Healthcare & Medical Investment Corp.: Japanese Senior Care REIT Play

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Healthcare & Medical Investment Corp. (OTCPK:HLCRF) aliases (3455) arsenic it is known successful nan Tokyo Stock Exchange, is simply a elder attraction REIT based successful Tokyo, Japan. It invests successful elder attraction homes ranging from nursing homes to assisted surviving for seniors. The institution had its first IPO successful 2014 and has grown to 47 properties today.

I judge nan institution has beardown fundamentals, a bully web to root caller acquisition opportunities, and it is quiet to grow. HLCRF is operating successful a very lucrative manufacture arsenic nan Japanese elder organization is increasing larger complete time. This makes HLCRF a bully protect finance successful anyone's portfolio.

Japan has a increasing elder population

In Oct 2022, it was reported that Japan has nan highest elder organization ratio successful nan world pinch complete 29% complete nan age of 65. In nan coming years, this statistic is expected to increase. As well, households headed by those aged 60 and supra dress up 40% of full 2011 consumption. The spending of a elder (age 60 and above) spends much than personification nether nan property of 39.

What this translates to is though nan organization is getting older, nan buying powerfulness of this organization cohort is still rather large. This puts HLCRF successful a lucrative position since location is simply a increasing request for elder care. The impervious of nan beardown request is evident successful HLCRF's portfolio occupancy, which is adjacent to 100% (since 2014):

HLCRF occupancy showing 100%

(Source: HLCRF Website)

HLCRF Has Been Steadily Growing its Portfolio

HLCRF has an appetite for growth. Since 2019, nan institution had almost doubled successful spot size. I judge if it hadn't been for Covid, nan gait of acquisitions would person travel overmuch faster:

• In 2015, HLCRF acquired 3 properties
• In 2016, acquired 2 properties
• In 2017, acquired 6 properties
• In 2018, acquired 1 property
• In 2019, acquired 10 properties
• In 2022, acquired 10 properties

Today, its spot count has grown to 47 and it consists of nan pursuing elder attraction type:

• 42 paid nursing homes
• 3 assisted surviving for nan elderly
• 1 aesculapian work facility
• 1 mixed nursing location and aesculapian attraction complex)

In July 2022, HLCRF acquired 10 properties pinch an estimated full acquisition value of 11,442MM Yen (~$85.3MM USD), an NOI of 597MM Yen (~$4.5MM USD), pinch an wide headdress complaint of 5.22%:

HLCRF Financials

(Source: HLCRF Financials)

For comparison, CBRE had reported successful its June 2022 survey: nan Japanese agency assemblage was showing headdress rates successful nan debased 3%, nan unit assemblage was besides trading successful nan debased 3%, and rental apartments are trading successful nan 3.8% to mid-4% scope (depending connected flat type).

What this shows is simply a 5.22% wide headdress complaint to get 10 elder homes is priced astatine a comparative discount to different plus types successful nan industry.

The 10-property acquisition connected July 2022 was besides accretive to HLCRF's bottommost line:

HLCRF Annual Cash Flow from its 10 Property Acquisition

(Source: Various HLCRF Financials)

To beryllium conservative, I person assumed a 1% liking complaint connected nan 5,500MM Yen debt. The financials had shown various indebtedness instruments charging an liking complaint of beneath 1%.

The 10 properties adhd 215MM Yen (~USD 1.6MM) annually to its bottommost statement aft indebtedness servicing and dividend distributions.

Real property has ever been a narration business and HLCRF has an extended web of relationships to substance its growth:

HLCRF Website

This allows HLCRF to find backstage deals wherever it is often traded beneath market.

(Source: Semi-Annual Report)

HLCRF Has Good Cash Flow and Strong Balance Sheet

In reviewing nan financial statements, nan Piotroski Score was applied to find really financially beardown nan institution is. A people of 9 shows nan institution is successful a beardown financial position. A people of 0 shows it is successful a anemic financial position. In nan past 4 years, HLCRF shows a scope betwixt 4 to 7:

HLCRF F-Score 1 of 2

HLCRF F-Score 2 of 2

(Source: HLCRF Financials)

In its astir caller fiscal play betwixt Feb 2022 to July 2022, HLCRF shows a existent people of 4 from a 7 successful nan anterior period. Investors whitethorn deliberation its financials whitethorn person deteriorated but this is not nan case. In nan existent period, HLCRF issued caller shares to get 10 properties and its existent ratio shrunk only slightly, some these items lowered HLCRF's F-Score.

In looking astatine nan financials complete nan past respective periods, location are a fewer items worthy noting: HLCRF continues to run pinch affirmative rate flow, and its semipermanent indebtedness remains patient astatine beneath 37% of full assets, disconnected its highest of 46% successful 2019 to 2020.

Its dividend payout ratio besides shows nan institution has been steadily expanding its distributions while maintaining a payout ratio of 72% to 73%:

HLCRF dividend payout ratio

(Source: HLCRF Financials)

Risks and Caveats to Consider

HLCRF is simply a bully institution to put but location are a fewer items to besides carnivore successful mind.

The financials I person reviewed are much than 6 months old. HLCRF discloses its financials each 6 months truthful I americium reviewing this correct earlier its upcoming caller financial release.

There will beryllium rate risks successful investing successful HLCRF. Investors will request to see nan speech complaint betwixt nan JPY and nan guidelines rate investors trade-in. Rising liking rates particularly successful nan US will push nan USD stronger and nan JPY comparatively weaker, and various one-time events that effect nan world system will ever ripple done nan rate markets.

Conclusion: Buy

Healthcare & Medical Investment Corp is simply a buy. Relative to different existent property assets, elder homes arsenic a existent property play are charismatic investments yielding affirmative rate flow. The demographics successful Japan are besides ideal, seniors successful Japan typically walk more, and location is simply a beardown request for elder attraction abstraction arsenic shown by HLCRF's adjacent to 100% occupancy rate.

Its financials are very strong. It has a reasonably debased leverage ratio and its dividend payout ratio has ne'er exceeded 75% successful nan past 3 years (during nan Covid period)

I judge HLCRF is besides quiet for much assets. It has a beardown web to root caller opportunities and HLCRF is tin of raising caller money from some nan equity and indebtedness markets. This is simply a bully finance play for investors looking for a protect plus pinch a beardown maturation component.

I'm bullish connected HLCRF.

Editor's Note: This article discusses 1 aliases much securities that do not waste and acquisition connected a awesome U.S. exchange. Please beryllium alert of nan risks associated pinch these stocks.

I studied Economics and Accounting astatine Wilfrid Laurier University, and I person earned designations successful Certified Management Accounting (CMA CPA) and Certified Alternative Investment Analysts (CAIA).  I typically look for companies pinch supra mean dividend yields, under weighted companies, aliases struggling companies pinch move astir potential.