Asset sales hit valuations at Target Healthcare

Care home investor Target Healthcare has reported declines in rental income and its portfolio value as result of the sale of four properties. The group saw its valuation fall by 1.4% to £855.7m over the three months ended 31 March, led by the disposal of four properties in Northern Ireland. Contractual rental income fell by 2% during the period, due largely to those sales. Excluding the disposals, Target said rental income had increased by 0.8%. The firm, which delivered a NAV total return of 2.1% for the quarter, said its portfolio had one of the longest unexpired lease terms in the listed real estate sector at 26.8 years and that rent collection continued to improve, increasing from 94% in June last year to 97% at the end of Q1 2023. Kenneth MacKenzie, chief executive at Target Fund Managers, said: “The long-term stability of prime UK care homes as an investment class continues to be demonstrated. Unlike many other parts of the sector, not only are valuation levels being underpinned by both occupier and investor demand, but we are also seeing rental quality backed by improving profitability trends. “Rent cover, a key profitability metric, has improved to 1.5x for the most recent quarter we have data for. This compares well to pre-pandemic norms despite being achieved at lower levels of underlying resident occupancy, currently 84%. We anticipate further tenant profitability growth as occupancy closes in on the 90% generally experienced prior to the pandemic, which will further support valuations.” He added: “We retain a strong conviction that improving portfolio performance, strong demographic tailwinds and our embedded inflation-linked rental growth will drive long-term sustainable returns.” To send feedback, e-mail samantha.mcclary@eg.co.uk or tweet @samanthamcclary or @EGPropertyNews