TSX:NWH.DB.G - Post by User
Post by
incomedreamer11on May 17, 2022 9:22am
379 Views
Post# 34688751
Scotia comments
Scotia comments
Emergence of AFFOPU Growth = Next Leg Up
OUR TAKE: Neutral. We maintain our SO rating with intact key estimates (Exhibit 1). By NWH standards, Q1 was fairly quiet. We think we’re 1-2 quarters from a material step-change in the business, including completion of a ~2-year deleveraging process via launching the U.K. Healthcare and U.S. JVs (Q2/22 and Q3/22, respectively; Exhibit 7), which combined with deploying excess capacity in European/Australian JVs, should double annualized fee revenues to $120M. That, in-and-of-itself, is not the important thing for us. The important thing, when combined with portfolio 2022E SSREV of ~4%, is the expected impact on AFFOPU and NAVPU growth, with our emphasis on the former. To be clear, we think unit price appreciation requires better AFFOPU growth (Exhibit 2). Successful fundraising and efficient capital allocation should get NWH there starting in 2H/22, in our view. The “defensive” portfolio has out-performed during COVID (Exhibit 3), but superior AFFOPU/NAVPU growth is the next leg up (Exhibits 4-6).
KEY POINTS
What has changed since we last wrote? We modified our model a bit as it pertains to the asset manager, lowering our multiple by ~4x to ~15.0x-15.5x (base fees = 18x; other fees = 9x) on broader recent industry compression. That said we increased our NTM and 2023E FRE (fee-related-earnings) to $55M and $64M. We also increased our development yield spread to ~160bp (from ~100bp) given NWH target 5.5%-6% yields (delivered $103M at 6% in Q1; at 100% share). We increased our 2022E/2023E debt refi costs by 110bp/100bp.
Approaching material step-change in asset management franchise that should improve investor sentiment. A key point made by NWH on its c/c was the significant acceleration of asset management fees from the Q1/22A $15M (annualized = $60M) to $120M. The key catalysts = the long-awaited UK Healthcare Fund ($1B would be deployed via seed portfolio; $2.5B of AUM targeted in total), planned U.S. co-investment into the recent $765M acquisition (say ~$200M of equity at 50% LTV and 50% co-investment) and capital deployment in its Australian and European JVs with ~$5B of capacity (i.e., say $1.6B-$1.7B of LP equity over 2-4 years), which = NWH target of ~$20B vs. the $11B today (Exhibit 7). This excludes potential JV formations in Brazil and Canada (where NWH owns 100%) Simply applying a market-standard 50%-60% GP margin to the $120M aligns with our forecast $64M of FRE in our Forward NAVPU (Exhibit 8).
Long-term potential paths taken. Over time, we would like to see LP diversification (new relationships outside of GIC) to really cement the Global franchise. As noted, the $20B AUM target excludes Brazil and Canada, where we suspect NWH will reduce its asset-heavy approach consistent with Europe and Australia today (20%-30%). In addition to bringing in co-investment capital, we think NWH could look to create geographic stand-alone REITs, transforming NWH into a completely capital-light, low-leverage asset manager (requiring conversion to a C-Corp). Lots of interesting possibilities over time to be sure.