Good morning from a beautifully sunny and a bit frosty Scotland, where we're delighted to present to you the results for the six months ended December 2024 for Target Healthcare REIT. We have an additional member of the team with us today as we move slides. James McKenzie joined us at the beginning of the year in the role of Head of Investor Relations, and we're delighted to have him with us. James is joining Gordon and I to present the results, and you'll probably see more of him in the future. Let's get into some of the detail of Target Healthcare REIT. Many of you will remember quite a bit of this, but I think it's well worth the reminder.
This is a portfolio of scale with really robust long rental income stream, 94 care homes in the portfolio today, just under 6,500 beds, over GBP 60 million of rent, and the portfolio currently valued at the end of last year at GBP 925 million based on an EPRA Topped-Up Net Initial Yield of 6.2%. When we started Target Healthcare REIT, we said that we thought it was entirely appropriate that we have a very diverse source of income in terms of the sector. As you'll see, we continue to be indeed very diverse with 34 different sources of income. It's a remarkable portfolio, we believe. It's remarkable in that it is differentiated by its quality and its modernity and its ESG compliance. It's remarkable in that effectively we're at almost 100% of en suite bedrooms.
I was speaking recently to an American investor in this sector and an operator in America, and he was observing that our portfolio is matching much of what is done in America today with superb facilities for seniors. We're delighted to have this prime portfolio as part of who we are. It's also remarkable in that I don't believe that there is any other real estate portfolio in the listed space which has got 100% EPC ratings. There's no issue here with 2030 costs to bring things up to what is spoken about as being desired. It's remarkably stable, really, in terms of what happens to the income levels because 99% of the underlying leases have inflation links, RPI links for rental uplifts. You'll see as we go through the report that we have really good stable rental uplifts tied to RPI.
It is remarkable in that this with 26 years of income looking forward. I think I'll probably continue with a remarkable comment because look what's happened over the last five years in this portfolio. We've increased the number of assets by 32. We've increased the number of wet rooms by 3%. We have got five years older, and yet the building age is younger. That is fairly unusual, isn't it? We've spoken already about the EPC A and B ratings and how superb they are. It is a portfolio which gives real good quality of space for our beloved seniors with excellent square meters per resident. Of course, the portfolio is maturing even although it's younger as we see greater growth and really stable rent cover compared to five years ago, 27% increase in the rent cover at 1.9 times.
That remarkability, if that is a word, flows through to what is long-term performance. I remember when I first started investing in senior living, a pretty senior property person, when I was trying to convince him after one or two years that what we were doing was good, said, "Kenneth, this really matters over the 5, 10, 15 year period. How will you perform over that much longer period?" Here you can see the outperformance of the MSCI UK Annual Healthcare Property Index, 76% outperformance over the last 10 years. There is about GBP 8.5 billion or GBP 9 billion of assets in this index. We are a top performer, number two over that 10 year period. You will see over the last couple of years that by any stretch of the imagination is good outperformance at 5.5% in 2023 and 5.4% outperformance in 2024.
I'll hand over to Gordon now to take you through the financial implications of remarkability.
Thanks. Yeah. Just a few short slides on the financial performance for the six months period to December. We have a highlight slide here. I've talked to four of these. Again, I think most of you are very familiar with what we do and what we deliver. The net rental income for the six months was a 4% increase on the comparative period. I think the interesting thing here is that despite our disposals program across the portfolio, clearly we've lost a bit of income from disposing of some of the poorer assets and replacing them with better assets. The disposals rent has largely been replaced by bringing our development program to practical completion and growing the rental there.
The like-for-like rent reviews, which we have embedded across the portfolio, have really driven the rest of the growth in that net rental income, as well as some income increases from a little bit of CapEx across the portfolio to, again, further improve the quality of the real estate. The EPRA cost ratio is clearly a key metric in terms of the running costs of the business. That's remained very stable at 16%. Of course, this is a ratio which is based on income, but it does compare well to the wider sector. It compares well to other properties of similar scale to ours and other property companies, sorry, with a similar returns profile. Good that that's stable. I would also flag that our NAV-based cost ratios, which we usually do for the full financial year, also compare very favorably. Running the business efficiently.
What does that do then to the Adjusted EPRA EPS and the dividends per share? We've passed through that rental growth and that tight cost control and effective interest costs onto growing earnings. The Adjusted EPRA EPS is up just shy of 3%. That has fallen through to the dividends, which we're paying out as well, which has grown 3% relative to the comparative period. That's what we're here to do. That's what we intend to do going forward. A side note, again, it's not just income. Kenneth's slides there on the MSCI and the portfolio performance clearly showing great outperformance. That comes from capital as well. We're able to provide a great total accounting return. We're all right on this call, but that 4.5% for the six years, clearly that translates to roughly 9% for the year. Very pleased to deliver that.
I think, again, that compares very well to the wider sector at this point in time. The earnings summary, this is largely one for those of you to take away and look at in a bit more detail. I think I've got two key takeaways to talk about here. One, I always need to flag it, but adjusted EPRA earnings is our key metric. That's the cash recurring earnings that this company and this portfolio generates. I like to use the word triggered, but adjusted, I know it does trigger some people. Just to remember, we are adjusting down from our EPRA earnings number by about 20% just based on the IFRS and our lease structure. We have to do that to show the true measure of how this company is performing on a recurring cash basis.
Secondarily, the box at the bottom there, this is an efficient property model. Our gross to net is 100%. There are no voids. There are no hidden fees. There are no transaction fees. There are no separate property management fees or rent collection fees. There is none of that. Our gross rental income effectively is our net rental income, very efficient, which allows us to obviously pass on as much as we can back to shareholders from that rental income coming in. On that rent itself, the contracted rent at the end of the period has grown by 3%. I touched upon that earlier. It is growing with the rent reviews which are embedded in the portfolio. They are 1.3% on a like-for-like basis for the six months.
The contractual rent is growing as we replace some of those older assets which we've disposed of with brand new assets coming online. One particular asset came to practical completion during the period, added GBP 900,000 of rent onto the rent roll there. That's a brand new asset paying rent from day one. It's clearly enhancing the portfolio. It's best in class. It's modern. It's EPC ratings. All that stuff is good. It's good to replace some of the older assets in the portfolio with that and growing the rent roll in return. Onto the balance sheet, which is straightforward. We have our assets, just over GBP 900 million. We have our cash and our working capital, and we have our debt on there. That leaves us with plenty of headroom. We've got greater than GBP 70 million headroom there to do as we think is appropriate with.
Given where we are, low LTV, plenty of headroom, good long debt ahead of us mostly. Given the results we've just seen on the previous slides, we have grown the EPRA NTA per share over the period by just under 2%, 1.8%. Exactly. That is what the balance sheet is showing at the bottom there. Breaking that down a little, you can see on the left-hand side, moving on from the June position, revaluations have grown that NAV per share by 2.1 pence. That is really based on the stability of the valuations of the asset class and the demand for that asset class. The performance of the asset class means that the valuers are seeing stable values and they are passing on the rent reviews and the rental growth as it is coming through onto valuations. That is the red box there.
The next box is just showing the effect of our recurring earnings are well covering the dividend. That is growing the NAV as well. We end up the NAV per share growing by 1.8% over the year, largely driven by that valuation growth coming from the rental growth across the portfolio. On the debt, two key aspects to cover here. The first is that the Phoenix debt that we've got is GBP 150 million of our drawn debt. It is about 60% of our drawn debt. It is obviously fairly significant. It goes out to 2032 and 2037. We struck that a little while ago, recognizing that we wanted to be long-term fixed in that environment, given that costs were only likely to go one way. We are very pleased with that GBP 150 million of debt. The cash cost on that annually is 3.2%.
3.3% you see there is with the amortization of the costs on it. Really important going forward. I'm sure you're all aware that the RBS and the HSBC, the short-term more flexible bank debt is up for refinance this year. We're very focused on that. We've been through a couple of exercises now in terms of speaking to lenders, the incumbents, and a range of other lenders to get some optionality there. We've got some great demand, good offers on the table. If we did refinance that now based on those offers and based on current market pricing on a like-for-like basis, it would move the overall group's weighted average cost of debt from 4% to 4.4%. Only a 40 basis point increase there.
As we've been saying for a number of periods now, we've been factoring that into all of our decision-making over the last two, two and a half years in terms of dividend, capital structure, capital allocation. The dividend is well covered. There's plenty of headroom to reflect that increase in the overall cost of debt. We are very well placed on the refinance going forward. Just a final point, the debt is still working for us. This is a chart mapping the peer group with LTV and with the earnings yield. I think we'd all recognize you probably want to be towards the left-hand side of that chart with lower LTV and a higher earnings yield. Ideally, you're at the top left of that chart. Target is sitting comfortably right in the top left quadrant of that chart. The debt is still working for us.
The gearing is still working for us. Of course, we will continue to closely review that and monitor the capital structure and allocation with the board and make some appropriate decisions for shareholders going forward. I'm going to move on to James to cover some of the portfolio performance in the last six months.
Thanks, Gordon. How are our operators performing? In terms of resident occupancy, the chart shows the maturity of the portfolio improving over time. As you can see, resident occupancy has recovered post-COVID to mature occupancy levels of almost 86% at the end of December. As we can see at the very end of the chart, operators have seen what we expect to be a seasonal drop in occupancy in Q4, consistent with the sector. What's also very important for the portfolio is rent cover. As I'll explain in more detail in future slides, this, as you can see, has improved over the last five years to 1.9 times in terms of rolling last 12 months rent cover. How are our operator business models performing?
As this slide shows, a very detailed slide, but in terms of mature homes being homes that have traded for over three years, there's been five years of fee increases amounting to 45% over the whole period. This compares to total RPI inflation of 34% over the period. At the same time, private pay has moved from 66% to 78%, evidencing the quality of the assets that you own. Staff costs as a percentage of total fees has fallen over the period from 57% to 54%. Agency costs, we've also seen fall slightly after the COVID spike. Result of these operational factors is that rent cover has grown to 1.9 times, as we've spoken to earlier. We're not just gathering assets. We're refreshing your portfolio, investing in it, and generating returns. For long income, you want your portfolio to be modern and fit for purpose.
How has your portfolio changed over the last five years? Modernity has improved with now 84% being purpose-built from 2010 onwards. Older homes have been sold, increasing the overall weighted average unexpired lease terms such that over the five years, it has only reduced by three years in total. 91% of the portfolio are now mature homes, being homes that have traded for over three years. This has increased from 73% in 2020 as a result of our approach to often buying brand new homes that take three years or so to get to maturity. We now have 99% of the portfolio with ensuite wet rooms. In summary, you have a great quality portfolio as a result of us refreshing and improving the assets. To speak to the physical property, how does your portfolio compare to peers and the market?
As you can see, you have a significantly more modern portfolio with no homes built pre the 1990s and no conversions or conversions plus extensions. This is a premium portfolio. We have got a premium portfolio too in terms of social impact with 99% wet rooms enabling our seniors to be cared for in their homes with the dignity and respect that we would want for ourselves. In terms of some financial metrics and the comparison of your portfolio against listed peers, your portfolio has a similar net initial yield, average value per square meter, and average rent per square meter. However, we would submit that there is significant work to be done on poorer quality stock in the U.K. and significant capital expenditure needed to bring ESG standards to appropriate levels. I'll now pass back to Kenneth to talk about the sector.
You all know that I love talking about the sector because we've got fabulous tailwinds in this sector. Some of the wider discussions and things that are going on in the sector are strong drivers for the level of investment that I think we'll see in this sector in the years to come. I was at a meeting on, I think it was Tuesday night this week in the Mansion House in the City. I was asked to speak on this subject for this private meeting that was going on, the impact of demographics. For us, they are hugely positive because the number of over 85s doubles. Many of you have heard me say this often, but it truly does double.
Many people in the senior living sector believe that some of the impact of that is really going to be seen in the coming years because there has been some squeezing of availability of beds with government austerity. That squeezing of social care provision is going to kind of pop a bit. There will be increasing levels of demand. As I said earlier, it's really clear that the sector needs more beds and the number of beds actually at long last are likely to increase rather than the older beds start to slip away from the market. In relation to that, in previous meetings, I've spoken about the net worths of the over 65s. We're actually about to issue a white paper on all this subject. The net worth of the over 65s is now GBP 6 trillion.
There is vast capacity from private pay. You'll have noticed from what we've said that our portfolio is now up to 78% private pay. We're absolutely in the right place as we anticipate further government challenges in terms of their overall budget. Within that, we firmly believe that to stay in the strong tailwind of the trend to homes that pay due regard to our seniors by way of giving them appropriate real estate. We mean by that particularly wet room provision. You'll see way back in 2014, 14% of the beds had wet rooms. It's now up to 34%. That compares remarkably, as I've said before, to Target's wholly new facilities. We're absolutely where this market needs to be and will be in the next 10 or 15 years.
This is, I think, quite a useful slide that we have not looked at in quite this format before where you can see that just at the end of the pandemic, private pay was for our portfolio down at 62%. Private pay since then has risen by another 15% to up to 78%. Sixteen percent it is, is not it? Up to 78%, which is absolutely where we think long, stable, profitable homes will be based and where rent covers will remain robust for the medium to long term. We are really delighted that that is what our tenants are finding. I thought it would be useful as we come to the end of this presentation for me to reflect a little on what we see in the sector. This is a structurally supported sector because of demographics and because of so very significant net worth.
I remember saying, I think in the June presentation last year that when I launched this fund 11 or 12 years ago, I remember speaking about GBP 1.6 trillion of net worth in the over 65s. As I say, we've been doing some work on that. It's actually only yesterday we got some of the final numbers from it. It is quite amazing to see that the net worth has risen so much. I think last year I spoke about it at GBP 2.6 trillion. In fact, Alastair, who's sitting here in the room and has put all of this stuff together, changed the GBP 2.6 trillion number that he had to the GBP 6 trillion that it is. That is very significant net worth for private pay. We think that's what will happen both for NHS pay and also for social pay.
The wealthy, quite appropriately, will have to pay for their own care. Within that model, we believe it is appropriate to be in best-in-class assets with the flight to quality that we will see with the demands of the private payer, with the continued need for good ESG governance. We love being in assets that are future-proofed. We love that we have no remedial CapEx concerns to speak about. They do not exist. We are already 100% A and B. From all of that, we believe there will be robust income growth, which is inflation-linked and contractual. That growth is supported by the underlying tailwinds of the sector and the underlying wealth of our seniors. Within all of that, we need to be wise on capital allocation. We have demonstrated the ability to effectively recycle capital in the past and improve the portfolio.
will all be aware that we have already sold 8% of the portfolio over the last 24 months. We believe there may be opportunities for further disposals to our advantage. With all of that, we continue to actively consider with our helpful board further opportunities to enhance shareholder returns. With that, we can move to Q&A. Thank you very much.
Thank you all. We've got a few questions coming through. I think I'll handle a couple of the more straightforward ones first. As a team, we will share the other ones. Someone was asking about the resident occupancy at the homes and what are the factors moving that down, appreciating it's only 1% lower. I think I came in before James got to that slide, but I think we were saying that's a seasonal effect, just given the time of year. Occupancy usually declines. We do benchmark our own portfolio relative to the sector overall. It is consistent with what's happened across the wider sector. Obviously, no immediate concerns there. Seasonal, and we expect that to recover during the spring. What level of, sorry, the average length of stay per resident, I think we've covered before.
Clearly, it depends on the acuity of the resident and whether it's a nursing resident or dementia, etc., etc. The census information from our tenants indicates it's usually about 18 months as an average stay for each resident across the portfolio. I'm probably going to pass to Kenneth to discuss, can we cover construction costs of new build homes, how this has evolved, and are our rents keeping up? Because I think he'll have the latest numbers to hand on that.
Yeah, construction costs grew significantly up to a couple of years ago and have steadied over the last couple of years. Sustainable rent levels is probably the most important thing in relation to construction costs. We believe that is, in terms of us ensuring good rent covers, tying and achieving sustainable rent is the most important thing for us. We are in a really good position for that with our rents, with our average rental level.
Sure. At what level do we expect rent covers to stabilize at?
Yeah, so when we underwrite modern purpose-built homes 10 years ago, we were looking to achieve rent covers around about the 1.6 times over the long term and possibly to the upside. We're comfortably ahead of that. The portfolio, we think over the next six months, we'll see occupancy grow a bit more compared to previous years. We believe that that will flow through to further rent cover currently being at 1.9 times. Do we think that rent cover at 1.9 times is the appropriate level over the long term? It certainly supplies more security of income for us in terms of our tenants being successful. It's a really interesting question how much further it will grow. We're not going to pretend to be prophets in relation to that other than to say our tenants are making good money currently.
Thank you. I've got a couple of questions on developments and refinancing, which I think we will cover. Then we've got, I guess, a theme of questions on some of what's happening in the market at the moment, which I think we'll probably combine into one response. I think a couple of questions about current development yields and whether we should be using our debt capacity to invest in that. How attractive does that look? I think it's probably worthwhile just explaining, as we usually do, that the nature of our development activity is very low risk. We don't take planning risk at that level. We will usually fund developments on a pre-let basis to make sure we have access to the property and then the long lease terms with a good tenant. There isn't generally any particular development premium.
We'd usually be buying that at similar acquisition yields to what we could buy existing assets for. There isn't a huge premium. Therefore, obviously, we need to do the calculation as to do the investment returns, are they treated relative to the cost of capital. Effectively, the development assets are pretty consistent with the wider investment market at this point in time. There are some opportunities out there, but there isn't a huge spread between the cost of capital and the returns. Obviously, we're being very selective in whatever development activity we are choosing to support right now. Got a question on just someone asking me to expand on the refinancing and what we have available.
What we've done is we've looked at refinancing the bank debt on a like-for-like basis with similar facilities, with shorter facilities, just to give a bit more flexibility given the, I guess, not the volatility in interest rates, but the uncertain outlook. Clearly, we've also been looking at longer-term fixes as well. We're taking all of those into the mix. As I said during the presentation, we've got good demand from across the duration parameters there, which we could have and good demand to drive pricing down a bit. We're naturally looking with the board as to what the best mix is for the company going forward. Lots of demand and lots of things we may do there.
Having lots of choice is good, but it also gives us a little bit more analysis to do just to make sure we make the right decision and get the right balance there. I think we are just double-checking we do not have anything else discrete here. Yeah, probably a helpful one on our tenants and what they are expecting and what operations will be. The question is, do tenants expect to achieve the level of fee increases to cover cost inflation? If not, how might they react to that? I think Kenneth or James would be best placed to answer.
Yeah, that's the whole reason why we love to have tenants with 78% of private pay. We think there will be challenges for the public pay market. As all of us know what our dear government is going through, we can understand that there could be. For private pay, as we have pointed out, very significant net worth there. Some of that housing equity and net worth will be used for these people to pay for private pay. Our tenants are anticipating. We see reports of fee increases in the range of 8 to 12% as we go around our homes. These are the numbers that have been quoted to us in recent weeks as the increase that's anticipated next month, which more than compensates for the extra National Insurance costs that we're all aware of.
We don't have a concern in relation to that.
Yeah. I think the two kind of wider-themed questions, I think somebody's asked about, I'd refer to the cost ratios comparing well. The follow-up question there is, there are other companies out there with cheaper cost ratios, and some have moved fee basis recently. There's two or three questions around that and basically asking what we're thinking about that and what discussions we've had with the board to try and look to see if we can enhance earnings. I think Kenneth is probably best placed to answer that.
Yeah. We have a full cost provision here. We have always set out to the market what we believe is the appropriate way to invest in care homes. We know that the way we do this is different to everyone else. What I mean by that is that there are four people who physically inspect the homes and represent your interest in the homes. There are costs related to that. Investment in senior living has been a painful thing if you have a 10, 15-year view, 20-year view of it. We set out from the beginning to do this differently. We would submit that with the 10-year record and the last two-year record on the MSCI index, it is evident that total returns have been quite satisfactory.
We recognize in the midst of that the pain that we all suffer in terms of the share price. There are larger macro issues that we do need to address in relation to that. That is something that has ongoing consideration from both the manager and the board.
Okay, there are quite a number of questions coming in there. I was trying to keep track of them all. Hopefully, I think we've got through all of those. There are one or two others I can quickly pick up with other people directly, so we don't need to do it on here. Unless anything else comes through as I'm speaking, I think it's probably a good spot to wrap this up.
It is always a privilege for us to be able to provide fabulous facilities for our seniors to do it in the manner that we do do, which provides stability for the tenants, which provides stability for the residents, and which provides robust income and returns for our shareholders, all in the context of also recognizing that the share price is nothing like where we would like it to be. You can be sure that we are focused on all of that too, and we note all that is going on in the market. We would thank you for your support.