Proposed Issue of Equity

RNS Number : 2755L

Target Healthcare REIT PLC

05 September 2019

 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, IN OR INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION IN PARTICULAR THE UNITED STATES, ANY MEMBER STATE OF THE EUROPEAN ECONOMIC AREA (OTHER THAN THE UNITED KINGDOM, THE REPUBLIC OF IRELAND OR THE NETHERLANDS (AND, IN THE CASE OF THE NETHERLANDS, ONLY TO PROFESSIONAL INVESTORS)), CANADA, AUSTRALIA, THE REPUBLIC OF SOUTH AFRICA, NEW ZEALAND AND JAPAN

This announcement is an advertisement and not a prospectus. This announcement does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities in Target Healthcare REIT plc (the "Company") or securities in any other entity, in any jurisdiction, including the United States, nor shall it, or any part of it, or the fact of its distribution, form the basis of, or be relied on in connection with, any contract or investment decision whatsoever, in any jurisdiction. This announcement does not constitute a recommendation regarding any securities. Any investment decision must be made exclusively on the basis of the final prospectus published by the Company and any supplement thereto.

5 September 2019

TARGET HEALTHCARE REIT PLC

("Target" or the "Company", together with its subsidiaries, the "Group")

PROPOSED ISSUE OF EQUITY

Target Healthcare (LSE: THRL), the UK's listed specialist investor in modern, purpose-built care homes,  announces a placing of new ordinary shares (the "Placing" and the "Placing Shares" respectively). The Placing will target gross proceeds of approximately £50 million by way of a non pre-emptive placing under its existing Placing Programme at 110.5 pence per Placing Share (the "Offer Price"). 

·      The Offer Price represents a discount of 6.2 per cent. to the closing share price of 117.8 pence per existing ordinary share in the capital of the Company ("Existing Ordinary Shares") on 4 September 2019 (being the last business day prior to the announcement of the Placing) and a premium of 2.8 per cent. to the Company's unaudited EPRA NAV per Ordinary Share as at 30 June 2019 of 107.5 pence

·      Further to the £18.6 million acquisition of the two properties in Stourport and Ripon announced on 23 August 2019, the Company has identified a near-term investment pipeline of approximately £92 million (the "Pipeline Assets") consisting of ten assets which it expects to commit to acquiring by the end of 2019

The Company is expected to announce its 30 June 2019 annual results on 17 September 2019 at which point it will also publish a supplement to its existing placing programme prospectus dated 21 June 2019. The Placing will close at 11 a.m. on 25 September 2019.

Malcolm Naish, Chairman of the Company, said: 

"Having raised circa £144 million of proceeds in 2018, including in an over-subscribed placing in November, we have now successfully deployed the majority of our existing cash resources, delivering a high quality and accretive, £500.9 million portfolio that is directly in line with our investment criteria -  long leased, fit-for-purpose homes which provide their residents with en-suite wet rooms. This we regard as a crucial element of care and a key differentiator for our business.

"This proposed placing will enable us to maintain the momentum behind the growth strategy. We have already identified a significant pipeline of opportunities that will bring tenant and geographic diversification to the portfolio, as well as allowing us to continue to grow the size and scale of the business."

Background to the Placing 

The Group listed on the London Stock Exchange's Main Market on 7 March 2013 with an investment remit to focus on a diversified portfolio of modern, purpose-built care homes that are let to high quality tenants who demonstrate strong operational capabilities and an active care ethos, both of which the Company believes are critical to long term success in the care home business.

The Company's care homes typically benefit from favourable local dynamics, including supportive demographics, as well as long leases at sustainable rental levels. These leases are typically structured to include annual rental uplifts (RPI linked or fixed) and cure rights. Informed by its proprietary research, Target has built a portfolio of high quality assets in the right locations, with the services and facilities that suit its tenants' needs. This is set against a background of an increasing population of over 85 year olds in the UK, a shift in how society cares for its elderly, and an insufficient supply of en-suite, fit-for-purpose accommodation.

Since IPO, the Company has carefully crafted an investment portfolio consisting of 63 modern, purpose-built care homes⁽¹⁾ which are let to 26 different tenants. The portfolio has a high level of diversity across tenant covenant, geography and source of funding via the ultimate end-users. Crucially, whilst the portfolio and tenant base is diversified, the portfolio comprises modern fit-for-purpose care homes characterised by en-suite wet rooms, accommodation designed for 21^st century social care, and a wide availability of public space, both indoors and out, for the residents.

The Investment Manager is passionate about providing high quality environments for our tenants and their residents, whilst noting that modern assets with modern amenities provide a greater level of future proofing to the business, which is vital in helping to protect the Company's future financial returns given the long weighted average unexpired lease term of 29.1 years and the potential benefit of annual (RPI or fixed) rental uplifts in the Company's lease contracts. In selecting its assets, the Company looks for buildings that are designed for being, and run by our tenants as, care homes not care facilities. Due partly to this, as well as other factors such as geography and average fee rates charged by our tenants, the portfolio has a bias towards residents who pay for their care privately (either in whole or through a mix of private and public funding) which provides a measure of financial insulation to our tenants who continue to face various issues arising from, inter alia, the current uncertainty around public sector funding in their space.

The Company's portfolio was valued by the Company's valuers at £500.9 million as at 30 June 2019 and the Company has a relatively conservative gearing policy with a net LTV of 16.2 per cent. as at 30 June 2019. As a Real Estate Investment Trust, the Company has an income focus with the full year dividend for period to 30 June 2019 amounting to 6.6 pence per share, which reflects a 6.0 per cent. dividend yield on the Offer Price. Since IPO to 30 June 2019, the Company has delivered total shareholder returns of 63.2 per cent.

Use of Proceeds

Despite a competitive acquisition environment, the Company has demonstrated that it can continue to grow its portfolio on accretive terms whilst being highly selective with its approach to acquisition opportunities. Equally, when assets are over-valued, or no longer meet the high quality level that the Company expects, our strategy is to be flexible and value focused. The Investment Manager regularly works with tenants to improve assets, but ultimately the Company can and will dispose of its assets when this represents better long term value for shareholders, as demonstrated in July 2019 when the Company sold two care homes in Surrey and Essex for a price that was 5 per cent. above the 31 March 2019 value.

Since November 2018, the Company has acquired seven properties for a total consideration of £84 million including the recent purchase of two care homes in Stourport and Ripon for a total consideration of approximately £18.6 million. After adjusting for the Company's remaining uncommitted debt, small development programme, potential deferred consideration that may become payable and cash required for general corporate purposes, the Company currently has uncommitted capital available of approximately £35 million which can be used for investment into new assets.

In accordance with its investment policy, the Group has identified a near-term investment pipeline of approximately £92 million which it expects to commit to acquiring by the end of 2019. Together the Pipeline Assets include eight purpose-built standing assets with a total of 682 beds, one forward funded opportunity and one small assisted living opportunity which sits adjacent to an existing asset. The assets collectively benefit from over 30 years of weighted average lease terms with a net initial yield (which includes the expected cost of construction of the forward funded asset) of 5.9 per cent. In addition to the investment opportunities identified, the Company also has an extensive investment pipeline of potential longer term opportunities which remain subject to due diligence and negotiation and, therefore, the timetable for possible completion is uncertain at this time.

Benefits of the Placing

The Board believes the Placing will deliver the following benefits for shareholders and the Company: 

·      enable the Company to continue with its growth strategy, provide scale to its investment portfolio and increase the liquidity of the shares by increasing the market capitalisation of the Company and further diversifying the shareholder register;

·      provide additional capital which should enable the Company to take advantage of the current investment opportunities in the market and make further investments in accordance with the Company's investment policy and within its appraisal criteria;

·      as the Company is actively considering a number of specific property opportunities, the Placing should assist in matching the capital requirements of the Company to the investment opportunities identified;

·      the Company intends to use the net proceeds principally to invest in the Pipeline Assets. The Pipeline Assets provide the Company with the opportunity to invest in new, purpose-built care homes and will also increase the Company's geographical exposure to Yorkshire as well as the South West of England which is currently under represented in the portfolio;

·      further diversify the Existing Portfolio by introducing new tenants to the Group; and

·      provide a larger equity base over which the fixed costs of the Company may be spread, thereby reducing the Company's ongoing costs per share.

Expected timetable

30 June 2019 Annual Results and Supplementary Prospectus published	17 September 2019
Latest time and date for receipt of commitments under the Placing	11 a.m. on 25 September 2019
Results of the Placing announced	26 September 2019
Admission and dealings in Placing Shares commence	8 a.m. on 30 September 2019

The timetable is subject to change at the discretion of the Company, Stifel Nicolaus Europe Limited ("Stifel") and Dickson Minto W.S. If any of the above times and/or dates change, the revised times and/or dates will be notified to shareholders by announcement through a Regulatory Information Service. References to time in this document are to London time.

Further information on the Placing

The Company proposes to raise gross proceeds of approximately £50 million through the issue of approximately 45,248,868 Placing Shares at 110.5 pence per Placing Share by way of the Placing. The Placing is being conducted in accordance with the Prospectus dated 21 June 2019, as amended and supplemented.

The Placing Shares, when issued, will rank in full for all dividends or other distributions declared, made or paid after the admission of the Placing Shares issued under the Placing to the premium segment of the Official List and to trading on the London Stock Exchange's Main Market ("Admission") and in all other respects will rank pari passu with the existing Ordinary Shares. For the avoidance of doubt, based on the current expected timetable, the Placing Shares will qualify for the next quarterly dividend which relates to the period 1 July 2019 to 30 September 2019, which is expected to be declared in November 2019.

The Placing will close at 11 a.m. on 25 September 2019 or such later date as the Company, Stifel and Dickson Minto W.S., acting as sponsor to the Company, may agree.

In accordance with the Prospectus published on 21 June 2019, the Directors implemented a Placing Programme to enable the Company to raise new capital in the period from 8 August 2019 to 19 June 2020. Under the Placing Programme, the Company has the authority to issue up to 125 million shares, less any shares already issued under the Placing Programme. In this Placing, the Directors are targeting an issue of approximately 45,248,868 shares with the placing size based on the Company's near-term investment pipeline as well as the Company's ongoing focus to minimise any potential cash drag on returns by matching as closely as possible cash being raised from equity fundraises to its expected investment pipeline. In the event that the number of Placing Shares applied for under the Placing exceeds 45,248,868, the Board of Directors have the ability to increase the size of the Placing up to the maximum number of shares available under the Placing Programme, being 125 million Placing Shares. Any upsizing would however be subject to careful consideration of the prevailing market conditions, the availability and estimated price of the properties that the Investment Manager has identified as being suitable for purchase by the Company and the length of time it would likely take to acquire them. In the event that the number of Placing Shares applied for under the Placing exceeds the numbers of shares which the Board of Directors wish to issue under the Placing, it will be necessary to scale back applications. In such event, Placing Shares will be allocated at the discretion of the Company.

The Placing, which is not underwritten, is conditional upon, inter alia, Admission becoming effective no later than 8.00 a.m. on 30 September 2019 (or such later date as the Company and Stifel may agree in writing, being not later than 8.00 a.m. on 31 December 2019) and the Placing Agreement becoming wholly unconditional (save as to Admission) and not having been terminated in accordance with its terms prior to Admission.

The Company will apply for admission of the Placing Shares to listing on the premium listing segment of the Official List of the Financial Conduct Authority (the "FCA") and to trading on the main market for listed securities of London Stock Exchange plc (the "London Stock Exchange"). It is expected that settlement of subscriptions in respect of the Placing Shares and Admission will take place and that trading in the Placing Shares will commence at 8.00 a.m. (London time) on 30 September 2019.

The Placing Shares will be issued in registered form and may be held in uncertificated form. The Placing Shares allocated will be issued to Placees through the CREST system unless otherwise stated. The Placing Shares will be eligible for settlement through CREST with effect from Admission. 

Participation in the Placing will only be available to persons in member states of the EEA who are qualified investors as defined in article 2 (e) of the Prospectus Regulation ("Qualified Investors"). This announcement and the Placing are therefore directed only at Qualified Investors.

The Placing is subject to the terms and conditions set out in the Prospectus which was published on 21 June 2019. 

30 June 2019 Annual Results

The Company will announce its full year results for the period ended 30 June 2019 on Tuesday, 17 September 2019. Following the year end audit process which to date has included the preparation of an unaudited NAV and  initial conversations with the Company's auditors, some minor adjustments have been made to the Company's unaudited EPRA NAV per share as announced on 1 August 2019 of 107.8 pence. As a consequence, the Company's unaudited EPRA NAV per share as at 30 June 2019 has been revised from 107.8 pence to 107.5 pence per share following these adjustments. The Company's 30 June 2019 audited NAV will be announced on 17 September 2019.

Dealing codes

Ticker: THRL

ISIN for the new ordinary shares: GB00BJGTLF51

SEDOL for the new ordinary shares: BJGTLF5

The Company's legal entity identifier: 213800RXPY9WULUSBC04

Enquiries:

Target Fund Managers Limited (Investment Manager to the Company)                                            

Kenneth MacKenzie			[phone]
Gordon Bland			[phone]
Stifel Nicolaus Europe Limited
Mark Young	[e-mail]		[phone]
Neil Winward	[e-mail]		[phone]
Tom Yeadon	[e-mail]		[phone]
FTI Consulting
Dido Laurimore	[e-mail]		[phone]
Claire Turvey
Richard Gotla

Notes

Terms used and not defined in this announcement bear the meaning given to them in the Prospectus published on 21 June 2019.

(1) The Company had 63 assets and 24 operators as at 30 June 2019. This comprised 60 operational care homes and 3 sites being developed via forward fund commitments. Subsequent to 30 June 2019, two assets in Ripon and Stourport were acquired for approximately £18.6 million and leased to a new operator to the Group, and two assets leased to an existing operator that remains a tenant of the Group were sold. Additionally, one of the development assets held by the Group reached practical completion in August 2019 and was then leased to a new operator to the Group.

Important Information

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014.  Upon the publication of this announcement via Regulatory Information Service this information is now considered to be in the public domain.

The information contained in this announcement is given at the date of its publication (unless otherwise marked) and is subject to updating, revision and amendment from time to time.

This announcement does not contain or constitute an offer for sale or the solicitation of an offer to purchase securities in the United States. The Placing Shares have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act") or under any securities laws of any state or other jurisdiction of the United States and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within the United States except pursuant to an applicable exemption from or in a transaction not subject to the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There will be no public offer of the Placing Shares in the United States.

This announcement is for information purposes only and is not intended to and does not constitute or form part of any offer or invitation to purchase or subscribe for, or any solicitation to purchase or subscribe for, any securities in any jurisdiction. No offer or invitation to purchase or subscribe for, or any solicitation to purchase or subscribe for, any securities will be made in any jurisdiction in which such an offer or solicitation is unlawful. The information contained in this announcement is not for release, publication or distribution to persons in the United States, Canada, Australia, the Republic of South Africa, New Zealand or Japan, and should not be distributed, forwarded to or transmitted in or into any jurisdiction, where to do so might constitute a violation of local securities laws or regulations.

Stifel Nicolaus Europe Limited, which is authorised and regulated by the Financial Conduct Authority, is acting only for the Company in connection with the matters described in this announcement and is not acting for or advising any other person, or treating any other person as its client, in relation thereto and will not be responsible for providing the regulatory protection afforded to clients of Stifel Nicolaus Europe Limited or advice to any other person in relation to the matters contained herein.

Dickson Minto W.S. ("DM"), which is authorised and regulated by the Financial Conduct Authority, is acting only for the Company in connection with the matters described in this announcement and is not acting for or advising any other person, or treating any other person as its client, in relation thereto and will not be responsible for providing the regulatory protection afforded to clients of DM or advice to any other person in relation to the matters contained herein.

This announcement may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology. All statements other than statements of historical facts included in this announcement, including, without limitation, those regarding the Company's financial position, strategy, plans, proposed acquisitions and objectives, are forward-looking statements.

Forward-looking statements are subject to risks and uncertainties and, accordingly, the Company's actual future financial results and operational performance may differ materially from the results and performance expressed in, or implied by, the statements. These forward-looking statements speak only as at the date of this announcement and cannot be relied upon as a guide to future performance. The Company, Target Fund Managers Limited, DM and Stifel Nicolaus Europe Limited expressly disclaim any obligation or undertaking to update or revise any forward-looking statements contained herein to reflect actual results or any change in the assumptions, conditions or circumstances on which any such statements are based unless required to do so by the Financial Services and Markets Act 2000, the Prospectus Rules of the Financial Conduct Authority or other applicable laws, regulations or rules.

None of the Company, Target Fund Managers Limited, DM or Stifel Nicolaus Europe Limited, or any of their respective affiliates, accepts any responsibility or liability whatsoever for or makes any representation or warranty, express or implied, as to this announcement, including the truth, accuracy or completeness of the information in this announcement (or whether any information has been omitted from the announcement) or any other information relating to the Company or associated companies, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available or for any loss howsoever arising from any use of the announcement or its contents or otherwise arising in connection therewith. The Company, Target Fund Managers Limited, DM and Stifel Nicolaus Europe Limited, and their respective affiliates, accordingly disclaim all and any liability whether arising in tort, contract or otherwise which they might otherwise have in respect of this announcement or its contents or otherwise arising in connection therewith.

Information to Distributors

Solely for the purposes of the product governance requirements contained within: (a) EU Directive 2014/65/EU on markets in financial instruments, as amended ("MiFID II"); (b) Articles 9 and 10 of Commission Delegated Directive (EU) 2017/593 supplementing MiFID II; and (c) local implementing measures (together, the "MiFID II Product Governance Requirements"), and disclaiming all and any liability, whether arising in tort, contract or otherwise, which any "manufacturer" (for the purposes of the MiFID II Product Governance Requirements) may otherwise have with respect thereto, the Placing Shares have been subject to a product approval process, which has determined that the Placing Shares are: (i) compatible with an end target market of retail investors and investors who meet the criteria of professional clients and eligible counterparties, each as defined in MiFID II; and (ii) eligible for distribution through all distribution channels as are permitted by MiFID II (the "Target Market Assessment"). Notwithstanding the Target Market Assessment, distributors should note that: the price of the Placing Shares may decline and investors could lose all or part of their investment; the Placing Shares offer no guaranteed income and no capital protection; and an investment in the Placing Shares is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the Placing and the Placing Programme.

For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of MiFID II; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to the Placing Shares.

Each distributor is responsible for undertaking its own Target Market Assessment in respect of the Placing Shares and determining appropriate distribution channels.

Marketing disclosures pursuant to AIFMD (as defined below)

The Company is an externally managed alternative investment fund and has appointed Target Fund Managers Limited as its alternative investment fund manager (the "AIFM").

Pursuant to Article 23 of AIFMD and the Alternative Investment Fund Managers Regulations 2013 (No. 1173/2013) and the Investment Funds Sourcebook of the FCA (the "UK AIFMD Rules"), the AIFM is required to make available to persons in the European Union who are invited to and who choose to participate in the Placing, by making an oral or written offer to subscribe for Placing Shares, including any individuals, funds or others on whose behalf a commitment to subscribe for Placing Shares is given (the "Subscribers") certain information (the "Article 23 Disclosures"). For the purposes of the Placing, the AIFM has made the Article 23 Disclosures available to Subscribers in the 'Investor Relations' section of the Company's website at: www.targethealthcarereit.co.uk.

PRIIPS

In accordance with the Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products ("PRIIPs") and its implementing and delegated acts (the "PRIIPs Regulation"), the AIFM has prepared a key information document (the "KID") in respect of the Ordinary Shares. The KID is made available by the AIFM to "retail investors" prior to them making an investment decision in respect of the Ordinary Shares at www.targetfundmanagers.com.

If you are distributing Ordinary Shares, it is your responsibility to ensure that the KID is provided to any clients that are "retail clients".

The Company is the only manufacturer of the Ordinary Shares for the purposes of the PRIIPs Regulation and none of Stifel or the AIFM are manufacturers for these purposes. None of Stifel or the AIFM makes any representations, express or implied, or accepts any responsibility whatsoever for the contents of the KID prepared by the Company nor accepts any responsibility to update the contents of the KID in accordance with the PRIIPs Regulation, to undertake any review processes in relation thereto or to provide the KID to future distributors of Ordinary Shares.  Each of Stifel or the AIFM and their respective affiliates accordingly disclaim all and any liability whether arising in tort or contract or otherwise which it or they might have in respect of the key information documents prepared by the Company. Investors should note that the procedure for calculating the risks, costs and potential returns in the KID are prescribed by laws. The figures in the KID may not reflect actual returns for the Company and anticipated performance returns cannot be guaranteed.

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, ANY MEMBER STATE OF THE EUROPEAN ECONOMIC AREA (OTHER THAN THE UNITED KINGDOM, THE REPUBLIC OF IRELAND OR THE NETHERLANDS (AND, IN THE CASE OF THE NETHERLANDS, ONLY TO PROFESSIONAL INVESTORS)), CANADA, AUSTRALIA, JAPAN, THE REPUBLIC OF SOUTH AFRICA, NEW ZEALAND OR ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL

 

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