Kenneth MacKenzie is the managing partner of Target Advisers, which manages Target Healthcare REIT, the UK’s only listed investor in modern, purpose-built care homes. In this interview he gives some background to the REIT, its investment strategy and the drivers underlying the care sector.
Target Healthcare REIT aims to provide long-term, stable and sustainable income via rising dividends based on secure income streams. These come from a high-quality portfolio of 46 care homes across the UK, let to 17 operators on leases averaging over 29 years and valued at £275m (31 March 2017). The majority of leases are RPI-linked and subject to upwards-only annual reviews, although some have fixed annual uplifts. Prospective tenants’ operational ability, care ethos and finances are scrutinised before acquisitions are made and discipline is exercised in acquiring only assets offering attractive yields at sustainable rental levels (7% net initial yield has been the benchmark to date). This has helped Target to build a portfolio generating passing rent of £20m at 31 March 2017 at a 6.75% initial yield without sacrificing lease length.