A real estate investment trust (REIT) owns and operates income-producing real estate, including buildings, shopping malls, apartments, hotels, and warehouses. REITs must pay over 90% of their taxable income to shareholders as dividends, thus making their dividend payouts safer. Against this backdrop, let’s assess which among NorthWest Healthcare Properties REIT (TSX:NWH.UN) and RioCan Real Estate Investment Trust (TSX:REI.UN) would be a better buy for income-seeking investors.
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NorthWest Healthcare Properties REIT
NorthWest Healthcare Properties REIT owns and operates 186 healthcare properties across seven countries, with a gross leasable area of 16.1 million square feet. It has signed long-term lease agreements with government-backed tenants. The weighted average lease expiry of these contracts stood at 13.4 years as of June 30. Meanwhile, the company enjoys a healthy occupancy and collection rate due to the defensive healthcare portfolio, government-backed tenants, and long-term lease agreements. In the recently reported second-quarter earnings, its occupancy and collection rate stood at 96.5% and 99%, respectively.
Further, the REIT has strengthened its financial position through its non-core assets sales program, which the company adopted in August last year. Since its adoption, it has sold 46 properties, generating $1.4 billion. Besides, it has redeemed its investment in unlisted securities, generating $170 million. The company has utilized the net proceeds from these sales to pay off higher interest-bearing debt, thus strengthening its financial position.
Moreover, NorthWest Healthcare is developing next-gen properties that could deliver long-term earnings growth for its shareholders, thus making its future dividend payouts safer. Meanwhile, NWH.UN currently offers a monthly dividend of $0.03/share, translating into a forward dividend yield of 6.7%. Also, the company trades at 3.3 times analysts’ projected sales for the next four quarters, which looks reasonable.
RioCan Real Estate Investment Trust
RioCan owns, develops, and manages retail, mixed-use properties in prime, high-density areas across Canada. As of June 30, the company owned 187 properties with a net leasable area of around 32.6 million square feet. In the recently announced second quarter, the company leased 1.2 million square feet of space, including 489,000 new leases. It also achieved a record new leasing spread of 52.5%. Its retail committed occupancy rose 40 basis points quarter-over-quarter to 98.3%. The commercial in-place occupancy improved by 60 basis points from the previous quarter to 96.6%.
During the second quarter, RioCan’s net income increased by 9.3% to $122.4 million amid the solid operating performance and favourable changes in the investment properties’ fair value. However, its diluted funds from operation (FFO) per unit declined marginally from $0.44 to $0.43. The decline in net operating income amid the sale of low-quality commercial properties, higher interest expense, and a higher provision reversal in the previous year’s quarter more than offset its solid operating performance to drag its diluted FFO/unit down.
Meanwhile, RioCan’s financial position looks healthy, with its adjusted debt-to-adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) falling to 9.2 compared to 9.3 at the end of last year. It also closed the second quarter with liquidity of $1.5 billion. So, the company is well-positioned to fund its growth initiatives. As of June 30, the REIT had around 1.1 million square feet of development projects under construction. These growth initiatives could boost the company’s financials in the coming quarters.
Moreover, RioCan currently pays a monthly dividend of $0.0925/share, translating into a forward dividend yield of 5.7%. Besides, its valuation looks reasonable, with its NTM (next 12 months) price-to-sales multiple at 4.4.
Investors’ takeaway
The Bank of Canada’s monetary easing initiatives could lower interest expenses and boost the profitability of both REITs. Meanwhile, I am more bullish on NorthWest Healthcare due to its defensive healthcare portfolio, high dividend yield, and cheaper valuation.
