Investing in care. Delivering returns.

Target Healthcare REIT plc

Annual Report and Financial Statements 2022

Target Healthcare REIT plc Annual Report and Financial Statements 2022

About Us

Responsible investment with a clear purpose – improving the UK's care home real estate

Long-term sustainable value

Compelling investment rationale, strongly supported by real estate trends and demographic change.
Long leases with inflation-linked rental growth; strong balance sheet with substantially fixed-rate, long duration debt.

Key financial metrics for the year to, or as at, 30 June 2022

EPRA NTA per share (pence)

112.3 +1.7%
----------------

Accounting total return (per cent) 1

2022	112.3
2021	110.4
2020	108.1

IFRS profit (£ million)

2022		49.1
2021		43.9
2020	31.6

8.1

Dividend cover (per cent) 2

2022	72
2021	80
2020	76

Dividend per share (pence) 6.76 +0.6% 6.68 6.72 6.76 2020 2021 2022

Portfolio value (£ million)

911.6	+33.1%
2022		911.6
2021	684.8
2020	617.6

1 Based on EPRA NTA movement and dividends paid, see the alternative performance measures on page 95.

2 Based on adjusted EPRA earnings, see note 8 to the consolidated financial statements and the alternative performance measures on page 95.

Strategic Report	IFC-27
About Us	IFC
Chairman's Statement	4
Business Model	6
At a Glance	8
	Environmental, Social and Governance 10
	Investment Manager's Report 14
Our Strategy	16
	Principal and Emerging Risks and Risk Management 24
Section 172 Statement	26
	Corporate Governance 28-57
Board of Directors	28
Investment Manager	30
Directors' Report	32
	Statement of Directors' Responsibilities 39
	Corporate Governance Statement 40
	Report of the Audit Committee 44
	Directors' Remuneration Report 49
	Independent Auditor's Report 52
Financial Statements	58-88

	Consolidated Statement of Comprehensive Income 58
	Consolidated Statement of Financial Position 59
	Consolidated Statement of Changes in Equity 60
	Consolidated Statement of Cash Flows 61
	Notes to the Consolidated Financial Statements 62
	Company Statement of Financial Position 79
	Company Statement of Changes in Equity 80
	Notes to the Company Financial Statements 81
	Additional Information 89-IBC
	Notice of Annual General Meeting 89
Shareholder Information	92
	Alternative Performance Measures 95
	EPRA Performance Measures 96
Data Centre	98
	Glossary of Terms and Definitions 99
Corporate Information	IBC
immediate attention. purchaser or transferee.	This document is important and requires your If you are in any doubt about the action you should take, you are recommended to seek your own independent financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the Financial Services and Markets Act 2000 if you are in the United Kingdom or, if not, from another appropriately authorised financial adviser. If you have sold or otherwise transferred all your ordinary shares in Target Healthcare REIT plc, please forward this document, together with the accompanying documents immediately to the purchaser or transferee, or to the stockbroker bank or agent through whom the sale or transfer was effected for transmission to the
	Annual Report and Financial Statements 2022 1

Social impact driven strategy, with a future-proofed business model

Portfolio protected from the sector's modernisation challenge

Care home sectorleading environmental credentials

Long-term outlook and commitment, aligned with care sector needs and supported by demographic trends

Now

Standard-setting care home real estate.

100% purpose-built

96% wet-rooms

92% A or B EPC ratings

100% C or better

– Strong investment demand.

Long leases with annual growth.
Lowly geared balance sheet with substantially fixed-rate debt.
Track record of stable NAV returns.

Near-future trends

Clear movement to these standards from the many older, converted properties.

% UK care home market with wet-rooms

Minimum Energy Efficiency Standards (MEES) legislation has applied to commercial rented buildings since 2018. COP 26 commitments made by the UK Government anticipates the current "E" rating requirement will be raised to "B" for 2030.

Many commercial real estate owners with older/converted properties face a significant burden to meet the forthcoming changes.

Sector occupancy recovering post COVID-19 pandemic.
Long-term structural support for care home places from demographic change:
- Number of over 85s forecast to almost double from 1.7m to 3.3m by 2046.
- 1 in 7 people over 85 will require residential care.

Why wet-rooms matter

1. Wet-rooms represent socially acceptable standards

It is estimated that 50% of care home residents experience incontinence. We believe all residents should have en suite wet-rooms to allow personal hygiene to be practised with dignity and in privacy.

We use the provision of wet-rooms as a proxy for the overall standard of care home real estate. The majority of care home places in the UK (71%) do not offer this, instead "en suites" are generally WC and wash hand basin and therefore require residents to use shared washing facilities, while many do not offer private hygiene facilities at all.

18%-28%

higher resident fees in care homes built since 20161

2. Wet-rooms support sustainable occupancy levels

The sector is recognising the need to modernise its real estate, with wet-room provision now at 29% having progressed from 14% only eight years ago. There is a clear commercial benefit with respect to demand for care places:

The current generation requiring care are more used to showering than previous generations;
En suite showers in hotels and other modern buildings have become commonplace and substandard facilities won't be accepted;
Modern buildings command a fee premium: homes built since 2016 command 18%-28% higher fees than those from older properties; and
Provision future-proofs against potential legislative change to mandate private washing facilities (retrofitting is costly and will not always be possible).

Of course, it's not just wet-rooms. Our portfolio of modern homes also offer:

More space per resident, both private and social;
More useable outdoor space (balconies and gardens);
Better accessibility via wider corridors and more lifts; – Visitor space (e.g. dining rooms to host visitors/ local community);
Cinemas, exercise space, activities rooms; and – Better facilities for staff.

1 Carterwood Research – 2022.

Investing in care. Delivering returns.

Dear Shareholder,

Amidst the current market uncertainty and economic headwinds, we continue to focus on the favourable long-term prospects for our portfolio. We have been delighted to grow through the addition of a significant value of assets during the year, with inclusion in the FTSE-250 testament to valued shareholder support and the stable total returns from our well-diversified portfolio.

EPRA NTA per share growth 1.7%

1. Reflections

Despite the persistent COVID-19 impact faced by UK care homes this past year, our portfolio remains well-placed. Resident occupancies are improving (mature home occupancy now at 83% from 73% at its lowest point in early 2021) and home environments are returning to "normal" trading and activity conditions. The quality of our real estate, and the level of demand for it in the UK care home investment market, has driven a healthy and consistent accounting total return of 8.1%, with valuation increases reflecting our inflationlinked leases and positive sentiment as to future trading conditions.

Our rent collection for the year was 95%, inclusive of successful arrears recovery post year-end. We have collected 95% of rent since the start of the COVID-19 pandemic in March 2020. We remain confident our portfolio will deliver sustainable value over the long-term.

The start of the year brought shareholder support for our capital raise to fund the acquisition of a portfolio of 18 homes. We were delighted to secure this in what was a competitive bidding process, with the mature trading histories complementing our many newer homes. Following the disposal of one non-core asset post-year-end, the integration of the portfolio is complete with performance in line with expectations on acquisition and we look forward to many years of stable income returns.

Late 2021 optimism was tempered early in 2022 with the emergence of the COVID-19 Omicron variant. This slowed trading recovery across the portfolio as the frequency of embargoes on admissions increased once more. A small number of tenants most exposed to newly opened/ immature homes were significantly impacted. We have resolved an arrears position with one tenant who represented 6.8% of contracted rent and have initiatives in progress on the remaining affected assets, giving visibility on rent collection improving towards pre-pandemic norms.

2. Outlook

Other headwinds have emerged in 2022 which are potentially more long-lasting and impactful, though we feel our business model and strategy provides insulation. Matters of concern include: energy and

food source supplies; inflation; monetary policy tightening by Central Banks and fast-rising interest rates; the cost of living crisis, and general fears of a significant economic downturn/recession. The repricing of financial assets is likely to arise with commercial real estate tipped by many to bear the brunt, as reflected in the sector's recent share price movements.

However, our investment class benefits from tailwinds. Underlying demand for residential care places is supported by demographic change, evidenced by projected growth in the number of over 85s, and investment demand for modern, ESG-compliant care home real estate remains strong.

The Group has some protection from higher interest rates, having fixed rates on £180 million of its borrowings prior to recent market increases. On inflation, our portfolio bias towards private pay provides comfort that our tenants are more likely to be able to reflect their cost increases in resident fees, supporting sustainable trading.

3. Performance

Our total return performance over the year has been robust, with EPRA NTA* growth of 1.7% (112.3 pence from 110.4 pence) underpinned by a portfolio which has performed resiliently.

The Manager comments in more detail on rent cover and occupancy on page 14, with these key metrics trending positively as trading in the homes improves further following the Omicron impacts earlier in 2022.

Growth in the portfolio's valuation has largely been driven by rental uplifts, with some additional yield tightening from strength of demand, providing an overall like-forlike increase of 4.2%. Contracted rent has increased by 35% to £55.5 million, including 4.6% on a like-for-like basis.

Under the widely-used EPRA earnings metric the dividend was 95% covered, though we focus on an adjusted EPRA earnings per share result of 5.05 pence. Adjusted EPRA earnings increased by 16% to £30.2 million, translating to 72% cover.

4. Investment market and care home trading

There remains a weight of capital investing in the ESG-compliant, modern homes which are our staple. Demand and activity has not yet dampened in response to either the wider macro-environment or the sector's trading difficulties through "late-COVID". We note valuations starting to soften in other commercial real estate sectors and would be surprised were ours to be immune. However, high volatility is not something inherent in the asset class and we would note the performance of premium quality homes relative to the yield expansion in poorer

quality homes following the 2007-08 global financial crisis.

The sector's challenges this past year are well-documented, and the Manager discusses these in more detail on pages 14 and 15. We are pleased to see the sustained rise in occupancy levels in our homes. Whilst homes with a focus on publicly funded residents have outperformed those focusing on the private market through much of the pandemic, this has recently reversed and the majority of our tenants report a positive outlook.

5. Governance Board succession

The succession plan detailed in last year's report is drawing to a successful conclusion. We were pleased to welcome Dr Amanda Thompsell to the Board on 1 February 2022 and, subsequent to the year end, Richard Cotton has also been appointed. The appointment of Michael Brodtman, expected early in the next calendar year, will complete the planned changes to the Board.

Having previously announced my intention to retire following the conclusion of the forthcoming AGM, along with Gordon Coull, this will be my last statement to shareholders. However, in handing over the chair to Alison Fyfe, ably supported by an experienced and skilled Board, I know I am leaving the Company in good hands.

Annual General Meeting ('AGM')

The AGM will be held on 6 December 2022. Shareholders are encouraged to make use of the proxy form provided in order to lodge their votes and to raise any questions or comments they may have in advance of the AGM through the Company Secretary.

6. Looking ahead

Our immediate focus is on moving as quickly as possible towards full rent collection, for which initiatives are in progress and remain under our control. We have a solid track record of achieving change in the portfolio when required.

We continually review our investment policy and business model and believe both to be sound. We expect our ESG-compliant modern assets to provide sustainable longterm returns, and in volatile times such as these we are thankful to have remained prudent in the rents we have set, capital prices paid and in our borrowing levels and terms.

Our portfolio consists of premium quality assets in a non-cyclical investment class where underlying trading is improving as COVID-19 recedes.

The interest rate environment has a significant impact on our path to full dividend cover. Drawing available debt to fund portfolio growth is not currently accretive

to earnings, having a negative impact to cover of c.10% relative to what our planning showed a few short weeks ago. We have a stable platform providing a clear path to cover exceeding 90% and will closely watch interest rates with a view to acting quickly on our borrowings should market conditions improve.

Given the current environment, we believe it is prudent to maintain our dividend level, though will be mindful of any further adverse impact that the many matters outwith our control may have.

The Board remains confident in the Group's prospects and I would personally like to thank shareholders for their support. We collectively are making a positive social impact through our committed backing of the care sector.

Malcolm Naish

Chairman 11 October 2022

* Further details on the EPRA and alternative performance measures quoted in this report are included in both the glossary and on pages 95 to 97.

Responsible investment in better care home real estate

We invest in ESG-compliant, purpose-built care home real estate commensurate with modern living standards. Our objective to deliver long-term sustainable returns is achieved through longterm leases, with inflation-linked annual growth, to trusted care providers. Underlying demand is backed by demographic trends, the demand/supply imbalance for modern care home places, and a diversified funding of care costs from both private and public sources.

Why we do it

We are advocates of the benefits that intelligently designed, purpose-built care homes can bring and we want more residents, care professionals, families and local communities to benefit from their positive social impact.

Our Investment Manager is a specialist who understands the operational challenges our tenants face on a daily basis when providing quality care, and is there to help them every step of the way.

Strategic pillars

Responsible investment underpins our strategy

To achieve our social purpose via responsible and sustainable investment

Our focus is on our social impact, allied with a firm commitment to environmental sustainability and good governance.

How we do it

Clearly defined house view on investible asset standards, both minimum and aspirational.
Stable and experienced team of sector experts.
Strong reputation and track record in completing transactions and fostering relationships.
Conviction to build a portfolio highly diversified by tenant, geography and end-user payment profile.
Collaborative approach to tenant relationships, inclusive of sharing knowledge, insight and best practice.
Regular asset visits and frequent dialogue with tenants at operational and senior management levels.
Data-led. Comprehensive collection and analysis of monthly asset data to consider performance and trends.
Long income visibility with inflation-linked annual growth.
Capital structuring focus on conservative gearing levels.
Advantages from non-cyclical sector, with portfolio construction and diversification further reducing volatility/risk.

2022 highlights

£223m acquisitions, including 18 home portfolio

34 tenantsants at 30 June 2022

4.2% like-for-like valuation growth

100% portfolio occupancy 95% rent collection

9/10 tenant satisfaction

At a Glance

Principled investment exclusively in welldesigned, purposebuilt care homes

Portfolio at 30 June 2022

1 98% of assets in the portfolio are subject to annual uplifts linked to inflation. The remaining homes have either five-yearly uplifts (linked to inflation) or fixed uplifts.

2 A further 269 beds will be added to the portfolio on completion of the four development sites.

Our portfolio

We have clear criteria for home design, quality and facilities to provide great environments for residents and care providers. We invest in homes the length and breadth of the UK, with portfolio diversification being key.

MSCI Region	Number of properties	Contracted rent (£m)	Market value (£m)
Yorkshire & The Humber	26	13.0	217.4
South East	13	8.5	158.0
North West	18	9.4	145.4
East Midlands	13	6.8	102.5
Scotland	8	4.2	69.2
West Midlands	7	4.1	65.8
South West	4	3.7	60.5
Eastern	5	2.6	46.2
Northern Ireland	4	1.6	21.4
North East	2	1.1	17.3
Wales	1	0.5	7.9
Total	101	55.5	911.6

1 = Number of properties in region

Targeting Tomorrow

Targeting Tomorrow is our Environmental, Social and Governance ('ESG') charter to ensure the social impact objective we launched with remains embedded for years to come. We take a responsible approach to every aspect of our business, including environmental sustainability and governance standards.

Targeting Tomorrow gives us the platform to work with shareholders, tenants and other stakeholders more effectively than ever to supply care home real estate that delivers tangible benefits.

We will shortly publish our inaugural report on our ESG activities which will provide further insight.

ESG PRINCIPLES

1. Responsible investment

As an investor we understand that our actions have influence. We use our platform to lead by example through embedding appropriate ESG considerations into our decision-making.

2. Responsible partnerships

We engage with all our stakeholders to drive the creation of economic, social and environmental value around our buildings and in wider society.

3. Responsible business

We will treat all stakeholders with respect and deal fairly in a manner consistent with how we would expect to be treated ourselves.

Environmental

EPC ratings1

92% A-B ratings 100% A-C ratings

Important measure of energy efficiency and a mandatory legislative rating.

BREEAM assessments

An additional independent rating providing improvement suggestions. Commissioned assessments for ten homes considered to be a representative sample of the portfolio.

Excellent & Very Good ratings have been received for five of the six homes for which ratings finalised to date.

Energy consumption data

Data volunteered by tenants for 40% of portfolio.

Provision in new leases to mandate data sharing.

Social

Wet-rooms

96%

Defining proxy for real estate quality and social impact.

National Comparative: 29%

M2 per resident 47m2

We assess this against peers and compare favourably.

Homes/beds created since launch with our backing

15/1,018

A further measure of our social impact in supporting the sector's transition to fit-for-purpose real estate.

Governance/Transparency

ESG committee established

Post year-end, the ESG committee was established, providing appropriate focus and impetus to ESG matters.

First GRESB submission

Data collected and submitted to GRESB (an industry standard real estate sector ESG benchmark), to aid transparency and obtain comparable benchmarking data on performance and trends.

Board diversity

Board composition is, and is expected to remain after planned changes, 40% female, surpassing the Hampton-Alexander review recommendations.

Our ESG commitments

We are gathering data to allow the setting of ambitious but realistic carbon targets. Social impact remains fundamental to us, and our modern real estate has sector-leading environmental ratings, however the bulk of emissions are 'scope 3' downstream as they relate to energy used by our tenants and their residents. We are working closely to understand this energy usage and to positively influence using our insight as part of our contribution to net zero.

Commitment	Status	Progress and insight
Responsible investment
Continue to provide better care home real estate which provides positive social impact to residents, their carers and local communities.		– No compromise on quality. – 100% of our homes are purpose-built and thoughtfully designed, with en suite wet rooms, sector-leading space per resident, facilities for staff and include social and outdoor spaces.
Support the sector's transition from poor real estate standards via long-term financial/ investment support for new developments.		15 new care homes (1,018 beds, £179 million committed) to fund new build care homes since launch.
Obtain data on the energy efficiency of our real estate in insightful and comparable ways.		BREEAM-in-use assessments commissioned on a representative sample of our portfolio. 10 assets selected, six assessments received with five of those scoring Excellent or Very Good with useful feedback/recommendations obtained. Assessments will be obtained for all subsequent acquisitions.
Obtain more data on energy consumption by tenants from our real estate. This will support our efforts as an engaged and influential landlord, as well as providing data for future disclosure, consistent with our transparency objectives.		Relevant and useful data from 40% of portfolio through collaboration and engagement with our tenants. "Green lease" provision included within standard lease terms. Data being assessed, feeds into GRESB, will inform/guide future actions.
Ensure ESG factors are embedded into the acquisition process and portfolio management.		Manager "house standard" process formalised with support of external consultants. Allows Manager to prepare a balanced scorecard of ESG factors for each potential investment asset, to be considered as part of all future acquisitions.
Net zero commitment.		Current priority is data gathering in respect of 'Scope 3' emissions. Anticipate a target to be set which is ahead of COP 26's 2050 goal.

Portfolio performance and UK care home investment market

The portfolio has outperformed the MSCI UK Annual Healthcare Property Index once again, in respect of the calendar year to 31 December 2021, with a portfolio total return of 10.5% relative to the Index's 9.6%. The portfolio's annualised total return since launch now stands at 11.1% while the portfolio's last five-year period has an annualised total return of 10.5% relative to 8.9% for the Index.

Rent collection for the year was 95%, and has measured 95% since March 2020 as the COVID-19 pandemic emerged. Our portfolio has shown robust performance in the face of the depressed occupancies and other trading challenges our tenants have encountered. We have seen some underperforming assets, typically reflecting our exposure to recently opened or new-build homes and growing tenants with a number of new homes. Startup losses during the pandemic have run beyond the ordinary "fill-up" period when a home is building occupancy and moving to mature trading, straining financial reserves at our tenants. We reaffirm our commitment

to supporting the sector's modernisation and will continue to hold a proportion of such assets in the portfolio recognising their investment case to provide long-term sustainable value.

Modern and ESG-compliant UK care homes as an investment asset class have continued to provide attractive returns with low volatility, as shown by the chart opposite and the data from MSCI on page 98. The risk premia relative to other "safe" asset classes, GP surgery funds whose rents are effectively 100% government backed, and the 15-year gilt rate, have remained steady until recent

months where the "risk-free" gilt rate has increased sharply. We have not yet observed valuation/yield softening in the section of the care home real estate market in which we invest and note the more significant yield impact on poorer quality care home real estate following the 2007-08 global financial crisis. The tailwind of stronger demand for modern stock may moderate any valuation response for our portfolio. This would be consistent with the low volatility in returns from the asset class experienced historically.

The portfolio's EPRA topped-up Net Initial Yield ('NIY') has been stable, at 5.82%

Health & social care update

We note opposite a number of areas which are prominent in our minds and those of our tenants:

Path to occupancy recovery

Occupancy levels in our homes are showing a steady and consistent improvement following the decline from the widespread embargoes during H1 22 due to the Omicron variant and its rate of spread. COVID-19 is now seen as a frustration in homes, rather than the trauma it has been.

Helping occupancy:

Visiting is "friendlier", with mask and testing requirements relaxed
Latent demand exists from delayed admissions (300k potential residents awaiting social worker assessment)
Vaccinations protecting residents, and boosters expected to become an annual/seasonal ritual
Homes have improved their online presence as more decisions are made using this medium
Embargoes, if arising, are sensibly restricted to floors/wings

Occupancy

compared with 5.83% at the start of the year, which reflects well the trends in market activity and pricing we have seen and are seeing.

Following a subdued 2020 and early 2021, market activity accelerated once more with a weight of capital and a number of participants eager to invest in high quality care home real estate. Participation from the larger European healthcare investors continues, as they seek higher yields than their home markets can offer, and their pursuit of the fit-for-purpose home types we have been advocating has accelerated as they complement their existing older portfolios.

H1 22 saw equity raises from UK and European healthcare funds, with proceeds being allocated to investment in care homes, primarily in the premium part of the sector in which we invest. Significant capital has also been made available to private funds which invest in the same. We welcome the demand and interest in the sector though would note we have declined to participate in a number of acquisition processes recently where we have not been willing to accept rental levels offered by vendors.

We are seeing a number of development opportunities coming to the market with enhanced environmental credentials such as BREEAM "Excellent" ratings. It is pleasing that the design aspects we have long advocated are now generally accepted in new homes, and developers and designers are now

taking this to the next level of excellence. We expect such opportunities to command premium pricing and, as always, we will carefully assess the sustainability of rental levels in their local markets in our considerations.

We comment on some of the "hot topic" issues facing the sector in the box below. An additional trend which could have a real impact in a short timescale is the potential for regulatory/legislative change in relation to environmental and social standards in respect of care home real estate which currently falls short. The most relevant current example is the authorities in Wales considering mandating Net-Zero/ low-carbon standards for real estate where residents receive public care funding. Our immediate impact will be on ensuring any new build homes we acquire will meet these, or anticipated future, requirements as our typical home already does. However, the wider challenge for the sector and other investors will be on the many (71%) not fitfor-purpose homes which are being used to deliver care to the majority of residents in the UK.

We report on portfolio management activities in more detail on pages 18 and 19.

Public funding of care

Consistency and clarity is still awaited, which is frustrating for operators. The National Insurance increase to direct funds to health and social care, swallowed largely by the NHS, has since been reversed.

Policies designed to remove the "lottery of care funding" are in some doubt also. The "Care cap" is a long awaited and complex plan to track an individual's care costs across their lifetime, capping when required to protect from the "catastrophic costs" described in the 2010/11 Dilnot Report. The testing and assessment of Local Authority 'Pilot' areas has already been pushed back, with the reasonable conclusion being that introduction of the policy, if adopted, would also be delayed.

The adequacy of both manpower to administer the policy, and the funding requirement, have been raised as concerns, resulting in some legitimately founded anticipation that the whole policy may find "the long grass" as the Government prioritises other workstreams.

Staffing pressures

Following admissions, staffing remains perhaps the biggest day-today headache, though solutions are being found. With access to EU staff restricted, many operators are taking advantage of Government Sponsorship Licences to bring nursing and senior care staff from countries such as the Philippines and India, where language and training are reasonably aligned with the UK.

We have seen some encouraging internal solutions from our tenants also, with more investment in training and development, as well as recognition through enhanced policies which reward loyalty and contribution.

Ensuring adequate staffing allows operators to grow occupancy.

Inflationary pressures

"Household costs" have been a relatively small part of the typical care home's expenditure, with staffing consuming the lion's share of turnover, however inflation will erode margins unless fees can keep pace. With recent reports of 10-20% rises in private fees to reflect staff/household inflationary pressures there is some indication that for our care homes this will be achievable, although public funding is potentially less likely to keep pace with this than private feepayers are. Feedback from tenants suggests that an excess in energy cost inflation would be passed onto residents through private fee increases.

Our Strategy

We create better homes to achieve a better standard of care

Our purpose to improve the standard of living for older people in the UK is achieved through our four strategic pillars as detailed in our business model on pages 6 and 7. You can read more about these over the next eight pages.

STRATEGIC PILLAR #1 To grow a robust portfolio

We are creating a portfolio of scale with a clear focus on the quality of real estate and diversification of income sources to provide a stable long-term platform for returns.

Significant portfolio growth

The Group's portfolio has historically been assembled in small increments, both by necessity, due to the relatively low number of assets which meet our investment quality criteria, and deliberately, as we have maintained a bias towards smaller, regional operators. In the current year a portfolio of homes was marketed by an institutional investor whose vehicle was at the end of its life. The Manager was familiar with those assets, having advised that vehicle on acquisition and management of many of the homes. The Group was ultimately successful in the acquisition of a diversified portfolio of 18 modern homes for c.£160 million, including costs, in December 2021 (a number of weeks later than hoped due to COVID-19 accessibility restrictions) and support from shareholders was secured via new equity issuance. Overall, £223 million (including costs) has been committed to 24 new assets during the year, growing the portfolio to 101, comprising 97 operational care homes and four development sites.

Three existing development sites reached practical completion, adding 206 brand new beds to their local markets and bringing total new homes supported by the Group's development commitments to 11 (749 beds), with four currently under construction which will provide a further 269 new beds.

Investment discipline maintained

In addition to the physical real estate, our investment appraisals remain focussed on (i) the local market and trading prospects for a home and (ii) sustainable rental levels for a home in that context. This approach has not changed and will continue to guide our assessment of long-term value during the competitive conditions we currently see.

Key metrics for acquisitions completed during the year were consistent with portfolio metrics at the start of the year, see table below.

EPRA topped-up NIY at

30 June 2021	5.83%
Blended NIY on acquisitions
during the year	5.64%
EPRA topped-up NIY at
30 June 2022	5.82%

The continued tightening of NIYs, relative to the increase in gilt yields (the traditional "risk-free" benchmark), of course may be suggestive that the top of the market may have been reached for this cycle. Whilst the weight of capital coveting fit-for-purpose assets counters that, the drop in spread/ yield gap between rental yields and cost of funding goes some way to discouraging new investment from us at this time.

The Manager's ESG House Standard was developed and adopted during the year, and will be used as a tool to ensure compliant assets are added to the portfolio.

Diversification

We continue to diversify the portfolio, most importantly increasing the number of tenants and mitigating risk from over-concentration on a small number of tenant groups. The Group now has 34 tenants, having grown from 28, and will increase to 36 following practical completion of the Group's development assets.

The largest tenant is unchanged from 2021, being Ideal Carehomes who operate 18 of the Group's homes and account for 15.7% of contractual rent as at 30 June 2022.

Underlying resident fees are balanced between private and public sources, with a deliberate bias towards the former. Census data from our tenants shows private sources contribute to 67% of fee revenue, with 49% being fully private and 18% from "top-up" payments where residents pay over and above that which the Local Authority funds for them. 33% of residents are wholly publicly funded.

Geographically, Yorkshire & the Humber remains the largest region by asset value, at 24%.

Our Strategy continued

STRATEGIC PILLAR #2

Sector specialist portfolio management that values relationships

The Investment Manager has deep experience within the sector and uses that specialism to engage effectively with our tenants, understanding the complexities inherent in the sector.

Positive returns

The portfolio total return has again outperformed the MSCI UK Annual Healthcare Property Index, with a total return for the calendar year to 31 December 2021 of 10.5 per cent relative to the Index's 9.6 per cent. This outperformance has occurred consistently since launch in 2013 (see chart opposite).

NAV total return also remains stable and consistent, at 8.1 per cent for the year to June 2022, and with an annualised 7.8 per cent since launch.

Underpinning these returns figures are quality assets with attractive long-term leases. Like-for-like rental growth of 4.6 per cent has been achieved with 3.8 per cent of this from annual rent reviews and the remainder from re-tenanting initiatives. Like-for-like valuation growth was 4.2 per cent driven by rent reviews, the demand for the asset class and the portfolio's stable trading performance.

Overall, the Group's portfolio value has increased by 33.1 per cent and the contractual rent roll by 34.6 per cent.

ahead of the relevant annual MSCI index (year to 31 December 2021)

MSCI UK Annual Healthcare Property Index Total Return

Target Healthcare REIT Portfolio Total Return

Resiliency through pandemic; trading outlook much improved

Rent collection measured 95% for the year, including amounts collected subsequent to the year-end, with a 95% collection record since the start of the pandemic in March 2020. This stable performance comes despite the significant operational challenges our tenants have faced through the pandemic, demonstrating the sustainable nature of our underlying rental income.

Resident occupancies are recovering following the Omicron wave in the first half of 2022 with steady growth since March of this year – see chart opposite. Our tenants continue to report strong enquiry levels and are now consistently converting these to admissions as restrictions have eased.

Rent cover at the portfolio level has been stable and should respond with the recovery in occupancy levels. We anticipate inflationary cost increases to largely be passed on to residents through fee increases, allowing rent covers to improve with occupancy.

The Manager has been supporting tenants, closely monitoring home performance and actively initiating changes where required. As well as protecting long-term value for shareholders, the Manager strives to ensure continuity of care for residents as a social priority, and is pleased to note that all portfolio initiatives have seen care provided throughout. Completed and ongoing initiatives are summarised in the box on page 19.

Occupancy chart

Jul 21 Sep 21 Aug 21 Nov 21 Oct 21 Dec 21 Feb 22 Jan 22 Apr 22 May 22 Mar 22 Jun 22 Jul 22 Aug 22 Sep 22

Tenant engagement and satisfaction

We remain committed to our role as an effective, supportive and engaged landlord. We once again invited our tenants to provide formal feedback via a survey which, alongside learnings from the many points of contact we have, is used to inform our approach. The survey returned positive quantitative results, and more usefully some qualitative feedback on how we may consider altering our interactions with tenants to recognise that no two tenants are the same.

In summary:

9/10 of responders agreed that working with Target was a positive experience (2021: 10/10)
9/10 of responders agreed that Target provides real estate that is a great working environment and helps deliver dignified care to residents (2021: 8/10)
10/10 of responders agreed that Target participates in sector events and appropriately shares knowledge

Resident satisfaction

Regulator (CQC in England) ratings are informative but limited. The Manager also monitors reviews on "Carehome.co.uk", a "Tripadvisor" style website for care homes, as a useful source of real-time feedback which is more focussed on the resident experience, and that of their loved ones.

The portfolio's current average rating is 9.3/10 with sufficient review volume and frequency to be considered a valuable data point for the quality of service experienced by residents.

Investing in sustainable relationships

Group of homes in Northern Ireland identified as likely to benefit from new management. Re-tenanting initiated and completed from large national to a smaller operator focused on the region.

Alternative tenants were lined-up for seven homes where the incumbent tenant faced financial challenges. Patient and disciplined response allowed full recovery of outstanding rent and uninterrupted care provision for residents.

Solutions proposed and agreed to re-tenant two of five homes allowing focus on the incumbent tenant's care geography and services and reducing liquidity strain.

Our Strategy continued

STRATEGIC PILLAR #3

Regular dividends for shareholders

Total dividends of 6.76 pence per share were declared and paid in respect of the year to 30 June 2022, an increase of 0.6 per cent on 2021, and reflecting a yield of 6.2 per cent based on the 30 June 2022 closing share price of 108.4 pence.

Earnings & dividend cover

Adjusted EPRA earnings per share is the key performance metric used in assessing recurring profitability levels. This reduced to 5.05 pence per share relative to dividends of 6.76 pence per share. Dividend cover on adjusted EPRA earnings was 72% for the year. Applying the more widely used EPRA earnings measure, dividend cover was 95%.

The three main drivers of reduced earnings level were:

Portfolio acquisition and equity issuance proceeds. Earnings dilution from cash drag occurred during the three-month acquisition process following the Group's £125 million associated equity issuance in September 2021. The 18 care home assets began generating rental income immediately upon acquisition on 17 December 2021.
Prudent rental income provisioning. As rent collection declined during 2022 following the Omicron wave of the pandemic, the Group prudently provided for an increased level of doubtful debts. Initiatives to successfully manage these positions have seen £1.1 million subsequently collected which has not been adjusted for in the year's results. The Manager is progressing further initiatives to move towards full rent collection across the portfolio.
Uninvested capital. At 30 June 2022 the Group had cash and undrawn debt awaiting investment of £105 million. £54 million of this is committed to developments or portfolio improvements and is awaiting drawdown, with £51 million remaining available. Had the spread level between investment yields and debt costs which existed through the Group's lifetime persisted, conversion of the Group's identified pipeline assets would have seen the Group fully geared and invested and generating earnings fully covering dividends.

However, the significant reduction in that spread (from c.250 bps to nil) impacts the Group's ability to invest available capital in immediately earnings-accretive assets at the current time. The Group is carefully assessing pipeline assets on a case-by-case basis with respect to wider market conditions, and is currently minded to retain a conservative buffer of uninvested capital as a defence against further market deterioration.

The combined effect of the above is that the long-planned progression to full investment at targeted gearing levels will be delayed, with the knock-on effect to also delay the Group's path to full dividend cover.

Total Returns

The attractive investment characteristics of the asset class has seen continued yield tightening and valuation increases. Whilst limiting earnings-accretive new investment, this has been a tailwind for valuation growth and returns from the existing portfolio.

EPRA NTA has increased 1.7% to 112.3 pence per share over the year. NAV total return for the year was 8.1%, with the portfolio's EPRA topped-up net initial yield ending the year stable at 5.82% from 5.83%.

Debt funding: More fixed interest rates and longer terms

The Group entered new long-term, fixed-rate facilities of £100 million with an existing lender during the year, increasing total debt available to £320 million.

This increased the weighted average term to maturity of the Group's facilities to 6.9 years at 30 June 2022 (2021: 4.8 years) and increased the quantum of the Group's drawn debt at fixed interest rates, being £180 million at 30 June 2022 (2021: £80 million).

The Group's weighted average cost (interestonly) of its drawn debt was 3.1%, reflecting the low-rate environment when these fixes were struck. In December 2021 when the most recent 15-year debt transaction completed, the relevant gilt reference was c.1% compared to c.4.5% today.

The Group retains flexibility on debt levels, with £140 million of revolving credit facilities which can be drawn/repaid in-line with capital requirements. The Group is currently reviewing the suitability of these facilities given the interest rate environment and outlook and anticipates increasing fixed-rate or hedged debt, subject to market conditions.

EPRA NTA per share (pence)

EPRA NTA per share has increased to 112.3 pence, primarily driven by an increase in property valuations. See the yield progression chart on page 15 for more context.

Earnings summary
	2022 (£m)	Movement	2021 (£m)
Rental income (excluding guaranteed uplifts)	49.8	+21%	41.2
Administrative expenses (including management fee)	(13.7)	+23%	(11.1)
Net financing costs	(6.6)	+38%	(4.8)
Interest from development funding	0.8	+33%	0.6
Adjusted EPRA earnings	30.2	+16%	26.0
Adjusted EPRA EPS (pence)	5.05	-7.5%	5.46
EPRA EPS (pence)	6.62	-7.5%	7.16
Adjusted EPRA cost ratio	27.1%	+50bps	26.6%
EPRA cost ratio	21.5%	-80bps	22.3%
Ongoing charges figure ('OCF')	1.51%	-4bps	1.55%

Phoenix Group

Our Strategy continued

STRATEGIC PILLAR #4

To achieve our social purpose

ESG principle

1. Responsible investment

As an investor we understand that our actions have influence. We use our platform to lead by example through embedding appropriate ESG considerations into our decision-making.

What this means for Target SDGs What we did in 2022 What we'll do in 2023 and beyond

Leading in social impact for care home real estate

– We understand the importance of maintaining a portfolio that supports the needs of tenants and residents, which in turn contributes to the long-term sustainability of social care infrastructure in the UK.

Energy and climate change: Responsible acquisitions and portfolio management

Social

Energy

project

Communities

of care

Tenants

as at year-end – 96% wet-rooms

outdoor space

– 100% A-C EPC ratings

– Homes provide space of 47m2

– 24 homes acquired, 1,632 resident spaces – Development commitments for 269 new beds

– All real estate has generous social and useable

– Manager created and adopted "house standard" to formally incorporate minimum and aspirational

ESG standards into investment appraisal – Representative sample of BREEAM-in use ratings substantially Excellent and Very Good – Increased data collection from our tenants on energy usage equating to 40% of the portfolio – Target Fund Managers supports the Edinburgh Science Climate and Sustainability programme being a founding pledger of its Mission Net Zero

– 9/10 "positive experience" satisfaction score

– Re-tenanted homes with new tenants committed to continuing care provision where required – Worked constructively with tenants in rental arrears to deliver positive solutions to maintain continuity

– Undertook director recruitment process resulting in Vince Niblett and Amanda Thompsell being

– Investment Manager successfully retained position as a signatory to the FRC Stewardship Code – £13.2 million taxation directly paid to the UK government by way of VAT and stamp duty land taxes. Dividends paid of £40.0 million are assessed

Governance and transparency

for tax upon reaching shareholders

appointed during the year

per resident

Social

Energy

Tenants

Communities

– Continue to advocate for quality real estate – Continue to fund new homes, modernising

– Assess BREEAM recommendations and initiate improvements where aligned with long-term value

– Manager to use toolkit and resources to progress

– Focus on supporting our tenants with COVID-19 recovery, considering further real estate design

– Invest in fully understanding and responding to feedback from tenant survey

– Complete portfolio initiatives identified which will benefit long-term care continuity – Continue to facilitate tenant interaction and learning sessions as COVID-19 restrictions ease

– Complete Board succession plan by appointing

– To prepare and publish enhanced reporting suite,

– GRESB reporting following data collection

– Comprehensive sustainability reporting, inclusive of EPRA measures

– Increase proportion of leases with "green" reporting provisions to gather more data on energy consumption patterns from our tenants for use in decision-making

the sector's real estate

its net zero journey

enhancements in response

Governance and transparency

two new Directors

inclusive of:

process

Energy efficiency is a specific consideration in our investment analysis for acquisitions, developments and portfolio management decisions.
In our role as a responsible landlord we are committed to helping our tenants identify and implement energy reduction and efficiency measures.

2. Responsible partnerships

We engage with all our stakeholders to drive the creation of economic, social and environmental value around our buildings and in wider society.

3. Responsible business

We will treat all stakeholders with respect and deal fairly in a manner consistent with how we would expect to be treated ourselves.

Tenant selection, engagement and collaboration

As a responsible, proactive landlord we prioritise good, open relationships with our tenants.
We make sure that we solicit, assess and respond to feedback on our portfolio and our
behaviours to ensure carers are respected and residents are cared for with dignity. – We select tenants who share our care ethos and can deliver operationally.

Communities and society

We fully appreciate the vital role that care homes play in every community, and take decisions
in the best interest of maintaining continuity of care for residents.
Advocate for and support the sector.

Governance and transparency

We uphold the highest ethical standards and adhere to best practice in every aspect of our business.
Our governance and behaviour treat transparency for all of our stakeholders as core.

People, culture and wellbeing

– We encourage employment practices across our key service providers that reflect our core values, with a focus on wellbeing, fairness and opportunity for all.

Leading in social impact for care home real estate

developments and portfolio management decisions.

Tenant selection, engagement and collaboration

Communities and society

– Advocate for and support the sector.

Governance and transparency

People, culture and wellbeing

our business.

and implement energy reduction and efficiency measures.

of social care infrastructure in the UK.

– We understand the importance of maintaining a portfolio that supports the needs of tenants and residents, which in turn contributes to the long-term sustainability

Energy and climate change: Responsible acquisitions and portfolio management – Energy efficiency is a specific consideration in our investment analysis for acquisitions,

– As a responsible, proactive landlord we prioritise good, open relationships with our tenants. – We make sure that we solicit, assess and respond to feedback on our portfolio and our behaviours to ensure carers are respected and residents are cared for with dignity.

– We fully appreciate the vital role that care homes play in every community, and take decisions

– We uphold the highest ethical standards and adhere to best practice in every aspect of

– Our governance and behaviour treat transparency for all of our stakeholders as core.

– We encourage employment practices across our key service providers that reflect our

core values, with a focus on wellbeing, fairness and opportunity for all.

– We select tenants who share our care ethos and can deliver operationally.

in the best interest of maintaining continuity of care for residents.

– In our role as a responsible landlord we are committed to helping our tenants identify

Strategic Report Corporate Governance Financial Statements Additional Information

Social – 24 homes acquired, 1,632 resident spaces – Development commitments for 269 new beds as at year-end – 96% wet-rooms – Homes provide space of 47m2 per resident – All real estate has generous social and useable outdoor space	Social – Continue to advocate for quality real estate – Continue to fund new homes, modernising the sector's real estate
Energy – 100% A-C EPC ratings – Manager created and adopted "house standard" to formally incorporate minimum and aspirational ESG standards into investment appraisal – Representative sample of BREEAM-in use ratings substantially Excellent and Very Good – Increased data collection from our tenants on energy usage equating to 40% of the portfolio – Target Fund Managers supports the Edinburgh Science Climate and Sustainability programme being a founding pledger of its Mission Net Zero project	Energy – Assess BREEAM recommendations and initiate improvements where aligned with long-term value – Increase proportion of leases with "green" reporting provisions to gather more data on energy consumption patterns from our tenants for use in decision-making – Manager to use toolkit and resources to progress its net zero journey
Tenants – 9/10 "positive experience" satisfaction score	Tenants – Focus on supporting our tenants with COVID-19 recovery, considering further real estate design enhancements in response – Invest in fully understanding and responding to feedback from tenant survey
Communities – Re-tenanted homes with new tenants committed to continuing care provision where required – Worked constructively with tenants in rental arrears to deliver positive solutions to maintain continuity of care	Communities – Complete portfolio initiatives identified which will benefit long-term care continuity – Continue to facilitate tenant interaction and learning sessions as COVID-19 restrictions ease
Governance and transparency – Undertook director recruitment process resulting in Vince Niblett and Amanda Thompsell being appointed during the year – Investment Manager successfully retained position	Governance and transparency – Complete Board succession plan by appointing two new Directors – To prepare and publish enhanced reporting suite, inclusive of:

GRESB reporting following data collection process
Comprehensive sustainability reporting, inclusive of EPRA measures

What this means for Target SDGs What we did in 2022 What we'll do in 2023 and beyond

as a signatory to the FRC Stewardship Code
£13.2 million taxation directly paid to the UK government by way of VAT and stamp duty land taxes. Dividends paid of £40.0 million are assessed for tax upon reaching shareholders
-

Risk Report

Principal and emerging risks and risk management

Risk	Description of risk and factors affecting risk rating	Mitigation	Risk rating & change
Poor performance of assets	There is a risk that a tenant's business could become unsustainable if it fails to trade successfully. This could lead to a loss of income for the Group and an adverse impact on the Group's results and shareholder returns. The strategy of investing in new purpose-built care homes could lead to additional fill-up risk and there may be a limited amount of time that small regional operators can fund start-up losses.	The Investment Manager focuses on tenant diversification across the portfolio and, considering the local market dynamics for each home, focuses on ensuring that rents are set at sustainable levels. Rent deposits or other guarantees are sought, where appropriate, to provide additional security for the Group. The Investment Manager has ongoing engagement with the Group's tenants to proactively assist and monitor performance.	High
Adverse interest rate fluctuations / debt covenant compliance	Adverse interest rate fluctuations will increase the cost of the Group's variable rate debt facilities; limit borrowing capacity; adversely impact property valuations; and be detrimental to the Group's overall returns.	The Group has a conservative gearing strategy, although net gearing is anticipated to increase as the Group nears full investment. Loan covenants and liquidity levels are closely monitored for compliance and headroom. The Group has fixed interest costs on £180 million of borrowings as at 30 June 2022.	High
High inflationary environment (emerging)	An increase in the UK inflation rate to a level above the rent review caps in place across the portfolio's long-term leases may result in a real term decrease in the Group's income and be detrimental to its performance. In addition, cost increases for tenants, particularly in relation to staffing and utilities, may erode their profitability and rent cover unless their revenue increases accordingly.	The Group's portfolio includes inflation linked leases, with primarily annual upwards only rent reviews within a cap and collar. The Manager is monitoring tenant performance, including whether average weekly fees paid by the underlying diversified mix of publicly funded and private-fee paying residents are growing in line with inflation.	High NEW
Development costs (emerging)	The high inflationary environment, particularly for building materials and staff, combined with supply chain difficulties, may result in an increased risk that the developers of contracted developments do not fulfil their obligations and/or may increase the cost of new development opportunities.	The Group is not significantly exposed to development risk, with forward funded acquisitions being developed under fixed price contracts, with the Investment Manager having considered both the financial strength of the developer and the ability of the developer's profit to absorb any cost overruns.	Medium NEW
Pandemic reduces demand for care home beds	As a result of the COVID-19 pandemic, there is a risk that overall demand for care home beds is reduced causing asset performance to fall below expectations. While demographic shifts and the realities of needs-based demand remain intact, occupancy across the sector remains below pre-pandemic levels and the emergence of new variants of COVID-19 remains a possibility.	The Group is committed to investing in high quality real estate with high quality operators. These assets are expected to experience demand ahead of the sector average while in the wider market a large number of care homes without fit-for-purpose facilities are expected to close. A trend of improving occupancy rates across the portfolio has been noted in recent times.	Medium
ESG and climate change	A change in climate, such as an increased risk of local or coastal flooding, or a change in tenant/investor demands or regulatory requirements for properties which meet certain environmental criteria, such as integral heat pumps, may result in a fall in demand for the Group's properties, reducing rental income and/or property valuations.	The Group is committed to investing in high quality real estate with high quality operators. The portfolio's EPC and BREEAM in-use ratings suggest the portfolio is well positioned to meet future requirements/ expectations. The Investment Manager has introduced a house standard to ensure ESG factors are fully considered during the acquisition process.	Medium NEW

The Company's risk matrix is reviewed regularly by the Board as detailed on page 45. Emerging risks are identified though regular discussion at Board meetings of matters relevant to the Company and the sectors in which it operates; including matters that may impact on the underlying tenant operators. In addition, the Board holds an annual two-day strategy meeting which includes presentations from relevant external parties to ensure that the Board are fully briefed on relevant matters. At the strategy meeting, principal and emerging risks are discussed and reviewed to ensure that they have all been appropriately identified and, where necessary, addressed.

The detailed consideration of the Company's viability and its continuation as a going concern, including sensitivity analysis to address the appropriate risks, is set out on pages 34 and 35.

Promoting the success of Target Healthcare REIT plc

The Board considers that it has made decisions during the year which will promote the success of the Group for the benefit of its members as a whole.

This section, which serves as the Company's section 172 statement, explains how the Directors have had regard to the matters set out in section 172 (1) (a)-(f) of the Companies Act 2006 for the financial year to 30 June 2022, taking into account the likely long-term consequences of decisions and the need to foster relationships with all stakeholders in accordance with the AIC Code.

	a) The likely consequences of any decision in the long term	Our investment approach is long-term with an average lease length of 27.2 years. We believe this is the most responsible approach to provide stability and sustainability to tenants and key stakeholders. Therefore, most decisions require consideration of long-term consequences, from determining a sustainable rent level and the right tenant partner for each investment, to considering the impact of debt and key contracts with service providers on the recurring earnings which support dividends to shareholders.
	b) The interests of the Company's employees	The Company is externally managed and therefore has no employees.
	c) The need to foster the Company's business relationships with suppliers, customers and others	As a REIT with no employees, the Board works in close partnership with the Manager, which runs the Group's operations and portfolio within parameters set by the Board and subject to appropriate oversight. The Manager has deep relationships with tenants, the wider care home sector, and many of the Group's other suppliers. These are set out in more detail in the following table.
	d) The impact of the Company's operations on the community and the environment	The Board is confident the Group's approach to investing in a sensitive sector is responsible with regard to social and environmental impact. This is set out in more detail in the community and the environment section of the table on the following page.
	e) The desirability of the Company maintaining a reputation for high standards of business conduct	The Board requires high standards of itself, service providers and stakeholders. The Group's purpose and investment objectives dictate that these standards are met in order to retain credibility. The ethos and tone is set by the Board and the Manager.
f)	The need to act fairly as between members of the Company	The Board encourages an active dialogue with shareholders to ensure effective communication, either directly or via its broker and/or Manager. The interests of all shareholders are considered when issuing new shares.

The significant transactions where the interests of stakeholders were actively considered by the Board during the year were:

Dividends paid

The Board recognised the importance of dividends to its shareholders and, after careful analysis of the Group's forecast cash position and expected rental collection, concluded that continuing dividend payments at the level announced in the Annual Report 2021 remained in the interests of all stakeholders.

Ongoing investment and asset management activity

The Group acquired a significant portfolio in December 2021, consisting of 18 operational care homes of which the Investment Manager had unparalleled knowledge. This acquisition expanded the Group's portfolio of high-quality real estate, the vast majority of which benefitted from full wet-rooms, operated by eight tenants, three of which were new to the Group.

The re-tenanting of four homes in Northern Ireland was completed in the year, resulting in a move from a large, national operator to a smaller operator more focussed in that local market, with the Group receiving a surrender premium from the outgoing tenant. Stakeholders benefitted from (i) a positive net financial effect, following agreed capex which will improve each of the homes; and (ii) the addition of an established regional operator.

Capital financing

The Company issued £125 million of ordinary shares, at a premium to NAV, in September 2021. The equity raised was used to temporarily repay some of the Group's loan facilities whilst it awaited investment before being utilised primarily to finance the portfolio acquisition in December 2021.

The Group also increased its loan facilities with Phoenix Group, increasing the existing £50 million 10-year facility to an aggregate of £150 million with a weighted term to maturity of 12 years, on terms that are expected to be beneficial to significant stakeholders over the duration of the facilities.

Director appointments

During the year, as part of the Board succession plan, Mr Niblett and Dr Thompsell were appointed as Directors. Mr Niblett's significant financial experience and expertise and Dr Thompsell's knowledge of healthcare and care homes is expected to benefit all stakeholders over the period of their respective appointments.

Subsequent to the year end, the Board have appointed one Director and have identified another who is expected to be appointed early in the following calendar year.

Stakeholders

The Company is a REIT and has no executive directors or employees and is governed by the Board of Directors. Its main stakeholders are shareholders, tenants and their underlying residents, debt providers, the Investment Manager, other service providers and the community and the environment. The Board considers the long-term consequences of its decisions on its stakeholders to ensure the long term sustainability of the Company.

Shareholders	Shareholders are key stakeholders and the Board proactively seeks the views of its shareholders and places great importance on communication with them.
	The Board reviews the detail of significant shareholders and recent movements at each Board Meeting and receives regular reports from the Investment Manager and Broker on the views of shareholders, and prospective shareholders, as well as updates on general market trends and expectations. The Chairman and other Directors make themselves available to meet shareholders when required to discuss the Group's business and address shareholder queries. Following disruption during the pandemic, the Directors were pleased to be able to return to holding the AGM in person, whilst also retaining the ability for any questions to be raised with the Board by email in advance of the meeting.
	The Company and Investment Manager also provide regular updates to shareholders and the market through the Annual Report, Interim Report, regular RNS announcements (including the quarterly NAV), quarterly investor reports and the Company's website. The Investment Manager intends to hold a results presentation on the day of publication of the Annual Report and will also meet with analysts and members of the financial press.
Tenants and underlying residents	As set out in more detail on pages 18 and 19, the Investment Manager liaises closely with tenants to understand their needs, and those of their underlying residents, through visits to properties and regular communication with both care home personnel and senior management of the tenant operators. The effectiveness of this engagement is assessed through an annual survey.
	The Investment Manager also receives, and analyses, management information provided by each tenant at least quarterly and regularly monitors the CQC, or equivalent, rating for each home and any online reviews, such as carehome.co.uk. Any significant matters are discussed with the tenant and included within the Board reporting.
Debt providers	The Group has term loan and revolving credit facilities with the Royal Bank of Scotland plc, HSBC Bank plc and Phoenix Group (see Note 14 to the Consolidated Financial Statements for more information). The Company maintains a positive working relationship with each of its lenders and provides regular updates, at least quarterly, on portfolio activity and compliance with its loan covenants in relation to each loan facility.
Investment Manager	The Investment Manager has responsibility for the day-to-day management of the Group pursuant to the Investment Management Agreement. The Board, and its committees, are in regular communication with the Investment Manager and receive formal presentations at every Board Meeting to aid its oversight of the Group's activities and the formulation of its ongoing strategy.
	The Board, through the Management Engagement Committee, formally reviews the performance of the Investment Manager, the terms of its appointment and the quality of the other services provided at least annually. Further details on this process and the conclusions reached in relation to the year ended 30 June 2022 are contained on page 41.
Other service providers	The Board, through the Management Engagement Committee, formally reviews the performance of each of its significant service providers at least annually. The reviews will include the Company's legal advisers, brokers, tax advisers, auditors, depositary, valuers, company secretary, insurance broker, surveyors and registrar. The purpose of the review is to ensure that the quality of the service provided remains of the standard expected by the Board and that overall costs and other contractual arrangements remain in the interests of the Group and other significant stakeholders. The Investment Manager also reports regularly to the Board on these relationships.
	The significant other service providers, particularly the Group's legal advisers and brokers, are invited to attend Board Meetings and report directly to the Directors where appropriate.
Community and the environment	The Group's principal non-financial objective is to generate a positive social impact for the end-users of its real estate. Investment decisions are made based on the fundamental premise that the real estate is suitable for its residents, the staff who care for them, and their friends, families and local communities, both on original acquisition and for the long-term.
	Environmental considerations are an integral part of the acquisition and portfolio management process, given the strategy of only acquiring modern buildings which benchmark well from an energy efficiency aspect. The Group's ESG strategy is currently prioritising the gathering of useful energy/consumption data on our portfolio which will be used to align the portfolio appropriately with benchmarks over the medium and longer term.

Board of Directors

Our experienced and knowledgeable Board are responsible for the effective stewardship of the Company.

MALCOLM NAISH GORDON COULL ALISON FYFE VINCE NIBLETT DR AMANDA THOMPSELL

Independent Non-Executive Chairman

Independent Non-Executive Director and Senior Independent Director

Mr Naish has over 45 years of real estate experience, having qualified as a Chartered Surveyor in 1976, most recently from his role as Head of Property at Scottish Widows Investment Partnership ('SWIP') from 2007 to 2012 where he had responsibility for a multi-billion pound portfolio of commercial property assets.

Mr Naish was chairman of the Scottish Property Federation for 2010/11 and holds a number of advisory roles in the private and charity sectors.

Mr Coull served as Chair of the Audit Committee from the Group's launch in 2013 until November 2021, before being appointed as the Company's Senior Independent Director. He has Board experience as a former non-executive director of Cornelian Asset Managers group until early 2020 and as a former member of the audit committee of the Universities Superannuation scheme, one of the UK's largest pension funds.

Mr Coull is a qualified chartered accountant and, prior to his retirement in 2011, was a senior partner in the financial services practice of Ernst & Young LLP. As an audit and advisory partner he specialised in asset management, working with a range of asset managers and their funds, both in the UK and Europe.

Independent Non-Executive Director and Chair of Nomination and Remuneration Committees

Independent Non-Executive Director and Chair of Audit

Mr Niblett has many years of financial and commercial experience having been the Global Managing Partner Audit for Deloitte. He held a number of senior leadership roles within Deloitte including as a member of the UK Board of Partners and of the Global Executive Group and the UK Executive Group before his retirement from Deloitte in May 2015. During his career at Deloitte, Mr Niblett served some of the firm's most significant public company clients, working with them on commercial and strategic issues as well as providing audit services. Mr Niblett is an independent nonexecutive director and chairman of the audit committee of Forterra plc and an independent non-executive director and senior independent director of Big Yellow Group plc. He also serves as a trustee of the Ruth Strauss Foundation.

Independent Non-Executive

for a further five years.

of Psychiatrists.

Audit Committee ESG Committee Investment Committee Management Engagement

Committee Nomination Committee Remuneration Committee

Dr Thompsell is the National Specialist Advisor: Older People's Mental Health at NHS England, a member of the advisory board to the Journal of Dementia Care and a Medical Member of the First Tier Tribunal at the UK Ministry of Justice. She is also the previous chair of the Faculty of Old Age Psychiatry of the Royal College

Dr Thompsell trained and originally practised as a GP before switching to working in old age hospital medicine, and then retraining in old age psychiatry. She has significant clinical experience of all aspects of caring for older people and has held a number of clinical and national leadership roles allowing her to develop a comprehensive knowledge of the care home sector. This included 17 years at the South London and Maudsley NHS Foundation Trust, where she led a multidisciplinary team supporting care homes for seven years and was the clinical lead for long-stay older people's mental health unit

Director

Committee

Committee Nomination Committee Remuneration Committee

Ms Fyfe is a highly experienced property professional with 35 years of experience in surveying, banking and property finance. Having trained and worked as a commercial surveyor with Knight Frank in both London and Edinburgh, she joined the Royal Bank of Scotland in 1996 to specialise in property finance. Over a period of 19 years with the bank she fulfilled several senior property finance roles, ultimately serving for five years as Head of Real Estate Restructuring in Scotland before leaving the bank in 2015. She has subsequently acted as a director of a number of companies in the property and debt finance sectors whilst also continuing to undertake property finance consultancy work. In August 2021, she was elected as a Governing Board Member of Hillcrest Homes (Scotland).

Ms Fyfe is a member of the Royal Institution of Chartered Surveyors, a member of the Investment Property Forum and a former Policy Board member of the Scottish Property Federation.

Committee

Date of appointment

Remuneration Committee

30 January 2013	30 January 2013	1 May 2020
Country of residence
UK	UK	UK
Independent
Yes	Yes	Yes
Other public company directorships
None	None	None

Committee membership
Investment Committee (Chair) Management Engagement Committee (Chair) Audit Committee ESG Committee Nomination Committee	Audit Committee ESG Committee Investment Committee Management Engagement Committee Nomination Committee	Remuneration Committee (Chair) Nomination Committee (Chair) ESG Committee (Chair) Audit Committee Investment Committee Management Engagement

Remuneration Committee

Independent Non-Executive

Mr Naish has chaired the Company since its launch in 2013, and also has listed Company Board experience via his previous roles as a non-executive director of GCP Student Living plc and as chairman of Ground Rents Income Fund plc. Mr Naish has over 45 years of real estate experience, having qualified as a Chartered Surveyor in 1976, most recently from his role as Head of Property at Scottish Widows Investment Partnership ('SWIP') from 2007 to 2012 where he had responsibility for a multi-billion pound portfolio of commercial property assets. Mr Naish was chairman of the Scottish Property Federation for 2010/11 and holds a number of advisory roles in the private and

Independent Non-Executive Director and Senior Independent

Independent Non-Executive Director and Chair of Nomination and Remuneration Committees

Ms Fyfe is a member of the Royal Institution of Chartered Surveyors, a member of the Investment Property Forum and a former Policy Board member of the Scottish Property Federation.

30 January 2013 30 January 2013 1 May 2020 25 August 2021 1 February 2022

UK UK UK UK UK

Yes Yes Yes Yes Yes

Remuneration Committee (Chair) Nomination Committee (Chair) ESG Committee (Chair) Audit Committee Investment Committee Management Engagement

None None None Big Yellow Group plc

Committee

Director

pension funds.

Audit Committee ESG Committee Investment Committee Management Engagement

Committee Nomination Committee Remuneration Committee

Chairman

charity sectors.

Date of appointment

Country of residence

Committee membership Investment Committee (Chair) Management Engagement Committee (Chair) Audit Committee ESG Committee Nomination Committee Remuneration Committee

Other public company directorships

Independent

Independent Non-Executive Director and Chair of Audit Committee

MALCOLM NAISH GORDON COULL ALISON FYFE VINCE NIBLETT DR AMANDA THOMPSELL

Independent Non-Executive Director

Mr Niblett is an independent nonexecutive director and chairman of the audit committee of Forterra plc and an independent non-executive director and senior independent director of Big Yellow Group plc. He also serves as a trustee of the Ruth Strauss Foundation.

RICHARD COTTON	MICHAEL BRODTMAN
Independent Non-Executive	Independent Non-Executive

Changes expected subsequent to year end:

Director

Mr Cotton has over 40 years of experience in the property sector and headed the real estate corporate finance team at JP Morgan Cazenove until April 2009. Subsequently he was a Managing Director of Forum Partners and Chairman of Centurion Properties.

He has wide corporate experience as a former nonexecutive director of Hansteen plc and including advisory roles with Lloyds Bank and Transport for London.

Mr Cotton is currently the Chairman of Helical plc and a consultant to Big Yellow Group plc, where he served as a nonexecutive director from 2012 until 2022.

Independent Non-Executive Director

Mr Brodtman has extensive knowledge of the property sector. He worked for global property advisers CBRE for over 40 years, retiring as chairman of the UK Advisory division in June 2022. He led the firm's Valuation department for over 20 years, and served on its Executive Board and Operating Committee, respectively responsible for strategic direction and day-to-day management.

He is a Fellow of the Royal Institution of Chartered Surveyors, and has been extensively involved with the RICS throughout his professional career. He was formerly a member of the Policy Committee of the British Property Federation, the RICS Global Valuation Professional Board and the Bank of England Commercial Property Forum.

Mr Brodtman has further Board experience as a former nonexecutive director of Investment Property Databank and housing association Places for People. He is keenly interested in the healthcare sector, with relevant experience from his role as a Trustee of Jewish Care, which provides health and social care services for London's Jewish Community, including ten care homes with some 500 residents.

Effective date of appointment Expected date of appointment

1 November 2022 1 January 2023

Audit Committee (Chair) ESG Committee Investment Committee Management Engagement Committee Nomination Committee Remuneration Committee

Forterra plc

Audit Committee ESG Committee Investment Committee Management Engagement Committee Nomination Committee Remuneration Committee

None

Investment Manager

Experts in strategic, responsible investment

The Investment Manager

The Group has appointed Target Fund Managers Limited ('Target' or the 'Investment Manager') as its investment manager pursuant to the Investment Management Agreement. The Investment Manager is a limited company which is authorised and regulated by the FCA and has the responsibility for the day-to-day management of the Group and advises the Group on the acquisition of its investment portfolio and on the development, management and disposal of UK care homes and other healthcare assets in the portfolio. It comprises a team of experienced individuals with expertise in the operation of and investment in healthcare property assets.

Alternative Investment Fund Managers Directive ('AIFMD')

The Board has appointed Target as the Group's AIFM and Target has received FCA approval to act as AIFM of the Group. An additional requirement of the AIFMD is for the Group to appoint a depositary, which oversees the property transactions and cash arrangements and other AIFMD required depositary responsibilities. The Board has appointed IQ EQ Depositary Company (UK) Limited to act as the Company's depositary.

Key personnel of the Investment Manager

The key personnel who are responsible for managing the Group's activities are:

Strategic Report Corporate Governance Financial Statements Additional Information

Kenneth MacKenzie MA CA

Kenneth MacKenzie is the founder and Chief Executive of Target. He is a Chartered Accountant with over 40 years of business leadership experience with the last sixteen in healthcare. In addition to his responsibilities as Target's chief executive, Kenneth leads the creation and management of Target's client funds and oversees fundraising and investor liaison for the Group. In 2005, he led the acquisition of Independent Living Services ('ILS'), Scotland's largest independent domiciliary care provider. Kenneth grew this business by acquisition and put in place a new senior management team before exiting via a disposal to a private equity house. Prior to his involvement with ILS, Kenneth negotiated the proposed acquisition of a UK independent living business in a JV with the large US care home operator, Sunrise Senior Living. Prior to his involvement in the healthcare sector, Kenneth has owned businesses in the publishing, IT, shipping and accountancy sectors and he holds a number of pro-bono charitable roles.

John Flannelly BAcc FCA

John Flannelly is Head of Investment at Target. He is a Chartered Accountant with over 20 years' experience, the last sixteen of which have been in real estate investment management. He has primary responsibility for investment activity across the Target business. John has been involved in the appraisal of several hundred care home opportunities resulting in the acquisition of circa 100 properties for those client funds. Prior to joining Target, during his time as investment director for an institutional investor, John held board positions at a UK top-10 care home operator and a care home development business. John started his career at Arthur Andersen where he worked on audits, financial due diligence and corporate finance projects before moving to the Bank of Scotland initially to structure finance packages for management buy-outs and latterly to a role in real estate investment management.

Andrew Brown

Andrew Brown is Head of Healthcare at Target. His primary responsibilities include inspecting properties owned by Target's client funds as well as prospective acquisitions during due diligence. Target's in-house demographic and market analysis is performed by his team. Andrew has spent most of his life in the senior care sector. Prior to his current role, he and his family developed one of the largest and most unique continuing care retirement communities in the UK, Auchlochan Trust. Andrew has played the role of developer, builder and operator of care homes resulting in a community of approximately 350 care beds, almost 100 retirement properties and a staff of over 300. These facilities included both residential care homes and nursing homes and Andrew was directly responsible for operations. Auchlochan Trust was also involved in Trinity Care plc as an investor.

Scott Steven MA

Scott Steven is Head of Asset Management at Target. Scott joined Target in 2017 from Lloyds Banking Group. Prior to joining Target, Scott had been responsible for a portfolio of Lloyds Banking Group's loans to large property groups, including care home owners and operators. During 2018, Scott took over the Head of Asset Management role at Target, and holds responsibility for tenant engagement and portfolio decisionmaking with a team of healthcare and asset management professionals.

Gordon Bland BAcc CA

Gordon Bland is Finance Director at Target. He is a Chartered Accountant with extensive experience of financial reporting within the asset management industry. He provides financial input to the strategic and commercial activities of the senior team, and leads the finance function where his key responsibilities include: financial planning and analysis; risk management; ownership of relationships with debt providers, Treasury services; and financial reporting to Shareholders. Gordon previously worked at PricewaterhouseCoopers for almost ten years, serving asset management and financial services clients in the UK, Canada and Australia.

Donald Cameron BCom CA

Donald Cameron is Company Secretary and Director of Financial Reporting at Target. He is a Chartered Accountant with more than sixteen years' experience of financial reporting and company secretarial services within the closed-ended investment company sector. Having originally qualified with Deloitte LLP, he then worked for over ten years in the Investment Trust Company Secretarial team at F&C Asset Management, acting for both property and equity investment companies. He is responsible for providing company secretarial services to the Board and for statutory financial reporting. He joined Target in 2019, having provided similar services to the Group for over three years whilst working for Maitland Group, a third-party provider of corporate secretarial and administration services.

Directors' Report

The Directors present their report, along with the financial statements of the Group and Company on pages 58 to 88, for the year ended 30 June 2022.

The Directors consider that, following advice from the Audit Committee, the Annual Report and Consolidated Financial Statements taken as a whole are fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position, performance, business model and strategy. The Audit Committee has reviewed the Annual Report and Consolidated Financial Statements for the purpose of this assessment. In reaching this conclusion, the Directors have assumed that the reader of the Annual Report and Consolidated Financial Statements would have a reasonable level of knowledge of the investment industry in general and Real Estate Investment Trusts in particular. The outlook for the Group can be found in the Chairman's Statement on pages 4 and 5 and the Investment Manager's Report on pages 14 and 15. Principal and emerging risks and uncertainties can be found on pages 24 and 25 with further information in Note 17 to the Consolidated Financial Statements.

Results and Dividends

The results for the year are set out in the following Consolidated Financial Statements. The Group has paid four quarterly interim dividends, each of 1.69 pence per share, to shareholders in relation to the year ended 30 June 2022. Details of the dividends paid are set out in Note 7 to the Consolidated Financial Statements, and a breakdown of the distributions paid analysed between Property Income Distributions ('PID's') and Ordinary Dividends are provided on page 93.

The Company

The Company is registered as a Public Limited Company in terms of the Companies Act 2006 (Registered number: 11990238) and is an investment company under section 833 of the Companies Act 2006.

The Group carries on business as a Real Estate Investment Trust and has been approved as such by HM Revenue & Customs ('HMRC'), subject to it continuing to meet the relevant eligibility conditions and ongoing requirements. As a result, the profits of the Group's property rental business, comprising both income and capital gains, are exempt from UK taxation. The Company intends to conduct its affairs so as to enable it to continue to comply with the requirements.

The Target Healthcare REIT group was originally established in March 2013 and, following a scheme of arrangement to introduce a parent company to the Group that was incorporated in the United Kingdom, the Company became the parent company of the Group in August 2019. The Company's shares have been admitted to the premium segment of the Official List of the Financial Conduct Authority and to trading on the Main Market of the London Stock Exchange. The Company became a constituent of the FTSE-250 Index with effect from 20 June 2022.

The Company holds a number of wholly-owned subsidiaries, both directly and indirectly, details of which are set out in Note 12 to the Consolidated Financial Statements and Note 3 to the Company Financial Statements. These subsidiary companies hold the majority of the Group's investment properties and loan facilities.

The Company is a member of the Association of Investment Companies (the 'AIC') and the European Public Real Estate Association ('EPRA').

Investment Objective

The Group's investment objective is to provide shareholders with an attractive level of income together with the potential for capital and income growth from investing in a diversified portfolio of freehold and long leasehold care homes that are let to care home operators; and other healthcare assets in the UK.

Investment Policy

The Group pursues its objective by investing in a portfolio of care homes, predominantly in the UK, that are let to care home operators on full repairing and insuring leases that are subject to annual uplifts based on increases in the UK retail prices index (subject to caps and collars) or fixed uplifts. The Group is also able to generate up to 15 per cent of its gross income, in any financial year, from non-rental revenue or profit related payments from care home operators under management contracts in addition to the rental income due under fully repairing and insuring leases.

In order to spread risk and diversify its portfolio, the Group is also permitted to invest up to: (i) 15 per cent of its gross assets, at the time of investment, in other healthcare assets, such as properties which accommodate GP practices and other healthcare related services including occupational health and physiotherapy practices, pharmacies, special care schools and hospitals; and (ii) 25 per cent of its gross assets, at the time of investment, in indirect property investment funds (including joint ventures) with a similar investment policy to that of the Group. The Directors have no current intention to acquire other healthcare assets or indirect property investment funds. The Group may also acquire or establish companies, funds or other SPVs which themselves own assets falling within the Group's investment policy.

The Group may either invest in assets that require development or that are under development, which when completed would fall within the Group's investment policy to invest in UK care homes and other healthcare assets, including by means of the forward funding of developments and forward commitments to purchase completed developments, provided that the Group will not undertake speculative development and that the gross budgeted development costs to the Group of all such developments, including forward funding and forward commitments, does not exceed 25 per cent of the Group's gross assets on the commencement of the relevant development. Any development will only be for investment purposes.

In order to manage risk in the portfolio, at the time of investment, no single asset shall exceed in value 20 per cent of the Group's gross asset value and, in any financial year beginning after the Group is fully invested, the rent received from a single tenant or tenants within the same group (other than from central or local government, or primary health trusts) is not expected to exceed 30 per cent of the total income of the Group, at the time of investment.

The Group will not acquire any asset or enter into any lease or related agreement if that would result in a breach of the conditions applying to the Group's REIT status.

The Group is permitted to invest cash held for working capital purposes and awaiting investment in cash deposits, gilts and money market funds.

Gearing, calculated as borrowings as a percentage of the Group's gross assets, may not exceed 35 per cent at the time of drawdown. The Board currently intends that, over the medium term, borrowings of the Group will represent approximately 25 per cent of the Group's gross assets at the time of drawdown. However, it is expected that Group borrowings will exceed this level from time to time as borrowings are incurred to finance the growth of the Group's property portfolio.

Any material change to the investment policy will require the prior approval of shareholders.

Dividend Policy

Subject to market conditions and the Company's performance, financial position and financial outlook, it is the Directors' intention to pay an attractive level of dividend income to shareholders on a quarterly basis. In order to ensure that the Company continues to pay the required level of distribution to maintain Group REIT status and to allow consistent dividends to be paid on a regular quarterly basis, the Board intends to continue to pay all dividends as interim dividends. The Company does not therefore announce a final dividend. The Board believes this policy remains appropriate to the Group's circumstances and is in the best interests of shareholders.

Directors

Biographical details of the Directors, all of whom are non-executive, can be found on pages 28 and 29. As explained in more detail in the Corporate Governance Statement on page 41, any new appointment by the Board is subject to election by shareholders at the Annual General Meeting ('AGM') following the appointment. Thereafter the Board has agreed that all Directors will retire annually and, if appropriate, seek re-election.

The Directors of the Company, Mr Naish, Mr Coull, Ms Fyfe, and Mr Niblett were each elected/re-elected at the AGM held on 14 December 2021. Other than Mr Naish and Mr Coull, who intend to step down from the Board at the conclusion of the forthcoming AGM in line with the Board's succession plan, each of these Directors will seek annual re-election at the AGM to be held on 6 December 2022. Dr Thompsell was appointed to the Board with effect from 1 February 2022, and Mr Cotton has been appointed to the Board to take effect from 1 November 2022. Each of Dr Thompsell and Mr Cotton will be subject to election by shareholders at the forthcoming AGM. As part of the recent recruitment process, the Board has also identified one further potential Director, Mr Brodtman, who is expected to be appointed to the Board with effect from 1 January 2023. If so appointed, Mr Brodtman will be subject to election by shareholders at the AGM to be held in 2023.

Following the retirement of Mr Naish and Mr Coull, it is intended that Ms Fyfe will be appointed as Chair of the Company and Mr Cotton will be appointed as the Company's Senior Independent Director.

In relation to the appointment of Dr Thompsell, the Company appointed Nurole to provide external search consultancy services for which they received a fee of £17,000 (plus VAT). In relation to the appointment of Mr Cotton and the expected future appointment of Mr Brodtman, the Company appointed Fletcher Jones to provide external search consultancy services for which they received an aggregate fee of £30,000 (plus VAT). In previous years, the Company has appointed Fletcher Jones to provide external search consultancy services, to facilitate the Board appraisal process and to advise on the level of the Directors' remuneration. Neither the Company nor any of the individual Directors has any other connection with either Fletcher Jones or Nurole. Further details on the recruitment processes followed, including the Board's policy in relation to diversity and tenure, are set out on page 41.

The Directors believe that the Board has an appropriate balance of skills, experience, independence and knowledge of the Group to enable it to provide effective strategic leadership and proper guidance of the Group. Whilst remaining cognisant of the need for regular refreshment of the Board membership, the appointment of Mr Cotton and Mr Brodtman and the retirement of Mr Naish and Mr Coull will complete the Board's intended succession plan for the medium term. The Board would like to take the opportunity to thank Mr Naish and Mr Coull for their committed service and expert guidance over the period since the Group's launch in 2013, during which time the Company has grown from a modest £40 million of net assets to c.£700 million and has become a constituent of the FTSE-250 Index.

The Board confirms that, following the evaluation process set out in the Corporate Governance Statement on pages 42 and 43, the performance of each of the Directors continues to be effective and demonstrates commitment to the role. There are no service contracts in existence between the Company and any Director but each of the Directors has been issued with, and accepted the terms of, a letter of appointment that sets out the main terms of his or her appointment. Amongst other things, the letter includes confirmation that the Directors have a sufficient understanding of the Group and the sector in which it operates, and sufficient time available to discharge their duties effectively taking into account their other commitments. These letters are available for inspection upon request at the Company's registered office.

Capital Structure and Voting Rights

Details of the Company's share capital are set out in Note 16 to the Consolidated Financial Statements. Details of voting rights are also set out in the Notes to the Notice of Annual General Meeting. There are no significant restrictions concerning the transfer of securities in the Company (other than certain restrictions imposed by laws and regulations such as insider trading laws); no agreements known to the Company concerning restrictions on the transfer of securities in the Company or on voting rights; and no special rights with regard to control attached to securities. There are no significant agreements which the Company is a party to that might be affected by a change of control of the Company following a takeover bid, provided following such bid the Company's shares continue to be traded on the main market of the London Stock Exchange.

The Group's borrowings are detailed in Note 14 to the Consolidated Financial Statements.

Substantial Interests in Share Capital

As at 30 June 2022, the Company had received notification of the following holdings of voting rights (under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules):

	Number of Ordinary Shares held	Percentage held*
Blackrock, Inc	63,576,294	10.3**
Baillie Gifford & Co	25,358,041	4.1
Premier Miton Group plc	24,348,972	3.9
Alder Investment Management Limited	23,681,156	3.8
Investec Wealth & Investment Limited	23,385,150	3.8
CCLA Investment Management Limited	17,918,605	2.9
Rathbone Investment Management Limited	17,462,203	2.8

* Based on 620,237,346 ordinary shares in issue as at 30 June 2022.

** The Company is not aware, nor has it been notified, of any individual corporate shareholder(s), as germane to the Group's compliance with the REIT regulations, which were beneficially entitled to 10% or more of the Company's share capital or which controlled 10% or more of the voting power in the Company.

As at 11 October 2022, the Company has not received notification of any changes in the holdings of voting rights (under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules) compared with those above.

Share Issuance and Share Buybacks

At the General Meeting held on 1 March 2021, shareholders granted authority for the Company to issue up to 150 million ordinary shares in connection with an Initial Placing, Offer for Subscription, Intermediaries Offer and Placing Programme as described in the prospectus published on 12 February 2021, without first offering them to existing shareholders in proportion to their existing holdings. At 1 July 2021, the ability to issue up to 95,945,946 ordinary shares remained under this authority and the Company had the additional authority to issue up to a further 45,748,764 ordinary shares as granted by shareholders at the Annual General Meeting held on 2 December 2020. In September 2021, the Company issued 108,695,652 ordinary shares under these authorities at a price of 115.0 pence per ordinary share. The remaining authority subsequently expired on 14 December 2021.

At the Annual General Meeting held on 14 December 2021, shareholders granted authority for the Company to issue up to 62,023,734 ordinary shares on a non-pre-emptive basis for cash. This equated to 10% of the shares in issue at the time of passing of the resolution. As at 11 October 2022, the Company has not issued any shares under this authority. The authority will expire on the earlier of the conclusion of the forthcoming Annual General Meeting, which is expected to be held on 6 December 2022, or 14 March 2023. It is expected that the Company will continue to seek this authority on an annual basis.

At the Annual General Meeting held on 14 December 2021, shareholders granted authority for the Company to buy back up to 92,973,578 ordinary shares for cancellation or for holding in treasury. The Company did not buy back any shares under this authority, which will expire at the conclusion of the forthcoming Annual General Meeting.

Statement of Disclosure of Information to Auditor

As far as the Directors are aware, there is no relevant audit information of which the Group's auditor is unaware, and each Director has taken all the steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit information and to establish that the Group's auditor is aware of that information.

Continuation Vote

In accordance with the Company's Articles of Association, an ordinary resolution is required to be put to shareholders at the AGM to be held in 2022 and at every fifth annual general meeting thereafter to seek their approval to the continuation of the Company.

Going Concern

In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council.

They have considered the current cash position of the Group, forecast rental income and other forecast cash flows; taking into consideration the potential impact of current economic conditions, including COVID-19, on both the Group and any increase in the likelihood that the tenants of its investment properties will not be able to meet their contractual rental obligations on a timely basis. The Group has agreements relating to its borrowing facilities with which it has complied during the year and the Board has considered the ability of the Group to fully draw, repay, refinance or increase these facilities on, or before, their expected maturity date. As set out in more detail under the heading 'Continuation Vote' above and on page 36, at each fifth Annual General Meeting of the Company, including the AGM to be held on 6 December 2022, shareholders are given the opportunity to vote on an ordinary resolution to continue the Company. The Directors have also considered the Group's level of uninvested capital, the current status of the property investment market and the Group's pipeline of investment opportunities. Based on all the information considered, the Directors believe that the Group has the ability to meet its financial obligations as they fall due to 31 December 2023, which is a period of at least twelve months from the date of approval of the financial statements. For this reason, the Board continue to adopt the going concern basis in preparing the financial statements.

Viability Statement

The AIC Code requires the Board to assess the Group's prospects, including a robust assessment of the emerging and principal risks facing the Group including those that would threaten its business model, future performance, solvency or liquidity. This assessment is undertaken with the aim of stating that the Directors have a reasonable expectation that the Group will continue in operation and be able to meet its liabilities as they fall due over the period of their assessment.

The Board has conducted this review over a five-year time horizon, which is a period thought to be appropriate for a company investing in UK care homes with a long-term investment outlook. At each Board Meeting, the Directors consider the key outputs from a detailed financial model covering a similar five year rolling period, as this is considered the maximum timescale over which the performance of the Group can be forecast with a reasonable degree of accuracy. The Group has a property portfolio at 30 June 2022 which has long leases and a weighted average unexpired lease term of 27.2 years. The Group has drawn borrowings of £234.8 million, on which the interest rate has been fixed, either directly or through the use of interest rate swaps, on £180.0 million at a weighted interest rate of 3.07 per cent per annum (excluding the amortisation of arrangement costs), and the remaining £54.8 million carries interest at SONIA plus a weighted margin of 2.17 per cent per annum (excluding the amortisation of arrangement costs). The Group has access to a further £85.2 million of available debt under committed loan facilities. The Group's committed loan facilities have staggered expiry dates with £100.0 million being committed to 5 November 2024, £70.0 million to 5 November 2025, £87.3 million to 12 January 2032 and £62.7 million to 12 January 2037. Discussions with existing and/or new potential lenders do not indicate any issues with re-financing and/or increasing the quantum of these loans on acceptable terms in due course.

The Directors' assessment of the Group's principal risks are highlighted on pages 24 and 25. The most significant risks identified as relevant to the viability statement were those relating to:

Poor performance of assets: The risk that a tenant is unable to sustain a sufficient rental cover, leading to a loss of rental income for the Group;
Adverse interest rate fluctuations: The risk that an increase in interest rates may increase the cost of the Group's variable rate debt facilities, impact property valuations and/or limit the Group's borrowing capacity;
High inflationary environment: The risk that the level of the UK inflation rate results in a real term decrease in the Group's income or erodes the profitability of tenants;
Pandemic reduces demand for care home beds: The risk that overall demand for care home beds is reduced resulting in a decline in the capital and/or income return from the property portfolio; and
Reduced availability of care home staff: The risk that unavailability of staff restricts the ability of tenants to admit residents or results in significant wage cost inflation, impacting on the tenants' rental cover and leading to a loss of rental income for the Group.

In assessing the Group's viability, the Board has considered the key outputs from a detailed model of the Group's expected cashflows over the coming five years under both normal and stressed conditions. The stressed conditions, which were intended to represent severe but plausible scenarios, included modelling increases in interest rates, movements in the capital value of the property portfolio and a significant default on rental receipts from the Group's tenants. The stressed level of default from the Group's tenants assumed in the financial modelling was based on a detailed assessment of the financial position of each individual tenant or tenant group, the structure in place to secure rental income (such as the strength of tenants' balance sheets, rental guarantees in place or rental deposits held) and included consideration of the cumulative financial impact on each tenant from the COVID-19 pandemic.

Based on the results of the scenario analysis outlined above, the Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the five year period of its assessment.

Audit Tender

In line with the intention stated in last year's Annual Report, the Company completed a tender of audit services to the Group during the year. Initially four audit firms, including the incumbent auditor, were invited to tender through a formal invitation letter. This set out the proposed tender process, the timetable, the matters that the Group expected to be covered in the written tender proposal submitted and the basis on which the audit quality offering would be assessed. Each of the tendering firms met separately with the Chairman, the Chair of the Audit Committee and representatives of the Investment Manager in order to obtain any information necessary to prepare their proposals. After the receipt of the written tenders from two audit firms, they each presented directly to the Audit Committee. After careful review of the written tender proposals, the presentations and any other matters considered relevant to assessing the audit quality offering, such as a review of the relevant FRC Audit Quality Inspection Reports, a scorecard was prepared to assess the relative merits of each proposal. Whilst this assessment was not conducted on a 'fee-blind' basis, the firms were initially assessed on their expected service level. After due and careful consideration of each of the proposals, the Audit Committee recommended to the Board that the incumbent auditors, Ernst & Young LLP, be re-appointed. The Directors would like to express their appreciation to each of the firms that participated in the tender process. The Company does not anticipate undertaking a further tender of audit services to the Group during the forthcoming year.

Significant Votes Against Previous Resolutions

There were no significant votes against the resolutions proposed at the Annual General Meeting held on 14 December 2021.

Resolutions to be Proposed at the AGM

Directors' remuneration policy and annual report on Directors' remuneration

The Directors' remuneration policy and annual report on Directors' remuneration, which can be found on pages 49 to 51, provide detailed information on the remuneration arrangements for the Directors of the Company. Shareholders are requested to approve the Directors' Annual Report on Directors' Remuneration for the year ended 30 June 2022 (resolution 3). The Directors' Remuneration Policy, which is proposed for approval every three years and which is unchanged from that approved by shareholders in 2019, is being put to shareholders at the 2022 AGM and will be proposed as an ordinary resolution (resolution 2).

Dividend policy

The Company's dividend policy is set out on page 33. In order to be able to continue paying a consistent dividend on a regular basis, and to ensure that sufficient distributions are made to meet the Company's REIT status, the Company intends to continue to pay all dividends as interim dividends. Recognising that this means that shareholders will not have the opportunity to vote on a final dividend, the Company will instead propose a non-binding resolution to approve the Company's dividend policy at the AGM (resolution 4). The Directors anticipate that such non-binding resolution to approve the Company's dividend policy will be proposed annually.

Directors' Report continued

Resolutions to be Proposed at the AGM continued

Auditor

The Independent Auditor's Report can be found on pages 52 to 57. Ernst & Young LLP ('EY') has indicated its willingness to continue in office and a resolution will be proposed at the AGM to re-appoint EY as Auditor until the conclusion of the AGM to be held in 2023 (resolution 5). The proposal to re-appoint EY as auditor follows the completion of an audit tender during the year, as described in more detail on page 35. A separate resolution will be proposed to authorise the Directors to determine the Auditor's remuneration (resolution 6).

Election of Directors

As explained in more detail on page 41, each Director is subject under the Articles of Association to election by shareholders at the AGM following the appointment and, by policy of the Board, by annual re-election thereafter. Resolutions 7 to 10 therefore propose each of the relevant Directors for election/re-election. The biographies of each of the Directors, which include the skills and experience each Director brings to the Board for the long-term sustainable success of the Company, are detailed on pages 28 and 29. Having considered the knowledge, experience and contribution of each Director putting themselves forward the Board has no hesitation in recommending their election/re-election to shareholders.

Continuation Vote

In accordance with the Articles of Association, an ordinary resolution is required to be put to shareholders at the AGM to be held in 2022 and at every fifth annual general meeting thereafter to seek their approval to the continuation of the Company. Such resolution is put forward as resolution 11. If passed, under the Articles of Association such resolution will next be proposed at the ninth annual general meeting of the Company, which would be expected to be held in 2027. If the continuance vote were not to be passed, the Directors will be required to convene a general meeting of the Company within six months thereafter at which a special resolution will be proposed to either wind up voluntarily or reconstruct the Company. As set out in the Strategic Report, the Board believes that the Company has continued to assemble a portfolio of UK care homes capable of delivering stable rental returns, has a balance sheet able to support its long-term performance objectives and operates in a sector in which the fundamentals continue to make a compelling long-term investment case. The Board therefore believes it is in the interests of shareholders as a whole that the Company should continue. As at 11 October 2022, the Directors are not aware of any reason why the continuation vote will not be passed.

Share Issuance Authority

The Directors are seeking authority to allot additional new shares which would not require the publication of a prospectus. Resolution 12 will, if passed, authorise the Directors to allot new shares of £0.01 each up to an aggregate nominal amount representing 10% of the issued shares at the date of the passing of resolution 12. Based on the shares in issue at 11 October 2022, this resolution would therefore authorise the Directors to allot up to 62,023,734 ordinary shares.

In accordance with the provisions of the Company's Articles of Association and the Listing Rules, the directors of a premium listed company are not permitted to allot new shares (or grant rights over shares) for cash at a price below the net asset value per share of those shares without first offering them to existing shareholders in proportion to their existing holdings. Resolution 13, which is a special resolution, seeks to provide the Directors with the authority to issue shares of £0.01 each or sell shares held in treasury on a non-pre-emptive basis for cash (i.e. without first offering such shares to existing shareholders pro-rata to their existing holdings) up to an aggregate nominal amount representing 10% of the issued ordinary share capital of the Company at the date of the passing of resolution 13.

The authorities granted under resolutions 12 and 13 will expire at the conclusion of the next AGM of the Company after the passing of the resolutions, expected to be held in November 2023, or on the expiry of 15 months from the passing of the resolutions, unless they are previously renewed, varied or revoked. It is expected that the Company will seek these authorities on an annual basis. The authorities sought under resolutions 12 and 13 will only be used to issue shares at a premium to net asset value and only when the Directors believe that it would be in the best interests of shareholders as a whole to do so.

Authority to Buyback Ordinary Shares

Given the Company is engaged in growth, subject to market conditions, it is unlikely that the Directors will buy back any ordinary shares in the near term. Thereafter any buy back of ordinary shares will be subject to the Companies Act 2006 (as amended), the Listing Rules and within guidelines established by the Board from time to time (which will take into account the income and cash flow requirements of the Company).

Resolution 14 will be proposed as a special resolution and seeks to provide the Directors with the authority to purchase up to 92,973,578 ordinary shares or, if less, the number representing approximately 14.99% of the Company's ordinary shares in issue at the date of the passing of resolution 14. Any shares purchased by the Company may be cancelled or held in treasury. The Company does not currently hold any shares in treasury.

For each ordinary share, the minimum price (excluding expenses) that may be paid on the exercise of this authority will not be less than the nominal value of each ordinary share at the date of purchase. Under the Listing Rules, the maximum price that may be paid on the exercise of this authority must not exceed the higher of: (i) 105% of the average of the middle market quotations (as derived from the Daily Official List of the London Stock Exchange) for the shares over the five business days immediately preceding the date of purchase; and (ii) the higher of the last independent trade and the highest current independent bid on the trading venue on which the purchase is carried out.

This authority will expire at the conclusion of the next AGM of the Company after the passing of this resolution unless it is previously renewed, varied or revoked.

Notice for General Meetings

Resolution 15 is being proposed to reflect the provisions of the Companies Act 2006 relating to meetings and the minimum notice period for listed company General Meetings being increased to 21 clear days, but with an ability for companies to reduce this period to 14 clear days (other than for AGMs), provided that the Company offers facilities for shareholders to vote by electronic means and that there is an annual resolution of shareholders approving the reduction in the minimum period for notice of General Meetings (other than for AGMs) from 21 clear days to 14 clear days. The Board is therefore proposing resolution 15 as a special resolution to ensure that the minimum required period for notice of General Meetings of the Company (other than for AGMs) is 14 clear days.

The approval will be effective until the earlier of 15 months from the passing of the resolution or the conclusion of the next AGM of the Company, at which it is intended that a similar resolution will be proposed. The Board intends that this flexibility of a shorter notice period to be available to the Company will be used only for non-routine business and only where needed in the interests of shareholders as a whole.

Recommendation

The Directors consider each resolution being proposed at the Annual General Meeting to be in the best interests of the Company and its shareholders as a whole and they unanimously recommend that all shareholders vote in favour of them, as they intend to do in respect of their own beneficial holdings of shares which amount in aggregate to 90,455 ordinary shares representing approximately 0.015 per cent of the current issued share capital of the Company.

Directors' Deeds of Indemnity

The Company has entered into deeds of indemnity in favour of each of the Directors. The deeds give each Director the benefit of an indemnity to the extent permitted by the Companies Act 2006 against liabilities incurred by each of them in the execution of their duties and the exercise of their powers. A copy of each deed of indemnity is available for inspection at the Company's registered office during normal business hours and will be available for inspection at the Annual General Meeting. The Company also maintains directors' and officers' liability insurance.

Conflicts of Interest

Under the Companies Act 2006 a Director must avoid a situation where he or she has, or could have, a direct or indirect interest that conflicts, or possibly may conflict, with the Company's interests. The requirement is very broad and could apply, for example, if a Director becomes a director of another company or a trustee of another organisation. The Companies Act 2006 allows directors of public companies to authorise conflicts and potential conflicts, where appropriate, where the Articles of Association contain a provision to this effect. The Company's Articles of Association give the Directors authority to approve such situations. The Company maintains an up-to-date register of Directors' conflicts of interest which have been disclosed to, and approved by, the other Directors. This register is considered at each scheduled Board meeting. The Directors are required to disclose to the Company Secretary any changes to conflicts or any potential new conflicts.

The Investment Manager has in place a conflicts of interest and allocation policy which aims to ensure a fair allocation of investment opportunities and to mitigate potential conflicts of interest that may arise where the Investment Manager provides investment management, investment advice or other services to other funds that may have similar investment policies to that of the Company. The Company has reviewed, and accepted, the policy which was revised during the course of the year.

Depositary

IQ EQ Depositary (UK) Limited (the 'Depositary') acts as the Group's depositary in accordance with the AIFM Directive. The Depositary's responsibilities, which are set out in an Investor Disclosure Document available on the Company's website, include cash monitoring, record keeping and verification of non-custodial assets and general oversight of the Group's portfolio. The Depositary receives for its services a fee based on the value and activity of the property portfolio, payable quarterly. For the year ended 30 June 2022, the fees paid totalled £163,000 (2021: £135,000).

Other Companies Act 2006 Disclosures

The rules for appointment and replacement of Directors are contained in the Articles of Association of the Company. In respect of retiral by rotation, the Articles of Association provide that each Director is required to retire at the third annual general meeting after the annual general meeting at which last elected. As mentioned on page 41, the Board has agreed that all Directors will retire annually.

Any amendment of the Company's Articles of Association and powers to issue and buy back shares require shareholder authority.

There are no agreements between the Company and the Directors providing for compensation for loss of office that occurs because of a takeover bid.

Future Developments of the Company

The future success of the Company in pursuit of its investment objective is dependent primarily on the performance of its investments and the outlook for the Company is set out in the Chairman's Statement on pages 4 and 5 and the Investment Manager's Report on pages 14 and 15.

Environmental, Social and Governance Principles

The Company seeks to conduct its affairs responsibly and environmental factors are, where appropriate, taken into consideration in relation to investment decisions taken on behalf of the Group. Further details are contained on pages 10 to 13 and in the Corporate Governance Statement on page 43.

Directors' Report continued

Greenhouse Gas Emissions/Streamlined Energy and Carbon Reporting

All of the Company's activities are outsourced to third parties. As such it does not have any physical assets, property, employees or operations of its own and does not generate any greenhouse gas or other emissions. As the Group has entered into operational leases on its property portfolio, the Company does not have operational control over these properties and therefore assesses that the tenant should report on any carbon emissions associated with the operation of the care homes. Following this assessment, the Group is categorised as a lower energy user under the HM Government Environmental Reporting Guidelines March 2019 ('the Guidelines') and is not required to make the detailed disclosures of energy and carbon information set out within the Guidelines.

Taskforce on Climate-related Financial Disclosures ('TCFD')

The Company acknowledges the recommendations of the Financial Stability Board TCFD to improve and increase reporting of climate-related financial information and will work towards mitigating, where appropriate, the physical climate risks and opportunities arising in the property portfolio. Further detail on the climate risks in the portfolio are detailed in the 'principal and emerging risks and risk management' on page 24 and consideration of the impact of climate risks on the market value of the property portfolio is included in Notes 9 and 17 to the Consolidated Financial Statements.

Modern Slavery Act 2015

As an investment company with no employees or customers and which does not provide goods or services in the normal course of business, the Company considers that it does not fall within the scope of the Modern Slavery Act 2015 and it is not, therefore, obliged to make a human trafficking statement. The Company's own supply chain which consists predominantly of professional advisers and service providers in the financial services industry, is considered to be low risk in relation to this matter.

Criminal Finances Act 2017

The Company has a zero tolerance policy to tax evasion and the facilitation of tax evasion. The Company is fully committed to complying with all legislation and appropriate guidelines designed to prevent tax evasion and the facilitation of tax evasion in the jurisdictions in which the Company, its service providers and business partners operate.

The Company is subject to the Criminal Finances Act 2017 and has adopted a policy, endorsed by the Board, designed to prevent tax evasion and the facilitation of tax evasion. Our policy establishes a culture across the Company and in relation to our service providers and other counterparties, in which tax evasion and the facilitation of tax evasion is unacceptable. The policy is based on a detailed risk assessment undertaken by the Board annually.

UK Bribery Act 2010

In order to ensure compliance with the UK Bribery Act 2010, the Directors confirm that the Company follows a zero tolerance approach towards bribery, insofar as it applies to any Directors of the Company or employee of the Investment Manager or any other organisation with which the Company conducts business, and a commitment to carry out business openly, honestly and fairly.

The Board also ensures that adequate procedures are in place and followed in respect of the appointment of third-party service providers and the acceptance of gifts and/or hospitality.

Financial Instruments

The Company's financial instruments comprise its cash balances, bank debt and debtors and creditors that arise directly from its operations such as deposits held on behalf of tenants and accrued rental income. The financial risk management objectives and policies arising from its financial instruments and the exposure of the Company to risk are disclosed in Note 17 to the Consolidated Financial Statements.

Annual General Meeting

The Company is required by law to hold an Annual General Meeting and it will be held at the offices of Dickson Minto W.S., Broadgate Tower, 20 Primrose Street, London EC2A 2EW on 6 December 2022 at 12 noon. The Notice of Annual General Meeting is set out on pages 89 to 91.

We would strongly encourage all shareholders to make use of the proxy form provided in order to lodge your votes. Shareholders are also encouraged to raise any questions or comments they may have in advance of the AGM through the Company Secretary ([email protected]). These will be relayed to the Board and either the Company Secretary or the Board will respond in due course either directly or by making available a summary of responses to any frequently asked questions on the Company's website.

On behalf of the Board

Malcolm Naish Chairman 11 October 2022

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Strategic Report, the Directors' Report, the Directors' Remuneration Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Consolidated Financial Statements in accordance with International Financial Reporting Standards ('IFRSs') in conformity with the Companies Act 2006 and have elected to prepare the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law), including Financial Reporting Standard 101 'Reduced Disclosure Framework'. Under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules, group financial statements are required to be prepared in accordance with UK-adopted IFRSs.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company and Group for that period. In preparing these Financial Statements, the Directors are required to:

select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether applicable International Financial Reporting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and
prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the Financial Statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' responsibility statement in respect of the Annual Report and Financial Statements

The Directors are responsible for preparing the Annual Report in accordance with applicable law and regulations. The Directors consider the Annual Report and the Financial Statements, taken as a whole, provide the information necessary to assess the Company's position, performance, business model and strategy and are fair, balanced and understandable.

Directors' responsibility statement under the disclosure guidance and transparency rules

To the best of our knowledge:

the Consolidated Financial Statements, prepared in accordance with UK-adopted IFRSs, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
the Annual Report, including the Strategic Report and the Directors' Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Disclosure of information to the auditor

The Directors confirm that:

so far as each Director is aware, there is no relevant audit information of which the Company's auditor is unaware; and
the Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

On behalf of the Board

Malcolm Naish

Chairman 11 October 2022

Corporate Governance Statement

Welcome to the corporate governance section of the Annual Report. The aim of this section is to set out the framework under which the independent Board, and its various subcommittees, ensure that both the Company and the service providers acting on its behalf make appropriate decisions and undertake actions in line with the interests of the Company's stakeholders.

Malcolm Naish Chairman

Introduction

The Board of Target Healthcare REIT plc has considered the Principles and Provisions of the AIC Code of Corporate Governance ('AIC Code'). The AIC Code addresses the Principles and Provisions set out in the UK Corporate Governance Code (the 'UK Code'), as well as setting out additional Provisions on issues that are of specific relevance to the Company.

The Board considers that reporting against the Principles and Provisions of the AIC Code, which has been endorsed by the Financial Reporting Council, provides more relevant information to shareholders. The Company has complied with the Principles and Provisions of the AIC Code. The AIC Code is available on the AIC website (www.theaic.co.uk). It includes an explanation of how the AIC Code adapts the Principles and Provisions set out in the UK Code to make them relevant for investment companies. The UK Code is available on the website of the Financial Reporting Council: www.frc.org.uk

The Board

The Board is responsible for the effective stewardship of the Group's affairs and reviews the schedule of matters reserved for its decision, which are categorised under various headings. These include investment strategy, investment policy, finance, risk, investment restrictions, performance, marketing, adviser appointments and the constitution of the Board. It has responsibility for all corporate strategic issues, dividend policy, share buyback policy and corporate governance matters which are all reviewed regularly. The Board as a whole, through the Investment Committee, is responsible for authorising all purchases and sales within the Group's portfolio and for reviewing the quarterly independent property valuation reports produced by Colliers International Healthcare Property Consultants Limited.

In order to enable them to discharge their responsibilities, all Directors have full and timely access to relevant information. At each meeting, the Board reviews the Group's investment performance and considers financial analyses and other reports of an operational nature. The Board monitors compliance with the Company's objectives and is responsible for setting investment and gearing limits within which the Investment Manager has discretion to act, and thus supervises the management of the investment portfolio which is contractually delegated to the Investment Manager.

The table below sets out the number of scheduled Board and Committee meetings held during the year and the number of meetings attended by each Director. This includes a two-day strategy meeting held at an external venue by the Board during October 2021 in order to consider strategic issues. In addition to these scheduled meetings, there were a further 11 Board and Board Committee meetings held during the year. These additional meetings included regular updates with the Investment Manager and other appropriate advisers on significant matters arising, including from the COVID-19 pandemic, to ensure that appropriate actions were taken on a timely basis.

	Board		Audit Committee		Investment Committee		Management Engagement Committee		Nomination Committee		Remuneration Committee
	Held	Attended	Held	Attended	Held	Attended	Held	Attended	Held	Attended	Held	Attended
Malcolm Naish	5	5	3	3	4	4	4	4	2	2	1	1
Gordon Coull	5	5	3	3	4	4	4	4	2	2	1	1
Alison Fyfe	5	5	3	3	4	4	4	4	2	2	1	1
Vince Niblett*	5	5	3	3	4	4	4	4	2	2	1	1
Amanda Thompsell**	2	2	2	2	2	2	2	2	1	1	–	–
June Andrews OBE***	3	3	1	1	2	2	2	2	1	1	1	1
Tom Hutchison***	3	3	1	1	2	2	2	2	1	1	1	1

* Appointed 25 August 2021.

** Appointed 1 February 2022.

*** Retired 14 December 2021.

Each of the Directors has signed a letter of appointment with the Group which includes twelve months' notice of termination by either party. These are available for inspection at the Company's registered office during normal business hours and are also made available at annual general meetings.

Individual Directors may, at the expense of the Group, seek independent professional advice on any matter that concerns them in the furtherance of their duties. The Group maintains appropriate directors' and officers' liability insurance. The Board has direct access to company secretarial advice and services. The Company Secretary is responsible for ensuring that Board and Committee procedures are followed and applicable regulations are complied with.

Investment management

Target provides investment management and other services to the Group. Details of the arrangements between the Group and the Investment Manager in respect of management services are provided in the financial statements. The Board keeps the appropriateness of the Investment Manager's appointment under review. In doing so the Board reviews performance quarterly and considers the past investment performance of the Group and the capability and resources of the Investment Manager to deliver satisfactory investment performance in the future. It also reviews the length of the notice period of the investment management agreement ('IMA') and the fees payable to the Investment Manager, together with the standard of the other services provided.

During the year, through the Management Engagement Committee, the Board considered the appropriateness of the terms of the Investment Manager's appointment and concluded that:

the level of fees payable to the Investment Manager, which were considered both in isolation and against a schedule of the fees payable across the Company's peer group prepared by the Company Secretary, remained appropriate. This conclusion took into account the tiered management fee structure which, following the equity issuance in September 2021, had reduced the average management fee rate payable. The assessment also took into consideration the previous amendment, with effect from 1 January 2018, which, given the continued outperformance of the Group's portfolio against the MSCI UK Annual Healthcare Property Index, has resulted in an overall reduction in the total management fees which would otherwise have been paid since the amendment took effect;
the specialist nature of the properties in which the Company invests requires a detailed knowledge of the sector, and that the nature of the asset class means that investment decisions tend to be long-term in nature, and that therefore the two-year notice period remains appropriate; balancing the interests of the Company in supporting the performance of its incumbent Investment Manager against retaining the Company's ultimate sanction of being able to replace the Investment Manager; and
the standard of other services provided remained appropriate.

The Directors considered the Investment Manager's provision of Company Secretarial services and concluded that the provision of such services did not create a conflict of interest, compromise the ability of the Board to hold the Investment Manager to account, or result in any diminution in the quality of governance or reporting that would warrant a change in this arrangement. This assessment took into consideration the fiduciary duties of a Company Secretary, the Directors' access to independent professional advice where necessary and the Group's appointment of, and regular liaison with, external legal advisers.

The Directors are satisfied with the Investment Manager's ability to deliver satisfactory investment performance and the quality of other services provided. It is therefore their opinion that the continuing appointment of the Investment Manager on the terms agreed is in the interests of shareholders as a whole.

Appointments, diversity and succession planning

Directors may be appointed by the Company by ordinary resolution or by the Board. All new appointments by the Board are subject to election by shareholders at the next AGM following their appointment. The Company's Articles of Association require all Directors to retire by rotation at least every three years. However, in accordance with the recommendations of the AIC Code, the Board has agreed that all Directors will retire annually and, if appropriate, seek re-election.

The Board believes in the benefits of diversity, including skills and experience, gender, social and ethnic backgrounds, cogniitive and personal strengths and length of service. These matters were all expressly considered as part of the externally-facilitated recruitment processes completed during the course of the year, which were designed to identify a diverse range of potential candidates, with subsequent appointments being based on merit and objective criteria to ensure the Board collectively had the necessary combinations of skills, experience and knowledge. Following the conclusion of the Board succession plan set out on page 33, under which Mr Naish and Mr Coull intend to retire and Mr Cotton and Mr Brodtman are expected to be appointed, the Board composition will continue to consist of three male and two female Directors. Following the retirement of Mr Naish, Ms Fyfe will be appointed as Chair and therefore the Company will be in compliance with the FTSE Women Leaders Review recommendation that at least one woman should occupy a senior Board role by the end of 2025. None of the current Directors come from an ethnic minority background. All appointments will continue to be based on merit and will not discriminate on the grounds of gender, ethnicity, socio-economic background, religion, sexual orientation, age or physical ability. The Board is conscious of the diversity targets set out in the Listing Rules and the benefits of diversity will continue to be considered as an important factor in all future appointments. The Board's policy on tenure is that continuity and experience are considered to add significantly to the strength of the Board and, as such, no limit on the overall length of service of any of the Company's Directors, including the Chairman, has been imposed. However, as set out on page 33, the Board does not currently envisage that any Director will serve for significantly more than the nine-year period that the AIC Code considers could impair, or could appear to impair, a non-executive Directors' independence. This may, however, be adjusted for reasons of flexibility and continuity should this be recommended by the Nomination Committee and concluded by the Board to be in the best interests of the Company.

Whenever there are new appointments, these Directors receive an induction from the Investment Manager and Company Secretary on joining the Board. All Directors receive other relevant training, collectively or individually, as necessary.

Independence of Directors

The Board, which is composed solely of independent non-executive Directors, regularly reviews the independence of its members. Following the retirement of Mr Hutchison at the conclusion of the AGM on 14 December 2021, Mr Coull has performed the role of Senior Independent Director. All the Directors have been assessed by the Board as remaining independent of the Investment Manager and of the Group itself; none has a past or current connection with the Investment Manager and each remains independent in character and judgement with no relationships or circumstances relating to the Group that are likely to affect that judgement.

Corporate Governance Statement continued

Independence of Directors continued

The basis on which the Group aims to generate value over the longer term is set out in its objective and investment policy as contained on pages 32 and 33. A management agreement between the Group and Target sets out the matters over which the Investment Manager has authority and the limits beyond which Board approval must be sought. All other matters, including investment and dividend policies, corporate strategy, gearing, corporate governance procedures and risk management, are reserved for the approval of the Board of Directors.

The Board meets at least quarterly and receives full information on the Group's investment performance, assets, liabilities and other relevant information in advance of Board meetings. Throughout the year a number of committees have been in place as detailed below. The committees operate within clearly defined terms of reference which are available on request or for inspection at the Company's registered office during normal business hours.

Removal of Directors

The Company may by special resolution remove any Director before the expiration of his or her period of office.

Audit Committee

The Board has established an Audit Committee, the role and responsibilities of which are set out in the report on pages 44 to 46.

Remuneration Committee

The Board established a Remuneration Committee, the role and responsibilities of which are set out in the report on page 49.

ESG Committee

Subsequent to the year end, the Board has established an ESG Committee which comprises all the Directors and which is chaired by Ms Fyfe. The Committee will oversee the formulation and implementation of the Group's ESG policy and strategy, including scrutinising those matters delegated to the Investment Manager. It will be responsible for proposing targets to achieve the Board's policy objectives and will monitor progress against those targets, taking into considering developments in relation to legal and regulatory requirements and industry practice which may have an impact on the Group's activities. The Committee will review and approve any material public reporting and market disclosures, including within the Annual Report, in respect of ESG matters.

Management Engagement Committee

The Board has established a Management Engagement Committee which comprises all the Directors and which is chaired by Mr Naish. The Committee reviews the appropriateness of the Investment Manager's continuing appointment together with the terms and conditions thereof on a regular basis. It also reviews the terms and quality of service received from other service providers on a regular basis. Further details of the work undertaken by the Management Engagement Committee in relation to the terms of appointment of the Investment Manager is set out on page 41.

Investment Committee

The Board has established an Investment Committee which comprises all the Directors and which is chaired by Mr Naish. The Committee reviews each investment paper prepared by the Investment Manager and is responsible for authorising all purchases and sales, and significant capital expenditure or asset management activities, within the Company's portfolio. The Investment Committee considered each investment paper as and when circulated by the Investment Manager, providing independent challenge where appropriate, and met quarterly to formally ratify the Committee's decision to approve or decline each of the investment recommendations proposed.

Nomination Committee

The Board has established a Nomination Committee which comprises all the Directors and which is chaired by Ms Fyfe. The Committee's terms of reference do not permit the Committee to be chaired by the Chair of the Board when considering the appointment of their successor. The Board considers that, given its size, it would be unnecessarily burdensome to establish a separate nomination committee which did not include the entire Board. This is considered appropriate given the Board consists solely of independent, non-executive Directors and ensures that all Directors are kept fully informed of any issues that arise.

The Nomination Committee is responsible for:

reviewing and nominating candidates for the approval of the Board to fill vacancies on the Board of Directors and to lead the process for appointments, including the selection and appointment of any external recruitment consultant;
considering and reviewing the composition and balance of the Board;
ensuring that plans are in place for orderly succession to the Board and overseeing the development of a diverse pipeline for succession; and
reviewing the re-appointment of Directors, as they fall due for re-election, under the terms of their appointment and the AIC Code, and making recommendations to the Board as considered appropriate.

All of the Nomination Committee's responsibilities have been carried out over the period of review.

The Nomination Committee met formally on two occasions throughout the year to ensure that the plans in place for an orderly succession to the Board, as set out on page 33, remained appropriate and to undertake the recruitment processes for Dr Thompsell, Mr Cotton and Mr Brodtman. Similar to the process in place in the prior year regarding the appointment of Mr Niblett, the Nomination Committee worked with external recruitment consultants to determine the appropriate skills and experience required of the appointee(s) and to agree the appropriate method of recruitment, selection and appointment. After considering applications, reviewing a long-list of candidates and conducting interviews with the short-listed candidates, the Committee recommended that Dr Thompsell be appointed as a Director with effect from 1 February 2022. Following the same process, but using a different external recruitment consultant, the Committee recommended that Mr Cotton be appointed as a Director with effect from 1 November 2022 and that Mr Brodtman be appointed as a Director early in the next calendar year.

Assessment of the Board and Committees

During the year, the performance of the Board, Committees and individual Directors was evaluated through an assessment process led by the Chairman. This process involved the completion of questionnaires tailored to suit the nature of the Company and, as required, discussions with individual Directors and individual feedback from the Chairman to each of the Directors. The evaluation of the Chairman was led by the Senior Independent Director in consultation with all the other Directors.

The main findings of the assessment were:

that the Board was operating well, with skill and focus on all the areas of importance; including proactive consideration of the key issues in the Group's Strategy and the performance of its property portfolio;
that the meetings of the Board and Committees were effectively conducted and chaired, aided by appropriate agendas and supporting papers, and were of sufficient duration, regularity and timeliness to support effective decision making;
that the Directors formed a harmonious and supportive Board with a good relationship with a well-performing and values-driven Investment Manager; and
that the succession planning in relation to the Board had been appropriately addressed and actioned.

The conclusion from the appraisal process conducted in relation to the year ended 30 June 2022 was that the Board and each committee was operating effectively, with an appropriate and sufficient balance of experience and skills. An assessment process led by an external facilitator was last conducted during the year ended 30 June 2021 and the Board anticipates having an externally facilitated Board evaluation conducted at least every three years.

Relations with shareholders

The Group proactively seeks the views of its shareholders and places great importance on communication with them. The Board receives regular reports from the Investment Manager and Broker on the views of shareholders, and the Chairman and other Directors make themselves available to meet shareholders when required to discuss the Group's business and address shareholder queries. The Chairman has held a number of discussions, and entered into correspondence, with shareholders over the course of the year on specific areas of interest, such as the resolutions proposed at the AGM and the level of dividend paid by the Company. It is expected that such meetings will continue to be made available although, depending on any prevailing restrictions on travel and/or guidance on social distancing, this may be through the use of video conferencing facilities.

The Notice regarding the Annual General Meeting is included on pages 89 to 91. It is intended that the AGM will be held physically at the offices of Dickson Minto, Broadgate Tower, 20 Primrose Street, London EC2A 2EW. However, as set out on page 38, shareholders are encouraged to lodge their votes with the Registrar either by use of the proxy form provided, or by electronic means, and to submit any questions they may have for the Directors or Investment Manager in advance through the Company Secretary ([email protected]). The Annual Report and Notice of Annual General Meeting are posted to shareholders at least 21 clear days before the Annual General Meeting.

Environmental, Social and Human Rights Issues

Responsible Investment and Environmental, Social and Governance ('ESG') considerations are core values of the Group and its Investment Manager. These are considered in more detail on pages 10 to 13 and 22 to 23.

ESG considerations lie at the heart of the Group's approach because of our belief that a strong care ethos is essential for the long-term health of our investments. The Investment Manager commits extensive resources to incorporating ESG (and responsible investing principles) throughout their investment and decision-making processes, both at the time of the acquisition of any asset and on an ongoing basis.
Before acquiring any home, the Investment Manager reviews on a granular level, inter alia: the position of the home in the community and how the home engages with its community, the building lay-out and facilities, the natural environment of the home, the management team and general governance shown by the tenant as well as any relevant ratings by regulatory bodies such as the Care Quality Commission.
Once the Group has acquired a care home, the Investment Manager undertakes regular reviews of the environmental, social, governance and ethical policies that the home has in place and (to the extent possible) their adherence to these policies in the delivery of their services.
The Investment Manager's role as an engaged landlord includes careful monitoring of the home and ongoing dialogue with management. In usual circumstances, the Investment Manager will visit every home at least every six months, occasionally visit the properties unannounced to gauge the culture and engaging with tenants who wish to improve their homes, potentially providing support and funding for this. During the COVID-19 pandemic, the Investment Manager continued to stay in touch with its tenants in order to provide support and to share market practice and published guidance, where appropriate.
The Group's vision of care includes promoting the conservation, protection and improvement of the physical and natural environments surrounding care homes not least because this makes the care home more attractive for both tenants and residents.

Stewardship Code

The Investment Manager is a signatory to the Stewardship Code published by the Financial Reporting Council on 6 September 2021. Stewardship is the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society. The Stewardship Code sets high stewardship standards for asset owners and asset managers, and for service providers that support them. The Investment Manager's Stewardship Code Statement of Compliance is available on its website at www.targetfundmanagers.com.

On behalf of the Board

Malcolm Naish

Chairman 11 October 2022

Report of the Audit Committee

Welcome to my first report as the chair of the Audit Committee. This report sets out the role, responsibilities and actions taken by the Audit Committee to ensure that the suitable controls continue to operate and that appropriate financial information continues to be issued on a timely basis to the Company's stakeholders.

Vince Niblett Chair of the Audit Committee

Composition of the Audit Committee

An Audit Committee has been established with written terms of reference which are reviewed at each meeting and which are available on request. On 14 December 2021, Mr Niblett was appointed as Chair of the Committee. Mr Coull has continued as a valued member of the Audit Committee, ensuring that the corporate knowledge earned over his eight year tenure as Committee Chair is passed to his successor. The Audit Committee currently comprises all Directors. The Board will consider each Director's membership of the Audit Committee on a caseby-case basis but, in general, believes that, given the Group's size, a committee which includes all Directors is appropriate and will enable all Directors to be kept fully informed of any issues that arise.

The Board consider that the Chairman's experience of the property sector is invaluable to the Audit Committee, particularly in regard to assessing and providing challenge to the external valuation of the Group's property portfolio, and therefore, in line with the AIC Code, the Board believes it appropriate that the Chairman remains a member of the Committee.

At least one member of the Audit Committee has recent and relevant financial experience and the Committee as a whole has competence relevant to the sectors in which the Group operates; which are considered to be healthcare, property and investment.

Role of the Audit Committee

The Committee's responsibilities are shown in the table below together with a description of how they have been discharged. More detailed information on certain aspects of the Committee's work is given in the subsequent text.

Responsibilities of the Audit Committee	How they have been discharged
Monitoring the integrity of the half-year and annual financial statements, and any formal announcements relative to the Group's financial performance, including the appropriateness of the accounting policies applied and any significant financial reporting judgements and key assumptions.	The Committee has met three times during the year to: – review the contents of the half-yearly report, and to consider the audit plan and the proposed audit fee; – consider, in advance of the Company's year end, any significant changes to accounting standards or other disclosure requirements and any significant financial reporting judgements and key assumptions expected to apply at the Group's year end; and – review the contents of the Annual Report.
	The Investment Manager and Company Secretary attended each of these meetings, with the Auditor also attending the meetings at which the audit plan and the contents of the half-yearly and annual reports were reviewed. The significant matters considered by the Group are listed on pages 47 and 48. In addition, during the year, the Committee kept under review the Investment Manager's implementation of a new financial accounting and reporting system, the statutory financial reporting of each of the Group's subsidiaries for the year ended 30 June 2021 and the internal financing structure of the Group, including the settlement of intercompany loans and the payment of intragroup dividends.
	The Directors also reviewed the financial information, both published and considered internally, in relation to the equity issuance completed in September 2021.
Assessment of the prospects of the Company, taking account of the Company's position and principal risks, and consideration of the period of time over which such evaluation can be made.	The Committee has reviewed the assessment described in more detail under the section 'Viability Statement' within the Directors' Report, and the underlying data on which such assessment was based, to ensure that the work undertaken, the conclusions reached and the disclosures included within the Annual Report were appropriate.

Responsibilities of the Audit Committee	How they have been discharged
Evaluation of the effectiveness of the internal controls and risk management systems and procedures.	The Investment Manager maintains a risk matrix which summarises the Group's key risks. The risk matrix is considered by the Directors at least semi-annually, with key principal and emerging risks also being discussed at the Group's annual two-day strategy meeting.
	The Committee has historically appointed a reporting accountant to review and report on the operation of certain internal controls including those over significant IT functions in place within the Investment Manager. This review has been completed annually, although the scope of work has been amended each year, by direct discussion between the Committee and the reporting accountant, to focus on areas that the Committee believes to be of highest risk or where there has been significant change over the year under review. In the current year, the Committee noted that the Investment Manager was commissioning an internal controls report over its own processes, prepared under ISAE 3402 Assurance Reports on Controls at a Service Organization. After careful consideration, the Committee concluded that the agreed upon procedures to be completed by the reporting accountant should therefore be focussed on the Investment Manager's implementation of a new accounting system, with comfort on other significant controls in place at the Investment Manager being obtained through review of their ISAE 3402 Report. Although the ISAE 3402 report at 30 September 2022 had not been formally published by the Investment Manager at the date of the approval of this Annual Report, the Audit Committee discussed the work conducted by the Independent Service Auditor to ensure that there were no matters arising of which they should be aware.
	From a review of the risk matrix, the outcome of the procedures undertaken by the reporting accountant, a discussion in relation to the ISAE 3402 report on the Investment Manager, and ongoing review of the regular management information received by the Board and Committees, combined with discussion with the Investment Manager and Company Secretary, the Committee has satisfied itself on the effectiveness of the risk and control procedures.
Consideration of dividend calculations both in relation to PID/non-PID payments made by the Company and other dividends paid internally	The Committee has reviewed the calculation of the split of distributions between PID and non-PID, including consideration of the suitability of the allocation of the costs of the Group between its property rental business and its residual business.
within the Group.	The Committee has reviewed the methodology followed by the Investment Manager, and directors of the subsidiaries, in determining and recommending the level of other dividends paid internally within the Group.
Consideration of the narrative elements of the annual financial report, including whether the annual financial report taken as a whole is fair, balanced and understandable and provides the necessary information for shareholders to assess the Group's position, performance, business model and strategy.	The Committee has reviewed the content and presentation of the Annual Report and ensured that it achieves the three criteria opposite. As part of this review, the Committee considered the nine characteristics of good corporate reporting set out in the FRC's Annual Review of Corporate Reporting.
Evaluation of reports received from the Auditor with respect to the annual financial statements and assessment of quality of the audit.	The Auditor's planning report, timetable and fee proposal were discussed with the Auditor in advance of work commencing, together with the areas of audit focus, the level of materiality and the audit work proposed to be undertaken. The Committee paid particular attention to any changes in accounting standards or in the nature of activities undertaken by the Group and ensured that the audit plan appropriately addressed these areas. The Committee specifically challenged the Auditors, at both the planning and reporting stage, in relation to the audit work undertaken in relation to any particular elements of judgement or estimation; including the property valuations and the credit loss allowance. In addition, the Committee challenged the Auditors in relation to the accounting treatment of any one-off accounting matters arising in the year; in particular in relation to the re-tenanting of five of the Group's properties and the receipt of a substantial surrender premium.
	The Committee specifically considered the external valuation of the Group's property portfolio, with the external valuers attending the meeting at which the annual results were discussed in order to present directly to the Committee a summary of their valuation process and any significant matters they wished to highlight either in relation to the valuation methodology generally or to specific individual properties or tenants.
	At the conclusion of the audit, the Committee discussed the audit results report with the Auditor, Company Secretary and Investment Manager. This review considered the quality of the audit through ensuring that the audit risks identified and the audit work undertaken did, in the opinion of the Audit Committee, capture and appropriately consider those matters which gave rise to the risk of material misstatement to the financial statements and disclosures.
	Further detail on the assessment of the quality of the audit is included in the section entitled 'The Auditor' on page 47.

Report of the Audit Committee continued

Responsibilities of the Audit Committee	How they have been discharged
Monitoring developments in accounting and reporting requirements that impact on the Group's compliance with relevant statutory and listing requirements.	The Committee ensures, through its Legal Adviser, Investment Manager, Company Secretary and Auditor, that any developments impacting on the Company's responsibilities are tabled for discussion at Committee or Board meetings. The Committee ensured that the Company was fully compliant with the AIC Code.
Management of the relationship with the external Auditor, including their appointment and the evaluation of scope, effectiveness, independence and objectivity of their audit.	The Auditor attended the meetings of the Committee at which the Company's audit plan, half-yearly report and year end accounts were reviewed and also met separately with the chairman of the Committee on two occasions, firstly, to discuss the findings of their interim review and the audit plan for the year ahead and, secondly, to consider the findings of their annual audit. The scope of the audit was discussed at the planning stage along with the staffing and timing of audit procedures to ensure that an effective audit could be undertaken. The Committee has also reviewed the independence and objectivity of the Auditor and has considered the effectiveness of the audit, as set out in more detail in the section entitled 'The Auditor' on the following page.
To conduct the tender process and make recommendations to the Board for it to put to the shareholders for their approval in general meeting, about the appointment, reappointment and removal of the external auditor.	The Audit Committee conducted a tender of the Group's external audit during the year following the process set out in detail on page 35. In summary, the Audit Committee invited a total of four firms to submit written tenders, and two firms then presented directly to the Audit Committee. Following the completion of a detailed scorecard, and taking into consideration the level of audit fees proposed, the Audit Committee recommended to the Board that Ernst & Young LLP be re-appointed as the Group's auditors for the year ending 30 June 2023. The Audit Committee does not anticipate undertaking a further tender of the Group's external audit during the forthcoming year.

Risk management and internal controls

The principal and emerging risks faced by the Group together with the procedures employed to manage them are described in the Strategic Report on pages 24 and 25.

Internal controls

The Board is responsible for the internal financial control systems of the Group and for reviewing their effectiveness. It has contractually delegated to external agencies the services the Group requires, but the Directors are fully informed of the internal control framework established by the Investment Manager to provide reasonable assurance on the effectiveness of internal financial control in the following areas:

Income flows, including rental income, the assessment of the financial position of tenants and the appropriateness of credit loss impairments; – Expenditure, including operating and finance costs;
Raising finance, including debt facilities and equity fund-raising;
Capital expenditure, including pre-acquisition diligence and authorisation procedures;
Dividend payments, including the calculation of Property Income Distributions;
Monitoring of covenants on loan facilities;
Data security;
The maintenance of proper accounting records; and
The reliability of the financial information upon which business decisions are made and which is used for publication, whether to report Net Asset Values or used as the basis for a prospectus, a circular to Shareholders or the annual report.

As the Group has evolved, the Investment Manager has developed a system of internal controls covering the processes listed above. As referred to on page 45 in relation to the year ended 30 June 2022, the Investment Manager has engaged an independent service auditor to undertake a review of its control environment in accordance with International Standard on Assurance Engagements ('ISAE') 3402 "Assurance Reports on Controls at a Service Organization". The Audit Committee discussed with the independent service auditor the results of the work that they had completed in relation to the Investment Manager's ISAE 3402 report being prepared as at 30 September 2022. The Board also commissioned a separate report by a reporting accountant on the Investment Manager's implementation of a new accounting system. The Audit Committee's review of each discussion/report did not identify any significant issues or concerns.

Committee members receive and consider quarterly reports from the Investment Manager, giving full details of the portfolio and all transactions and of all aspects of the financial position of the Group. Additional ad hoc reports are received as required and Directors have access at all times to the advice and services of the Company Secretary, which is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with.

The Investment Manager reports in writing to the Board on operations and compliance issues prior to each meeting, and otherwise as necessary. The Investment Manager reports directly to the Audit Committee concerning the internal controls applicable to the Investment Manager's investment and general office procedures, including information technology systems.

In addition, the Board keeps under its own direct control, through the Investment Committee, all property transactions including any significant capital expenditure. The Board also retains direct control over any decisions regarding the Group's long-term borrowings.

The review procedures detailed above have been in place throughout the year and up to the date of this report and the Board is satisfied with their effectiveness and that they are in accordance with the guidance in the Financial Reporting Council's 'Guidance on Risk Management, Internal Control and Related Financial and Business Reporting' in so far as applicable given the Group's size and structure. There were no significant weaknesses or failings to report. The procedures are designed to manage rather than eliminate risk and, by their nature, can only provide reasonable, but not absolute, assurance against material misstatement or loss.

The Board has reviewed the need for an internal audit function, taking into consideration the internal financial controls systems set out on the previous page and, in particular, any matters arising in relation to the preparation of the Investment Manager's ISAE 3402 report and the work of the reporting accountant. It has decided that the systems and procedures employed by the Investment Manager and the Administrator, and the work carried out by the Group's Reporting Accountant, provide sufficient assurance that a sound system of internal control, which safeguards the Group's assets, is maintained. An internal audit function specific to the Group is therefore considered unnecessary.

The Auditor

As part of the review of auditor independence and effectiveness, EY has confirmed that they are independent of the Group and have complied with relevant auditing standards. In reviewing EY's independence, the Committee noted that EY did not provide any non-audit services to the Group other than the review of the Group's Interim Report.

In evaluating EY's performance, the Audit Committee has taken into consideration the standing, skills and experience of the firm and of the audit team, along with their robustness and perceptiveness in their identification, consideration and reporting of the key accounting and audit judgements. The Committee assessed the effectiveness of the audit process through the quality of the formal reports, both verbal and written, it received from EY at the planning and conclusion of the audit, including the reasons for any variation from the original audit plan, together with the contribution which EY made to the discussion and challenge of any matters raised in these reports or by Committee members. The Committee also reviewed the FRC's Audit Quality Inspection Report on Ernst & Young LLP published in July 2022 and took into account any relevant observations made by the Investment Manager and Company Secretary. The Committee is satisfied that EY provides an effective independent challenge in carrying out its responsibilities.

EY has been the auditor to the Group since its launch in 2013. Following professional guidelines, the audit principal rotates after five years. The current audit principal is Caroline Mercer and the audit for the year ended 30 June 2022 constitutes the fifth year of her term. Having considered the effectiveness of the audit and having conducted a tender of audit services to the Group as detailed on page 35, the Audit Committee has recommended the continuing appointment of EY as the Group's auditor to the Board, with Matt Price replacing Caroline Mercer as audit principal for the year ending 30 June 2023. The performance of the Auditor will continue to be reviewed annually taking into account all relevant guidance and best practice. The Company is in compliance with the requirements of the Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014. This order relates to the frequency and governance of tenders for the appointment of the external auditor and the setting of the policy on the provision of non-audit services.

In relation to the provision of non-audit services by the auditor, it has been agreed that all non-audit work to be carried out by the auditor must be approved in advance by the Audit Committee and any special projects must also be approved in advance so as not to endanger the independence of EY as auditor. In this respect it considers that the provision of the non-audit service shown in the table below does not constitute such a threat.

Other than the review of the interim financial information, the auditors were not engaged to undertake any non-audit services either during the year or over the prior three-year rolling period. Different accountancy firms were engaged to provide tax advice and compliance, to act as Reporting Accountant in relation to the shares issued under the prospectus and to undertake the review of the internal controls within the Investment Manager. The Audit Committee has also ensured that the provision of non-audit services did not endanger the independence of any party that the Company intended to invite to participate in the audit tender conducted during the year.

Service provided (inclusive of irrecoverable VAT)	Fee (£'000)
Statutory audit of the Company for the year ended 30 June 2022	118
Statutory audit of the Company's subsidiaries for the year ended 30 June 2022	230
Review of interim financial information for the six months ended 31 December 2021	16
Total (inclusive of irrecoverable VAT)	364

Annual Report and Financial Statements

The Board of Directors is responsible for preparing the Annual Report and financial statements. The Audit Committee advises the Board on the form and content of the Annual Report and financial statements, any issues which may arise and any specific areas which require judgement. The Audit Committee considered certain significant issues during the year. These are noted in the table below.

Valuation and ownership of the investment property portfolio

The Group's property portfolio accounted for 88.7 per cent of its total assets as at 30 June 2022. Although valued by an independent firm of valuers, Colliers International Healthcare Property Consultants Limited ('Colliers'), the valuation of the investment property portfolio is inherently subjective, requiring significant judgement by the valuers. Errors in the valuation could have a material impact on the Group's net asset value. Further information about the property portfolio and inputs to the valuations is set out in Notes 9 and 10 to the Consolidated Financial Statements.

Matter Audit Committee action

The Investment Manager liaises with the valuers on a regular basis and meets with them prior to the production of each quarterly valuation. The Audit Committee reviewed the results of the valuation process throughout the year and the Directors had the opportunity to discuss the detail of each of the quarterly valuations with the Investment Manager.

The Committee discussed the valuation as at 30 June 2022 directly with Colliers to ensure that they understood the assumptions underlying the valuation and the sensitivities inherent in the valuation and any significant area of judgement.

The Committee also discussed with the Auditor the work performed to confirm the valuation and ownership of the properties in the portfolio and noted the report of the Depositary, particularly the sections regarding the Depositary's responsibilities and work in relation to asset verification. The Committee considered the significant estimates and judgements inherent in the valuation process and considered how the auditors had challenged these by discussing the outcome of the review of the property valuations directly with the Auditor's valuation specialists; focussing particularly on any areas of difference between the judgement of the external valuers and the auditors.

Report of the Audit Committee continued

Matter	Audit Committee action
Income recognition Incomplete or inaccurate income recognition could have an adverse effect on the Group's net asset value, earnings per share, its level of dividend cover and compliance with REIT regulations.	The Audit Committee reviewed the Investment Manager's processes and controls around the recording of investment income. It also compared the final level of income received for the year to forecasts. Particular attention was paid to any variable income recognised, such as that arising on leases where the rental level paid may be partially based on the earnings of the underlying tenant operator. The Audit Committee also considered the basis of calculation of the Group's estimated credit losses by reviewing the scenario analysis prepared by the Investment Manager and ensuring that this was prepared on a basis consistent with the Directors' understanding of the financial position of each relevant tenant. The Committee particularly considered the accounting treatment of a surrender premium paid by an outgoing tenant as part of an asset management initiative, including the allocation of the sum received between revenue and capital.
	The Audit Committee assessed the appropriateness of the accounting treatment of the fixed rental uplifts and other lease incentives and how this impacted the Property Income component of dividends paid or payable by the Company.
Recognition of performance payments Incomplete, inaccurate or inappropriately timed recognition of the further capital payments that may be payable to the tenants/ vendors of certain of the Group's properties should certain contracted performance conditions be met, in exchange for an increase in the rent receivable in relation to the relevant property, may lead to a misstatement of the Group's Balance Sheet or Statement of Consolidated Income.	The Audit Committee reviewed the terms of the contracted performance payments. It was concluded that the appropriate accounting choice remained to recognise the liability when the contingent payment crystallised, which was deemed to be the date on which the contracted performance conditions had been met by the tenant. However, noting that the capital payment would also increase the rental payments receivable in relation to the relevant property and that the external valuers would not recognise the resultant increase in the market value of the relevant property until the capital payment was actually settled (being the date on which the increased rental income became contractually committed), it was considered appropriate to also make an equal but opposite adjustment to the carrying value of the Group's Investment Property portfolio.
Internal controls Incomplete design or ineffective operation of internal controls may result in a loss of the Group's assets, a misstatement of the financial statements or a breach of legal, tax or other regulations.	The Audit Committee reviewed the Group's internal control environment, considering its completeness and efficiency and identifying any areas where the Board, or Committees, did not have direct means of ensuring that the internal controls in place within the Investment Manager were operating as designed. As described on page 45, an external Reporting Accountant was appointed to complete a review of the Investment Manager's implementation of a new accounting system, based on a scope of work agreed directly between the Reporting Accountant and the Audit Committee, and they reported their findings directly to the Audit Committee. There were no material control deficiencies or weaknesses identified through this work. The Audit Committee also discussed the work undertaken in relation to the Investment Manager's ISAE 3402 Report.
Impact of COVID-19 Given the potentially significant impact of COVID-19 on the economic conditions in which the Group was operating, the Audit Committee kept under review the requirement to make any additional market announcements and have placed a particular focus on the appropriateness of continuing to adopt the going	The Directors continued to meet regularly throughout the year to consider the economic and market conditions within which the Company was operating and, under the guidance of the Chairman of the Audit Committee, to consider the necessity, content and timing of announcement of financial information to the market, both to meet the Company's regulatory obligations and to keep investors informed.
concern basis in preparing the financial statements for the year ended 30 June 2022.	The Audit Committee also considered the assessment of the Company's going concern position, as set out in more detail in the accounting policies on page 63 and the viability statement on pages 34 and 35. The Audit Committee considered the FCA's published guidance, along with emerging market practice, in conducting this assessment.

The Audit Committee noted that the Auditors had not reported any indications of systemic weaknesses in the Group's internal controls or financial reporting processes and that no material adjustments had been required to the financial statements as presented.

Conclusion with respect to the Annual Report and Financial Statements

The Audit Committee has concluded that the report and financial statements for the year ended 30 June 2022, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position, performance, business model and strategy.

The Audit Committee has reported its conclusions to the Board of Directors. The Audit Committee reached this conclusion through a process of review of the document, discussion, and enquiries of the various parties involved in the preparation of the report and financial statements.

Vince Niblett

Chairman of the Audit Committee 11 October 2022

Directors' Remuneration Report

Welcome to the Directors' Remuneration Report. The aim of this report is to set out the policy used by the Company in setting the Directors' remuneration, as well as declaring the actual fees paid during the year and expectations for the following twelve months. Shareholders will be provided with an opportunity at the forthcoming AGM to vote in relation to both the Company's policy and this Report.

Alison Fyfe Chair of the Remuneration Committee

Composition and Role of the Remuneration Committee

The Company has established a Remuneration Committee chaired by Ms Fyfe. The Committee has written terms of reference which are reviewed at each meeting and which are available on request. The Remuneration Committee is currently comprised of all Directors which is considered appropriate given the Group's size and as the Board comprises only independent non-executive Directors. The Company has no executive Directors or employees. Prior to her appointment as chair of the Committee, the Board concluded that Ms Fyfe had relevant experience and understanding of the Company.

The role of the Remuneration Committee is to design remuneration policies and practices to support the Group's strategy and to promote its long-term sustainable success. The objective of such policy shall be to attract, retain and motivate non-executive Directors of the quality required to govern the Company successfully without paying more than is necessary, having regard to views of shareholders and other stakeholders. The policy shall be reviewed by the Committee at least annually to ensure its ongoing appropriateness and relevance.

The Committee shall recommend a level of remuneration for each of the Directors to the Board, within the limits set in the Articles of Association or as otherwise approved by the Company's shareholders.

Full details of the Group's policy with regards to Directors' fees, the fees paid to each Director during the year ended 30 June 2022 and the intended fees to be paid in relation to the forthcoming year are shown on the following page.

Remuneration policy

The Group's policy is that the remuneration of the Directors should reflect the experience of the Board as a whole, the time commitment required and be fair and comparable with that of other similar companies. Furthermore, the level of remuneration should be sufficient to attract and retain the Directors needed to oversee the Group properly and to reflect its specific circumstances. The policy also provides for the Company's reimbursement of all out of pocket approved expenses incurred wholly and exclusively in fulfilling their duties in relation to the Group, such as reasonable travel and associated expenses incurred by the Directors in attending Board and Committee meetings.

The fees for the Directors are determined within the limit set out in the Company's Articles of Association and may not be changed without seeking shareholder approval at a general meeting. The fees are fixed and are payable in cash, quarterly in arrears. Directors are not eligible for bonuses, pension benefits, share options, long-term incentive schemes or other benefits. The Company may periodically choose to benchmark Directors' fees with an independent review, to ensure they remain fair and reasonable.

It is the Board's policy that Directors do not have service contracts, but each new Director is provided with a letter of appointment setting out the terms and conditions of his or her appointment. The Directors' letters of appointment are available on request at the Company's registered office during business hours and will be available for fifteen minutes prior to and during the forthcoming Annual General Meeting.

The terms of Directors' appointments provide that Directors should retire and be subject to election at the first Annual General Meeting after his or her appointment and, in accordance with the recommendations of the AIC Code, the Board has agreed that all Directors will retire annually and, if they wish, to offer themselves for re-election. There is no notice period and no provision for compensation upon termination of appointment.

The Remuneration Policy must be approved by shareholders at least every three years or, if earlier, when any changes to the policy are proposed by the Company.

Voting at Annual General Meeting on the Directors' Remuneration Policy

The Company has not received any direct communications from its shareholders in respect of the levels of Directors' remuneration. Shareholders last approved the Directors' Remuneration Policy at the Company's AGM held on 28 November 2019. 100 per cent of the votes cast were in favour of the resolution and votes withheld represented less than 0.002 per cent of the shares in issue. An ordinary resolution for the approval of the Directors' Remuneration Policy will be put to shareholders at the forthcoming AGM to be held on 6 December 2022 and, if approved, it is intended that this policy will continue for the three-year period ending at the AGM in 2025.

Directors' Remuneration Report continued

Directors' Fees

The Board considers the level of Directors' fees at least annually. At the end of the previous year, an external consultant was appointed to provide advice on the level of Directors' Remuneration in order to ensure that the level of remuneration remains in line with the market level necessary to attract, retain and motivate non-executive Directors of the quality required to govern the Company successfully. As highlighted in the prior year, the level of fees subsequently recommended by the Remuneration Committee, and approved by the Board, were, in aggregate, 6% lower than the external consultant's recommendation.

The Remuneration Committee conducted a review of the level of Directors;' fees at the end of the year ended 30 June 2022, which included:

consideration of the external consultant's recommendation in the prior year;
consideration of the level of inflation for the year ended 30 June 2022;
an assessment of the increased ongoing workload and responsibilities for the Directors, taking into account increasingly complex and onerous legal and regulatory requirements, the Company's subsequent inclusion in the FTSE-250 Index and the increase in the size of the Group as a result of the significant portfolio acquisition in December 2021, with total assets having increased by 34 per cent over the year;
consultation with various of the Group's advisers in relation to their experiences of current market practice; and
consideration of the level of fees paid by the Group's peer group;

The Committee concluded that the level of Directors' fees paid by the Company was currently below that paid by other similar companies. However, mindful of the current circumstances being faced by the healthcare sector and uncertainty over the general economic environment, it was considered appropriate that the increase in fees was restricted to a level below the current level of inflation, and consistent with the level of rental growth on a like-for-like basis witnessed in the Group's property portfolio for the year ended 30 June 2022. The aggregate level of fees proposed also remains below the recommendation of the external consultant in the prior year.

It is expected that an external review of the level of the Directors' remuneration will continue to be sought at least every three years, with the next external review expected to be conducted at 30 June 2024.

	Year ending 30 June 2023 £'s	Year ended 30 June 2022 £'s	Year ended 30 June 2021 £'s	Change in year ended 30 June 2022 %
Chairman	54,000	50,000	44,000	+13.6
Audit Committee Chair	45,500	44,000	39,000	+12.8
Director	39,000	37,500	32,750	+14.5

The present limit on Directors' fees is an aggregate of £250,000 per annum. This limit may be amended by changing the Company's Articles of Association, or by the passing of an ordinary resolution at a general meeting.

Annual Report on Directors' Remuneration

Directors' emoluments for the year (audited)

The Directors who served during the year received the following emoluments in the form of fees. No other forms of remuneration or taxable benefits were paid during the year.

	Year ended 30 June 2022 £'s	Change in year ended 30 June 2022 %	Year ended 30 June 2021 £'s	Change in year ended 30 June 2021 %
Malcolm Naish (Chairman)	50,000	+13.6	44,000	+0.0
Gordon Coull*	40,651	+4.2	39,000	+0.0
Alison Fyfe	37,500	+14.5	32,750	+600.0
Vince Niblett (appointed 25 August 2021)*	35,738	n/a	–	n/a
Amanda Thompsell (appointed 1 February 2022)	15,625	n/a	–	n/a
June Andrews (retired 14 December 2021)	17,067	-47.9	32,750	+0.0
Tom Hutchison (retired 14 December 2021)	17,067	-47.9	32,750	+0.0
Total	213,648	+17.9	181,250	+13.4

* Mr Niblett was appointed as Chair of the Audit Committee, succeeding Mr Coull who was appointed as Senior Independent Director, on 14 December 2021.

Relative importance of spend on pay

The table below compares the change in the level of Directors' remuneration compared to other expenses and distributions to shareholders.

	Year ended 30 June 2022 £'000	Year ended 30 June 2021 £'000	Change in year ended 30 June 2022 %
Aggregate Directors' remuneration	214	181	+17.9
Management fee and other revenue expenses*	13,702	11,130	+23.1
Distributions paid to shareholders in respect of the year	41,928	32,560	+28.8

* As an investment company with an external manager, the Group does not have any employees other than the Directors. The Directors therefore deem the level of the management fee and other revenue expenses, calculated in accordance with the Group's usual accounting policies, to be an appropriate measure to assist in understanding the relative importance of the Group's spend on Directors' pay.

Directors' shareholdings (audited)

The Directors who held office at the year-end and their interests (all of which were beneficially held) in the ordinary shares of the Company as at 30 June 2022 were as follows:

	Ordinary shares 30 June 2022	Ordinary shares 30 June 2021
Malcolm Naish	45,001	45,001
Gordon Coull	35,454	35,454
Alison Fyfe	10,000	–
Vince Niblett (appointed 25 August 2021)	–	n/a
Amanda Thompsell (appointed 1 February 2022)	–	n/a
June Andrews (retired 14 December 2021)	n/a	–
Tom Hutchison (retired 14 December 2021)	n/a	70,000
Total	90,455	150,455

There have not been any changes in the Directors' interests between 30 June 2022 and 11 October 2022. Neither Mr Niblett nor Dr Thompsell held any ordinary shares in the Company at the date of their respective appointments. No Director had an interest in any contracts with the Company during the year or subsequently.

Group performance

The Board is responsible for the Group's investment strategy and performance, although the management of the Group's investment portfolio is delegated to the Investment Manager through the investment management agreement, as referred to on page 30.

The graph below compares, from launch to 30 June 2022, the share price total return (assuming all dividends are reinvested) to ordinary shareholders compared to the total return on the FTSE EPRA Nareit UK Index. The index was chosen for comparative purposes as it represents the performance of real estate companies and REITs listed on the London Stock Exchange; however, it should be noted that this index will contain types of property assets that may perform significantly differently from the care home properties within the Group's investment remit.

Share Price Total Return and the FTSE EPRA Nareit UK Index Total Return Performance Graph (rebased to 100 at 7 March 2013)

The share price total return performance included in the above graph is based on the listed share price of Target Healthcare REIT Limited to 7 August 2019 and, following the reconstruction of the Group to introduce a new listed parent company, Target Healthcare REIT plc thereafter.

Voting at Annual General Meeting on the Annual Directors' Remuneration Report

At the Company's previous AGM, held on 14 December 2021, shareholders approved the Directors' Remuneration Report in respect of the year ended 30 June 2021. 99.1 per cent of the votes cast were in favour of the resolution and votes withheld represented less than 1.5 per cent of the shares in issue.

An ordinary resolution for the approval of this Annual Report on Directors' Remuneration will be put to shareholders at the forthcoming Annual General Meeting to be held on 6 December 2022.

On behalf of the Board

Alison Fyfe

Director 11 October 2022

Independent Auditor's Report to the members of Target Healthcare REIT plc

Opinion

In our opinion:

Target Healthcare REIT plc's Group financial statements and Parent Company financial statements (the "financial statements") give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 30 June 2022 and of the Group's profit for the year then ended;
the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards;
the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements of Target Healthcare REIT plc (the 'Parent Company') and its subsidiaries (the 'Group') for the year ended 30 June 2022 which comprise:

Group	Parent Company
Consolidated Statement of Comprehensive Income for the year ended 30 June 2022	Statement of Financial Position as at 30 June 2022
Consolidated Statement of Financial Position as at 30 June 2022	Statement of Changes in Equity for the year ended 30 June 2022
Consolidated Statement of Changes in Equity for the year ended 30 June 2022	Related Notes 1 to 13 to the financial statements including a summary of significant accounting policies
Consolidated Statement of Cash Flows for the year ended 30 June 2022
Related Notes 1 to 24 to the financial statements, including a summary of significant accounting policies

The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and UK adopted international accounting standards. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 "Reduced Disclosure Framework" (United Kingdom Generally Accepted Accounting Practice).

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Group and Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

The non-audit services prohibited by the FRC's Ethical Standard were not provided to the Group or the Parent Company and we remain independent of the Group and the Parent Company in conducting the audit.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors' assessment of the Group and Parent Company's ability to continue to adopt the going concern basis of accounting included:

Confirming our understanding of the Group and Parent Company's going concern assessment process and engaged with the Directors and the Company Secretary to determine if all key factors have been included in their assessment.
Inspecting the Directors' assessment of going concern, including the revenue and expenses forecast for the period to 31 December 2023 which is at least twelve months from the date the financial statements have been authorised for issue. In preparing the revenue and expenses forecast, the Group and Parent Company have concluded that they are able to continue to meet their costs as they fall due.
In respect of the continuation vote to be held at the AGM in 2022, reviewing analysis of the shareholder base and voting results of previous AGMs to establish voting patterns; and obtaining views of the Group's brokers on their assessment of expected voting intentions, to ascertain the likely outcome of the vote.
Reviewing the factors and assumptions, including the impact of external market factors, as applied to the revenue and expenses forecast. We considered the appropriateness of the methods used to calculate the revenue and expenses forecast, and determined, through testing of the methodology and calculations, that the methods, inputs and assumptions utilised were appropriate to be able to make an assessment for the Group and Parent Company.
In relation to the Group's borrowing arrangements, inspecting the Directors' assessment of the risk of breaching the debt covenants as a result of a reduction in the value of the Group's portfolio. We recalculated the Group's compliance with debt covenants in the scenarios assessed by the Directors and reperformed reverse stress testing prepared for the assessment in order to identify what factors would lead to the Group breaching the financial covenants.
Considering the mitigating factors included in the revenue forecasts and covenant calculations that are within the control of the Group and Parent Company.
Reviewing the Group's going concern disclosures included in the annual report in order to assess that the disclosures were appropriate and in conformity with UK adopted international accounting standards.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group and Parent Company's ability to continue as a going concern for a period to 31 December 2023, which is at least twelve months from the date the financial statements have been authorised for issue.

In relation to the Group's reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors' statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group's ability to continue as a going concern.

Overview of our audit approach

Key audit matters	– –	Incorrect valuation or ownership of investment properties Incomplete or inaccurate recognition of rental income including accounting for fixed rental uplifts and lease incentives
Materiality	–	Overall Group materiality of £6.99 million which represents 1% of Group net assets.

An overview of the scope of the Parent Company and Group audits

Tailoring the scope

Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each company within the Group and Parent Company. This enables us to form an opinion on the Group consolidated and Parent Company financial statements. We take into account size, the risk profile, the organisation of the Company and effectiveness of controls, including controls and changes in the business environment when assessing the level of work to be performed. All audit work performed for the purposes of the audit was undertaken by the Group audit team which includes our real estate valuation specialists.

Climate change

There has been increasing interest from stakeholders as to how climate change will impact companies. The Group and Parent Company has determined that the impact of climate change could affect the Group's investments and their valuations, and potentially shareholder returns. This is explained in the principal and emerging risks section on page 24, which forms part of the "Other information," rather than the audited financial statements. Our procedures on these disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated.

Our audit effort in considering climate change was focused on the adequacy of the Group and Parent Company's disclosures in the financial statements as set out in Note 1(a) and conclusion that there was no further impact of climate change to be taken into account as the investment properties are valued at fair value based on open market valuations as described in Note 1(h). The open market valuation assessment includes consideration of environmental matters and the condition of each property with detail on the fair value of properties provided within the notes to the financial statements. We also challenged the Directors' considerations of climate change in their assessment of viability and associated disclosures.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.

Independent Auditor's Report to the members of Target Healthcare REIT plc continued

Incorrect valuation or ownership of investment properties

(Refer to Report of the Audit Committee (page 47); Accounting policies (pages 64 and 65); and Notes 9 and 10 to the Consolidated Financial Statements (pages 70 to 72)).

At 30 June 2022, the Group's investment portfolio consists of UK healthcare properties, with a market value of £911.60m (2021: £677.53m) and carrying value of £857.69m (2021: £631.16m), which is net of a deduction of £56.71m (2021: £47.92m) to account for lease incentives and guaranteed rent reviews and an addition for accrued performance payments of £2.80m (2021: £1.55m).

The valuation of the properties held in the investment portfolio, and unrealised gains/(losses) on the investment portfolio are the key drivers of the Group's net asset value and total return. Incorrect pricing, including the judgement involved in the valuation of property investments could have a significant impact on the portfolio valuation and the return generated for shareholders.

The valuation of investment property requires significant judgement and estimates by the Investment Manager and the external valuers. Any input inaccuracies or unreasonable bases used in these judgements and estimates (such as in respect of estimated rental value and yield profile applied) could result in a material misstatement of the Statement of Financial Position and in the Statement of Comprehensive Income.

The properties are valued externally on behalf of the Group by Colliers International Healthcare Property Consultants Limited ('Colliers') and recorded in the Consolidated Financial Statements at their carrying value, being the Colliers open market valuation adjusted for the impact of lease incentives and rental uplifts.

Failure to maintain proper legal title of the Group's Investments could result in assets being incorrectly recognised within the Statement of Financial Position.

The valuation of investment properties and the resultant impact on unrealised gains/(losses) is the area requiring the most significant judgement and estimation in the preparation of the financial statements and has been classified as an area of fraud risk as highlighted on page 57.

Risk Our response to the risk

We performed the following procedures:

We obtained an understanding of the processes and controls surrounding investment valuation and unrealised gains and losses by performing walkthrough procedures.

We agreed the value of all the properties held at the year end to the open market valuations included in the valuation report provided by Colliers.

We agreed a sample of inputs used by Colliers in the valuation to source data.

We used our property valuation specialists to perform a review of the property valuations, which included:

Evaluating the competency, capability, objectivity and work performed by Colliers;
Reviewing the assumptions used by Colliers in undertaking their valuation and an assessment of the valuation methodology adopted;
Holding discussions with Colliers which included a high-level overview of the portfolio, covenant strength of the tenants within the portfolio and historical rent cover for a sample of properties;
Reviewing a sample of the individual property valuations, as at 30 June 2022 and examining key valuation inputs;
Analysing key changes in the property valuation as a whole including a review of the reasonableness of the income yields for the properties; and
Assessing the impact of COVID-19 through discussions with the Investment Manager and reviewing the impact of the expected credit loss calculations and memo on a sample of property valuations.

We reviewed the accounting policy and recalculated the adjustments made to the Colliers' fair value in respect of lease incentives and guaranteed rent reviews, to validate the carrying value of investment property.

We ensured the consolidated financial statements contain adequate disclosures regarding the methods and assumption used in the valuation, including the required sensitivity analysis under IFRS 13 'Fair value measurement'.

We obtained direct confirmation from independent third parties of the legal title to investment properties and development sites held as at 30 June 2022.

We agreed a sample of key transaction details (e.g. property and trade date) of purchases and sales recorded by the Administrator to legal agreements, completion statements and bank statements.

We recalculated the unrealised gains/losses on investment properties as at the year-end using the book cost reconciliation.

Key observations communicated to the Audit Committee

The results of our procedures identified no material misstatement in relation to the risk of incorrect valuation, calculation of unrealised gains/(losses) or ownership of investment properties.

Incomplete or inaccurate recognition of rental income including accounting for rental uplifts and lease incentives

(Refer to Report of the Audit Committee (page 48) and Accounting Policies (pages 63 and 64)).

During the year ended 30 June 2022, £59.01m (2021: £49.91m) has been recognised by the Group as rental income, £4.67m (2021: £nil) has been recognised as other rental income and £0.16m (2021: £0.07m) has been recognised as other income. Of this £49.77m (2021: £41.24m) has been recorded as revenue in the Consolidated Statement of Comprehensive Income and £14.09m (2021: £8.74m) as capital relating to guaranteed rent review uplifts which are being spread over the applicable lease term and other capital payments relating to lease events.

The rental income receivable by the Group during the period is a significant factor in the Group's decision to make a dividend payment to shareholders. Rental income from the investment properties is recognised on an accrual basis with the exception of contingent rents which are recognised on a receipt basis. The lease agreements tend to have durations of multiple years and minimum and maximum annual rental increase clauses. Leases may also include lease incentives such as rent-free periods. IFRS 16 'Leases' requires that lessors recognise lease payments as income on either a straight-line basis or another systematic basis if that basis is more representative of the pattern in which benefit derived from the use of the underlying asset is diminished.

There is a risk of incomplete or inaccurate recognition of rental income through the failure to recognise the proper entitlements or applying the appropriate accounting treatment.

Risk Our response to the risk

We performed the following procedures:

We obtained an understanding of the processes and controls surrounding rental income recognition including accounting for rental uplifts and lease incentives by performing walkthrough procedures.

We have reviewed the Group's accounting policies in respect of rental income recognition, including events relating to retenanting, and ensured they have been consistently applied throughout the year and are in accordance with applicable accounting standards.

We have verified 100% of the rental rates to lease agreements and recalculated 100% of the rental income recognised.

We reperformed the calculations of the rental adjustments required for rental uplifts and lease incentives under IFRS 16 for all tenants and tested the allocation of returns between revenue and capital.

We agreed a sample of rental income recorded as received to bank statements.

We tested that a sample of expected rent receipts had been recorded with reference to executed lease agreements to ensure completeness.

We have recalculated the contingent rent received and verified that it has been correctly recognised in the period.

Key observations communicated to the Audit Committee

The results of our procedures identified no material misstatement in relation to the risk of incomplete or inaccurate recognition of rental income including accounting for rental uplifts and lease incentives.

There have been no changes to our key audit matters from the prior year.

Our application of materiality

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.

Materiality

The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.

We determined materiality for the Group to be £6.99 million (2021: £5.65 million), which is 1% (2021: 1%) of net assets. We believe that net assets provides us with materiality aligned to a key measurement of the Group's performance.

We determined materiality for the Parent Company to be £6.99 million (2021: £5.45 million), which is 1% (2021: 1%) of net assets. We believe that net assets provides us with materiality aligned to a key measurement of the Parent Company's performance.

Performance materiality

The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Group's overall control environment, our judgement was that performance materiality was 75% (2021: 75%) of our planning materiality, namely £5.24 million (2021: £4.24 million). We have set performance materiality at this percentage due to our past experience of the audit that indicates a lower risk of misstatements, both corrected and uncorrected.

Independent Auditor's Report to the members of Target Healthcare REIT plc continued

Reporting threshold

An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.35 million (2021: £0.28 million), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.

Other information

The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or
the Parent Company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.

Corporate Governance Statement

We have reviewed the directors' statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Group and Parent Company's compliance with the provisions of the UK Corporate Governance Code specified for our review by the Listing Rules.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit:

Directors' statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 34;
Directors' explanation as to its assessment of the company's prospects, the period this assessment covers and why the period is appropriate set out on page 34 and 35;
Director's statement on whether it has a reasonable expectation that the Group will be able to continue in operation and meets its liabilities set out on page 34;
Directors' statement on fair, balanced and understandable set out on page 32;
Board's confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 25;
The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 46 and 47; and;
The section describing the work of the audit committee set out on pages 44 to 48.

Responsibilities of directors

As explained more fully in the directors' responsibilities statement set out on page 39, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group and Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.

However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the Group and management.

We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most significant are UK adopted international accounting standards for the Group, FRS 101 "Reduced Disclosure Framework" for the Parent Company, the Companies Act 2006, the Listing Rules, the UK Corporate Governance Code, the Association of Investment Companies' Code and Statement of Recommended Practice, Part 12 of the Corporation Tax Act 2010 and the Companies (Miscellaneous Reporting) Regulations 2018.
We understood how the Group is complying with those frameworks through discussions with the Audit Committee and Company Secretary and review of documented policies and procedures.
We assessed the susceptibility of the Group and Parent Company's financial statements to material misstatement, including how fraud might occur by considering the key risks impacting the financial statements. We identified fraud risks with respect to the incomplete or inaccurate recognition of rental income including accounting for rental uplifts and lease incentives; and incorrect valuation and the calculation of unrealised gains/(losses) of investment properties. Further discussion of our approach is set out in the section on key audit matters above.
Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures involved substantive audit procedures including a review of legal expenses incurred, review of the reporting to the Directors with respect to the application of the documented policies and procedures and review of the financial statements to ensure compliance with the reporting requirements of the Group and Parent Company.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Other matters we are required to address

Following the recommendation from the Audit Committee we were appointed as auditors of the Group, whose parent company at that time was Target Healthcare REIT Limited, on 10 September 2013. Following a group reconstruction in August 2019, Target Healthcare REIT plc became the Parent Company of the Group and re-appointed us as auditor of the Group on 4 September 2019.
The period of total uninterrupted engagement following reconstruction and including previous renewals and reappointments is three years, covering the years ended 30 June 2020 to 30 June 2022.
The audit opinion is consistent with the additional report to the Audit Committee.

Use of our report

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Group's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group and the Group's members as a body, for our audit work, for this report, or for the opinions we have formed.

Caroline Mercer (Senior statutory auditor)

For and on behalf of Ernst & Young LLP, Statutory Auditor Edinburgh 11 October 2022

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2022

			Year ended 30 June 2022		Year ended 30 June 2021
	Notes	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Revenue
Rental income		48,807	10,215	59,022	41,168	8,739	49,907
Other rental income		796	3,877	4,673	–	–	–
Other income		164	–	164	73	–	73
Total revenue		49,767	14,092	63,859	41,241	8,739	49,980
Gains on revaluation of investment
properties	9	–	5,553	5,553	–	9,536	9,536
Gains on investment properties realised Losses on revaluation of properties	9	–	–	–	–	1,306	1,306
held for sale	10	–	(7)	(7)	–	(92)	(92)
Total income		49,767	19,638	69,405	41,241	19,489	60,730
Expenditure
Investment management fee	2	(7,307)	–	(7,307)	(5,796)	–	(5,796)
Credit loss allowance and bad debts	3	(3,232)	–	(3,232)	(2,717)	–	(2,717)
Other expenses	3	(3,163)	–	(3,163)	(2,617)	–	(2,617)
Total expenditure		(13,702)	–	(13,702)	(11,130)	–	(11,130)
Profit before finance costs
and taxation		36,065	19,638	55,703	30,111	19,489	49,600
Net finance costs
Interest receivable	4	71	–	71	39	–	39
Interest payable and similar charges	5	(6,671)	–	(6,671)	(4,850)	(913)	(5,763)
Profit before taxation		29,465	19,638	49,103	25,300	18,576	43,876
Taxation	6	(6)	–	(6)	8	–	8
Profit for the year		29,459	19,638	49,097	25,308	18,576	43,884
Other comprehensive income: Items that are or may be reclassified subsequently to profit or loss
Movement in fair value of interest rate
swaps	14	–	2,033	2,033	–	298	298
Reclassification to profit and loss on
discontinuation of interest rate swaps	14	–	–	–	–	180	180
Total comprehensive income for
the year		29,459	21,671	51,130	25,308	19,054	44,362
Earnings per share (pence)	8	4.92	3.28	8.20	5.32	3.91	9.23

The total column of this statement represents the Group's Consolidated Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in the above statement are derived from continuing operations. No operations were discontinued in the year.

Consolidated Statement of Financial Position As at 30 June 2022

	Notes	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Non-current assets
Investment properties	9	857,691	631,156
Trade and other receivables	11	63,651	54,580
Interest rate swap	14	2,284	251
		923,626	685,987
Current assets
Trade and other receivables	11	5,549	3,981
Cash and cash equivalents	13	34,483	21,106
		40,032	25,087
Properties held for sale	10	–	7,320
		40,032	32,407
Total assets		963,658	718,394
Non-current liabilities
Bank loans	14	(231,383)	(127,904)
Trade and other payables	15	(7,145)	(6,840)
		(238,528)	(134,744)
Current liabilities
Trade and other payables	15	(26,363)	(18,465)
Total liabilities		(264,891)	(153,209)
Net assets		698,767	565,185
Share capital and reserves
Share capital	16	6,202	5,115
Share premium		256,633	135,228
Merger reserve		47,751	47,751
Distributable reserve		226,461	265,164
Hedging reserve		2,284	251
Capital reserve		83,750	64,112
Revenue reserve		75,686	47,564
Equity shareholders' funds		698,767	565,185

Net asset value per ordinary share (pence)	8	112.7	110.5

Company number: 11990238.

The financial statements on pages 58 to 78 were approved by the Board of Directors and authorised for issue on 11 October 2022 and were signed on its behalf by:

Malcolm Naish

Chairman

Consolidated Statement of Changes in Equity

For the year ended 30 June 2022

	Notes	Share capital £'000	Share premium £'000	Merger reserve £'000	Distributable reserve £'000	Hedging reserve £'000	Capital reserve £'000	Revenue reserve £'000	Total £'000
At 30 June 2021		5,115	135,228	47,751	265,164	251	64,112	47,564	565,185
Total comprehensive income for the year Transactions with owners recognised in equity:		–	–	–	–	2,033	19,638	29,459	51,130
Dividends paid	7	–	–	–	(38,703)	–	–	(1,337)	(40,040)
Issue of ordinary shares	16	1,087	123,913	–	–	–	–	–	125,000
Expenses of issue	16	–	(2,508)	–	–	–	–	–	(2,508)
At 30 June 2022		6,202	256,633	47,751	226,461	2,284	83,750	75,686	698,767

For the year ended 30 June 2021

	Notes	Share capital £'000	Share premium £'000	Merger reserve £'000	Distributable reserve £'000	Hedging reserve £'000	Capital reserve £'000	Revenue reserve £'000	Total £'000

At 30 June 2020		4,575	77,452	47,751	296,770	(227)	45,536	22,256	494,113
Total comprehensive income
for the year		–	–	–	–	478	18,576	25,308	44,362
Transactions with owners recognised in equity:
Dividends paid	7	–	–	–	(31,606)	–	–	–	(31,606)
Issue of ordinary shares	16	540	59,460	–	–	–	–	–	60,000
Expenses of issue	16	–	(1,684)	–	–	–	–	–	(1,684)
At 30 June 2021		5,115	135,228	47,751	265,164	251	64,112	47,564	565,185

Consolidated Statement of Cash Flows For the year ended 30 June 2022

	Notes	Year ended 30 June 2022 £'000	Year ended 30 June 2021 £'000
Cash flows from operating activities
Profit before tax		49,103	43,876
Adjustments for:
Interest receivable		(71)	(39)
Interest payable Revaluation gains on investment properties and movements in lease incentives,		6,671	5,763
net of acquisition costs written off	9	(19,645)	(19,581)
Revaluation losses on properties held for sale	10	7	92
Increase in performance payments	9	(1,250)	(1,550)
Increase in trade and other receivables		(3,768)	(1,232)
Increase in trade and other payables		4,590	1,859
		35,637	29,188
Interest paid		(5,310)	(4,266)
Interest received		71	39
Tax paid		(6)	(5)
		(5,245)	(4,232)
Net cash inflow from operating activities		30,392	24,956
Cash flows from investing activities Purchase of investment properties and properties held for sale, including acquisition costs Disposal of investment properties and properties held for sale, net of lease incentives		(206,993) 4,360	(51,400) 7,825
Net cash outflow from investing activities		(202,633)	(43,575)
Cash flows from financing activities
Issue of ordinary share capital	16	125,000	60,000
Expenses of issue of ordinary share capital	16	(2,508)	(1,684)
Drawdown of bank loan facilities	14	222,000	152,000
Repayment of bank loan facilities	14	(117,250)	(174,000)
Expenses of arrangement of bank loan facilities Dividends paid	14	(1,839) (39,785)	(1,538) (31,493)
Net cash inflow from financing activities		185,618	3,285

Net increase/(decrease) in cash and cash equivalents		13,377	(15,334)
Opening cash and cash equivalents		21,106	36,440
Closing cash and cash equivalents	13	34,483	21,106
Transactions which do not require the use of cash
Movement in fixed or guaranteed rent reviews and lease incentives		12,148	9,656
Fixed or guaranteed rent reviews derecognised on disposal or re-tenanting		(3,362)	(1,556)
Total		8,786	8,100

Notes to the Consolidated Financial Statements

1. Accounting policies

(a) Basis of preparation

A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below.

Basis of accounting

These Consolidated Financial Statements have been prepared and approved in accordance with UK-adopted International Financial Reporting Standards ('IFRS'), applicable legal and regulatory requirements of the Companies Act 2006 and the Listing Rules of the Financial Conduct Authority.

Where presentational guidance set out in the Statement of Recommended Practice ('SORP') for investment trust companies issued by the Association of Investment Companies ('AIC') in July 2022, which the Group has adopted early, is consistent with the requirements of IFRS, the Directors have sought to prepare the Consolidated Financial Statements on a basis compliant with the recommendations of the SORP.

The notes and financial statements are presented in pounds sterling (being the functional currency and presentational currency for the Company) and are rounded to the nearest thousand except where otherwise indicated.

Applicable standards and interpretations

The accounting policies adopted are consistent with those of the previous financial year and there are no significant new amendments to the standards that have become effective in the current year that have an impact on the Consolidated Financial Statements of the Group.

Standards issued but not yet effective

The amendments resulting from Annual Improvements to IFRS Standards 2018-2020 will become effective for annual periods beginning on or after 1 January 2022, including an amendment to IFRS 9: Financial Instruments – Fees in the '10 per cent' Test for Derecognition of Financial Liabilities which clarifies the fees a company includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability.

On 12 February 2021, the IASB issued amendments to IAS 1: Presentation of Financial Statements. The amendments aim to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their 'significant' accounting policies with a requirement to disclose their 'material' accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures. The amendment is effective for annual periods beginning on or after 1 January 2023.

On 12 February 2021, the IASB published 'Definition of Accounting Estimates (Amendments to IAS 8)' to help entities to distinguish between accounting policies, which must be applied retrospectively, and accounting estimates, which are accounted for prospectively. The amendments are effective for annual periods beginning on or after 1 January 2023 and changes in accounting policies and changes in accounting estimates that occur on or after the start of that period.

The Group does not consider that the future adoption of any new standards, amended standards or interpretations, in the form currently available, will have any material impact on the Consolidated Financial Statements as presented.

Significant estimates and judgements

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenue and expenses during the period. The nature of the estimation means that actual outcomes could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Revaluation of investment properties

Significant estimates and assumptions are made in the valuation of the investment properties and properties held for sale. The Group engaged an independent valuation specialist to assess fair values for the investment properties and properties held for sale. The key assumptions used to determine the fair value of the properties and sensitivity analyses are provided in Notes 9, 10 and 17.

Property lease classification – Group as lessor

The Group has entered into commercial property leases on its investment property portfolio. The Group has determined, based on an evaluation of the terms and conditions of the lease contracts, such as the lease term not constituting a major part of the economic life of the commercial property and/or the potential for the property to be re-tenanted prior to the end of the expected lease term, that it has not transferred substantially all the risks and rewards incidental to ownership of these properties and therefore accounts for the contracts as operating leases.

Provision for expected credit losses of accrued rent and trade receivables

The Group uses a provision matrix to calculate expected credit losses for accrued rent and trade receivables. The provision rates are initially based on the Group's historical observed default rates, adjusted for forward-looking information. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed. The continuing impact of COVID-19 is not expected to have a material impact on the provision rates set based on the Group's historical observed default rates. Where historical portfolio losses are not thought an appropriate measure of expected credit losses based on the circumstances of particular tenants, the expected credit losses are calculated by identifying scenarios that specify the amount and timing of cash flows for particular outcomes based on the Group's detailed knowledge, analysis and understanding of the financial standing of each individual rental income debtor (including, where appropriate, consideration of rental guarantees, rental deposits and other forms of surety). The expected credit loss is calculated by weighting the predicted loss under each scenario by an estimate of the probability of each of these outcomes.

The assessment of the correlation between historical observed default rates, forward looking information and estimated credit losses is a significant estimate, as is the assessment of the correlation between the identification of the potential scenarios that may arise and the estimated probability of each such scenario occurring. The amount of estimated credit losses is sensitive to changes in the financial circumstances of individual tenants and in forward-looking information. Further details are provided in Notes 3 and 17.

Going concern

Given the potentially significant impact relating to economic conditions in which the Group is operating, including COVID-19 and market uncertainty and rising costs, the Directors have continued to place a particular focus on the appropriateness of adopting the going concern basis in preparing the financial statements for the year ended 30 June 2022. The Group's going concern assessment particularly considered that:

The value of the Group's portfolio of assets significantly exceeds the value of its liabilities, with the valuation yield applied to the portfolio having tightened marginally since the start of the pandemic;
The Group is contractually entitled to receive rental income which significantly exceeds its forecast expenses and loan interest;
The Group remains within its loan covenants, with its finance facilities having been extended and increased during the period, resulting in a weighted average term to maturity of 6.9 years at 30 June 2022, an earliest repayment date of November 2024 and a fixed interest rate on £180 million of the Group's borrowings;
The Group issued further ordinary shares in September 2021, raising gross proceeds of £125 million; and
That the Directors currently have no reason to believe that the continuation vote required to be proposed under the Company's Articles at the forthcoming AGM will not be passed.

The forecast cash flows considered as part of the going concern assessment are based on the twelve months from the date of approval of the financial statements as contained in the Group's five-year viability model (as set out on pages 34 and 35). The viability model is based on a severe but plausible downside scenario, including the anticipated impact of COVID-19. Throughout this severe but plausible downside scenario the Group has sufficient cash reserves and is forecast to be able to remain within the financial covenants for each of its loan facilities for a period of at least twelve months from the date of approval of these financial statements. The Group has a significant balance of cash and undrawn debt available and the Group's current policy is to prudently retain a proportion of this to ensure it can continue to pay the Group's expenses and loan interest in the unlikely scenario that the level of rental income received deteriorates significantly. The proportion retained will be kept under review dependent on portfolio performance and market conditions.

Based on these considerations, the Directors consider that the Group has adequate resources to continue in operational existence to 31 December 2023, which is at least twelve months from the date of issuance of this report. For this reason, they continue to adopt the going concern basis in preparing the financial statements for the year ended 30 June 2022.

In preparing the Consolidated Financial Statements, the Directors have considered the impact of climate change risk as an emerging risk as set out on page 24. In line with IFRS, investment properties are valued at fair value based on open market valuations as described in Notes 1(h) and 9. The assessment of the open market valuation includes consideration of environmental matters and the condition of each property. The investment properties continue to be monitored by the Investment Manager and key considerations include EPC ratings as summarised at a portfolio level on page 2 and their impact on the properties' forecast compliance with forthcoming minimum energy efficiency standards. Having assessed the impact of climate change on the Group, the Directors concluded that it is not expected to have a significant impact on the Group's going concern or viability assessment as described on pages 34 and 35.

(b) Basis of consolidation

The Consolidated Financial Statements comprise the financial statements of the Company and all of its subsidiaries drawn up to 30 June 2022. Subsidiaries are those entities, including special purpose entities, controlled by the Company and further information is provided in Note 12. Control exists when the Company is exposed, or has rights, to variable returns from its investment with the investee and has the ability to affect those returns through its power over the investee. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the Consolidated Financial Statements from the date that control commences until the date that control ceases.

In preparing the Consolidated Financial Statements, intra group balances, transactions and unrealised gains or losses have been eliminated in full. Uniform accounting policies are adopted for all companies within the Group.

(c) Revenue recognition

Rental Income

Rental income arising on investment properties is accounted for in the Statement of Comprehensive Income on a straight line basis over the lease term taking account of the following:

The lease agreements on the properties held within the Group's property portfolio generally allow for regular increases in the contracted rental level in line with inflation, within a cap and a collar, or at a fixed level. Any rental income from such future fixed and minimum guaranteed rent review uplifts is recalculated to reflect the actual rent uplift realised in the period and is recognised on a straight line basis over the remainder of the lease term;
Lease incentives are spread evenly over the lease term, even if payments are not made on such a basis. The lease term is the non-cancellable period of the lease together with any further term for which the tenant has the option to continue the lease where, at the inception of the lease, the Directors are reasonably certain that the tenant will exercise that option; and
Contingent rents are recognised in the period in which they are received.

Where income is recognised in advance of the related cash flows due to fixed or minimum guaranteed rent review uplifts or lease incentives, an adjustment is made to ensure that the carrying value of the relevant property including the accrued rent relating to such uplifts or lease incentives does not exceed the external valuation.

Any rental income arising in the period due to the recognition of fixed or minimum guaranteed rent review uplifts on a straight line basis is recognised in the capital column of the Statement of Comprehensive Income.

1. Accounting policies continued

(c) Revenue recognition continued

Other Rental Income

Surrender premiums receivable are recognised on the completion of a deed of surrender and are recognised in revenue where the receipt is in compensation for a reduction in rent or the granting of a rent free period to an incoming tenant, and in capital when the premium received is in compensation for a reduction in the capital value of the relevant property as a result of the tenant's surrender of the lease.

Interest Receivable

Interest receivable is accounted for on an accruals basis.

Service charges and expenses recoverable from tenants

Income arising from expenses recharged to tenants is recognised in the period in which the compensation becomes receivable. Service charges and other such receipts are included gross of the related costs, as the Directors consider the Group acts as principal in this respect. Property-related expenses which are not recoverable from tenants are recognised in expenses on an accruals basis.

(d) Expenses

Expenses are accounted for on an accruals basis and are inclusive of irrecoverable VAT. The Group's investment management and administration fees, finance costs and all other expenses are charged through the Statement of Comprehensive Income and are charged to revenue, except where such costs relate wholly to capital matters such as the reorganisation of the Group's equity structure or the early repayment of its external loan facilities.

(e) Dividends

Dividends are accounted for in the period in which they are paid.

(f) Taxation

Taxation on the profit or loss for the period not exempt under UK-REIT regulations comprises current and deferred tax. Taxation is recognised in the Statement of Comprehensive Income except to the extent that it relates to items recognised as direct movements in equity, in which case it is also recognised as a direct movement in equity.

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date.

Deferred income tax is provided using the liability method on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which deductible temporary differences, carried forward tax credits or tax losses can be utilised. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities. In determining the expected manner of realisation of an asset the Directors consider that the Group will recover the value of investment property through sale. Deferred income tax relating to items recognised directly in equity is recognised in equity and not in profit or loss.

Entry to UK-REIT Regime

The Group entered the UK-REIT regime with effect from 1 June 2013. The Company entered the Group REIT regime with effect from 7 August 2019, the date at which it become the parent company of the Group. The Group's subsidiaries all enter the Group REIT regime on acquisition/ incorporation. Entry to the regime results in, subject to continuing relevant UK-REIT criteria being met, the profits of the Group's property rental business, comprising both income and capital gains, being exempt from UK taxation.

The Group ensures that it complies with the UK-REIT regulations through monitoring the ongoing conditions required to maintain REIT status.

(g) Property acquisitions

Where property is acquired, via corporate acquisitions or otherwise, management considers the substance of the assets and activities of the acquired entity in determining whether the acquisition represents the acquisition of a business or the acquisition of an asset.

Where such acquisitions are not judged to be an acquisition of a business, they are not treated as business combinations. Rather, the cost to acquire the corporate entity is allocated between the identifiable assets and liabilities of the entity based on their relative fair values at the acquisition date. Accordingly, no goodwill or additional deferred taxation arises. Otherwise, acquisitions are accounted for as business combinations.

(h) Investment properties

Investment properties consist of land and buildings (principally care homes) which are not occupied for use by, or in the operations of, the Group, nor for sale in the ordinary course of business, but are held to earn rental income together with the potential for capital and income growth.

Investment properties are initially recognised at cost, being the fair value of consideration given, including transaction costs associated with the investment property. Any subsequent capital expenditure incurred in improving investment properties is capitalised in the period incurred and included within the book cost of the property.

For properties subject to contingent payment clauses within their purchase agreements, which will result in a further payment if certain performance measures are met, this payment is recognised as a liability when the contracted performance conditions have been met and a reliable estimate can be made of the amount. Any payment made will result in an increase in rental income receivable from the tenant, to maintain the investment yield from the property, and therefore an asset of approximately equal value is recognised to reflect the fair value of this increase in rental income.

Development interest (where income is receivable from a developer in respect of a forward-funding agreement) is deducted from the cost of investment and shown as a receivable until settled.

64 Target Healthcare REIT plc

After initial recognition, investment properties are measured at fair value, with gains and losses recognised in the Statement of Comprehensive Income. Fair value is based on the open market valuation, as provided by Colliers International Healthcare Property Consultants Limited, in their capacity as external valuers, at the balance sheet date using recognised valuation techniques, appropriately adjusted for unamortised lease incentives and rental adjustments.

The determination of the fair value of investment properties requires the use of estimates such as future cash flows from assets (such as lettings, tenants' profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those assets. These estimates are based on local market conditions existing at the balance sheet date.

On derecognition, gains and losses on disposals of investment properties are recognised in the Statement of Comprehensive Income and transferred to the Capital Reserve. Recognition and derecognition occurs on the completion of a sale between a willing buyer and a willing seller.

(i) Properties held for sale

Properties held for sale consist of properties whose carrying value is expected to be recovered principally through a sale transaction rather than continuing use and which are available for immediate sale in their present condition. They are initially recognised at cost, being the fair value of consideration given, and subsequently measured at fair value, with gains and losses recognised in the Statement of Comprehensive Income. Fair value is based on the open market valuation, as provided by Colliers International Healthcare Property Consultants Limited, in their capacity as external valuers, at the balance sheet date using recognised valuation techniques.

(j) Cash and cash equivalents

Cash and cash equivalents consist of cash in hand and short-term deposits in banks with an original maturity of three months or less.

(k) Rent and other receivables

Rent receivables are carried at amortised cost. A provision for impairment of trade receivables is calculated through the expected credit loss method in accordance with IFRS 9. As part of this expected credit loss process the following is taken into account: significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue). The carrying amount of the asset is reduced through use of an allowance account and the amount of loss is recognised in the Statement of Comprehensive Income in other expenses, separately disclosed as an impairment. Bad debts are written off once all avenues to recover the debt have been exhausted and the lease has ended, or a formal settlement agreement has been reached.

Other incentives provided to tenants and fixed or guaranteed rental uplifts are recognised as an asset and amortised over the period from the date of lease commencement to the earliest termination date.

(l) Interest-bearing bank loans and borrowings

All bank loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of arrangement costs associated with the borrowing. After initial recognition, all interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any loan arrangement costs and any discount or premium on settlement.

(m) Derivative financial instruments

The Group uses derivative financial instruments to hedge its risk associated with interest rate fluctuations. The Group's policy is not to trade in derivative instruments.

Derivative instruments are initially recognised in the Statement of Financial Position at their fair value. Fair value is determined by using a model to calculate the net present value of future market interest rates or by using market values for similar instruments. Transaction costs are expensed immediately.

The effective portion of the gains or losses arising on the fair value of cash flow hedges in the form of derivative instruments is reported through Other Comprehensive Income and are recognised through the Hedging Reserve. The ineffective portion is recognised through profit or loss in the Statement of Comprehensive Income. On maturity, or early redemption, the unrealised gains or losses arising from cash flow hedges in the form of derivative instruments, initially recognised in Other Comprehensive Income, are reclassified to profit or loss.

The Group considers that its interest rate swaps qualify for hedge accounting when the following criteria are satisfied:

The instruments must be related to an asset or liability;
They must change the character of the interest rate by converting a variable rate to a fixed rate or vice versa;
They must match the principal amounts and maturity dates of the hedged items;
As cash-flow hedges, the forecast transactions (incurring interest payable on the bank loans) that are subject to the hedges must be highly probable and must present an exposure to variations in cash flows that could ultimately affect the profit or loss;
The hedge must be effective meaning that there must be an economic relationship between the hedged item and the hedging instrument; the effect of credit risk must not dominate the value changes that result from that economic relationship; and the hedge ratio of the hedging relationship must be the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item; and
At the inception of the hedge there must be formal designation and documentation of the hedging relationship and the Group's risk management objective and strategy for undertaking the hedge.

(n) Reserves

Share Premium

The share premium account represents the difference between the issue price of shares and their nominal value (excluding those issued as part of the Group reconstruction). This reserve is non-distributable.

1. Accounting policies continued

(n) Reserves continued

Merger Reserve

The merger reserve arose on the reconstruction of the Group in August 2019 (the 'Group Reconstruction') and represents the difference between the nominal value and the fair value of the shares issued by the Company in exchange for the shares of the Group's previous parent company, Target Healthcare REIT Limited. This reserve is non-distributable.

Distributable Reserve

The distributable reserve represents the balance arising following the reduction of the nominal value of the shares issued as part of the Group Reconstruction from £1.00 per share to £0.01 per share, as approved by the High Court in September 2019. The distributable reserve was reduced by the difference between the fair value of the shares allotted by the Company, in exchange for the shares of Target Healthcare REIT Limited, and the stated capital of Target Healthcare REIT Limited immediately prior to the Group Reconstruction.

This reserve is distributable. Any dividends paid in excess of the balance of the revenue reserve in the Company Financial Statements will be charged to this reserve.

Hedging Reserve

The following are accounted for in the hedging reserve:

– Increases and decreases in the fair value of interest rate swaps held at the period end.

Capital Reserve

The following are accounted for in the capital reserve:

Gains and losses on the disposal of investment properties;
Gains and losses on the disposal of properties held for sale;
Increases and decreases in the fair value of investment properties and properties held for sale which are held at the period end;
Rent adjustments which represent the effect of spreading uplifts and incentives;
Other expenses or finance costs charged to the capital column of the Statement of Comprehensive Income;
Taxation arising on the acquisition or disposal of investment properties or properties held for sale;
Recovery of any cost/tax where the original expense/tax has also been charged to capital; and
The buyback of shares into, and resale of shares from, treasury.

Revenue Reserve

The net profit/(loss) arising in the revenue column of the Statement of Comprehensive Income is added to or deducted from this reserve which, in addition to the distributable reserve, is available for paying dividends.

2. Fee paid to the Investment Manager

	Year ended 30 June 2022 £'000	Year ended 30 June 2021 £'000
Management fee	7,307	5,796
Total	7,307	5,796

The Group's Investment Manager and Alternative Investment Fund Manager ('AIFM') is Target Fund Managers Limited. The Investment Manager is entitled to an annual management fee calculated on a tiered basis based on the net assets of the Group as set out below. Where applicable, VAT is payable in addition.

Net assets of the Group	Management fee percentage
Up to and including £500 million	1.05
Above £500 million and up to and including £750 million	0.95
Above £750 million and up to and including £1 billion	0.85
Above £1 billion and up to and including £1.5 billion	0.75
Above £1.5 billion	0.65

The Investment Manager is entitled to an additional fee of £126,000 per annum (plus VAT), increasing annually in line with inflation, in relation to their appointment as Company Secretary and Administrator to the Group.

The Investment Management Agreement can be terminated by either party on 24 months' written notice. Should the Company terminate the Investment Management Agreement earlier then compensation in lieu of notice will be payable to the Investment Manager. The Investment Management Agreement may be terminated immediately without compensation if the Investment Manager: is in material breach of the agreement; is guilty of negligence, wilful default or fraud; is the subject of insolvency proceedings; or there occurs a change of Key Managers to which the Board has not given its prior consent.

3. Other expenses

	Year ended 30 June 2022 £'000	Year ended 30 June 2021 £'000
Credit loss allowance	2,865	1,697
Bad debts written off	367	1,020
Total credit loss allowance and bad debts	3,232	2,717
Valuation and other professional fees Auditor's remuneration for:	1,143	1,008
– statutory audit of the Company	118	104
– statutory audit of the Company's subsidiaries	230	184
– review of interim financial information	16	15
Other taxation compliance and advisory*	361	436
Public relations and marketing	327	213
Directors' fees	214	181
Secretarial and administration fees	177	172
Direct property costs	160	32
Printing, postage and website	111	92
Listing and Registrar fees	102	78
Other	204	102
Total other expenses	3,163	2,617

* The other taxation compliance and advisory fees were all paid to parties other than the Company's Auditor.

The valuers of the investment properties, Colliers International Healthcare Property Consultants Limited, have agreed to provide valuation services in respect of the property portfolio. The valuation agreement states that annual fees will be payable quarterly based on rates of 0.05 per cent of the aggregate value of the property portfolio up to £30 million, 0.04 per cent up to £60 million and 0.035 per cent greater than £60 million.

Expenses are inclusive of irrecoverable VAT as the Company, and the majority of its subsidiaries, are not VAT registered.

4. Interest receivable

	Year ended 30 June 2022 £'000	Year ended 30 June 2021 £'000
Deposit interest	71	39
Total	71	39

5. Interest payable and similar charges

Total	6,671	5,763
Cost of early redemption	–	913
Amortisation of loan costs	568	574
Interest paid on bank loans	6,103	4,276
	Year ended 30 June 2022 £'000	Year ended 30 June 2021 £'000

6. Taxation

	Year ended 30 June 2022 £'000	Year ended 30 June 2021 £'000
Current tax	6	–
Adjustment to tax charge for prior years	–	(8)
Total tax charge/(credit)	6	(8)

6. Taxation continued

A reconciliation of the corporation tax charge applicable to the results at the statutory corporation tax rate to the charge for the year is as follows:

	Year ended 30 June 2022 £'000	Year ended 30 June 2021 £'000
Profit before tax	49,103	43,876
Tax at 19.0% (2021: 19.0%)	9,330	8,336
Effects of:
REIT exempt profits	(6,671)	(5,468)
REIT exempt gains	(1,642)	(1,920)
Capital allowances	(1,642)	(1,343)
Excess management expenses carried forward	624	212
Expenses not deductible for tax purposes	7	183
Adjustment to tax charge for prior years	–	(8)
Total tax charge/(credit)	6	(8)

The Directors intend to conduct the Company's affairs such that management and control is exercised in the United Kingdom and so that the Company carries on any trade in the United Kingdom.

Subject to continuing relevant UK-REIT criteria being met, the profits from the Group's property rental business, arising from both income and capital gains, are exempt from corporation tax.

The Group has unutilised tax losses carried forward in its residual business of £10.6 million at 30 June 2022 (2021: £6.3 million). No deferred tax asset has been recognised on this amount as the Group cannot be certain that there will be taxable profits arising within its residual business from which the future reversal of the deferred tax asset could be deducted.

7. Dividends

Amounts paid as distributions to equity holders during the year to 30 June 2022. Dividend rate

Total	6.75	40,040
Third interim dividend for the year ended 30 June 2022	1.69	10,482
Second interim dividend for the year ended 30 June 2022	1.69	10,482
First interim dividend for the year ended 30 June 2022	1.69	10,482
Fourth interim dividend for the year ended 30 June 2021	1.68	8,594
	(pence per share)	Year ended 30 June 2022 £'000

Amounts paid as distributions to equity holders during the year to 30 June 2021.	Dividend rate (pence per share)	Year ended 30 June 2021 £'000
Fourth interim dividend for the year ended 30 June 2020	1.67	7,640
First interim dividend for the year ended 30 June 2021	1.68	7,686
Second interim dividend for the year ended 30 June 2021	1.68	7,686
Third interim dividend for the year ended 30 June 2021	1.68	8,594
Total	6.71	31,606

It is the policy of the Directors to declare and pay dividends as interim dividends. The Directors do not therefore recommend a final dividend. The fourth interim dividend in respect of the year ended 30 June 2022, of 1.69 pence per share, was paid on 26 August 2022 to shareholders on the register on 12 August 2022 and amounted to £10,482,000. It is the intention of the Directors that the Group will continue to pay dividends quarterly.

8. Earnings per share and Net Asset Value per share

Earnings per share	Year ended 30 June 2022		Year ended 30 June 2021
	£'000	Pence per share	£'000	Pence per share
Revenue earnings	29,459	4.92	25,308	5.32
Capital earnings	19,638	3.28	18,576	3.91
Total earnings	49,097	8.20	43,884	9.23
Average number of shares in issue	599,093,808			475,406,929

There were no dilutive shares or potentially dilutive shares in issue.

EPRA is an industry body which issues best practice reporting guidelines for financial disclosures by public real estate companies and the Group report an EPRA NAV quarterly. EPRA has issued best practice recommendations for the calculation of certain figures which are included below. Other EPRA measures are included in the EPRA Performance Measures on pages 96 and 97.

The EPRA earnings are arrived at by adjusting for the revaluation movements on investment properties and other items of a capital nature and represents the revenue earned by the Group.

The Group's specific adjusted EPRA earnings adjusts the EPRA earnings for rental income arising from recognising guaranteed rental review uplifts and for development interest received from developers in relation to monies advanced under forward fund agreements which, in the Group's IFRS financial statements, is required to be offset against the book cost of the property under development. The Board believes that the Group's specific adjusted EPRA earnings represents the underlying performance measure appropriate for the Group's business model as it illustrates the underlying revenue stream and costs generated by the Group's property portfolio. The reconciliations are provided in the table below:

	Year ended 30 June 2022 £'000	Year ended 30 June 2021 £'000
Earnings per IFRS Consolidated Statement of Comprehensive Income	49,097	43,884
Adjusted for gains on investment properties realised	–	(1,306)
Adjusted for revaluations of investment properties	(5,553)	(9,536)
Adjusted for revaluations of properties held for sale	7	92
Adjusted for other capital items	(3,877)	913
EPRA earnings Adjusted for rental income arising from recognising guaranteed rent review uplifts Adjusted for development interest under forward fund agreements	39,674 (10,215) 783	34,047 (8,739) 647
Group specific adjusted EPRA earnings	30,242	25,955
Earnings per share ('EPS') (pence per share)
EPS per IFRS Consolidated Statement of Comprehensive Income	8.20	9.23
EPRA EPS	6.62	7.16
Group specific adjusted EPRA EPS	5.05	5.46

Net Asset Value per share

The Group's Net Asset Value per ordinary share of 112.7 pence (2021: 110.5 pence) is based on equity shareholders' funds of £698,767,000 (2021: £565,185,000) and on 620,237,346 (2021: 511,541,694) ordinary shares, being the number of shares in issue at the year-end.

The EPRA best practice recommendations include a set of EPRA NAV metrics that are arrived at by adjusting the net asset value calculated under International Financial Reporting Standards ('IFRS') to provide stakeholders with what EPRA believe to be the most relevant information on the fair value of the assets and liabilities of a real estate investment company, under different scenarios. The three EPRA NAV metrics are:

EPRA Net Reinstatement Value ('NRV'): Assumes that entities never sell assets and aims to represent the value required to rebuild the entity. The objective is to highlight the value of net assets on a long-term basis. Assets and liabilities that are not expected to crystallise in normal circumstances, such as the fair value movements on financial derivatives, are excluded and the costs of recreating the Group through investment markets, such as property acquisition costs and taxes, are included.
EPRA Net Tangible Assets ('NTA'): Assumes that entities buy and sell assets, thereby crystallising certain levels of unavoidable deferred tax. Given the Group's REIT status, it is not expected that significant deferred tax will be applicable to the Group.
EPRA Net Disposal Value ('NDV'): Represents the shareholders' value under a disposal scenario, where deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liability, net of any resulting tax. At 30 June 2022, the Group held all its material balance sheet items at fair value, or at a value considered to be a close approximation to fair value, in its financial statements apart from its fixed-rate debt facilities where the fair value is estimated to be lower than the nominal value. See Note 14 for further details on the Group's loan facilities.

	2022 EPRA NRV £'000	2022 EPRA NTA £'000	2022 EPRA NDV £'000	2021 EPRA NRV £'000	2021 EPRA NTA £'000	2021 EPRA NDV £'000
IFRS NAV per financial statements	698,767	698,767	698,767	565,185	565,185	565,185
Fair value of interest rate swap	(2,284)	(2,284)	–	(251)	(251)	–
Fair value of loans	–	–	22,257	–	–	(1,389)
Estimated purchasers' costs	60,225	–	–	44,696	–	–
EPRA net assets	756,708	696,483	721,024	609,630	564,934	563,796
EPRA net assets (pence per share)	122.0	112.3	116.2	119.2	110.4	110.2

9. Investment properties

Freehold and leasehold properties As at 30 June 2022 £'000 As at 30 June 2021 £'000 Opening market value 677,525 610,084 Opening fixed or guaranteed rent reviews and lease incentives (47,919) (39,998) Performance payments 1,550 – Opening carrying value 631,156 570,086 Disposals – proceeds – (7,616) – gain on sale – 2,336 Purchases 199,869 52,295 Transfer from properties held for sale 6,830 – Acquisition costs capitalised 9,671 2,264 Acquisition costs written off (9,671) (2,264) Unrealised gain realised during the year – (1,030) Revaluation movement – gains 43,234 26,565 Revaluation movement – losses (15,862) (5,109) Movement in market value 234,071 67,441 Fixed or guaranteed rent reviews and lease incentives derecognised on disposal or re-tenanting 3,362 1,735 Movement in fixed or guaranteed rent reviews and lease incentives (12,148) (9,656) Movement in performance payments 1,250 1,550 Movement in carrying value 226,535 61,070 Closing market value 911,596 677,525 Closing fixed or guaranteed rent reviews and lease incentives (56,705) (47,919) Closing performance payments (see Note 19) 2,800 1,550 Closing carrying value 857,691 631,156 Changes in the valuation of investment properties Year ended 30 June 2022 £'000 Year ended 30 June 2021 £'000 Gain on sale of investment properties – 2,336 Unrealised gain realised during the year – (1,030) Gains on sale of investment properties realised – 1,306 Revaluation movement 27,372 21,456

Acquisition costs written off (9,671) (2,264) Movement in lease incentives (1,933) (917) Movement in fixed or guaranteed rent reviews (10,215) (8,739) Gains on revaluation of investment properties 5,553 10,842

The investment properties can be analysed as follows:	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Standing assets	892,336	655,175
Developments under forward fund agreements	19,260	22,350
Closing market value	911,596	677,525

The properties were valued at £911,596,000 (2021: £677,525,000) by Colliers International Healthcare Property Consultants Limited ('Colliers'), in their capacity as external valuers. The valuation was undertaken in accordance with the RICS Valuation – Global Standards, incorporating the International Valuation Standards (the 'Red Book Global', 31 January 2022) issued by the Royal Institution of Chartered Surveyors ('RICS') on the basis of Market Value, supported by reference to market evidence of transaction prices for similar properties. Colliers has recent experience in the location and category of the investment properties being valued.

Market Value represents the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing where the parties had each acted knowledgeably, prudently and without compulsion. The quarterly property valuations are reviewed by the Board at each Board meeting. The fair value of the properties after adjusting for the movement in the fixed or guaranteed rent reviews and lease incentives was £857,691,000 (2021: £631,156,000). The adjustment consisted of £48,802,000 (2021: £41,949,000) relating to fixed or guaranteed rent reviews and £7,903,000 (2021: £5,970,000) of accrued income relating to the recognition of rental income over rent free periods subsequently amortised over the life of the lease, which are both separately recorded in the accounts as non-current or current assets within 'trade and other receivables' (see Note 11). An adjustment is also made to reflect the amount by which the portfolio value is expected to increase if the performance payments recognised in 'trade and other payables' are paid and the passing rent at the relevant property increased accordingly (see Notes 15 and 19). The total purchases in the year to 30 June 2022, inclusive of the performance payments recognised, were £201,119,000 (2021: £53,845,000).

All leasehold properties are carried at fair value rather than amortised over the term of the lease. The same valuation criteria are therefore applied to leasehold as freehold properties. Other than one property where the leasehold expires in 2265, all leasehold properties have more than 800 years remaining on the lease term.

The Group's investment properties are valued by Colliers on a quarterly basis. The valuation methodology used is the yield model, which is a consistent basis for the valuation of investment properties within the healthcare industry. This model has regard to the current investment market and evidence of investor interest in properties with income streams secured on healthcare businesses. On an asset-specific basis, the valuer makes an assessment of: the quality of the asset; recent and current performance of the asset; and the financial position and performance of the tenant operator. This asset specific information is used alongside a review of comparable transactions in the market and a yield is applied to the asset which, along with the contracted rental level, is used to derive a market value.

The real estate investment and occupier markets are currently in a state of transition as they begin to align themselves with the sustainable development goals of government and the new generation of real estate users. Colliers are mindful of the potential impacts ESG may have on capital and rental valuations and have considered the guidance provided by the RICS and VPGA 8 of the Red Book. Specific climate-related risks, such as a reasonably foreseeable increase in the risk of site or coastal flooding, are reflected in the property valuations. However, Colliers have not undertaken sustainability audits and are not qualified to do so as valuers. Therefore the external valuations only explicitly reflect immediate sustainability/resilience capital costs where technical information relating to the same has been made available, namely in respect of upgrading the properties to meet Minimum Energy Efficiency Standard regulations and flood prevention.

The Group is required to classify fair value measurements of its investment properties using a fair value hierarchy, in accordance with IFRS 13 'Fair Value Measurement'. This hierarchy reflects the subjectivity of the inputs used, and has the following levels:

Level 1: unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2: observable inputs other than quoted prices included within level 1;
Level 3: use of inputs that are not based on observable market data.

In determining what level of the fair value hierarchy to classify the Group's investments within, the Directors have considered the content and conclusion of the position paper on IFRS 13 prepared by the European Public Real Estate Association ('EPRA'), the representative body of the publicly listed real estate industry in Europe. This paper concludes that, even in the most transparent and liquid markets, it is likely that valuers of investment property will use one or more significant unobservable inputs or make at least one significant adjustment to an observable input, resulting in the vast majority of investment properties being classified as level 3.

Observable market data is considered to be that which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. In arriving at the valuation Colliers make adjustments to observable data of similar properties and transactions to determine the fair value of a property and this involves the use of considerable judgement. Considering the Group's specific valuation process, industry guidance, and the level of judgement required in the valuation process, the Directors believe it appropriate to classify the Group's investment properties within level 3 of the fair value hierarchy.

The Group's investment properties, which are all care homes, are considered to be a single class of assets. The weighted average net initial yield ('NIY') on these assets, as measured by the EPRA topped up NIY, is 5.8 per cent. The yield on the majority of the individual assets ranges from 5.0 per cent to 8.0 per cent. There have been no changes to the valuation technique used through the period, nor have there been any transfers between levels.

The key unobservable inputs made in determining the fair values are:

Contracted rental level: the rent payable under the lease agreement at the date of valuation or, where applicable, on expiry of the rent free period; and
Yield: the yield is defined as the initial net income from a property at the date of valuation, expressed as a percentage of the gross purchase price including the costs of purchase.

The contracted rental level and yield are not directly correlated although they may be influenced by similar factors. Rent is set at a long-term, supportable level and is likely to be influenced by property-specific matters. The yield also reflects market sentiment and the strength of the covenant provided by the tenant with a stronger covenant attracting a lower yield.

The lease agreements on the properties held within the Group's property portfolio generally allow for annual increases in the contracted rental level in line with inflation, within a cap and a collar. An increase of 1.0 per cent in the contracted rental level will increase the fair value of the portfolio, and consequently the Group's reported income from unrealised gains on investments, by £9,116,000 (2021: £6,775,000); an equal and opposite movement would have decreased net assets and decreased the Group's income by the same amount.

A decrease of 0.25 per cent in the yield applied to the portfolio will increase the fair value of the portfolio by £40,729,000 (2021: £30,086,000), and consequently increase the Group's reported income from unrealised gains on investments. An increase of 0.25 per cent in the net initial yield will decrease the fair value of the portfolio by £37,388,000 (2021: £27,656,000) and reduce the Group's income.

10. Properties held for sale

	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Opening fair value	7,320	7,500
Purchases	–	300
Disposals – proceeds	(483)	(388)
– gain on sale	122	34
Unrealised gain realised during the period	(129)	(126)
Transfer to investment properties	(6,830)	–
Closing fair value	–	7,320

10. Properties held for sale continued

The properties held for sale were valued by Colliers International Healthcare Property Consultants Limited ('Colliers'). The properties held for sale consist of two blocks of apartments adjacent to an existing property holding which were acquired to consolidate ownership of the overall retirement village. Certain of the apartments are being rented on a short-term basis whilst awaiting sale.

As the apartments have been held for a period of more than twelve months since initial acquisition, they have been reclassified as investment properties and transferred at their fair value at 30 June 2022. However, there is no change to the Group's commercial intention in relation to these apartments which is to sell the leasehold on the individual apartments in the short to medium term.

11. Trade and other receivables

Non-current trade and other receivables	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Fixed rent reviews	48,802	41,949
Rental deposits held in escrow for tenants	7,145	6,840
Lease incentives	7,704	5,791
Total	63,651	54,580
Current trade and other receivables	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Lease incentives	199	179
VAT recoverable	1,387	732
Accrued income – rent receivable	906	955
Accrued development interest under forward fund agreements	452	739
Other debtors and prepayments	2,605	1,376
Total	5,549	3,981

At the year-end, trade and other receivables include a fixed rent review debtor of £48,802,000 (2021: £41,949,000) which represents the effect of recognising guaranteed rental uplifts on a straight line basis over the lease term and £7,903,000 (2021: £5,970,000) of accrued income relating to the recognition of rental income over rent free periods subsequently amortised over the life of the lease.

12. Investment in subsidiary undertakings

The Group included 57 subsidiary companies as at 30 June 2022 (30 June 2021: 50). All subsidiary companies were wholly owned, either directly or indirectly, by the Company and, from the date of acquisition onwards, the principal activity of each company within the Group was to act as an investment and property company. Other than one subsidiary incorporated in Jersey, two subsidiaries incorporated in Gibraltar and two subsidiaries incorporated in Luxembourg, all subsidiaries are incorporated within the United Kingdom.

During the period, the Group incorporated five new subsidiaries, THR Number 41 Limited, THR Number 42 Limited, THR Number 43 plc, THR Number 45 Limited and THR Number 46 Limited. The Group also acquired two new companies which have been renamed THR Number 47 Limited and THR Number 48 Limited. The Group includes eight companies which were acquired as part of previous corporate acquisitions and which, having remained dormant throughout the year, have been placed into liquidation.

13. Cash and cash equivalents

All cash balances at the year-end were held in cash, current accounts or deposit accounts. As at

	30 June 2022 £'000	As at 30 June 2021 £'000
Cash at bank and in hand Short-term deposits	34,020 463	19,330 1,776
Total	34,483	21,106

14. Bank loans

	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Principal amount outstanding Set-up costs Amortisation of set-up costs	234,750 (4,315) 948	130,000 (2,476) 380
Total	231,383	127,904

In November 2020, the Group entered into a £70,000,000 committed term loan and revolving credit facility with the Royal Bank of Scotland plc ('RBS') which is repayable in November 2025. Interest accrues on the bank loan at a variable rate, based on SONIA plus margin and mandatory lending costs, and is payable quarterly. The margin is 2.18 per cent per annum on £50,000,000 of the facility and 2.33 per cent per annum on the remaining £20,000,000 revolving credit facility, both for the duration of the loan. A non-utilisation fee of 1.13 per cent per annum is payable on the first £20,000,000 of any undrawn element of the facility, reducing to 1.05 per cent per annum thereafter. As at 30 June 2022, the Group had drawn £50,000,000 under this facility (2021: £30,000,000).

In November 2020, the Group entered into a £100,000,000 revolving credit facility with HSBC Bank plc ('HSBC') which is repayable in November 2024, with the option of a one-year extension thereafter subject to the consent of HSBC. Interest accrues on the bank loan at a variable rate, based on SONIA plus margin and mandatory lending costs, and is payable quarterly. The margin is 2.17 per cent per annum for the duration of the loan and a non-utilisation fee of 0.92 per cent per annum is payable on any undrawn element of the facility. As at 30 June 2022, the Group had drawn £34,750,000 under this facility (2021: £50,000,000).

In January 2020, the Group entered into a £50,000,000 committed term loan facility with Phoenix Group which is repayable on 12 January 2032. During the period, the Group entered into further committed term loan facilities of £37,250,000, also repayable on 12 January 2032, and of £62,750,000, which is repayable on 12 January 2037. Interest accrues on these three loans at aggregate annual fixed rates of interest of 3.28 per cent, 3.13 per cent and 3.14 per cent, respectively and is payable quarterly. As at 30 June 2022, the Group had drawn £150,000,000 under these facilities (2021: £50,000,000).

The following interest rate swap was in place during the year ended 30 June 2022 to hedge the £30,000,000 RBS committed term loan:

Notional Value	Starting Date	Ending Date	Interest paid	Interest received	Counterparty
30,000,000	5 November 2020	5 November 2025	0.30%	Daily compounded SONIA (floor at -0.08%)	RBS

Inclusive of all interest rate swaps, the interest rate on £180,000,000 of the Group's borrowings is fixed, including the amortisation of arrangement costs, at an all-in rate of 3.22 per cent per annum until at least 5 November 2025. The remaining £140,000,000 of debt, of which £54,750,000 was drawn at 30 June 2022, would, if fully drawn, carry interest at a variable rate equal to SONIA plus a weighted average lending margin, including the amortisation of arrangement costs, of 2.44 per cent per annum.

The fair value of the interest rate swap at 30 June 2022 was an aggregate asset of £2,284,000 (2021: £251,000) and all interest rate swaps are categorised as level 2 in the fair value hierarchy (see Note 9 for further explanation of the fair value hierarchy).

At 30 June 2022, the nominal value of the Group's loans equated to £234,750,000 (2021: £130,000,000). Excluding the interest rate swap referred to above, the fair value of these loans, based on a discounted cashflow using the market rate on the relevant treasury plus an estimated margin based on market conditions at 30 June 2022, totalled, in aggregate, £212,493,000 (2021: £131,389,000). The payment required to redeem the loans in full, incorporating the terms of the Spens clause in relation to the Phoenix Group facilities, would have been £239,728,000 (2021: £139,748,000). The loans are categorised as level 3 in the fair value hierarchy.

The RBS loan is secured by way of a fixed and floating charge over the majority of the assets of the THR Number One plc Group ('THR1 Group') which consists of THR1 and its five subsidiaries. The Phoenix Group loans of £50,000,000 and £37,250,000 are secured by way of a fixed and floating charge over the majority of the assets of the THR Number 12 plc Group ('THR12 Group') which consists of THR12 and its eight subsidiaries. The Phoenix Group loan of £62,750,000 is secured by way of a fixed and floating charge over the majority of the assets of THR Number 43 plc ('THR43'). The HSBC loan is secured by way of a fixed and floating charge over the majority of the assets of the THR Number 15 plc Group ('THR15 Group') which consists of THR15 and its 18 subsidiaries (excluding those subsidiaries which are currently dormant). In aggregate, the Group has granted a fixed charge over properties with a market value of £795,949,000 as at 30 June 2022 (2021: £525,526,000).

Under the bank covenants related to the loans, the Group is to ensure that:

the loan to value percentage for each of THR1 Group and THR15 Group does not exceed 50 per cent;
the loan to value percentage for THR12 Group and THR43 does not exceed 60 per cent;
the interest cover for each of THR1 Group and THR15 Group is greater than 300 per cent on any calculation date; and
the debt yield for THR12 Group and THR43 is greater than 10 per cent on any calculation date.

All bank loan covenants have been complied with during the year.

Analysis of net debt:	Cash and cash equivalents 2022 £'000	Borrowing 2022 £'000	Net debt 2022 £'000	Cash and cash equivalents 2021 £'000	Borrowing 2021 £'000	Net debt 2021 £'000
Opening balance	21,106	(127,904)	(106,798)	36,440	(150,135)	(113,695)
Cash flows	13,377	(102,911)	(89,534)	(15,334)	23,538	8,204
Non-cash flows	–	(568)	(568)	–	(1,307)	(1,307)
Closing balance as at 30 June	34,483	(231,383)	(196,900)	21,106	(127,904)	(106,798)

15. Trade and other payables

Non-current trade and other payables	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Rental deposits	7,145	6,840
Total	7,145	6,840

15. Trade and other payables continued

Current trade and other payables	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Rental income received in advance	8,390	5,719
Property acquisition and development costs accrued	8,892	6,632
Performance payments	2,800	1,550
Investment Manager's fees payable	1,895	1,551
Interest payable	1,762	969
Other payables	2,624	2,044
Total	26,363	18,465

The Group's payment policy is to ensure settlement of supplier invoices in accordance with stated terms.

16. Share capital

Allotted, called-up and fully paid ordinary shares of £0.01 each	Number of shares	£'000
Balance as at 30 June 2021 Issued on 9 September 2021	511,541,694 108,695,652	5,115 1,087
Balance as at 30 June 2022	620,237,346	6,202

Under the Company's Articles of Association, the Company may issue an unlimited number of ordinary shares. Ordinary shareholders are entitled to all dividends declared by the Company and to all of the Company's assets after repayment of its borrowings and ordinary creditors. Ordinary shareholders have the right to vote at meetings of the Company. All ordinary shares carry equal voting rights.

During the year to 30 June 2022, the Company issued 108,695,652 (2021: 54,054,054) ordinary shares of £0.01 each raising gross proceeds of £125,000,000 (2021: £60,000,000). The consideration received in excess of the par value of the ordinary shares issued, net of the expenses of issue of £2,508,000 (2021: £1,684,000), has been credited to the share premium account.

During the year to 30 June 2022, the Company did not repurchase any ordinary shares into treasury (2021: nil) or resell any ordinary shares from treasury (2021: nil). At 30 June 2022, the Company did not hold any shares in treasury (2021: nil).

Capital management

The Group's capital is represented by the share capital, share premium, merger reserve, distributable reserve, hedging reserve, capital reserve, revenue reserve and long-term borrowings. The Group is not subject to any externally-imposed capital requirements, other than the financial covenants on its loan facilities as detailed in Note 14.

The capital of the Group is managed in accordance with its investment policy, in pursuit of its investment objective.

Capital risk management

The objective of the Group is to provide ordinary shareholders with an attractive level of income together with the potential for income and capital growth from investing in a diversified portfolio of freehold and long leasehold care homes that are let to care home operators; and other healthcare assets in the UK.

The Board has responsibility for ensuring the Group's ability to continue as a going concern. This involves the ability to borrow monies in the short and long term; and pay dividends out of reserves, all of which are considered and approved by the Board on a regular basis.

To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders, issue new shares or buyback shares for cancellation or for holding in treasury. The Company may also increase or decrease its level of longterm borrowings.

Where ordinary shares are held in treasury these are available to be sold to meet on-going market demand. The ordinary shares will be sold only at a premium to the prevailing NAV per share. The net proceeds of any subsequent sales of shares out of treasury will provide the Company with additional capital to enable it to take advantage of investment opportunities in the market and make further investments in accordance with the Company's investment policy and within its appraisal criteria. Holding shares in treasury for this purpose assists the Company in matching its on-going capital requirements to its investment opportunities and therefore reduces the negative effect of holding excess cash on its balance sheet over the longer term.

No changes were made in the capital management objectives, policies or processes during the year.

17. Financial instruments

Consistent with its objective, the Group holds UK care home property investments. In addition, the Group's financial instruments comprise cash, bank loans and receivables and payables that arise directly from its operations. The Group's exposure to derivative instruments consists of interest rate swaps used to fix the interest rate on the Group's variable rate borrowings.

The Group is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk, liquidity risk, interest rate risk and market price risk. There is no foreign currency risk as all assets and liabilities of the Group are maintained in pounds sterling.

The Board reviews and agrees policies for managing the Group's risk exposure. These policies are summarised below and have remained unchanged for the year under review. These disclosures include, where appropriate, consideration of the Group's investment properties which, whilst not constituting financial instruments as defined by IFRS, are considered by the Board to be integral to the Group's overall risk exposure.

Credit risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group. At the reporting date, the Group's financial assets exposed to credit risk amounted to £38,996,000 (2021: £24,563,000), consisting of cash of £34,483,000 (2021: £21,106,000), net rent receivable of £906,000 (2021: £955,000), VAT recoverable of £1,387,000 (2021: £732,000), accrued development interest of £452,000 (2021: £739,000) and other debtors of £1,768,000 (2021: £1,031,000).

In the event of default by a tenant if it is in financial difficulty or otherwise unable to meet its obligations under the lease, the Group will suffer a rental shortfall and incur additional expenses until the property is relet. These expenses could include legal and surveyor's costs in reletting, maintenance costs, insurances, rates and marketing costs and may have a material adverse impact on the financial condition and performance of the Group and/or the level of dividend cover. The Group may also require to provide rental incentives to the incoming tenant. The Board receives regular reports on concentrations of risk and any tenants in arrears. The Investment Manager monitors such reports in order to anticipate, and minimise the impact of, defaults by occupational tenants. The expected credit risk in relation to tenants is an inherent element of the due diligence considered by the Investment Manager on all property transactions with an emphasis being placed on ensuring that initial rents are set at a sustainable level. The risk is further mitigated by rental deposits or guarantees where considered appropriate. The majority of rental income is received in advance.

As at 30 June 2022, the Group had recognised a credit loss allowance totalling £6,963,000 against a gross rent receivable balance of £7,399,000 and gross loans to tenants totalling £1,097,000. Whilst this allowance has increased during the year ended 30 June 2022, it remains low relative to the Group's overall balance sheet, and relates primarily to the tenant of two immature homes where rent is now being received in full in relation to one of the homes, and partial rent being received in relation to the other. As at 30 June 2021, the gross rent receivable was £4,641,000, of which £40,000 was subsequently recovered, £147,000 was written off and £4,454,000 is still outstanding. There were no other financial assets which were either past due or considered impaired at 30 June 2022 (2021: nil).

All of the Group's cash is placed with financial institutions with a long-term credit rating of BBB or better. Bankruptcy or insolvency of such financial institutions may cause the Group's ability to access cash placed on deposit to be delayed, limited or lost. Should the credit quality or the financial position of the banks currently employed significantly deteriorate, cash holdings would be moved to another bank.

Should the Group hold significant cash balances for an extended period, then counterparty risk will be spread, by placing cash across different financial institutions. At 30 June 2022 the Group held £34.5 million (2021: £20.9 million) with The Royal Bank of Scotland plc and £nil (2021: £0.2 million) with HSBC Bank plc.

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulties in realising assets or otherwise raising funds to meet financial commitments. The Group's investments comprise UK care homes. Property and property-related assets in which the Group invests are not traded in an organised public market and may be illiquid. As a result, the Group may not be able to liquidate quickly its investments in these properties at an amount close to their fair value in order to meet its liquidity requirements.

The Group's liquidity risk is managed on an on-going basis by the Investment Manager and monitored on a quarterly basis by the Board. In order to mitigate liquidity risk the Group aims to have sufficient cash balances (including the expected proceeds of any property sales) to meet its obligations for a period of at least twelve months.

At the reporting date, the maturity of the financial assets was:

Financial assets as at 30 June 2022	Three months or less £'000	More than three months but less than one year £'000	1-2 years £'000	2-5 years £'000	More than five years £'000	Total £'000
Cash	34,483	–	–	–	–	34,483
Rental deposits held in escrow for tenants	–	–	–	–	7,145	7,145
Other debtors	4,513	–	–	–	–	4,513
Total	38,996	–	–	–	7,145	46,141
Financial assets as at 30 June 2021	Three months or less £'000	More than three months but less than one year £'000	1-2 years £'000	2-5 years £'000	More than five years £'000	Total £'000
Cash	21,106	–	–	–	–	21,106
Rental deposits held in escrow for tenants	–	–	–	–	6,840	6,840
Other debtors	3,457	–	–	–	–	3,457
Total	24,563	–	–	–	6,840	31,403

17. Financial instruments continued

At the reporting date, the maturity of the financial liabilities was:

Financial liabilities as at 30 June 2022	Three months or less £'000	More than three months but less than one year £'000	1-2 years £'000	2-5 years £'000	More than five years £'000	Total £'000
Bank loans and interest rate swaps	2,046	6,072	8,140	101,890	181,533	299,681
Rental deposits	–	–	–	–	7,145	7,145
Other payables	17,973	–	–	–	–	17,973
Total	20,019	6,072	8,140	101,890	188,678	324,799
Financial liabilities as at 30 June 2021	Three months or less £'000	More than three months but less than one year £'000	1-2 years £'000	2-5 years £'000	More than five years £'000	Total £'000
Bank loans and interest rate swaps	1,106	3,282	4,388	88,250	59,094	156,120
Rental deposits	–	–	–	–	6,840	6,840
Other payables	12,746	–	–	–	–	12,746
Total	13,852	3,282	4,388	88,250	65,934	175,706

The total amount due under the bank facilities includes the expected hedged interest payments due under both the loan and interest rate swaps combined (see Note 14 for further details) assuming that both the drawn element of the loans and the notional value of the interest rate swaps remain unchanged from 30 June 2022 (30 June 2021) until the repayment date of the relevant loan and expiry date of the related interest rate swap. The interest rate on any unhedged element of the loans is based on the rate of SONIA at 30 June 2022 (30 June 2021) plus the relevant lending margin. The commitment fee payable on the undrawn element of any facility is included, where applicable.

Interest rate risk

Some of the Company's financial instruments are interest-bearing. Interest-rate risk is the risk that future cash flows will change adversely as a result of changes in market interest rates.

The Group's policy is to hold cash in variable rate or short-term fixed rate bank accounts. At 30 June 2022, interest was being received on cash at a weighted average variable rate of nil (2021: nil). Exposure varies throughout the period as a consequence of changes in the composition of the net assets of the Group arising out of the investment and risk management policies. These balances expose the Group to cash flow interest rate risk as the Group's income and operating cash flows will be affected by movements in the market rate of interest.

The Group has £170,000,000 (2021: £170,000,000) of committed term loans and revolving credit facilities which were charged interest at a rate of SONIA plus the relevant margin. At the year-end £84,750,000 of the variable rate facilities had been drawn down (2021: £80,000,000). The fair value of the variable rate borrowings is affected by changes in the market rate of the lending margin that would apply to similar loans. The variable rate borrowings are carried at amortised cost and the Group considers this to be a close approximation to fair value at 30 June 2022 and 30 June 2021.

The Group has not hedged its exposure on £54,750,000 of the drawn variable rate borrowings at 30 June 2022 (2021: £50,000,000). On these loans the interest was payable at a variable rate equal to SONIA plus the weighted average lending margin, including the amortisation of costs, of 2.43 per cent per annum (2021: 2.43 per cent). The variable rate borrowings expose the Group to cash flow interest rate risk as the Group's income and operating cash flows will be affected by movements in the market rate of interest.

The Group has fixed rate term loans totalling £150,000,000 (2021: £50,000,000) and has hedged its exposure on £30,000,000 (2021: £30,000,000) of the variable rate loans, as referred to above, through entering into a fixed rate interest rate swap. Fixing the interest rate exposes the Group to fair value interest rate risk as the fair value of the fixed rate borrowings, or the fair value of the interest rate swap used to fix the interest rate on an otherwise variable rate loan, will be affected by movements in the market rate of interest. The £150,000,000 fixed rate term loans are carried at amortised cost on the Group's balance sheet, with the estimated fair value and cost of repayment being disclosed in Note 14, whereas the fair value of the interest rate swap is recognised directly on the Group's balance sheet. At 30 June 2022, an increase of 0.25 per cent in interest rates would have increased the fair value of the interest rate swap asset and increased the reported total comprehensive income for the year by £211,000 (2021: £298,000). The same movement in interest rates would have decreased the fair value of the fixed rate term loans by an aggregate of £2,822,000 (2021: £1,106,000); however, as the fixed rate loan is held at amortised cost, the reported total comprehensive income for the year would have remained unchanged. A decrease in interest rates would have had an approximately equal and opposite effect.

Further details on the Group's borrowings are detailed in Note 14.

The following table sets out the carrying amount of the Group's financial instruments that are exposed to interest rate risk:

		As at 30 June 2022		As at 30 June 2021
	Fixed rate £'000	Variable rate £'000	Fixed rate £'000	Variable rate £'000
Cash and cash equivalents	–	34,483	–	21,106
Bank loan	(180,000)	(54,750)	(80,000)	(50,000)
	(180,000)	(20,267)	(80,000)	(28,894)

Based on the Group's exposure to cash flow interest rate risk, an increase of 0.25 per cent in interest rates would have decreased the reported profit for the year and the net assets at the year end by £51,000 (2021: £72,000), a decrease in interest rates would have an equal and opposite effect. These movements are calculated based on balances as at 30 June 2022 (30 June 2021) and may not be reflective of actual future conditions.

Market price risk

The management of market price risk is part of the investment management process and is typical of a property investment company. The portfolio is managed with an awareness of the effects of adverse valuation movements through detailed and continuing analysis, with an objective of maximising overall returns to shareholders. Investments in property and property-related assets are inherently difficult to value due to the individual nature of each property. As a result, valuations are subject to substantial uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where such sales occur shortly after the valuation date. Such risk is minimised through the appointment of external property valuers. The basis of valuation of the property portfolio is set out in detail in the accounting policies and Note 9.

As set out in Note 9, Colliers are mindful of the potential impacts ESG may have on capital and rental valuations. Currently in the UK, the external valuers have not seen consistent prima facie evidence to suggest that ESG has a direct impact on the valuation of all commercial and residential buildings. However, as the UK real estate market continues to adapt to ESG development practices and legislative requirements, Colliers anticipate an evolution in the analysis undertaken when providing real estate valuations. This may potentially impact on the valuation of a property over the course of a typical investment period.

Any changes in market conditions will directly affect the profit and loss reported through the Statement of Comprehensive Income. Details of the Group's investment property portfolio held at the balance sheet date are disclosed in Note 9 and the properties held for sale are disclosed in Note 10. A 10 per cent increase in the carrying value of the investment properties and properties held for sale as at 30 June 2022 (30 June 2021) would have increased net assets available to shareholders and increased the net income for the year by £85,769,000 (2021: £63,116,000); an equal and opposite movement would have decreased net assets and decreased the net income by an equivalent amount.

The calculations are based on the investment property valuations at the respective balance sheet date and may not be reflective of future market conditions.

18. Lease length

The Group has entered into commercial property leases on its investment property portfolio. These properties, held under operating leases, are measured under the fair value model as the properties are held to earn rentals. All leases are non-cancellable leases with lease terms remaining of between 15 and 35 years.

The minimum lease payments based on the unexpired lessor lease length at the year-end were as follows (based on annual rentals):

	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Less than one year	54,408	41,068
Between one and two years	56,750	41,951
Between two and three years	57,618	42,762
Between three and four years	58,517	43,398
Between four and five years	59,439	44,061
Over five years	1,630,700	1,269,202
Total	1,917,432	1,482,442

The largest single tenant at the year-end accounted for 15.7 per cent (2021: 13.1 per cent) of the current annual rental income. There were no unoccupied properties at the year-end (2021: none).

19. Contingent assets and liabilities

As at 30 June 2022, fourteen (2021: twelve) properties within the Group's investment property portfolio contained performance payment clauses meaning that, subject to contracted performance conditions being met, further capital payments totalling £13,320,000 (2021: £20,025,000) may be payable by the Group to the vendors/tenants of these properties. The potential timings of these payments are also conditional on the date(s) at which the contracted performance conditions are met and are therefore uncertain.

It is highlighted that any performance payments subsequently paid will result in an increase in the rental income due from the tenant of the relevant property. As the net initial yield used to calculate the additional rental which would be payable is not significantly different from the investment yield used to arrive at the valuation of the properties, any performance payments made would be expected to result in a commensurate increase in the value of the Group's investment property portfolio.

Having assessed each clause on an individual basis, the Group has determined that the contracted performance conditions were highly likely to be met in relation to two of these properties and therefore at 30 June 2022 an amount of £2,800,000 (2021: £1,550,000) has been recognised as a liability (see Note 15). An equal but opposite amount has been recognised as an asset in 'investment properties' in Note 9 to reflect the increase in the investment property value that would be expected to arise were the performance payments to be paid and the contracted rental income increased accordingly.

20. Capital commitments

The Group had capital commitments as follows:	30 June 2022 £'000	30 June 2021 £'000
Amounts due to complete forward fund developments Other capital expenditure commitments	34,458 3,594	21,054 3,158
Total	38,052	24,212

21. Related party transactions

The Board of Directors is considered to be a related party. No Director has an interest in any transactions which are, or were, unusual in their nature or significant to the nature of the Group. The Directors of the Group received fees for their services. Total fees for the year were £214,000 (2021: £181,000) of which £nil (2021: £12,000) remained payable at the year-end.

The Investment Manager received £7,307,000 (inclusive of irrecoverable VAT) in management fees in relation to the year ended 30 June 2022 (2021: £5,796,000). Of this amount £1,895,000 (2021: £1,551,000) remained payable at the year-end. The Investment Manager received a further £151,000 (inclusive of irrecoverable VAT) during the year ended 30 June 2022 (2021: £146,000) in relation to its appointment as Company Secretary and Administrator, of which £38,000 (2021: £36,000) remained payable at the year end. Certain employees of the Investment Manager are directors of some of the Group's subsidiaries. Neither they nor the Investment Manager receive any additional remuneration in relation to fulfilling this role.

There were related party transactions within the Group and its wholly-owned subsidiaries which are eliminated upon consolidation.

22. Operating segments

The Board has considered the requirements of IFRS 8 'Operating Segments'. The Board is of the view that the Group is engaged in a single segment of business, being property investment, and in one geographical area, the United Kingdom, and that therefore the Group has only a single operating segment. The Board of Directors, as a whole, has been identified as constituting the chief operating decision maker of the Group. The key measure of performance used by the Board to assess the Group's performance is the EPRA NTA. The reconciliation between the NAV, as calculated under IFRS, and the EPRA NTA is detailed in Note 8.

The view that the Group is engaged in a single segment of business is based on the following considerations:

One of the key financial indicators received and reviewed by the Board is the total return from the property portfolio taken as a whole; – There is no active allocation of resources to particular types or groups of properties in order to try to match the asset allocation of the
benchmark; and – The management of the portfolio is ultimately delegated to a single property manager, Target.

23. Post balance sheet events

As at 10 October 2022, the Company's share price was 86.0 pence per share (30 June 2022: 108.4 pence).

24. Alternative Investment Fund Managers ('AIFM') Directive

With effect from 22 July 2014, the Company's Investment Manager was authorised as an AIFM by the FCA under the AIFMD regulations. In accordance with the AIFM Directive, information in relation to the Group's leverage and the remuneration of the Company's AIFM, Target Fund Managers Limited, is required to be made available to investors. The Manager has provided disclosures on its website, www.targetfundmanagers.com, incorporating the requirements of the AIFMD regulations regarding remuneration.

The Group's maximum and average actual leverage levels at 30 June 2022 are shown below:

Leverage exposure	Gross method	Commitment method
Maximum limit	3.00	3.00
Actual	1.69	1.74

For the purposes of the AIFM Directive, leverage is any method which increases the Group's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a percentage of the Group's exposure to its net asset value and is calculated on both a gross and commitment method.

Under the gross method, exposure represents the sum of the Group's positions after deduction of cash balances, without taking account of any hedging or netting arrangements. Under the commitment method, exposure is calculated without the deduction of cash balances and after certain hedging and netting positions are offset against each other. Both methods include the Group's interest rate swaps measured at notional value.

The leverage limits are set by the AIFM and approved by the Board and are in line with the maximum leverage levels permitted in the Company's Articles of Association. The AIFM is also required to comply with the gearing parameters set by the Board in relation to borrowings.

Detailed regulatory disclosures to investors in accordance with the AIFM Directive are contained in the Investor Disclosure Document which is made available on the Group's website at www.targethealthcarereit.co.uk.

Company Statement of Financial Position As at 30 June 2022

	Notes	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Non-current assets
Investment in subsidiary undertakings	3	698,341	509,228
Investment properties	4	7,626	20,506
Trade and other receivables	5	114	1,046
		706,081	530,780
Current assets
Trade and other receivables	5	8,285	32,411
Cash and cash equivalents	6	9,406	3,024
		17,691	35,435
Total assets		723,772	566,215
Non-current liabilities
Trade and other payables	7	(110)	(240)
Current liabilities
Trade and other payables	7	(2,638)	(2,179)
Total liabilities		(2,748)	(2,419)
Net assets		721,024	563,796
Share capital and reserves
Share capital	8	6,202	5,115
Share premium	8	256,633	135,228
Merger reserve		47,751	47,751
Distributable reserve		288,010	326,713
Capital reserve		120,873	47,652
Revenue reserve		1,555	1,337
Equity shareholders' funds		721,024	563,796

Net asset value per ordinary share (pence)	9	116.2	110.2

Company number: 11990238

The Company made a profit for the year ended 30 June 2022 of £74,776,000 (2021: £44,484,000).

The financial statements on pages 79 to 88 were approved by the Board of Directors and authorised for issue on 11 October 2022 and were signed on its behalf by:

Malcolm Naish

Chairman

Company Statement of Changes in Equity

For the year ended 30 June 2022

	Notes	Share capital £'000	Share premium £'000	Merger reserve £'000	Distributable reserve £'000	Capital reserve £'000	Revenue reserve £'000	Total £'000
At 30 June 2021		5,115	135,228	47,751	326,713	47,652	1,337	563,796
Total comprehensive income for the year Transactions with owners recognised in equity:		–	–	–	–	73,221	1,555	74,776
Dividends paid	2	–	–	–	(38,703)	–	(1,337)	(40,040)
Issue of ordinary shares	8	1,087	123,913	–	–	–	–	125,000
Expenses of issue	8	–	(2,508)	–	–	–	–	(2,508)
At 30 June 2022		6,202	256,633	47,751	288,010	120,873	1,555	721,024

For the year ended 30 June 2021

	Notes	Share capital £'000	Share premium £'000	Merger reserve £'000	Distributable reserve £'000	Capital reserve £'000	Revenue reserve £'000	Total £'000
At 30 June 2020		4,575	77,452	47,751	358,319	6,077	(1,572)	492,602
Total comprehensive income for the year Transactions with owners recognised in equity:		–	–	–	–	41,575	2,909	44,484
Dividends paid	2	–	–	–	(31,606)	–	–	(31,606)
Issue of ordinary shares	8	540	59,460	–	–	–	–	60,000
Expenses of issue	8	–	(1,684)	–	–	–	–	(1,684)
At 30 June 2021		5,115	135,228	47,751	326,713	47,652	1,337	563,796

Notes to the Company Financial Statements

1. Accounting policies

(a)Basis of preparation

A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below.

Basis of accounting

The Company Financial Statements have been prepared in accordance with FRS 101: Reduced Disclosure Framework and applicable legal and regulatory requirements of the Companies Act 2006.

Where presentational guidance set out in the Statement of Recommended Practice ('SORP') for investment trust companies issued by the Association of Investment Companies ('AIC') in July 2022, which the Company has adopted early, is consistent with the requirements of FRS 101, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

The results of the Company have been included in the Consolidated Financial Statements as presented on pages 58 to 78. The accounting policies adopted are consistent with those adopted by the Group as stated in Note 1 to the Consolidated Financial Statements. The only additional policies applied are in relation to investments in subsidiary undertakings and dividends received and these are set out below.

The Company has taken advantage of the following exemptions permitted under FRS 101:

an exemption from preparing the Company cash flow statement and related notes;
an exemption from listing any new or revised standards that have not been adopted or providing information about their likely impact; and
an exemption from disclosing transactions between the Company and its wholly-owned subsidiaries.

Going concern

In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council. After making enquiries, and bearing in mind the nature of the Group's business and assets, the Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future and at least the next twelve months from the date of issuance of this report. This assessment took into consideration the potential impact of COVID-19 as set out in the Strategic Report. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Further explanation of the assessment undertaken is provided in the Consolidated Financial Statements on page 63.

Investments in subsidiary undertakings

Investments in subsidiary undertakings are stated at fair value with changes in fair value recognised in profit or loss. Investments in subsidiaries are initially recognised at fair value at the date at which control is acquired, with subsequent gains or losses arising from changes in fair value being recognised in net profit or loss for the period as a capital item and transferred to the Capital Reserve. Investments in subsidiaries are derecognised at the date on which the Company transfers control and substantially all the risks and rewards of ownership to another party.

Dividends received

Dividends received are recognised on the date on which entitlement to receive payment is established. Where dividends are received by way of an in-specie transfer of assets from a subsidiary undertaking, the dividend is recognised at the fair value of the assets received through profit or loss as a capital item and transferred to the Capital Reserve.

Company Profit for the financial year

Under Section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own profit and loss account. The profit after tax for the year was £74,776,000 (2021: £44,484,000).

The Company does not have any employees (2021: nil). Details of the Directors' fees paid during the year are disclosed in the Group's Remuneration Report and in Note 3 to the Consolidated Financial Statements. The Company has paid the Directors' fees which equated to £214,000 during the year ended 30 June 2022 (2021: £181,000).

Audit fees in relation to the parent company were £120,000 (2021: £106,000), including irrecoverable VAT. This included £2,000 payable by the Company on behalf of certain subsidiaries (2021: £2,000). The fee for assurance related services, being the review of the Company's Interim Report, was £16,000 (2021: £15,000). There were no other non-audit fees paid to E&Y LLP by the Company during the year (2021: £nil).

2. Dividends

Amounts paid as distributions to equity holders.

	Dividend rate (pence per share)	Year ended 30 June 2022 £'000	Dividend rate (pence per share)	Year ended 30 June 2021 £'000
Fourth interim dividend for the prior year	1.68	8,594	1.67	7,640
First interim dividend	1.69	10,482	1.68	7,686
Second interim dividend	1.69	10,482	1.68	7,686
Third interim dividend	1.69	10,482	1.68	8,594
Total	6.75	40,040	6.71	31,606

3. Investments in subsidiary undertakings

As at 30 June 2022, the Company's directly held subsidiary undertakings were:

Name	Country of incorporation	Class of Capital	% of class held	% of equity held	Book Cost £'000	Fair Value £'000
Target Healthcare REIT Limited	Jersey	Ordinary	100	100	432,841	421,444
THR Number 12 plc	England & Wales	Ordinary	100	100	103,336	149,663
THR Number 37 Limited	England & Wales	Ordinary	100	100	5,647	5,560
THR Number 39 Limited	England & Wales	Ordinary	100	100	2,904	2,183
THR Number 40 Limited	England & Wales	Ordinary	100	100	1,898	1,788
THR Number 41 Limited	England & Wales	Ordinary	100	100	8,144	7,424
THR Number 42 Limited	England & Wales	Ordinary	100	100	–	(5)
THR Number 43 plc	England & Wales	Ordinary	100	100	94,861	106,422
THR Number 45 Limited	England & Wales	Ordinary	100	100	4,774	3,688
THR Number 46 Limited	England & Wales	Ordinary	100	100	–	(5)
THR Number 47 Limited	England & Wales	Ordinary	100	100	–	179
Total					654,405	698,341

The registered office of Target Healthcare REIT Limited at 30 June 2022 was: 3rd Floor, 44 Esplanade, St Helier, Jersey JE4 9WG.

The movement in the fair value of the Company's investment in subsidiary undertakings during the year was:

	Year ended 30 June 2022 £'000	Year ended 30 June 2021 £'000
Opening fair value	509,228	457,731
Additions	184,090	9,363
Disposals	(51,089)	–
Movement in fair value	56,112	42,134
Closing fair value	698,341	509,228

The Group's investments in subsidiary undertakings are classified within level 3 of the fair value hierarchy. See Note 9 to the Consolidated Financial Statements for the definitions of the levels of the fair value hierarchy.

The fair value of the Group's subsidiaries is primarily dependent on the fair value of the properties and bank loans that they hold. See Notes 9, 10, 14 and 17 to the Consolidated Financial Statements for an explanation of the Group's valuation processes, the significant inputs, and the sensitivities of the fair value of these assets and liabilities to these significant inputs.

As at 30 June 2022, the Company's indirectly held subsidiary undertakings were:

Name	Country of incorporation	Class of Capital	% of class held	% of equity held
THR Number One plc	England & Wales	Ordinary	100	100
THR Number Two Limited	England & Wales	Ordinary	100	100
THR Number 3 Limited	England & Wales	Ordinary	100	100
THR Number 4 Limited	England & Wales	Ordinary	100	100
THR Number 5 Limited	England & Wales	Ordinary	100	100
THR Number 6 Limited	England & Wales	Ordinary	100	100
THR Number 7 Limited	Gibraltar	Ordinary	100	100
THR Number 8 Limited	Gibraltar	Ordinary	100	100
THR Number 9 Limited	England & Wales	Ordinary	100	100
THR Number 10 Limited	England & Wales	Ordinary	100	100
THR Number 11 Limited	Scotland	Ordinary	100	100
THR Number 13 Limited	England & Wales	Ordinary	100	100
THR Number 14 Limited	England & Wales	Ordinary	100	100
THR Number 15 plc	England & Wales	Ordinary	100	100
THR Number 16 Limited	England & Wales	Ordinary	100	100
THR Number 17 (Holdings) Limited	England & Wales	Ordinary	100	100
THR Number 17 Limited	England & Wales	Ordinary	100	100
THR Number 18 Limited	England & Wales	Ordinary	100	100
THR Number 19 Limited	England & Wales	Ordinary	100	100
THR Number 20 Limited	England & Wales	Ordinary	100	100
THR Number 21 Limited	England & Wales	Ordinary	100	100
THR Number 22 Limited	England & Wales	Ordinary	100	100
THR Number 23 Limited	England & Wales	Ordinary	100	100
THR Number 24 Limited	England & Wales	Ordinary	100	100
THR Number 25 S.à r.l.	Luxembourg	Ordinary	100	100
THR Number 26 S.à r.l.	Luxembourg	Ordinary	100	100
THR Number 27 Limited	England & Wales	Ordinary	100	100
THR Number 28 Limited	England & Wales	Ordinary	100	100
THR Number 29 Limited	England & Wales	Ordinary	100	100
THR Number 30 Limited	England & Wales	Ordinary	100	100
THR Number 31 Limited	England & Wales	Ordinary	100	100
THR Number 32 Limited	England & Wales	Ordinary	100	100
THR Number 33 Limited	England & Wales	Ordinary	100	100
THR Number 34 Limited	England & Wales	Ordinary	100	100
THR Number 35 Limited	England & Wales	Ordinary	100	100
THR Number 36 Limited	England & Wales	Ordinary	100	100
THR Number 38 Limited	England & Wales	Ordinary	100	100
THR Number 48 Limited	England & Wales	Ordinary	100	100

The registered office of the companies incorporated in England & Wales is: Level 13, Broadgate Tower, 20 Primrose Street, London EC2A 2EW.

The registered office of the companies incorporated in Luxembourg is: 1, rue Jean-Pierre Brasseur, L – 1258, Luxembourg.

The registered office of the companies incorporated in Gibraltar is: Suite 23, Portland House, Glacis Road, GX11 1AA, Gibraltar.

The registered office of the company incorporated in Scotland is: Glendevon House, Castle Business Park, Stirling FK9 4TZ.

The Group had a further eight indirectly held subsidiary undertakings, which were acquired during a prior year. As these companies have been dormant since acquisition and have been placed into liquidation, these are not listed above.

4. Investment properties

Freehold properties	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Opening market value	21,320	6,919
Opening fixed or guaranteed rent reviews and lease incentives	(814)	(324)
Opening carrying value	20,506	6,595
Purchases	7,600	14,228
Disposals – proceeds	(22,050)	–
– gain on sale	1,140	–
Unrealised gain realised during the year	(410)	–
Acquisition costs capitalised	662	733
Acquisition costs written off	(662)	(733)
Revaluation movement – gains	30	173
Movement in market value	(13,690)	14,401
Fixed or guaranteed rent reviews and lease incentives derecognised on disposal	978	–
Movement in fixed or guaranteed rent reviews and lease incentives	(168)	(490)
Movement in carrying value	(12,880)	13,911
Closing market value	7,630	21,320
Closing fixed or guaranteed rent reviews and lease incentives	(4)	(814)
Closing carrying value	7,626	20,506

The properties were valued at £7,630,000 (2021: £21,320,000) by Colliers International Healthcare Property Consultants Limited ('Colliers'), in their capacity as external valuers. The valuation was undertaken in accordance with the RICS Valuation Global Standards, incorporating the International Valuation Standards (the 'Red Book Global', 31 January 2022) issued by the Royal Institution of Chartered Surveyors ('RICS') on the basis of Market Value, supported by reference to market evidence of transaction prices for similar properties. Colliers has recent experience in the location and category of the investment properties being valued.

Considering the Company's specific valuation process, industry guidance, and the level of judgement required in the valuation process, the Directors believe it appropriate to classify the Group's investment properties within level 3 of the fair value hierarchy. See Note 9 to the Consolidated Financial Statements for further details on the valuation process, methodology and classification.

The Company's investment property portfolio, which consisted solely of care homes during the year and included a single care home at the year end, is considered to be a single class of assets. The weighted average net initial yield on the property, as measured by the EPRA topped up NIY, is 5.2 per cent. There have been no changes to the valuation technique used through the period, nor have there been any transfers between levels.

The lease agreement on the properties held within the Company's portfolio allows for an annual increase in the contracted rental level in line with inflation, within a cap and a collar. An increase of 1.0 per cent in the contracted rental level will increase the fair value of the portfolio, and consequently the Company's reported income from unrealised gains on investments, by £76,000 (2021: £213,000); an equal and opposite movement would have decreased net assets and reduced the Company's income by the same amount.

A decrease of 0.25 per cent in the yield applied to the portfolio will increase the fair value of the portfolio by £389,000 (2021: £972,000), and consequently increase the Company's reported income from unrealised gains on investments. An increase of 0.25 per cent in the net initial yield will decrease the fair value of the portfolio by £353,000 (2021: £891,000) and reduce the Company's income.

5. Trade and other receivables

Non-current trade and other receivables	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Fixed rent reviews Rental deposits held in escrow for tenants Lease incentives	4 110 –	567 240 239
Total	114	1,046
Current trade and other receivables	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Lease incentives Balances due from group undertakings Other debtors and prepayments	– 8,030 255	8 32,204 199
Total	8,285	32,411

At the year-end, trade and other receivables include a fixed rent review debtor of £4,000 (2021: £567,000) which represents the effect of recognising guaranteed rental uplifts on a straight line basis over the lease term and £nil (2021: £247,000) of accrued income relating to the recognition of rental income over rent free periods subsequently amortised over the life of the lease.

The balances due from group undertakings are unsecured and interest is receivable at a fixed rate of 1.5 per cent per annum or such other interest rate that may be agreed from time to time between the Company and the relevant counterparty. The balances are repayable on demand.

6. Cash and cash equivalents

	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Cash at bank and in hand	9,406	3,024
Total	9,406	3,024

All cash balances at the year-end were held in cash, current accounts or deposit accounts.

7. Trade and other payables

Non-current trade and other payables	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Rental deposits	110	240
Total	110	240
Current trade and other payables	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Rental income received in advance Income tax payable Investment Manager's fees payable Other payables	420 1,067 245 906	221 812 412 734
Total	2,638	2,179

The Group's payment policy is to ensure settlement of supplier invoices in accordance with stated terms.

8. Share capital

Allotted, called-up and fully paid ordinary shares of £0.01 each	Number of shares	£'000
Balance as at 30 June 2021 Issued on 9 September 2021	511,541,694 108,695,652	5,115 1,087
Balance as at 30 June 2022	620,237,346	6,202

Capital Management

The Company's capital is represented by the share capital, share premium, merger reserve, distributable reserve, capital reserve and revenue reserve and is managed in line with the policies set out for the Group on page 74.

9. Net Asset Value

The Company's net asset value per ordinary share of 116.2 pence (2021: 110.2 pence) is based on equity shareholders' funds of £721,024,000 (2021: £563,796,000) and on 620,237,346 (2021: 511,541,694) ordinary shares, being the number of shares in issue at the year end.

10. Financial instruments

Consistent with its objective, the Company holds UK care home property investments. In addition, the Company's financial instruments comprise investments in subsidiaries, cash and receivables and payables that arise directly from its operations. The Company has no direct exposure to derivative instruments.

The Company is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk, liquidity risk, interest rate risk and market price risk. There is no foreign currency risk as all assets and liabilities of the Company are maintained in pounds sterling.

The Board reviews and agrees policies for managing the Group's overall risk exposure. These policies are summarised in Note 17 to the Consolidated Financial Statements and have remained unchanged for the year under review. The following disclosures include, where appropriate, consideration of the Company's investment properties which, whilst not constituting financial instruments as defined by FRS 101, are considered by the Board to be integral to the Company's overall risk exposure.

Credit risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company. At the reporting date, the Company's financial assets exposed to credit risk amounted to £17,477,000 (2021: £35,228,000) consisting of balances due from Group undertakings of £8,030,000 (2021: £32,204,000), cash balances of £9,406,000 (2021: £3,024,000) and other debtors of £41,000 (2021: £nil).

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulties in realising assets or otherwise raising funds to meet financial commitments. The Company's investments comprise UK care homes and holdings in subsidiary undertakings which, in turn, invest in UK care homes. Property and property-related assets in which the Company invests are not traded in an organised public market and may be illiquid. As a result, the Company may not be able to liquidate quickly its investments in these properties or subsidiary undertakings at an amount close to their fair value in order to meet its liquidity requirements.

At the reporting date, the maturity of the financial assets was:

Financial assets as at 30 June 2022	Three months or less £'000	More than three months but less than one year £'000	1-2 years £'000	2-5 years £'000	More than five years £'000	Total £'000
Cash and cash equivalents	9,406	–	–	–	–	9,406
Rental deposits held in escrow for tenants	–	–	–	–	110	110
Balances due from group undertakings	8,030	–	–	–	–	8,030
Other debtors	41	–	–	–	–	41
Total	17,477	–	–	–	110	17,587

Financial assets as at 30 June 2021	Three months or less £'000	More than three months but less than one year £'000	1-2 years £'000	2-5 years £'000	More than five years £'000	Total £'000
Cash and cash equivalents	3,024	–	–	–	–	3,024
Rental deposits held in escrow for tenants	–	–	–	–	240	240
Balances due from group undertakings	32,204	–	–	–	–	32,204
Total	35,228	–	–	–	240	35,468

At the reporting date, the maturity of the financial liabilities was:

Financial liabilities as at 30 June 2022	Three months or less £'000	More than three months but less than one year £'000	1-2 years £'000	2-5 years £'000	More than five years £'000	Total £'000
Rental deposits	–	–	–	–	110	110
Other payables	2,218	–	–	–	–	2,218
Total	2,218	–	–	–	110	2,328
Financial liabilities as at 30 June 2021	Three months or less £'000	More than three months but less than one year £'000	1-2 years £'000	2-5 years £'000	More than five years £'000	Total £'000
Rental deposits	–	–	–	–	240	240
Other payables	1,958	–	–	–	–	1,958
Total	1,958	–	–	–	240	2,198

Interest rate risk

Some of the Company's financial instruments are interest-bearing. Interest-rate risk is the risk that future cash flows will change adversely as a result of changes in market interest rates. The Company's policy is to hold cash in variable rate or short-term fixed rate bank accounts. Interest is received on cash at a weighted average variable rate which was nil at 30 June 2022 (2021: nil).

The following table sets out the carrying amount of the Company's financial instruments that are exposed to interest rate risk:

		As at 30 June 2022		As at 30 June 2021
	Fixed rate £'000	Variable rate £'000	Fixed rate £'000	Variable rate £'000
Cash and cash equivalents	–	9,406	–	3,024
Balances due from group undertakings	8,030	–	32,204	–
Total	8,030	9,406	32,204	3,024

Based on the Company's exposure to cash flow interest rate risk, an increase of 0.25 per cent in interest rates would have increased the reported profit for the year and the net assets at the year end by £24,000 (2021: £8,000), a decrease in interest rates would have an equal and opposite effect. These movements are calculated based on balances as at 30 June 2022 (30 June 2021) and may not be reflective of actual future conditions.

Market price risk

The management of market price risk is part of the investment management process and is typical of a property investment company. The portfolio is managed with an awareness of the effects of adverse valuation movements through detailed and continuing analysis, with an objective of maximising overall returns to shareholders. Investments in property and property-related assets are inherently difficult to value due to the individual nature of each property. As a result, valuations are subject to substantial uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where such sales occur shortly after the valuation date. Such risk is minimised through the appointment of external property valuers. The Company's subsidiaries are held at fair value which, in turn, reflects the external valuations of the underlying properties they hold. The Company's overall market price risk is therefore the same as that for the Group as set out in Note 17 to the Consolidated Financial Statements.

11. Lease length

The Group leases out its investment properties under operating leases.

The minimum lease payments based on the unexpired lessor lease length at the year-end were as follows (based on annual rentals):

	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Less than one year	440	1,325
Between one and two years	445	1,349
Between two and three years	449	1,374
Between three and four years	454	1,399
Between four and five years	458	1,424
Over five years	16,064	54,391
Total	18,310	61,262

The largest single tenant at the year-end accounted for 100 per cent (2021: 63.2 per cent) of the current annual rental income. There were no unoccupied properties at the year-end.

The Company has entered into commercial property leases on its investment property portfolio. These properties, held under operating leases, are measured under the fair value model as the properties are held to earn rentals. All leases are non-cancellable leases with lease terms remaining of 35 years.

12. Related party transactions

The Board of Directors is considered to be a related party. No Director has an interest in any transactions which are, or were, unusual in their nature or significant to the nature of the Company.

The Directors of the Company received fees for their services. Total fees paid by the Company in relation to the year were £214,000 (2021: £181,000) of which £nil (2021: £12,000) remained payable at the year-end.

The Investment Manager received management fees of £1,453,000 (inclusive of irrecoverable VAT) from the Company in relation to the year ended 30 June 2022 (2021: £1,334,000). Of this amount £245,000 (2021: £412,000) remained payable at the year-end.

The Investment Manager received a further £151,000 (inclusive of irrecoverable VAT) during the year ended 30 June 2022 (2021: £146,000) in relation to its appointment as Company Secretary and Administrator. Of this amount £38,000 (2021: £36,000) remained payable at the year-end.

13. Post balance sheet events

As at 10 October 2022, the Company's share price was 86.0 pence per share (30 June 2022: 108.4 pence).

Notice of Annual General Meeting

NOTICE IS HEREBY GIVEN that the fourth Annual General Meeting ('AGM') of Target Healthcare REIT plc (the 'Company') will be held on Tuesday 6 December 2022 at 12.00 noon at the offices of Dickson Minto W.S., Broadgate Tower, 20 Primrose Street, London EC2A 2EW for the purposes of considering and, if thought fit, passing the following resolutions, of which resolutions 1 to 12 inclusive will be proposed as ordinary resolutions and resolutions 13 to 15 inclusive will be proposed as special resolutions:

Ordinary resolutions

1. That the Annual Report and Accounts for the year ended 30 June 2022 be received.
1. That the Directors' Remuneration Policy be approved.
1. That the Directors' Annual Report on Remuneration for the year ended 30 June 2022 be approved.
1. That the Company's dividend policy be approved.
1. That Ernst & Young LLP be re-appointed as the Company's Auditor until the conclusion of the next Annual General Meeting.
1. That the Directors be authorised to determine the Auditor's remuneration.
1. To elect Amanda Thompsell as a Director.
1. To elect Richard Cotton as a Director.
1. To re-elect Alison Fyfe as a Director.
10.To re-elect Vince Niblett as a Director.
1. That, pursuant to Article 156 of the Company's Articles of Association, the Company shall continue in existence.
1. That, in addition to any existing authority, in accordance with section 551 of the Companies Act 2006, the Directors be generally and unconditionally authorised to exercise all powers of the Company to allot ordinary shares of £0.01 each (or of such other nominal value as the Directors may resolve) in the capital of the Company and to grant rights to subscribe for or to convert any security into shares in the Company ("Securities") up to an aggregate nominal amount of £620,237 (being approximately 10% of the Company's issued share capital immediately prior to the passing of this resolution), provided that this authority shall, unless renewed, varied or revoked by the Company, expire at the conclusion of the next Annual General Meeting of the Company or on 15 months from the passing of this resolution, whichever is the earlier, save that the Company may, before such expiry, make offers or enter into agreements which would or might require shares to be allotted or Securities to be granted and the Directors may allot shares or grant Securities in pursuance of such offer or agreement as if the authority conferred by this resolution had not expired.

Special resolutions

1. That, subject to the passing of resolution 12, the Directors be given the general power, pursuant to section 570 of the Companies Act 2006 (the 'Act'), to allot equity securities (as defined in section 560 of the Act) for cash pursuant to the authority under section 551 of the Act either conferred by resolution 12 or by way of a sale of treasury shares as if section 561 of the Act did not apply to any such allotment or sale, provided that this power:
2. (a) expires at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution or on expiry of 15 months from the passing of this resolution, whichever is the earlier, unless renewed, varied or revoked by the Company prior to or on such date, and save that the Company may, before such expiry, make offers or agreements which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities or sell treasury shares in pursuance of any such offer or agreement as if the power conferred by this resolution had not expired; and
3. (b) shall be limited to the allotment of equity securities for cash up to an aggregate nominal amount of £620,237 (being approximately equal to 10% of the nominal value of the issued share capital of the Company immediately prior to the passing of this resolution). This power applies in relation to the sale of treasury shares as if in the opening paragraph of this resolution the words "subject to the passing of resolution 12" were omitted.
1. To authorise the Company generally and unconditionally, pursuant to and in accordance with section 701 of the Companies Act 2006, to make market purchases (within the meaning of section 693(4) of the Companies Act 2006) of ordinary shares of £0.01 each (or of such other nominal value as the Directors of the Company shall resolve) either for retention as treasury shares for future reissue, resale or transfer or cancellation provided that:
2. (a) the maximum aggregate number of ordinary shares that may be purchased is 92,973,578 ordinary shares or, if less, 14.99% of the issued ordinary share capital of the Company immediately prior to the passing of this resolution (excluding treasury shares);
3. (b) the minimum price (excluding expenses) which may be paid for each ordinary share is the nominal value at the time of purchase; (c) the maximum price (excluding expenses) which may be paid for each ordinary share is the higher of:
4. (i) 105% of the average market value of an ordinary share in the Company for the five business days prior to the day the purchase is made; and (ii) the higher of the last independent trade and the highest current independent bid on the London Stock Exchange; and
5. (d) unless previously varied, revoked or renewed, the authority hereby conferred shall expire at the conclusion of the Company's next Annual General Meeting or on 15 months from the passing of this resolution, whichever is the earlier, save that the Company may, before the expiry of the authority granted by this resolution, enter into a contract to purchase ordinary shares which will or may be executed wholly or partly after the expiry of such authority and may make a purchase of shares pursuant to any such contract.
1. That, the Company be and is hereby generally and unconditionally authorised to hold general meetings (other than Annual General Meetings) on 14 clear days' notice, such authority to expire at the conclusion of the next Annual General Meeting of the Company or 15 months from the passing of this resolution, whichever is the earlier.

By order of the Board

Target Fund Managers Limited

Company Secretary

Registered office:

Level 13, Broadgate Tower 20 Primrose Street London EC2A 2EW

11 October 2022

Notice of Annual General Meeting continued

Notes:

1. Only those shareholders registered in the Company's register of members at 10.00 p.m. on 2 December 2022 or, if the meeting is adjourned, 10.00 p.m. on the day two working days prior to the adjourned meeting, shall be entitled to attend and vote at the meeting. Changes to the register of members after the relevant deadline shall be disregarded in determining the rights of any person to attend and vote at the meeting.
1. Information regarding the meeting, including the information required by section 311A of the Companies Act 2006 (the 'Act'), can be found at www.targethealthcarereit.co.uk.
1. As a member you are entitled to appoint a proxy to exercise all or any of your rights to attend, speak and vote at the meeting and you should have received a proxy form with this notice of meeting. A proxy does not need to be a shareholder of the Company but must attend the meeting to represent you. You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. You can only appoint a proxy using the procedures set out in these notes and the notes to the proxy form. You may not use any electronic address provided either in this notice or any related documents (including the financial statements and proxy form) to communicate with the Company for any purpose other than those expressly stated.
1. Shareholders can: (a) appoint a proxy and give proxy instructions by returning the enclosed proxy form by post (see Note 5); or (b) if a CREST member, register their proxy appointment by utilising the CREST electronic proxy appointment service (see Note 6); or (c) via the Proxymity platform (see Note 7). Appointment of a proxy does not preclude you from attending the meeting and voting in person. If you have appointed a proxy and attend the meeting and vote in person, your proxy appointment will automatically be terminated.
1. The notes to the proxy form explain how to direct your proxy how to vote on each resolution or withhold their vote. To appoint a proxy using the proxy form, the form must be: (a) completed and signed; (b) sent or delivered to Computershare Investor Services PLC at The Pavilions, Bridgwater Road, Bristol BS99 6ZY; and (c) received by Computershare Investor Services PLC no later than 12.00 p.m. on 2 December 2022 or, in the event of an adjournment of the meeting, 48 hours before the adjourned meeting. In the case of a shareholder which is a company, the proxy form must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the proxy form is signed (or a duly certified copy of such power or authority) must be included with the proxy form. If you have not received a proxy form and believe that you should have one, or if you require additional proxy forms, please contact Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY (Telephone: 0370 703 0013).
1. CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment service may do so for the meeting and any adjournment(s) of it by using the procedures described in the CREST manual (available via www.euroclear.com). CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment made using the CREST service to be valid, the appropriate CREST message (a 'CREST Proxy Instruction') must be properly authenticated in accordance with Euroclear UK & International Limited's (EUI) specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to be received by Computershare Investor Services PLC (ID 3RA50) no later than 12.00 p.m. on 2 December 2022 or, in the event of an adjournment of the meeting, 48 hours before the adjourned meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST applications host) from which the issuer's agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors or voting service providers should note that EUI does not make available special procedures in CREST for any particular message. Normal system timings and limitations will therefore apply in relation to the input of CREST proxy instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member, or has appointed a voting service provider(s), to procure that his/her CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST proxy instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
1. Proxymity Voting if you are an institutional investor you may also be able to appoint a proxy electronically via the Proxymity platform, a process which has been agreed by the Company and approved by the Registrar. For further information regarding Proxymity, please go to www.proxymity.io. Your proxy must be lodged by 12.00 p.m. on 2 December 2022 in order to be considered valid. Before you can appoint a proxy via this process you will need to have agreed to Proxymity's associated terms and conditions. It is important that you read these carefully as you will be bound by them and they will govern the electronic appointment of your proxy.
1. A corporation which is a shareholder can appoint one or more corporate representatives who may exercise, on its behalf, all its powers as a member provided that no more than one corporate representative exercises powers over the same share.
1. As at 6.00 p.m. on 11 October 2022, the Company's issued share capital comprised 620,237,346 Ordinary Shares of £0.01 each. Each Ordinary Share carries the right to one vote at a General Meeting of the Company and, therefore, the total number of voting rights in the Company as at 6.00 p.m. on 11 October 2022 is 620,237,346. The website referred to in Note 2 will include information on the number of shares and voting rights.
10.Under section 319A of the Act, any member attending the meeting has a right to ask questions. The Company must answer any question you ask relating to the business being dealt with at the meeting unless: (a) answering the question would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information; (b) the answer has already been given on a website in the form of an answer to a question; or (c) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered.
1. Under section 338 of the Act, a member or members meeting the qualification criteria set out in Note 14 below may, subject to certain conditions, require the Company to circulate to members notice of a resolution which may properly be moved and is intended to be moved at that meeting. The conditions are that: (a) the resolution must not, if passed, be ineffective (whether by reason of inconsistency with any enactment or the Company's constitution or otherwise); (b) the resolution must not be defamatory of any person, frivolous or vexatious; and (c) the request: (i) may be in hard copy form or in electronic form; (ii) must identify the resolution of which notice is to be given by either setting out the resolution in full or, if supporting a resolution sent by another member, clearly identifying the resolution which is being supported; (iii) must be authenticated by the person or persons making it; and (iv) must be received by the Company not later than six weeks before the meeting to which the request relates.
1. Under section 338A of the Act 2006, a member or members meeting the qualification criteria set out at Note 14 below may require the Company to include in the business to be dealt with at the Annual General Meeting a matter (other than a proposed resolution) which may properly be included in the business (a matter of business). The request must have been received by the Company not later than 25 October 2022. The conditions are that the matter of business must not be defamatory of any person, frivolous or vexatious. The request must identify the matter of business by either setting it out in full or, if supporting a statement sent by another member, clearly identify the matter of business which is being supported. The request must be accompanied by a statement setting out the grounds for the request. Members seeking to do this should write to the Company providing their full name and address.
1. Under section 527 of the Act, a member or members meeting the qualification criteria set out at Note 14 below may have the right to request the Company to publish on its website a statement setting out any matter that such members propose to raise at the meeting relating to the audit of the Company's accounts (including the Auditor's Report and the conduct of the audit) that are to be laid before the meeting. Where the Company is required to publish such a statement on its website: (a) it may not require the shareholders making the request to pay any expenses incurred by the Company in complying with the request; (b) it must forward the statement to the Company's auditors no later than the time the statement is made available on the Company's website; and (c) the statement may be dealt with as part of the business of the meeting. The request must: (a) be in writing to Target Fund Managers Limited at Glendevon House, Castle Business Park, Stirling FK9 4TZ; (b) either set out the statement in full or, if supporting a statement sent by another shareholder, clearly identify the statement which is being supported; (c) be authenticated by the person or persons making it; and (d) be received by the Company at least one week before the meeting.
1. In order to be able to exercise the members' rights in Notes 11 to 13, the relevant request must be made by: (a) a member or members having a right to vote at the meeting and holding at least 5% of total voting rights of the Company; or (b) at least 100 members having a right to vote at the meeting and holding, on average, at least £100 of paid-up share capital.
1. If you are a person who has been nominated under section 146 of the Companies Act 2006 to enjoy information rights (Nominated Person), you may have a right under an agreement between you and the shareholder of the Company who has nominated you to have information rights (Relevant Shareholder) to be appointed or to have someone else appointed as a proxy for the meeting. If you either do not have such a right or if you have such a right but do not wish to exercise it, you may have a right under an agreement between you and the Relevant Shareholder to give instructions to the Relevant Shareholder as to the exercise of voting rights. Your main point of contact in terms of your investment in the Company remains the Relevant Shareholder (or, perhaps, your custodian or broker) and you should continue to contact them (and not the Company) regarding any changes or queries relating to your personal details and your interest in the Company (including any administrative matters). The only exception to this is where the Company expressly requests a response from you. The statement of the rights of members in relation to the appointment of proxies in Notes 3 and 4 on page 90 does not apply to a Nominated Person.
1. Any person holding 3% or more of the total voting rights of the Company who appoints a person other than the Chairman of the meeting as his proxy will need to ensure that both he and his proxy comply with their respective disclosure obligations under the UK Disclosure Guidance and Transparency Rules.
1. Copies of the Directors' letters of appointment are available for inspection at the Company's registered office during normal business hours and at the place of the meeting from at least 15 minutes prior to the meeting until the end of the meeting.

Shareholder Information

Tax Summary for Real Estate Investment Trusts

Target Healthcare REIT plc is tax resident in the UK and is a Real Estate Investment Trust (REIT) under Part 12 of the Corporation Tax Act 2010, subject to continuing compliance with the REIT rules and regulations. The main REIT rules with which the Group must comply in order to retain its REIT status are as follows:

at the start of each accounting period, the assets of the tax-exempt business must be at least 75% of the total value of the Group's assets;
at least 75% of the Group's total profits must arise from the tax-exempt business;
at least 90% of the tax-exempt rental business profits must be distributed in the form of a Property Income Distribution; and
the Group must hold a minimum of three properties with no single property exceeding 40% of the portfolio value.

A REIT does not suffer UK corporation tax on the profits (income and capital gains) derived from its qualifying property rental businesses in the UK and elsewhere (the 'Tax-Exempt Business'), provided that certain conditions are satisfied. Instead, distributions in respect of the Tax-Exempt Business will be treated for UK tax purposes as UK property income in the hands of shareholders (see further below for details on the UK tax treatment of shareholders in a REIT). A dividend paid by the Company relating to profits or gains of the Tax-Exempt Business is referred to in this section as a Property Income Distribution ('PID').

UK corporation tax remains payable in the normal way in respect of income and gains from the Company's business (generally including any property trading business) not included in the Tax-Exempt Business (the 'Residual Business'). Dividends relating to the Residual Business are treated for UK tax purposes as normal dividends. Any normal dividend paid by the Company is referred to as a Non-PID Dividend ('Non-PID').

A REIT may become subject to an additional corporation tax charge if it pays a distribution to corporate shareholders that hold 10 per cent or more of share capital or voting rights and/or are entitled to 10 per cent or more of distributions. This tax charge will not be incurred if the REIT has taken reasonable steps to avoid making distributions to such a shareholder in line with HMRC guidance.

UK Taxation of PIDs

A PID is, together with any property income distribution from any other REIT company, treated as taxable income from a single UK property business. The basic rate of income tax (currently 20%) will be withheld by the Company (where required) on the PID unless the shareholder is entitled to receive PIDs without income tax being deducted at source and they have notified the Company's registrar of this entitlement sufficiently in advance of a PID being paid and the Company is satisfied that the shareholder concerned is entitled to that treatment.

Shareholders entitled to elect to receive distributions without deduction for withholding tax may complete the declaration form which is available on request from the Company through the contact details provided on its website, www.targethealthcarereit.co.uk, or from the Company's registrar. Shareholders who qualify for gross payments are, principally, UK resident companies, certain UK public bodies, UK charities, UK pension schemes and the managers of ISAs, PEPs and Child Trust Funds, in each case subject to certain conditions. Individuals and non-UK residents do not qualify for gross payments of distributions and should not complete the declaration form.

Shareholders who are individuals may, depending on their particular circumstances, either be liable to further UK income tax on their PID at their applicable marginal income tax rate, incur no further UK tax liability on their PID, or be entitled to claim repayment of some or all of the UK income tax withheld on their PID. The £1,000 property income allowance does not apply to PIDs.

Corporate shareholders who are within the charge to UK corporation tax will generally be liable to pay corporation tax on their PID and, if income tax is withheld at source, the tax withheld can be set against the company's liability to UK corporation tax or against any income tax which it is required to withhold in the accounting period in which the PID is received.

UK Taxation of Non-PIDs

Under current UK legislation, most individual shareholders who are resident in the UK for taxation purposes receive a tax-free dividend allowance of £2,000 per annum and any dividend income (including Non-PIDs) in excess of this allowance is subject to income tax.

UK resident corporate shareholders (other than dealers and certain insurance companies) are not liable to corporation tax or income tax in respect of dividends provided that the dividends are exempt under Part 9A of the Corporation Tax Act 2009.

UK Taxation of Chargeable Gains in Respect of Ordinary Shares in the Company

Any gain on disposal (by sale, transfer, redemption or otherwise) of the Company's ordinary shares by shareholders resident in the UK for taxation purposes will be subject to capital gains tax in the case of an individual shareholder, or UK corporation tax on chargeable gains in the case of a corporate shareholder.

UK ISAs and SIPPS

It is expected that the Company's shares will be eligible for inclusion in ISAs and Investment-Regulated Pension Schemes.

The statements on taxation on pages 92 and 93 are intended to be a general summary of certain tax consequences that may arise in relation to the Company and shareholders. This is not a comprehensive summary of all technical aspects of the taxation of the Company and its shareholders and is not intended to constitute legal or tax advice to investors.

The statements relate to the UK tax implications of a UK resident individual investing in the Company (unless expressly stated otherwise). The statements relate to investors acquiring the Company's ordinary shares for investment purposes only, and not for the purposes of any trade. The tax consequences for each investor of investing in the Company may depend upon the investor's own tax position and upon the relevant laws of any jurisdiction to which the investor is subject. The statements are based on current tax legislation and HMRC practice, both of which are subject to change at any time, possibly with retrospective effect, and there can be no guarantee that the tax position or proposed tax position prevailing at the time an investment in the Company is made will endure indefinitely.

Prospective investors should familiarise themselves with, and where appropriate should consult their own professional advisers on, the overall tax consequences of investing in the Company.

Historical Distributions

Distributions to shareholders may potentially include both PID and Non-PID Dividends as calculated in accordance with specific attribution rules. The Company provides shareholders with a certificate setting out how much of their dividend is a PID and how much, if any, is a Non-PID. A breakdown of the dividends paid in relation to the previous five financial years is set out below and details of all the dividends paid since the Group's launch are available at www.targethealthcarereit.co.uk

Distribution	Ex-dividend date	Payment date	PID (pence per share)	Non-PID (pence per share)	Total distribution (pence per share)
In relation to the year ended 30 June 2022
Fourth interim dividend	11/08/22	26/08/22	–	1.69000	1.69000
Third interim dividend	12/05/22	27/05/22	1.69000	–	1.69000
Second interim dividend	10/02/22	25/02/22	1.69000	–	1.69000
First interim dividend	11/11/21	26/11/21	1.69000	–	1.69000
Total			5.07000	1.69000	6.76000
In relation to the year ended 30 June 2021
Fourth interim dividend	12/08/21	27/08/21	0.16800	1.51200	1.68000
Third interim dividend	13/05/21	28/05/21	1.68000	–	1.68000
Second interim dividend	11/02/21	26/02/21	1.68000	–	1.68000
First interim dividend	12/11/20	27/11/20	1.68000	–	1.68000
Total			5.20800	1.51200	6.72000
In relation to the year ended 30 June 2020
Fourth interim dividend	13/08/20	28/08/20	0.08350	1.58650	1.67000
Third interim dividend	07/05/20	29/05/20	1.67000	–	1.67000
Second interim dividend	13/02/20	28/02/20	1.67000	–	1.67000
First interim dividend	14/11/19	29/11/19	1.67000	–	1.67000
Total			5.09350	1.58650	6.68000
In relation to the year ended 30 June 2019*
Fourth interim dividend	18/07/19	02/08/19	–	1.64475	1.64475
Third interim dividend	02/05/19	31/05/19	1.64475	–	1.64475
Second interim dividend	07/02/19	22/02/19	1.64475	–	1.64475
First interim dividend	25/10/18	30/11/18	1.64475	–	1.64475
Total			4.93425	1.64475	6.57900
In relation to the year ended 30 June 2018*
Fourth interim dividend	09/08/18	31/08/18	1.12870	0.48380	1.61250
Third interim dividend	03/05/18	25/05/18	1.61250	–	1.61250
Second interim dividend	01/02/18	23/02/18	1.61250	–	1.61250
First interim dividend	16/11/17	30/11/17	1.61250	–	1.61250
Total			5.96620	0.48380	6.45000

* Note: Distributions paid up until the year ended 30 June 2019, inclusive, were paid by the previous parent company of the Group, Target Healthcare REIT Limited, a Jersey-registered company in relation to which the tax consequences set out on pages 92 and 93 may differ.

Historical Record

Assets
At 30 June	2014	2015	2016	2017	2018	2019	2020	2021	2022
Total assets (£'000) Market value of property	105,071	176,310	282,791	306,246	434,822	538,379	663,772	718,394	963,658
portfolio (£'000)	83,246	143,748	210,666	281,951	385,542	500,884	617,584	684,845	911,596
Shareholders' funds (£'000)	90,218	139,292	253,282	256,937	358,607	413,089	494,113	565,185	698,767
Performance
At 30 June	2014	2015	2016	2017	2018	2019	2020	2021	2022
EPRA NTA per share	94.7p	97.9p	100.6p	101.9p	105.7p	107.5p	108.1p	110.4p	112.3p
Share price	104.8p	106.9p	109.0p	117.8p	110.5p	115.6p	110.0p	115.4p	108.4p
Premium/(discount)	10.6%	9.2%	8.3%	15.6%	4.5%	7.5%	1.8%	4.5%	(3.5)%
IFRS EPS	1.08p	8.02p	6.81p	7.58p	9.77p	8.10p	7.18p	9.23p	8.20p
Adjusted EPRA EPS	4.41p	6.10p	5.25p	5.23p	5.54p	5.45p	5.27p	5.46p	5.05p
Dividends per share	6.00p	6.12p	6.18p	6.28p	6.45p	6.58p	6.68p	6.72p	6.76p
Ongoing charges	1.95%	1.58%	1.42%	1.48%	1.48%	1.52%	1.51%	1.55%	1.51%

Contact Information

Investor relations

Information on Target Healthcare REIT plc can be found on its website at www.targethealthcarereit.co.uk including details on the Company's share price history, historical dividends and regulatory reports, including the Group's Annual Reports, Interim Reports and Quarterly Investor Reports.

Registrar: Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ T: +44 (0)370 702 0000 E: www.investorcentre.co.uk/contactus

Enquiries about the following administrative matters should be addressed to the Company's registrar:

Change of address notification.
Lost share certificates.
Dividend payment enquiries.
Dividend mandate instructions. Shareholders may have their dividends paid directly into their bank or building society accounts by completing a dividend mandate form. Dividend confirmations, where applicable, are sent directly to shareholders' registered addresses.
Amalgamation of shareholdings. Shareholders who receive more than one copy of the Annual Report are invited to amalgamate their accounts on the share register.

Shareholders can view and manage their shareholdings online at www.investorcentre.co.uk, including updating address records, making dividend payment enquiries, updating dividend mandates, viewing any outstanding payments and viewing the latest share price. Shareholders will need their Shareholder Reference Number, which can be found on their share certificate or a recent dividend confirmation, to access this site.

Warning to shareholders – Boiler Room Scams

Fraudsters use persuasive and high-pressure tactics to lure investors into scams. They may offer to sell shares that turn out to be worthless or non-existent, or to buy shares at an inflated price in return for an upfront payment.

If you receive unsolicited investment advice or requests:

Check the Financial Services Register from www.fca.org.uk to see if the person or firm contacting you is authorised by the Financial Conduct Authority ('FCA');
Call the FCA on 0800 111 6768 if the firm does not have contact details on the Register or you are told they are out of date;
Check the list of unauthorised firms to avoid at www.fca.org.uk/scam;
Consider that if you buy or sell shares from an unauthorised firm you will not have access to the Financial Ombudsman Service or Financial Services Compensation Scheme; and
Think about getting independent financial and professional advice.

If you are approached by fraudsters please tell the FCA by using the share fraud reporting form at www.fca.org.uk/scams where you can find out more about investment scams. You can also call the FCA Consumer Helpline on 0800 111 6768. If you have already paid money to share fraudsters you should contact Action Fraud on 0300 123 2040 or via their website at www.actionfraud.police.uk.

Alternative Performance Measures

The Company uses Alternative Performance Measures ('APMs'). APMs do not have a standard meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other entities. The definitions of all APMs used by the Company are highlighted in the glossary on pages 99 to 101, with detailed calculations, including reconciliation to the IFRS figures where appropriate, being set out below and within the EPRA Performance Measures.

Discount or Premium – the share price of an Investment Company is derived from buyers and sellers trading their shares on the stock market. This price is not identical to the NAV. If the share price is lower than the NAV per share, the shares are trading at a discount and, if the share price is higher than the NAV per share, are said to be at a premium. The figure is calculated at a point in time and, unless stated otherwise, the Company measures its discount or premium relative to the EPRA NTA per share.

		2022	2021
		pence	pence
EPRA Net Tangible Assets per share (see page 69)	(a)	112.3	110.4
Share price	(b)	108.4	115.4
(Discount)/premium	= (b-a)/a	(3.5)%	4.5%

Dividend Cover – the percentage by which Group specific adjusted EPRA earnings for the year cover the dividend paid.

		2022 £'000	2021 £'000
Group-specific EPRA earnings for the year (see page 69)	(a)	30,242	25,955
First interim dividend		10,482	7,686
Second interim dividend		10,482	7,686
Third interim dividend		10,482	8,594
Fourth interim dividend		10,482	8,594
Dividends paid in relation to the year	(b)	41,928	32,560
Dividend cover	= (a/b)	72%	80%

Ongoing Charges – a measure of all operating costs incurred in the reporting period, calculated as a percentage of average net assets in that year. Operating costs exclude costs of buying and selling investments, interest costs, taxation, non-recurring costs and the costs of buying back or issuing ordinary shares.

		2022 £'000	2021 £'000
Investment management fee Other expenses Less direct property costs and other non-recurring items Adjustment to management fee arrangements and irrecoverable VAT*		7,307 3,163 (347) 312	5,796 2,617 (263) 49
Total	(a)	10,435	8,199
Average net assets	(b)	693,292	528,035
Ongoing charges	= (a/b)	1.51%	1.55%

* Based on the Group's net asset value at 30 June 2022, the management fee is expected to be paid at a weighted average rate of 1.02% (2021: 1.04%) of the Group's average net asset plus an effective irrecoverable VAT rate of approximately 7% (2021: 7%). The management fee has therefore been amended so that the Ongoing Charges figure includes the expected all-in management fee rate of 1.10% (2021: 1.11%).

Total Return – the return to shareholders calculated on a per share basis by adding dividends paid in the period to the increase or decrease in the Share Price or NAV. The dividends are assumed to have been reinvested in the form of Ordinary Shares or Net Assets.

		2022			2021
		EPRA NTA (pence)	IFRS NAV (pence)	Share price (pence)	EPRA NTA (pence)	IFRS NAV (pence)	Share price (pence)
Value at start of year	(a)	110.4	110.5	115.4	108.1	108.0	110.0
Value at end of year	(b)	112.3	112.7	108.4	110.4	110.5	115.4
Change in value during the year (b-a)	(c)	1.9	2.2	(7.0)	2.3	2.5	5.4
Dividends paid	(d)	6.8	6.8	6.8	6.7	6.7	6.7
Additional impact of dividend reinvestment	(e)	0.3	0.3	(0.2)	0.5	0.4	0.3
Total gain in year (c+d+e)	(f)	9.0	9.3	(0.4)	9.5	9.6	12.4
Total return for the year	= (f/a)	8.1%	8.4%	(0.3)%	8.8%	8.9%	11.3%

EPRA Performance Measures

The European Public Real Estate Association is the industry body representing listed companies in the real estate sector. EPRA publishes Best Practice Recommendations ('BPR') to establish consistent reporting by European property companies. Further information on the EPRA BPR can be found at www.epra.com.

The figures below are calculated and presented in line with the BPR Guidelines published by EPRA in February 2022.

	2022	2021
EPRA Net Reinstatement Value (£'000)	756,708	609,630
EPRA Net Tangible Assets (£'000)	696,483	564,934
EPRA Net Disposal Value (£'000)	721,024	563,796
EPRA Net Reinstatement Value per share (pence)	122.0	119.2
EPRA Net Tangible Assets per share (pence)	112.3	110.4
EPRA Net Disposal Value per share (pence)	116.2	110.2
EPRA Earnings (£'000)	39,674	34,047
Group specific adjusted EPRA earnings (£'000)	30,242	25,955
EPRA Earnings per share (pence)	6.62	7.16
Group specific adjusted EPRA earnings per share (pence)	5.05	5.46
EPRA Net Initial Yield	5.38%	5.76%
EPRA Topped-up Net Initial Yield	5.82%	5.83%
EPRA Vacancy Rate	–	–
EPRA Cost Ratio (including direct vacancy costs)	21.5%	22.3%
EPRA Group specific adjusted Cost Ratio (including direct vacancy costs)	27.1%	26.6%
EPRA Cost Ratio (excluding direct vacancy costs)	21.5%	22.3%
EPRA Group specific adjusted Cost Ratio (excluding direct vacancy costs)	27.1%	26.6%
EPRA Loan-to-Value	24.0%	17.8%
Capital Expenditure (£'000)	209,540	54,859
Like-for-like Rental Growth	4.6%	0.1%

EPRA NAV metrics and EPRA Earnings

Full details of these calculations, including reconciliations of each to the IFRS measures, are detailed in Note 8 to the Consolidated Financial Statements on pages 68 and 69.

EPRA Net Initial Yield and EPRA Topped-up Net Initial Yield

EPRA Net Initial Yield is calculated as annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the market value of the property, increased with (estimated) purchasers' costs. The EPRA Topped-up Net Initial Yield incorporates an adjustment in respect of the expiration of rent-free periods (or other unexpired lease incentives).

		As at 30 June 2022 £'000	As at 30 June 2021 £'000
Annualised passing rental income based on cash rents	(a)	51,217	40,763
Notional rent expiration of rent-free periods or other lease incentives		4,259	450
Topped-up net annualised rent	(b)	55,476	41,213
Standing assets including properties held for sale (see pages 70 and 71)		892,336	662,495
Allowance for estimated purchasers' costs		60,225	44,696
Grossed-up completed property portfolio valuation	(c)	952,561	707,191
EPRA Net Initial Yield	= (a/c)	5.38%	5.76%
EPRA Topped-up Net Initial Yield	= (b/c)	5.82%	5.83%

EPRA Vacancy Rate

EPRA Vacancy Rate is the estimated rental value (ERV) of vacant space (excluding forward fund developments and properties held for sale) divided by the contractual rent of the investment property portfolio, expressed as a percentage.

		As at 30 June 2022 £'000	As at 30 June 2021 £'000
Annualised potential rental value of vacant premises*	(a)	–	–
Annualised potential rental value of the property portfolio (including vacant properties)	(b)	55,476	41,213
EPRA Vacancy Rate	= (a/b)	–	–

* As detailed in Note 18 to the Consolidated Financial Statements, there were no unoccupied properties at either 30 June 2021 or 30 June 2022.

EPRA Cost Ratio

The EPRA cost ratios are produced using EPRA methodology, which aims to provide a consistent base-line from which companies can provide additional information, and include all property expenses and management fees. Consistent with the Group specific adjusted EPRA earnings detailed in Note 8 to the Consolidated Financial Statements, similar adjustments have been made to also present the adjusted Cost Ratio which is thought more appropriate for the Group's business model.

		Year ended 30 June 2022 £'000	Year ended 30 June 2021 £'000
Investment management fee		7,307	5,796
Credit loss allowance and bad debts		3,232	2,717
Other expenses		3,163	2,617
EPRA costs (including direct vacancy costs)	(a)	13,702	11,130
Specific cost adjustments, if applicable		–	–
Group specific adjusted EPRA costs (including direct vacancy costs)	(b)	13,702	11,130
Direct vacancy costs	(c)	–	–
Gross rental income per IFRS	(d)	63,859	49,980
Adjusted for rental income arising from recognising guaranteed rent review uplifts and lease
incentives		(10,215)	(8,739)
Adjusted for surrender premiums recognised in capital		(3,877)	–
Adjusted for development interest under forward fund arrangements		783	647
Group specific adjusted gross rental income	(e)	50,550	41,888
EPRA Cost Ratio (including direct vacancy costs)	= (a/d)	21.5%	22.3%
EPRA Group specific adjusted Cost Ratio (including direct vacancy costs)	= (b/e)	27.1%	26.6%
EPRA Cost Ratio (excluding direct vacancy costs)	= ((a-c)/d)	21.5%	22.3%
EPRA Group specific adjusted Cost Ratio (excluding direct vacancy costs)	= ((b-c)/e)	27.1%	26.6%

EPRA Loan-to-Value ('LTV')		As at 30 June 2022 £'000	As at 30 June 2021 £'000
Borrowings Net payables Cash and cash equivalents		234,750 18,213 (34,483)	130,000 13,113 (21,106)
Net debt	(a)	218,480	122,007
Investment properties at market value Properties held for sale		911,596 –	677,525 7,320
Total property value	(b)	911,596	684,845
EPRA Loan-to-Value	= (a/b)	24.0%	17.8%

EPRA Capital Expenditure

	Year ended 30 June 2022 £'000	Year ended 30 June 2021 £'000
Acquisitions (including acquisition costs)	178,830	34,808
Forward fund developments	28,851	20,032
Like-for-like portfolio	1,859	19
Total capital expenditure	209,540	54,859
Conversion from accrual to cash basis	(2,547)	(3,459)
Total capital expenditure on a cash basis	206,993	51,400

Like-for-like Rental Growth

		Year ended 30 June 2022 £'000	Year ended 30 June 2021 £'000
Opening contractual rent	(a)	41,213	39,013
Rent reviews Movement in variable rental leases Re-tenanting of properties		1,581 – 312	686 (162) (468)
Like-for-like rental growth Acquisitions and developments Disposals	(b)	1,893 12,370 –	56 2,582 (438)
Total movement	(c)	14,263	2,200
Closing contractual rent	= (a+c)	55,476	41,213
Like-for-like rental growth	= (b/a)	4.6%	0.1%

Data Centre

As the age of the UK population increases along with the care needs of older people, there is a clear requirement for investment that will modernise and grow the supply of fit-for-purpose care homes. Much of the UK's existing care home real estate is sub-standard for residents and their care professionals.

Responsible investment, applying specialist knowledge to a complex and sensitive sector, can deliver stable, long-term returns and provide positive social and community impact.

1. Demographics

Number of over 85s forecast to nearly double to 3.3m in next 25 years.
Forecast increase in people living with dementia, to 1.0m in 2024 and 1.6m by 2040.
Societal shift means less elderly care provided within families.

Sources: 1901–2001, Census data; Following 2001, successive principal national projections (the latest being 2018-based) from the Office for National Statistics and (formerly) the Government Actuary's Department.

2. Real estate standards

Resident and family expectations on accommodation quality are increasing.
Only 29% of rooms in UK have the en suite wet-rooms which are vital for hygiene, privacy & dignity.
Purpose-built homes offer advantages for residents and care providers, and better social space for communities.

Total en suite wet-room provision

Proportion of the market is increasing as older homes close and new homes are built

Target Fund Managers/Carterwood Research.

3. Long-term investment, stable returns

Lease structures are long-term (typically 30-35 years) and inflation-linked.
Portfolio track record of strong returns and low volatility (defensive, non-cyclical).
Long-term capital appropriate for vital UK social care infrastructure.

Source: MSCI, based on annual index to 31 December 2021.

Eight year total return vs standard deviation 2014-2021

Glossary of Terms and Definitions

Corporate Terms

AIC	Association of Investment Companies. This is the trade body for Closed-end Investment Companies (www.theaic.co.uk).
AIFMD	The UK version of the Alternative Investment Fund Managers Directive and all delegated legislation thereunder as it forms part of UK law pursuant to the European Union (Withdrawal) Act 2018, as amended. Issued by the European Parliament in 2012 and 2013, the Directive requires that all investment vehicles in the European Union, including Closed-end Investment Companies, must have appointed a Depositary and an Alternative Investment Fund Manager. The Board of Directors of a Closed-end Investment Company, nevertheless, remains fully responsible for all aspects of the company's strategy, operations and compliance with regulations.
Closed-end Investment Company	A company with a fixed issued ordinary share capital which is traded on an exchange at a price not necessarily related to the Net Asset Value of the company and where shares can only be issued or bought back by the company in certain circumstances. This contrasts with an open-ended investment company, which has units not traded on an exchange but issued or bought back from investors at a price directly related to the Net Asset Value.
CQC	Care Quality Commission. The independent regulator of all health and social care services in England.
Depositary	Under AIFMD rules, the Company must appoint a Depositary, whose duties in respect of investments, cash and similar assets include: safekeeping; verification of ownership and valuation; and cash monitoring. The Depositary's oversight duties include, but are not limited to, oversight of share buy backs, dividend payments and adherence to investment limits. The Company's Depositary is IQ EQ Depositary Company (UK) Limited.
Discount/Premium*	The amount by which the market price per share of a Closed-end Investment Company is lower or higher than the net asset value per share. The detailed method of calculation is shown on page 95.
Dividend	The income from an investment. The Company currently pays interim dividends to shareholders quarterly.
Dividend Cover*	The absolute value of Group specific adjusted EPRA Earnings divided by the absolute value of dividends relating to the period of calculation. The detailed method of calculation is shown on page 95.
Dividend Yield*	The annual Dividend expressed as a percentage of the share price at the date of calculation.
EPRA Best Practice	European Public Real Estate Association. A not-for-profit organisation which aims to foster trust for, and encourage greater investment in, listed real estate in Europe (www.epra.com). EPRA also issue best practice recommendations to enhance the financial reporting of listed property companies.
EPRA Cost Ratio	Reflects the relevant overhead and operating costs of the business. It is calculated by expressing the sum of property expenses (net of service charge recoveries and third-party asset management fees) and administration expenses (excluding exceptional items) as a percentage of gross rental income. The detailed method of calculation is shown on pages 96 and 97.
EPRA Earnings per Share*	Recurring earnings from core operational activities. A key measure of a company's underlying operating results from its property rental business and an indication of the extent to which current dividend payments are supported by earnings. A reconciliation of the earnings per IFRS and the EPRA earnings, including any items specific to the Group, is contained in Note 8 to the Consolidated Financial Statements.
EPRA Group specific adjusted Cost Ratio*	The EPRA Cost Ratio adjusted for items thought appropriate for the Group's specific business model. The adjustments made are consistent with those made to the Group specific adjusted EPRA earnings as detailed in Note 8 to the Consolidated Financial Statements.
EPRA Loan-to-Value ('LTV')*	A shareholder-gearing measure to determine the percentage of debt comparing to the appraised value of the properties. EPRA LTV is calculated as total gross debt (adding net trade payables and less cash) as a proportion of gross property value. The detailed method of calculation is shown on page 97.
	EPRA Net Disposal Value ('NDV')* A measure of Net Asset Value which represents the shareholders' value under a disposal scenario, where deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liability, net of any resulting tax. A reconciliation of the NAV per IFRS and the EPRA NDV is contained in Note 8 to the Consolidated Financial Statements.
EPRA Net Initial Yield*	Annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the market value of the property, increased with (estimated) purchasers' costs. EPRA's purpose is to provide a comparable measure around Europe for portfolio valuations. The detailed method of calculation is shown on page 96.
EPRA Net Reinstatement Value ('NRV')*	A measure of Net Asset Value which assumes that entities never sell assets and aims to represent the value required to rebuild the entity. The objective is to highlight the value of net assets on a long-term basis. Assets and liabilities that are not expected to crystallise in normal circumstances, such as the fair value movements on financial derivatives, are excluded and the costs of recreating the Group through investment markets, such as property acquisition costs and taxes, are included. A reconciliation of the NAV per IFRS and the EPRA NRV is contained in Note 8 to the Consolidated Financial Statements.

Glossary of Terms and Definitions continued

EPRA Net Tangible Assets ('NTA')*	A measure of Net Asset Value which assumes that entities buy and sell assets, thereby crystallising certain levels of unavoidable deferred tax. A reconciliation of the NAV per IFRS and the EPRA NTA is contained in Note 8 to the Consolidated Financial Statements.
EPRA Topped-up Net Initial Yield*	Incorporates an adjustment to the EPRA Net Initial Yield in respect of the expiration of rent-free periods (or other unexpired lease incentives). The detailed method of calculation is shown on page 96.
GAAP	Generally Accepted Accounting Practice. This includes UK GAAP and International GAAP (IFRS or International Financial Reporting Standards). The Group's Consolidated Financial Statements are prepared in accordance with IFRS.
Gearing	Unlike open-ended investment companies, Closed-end Investment Companies have the ability to borrow to invest. This term is used to describe the level of borrowings that an Investment Company has undertaken. The higher the level of borrowings, the higher the gearing ratio. The gross gearing figure is calculated as debt divided by the market value of the properties held. The net gearing figures is calculated as debt less cash divided by the market value of the properties held.
Investment Manager	The Company's Investment Manager is Target Fund Managers Limited. Further details are set out on pages 30 and 31 and in Note 2 to the Consolidated Financial Statements.
Leverage	As defined under AIFMD rules, leverage is any method by which the exposure of an AIF is increased through borrowing of cash or securities or leverage embedded in derivative positions. Leverage is broadly equivalent to Gearing, but is expressed as a ratio between the assets (excluding borrowings) and the net assets (after taking account of borrowing). Under the gross method, exposure represents the sum of the Group's positions after deduction of cash balances, without taking account of any hedging or netting arrangements. Under the commitment method, exposure is calculated without the deduction of cash balances and after certain hedging and netting positions are offset against each other.
Loan-to-Value*	A measure of the Group's Gearing level. Gross LTV is calculated as total gross debt as a proportion of gross property value. Net LTV is calculated as total gross debt less cash as a proportion of gross property value.
Market Capitalisation	The stock market value of the Company as determined by multiplying the number of Ordinary Shares in issue, excluding any shares held in treasury, by the Share Price of the Ordinary Shares.
MSCI	Produces indexes for both privately-held real estate portfolios, as well as publicly-listed organisations which provides a long performance history and which are mostly appraised quarterly.
NAV per Ordinary Share	This is calculated as the Net Asset Value (NAV) divided by the number of shares in issue.
Net Asset Value (or Shareholders' Funds)	The value of total assets less liabilities. Liabilities for this purpose include current and long-term liabilities. It represents the underlying value of an Investment Company at a point in time.
Ongoing Charges Ratio*	A measure of all operating costs incurred in the reporting period, calculated as a percentage of average net assets in that year. Operating costs exclude costs of buying and selling investments, interest costs, taxation, non-recurring costs and the costs of buying back or issuing ordinary shares. The detailed method of calculation is shown on page 95.
Ordinary Shares	The main type of equity capital issued by conventional Investment Companies. Shareholders are entitled to their share of both income, in the form of dividends paid by the Investment Company, and any capital growth. The Company has only Ordinary Shares in issue.
Real Estate Investment Trust (or REIT)	A tax regime which in the UK exempts participants from corporation tax both on UK rental income and gains arising on UK investment property sales, subject to certain requirements. Further details are provided on pages 92 and 93.
Share Price	The value of a share at a point in time as quoted on a stock exchange. The Company's Ordinary Shares are traded on the Main Market of the London Stock Exchange.
SORP	Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the AIC.
Total Return*	The return to shareholders calculated on a per share basis by adding dividends paid in the period to the increase or decrease in the Share Price or NAV. The dividends are assumed to have been reinvested in the form of Ordinary Shares or Net Assets. The detailed method of calculation is shown on page 95.

* Alternative Performance Measure.

Property and ESG Terms

Break Option	A clause in a lease which provides the landlord or tenant with an ability to terminate the lease before its contractual expiry date.
Building Research Establishment Environmental Assessment Method ('BREEAM')	BREEAM is the world's leading science-based suite of validation and certification systems for sustainable built environment. The BREEAM in-use standards provide a framework to enable property investors, owners, managers and occupiers to determine and drive sustainable improvements in the operational performance of their assets, leading to benchmarking, assurance and validation of operational asset data.
Contractual Rent	The annual rental income receivable on a property as at the balance sheet date, adjusted for the inclusion of rent currently subject to a rent free period.
Covenant Strength	This refers to the quality of a tenant's financial status and its ability to perform the covenants in the lease.
COP26	The 26th UN Climate Change Conference held in November 2021.
Deed of Surrender	A legal document which allows the early termination of a lease upon the agreement of both parties. It will list the obligations that need to be fulfilled by both parties before the rights and interests under the lease are extinguished. Depending on the circumstances a surrender premium may be payable from the Group to the tenant, or receivable by the Group from the tenant.
EBITDA lease	Lease arrangement which constitutes a fixed base rental amount plus variable top up rental payments based on the trading Estimated Rental Value performance of the underlying property.
Energy Performance Certificate ('EPC')	An Energy Performance Certificate (EPC) rates how energy efficient a building is using grades from A to G (with 'A' the most efficient grade). All commercial properties leased to a tenant must have an EPC. All EPCs are valid for 10 years.
Estimated Rental Value ('ERV')	The estimated annual market rental value of a property as determined by the Company's External Valuer. This will normally be different from the actual rent being paid.
Fixed and Minimum Guaranteed Rental Uplifts	Rents subject to fixed uplifts at an agreed level on agreed dates stipulated within the lease, or rents subject to contracted minimum uplifts at specified review dates.
Forward Fund/Commitment	A contract pertaining to the future purchase of a property. Forward Funding relates to the acquisition of a property which hasn't yet been built, with the Group providing the developer with the funding for the development, usually in staged payments throughout the contract.
GRESB	GRESB is a mission-driven and investor-led organisation that provides actionable and transparent ESG data to financial markets. GRESB collects, validates, scores and benchmarks ESG data using a standardised, globally recognised framework so that both investors and Investment Managers can act on ESG data and insights.
Lease	A legally binding contract between a landlord and a tenant which sets out the basis on which the tenant is permitted to occupy a property, including the lease length.
Lease Incentive	A payment used to encourage a tenant to take on a new lease, for example by a landlord paying a tenant a sum of money to contribute to the cost of a tenant's fit-out of a property or by allowing a rent free period.
Lease Renewal	The renegotiation of a lease with the existing tenant at its contractual expiry.
Mature Homes	Care homes which have been in operation for more than three years. There were 58 homes in the Group's portfolio which both met this definition and were held by the Group for the entire duration of the year ended 30 June 2022, closing at 81 homes on 30 June 2022.
Occupancy Rate	The occupancy rate calculates the number of occupied rooms as a percentage of the overall capacity of the care home. This is an important measure in determining the quality of the property held, the strength of the tenant and the sustainability of the rental income received.
Portfolio or Passing Rent*	The annual rental income currently receivable on a property as at the balance sheet date, excluding rental income where a rent-free period is in operation. The gross rent payable by a tenant at a point in time.
Rent Cover*	A measure of the tenant's ability to meet its rental liability from the profit generated by their underlying operations. Generally calculated as the tenant's EBITDARM (earnings before interest, taxes, depreciation, amortisation, rent and management fees) divided by the contracted rent. Unless otherwise stated, rent cover is calculated based on Mature Homes only on a rolling twelve-month basis.
Rent Review	A periodic review of rent during the term of a lease, as provided for within a lease agreement.
Surrender Premium	A sum of monies that may be paid from the tenant to the landlord, or from the landlord to a tenant, in order to extinguish a lease prior to the termination date originally set out in the lease agreement.
Valuer	An independent external valuer of a property. The Group's Valuer is Colliers International Healthcare Property Consultants Limited and detailed information regarding the valuation of the Group's properties is included in Note 9 to the Consolidated Financial Statements.
WAULT*	Weighted average unexpired lease term. The average lease term remaining to expiry across the portfolio weighted by contracted rental income.

* Alternative Performance Measure.

Notes

Strategic Report Corporate Governance Financial Statements Additional Information

Notes

Corporate Information

Directors	Malcolm Naish (Chairman) Gordon Coull Alison Fyfe Vince Niblett* Amanda Thompsell
Registered Office	Level 13 Broadgate Tower 20 Primrose Street London EC2A 2EW
AIFM and Investment Manager, Company Secretary and Administrator	Target Fund Managers Limited Glendevon House Castle Business Park Stirling FK9 4TZ
Legal Adviser	Dickson Minto W.S. Broadgate Tower 20 Primrose Street London EC2A 2EW
Broker	Stifel Nicolaus Europe Limited 150 Cheapside London EC2V 6ET
Valuers	Colliers International Healthcare Property Consultants Limited 50 George Street London W1U 7GA
Auditors	Ernst & Young LLP Atria One 144 Morrison Street Edinburgh EH3 8EX
Tax Adviser	Deloitte LLP Athene Place 66 Shoe Lane London EC4A 3BQ
Tax Compliance	Alvarez & Marsal Taxand UK LLP 1 West Regent Street Glasgow G2 1RW	Printed on material from well-managed, FSC® certified forests and other controlled sources.
Depositary	IQ EQ Depositary Company (UK) Limited Two London Bridge London SE1 9RA	This publication was printed by an FSC® recognised printer that holds an ISO 14001 certification.
Registrars	Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS13 8AE	100% of the inks used are vegetable oil based, 95% of press chemicals are recycled for further use and, on average 99% of any waste associated with this production will be recycled and the remaining 1% used to generate energy.
Website	www.targethealthcarereit.co.uk
* Senior Independent Director

** Chairman of Audit Committee

The paper is Carbon Balanced with World Land

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Target Healthcare REIT plc Level 13 Broadgate Tower 20 Primrose Street London EC2A 2EW

www.targethealthcarereit.co.uk

Target Healthcare REIT plc

Annual Report and Financial Statements 2022

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Target Healthcare REIT PLC

5028_10-k_2022-11-08_fe386ccc-b7dd-4f53-b930-cdc00986d1fe.pdf

Investing in care. Delivering returns.

About Us

Responsible investment with a clear purpose – improving the UK's care home real estate

Long-term sustainable value

Key financial metrics for the year to, or as at, 30 June 2022

Social impact driven strategy, with a future-proofed business model

Now

Near-future trends

Why wet-rooms matter

1. Wet-rooms represent socially acceptable standards

18%-28%

2. Wet-rooms support sustainable occupancy levels

Investing in care. Delivering returns.

Dear Shareholder,

EPRA NTA per share growth 1.7%

1. Reflections

2. Outlook

3. Performance

4. Investment market and care home trading

5. Governance Board succession

Annual General Meeting ('AGM')

6. Looking ahead

Responsible investment in better care home real estate

Why we do it

Strategic pillars

How we do it

2022 highlights

At a Glance

Principled investment exclusively in welldesigned, purposebuilt care homes

Portfolio at 30 June 2022

Our portfolio

Targeting Tomorrow

ESG PRINCIPLES

1. Responsible investment

2. Responsible partnerships

3. Responsible business

Environmental

EPC ratings1

92% A-B ratings 100% A-C ratings

BREEAM assessments

Energy consumption data

Social

Wet-rooms

M2 per resident 47m2

Homes/beds created since launch with our backing

Governance/Transparency

ESG committee established

First GRESB submission

Board diversity

Our ESG commitments

Portfolio performance and UK care home investment market

Path to occupancy recovery

Occupancy

Public funding of care

Staffing pressures

Inflationary pressures

Our Strategy

We create better homes to achieve a better standard of care

STRATEGIC PILLAR #1 To grow a robust portfolio

Significant portfolio growth

Investment discipline maintained

Diversification

Our Strategy continued

Sector specialist portfolio management that values relationships

Positive returns

Resiliency through pandemic; trading outlook much improved

Occupancy chart

Tenant engagement and satisfaction

In summary:

Resident satisfaction

Investing in sustainable relationships

Our Strategy continued

Regular dividends for shareholders

Earnings & dividend cover

Total Returns

Debt funding: More fixed interest rates and longer terms

EPRA NTA per share (pence)