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Cofinimmo Quartz Building

Belgian REIT Cofinimmo is getting even better

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.

Sources:

I'm a developer for a major financial institution in Belgium that is present in over 40 countries. I have over 8 years of working experience in the development of customer applications focussing on all aspects of banking. This helped me gain a deep understanding of the inner workings of a commercial bank. All of this experience in both banking and life culminates in this blog about personal finance and my fight towards FIRE.

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Chrome

What do you think of Befimmo in complement of Cofinimmo/Aedefica?
I saw Befimmo has acquired Silversquare which might be a big player in modular offices in the future

Thank you

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