COVID care home update from Target – Target Healthcare REIT owns 73 modern, purpose-built care homes. It has provided an update on its business and portfolio in the light of the evolving COVID-19 pandemic. This is ahead of a planned announcement on its NAV and dividend scheduled for 21 April.
“The Group notes the recent commentary on the care home sector and increasing reference to the magnificent work of all social care staff in these trying times. The sector plays a crucial role in supporting the NHS ordinarily, and is assisting the NHS’s efforts to increase critical care capacity by making much of its own limited headroom available to those who can be moved from hospitals. Care home operators are clearly therefore faced with the difficult balance of exercising this civic duty whilst caring effectively for existing residents during the challenging conditions the pandemic brings. We are encouraged to see the sector’s importance recognised with pledges for testing for residents and staff where required, which is especially long overdue for the latter group who are taking personal risk to care for residents, and for provision of personal protective equipment (“PPE”).
Longer-term, the fundamental demand drivers for elderly care have not changed, nor have the advantages of the Group’s ethos and strategy of owning modern, purpose-built care homes which by design segregate residents into groups, promote enhanced infection control, and allow effective isolation, as needed, of residents in their own rooms through the provision of private en suite wet-rooms.”
Confirmed or suspected cases affecting 5% of patients
Within its portfolio, Target says it has talked to the 27 care home operators that run its homes. It says:
- All their staff members are currently working with expertise, compassion and diligence with many individuals making personal sacrifices to care for residents;
- Avoidance of infection has always been a primary concern, and therefore protocols for infection control within care homes were implemented by our tenants well ahead of the COVID-19 guidelines for the general population, using existing PPE stocks;
- Maintenance of staffing levels by our tenants is at the forefront of their management teams’ minds as staff members who show signs of infection are required to stay at home and self-isolate for up to two weeks. Although this increases staff absences, these rates are currently manageable;
- Confirmed or suspected cases of COVID-19 are currently affecting residents occupying less than 5% of the portfolio’s beds. Whilst this number is likely to rise as the pandemic progresses, we trust that the prevention measures in place will help to minimise the impact on residents; and
- Management teams across our portfolio are having to carefully consider their duty to effectively care for existing residents, their efforts to assist the NHS in accepting new residents, and the cost impact of additional staffing levels to (a) cover absence and (b) increase staffing for new residents who need to be isolated for a given period on entering a care home.
Financial impact
Target thinks that demand for beds in the homes will remain strong but the care operators will face short-term increases in their labour and consumables costs. The portfolio’s aggregate rent cover on mature homes was 1.6x as at 31 December 2019.
The group received its March quarter rental payments in line with its typical collection pattern, although recognising the uncertainties currently being faced it has agreed for a limited number of tenants to stage payments in advance through the upcoming quarter.
The group has a net loan-to-value of 18.3%, GBP30 million of cash reserves and GBP38 million of undrawn revolving credit facilities. Portfolio capex commitments, which are principally in relation to the development of two new care homes, construction of which has so far continued during the quarter but for which completion may ultimately be delayed by the current pandemic, total GBP12 million.
Valuation
At 31 March 2020 the portfolio was valued at GBP613.4 million, reflecting a like-for-like increase of 0.6% over the quarter, of course being subject to a market standard material uncertainty clause. This, along with any other relevant changes over the period, will be reflected in the net asset value of the Group to be published in due course as described above.
THRL : COVID care home update from Target