Target Healthcare confirms third dividend as it snaps up care homes

Real estate investment trust Target Healthcare announced on Wednesday that its unaudited EPRA net asset value per share as at 31 March was 101.5p, and the net asset value total return for the quarter was 1.3%.

The London-listed company said that, as at 31 March, the group owned 44 care homes with a market value of £274.6m.

It said the portfolio had an EPRA net initial yield of 6.75% - based on contractual net income - and an annualised rent roll of £19.8m with a weighted average unexpired lease term of 29.6 years.

Portfolio passing rent increased by 8.7% during the quarter, 8.2% from additions and asset management activity, plus 0.5% from rent reviews.

The portfolio value increased 8.5% over the quarter, with the like-for-like value up 0.5%.

Target said the increase reflected its acquisitions in the period, value generated from ongoing embedded rental uplifts, and also an element of yield compression across individual assets.

The group's total borrowings were £30.0m as at 31 March, giving a loan-to-value ratio of 10.9% - calculated as total gross debt as a proportion of gross property value.

As the group expected to invest the vast majority of its current cash balance in new care homes, cash had been excluded from the calculation.

The group's interest rate swap arrangements provided an all-in weighted average interest cost on the £30.0m of currently drawn debt of 2.36% for the period to 24 June 2019 and 2.25% thereafter until 1 September 2021.

Target held total agreed facilities of £50m, consisting of a £30m term loan and a £20m revolving credit facility.

The board said the current debt availability allowed the group to “flexibly manage” its capital structure as it provided £20m in short-term available capital to fund the completion of transactions.

Over the medium term the group remained committed to maintaining a loan-to-value ratio of approximately 20%, as described in its Investment Policy.

To that end, the board said it would look to increase its current debt levels and was currently in discussions with a new debt provider.

Commercial terms had been agreed and documentation and diligence was currently being performed by the group with its legal advisors.

The facility was expected to be available to fund near-term investment opportunities upon the existing facilities being fully utilised, the board reported.

In the three months to 31 March, Target said its investment and asset management activities comprised of the acquisition of two purpose-built care homes near Wimborne, Dorset for an undisclosed price.

The board said the two homes were adjacent to each other and comprised a total of 70 bedrooms.

On acquisition, the combined homes were let to Dorset Healthcare, which is part of the Care Concern Group, an existing tenant of Target.

The lease was for 35 years with RPI-linked increases subject to a cap and collar.

Target said itself and Care Concern intended to undertake renovation works to the combined homes, with a view to enlarging some bedrooms, providing additional lounge space and generally bringing the properties into line with others in the group's portfolio.

That would be carried out over a period of time to minimise disruption to the residents of the home.

In line with previous announcements in 2016 when contracts were exchanged, the group confirmed that it had now completed the acquisitions of two purpose-built care homes located in Kirby Cross near Frinton-on-Sea, Essex and Sutton-in-Ashfield, Nottinghamshire for a total consideration of approximately £14.8m, including acquisition costs.

Care Concern leased Beaumont Manor near Frinton-on-Sea and Oakdale Care Group was the tenant at Kingfisher Court in Sutton-in-Ashfield, becoming the group's 16th tenant.

Since 31 March, Target said it acquired a care home in Dover, Kent for a total consideration of £6.1m including costs.

The home had 79 large bedrooms over four floors and benefitted from large lounges as well as a hairdressing salon and dedicated cinema room.

Upon acquisition, the home was leased back to Athena Healthcare who developed the property, and was subject to a 35-year lease with RPI-linked uplifts with a cap and collar.

Since Target's £84m capital raise in May 2016, the group said it completed investments with an aggregate value of around £90m.

The investment manager was now analysing and performing diligence on a number of near-term investment opportunities and there continued to be a pipeline of assets where the timetable for potential completion remained subject to additional due diligence and vendor negotiations, the board explained.

Capital to fund near-term investment opportunities would be provided by the revolving credit facility of the group's debt facility as well as the new additional debt facility under consideration, in order to ensure that the company met its medium-term gearing targets.

Target paid its second interim dividend for the year to 30 June 2017, in respect of the period from 1 October 2016 to 31 December 2016, of 1.570p per share on 24 February.

That reportedly reflected an annualised payment of 6.28p per share and a dividend yield of 5.5% based on the 25 April 2017 closing share price of 113.88p.

The group's unaudited EPRA earnings per share for the quarter were 1.31p, excluding the effects of performance fee accruals.

On Wednesday, the board declared its third interim dividend payment for the year ending 30 June, for the period from 1 January to 31 March, of 1.570p.

“We have had a good start to 2017 with positive momentum across a number of fronts,” said Kenneth MacKenzie, managing partner of Target Advisors.

“The portfolio continues to perform well. We have a diverse tenant base with long duration, upward only leases, which continue to contribute to portfolio passing rent increases alongside our acquisition activity.

“Over the quarter we invested the remaining proceeds of last year's equity raise and continue to see a number of new opportunities in the market.”

MacKenzie said if those progressed through the company’s “extensive” due diligence procedures, they would in the short-term be funded via additional gearing in order to ensure the group was fully invested with borrowings in-line with its stated target.

“The team is focused on delivering on our promises to shareholders and, as our portfolio matures following recent acquisitions, we are encouraged by the group's prospects.”