During the three months to 31 December 2018 (Q219), Target made good progress with deploying available capital resources, including the £50m gross proceeds from the November share placement. The portfolio also continues to perform well, delivering a 2.3% quarterly NAV total return (9.5% annualised). The attractive dividend yield is backed by very long leases, mostly RPI-linked, and supported by careful asset and operator selection. We continue to forecast a fully covered dividend in FY20.
End-Q219 EPRA NAV per share increased to 106.9p (end-Q119: 106.1p) after deducting the Q119 DPS of 1.6448p paid to qualifying shareholders during the period. The portfolio increased 14.9% to £463.9m, mainly reflecting investments but also a 1.6% like-for-like valuation gain. An aggregate £50.8m was committed to three new homes in the period. Annualised rent roll has reached £28.0m, including a 0.7% like-for-like quarterly increase in rents. Pre-let, forward-funded developments and forward purchases will add £5.3m on completion. Our revised forecasts assume a re-gearing towards the company’s target LTV of 25%, with £55m of future debt-funded acquisitions from a continuing strong pipeline of opportunities. Our progressive DPS forecasts remain the same and, allowing for the November share issuance, our forecast adjusted EPS is little changed.
Demographics should support growing care home demand for years to come, while there is an undersupply of the modern, well-designed homes, fully equipped with en-suite wet rooms and suitable communal spaces, that differentiate Target’s investment strategy. Investors continue to be attracted by long lease lengths and upwards-only, RPI-linked rental growth, with strong competition for assets. Although increasing asset prices have a positive impact on the NAV, they make Target’s disciplined approach to acquisitions, targeting ‘future-proof assets’, an essential ingredient in delivering attractive and sustainable long-term returns.
Target offers a growing dividend, with visible inflation-linked potential for growth, which we expect to be fully covered by adjusted earnings in FY20. The dividend represents a highly attractive yield (almost 6%) that supports the c 8% premium to Q219 NAV.