Steady GroundFollowing the recent $885-million sale of its UK portfolio, NorthWest Healthcare Properties REIT is “on the right path to reaching steady ground within the next year,” according to National Bank Financial analyst Giuliano Thornhill. In research report released Tuesday in which he assumed coverage of the Toronto-based REIT, he emphasized balance sheet improvements from the sale, which concluded its strategic review process.
“The refreshed management team/board of directors has divested $1.6 billion in assets across geographies and lowered leverage by $1.2 billion,” he said. “Going forward, the biggest pain point for NWH’s outlook are its $125-million series G convert maturing March 2025, which has already been extended and is the highest costing debt within its capital stack (10 per cent). When accounting for an additional $180-million in dispositions within North America, proceeds from unit sales, and assuming lenders will be helpful regarding maturing lines/debt, we see NWH being in a liquidity position to address current maturities.”
“Looking out to next year, we estimate leverage metrics to be positively trending towards levels, albeit lower, near our coverage universe.”
Mr. Thornill thinks Northwest will get “interesting” for investors following the conclusion of the last batch of financing, which is currently under negotiations.
“We like NWH above the EBITDA line, and completing this last tranche of financing could provide some near-term earnings certainty that market participants can begin to rely on (street 2025 FFO/u [funds from operations per unit] estimates range from $0.44-$0.52, averaging $0.48),” he said. “In time, we see complaints concerning its balance sheet being put to bed, and NWH’s predictable lease structures begin to work for unitholders’ benefit. Lastly, we would not be surprised to see alternative assets like NWH start to catch a bid if the cracks that have sprung up in industrial/multi-family manifest into something else.
“There is lots to like in NWH, including its top-line visibility (long WALT), strong asset/tenant type (healthcare), and a refreshed management team/board to retell the story. We are keenly watching, and see NWH settling back towards normality in due course.”
“Turning increasingly confident” in his expectations for NWH, the analyst reiterated the firm’s “sector perform” recommendation and $5.50 target for its units. The average target is $5.71.