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Target Healthcare manager gets notice extension

Target Healthcare manager gets notice extension

Target Healthcare REIT has issued another update, this one covers the quarter ended 31 March 2020:

  • More cases of COVID-19 have been reported in its care homes but this still accounts for less than 5% of residents
  • Target believes that its tenants’ cash flows will remain supported by demand for beds
  • The EPRA NAV has slipped very slightly – from 108.1p to 108p despite a 0.6% increase in the like for like value of the portfolio (based on an initial yield of 6.05%)
  • Cash reserves of £29m and undrawn facilities of £38m – LTV of 18.5%
  • Rent roll of £38.9m from 71 operational properties
  • Third interim dividend of 1.67p – as planned
  • Two care homes added to the portfolio – both in Yorkshire – one is in the North Yorkshire town of Scarborough and opened in August 2019, and the second is located in the market town of Pudsey in West Yorkshire. The two provide 172 bedrooms in total.
  • They have £12m committed to the development of two care homes.

Any increase in the number of coronavirus cases in the care homes is concerning and we hope that the spread is minimised and those that have been affected recover. On other measures, it almost looks like business as usual for Target Healthcare REIT. However, the statement also includes the following statement:

After a period of discussion, the Board has agreed an extension to the notice period provisions of the Company’s investment management agreement with the Investment Manager such that, going forward, the minimum notice period will be extended from one year to two years provided that the earliest that notice could be served will be one year after the commencement of these new arrangements. This gives an initial term certain of three years. It is believed that these new arrangements will be of benefit to the Company and its shareholders as they will provide certainty of the Investment Manager’s continuing service. There are no changes being made to the fee provisions in the investment management agreement.”

We cannot fathom why the board thought this was necessary. It goes against the trend for the industry. Presently, it is hard to see why the board would want to remove a manager that looks like it is doing a great job. But if that situation deteriorates to the extent that the board feels it needs to replace the manager, the company is now faced with an enormous bill to buy the manager out of the contract or a long wait. Shareholders are not being asked to approve this but, in our view, they should be asking the board for an explanation.

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