Cofinimmo vs Aedifica: Which Belgian healthcare REIT is better?

The health care sector is at the center of the Corona pandemic. Especially in Belgium where during the first wave, elderly care centers got hit hard. Luckily, after a bit of delay, the situation stabilized and the worst was over. It also didn’t impact the rental payments too much as both Aedifica and Cofinimmo kept receiving rent.

So, both healthcare REITs seem to be solid amidst this continuing chaos but are either one of them better than the other?

Aedifica has far fewer years on the counter. It was founded at the end of 2005 and went public one year later. It remained flat till 2015 when it experienced a growth spurt that lasted all the way till now.

Aedifica owns 3 billion residential care centres in Belgium, Germany, the Netherlands, the United Kingdom and recently Scandinavia with an occupation of 100%. Through its daughter Hoivatilat it will operate four residential care centres for the elderly, three day-care centres and three specialised residential care centres for 305 residents and 260 children in Finland, worth a total of over 600 million euro. Next to that they still have 428 million euro in the pipeline for further expansion.

A most recent example of this is the investment of approx. 13 million pounds in a new care home in Congleton, Chesire (UK). On top of that, it issued 435,596 new shares worth 39 million to acquire an innovation care campus in Geel, Belgium operated by Astor VZW. Finally, the group adds 51 million euro in the pipeline for care centers in Finland.

Aedifica’s rapid growth was rewarded on Friday 20 March  this year with a place in the Bel 20. You don’t just get a spot there so it’s a positive sign for the performance of the healthcare REIT Aedifica.

After this small history of the two stocks, which stock is preferred? Let me quickly go over the big difference between the two companies: Aedifica is a pure healthcare property player and Cofinimmo is a diversified property group.

As we have seen during this pandemic healthcare property is an important sector, it can even be considered a safe investment. Leases usually run for 20 to 25 years, and the maintenance costs (such as equipment) are usually for the tenant.

In the case of offices, the contracts usually run for a shorter term. On top of that, the demand for nursing homes will only increase due to the aging population. The COVID-19 crisis did not lead to defaults by the organizations renting from Aedifica or Cofinimmo (Thysens, 2020). Aedifica, with its focus on Scandinavia, Germany, and the Netherlands, looks to be in slightly better markets than Cofinimmo, which is in somewhat riskier markets such as France and Spain.

Nevertheless, I doubt there is any reason for concern about Cofinimmo’s offices. It has a solid portfolio that was build over years with good tenants. I think what might be the biggest difference, especially for Belgian investors, is tax-related.
Because Aedifica invests more than 60% in healthcare real estate, the Belgian tax authorities only have to pay a 15% dividend tax. For Cofinimmo this is 30%. At Cofinimmo, as much as 56% of the portfolio is invested in care property. If it crosses the 60% mark, it also receives that discount, which immediately makes it interesting. The hope is to reach that by the end of 2020.

Cofinimmo or Aedifica? The choice depends above all on how you view risk versus return. If you are averse to risk, Aedifica is the safest investment. The share offers a gross dividend of 3%, at only 15% taxed. With a gross dividend of 4.7%, Cofinimmo yields much more than Aedifica, but with a large office segment and greater exposure to southern Europe, it has a slightly higher risk profile. Though Cofinimmo’s more diversified portfolio could prove to be more stable, even though offices and retail are being hit because of the pandemic.

Sources:

• https://www.aedifica.be/en/2020
• https://www.aedifica.be/public/uploads/files/2020/CP_2020/AED_CP2019-2020_EN_Covid-19_2020%2004%2021_BB_LV.pdf 
• Thysens, J. (2020, April 29). Cofinimmo. Dierickx Leys. https://www.dierickxleys.be/nl/studies/cofinimmo