Last close As at 05/08/2026
GBP1.14
▲ 1.40 (1.25%)
Market capitalisation
GBP698m
Research: Real Estate
Target Healthcare REIT has sold four of its care homes for £44.5m to the incumbent tenant, modestly ahead of the carried value. The homes have performed well since being acquired as part of the significant portfolio transaction in late 2021, but their sale enhances key portfolio average metrics such as age, floor space and unexpired lease term, has been completed at a lower yield than the portfolio average and enables the company to reduce exposure to more expensive debt.
Target Healthcare REIT |
Enhanced portfolio metrics and interest savings |
1 July 2024 |
Share price performance
Business description
Analyst
Target Healthcare REIT is a research client of Edison Investment Research Limited |
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Target Healthcare REIT has sold four of its care homes for £44.5m to the incumbent tenant, modestly ahead of the carried value. The homes have performed well since being acquired as part of the significant portfolio transaction in late 2021, but their sale enhances key portfolio average metrics such as age, floor space and unexpired lease term, has been completed at a lower yield than the portfolio average and enables the company to reduce exposure to more expensive debt.
Property sale |
Real estate |
Year end |
Rental |
Adjusted earnings* (£m) |
Adjusted |
NAV**/ |
DPS |
P/NAV |
Yield |
06/23 |
67.7 |
37.2 |
6.0 |
104.5 |
6.18 |
0.75 |
7.9 |
06/24e |
69.1 |
37.8 |
6.1 |
109.4 |
5.71 |
0.71 |
7.3 |
06/25e |
73.3 |
38.7 |
6.2 |
113.7 |
5.84 |
0.69 |
7.5 |
06/26e |
75.7 |
39.0 |
6.3 |
118.0 |
5.96 |
0.66 |
7.6 |
Note: *Adjusted earnings exclude revaluation movements, non-cash income arising from the accounting treatment of lease incentives and guaranteed rent review uplifts and acquisition costs, and include development interest under forward fund agreements. **NAV is net tangible assets (NTA) throughout this report.
Target has an unwavering focus on asset quality, which it believes is key to providing sustainable, long-duration, inflation-linked income. It invests in modern, purpose-built, high-quality residential facilities that are energy efficient and already compliant with anticipated minimum energy efficiency standards. The assets sold were originally constructed in 2007/08 and were some of the oldest in Target’s portfolio. The gross internal floor space per resident is 12% lower than the portfolio’s weighted average. The weighted average remaining lease term of 13.6 years was well below the portfolio average, which has now increased to 26.3 years.
In the context of the wider portfolio, the sale is not material but is a reminder of Target’s active approach to managing, and maintaining the quality of, its assets. As at 31 March (Q324), the company’s portfolio included 98 properties, valued at £934.8m and let to 33 different tenants. There were 95 operational care homes with annual contracted rents of £60.1m, and three pre-let developments, which at completion will add an additional £2.3m of rents. The assets sold represent 4.6% of the portfolio value and the implied net initial yield of 5.64% is below the portfolio average EPRA topped-up net initial yield of 6.19%.
The sale proceeds will enable a partial repayment of Target’s revolving credit facilities, reducing its unhedged interest costs, and reduce the net loan to value ratio by c 3.8pp (end-Q324: 25.8%). End-Q324 borrowings were £259m, including £150m of long-term, fixed-rate debt at a low average cost of 3.2%, with a first maturity in 2032, and £109m of shorter-term debt. The shorter-term debt is floating rate, but the interest costs on £80m of this have been capped at least until November 2025. In aggregate, 89% of the Q324 drawn debt was fixed/hedged. Our last published forecasts, unchanged for now, assume some further drawing of debt to complete the outstanding developments, at a cost of 2.22% plus SONIA (currently c 5%). Interest savings will provide an offset to the immediate rental income foregone and there is increased scope for investment for future growth as market conditions allow.
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Research: Financials
On 27 June, Moody’s upgraded Alpha Bank’s long-term senior-unsecured debt rating by two notches to Baa3 (Ba2 previously), its long- and short-term deposit ratings by one notch to Baa3/P-3 (Ba1/NP previously) and its long- and short-term counterparty credit risk (CCR) rating by one notch to Baa2/P-2 (Baa3/P-3 previously). The move takes Moody’s key ratings on Alpha to investment grade for the first time in 14 years. This is a further positive development for Alpha as it continues to execute its strategy and demonstrate recurring profitability and capital generation. S&P, Fitch and Capital Intelligence currently assign BB- (sub-investment grade) long-term debt ratings to Alpha Bank.