NorthWest Health Prop Real Est Inv Trust (TSX:NWH.UN) offers a juicy yield of 7.5% based on its recent quotation of $10.64 per unit. Its distribution is supported by its portfolio of globally diversified healthcare properties and a sustainable payout ratio.
Here’s an overview of the business.
Business overview
NorthWest Healthcare Properties has $3.9 billion of assets, comprising of 141 properties across 9.5 million square feet.
The REIT maintains a high occupancy of about 95% with a cap rate of 7.1% and a weighted average lease expiry (WALE) of 10.8 years. With an adjusted payout ratio of 87%, its distribution is sustainable.
The REIT generates half of its net operating income (NOI) from hospitals and the remainder from medical office buildings (MOBs) and other healthcare properties.
Geographically, it generates 41% of its NOI from Canada, 31% from Brazil, 22% from Australasia, and 6% from Germany.
Canadian portfolio
NorthWest Healthcare Properties is Canada’s largest non-government owner and manager of MOBs and healthcare-related facilities. Its Canadian portfolio is diversified and provides stability for its overall portfolio.
Its Canadian portfolio consists of four million square feet of gross leasable area across 58 MOBs and 1,102 tenants. It has an occupancy of 91.6%, a WALE of 4.5 years, and a cap rate of 6.6%.
Brazilian portfolio
NorthWest Healthcare Properties has two tenants across seven hospitals in key Brazilian markets, including São Paulo, Brasilia, and Rio de Janiero.
Notably, the REIT’s top tenant, Rede D’Or, contributes 19.5% of its gross rent. Rede D’Or is a leading hospital operator in Brazil and has a strong S&P national rating of AA-.
The REIT’s Brazilian portfolio is 100% occupied and has a WALE of 21.4 years and a cap rate of 8.5%.
Australasia portfolio
NorthWest Healthcare Properties gains its exposure to Australia and New Zealand via publicly listed trusts.
NorthWest Healthcare Properties owns almost 25% of Vital Healthcare Property Trust and nearly 20% of Generation Healthcare REIT and earns management fees from them as their manager.
Vital Trust is Australasia’s largest listed healthcare real estate owner with 19 private hospitals, nine MOBs, four aged-care facilities, and four development sites.
Generational Healthcare also has a diversified portfolio of assets, including hospitals, medical centres and aged-care facilities centred around the major markets of Sydney, Melbourne, and Brisbane in Australia.
The REIT’s Australasian portfolio has an occupancy of over 98% with a WALE of 15.4 years and a cap rate of 8.5%.
Investor takeaway
NorthWest Healthcare Property’s portfolio is diversified across geographies and asset type. Its non-Canadian assets improve the portfolio’s quality.
For example, its leases in Brazil and Australasia are indexed to inflation, which should improve the REIT’s payout ratio.
Furthermore, it has triple-net leases with tenants in these geographies, which means that in addition to the rent, these tenants are also responsible for any costs related to the properties.
Altogether, the REIT’s portfolio generates stable cash flows to support its high distribution yield.
