Target Healthcare

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richard@imutual
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Target Healthcare

Post by richard@imutual » Tue Oct 01 2019 7:05am

Article in today's Times. A possible option when we next invest...
Any investor that wants to gauge the popularity of investing in the care homes sector could do a lot worse than look at a recent fundraising by Target Healthcare. Having identified interesting new assets to buy, the specialist investment trust embarked on a placing to raise an estimated £50 million at the beginning of September under a programme designed to help it to regularly raise new investment money.

Such was the popularity of the offer that after ten days the trust increased its fundraising to above £60 million. When the deal was completed a day later, it had raised £80 million, 60 per cent above its initial target.

Target Healthcare is a real estate investment trust created in 2013 that invests solely in modern, purpose-built care homes that cater to patients predominantly in the private market but also the public sector. Its aim is to provide its shareholders with a solid level of dividend income, supported by the rental payments that it receives, as well as generating capital growth.

It has a stated intent of expanding its portfolio — at present consisting of 63 homes — through acquisitions, so any prospective investor should expect to be regularly asked to dip into their pockets to subscribe to placings to raise additional funds, or risk having their holding diluted.

The investment dynamic of its market has plenty speaking in its favour. An ageing population has been growing more affluent, thus more prepared and able to use the private healthcare insurance system to fund the care needed in old age. At the same time, relatively recent history brings its share of red warning signs about the sector in the form of the demise of two providers: Four Seasons and Southern Cross.

However, Target employs a different business model from the one that brought those two companies down. Where they were backed by private equity and ran up large debt consolidating a highly fragmented market through acquisitions, which they ran themselves, this trust acquires newly built homes and is a long-term property freeholder that lets out to tenant operators on lengthy leases with upward-only rent reviews.

As a provider of beds to public sector patients, Target potentially could be exposed to government cuts, but its emphasis on high-quality, modern properties means that it is unlikely to fall into the trap that awaited its predecessors of running shoddy homes that needed substantial spending on improvements.

In terms of its patients, about 63 per cent are either entirely private or rely on the NHS or local authority for only a proportion of their fees, so the trust doesn’t feel overly reliant on the public sector for its income. Four Seasons and Southern Cross received the majority of their income from the public purse. With net debts of £79.5 million at the end of June and several undrawn borrowing facilities, nor does it feel to be overly geared.

The trust has consistently beaten its benchmark, the MSCI UK Annual Healthcare Property Index, since it was listed, generating an annualised total return of 12 per cent, against 9.3 per cent for the index.

There are other investment trusts that specialise in private healthcare, but this is the only one that simply buys new properties, which feels to be the least risky approach. Its high quality probably explains why its shares, flat at 113½p yesterday, trade at a modest premium of about 5.6 per cent to the net value of its assets. A juicy dividend yield of just under 5.9 per cent makes up for the momentum lacking in the stock, up only 11 per cent in six and a half years. They should be doing more.

ADVICE Buy
WHY Tied in to structural growth in private healthcare and reliable increases in rental income
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Re: Target Healthcare

Post by BeautifulSunshine » Thu Oct 03 2019 11:11pm

Target Healthcare REIT [THRL]
Buy: 113.40
Year High: 119.00p [03/10/2019]
Year Low: 104.50p [03/10/2019]
Dividend Yield: 5.83% [03/10/2019]

(There is no share price graph for this share.)
Note: We are already invested in a REIT, if members want to invest in the same niche again that's OK, the only caution I would advise is:
Diversify, diversify, diversify.
[imutual Cashback Investment Club]

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