Impact Healthcare REIT

Quick idea as I think its a good one.  Its a big portfolio weight for me – now 12.4%.  I tweeted this on Friday – follow me on Twitter to get real-time good ideas – @DeepValueInv.

Impact Healthcare REIT operates care homes ie – where the old/sick/disabled go –  the waiting rooms for the afterlife.

The share price fell from a steady 110 prior to the corona crisis down to a low of 62 before bouncing and is now at 75.

I believe this occurred as an illiquid market met indiscriminate selling – with the results you would expect. It was inky a sale of c 3m shares caused this for a trust with a current market cap of 240m.

There are risks associated with Corona for this – if it were to get into one of the homes it could kill residents. Having said that old people who are about to die are a renewable resource.  Even if we assume the virus gets out of control and wipes out a home or two, it will likely also injure/damage others, who will then need care, long term this should do OK.

This isn’t going out of business any time soon, presentation says it has a loan to value of 6.8% and facilities to take LTV to 20%, with all facilities drawn covenants still strong. They have obligations to build homes but not sure if this would be covered by force Majeure clauses.

Demand for care homes is strong – government hasn’t funded enough and the demographic needing it is increasing in size.  I strongly suspect that post-crisis funding for healthcare will increase.  Many NHS beds are expensively taken up by old people who need to be put in a home/need support.  It never made sense not to fix this and the crisis will likely put a bit of urgency behind sorting out social care.

64% rent is from government, the rest private. Homes are let to private operators, on contracts generally based on RPI with cap of c4% and floor of 2%.  I really don’t like this cap / floor arrangement – I can see a world where inflation rises substantially in future.  Still, the capital value of the homes will appreciate.  Many of these could be converted to residential if necessary. Leases are long WAULT of 19.7 years.

Dividend is in the 6-8% range at current prices. Not entirely covered by free cash flow but with gearing this low it doesn’t matter too much.

It’s trading at a discount to NAV of 30%. Far too wide in my opinion. To me this should be back to £1.10+.

I think this is going to rapidly bounce back to 90p/100p we have seen this with the bigger, similar REITS such as PHP and SUPR (which I bought).  They don’t stay down for long.  This will rise too, it is lagging a bit.

Portfolio as a whole has done OK, I am about flat for the year. At one point I was c 10-15% up, at another 10-15% down.  I have done a lot of trading, trying to avoid falls / switching from slow-burning things like PHN to things which will move more quickly like this. I reckon I have traded more in the last month than in the prior two or three years. It has not been at all easy. I am about 95% invested but mostly in funds / lower risk things, so I hope even if we retest the lows I should be OK. My general macro view is bullish – we are going to print our way out of this.

As ever, comments are appreciated, any other low-geared, undervalued investment trusts out there ?


5 thoughts on “Impact Healthcare REIT”

  1. Bit different, but think Pershing Square Holdings worth a look. Quite large discount to NAV, major hedge paid off to keep NAV roughly static since start of year, and mean lots of cash generated which has I think been largely invested recently.

    Between the discount and leverage, I think you get exposure to roughly double the current SP in assets / cash (but expect mainly invested). However, there is significant exposure to areas that will be struggling during the lockdowns (restaurant / hotel / retail etc).

  2. Would be worried about mass deaths happening in UK care homes.The carers and staff are often on low wages and work at 2 or more care homes .There has to be a high risk they are carrying the virus from care to care home.

    1. Possibly, but these are caring people who probably wont do that. I dont think we have seen much of that outside isolated instances in other countries.

      Also, this can damage lungs – so, in the long run, create additional demand.

      We will see.

  3. Hey Rob. Fantastic find and congrats on your gutsy position size. I looked at this over the weekend but foolishly got sidetracked and forgot to follow through. Hope you sliced some profit off the table today!

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