TSX:NWH.DB.G - Post by User
Post by
incomedreamer11on Oct 10, 2023 9:38am
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Post# 35676816
Scotia comments
Scotia comments
Laying Out Cards on the Table
OUR TAKE: Mixed. We initiated coverage on NWH in first week of Sep’23 – see our detailed 59-page report (link). In a couple of weeks, we were restricted as NWH provided an update on the strategic review process. We are now off-restriction, and resuming coverage with a target of $6.50 (-$1.50) and unchanged SP rating. A lot has happened in the last few weeks – Exhibit 1 where we summarize all the recent developments (distribution cut, strategic review, NWVP interest, etc). Our NAVPU is reduced to $8.50 (-$0.75) and our 2024E AFFOPU is reduced by 33% (Exhibit 11), and in line with soft guidance from the management. Current distribution yield (post 55% cut) = 7.0% @82% ‘24E payout ratio (Exhibit 13).
We think NWH should appeal to “Value” investors as risk-reward profile has improved. NWH unit price is down ~25% since beginning of Sep’23, and we are almost running out of bad news now (Exhibits 4, 5 & 6). We did a scenario analysis (Exhibit 3) and think floor price could be $4.50 to $4.75 (Scenario 1) while bull-case could imply $8.00 to $9.00 (Scenario 4). See below for five different scenarios:
Scenario 1: Bear-case. NWH is not successful with dispositions while interest rate expenses increase further and stay elevated for full 2024. Our NAVPU decreases to $5.50 (based on 7.55% cap rate) and 2024 AFFOPU reduces by 7.5% from Scotia estimate. Exhibit 3 for details. Assuming 15% discount to bear-case NAV, $4.50 to $4.75 could be the floor in the near-term. At this floor price, AFFO yield spread to 10-yr GoC will be 575bp (vs historical average of 590bp – Exhibit 15).
Scenario 2: Reasonable scenario. US disposition + UK JV + Rate cuts in 2024, and we assume dispositions at 20% discount to our base portfolio value – this could be most likely event. In that case, NAVPU is $7.25 and 2024E AFFOPU reduces to $0.416. Here, pro forma leverage goes down to 49% (from 58% Debt/Assets).
Scenario 3: Limited success with dispositions. UK JV formation but interest rates remain elevated for full 2024. Leverage remains elevated and NAVPU at $7.75 and AFFOPU at $0.422. Here, pro forma leverage goes down to 53% (from 58% Debt/Assets).
Scenario 4: Bull-case scenario. In case of an M&A event, a bid could come in at $8.00+ range. This could still offer investors ~55% premium to recent price (vs ~20% on an average in past M&A’s) and yet 6% discount to consensus NAV (vs ~20% on an average in past M&A’s). List of past M&A’s (Exhibit 39).
Scenario 5: Base-case (Exhibit 2). We assume no dispositions in 2024. Our NAV cap rate of 6.6% vs IFRS cap rate of 5.6%, and assumes 7.1% for Americas, 6.25% for Europe and 5.75% for Australasia. Our NAVPU is $8.50 and leverage remains elevated for full next year.