UK Care Home Market Review
Sector Reports
Impact Healthcare REIT & Target Healthcare REIT
Background: The UK elderly care real estate market is valued at c.£40bn and is supported by compelling supply/demand dynamics, in particular due to the country’s ageing population. Two investment trusts offer specialist exposure to this sector, namely Impact Healthcare REIT* (IHR) and Target Healthcare REIT (THRL), which have a combined market cap of £830m and net assets of £1.1bn. Over 2022, IHR’s NAV per share fell by -2.0%, including a decrease of -5.2% in H2, while THRL’s NAV per share saw a decline of -7.0% over the year, including -8.3% in H2.
Rent Collection & Tenant Updates: THRL has seen less than 100% rent collection since the onset of the COVID-19 pandemic (c.95%). It has also implemented a number of re-tenanting transactions over the years, with at least one of these being attributed to the operator’s “financial distress”. In contrast, up to the end of 2022, IHR had collected 100% of rent due since inception in 2017, including no disruption during the pandemic. However, in respect of Q1 2023, the collection rate has fallen to 97% as a result of a single tenant not paying its rent. The fund’s manager attributes this to a tenant – and home – specific issue.
Dividends: THRL’s dividend has not been covered by adjusted earnings since its launch in 2013, with cover of 89% in the six months to 31 December 2022. On 27 March, the Board cut the target dividend by 17% to a fully covered rate of 5.6p p.a., noting the higher interest rate environment as a key factor behind this decision. Conversely, IHR’s dividend has been fully covered by adjusted earnings for the last two financial years and the fund has delivered dividend growth every year since launch. The Board has reaffirmed its target dividend of 6.77p per share for FY23, representing +3.5% growth from the previous year.
*Denotes a corporate broking client of Winterflood Securities
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