Higher prices have made deeper holes in consumer pockets. After toughing a high of 9.1% in June last year, the inflation in the United States has cooled down to 6% in February. However, the recent announcement by OPEC ( the Organization of the Petroleum Exporting Countries) to lower its production by 1.16 million barrels per day has increased oil prices, which could drive inflation higher.
A secondary or passive income could ease some of the pressure created by rising prices. Meanwhile, investing in high-yielding dividend stocks would be one of the most convenient and cheapest ways to boost your passive income. However, investors should be careful while choosing stocks, as rising interest rates have dented the financials of several companies. Meanwhile, given its highly defensive healthcare portfolio, NorthWest Healthcare Properties REIT (TSX:NWH.UN) would be an ideal buy for income-seeking investors. It reported its 2022 performance yesterday. Let’s look at its performance.
NorthWest Healthcare’s 2022 performance
NorthWest Healthcare owns and operates 233 healthcare properties, with a gross leasable area of 18.6 million square feet. In 2022, it made acquisitions worth $1.1 billion, while its capital commitments increased by $2.2 billion to $11.5 billion. Its occupancy rate continued to remain higher at 97%. Supported by these growth initiatives, the company’s revenue and net operating income increased by 19.8% and 20.3%, respectively.
However, its adjusted fund flows from operations (AFFO) per unit declined by 16.1% to $0.73. Higher interest rates, a temporary increase in debt levels, and lower transaction volumes dragged its AFFO down. Now, let’s look at its outlook amid the rising concerns over increasing interest rates.
NorthWest Healthcare’s outlook
NorthWest Healthcare is focusing on lowering its debt amid rising interest expenses. It has done a complete review of its portfolio and identified $220 million of non-core assets across its three segments. The company has initiated the process of selling these assets, which could increase its AFFO/share by $0.05.
Further, the company’s management added that an institutional investor has agreed to acquire around 70-80% of the equity in its United Kingdom joint venture. Given the customary closing conditions, the company expects to close the deal by the end of the second quarter of this year. Meanwhile, the company’s management hopes these initiatives to generate $425-$500 million of net proceeds this year, which could accelerate its deleveraging strategy.
NorthWest Healthcare has signed long-term lease agreements with its tenants, with a weighted average lease expiry of 13.8 years. With 83% of its rent indexed to inflation, rising prices will have minimal impact on its financials. So, despite the rising interest rates, I believe the company’s payouts are safe. It currently pays a monthly dividend of $0.0667/share.
Investors’ takeaway
The rising interest rates have weighed on real estate investment trusts, including NorthWest Healthcare, which has lost around 40% of its stock value compared to its 52-week high. The selloff has increased its dividend yield to 9.47%. So, given its stable cash flows from a solid underlying business, deleveraging efforts, and high dividend yield, I believe NorthWest Healthcare would be an ideal buy to boost your passive income.
