First, there are concerns that hospitals have been experiencing significant losses, and that the current financial model may not even be viable. See Healthscope news and impact on HCW REIT. It’s not clear to me that REP has Healthscope as a tenant, but they do have St John of Healthcare as a tenant, and they lost money last year, but it looks like they’ve managed to get back in the black this year. Either way, there are widely reported concerns in the healthcare market, and it doesn’t help that REP hasn’t announced whether they are impacted by it.
Second, don’t be misled by the director purchases of Scott Wehl. He’s a director of a company that manages money on behalf of foreigners who want to get an Australian visa via the Significant Investor Visa (SIV) route. They need to invest $5m over four years, and that can be shares of Australian companies listed on the ASX. I believe Scott Wehl owns directly about $300k worth of shares today (acquired long ago). What’s noteworthy is that those shares would be paying distributions every quarter, but he chooses never to use any of that money to buy any REP shares. In fact, none of the directors of REP have been buying REP shares. REP’s not alone. Can anyone point out a REIT where one or more directors have been purchasing shares the last couple of years, even equal to what they would get as a distribution from their existing holdings? I think Giles Woodgate, a director of GDI, is one exception, but they are few and far between.
REP’s debt hedging is on the weaker side, especially when you compare it to other REITs like DXC, for example (but way better than TOT who have no hedging at all). So, their finance costs are going to increase more quickly this year and next, in comparison to others, even if the cash rate is reduced a bit. If the cash rate comes down hard, REP will be a more exposed beneficiary.
The share buy-back is mostly window dressing. They’re purchasing about $1m of shares per month. They have net tangible assets of $478m (half year report). They claimed to have another $100m in property sales lined-up, but we haven’t heard anything about those sales, have we? This REIT is externally managed, so selling properties and buying shares on market is counterproductive for them (increasing assets under management is the name of their game).
Despite the above, I don’t think REP is a “bad” REIT. In fact, I own it, and I’ve been buying it, but there are pros and cons, like most investments.
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