Annual financial statement
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RNS Number : 6679VTarget Healthcare REIT PLC22 September 2026 22 September 2026 Target Healthcare REIT plc and its subsidiaries ("Target Healthcare", "the Company" or "the Group") ANNUAL RESULTS FOR THE YEAR ENDED 30 JUNE 2026 Strong total accounting return underpinned by a sector-leading real estate portfolio Target Healthcare REIT plc, the listed specialist investor in modern, purpose-built UK care homes, is pleased to announce its annual results for the year ended 30 June 2026. Total accounting return of 12.0%; NTA growth of 6.4%; increase of 2.5% in fully covered dividend. · Total accounting return(1) of 12.0% (2025: 9.3%)· EPRA NTA per share increased 6.4% to 122.1 pence (2025: 114.8 pence) · Adjusted EPRA earnings per share increased by 7.6% to 6.54 pence per share (2025: 6.08 pence)· Fully covered annual dividend of 6.032 pence, an increase of 2.5% (2025: 5.884 pence) and 108%covered by adjusted EPRA earnings · FY27 annual dividend target of 6.212 pence per share, representing an increase of 3.0%· Low net loan-to-value ("LTV") of 16.1% as at 30 June 2026 (2025: 21.8%) Continued strong performance from sector-leading, fully-let real estate portfolio, with high rent cover, like-for-like rental growth of 3.7% and stable valuation yields.· Portfolio of 87 properties, comprising 86 modern operational care homes, all fully let to 31 tenants and one pre-let development site· Outperformed the MSCI UK Annual Healthcare Property Index, ranking in the top quartile for the year andmaintaining its record of outperforming the Index in every year since IPO · Portfolio value of £924.1 million, including a like-for-like increase of 4.9% (2025: 2.6%)· Contractual rent of £61.1 million per annum (2025: £61.2 million), including a like-for-like increase of 3.7%(2025: 3.3%) predominantly driven by rent reviews · Strong underlying trading performance at mature homes delivering high rent cover of 1.9x (2025: 1.9x)and resident occupancy remaining stable at c.85%· One of the longest weighted average unexpired lease terms in the listed UK real estate sector of 26.0 years (2025: 25.9 years)· Rent collection of 99% for the year (2025: 97%), returning to 100% by the year end following the disposalof the asset where rent was not being paid in full. Rent arrears of £1.9 million were recovered following the re-tenanting of three homes, resulting in a non-recurring contribution of 0.18p to the Group's adjustedEPRA EPS· Debt refinancing completed in the year resulting in £200 million of drawn debt at 30 June 2026 at an average cost, inclusive of the amortisation of loan arrangement costs, of 3.89% (2025: 3.84%) which isfully hedged against further interest rate increases until at least September 2030· Total debt facilities of £280 million with a weighted average term to maturity of 5.6 years (2025: 4.2 years), inclusive of a one-year extension to each of the Group's bank facilities which was agreed post year end· Disposal of 11 care homes for £97 million, representing a premium of 11.0% to carrying value and animplied net initial yield of 5.5%. Proceeds substantially redeployed into four standing assets, a forward commitment and a forward fund, totalling £73 million at an accretive yield in excess of 6%· Strong pipeline of attractive, high-quality care home investment opportunities with an indicative blendednet initial yield in excess of 6% Responsible investment strategy focused on quality in a sector with supportive demographic tailwindscontinues to improve the UK's care home real estate with a future-proofed portfolio.· Long-term demand from ageing population supporting both investor and operator activity in the sector · Strong alignment of ESG principles, with continued social purpose and advocacy of minimum real estatestandards across the sector, and portfolio improvements throughout the year· Modern, purpose-built care homes; full en suite wet-rooms account for 100% (2025: 100%) of the portfolio compared with c.36% for all UK care home stock· 100% of the portfolio is A or B EPC rated (2025: 100%)· 83% of the portfolio is purpose-built from 2010 onwards (2025: 84%) · Sector-leading average 49m2 of space per resident (2025: 48m2) (1) Based on EPRA NTA movement and dividends paid Alison Fyfe, Chair of the Company, said: "With a total accounting return of 12.0%, these results represent the Group's best annual financial performance since its IPO in 2013. The inflation-linked rental uplifts embedded in the leases, combined with stable valuation
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yields over the year, drove a notable improvement in like-for-like capital value. Returns were further enhanced bythe net impact of the Group's investment activity during the year. "Whilst the investment market remains competitive, the care home market itself is structurally undersupplied.Patient investing, particularly in competitive markets, remains key both in terms of delivering sustainable financialreturns and in the construction of a balanced portfolio carefully weighted to those factors and characteristics thatare expected to ensure that the properties remain attractive to investors, tenant operators and residents over thelong-term. "We remain confident in our growth aspirations and that the benefits of (i) the inherent value of our existingportfolio of high-quality, purpose-built assets; (ii) the structural support from annual inflation-linked rental growth;and (iii) the demographic tailwinds for the sector, will continue to deliver attractive returns and shareholder value." Results presentation A webcast presentation for analysts will take place at 8.30am BST this morning, for which registration can beaccessed at: https://brrmedia.news/THRL_FY26 LEI: 213800RXPY9WULUSBC04 Enquiries:Target Fund Managers Limited Tel: 01786 845 912Kenneth MacKenzie James MacKenzie Stifel Nicolaus Europe Limited Tel: 020 7710 7600 Rajpal Padam Catriona Neville Panmure Liberum Limited Tel: 020 3100 2000Jamie RichardsDavid Watkins FTI Consulting Tel: 020 3727 1000Dido Laurimore TargetHealthcare@fticonsulting.com Richard Gotla Notes to editors: UK listed Target Healthcare REIT plc (THRL) is an externally managed FTSE 250 Real Estate Investment Trustwhich provides shareholders with an attractive level of income, together with the potential for capital and incomegrowth, from investing in a diversified portfolio of modern, purpose-built care homes. The Group's portfolio at 30 June 2026 comprised 86 operational care homes and one forward funded developmentsite let to 31 tenants with a total value of £924.1 million. The Group invests in modern, purpose-built care homes that are let to high quality tenants who demonstratestrong operational capabilities and a strong care ethos. The Group builds collaborative, supportive relationshipswith each of its tenants as it believes working in this way helps raise standards of care and helps its tenants buildsustainable businesses. In turn, that helps the Group deliver stable returns to its investors. Chair's Statement I am pleased to introduce the results for the year ended 30 June 2026. With a total accounting return of 12.0%,these represent the Group's best annual financial performance since its IPO in 2013. This strong return was primarily due to the Group's sustainable rental income. The inflation-linked rental upliftsembedded in the leases, combined with stable valuation yields over the year, drove a notable improvement in like-for-like capital value. Returns were further enhanced by the net impact of the Group's investment activity duringthe year. The proceeds of a significant disposal, which I detailed this time last year, were comfortably in excess ofholding value, and have since been largely redeployed in high-quality real estate at an accretive yield. During the year, the Group also made substantial progress with its ongoing asset management activities. Thesehave helped to drive financial returns, improve both the physical standard and already excellent ESG credentialsof the real estate, and enhance the quality of the portfolio's long-duration rental income. As at 30 June 2026, theportfolio had returned to full rental collection, supported by rent cover on mature homes of 1.9 times over the lasttwelve months. We also took action to strengthen and de-risk the balance sheet, refinancing the Group's shorter-term bankfacilities until at least September 2029. The hedging of these facilities means that the interest rate on the entiretyof the Group's £200 million drawn debt is now fixed at a weighted average cost of 3.89%. Flexibility has also beenmaintained through the introduction of £80 million of committed revolving credit facilities and a further £70 millionuncommitted accordion option. The improvements to the real estate portfolio, its tenant base and the balance sheet, all provide a solid foundationfrom which the Company can aim for steady and consistent growth. We are confident that, having identified a
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significant pipeline of high-quality real estate, the Group's available capital will be deployed in an earningsaccretive and timely manner. 1. Market overview As I set out in the Company's half year report, the UK real estate market has been slow to recover from its recentlows, with stubborn inflation slowing the previously anticipated reduction in UK interest rates. Whilst the calendaryear started with cautious optimism, downside risks have subsequently crystallised, with global geopolitical conflictand, more locally, a stagnant economy and a growing government budget deficit. With this emerging instabilityaltering the economic outlook for the UK and adding to the volatility of capital markets, inflation is now expected topeak towards the end of the calendar year. Against this backdrop, transactional activity in the UK healthcare property sector remains elevated, dominated byoverseas capital attracted by the UK's supportive elderly care demographics. Transactions have continued to focuson either wholeco deals, a transaction structure where both the ownership of the real estate and the operations ofthe care home are acquired in a single deal, or those which recombine the care home operations and theownership of the underlying property - with some care homes then being operated under a managementcontract. Some of the market participants are thereby able to generate an enhanced financial return by combining propertyownership and home operation in a way not suitable for the Group as a UK REIT specialising in care home realestate. One such market participant purchased properties from the Group last year allowing the Group to generatea substantial premium to holding value. This dynamic may present additional opportunities for the Group to furtherrefresh its portfolio whilst also delivering enhanced returns and/or continuing to enhance the overall quality of theGroup's portfolio. The Company will continue to invest in care home real estate let on triple net leases, a traditional lease structurewhere the tenant pays a base rent in addition to being responsible for ongoing property expenses, includingbuilding insurance and maintenance costs. Investment demand for care homes leased on this basis has alsoremained high and this has provided fundamental support to our asset valuations, despite the higher interest rateenvironment. This competitive investor market is further exacerbated by (i) new entrants seeing the attractiveness of the sector;and (ii) alternative sources of finance being available to tenant operators that may have previously considered asale and leaseback. The latter is partially driven by traditional lenders looking to rebuild their exposure to thesector as the aforementioned transactional activity has led to existing loans being repaid. This broadening demand and limited supply, combined with the increased possibility of aborted deals which areexpensive in terms of both cost and delays in committing capital, means that careful asset selection, marketknowledge and operator relationships remain key in identifying and securing further acquisitions. The listed real estate market has also remained active, mainly in relation to corporate activity. Mergers and take-private acquisitions have significantly reduced the number of listed property companies and increased the scale ofthose which remain. Against this backdrop, the Board remains of the view that there is a place for sectorspecialists, supported by an experienced management team with a detailed focus on asset management to driveboth income and capital value growth. The share price discount to NTA has generally narrowed over the course of the last year across the propertysector, particularly in sub-sectors supported by fundamental demand and long income. This has very much beenevident in the Company's share price. Recent equity issuance by other listed property companies, the first forsome time, provides evidence that there are green shoots of growth in the listed property sector that will help tosupport the Company's own growth aspirations. In relation to the care sector, we note the Prime Minister's recent social care plan speech and the commencementof public consultation by Baroness Casey of Blackstock on the need for social care reform. The Group wouldwelcome new solutions to the issues in social care, and considers it is sensible to bring forward the Casey Reportto 2027. We believe that responsible private operators and long-term investors, with whom the Group looks to partner, willcontinue to play a key role in ensuring that everybody can access high-quality care. This is necessary to providedignity and security in later life, benefitting both residents and society. Further details on developments in the caresector are considered in the Investment Manager's report below. 2. Portfolio performance As I mentioned above, the Group's property portfolio has continued to perform strongly, driven by the level ofinflation-linked rental income growth. At a property level, this is demonstrated by the portfolio's outperformance ofthe MSCI UK Annual Healthcare Property Index. The portfolio generated a standing asset total return of 11.1% forthe 2025 calendar year, relative to the 7.5% total return from the Index. This placed the portfolio second out of the39 constituents in the Index over one year and, having outperformed the Index in every year since the Company'sIPO, resulted in a ten-year annualised standing asset return of 9.7%, compared to the Index's 7.1%. The overall like-for-like movement in the capital value of the portfolio for the year ended 30 June 2026 was 4.9%.This consisted of 3.2% from inflation-linked rent reviews, 1.3% from disposals and other asset managementinitiatives and 0.3% from additional one-off rent increases. A marginal tightening in yields contributed the final0.1%. The key portfolio activities during the year, further details of which are contained in the Investment Manager'sReport below, were as follows: · The disposal of 11 assets for £97 million, representing an average premium to their holding value at 30June 2025 of 11.0% and an implied net initial yield of 5.5%. These disposals added 1.6 pence per share toEPRA NTA and primarily related to the sale of nine assets in late October 2025, which facilitated a reduction in the Group's exposure to its largest tenant group.· The acquisition of (i) four standing assets for £45 million, including costs; (ii) a forward commitment toacquire a fifth home for £13 million once built; and (iii) the initial acquisition of a forward funded development which will total £15 million over the build period. This deployment of a total of £73 million ofthe disposal proceeds has improved the overall diversification of the portfolio. Additionally, the funding of
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new developments provides the Group with access to new, high-quality assets and maintains the averagelease length. This also provides a benefit to society in increasing the quantum of quality real estate available to this important sector.· The re-tenanting of a total of six assets in the year, all at unchanged or improved rental levels. Thisactivity, plus the crystallisation of a performance-linked rental uplift incorporated in the lease as part of a re-tenanting in a prior year, has resulted in an increase in capital values of £5.8 million over the year, withthe potential for further yield tightening should the relevant homes evidence the expected operationalimprovement. It also secured the recovery of agreed rent arrears of £1.9 million, contributing a non- recurring 0.18 pence per share to the Group's adjusted EPS. A further illustration of the Group's approach to asset management is detailed in the case study on page 21 of theAnnual Report. 3. Financial performance At the Group level, we delivered a total accounting return of 12.0% for the year. This was driven by an EPRA NTAincrease of 6.4%, to 122.1 pence per share from 114.8 pence, combined with dividends paid in the year. A moredetailed analysis of the components of this return is provided below but fundamentally consists of: 1. the crystallisation of the inherent value of our portfolio from disposals, along with the support that both the disposal value achieved and the aforementioned market demand provides to the valuation of theGroup's core portfolio;2. the recurring and growing EPRA earnings arising from our best-in-class real estate portfolio, with inflation-linked income, operating in a sector supported by demographic trends; and3. the result of the asset management activities detailed earlier, which returned the portfolio to 100% rentcollection by the year end. This has been delivered despite a modest level of gearing. The LTV started the year at 21.8%, reduced followingthe property disposals to c.12.8%, before gradually increasing to 16.1% at 30 June 2026 as disposal proceedswere redeployed. Full investment of the Group's committed debt facilities would increase our LTV further, toapproximately 25%. Depending on market conditions, we may also look to utilise our uncommitted accordionfacilities. All else being equal, this would increase the Group's LTV to approximately 30%. Notwithstanding the level of investment and asset management activity in the year, our overall business modelremains simple; investing for the long-term in a carefully curated investment portfolio with sustainable, inflation-linked rental income. This is financed by a core of long-term debt fixed at an attractive interest rate, supplementedby flexible revolving credit facilities. As a result of the investment activity in the year, the Group's investment portfolio at 30 June 2026 had acontractual rent roll totalling £61.1 million. This was financed with £200 million of debt at a weighted averageannual interest rate of 3.89%, fixed until at least 30 September 2029. The Group's operating costs, as measuredby the ongoing charges ratio, has remained relatively consistent over recent years, at c.1.5%. Looking ahead, the Group has approximately £103 million of committed capital available for further investment;being £23 million from current cash and £80 million from its revolving credit facilities ('RCF'). If drawn, these RCFswould carry an interest cost of SONIA plus 1.50% per annum. At the time of writing the Group has committed £26 million of this available capital to further investment at aweighted net initial yield of 5.9%. The Investment Manager has identified a pipeline of further opportunities with anindicative blended net initial yield in excess of 6% and an aggregate value significantly above the committedcapital available. These identified care home transactions may take longer to complete than the acquisition of standing assets inother property sectors. For example, due to the protracted timetable for receipt of regulatory permissions where atransaction includes a change in operator, or potential delays in the planning process before the Group willcontractually commit to a forward fund. However, we remain confident in the Investment Manager's ability todeploy the remaining capital in a diligent but timely manner, and on an earnings accretive basis. 4. Debt facilities In September 2025, the Group refinanced its short-term banking facilities on attractive terms with the incumbentlenders. The existing £170 million facilities were replaced with £130 million of new committed facilities, consistingof £50 million of term loans and £80 million of RCFs. These new facilities were for a minimum term of three years,with the option of two further one-year extensions, subject to lender consent. Subsequent to the year end, the firstof these extension options has been exercised. 5. Dividend In the absence of unforeseen circumstances, the Board intends to increase the quarterly dividend in respect of theyear ending June 2027 by 3.0% to 1.553 pence per share, providing an annual total dividend of 6.212 pence pershare. This increase represents a modest discount to the Group's like-for-like rental growth of 3.7%, in order tocontinue to build headroom in dividend cover. 6. Shareholder engagement We have always placed a significant emphasis on ensuring that the views of shareholders are reflected in anystrategic decisions we take on behalf of the Company. We recognise that there will generally be a spectrum ofviews, particularly given the current market environment for both property and listed companies, and we havesought to maintain both direct engagement with shareholders and the level of independent feedback provided fromour brokers in order to ensure that the actions taken by the Board take the views of investors, as a whole, intoconsideration. 7. Investment Manager alignment In line with the previous indication included in the interim report, the Board confirms that it has reached agreementwith the Investment Manager that, over a period of up to three years, the Investment Manager (including seniormembers of the management team and their connected parties) will invest the equivalent of 25% of one year's
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management fee in acquiring shares in the Company. Such acquisitions are expected to be on an ad hoc basisthrough the secondary market and will, of course, remain subject to applicable law and regulations. It is anticipatedthat this investment will commence shortly after the announcement of these annual results which will release theCompany from its current closed period. 8. Board succession As I highlighted last year, the Board intends to appoint a sixth non-executive Director in order to bolster thecombined skills and experience available to the Company, and provide greater depth and continuity to support oursuccession planning. The Board will remain mindful of the benefits of diversity in making this appointment. Thisrecruitment process is well advanced, and the Board anticipates announcing the successful candidate prior to theCompany's Annual General Meeting. 9. Annual General Meeting ('AGM') The AGM will be held in London on 2 December 2026. Shareholders that are unable to attend are encouraged tomake use of the proxy form provided in order to lodge their votes, and to raise any questions or comments theymay have in advance of the AGM through the Company Secretary. 10. Outlook The Board remains committed to the Group's investment strategy of investing in modern, purpose-built care homeassets with sustainable and inflation-linked rental streams. We are also mindful of the market's general preference,received through both direct shareholder engagement and as illustrated by the continued acceleration ofconsolidation across both the listed property and investment company sectors, for companies to increase scale.The primary aim of such growth must be to enhance earnings without diluting the quality of either the real estateheld or the sustainability of the underlying rental stream, with such increased size also benefitting companies byimproving liquidity in their shares, reducing cost ratios and increasing diversification in their investment portfolios. Whilst the investment market remains competitive, the care home market itself is structurally undersupplied andtherefore supportive of the Group's growth ambitions. This is driven by dual tailwinds: (i) UK demographic trends. The number of people aged over 85, of whom it is estimated that 1 in 8 will require residential care, is expected to double from 1.8 million to 3.6 million by 2050.1 The higheracuity needs of these more elderly persons generally make other care options, such as domiciliary care, a less suitable alternative; and(ii) a shortage of care homes of suitable real estate quality and design. The demand for newpurpose-built homes will be driven not only by the need for an increase in the overall number of beds to support the aging demographic above, but also to replace older homes as they close and arewithdrawn from the market. This should provide a steady supply of purpose-built homes of the typetypically financed by the Group. Currently c.100 newly-built homes of c.66 beds each enter the market each year and it is expected this will need to increase further in order to meet demand. The Company, as the sole UK-listed specialist in care homes, supported by a focussed Investment Manager with aproven track record, is well positioned to provide investors with exposure to this attractive sector. The Group has a variety of capital sources available to support its growth aspirations:• Equity: where issuance and deployment in identified opportunities would be enhancing to earnings andsupport dividend growth; • Debt: where the lower cost of financing would enhance returns without exceeding a loan-to-value ofc.30%;• Capital recycling: similar to the activity demonstrated in the current year, where disposal proceeds can be redeployed into earnings-enhancing opportunities, whilst maintaining or enhancing the quality of theproperty portfolio. Our focus on investing for growth will be progressed within the parameters of the competitive markets discussedearlier. The Board will also continue to consider alternative financing and investing options that offer earningsenhancing opportunities. The Board aims to pursue growth in the property portfolio without compromising the overall prudent investmentapproach which has served the Company's shareholders well to date. Patient investing, particularly in competitivemarkets, remains key both in terms of delivering sustainable financial returns and in the construction of a balancedportfolio carefully weighted to those factors and characteristics that are expected to ensure that the propertiesremain attractive to investors, tenant operators and residents over the long-term. We remain confident in our growth aspirations and that the benefits of (i) the inherent value of our existing portfolioof high-quality, purpose-built assets; (ii) the structural support from annual inflation-linked rental growth; and (iii)the demographic tailwinds for the sector, will continue to deliver attractive returns and shareholder value. Alison FyfeChair21 September 2026 1 Source: LaingBuisson, Care homes for older people, 36th edition
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Investment Manager's Report Portfolio performanceDuring the year, property level transactions completed by the Group were significant with (i) the disposal of 11 carehomes for total proceeds of £97 million; and (ii) the redeployment of £73 million of these proceeds into theacquisition of four operational care homes, one forward fund development and one forward commitment. Theforward commitment is due to complete shortly. These disposals were value accretive, with the proceeds representing a weighted average premium of c.11% totheir external valuations at the start of the year and a net initial yield of 5.5%. However, the primary intention of thelargest disposal was to reduce the Group's exposure to its largest tenant, without significantly changing the otherkey statistics for the remaining portfolio. The proceeds received have been substantially redeployed into acquisitions at an accretive net initial yield inexcess of 6%, with the properties acquired also further improving the modernity and ESG credentials of theGroup's portfolio. As an example, the forward fund relates to a development site in Suffolk with planning consentfor the construction of a fully electric (with no fossil fuel use) 66-bed care home with 100% en suite wet-roomprovision. The property will also include on-site renewable energy generation and has a targeted EPC rating of 'A'and BREEAM-In-Use rating of 'Excellent'. This activity has supported a strong total accounting return for the year of 12.0%, like-for-like rental growth of 3.7%and a like-for-like portfolio valuation increase of 4.9%. Asset managementThe Investment Manager also successfully delivered a number of asset management initiatives, improving bothrent collection and portfolio metrics. These initiatives included: • A development property reaching practical completion and being leased, on pre-agreed terms, to anexisting tenant, thereby adding £0.6 million to the Group's contractual rental income. • One asset, where the operator had not been paying rent and which the Group had placed intoadministration, being re-tenanted in July 2025 to an existing tenant of the Group at an improved rentallevel. The cumulative valuation uplift of £1.4 million since the completion of the re-tenanting has coveredthe cost of placing the tenant into administration, with the majority of these costs having been recognisedin the prior year. The uplift partially reflects a further rent increase, in addition to the inflation-linkage, aswell as yield tightening, with the potential for further yield tightening as the operating performance of thehome continues to improve. More important, however, was the securing of the future stability of the carehome for both staff and residents. • Re-tenanting three properties leased to a single tenant, where the operator was not paying the rent in full,in September 2025 at an unchanged rental level to two existing tenants of the Group. All agreed rentarrears, totalling £1.9 million, were subsequently recovered from the previous tenant, resulting in a non-recurring contribution of 0.18 pence to the Group's adjusted EPRA EPS over the year. • Re-tenanting one asset at an unchanged rental level with no tenant incentives being granted, therebysupporting a tenant who had taken the strategic decision to exit the elderly care sector, and extending thenew lease term to 35 years. The completion of the re-tenanting crystallised the payment to the Group of asurrender premium of £1.4 million, equivalent to 0.23p per share, with no change in the property value tocompensate for the proceeds received. At the portfolio level, key portfolio metrics are presented below which are reflective of the investment gradecharacteristics of our prime, modern UK care home portfolio. Rental growth was 3.7% on a like-for-like basis(2025: 3.3%) and this has been supported by a quality rental stream from 31 tenants with a robust average rentcover for the last twelve months of over 1.9x (2025: 1.9x). Underlying demand for places in our homes remainsrobust, with mature home occupancy of 85% (2025: 86%). The like-for-like valuation growth for the year was 4.9%, primarily driven by 3.5% from the growth in rents,supplemented by 0.1% from an inward movement in valuation yields. The gain arising on disposals and otherasset management initiatives contributed 1.3%. Our overall portfolio metrics remain strong. 94% of operational homes are mature in their trading, 83% (2025:84%) were built in 2010 or later, and the WAULT remains long at over 26.0 years (2025: 25.9 years). Thesecharacteristics, and the bias towards private-fee payments of our tenants' revenue (78%) all support the quality ofour rental stream and its annual and compounding long-term growth. Property regulationIn April 2026 an Act received Royal Assent which on commencement, expected sometime in 2027/28, willintroduce a statutory ban on upward only rent reviews in English commercial leases. Importantly, this will not havea retrospective effect on any of the Group's existing leases. The government has indicated that further consultationwill take place, including around caps and collars. The outcome of this consultation will ultimately determine ifthere is any impact on the Group's approach to new leases. Health and social care update2026 is potentially shaping up to be a significant year for the Social Care sector ('SC'). The ongoing CaseyCommission gained momentum following the change in Prime Minister, with Andy Burnham placing further focuson the sector early in his tenure. He is no stranger to the sector having previously launched a white paper whilst hewas Health Minister, and has expressed his ambition to see 'substantial' change within this parliamentary term. Earlier in 2026, Baroness Casey spoke of the fragility of the sector, the imbalance between the NHS and SC, andthe need to press on with workforce reform. It is the intention of the government to bring forward the finalconclusions of the Casey Commission to 2027, a year ahead of the original timeline, which we welcome, althoughit keeps it uncomfortably close to an election year, something which has scuppered previous attempts at reform. A complex sectorResidential and nursing care in care homes have progressively transitioned to the private sector over the last fewdecades. The health and SC landscape remains characterised by complex funding, commissioning and delivery
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arrangements, creating challenges for the effective delivery of SC. It is widely agreed that outcomes from SC canmake or break the NHS, which is why there is such a focus on reform. The statistics are stark: two in five elderlypatients wait for over twelve hours in A&E; one in ten hospital beds are blocked daily in England by patientswaiting for SC arrangements; one in six hospital beds are taken up by those with dementia, and delayed dischargeis said to cost the NHS £2.7 billion a year. As they weigh up the idiosyncrasies of the SC sector, both BaronessCasey and the Prime Minister have expressed concern over some elements of private provision, but we believethat the weight of demand is so deep, responsible private operators will continue to be required as an essentialpart of the provision. Funding reformPart of the wider reform being considered by Baroness Casey is 'who pays' for care. Care home operators withquality real estate, such as that provided by the Group, have been able to insulate themselves against tighteningpublic budgets by attracting private fee payers. Public consultation will likely bring a recommendation of ring-fencing an individual's self-funded costs at a set level, as well as proposing a 'true cost of care' for publicly fundedsupport, both of which operators would welcome. The question of funding for dementia is also topical. It should benoted that, like the Scottish system, 'care' costs are likely to be differentiated from 'accommodation' costs, with thelatter leaving residents and relatives the ability to retain choice with regard to the level of quality they wish tochoose. We await further developments with interest. StaffingStaffing and recruitment, while still a major focus of any operator's enterprise, is less of a concern than at any timesince the pandemic. Legislation has significantly reduced overseas recruitment. However, Skills for Care recentlynoted that care home staff vacancies stand at just under 4%, similar to most other sectors. 2026 brought someincreased benefits for staff with the introduction of an improved living wage, and enhanced maternity and sick paylegislation. The government continues to work toward the Fair Pay Initiative, which will see sector representatives,unions, and trade bodies work together to further improve pay and conditions. The sector bodies have howevermade it clear that while the government has pledged £500 million toward these reforms, it is imperative that theoperators receive the aforementioned 'true cost of care' for publicly funded residents, which will reduce thereliance on the historical cross-subsidy by private residents in many care homes. RegulatoryOperators remain somewhat concerned by the slow progress of the CQC, which lost both Chair and CEO duringthe past year. Operators are particularly frustrated by the length of time between inspections, which are often stillmeasured in multiple years. The CQC's current aim is to simplify the inspection process, which is welcome. Costs and feesCosts have settled somewhat for operators, compared to previous post-pandemic years, not least as the sectorhas less reliance on agency and license costs related to overseas staffing. Energy costs remain high but are arelatively small percentage of the overall costs at around 3%, which are dominated by staffing at or around 55%.Successive years of inflation have meant resident fees have undergone significant rises of their own, butindications are that private fee inflation is more tempered recently, which we estimate at around 6%, providingsome relief to residents and their families, while public fees have also tended to track slightly above inflation ataround 4.75%. Looking forward, the Fair Pay Awards mentioned earlier, while well deserved, risk creating a furtherhigh inflationary environment in care delivery. Target Fund Managers Limited21 September 2026 Our Strategy We are a responsible investor in ESG-compliant, purpose-built care home real estate which is commensurate withmodern living and care standards. We are advocates of the benefits that intelligently designed, purpose-built care homes can bring and we wantmore 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 dailybasis when providing quality care. The key strengths of our approach are:1. Our premium quality real estate is attractive to both operators and investors, in that:a. it is future-proofed against legislative change and societal trends influencing demand; andb. it generates high quality earnings from financially sustainable rents.2. Specialist manager, highly engaged within sector and with our tenants.3. Prudent approach to financial risks with diversified income sources, low gearing and long-term, fixed rate debt. Strategic pillar #1 Build high-quality portfolio: Acquire high quality real estate via a mix of new developments, recently completed builds, and modern assets at mature trading. Well designed, purpose-built care homesOur care homes are modern, purpose-built and are future-proofed for social and environmental trends, meetingdemand and supporting financial performance. Focus on maintaining modernity and quality metricsWe have actively managed the portfolio by recycling capital to ensure it remains modern, high quality, andsupports the tenants' ability to deliver the best possible care. This has seen successful portfolio managementactivities being completed during the year including the disposal of eleven care homes at a significant premium,with a substantial proportion of the proceeds received redeployed into the acquisition of four modern, purpose-builtcare homes, the commitment to forward fund one care home and a forward commitment to acquire a further care
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home once built. This activity delivered an enhanced return whilst maintaining the quality and improving thediversification of the portfolio. The disposals were made at an aggregate premium to carrying value of 11.0% and all at or above carrying value.The disposals are representative of the wider portfolio, and do not materially change the portfolio metrics. Theproceeds have been substantially reinvested. The four standing assets acquired and one forward commit are allmodern, purpose-built care homes in prime Central Scotland locations, leased to two new operators to the Group.The forward-funded development site is in Suffolk and will fund a fully electric care home with a targeted EPCrating of 'A' and a BREEAM-In-Use rating of 'Excellent'. These initiatives continue to maintain the portfolio's modernity and longevity. The positive impact can be seenthrough modest progression and maintenance of key portfolio metrics: Portfolio modernity 2026 2025 Purpose- built 2010 onwards 83% 84% WAULT (years) 26.0 25.9 EPC A&B rated 100% 100% En suite wet-rooms 100% 100% Best-in-class care home real estateOur investment thesis remains that modern, purpose-built care homes will outperform poorer real estate assetsand generate attractive, sustainable returns. Company England & Scotland Purpose-built since 2000 97% 22%En suite wet-rooms 100% 36%Space per resident 49m2 40m2 EPC ratings: B or better* 100% 55%carehome.co.uk average rating 9.5 out of 10 9.2 out of 10Regulatory ratings: 'good' or better 72% 81% Sources: Target Fund Managers Limited, Carterwood and carehome.co.uk *Comparative EPC ratings are for illustrative purposes only, capturing homes with matched postcodes. Wet-rooms (100%): These are essential for private and dignified personal hygiene, with a clear trend to this being the minimum expected standard for care home beds. Energy efficiency (100% EPC A or B): Energy efficiency of real estate is critical, with legislative change and public opinion demanding higher standards. Our portfolio is already fully compliant with anticipated incominglegislation, reducing capital expenditure requirements for the Group and energy costs for tenants. Modern and purpose-built (100%): All our properties are designed and built to be used as care homes and to best meet the needs of residents and staff, and are expected to remain in demand by tenant operators. Financials: Our metrics reflecting capital values and rental levels compare favourably with other care home portfolios, whilst representing significantly better real estate. Portfolio valuation growthThe portfolio value increased by 4.9% on a like-for-like basis mainly driven by the positive impact of the rentalgrowth on valuations of 3.5%, with a marginal tightening of valuation yields contributing 0.1%. The gain arising ondisposals and other asset management initiatives added the remaining 1.3%. The 11 disposals in the year resulted in a decrease of 10.6% based on their valuation at 30 June 2025, withacquisitions and other capital expenditure adding 5.1%. Valuations are prepared quarterly by the Group's external valuers with up-to-date values reflecting latest assettrading and comparable market transactions. The portfolio has a strong track record of valuation growthcontributing to total returns and the realisability of these external valuations are supported by the aggregatepremium of 11.0% to book value achieved on the disposals during the year. Annual Movement in Portfolio Valuation £millions Valuation at 30 June 2025 930Acquisitions and developments 47Disposals and surrender premium - proceeds (98)Disposals and asset management - gains 12Market yield shift 1Rent reviews 32 Valuation at 30 June 2026 924 DiversificationAsset management activities have continued to ensure that the portfolio remains diversified, by leasing our homesto a range of high-quality regional operators. We have welcomed three new operators during the year andsuccessfully exited from six operators through sales and/or re-tenanting activities. This resulted in the Group's totalnumber of tenants reducing slightly to 31, from 34.
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Whilst the total number of tenants may have reduced, tenant concentration metrics have improved overall. Thelargest tenant at 30 June 2026 remained unchanged with HC-One operating nine of the Group's homes andaccounting for c.8% of contracted rent. However, following the disposal of nine HC-One leased homes during theyear, this reflected a significant reduction in exposure compared to the 18 homes and 16% of contracted rent at 30June 2025. The top five operators concentration has also reduced to 40% from 42% as a result of the transactionalactivity, creating a more balanced tenant diversification across the portfolio. Underlying resident fees are balanced between private and public sources, with a deliberate bias towards private.There is strong operator evidence that these residents are more accepting of higher fees, particularly for thequality real estate and care services that our properties and their operators provide. Census data from our tenants show that 51% of residents in our homes are fully privately-funded, with a further27% making 'top up' payments where residents pay over and above that which the Local Authority funds for them.22% of residents are wholly publicly funded. Geographically, the South East has become the Group's largest region by asset value, at 18.5%, marginally aheadof the North West and Yorkshire and the Humber, which accounted for 17.8% and 17.7% respectively. Strategic pillar #2 Trusted landlord: Manage assets and tenants commercially yet fairly, recognising the value of long-term relationships and our influence within a complex sector. Manage portfolio as a trusted landlord in a fair and commercial mannerThe Investment Manager has deep experience within the sector and uses its unique knowledge to manage theportfolio. Starting with an informed assessment of home performance using profitability and operational metricsand a proven 'house-standard', through empathetic and sensitive engagement with our tenants and sectorparticipants as a whole, we are trusted and respected and people want to partner with us. This enables fairtreatment and commerciality to be balanced - essential in a complex sector. Portfolio operational performance - Steady occupancy and strong profitability continues at home levelOur completed portfolio is, and always has been, fully let with long term occupational leases to our tenants, thecare providers. The underlying resident occupancies for mature homes have remained stable over the last fouryears since the pandemic at c.85%. Given our operators' emphasis on private pay and the attractiveness of ourmodern homes our operators are able to focus on accepting new residents who are suitable for the level of supportthat the operator is set up to provide, rather than filling to capacity at uneconomic fees. This approach efficientlymanages demand, minimises the need for expensive agency staff, and facilitates a care-led approach whenwelcoming new residents to a home. Despite the changes to the licensing regime, which reduced the availability ofoverseas staff, most of our operators are reporting stable workforce numbers and reduced reliance on agencystaff. This approach has supported rent covers, which have remained stable and robust at over 1.9x for the year. Theseprofitability levels support rental payments and financial resilience, and incentivise care providers to invest in theirbusinesses and people. Rent collection in relation to the properties held at 30 June 2026 returned to 100% in the final quarter of the year,as a result of the portfolio management activities undertaken in the year. Rent collection for the full year was 99%(2025: 97%). The significant improvement in the year was driven by (i) the re-tenanting of a home placed intoadministration in the prior year; and (ii) the consensual re-tenanting of three homes and the sale of one home thatwere not paying rent in full. Growing and compounding rental incomeThe portfolio's contractual rent roll was £61.1 million at the year-end (2025: £61.2 million). Whilst the rent roll hasremained in line with the prior year, the portfolio delivered like-for-like growth of 3.7%, with 3.3% arising from thecontractual inflation-linked rent reviews and a further 0.4% contributed by asset management initiatives. This recurring like-for-like growth was set against a reduction in the rent roll of 9.4% from the sale of 11 properties.This was partially offset by an increase of 5.5% from opening a development home and acquiring four standingassets, and 0.1% from capex to install PV panels or otherwise enhance nine of our homes. With the sales havingbeen conducted at an average implied net initial yield of 5.5%, and the acquisitions to date having averaged ayield in excess of 6.0%, this investment activity will be accretive to rental income once the proceeds have beenfully redeployed. Rents from the Group's leases increase annually, linked to inflation. Collars on this (averaging c.1.5%) ensure theGroup receives guaranteed growth, while caps (averaging c.3.9%) ensure assets do not become over-rented,risking rents becoming unaffordable, in periods of higher inflation. This is an important aspect in providing long-term security to our tenants, and in achieving sustainable investment returns. Annual Movement in Contacted Rent £millions Contracted rent at 30 June 2025 61.2Acquisitions and developments 3.4Disposals (5.8)Rent reviews and other rent increases 2.3 Contracted rent at 30 June 2026 61.1 Tenant and resident satisfactionWe remain committed to our role as an effective, supportive and engaged landlord building collaborative andlasting relationships with our tenants to raise standards of care and help our tenants build sustainable businesses.During the year, the Investment Manager invited our tenants to provide formal feedback via a survey performed byan independent third party. We were delighted to receive an 85% response rate, with 100% of respondents saying
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they would recommend Target to others. We use this output, alongside learnings from the Investment Manager'sannual operator event and the many informal points of contact we have, to inform our approach. Resident satisfactionRegulator (CQC in England) ratings are informative but limited with dated inspection reports remaining achallenge. The Investment Manager also monitors reviews on 'Carehome.co.uk', a 'Tripadvisor' style website forcare homes, on a weekly basis as a useful source of real-time feedback which is more focussed on the residentexperience, and that of their loved ones. Strategic pillar #3 Deliver returns: Convert portfolio income and capital returns into sustainable returns to shareholders through disciplined financial and risk management. Regular dividends for shareholdersThe Group has achieved like-for-like rental growth; NTA growth; and a dividend fully covered by earnings from itsdisciplined financial and risk management. Pence per share EPRA NTA per share as at 30 June 2025 114.8 Acquisition costs (0.4)Disposals and surrender premium 1.7Property revaluations - yield shift 0.1Property revaluations - annual rent reviews 4.9Property revaluations - other 0.5Adjusted EPRA earnings 6.5Dividends paid (6.0) EPRA NTA per share as at 30 June 2026 122.1 EarningsEarnings increased by 7.6%, as measured by adjusted EPRA EPS which is the Group's primary performancemeasure. Rental income for the year has decreased by 0.6%, driven primarily by 11 disposals in the period, setagainst four acquisitions, the opening of one development and like-for-like rental growth of 3.7%. The disposal ofthe 11 care homes resulted in an annualised ungeared IRR of 11% over the period since acquisition. In line with the increase to full rent collection by the year end, and through a number of asset managementinitiatives to re-tenant homes that were not paying rent in full, there was an overall recovery of rent provisions inthe year of £0.9 million. Further details on the asset management activity that resulted in the majority of therecovery of the historical arrears are contained in the case study in the Annual Report. The Group's reported operating expenses increased slightly, by 2.2%. This included one-off costs of c.£0.5 millionincurred in the current year relating to the reorganisation of the Group's security structure to improve the efficiencyof the Group's long-term debt facilities, with the prior year figures similarly including a one-off cost from placing atenant into administration. Net finance costs reduced by 15.6% primarily due to the reduced drawn debt levels following the propertydisposals, the proceeds of which were used to repay the Group's revolving credit facilities, combined with therefinancing of the bank debt facilities. Expense ratioThe adjusted EPRA cost ratio, expressing costs as a percentage of the Group's rental income, decreased to18.5% from 21.8%. This reflects the aforementioned movements in rental income and operating expenses,although the year-on-year movement is primarily due to the release of the credit loss allowance following therecovery of historical arrears as a result of asset management activities. The Ongoing Charges Figure, expressing costs as a percentage of the Group's net asset value, provides ameasure of recurring operating expenses which excludes non-recurring property expenses such as bad debts.This improved marginally to 1.48% (2025: 1.51%). Earnings Summary 2026£m Movement 2025£m Rental income (excluding guaranteed uplifts) 60.2 -1% 60.6Administrative expenses (including management fee) (12.0) +2% (11.8)Credit loss allowance and bad debts 0.9 n/a (1.6)Net financing costs (8.6) -16% (10.2)Interest from development funding 0.1 -82% 0.7 Adjusted EPRA earnings 40.6 +8% 37.7 Adjusted EPRA EPS (pence) 6.54 +8% 6.08EPRA EPS (pence) 8.20 +6% 7.72Adjusted EPRA cost ratio 18.5% -330bps 21.8%EPRA cost ratio 15.5% -280bps 18.3%Ongoing Charges Figure ('OCF') 1.48% -3bps 1.51%
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Total ReturnsTotal accounting return, using EPRA NTA movement and dividends paid, was the highest in the Group's history at12.0% for the year ended 30 June 2026, resulting in an annualised 7.8% since launch. The return in the yearbenefitted from the increases in value from selling the 11 homes at an 11.0% premium to carrying value and therecovery of rent arrears following the re-tenanting of three homes. Our portfolio has returned like-for-like valuationgrowth for each of the 14 quarters since the December 2022 macro-driven response to the higher interest rateenvironment. Our valuations have been less volatile than the wider commercial property population, as reportedwithin the MSCI Monthly Index (All Property), due to the strength of investment demand and the tradingperformance at the underlying home level. This valuation performance, allied with our dividend payouts, fully covered by earnings, has seen EPRA NTA pershare grow by 6.4% over the year. The consistency of Group level total accounting returns and those at portfolio level clearly demonstrate the stabilityof our business model, and the defensive, non-cyclical nature of prime care homes as a real estate asset class. DebtThe Group refinanced its short-term banking facilities at improved terms with the incumbent banks. £130 million ofcommitted new facilities, consisting of £50 million of term loans on which the interest rate has been fixed throughinterest rate swaps and £80 million of revolving credit facilities replaced the Group's existing £170 million facilitieswith these banks. These new facilities were for a minimum term of three years, with the option of two further one-year extensions,subject to lender consent. Subsequent to the year end, the first option to extend, on the first anniversary of thefacilities, was exercised and approved by both banks. In addition, the facilities allow for accordion elements whichmay provide for an additional £70 million of uncommitted debt funding to increase shorter-term banking facilities toan aggregate of £200 million. This borrowing structure minimises commitment fees and interest whilst providing flexibility as the Group redeploysthe proceeds of the recent disposals and invests to increase the Group's LTV towards its stated target of between25% and 30%. Debt facilities are £280 million (2025: £320 million). Inclusive of the post year end extension of the bank facilities,the weighted average term to expiry on the Group's total committed loan facilities was 5.6 years (30 June 2025:4.2 years), with drawn debt of £200 million incurring a weighted average cost, inclusive of amortisation of loanarrangement costs, of 3.9% (3.7% on a cash only basis with costs excluded). Debt analysis at 30 June 2026: DebtProvider FacilitySize Debt Type Drawn at30 June 2026 Maturity PhoenixGroup £150m £87m Term debt£63m Term debt £87m (fixed rate)£63m (fixed rate) Jan 2032Jan 2037RBS £50m £20m Term debt£30m Revolving credit facility £20m (hedged)nil September 2029September 2029HSBC £80m £30m Term debt£50m Revolving credit facility £30m (hedged)nil September 2029September 2029 Total £280m £200m The bank loan facilities also include accordion options which, subject to the approval of the relevant bank, increasethe quantum of the RBS facility by a further £30 million and the HSBC facility by a further £40 million. Further details on the Group's debt facilities are provided in Note 7 to the Extract from the Consolidated FinancialStatements. Net debt to EBITDA ratio of 3.4x (2025: 4.6x)This is a leverage ratio that compares the Group's long-term liabilities in the form of net debt to an estimate of itscash flow available to pay down this debt, in the form of EBITDA (which stands for earnings before interest, taxes,depreciation and amortisation). The Group uses adjusted EPRA earnings as its EBITDA, and the gradual reductionillustrates the improvement in the Group's ability to repay the capital value of its debt from earnings over a periodin which interest rates have risen. Strategic pillar #4Social purpose: To adhere to our responsible investment fundamentals, delivering positive social impact alliedwith a firm commitment to environmental sustainability and good governance. To achieve our social purposeWe have a clear ESG Charter (Targeting Tomorrow) to ensure the social impact objective incorporated at launchremains embedded in our business for years to come, working with shareholders, tenants and other stakeholders.We have made firm ESG commitments which we measure and report progress on annually. ESGcommitments What this means for the Group Status Responsibleinvestment Continue to provide better care home real estate which results inpositive social impact for residents, their carers and localcommunities. Met
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Support the sector's transition from poor real estate standards vialong-term financial/ investment support for new developments. Met Obtain reliable certification and insightful data on the energyefficiency of our real estate. Met Increase data coverage of energy consumption by our tenants, aidingtransparency and our ability to positively influence energy efficiency. Met Ensure ESG factors embedded into acquisition process and portfoliomanagement. Met Net zero carbon commitment with comprehensive, ambitious andrealistic targets set with a clear pathway including measurablemilestones. Met Responsiblepartnerships Engage with tenants to ensure real estate is meeting their operationaland staff needs, allowing effective care for residents. Met Be a responsible landlord to our tenants and their communitiesthrough significant challenges, such as pandemics. Met Use energy data obtained from tenants to positively influencebehaviours where possible. Partially met Responsiblebusiness To establish an ESG Committee to provide appropriate focus andimpetus to ESG matters. Met Ensure the benefits of Board diversity are achieved. Partially met Participate in benchmarking and sector appropriate programmes toprovide comparable information to stakeholders. Partially met Other reporting: Align financial and non-financial reporting with widelyused frameworks. Partially met ESG Commitments in focus: Net Zero Carbon Pathway Our Net Zero Carbon Pathway sets out a clear, science-based roadmap to achieve net zero carbon emissionsacross firstly, our operations and then, secondly, our portfolio. We are guided strongly by our comprehensive utilitydata collection regarding our real estate. Net Zero Carbon Pathway • 2025 Scope 1 and 2 net zero carbon achieved • 2030 target to have renewable energy generation (or heat pumps) at 50% of its homes • 2040 net zero carbon target for property portfolio related Scope 3 emissions Quality of input dataAchieving a net zero-carbon portfolio is a crucial part of our suite of "Targeting Tomorrow" commitments as aresponsible business. It is essential to adopt a strategy that is:(i) based on comprehensive and reliable data;(ii) achievable and measurable; and(iii) suitably ambitious. We are now collecting our tenants' energy usage data to an extent which allows a reliable analysis of ourportfolio's current position and of the impacts of initiatives. Output statusThe output we currently have: • Benchmark data on where we currently stand on carbon intensity, relative to the CRREM and SBTi joint 1.5°C decarbonisation pathway. • Suggested energy efficiency and carbon reduction initiatives relevant to our properties. • Cost estimates and impact assessments on carbon intensity. Indicative timeline and actions • Between 2025 and 2030: Install energy efficiency measures, such as thermal installation in plant rooms (2-3% CO2 savings) and increase renewable energy generation (including by heat pumps) to 50% of homes. • Between 2025 and 2035: Increase PV or solar thermal panel coverage towards 100% of portfolio. • Between 2030 and 2040: Electrification of heating, phase out gas boilers and install heat pumps and appropriate upgrade of heat distribution in homes. Our portfolio's modernity provides an excellent starting point with annual carbon intensity of 36.1 kgCO2/m2. Risks and areas outside our control • Suitable technology being available at the required scale and cost, per expectations as advised by our external experts, in the time period outlined. • Materials and labour being available such that the Group is able to have technology installed in a sensible timeframe and at fair, market (not surge) pricing. • Need to obtain tenant consent for potentially disruptive works. • That the relevant investment costs do not depress investment returns to such an extent the Group cannot achieve its investment objectives to the satisfaction of shareholders. Principal and emerging risks and risk management
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Risk Description of risk and factorsaffecting risk rating Mitigation Poor performanceof investments/investment assetsRisk rating &change: High(decreased) There is a risk that a tenant's businesscould become unsustainable if its carehomes trade poorly. This could lead to aloss of income for the Group and anadverse impact on the Group's resultsand shareholder returns. The strategy ofinvesting in new purpose-built carehomes could lead to additional fill-up riskand there may be a limited amount oftime that operators can fund start-uplosses. The Investment Manager focuseson tenant diversification across theportfolio and, by considering thelocal market dynamics for eachhome, aims to ensure that rents areset at sustainable levels. Rentdeposits or other guarantees aresought, where appropriate, toprovide additional security for theGroup. The Investment Managerhas ongoing engagement with theGroup's tenants to proactivelyassist and monitor performance.Rent cover, a key measure of theunderlying home profitability,remains at the highest level sincethe Group's IPO. High inflationaryenvironmentRisk rating &change:Medium(unchanged) An increase in the UK inflation rate to alevel above the rent review caps in placeacross the portfolio's long-term leasesmay result in a real term decrease in theGroup's income and be detrimental to itsperformance. Whilst the cap may preventrent becoming unaffordable for tenants,other cost increases, particularly inrelation to staffing and utilities, may erodetheir profitability and rent cover unlesstheir revenue increases accordingly. The Group's portfolio includesinflation-linked leases, withprimarily annual upwards-only rentreviews within a cap and collar. Therate of inflation is currently belowthe level of the majority of theGroup's rent review caps. TheInvestment Manager is monitoringtenant performance, including rentcovers and whether averageweekly fees paid by the underlyingdiversified mix of publicly fundedand private-fee paying residentsare growing in line with inflation. Adverse interestrate fluctuations/ debt covenantcomplianceRisk rating &change:Medium(decreased) Adverse interest rate fluctuations willincrease the cost of the Group's variablerate debt facilities; limit borrowingcapacity; adversely impact property valuations; and be detrimental to theGroup's overall returns. The Group has a conservativegearing strategy. The gearing levelremained consistently modestthroughout the year, although netgearing is anticipated to increaseas the Group nears full investment.Loan covenants and liquidity levelsare closely monitored forcompliance and headroom. TheGroup had fixed interest costs on100% of its total borrowings as at30 June 2026, having hedged itsinterest rate exposure by enteringinto new five-year interest rateswaps as part of the refinancingactivity during the year. Negativeperception ofthe care homesectorRisk rating &change:Medium(unchanged) A negative perception of the care homesector, due to matters such as societaltrends, pandemic or safeguardingfailures, or difficulties in accessing socialcare, may result in a reduction in demandfor care home beds, causing assetperformance to fall below expectationsdespite the demographic shifts and therealities of needs-based demand in thesector. The resultant reputational damagecould impact occupancy levels and rentcovers across the portfolio. The Group is committed toinvesting in high quality real estatewith high quality operators. Theseassets are expected to experiencedemand ahead of the sectoraverage while in the wider market alarge number of care homeswithout fit-for-purpose facilities areexpected to close. A trend ofimproving occupancy rates acrossthe portfolio has been noted inrecent times, with occupancy ratesapproaching pre-pandemic levels. Availabilityof capitalRisk rating &change:Medium(unchanged) Without access to equity or debt capital,the Group may be unable to grow throughacquisition of attractive investmentopportunities. This is likely to be driven byboth investor demand and lender appetitewhich will reflect Group performance,competitor performance, general marketconditions and the relative attractivenessof investment in UK healthcare property. The Group maintains regularcommunication with investors andexisting debt providers, and, withthe assistance of its brokers andsponsor, regularly monitors theGroup's capital requirements andinvestment pipeline alongsideopportunities to raise both equityand debt. Whilst the Company'sshares remain at a discount,potentially limiting access to equity
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capital for further growth, the bankfacilities were recently successfullyrefinanced and extended and nowcarry an earliest repayment date ofSeptember 2029. ESG and climatechangeRisk rating &change: Medium(unchanged) A change in climate, such as anincreased risk of local or coastal flooding,or a change in tenant/investor demandsor regulatory requirements for propertieswhich meet certain environmental criteria,such as integral heat pumps or airconditioning, may result in a fall indemand for the Group's properties,reducing rental income and/or propertyvaluations. The Group is committed toinvesting in high quality real estatewith high quality operators. Theportfolio's EPC and BREEAM in-use ratings suggest the portfolio iswell positioned to meet futurerequirements/expectations and,with extreme heat events expectedto become more common, around40% of the portfolio has airconditioning or 'comfort cooling' incommunal spaces. The InvestmentManager uses a house standard toensure ESG factors are fullyconsidered during the acquisitionprocess. Reducedavailability ofcarers, nursesand other carehome staffRisk rating &change: Medium(unchanged) Recent trends have reduced theavailability of key staff in the care sectorwhich may result in a reduction in thequality of care for the underlyingresidents of our homes, restrict tenantsfrom being able to admit residents orresult in wage inflation. The Group is committed toinvesting in high quality real estatewith high quality operators andthese should be better placed toattract staff. The InvestmentManager continues to engage withtenants in the portfolio and to shareexamples of best practice inrecruitment and retention of staff. DevelopmentcostsRisk rating &change:Medium(unchanged)Breachof REITregulationsRisk rating &change: Medium(unchanged) The high inflationary environment,particularly for building materials andstaff, combined with supply chaindifficulties, may result in an increased riskthat the developers of contracteddevelopments do not fulfil theirobligations and/or may increase the costof new development opportunities. The Group is not significantlyexposed to development risk, withforward funded acquisitions beingdeveloped under fixed pricecontracts, with the InvestmentManager having considered boththe financial strength of thedeveloper and the ability of thedeveloper's profit to absorb anycost overruns. As at 30 June 2026,the Group held only one remainingdevelopment, although this mayincrease as the Group invests itsavailable capital. Breachof REITregulationsRisk rating &change: Medium(unchanged) A breach of REIT regulations, primarily inrelation to making the necessary level ofdistributions, may result in loss of taxadvantages derived from the Group'sREIT status. The Group remains fullycompliant with the REIT regulations andis fully domiciled in the UK. The Group's activities, including thelevel of distributions, are monitoredto ensure all conditions areadhered to. The REIT rules areconsidered during investmentappraisal and transactionsstructured to ensure conditions aremet. Changes ingovernmentpoliciesRisk rating &change: Medium(increased) Changes in government policies,including those affecting local authorityfunding of care, may render the Group'sstrategy inappropriate. Secure incomeand property valuations will be at risk iftenant finances suffer from policychanges. Government policy is monitored bythe Group to increase the ability toanticipate changes. The Group'stenants also typically have amultiplicity of income sources, withtheir business models not whollydependent on government funding. Reliance onthird partyserviceprovidersRisk rating &change: Medium(unchanged) The Group is externally managed and, assuch, relies on a number of serviceproviders. Poor quality service fromproviders such as the InvestmentManager, company secretary, brokers,legal advisers or depositary could havepotentially negative impacts on theGroup's investment performance, legalobligations, compliance or shareholderrelations. The Investment Manager, alongwith all other significant serviceproviders, is subject to regularperformance appraisal by theBoard. The Investment Managerhas retained the majority of keypersonnel since the Group's IPOand has successfully hired furtherskilled individuals and invested inits systems. Failure todifferentiatequalities fromcompetitors or Failing to differentiate strategy andqualities from competitors is a significantrisk for the business, with increasedcompetition in the healthcare real estate The stakeholder communicationsstrategy of the Group has alwaysbeen to highlight the quality of thereal estate in which the Group
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poor investmentperformanceRisk rating &change: Medium(unchanged) sector. The failure to communicate theseeffectively to stakeholders could have anegative impact on the Company's shareprice, future demand for equity raisesand/or debt finance and widerreputational damage. invests. The regular production ofinvestor relations materials (annualand interim reports, investorpresentations and quarterlyfactsheets) along with directengagement with investors helps tomitigate this risk. The Company's risk matrix is reviewed regularly by the Board. Emerging risks are identified through regulardiscussion at Board meetings of matters relevant to the Company and the sectors in which it operates; includingmatters that may impact on the underlying tenant operators. In addition, the Board holds an annual strategymeeting which includes presentations from relevant external parties to ensure that the Board is fully briefed onrelevant matters. At the strategy meeting, as part of an overall SWOT analysis, principal and emerging risks arediscussed 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 sensitivityanalysis to address the appropriate risks, is set out below. Section 172 Statement: Promoting the success of Target Healthcare REIT plc The Board considers that it has made decisions during the year which will promote the success of the Group forthe benefit of its members as a whole. a) The likelyconsequences of anydecision in the long term Our investment approach is long-term with an average lease length of26.0 years. We believe this is the most responsible approach to providestability and sustainability to tenants and key stakeholders. Therefore,most decisions require consideration of long-term consequences, fromdetermining a sustainable rent level and the right tenant partner foreach investment, to considering the impact of debt and key contractswith service providers on the recurring earnings which supportdividends to shareholders. b) The interests of theCompany's employees The Company is externally managed and therefore has no employees. c) The need to foster theCompany's businessrelationships withsuppliers, customers andothers As a REIT with no employees, the Board works in close partnershipwith the Investment Manager, which runs the Group's operations andportfolio within parameters set by the Board and subject to appropriateoversight. The Investment Manager has deep relationships withtenants, the wider care home sector, and many of the Group's othersuppliers. These are set out in more detail in the following table. d) The impact of theCompany's operationson the community andthe environment The Board is confident the Group's approach to investing in a sensitivesector is responsible with regard to social and environmental impact.This is set out in more detail in the community and the environmentsection of the following table. e) The desirability of theCompany maintaining areputation for highstandards of businessconduct The Board requires high standards of itself, service providers andstakeholders. The Group's purpose and investment objectives dictatethat these standards are met in order to retain credibility. The ethos andtone is set by the Board and the Investment Manager. f) The need to act fairlyas between members ofthe Company The Board encourages an active dialogue with shareholders to ensureeffective communication, either directly or via its brokers and/orInvestment Manager. The interests of all shareholders are consideredwhen issuing new shares and/or considering the level of distributions orother return of capital. The significant transactions where the interests of stakeholders were actively considered by the Board during theyear were: Ongoing investment and asset management activityThe Group was actively engaged in several re-tenantings during the year. Further details on which are describedin the Investment Manager's Report above. This included completing the re-tenanting of a home where the Group had placed the previous tenant intoadministration, the first time that this has been undertaken by the Group and a decision which was not taken lightlygiven both the costs involved and its potential impact across a number of stakeholders. This transaction requiredcareful consideration by the Board to balance the competing interests of the Group, its shareholders, the tenantoperator and the staff and residents of the relevant care home. Despite the additional costs involved in thisprocess, it resulted in a successful re-tenanting of the care home; thereby preventing a further loss of rentalincome and protecting capital value for the Group, whilst ensuring continuity of the home's operations for staff andresidents.
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Another significant tenant activity involved an operator who decided to exit the elderly care home market. Workingwith the operator, the Group re-tenanted the tenant's three care homes to two existing tenants of the Group. The Group also agreed transactions to sell 11 properties and, with the inclusion of both a forward commitment andforward fund in the redeployment of the proceeds received, is supporting the construction of two new purpose-built, high-quality care homes and the provision to the sector, and residents, of a further 114 much needed beds infit-for-purpose real estate. BoardThe Board expects to appoint a sixth Director to the Board prior to the end of the calendar year in order to bolsterthe Board and aid with future succession planning. It is anticipated that this appointment will also ensure that theCompany will meet the 'comply or explain' requirement of the UK Listing Rules to have at least one Director froman ethnic minority and ensure continued compliance with other diversity recommendations. Capital financingThe Board finalised the refinancing of its shortest dated debt facilities with each of the existing lenders in advanceof their November 2025 expiry. This required the Board to assess the appropriate gearing level of the Group andthe potential lenders to be considered, as well as the appropriate duration, interest rate hedging strategy andfinancial terms of the loan facilities. Dividends paidThe Board recognised the importance of dividends to its shareholders and, after careful financial analysis, decidedto increase the Company's dividends in relation to the year ending 30 June 2027 to reflect net rental growth whilstremaining at a level which is expected to be fully covered with the potential for further growth. StakeholdersThe 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 InvestmentManager, other service providers and the community and the environment. The Board considers the long-termconsequences 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 theviews of its shareholders and places great importance oncommunication with them. The Board reviews the detail of significant shareholders and recentmovements at each Board Meeting and receives regular reports fromthe Investment Manager and brokers on the views of shareholders, andprospective shareholders, as well as updates on general market trendsand expectations. The Chair and other Directors make themselvesavailable to meet shareholders when required to discuss the Group'sbusiness and address shareholder queries. The Directors makethemselves available at the AGM in person, with the Company alsoproviding the ability for any questions to be raised with the Board byemail in advance of the meeting. The Company and Investment Manager also provide regular updates toshareholders and the market through the Annual Report, InterimReport, Sustainability Report, regular RNS announcements, quarterlyinvestor reports and the Company's website. The Investment Managerholds a results presentation on the day of publication of each of theAnnual and Interim Reports, and meets with analysts and members ofthe financial press throughout the year. Tenants and underlyingresidents The Investment Manager liaises closely with tenants to understand theirneeds, and those of their underlying residents, through visits toproperties and regular communication with both care home personneland senior management of the tenant operators. The effectiveness ofthis engagement is assessed through a regular tenant survey which,during 2026, was undertaken by an external third-party. The Investment Manager also receives, and analyses, managementinformation provided by each tenant at least quarterly and regularlymonitors the CQC, or equivalent, rating for each home and any onlinereviews, such as carehome.co.uk. Any significant matters are discussedwith the tenant and are included within the Board reporting. Debt providers The Group has term loan and revolving credit facilities with the RoyalBank of Scotland plc, HSBC Bank plc and Phoenix Group (see Note 7to the extract from the Consolidated Financial Statements for moreinformation). The Company maintains a positive working relationshipwith each of its lenders and provides regular updates, at least quarterly,on portfolio activity and compliance with its loan covenants in relation toeach loan facility. Since the year-end, the Group has exercised theoption, and each bank has provided its consent, to extend each of itsshorter-term bank facilities by one year such that each is now repayablein September 2029, with a remaining option to extend by a further year.
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Investment Manager The Investment Manager has responsibility for the day-to-daymanagement of the Group pursuant to the Investment ManagementAgreement. The Board, and its committees, are in regularcommunication with the Investment Manager and receive formalpresentations at every Board Meeting to aid its oversight of the Group'sactivities and the formulation of its ongoing strategy. The Board, through the Management Engagement Committee, formallyreviews the performance of the Investment Manager, the terms of itsappointment and the quality of the other services provided at leastannually. Further details on this process and the conclusions reached inrelation to the year ended 30 June 2026 are contained in the AnnualReport. Other service providers The Board, through the Management Engagement Committee, formallyreviews the performance of each of its significant service providers atleast annually. The reviews will include the Company's legal adviser,brokers, tax adviser, auditor, depositary, external valuer, companysecretary, insurance broker, surveyors and registrar. The purpose ofthese reviews is to ensure that the quality of the services providedremains of the standard expected by the Board and that overall costsand other contractual arrangements remain in the interests of the Groupand other significant stakeholders. The Investment Manager alsoreports regularly to the Board on these relationships. The significant other service providers, particularly the Group's legaladvisers and brokers, are invited to attend Board Meetings, includingthe annual Strategy Meeting, and report directly to the Directors whereappropriate. Community and theenvironment The Group's principal non-financial objective is to generate a positivesocial impact for the end-users of its real estate. Investment decisionsare made based on the fundamental premise that the real estate issuitable for its residents, the staff who care for them, and their friends,families and local communities, both on original acquisition and for thelong-term.Environmental considerations are an integral part of the acquisition andportfolio management process, given the strategy of only acquiringmodern buildings which benchmark well from an energy efficiencyaspect and which meet the requirements of the Investment Manager'sESG Charter 'Targeting Tomorrow'. Under the remit of the ESGCommittee, the progression of the Group's ESG strategy has prioritisedgathering useful energy/consumption data on its portfolio, whilstprogressing work on a straightforward hierarchy of initiatives tomaximise the Group's impact over both the short and longer term. TheGroup is continuing to work on improving its feedback and reporting totenants of the data collected, including performance relative to theirpeers, in order to highlight areas in which they may be able to improvetheir own performance. The Group has formulated and published ahigh-level longer term portfolio strategy in relation to setting andmeeting the Group's net zero carbon target, including initialconsideration of interim targets and intended timescale. Alison FyfeChair21 September 2026 Viability Statement The AIC Code requires the Board to assess the Group's prospects, including a robust assessment of the emergingand 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 reasonableexpectation that the Group will continue in operation and be able to meet its liabilities as they fall due over theperiod of their assessment. The Board has conducted this review over a five-year time horizon, which is a period thought to be appropriate fora company investing in UK care homes with a long-term investment outlook. At each Board Meeting, the Directorsconsider the key outputs from a detailed financial model covering a similar five-year rolling period, as this isconsidered the maximum timescale over which the performance of the Group can be forecast with a reasonabledegree of accuracy. At 30 June 2026, the Group had a property portfolio which has long leases and a weightedaverage unexpired lease term of 26.0 years. The Group's committed loan facilities have staggered expiry dates with £130.0 million being committed until atleast 23 September 2029, £87.3 million to 12 January 2032 and £62.7 million to 12 January 2037. The Group'sdebt facilities also include additional accordion facilities which, subject to approval of the relevant lender, mayprovide additional uncommitted loan facilities of up to £70.0 million until at least 23 September 2029. At 21September 2026, the Group had drawn borrowings of £200.0 million consisting of:
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· £150.0 million on which the interest rate had been fixed directly until at least 12 January 2032 at a maximum weighted interest rate of 3.18 per cent per annum; and · £50.0 million on which the interest rate had been hedged through interest rate derivatives until 23 September 2030 at a weighted average margin of 5.30 per cent per annum.All interest rates stated exclude the amortisation of arrangement costs on each of the relevant loan facilities. The Directors' assessment of the Group's principal risks are highlighted above. The most significant risks identifiedas relevant to the viability statement were those relating to: · Poor performance of investments/investment assets: The risk that a tenant is unable to sustain a sufficient rental cover, leading to a loss of rental income for the Group; · High inflationary environment: The risk that the level of the UK inflation rate results in a real term decrease in the Group's income or erodes the profitability of tenants; · Adverse interest rate fluctuations: The risk that an increase in interest rates may impact property valuations, increase the cost of the Group's variable rate debt facilities, and/or limit the Group's borrowingcapacity; · Negative perception of the care home sector: 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; · 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 andleading to a loss of rental income for the Group; and · Changes in government policies: The risk that changes in government policies, including those affecting the local authority funding of care, may render the Group's strategy inappropriate. In assessing the Group's viability, the Board has considered the key outputs from a detailed model of the Group'sexpected cashflows over the coming five years under both normal and stressed conditions. The stressedconditions, which were intended to represent severe but plausible scenarios, included modelling increases ininterest rates of 200bps per annum compared to market forecasts at 30 June 2026, a reduction in the capital valueof the property portfolio of 20 per cent and a significant default on rental receipts from the Group's tenantsequating to an aggregate of c.20 per cent of the Group's contracted rent roll. The stressed level of default from theGroup's tenants assumed in the financial modelling was based on a detailed assessment of the financial positionof each individual tenant or tenant group and the structure in place to secure rental income (such as the strengthof tenants' balance sheets, rental guarantees in place or rental deposits held). The financial modelling assumedthat the Group's dividend continued to be paid throughout the five-year period of the assessment, and that thefinancial covenants on the Group's loan facilities remained substantially unchanged. Under the stressed scenario,the Group's net LTV was forecast to reach a peak of 31 per cent and no breaches were forecast in relation to theGroup's compliance with the financial covenants on each of its loan facilities. Based on the results of the scenario analysis outlined above, the Board has a reasonable expectation that theGroup will be able to continue in operation and meet its liabilities as they fall due over the five year period of itsassessment. Consolidated Statement of Comprehensive Income (audited) For the year ended 30 June 2026 Year ended 30 June 2026Year ended 30 June 2025 RevenueCapital Total RevenueCapital Total Notes £'000 £'000 £'000 £'000 £'000 £'000 Revenue Rental income 60,23610,387 70,623 60,369 10,841 71,210 Other rental income - 1,435 1,435 202 1,505 1,707 Other income 8 - 8 11 - 11 Total revenue 60,24411,822 72,066 60,582 12,346 72,928 Gains on revaluation of investment properties5 - 21,358 21,358 - 12,244 12,244 Gains on investment properties realised5 - 9,228 9,228 - 39 39 Total income 60,24442,408102,652 60,582 24,629 85,211 Expenditure Investment management fee 2 (8,172) - (8,172) (7,816) - (7,816)Credit loss allowance reversal/(charge) andbad debts 3 846 - 846 (1,612) - (1,612)Other expenses 3 (3,813) - (3,813) (3,907) - (3,907) Total expenditure (11,139) - (11,139)(13,335) - (13,335) Profit before finance costs and taxation49,10542,408 91,513 47,247 24,629 71,876 Net finance costs Interest income 691 - 691 426 - 426 Finance costs (9,333) (281) (9,614)(10,659) (798) (11,457) Net finance costs (8,642) (281) (8,923)(10,233) (798) (11,031) Profit before taxation 40,46342,127 82,590 37,014 23,831 60,845 Taxation - - - - - -
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Profit for the year 40,46342,127 82,590 37,014 23,831 60,845 Other comprehensive income: Items that are or may be reclassifiedsubsequently to profit or loss Movement in fair value of interest ratederivatives designated as cash flow hedges- 56 56 - (1,450) (1,450) Total comprehensive income for the year40,46342,183 82,646 37,014 22,381 59,395 Earnings per share (pence) 4 6.53 6.79 13.32 5.97 3.84 9.81 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 (audited) As at 30 June 2026 As at30 June 2026 As at30 June 2025 Notes £'000 £'000 Non-current assets Investment properties 5 833,478 840,432 Trade and other receivables 102,983 101,861 Interest rate derivatives 347 - 936,808 942,293 Current assets Trade and other receivables 1,816 3,682 Interest rate derivatives - 572 Cash and cash equivalents 50,875 39,639 52,691 43,893 Total assets 989,499 986,186 Non-current liabilities Loans 7 (197,737) (148,439) Trade and other payables (12,736) (12,695) (210,473) (161,134) Current liabilities Loans 7 - (91,852) Trade and other payables (21,103) (20,740) (21,103) (112,592) Total liabilities (231,576) (273,726) Net assets 757,923 712,460 Share capital and reserves Share capital 8 6,202 6,202 Share premium 256,633 256,633 Merger reserve 47,751 47,751 Distributable reserve 142,054 160,531 Hedging reserve 347 291 Capital reserve 143,626 101,499 Revenue reserve 161,310 139,553 Equity shareholders' funds 757,923 712,460 Net asset value per ordinary share (pence) 4 122.2 114.9
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Consolidated Statement of Changes in Equity (audited) For the year ended 30 June 2026 Sharecapital Sharepremium Mergerreserve Distrib-utablereserve Hedgingreserve Capitalreserve Revenuereserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 30 June 2025 6,202 256,633 47,751 160,531 291 101,499 139,553 712,460 Profit for the year - - - - - 42,127 40,463 82,590Other comprehensive income - - - - 56 - - 56 Total comprehensive income - - - - 56 42,127 40,463 82,646 Transactions with ownersrecognised in equity: Dividends paid 1 - - - (18,477) - - (18,706) (37,183) At 30 June 2026 6,202 256,633 47,751 142,054 347 143,626 161,310 757,923 For the year ended 30 June 2025 Sharecapital Sharepremium Mergerreserve Distrib-utablereserve Hedgingreserve Capitalreserve Revenuereserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 30 June 2024 6,202 256,633 47,751 170,347 1,741 77,668 128,951 689,293 Profit for the year - - - - - 23,831 37,014 60,845Other comprehensive income - - - - (1,450) - - (1,450) Total comprehensive income - - - - (1,450) 23,831 37,014 59,395 Transactions with ownersrecognised in equity: Dividends paid 1 - - - (9,816) - - (26,412) (36,228) At 30 June 2025 6,202 256,633 47,751 160,531 291 101,499 139,553 712,460 Consolidated Statement of Cash Flows (audited) For the year ended 30 June 2026 Year ended30 June 2026 Year ended30 June 2025 Note £'000 £'000 Cash flows from operating activities Profit before tax 82,590 60,845 Adjustments for: Interest income (691) (426) Finance costs 9,614 11,457Revaluation gain on investment properties andmovements in lease incentives, net of acquisition costswritten off 5 (31,745) (23,085) Gain on investment properties realised 5 (9,228) (39) Decrease in trade and other receivables 645 1,367 Increase in trade and other payables 2,029 646 53,214 50,765 Interest paid (9,135) (10,090) Interest received 691 426 (8,444) (9,664) Net cash inflow from operating activities 44,770 41,101 Cash flows from investing activities Purchase of investment properties, including acquisitioncosts (49,985) (12,985) Disposal of investment properties, net of lease incentives 96,803 9,753
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Net cash inflow/(outflow) from investing activities 46,818 (3,232) Cash flows from financing activities Drawdown of bank loan facilities 38,075 13,000 Repayment of bank loan facilities (80,075) (14,000) Costs of refinancing bank loan facilities (1,210) - Dividends paid (37,142) (36,114) Net cash outflow from financing activities (80,352) (37,114) Net increase in cash and cash equivalents 11,236 755 Opening cash and cash equivalents 39,639 38,884 Closing cash and cash equivalents 50,875 39,639 Transactions which do not require the use of cashMovement in fixed or guaranteed rent reviews 10,387 10,841Movement in lease incentives 465 359Fixed or guaranteed rent reviews derecognised on disposal or re-tenanting (9,718) (559) Total 1,134 10,641 Statement of Directors' Responsibilities in Respect of the Annual Financial Report In accordance with Chapter 4 of the Disclosure Guidelines and Transparency Rules, we confirm that to the best ofour knowledge: · The financial statements contained within the Annual Report for the year ended 30 June 2026, of which this statement of results is an extract, have been prepared in accordance with applicable UK-adoptedInternational Financial Reporting Standards, on a going concern basis, and give a true and fair view of theassets, liabilities, financial position and return of the Company; · The Chairman's Statement, Investment Manager's Report and Our Strategy include a fair review of the development and performance of the business and the position of the Company, including importantevents that have occurred during the financial year and their impact on the financial statements; · 'Principal and emerging risks and risk management' includes a description of the Company's principal and emerging risks and uncertainties; and · The Annual Report includes details of related party transactions that have taken place during the financial year. On behalf of the Board Alison Fyfe Chair 21 September 2026 Extract from Notes to the Audited Consolidated Financial Statements 1. Dividends Amounts paid as distributions to equity holders during the year to 30 June 2026. Dividend rate(pence per share) Year ended30 June 2026£'000Fourth interim dividend for the year ended 30 June 2025 1.471 9,124First interim dividend for the year ended 30 June 2026 1.508 9,353Second interim dividend for the year ended 30 June 2026 1.508 9,353Third interim dividend for the year ended 30 June 2026 1.508 9,353Total 5.995 37,183 Amounts paid as distributions to equity holders during the year to 30 June 2025. Dividend rate(pence per share) Year ended30 June 2025£'000Fourth interim dividend for the year ended 30 June 2024 1.428 8,857First interim dividend for the year ended 30 June 2025 1.471 9,123Second interim dividend for the year ended 30 June 2025 1.471 9,124
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Third interim dividend for the year ended 30 June 2025 1.471 9,124Total 5.841 36,228 It is the policy of the Directors to declare and pay dividends as interim dividends. The Directors do not thereforerecommend a final dividend. The fourth interim dividend in respect of the year ended 30 June 2026, of 1.508pence per share, was paid on 28 August 2026 to shareholders on the register on 14 August 2026 and amounted to£9,353,000. It is the intention of the Directors that the Group will continue to pay dividends quarterly. 2. Fee paid to the Investment Manager Year ended30 June 2026 Year ended 30 June 2025 £'000 £'000 Investment management fee 8,172 7,816 Total 8,172 7,816 The Group's Investment Manager and Alternative Investment Fund Manager ('AIFM') is Target Fund ManagersLimited (the 'Investment Manager' or 'Target'). The Investment Manager is entitled to an annual management feecalculated on a tiered basis based on the net assets of the Group as set out below. Where applicable, VAT ispayable in addition. Net assets of the Group Management fee percentage Up to and including £500 million 1.05Above £500 million and up to and including £750 million 0.95Above £750 million and up to and including £1 billion 0.85Above £1 billion and up to and including £1.5 billion 0.75Above £1.5 billion 0.65 The Investment Manager is entitled to an additional fee of £168,000 per annum (plus VAT), increasing annually inline 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. Shouldthe Company terminate the Investment Management Agreement earlier then compensation in lieu of notice will bepayable to the Investment Manager. The Investment Management Agreement may be terminated immediatelyupon the occurrence of certain events, including the insolvency of either party or if the Investment Managerbecomes legally prohibited from carrying on investment business or performing its duties under the InvestmentManagement Agreement. 3. Other expenses Year ended30 June 2026£'000 Year ended30 June 2025£'000Total movement in credit loss allowance (2,431) 1,612Utilisation of bad debts provision for amounts written off 1,585 -Credit loss allowance (reversal)/charge (846) 1,612 Year ended30 June 2026£'000 Year ended30 June 2025£'000Valuation and other professional fees 1,362 1,601Auditor's remuneration for: - statutory audit of the Company 171 167- statutory audit of the Company's subsidiaries 336 286- review of interim financial information 22 17Direct property costs 444 267Other taxation compliance and advisory* 404 382Directors' fees 249 227Secretarial and administration fees 245 229Public relations and marketing 169 185Listing and Registrar fees 144 134Printing, postage and website 79 146Abortive costs - 81Other 188 185Total other expenses 3,813 3,907 * The other taxation compliance and advisory fees were all paid to parties other than the Company's Auditor. Expenses are inclusive of irrecoverable VAT as the Company, and the majority of its subsidiaries, are not VATregistered. 4. Earnings per share and Net Asset Value per share Earnings per share
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Year ended 30 June 2026 Year ended 30 June 2025 £'000 Pence per share £'000 Pence per share Revenue earnings 40,463 6.53 37,014 5.97Capital earnings 42,127 6.79 23,831 3.84Total earnings 82,590 13.32 60,845 9.81 Average number of shares in issue 620,237,346 620,237,346 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 realestate companies and the Group reports an EPRA NAV quarterly. EPRA has issued best practicerecommendations for the calculation of certain figures which are included below. Other EPRA measures areincluded in the section below entitled EPRA Performance Measures. 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 fromrecognising guaranteed rental review uplifts and for development interest received from developers in relation tomonies advanced under forward fund agreements which, in the Group's IFRS financial statements, is required tobe offset against the book cost of the property under development. The Board believes that the Group's specificadjusted EPRA earnings represents the underlying performance measure appropriate for the Group's businessmodel as it illustrates the underlying revenue stream and costs generated by the Group's property portfolio. The reconciliations are provided in the table below: Yearended30 June2026£'000 Yearended30 June2025£'000Earnings per IFRS Consolidated Statement of Comprehensive Income 82,590 60,845Adjusted for gains on investment properties realised (9,228) (39)Adjusted for gains on revaluation of investment properties (21,358) (12,244)Adjusted for finance and transaction costs on the interest rate cap 281 798Adjusted for other capital items (1,435) (1,505)EPRA earnings 50,850 47,855Adjusted for rental income arising from recognising guaranteed rent reviewuplifts (10,387) (10,841)Adjusted for development interest under forward fund agreements 128 725Group specific adjusted EPRA earnings 40,591 37,739 Earnings per share ('EPS') (pence per share) EPS per IFRS Consolidated Statement of Comprehensive Income 13.32 9.81EPRA EPS 8.20 7.72Group specific adjusted EPRA EPS 6.54 6.08 Net Asset Value per share The Group's Net Asset Value per ordinary share of 122.2 pence (2025: 114.9 pence) is based on equityshareholders' funds of £757,923,000 (2025: £712,460,000) and on 620,237,346 (2025: 620,237,346) ordinaryshares, 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 thenet asset value calculated under International Financial Reporting Standards ('IFRS') to provide stakeholders withwhat EPRA believe to be the most relevant information on the fair value of the assets and liabilities of a real estateinvestment 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 valuemovements on financial derivatives, are excluded and the costs of recreating the Group through investmentmarkets, 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 deferredtax 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 theirliability, net of any resulting tax. At 30 June 2026, the Group held all its material balance sheet items at fairvalue, or at a value considered to be a close approximation to fair value, in its financial statements apart fromits fixed-rate debt facilities where the fair value is estimated to be lower than the nominal value. See note 7 forfurther details on the Group's loan facilities. 2026 2026 2026 2025 2025 2025
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EPRANRV£'000 EPRANTA£'000 EPRANDV£'000 EPRANRV£'000 EPRANTA£'000 EPRANDV£'000IFRS NAV per financial statements 757,923 757,923 757,923 712,460 712,460 712,460Fair value of interest rate derivatives (347) (347) - (572) (572) -Fair value adjustment to loans - - 24,786 - - 27,929Estimated purchasers' costs 62,030 - - 62,175 - -EPRA net assets 819,606 757,576 782,709 774,063 711,888 740,389EPRA net assets (pence per share) 132.1 122.1 126.2 124.8 114.8 119.4 5. Investment properties Freehold and leasehold properties As at30 June 2026 As at30 June 2025 £'000 £'000 Opening market value 929,940 908,530Opening fixed or guaranteed rent reviews (79,138) (68,856)Opening lease incentives (10,370) (10,011)Opening performance payments (see Note 10) - 1,910 Opening carrying value 840,432 831,573 Disposals - proceeds (96,803) (9,753) - gain/(loss) on sale 23,648 (542)Purchases and performance payments 47,904 7,650Acquisition costs capitalised 1,641 30Acquisition costs written off (1,641) (30)Unrealised (gain)/loss realised during the year (14,420) 581Revaluation movement - gains 36,724 25,484Revaluation movement - losses (2,873) (2,010) Movement in market value (5,820) 21,410Fixed or guaranteed rent reviews derecognised on disposal or re-tenanting 9,718 559Movement in fixed or guaranteed rent reviews (10,387) (10,841)Movement in lease incentives (465) (359)Movement in performance payments (see Note 10) - (1,910) Movement in carrying value (6,954) 8,859 Closing market value 924,120 929,940Closing fixed or guaranteed rent reviews (79,807) (79,138)Closing lease incentives (10,835) (10,370) Closing carrying value 833,478 840,432 Changes in the valuation of investment properties Year ended30 June 2026£'000 Year ended30 June 2025£'000Gain/(loss) on sale of investment properties 23,648 (542)Unrealised (gain)/loss realised during the year (14,420) 581Gains on investment properties realised 9,228 39 Revaluation movement 33,851 23,474Acquisition costs written off (1,641) (30)Movement in lease incentives (465) (359) 31,745 23,085Movement in fixed or guaranteed rent reviews (10,387) (10,841)Gains on revaluation of investment properties 21,358 12,244 The investment properties can be analysed as follows: As at30 June 2026 As at30 June 2025 £'000 £'000 Standing assets 922,620 921,080Developments under forward fund agreements 1,500 8,860 Closing market value 924,120 929,940 At 30 June 2026, the properties were valued at £924,120,000 (2025: £929,940,000) by CBRE Limited ('CBRE') intheir capacity as external valuers. The valuation was prepared on the basis of a fixed fee per property. Thevaluation was undertaken in accordance with the RICS Valuation - Global Standards, issued by the RoyalInstitution of Chartered Surveyors ('RICS') on the basis of Market Value, supported by reference to marketevidence of transaction prices for similar properties. CBRE has recent experience in the location and category ofthe investment properties being valued. Market Value represents the estimated amount for which an asset or liability should exchange on the valuationdate between a willing buyer and a willing seller in an arm's length transaction, after proper marketing where the
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parties had each acted knowledgeably, prudently and without compulsion. The quarterly property valuations arereviewed by the Board at each Board meeting. The fair value of the properties after adjusting for the movement inthe fixed or guaranteed rent reviews, lease incentives and performance payments was £833,478,000 (2025:£840,432,000). The adjustment consisted of £79,807,000 (2025: £79,138,000) relating to fixed or guaranteed rentreviews and £10,835,000 (2025: £10,370,000) of accrued income relating to the recognition of rental income overrent free periods subsequently amortised over the life of the lease, which are both separately recorded in theaccounts as non-current or current assets within 'trade and other receivables'. An adjustment is also made, whereapplicable, to reflect the amount by which the portfolio value is expected to increase if the performance paymentsrecognised in 'trade and other payables' are paid and the passing rent at the relevant property increasedaccordingly (see Note 10). The total purchases in the year to 30 June 2026, inclusive of the performancepayments recognised in the year and/or exclusive of those recognised in the prior year, were £47,904,000 (2025:£5,740,000). 6. Investment in subsidiary undertakingsThe Group included 57 subsidiary companies as at 30 June 2026 (2025: 50). All subsidiary companies were whollyowned, either directly or indirectly, by the Company and, from the date of acquisition onwards, the principal activityof each company within the Group was to act as an investment and property company. Other than one subsidiaryincorporated in Jersey, two subsidiaries incorporated in Gibraltar and two subsidiaries incorporated inLuxembourg, all subsidiaries are incorporated within the United Kingdom. The Group acquired five and incorporated two subsidiaries during the year (2025: incorporated one subsidiary).The Group did not dispose of any subsidiaries during the year (2025: nil). 7. Loans Non-current loans As at30 June 2026£'000 As at30 June 2025£'000Principal amount outstanding 200,000 150,000Set-up costs (3,624) (2,413)Amortisation of set-up costs 1,361 852 Total 197,737 148,439 Current loans As at30 June 2026£'000 As at30 June 2025£'000Principal amount outstanding - 92,000Set-up costs - (2,107)Amortisation of set-up costs - 1,959Total - 91,852 On 23 September 2025, the Group amended and restated a £20,000,000 committed term loan and £30,000,000revolving credit facility with the Royal Bank of Scotland plc ('RBS'). The facility also includes an accordion optionthat, subject to the consent of RBS, would increase the total quantum of the facility to £80,000,000. At 30 June2026, the facility was repayable in September 2028, with the option of two one-year extensions thereafter subjectto the consent of RBS. Since the year-end, consent has been received in relation to the exercise of the first ofthese extension options, thereby extending the repayment date to September 2029. Interest accrues on the drawnelement of the bank loan at a variable rate, based on SONIA plus margin and mandatory lending costs, and ispayable quarterly. The margin on the facility is 1.50 per cent per annum for the duration of the loan. A non-utilisation fee of 0.75 per cent per annum is payable on any undrawn element of the facility. As at 30 June 2026,the Group had drawn £20,000,000 under this facility (2025: £42,000,000). The interest rate on the £20,000,000committed term loan has been hedged through an interest rate swap with the same notional value, counterpartyand expected duration as set out below. On 23 September 2025, the Group amended and restated a £30,000,000 committed term loan and £50,000,000revolving credit facility with HSBC Bank plc ('HSBC'). The facility also includes an accordion option that, subject tothe consent of HSBC, would increase the total quantum of the facility to £120,000,000. At 30 June 2026, the facilitywas repayable in September 2028, with the option of two one-year extensions thereafter subject to the consent ofHSBC. Since the year-end, consent has been received in relation to the exercise of the first of these extensionoptions, thereby extending the repayment date to September 2029. Interest accrues on the drawn element of thebank loan at a variable rate, based on SONIA plus margin and mandatory lending costs, and is payable quarterly.The margin on the facility is 1.50 per cent per annum for the duration of the loan. A non-utilisation fee of 0.60 percent per annum is payable on any undrawn element of the facility. As at 30 June 2026, the Group had drawn£30,000,000 under this facility (2025: £50,000,000). The interest rate on the £30,000,000 committed term loan hasbeen hedged through an interest rate swap with the same notional value, counterparty and expected duration asset out below. In January 2020 and November 2021, the Group entered into committed term loan facilities with Phoenix Group of£50,000,000 and £37,250,000, respectively. Both these facilities are repayable on 12 January 2032. The Grouphas a further committed term loan facility with Phoenix Group of £62,750,000 which is repayable on 12 January2037. Interest accrues on these three loans at aggregate annual fixed rates of interest of 3.28 per cent, 3.13 percent and 3.14 per cent, respectively and is payable quarterly. As at 30 June 2026, the Group had drawn£150,000,000 under these facilities (2025: £150,000,000). The following interest rate derivatives were in place during the year ended 30 June 2026: NotionalValue Starting Date Ending Date InterestPaid Interest Received Counter-party 30,000,000 5 November 2020 5 November 2025* 0.30% Daily compoundedSONIA (floor at-0.08%) RBS
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50,000,000 1 November 2022 5 November 2025 nil Daily compoundedSONIA above 3.0%cap HSBC 20,000,000 24 September 2025 23 September 2030 3.76% Daily compoundedSONIA RBS 30,000,000 24 September 2025 23 September 2030 3.82% Daily compoundedSONIA HSBC * Terminated early on 24 September 2025. At 30 June 2026, inclusive of the interest rate derivatives, the interest rate on £200,000,000 of the Group'sborrowings has been hedged, including the amortisation of loan arrangement costs, at an all-in rate of 3.89 percent per annum until at least 23 September 2030. The remaining £80,000,000 of debt, of which £nil was drawn at30 June 2026, would, if fully drawn, carry interest at a variable rate equal to daily compounded SONIA plus aweighted average lending margin, including the amortisation of loan arrangement costs, of 1.81 per cent perannum. The aggregate fair value of the interest rate derivatives held at 30 June 2026 was an asset of £347,000 (2025:£572,000). The Group categorises all interest rate derivatives as level 2 in the fair value hierarchy as they arevalued with reference to published interest rates. At 30 June 2026, the nominal value of the Group's loans equated to £200,000,000 (2025: £242,000,000).Excluding the interest rate derivatives referred to above, the fair value of these loans, based on a discountedcashflow using the market rate on the relevant treasuries plus an estimated margin based on market conditions at30 June 2026, totalled, in aggregate, £175,213,000 (2025: £214,071,000). The loans are categorised as level 3 inthe fair value hierarchy given the estimated margin is not observable market data. The fixed rate loans are repayable at the higher of their par value of £150,000,000 (2025: £150,000,000), or acalculation based on a Modified Spens clause. At 30 June 2026, the par value was higher than the Modified Spenscalculation and therefore the repayment cost would have been £150,000,000 (2025: £150,000,000). In relation tothe bank facilities of £130,000,000 (2025: £170,000,000), an early repayment charge will apply if any proportion ofthe facilities are cancelled or prepaid. At 30 June 2026, this potential early repayment charge, which would havebeen in addition to the par value of the drawn bank loans of £50,000,000 (2025: £92,000,000) and any earlytermination costs that may have arisen as a result of breaking or reducing the interest rate swaps, equated to amaximum aggregate sum of £1,550,000 (2025: £nil) and will decline over the remaining term of the bank facilities. The RBS loan is secured by way of a fixed and floating charge over the majority of the assets of the THR NumberOne 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 ofthe THR Number 12 plc Group ('THR12 Group') which consists of THR12 and its nine subsidiaries. The PhoenixGroup loan of £62,750,000 is secured by way of a fixed and floating charge over the majority of the assets of THRNumber 43 plc Group ('THR43 Group') which consists of THR43 and its ten subsidiaries. The HSBC loan issecured by way of a fixed and floating charge over the majority of the assets of the THR Number 15 plc Group('THR15 Group') which consists of THR15 and its 18 subsidiaries. In aggregate, the Group has granted a fixedcharge over properties with a market value of £771,410,000 as at 30 June 2026 (2025: £754,390,000). In order to release the remaining funds held in the secured account, in July 2026 a fixed charge was granted overa further property with a market value of £12,500,000. Under the covenants related to the loans, the Group is to ensure that: · the loan to value percentage for each of THR1 Group and THR15 Group does not exceed 50 per cent; · the loan to value percentage for THR12 Group and THR43 Group does not exceed 60 per cent; · the interest cover for THR1 Group is greater than 200 per cent (2025: 225 per cent) on any calculation date; · the interest cover for THR15 Group is greater than 165 per cent (2025: 200 per cent) on any calculation date; and · the debt yield for each of THR12 Group and THR43 Group is greater than 10 per cent on any calculation date. The significant terms of the facilities remained unchanged and all loan covenants have been complied with duringthe year. Analysis of net debt: Cash andcashequivalents Borrowing Net debt Cash andcashequivalents Borrowing Net debt 2026 2026 2026 2025 2025 2025£'000 £'000 £'000 £'000 £'000 £'000 Opening balance 39,639 (240,291) (200,652) 38,884 (240,672) (201,788)Cash flows 11,236 43,210 54,446 755 1,000 1,755Non-cash flows - (656) (656) - (619) (619) Closing balance 50,875 (197,737) (146,862) 39,639 (240,291) (200,652) 8. Share capital Allotted, called-up and fully paid ordinary shares of £0.01 each Number of shares £'000 Balance as at 30 June 2025 and 30 June 2026 620,237,346 6,202
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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 assetsafter repayment of its borrowings and ordinary creditors. Ordinary shareholders have the right to vote at meetingsof the Company. All ordinary shares carry equal voting rights. During the year to 30 June 2026, the Company did not issue any ordinary shares (2025: nil). The Company did notrepurchase any ordinary shares into treasury (2025: nil) or resell any ordinary shares from treasury (2025: nil). At30 June 2026, the Company did not hold any shares in treasury (2025: nil). Capital managementThe 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 anyexternally-imposed capital requirements, other than the financial covenants on its loan facilities as detailed in note7. The capital of the Group is managed in accordance with its investment policy, in pursuit of its investment objective. Capital risk managementThe objective of the Group is to provide ordinary shareholders with an attractive level of income together with thepotential for income and capital growth from investing in a diversified portfolio of freehold and long leasehold carehomes 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 theability to borrow monies in the short and long term; and pay dividends out of reserves, all of which are consideredand approved by the Board on a regular basis. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, returncapital to shareholders, issue new shares or buyback shares for cancellation or for holding in treasury. TheCompany may also increase or decrease its level of long-term borrowings. The Group monitors capital using thenet LTV ratio, which was 16.1 per cent at 30 June 2026 (2025: 21.8 per cent). The Board currently intends that,over the medium term, borrowings of the Group will represent no more than approximately 30 per cent of theGroup's gross assets at the time of drawdown. Where ordinary shares are held in treasury these are available to be sold to meet on-going market demand. Thenet proceeds of any subsequent sales of shares out of treasury will provide the Company with additional capital toenable it to take advantage of investment opportunities in the market and make further investments in accordancewith the Company's investment policy and within its appraisal criteria. Holding shares in treasury for this purposeassists the Company in matching its on-going capital requirements to its investment opportunities and thereforereduces 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. 9. Financial instruments Consistent with its objective, the Group holds UK care home property investments. In addition, the Group'sfinancial instruments comprise cash, loans and receivables and payables that arise directly from its operations.The Group's exposure to derivative instruments consists of interest rate swaps and interest rate caps used to fixthe 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 importanttypes are credit risk, liquidity risk, interest rate risk and market price risk. There is no foreign currency risk as allassets 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 summarisedbelow 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 definedby 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 hasentered into with the Group. At the reporting date, the Group's gross financial assets exposed to credit riskamounted to £54,051,000 (2025: £46,669,000) against which a credit loss provision of £2,115,000 (2025:£4,547,000) had been recognised. This resulted in net exposure of £51,936,000 (2025: £42,122,000), consisting ofcash of £50,875,000 (2025: £39,639,000), VAT recoverable of £461,000 (2025: £47,000), net rent receivable of£79,000 (2025: £1,089,000), accrued development interest of £nil (2025: £809,000), and other debtors of£521,000 (2025: £538,000). In the event of default by a tenant if it is in financial difficulty or otherwise unable to meet its obligations under thelease, the Group will suffer a rental shortfall and incur additional expenses until the property is relet. Theseexpenses could include legal and surveyor's costs in re-letting, maintenance costs, insurances, rates andmarketing costs and may have a material adverse impact on the financial condition and performance of the Groupand/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 Managermonitors such reports in order to anticipate, and minimise the impact of, defaults by occupational tenants. Theexpected credit risk in relation to tenants is an inherent element of the due diligence considered by the InvestmentManager on all property transactions with an emphasis being placed on ensuring that the initial rent is set at a
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sustainable level. The risk is further mitigated by rental deposits or guarantees where considered appropriate. Themajority of rental income is received in advance. As at 30 June 2026, the Group had recognised a credit loss allowance totalling £2,115,000 (2025: £4,547,000)against a gross rent receivable balance of £1,597,000 (2025: £4,828,000), gross loans to tenants totalling£1,063,000 (2025: £788,000) and other tenant debtors of £29,000 (2025: £287,000). Of the gross receivable of£5,903,000 at 30 June 2025, £2,040,000 was subsequently recovered, £1,583,000 was written off and £2,280,000is still outstanding. There were no other financial assets which were either past due or considered impaired at 30June 2026 (2025: 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 ondeposit to be delayed, limited or lost. Should the credit quality or the financial position of the banks currentlyemployed 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, byplacing cash across different financial institutions. At 30 June 2026 the Group held £24.9 million (2025: £39.4million) with The Royal Bank of Scotland plc and £26.0 million (2025: £0.2 million) with HSBC Bank plc. Given thecredit quality of the counterparties used, no credit loss allowance is recognised against cash balances as it isconsidered to be immaterial. Liquidity risk Liquidity risk is the risk that the Group will encounter difficulties in realising assets or otherwise raising funds tomeet financial commitments. The Group's investments comprise UK care homes. Property and property-relatedassets in which the Group invests are not traded in an organised public market and may be illiquid. As a result, theGroup may not be able to liquidate quickly its investments in these properties at an amount close to their fair valuein 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 aquarterly 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 twelvemonths. Interest rate risk Some of the Company's financial instruments are interest-bearing. Interest-rate risk is the risk that future cashflows 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 2026, interestwas being received on cash at a weighted average variable rate of 1.9 per cent (2025: 1.2 per cent). Exposurevaries throughout the period as a consequence of changes in the composition of the net assets of the Grouparising out of the investment and risk management policies. These balances expose the Group to cash flowinterest rate risk as the Group's income and operating cash flows will be affected by movements in the market rateof interest. At 30 June 2026, the Group had £130,000,000 (2025: £170,000,000) of committed term loans and revolving creditfacilities which were charged interest at a rate of SONIA plus the relevant margin. At 30 June 2026, £50,000,000 ofthe variable rate facilities had been drawn down (2025: £92,000,000). The fair value of the variable rateborrowings is affected by changes in the market rate of the lending margin that would apply to similar loans. Thevariable rate borrowings are carried at amortised cost and the Group considers this to be a close approximation tofair value at 30 June 2026 and 30 June 2025. At 30 June 2026, the Group had hedged its exposure on £50,000,000 of the £50,000,000 of the drawn variablerate borrowings (2025: £80,000,000 of the £92,000,000 of drawn variable rate facilities was hedged). On theunhedged variable rate borrowings, interest is payable at a variable rate equal to SONIA plus the weightedaverage lending margin, including the amortisation of costs, of 1.81 per cent per annum (2025: 2.46 per cent). Thevariable rate borrowings expose the Group to cash flow interest rate risk as the Group's income and operatingcash flows will be affected by movements in the market rate of interest. At 30 June 2026, the Group had fixed rate term loans totalling £150,000,000 (2025: £150,000,000) and hadhedged its exposure to increases in interest rates on £50,000,000 (2025: £80,000,000) of the variable rate loans,as referred to above, through entering into fixed rate interest rate swaps (2025: a £30,000,000 fixed rate interestrate swap and a £50,000,000 interest rate cap at 3.0 per cent). Fixing the interest rate exposes the Group to fairvalue interest rate risk as the fair value of the fixed rate borrowings, or the fair value of the interest rate derivativeused to fix the interest rate on an otherwise variable rate loan, will be affected by movements in the market rate ofinterest. The £150,000,000 fixed rate term loans are carried at amortised cost on the Group's balance sheet, withthe estimated fair value and cost of repayment being disclosed in Note 7, whereas the fair value of the interest ratederivatives are recognised directly on the Group's balance sheet. At 30 June 2026, the Group's interest rate derivatives, which had a fair value of £347,000 (2025: £572,000) andhedged a notional value of £50,000,000 (2025: £80,000,000), and its fixed rate term loans of £150,000,000 (2025:£150,000,000) were exposed to fair value interest rate risk. At 30 June 2026, an increase of 0.25 per cent ininterest rates would have increased the fair value of the interest rate derivative assets and increased the othercomprehensive income and reported total comprehensive income for the year by £248,000 (2025: £65,000). Thesame increase in interest rates would have decreased the fair value of the fixed rate term loans by an aggregate of£1,890,000 (2025: £2,047,000); however, as the fixed rate loan is held at amortised cost, the reported totalcomprehensive income for the year would have remained unchanged. A decrease in interest rates would have hadan approximately equal and opposite effect.
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Market price risk The management of market price risk is part of the investment management process and is typical of a propertyinvestment company. The portfolio is managed with an awareness of the effects of adverse valuation movementsthrough 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 ofeach property. As a result, valuations are subject to substantial uncertainty. There is no assurance that theestimates resulting from the valuation process will reflect the actual sales price even where such sales occurshortly after the valuation date. Such risk is minimised through the appointment of external property valuers. The external valuers are mindful of the potential impacts ESG may have on capital and rental valuations. Currentlyin the UK, demands for more precise and rigorous valuation of sustainability features have grown; however, thereis still a gap in the exact knowledge of how to value sustainability features to appropriately reflect a 'greenpremium' or 'brown discount'. Sentiment is shifting towards a focus on energy use, ensuring buildings meetenvironmental energy efficiency standards, with regulation being tightened to meet the UK government's 'net zerocarbon' target. The more stringent Minimum Energy Efficiency Standards' regulations will require landlords,especially those whose properties do not meet the Minimum Energy Efficiency Standards' regulations, to investfurther in their properties. In addition, the UK's introduction of mandatory climate related disclosures and theEuropean Union's Sustainable Finance Disclosure Regulations may impact on asset values, or how the marketviews risks and incorporates them into the sale or letting of assets. There is also the potential that future legislativechange, such as an update to the Minimum Energy Efficiency Standards or the introduction of an operationalrating, may impact future property valuations. 10. Contingent assets and liabilities As at 30 June 2026, one property (2025: one property) within the Group's investment property portfolio contained aperformance payment clause which provided that, subject to contracted performance conditions being met, afurther capital payment of £1,785,000 (2025: £1,785,000) may be payable by the Group to the vendor/tenant of theproperty. The potential timing of this payment is also conditional on the date(s) at which the contractedperformance conditions are met and is therefore uncertain. It is highlighted that any performance payments subsequently paid will result in an increase in the rental incomedue from the tenant of the relevant property. As the net initial yield used to calculate the additional rental whichwould be payable is not significantly different from the investment yield used to arrive at the valuation of theproperties, any performance payment made would be expected to result in a commensurate increase in the valueof the Group's investment property portfolio. Having assessed the clause, the Group has determined that the contracted performance conditions had not beenmet in relation to the relevant property and therefore at 30 June 2026 no liability was recognised (2025: £nil). Hada liability been recognised, an equal but opposite amount would have been recognised as an asset in 'investmentproperties' in Note 5 to reflect the increase in the investment property value that would be expected to arise fromthe payment of the performance payment(s) and the resulting increase in the contracted rental income. 11. Capital commitments The Group had capital commitments as follows: 30 June 2026£'000 30 June 2025£'000 Amounts due to complete forward fund developments 13,025 912Other capital expenditure commitments 2,248 1,113 Total 15,273 2,025 As at 30 June 2026 the Group also had a forward commitment to acquire a property company for £13.4 million,including acquisition costs, following practical completion of the property which the acquiree is currentlydeveloping. The development, which was pre-let to an existing tenant of the Group, is substantially complete andthe acquisition is expected to complete shortly. 12. Related parties and transactions with the Investment Manager The Board of Directors is considered to be a related party. No Director has an interest in any transactions whichare, or were, unusual in their nature or significant to the nature of the Group. The Directors of the Group receivedfees for their services. Total fees for the year were £249,000 (2025: £227,000) of which £nil (2025: £nil) remainedpayable at the year-end. The Investment Manager received £8,172,000 (inclusive of irrecoverable VAT) in management fees in relation tothe year ended 30 June 2026 (2025: £7,816,000). Of this amount £2,079,000 (2025: £1,979,000) remainedpayable at the year-end. The Investment Manager received a further £201,000 (inclusive of irrecoverable VAT)during the year ended 30 June 2026 (2025: £193,000) in relation to its appointment as Company Secretary andAdministrator, of which £50,000 (2025: £48,000) remained payable at the year end. Certain employees of theInvestment Manager are directors of some of the Group's subsidiaries. Neither they nor the Investment Managerreceive any additional remuneration in relation to fulfilling this role. There were related party transactions within the Group and its wholly-owned subsidiaries which are eliminatedupon consolidation. 13. Operating segments The Board has considered the requirements of IFRS 8 'Operating Segments'. The Board is of the view that theGroup is engaged in a single segment of business, being property investment, and in one geographical area, theUnited Kingdom, and that therefore the Group has only a single operating segment. The Board of Directors, as awhole, has been identified as constituting the chief operating decision maker of the Group. The key measure of
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performance used by the Board to assess the Group's performance is the EPRA NTA. The reconciliation betweenthe NAV, as calculated under IFRS, and the EPRA NTA is detailed in note 4. 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 propertyportfolio taken as a whole;- There is no active allocation of resources to particular types or groups of properties in order to try to matchthe asset allocation of the benchmark; and- The management of the portfolio is ultimately delegated to a single property manager, Target. 14. Financial statementsThis statement was approved by the Board on 21 September 2026. It is not the Company's full statutory financialstatements in terms of Section 434 of the Companies Act 2006. The statutory annual report and financialstatements for the year ended 30 June 2026 has been approved and audited and received an unqualified auditreport which did not include a reference to any matters to which the auditor drew attention by way of emphasiswithout qualifying the report. The statutory annual report and financial statements for the year to 30 June 2026 willbe posted to shareholders in October 2026 and will be available for inspection at Level 4, Dashwood House, 69Old Broad Street, London, EC2M 1QS, the registered office of the Company. The statutory annual report and financial statements will be made available on the websitewww.targethealthcarereit.co.uk. Copies may also be obtained from Target Fund Managers Limited, GlendevonHouse, Castle Business Park, Stirling FK9 4TZ. The audited financial statements for the year to 30 June 2026 will be lodged with the Registrar of Companiesfollowing the Annual General Meeting to be held on 2 December 2026. Alternative Performance Measures The Company uses Alternative Performance Measures ('APMs'). APMs do not have a standardmeaning prescribed by GAAP and therefore may not be comparable to similar measures presented byother entities. The definitions of all APMs used by the Company are highlighted in the glossarycontained in the Annual Report, with detailed calculations, including reconciliation to the IFRS figureswhere appropriate, being set out below and within the EPRA Performance Measures which follow. Discount or Premium - the amount by which the market price per share is lower or higher than the net asset value per share. 2026pence 2025Pence EPRA Net Tangible Assets per share (see note 4) (a) 122.1 114.8Share price (b) 108.4 104.2 (Discount)/premium = (b-a)/a (11.2)% (9.2)% Dividend Cover - the percentage by which Group specific adjusted EPRA earnings for the year cover the dividend paid. 2026£'000 2025£'000 Group-specific EPRA earnings for the year (see note 4) (a) 40,591 37,739 First interim dividend 9,353 9,123 Second interim dividend 9,353 9,124Third interim dividend 9,353 9,124Fourth interim dividend 9,353 9,124 Dividends paid in relation to the year (b) 37,412 36,495 Dividend cover = (a/b) 108% 103% Net Debt to EBITDA ratio - a leverage ratio that measures the net earnings available to address debt obligations. 2026£'000 2025£'000 Net debt (see below) (a) 168,807 219,761 Group-specific EPRA earnings for the year (see note 4) 40,591 37,739Net finance costs 8,642 10,233 EBITDA (b) 49,233 47,972 Net debt to EBITDA ratio = (a/b) 3.4 times 4.6 times
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Ongoing Charges - a measure of all operating costs incurred, calculated as a percentage ofaverage net assets in that year. 2026£'000 2025£'000 Investment management fee 8,172 7,816Other expenses 3,813 3,907Less direct property costs and other non-recurring items* (973) (1,129)Adjustment to management fee arrangements andirrecoverable VAT** 7 9 Total (a) 11,019 10,603 Average net assets (b) 744,251 702,441 Ongoing charges = (a/b) 1.48% 1.51% * Excludes, amongst other items, the one-off costs related to reorganising the Group's security structure and improving theefficiency of its long-term debt facilities (2025: excluded one-off costs related to the administration of the tenant entity at one ofthe Group's care home properties). ** Based on the Group's net asset value as at 30 June 2026, the management fee is expected to be paid at a weighted average rate of 1.02% (2025: 1.02%) of the Group's average net asset plus an effective irrecoverable VAT rate of approximately 8%(2025: 9%). The management fee has therefore been amended so that the Ongoing Charges figure includes the expected all-inmanagement fee rate of 1.10% (2025: 1.11%). Total Return - the return to shareholders calculated on a per share basis by adding dividends paidin the period to the increase or decrease in the Share Price or NAV. The dividends are assumed tohave been reinvested in the form of Ordinary Shares or Net Assets. 2026 2025EPRANTA(pence) IFRSNAV(pence) Shareprice(pence) EPRANTA(pence) IFRSNAV(pence) Shareprice(pence) Value at start of year (a) 114.8 114.9 104.2 110.7 111.1 78.5 Value at end of year (b) 122.1 122.2 108.4 114.8 114.9 104.2 Change in value during year (b-a) (c) 7.3 7.3 4.2 4.1 3.8 25.7 Dividends paid (d) 6.0 6.0 6.0 5.9 5.9 5.9 Additional impact of dividendreinvestment (e) 0.5 0.5 0.6 0.3 0.2 0.9 Total gain in year (c+d+e) (f) 13.8 13.8 10.8 10.3 9.9 32.5 Total return for the year = (f/a) 12.0% 12.0% 10.4% 9.3% 8.9% 41.4% EPRA Performance Measures The European Public Real Estate Association is the industry body representing listed companies in thereal estate sector. EPRA publishes Best Practice Recommendations ('BPR') to establish consistentreporting by European property companies. Further information on the EPRA BPR can be found atwww.epra.com. The figures below are calculated and presented in line with the BPR Guidelines published by EPRA inSeptember 2024. 2026 2025 EPRA Net Reinstatement Value (£'000) 819,606 774,063EPRA Net Tangible Assets (£'000) 757,576 711,888EPRA Net Disposal Value (£'000) 782,709 740,389EPRA Net Reinstatement Value per share (pence) 132.1 124.8EPRA Net Tangible Assets per share (pence) 122.1 114.8EPRA Net Disposal Value per share (pence) 126.2 119.4EPRA Earnings (£'000) 50,850 47,855Group specific adjusted EPRA earnings (£'000) 40,591 37,739EPRA Earnings per share (pence) 8.20 7.72Group specific adjusted EPRA earnings per share (pence) 6.54 6.08EPRA Net Initial Yield 6.16% 6.04%EPRA Topped-up Net Initial Yield 6.21% 6.22%EPRA Vacancy Rate - -EPRA Cost Ratio (including direct vacancy costs) 15.5% 18.3%EPRA Group specific adjusted Cost Ratio (including direct vacancy costs) 18.5% 21.8%EPRA Cost Ratio (excluding direct vacancy costs) 15.5% 18.3%EPRA Group specific adjusted Cost Ratio (excluding direct vacancycosts) 18.5% 21.8%EPRA Loan-to-Value 18.3% 23.6%Capital Expenditure (£'000) 49,545 7,680Like-for-like Rental Growth 3.7% 3.3% EPRA NAV metrics and EPRA Earnings
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Full details of these calculations, including reconciliations of each to the IFRS measures, are detailedin note 4 to the extract from the Consolidated Financial Statements. EPRA Net Initial Yield and EPRA Topped-up Net Initial YieldEPRA Net Initial Yield is calculated as annualised rental income based on the cash rents passing atthe balance sheet date, less non-recoverable property operating expenses, divided by the marketvalue of the property, increased with (estimated) purchasers' costs. The EPRA Topped-up Net InitialYield incorporates an adjustment in respect of the expiration of rent-free periods (or other unexpiredlease incentives). 30 June2026£'000 30 June2025£'000 Annualised passing rental income based on cash rents (a) 60,611 59,369Notional rent expiration of rent-free periods or other leaseincentives 516 1,800 Topped-up net annualised rent (b) 61,127 61,169 Standing assets (see note 5) 922,620 921,080Allowance for estimated purchasers' costs 62,030 62,175 Grossed-up completed property portfolio valuation (c) 984,650 983,255 EPRA Net Initial Yield = (a/c) 6.16% 6.04%EPRA Topped-up Net Initial Yield = (b/c) 6.21% 6.22% EPRA Vacancy RateEPRA Vacancy Rate is the estimated rental value (ERV) of vacant space (excluding forward funddevelopments) divided by the contractual rent of the investment property portfolio, expressed as apercentage. 30 June2026£'000 30 June2025£'000 Annualised potential rental value of vacant premises* (a) - -Annualised potential rental value of the property portfolio(including vacant properties) (b) 61,127 61,169 EPRA Vacancy Rate = (a/b) - - * There were no unoccupied properties at either 30 June 2025 or 30 June 2026. EPRA Cost RatioThe EPRA cost ratios are produced using EPRA methodology, which aims to provide a consistentbase-line from which companies can provide additional information, and include all property expensesand management fees. Consistent with the Group specific adjusted EPRA earnings detailed in note 4to the extract from the Consolidated Financial Statements, similar adjustments have been made toalso present the adjusted Cost Ratio which is thought more appropriate for the Group's businessmodel. Year ended30 June 2026£'000 Year ended30 June 2025£'000 Investment management fee 8,172 7,816Credit loss allowance and bad debts (846) 1,612Other expenses 3,813 3,907 EPRA costs (including direct vacancy costs) (a) 11,139 13,335Specific cost adjustments, if applicable - - Group specific adjusted EPRA costs (includingdirect vacancy costs) (b) 11,139 13,335 Direct vacancy costs (c) - - Gross rental income per IFRS (d) 72,066 72,928Adjusted for rental income arising from recognisingguaranteed rent review uplifts (10,387) (10,841)Adjusted for surrender premiums recognised in capital (1,435) (1,505)Adjusted for development interest under forward fundarrangements 128 725 Group specific adjusted gross rental income (e) 60,372 61,307 EPRA Cost Ratio (including direct vacancy costs) = (a/d) 15.5% 18.3%EPRA Group specific adjusted Cost Ratio (includingdirect vacancy costs) = (b/e) 18.5% 21.8%EPRA Cost Ratio (excluding direct vacancy costs) = ((a-c)/d) 15.5% 18.3%EPRA Group specific adjusted Cost Ratio(excluding direct vacancy costs) = ((b-c)/e) 18.5% 21.8% EPRA Loan-to-Value As at30 June 2026£'000 As at30 June 2025£'000 Borrowings 200,000 242,000Net payables 19,682 17,400Cash and cash equivalents (50,875) (39,639)
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Net debt (a) 168,807 219,761 Investment properties at market value 924,120 929,940 Total property value (b) 924,120 929,940 EPRA Loan-to-Value = (a/b) 18.3% 23.6%EPRA Capital Expenditure Year ended30 June 2026£'000 Year ended30 June 2025£'000 Acquisitions (including acquisition costs) 44,870 30Forward fund developments 2,504 3,085Like-for-like portfolio 2,171 4,565 Total capital expenditure 49,545 7,680Conversion from accrual to cash basis 440 5,305 Total capital expenditure on a cash basis 49,985 12,985 Like-for-like Rental Growth Year ended30 June 2026£'000 Year ended30 June 2025£'000 Opening contractual rent (a) 61,169 58,825 Rent reviews 2,003 1,939Re-tenanting of properties and performance linkedincreases 265 15 Like-for-like rental growth (b) 2,268 1,954Acquisitions and developments 3,449 1,148Disposals (5,759) (758) Total movement (c) (42) 2,344 Closing contractual rent = (a+c) 61,127 61,169 Like-for-like rental growth = (b/a) 3.7% 3.3% This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authorityto act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this informationmay apply. For further information, please contact rns@lseg.com or visit www.rns.com. RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the informationcontained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. Forfurther information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy. END