Last close As at 10/08/2026
GBP1.12
▲ −0.40 (−0.35%)
Market capitalisation
GBP698m
Research: Real Estate
Target Healthcare REIT generated a Q426 accounting total return of 2.5%, taking the FY26 total to 11.6%. Even more impressive, this has been generated with a relatively low level of gearing (end-Q426 net LTV of 16.1%) as the company makes progress with redeploying the proceeds of the late 2025 portfolio sale. We expect organic, inflation-indexed rental growth and accretive capital recycling to drive consistent earnings and growth, uncorrelated with, and independent of, heightened economic uncertainties.
| Year end | Net rental income (£m) | EPRA earnings (£m) | NAV/share (£) | DPS (p) | EPS (£) | Yield (%) | P/NAV (x) |
|---|---|---|---|---|---|---|---|
| 6/25 | 72.9 | 47.9 | 1.15 | 5.88 | 6.08 | 5.2 | 0.98 |
| 6/26e | 70.9 | 51.1 | 1.22 | 6.03 | 6.55 | 5.4 | 0.92 |
| 6/27e | 74.2 | 52.0 | 1.28 | 6.18 | 6.75 | 5.5 | 0.88 |
| 6/28e | 76.7 | 52.5 | 1.33 | 6.34 | 6.89 | 5.6 | 0.85 |
Q426 followed a consistent pattern of rental uplifts and asset management activity generating robust earnings and capital growth. Including DPS paid, without assuming reinvestment, the three-year accounting total return is almost 34%. We will review our forecasts in detail with the results in September, but, based on the unaudited quarterly data, NAV per share increased by 1.2% to 122.1p in Q426 and by 6.4% in FY26. FY26 DPS increased 2.5% to 6.03p, well covered by adjusted EPS of c 6.5p (FY26: 6.0p). Including two investments in Q426 (for an aggregate £28m), c £73m or 85% of the proceeds from last November’s £86m portfolio sale have been redeployed at a significant yield premium. With a strong pipeline of accretive opportunities, in excess of the remaining available capital of £75m, further investment commitments are expected in the coming months.
Target operates in a structurally supported market, with demographic trends and a need to improve the existing estate driving demand for the modern, high-quality residential facilities that the company invests in. These are appealing to residents (77% private pay as at December 2025), 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 around one-third for the sector).
Target provides essential care facilities, the demand for which is uncorrelated with the wider economy. Indexed rent uplifts and a long 26-year weighted average unexpired lease term provide a defensive, growing income stream in an increasingly uncertain environment. Share price performance has been strong and the discount to NAV has narrowed, but the FY27e yield of 5.5% remains well above the 10-year UK gilt yield of c 5.0%, and, unlike the fixed coupon on the gilt, we expect Target’s DPS will continue to grow, with the added prospect of capital growth.
Inflation-linked rental uplifts have underpinned increasing income and capital growth in every quarter since Target listed in 2013, with the exception of the final quarter of 2022. This was the period when rising interest rates led to falling capital values across the broad commercial property sector, although healthcare property values were more robust and yields stabilised more quickly. Even within the healthcare property sector, Target has delivered a very strong property-level performance, and data to December 2025 show it has been a top-quartile performer in the MSCI Annual Healthcare Property Index for more than 10 consecutive years.
The FY26 total accounting return of 11.6% reflects dividends paid of 6.0p and growth in NAV per share of 7.3p. NAV growth included c 0.5p of earnings retention but was mostly driven by property revaluation gains. We estimate that annual rent review uplifts were at average c 3.6%. Q426 saw an additional one-off performance-related rent review, in respect of a previously re-tenanted home. With valuation yields broadly stable throughout the year (end-FY26 EPRA topped up net initial yield of 6.21% vs 6.22% at end-FY25), rental growth translated into like-for-like portfolio valuation uplifts.
Since the half-year, Target has re-tenanted one asset, in Q3, and in Q4 it sold one home.
The re-tenanted asset represented 0.9% of the prevailing total rent roll, and the transfer to an existing tenant included a 12-month rent-free period in exchange for a more than 6% increase in the contractual rent and an extension of the remaining lease term by c 14 years to 35 years. Green lease clauses were also included. A capital expenditure facility of £1.6m was granted to the tenant to fund further improvements to the real estate, which, if utilised, would be rentalised at a similar investment yield.
The home sold in Q4, for which the tenant had not been paying rent, has restored rent collection to 100% (Q3: 99%). The sale price was c £3.3m, in line with book value.
The operational home acquired for c £13m (including costs) during Q426 is in a strong location in Central Scotland and is trading well, with rent cover of c 2.0x. The existing operator of the home will continue as the tenant, improving portfolio diversification by increasing the overall number of tenants to 31. The home has added c £0.8m per year to passing rent (£60.6m at end-Q426), with annual inflation-linked rental increases subject to a cap and collar.
The development site acquired in Suffolk follows the granting of planning consent for the construction of a fully electric (with no fossil fuel use) 66-bed care home with 100% en suite wet-room provision. The property will also include on-site renewable energy generation and has a targeted EPC rating of ‘A’ and BREEAM In-Use rating of ‘Excellent’. Consistent with Target’s standard approach, the home is pre-let for a 35-year term to an existing portfolio tenant of the group. The development cost is capped at £15m (including the land acquisition), providing a net initial yield of c 6.0% based on actual costs.
At end-Q426, Target had drawn debt of £200m, on which the cost is fixed at c 3.9% (including amortisation of loan fees) until at least September 2030. Adjusting for cash of £50.9m, the net loan-to-value ratio (LTV) was 16.1%. £80m of floating rate revolving credit facilities (RCF) were undrawn. The RCF facilities minimise commitment fees and provide funding flexibility as Target reinvests the proceeds of recent disposals, and the company anticipates hedging the interest rate as funds are deployed.
Including the undrawn debt and cash, and allowing for development and other commitments, around £75m of capital remains available for investment and the company has a pipeline of opportunities in excess of this. Target says that it is confident of announcing further value-accretive acquisitions in the near future, which will increase leverage towards its target of c 25%.
We have made small, immaterial adjustments to our FY26 forecasts to bring them in line with the unaudited quarterly data and will undertake a detailed review when the full year results are published in September. We expect a continuation of high-single-digit total accounting returns, underpinned by the impact of inflation-linked rental uplifts on earnings and, with property yields stable, NAV.
Target Healthcare REIT’s share price has risen by c 60% over the past three years, generating a total return, including DPS paid, of c 90%.
While the shares have re-rated, our forecast FY27 DPS of 6.18p represents a prospective yield of 5.5%, still a premium of c 50bp to the 10-year UK gilt yield of c 5.0%. Unlike the fixed coupon on the gilt, we expect Target’s DPS will continue to grow, and contracted rental income is positively correlated to inflation. With rental growth comes the added prospect of capital growth.
The discount to EPRA NTA is now c 8%, compared with the level of c 1.1x that the shares traded at before the pandemic and the rise in interest rates. We would view a further closing of the discount as particularly positive as it would open up the possibility of equity issuance to fund further accretive acquisition growth and build additional scale beyond the capital resources currently available.
In the table below we summarise the performance and valuation of Target and a selected group of other longer lease peers. Sector consolidation has reduced the REIT sector, and the peer group has narrowed over the past three years due to corporate activity. The acquisition by PHP of Assura and the acquisition of Care REIT by US-based healthcare real estate investment trust Caretrust REIT have highlighted the undervaluation of the sector.
Target shares have strongly outperformed the peer group and the broader UK property
sector over one and three years.
On a trailing basis, the company’s P/NAV is broadly in line with the peer group, and
its dividend yield is lower.
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Research: Metals & Mining
Sotkamo Silver’s Q2 results provide further evidence that its operational reset is gaining traction. Record net sales of SEK198m and EBITDA of SEK86m were supported by higher volumes and strong metal prices, despite a lower silver grade. Operating cash flow of SEK94m funded accelerated mine development and increased cash to SEK141m. With grades expected to recover in H2 and the balance sheet now able to support self-funded growth, the double-digit valuation discount to peers suggests that the market does not fully reflect the improving operating profile.