More property deals for Target Healthcare: 18-care home portfolio acquisition completed

UK-listed Target Healthcare REIT, which invests in purpose-built UK care homes, has completed the acquisition of 18 care homes, representing more than 1,200 beds.

The portfolio is spread across eight tenants including the top national player Barchester Healthcare.

The company says that the portfolio generates annual contracted rent of £9.2 million and has collected 100% of rent throughout the pandemic. It has an average age of c11 years.

The properties are purpose-built care homes with modern facilities. Each benefit from long-term occupational leases with RPI-linked caps and collars, with a weighted average unexpired lease term of c22 years.

John Flannelly, head of investment at Target Fund Managers, said in a press release: “The acquisition of the 18-care home portfolio increases the size of the group’s existing portfolio by approximately 20% and demonstrates the group’s ability to undertake transactions of scale.

“The quality of the real estate, combined with the diversified nature of the tenant base and the attractive pricing, underpins our investment thesis for this acquisition.”

Combined with the acquisition of a pre-let development site in Weymouth, the REIT’s total investment during the quarter has been £173 million.

The development site in Weymouth is being undertaken by the UK care home developer LNT Group, and will be leased to regional care home operator Chanctonbury Healthcare on a 35-year, full repairing and insuring lease.

The site will be completed in June 2022.

The acquisitions are part of the pipeline of acquisitions announced as part of the company’s recent £125 million equity fundraise and will take the group’s portfolio to 98 assets and 32 tenants.

Flannelly added: “We have a number of other transactions at advanced stages of due diligence and expect to be in a position to make further announcements in due course.”

To finance the acquisitions, the REIT has entered a £63 million debt facility with Phoenix Group, an existing lending partner. Part of a total of £100 million in new loan facilities, the loan agreement carries a 3.14% per annum interest rate on a 15-year term, maturing in January 2037. It will have a net land tax value (LTV) of 21%; a weighted average term to maturity of its debt facilities of 7.5 years; and a weighted average cost of drawn debt, inclusive of amortisation of arrangement costs, of 3.08%.

Flannelly said: “We are pleased to have deployed the proceeds of the recent equity issuance so quickly, whilst agreement of the new 15-year term [debt] facility, the longest duration yet, will support us in our objective to provide stable returns to shareholders with long-term fixed interest costs matched against the inflation-linked long income that is generated from our portfolio,”

The Group’s total borrowing capacity now stands at £320 million.

Date published: December 20, 2021

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