Northwest Healthcare REIT (TSX:NWH.UN) is among the worst-performing TSX stocks in the past decade, trailing the broader index by a significant margin. Valued at a market cap of $1.26 billion, Northwest Healthcare trades 65% from all-time highs. In the last 10 years, the healthcare real estate investment trust (REIT) stock has fallen by almost 50%, and even if we adjust for dividend reinvestments, cumulative returns are quite low at 8.2%.
REITs and other companies part of capital-intensive sectors thrived amid a low interest rate environment that followed the financial crisis in 2008. However, central banks were forced to hike interest rates several times since the start of 2022 to offset inflation. As the cost of debt rose significantly, several dividend-paying companies with sizeable balance sheet debt, including Northwest, were forced to lower dividend payments, sending share prices spiralling lower.
Northwest Healthcare is part of a recession-resistant sector but was not immune to macroeconomic shocks. Today, it pays shareholders an annual dividend of $0.36 per share, translating to a forward yield of 7.1%.
Let’s see if the worst is over for Northwest Healthcare stock and if it can stage a comeback in the second half of 2024.
An overview of Northwest Healthcare REIT
Founded in 2004, Northwest Healthcare is a real estate investor and asset manager focused on properties and partnerships primarily in the healthcare sector. A REIT with more than $9.5 billion in assets under management, Northwest Healthcare owns and operates a portfolio of 210 properties in the Americas, Europe, Australia, and New Zealand.
Northwest Healthcare offloads U.K. portfolio
Last week, Northwest Healthcare disclosed the sales of its U.K. portfolio for gross proceeds of $885 million, completing a previously announced strategic review process. The REIT’s U.K. portfolio was sold to Assura in a cash-and-stock transaction.
Northwest will receive 80%, or roughly $708 million, in cash and the rest in Assura shares valued at $177 million, indicating an 8% stake. According to Northwest, the asset sale price represents a cap rate of 5.9%.
The Canadian REIT aims to repay outstanding debt worth $690 million with an average interest rate of 7.9%. Further, it expects the transaction to be accretive to adjusted funds from operations by $0.06 per unit on an annualized basis.
Northwest Healthcare REIT is looking to offload noncore assets, which would help it lower its balance sheet debt and interest payments in the future.
How did Northwest Healthcare perform in Q1 of 2024?
Northwest Healthcare reported revenue of $133.5 million in the first quarter (Q1), a decline of 1.3% year over year. Its revenue decline was tied to asset sales, which were partially offset by contractual and inflationary rental increases. Its same-property net operating income rose 6% to $88.9 million, while adjusted funds from operations stood at $0.11 per share, indicating a payout ratio of 80%.
Northwest Healthcare attributed its strong operating performance in Q1 to a long-term lease maturity profile with a weighted average lease expiry of 13.2 years. It ended the March quarter with a global portfolio occupancy rate of 96.5% and a global rent collection rate of 98%.
Northwest Healthcare stock might gain pace in the next 12 months, especially if interest rates decline at an accelerated pace. Analysts remain bullish on Northwest Healthcare stock and expect it to gain over 10% in the next 12 months.
