On the surface, Northwest Healthcare Properties REIT (TSX:NWH.UN) certainly does not seem like the best option for your portfolio. After all, shares have dropped about 47% in the last year as of writing.
That being said, there has been a turnaround that makes us potentially a strong option for passive income — especially if you’re seeking monthly passive income through both returns and dividends. So, let’s take a look at why Northwest stock might actually be a great idea for your passive-income portfolio
To understand why Northwest stock might be a good buy right now, we first have to look at why it wasn’t in the past. The company went under a strategic review as it saw shares drop further and further. Higher interest rates made all the purchases the real estate investment trust (REIT) made over the last few years unsustainable. In response, Northwest stock ended up slashing its famous dividend.
The company saw its share price originally increase as it was one of the few healthcare REITs on the TSX today during the pandemic. Low interest rates also helped the company expand globally. Properties were purchased, from office buildings to hospitals, each with long-term lease agreements that investors drooled over. The problem was, once higher interest rates hit, Northwest stock found that it wasn’t able to hold onto all of these properties as originally planned.
But there has been a shift over the last three months. After shares hit around $4 per share, the stock price started to increase once more. As of writing, shares of Northwest stock are up an incredible 30%!
What is the reason for this increase? Management has been going through a strategic review to look at key actions of the company contract to strengthen its balance sheet and the business as a whole. The company has already divested much of its Australian properties and is looking to divest the rest of those units in 2024. Northwest stock has already completed investment and non-core asset sales, generating $235.1 million.
Northwest stock has also secured a new term loan of $140 million, with maturity in April 2025. It’s also in the process of amending and extending a $125 million debenture, which was due last year, set out for March 31, 2025. Extending these maturity dates would be highly beneficial, seeing ideally lower interest rates continue.
But, of course, nothing beats cash, and the company has been seeing improvements here as well. While the company still operates at a loss, it has seen same-property net operating income growth of 3.7% on a year-over-year basis during its most recent quarterly report. Furthermore, the portfolio occupancy remains at 96%, supported by a lease expiry of 13.2 years.
Analysts weigh in
So, what did analysts have to say about recent movement and earnings reports? Analysts believe that results are still below what they believe that northwest stock could achieve. That being said, the company has made advances to repair its balance sheet.
Furthermore, its overall property portfolio remains sound, with high and stable occupancy rates and healthy organic growth. So, while the near term might continue to see some ups and downs, the company overall is on the right path, especially with this strategic review underway.
Right now, investors could bring in a 6.9% dividend yield while shares continue to recover, up 30% in the last three months. And should it hit 52-week highs once more, that could mean you see your shares double in the next year as well.