Net Asset Value and update on corporate activity on Target Healthcare

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Target Healthcare (LSE: THRL), the UK listed specialist investor in modern, purpose-built care homes, announces that it has agreed the acquisition of eight care homes and 31 retirement apartments, in four separate transactions, for a total consideration of £81.3 million including transaction costs. The acquisitions, which had been identified in advance of the Group’s recent £80 million equity placing, will mean the rapid deployment of the majority of shareholders’ funds, reducing the potential for cash drag.

Details of the individual transactions are as follows:
• Completed the acquisition of a portfolio of five care homes, totalling 362 bedrooms, in Yorkshire to be let to an existing tenant of the Group;
• Exchanged contracts to acquire a further two care homes in Yorkshire to be let to an existing tenant. This transaction will complete once the second home has received CQC registration, which is expected before the year end;
• Completed the acquisition of the freehold of 31 retirement living apartments in Gloucestershire, managed by an existing Group tenant; and
• Completed the acquisition of an operational care home in Dorset which adds a new operator to the Group.

The acquisition yield on the care home transactions is representative of assets of a similar standard and location within the Group’s portfolio, and all have the benefit of long-term occupational leases with RPI-linked cap and collars.

Portfolio of five care homes
Four of the homes have a strong trading history with consistently high occupancy, delivering attractive levels of rent cover. The fifth property achieved practical completion in July 2019 and is also expected to perform strongly once it reaches operational maturity, based on the Group’s demographic assessment of the local area.
Totalling 362 bedrooms, the five modern, purpose-built care homes all have en suite facilities, although approximately 20% of the en suites do not currently have full wet-room shower provision. The Group has priced this into the transaction and, consistent with its investment criteria, intends to enter into a managed rolling programme of upgrade works across the portfolio to retro-fit the showers in conjunction with the tenant. The portfolio is leased to a subsidiary of the national operator and existing tenant of the Group, Bondcare, on 35-year leases and will be income-producing from day one on the four mature properties whilst a short rent-free period has been agreed on the recently opened care home.

Portfolio of two care homes
The properties are newly constructed, well equipped care homes which have been fitted out to an exceptional standard. One is located in the North Yorkshire town of Scarborough and opened in August 2019, and the second is located in the market town of Pudsey in West Yorkshire. Providing 172 bedrooms in total, both homes have 100% en suite wet-rooms and their locations are underpinned by supportive fundamentals thereby meeting the Group’s strict investment criteria.

Healthcare Property Consultants has acted on behalf of bespoke care home developer, Angela Swift Developments Ltd. (ASD), in arranging the sale of two newly built, luxury care homes.

The homes will be leased to a subsidiary of Burlington Care, an existing tenant which operates care homes in Yorkshire, North Lincolnshire and the North East, on 35 year leases. A rent-free period covering the early trading stage has been agreed on both properties.

The two properties are both newly constructed, well equipped, 86 bedroom care homes which have been fitted out to an exceptional standard. Both homes have 100% en-suite wetrooms, and are underpinned by supportive fundamentals, thereby meeting the Target’s strict investment criteria

One of the homes, Castle Grange, opened in August 2019 and is located in the North Yorkshire town of Scarborough. The other, Hutton Manor, is located in the market town of Pudsey, Leeds in West Yorkshire, hosted open days last week, and is scheduled to open, once CQC registration has been received. The two homes will be leased on a 35 year lease, to a subsidiary of Burlington Care, a regional operator with 24 care homes in Yorkshire, North Lincolnshire and the North East.

The principal and owner of ASD, Angela Swift, has been active in the care home sector for over 15 years. Whilst the business is now an investor and developer of first class care home property assets, Angela Swift originally established a presence in the sector as a developer and operator of care homes with Silk Healthcare Ltd. During a 12 year period, Silk Healthcare successfully developed five operational care homes.

Commenting on the transaction, Angela Swift said, “We believe our two latest developments reach a new level in luxury care home design, with each being sympathetic to its setting. We are delighted to hand over the homes to Burlington Care, and wish them the very best for the future. We have also enjoyed a good working relationship with Target, throughout what was a complex process.”

Retirement living apartments
Adjacent to an existing Target Healthcare care home in Cirencester, the 31 retirement living apartments were constructed in 2018 to the same very high standard as the care home and are housed in two blocks. Aura Care Living, the same party who operates the care home, will continue to act as management company for the apartments.

Dorset property
Built in 2017, the property comprises 80 bedrooms with 100% en suite wet-rooms. It is located in Christchurch, an area with supportive demographics and a shortage of good quality competing stock, whilst it also benefits from its adjacency to the local hospital and retirement living apartments.
The home is leased on a 30 year term to a subsidiary of Encore Care Homes. Encore, which becomes the Group’s 27th tenant, operate a number of homes in South West and South East England and is a part of the Affordable Housing and Healthcare Group.

John Flannelly, Head of Investment at Target Fund Managers, commented:
“Having completed the successful September fundraising, it is very pleasing to have deployed the proceeds so soon after, in a group of assets that meet our strict investment criteria and at yields that are consistent with previous similar acquisitions. At the same time, we are further strengthening the Group’s relationship with existing tenants whilst delivering continued portfolio diversification, a key focus for the Group.
There is continued strong investor appetite for the stable and sustainable long duration rental income available from care home real estate, and we continue to develop our pipeline of further opportunities, leveraging our deep sector experience and proprietary in-house research capabilities.”

 

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