Target Healthcare REIT (THRL) has delivered its best annual financial performance since launching in 2013, helped by inflation-linked rental growth, rising property values and profitable asset sales.
The specialist care home investor generated a total accounting return of 12.0% in the year to 30 June 2026, up from 9.3% last year. EPRA net tangible assets (NTA) per share increased by 6.4% from 114.8p to 122.1p, while adjusted EPRA earnings per share rose 7.6% to 6.54p.
The annual dividend increased by 2.5% to 6.032p per share and was 108% covered by adjusted EPRA earnings. THRL is now proposing a further 3% increase for the current financial year to 6.212p. The board said the increase was deliberately below the portfolio’s 3.7% rental growth to build additional headroom in dividend cover.
A key driver was the performance of THRL’s £924.1m property portfolio. Like-for-like valuations increased by 4.9%, with the majority of the uplift coming from inflation-linked rental growth rather than changes in property yields. Like-for-like rents increased by 3.7%, while valuation yields were broadly stable.
The portfolio’s capital growth comprised 3.2% from inflation-linked rent reviews, 1.3% from disposals and other asset management initiatives, 0.3% from additional one-off rent increases and just 0.1% from yield tightening.
Capital recycling also added to returns. THRL sold 11 care homes for £97m at an 11% premium to their carrying value and an implied 5.5% net initial yield. It has redeployed £73m into four standing assets and two development-related investments at a yield of more than 6%, improving the income profile as well as portfolio diversification. The disposals added 1.6p per share to NTA.
Asset management helped restore rent collection to 100% by the year end. Six properties were re-tenanted during the period, while the recovery of £1.9m of historic rent arrears provided a non-recurring 0.18p boost to adjusted earnings per share. Rent cover at mature homes remained strong at 1.9 times, with occupancy around 85%.
THRL ended the year conservatively geared, with an LTV of 16.1%, down from 21.8%. Its £200m of drawn debt has an average cost of 3.89% and is fully hedged against interest rate increases until at least September 2030.
There is scope for gearing to rise as THRL redeploys capital. It has around £103m available for investment, of which £26m has already been committed at a weighted net initial yield of 5.9%. The wider acquisition pipeline has an indicative blended yield of more than 6%.
In a separate move aimed at increasing alignment with shareholders, THRL’s investment manager and senior management team have agreed to invest the equivalent of 25% of one year’s management fee in the company’s shares over a period of up to three years.
Our view
QuotedData’s Richard Williams said: “An impressive year for THRL, with the 12.0% NAV total return its best since IPO. Inflation-linked rent growth and stable yields supported property values, but active capital recycling also made an important contribution: assets were sold at an 11% premium to carrying value and much of the proceeds reinvested at higher yields, while reducing exposure to its largest tenant. Earnings growth of 7.6% strengthens dividend cover and gives THRL a good base from which to pursue further growth.”
