Global Medical REIT (NYSE: GMRE) was hard at work in 2020, completing 18 acquisitions for $226.5 million. That activity came despite the headwinds posed by the coronavirus pandemic. When put into a little more context, these efforts say a lot about the trajectory of this real estate investment trust (REIT) over the next three years. If you are looking at this growing REIT, here are some things to consider.
An odd name choice
Global Medical REIT conjures up an image of a REIT that owns healthcare properties around the world. You might even conjecture that such a worldly portfolio would be centered around major population centers. Only, that's not what this REIT does. It has a domestically focused portfolio located largely in secondary markets. This is far from a "global" REIT, despite the name. But that's not a bad thing.
Competition in secondary markets is usually less intense than in major metropolitan areas, meaning Global Medical REIT can get better pricing on the deals it inks, which, in turn, helps boost returns. And the REIT believes that medical demand is not only set to increase as the baby boomers age but also will be increasingly local. The company is basically trying to position itself to be at the junction of these two trends.
Global Medical REIT's primary focus is net-lease medical office and healthcare systems, wherein it owns the assets, but the lessees are responsible for most of the operating costs.
So far, the story is fairly compelling, but there's a wrinkle here that's important. The REIT only made its initial public offering (IPO) in mid-2016. In fact, it was externally managed until July 2020. With only about five years of history as a public company, this is a very young REIT.
The sky's the limit
So, investors looking for a time-tested dividend stock won't really find it here. Sure, the 5.4% dividend yield is fairly attractive in today's low-yield world. And the company just increased the disbursement for the first time in April (by 2.5%), which is a positive development. But the track record is just too short to instill a substantial level of confidence.
However, what the REIT lacks in history, it makes up for in opportunity. It is young and small, with a market cap of just about $1 billion. So, it doesn't take a lot of deal-making to impact the top and bottom lines. Which is why the 2020 acquisitions noted above are so notable. Those 18 deals, meanwhile, came on top of the 18 properties Global Medical REIT bought in 2019. And the company's already done about a dozen deals in 2021, too.
Portfolio growth, in other words, is the name of the game. The dividend increase earlier this year suggests that this growth will, perhaps slowly, filter through to investors via dividend hikes over time. For more aggressive investors, that could be an attractive proposition.
Growth, however, doesn't come for free. Global Medical REIT has been issuing shares at a steady clip. To put a number on that, the share count has increased by around 250% since the REIT's IPO. That's a big change in just five years, which ends up diluting current shareholders.
But it's also not shocking, given the company's small size and focus on growth. The offset here is that growth in funds from operations may not be as quick or smooth as you'd like based on the size and timing of stock sales. This is probably best looked at as a stock to buy and hold if you want to reap the benefits of its expansion efforts.
The Millionacres bottom line: The answer is 'bigger'
The simple answer to the question posed in the title is that Global Medical REIT will likely be much bigger in three years. That's coming off a relatively small base from a fairly young REIT, but it could be an interesting option for the more aggressive types.
That said, the generous 5.4% yield appears to be good compensation for the risks, given today's low-yield backdrop. Conservative investors should probably stick to larger, more established fare. But if you like to keep a close watch on your holdings, Global Medical REIT could be an exciting name to own in the years ahead.