Target Healthcare REIT Limited

RNS Announcement

6 December 2017

Care home acquisitions in Hertfordshire, York and the Wirral

Target Healthcare REIT Limited and its subsidiaries ("the Group"), the UK listed specialist investor in care homes, announces that it has completed the acquisition of three properties in Hertfordshire, York and the Wirral for a total value of £31 million (including purchaser's costs).

The Hertfordshire care home opened in 2013 and comprises 64 well-appointed bedrooms each of which benefits from full en-suite wetroom facilities. The luxurious surroundings of the home, combined with the attention to detail provided by the care staff, mean the home represents one of the highest quality care home environments in the UK.

The Hertfordshire home will continue to be run by the incumbent operator, a new tenant to the Group, under a 30-year full repairing and insuring lease. The purchase price is approximately £20 million (including purchaser's costs) and the rent payable is subject to annual, upwards-only, RPI-linked uplifts, incorporating a cap and collar. The investment yield for this property is lower than the portfolio average reflecting the exceptional quality of the home, prime location and the strong trading performance.

The care home in York was opened in 2006 and comprises 81 bedrooms with market standard en-suite bathrooms, including wetroom showers. The property also benefits from a number of separate lounges and dining rooms; a cinema room; a library; a hairdressing salon; and well-maintained landscaped gardens.

The home on the Wirral is a purpose-built property which opened in 1999 and comprises 86 bedrooms, all of which include en-suite facilities. The home is well-appointed and includes several lounge / dining areas overlooking the large, landscaped gardens; a hairdressing salon; and quiet lounges.

The tenant for the York and Wirral properties is a subsidiary of the Four Seasons Health Care Group ("Four Seasons"), one of the UK's largest care home operators. As part of the transaction, the Group will be stepping into the existing full repairing and insuring occupational leases which together have a blended average unexpired lease term of approximately 21 years.

The York and Wirral homes have both traded profitably for several years, evidencing average rent cover of 2.2x predicated on sustainable rents, and are supported by compelling local demographics. The net initial investment yield on acquisition of 7.8% is higher than the portfolio average reflecting, inter alia, the weaker corporate covenant, whilst the price paid is significantly below replacement cost and approximately 35% below the Group's average capital cost per bed.

John Flannelly, Head of Investment at Target Fund Managers, commented on the acquisitions:

"We are extremely pleased to announce the completion of these transactions. The Hertfordshire home is of the highest quality and represents a very positive addition to the Group. The operator has demonstrated an enviable track record of delivering a strong trading performance over a sustained period and we are delighted to welcome them into the Group.

The acquisition of the York and Wirral properties is entirely consistent with our approach of investing in good buildings with favourable local market characteristics let at sustainable rental levels. There has been considerable media interest in Four Seasons in recent weeks and months, and we note that restructuring proposals are under consideration and the principal creditor is seeking to put in place an appropriate capital structure for Four Seasons over the long-term.

In any event, the homes are attractive operational assets and the acquisition price offers an opportunity for long-term capital growth.

We continue to progress other opportunities and expect to make more announcements in the near future."

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