Target Healthcare REIT cuts debt, lifts dividend on care home sales

Target Healthcare REIT (LON:THRL) posted a 7.6% rise in adjusted EPRA earnings per share to 6.54 pence for the year ended June 30, 2026, supported by a portfolio of 87 care homes that generated £61.1 million in contracted annual rental income. The company reduced net loan-to-value to 16.1% from 21.8% while declaring a dividend of 6.03 pence per share, up 2.5% from the prior period. Management confirmed a 3% dividend increase for the coming year, with dividend cover improving to 109% from 103%.

Asset rotation and leverage reset

The balance sheet improvement came from selling 11 assets for £97 million at an average 11% premium, a move that added 1.6 pence per share to EPRA net tangible assets. These disposals, including nine homes sold in late October, reduced exposure to the largest tenant from 16% to 8.7%. The REIT redeployed capital by acquiring four standing assets for £45 million and committing to a £13 million forward purchase and a £15 million development project. Rent collection returned to 100% by year-end, and the group recovered £1.9 million in agreed rent arrears, a non-recurring item that contributed 0.18 pence per share to earnings.

Deployment pipeline and debt ceiling

With £75 million of committed capital available, the company is targeting net initial yields above 6% from a pipeline that exceeds current funding. Chief Executive Kenneth MacKenzie noted that the portfolio features en suite wet rooms and EPC ratings of A or B, with like-for-like contractual rent growth of 3.7% during the year. He expects leverage to rise toward 25% to 30% as investments are deployed, but stated the group would remain cautious about increasing debt substantially beyond the 30% level. MacKenzie added that the company would consider raising equity if market conditions allowed. The drawn debt had a weighted average maturity of 5.6 years after year-end extensions, with a weighted average cost of 3.89%.

Long-term demand drivers

The operational thesis rests on a shortage of modern care-home beds in the U.K., where only 36% of the roughly 470,000 existing beds have en suite wet rooms. The population aged over 85 is forecast to increase from 1.8 million in 2025 to 3.6 million by 2050. Resident occupancy at mature homes stood at about 86%, in line with NHS Capacity Tracker data for England. Average weekly fees have risen 60% cumulatively over six years, outpacing a 42% cumulative increase in RPI, while 78% to 79% of income has come from private-pay residents over the past two years. The portfolio’s weighted average unexpired lease term is 26 years across 31 tenants.