Target Healthcare REIT — Strong close to FY25

Target Healthcare REIT (LSE: THRL)

Last close As at 08/08/2025

GBP1.01

1.80 (1.82%)

Market capitalisation

GBP626m

More on this equity

Research: Real Estate

Target Healthcare REIT — Strong close to FY25

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.

Martyn King

Written by

Martyn King

Director, Financials

Elderly care image

Real estate

Q425 update

11 August 2025

Price 100.80p
Market cap £625m

Net cash/(debt) at 30 June 2025

£(202.3)m

Shares in issue

620.2m
Code THRL
Primary exchange LSE
Secondary exchange N/A
Price Performance
% 1m 3m 12m
Abs (1.6) 1.1 32.3
52-week high/low 107.0p 73.9p

Business description

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.

Next events

FY25 results

Expected September 2025

Analyst

Martyn King
+44 (0)20 3077 5700

Target Healthcare REIT is a research client of Edison Investment Research Limited

Note: EPRA earnings is shown on an adjusted basis, excluding IFRS rent smoothing adjustments and including interest earned on development funding. NAV is net tangible assets throughout this report.

Year end Net rental income (£m) EPRA earnings (£m) EPRA EPS (p) NAV/share (£) DPS (p) P/NAV (x) Yield (%)
6/24 69.6 38.0 6.1 1.11 5.71 0.91 5.7
6/25e 71.0 38.6 6.2 1.14 5.88 0.88 5.8
6/26e 72.9 39.7 6.4 1.17 6.06 0.86 6.0
6/27e 73.9 40.6 6.6 1.21 6.22 0.83 6.2

Q425 data consistent with our forecasts

Effectively all rents are inflation-linked and a 0.9% like-for-like increase in Q425 took the annual total to more than 3%. The EPRA topped-up net initial yield has been stable throughout the year such that rent growth has generated property valuation gains in each quarter. The unaudited aggregate quarterly data are broadly consistent with our FY25 forecasts, showing adjusted EPS of c 6.1p (slightly below), NAV per share of 114.8p (slightly above) and a loan to value ratio (LTV) of 21.8%. Rent collection of 97% through H225 is at a good level but down from 99% in FY24. Target has been active in re-tenanting homes from weaker to stronger tenants, made easier by their quality and attractiveness to operators, and expects rent collection to improve in the coming quarters. The company is well advanced with refinancing the borrowing facilities that mature in November and the expected increase in borrowing cost is built into our forecasts.

Sustainable earnings and social benefits

In a structurally supported sector, Target’s investment case is differentiated by its unwavering focus on asset quality. It invests in modern, purpose-built properties that are appealing to residents (two-thirds private pay), support operators in providing better, more efficient and more effective care, and provide sustainable, long-term investment income. 100% of its homes are EPC rated A or B and compliant with the minimum energy efficiency standards anticipated to apply from 2030. All of its rooms have full en-suite wet room facilities (compared with little more than 30% for the sector). Target’s 2024 Global Real Estate Sustainability Benchmark sustainability score was 71 versus a peer average of 65, placing it second among peers.

Attractive yield with positive growth outlook

The shares are up c 20% ytd, but there is plenty of scope for this to continue. The FY25 DPS of 5.884p (+3% vs FY24) was well covered and represents a yield of 5.8%. In addition to continuing DPS uplifts, we expect NAV to increase, driven by rent indexation, with a potential additional benefit from any property yield tightening. Meanwhile, the shares continue to trade at a c 12% discount to NAV.

Additional details from the quarterly update

Earnings and capital growth

Revaluation movements were positive in each of the quarters, driven by rental growth and a stable EPRA topped-up net initial yield (6.22% at end Q425). FY25 DPS of 5.884 was c 1.03x covered by adjusted EPS. The revenue reserve movement in Exhibit 1 is equivalent to EPRA earnings, adjusted down to exclude non-cash IFRS smoothing adjustments to rental income. The company’s adjusted EPRA ‘cash’ earnings also include interest earned in respect of the funding advanced for development properties and gives a better indication of dividend-paying capacity. In H125, adjusted earnings of £19.4m included c £0.5m of development interest, and we expect a further, smaller contribution in H225 as the last active development project nears completion.

Active asset management

Target continues to actively manage its assets and tenancies, in particular in relation to a handful of (the 93) homes where the operators are, or have been, facing operational or financial challenges, in some cases negatively affecting rent collection.

With one tenant, the company has successfully negotiated the sale of one home and the re-tenanting of two others, with minimal disruption to the homes’ residents while also delivering attractive financial returns. The home sold was for a consideration of £9.6m after costs, a premium of 8% to the end-March valuation.

Of the two homes where re-tenanting has been completed or agreed, one has transferred to an existing tenant of the group. As part of the transaction, Target received a surrender premium from the outgoing tenant in excess of costs and incentives granted to the incoming tenant. The contracted rent remained unchanged and the lease term was extended by a further 20 years. Contracts have been exchanged for the re-tenanting of the other home to a new tenant to the group. A further surrender premium will be receivable from the incumbent tenant on completion, expected in the next three to six months following the tenant’s conclusion of certain capital works. Again, there will be no changes to the significant lease terms arising from this re-tenanting, other than the extension of the lease term by a further 20 years.

Since end Q425, an additional asset has been re-tenanted, where the incumbent tenant had not been paying rent, representing 1.4% of the rent roll. Target says there was strong interest in the home from a number of operators such that it has been re-tenanted at a higher rent, with no lease incentive, and is expected to generate an immediate valuation uplift of approximately £0.3m, with the potential for further performance-linked uplifts in the future.

Discussions regarding the re-tenanting of three further properties are underway. These are leased to a single
tenant representing 3.2% of the rent roll, where the rent was not paid in full for the quarter. A provision for unpaid rent was taken in Q425 and Target anticipates that rent collection will resume in the current quarter.

Debt refinancing well advanced

Target has a strong and liquid balance sheet with undrawn borrowings of £78m and total available capital of £94m, net of capital commitments. The LTV is a low 21.8% (we had forecast 22.9%). Total borrowing facilities of £320m comprise £150m of fully drawn, long-term, fixed-rate debt.

At end Q425, Target had committed debt facilities of £320m, of which £242m was drawn. Of the drawn debt, £150m is long term (first maturity in 2032) at a fixed cost of 3.3%. There are two shorter-term, floating-rate facilities (£170m in aggregate) from which £82m was drawn at end Q425, with the costs mostly (£80m) hedged until maturity in November.

In aggregate, the blended average cost of all drawn debt, including the amortisation of loan arrangement costs, was 3.84% at end Q425.

In relation to the soon-to-mature, shorter-dated debt facilities, Target has obtained credit-approved refinancing terms from each of the incumbent lenders. Target says it is pleased with the appetite shown and is evaluating the various proposals. Our forecasts include an assumption that the cost of the refinanced debt increases to 5.5%.

Driven mostly by the long-term debt and highlighting its attractiveness, the fair value of the debt significantly differs from the nominal value carried on the balance sheet. At the end of H125, the nominal value of debt was £248m while the fair value was £216m, none of which is reflected in NAV.

General disclaimer and copyright

This report has been commissioned by Target Healthcare REIT and prepared and issued by Edison, in consideration of a fee payable by Target Healthcare REIT. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright 2025 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or sol icitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

More on Target Healthcare REIT

View All

Latest from the Real Estate sector

View All Real Estate content

Research: Energy & Resources

HELLENiQ ENERGY — Operationally excellent, offset by crude prices

HELLENiQ ENERGY delivered a resilient Q225 performance despite lower oil prices and the planned maintenance at the Elefsina refinery. Group sales fell 25.7% y-o-y to €2,433m, with reported EBITDA down 38.5% to €112m and adjusted EBITDA 4.7% lower at €221m. The relatively modest decline in adjusted EBITDA reflected higher output from the Aspropyrgos and Thessaloniki plants, stronger realised refining margins, improved domestic demand and a record international performance, offsetting the impact of the turnaround and a weaker petrochemicals performance. Adjusted net income was broadly flat at €72m (-1.4% y-o-y), while reported net income turned negative due to a significant decline in crude prices.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free