Taking information from the financial reports, I've derived some calculations. My indicative calculations support the price is at a premium. I'd put it into the unsustainable category, unless there is a potential for a takeover, which has diminished (in my opinion) due to the Folkstone transaction. I could see merit in some sort of transaction with Australian Unity and its unlisted healthcare fund - combining to become a $2b entity.
I'm reasonably comfortable with a weighted average passing yield of 6.5%, but when the derived yield comes in at 5.2% I think it is a full price given by the market. My instinct is for long term hold with reliable and robust income giving confidence in the distributions.
Childcare and healthcare are required services, supported by government. In my opinion, there is no pressure on interest rate rises in the next 18 months (although I review and reassess that assumption on a regular basis). There are strong rent reviews in place on a significant number of the properties. This gives me confidence that strong margins will persist.
I give importance to those variables rather than the current share price and make my decisions from there.
Looking at it from a different angle, I see trading opportunity as I don't understand why the share price often goes on a big run in the lead up to ex-div date, then takes a tumble far in excess of the dividend. As I said before, I don't think the valuation premium is sustainable, so I would be comfortable taking money off the table if it hits $2.80 with no sensitive news release, then look to buy back in at the $2.40-$2.50 range.
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