An Ontario-based real estate investment trust (REIT) went public in 2010 but appeared on investors’ radar or created awareness among income-focused investors 10 years later during the coronavirus breakout. NorthWest Healthcare Properties (TSX:NWH.UN), a global real estate investor and asset manager, is the only REIT in the cure segment.
The $1.4 billion REIT owns and operates healthcare real estate infrastructure, including hospitals, clinics, and medical office buildings. NorthWest Healthcare rose to prominence following the declaration of COVID-19 by the World Health Organization as a global pandemic.
Risk-averse investors saw the REIT as a defensive holding in the wake of a health crisis. Because of the growing underlying demand for healthcare services, the global pandemic was a defining moment for NorthWest Healthcare. Besides a stable occupancy of 98.9% in Q1 2020, the international portfolio’s weighted average lease expiry (WALE) extended to 20.2 years.
While the REIT underperformed in 2023 and incurred losses due to the higher interest rate environment, a turnaround is on the horizon. Today, at only $5.57 per share (+13.5% year-to-date), you can partake in the 6.5% dividend. Notably, the payout frequency is monthly.
Expanded tenant base
NorthWest Healthcare operates globally, with properties across Canada, the United States, Australia, Brazil, Germany, the Netherlands, and New Zealand. The tenant base has expanded beyond healthcare practitioners and hospital operators to include those in education, research, and life sciences.
The competitive advantages are the growing demand for healthcare, the growing need for life and health science, and the aging population. For 2024 and into 2025, management will explore opportunities to extract embedded value from the portfolio. The primary objectives are strengthening the balance sheet and becoming an institutional quality REIT.
Financial performance
In the first half of 2024 (six months ended June 30, 2024), net operating income (NOI) declined 2.1% year-over-year to $189.4 million, while the net loss was 15.6% lower at $165.8 million compared to a year ago. At the end of Q2 2024, the number of properties, occupancy rate, and collection rate were 200, 97%, and 99%, respectively.
The WALE after two quarters is 13.4 years, while 85% of rents are indexed to inflation. Its CEO, Craig Mitchell, said, “Year-to-date 2024 has seen significant progress. Our portfolio performance continues to reflect the strong demand for healthcare real estate.” He added that the recent dispositions (sale of UK portfolio) and divestment of non-core assets will positively impact earnings.
Net proceeds from dispositions went to the repayment of high-cost corporate debt. Mitchell assures that NorthWest remains committed to simplifying the business, reducing debt, and strengthening the balance sheet. Management’s efforts should deliver sustained growth and value for unitholders.
Sustainable passive income
Northwest Healthcare is a noteworthy investment, especially for dividend investors looking for sustainable monthly passive income. The high-quality healthcare facilities and deep relationships with the top health and health sciences brands across its regions ensure long-term earnings growth and lower profit volatility.
Moreover, falling interest rates and subsequent cuts are tailwinds for the stock. As of this writing, the healthcare and real estate sectors are up 14.9% and 14.4% year-to-date. NWH-UN is a steal at $5.57 per share.
