Target Healthcare REIT H2 Earnings Call Highlights

Key Points

• Strong financial performance: Adjusted EPRA earnings rose to £40.6 million, while EPRA earnings per share increased 7.6% to 6.54 pence. EPRA net tangible assets reached 122.1 pence per share, and dividend cover improved to 109%.
• Portfolio optimization and lower leverage: The REIT sold 11 care homes for £97 million at an average 11% premium, acquired or committed to several new assets, and reduced net loan-to-value to 16.1% from 21.8%. Rent collection returned to 100% by year-end.
• Growth plans remain active: Target Healthcare has £75 million of committed capital and a pipeline targeting net initial yields above 6%, though management expects leverage to rise toward 25%-30% as investments are deployed. The company also announced a 3% dividend increase for the coming year.

Target Healthcare REIT LON: THRL reported higher earnings, net asset value and dividend cover for the year ended June 30, 2026, as inflation-linked rent increases, asset-management activity and lower borrowing levels supported results.

Chief Executive Kenneth MacKenzie said the company delivered a total accounting return of 12% for the year. Since its 2013 IPO, the care-home investor has generated an annualized total accounting return of 7.8%, he said.

Adjusted EPRA earnings rose to £40.6 million from £37.7 million in the prior year, while adjusted EPRA earnings per share increased 7.6% to 6.54 pence. The company declared a dividend of 6.03 pence per share, up 2.5%, with dividend cover improving to 109% from 103%.

EPRA net tangible assets increased to £757 million, or 122.1 pence per share, compared with 114.8 pence per share a year earlier. The portfolio’s value stood at £924.1 million at year-end, representing a 4.9% like-for-like valuation increase. Net loan-to-value fell to 16.1% from 21.8% at June 2025.

Portfolio activity and rent collection

Managing Director James MacKenzie said the portfolio comprised 87 care homes, with contracted annual rental income of £61.1 million and an EPRA topped-up net initial yield of 6.21%. The homes are leased to 31 tenants, with a weighted average unexpired lease term of 26 years.

The group said all portfolio properties have en suite wet rooms, EPC ratings of A or B, and annual inflation-linked rent reviews. Like-for-like contractual rent growth was 3.7% during the year.

Target Healthcare REIT sold 11 assets for £97 million during the year, at an average 11% premium and an implied net initial yield of 5.5%. The disposals included nine homes sold in late October and reduced the group’s exposure to its largest tenant. The transactions added 1.6 pence per share to EPRA NTA, according to the company.

The REIT also acquired four standing assets for £45 million, agreed a £13 million forward commitment for a home expected to complete shortly after year-end, and committed to a forward-funded development expected to total £15 million over its construction period.

Asset-management work included recovering £1.9 million of agreed rent arrears, contributing a non-recurring 0.18 pence per share to adjusted EPRA earnings. The group re-let six assets at unchanged or improved rental levels, with 100% tenancy continuity, and received a £1.4 million lease-surrender premium from one retenanting. Rent collection had returned to 100% by year-end.

Operator performance and portfolio quality

For mature homes that have traded for more than three years, average rent cover remained at 1.9 times over the trailing 12 months. Resident occupancy at mature homes was about 86%, broadly in line with NHS Capacity Tracker data for England, which showed occupancy of 86.8% based on total market beds.

The company said 78% to 79% of its income has come from private-pay residents over the past two years. Average weekly fees have risen 60% cumulatively over six years, compared with a 42% cumulative increase in RPI, while staff costs as a share of fees remained stable and agency costs declined further during the year.

MacKenzie said the portfolio’s exposure to its former largest tenant had fallen to 8.7% from 16% a year earlier. The group said its homes averaged 49 square meters per resident and had an average carehome.co.uk rating of 9.5 out of 10, compared with 9.2 for the broader market.

Capital and growth plans

The company said it has £75 million of committed capital available for new investment and a pipeline that exceeds available capital. Opportunities include standing care homes, forward fundings, forward commitments and selected development projects, with targeted net initial yields above 6%.

Target Healthcare REIT said it expects its loan-to-value ratio to rise toward 25% to 30% as it deploys capital, while Chief Executive MacKenzie said the group would remain cautious about increasing debt substantially beyond the 30% level. He added that the company would consider raising equity if market conditions allowed.

The group’s drawn debt had a weighted average maturity of 5.1 years at June 30 and a weighted average cost of 3.89%. Following the year-end extension of two bank facilities, the weighted average debt maturity increased to 5.6 years, management said.

Management cited a shortage of modern care-home beds as a long-term growth driver. The company said only 36% of the roughly 470,000 U.K. care-home beds have en suite wet rooms, while the number of people aged over 85 is forecast to increase from 1.8 million in 2025 to 3.6 million by 2050.

MacKenzie said the company intends to pursue accretive portfolio growth while maintaining its focus on modern purpose-built homes, sustainable rents and tenant diversification. He also said the group had announced a 3% dividend increase for the coming year.

About Target Healthcare REIT (LON:THRL)

Our investment objective is to provide shareholders with an attractive level of income together with the potential for capital and income growth, from a portfolio of UK care homes, diversified by tenant, geography, and resident payment profile. We only invest in modern, purpose-built homes.

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