has acquired three operational care homes and one new development for a total of £45m, deploying more than half the proceeds of its recent nine-home portfolio disposal. The high-quality homes, let to a strong new but established tenant, have been acquired at an accretive blended net initial yield of more than 6%. With significant remaining available capital, and a strong pipeline of similarly attractive opportunities, we expect acquisitions, in combination with indexed rent reviews, to drive continuing earnings and DPS growth.
Note: EPRA earnings/EPS is shown on a company adjusted basis. This is lower than unadjusted earnings and gives a better guide to dividend affordability. Non-cash IFRS rent smoothing is excluded and interest earned on development funding is included. NAV is EPRA net tangible assets (NTA) throughout this report.
Delivering Growth in Both Earnings and Asset Values
Utilising the proceeds of the £86m portfolio sale, reinvestment, in combination with debt repayment, has already substantially offset the near-term income loss from the portfolio sale. With the refinancing of shorter-term debt completed at a reduced margin, Target is well-placed for further accretive investment from a strong pipeline of opportunities, including both operational homes and the forward funding of developments. With some cash drag as reinvestment income feeds through, particularly for developments, our FY26e and FY27e adjusted earnings are reduced slightly, but fully covered DPS growth is not dented. The financial benefits are more fully reflected in FY28e.
Sustainable Earnings and Social Benefits
In a cyclical commercial property market, healthcare property has provided attractive risk-adjusted returns. The demand for care home places is effectively non-discretionary, driven by a growing elderly population and the need to improve the existing estate, and largely uncorrelated with the economy. Target’s uncompromising focus on modern, purpose-built properties underpins its core proposition of generating long-term, sustainable, income-driven returns. All its homes provide full en-suite wet-room facilities (34% for the market) and meet current and expected minimum energy efficiency standards. Such homes are appealing to residents, especially important in maintaining high levels of self-funded occupancy, support operators in providing better, more efficient and more effective care, and provide sustainable, long-term investment income.
Valuation: Attractive Yield with NAV Upside
The company’s FY26 DPS target of 6.03p (+2.5%) represents a yield of more than 6%. We forecast continuing DPS growth and expect NAV to increase, driven by rent indexation, with a potential additional benefit from any property yield tightening. Meanwhile, the shares trade at a c 18% discount to the Q126 NAV/share of 117.7p.
Investment Case
While indexed rent reviews and active asset management continue to drive earnings, dividends and capital growth, we expect a growing contribution from accretive capital recycling over the next three years. This was again apparent in the recent Q126 update, which showed an NAV total return of 4.4p or 3.8%,[1] building on the 9.1%[2] delivered in FY25. Within this, the £86m portfolio sale, at an 11.6% premium to book value, contributed 1.4p to the total return.
In this report we focus on recent developments with respect to capital recycling, asset management and refinancing. In our June report we discussed in detail how Target’s investment strategy addresses the growing demand for premium care facilities for elderly residents, including those with complex needs such as dementia, while providing shareholders with long-term, stable, inflation-protected income and the potential for capital growth. In brief, we highlight the following key points of the investment case:
- Structural and demographic support underpins Target’s core proposition of generating long-term, sustainable, income-driven returns. Its focus on asset quality is central to this and strongly enhances the social impact that the company generates. The portfolio is modern and sustainable, with 100% of the portfolio rated EPC A or B, already compliant with the minimum energy efficiency standards anticipated to apply from 2030; 100% of the rooms have full en-suite wet-rooms; there is a generous 48sqm space per resident; and average rents are an affordable £203 per sqm.
- Not surprisingly, Target scores highly on sustainability metrics, with a GRESB[3] benchmark score of 80, placing it second in its peer group.
- Rents are annually indexed to retail price inflation (RPI) (typically capped and collared between 2% and 4% per year) with a weighted average unexpired lease term (WAULT) of 26 years. The resilience of tenant operators was demonstrated through the COVID-19 pandemic and the subsequent spike in inflation, and average rent cover of 1.9 times is the highest level since Target launched.
- The demand for care home places is effectively non-discretionary and largely uncorrelated with the economy.
- Where tenant issues arise, high-quality assets remain attractive to a wide range of alternative operators.
- Healthcare property has traditionally generated superior risk-adjusted returns relative to the broad sector. The long duration, visible, inflation-linked income prospects for high-quality care home assets remain attractive to investors and are supporting property values.
Set against this strong, long-term investment case, our near-term forecasts are very much driven by the outlook for rental income, given that the refinancing has provided visibility over borrowing costs, and costs are substantially linked to the development of NAV. The key drivers of our rental income forecasts are the outlook for continuing indexed rental uplifts, the mix and timing of acquisitions, and rent collection performance. We explore each of these in the following section.
The Drivers of Rental Growth
Rent indexation
In FY25, the average uplift on reviews was 3.3% and in Q126, the average uplift on the 17 completed reviews[4] was 3.8%. In September 2025, the 12-month increase in RPI was 4.5% and in October the UK Treasury consensus forecast for the Q4 CY25 rate was 4.8%, falling to 3.3% in Q4 CY26. For Target, we have assumed average uplifts for the year to June 2026 (FY26) of 3.5%, 3.0% for FY27 and 2.5% for FY28.
Capital Recycling
The sale of nine care homes for £85.9m, the company’s largest ever disposal, was announced in late September (Q126) and completed in October (Q226). The disposal, to an institutional investor, was at a substantial premium of 11.6% to the end-FY25 book value of £77.0m, reflecting a net initial yield of 5.24% including notional buyers’ costs, below the portfolio average of 6.2%. The £4.8m annualised rent on the sale assets represents a 5.6% yield on the disposal value, which is also well below the minimum average of 6% that Target expects on reinvestment, and reflects the £45m reinvestment just announced. In August, Target had agreed the sale of another property for £8.0m, a premium of c 13% to its end-FY25 book value, expecting completion before the end of 2025.
Although the nine-home portfolio sale is the largest of Target’s asset sales, it is not the only one, and opportunistic capital recycling has enhanced the return on capital and portfolio quality, and provided evidence of the robustness of valuations and NAV. In Q123, Target made a decision to withdraw from the Northern Ireland market, citing less attractive market dynamics and a weaker private pay market compared with the UK, selling four homes for an aggregate £22m, a small premium to book value. In Q224, a further four homes were sold to the incumbent tenant for an aggregate £45m, which was modestly ahead of the carried value, reflecting a net initial yield below the portfolio average. The homes had performed well since being acquired as part of the significant portfolio transaction in late 2021, but their sale enhanced key portfolio average metrics such as age, floor space and unexpired lease term.
As well as providing an accretive reinvestment opportunity, the most recent portfolio disposal created a more balanced spread of tenant exposure across the portfolio. The homes are all let to HC‑One, which acquired Ideal Carehomes, an existing Target tenant, in late 2023. Following the sale, HC-One’s share of rent roll reduced from c 16% to c 9% (prior to any small impact from reinvestment), although it remains Target’s single largest tenant, and the aggregate share of the top 10 tenants has reduced to 61% from 64%. Following the acquisitions just announced, the total number of tenants has increased to 33 from 32.
Key portfolio metrics, such as rent cover, WAULT and average asset age, are not materially changed, indicating that the homes sold were a reasonable reflection of the overall portfolio.