Target Healthcare REIT Ltd (LON:THRLT) is a specialist investor in modern, purpose built residential care homes, the demand for which is rising, driven by structural demographic changes throughout the UK. The manager selects modern, purpose-built assets suited to their local area and population. The assets are acquired at yields of c 7% and let on long leases (c 30 years) to high quality operators, with regular contact to ensure they are well-run. These long and secure income streams underpin a growing dividend yielding c 6% which, on our estimates, will be 100% covered once the group is fully invested, expected by the end of FY18.
Structural support for the investment case
The population over the age of 60 is expected to increase by 58% from 20.1m in 2014 to 31.8m in 2039. As people live longer and need more care, the already high demand for care homes will increase further. Tighter regulation, local authority budget pressures and rising costs have caused many operators to exit the market, although those with well-run modern facilities which can attract self-funded residents and well-motivated staff continue to see occupancy levels over 90%. There is increasing scope for an investor with Target’s expertise to continue to provide capital to support this essential service and earn attractive returns.
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