Care home investor Target Healthcare REIT has sold nine UK care homes to “an institutional purchaser” for £85.9 million and completed debt refinancing.

Target stated that the transaction represents its largest disposal since its IPO and was transacted at a 11.6% premium to the group’s carrying value as at 30 June this year. The sale price represents an implied net initial yield of 5.24%.

This deal involves 537 beds and around 8.3% of the group’s overall portfolio value, reducing its exposure to its largest tenant,

Target said HC-One represents around 16% of its rental income and Ideal Carehomes about 8.8%, adding that the transaction will create a more balanced tenant diversification across the portfolio. The disposal will not materially change portfolio metrics including rent cover, weighted average unexpired lease term or average age.

The company stated it has refinanced its banking facilities at improved terms with The Royal Bank of Scotland and HSBC UK replacing the group’s existing £170 million facilities with the banks which were due to expire in November.

The £30 million RBS revolving credit facility and £50 million HSBC revolving credit facility will be capped appropriately in advance of any acquisitions being committed.

As part of the refinancing, Target has also agreed accordion facilities of a further £70 million with the banks providing the ability to increase the banking facilities to an aggregate of £200 million, subject to lender consent, to pursue further attractive investment opportunities.

Following the refinancing, the group’s weighted average cost of its drawn debt, inclusive of amortisation of loan arrangement fees, increases to 4.3% from 3.9%. This includes the group’s £150 million of long-term, fixed rate facilities with Phoenix Group which remain unchanged.

Target Fund Managers’ chief financial officer Kenneth MacKenzie said: “We are delighted to announce this landmark disposal of nine homes, at a substantial premium to carrying value. The sale further underlines the desirability and demand for the modern, purpose-built care home portfolio we have carefully curated over the years. The decision to divest these assets was primarily driven by our desire to actively manage the portfolio, including reducing our largest tenant exposure to under 10%, and to take advantage of a favourable market opportunity. As well as crystallising an attractive return for shareholders, it is also a strong validation of our portfolio valuation.

“Refinancing the Group’s banking facilities at a reduced margin, extending the long-term relationship we have with our lenders, is also a significant milestone. We have improved the terms, reflecting the strength of our business and the compelling fundamentals underpinning purpose-built care homes.

“The disposal proceeds combined with the new debt facilities provide us with significant financial flexibility to invest in new assets and improve the quality and scale of the portfolio, whilst benefiting from the yield differential we expect to achieve. We look forward to setting this out in more detail at our full-year results in October.”