NorthWest Healthcare: After Price Drop, This REIT Is Even More Attractive

Summary

  • Given a steep price fall in last month, I expect a double-digit total return this year.
  • Four out of its five global markets are considered to be the topmost destinations for comfortable retirement, which will enhance the demand for medical office buildings.
  • NWHUF perfectly fits the criteria of a proper target for the major healthcare REITs.
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Last time I covered NorthWest Healthcare Properties Real Estate Investment Trust (OTC:NWHUF), I found it to be a good investment option for five reasons: a) operating in lucrative Medical Office Building segment (MOB), b) four out of its five global markets (Canada, Brazil, Europe, Australia and New Zealand) are considered to be the topmost destinations for a comfortable retirement, c) strong and steady monthly dividends since 2010, d) steady price growth over medium and long term, and e) reasonably lower price multiples.

On March 8th, 2022, this MOB focused healthcare REIT opened at $10.56. The price moved up to $11.41 within two weeks, before slowly moving down to a level of $9.34 on May 9th. On May 13th, 2022, the REIT closed at $9.82. Compared to March 8th, there is a price loss of seven percent. As this REIT pays a monthly dividend, there is a tendency of minor price loss for two weeks after the dividend record date. Last dividend record date was April 29th, when the stock opened at $10.44. In the past two weeks, the stock has recorded a minor price loss of six percent.

In my last coverage, I opined that NorthWest Healthcare Properties was a lucrative option for income seeking investors. I said that NWHUF “recorded an average yield of 6.78 percent over the past 4 years, and 6 percent yield over the past 12 months. Its yields are among the highest when compared with its peers. However, there has not been any visible growth in dividend over the past five years. Since July 2015, the dividend has been close to $0.05 per share”.

NorthWest Healthcare Properties also recorded steady average price growth over the medium term. Over the past three and five years, its price grew by 16 percent and 26 percent respectively. However, in the past 12 months, the stock has performed poorly, primarily due to poor growth of the healthcare sector. NWHUF recorded a price loss of 6.4 percent, 8.5 percent, and 9.4 percent over the past 3 months, 6 months, and 12 months, respectively.

At the time of my last coverage, NWHUF was the best stocks among its peers in terms of returns. But, as I said in the beginning, the past one month has been extremely poor for NorthWest Healthcare Properties, as it recorded a double digit price loss. The loss over the past one month has wiped away all the gains it made in the entire year. When compared with other mid-cap healthcare REITs (market capitalisation between $1.5 billion and $9 billion) such as CareTrust REIT, Inc. (CTRE), National Health Investors, Inc. (NHI), Sabra Health Care REIT, Inc. (SBRA), Physicians Realty Trust (DOC), and Omega Healthcare Investors, Inc. (OHI), I find NWHUF’s return is worse than its peers.

These five REITs recorded an average price loss of 2.4 percent, as compared to 10 percent of NWHUF. This is quite disappointing considering that the price growth of NWHUF is way above its peers over the past 3 years and 5 years. Over the past five years, while NWHUF grew by 26 percent all other stocks - CTRE (-3.7 percent), DOC (-11 percent), OHI (14.7 percent), NHI (-27.6 percent), and SBRA (-47.5 percent) - recorded a negative growth. Even over the past 12 months, only DOC (-2.8 percent) has been able to generate better price growth than NWHUF (-9.4 percent).

But despite its steep price fall over the past one month, I am still quite optimistic about this REIT. MOB is amongst the fastest growing segments and almost all the properties of NWHUF are leased out to physicians, clinics, & hospitals on long term lease and having stable occupancies. So, despite such disappointing price performance, I am hopeful of earning a double digit total return in this calendar year, considering an year-end yield of six percent.

I discussed last time about the attractiveness of the MOB segment. “Medical office building is expected to benefit from various macro factors such as increase in geriatric population and preference towards outpatient services. Throughout most of the world, survival beyond age 65 is improving. Globally, a person aged 65 years in 2015-2020 could expect to live, on average, an additional 17 years. By 2045-2050, that figure will have increased to 19 years. Between 2015-2020 and 2045-2050, life expectancy at age 65 is projected to increase in all countries.''

Moreover, as discussed last time, four out of its five global markets (Canada, Brazil, Europe, Australia and New Zealand) are considered to be topmost destinations for a comfortable retirement. Retirement living can only be comfortable in the presence of ample healthcare facilities and policies for the geriatric population. Such senior citizen friendly policies by default enhance the demand for medical office buildings.

Another positive factor regarding NorthWest Healthcare Properties is that the price loss has made its price multiples even more attractive. Price/Book of 1.27, and Price/Sales of 7.65 no doubt provides me further incentives to hold and accumulate shares of this MOB focussed healthcare REIT. The simple moving average (SMA) also indicates that the days of steep price fall are over. 50 days SMA (10.72), 100 days SMA (10.69), and 200 days SMA (10.61) clearly hint toward an upward price movement.

Another reason for backing this stock is my assumption of NorthWest Healthcare Properties being a good acquisition target. I explained last time that “Average market capitalization of those four REITs is 10X of that of NWHUF. Due to its excessively high concentration in the MOB segment, and assets spreading over five regions outside the US, NWHUF could possibly become a perfect acquisition target, which may again lead to its price growth”.

Recently, two of its major rival companies - Healthcare Realty Trust (HR) and Healthcare Trust of America, Inc. (HTA) decided to merge and become a major healthcare REIT so as to compete with existing four large-cap healthcare REITs, namely Welltower Inc. (WELL), Medical Properties Trust, Inc. (MPW), Ventas, Inc. (VTR), and Healthpeak Properties, Inc. (PEAK).

Incidentally, WELL, the largest healthcare REIT with a market capitalization of more than $37 billion submitted an all cash acquisition bid for HR valuing almost $5 billion. The offer got rejected, and it’s easy to assume that WELL will try to acquire some other REIT with good future growth prospects. A major reason for WELL’s bid was to achieve inorganic growth in the lucrative MOB segment. NWHUF’s current market value ($2.37 billion) is less than half of WELL’s bid amount. And in my view, NorthWest Healthcare Properties perfectly fits the criteria of a proper target for not only WELL but also for the other major healthcare REITs.

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Disclosure: I/we have a beneficial long position in the shares of NWHUF either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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