Pat McKeough recently replied to an Inner Circlemember looking for an opinion on Northwest Healthcare Properties REIT. The operator of medical office buildings has spent about $350 million on recent acquisitions. But there may be a downside to that growth, says Pat.
Q: Pat: Can I get your opinion on NorthWest HealthCare Properties REIT. Thank you.
A: NORTHWEST HEALTHCARE PROPERTIES REIT (symbol NWH.UN on Toronto; www.nwhp.ca) owns 135 properties, with a focus on medical office buildings and clinics. The real estate investment trust is Canada’s largest non-government owner and operator of medical office buildings.
In all, NorthWest’s properties contain 9.0 million square feet of leasable area. Its Canadian holdings are concentrated in Calgary, Edmonton, Toronto, Montreal, Quebec City and Halifax. It also owns buildings in Brazil, Germany, Australia and New Zealand. NorthWest has an overall 95.9% occupancy rate.
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The REIT began trading on Toronto on March 25, 2010; it offered units to the public at $10 each.
In the three months ended September 30, 2016, NorthWest’s revenue rose 5.1%, to $66.5 million from $63.3 million a year earlier. Cash flow rose 2.2%, to $17.7 million from $17.3 million. Cash flow per unit fell 4.5%, to $0.21 from $0.22, on more units outstanding.
Dividend Stocks: Brazilian properties among $350 million in acquisitions
The REIT recently completed acquisitions totalling $350 million. These include the purchase of two Brazilian hospitals, in the cities of Sao Paulo and Brasilia, for $145.2 million.
Manage your own money—but beware of these practice-account risks
NorthWest also continues to expand in Australia: it recently bought a 19.8% stake in Generation Healthcare REIT, listed on the Australian Stock Exchange, for $93.8 million; it also spent $97.9 million on other acquisitions in that country, including the Mons Road Medical Centre, in Sydney, and the Epping Medical Centre, in Melbourne.
Growth by acquisition adds risk, especially in less-stable jurisdictions such as Brazil. However, the REIT should continue to benefit from an aging population and 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, for a high 8.1% annualized yield.
Inner Circle recommendation: HOLD
For our recent report on a Canadian REIT we rate as a buy, readGrowth ahead for H&R REIT.
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