VNQ - MPW Vs. GMRE: Which Is The Best REIT To Buy Today?

2023-05-12 08:05:00 ET

Summary

• Medical Properties Trust, Inc. pays a 14% dividend yield.
• Global Medical REIT Inc. pays a 14% dividend yield.
• But which one is the best REIT to buy today? Read on for our ideas on that.

Medical Properties Trust, Inc. ( MPW ) and Global Medical REIT Inc. ( GMRE ) are some of the most popular real estate investment trusts ("REITs") ( VNQ ) on Seeking Alpha.

They are popular because of a simple reason:

They sport very high dividend yields.

It goes without saying that high yield comes with high risk, and there's no such thing as a safe >10% yield in today's market.

Both of these REITs are priced at such a high yield because they are facing some difficulties.

But that does not mean that they aren't worth buying.

If you have a higher tolerance for risk, these can be quite attractive at today's share prices in my opinion.

But which one is the best opportunity?

If I had to pick one, it would be Global Medical REIT. There is a simple reason for that:

GMRE owns medical office buildings, whereas MPW owns hospitals for the most part.

The market appears to think that these properties are equally risky, and this explains why GMRE has been drifting lower almost in lockstep with MPW:

But in reality, medical office buildings are quite a bit safer.

The rent coverage ratio of GMRE's properties is nearly 5x, whereas that of MPW is about 2.5x on average.

The rent coverage is a metric that measures the spread between the profit of the tenant at the property level and the rent payment. The higher the coverage, the better because it leaves more margin of safety.

Therefore, GMRE's higher rent coverage is a good thing.

It means that on average, its tenants are doing better and are less likely to default on their leases, which is precisely what the market is today worrying about.

The tenants of healthcare properties are still struggling because of the pandemic, which pushed labor costs a lot higher, and puts many operators on the edge of bankruptcy.

GMRE is not immune to those issues, but it appears to be somewhat better protected than MPW.

Moreover, the rent coverage itself can be deceiving since it focuses on property-level profitability. Many hospital operators are private equity-sponsored companies that are heavily leveraged and so they are more heavily impacted by the recent surge in interest rates and the other challenges of the industry.

Again, GMRE is not immune here, but the tenants of medical office buildings are typically safer. Doctors make good tenants.

Despite that, it has dropped very significantly in association with MPW because the market perceives MPW's difficulties as those of GMRE.

As a result, both REITs are heavily discounted:

Because of this, I think that the risk-to-reward of Global Medical REIT Inc. stock is slightly better than that of Medical Properties Trust, Inc. at this time.

For further details see: