NDH Intro to...

$200 billion.

That’s the size of today’s healthcare REIT industry.

And this number along with the healthcare industry as a whole, by most forecasts, is expected to increase to nearly 20% of 2024 GDP.

There are opportunities available for property owners of medical buildings. 200 billion opportunities to be exact.

My name is Jared Elfvin. I am the CFO for the National Dental Healthcare REIT (NDH-REIT). I have over 20 years in real estate as well as over five years as CFO for a private REIT. There is a geyser of opportunity out there in the world of REITs but relatively few people know what it means or how to go about accessing their untapped potential. The very meaning eludes many of the people it was designed to help.

What is a REIT?

If you have ever invested in a 401k or a mutual fund, you know more about REITs than you think you did. Real estate investment trusts (REITs) are based on mutual funds in that they pool investors’ capital but instead of investing in securities, they invest in income-generating real estate.

This allows a single investor to access more markets and achieve a higher rate of return with more shelter from liability and taxation.

REITs began in 1960. They were created to allow investors to buy shares in commercial real estate portfolios. Generally speaking, REITs specialize in a specific real estate market. For instance, National Dental Healthcare REIT focuses on dental properties.

In many of our initial conversations, the most common question asked is, “Why would I sell my dental property to the REIT instead of keeping the asset and the passive income from it?” It is not a complicated business model. The REIT collects rent and manages the properties it owns. According to the law, the vast majority of the income NDH-REIT collects goes back to the REIT shareholders.

As with any financial organization of this magnitude, the IRS has strict provisions in which REITs operate. As CFO forthe National Dental Healthcare REIT, it is my job to make sure we maintain compliance. One of the major attractions for investors in any REIT is the IRS provision that stipulates a minimum of 90% of taxable income must be distributed in the form of shareholder dividends each year. With such a large amount of capital going into dividends, it is easy to see the attention that NDH-REIT attracts. This provision is the replacement for the passive income from the property.

Another question we frequently receive during our introductory conversations is, “Is a REIT for me?”

Ultimately the ideal partners are dentists who own their real estate. NDH-REIT gives dental property owners new options where they had none before, besides simply selling it. Our investment vehicle gives these property owners shares in our REIT, much like a mutual fund. It takes the burden of ownership out of their hands, diversifies their portfolio and you still generate cash flow from the NDH-REIT.

In particular, we look for what is called a triple net lease and the terms there in when evaluating potential properties for acquisition. These are most commonly found in commercial real estate. This lease typically involves the tenant agreeing to pay the property expenses (taxes, insurance, etc.) in addition to rent and utilities.

There does seem to be a typical partner demographic who finds this vehicle makes the most sense for them. It is usually a dentist that has been practicing for some time. They might have 10 to 15 years left in their practice window or maybe even concluding their time practice but they still have a partner who is going to keep the business going. Anywhere along that scale is where it makes the most financial sense.

“What are some factors I need to be aware of when considering joining the REIT?”

If you have joined a DSO and are considering a deal with a REIT, something to be aware of is the terms you negotiated in your lease. We receive a lot of interest after a dentist joins a DSO and opened up their mind to the world of private equity. They look at their DSO opportunities and say, “Well, what about real estate?”

Many dentists unknowingly negotiate against themselves when updating their lease terms, to be more favorable for the DSO who now becomes the tenant.

Here is where the potential danger lurks. When they go to sell the property, the value of their real estate is lower because they've agreed to a less than favorable, long-term lease agreement with their new tenant. What drives National Dental Healthcare REIT’s financial considerations is the cash flow. The location of the property and the condition of said property are also considered, but ultimately, NDH-REIT looks forits incoming cash to determine valuation.

Many of our current shareholders found themselves with their leases winding down, their practices looking fortheir exit strategy, and the maintenance on their property was getting to be too much to make it worth their time.

Additionally, NDH-REIT pays the entire value of the medical property. If your loan is further along, you will receive much more than someone with a significant amount of debt. We clear all debt which ultimately impacts an owner’s position after the sale. If they have a million-dollar property but carry a $500,000 loan, they will receive their $500,000 and the holder of the mortgage will receive the amount to clear the mortgage.

One question we love answering is, “Why should I do business with you?”

We closed on our first properties in March of 2020, right. With the beginning of the pandemic, this was not the greatest time to start a new business. The fact that we've hit a dividend every quarter speaks to the solid model we created. It's been consistent. What we do is we offer our shareholders a 6% dividend. That's what we give them as income repair replacement. We've been able to hit that mark every quarter and we see that number only going up from here.

In my next blog, we will be taking a deeper dive into REITs and NDH-REIT specifically. If you want to learn more, please head here.