REITs Post Solid Q4 Growth as Healthcare Properties Shine

In the ever-evolving landscape of real estate investment trusts (REITs), the fourth quarter of 2024 has been a standout period, particularly for those focused on healthcare properties. Northwest Healthcare Properties Real Estate Investment Trust (NWH.UN) and American Healthcare REIT (AHR) have both reported impressive financial performances, driven by strategic initiatives and a strong focus on healthcare infrastructure. Let's dive into the details and see what these results mean for income-seeking investors.

Northwest Healthcare Properties Real Estate Investment Trust (NWH.UN)

Northwest Healthcare Properties REIT has long been a leader in the healthcare real estate sector, with a diversified portfolio spanning North America, Brazil, Europe, and Australasia. The REIT's strong fourth quarter and year-end results reflect a 9% and 12% increase in Adjusted Funds from Operations (AFFO) over the prior quarter and prior year, respectively. This growth is a testament to the team's hard work and strategic initiatives.

One of the key drivers of this success has been the REIT's asset disposition strategy. In 2024, NWH.UN disposed of investment properties for total proceeds of $1.4 billion at a weighted average cap rate of 6.5%. This move helped optimize the portfolio, simplify operations, and strengthen the balance sheet. The proceeds were used to repay $1.1 billion in debt and refinance an additional $1.0 billion, significantly reducing the REIT's leverage.

Another critical factor has been the REIT's focus on lease renewals. During Q4 2024, NWH.UN completed 157,000 square feet of new and renewal leasing, achieving a renewal rate of 87%. This includes early lease renewals at two hospitals in Brazil, extending the lease terms to 23.7 years. This long-term lease maturity profile, with a weighted-average lease expiry (WALE) of 13.6 years, ensures stable and predictable cash flows.

American Healthcare REIT (AHR)

American Healthcare REIT (AHR) has also posted impressive results, with a GAAP net loss of $(31.8) million for Q4 2024 but achieving significant Same-Store NOI growth of 21.6% compared to the same period in 2023. The company's focus on senior housing operating properties (SHOP) and integrated senior health campuses (ISHC) has proven to be a winning strategy, with these segments showing remarkable growth.

AHR's strategic initiatives include asset acquisitions and equity offerings. The company purchased over $650 million of new investments during 2024 and established an at-the-market equity offering program, raising gross proceeds of approximately $1.36 billion. This has strengthened the balance sheet and provided liquidity for future growth.

Portfolio Compositions and Geographic Diversifications

The portfolio compositions and geographic diversifications of these REITs significantly influence their financial performances and growth prospects. Northwest Healthcare Properties REIT's diversified portfolio and geographic spread provide stability and growth opportunities across multiple regions. The REIT's consolidated SPNOI for Q4 2024 increased by 4.9% over the comparable prior year period, driven by inflationary adjustments on rents, rentalized capital spend, and improved recoveries.

American Healthcare REIT's focus on senior housing has driven significant Same-Store NOI growth, with SHOP and ISHC segments showing 66.6% and 28.0% growth, respectively, in Q4 2024. This strategic focus has allowed AHR to achieve attractive NOI growth across its diversified healthcare portfolio.

What This Means for Income-Seeking Investors

For income-seeking investors, the strong performance of these healthcare-focused REITs presents an attractive opportunity. The healthcare sector's resilience and growing demand for infrastructure make these REITs a solid choice for long-term investment. However, it's essential to consider the risks and ensure that your portfolio is diversified to mitigate potential downturns.

Red Flags to Watch

While the outlook for healthcare REITs is positive, there are a few red flags to watch. The healthcare sector is subject to regulatory changes and shifts in demand, which can impact the performance of these REITs. Additionally, the high leverage of some REITs can pose a risk in a rising interest rate environment.

Alternatives if Rates Rise

If interest rates rise, investors may want to consider alternatives to healthcare REITs. Utilities and telecoms are sectors that typically perform well in a rising rate environment, offering stable dividends and lower volatility. However, these sectors may not offer the same growth potential as healthcare REITs.

Conclusion

The fourth quarter of 2024 has been a strong period for healthcare-focused REITs, with Northwest Healthcare Properties REIT and American Healthcare REIT posting impressive results. The strategic initiatives and portfolio compositions of these REITs have driven significant growth and financial stability. For income-seeking investors, these REITs present an attractive opportunity, but it's essential to consider the risks and ensure a diversified portfolio. As always, do your own research and consult with a financial advisor before making any investment decisions.