Target Healthcare REIT’s Q425 update shows indexed rent reviews continuing to drive increased earnings and property values, underpinning growing DPS. Q425 NAV total return was a strong 2.9%, taking the annual total to 9.0%. We will review our estimates when the FY25 results are published in detail in September, but continue to expect rental growth, a full-year contribution from development completions and asset management to drive further growth.

Target Healthcare REIT operates in a structurally supported market with a growing elderly population and the need to improve the existing estate, driving demand for modern, high-quality residential facilities. This demographic-backed demand underpins the company’s core proposition of generating long-term, sustainable, income-driven returns. Its focus on asset quality is central to this and strongly enhances the social impact that the company generates. With 100% of the homes EPC rated A or B, they are compliant with minimum energy efficiency standards anticipated to apply from 2030, while effectively all rents are inflation-linked (typically capped and collared between 2% and 4% pa) with a weighted average unexpired lease term (WAULT) of 25.8 years. High-quality assets and inflation protection provide good income visibility and resilience.

Indexed rent reviews continue to drive earnings growth and property valuation uplifts at Target Healthcare REIT. Meanwhile, tenant profitability remains strong, reflected in a continuing high level of rent cover and rent collection. Quarterly dividends are 3% above the prior year with a good level of cover by adjusted ‘cash’ earnings and the discount to NAV provides investors with the opportunity to benefit from any narrowing, for which further interest rate reductions should be supportive.