Target Healthcare, a real estate investment trust (REIT) which invests in modern, purpose‐built care homes, has reported rental growth supported by tenant profitability in the final quarter of 2023.

Contractual rental income increased by 1.3% over the quarter, comprising a 1.1% like-for-like increase from 25 inflation-linked upwards-only rent reviews, with an average uplift of 4.0%.

Kenneth MacKenzie, chief executive of Target Fund Managers, said: “Rental growth continues and is well-supported by tenant profitability, with the core positive drivers of portfolio value, demographic trends and increasing demand for modern, purpose-built, real estate being clearly demonstrated.

“Rent covers have continued to improve, with the September quarter result of 1.9x continuing the upward trend seen over the last five quarters and representing the highest level since IPO. Underlying resident spot occupancy for mature homes increased to 87% as at 31 December 2023.”

As at December 2023, the group’s portfolio was valued at £911.1 million and comprised 98 properties, consisting of 93 operational care homes and five pre-let sites, which are being developed through capped forward funding commitments with established development partners.

Portfolio value increased by 2.3% over the quarter, comprising: a 0.6% like-for-like increase in the operational portfolio, reflecting an increase of 1.2% from inflation-linked rent reviews and rent-free unwinds alongside a 0.6% decrease from outward movement in net initial yields; and a 1.7% increase from capital expenditure, primarily associated with the five development properties.

The group’s largest tenant, Ideal Carehomes, was acquired by HC-One, the UK’s largest care home operator, which runs 275 homes.

Target owns 18 of the 36 care homes run by Ideal Carehomes, which represented 16% of contractual rent roll and 18% of its portfolio capital value as at 31 December 2023.