Canadian stocks continue to gain momentum since closing above 20,000 points to end the first quarter. As of this writing, the TSX is up 5.35% year to date, with nine of the 11 primary showing positive returns. Real estate is the seventh best-performing sector (+4.22%), although its constituents have collectively lost 1.31% in the last 30 days.
NorthWest Healthcare Properties (TSX:NWH.UN) is an underperformer but a screaming buy today. The only real estate investment trust (REIT) in the cure sector is on sale. At $8.31 per share (-10.65% year to date), you can partake in the ultra-high 9.79% dividend yield. Buy 1,475 shares ($12,257.25) to earn an immediate income of $100 monthly.
Rise to prominence
NorthWest Healthcare rose to prominence or appeared on investors’ radars in 2020 during the coronavirus breakout. The $2.01 billion REIT owns and operates a diversified portfolio of high-quality healthcare properties. As of year-end 2022, the concentration of the 233 income-producing assets is in North America, Australia, Brazil, New Zealand, and Europe.
The REIT was a winning investment in 2020 and 2021, with impressive returns of 13.5% and 16.6% on top of the lucrative dividend yield. However, the real estate sector went on a tailspin beginning in the middle of 2022 due to the fast-rising interest rates. The stock tanked and lost 26.4% overall for the year.
Nevertheless, the current share price is a good entry point. The occupancy rate is a high 97%, while the weighted average lease term is 13.8 years. Expect NorthWest Healthcare to generate stable and growing cash flow, as management capitalizes on growth opportunities within its existing portfolio, pursues accretive acquisitions, and enters joint-venture arrangements.
Competitive advantage
NorthWest Healthcare’s competitive advantage is the diversification of assets (geographically and by asset mix). At the end of the fourth quarter (Q4) of 2022, 50% of the portfolio comprises hospitals and healthcare facilities. The leases with hospital operators (single tenants) are long term, inflation indexed, and under a triple-net lease structure. This asset group contributes 62% of net operating income (NOI).
Medical office buildings (MOBs) are like commercial buildings with multiple tenants. MOB tenants (48% of the total portfolio) are mostly necessity-based healthcare providers, accounting for 36% of NOI. The third group is life sciences (2% of NOI), an emerging asset class where firms engaged in research and development sign long-term leases.
In the three months that ended December 31, 2022, NOI rose 20.3% to $348.35 million versus Q4 2021. NorthWest’s expiry profile is also a compelling reason to invest in the REIT. The hospitals in Brazil (21 years) and Australia (15.6 years) and clinic properties in Europe (21.4 years) are subject to long-term leases.
Stable returns for years
NorthWest Healthcare believes its healthcare-focused portfolio and the essential nature of its tenant base and institutional partners will deliver solid and stable returns for years to come. Moreover, the development activity is crucial to the REIT’s long-term growth.
Apart from meeting the growing healthcare needs, activities like adding new properties and reinvesting capital in existing properties (for expansions and refurbishments) should create more value for tenants and unitholders. This REIT is a rock-steady, passive-income provider.
