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Target Healthcare REIT?

ReallyVeryFoolish
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Target Healthcare REIT?

#301936

Postby ReallyVeryFoolish » April 20th, 2020, 1:03 pm

I have seen plenty of comment recently about PHP and some otherrs like Assura in the healthcare sector. But I don't think I have seen Target Healthcare REIT mentioned. Far higher yield and at a discount unlike PHP and the likes. Presumably there's a jolly good reason why this is the case?

RVF

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Re: Target Healthcare REIT?

#301955

Postby dealtn » April 20th, 2020, 2:12 pm

ReallyVeryFoolish wrote:I have seen plenty of comment recently about PHP and some otherrs like Assura in the healthcare sector. But I don't think I have seen Target Healthcare REIT mentioned. Far higher yield and at a discount unlike PHP and the likes. Presumably there's a jolly good reason why this is the case?

RVF


Well their tenants, generally speaking are care homes. Even before this crisis that industry was struggling, with many going out of business. Financially care homes are probably struggling even more, and as politely as I can put this, their customer base is shrinking currently.

As such REITs serving this particular sub-set of tenants are probably more exposed than those serving GP surgeries for instance. I would expect higher rental yields as a result, and given the REIT requirements to pay out a large proportion of profits, higher dividend yields too.

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Re: Target Healthcare REIT?

#302136

Postby ReallyVeryFoolish » April 21st, 2020, 8:51 am

dealtn wrote:
ReallyVeryFoolish wrote:I have seen plenty of comment recently about PHP and some otherrs like Assura in the healthcare sector. But I don't think I have seen Target Healthcare REIT mentioned. Far higher yield and at a discount unlike PHP and the likes. Presumably there's a jolly good reason why this is the case?

RVF


Well their tenants, generally speaking are care homes. Even before this crisis that industry was struggling, with many going out of business. Financially care homes are probably struggling even more, and as politely as I can put this, their customer base is shrinking currently.

As such REITs serving this particular sub-set of tenants are probably more exposed than those serving GP surgeries for instance. I would expect higher rental yields as a result, and given the REIT requirements to pay out a large proportion of profits, higher dividend yields too.

Thanks. Short term, the client may be passing away a little quicker than normal. But, I don't believe there's much doubt the market is steadily expanding. I note Target are opening new facilities and have just bought development land in Cheshire. I will take a look at the quality of the tennant companies if I can. See how many care homes if any, the tennant companies have had to close care homes. Presumably, this is a key metric that the REIT manager assesses when letting a property on a 30 year or so lease.

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Re: Target Healthcare REIT?

#304183

Postby jonesa1 » April 29th, 2020, 4:07 pm

I've taken a small punt on Target and Impact, on the basis that once the dust settles on COVID-19 there will be a strong push towards improving the provision of social care more generally (the balance between social care and primary health care has been an ignored issue for a long time) and to address specific issues of under-funding in care homes thrown up by the current crisis.

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Re: Target Healthcare REIT?

#304188

Postby dealtn » April 29th, 2020, 4:19 pm

jonesa1 wrote:I've taken a small punt on Target and Impact, on the basis that once the dust settles on COVID-19 there will be a strong push towards improving the provision of social care more generally (the balance between social care and primary health care has been an ignored issue for a long time) and to address specific issues of under-funding in care homes thrown up by the current crisis.


Where will the money come to address this?

Is it not possible that more will be expected of care providers, raising their costs and reducing their (already thin) margins, rather than their incomes going up?

Not a sector that appeals to me to be honest.

Hope it works out for you.

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Re: Target Healthcare REIT?

#304234

Postby colin » April 29th, 2020, 7:09 pm

dealtn wrote:
jonesa1 wrote:I've taken a small punt on Target and Impact, on the basis that once the dust settles on COVID-19 there will be a strong push towards improving the provision of social care more generally (the balance between social care and primary health care has been an ignored issue for a long time) and to address specific issues of under-funding in care homes thrown up by the current crisis.


Where will the money come to address this?

Is it not possible that more will be expected of care providers, raising their costs and reducing their (already thin) margins, rather than their incomes going up?

Not a sector that appeals to me to be honest.

Hope it works out for you.

Target Healthcare is not a care provider.

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Re: Target Healthcare REIT?

#304237

Postby dealtn » April 29th, 2020, 7:13 pm

colin wrote:
dealtn wrote:
jonesa1 wrote:I've taken a small punt on Target and Impact, on the basis that once the dust settles on COVID-19 there will be a strong push towards improving the provision of social care more generally (the balance between social care and primary health care has been an ignored issue for a long time) and to address specific issues of under-funding in care homes thrown up by the current crisis.


Where will the money come to address this?

Is it not possible that more will be expected of care providers, raising their costs and reducing their (already thin) margins, rather than their incomes going up?

Not a sector that appeals to me to be honest.

Hope it works out for you.

Target Healthcare is not a care provider.


Yes but their tenants are, as the above thread and my contributions to it demonstrate.

If you go to their website literally the first heading is "Investing in Care", and the first three words are "We understand care". To suggest they are not exposed to the financial standing of the UK care sector is a nonsense.

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Re: Target Healthcare REIT?

#304276

Postby jonesa1 » April 29th, 2020, 9:28 pm

dealtn wrote:Where will the money come to address this?


My guess is the same place that will source the money required to repair the country's balance sheet once the dust settles - increased taxes on people with income and assets. Priority will be given in line with political risk, to avoid giving Labour too easy a time at the next election (and possibly the one after that, if the Tories retain power). I don't think the issue of caring for our elderly and vulnerable will vanish, it provides too many opportunities to criticise the party in power and has been turbo-charged by the coverage of care homes struggling to cope. And to be fair, the issue of lack of social care provision for frail, but not ill, people, has been impacting the NHS for a long time and should have been tackled long ago.

It's entirely possible that priorities will change and the sector will not receive any help, hence a small punt.

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Re: Target Healthcare REIT?

#304375

Postby colin » April 30th, 2020, 9:07 am

dealtn wrote:
colin wrote:
dealtn wrote:
Where will the money come to address this?

Is it not possible that more will be expected of care providers, raising their costs and reducing their (already thin) margins, rather than their incomes going up?

Not a sector that appeals to me to be honest.

Hope it works out for you.

Target Healthcare is not a care provider.


Yes but their tenants are, as the above thread and my contributions to it demonstrate.

If you go to their website literally the first heading is "Investing in Care", and the first three words are "We understand care". To suggest they are not exposed to the financial standing of the UK care sector is a nonsense.

Target healthcare is not a care provider , the occupants of their properties can go nowhere else.

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Re: Target Healthcare REIT?

#304392

Postby dealtn » April 30th, 2020, 9:37 am

colin wrote:
dealtn wrote:
colin wrote:Target Healthcare is not a care provider.


Yes but their tenants are, as the above thread and my contributions to it demonstrate.

If you go to their website literally the first heading is "Investing in Care", and the first three words are "We understand care". To suggest they are not exposed to the financial standing of the UK care sector is a nonsense.

Target healthcare is not a care provider , the occupants of their properties can go nowhere else.


I have agreed they are not a care provider!

If you choose to invest in any REIT you are exposed to the financial economics of the tenants.

The occupants of their properties certainly can go elsewhere. They can go bust! More than 100 such homes went bankrupt in 2018. In 2019 Four Seasons Care, alone, went bust with 322 homes.

We don't know what 2020 will bring yet, but clearly there are big obstacles to profitability across the industry. Even before this crisis costs were rising as both the minimum wage goes up, and the availability of "foreign" labour declines. In addition there are now significant additional costs as agency staff are required to cover for isolating (or resigning) staff, as well as to provide additional equipment and internal restructuring to allow for self-isolation. Incomes are down too as occupancy is declining.

In the same way that other REITs with exposure to the high street are impacted by the finances of the retail industry (which nobody seems to have an issue understanding), other REITs are exposed to the economics of their tenant's sectors too.

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Re: Target Healthcare REIT?

#304437

Postby jonesa1 » April 30th, 2020, 11:19 am

dealtn wrote:If you choose to invest in any REIT you are exposed to the financial economics of the tenants.


Agreed, but there is a difference. A REIT owning high-street, industrial or office property is exposed to the risk that the demand for that type of property could reduce, potentially dramatically - as we're seeing with the traditional retail sector, also potentially office space now that businesses have had to get to grips with large scale working from home. With a care home, even if the business operating the property goes under, the residents still need to be accommodated, demand will still be there. With a rising elderly population that demand isn't going away. The question becomes one of how it's funded and to what extent the state will intervene to support the sector if that is necessary.

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Re: Target Healthcare REIT?

#304445

Postby dealtn » April 30th, 2020, 11:38 am

jonesa1 wrote:
dealtn wrote:If you choose to invest in any REIT you are exposed to the financial economics of the tenants.


Agreed, but there is a difference. A REIT owning high-street, industrial or office property is exposed to the risk that the demand for that type of property could reduce, potentially dramatically - as we're seeing with the traditional retail sector, also potentially office space now that businesses have had to get to grips with large scale working from home. With a care home, even if the business operating the property goes under, the residents still need to be accommodated, demand will still be there. With a rising elderly population that demand isn't going away. The question becomes one of how it's funded and to what extent the state will intervene to support the sector if that is necessary.


So the 135 care homes operated by Four Seasons on a leasehold basis that stopped paying rent in October 2019 didn't affect the owners of them? The homes remained open, residents and local authorities continued their funding, with accommodation and care still provided.

Since then the economics of the industry haven't improved, costs are up, demand is down. Future demand may well be stable, and possibly increasing (the average stay in a care home is about 2 years, and the current fall in occupants will likely be reversed as the epidemic passes - assuming the decisions of families about their elderly relatives, and where they are cared for, doesn't change meaningfully going forward.

It may well be the case that increased funds are made available for care provision by national and local government, but with a worsening macro fiscal situation in the years to come, this increase could be a relative, not absolute one. We don't know yet.

I'm not advocating doom and gloom, necessarily, just caution as to what the business risks might be.

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Re: Target Healthcare REIT?

#304505

Postby colin » April 30th, 2020, 1:48 pm

dealtn wrote:
The occupants of their properties certainly can go elsewhere. They can go bust! More than 100 such homes went bankrupt in 2018. In 2019 Four Seasons Care, alone, went bust with 322 homes.

The tenants are not the occupiers, Four Seasons went bust because it's private equity business model was based on a high level of debt, there are few REITs with lower debt than THRL they have invested in modern ensuite facilities which will always be in demand.

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Re: Target Healthcare REIT?

#304522

Postby dealtn » April 30th, 2020, 2:29 pm

colin wrote:
dealtn wrote:
The occupants of their properties certainly can go elsewhere. They can go bust! More than 100 such homes went bankrupt in 2018. In 2019 Four Seasons Care, alone, went bust with 322 homes.

The tenants are not the occupiers, Four Seasons went bust because it's private equity business model was based on a high level of debt, there are few REITs with lower debt than THRL they have invested in modern ensuite facilities which will always be in demand.


OK, you clearly don't get it, or choose not to.

The occupants of the properties are not the residents, but the care providers, who pay the rent to the freeholders. The "residents" pay their fees to the care providers, not to the freeholders, whether that is a REIT or anyone else. In turn the "residents" can go elsewhere. Many of them die. The average residency is about 2 years. Others can move from one care home to another, some on cost grounds.

The owners of the buildings that were rented to the care providers didn't get their rent in this instance. If you think that can't happen to Target Healthcare as freeholders, then fine.

In the case of Target their rental increase on a like for like basis was 1.1%. With rental streams typically RPI linked this is a sub inflationary outcome.

If you look at the latest Investment Managers report (March 2020) you can see that Target had one of its 27 tenants, representing 6 care homes, exit their tenancy (not Four Seasons). No impact on "residents" but requiring renegotiations with the replacement provider, on broadly similar terms (although it appears initial rental incentives were required).

Target look to be a good company, have a diversified portfolio, and experience in the industry. That's not in doubt. But if you think they are immune to macro industry issues you are wrong. They may be better equipped to deal with such outcomes, compared to owners of smaller, less modern homes, with ensuite "wet" facilities, and wide corridors, but that doesn't provide complete protection from macro events.

It will be interesting to see how this sector plays out, not just due to the virus, but the political situation surrounding care. The evidence of how difficult it is politically to deal with this industry is all too apparent from the Conservative manifesto under PM May. It may well be the case that difficult decisions are more likely now, because of the virus, and that consensus across the political spectrum to legislate occurs. Or it may be that Johnson, as opposed to May, having a meaningful majority, will be keen and able to reform anyway. Alternatively, the fiscal constraints the chancellor has to work with, and at Local Authority level too, post Covid, will be harmful to the sector financially compared to before. We just don't know.

All the best to anyone invested in the sector, and here in particular, but there are reasons why property yields, and dividend yields, for care home properties and investments are higher than other property alternatives. There are no guarantees that yield compression will occur.

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Re: Target Healthcare REIT?

#304687

Postby colin » May 1st, 2020, 8:53 am

dealtn wrote:
colin wrote:
dealtn wrote:
The occupants of their properties certainly can go elsewhere. They can go bust! More than 100 such homes went bankrupt in 2018. In 2019 Four Seasons Care, alone, went bust with 322 homes.

The tenants are not the occupiers, Four Seasons went bust because it's private equity business model was based on a high level of debt, there are few REITs with lower debt than THRL they have invested in modern ensuite facilities which will always be in demand.


OK, you clearly don't get it, or choose not to.

The occupants of the properties are not the residents, but the care providers, who pay the rent to the freeholders. The "residents" pay their fees to the care providers, not to the freeholders, whether that is a REIT or anyone else. In turn the "residents" can go elsewhere. Many of them die. The average residency is about 2 years. Others can move from one care home to another, some on cost grounds.

The owners of the buildings that were rented to the care providers didn't get their rent in this instance. If you think that can't happen to Target Healthcare as freeholders, then fine.

In the case of Target their rental increase on a like for like basis was 1.1%. With rental streams typically RPI linked this is a sub inflationary outcome.

If you look at the latest Investment Managers report (March 2020) you can see that Target had one of its 27 tenants, representing 6 care homes, exit their tenancy (not Four Seasons). No impact on "residents" but requiring renegotiations with the replacement provider, on broadly similar terms (although it appears initial rental incentives were required).

Target look to be a good company, have a diversified portfolio, and experience in the industry. That's not in doubt. But if you think they are immune to macro industry issues you are wrong. They may be better equipped to deal with such outcomes, compared to owners of smaller, less modern homes, with ensuite "wet" facilities, and wide corridors, but that doesn't provide complete protection from macro events.

It will be interesting to see how this sector plays out, not just due to the virus, but the political situation surrounding care. The evidence of how difficult it is politically to deal with this industry is all too apparent from the Conservative manifesto under PM May. It may well be the case that difficult decisions are more likely now, because of the virus, and that consensus across the political spectrum to legislate occurs. Or it may be that Johnson, as opposed to May, having a meaningful majority, will be keen and able to reform anyway. Alternatively, the fiscal constraints the chancellor has to work with, and at Local Authority level too, post Covid, will be harmful to the sector financially compared to before. We just don't know.

All the best to anyone invested in the sector, and here in particular, but there are reasons why property yields, and dividend yields, for care home properties and investments are higher than other property alternatives. There are no guarantees that yield compression will occur.

All investments carry risk you seem to be unaware of that or choose to pretend otherwise, but really that's the whole point of raising equity capital in the first place to pass that risk on to investors sorry if that's news to you, one does not need to be an accountant to realise the ultimate risk ascociated with property is that the banks and debtors take control of the properties and THRLs low debt makes that outcome very unlikely , should their rental income reduce, the low exposure to debt means that they will be more than likely to have other options , yes in the short term values will fluctuate and payouts will vary, so what else is new? Do they own a valuable long term asset?

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Re: Target Healthcare REIT?

#304753

Postby dealtn » May 1st, 2020, 11:31 am

colin wrote:
All investments carry risk you seem to be unaware of that or choose to pretend otherwise, but really that's the whole point of raising equity capital in the first place to pass that risk on to investors sorry if that's news to you, one does not need to be an accountant to realise the ultimate risk ascociated with property is that the banks and debtors take control of the properties and THRLs low debt makes that outcome very unlikely , should their rental income reduce, the low exposure to debt means that they will be more than likely to have other options , yes in the short term values will fluctuate and payouts will vary, so what else is new? Do they own a valuable long term asset?


Thank you. I am very well aware of how risk and investments work thank you. I spent 25 years in the City initially on the commercial lending side to property companies, including asset backed loans to businesses such as Target. Followed by a long spell in the markets.

I think I have provided a balanced account of the risks here, which were mainly as a result of the OP asking whether there was a good reason the yield here was far higher than at other REITs. I can only assume that has been answered and that he, and others, have felt the contributions useful. I don't intend to pursue this any further.

Good luck to all those invested here, or elsewhere.

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Re: Target Healthcare REIT?

#304757

Postby ReallyVeryFoolish » May 1st, 2020, 11:34 am

dealtn wrote:
colin wrote:
All investments carry risk you seem to be unaware of that or choose to pretend otherwise, but really that's the whole point of raising equity capital in the first place to pass that risk on to investors sorry if that's news to you, one does not need to be an accountant to realise the ultimate risk ascociated with property is that the banks and debtors take control of the properties and THRLs low debt makes that outcome very unlikely , should their rental income reduce, the low exposure to debt means that they will be more than likely to have other options , yes in the short term values will fluctuate and payouts will vary, so what else is new? Do they own a valuable long term asset?


Thank you. I am very well aware of how risk and investments work thank you. I spent 25 years in the City initially on the commercial lending side to property companies, including asset backed loans to businesses such as Target. Followed by a long spell in the markets.

I think I have provided a balanced account of the risks here, which were mainly as a result of the OP asking whether there was a good reason the yield here was far higher than at other REITs. I can only assume that has been answered and that he, and others, have felt the contributions useful. I don't intend to pursue this any further.

Good luck to all those invested here, or elsewhere.

Indeed, as the OP, my questions have been amply adressed, thank you. For the record, at the present time, no, I'm not buying this REIT.

RVF.

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Re: Target Healthcare REIT?

#304937

Postby MDW1954 » May 1st, 2020, 9:44 pm

ReallyVeryFoolish wrote:
dealtn wrote:
colin wrote:
All investments carry risk you seem to be unaware of that or choose to pretend otherwise, but really that's the whole point of raising equity capital in the first place to pass that risk on to investors sorry if that's news to you, one does not need to be an accountant to realise the ultimate risk ascociated with property is that the banks and debtors take control of the properties and THRLs low debt makes that outcome very unlikely , should their rental income reduce, the low exposure to debt means that they will be more than likely to have other options , yes in the short term values will fluctuate and payouts will vary, so what else is new? Do they own a valuable long term asset?


Thank you. I am very well aware of how risk and investments work thank you. I spent 25 years in the City initially on the commercial lending side to property companies, including asset backed loans to businesses such as Target. Followed by a long spell in the markets.

I think I have provided a balanced account of the risks here, which were mainly as a result of the OP asking whether there was a good reason the yield here was far higher than at other REITs. I can only assume that has been answered and that he, and others, have felt the contributions useful. I don't intend to pursue this any further.

Good luck to all those invested here, or elsewhere.

Indeed, as the OP, my questions have been amply adressed, thank you. For the record, at the present time, no, I'm not buying this REIT.

RVF.


While I have stakes in quite a number of semi-exotic REITs, I've never seen the appeal of those centred around the provision of care homes.

So, me neither.

MDW1954


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