Good morning, this is Kenneth MacKenzie. I'm delighted to be presenting to you the annual results for Target Healthcare REIT, and before I start, I saw a comment today in the FT regarding listed companies that fund managers were bemoaning the lack of choice, that quality is eroding. I can assure you that is not the case here. Gordon and I are going to present to you, see the next slide, about the results for the year. Gordon and I have worked together on this for the last eleven years, and it's been an absolute pleasure to be able to create great real estate within the sector and create a long income resulting from the sector. Next slide, please. This is a portfolio of scale with a robust rental income stream.
We have 94 care homes, just under 6,500 beds, and just under GBP 60 million of contracted rent, with the value over GBP 900 million, at a net EPRA top-up net initial yield of 6.2%, and we're highly diversified. When we set out 11 years ago to create this product, we said we would be highly diversified. Our largest tenant is only 16% of the whole, and we have a further 33 of them. Next slide. In addition to that, we have the quality story that you'll hear me say several times through this presentation. If you look at this portfolio compared to other real estate, where do you see portfolio standards where EPC ratings A and B are 99% of the whole? Quite remarkable, actually.
If you consider the likelihood of income growth in this product, look at the 99% inflation-linked rental uplifts. If you want long income for your portfolio, where can you find a portfolio worth 26 .5 years of income to come? Then specifically within healthcare quality, again, because as you know, you've heard me say it for a long time, we really think en suite wet rooms are essential for human dignity, and we are so delighted that we are right up at that number. You'll see some stats later on about some of that. What has happened over the year? Next slide. We've delivered stable returns.
Accounting total return is significant at 11.8%, and you'll remember that we increased the dividend a year ago by 2%, and we're delighted to announce today that we're increasing it by a further 3%, with effect from the start of July. And also, we have some information within this pack about the MSCI or MSCI Healthcare Property Index, about GBP 8.5 billion of assets within that, and it turns out that we were number one in 2023. And in fact, as you'll see later, over 10 years, very good results also. The other thing that's significant that happened in the year was disposals to improve the portfolio metrics, and this is on the next slide, whereby we would. We have been recycling some capital, and by the way, with that, of course, also proving valuation.
In June, just two or three months ago, we announced the sale of four homes, GBP 44.5 million of proceeds, implied net initial yield of 5.6%, compared to the portfolio yield of 6.2%. Note that these are not the best homes in our portfolio. They're far from that. They were amongst our oldest assets. They were amongst our least spacious, 12% less space per resident. They were amongst our shortest lease lengths, and they were concentrated in the highest concentration region of the country. We used these proceeds to fund the developments that we had committed to two or three years ago and minimize our drawn debt. I know some of you in particular will be delighted to hear that. These four sales follow sale of five homes over the last 18 months.
So over the last eighteen months, if you wonder whether we're just asset gathering, we would submit it's evident that we are not doing so. We have sold 8% of the portfolio in that period. After these highlights of our results, how are we placed? Well, we recognize that we continue with the discount challenge, and this is on the next slide, and we want to reflect on some of that. We do have an attractive growing dividend at the current price, based on when we reported our NAV, our dividend yield was 7.3%. We have done these asset disposals. Some GBP 71 million have been sold, evidencing a real market for our kind of product.
Our earnings will continue to grow, and they do reflect, as we look forward, the additional costs when our hedging ends in 2025. As you know, we did take a dividend cut 18 months ago for as we looked forward at our costs, but we are now in a really good position to see further growth of our dividend. And finally, we want to speak about our evident asset liquidity and the available headroom that we have, the capital that we have of GBP 85 million, which provides us, the board, and the manager, significant flexibility to consider our capital options, and you know well what these options could be. I'll pass on to Gordon now for the next slide, and to take you through the detail of the results.
Good morning, everybody. We'll focus a little bit on the results themselves over the next few slides. So on to the next slide here, which lists some more of the financial highlights in the year, and we're really proud to have delivered this list that you see in front of you here. You can see our NTA is up almost 6%, earnings up a couple of percent, total return, as mentioned, almost 12%. Fantastic for the year, and our dividend is very well covered on those earnings, you know, some modest growth, but I think in the context of the high cost inflation we've seen over the last few years, interest rates rising and the disposals which we've made, Kenneth described some of those coming right at the end of last year.
I think that's a very pleasing result to have increased earnings by 2%. On the next slide, a bit more detail as to how we've achieved that. First of all, rent is up, our rental income is up 4%, or the interest from our development projects is up to GBP 1.8 million from GBP 0.9 million in the prior year. You can see those on the top and then towards the bottom of the summary P&L there. Secondly, our running costs are stable. So you can see the management fee, operating expenses up just circa 1% each, and those are the main running costs on recurring of the business, annually. We overall have an efficient property model. There are no gross-to-net adjustments on that rental income.
There are no voids, the investment manager, or we, Kenneth and I, are providing a full service. There's no addition away from our accounting fees. It's a very efficient model we do have there, which converts that rental income into the adjusted EBITDA earnings number you see and that 2% growth. There's one quirk here for the analysts, just worth explaining on the credit loss allowance or provisioning in old language. It's a little bit higher than prior year. That is largely due to the significant arrears collection we had in the prior year, effectively, you're depressing that number. That's gone up a little bit this year, and you see that in the number in the middle of the summary table there.
On the next slide, some further financial highlights, and I'll jump straight to the adjusted cost ratio there, the EPRA cost ratio. Again, that's up slightly, largely as a result of that quirk in the provisioning, but otherwise, just to flag, the operating expenses are very stable, as we saw in the slide before. The net rental income at the top, that 4% growth has been achieved through rent reviews of like for like, just under 4%, 3.8%. We've had three developments come online in the year at circa GBP 2.5 million of new rent coming in. And as I say, mentioned before, the disposals late in the prior year accounted for roughly 3% of our rent roll. So all in, a pretty good achievement to grow earnings, in that context.
And at the bottom of this table, you see dividend per share is down 7.6%. We explained that in the annual, and I think you guys are well aware. The full year that we're reporting on here had dividend rates 2% higher than the end of the year before. But that year, of course, had two earlier dividends at a higher rate prior to our cut in response to the rising interest rates environment. So that's why you still see that as a fall in these reported numbers for the current year. And of course, dividend cover at 1.07 x, well, you know, well-covered by our cash earnings. Next slide, please. I'd like to spend a little more time just on this slide and the next one on rental growth.
As you know, our rent reviews are guaranteed uplifts every year, linked to inflation with collars and caps. That is coming through year on year on year and compounding. This first slide here shows the growth in the year. Reporting on this point-in-time basis, we go from the start of the year to the end of the year, movements in the contractual rent roll. And you can see our disposals are being matched by our acquisitions and developments coming online, and the growth is really coming from that rent reviews. You know, from GBP 56.6 million up to GBP 58.8 million, it's that GBP 2.1 million of rent reviews, which is... or the rent uplifts, which is driving that. And on the next slide, we can see that there's more to come this year.
The numbers we show here are, you know, not forecast, but a projected 4.4% rise in that rent roll. This is a prudent view, assuming a low inflationary environment and just assuming that collars and our leases contribute to the rental uplifts this year. We also have new developments coming online. We have two more which we're working on at the moment, which will bring GBP 1.5 million of new rents in, and there are some CapEx in the portfolio in terms of those additional wet rooms and some ESG initiatives. So we will be growing rent. It will come from the organic guaranteed rental uplifts. Also, we are on-site with committed activities which will grow that rent roll as well. Next slide, please. Moving on to the balance sheet.
It's not a complex balance sheet. It's conservatively structured, and we'll come to the large numbers being the valuations and the debt shortly. But first, just wanted to make some comments on that NTA growth of 6%, which you see in the bottom two rows there, and how have we delivered that? We'll see the NTA bridge on the next slide, so you can see that at 6%, it's GBP 0.062 of NAV growth that comes from the covered dividend. You'll see the two bars on the towards the far right there are point GBP 0.002 of that. You see disposals towards the left. You know, they have been accretive to NAV, as you might expect, given we're making them ahead of book value at point GBP 0.003 per share.
And then the real driver is right in the middle. It's the property valuation growth at GBP 0.058 pence per share. And how is that coming from? So we'll see in the next slide. You'll see again, as we talked about earlier, on the rent roll, the acquisitions and development activity is netting off against the disposals and the rent reviews and the yield shift you'll see there. The valuation growth is not coming from yield shift, it's coming from the rent reviews. It's coming from the like-for-like valuation growth that are guaranteed upwards. And then two other points of valuations on the next slide.
The graph on the left here, the line chart is showing our portfolio net initial yields in the dark blue line, towards the top of that, and then MSCI All Property Index is on the lighter blue line below that. You can see there's still a spread in our yields relative to the All Property. And you can also see, I think, that we are less volatile than the All Property. You can see that sort of late 2022, you know, quite a sharp uplift in our outward movement in yields on the All Props, we were far more muted, and we talk about that in the results. I think the stability in yields and valuations really supports those rental uplifts being passed into the valuations by the valuers.
And you can see the bar chart on the right-hand side there, that's six consecutive quarters of valuation growth since that late December 2022 shift in the wider market. Larger rent reviews coming through with a little bit of yield shift in that March 2024, the slightly higher bar there. But overall, very stable, low volatility valuations and supported by those rental uplifts. Next slide, please. We have a debt summary here. No, no change in the year. You can see the table on the left outlines the facilities and our counterparties there. You know, the large chunk of it, GBP 150 million with Phoenix, is fixed rate at just over 3% interest and is tucked away until January 2032 and January 2037. The RBS and HSBC is due for...
will mature in November 2025, and we already have terms from each of those lenders to refinance those, and we're currently assessing our options there, but good appetite and good terms for that from that refinancing point of view. Pie chart on the left reminds you that our interest costs are well hedged out to that November 2025 point, with the bank facilities and clearly beyond with the Phoenix facilities, and obviously, very conscious and very much forecasting, slightly higher interest rates once those hedges roll off, but that's very much factored into every material decision we've made over the last couple of years, and you'll also see in the bar chart above that, we show our net debt to EBITDA ratios, so 4.6 x at the end of June.
It's been coming down from the prior years, and I think that very well supports our ability to repay, refinance debt out of cash flow should we ever need to do that. I think that's a metric, a ratio which is lower than many property companies, so we're well placed there. One more point on our LTV, our capital structuring here. Stifel have helped us out with the coverage from their coverage universe, plotting earnings yield versus LTV on this chart here. The dividend yield versus LTV chart was largely the same. This is certainly a chart where I think you would generally want to be in that top left quadrant, where we are at the lower end of LTV, but still delivering the higher end of the earnings yields.
You know, based on that, you know, it's showing that the gearing is working. It's prudent, it's conservative, it's relatively safe, but we're still delivering good earnings yields on that. So very pleased to see Target in the top left quadrant there, and you know, that's certainly helping us deliver some of the results that you're seeing here today. I'll pass back to Kenneth for the next slide.
Thank you. So I started by speaking about quality, being needed and good options for fund managers. So let me take you through the portfolio performance and reflect on the quality we see across that. If we go to the next slide on resident occupancy, we've spoken since the pandemic about occupancy having drip-dropped during the pandemic to around about the 75% level. And at the end of June, up to the mid-86%. And I'm delighted to tell you that as of last Friday, we were up just under 88%, and therefore, with good prospects, as we anticipated, of sometime probably towards the end of the or towards the start of the winter, getting back to around about the 90%-99% level. So occupancy recovering nicely.
What's even more important, obviously, to being able to pay us our rent in a stable manner is rent cover. And rent cover for the year has also recovered post-pandemic, with it coming in one point nine times for the year and for the most recent quarter, now at 2x . So excellent rent cover results. We thought it would be helpful on the next slide to speak about what's happening within our operators and how are they seeing their business models developing.
So you have on this slide, five-year status of average weekly fee increases across our portfolio, and you'll see that over these five years, there's been a 40% increase in the cost of putting a resident into a care home, and that compares very nicely to what the RPI inflation rate has been in that period, which is just over 30%. And in our portfolio in particular, you'll see that the private pay percentage has moved over that period from 66% at the start of the pandemic to 74%, stressing the quality of the assets that you own. And staff costs as a percentage of total fees have in fact fallen. You'll remember that, we've said for a long time that staff costs are typically half or a little bit more of the income of a care home.
Five years ago, they were 57%. Today, they're down at 53%. And an important part of that is what happens to agency cost. We monitor that closely across all of our homes, and agency cost in our homes for the year past was at 8%. We've spoken also often in the past about the other costs of running a home, and you'll see that's been remarkably stable. And the result of all these operational factors for our operators is that rent cover for the year has grown to 1.9 x from. We typically have underwritten these homes with rent covers on a conservative basis at 1.6x . Let's go on to the next slide, and again, to speak about quality. We're not just gathering assets. We're refreshing your portfolio and generating returns.
Here again, we have some five-year statistics for you regarding the modernity of the portfolio. If you're wanting long income, you need to know that the portfolio is modern and fit for purpose and is able to look forward with confidence. Five years ago, 83% of the portfolio was built from 2010 onwards. Today, it's 84%. The length of the income has shrunk a little, two and a half years over the five years. But five years later, it's only two and a half years that it's shrunk by because we've sold the older assets. Of course, the portfolio is much more mature. We buy brand-new office assets, and it takes up to three years for them to mature, and that's the situation we're in today, up at 90% maturity.
And of course, we fundamentally believe that we want every bedroom with wet rooms. That's all about human dignity. And this portfolio, which is the most modern portfolio in care homes in the listed space, at least in the U.K., five years ago, we had 5% of the beds without wet rooms. We're up at 99% with wet rooms. Today, only 1% without a wet room. So great quality, refreshing the assets. And then how does that all tie in on the next slide to comparatives within the MSCI Healthcare index? Well, here you'll see over the last 10 years, in the black line, in the black blocks, our performance and the index performance in the blue, and the cumulative outperformance of our portfolio about 60%.
We have been number one in the index for 2023, and we're number two over 10 years, and we're very thankful that that's the position we're able to report to you. I sometimes say to the team that if we stay humble, we might get on okay. So let's be thankful rather than too proud about it all. We have also in the quality commentary on the next slide on developments. In the year that has passed, we completed three in Holt, in Dartford, and in Weston-super-Mare. The Weston-super-Mare one, interestingly, is a net zero operational one, and we have two further developments underway, one in Olney, which is a very interesting location for those of you that know your history, and also in Colwall in Malvern. And both of these will be completed in the next couple of months. Next slide, please.
Let's go on to some commentary on the care sector as we come to the end of our presentation. Next slide. We have a new government in place, and even before our new government in place, there was significant disquiet about the regulator. So in the spring of this year, there was a Dash Review completed, which reported in draft in April, which commented that the regulator was not fit for purpose. Since then, probably appropriately, the CEO of CQC resigned. There is an interim CEO in place who acknowledges the shortcomings. It's interesting to note, we have our own research team, as you probably are aware, and we've been monitoring the number of visits that the regulator has done to the approximately nine thousand care homes across the U.K.
And the number of visits per quarter has dropped from about 1,000 visits a quarter, four or five years ago, to about 200 per quarter in the last, in the first six months of this year. We ourselves do more than 200 visits per annum, and we only have 1%. Is that right? 10%. No? We only have 1% of the portfolio of the total number of care homes. So it is quite remarkable. Well, it's really sad, actually, how little and how ineffective CQC be. What's the impact of that? Well, it means when a operator has a home that is poorly graded, he may do all the reparatory work, but it takes an age for it to be revisited to get back up to good.
And also for re-regulation from time to time, and we have one or two more re-tenanting to do. The period of time for the re-registration for a new tenant is delayed, and that is really sad. But within the complexity of all that, what is the results of our portfolio? 2x rent cover, really stable. We're in a really good position. As part of our contribution to the whole sector, we recently hosted a roundtable on the regulator with some key players, asking the question: What does a good home look like? Is there an opportunity to establish appropriate standards in writing? And it's been rather sad to realize that CQC have rarely considered the physical building.
But we certainly do, as you know, and I think you will find in time to come, that that will become an important part of the future. And then a comment on the government in relation to it, our new government. What implications are there there? Well, there's a strong recognition of the need for the private sector when they look at the state of the NHS. The status quo for social care will mean more private pay, but of course, social care has always been a lower priority than the NHS in government eyes, perhaps not seeing the full picture. Where do we expect all of this to go? Well, as I've indicated before, significant net worth in the over 65s, increasing amounts of private pay. And then we have some more slides on property quality. Four slides as a quick reminder.
Let's go to the supply and quality slide, page 30. When I'm driving, I like to see green lights all around me. If you're operating and investing in this sector, you want to see green lights in front of you with good prospects. Look at Target Healthcare REIT, purpose-built, superb quality, compared to the listed peer average, with a whole mixture of product compared to the whole sector. This is a premium portfolio. That's in relation to the physical quality and the way the home was created originally. Then on the next slide, page 31, if you want to think about social impact, look at the en suite wet rooms in your portfolio compared to the listed peer average, compared to England and Scotland, a prime portfolio.
That is reflected in the next slide on transaction volumes, where there continues to be activity in the prime end of the care home market in the United Kingdom, where it is competitive around about the 6% net initial yield pricing. Whereas subprime, the product that does not have wet rooms, there's now good evidence of institutional buyers buying at around about the 10%, particularly from America. A couple of more slides about us compared to our listed peers. On the next slide, you'll see our net initial yield compared to the listed peers. You'll see the average value per square meter, very similar, and the average rent per square meter, that we would submit that there is significant work to be done on the poorer quality stock, and significant capital expenditure to bring the ESG standards to appropriate levels...
So can I come to my last slide, a reminder of the tailwinds. Lots more elderly people coming through. A reminder of our long-term income growth with inflation-linked rental uplifts, and a reminder that we have that for a further 26.5 years. And with that, we are happy to move to Q&A, and thank you for listening.
Thank you. I've a couple of questions coming through so far. I will let Kenneth cover the first one, which is: How do we see staff costs evolving for operators? Are there any indications of the impact of changes to visa rules, impacting costs and availability?
Yeah. Staff costs were a key constraint, or staff availability was a key constraint two, three, four years ago, and the visa scheme that was put in place has certainly enabled that significantly. I would say we're in a good position in relation to that. We expect national minimum wage to rise further, but as we've evidenced to you with private pay, our operators are able to compensate for that very satisfactorily.
Good. Next question is: What will the impact be on dividend cover, post-refinancing and hedging activity? I think not making any forecasts, of course, but as I mentioned during the slides, you know, we've been very cognizant of the you know, the new interest rate environment, and all of the forecasting we've been doing over the last two years has assumed refinancing at a you know, at current rates, effectively, so far higher than what we've got on the books. Dividend cover is important to us. The levels the 1.07 or 107%, however we denote it, is a level we're comfortable with and something that you know, is showing across our forecasting when we're making decisions at the moment.
So, we think we can continue to achieve levels like that, and we'll be very cognizant of that in any decisions that we make. But, you know, that certainly... I'm not concerned about headroom and dividend cover based on the refinancing costs and re-hedging we're looking at, at this point in time, so very confident going forward. Next question is a little bit multifaceted, but I'm just trying to figure out what is insightful. It's about the share of private pay and how that has increased across the portfolio. I think the question, if I can boil it down to, is that because of new homes coming online, or is it because of the proportion shifting across the majority of the existing homes? I think it's both of those things, really.
I think we, with private pay increasing, I think many of our tenants are deliberately targeting private fee-paying residents, and the quality of the real estate and the quality of the service offering that they have has allowed them to do that. So that certainly happened, equally because of the, you know, the nature of the economics of new-built homes. Brand-new, modern, purpose-built facilities are expensive, the land is expensive, the build costs are expensive, and to get the right facility with the right quality, those are generally targeting private fee payers as well at this point in time. So I think it's both. And as you know, we have a bias towards private fees, so we welcome that, but equally, we do have many homes in the portfolio servicing local authority residents as well.
Yeah. From an operator point of view, bringing in a private resident makes them an extra GBP 100 a week. And, so fortunately, our operators are aware of the economics, and, so, Gordon is absolutely right. It's a mix of some of our more recent homes having a preponderance of focusing on private pay, significantly, but also, the... When I think about it, Gordon, there's a number of homes in the portfolio which, compared to five years ago, just have more private pay. They're getting more opportunity for private pay. And that, we think that that's what's going to happen because there are just too many elderly people coming through, and how are you gonna fund it all if, if there is austerity from the government?
The significant net worth, if you're in the right part of the product. If you're in a poor home without a wet room, there's a report that isn't in this presentation that I just saw late yesterday, that the private fee rates have risen. If you have excellent homes, you'll get much better private fee rates, and that's just the reality of the market, I think.
Sure. I think one more question, and we'll get everybody away to their 9:00 A.M. appointments. I think it's about the outlook for yields across the portfolio and opportunities to grow the portfolio. With interest rates beginning to decline, how are we thinking about yields? I'm going to pass to Kenneth after a brief comment that, you know, the yields have been stable across what we would class as prime care home real estate. I think that, you know, our investment team, transactions team, are finding any opportunities that they're looking at. It is competitive. There are a number of bidders out there, you know, that should support yields, and if anything, they may tighten marginally.
Yeah, and Gordon's looking at me at this stage, wondering how I'm going to help to fill this in. I think the reality is that there is real demand for modern purpose-built homes. So yields will, on the balance, tend to tighten if 10-year bond rates compress. But we see real yields actually within all of that really stable, recognizing that there is significant institutional demand for long, stable income from an asset class that is increasingly evidencing the quality if you're in the right part of the market.
Yeah, we've got one more question come in, which I think we'll do that one and then drop off. So that's about, we've commented on the robustness of our operators, any consolidation within the operator market, balance sheet, CQC's, et cetera. I think I'm gonna pass to Kenneth. I'm sure you have a comment there.
Yeah. I think the most interesting thing that's happened in terms of consolidation is the largest operator, HC-One, has taken the decision to buy a significant operator of care homes who are actually our largest tenant. And that's quite a strategic move into modern purpose-built homes for the largest operators, 'cause the largest operators tend to have the older quality stock. So there is some significant move happening there. CQC ratings, as I've already explained, they are so out of date. We have one or two homes that haven't been inspected for six and seven years, a bunch of homes not inspected for three or four years. Carehome.co.uk is more relevant for us. And are our operators successful? Oh, my goodness, yes! If you have two times rent cover, our operators are successful. And this-
Yeah. Feels like a good note to end that one on.
Yeah. And with that, we should probably bring it to a conclusion. Thank you very much for your interest and for your support.