Northwest Healthcare Property REIT

NWH.UN-T

(A Top Pick Jul 19/18, Up 0.3%) They are doing a lot of very smart things in the health care area around the world and he is sticking with it.

It is a Canadian firm, owning medical buildings. That was their original business and they are redeploying some of their capital internationally. They have had some fantastic capital deployment. They are now going to run one of the biggest Australian healthcare real estate funds. You get about a 7% yield. (Analysts’ target: $11.85).

The only REIT he owns. The property portfolio is not just Canadian but half is international. The CEO is a very smart capital allocator. He owns quite a bit of the company. (Analysts’ target: $11.65).

He long ago owned this. It trades at a cheap 14x AFFO. It's in several businesses across several georgapies (i.e. German, Australia, Canada). But he wants a REIT that's highly specific or is best in class. This is neither. Their last quarter was weak, too. They'll need a lot of acqusitions to keep going. They're stretched out.

Their plan is to acquire medical office buildings and standardize the rent and leases, get advertising and get parking. It was a Canadian only entity, but then merged with Northwest International, and has become a much bigger REIT. A REIT is fine in your portfolio, but it’s hard to get excited about a company that has to pay out 95% of its cash flow to shareholders. The valuation on all REITs is quite expensive at this time. Yield of almost 7%.

A really interesting organization. You are buying healthcare assets, such as hospitals and medical treatment centres in multiple markets such as Brazil, Germany, New Zealand and Canada. That really diversifies your risk. He doesn’t own it because as a real estate guy he has trouble valuing properties in those kind of diverse markets, without really understanding what is happening in healthcare, etc. 7.3% dividend yield.

A globally diversified REIT with exposure in Canada, Brazil, Germany, Austria and Asia. Rather than being in healthcare, they are more of a rent collector. In Canada, in particular, they run medical office buildings, which is a more defensive part of the market. Yield of about 8%. Although it has some positive attributes, the balance sheet is stretched, and a lot of their debts are in convertible bonds.

This has medical office buildings in other parts of the world like Brazil, Australia, New Zealand. There are a lot of cross currency issues. Has a relatively high payout ratio. He prefers other names in terms of risk/reward.

NWH.UN-T vs. CSH.UN-T. CSH.UN-T has decent growth because of their demographics. His problem with REITs is that they were one of the biggest beneficiaries of the low interest rate. He looks at the cap rate and turns it into an enterprise value and you are paying 15-16 times operating cash flow. You should pay that for a high tech company, not a healthcare company. You are paying out 80-90% of the income as yield. You can’t do that in other sectors. Where is the money to invest in the business – how does it grow? He went short the REITs about two months ago. He does not like either one, but if forced to choose it would be CSH.UN-T.

Something of a healthcare REIT, and is typical of a lot of younger REITs where they’ve got a development company that identifies properties, builds them up and gets them fully leased, and blends them in. This has had some hiccups in the last little while. It is trading at a discount to NAV. Not a bad way to play the sector if you are looking for real estate exposure in this particular area.