Home Deep Analysis Global Healthcare REITs: Market Dislocation First to Last

Global Healthcare REITs: Market Dislocation First to Last

by WOOWinvest
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Global Healthcare REITs: Market Dislocation First to Last

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At the start of the pandemic, we sought to determine which REIT real estate sectors were best able to withstand COVID. The process evolved into determining which sectors would perform best in a reopened economy. Now, we must assess which sectors will be strongest under the prospect of high inflation, rising interest rates and a recession.

Medical offices have been considered a solid option from the start and continue to perform well in a changing economic environment. On a fundamental and relative basis, Global Medical REIT (NYSE: GMRE) is the obvious choice. It is cheaper and FFO/share growing faster than its peers: American Healthcare Trust (HTA), Healthcare REIT (HR) and Physician REIT (DOC).

Throughout 2021, we have enjoyed smug satisfaction and an excellent return on investment. GMRE’s rate of return is almost four times that of DOC and HR, and more than 1,600 basis points higher than HTA.

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By mid-March, however, shares and bonds fell as concerns about rising interest rates materialized, sending Global Medical shares tumbling. Year-to-date, GMRE has lost twice as much as the REIT index and almost three times as much as HR.

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DOC doesn’t even look like they’re in the same real estate industry.

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Is it the market or fundamentals?

When a stock is in free fall, the first thing you have to ask is, is it just market anxiety? Has the perception of the entire industry turned sour? Has something at the company changed operationally?

Global Medical released Q1’22 operating results after the market closed on May 4. FFO/Share was flat at $0.23 due to the large share issuance, despite an increase of more than 3MM in funds from operations compared to the same period last year. Management described accretive acquisitions that have been completed so far this year and are in the pipeline. In March, the company raised its quarterly dividend by 2.5%, the same as the previous year.

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In June, we met with GMRE management, and while they acknowledged that we face the same economic challenges every day, they were optimistic about the opportunities in our target markets. They are the same competent professionals we met shortly after the company’s IPO.

Sector Indicators

Healthcare Realty and Healthcare Trust of America are working on a merger agreement that is expected to close in the third quarter, so our MOB peers may soon be reduced from four to three, but for this comparison we’ll treat them as separate The company they are today. As a result, the consensus estimate is that all four companies are growing EPS and are expected to do so for at least the next few years.

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Combined with the results dating back to fiscal 2020, you can see why we believe GMRE is the best growth candidate in the series. Looking at consensus estimates for 2022, GMRE is expected to far outpace the growth of its peers.

In the market price/FFO comparison, earnings growth rates extend to larger value gaps.

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Acquiring a fast-growing company at a lower price/FFO may result in a higher return on investment. Global Medical is the best choice for four rounds.

All four companies trade below net asset value, taking into account intrinsic asset value. GMRE’s stock is selling at a slightly steeper discount to its peers.

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In answer to the question of whether our perception of the entire MOB sector has deteriorated, they haven’t, and they’re right. Our aging population is beneficial to every aspect of healthcare. As a result, healthcare has been and remains recession-resistant. Lifestyle preferences drive demand for local access to healthcare. This kind of access is what each of these companies aims to provide.

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Source: GMRE

Has something at the company changed operationally? As reported and confirmed by our interviews, GMRE management is not making strides. The future is bright. We have been holding our GMRE stock and during these dark days of June 2, CHYP sold our merger/arbitrage inspired HTA stock and used the proceeds to buy more Global Medical REIT.

Must be the market.

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