Target Healthcare NAV rises modestly in first quarter

(Sharecast News) - Target Healthcare REIT reported a modest increase in net asset value for the first quarter on Thursday, marking its ninth consecutive quarter of growth, supported by inflation-linked rental uplifts and strong portfolio fundamentals in the UK care home sector. The FTSE 250 real estate investment trust said EPRA net tangible assets rose 0.3% to 113p per share as at 31 March, reflecting a like-for-like valuation uplift driven by annual rent reviews.

Its EPRA topped-up net initial yield edged higher to 6.23%, while the portfolio valuation increased to £930m, up 0.6% from December.

Like-for-like valuation growth was 0.3%, with rental growth partially offset by a slight yield widening.

Adjusted EPRA earnings per share of 1.472p fully covered the quarterly dividend of 1.471p declared for the period, and the net asset value total return was 1.6%.

Rent collection for the quarter was 97%, with the company reiterating the portfolio's strength, citing a long weighted average unexpired lease term of 25.8 years and ongoing support from demographic demand drivers.

Contracted rent increased by 1.1% during the quarter, with 0.8% driven by inflation-linked rent reviews and 0.3% from the rentalisation of capital expenditure.

The 94-asset portfolio, spread across 34 tenants, was still fully compliant with anticipated 2030 energy efficiency standards, with 100% of properties rated EPC A or B.

Financially, the group maintained a conservative balance sheet, with net loan-to-value at 22.9% and a weighted average debt maturity of 4.5 years.

Interest costs were 92% hedged, with a weighted average cost of 3.94%.

The group said it held £84m of capital headroom at quarter-end, including £71m in undrawn revolving credit facilities.

Target said it was still benefiting from structural undersupply in the UK care home market, with mature home rent cover remaining strong at 1.9x.

The company said it was well-positioned to deploy capital selectively, supported by inflation-linked income and long-dated leases.

"The group's portfolio continues to outperform the MSCI UK Annual Healthcare Property Index, with a 2024 calendar year total return at the property level of 10.8% relative to the Index's 5.4%," said Target Fund Managers chief executive officer Kenneth MacKenzie.

"Longer term performance has been equally strong, with the group's portfolio ranking second out of the 12 index participants over the last 10 years, reflecting the attractive long-term returns and low volatility available from disciplined investment by a highly experienced team in this high-grade care home real estate asset class.

"Index-linked underlying rental growth continues to drive EPRA net tangible assets growth despite the quarter's valuation reflecting a slight widening in the net initial yield, and fully incorporating recent market transactional evidence."

MacKenzie said the company's management team was focussed on the portfolio, particularly opportunities to enhance revenues, progress potential tenancy changes and tighten-up the overall portfolio quality where appropriate, while remaining cognisant of the debt facilities due for renewal.

"Gordon Bland, the manager's finance director, has decided to leave the business next month after 12 years.

"I'd like to thank him for his excellent work during that period, and we wish him well for the future.

"An interim finance director is in place as we transition to a permanent replacement, with a full search process being well advanced."

At 1022 BST, shares in Target Healthcare REIT were up 0.54% at 102.15p.

Reporting by Josh White for Sharecast.com.