Whenever you request guidance on how to invest to reach FIRE, you will often receive the comment you should invest in Emerging Markets e.g. through IWDA + EMIM. But should you?
Last Updated on July 12, 2020 by Mr. FightToFIRE
My favorite individual stocks in my core-satellite portfolio are my Belgian REITs. Aedifica and Cofinimmo are solid companies that focus on a sector in real estate that is still growing: (health) care. Where Aedifica already has over 60% in care property, allowing it to reduce its withholding tax from 30% to 15%, Cofinimmo is now nearing that threshold.
If all goes according to plan, Cofinimmo’s property portfolio should consist of 59 percent care properties at the end of this year. As soon as the health care property reaches the 60 percent mark, the shareholders are entitled to a reduction of the withholding tax from 30 to 15 percent just like Aedifica.
Health care property pays off
The tax deduction will save me a pretty penny. For the dividend of 2020, the real estate company is looking for a 5.8 EUR gross dividend per share (Cofinimmo, 2020b). The reduced withholding tax would increase the net distribution by 0.87 EUR from 4.06 EUR to 4.93 EUR. Over a longer period of time, this provides a large advantage.
An increase in dividends is the end result, i.e., it comes from an increase in profit. This increase is thanks to the focus on health care. Last year, profits from health care, which is 56% of their portfolio, increased by 15 percent thanks to a substantial increase in rental income (Cofinimmo, 2020a). To top it off, in the first quarter of this year, Cofinimmo continued this momentum. Results from their core business increased by 34 percent. Of course, this was right before the coronavirus pandemic broke out.
More health care investments coming
This focus on health care has made Cofinimmo one of the main players in the European healthcare real estate. The majority of the portfolio is still in Belgium, but the company has already built up strong positions in the Netherlands, Germany, and France.
Last year it looked over the hedge in Spain. In September 2019 they announced 5 projects with those in Vigo, Oleiros, and Cartagena already underway.
At 5.7 percent gross, the yield of the care property portfolio is the lowest of the three main branches with 6.3 for their living branch and 7.1 percent for their working branch, but the occupancy rate of care property is the highest at 99.8 percent, the leases are also of the longest duration and the property is more stable in value thanks to sole occupants.
Since 2005, Cofinimmo has invested €2.2 billion in nursing homes, part of the money coming from the reduction in office spaces.
For 2020, €293 million of investments in healthcare real estate are planned. Cofinimmo regularly calls on capital increases to finance the increase in its portfolio.
Why you should look into Cofinimmo
In summary, Cofinimmo is well on its way to becoming a key player in the health care property sector. What makes it even better is that there is still room for more.
While a Belgian REIT is limited to a debt ratio of 65% to do investments. Cofinimmo doesn’t have any problem thanks to a ratio of 41%. It means they still have room to grow and with a focus on care property, profit growth is all but guaranteed.
One downside to this stock is the premium on the share price. That said, the dividend yield of 4.6 percent in 2019 is not too low but also not unsustainable. Regarding the tax deduction, it’s important to note that the tax rules can always change but it’s a nice benefit for an already strong company.
- Cofinimmo. (2020a, February 13). 2019 annual financial report. List of financial and sustainable development reports – Cofinimmo. https://reports.cofinimmo.com/7/2019-annual-financial-report
- Cofinimmo. (2020b, April 28). Quarterly information 1st quarter 2020. Cofinimmo – Together in real estate. https://www.cofinimmo.com/media/4333/200428_r%C3%A9sultats-1t2020_en.pdf