Target Healthcare REIT Reports Strong Annual Results with 9.3% Total Return

Target Healthcare REIT’s FY25: 9.3% total return, rising NTA and a progressive dividend

Target Healthcare REIT has delivered a solid set of annual results for the year to 30 June 2025, driven by rental growth, resilient tenant trading and smart asset management. Total accounting return came in at 9.3%, EPRA NTA per share rose 3.7% to 114.8 pence, and the dividend increased 3.0% to 5.884 pence – fully covered at 103%.

The big post-year end moves – an 11.6% premium disposal of nine homes and a refinancing that extends debt duration – underline a proactive approach that is keeping this portfolio in the top tier of UK healthcare real estate.

FY25 headline numbers at a glance

Total accounting return	9.3%
EPRA NTA per share	114.8 pence (+3.7%)
Adjusted EPRA EPS	6.08 pence (2024: 6.13 pence)
Dividend	5.884 pence (+3.0%), 103% covered
FY26 dividend target	6.032 pence (+2.5%)
Net LTV	21.8%
Portfolio value	£929.9 million (+2.4%)
Contractual rent roll	£61.2 million (+4.0%), like-for-like +3.3%
WAULT (lease length)	25.9 years
Rent collection	97% (issues now resolved)
Occupancy (mature homes)	c.86%
Rent cover (mature homes)	1.9x (spot 2.0x)

Portfolio quality is doing the heavy lifting

This is a sector-leading, modern portfolio: 92 operational homes and one pre-let site, let to 34 tenants, with one of the longest lease profiles in UK listed real estate at 25.9 years. Like-for-like rental growth of 3.3% is feeding through to values, with a 2.6% like-for-like valuation uplift, despite a modest 0.7% outward yield shift.

Operationally, the homes continue to trade well. Rent cover – a key profit buffer for tenants – is a record 1.9x over the last 12 months, and spot rent cover sits at 2.0x. Mature occupancy remains steady at around 86%, leaving room to trend back towards the 90% long-term average, which would be a tailwind for operator profitability and, by extension, rent sustainability.

Rent collection dipped to 97% due to two tenant situations, but both were resolved post year end through re-tenanting, one at a higher rent. There was an associated c.£0.9 million administration cost that trimmed adjusted EPS by c.0.14 pence – a one-off hit that preserved capital value and care continuity.

Smart capital recycling: premium disposal and accretive reinvestment

Post year end, Target agreed to sell nine care homes for £85.9 million – an 11.6% premium to the 30 June 2025 carrying value, at an implied net initial yield of 5.24%. That adds 1.4 pence to EPRA NTA per share and crucially reduces single-tenant exposure: the largest tenant moves from c.16% of rent to c.9%.

The plan is to redeploy into a pipeline of high-quality assets at about 6% blended net initial yield, including standing investments and forward fundings. On paper, selling at c.5.2% and buying at c.6% should be earnings-enhancing, while also nudging up portfolio yield and further diversifying the tenant base. A separate £8.0 million disposal at c.13% premium is also lined up.

Balance sheet: low gearing, longer debt, more hedging

Net LTV sits at a conservative 21.8%. Subsequent refinancing replaced £170 million of facilities due November 2025 with £130 million of new committed facilities, extending the weighted average term to maturity to 5.9 years as at September 2025. The average cost of drawn debt is now 4.3% (30 June 2025: 3.8%), and 81% of drawn debt is hedged against further rate rises until at least September 2030.

Yes, the step-up in debt cost is a modest headwind – the Board has sensibly set the FY26 dividend growth (2.5%) slightly below like-for-like rent growth (3.3%) to reflect that. But the extended term, improved certainty and accretive redeployment pipeline should help offset the higher coupon. Net debt to EBITDA remains steady at 4.6x.

Dividend: back to progressive, and covered

The FY25 dividend was raised 3.0% to 5.884 pence and covered 103% by adjusted EPRA earnings. Guidance for FY26 is 6.032 pence, up 2.5%. In a REIT, dividend cover is a key health check – and coverage above 100% with recurring rent growth is exactly what investors want to see.

ESG and “future-proofed” real estate

Target’s quality bias shows up in the ESG stats: 100% of the portfolio is EPC A or B, every room is an en suite wet-room, and 84% of homes are 2010 build or newer. Average space per resident is a sector-leading 48m². That’s not window dressing – energy efficiency and modern layouts reduce capex risk, support operator economics and should hold values better over time.

Risks and watchlist

• Policy noise: a government proposal to ban upward-only rent reviews is aimed at retail and not expected to be retrospective; details remain unclear.
• Staffing and LA budgets: sector-wide pressures persist, though tenants have largely passed through higher costs via private-fee increases and reported stable workforces.
• Cost base: the adjusted EPRA cost ratio rose to 21.8% (from 19.1%), mainly on one-off administration costs and higher credit loss allowance. Management says these were exceptional.
• Interest rates: post-refinancing, debt costs are higher but well hedged, with ample duration.

My take: why this update matters

• Positives: sustained like-for-like rent growth, record rent covers, long leases and a premium disposal that improves diversification and NTA. Low LTV gives room to deploy capital at attractive yields.
• Trade-offs: financing costs are up post-refi, and the EPRA cost ratio ticked higher. Rent collection dipped in-year, though issues were resolved decisively.
• Why it matters: in a market that rewards quality and certainty, Target’s best-in-class real estate and engaged landlord model continue to translate into steady NTA growth and covered dividends.

Where could upside come from?

• Occupancy drifting towards the 90% long-term average, boosting tenant profitability.
• Reinvestment of disposal proceeds at c.6% yields, widening the spread over the sale yield.
• Further asset management wins and selective growth towards c.30% LTV as capital is deployed.

What to watch next

• Completion of the nine-home disposal (expected 22 October 2025) and the first reinvestments (from November).
• Like-for-like rental growth versus the 3.3% FY25 benchmark, and rent collection momentum.
• Any clarity on rent review policy proposals and their scope.

Want more detail?

Analysts’ webcast is at 9.00am BST today. Registration link: https://brrmedia.news/THRL_FY25