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It’s been a terrible year for real estate investment trusts. As of the close on Dec. 24, the S&P/TSX Capped REIT Index was down 17.1% year-to-date. By comparison, the Composite Index was up 3.2%, not including dividends.
But not all REITs have been hammered. Those that specialize in malls, hotels, office space, and long-term care facilities have taken the worst of the pandemic selloff. But others that focus on sectors that have thrived during this recession (e.g., data centres) have done well.
Here is one that I like. It’s trading at a price higher than the beginning of the year (up 5.2% year to date) and offers a yield of 6.9%.
NorthWest Healthcare Properties REIT (TSX: NWH.UN)
Type: Real estate investment trust
Recent price: $12.56
Annual payout: $0.80
Yield: 6.4%
Risk: Moderate
Website: www.nwhreit.com
The business: This REIT offers a portfolio of high-quality healthcare real estate comprised of interests in a diversified portfolio of 183 income-producing properties and 15 million square feet of gross leasable area located throughout major markets in the Americas, Europe, and Australasia. In Canada, the REIT is the largest non-government owner and manager of medical office buildings and healthcare facilities from coast to coast, including major concentrations in Calgary, Edmonton, Toronto, Montreal, Quebec City, and Halifax. The portfolio consists of medical office buildings, clinics, and hospitals and is characterized by long term indexed leases and stable occupancies.
The security: The units trade on the TSX and are also listed on the over-the-counter market in the U.S., although volume there is very light (often less than 1,000 units per day).
Why I like it: As I said at the outset, not all REITs are created equal. This one focuses on healthcare facilities and they are, obviously, much in demand during a pandemic.
Financial highlights: Second-quarter results showed a modest year-over-year decline in adjusted funds from operations (AFFO) from $36.2 million in 2019 to $35.6 million this year. AFFO per unit in the quarter was $0.20. Canadian occupancy was stable at 97.3%. International was also stable at 98.8 per cent.
“The REIT’s properties have remained open during this challenging operating environment although some tenants have had to adapt their businesses to align with local government and healthcare guidelines,” said CEO Paul Della Lana.
“Despite this, operating performance during the quarter remained defensive with 97.6% of proportionate rent being collected of subject to formal deferral arrangements.”
Meanwhile, the REIT continues to expand its portfolio. In August, it announced the acquisition of four hospitals in the area of Greater London (England) for $454 million. The properties are fully occupied on long-term, inflation-indexed leases.
Risks: Even some medical businesses are being hurt by the pandemic (think dental offices) and there is a risk of some closing down the longer the crisis continues. That could raise vacancy rates and reduce cash flow in the future. However, the risk to the core business here is much lower than with some other types of REITs.
Distribution policy: Investors receive monthly distributions of $0.06667 per unit ($0.80 per year). The payout has remained the same for several years and is unlikely to change soon. The yield is very attractive at 6.9%.
Tax implications: In 2019, the REIT reported that 59% of the payout was treated as tax-deferred return of capital. The balance was fully taxable.
Who it’s for: This is a suitable investment for those who want to benefit from the current high yields in the REIT sector while minimizing risk potential.
How to buy: The units trade on the TSX, with an average daily volume of almost 300,000, so you should have no trouble having your order filled.
Summing up: The high yield and the focus on the medical profession make this an attractive option.
Disclaimer: I own units in this REIT.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.
Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
© 2020 by The Fund Library. All rights reserved. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
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