
long-stay older people’s mental health unit for
a further five years.
Dr Thompsell is the National Specialist Advisor:
Older People’s Mental Health at NHS England,
a member of the advisory board to the Journal
of Dementia Care and a Medical Member of the
First Tier Tribunal at the UK Ministry of Justice.
She is also the previous chair of the Faculty of
Old Age Psychiatry of the Royal College
of Psychiatrists.
Date of appointment
1 May 2020 1 January 2023 1 November 2022 25 August 2021 1 February 2022
Country of residence
UK UK UK UK UK
Independent
Yes Yes Yes Yes Yes
Other public company directorships
None Grainger plc Helical plc Big Yellow Group plc
Forterra plc
None
Committee membership
Investment Committee (Chair)
Management Engagement Committee (Chair)
Nomination Committee (Chair)
Audit Committee
ESG Committee
Remuneration Committee
ESG Committee (Chair)
Audit Committee
Investment Committee
Management Engagement Committee
Nomination Committee
Remuneration Committee
Audit Committee
ESG Committee
Investment Committee
Management Engagement Committee
Nomination Committee
Remuneration Committee
Audit Committee (Chair)
ESG Committee
Investment Committee
Management Engagement Committee
Nomination Committee
Remuneration Committee
Remuneration Committee (Chair)
Audit Committee
ESG Committee
Investment Committee
Management Engagement Committee
Nomination Committee
29Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
ALISON FYFE MICHAEL BRODTMAN RICHARD COTTON VINCE NIBLETT DR AMANDA THOMPSELL
Independent Non-Executive Chair Independent Non-Executive Director Independent Non-Executive Director and
Senior Independent Director
Independent Non-Executive Director and
Chair of Audit Committee
Independent Non-Executive Director
Ms Fyfe is a highly experienced property
professional with 35 years of experience in
surveying, banking and property finance. Having
trained and worked as a commercial surveyor
with Knight Frank in both London and Edinburgh,
she joined the Royal Bank of Scotland in 1996 to
specialise in property finance. Over a period of
19 years with the bank she fulfilled several senior
property finance roles, ultimately serving for
five years as Head of Real Estate Restructuring
in Scotland before leaving the bank in 2015.
She has subsequently acted as a director of
a number of companies in the property and
debt finance sectors. In August 2021, she was
elected as a Governing Board Member of
Hillcrest Homes (Scotland).
Ms Fyfe is a member of the Royal Institution of
Chartered Surveyors, a member of the Investment
Property Forum and a former Policy Board
member of the Scottish Property Federation.
Mr Brodtman has extensive knowledge of the
property sector. He worked for global property
advisers CBRE for over 40 years, retiring as
chairman of the UK Advisory division in June
2022. He led the firm’s Valuation department
for over 20 years, and served on its Executive
Board and Operating Committee, respectively
responsible for strategic direction and day-to-day
management.
He is a Fellow of the Royal Institution of
Chartered Surveyors, and has been extensively
involved with the RICS throughout his
professional career. He was formerly a
member of the Policy Committee of the British
Property Federation, the RICS Global Valuation
Professional Board and the Bank of England
Commercial Property Forum.
Mr Brodtman is currently a non-executive director
of Grainger plc, a listed residential property
company, and has further Board experience as
a former non-executive director of Investment
Property Databank and housing association
Places for People. He is keenly interested in
the healthcare sector, with relevant experience
from his role as a Trustee of Jewish Care,
which provides health and social care services
for London’s Jewish Community, including
ten care homes with some 500 residents.
Mr Cotton has over 40 years of experience in
the property sector and headed the real estate
corporate finance team at JP Morgan Cazenove
until April 2009. Subsequently he was a
managing director of Forum Partners and
chairman of Centurion Properties.
He has wide corporate experience as a former
non-executive director of Hansteen plc and
including advisory roles with Lloyds Bank and
Transport for London.
Mr Cotton is currently the chairman of Helical plc
and a consultant to Big Yellow Group plc, where
he served as a non-executive director from 2012
until 2022.
Mr Niblett has many years of financial and
commercial experience having been the Global
Managing Partner Audit for Deloitte. He held a
number of senior leadership roles within Deloitte
including as a member of the UK Board of
Partners and of the Global Executive Group and
the UK Executive Group before his retirement
from Deloitte in May 2015. During his career at
Deloitte, Mr Niblett served some of the firm’s
most significant public company clients, working
with them on commercial and strategic issues as
well as providing audit services.
Mr Niblett is an independent non-executive
director and chairman of the audit committee of
Forterra plc and an independent non-executive
director and senior independent director of
Big Yellow Group plc.
Mr Niblett also serves as a trustee of the
Ruth Strauss Foundation.
Dr Thompsell trained and originally practised
as a GP before switching to working in old age
hospital medicine, and then retraining in old age
psychiatry. She has significant clinical experience
of all aspects of caring for older people and has
held a number of clinical and national leadership
roles allowing her to develop a comprehensive
knowledge of the care home sector. This
included 17 years at the South London and
Maudsley NHS Foundation Trust, where she led
a multidisciplinary team supporting care homes
for seven years and was the clinical lead for
long-stay older people’s mental health unit for
a further five years.
Dr Thompsell is the National Specialist Advisor:
Older People’s Mental Health at NHS England,
a member of the advisory board to the Journal
of Dementia Care and a Medical Member of the
First Tier Tribunal at the UK Ministry of Justice.
She is also the previous chair of the Faculty of
Old Age Psychiatry of the Royal College
of Psychiatrists.
Date of appointment
1 May 2020 1 January 2023 1 November 2022 25 August 2021 1 February 2022
Country of residence
UK UK UK UK UK
Independent
Yes Yes Yes Yes Yes
Other public company directorships
None Grainger plc Helical plc Big Yellow Group plc
Forterra plc
None
Committee membership
Investment Committee (Chair)
Management Engagement Committee (Chair)
Nomination Committee (Chair)
Audit Committee
ESG Committee
Remuneration Committee
ESG Committee (Chair)
Audit Committee
Investment Committee
Management Engagement Committee
Nomination Committee
Remuneration Committee
Audit Committee
ESG Committee
Investment Committee
Management Engagement Committee
Nomination Committee
Remuneration Committee
Audit Committee (Chair)
ESG Committee
Investment Committee
Management Engagement Committee
Nomination Committee
Remuneration Committee
Remuneration Committee (Chair)
Audit Committee
ESG Committee
Investment Committee
Management Engagement Committee
Nomination Committee
30 Target Healthcare REIT plc
Experts in strategic,
responsible investment.
Investment Manager
The Investment Manager
The Group has appointed Target Fund Managers Limited (‘Target’ or the ‘Investment Manager’) as its investment manager pursuant to the
Investment Management Agreement. The Investment Manager is a limited company which is authorised and regulated by the FCA and has
the responsibility for the day-to-day management of the Group and advises the Group on the acquisition of its investment portfolio and on
the development, management and disposal of UK care homes and other healthcare assets in the portfolio. It comprises a team of experienced
individuals with expertise in the operation of and investment in healthcare property assets.
Alternative Investment Fund Managers Directive (‘AIFMD’)
The Board has appointed Target as the Group’s AIFM and Target has received FCA approval to act as AIFM of the Group. An additional requirement
of the AIFMD is for the Group to appoint a depositary, which oversees the property transactions and cash arrangements and other AIFMD
required depositary responsibilities. The Board has appointed IQ EQ Depositary Company (UK) Limited to act as the Company’s depositary.
Key personnel of the Investment Manager
The key personnel who are responsible for managing the Group’s activities are:
31Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
Kenneth MacKenzie MA CA
Kenneth MacKenzie is the founder and
Chief Executive of Target. He is a Chartered
Accountant with over 40 years of business
leadership experience with the last 17 in
healthcare. In addition to his responsibilities
as Target’s chief executive, Kenneth leads the
creation and management of Target’s client
funds and oversees fundraising and investor
liaison for the Group. In 2005, he led the
acquisition of Independent Living Services
(‘ILS’), Scotland’s largest independent
domiciliary care provider. Kenneth grew this
business by acquisition and put in place a
new senior management team before exiting
via a disposal to a private equity house.
Prior to his involvement with ILS, Kenneth
negotiated the proposed acquisition of a
UK independent living business in a JV with
the large US care home operator, Sunrise
Senior Living. Prior to his involvement in
the healthcare sector, Kenneth has owned
businesses in the publishing, IT, shipping and
accountancy sectors and he holds a number
of pro-bono charitable roles.
John Flannelly BAcc FCA
John Flannelly is Head of Investment at
Target. He is a Chartered Accountant with
over 20 years’ experience, the last seventeen
of which have been in real estate investment
management. He has primary responsibility
for investment activity across the Target
business. John has been involved in the
appraisal of several hundred care home
opportunities resulting in the acquisition of
more than 100 properties for those client
funds. Prior to joining Target, during his time
as investment director for an institutional
investor, John held board positions at a
UK top-10 care home operator and a care
home development business. John started
his career at Arthur Andersen where he
worked on audits, financial due diligence
and corporate finance projects before
moving to the Bank of Scotland initially to
structure finance packages for management
buy-outs and latterly to a role in real estate
investment management.
Andrew Brown
Andrew Brown is Head of Healthcare
at Target. His primary responsibilities
include inspecting properties owned by
Target’s client funds as well as prospective
acquisitions during due diligence. Target’s
in-house demographic and market analysis
is performed by his team. Andrew has spent
most of his life in the senior care sector.
Prior to his current role, he and his
family developed one of the largest and
most unique continuing care retirement
communities in the UK, Auchlochan Trust.
Andrew has played the role of developer,
builder and operator of care homes resulting
in a community of approximately 350 care
beds, almost 100 retirement properties and
a staff of over 300. These facilities included
both residential care homes and nursing
homes and Andrew was directly responsible
for operations. Auchlochan Trust was also
involved in Trinity Care plc as an investor.
Scott Steven MA
Scott Steven is Head of Asset Management
at Target. Scott joined Target in 2017 from
Lloyds Banking Group. Prior to joining
Target, Scott had been responsible for a
portfolio of Lloyds Banking Group’s loans to
large property groups, including care home
owners and operators. During 2018, Scott
took over the Head of Asset Management
role at Target, and holds responsibility for
tenant engagement and portfolio decision-
making with a team of healthcare and asset
management professionals.
Gordon Bland BAcc CA
Gordon Bland is Finance Director at
Target. He is a Chartered Accountant with
extensive experience of financial reporting
within the asset management industry. He
provides financial input to the strategic and
commercial activities of the senior team,
and leads the finance function where his key
responsibilities include: financial planning
and analysis; risk management; ownership
of relationships with debt providers,
treasury services; and financial reporting to
shareholders. Gordon previously worked
at PricewaterhouseCoopers for almost
ten years, serving asset management and
financial services clients in the UK, Canada
and Australia.
Donald Cameron BCom CA
Donald Cameron is Company Secretary
and Director of Financial Reporting at Target.
He is a Chartered Accountant with more
than eighteen years of experience of financial
reporting and company secretarial services
within the closed-ended investment company
sector. Having originally qualified with Deloitte
LLP, he then worked for over ten years in the
Investment Trust Company Secretarial team
at F&C Asset Management, acting for both
property and equity investment companies.
He is responsible for providing company
secretarial services to the Board and for
statutory financial reporting. He joined Target
in 2019, having provided similar services
to the Group for over three years whilst
working for Maitland Group, a third-party
provider of corporate secretarial and
administration services.
32 Target Healthcare REIT plc
Directors’ Report
The Directors present their report, along with the financial statements of the Group and Company on pages 60 to 90, for the year ended
30 June 2023.
The Directors consider that, following advice from the Audit Committee, the Annual Report and Consolidated Financial Statements taken
as a whole are fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position,
performance, business model and strategy. The Audit Committee has reviewed the Annual Report and Consolidated Financial Statements
for the purpose of this assessment. In reaching this conclusion, the Directors have assumed that the reader of the Annual Report and
Consolidated Financial Statements would have a reasonable level of knowledge of the investment industry in general and Real Estate
Investment Trusts in particular. The outlook for the Group can be found in the Chair’s Statement on pages 4 and 5 and the Investment
Manager’s Report on pages 14 and 15. Principal and emerging risks and uncertainties can be found on pages 24 and 25 with further
information in Note 16 to the Consolidated Financial Statements.
Results and Dividends
The results for the year are set out in the following Consolidated Financial Statements. The Group has paid four quarterly interim dividends,
totalling 6.18 pence per share, to shareholders in relation to the year ended 30 June 2023. Details of the dividends paid are set out in Note 7
to the Consolidated Financial Statements, and a breakdown of the distributions paid analysed between Property Income Distributions (‘PID’s’)
and Ordinary Dividends are provided on page 95.
The Company
The Company is registered as a Public Limited Company in terms of the Companies Act 2006 (Registered number: 11990238) and is an
investment company under section 833 of the Companies Act 2006.
The Target Healthcare REIT group was originally established in March 2013 and, following a scheme of arrangement to introduce a parent
company to the Group that was incorporated in the United Kingdom , the Company became the parent company of the Group in August
2019. The Company’s shares have been admitted to the premium segment of the Official List of the Financial Conduct Authority and to
trading on the Main Market of the London Stock Exchange. The Company is a constituent of the FTSE-250 Index.
The Company holds a number of wholly-owned subsidiaries, both directly and indirectly, details of which are set out in Note 11 to the
Consolidated Financial Statements and Note 3 to the Company Financial Statements. These subsidiary companies hold the majority of the
Group’s investment properties and loan facilities.
The Company is a member of the Association of Investment Companies (the ‘AIC’) and the European Public Real Estate Association (‘EPRA’).
Investment Objective
The Group’s investment objective is to provide shareholders with an attractive level of income together with the potential for capital and
income growth from investing in a diversified portfolio of freehold and long leasehold care homes that are let to care home operators; and
other healthcare assets in the UK.
Investment Policy
The Group pursues its objective by investing in a portfolio of care homes, predominantly in the UK, that are let to care home operators on
full repairing and insuring leases that are subject to annual uplifts based on increases in the UK retail prices index (subject to caps and collars)
or fixed uplifts. The Group is also able to generate up to 15 per cent of its gross income, in any financial year, from non-rental revenue or profit
related payments from care home operators under management contracts in addition to the rental income due under fully repairing and
insuring leases.
In order to spread risk and diversify its portfolio, the Group is also permitted to invest up to: (i) 15 per cent of its gross assets, at the time of
investment, in other healthcare assets, such as properties which accommodate GP practices and other healthcare related services including
occupational health and physiotherapy practices, pharmacies, special care schools and hospitals; and (ii) 25 per cent of its gross assets, at the
time of investment, in indirect property investment funds (including joint ventures) with a similar investment policy to that of the Group. The
Directors have no current intention to acquire other healthcare assets or indirect property investment funds. The Group may also acquire or
establish companies, funds or other SPVs which themselves own assets falling within the Group’s investment policy.
The Group may either invest in assets that require development or that are under development, which when completed would fall within the
Group’s investment policy to invest in UK care homes and other healthcare assets, including by means of the forward funding of developments
and forward commitments to purchase completed developments, provided that the Group will not undertake speculative development and
that the gross budgeted development costs to the Group of all such developments, including forward funding and forward commitments,
does not exceed 25 per cent of the Group’s gross assets on the commencement of the relevant development. Any development will only
be for investment purposes.
In order to manage risk in the portfolio, at the time of investment, no single asset shall exceed in value 20 per cent of the Group’s gross asset
value and, in any financial year beginning after the Group is fully invested, the rent received from a single tenant or tenants within the same
group (other than from central or local government, or primary health trusts) is not expected to exceed 30 per cent of the total income of
the Group, at the time of investment.
33Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
The Group will not acquire any asset or enter into any lease or related agreement if that would result in a breach of the conditions applying
to the Group’s REIT status.
The Group is permitted to invest cash held for working capital purposes and awaiting investment in cash deposits, gilts and money market funds.
Gearing, calculated as borrowings as a percentage of the Group’s gross assets, may not exceed 35 per cent at the time of drawdown. The
Board currently intends that, over the medium term, borrowings of the Group will represent approximately 25 per cent of the Group’s gross
assets at the time of drawdown. However, it is expected that Group borrowings will exceed this level from time to time as borrowings are
incurred to finance the growth of the Group’s property portfolio.
Any material change to the investment policy will require the prior approval of shareholders.
Dividend Policy
Subject to market conditions and the Company’s performance, financial position and financial outlook, it is the Directors’ intention to pay an
attractive level of dividend income to shareholders on a quarterly basis. In order to ensure that the Company continues to pay the required
level of distribution to maintain Group REIT status and to allow consistent dividends to be paid on a regular quarterly basis, the Board intends
to continue to pay all dividends as interim dividends. The Company does not therefore announce a final dividend. The Board believes this
policy remains appropriate to the Group’s circumstances and is in the best interests of shareholders.
Directors
Biographical details of the Directors, all of whom are non-executive, can be found on pages 28 and 29. As explained in more detail in the Corporate
Governance Statement on page 41, any new appointment by the Board is subject to election by shareholders at the Annual General Meeting (‘AGM’)
following the appointment. Thereafter the Board has agreed that all Directors will retire annually and, if appropriate, seek re-election.
In line with the Company’s stated Board succession plan, Mr Cotton was appointed to the Board with effect from 1 November 2022, with
Mr Naish and Mr Coull retiring from the Board at the conclusion of the AGM held on 6 December 2022. Ms Fyfe, Mr Niblett, Dr Thompsell
and Mr Cotton were each elected/re-elected at that AGM and, in line with the Company’s stated policy, each of these Directors will seek
annual re-election at the AGM to be held on 29 November 2023. Mr Brodtman was appointed to the Board with effect from 1 January 2023
and will be subject to election by shareholders at the forthcoming AGM.
Following the retirement of Mr Naish and Mr Coull, Ms Fyfe was appointed as Chair of the Company and Mr Cotton was appointed as the
Company’s Senior Independent Director, each with effect from 6 December 2022.
In relation to the appointments of Mr Cotton and Mr Brodtman, the Company appointed Fletcher Jones to provide external search consultancy
services for which they received an aggregate fee of £30,000 (plus VAT). In previous years, the Company has appointed Fletcher Jones to
provide external search consultancy services, to facilitate the Board appraisal process and to advise on the level of the Directors’ remuneration.
Neither the Company nor any of the individual Directors has any other connection with Fletcher Jones. Further details on the recruitment
process followed, including the Board’s policy in relation to diversity and tenure, are set out on pages 41 to 43.
The Directors believe that the Board has an appropriate balance of skills, experience, independence and knowledge of the Group to enable
it to provide effective strategic leadership and proper guidance of the Group. Whilst remaining cognisant of the need for regular refreshment
of the Board membership, the appointment of Mr Cotton and Mr Brodtman and the retirement of Mr Naish and Mr Coull has completed the
Board’s intended succession plan for the medium term. The Board would like to take the opportunity to thank Mr Naish and Mr Coull for their
committed service and expert guidance over the period since the Group’s launch in 2013, during which time the Company grew from a
modest £40 million of net assets to c.£700 million and became a constituent of the FTSE-250 Index.
The Board confirms that, following the evaluation process set out in the Corporate Governance Statement on page 43, the performance
of each of the Directors continues to be effective and demonstrates commitment to the role. It is also considered that each of the Directors
has sufficient time to meet their Board responsibilities. There are no service contracts in existence between the Company and any Director
but each of the Directors has been issued with, and accepted the terms of, a letter of appointment that sets out the main terms of his or her
appointment. Amongst other things, the letter includes confirmation that the Directors have a sufficient understanding of the Group and the
sector in which it operates, and sufficient time available to discharge their duties effectively taking into account their other commitments.
These letters are available for inspection upon request at the Company’s registered office.
Capital Structure and Voting Rights
Details of the Company’s share capital are set out in Note 15 to the Consolidated Financial Statements. Details of voting rights are also
set out in the Notes to the Notice of Annual General Meeting. There are no significant restrictions concerning the transfer of securities
in the Company (other than certain restrictions imposed by laws and regulations such as insider trading laws); no agreements known to
the Company concerning restrictions on the transfer of securities in the Company or on voting rights; and no special rights with regard
to control attached to securities. There are no significant agreements which the Company is a party to that might be affected by a change
of control of the Company following a takeover bid, provided following such bid the Company’s shares continue to be traded on the main
market of the London Stock Exchange.
The Group’s borrowings are detailed in Note 13 to the Consolidated Financial Statements.
34 Target Healthcare REIT plc
Directors’ Report continued
Substantial Interests in Share Capital
As at 30 June 2023, the Company had received notification of the following holdings of voting rights (under the Financial Conduct Authority’s
Disclosure Guidance and Transparency Rules):
Number of
Ordinary Shares
held
Percentage
held*
Blackrock, Inc 61,874,747 10.0**
Baillie Gifford & Co 25,358,041 4.1
Premier Miton Group plc 24,348,972 3.9
Alder Investment Management Limited 23,681,156 3.8
Investec Wealth & Investment Limited 23,385,150 3.8
CCLA Investment Management Limited 17,918,605 2.9
Rathbone Investment Management Limited 17,462,203 2.8
* Based on 620,237,346 ordinary shares in issue as at 30 June 2023.
** The Company is not aware, nor has it been notified, of any individual corporate shareholder(s), as germane to the Group’s compliance with the REIT regulations,
which were beneficially entitled to 10% or more of the Company’s share capital or which controlled 10% or more of the voting power in the Company.
As at 9 October 2023, the Company has not received notification of any changes in the holdings of voting rights (under the Financial Conduct
Authority’s Disclosure Guidance and Transparency Rules) compared with those above.
Share Issuance and Share Buy Backs
At the Annual General Meeting held on 6 December 2022, shareholders granted authority for the Company to issue up to 62,023,700
ordinary shares on a non-pre-emptive basis for cash. This equated to 10% of the shares in issue at the time of passing of the resolution.
As at 9 October 2023, the Company has not issued any shares under this authority. The authority will expire on the earlier of the conclusion
of the forthcoming Annual General Meeting, which is expected to be held on 29 November 2023, or 6 March 2024. It is expected that the
Company will continue to seek this authority on an annual basis.
At the Annual General Meeting held on 6 December 2022, shareholders granted authority for the Company to buy back up to 92,973,578
ordinary shares for cancellation or for holding in treasury. The Company did not buy back any shares under this authority, which will expire
at the conclusion of the forthcoming Annual General Meeting.
Statement of Disclosure of Information to Auditor
As far as the Directors are aware, there is no relevant audit information of which the Group’s auditor is unaware, and each Director has taken
all the steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit information and
to establish that the Group’s auditor is aware of that information.
Continuation Vote
In accordance with the Company’s Articles of Association, an ordinary resolution is required to be put to shareholders at the AGM to be held in
2027 and at every fifth annual general meeting thereafter to seek their approval to the continuation of the Company. If the continuance vote is
not passed, the Directors are required to convene a general meeting of the Company within six months thereafter at which a special resolution
will be proposed to either wind up voluntarily or reconstruct the Company. A resolution in relation to the continuation of the Company was
last proposed at the AGM held on 6 December 2022, in relation to which 100% of the votes cast were in favour of the resolution.
Going Concern
In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council.
They have considered the current cash position of the Group, forecast rental income and other forecast cash flows; taking into consideration
the potential impact of current economic conditions on both the Group and any increase in the likelihood that the tenants of its investment
properties will not be able to meet their contractual rental obligations on a timely basis. The Group has agreements relating to its borrowing
facilities with which it has complied during the year and the Board has considered the ability of the Group to fully draw, repay, refinance or
increase these facilities on, or before, their expected maturity date. The Directors also considered the Group’s exposure to rising interest rates,
with the interest rate on 100% of the Group’s drawn debt at 30 June 2023, and 95% of its drawn debt at 9 October 2023, being fixed until the
expiry of the relevant loan facility. The Directors have also considered the Group’s level of uninvested capital, the current status of the property
investment market and the Group’s pipeline of capital commitments and other investment opportunities. Based on all the information
considered, the Directors believe that the Group has the ability to meet its financial obligations as they fall due to 31 December 2024, which is
a period of at least twelve months from the date of approval of the financial statements. For this reason, the Board continue to adopt the going
concern basis in preparing the financial statements.
Viability Statement
The AIC Code requires the Board to assess the Group’s prospects, including a robust assessment of the emerging and principal risks facing
the Group including those that would threaten its business model, future performance, solvency or liquidity. This assessment is undertaken
with the aim of stating that the Directors have a reasonable expectation that the Group will continue in operation and be able to meet its
liabilities as they fall due over the period of their assessment.
The Board has conducted this review over a five-year time horizon, which is a period thought to be appropriate for a company investing in
UK care homes with a long-term investment outlook. At each Board Meeting, the Directors consider the key outputs from a detailed financial
model covering a similar five year rolling period, as this is considered the maximum timescale over which the performance of the Group can
be forecast with a reasonable degree of accuracy. At 30 June 2023, the Group had a property portfolio which has long leases and a weighted
35Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
average unexpired lease term of 26.5 years. The Group had drawn borrowings of £230.0 million, on which the interest rate had been fixed,
either directly or through the use of interest rate derivatives, at a maximum weighted interest rate of 3.52 per cent per annum (excluding the
amortisation of arrangement costs). The Group had access to a further £90.0 million of available debt under committed loan facilities which,
if drawn, would carry interest at a variable rate equal to SONIA plus 2.21%. The Group’s committed loan facilities have staggered expiry dates
with £170.0 million being committed to 5 November 2025, £87.3 million to 12 January 2032 and £62.7 million to 12 January 2037. Discussions
with existing and/or new potential lenders do not indicate any issues with re-financing these loans on acceptable terms in due course.
The Directors’ assessment of the Group’s principal risks are highlighted on pages 24 and 25. The most significant risks identified as relevant
to the viability statement were those relating to:
– Poor performance of assets: The risk that a tenant is unable to sustain a sufficient rental cover, leading to a loss of rental income for the Group;
– High inflationary environment: The risk that the level of the UK inflation rate results in a real term decrease in the Group’s income or erodes
the profitability of tenants;
– Adverse interest rate fluctuations: The risk that an increase in interest rates may impact property valuations, increase the cost of the Group’s
variable rate debt facilities, and/or limit the Group’s borrowing capacity;
– Negative perception of the care home sector reduces demand for care home beds: The risk that overall demand for care home beds is
reduced resulting in a decline in the capital and/or income return from the property portfolio; and
– Reduced availability of care home staff: The risk that unavailability of staff restricts the ability of tenants to admit residents or results in
significant wage cost inflation, impacting on the tenants’ rental cover and leading to a loss of rental income for the Group.
In assessing the Group’s viability, the Board has considered the key outputs from a detailed model of the Group’s expected cashflows over
the coming five years under both normal and stressed conditions. The stressed conditions, which were intended to represent severe but
plausible scenarios, included modelling increases in interest rates, movements in the capital value of the property portfolio and a significant
default on rental receipts from the Group’s tenants. The stressed level of default from the Group’s tenants assumed in the financial modelling
was based on a detailed assessment of the financial position of each individual tenant or tenant group, the structure in place to secure rental
income (such as the strength of tenants’ balance sheets, rental guarantees in place or rental deposits held) and included consideration of the
cumulative impact on each tenant’s financial reserves from recent economic conditions, including increasing staff and utilities costs and the
reduced level of resident occupancy experienced following the pandemic.
Based on the results of the scenario analysis outlined above, the Board has a reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the five year period of its assessment.
Audit Tender
The Company last undertook an audit tender in relation to the period from 1 July 2022, which resulted in a recommendation that the
incumbent auditors, Ernst & Young LLP be re-appointed as auditors. The Company will next be required to conduct a tender of audit services,
and a mandatory rotation of audit firm, by 30 June 2032. The Company does not anticipate undertaking a further tender of audit services to
the Group during the forthcoming year.
Significant Votes Against Previous Resolutions
There were no significant votes against the resolutions proposed at the Annual General Meeting held on 6 December 2022.
Resolutions to be Proposed at the AGM
Directors’ annual report on Directors’ remuneration
The Directors’ remuneration policy and annual report on Directors’ remuneration, which can be found on pages 51 to 53, provide detailed
information on the remuneration arrangements for the Directors of the Company. Included is the Directors’ Remuneration Policy, which
shareholders approved at the AGM in December 2022, and which is expected to next be put to shareholders at the AGM in 2025 or, if earlier,
when any amendments to the policy are proposed. Shareholders are requested to approve the Directors’ Annual Report on Directors’
Remuneration for the year ended 30 June 2023 (resolution 2).
Dividend policy
The Company’s dividend policy is set out on page 33. In order to be able to continue paying a consistent dividend on a regular basis, and to
ensure that sufficient distributions are made to meet the Company’s REIT status, the Company intends to continue to pay all dividends as
interim dividends. Recognising that this means that shareholders will not have the opportunity to vote on a final dividend, the Company will
instead propose a non-binding resolution to approve the Company’s dividend policy at the AGM (resolution 3). The Directors anticipate that
such non-binding resolution to approve the Company’s dividend policy will be proposed annually.
Auditor
The Independent Auditor’s Report can be found on pages 54 to 59. Ernst & Young LLP (‘EY’) has indicated its willingness to continue in office
and a resolution will be proposed at the AGM to re-appoint EY as Auditor until the conclusion of the AGM to be held in 2024 (resolution 4).
A separate resolution will be proposed to authorise the Directors to determine the Auditor’s remuneration (resolution 5).
Election of Directors
As explained in more detail on page 33, each Director is subject under the Articles of Association to election by shareholders at the AGM
following their appointment and, by policy of the Board, by annual re-election thereafter. Resolutions 6 to 10 therefore propose each of
the relevant Directors for election/re-election. The biographies of each of the Directors, which include the skills and experience each
Director brings to the Board for the long-term sustainable success of the Company, are detailed on pages 28 and 29. Having considered the
knowledge, experience and contribution of each Director putting themselves forward, the Board has no hesitation in recommending their
election/re-election to shareholders.
36 Target Healthcare REIT plc
Directors’ Report continued
Resolutions to be Proposed at the AGM continued
Share Issuance Authority
The Directors are seeking authority to allot additional new shares which would not require the publication of a prospectus. Resolution 11 will,
if passed, authorise the Directors to allot new shares of £0.01 each up to an aggregate nominal amount representing 10% of the issued shares
at the date of the passing of resolution 11. Based on the shares in issue at 9 October 2023, this resolution would therefore authorise the
Directors to allot up to 62,023,700 ordinary shares.
In accordance with the provisions of the Company’s Articles of Association and the Listing Rules, the directors of a premium listed company
are not permitted to allot new shares (or grant rights over shares) for cash at a price below the net asset value per share of those shares
without first offering them to existing shareholders in proportion to their existing holdings. Resolution 12, which is a special resolution, seeks
to provide the Directors with the authority to issue shares of £0.01 each or sell shares held in treasury on a non-pre-emptive basis for cash
(i.e. without first offering such shares to existing shareholders pro-rata to their existing holdings) up to an aggregate nominal amount
representing 10% of the issued ordinary share capital of the Company at the date of the passing of resolution 12.
The authorities granted under resolutions 11 and 12 will expire at the conclusion of the next AGM of the Company after the passing of
the resolutions, expected to be held in December 2024, or on the expiry of 15 months from the passing of the resolutions, unless they are
previously renewed, varied or revoked. It is expected that the Company will seek these authorities on an annual basis. The authorities sought
under resolutions 11 and 12 will only be used to issue shares at a premium to net asset value and only when the Directors believe that it would
be in the best interests of shareholders as a whole to do so.
Authority to Buy Back Ordinary Shares
Subject to market conditions, it is unlikely that the Directors will buy back any ordinary shares in the near term. Thereafter any buy back of
ordinary shares will be subject to the Companies Act 2006 (as amended), the Listing Rules and within guidelines established by the Board
from time to time (which will take into account the income and cash flow requirements of the Company).
Resolution 13 will be proposed as a special resolution and seeks to provide the Directors with the authority to purchase up to 92,973,578
ordinary shares or, if less, the number representing approximately 14.99% of the Company’s ordinary shares in issue at the date of the passing
of resolution 13. Any shares purchased by the Company may be cancelled or held in treasury. The Company does not currently hold any
shares in treasury.
For each ordinary share, the minimum price (excluding expenses) that may be paid on the exercise of this authority will not be less than the
nominal value of each ordinary share at the date of purchase. Under the Listing Rules, the maximum price that may be paid on the exercise
of this authority must not exceed the higher of: (i) 105% of the average of the middle market quotations (as derived from the Daily Official List
of the London Stock Exchange) for the shares over the five business days immediately preceding the date of purchase; and (ii) the higher of
the last independent trade and the highest current independent bid on the trading venue on which the purchase is carried out.
This authority will expire at the conclusion of the next AGM of the Company after the passing of this resolution unless it is previously renewed,
varied or revoked.
Notice for General Meetings
Resolution 14 is being proposed to reflect the provisions of the Companies Act 2006 relating to meetings and the minimum notice period
for listed company General Meetings being increased to 21 clear days, but with an ability for companies to reduce this period to 14 clear days
(other than for AGMs), provided that the Company offers facilities for shareholders to vote by electronic means and that there is an annual
resolution of shareholders approving the reduction in the minimum period for notice of General Meetings (other than for AGMs) from 21 clear
days to 14 clear days. The Board is therefore proposing resolution 14 as a special resolution to ensure that the minimum required period for
notice of General Meetings of the Company (other than for AGMs) is 14 clear days.
The approval will be effective until the earlier of 15 months from the passing of the resolution or the conclusion of the next AGM of the
Company, at which it is intended that a similar resolution will be proposed. The Board intends that this flexibility of a shorter notice period to
be available to the Company will be used only for non-routine business and only where needed in the interests of shareholders as a whole.
Recommendation
The Directors consider each resolution being proposed at the Annual General Meeting to be in the best interests of the Company and its
shareholders as a whole and they unanimously recommend that all shareholders vote in favour of them, as they intend to do in respect
of their own beneficial holdings of shares which amount in aggregate to 64,210 ordinary shares representing approximately 0.01 per cent
of the current issued share capital of the Company.
Directors’ Deeds of Indemnity
The Company has entered into deeds of indemnity in favour of each of the Directors. The deeds give each Director the benefit of an indemnity
to the extent permitted by the Companies Act 2006 against liabilities incurred by each of them in the execution of their duties and the exercise
of their powers. A copy of each deed of indemnity is available for inspection at the Company’s registered office during normal business hours
and will be available for inspection at the Annual General Meeting. The Company also maintains directors’ and officers’ liability insurance.
Conflicts of Interest
Under the Companies Act 2006 a Director must avoid a situation where he or she has, or could have, a direct or indirect interest that conflicts,
or possibly may conflict, with the Company’s interests. The requirement is very broad and could apply, for example, if a Director becomes a
director of another company or a trustee of another organisation. The Companies Act 2006 allows directors of public companies to authorise
conflicts and potential conflicts, where appropriate, where the Articles of Association contain a provision to this effect. The Company’s Articles
of Association give the Directors authority to approve such situations. The Company maintains an up-to-date register of Directors’ conflicts
of interest which have been disclosed to, and approved by, the other Directors. This register is considered at each scheduled Board meeting.
The Directors are required to disclose to the Company Secretary any changes to conflicts or any potential new conflicts.
37Annual Report and Financial Statements 2023
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The Investment Manager has in place a conflicts of interest and allocation policy which aims to ensure a fair allocation of investment
opportunities and to mitigate potential conflicts of interest that may arise where the Investment Manager provides investment management,
investment advice or other services to other funds that may have similar investment policies to that of the Company. The Company has
reviewed, and accepted, the policy which remained unchanged during the course of the year.
Depositary
IQ EQ Depositary (UK) Limited (the ‘Depositary’) acts as the Group’s depositary in accordance with the AIFM Directive. The Depositary’s
responsibilities, which are set out in an Investor Disclosure Document available on the Company’s website, include cash monitoring, record
keeping and verification of non-custodial assets and general oversight of the Group’s portfolio. The Depositary receives for its services a fee
based on the value and activity of the property portfolio, payable quarterly. For the year ended 30 June 2023, the fees paid totalled £195,000
(2022: £163,000).
Other Companies Act 2006 Disclosures
The rules for appointment and replacement of Directors are contained in the Articles of Association of the Company. In respect of retiral by
rotation, the Articles of Association provide that each Director is required to retire at the third annual general meeting after the annual general
meeting at which last elected. As mentioned on page 41, the Board has agreed that all Directors will retire annually.
Any amendment of the Company’s Articles of Association and powers to issue and buy back shares require shareholder authority.
There are no agreements between the Company and the Directors providing for compensation for loss of office that occurs because of a
takeover bid.
Future Developments of the Company
The future success of the Company in pursuit of its investment objective is dependent primarily on the performance of its investments and
the outlook for the Company is set out in the Chair’s Statement on pages 4 and 5 and the Investment Manager’s Report on pages 14 and 15.
Environmental, Social and Governance Principles
The Company seeks to conduct its affairs responsibly and environmental factors are, where appropriate, taken into consideration in relation
to investment decisions taken on behalf of the Group, with all investment acquisitions being assessed by the Investment Manager in line
with their recently updated “house standard” approach which more explicitly evaluates ESG matters in relation to each proposed acquisition.
Further details are contained on pages 10 to 13 and in the Corporate Governance Statement on page 44.
The Company published its inaugural Sustainability Report in March 2023, covering ESG matters in more detail, and intends to publish such
report annually to 31 December each year to align with the Group’s data collection and reporting under the GRESB framework (as considered
in more detail below).
Greenhouse Gas Emissions/Streamlined Energy and Carbon Reporting
All of the Company’s activities are outsourced to third parties. As such it does not have any physical assets, property, employees or operations
of its own and does not generate any greenhouse gas or other emissions. As the Group has entered into operational leases on its property
portfolio, the Company does not have operational control over these properties and therefore assesses that the tenant should report on any
carbon emissions associated with the operation of the care homes. Following this assessment, the Group is categorised as a lower energy
user under the HM Government Environmental Reporting Guidelines March 2019 (‘the Guidelines’) and is not required to make the detailed
disclosures of energy and carbon information set out within the Guidelines within this Annual Report. Disclosures on the property portfolio’s
environmental sustainability performance measures, prepared in accordance with the latest European Public Real Estate Association’s (‘EPRA’)
sustainability Best Practices Recommendations (sBPR), which in turn are aligned principally with the Global Reporting Initiative (‘GRI’) Standards,
are included in the Company’s separate Sustainability Report, as referred to above. The Company achieved an sBPR Silver Award following the
publication of its inaugural report.
Taskforce on Climate-related Financial Disclosures (‘TCFD’)
The Company acknowledges the recommendations of the Financial Stability Board TCFD to improve and increase reporting of climate-related
financial information and will work towards mitigating, where appropriate, the physical climate risks and opportunities arising in the property
portfolio. Further detail on the climate risks in the portfolio are detailed in the ‘principal and emerging risks and risk management’ on page 24
and consideration of the impact of climate risks on the market value of the property portfolio is included in Notes 9 and 16 to the Consolidated
Financial Statements. More information is included in the Company’s separate Sustainability Report.
GRESB Framework
GRESB is a mission-driven and investor-led organisation that provides actionable and transparent ESG data to financial markets. GRESB collects,
validates, scores, and independently benchmarks ESG data to provide business intelligence, engagement tools, and regulatory reporting
solutions. This helps to aid transparency and comparability, and allows assessment of performance and trends. The Company submitted data
to GRESB under this framework and, despite this being the inaugural year of publication, achieved a score of 60 in relation to the year ended
31 December 2022 resulting in the award of a green star. This helps to demonstrate the Group’s tangible progress in ESG reporting and the
underlying quality of the property portfolio by comparing well to the peer group average score of 61, many of whom have been reporting
under GRESB for a number of years.
38 Target Healthcare REIT plc
Directors’ Report continued
Modern Slavery Act 2015
As an investment company with no employees or customers and which does not provide goods or services in the normal course of business,
the Company considers that it does not fall within the scope of the Modern Slavery Act 2015 and it is not, therefore, obliged to make a human
trafficking statement. However, as a matter of good corporate governance and to reflect the Group’s commitment to high business standards
throughout its supply chains, the Company has chosen to publish a Modern Slavery and Human Trafficking Statement, the full detail of
which is available on request. The Company’s own supply chain, which consists predominantly of professional advisers and service providers
in the financial services industry, is considered to be low risk in relation to this matter but this is regularly considered by the Management
Engagement Committee as part of their review of significant service providers. The Group takes a zero-tolerance approach to modern slavery
and human trafficking and expects all those it deals with to demonstrate the same attitude.
Criminal Finances Act 2017
The Company has a zero tolerance policy to tax evasion and the facilitation of tax evasion. The Company is fully committed to complying
with all legislation and appropriate guidelines designed to prevent tax evasion and/or the facilitation of tax evasion in the jurisdictions in which
the Company, its service providers and business partners operate.
The Company is subject to the Criminal Finances Act 2017 and has adopted a policy, endorsed by the Board, designed to prevent tax evasion
and the facilitation of tax evasion. The policy establishes a culture across the Company and in relation to its service providers and other
counterparties, in which tax evasion and the facilitation of tax evasion is unacceptable. The policy is based on a detailed risk assessment
undertaken by the Board annually.
UK Bribery Act 2010
In order to ensure compliance with the UK Bribery Act 2010, the Directors confirm that the Company follows a zero tolerance approach
towards bribery, insofar as it applies to any Directors of the Company or employee of the Investment Manager or any other organisation
with which the Company conducts business, and a commitment to carry out business openly, honestly and fairly.
The Board also ensures that adequate procedures are in place and followed in respect of the appointment of third-party service providers
and the acceptance of gifts and/or hospitality.
Financial Instruments
The Company’s financial instruments comprise its cash balances, external loans and debtors and creditors that arise directly from its
operations such as deposits held on behalf of tenants and accrued rental income. The financial risk management objectives and policies
arising from its financial instruments and the exposure of the Company to risk are disclosed in Note 16 to the Consolidated Financial
Statements.
Annual General Meeting
The Company is required by law to hold an Annual General Meeting and it will be held at the offices of Dickson Minto W.S., Dashwood House,
69 Old Broad Street, London EC2M 1QS on 29 November 2023 at 4.00 p.m. The Notice of Annual General Meeting is set out on pages 91 to 93.
We would strongly encourage all shareholders to make use of the proxy form provided in order to lodge your votes. Shareholders
are also encouraged to raise any questions or comments they may have in advance of the AGM through the Company Secretary
(info@targetfundmanagers.com). These will be relayed to the Board and either the Company Secretary or the Board will respond in
due course either directly or by making available a summary of responses to any frequently asked questions on the Company’s website.
On behalf of the Board
Alison Fyfe
Chair
9 October 2023
39Annual Report and Financial Statements 2023
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Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Strategic Report, the Directors’ Report, the Directors’ Remuneration Report and the Financial
Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to
prepare the Consolidated Financial Statements in accordance with International Financial Reporting Standards (‘IFRSs’) in conformity with the
Companies Act 2006 and have elected to prepare the parent company financial statements in accordance with United Kingdom Generally
Accepted Accounting Practice (UK Accounting Standards and applicable law), including Financial Reporting Standard 101 ‘Reduced Disclosure
Framework’. Under the Financial Conduct Authority’s Disclosure Guidance and Transparency Rules, group financial statements are required to
be prepared in accordance with UK-adopted IFRSs.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of
the state of affairs and profit or loss of the Company and Group for that period. In preparing these Financial Statements, the Directors are
required to:
– select suitable accounting policies and then apply them consistently;
– make judgements and accounting estimates that are reasonable and prudent;
– state whether applicable International Financial Reporting Standards have been followed, subject to any material departures disclosed
and explained in the Financial Statements; and
– prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue
in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and
disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the Financial Statements
and the Directors’ Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation
in other jurisdictions.
Directors’ responsibility statement in respect of the Annual Report and Financial Statements
The Directors are responsible for preparing the Annual Report in accordance with applicable law and regulations. The Directors consider
the Annual Report and the Financial Statements, taken as a whole, provide the information necessary to assess the Company’s position,
performance, business model and strategy and are fair, balanced and understandable.
Directors’ responsibility statement under the disclosure guidance and transparency rules
To the best of our knowledge:
– the Consolidated Financial Statements, prepared in accordance with UK-adopted IFRSs, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
– the Annual Report, including the Strategic Report and the Directors’ Report, includes a fair review of the development and performance
of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face.
Disclosure of information to the auditor
The Directors confirm that:
– so far as each Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and
– the Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit
information and to establish that the Company’s auditor is aware of that information.
On behalf of the Board
Alison Fyfe
Chair
9 October 2023
40 Target Healthcare REIT plc
Corporate Governance Statement
Welcome to the corporate governance section
of the Annual Report. The aim of this section is to
set out the framework under which the independent
Board, and its various sub-committees, ensure
that both the Company and the service providers
acting on its behalf make appropriate decisions and
undertake actions in line with the interests of the
Company’s stakeholders.
Alison Fyfe
Chair
Introduction
The Board of Target Healthcare REIT plc has considered the Principles and Provisions of the AIC Code of Corporate Governance (‘AIC Code’).
The AIC Code addresses the Principles and Provisions set out in the UK Corporate Governance Code (the ‘UK Code’), as well as setting out
additional Provisions on issues that are of specific relevance to the Company.
The Board considers that reporting against the Principles and Provisions of the AIC Code, which has been endorsed by the Financial Reporting
Council, provides more relevant information to shareholders. The Company has complied with the Principles and Provisions of the AIC Code.
The AIC Code is available on the AIC website (www.theaic.co.uk). It includes an explanation of how the AIC Code adapts the Principles and
Provisions set out in the UK Code to make them relevant for investment companies. The UK Code is available on the website of the Financial
Reporting Council: www.frc.org.uk
The Board
The Board is responsible for the effective stewardship of the Group’s affairs and reviews the schedule of matters reserved for its decision,
which are categorised under various headings. These include investment strategy, investment policy, finance, risk, investment restrictions,
performance, marketing, adviser appointments and the constitution of the Board. It has responsibility for all corporate strategic issues,
dividend policy, share buyback policy and corporate governance matters which are all reviewed regularly. The Board as a whole, through
the Investment Committee, is responsible for authorising all purchases and sales within the Group’s portfolio and for reviewing the quarterly
independent property valuation reports produced by Colliers International Healthcare Property Consultants Limited.
In order to enable them to discharge their responsibilities, all Directors have full and timely access to relevant information. At each meeting,
the Board reviews the Group’s investment performance and considers financial analyses and other reports of an operational nature. The Board
monitors compliance with the Company’s objectives and is responsible for setting investment and gearing limits within which the Investment
Manager has discretion to act, and thus supervises the management of the investment portfolio which is contractually delegated to the
Investment Manager.
The table below sets out the number of scheduled Board and Committee meetings held during the year and the number of meetings attended
by each Director. This includes a two-day strategy meeting held at an external venue by the Board during October 2022 in order to consider
strategic issues and, due to a change in the annual schedule, a second strategy meeting held by the Board during June 2023. It is anticipated
that a strategy meeting will be held annually in June each year going forward. In addition to these scheduled meetings, there were a further
11 Board and Board Committee meetings held during the year. These additional meetings included regular updates with the Investment
Manager and other appropriate advisers on significant matters arising to ensure that appropriate actions were taken on a timely basis.
Board
Audit
Committee
Investment
Committee
Management
Engagement
Committee
ESG Committee
Nomination
Committee
Remuneration
Committee
Held Attended Held Attended Held Attended Held Attended Held Attended Held Attended Held Attended
Alison Fyfe 6 6 5 5 4 4 4 4 4 4 3 3 1 1
Vince Niblett 6 6 5 5 4 4 4 4 4 4 3 3 1 1
Amanda Thompsell 6 6 5 4 4 4 4 3 4 4 3 3 1 1
Richard Cotton* 4 4 2 2 3 3 3 3 3 3 – – – –
Michael Brodtman** 3 3 2 2 2 2 2 2 3 3 – – – –
Malcolm Naish*** 3 3 3 3 2 2 2 2 1 1 3 3 1 1
Gordon Coull*** 3 3 3 3 2 2 2 2 1 1 3 2 1 1
* Appointed 1 November 2022.
** Appointed 1 January 2023.
*** Retired 6 December 2022.
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Although Dr Thompsell was unavailable to physically attend one meeting of the Audit Committee and of the Management Engagement
Committee, which were convened to formally conclude on matters which had been discussed at previous meetings at which all Directors
had been present, Dr Thompsell provided comments in advance on the matters to be discussed and these were taken into consideration
in the decisions reached.
Each of the Directors has signed a letter of appointment with the Group which includes twelve months’ notice of termination by either party.
These are available for inspection at the Company’s registered office during normal business hours and are also made available at annual
general meetings.
Individual Directors may, at the expense of the Group, seek independent professional advice on any matter that concerns them in the
furtherance of their duties. The Group maintains appropriate directors’ and officers’ liability insurance. The Board has direct access to company
secretarial advice and services. The Company Secretary is responsible for ensuring that Board and Committee procedures are followed and
applicable regulations are complied with.
Investment management
Target provides investment management and other services to the Group. Details of the arrangements between the Group and the
Investment Manager in respect of management services are provided in the financial statements. The Board keeps the appropriateness of
the Investment Manager’s appointment under review. In doing so the Board reviews performance quarterly and considers the past investment
performance of the Group and the capability and resources of the Investment Manager to deliver satisfactory investment performance in the
future. It also reviews the length of the notice period of the investment management agreement (‘IMA’) and the fees payable to the Investment
Manager, together with the standard of the other services provided.
During the year, through the Management Engagement Committee, the Board considered the appropriateness of the terms of the Investment
Manager’s appointment and concluded that:
– the Investment Manager’s investment performance remained satisfactory, considering, amongst other matters, the continued
outperformance of the Group’s property portfolio compared to the MSCI UK Annual Healthcare Property Index;
– the level of fees payable to the Investment Manager, which were considered both in isolation and against a schedule of the fees
payable across the Company’s peer group prepared by the Company Secretary, remained appropriate. This assessment reviewed the
appropriateness and effectiveness of the tiered management fee structure;
– the specialist nature of the properties in which the Company invests requires a detailed knowledge of the sector, and that the nature of
the asset class means that investment decisions tend to be long-term in nature, and that therefore the two-year notice period remains
appropriate; balancing the interests of the Company in supporting the performance of its incumbent Investment Manager against retaining
the Company’s ultimate sanction of being able to replace the Investment Manager; and
– the standard of other services provided remained appropriate.
The Directors considered the Investment Manager’s provision of Company Secretarial services and concluded that the provision of such
services did not create a conflict of interest, compromise the ability of the Board to hold the Investment Manager to account, or result in any
diminution in the quality of governance or reporting that would warrant a change in this arrangement. This assessment took into consideration
the fiduciary duties of a Company Secretary, the Directors’ access to independent professional advice where necessary and the Group’s
appointment of, and regular liaison with, external legal advisers and brokers.
The Directors are satisfied with the Investment Manager’s ability to deliver satisfactory investment performance and the quality of other
services provided. It is therefore their opinion that the continuing appointment of the Investment Manager on the terms agreed is in the
interests of shareholders as a whole.
Appointments, diversity, tenure and succession planning
Directors may be appointed by the Company by ordinary resolution or by the Board. All new appointments by the Board are subject to
election by shareholders at the next AGM following their appointment. The Company’s Articles of Association require all Directors to retire by
rotation at least every three years. However, in accordance with the recommendations of the AIC Code, the Board has agreed that all Directors
will retire annually and, if appropriate, seek re-election.
The Board believes in the benefits of diversity, including skills and experience, gender, social and ethnic backgrounds, cognitive and personal
strengths and length of service. The aim of the Company is to have an appropriate level of diversity in the boardroom in order to bring constructive
challenge and fresh perspectives to discussions. These matters were all expressly considered as part of the externally-facilitated recruitment
processes completed during the course of the year, which were designed to identify a diverse range of potential candidates, with a number of
female candidates and at least one candidate from a minority ethnic background being interviewed. The subsequent appointments were based
on merit and objective criteria in order to ensure the Board collectively had the necessary combinations of skills, experience and knowledge.
The Board supports the overall recommendations of the FTSE Women Leaders Review and Parker Review for appropriate gender and ethnic
diversity and notes that the during the year to 30 June 2023, the FCA has introduced ‘comply or explain’ targets that at least 40% of the Board
should be women, that at least one of the senior board positions should be held by a woman, and that at least one member of the Board
should be from a minority ethnic background. At the year end, 40% of the Board were women and Ms Fyfe was Chair and therefore the
Company meets the first two of these targets. The Company’s non-compliance with the third is explained in more detail on the following
page. In accordance with Listing Rule 9.8.6R (9), (10) and (11) the Board has provided the following information in relation to its diversity.
This information has been collected by self-disclosure directly from the individuals concerned who were asked to confirm their gender
and ethnicity. There have been no changes to the composition of the Board since 30 June 2023.
42 Target Healthcare REIT plc
Corporate Governance Statement continued
Number of Board members Percentage of the Board
Number of senior positions on
the Board (Chair and the SID)
Men 3 60% 1
Women 2 40% 1
Not specified/prefer not to say – – –
Number of Board members Percentage of the Board
Number of senior positions on
the Board (Chair and the SID)
White British or other White (including minority-white groups) 5 100% 2
Mixed/Multiple Ethnic Groups – – –
Asian/Asian British – – –
Black/African/Caribbean/Black British – – –
Other ethnic group, including Arab – – –
Not specified/prefer not to say – – –
No other categories of ethnicity are relevant for the Company and the Company only has two of the senior positions on its Board specified
by the Listing Rules, being the positions of chair and senior independent director. As an externally managed investment company with no
executive directors, the Company does not have the remaining senior positions on its board, specifically it does not have either a chief
executive or a chief financial officer.
As the Company is an investment company with no executive directors and a small board relative to that which would be expected for a
trading company of equivalent size, it has not managed to comply with the newly introduced diversity targets as none of the current Directors
come from an ethnic minority background, although as set out on the previous page this was expressly considered during the appointment
processes conducted during the year. The Board will continue to take all matters of diversity into account as part of its succession planning
and the benefits of diversity will continue to be considered as an important factor in all future appointments. All appointments will continue to
be based on merit and objective criteria and will not discriminate on the grounds of gender, ethnicity, socio-economic background, religion,
sexual orientation, age or physical ability.
The Board’s policy on tenure is that continuity and experience are considered to add significantly to the strength of the Board and, as such, no
limit on the overall length of service of any of the Company’s Directors, including the Chair, has been imposed. However, the Board does not
currently envisage that any Director will serve for more than the nine-year period that the AIC Code considers could impair, or could appear
to impair, a non-executive Directors’ independence. This may, however, be adjusted for reasons of flexibility and continuity should this be
recommended by the Nomination Committee and concluded by the Board to be in the best interests of the Company.
Whenever there are new appointments, these Directors receive an induction from the Investment Manager and Company Secretary on joining
the Board. All Directors receive other relevant training, collectively or individually, as necessary.
Independence of Directors
The Board, which is composed solely of independent non-executive Directors, regularly reviews the independence of its members. Following
the retirement of Mr Coull at the conclusion of the AGM on 6 December 2022, Mr Cotton has performed the role of Senior Independent
Director. All the Directors have been assessed by the Board as remaining independent of the Investment Manager and of the Group itself;
none has a past or current connection with the Investment Manager and each remains independent in character and judgement with no
relationships or circumstances relating to the Group that are likely to affect that judgement.
The basis on which the Group aims to generate value over the longer term is set out in its objective and investment policy as contained
on pages 32 and 33. A management agreement between the Group and Target sets out the matters over which the Investment Manager
has authority and the limits beyond which Board approval must be sought. All other matters, including investment and dividend policies,
corporate strategy, gearing, corporate governance procedures and risk management, are reserved for the approval of the Board of Directors.
The Board meets at least quarterly and receives full information on the Group’s investment performance, assets, liabilities and other relevant
information in advance of Board meetings. Throughout the year a number of committees have been in place as detailed below. The committees
operate within clearly defined terms of reference which are available on request or for inspection at the Company’s registered office during
normal business hours.
Senior Independent Director
The Company has appointed a Senior Independent Director. This role was fulfilled by Mr Coull until his retirement on 6 December 2022, at
which date Mr Cotton was appointed to the position. The role of the senior independent director is to provide a sounding board for the chair
and to serve as an intermediary for the other directors and shareholders. The senior independent director, will also lead the appraisal of the
chair’s performance, as set out on page 43 and will lead any other discussion of the non-executive directors without the chair being present
on other occasions as necessary.
Removal of Directors
The Company may by special resolution remove any Director before the expiration of his or her period of office.
Audit Committee
The Board has established an Audit Committee, the role and responsibilities of which are set out in the report on pages 45 to 50.
Remuneration Committee
The Board has established a Remuneration Committee, the role and responsibilities of which are set out in the report on page 51.
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ESG Committee
The Board has established an ESG Committee which comprises all the Directors. The Committee was initially chaired by Ms Fyfe,
with Mr Brodtman being appointed as chair of the Committee with effect from 1 June 2023. The Committee oversees the formulation
and implementation of the Group’s ESG policy and strategy, including scrutinising those matters delegated to the Investment Manager.
It is responsible for proposing targets to achieve the Board’s policy objectives and monitors progress against those targets, taking into
consideration developments in relation to legal and regulatory requirements and industry practice which may have an impact on the Group’s
activities. The Committee reviews and approves any material public reporting and market disclosures, including within the Annual Report,
in respect of ESG matters.
The ESG Committee met on four occasions throughout the year to consider the progress and status of relevant ESG matters, as reported by the
Investment Manager, and to continue the process of developing challenging, but achievable and realistic, targets for the Group. This included
consideration of the appropriate means of measuring results and monitoring progress against those targets. The Committee improved the
Company’s governance by approving enhanced policies for the Group in relation to areas such as fraud, modern slavery and human trafficking,
and shareholder rights. The Committee also monitored progress in relation to the annual GRESB submission for the year ended 31 December
2022 and reviewed and approved the Group’s inaugural Sustainability Report which was published in March 2023. The Committee has encouraged
the further development of the Investment Manager’s property-by-property asset management plan to identify areas where the energy efficiency
and carbon emissions of the Group’s property portfolio can be further improved, and has approved an initial budget of £1 million to action any
initiatives identified. More recently, the Committee has reviewed and engaged additional external advisers to ensure that the Group continues to
have access to sufficient and appropriate specialist expertise and resources to continue to progress its ESG activities and reporting.
In addition to the formal meetings of the Committee, monthly meetings were established between the Chair of the Committee and appropriate
representatives of the Investment Manager.
Management Engagement Committee
The Board has established a Management Engagement Committee which comprises all the Directors. The Committee has been chaired
by Ms Fyfe since the retirement of Mr Naish on 6 December 2022. The Committee reviews the appropriateness of the Investment Manager’s
continuing appointment together with the terms and conditions thereof on a regular basis. It also reviews the terms and quality of service
received from other service providers on a regular basis. Further details of the work undertaken by the Management Engagement Committee
in relation to the terms of appointment of the Investment Manager is set out on page 41. The Management Engagement Committee has also
reviewed the proposed timetable for the tender of the provision of external valuation services, which is anticipated to be completed during the
forthcoming year in advance of the expected introduction of new rules prescribing the mandatory rotation of external valuers.
Investment Committee
The Board has established an Investment Committee which comprises all the Directors. The Committee has been chaired by Ms Fyfe since
the retirement of Mr Naish on 6 December 2022. The Committee reviews each investment paper prepared by the Investment Manager and is
responsible for authorising all purchases and sales, and significant capital expenditure or asset management activities, within the Company’s
portfolio. The Investment Committee considered each investment paper as and when circulated by the Investment Manager, providing
independent challenge where appropriate, and met quarterly to formally ratify the Committee’s decision to approve or decline each of the
investment recommendations proposed.
Nomination Committee
The Board has established a Nomination Committee which comprises all the Directors and which is chaired by Ms Fyfe. The Committee’s
terms of reference do not permit the Committee to be chaired by the Chair of the Board when considering the appointment of their successor.
The Board considers that, given its size, it would be unnecessarily burdensome to establish a separate nomination committee which did not
include the entire Board. This is considered appropriate given the Board consists solely of independent, non-executive Directors and ensures
that all Directors are kept fully informed of any issues that arise.
The Nomination Committee is responsible for:
– reviewing and nominating candidates for the approval of the Board to fill vacancies on the Board of Directors and to lead the process for
appointments, including the selection and appointment of any external recruitment consultant;
– considering and reviewing the composition and balance of the Board;
– ensuring that plans are in place for orderly succession to the Board and overseeing the development of a diverse pipeline for succession; and
– reviewing the re-appointment of Directors, as they fall due for re-election, under the terms of their appointment and the AIC Code, and
making recommendations to the Board as considered appropriate.
All of the Nomination Committee’s responsibilities have been carried out over the period of review.
The Nomination Committee met formally on three occasions throughout the year to ensure that the plans in place for an orderly succession
to the Board remained appropriate and to complete the recruitment processes which resulted in the appointments of Mr Cotton and
Mr Brodtman. Similar to the process in place in the prior year regarding the appointment of Dr Thompsell, the Nomination Committee worked
with external recruitment consultants to determine the appropriate skills and experience required of the appointee(s) and to agree the appropriate
method of recruitment, selection and appointment. This included the creation and review of an attributes matrix to ensure that the Board as
a whole, comprising both the continuing Directors and the proposed appointee(s), would have the collective skills and experience necessary
to enable effective oversight of the Group. After considering applications, reviewing a long-list of candidates and conducting interviews with
the short-listed candidates, the Committee recommended that Mr Cotton be appointed as a Director with effect from 1 November 2022 and
that Mr Brodtman be appointed as a Director with effect from 1 January 2023.
44 Target Healthcare REIT plc
Corporate Governance Statement continued
Assessment of the Board and Committees
During the year, the performance of the Board, Committees and individual Directors was evaluated through an assessment process led by
the Chair. This process involved the completion of questionnaires tailored to suit the nature of the Company and, as required, discussions
with individual Directors and individual feedback from the Chair to each of the Directors. The evaluation of the Chair was led by the Senior
Independent Director in consultation with the other Directors.
The main findings of the assessment were:
– that the Board was operating well, with skill and focus on all the areas of importance; including proactive consideration of the key issues
in the Group’s Strategy and the performance of its property portfolio. It was noted, however, that further consideration may be given to
the allocation of time at meetings held throughout the financial year between strategic, investment and corporate governance matters;
– that the meetings of the Board and Committees were effectively conducted and chaired, aided by appropriate agendas and supporting
papers, and were of sufficient duration, regularity and timeliness to support effective decision making;
– that the establishment of a dedicated ESG Committee had provided additional focus on the Group’s, and Investment Manager’s, progress
and quality of reporting in this area;
– that the change in the Chair during the course of the year had been conducted effectively, with no transitional issues or concerns noted;
– that the succession planning in relation to the Board had been appropriately addressed and actioned, resulting in a balanced Board with the
necessary range of skills and experience to enable effective oversight over the Company and the performance of the Investment Manager.
The conclusion from the appraisal process conducted in relation to the year ended 30 June 2023 was that the Board and each committee
was operating effectively, with an appropriate and sufficient balance of experience and skills. An assessment process led by an external
facilitator was last conducted during the year ended 30 June 2021 and the Board anticipates having an externally facilitated Board evaluation
conducted at least every three years.
Relations with shareholders
The Group proactively seeks the views of its shareholders and places great importance on communication with them. The Board receives
regular reports from the Investment Manager and Broker on the views of shareholders, and the Chair and other Directors make themselves
available to meet shareholders when required to discuss the Group’s business and address shareholder queries. The Chair has held a number of
discussions directly with shareholders over the course of the year on specific areas of interest, and the Board has considered the views of other
shareholders that preferred to meet with the Investment Manager in relation to matters such as the level of dividend paid by the Company. It is
expected that direct meetings with the Chair, or the chair(s) of the relevant Committee(s), will continue to be made available to shareholders,
although this may be through the use of video conferencing facilities.
The Notice regarding the Annual General Meeting is included on pages 91 to 93. It is intended that the AGM will be held physically at the offices
of Dickson Minto, Dashwood House, 69 Old Broad Street, London EC2M 1QS. However, as set out on page 38, shareholders are encouraged
to lodge their votes with the Registrar either by use of the proxy form provided, or by electronic means, and to submit any questions they may
have for the Directors or Investment Manager in advance through the Company Secretary (info@targetfundmanagers.com). The Annual Report
and Notice of Annual General Meeting are posted to shareholders at least 21 clear days before the Annual General Meeting.
Environmental, Social and Human Rights Issues
Responsible Investment and Environmental, Social and Governance (‘ESG’) considerations are core values of the Group and its Investment
Manager. In collaboration with its tenants, the Group provides demonstrable social impact within best-in-class care homes. These are
considered in more detail on pages 10 to 13 and 22 to 23. The Group has also published a separate Sustainability Report for the year to
31 December 2022.
– ESG considerations lie at the heart of the Group’s approach because of our belief that a strong care ethos is essential for the long-term
health of our investments. The Investment Manager commits extensive resources to incorporating ESG (and responsible investing principles)
throughout their investment and decision-making processes, both at the time of the acquisition of any asset and on an ongoing basis. The
Investment Manager has implemented a “house standard” investment approach which formally guides how ESG factors are considered for
each new investment opportunity.
– Before acquiring any home, the Investment Manager reviews on a granular level, inter alia: the position of the home in the community and
how the home engages with its community, the building lay-out and facilities, the natural environment of the home, the management team
and general governance shown by the tenant as well as any relevant ratings by regulatory bodies such as the Care Quality Commission.
– Once the Group has acquired a care home, the Investment Manager undertakes regular reviews of the environmental, social, governance
and ethical policies that the home has in place and (to the extent possible) their adherence to these policies in the delivery of their services.
– The Investment Manager’s role as an engaged landlord includes careful monitoring of the home and ongoing dialogue with management.
In usual circumstances, the Investment Manager will visit every home at least every six months, occasionally visit the properties
unannounced to gauge the culture and engaging with tenants who wish to improve their homes, potentially providing support and funding
for this. The Group is currently undertaking a home-by-home review of its portfolio to pro-actively assess opportunities to further improve
the portfolio’s environmental or social credentials.
– The Group’s vision of care includes promoting the conservation, protection and improvement of the physical and natural environments
surrounding care homes not least because this makes the care home more attractive for both tenants and residents.
Stewardship Code
The Investment Manager is a signatory to the Stewardship Code published by the Financial Reporting Council on 6 September 2021.
Stewardship is the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading
to sustainable benefits for the economy, the environment and society. The Stewardship Code sets high stewardship standards for asset owners
and asset managers, and for service providers that support them. The Investment Manager’s Stewardship Code Statement of Compliance is
available on its website at www.targetfundmanagers.com.
On behalf of the Board
Alison Fyfe
Chair
9 October 2023
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Report of the Audit Committee
I am pleased to present my report as the Chair
of the Audit Committee. This report sets out the
role, responsibilities and actions taken by the Audit
Committee to ensure that the suitable controls
continue to operate and that appropriate financial
information continues to be issued on a timely basis
to the Company’s stakeholders.
Vince Niblett
Chair of the Audit Committee
Composition of the Audit Committee
An Audit Committee has been established with written terms of reference which are reviewed at each meeting and which are available
on request. The Committee is chaired by Mr Niblett. The Audit Committee currently comprises all Directors. The Board will consider each
Director’s membership of the Audit Committee on a case-by-case basis but, in general, believes that, given the Group’s size, a committee
which includes all Directors is appropriate and will enable all Directors to be kept fully informed of any issues that arise.
The Board consider that the Chair’s experience of the property and finance sectors is invaluable to the Audit Committee, particularly in regard
to providing guidance in relation to the appropriateness and risks regarding the Group’s loan facilities and related hedging derivatives and in
assessing and providing challenge to the external valuation of the Group’s property portfolio, and therefore, in line with the AIC Code, the
Board believes it appropriate that the Chair remains a member of the Committee.
At least one member of the Audit Committee has recent and relevant financial experience and the Committee as a whole has competence
relevant to the sectors in which the Group operates; which are considered to be healthcare, property and investment.
Role of the Audit Committee
The Committee’s responsibilities are shown in the table below together with a description of how they have been discharged. More detailed
information on certain aspects of the Committee’s work is given in the subsequent text.
Responsibilities of the Audit Committee How they have been discharged
Monitoring the integrity of the half-year
and annual financial statements, and
any formal announcements relative
to the Group’s financial performance,
including the appropriateness of
the accounting policies applied and
any significant financial reporting
judgements and key assumptions.
The Committee met five times during the year to:
– review the contents of the half-yearly report, and to consider the audit plan and the proposed
audit fee;
– consider, in advance of the Company’s year end, any significant changes to accounting
standards or other disclosure requirements and any significant financial reporting judgements
and key assumptions expected to apply at the Group’s year end; and
– review the contents of the Annual Report.
The Investment Manager and Company Secretary attended each of these meetings, with the
Auditor also attending the meetings at which the audit plan and the contents of the half-yearly
and annual reports were reviewed. The significant matters considered by the Group are listed on
page 49. In addition, during the year the Committee kept under review the Investment Manager’s
implementation of a new financial accounting and reporting system, the statutory financial
reporting of each of the Group’s subsidiaries for the year ended 30 June 2022 and the internal
financing structure of the Group, including the settlement of intercompany loans and the payment
of intragroup dividends.
The Committee met a further time during the year to conclude on the audit tender process,
as reported in detail in this report last year and summarised later in this report.
Assessment of the prospects of the
Company, taking account of the
Company’s position and principal
risks, and consideration of the period
of time over which such evaluation
can be made.
The Committee has reviewed the assessment described in more detail under the section ‘Viability
Statement’ within the Directors’ Report, and the underlying data on which such assessment was
based, to ensure that the work undertaken, the conclusions reached and the disclosures included
within the Annual Report were appropriate.
46 Target Healthcare REIT plc
Responsibilities of the Audit Committee How they have been discharged
Evaluation of the effectiveness of the
internal controls and risk management
systems and procedures.
The Investment Manager maintains a risk matrix which summarises the Group’s key risks. The risk
matrix is considered by the Directors at least semi-annually, with key principal and emerging risks
also being discussed at the Group’s annual two-day strategy meeting.
During the year ended 30 June 2023, the Committee appointed a reporting accountant to review
and report on the Investment Manager’s implementation of a new accounting system. The
Committee also reviewed the Investment Manager’s internal controls report over its own processes,
prepared under ISAE 3402 “Assurance Reports on Controls at a Service Organization”. The
Committee noted that this report was a Type I report, documenting a snapshot of the Investment
Manager’s controls, with the Investment Manager intending to commission the production of a
Type II report, which would document the operation of the controls over a period of time, in future
years. Following consideration and review, taking into account the work completed by reporting
accountants commissioned by the Company in both the current and prior years, the Committee
concluded that this provided sufficient information to adequately assess the Investment Manager’s
control environment, as far as it was relevant to the Group, and it was not necessary to appoint a
reporting accountant to conduct additional agreed upon procedures.
The Committee also considered the internal control report’s for other significant service providers,
where available, including the Company’s registrar.
From a review of the risk matrix, the outcome of the procedures undertaken by the reporting
accountant, a discussion in relation to the ISAE 3402 report on the Investment Manager, and
ongoing review of the regular management information received by the Board and Committees,
combined with discussion with the Investment Manager and Company Secretary, the Committee
has satisfied itself on the effectiveness of the risk and control procedures.
Consideration of dividend calculations
both in relation to PID/non-PID
payments made by the Company
and other dividends paid internally
within the Group.
The Committee has reviewed the calculation of the split of distributions between PID and non-PID,
including consideration of the suitability of the allocation of the costs of the Group between its
property rental business and its residual business.
The Committee has reviewed the methodology followed by the Investment Manager, and directors
of the subsidiaries, in determining and recommending the level of other dividends paid internally
within the Group.
Consideration of the narrative
elements of the annual financial report,
including whether the annual financial
report taken as a whole is fair, balanced
and understandable and provides the
necessary information for shareholders
to assess the Group’s position,
performance, business model
and strategy.
The Committee has reviewed the content and presentation of the Annual Report and ensured
that it achieves the three criteria opposite. As part of this review, the Committee considered
the nine characteristics of good corporate reporting set out in the FRC’s Annual Review of
Corporate Reporting.
Monitoring developments in
accounting and reporting requirements
that impact on the Group’s compliance
with relevant statutory and listing
requirements.
The Committee ensures, through its Legal Adviser, Investment Manager, Company Secretary
and Auditor, that any developments impacting on the Company’s responsibilities are tabled for
discussion at Committee or Board meetings. The Committee ensured that the Company was
fully compliant with the AIC Code.
The Committee also considered the FRC Standard “Audit Committees and the External Audit:
Minimum Standard” which was published on 22 May 2023. The Committee concluded that no
significant changes were required from its current practices to ensure compliance with the FRC
Standard, but noted that best practice in relation to the production and publication of relevant
audit quality indicators was likely to continue to develop.
Management of the relationship with
the external Auditor, including their
appointment and the evaluation of
scope, effectiveness, independence
and objectivity of their audit.
The Auditor attended the meetings of the Committee at which the Company’s audit plan, half-yearly
report and year end accounts were reviewed and also met separately with the Chairman of the
Committee on two occasions, firstly, to discuss the findings of their interim review and the audit
plan for the year ahead and, secondly, to consider the findings of their annual audit. The scope of
the audit was discussed at the planning stage along with the staffing and timing of audit procedures
to ensure that an effective audit could be undertaken. The Committee has also reviewed the
independence and objectivity of the Auditor and has considered the effectiveness of the audit,
as set out in more detail in the section entitled ‘The Auditor’ on page 48.
Report of the Audit Committee continued
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Responsibilities of the Audit Committee How they have been discharged
Evaluation of reports received from
the Auditor with respect to the annual
financial statements and assessment
of quality of the audit.
The Auditor’s planning report, timetable and fee proposal were discussed with the Auditor in advance
of work commencing, together with the areas of audit focus, the level of materiality and the audit
work proposed to be undertaken. These matters had also been considered as part of the audit
tender process concluded prior to the re-appointment of the Auditor for the current year and it
was noted that the circumstances of the Group had remained largely unchanged and therefore
the audit plan, timetable and fee proposal did not subsequently require to be significantly amended
from those proposed by the Auditor, and considered by the Committee, during the audit tender.
The Committee paid particular attention to any changes in accounting standards or in the nature
of activities undertaken by the Group and ensured that the audit plan appropriately addressed these
areas. The Committee specifically challenged the Auditors, at both the planning and reporting stage,
in relation to the audit work undertaken on any particular areas of judgement or estimation; including
the valuation of the property portfolio and the methodology followed in the determination of the
credit loss allowance. In addition, the Committee sought evidence of the Auditor’s challenge of the
Investment Manager and Administrator, particularly in relation to areas containing significant estimates
or assumptions and the accounting treatment of any one-off accounting matters arising in the year;
such as the accounting for the Group’s acquisition of an interest rate cap.
The Committee specifically considered the external valuation of the Group’s property portfolio,
with the external valuers attending the meeting at which the annual results were discussed in order
to present directly to the Committee a summary of their valuation process and any significant
matters they wished to highlight either in relation to the valuation methodology generally or to
specific properties or tenants.
At the conclusion of the audit, the Committee discussed the audit results report with the Auditor,
Company Secretary and Investment Manager. This review considered the quality of the audit
through ensuring that the audit risks identified and the audit work undertaken did, in the opinion
of the Audit Committee, capture and appropriately consider those matters which gave rise to the
risk of material misstatement to the financial statements and disclosures.
Further detail on the assessment of the quality of the audit is included in the section entitled
‘The Auditor’ on page 48.
To conduct the tender process and
make recommendations to the Board
for it to put to the shareholders for their
approval in general meeting, about
the appointment, reappointment and
removal of the external auditor.
At the start of the year under review, the Audit Committee completed the tender of the Group’s
external audit. The details of this process were reported in the prior year, and resulted in the
recommendation that the incumbent auditors, Ernst & Young LLP, be re-appointed as external
auditor to the Group for the year ended 30 June 2023. This proposal was subsequently approved
by shareholders at the AGM held on 6 December 2022. The Audit Committee does not anticipate
undertaking a further tender of the Group’s external audit during the forthcoming year.
Risk management and internal controls
The principal and emerging risks faced by the Group together with the procedures employed to manage them are described in the Strategic
Report on pages 24 and 25.
Internal controls
The Board is responsible for the internal financial control systems of the Group and for reviewing their effectiveness. It has contractually
delegated to external agencies the services the Group requires, but the Directors are fully informed of the internal control framework
established by the Investment Manager to provide reasonable assurance on the effectiveness of internal financial control in the following areas:
– Income flows, including rental income, the assessment of the financial position of tenants and the appropriateness of credit loss impairments;
– Expenditure, including operating and finance costs;
– Raising finance, including debt facilities and equity fund-raising;
– Capital expenditure, including pre-acquisition diligence and authorisation procedures;
– Dividend payments, including the calculation of Property Income Distributions;
– Monitoring of covenants on loan facilities;
– Data security;
– The maintenance of proper accounting records; and
– The reliability of the financial information upon which business decisions are made and which is used for publication, whether to report
Net Asset Values or used as the basis for a prospectus, a circular to Shareholders or the annual report.
As the Group has evolved, the Investment Manager has developed a system of internal controls covering the processes listed above. As referred
to on page 46, the Investment Manager has engaged an independent service auditor to undertake a review of its control environment in
accordance with International Standard on Assurance Engagements (‘ISAE’) 3402 “Assurance Reports on Controls at a Service Organization”.
During the year ended 30 June 2023, the Board also commissioned a separate report by a reporting accountant on the Investment Manager’s
implementation of a new accounting system. The Audit Committee’s review of each report did not identify any significant issues or concerns.
48 Target Healthcare REIT plc
Internal controls continued
Committee members receive and consider quarterly reports from the Investment Manager, giving full details of the portfolio and all
transactions and of all aspects of the financial position of the Group. Additional ad hoc reports are received as required and Directors have
access at all times to the advice and services of the Company Secretary, which is responsible to the Board for ensuring that Board procedures
are followed and that applicable rules and regulations are complied with.
The Investment Manager reports in writing to the Board on operations and compliance issues prior to each meeting, and otherwise as
necessary. The Investment Manager reports directly to the Audit Committee concerning the internal controls applicable to the Investment
Manager’s investment and general office procedures, including information technology systems.
In addition, the Board keeps under its own direct control, through the Investment Committee, all property transactions including any
significant capital expenditure. The Board also retains direct control over any decisions regarding the Group’s long-term borrowings.
The review procedures detailed above have been in place throughout the year and up to the date of this report and the Board is satisfied with
their effectiveness and that they are in accordance with the guidance in the Financial Reporting Council’s ‘Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting’ in so far as applicable given the Group’s size and structure. There were no
significant weaknesses or failings to report. The procedures are designed to manage rather than eliminate risk and, by their nature, can only
provide reasonable, but not absolute, assurance against material misstatement or loss.
The Board has reviewed the need for an internal audit function, taking into consideration the internal financial controls systems set out on
the previous page and, in particular, any matters arising in relation to the Investment Manager’s ISAE 3402 report and the work of the reporting
accountant. It has decided that the systems and procedures employed by the Investment Manager and the Administrator, and the work carried
out by the Group’s Reporting Accountant and the Investment Manager’s Independent Service Auditor, provide sufficient assurance that a
sound system of internal control, which safeguards the Group’s assets, is maintained. An internal audit function specific to the Group is
therefore considered unnecessary.
The Auditor
As part of the review of auditor independence and effectiveness, EY has confirmed that they are independent of the Group and have complied
with relevant auditing standards. In reviewing EY’s independence, the Committee noted that EY did not provide any non-audit services to the
Group other than the review of the Group’s Interim Report.
In evaluating EY’s performance, the Audit Committee has taken into consideration the standing, skills and experience of the firm and of the
audit team, along with their robustness and perceptiveness in their identification, consideration and reporting of the key accounting and audit
judgements. The Committee assessed the effectiveness of the audit process through the quality of the formal reports, both verbal and written,
it received from EY at the planning and conclusion of the audit, including the reasons for any variation from the original audit plan, together
with the contribution which EY made to the discussion and challenge of any matters raised in these reports or by Committee members. The
Committee also reviewed the FRC’s Audit Quality Inspection Report on Ernst & Young LLP published in July 2023 and took into account any
relevant observations made by the Investment Manager and Company Secretary. The Committee is satisfied that EY provides an effective
independent challenge in carrying out its responsibilities.
EY has been the auditor to the Group since its launch in 2013. Following professional guidelines, the audit principal rotates after five years.
The current audit principal is Matthew Price and the audit for the year ended 30 June 2023 constitutes the first year of his term. Having
considered the effectiveness of the audit, the Audit Committee has recommended the continuing appointment of EY as the Group’s auditor
to the Board. The performance of the Auditor will continue to be reviewed annually taking into account all relevant guidance and best practice.
The Company is in compliance with the requirements of the Statutory Audit Services for Large Companies Market Investigation (Mandatory
Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014. This order relates to the frequency and governance
of tenders for the appointment of the external auditor and the setting of the policy on the provision of non-audit services. The Group will
require to undertake an audit tender, with mandatory rotation of the audit firm, before 30 June 2032.
In relation to the provision of non-audit services by the auditor, it has been agreed that all non-audit work to be carried out by the auditor
must be approved in advance by the Audit Committee and any special projects must also be approved in advance so as not to endanger
the independence of EY as auditor. In this respect it considers that the provision of the non-audit service shown in the table below does
not constitute such a threat.
Other than the review of the interim financial information, the auditors were not engaged to undertake any non-audit services either during
the year or over the prior three-year rolling period. Different accountancy firms were engaged to provide tax advice and compliance and to
undertake the review of the internal controls within the Investment Manager. The Audit Committee has also ensured that the provision of
non-audit services did not endanger the independence of any party that the Company intended to invite to participate in the audit tender
which concluded during the year.
Service provided (inclusive of irrecoverable VAT) Fee (£’000)
Statutory audit of the Company for the year ended 30 June 2023 124
Statutory audit of the Company’s subsidiaries for the year ended 30 June 2023 221
Review of interim financial information for the six months ended 31 December 2022 16
Total (inclusive of irrecoverable VAT) 361
In addition to the fees stated above, the Company agreed to pay an additional fee relating to the statutory audit for the year ended 30 June
2022 of £7,000 (inclusive of irrecoverable VAT). This arose from additional audit work undertaken on the significant portfolio acquisition which
completed during that year.
Report of the Audit Committee continued
49Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
Annual Report and Financial Statements
The Board of Directors is responsible for preparing the Annual Report and financial statements. The Audit Committee advises the Board on the
form and content of the Annual Report and financial statements, any issues which may arise and any specific areas which require judgement.
The Audit Committee considered certain significant issues during the year. These are noted in the table below.
Matter Audit Committee action
Valuation and ownership of the investment
property portfolio
The Group’s property portfolio accounted for 88.1 per
cent of its total assets as at 30 June 2023. Although
valued by an independent firm of valuers, Colliers
International Healthcare Property Consultants Limited
(‘Colliers’), the valuation of the investment property
portfolio is inherently subjective, requiring significant
judgement by the valuers. Errors in the valuation could
have a material impact on the Group’s net asset value.
Further information about the property portfolio and
inputs to the valuations is set out in Note 9 to
the Consolidated Financial Statements.
The Investment Manager liaises with the valuers on a regular basis and meets
with them prior to the production of each quarterly valuation. The Audit
Committee reviewed the results of the valuation process throughout the year
and the Directors had the opportunity to discuss the detail of each of the
quarterly valuations with the Investment Manager.
The Committee discussed the valuation as at 30 June 2023 directly with Colliers
to ensure that they understood the assumptions underlying the valuation and
the sensitivities inherent in the valuation and any significant area of judgement.
The Committee also discussed the property market, and valuations, directly with
Colliers following the significant movements noted in the second half of the
calendar year to 31 December 2022 to ensure that the valuation of the Group’s
portfolio had appropriately reflected these movements on a timely basis.
The Committee also discussed with the Auditor the work performed to confirm
the valuation and ownership of the properties in the portfolio and noted the
report of the Depositary, particularly the sections regarding the Depositary’s
responsibilities and work in relation to asset verification. The Committee
considered the significant estimates and judgements inherent in the valuation
process and considered how the auditors had challenged these by discussing
the outcome of the review of the property valuations directly with the Auditor’s
valuation specialists; focussing particularly on any areas of difference between
the judgement of the external valuers and the auditors.
Income recognition
Incomplete or inaccurate income recognition could have
an adverse effect on the Group’s net asset value, earnings
per share, its level of dividend cover and compliance with
REIT regulations.
The Audit Committee reviewed the Investment Manager’s processes and
controls around the recording of investment income, particularly noting the
process enhancements arising from the Investment Manager’s adoption of
a new accounting system. It also compared the final level of income received
for the year to forecasts.
The Audit Committee considered the basis of calculation of the Group’s
estimated credit losses by reviewing the scenario analysis prepared by the
Investment Manager and ensuring that this allowance, and any bad debts written
off, was prepared on a basis consistent with the Directors’ understanding of
the financial position of each relevant tenant. The Committee also particularly
considered the accounting treatment relating to deferred income following a
lease amendment for a tenant which occupied a number of the Group’s homes.
The Audit Committee assessed the appropriateness of the accounting treatment
of the fixed rental uplifts and other lease incentives and how this impacted the
Property Income component of dividends paid or payable by the Company.
Internal controls
Incomplete design or ineffective operation of internal
controls may result in a loss of the Group’s assets, a
misstatement of the financial statements or a breach
of legal, tax or other regulations.
The Audit Committee reviewed the Group’s internal control environment,
considering its completeness and efficiency and identifying any areas where the
Board, or Committees, did not have direct means of ensuring that the internal
controls in place within the Investment Manager were operating as designed.
This included a review of the Investment Manager’s implementation of a new
accounting system, based on a scope of work agreed directly between the
Reporting Accountant and the Audit Committee. The Audit Committee also
reviewed the Investment Manager’s ISAE 3402 Report. There were no material
control deficiencies or weaknesses identified through this work.
The Audit Committee noted that the Auditors had not reported any significant indications of systemic weaknesses in the Group’s internal
controls or financial reporting processes and that no material adjustments had been required to the financial statements as presented.
50 Target Healthcare REIT plc
Conclusion with respect to the Annual Report and Financial Statements
The Audit Committee has concluded that the report and financial statements for the year ended 30 June 2023, taken as a whole, is fair,
balanced and understandable and provides the information necessary for shareholders to assess the Group’s position, performance,
business model and strategy.
The Audit Committee has reported its conclusions to the Board of Directors. The Audit Committee reached this conclusion through a process
of review of the document, discussion, and enquiries of the various parties involved in the preparation of the report and financial statements.
Vince Niblett
Chair of the Audit Committee
9 October 2023
Report of the Audit Committee continued
51Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
Directors’ Remuneration Report
Welcome to the Directors’ Remuneration Report.
The aim of this report is to set out the policy used
by the Company in setting the Directors’ remuneration,
as well as declaring the actual fees paid during the year
and expectations for the following twelve months.
Shareholders will be provided with an opportunity
at the forthcoming AGM to vote in relation to this
Report.
Amanda Thompsell
Chair of the Remuneration Committee
Composition and Role of the Remuneration Committee
The Company has established a Remuneration Committee chaired by Dr Thompsell. The Committee has written terms of reference which
are reviewed at each meeting and which are available on request. The Remuneration Committee is currently comprised of all Directors which
is considered appropriate given the Group’s size and as the Board comprises only independent non-executive Directors. The Company has no
executive Directors or employees. Prior to her appointment as chair of the Committee, the Board concluded that Dr Thompsell had relevant
experience and understanding of the Company.
The role of the Remuneration Committee is to design remuneration policies and practices to support the Group’s strategy and to promote
its long-term sustainable success. The objective of such policy shall be to attract, retain and motivate non-executive Directors of the quality
required to govern the Company successfully without paying more than is necessary, having regard to views of shareholders and other
stakeholders. The policy shall be reviewed by the Committee at least annually to ensure its ongoing appropriateness and relevance.
The Committee shall recommend a level of remuneration for each of the Directors to the Board, within the limits set in the Articles of
Association or as otherwise approved by the Company’s shareholders.
Full details of the Group’s policy with regards to Directors’ fees, the fees paid to each Director during the year ended 30 June 2023 and the
intended fees to be paid in relation to the forthcoming year are shown on the following page.
Remuneration policy
The Group’s policy is that the remuneration of the Directors should reflect the experience of the Board as a whole, the time commitment required
and be fair and comparable with that of other similar companies. Furthermore, the level of remuneration should be sufficient to attract and
retain the Directors needed to oversee the Group properly and to reflect its specific circumstances. The policy also provides for the Company’s
reimbursement of all out of pocket approved expenses incurred wholly and exclusively in fulfilling their duties in relation to the Group, such
as reasonable travel and associated expenses incurred by the Directors in attending Board and Committee meetings.
The fees for the Directors are determined within the limit set out in the Company’s Articles of Association and this limit may not be changed
without seeking shareholder approval at a general meeting. The fees are fixed and are payable in cash, quarterly in arrears. Directors are not
eligible for bonuses, pension benefits, share options, long-term incentive schemes or other benefits. The Company may periodically choose
to benchmark Directors’ fees with an independent review, to ensure they remain fair and reasonable.
It is the Board’s policy that Directors do not have service contracts, but each new Director is provided with a letter of appointment setting
out the terms and conditions of his or her appointment. The Directors’ letters of appointment are available on request at the Company’s
registered office during business hours and will be available for fifteen minutes prior to and during the forthcoming Annual General Meeting.
The terms of Directors’ appointments provide that Directors should retire and be subject to election at the first Annual General Meeting after
his or her appointment and, in accordance with the recommendations of the AIC Code, the Board has agreed that all Directors will retire
annually and, if they wish, to offer themselves for re-election. There is no notice period and no provision for compensation upon termination
of appointment.
The Remuneration Policy must be approved by shareholders at least every three years or, if earlier, when any changes to the policy are
proposed by the Company.
Voting at Annual General Meeting on the Directors’ Remuneration Policy
The Company has not received any direct communications from its shareholders in respect of the levels of Directors’ remuneration.
Shareholders last approved the Directors’ Remuneration Policy at the Company’s AGM held on 6 December 2022. 100 per cent of the votes
cast were in favour of the resolution and votes withheld represented less than 2.7 per cent of the shares in issue. It is currently intended that
the above policy will continue for a three-year period and will therefore next be considered at the AGM to be held in 2025.
52 Target Healthcare REIT plc
Directors’ Remuneration Report continued
Directors’ Fees
The Board considers the level of Directors’ fees at least annually, and intends to appoint an external consultant at least every three years to
provide advice on the level of Directors’ Remuneration in order to ensure that the level of remuneration remains in line with the market level
necessary to attract, retain and motivate non-executive Directors of the quality required to govern the Company successfully. The most recent
such review was conducted in August 2021, following which the level of fees subsequently recommended by the Remuneration Committee
and approved by the Board for the year ended 30 June 2022 was, in aggregate, 6% lower than the external consultant’s recommendation.
It is intended that the next external review will be conducted by 30 June 2024.
The Remuneration Committee conducted a review of the level of Directors’ fees at the end of the year ended 30 June 2023, which included:
– consideration of the most recently available external consultant’s recommendation;
– consideration of the level of wage and price inflation since the date of the most recently available external consultant’s recommendation
and for the year ended 30 June 2023;
– an assessment of the ongoing workload and responsibilities, taking into account increasingly complex and onerous legal and regulatory
requirements;
– consideration of the Group’s performance, including the like-for-like growth in the Group’s rental income;
– consultation with various of the Group’s advisers in relation to their experiences of current market practice; and
– consideration of the level of fees paid by the Group’s peer group;
The Committee concluded that the level of Directors’ fees paid by the Company remained below that paid by other similar companies.
However, it remained mindful of the Group’s performance and the current circumstances being faced by the healthcare sector, the overall
economic environment and recent falls in property valuations generally. Therefore, it was considered appropriate that the overall increase in
fees was restricted to a level below the current level of inflation, with a proportionately higher increase for the Chair to bring the fee for this role
in line with the external consultant’s previous recommendation. The increase in aggregate Directors’ fees to £227,250 will represent an annual
percentage increase consistent with the level of rental growth in the Group’s property portfolio for the year ended 30 June 2023.
Year ending
30 June 2024
£’s
Year ended
30 June 2023
£’s
Year ended
30 June 2022
£’s
Change
in year ended
30 June 2023
%
Chair 58,500 54,000 50,000 +8.0
Audit Committee Chair 47,250 45,500 44,000 +3.4
Director 40,500 39,000 37,500 +4.0
The present limit on Directors’ fees is an aggregate of £250,000 per annum. This limit may be amended by changing the Company’s Articles
of Association, or by the passing of an ordinary resolution at a general meeting. No such resolution has been proposed.
Annual Report on Directors’ Remuneration
Directors’ emoluments for the year (audited)
The Directors who served during the year received the following emoluments in the form of fees. No other forms of remuneration or taxable
benefits were paid during the year.
Year ended
30 June 2023
£’s
Change in
year ended
30 June 2023
1
%
Year ended
30 June 2022
£’s
Change in
year ended
30 June 2022
1
%
Year ended
30 June 2021
£’s
Change in
year ended
30 June 2021
1
%
Alison Fyfe 47,602 +26.9
2
37,500 +14.5 32,750 +600.0²
Vince Niblett 45,500 +27.3³ 35,738 n/a – n/a
Amanda Thompsell 39,000 +149.6⁴ 15,625 n/a – n/a
Richard Cotton (appointed 1 November 2022) 26,000 n/a – n/a – n/a
Michael Brodtman (appointed 1 January 2023) 19,500 n/a – n/a – n/a
Malcolm Naish (retired 6 December 2022) 23,390 -53.2 50,000 +13.6 44,000 +0.0
Gordon Coull (retired 6 December 2022) 16,893 -58.4 40,651 +4.2 39,000 +0.0
June Andrews (retired 14 December 2021) – n/a 17,067 -47.9 32,750 +0.0
Tom Hutchison (retired 14 December 2021) – n/a 17,067 -47.9 32,750 +0.0
Total 217,885 +2.0 213,648 +17.9 181,250 +13.4
1 In accordance with The Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019, these columns show the annual percentage
change over the preceding financial year by comparison to the current financial year in respect of each Director that has served in their relevant role for a minimum
of two financial years. This annual percentage change will continue to be published cumulatively until a history of the previous five financial years is presented. The
percentage increases shown reflect both: (i) increases in rates of remuneration (as per the table above showing the remuneration per role for recent years); and (ii) any
changes in remuneration arising if a director served for less than a year, or changed roles, during one of the years being compared.
2 Ms Fyfe was appointed as a Director on 1 May 2020 and as Chair, succeeding Mr Naish, on 6 December 2022.
3 Mr Niblett was appointed as a Director on 25 August 2021 and as Chair of the Audit Committee, succeeding Mr Coull, on 14 December 2021.
4 Dr Thompsell was appointed as a Director on 1 February 2022.
Relative importance of spend on pay
The table below compares the change in the level of Directors’ remuneration compared to other expenses and distributions to shareholders.
Year ended
30 June 2023
£’000
Year ended
30 June 2022
£’000
Change in
year ended
30 June 2023
%
Aggregate Directors’ remuneration 218 214 +2.0
Management fee and other revenue expenses* 10,738 13,702 -21.6
Distributions paid to shareholders in respect of the year 38,330 41,928 -8.6
* As an investment company with an external manager, the Group does not have any employees other than the Directors. The Directors therefore deem the level of
the management fee and other revenue expenses, calculated in accordance with the Group’s usual accounting policies, to be an appropriate measure to assist in
understanding the relative importance of the Group’s spend on Directors’ pay.
53Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
Directors’ shareholdings (audited)
The Directors who held office at the year-end and their interests (all of which were beneficially held) in the ordinary shares of the Company
as at 30 June 2023 were as follows:
Ordinary shares
30 June 2023
Ordinary shares
30 June 2022
Alison Fyfe 10,000 10,000
Vince Niblett – –
Amanda Thompsell – –
Richard Cotton (appointed 1 November 2022) 30,000 –
Michael Brodtman (appointed 1 January 2023) 24,210 –
Malcolm Naish (retired 6 December 2022) n/a 45,001
Gordon Coull (retired 6 December 2022) n/a 35,454
Total 64,210 90,455
There have not been any changes in the Directors’ interests between 30 June 2023 and 9 October 2023. No Director had an interest in any
contracts with the Company during the year or subsequently.
Group performance
The Board is responsible for the Group’s investment strategy and performance, although the management of the Group’s investment portfolio
is delegated to the Investment Manager through the investment management agreement, as referred to on page 30.
The graph below compares, for the ten years to 30 June 2023, the share price total return (assuming all dividends are reinvested) to ordinary
shareholders compared to the total return on the FTSE EPRA Nareit UK Index. The index was chosen for comparative purposes as it represents
the performance of real estate companies and REITs listed on the London Stock Exchange; however, it should be noted that this index will
contain types of property assets that may perform significantly differently from the care home properties within the Group’s investment remit.
Share Price Total Return and the FTSE EPRA Nareit UK Index Total Return Performance Graph (rebased to 100 at 30 June 2013)
The share price total return performance included in the above graph is based on the listed share price of Target Healthcare REIT Limited to
7 August 2019 and, following the reconstruction of the Group to introduce a new listed parent company, Target Healthcare REIT plc thereafter.
Voting at Annual General Meeting on the Annual Directors’ Remuneration Report
At the Company’s previous AGM, held on 6 December 2022, shareholders approved the Directors’ Remuneration Report in respect of the year
ended 30 June 2022. 99.2 per cent of the votes cast were in favour of the resolution and votes withheld represented less than 2.7 per cent of
the shares in issue.
An ordinary resolution for the approval of this Annual Report on Directors’ Remuneration will be put to shareholders at the forthcoming
Annual General Meeting to be held on 29 November 2023.
On behalf of the Board
Amanda Thompsell
Director
9 October 2023
30/6/13
30/6/14
30/6/15
30/6/16
30/6/17
30/6/18
30/6/19
30/6/21
30/6/22
30/6/23
30/6/20
210
200
160
170
180
150
190
140
130
120
70
80
90
100
110
FTSE EPRA Nareit UK Index Total ReturnShare Price Total Return Sources: EPRA, Target Fund Managers Limited
54 Target Healthcare REIT plc
Independent Auditor’s Report
to the members of Target Healthcare REIT plc
Opinion
In our opinion:
– Target Healthcare REIT plc’s Group financial statements and Parent Company financial statements (the “financial statements”) give a true
and fair view of the state of the Group’s and of the Parent Company’s affairs as at 30 June 2023 and of the Group’s loss for the year then
ended;
– the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards;
– the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of Target Healthcare REIT plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year
ended 30 June 2023 which comprise:
Group Parent Company
Consolidated Statement of Comprehensive Income for the year
ended 30 June 2023
Statement of Financial Position for the year ended 30 June 2023
Consolidated Statement of Financial Position for the year ended
30 June 2023
Statement of Changes in Equity for the year ended 30 June 2023
Consolidated Statement of Changes in Equity for the year ended
30 June 2023
Related notes 1 to 12 to the financial statements including a summary
of significant accounting policies
Consolidated Statement of Cash Flows for the year ended
30 June 2023
Related notes 1 to 23 to the financial statements, including a
summary of significant accounting policies
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and UK adopted
international accounting standards. The financial reporting framework that has been applied in the preparation of the Parent Company
financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework”
(United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Group and Parent Company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company and we remain
independent of the Group and the Parent Company in conducting the audit.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation
of the financial statements is appropriate. Our evaluation of the directors’ assessment of the Group and Parent Company’s ability to continue
to adopt the going concern basis of accounting included:
– Confirming our understanding of the Group and Parent Company’s going concern assessment process and engaging with the directors
and the Company Secretary to determine if all key factors have been included in their assessment.
– Inspecting the directors’ assessment of going concern, including the revenue and expenses forecast for the period to 31 December 2024,
which is 12 months from the date the financial statements have been authorised for issue. In preparing the revenue and expenses forecast,
the Group and Parent Company have concluded that it is able to continue to meet its costs as they fall due.
– Reviewing the factors and assumptions, including the impact of external market factors, as applied to the revenue and expenses forecast.
We considered the appropriateness of the methods used to calculate the revenue and expenses forecast, and determined, through testing
of the methodology and calculations, that the methods, inputs and assumptions utilised were appropriate to be able to make an
assessment for the Group and Parent Company.
– In relation to the Group’s borrowing arrangements, inspecting the directors’ assessment of the risk of breaching the debt covenants as a
result of a reduction in the value of the Group’s portfolio. We recalculated the Group’s compliance with debt covenants in the scenarios
assessed by the directors and performed reverse stress testing in order to identify what factors would lead to the Group breaching the
financial covenants.
– Considering the mitigating factors included in the revenue forecasts and covenant calculations that are within the control of the Group.
– Reviewing the Group’s going concern disclosures included in the annual report in order to assess that the disclosures were appropriate
and in conformity with UK adopted international accounting standards.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the Group and Parent Company’s ability to continue as a going concern for a period to
31 December 2024, which is 12 months from the date the financial statements have been authorised for issue.
55Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
In relation to the Group and Parent Company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing
material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered
it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue
as a going concern.
Overview of our audit approach
Key audit matters – Incomplete or inaccurate recognition of rental income, including accounting for rental uplifts and
lease incentives
– Failure to recognise an appropriate expected credit loss
– Incorrect valuation or ownership of investment properties
Materiality – Overall Group materiality of £6.55m which represents 1% of Group net assets.
An overview of the scope of the Parent Company and Group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each
Company within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account
the risk profile, account size, the organisation of the group and changes in the business environment when assessing the level of work to be
performed at each Company. All audit work performed for the purposes of the audit was undertaken by the Group audit team which includes
our real estate valuation specialists.
Climate change
Stakeholders are increasingly interested in how climate change will impact Target Healthcare REIT plc. The Group and Parent Company has
determined that the most significant future impacts from climate change on their operations will be on the valuation of investment properties,
and potentially shareholder returns. These are explained on pages 24 to 25 in the principal risks and uncertainties. These disclosures form part
of the “Other information,” rather than the audited financial statements. Our procedures on these unaudited disclosures therefore consisted
solely of considering whether they are materially inconsistent with the financial statements or our knowledge obtained in the course of the
audit or otherwise appear to be materially misstated, in line with our responsibilities on “Other information”.
In planning and performing our audit we assessed the potential impacts of climate change on the Group’s business and any consequential
material impact on its financial statements.
Our audit effort in considering climate change was focused on the adequacy of the Group and Parent Company’s disclosures in the financial
statements as set out in note 1(a) which concludes that there was no further material impact of climate change to be taken into account
other than the potential impact on investment properties. Investment properties are valued at fair value based on open market valuations as
described in Note 1(h). The open market valuation assessment includes consideration of environmental matters and the condition of each
property with detail on the fair value of properties provided within the notes to the financial statements.
We also challenged the Directors’ considerations of climate change risks in their assessment of going concern and associated disclosures.
Based on our work we have not identified the impact of climate change on the financial statements to be a key audit matter or to impact
a key audit matter.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing
the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in
our opinion thereon, and we do not provide a separate opinion on these matters.
56 Target Healthcare REIT plc
Independent Auditor’s Report
to the members of Target Healthcare REIT plc continued
Risk Our response to the risk
Key observations communicated
to the Audit Committee
Incomplete or inaccurate recognition of rental
income including accounting for rental uplifts
and lease incentives
(Refer to Report of the Audit Committee (page 49)
and Accounting Policies (page 65))
During the year ended 30 June 2023, £67.66m
(2022: £59.02m) has been recognised by the Group
as rental income. Of this £56.35m (2022: £48.81m)
has been recorded as revenue in the Consolidated
Statement of Comprehensive Income and £11.31m
(2022: £10.22m) as capital relating to rent review
uplifts which are being spread over the applicable
lease term.
The rental income receivable by the Group during the
period is a significant factor in the Group’s decision
to make a dividend payment to shareholders. Rental
income from the investment properties is recognised
on an accrual basis with the exception of contingent
rents which are recognised on a receipt basis. The
lease agreements tend to have durations of multiple
years and minimum and maximum annual rental
increase clauses. Leases may also include lease
incentives such as rent-free periods. IFRS 16 ‘Leases’
requires that lessors recognise lease payments as
income on either a straight-line basis or another
systematic basis if that basis is more representative
of the pattern in which benefit derived from the
use of the underlying asset is diminished.
There is a risk of incomplete or inaccurate
recognition of rental income including rental uplifts
and lease incentives through the failure to recognise
the proper entitlements or applying the appropriate
accounting treatment.
We performed the following procedures:
We obtained an understanding of the processes and
controls surrounding rental income recognition including
accounting for rental uplifts and lease incentives by
performing walkthrough procedures.
We have reviewed the Group’s accounting policies in
respect of rental income recognition, including events
relating to re-tenanting, and ensured they have been
consistently applied throughout the year and are in
accordance with applicable accounting standards.
We have verified 100% of the rental rates to lease
agreements and recalculated 100% of the rental income
recognised.
We reperformed the calculations of the rental
adjustments required for rental uplifts and lease incentives
under IFRS 16 for all tenants and tested the allocation of
returns between revenue and capital.
We agreed a sample of rental income recorded as
received to bank statements.
We tested that a sample of expected rent receipts
had been recorded with reference to executed lease
agreements to ensure completeness.
We have confirmed there was no contingent rent
received in the period through review of the lease
agreements and rental calculations in the year.
The results of our
procedures identified no
material misstatement
in relation to the risk
of incomplete or
inaccurate recognition
of rental income
including accounting for
rental uplifts and lease
incentives.
Failure to recognise an appropriate expected
credit loss
(Refer to Accounting Policies (pages 64 and 67); and
Note 3 of the Consolidated Financial Statements
(page 69)).
As at 30 June 2023, a £1.97m (2022: £6.96m) credit
loss allowance has been recognised by the Group
against a gross receivable of £3.49m (2022: £8.50m).
The expected credit loss provision is a significant
balance within the Group’s net asset value. Incorrect
estimation of this provision could have a significant
impact on the current trade and other receivables.
The expected credit loss provision requires significant
judgement and estimates by the Manager. Any input
inaccuracies or unreasonable bases used in these
judgements and estimates (such as in respect to
the weighted probabilities of repayment within the
provision matrix in accordance with IFRS 9) could
result in a misstatement of the Statement of
Financial Position.
There is a risk that the expected credit loss
recognised is inappropriate due to the significant
judgements and estimates made by management.
We performed the following procedures:
We obtained an understanding of the processes and
controls surrounding the estimation of the expected credit
loss provision by performing walkthrough procedures.
We reviewed, challenged and corroborated with evidence,
the range of outcomes and probabilities assigned and
assessed the specific weighted credit loss outcomes to
ensure they appear reasonable.
We reviewed the methods used in calculating the
expected credit loss provision to ensure they are in line
with UK-adopted international accounting standards
guidance.
We agreed key known inputs for the expected credit
loss provision calculation to our audited working papers,
including obtaining evidence for write-offs agreed during
the year.
We reviewed any indicators post year end that the credit
loss model was not appropriate based on subsequent
information and consider whether any such information
would have been available at year end.
The results of our
procedures identified no
material misstatement
in relation to the risk of
failure to recognise an
appropriate expected
credit loss.
57Annual Report and Financial Statements 2023
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Risk Our response to the risk
Key observations communicated
to the Audit Committee
Incorrect valuation or ownership
of investment properties
(Refer to Report of the Audit Committee (page 49);
Accounting policies (pages 66 and 67); and Note 9
to the Consolidated Financial Statements (pages 72
and 73).
At 30 June 2023, the Group’s investment portfolio
consisted of UK healthcare properties, with a market
value of £868.71m (2022: £911.60m) and carrying
value of £800.16m (2022: £857.69m), which is net of
a deduction of £68.55m (2022: £56.71m) to account
for lease incentives and rent reviews. The Parent
Company investment portfolio consisted of UK
healthcare properties, with a market value of £7.52m
(2022: £7.63m) and a carrying value of £7.43m (2022:
£7.63m) which is a net deduction of £0.09m (2022:
nil) to account for lease incentives and rent reviews.
The valuation of the properties held in the investment
portfolio, and unrealised gain/(losses) on the
investment portfolio are the key drivers of the Group’s
net asset value and total return. Incorrect pricing,
including the judgement involved in the valuation of
property investments could have a significant impact
on the portfolio valuation and the return generated
for shareholders.
The valuation of investment property requires
significant judgement and estimates by the Manager
and the external valuers. Any input inaccuracies or
unreasonable bases used in these judgements and
estimates (such as in respect of estimated rental value
and yield profile applied) could result in a material
misstatement of the Statement of Financial Position
and in the Statement of Comprehensive Income.
The properties are valued externally on behalf of the
Group by Colliers International Healthcare Property
Consultants Limited (‘Colliers’) and recorded in the
Consolidated Financial Statements at their carrying
value, being the Colliers open market valuation
adjusted for the impact of lease incentives and rental
uplifts.
Failure to maintain proper legal title of the Group’s
investment properties could result in assets being
incorrectly recognised within the Statement of
Financial Position.
The valuation of investment properties and the
resultant impact on unrealised gains/(losses) is
the area requiring the most significant judgement
and estimation in the preparation of the financial
statements and has been classified as an area of
fraud risk as highlighted below on page 59.
We performed the following procedures:
We obtained an understanding of the processes and
controls surrounding investment valuation and unrealised
gains and losses by performing walkthrough procedures.
We agreed the value of all the properties held at the
year end to the open market valuations included in the
valuation report provided by Colliers.
We agreed a sample of inputs used by Colliers in the
valuation to source data.
We used our property valuation specialists to perform
a review of the property valuations, which included:
– Evaluating the competency, capability, objectivity
and work performed by Colliers;
– Reviewing the assumptions used by Colliers in
undertaking their valuation and an assessment of
the valuation methodology adopted;
– Holding discussions with Colliers which included a
high-level overview of the portfolio, covenant strength
of the tenants within the portfolio and historic rent
cover for a sample of properties;
– Reviewing a sample of the individual property
valuations as at 30 June 2023 and examining key
valuation inputs;
– Analysing key changes in the property valuation as
a whole including a review of the reasonableness of
the income yields for the properties; and
– Reviewing the impact of the expected credit loss
calculations and memo on a sample of property
valuations.
We reviewed the accounting policy and recalculated the
adjustments made to the Colliers’ fair value in respect of
lease incentives and guaranteed rent reviews, to validate
the carrying value of investment property.
We ensured the consolidated financial statements
contain adequate disclosures regarding the methods and
assumption used in the valuation, including the required
sensitivity analysis under IFRS 13 ‘Fair value measurement’.
We obtained direct confirmation from independent third
parties of the legal title to investment properties and
forward funding development sites held as at 30 June
2023.
We agreed a sample of key transaction details
(e.g. property and trade date) of purchases and sales
recorded by the Administrator to legal agreements,
completion statements and bank statements.
We recalculated the unrealised gains/losses on
investment properties as at the year-end using the
book cost reconciliation.
The results of our
procedures identified no
material misstatement
in relation to the risk
of incorrect valuation,
calculation of unrealised
gains/(losses) or
ownership of investment
properties and properties
held for sale.
In the current year, we have included the failure to recognise an appropriate expected credit loss as a key audit matter to align our audit
approach across the Group and subsidiary audits.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit
and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic
decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.
58 Target Healthcare REIT plc
Independent Auditor’s Report
to the members of Target Healthcare REIT plc continued
We determined materiality for the Group to be £6.55m (2022: £6.99m), which is 1% (2022: 1%) of net assets. We believe that net assets provides
us with materiality aligned to a key measurement of the Group’s performance.
We determined materiality for the Parent Company to be £6.55 million (2022: £6.99 million), which is 1% (2022: 1%) of net assets.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that
performance materiality was 75% (2022: 75%) of our planning materiality, namely £4.91m (2022: £5.24m). We have set performance materiality
at this percentage due to our past experience of the audit that indicates a lower risk of misstatements, both corrected and uncorrected.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.33m (2022: £0.35m), which
is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other
relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report other than the financial statements and our auditor’s report
thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this
report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the
financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement
in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the
other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
– the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
– the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the
audit, we have not identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if,
in our opinion:
– adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from
branches not visited by us; or
– the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
– certain disclosures of directors’ remuneration specified by law are not made; or
– we have not received all the information and explanations we require for our audit.
Corporate Governance Statement
We have reviewed the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance
Statement relating to the Group and Company’s compliance with the provisions of the UK Corporate Governance Code specified for our
review by the Listing Rules.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the financial statements or our knowledge obtained during the audit:
– Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties
identified set out on page 34;
– Directors’ explanation as to its assessment of the Company’s prospects, the period this assessment covers and why the period is
appropriate set out on pages 34 and 35;
59Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
– Directors’ statement on whether it has a reasonable expectation that the group will be able to continue in operation and meets its liabilities
set out on page 35;
– Directors’ statement on fair, balanced and understandable set out on page 32;
– Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 25;
– The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on
pages 47 and 48; and;
– The section describing the work of the audit committee set out on page 45 to 50.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 39, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group and Parent Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of
not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations,
or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the Company
and management.
– We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most significant
are the Companies Act 2006, the Listing Rules, the UK Corporate Governance Code, the Association of Investment Companies’ Code and
Statement of Recommended Practice, Part 12 of the Corporation Tax Act 2010, the Companies (Miscellaneous Reporting) Regulations 2018
and, for the Group, UK adopted international accounting standards, and for the Parent Company, FRS 101 “Reduced Disclosure Framework”.
– We understood how the Group is complying with those frameworks through discussions with the Audit Committee and Company
Secretary and review of documented policies and procedures.
– We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur by
considering the key risks impacting the financial statements. We identified fraud risks with respect to the incomplete or inaccurate
recognition of rental income including accounting for rental uplifts and lease incentives; and incorrect valuation and the calculation of
unrealised gains/(losses) of investment properties. Further discussion of our approach is set out in the section on key audit matters above.
– Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our
procedures involved substantive audit procedures including a review of legal expenses incurred, review of the reporting to the directors
with respect to the application of the documented policies and procedures and review of the financial statements to ensure compliance
with the reporting requirements of the Group and Parent Company.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters we are required to address
– Following the recommendation from the audit committee we were appointed as auditors of the Group, whose Parent Company at that
time was Target Healthcare REIT Limited, on 10 September 2013. Following a Group reconstruction in August 2019, Target Healthcare
REIT plc became the Parent Company of the Group and re-appointed us as auditor of the Group on 4 September 2019.
The period of total uninterrupted engagement following reconstruction and including previous renewals and reappointments is four years,
covering the years ending 30 June 2020 to 30 June 2023.
– The audit opinion is consistent with the additional report to the audit committee.
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Matthew Price (Senior Statutory Auditor)
For and on behalf of Ernst & Young LLP, Statutory Auditor
London
9 October 2023
60 Target Healthcare REIT plc
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2023
Year ended 30 June 2023 Year ended 30 June 2022
Notes
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
Rental income 56,354 11 , 308 6 7, 6 6 2 48 , 8 07 10, 2 1 5 59,02 2
Other rental income – – – 79 6 3,877 4,67 3
Other income 86 – 86 16 4 – 164
Total revenue 56,4 40 11 ,308 6 7, 7 4 8 49,76 7 14 , 09 2 63,85 9
(Losses)/gains on revaluation of
investment properties
9 – (5 4,021 ) (5 4,021 ) – 5, 553 5 ,553
Gains on investment properties realised
9 – 57 5 575 – – –
Losses on revaluation of properties
held for sale – – – – (7 ) (7 )
Total income 56,4 40 (42 , 1 3 8 ) 14, 302 4 9, 767 19,638 69,4 0 5
Expenditure
Investment management fee
2 (7 ,428 ) – (7 ,428 ) (7, 3 0 7 ) – (7, 3 0 7 )
Credit loss allowance and bad debts
3 (264 ) – (264 ) (3,232 ) – (3,232 )
Other expenses
3 (3, 046 ) – (3,046 ) (3,163 ) – (3,163 )
Total expenditure (10,738 ) – (10,738 ) (1 3, 702 ) – (1 3, 702 )
Profit/(loss) before finance costs
and taxation 45 ,702 (4 2 , 1 38 ) 3 ,564 36 ,065 19,638 5 5, 703
Net finance costs
Interest income
4 134 – 134 71 – 71
Finance costs
5 (9, 5 72 ) (698 ) (10,270 ) (6,67 1 ) – (6,671 )
Net finance costs (9,43 8 ) (698 ) (10,1 36 ) (6 ,60 0 ) – (6,60 0 )
Profit/(loss) before taxation 36,264 (42 ,836 ) (6, 572 ) 2 9,4 65 19,638 49,10 3
Taxation
6 – – – (6 ) – (6 )
Profit/(loss) for the year 36,264 (42 ,836 ) (6, 57 2 ) 29,45 9 19, 638 49,0 97
Other comprehensive income:
Items that are or may be reclassified
subsequently to profit or loss
Movement in fair value of interest rate
derivatives designated as cash flow
hedges
13 – 2 , 74 2 2 , 74 2 – 2,03 3 2,03 3
Total comprehensive income for
the year 36,264 (40,0 94 ) (3,830 ) 29,459 21 ,671 51 ,1 3 0
Earnings per share (pence)
8 5. 85 (6 .91 ) (1 .0 6 ) 4 .92 3 . 28 8 . 20
The total column of this statement represents the Group’s Consolidated Statement of Comprehensive Income, prepared in accordance
with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association
of Investment Companies.
All revenue and capital items in the above statement are derived from continuing operations. No operations were discontinued in the year.
The accompanying notes are an integral part of these financial statements.
61Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
Consolidated Statement of Financial Position
As at 30 June 2023
Notes
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Non-current assets
Investment properties
9 8 00, 155 8 5 7, 6 9 1
Trade and other receivables
10 76 , 37 3 6 3,6 51
Interest rate derivatives
13 6,905 2 , 284
Current assets
Trade and other receivables
10 9,4 59 5 ,5 49
Cash and cash equivalents
12 1 5, 366 34,4 83
Total assets 908,258 96 3,658
Non-current liabilities
Loans
13 (2 2 7, 0 5 1 ) (231,383 )
Trade and other payables
14 (8, 0 93 ) (7, 1 4 5 )
(235 , 144 ) (238, 528 )
Current liabilities
Trade and other payables
14 (18 ,3 06 ) (26 ,3 63 )
Total liabilities (253,45 0 ) (264,891 )
Net assets 654,808 698 , 76 7
Share capital and reserves
Share capital
15 6, 202 6 ,2 02
Share premium 256 ,633 25 6,633
Merger reserve 4 7, 7 5 1 4 7, 7 5 1
Distributable reserve 187 ,887 2 26,4 61
Hedging reserve 5,026 2, 28 4
Capital reserve 40,914 83,7 50
Revenue reserve 110, 395 75,686
Equity shareholders’ funds 654,808 698 , 76 7
Net asset value per ordinary share (pence)
8 105 .6 1 1 2.7
Company number: 11990238.
The financial statements on pages 60 to 80 were approved by the Board of Directors and authorised for issue on 9 October 2023 and were
signed on its behalf by:
Alison Fyfe
Chair
The accompanying notes are an integral part of these financial statements.
62 Target Healthcare REIT plc
Consolidated Statement of Changes in Equity
For the year ended 30 June 2023
Notes
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Distributable
reserve
£’000
Hedging
reserve
£’000
Capital
reserve
£’000
Revenue
reserve
£’000
Total
£’000
At 30 June 2022 6,2 02 256 ,633 4 7, 7 5 1 226 ,461 2, 284 83,750 75 ,68 6 698,767
Total comprehensive income
for the year – – – – 2 , 74 2 (42,836 ) 36,264 (3, 830 )
Transactions with owners
recognised in equity:
Dividends paid
7 – – – (3 8 , 5 74 ) – – (1 , 555 ) (40 , 12 9 )
At 30 June 2023 6, 202 2 56 ,633 4 7, 7 5 1 187,887 5,026 40,914 110, 395 654,808
Notes
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Distributable
reserve
£’000
Hedging
reserve
£’000
Capital
reserve
£’000
Revenue
reserve
£’000
Total
£’000
At 30 June 2021 5,1 15 13 5, 2 28 4 7, 7 5 1 265 ,16 4 2 51 6 4,1 12 47, 5 6 4 565,185
Total comprehensive income
for the year – – – – 2,03 3 19, 638 29,459 51 ,1 30
Transactions with owners
recognised in equity:
Dividends paid
7 – – – (38,70 3 ) – – (1, 337 ) (40, 040 )
Issue of ordinary shares
15 1,0 87 1 23 ,9 1 3 – – – – – 125, 000
Expenses of issue
15 – (2 ,508 ) – – – – – (2,50 8 )
At 30 June 2022 6 , 202 256,6 33 4 7, 7 5 1 226 ,4 61 2, 28 4 83,7 50 75,686 6 98 , 76 7
The accompanying notes are an integral part of these financial statements.
For the year ended 30 June 2022
63Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
Consolidated Statement of Cash Flows
For the year ended 30 June 2023
Notes
Year ended
30 June 2023
£’000
Year ended
30 June 2022
£’000
Cash flows from operating activities
(Loss)/profit before tax (6, 572 ) 49,103
Adjustments for:
Interest income (1 34 ) (71 )
Finance costs 10, 270 6,671
Revaluation gains on investment properties and movements in lease incentives,
net of acquisition costs written off
9 42, 1 38 (19, 6 45 )
Revaluation losses on properties held for sale – 7
Increase in trade and other receivables (4, 5 50 ) (3 ,76 8 )
(Decrease)/increase in trade and other payables (325 ) 3,340
Interest paid (8,71 9 ) (5 , 310 )
Premium paid on interest rate cap (2 , 57 7 ) –
Interest received 134 71
Tax paid – (6 )
(11 , 162 ) (5 , 24 5 )
Net cash inflow from operating activities 29, 66 5 3 0, 392
Cash flows from investing activities
Purchase of investment properties and properties held for sale, including acquisition costs (29,3 42 ) (2 0 6 ,993 )
Disposal of investment properties and properties held for sale, net of lease incentives 25 ,789 4,360
Net cash outflow from investing activities (3,553 ) (20 2,633 )
Cash flows from financing activities
Issue of ordinary share capital
15 – 125, 000
Expenses of issue of ordinary share capital
15 – (2, 508 )
Drawdown of bank loan facilities
13 62,000 222,000
Repayment of bank loan facilities
13 (66,750 ) (117 ,250 )
Expenses of arrangement of bank loan facilities
13 (205 ) (1, 839 )
Dividends paid (4 0 , 2 74 ) (39,78 5 )
Net cash (outflow)/inflow from financing activities (45 , 2 29 ) 185,618
Net (decrease)/increase in cash and cash equivalents (1 9, 1 17 ) 13,37 7
Opening cash and cash equivalents 34,4 83 21 , 106
Closing cash and cash equivalents
12 1 5, 366 34,4 83
Transactions which do not require the use of cash
Movement in fixed or guaranteed rent reviews and lease incentives 13 , 516 1 2 ,14 8
Fixed or guaranteed rent reviews derecognised on disposal or re-tenanting (7 32 ) (3, 362 )
Total 12 ,78 4 8 ,786
The accompanying notes are an integral part of these financial statements.
64 Target Healthcare REIT plc
Notes to the Consolidated Financial Statements
1. Accounting policies
65Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
66 Target Healthcare REIT plc
Notes to the Consolidated Financial Statements continued
1. Accounting policies continued
(c) Revenue recognition continued
67Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
68 Target Healthcare REIT plc
Notes to the Consolidated Financial Statements continued
1. Accounting policies continued
2. Fee paid to the Investment Manager
Year ended
30 June 2023
£’000
Year ended
30 June 2022
£’000
Investment management fee 7,428 7,307
Total 7,428 7,307
The Group’s Investment Manager and Alternative Investment Fund Manager (‘AIFM’) is Target Fund Managers Limited. The Investment Manager
is entitled to an annual management fee calculated on a tiered basis based on the net assets of the Group as set out below. Where applicable,
VAT is payable in addition.
Net assets of the Group
Management fee
percentage
Up to and including £500 million 1.05
Above £500 million and up to and including £750 million 0.95
Above £750 million and up to and including £1 billion 0.85
Above £1 billion and up to and including £1.5 billion 0.75
Above £1.5 billion 0.65
The Investment Manager is entitled to an additional fee of £141,000 per annum (plus VAT), increasing annually in line with inflation, in relation
to their appointment as Company Secretary and Administrator to the Group.
The Investment Management Agreement can be terminated by either party on 24 months’ written notice. Should the Company terminate the
Investment Management Agreement earlier then compensation in lieu of notice will be payable to the Investment Manager. The Investment
Management Agreement may be terminated immediately without compensation if the Investment Manager: is in material breach of the
agreement; is guilty of negligence, wilful default or fraud; is the subject of insolvency proceedings; or there occurs a change of Key Managers
to which the Board has not given its prior consent.
69Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
3. Other expenses
Year ended
30 June 2023
£’000
Year ended
30 June 2022
£’000
Total movement in credit loss allowance (4,991) 2,865
Bad debts written off 5,255 367
Credit loss allowance charge 264 3,232
Valuation and other professional fees 1,131 1,143
Auditor’s remuneration for:
– statutory audit of the Company 131 118
– statutory audit of the Company’s subsidiaries 221 230
– review of interim financial information 16 16
Other taxation compliance and advisory* 258 361
Public relations and marketing 229 327
Directors’ fees 218 214
Secretarial and administration fees 208 177
Direct property costs 182 160
Printing, postage and website 95 111
Listing and Registrar fees 114 102
Other 243 204
Total other expenses 3,046 3,163
* The other taxation compliance and advisory fees were all paid to parties other than the Company’s Auditor.
The valuers of the investment properties, Colliers International Healthcare Property Consultants Limited, have agreed to provide valuation
services in respect of the property portfolio. The valuation agreement states that annual fees will be payable quarterly based on rates of
0.05 per cent of the aggregate value of the property portfolio up to £30 million, 0.04 per cent up to £60 million and 0.035 per cent greater
than £60 million.
Expenses are inclusive of irrecoverable VAT as the Company, and the majority of its subsidiaries, are not VAT registered.
6. Taxation
Year ended
30 June 2023
£’000
Year ended
30 June 2022
£’000
Current tax – 6
Adjustment to tax charge for prior years – –
Total tax charge – 6
70 Target Healthcare REIT plc
Notes to the Consolidated Financial Statements continued
6. Taxation continued
A reconciliation of the corporation tax charge applicable to the results at the statutory corporation tax rate to the charge for the year is as follows:
Year ended
30 June 2023
£’000
Year ended
30 June 2022
£’000
(Loss)/profit before tax (6,572) 49,103
Tax at 20.5% (2022: 19.0%) (1,347) 9,330
Effects of:
REIT exempt profits (8,665) (6,671)
REIT exempt losses/(gains) 11,152 (1,642)
Capital allowances (1,577) (1,642)
Excess management expenses carried forward 286 624
Expenses not deductible for tax purposes 151 7
Total tax charge – 6
The Directors intend to conduct the Company’s affairs such that management and control is exercised in the United Kingdom and so that the
Company carries on any trade in the United Kingdom.
Subject to continuing relevant UK-REIT criteria being met, the profits from the Group’s property rental business, arising from both income and
capital gains, are exempt from corporation tax.
The Group has unutilised tax losses carried forward in its residual business of £12.5 million at 30 June 2023 (2022: £10.6 million). No deferred
tax asset has been recognised on this amount as the Group cannot be certain that there will be taxable profits arising within its residual
business from which the future reversal of the deferred tax asset could be deducted.
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72 Target Healthcare REIT plc
Notes to the Consolidated Financial Statements continued
9. Investment properties
Freehold and leasehold properties
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Opening market value 911,596 677,525
Opening fixed or guaranteed rent reviews and lease incentives (56,705) (47,919)
Opening performance payments 2,800 1,550
Opening carrying value 857,691 631,156
Disposals – proceeds (26,728) –
– gain on sale 6,088 –
Purchases and performance payments 23,494 199,869
Transfer from properties held for sale – 6,830
Acquisition costs capitalised 273 9,671
Acquisition costs written off (273) (9,671)
Unrealised gain realised during the year (5,513) –
Revaluation movement – gains 3,645 43,234
Revaluation movement – losses (43,877) (15,862)
Movement in market value (42,891) 234,071
Fixed or guaranteed rent reviews and lease incentives derecognised on disposal or re-tenanting 1,671 3,362
Movement in fixed or guaranteed rent reviews and lease incentives (13,516) (12,148)
Movement in performance payments (2,800) 1,250
Movement in carrying value (57,536) 226,535
Closing market value 868,705 911,596
Closing fixed or guaranteed rent reviews and lease incentives (68,550) (56,705)
Closing performance payments (see Note 18) – 2,800
Closing carrying value 800,155 857,691
Changes in the valuation of investment properties
Year ended
30 June 2023
£’000
Year ended
30 June 2022
£’000
Gain on sale of investment properties 6,088 –
Unrealised gain realised during the year (5,513) –
Gain on sale of investment properties realised 575 –
Revaluation movement (40,232) 27,372
Acquisition costs written off (273) (9,671)
Movement in lease incentives (2,208) (1,933)
Movement in fixed or guaranteed rent reviews (11,308) (10,215)
(Losses)/gains on revaluation of investment properties (53,446) 5,553
The investment properties can be analysed as follows:
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Standing assets 851,305 892,336
Developments under forward fund agreements 17,400 19,260
Closing market value 868,705 911,596
The properties were valued at £868,705,000 (2022: £911,596,000) by Colliers International Healthcare Property Consultants Limited (‘Colliers’),
in their capacity as external valuers. The valuation was undertaken in accordance with the RICS Valuation – Global Standards, incorporating
the International Valuation Standards (the ‘Red Book Global’, 31 January 2022) issued by the Royal Institution of Chartered Surveyors (‘RICS’)
on the basis of Market Value, supported by reference to market evidence of transaction prices for similar properties. Colliers has recent
experience in the location and category of the investment properties being valued.
Market Value represents the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and
a willing seller in an arm’s length transaction, after proper marketing where the parties had each acted knowledgeably, prudently and without
compulsion. The quarterly property valuations are reviewed by the Board at each Board meeting. The fair value of the properties after adjusting
for the movement in the fixed or guaranteed rent reviews and lease incentives was £800,155,000 (2022: £857,691,000). The adjustment
consisted of £59,378,000 (2022: £48,802,000) relating to fixed or guaranteed rent reviews and £9,172,000 (2022: £7,903,000) of accrued
income relating to the recognition of rental income over rent free periods subsequently amortised over the life of the lease, which are both
separately recorded in the accounts as non-current or current assets within ‘trade and other receivables’ (see Note 10). An adjustment is also
made to reflect the amount by which the portfolio value is expected to increase if the performance payments recognised in ‘trade and other
payables’ are paid and the passing rent at the relevant property increased accordingly (see Notes 14 and 18). The total purchases in the year to
30 June 2023, excluding the performance payments recognised in the prior year, were £20,694,000 (2022: £201,119,000).
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10. Trade and other receivables
Non-current trade and other receivables
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Fixed rent reviews 59,378 48,802
Rental deposits held in escrow for tenants 8,093 7,145
Lease incentives 8,902 7,704
Total 76,373 63,651
74 Target Healthcare REIT plc
Notes to the Consolidated Financial Statements continued
10. Trade and other receivables continued
12. Cash and cash equivalents
All cash balances at the year-end were held in cash, current accounts or deposit accounts.
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Cash at bank and in hand 12,745 34,020
Short-term deposits 2,621 463
Total 15,366 34,483
13. Loans
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Principal amount outstanding 230,000 234,750
Set-up costs (4,520) (4,315)
Amortisation of set-up costs 1,571 948
Total 227,051 231,383
In November 2020, the Group entered into a £70,000,000 committed term loan and revolving credit facility with the Royal Bank of Scotland plc
(‘RBS’) which is repayable in November 2025. Interest accrues on the bank loan at a variable rate, based on SONIA plus margin and mandatory
lending costs, and is payable quarterly. The margin is 2.18 per cent per annum on £50,000,000 of the facility and 2.33 per cent per annum
on the remaining £20,000,000 revolving credit facility, both for the duration of the loan. A non-utilisation fee of 1.13 per cent per annum is
payable on the first £20,000,000 of any undrawn element of the facility, reducing to 1.05 per cent per annum thereafter. As at 30 June 2023,
the Group had drawn £30,000,000 under this facility (2022: £50,000,000).
In November 2020, the Group entered into a £100,000,000 revolving credit facility with HSBC Bank plc (‘HSBC’) which is repayable in
November 2025. Interest accrues on the bank loan at a variable rate, based on SONIA plus margin and mandatory lending costs, and is payable
quarterly. The margin is 2.17 per cent per annum for the duration of the loan and a non-utilisation fee of 0.92 per cent per annum is payable
on any undrawn element of the facility. As at 30 June 2023, the Group had drawn £50,000,000 under this facility (2022: £34,750,000).
In January 2020 and November 2021, the Group entered into committed term loan facilities with Phoenix Group of £50,000,000 and
£37,250,000, respectively. Both these facilities are repayable on 12 January 2032. The Group has a further committed term loan facility with
Phoenix Group of £62,750,000 which is repayable on 12 January 2037. Interest accrues on these three loans at aggregate annual fixed rates
of interest of 3.28 per cent, 3.13 per cent and 3.14 per cent, respectively and is payable quarterly. As at 30 June 2023, the Group had drawn
£150,000,000 under these facilities (2022: £150,000,000).
The following interest rate derivatives were in place during the year ended 30 June 2023:
Notional Value Starting Date Ending Date Interest paid Interest received Counterparty
30,000,000 5 November 2020 5 November 2025 0.30% Daily compounded SONIA (floor at -0.08%) RBS
50,000,000 1 November 2022 5 November 2025 nil Daily compounded SONIA above 3.0% cap HSBC
The Group paid a premium of £2,577,000, inclusive of transaction costs of £169,000, on entry into the £50,000,000 interest rate cap.
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At 30 June 2023, inclusive of the interest rate derivatives, the interest rate on £230,000,000 of the Group’s borrowings has been capped,
including the amortisation of loan arrangement costs, at an all-in rate of 3.70 per cent per annum until at least 5 November 2025. The
remaining £90,000,000 of debt, which was undrawn at 30 June 2023, would, if fully drawn, carry interest at a variable rate equal to daily
compounded SONIA plus a weighted average lending margin, including the amortisation of loan arrangement costs, of 2.46 per cent per
annum.
The aggregate fair value of the interest rate derivatives held at 30 June 2023 was an asset of £6,905,000 (2022: £2,284,000). The Group
categorises all interest rate derivatives as level 2 in the fair value hierarchy (see Note 9 for further explanation of the fair value hierarchy).
At 30 June 2023, the nominal value of the Group’s loans equated to £230,000,000 (2022: £234,750,000). Excluding the interest rate derivatives
referred to above, the fair value of these loans, based on a discounted cashflow using the market rate on the relevant treasury plus an estimated
margin based on market conditions at 30 June 2023, totalled, in aggregate, £190,328,000 (2022: £212,493,000). The payment required to
redeem the loans in full, incorporating the terms of the Spens clause in relation to the Phoenix Group facilities, would have been £209,898,000
(2022: £239,728,000). The loans are categorised as level 3 in the fair value hierarchy.
The RBS loan is secured by way of a fixed and floating charge over the majority of the assets of the THR Number One plc Group (‘THR1 Group’)
which consists of THR1 and its five subsidiaries. The Phoenix Group loans of £50,000,000 and £37,250,000 are secured by way of a fixed
and floating charge over the majority of the assets of the THR Number 12 plc Group (‘THR12 Group’) which consists of THR12 and its eight
subsidiaries. The Phoenix Group loan of £62,750,000 is secured by way of a fixed and floating charge over the majority of the assets of THR
Number 43 plc (‘THR43’). The HSBC loan is secured by way of a fixed and floating charge over the majority of the assets of the THR Number 15
plc Group (‘THR15 Group’) which consists of THR15 and its 18 subsidiaries. In aggregate, the Group has granted a fixed charge over properties
with a market value of £762,100,000 as at 30 June 2023 (2022: £795,949,000).
Under the covenants related to the loans, the Group is to ensure that:
– the loan to value percentage for each of THR1 Group and THR15 Group does not exceed 50 per cent;
– the loan to value percentage for THR12 Group and THR43 does not exceed 60 per cent;
– the interest cover for THR1 Group is greater than 225 per cent (30 June 2022: 300 per cent) on any calculation date;
– the interest cover for THR15 Group is greater than 200 per cent (30 June 2022: 300 per cent) on any calculation date; and
– the debt yield for each of THR12 Group and THR43 is greater than 10 per cent on any calculation date.
During the year ended 30 June 2023, the Group entered into agreements with HSBC and RBS to relax the interest cover covenants on the
relevant loans with effect from 1 January 2023. All other significant terms of the facilities remained unchanged. All loan covenants have been
complied with during the year.
Analysis of net debt:
Cash and cash
equivalents
2023
£’000
Borrowing
2023
£’000
Net debt
2023
£’000
Cash and cash
equivalents
2022
£’000
Borrowing
2022
£’000
Net debt
2022
£’000
Opening balance 34,483 (231,383) (196,900) 21,106 (127,904) (106,798)
Cash flows (19,117) 4,955 (14,162) 13,377 (102,911) (89,534)
Non-cash flows – (623) (623) – (568) (568)
Closing balance as at 30 June 15,366 (227,051) (211,685) 34,483 (231,383) (196,900)
14. Trade and other payables
Non-current trade and other payables
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Rental deposits 8,093 7,145
Total 8,093 7,145
Current trade and other payables
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Rental income received in advance 8,239 8,390
Property acquisition and development costs accrued 3,875 8,892
Performance payments – 2,800
Investment Manager’s fees payable 1,835 1,895
Interest payable 1,992 1,762
Other payables 2,365 2,624
Total 18,306 26,363
The Group’s payment policy is to ensure settlement of supplier invoices in accordance with stated terms.
76 Target Healthcare REIT plc
Notes to the Consolidated Financial Statements continued
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78 Target Healthcare REIT plc
Notes to the Consolidated Financial Statements continued
16. Financial instruments continued
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80 Target Healthcare REIT plc
Notes to the Consolidated Financial Statements continued
21. Operating segments
The Board has considered the requirements of IFRS 8 ‘Operating Segments’. The Board is of the view that the Group is engaged in a single
segment of business, being property investment, and in one geographical area, the United Kingdom, and that therefore the Group has only
a single operating segment. The Board of Directors, as a whole, has been identified as constituting the chief operating decision maker of the
Group. The key measure of performance used by the Board to assess the Group’s performance is the EPRA NTA. The reconciliation between
the NAV, as calculated under IFRS, and the EPRA NTA is detailed in Note 8.
The view that the Group is engaged in a single segment of business is based on the following considerations:
– One of the key financial indicators received and reviewed by the Board is the total return from the property portfolio taken as a whole;
– There is no active allocation of resources to particular types or groups of properties in order to try to match the asset allocation of the
benchmark; and
– The management of the portfolio is ultimately delegated to a single property manager, Target.
22. Post balance sheet events
Subsequent to the year end, the Group acquired a pre-let development site subject to a forward funding agreement to construct a 66-bed
care home in Weston-super-Mare, Somerset for a maximum commitment of £16.0 million including acquisition costs. Construction on the
home has commenced and is expected to be completed in the summer of 2024.
81Annual Report and Financial Statements 2023
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Company Statement of Financial Position
As at 30 June 2023
Notes
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Non-current assets
Investment in subsidiary undertakings
3 699,223 698,341
Investment properties
4 7,433 7,626
Trade and other receivables
5 197 114
706,853 706,081
Current assets
Trade and other receivables
5 8,161 8,285
Cash and cash equivalents
6 139 9,406
8,300 17,691
Total assets 715,153 723,772
Non-current liabilities
Trade and other payables
7 (110) (110)
Current liabilities
Trade and other payables
7 (20,563) (2,638)
Total liabilities (20,673) (2,748)
Net assets 694,480 721,024
Share capital and reserves
Share capital
8 6,202 6,202
Share premium
8 256,633 256,633
Merger reserve 47,751 47,751
Distributable reserve 249,436 288,010
Capital reserve 93,334 120,873
Revenue reserve 41,124 1,555
Equity shareholders’ funds 694,480 721,024
Net asset value per ordinary share (pence)
9 112.0 116.2
Company number: 11990238
The Company made a profit for the year ended 30 June 2023 of £13,585,000 (2022: £74,776,000).
The financial statements on pages 81 to 90 were approved by the Board of Directors and authorised for issue on 9 October 2023 and were
signed on its behalf by:
Alison Fyfe
Chair
The accompanying notes are an integral part of these financial statements.
82 Target Healthcare REIT plc
Company Statement of Changes in Equity
For the year ended 30 June 2023
Notes
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Distributable
reserve
£’000
Capital
reserve
£’000
Revenue
reserve
£’000
Total
£’000
At 30 June 2022 6,202 256,633 47,751 288,010 120,873 1,555 721,024
Total comprehensive income for the year – – – – (27,539) 41,124 13,585
Transactions with owners recognised in equity:
Dividends paid
2 – – – (38,574) – (1,555) (40,129)
At 30 June 2023 6,202 256,633 47,751 249,436 93,334 41,124 694,480
For the year ended 30 June 2022
Notes
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Distributable
reserve
£’000
Capital
reserve
£’000
Revenue
reserve
£’000
Total
£’000
At 30 June 2021 5,115 135,228 47,751 326,713 47,652 1,337 563,796
Total comprehensive income for the year – – – – 73,221 1,555 74,776
Transactions with owners recognised in equity:
Dividends paid
2 – – – (38,703) – (1,337) (40,040)
Issue of ordinary shares
8 1,087 123,913 – – – – 125,000
Expenses of issue
8 – (2,508) – – – – (2,508)
At 30 June 2022 6,202 256,633 47,751 288,010 120,873 1,555 721,024
The accompanying notes are an integral part of these financial statements.
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Notes to the Company Financial Statements
1. Accounting policies
(a) Basis of preparation
A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below.
Basis of accounting
The Company Financial Statements have been prepared in accordance with FRS 101: Reduced Disclosure Framework and applicable legal
and regulatory requirements of the Companies Act 2006.
Where presentational guidance set out in the Statement of Recommended Practice (‘SORP’) for investment trust companies issued by the
Association of Investment Companies (‘AIC’) in July 2022 is consistent with the requirements of FRS 101, the Directors have sought to prepare
the financial statements on a basis compliant with the recommendations of the SORP.
The notes and financial statements are presented in pounds sterling (being the functional currency and presentational currency for the
Company) and are rounded to the nearest thousand except where otherwise indicated.
The results of the Company have been included in the Consolidated Financial Statements as presented on pages 60 to 80. The accounting
policies adopted are consistent with those adopted by the Group as stated in Note 1 to the Consolidated Financial Statements. The only
additional policies applied are in relation to investments in subsidiary undertakings and dividends received and these are set out below.
The Company has taken advantage of the following exemptions permitted under FRS 101:
– an exemption from preparing the Company cash flow statement and related notes;
– an exemption from listing any new or revised standards that have not been adopted or providing information about their likely impact; and
– an exemption from disclosing transactions between the Company and its wholly-owned subsidiaries.
Going concern
In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council.
After making enquiries, and bearing in mind the nature of the Group’s business and assets, the Directors consider that the Group has adequate
resources to continue in operational existence for the foreseeable future and at least the next twelve months from the date of issuance of this
report. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
Further explanation of the assessment undertaken is provided in the Consolidated Financial Statements on page 65.
Investments in subsidiary undertakings
Investments in subsidiary undertakings are stated at fair value with changes in fair value recognised in profit or loss. Investments in subsidiaries
are initially recognised at fair value at the date at which control is acquired, with subsequent gains or losses arising from changes in fair value
being recognised in net profit or loss for the period as a capital item and transferred to the Capital Reserve. Investments in subsidiaries are
derecognised at the date on which the Company transfers control and substantially all the risks and rewards of ownership to another party.
Dividends received
Dividends received are recognised on the date on which entitlement to receive payment is established. Where dividends are received by way
of an in-specie transfer of assets from a subsidiary undertaking, the dividend is recognised at the fair value of the assets received through profit
or loss as a capital item and transferred to the Capital Reserve.
Company Profit for the financial year
Under Section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own profit and loss account.
The profit after tax for the year was £13,585,000 (2022: £74,776,000).
The Company does not have any employees (2022: nil). Details of the Directors’ fees paid during the year are disclosed in the Group’s
Remuneration Report and in Note 3 to the Consolidated Financial Statements. The Company has paid the Directors’ fees which equated
to £218,000 during the year ended 30 June 2023 (2022: £214,000).
Audit fees in relation to the parent company were £139,000 (2022: £120,000), including irrecoverable VAT. This included £8,000 payable
by the Company on behalf of certain subsidiaries (2022: £2,000) and £7,000 relating to additional audit work undertaken in relation to the
prior year financial statements regarding the significant portfolio acquisition. The fee for assurance related services, being the review of the
Company’s Interim Report, was £16,000 (2022: £16,000). There were no other non-audit fees paid to Ernst & Young LLP by the Company
during the year (2022: £nil).
84 Target Healthcare REIT plc
2. Dividends
Amounts paid as distributions to equity holders.
Dividend rate
(pence per share)
Year ended
30 June 2023
£’000
Dividend rate
(pence per share)
Year ended
30 June 2022
£’000
Fourth interim dividend for the prior year 1.69 10,482 1.68 8,594
First interim dividend 1.69 10,482 1.69 10,482
Second interim dividend 1.69 10,482 1.69 10,482
Third interim dividend 1.40 8,683 1.69 10,482
Total 6.47 40,129 6.75 40,040
It is the policy of the Directors to declare and pay dividends as interim dividends. The Directors do not therefore recommend a final dividend.
The fourth interim dividend in respect of the year ended 30 June 2023, of 1.40 pence per share, was paid on 25 August 2023 to shareholders
on the register on 11 August 2023 and amounted to £8,683,000. It is the intention of the Directors that the Company will continue to pay
dividends quarterly.
3. Investments in subsidiary undertakings
As at 30 June 2023, the Company’s directly held subsidiary undertakings were:
Name
Country of
incorporation
Class of
Capital
% of class
held
% of equity
held
Book Cost
£’000
Fair Value
£’000
Target Healthcare REIT Limited Jersey Ordinary 100 100 432,841 393,537
THR Number 12 plc England & Wales Ordinary 100 100 103,336 148,467
THR Number 37 Limited England & Wales Ordinary 100 100 6,655 6,915
THR Number 39 Limited England & Wales Ordinary 100 100 5,462 3,218
THR Number 40 Limited England & Wales Ordinary 100 100 6,583 4,085
THR Number 41 Limited England & Wales Ordinary 100 100 14,086 12,194
THR Number 42 Limited England & Wales Ordinary 100 100 – (22)
THR Number 43 plc England & Wales Ordinary 100 100 94,861 115,301
THR Number 45 Limited England & Wales Ordinary 100 100 9,461 6,848
THR Number 46 Limited England & Wales Ordinary 100 100 2,801 1,859
THR Number 47 Limited England & Wales Ordinary 100 100 6,197 6,821
Total 682,283 699,223
The registered office of Target Healthcare REIT Limited at 30 June 2023 was: 3rd Floor, 44 Esplanade, St Helier, Jersey JE4 9WG.
The movement in the fair value of the Company’s investment in subsidiary undertakings during the year was:
Year ended
30 June 2023
£’000
Year ended
30 June 2022
£’000
Opening fair value 698,341 509,228
Additions 27,878 184,090
Disposals – (51,089)
Movement in fair value (26,996) 56,112
Closing fair value 699,223 698,341
The Company’s investments in subsidiary undertakings are classified within level 3 of the fair value hierarchy. See Note 9 to the Consolidated
Financial Statements for the definitions of the levels of the fair value hierarchy.
The fair value of the Company’s subsidiaries is primarily dependent on the fair value of the properties and bank loans that they hold. See Notes
9, 13 and 16 to the Consolidated Financial Statements for an explanation of the Group’s valuation processes, the significant inputs, and the
sensitivities of the fair value of these assets and liabilities to these significant inputs.
Notes to the Company Financial Statements continued
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As at 30 June 2023, the Company’s indirectly held subsidiary undertakings were:
Name Country of incorporation Class of Capital % of class held % of equity held
THR Number One plc England & Wales Ordinary 100 100
THR Number Two Limited England & Wales Ordinary 100 100
THR Number 3 Limited England & Wales Ordinary 100 100
THR Number 4 Limited England & Wales Ordinary 100 100
THR Number 5 Limited England & Wales Ordinary 100 100
THR Number 6 Limited England & Wales Ordinary 100 100
THR Number 7 Limited Gibraltar Ordinary 100 100
THR Number 8 Limited Gibraltar Ordinary 100 100
THR Number 9 Limited England & Wales Ordinary 100 100
THR Number 10 Limited England & Wales Ordinary 100 100
THR Number 11 Limited Scotland Ordinary 100 100
THR Number 13 Limited England & Wales Ordinary 100 100
THR Number 14 Limited England & Wales Ordinary 100 100
THR Number 15 plc England & Wales Ordinary 100 100
THR Number 16 Limited England & Wales Ordinary 100 100
THR Number 17 (Holdings) Limited England & Wales Ordinary 100 100
THR Number 17 Limited England & Wales Ordinary 100 100
THR Number 18 Limited England & Wales Ordinary 100 100
THR Number 19 Limited England & Wales Ordinary 100 100
THR Number 20 Limited England & Wales Ordinary 100 100
THR Number 21 Limited England & Wales Ordinary 100 100
THR Number 22 Limited England & Wales Ordinary 100 100
THR Number 23 Limited England & Wales Ordinary 100 100
THR Number 24 Limited England & Wales Ordinary 100 100
THR Number 25 S.à r.l. Luxembourg Ordinary 100 100
THR Number 26 S.à r.l. Luxembourg Ordinary 100 100
THR Number 27 Limited England & Wales Ordinary 100 100
THR Number 28 Limited England & Wales Ordinary 100 100
THR Number 29 Limited England & Wales Ordinary 100 100
THR Number 30 Limited England & Wales Ordinary 100 100
THR Number 31 Limited England & Wales Ordinary 100 100
THR Number 32 Limited England & Wales Ordinary 100 100
THR Number 33 Limited England & Wales Ordinary 100 100
THR Number 34 Limited England & Wales Ordinary 100 100
THR Number 35 Limited England & Wales Ordinary 100 100
THR Number 36 Limited England & Wales Ordinary 100 100
THR Number 38 Limited England & Wales Ordinary 100 100
THR Number 48 Limited England & Wales Ordinary 100 100
The registered office of the companies incorporated in England & Wales is: Level 4 Dashwood House, 69 Old Broad Street, London EC2M 1QS.
The registered office of the companies incorporated in Luxembourg is: 1, rue Jean-Pierre Brasseur, L – 1258, Luxembourg.
The registered office of the companies incorporated in Gibraltar is: Suite 23, Portland House, Glacis Road, GX11 1AA, Gibraltar.
The registered office of the company incorporated in Scotland is: Glendevon House, Castle Business Park, Stirling FK9 4TZ.
86 Target Healthcare REIT plc
4. Investment properties
Freehold properties
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Opening market value 7,630 21,320
Opening fixed or guaranteed rent reviews and lease incentives (4) (814)
Opening carrying value 7,626 20,506
Purchases 400 7,600
Disposals – proceeds – (22,050)
– gain on sale – 1,140
Unrealised gain realised during the year – (410)
Acquisition costs capitalised 33 662
Acquisition costs written off (33) (662)
Revaluation movement – (loss)/gain (510) 30
Movement in market value (110) (13,690)
Fixed or guaranteed rent reviews and lease incentives derecognised on disposal – 978
Movement in fixed or guaranteed rent reviews and lease incentives (83) (168)
Movement in carrying value (193) (12,880)
Closing market value 7,520 7,630
Closing fixed or guaranteed rent reviews (87) (4)
Closing carrying value 7,433 7,626
The properties were valued at £7,520,000 (2022: £7,630,000) by Colliers International Healthcare Property Consultants Limited (‘Colliers’),
in their capacity as external valuers. The valuation was undertaken in accordance with the RICS Valuation Global Standards, incorporating
the International Valuation Standards (the ‘Red Book Global’, 31 January 2022) issued by the Royal Institution of Chartered Surveyors (‘RICS’)
on the basis of Market Value, supported by reference to market evidence of transaction prices for similar properties. Colliers has recent
experience in the location and category of the investment properties being valued.
Market Value represents the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer
and a willing seller in an arm’s length transaction, after proper marketing where the parties had each acted knowledgeably, prudently and
without compulsion. The quarterly property valuations are reviewed by the Board at each Board meeting. The fair value of the properties after
adjusting for the movement in the fixed or guaranteed rent reviews was £7,433,000 (2022: £7,626,000). The adjustment consisted of £87,000
(2022: £4,000) relating to fixed or guaranteed rent reviews, which is separately recorded in the accounts as a non-current asset within ‘trade
and other receivables’ (see Note 5).
Considering the Company’s specific valuation process, industry guidance, and the level of judgement required in the valuation process,
the Directors believe it appropriate to classify the Group’s investment properties within level 3 of the fair value hierarchy. See Note 9 to the
Consolidated Financial Statements for further details on the valuation process, methodology and classification.
The Company’s investment property portfolio, which consisted solely of care homes during the year and included a single care home at the
year end, is considered to be a single class of assets. The weighted average net initial yield on the property, as measured by the EPRA topped
up NIY, is 5.7 per cent. There have been no changes to the valuation technique used through the period, nor have there been any transfers
between levels.
The lease agreement on the properties held within the Company’s portfolio allows for an annual increase in the contracted rental level in line
with inflation, within a cap and a collar. An increase of 1.0 per cent in the contracted rental level will increase the fair value of the portfolio,
and consequently the Company’s reported income from unrealised gains on investments, by £75,000 (2022: £76,000); an equal and opposite
movement would have decreased net assets and reduced the Company’s income by the same amount.
A decrease of 0.25 per cent in the yield applied to the portfolio will increase the fair value of the portfolio by £345,000 (2022: £389,000),
and consequently increase the Company’s reported income from unrealised gains on investments. An increase of 0.25 per cent in the net
initial yield will decrease the fair value of the portfolio by £316,000 (2022: £353,000) and reduce the Company’s income.
Notes to the Company Financial Statements continued
87Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
5. Trade and other receivables
Non-current trade and other receivables
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Fixed rent reviews 87 4
Rental deposits held in escrow for tenants 110 110
Total 197 114
Current trade and other receivables
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Balances due from group undertakings 7,948 8,030
Other debtors and prepayments 213 255
Total 8,161 8,285
At the year-end, trade and other receivables include a fixed rent review debtor of £87,000 (2022: £4,000) which represents the effect of
recognising guaranteed rental uplifts on a straight line basis over the lease term.
The balances due from group undertakings are unsecured and interest is receivable at a fixed rate of 5.7 per cent per annum or such other
interest rate that may be agreed from time to time between the Company and the relevant counterparty. The balances are repayable on demand.
6. Cash and cash equivalents
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Cash at bank and in hand 139 9,406
Total 139 9,406
All cash balances at the year-end were held in cash, current accounts or deposit accounts.
7. Trade and other payables
Non-current trade and other payables
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Rental deposits 110 110
Total 110 110
Current trade and other payables
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Balances due to group undertakings 18,402 –
Rental income received in advance 106 420
Income tax payable 922 1,067
Investment Manager’s fees payable 181 245
Other payables 952 906
Total 20,563 2,638
The Group’s payment policy is to ensure settlement of supplier invoices in accordance with stated terms.
88 Target Healthcare REIT plc
8. Share capital
Allotted, called-up and fully paid ordinary shares of £0.01 each Number of shares £’000
Balance as at 30 June 2022 and 30 June 2023 620,237,346 6,202
Under the Company’s Articles of Association, the Company may issue an unlimited number of ordinary shares. Ordinary shareholders are
entitled to all dividends declared by the Company and to all of the Company’s assets after repayment of its borrowings and ordinary creditors.
Ordinary shareholders have the right to vote at meetings of the Company. All ordinary shares carry equal voting rights.
During the year to 30 June 2023, the Company did not issue any ordinary shares (2022: issued 108,695,652 ordinary shares of £0.01 each
raising gross proceeds of £125,000,000). The Company did not repurchase any ordinary shares into treasury (2022: nil) or resell any ordinary
shares from treasury (2022: nil). At 30 June 2023, the Company did not hold any shares in treasury (2022: nil).
Capital Management
The Company’s capital is represented by the share capital, share premium, merger reserve, distributable reserve, capital reserve and revenue
reserve and is managed in line with the policies set out for the Group on page 76.
9. Net Asset Value
The Company’s net asset value per ordinary share of 112.0 pence (2022: 116.2 pence) is based on equity shareholders’ funds of £694,480,000
(2022: £721,024,000) and on 620,237,346 (2022: 620,237,346) ordinary shares, being the number of shares in issue at the year end.
10. Financial instruments
Consistent with its objective, the Company holds UK care home property investments. In addition, the Company’s financial instruments
comprise investments in subsidiaries, cash and receivables and payables that arise directly from its operations. The Company has no direct
exposure to derivative instruments.
The Company is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk,
liquidity risk, interest rate risk and market price risk. There is no foreign currency risk as all assets and liabilities of the Company are maintained
in pounds sterling.
The Board reviews and agrees policies for managing the Group’s overall risk exposure. These policies are summarised in Note 16 to the
Consolidated Financial Statements and have remained unchanged for the year under review. The following disclosures include, where
appropriate, consideration of the Company’s investment properties which, whilst not constituting financial instruments as defined by FRS 101,
are considered by the Board to be integral to the Company’s overall risk exposure.
Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company.
At the reporting date, the Company’s financial assets exposed to credit risk amounted to £8,098,000 (2022: £17,477,000) consisting of
balances due from group undertakings of £7,948,000 (2022: £8,030,000), cash balances of £139,000 (2022: £9,406,000) and other debtors
of £11,000 (2022: £41,000).
There have been no historical losses from intercompany loans and any resulting provision from the estimated credit loss allowance is
considered to be immaterial. The Company has no financial assets which were either past due or considered impaired at 30 June 2023
(2022: nil).
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulties in realising assets or otherwise raising funds to meet financial commitments.
The Company’s investments comprise UK care homes and holdings in subsidiary undertakings which, in turn, invest in UK care homes. Property
and property-related assets in which the Company invests are not traded in an organised public market and may be illiquid. As a result, the
Company may not be able to liquidate quickly its investments in these properties or subsidiary undertakings at an amount close to their fair
value in order to meet its liquidity requirements.
Notes to the Company Financial Statements continued
89Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
At the reporting date, the maturity of the financial assets was:
Financial assets as at 30 June 2023
Three months
or less
£’000
More than three
months but less
than one year
£’000
1-2 years
£’000
2-5 years
£’000
More than
five years
£’000
Total
£’000
Cash and cash equivalents 139 – – – – 139
Rental deposits held in escrow for tenants – – – – 110 110
Balances due from group undertakings 7,948 – – – – 7,948
Other debtors 11 – – – – 11
Total 8,098 – – – 110 8,208
Financial assets as at 30 June 2022
Three months
or less
£’000
More than three
months but less
than one year
£’000
1-2 years
£’000
2-5 years
£’000
More than
five years
£’000
Total
£’000
Cash and cash equivalents 9,406 – – – – 9,406
Rental deposits held in escrow for tenants – – – – 110 110
Balances due from group undertakings 8,030 – – – – 8,030
Other debtors 41 – – – – 41
Total 17,477 – – – 110 17,587
At the reporting date, the maturity of the financial liabilities was:
Financial liabilities as at 30 June 2023
Three months
or less
£’000
More than three
months but less
than one year
£’000
1-2 years
£’000
2-5 years
£’000
More than
five years
£’000
Total
£’000
Rental deposits – – – – 110 110
Balances due to group undertakings 18,402 – – – – 18,402
Other payables 2,055 – – – – 2,055
Total 20,457 – – – 110 20,567
Financial liabilities as at 30 June 2022
Three months
or less
£’000
More than three
months but less
than one year
£’000
1-2 years
£’000
2-5 years
£’000
More than
five years
£’000
Total
£’000
Rental deposits – – – – 110 110
Other payables 2,218 – – – – 2,218
Total 2,218 – – – 110 2,328
Interest rate risk
Some of the Company’s financial instruments are interest-bearing. Interest-rate risk is the risk that future cash flows will change adversely as a
result of changes in market interest rates. The Company’s policy is to hold cash in variable rate or short-term fixed rate bank accounts. Interest
is received on cash at a weighted average variable rate which was nil at 30 June 2023 (2022: nil).
The following table sets out the carrying amount of the Company’s financial instruments that are exposed to interest rate risk:
As at 30 June 2023 As at 30 June 2022
Fixed rate
£’000
Variable rate
£’000
Fixed rate
£’000
Variable rate
£’000
Cash and cash equivalents – 139 – 9,406
Balances due from group undertakings 7,948 – 8,030 –
Balances due to group undertakings (18,402) – – –
Total (10,454) 139 8,030 9,406
Based on the Company’s exposure to cash flow interest rate risk, an increase of 0.25 per cent in interest rates would have increased the
reported profit for the year and the net assets at the year end by £nil (2022: £24,000), a decrease in interest rates would have an equal and
opposite effect. These movements are calculated based on balances as at 30 June 2023 (30 June 2022) and may not be reflective of actual
future conditions.
Market price risk
The management of market price risk is part of the investment management process and is typical of a property investment company.
The portfolio is managed with an awareness of the effects of adverse valuation movements through detailed and continuing analysis, with an
objective of maximising overall returns to shareholders. Investments in property and property-related assets are inherently difficult to value due
to the individual nature of each property. As a result, valuations are subject to substantial uncertainty. There is no assurance that the estimates
resulting from the valuation process will reflect the actual sales price even where such sales occur shortly after the valuation date. Such risk is
minimised through the appointment of external property valuers. The Company’s subsidiaries are held at fair value which, in turn, reflects the
external valuations of the underlying properties they hold. The Company’s overall market price risk is therefore the same as that for the Group
as set out in Note 16 to the Consolidated Financial Statements.
90 Target Healthcare REIT plc
11. Lease length
The Company leases out its investment properties under operating leases.
The minimum lease payments based on the unexpired lessor lease length at the year-end were as follows (based on annual rentals):
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Less than one year 458 440
Between one and two years 464 445
Between two and three years 468 449
Between three and four years 473 454
Between four and five years 476 458
Over five years 16,097 16,064
Total 18,436 18,310
The largest single tenant at the year-end accounted for 100 per cent (2022: 100 per cent) of the current annual rental income. There were no
unoccupied properties at the year-end.
The Company has entered into a commercial property lease on its investment property. This property, held under an operating lease, is
measured under the fair value model as the property is held to earn rentals. The lease is a non-cancellable lease with a lease term remaining
of 34 years (2022: 35 years).
12. Related party transactions
The Board of Directors is considered to be a related party. No Director has an interest in any transactions which are, or were, unusual in their
nature or significant to the nature of the Company.
The Directors of the Company received fees for their services. Total fees paid by the Company in relation to the year were £218,000 (2022:
£214,000) of which £nil (2022: £nil) remained payable at the year-end.
The Investment Manager received management fees of £714,000 (inclusive of irrecoverable VAT) from the Company in relation to the year
ended 30 June 2023 (2022: £1,453,000). Of this amount £181,000 (2022: £245,000) remained payable at the year-end.
The Investment Manager received a further £169,000 (inclusive of irrecoverable VAT) during the year ended 30 June 2023 (2022: £151,000) in
relation to its appointment as Company Secretary and Administrator. Of this amount £42,000 (2022: £38,000) remained payable at the year-end.
Notes to the Company Financial Statements continued
91Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
Notice of Annual General Meeting
NOTICE IS HEREBY GIVEN that the fifth Annual General Meeting (‘AGM’) of Target Healthcare REIT plc (the ‘Company’) will be held on
Wednesday 29 November 2023 at 4.00 p.m. at the offices of Dickson Minto W.S., Level 4, Dashwood House, 69 Old Broad Street, London
EC2M 1QS for the purposes of considering and, if thought fit, passing the following resolutions, of which resolutions 1 to 11 inclusive will be
proposed as ordinary resolutions and resolutions 12 to 14 inclusive will be proposed as special resolutions:
Ordinary resolutions
1. That the Annual Report and Accounts for the year ended 30 June 2023 be received.
2. That the Directors’ Annual Report on Remuneration for the year ended 30 June 2023 be approved.
3. That the Company’s dividend policy be approved.
4. That Ernst & Young LLP be re-appointed as the Company’s Auditor until the conclusion of the next Annual General Meeting.
5. That the Directors be authorised to determine the Auditor’s remuneration.
6. To elect Michael Brodtman as a Director.
7. To re-elect Richard Cotton as a Director.
8. To re-elect Alison Fyfe as a Director.
9. To re-elect Vince Niblett as a Director.
10. To re-elect Amanda Thompsell as a Director.
11. That, in addition to any existing authority, in accordance with section 551 of the Companies Act 2006, the Directors be generally and unconditionally
authorised to exercise all powers of the Company to allot ordinary shares of £0.01 each (or of such other nominal value as the Directors may
resolve) in the capital of the Company and to grant rights to subscribe for or to convert any security into shares in the Company (“Securities”)
up to an aggregate nominal amount of £620,237 (being approximately 10% of the Company’s issued share capital immediately prior to the passing
of this resolution), provided that this authority shall, unless renewed, varied or revoked by the Company, expire at the conclusion of the next Annual
General Meeting of the Company or on 15 months from the passing of this resolution, whichever is the earlier, save that the Company may, before
such expiry, make offers or enter into agreements which would or might require shares to be allotted or Securities to be granted and the Directors
may allot shares or grant Securities in pursuance of such offer or agreement as if the authority conferred by this resolution had not expired.
Special resolutions
12. That, in addition to any existing authority and subject to the passing of resolution 11, the Directors be given the general power, pursuant
to section 570 of the Companies Act 2006 (the ‘Act’), to allot equity securities (as defined in section 560 of the Act) for cash pursuant to
the authority under section 551 of the Act either conferred by resolution 11 or by way of a sale of treasury shares as if section 561 of the Act
did not apply to any such allotment or sale, provided that this power:
(a) expires at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution or on expiry of 15
months from the passing of this resolution, whichever is the earlier, unless renewed, varied or revoked by the Company prior to or
on such date, and save that the Company may, before such expiry, make offers or agreements which would or might require equity
securities to be allotted after such expiry and the Directors may allot equity securities or sell treasury shares in pursuance of any such
offer or agreement as if the power conferred by this resolution had not expired; and
(b) shall be limited to the allotment of equity securities for cash up to an aggregate nominal amount of £620,237 (being approximately
equal to 10% of the nominal value of the issued share capital of the Company immediately prior to the passing of this resolution).
This power applies in relation to the sale of treasury shares as if in the opening paragraph of this resolution the words “and subject to the
passing of resolution 11” were omitted.
13. To authorise the Company generally and unconditionally, pursuant to and in accordance with section 701 of the Companies Act 2006, to
make market purchases (within the meaning of section 693(4) of the Companies Act 2006) of ordinary shares of £0.01 each (or of such other
nominal value as the Directors of the Company shall resolve) either for retention as treasury shares for future reissue, resale or transfer or
cancellation provided that:
(a) the maximum aggregate number of ordinary shares that may be purchased is 92,973,578 ordinary shares or, if less, 14.99% of the issued
ordinary share capital of the Company immediately prior to the passing of this resolution (excluding treasury shares);
(b) the minimum price (excluding expenses) which may be paid for each ordinary share is the nominal value at the time of purchase;
(c) the maximum price (excluding expenses) which may be paid for each ordinary share is the higher of:
(i) 105% of the average market value of an ordinary share in the Company for the five business days prior to the day the purchase is made; and
(ii) the higher of the last independent trade and the highest current independent bid on the London Stock Exchange; and
(d) unless previously varied, revoked or renewed, the authority hereby conferred shall expire at the conclusion of the Company’s next
Annual General Meeting or on 15 months from the passing of this resolution, whichever is the earlier, save that the Company may,
before the expiry of the authority granted by this resolution, enter into a contract to purchase ordinary shares which will or may be
executed wholly or partly after the expiry of such authority and may make a purchase of shares pursuant to any such contract.
14. That, the Company be and is hereby generally and unconditionally authorised to hold general meetings (other than Annual General
Meetings) on 14 clear days’ notice, such authority to expire at the conclusion of the next Annual General Meeting of the Company or
15 months from the passing of this resolution, whichever is the earlier.
By order of the Board
Target Fund Managers Limited
Company Secretary
Registered office:
Level 4, Dashwood House
69 Old Broad Street
London
EC2M 1QS
9 October 2023
92 Target Healthcare REIT plc
Notes:
1. Only those shareholders registered in the Company’s register of members at 10.00 p.m. on 27 November 2023 or, if the meeting is
adjourned, 10.00 p.m. on the day two working days prior to the adjourned meeting, shall be entitled to attend and vote at the meeting.
Changes to the register of members after the relevant deadline shall be disregarded in determining the rights of any person to attend and
vote at the meeting.
2. Information regarding the meeting, including the information required by section 311A of the Companies Act 2006 (the ‘Act’), can be found
at www.targethealthcarereit.co.uk.
3. As a member you are entitled to appoint a proxy to exercise all or any of your rights to attend, speak and vote at the meeting and you
should have received a proxy form with this notice of meeting. A proxy does not need to be a shareholder of the Company but must
attend the meeting to represent you. You may appoint more than one proxy provided each proxy is appointed to exercise rights attached
to different shares. You can only appoint a proxy using the procedures set out in these notes and the notes to the proxy form. You may not
use any electronic address provided either in this notice or any related documents (including the financial statements and proxy form) to
communicate with the Company for any purpose other than those expressly stated.
4. Shareholders can: (a) appoint a proxy and give proxy instructions by returning the enclosed proxy form by post (see Note 5); or (b) if a
CREST member, register their proxy appointment by utilising the CREST electronic proxy appointment service (see Note 6); or (c) via
the Proxymity platform (see Note 7). Appointment of a proxy does not preclude you from attending the meeting and voting in person.
If you have appointed a proxy and attend the meeting and vote in person, your proxy appointment will automatically be terminated.
5. The notes to the proxy form explain how to direct your proxy how to vote on each resolution or withhold their vote. To appoint a proxy
using the proxy form, the form must be: (a) completed and signed; (b) sent or delivered to Computershare Investor Services PLC at
The Pavilions, Bridgwater Road, Bristol BS99 6ZY; and (c) received by Computershare Investor Services PLC no later than 4.00 p.m. on
27 November 2023 or, in the event of an adjournment of the meeting, 48 hours before the adjourned meeting. In the case of a shareholder
which is a company, the proxy form must be executed under its common seal or signed on its behalf by an officer of the company or an
attorney for the company. Any power of attorney or any other authority under which the proxy form is signed (or a duly certified copy of
such power or authority) must be included with the proxy form. If you have not received a proxy form and believe that you should have
one, or if you require additional proxy forms, please contact Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol
BS99 6ZY (Telephone: 0370 703 0013).
6. CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment service may do so for the
meeting and any adjournment(s) of it by using the procedures described in the CREST manual (available via www.euroclear.com). CREST
personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s),
should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order
for a proxy appointment made using the CREST service to be valid, the appropriate CREST message (a ‘CREST Proxy Instruction’) must be
properly authenticated in accordance with Euroclear UK & International Limited’s (EUI) specifications and must contain the information
required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of
a proxy or is an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to
be received by Computershare Investor Services PLC (ID 3RA50) no later than 4.00 p.m. on 27 November 2023 or, in the event of an
adjournment of the meeting, 48 hours before the adjourned meeting. For this purpose, the time of receipt will be taken to be the time (as
determined by the timestamp applied to the message by the CREST applications host) from which the issuer’s agent is able to retrieve the
message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through
CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors
or voting service providers should note that EUI does not make available special procedures in CREST for any particular message. Normal
system timings and limitations will therefore apply in relation to the input of CREST proxy instructions. It is the responsibility of the CREST
member concerned to take (or, if the CREST member is a CREST personal member or sponsored member, or has appointed a voting
service provider(s), to procure that his/her CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure
that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where
applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST manual concerning
practical limitations of the CREST system and timings. The Company may treat as invalid a CREST proxy instruction in the circumstances
set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
7. Proxymity Voting – if you are an institutional investor you may also be able to appoint a proxy electronically via the Proxymity platform,
a process which has been agreed by the Company and approved by the Registrar. For further information regarding Proxymity, please
go to www.proxymity.io. Your proxy must be lodged by 4.00 p.m. on 27 November 2023 in order to be considered valid. Before you can
appoint a proxy via this process you will need to have agreed to Proxymity’s associated terms and conditions. It is important that you read
these carefully as you will be bound by them and they will govern the electronic appointment of your proxy.
8. A corporation which is a shareholder can appoint one or more corporate representatives who may exercise, on its behalf, all its powers
as a member provided that no more than one corporate representative exercises powers over the same share.
9. As at 6.00 p.m. on 9 October 2023, the Company’s issued share capital comprised 620,237,346 Ordinary Shares of £0.01 each. Each
Ordinary Share carries the right to one vote at a General Meeting of the Company and, therefore, the total number of voting rights in the
Company as at 6.00 p.m. on 9 October 2023 is 620,237,346. The website referred to in Note 2 will include information on the number of
shares and voting rights.
10. Under section 319A of the Act, any member attending the meeting has a right to ask questions. The Company must answer any question
you ask relating to the business being dealt with at the meeting unless: (a) answering the question would interfere unduly with the
preparation for the meeting or involve the disclosure of confidential information; (b) the answer has already been given on a website in the
form of an answer to a question; or (c) it is undesirable in the interests of the Company or the good order of the meeting that the question
be answered.
Notice of Annual General Meeting continued
93Annual Report and Financial Statements 2023
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11. Under section 338 of the Act, a member or members meeting the qualification criteria set out in Note 14 below may, subject to certain
conditions, require the Company to circulate to members notice of a resolution which may properly be moved and is intended to be
moved at that meeting. The conditions are that: (a) the resolution must not, if passed, be ineffective (whether by reason of inconsistency
with any enactment or the Company’s constitution or otherwise); (b) the resolution must not be defamatory of any person, frivolous or
vexatious; and (c) the request: (i) may be in hard copy form or in electronic form; (ii) must identify the resolution of which notice is to be
given by either setting out the resolution in full or, if supporting a resolution sent by another member, clearly identifying the resolution
which is being supported; (iii) must be authenticated by the person or persons making it; and (iv) must be received by the Company not
later than six weeks before the meeting to which the request relates.
12. Under section 338A of the Act 2006, a member or members meeting the qualification criteria set out at Note 14 below may require the
Company to include in the business to be dealt with at the Annual General Meeting a matter (other than a proposed resolution) which
may properly be included in the business (a matter of business). The request must have been received by the Company not later than
18 October 2023. The conditions are that the matter of business must not be defamatory of any person, frivolous or vexatious. The
request must identify the matter of business by either setting it out in full or, if supporting a statement sent by another member, clearly
identify the matter of business which is being supported. The request must be accompanied by a statement setting out the grounds for
the request. Members seeking to do this should write to the Company providing their full name and address.
13. Under section 527 of the Act, a member or members meeting the qualification criteria set out at Note 14 below may have the right to
request the Company to publish on its website a statement setting out any matter that such members propose to raise at the meeting
relating to the audit of the Company’s accounts (including the Auditor’s Report and the conduct of the audit) that are to be laid before the
meeting. Where the Company is required to publish such a statement on its website: (a) it may not require the shareholders making the
request to pay any expenses incurred by the Company in complying with the request; (b) it must forward the statement to the Company’s
auditors no later than the time the statement is made available on the Company’s website; and (c) the statement may be dealt with as part
of the business of the meeting. The request must: (a) be in writing to Target Fund Managers Limited at Glendevon House, Castle Business
Park, Stirling FK9 4TZ; (b) either set out the statement in full or, if supporting a statement sent by another shareholder, clearly identify the
statement which is being supported; (c) be authenticated by the person or persons making it; and (d) be received by the Company at least
one week before the meeting.
14. In order to be able to exercise the members’ rights in Notes 11 to 13, the relevant request must be made by: (a) a member or members
having a right to vote at the meeting and holding at least 5% of total voting rights of the Company; or (b) at least 100 members having
a right to vote at the meeting and holding, on average, at least £100 of paid-up share capital.
15. If you are a person who has been nominated under section 146 of the Companies Act 2006 to enjoy information rights (Nominated
Person), you may have a right under an agreement between you and the shareholder of the Company who has nominated you to have
information rights (Relevant Shareholder) to be appointed or to have someone else appointed as a proxy for the meeting. If you either do
not have such a right or if you have such a right but do not wish to exercise it, you may have a right under an agreement between you and
the Relevant Shareholder to give instructions to the Relevant Shareholder as to the exercise of voting rights. Your main point of contact
in terms of your investment in the Company remains the Relevant Shareholder (or, perhaps, your custodian or broker) and you should
continue to contact them (and not the Company) regarding any changes or queries relating to your personal details and your interest in
the Company (including any administrative matters). The only exception to this is where the Company expressly requests a response from
you. The statement of the rights of members in relation to the appointment of proxies in Notes 3 and 4 on page 92 does not apply to a
Nominated Person.
16. Any person holding 3% or more of the total voting rights of the Company who appoints a person other than the Chairman of the meeting
as his proxy will need to ensure that both he and his proxy comply with their respective disclosure obligations under the UK Disclosure
Guidance and Transparency Rules.
17. Copies of the Directors’ letters of appointment are available for inspection at the Company’s registered office during normal business hours
and at the place of the meeting from at least 15 minutes prior to the meeting until the end of the meeting.
94 Target Healthcare REIT plc
Shareholder Information
Tax Summary for Real Estate Investment Trusts
Target Healthcare REIT plc is a Real Estate Investment Trust (REIT) and is tax resident in the UK under Part 12 of the Corporation Tax Act 2010,
subject to continuing compliance with the REIT rules and regulations. The main REIT rules with which the Group must comply in order to
retain its REIT status are summarised as follows:
– at the start of each accounting period, the assets of the tax-exempt business must be at least 75% of the total value of the Group’s assets;
– at least 75% of the Group’s total profits must arise from the tax-exempt business;
– at least 90% of the tax-exempt rental business profits must be distributed in the form of a Property Income Distribution; and
– the Group must carry on a ‘property rental business’ throughout each accounting period and must hold a minimum of either a single
commercial property worth at least £20 million or three properties with none exceeding 40% of the total value of the properties.
A REIT does not suffer UK corporation tax on the profits (income and capital gains) derived from its qualifying property rental businesses in the
UK and elsewhere (the ‘Tax-Exempt Business’), provided that certain conditions are satisfied. Instead, distributions in respect of the Tax-Exempt
Business will be treated for UK tax purposes as UK property income in the hands of shareholders (see further below for details on the UK tax
treatment of shareholders in a REIT). A dividend paid by the Company relating to profits or gains of the Tax-Exempt Business is referred to in
this section as a Property Income Distribution (‘PID’).
UK corporation tax remains payable in the normal way in respect of income and gains from the Company’s other business, generally including
any property trading business, not included in the Tax-Exempt Business (the ‘Residual Business’). Dividends relating to the Residual Business
are treated for UK tax purposes as normal dividends. Any normal dividend paid by the Company is referred to as a Non-Property Income
Distribution (‘Non-PID’).
A REIT may become subject to an additional corporation tax charge if it pays a distribution to corporate shareholders that hold 10 per cent
or more of share capital or voting rights and/or are entitled to 10 per cent or more of distributions. This tax charge will not be incurred if the
REIT has taken reasonable steps to avoid making distributions to such a shareholder in line with HMRC guidance and has been relaxed for
shareholders who are entitled to receive gross PIDs effective from 1 April 2022.
UK Taxation of PIDs
A PID is, together with any property income distribution from any other REIT company, treated as taxable income from a single UK property
business. The basic rate of income tax (currently 20%) will be withheld by the Company (where required) on the PID unless the shareholder
is entitled to receive PIDs without income tax being deducted at source (‘Gross PIDs’). This is dependant on the shareholder notifying the
Company’s registrar of this entitlement sufficiently in advance of a PID being paid and the Company being satisfied that the shareholder
concerned is entitled to that treatment.
Shareholders entitled to elect to receive gross distributions may complete the declaration form which is available on request from the
Company through the contact details provided on its website, www.targethealthcarereit.co.uk, or from the Company’s registrar. Shareholders
who qualify for gross payments are, principally, UK resident companies, certain UK public bodies, UK charities, UK pension schemes and the
managers of ISAs, PEPs and Child Trust Funds, in each case subject to certain conditions. Individuals and non-UK residents do not qualify for
gross payments of distributions and should not complete the declaration form.
Shareholders who are individuals may, depending on their particular circumstances, either be liable to further UK income tax on their PID
at their applicable marginal income tax rate, incur no further UK tax liability on their PID, or be entitled to claim repayment of some or all
of the UK income tax withheld on their PID with potential offsets against tax payable in another jurisdiction under a Double Tax Treaty. The
£1,000 property income allowance does not apply to PIDs.
Corporate shareholders who are within the charge to UK corporation tax will generally be liable to pay corporation tax on their PID and,
if income tax is withheld at source, the tax withheld can be set against the company’s liability to UK corporation tax or against any income
tax which it is required to withhold in the accounting period in which the PID is received.
UK Taxation of Non-PIDs
Under current UK legislation, most individual shareholders who are resident in the UK for taxation purposes receive a tax-free dividend
allowance of £1,000 per annum for tax year 2023/24 (£2,000 per annum for tax year 2022/23) and any dividend income (including Non-PIDs)
in excess of this allowance is subject to income tax.
UK resident corporate shareholders (other than dealers and certain insurance companies) are not liable to corporation tax or income tax
in respect of dividends provided that the dividends are exempt under Part 9A of the Corporation Tax Act 2009.
UK Taxation of Chargeable Gains in Respect of Ordinary Shares in the Company
Any gain on disposal (by sale, transfer, redemption or otherwise) of the Company’s ordinary shares by shareholders resident in the UK for
taxation purposes will be subject to capital gains tax in the case of an individual shareholder, or UK corporation tax on chargeable gains in
the case of a corporate shareholder.
UK ISAs and SIPPS
It is expected that the Company’s shares will be eligible for inclusion in ISAs and Investment-Regulated Pension Schemes.
95Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
The statements on taxation on pages 94 and 95 are intended to be a general outline of certain tax consequences that may arise in relation
to the Company and shareholders. This is not a comprehensive summary of all technical aspects of the taxation of the Company and its
shareholders and is not intended to constitute legal or tax advice to investors.
The statements relate to the UK tax implications of a UK resident individual investing in the Company (unless expressly stated otherwise).
The statements relate to investors acquiring the Company’s ordinary shares for investment purposes only, and not for the purposes of any
trade. The tax consequences for each investor of investing in the Company may depend upon the investor’s own tax position and upon the
relevant laws of any jurisdiction to which the investor is subject. The statements are based on current tax legislation and HMRC practice, both
of which are subject to change at any time, possibly with retrospective effect, and there can be no guarantee that the tax position or proposed
tax position prevailing at the time an investment in the Company is made will endure indefinitely.
Prospective investors should familiarise themselves with, and where appropriate should consult their own professional advisers on, the overall
tax consequences of investing in the Company.
Historical Distributions
Distributions to shareholders may potentially include both PID and Non-PID Dividends as calculated in accordance with specific attribution
rules. The Company provides shareholders with a certificate setting out how much of their dividend is a PID and how much, if any, is a Non-PID.
A breakdown of the dividends paid in relation to the previous five financial years is set out below and details of all the dividends paid since the
Group’s launch are available at www.targethealthcarereit.co.uk
Distribution Ex-dividend date Payment date
PID
(pence per share)
Non-PID
(pence per share)
Total distribution
(pence per share)
In relation to the year ended 30 June 2023
Fourth interim dividend 10/08/23 25/08/23 1.19000 0.21000 1.40000
Third interim dividend 11/05/23 26/05/23 1.40000 – 1.40000
Second interim dividend 09/02/23 24/02/23 1.69000 – 1.69000
First interim dividend 10/11/22 25/11/22 1.69000 – 1.69000
Total 5.97000 0.21000 6.18000
In relation to the year ended 30 June 2022
Fourth interim dividend 11/08/22 26/08/22 – 1.69000 1.69000
Third interim dividend 12/05/22 27/05/22 1.69000 – 1.69000
Second interim dividend 10/02/22 25/02/22 1.69000 – 1.69000
First interim dividend 11/11/21 26/11/21 1.69000 – 1.69000
Total 5.07000 1.69000 6.76000
In relation to the year ended 30 June 2021
Fourth interim dividend 12/08/21 27/08/21 0.16800 1.51200 1.68000
Third interim dividend 13/05/21 28/05/21 1.68000 – 1.68000
Second interim dividend 11/02/21 26/02/21 1.68000 – 1.68000
First interim dividend 12/11/20 27/11/20 1.68000 – 1.68000
Total 5.20800 1.51200 6.72000
In relation to the year ended 30 June 2020
Fourth interim dividend 13/08/20 28/08/20 0.08350 1.58650 1.67000
Third interim dividend 07/05/20 29/05/20 1.67000 – 1.67000
Second interim dividend 13/02/20 28/02/20 1.67000 – 1.67000
First interim dividend 14/11/19 29/11/19 1.67000 – 1.67000
Total 5.09350 1.58650 6.68000
In relation to the year ended 30 June 2019*
Fourth interim dividend 18/07/19 02/08/19 – 1.64475 1.64475
Third interim dividend 02/05/19 31/05/19 1.64475 – 1.64475
Second interim dividend 07/02/19 22/02/19 1.64475 – 1.64475
First interim dividend 25/10/18 30/11/18 1.64475 – 1.64475
Total 4.93425 1.64475 6.57900
* Note: Distributions paid up until the year ended 30 June 2019, inclusive, were paid by the previous parent company of the Group, Target Healthcare REIT Limited,
a Jersey-registered company in relation to which the tax consequences set out on pages 94 and 95 may differ.
96 Target Healthcare REIT plc
Historical Record
Assets
At 30 June 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Total assets (£’000) 105,071 176,310 282,791 306,246 434,822 538,379 663,772 718,394 963,658 908,258
Market value of property
portfolio (£’000) 83,246 143,748 210,666 281,951 385,542 500,884 617,584 684,845 911,596 868,705
Shareholders’ funds (£’000) 90,218 139,292 253,282 256,937 358,607 413,089 494,113 565,185 698,767 654,808
Performance
At 30 June 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
EPRA NTA per share 94.7p 97.9p 100.6p 101.9p 105.7p 107.5p 108.1p 110.4p 112.3p 104.5p
Share price 104.8p 106.9p 109.0p 117.8p 110.5p 115.6p 110.0p 115.4p 108.4p 71.8p
Premium/(discount) 10.6% 9.2% 8.3% 15.6% 4.5% 7.5% 1.8% 4.5% (3.5)% (31.3)%
IFRS EPS 1.08p 8.02p 6.81p 7.58p 9.77p 8.10p 7.18p 9.23p 8.20p (1.06)p
Adjusted EPRA EPS 4.41p 6.10p 5.25p 5.23p 5.54p 5.45p 5.27p 5.46p 5.05p 6.00p
Dividends per share 6.00p 6.12p 6.18p 6.28p 6.45p 6.58p 6.68p 6.72p 6.76p 6.18p
Ongoing charges 1.95% 1.58% 1.42% 1.48% 1.48% 1.52% 1.51% 1.55% 1.51% 1.53%
Contact Information
Investor relations
Information on Target Healthcare REIT plc can be found on its website at www.targethealthcarereit.co.uk including details on the
Company’s share price history, historical dividends and regulatory reports, including the Group’s Annual Reports, Interim Reports and
Quarterly Investor Reports.
Registrar:
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
T: +44 (0)370 702 0000
E: www.investorcentre.co.uk/contactus
Enquiries about the following administrative matters should be addressed to the Company’s registrar:
– Change of address notification.
– Lost share certificates.
– Dividend payment enquiries.
– Dividend mandate instructions. Shareholders may have their dividends paid directly into their bank or building society accounts by
completing a dividend mandate form. Dividend confirmations, where applicable, are sent directly to shareholders’ registered addresses.
– Amalgamation of shareholdings. Shareholders who receive more than one copy of the Annual Report are invited to amalgamate their
accounts on the share register.
Shareholders can view and manage their shareholdings online at www.investorcentre.co.uk, including updating address records, making dividend
payment enquiries, updating dividend mandates, viewing any outstanding payments and viewing the latest share price. Shareholders will need
their Shareholder Reference Number, which can be found on their share certificate or a recent dividend confirmation, to access this site.
Warning to shareholders – Boiler Room Scams
Fraudsters use persuasive and high-pressure tactics to lure investors into scams. They may offer to sell shares that turn out to be
worthless or non-existent, or to buy shares at an inflated price in return for an upfront payment.
If you receive unsolicited investment advice or requests:
– Check the Financial Services Register from www.fca.org.uk to see if the person or firm contacting you is authorised by the Financial
Conduct Authority (‘FCA’);
– Check the investment opportunity you have been offered at www.fca.org.uk/scamsmart;
– Call the FCA on 0800 111 6768 if the firm does not have contact details on the Register or you are told they are out of date;
– Check the list of unauthorised firms to avoid at www.fca.org.uk;
– Consider that if you buy or sell shares from an unauthorised firm you will not have access to the Financial Ombudsman Service or
Financial Services Compensation Scheme; and
– Think about getting independent financial and professional advice.
If you are approached by fraudsters please tell the FCA by using the reporting details at www.fca.org.uk/consumers/report-scam where
you can find out more about investment scams. You can also call the FCA Consumer Helpline on 0800 111 6768. If you have already paid
money to share fraudsters you should contact Action Fraud on 0300 123 2040 or via their website at www.actionfraud.police.uk.
Shareholder Information continued
97Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
Alternative Performance Measures
The Company uses Alternative Performance Measures (‘APMs’). APMs do not have a standard meaning prescribed by GAAP and therefore may
not be comparable to similar measures presented by other entities. The definitions of all APMs used by the Company are highlighted in the
glossary on pages 101 to 103, with detailed calculations, including reconciliation to the IFRS figures where appropriate, being set out below
and within the EPRA Performance Measures.
Discount or Premium – the share price of an Investment Company is derived from buyers and sellers trading their shares on the stock market.
This price is not identical to the NAV. If the share price is lower than the NAV per share, the shares are trading at a discount and, if the share
price is higher than the NAV per share, are said to be at a premium. The figure is calculated at a point in time and, unless stated otherwise,
the Company measures its discount or premium relative to the EPRA NTA per share.
2023
pence
2022
pence
EPRA Net Tangible Assets per share (see Note 8 to the Consolidated Financial Statements) (a) 104.5 112.3
Share price (b) 71.8 108.4
(Discount)/premium = (b-a)/a (31.3)% (3.5)%
Dividend Cover – the percentage by which Group specific adjusted EPRA earnings for the year cover the dividend paid.
2023
£’000
2022
£’000
Group-specific EPRA earnings for the year (see Note 8 to the Consolidated Financial Statements) (a) 37,216 30,242
First interim dividend 10,482 10,482
Second interim dividend 10,482 10,482
Third interim dividend 8,683 10,482
Fourth interim dividend 8,683 10,482
Dividends paid in relation to the year (b) 38,330 41,928
Dividend cover = (a/b) 97% 72%
Ongoing Charges – a measure of all operating costs incurred in the reporting period, calculated as a percentage of average net assets in that
year. Operating costs exclude costs of buying and selling investments, interest costs, taxation, non-recurring costs and the costs of buying
back or issuing ordinary shares.
2023
£’000
2022
£’000
Investment management fee 7,428 7,307
Other expenses 3,046 3,163
Less direct property costs and other non-recurring items (292) (347)
Adjustment to management fee arrangements and irrecoverable VAT* (35) 312
Total (a) 10,147 10,435
Average net assets (b) 661,231 693,292
Ongoing charges = (a/b) 1.53% 1.51%
* Based on the Group’s net asset value at 30 June 2023, the management fee is expected to be paid at a weighted average rate of 1.03% (2022: 1.02%) of the Group’s
average net asset plus an effective irrecoverable VAT rate of approximately 9% (2022: 7%). The management fee has therefore been amended so that the Ongoing
Charges figure includes the expected all-in management fee rate of 1.12% (2022: 1.10%).
Total Return – the return to shareholders calculated on a per share basis by adding dividends paid in the period to the increase or decrease
in the Share Price or NAV. The dividends are assumed to have been reinvested in the form of Ordinary Shares or Net Assets.
2023 2022
EPRA NTA
(pence)
IFRS NAV
(pence)
Share price
(pence)
EPR A NTA
(pence)
IFRS NAV
(pence)
Share price
(pence)
Value at start of year (a) 112.3 112.7 108.4 110.4 110.5 115.4
Value at end of year (b) 104.5 105.6 71.8 112.3 112.7 108.4
Change in value during the year (b-a) (c) (7.8) (7.1) (36.6) 1.9 2.2 (7.0)
Dividends paid (d) 6.2 6.2 6.2 6.8 6.8 6.8
Additional impact of dividend reinvestment (e) 0.3 0.4 – 0.3 0.3 (0.2)
Total (loss)/gain in year (c+d+e) (f) (1.3) (0.5) (30.4) 9.0 9.3 (0.4)
Total return for the year = (f/a) (1.2)% (0.5)% (28.1)% 8.1% 8.4% (0.3)%
98 Target Healthcare REIT plc
EPRA Performance Measures
The European Public Real Estate Association is the industry body representing listed companies in the real estate sector. EPRA publishes
Best Practice Recommendations (‘BPR’) to establish consistent reporting by European property companies. Further information on the
EPRA BPR can be found at www.epra.com.
The figures below are calculated and presented in line with the BPR Guidelines published by EPRA in February 2022.
2023 2022
EPRA Net Reinstatement Value (£’000) 705,364 756,708
EPRA Net Tangible Assets (£’000) 647,903 696,483
EPRA Net Disposal Value (£’000) 694,480 721,024
EPRA Net Reinstatement Value per share (pence) 113.7 122.0
EPRA Net Tangible Assets per share (pence) 104.5 112.3
EPRA Net Disposal Value per share (pence) 112.0 116.2
EPRA Earnings (£’000) 47,572 39,674
Group specific adjusted EPRA earnings (£’000) 37,216 30,242
EPRA Earnings per share (pence) 7.67 6.62
Group specific adjusted EPRA earnings per share (pence) 6.00 5.05
EPRA Net Initial Yield 6.05% 5.38%
EPRA Topped-up Net Initial Yield 6.22% 5.82%
EPRA Vacancy Rate – –
EPRA Cost Ratio (including direct vacancy costs) 15.8% 21.5%
EPRA Group specific adjusted Cost Ratio (including direct vacancy costs) 18.7% 27.1%
EPRA Cost Ratio (excluding direct vacancy costs) 15.8% 21.5%
EPRA Group specific adjusted Cost Ratio (excluding direct vacancy costs) 18.7% 27.1%
EPRA Loan-to-Value 25.8% 24.0%
Capital Expenditure (£’000) 23,767 209,540
Like-for-like Rental Growth 3.8% 4.6%
EPRA NAV metrics and EPRA Earnings
Full details of these calculations, including reconciliations of each to the IFRS measures, are detailed in Note 8 to the Consolidated Financial
Statements on pages 70 and 71.
EPRA Net Initial Yield and EPRA Topped-up Net Initial Yield
EPRA Net Initial Yield is calculated as annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable
property operating expenses, divided by the market value of the property, increased with (estimated) purchasers’ costs. The EPRA Topped-up
Net Initial Yield incorporates an adjustment in respect of the expiration of rent-free periods (or other unexpired lease incentives).
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Annualised passing rental income based on cash rents (a) 55,003 51,217
Notional rent expiration of rent-free periods or other lease incentives 1,554 4,259
Topped-up net annualised rent (b) 56,557 55,476
Standing assets (see page 72) 851,305 892,336
Allowance for estimated purchasers’ costs 57,461 60,225
Grossed-up completed property portfolio valuation (c) 908,766 952,561
EPRA Net Initial Yield = (a/c) 6.05% 5.38%
EPRA Topped-up Net Initial Yield = (b/c) 6.22% 5.82%
EPRA Vacancy Rate
EPRA Vacancy Rate is the estimated rental value (ERV) of vacant space (excluding forward fund developments) divided by the contractual rent
of the investment property portfolio, expressed as a percentage.
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Annualised potential rental value of vacant premises* (a) – –
Annualised potential rental value of the property portfolio (including vacant properties) (b) 56,557 55,476
EPRA Vacancy Rate = (a/b) – –
* As detailed in Note 17 to the Consolidated Financial Statements, there were no unoccupied properties at either 30 June 2022 or 30 June 2023.
EPRA Cost Ratio
The EPRA cost ratios are produced using EPRA methodology, which aims to provide a consistent base-line from which companies can provide
additional information, and include all property expenses and management fees. Consistent with the Group specific adjusted EPRA earnings
detailed in Note 8 to the Consolidated Financial Statements, similar adjustments have been made to also present the adjusted Cost Ratio
which is thought more appropriate for the Group’s business model.
99Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
Year ended
30 June 2023
£’000
Year ended
30 June 2022
£’000
Investment management fee 7,428 7,307
Credit loss allowance and bad debts 264 3,232
Other expenses 3,046 3,163
EPRA costs (including direct vacancy costs) (a) 10,738 13,702
Specific cost adjustments, if applicable – –
Group specific adjusted EPRA costs (including direct vacancy costs) (b) 10,738 13,702
Direct vacancy costs (c) – –
Gross rental income per IFRS (d) 67,748 63,859
Adjusted for rental income arising from recognising guaranteed rent review uplifts and lease
incentives (11,308) (10,215)
Adjusted for surrender premiums recognised in capital – (3,877)
Adjusted for development interest under forward fund arrangements 952 783
Group specific adjusted gross rental income (e) 57,392 50,550
EPRA Cost Ratio (including direct vacancy costs) = (a/d) 15.8% 21.5%
EPRA Group specific adjusted Cost Ratio (including direct vacancy costs) = (b/e) 18.7% 27.1%
EPRA Cost Ratio (excluding direct vacancy costs) = ((a-c)/d) 15.8% 21.5%
EPRA Group specific adjusted Cost Ratio (excluding direct vacancy costs) = ((b-c)/e) 18.7% 27.1%
EPRA Loan-to-Value
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Borrowings 230,000 234,750
Net payables 9,117 18,213
Cash and cash equivalents (15,366) (34,483)
Net debt (a) 223,751 218,480
Investment properties at market value 868,705 911,596
Total property value (b) 868,705 911,596
EPRA Loan-to-Value = (a/b) 25.8% 24.0%
EPRA Capital Expenditure
Year ended
30 June 2023
£’000
Year ended
30 June 2022
£’000
Acquisitions (including acquisition costs) 234 178,830
Forward fund developments 17,385 28,851
Like-for-like portfolio 6,148 1,859
Total capital expenditure 23,767 209,540
Conversion from accrual to cash basis 5,575 (2,547)
Total capital expenditure on a cash basis 29,342 206,993
Like-for-like Rental Growth
Year ended
30 June 2023
£’000
Year ended
30 June 2022
£’000
Opening contractual rent (a) 55,476 41,213
Rent reviews 2,080 1,581
Re-tenanting of properties 39 312
Like-for-like rental growth (b) 2,119 1,893
Acquisitions and developments 1,019 12,370
Disposals (2,057) –
Total movement (c) 1,081 14,263
Closing contractual rent = (a+c) 56,557 55,476
Like-for-like rental growth = (b/a) 3.8% 4.6%
100 Target Healthcare REIT plc
0
4
8
12
16
20
24
1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2011 2021 2031 2041 2051 2061 2071 2081 2091 2101 2111
Number of people (million)
65–74 75–84 85+
2046
c.2x over 85s
Today
15
10
5
0
0 5 15 20
Total Return (per annum) %
< Reduced risk Risk (standard deviation) Increased risk >
Industrial
THRL Portfolio
Office
Primary
Healthcare
Retail
Gilts
Residential
All property
Healthcare
Equities
Real Estate Equities
Total supply Total demand Fit-for-
purpose
supply
441k
beds
262k
shortage
401k
residents
14%
31%
2014
2023
139k
beds
As the age of the UK population increases along with the care needs of older people,
there is a clear requirement for investment that will modernise and grow the supply
of fit-for-purpose care homes. Much of the UK’s existing care home real estate is
sub-standard for residents and their care professionals.
Responsible investment, applying specialist knowledge to a complex and sensitive sector, can deliver stable, long-term returns
and provide positive social and community impact.
3. Long-term investment,
stable returns
– Lease structures are long-term
(typically 30-35 years) and
inflation-linked.
– Portfolio track record of strong
returns and low volatility
(defensive, non-cyclical).
– Long-term capital appropriate for
vital UK social care infrastructure.
1. Demographics
– Number of over 85s forecast
to nearly double to 3.3m in next
25 years.
– Forecast increase in people living
with dementia, to 1.0m in 2024
and 1.6m by 2040.
– Societal shift means less elderly
care provided within families.
2. Real estate standards
– Resident and family expectations
on accommodation quality are
increasing.
– Only 31% of rooms in UK have
the en suite wet-rooms which are
vital for hygiene, privacy & dignity.
– Purpose-built homes offer
advantages for residents and care
providers, and better social space
for communities.
Total en suite wet-room provision
Proportion of the market is increasing as
older homes close and new homes are built
Sources:
Carterwood, analysis covers Great Britain
as at September 2023.
Source: MSCI, based on annual index to 31 December 2022.
Nine year total return vs standard deviation 2014-2022
People aged 64 and over: Trend and projections
Supply and demand
Data Centre
Sources: 1901–2001, Census data; Following 2001, successive principal national projections (the latest being
2018-based) from the Office for National Statistics and (formerly) the Government Actuary’s Department.
101Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
Glossary of Terms and Definitions
Corporate Terms
AIC
Association of Investment Companies. This is the trade body for Closed-end Investment Companies
(www.theaic.co.uk).
AIFMD
The UK version of the Alternative Investment Fund Managers Directive and all delegated legislation
thereunder as it forms part of UK law pursuant to the European Union (Withdrawal) Act 2018, as
amended. Issued by the European Parliament in 2012 and 2013, the Directive requires that all investment
vehicles, including Closed-end Investment Companies, must have appointed a Depositary and an
Alternative Investment Fund Manager. The Board of Directors of a Closed-end Investment Company,
nevertheless, remains fully responsible for all aspects of the company’s strategy, operations and
compliance with regulations.
Closed-end Investment
Company
A company with a fixed issued ordinary share capital which is traded on an exchange at a price not
necessarily related to the Net Asset Value of the company and where shares can only be issued or
bought back by the company in certain circumstances. This contrasts with an open-ended investment
company, which has units not traded on an exchange but issued or bought back from investors at a
price directly related to the Net Asset Value.
CQC
Care Quality Commission. The independent regulator of all health and social care services in England.
Depositary
Under AIFMD rules, the Company must appoint a Depositary, whose duties in respect of investments,
cash and similar assets include: safekeeping; verification of ownership and valuation; and cash
monitoring. The Depositary’s oversight duties include, but are not limited to, oversight of share buy
backs, dividend payments and adherence to investment limits. The Company’s Depositary is IQ EQ
Depositary Company (UK) Limited.
Discount/Premium*
The amount by which the market price per share of a Closed-end Investment Company is lower or
higher than the net asset value per share. The detailed method of calculation is shown on page 97.
Dividend
The income from an investment. The Company currently pays interim dividends to shareholders quarterly.
Dividend Cover*
The absolute value of Group specific adjusted EPRA Earnings divided by the absolute value of dividends
relating to the period of calculation. The detailed method of calculation is shown on page 97.
Dividend Yield*
The annual Dividend expressed as a percentage of the share price at the date of calculation.
EPRA Best Practice
European Public Real Estate Association. A not-for-profit organisation which aims to foster trust for,
and encourage greater investment in, listed real estate in Europe (www.epra.com). EPRA also issue
best practice recommendations to enhance the financial reporting of listed property companies.
EPRA Cost Ratio
Reflects the relevant overhead and operating costs of the business. It is calculated by expressing the
sum of property expenses (net of service charge recoveries and third-party asset management fees)
and administration expenses (excluding exceptional items) as a percentage of gross rental income.
The detailed method of calculation is shown on pages 98 and 99.
EPRA Earnings per Share*
Recurring earnings from core operational activities. A key measure of a company’s underlying operating
results from its property rental business and an indication of the extent to which current dividend
payments are supported by earnings. A reconciliation of the earnings per IFRS and the EPRA earnings,
including any items specific to the Group, is contained in Note 8 to the Consolidated Financial Statements.
EPRA Group specific adjusted
Cost Ratio*
The EPRA Cost Ratio adjusted for items thought appropriate for the Group’s specific business model.
The adjustments made are consistent with those made to the Group specific adjusted EPRA earnings
as detailed in Note 8 to the Consolidated Financial Statements.
EPRA Loan-to-Value (‘LTV’)*
A shareholder-gearing measure to determine the percentage of debt comparing to the appraised value
of the properties. EPRA LTV is calculated as total gross debt (adding net trade payables and less cash)
as a proportion of gross property value. The detailed method of calculation is shown on page 99.
EPRA Net Disposal Value (‘NDV’)*
A measure of Net Asset Value which represents the shareholders’ value under a disposal scenario, where
deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their
liability, net of any resulting tax. A reconciliation of the NAV per IFRS and the EPRA NDV is contained in
Note 8 to the Consolidated Financial Statements.
EPRA Net Initial Yield*
Annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable
property operating expenses, divided by the market value of the property, increased with (estimated)
purchasers’ costs. EPRA’s purpose is to provide a comparable measure around Europe for portfolio
valuations. The detailed method of calculation is shown on page 98.
EPRA Net Reinstatement Value
(‘NRV’)*
A measure of Net Asset Value which assumes that entities never sell assets and aims to represent the
value required to rebuild the entity. The objective is to highlight the value of net assets on a long-term
basis. Assets and liabilities that are not expected to crystallise in normal circumstances, such as the fair
value movements on financial derivatives, are excluded and the costs of recreating the Group through
investment markets, such as property acquisition costs and taxes, are included. A reconciliation of the
NAV per IFRS and the EPRA NRV is contained in Note 8 to the Consolidated Financial Statements.
102 Target Healthcare REIT plc
EPRA Net Tangible Assets (‘NTA’)*
A measure of Net Asset Value which assumes that entities buy and sell assets, thereby crystallising
certain levels of unavoidable deferred tax. A reconciliation of the NAV per IFRS and the EPRA NTA is
contained in Note 8 to the Consolidated Financial Statements.
EPRA Topped-up Net Initial
Yield*
Incorporates an adjustment to the EPRA Net Initial Yield in respect of the expiration of rent-free periods
(or other unexpired lease incentives). The detailed method of calculation is shown on page 98.
GAAP
Generally Accepted Accounting Practice. This includes UK GAAP and International GAAP (IFRS or
International Financial Reporting Standards). The Group’s Consolidated Financial Statements are
prepared in accordance with UK-adopted IFRS.
Gearing
Unlike open-ended investment companies, Closed-end Investment Companies have the ability to
borrow to invest. This term is used to describe the level of borrowings that an Investment Company
has undertaken. The higher the level of borrowings, the higher the gearing ratio. The gross gearing
figure is calculated as debt divided by the market value of the properties held. The net gearing figure
is calculated as debt less cash divided by the market value of the properties held.
Investment Manager
The Company’s Investment Manager is Target Fund Managers Limited. Further details are set out on
pages 30 and 31 and in Note 2 to the Consolidated Financial Statements.
Leverage
As defined under AIFMD rules, leverage is any method by which the exposure of an AIF is increased
through borrowing of cash or securities or leverage embedded in derivative positions. Leverage is
broadly equivalent to Gearing, but is expressed as a ratio between the assets (excluding borrowings)
and the net assets (after taking account of borrowing). Under the gross method, exposure represents the
sum of the Group’s positions after deduction of cash balances, without taking account of any hedging
or netting arrangements. Under the commitment method, exposure is calculated without the deduction
of cash balances and after certain hedging and netting positions are offset against each other.
Loan-to-Value*
A measure of the Group’s Gearing level. Gross LTV is calculated as total gross debt as a proportion of gross
property value. Net LTV is calculated as total gross debt less cash as a proportion of gross property value.
Market Capitalisation
The stock market value of the Company as determined by multiplying the number of Ordinary Shares
in issue, excluding any shares held in treasury, by the Share Price of the Ordinary Shares.
MSCI
Produces indexes for both privately-held real estate portfolios, as well as publicly-listed organisations
which provides a long performance history and which are mostly appraised quarterly.
NAV per Ordinary Share
This is calculated as the Net Asset Value (NAV) divided by the number of shares in issue.
Net Asset Value (or Shareholders’
Funds)
The value of total assets less liabilities. Liabilities for this purpose include current and long-term liabilities.
It represents the underlying value of an Investment Company at a point in time.
Ongoing Charges Ratio*
A measure of all operating costs incurred in the reporting period, calculated as a percentage of average
net assets in that year. Operating costs exclude costs of buying and selling investments, interest costs,
taxation, non-recurring costs and the costs of buying back or issuing ordinary shares. The detailed
method of calculation is shown on page 97.
Ordinary Shares
The main type of equity capital issued by conventional Investment Companies. Shareholders are entitled
to their share of both income, in the form of dividends paid by the Investment Company, and any capital
growth. The Company has only Ordinary Shares in issue.
Real Estate Investment Trust
(or REIT)
A tax regime which in the UK exempts participants from corporation tax both on UK rental income
and gains arising on UK investment property sales, subject to certain requirements. Further details
are provided on pages 94 and 95.
Share Price
The value of a share at a point in time as quoted on a stock exchange. The Company’s Ordinary Shares
are traded on the Main Market of the London Stock Exchange.
SORP
Statement of Recommended Practice ‘Financial Statements of Investment Trust Companies and Venture
Capital Trusts’ issued by the AIC.
Total Return*
The return to shareholders calculated on a per share basis by adding dividends paid in the period to the
increase or decrease in the Share Price or NAV. The dividends are assumed to have been reinvested in
the form of Ordinary Shares or Net Assets. The detailed method of calculation is shown on page 97.
* Alternative Performance Measure.
Glossary of Terms and Definitions continued
103Annual Report and Financial Statements 2023
Financial Statements Additional InformationCorporate GovernanceStrategic Report
Property and ESG Terms
Break Option
A clause in a lease which provides the landlord or tenant with an ability to terminate the lease before
its contractual expiry date.
Building Research Establishment
Environmental Assessment
Method (‘BREEAM’)
BREEAM is the world’s leading science-based suite of validation and certification systems for sustainable
built environment. The BREEAM in-use standards provide a framework to enable property investors,
owners, managers and occupiers to determine and drive sustainable improvements in the operational
performance of their assets, leading to benchmarking, assurance and validation of operational asset data.
Contractual Rent
The annual rental income receivable on a property as at the balance sheet date, adjusted for the
inclusion of rent currently subject to a rent free period.
Covenant Strength
This refers to the quality of a tenant’s financial status and its ability to perform the covenants in the lease.
COP26
The 26th UN Climate Change Conference held in November 2021.
Deed of Surrender
A legal document which allows the early termination of a lease upon the agreement of both parties. It
will list the obligations that need to be fulfilled by both parties before the rights and interests under the
lease are extinguished. Depending on the circumstances a surrender premium may be payable from the
Group to the tenant, or receivable by the Group from the tenant.
Energy Performance Certificate
(‘EPC’)
An Energy Performance Certificate (EPC) rates how energy efficient a building is using grades from A
to G (with ‘A’ the most efficient grade). All commercial properties leased to a tenant must have an EPC.
All EPCs are valid for 10 years.
Estimated Rental Value (‘ERV’)
The estimated annual market rental value of a property as determined by the Company’s External Valuer.
This will normally be different from the actual rent being paid.
Fixed and Minimum Guaranteed
Rental Uplifts
Rents subject to fixed uplifts at an agreed level on agreed dates stipulated within the lease, or rents
subject to contracted minimum uplifts at specified review dates.
Forward Fund/Commitment
A contract pertaining to the future purchase of a property. Forward Funding relates to the acquisition
of a property which hasn’t yet been built, with the Group providing the developer with the funding for
the development, usually in staged payments throughout the contract.
GRESB
GRESB is a mission-driven and investor-led organisation that provides actionable and transparent
ESG data to financial markets. GRESB collects, validates, scores and benchmarks ESG data using a
standardised, globally recognised framework so that both investors and Investment Managers can
act on ESG data and insights.
Lease
A legally binding contract between a landlord and a tenant which sets out the basis on which the tenant
is permitted to occupy a property, including the lease length.
Lease Incentive
A payment used to encourage a tenant to take on a new lease, for example by a landlord paying a tenant a
sum of money to contribute to the cost of a tenant’s fit-out of a property or by allowing a rent free period.
Lease Renewal
The renegotiation of a lease with the existing tenant at its contractual expiry.
Mature Homes
Care homes which have been in operation for more than three years. There were 77 homes in the
Group’s portfolio which both met this definition and were held by the Group for the entire duration of
the year ended 30 June 2023, closing at 84 homes on 30 June 2023.
Occupancy Rate or
Resident Occupancy Rate
The occupancy rate calculates the number of occupied rooms as a percentage of the overall capacity of
the care home. This is an important measure in determining the quality of the property held, the strength
of the tenant and the sustainability of the rental income received.
Photovoltaic (‘PV’) Panels
Panels which are used to generate renewable electricity by capturing solar energy.
Portfolio or Passing Rent*
The annual rental income currently receivable on a property as at the balance sheet date, excluding rental
income where a rent-free period is in operation. The gross rent payable by a tenant at a point in time.
Rent Cover*
A measure of the tenant’s ability to meet its rental liability from the profit generated by their underlying
operations. Generally calculated as the tenant’s EBITDARM (earnings before interest, taxes, depreciation,
amortisation, rent and management fees) divided by the contracted rent. Unless otherwise stated, rent
cover is calculated based on Mature Homes only.
Rent Review
A periodic review of rent during the term of a lease, as provided for within a lease agreement.
Surrender Premium
A sum of monies that may be paid from the tenant to the landlord, or from the landlord to a tenant,
in order to extinguish a lease prior to the termination date originally set out in the lease agreement.
Valuer
An independent external valuer of a property. The Group’s Valuer is Colliers International Healthcare
Property Consultants Limited and detailed information regarding the valuation of the Group’s properties
is included in Note 9 to the Consolidated Financial Statements.
Wet-room
A private, en-suite shower and toilet room, fully tiled and drained, providing the practical living space for
personal hygiene to be applied in a dignified manner and with assistance as required.
WAULT*
Weighted average unexpired lease term. The average lease term remaining to expiry across the portfolio
weighted by contracted rental income.
* Alternative Performance Measure.
104 Target Healthcare REIT plc
Corporate Information
Directors
Alison Fyfe (Chair)
Michael Brodtman
Richard Cotton*
Vince Niblett**
Amanda Thompsell
Registered Office
Level 4 Dashwood House
69 Old Broad Street
London EC2M 1QS
AIFM and Investment Manager,
Company Secretary and Administrator
Target Fund Managers Limited
Glendevon House
Castle Business Park
Stirling FK9 4TZ
Legal Adviser
Dickson Minto W.S.
Level 4 Dashwood House
69 Old Broad Street
London EC2M 1QS
Broker
Stifel Nicolaus Europe Limited
150 Cheapside
London EC2V 6ET
Valuers
Colliers International Healthcare Property Consultants Limited
50 George Street
London W1U 7GA
Auditors
Ernst & Young LLP
Atria One
144 Morrison Street
Edinburgh EH3 8EX
Tax Adviser
Deloitte LLP
Athene Place
66 Shoe Lane
London EC4A 3BQ
Tax Compliance
Alvarez & Marsal Tax LLP
1 West Regent Street
Glasgow G2 1RW
Depositary
IQ EQ Depositary Company (UK) Limited
Two London Bridge
London SE1 9RA
Registrars
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS13 8AE
Website
www.targethealthcarereit.co.uk
* Senior Independent Director
** Chairman of Audit Committee
Target Healthcare REIT plc
Level 4 Dashwood House
69 Old Broad Street
London EC2M 1QS
www.targethealthcarereit.co.uk
Target Healthcare REIT plc Annual Report and Financial Statements 2023