Target Healthcare REIT : Report and Financial Statements for the year to 30 June 2022

Investing in care. Delivering returns.

Target Healthcare REIT plc

Annual Report and Financial Statements 2022

About Us

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

Long-term sustainable value

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

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

EPRA NTA per share (pence)					Accounting total return (per cent)1							Dividend per share (pence)
112.3+1.7%				8.1								6.76+0.6%
2022			112.3		2022		8.1					2022	6.76
2021			110.4		2021		8.8		2021	6.72
2020			108.1		2020	7.0						2020	6.68
IFRS profit (£ million)							Dividend cover (per cent)2								Portfolio value (£ million)
49.1+11.8%				72								911.6+33.1%
2022			49.1		2022		72						2022	911.6
2021			43.9			2021		80		2021	684.8
2020	31.6					2020		76				2020	617.6

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

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Strategic Report	IFC-27
About Us		IFC
Chairman's Statement		4
Business Model		6
At a Glance		8
Environmental, Social and Governance		10
Investment Manager's Report		14
Our Strategy		16
Principal and Emerging Risks and Risk Management	24
Section 172 Statement		26
Corporate Governance		28-57
Board of Directors		28
Investment Manager		30
Directors' Report		32
Statement of Directors' Responsibilities		39
Corporate Governance Statement		40
Report of the Audit Committee		44
Directors' Remuneration Report		49
Independent Auditor's Report		52
Financial Statements		58-88
Consolidated Statement of Comprehensive Income	58
Consolidated Statement of Financial Position		59
Consolidated Statement of Changes in Equity		60
Consolidated Statement of Cash Flows		61
Notes to the Consolidated Financial Statements		62
Company Statement of Financial Position		79
Company Statement of Changes in Equity		80
Notes to the Company Financial Statements		81
Additional Information	89-IBC
Notice of Annual General Meeting		89
Shareholder Information		92
Alternative Performance Measures		95
EPRA Performance Measures		96
Data Centre		98
Glossary of Terms and Definitions		99
Corporate Information		IBC

This document is important and requires your immediate attention.

If you are in any doubt about the action you should take, you are recommended to seek your own independent financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the Financial Services and Markets Act 2000 if you are in the United Kingdom or, if not, from another appropriately authorised financial adviser. If you have sold or otherwise transferred all your ordinary shares in Target Healthcare REIT plc, please forward this document, together with the accompanying documents immediately to the purchaser or transferee, or to the stockbroker bank or agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

Annual Report and Financial Statements 2022

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About Us

Social impact driven strategy, with a future-proofedbusiness model

Portfolio protected from the sector's modernisation challenge

Care home sector- leading environmental credentials

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

  Now

Standard-setting care home real estate.

100%

purpose-built

96%

wet-rooms

92%

A or B EPC ratings

100%

C or better

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

Near-future trends

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

% UK care home market with wet-rooms

	29%
14%
2014	2022

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

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

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

2	Target Healthcare REIT plc

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Why wet-rooms matter

1. Wet-rooms represent socially acceptable standards

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

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

18%-28%

higher resident fees in care homes built since 20161

2. Wet-rooms support sustainable occupancy levels

The sector is recognising the need to modernise its real estate, with wet-room provision now at 29% having progressed from

14% only eight years ago. There is a clear commercial benefit with respect to demand for care places:

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

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

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

1 Carterwood Research - 2022.

Annual Report and Financial Statements 2022

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