From todays Globe and MailThe vultures are circling looking to buy assets real cheap.
Activist fund manager targets Northwest Healthcare REIT
An activist fund manager has launched a campaign to acquire 14 hospitals in Britain from debt-heavy Northwest Healthcare Properties Real Estate Investment Trust, the latest in a series of hedge-fund crusades against underperforming REITs.
Early Monday, activist fund manager TMR Capital PTC Ltd. published a letter urging the board of Toronto-based Northwest to sell its British properties as part of a move to pay down $3.7-billion in debt. Northwest’s unit price is down 36 per cent so far this year.
TMR, which is based in the British Virgin Islands and led by Canadians, went public with its campaign after being privately rebuffed by Northwest in recent months. The hedge fund holds a stake in the REIT and declined to disclose its size. Northwest owns $10-billion of assets, with 231 medical buildings and hospitals in eight countries.
In June, the REIT cancelled plans to sell a 70-per-cent stake in its British hospital portfolio to an unnamed institutional investor, a transaction that would have brought in $276-million. In August, the REIT launched a strategic review and stated it may sell properties to pay down debt.
On Friday, Northwest cut its monthly cash distributions by more than 50 per cent, from 80 cents per unit to 36 cents, and said it was focused on selling facilities in the United States and Brazil.
The sharp increase in interest rates this year left a number of REITs struggling to maintain distributions while paying down debt. REITs typically put mortgages on their properties equivalent to 50 per cent of their value, and some of the debt is at floating rates.
Northwest is the latest of several REIT to cut its payout, after rate hikes left the company borrowing money to pay distributions. Approximately a third of Northwest’s debt is at floating rates, according to a recent report from RBC Capital Markets.
Activist funds have pushed for asset sales and new boards at perceived underperformers, including H&R Real Estate Investment Trust and shopping mall owner First Capital Real Estate Investment Trust, with varying degrees of success.
In a letter to Northwest, released on Monday, TMR partner Derek Vago said the fund manager made a non-binding offer for the British hospitals in August, and has been unable to engage in follow-on negotiations.
“We do not think it is in the best interests of the REIT to delay discussions and launch another formal process, particularly in light of the prior process that did not result in a successful sale of the U.K. portfolio,” said Mr. Vago, a graduate of McGill University, in the letter.
“The REIT’s unit price is declining further than in June and this in large part, in our opinion, is due to the aborted U.K. transaction as well as perceived lack of direction,” he said.
TMR said selling the British hospitals would allow Northwest to pay down debt and free up cash for “sustainable dividends.” TMR did not disclose the price of its offer for Northwest’s British hospitals.
In a recent report, RBC Capital Markets said the REIT’s European assets, which also include 51 buildings in Germany and the Netherlands, are valued at $1.6-billion, including debt.
On Friday, in a press release, Northwest said: “The REIT currently believes that global partnerships will remain a strategic backbone.”
Earlier this year, TMR successfully pushed for the break up of British food-services conglomerate The Restaurant Group PLC, which owns the Wagamama chain. TMR offered to buy the company’s British pubs.
In September, Restaurant Group’s chair resigned and the company sold a money-losing division with 75 locations to a rival chain, The Big Table Group Ltd. Restaurant Group’s share price has increased by 62 per cent this year.
When Northwest started its strategic review in August, chief executive officer Paul Dalla Lana resigned. Later in the month, Mr. Dalla Lana disclosed that he had acquired an additional 1.6 million Northwest units, bringing his stake to about 9 per cent, and was negotiating a potential transaction with the REIT.