Target Healthcare REIT (LON:THRL) executives told investors that the group delivered what management described as its highest half-year returns since launching in 2013, citing a combination of inflation-linked rental growth, active asset management, and capital recycling through disposals and reinvestment.
Portfolio activity and long-term positioning
In prepared remarks, management framed the period’s performance as the result of a long-term strategy built over more than a decade, with demand supported by demographic trends and needs-based care. The company highlighted portfolio scale and tenant diversification, describing a portfolio of 86 homes generating just under £60 million of rental income (after disposals) and valued at around £900 million, with 32 tenants.
- 100% of beds with en suite wet rooms
- 100% EPC ratings of A or B
- 100% of income linked to inflation, with management referencing 26 years of “inflating income” ahead
During the six-month period, the group completed 10 disposals, three acquisitions of “modern fit for purpose” care homes, and one forward commitment to acquire a newly built home expected to complete in the next few months. Management said one development the REIT had been funding reached practical completion during the period. Total transaction and development activity was described as about £150 million.
Financial performance driven by rental growth and normalized costs
CFO Alastair Murray said the results marked a sharp improvement from issues highlighted at the prior full-year results, when one-off operating expense increases and a credit loss allowance were tied to one home administration and another operator not paying rent in full. Murray said the group had expected a quick turnaround and pointed to the period as evidence that portfolio management actions “had the desired effect.”
Key financial highlights discussed on the call included:
- Like-for-like rental income up 1.8%, driven predominantly by inflation-linked contractual rent growth
- Rental income up 2% overall for the period
- EPRA earnings per share up 8.5% to £0.034, including £0.0018 from non-recurring recovery of historic arrears
- Dividend per share of £0.0302, up 2.5% year over year, and described as comfortably covered
- EPRA net tangible assets (NTA) up 4% to £1.194
- Total accounting return of 6.8% for the six months
Murray said the company had no voids during the period. He noted that while the EPRA EPS increase included a one-off benefit from arrears recovery, the underlying portfolio performance remained “robust” during a time when the company was focused on redeploying proceeds from the sale of 10 care homes.
On rent growth, management said there were 38 rent increases during the period at an average of 3.8%. In an annualized contracted rent bridge, the company attributed £1.1 million of additional rent to contractual rent reviews over the six months. The company also cited the opening of a development home and incremental rent from three acquisitions completed toward the end of November.
At December 2025, annualized contracted rent was cited as £59.5 million. Murray said disposals reduced annualized contracted rent by £5.4 million, while reinvestment of around half the proceeds into three standing assets added £2 million of rent. He added that the forward-commitment asset is scheduled to complete in the summer and would add another £800,000 of rent once opened, though it was not included in the bridge.
Asset management: arrears recovery, re-tenantings, and rent collection
Management pointed to several asset management milestones, including the recovery of £1.9 million of rent arrears during the period. Murray clarified that the financial statements reflected a write-back of the credit loss provision, while the cash recovered was £1.9 million.
Executives also said the REIT completed five re-tenantings with no tenant incentives, and in one case received a £1.4 million surrender premium when a tenant gave up a home. Management said it expected to return to 100% rent collection by the end of the fiscal year.
When asked during Q&A whether tenant issues should still be anticipated from time to time, management said the portfolio is operational in nature and issues can arise, but added that the group is pleased with progress toward full rent collection and said the asset management team has been working to address issues in the portfolio.
Balance sheet, refinancing, and leverage targets
Murray said financing costs declined in the period, as would be expected given disposal proceeds. He described a September refinance in which the company structured the split between term debt and a revolving credit facility to accommodate disposal proceeds, minimize drawn facilities, and maintain flexibility for redeployment.
On leverage, the company reported debt levels down by almost £40 million since year-end, with loan-to-value at around 15% compared with nearly 22% at the June year-end. Management said this is below its long-term target and expects LTV to rise toward 25% as the company acquires standing assets or forward-funds new homes.
On the debt book, management cited:
- Phoenix debt fixed to maturity at 3.2%
- £50 million of bank term debt fixed through swaps at 5.3%
- £3.5 million drawn on the revolving credit facility, with an intention to cap core drawings under the RCF in advance of significant acquisitions
On valuation, management said the portfolio saw a like-for-like valuation increase of 3.1%, driven primarily by inflation-linked rent reviews. However, after accounting for the disposal of 10 homes (reducing the portfolio by £95 million) and the acquisition of three standing assets (adding £31 million), overall portfolio valuation was down 3.8%, with management expecting growth as capital is redeployed.
Operator performance, pipeline, and sector themes
Head of Investor Relations James MacKenzie said operators have been able to raise fees in line with costs. Over the last 5.5 years, he said average weekly fees in the homes rose cumulatively by 54% versus cumulative RPI of 44%. MacKenzie also reported average rent cover over the last 12 months at 1.9x, which he described as the highest since IPO, supported by fee increases and stable resident occupancy of around 85% for mature homes (three or more years trading). He reiterated that the portfolio has remained fully let since IPO, distinguishing between lease occupancy and resident occupancy.
MacKenzie also highlighted measures of property quality and operator performance, including 48 square meters per resident on average, and an average carehome.co.uk rating of 9.5 out of 10 versus 9.2 for the market. He said tenant diversification improved since 30 June, with exposure to the previous largest tenant falling from 16% to 8.7%, and the top three tenants’ contribution to income decreasing from 30% to 25%.
On reinvestment, MacKenzie said the pipeline has grown since the full-year presentation and is “significantly in excess of available capital.” He described opportunities as accretive and cited a net initial yield in excess of 6% for the pipeline, spanning both existing U.K. care homes and forward-funding opportunities, with a mix of existing and new operators and diverse geographies.
In Q&A, management said it has “significant headroom” with current facilities and that this is the initial focus for funding acquisitions, while acknowledging that disposals occur from time to time. When asked about capital recycling, management said it has been somewhat opportunistic, with a general approach of buying modern, purpose-built homes while selling older assets to keep the portfolio “fresh and young,” emphasizing returns for shareholders rather than scale alone.
Executives also addressed cost pressures, saying energy costs for a care home are typically 2% to 3% of revenue and, even if they doubled, would move to roughly 3% to 4.5%. On re-tenantings, management said new leases had the same terms and rent review structure, with some leases extended back out to 35 years, and new rents either at the same level as before or, in one case, about £25,000 higher.
On valuation yields, management said a stated yield range of 5.6% to 8.9% reflected differences in “covenant strength and operational profitability at the home.”
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.
