Target Healthcare REIT

LSE: THRL

Market Cap£489m

Last Close 78.8p

Target Healthcare REIT invests in modern, purpose-built residential care homes in the UK let on long leases to high-quality care providers. It selects assets according to local demographics and intends to pay increasing dividends underpinned by structural growth in demand for care.

Investment summary

Target Healthcare REIT delivered strong absolute growth in FY22 and continued its record of positive NAV returns. However, with cash drag from slower than originally planned investment, and weak rent collection from a minority of homes, per share earnings and DPS cover declined. Although now fixed, higher interest rates will weigh on earnings and delay acquisitions, but we expect earnings growth and DPS cover to increase, supported by indexed rent growth and a recovery in rent collection.

Y/E Jun	Revenue (£m)	EBITDA (£m)	PBT (£m)	EPS (p)	P/E (x)	P/CF (x)
2020A	44.3	N/A	23.2	5.27	15.0	16.1
2021A	50.0	N/A	26.0	5.46	14.4	15.0
2022E	63.9	N/A	30.2	5.05	15.6	15.5
2023E	68.1	N/A	36.3	5.85	13.5	17.1

Industry outlook

The care home sector is driven by demographics rather than the economy. A growing elderly population and the need to improve the existing estate point to continuing demand for new, purpose-built homes with flexible layouts and high-quality residential facilities. With its unwavering focus on asset and tenant quality, these are the homes in which THRL invests. It believes that best in class assets, in areas with strong demand/supply characteristics, and sustainable rent levels will always be attractive to existing or alternative tenants and are key to providing sustainable, long-duration income with capital growth.

Last updated on 30/11/2022