Improving Flexibility for Future Growth Bottom Line:
As expected, NWH.UN’s asset management platform continues to expand with
additional asset vend-ins into existing JVs. We continue to believe the JV structure
allows NWH.UN to acquire high-quality properties on an accretive basis, and should
support ongoing NAV growth. The potential for deleveraging, although dilutive in
the near term, should improve flexibility for further growth over the longer term. We
maintain our Market Perform rating and our $13.25 target price.
Key Points
Critical healthcare assets support resiliency of portfolio. NWH.UN collected 98.3% of
rent in Q4/20, up from 97.6% in Q3/20.
Busy start to 2021. In February 2020, NWH.UN announced a $3.1 billion JV (30%
NWH.UN/70% GIC) focused on acquisitions in Germany and the Netherlands (our
comment). In Q1/21, NWH.UN sold four wholly owned Dutch clinics to the JV for $44.8
million. With respect to its U.K. JV, NWH.UN continues to progress on discussions with
potential partners with a view to generate ~$260 million in net proceeds from the sell
down of its 100% interest in the portfolio in 2021. On the acquisitions front, NWH.UN
has agreed to acquire a 59,000 sf life sciences building in the Netherlands (100%
leased, 19-year WALE) for $24.3 million (5.9% cap rate). In Australia, together with a
capital partner, NWH.UN has entered into an option agreement to acquire a strategic
interest of 16% of the units in Australian Unity Healthcare Property Trust (AUHPT),
subject to customary regulatory approvals. Valued at $2.3 billion, AUHPT comprises
62 hospitals, medical centres, and other healthcare assets (98% occupancy, 15.9 year
WALE).
Potential to reduce leverage. NWH.UN has already renewed, refinanced, or extended
over 45% of its 2021 maturities. Given its current unit price, NWH.UN sees the potential
for the conversion of two tranches of its convertible debentures totalling $155 million.
Assuming full conversion to equity at conversion prices of $12.75 and $12.80, NWH.UN
expects proforma leverage to decline by 350 bps. Furthermore, NWH.UN expects to
see portfolio valuation gains in Q4/20 (~$125-175 million), which is expected to further
reduce leverage by 160-220 bps. The combined impact from the REIT's transaction
activities and deleveraging efforts is expected to reduce NWH.UN's proportionate
leverage to <50% from 57.6% at Q3/20.
NWH.UN will report Q4/20 earnings on March 11, 2021 after market close.