A Member of Pat McKeough’s Inner Circle recently asked for his advice on a Canadian REIT that has built a niche of its own.
NorthWest Healthcare Properties REIT owns almost 150 medical offices, clinics and hospitals in Canada and three other countries. The company’s revenue and cash flow are up and the distribution yields a high 7.2%. The REIT’s strategy of growing by acquisition adds risk, cautions Pat, although the quality of its tenants and the needs of an aging population work in its favour.
Q: Pat: Can I have your recommendation on NorthWest Healthcare Properties REIT? It seems to be in a good niche. Thanks.
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A: NORTHWEST HEALTHCARE PROPERTIES REIT (symbol NWH.UN on Toronto (Units outstanding: 102.4 million; Market cap: $1.2 billion; www.nwhp.ca) owns 146 health-care properties, including medical office buildings, clinics and hospitals. The REIT is Canada’s largest non-government owner and operator of medical office buildings.
Offering its units at $10 each, NorthWest began trading March 25, 2010, on Toronto.
Currently, its properties comprise 10.2 million square feet of leasable area. Of the overall 146 properties, 57 are in Canada, 59 are in Australasia, 23 are in Germany, and 7 are in Brazil. While 61% of them are medical office buildings, 39% are hospitals.
NorthWest has an overall occupancy rate of 95.9%.
New property acquisitions (69 from the start of 2013 to the end of 2017) drove the REIT’s 109.2% jump in revenue, from $150.1 million in 2013 to $314.0 million in 2017. Over that period, cash flow soared 144.8%, from $39.4 million to $96.8 million. However, cash flow per unit rose just 7.1%, from $0.85 to $0.91. That reflects the 130% increase in the number of units outstanding due to NorthWest’s acquisitions.
Dividend stocks: 2017 acquisitions include properties in Germany, Australia, New Zealand
In the three months ended December 31, 2017, overall revenue rose 3.2%, to $84.4 million from $81.8 million a year earlier. Cash flow increased 21.6%, to $23.3 million from $19.2 million. Cash flow per unit fell 9.1%, to $0.20 from $0.22, on more units outstanding.
NorthWest continues to grow by acquisition. In 2017, the REIT bought two medical office buildings in Germany, in addition to making other acquisitions in Australia, New Zealand and elsewhere. Those purchases include stakes in two REITs—Generation Healthcare, listed on the Australian Stock Exchange, and Vital Trust, listed on the New Zealand exchange.
Growth by acquisition adds risk, especially in less-stable jurisdictions such as Brazil (NorthWest now owns 7 properties in that country). However, the REIT should continue to benefit from the aging population in the markets it serves and their rising demand for medical services. As well, its high-quality tenants—doctors, dentists, pharmacies, laboratories and diagnostic imaging clinics—enhance its appeal.
NorthWest pays a monthly distribution of $0.06667 a unit ($0.80 per year), for a high 7.2% annualized yield.
Inner Circle recommendation: NorthWest Healthcare Properties REIT is okay to hold for aggressive investors.
Sure, Mark. Our latest analysis on the stock addresses that key figure and the dividend’s sustainability. Note our Dividend Sustainability Rating on the stock is Average.
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It would be very helpful to hear about the payout ratio of NWH and how it could be sustainable.
Thanks….Mark
Sure, Mark. Our latest analysis on the stock addresses that key figure and the dividend’s sustainability. Note our Dividend Sustainability Rating on the stock is Average.