Target Healthcare (LSE: THRL), the UK listed specialist investor in modern, purpose-built care homes, announces its unaudited quarterly Net Asset Value (‘NAV’) as at 31 December 2022, together with an update on corporate activity, and declares its second interim dividend for the year ending 30 June 2023.

Corporate activity highlights

Stable financial position and portfolio valuation movement:

  • EPRA Net Tangible Assets (‘NTA’) per share decreased to 103.0 pence (30 September 2022: 112.1 pence), largely driven by a like-for-like portfolio valuation decrease on standing assets of 5.0% primarily reflecting sector-wide outward yield movement following recent interest rate rises
  • Portfolio EPRA “topped-up” net initial yield of 6.22% (30 September 2022: 5.84%)
  • NAV total return of -6.6% for the quarter (based on EPRA NTA and including dividend)
  • Net Loan to Value of 25.1% (30 September 2022: 22.3%)
  • Weighted average term to expiry on the Group’s total committed loan facilities of 6.7 years (30 September 2022: 6.7 years) with an earliest maturity of November 2025. Interest costs hedged to the relevant facility maturity date on 96% of the drawn debt
  • Overall capital available for investment currently £35 million, net of the Group’s development commitments on four assets

Strong portfolio and operational progress: 1.1% like-for-like rental growth; active portfolio management initiatives providing visibility on rent collection improvement:

  • Diversified portfolio of 100 assets let to 33 tenants and valued at £867.7 million (30 September 2022: £913.7 million)
  • 2.6% net increase in contracted rent roll reflecting:
    • a 1.5% increase from the completion of a development site
    • a 1.1% increase from 24 inflation-linked upwards-only rent reviews, at an average uplift of 4.2%
  • Weighted average unexpired lease term of 26.8 years remains one of the longest in the listed real estate sector (30 September 2022: 26.9 years)
  • High quality, modern and sustainable real estate portfolio:
    • 93% of the portfolio is A or B EPC rated, and currently compliant with the minimum energy efficiency standards anticipated to apply from 2030
    • Positive social impact from sector-leading real estate standards: 97% wet-rooms; 47 sqm space per resident; rent per sqm £180
  • Rent collection of 96% (30 September 2022: 96%; 30 June 2022: 94%). Active portfolio management has resulted in meaningful progress with two tenants subsequent to the quarter end. The re-tenanting of a home with the first tenant is now imminent, with improved trading performance increasing rent collection from the other.
  • Subsequent to an exchange of contracts on a subject-to-planning basis in the summer of 2022, on 27 January 2023 the Group completed the acquisition of a development site near Malvern, Worcestershire, following the receipt of the required planning consent for the construction of a 60-bed care home.

Kenneth MacKenzie, CEO of Target Fund Managers, commented: “Following the interest rate rises witnessed in late 2022, real estate values across almost all sectors have been falling. While the Group has not been completely immune to this trend, our portfolio has demonstrated its resilience versus the CBRE UK monthly index (all property) capital decline of 14.6% for the same quarter. This is largely due to our strategy of investing in prime, modern real estate with strong overall ESG credentials, inclusive of notably positive EPC ratings, and underpinned by long term inflation-linked indexation, in a sector where demographic tailwinds continue to support demand.

“Against a challenging market backdrop, we have again delivered like-for-like rental growth and remain focussed on the long-term sustainability of our rental income which is inflation linked (subject to caps and collars). Our portfolio performance is improving, with rent cover responding positively to the increases in occupancy we’ve seen through recent quarters. We have closely managed specific assets and tenants where occupancy has been slower to recover and have progressed initiatives where required.

“Our capital base remains conservatively structured with adequate headroom and, whilst we are not aggressively pursuing an acquisitions strategy at present, we remain alert to opportunities that may be presented as a result of changing market conditions.”