NorthWest Health Prop Real Est Inv Trust (TSX:NWH.UN) is bound to benefit from the aging population trend. The REIT earns revenues from its international portfolio of healthcare real estate assets, including hospitals and medical office buildings.
It has 135 income-producing properties across nine million square feet of gross leasable area in the major markets of Canada, Brazil, Germany, Australia, and New Zealand. The portfolio has a weighted average lease expiry of 11.3 years.
NorthWest Healthcare Properties has pulled back nearly 11% from its high. Is it cheap enough to buy? Can you count on its high yield of 8.2%?
First, let’s explore its recent developments.
Since Q3 NorthWest Healthcare Properties has made several investments, including obtaining 19.8% interest in Generation Healthcare REIT, an Australian REIT, by investing $93.8 million, and acquiring two Brazilian hospitals for $145.6 million in Sao Paulo and Brasilia.
These hospitals were leased to Redo D’or for 25 years on a triple-net basis, further strengthening the REIT’s relationship with the key tenant.
In the first nine months, NorthWest Healthcare Properties generated net operating income (NOI) of $139 million, which was 36.7% higher compared with the same period last year.
Its funds from operations (FFO) per unit is $1.09 per unit on a normalized Q3 2016 annualized basis, while its adjusted FFO (AFFO) per unit is $0.92 per unit on a normalized Q3 2016 annualized basis.
Its normalized portfolio occupancy is 96.2%, and it has a stronger occupancy of 98.8% from its international portfolio.
Compared with the third quarter last year, the REIT had 4.4% of same property NOI growth in constant currency terms.
Is its distribution safe?
NorthWest Healthcare Properties’s FFO payout ratio is just under 74%. However, using the stricter AFFO metric, its payout ratio would be 98%.
Given that the REIT operates on the backdrop of a growing aging population, its portfolio should be able to maintain a consistently high occupancy rate, thereby sustaining its current payout.
This is what CEO Paul Dalla Lana stated recently: “Its current portfolio offers investors a defensive profile underpinned by strong healthcare fundamentals resilient to short‐term economic or political shocks. Moreover, with long‐term inflation‐indexed leases and a suite of accretive opportunities to expand our portfolio, we see an ever more attractive growth profile too.”
Thanks to the 11% pullback, it’s a decent entry point for this high-income idea. NorthWest Healthcare Properties’s net asset value per unit is $10.94. At about $9.73 per unit, it is discounted by 11%. Its 8.2% yield is enticing. However, if the units retreated to the $8 level or lower, it would be an even better entry point.
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Fool contributor Kay Ng owns shares of NORTHWEST HEALTHCARE PPTYS REIT UNITS.