Simplification and an increased focus on North American assets are the order of the day for Toronto-based Northwest Healthcare Properties REIT (NWH-UN-T), says its CEO Zachary Vaughan.

In real estate “you tend to be rewarded for simplicity,” says Vaughan, who took over the reins of Northwest last summer after holding executive roles at Arrow Global, Brookfield, CPP Investments and International Property Corporation/Reichmann International.

“I’ve lived for getting penalized for complexity,” he says, noting that at Brookfield he witnessed a complex global-listed issue that “never got realized for the value that was there.”

Thus, Northwest plans to sell its assets in Germany and the Netherlands, focus on debt repayment and reallocate capital to Canada and the U.S. It has approved a normal course issuer bid “so we can, down the road, start to acquire our own units and then focus on new investments.” 

The REIT has also reached a deal with NZX-listed Vital Healthcare Property Trust that will see Northwest give up its external management contract of Vital’s healthcare properties in New Zealand and Australia in exchange for approximately $170 million. Vital will take management in-house. (Northwest is Vital’s largest shareholder.)

“Our performance operationally continues to be good,” notes Vaughan, who spoke to RENX after the release of Northwest’s third quarter results. “NOI is growing (and) our financial metrics are all trending in the right direction.”

Q3 financial highlights

During the quarter, same property net operating income increased by 4.4 per cent to $76.9 million compared to Q3 2024. Net Q3 income was $31.2 million, compared to a net loss of $157.3 million in the same quarter in 2024. The change is primarily due to lower interest expense and positive fair value adjustments on investment properties and financial instruments

“It's my first full quarter in the seat,” he says, “but I think we’re making some good progress and hopefully people appreciate and can see what we’re doing and that we’re serious about change.”

While Northwest has done well in comparison to the REIT index or peers, “I still think we have a long way to go. We are sort of in a ‘Prove it’ moment, but we are starting to prove it.” Vaughan expects Northwest to be rewarded for continued improvement in its financial metrics.

He says Northwest’s German and Dutch assets are performing very well but that the overall European property market is very fragmented and localized. 

“Our feeling is we can generate very attractive returns closer to home. It’s really just a decision about making our lives simpler and where we should be allocating our capital.”

Northwest has 167 properties across Canada, U.S., Brazil, Germany, the Netherlands, Australia, and New Zealand with a gross book value of $6 billion. It’s total assets under management are $8.4 billion and occupancy is at 96.9 per cent.

Healthcare a highly local business

Healthcare “is the most local of local” businesses. Northwest sees opportunities in Canada in its traditional multi-tenant out-patient properties and in building the next generation of healthcare infrastructure. 

Vaughan notes Canada is beginning to accelerate the movement of elective or less critical surgeries, such as hip or knee surgeries, outside of big and expensive hospitals and into smaller facilities to reduce wait times, reduce costs and provide better patient outcomes.

Northwest built such a project in Pickering, Ont. with Lakeridge Health a few years ago that has been an “unbelievable success,” he says.

“We are negotiating with other hospital systems to do the same thing. That’s going to be a very exciting opportunity to be at the front edge of that.”

Northwest could be "real Canadian champion"

When Vaughan joined the REIT, his plans to simplify the business received full support.

“I felt that it was a misunderstood entity that had incredible assets in an incredible sector.” He believes Northwest has the potential to become “a real Canadian champion.” 

Healthcare infrastructure has little obsolescence risk, is very hard to replace and is critical for society, he says. What’s more, trends like work-from-home or AI “don’t hurt our physical assets. In fact, improvements in technology tend to make clinics or specialists’ practices more profitable. So, we just want to make sure people understand what it is we actually own.” 

Fifty-seven per cent of Northwest’s assets by NOI are in hospitals and healthcare facilities, 41 per cent are in medical office buildings and two per cent are in life sciences, research and education.

According to The Globe and Mail, of six analysts who follow Northwest, four consider the stock a hold, one a moderate buy and one a strong buy.