TSX:NWH.DB.G - Post by User
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incomedreamer11on Nov 19, 2024 8:48am
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Scotia comments after conference
Scotia comments after conference
Dare We Say - The Worst Is Behind Us
OUR TAKE: We think NWH can reclaim five handle on the stock. Six when we see clarity on CEO transition.
Cut to half: 2022, 2023 and 2024E delivered double-digits AFFOPU y/y declines (Exhibit 7) with cumulative total of 55% decline (earnings cut to half). Look at Interest Expense as % of NOI (Exhibit 3): as interest rates increased in mid-2022, Interest as % of NOI ballooned to more than half of NOI versus only one-third previously. Q2/25 will be the first quarter in almost three years, when AFFOPU is likely to show positive y/y growth (interest burden normalizing).
Yield is for real: Distribution yield is 7.4% and AFFO payout ratio normalizes to 80% in 2025 vs over 100% last year (Exhibit 2). Only name in our coverage with 7%+ yield and 80% or less payout ratio.
Handicap NAV discount: Scotia NAV at $6.50 (-$0.25) as NWH trading at ~25% discount to NAV. We see narrowing of NAV discount as 2025 debt maturities largely dealt with. For stock to trade closer to our NAV, market needs to be comfortable that new CEO will continue the turnaround (search process underway, current CEO until end of June 2025).
KEY POINTS
2025E AFFOPU estimates slightly reduced but still seen as a big recovery: Post in line Q3 results (details on page 6), our 2024E AFFOPU is reduced by 4% and our 2025 reduced by 8%. We see 17% y/y growth in 2025 and 10% y/y growth in 2026. UK portfolio sale was accretive to earnings (link to our previous note). While we don’t model incremental dispositions in our model, we suspect Brazil portfolio with IFRS value of $670M could be a disposition candidate (either some assets or outright). NWH has reduced its workforce by 16% and recorded one-time $3.8M of termination benefits costs, which will contribute $3.7M of annualized savings. We $15M of quarterly G&A expense, but see some downside to this number. Our 2025E AFFOPU estimate decreased mainly due to reduced NOI assumptions and increase in interest expense estimates.
Debt refinancing risk has significantly reduced (Exhibit 9) but leverage is still elevated: Only 14% (27% as of Q2) of total debt matures in 2025 vs 42% at the start of the year. $1.1B of total debt repaid, refinanced or extended since Q2/24. $735M of total debt repaid with 2024/2025 maturities, at an average rate of 7.64%. See our recent note titled 2025 Debt Maturities Largely Tackled for details. Now, $345M of debt maturing in 2025 - this includes $220M of property level debt which will be done in the normal course. Also, $125M of Converts which NWH intends to repay on maturity in March through proceeds from asset sales (including Assura PLC share sales).Balance sheet: Reduction in leverage as D/GBV (including Converts) at 57.3% as of Q3 which was down 320bp q/q. Leverage is still elevated and still a lot of wood to chop. For stock to trade at our NAV ($6.50) or closer to IFRS NAV ($9.00), we need another large portfolio disposition (ideally Brazil and some US properties).
Valuation: NWH trades at 10.9x 2025E AFFO multiple, ~25% discount to our NAV, and 7.5% implied cap rate. NWH valuation looks reasonable in the context of higher leverage and higher payout ratio – Exhibit 1. NWH distribution yield is 7.4% and our revised 2024E AFFO payout ratio is 94% and should normalize to 80% in 2025.