Target Healthcare Reit Stock

Good morning, ladies and gentlemen, and welcome to the Target Healthcare REIT plc Investor presentation. [Operator Instructions]

And I would now like to hand you over to the executive management team from Target Healthcare REIT plc, Kenneth. Good morning, sir.

Good morning, and good morning to all of you who are watching this today. I'm delighted to be joined by Alastair Murray. I was speaking to a [ phone ] earlier on, so I got confused there. Alastair Murray; and also James Mackenzie, Alastair is CFO; and James is Head of Investor Relations.

And what we're planning to do this morning is that I will do a brief introduction to the company. It gives you some portfolio highlights, and then Alastair will take you through the financial performance and James take through the portfolio performance. I'll come back and speak about the positive market trends that we are seeing in these challenging days and the robustness of the model and the business that we have here and make some closing observations, and then we'll go on to Q&A.

So if we go to a couple of slides forward, who are we and what's the investment case? Well, we are today a robust defensive portfolio. And over these first 6 months of this year, with effective proven asset management and the excellent sector tailwinds that we have, we have -- we would say, delivered market-leading returns, both over the long term, just under 8% total accounting return since launch in 2013 and in the 6 months that we're reviewing today is 6.8%, which has been pretty encouraging.

But as I reflect on these 6 months, I want to say that while these are clearly excellent returns for the 6 months, they're not just the work that we have done in the 6 months, rather, they are the fruit of the 13 years that we have spent putting together this portfolio and the position that we have within the market. This is no, kind of, short-term fashion investment. This is an investment which is very much long term that has backed by excellent demographics and the residents have significant wealth in our care homes. We'll speak a little later about the amount of net worth in the over 65s.

So contrary to what happens with, for example, student housing, where the student may spend a period of time in accommodation and ends up with very significant amounts of debt. And of course, sadly for them currently not even earning a lot more salary, a lot higher salary than if they've just done an apprenticeship. Our situation is residents with significant net worth but needing care for the latter days, the end-of-life care really. And that provides really great stability for us and a very different kind of story to the rest of -- to other living sectors. So this is robust needs-based results that we are presenting to you, and they were created by what we have done over the last 13 years.

You'll see on the next slide, the very consistent long-term performance that I'm delighted that we have when compared to the MSCI UK Annual Healthcare Property Index. We have outperformed the index every single year since the very beginning and that is clearly pleasing. A 93% outperformance is the cumulative number. And you'll see down the right-hand side, there's various areas in which we've done that over different time periods. So it's been very pleasing.

And a snapshot here of what Target Healthcare REIT actually looks like today, 86 care homes, just under 6,000 beds, GBP 60 million of income. The portfolio value at about GBP 900 million, valued at 6.23%, highly diversified with 32 different tenants. And then several KPIs that you're going to hear me speak about. We think it's really important for our residents that they have an en suite wet room.

EPC ratings, we like them to be in the A and B, so there's no further investment required to raise these standards up to that level. And we love inflation-linked rental uplifts. For all of these, we are at 100%, which is quite remarkable. And we have this looking forward for a further 26 years. So 3 pretty powerful numbers there as well as the scale on the top line.

Let's go on to the next slide because I did say we thought it was a good half year. And it's a good half year, I submit both in terms of our own corporate activity as your investment manager. We did 10 disposals at a significant premium. We did 3 acquisitions of modern fit-for-purpose care homes and performing really well with many private residents. We did one forward commit to buy a brand-new Care Home, which we will conclude on in the summer this year. And we also completed one development that reached practical completion in this 6-month period. And that in total comes to GBP 150 million of activity. As I say, the team has been busy. And in addition to all that, we also refinanced the bank debt so that we have great visibility looking forward on the capital structure of the business at this stage.

So busy time, but also busy on the asset management side. We said before that we thought we would recover some of our rent arrears. We said that at the October -- September, October time when we were reviewing the 2025 annual results, and we have indeed recovered 1.9 million.

We've also done some re-tenantings. Now 5 of them. So 5 homes retenanted with no tenant incentives given. And it's quite interesting. We've been reflecting a little about that. Over the life of this fund, we've done 23 retenantings. But actually, when you compare it with the number of stable tenant years of income that we have created at well in excess of 800 tenant years. It's important to do them right, but it's not a major issue for us other than the work that it causes us as a manager, which is our delight to be working with the tenants that we believe will be good for the long term.

We also received from one of the tenants as they left a home, a surrender premium of GBP 1.4 million. And these numbers have all helped to build the excellent results we've had for the 6 months. And the result of the work that we've been doing on the asset management side means that we feel that the last KPI I was going to mention just now was that we are heading back very rapidly to 100% rent collection, which is, of course, what we should be achieving, but we believe that will be in reach by the fiscal year-end. And while we were doing all of that asset management activity, importantly, there has been good continuity of care across all the retenanted homes for all our residents.

With that introduction, I'd like to pass you on to Alastair, who will take you through the financial performance.

Thanks, Kenneth. I will take you through the results to December 2025. But before that, I'd like to remember that the June 2025 full year results were affected by one-off increases in operating expenses and credit loss allowance driven by the administration of a home and another operator not paying the rent in full.

Well, you'll see from our half year results that these were successfully resolved through our asset management activities and our 6 months results are the highest half year returns since the group launched in 2023 -- 2013, sorry.

Next slide, please. So I'll start with the highlights of the year. The like-for-like increase in our rental income was 1.8% in the 6-month period, predominantly driven by our long-duration inflation-linked contractual rental growth. And as usual, we had no voice during the period. Our EPRA earnings per share increased by 8.5% to 3.4p. Now whilst 0.18p of this related to the nonrecurring recovery of historic arrears, this still represents a robust performance when we were focused on redeploying the disposal proceeds from the sale of our 10 care homes in the period.

This EPS comfortably covered our dividend per share of 3.02p, this dividend being a 2.5% increase compared to the prior year. Our EPRA NTA increased by 4% to 119.4p, driven by the uplift in property values, both from rental growth and the disposals at premium and from the healthy dividend cover. This enabled the group to deliver a robust total accounting return of 6.8%.

So if we move on to the next slide. Moving on to the P&L, I'll talk you through the key lines. Rental income increased by 2% in the 6 months period where we disposed 10 homes, losing over 2 months income from each of these homes. These disposals were therefore set off by an increase in rent from our existing homes with there being 38 rent increases at an average of 3.8%. We also opened our final development home and acquired 3 new homes, albeit this occurred at the end of November.

These movements are better demonstrated through an annualized contracted rent bridge. So if we move on to the next slide, you can see the impact of the contractual rent reviews as a consistent driver of rental growth adding GBP 1.1 million. This is a like-for-like increase of 1.8% in the 6 months. We then see the impact of the development home opening. Set against this is the impact of the disposals in the period, decreasing our annualized rent by GBP 5.4 million, with the subsequent redeployment of around half of the proceeds in freestanding assets adding GBP 2 million to the rent.

Part of the total redeployment is in forward commit scheduled to complete in the summer, and therefore, this is excluded from the bridge. It will add around GBP 800,000 rent when opened. This leaves us with an annualized contracted rent of GBP 59.5 million, down overall by 2.7%. We are confident that our contracted rent will grow as we redeploy the remaining proceeds and utilize our debt facilities to invest in our existing pipeline. And James will have a slide on this later in the presentation.

So if we go on to the next slide, we'll now have a look at the costs. We reported a one-off increase in our operating costs and our credit loss allowance in the second half of last year. These costs did not impact the December '24 comparables on this slide. So our operating expenses are now back at historical levels and in line with the comparable 6 months to December '24. And as expected, we did successfully recover the historical rent from the operator that had not been paying rent in full, which comes through as a write-back of the credit loss allowance in the current period.

This is write-back in the provision and the cash amount recovered, as mentioned earlier, was GBP 1.9 million. So the next slide shows you the impact of this on adjusted EPRA cost ratio, which came in at 15.4%. And if you remove the nonrecurring arrears recovery, this is back in line with historical levels. And just to the avoidance of doubt, our adjusted EPRA cost ratio is higher than our unadjusted ratio, which is 12.7%. So if we do the next bit, look at the finance costs.

So given the disposal proceeds, the finance costs reduced. When we refinanced the bank debt in September, we structured the split between term loan and RCF to accommodate the disposal proceeds. This enabled us to minimize drawn facilities, reducing interest costs and provides us with maximum flexibility when redeploying the proceeds. And finally, on this slide, overall, this resulted in an adjusted EPRA EPS of 3.4p. And even excluding 0.18p of nonrecurring arrears, this is a robust 3% increase on the 6 months to December '24 during a period of capital redeployment. The dividend cover is 113% and removing the nonrecurring arrears recovery, it still sits at 107%, in line with the previous period.

So next slide, we'll move on to the balance sheet, where I'll cover portfolio market value, debt and NTA. So if we look at the next slide, the like-for-like increase of 3.4 -- sorry, 3.1% of the portfolio valuation, with the main driver of this increase again being contractual inflation-linked rent reviews embedded in our business model. The next largest contributor is the increase in values arising from the disposals at a premium. And there were further smaller increases coming from both portfolio management activities and small movement in individual homes net initial yields.

The disposal of 10 care homes across 2 transactions reduced this portfolio by GBP 95 million. And the 3 standing assets increased the portfolio by GBP 31 million. Again, the forward commit is not included in these figures. Overall, portfolio valuation decreased by 3.8%, but we'd expect the portfolio to grow going forward as we redeploy capital into our current pipeline.

So if we look at the next slide. Moving on to debt. Drawn debt has reduced by almost GBP 40 million since year-end, driven by the disposals netted against the redeployment of the proceeds in the [ Care Home ] acquisition. At LTV of around 15% against almost 22% at the June year-end, this is below our long-term target, and we expect to increase LTV towards 25% as we acquire standing assets or forward fund new homes.

So the next slide provides us details of the debt book. We have the attractive Phoenix debt fixed to maturity at 3.2% and the bank term debt of GBP 50 million, fixed through swaps at a rate of 5.3% and we have GBP 3.5 million drawn in the RCF, and we intend to cap core drawings under the RCF in advance of any significant acquisitions.

So if we go to the next slide. So finally for me, I'd like to cover the NTA growth in the period. This has been a healthy 4%. And if we look at the next slide, we'll see the drivers of this increase. The valuation uplifts in our property are the main drivers of this growth, again, driven by inflation-linked contractual rental increases. The disposals and surrender premium uplift of 1.8p demonstrates a strong benefit in the period from our investment management activities. And finally, there's a small increase from our earnings more than fully covering the dividends.

I'll now hand you over to James, who will take you through the portfolio performance.

Thanks, Alastair. I'll now talk about how the portfolio is performing and our pipeline. Here's a busy table of portfolio metrics, and I'll discuss the position about rent cover and average weekly fees in more detail on the following slides.

Focusing on the average weekly fees increases first. Over the last 5.5 years, average weekly fees in the homes have increased, reflecting the recent levels of inflation. Digging into this in a bit more detail. As you can see, over the last 5.5 years, the cumulative increase in average weekly fees is 54% compared to the cumulative increase in RPI of 44%, showing that operators have been able to pass on the increase in their costs to residents, a significant proportion of which are staff or agency costs.

Remember, our operators are providing needs-based care, as Kenneth said, and there is GBP 6 trillion of net wealth in the over 65s to fund these weekly fees. The group's rent cover for the last 12 months at 1.9x represents the highest achieved since IPO and provides a strong foundation for the group. This high level of rent cover is the result of the increase in the average weekly fees that operators have been able to make and the good levels of resident occupancy, which, as you can see from this slide, has remained stable over the last couple of years at around 85% for our mature homes. That's homes that have been trading for 3 or more years.

Of course, the group's portfolio has always been fully let since IPO. This is just resident occupancy that we're talking about here. How does this portfolio compare to the market in terms of the underlying real estate? Well, for a stable long income, you want your portfolio to be modern and fit-for-purpose. And you have a significantly more modern portfolio than the market. This is a premium portfolio. The average group home has significantly more space per resident than the market at 48 square meters.

100% of the rooms are en suite wet rooms, enabling our seniors to be cared for in their room with the dignity and respect we would want for ourselves. 100% have EPC ratings of A or B. And in terms of the performance of our operators, the average Tripadvisor style rating on Carehome.co.uk is 9.5 out of 10 compared to 9.2 for the market. In summary, you've got a great quality portfolio as a result of our active management, buying and funding prime real estate and improving the assets you hold.

And your income comes from 32 different sources and the diversification amongst our tenants has improved since the 30th of June with our exposure to our previous largest tenants reducing from 16% to 8.6% and the top 3 tenants total contribution to income reducing from 30% to 25%. This pie chart shows the exposure we have now to the top 10 tenants and that the other 22 tenants make up 36.4% of your income.

Turning to our pipeline for the use of proceeds of the sale of homes that we completed in the first half of the year and the new bank facilities that we have in place, the group has a strong and growing pipeline. The pipeline, which has increased since the full year results presentation, is significantly in excess of available capital. It's made up of accretive investment opportunities at a net initial yield in excess of 6%, including high-quality existing U.K. care homes, all with en suite wet rooms and forward fundings in attractive locations.

The pipeline assets are spread across diverse U.K. geographies with a balanced mix of both existing and new operators. As a result of our close relationships with tenants, there's always several that would like to add a new home or 2 to their operating group. And given our strong reputation in the sector as the longest serving investment team in the U.K. market, we expect to see every relevant Care Home transaction in the market. The acquisitions will follow our disciplined approach of identifying best-in-class properties in the right geographical locations, which are leased at sustainable rental levels and acquired at appropriate yields. As Alastair mentioned, the group LTV is currently around 15%, which is below our long-term target, and we expect to increase this towards 25% as we acquire assets in the pipeline.

And I'll now pass back to Kenneth to talk about the positive market trends of our sector.

Yes, we have these excellent market trends, and that in truth is why I thought it would be a good idea some 15 or 16 years ago to create funds that would invest in this space and to have had the privilege for the last 13 years of creating this along with the team here has been an absolute delight.

But it's been founded on these core foundations of really modern purpose-built product, deeply engaged with the tenants, so we understand what's going on. We see P&L accounts from them all on a regular basis, understanding occupancy levels week by week. And the background of it all is the demographic story. You all know it. Maybe some of you are part of it. We all are part of it at some level. And the most important thing for us is that the number of over 85s will double in the next 25 years.

So we're not at the end of the journey of demand for Care Homes. We're 1/3 into it, I would say, with a lot more growth to go. So strong growth. The number of over 85s increases from 1.8 million last year to 3.6 million by 2050. And 1 in 8 of them require long-term residential care.

So over on the next slide, we look at how that is going to be provided. Part of it is -- an important part of it is these beds that we produce for the sector. Currently, in the United Kingdom, there's about just under 450,000 beds, of which just around 160,000 are fit-for-purpose. And when we say fit-for-purpose, we speak about the bedroom requiring a wet room because of the whole continence issue that is core to caring for people well in their latter years.

So there will be further bed growth. That will give us great opportunity. And also, you better be in private pay. And our portfolio here has 77% of the residents have a private pay element compared to some 57% for the whole market. So we're some 40% ahead. But with that great background, you also need to face the reality of running Care Homes. And we've been really realistic about that from the very beginning, too.

Our Head of Healthcare here, Andrew, has actually been involved in care homes for 45 years. His mother got them involved in it as a teenager. And I remember Andrew 25 years ago speaking to me about the challenge of staffing a Care Home and how you need to look after your people well. Some of the challenges that come into the sector, of course, are also further complicated by government policy or by minimum wage increase and increasing employment rights legislation.

But with excellent fee inflation due to the focus on private pay and the demand for quality that there is in the sector, our tenants are well able to manage the challenges of staffing. But tenants will always have operational issues in their care homes, which occasionally, as we've told you before, have resulted in some rent arrears, and it's been very pleasing this year to see a recovery of all of that. And we are in a good position in relation to the portfolio today.

We are actively involved in the management of our portfolio. And as you have seen, the portfolio rent covers are robust. The sector has a regulator, the Care Quality Commission. Sadly, the Care Quality Commission has had a challenging number of years with they themselves saying that they were not fit-for-purpose. And while we're seeing some improvement, it's always been our policy to have our own inspection regime, and we have 4 people in the investment manager that does about 260-plus home visits on an annual basis.

There's a lot of driving around the country. And there's also some challenges about upward-only rent reviews. The government is considering making some changes in that Actually, over the last few months, we haven't heard a lot more about that, but we are engaging with the industry to inform the government and our existing leases would not be affected in any case.

So with these comments, let me make some closing observations. This is a robust defensive portfolio. It's a modern purpose-built fit-for-purpose care homes. We've been doing this a long time as an investment manager, and this is all that we do. This is what we know really well. And I could take you to 15 or 20 people next door to where I'm speaking here who really understand care homes in great detail. We have great sector tailwinds and we've been able to do market-leading long-term returns.

So our strategic outlook continues with this unwavering commitment to the mission to care for seniors really well with great real estate, with the desire to scale with our ability to deploy capital and to continue to pay a progressive dividend. We're really conscious that we can only do this with your help, and we want to thank you for your support over these years.

Perfect, guys. If I may just jump back in there. Thank you very much indeed for this morning. [Operator Instructions]

But James, at this point, so if I may hand over to you to chair the Q&A with the team. And if I pick up from you at the end, that would be great. Thank you.

Great. Thanks very much. Let's start with the first question here about wet rooms.

Kenneth, what is your definition of a wet room? And how are they different from an en suite bathroom? Do they have no screens, for example? Talk about wet rooms.

Well, if you know your granny or grandpa, you'll know that loose rugs on the floor are trip hazards for them and that you need to be careful. The same in the bathroom, you want a completely flat surface. So that's part of it.

You also want -- as people age, their ability to get into a bath is very difficult. So a wet room is an area where they can walk without any trip hazards into an area where they can have a shower, perhaps sitting on a seat. And why do we want wet rooms? About 80% -- 70% to 80% of the residents of a care home are singly or doubly incontinent. And no wet wipes aren't good enough for elderly skin. We all get a little fragile as we get older.

So that's what a wet room is. They absolutely would have privacy as required within it, but often residents need support. And their option is going to a common bathroom. Now let me make one more definition because much of the sector says that they have an en suite bathroom. And the stats are about -- there are 80,000 bedrooms that have no facilities, and there are still 150,000 bedrooms that are en suite. But the en suite is only a WC and a wash and basin. When we speak about wet rooms, we mean that they also have a shower and a shower is absolutely essential for the ongoing good care of the residents. So I hope that's a helpful explanation.

Great. Thank you. Next question is, what was the rationale behind the disposals that we completed?

Perhaps if I take that one and then feel free to add anything to it. But yes, so I guess the rationale for the disposals, we -- our exposure to our largest tenant was about 16%. And we were beginning at that level based on the nature of the operations of that tenant to look for an opportunity to reduce that exposure.

So it really was a desire to reduce the exposure to that particular largest tenant and bring it down a little -- and then when they approached us and asked if they could acquire some of the homes that we had leased to them, we negotiated with them over the course of many months and at the end of that, managed to negotiate a significant premium to book value and then agreed to the sale. So it was really diversification of income and then an opportunity to improve book value and indeed to achieve a significant premium.

Next question, with the top 5 tenants accounting for 40% of rent, how comfortable are you with the residual concentration risk? Al, did you want to take that one?

Yes. I think we're very comfortable. As you just alluded to there, we've reduced a tenant from 16% down to 8%. And then having a good spread across 32 tenants is a good spread of the risk, meaning that we're not relying on one tenant.

Yes. We have a limit of not more than 30% of our income from any one tenant. And we're 60% lower than that, 65% lower than that or so. So we have a good spread on that.

Great. Thank you. Next question, what are the biggest risks to the ongoing success of the company? Kenneth, do you want to take that?

Yes. If I was speaking to you last week, I would have been a bit agitated about assisted dying because if you decide to just kill off of the elderly people, that obviously is a huge negative.

We're thankful in Scotland at least that, that didn't happen. though I think it's probably still going on in the U.K. The kind of month-by-month risks within the sector is that some home won't work properly somewhere, that there'll be an incident. And we've been aware of that from the very beginning, and we physically visit all the homes to be personally satisfied with people that we know that week by week, the homes are being well looked after and our residents especially being well looked after. we're in a wonderfully good position in terms of the sheer need to care for the elderly.

And we saw that in the middle of a pandemic, of course, where even in the middle of the pandemic, we still had 94% of our income coming in. So we're in a wonderful position. Next question.

Thank you. How confident are you that operators can continue to pass through fee increases to residents? How do operators balance wage inflation versus fee increases, especially in mixed funded homes?

Well, I would say the answer to that is that we have 16 years of confidence. We started this way back in 2010, and this fund actually only started, as you know, in '13. But we have long pondered that question, and we have really consistently seen that private fees do go ahead higher than inflation, and James showed you that excellent site, which gives you some evidence of that.

How do operators balance wage inflation against fee increases? The interesting thing about the sector is it's all down to 10-minute drive time. So we are giving you a report here of the conglomeration of 10,000 homes, of which we have about 100. And we're giving you how that has worked when you add it all up together. But actually, how this happens is that in the 10-minute drive time of Sterling or of York or of Harrogate or of Hastings, the operator looks at his costs and understands where inflation is and takes a view, and that is happening right now because most of the fee increases happen March, April time and takes a view as to what extra money they need to provide for care for seniors really well and then always make sure that they have sufficient left.

And that has worked consistently for a long number of years, and we are confident that, that will continue. The total cost typically for a resident in the care home comes out of pension wealth, cash and housing equity. And the bill can typically, if it's 17 months of stay, be something like a GBP 75,000 to GBP 100,000 bill.

Great. Thank you. A question here about the share price, noting the share price has fallen back over recent weeks. Is this due primarily to concern over where interest rates might be heading?

Yes, I think that's right. And the whole market is a bit anemic with all that's going on in the Middle East. And that is causing concern about inflation, though remember that we were good for inflation up to 4%. But yes, I think that's -- these are all part of the same concern.

Thank you. Next question. The GBP 6 trillion, it was, we mentioned for aggregate wealth of the over 65s. Please could you elaborate on where this figure comes from?

It's government data. Yes. that is pension wealth. I haven't got the split of it to hand, housing equity, pension wealth and investments.

Investments, yes.

And it covers...

ONS was it?

ONS. Yes, that's right.

Okay. Yes. Great. Thanks very much. I think that's all of our questions.

Perfect, guys, if I may just jump back in there. Thank you very much indeed for being so generous of your time then addressing all of those questions that came in from investors this morning.

And of course, if there are any further questions that do come through, we'll make these available to you after the presentation has ended. But Kenneth, perhaps before really now just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that would be great.

Yes. I can remember back to 2012 and doing test marketing for Target Healthcare REIT and going around many investors. It was an absolute privilege to realize how committed they were to providing a vehicle which would enhance the care of our seniors. And it was a great credit to the city, I think, that they supported us to create this vehicle to invest in care homes.

In years previously, there had been real complexity and problems in care home investment. And we were launching this in the light of the problems that there had been. So it's been a complete joy for us to enjoy these years of working with the city and with the retail investors looking at improving the quality of care for our seniors. If you're part of that journey, thank you, and we look forward to many more years with you going forward. Thank you very much.

Perfect. Kenneth that's great. Thank you once again for updating investors this morning. Could I please ask investors not to close this session, you'll now be automatically redirected to provide your feedback.

On behalf of the management team of Target Healthcare REIT plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.

Good morning, everyone. We're delighted to speak with you this morning about the results for the 6 months ended December '25 for Target Healthcare REIT. And I'm really happy to be joined again today by our CFO, Alastair Murray. Alastair is actually up in Edinburgh today because he's got a pinched nerve in his back, poor chap, but he is doing valiantly through it, and I know he'll be able to present well and also James Mackenzie, Head of Investor Relations.

And our plan for the morning is that after a little bit of an introduction from me, I'll take you through the portfolio highlights. Alastair will cover the financial performance. And James will go through the portfolio performance, and I'll have some closing remarks and reflect on the underlying fundamentals.

And when we look at these results, I think it all flows from some of the fundamentals that are core to who Target Healthcare REIT is. So if we go forward to portfolio highlights section, an example of one of our homes, Here's the core investment case. You'll see these 4 boxes. But before I even speak about them, I think you'll hear that these are quite positive results, and I use the word quite in an American term, in other words, that they are excellent results.

They're also not just the results of what we've done in the 6 months, though our team have been very diligent in the 6 months as usual. But I would say they are the fruit of 13 years of trying to do this really well. This is no kind of fashion short-term investment that we're doing here in Target Healthcare REIT. We are riding on the backs of some long-term trends, both in terms of the demographics and also in terms of the ultimate user of our facilities. So the users aren't debt funding their payments for the weekly fees as sadly, those in the student world are having to do. And then of course, in the student world with a questionable job prospects at the end of it.

Rather, this demographic have very significant long-term wealth. And the users of our care homes need to be there. The families can no longer safely look after them. So this is needs-based demand and funded by significant net worth. And that's with the doubling of the elderly population in the next 25 years, that really speaks really well to how our prospects are.

We have a robust defensive portfolio, modern. We have, as you will see, effective and proven asset management. We have the great tailwinds that we've spoken about. And all of that has resulted in these 6 months in a 7.8% total accounting return since 2013. So really encouraging.

Let's go on to the next slide, which compares us to the MSCI Annual Healthcare Property Index. And you'll see over these 11 years, how we have really consistently beaten the index. And indeed, the cumulative outperformance is 93% by the end of 2025. You'll see down in the right-hand side various items of outperformance or where we are in different periods, and we're humbled and thankful for all of that.

So this performance on the next slide is built on the creation of the portfolio, which has some scale, which has robust rental income, 86 homes and just under GBP 60 million of rental income even after the sales that you'll hear about later. Portfolio value around about GBP 900 million from a diversity of tenants, 32 of them. And as you think of KPIs for the sector, there can be very few portfolios with this highly consistent level of 100% achievement of KPIs. Wet rooms 100% of the beds. EPC ratings A and B, 100%. Where is our future income, 100% linked to inflation. And it's really long-term income. We have 26 years of these inflating income numbers, which we are delighted to look forward to.

And then on the next slide, we speak a bit more about how it has been a good half year, both in terms of corporate activity, where in the 6 months, we made 10 disposals. And as a number of you, I'm sure, will remember, these were at a significant premium. But we were also busy on the other side, the buying side with 3 acquisitions of modern fit-for-purpose care homes. And also with one forward commit to buy a brand-new home care home, which will complete in the next few months. And one of the developments that we have been funding reached practical completion during the 6 months. And all of that activity came to GBP 150 million of action for the team. So the guys -- the guys and girls have been busy, and we are thankful for the stability of our team and the very long-term nature of the people who work with us. I'm sure that is absolutely core to how we are delivering these consistent results.

And the finance team also refinanced the bank debt. I should probably say the asset management team were a bit involved in that, too, but it's been good to have the bank debt also refinanced.

And then on the asset management side, we said that we would hope to recover some of the rent arrears, and we're delighted that in this period, we did indeed recover GBP 1.9 million of rent arrears. Alastair will probably speak a little bit more about that in his section.

We also did 5 retenantings with no tenant incentives. That must be pretty unusual within property world, no tenant incentives, not having to give rent freeze or something. So that's been encouraging, and that is all related to having best-in-class assets in local markets with the background of the demographics and the demand of lots of elderly people. And in addition to the 5 retenantings, we also, as part of one of the retenantings got GBP 1.4 million of a surrender premium as one tenant gave up a home, which again may be a little unusual.

And then finally, I made reference to KPIs, a couple of slides ago. Here is another KPI. We're on our way back to a 100% rent collection by the end of the year, and we're delighted with that. And indeed, that's what we expect for the longer term. And in all of that asset management activity and my thanks to the asset management team for all they've been doing in that through the period, we've also been very pleased that there has been continuity of care across all of the retenanted homes.

So with that, a good introduction to a good half year, let me pass on to Alastair to speak about the financial performance.

Thank you, Kenneth. I'm very pleased to be here today to talk through the financial performance for the 6 months to December 2025. When I was presenting the full year results last October, much of my focus was on the one-off increase in operating expenses and credit loss allowance from the administration of one home and another operator not paying their rent in full. We did note our expectation that we will quickly turn this around, and it's, therefore, nice to be back 6 months later to talk you through the highest half year returns since the group launched in 2013 and to be able to demonstrate that our portfolio management activities have had the desired effect. So next slide.

I'll start with the highlights of the year. The like-for-like increase in our rental income was 1.8%, predominantly driven by the long-duration inflation-linked contractual rental growth. And as usual, we have no voids during the period. Our EPRA earnings per share increased by 8.5% to 3.4p. While 0.18p of this was due to the nonrecurring recovery of historic arrears, this still represents a robust performance from our underlying portfolio at a time when the group is focused on redeployment of the disposal proceeds from the sale of 10 care homes in the period. The EPS comfortably covered our dividend per share of 3.02p. This dividend being a 2.5% increase compared to the prior year.

Our EPRA NTA increased by 4% to 119.4p, driven by the uplift in property values from both rental growth and from the disposals at premium and from the healthy dividend cover. This enabled the group to deliver a robust total accounting return of 6.8% for the 6-month period.

So moving on to the next slide. Moving on to P&L. I'll walk you through the key lines. The rental income in the period increased by 2%. There are several drivers of this movement. We disposed of a total of 10 homes in the period, all of which happened in the second quarter, so we only received 4 months income from these homes. However, this reduction in rent was more than set off by the increases in rent in existing, where all of our leases have inflation-linked annual rent increases.

In the period, there were 38 rent increases at an average of 3.8%. We also benefited from one development home opening in the current year and from the acquisition of the 3 new homes, albeit this occurred at the end of November. Given the movements through the period, it is clear to demonstrate this through an annualized contracted rent bridge.

So next slide. This slide will be interested to those of you who are updating their financial model for the changes in the rent, with the bridge demonstrating how our contracted rent has moved in the 6 months period to December '25. You can see the impact of the contractual rent reviews as a consistent ever-present driver of rental growth, adding GBP 1.1 million. This is a like-for-like increase of 1.8% in the 6 months.

We then see the impact of the development home opening. This was the final forward-funded development on our books at present. The impact of the disposals in the period was to decrease our annualized contracted rent by GBP 5.4 million, with the subsequent redeployment of around half of the proceeds in freestanding assets adding GBP 2 million rent. Part of the total redeployment is in a forward commit scheduled to complete in the summer, and therefore, this bridge does not include the additional rent, which will subsequently add another GBP 800,000 when the home opens.

So at December 2025, our annualized contracted rent was GBP 59.5 million, and we are confident this will grow as we redeploy the remaining proceeds and utilize our debt facilities to invest in our existing pipeline. James will have more in pipeline later in the presentation.

So next slide. So if we now look at costs, as I mentioned, we reported one-off increases in our operating costs and our credit loss allowance in the second half of last year, which impacted both our earnings per share and our EPRA cost ratio for the full year. These costs, however, did not impact the December 2024 comparables.

Our operating expenses are now back at historical levels, in line with the comparable 6 months to December. And as we expected, we did successfully recover the historical rent from the operator that now been paying in full. And you can see this come through in the write-back of the credit loss allowance in the current period. And just for clarity, this is the write-back of the provision. The cash amount recovered, as mentioned earlier, was GBP 1.9 million.

So next. So this resulted in an adjusted EPRA cost ratio of 15.4%. And if you remove the nonrecurring arrears recovery, this is back in line with historical levels. And just for the avoidance of doubt, our adjusted EPRA cost ratio is higher than our unadjusted cost ratio, which is 12.7%.

So next, as would be expected, given the disposal proceeds in the period, our financing costs reduced. When we refinanced the banking debt in September, we structured the split between term loan and revolving credit facility to accommodate disposal proceeds, enabling us to minimize drawn facilities, thus reducing interest costs and to provide us with maximum flexibility when redeploying proceeds.

And finally, the next slide on this. This return to normalized costs and reduced interest costs resulted in an adjusted EPRA EPS of 3.4% -- 3.4p. And even excluding the 0.18p of nonrecurring arrears recovery, this is a robust 3% increase on 6 months to December '24 during a period of capital redeployment. The dividend cover is very comfortable at 113% and stripping out the nonrecurring arrears, it sits at 107%, in line with the previous period.

So if we now go to the next slide. Moving on to the balance sheet. It remains a fairly simple balance sheet, with the key areas being portfolio market value and debt, both of which I will cover. So looking at the portfolio market value first on the next slide. This is a like-for-like increase of 3.1% in the portfolio valuation, with the main driver of this increase, again, being the contractual inflation-linked rent reviews embedded in our business model.

The next largest contributor is the increase in values arising from the disposals at premium, and there were further smaller increases coming from both portfolio management activities and small movements in individual homes net initial yields. The disposal of the 10 care homes across 2 transactions reduced the portfolio by GBP 95 million, and the 3 standing assets increased the portfolio by GBP 31 million. Again, the forward commit is not included in the figures. Overall, the portfolio valuation decreased by 3.8%, but we'd expect the portfolio to grow going forward as we redeploy capital into the current pipeline.

So the next slide. Moving on to debt. You will see that our debt levels have reduced by almost GBP 40 million since the year-end, driven by the successful disposals netted against redeployment of proceeds into the 3 home acquisition. At an LTV of around 15% against almost 22% at June year-end, we're below our long-term target, and we expect to increase LTV towards 25% as we acquire standing assets or forward fund new homes.

Next slide. So if you look at the details, this slide sets out the debt book following the refinance in September. We have the attractive Phoenix debt fixed to maturity at 3.2% and the bank term debt of GBP 15 million fixed through swaps at a rate of 5.3%. We have GBP 3.5 million drawn in the revolving credit facility, and we intend to cap core drawings under the RCF in advance of any significant acquisition.

And finally, for me, next slide. I'll cover the growth in NTA in the period. This has increased by a healthy 4%. If we're looking at the next -- sorry, if we look at the next slide, you'll see the drivers of this increase. The valuation uplifts in our property were the main driver of this growth, again, driven by inflation-linked contractual rental increases. The disposals and surrender premium uplift of 1.8p demonstrates the strong benefit in the period from our investment management activities. Finally, there's a small increase from our earnings more than fully covering the dividends.

So I'll now hand over to James, who will take you through portfolio performance.

Thanks, Alastair. I'll now talk about how the portfolio is performing and our pipeline. Firstly, let me share some insights into the portfolio and how the operators are performing. Here's a busy slide of portfolio metrics. I'll discuss the position regarding average weekly fee increases and rent cover in more detail in the following slides. But overall, the group's property portfolio continues to perform well, driven by the strong levels of inflation-linked rental income growth.

Focusing on the average weekly fee increases first. Over the last 5.5 years, average weekly fees in the homes have increased, reflecting the recent levels of inflation. Digging into this in a bit more detail. As you can see, over the last 5.5 years, the cumulative increase in average weekly fees is 54% compared to the cumulative increase of RPI of 44%, showing that operators have been able to pass on the increase in their costs to residents, a significant proportion of which are staff or agency costs. Remember, our operators are providing needs-based care, as Kenneth said. There are -- and there's GBP 6 trillion of net wealth in the over 65s to fund these weekly fees.

The group's average rent cover over the last 12 months at 1.9x represents the highest achieved since IPO and provides a strong foundation for the group. This high level of rent cover is the result of increases in the average weekly fees operators have been able to make and good levels of resident occupancy, which, as you can see from this slide, has remained stable over the last couple of years at around 85% for our mature homes. That's homes which have been trading for 3 or more years. Of course, the group's portfolio has always been fully let since IPO. This is just resident occupancy that we're talking about here.

How does your portfolio compare to the market in terms of underlying real estate? Well, for a stable long income, you want your portfolio to be modern and fit for purpose, and you have a significantly more modern portfolio than the market. This is a premium portfolio. The average group home has significantly more space per resident than the market at 48 square meters. 100% have on-suite wet rooms, enabling our seniors to be cared for in their room with the dignity and respect that we would want for ourselves. 100% have EPC ratings of A or B. And in terms of the performance of our operators, the average TripAdvisor style rating on Carehome.co.uk is 9.5 out of 10 compared to 9.2 for the market.

In summary, you have a great quality portfolio as a result of our active management, buying and funding prime real estate and improving the assets that you hold. And your income comes from 32 different sources, and the diversification amongst our tenants has improved since 30 June with our exposure to our previous largest tenant, reducing from 16% to 8.7% and the top 3 tenants total contribution to income, reducing from 30% to 25%. This pie chart shows that the exposure we have to the top 10 tenants and that -- and that the other 22 tenants make up 36% of your income.

Turning to the pipeline for the use of proceeds of the sale of homes that we completed in the first half of the year and the new bank facilities that we now have in place. The group has a strong and growing pipeline. The pipeline, which has increased since the full year results presentation is significantly in excess of available capital and is made up of accretive investment opportunities at a net initial yield in excess of 6%, including high-quality, strongly performing existing U.K. care homes, all with on-site wet rooms and forward fundings in attractive locations.

The pipeline assets are spread across diverse U.K. geographies with a balanced mix of both existing and new operators. As a result of our close relationships with tenants, there's always several that would like to add a new home to their operating group. And given our strong reputation in the sector, as the longest-serving investment team in the U.K. market, we expect to see every relevant care home transaction in the market. The acquisitions will follow our measured approach of identifying best-in-class properties in the right geographical locations, which are leased at sustainable rental levels and acquired at appropriate yields.

As Alastair mentioned, the group currently has an LTV of around 15%, which is below our long-term target. We expect this to increase towards 25% as we acquire assets in the pipeline.

And I'll now pass back to Kenneth to address the positive market trends of our sector.

Thanks, guys. It's a pleasure to be able to do this with you, and to see these encouraging results. If we go to the next slide. As James was speaking there about some of the key characteristics of the portfolio, I was reflecting that when I stay in London, I stay in one of these clubs around London. And the size of my bedroom, I think, which is perfectly adequate for my needs here is probably 12 square meters. And the size of the average bedroom, which are the homes for our residents is much more like 20 square meters. And there was a reference in there that the number of square meters per resident in our homes is 48.

And actually, when I think about it, you can almost get a studio flat in London, which is about 55 square meters, I think, about 600 square feet would be -- so these are fabulous facilities that we have. And honestly, we love to think of our seniors being respected. Some of us might think that, that was an appropriate thing for our nation as well. And I'm sure you, as our listeners, agree with that.

And all of this is predicated on these powerful demographics. You've heard me say it many times, the number of over 85 doubles in the next 25 years, which is incredibly positive in terms of future demand. And you'll remember, in terms of another of the stats that James showed that there is a very significant element of private pay in the portfolio.

And on this slide here, you'll see that for the whole market, it's about 57% have some element of private fee, but this portfolio is some 40% higher at 77%. So a lot of the income that our tenants get comes from private fee sources. We're not subject to the vagaries or the perplexities or whatever term you want to describe our current government and the challenges our government had, frankly, in relation to the NHS and social care. And there's also a significant undersupply of suitable beds. You'll see that on this 440,000 beds and only 160,000 of them suitable. Who of us would want to be in a bedroom where we can't have a wash when we have continence issues in the privacy of our own room compared to elsewhere.

So we've been doing this for 13 years. And these results that we're presenting to you today are the fruit of 13 years of diligence, 13 years where rent covers have improved, 13 years where we have fees rising above the 13 years of RPI. And a lot of the measures nowadays are related to CPI, aren't they? I'm regretting a little that we haven't got in this presentation what the cumulative CPI numbers are, but you can be sure they're even lower. So strong market trends. But on the next slide, we always speak about there are operational issues within the sector. We humbly submit that if you want to be in this sector, you better be actively involved. And as your external manager, we are, I can assure you actively involved in the underlying sector.

Staffing will always be an issue within the care home. Apart from whatever the government does about minimum wages, about overseas staff, about employment rights legislation. And we actively work with our tenants, focusing and helping them on the private pay, so there'll be extra money and on finding the right people for staffing. There will always be operational issues within tenants. It's -- each care home is a 100-person business approximately. So the need for active asset management, if need be for retenanting is part of the rigor. It's part of what happens within the sector. And as you know, over these 6 months, we have done 5 of these retenantings.

And the sector continues to have challenges from its regulator, sadly, the CEO of the regulator and the Chairman of the regulator having been just appointed within about the last year have both moved on again. We would love to see the regulator more stable. But again, for -- from the very beginning of when we launched the Street and indeed before it, we decided that we would do our own inspections, and we can confirm that we have done in excess of 260 home visits in 2005.

We have a bunch of people on the go all the time looking at our homes and helping and encouraging and observing. And the government may also bring some legislative challenges. We've spoken before about the upward-only rent reviews. We haven't seen much movement on that, but we engage with industry to inform government on it, and we're aware in relation to that, that the existing leases will not be affected.

So some closing observations from me. Well, as I reflect on 13 years, I think my profound feeling is one of thankfulness and humility. We created a robust defensive portfolio. We are -- have a team that is effective and deeply engaged in the sector and with a strong focus on asset management.

We're blessed with great sector tailwinds. And the result of that have been these stellar returns. And as we look forward, we continue to have an unwavering commitment to the mission that we set out on to continue to improve the quality of care for our seniors. Our desire to scale, our ability to deploy capital is, we believe, self-evident, and we have a desire for a progressive dividend. And all of that is predicated on your support, and we thank you for that. And with these closing observations, we'll be happy to take some questions and provide answers as best we can.

Great. Thank you, Kenneth. So we have a few questions coming through the portal. Let me ask the first one here. You have previously mentioned that the pipeline of opportunities is in excess of available capital. Should we expect further targeted disposals?

The reality of the sector is that from time to time, there's always a disposal or 2. I think probably over the last 4 years, we have sold 15 or 16 homes. I'm trying to do some mental arithmetic. In terms of the further targeted acquisitions, we have significant headroom with our current facilities, and that's our initial focus.

Great. Thank you. Next question. Great to see the success of asset management and return to 100% rent collection. However, should we still anticipate tenant issues from time to time? And do you see anything on the horizon?

Perhaps if I take that one. Yes, I think as Kenneth mentioned, this is a very operational portfolio. And therefore, from time to time, there will be issues. But at the moment, we're very pleased to have sight of returning to 100% rent collection by the end of the fiscal year. And the asset management team have been very busy over the last few months addressing the issues that we have had in the portfolio. So yes, we expect there to be some things from time to time, but we're pleased to be back up to 100% rent collection.

Yes, it's -- you're absolutely right. It's an operational portfolio. There will be issues, but we're in a pretty cool place.

Yes. Great. It looks like the next question is, it looks like energy costs are going to rise significantly and probably food costs too. Can you talk about their significance to tenant costs? And is there any reason to think that this will be difficult to pass through to fees?

Energy costs for a care home are either 2% or 3% of revenue. So it's -- if they double, it goes to 3% or 3% to 4.5% of revenue. So we're in a good place in it. We had some concerns about that. I remember 3 or 4 years ago, and that's the bottom line on that one.

Great. Thank you. Next question on the homes that were retenanted, how do the new rents compare to the old? And are the lease terms and rent reviews also the same?

The lease terms and rent reviews are the same, albeit some of the leases are extended out again to 35 years. Most of them will be like that. And the new rents are either at the same level or in one case, in particular, some GBP 25,000 ahead of the old rent. And that partly refers to our comments about not having to give incentives. And that's all predicated on have the best-in-class home and the 10-minute that drives them and people actually want to get it because there's endless demand. So have the right facility that you can be there making good money for yourself in the long term, and you're interested in paying that kind of rents.

Great. Thank you. Next question. Valuation yields range from 5.6% to 8.9%. What accounts for this widespread in valuation yields?

Covenant strength and operational profitability at the home are the variables that are involved in that spread, Matthew.

Thank you. And then one more question, I think. Do you have an attribution analysis of the consistent property outperformance versus the sector? Is it as simple as just risk-adjusted rental income being above average and driving above sector average capital growth?

I suppose you're asking the question, Martin, in relation to the MSCI index. We don't have strong visibility on what -- we know there's about GBP 10 billion of assets within the index, but -- and there's within the index, GP surgeries, hospitals and care homes. But beyond that, we don't have a lot of visibility. I guess the outperformance is in terms of the underlying robustness of our assets compared to the others.

Thank you. Next question on capital recycling. You described a high-quality portfolio, yet the REIT sells assets. What is the capital recycling strategy? What are you seeking to achieve? And what value or amount should we expect on an annual basis?

I think we are -- we have been somewhat opportunistic in relation to that. But the general strategy would be if we're going to be a modern purpose-built home, tend to sell some of the older stuff and keep buying the newer stuff so that you keep the aspects of performance of the portfolio fresh and young. So that's the general purpose of what we're trying to do. We're not craving that it's purely about scale.

We are diligent that it is very much about making the right returns for our shareholders and a bit of pragmatism through all of that, all within the absolutes of 100% wet rooms, great EPC ratings and tenants who genuinely care for their residents because if you get the care right for the residents, we believe you will get the operational performance in the medium term, which will get the long-term results, which we're thankful to have over the 13 years.

Great. Thank you. And there are no more questions in the portal. Thank you.

Thank you very much. We are always aware that we would only be able to do this if we were supported by our shareholders. So we want to thank you for your support, and we pray that we will continue to go on to everyone's benefit. Thank you.

Good morning, ladies and gentlemen, and welcome to the Target Healthcare REIT plc Full Year Results Investor Presentation. [Operator Instructions] Before we begin, we would just like to submit the following poll.

I would now like to hand you over to the executive management team from Target Healthcare REIT plc. Kenneth, good morning, sir.

Good morning, and good morning to all of our audience. We really appreciate your interest in Target Healthcare REIT, and we're delighted to present to you this morning the results for the year ended June 2025.

Presenting with me today is Alastair Murray, our new CFO, who actually joined us 2.5 years ago and was the chap within our team who led the finance function to produce the numbers that we've been reporting to you over these last 2.5 years. And with the previous CFO resigning, we were delighted after due process to appoint Alastair to the position.

And also with me today is James, who joined us at the start of this year in a Head of Investor Relations role after a dozen years as General Counsel at Aegon. So, we have a senior team with us.

Alastair spent many years in the banks and has led the finance function in several organizations.

What we plan to do today is, I'll take you through some highlights of the year. Alastair will go through the financial performance of the year; James, the portfolio performance. And then, we'll speak about some positive market trends that we believe Target Healthcare REIT is positioned in the middle of. And finally, some closing observations before we go to the Q&A.

So, if we go to the next slide. What are the highlights for the year? Well, this is a robust, defensive portfolio of modern, fit-for-purpose care homes. We believe that across the sector, many care homes are not truly fit-for-purpose for the future. And we believe that for a long time, and we believe the sector is coming in line with our views. There are strong sector tailwinds with growing needs-based demand. We'll speak a bit about demographics later. And we're also an externally managed vehicle, but an external manager who's deeply engaged in the operational performance of the homes and working with our tenants.

And with all of that, we have a strong market-leading long-term returns record, 7.5% annualized total accounting return since launch. And we're thankful that, that's the situation we find ourselves in now that we're 12 years old.

Let's go on to the next slide. Some evidence in relation to that. You'll see the light blue blocks are the MSCI U.K. Annual Healthcare Property Index. You'll see that in the dark blue, which is the returns that Target Healthcare REIT has achieved, we've outperformed this index, which has about GBP 9 billion of property in it, about 30-plus constituents. And you'll see we've outperformed in every single year. And in fact, for the last couple of years, we've been effectively about double the performance of the index, which is clearly satisfactory.

And the cumulative effect of that on the next slide shows that we have significantly outperformed over these last 10 or 11 years. So, we're thankful for that. And while we never apply for awards, we think it's better just to deliver good performance. You'll see on this slide that MSCI has listed us for listed funds, the highest relative total return annualized over 3 years and also the highest 10-year risk-adjusted total return within their overall property index. So, that has been humbling and pleasing.

So, what is your portfolio? Let's have a look at the next slide. Your portfolio that you own through this vehicle is at the end of June, a portfolio of 93 care homes, just under 6,500 beds, GBP 61 million of contracted rent, portfolio value of GBP 930 million with 34 different sources of income, very modern and with inflation linkages and visibility of 26 years of income going forward, which is an unusually long income focus, which we think is helpful and helps us to understand and see into the future as far as that is possible.

And then since the year-end, as you'll see on this slide, we have conducted the largest disposal since IPO at just under GBP 86 million and at a significant premium to book value. We've also secured new bank debt finance, and we'll speak about that later. And we have an attractive acquisition pipeline of accretive opportunities looking forward.

So, it's been a busy year on the next slide with challenges that have been navigated. During the year, sadly, we had to put a tenant into administration. It's the first time we've had to do that. It was a care home that we acquired at new in Weymouth and with the tenant unable to meet their rental obligations due to poor trading at some of their other homes, we ultimately decided that it was best for the residents and best for the returns for our investors that we would bring it to a head and put the tenant into administration.

And we had strong operator demand to find a new tenant. And indeed, the result of it all was a modest increase in the passing rent. But costs were involved in it all. We're glad that, that is largely behind us. And we also had tenant arrears for some homes that we had re-tenanted, but we have a strong expectation that some of these arrears, though they are written off in the accounts that we're considering that some of these will, in fact, be recovered.

So, that's my introduction in terms of the highlights. And I'm going to pass on now to Alastair to do the financial performance and take you through the numbers.

Thank you, Kenneth. I'm Alastair Murray, the new CFO at Target Fund Managers, and I'm delighted today to take you through the financial performance to June 2025 and cover the debt refinance post year-end.

So, we start with the financial highlights of the year. Total accounting return of 9.3%, and this was driven by the EPRA NTA per share increase of 3.7% and the dividend paid in the year of 5.884p, which was up 3% on the previous year. We believe that this accounting return of 9.3% delivered in a time of a challenging backdrop for listed property companies, demonstrates the resilience of our operating model.

EPRA earnings decreased marginally by 0.8% to 6.08p, and this was driven by the exceptional costs that Kenneth has just alluded to with respect to the administration and re-tenanting in Weymouth. I will cover those costs in more detail later in this section.

And then finally, the annualized contractual rent growth was 4% in the year, and that was driven predominantly by our inflation-linked contractual rental growth. And I think it's also important to point out, as with every other year since we were formed, there were no voids in the portfolio.

So, if I take you on to the P&L, we'll go through the key lines on this. So, the first one is rental income. That increased 3% in the year. Again, that's driven by our inflation-linked contracted rental growth. We also benefited from three development properties that have been opened in the previous years. We got the annualized return on that and by one development property opened in the current year. And this offset the disposal of four properties at the end of the prior year.

If we look at the movement in the annualized contractual rent, this shows you a point-in-time basis, the increase between June 2024 and June 2025. That's a 4% increase. You can see clearly that, that was driven predominantly by the rent reviews, again, our contractual inflation-linked rental increases with a like-for-like increase of 3.3%.

We also benefited from a new development being opened in the year, which more than offset the disposal at the end of the year. And we also got a small benefit from rentalization of CapEx and deferred payments in the year.

If we look now at the operating expenses, you can see there that they have increased quite significantly, as Kenneth noted, and the credit loss has also increased, and this has led to an increase in the adjusted EPRA cost ratio.

So, to look at this in a bit of detail. Operating expenses were up 27% on the prior year. Now this is predominantly due to the non-recurring costs associated with the administration and re-tenanting of Weymouth. Kenneth talked about that already on a sort of strategic level. But if we look at the numbers, that increased our cost by GBP 800,000, and that covered the legal costs, the administration and running costs and the marketing of the property when we're re-tenanting it.

If you exclude these exceptional costs, our costs increased by 3% in the year, and this was predominantly driven by portfolio management activities. Our ongoing charges was stable at 1.51%. Ongoing charges looks at the recurring operating expenses and removes any non-recurring property costs.

We also increased credit allowance. So that increased from GBP 1 million in the previous year to GBP 1.6 million in the current year, again, driven by the Weymouth property. So Weymouth accounts for 1.4% of our annualized contractual rent roll, and that was provided for in full in the year.

We also, as Kenneth mentioned, had one operator who runs three homes and accounts for about 3.2% of our contracted rent, not pay their rent in full in the final quarter of the year. So that's been provided for. These homes for the three-home operator have now been re-tenanted, and we do expect a significant recovery in this provision probably in the current quarter on the back of a parent guarantee from the exited tenant.

So I think, it's fair to say that Weymouth has had an impact on the accounts, but we would expect this to be a one-off and not expect to incur costs of this level in the current year.

So, if we turn to the P&L for one final time, you can see the impact of those extra operating expenses and credit loss. That's reduced our EPRA EPS by 0.8% to 6.08p. The dividend increased 3% in the year and was still covered fully at 103%, although this was a slight reduction from the previous year's 107%.

So, moving on to the balance sheet. It is a fairly simple balance sheet. Key areas being portfolio market value and debt, which I'll come to later in this presentation. But first, we'll have a look at the EPRA NTA. That increased 3.7% to 114.8p in the year. And the drivers of that is the rent -- contractual rent reviews set off by a slight amount of yield shift and also the dividend being fully covered in the year.

If we look more detail at the portfolio valuation, this increase is significantly due to the rent reviews, again, slightly set off with the yield shift, but gives us a like-for-like increase of 2.6%. This came down to the overall 2.4% due to the disposals being slightly above the development and CapEx.

If we now look at the debt maturity profile. At the year-end, we had GBP 170 million of debt due for refinance in November 2025. This has subsequently been refinanced in September post the year-end, putting in GBP 130 million of debt to replace this. This increases the average -- sorry, the weighted average term to expiry from 4.2 years at the June year-end to 5.9 years currently. The debt also has two options to extend for 1 year at the end of year 1 and end of year 2 with ability to push this out then to 5 years.

And finally, if we have a look at the debt book post the refinance, we think we have a very attractive debt book now. We've got GBP 130 million of new facilities, which comprises of GBP 50 million of term loan, which is hedged through an interest rate swap and GBP 80 million of RCF, which will be capped when we are committing that.

The debt refinance reduced the amount of debt that we have from GBP 170 million to GBP 130 million, and this allows us to efficiently reinvest the disposal proceeds from the nine care homes that we have sold. And we have the ability to then put further debt in place through an uncommitted accordion facility of GBP 70 million with incumbent bankers.

We should also note that the weighted average cost of debt, including the amortization of loan arrangement fees did increase from 3.9% to 4.3%, but this was driven by the expiry of a very attractive interest rate swap we put in place in the much lower interest rate environment in 2020.

I'll now hand you over to James, who will talk you through the portfolio.

Thanks, Alastair. I'll now talk about how the portfolio is performing and then discuss the post year-end transaction that we've executed to sell nine homes and its impact on the portfolio and how we are planning to use the proceeds of that sale.

Firstly, let me share some insights into the portfolio and how the operators are performing. This is a busy table of portfolio metrics for you. I'll highlight a few particularly interesting points for your attention.

Overall, the group's property portfolio continues to perform well, driven by the strong level of inflation-linked rental income growth. Over the last 6 years, average weekly fees have increased 49%, whilst inflation over that period has increased 38%, showing that operators have been able to pass on the increase in their costs to residents, of which about 60% are staff or agency costs.

Remember, our operators are providing needs-based care, and there is circa GBP 6 trillion of net wealth of the over 65s to fund these weekly fees. The group's average rent cover for the last 12 months at over 1.9x represents the highest achieved since IPO and provides a strong foundation for the group. This high level of rent cover is the result of the increases in average weekly fees that operators have been able to make and the high levels of resident occupancy, which, as you can see from this slide, has recovered post-COVID for our mature homes, that homes which have been trading for 3 or more years to 86.3%. Of course, the group's portfolio has always been fully let since IPO. This is just resident occupancy that we're talking about here.

And how does your portfolio compare to the market in terms of the underlying real estate? Well, for a stable long income, you want your portfolio to be modern and fit-for-purpose. And as you can see from this slide, you have a significantly more modern portfolio than the market. This is a premium portfolio.

84% of the homes have been built since 2010. This percentage has stayed high for the group over the last few years as a result of our capital recycling strategy and focus on improving the modernity of the portfolio. 100% of the homes have EPC ratings of A or B. 100% now have en-suite wet rooms, enabling our seniors to be cared for in their home with the dignity and respect that we would want for ourselves. And the average home has significantly more space per resident than the market at 48 square meters.

In terms of the performance of our operators, the average Tripadvisor style rating on carehome.co.uk is 9.6 compared to 9.3 for the market.

In summary, you have a great quality portfolio as a result of our active management, buying and selling and funding prime real estate and improving the assets that you hold.

And I want to spend a couple of minutes on our disposal track record. This slide summarizes all the material disposals over the last 3 years. All of the sales have been above book value, and I'll now take you through the detail.

So, our first significant disposal was in Q1 2023 and was of four homes that we owned in Northern Ireland. This represented a strategic decision to exit Northern Ireland. As a result of the local authorities, they are having what we consider to be too much control over the level of private fees. These four homes were sold at a premium to the prevailing book value and 12 months prior.

In Q2 2024, we sold four homes to an incumbent tenant, who wanted to own the holdco. These were four of our older and smaller homes, and so we agreed to sell them. And again, they were sold at a premium to the prevailing book value and 12 months prior.

And then in September, we agreed to sell nine homes to reduce our exposure to our largest tenant. By way of background to this transaction, we had 18 homes with Ideal Carehomes. Ideal was then acquired by HC-One. And as part of our active management approach, we reviewed the position as they were our biggest tenant with over 16% of the portfolio, and we concluded that we would rather diversify our position, and we were therefore considering selling some of the homes.

And then earlier this year, an institutional purchaser indicated that they were willing to buy half of the HC-One homes. We created two near identical pots in terms of spread and quality, one of which they have now acquired. The nine homes we've sold are representative of the whole portfolio, and they represent at GBP 4.8 million, 7.9% of the total contracted rent. At GBP 77 million, 8.3% of the total portfolio value. And the rent cover of our homes sold is above our average for the portfolio, but was declining. And as they were slightly older than the portfolio average, we were happy to sell them.

The net effect on our key portfolio indicators of this disposal is overall quite negligible. And as you can see from the bar charts on the right-hand side, our tenant diversification has greatly improved post this disposal with our exposure to our largest tenant, HC-One reducing from 16% to 8.8%. This transaction, this disposal represents the most significant disposal undertaken by the group since IPO and further demonstrates the demand for our assets and the reliability of our valuations.

As a result of the disposal, we have a great opportunity to further improve the portfolio by recycling capital. The group has a strong and growing pipeline of over GBP 150 million of accretive investment opportunities at a net initial yield in excess of 6%, including high-quality, strongly performing existing U.K. care homes, all with en-suite wet rooms, near-term forward commitments and forward fundings in attractive locations. The pipeline assets are spread across diverse U.K. geographies with a balanced mix of both existing and new operators.

As a result of our close relationships with tenants, there is always one or two that would like to add a new home to their operating group. And given our strong reputation in the sector as the longest serving investment team in the U.K. market, we expect to see every relevant care home transaction in the market. The acquisitions will follow our measured approach of identifying best-in-class assets in the right geographical locations, which are leased at sustainable rental levels and acquired at appropriate yields. And the acquisition of the first homes in our pipeline standing assets is expected to take place in November.

I'll now pass back to Kenneth to address the positive market trends in our sector.

Yes. And this -- actually, this slide 15, 17 years ago is what caused me to think that this was a great sector for us all to be putting effort into, both from the point of view of looking after our seniors really well, but flowing from that core business proposition, a great space for us to be invested in, because there will be continued and ever-increasing demand.

So, we all know the demographic story, but I think it's worth -- well worthwhile us being reminded of it. Compared with today to 2050, 25 years on, the number of over 85s doubles. And typically, 1 in 8 of the over 85s require long-term residential care. So this is a sector that will continue to see significant growth.

And there's also, as you'll see on the next slide, a move to quality. So, the demand for beds in England and Scotland is for 408,000 residents and the supply of beds, and this is just a total kind of beds is 443 residents.

On the next slide, Alastair. Thank you. And then, if you compare the supply of beds to the actual number of beds which are fit-for-purpose, you'll see that there's 0.25 million shortage of beds, which are fit for purpose. And that, we think, is really important for us to understand. There are beds in the U.K. that have no facilities at all. They perhaps have a wash and basin in the corner. There are beds in the U.K. that claim to be en-suite, but they are the en-suite that none of us would use, namely en-suites, which only have a WC in a wash and basin and no showering or bathing facilities.

And you'll see on this slide that Alastair has just put up that the long-term trend is to en-suite wet rooms. The black line at the top is the total number of beds. You'll see that the dark blue line is slowly growing over the period and the other two lines, the ones with poor en-suites and the ones with no facilities are a long-term drift downwards, whereas our kind of facilities are a long-term drift upwards.

The second market trend on the next slide is also, we think, really important, the trend towards private pay. We all know that our government and an upcoming budget will confirm it all the more, I'm sure, have many challenges in terms of the public purse. And we don't want to be subject to what the austerity of government funding. So, how do we handle that? Well, if you go to the next slide, you'll see what the whole market position is, where there's the mix of private pay, the dark bit and topped-up private pay and local authority pay.

And then let's compare on the next slide how very much more significant the income for our company is from private fees (sic) [ pay ] sources, just under 80% compared to 57% for the whole sector.

And you'll see on the next slide how that has changed for our portfolio since 2020 with ever higher proportions of private pay. And we believe that is a long-term trend, and that comes out of the -- out of that GBP 6.6 trillion of net worth that James referred to earlier.

There are always operational issues within the Care Home sector. We've said this from the very beginning. You need to recognize that half of the operational -- half of the income of a care home goes typically on labor costs. So, when the government changed national insurance, that was a significant cost increase. When the government changed minimum wage, that's a significant cost increase. The employment right bill may cause challenges too.

So what are the ways in which our tenants can cope with all of that? Well, it's about this focus of private pay. It's about the demand that there is in the sector for quality. And we are seeing fees rising, as James pointed out in that quite busy slide we referred to earlier. I think, if I remember the numbers over the last 6 years, 37% inflation over the period, 45% fee increase over the period for our tenants.

Also operating care homes, there will always be an operational issue. Humankind is fragile and somebody will let somebody down somewhere. And so, we are consciously an external manager who actively manage the portfolio. Often, our tenants are family businesses. They love to deal with us in the way we go about it. And the evidence that, that is working, I would submit, is the robust rent covers that we are seeing in the portfolio.

At a more macro level, the sector has continuing challenges with its regulator. And even since we started presenting this to investors, the CEO of the regulator has resigned again. So again, well, I think maybe there's a new person who'd be stepping in to help a bit, but there's significant disruption within the regulator. And so actually, from the very beginning, we have been doing our own regulation in many ways. And in any typical year, we complete more than 200 inspections of our homes.

There's also the Casey review, which is supposed to come out in 2028, which is something that the labor government has come. We'll wait and see what comes out of that.

And then finally, there's been a recent thing from the labor government about upward-only rent reviews. That will not exist for our existing leases, they will be unaffected. And in fact, we're engaging with industry to inform the government on it. And in fact, just last week, we heard that it's quite possible that if the upward-only rent reviews have collars and caps, in fact, they may be okay. So, we're very much engaged in all of that and trying to look after our interest.

So, some closing observations from me. As I said at the beginning, we do believe we have a robust defensive portfolio with modern homes. We have great sector tailwinds. We have a manager that is actively involved. We're passionate about doing this well. We think looking after seniors is the most honorable calling and profession and business model.

And with all of that, we have really long-term stable results. I think, I remember saying 10 years ago, that I thought we would be long and stable rather than short and exciting. We're committed to the mission. We want to scale. We have ability to deploy, and we are delighted with this -- at this time to be able to announce the progressive dividend with a further 2.5% increase, which reflects the kind of net benefits we see going forward.

So with that, that's our presentation. We really appreciate you taking the time to listen and to consider and to be invested with us, and we'll be delighted to go on to a Q&A session, which you have been listing for us while this has been going on. Thank you.

Perfect, guys. If I may just jump back in there. [Operator Instructions] I just like to remind you that a recording of this presentation along with a copy of the slides and the published Q&A can all be accessed via your investor dashboards.

Guys, you can see that we have received a number of questions throughout your presentation this morning. And thank you to all of those on the call for taking the time to submit their questions. But James, at this point, if I may hand over to you just to chair the Q&A with the team. And if I pick up from you at the end, that would be great. Thank you.

Thank you. So, let me take the questions that have been posted, and I will put them to the team or try to answer them myself.

Our first question is, would a potential increase in business rates have a material impact on this REIT's asset values?

Let me answer that one. We're pleased to say that Care Homes qualify for 100% relief from business rates, and we're not aware of that changing. So, we will keep an eye on any changes that are proposed or planned in that area. But yes, we get 100% relief. So no, if there's an increase in business rates, that won't impact on us. And of course, our focus on private pay, even if we were subject to business rates, we would give us flexibility to address any challenges that posed.

But thank you for your question. Next one, Will there be any further increases in dividend distributions going forward? Alastair, perhaps you want to take that one?

Yes. So, in the current year, we're proposing a 2.5% increase. Now that basically is trying to pass on the like-for-like rental increases, but acknowledging that there has been a slight increase in the debt with the refinance and the loss of that very attractive hedging. That's something that I think we continue to look to as we go forward.

Great. Thank you. Our next question is, what percentage of the tenancy agreements is inflation linked? Is it 100%?

And the answer to that is yes. Yes, it is. And we have a collar and a cap in lease provisions that are typically 2% and 4%. There are one or two which have a slightly higher cap. But yes, they are all inflation linked. So, that drives the strong rental income growth that we have been able to present to you today.

Great. Kenneth, a question for you next. How do you see the Care Home model evolving over the long term, particularly in response to changing resident expectations or technological adoption?

Yes. So, in relation to changing resident expectations, we absolutely are seeing residents and especially residents, families choosing to place their loved ones in a home with excellent facilities rather than these bedrooms that don't have good facilities. So, there is this long, steady move to fit-for-purpose care homes. But I guess you're also asking this question in terms of, is there somehow in the medium term, some situation in which care homes won't be needed because of technological adoption perhaps.

Care homes fundamentally have many people with dementia and/or extreme frailty, situations where families can't cope. And I think we probably are all aware of that in our wider family and friends' circles. And where in extremis -- and remember, we only expect this to be in 1 of 8 families. People have to be placed in a safe place where they cope better with loneliness or with dementia or with all of the complications of dementia. So, we actually believe that the care home model is really robust long term. Typically, the length of stay is 17 months. It may reduce a little, but it is robust and long term. And we -- that's our expectation in relation to this question.

Great. Thank you. Perhaps I can put the next one to you as well. Kenneth, how do you currently view the risk represented by issues with providers versus the challenge or possibility of dis-intermediating them and managing the sites completely?

Yes, it's a great question. We have considered this at length over the 15 years we've been doing this. We have four people in the manager who have run their own homes. We've got 150 years of running homes within the manager. And we think that the best way to have a credible investment platform is by the model that we have here, where we have a very distributed number of operators with all of the challenges of running the homes day-by-day in different geographies. And we are an aggregator and consolidator of the real estate, because there's significant capital.

But we've never tried to be just a pure landlord who collects rent. There are some comments sometimes about the cost of running the vehicle. But that's because, we're -- in many ways, this is operational real estate, and we're all over the detail of the real estate, and that's how we manage the risk represented by issues with providers. And as we see providers failing the kind of standards that we want, then we recognize the need to -- the questioner asks -- uses the term dis-intermediate. We would probably call it more actively manage in terms of working with other tenants within the family of our tenants to operate that home really well for the benefit of our shareholders.

Thank you. And Alastair, perhaps a question for you next. What is the percentage sensitivity of NTA to a 1% yield shift?

Yes, that's a good one. First of all, I'd probably say that a 1% yield shift is not something that we would expect to see. Just before I joined, there was a bit of a correction back in December '22. And I think we went from about 6% to 6.2% net initial yield. So that was a major correction. But arithmetically, it would take about 18%. We've got a net initial yield of 6.2% just now. So, if you take -- if you add 1%, that would probably be about an 18%, 20% movement.

Great. And another one perhaps for you, Alastair. Please, could you give an indication of the basis of the management fee, how it's calculated?

Well, thanks for that one. It's in the accounts and off the top of my head, it's 1.05% on the first GBP 0.5 million, and then I think it goes down to 0.95% up to GBP 750 million, which would be the calculation. I probably need to check that back on with the accounts, but it is in there.

No, it drops by 10 basis points for every subsequent GBP 250 million of net asset value.

Great. Perfect. Kenneth, one for you next, if that's okay. Are you able to elaborate at all on the reasons for the previous CFO resigning?

Yes. Gordon is a good friend. He worked with us because we've worked together for a dozen years. He had come in his early to mid-30s. He wanted a chance to do a second career somewhere, and he thought it was time to move on, nothing other than -- and bless him over the last dozen years, he has spent more summers preparing these annual accounts. And I think as a man with young children, he fancied a summer where he could get more time off. So, nothing significant about it at all.

Great. Thank you. And Alastair, maybe I come to you for the next one. What are the three financial metrics the company is hoping to meet by 2030? For example, reducing debt to what level?

Yes. Well, so the debt, once we've completed that sale, the LTV came down to 14%, and we consider that probably a bit low. We are planning to reinvest. And if we reinvest the proceeds and draw the debt, that will take us up to more about 24%, 25% LTV. So that's probably a comfortable zone. We have the accordion on an uncommitted basis, which if fully drawn would take us towards 30% and we will decide on the appropriateness as we reinvest. The other metrics, I guess, is to continue to grow the rent in line with inflation, control costs and deliver a good strong earnings.

Great. Thank you. Kenneth, one for you, please. Given what happened to your main competitor a few months ago, has there been much activity or interest from an M&A perspective over the last few months?

In the wider REIT universe, for sure, there's been quite a lot of that. And within the sector itself, and I mean by that, the tenants, there's always been kind of waves of interest sometimes from overseas REITs to buy more real estate and then sometimes it's more U.K. buyers. So currently, American REITs are a bit more active in the space. But in terms of people approaching us, that's not something that we are seeing.

Yes. Great. And then, there's a question here. Do you still have homes under construction? And does there remain a benefit in building new homes?

Perhaps if I start answering that one. So, we've actually just finished the construction of the last of the homes in the portfolio that have been underway for the last year or 18 months. And we don't have any active homes that are currently under construction at the moment. But in the pipeline, we have some as well as standing assets, we have one or two forward commitments and funding -- forward funding opportunities, and we hope to bring one or two of those on to the books as part of the deployment of the proceeds from the transaction that we've just completed.

So is there a benefit in building new homes? Absolutely. And there's massive needs still in the U.K. market. We think there's 100 new homes, approximately 100 new homes built every year, and we are very happy funders of those constructions.

Great. Thank you. And then Kenneth, perhaps building on the same theme with the increasing demand for care homes in the years ahead, who is driving forward the creation of more homes? Anything you would want to add to?

The whole sector really and especially amongst the operators who have set out down the road to bring modern purpose-built homes. We have across our funds about 40 tenants. And at any one time, there's probably 10 of these people speaking to our investment team about wanting to add a home or two homes. We all know -- they all know -- they know it really directly on the ground in their local areas, the increasing demand for modern purpose-built space with ever-increasing numbers of seniors. So, it's really quite wide with operators across the sector recognizing the need.

Great. Thank you. And let me pass back to Jake. We don't have any other questions coming through. So let me -- yes, I'll pass back to you, Jake.

Perfect, guys. That's great. And thank you very much indeed for being so generous of your time then addressing all of those questions that came in from investors this morning. And of course, if there are any further questions that do come through, we'll make these available to you after the presentation, just for you to review and to then add any additional responses if appropriate.

But Kenneth, perhaps before really now just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that would be great.

Yes. It's a privilege to have your support to enable us to go on with this mission to improve the quality of real estate. And we just want to thank you for your support, and we trust that we will continue to invest wisely on your behalf and bring the kind of long-term stable returns that we would think should be core to any investment portfolio. Thank you for your time.

Kenneth, that's great. And thank you all for updating investors this morning. Could I please ask investors not to close this session as you will now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company.

On behalf of the management team of Target Healthcare REIT plc, we would like to thank you for attending today's presentation. That now concludes today's session. So, good morning to you all.

Good morning. Thank you for coming to the annual results presentation for Target Healthcare REIT. My name is Kenneth MacKenzie, and I'm delighted to be joined this morning by my colleague, Alastair Murray, who was appointed CFO for the Fund Management business a couple of months ago. Alastair has actually been with us for 2.5 years. He's the guy who was Director of Listed Funds. He did this work, and now he's having the joy of presenting the work that he's done over the last 2.5 years. And we're also joined by James Mackenzie. James joined us at the beginning of the year. So it's a bit of a fresh team, though we continue to do what we've always done. James was General Counsel at Aegon for a dozen years, and we're delighted to have him with us.

What we're going to do in the presentation is, I will do some highlights, what's going on within the sector and within Target Healthcare REIT in particular. And then Alastair will take us through the financial performance. James, through the portfolio performance. And I'll close it out with some positive market trends, our views on the sector that it has a great long-term future and some closing observations.

So what are the highlights of Target Healthcare REIT and the sector? We have a robust defensive portfolio. You've heard me speak many times about how we have modern fit-for-purpose care homes. We believe that's really important for holistic care. We have great sector tailwinds with needs-based demand. This isn't just optional ways of living at the end of life. This is needs-based demand as families need support for their loved ones. And you have a manager who is very actively involved in the underlying assets. And with all of that, we're thankful that we have market-leading long-term returns records with over the 12 or 13 years of the life of the fund, 7.5% annualized total accounting return since launch.

I'm going to do a quick run-through on how we compare to the MSCI Annual Healthcare Property Index. There's about GBP 9 billion assets in this, about 34 different funds. And you'll see the 2 bars for each year, the light blue being the index and the dark blue being our own returns over the period. And you'll see that for all of these years, the 11 years here, we have beaten the index, and we're thankful for that. And you'll see over the last couple of years, we've actually been double the index, and we're very thankful for that also.

And the cumulative effect of that is that we're 77% outperformance over these 11 years. And just last week, I think it was -- there were some Annual Property Investment Awards. And within listed funds, we have done quite attractive returns. We are the highest relative total return annualized over 3 years for listed funds and the highest 10-year risk-adjusted total return. So we're thankful that has -- how it has all worked out.

So a little more detail to remind you of who Target Healthcare REIT is, 93 care homes at the end of June, just under 6,500 beds, GBP 61 million of contracted rent. The rent is inflation-linked. There are 34 different sources of income. Portfolio value just around GBP 930 million. And you've heard me speak many times about the need for wet rooms. We believe that is evidenced in terms of how the portfolio has worked out with great EPC ratings and lots of longevity, just under 26 years of income. So that's the portfolio at the end of June. And then since the end of June, we have exercised our largest disposal since the IPO in 2013, GBP 86 million at an 11.6% premium to book value. Now we're not saying that the whole thing could be sold at a premium to book value, but we do believe that it gives good evidence that our NAV is a fair reflection of value.

The debt has also been refinanced since the year-end at improved margins. And with all of that, we have an attractive acquisition pipeline of accretive opportunities. So as we reflect on Target Healthcare REIT, we consider it to be a good year with some challenges navigated. I think I've said from the very beginning that if you're running care homes or if you're a landlord overseeing the running of care homes via your tenants, there will always be a challenge. Sadly, in this year, for the first time, we had to put one tenant into administration. He was unable to meet their rental obligations. But it's so interesting, we looked after the residents well. There was continuity of care.

And when we went out to the market to find some new tenants, we had strong operator demand such that there has been a modest increase in the passing rent. It was expensive. Alastair will speak about that later. But the majority of all of that has been written off in the year, though that slightly impacts our EPRA cost ratio. And then tenant arrears were also happened with one other tenant, an operator of 3 homes, but we're delighted to say that we expect that all of these arrears will be recovered in short order.

I'll now pass on to Alastair to speak about the financial performance for the year.

Thank you, Kenneth. I'm Alastair Murray, the new CFO of Target Fund Managers, and I'm very pleased to be here today to talk you through the financial performance for the year to June '25 and the recent debt refinancing.

I will start with the highlights of the year. We delivered a healthy total accounting return of 9.3%. This was driven by the EPRA NTA increase of 3.7% and the dividends paid in the year of 5.884p, which represents an increase of 3% on the prior year dividend. Given the challenging backdrop for listed property companies, this 9.3% total accounting return demonstrates the resilience of our operating model. Our EPRA earnings per share decreased marginally by 0.8% to 6.08p. This was driven by the exceptional costs incurred in the second half of the year. Kenneth has covered the 2 key tenant issues that drove this, and I will cover the impact on the numbers in more detail later in this section. The annualized increase in our rental income was 4%, predominantly driven by our inflation-linked contractual rental growth. And in line with every year since launch, we had no voids.

Moving on to the P&L. I will highlight the key lines. Rental income in the period increased by 3%. The main driver of this is our contracted inflation-linked rental growth. In addition, we benefited from the full year effect of 3 development homes that opened in the previous year and 1 development home that opened in the current year. These new developments offset the rental impact of the 4 homes disposed of at the end of the prior year.

If we examine the annualized contracted rent in more detail -- this next slide demonstrates the rent increase on a point-in-time basis and shows the drivers of annualized contracted rent increase between June '24 and June '25. As we can clearly see, the rent reviews are the main driver of growth, adding GBP 1.9 million. This is a like-for-like increase of 3.3%. The group also opened a new development, which more than offset the disposal of 1 home at the end of the current year. There was a small increase from rentalization of various CapEx and deferred payments in the year. If we now look at the costs, there were material movements in both operating expenses and credit loss allowance, which combined have driven an increase in the adjusted EPRA cost ratio. I will expand on this in the next slide.

Operating expenses increased 27% over the prior year. This was due primarily to the nonrecurring costs associated with the administration and retenanting of our Weymouth property. Kenneth has already covered this at a strategic level, and I'll draw out the impact on the numbers. The administration of the Weymouth Home increased our costs in the second half of the year by GBP 800,000, which covered the administration and running costs, the legals and the marketing of the property. Excluding these costs, total operating costs increased by about 3% in the year, with this increase primarily due to the portfolio management activities undertaken in the period. Our ongoing charges figure, which provides a measure of recurring operating expenses and excludes nonrecurring property expenses, was stable at 1.51%.

Our credit loss allowance figure also increased from GBP 1 million in the prior year, to GBP 1.6 million, but we would expect movements on this year-on-year. Again, we see the impact of the Weymouth Home, which accounts for circa 1.4% of our annual rent roll, driving GBP 900,000 of our credit loss allowance in the year. In addition, one other operator with 3 homes accounting for about 3.2% of our annual rent roll did not pay their rent in full in the final quarter of the financial year. This resulted in an additional GBP 0.5 million of credit loss allowance for this tenant. These homes have now been retenanted in September, and we're confident of significant recovery in the provision in the final quarter of this calendar year based on securing a parent guarantee from the exited tenant. Given that Weymouth is our first administration in the group's history, we do not expect to incur costs and credit loss allowances of this magnitude in managing a property in the current year.

So if we turn to the P&L for one last time. Overall, the impact of these administration costs and credit loss allowances resulted in adjusted EPRA earnings per share decreasing by 0.8%, to 6.08p. The dividend increased by 3% in the year and was covered at 103%, but this was a reduction from the 107% in the prior year.

Moving on to the balance sheet. It remains a fairly simple balance sheet with the key areas being portfolio market value and debt, both of which I'll come on to. But first, if we look at the EPRA NTA per share, this increased 3.7%, to 114.8p. This was driven by both, growth in the portfolio valuation and the fully covered dividend, as you can see from this graph. The portfolio valuation uplift is the key driver of the increase with rent reviews net of yield shift accounting for 3.6p of this uplift. The portfolio valuation increased by 2.4%, and the like-for-like increase of 2.6% is again driven by the contractual inflation-linked rental growth set against yield shift. Disposals, net of developments and CapEx reduced the value by 0.2%, to the 2.4% total increase. The group has a strong track record of disposals at above valuation, as you'll hear from James later.

Finally, I'd like to cover the refinancing of our bank debt post year-end. At the June year-end, we had GBP 170 million of committed facilities set to expire in November 2025. This was refinanced in September, improving the maturity profile, increasing the weighted average term to expiry from 4.2 years in June 2025 to 5.9 years at September '25. In addition, there are 2 1-year extension options at the end of year 1 and year 2, subject to lender approval. The refinance has moved the next debt expiry date from 3 months at the year-end to 3 years or 5 years if both extension options are exercised.

And finally for me, the group now has an attractive debt book, and this slide provides a summary of these facilities following the refinance. We replaced the existing bank debt of GBP 170 million with GBP 130 million of committed facilities from our incumbent lenders. GBP 50 million of this are through term loans, and the interest on these has been fixed through interest rate swaps. There's an GBP 80 million of RCF, and that's currently GBP 48 million drawn. Overall, the weighted average cost of drawn debt, including amortization of loan arrangement fees, increased to 4.3% from 3.9%. This reflects the expiry of an attractive hedging put in place in the lower interest rate environment in 2020.

The committed debt is GBP 40 million lower than the facilities they replaced. This is to accommodate the reinvestment of the proceeds from the 9-home asset disposal. Following the reinvestment of the proceeds, the group may fund further growth through the GBP 70 million of uncommitted accordion facilities also agreed as part of the refinancing.

I'll now hand over to James to take you through the portfolio performance.

Thanks, Alastair. I'll now talk about how the portfolio is performing and then discuss the post year-end transaction that we've executed to sell 9 homes and its impact on the portfolio and our plan for the use of proceeds.

Firstly, let me share some insights into the portfolio and how the operators are performing. Here's a busy slide of table -- of portfolio metrics. Let me highlight a few particularly interesting points for your attention. Overall, the group's property portfolio continues to perform very well, driven by strong levels of inflation-linked rental income growth. Over the last 6 years, average weekly fees in the homes have increased 49%, whilst inflation has increased 38%, showing that operators have been able to pass on the increase in their costs to residents, of which, about 60% are staff or agency costs. Remember, our operators are providing needs-based care, and there is GBP 6 trillion of net wealth of the over-65s, to fund these weekly fees.

The group's average rent cover for the last 12 months, at over 1.9x, represents the highest achieved since IPO and provides a strong foundation for the group. This high level of rent cover is the result of the increases in average weekly fees operators have been able to make and the high levels of resident occupancy, which, as you can see from this slide, has recovered post-COVID for our mature homes, being homes which have traded for over 3 years, to 86.2%. Of course, the group's portfolio has always been fully let since IPO, and this is just resident occupancy that we're talking about here.

But how does your portfolio compare to the market in terms of the underlying real estate? For a stable long income, you want your portfolio to be modern and fit for purpose. And as you can see from this slide, you have a significantly more modern portfolio than the market. This is a premium portfolio. 84% of the homes have been built since 2010. This percentage has stayed high for the group over the last few years as a result of our capital recycling strategy and focusing on improving the modernity of the portfolio.

100% of the homes have EPC ratings of A or B. 100% now have en-suite wet rooms, enabling our seniors to be cared for in their home with the dignity and respect we would want for ourselves. And the average group home has significantly more space per resident than the market, at 48 square meters. In terms of the performance of our operators, the average Tripadvisor-style rating on carehome.co.uk is 9.6, compared to 9.3 for the market. So in summary, you have a great quality portfolio as a result of our active management, buying and funding prime real estate and improving the assets that you hold.

I now want to spend a few minutes talking about our disposal track record. This slide summarizes all material disposals over the last 3 years. All of the sales have been above book value. Let me now take you through the detail. Our first significant disposal was in Q1 2023 and was of 4 homes that we owned in Northern Ireland. This represented a strategic decision to exit Northern Ireland as a result of the local authorities there, having what we consider to be too much control over the private fees. These 4 homes were sold at a premium to the prevailing book value and 12 months prior.

In Q2 2024, we sold 4 homes to an incumbent tenant who wanted to own the holdco. These were 4 of our older and smaller homes, and so we agreed to sell them. Again, they were sold at a premium to the prevailing book value and 12 months prior. And then in September, we agreed to sell 9 homes to reduce our exposure to our largest tenant. By way of background to this transaction, we had 18 homes with Ideal Carehomes. Ideal was then acquired by HC-One. And as part of our active management approach, we reviewed the position as they were our biggest tenant with 16% of the portfolio, and we concluded that we would rather diversify our position and we're therefore considering selling some of the homes. Earlier this year, an institutional purchaser indicated that they were willing to buy half of the HC-One homes.

We created 2 near identical pots in terms of spread and quality, one of which they have agreed to acquire. The 9 homes we are selling are representative of the whole portfolio and represent at GBP 4.8 million, 7.9% of the total contracted rent and at GBP 77 million, GBP 8.3 million of the total portfolio value. The rent cover of the homes sold is above our average for the portfolio, but is declining. And as they were slightly older homes than the portfolio average, we were happy to sell them.

The net effect of the disposal on key portfolio indicators is negligible. And as you can see from the bar charts on the right-hand side of this slide, our tenant diversification has greatly improved post this disposal with our exposure to our current largest tenant, HC-One, reducing from 16%, to 8.8%. This represents the most significant disposal undertaken by the group since IPO and further demonstrates the demand for our assets and the reliability of our valuations. As a result of the disposal, we have a fantastic opportunity to recycle capital to further improve the portfolio.

The group has a strong and growing pipeline of over GBP 150 million of accretive investment opportunities at a net initial yield in excess of 6%, including high-quality, strongly performing existing U.K. care homes, all with en-suite wet rooms, near-term forward commits and forward fundings in attractive locations. The pipeline assets are spread across diverse U.K. geographies with a balanced mix of both existing and new operators.

As a result of our close relationships with tenants, there is always 1 or 2 that would like to add a new home to their existing portfolio. And given our strong reputation in the sector as the longest-serving investment team in the U.K. market, we expect to see every relevant care home transaction. The acquisitions will follow our measured approach of identifying best-in-class properties in the right geographical locations, which are leased at sustainable rental levels and acquired at appropriate yields. The acquisition of the first homes in our pipeline standing assets is expected to take place in November.

And I'll now pass back to Kenneth to address the positive market trends of our sector.

Thanks, James. There are indeed really positive market trends. And the first one that you've heard many times, everybody knows about it, is the demographics of the United Kingdom. In particular, the bit that matters for us is people about -- coming up to retiral. If any of you on this call are in your 60s, in 20-25 years' time, you're over 85. And there will be a doubling of the number of people over 85. And typically, 1 in 8 of the over 85s require residential care.

So what are the demands for beds? So currently, in England and Scotland, about just over 400,000 residents. The supply is about 440,000 beds and fit-for-purpose supply. And what do we mean by fit for purpose? Well, if you've listened to me for the last 11 or 12 years, I think that fit for purpose is wet rooms. It's what we would want for ourselves. And you'll see there's a significant shortage of about 0.25 million beds -- shortage of rooms with wet rooms.

And if you look at this graph on the right-hand side, you'll see the long-term market trend is to en-suite wet rooms. You'll see the total number of beds actually over the last 5 or 6 years is pretty stable, but the number of beds without -- with no facilities or the number of beds with these things, they call them en-suite, but [ there ] are no wet rooms. They are both, decreasing and this kind of stark blue line shows that the number of beds with wet rooms is increasing. So definite market trend to en-suite wet rooms.

And the other market trend is private pay. I don't think any of us on this call think that the government have loads of money to continue to reduce their deficit, quite the opposite. So who's going to pay for social care? Well, we think that residents of care homes will end up paying a lot of their own costs. And in some cases, if it's going to be paid by the government, it's also quite common for public fees to be topped up by families wishing their loved ones to accept a better home.

So private pay will come out of GBP 6 trillion of net worth that the over-65s currently have, and there's also some families helping to pay. And we thought it would be useful for you to kind of get a better understanding of some of that. So see this, the whole market situation. Private pay is about 46% and topped up private pay, a further 11%. So a total of 57% in the market. How does that compare with us? 79% with -- compared to 57%, significantly larger amounts of private pay elements in what our tenants receive. And we believe that provides real long-term stability. And this slide looks at how that has developed over the last 6 years, where our portfolio has ever larger amounts of private pay, strong market trends for us.

The other -- this slide, we thought it would be useful for you all to understand the operational issues within the sector. Staffing is always an issue. As James made reference, 55%, 60% of the cost of a care home are staffing costs. And in the periods under review, national insurance increase, minimum wage increase, employment rights bill, government policy in relation to visas are all issues that have come up. How have our tenants handled that? Well, strong private pay fee inflation, this focus on private pay and the demand for quality by the residents and their families have resulted in strong rent covers.

Tenants will always have operational issues, which can result exceptionally in rent arrears. We've had a couple of these examples this last year. But with this quality of portfolio and our active asset management, we are in a good place. And generally, across the portfolio, as you've seen, rent covers are robust. This is a regulated sector. Sadly, the regulator has said itself that it's not fit for purpose. And so we have, from the beginning of our existence, done our own inspections, and we continue with that with well over 200 home visits in each year.

Another thing that's arisen more recently is some potential legislative challenge about upward-only rent reviews. Our existing leases will be unaffected. We're engaging with the industry to inform government on it. And actually, very recently -- just yesterday, we heard the potential -- if there's a collar and a cap, that may continue to be allowed.

So some closing observations on the portfolio. We believe we have a robust defensive portfolio of modern fit-for-purpose homes. Well, we don't believe it, we know it. We physically visit it. We see it all the time. We just get what we're trying to do. We have great sector tailwinds. We're a very involved, active, unusual fund manager. We are externally managed. We have taken a conscious decision as an external manager to be very actively involved. We have, with all of that activity, market-leading long-term returns. And with all of that, we have a deep commitment to the mission to provide better physical assets for our carers to work in, for our residents to be loved and cared for to the end of their lives.

We have a deep desire to scale. We have an ability to deploy. The investment team are the same for a long number of years. We have an asset management team that are deeply engaged with our tenants for a long number of years. And in terms of returns for our shareholders, we're glad to be able to announce today also a progressive dividend with a further 2.5% increase.

So that's the end of our presentation, and we thank you for your interest in our business, and we desire and pray indeed that we will go forward to make good returns for all who are -- all our stakeholders who are invested with us. Thank you.

Great. Thank you very much. We have a few questions coming in. So please do use the Q&A facility if you'd like to enter a question. Our first question is, at the last presentation, you advised you were looking at ways in which you could strengthen the share price. Could you comment on future efforts?

Yes. I think relatively, our share price has done well compared to the rest of the listed markets. All things are relative. We would love the share price to be better, but at something like an 18% discount compared to the market average around about 25%, 30%, it has relatively outperformed, but we'd love to do -- we'd love it to further improve.

Great. Thank you. And another question, I think, for you, Kenneth. The tenant that went into administration in June, did we have any visibility of this in advance of the failure to pay rent? To what extent are we able to monitor the financial health of tenants through their disclosures and what measures are we able to take? And then there's a separate question about rent covers.

Yes. We were completely aware of the situation in that tenant. We get quarterly P&L accounts from everybody. We had in-depth discussion with them. And as it became more and more evident to us that they were not taking the key steps to improve the profitability of the tenant, ultimately, we took the difficult decision to put them into administration and to ensure that the residents were well cared for, we put in a contractor to oversee the running of the home also. And through that, as the administration progressed, we marketed the home, while the administrator, of course, had responsibility for doing that. And the tenants that we were already speaking to as options, there were a whole bunch of people keen to take on the home. And so we were able to relet it fairly efficiently.

Great. Thank you. And the second part of this question relates to the range of rent covers that make up the portfolio average of 1.9x.

Yes. The range -- an immature home will clearly be not rent covered. We have only 7% of the portfolio that is immature. And for -- so within the mature homes, we range from 2 or 3 homes, around about 1x rent covered. To 1 home, I think, at about 3x or 4x rent covered, if I remember, slightly over 4, I think, 1 home. And a whole bunch of them, between 1.6x to 2.5x rent covered. That's part of the idea of being highly diversified that we're able to -- we see the whole scene of profitability within the sector and within region and within specialism within the sector.

And what I mean by that is some of our homes are -- and no disrespect to the operators who do this. They're more simple residential care, some of them do nursing care and some of them do heavier dementia care. And so there's a kind of a range of care that's provided by our operators, and we're deeply engaged with them all in that.

Great. Thank you. The next question is the equity market has clearly liked your capital recycling initiative, hence, the share price is performing so well. Could you please give an indication of the yield levels needed on acquisitions or forward fund developments such that they would be EPS accretive? Would 6.5% plus be about the right level? Thank you. This is perhaps one for you, Alastair.

Yes. So obviously, we disposed at 5.24% on -- to give us the capital, the GBP 86 million to invest. So -- and our debt has been refinanced at attractive levels and reduced margins. So I would say that the yield levels are slightly probably below the 6.5% that we'll be looking, them to be accretive at 6%, 6.1%, we're still modeling that as accretive in the short and long term.

Great. Thanks, Alastair. There's a question here about the use of proceeds. Following the post year-end disposals, how quickly do you expect to reinvest the proceeds? And then secondly, are there alternative lease structures that could be considered to increase the REIT's participation in operator performance in select cases? Kenneth, do you want to...

Yes. They're sending them all to me, aren't they? I thought James might have taken that first one. But -- reinvesting the proceeds, it's never an exact science, but James has said already that the first transaction will be done next month. And we have a significant pipeline that will enable us to reinvest the proceeds in the following months fairly efficiently. We've modeled a fairly conservative view of all of that, and we maintain a dividend cover on the basis of that modeling.

And the second part of the question -- remind me, James.

Second part of the question was lease structures and...

Yes. That's a really interesting question. In the earlier years of the REIT, we did try different lease structures. And in truth, they didn't really work out well. So we see ourselves as a long income fund with stable contractual rents. I've said to many shareholders, you won't make a lot of money out of us, but you will make long, stable returns from us. And that's the kind of more conservative downside protected approach that we have developed for this vehicle.

Great. Thank you. Perhaps I'll take the next one, which is, how will tenants adapt to the new constraints on overseas recruitment?

The staffing in our homes is stable, really is what I would say with a varied mix of primarily U.K. carers and some team members that do come in under the visa scheme, dependent on local employment conditions. But as owners of prime real estate, we've always been focused on providing great facilities for residents and carers and our operators with a focus on private residents, have been able to increase their average weekly fees to cope with the increasing costs, if that's ever been a challenge. So yes, not a problem at the moment in the portfolio. Thank you.

And if I remember rightly, the stats are something like 60% or 70% of our homes don't have overseas people in them at all. There are half a dozen homes that have quite a few, but I wouldn't want you to think that for our premium quality homes that, that is a massive issue for us.

Great. Another question here. As you redeploy capital, how do you expect the share of mature homes to develop?

What was your question?

As we redeploy capital, how do we expect the share of mature homes to develop? So I guess if I take that one to start.

Yes.

As we redeploy the capital from the recent disposal, we have already lined up standing assets, which we hope to execute on in the course of the next month. But the pipeline does include a mix of both standing assets and forward commits and forward developments. So in terms of the shape of the overall portfolio, it will continue to be, by far and away, majority mature homes, but there will always be 1 or 2 forward commits, forward developments that we're seeking to do to bring prime real estate into the market.

And if I could add to that. Buying homes is a bit of a dynamic situation. So our pipeline exceeds our capacity, and we want to remain flexible in that to make sure that we do the best deals that we can at the time in the coming months.

Yes.

I'm seeing one on the rent at Weymouth. The rent is a bit ahead. I'll put it like -- I don't think I should mention the actual number. We provided no rent free at all. And the costs of the temporary contractor and who paid for that? We paid for all of that. That's within all of the costs of the administration that we highlighted in the presentation. It was expensive. We always try and avoid administrations. This is the first time in 12 years that we've done an administration, but it was necessary in this situation.

Great. And we've got one other question here about the investment market, who is buying? And who is selling? And how that provides the opportunity to both buy and sell high-quality assets with such an attractive yield spread?

U.S. REITs are quite active again. Some of you will remember that they were active years ago. And the unlisted funds that are active in the sector are also doing a bit. So U.S. REITs and unlisted funds are the primary buyers alongside ourselves.

Great. And we have a question here about resident occupancy. Over what time frame do you see the current underlying resident occupancy of 86% returning towards the optimum level of the low-90s. Is negative sector press such as the recent BBC Panorama undercover filming at a care home in Scotland, a headwind for occupancy? Or situations like this actually a net positive for occupier interest in high-quality homes?

That's a really interesting question. That home is actually in my hometown -- or my original hometown where I was born and brought up. And we knew the operator and consciously turned down that operator as somebody that we wanted to work with. So I think there will sadly always be issues like that. It's why we are the fund manager that we are, that we try to really understand in depth the underlying performance and the values and the purpose of the operator. So there will always be a bit of that.

Does that have any impact on the occupancy levels across the sector? No. No, that is -- this is a needs-based place -- sector. And we have homes that are primarily focused on providing great care and doing great rent covers. And whether the occupancy is 2% or 3%, either way, when you're almost 2x rent covered, do it right within the capacity of what you have rather than try and squeeze occupancy up forever. We think occupancy will continue to rise, a little bit while recognizing that it hasn't yet got to the 90%. But more importantly, is the portfolio well rent covered? Absolutely.

Great. And then one last question that we've touched on briefly before. How worried should we be about changes to immigration policy given the high number of overseas workers currently in the sector under the visa program? I think our answer to that would be, you don't need to be overly worried, with high-quality homes in the right locations, with high demand for what the operators are providing. So not a major concern for our portfolio, and our operators are confident that they'll be able to recruit for the needs that they have.

I don't see any more questions. So thank you very much for joining.

Yes. We couldn't do the job we do to provide great places for our seniors unless we had your support. We are conscious that the listed markets for real estate are in difficult waters, and we are as perplexed as anybody else about the significant discounts. However, you can be sure your capital is being well deployed and taken care of to the best of our ability, and we thank you for your support and your interest in our business.