Recession proof strategy: OrbVest shrugs off Coronavirus.

In this special podcast, OrbVest CEO Martin Freeman explains why the company is thriving in the current environment. While valuations in most other sectors have tanked, the slice where OrbVest focuses – medical sector properties in the USA – is shrugging off a coronavirus-induced economic recession. OrbVest has actually experienced strong demand from protection-seeking investors and is poised to launch another opportunity, this time in the bomb-proof medical rehabilitation niche. For more information on OrbVest click here. – Alec Hogg

The special podcast is brought to you by OrbVest. A whole lot’s been happening in the investment world over the past month and we have to wonder how Orbvest’s investments have been going, so across to New York where Martin Freeman the chief executive of OrbVest joins us now. Martin, we know a lot of business community members have invested in your various projects to date, the big question is have you also gone down by 30% like the stock markets?

Absolutely not. But before we get onto that Alec I just wanted to say thanks for having me on your show again. It’s unfortunate that I’m actually talking to you from New York considering that I was supposed to be in South Africa this week and in your studio. The world has been turned upside down in the past 10 days as we are all dealing with the corona pandemic.

It sure has and I can’t wait to welcome you to our studio. But that’s when Cyril Ramaphosa lets people come in from America again. Is it worse over there in the US Martin? We hear that in New York the restaurants have closed, Broadway shows have stopped.

The first thing I’d like to say is to acknowledge the tremendous stress and anguish that this virus is actually placing on families and communities around the world both personally and financially. As I’ve been saying to my friends and family in South Africa, it’s not that I’m more informed than South Africans but rather I’ve just got the luxury of being 2 weeks ahead of South Africa in this pandemic and I’m able to see things unfolding firsthand. So the question you asked is how are things going. It seems that the numbers are increasing every day, the predictions get worse and worse and it almost feels like a vice that is continually tightening and unless things change it is very likely – I believe – that New York will move into some form of lockdown within 7 to 10 days. There’s a very important reason, the focus moves continually – on various updates and information sessions – not from the infections but to the hospitalisations and the projections – even with a strong health care system – they’re saying that they cannot avoid the wave and that with the current exponential increase in the numbers – unless they can slow it down within 45 days – the hospitalisations will be double the number of beds that they have available. So for example, in the New York State, they’ve activated emergency plans to build a minimum of 10,000 beds in the coming month and the mantra at the moment is social distancing and flatten the curve. So we’re all safe. We’re all staying at home and working from home and we are making sure that we help flatten the curve.

What has the impact been though on OrbVest? We’ve seen asset prices collapsing on the stock markets, from OrbVest’s perspective, I presume because it’s bricks and mortar, It should be more resilient?

There’s two aspects to this question. The first is the business itself and the second is our investments and the investors. From a business perspective – I’d like to assure all our investors that we hold meetings on a daily basis and we are very well prepared for this – almost all of our employees are able to work from home and we have plans in place as and when things move and change. It’s a very fluid situation. A number of our employees already work from home due to the closure of the schools and we’ve had no disruptions. Regarding our equity raise. We expect to see a huge surge of equity raised in the coming two to three months. The reason is because people are going to be seeking a safe and reliable dividend and a safe haven for their money. As you say in bricks and mortar. But more importantly, I’d like to talk about our current buildings and our investments and our strategy. Alec, we have an enormous responsibility when it comes to managing our investors money and this is a key part of our strategy. As I’ve mentioned many times before, our strategy has always been centred around the preservation of clients capital. So we haven’t seen any drop in value or people’s investment. In fact we’ve probably seen the opposite and I’ll expand on that now. The reason for our strategy and the preservation of capital is that this is underpinned by the fact that we only invest in low risk stable income producing assets in the USA and specifically the healthcare niche. Because of the low risk nature of our tenants, these tenants are well-known in their communities. They are profitable and unlikely to move. So for many years, OrbVest has been saying that our investments are recession proof and that if and when a correction or recession arrives, the healthcare niche would serve as a perfect safe haven for investors. And that certainly – at this point right now – is proving to be the fact. We are confident that our investments are financially sound and in fact will outperform all other sectors especially as medical is one of the unique areas in the global economy. It will be deemed an essential service and will remain open regardless of the impact of this virus.

It makes sense. People are going to want more medical attention given the way the corona is sweeping through. The medical investment field or medical building field is huge. You could be going from hospitals like in Spain where they’ve nationalised all the hospitals there to try and cope with the virus, but I guess it’s not really ever going to be the case in the heart of capitalism in the United States, but all the way down to GP level. I know in this country if they have the misfortune of having a client come in with the corona virus they’ve got to go into forced isolation for the next 14 days. Investors will be saying yes we know OrbVest is investing in medical buildings in the United States but what kind of medical buildings and is there any exposure to the areas that will come under stress?

When you talk about our buildings, the first thing is that they are diversified medical tenants. So in terms of the buildings naturally we’ve taken full precautions with all the buildings to make sure that the various requirements are met. Social distancing sanitising in all the areas etc. If we can just mention one of the areas at the moment where we are benefiting from regarding the virus, is we have a tenant in medical 25 – which is called Life Hope Lab – this building is in Sandy Springs Atlanta Georgia and received tremendous media coverage when it was announced that Life Hope Labs had partnered with SouthSide Medical Centre to become the first laboratory in the state to be able to test more than 800 coronavirus patients per day. And, by the way, that’s the same tenant who’s going to be moving into our medical 26 newly acquired building. So we really believe that these essential services are going to see a large surge in patients coming in. People get stressed over these kind of times and periods so we don’t see a negative impact. In fact all predictions are that there’s going to be a positive impact. The other side of the equation is interest rates. A large part of our portfolio is underpinned by the fact that we have mortgages on these buildings and as you know, the Fed has dropped the interest rates to a ridiculous scenario of literally 0% – the actual mortgage rate to players like ourselves will probably move swiftly down from its current level of about 3% to probably lower 2% – which means the buildings will actually become more cash generative and more profitable.

So all round it sounds like investors don’t have to worry about the money that they’ve given you over the past few years and indeed will be looking for more opportunities. We’ll talk about medical 27 in just a moment, but is that the right kind of conclusion?

Absolutely. Over 6 years we’ve been generating great consistent returns for our investors and they really have come to acknowledge that healthcare is such a resilient sector in the world and particularly in the USA. As I said before, if there’s one place people are going to move to when a recession or correction occurs, it’s going to be the healthcare niche and it’s proving this right now. Our tenants who have got long leases in hand, are profitable. We don’t see that changing. Certainly if I was in any other sector – particularly retail – I would be very concerned at this time. But I think as we move forward, our buildings are extremely financially sound. They are resilient and in fact we actually see a surge of money from emerging market equities and various other alternative assets into the healthcare niche.

The question I asked earlier, what about GP’s? They seem to be exposed – here in South Africa anyway – do you have many of them in your buildings?

We actually don’t and we often talk about how often does your doctor or your dentist move? To give an understanding of the healthcare sector, one of the things that we always are looking at is trends, what will happen in the healthcare industry regarding trends and disruption of technology. We’re already seeing in America – for example – that they are moving to virtual consultations online. So we know that GP’s for example are going to be under pressure in the coming 3, 4, 5 years. We only hold our buildings for 5 years anyway. Notwithstanding that point, what we are doing is we are mitigating the exposure to these kind of tenants in our buildings. So whilst we might have 1 or a tenant who occupies a small percentage of the building, it is not dramatic exposure. We also believe that going forward, these kind of tenants are certainly going to find alternative niches to fill. The one thing about America, is that the healthcare industry continues to just grow at such a rapid rate – given the baby boomers – and it really is a sector that is going to continue to grow from strength to strength.

So what about going forward. What have you got to tell us about the next investment opportunity?

We have a very strong pipeline of deals and importantly I’d like to talk about the healthcare niche. I’ve mentioned that it’s a trillion dollar industry – the value of the real estate alone is a trillion dollars – the healthcare sector covers a number of aspects. From hospitals, to outpatient facilities, medical office buildings, skilled nursing etc. The one that I really want to focus on today is what we believe is a very resilient sector of healthcare, which is the rehabilitation facilities. When I talk about a rehabilitation facility, what I mean is that when someone goes into hospital and has an operation or a procedure – particularly in the USA – the one thing that the insurers want to do is to get you out of there as quickly as possible because of the higher costs. So what they’ll do is they’ll get you out of there and then on a weekly basis – between 4 and 12 weeks – you will go to a rehabilitation centre, for example to have physio or post treatment care. These rehabilitation centres are generally run by very large players. They are listed on the stock exchange in the United States, for example the one that we’re looking at, the player involved has 133 facilities across America. They have multiple billions under management, they are highly profitable and we are able to potentially acquire these kind of facilities. They also have leases in place, like 13 years, which is the one we’re looking at now. We will only hold it for 5 years. We will thereafter sell it and the new buyer still has another 7 years available. So these are the kind of really stable great investments that we are looking at. They have a large number of patients that flow through the facilities on a continual basis and technology ain’t going to disrupt that.

So can you give us more information on the next opportunity?

We’re launching medical 27 in literally the coming days. I can’t talk about it specifically at this stage because of the fact that we’re about to sign either tonight or tomorrow night, but we really are excited about it. As I said it’s going to be generating great cash on cash, good solid returns and especially given the current environment – where people are so uncertain – where to put their money in times of flux. This is a great place to put your money, know that you’re going to get good consistent quarterly dividends and enjoy that growth.

Martin, you’ve got a webinar coming up next Thursday at 7 o’clock. Are you going to talk then about number 27?

Absolutely we look forward to it. Not only 27, we’ve already got 28 lined up to come shortly there afterwards. The one thing that OrbVest is certainly proud of, is that we are consistently bringing stable income producing assets to people around the world. Not only for South Africans, for people in over 10 countries and they’re all seeking the same thing. They just want to know where they can put their money and get a good consistent return. We’ve always said we’re not going to shoot the lights out, we’re not going to promise exotic returns, we generate our 7% to 8% cash on cash and 12% to 17% overall returns. What we can say is that the buildings have been there a long time. They are stable, they’ve got good tenants, they’re all well known and they will continue to be there for another 10 to 20 years. That’s what I think – particularly under the current circumstances – as we talk today Alec, is what people are going to be looking for more than ever.

They’re also going to be looking for Rand hedges given the uncertainty. You have no doubt been watching the performance of the Rand, those Biznews community members who did invest in the 14’s against the US dollar when it’s now heading towards 17 against the US dollar. The yield that you talk about 6, 7, 8% kind of pales into insignificance when you start looking at the capital value just from the Rand.

Without a doubt. You talk about 14. We’ve got clients going all the way back to 10,11,12. and those clients – over the years – have simply seen, as you mentioned, that great consistent return and appreciation notwithstanding the fact that they’re able to enjoy the dollar dividends being based in South Africa. But what I would say to everyone is the following…. A lot of people are always hesitant. They say the Rand’s moved, I’m not going to invest now. You’re never going to get the timing of the Rand right. What I would say to people is just consistently over time, invest a small amount into some kind of asset that will give you the protection and where, for example in OrbVest, we encourage all our clients to consistently invest over time and build a portfolio of 8 or 10 investments and then in 1.5 to 2 years, you can turn around and say I’ve got an investment in 10 buildings in America. The currency and the rates at which you invested will eventually average out and even if it does or doesn’t in time to come, we know that the Rand is unfortunately going to – given the challenges in the country – depreciate and a lot of our clients actually don’t even mind if it depreciates because it just means they’re bringing more Rands back into South Africa from the dollar dividends that they’ve generated.

Martin Freeman is the chief executive of OrbVest – one of our business partners – and as you heard, there is going to be a webinar coming up next week on Thursday. We’ll give you details of that at the bottom of this podcast or if you enquire we can send that through to you. This special Podcast was brought to you by OrbVest.