LONDON (ShareCast) - (Sharecast News) - Care homes investor Target Healthcare said on Monday that 96% of the rent payable for its most recent quarter had been collected, after allowing for monthly-in-advance agreements for "a limited proportion" of the 71 operational locations in its portfolio.
The London-listed firm also announced the acquisition of a newly-developed care home in Bicester, Oxfordshire, for a total consideration of £15m, including costs.

It noted that, excluded from its recent rent collection analysis were two of the portfolio's immature care homes, on which agreements were in place prior to the pandemic to defer rental payments.

The 4% of rent currently outstanding related to care homes where active asset management initiatives were in place, which the board said provided strong visibility of value recovery in the near-term.

"As a result of the quarter's strong rental collection, the company reaffirms its intention to pay its fourth-quarter interim dividend, for the period 1 April to 30 June 2020, in-line with expectations and as per the normal timetable, with [an] announcement due in early August," the board said in its statement.

Target said it had kept in close contact with its tenants to provide support, share best practice, and to continue its monitoring programme as an "informed and engaged" landlord.

As at 2 July, five of the portfolio's 71 operational care homes were reporting confirmed or suspected Covid-19 cases, representing 15 of 4,925 beds, or 0.3%, which the company said was down from a peak of 162, or 3.2%, during the third week of April.

Tenants were said to be reporting an improvement in new resident enquiries in recent weeks, while exploring ways to facilitate safe visiting practices in line with government guidance.

Looking at its £15m acquisition in Oxfordshire, the board described it as a "high quality" purpose-built 66-bed asset, let to Ideal Carehomes - Target's largest existing tenant, with leases on 12 assets including the new one.

It said Ideal had agreed to a 35-year, fully repairing and insuring occupational lease, including annual, upwards-only RPI-linked increases, subject to a cap and collar.

The acquisition yield on the transaction was representative of assets of a similar standard and location within the group's portfolio, the board claimed, operated by a well-capitalised tenant.

Having recently reached practical completion, the property had finished to "a high standard" by specialist elderly care home developer LNT Care Developments, with the inclusion of full en suite wet-room facilities, large public spaces and a high-quality fit-out.

The investment proposition for the property was primarily targeting the self-funded, lower-acuity residential care market, supported by the positive underlying demographics and strong wealth characteristics of the local area.

Following the transaction, which was funded from existing cash resources, Target said its financial position remained "robust", evidenced by a strong balance sheet with a low net loan-to-value ratio of 20.6%, and remaining uncommitted capital of around £26m.

Additionally, Target said it had reached practical completion on the development of an 80-bed care home in Burscough, Lancashire.

The home was completed under a forward-funding arrangement pre-let to Athena Healthcare - an existing tenant - and would open to residents during July.

"Target Healthcare was created to provide long-term stable income on the foundation of stable rents received from modern purpose-built care homes, operated wisely by dedicated care providers," said Target Fund Managers chief executive officer Kenneth MacKenzie.

"Covid-19 arrived on these shores six months ago and our foundation remains, as does our long-term stable income.

"While we postponed some acquisitions early on in the pandemic to ensure a robust balance sheet, we now have sufficient visibility to continue our mission of creating a stable income platform of scale, while working to our long held ESG values, providing modern purpose-built care homes for their residents."

MacKenzie said that after "very careful consideration", the company had chosen to proceed with the acquisition of the Bicester home, to add a "further quality asset" to the portfolio, adding that the board was pleased that practical completion had been reached on construction in Burscough.

"The fundamentals for the UK's elderly healthcare sector remain strong and we remain steadfast in our conviction as to the advantages of the group's ethos and strategy of owning modern, purpose-built care homes which by design promote enhanced infection control and allow for effective isolation, as needed, of residents in their own rooms through the provision of private en suite wet-rooms.

"The acquisition together with the completion of the Burscough development add two best-in-class assets to the portfolio which will supplement earnings while also strengthening our relationships with operationally astute and valued tenants of the group."

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