Target Healthcare REIT sells four care home at book value

Target Healthcare REIT has completed the disposal of four UK care homes for £44.5m at a modest premium to the book value at 31 March 2024. The sales price reflects a net initial yield of 5.64%.

Proceeds from the disposal, which represented 326 beds and 4.6% of the group’s overall portfolio value, will enable a partial repayment of the group’s revolving credit facilities and reduces its unhedged interest cost. Overall, the disposal reduces net LTV by around 3.8%.

The assets were among the oldest assets in the group’s portfolio (built in 2007/8), and had a 12% lower gross internal floor space per resident than the portfolio’s weighted average. In addition, these assets represented the group’s four shortest lease terms, with an average of 13.6 years remaining.

Following the disposal, the portfolio’s weighted average unexpired lease term increases to 26.3 years from 25.8 years, and the group’s weighting to Yorkshire and the Humber reduces, an area that was previously its largest geographical exposure.

The properties were originally acquired as part of a portfolio acquisition in December 2021 and realised an annualised ungeared IRR in excess of 7% (including both acquisition and sales costs).

The sales price at book value, and the fact these are not among the best assets in the portfolio, should give confidence in the company’s NAV. The company’s share price currently trades at a 31% discount to the NAV.

Scott Steven, head of asset management at Target Fund Managers, commented: “These care homes have been a successful investment for the Group, delivering a consistent and attractive rental yield over the period of ownership, combined with the realisation of a capital uplift on disposal. We care deeply about the quality of our assets and the services they facilitate; however we are not unduly attached to holding onto the bricks and mortar where we identify opportunities to improve both the overall portfolio and the Group’s capital structure. This disposal is a clear illustration of our ability to pro-actively manage the portfolio to provide an attractive and sustainable level of income, together with the potential for growth, from our diversified portfolio of modern, purpose-built care homes.”