Updated on October 2nd, 2024 by Felix Martinez
NorthWest Healthcare Properties Real Estate Investment Trust (NWHUF) has three appealing investment characteristics:
#1: It is a REIT so it has a favorable tax structure and pays out the majority of its earnings as dividends.
Related: List of publicly traded REITs
#2: It is a high-yield stock based on its 6.4% dividend yield.
Related: List of 5%+ yielding stocks
#3: It pays dividends monthly instead of quarterly.
Related: List of monthly dividend stocks
You can download our full Excel spreadsheet of all monthly dividend stocks (along with metrics that matter like dividend yield and payout ratio) by clicking on the link below:
NorthWest Healthcare Properties Real Estate Investment Trust’s trifecta of favorable tax status as a REIT, a high dividend yield, and a monthly dividend make it appealing to individual investors.
But there’s more to the company than just these factors. Keep reading this article to learn more about NorthWest Healthcare Properties Real Estate Investment Trust.
Business Overview
NorthWest Healthcare Properties Real Estate Investment Trust is an open-ended real estate investment trust with a portfolio of high-quality international healthcare real estate infrastructure comprised of interests in a portfolio of 186 income-producing properties and 16.1 million square feet of gross leasable area located throughout major markets in Canada, Brazil, Europe, Australia and New Zealand.
Source: Investor Presentation
The REIT’s portfolio of medical office buildings, clinics and hospitals is characterized by long term indexed leases and stable occupancies. With a fully integrated and aligned senior management team, the REIT leverages over 200 professionals across nine offices in five countries to serve as a long-term real estate partner to leading healthcare operators.
NorthWest Healthcare Properties REIT has a high occupancy rate of 96.0% and a weighted average lease duration of about 12.9 years. The long lease duration offers great visibility into future cash flows. The REIT is also highly diversified geographically, and, more importantly, it is somewhat protected from high inflation thanks to contractual rent growth year after year.
In 2024, the REIT made significant moves in lease management and asset sales. On May 8, 2024, it extended the lease maturity on six UK hospitals from 9 to 25 years, covering approximately 255,000 square feet. As part of the deal, a $1.7 million lease surrender fee was recognized, and a new tenant was secured for one property. Additionally, the REIT initiated a strategic asset sales program, generating $1.6 billion in proceeds from the sale of 46 properties and unlisted securities. These funds were primarily used to reduce debt, including $207.9 million in US term debt.
The REIT also engaged in refinancing activities in the first half of 2024, extending key credit facilities and loans. This included a two-year extension on the Australasian secured term loan and various mortgage amendments across North America and Europe. Interest rate derivatives were implemented to lower effective interest rates on debts, including a reduction of 80 basis points on its Australasian debt and 190 basis points on its US non-revolving credit facility. These measures contributed to a strengthened financial position, positioning the REIT for future debt repayment.
Subsequent to June 30, 2024, the REIT sold its UK portfolio to Assura PLC for $885 million. The proceeds from this transaction will be used to pay down high-interest debt. This sale is part of a larger strategic plan to streamline operations and reduce liabilities. Though the sale resulted in a $105 million fair value loss, it is expected to enhance the REIT’s balance sheet and provide flexibility for managing future debt obligations.
Growth Prospects
The healthcare real estate market has many attractive characteristics. First of all, it is one of the largest industries in the world, accounting for more than 10% of global GDP. About $8 trillion is spent on global healthcare every year. In addition, healthcare spending is growing at a 4%-7% annual rate.
Source: Investor Presentation
Moreover, the healthcare industry enjoys favorable demographics thanks to a growing and ageing global population. As the 65+ group continuously grows and it is the group with the greatest spending power, global healthcare spending is likely to continue growing at a fast pace for the next several years.
Furthermore, NorthWest Healthcare Properties REIT has built a rapidly growing asset management platform. Thanks to this platform, the trust enjoys fast-growing management fees. While management fees somewhat cooled in the latest quarter, they are likely to remain a material growth driver in the upcoming years.
Overall, NorthWest Healthcare Properties REIT has ample room for future growth thanks to the secular growth of the healthcare industry. On the other hand, high interest rates are likely to take their toll on the bottom line of the trust in the upcoming quarters.
NorthWest Healthcare Properties REIT has shrink its FFO per unit by 6.5% per year on average over the past five years. However, Given the above factors, we expect the REIT to grow its FFO per unit by about 2.0% per year on average over the next five years, roughly in line with its historical growth rate.
Dividend & Valuation Analysis
NorthWest Healthcare Properties REIT is currently offering a 6.4% dividend yield. It is thus an interesting candidate for income-oriented investors, but the latter should be aware that the dividend may fluctuate significantly over time due to the gyrations of the exchange rates between the Canadian dollar and other foreign currencies and the USD.
Moreover, the REIT has an elevated payout ratio of over 100%, which greatly reduces the dividend’s safety margin.
In reference to the valuation, NorthWest Healthcare Properties REIT is currently trading for only 9.8 times its FFO per unit in the last 12 months. The cheap valuation has resulted primarily from the expected impact of higher interest expense on the bottom line and the effect of high inflation on the valuation, as high inflation greatly reduces the present value of future cash flows.
Given the material debt load of the REIT, we assume a fair price-to-FFO ratio of 11.0 for the stock. Therefore, the current FFO multiple is lower than our assumed fair price-to-FFO ratio. If the stock trades at its fair valuation level in five years, it will enjoy a 2.4% annualized gain in its returns.
Taking into account the 2% annual FFO-per-unit growth, the 6.4% dividend, and a 2.4% annualized expansion of valuation level, NorthWest Healthcare Properties REIT could offer an 10.4% average annual total return over the next five years. This is an attractive expected return, especially for the investors who expect inflation to subside swiftly to its normal levels. Nevertheless, the stock is suitable only for the investors who are comfortable with the risk that comes from the material debt load of the trust.
Final Thoughts
NorthWest Healthcare Properties REIT has the advantage of operating assets in the global healthcare industry, which enjoys strong and reliable secular growth. Despite its high payout ratio of over 100%, the stock is offering an exceptionally high dividend yield of 6.4%. Hence, it is an attractive candidate for the portfolios of income-oriented investors, particularly given that the stock has an attractive expected return of 11.4% per year over the next five years.
On the other hand, investors should be aware of the risk that results from the weak balance sheet of the REIT. If high inflation persists for much longer than currently anticipated, high interest rates will greatly burden the REIT. Therefore, only the investors who are confident that inflation will soon revert to normal levels should consider purchasing this stock.
Moreover, NorthWest Healthcare Properties REIT is characterized by exceptionally low trading volume. This means that it is hard to establish or sell a large position in this stock.
Don’t miss the resources below for more monthly dividend stock investing research.
- The Monthly Dividend Stocks List
- 20 Highest Yielding Monthly Dividend Stocks
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- 3 Top ‘Hold Forever’ Monthly Dividend Stocks
And see the resources below for more compelling investment ideas for dividend growth stocks and/or high-yield investment securities.
- Dividend Kings: 50+ years of rising dividends
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- High Dividend Stocks: 4%+ dividend yields
- Blue Chip Stock: Kings, Aristocrats, and Achievers
- MLPs: List of MLPs and more
- REITs: List of REITs and more
- BDCs: List of BDCs and more