World Medical REIT Inc. (NYSE:GMRE) is a United States medical workplace building-focused healthcare actual property funding belief that gives a compelling worth proposition to passive earnings buyers looking for each earnings and progress.
World Medical REIT, in my view, supplies a rising dividend, portfolio growth, and the robust risk of sturdy funds from operations progress because the belief continues to broaden its medical workplace constructing footprint by acquisitions.
World Medical REIT can be undervalued in my view, as its inventory trades at a low FFO a number of. Consequently, an funding in World Medical REIT supplies yield, earnings, a margin of security, and progress potential.
A Quick-Rising Actual Property Funding Belief With A Focus On Medical Workplace Buildings
World Medical REIT is a rising healthcare belief that primarily invests in medical workplace buildings. World Medical REIT had $1.5 billion in actual property belongings as of December 31, 2022. Medical workplace buildings, or MBOs, are a definite asset class within the healthcare market which might be usually leased to well being techniques and physicians who present outpatient companies to sufferers. As of the tip of 2022, the REIT’s portfolio lease fee was 96.5%, with 189 completely different MBOs in 35 states.
Leases for World Medical REITs are usually triple-net leases, which suggests the tenant is answerable for paying issues like property taxes, insurance coverage, and upkeep. World Medical REIT can focus extra on buying and scaling its enterprise by shifting the burden of working bills to the tenant.
World Medical REIT’s major holdings are medical workplace buildings (68% of the portfolio), nevertheless it additionally has inpatient rehab services (17%), surgical hospitals (6%), and different healthcare belongings (9%).
The belief is increasing primarily by acquisitions, leading to a major improve within the measurement of the REIT’s portfolio. The belief, which now owns $1.5 billion in actual property (gross worth), is a healthcare REIT that buyers ought to keep watch over. Although the belief remains to be comparatively small, with a market worth of $600 million, administration is keen to broaden the belief’s portfolio sooner or later.
World Medical REIT paid $149 million so as to add 583K sq. ft to its portfolio in 2022. In alternate, the belief elevated its hire receipts by almost $11 million.
World Medical REIT earned $0.98 per share in adjusted funds from operations in 2022 and paid out a complete of $0.84 per share, leading to a dividend pay-out ratio of roughly 86%, which is an efficient pay-out ratio for a belief, particularly a fast-growing one like GMRE.
Omega Healthcare Buyers Inc. (OHI), whereas not an MBO-focused healthcare belief, had a 2022 pay-out ratio of roughly 90%.
What issues right here is that World Medical REIT is growing its dividend payout, which implies that passive earnings buyers can anticipate the next stream of dividend earnings sooner or later. The present quarterly dividend fee is $0.21 per share, leading to a dividend yield of 9.1% primarily based on the inventory worth of $9.19.
Enticing AFFO A number of
World Medical REIT is predicted to earn $1.00-1.05 per share in adjusted funds from operations in 2023, implying an AFFO a number of of 9.0x primarily based on the present inventory worth of $9.19.
One other MOB-focused healthcare actual property funding belief, Healthcare Realty Belief Included (HR), trades at a funds from operations a number of of 13x.
World Medical REIT’s decrease a number of is as a result of belief’s smaller actual property portfolio and better perceived threat, as GMRE has a shorter working historical past than Healthcare Realty.
In my view, the valuation displays a excessive margin of security, and World Medical REIT’s a number of might fairly broaden to 11-12x.
Funding Dangers With World Medical REIT
World Medical REIT depends on a wholesome annual transaction quantity to some extent to develop its adjusted funds from operations. The marketplace for medical workplace buildings sees roughly $20 billion in transaction quantity annually, and if this quantity dries up, World Medical REIT will wrestle to develop as shortly because it has prior to now.
World Medical REIT, in my view, supplies an interesting mixture of portfolio progress and a excessive dividend yield of 9.1%. Moreover, the belief is increasing quickly because of its acquisition technique, which might end in continued sturdy funds from operations progress.
World Medical REIT additionally covers its dividend pay-out with adjusted funds from operations, and the dividend has been growing, which provides to GMRE’s enchantment as a passive earnings funding.
As a result of the inventory can be fairly valued primarily based on AFFO, I imagine GMRE needs to be added to your (and mine) funding portfolio.