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Target Healthcare's rents strong

Target Healthcare Reit is busy building a portfolio of care homes.
October 3, 2016

Target Healthcare Reit (THRL) has certainly been busy. The real estate investment trust has put to work £57m of the £84m raised in May this year, while ensuring acquisitions meet quality requirements on pricing and returns. At the June year-end, the portfolio of care homes had risen in value from £144m a year earlier to £211m, reflecting nine acquisitions during the period. Passing rent (rent collectable at any one point) rose from £11m to £15.5m. Crucially, the weighted average unexpired lease term remained high at 28.6 years.

IC TIP: Buy at 110.5p

Earnings per share and dividend cover both took a step back, but this was because growth was lower than it could have been, had all capital resources been invested. The group employs an investment manager Target Advisers LLP (which was paid fees of £2.65m).

Sensibly, the acquisition criteria are strict, given that care homes are currently facing a number of problems. These include rising wage costs, a shortage of nurses and a squeeze on local authority finances to meet the additional cost of caring for state-funded residents. However, despite an average increase of 3.5 per cent in costs, care homes registered annual fee increases of 5.2 per cent by using private residents to "subsidise" state-funded residents. Bosses see self-funders as a vital mitigation against public sector austerity, and observe that operators favour the more wealthy southern regions.

 

TARGET HEALTHCARE REIT (THRL)
ORD PRICE:110.5pMARKET VALUE:£279m
TOUCH:110.5-111.25p12-MONTH HIGH:119pLOW: 106p
DIVIDEND YIELD:5.6%TRADING PROPERTIES:nil
PREMIUM TO r:10%NET CASH:£44.7m 
INVESTMENT PROPERTIES:£201m

Year to 30 JunNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p*)
201597.99.598.026.12
2016100.411.736.816.18
% change+3+22-15+1

Ex-div: -

Payment: *

*Dividends paid quarterly. The fourth-quarter dividend of 1.545p was paid on 26 Aug 2016